Yitzhak Tshuva at Knesset Michal Fattal 5.10.2010
Yitzhak Tshuva attending a Knesset Economics Committee discussion, Oct. 5, 2010. Photo by Michal Fattal
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The battle over royalties on Israel's natural resources reached the Knesset Economics Committee, which held a special session yesterday despite the parliament being in recess. Seventeen Knesset members showed up for the debate, including five not on the committee.

No decisions were made, since the Sheshinski Committee, which is examining Israel's fiscal policy on royalties from natural resources, hasn't made its recommendations yet. That didn't prevent the discussion from growing heated. Threats to sue were bandied about. So were warnings that if Israel changed its policy, foreign money would decamp and gas production would be delayed, while Lebanon meanwhile develops its resources with the help of Iran.

The state receives 12.5% of revenues from exploiting fossil fuel finds. One idea is to raise that rate to 20%. An alternative that the Sheshinski Committee is considering is imposing a special tax on the gas companies' profits.

'Violation of agreements'

A representative of Noble Energy warned that the U.S. company might sue at the International Court of Justice if the Knesset goes ahead with a proposal to almost double royalties on offshore gas finds. Abraham Sofaer, a former U.S. judge speaking on behalf of Noble, told the Knesset Economics Committee that any increase would violate agreements to develop the Tamar gas field and be problematic for Israeli-U.S. ties.

"The U.S. government will have to decide whether to act on behalf of Noble in order to receive full compensation for the damages caused to it," a spokesman for the committee quoted Sofaer as saying.

"I don't need to tell you what a tragedy it will be if two allies like the U.S. and Israel have to resolve disagreements in a European court," he was quoted as saying.

Natural resources belong to the state, Sofaer said, but the Israeli government had reached agreements with Noble that it shouldn't break just because the amounts found were larger than expected.

Speaking from the U.S., Finance Minister Yuval Steinitz said the Economics Committee should wait patiently for the Sheshinski committee to finish its work.

But a treasury official said that Noble Energy's threat to turn to the International Court of Justice was "unseemly."

"One could think that Noble doesn't recognize the State of Israel's sovereignty, and that it takes its fiscal decisions itself," the official said.

MK Dov Khenin of Hadash said the real issue at stake is "a lot of money" that the state could get, while the companies would also "profit beautifully." He supports increasing the royalties.

The discussion was marked throughout with outbursts by Knesset members. Knesset Economics Committee chairman Ofir Akunis attacked the New Israel Fund for advocating raising royalties, which aroused cries from the opposition.

The companies, including Yitzhak Tshuva's Delek Group, argue that the state can't increase its take from large gas finds already being developed, as that would be "retroactive." The biggest of these finds is Tamar, discovered in 2009. No decision is expected before year-end. Noble owns a 36% stake in Tamar, which is still being developed.

Star of the show: Tshuva

Yitzhak Tshuva's Delek Energy owns a 31.25% stake in Tamar through subsidiaries Delek Drilling and Avner Oil. Isramco Negev owns 28.75% and Dor Gas Exploration owns the remaining 4%. The Tamar field in the eastern Mediterranean is estimated to contain 238 billion cubic meters of natural gas.

Among the representatives of the gas companies was Yitzhak Tshuva himself, who arrived an hour after the meeting began, accompanied by his wife Haya, who sat behind him. The real estate and energy baron attracted a great deal of attention.

"It is important for the state to honor agreements so that investors will come to Israel," Tshuva said. "Violating existing agreements will deter investors. I expect the committee to back the gas producers."

He reminded that developing Israel's gas fields will require foreign investment. "Foreign banks told me that without stability, certainty, credibility and respect for agreements, they can't invest," he said.

Tshuva protested that he was being treated badly compared with importers of Egyptian gas: They were given a 20-year tax holiday, Tshuva said. The government should encourage Israeli production, he said, not discriminate between suppliers.

If anything, Tshuva feels the royalties should be lowered to 6% (from 12.5% ), he said - lest other suppliers nab the European market. Syria, Iran and Lebanon could take Israel's place as a potential exporter to the continent. The Iranians are collaborating with Lebanon to develop its energy resources, Tshuva said, and "any money they get from it would be turned against Israel."

Akunis, chairman of the committee, said, "We cannot allow leftist fundamentalists to run the economy. If we get it wrong, the axis of evil of Hezbollah and Iran will grow stronger."

Orit Zuaretz of Kadima shouted, "You're saying what the tycoons are saying."

Minister without Portfolio Yossi Peled said that European energy companies are negotiating with Lebanon. "The question is whether we have the time to waste on committees and courts," he said.