Is the door about to close on the Israeli-Egyptian gas deal?

Published June 7th, 2001 - 02:00 GMT

An article appearing Thursday, May 31, in the Washington Post sent a chill though the headquarters of the Israeli Electric Corporation (IEC), located in the coastal town of Haifa. Referring to a natural gas pipeline, which when complete would stretch from the northern Sinai town of Al-Arish, via Israel and on to Turkey, an unidentified official at the Egyptian Ministry of Petroleum stated that it is more likely that Egypt will choose to invest all its efforts in building a pipeline across Sinai to the Jordanian Red Sea town of Aqaba, and from there northward, though Syria to the Lebanese city of Tripoli. "It will be a 100 percent Arab project," the unidentified official told the Washington Post

 

Two days earlier, a preliminary accord had been signed in Cairo by Egyptian Oil Minister Sameh Fahmy and Jordan's Energy Minister Wael Sabri, concerning the construction of an overland pipeline from Al-Arish to Aqaba. Egyptian government representatives said it was the first stage in a one billion dollar project involving Egypt, Lebanon, Jordan and Syria, by which Egyptian natural gas would be piped to markets throughout the Middle East and Europe. 

 

The Egypt-Israel-Turkey pipeline was to have been built by the Eastern Mediterranean Gas (EMG) company, which is a joint Israeli-Egyptian venture. EMG is jointly owned by the Egyptian government, Egyptian businessman Hussein Salem, Israeli businessman Yossi Maiman and several Egyptian institutional investors. 

 

Maiman is the president of Merhav, which just this week announced it was selling its stake in the Middle East Oil Refinery (Midor) in Alexandria, Egypt. While the name of the buyer was not released, a week earlier Associated Press reported that Merhav had sold its 14-percent stake in the $1.2 billion plant to the National Bank of Egypt, giving it 38 percent of the stock and making it the largest shareholder after the state-owned Egyptian General Petroleum Corp.  

 

The players in Midor and EMG were by and large the same. Midor was 60 percent owned by the Egyptian General Petroleum and abroad Corp (EGPC), 20 percent by Merhav and the remaining shares held by the banking sector and other investors based in Egypt, including Hussein Salem, who together with Maiman initiated the project. At the time, Israel’s Ha’aretz daily reported that Maiman planned to use the proceeds from Midor sale in order to invest in the EMG project, but the status of the latter today appears uncertain. 

 

Merhav representatives have put a brave face on developments, denying that EMG was in jeopardy, and stating that their decision to sell their share in Midor was based on purely business considerations and was not the result of any economic or political pressure. But just several days earlier, the Egyptian Economy and Trade Minister Youssef Boutros-Ghali had said in the Egyptian parliament that the Egyptian government wanted the Israeli share in Midor to be sold. The plant was established when the political relationship with Israel was better, he explained. 

 

Despite Maiman’s apparent confidence, sources report a real sense of concern at the Israel Electric Corporation, which in January decided to buy 55 percent of its necessary natural gas supply from Egypt, via EMG. At same time, the company is negotiating to buy the remaining 45 percent from an Israeli supplier, with the most likely alternative being the Yam Thetis consortium, owned by Israel-based companies Delek Drilling and Avner and the American company Samedan, which discovered gas deposits in the Mediterranean opposite Israeli southern town of Ashkelon. 

 

In the months leading up to the IEC’s January decision, Yam Thetis had lobbied hard to convince the Israeli electric corporation to buy all its supply from the Israeli supplier. But the IEC management was unconvinced, evidently reluctant to find itself beholden from a price perspective to a firm that would monopolize the market. 

 

If Egypt is to renege on its agreement to sell gas to Israel, the IEC may have been prepared to reconsider its arrangement with Yam Thetis. But rumor now has it that the Israeli gas suppliers’ original estimates about how much gas it could supply were overoptimistic. 

 

Israel has a good deal invested in the natural gas project. It currently is preparing to shift a major portion of its national electricity grid to gas-powered turbines, and to construct a national gas grid. To manage the latter project, the government plans to authorize a company to develop the grid—at an estimated cost of $200 million—which will be capable of transporting two billion cubic meters of gas per annum.  

 

The Egyptians and the Israelis have been negotiating about natural gas supply since the early 1990s, but the talks were ground to a halt in 1996, in part because of the strained relationships that developed between Egypt and the government of the then-prime minister, Benjamin Netanyahu. Consequently, behind the scenes, third-party negotiations were stymied by the hardheaded policies of Israel’s then infrastructure minister and current prime minister, Ariel Sharon.  

 

Contacts were renewed again in late 1999, and on December 22, 1999, the then-Israeli Prime Minister Ehud Barak announced that Egypt has agreed in principle to sell natural gas, via a pipeline that would from El-Arish to Israel and Palestine, and later to Turkey. ― (MENA Report)

© 2001 Mena Report (www.menareport.com)


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