Intel Set to Ask Gov't for $300-$400 Million Grant for New Advanced Kiryat Gat Plant

The company is expected to present officials with a plan for the construction of a new chip plant at an investment of $3 billion to $4 billion.

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The management of Intel's Israeli operations will be seeking meetings in the coming weeks with officials at the finance and trade ministries, in an effort to gauge the extent to which state funding would be available to assist expansion of the chip-maker's production facilities in Kiryat Gat.

The company is expected to present officials with a plan for the construction of a new chip plant at an investment of $3 billion to $4 billion. It would be Intel's most advanced anywhere. Intel is thought to be seeking a government grant of about 10% of the cost - $300 million to $400 million. If the plan goes forward, it is expected to boost the company's labor force in Kiryat Gat by at least 3,000 employees.

The initial meetings are to be held with ministry staff, but at a later stage are expected to include the involvement of Finance Minister Yair Lapid and Industry, Trade and Labor Minister Naftali Bennett. Intel's management has already met and discussed the issue recently with Karnit Flug, the deputy governor of the Bank of Israel. Flug is a candidate to replace Governor Stanley Fischer, who retires at the end of the month.

Last year, Intel Israel received a commitment from the government to provide the company with about NIS 1 billion - which is somewhat under $300 million - to expand product in Kiryat Gat. However, the state attached conditions and Intel ultimately opted to build the planned facility in Ireland.

If the government makes a new commitment of the dimensions that Intel's executives in Israel are seeking, the expectation is that Intel's corporate bosses at its Santa Clara, California, headquarters would support the expansion.

On a worldwide basis, the company has been spending about $12 billion a year on upgrading its production facilities. Over the past year, this has involved plants in the United States and one in Ireland.

Intel came in for some criticism in Israel for repatriating so-called trapped profits - profits earned under special investment encouragement legislation, which indirectly provided funding for its expansion in Ireland. At the same time, however, Intel did invest about $1.1 billion in its Kiryat Gat production facilities.

If Intel's Israel officials get a commitment from their California overlords to proceed with the new expansion plans in Kiryat Gat, construction is expected to take about a year and a half. The most likely scenario at this point appears to be that Intel would take back the adjoining plant in Kiryat Gat that it had leased to Micron Technology.

Micron has a long-term lease on the building but Intel has a right of veto over the transfer of the facility to any third party. Last year, Micron announced that it would cease production at the plant within two years and would seek to assign its lease there.

One of the main questions under any scenario is what will happen to the 1,000 or so people currently working at the Micron plant. If Intel takes back possession of the plant for use in a new facility and recruits former Micron employees, Intel would expect to save itself about a billion dollars. A final decision is thought to depend on the extent of the state's willingness to provide a grant for the expansion, which in turn could affect whether a new, higher capacity facility might be built rather than renovating the Micron building. The cost of an entirely new facility is estimated at $4 billion to $5 billion.

The nature of the computer-chip business requires periodic technological upgrades to maintain competitiveness. After several upgrades, it is common for Intel to then transfer use of the facility to a third party, as occurred with the lease to Micron after Intel built a new adjoining plant in the southern city.

In recent years Intel has scaled back the number of production facilities it operates around the world. In the United States, its production operations are primarily in Oregon and Arizona. Israel and Ireland are in competition over where the company's major facilities outside the United States will be.

Intel Israel's current facility in Kiryat Gat will be expanded and upgraded under the company's plan.Credit: Eliahu Hershkovitz

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