leviathan gas drill.
(photo credit: (Albatross))
Let’s pose a theoretical question: What would have happened if the Sheshinski Committee had recommended exempting the Tamar and Mary B gas fields from its restructuring of the tax regime on natural resources?
The final recommendations compared with the interim ones show a distinct shift toward meeting the gas companies’ demands. The proposed government take has dropped by nearly 10 percent and the recouping of the companies’ investment has risen from 150% to 200%, and in certain instances, 280%.
Sheshinski eases proposed tax for gas exploration firms
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Yet the gas companies will now continue their campaign to derail the committee’s recommendations because they fall retroactively on Mary B and on Tamar.
The committee recommendations’ next stop is Prime Minister Binyamin Netanyahu, who has yet to weigh in on the matter. A meeting is set for next week with all of the relevant players including representatives of the gas companies, the committee and the ministries.
Following that meeting, the cabinet will discuss the recommendations and most likely approve them. From there, it’s on to the Knesset committees to change the Gas Law of 1952 and implement the recommendations.
This means that there are numerous way stations where enormous pressure can be brought to bear by the gas companies to further weaken or block the recommendations entirely.
Now, let’s go back to the theoretical question posed at the beginning: One of the most pressing issues is the fate of the Tamar natural gas reserve. Estimated at 250 billion cubic meters, it is the most significant natural resource find in Israeli history. It has the potential to make Israel an energy exporter – a dramatic step for a tiny country in the eye of the storm of oil-rich Arab countries.
And yet, Tamar has yet to be developed. Originally planned to begin supplying Israel with natural gas by 2013, the gas companies and National Infrastructures Minister Uzi Landau now say that the Sheshinski Committee recommendations have torpedoed that deadline by introducing massive uncertainty into the expected profits from the field, which will make it hard to secure financing from banks.
During the press conference on Monday, Prof. Eitan Sheshinksi went out of his way to show several graphs based on their calculations that the new regime would not interrupt the cash flow needed to develop the fields.
Nevertheless, because Tamar was included in the recommendations, the two representatives of the National Infrastructures Ministry submitted a dissenting minority opinion to the final report. So the issue of Tamar has sown dissension among the committee members themselves.
It is not so much that Landau cares about the profits of the gas companies, but, as the minister in charge of ensuring that the public has electricity, anything that potentially interferes draws his ire. Electricity production in Israel has come to increasingly rely on natural gas – it is a higher percentage of its fuel basket than for many other countries.
There is another available source of natural gas, as Israel Corp. is well aware – Egypt. In the wake of the Sheshinski Committee’s interim recommendations, the corporation dropped its negotiations with the developers of Tamar and signed a $5 billion deal with EMG, the Egyptian- Israeli conglomerate.
Landau, however, views Egyptian gas as a threat to energy security, believing that relying on a sometimes hostile neighbor for gas to produce 40% of Israel’s electricity is not a good bet.
Meanwhile, sources in the gas industry have told The Jerusalem Post
that they believe it is the inherent right of the government to rethink its tax regime. What angers them is the retroactive inclusion of Mary B, Tamar and Leviathan.
The other point that they raise is the timing of the committee’s recommendations. They argue that injecting instability into the fledgling gas market is extremely inadvisable. Wait until Tamar begins production, they say, and then we can talk about raising the government take.
The committee’s recommendations have a long and arduous road ahead of them before becoming law and what’s at stake is a tremendous amount of revenue. With so much on the line, the gas companies will spare no effort to reduce the committee’s impact even more.
On the other hand, the government has a massive incentive to see the recommendations pushed through. If approved, the extra revenues to the state will be tremendous. Leviathan was estimated as being worth $45b. Even if 50% and not 66% goes to the state, that’s still an immense amount of money.
How that money will be used is the next debate. Former MK Rabbi Michael
Melchior has been championing the creation of a fund to close social
gaps, improve education and the environment along the lines of a similar
fund set up in Norway.
While the committee went a long way toward appeasing the gas companies
in its final recommendations, did it fail to take the one crucial step
that might have most mollified the gas companies and their lobbyists
while still ensuring a much increased government take on Leviathan – the
biggest field discovered so far – and any other future finds out there?
While there’s little doubt the gas companies would have preferred no
changes, excluding Tamar and Mary B might have given the Sheshinski
Committee a little more leeway to get its other recommendations pushed
through. Now, Finance Minister Yuval Steinitz will have to fight tooth
and nail, both within and outside of the government, to turn the
recommendations into policy.