The government and the natural-gas cartel have reached new terms to replace a key element of their gas framework agreement that was rejected by the High Court of Justice, in a move that could clear the way for development of the Leviathan gas field to resume.
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Sources close to the negotiations declined to provide details, but broadly speaking the addition would replace the contract’s stabilization clause, under which the government was prohibited from making regulatory changes to the gas industry for at least a decade. In March the High Court ruled that the clause was unconstitutional.
Reuters reported Wednesday that Energy Minister Yuval Steinitz said the new agreement would be brought to the cabinet for final approval within several days. “The new version gives future government space to judge whether to change policies in the field of natural gas, should this be required,” he said in a statement.
Noble Energy, the Texas-based company that is a lead member of the gas cartel, confirmed it had held discussions with the government “to formulate stability language which enables us to continue to progress the Leviathan project on timelines previously indicated.”
It added, “This is an important milestone in creating a stable investment environment.”
The new stabilization clause would no longer tie the government’s hands in terms of future regulation and would let officials decide about any financial compensation due the gas companies for regulatory changes that hurt them, said the sources, who asked not to be identified.
The revised clause would allow the government to alter regulations, tax rules, export quotas and the market’s structure, the sources said. However, for any changes in taxes or export rules designated as “critical in the eyes of a reasonable investor,” the government would have to “consider positively” alternatives that ensure the gas companies enjoy an “adequate return,” meaning a return on their investment in line with global standards.
The promise by the government not to undertake any legislation in the Knesset that appeared in the original stabilization clause was removed entirely from the revised version, the sources said.
Critically, the new clause would not require approval by the Knesset, where Prime Minister Benjamin Netanyahu is not assured of a majority for any vote on a revised framework. Instead, the agreement will go to the cabinet for approval.
The news came as Bloomberg News reported Wednesday that Israeli and Egyptian negotiations are close to a compromise over monetary compensation due the state-owned Israel Electric Corporation after Egypt rescinded an agreement to export gas four years ago.
Bloomberg said that Israel was prepared to settle for half the $1.73 billion Egypt was ordered to pay it by an international arbitration panel. The payments would be spread over 14 years.
Egypt froze talks on importing Israeli gas in December after the panel awarded Israel the money. That marked a major blow to the Israeli gas industry, which was counting on Egypt and the foreign companies that operate liquefied natural gas plants there to buy their gas. A compromise would reopen talks.
Meanwhile, a revised gas framework agreement would allow the companies developing Leviathan, Israel’s biggest gas field by far, to move forward and meet their 2019 deadline for beginning production. Israel currently relies on a single field, Tamar, for all its natural gas. The news lifted shares for Israeli energy companies traded on the Tel Aviv Stock Exchange, with the Oil and Gas index ending 1.4% higher.
Sources told TheMarker that Justice Ministry experts believe the new wording of the stabilization clause would not need Knesset approval, but officials are concerned that it will cause opponents of the framework to appeal to the High Court because even the new terms provide a certain degree of regulatory immunity for the cartel, after the government earlier agreed to override any antitrust scrutiny of the arrangement on national security grounds.
The framework was subject to considerable criticism when it was reached last year, not only due to the stabilization clause but because it allowed Noble and Delek to retain control of the lion’s share of Israeli gas and imposes few limits on their pricing authority.