Government Panel Wants to Set Minimum Price for Dead Sea Rights

Draft proposal says state-owned enterprise should take license in lieu of minimum

Mineral deposits can be seen at the shore of the Dead Sea, Israel November 15, 2016
\ NIR ELIAS/REUTERS

The government will set a minimum price for the rights to mine Dead Sea minerals after Israel Chemicals’ license expires in 2030, and if it fails to find a bidder willing to pay the minimum, the rights will go to a newly formed government company.

That is the chief and most controversial of draft recommendations of a government committee headed by treasury chief economist Yoel Naveh that was leaked to the press on Sunday.

The committee’s central scenario assumes that a private sector company will take over the licenses but sees the option of a state-owned enterprise taking over the license, which includes rights to mine potash, bromine and magnesium, metal among other minerals. It even goes as far to suggest that the groundwork for a state-owned company begin to laid now.

The minimum price is aimed at ensuring real competition versus ICL when the rights are auctioned, which the committee said will probably be conducted the year before ICL’s license expires, although perhaps earlier.

The panel even suggested that foreign companies could participate in the auction, which would mark a change in policy after then Finance Minster Yair Lapid rejected a bid by Potash Corporation of Saskatchewan (now called Nutrien) to take control of ICL in 2013.

Shares of ICL ended down 1.7% at 14.63 shekels ($4.27) on the Tel Aviv Stock Exchange. ICL was a government company before being privatized and eventually taken over by the Israel Corporation, now controlled by Idan Ofer, in the 1990s.

The new terms risk making the auction unattractive to potential bidders. While the Dead Sea is considered a low-cost source of potash, potash prices have sunk by a third in the three years since the treasury committee was formed. Moreover, ICL – and any successor company – would be saddled with the cost of a salt-harvesting program to prevent the Dead Sea’s shrinking, a windfall profits tax and other costs imposed by Israel.

There was some positive news for ICL or whoever wins the Dead Sea rights in the committee’s report. Members weighed ending the controversial process of imposing royalties on downstream products made from Dead Sea Minerals.

The issue was at the center of a bitter dispute between the government and ICL, which continues even today. A 2016 decision by an arbitrator not only took the government’s side in the dispute but awarded its inflation-linkage and interest on past payments due, a figure ICL adds up to more than 1 billion shekels. The government is also seeking $120 million more on the grounds that ICL underestimated the royalties it owns.

The Naveh committee in its draft report recognized the environmental damage to the Dead Sea that’s been caused by mining, including declining water levels that have caused sinkholes develop along the shoreline.

To mitigate further environmental damage, the Naveh committee’s draft guidelines call for, among other things, reducing the size of the mining license area and requiring the license holder to cover the cost of any damage to the environment it causes. Significantly, it also would require the company to pay for the Dead Sea water it uses in the mining process.