Cabinet passes natural gas compromise outline, after 8-month impasse

Document will still likely head to Knesset, before receiving final approval.

By
August 16, 2015 15:52

Cabinet passes natural gas compromise outline

Cabinet passes natural gas compromise outline

 
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After a nearly eight-month stalemate that has all but frozen the country’s natural gas sector, the government approved on Sunday the revised terms of a disputed compromise outline.

The government approval comes four days after the companies and an interministerial team of officials agreed on the contents of the outline, which is the result of negotiations that began at the end of December. Cabinet members authorized the outline with an overwhelming majority, with just Environmental Protection Minister Avi Gabbay voting against the document and three ministers abstaining due to conflicts of interest: Finance Minister Moshe Kahlon, Construction Minister Yoav Galant and Welfare and Social Services Minister Haim Katz.

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“Today, the cabinet will pass a historic decision, no less,” said Prime Minister Benjamin Netanyahu, prior to the vote on Sunday morning. “This decision will give Israel’s citizens, will put into the state coffers, hundreds of billions of shekels. This money will benefit education, health, social welfare and other national needs.”

The compromise outline is the result of months of disputes and negotiations, which followed Antitrust Commissioner David Gilo’s December announcement that he would review whether the market dominance of Delek Group and Noble Energy constituted an illegal “restrictive agreement.”

After releasing a draft version of the outline for public commentary on June 30, National Infrastructure, Energy and Water Minister Yuval Steinitz presented the revised terms on Thursday.

“Every objective test proves this outline is a significant improvement over the existing situation,” Netanyahu said Sunday. “But one more thing must be understood – it cannot be stopped. When the right thing needs to be done, and it is so crucial to Israel’s economy and strategic situation, that thing will not be stopped. They will look for another way to delay, another excuse, another reason – and that will not work.”

Although the outline received cabinet approval on Sunday, the document will still likely have to come for a vote before the Knesset – expected to take place in two weeks.

Due to Gilo’s continued refusal to support the outline, its passage requires that the economy minister invoke Article 52 of the 1988 Restrict Trade Practices Law (the Antitrust Law). Implementing Article 52 enables the minister to circumvent the antitrust commissioner’s authority due to reasons of foreign policy or national security.

At the end of June, however, Economy Minister Arye Deri declined to exercise his authority to invoke the article, and instead agreed to transfer his powers to the government – a move that requires both cabinet and Knesset authorization. While the transfer quickly received cabinet approval, the Knesset vote was eventually postponed after too many coalition MKs refused to participate, leaving the opposition with a majority.

On Thursday, Deri made clear that he would only consider invoking Article 52 himself if the outline receives the approval of the Knesset.

Despite voting in favor of the outline in the cabinet on Sunday, he once again stressed his refusal to activate the clause.

“Minister Deri already voted in favor of the outline in the cabinet two months ago, and now the outline was improved, and therefore, he voted in favor,” a spokesman for the economy minister said Sunday. “The minister noted that this is the lesser of the evils that the interministerial team submitted after five years of total inaction. Regarding the implementation of Article 52: Minister Deri announced two months ago that he does not intend to invoke Article 52 for the first time since its establishment and has nothing to add beyond this.”

Deri’s condition for signing Article 52 is that the outline be approved by the Knesset, but as of Sunday, there was not a certain majority in its favor.

The three ministers who abstained in the cabinet vote have said they will not vote on matters related to natural gas in the Knesset, either, leaving the coalition with only 58 “yes” votes.

Kahlon may not enforce party discipline in Kulanu because of his conflict of interest, which would lose the coalition even more votes.

Yisrael Beytenu chairman Avigdor Liberman has said that his party supports the gas deal in principle, as it is similar to what last government’s national infrastructure minister Uzi Landau, a member of the party, proposed.

However, when the Knesset was scheduled to vote on a procedural matter related to the gas deal at the end of June, Liberman announced his party would vote against the coalition; as such, proponents of the plan remain wary of him.

Yesh Atid leader Yair Lapid said his party would only support the plan if there are price controls, but it is unlikely that he will deem the pricing mechanisms in the current version strict enough to vote with the coalition.

In addition to including updated pricing schemes, the newest terms of the outline approved by the cabinet on Sunday focus on pricing schemes, the development of the Leviathan reservoir and governmental stability.

If the outline goes on to pass in the Knesset, those involved in the gas sector would receive two new contract options. The companies would be obliged to offer prices according to the existing Oil Refineries Ltd.

contract, which is currently the most affordable industry contract. This would lead to a $5.10 per mmBtu (million British thermal units) price within a few months – linked to the globally accepted Brent oil price, Steinitz explained on Thursday.

Meanwhile, for electricity producers – including industrial plants that produce electricity for themselves – the outline determines an average of the three best contracts of today, those of independent power producers OPC Rotem Ltd., Dorad Energy Ltd. and Dalia Energies Ltd. By the beginning of 2016, the gas price would be about $4.70 per mmBtu, with linkage to market changes, Steinitz said. In the previous version of the outline, that price was slated to be a significantly higher, $5.40 per mmBtu, 20¢ below today’s Israel Electric Corporation contract price.

The gas companies would be required to offer the lower price to all independent power producers with a capacity of more than 20 megawatts, the minister explained.

With regard to the development of the 621-billion cubic meter Leviathan reservoir, the outline newly stipulates that within two years, the gas companies would need to show investment commitments of at least $1.5 billion in the basin, Steinitz said. Within five years, the companies would need to demonstrate an investment commitment of at least $4b., he added.‑ In addition to the new sections on pricing and Leviathan, Steinitz said the gas companies have agreed to a clause regarding stability in the sector – and the government’s contribution to maintaining said stability.

“The government can commit in the name of the government,” he said.

“It cannot commit in the name of the parliament, the Knesset.”

Among the main points of the outline’s previous version that would remain intact is the requirement that Delek subsidiaries Delek Drilling and Avner Oil Exploration exit the 282-b.cu.m. Tamar reservoir within six years. Noble Energy, meanwhile, could remain the basin’s operator, needing to dilute its ownership from the current 36 percent share to 25% within the same time frame. The Tamar basin began flowing to Israel’s shores in March 2013.

The Delek subsidiaries and Noble Energy would need to sell their holdings in two much smaller offshore reservoirs that have yet to be developed, Karish and Tanin, within 14 months.

Despite the new stricter revisions that apply to the Leviathan reservoir, the outline maintains that the companies would be able to remain without any change in ownership. The government would reserve the right, however, to require separate marketing of gas after 10 years of operation, or fewer if necessary.

Although the outline passed in the cabinet on Sunday with a large majority, members of the opposition remained staunchly against its terms.

Opposition leader Isaac Herzog (Zionist Union) said the cabinet decision was “like signing on ice,” stressing that if he is elected prime minister, he will overhaul the gas plan.

“A government led by me will decide on a gas plan that is fair to the citizens of Israel and will include regulated prices and express real concerns for Israel’s future,” Herzog said.

Meretz chairwoman Zehava Gal-On called the gas deal an embarrassment.

“Even after the government made minor changes, they did not set price controls, did not weaken the power of the monopoly and did not ensure that Leviathan will be developed,” she said.

“Without regulated prices and without real competition, the companies controlling the gas will hold great power that will allow them to control not only the gas, but the media, politics and the economy.”

According to Gal- On, the ministers who voted in favor of the gas plan “threw the public’s interest to the dogs.”

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