Refineries Deal Could Undermine Tender's Value

Ashdod refinery would return to state within 50 years, prompting bidders to drop their pricing.

Government sources yesterday expressed serious concern that the government-Oil Refineries agreement, according to which Oil Refineries (Bazan) assets will return to state ownership within 50 years, is liable to lower the value of tender for acquiring the Ashdod oil refinery by dozens of percent. The Government Companies Authority referred the matter to the state attorney general, seeking to hold an emergency hearing to solve the issue.

The agreement does not allow in practice full transfer of the Ashdod oil refineries' assets to the future owner. As a result, bidders are liable to set their offer significantly lower based on the possibility that they will be divested of their properties 50 years down the road. Price estimates for the Ashdod refinery float between $250 million and $500 million before the potential discounting.

The Finance Ministry legal department believes the buyer's rights regarding the assets must explicitly be defined while the Justice Ministry is currently not prepared to transfer the state's assets to a third party, as part of the state's legal process versus the Israel Corporation over the Oil Refineries agreement. In that agreement, the Israel Corporation returned its 26-percent stake in Oil Refineries.

The Ashdod refinery is currently in its final stages of a tender. The financial offers are expected during the third week of July.

Currently, five companies are competing in the tender, but associates involved in the tender expressed concern that various factors could drive the number of participants down to two. The competitors are Paz, Delek, Dor Alon, Sonol and a consortium involving Russia's Rosneft.

Experts believe Dor Alon and Sonol will drop out due to their merger unless the Supreme Court cancels the deal this week ? a distinct possibility.

If the Gaydamak-Nuriel deal with Sonol is completed, the company will become a central candidate, in contrast to expectations that it will drop out of the tender due to financial strains. The Delek Group is also prepared for the tender, having been instructed by the state that it will have to sell its holdings in natural gas supplier Tethys Sea (Yam Tethys) in line with the natural gas law.

Further progress in the break up and sale of the refineries was made last night when Finance Minister Abraham Hirchson and Histadrut labor federation chair Ofer Eini signed labor agreements to anchor and preserve workers rights. The signing culminated three months of negotiations after the two agreed to the basic principles.

The Finance Ministry noted that the agreements ensured worker cooperation during the refineries privatization while preserving their rights, setting severance conditions and layoff procedures, and determining the manner of hiring new staff.

The agreements also cover wages and bonuses in the wake of the break up and privatization.

Hirchson commented, "the break up and privatization process of the refineries is an example of implementing complex and significant economic reform while cooperating with the Histadrut and workers."

He said he intended to implement further reforms in similar fashion. According to Eini, "we proved in these negotiations that one can attain an excellent agreement for workers without strikes and instead with cooperation, fairness and in good spirits." Eini praised all those involved in negotiations process, including workers and treasury officials.