Israel Ports: How the Ashdod Model Determines How Much Growth the Company Actually Keeps
The main article showed that activity recovered, but less cash stayed inside Israel Ports. This follow-up isolates the Ashdod mechanism: on meaningful revenue layers the company keeps only 25%, it still operates without a full permanent land agreement, and the background still includes safety-net commitments whose probability is remote but whose existence changes the quality of the economics.
The Ashdod Model: The Issue Is Not Growth, It Is Retention
The main article showed that port activity recovered, but less of that activity remained in Israel Ports' own bottom line. This follow-up isolates only the Ashdod thread, because that is where the more important question now sits: not how much revenue is created in the port area, but how much of it the company actually keeps.
First finding: in Ashdod, the default answer is not always 100%. Under the company's settlement mechanism with Ashdod Port, payments for port services in areas that were not allocated to the port company but were already occupied on the start date, and land-use rights in land that was occupied before the reform, are split so that Israel Ports keeps only 25% while Ashdod Port gets 75%. Only land-use rights in land that was not occupied before the reform remain 100% with the company.
That is the core of the story. In Ashdod, the same growth can produce very different economics depending on the type of land and right involved. If growth comes from older layers that were already occupied before the reform, the company keeps only a small part of it. If it comes from land that was not occupied before the reform, the retention rate jumps to 100%.
Second finding: the 2025 numbers already show the effect. In the board report, land-use-rights revenue totaled NIS 262.4 million, but after the transfer to Ashdod Port the net income left with the company was about NIS 195.7 million. So even before operating expenses or capital structure enter the picture, part of the value already leaves through the sharing formula.
What really matters is not only the numeric gap, but the principle behind it. A reader who looks at activity growth at the port may assume that Israel Ports operates like a landlord that naturally captures more value when usage rises. That is the wrong read. In Ashdod, the first question is always where the activity sits in the land-and-agreement map, and only then how much it grew.
Without A Permanent Agreement, The Economics Still Rely On Regulatory Patches
The second part of the story is not the split itself, but the quality of the framework that supports it. The board report reminds readers that the interim agreement with Ashdod Port was signed in February 2005 for 180 days or until a detailed agreement would be signed, whichever came first. Israel Ports argues that the interim agreement remains in force until a permanent agreement is signed and becomes effective. Ashdod Port disputes that position.
The company tries to calm that concern. Its position is that the absence of a permanent agreement has no material effect on operations or financial condition because the material issues between the sides are already governed by the Ports and Shipping Authority Law, the authorization letters and regulatory decisions. Formally, that is true. There is no operational vacuum. The authorization letters state that the port company cannot acquire land in the port area other than from Israel Ports, that it receives the land-use right subject to the law and the agreement, that it pays the state fixed usage fees of 4% of revenue, and that beyond that it pays the company variable usage fees as determined by agreement or ministerial approval.
But this is exactly where the difference begins between a functioning framework and a clean framework. When the Ashdod economics rely on a combination of law, authorization letters, the usage-fee order, ongoing settlements and regulatory rulings, the company can still operate and settle accounts. What is still missing is one permanent contractual document that fully resets land use, responsibility and sharing, like the one signed with Haifa in September 2020.
That background remains important enough for the auditors to keep flagging it explicitly. So even if management says the issue is not materially damaging today, the missing permanent agreement is still treated as something readers need to keep in sight.
| Layer | What is actually in force | Why it matters for value capture |
|---|---|---|
| The yellow area in Ashdod | Use is still based on the 2005 interim agreement, alongside a dispute over whether it is still valid until a permanent contract | The economics function, but they still rest on an old interim frame rather than on a full contractual reset |
| Usage fees | 4% fixed to the state, and variable fees to the company under an agreement or ministerial approval | Not every fee flowing through the system is company revenue |
| Authorization letters | They restrict land acquisition by the port company and subordinate use to law and agreed arrangements | Israel Ports keeps the landlord position, but not necessarily 100% of the upside |
| Ongoing settlements | Disputes are first escalated to the CFOs and, absent agreement, to the CEOs | The model works operationally, but it also shows that the relationship is not fully sealed |
The March 2025 regulation sharpens the point further. The ministers temporarily amended Ashdod Port's authorization so it would also apply to an additional area behind Berth 25 for 6 years or until the marine connectors are completed, whichever comes first. They also reserved the right to cancel that amendment if the area is not used optimally and continuously for port purposes. Then, on March 10, 2026, the parties signed a permit agreement allocating that area under the same temporary logic. That is the point in one line: even when activity expands, the solution still arrives through a temporary amendment and a targeted permit, not through a broad permanent agreement that settles the deeper issue.
The Safety Nets Remain In The Background, Even If Their Probability Is Remote
If the sharing formula explains why not all growth stays with the company, the safety nets explain why Ashdod also cannot be read like a clean rent stream with no downside link back to Israel Ports.
Under the operational safety net, the company committed to provide Ashdod Port with a loan only if two cumulative conditions are met: cumulative AFFO is negative, and the ratio of equity to total assets falls below 70% at the measurement date. Even then, activation is not automatic. A further test is required to determine whether the cumulative gap stems from macro causes or local causes, and a loan is calculated only if the macro component is larger. As of the report date, the loan amount would equal 72% of the cumulative gap attributed to macro causes, net of prior unpaid loans, and it would bear interest at prime plus 2%.
That matters for two reasons. First, this is not a grant. In a stress case the company would provide a loan that is meant to be repaid, principal and interest, out of half of Ashdod Port's excess cash flow. Second, the mere existence of the mechanism means the economic relationship is not one-directional. On some revenue layers the company keeps only a quarter of the upside, but in a defined downside case it can still become the support lender.
The good news at the 2025 reporting date is clear. With help from an independent external valuer, the company tested the probability of having to provide loans under the operational safety net through 2054 and concluded that the probability is remote. The pension safety net, which would cover an actuarial deficit if Ashdod Port faced a liquidity problem even after taking the required steps, was also assessed as remote. On that basis, no provision was recorded.
But even when the probability is remote, the analytical point still matters. The message is not that there is an immediate risk. The message is that Ashdod is not a simple landlord model where Israel Ports just collects rent and sits aside. It is a framework where the company shares part of the upside on meaningful layers and also carries a contingent support role in the background, even if the current odds of activation are low.
Conclusion
This continuation does not change the main article's thesis. It sharpens it. In Ashdod, the question of whether activity is growing is secondary. The first question is where it is growing: in layers where the company keeps only 25%, or in layers where it keeps 100%. Without that distinction, it is easy to read activity recovery as if it automatically improves the company's economics. It does not.
The missing permanent agreement makes that even clearer. The company is operating and settling within a functioning regulatory frame, but still without a full contractual reset with Ashdod. And with the safety nets still sitting in the background, even if they are currently remote, the picture is straightforward: Ashdod is not only a volume engine for Israel Ports. It is also a value filter. It determines how much of growth actually remains in the company, how much stays provisional, and how much still depends on a framework that is not fully closed.
That is also why the next 2 to 4 quarters can be reduced to three practical checkpoints. First, whether more activity shifts into land and rights where the company keeps a higher share. Second, whether a permanent agreement finally replaces the interim architecture. Third, whether the safety nets remain theoretical only. As long as those three questions stay open, even solid growth in Ashdod activity will not automatically mean equally solid growth in Israel Ports' own economics.
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