Israeli gov't faces gas cartel conundrum

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Budgets Director Amir Levy: We'd prefer three companies operating in the gas market.

The government economic ministries and the Bank of Israel have begun to study the consequences of Antitrust Authority director Prof. David Gilo's expected decision to break up the cross-holdings of Delek Group Ltd. (TASE: DLEKG) and Noble Energy in the Tamar and Leviathan natural gas reservoirs. Government sources told "Globes" that Gilo's decision had come as a complete surprise to the Ministry of Finance and other ministries, where it had been assumed that Gilo would submit the compromise proposal signed by the parties on March 27. Under this proposal, Delek Group and Noble Energy could retain control of both Tamar and Leviathan, while selling Tanin and Karish, two smaller gas reservoirs. "We thought that this story was already behind us, but now we'll have to review it," a cabinet source told "Globes."

At a conference of the "Calcalist" newspaper today, Ministry of Finance budget director Amir Levy was the first senior official to publicly comment on Gilo's decision, saying that he "took responsibility" for the budget division not having dealt with the subject of gas up until now. "As long as we thought that Tanin and Karish was still a possibility, we hesitated between supervision and a single buyer. As of now, because something in the circumstances has changed, we want there to be three players. We can't afford to remain with a single player; that's intolerable. The desirable gas sector structure is at least three companies operating in the market. That's where we want to go.

"The searches were unsuccessful, and the deal for the sale of Tanin and Karish was apparently not good enough. We have two alternatives. One is to achieve this optimal market structure of three large companies; the other is to use regulatory tools, which I don't like so much, such as price controls or the establishment of a single buyer versus the natural gas monopoly. Of these two alternatives, I say definitely - we prefer a competitive market structure. We prefer three companies, and we'll try to bring it about. I don't know whether it’s possible, but we'll try to do it by consent."

Yesterday, Prime Minister Benjamin Netanyahu decided to intervene in the crisis created by queries on the part of parties in the US administration. The Prime Minister's Office announced yesterday that Netanyahu had instructed National Economic Council head Prof. Eugene Kandel to do staff work, in view of the Antitrust commissioner's new stance. The staff work concerns the government's involvement in promoting competition in the gas sector. Kandel and his deputy, Morris Dorfman, were previously involved in the work of two inter-ministerial committees: the Tzemach committee for regulating the gas sector, which limited the amount of gas allowed for export, and the Sheshinski committee for determining a fiscal regime for profits on the sale of natural gas.

Sources in the Prime Minister's Office said that the correct balance had to be found that would make it possible to produce gas soon from the sea, and also to supply it at a competitive price to every Israeli. Kandel's team is due to recommend alternatives to the prime minister, but at this stage, it is unclear whether its recommendations will affect Gilo's decision making process. By law, the government has no authority to intervene in Gilo's decisions. The Antitrust commissioner is expected to publish his final decision after conducting a hearing for representatives of Delek Group and Noble Energy. Due to the holiday season in the US, which begins today, the hearing will probably be held only in mid-January.

Netanyahu's intervention in the gas crisis follows queries to his office from parties in the US administration seeking to understand the meaning of the expected decision. The US administration has recently made great efforts to bring about the signing of an agreement for the supply of gas from the Leviathan reservoir to the Jordanian Electric Power Company. The administration planned to hold a festive ceremony in the coming weeks for the signing of the gas agreement, to be attended by senior Israeli and Jordanian figures, but it appears that the ceremony will be called off, in view of Gilo's announcement.

Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

drilling platform  picture: photo to go
drilling platform picture: photo to go
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