The lack of clarity surrounding Israeli gas reserve Tamar, because of the recommendations of the Sheshinski committee on state revenue from gas discoveries, is what tilted the balance in the decision of Israel Corporation (TASE: ILCO) to prefer a foreign gas supplier to Israeli gas, company chiefs said today.
Israel Corporation chairman Amir Elstein said he hoped that the Ministry of Finance would understand that it must expedite maters relating to Tamar if it wanted Israeli gas to have buyers. "All of Israel is aware of the hesitations, procrastinations, and confusion over this matter." Sources in the Tamar partnership blamed Minister of Finance Yuval Steinitz this morning for the loss of the deal, potentially worth $8 billion. "Steinitz has buried Tamar" they said.
Israel Corporation announced this morning that it had signed a number of gas supply agreements with Egyptian supplier EMG. Israel Corporation committed to buying a total of 1.8 billion bcm of gas over twenty years, in a deal worth $4.3 billion. The agreement includes an option to increase the quantity of gas to 2.9 billion bcm if by March 2011 the uncertainty over the supply of gas from Tamar has not been removed. The gas is for three power plants that Israel Corporation is to operate with natural gas: At Oil Refineries, at the OPC plant in the Rotem Plain, and at the Israel Chemicals works on the Dead Sea.
Talking to journalists following the announcement, Israel Corporation CEO Nir Gilad said, "This morning, we reported an agreement that represented the culmination of long negotiations conducted over the past year with the gas suppliers. The deal is for the purchase of gas by Oil Refineries, and OPC, with an option for purchasing by Israel Chemicals. We bought 50-60% of the amounts required. We hope that we will be able to complete the balance of the gas from the Tamar group, and we obtained an option to raise the quantities in case we do not sign n agreement with an Israeli supplier and are unable to buy Israeli gas. We conducted negotiations with two parties, and at a certain stage the Israeli supplier was unable to commit to the timetable necessary for our activity and to the deadline for signing the agreement itself. We have introduced positive discrimination in favor of Israeli gas by splitting the quantity, but that too has a time limit."
As reported by "Globes", Israel Corporation was acting under time pressure, among other things because of the personal order by the Minister of the Environment obliging it to operate its power plant at Oil Refineries in Haifa with natural gas from the moment the gas pipeline is connected in the first quarter of 2011.
Elstein added: "We must first of all ask whether a product exists on the other side. At this point, we do not have an available product with a clear timetable and a clear payment model. All of Israel is aware of the hesitations, procrastinations, and confusion over this matter. We made an effort that affects us adversely from an economic point if view, to delay signing for the other 50%, even though we could have bought at a good price."
Asked whether the company's decision would not harm relations with the Ministry of Finance, Elstein responded, "We don't generate value by negotiating with the Ministry of Finance. I hope that there are people at the Ministry of Finance who say that perhaps procedures should be expedited in the State of Israel so that we don't lose the Israeli gas."
Gilad added that geo-political considerations played no important part in the decision to prefer Egyptian gas. "The switch to gas will improve the bottom line of Oil Refineries and the quality of the air in the Haifa Bay area. The same applies to OPC, where our power station will start to operate towards the end of 2012."
Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2010
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