Israel Electric Corporation (IEC) (TASE: ELEC.B22)yesterday reported that it had signed a compromise agreement with Egyptian gas companies EGPC and EGAS. The Egyptian companies will pay IEC $500 million within eight and a half years, guaranteed by an Egyptian bank. IEC called the compensation "a huge sum," but it actually constitutes only 15% of the original $2.36 billion in compensation granted to IEC by an international arbitrator. The agreement is now contingent on a public hearing to be conducted by IEC. If the agreement is accepted, it could reduce the electricity rate by 2%, but it is far from providing compensation for the rate hikes early in the decade caused by the halt in the supply of Egyptian gas.
IEC regards the agreement as an "extraordinary public achievement." In an opinion submitted to the company, former Ministry of Defense director of policy and political-military affairs and former IDF intelligence research division Maj. Gen. (res.) Amos Gilead writes that just reaching an agreement with the Egyptian gas companies and the amount of compensation provided in it constitutes an important achievement. By signing the agreement, IEC waives the rest of the debt. It will be unable to demand more than $500 million even if the Egyptian gas companies do not pay what they owe under the agreement.
Explaining IEC's decision to nevertheless sign the agreement, CEO Ofer Bloch says, "IEC's management conducted persistent and determined negotiations with Egyptian companies, while it was clear to all the parties that the ability to collect the debt was virtually non-existent, and that any sum to be reimbursed to the Israeli public would be a huge achievement."
IEC senior VP and legal counsel Adv. Yael Nevo says, "IEC considered various means over the years for collecting the debt, in consultation with international parties informed about the process. Enforcing the arbitration ruling cannot be taken for granted, given the difficulty in enforcing and collecting the judgment. By any legal and business criterion, this is a success."
The compensation is for the halt in the flow of Egyptian gas in early 2012 in a unilateral breach of an agreement. This forced IEC to buy expensive diesel fuel in order to operate its power stations, for which IEC borrowed NIS 10 billion from the state. The electricity rate was raised for three years as a result, while IEC demanded compensation from the Egyptian gas companies through an international arbitration proceeding.
Bloch, IEC senior VP finance and economics Avi Doitchman, Nevo, VP restructuring and senior executive assistant to the president and CEO Adv. Amir Livne, and senior VP regulation, government relations, and communications Oren Helman conducted the negotiations on behalf of IEC. Adv. Yoav Dankner, Adv. Dan Sella, and Adv. Maram Hasan from the Erdinast, Ben Nathan, Toledano & Co. law firm represented IEC in the compromise agreement.
Commenting on the agreement, IEC chairperson Maj. Gen. (res.) Yiftah Ron Tal said, "IEC is proud of today's extraordinary agreement, in contrast to all of the pessimistic predictions that the company would be unable to collect any of the Egyptian debt. IEC has consistently acted with responsibility, transparency, and determination for the benefit of the public. We welcome the achievement, which provides for rare compensation from the Egyptian gas companies. Through this achievement, IEC is serving the public interest. The entire amount of compensation will be reimbursed to IEC consumers - the citizens of Israel."
Published by Globes, Israel business news - en.globes.co.il - on June 17, 2019
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