Sources inform ''Globes'' that Ministry of National Infrastructures opposes the framework agreement that the state is drawing up for the purchase of gas from BG Group (NYSE: BRG; LSE: BG) (British Gas), and is unlikely to grant British Gas a license to produce gas even if it signs an agreement with Israel.
The ministry is opposed to the present framework for a number of reasons, especially the manner in which it was negotiated. Officials feel that the Ministry should have led negotiations with British Gas, and not the Ministry of Finance. In addition, the framework agreement provides that the purchase of gas by the state will be set against contracts with natural gas consumers in the Israeli economy, to prevent it incurring a risk when committing to the purchase. The Infrastructures Ministry feels that this condition will harm competition in the natural gas economy and will put the Egyptian supplier at a disadvantage. It also feels that the British Gas’ reserve is of strategic importance to Israel, and the state will not bear any risk by owning since demand for natural gas will only increase.
Part of the difficulty with the framework agreement now being negotiated with British Gas relates to the relations with Eastern Mediterranean Gas (EMG) of Egypt. The Infrastructure Ministry says that it has received complaints from the Egyptians that they are being given inferior treatment. The agreement with British Gas could cause a structural conflict of interest. Dorad Energy Ltd., for example, one of whose owners is Eilat-Ashkelon Pipeline Co. (EAPC), which is constructing a power station in Ashkelon, will have difficulty signing a contract with EMG. Energy industry sources claim that the state would prefer Dorad to buy from British Gas.
The sources are sharply critical of the state’s handling of negotiations with British Gas. They feel that the state should make a monumental effort to obtain British Gas’ supply and hold it as a strategic reserve, and then deal only with the companies that will purchase gas. If Israel continues to conduct the talks with British Gas as it has done to date, they warn, it could lose the opportunity to buy the reserve, which British Gas will move to Egypt if no agreement materializes.
The Ministry of Finance said in response that a joint taskforce from the Ministries of Finance and Infrastructure and the Prime Minister’s office was continuing to move forward the negotiations with British Gas. The Ministry of National Infrastructures said it could not comment on issues currently under negotiation. British Gas declined to comment.
Published by Globes [online], Israel business news - www.globes.co.il - on November 16, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006