Jerusalem Post Editorial: The gas deal

Enormous controversy surrounds the proposed natural gas structure that will be brought before the cabinet for a vote on Sunday.

By
August 13, 2015 22:30
3 minute read.
Hadera

A man points as he stands on a tanker carrying liquified natural gas, ten miles off the coast from Hadera. (photo credit: REUTERS)

 
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Enormous controversy surrounds the proposed natural gas structure that will be brought before the cabinet for a vote on Sunday.

Opposition politicians led most articulately by the Zionist Camp’s MK Shelly Yacimovich have railed against it, claiming that Prime Minister Benjamin Netanyahu, National Infrastructure, Energy and Water Minister Yuval Steinitz and others have proven to be particularly bad negotiators.

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Demonstrators have taken to streets repeatedly to protest what they see as a bad deal.

The majority of the news media has also been highly antagonistic toward the government for supposedly caving in to the demands of big business instead of protecting citizens’ right to a share of the natural gas dividend.

The government has agreed to pay too high a price for the gas, say the critics. It has allowed Texas-based Noble Energy and Netanya-based Delek Group, the two largest firms in the gas consortium, to delay developing the Leviathan offshore site. It has been too soft on fighting what is a gas monopoly. It has promised to prevent future governments from changing the conditions agreed upon by the two sides for the next 10 years so as to ensure stability.

The political opposition in the Knesset, the media and the public that has mobilized in protest against the proposal perform an important function by fostering a lively and open debate on a gas deal that will have a major impact on the economy.

But while the gas arrangement is one of the biggest developments in the Israeli economy in recent years, we should not lose a sense of proportion.

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First, while tax revenues from gas income and the added benefit to industry from lower gas prices will be a boon that will allow more investment in infrastructure, education, security and welfare, it will not transform Israel into another Norway.

The net benefit to the economy will be roughly NIS 10 billion a year for around 15 years. This is a hefty sum of money. But it will not dramatically improve Israelis’ standard of living.

Second, gas’s contribution to the economy will be felt primarily via taxes at a rate of 50 to 70 percent – depending on whom you ask – on profits earned by the energy companies. But will these tax revenues be translated into tangible improvements in state-provided services? Clearly, not every shekel that is added to the state budget is translated into a shekel’s worth of welfare, education or infrastructure.

Also, low natural gas prices are not necessarily a good thing. Too low a price will hurt tax revenues from profits. It will also subsidize select industries that will be able to produce goods at a more competitive price not as a result of better technology or a more streamlined production line, rather thanks to a cheap natural resource. This will reward industries that consume lots of energy.

Finally, the claim that opposition political parties led by people such as Yacimovich would have negotiated more effectively is questionable. The Zionist Union might have dragged out negotiations longer, but for every month of delay Israeli citizens lose hundreds of millions of shekels in unrealized tax revenues and lost lower gas prices, which would translate into lower electricity bills.

This is not to say that the government coalition has handled the matter well. Consecutive governments led by Prime Minister Benjamin Netanyahu and the Likud party have dragged their feet.

As a recent Comptroller’s Report noted, the government has demonstrated a lack of coherent policy, slow and ineffective implementation and incomplete regulatory guidelines.

As a result, a de facto monopoly was allowed to develop; only the Tamar reserve is providing Israel with gas; the country lacks storage facilities for natural gas; and only one pipeline is working, resulting in a limited gas supply that is vulnerable to attack.

The seemingly endless delays must end. The time has come to reach a deal, even if it is not perfect. Israel was blessed with an important energy resource. But to reap its benefits a deal must be clinched and the sooner the better.

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