Note 17 – Right-Of-Use Assets, Net, Lease Liabilities and Long-term Deferred Expenses

The Group leases the following items:

Land

In Israel, the leases are typically entered into with government institutions for the construction and operation of OPC Power Plants’s power plants. They typically run for a period of more than 20 years, with an option for renewal. In the United States, the leases are typically entered into with private companies or individuals for the development, construction and operation of the CPV Group’s power plants.

ii)

OPC gas transmission infrastructure

The lease for the gas Pressure Regulation and Measurement Station (“PRMS”) relates to the facility at OPC Hadera’s power plant. For further details, please refer to Note 18.B.

iii)

Offices

The leases range from 3 to 9 years, with options to extend.

iv)

Low-value items

The total for low-value items on short-term leases are not material. Accordingly, the Group has not recognized right-of-use assets and lease liabilities for these leases.

Right-of-use assets

	As at December 31, 2023
	Balance at beginning of year		Depreciation charge for the year			Adjustments		Balance at end of year
	$ Thousands

Land		76,963		(3,770	)		18,300		91,493
PRMS facility		13,977		(1,209	)		1,766		14,534
Offices		8,353		(2,538	)		5,135		10,950
Long-term deferred expenses		27,491		(1,246	)		31,293		57,538
		126,784		(8,763	)		56,494		174,515

	As at December 31, 2022
	Balance at beginning of year		Depreciation charge for the year			Adjustments			Balance at end of year
	$ Thousands

Land		81,355		(3,484	)		(908	)		76,963
PRMS facility		6,239		(660	)		8,398			13,977
Offices		10,282		(2,142	)		213			8,353
Long-term deferred expenses		33,459		(1,129	)		(4,839	)		27,491	*
		131,335		(7,415	)		2,864			126,784	*

* Reclassified

Amounts recognized in the consolidated statements of profit & loss and cash flows

	As at December 31,		As at December 31,
	2023		2022
	$ Thousands		$ Thousands

Interest expenses in respect of lease liability		689		572

Total cash outflow for leases		2,692		2,572

Land lease agreements

Lease of OPC Tzomet land

In January 2020, Israel Lands Authority (“ILA”) approved allotment of an area measuring about 8.5 hectares for the construction of the Tzomet Power Plant (hereinafter in this Section – the “Land”). ILA signed a development agreement with Kibbutz Netiv Halamed Heh (hereinafter – the “Kibbutz”) in connection with the Land, which is valid up to November 5, 2024 (hereinafter – the “Development Agreement”), which after fulfilment of its conditions a lease agreement will be signed for a period of 24 years and 11 months from approval of the transaction, i.e. up to November 4, 2044. Tzomet Netiv Limited Partnership (“Joint Company’) own the rights in the Land, and the composition is as follows i) General Partner of the Tzomet Netiv Limited Partnership holds 1%, in which the Kibbutz and OPC Tzomet hold 26% and 74% respectively, ii) Limited partners hold 99%, where the Kibbutz (26%) and OPC Tzomet (73%) hold rights as limited partners.

In February 2020, an updated lease agreement was also signed whereby the Joint Company, as the owner of the Land, will lease the Land to OPC Tzomet, for the benefit of the project.

In January 2020, a financial specification was received from ILA in respect of the capitalization fees, whereby value of the Land (not including development expenses) of about NIS 207 million (approximately $60 million) (not including VAT) was set (hereinafter – “the Initial Assessment”). OPC Tzomet, on behalf of the Joint Company, arranged payment of the Initial Assessment in January 2020 at the rate of 75% of amount of the Initial Assessment and provided through OPC, the balance, at the rate of 25% as a bank guarantee in favor of ILA. In January 2021, a final assessment was received from ILA where the value of the usage fees in the land for a period of 25 years, to construct a power plant with a capacity of 396 MW was NIS 200 million (approximately $62 million) (the “Final Assessment”). In March 2021, a reimbursement of NIS 7 million (approximately $2 million), which included linkage differences and interest in respect of the difference between capitalized fees paid and the Final Assessment amount, was received. In addition, the bank guarantee was also reduced by the amount of 25% of said difference.

In January 2023, a decision was made regarding the initial appeal, whereby the amount of the Final Assessment was reduced to NIS 154 million (approximately $44 million), excluding VAT. OPC Tzomet filed an appeal on the said decision. As of December 31, 2023, the amounts paid in respect of the land, including the amount of the Final Assessment was classified in the consolidated statement of financial position under “Right of use assets, net” which amounted to approximately NIS 200 million (approximately $55 million).

ii)

Purchase of leasehold rights in land

On May 10, 2023, OPC (through OPC Power Plants Ltd.) won the tender issued by Israel Lands Administration (hereinafter - “ILA”) for planning and an option to purchase leasehold rights in land for the construction of renewable energy electricity generation facilities using photovoltaic technology in combination with storage in relation to three compounds in the Neot Hovav Industrial Local Council, with a total area of approximately 227 hectares. The amount of total bid submitted by OPC for all three compounds, in aggregate, was approximately NIS 484 million (approximately $133 million).

Upon notice by the ILA, a planning authorization agreement will be signed between the winning bidder and the ILA for a period of 3 years. In August 2023, consideration equivalent to 20% of the bid amount for each compound was paid. Upon authorizing a new outline plan, a lease agreement will be signed for a period of 24 years and 11 months, to construct and operate the project(s), of which consideration of the remaining 80% of the bid amount per compound will be set against. As of the approval date of the report, it is uncertain that approvals, consents, or actions required for the completion of the project(s) will be completed with respect to any of the compounds.

iii)

Backbone lease of land

In 2023, an agreement for the lease of land for the Backbone project was entered into force. The term of the agreement is 37 years, with an option to extend the term by five further periods of seven years each. Lease liability and right-of-use asset of NIS 122 million (approximately $33 million) were recognized.