Minister of Finance Yuval Steinitz promised the public tens of billions of shekels in revenues from the state's share in the country's offshore natural gas discoveries. He has seriously overdrawn on that promise.
Had Israel Corporation (TASE: ILCO) chosen to buy Israeli natural gas, the government would have earned substantial revenues, although it is hard to know exactly how much. The $4 billion figure mentioned by the Tamar parties seems overblown. Israel Corp's contract with East Mediterranean Gas Company (EMG) amounts to $4.5 billion, and the government's share currently amounts to a third.
However, belying the impression that the Israeli oil and gas exploration companies want to create, Israel Corp's decision is not the final word. Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva and his partners have a window of opportunity through March 2011 to secure a contract for the second half of the natural gas that Israel Corp. plans to buy. The question is whether the Tamar partners will seize the opportunity.
If they do, today's loss will be painful, but not lethal. The likeliest scenario is that Israel Corp. will seek to diversify its gas suppliers, rather than be dependant on just one.
On the other hand, if Israel Corp. exercises its option to buy more gas from EMG, the fingers pointing the blame on Steinitz will be even more accusatory. The bear escaped from its trap while Steinitz was shining its fur.
For weeks, the Tamar partners warned that a deal with Israel Corp. was in jeopardy, but Steinitz and his aides believed that this was mere spin. "Isn't it odd that just now, when the Sheshinski committee is about to publish its report, that they lost such an important contract?" an aide told reporters.
Steinitz and his aides are not completely wrong. The real battle is not the contract with Israel Corp., but over exempting Tamar from the heavy taxes that the Sheshinski committee is proposing. As "Globes" revealed, these tax slash Tamar's net present value (NPV) by 60%.
"They're offering us a project with the yield of real estate," said one of Tamar's partners today, "but we're not building luxury homes or the Cross-Israel Highway. No bank will give us $3 billion for a project with such risks and complexities for real estate yields."
The real battlefield for the Tamar partners is among the top leaders on the political front. Minister of National Infrastructures Uzi Landau has already been favoring exempting Tamar. He faces a determined Ministry of Finance. "This is like writing a $40 billion check to Tshuva at the expense of Israel's citizens," says the Ministry of Finance. The battle will now likely only be decided by the intervention of Prime Minister Benjamin Netanyahu. The question is how much damage will be caused until he finally decides to intervene.
Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2010
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