The gas conundrum

Time will only tell what effect this week's court ruling freezing Egyptian gas exports to Israel will imply, reports Sherine Nasr

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The Cairo Administrative Court ordered a halt on Egyptian gas exports to Israel on Tuesday.

The ruling came in favour of former diplomat Ibrahim Yosri and members of the opposition who filed the case a few months ago as public criticism against a 15-year gas export deal with Israel was mounting.

"National resources belong to current and future generations and the executive must first get parliament's approval on gas export deals," AFP quoted a source at the court as saying.

But before the ink had dried, the state's Cases Authority yesterday announced that it was taking the necessary procedures to appeal against the Administrative Court's earlier ruling.

Ibrahim Yosri's lawsuit, filed in May 2008, is one of some other six cases raised against the Egyptian government and the Ministry of Petroleum to stop decision 100/2004 which allowed Egypt to pump Egyptian gas to Israel starting May 2008. The Egyptian government has been under fire since then as opposition parties and members of the People's Assembly described the deal as corrupt and unfair.

By virtue of the agreement the Cairo-based East Mediterranean Gas (EMG) company was set to sell 1.7 billion cubic metres of Egyptian natural gas annually to the Israeli state-run Israel Electric Corporation (IEC) at a minimum price of 75 cents of a dollar per million Btu (British thermal unit) and a maximum of $1.5 per million Btu. Given that international gas prices have hit $10 per million Btu, the deal was perceived as scandalous.

To save itself much embarrassment, the Egyptian government described the deal as one based on economics. "Egypt does not sell gas to Israel. The deal has been concluded between two private-owned entities who are capable of including whatever terms they find convenient to their agreement," said Moufid Shehab, minister of state for legal and parliamentary affairs during a People's Assembly (PA) session last June.

According to Amr Kamel Hamouda, oil expert and director of Al-Fustat Research Centre, the Egyptian government has the right to file an appeal against the latest ruling. "However, the ruling has put the Egyptian government in a very awkward situation not only with regards to the public but also with the Israeli side," said Hamouda, who added that the ruling could create a political crisis between Cairo and Tel Aviv.

Although it is premature to anticipate the Israeli reaction to the ruling, observers believe it will not stand by and watch. Israel, by virtue of the agreement, had indeed already started to replace fuel oil with Egyptian gas to generate electricity. Accordingly, Israelis have started to pay less for electricity each month. Moreover, the gas underwater pipeline to Israel, which extends over 100km from Arish on the north- eastern coast to Ashkelon, cost billions to be built.

The culminating criticism in many public circles has embarrassed the Egyptian Ministry of Petroleum into acknowledging that all gas deals are subject to modification once their items are fully examined. As a result, the ministry started a series of negotiations with Spain, Italy and Israel, in an attempt to introduce adjustment clauses to earlier gas deals. Sameh Fahmi, minister of petroleum, was repeatedly quoted as saying that there would be no exceptions while addressing the issue of adjusting gas prices in export deals.

On his part, Sherif Ismail, former chairman of EGAS, declared that all natural gas export deals are subject to price adjustment. "Gas agreements are concluded in full secrecy and there is no such thing as a fixed price for selling gas because different factors and variables take place in the international market and bring forth necessary price adjustments."

Negotiations with Gas De France have already borne fruit while a fifth round of negotiations with the Spanish Union Fenosa is due to begin early next year. Nevertheless, Tel Aviv seems likely to remain adamant with regards to price adjustment. Although negotiations have been carried out in full secrecy, no progress was made. As a matter of fact, Tel Aviv expressed concern over change of the terms of the agreement.

For its part, Egypt has been pumping less gas for allegedly technical reasons. Ironically, this week's court ruling is expected to open the door to a series of lawsuits against the government. "The ruling will definitely encourage more national powers to file similar cases," said Hamouda, who added that the current prices for selling gas are marginal and the deals are both fixed and run over long periods of time. For example, France buys Egyptian gas at $4 per million Btu.

"This is done at a time when the minimum price for selling gas in Europe is estimated at $10 per million Btu," said Hamouda, who added that a nation's resource, a vital one, is being wasted and the government should be held responsible.