Globes | 5 October 2016
Mekorot demands €50m damages from Cypriot gov’t
by Nati Yefet
Mekorot National Water Company subsidiary Mekorot Development and Enterprise is threatening the government of Cyprus to petition the International Center for Settlement of Investment Disputes, which operates in cooperation with the World Bank in Washington. Mekorot Development and Enterprise alleges that the Cypriot government misled it, thereby causing it nearly €50 million in damages in violation of the 1998 Israel Cyprus Bilateral Investment Treaty (BIT) for mutual protection of investments. Adv. Niv Sever from the M. Firon law firm sent a letter on the matter to Prime Minister Benjamin Netanyahu, Minister of Justice Ayelet Shaked, and Minister of National Infrastructures, Energy and Water Resources Yuval Steinitz asking them to exert pressure on Cyprus to negotiate compensation for the company. Under the BIT terms, the warning period before filing a claim with an international institution is six months.
Mekorot Development and Enterprise’s allegations concern two tenders by the Cyprus Ministry of Agriculture, which Mekorot Development and Enterprise won jointly with local Cypriot partners. The first, published in 2007, was for planning, constructing, and operating a desalinization facility near Limassol. The second, published in 2012, was for the upgrading, expansion, and operation of an existing desalinization facility near Larnaca. Mekorot Development and Enterprise asserts that the Cypriot Ministry of Agriculture was tardy in providing access to the land on which the facility was built, causing a year’s delay in carrying it out and monetary damages. Construction of the facility was completed in 2012.
In the second case, Mekorot Development and Enterprise is alleging that only when it was given the facility near Larnaca did the company learn that it was in a significantly poorer technical state that described in the tender documents. Sever’s letter stated, "This state of affairs was not revealed by the Cypriot Ministry of Agriculture during the tender process… a critical element in the decision by Mekorot Development and Enterprise to commit itself to the project was that the desalinization facility would continue its activity over the entire period when it was being upgraded, which would have provided the cash flow needed to financing the upgrade." In point of fact, Mekorot Development and Enterprise asserts, the Cypriot Ministry of Agriculture ordered the facility shut down for three years.
Mekorot Development and Enterprise claims that all of its appeals to the Cypriot Ministry of Agriculture and other agencies were ignored for almost four years. In early 2013, the parties reached a compromise, but it was made conditional on approval by the Cypriot Ministry of Agriculture, which announced in mid-2015 that it did not accept the compromise. Two months ago, Mekorot Development and Enterprise notified the Cypriot Minister of Agriculture and the State Attorney’s Office that it was seeking official negotiations based on the investment treaty between the two countries, but received no reply.
"It must be made clear that under the terms of the treaty, the letter sent concerns solely the share of Mekorot Development and Enterprise in the projects, not that of the Cypriots," Sever wrote. "The assertion of discrimination, which is banned by the treaty, is based on the fact that during the entire period, the Cypriot government continued to purchase water from other desalinization facilities, which incidentally is also grounds for allegations of discrimination against local investors. What is amazing about these treaties, 38 of which Israel is a party to, is that they provide greater protection to a foreign investor than to a local investor."