Israel Electric Corporation (IEC) (TASE: ELEC.B22) plans to try to obtain partial ownership of East Mediterranean Gas Company's (EMG) natural gas pipeline from El Arish in Sinai to Ashkelon ahead of the filing of a huge lawsuit against the Egyptian gas supply company.
The suggestion came up during internal discussions at IEC, which hopes to acquire assets of EMG shareholder Hussain Salem, who fled Egypt during the revolution, and is apparently residing in Spain. The new Egyptian government wants to extradite Salem, a confidant of ousted President Hosni Mubarak and his sons.
In the absence of guarantees by Salem for EMG's gas supply contract with IEC, IEC's attempt to obtain his assets in EMG will face legal obstacles. Given the inability to reach EMG's shareholders, IEC, assuming it wins arbitration, will have to try to obtain EMG's sole known asset - the pipeline.
Last week, IEC's board of directors authorized management to begin proceedings to file a multibillion shekel lawsuit against EMG for the non-delivery of natural gas for 200 days since the beginning of 2011, as well as other contractual violations. The case will probably be handled through international arbitration. Sources inform ''Globes'' that IEC has hired prestigious British law firm Norton Rose to represent it.
EMG and IEC signed the gas supply contract in 2005. The contract was revised in 2009 and the price of gas was raised by 40%. The contract also sets out terms of claims and the settlement of disputes between the parties. Sources inform ''Globes'' that arbitration would be heard under International Criminal Court (ICC) rules in Geneva. Each party will name one arbitrator and the two arbitrators will name the third.
EMG built the 87-kilometer El Arish-Ashkelon pipeline and its related facilities at a cost of $180 million, provided by IEC under the 2005 contract. The pipeline is part of the Arab network that is due to connect Egypt, Israel, Jordan, Syria, and other countries.
EMG claims that it invested $550 million in building the pipeline, but other sources, relying on the contractors' documents, say that the actual figure is much less. The question of rights to the pipeline is also unclear, because one report states that the National Bank of Egypt lent $380 million for the project.
It is interesting to note that the presentation made by EMG shareholder Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL) in January states that EMG still owes $203 million, apparently to the lender bank. Ampal also said in that presentation that the pipeline cost $450 million to build.
Published by Globes [online], Israel business news - www.globes-online.com - on September 27, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011