Ministries maneuver as Sheshinski leaks scare banks

Cancellation of the depletion allowance is a main concern, as it can affect the royalties paid.

The Ministry of Finance and the Ministry of National Infrastructures are in talks to come up with a formula to prevent damaging the development timetable of the Tamar natural gas field. Sources inform ''Globes'' that discussions in the past few days raised various proposals for transition arrangements for Tamar. A source involved in the talks said, "The current proposed recommendations are not the final proposal, and changes are likely."

Ideas raised include postponing implementation of the depletion allowance for Tamar, or to institute it gradually. The Sheshinski committee's proposal to cancel the depletion allowance is currently the most problematic proposal as far as the oil and gas exploration companies and their bankers are concerned, because calculations indicate that cancellation of the depletion allowance could raise an extra 10 percentage points to the royalties, to 22%.

The two ministries are talking against the backdrop of Minister of National Infrastructures Uzi Landau's threats to attach a minority opinion as part of the Sheshinki committee's final report. Such an act is liable to hinder cabinet approval of the report, and make it easier for oil and gas exploration companies to appeal against the report to the High Court of Justice.

On Monday, in response to an article by "Globes" on plans to levy taxes on Tamar too, the Ministry of National Infrastructures announced, "After the figures leaked to the press from the Sheshinski report even before its publication, it cannot be ruled out that the final report will include a minority opinion."

Ministry of Finance officials are increasingly worried about damaging the Tamar project if a solution is not found for the issue.

Sources at the Ministry of National Infrastructures told "Globes" that the ministry would not compromise on its demand to guarantee that the Sheshinski committee recommendations will not delay the start of gas deliveries from Tamar, scheduled for 2013. The sources added that other considerations, including concerns about harming investors' confidence in Israel, were secondary.

Sources inform ''Globes'' that the Association of Foreign Banks in Israel recently warned the Sheshinski committee of the repercussions for Israel's credibility in the eyes of international investment institutions of deviating from agreements and guarantees.

One representative went so far as to say, "Even in Africa, contracts aren’t changed like Israel wants to do. There would be an outcry if another OECD member state were to allow itself to change the rules retroactively."

Published by Globes [online], Israel business news - - on November 10, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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