One step ahead
Egypt has succeeded in getting Israel to pay more for its gas imports, Ahmed Morsy reports
The Israel Electric Corporation (IEC) will be paying more for the natural gas it buys from Egyptian gas supplier, the East Mediterranean Gas Company (EMG), which is partly owned by Israeli Joseph Maiman and Egyptian businessman Hussein Salem. EMG, one of only two natural gas suppliers to Israel, is an Egyptian-Israeli consortium that sells Egyptian gas to Israel. The other gas supplier is Yam Tethys, which is jointly owned by Delek Group Ltd and Noble Energy Inc.
The IEC's board approved amending the natural gas supply contract with EMG by a six to three vote on Thursday, according to the Israeli economy newspaper Globes. However, the Israeli newspaper Haaretz mentioned that the vote was six to two.
Although Delek Group had requested from IEC not to reopen talks with EMG about amending the contracts, IEC refused. IEC and its board agreed to change the terms of its agreement with EMG -- and to pay more. Nevertheless, the reopening of the deal will require the approval of IEC's shareholders, in this case the Government Companies Authority (GCA). The GCA has 45 days to decide.
According to Globes, the new price reportedly will be $4-4.50 per million British Thermal Unit (BTU) -- 50 per cent more than the current price -- whereas the original purchase price is estimated at $2.75 per million BTU.
"Compared to the international prices, the new reported price is very good," Ibrahim Eissawy, a petroleum consultant and former first deputy petroleum minister for gas, told Al-Ahram Weekly. However he added that Egypt exports gas to Syria at about $4.5-5 per million BTU.
"Although the new price is lower than that of the Syrians that is because the price at which we originally agreed upon was too low," Eissawy explained.
In addition to the price change, the IEC said the revisions to the contract also include a reduction in the base quantities to be sold as well as other measures that will guarantee gas supplies.
The IEC justified agreeing to pay a higher price to the fact that the revised agreement will help guarantee a steady supply of gas. In a statement the company said that due to changes in the global fuel market and the cost of gas production in Egypt, as well as political pressures within Egypt, Egyptian gas companies have changed the price of gas for export.
"The oil sector played a difficult and arduous role in the negotiations to amend the contracts of exporting natural gas and these efforts have succeeded in modifying a number of contracts, of which the EMG's contract was one," Ismail Karara, former Egyptian deputy petroleum minister, told the Weekly.
"Although talk about Egyptian losses due to the low export price are not true, since the quantity of gas that has been flowing to Israel was for experimental purposes only," Karara continued, "amending the price was a must in order to fit with global changes."
If the Egyptian side appears satisfied, its counterpart is not. Earlier, IEC offered Yam Tethys the possibility of expanding natural gas deliveries as compensation for reopening the EMG contract. However, Yam Tethys rejected the offer in a letter to IEC CEO Amos Lasker. Tethys wrote: "We reject your offer. IEC has behaved towards us with utter disregard for equality, which constitutes a breach of commitments towards the company."
Tethys also claimed that raising the price for EMG "violates all the contractual obligations of IEC to Yam Tethys." IEC said in response: "IEC rejects all the allegations made by Yam Tethys. Its claims are baseless, both factually and legally."
On the other hand, EMG shareholder Merhav MNF Ltd, owned by Maiman, is not ignoring the pressure that Delek, controlled by Yitzhak Tshuva, is applying on IEC. Merhav said: "It is astonishing that Delek has chosen to ignore the drastic change in energy prices. It is clear to us that Delek is afraid of competition, as our prices were always -- and will always be -- lower than the market price."
Egyptian gas started flowing to Israel through a pipeline in May 2008 under an agreement signed in 2005 for the supply of 1.7 billion cubic metres annually over 20 years. IEC CEO Lasker said the supply of Egyptian gas would allow the company to meet its target of producing 40 per cent of Israel's electricity from natural gas. Being dependent on a single supplier, he said, would mean the company would only be able to use gas for 25 per cent of its electricity production.