Fair value of land in electricity production sites
As part of the Reform in the electricity sector and restructuring the Israel Electric Corporation:
Following Government Decision No. 3859 of June 3, 2018, the reform in the electricity sector is underway. The objectives of the reform include, inter alia, streamlining the electricity sector, encouraging competitiveness in it, preparing for the economy’s transition to clean energy, electric vehicles, and renewable energies, and enhancing the financial strength of the Israel Electric Corporation. The reform in the electricity sector and the restructuring of the Israel Electric Corporation Ltd. Includes six main issues:
- Reducing the monopolistic power of the Israel Electric Corporation in the electricity generation segment and focusing it on the grid segment – As part of this, IEC will sell the Alon Tavor, Ramat Hovav, Reading, Hagit (part of the site) and Eshkol production sites. Part of the area at the Rotenberg station (which was intended for the construction of a coal-fired station) will be transferred to the Israel Land Authority for sale.
- Maintaining the IEC’s activity in the transmission and distribution segments as a licensee of an essential service provider.
- Separating system management from the electric company.
- Opening the supply segment to competition.
- Streamlining and leadership of managerial flexibility in the Electric Company.
- Strengthening the financial strength of the Israel Electric Corporation.
The sale of production sites, which include active power plants, are carried out by way of a tender that includes obtaining a license for the production of electricity. The government’s decision includes a list of IEC’s commitments in accordance with the understandings formulated in the framework of the reform discussions, inter alia regarding the production segment, according to which IEC will sell to third parties five production permits in a manner that enables continued activity at the production facilities sold.
The Electricity Authority, By virtue of its function under the Electricity Sector Law, 5756-1996, and its other powers under law, and pursuant to Government Decision No. 3859 of June 3, 2018 and Authority Decision No. 1(1253) from meeting No. 542 of May 15, 2018 (hereinafter: “Decision 542”) the Electricity Authority determines a decision regarding the price of land at the tat the production sites.
To date, 3 decisions of the Electricity Authority regarding the land at the sites: Alon Tavor, Ramat Hovav and Hagit, for the purpose of calculating the fair value as part of the sale of the site by the Israel Electric Corporation Ltd have been published.
Resolution 542 stipulates that the consideration for the sale of the sites sold under the reform will be at a fair value of the property and in any case will not be less than the value of the sale, plus the value of the land, as determined by the Authority.
In order to determine the value of the land, the Authority ordered a real estate assessment to assess the value of the land for the site, whose area is approximately 123 for Alon Tavor site, app.129 dunams for Ramat Hovav site and 170 dunams for Hagit site.
The assessment underwent a theoretical review by the Real Estate Appraisal Division of the Ministry of Justice, and the conclusion of the review is that it can be approved.
The assessment was commissioned for the purpose of determining the tariff cost that will be recognized by the IEC as part of the implementation of the sale of the company’s production sites in accordance with the reform in the electricity sector.
The assessment is based on the following principles: free market conditions are met; A criterion of a voluntary buyer from a voluntary seller (market value) when the land is empty, vacant and free of any pledge debt, mortgage and third-party rights; The assessment is based on comparison transactions from the immediate vicinity as well as from Israel Lands Authority tenders in the vicinity of the property, with adjustments to the location of the subject of the opinion.
We have attached 5 land appraisals that were published to date: