The Man Who Tried to Stand Up Against Noble Energy

A farewell interview with Israel's outgoing antitrust commissioner David Gilo, on why he gave up, what should happen to Israeli banks and where he is headed.

Ofer Vaknin

In jeans and a white T-shirt, with a suit jacket in hand in case the air-conditioning is too strong, Prof. David Gilo, who until the end of August was Israel’s antitrust commissioner, arrived at TheMarker for a farewell interview. It seems he is a bit wiser now than he was four and a half years ago, when he started the job.

“No tycoon has offered me a job, and I didn’t get any offers from private companies,” he says with a half-smile. “I’m returning to Tel Aviv University as a professor in the law faculty. Most of my time will be devoted to writing articles and teaching.”

Gilo announced his resignation three months ago in a dramatic move. It was intended to bring public attention to the natural-gas framework proposed by the government, which will perpetuate Israel’s most powerful and most aggressive monopoly.

Gilo’s attempts to promote an agreed-upon and competitive framework with Delek and Noble Energy collapsed in the face of the companies’ threats not to produce gas from the large offshore field Leviathan if competition were imposed on them and they were forced to split ownership of their natural-gas reserves.

Facing competition and lower prices, presumably, on one hand against getting production started at Leviathan, the government chose to promote the gas production out of fears that any other step would leave the gas deep under the ocean floor during many long years of legal wrangling.

Gilo views this as a sign heralding bad tidings for the future of the Israeli economy. In his view, the gas monopoly may not be a direct threat to democracy, despite the levers it has to apply pressure — which could allow it to advance its own interests even against opposition from the Knesset and the government. But Gilo still thinks the gas monopoly has excessive political power, which allows it, so it seems, to evade obeying the law through the threat of not developing Leviathan; and in the future this could lead the monopoly to present its own new interpretation of its tax obligations. The government framework preserves this political power and does not weaken it at all.

‘Hand on the switch’

It is clear the gas companies have political leverage over the state, he says.

“They control an essential resource for the country, which fears they will not develop it quickly, and so will cause harm to the economy. This is classic political power of a ‘hand on the switch.’ It is expressed today in the difficulty in enforcing the Restrictive Trade Practices Law against them,” said Gilo.

This could apply in the future not only to antitrust law, but also to tax matters, environmental and safety law — and because of their political power the companies could threaten that “if you take a unilateral step, there will not be gas,” he says.

You are the first antitrust commissioner to resign. The public has an expectation that the gatekeepers will be there, that they will not quit. Wasn’t this a surrender that we wouldn’t want to see?

“I resigned after four and a half years of achievement. In this specific case I surrendered because I understood that I would not succeed in achieving competition in this market by myself. All the government ministries were determined to pass the framework that in my opinion would not bring about competition. I knew they were capable of doing it, because there is authority to bypass me in Section 52 [of the Restrictive Trade Practices Law]. That is why I surrendered, because I knew I would not succeed.”

Maybe you dug the hole yourself? After all, you could have declared that cooperation between Delek and Noble in the offshore fields was a cartel, and not negotiate with the monopoly?

“Not really. The unilateral move against the monopoly is considered something the government thinks will cause damage to the economy.”

If you find tomorrow there is a restrictive trade agreement among the three large banks, you wouldn’t wait for anyone else and would declare them a cartel. Why in the case of natural gas did you allow other players to enter the game?

“Because in the government ministries they are afraid it would paralyze the gas market. Had I declared a restrictive trade agreement in order to create a more competitive market structure, the government would have applied Section 52 and given the gas companies an exemption from the restrictive trade agreement.

“There was no practical meaning to such a declaration. It was impossible to stand alone against the government, which feared that a larger delay than that caused by the development of the field would cause greater damage.

“If the framework you propose according to the relevant government ministries causes harm to foreign and security relations, the government can nullify the agreement. I saw justification for a unilateral step even if they would have allowed me from the legal perspective, when all the members of the cabinet state that they are working to bypass me.”

What is the solution to concentration in the gas industry?

“We must think again about this norm, in which gas companies must develop the Leviathan field by a certain date, but if they do not find customers it is legitimate to postpone the date. This norm is problematic because it is very difficult to check whether the parties have really made great enough efforts to find customers.

“There are two solutions to this situation: to be stricter with the norm, and to say that if by a certain date you have not developed it, the field will be given to someone else; or the state will enter the matter and develop it itself. [The country] can buy a significant part of the field, such as happens in Norway and the Netherlands, or all of it. Relative to the state budget, this is not [impossible], though it is not my area of expertise.”

Gilo criticizes the government’s gas framework, saying it should have worked harder to bring a better price for the consumer, as well as in the competitive structure of the gas market, or in long-term price supervision.

“We must admit that there will not be competition and make effective price supervision based on costs, or create a competitive market structure that must be based on competition between Tamar and Leviathan.”

To achieve this there must either be a total separation of ownership and control, or completely new owners must be found for the Tamar field.

Gilo came from academia to change the Antitrust Authority. He declared his intention to increase the supervision of monopolies, and with his leaving he can also be proud of a number of changes he made.

In addition, the authority was a beneficiary of the social protest movements and received greater powers and authority to deal with economic concentration. Other regulators are now required to consult with the antitrust commissioner and the agency has the authority to examine all sectors of the economy and make recommendations to other regulators on actions to be taken. During Gilo’s period, the number of agency employees has been doubled, to about 130, and new departments were added.

After your time in the Antitrust Authority, will you write your articles differently?

“Yes. I better understand the complexity of the practical, the difficulty in enforcement, the legal arrangements. As an academic I always said ‘They should enforce and examine.’ Now I see there are obstacles, that there is a need for cooperation with others; that antitrust analysis is not enough to file a criminal case, there is a need to prove the foundations of a crime, to show intent and foundation [of intent], in addition to antitrust analysis.”

Were you afraid to deal with suspected cartels of the strongest institutions in the country, such as the banks or the insurance companies?

“If you don’t find a cartel, you can’t build a case. If the competition does not work, you need to do something. The infrastructure we built is like a highway that we and the future commissioners can drive on. For example, once there was only criminal enforcement, and today there are financial penalties. Today, if we do not find restrictive practices, coordination or exploitation by an owner of a monopoly, it is possible to declare a few companies in an uncompetitive industry as a ‘concentration group,’ as we did in the ports and the infant-formula industry, which we opened up to competitors.

“As for the banks, until a certain period the authority’s handling of them was subject to the right of veto by the Bank of Israel. At a certain stage [the authority] stopped examining declaring a ‘concentration group.’ The question was what orders was it possible to give to the banks which would more effective than legislation or the active cooperation of the Bank of Israel.”

Which industries are still not competitive enough?

Banking does not seem particularly competitive, especially as far as consumers and small businesses are concerned, says Gilo. Credit cards too. The distribution of cooking gas is another problematic area, and the antitrust authority is considering how to fix that. Insurance and retirement savings are not competitive, but they have not yet managed to deal with them, he said. But there are a great number of improvements since he took office, such as in the food sector, says Gilo.

Have you examined whether Israel Hayom, a newspaper that it is distributed for free and is owned by the U.S. casino magnate Sheldon Adelson, is a case of foreign dumping?

“In Israel a company with over a 50% market share is a monopoly, while in the United States a company with less than 50% can also be charged with dumping or anticompetitive pricing. We must look at the overall business model and where the profits come from. In many markets the profits come form elsewhere, not necessarily from the price of the product. Maybe you provide free content, but make money from advertising. You need to examine if it is profitable in an overall picture — with a profitable business model, or whether there is no chance of a profit in the foreseeable future,” says Gilo.

As for what awaits the next antitrust commissioner, Gilo says there are investigations that have been completed and are waiting for legal rulings, concerning Tnuva, Coca-Cola, schoolbooks and computer servers. There are indictments for water meters and for tree pruning, legislation on parallel imports and implementation of the reforms on credit cards in 2016. There are also the supermarket chains, and the authority has not yet dealt with the health sector, such as whether the health maintenance organization have too much market power in certain areas and whether something can be done about it.

“Experience shows that some of the important things reveal themselves in the course of working on them,” he said.