Israeli cabinet approves new natural gas agreement


The new gas field development agreement has a stability clause, which is more flexible than the one struck down by the High Court.

The cabinet today approved by a large majority the natural gas plan with a new and more flexible stability clause. The only minister to vote against it was Minister of Environment Protection Avi Gabai. The new clause does not commit future governments. According to the cabinet resolution approved today, the government promises to act in favor of regulatory stability for 10 years in the gas sector, but does not guarantee that nothing will be changed in taxation, ownership of the reservoirs, and exports. In contrast to the previous stability clause, the government will not oppose private members' bills seeking to make such changes.

"The government recognizes the need for a regulatory environment that encourages investments by international and local companies in oil and gas exploration and production, including the obtaining of the financing required in the sector from local and international financing entities. This environment serves the public interest," the cabinet resolution states. "The cabinet is therefore seeking to create conditions that will help enhance trust, expedite investments in this sector, promote them, and encourage additional investments in the sector, including the entry of new investors."

If changes having a negative impact on the gas companies are introduced, the cabinet "will give positive consideration" to some kind of compensation for them. No commitment is involved; the aim is to maintain a stable investment. The resolution states that the government "will carefully consider any change in the gas sector arrangement liable to have a material effect on the investment by the holder of the rights in determining regulation in the sector, the regulator will try to adapt the regulation as much as possible to the accepted standards in OECD companies, including the existing regulation in the oil and gas industry."

At the beginning of the cabinet meeting, Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz said, "Following the Supreme Court ruling, we arrived at a suitable solution that conforms to the ruling and the principles set out and makes it possible to create regulatory environment that encourages investment. The revised clause eliminates automatic opposition to Knesset legislation by the government, and future governments can use their judgment as required."

Steinitz continued, "After a six-year delay, the revised stability clause will make it possible to not only go ahead with the development of Leviathan, but also to open the sea to exploration of new gas fields that have not yet been discovered and guarantee the export of Israeli gas to the neighboring countries and to Europe. Israelis will benefit from the enormous natural resources that have been discovered."

Gabai stated, "I opposed the gas plan today at the cabinet meeting for three main reasons. The resolution re-endorses the plan that has proven to be a great error in the nine months since it was approved. The prices set in the gas plan are too high, and prevent the use of gas to reduce air pollution. Customers also need stability in a world without competition. The plan removes price controls when there is no competition, so the companies can raise the prices and still get compensation from the government for regulatory change."

In March, the High Court of Justice ruled that approval of the gas plan would be contingent on change in the stability clause. The Court opinion stated, "The stability clause in this chapter of the plan, in which the government undertakes for a decade to not only not legislate but to also fight any legislation against the plans provisions, was determined without authority and as such is rejected. It was determined in contrast to the general principle of administrative law regarding the prohibition of shackling the authoritys ability to judge." The Court gave the government and the gas companies a year to change the clause.

On the day following the ruling, Steinitz announced that he would set up a professional team to consider the alternatives to the stability clause. Ministry of National Infrastructure, Energy, and Water Resources director general Shaul Meridor headed the team, which included representatives of the Israel Natural Gas Authority, the Petroleum Commissioner, the Ministry of Finance budget department, the Ministry of Justice, the Antitrust Authority director general, and the National Economic Council. The team and the gas companies reached agreement on a compromise last week.

Published by Globes [online], Israel business news - - on May 22, 2016

Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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