Israel Electric Corp. Passed Up $1.3b to Let Delek, Noble Export Gas to Egypt

The Israel Electric Corporation voluntarily gave up $1.3 billion in compensation after Egypt reneged on a gas-sale contract in order to let private-sector companies – led by Israel’s Delek and Houston-based Noble Energy – export Israeli gas to Egypt.

The electricity utility took an 85% haircut on the Egyptian gas companies’ debt, and intentionally did not inform the public, it emerged on Tuesday.

The IEC argued that its approach was “important from a diplomatic standpoint,” the Government Companies Authority said.

The agreement with the Egyptian gas companies came after two years of secret negotiations, after they reneged following the unrest in the country in 2011.

The companies had been ordered to pay the IEC $1.76 billion, not including interest and linkages due to inflation, under an international arbitration agreement.

But the IEC offered the Egyptian companies a “compromise,” stating that it would accept a mere $500 million, to be paid over eight and a half years.

The arbitration agreement is one of the main obstacles to Israel exporting natural gas from the Tamar and Leviathan offshore gas fields to Egypt. Egypt has conditioned its approval for importing gas on a compromise on the arbitration deal.

The gas, however, is being exported not by a party related to the IEC, but by the companies that have the license to drill at Tamar and Leviathan, led by Delek and Noble Energy.

The agreement with Egypt came together two months ago, and was approved by the IEC’s board on January 31. But the utility kept the deal secret, given how controversial it would be.

The company said it feared publicizing the negotiations or the compromise before an agreement was signed because it might undermine the deal.

The company informed the Tel Aviv Stock Exchange about the agreement only now, after the Government Companies Authority decided not to approve the deal. It also ordered the IEC’s board to vote on it again.

In a letter sent a week ago to IEC executives, the chairman of the Government Companies Authority, Yaakov Quint, criticized the agreement, arguing that the board’s approval for the negotiations was based on partial data that skewed decision-making.

The allegedly misleading information concerned the fact that the IEC portrayed its debt arrangement as similar to the agreement struck with EMG, the owner of the gas pipeline between Egypt and Israel. But the companies authority learned that EMG had additional agreements that complemented its debt collection, not just from the Egyptian gas companies but also from the Egyptian bank that financed the debt settlement.

The companies authority believes that the IEC did not do enough to collect its compensation. For instance, the IEC could have turned to an international debt collection company and taken in more than $500 million, or the IEC could have filed a lawsuit, say officials at the companies authority.

Instead, the IEC did not take extra measures, citing the “diplomatic standpoint,” the authority said.

Ora Coren

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