Commercial Water Bottling Comes Under Renewed Scrutiny

The recent sale of the Mayanot Eden mineral water company to Rhone Capital, a foreign private equity firm, has raised questions about state regulation of natural water sources.

The Salukia Spring in the Golan Heights, where the company has been drawing water for Mey Eden for 30 years, was given over to the company without having to pay royalties and without any public bidding for rights to the spring, reports Haaretz.

Not that it was unusual. Israel’s mineral water industry is based on the principle “first come, first served.” Whoever found a spring was routinely issued a permit by the Israel Water Authority to pump water from it, at bargain prices: Mineral water companies pay the industrial rate of NIS 6 per cubic meter, much lower than the rate charged to households, and then resell it to consumers at about 1,000 times the cost.

Particularly irking to social justice groups is that the lucrative sale, worth 120 million shekels, will continue to deprive the state coffers of royalites, since it’s being taken over by a foreign firm, which will probably also be exempt from royalties.

The policy of what some regard as state giveaways of natural resources to private interests isn’t limited to the water sector.

“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.”

In the current climate of anger over austerity measures for the poor while the rich appear to enjoy a range of breaks and benefits, the government cannot remain oblivious to the situation.

So, the day after the Mayanot Eden sale, the Finance Ministry announced a new committee to look into the issue of royalties for natural resources: Sheshinski II (named after Eytan Sheshinski, who headed the panel that examined the royalties on natural gas).

Sheshinski II comes five years after the state, in response to a petition by the Association for Distributive Justice (ADJ), told the High Court it would review the situation. The ADJ argued that the sale of water by the companies violates the Water Law, and that allowing bottling companies to have the water at reduced prices is unjustifiable, since the water is not a raw material but is marketed as the product itself.

“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.”

Mey Eden sees it differently.

“When a foreign fund comes and invests money in Israel, it’s the biggest blessing the finance minister and citizenry could hope for,” an executive told Haaretz. “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.” As for depriving the state of royalties, “This is a product that’s all sold in Israel, so why pay royalties?”

The Water Authority also sees nothing amiss. “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.”

There is also an environmental issue. Commercial marketing of water depletes the springs and the surrounding water sources.

At Ein Gedi, constant pumping by the kibbutz for Ein Gedi Mineral Water lowered the flow of water in the nearby Nahal David nature reserve. The Salukia Spring has been impacted by commercial exploitation. Mekorot has had to channel groundwater to Nahal Zavitan, behind the spring, to keep it from going dry.

“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 miles, and soak the consumer for billions … both in shekels coming out of his pocket and also from the environmental damage.”

This article appeared in print on page 28 of the June 26th, 2013 edition of Hamodia.