After months of negotiations, heavy pressure from the natural gas partners, strong public criticism for caving in to the tycoons, and the resignation of Antitrust Authority director general Prof. David Gilo as the result of government pressure for concessions on the compromise plan for the gas sector, the political-security cabinet will convene today (except for Minister of Finance Moshe Kahlon, who elected not to participate in the discussions because of his close relations with Isramco Negev 2 LP (TASE: ISRA.L) controlling shareholder Koby Maimon) to discuss the gas sector plan. The cabinet is not expected to make changes in the plan, and will not be asked to approve it; what is at stake is a decision that it involves a matter of state justifying the bypassing of the Antitrust Authority director general.
Just before the cabinet's decision, Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz told "Globes" that the state had stood up to the gas companies, not caved in to them.
"Globes": What do you think is the plan's most significant achievement?
Steinitz: "The most important thing for Israel is the development of the Leviathan reservoir, and the plan takes care of that. The Leviathan reservoir was discovered in 2010, and nothing has been done with it since then. The fact is that not only was the reservoir not developed and the tax revenues that the state could have received postponed, but since then, not a single international company has come to Israel. On the other hand, all the international companies did go to Lebanon and Cyprus, which have far fewer gas reserves. How can you explain that? The answer is that Israel is apparently not attractive enough."
Maybe the public feels that the state gave in to the gas companies, and did not guard the public interest.
"About the public interest - I was the one who fought against the gas companies to double the taxes they pay, so no one's entitled to preach to me about this. Furthermore, this argument is simply wrong. The state fought now, too. It's important for the public to realize that Israel imposed restrictions on the gas companies that no other Western country has. The first is the restriction on exports. As of now, less than half of the gas is designated for exports, and that's a very harsh restriction for the companies. A second restriction is the gas price; we're the only Western country setting a roof price. The third and most stringent restriction is telling the gas companies that invested money in exploration and found gas that they have to sell or dilute their holdings in the reservoirs. In effect, we're telling the companies, 'We made a mistake, we're sorry, but we've decided to take away your reservoirs.'"
The state is proud that the Karish and Tanin reservoirs will be sold within 18 months, but only yesterday, Edison S.p.A , the leading candidate to buy the two reservoirs, said it would be unwilling to wait more than a few months.
"I think they'll sell them within a few months. Delek Group Ltd. (TASE: DLEKG) and Noble Energy (NBL) have an interest in selling them as quickly as possible, for several reasons. The first is that only when the two reservoirs are sold will the export rights from them be transferred to Leviathan (the gas from Karish and Tanin is designated for the domestic economy, and the export quotas for them will be given to Leviathan, H.C.). The second reason is that Delek Group and Noble Energy want to see the money as soon as possible. The third and most important reason is that they don't want the reservoirs in the hands of a trustee, because then the state will be the one to decide on what terms it will sell the reservoirs. Nobel Energy and Delek Group tried to prevent the transfer of the reservoirs to a trustee, but that's something I insisted on."
When will the plan be released to the public?
"There's no reason not to publish it today, after the cabinet meeting, or tomorrow morning."
Prof. Eitan Sheshinski, Steinitz's advisor, who headed the committee that doubled taxation on gas profits, backs up Steinitz. Talking to "Globes," he said, "I think that one of the most significant things that is not being talked about is that the plan will make it possible to carry out the committee recommendations (the Sheshinski Committee, H.C.) on gas prices in export contracts. What we feared at the time was that the gas companies would perform manipulations. They could export the gas to company X at a low price, on which they would pay taxes, and company X would sell it to a third company at a higher price. In the current plan, the gas companies will have to offer the same conditions in future gas contracts in Israel as in the export contracts."
"Globes": One criticism of the plan is that, with all due respect, there will not really be competition in the gas sector.
Sheshinski: "That's mistaken. Even if competition is not full, another player with a different policy will enter Tamar, and the sale of Karish and Tanin will add still another. Furthermore, the important thing is that a final date has been set for the development of Leviathan, and that's very important. Delek Group may have an interest in the rapid development of Leviathan, because it's getting out of Tamar, but Noble Energy, which is staying in Tamar, has the opposite interest. The plan requires Noble Energy to develop the reservoir by mid-2019."
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2015
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