What Did the IDF Censor Want to Hide About Israel's Breached Oil Pipeline?

TheMarker was going to run a story about the Eilat-Ashkelon Pipeline Company in 2012 - then the military censor called.

In June 2011, a digger doing maintenance work hit a pipeline belonging to the Eilat-Ashkelon Pipeline Company (EAPC), three kilometers (1.8 miles) south of Mitzpeh Ramon. More than 1,000 cubic meters of jet fuel – an amount equivalent to the capacity of 20 gas stations – gushed out and almost totally destroyed the Nahal Zin nature reserve and the water reservoir beneath it. Just three months later, another digger, working to restore the area, struck the pipeline again. Dozens of cubic meters of fuel again polluted the ground that had just been cleaned.

“I view with grave concern the repeated damage inflicted on the nature reserve, and place the entire responsibility on the shoulders of EAPC,” said then-Environmental Protection Minister Gilad Erdan (Likud). “I intend to approach the Finance Ministry and demand a change to the law that grants EAPC immunity from environmental regulations, with the intention of compelling them to take responsibility and to enforce the law following their negligent conduct,” he added.

Israel Nature and Parks Authority

However Yuval Steinitz, Erdan’s Likud colleague and finance minister at the time, had different plans for EAPC. His bureau appointed no fewer than three board members to the governing board of the company, as part of a process managed by Steinitz’s chief of staff at the treasury, David Sharan.

The EAPC board then approved the appointment of a new general manager, Eyal Cohen, who was parachuted in straight from the treasury, without any external tender. After a while, he and the board decided that a new secretary general was needed. They rapidly approved a new, upgraded position with a monthly salary of 35-40,000 shekels ($8,800-$10,000), and published a tender that raised many eyebrows. The desirable position was then awarded to none other than Sharan.

Also in September 2012, Prime Minister Benjamin Netanyahu appointed a friend of both Steinitz and Erdan, Yossi Peled, as CEO at EAPC. Peled’s personal assistant was attorney Ronen Aviani, then legal counsel for the Yesh Atid party. (That party received the finance portfolio in January 2013, which it held until Yair Lapid was replaced last week by Netanyahu himself.)

It would seem that neither Steinitz, Erdan, Lapid, nor Silvan Shalom, the minister for energy and resources, and the development of the Negev and Galilee – and certainly not Netanyahu – have had any aspirations to crack the iron dome which has shielded EAPC for decades, under the guise of a dubious need for secrecy.

Indeed, a criminal investigation conducted by the so-called “green police” at the Environmental Protection Ministry following the two leaks in 2011 was buried, just like the piles of polluted sand removed from the sites at the cost of tens of millions of shekels.

A police investigation of senior EAPC officials regarding damage to the Nahal Zin reserve led nowhere. The top echelons of the company readjusted themselves to conform to the new winds blowing from the government. In the absence of any conclusions being drawn from previous experience or of expressions of remorse, the stage was set for the next ecological disaster.

Whereas in Nahal Zin the pipeline that was breached was 16 inches in diameter, last Thursday’s rupture 20 kilometers north of Eilat occurred in a 42-inch pipe. And whereas the previous pollutant was jet fuel, this time the Evrona nature reserve was contaminated by crude oil. In comparison to one million liters last time, this time the Arava region has to contend with an enormous spill of over five million liters.

In 2011, the spill was contained after spreading for 500 meters. This time, the slick covered 7-8 kilometers. Whereas rehabilitation after the 2011 spill took 8-10 months, this time it will take an estimated 50 years. And in contrast to 2011, in which there was a ministerial outcry after the environmental disaster, the third disaster to strike in four years has been met with near-silence.

No enraged voice of an environmental protection minister was heard following what was defined by ministry officials as the “worst ecological calamity in the state’s history.” The reason lies with the new minister, Netanyahu, who assumed the post last month after the resignation of MK Amir Peretz (Hatnuah).

Six environmental groups asked the prime minister last week why he has not appointed a full-time minister. But it is doubtful they will receive a reply before the Likud primary takes place on January 6.

In the meantime, senior ministry officials are cautious about what they say. They word their criticism carefully, since the brunt of this criticism will be borne by whoever is appointed to head the environment ministry.

EAPC CEO Peled, who had only recently recovered from a heart attack in September, was left speechless by the horrific scenes in the spill area. In any case, it is doubtful whether he has to worry about a scenario where an investigation launched by the ministry will be hurried along by a new minister.

Three days before the spill, Environmental Protection Minister Netanyahu appointed EAPC’s secretary general, Sharan, as his own bureau chief. This was enabled after a meeting of EAPC’s board, which gave Sharan an unprecedented year’s leave of absence.

If anyone still believes that, following the horrific ecological disaster, Environmental Protection Minster Netanyahu will call on Prime Minister Netanyahu and Finance Minister Netanyahu to expose EAPC’s conduct to public scrutiny – subjecting it to enforcement of stringent environmental laws and launching a criminal investigation regarding the incident – he may as well have a swig of crude oil.

EAPC in trouble? Censorship in action

Readers of TheMarker were unaware of the small drama that took place in its editorial offices one evening in October 2012. Half an hour before the paper went to press, the phone rang. On the other end of the line was a senior official in the military censor’s office. He was wondering if the paper included an item on EAPC.

Surprised at the capability of the censor to know about the inclusion of a small item in a paper that had not yet been published, the editors confirmed that this was indeed the case. In response, the censor instructed them to remove the item at once and submit it to him for perusal.

The item, as you may have guessed, was never published. The reason was that the censor’s office never notified the paper of its decision to allow or disqualify it. “It’s under investigation,” they said, giving no reason. The writer of the item (and of the present piece) did not despair. The next day, he inquired at the censor’s office if he could publish the story after it had been looked into.

To his surprise, he was offered a deal. “You can publish the story without mentioning the pipeline company by name. If you insist on naming it, you will have to wait for a decision.”

“How long will that take?” I asked.

“I can’t say,” said the voice on the line, also repeating this the following day.

This is a seemingly trivial story, par for the course in the world of journalism here. It is but one of a multitude of cases in which the censor demands – on the authority granted it by the 1945 (Mandatory) Defense (Emergency) Regulations – to interfere in stories that it believes will harm state security or public order.

The censor is not required to state any reasons for reaching his decisions. This time, suspicions arose that the decision was an exceptional one.

The item removed by the censor dealt with some negative aspects relating to EAPC operations and to a critical report about it. The same contents that were disqualified were published a year later in all the media, covering a wider range of topics, without anyone seeking the censor’s approval.

How was this possible? The material appeared in a report published in late 2013 by then-State Comptroller (and retired judge) Micha Lindenstrauss. Anyone can now access it on the comptroller’s website (in Hebrew).

Why did the censor disallow a negative but brief item about EAPC in 2012, yet allow it as a full report in 2013? What happened in the intervening year? Why did the censor allow the publication of suspicions later investigated by the comptroller only on condition that EAPC’s name be omitted?

One hint may lie in a story published in TheMarker in May 2010. It was revealed that EAPC’s CEO at the time, Amos Yaron, met Comptroller Lindenstrauss and asked him to defer publication of his report on EAPC.

It was surmised that EAPC was concerned that the report would damage an initiative to construct the private, natural gas-fired Dorad power station, in which EAPC held 37.5% of the shares, alongside the Turkish energy group Zorlu, the Edelsburg family and the U. Dori Group.

At the time, Dorad Energy was trying to put together the largest financial deal for a private infrastructure venture in Israel, amounting to 3.8 billion shekels. The funding was to come from a consortium of no fewer than four banks, led by Hapoalim, as well as other corporations (led by insurance companies).

A negative report by the comptroller on a major shareholder, including sharp criticism of the way Dorad was set up and of benefits awarded to EAPC, would not have boded well for a deal to finance Israel’s first private power plant.

Similar damage could have been done by a newspaper report, published on the eve of signing the deal, claiming that the report had been swept under the carpet.

Was the censor consciously or unconsciously serving an external agency, while ruthlessly and apparently unlawfully intervening in the publication of a legitimate news story? Were the dangerous and sensitive Defense (Emergency) Regulations misused to protect business interests that were fearful of any negative press at that sensitive juncture?

It transpired that, two weeks after that October 2012 phone call to TheMarker’s editors, the deal to finance Dorad was signed, in a ceremony attended by senior business and banking figures, as well as delighted EAPC officials. This was done without most attendees being aware of the negative chapter hidden in the comptroller’s report, and of the censorship which prevented them from reading about it in TheMarker. The media, incidentally, was not allowed to attend Dorad’s happy event.

The military censor commented in response, “As was surmised in the story, other considerations were indeed at play in the censor’s considerations of the story on EAPC. The State Comptroller’s Report complied with censorship regulations. The censor dealt with EAPC not under the 1945 Emergency Regulations, but in the framework of Israel’s criminal law.”

Exemption from property tax and publication of tenders

The abovementioned story is meant to shed some light on the murkiness in which business at EAPC is permanently shrouded. The company has shielded itself by arbitrarily assuming a status that purports it to be vital to state security. This enables the company to repeatedly avoid compliance with the law and scrutiny by the government and the public. What is so secret about transferring oil from Eilat to Ashkelon, and vice versa?

The Eilat-Ashkelon Pipeline Company was meant to store crude oil and transport it between the Mediterranean and the Red Sea. Along the way, though, it developed some sideline interests. It was founded in the 1960s by the governments of Israel and Iran. It was designed to transport crude oil from Eilat to refineries in Haifa and Ashdod. When the Shah fell in 1979, the company remained in Israeli hands, although the legal status of the assets that remained in Iranian hands is yet to be determined.

For years Iran has been pursuing an international arbitration process, aimed at sorting outs its rights with EAPC and compensating it for lost assets. The arbitration is proceeding at a snail’s pace in Switzerland. Indeed, it is so slow that Israel’s representative managed to wage a lengthy legal battle in 2006 concerning his culpability in a fatal road accident, serve eight months in prison, and return to the arbitration process without missing anything.

This ongoing arbitration is the pretext EAPC uses for the secrecy surrounding its operations. Does a financial arbitration between Israel and Iran justify employing censorship? It’s doubtful this is the reason the censor’s office was established.
In the meantime, not only does EAPC enjoy shielding from the media, but also rare extraterritorial status – amazing even by Israeli legal standards. As part of its status as a quasi-governmental company, it operates under a special licensing law.

It is not subject to Israel’s Companies Law or the law requiring publication of official tenders. It enjoys exemptions from several building and planning laws, and from some environmental transparency obligations. It is also exempt from property taxes.

It operates like a foreign state within Israel, in which anything goes. If anyone is caught in some infringement, no outsider will ever find out due to lack of transparency. The company employs its own censorship to avoid information leaking out.
It is no wonder, then, that building and planning authorities find it difficult to impose environmental regulations on EAPC. It can legally ignore them. The results of this reality can be seen in aerial shots of the ecological disaster unfolding in recent days.

The special franchise for the company placed it under the aegis of the Finance Ministry. The accountant general’s office is in charge of ongoing oversight, which has led to claims of very weak supervision.

Sizable profits

EAPC’s operations have flourished. The lack of bureaucratic limitations that restrain other developers in Israel have served it well, with no accounting for its actions ever required. It supplemented its manpower with high-quality people and branched out.

From an oil-transporting company, it has become a well-honed logistics enterprise providing global trading giants with diverse energy products. It exploits its location at a key junction of maritime transportation to the Far East, bypassing expensive fees extracted at the Suez Canal and making sizable profits in the process.

With these profits, and in the absence of a need to pay dividends like other government companies, EAPC is casting eyes at international projects and collaborations, particularly at logistics in the Mediterranean basin.

It has tried to leverage the wide spaces at its disposal in Ashkelon and Ashdod for its business ventures. It has shown an interest in liquid natural gas terminals leading from the deposits in the Tamar and Leviathan offshore gas fields.

It has also taken some initiatives in the field of privately generated electricity in Israel – both conventional ones and ones using renewable energy sources.

Does EAPC’s extraterritorial legal status also guarantee that it is an organizational-cultural outlier in the way government companies are run in Israel? Does its legal immunity also shield it from some of the woes of public business management? It appears this is far from the case, as the rare State Comptroller’s Report revealed at the end of 2013.

Thus, for activities that are outside its purview such as the Dorad plant initiative, it established a subsidiary company, Eilat-Ashkelon Infrastructure Services. This subsidiary, although not operating under the sensitive franchise conditions of the parent company, is also not under Companies Law jurisdiction. It is supervised directly by the finance minister.

It is this subsidiary that holds 37.5% of the shares in Dorad Energy, which, according to the comptroller, was established via severe irregularities and with conflicts of interest, evasion of tenders and cooling-off periods, as well as usage of tailor-made contracts. These irregularities have been published in the media for the last five years, but law enforcement, unsurprisingly, has been absent.

For example, the land for the Dorad project in Ashkelon was obtained from the Israel Land Authority through EAPC, which was exempt from issuing tenders for an exceptional period of 49 years. This was approved by the then head of the ILA, Yaakov Efrati, who granted the land even before the exemption from tenders was given to EAPC. The exemption protocol was printed days before the committee met.

To facilitate closing the financial deal, the comptroller found, the accountant general put EAPC’s land rights in trust of a Bank Hapoalim trustee, who oversaw the bank’s supervision of the project. Subsequently, the ILA allowed the trustee to obtain a leasing mortgage for an unspecified, unlimited amount. The trustee had authority over any changes, effectively making the transfer of rights irreversible.

“The comptroller’s office views with grave concern the Land Authority’s yielding of ownership over this land, by tying the land to banks with no guarantees and no remuneration, tying itself irreversibly to EAPC and Dorad,” the comptroller wrote.

EAPC: Abiding by all the rules

EAPC officials responded, “We do not take this incident [the Arava oil spill] lightly. The company regrets the damage done and will do all it can to restore things to the way they were. We invest a lot in preventive maintenance, including the upgrading of our pipes according to the strictest international standards. The company is equipped with the most up-to-date systems required to operate and maintain these pipelines.

“We have a well-equipped emergency center with well-trained response teams that can act professionally and quickly in emergencies.

“The company does not enjoy any concessions related to environmental protection. We abide by all environmental regulations, investing many resources in this area.”

With regard to the 2012 appointment of David Sharan as secretary general, EAPC said, “Sharan was selected by a professional search committee after a tender was issued. He was approved by the board of directors, after the previous secretary retired.”

Regarding Dorad, they added, “The company is proud of its contribution in establishing a private power plant. This increases the capacity for generating electricity, thus guaranteeing secure supplies.”