The cabinet will be asked to vote on the amended gas roadmap agreement on Sunday. However, it still remains unclear whether Minister of Economy Aryeh Deri will be satisfied with the improvements achieved in the roadmap and will agree to an exemption on binding arrangement, or will demand that the matter is re-discussed in the Knesset.
The agreements reached last night between the government and the natural gas developers Noble Energy Inc. (NYSE: NBL) and Delek Group Ltd. (TASE: DLEKG), include two substantial changes from the original agreement. The first determines that the new gas agreements that will be signed will be linked to the production component in the Public Utilities Authority (Electricity) rate. The production component expresses the costs of a basket of fuels used to produce electricity (including coal of which the price has plunged by dozens of percentage points over the past year), and Israel's Consumer Price Index (CPI).
The significance of linkage, is that the price of gas in the new agreements will be about $4.60-4.70 per thermal unit compared with average prices in the existing agreement of about $5.40-5.60 per thermal unit. The fall in prices is expected to also influence the main gas agreement between the Israel Electric Corporation (IEC) (TASE: ELEC.B22) and the Tamar partners that was revised in 2012, according to the level of prices in the economy.
The other main change in the new agreement is the introduction of a milestone in the timetable for the development of the Leviathan field. The new milestone says that the developers will commit to invest $1.5 billion in the next two years in developing the field. Violating this commitment will allow the State of Israel to open up the regulatory stability clause in the agreement, in which the government commits to maintain the status quo until 2025.
The Ministry of Finance said last night that that the changes agreed, to a large extent implement the recommendations that were raised during the hearing by government representatives, such as the Bank of Israel Governor Karnit Flug.
Published by Globes [online], Israel business news - www.globes-online.com - on August 13, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015