Antitrust Chief Steps Down Amid Dispute Over Breaking Up Gas Cartel

In resignation letter, David Gilo decries interference of Prime Minister’s Office and others in his efforts to ensure competition.

Emil Salman

David Gilo said on Monday he was stepping down as Israel’s antitrust commissioner in August, decrying the interference of Prime Minister Benjamin Netanyahu and others in his efforts to break up the natural gas cartel.

“The government, especially the Prime Minister’s Office and the finance and energy ministries, will do everything they can to promote the outline that is being drafted for the natural gas market, an outline I am convinced will not bring competition in this important market,” Gilo said in his letter of resignation.

Gilo, who reports to Economy Minister Ayre Dery, Gilo warned in the letter that the government’s interference threatened the independence of the Israel Antitrust Authority.

But Netanyahu shot back with a defense of the government’s initiative, saying in a statement that while he has valued Gilo’s work, “in this case he was the only one who opposed a framework proposed by expert authorities.”

Gilo has been locked in a battle with the PMO and the two ministries since he ruled, in December, that Noble Energy and Delek Group of Israel’s control of the country’s biggest natural-gas fields, Tamar and Leviathan, constituted an illegal cartel. 

Gilo, who has been in the post for over four years, was pushing for a plan that would have forced Noble and Delek to sell part of their holdings in the two big fields and create separate, independent and competitive channels for selling the gas from them. 

The December decision reversed an earlier one that would have allowed the two companies to keep their stakes in the Tamar and Leviathan.

But the government opposed to the plan, fearing it would delay development of the fields as details of the Gilo plan were put into place and stakes in the two fields were sold. Noble announced after the Gilo decision that it was freezing investment in Leviathan until the regulatory situation was clarified. 

Officials also feared that Israel’s zigzag policies would deter investors. Even top figures in the Antitrust Authority began having second thoughts about the more extreme plan.

As an alternative they have proposed much softer terms that would have dropped the demand for separate marketing channels and allowed Noble to keep its stakes in the two fields while forcing Delek to divest Tamar. Gilo strongly opposed the plan and refused to join talks with Noble and Delek in recent weeks.

Gilo said on Monday said he was confident that had the government remained united on the cartel issue it would have been possible to reach an agreement with Noble and Delek that ensured adequate competition.
In addition to supplying much of Israel’s energy needs, the offshore gas reserves have also turned the country into a regional energy power, with Jordan, the Palestinians and Egypt all agreeing to buy Israeli gas.

“The [government] framework will increase competition, ensure gas is taken out of the ground instead of remaining there. It will attract investors rather than send them away and will advance importance strategic interest by supplying gas to several countries in the region,” Netanyahu said.
In fact, Gilo seemed to accept that geopolitical concerns could trump the antitrust issue. “I don’t think it is appropriate for a regulator responsible for competition to undertaken unilateral steps resolutely opposed by other government ministries,” he said in his letter.

The news lifted the shares of energy stocks as investors bet that Gilo’s resignation cleared the last obstacle to reaching an agreement the cartel issues with the gas companies. Gilo was rumored to be considering going to the antitrust court or mounting a campaign with the new finance and energy minsters to accept his position.

Shares of the two Delek Group units that directly hold stakes in the Tamar and Leviathan fields rallied Monday, with Delek Drilling closing 2.4% higher at 17.65 shekels ($4.56) and Avener up 1.2% at 3.24 shekels. Delek Group rose 3.3% to close at 1,179. There was no trading in Noble, a U.S. company listed in New York, because of the U.S. Memorial Day holiday.

Tamar began producing gas two years ago, while Leviathan, the world’s largest offshore gas discovery in the past decade, is in development. Noble and Delek had been negotiating over cartel terms with Gilo before the PMO and the two other ministries stepped in.

Noble and Delek own 85% of Leviathan, which has with an estimated 22 trillion cubic feet (622 billion cubic meters) of reserves. Production had been expected to begin in 2018 following an initial investment in the development of around $6.5 billion.

The dispute inside the government remained in the background until after the March 17 general election. It comes as Netanyahu seeks to strengthen his grip over the government’s independent regulators.

Among other things, Netanyahu was threatening to form a three-member panel led by the prime minister that would be authorized to overrule the antitrust commissioner. Last week Netanyahu dismissed the director general of the Communications Ministry, whose portfolio he also holds, in what was seen as a move to gain control over telecommunications policy.

With reporting by Zvi Zrahiya.