The committee for examining royalties paid to the state for the commercial use of natural resources – dubbed "Sheshinski II" – met for the first time Monday.
The Sheshinski II Committee will recommend the rate at which the state should be paid royalties for the commercial use of all natural resources except oil and gas. Sources say it will probably recommend a model combining a fixed-rate tax and royalties, varying according to the type of mineral mined or extracted, similar to the model recommended by the first Sheshinski Committee on oil and gas royalties. That committee determined that the state's share in the profits of production companies will be 50% to 60%, depending on the size of the reservoir, alongside the 12.5% in royalties already in force before the committee released its recommendations.
What is the committee tasked with accomplishing?
According to its letter of appointment, the committee should submit its recommendations within a year on the entire fiscal system currently in place concerning the state's share from the use of natural resources by private entities. It should formulate an updated fiscal system based on fundamental principles concerning the state's share, along with determining appropriate arrangements for the various resources and their uses.
The committee will review existing agreements between the state and natural resource users. It will also examine the application of principles to be formulated with regard to Dead Sea minerals, and offer its opinion on the agreement signed in July 2012 with Dead Sea Works of the Israel Chemicals group, and in light of the interest expressed by Canada's Potash Corporation of Saskatchewan in acquiring a controlling stake in Israel Chemicals.
What minerals and companies will the committee concern itself with?
The foremost minerals are potash and phosphates mined by Israel Chemicals. Also to be examined are mud from the Dead Sea used by Ahava Dead Sea Laboratories in the making of skin care products; mineral water bottled by Mayanot Eden (Mei Eden) and Neviot; metals such as those produced at the Timna mines; and sand, quartz, gravel, clay, gypsum, limestone, red loam, dolomite, basalt and tuff.
What royalties are paid currently?
The state estimates its royalty revenues from natural resources, until concessions granted to companies are due to expire, at NIS 16.6 billion before recommendations by the Sheshinski II Committee are put into effect. These include NIS 10.15 billion from oil and gas, NIS 4.5 billion from potash, NIS 1.8 billion from sand and gravel, and NIS 150 million from phosphates. Gas royalties are calculated for the next 29 years, potash royalties until 2030, phosphate royalties for the next 20 years, and sand and gravel until the expiration of concessions held by quarrying companies.
The breakdown of royalties paid in 2012 includes NIS 450 million for potash and bromines from Dead Sea Works, NIS 227 million for oil, gas, and phosphates, and NIS 159 million for sand, gravel, the development of gas stations, and leases by the Israel Airports Authority. Royalties received by the state last year, including the transportation and communication ministries but not including royalties paid to the chief scientist at the Economy Ministry, amounted to NIS 1.67 billion, compared to NIS 1.75 billion in 2011.
Who sits on the committee?
The committee is chaired by Prof. Eytan Sheshinski. Its members include Alona Shefer-Karo, who is stepping down as director-general of the Environmental Protection Ministry; Accountant General Michal Abadi-Boiangiu; Israel Tax Authority chief Moshe Asher; Deputy Attorney General Avi Licht; Economy Ministry director-general Amit Lang; Energy and Water Resources Ministry director-general Shaul Zemach; Eugene Kandel, head of the National Economic Council; Amir Levy, head of the treasury's budget department; Michael Sarel, head of Economics and State Revenue Administration at the treasury; Adi Brender, head of the macroeconomics and policy division in the Bank of Israel's research department; and Yossi Vertzberger, head of the natural resources licensing administration at the Energy and Water Resources Ministry.
What conflicts are likely to arise in the meetings?
According to sources, the main battle will be with Israel Chemicals, which doesn't want its tax rate tampered with. It claims to already pay 41% of its pretax profits to the government and will be paying 50% in upcoming years. The treasury disputes the company's calculations, which include a 15% tax on dividends that wasn't taken into consideration by the first Sheshinski Committee. The state is also likely to set a higher rate for royalties paid on the mining of phosphates by Israel Chemicals and its subsidiaries.
How much does Israel Chemicals pay in royalties?
According to the company's 2012 financial statements, its sales amounted to $6.7 billion, 53% of that from fertilizers. Revenues from potash derived mainly from the Dead Sea, but also mined in Britain and Spain, totaled $2.2 billion, and sales of phosphates mined in the Negev totaled $1.7 billion. Israel Chemicals reported paying $125 million in royalties on these. Israel Chemicals pays an average of 8% in royalties on sales of potash produced from the Dead Sea.
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