Olmert's Aides, at Their Service

While Ehud Olmert was industry and trade minister from 2003 to 2006, his aides wielded pressure on the head of the ministry's Investments Center in order to determine which ventures received funding and grants, contrary to standard ministerial procedure, the state comptroller stated in a report published Wednesday.

The report focuses on the inter-ministerial involvement in and approval of a tourism project called Aquaria, a recreation park planned for north of Eilat. State Comptroller Micha Lindenstrauss said Olmert's conduct here was reminiscent of affairs including the Silicut factory, the Marina Group and Coca-Cola Israel.

"These cases join similar occurrences in which trade minister Olmert intervened directly or via his aides in Investments Center dealings," Lindenstrauss wrote in the report. "In all the incidents, the minister's aides apparently intervened in response to his instructions. This is 'a system' adopted by the minister's aides."

The Aquaria project was conceived by American entrepreneurs and was intended to serve first as a joint Israeli-Jordanian venture, and then as an Israeli project. The planners tapped Ran Peker as their representative in Israel. He was charged with handling negotiations with officials from the Industry, Trade and Labor Ministry, the Tourism Ministry and the Israel Lands Administration. These government agencies' approval was required for permits at various stages of planning.

Originally, the project was slated to cover 1,300 dunams north of Eilat currently leased to Kibbutz Eilot. The venture was believed to require a $350 million investment, though the sum was reduced to $100 million in an effort to improve its profitability and chances of gaining government support.

The project was modified following a series of economic feasibility studies between 2003 and 2007. Most indicated that the venture would do little for the economy. Despite this, the project's organizers were promised benefits including an exemption from holding a tender process, a $30 million grant and tax breaks.

Lindenstrauss noted that the project, which was once intended as a tourism venture, had become primarily a commercial initiative. As a result, the comptroller determined it is no longer eligible for grants and tender exemptions.

Lindenstrauss also noted that state regulations prohibit ministerial assistants from interfering in the technical work of ministries, and from issuing instructions to technocrats. However, two of Olmert's assistants - Oved Yehezkel (currently the cabinet secretary) and Doron Shofen - interfered with the authority of Investments Center director Shmuel Mordechai.

In July 2003, Yehezkel wrote Mordechai a letter and sent a copy to Olmert, then-Prime Minister's Office director general Avigdor Yitzhaki and Peker.

"Following our phone conversation regarding the Aquaria project, it has been agreed that the entire process will be completed, pending the following two steps, no later than the end of August: A) The project's approval as a licensed business endeavor, and B) The awarding of a grant as required."

Lindenstrauss ruled the letter indicated an attempt by Yehezkel to ensure in advance that the project would receive the necessary ministerial permits, before its economic feasibility was appraised. The Bank of Industrial Development is supposed to carry out this appraisal, and then give the go-ahead for a grant.

In addition, when the letter was written, the Investments Center had not yet held a comprehensive discussion on the matter. Nor had the Tourism Ministry's investment committee recommended the initiative, a necessary step for giving grants to tourism projects.

"The attempt by industry and trade minister aide Oved Yehezkel to predetermine the results of a deliberation by a statutory body damages proper administrative conduct," Lindenstrauss wrote. While the state comptroller was preparing his report, Yehezkel replied that the letter was written to brief the minister on the project's advancement. Lindenstrauss responded that Yehezkel's claim was inconsistent with the language of the letter.

One month later, Peker requested that Olmert write a letter of support for the project to an American bank, so it could get a loan. In September, Shofen, another Olmert aide, wrote to Mordechai, urging him to write the project manager a letter of recommendation, "particularly expressing possible support from the Investments Center ... given the fact that the matter is at the top of the minister's agenda." Mordechai did not write the letter.

"A letter of recommendation from a technocrat can be interpreted as a state obligation in the eyes of third parties to whom the letter is addressed," Lindenstrauss wrote. In response, Shofen's attorney wrote that such letters are routine procedure. Lindenstrauss responded that writing such an appeal before the relevant committees have made a decision is irregular and can be interpreted as a directive, contrary to state regulations.

A third instance where Olmert's aides unduly exerted influence occurred in December 2003, when they pressed for a meeting between Peker and Mordechai. Peker demanded that one of Olmert's aides be present at the meeting, even though this contradicted regulations: A ministerial assistant cannot take part in a discussion on technical matters in the absence of a minister. Shofen indeed took part in a meeting with Tourism Ministry officials, where both sides agreed on several steps to expedite the approval process.

Following the meeting, Shofen wrote to Yehezkel that a "despondent" Peker called him following the meeting.

"It is impossible to persuade [the management at the Investments Center] in its current makeup," Peker told Shofen. Yehezkel asked Shofen to tell Peker that he intended to intervene in the discussions. Yehezkel told the state comptroller that he did not actually intervene, and that any statements to that effect were meant to mollify Peker.

Lindenstrauss offered harsh criticism for Yitzhaki's role in the affair. Based on interviews with the press, Yitzhaki told kibbutz members that if they did not stop objecting to the project, the Prime Minister's Office would back plans to remove the Eilat Gulf fish cages, in which Yitzhaki claimed - falsely - that the kibbutz had a stake. Yitzhaki also said the kibbutz was trying to extort the state, and warned that no party could block the evacuation of part of its lands. Lindenstrauss deemed this to be inappropriate pressure.

In his defense, Yitzhaki replied that he did not believe the project would ever be realized, due to issues of funding, but did not wish to block determined entrepreneurs who demonstrated a readiness to invest their own money.

In November 2002, then-Tourism Ministry director general Aharon Domev recommended to Israel Lands Administration head Ya'akov Efrati that Peker receive "planning authorization" to allow him to advance the project, even though its economic feasibility had not yet been determined. In addition, the venture had yet to meet all the criteria for government approval. Despite this, Domev recommended the ILA accept a down payment of $250,000 from Peker as proof he possessed the financial wherewithal to contribute his share of the investment - 30 percent, totaling $100 million.

"The bizarre sum could not have served as evidence of the proprietor's financial wherewithal, given the venture was projected to cost hundreds of millions of dollars," Lindenstrauss wrote.

Despite the January 2003 report commissioned by the Tourism Ministry, which stated the project would not benefit its planners, the state or the public, Domev nonetheless recommended in June 2003 that the ILA authorize it, "in light of the investors' financial means and the project's economic logic." Lindenstrauss said the letter was baseless.

According to the state comptroller, Efrati awarded Peker a grant that amounted to "an illegal obligation." Efrati let Peker pay annual payments of 5 percent, instead of a one-time payment of 91 percent. This contravenes the ILA's usual policy, given the risk of default.

"The decision adversely impacted the ILA's cash flow while boosting the cash flow of the proprietor," Lindenstrauss noted.

In May 2006, over the objections of tourism and finance ministry officials, the ILA and Peker signed an agreement for the immediate development of the area. The two ministries wanted to use the agreement in order to solve fundamental differences with Peker.

In July 2005, Peker made many changes to the planned land allocation for the project. Though he trimmed down the size of the golf courses, the ILA did not remove that swath of land from the plan. The head of the ILA's southern division and the chairman of the district committee, Dudu Cohen, "astoundingly and unprecedentedly" yielded to the rezoning request so quickly that no objections were possible, a key component of the planning law, Lindenstrauss wrote.

Ultimately, the planning committee decided to forego zoning coordination with the kibbutz, which at the time submitted its reservations to the plan. The panel thus made life easier for Peker "for no apparent reason," Lindenstrauss said.

Another red flag in the deal was the identity of the American shareholders. The list changed a total of seven times, and the names on that list did not correspond with those submitted to the companies registry.

"On numerous occasions, the project included uncalled-for interference by directors general and aides to industry and trade minister Ehud Olmert, for the benefit of the project initiator, at times exceeding their bounds of authority, and despite the dubious economic feasibility of the venture," Lindenstrauss stated.

"First and foremost, a proper decision-making process in government ministries requires studies and evaluations by professional technocrats, [whose work] serves as the basis of decisions by ministers and directors general. In the case of the Aquaria project, the process was reversed: Directives were issued to the professional staff based on personal meetings and information given to the ministers and directors general by the proprietors, all prior to the completion of the technical staffs' evaluations. This conduct must be cast aside."