Court Strikes Down Netanyahu's Contentious Deal With Gas Drilling Firms

The panel of judges nixed a clause that would commit the government not to impose any regulatory changes on the gas industry for at least 10 years.

Offshore Leviathan natural gas drilling site.
Albatross

In a blow to Prime Minister Benjamin Netanyahu’s energy policy, the High Court of Justice ruled on Sunday against the government’s controversial framework deal with companies that own and operate Israel’s offshore natural gas fields.

Specifically, the ruling struck down the stability clause, a key part of the framework that commits the Israeli government not to impose any regulatory changes on the gas industry for at least 10 years.

A commitment “that binds the government to the outline, including no changes in legislation and opposing legislative initiatives for 10 years, cannot stand,” the court said in its ruling.

Although the immediate consequences were not clear, the court’s decision drew a sharp rebuke from Prime Minister Benjamin Netanyahu and others in the government, who said it would not only block development of the giant Leviathan gas field but would also have wider ramifications for the Israeli economy.

“The High Court of Justice decision severely threatens the development of the gas reserves of the State of Israel,” Netanyahu said in a statement. “Israel is seen as a state with excessive judicial interference in which it is difficult to do business We will seek other ways to overcome the severe damage that this curious decision has caused the Israeli economy.”

The framework is an agreement reached last year between the government and the companies that control Israel’s gas reserves – led by Texas-based Noble Energy and Israel’s Delek Group – setting out the final terms for governing the industry, mainly in regard to antitrust.

But the framework was controversial from the start, arousing opposition for enabling the Noble-Delek group to keep control of nearly all of Israel’s gas reserves. Grass roots organizations have staged protests and four groups finally filed petitions with the High Court seeking to block the framework on various procedural and legal grounds.

Getting the High Court’s backing for the framework was so critical for the government that during the two months of legal proceedings Netanyahu made an unusual appearance before the panel of justices to personally defend it.

In its ruling the court hinted it was aware of the controversy surrounding the framework and justified its decision to intervene regarding the stability clause.

“The public may question whether the court should intervene in the matter and, if it is essentially an economic issue, to refrain from engaging,” the judges explained. “The answer is that beneath the economic issue lies a fundamental legal issue, which is the limits to the government’s authority in a democracy and how far its residual authority can stretch, where the legislature did not explicitly authorize it.”

Already last month Court Vice President Justice Elyakim Rubinstein hinted at the outcome when he unexpectedly said that the stability clause should have been backed by legislation, rather than just a cabinet decision.

The stability clause was inserted because the gas companies contended that the cost-benefits calculations required to make the $6 billion or more needed to develop Leviathan, Israel’s biggest field would be too risky otherwise. A government in the future could opt to change tax policy and other regulations that would affect the return on their investment.

The gas framework also promised the owners of the Leviathan field immunity from any structural change in its ownership, or to submit to internal competition, for up to 15 years, appropriating the authority of the antitrust commissioner over this issue.

The decision to strike down the stability clause was backed by Rubinstein, who headed the panel, as well as Esther Hayut, Uzi Vogelman, and Salim Joubran. Noam Sohlberg opposed it. The court is expected to explain the ruling shortly.

However, a majority of three judges -- Hayut, Vogelman and Sohlberg – ruled that the framework does not need to be legislated in its entirely.

In addition, a majority of four – with only Joubran opposed – also expressed no objection to the government’s decision to use Section 52 of the Antitrust Law to override antitrust considerations in approving the framework. The use of Section 52, which allows the economics minister to waive antitrust on national security grounds, was another controversial part of the framework.
“The decision’s negative consequences on the development of the gas market, on energy security, on the Israeli economy and on the lost revenue for the state of Israel and its citizens, could be very tough, and even irreversible,” Energy Minister Yuval Steinitz said.

However, the Leviathan partners took a less sharp stance. “The court in its decision accepted the entire framework except the stability clause for this we laud it,” they said in a statement. “We will work with the government immediately to create stable conditions inside a rapid timetable that will enable us to meet the framework’s goals, first and foremost to develop Leviathan by the end of 2019.”