Minister of Finance Yuval Steinitz has promised not to surrender to pressure from the gas exploration companies, and to push forward the Sheshinski committee recommendations in full. In a combative speech at the Interdisciplinary Center Herzliya today, he denied the request to exempt the Tamar gas field from the recommendations, and called the request "brazen".
In addition to Steinitz, Prof. Eytan Sheshinski, Delek Energy Systems Ltd. (TASE: DEOL) CEO Gideon Tadmor, Deputy Governor of the Bank of Israel Zvi Eckstein, Prof. Rafi Melnick of the Interdisciplinary Center, Rabbi Michael Melchior (a leader in the struggle to raise oil and gas royalties and taxes), and Robert Pindyck of MIT, who assisted the Sheshinski committee, were present in the debate.
Steinitz began by talking about the government's handling of the global economic crisis and keeping fiscal discipline during the height of the crisis. "Our guiding principle, since the Netanyahu government was established, in dealing with the global economic crisis, is that the future economy is more relevant to the present than the present is to itself. Therefore, we must never forego the future to save the present. When talking about an anticyclical policy, there are limits. A little oxygen during a crisis to drive the wheels is important; a lot of oxygen turns to carbon dioxide because people understand that the future is sacrificed. He who sacrifices the future for the sake of the present is ruining the future."
When Steinitz got around to the main topic, oil and gas royalties, he said that in the past decade Israeli governments twice failed to raise oil and gas royalties, but that this time things were different. "We didn’t rush into this measure. We set up a professional committee of the highest standard to review the entire issue so that there would be no real professional claims. This committee, headed by a top academic, sat for eight months to review in an unbiased and professional way the fiscal regime on oil and gas discoveries. The committee reached its final conclusions last week, and now we see an aggressive campaign, part of which is legitimate and part of which is illegitimate and crosses red lines, against the establishment of the committee and against its conclusions. I favor debate, but there are red lines," he said.
Steinitz implied that the threats made by Tamar's partners not to develop the gas field were against the law. He reiterated his ultimatum to the gas exploration companies: develop the reserve or return the license to the state.
"There are only two alternatives: either develop the reserves or return the holdings and the licenses. This is no longer a question of this or that tax. The gas discoveries to date, including Tamar and Leviathan, are worth $150 billion at current prices, or about NIS 700 billion, and there are expectations of more discoveries. Energy companies that will make tens or even hundreds of billions of shekels in profits, how is it possible to understand that they are trying to prevent the state and its citizens from their share on the basis of international norms? Why should Israel's billionaires profit more than their colleagues in Europe or the US? There's a limit to greed!"
As for the argument that the increase in taxes and royalties should not be applied retroactively on existing discoveries, Steinitz said that many other countries, including the UK and the Netherlands, raised taxes on existing discoveries. "This demand is illegitimate in an international perspective. They are also stamped on the licenses that changes in the royalties regime are possible. It's written in the licenses."
As for the demand to exempt Tamar from the Sheshinski recommendations, Steinitz said, "This means taking NIS 40-50 billion that should go to the state and its citizens and putting it in the pockets of the energy companies, their big investors, and the billionaires. It's impertinence. It takes impertinence to make the claim at all. It's impertinent of the billionaires to ask the state for a present of NIS 40-50 billion. There's no justification for it, either legally or morally."
Steinitz said that he would not accept the demands of the energy companies. "I won't surrender to pressure. In the end, there's a reasonable profit for the investors and the energy companies, but the People of Israel and the State of Israel have the right to benefit from their natural treasures," he said.
Steinitz gave his support to proposals by Governor of the Bank of Israel Prof. Stanley Fischer and Prime Minister Benjamin Netanyahu to adopt the Norwegian model to set up a sovereign fund for the oil and gas receipts, which would be invested in infrastructures, education, defense, and other needs.
"There is no reason why Israel should look like a banana republic which capitulates to the oil and gas billionaires. We will do what has already been done in Europe, the US, and Canada. Israel meets the test, and it will not surrender to pressure, and the Sheshinski committee final report, which offers the right balance between guarantees profits and financial wherewithal, and ensuring the interests of the state, will be pushed forward quickly. This story will be ended and we will rush to develop our natural resources."
Published by Globes [online], Israel business news - www.globes-online.com - on January 11, 2011
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