Tamar partners cut gas price for IEC

The $20 billion plus gas supply contract nearing agreement could be the largest in Israel's history.

The Tamar gas field partners - Delek Group Ltd. (TASE: DLEKG), Noble Energy Inc. (NYSE: NBL), Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), and Alon Natural Gas Exploration Ltd. (TASE: ALGS) - have agreed to cut the price of natural gas to Israel Electric Corporation (IEC) (TASE: ELEC.B22) in what could be the largest gas supply contract in Israeli history, exceeding $20 billion. Ahead of the signing of the deal, government officials pressed Delek controlling shareholder Yitzhak Tshuva and his partners to lower the price of the gas, which will ultimately be paid by the Israeli consumer.

IEC suspended its negotiations with the Tamar partners last week, after the Public Utilities Authority (Electricity) announced that it would not allow IEC to raise electricity rates to consumers to cover a higher price paid for natural gas bought from the Tamar partners if they abused their market position. Electricity rates fully reimburse IEC for the cost of fuel for the generation of electricity.

Sources inform ''Globes'' that just before negotiations were suspended, the Tamar partners agreed to lower the price of gas to $6 per million British Thermal Units (BTU) from last month's asking price of $7.50 per million BTU. The price is higher than the original asking price from 18 months ago, but lower than the price IEC is currently paying Delek and Noble Energy for gas from Yam Tethys under the 2009 gas supply contract. The price is similar to the price that Jordan has agreed to pay for gas supplies from Egypt.

The parties also agreed, for the first time in Israel, and possible in the entire world, to link the price of natural gas to the Consumer Price Index (CPI), rather than the price of oil and other commodities. Linking the price of gas to the price of oil has raised the price of gas that IEC pays Yam Tethys from $5.50 per million BTU to almost $8.50.

IEC presented the understandings reached with the Tamar partners to its chairman, Yiftach Ron-Tal, who is not participating in the negotiations. IEC negotiating team is lead by CEO Eli Glickman.

Government officials have been strongly pressing the Tamar partners in recent months to lower the price of gas in the IEC contract. The official argument is concern that Tshuva and his partners will abuse their position as Israel's primary natural gas supplier following the uncertainty over the supply of Egyptian gas.

Energy sources told "Globes" that the Public Utilities Authority's decision was unclear how to distinguish a "forbidden" price rise caused by abuse of monopoly power, and a "legitimate" price raise caused by rising global prices for natural gas.

For example, yesterday, the Egyptian media reported that Jordan agreed to pay double the price of gas purchased from Egypt from $3 per million BTU to $6-7 per million BTU because the new price reflected the prevailing global price of gas. However, Egypt supplies all of Jordan's natural gas, which powers 80% of the country's electricity production.

Published by Globes [online], Israel business news - www.globes-online.com - on June 13, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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