27 April 2019
By Kaleyesus Bekele
The Israeli fertilizer giant, Israel Chemicals (ICL), which filed a law suit against the Ethiopian government at the Permanent Court of Arbitration at The Hague in 2017 in connection with a controversial tax claim, recently dropped the charge.
ICL was involved in potash mine development project in Ethiopia after it acquired Allana Potash of Canada. The giant fertilizer producer, ICL, abandoned the potash mine development project in the Afar Regional State in the Dallol Depression and pulled out of Ethiopia due to a controversial tax claim in October 2016.
Samuel Hurkato, the Minister of Mines and Petroleum, told The Reporter that ICL has dropped the court litigation and sat down with the Ministry for negotiations. “We are negotiating with executives of ICL to amicably solve the disagreement. What we now need is an economic diplomacy,” Samuel said.
Bamlak Alemayehu, Acting Head of Legal Directorate, told The Reporter that Allana Potash which was working on the potash mineral development project in the Afar Regional State sold its mining license to ICL without the knowledge and consent of the Ministry of Mines and Petroleum. “Allana has tax arrears and ICL failed to clear the tax arrears. Then ICL pulled out of the country and took the case to an international arbitration court. Now both the company and the Ethiopian government agreed to drop the court litigation and resolve the matter through negotiations,” Bamlak said.
According to Samuel, there was a problem with the Ministry’s licensing administration work. “We were supposed to monitor the transactions at international stock exchanges,” he said.
Samuel noted that ICL had conducted an advanced exploration work and invested more than USD 200 million on the potash development project. “They did a world class mining work. We hope that executives of ICL would soon come to Addis Ababa for another round of talks,” he added.
ICL leveled its legal charge against the Ethiopian government at the Permanent Court of Arbitration at The Hague accusing the government of impairing its investment project and demanded USD 198 million in compensation payment.
ICL had filed an investment treaty claim against the Ethiopian government in relation to State “violations” of the Agreement on Encouragement and Reciprocal Protection of Investments between Ethiopia and the Netherlands. ICL Europe, subsidiary company based in the Netherlands, filed the law suit. According to ICL the violations relate to, inter alia, the state’s imposition of an illegal tax assessment against, and its failure to provide infrastructure support to Allana Potash Afar PLC, an indirect subsidiary of ICL Europe.
ICL Europe filed the claim under the Arbitration Rules of the United Nations Commission on International Trade Law and requested that the Permanent Court of Arbitration at The Hague administer the arbitration proceedings. The company said it has booked a full tax provision in respect of the tax claim.
After buying Allana Potash in May 2015, ICL was working on a potash mine development project in the Afar Regional State in the Dallol Depression through its subsidiary company Allana Potash Afar. ICL was trying to transfer the large scale mining license of Allan when then Ethiopian Revenue and Customs Authority (ERCA) claimed 50 million USD in tax payment from Allana Potash Afar, a subsidiary of ICL.
In April 2017, the Ethiopian government took over the potash mine concession where ICL was working on.
Allana Potash, a Canadian company listed in the Toronto Stock Exchange, was the rightful owner of the Dallol potash concession. In 2013, the then Ministry of Mines granted Allana a large scale mining license that enables it to develop the vast potash deposit estimated at 3.2 billion tons. Due to the commodity market crash occurred in 2013, Allana was unable to raise the required investment capital-700 million dollars-to develop the mine.
Consequently, Allana was sold out to ICL for 150 million dollars and de-listed from the stock exchange. The deal includes the acquisition of Allana Potash Afar, a subsidiary of Allana Potash, and the rightful owner of the potash concession in Ethiopia. ICL through the subsidiary company was planning to develop the potash mine and build three fertilizer blending plants at a cost of more than one billion dollars.
ICL applied to the then Ministry of Mines to transfer the mining license and the ministry was processing the request when ERCA claimed 50 million dollars tax payment from Allana Potash Afar. When ICL bought Allana Potash it assumed 10 million dollars VAT and Withholding tax arrears. ERCA also requested some 40 million dollars capital gain tax for the property acquisition. Allana Afar Potash refused to pay the tax claiming that it was made based on an “illegal tax assessment” and terminated the potash mine development project. According to ICL, the net value of the investment in the project as of June 30, 2016 was approximately USD 170 million.
ICL is the 6th largest potash fertilizer producer in the world and the 2nd in West Europe. ICL is a publicly traded company listed in the New York Stock Exchange (NYSE) with a capital of 12 billion dollars. Headquartered in Tel Aviv, Israel the company earns an annual turnover of over six billion dollars. The company was established by the State of Israel in 1968 and was privatized in the 1990s.