'Egypt gas co. hires int’l law firm for Israel suit'

Economists in Egypt say the oil cut-off will benefit country, but US analyst Citigroup disagrees.

By OREN KESSLER
Egyptian gas pipeline 311 (photo credit: REUTERS)
Egyptian gas pipeline 311
(photo credit: REUTERS)
The Egyptian gas company that canceled gas exports to Israel last week has hired an international law firm, Egyptian media reported Tuesday, after the Israel Electric Corporation threatened to take the case to international arbitration.
IEC said Monday it would take legal action against the Egyptian Natural Gas Holding Company (EGAS) and Egyptian General Petroleum Corporation (EGPC) for violating its gas supply and purchase agreement. Israeli officials say gas has not flowed from Egypt to Israel for much of the past year due to a string of attacks on the pipeline running through Egypt’s volatile Sinai Peninsula.
Speaking Tuesday to the state-run al-Ahram newspaper, EGAS CEO Mohamed Shoeib rejected Finance Minister Yuval Steinitz’s claim that the deal’s termination – which occurred Thursday but was revealed only three days later – could mark a breach of the Egypt-Israel peace treaty.
“This contract is between EGPC and EGAS in Egypt, and EMG – it is a commercial contract and the terms and conditions are clear,” Shoeib told the paper. EMG, East Mediterranean Gas, is the consortium of Egyptian, Israeli and international companies that oversees the bilateral gas trade since a 20-year-deal was struck in 2005.
“It is the right of the seller to terminate if the buyer fails to pay for four months,” Shoeib added.
Egyptian business executives close to EMG insist their Israeli counterparts had fallen behind on payments, and that the cut-off was purely a business-related move with no political implications.
On Monday Egypt’s Islamist-dominated parliament issued a statement saying it welcomed the deal’s termination.
The parliament “blesses the decision to stop exporting gas to the Zionist entity, and at the same time rejects threats uttered by some Israeli leaders,” the Muslim Brotherhood’s parliamentary speaker Saad al-Katatni said in apparent reference to Steinitz’s remarks.
“The parliament declares the Egyptian people will not accept these threats, and that Egyptians are standing hand in hand with the Palestinian people,” Katatni said. “We salute the souls of the martyrs who sacrificed their lives for our rights. We will not rest but will remain forever faithful.”
Mohamed Gouda, a member of the economic board of the Brotherhood’s Freedom and Justice Party, told the pan-Arab newspaper Asharq Alawsat that severing gas to Israel would come as a boon to Egypt’s moribund economy.
Gouda said Egypt’s energy economy would be strengthened by keeping its gas within its borders instead of exporting it. Abundant gas reserves in Egypt, he said, would serve as a catalyst for foreign businesses to set up shop there.
The article also quoted economist Kamal Ahmed as saying that despite the legal complications that may arise as a result of the deal’s termination, an increased domestic gas supply could increase Egypt’s capacity to generate electricity from natural gas.
The Egyptian economists’ assessments stand in stark contrast to that of the US financial analyst Citigroup, which last week issued a report indicating that the biggest loser from the deal’s cancelation would be Cairo.
The Citigroup report said that disruptions in Egyptian gas deliveries since last year have given Israel Electric plenty of opportunities to find alternative energy sources.
“Although the Israeli Ministry of Finance estimated that Egyptian gas suspensions have cost Israel NIS 15 billion [1.7 percent GDP], we don’t think that the damage to Israel is particularly visible,” the report said, adding that one of Israel’s two offshore gas fields is due to become viable within the next year.
“Since Israel’s offshore gas field Tamar is due to begin production in April 2013, any further domestic shortfalls are likely to be relatively brief.”