Israeli-Egyptian gas pipeline construction hit by unforseen $2B expense
Under Israeli law, tax breaks apply towards import only and not export of gas. (Shutterstock)
In the talks between the gas exploration partnerships and the government on a general regulatory framework that have been taking place in recent weeks, the partners in the Tamar reservoir have raised the demand that the state should recognize the cost of constructing a gas pipeline from Israel to Egypt as part of the deal signed for exporting gas to Spanish company Union Fenosa, which operates a gas liquefaction plant in Egypt.
This is a new demand. It was originally planned that Union Fenosa would pay for constructing the pipeline, but in the course of negotiations on the deal the Spanish company declared that it would not finance the pipeline, and the cost of constructing it is due to fall on the Tamar partnerships.
At stake is a $2 billion expense that the Tamar partnerships did not foresee. Under the Sheshinski law, however, this expense should not be recognized, because it is for a pipeline for exporting gas and not for supplying gas to the Israeli domestic market.
The consequence of recognizing the expense incurred in constructing the gas pipeline to Egypt as the gas partnerships are demanding would be a substantial delay in the start of tax payments under the Sheshinski law. As mentioned, a decision on the matter is expected in the next few days in the talks on the regulation of relations between the state and the gas partnerships in the coming years.
The three possible solutions are that the companies pay the cost of the pipeline and the expense is recognized, or that the state pays the cost, or that the companies pay and the expense is not recognized under the law but is grossed up in the price of gas.
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