Sheshinski: The gas companies' threats are baseless

Prof. Eytan Sheshinski: No country in the world is prepared to accept restrictions on fiscal changes.

The Sheshinski committee officially published its recommendation for taxation of gas discoveries yesterday. In a radio interview this morning with "Globes" editor Haggai Golan, Prof. Eytan Sheshinski disclosed that all the committee's recommendations were unanimous.

In effect, you raised the state's share of the gas reserves from about 30% to about 60%. Your main argument is that this corrects an anomaly that continued for decades, during which the tax rate was unfair. Even if we agree in principle, why impose the new rate retroactively, on discoveries where production of gas has already begun in some fashion?

Sheshinski: "I think that the use of the word 'retroactive' is inappropriate. What we have done will apply to future revenues. Retroactive would mean that we were now taxing all the revenues of the years in which they did not pay what we see as the right level of tax. When we impose the rate now, it is called active fiscal policy."

But the gas and oil companies made their investments in the knowledge that there were certain royalty and taxation rates. Why then is it not retroactive?

"Let's forget the semantics of the word retroactive for a minute. They came in with certain expectations because those were the prevailing conditions. But the question of expectations is irrelevant. No government in the world will accept a situation in which it is restricted in its fiscal policy because of the expectations of investors or because of the previous situation. In the past four years, more than twenty Western countries, among them the US, the UK, Canada, and Norway, have changed their fiscal policies. According to your definition, all of them did so retroactively, according to mine, actively.

"Suppose the government were to cancel the VAT exemption in Eilat. Could someone come along and say, 'Excuse me, I bought a shop in Eilat on the assumption that there was an exemption?'"

Fine, but even if we accept this principle, what will happen if they say that, under these conditions, it simply doesn't pay to search for gas?

"It’s not worth talking hypothetically."

Why hypothetically? They're already saying it.

"According to all our calculations, and according to figures published by Noble Energy itself, the Tamar field, which is the relevant reserve for the next twenty years and beyond, is extremely profitable. It is one of the most profitable discoveries in the world in the past three years. There is no economic reason, none whatever, for them to say that in these conditions they won’t go in. When Noble came along, the probability of finding gas or oil at Tamar was 35%, and they thought the reserve was of the order of 107 billion cubic meters. Today, it’s clear that there are 240 billion cubic meters there, and the profitability of Tamar is not in doubt. The question is therefore completely hypothetical."

Are you not concerned that the Americans say 'A very large American company with a reputation in this industry went into the project, and had we known that the condition might change, we would have got out'?

"First of all, it isn't the Americans saying this. Noble Energy is saying it, not the United States of America. And I would point out that maybe Noble Energy should sue the US government, which recently made changes in the Gulf of Mexico. These threats have no basis. There is no country in the world that is prepared to accept a restriction on fiscal changes. As far as the question of financing and other questions are concerned, we are prepared to listen. We will hold hearings in three weeks' time. Incidentally, all our figures were taken from data they submitted. No figure was different."

You know that your recommendations have a long way to go there's the Knesset and lobbyists.

"True. We are only a professional committee, and the ball now goes to other playing fields."

How do you feel about the attempts made to delegitimize you personally?

"Of course I wasn't happy, to say the least. It was a campaign unprecedented in its financing and planning, but it didn't affect us one bit in our determination to deal with the issue. The matter of principle is so clear, and the change is so obviously required, that it made no difference."

Published by Globes [online], Israel business news - - on November 11, 2010

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

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