When Stefan Borgas took a call from a headhunter in 2012 offering him a position running Israel’s biggest chemicals group, it came with a warning: “There’s only one problem — the job is in Tel Aviv.”
Mr Borgas accepted it on the spot. The German had fallen in love with Israeli culture and high-tech ingenuity on a business trip a few years previously for Switzerland’s Lonza, his then-employer. “The headhunter dropped his phone, then said ‘Really?’” Mr Borgas recalls.
The job was at Israel Chemicals, the country’s second-biggest industrial company after Teva, the pharmaceuticals group. Within three months, Mr Borgas had moved to Tel Aviv, where he took a flat on Rothschild Boulevard, the tree-lined artery that runs through the beachfront city’s buzzy high-tech and café scene.
As a rare non-Israeli chief executive of a big company — and a non-Jewish German in a country founded largely by Jews escaping persecution in Europe — Mr Borgas had worried that his nationality would be an issue. In fact, “the contrary has been the case — I feel this gives me a notch of respect, at least in business matters”, he says.
However, Mr Borgas’ new job has landed him in the hot seat for other reasons: Israel has few natural resources other than natural gas and the mineral deposits that ICL mines in Israel’s southern Negev region, and regulators are keen to rein in the power of the companies mining them.
The previous government of Benjamin Netanyahu, prime minister, who was reelected to a fourth term in March, approved an increase in the mining tax that ICL pays to up to 42 per cent.
Mr Borgas and his board say this tax, the latest of several government decisions in recent years that have hurt ICL’s bottom line, will make it unprofitable to continue mining in its home country without cutting other costs. World prices for potash, its main product, have been falling.
The company froze further investments in Israel in response to the tax rise. Workers at ICL’s Bromine Compounds and Dead Sea Works plants recently went on a costly and protracted strike to protest against job cuts slated for the two plants — mostly through early retirements — after management altered terms of the lay-offs.
In February, protesters from Israel’s Histadrut union picketed against the job cuts on Rothschild Boulevard because they knew Mr Borgas lives there.
Asked about the inauspicious current regulatory environment in ICL’s home country, the 50-year-old Mr Borgas says amiably: “It’s pretty bad.”
The impasse puts the German chief executive in the delicate role of explaining to his workforce and to Israeli officials that for ICL — as for any global mining group — there is a wide world out there, notwithstanding the group’s status as an industrial icon and the Negev’s biggest employer. ICL is “a global company with Israeli DNA”, he says.
“It’s a company that evolved from natural resources in Israel — the Dead Sea and the Negev — and then has built downstream businesses abroad, because the markets are not here — it’s a very small country,” he says.
ICL’s core Israeli operation is the vast Dead Sea Works, where the company mines potash with the help of the desert sun in huge evaporation ponds. In one of them, tourists from nearby hotels loll on the dense briny water to have their pictures taken.
To build ICL’s value chain, Mr Borgas and his team have been buying up small specialty businesses: a Spanish fire foam company, a German group that makes meat spices, a phosphoric acid company in Brazil. It recently made a public offer to buy Alana Potash, a Canadian company developing a mine in Ethiopia. It announced a €400m investment last November in its Spanish operation.
“We have to be competitive,” Mr Borgas says of ICL’s current moratorium on investing in Israel. “It’s not a threat, it’s just a matter of business life.”
He is speaking in his high-rise office in Tel Aviv. His stylish shirt and tie are more formal than the standard business attire in Israel, where executives tend to dress down because of the heat.
Mr Borgas’s career would seem to have equipped him perfectly for steering an international business out of tight spots. He spent part of his childhood in France, speaks English with the faintest of accents and worked for 14 years for the German chemicals group BASF in Germany, China, Ireland and the US.
At BASF, one of his jobs was rebuilding the group’s vitamins unit after it had been convicted for price fixing in that market.
“This was one of my formative experiences — how to rebuild a business from scratch so it was really sustainable in the long run,” he says.
Sergio Marchionne, the veteran chief executive who now runs Fiat Chrysler Automobiles, hired Mr Borgas at Lonza. “We changed the company from a Swiss-dominated company to a global company, but with a lot of Swiss traits — the positive ones,” Mr Borgas says.
He is now trying to accomplish a similar feat at ICL: to make it more global, he says, but “use all the good things of Israel — the flexibility and the creativity”.
But Israelis, who marched in the tens of thousands in 2011 to protest against high living costs and the power of rich “tycoons” in their economy, are still in an unforgiving mood about big business.
To some Israelis, ICL represents the worst aspects of their industrial past: they see it as a milch cow that has been squeezed for many years’ profits by a rich owner, the London-based billionaire Idan Ofer, who through Israel Corp controls nearly half the company’s shares.
Yair Lapid, the populist finance minister in Mr Netanyahu’s previous government, was channelling some of this anger when he vetoed a planned megamerger between ICL and PotashCorp of Saskatchewan that the Israeli group’s managers argued would have created a global resource powerhouse. After consulting with a government committee on mineral royalties, Mr Lapid moved to hike ICL’s.
ICL insists it is not dodging its fair share of taxes, but instead asking the Israeli government for what Mr Borgas calls “a fair, internationally competitive” government tax take and a regime that rewards companies when they invest more, along the lines of other mining countries such as Canada. It also wants more predictable conditions in which to do business.
The group has been waiting for years for a government concession for its next mining field in the Negev, Barir. The lease on its existing Negev operation runs out in 2030; it has asked the government to extend it, arguing that 15 years is, as Mr Borgas says, “in the mining industry not very much ‘time’ at all”.
The government Mr Lapid sat in fell apart in December 2014, before the mining tax was implemented. ICL is now hoping for a more sympathetic hearing from Moshe Kahlon, the incoming finance minister in Mr Netanyahu’s cabinet that took office in May.
Unlike his predecessor, Mr Kahlon has thus far said little about his plans for the mining tax.
“He should judge us by what we can contribute in the future and create a stable environment that lets us do this,” says Mr Borgas.
However, unpredictability is a hallmark of Israeli business, meaning Mr Borgas — and the company he runs — will need to stay on their toes.
Culled from FT
