A commitment for reciprocal procurements of just $2 million from Turkey paved the way for private power producer Dorad Energy Ltd. to sign a NIS 1.5 billion contract with the Ministry of Defense, according to the financial report of Uri Dori Engineering Works Corp. (TASE: DORI), which owns 11.25% of Dorad. Dorad is building a private power plant on land owned by Eilat Ashkelon Pipeline Company Ltd. (EAPC)
In addition to Dori, EAPC owns 37.5% of Dorad, Turkey's Zorlu Endustriyal ve Enerji Tesisleri Insaat Tie AS owns 25%, Adeltech Ltd., owned by the Adelsberg family, owns 18.75%, and Shlomo Nehama's Ellomay Capital Ltd. (Bulletin Board: EMYCF) owns 8.5%. The power station is in the initial construction stages, and is due to come online in late 2013.
In 2004, Dorad signed a power purchasing agreement with the Ministry of Defense, which is Dorad's anchor contract. The starting date of the contract has been postponed several times. It effectively guaranteed Dorad's existence for years until it finally secured financing in November 2010.
As part of the contract, Dorad was required to promise to buy set-up equipment for the power station in Turkey. These purchases would be recognized as reciprocal procurements for the purpose of fulfilling commitments by Israel Military Industries Ltd. (IMI) in Turkey. But following the deterioration in Israeli-Turkish relations in the wake of flotilla to Gaza affair, and due to concerns by the financing institutions, Zorlu was replaced by Wood Group plc (LSE: WG) of the US. Zorlu's stake in the special project company remained unchanged.
Dorad's financial commitment to the Ministry of Defense has never been disclosed, but Dori, in its financial report for 2010, published last month, said that if the procurement by the construction contractor (Zorlu) is not recognized as reciprocal procurement, Dorad would participate in the cost of transactions by IMI up to a total of $2 million. Zorlu undertook to indemnify Dorad if it was compelled to bear these costs.
Published by Globes [online], Israel business news - www.globes-online.com - on April 14, 2011
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