Sheshinksi to head 2nd c'tee on natural resources

Lapid announces that new committee will examine how to tax natural resources such as water and potash.

By
June 17, 2013 17:22
3 minute read.
Eytan Sheshinski

Eytan Sheshinski 311. (photo credit: Marc Israel Sellem/The Jerusalem Post)

Eytan Sheshinski, the professor who headed the state’s committee on taxing oil and gas, will head a second committee examining how to tax other natural resources, such as water and potash, Finance Minister Yair Lapid announced Monday.

The question of what royalties the state should receive from private companies mining its natural resources aims to both incentivize investment by private companies, typically considered more efficient than public utilities, while also ensuring that all of Israel’s citizens benefit from the resources’ extraction by adding to the government’s coffers.

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The committee was formed, given the “lack of uniformity in policy regarding payments to the state for the use of a variety of national natural resources other than gas and oil,” Lapid said, and will present its results by June 2014. In its evaluations, the committee will consider the current systems already in place, create a set of basic principles based on the different resources at hand and their application in extenuating circumstances.

For example, the government in recent months prevented an attempt by Canada’s Potash Corp. to acquire Israel Chemicals (ICL), fearing that the foreign company could simply move operations to the Jordanian side of the Dead Sea, resulting in massive layoffs and an economic downturn in the Negev.

Though pledging to cooperate with the committee and pointedly reminding the government that its royalties had already doubled recently, ICL also said it “regrets that Professor Sheshinski has already published certain opinions before the committee has begun its work, resulting in the spread of inaccurate and misleading facts and figures.”

The company’s shares fell to a 19- month low following the announcement, Bloomberg reported.

Opposition leader Shelly Yacimovich accused Lapid of “pulling a rabbit out of a hat” to distract the public from harsh measures in his budget, which was being considered by the Knesset on Monday evening.



“The taxation of natural resources could, at least in part, have been imposed today,” she said. “I propose to Lapid to establish a Sheshinski Committee on the NIS 15 billion in taxes he is imposing on ordinary people.”

Earlier in the day, prior to the announcement, Yacimovich called on Lapid to investigate the sale of Eden Spring waters to the US-based Rhone Capital, demanding that he specify the royalties that would be paid for the natural resources.

“How much in royalties will the buyers pay the state treasury, and why hasn’t a committee been established to examine the use of natural resources in Israel?” she asked.

That the government has chosen to keep the rules from the original commission untouched came as a relief to oil and gas companies operating in Israel.

In April, Noble Energy chairman and CEO Charles Davidson told journalists he would reconsider the company’s presence in the Mediterranean if the law was reconsidered.

“Taxes were raised after we had made investments, and that is very unusual in the industry because if a government makes a practice of retroactively raising taxes after investments are made, that scares off investors,” he said. “If [the Sheshinski Committee recommendations] would be reopened, I think we would have to reconsider everything we’re doing.”

Approved by the Knesset on March 30, 2011, the conclusions of the Sheshinski Committee determined a new taxation method for oil and gas exploitation in Israel. Royalty rates would be kept intact at 12.5 percent, but oil and gas profit levies would begin at 20% and eventually rise to 60%, employing an “R-factor” formula, with net cumulative revenues reduced by exploration and development expenses.

Sharon Udasin contributed to this report.


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