Israel’s Finance Ministry is suing Dead Sea Works for $291 million plus interest for the back payment of royalties from the company for the production of potash at the Dead Sea. The Finance Ministry confirmed to Green Markets that a civil suit was filed by the office of the accountant general, the state attorney’s office, and a leading private law firm.
The Finance Ministry charges that Dead Sea Works, a subsidiary of Israel Chemicals Ltd. (ICL), the country’s largest chemical concern, failed to transfer to the ministry all data pertaining to the mining operations of potash under the terms of the company’s concession. The ministry said that this prevented it from presenting the court with an exact amount in the suit that pertains to royalties from 2000-2009.
The Finance Ministry initially said that the state treasury was owed $115 million in royalties. However, the ministry asked for a recalculation last year by Professor Haim Ben Shahar, a leading economist who has his own economic consulting service. The suit is based on the recent assessment.
The breakdown of royalties for potash and bromine production is as follows: $145 million for bromine, $45 million for potash, and $76 million in royalties from indirect potash sales to third parties. The rest is interest for the period 2000-2009.
The suit is part of the government’s policy to enforce the royalty agreements on natural resources. The suit comes in the midst of a lengthy arbitration process between ICL and the Israeli government. The Finance Ministry made it clear during that process that it plans to raise the royalty level on potash and magnesium from 5 percent to 10 percent on all production above 3 million tons starting in 2010.
In response, ICL said it is studying the suit and weighing its options, including presenting a counter suit against the government. ICL has denied any wrongdoing and rejects claims that it owes the state money. The company said it has used the same accounting practices that were employed when ICL was state owned and that were accepted by the Finance Ministry.
Israeli Finance Ministry officials said that the suit is the first stage of the arbitration process. The agreed-upon arbitration is for an arbitrator for each side and a third party who has to be agreed to by ICL and the Finance Ministry.
A past attempt to appoint an arbitrator was unsuccessful. The two sides had agreed to the appointment of former Finance Ministry director general Aharon Fogel. However in November 2010 Finance Ministry accountant general Shuki Oren objected to Fogel because of his connections with Nir Gilad, a former senior Finance Ministry official who served under Fogel and who is now the CEO of Israel Corp., which holds a majority stake in ICL.
In other news, ICL has signed an agreement with a syndicate of 17 banks for a $675 million five-year credit line. Most of the banks are foreign, including banks from North America, Europe, and Israel. The company said in its statement that $225 million of the credit line will bear interest of LIBOR+0.8 percent, and on the additional amounts the interest rate of LIBOR+0.15-0.3 percent.