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1. In January and February 2007, the Israeli government finalized the privatization of its state-owned refineries. The Israeli Ministry of Finance contends that the privatization was a success and that the state attained a good price for the refineries. We must ask, however, whether the price paid for the refineries was indeed a fair one, and whether the taxpayers’ money hasn’t reached the pockets of the capital holders once again.

2. Profits of the refineries are influenced by the price of oil. The wars in the Middle East (in Iraq and Lebanon, for example) create uncertainty regarding oil production and raise its price. Rather than losing from the price increase of their primary raw material, the refineries actually benefit as their profit is determined as a percentage of the price of their products. Although the profits of the refineries flowed to the state coffers, the government sold them to private capital holders (the refinery in the city of Ashdod was sold in January while that in Haifa was sold in February), and replaced a stable source of revenue with a one-time income. It is clear that capital holders only got involved in this deal when they became convinced of its profitability, and therefore the government had almost no chance to profit from it. The state lost billions of shekels in previous privatizations. Numerous studies have demonstrated that Bank Hapoalim, El Al, Tsim and other former Israeli government companies were sold for peanuts.

3. The winners of the refineries are the Paz Group, under the ownership of Tsadik Bino, and Israel Corp, owned by the Ofer brothers. Paz purchased the refinery in Ashdod for NIS 3.25 billion (US$774 million) and thus in essence guaranteed for itself an ongoing and cheap supply of gasoline for its petrol stations. Paz also holds a monopoly over the sale of gasoline to the Palestinian Authority. In addition, Paz is connected to Supersol and Bank Leumi, strong companies in their own right. This privatization in essence creates a powerful group of capital holders which can hold the economy hostage.

4. A majority of the stocks—and with them control of the refineries in Haifa—fell into the hands of Israel Corp, which until last year held 26% of the refineries’ stocks. These stocks were purchased by the state for $135 million and resold to Israel Corp at a higher price. Israel Corp presented itself as the victim in this transaction, but according to the law, the stocks of the company were supposed to automatically return to state ownership in 2003, at no cost. The Ofer Family, owners of Israel Corp, have a long history of denying deals with the state (such as in the tenders for the power stations in Ramat Hovav and Rotem). Despite this, the state awarded to Israel Corp a present of $135 million. The High Court objected to this deal, but did not find a legal way to negate it.

5. Were the refineries sold at an appropriate price? It is important to remember, for example, that the worth of the stock in the refineries’ stores alone came to more than a billion dollars. The state is proud of the fact that it attained a sum of $2.34 billion for the refineries, but Israel Corp claimed  in 2005 that the worth of the refineries is approximately $3 billion. In the proposal that it submitted to the tender this year, it appears that it estimated the worth of the company at $3.3 billion. If so, the state sold the refineries for approximately one billion dollars less than the actual value. The losers in this deal are not the government representatives, for this is not their private money, but the public in Israel.

6. The sale process itself is a stark example of cooperation amongst capital owners at the expense of the public. In the year preceding the privatization, profits of the refineries dropped by 40%, but the salaries of the CEOs and chairpersons of the refineries increased. This contributed to the appearance that the state achieved a good price in the deal. A day before the sale, Israel Corp decided to sign an agreement with the Petrochemical factories and Glancor and to submit the tender as if they were one competitor (under the name Ofer-Federman Group). Africa Israel, owned by Lev-Leveiv, dropped out of the tender at the last moment, and thus permitted the Ofer-Federman Group to win the refineries and pay approximately $200 million less. To this day it is unclear why Africa Israel dropped out of the tender at the last moment, and if it acted in cooperation with the Ofer-Feldman Group.

7. The topic of the environmental implications remained open following the sale. The government did not include protections for the environment in the tender. Refineries in Israel pollute at a level 3-4 times higher than that accepted in Europe, and the Haifa Bay area suffers from a 20% higher rate of cancer than the Israeli national average—approximately 500 additional cancer victims each year. Law suits of more than NIS 500 million ($119 million) are pending against the refineries for health and environmental damages. Can we trust the Ofer brothers to take care of the public health at the expense of their profits?

(A Hebrew version of this article appeared in the Israeli weekly newspaper Ha’ir on Friday 9 March 2007).