Michael Sarel: Gas exports will cost Israel's economy

Dr. Michael Sarel

The former Ministry of Finance chief economist says exporting 400 BCM of gas will cost the economy billions of dollars.

Former Ministry of Finance chief economist Michael Sarel, who resigned because of his opposition to the 0% VAT plan for new apartments during the term of former Minister of Finance Yair Lapid, told the Knesset Economics Committee today that he opposed exports of natural gas.

"The government decision to export 400 BCM of gas will cost the economy billions of dollars in damage," Sarel asserted. He said the same thing in a report that he submitted in 2013, which was buried.

"The state's decision to export gas is based on a significant methodological error. The Tzemach Committee wanted to keep enough gas for the next 20-25 years, while allowing the rest to be exported. It did not, however, take maximization of the public benefit into account. It could be worthwhile, for example, to export all the gas, and use the money to build a nuclear power station, or to import other gas, and the opposite could also be true," Sarel declared.

Governor of the Bank of Israel Karnit Flug said Israel would not receive 60% of the gas revenue.

According to Sarel, the benefit maximization function used in the calculation included three variables: the benefit from the use of gas, the state's revenues, and the gas companies' profit. Two key assumptions were also taken into account: the export price of the gas and the interest rate for discounting by the government.

Sarel said that the calculation used a price of $5.80 per energy unit in the local market, and that the export price taken into account was $7 in the pessimistic scenario and $9 in the optimistic scenario. The discounting interest rate used was 2.6%-4.6%. "They are both too optimistic now. The gas export price will probably be the same as in the domestic market, and the discounting rate has fallen to 1.6%," he alleged.

Sarel also said, "It is being argued that the gas will not be developed without exports, but that may not be true. It might be enough for the banks if 100 BCM or 200 BCM is exported, with no need to export 400 BCM."

Published by Globes [online], Israel business news - www.globes-online.com - on December 1, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Dr. Michael Sarel
Dr. Michael Sarel
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