Cabinet Approves Moderate Raise in Natural Gas Royalty Rate

21 ministers approves compromise proposal of Sheshinski Committee to increase government take on profits from exploitation of natural resources.

The cabinet approved by a large majority the recommendations of the Sheshinski Committee to increase the royalty rate that oil and gas companies are required to pay the state on profits from the natural resources that it exploits.

The Sheshinski Committee recommended that the state royalties be increased from the current rate of 33 per cent to a figure that would waver between 52 per cent and 62 per cent.

tycoons - Daniel Bar-On - November 29 2010
Daniel Bar-On

Officials said Israel's tax rates have historically had been on the low side in global terms, and its energy royalties law is out of date.

Energy companies oppose the new tax and their stock prices have been hit on investor fears the levy would hurt their profits and could put gas production at risk.

Two recently discovered gas fields are set to boost the sector significantly and together could generate up to e4 billion in annual revenue for Israel, officials say.

Tamar field, discovered in 2009 by a group led by Noble Energy of the United States and Israel's Delek Energy, has estimated reserves of 8.4 trillion cubic feet. The partners confirmed that another new discovery, the nearby Leviathan field, is twice as big.

The ministers of the Likud, Shas and Atzmaut parties voted in favor of the committee's recommendations, while National Infrastructural Minister Uzi Landau and the other ministers of Yisrael Beiteinu voted against the proposal.

Likud Minister without Portfolio Yossi Peled abstained from the vote due to his previous business partnership with Yitzhak Tshuva, one of the owners of drilling rights for an underwater natural gas field in Israeli territorial waters.

Finance Minister Yuval Steinitz, who led the efforts to convince the cabinet ministers to adopt the committee's recommendations, said, "Today the government will put an end to the disgrace in which the citizens of Israel do not benefit from the country's natural resources, as do the citizens of other developed nations."

"Today the government sends a clear message to everyone that thinks that the most wealthy and powerful affect its decision-making process," Steinitz added.