A Fair Compromise

We are now waiting for the government to act quickly on the Sheshinski Committee's recommendations, and for expedited Knesset legislation.

After long months of arguments and battles, the Sheshinski Committee yesterday released its final report regarding gas royalties. Throughout these months, the gas exploration companies opposed any change in royalties that are to be paid to the state for gas that has already been discovered. They claimed that at play here is a long-standing contract with the state that needs to be honored, particularly in view of the fact that they took great risks at a time when nobody was willing to deal with such risks.

Opposing this view, Finance Minister Yuval Steinitz argued that the royalty rates for the finding of gas and oil should be raised, even with regard to pre-existing contracts, because "royalty levels in Israel are significantly lower than those of other countries," and because the state is entitled to change its taxation policy, even retroactively.

This is indeed a complex issue that involves the honoring of agreements, encouragement of foreign investments, business security and fair distribution of natural resources between entrepreneurs and citizens. Thus, the Sheshinski Committee's undertaking was not simple.

The committee's interim conclusions, released about two months ago, stipulated that the state's share of royalties should double, to 60%-70%, and no significant discounts will be given to drilling projects where gas has already been found, such as Tamar.

The gas companies responded by presenting data to reinforce their argument that the committee's recommendations were excessive, particularly with regard to existing drilling projects. The committee considered these claims and reached a just compromise: It reduced the state's share to 52%-62% and provided some sweeteners to Tamar, both in the name of legal-economic justice and to ensure that gas will start to flow in 2013.

The result is a positive one. Under the new arrangement, Israeli citizens will receive a significant share of gas revenues, as is accepted around the world, but the entrepreneurs can also make respectable profits, ones that make it worth their while to continue to drill. Bank of Israel Governor Stanley Fischer has summarized the situation aptly: "These are recommendations that strike a balance between the state's needs and the risks and costs incurred by entrepreneurs."

We are now waiting for the government to act quickly on the Sheshinski Committee's recommendations, and for expedited Knesset legislation, in order for this argument to end, for uncertainty to be lifted, and for investments and discoveries to continue in this sphere.