The sale of mineral water bottler Mayanot Eden to a foreign investment fund has reawakened concerns about who profits from Israel’s natural resources.

By Shuki Sadeh | Jun.25, 2013

The tranquillity of the Salukia Spring in the Golan Heights belies the uproar that arose over it this month, when Ron and Yehuda Naftali sold their 70% controlling stake in Mayanot Eden, the company that taps the spring for its Mey Eden mineral water, to Rhone Capital, a foreign private equity firm.

Though the sale, for NIS 120 million, was a very lucrative deal for the Naftali brothers, it was accompanied by shrill criticism.

In the capital markets, this was due to the fact that while the brothers milked the company for about NIS 500 million over the years, including proceeds from the latest deal, most of its investors lost money.

For the public at large, on the other hand, the sour taste was mainly because Mayanot Eden had enriched itself from a natural resource − the Salukia Spring − that’s meant to belong to everyone. Social networks were steaming over the fact that, after three decades in which the state resource was exploited, it is now being turned over to a foreign company, which will also likely not pay any royalties.

This is just one case of an ongoing madness on the part of the government, which over the years has given private enterprises the right to use water sources without charging royalties and without conducting proper tenders, even though the Water Law specifically defines the country’s water as a public property earmarked for the needs of its inhabitants and developing the economy.

Israel’s mineral water industry developed along the lines of “first come, first served.” Whoever found a spring was simply given a permit by the Israel Water Authority to pump water from it, at an exceptionally low price: Mineral water companies pay the industrial rate of NIS 6 per cubic meter, much lower than the regular rate charged to households, and resell it to consumers at about 1,000 times its cost.

Why no tender?

“This can also be seen in other areas: Assets that were owned by the state and weren’t utilized efficiently were passed into private hands without protecting the public’s interest,” says Abraham Diskin, head of the School for Interdisciplinary Studies in Administration, Government and Law at Sha’arei Mishpat College. “As in the case of Dead Sea Works, there was privatization that created concentration. The moment someone requested a concession, they should have initiated a competitive tender and not just given it away like that.”

Diskin said the owner of one mineral water company once told him that the water everyone flushes down the toilet is the same as what they sell us in bottles at an exorbitant price. “Although it was said in jest, it illustrates the government’s stupidity with respect to the companies,” he said.

The day after the Mayanot Eden sale, the Finance Ministry announced it was forming a committee to examine the issue of royalties for natural resources. This committee immediately became known as Sheshinski II: It will be headed by Eytan Sheshinski, who previously headed the panel that examined the issue of royalties on natural gas reserves.

The new committee was formed five years after the state, in response to a petition by the Association for Distributive Justice, told the High Court of Justice it would look into changing the situation.

The association argued that the sale of water by the companies violates the Water Law, and that in any case, providing the bottling companies with water at reduced prices is unjustified, since it serves not as a raw material but as the product itself. In other words, the companies sell water, a public resource that belongs to all of us.

“The mineral water companies appropriated the springs and treat them as their own economic resource,” says attorney Lior Tzemah-Shasha, who represented the association in its petition to the court. “Now Mey Eden is selling its activity in Israel to a foreign investment fund and is once again profiting, among other things, at the expense of a public resource.”

‘It’s a blessing’

An executive at Mey Eden said he simply doesn’t understand the controversy.

“When a foreign fund comes and invests money in Israel, it’s the biggest blessing the finance minister and citizenry could hope for,” he says. “In contrast with high-tech exits, for example, here nobody will move the work to Silicon Valley. The 700 Israeli workers will continue working in Israel.”

The executive also doesn’t think royalties should be collected from Mey Eden or any other mineral water company.

“The price will ultimately be passed on to the public,” he says. “And it doesn’t make sense. Maybe it would if we sold the product abroad, like potash from the Dead Sea. But this is a product that’s all sold in Israel, so why pay royalties?”

Years ago, when the industry was in its infancy, the commercial potential wasn’t necessarily clear. Mey Eden was established following the discovery of the Salukia Spring in 1980. Neviot started operations in 1989, after the Ein Zahav spring in Kiryat Shmona was found to produce suitable water, and was bought by the Central Bottling Company ‏(Coca Cola Israel‏) in 2000. The Ein Gedi bottling operation was founded in 1997, after members of the kibbutz had imbibed the famous stream’s waters for years.

But the cheap supply of water to the companies and the absence of tenders continued even as the industry mushroomed.

When Ein Zahav dried up, Neviot began pumping water from a regular well maintained by the national water company Mekorot, the same well from which residents of Kiryat Shmona and its surroundings get their tap water. But the Water Authority still didn’t consider offering the water to other mineral water companies through a tender, and it left the company’s reduced industrial rate as it was.

The Water Authority, in response, said it might consider establishing special regulations for the industry. It also said it doesn’t prevent anyone from submitting an application to set up a mineral water operation or any other industrial plant.

“Mey Eden, Neviot and most of the other mineral water facilities don’t produce or pump water, but buy the water from Mekorot,” the authority explains. “The plants themselves meet the definition of an industrial plant and meet the requisite criteria for an industrial rate.”

The increased consumption, however, comes at a steep price: It depletes the water in the springs and the surrounding water sources.

The most notable instance was that of Ein Gedi, where intense pumping by the kibbutz diminished the flow of water in the nearby Nahal David nature reserve. The Salukia Spring also required outside intervention to prevent it from going dry: Mekorot must channel groundwater to Nahal Zavitan, behind the spring, to keep it flowing.

“The absurdity is that these companies cause tremendous damage while there’s no problem with the drinking water from the tap,” says environmental consultant Daniel Morgenstern. “They take the water belonging to us all, put it in plastic containers that harm the environment, transport them hundreds of kilometers, and soak the consumer for billions for this − both in shekels coming out of his pocket and also from the environmental damage.”