US oil and gas giant Noble Energy warned the Israeli government Tuesday that the
dispute over a controversial proposal to raise royalty payments on potential gas
finds could reach the International Court of Justice.
changes to agreements and contracts, which were made to encourage Noble Energy
to invest billions in Israel in a project which at the time seemed to have a
very low chance of success, would be a violation of the FCN treaty of
friendship, commerce and navigation between the US and Israel,” Abraham Sofaer,
a former US federal judge, said Tuesday at a special discussion of the Knesset
Economics Committee to discuss royalties from natural resources found in Israeli
“If Noble’s rights are infringed, the US government will need
to decide whether to act on behalf of Noble in order to receive full
compensation for the damages caused to it.,” he said.
“What this means is
that such disagreements could be taken to the International Court of Justice. I
don’t need to tell you what a tragedy it will be if two allies like the US and
Israel will have to resolve disagreements in a European court. Nobody wants that
Noble’s natural-gas finds belonged to the country’s citizens,
Sofaer said, adding that the Israeli government has lawfully transferred certain
aspects of the rights to Noble to sell the discovered resources in exchange for
an investment in which it takes the entire risk of exploration and
“Israel should not increase the price for the same rights
just because Noble found more than anyone would have expected,” Sofaer said.
“Israel should stay committed to its legal principles, which helped and enabled
the country to attract major commercial investments and become a commercial
powerhouse with a sound credit rating.”
Noble, has a 36 percent share in
the Tamar gas prospect off Haifa shores, which is estimated to contain 8.4
trillion cubic feet of natural gas, in a consortium with Delek Energy, which has
a 31.25% stake through its subsidiaries Delek Drilling and Avner Oil
Isramco Negev owns 28.75% and Dor Gas Exploration owns
“The energy-exploration sector is very important to Israel’s economy
and to its geopolitical standing,” Delek Group controlling shareholder Yitzhak
Tshuva told the committee. “In the past, there have been 513 wells drilled in
Israel that were all barren, and investors lost their money. No one thought to
compensate investors, who took all the risk.
“Against all odds, we
continued to drill and convinced Noble to invest heavily despite the risk.
Looking forward, we need foreign financing from banks, which will be hard to get
if there is uncertainty and changes to offered terms.”
discussed Likud MK Carmel Shama’s private member’s bill to raise royalties paid
to the government on gas and oil found in Israeli territory from the current
12.5% to 20%.
“We are a banana republic that sold its natural resources
at half price,” Shama said. “As the value of gas finds increases, royalty
payments must go up, but not retroactively. Investors will appreciate us more if
we run an organized market.
Investors are not running away so
Another bill that was discussed seeks to concentrate the tax
receipts from oil and gas companies in a sovereign fund, similar to what Norway
does. It also proposes to raise royalties to 20%, but in the first five years,
energy companies would pay royalties of 10%. In addition, the bill includes an
entitlement for the Finance Ministry to raise company taxes to 60% on
“The main issue here is the question of retroactivity,” said
Labor MK Shelly Yacimovich, one of the bill’s sponsors.
“Most of land is
already allocated. If we say they are all exempt, then there’s nothing to talk
about. The government is constantly making changes to its taxation policy, which
is having retroactive effects on long-term plans like changes in corporate
taxes, which companies didn’t know when they decided to build a factory at a
certain tax rate years before. The 1952 Petroleum Law is not relevant anymore.
It was challenged 10 years ago and now we need to amend it.”
not be manipulated much longer,” she said. “I want gas license holders to get
rich and make a lot of money to have an incentive to continue and to drill more.
None of these discussions will prevent that. Even if royalties change, they’ll
still get rich.”
Yacimovich called upon energy companies to backtrack
from fighting ugly battles and recognize that the country’s natural resources
belong to the public.
Other participants in the discussion raised
security concerns, in view of reports that Iran intends to become involved in
searching for oil in Lebanese territory, according to media reports this
“I’m worried if development takes too long, our neighbors such as
Lebanon and Syria, who are already holding negotiations with global energy
companies, will sign contracts with these governments instead, as they are
seeking alternative sources of energy to Russian dependency,”
Minister-without-Portfolio Yossi Peled (Likud) said. “We don’t have time. We
need to sit down and quickly close the differences to come to an agreement on
royalties. Otherwise we run the risk of losing the momentum.”
on reports in the Hebrew press that the Sheshinski Committee, which is examining
Israel’s fiscal policy on royalties from natural resources, is expected to
recommend raising taxes rather than increasing the royalty rate, Udi Adiri, of
the Finance Ministry’s Budget Division, said the committee had not yet finalized
He said the committee was expected to present its
preliminary recommendations by November 15 and its final report by the end of
the year.Ehud Zion Waldoks contributed to this report.