Israel Chemicals Negotiating Exit from Ethiopia

Israel Chemicals Negotiating Exit from Ethiopia

October 29, 2016 - Following the announcement of its decision to terminate its potash mineral development project in the Afar Regional State, Israel Chemicals (ICL) is negotiating a smooth exit from Ethiopia.

On October 6, the board of ICL announced its decision to terminate the potash development project in Dallol depression due to a controversial tax claim amounting to 55 million dollars levied on the company by the Ethiopian Revenues and Customs Authorities (ERCA). On October 10, the Authority blocked all the bank accounts of ICL citing the company’s refusal to pay capital gain tax. It then decided to freeze the properties of ICL.   

ICL ventured into the potash development project after it acquired in 2015Allana Potash, the Canadian company that owned the potash mine concession. ERCA requested ICL to pay capital gain tax for the acquisition and also withholding tax and VAT, which Allana had not settled. ICL assumed all the assets and liabilities of ICL in Ethiopia.

ICL agreed to pay the withholding and VAT taxes which Allana owed the government but declined to pay the capital gain tax as the transaction took place at the Toronto Stock Exchange.  The withholding and VAT tax payable to ERCA is estimated at 15 million dollars. ICL did not settle the withholding and VAT taxes.    

ERCA’s decision to block the bank accounts of ICL has put the company in a precarious situation. The company was unable to pay salaries and other benefits to its employees. This jeopardized the livelihood of its employees working out in the field in the Dallol depression, the hottest place on the planet, after the company failed to provide basic supplies to them.

ICL explained the difficult situation it found itself in and requested ERCA to rescind its decision. It also appealed to the Ministry of Mines, Petroleum and Natural Gas.  Reliable sources told The Reporter that up on the recommendation of the Ministry, ERCA has allowed the banks to lift the injunction.    

Sources also said that the management of ICL is negotiating with the Ministry of Mines, Petroleum and Natural Gas to resolve the matter amicably. “The company has requested to settle the tax arrears before it pulls out of the country,” sources added.

ICL has imported expensive machineries and trucks worth millions of dollars working on the potash development project and their safety was at stake following ERCA’s decision to block the company’s bank account. There was fear that the employees could abandon the project camps due to lack of supplies.

“The company has to settle the withholding tax and VAT before closing its country office. The taxes were supposed to be paid by Allana but now ICL has to settle them as it assumed all the assets and liabilities of Allana,” sources said.

Initially, ICL bought a 16 percent stake in Allana Potash. In 2015, it acquired the remaining 84 percent of Allana at the Toronto Stock Exchange. Allana, which has been prospecting for potash mineral deposit in the Dallol depression, discovered three billion tons of potash deposit. After conducting the feasibility study on the potash development project, it secured a large-scale mining license. But later it transferred its shares to ICL when it failed to raise the USD 750 million required capital due to a commodity market crash.

After acquiring Allana, ICL requested the Ethiopian Ministry of Mines, Petroleum and Natural Gas to transfer Allana’s mining license. While the Ministry was reviewing the application, ICL was allowed to import machineries and continue work on the potash development project. Before the mining license transferring process was completed though ICL began wrangling with ERCA on tax issues.  

ICL had plans to build a potash solution mine plant and three fertilizer factories at a total cost of one billion dollars and create 3000 jobs. 

ICL is the 6th largest potash fertilizer producer in the world and the 2nd in Western Europe. It is a publicly traded company listed in the New York stock exchange with a capital of 12 billion dollars.

Headquartered in Tel Aviv, the company earns an annual turnover of over six billion dollars. It was established by the State of Israel in 1968 and was privatized in the 1990s.

Source: Reporter