Delek Energy, EMG spar over tax exemption

It should be remembered that Egypt promised to supply a fixed amount of gas to Israel each year.

gas tanker311 (photo credit: Courtesy)
gas tanker311
(photo credit: Courtesy)
Delek Energy Systems Ltd. chairman Yoram Turbowitz on Tuesday lambasted the tax exemption agreement the Finance Ministry awarded Egypt’s East Mediterranean Gas Company (EMG), in which Yosef Maiman is a partner through Ampal-American Israel Corporation and his private company Merhav MNF Ltd.
“Egyptian gas reached Israel after Israel gas was already discovered,” he said at the Israel Energy and Business Convention 2010, adding: “What would have happened had we not found gas? I have no doubt that the Egyptians would not have delivered gas to us. When the march of royalties began in February, we at Delek were surprised to discover that the Israeli government granted EMG a 20- year exemption on all taxes, including income tax, excise and indirect taxes. An international convention was signed between Israel and Egypt, in which the real article is Article 6: The Egyptians are exempt from having a file at the Israel Tax Authority.
“We at Delek face the claim that there is no discrimination against Israeli natural gas because EMG is an exporter. But that is not true, because EMG imports gas to Israel, so it should pay taxes here. EMG has a permanent facility at Eilat-Ashkelon Pipeline Company, and under the tax code, it has a permanent presence here. The tax code is terribly simple: When a product, gas in this case, enters Israel, it is liable to taxes.
“Yosef Maiman of EMG told us that they obtained the tax exemption only for caution, but the fact is simple: EMG owes taxes in Israel. EMG says that it has a ‘civil pipeline’ to Israel, but I cannot figure out what a ‘civil pipeline’ is. I hope that this tax agreement will be exposed at some point, despite the objections of the company and the Tax Authority.”
Delek Energy is the direct parent of Delek Drilling LP and Avner Oil and Gas LP, which are partners in Yam Tethys, which delivers natural gas from fields offshore from Ashkelon, and in the Tamar, Dalit and Leviathan offshore gas fields, in partnership with Noble Energy Inc. of the US and other Israeli companies.
In response, Merhav Group senior vice president Nimrod Novik told Turbowitz: “When the court asked Merhav, as a partner in EMG, it replied that it cannot speak for EMG because it is a minority partner with a 25 percent holding. EMG has said more than once that it has no objection for Delek and Noble Energy to receive tax exemptions. Without the agreement between Israel and Egypt, the project would not have been undertaken.
It should be remembered that Egypt promised to supply a fixed amount of gas to Israel each year.
“A breach of the agreement between Israel and Egypt is tantamount to a breach of the peace treaty between Israel and Egypt, and I am very pleased by the protection we received. I even hope that the 20 years will be doubled. I don’t see this as a tax exemption, but as an irrevocable Egyptian commitment to supply a fixed amount of natural gas to Israel.
“Any accountant could explain the tax exemption: EMG is an Egyptian company and it is legally registered in Egypt.”