Mekorot Reports 291% Profit Surge Amid Regulatory Dispute with Water Authority

Mekorot, Israel's national water company, reported a 291% increase in net profit for the second quarter of 2026, reaching 243 million shekels. This sharp rise is largely attributed to accounting adjustments rather than operational improvements, including a 195 million shekel reversal of impairment losses due to lower interest rates and discount rates. Despite the profit jump, Mekorot's revenues slightly declined to 1.43 billion shekels compared to the same quarter in 2025, while operating profit rose 40% to 138 million shekels.

The company is embroiled in an escalating conflict with the Israeli Water Authority, its regulator, over a controversial accounting regulation introduced at the end of 2025. Mekorot claims the regulation fails to recognize its full costs and investments, undermining its financial stability and hindering its ability to fund critical water infrastructure projects, which require about 1.6 billion shekels annually. As a result, Mekorot's board has halted new development projects unless individually approved, aiming to preserve financial resilience.

Mekorot has petitioned the Israeli Supreme Court against the regulation, describing it as causing a sudden 1.5 billion shekel impairment of its assets. The Water Authority warned that failure to meet at least 95% of investment targets by year-end could lead to a 7% reduction in cost recognition. In response, the Government Companies Authority has supported Mekorot, cautioning against imposing sanctions that could worsen the company's already fragile financial condition, which includes negative cash flow, significant impairments, working capital deficits, and reliance on debt financing.

The dispute centers on governance and financial oversight, with the Government Companies Authority accusing the Water Authority of overstepping by attempting to usurp the board's authority while threatening sanctions. The Water Authority maintains the issue is a professional-economic disagreement rather than a legal one. A Supreme Court hearing on the matter is scheduled for late March 2027.