No one in the government will admit it, and no one will confirm it, but the Sheshinski Committee was the best thing that ever happened to the natural gas developers in Israel. Yes, I am referring to Prof. Eitan Sheshinski, the bete noire of the gas investors and the victim of the anonymous campaign of vilification against the committee he headed.
It is true that the committee doubled the tax paid to the state by the developers and stopped the gas boom on the Tel Aviv Stock Exchange (TASE). It is also true that the committee changed the rules of the game after the fact, thereby setting a disturbing precedent for the business sector and the state in Israel. It is also true that the committee, or, more correctly, the aggressive campaign waged against it by the developers, caused huge public relations damage to Yitzhak Tshuva and his partners, who changed overnight from working class heroes and economic saviors into evil gas barons and public enemy number one. It is all true, but at the same time, the committee also pushed through a strategic change in the balance of power between the developers and the state - and this change is the best thing that happened to Delek Group Ltd. (TASE: DLEKG) and Noble Energy since the gas discoveries themselves.
Had it not been for Sheshinski, it would have ended up worse for the developers. Before the committee, the state did not impose any tax on exploitation of natural resources, and this injustice would never have continued under any circumstances. The state had several ways of proceeding against the developers, and the one chosen was the best for Tshuva and his partners. On the one hand, the state increased its share of the profit to 60% or more, but on the other hand, it became the main shareholder - the senior partner in the gas reservoirs.
Sheshinski did more: according to his model, the state is not an ordinary shareholder in the reservoirs - not a speculator seeking to sell and make a quick profit. The state is a long-term strategic investor willing to wait for years for its money and preferring that the developers use the money now for investments in development and infrastructure, instead of distributing it as a dividend.
Ever since the Knesset passed the Sheshinski bill, the policymakers in Jerusalem have been on the gas developers' side. The Ministry of Finance budget department pushed with all its might to allow the developers to export as much gas as possible. National Economic Council head Eugene Kandel fought against every initiative that threatened to delay development of the gas reservoirs. Of course, there are also some who refuse to toe the line; Antitrust Authority director general Prof. David Gilo, for example, decided that he was unwilling to take into account any considerations other than his small fiefdom of promoting competition - after all, safeguarding national interests is the government's job, not his. Meanwhile, however, Gilo is in a minority even in the Antitrust Authority itself.
Therefore, anyone proclaiming (including from the Knesset rostrum), "The state is surrendering to the gas monopoly" and "The officials folded under pressure from the tycoons," has a distorted view of reality. The state is not giving in to the monopoly; it is its concealed partner and unseen patron. It wants Tshuva and his partners to make profits, and as much as possible. That is not because the state has, God forbid, become a lover of monopolies and an admirer of tycoons. The state would prefer competition and a perfect market, but its main concern is not breaking the monopoly or subsidizing the price of gas to the consumer. The supreme interest is to safeguard the revenue expected from taxation of the gas reservoirs, that $126 billion due to flow from the reservoirs over the next 20 years, especially the $54 billion due to go straight into the state budget. Only Noble Energy and its partners can deliver these goods, or so the state believes, at any rate. So Noble Energy and Delek should have only one thing to say to Sheshinski - thank you.
Published by Globes [online], Israel business news - www.globes-online.com - on May 20, 2015
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