The Israel Electric Corporation (IEC) (TASE: ELEC.B22) board of directors has ordered the company's management to negotiate the reopening of the gas agreement with the Tamar natural gas reservoir partners. IEC is paying nearly $6 per MMbtu, compared with $4.70 paid by the private electricity producers. The price is expected to continue rising, because it is linked to the US consumer price index.
The Tamar partners are Delek Drilling Limited Partnership (TASE: DEDR.L), Isramco Negev 2 LP (TASE: ISRA.L), and Noble Energy, the operator of the reservoir. The IEC's $1.2 billion contract over 15 years is the anchor contract that made it development of the Tamar reservoir possible. When the contract was signed, however, then-Antitrust Authority director general David Gilo struck down the mechanism agreed by the IEC and the Tamar partners, ruling that the price that the company pays would be linked to the lowest future price at which the gas partners sell gas to other customers.
IEC chairman Yiftah Ron-Tal said, "The price is high, and should be revised as quickly as possible. There is a mechanism for adjusting the price in 2021, and we demand that this mechanism be brought forward to early 2018. If we are unsuccessful, we'll have to think about what other actions we can take to ensure that it happens.
"I am determined, and the board of directors has instructed management to take all legal measures to make this agreement fair to both parties. As I see it, at least, according to my best judgment and understanding, fairness requires lowering the price next year, not in 2021."
The Tamar partners said, "The IEC-Tamar contract has saved the IEC and the Israeli economy tens of billions of shekels. The agreement was approved by the government and IEC's management, and ratified de facto in the gas plan. The Tamar partnership will continue to fulfill all of its obligations under the agreement, and has no doubt that IEC will do the same."
Published by Globes [online], Israel Business News - www.globes-online.com - on June 28, 2017
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