The saga of the attempt on the part of the Israeli government, bureaucracy and political system to make it impossible to rapidly develop Israel's offshore natural gas reserves continues and accelerates. It has moved from tragedy to comedy to farce, and now appears to be parodying itself.
In a quick recapitulation, in March of last year director of the Israel Antitrust Authority David Gilo signed an agreement with the companies developing the gas fields. Ten months later, in December, he went back on the agreement and demanded changes. Since that time until the present there have been non-stop negotiations trying to resolve the matter, whereas he could have been overruled immediately by the then Minister of the Economy on grounds that he had broken a contract with the companies.
Luckily for Israel, the companies decided to negotiate rather than immediately bring suit against the state for breach of contract. After many talks and an intervening election, a new agreement was reached by all the parties. However, the new Minister of the Economy, Aryeh Deri, refused to use his power to overrule the Antitrust Authority and demanded that that responsibility be turned over to the national security cabinet. That transfer was approved by the full cabinet but then needed to be approved by the Knesset. Three members of Kulanu insisted on abstaining because of conflicts of interest. Thus in order to get a majority, the government needed the votes of Israel Beitenu. In a set of decisions worthy of the great surrealists, Israel Beitenu leader Avigdor Liberman declared that he favored the bill but would vote against it because he was in the opposition, and the job of the opposition is to oppose!
At this point, surprisingly, the companies were still willing to talk, so another agreement was hammered out, taking into account some of the objections of the opposition. It was approved by the full cabinet including Deri, but with the abstention of two Kulanu ministers and the opposition of the non-party environment minister. Liberman declared himself in favor again and this time did not pledge to vote against it. The new agreement, however, did not need to be submitted to the Knesset because it did not involve transferring override authority to the national security cabinet. Everyone breathed a sigh of relief and waited for Deri to take out his pen.
Now, Italian energy giant Eni has announced the discovery of a giant gas field in Egyptian waters, the interim anti-trust commissioner has said he would not approve the deal during his tenure and the prime minister decided not to ask for a vote in the Knesset. By the time the new permanent commissioner is named and confirmed even if he or she immediately approves the deal, months will have gone by.
It is impossible to make all of this up. If put in a comic novel, it would have been criticized as totally unbelievable. In the meantime it was announced that projected earnings for the State of Israel from natural gas sales from the Tamar field alone during 2015 were estimated to be about the equivalent of $220,000,000. And for this bonanza, that can be used to improve social services, or defense and security, or lower taxes, or any combination of the above, the state spent not one shekel. The companies made all the investments (except of course for security of the drilling platforms, but such expenditures, such as for coast guard vessels, benefits Israeli defense in general).
At this point it would not be at all surprising if Noble Energy simply refuses to negotiate further and concentrates on developing the Aphrodite gas field belonging to Cyprus. The government of that country may be bankrupt, but it is neither irrational nor dysfunctional, and is able to recognize a huge gift when it is offered. Israel will be lucky if the company doesn't sue it for breach of contract.
In the meantime, the giant Leviathan field will not be developed billions of shekels, hundreds of jobs and any possible geo-political advantages will be foregone. A sad tale, indeed, and one that could have been so easily avoided.
Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and teaches at the Center for National Security Studies and Geostrategy, University of Haifa.
Published by Globes [online], Israel business news - www.globes-online.com - on August 31, 2015