Knesset panel votes for special treatment of offshore field

By SHARON WROBEL
January 4, 2011 23:48

MKs want to exempt gas find from proposed higher taxes; excluding Tamar from tax regime would lower state's future revenue by billions.

4 minute read.



Tamar offshore gas field.

tamar offshore gas field_311. (photo credit: Courtesy)

The Knesset Economics Committee on Tuesday voted in favor of excluding the Tamar gas find from the final recommendations of the Sheshinski Committee, which seek to sharply raise the state’s take from natural gas production.

The panel’s vote has no material significance for the approval or nonapproval of the recommendations, and is more declarative in nature.

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Excluding the Tamar offshore gas discovery and other sites that are currently under exploration from the proposed new tax regime would lower the state’s future revenue from natural resources by billions of dollars.

“Our interest is the energy market in Israel and ensuring proper electricity supply to the public,” Shaul Zemach, director-general of the National Infrastructures Ministry, said at the Economics Committee meeting in Jerusalem on Tuesday. “Today we only have one active gas reserve, but consumption and demand is growing. In such a situation we can’t depend on one supplier and therefore we need to give preference and encourage development and production of another reserve [Tamar].”

The Infrastructures Ministry has submitted a minority report in opposition to the final recommendations that the Sheshinski Committee presented on Monday, amid concern that levying the new tax regime on the Tamar offshore gas discovery retroactively would impair development of its natural gas reserves and delay electricity supply to Israel.

The Tamar site, which is estimated to be enough to meet Israel’s energy needs for the next two decades, is slated to begin commercial gas sales in 2013. Discovered in 2009, Tamar is operated by Noble Energy and has total recoverable resources estimated at 8.4 trillion cubic feet of natural gas valued at billions of dollars.

The Sheshinski Committee was established to recommend changes to the state’s share of the revenue from oil and gas finds. Exploration companies including Itzhak Tshuva’s Delek Group, Noble Energy and Givot Olam made record gas finds in Israeli waters over the past two year that are estimated to be worth hundreds of billions of dollars.

The majority of the Knesset Economics Committee members voted on Tuesday against the final recommendations of the Sheshinski Committee, which are supported by Finance Minister Yuval Steinitz and opposed by the Infrastructures Ministry.

Following the vote, Economics Committee chairman Carmel Shama- Hacohen and MK Shelly Yacimovitch, who voted in favor of levying a higher tax on current and future exploration sites such as Tamar and Leviathan, announced that they will submit a request to hold a re-vote on the issue.

Nevertheless, the Economics Committee’s vote result will have no bearing on the decision on whether to adopt the new tax regime.

Instead, the Sheshinski Committee’s recommendations need to be approved by the cabinet, which is expected to vote on them in February. They would then need to be passed into law by the Knesset. The Finance Ministry expects that the final vote will be taken in mid- April.

“I am not worried so much about the power wrangling of lobbyist groups and gas tycoons, but the real worry is that along the way the final recommendations will be subject to ‘salami tactics’ and eased again and again until they are thrown into the garbage,” Shama-Hacohen said.

The final recommendations presented on Monday by the Sheshinski Committee, while calling for higher taxes, marked an easing of the tax burden on oil and gas profits it proposed in its interim report two months ago and came after intensive pressure from oil and gas exploration companies.

The committee now proposed for the government take to increase from the current 30 percent to between 52% and 62%, which is lower than the 66% suggested two months ago. It seeks to levy a maximum tax rate on gas and oil profits of 50% instead of the 60% proposed in November. In addition, tax breaks are offered for reserves that begin gas production no later than January 1, 2013.

“The Sheshinski Committee overstepped its mandate, caused [the government] to renege on oral and written commitments and hurt Israel’s natural gas market,” Gideon Tadmor, CEO of Delek Drilling, said during the Knesset Economics Committee meeting. “The finance minister promised orally and in writing that the findings would not apply to the Tamar gas field, which is Israel’s largest infrastructure project, even after the establishment of the Sheshinski Committee. We have invested billions of shekels in the drilling, but no bank will finance a project that lacks certainty.”

Meanwhile, analysts believe that the Sheshinski Committee recommendations will be softened further, with the state’s take falling below 60% and even lower for the Tamar project.

“The final report has been eased significantly compared with the interim recommendations, in particular with regard to the Yam Thetis and Tamar sites. This is a positive surprise for investors since our expectation was for less easing by Sheshinski,” said Yaron Zar, an analyst at Clal Finance Brokerage. “We believe that the final recommendations will be eased further in the political arena. There is the minority opinion by the Infrastructures Ministry, which presents a much lower tax level, while Sheshinski must believe that the recommendations will be eased since he has set a sound tax level placed at the top end compared with what is common in the Western world.”

On Monday, the Knesset State Control Committee decided to ask State Comptroller Micha Lindenstrauss to look into how the Sheshinski Committee arrived at its recommendations and how the various government ministries have drafted policy concerning the country’s gas reserves.


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