After cornering the market for chemical export-import in Israel, Yosef Maiman’s group is preparing for the advent of competition – by itself.
By Avi Bar-Eli

About a month ago, Ashdod Port proudly announced a new era: Competition in port services for the import and export of chemicals in liquid form had arrived.

Make no mistake, the market for moving chemicals in and out of Israel is big. Not many think about it, but billions of shekels worth of chemicals are imported and exported each year. They are the lifeblood of some of Israel’s biggest companies, including Teva Pharmaceutical Industries, Israel Chemicals and Makhteshim-Agan Industries.
Gadot – Moran Maayan – 28122011

Gadot storage tanks in Haifa Bay.
Photo by: Moran Maayan

Transporting chemicals isn’t like transporting bricks: It takes special equipment and expertise, and only one public terminal has them. It’s next to Haifa Port, and was declared a monopoly back in 1988. It is owned by none other than Gadot Chemical Tankers, which is owned by Ampal-American Israel Corporation, which is in turn owned by Yosef Maiman.

Maiman is better known for his headaches with Egyptian gas. Ampal owns 12.5% of the Egyptian Mediterranean Gas Company, which brokers the supply of Egyptian natural gas to Israel. That supply was interrupted several times this year, beginning in early February amid the unrest that eventually unseated the Mubarak regime. Saboteurs blew up the pipeline no less than 10 times. Maiman is moving to sue the Egyptian government for compensation.

And now Maiman has a new headache, Ashdod Port’s steps to get a piece of the chemical transport action.

These steps took shape at the start of the year, when Ashdod Port declared it could shatter the monopoly of the northern port and solicited bids from private developers for the construction of terminals on its land that would compete with Gadot.

“It is a significant step toward increasing competition and reducing concentration in the economy,” a source at Ashdod Port told the press at the time. Last month, after a quasi-tender process, Ashdod Port selected three winners, each of which received a franchise to build a new chemicals terminal.

Among the happy winners is – hold onto your hats – the Gadot monopoly itself, which thereby assured that it would continue to control the market. One might say Maiman hopes to save Ampal bondholders a haircut through the kind offices of Ashdod Port.

When the tender results were published, Ashdod Port CEO Yehoshua (Shuki ) Sagis said the company was thrilled “to create a genuine, influential alternative” for the import and export of liquid chemicals. But now the Antitrust Authority will be asked to approve the plans. The watchdog agency will examine whether a government company (Ashdod Port ) that privatized a public asset (import terminals ) with the explicit goal of introducing competition could end up eliminating all competition by allowing a declared monopoly to enter, and win, the contest.

Gadot creates a one-stop shop

Israel imports 330,000 tons annually of bulk liquids for industries ranging from food, chemicals and cosmetics to textiles, plastics, electronics and construction. Around 90% are stored in the Gadot terminal in Haifa Port. (Israel Chemicals has its own terminal, in Ashdod Port, and does not need Gadot’s services. )

What is now the Gadot group was founded by the Johananoff family, as Gadot Chemical Tankers and Terminals, in 1959. Brothers Moshe and Samuel Johananoff ran it jointly until a financial dispute caused Samuel to leave, putting the business into Moshe Johananoff’s hands.

In 2003 the company was taken public on the Tel Aviv Stock Exchange. Four years later Maiman bought a 66.3% controlling interest, through Ampal, for NIS 348 million. A year later he put in an additional NIS 141 million and delisted Gadot.

The jewel in Gadot’s crown is the two chemical terminals in Haifa Bay, with around 140 tanks and a total capacity of 65,000 cubic meters. Since they are the only liquid chemical terminals available to Israeli manufacturers, in 1988 Gadot was declared a monopoly in unloading, transporting and storing liquid chemicals and its prices came under state control.

Over the past decade Gadot expanded into auxiliary areas, leveraging its monopoly in storage to do business up and down the liquid chemicals value chain.

Industry observers estimate that Gadot handles 75% of all liquid chemical imports to Israel, transporting the chemicals in their own tankers, storing them in terminals it owns in Europe and Israel and trucking about 1,000 tons of liquid chemicals within Israel using its own fleet.

The company serves about 850 clients by virtue of its “one-stop shop” model. Moreover, Gadot has leveraged its unique status to obtain exclusive representation rights in Israel for several leading international chemical suppliers.

Transportation industry sources estimate that Gadot’s logistics activity in Israel generates around $130 million a year for the company, with maritime operations contributing an additional $80 million.

Of the 300,000 tons of liquid chemicals it imports each year, Gadot buys and sells 50,000 to 70,000 tons itself (as opposed to just shipping them for customers ). This trade generates around $360 million for Gadot annually.

It bears saying that Gadot is not in shining financial condition. Its liquidity is low, its profits negligible and it owes the banks $210 million (as of the third quarter’s end). Yet the company has been expanding in the last two years. It bought a chemicals terminal in Belgium and is getting into renewable energy.

Ashdod vs. Haifa

In explaining to potential customers some of the benefits of building chemical terminals at Ashdod Port – besides taking away some of Haifa Port’s business, and profits – port executives talked up the safety aspect of reducing rail or truck transit of hazardous chemicals within Israel. Having a second port option would also allow for the diversification of risk, they noted.

So about a year ago Ashdod Port issued a a request for information (a standard business process used to obtain information about the capabilities of potential suppliers ). It wanted to see how much demand there was for a competing port for chemicals. That process morphed over several months into the quasi-tender process that resulted in bids from the three companies that were allocated land on which to build their terminals.

The first was Arava Mines, a subsidiary of AHMSA Steel Israel, itself a subsidiary of the Mexican group AHMSA. The group has a license to mine for copper in the Timna area of the Arava Desert. Arava Mines needs large quantities of sulfuric acid to extract copper from ore and thus wants the terminal chiefly for its own needs. It is considered unlikely to bring succor to corporate Israel in its search for competitive import service.

The second winner was Chemothal, part of the Chemovil group, which distributes chemicals and raw materials in Israel. Chemovil is a huge logistics company, in Israeli terms, with its own storage tanks and tanker trucks.

The third is Gadot itself.

Each bidder was awarded a concession to build a chemical terminal in Ashdod Port and operate it for 24 years, in exchange for paying rent and a chunk of their income to Ashdod Port. Each undertook to move a minimum of 60,000 tons of chemicals a year.

Ashdod Port estimated it will receive about NIS 10 million in annual fees from each terminal. But this may be overly optimistic – Gadot could still do everything in its power to crush the nascent competition from the south to protect its business in the north. While Arava Mines might not pose serious competition, Chemovil could.

What are Gadot’s options? In theory, it could require its Haifa Bay clients to use its services when shipping through Ashdod. It could also institute aggressive pricing in Ashdod to undercut the competition, subsidizing the discounts through its Haifa monopoly.

Theoretically Gadot’s northern monopoly could also be in jeopardy: The lease on one of its storage areas in Haifa Bay runs out in two years. Judging by experience, however, the state is in no rush to issue tenders for port assets.

Economic concentration committee takes notice

This is exactly what the economic concentration committee had in mind when it recommended, three months ago, that ministries be empowered to consider sector competition when publishing tenders. An entire chapter of its report was devoted to the conditions for allocating state assets, written by a team headed by Antitrust Commissioner David Gilo.

The committee recommended that the Antitrust Authority be required to vet every case of privatization or allocation of state assets, to make sure it does not impair competition in the sector.

At the time the hot-button issue was the privatization of Eilat Port. Guess who’s a contender in that race: Gadot, even though strictly speaking it is supposed to be barred because it already owns the port terminal in Haifa Port.

Ashdod Port said in a response that it held a public process to contract out the establishment and operation of a “chemical farm.” Although more than 10 companies purchased tender documents only three submitted bids secured by the requisite bank guarantees. The port advised all three, it said, that their bids complied with requirements but that final agreements would only be signed after they submitted detailed plans.

Gadot must prove that it is legally eligible to participate in the tender, including approval from the Antitrust Authority, Ashdod Port added.

Gadot did not comment for this report.