Israel Electric Corporation (IEC) (TASE: ELEC.B22) will hold discussions with the partners in the Tamar natural gas reservoir for a reduction in the price of gas under the current agreement. An initial meeting between the parties will take place next week, IEC announced today.
The agreement signed by IEC in 2012 was based on a questionable linkage mechanism in which the price of gas was linked to the US Consumer Price Index with a 1% addition. In contrast to Israel, inflation in the US is 2% a year. The result has been an increase in the price of gas from $5.042 per BTU six years ago to almost $6 per BTU at present.
Gas prices in agreements being signed now are lower than $4 per BTU. How much is this costing us? According to figures compiled by professional parties in the electricity sector, every additional dollar paid by IEC for gas increases the consumer electricity rate by NIS 2 per kilowatt hour. Assuming average gas consumption of 16,500 kilowatt hours for a family of five, the difference between $6 per BTU and $4 per BTU will amount to over NIS 600 a year.
IEC legal advisor Yael Nevo told the Globes Israel Business Conference two weeks ago that the agreement with Tamar was an "anchor agreement that made possible the entry of private producers into the market, and introduced gas into the economy. As for the agreement itself, IEC insisted on the insertion of a clause designed to ensure a cheap price for electricity, but the Antitrust Authority director general refused to put it in the agreement."
The agreement signed by IEC with the Tamar partners was for 15 years, with two possible escape points at which the contract could be opened and the price lowered by a maximum of 25%. The closest escape point is in 2021.
"The company's management has given an unequivocal order to bring forward the date for reopening the contract concerning the price of the gas. We are currently conducting a dialogue with the partners in an attempt to reach agreement about the date for reopening the contract. According to a professional opinion, we have good grounds for reopening the price at an earlier stage, before 2021. This is our aim. We intend to employ all possible means to bring forward the opening of the contract," Nevo said.
The Tamar partners said in response, "In contrast to what was reported, the Tamar partners are conducting no negotiations on opening the contract with IEC. The Tamar partners are in regular contact with all of their customers, and are committed to all the contracts that they have signed."
Published by Globes [online], Israel Business News - www.globes-online.com - on January 30, 2018
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