Antitrust Authority to examine Tamar gas contracts

The Antitrust Authority is worried about restraint of trade, while private power producers say the entire market is being frozen.

Private power producers are angry by The Antitrust Authority director general David Gilo's decision to require them to send their gas supply contracts signed with the Tamar gas field partners to him for approval.

Key players in the private electricity and natural gas markets say that Gilo's new demand is liable to delay, and even jeopardize, some of the private power station ventures that are due to built in the coming years. Moreover, the demand comes just as Israel faces a severe electricity shortage. The developers argue that even if the demand is justified, its unexpected timing greatly damages market certainty, given that the rules of the game have already been changed several times in recent years by the Sheshinski Committee, the Public Utilities Authority (Electricity), planning and building commissions, and others.

The private power producers believe that Gilo's demand will effectively freeze all the bank financing agreements for the power stations until the significance of the changes he wants to make are clarified.

"Every regulator comes along and demands his pound of flesh when it suits him, and without taking into consideration the demands of another regulator, even when there is a contradiction between the demands," a developer of a private power station told "Globes". He warned, "If the prime minister doesn’t intervene, a private electricity market will not be built in Israel."

The problematic clause

Yesterday, Gilo notified all the companies that have signed gas supply contract with the Tamar partners - Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), and Alon Natural Gas Exploration Ltd. (TASE: ALGS) - that they must send him the contracts for approval. The contracts are with Israel Electric Corporation (IEC) (TASE: ELEC.B22), private power producers Dalia Power Energies Ltd and Edeltech Ltd., and manufacturers Hadera Paper Ltd. (TASE: AIP; Pink Sheets: AIP) and Mashav Initiation and Development Ltd., which owns Nesher Israel Cement Enterprises Ltd. All these companies need Tamar's gas for the production of electricity or for their manufacturing operations.

Gilo's demand will probably also apply to contracts signed with private power producer Dorad Energy Ltd. and Israel Corporation (TASE: ILCO).

Gilo's letter states, "A preliminary review of the agreements signed to date between the Tamar reservoir partners and each of the customers… indicate that they appear include restraint of trade, and therefore require approval of the supervisory system."

The letter states that the Antitrust Authority is mostly concerned about the "take or pay" clause in the contracts, which state the estimated minimum amount of gas that the customer commits to purchasing and pay for. The usual proportion of take or pay clause in gas supply contracts is 80%. Gilo is concerned that if the "take and pay" proportion is too low, it will fill the gas pipeline's limited capacity by current customers and block future customers, while in practice the amount of gas purchased by them will be far lower than stated in the contracts.

Published by Globes [online], Israel business news - - on April 2, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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