The natural gas supply between the Tamar partners, led by Delek Group Ltd. (TASE: DLEKG) and Noble Energy Inc. (NYSE: NBL), and Israel Electric Corporation (IEC) (TASE: ELEC.B22) is in jeopardy, because the demand by IEC's board of directors for the lowest price on the market, a source involved in the negotiations told "Globes".
IEC's board of directors, is due to approve the $17 billion gas contract this week, but is insisting on inserting a clause equivalent to a most favored nation clause, even though the Antitrust Authority director general David Gilo would probably void it. An inquiry by "Globes" found that former IEC CEO Amos Lasker persuaded the utility's board to insist on this clause. The Tamar partners will reportedly sell gas to IEC at $5.50 per million British Thermal Units.
When IEC and the Tamar partners signed letter of intent in January 2010. Lasker persuaded IEC's board to subject its approval on the insertion of a most favored nation clause in the final contract, which would obligate the suppliers not to sell gas to other customers for less than they contracted to sell the gas to IEC.
The Tamar partners are due to sign a $1 billion gas supply contract with private power producers Dalia Power Energies Ltd. within a few days. IEC is afraid that the Tamar partners will close deals with private power producers at lower prices than for IEC, in order to block future power producers. IEC contends that this would give private power producers an unfair advantage, and result in the general public effectively subsidizing large power consumers that are customers of the private power companies.
Most favored nation clauses are common in international gas contracts between a supplier and an off-take (anchor) customer. IEC justifiably contends off-take status, because a contract with it is a prerequisite for the banks to approve the billions of dollars in financing needed to develop the gas field. Delek Group and Alon Natural Gas Exploration Ltd. (TASE: ALGS) together need $1.1 billion in bank financing for their share in Tamar's development, and Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) needs several hundred million dollars.
The Tamar partners oppose including a most favored nation clause in the IEC contract, on the grounds that it is illegal and violates antitrust laws. Legal sources believe that Gilo will not attach great importance to international practice concerning most favored nation clauses when he examines the legality of such a clause between Israeli companies.
Noble Energy owns 36% of Tamar, Delek subsidiaries Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) each own 15.625%, Isramco owns 28.7%, and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) unit Alon Gas owns 4%.
Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2011
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