Report on polluting Haifa refinery finally emerges, but outlook still hazy

Report on polluting Haifa refinery finally emerges, but outlook still hazy

Heavily redacted paper written for PM’s office recommends shutting down Bazan facilities rather than relocation, but shies from any decisive conclusions

Sue Surkes is The Times of Israel's environment reporter.

View of the oil refineries in Haifa Bay, May 5, 2017.  (Yaniv Nadav/Flash90)
View of the oil refineries in Haifa Bay, May 5, 2017. (Yaniv Nadav/Flash90)

A two-year-old report on the future of Haifa Bay’s polluting Bazan oil refining and petrochemical industries was finally released to the public, but with large chunks crossed out.

The Monday release followed a Freedom of Information petition against the Prime Minister’s Office by the Hazlacha (Success) nonprofit organization. The court ordered its publication, subject to restrictions of commercial and security secrecy.

Bazan Group Oil Refineries Ltd occupies 526 acres (2,130 dunams) in Haifa Bay, close to the most heavily populated areas of northern Israel. Its oil refinery, which imports crude oil to make a range of refined products, generates 60 percent of the group’s Israel-based profits, according to the report. Subsidiaries make products ranging from bitumen for road surfaces to waxes, oils, lubricants and polymers.

International management consultancy McKinsey was brought in two years ago by the National Economic Council within the Prime Minister’s Office as part of interministerial discussions on the future of the Bazan Group’s companies. It was tasked with examining the economic costs of moving Bazan and specifically of considering the costs and benefits of four options: maintaining Bazan as it is, in the same place; partially shutting it down; shutting it down totally, according to various proposed timescales; or moving it to a non-urban location elsewhere in the country.

View of chimneys from a refinery in Haifa Bay (Photo credit: Shay Levy/Flash90)
View of chimneys from a refinery in Haifa Bay. (Shay Levy/Flash90)

The worst option from an economic point of view was a partial shutdown, the report found, because, while reducing pollution, it would not release land for other development, instead locking the land within a still operating refining complex.

Relocating Bazan, McKinsey found, would represent a poor return on investment.  It would cost more than NIS 18 billion ($5.2 billion)  to build new facilities, in direct costs only, and take at least seven years, making the option economically unattractive. It would negatively impact government revenue in the short term, as well as that of the local authorities around the Haifa Bay, which would lose tax income until the area was redeveloped and tax payments resumed.

Total shutdown, by contrast, would both reduce emissions — according to the Environmental Protection Ministry, Bazan is responsible for 25-30% of the main air pollutants in Haifa Bay — and release land, valued at NIS 7 billion to 20 billion ($2 to $5.8 billion), depending on how much would be built. Construction of 75,000 to 175,000 residential units, for example, would be worth NIS 13.1 billion ($3.8 billion). Costs of rehabilitating toxic soil would have to be added.

These figures do not take account of the increase in value of existing real estate in Haifa, nor the benefits of reduced emissions or accelerated metropolitan development. “These difficult-to-quantify benefits may increase the value of a potential shutdown,” the report said.

Bazan subsidiary Carmel Olefins, which makes polymers, represents a significant share of Bazan Group’s profits and is the largest emitter of benzene. Shutting it down would reduce such emissions by 34% and nitrogen oxide emissions by 25%, the report said. (Details on the impact on group profits of closing Carmel Olefins was redacted.)

Shutting down another subsidiary,  Gadiv, which makes aromatics (starting materials for various consumer products), would cut benzene emissions by 27%, toluene emissions by 46% and xylene emissions by 76%, while the company represents just a small share of the group’s profits, the report continued. Again, the exact impact on group profits was crossed out.

Most of the data on shutting Bazan down according to four different timelines, from 2020 to 2040, was redacted, along with details about Bazan’s direct impact on Israel’s GDP; costings for land remediation (estimated to take around ten years) in Haifa Bay should Bazan be shut down or moved; comments about the ability of local infrastructure to absorb increased imports were Bazan to be shut partially or totally; and supply and demand figures for the various Bazan subsidiaries and products.

One of the most significant findings to be crossed out with a thick black pen compared the group’s profits with the costs of the pollution it causes.

Closing or partially closing Bazan’s refineries would increase Israel’s reliance on imported fuels and would harm the group’s polymer and chemical subsidiaries, the report found. Part of the refinery shortfall could be made up by increased production at the country’s other refinery, in Ashdod, on the southern coast, although some imports would still be needed. Polymers could be sourced from East Asia at competitive prices. Aromatics, only small quantities of which are needed in Israel, could be brought in from Europe.

With Israel mainly connected to Europe for imports and exports, McKinsey based estimates of Bazan’s future profitability on the outlook for refining in Europe, estimating that demand there would decline by 0.3% to 0.7% annually, between 2020 and 2040, as energy efficiency improves and more electric vehicles hit the roads.

The Haifa Municipality and the Israel Lands Authority are eager to get the factories out of the bay area. A municipal spokesman said officials were studying the report.

Despite the two-year-old report, the government reportedly has no concrete plan for what to do with Bazan and the Finance Ministry has no earmarked budget for changing the status quo.

Bazan Group is part owned by billionaire Idan Ofer via his Israel Corporation, the biggest holding company on the Tel Aviv Stock Exchange. Israel Corp. also has a large stake in Israel Chemicals (ICL), which mines potash, phosphates, bromine and magnesium and produces fertilizers and other chemicals.

View of the water cooling towers at the Haifa oil refinery on June 12, 2020, hours after one of them collapsed. (Meir Vaknin/Flash90)

While ICL’s concerns are mainly out of sight, deep in Israel’s Negev desert, Bazan Group is located in a highly urbanized area, symbolized by two massive, former cooling towers, one of which collapsed on Friday.

In December, the environmental advocacy group Adam Teva V’Din estimated that Ofer family factories were responsible for at least NIS 1.2 billion ($340 million) worth of damage to public health caused by air pollution in 2018.

Earlier this month, the Haifa Magistrate’s Court slapped an NIS 1.2 million ($335,000) fine on Bazan Group for negligence, pollution and violation of permits in connection with a massive fire that sent toxic black clouds floating over the Haifa Bay for several hours in late December 2016.

read more: