Who Owns Israel's Natural Resources?

Prof. Eytan Sheshinski, head of government committee determining royalties on natural gas production, tells The Marker conference that Israel has right to change terms of natural resource licenses.

Ora Coren
Ora Coren
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Ora Coren
Ora Coren

Israel’s natural resources belong to the entire public, which is entitled to change the terms under which private-sector companies exploit them, Prof. Eytan Sheshinski told a conference sponsored by TheMarker on Wednesday.

“No country is willing to handcuff itself with licenses granted in the past,” Sheshinski asserted. “Circumstances change − like the price of potash, which rose from $80 per ton when Israel Chemicals was privatized to $1,600 today. Israel Chemicals derives its profits from this dramatic change. Should the state accept it as a given that past conditions must stay the same? The state can’t tie its own hands on taxation and fiscal conditions that are changeable.”

Sheshinski, who headed the government committee that determined royalties on natural gas production, was speaking at a panel discussion titled “To whom do the natural resources belong?” moderated by TheMarker editor Sami Peretz as part of the “Tomorrow’s Environment” conference sponsored by TheMarker and the French environmental company Veolia.

In response to Sheshinski’s remarks, Israel Chemicals representatives said the price of potash is $400 a ton and not $1,600.

Sheshinski denied that ownership is transferred to whoever holds a license, saying concession holders haven no property rights. The committee’s stance on this issue was validated by the Supreme Court, he noted.

“Was there a contract between the state and developers saying the state wouldn’t change the terms of the concessions? Absolutely clearly not,” he said.
Sheshinski also addressed public criticism of plans to export gas, saying his committee determined that exports would be subject to a tax on excess profits without any consideration for inter-company transfer prices prior to the final destination. In other words, the tax will be imposed on a price equal to the price of gas in the target market regardless of the future export price.

“There must be an excess profits tax on exports,” said Sheshinski. “If the Leviathan field sells to another company that sells to Europe, I think it needs to be determined that the price that the state receives will be the price at the final destination less expenses.... If there’s a legal problem on this matter then it needs to be solved.”

Dutch disease

“If we export $100 billion of gas, we’ll lose the same amount of exports,” said Yaron Zelekha, a former Finance Ministry accountant general and a critic of government policy. “We’ll be converting smart exports fueling demand for workers and high-tech know-how into dumb exports [produced] through the sweat of gas-extracting workers. The result will be a reduction in gross national product. That’s what happened in Holland and was named ‘the Dutch disease.’ It has no cure.”

Zelekha, who teaches at the Ono Academic College, said that in a visit to Norway several months ago, he was shocked by the prices.

“We entered a run-of-the-mill Italian restaurant, and a personal-sized pizza cost NIS 200,” he recounted. “Norway has no tourists, no high tech. ....Except for oil and salmon, the Norwegians don’t export anything. People have turned into zombies.”

Zelekha also criticized Udi Nissan, a former budget director at the Finance Ministry who sat on the Sheshinski Committee, for accepting a job as chairman of Delek Group Israel a year and a half after the committee completed its work. Delek, which is the biggest Israeli holder of natural gas licenses, was the main company affected by the committee’s work.

“The government has the right to decide how to split up the pie,” said Ohad Marani, CEO of ILDC Energy and a former Finance Ministry director general. “But regrettably, while everyone is busy splitting the pie, we’ve forgotten that the state also needs to deal with policy for enlarging the pie for the sake of the economy and the citizenry.... Without exports, there won’t be any additional drilling.”

Eytan Sheshinski, right, with Labor MK Avishai Braverman at Wednesday’s conference. Credit: Ofer Vaknin



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