One of the biggest gas supply contracts that was supposed to allow the development of Leviathan was the contract to supply gas to BG's liquid gas installation in Egypt. As part of the letter of intent signed in June 2014 between the parties, Leviathan was meant to export about one sixth of its reserves to the liquid gas installation. Due to the regulatory problems in Israel no final agreement was signed and the entry of Shell into the picture, after it acquired BG, raises questions as to whether the deal will ever go ahead.
However, a senior executive at one of the gad development companies told "Globes," "The Leviathan-BG deal is not off the agenda. We are in contact with them all the time and they are still interested in the Leviathan gas. They are even prepared to build the gas pipeline themselves from the field to the installation at a cost of $2 billion. However, they have a condition. They say that you are a crazy country and there is no chance that we'll invest $2 billion if our signature has no value. The most important thing in the gas outline agreement that was approved is the stability clause."
The executive said, "Every month that Leviathan gets delayed, the public loses NIS 1 billion. Divided by 1.5 million households, every family loses more than NIS 650 each month. I'm not only talking about families in Ramat Aviv Gimmel but also families of Ethiopian immigrants in Yerucham."
He added, "No clause in the gas roadmap matters except the stability clause."
He gives as an example the clause binding Tamar and Leviathan to spend at least $500 million on local procurement. "That's anyway something that the companies are doing. The Tamar partners have invested NIS 2 billion to date in services in Israel, which is already more than the agreement demands. If I have to order metal work services from Scotland or Afula , it's clear that I'll prefer Afula because it's cheaper. If I need manpower, it's clear that I'll prefer Israeli workers rather than importing from Houston, and if I need an electricity box, I'll prefer Afcon Industries Ltd. (TASE: AFIN) over Siemens. Our interest in higher local content is also the interest of the State."
Answering a question about whether the new price mechanism, which has been added to the outline agreement and allows cutting the gas price from $5.4 per thermal unit to $4.7, will adversely influence the development of Leviathan, he said, "This price is nonsense. Whether the price is $4.70 or $4.90 or $5.40, we can cope with anything. The only thing that is important for the development of Leviathan is the financing organizations. Not me or the government will decide if the field gets developed but the banks, and the most important thing for the banks is stability.
The proof of this is the letter sent by the CEO of Deutsche Bank chairman of the Israeli Foreign Banks Association Boaz Schwartz to the Kandel Committee." In the letter, Schwartz claimed that financing the Leviathan project is the largest ever known in Israel, "Twice the size of Tamar." He added that, "The regulatory environment including solving the fiscal problems with the Antitrust Authority is crucial for the financing bodies. This is true mainly for projects in extra deep waters (like Tamar and Leviathan), which require higher financing expenditure and have higher risk." Schwartz even appeared before the public hearing team and proposed defining the development of the gas fields including Leviathan, Karish and Tanin as national projects that would earn the partnerships tax deductible at source on interest payments.
"In addition a mechanism must be found that will ensure compensation if something happens in the political arena that influences the gas supply contracts."
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2015
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