Energy Ministry Backs Shapir Engineering's Bid for Oil Refineries

The Ministry of Energy supports Shapir Engineering's bid to acquire control of the Ashdod Oil Refineries (ORL), contrary to the position of the Concentration Committee. Ministry Director General Yossi Dayan argued in a position paper submitted to the Companies Authority that without a controlling core or strategic investor, ORL cannot operate efficiently, fund its development, or make optimal decisions. This contradicts the Concentration Committee's July ruling, which found no basis for such concerns.

The Ministry of Energy has requested a rehearing of the committee's decision on granting control to Shapir. The Ministry of Finance also reportedly leans towards supporting the deal, potentially leading the Companies Authority to disregard the Concentration Committee's recommendation. If the Finance Ministry's stance aligns with Energy's, the Companies Authority might ask the Concentration Committee, headed by Michal Cohen, for a new discussion or reject its recommendation, which was made by a two-to-one majority.

Avi Simhon, the Prime Minister's economic advisor and head of the National Economic Council, was the dissenting voice on the committee, supporting the permit for Shapir. The Concentration Committee's majority opinion, published on July 30, stated that Shapir's acquisition of ORL, itself a concentrated entity, would increase the overall economic concentration of the Shapir group, controlled by the four Shapira brothers, placing it among Israel's most concentrated entities. The committee also determined that blocking the deal would not significantly harm consumer welfare, the legal benchmark for such decisions.

The committee highlighted Shapir's significant infrastructure holdings, including light rail projects, toll roads, quarries, and extensive involvement in state and defense infrastructure projects. Adding control of ORL could increase Shapir's bargaining power with government ministries, risking "excessive influence and regulatory capture." The committee noted ORL's strategic importance, supplying about 40% of Israel's fuels and cooking gas, with its significance expected to grow as the Haifa oil refinery is slated to close early next decade.

Dayan's position paper contended that the committee's decision did not sufficiently weigh ORL's current and future importance to the energy sector, emphasizing its critical role in producing essential distillates, promoting competition, and stabilizing prices. He also stressed ORL's vital role in ensuring Israel's energy security, especially given potential threats to energy infrastructure, citing an Iranian missile strike on the Haifa refinery during a war and other malfunctions. These factors necessitate ORL's resilience, stability, and ability to invest in future development.

Dayan concluded that ensuring proper corporate governance for ORL, including a controlling shareholder capable of addressing its challenges without delay, is imperative. While the Ministry stressed the need for a controlling owner, it did not explicitly name Shapir, though the phrase "without further delay" suggests support for Shapir, which might face a prolonged battle if its bid is rejected. Shapir Engineering, controlled by the four Shapira brothers, currently holds a 10% stake in ORL, acquired in June 2023 when ORL was split from Paz. Shapir has an option to increase its stake to 65% by 2028. ORL is currently trading at a record high valuation, with other entities, including NOF and Summit, also showing interest.