Israel Submarine Affair: Treasury to Probe How Huge Loan for German Purchase Won Approval

Finance Ministry representatives have said behind closed doors that the security cabinet was never told about a 248 million euro loan taken to fund the purchase of ships intended to defend the natural gas rigs.

An Israeli missile boat off the Haifa coast, February 2017.
Olivier Fitoussi

Israel's Finance Ministry said on Tuesday in a Knesset discussion held behind closed doors that it would investigate how a loan in the sum of 248 million euros from Discount Bank was approved for the purchase of ships to protect the natural gas rigs, which is now under police investigation.

The ministry said that the security cabinet had not been informed about the project's financing.

The discussion was held by the committee that oversees the defense establishment budget, which is a joint body of the Defense and Foreign Affairs and Finance committees.  Also reviewed at them meeting were the several large defense deals including the purchase of F-35 aircraft from Lockheed Martin.

Sources knowledgeable about the discussion said representatives of the Accountant-General and the Treasury's legal adviser had said that the security cabinet approved of the ships' purchase, but without approving a budget for the deal or discussing a possible loan.

The shortcomings of the decision forced them to seek financing, and the legal adviser's people will investigate, the sources said.

The loan taken out by the Finance Ministry covers 66 percent of the deal, and is considered very high and an unprecedented way to pay for such deals.

Former Accountant General Michal Abadi-Boiangiu approved of the loan but other branches of the ministry were unaware. The Budget office opposes such financing because it oversteps budgetary limits and imposes future costs that aren't covered.

In 2013 the security cabinet approved the purchase of the ships, at first an international t ender was issued then cancelled at Prime Minister Benjamin Netanyahu's request after he reached agreement for Germany to subsidize the purchase by 115 million euros.

Another 80 million euro came from the budget, plus the loan from Discount Bank, to be paid back in three installments beginning in 2020. The Market said the budget office did not know about the loan approved by Abadi-Boiangiu.