After years in which the desalination plant in Ashdod was synonymous with managerial failure and accumulated losses of NIS 422 million, the companies Shafir and Generation offered a sum of NIS 909 million for the facility’s franchise.
The amount offered by Shafir and Generation for the desalination plant in Ashdod is three times greater than the estimate in the Ministry of Finance and even tens of percent of the most optimistic estimates of the country.
The supply of the desalination plant in Ashdod is estimated at about 100 million cubic meters per year.
The supply of the desalination plant in Ashdod is estimated at about 100 million cubic meters per year.
The desalination plant in Ashdod was established by Mekorot Yizum, after heavy political involvement that ensured the victory of the government company in the project.
About NIS 1.5 billion was invested in the construction of the facility and it was supposed to begin in 2011, but due to delays, its commercial operation began only at the end of 2015, two years after the date to which Mekorot undertook.
The project suffered from severe engineering problems, which caused its desalination capacity to be 15% lower than its planned capacity.
According to the agreement between Mekorot and the state, the desalination facility in Ashdod is entitled to a payment of NIS 1.1 for each cubic meter it produces, in exchange for the availability of the desalination water to the Water Authority.
The agreement also includes a fine of 70 cents for every cubic meter that the facility did not provide as promised. Therefore, the engineering problems that delayed the operation of the facility caused heavy losses to Mekorot Initiation.
Due to the fact that a power plant was not built in advance to supply its energy needs, the facility purchased the electricity it consumed from the electricity grid and it was designed to operate mainly during hours when the electricity tariff is low.
Because the facility did not reach its planned supply, Mekorot Entrepreneurship was forced to operate it even during the hours when the electricity tariff was at its peak, which deepened the subsidiary’s losses and brought it closer to the end of its economic path. Only cash flows and guarantees from the parent company prevented its collapse.
The auction was for two properties:
The state and the Electricity Authority wanted to entice the companies bidding in the tender to purchase the failed desalination plant, so they were granted a candy: license to build and operate a power plant that supplied up to 100 megawatts in the competitive market, for a period of 20 years.
Desalination plant, and the right to build a power plant. The facility sells the water at a price known to only one consumer – the Water Authority, for a maximum of 17 years.
The power plant will have a maximum power of 100 megawatts, according to a specific regulation to be determined for it. It will sell the electricity it will produce over a period of 20 years to a maximum of two consumers: the desalination plant in Ashdod (30-50 megawatts) and Noga, which manages the electricity system (50-70 megawatts).
Who are the winners of the tender?
Generation is an infrastructure investment fund established in 2018. It is traded on the stock exchange and invests in water desalination through its subsidiary GES, As well as public transportation, natural gas distribution and electricity generation through energy elbow, and renewable energy through sulgrin.
Shafir is one of the largest infrastructure companies in Israel. It is traded at a value of NIS 9.6 billion.
The controlling shareholders in Shafir are the brothers Harel and Israel Shapira, who are considered shrewd businessmen who expand their activities to new areas and know how to generate good returns for shareholders as well.
The surprise was that these companies bid NIS 500 million more than the second largest bid (a total of NIS 909 million compared to NIS 400 million). This is a huge and rare gap in such tenders.
The facility bears a financial debt of NIS 1 billion, which is due in 2036, so that the total investment cost of Shafir and Generation in the facility reaches NIS 1.9 billion.
This amount does not include the investment in renovating the facility, which was made over 18 months so that it could meet the standards set in the tender. The amount also does not include the investment in the construction of the power plant, which will reduce the price of the facility’s electricity consumption – a move without which the facility has no right to exist.
In a conservative estimate, the total investment of the two winners of the tender will not be less than NIS 1.2 billion. In addition to the debt they have to repay by 2036, the facility will have to yield capitalized companies of NIS 2.2 billion, before earning any amount on their investment.
The two winners estimate that they will be able to streamline the desalination plant in Ashdod, reduce its energy consumption and make it profitable.