The government has withdrawn a requirement that the partners in the Leviathan offshore gas field use Israeli labor, TheMarker has learned.

The move was decided two weeks ago by the Energy and Water Resources Ministry in the framework of negotiations with the companies with regard to the conditions of their franchise to develop the natural gas field.

In recent months, the economy and energy ministries have been working on a document outlining the companies’ obligations, including one – which is common worldwide – that requires companies to purchase equipment and services from local suppliers.

However, in the final draft of the agreement that the Energy and Water Resources gave to the Leviathan partners for their scrutiny (which was also released publicly), an addendum regarding the use of local labor contains only a weakly worded requirement that includes neither figures nor the percentage of local equipment and labor required.

The partners are required to submit, within six months, a detailed plan for the gradual hiring of Israeli workers, “to the extent possible.” The clauses involving purchases of equipment from Israeli suppliers, and directing resources to research & development, were entirely deleted.

This contravenes declarations by government ministries in recent years that exploration would be leveraged to train local experts, and Israeli high-tech would be part of the drill technology incorporated.

With investment in Leviathan expected to reach some $10 billion, the potential nonuse of local labor and equipment amounts to a theoretical loss of at least hundreds of millions of dollars for local companies.

The franchise conditions that the Energy and Water Resources Ministry presented to the franchisees two weeks ago, which will bind both sides for decades to come, were formulated within the ministry, without involving other ministries or a public hearing.

Over the past few months, various government ministries have been discussing ways to leverage the huge investments in the fields of gas and oil exploration in Israel. One issue under discussion has been to require foreign firms that contract with state companies to purchase local goods and services, to the tune of 20% to 35% of the contract’s value. These regulations apply to contracts made by tender, and Israel has refrained so far from obligating foreign exploration corporations – whose contracts with the government are by franchise or permit – to fulfill them.

The gas exploration companies claim that their activities are private initiatives, not subject to tender, and therefore not required to conform to local goods and services usage requirements. Nevertheless, the government has previously discussed the possibility of enforcing these requirements with regard to oil and gas exploration franchises.

In an interview with TheMarker last year, Norway’s then petroleum and energy minister, Ola Borten Moe, said that most of his country’s income from natural gas (some $70 billion per year) came from concomitant industries, and that any R&D expenses by foreign gas companies in Norway were tax-deductible.

The Energy and Water Resources Ministry responded: “With an understanding of the importance of the matter to the Israeli economy, the ministry has incorporated a clear-cut requirement to employ Israeli workers in the conditions of the franchise.”

The Economy Ministry said that it was promoting the natural gas industry, including R&D, training, and developing Israeli industries, and that the franchise conditions contained requirements in this area. “In light of the importance of the matter, we aspire to dedicate part of the gas royalties to investment in energy ministries.”