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Israeli desalination company threatens Cyprus with €50m lawsuit  

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AN Israeli desalination company is threatening to sue Cyprus under its investment treaty with Israel, seeking damages of up to €50 million.

According to reports in Israeli and Cypriot media, Mekorot Development and Enterprise, a subsidiary of the Mekorot National Water Company, alleges that the Cypriot government misled it, thereby causing it nearly €50 million in damages in violation of the 1998 Israel-Cyprus Bilateral Investment Treaty (BIT) for mutual protection of investments.

Mekorot is now threatening to petition the International Centre for Settlement of Investment Disputes, which operates in cooperation with the World Bank in Washington.

Under BIT terms, the warning period before filing a claim with an international institution is six months.

Israeli business website Globes reports that Mekorot’s allegations relate to two tenders issued by the ministry of agriculture, which the company won jointly with local Cypriot partners.

The first, published in 2007, was for planning, constructing, and operating a desalination facility in Episkopi, Limassol. The second, published in 2012, was for the upgrading, expansion, and operation of an existing desalination facility near Larnaca.

The company asserts that the ministry of agriculture was late in providing access to the land on which the facility was to be built. It took the ministry a year to appropriate the land – located in a Sovereign Base Area – as a result of which the company sustained monetary damages.

Construction of the facility was completed in 2012.

In the second case, Mekorot claims that only once it was given the facility near Larnaca did the company discover that it was in a significantly poorer technical state than described in the tender documents.

  1. Firon & Co, the Israeli law firm representing Mekorot, states that because the Larnaca facility was not operational, the project did not generate the expected cash flow which the company could have used to finance the upgrades.

Moreover, the law firm states that the agriculture ministry ordered the facility shut down for three years. The desalination facility in question had been constructed by a different company shortly after 2000.

According to Mekorot, all its appeals to the agriculture ministry were ignored for almost four years.

In early 2013, the parties reached a compromise, but it was made conditional on approval by the agriculture ministry, which announced in mid-2015 that it did not accept the compromise.

Globes reports that the law firm has also sent a letter on the matter to Israeli prime minister Benjamin Netanyahu, as well as to the country’s ministers of justice and national infrastructures, asking them to exert pressure on Cyprus to negotiate compensation for the company.

In August of this year, the law firm representing Mekorot addressed a letter to agriculture minister Nicos Kouyialis and to attorney-general Costas Clerides, laying out the company’s claims and arguments. Mekorot says it received no reply.

Asked to comment, Kouyialis told the Cyprus Mail he was “surprised” by Mekorot’s talk of now seeking recourse at the International Centre for Settlement of Investment Disputes in Washington.

This is because in June or July of this year, the attorney-general’s office, which was in contact with the Israeli law firm, already agreed to Mekorot’s demand for international arbitration on the matter – though not at the International Centre for Settlement of Investment Disputes.

Prior to that, said Kouyialis, the Central Committee on Changes and Claims had ruled against Mekorot’s claims. Mekorot next demanded international arbitration, at which point the attorney-general’s office became involved.

The same Israeli law firm, which specialises in international investment treaties, is currently representing another group of Israeli investors, who are likewise threatening to sue Cyprus unless they are awarded the concession to explore for hydrocarbons in Block 8 of Cyprus’ economic waters.

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