PM wants gas taxes funds to invest in security, education

“Israel will take a critical decision regarding a natural resource that is important for our future," Netanyahu says at cabinet meeting.

sheshinski and netanyahu_311 (photo credit: (Moshe Milner/Government Press Office))
sheshinski and netanyahu_311
(photo credit: (Moshe Milner/Government Press Office))
Prime Minister Binyamin Netanyahu wants the government to use the proceeds of natural-gas revenues for various aims, especially security and education.
“Israel will take a critical decision regarding a natural resource that is important for our future,” he said at the cabinet meeting Sunday. “I will recommend to the cabinet to establish a national fund for government revenue generated from our gas reserves, which will be used for a number of goals and most importantly for security and education.”
Bank of Israel Governor Stanley Fischer last month recommended the Norwegian model for investing royalties and tax revenues in a sovereign fund. The fund invests its income abroad, so that the government’s income is more stable and the short-term effect of the gas income on the exchange rate is moderated.
Following the cabinet meeting, Netanyahu met with the members of the Sheshinski Committee to hear their recommendations on how Israeli resources should be taxed. The Sheshinski Committee, appointed by Finance Minister Yuval Steinitz, last week presented its final recommendations to raise the government’s take on gas profits to between 52 percent and 62%, up from the current 30%. The committee proposed to levy a progressive tax on part of the gas and oil companies’ profits, after they recouped 150% of their investment on the gas-field projects. The tax rate would range from 20% to 50%, depending on the volume of the profits.
Netanyahu said he would meet Steinitz, Fischer, National Infrastructures Minister Uzi Landau and Environmental Protection Minister Gilad Erdan later in the week to discuss the recommendations.
He also said he would meet with the Tamar gas-field investors before making a decision on the recommendations to raise taxes on oil and gas resources. The Tamar site, which was discovered off Israel’s coast in 2009 by Noble Energy and its Israeli partners, Delek Drilling, Isramco and Avner Oil Exploration, is estimated to hold 8.5 trillion cubic feet of natural gas.
In its final proposals, the Sheshinski Committee did not adopt Landau’s request to exclude the Tamar gas finds from the final recommendations, but it included tax breaks for reserves that begin gas production no later than January 1, 2014. The Tamar discovery, which is estimated to meet Israel’s energy needs for the next two decades, is slated to begin gas sales in 2013. Landau said levying the new gas tax regime on the Tamar site retroactively would impair development of natural- gas reserves and delay the delivery of gas to Israel.
“I will make a decision and will submit my recommendation to the cabinet for their approval within a short time, at one of our upcoming meetings,” Netanyahu said.
The cabinet is expected to vote on the Sheshinski Committee’s recommendations next month. They would then need to be passed into law by the Knesset. The Finance Ministry expects that the final vote will be in mid-April.
“Although the recommendations are now final, the discussion in the government will continue, likely leading to continued volatility in the sector,” Barclays Capital analyst David Kaplan said in a report to investors over the weekend. “Among the most significant uncertainties are the timing of Tamar and the final government take percentages. Any government decision, we believe, will either accept in full the Sheshinski recommendations or potentially reduce the tax impact.”
Rabbi Michael Melchior, founder of the Israel Civic Action Forum, which has been promoting a campaign for the fair distribution of profits from natural resources to the public, on Sunday requested to schedule a meeting with Netanyahu to present the public’s position.
The forum has been demanding that the government and Knesset create a national investment fund for the state’s revenues from production of natural gas and oil. The fund would be established and protected by law and be used exclusively to finance compelling and comprehensive social reforms in the fields of education, health, welfare, employment, housing, environmental protection and public infrastructures.
Steinitz met with Delek Group controlling shareholder Yitzhak Tshuva and representatives of Isramco at the Treasury’s office in Tel Aviv last week to create the basis for dialogue and a possible compromise. Gas companies involved in exploration in Israel have harshly criticized the Sheshinski Committee and the government for excluding them from the process.
The companies have been putting intensive pressure on decision makers and threatening that they would stop the development of projects. They say they have spent many years and billions of dollars exploring in Israel’s territorial waters and that any change would constitute a breach of contract and scare off future investors.