Comptroller Enters Gas Debate, Calls for Price Controls

State Comptroller Joseph Shapira added his voice Monday to concerns over the government’s approach to regulating the two major natural gas fields off Israel’s Mediterranean coast – the Tamar field, which is already producing gas, and the much larger Leviathan field, which is not yet online.

Shapira took the government to task in a report on how the state has dealt with the two companies running the fields, Noble Energy of Houston, Texas and Israel’s Delek Group.

The public debate has centered around the government’s failure to develop a policy that would address the company’s current monopoly control of the sites, provide a reasonable stream of royalties for the state’s coffers, address the proper levels of exports of gas from the fields and provide a level of regulatory certainty that would enable the companies to proceed with their plans.

Shapira recommended that changes be made to the government’s plan before it is submitted for cabinet approval. The gas from the field, he said, should be subject to price controls and conditions should be placed on the companies’ immunity from regulatory provisions. Shapira intimated that the government was to blame for creating the gas monopoly, but didn’t place personal blame on any particular official. His call for price controls on gas had not been widely expected.

“In the face of the existence of a monopoly in the field of gas supply, it must be assured that the price of gas is competitive,” the comptroller wrote. “The government must consider the need to use a range of means at its disposal, most importantly price supervision.”

Under the proposed government plan presented at the end of last month, Noble Energy and the Delek Group would keep control of Leviathan. However, Delek would have six years to sell its entire stake in Tamar, and Noble would have to decrease its stake in the field to 25% from 36%. The companies would also be forced to sell two smaller fields, Tanin and Karish.

In an unusual step, Shapira’s report included introductory remarks with his personal signature. Even more usual, he took note of the current criticism of the government’s plan and added his own support for the protests. The problems with the plan, he said, were the result of a lack of coordination among government ministries, the absence of a decision on price controls on the gas and tardy action on the part of the Antitrust Commission. In addition, the process was hurt by a government negotiating team that lacked transparency and clear procedural guidelines, the comptroller maintained.

The Finance Ministry took note of Antitrust Commissioner David Gilo’s decision in December to back out of a compromise plan on the companies’ monopoly control of the offshore fields. The ministry said Gilo’s shift in position had scrambled prevailing assumptions regarding gas pricing arrangements. But the Antitrust Commission, for its part, said the change in position was the result of public hearings on the matter and the presentation of additional data which led the commissioner to conclude that a proposed arrangement that he had earlier supported – and which was separate from the government’s final plan – would not lead to competition.

The National Infrastructure, Energy and Water Ministry responded that, as Shapira had noted, the large number of regulatory players involved and a lack of coordination contributed to creating uncertainty and resulted in a considerable number of the failings that the comptroller pointed out. The ministry expressed regret that much of the information that it said it provided to Shapira was not reflected in his report.

The appropriate solution, the ministry said, should be that the dispersed regulatory authority should be transferred to the ministry itself. “It is proper for the one that bears the responsibility also have the authority.”

Reuters contributed to this report