Government proposes more taxes, stricter regulations for Dead Sea mineral extraction

Among a raft of proposals for the next franchise for Dead Sea mineral extraction published by the government on Monday include taking more from operating profits for the public’s benefit, reducing the amount of land granted, charging for the use of water, and imposing planning and building and other regulations on the company.

The Dead Sea Works, nationalized in 1951, grew out of a private potash factory established at the Dead Sea in 1930. In 1961, the Knesset granted the concern exclusive rights for the next 69 years to mine a large portion of the Dead Sea and use much of the surrounding area for its operations. That lease will run out in 2030.

The franchise is currently held by ICL Group, formerly Israel Chemicals Ltd., a subsidiary of the Ofer family’s Israel Corporation, the country’s largest holding company.

Much of ICL’s success has been thanks to the Dead Sea Works, which extracts potassium-rich potash, a key ingredient in fertilizers, from the Dead Sea. According to a media briefing on Monday, 53 percent to 64% of ICL’s total operating profitability comes from the Dead Sea Works, where average annual operating profits between 2017 and 2023 totaled $690 million to $830 million.

The proposals published on Monday by the ministries of finance and environmental protection, along with the Tax Authority, seek to give the public a larger share of the profits.

But they offer little hope for arresting the Dead Sea’s ongoing decline. The water level drops by 1.1–1.2 meters (45–48 inches) each year. The sea (actually a terminal lake) is now half the size it was in 1976, split from the evaporation pools that skirt the Ein Bokek hotels.

The map shows the Sea of Galilee at the top, the line of the Jordan River, the deeper, northern section of the Dead Sea, and, at the bottom, the evaporation pools. (Google maps)

The recession, which has caused the opening of thousands of sinkholes, is due to human use of the sources of freshwater that once flowed into the Dead Sea and industrial pumping for potash in Israel and Jordan. The factories pump water from the Dead Sea into large ponds, where it evaporates, leaving salt and other minerals behind.

A 2019 proposal by a governmental body formed to study the franchise recommended limiting the amount of seawater water pumped from the northern part of the Dead Sea. That proposal has been dropped. However, according to Monday’s proposal, pumping from the Dead Sea will incur charges to reflect the environmental cost and encourage the new franchisee to use only what is needed.

Among the proposals unveiled Monday are:

• Halving the amount of land available to the new franchisee from the current roughly 160 square kilometers (61 square miles).
• Leaving intact the current three streams of payment to the government — royalties, corporate taxes and payments into a sovereign wealth fund for the benefit of future generations — but vastly simplifying the way these are calculated. To date, ICL has stopped the government taking 50% by exploiting complicated accounting rules to its advantage. Another proposed tool is raising royalties as profits rise.
• Obliging the new franchisee to maintain water levels in the evaporation pools within a specific range to ensure the continuation of tourist activities and protect the nearby hotels from flooding. The new company owner will be charged the cost of scraping accumulated salt from the bottom of the pools and transporting it to an agreed location.
• Subjecting the new franchisee to the law. ICL has enjoyed exemption from laws dealing with planning and building, water use, and environmental protection.
• Charging the franchisee for all freshwater pumped from wells for industrial uses.
• Dealing with the franchisee as a single company. Dead Sea Works saves money by operating several companies, each of which is taxed separately.
• Expanding the list of natural resources to include all minerals that are extracted and the profits from which will be taxed.

A salt dredger at Dead Sea Works. (Dror Sithakol)

ICL will also be required to clean up environmental damage, such as dumped industrial waste and abandoned quarries and infrastructure. The future franchisee will be obliged to conduct ongoing rehabilitation of any new damage.

The ministries plan to submit draft legislation next year and issue tenders to choose a franchisee by 2027.

It remains unclear how the government will be able to ensure real competition given that the 1961 deal gives the existing franchisee the right of first refusal on a new concession “under terms no less favorable than those it intends to offer to any such other person.”

The Dead Sea Works at the Dead Sea, southern Israel, March 21, 2023. (Moshe Shai/FLASH90)

ICL has made clear its desire to win the new tender. The nature of the business and terms of the existing concession give it a number of built-in advantages, according to a 2019 report by a governmental body formed to study the issue, headed by the Finance Ministry’s then-chief economist Yoel Naveh.

Those advantages extend to better industrial knowledge of the mineral extraction process and what opportunities exist, as well as ICL’s ownership of businesses that can convert the raw materials mined from the Dead Sea into end products. The Naveh report noted that these head starts could scare other companies away from even putting in a bid.

It remains unclear whether another Naveh recommendation will be implemented — establishing a minimum price for the tender to ensure it is not undersold.

People walk along the shore of the Dead Sea, in southern Israel, November 9, 2023. Chaim Goldberg/Flash90

“In light of the importance of the area from an economic, tourist and historical point of view, the report places great emphasis on creating a balance between the continued production of essential minerals, which are an important pillar of Israel’s economy, and the need to preserve the special environment of the Dead Sea” a joint statement from the two ministries and the Tax Authority said.

“The report’s recommendations aim to develop a regulatory model that will combine economic and environmental interests and ensure sustainable utilization of the Dead Sea’s resources while protecting the area for future generations.”

An ICL spokesperson said, “We received the report and welcome the attempt to define the future conditions and reduce uncertainty regarding the future franchise conditions for the sake of all stakeholders. We will study the report and address its details with transparency and cooperation with the state authorities, as always.”