Egypt finally Terminates the Gas supply Deal with Israel

JNN 23 April 2012 Cairo : Egypt’s state-run gas company has terminated a controversial natural gas deal with Israel, which used to rely heavily on Egyptian natural gas to generate electricity.

The deal was “annulled on Thursday with the East Mediterranean Gas Co (EMG), which exports gas to Israel, because the company failed to respect conditions stipulated in the contract,” Mohamed Shoeib, the chairman of state-owned Egyptian Natural Gas Holding Company, told AFP on Sunday.

The full impact of the decision was difficult to determine on Sunday night, and Israeli foreign ministry officials said they were still seeking clarification from Egyptian counterparts because they had not been formally notified.

With only two months before Egypt’s military authorities are set to turn over power to one of the first popularly elected presidents in Egyptian history.

Israel’s Finance Minister Yuval Steinitz said his country viewed the cancellation of the agreement “with great concern.”

“This is a dangerous precedent that clouds the peace agreement between Israel and Egypt,” Mr. Steinitz said in a statement.

Sunday’s cancellation appeared to be a business gambit aimed at securing a higher price and it remained unclear on Sunday night whether Egypt’s interim ruling military leaders would intervene, said business analysts. The council of generals could not be reached for comment and they did not issue a statement on the matter.

The provision of gas to Israel has constantly formed a contentious topic among the Egyptian public, which views Tel Aviv as an enemy and opposes engaging in any form of business with it.

The deal would oblige Egypt to supply gas to Israel as one of the main economic conditions of a US-sponsored 1979 peace treaty between the two sides.

In line with the USD-2.5-billion export deal, Israel would receive around 40 percent of its gas supply from Egypt at an extremely low price.

Ampal-American Israel AMPL -3.85% Corporation—a stakeholder in the pipeline joint venture, which transmits the gas between the countries— reported on its website Sunday that two of Egypt’s state-owned natural gas companies had severed the gas export contract.

The head of the state-owned Egyptian Natural Gas Holding Company, or EGAS, Mohamed Shoeb, said Sunday evening that his company ended the deal last Thursday for purely commercial reasons. “It is a commercial contract between companies,” Mr. Shoeb said.

He said East-Mediterranean Gas, the Israeli-Egyptian firm that buys gas from the Egyptian state and sells it to Israel, has failed to pay for the past several months—a claim that Israeli Foreign Ministry spokesman Yigal Palmor denied, according to news reports. Ampal owns a 12.5% stake in EMG.

The gas deal was among the chief sources of popular rage against the ousted regime of President Hosni Mubarak and one of Mr. Mubarak’s most unpopular foreign policy positions.

Since Mr. Mubarak was ousted amid massive street protests last February, militants have bombed the pipeline that delivers natural gas from Egypt to Israel and Jordan at least 13 times, effectively cutting off supply at normal levels ever since. Gas deliveries dried up for a total of 225 days in 2011 and 66 days during the first three months of 2012, according to Ampal’s website. Gas has not flowed to Israel from Egypt since an explosion on March 5. The cutoff in gas supply has caused a surge in fuel costs at Israel’s electric utility, prompting rates to surge 33%.

Mr. Mubarak now faces criminal charges for his role in the deal, which is popularly believed to sell off Egyptian natural resources to the despised Israeli government at below-market rates.

Hussein Salem, a co-owner of EGAS and close confidant of Mr. Mubarak, was arrested last June in Spain where he faces a possible extradition to Egypt and prosecution for his role in the gas deal.

Israeli officials have long maintained that the contract’s terms are fair. But many Egyptians believe that the Mr. Salem benefited hugely from his middle-man role.

EMG has not made its prices public, but some analysts and industry experts suggest it could be about $2 to $3 per British thermal unit. Egypt’s government sells natural gas to Egyptian companies for about $4 per btu.

“The big saying here in Egypt is that we are subsidizing the Israeli people while we are not subsidizing the Egyptians,” said Tamer Abu Bakr, the chairman of Genco Group, an Egyptian natural gas distribution company.

Successive petrol and natural gas shortages throughout the past four months have sharpened anxiety about the gas deal. Anti-Israel rhetoric from presidential candidates vying in Egypt’s May elections has also raised public anger over the gas exports.

The 2005 gas deal was a 20-year supply agreement that yielded about $300 million for Egypt in 2010 and reduced Israel’s energy costs.

But the arrangement has become a source of frustration and political anger for both sides.

The contract calls for EMG to deliver 7 billion cubic meters, or BCM, of Egyptian natural gas to Egypt every year, which would offer Egyptian state-owned gas firms over $1 billion each year, according to Ampal’s website.

By the end of 2010, EMG had only provided 2.5 BCM to Israeli utilities company each year since the gas started flowing in June 2008.

A spokesman for Israel’s Infrastructure Ministry said the government had not yet gotten an official announcement. A spokesman for the prime minister’s office was also unaware of the development.

Despite government statements that Israel has prepared for the cutoff of gas from Egypt, the loss of gas flow has been felt because it accounted for 16% of the country’s power generating capacity.

Already in 2011, the supply cut from Egypt contributed to a rise in electricity rates for Israeli consumers. Israel Electric Co., the state-owned utility, is preparing for rolling black outs in the summer, in part due to the shortfall of gas suppy from Egypt.

According to the results of an opinion poll, conducted for Press TV and published on October 3, 2011, 73 percent of the Egyptian respondents opposed the terms of the agreement.

The country used to be Tel Aviv’s strongest Arab ally during the roughly-30-year-long rule of former dictator Hosni Mubarak, who was deposed in a popular revolution in February 2011

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