IEC: Egypt gas cutoff won't affect us

Egyptian officials: The decision is commercial, not political.

"The events are not expected to have a material adverse effect on the company," said Israel Electric Corporation (IEC) (TASE: ELEC.B22) in its official response to yesterday's announcement by Egypt that it was terminating the gas supply contract with Israel.

Oil Refineries Ltd. (TASE:ORL) also stated that it would not be affected by the cancellation of the agreement, because it has alternative liquid fuels.

"The events are not expected to have a material effect on the company's financial condition or on its cash flow beyond what has already been reported," said IEC. Egyptian gas deliveries have been constantly interrupted by 14 attacks on gas pipelines in Sinai, which carry natural gas to Israel, since February 2011. Egypt delivered natural gas to Israel via East Mediterranean Gas Company (EMG), in which Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL) owns a 12.5% stake.

IEC also mentioned its international arbitration proceedings against Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS). IEC is seeking compensation for the heavy damage caused, and which will be caused to it, by the violation of the gas supply and purchase agreement.

Oil Refineries said that in view of the disruptions and delays in gas deliveries, it is using alternative fuels to Egyptian gas. "The company is using liquid fuels, which cost substantially more than Egyptan gas."

Yesterday, Ampal, controlled by chairman Yosef Maiman announced that EGPC and EGAS had notified EMG that they were terminating the gas supply and purchase agreement with it.

The termination is a breach of the economic appendix to the Israel-Egyptian peace treaty, which states that Egypt will supply oil to Israel. The oil was replaced by natural gas a few years ago. The appendix states that Egypt undertakes to supply the amount of gas that Israel requests, in exchange for payment.

Egypt's Minister of Petroleum Abdullah Ghorab told news agency Bloomberg last night that the decision to cancel the gas agreement was not political but commercial, and that Egypt was exercising its rights under the agreement.

Similarly, Mohamed Shoeib, chairman of Egyptian government gas company EGAS, which was the entity that cancelled the 20-year old agreement, told Egyptian newspaper Al-Ahram that the decision was of a commercial-economic nature. "EGAS decided to end the agreement because the other party did not fulfill its obligations," he said, meaning that EMG had not paid the Egyptian government royalties in full, which was because of the disruptions to the supply of gas by sabotage since the fall of Egyptian president Hosni Mubarak.

Published by Globes [online], Israel business news - - on April 23, 2012

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

Published by Globes [online], Israel business news - - on April 23, 2012

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

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