Israel Values Tamar Partners’ Tax Breaks at $1.4 Billion

State responds to petition by offshore gas field to raise its export quota.

The partners in the Tamar offshore natural-gas field – Israel’s largest currently in production – qualify for tax breaks of between 3.5 billion shekels and 4.1 billion shekels ($1 billion-$1.2 billion), the government stated in court documents.

In an affidavit submitted in connection to a suit filed by Isramco and Alon, two of the Tamar partners, the government said the tax benefits could exceed 5 billion shekels ($1.42 billion) over the next 20 to 30 years, if Tamar produces the maximum amount of natural gas it is believed to hold.

The government estimated that the Tamar partners would have revenues of $35 billion from selling gas to the domestic market, and more from exports. It said profits from the field, which contains an estimated 280 billion cubic meters of natural gas, could reach $15 billion.

The government’s share of Tamar income is expected to be just half, compared to 60% for the larger Leviathan field.

The low tax liability goes back in large part to a decision made by Prime Minister Benjamin Netanyahu’s office, together with then-Finance Minster Yuval Steinitz, to award the Tamar partners generous tax breaks because tax policy was revised after they had begun developing the field.

Thus, for example, paid only a minimum tax rate of 20% of profits, only after 200% of their development costs were covered, rather than 150% at other gas fields. The Tamar partners were also given a more generous depreciation allowance.

The government’s estimates of the tax benefits accruing to the Tamar partners comes a in a lawsuit filed by Isramco and Alon against the government’s natural gas export policy approved last summer, which the plaintiffs assert discriminates against the field by significantly limiting its export quota.

Apart from Isramco and Alon, the shareholders in Tamar are Texas-based Noble Energy (36%) and Yitzhak Tshuva’s Delek Group (31.25%). Noble and Delek also have stakes in Leviathan, whose export quota was raised under the rules.

Tamar’s export quota was cut from the 50% recommended by the government’s Tzemach committee on gas-export policy after it became clear the partners had already signed contracts in the domestic market for 180 billion cubic meters, more than half its estimated reserves, and that domestic gas needs would be higher than originally estimated.

Isramco and Alon, which have stakes of 28.8% and 4%, respectively, in Tamar, say the decision will make the field less profitable since profit margins on exports are higher than in the domestic market.

But the government has responded to charges that it has unfairly discriminated against Tamar by designating the field a national asset, given that it will be Israel’s only major domestic source of natural gas for the next several years, until Leviathan goes into production.

The estimated tax break reflect the state’s second argument, namely that the Tamar partners received significant tax concession that were given to no other energy groups.

“Tamar’s partners have a significant advantage as the first and only competitor in the market for now, a situation that enables them to sign long-term contracts with most of the biggest energy consumers in Israel,” government attorneys said.

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