When It Comes to Natural Gas, Netanyahu’s Hatred of Cartels Melts

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A protest against the gas monopoly, in Tel Aviv, May 30, 2015. Demonstrators wear masks depicting Finance Minister Moshe Kahlon and Delek's Yitzhak Tshuva, and hold a sign saying 'it's a robbery.' Credit: Tomer Appelbaum

Something strange happens to Benjamin Netanyahu when he is required to deal with the natural gas industry. A gifted politician, who at the start of his career undertook a radical restructuring of the Israeli economy, he morphed into a reactionary the minute he came into contract with the energy sector.

The man who, as finance minister a decade ago, compared the electric-power monopoly to the Nazi destroyer Bismark, turned mute when he was called on to deal with the biggest monopoly of them all – one that helps determine the price of electricity, water, even cottage cheese.

The proud capitalist of 2003, who described the economy’s monopolies as one side of a Bermuda Triangle that threatened to destroy the state, had nothing to say during the six years he served as economic uber-minister and did nothing to break the power of the bank monopoly that controls a trillion shekels ($260 billion) of the public’s savings.

Netanyahu’s strange behavior began back in 2010, when Yuval Steinitz, then the finance minister, had the temerity to form the first Sheshinski committee to determine what should be the government’s share in the profits from natural gas and poil.

For several months, the Prime Minister’s Office delayed the first meeting of the committee, which ultimately found that Israeli tax rates were among the lowest in the world and recommended doubling them. Later, the PMO tried to limit the Sheshinski proposals to future gas and oil fields and exempt the Tamar field.

The finance and justice ministries saw Netanyahu’s intervention as improper and worried it represented pressure from the energy companies, particularly the Texas company Noble Energy, which controls 36% of Tamar, in a bid to retain its profits.

For its part, the PMO insisted its interference was aimed only at ensuring that the development of Israel’s energy resources moved ahead without delay. “The fact of the matter is that even raising the issue for discussion creates uncertainty that will lead to delays in producing gas ... It’s best to declare in advance that existing drilling profits won’t be touched,” the PMO said

As it emerged how ridiculous Israel’s energy-tax policy was – and the fact that then-Bank of Israel governor Stanley Fischer backed the committee – Netanyahu was forced to move closer to the Sheshinski recommendations. Netanyahu agreed, but only after he met personally with Yitzhak Tshuva, the controlling shareholder of the other big Tamar partner, Delek Group.

Even as the Sheshinski proposals were being weighed by the Knesset Finance Committee, Netanyahu sought to soften their terms.

Netanyahu’s next encounter with the natural gas issue came as Israel was deciding how much of the gas should be exported or if it should be exported at all. Delek and Noble were lobbying hard for the right to export and they had the backing the National Economic Council and to some extent from the treasury.

Again, Netanyahu urged moving toward the position of the energy companies, on the grounds that the gas must be developed as quickly as possible. He also complained about what he said was the real threat to the economy – bureaucracy and populism.

Back then, the energy companies wanted to effectively break the 40% ceiling on exports by exempting sales to neighboring countries – and the PMO was listening. Netanyahu lobbied for the energy companies but was ultimately defeated in his effort by Silvan Shalom, who was then infrastructure minster.

The prime minster went as far as to try to avoid a Knesset vote on the matter and enact the export quota by way of a cabinet decision, which he succeeded in doing when the High Court of Justice declined to intervene by a 5-2 vote.

“A government must govern,” Netanyahu said at the time, in response to criticism of the move. “Any delay in implementing the decision jeopardizes the state’s ability to realize the gains of our gas resources. The gas can’t remain in the ground, beneath layers of bureaucracy and populism.”

The same kind of talk has informed the current debate over the gas monopoly. “We can’t fall into the same trap as many other countries that argued over this subject interminably while the gas remained in the ground,” Netanyahu told the cabinet two weeks ago. “Even in the face of a populist attack, I’m not impressed. Every delay in deciding endangers out ability to enjoy our natural resources.”

The prime minster avoided the public discussion that’s been taking place over the last few years about the dangers of the gas monopoly. Instead, it was Antitrust Commissioner David Gilo who took on the unwanted task on his own. His first effort was crucified in the media and last December he announced he would revise it.

Only then did Netanyahu enter the picture, appointing Eugene Kandel, the head of the National Economic Council, to study the matter. Several days later, Netanyahu spoke about it with U.S. Secretary of State John Kerry, who expressed concern about the regulatory uncertainty in Israel’s energy sector. On Thursday it was reported that Kerry is a Noble shareholder.

A government negotiating committee, which included the heads of the finance, infrastructure and justice ministries, together with Kandel, came up with a formula for breaking up the cartel and presented it to Delek and Noble in February. The two companies rejected it entirely, while Noble froze development of the Leviathan gas field and threatened legal action.

The matter stayed there until early April, after the general election, when Gilo was surprised to learn than that the finance and infrastructure minsters had reversed their positon on the cartel. Noble would remain a monopoly and prices would not be subject to controls.

Officials explained that the government was forced to reverse itself because there was no alternative to having Delek and, in particular, Noble, develop Leviathan. Gilo announced he was resigning, while the Justice Ministry prepared a pathway for for Netanyahu to circumvent the antitrust order.

That is how the security cabinet came to meet on Thursday, to discuss in secret and in haste a proposal to designate the gas cartel as a national security issue that overrides antitrust considerations.

“I very much appreciate the work of the antitrust commissioner, but in this case he was the only one opposed to the framework proposed by experts,” Netanyahu said. “Apart from him, all the participants support the framework, which will enable us to enjoy the gifts we have gotten from nature.”

For now, Netanyahu’s plans are on hold after Thursday’s security cabinet meeting fell apart when Economy Minister Arye Dery refused to bypass the Antitrust Authority. But the prime minister has suffered setback before and he won’t go down this time without a fight.

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