Is­rael seeks early re-tender of min­ing rights to shore up Dead Sea

Kuwait Times - - Analysis -

The Dead Sea is shrink­ing at the rate of about a meter a year, leav­ing be­hind de­serted beaches and sink­holes in a slow-mo­tion en­vi­ron­men­tal disas­ter. The main cul­prit is the dry­ing up of the Jor­dan River, its main trib­u­tary, as com­mu­ni­ties up­stream draw on it for farm­ing and drink­ing. But min­eral ex­trac­tion makes the cri­sis worse - of the 700-800 mil­lion cu­bic me­ters of wa­ter lost each year, 250-350 mil­lion cu­bic me­ters is due to min­ing, Is­rael es­ti­mates.

Up to now, the Is­raeli gov­ern­ment has rarely in­ter­vened in the op­er­a­tions of the big­gest ex­trac­tor: The Dead Sea Works, for­merly state-owned and now op­er­ated un­der a 70-year con­ces­sion by Is­rael Chem­i­cals (ICL). That is about to change. Is­rael wants to re-tender the Dead Sea min­ing con­ces­sion as much as eight years ahead of sched­ule, in 2022. It is mo­ti­vated not only by en­vi­ron­men­tal con­cerns but also by wor­ries ICL will hold off on new in­vest­ments in the con­ces­sion’s fi­nal years.

The gov­ern­ment be­lieves ICL will agree to its pro­posal, first be­cause the firm will have the right of first re­fusal but also be­cause it too has a pow­er­ful rea­son to scrap the cur­rent con­ces­sion: an ar­ti­cle that gives the gov­ern­ment the rights to in­ter­fere in in­vest­ments start­ing in 2020. The plant is one of ICL’s core assets, pro­duc­ing potash that goes into fer­til­iz­ers, bromine for flame re­tar­dants and other prod­ucts sold for bil­lions of dol­lars world­wide.

The com­pany, con­trolled by bil­lion­aire Idan Ofer’s Is­rael Corp, has not made its po­si­tion clear. It de­clined to give an im­me­di­ate com­ment on its stance when con­tacted by Reuters. “This is a one-time op­por­tu­nity, as the con­ces­sion comes to an end and we en­ter a new pe­riod, to set stan­dards for the fac­tory’s op­er­a­tions and the en­vi­ron­men­tal im­pact on the whole area,” said Galit Co­hen, deputy direc­tor-gen­eral for pol­icy and plan­ning at the En­vi­ron­men­tal Pro­tec­tion Min­istry.

Co­hen was on the high-rank­ing in­ter-min­is­te­rial com­mit­tee that pro­duced a pre­lim­i­nary re­port in May with guide­lines that aim to bal­ance prof­its with en­vi­ron­men­tal in­ter­ests in the Dead Sea for the first time. At the mo­ment, ICL is largely free to do what­ever it wants to max­i­mize pro­duc­tion, Co­hen said, speak­ing to Reuters un­derneath a date tree on a north­ern beach at the lake. “They have no in­cen­tive to re­duce the amount of wa­ter they pump or think about from where they get the earth to build their dikes,” she said.

The Dead Sea has been pop­u­lar for mil­len­nia for health seek­ers and tourists who come to float in its high-den­sity wa­ters and smear its mud on their skin. With­out in­ter­ven­tion, it will keep los­ing wa­ter, es­sen­tial to the min­eral ex­trac­tion process, though ex­perts be­lieve it may even­tu­ally reach equi­lib­rium at a much smaller size. ICL said in a July 5 let­ter to the com­mit­tee that its re­port raised “com­pli­cated le­gal, eco­nomic, op­er­a­tional and en­gi­neer­ing is­sues, and ICL has sig­nif­i­cant reser­va­tions about part of what was said in it”. “The com­pany is study­ing the re­port and will re­late to it as cus­tom­ary within the frame­work of the pub­lic hear­ing,” ICL said in a state­ment to Reuters. In its 2017 an­nual re­port, the com­pany said its abil­ity to re­fi­nance debt in the next decade “... de­pends, among other things, on ex­ten­sion of the con­ces­sion beyond 2030.”

Set­ting lim­its

The fac­tory’s new li­cense, whose term has not been set, will in­clude pump­ing lim­its cou­pled with fi­nan­cial in­cen­tives to use less wa­ter, the com­mit­tee’s re­port said. The amount of ter­ri­tory open to quar­ry­ing and drilling for wells will be re­duced. Fi­nal rec­om­men­da­tions due around Septem­ber are not ex­pected to dif­fer ma­te­ri­ally from the in­terim re­port’s, said a se­nior gov­ern­ment of­fi­cial, who asked not to be iden­ti­fied given the sen­si­tiv­ity of the is­sue. “We think ev­ery­one has an in­ter­est in mak­ing the tender ear­lier,” the of­fi­cial said. “The value of the as­set gets lower as we get closer to the end of the con­ces­sion pe­riod and it’s un­clear what will hap­pen af­ter 2030.”

When the com­pany was pri­va­tized in the 1990s, the gov­ern­ment kept a “golden share” that gave it some over­sight, in ad­di­tion to the obli­ga­tion un­der the terms of the con­ces­sion that the com­pany seek its ap­proval for any new in­vest­ment. Michael Va­tine, an an­a­lyst with Hal­man-Al­dubi In­vest­ment House, said ICL was likely to want to avoid a decade of close gov­ern­ment scru­tiny. “I think the com­pany un­der­stands it needs to clear the fog re­gard­ing the long-term ... and not leave its in­vestors feel­ing un­cer­tain,” he said.

With rev­enue of $5.4 bil­lion in 2017, ICL man­u­fac­tures a range of prod­ucts from in­dus­trial chem­i­cals to food ad­di­tives. It is the world’s sixth-largest pro­ducer of potash and sup­plies about a third of the world’s bromine, used in fire re­tar­dants. The com­pany does not share pub­licly how much of its rev­enues come from the Dead Sea, where it also mines mag­ne­sium and salts. Costs at the fac­tory are lower than at con­ven­tional mines, which are of­ten hun­dreds of me­ters deep. So­lar evap­o­ra­tion is less en­ergy in­ten­sive and the cli­mate al­lows moun­tains of potash to be stored out­side and sold when prices are high.

Ac­cord­ing to their an­nual re­ports, ICL pro­duced 3.7 mil­lion tonnes of potash at the Dead Sea in 2017 vs 2.1 mil­lion tonnes ex­tracted by Arab Potash, which has ex­clu­sive rights on the Jor­da­nian side that ex­pire in 2058. As ICL de­scribes it, there is a vir­tu­ally un­lim­ited sup­ply. Bid­ders in a new tender would likely in­clude the usual sus­pects from the small num­ber of lead­ing potash pro­duc­ers, in­clud­ing Rus­sia’s Ural­kali, Ger­many’s K+S AG and Canada’s Nutrien, the re­port said.

Com­mit­tee chair Yoel Naveh said it was pos­si­ble com­peti­tors would be scared off by ICL’s nu­mer­ous ad­van­tages: not just right of first re­fusal but also its deep knowl­edge of the project. “The state needs to set a price and be­low that not give it to a pri­vate con­ces­sion­aire,” he told par­lia­ment in June. If the min­i­mum failed to be met, the state should take over, he said. If some­one else won, ICL would be com­pen­sated, he said, with­out nam­ing a fig­ure. —

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