ICL pressing Netanyahu to drop Sheshinski II

Dead Sea Works picture: Tamar Matzapi
Dead Sea Works picture: Tamar Matzapi

Some of the prime minister's advisors have been persuaded to remove the Sheshinski II Committee recommendations.

The leaders of Israel Corporation (TASE: ILCO - Israel Chemicals (TASE: ICL: NYSE: ICL) are stepping up their pressure on decision makers in the Prime Minister's Office, the Ministries of Finance and the Economy, coalition and opposition parties leaders, and MKs in an effort to have the Sheshinski II Committee recommendations removed from the Economic Arrangements bill. The lobbyists are also taking the opportunity to arrange a number of other outstanding issues between their companies and the state: implementation of the arbitration ruling, a probe of the state's golden share in ICL, and above all extension of ICL's franchise, and perhaps formulation of a new franchise agreement. The efforts have included company employees in the south contacting their political representatives.

It seems that the Attorney General's ruling against removing the Sheshinski II Committee's recommendations from the Economic Arrangements bill has not slowed down the ICL leaders in their struggle against the Ministry of Finance. Attempts to remove the recommendations are continuing through the Prime Minister's Office through imposition on the Ministry of Finance from above.

The current phase of ICL's campaign commenced with a meeting between Prime Minister Benjamin Netanyahu and Israel Corporation controlling shareholder Idan Ofer and Israel Corporation strongman and ICL chairman Nir Gilad. One of the participants explained the meeting by Israel Corporation's wish to attempt to explain, and even to apologize, to Netanyahu about the impression created that Israel Corporation had taken advantage of the election campaign and Netanyahu's unsatisfactory position in the pre-election polls to exert pressure (some use the term "extortion") through the prolonged strike during the election campaign, and to weaken his political power among the workers, who tend to be Likud voters, especially in the south. The meeting took place in a business-like atmosphere, but according to those present, Netanyahu appeared very distant from his guests.

Nevertheless, senior sources in the Prime Minister's Office are continuing their contacts with Israel Corporation, and at least some of them have apparently been persuaded that the removal of the Sheshinski II Committee recommendations on charging the company an excess profits tax from the Economic Arrangements bill for the 2016 budget should be seriously considered, to be followed by renewed discussion. As of now, Netanyahu's position is against removal of the recommendations.

The Sheshinski II recommendations on the proceeds received by the state from the use of its natural resources include an excess profits tax with a maximum rate of 42% and uniform 5% royalties on all natural resources from 2017. The excess profits tax will be differential, and will be imposed in any case in which the company's return exceeds 14%. The Ministry of Finance believes that implementation of the Sheshinski II recommendations provide the state with more than NIS 500 million a year in added revenue, mostly from ICL.

Minister of Finance Moshe Kahlon has up until now refused to hold personal meetings with the heads of the Israel Corporation-ICL, who have chosen to write him a letter setting forth their stand. Kahlon is insisting that the Sheshinski II recommendations be brought before the Knesset in the framework of the Economic Arrangements bill, and that is also the position of the Ministry of Finance professional echelon. At the same time, senior officials in his ministry, both new ones and veterans, continue to conduct regular contacts with the heads of the Israel Corporation-ICL, led by Nir Gilad, who feels at home in the Ministry of Finance, and visits it regularly. As far as is known, some of them are sympathetic to the position of ICL management, and are taking steps, not always openly, to convince people that the Sheshinski II recommendations should be removed from the Economic Arrangements bill, arguing that these recommendations deserve their own discussion, including reconsideration of the recommendations themselves, while instituting "minor" changes, as they describe them.

As of this week, these officials sympathetic to Israel Corporation's position had not managed to convince the prime minister or the Minister of Finance to remove the recommendations from the Economic Arrangements bill and/or revise them. At the same time, talks by various parties are taking place with ministers from coalition factions and MKs on the Knesset Finance Committee about removing Sheshinski II from the Economic Arrangements bill and conducting a "democratic discussion that takes into account the needs of the south and the enormous investments that Israel Corporation wishes to make."

Removal of the Sheshinski II recommendations is not the sole topic that Israel Corporation officials are concerned about, and is not even the main one; they are pursuing something more current and immediate. The company is seeking a "package deal" dealing with more than a few issues. Its list of demands includes calculating the royalties arbitration ruling by Judge (ret.) Tova Strasberg-Cohen, who ruled unequivocally in favor of the state's demand for back royalties, in a way that will significantly reduce the company's costs; halting the thorough probe in the Ministry of Finance accountant general's office of concern that the company violated the terms of the state's golden share, which is liable to lead to sanctions against the company; and the most important matter question that Ofer and Gilad have to bring up with the prime minister and minister of finance: extension of the company's current franchise, and preferable the signing of a new multi-year franchise agreement on new and preferable terms as soon as possible. The current franchise agreement expires n 2030. As part of the Sheshinski II recommendations, a team was set up in the Accountant General's office to determine the level of compensation that the state will give ICL at the end of the franchise agreement for its investments over the years in general, and towards the end of the franchise period in particular. What has not yet been formed, although a decision about it was taken months ago, is the government team for determining the state's estimates for the end of the franchise period, and its future policy.

Prime Minister: No decisions have been taken

The Prime Minister's Office said, "The prime minister believes in regular direct dialogue between the government and the business sector, and during his entire term in office has taken care to emphasize the fact that the engine powering the economy is the private sector, which makes a substantial contribution to growth and job creation. As a result, regular meetings are held with the prime minister in order to hear their positions, including the meeting several weeks ago with the heads of ICL-Israel Corporation, with the participation of the Prime Minister's Office director general and other professional parties. In contrast to what has been asserted, no decisions have been taken, and the matter at this stage is not on the agenda. Throughout the prime minister's term in office, this has led to the Israeli economy's successfully weathering the global crises, and unemployment in Israel is at its lowest point in the past 20 years."

The Minister of Finance's office said, "The minister is not holding meetings with the leaders of Israel Corporation. We support the Sheshinski II recommendations, which are part of the Economic Arrangements bill."

ICL said, "ICL is presenting to the government a NIS 5 billion program for investment in the Negev in pursuance of the government's decisions and commitment to ensure and encourage investments and employment in the Negev, especially the eastern Negev. In recent months, ICL has been conducting a continuous dialogue with the parties involved in the government and the Knesset. In this framework, ICL is presenting an investment program for the coming years of over NIS 5 billion in various projects in the eastern Negev. In addition, ICL is present complete information about the effect of the government decisions on the business environment with which ICL is coping, which does not allow further investment in Israel, and is liable to significantly detract from current employment and business activity, especially in the magnesium, bromine compounds, and phosphate-based enterprises.

"ICL is aiming at a business environment that will make Israel competitive vis-a-vis most countries in the world and a stable and certain business environment that facilitates long-term planning and investment. ICL finds an attentive ear in the government ministries, and agreement that there is room for revision of the distortions in the Sheshinski II Committee conclusions, and understanding that ICL's huge investments in the Negev will bring about growth and development and encourage employment and commerce, to the benefit of the residents, the workers, the state, and the company. ICL hopes that the dialogue will lead to proper arrangements on an array of topics that will enable it to renew its investments in Israel, after these investments were halted in March and August 2014 by a decision of the board of directors."

Published by Globes [online], Israel business news - www.globes-online.com - on July 30, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Dead Sea Works picture: Tamar Matzapi
Dead Sea Works picture: Tamar Matzapi
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