Emotions run high over Canadian bid to buy Dead Sea potash plant
The proposed sale of Israel Chemicals to PotashCorp has rankled workers, and even the finance minister has called it ‘un-Zionist’
In the lowest place on earth, industry, fertilizer and Zionism all came into play earlier this month, as hundreds of workers from Israel Chemicals Ltd. (ICL) blocked the entrance to the company’s Dead Sea plant.
The action was part of a 1,300-employee strike protesting the takeover of the company by a Canadian potash giant, one of the world’s largest producers of the potassium-based compound often found in fertilizers.
Inside the potash plant, the walls were reportedly covered in bright-red bumper stickers with a picture of Prime Minister Benjamin Netanyahu, reading, “Bibi — don’t sell the Dead Sea to foreigners.”
Operating as an oligopoly, the potash industry is known for suppressing output to keep prices high. This has stoked fears at the Dead Sea plant that a takeover by the Canadian behemoth, the Potash Corporation of Saskatchewan, might bring layoffs and reduced production.
“We are afraid we are going to be a small company in a bigger company and we are not going to be a priority,” Armond Lankry, head of the Dead Sea Works employee union, told the Financial Times on March 17.
Lankry is not alone in his criticism of the deal. Along with the six unions representing Israel Chemicals workers, Finance Minister Yair Lapid, the outgoing environmental minister, and several MKs, have also criticized the proposed sale. ICL is seen as a national asset, and Lapid went as far as to say a sale would be “an un-Zionist act.”
“Countries are not supposed to sell to foreigners their natural resources,” he wrote on his Facebook page (Hebrew) on February 27.
But while politicians and employees may wish to retain control over one of Israel’s primary natural resources, it appears that one of their chief concerns — that PotashCorp would reduce production in the Dead Sea — is an unlikely scenario.
That’s because the Dead Sea is the cheapest place on earth to mine potash.
In the Dead Sea, potash is produced by transferring water into ponds where the sun evaporates the water, leaving crystals that are converted into potash. In Saskatchewan, where PotashCorp is based, the mineral is extracted from ore mined in caverns 1,000 meters underground. Thus, after taking over Israel Chemicals, if PotashCorp were to seek to boost potash prices, it would likely do so by reducing production in Saskatchewan — not the Dead Sea.
Overproduction has plagued the industry since the 1960s, when some of the world’s largest potash mines were built. In the ensuing decades, the major potash miners have employed occasional plant shutdowns to reduce production and boost prices.
Two marketing groups, Canpotex and Belarus Potash Co., control 70 percent of the global market for the popular fertilizer product. According to a report provided to The Times of Israel by Canadian financial firm BMO Capital Markets, PotashCorp is not interested in acquiring any more shares of ICL unless it is granted marketing control. This would allow PotashCorp to bring Israel Chemicals into Canpotex, which currently represents PotashCorp and two other North American producers.
The use of marketing groups allows the major potash companies to exert greater bargaining power when selling to foreign markets, while preventing overproduction by their members. But companies like Israel Chemicals, which operate independently, undercut the effectiveness of the marketing groups and make the potash sector more competitive.
Canpotex and Belarus Potash have been accused of cartel-like behavior, strategically cutting back on production to maintain high prices. Indeed, just weeks after announcing its bid for Israel Chemicals in October of last year, PotashCorp said it would temporarily shut down four Canadian mines, citing a slump in demand despite a consistently growing market for the product in countries such as China, India and Brazil.
In 2008, when potash prices reached a record high, a group of US farmers brought suit against both Canpotex and Belarus Potash, accusing them of price-fixing. In January, PotashCorp agreed to pay $42.75-million to settle the lawsuit, while denying any wrongdoing.
The Canadian company is seeking to increase its current 13.8% share of ICL to somewhere between 51% and 100%. The deal would require approval by the Israeli government, which holds a “golden share” in the Israel Corporation, ICL’s parent company. Such a share allows special voting rights in a company, including veto power on mergers.
Talks came to a standstill as Netanyahu struggled to form a new government following January’s elections. But in recent days PotashCorp has been renewing its lobbying effort with top government officials, including the prime minister, a known proponent of privatization.
Citing unnamed sources close to PotashCorp, Haaretz and Bloomberg reported last week that PotashCorp will offer a new proposal, including promises to maintain staffing levels, aimed at placating the opposition among Israel Chemicals employees.
“This is not something we’re terribly interested in speaking about,” PotashCorp spokesman Bill Johnson told The Times of Israel, declining to answer questions about the deal.
Despite resistance on the part of employees and politicians, those who control Israel Chemicals are eager to complete the deal. The BMO report quotes ICL management referring to an acquisition as a “win-win” situation.
While PotashCorp has wanted to acquire Israel Chemicals for years, the current ownership is far more amendable to a sale than previous owners, the report said.
Idan Ofer, who now controls Israel Corp, has been demonized in Israeli media and sees the sale of ICL as an opportunity to reduce his family’s control over the Israeli economy, according to Bloomberg. The Ofer family has been accused of buying state assets at bargain-bin prices, an issue that has drawn more attention since the social protests in the summer of 2011.
But, the BMO report noted, “it will be difficult for the parties involved to indicate why a sale of ICL… will be strategically beneficial to Israel.”
In 2010, the Canadian government blocked Australian mining giant BHP Billiton’s hostile takeover of PotashCorp, labeling potash a “strategic asset.”
Now some are hoping the Israeli government will take similar action.
“That’s what we are expecting from Mr. Netayanhu — to say the same thing as the Canadians,” Lankry told the Financial Times.
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