In August 2012, an inter-ministerial committee published recommendations (the Zemah Report) about Israel’s natural gas policy. The report’s conclusions were based, inter alia, on the testimony and recommendations of dozens of NGOs, corporations and government agencies.
The Zemah Report insisted that “the rationale for setting a clear government policy as quickly as possible is to create certainty for lease holders and licensees and to provide an incentive for them to develop the gas fields, so as to ensure the supply of gas required for domestic market obligations.” Claiming that “the perception that allowing exports of natural gas comes at the expense of guaranteeing the economy’s needs is not correct,” the report recommended “promoting the exports of Israeli natural gas intended for consumption of neighboring countries as of the utmost importance.”
While the Israeli government endorsed the recommendations in June 2013, Israel’s antitrust regulator, Prof. David Gilo, decreed that the consortium that operates the Tamar and Leviathan offshore gas fields constitutes a monopoly and therefore blocked implementation of the government’s policy. By doing so, Gilo affected Israel’s economic growth, the government’s revenues, and the country’s credibility (as both the Brookings Institution and Standards & Poor’s warned after Gilo’s decision).
Based on Gilo’s decision, however, the government negotiated a new deal with the Israeli Delek Group and with Texas-based Noble Energy: both will have to sell the two smaller gas fields of Karish and Tanin within 14 months, while Delek will sell its entire stake in Tamar in six years and Noble will reduce its stake to 25%. They will still own and exploit Leviathan, a much bigger field due to operate by 2020. The government will also ensure that the price of gas in Israel will not be higher than that of exported gas, and it may ease the limit on the amount of gas that can be exported. This offer was not good enough for Gilo, however, who resigned a couple of weeks ago.
By law, the economy minister is entitled to overrule the antitrust regulator if he considers that doing so is vital to the national interest. But the current office holder, Aryeh Deri, got cold feet and refused to exercise his authority. Deri claimed that he was not sufficiently knowledgeable about energy policy (he made no such claim when he was appointed economy minister), but the true reason for his decision was fear of the media. The Israeli left is up in arms against the new gas deal proposed by the government (with The Marker, Haaretz’s economy supplement, leading the media campaign). There is a pending petition in the High Court of Justice against Deri’s appointment as minister (because of his past prison sentence) and having already spent two years in jail, Deri knows better than to get the media and the judicial system on his case.
Deri, therefore, asked the government to collectively overrule the antitrust regulator – a move that requires a Knesset vote. As Prime Minister Benjamin Netanyahu was proceeding with the vote, however, he discovered that he couldn’t count on three of his cabinet members: Finance Minister Moshe Kahlon (who explained that his personal friend Kobi Maimon is a gas shareholder), but also Housing Minister Yoav Galant (whose appointment, like Deri’s, is being challenged in the High Court of Justice), and Welfare Minister Haim Katz (himself a gas shareholder).
Some of the critiques of the new gas deal are justified, but many are unreasonable. Those who assert that supporters of the deal are corrupt imply that the Israeli government and the finance ministry (as well as simple citizens) have all been bribed by the gas companies. It also takes no small amount of chutzpah to claim that someone who invested billions and put his money at risk to explore potential gas reserves in which the taxpayer didn’t invest a penny is stealing public property.
Sixteen years after the first discovery of its large offshore gas reserves, Israel’s transition from energy importer to exporter has yet to materialize (Israel, by most estimates, has enough gas to provide its power-generating needs for the next 40 years). This transition is long overdue especially since, once sanctions are lifted on Iran, energy investors will rush there and drop Israel if its government proves incapable of making a decision and honoring its commitments. The new gas deal probably has drawbacks, and its details should be fully disclosed to the public. But further delays are causing irreparable damage to Israel’s economy and credibility.
Reprinted with author’s permission from Navons Blog