If the government chooses to significantly raise royalties or taxes connected to mining mineral resources, companies like Israel Chemicals (ICL) may have reason to turn elsewhere, the firm’s CEO warned on Monday.

“The world today does not need the 3.5 to 4 million tons from the Dead Sea,” said Stefan Borgas, president and CEO of ICL. “Why is Israel discouraging us from fighting for our lives in this country?” Borgas was addressing members of the Sheshinski Committee 2, headed by Prof. Eytan Sheshinski, which aims to examine the state’s royalty policies for exploitation of natural resources. The purpose of establishing the new committee, an initiative of Finance Minister Yair Lapid, was to ensure that the state is receiving proper compensation for private use of national natural resources. At the moment, Dead Sea Works, a subsidiary of ICL, pays the government 10 percent in royalties for the mineral resources the company exploits.

Approved by the Knesset in March 2011, the conclusions of the first Sheshinski Committee determined a new taxation method for the exploitation of Israeli oil and gas, resources that are not under review again in Sheshinski 2. The new legislation kept gas and oil royalty rates intact at 12.5% but increased profit levies initially to 20%, enabling them to eventually rise to 60% by means of an “R-factor” formula – with net cumulative revenues divided by exploration and development expenses.

At the Monday meeting, Borgas emphasized that natural resource mining is actually only a small component of ICL’s operations, in comparison to its development and use of various technologies in the agricultural, food and engineered materials sectors.

Among the end products that ICL produces are fertilizer, very sophisticated food ingredients and improved industrial materials, such as those with reduced flammability. ICL also owns power facilities and provides desalination technologies to Israel and the rest of the world, Borgas explained.

“This is what ICL does, build a long value chain,” he said. “We do not scoop up a cup of water from the Dead Sea and sell it to a farmer.”

Between raw materials and the end customer stands billions of dollars worth of investments and technologies, according to Borgas.

Praising his company for increasing its annual potash output to 4 million tons, Borgas said that ICL was able to do so without significantly raising Dead Sea water use. Potash is mined and manufactured salts containing potassium in a water-soluble form. Effective plant fertilizers need nitrogen, phosphate and potash, he explained.

Israel is the source of 50% of ICL sales, as well as home to 45% of the company’s employees and 35% of its public stakeholders, Borgas told committee participants. ICL directly exports 95% of everything it makes in Israel, and 4% goes to Haifa Chemicals, which also exports the products.

“Israel Chemicals is named Israel Chemicals for a reason,” he said. “Israel is our home base and it will stay our home base, and it means a lot to us.”

Despite the fact that Israel is ICL’s home, Borgas explained that investing in Israel has become very unprofitable in comparison to countries like Spain. Other countries around the world with large potash reserves are doing more to incentivize companies interested in producing the resource, he added.

Warning that there could be a harsh reality if ICL investment amounts fall too low, Borgas reminded committee members that the company’s Dead Sea concession with the government ends in 2030 – an amount of time that he described as “a blink of an eye.”

A process of seeking out alternatives elsewhere has already begun, as ICL’s trust in “the decision-making speed in the government is not very high,” Borges said. On phosphates specifically, ICL has been losing money in Israel since October 2013 and already had to lay off 127 employees. Without export increases and permit approvals, the company cannot raise the number of jobs, Borgas stressed.

“The government is on the highway itself to reduce its own revenues and to reduce the exports of the country,” he said.

Although in response to Borgas’s statements, Sheshinski acknowledged that a government outsourcing resources to private enterprises must provide business incentives, he also stressed that “at the same time we have to look for a balance.”

To this, Borgas retorted, “This balance gives us a lot of hope, because we are already out of balance now.”

Please LIKE our Facebook page - it makes us stronger