Treasury: Israel Needs Cement Imports

Controls over Nesher, which has 85% market share, aren't effective, study says.

The Nesher cement monopoly should face competition from imports, say sources at the Finance Ministry after a comprehensive study of the state of the housing market and of how Nesher's cement monopoly affects housing prices.

Nesher belongs to the IDB group of companies, which in turn belongs to Nochi Dankner, the Livnat family and the Manor family. Nesher has an 85% share of Israel's cement market - and that's down from 95% in the past. (A single cement importer controls the other 15%. )

nesher - Alon Ron - August 3 2011
Alon Ron

The Finance Ministry confirmed yesterday that in general, it aspires to open the cement market to competition and is studying the issue with officials from the Housing Ministry and the Ministry of Industry, Trade and Labor.

Just last week, Knesset member Einat Wilf urged the government to open the cement market to competition in order to reduce housing prices. "Nesher's monopoly contributes in no small portion to the high housing prices," she claimed, adding that the company had been aggressively campaigning against cement imports.

A full two and a half years ago, an interministerial inquiry into the cement industry concluded that Nesher was earning tens of millions of shekels a year more than it would have if price controls had been effective.

Since Nesher has a monopoly over cement, its prices are set based on a formula created by accountant Yitzhak Swary called "the Swary formula." The Industry, Trade and Labor Ministry is responsible for overseeing the use of the formula.

Yet two and a half years back, the treasury decided that the formula "wasn't effective" in keeping cement prices under control. As evidence for this conclusion, it pointed out that Nesher was charging more than "market prices" - meaning reasonable prices for this region of the world.

Despite the treasury's urging, the industry ministry never changed the formula. The whole issue faded away, as more urgent matters arose.

Now government officials feel a new sense of urgency regarding the Nesher cement monopoly thanks to the spreading protests, which are about a host of issues but focus on chiefly high housing prices. The possible courses of action include amending the "Swary formula" to render it effective and to remove barriers to cement imports.

Would-be cement importers explain that the barriers include constraints involving shipping bulk powder, which involves difficulties in unloading and storage at the Ashdod Port. The strikes at the port are also a sort of barrier, they say, as are "unloading policies" - a ship can be stuck floating outside the port for days, waiting to be unloaded, which leads to mounting costs.

The treasury says cement prices' true contribution to high home prices can't be estimated accurately, but to dismiss it as being minor is "demagoguery."

The Livnat family, which also owns a controlling interest in IDB and Nesher, is expected to wield very costly experts to fight the government's moves to expose cement to imports, said government sources.

To be sure, it wouldn't be the first time Nesher has had to fight the good fight against competition. Ten years ago it managed to kill off cement imports from Turkey, Romania and Jordan, claiming the competing cement was being sold at dumping prices, meaning less than the home-market price. In principle, dumping contravenes international trade codes.

Nesher commented that as a supervised monopoly, its cement prices and profitability are supervised and subject to approval each year by the Ministry of Industry, Trade and Labor. "It must be stressed that prices of cement produced by Nesher have not risen in the last three years despite the steep increase in costs of energy, and also, that the cement market is open to free competition and there are no limits or quotas on the import of cement," the company stated. "We hope your ludicrous claims about Nesher and your bizarre conduct regarding coverage of the company's business are not driven by alien motives."