The government refused to discuss an offer to sell its holdings in Dorad, Israel's largest power plant, claims Edeltech Executive Vice President Niv Sever. Edeltech owns 18.75% of Dorad's shares. "Several weeks ago, we approached Eilat Ashkelon Pipeline Co. Ltd. (EAPC) Chairman Erez Halfon and the Accountant General Rony Hizkiyahu, who is formally the representative of the owners," said Sever, "with an offer of immediately opening negotiations for buying EAPC's shares in Dorad, based on a fair market value and on the basis of our proven financial capabilities. We didn't deliver an ultimatum and we didn't offer to buy the shares at a discount or for a mess of pottage, as we all know happened during many privatizations in the market but for the market price. And by the way, we have first right of refusal, so it's not as if they wouldn't come to us anyway, if they wanted to sell."
Perhaps the offer was not appropriate?
"In the commercial world where I'm from, I've not seen a situation in which a company's CEO gets an interesting offer and doesn't consider it. I would have at least expected that an offer like this would have been considered. But amazingly less than 48 hours went by before we received a written announcement rejecting our offer. And not even from the chairman but somebody from of the company’s counsel, Adv. Shoney Albeck who told me in simple Hebrew, 'get lost and mind your own business.'"
How much are the shares currently worth?
"About NIS 400 million. 3.5-5 years ago when the Ministry of Finance began the process of selling EAPC's shares in Dorad, the Ministry of Finance and Government Companies Authority felt it was right to implement this sale and did not see any justification in the Ministry of Finance being the biggest shareholder through EAPC in a private company. When Halfon was appointed to his position, one of the first things he did was to solicit the Ministry of Finance Director General Shai Babad to stop this process. After the reform in the electricity sector, I have absolutely no idea how they can justify this thing."
The Partners: Edeltech is in a blatant conflict of interests
Edeltech was one of the developers of the project together with its Turkish partner Zorlu, which owns 25% of the venture. Alongside were the contractor Uri Dori (18.75%) and EAPC (37.5%). During the financial closing of the venture, Dori sold its holdings to Dori Energy, a privately-held company owned by companies controlled by Chaim Katzman (60%) and Ellomay Energy Capital's Shlomo Nehama, Hemi Rafael and Ran Fridrich. Katzman sold his stake to the Luzon Group. Dorad's partners are currently in a legal dispute that has gone into an arbitration process that is expected to resume soon after Edeltech's request to disqualify Judge Hila Gerstel was accepted.
In 2015, Dori Energy filed a derivative lawsuit against Edeltech and Turkish company Zorlu, which also has a stake in the venture, for NIS 500 million. This was after discovering, according to its claims, that when the engagement contract was approved with Wood Group (Dorad's construction contractor) in 2010, Wood Group had another agreement with Edeltech and Zorlu for a $140 million payment, in exchange for the contract ($80 million was promised to Zorlu and $60 million to Edeltech). The plaintiffs claim that the agreement had been kept secret and that Edeltech and Zorlu's representatives on the board of directors voted for the contract with Wood Group despite a blatant conflict of interests.
Sever denies the allegations brought in the lawsuit and its connection to the government's refusal to sell its shares. "It is clear to you that if there is truth in their claims, then the entire valuation procedure would take into account the value of the lawsuit. If despite that we are right - then the truth will come out."
And what about the claim that Edeltech and Zorlu tried to steal $140 million from their partners?
"It is baseless! When the evidence will be presented, it will be seen that all the shareholders knew exactly what was the share in activities of everyone in the construction operations. Nothing was stolen, nothing was taken, everybody knew that Zorlu was putting up the required capital for Edeltech in order to build the plant and all these charges will be refuted."
Sever, 47, was chosen a year ago as one of the outstanding managers in the Israeli economy who is a member of the LGBTQ community. For most of his professional career, he was a commercial lawyer with the M. Firon & Co. law firm, where among other things he represented Egyptian gas importer EMG. Three years ago, he was a candidate to become head of the Israel Antitrust Authority, where he lost out in the final to Adv. Michal Halperin. After that bid, he switched to the business track as EVP in the Edeltech Group.
Edeltech was founded in 1989 as a developer in the infrastructures and energy sector owned by Joseph Edelsburg, although the guiding spirit of the Group is his son Ori Edelsburg. His business activities in Israel have focused in recent years on Dorad, Israel's first large private power plant, which began operating in 2011.
Since Dorad started operating, Edeltech has continued expanding in the private electricity production market with the aim of consolidating its status as the country's largest private electricity producer. As well as Dorad, Edeltech has a controlling stake in other power plants. Sever reveals that the company is also planning to bid for the Israel Electric Corporation's (IEC) tender to sell its Alon Tabor power station. Sever sees a direct link between the reform and the continued control by EAPC in Dorad.
"The reform has now passed," says Sever, "with the aim of removing from the control of IEC the production sector, or part of it. The government comes along and proclaims out loud that it wants genuine competition in producing electricity, and at the same time, on the other hand, the government is the largest shareholder in Israel's largest private power plant. There is a complete lack of logic here, which contradicts the declarations by those in power that promoted the reform."
Did this conflict of interests have an actual influence?
"We have seen active involvement by senior government representatives in the business management of Dorad. Ministry of Finance Director General Shai Babad phoned directors while the board of directors was sitting in order to intervene on the size of bonuses that will be paid to office holders, in this instance Dorad's CEO. The directors representing EAPC voted exactly as he asked.”
"The law prohibits directors from taking instructions or active intervention by a third party. Furthermore, the intervention by the director general of a government ministry on the level of bonuses harms the competitive capabilities of the organization: to hold on to the best marketing manager that there is, and the best CEO and to pay for it. I'm really glad that we ultimately succeeded in retaining Eli Asulin, even though his terms of employment were harmed."
"Halfon, Dorad's Chairman representing EAPC, worked at a certain stage to intensively promote the supply of electricity to domestic households in the Gaza border region. However, the private electricity producers cannot sell to domestic households, only to industry and business customers. Dorad did not have the surplus amounts in order to sell, but it sounded good and photographed well and it again served what his political masters wanted to promote and market. What do you think came out of that initiative? Nothing, but there was a desire to spend money on it."
What damage did this declaration do?
"Business considerations can be argued about but if you bring political and public considerations into those business considerations then it is not legitimate and it soils the competitive ability and the endeavor for profitability for the business player too. The fact that the government owns 37.5% of the largest private electricity plant is not consistent with the declared policy of the State of Israel to end its ownership and to reduce from 70% to 30% its control of the production element in electricity production. It simply doesn't go together."
EAPC: We won't conduct negotiations respondents on fraud
"EAPC won't conduct negotiations with somebody facing a lawsuit for fraud and deceiving its partners," says EAPC in response to Edeltech's charges. EAPC mentions that having contacted EAPC's shareholders at the same time as Hizkiyahu, demonstrates an intention to set EAPC's shareholders and management against each other and create pressure that will delay arbitration. EAPC also says that the approach that was made did not come with any details that could testify to their seriousness such as price or proof of capability.
Ellomay Capital's Ran Fridrich, who serves as a director of Dorad, said that Dorad's regulations prohibit transactions of selling shares to partners in a company being sued for fraud and grave acts and adds that, "Even if the sell deal went into effect, we plan to continue legal procedures against Edeltech and Zorlu, because we are talking about a derivative claim that does not depend on the identity of the company's controlling shareholders."
Halfon's representative said regarding the plan to connect up to homes in the Gaza border region: "We were talking about a pilot program that was presented by the company's management to the Israel Electricity Utilities Authority and was designed to serve as a base for the future expansion of the plant."
Babad told "Globes:" Since the government owns 40% of Dorad, it is inconceivable that the CEO should receive a salary of more than NIS 3 million, and therefore I'm glad that in agreement with the CEO Eli Asulin, his salary was cut appropriately."
Dorad private power plant
Ellomay Capital 7.5%
Luzon Group 11.25%
Edeltech 18.75%
Turkish company Zorlu 25%
EAPC (Government-owned) 37.5%
Edeltech
Founded: 1989
Activities: Private electricity production
Owners: Joseph and Ori Edelsburg CEO: Udi Wild
Location: Bnei Brak
Number of Employees: 150
Published by Globes, Israel business news - en.globes.co.il - on March 20, 2019
© Copyright of Globes Publisher Itonut (1983) Ltd. 2019