Israeli Electric Companies May Have Clause to Keep Mum on Gas Prices

They’re going to be spending $5 billion a year for fuel from Tamar and Leviathan, but a contractual obligation may explain Israeli electric companies’ silence over regulatory policy

Avi Bar-Eli
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Benjamin Netanyahu and Moshe Kahlon at the Knesset.Credit: Emil Salman
Avi Bar-Eli

Private Israeli electricity companies seemingly have had a clause in their contracts with the Tamar offshore gas partnership that they will not “work” to have price controls imposed on natural gas, TheMarker has learned.

Although there is some confusion over what the term “work” actually means, the power providers have opted for a cautious approach. “Why get all entangled in such an unnecessary legal dispute? It’s simpler to remain silent,” one electricity industry source told TheMarker yesterday. Another industry source added, “Our legal advisers told us [the clause] wouldn’t stand up in court, but when you’re facing a monopoly, you’re shaking with fear.”

A provision in some way relating to the prospect that price controls would be imposed on gas was placed in all the major supply contracts between 2011 and 2013.

In the debate over appropriate government regulatory policy involving U.S.-based Noble Energy and Israel’s Delek Group – which together have control of Israel’s two major offshore gas production sites – the electricity companies responsible for 80% of the purchases of natural gas have been curiously silent, which the alleged clause may now explain. The two major gas exploration fields in the Mediterranean are the Tamar site, which is already in production, and the much larger Leviathan site, which is under development.

The Tamar partnership issued a statement saying it would continue developing both the Tamar and Leviathan sites, “and the political smear campaign that TheMarker is conducting will not change that.” The partnership said it would not relate to the terms of its contracts in the media, or “lend a hand to the campaign of incitement and defamation” against the Israeli gas industry.

The government has been holding hearings this month on a compromise regulatory proposal that doesn’t call for price controls. Although the state-owned Israel Electric Corp. is the country’s major electricity producer, other private electric utilities – among them OPC, Dorad Energy and Dalia Power Energies – are also dependent on natural gas to drive generators, and are more exposed to future price rises than any other part of the economy. But none has submitted testimony, either orally or in writing – even though the country’s power companies purchase $5 billion a year in natural gas from the offshore monopoly.

At last week’s hearing, the legal adviser to the consortium of private gas-consuming power producers did appear. His testimony dealt more with operational issues, although he did call for a “fair” price to be set for gas.