Bank of Israel Says Leviathan Development Needs State Guarantees
The Israeli government had to accept the natural gas regulatory framework – including the stability clause and other incentives for investors – in order to stop investors' profits falling while the state's share of the profits grew, according to a new paper published by the Bank of Israel, called Natural Gas Production Industry – Government Policy Seven Years after the Tamar Discovery.
Its author Yoav Friedman claims that over those seven years, policy-makers used new information to transfer money from investors to the state. "This policy, when it enacted proportionally, according to what is accepted abroad, and in light of the tremendous improvement in the entrepreneurs' stance, might benefit the citizens even in the long term. However a series of decisions in a relatively short time while damaging the entrepreneurs to the benefit of the consumers, maybe considered by the entrepreneurs and future potential investors as damaging the business environment and reduce their investments in Israel."
The author analyses the seven years since Tamar gas field discovery and points at four major milestones, starting with the adoption of the Sheshinski Committee in 2011 which recommended higher taxation on energy resources. Next came the adoption of the Zemach Committee's recommendations in 2013 which limited gas export quotas to 380bn m3 – or about 40% of proven reserves at the time. The third was the acceptance of the consent decree which was agreed upon between the antitrust authority and the natural gas monopoly and then the regulator's withdrawal from the decree in December 2014. And fourth was the acceptance of the natural gas regulatory framework at the end of 2015.
The paper claims that the formation of the monopoly was part of the characterization of the of the energy sector, the policy makers' desire to encourage exploration activity by private investors, the limited number of players and the difficulties in finding deep water operators.
The paper deals mainly with financial and fiscal aspects of the natural gas sector in Israel. It refers to the low energy security of the country and supports the notion of the rapid development of Leviathan. But it says that if no funding for the development of Leviathan becomes available to the shareholders and the government pursues its development so that Israel's economy depends less on Tamar, "it will have to invest capital in Leviathan development or at least to give the entrepreneurs guarantees and assist them to raise private capital."
The paper's author says that the government’s demand that the Tanin and Karish reservoirs should only provide natural gas for the domestic market reduces the probability of their development in the short term, and highlights the conflict of interest between the state, which is interested in developing reserves and domestic market competition and potential investors, who are not interested (and possibly not able) in financing the development of a reservoir for a market that has a surplus supply of natural gas.
Ya'acov Zalel