In Big Win for Opponents of Israel's Natural Gas Cartel, Supreme Court OKs Class Action Suit

Justices allow suit claiming Tamar partners overcharged Israel Electric Corp. to proceed

File photo: Israel's offshore Tamar gas rig.
Tomer Appelbaum

In a big, if not decisive, victory for opponents of Israel’s natural gas cartel, the Supreme Court said on Thursday that a multibillion-shekel class action against the partners in the Tamar offshore field could proceed.

The court took no position on the plaintiffs’ claims that the partners exploited their status as a monopoly to overcharge Israel Electric Corp., returning the suit to the Central District Court for adjudication. It also limited the period to which the suit pertains. As a result, the damage claim is likely to shrink to 8 billion shekels ($2.3 billion), from the 45 billion to 50 billion shekels originally sought.

Nevertheless, petroleum shares on the Tel Aviv Stock Exchange plunged on the news. Tamar partners Delek Drilling closed down 2% at 10.94 shekels and Isramco Negev down 1.8% at 49 agorot while Tamar Petroleum gained 0.9% to end at 22.78 shekels.

On Wall Street, shares of Noble Energy, Tamar’s Texas-based operator, were down 0.3% at $28.23 mid-morning local time.

“It’s certainly no small headache for the gas partnership, which had to return to the public stage and justify itself yet again,” said Noam Pincu, energy analyst at Psagot Investment House.

But he said the plaintiffs’ victory should be put into perspective. “It looks like this will be a long legal process. Our assumption and the markets’ is that the chances that the process will lead to a significant price drop — which would in effect cancel the gas framework accord or contracts that were signed — aren’t high,” Pincu said.

The class action, which was first filed in June 2014, asserts that a contract signed by the Tamar partners to sell gas to state-owned Israel Electric Corporation took advantage of the partners’ monopoly status to charge prices that were double what the suit claims were fair.

According to a court document, IEC committed to buying at least 42 billion cubic meters a year at a base price of $5.042 per million British thermal units.

The suit comes against a background of wrenching public debate over the cartel and other issues such as taxation and exports that went on for years.

The gas companies, backed by Attorney General Avichai Mendelblit, contended that the suit would undermine the framework agreement between the government and the energy companies that set many of the rules governing Israel’s natural gas industry.

Moreover, they argued, the framework’s terms were approved by the High Court of Justice. That means the framework doesn’t have to comply with ordinary antitrust rules on pricing by monopolies, the gas companies asserted. They also claimed the suit was an attack on the entire regulatory framework for the gas industry.

The Central District Court didn’t accept the claims. In November, the gas companies appealed to the Supreme Court. But on Thursday Justice Esther Hayut, leading a three-justice panel, also rejected the claims, saying the suit only dealt with the agreement signed by IEC and the Tamar partners three and a half years before the framework was signed.

“The disagreement concerns the question of whether the gas price set in the agreement between the petitioners and the IEC is excessive and constitutes an abuse of the monopolistic power held by the petitioners,” Hayut wrote in the ruling.

Responding to the Supreme Court decision, the Tamar partners said in a statement on Thursday that they were still certain the case will ultimately be thrown out.

“The decision of the Supreme Court to allow only a hearing on the issue of the class action itself against the Tamar partnership does not change our absolute confidence in the fact it is a futile claim that should be rejected out of hand,” the partners said.

“The claims in the suit are baseless, inconsistent with the facts and divorced from the global practices for setting prices and natural gas contracts.”

Yitzhak Yaari and Gilad Barnea, the lawyers who represented the plaintiffs, said the decision removed one of the biggest legal obstacles blocking plaintiffs from winning compensation for the public for excessive natural gas prices.

“The court made clear that there is noting in the approval of the gas framework to negate action by the consumer public,” the attorneys said in a statement.