Deutsche Bank slams Israeli natural gas regulators

Boaz Schwartz: The country is destroying national assets. Israeli regulators act as if they are in the Third World.

Deutsche Bank Israel general manager Boaz Schwartz yesterday launched an extraordinary criticism of the difficulties raised by Israeli regulators against the development of the Tamar natural gas field. At a Standard & Poor's Maalot Ltd. conference on financing the natural gas fields, he said that the Tamar partners had to reopen their gas supply contracts three times, due to regulatory upheavals - the cancellation of the gas terminal at Dor Beach, the Sheshinski Committee, and most recently, the amendments demanded by the Antitrust Authority and the Public Utilities Authority (Electricity).

Schwartz said, "Every day, I am amazed anew, when I see how the country destroys national assets. Israeli regulators act as if they are in the Third World, when Israel should grasp that membership in OECD creates obligations and not just rights."

Schwartz called the securing of financing for Tamar development a "miracle", adding, "Nowhere else in the world has such a thing happened to finance development of a gas field without signed contracts. As [Avner Oil and Gas LP (TASE: AVNR.L) CEO Gideon] Tadmor put it, the developers here worked backwards. This was due to Israel's special circumstances. It was clear to us that there would be a single supplier for at least some time, and it was obvious that the government would provide support, but we were misled."

Tadmor said that the Tamar field would be developed on time against all the odds, but added that the window of opportunity for natural gas exports was narrowing with the entry of the US into the export market and the intense competition for investment against other regions in the world, such as Australia and South America.

Ministry of Energy and Water director general Shaul Tzemach said that the current priority was to connect the offshore gas fields to shore as soon as possible, and that every month of delay cost the economy NIS 1 billion.

"We now know that gas in the ground is worth nothing. We have a lot of gas, and we're paying a lot for electricity," Tzemach said. He confirmed a "Globes" report about a Ministry of Energy initiative to build a marine gas pipeline network, to carry gas from offshore production rigs to terminals and justify the development of small fields. He said that $1.9 billion will be needed to finance 12 planned wells in the next two years.

Modiin Energy LP (TASE:MDIN.L) controlling shareholder Tzahi Sultan doubts that the Israeli capital market has the means to finance the amounts needed to develop the gas fields, saying, "Financing will come from foreign capital markets and foreign strategic investors."

Tadmor added, "We will see a transition from partnerships to companies, and we'll see corporations abroad, because we don’t see foreign investors here due to the limited turnover on the Tel Aviv Stock Exchange (TASE). Companies that want to reach the big money have to go overseas."

Schwartz said, "The partnership structure is wrong and not the way to raise capital. Private money can enter, but in another way, through hedge funds or in other ways.

Poalim Capital Markets - Investment Bank Ltd. unit Kanaf CEO Roy Yakir said that investment institutions would not invest in gas exploration because it was like investing in venture capital. Institutions were reevaluating their current investments in gas exploration companies in view of the risks in the energy market and uncertainty about the financial stability of key companies in it, such as Israel Electric Corporation (IEC) (TASE: ELEC.B22).

Published by Globes [online], Israel business news - - on July 5, 2012

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

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