Feb. 20--"Dead Sea Works has violated, and violates, the provisions of its franchise, and exploits the public's natural resources at the Dead Sea to enrich its shareholders at the expense of the Israeli public. The public's right to benefit from its share, however limited, of this resource, has been taken away," argued the state in its suit against Dead Sea Works, a unit of Israel Chemicals Ltd. (TASE: ICL), controlled by the Ofer family through Israel Corporation (TASE: ILCO).
The government claimed that Israel Chemicals had not paid NIS 291 million in royalties on mining minerals in the south since 2000. The claim was filed in March 2011, and was sent to arbitration before a panel of Judge (Emeritus) Tova Strassberg-Cohen, Adv. Ram Caspi, and Adv. Alex Hartman.
The arbitration documents were sent to the Ministry of Finance on Wednesday for publication, at the order of the Supreme Court. The court ruled in favor of of the Israel Union for Environmental Defense and Movement for Quality Government in Israel, and against Israel Chemicals' appeal against the publication, on the grounds that it would reveal commercial secrets.
In the statement of claim, the government argued, "The conduct of Dead Sea Works, besides contravening the provisions of the law, are endlessly infuriating. A party whose share of the country's natural treasures is many times greater than the share of the public is even seeking to further increase its share at the public's expense. Let there be no mistake: every shekel that Dead Sea Works' shareholders pocket is taken from the government, and in practice, from the public."
Six weeks ago, the government and the Dead Sea Works submitted their summaries to the arbitrators and they are now waiting for the ruling. The arbitration began after the government doubled the royalties rate that Israel Chemicals pays on mining potash from the Dead Sea from 5% to 10%. The hike was made as part of a broader agreement between the parties, under which Israel Chemicals will finance the salt mining at the Dead Sea at a cost of NIS 4 billion.
In its statement of defense to the government's claim, Dead Sea Works said, "The method of calculating the royalties has been consistent and uniform since the franchise came into effect. It was and is known and agreed by everyone, particularly the government, which established the method and got it going."
Dead Sea Works adds, "The government's statement of claim is populist, demagogic, and creates a distorted and incorrect picture. It deliberately stains Israel Chemicals and its subsidiary and is 'angry' that the company is making a profit. It expresses this anger in an irrelevant way that is unfitting for a government." It goes on to say, "The statement of claim tries to lower the government's dominant and actually decisive role in the method for calculating the royalties, and possibly even seeks to ignore this completely. In fact, the government is complaining about itself and projecting its fury onto others, because it is involved in the establishment of the method for calculating the royalties."
Accountant General Michal Abadi-Boiangiu attended the arbitration hearing in March 2012. She said that notwithstanding the salt harvesting agreement between the Ministry of Finance and Israel Chemicals, "The government's take from Dead Sea Works profits are unclear... The sovereign is not worrying about its share, but the share of the general public. Part of the sovereign's job is to ensure fair taxation in the distribution between the government and businesses. It is the government's responsibility to periodically review tax rates in all kinds of industries to create a fair and proper rate."
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