Israeli ministers approve regulatory blueprint for gas development

By CALEV BEN-DAVID
Bloomberg

The Israeli cabinet approved a regulatory blueprint for developing the country’s natural gas fields, backed by Prime Minister Benjamin Netanyahu and opposed by detractors who call it overly generous to energy companies.

Ministers approved the outline by a vote of 17-1. The framework will now go for a final vote to parliament, where Netanyahu’s coalition holds a one-seat majority.

The government says the arrangement will attract new investors to explore and develop offshore fields, speed exports to regional neighbors including Jordan and Egypt, and pump billions of shekels of taxes and royalties into the economy.

“Every objective test proves this outline is a significant improvement over the existing situation,” Netanyahu said before the vote. “The gas will be extracted from the bottom of the sea and will reach Israeli citizens, Israeli industry and the Israeli economy,” he said, according to a e-mailed statement from his office.

The government has been negotiating the framework with Texas-based Noble Energy and Israel’s Delek Group, principal owners of the country’s two biggest gas fields, Tamar and Leviathan. Since the outline’s terms were announced on Thursday, the Tel Aviv Oil and Gas index has gained 5.9%, the biggest two-day jump since April 6, reaching its highest since June 25.

Under the arrangement, Noble will have to reduce its stake in Tamar, Delek must sell all of its interests in the field, and both companies will have to sell off two smaller gas sites, Karish and Tanin. The framework establishes a price ceiling and an indexing mechanism to regulate gas prices, and sets milestones for the companies’ development of the fields.

Inadequate Competition?

Israel Antitrust Authority head David Gilo resigned in June to protest the terms of the framework, arguing it doesn’t do enough to create competition in the gas sector. Bank of Israel Governor Karnit Flug came out in support of the plan last week with certain reservations, saying it would enable “more stable regulation” of the gas market.

Opposition Labor lawmaker Shelly Yachimovich slammed the framework as an “unbelievable display of crony capitalism” that will “perpetuate a powerful private monopoly” over the gas fields.

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