Steinitz: No reason to exclude Tamar from new gas tax

Finance minister says he won't give in to demands by gas exploration companies to make concessions on Sheshinski C'tee recommendations.

311_Yuval Steinitz (photo credit: Tamar Matsafi)
311_Yuval Steinitz
(photo credit: Tamar Matsafi)
Finance Minister Yuval Steinitz said on Tuesday that he will not give in to the demands by gas exploration companies to make concessions on the Sheshinski Committee’s recommendations to raise the tax on energy finds and to exclude the Tamar gas project from the proposed new fiscal regime.
“The magnitude of the recently discovered natural reserves is immense, with an estimated value of NIS 700 billion. This is a vast sum that even after taking into account cost and expenditure of development will still leave billions of shekels in profits,” said Steinitz, speaking at a conference at the Interdisciplinary Center, Herzliya, on Tuesday.
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“There is no reason why gas exploration companies in Israel should earn much more or even double than in the UK or Canada, which have made changes on gas royalties in recent years. We cannot give our hand to a situation in which Israeli billionaires will earn more than those in other Western countries, at the cost of the government and the Israeli public.”
Steinitz reiterated that the government will not give in to the aggressive campaign against the recently issued final recommendations of the Sheshinski Committee and will advance their approval without making changes.
Gas exploration companies including the Delek Group have in recent months waged a battle against the recommendations, putting intensive pressure on decision-makers and threatened that they will stop the development of projects.
“There are only two options: Either we institute the necessary change in the fiscal regime regarding the government take from gas and oil profits, or exploration licenses will be returned,” Steinitz said.
Furthermore, he said, the government will not back down and accept the demand by National Infrastructures Minister Uzi Landau to exclude the Tamar gas offshore discovery from the committee’s recommendations.
The Tamar gas site, discovered off Haifa 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 and be capable of meeting the country’s energy needs for the next two decades. The field is slated to begin commercial gas sales in 2013.
“From my point of view it is impertinent to demand such a gift.
There is a limit to avarice,” Steinitz said. “By excluding the Tamar gas field from the recommendations, the government and the public would lose between NIS 40b. and NIS 50b. in revenues to which they are entitled and which would be directly transferred to the pockets of exploration companies and private investors.”
Steinitz emphasized that other countries such as Canada and Norway, which in recent years implemented tax changes for its energy sector, did not tax reserves differently depending on whether they were already discovered and developed or weren’t, but applied the changes to the reserves without any exceptions.
At the conference, the chairman of the Sheshinski Committee, Prof.
Eitan Sheshinski, rebuffed claims by gas exploration companies that the proposed tax regime would cause problems for the financing of the Tamar gas site.
“There is no basis for the claim that our recommendations will harm financing of the Tamar project,” he said.
Steinitz’s strong comments came ahead of meetings Prime Minister Binyamin Netanyahu held on Tuesday afternoon with government officials and representatives of gas exploration companies in order to come to a decision over how the nation’s natural resources should be taxed.
Netanyahu met with Steinitz, Landau and Governor of the Bank of Israel Prof. Stanley Fischer. He also met with Delek Group’s controlling shareholder, Itzhak Tshuva, Noble Energy chairman Charles Davidson, and Isramco controlling-shareholder Jacob Maimon.
At the beginning of this month, the Sheshinski Committee, appointed by Steinitz, presented its final recommendations to raise the government’s take on gas profits to between 52 percent and 62% compared with the current 30%. The committee proposed to levy a progressive tax on part of 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.
The cabinet is expected to approve 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 taken in mid-April.
Steinitz added that although the fruits of the change in the tax regime on gas and oil reserves will not contribute to growth during his tenure but only in five to 10 years, it must be part of the government’s longterm plans.
“The Israeli economy has come out of the global crisis much better than other developed countries,” he said.
“However we are part of a global economy that is still in a state of uncertainty and at such a time it is important to plan for the future in order to secure the present. Part of it is maintaining a strict fiscal discipline even in good times, as well as ensuring that the government and the public will get their share from the country’s natural resources,” he said.
Also speaking at the conference, Bank of Israel Deputy Gov. Prof. Zvi Eckstein expressed the central bank’s agreement with the final recommendations of the Sheshinski Committee.
“The committee’s recommendations are aimed at preserving the balance between a significant return for the entrepreneurs, far in excess of the capital cost, and protecting the state’s and the public’s share of the resource,” Eckstein said. “The system proposed by the committee, that the tax rate will depend on the size of the profits, ensures that taxation will be such that it will leave high profits for the investors, which will contribute to the development of the industry and the whole economy.”