Last week, the partners in the Leviathan natural gas field were to have signed a compromise agreement with the state on the structure of the gas sector in Israel, after Israel Antitrust Authority director general Prof. David Gilo decided on a two-month postponement of his statement on the issue of an agreement in restraint of trade. Two months and one week have passed since that decision, but the compromise agreement appears more remote than ever. Meanwhile, the Antitrust Authority is avoiding meetings with the gas companies and the other regulators.
In view of the deadlock, the gas companies are concerned about a sudden declaration of an agreement in restraint of trade. The Antitrust Authority is trying to calm things down by saying that no such announcement will be made in the coming weeks before a government is formed and the new Minister of National Infrastructure, Energy, and Water Resources appointed. The gas companies say that such a declaration will not be just another milestone; it will completely change the picture, because Nobel Energy will not accept being cited as a lawbreaker. For its part, Nobel Energy is already preparing its lawyers for the day after the declaration.
Last December, Gilo announced that he was retracting the agreement he had reached with the gas companies, and the Israeli gas industry has been marking time ever since. Nobel Energy has laid off workers and suspended its investments, Italian company Edison has threatened to leave Israel if a solution to the regulatory problems is not found soon, the negotiations for exporting gas to Egypt and Jordan, which would have guaranteed the development of Leviathan, have been put on hold, and the only gas export contract signed, with the Palestinian Authority, has been canceled.
Government representatives have held dozens of meetings with the gas companies since Gilo's announcement, and in February, the government presented the gas companies with an outline of an arrangement for the gas sector. The main points of the proposal were price controls for gas, competition between the partners in the Leviathan reservoir (separate marketing), dilution of Delek Group Ltd. (TASE: DLEKG) and Noble Energy's holdings in the Tamar reservoir, and the sale of the Karish and Tanin gas reservoirs.
Several days after the outline was signed, however, the state realized that the model of separate marketing from the Leviathan reservoir was impractical. First of all, the solution is technically complicated, and secondly, it could cause problems in the development of the Leviathan reservoir. In a scenario in which the gas companies are competing with each other and only one company wins all or most of the gas contracts, the other companies will be unable to obtain financing for developing the reservoir. Without a common interest of all the companies in developing the reservoir, it cannot be developed.
The state also realized that it had to withdraw some of the other sections in the compromise agreement. For example, the Ministries of Finance and National Infrastructures, Energy, and Water Resources are willing to concede the diluting of Nobel Energy's stake in Tamar, asserting that if it operates the reservoir, the extent of its stake in it is irrelevant. Where the price of gas in Israel is concerned, there is a dispute between the regulators who say the price is reasonable and those who say it is a problem, especially its linkage. Either way, price controls are not what is holding up the negotiations.
The main problem is that the Antitrust Authority is sticking to the outline of the proposed compromise. As indicated in the Antitrust Authority's announcement two months ago, it is willing to grant an extension to achieve a solution to the problem of competition "on the basis of the government outline." Since the government outline has not been on the agenda for some time, and since the Ministries of Finance and National Infrastructures, Energy, and Water Resources are looking for other solutions to the problem, Gilo has absented himself from the talks for the past two weeks.
Published by Globes [online], Israel business news - www.globes-online.com - on April 30, 2015
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