Antitrust Commissioner David Gilo to resign in August amid gas disputes

By
May 25, 2015 14:41

Gilo says he is convinced that convinced government outline will not bring competition to sector.




Israel's natural gas

Israel's natural gas. (photo credit:MINISTRY OF NATIONAL INFRASTRUCTURES)

Antitrust Commissioner David Gilo announced on Monday he will leave his post at the end of August amid a disagreement with government officials over competition in the natural-gas market.

“My decision stems from a number of considerations, primarily from the news that the government, in particular the Prime Minister’s Office, the Finance Ministry and the Energy Ministry, will do all that they can to promote the outline formulated recently in the natural gas sector – an outline that I am convinced will not bring competition to this important sector,” Gilo said in a statement to the press.

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He was referring to a compromise outline presented two weeks ago to the natural-gas companies Delek Group and Noble Energy by an interministerial team – from the Finance Ministry, the National Economic Council and the National Infrastructure, Energy and Water Ministry – aimed at solving a dispute that has largely frozen new gas development since December.
Gilo said he informed Economy Minister Arye Deri of his forthcoming resignation on Monday.

The stalemate in the natural-gas sector stems from Gilo’s December 23, 2014, declaration that he would review whether the dominance of Delek and Noble in the Mediterranean gas sector constitutes an illegal “restrictive arrangement.” Although gas from the 282-billion cubic meter Tamar reservoir, located about 80 km. off the coast of Haifa, has been flowing into Israel since March 2013, development of the neighboring 621-b.cu.m. Leviathan reservoir has been unable to proceed because of the dispute.

The compromise outline, which government officials said was received favorably by the companies, would require that Delek Group’s subsidiaries Delek Drilling and Avner Oil Exploration exit the Tamar reservoir entirely, selling their assets there within six years. Houston-based Noble Energy would only need to dilute its assets from its 36-percent share today to 25 percent, and could remain the basin’s operator.

Both companies would be required to sell their holdings in two much smaller offshore reservoirs, Karish and Tanin. Unlike previous drafts of the compromise outline, this version revokes a mandate that all Leviathan shareholders market their gas to the Israeli market separately.

Other issues, such as gas pricing and increasing export flexibility, are still under discussion, government sources said two weeks ago.

Gilo has continued to oppose the outline’s terms, voicing support for separate marketing from the Leviathan reservoir and denouncing Noble’s sale of any gas from the Tamar basin to the Israeli market.

To Gilo, the government’s advancement of the outline comes “potentially at the cost of harming independence, which is important from a public perspective, of the Antitrust Authority, or of damaging its ability to act unilaterally.”

He stressed that, from the beginning of the dispute, he has held the opinion that the matter should be solved among the companies and government officials rather than in the courts. If the matter had proceeded to court, Delek and Noble could have threatened to prevent the development of the gas reservoirs, he explained. As a result, Gilo said, he formulated the initial compromise outline on the matter, which was presented to the companies in February – an outline that included separate marketing from the Leviathan reservoir, among other differences.

“I believe that if all of the government offices had continued to be united behind that more competitive outline, there would have been a reasonable chance to implement it in the end, whether through an agreement or unilaterally,” Gilo said. “However, as mentioned, I have been told in recent days that the government and the ministries are aiming to do all in their power in order to advance the outline formulated in recent days.”

Acknowledging that such decisions may have “far-reaching consequences that are not related to competition, such as in foreign affairs and security and energy independence,” Gilo said these other concerns seem to be “at the heart” of the government’s considerations.

“Therefore, I do not think that it would be fitting or correct for the regulator in charge of competition to implement unilateral actions in the face of the overwhelming opposition of other government agencies, and without any support on their part,” he said. “I hope that the other government ministries will change their position regarding the outline. I will be here for three more months and I can help, including in examining the use of all of the powers available to me, if I have the support of the ministries.”
In response to Gilo’s decision, Prof. Eugene Kandel, head of the National Economic Council, stressed that he appreciates the work they have done together over the years, but noted that they have “a professional dispute regarding the optimal development of the gas industry.”

“The outline proposed by the government was formulated by a number of government agencies that toiled daily to promote competition in many branches of the Israeli economy,” Kandel said, adding that Gilo was the only government official to reject the latest version of the compromise. “The outline proposed by the government ensures competition in the gas sector, the extraction of gas from the earth, and energy security for the citizens of Israel, and promotes the arrival of Israeli gas market investors, as well as the political interests of the State of Israel.”

Government officials feared that by implementing Gilo’s preferred version of the outline, Israel could scare away investors and freeze the industry, according to Kandel.

“We need to learn from other countries that learned the hard way that policies that seem popular in the short-term become destructive in the long-term by stopping investment and preventing development of the industry,” Kandel continued. “What is offered today are responsible policies for the good of the State of Israel.”

Meanwhile, during Monday’s Likud faction meeting, Prime Minister Benjamin Netanyahu said the country’s mission regarding natural gas is to “remove it from the sea and bring the gas to the citizens of Israel.” Emphasizing that he, too, appreciates Gilo’s work, Netanyahu said all of the other parties supported the latest outline and “its power to realize the gift we have received from nature.”

Like Kandel, Netanyahu argued that the outline will increase competition and ensure the resource’s extraction, in addition to promoting political interests by supplying gas to the region.

“We need to ensure that the solution in Israel will not duplicate what happened in other countries,” the prime minister said, referring to situations in which gas was left in the ground for years. “This will not happen here. We are committed to a solution that will extract the gas from the deep sea and bring it to the citizens of Israel, and we will go ahead with advancing this solution.”
Finance Minister Moshe Kahlon, who ran his electoral campaign on the theme of breaking monopolies, remained mum on the subject Monday.

In December, Kahlon promised that he would recreate the magic he worked in making the cellular market competitive when he was communications minister to other sectors, citing banking, housing and, yes, gas.

“The root of the problem is concentration. It’s monopolies. It’s a country that has become a country of monopolies, cartels and oligopolies,” he said at the time.

On Monday, however, he seemed unfazed by the accusation that the decision he supported would not promote competition, and refused to offer an explanation as to why the compromise outline was a more suitable approach than the one Gilo championed.
The new energy, national infrastructure, energy and water minister, Yuval Steinitz, also did not comment on the situation.
Deri expressed regret that the antitrust commissioner was choosing to leave office, stressing that he had tried to persuade him not to quit.

“Professor David Gilo is a first-class professional and he performed his duties with integrity and loyalty,” Deri said. “I spoke to him and tried to convince him to continue in his position.”

In the Knesset plenum on Monday, MK Shelly Yacimovich (Zionist Union) called upon Deri to continue to try to persuade Gilo to stay, and Deri said he would.

“Gilo is the most senior regulator, the most professional among those who deal with natural gas, and his resignation is a serious blow to the public and a victory for the gas companies and their representatives in the government,” Yacimovich said.
The Movement for Quality Government, as well as a number of other Knesset members, likewise called for Gilo to withdraw his resignation.

“Do not abandon the Israeli economy at this difficult time,” the NGO said. “All of Israel’s citizens stand behind you, back your efforts and support your professional decisions. Return and undertake the struggle to dismantle the gas monopoly and the other ills of the economy, for the future of our country.”

MK Dov Henin (Hadash) said Gilo’s resignation should “concern each and every one of us,” and accused the government of “choosing to crush his recommendations and continuing to favor the interests of the gas monopoly tycoons over the public interest.”

MK Tamar Zandberg (Meretz) praised Gilo for his role as a “gatekeeper” and his ability to stand up for the public interest.
“I call upon members of the new government to seriously discuss Gilo’s opinion about dismantling the gas monopoly,” Zandberg said. “It would be a grim message to the public if the next antitrust commissioner would be appointed knowing that he must bend and give in to the gas monopoly as an opening position.”

Niv Elis contributed to this report.


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