(photo credit: Courtesy)
Last week the Knesset Economics Committee issued a declaration of principle
opposing any form of retroactive revenue hike to be imposed on companies that
find and extract natural resources and fossil fuels. Any future increase of
royalties, levies and assorted taxes must not apply to existing agreements,
stressed the committee, and certainly not in situations where considerable
investments have already been made.
This may all sound like a very
elementary restatement of the standards of equitable practice, which boils down
to the notion that rules can’t be changed to the detriment of any player
But what may be obvious in the marketplace is hardly so in the
political arena, where raising royalties is an emotive demand. And a furor over
the issue has indeed arisen from the 2009 discovery of the offshore Tamar gas
field, which is still being developed but is estimated to contain 238 billion
cubic meters of natural gas.
The American Noble Energy firm owns 36
percent of the Tamar venture, Yitzhak Tshuva’s Delek Energy owns a 31.25% stake,
Isramco Negev owns 28.75% and Dor Gas Exploration owns the remainder.
hypothetical rich pickings, none of which have yet been realized, have sufficed
to whet appetites. The Treasury has eagerly joined the clamor for upping state
royalties from the already contracted 12.5% – perhaps to 20%. An alternative
mulled by the Sheshinski Committee, charged with examining Israel’s policy
regarding natural resource royalties, is a specific tax on gas companies’
THE FINANCE Ministry’s motives are clear. Initially it settled
for lower royalties – maybe too low – as bait to lure exploration ventures.
However, once these appeared successful, it began to covet a bigger cut to fill
Some of the political outcry emanates from a rather
different place. Led by communist Hadash MK Dov Henin and buttressed by the New
Israel Fund among others, it cites the danger of exploitation by big business
and greedy financial conglomerates. Natural resources, the argument goes, belong
to the entire population and it’s iniquitous for the developers to rob the
people of what’s rightly theirs.
The righteous indignation is compelling;
the argument is persuasive – as persuasive as the case against profits reaped by
big pharmaceuticals at the expense of ordinary patients. The problem there is
that without profit there’s no incentive to invest in research and without
investment there would never be new breakthroughs.
The same is true here.
Without incentive, no one would invest in offshore exploration, which doesn’t
Moreover, any retroactive tinkering with existing contracts
would risk frightening off further potential foreign investment in our country.
Noble is already threatening to sue Israel in the International Court of
Justice, should the state do anything akin to almost doubling previously
Violating written agreements by one means or
another would also risk impairing our critical relations with the US. Would any
additional income be worth the bad press and severe damage to Israel’s
credibility and reputation as a hospitable business environment? A short-term
revenue increase might simultaneously blight Israel’s image with third world
UNTRUSTWORTHINESS AND fickleness do produce consequences.
Russia, Europe’s current major gas producer, has proven too high-handed and
unpredictable for some of its clients, who now avidly seek other options. The
Tamar field could capitalize on that and usher Israel into the club of energy
But the opportunity is no secret. It’s evident to all our
neighbors, foremost to Iran. It and Lebanon, with Syria in tow, have already
announced plans to benefit from the Tamar discoveries and drill for gas directly
next to Tamar facilities.
The danger that Israel could lose the European
market altogether is not marginal. While we are expending energies and risk
losing time on bitter arguments about royalties – and may perhaps find ourselves
tarnished in overseas litigation – hostile nations that we have no interest in
enriching are gearing up to seize the opportunities we may neglect.
might be left with higher revenues on the books but no profits to share. This is
bad business, bad national strategy and a sure way to weaken Israel. And
avoiding that requires a smart, less-confrontational resolution.