IEC threatens to cancel Tamar gas contract

Israel Electric Corporation says it will reconsider the contract unless the Gas Authority reverses its decision on supply to small manufacturers.

Israel Electric Corporation (IEC) (TASE: ELEC.B22) is threatening to "reconsider" its gas supply contract with the Tamar partners, unless the Natural Gas Authority's decision compelling IEC to forego some gas deliveries in favor of small enterprises is changed. The Tamar contract is Israel's largest gas supply contract and was approved six months ago, after lengthy negotiations and an exhausting approval process.

IEC sources yesterday sharply criticized the Natural Gas Authority for its decision earlier this week to institute a pro rata regime, under which Tamar customers will only receive a relative portion of the gas quantities promised them in the event of a gas shortage. Senior IEC officials said that it was unacceptable for the Natural Gas Authority to intervene now in such material terms of the gas supply contracts, six months after they were signed and after they underwent interventions by the Public Utilities Authority (Electricity), the Government Companies Authority, and the Antitrust Authority, which "made the contracts as full of holes as Swiss cheese."

Ministry of Energy and Water Resources sources said that the quantities of gas that the Natural Gas Authority wants to set aside will be only 1-3% of Israel's gas consumption.

Energy market sources doubt that IEC can cancel its contract with the Tamar partners. A source said, "IEC is basically threatening to shoot itself in the head and end up with no gas at all."

IEC's threats infuriated manufacturers seeking to buy gas from Tamar. Shaniv Paper Industry Ltd. (TASE: SHAN) CEO Pesach Barnet said, "IEC's attempt to fiddle with the negligible quantities of gas promised to industry is a vain effort to divert the public's attention from IEC management's failure and expression of the conduct of a company that believes that it owns the country. The Natural Gas Authority's decision is a just decision which saves thousands of manufacturing jobs."

The gas shortage is expected to begin in 2014 because the gas pipeline from the Tamar drilling platform was not designed to meet Israel's full gas needs. At present, all of Tamar's gas is already promised to its big customers, beginning with IEC and the large independent power producers.

The Natural Gas Authority is worried that in these circumstances, there will be no gas available for manufacturers, which are small consumers. The authority concluded that it should intervene in the signed gas supply contracts to guarantee gas to manufacturers, otherwise its efforts to persuade manufactures to switch to natural gas from diesel or industrial oil will go to waste. Under the current circumstances, even Phoenicia America-Israel (Flat Glass) Ltd. cannot obtain the gas promised from Tamar.

However, IEC feels that it is the main victim from the pro rata decision, as it is Tamar's primary customer and will have to forego the largest amount of gas.

Published by Globes [online], Israel business news - www.globes-online.com - on December 12, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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