April 23 (Bloomberg) -- Israeli Prime Minister Benjamin Netanyahu toned down the country’s initial reaction to Egypt’s cancellation of an agreement to supply natural gas, saying it was a commercial dispute and not politically motivated.
The Israeli Finance Ministry late yesterday called the Egyptian decision “a dangerous precedent that casts clouds over the peace agreements and the atmosphere of peace between Egypt and Israel.”
Israel’s relationship with Egypt has grown increasingly tense since street protests led to the resignation of former Egyptian President Hosni Mubarak in February 2011. Mubarak had been Israel’s closest regional ally, and was considered a staunch supporter of the 1978 Camp David peace accords that ended decades of hostilities between the countries.
“We don’t see this cut-off of the gas as something that is born out of political developments,” Netanyahu said in an-emailed statement today. “It’s actually a business dispute between the Israeli company and the Egyptian company.
Ampal-American Israel Corp., which owns 12.5 percent of East Mediterranean Gas Co., said yesterday it had been advised by EMG that Egyptian General Petroleum Corp. and the Egyptian Natural Gas Holding Co. were terminating the gas-supply agreement between the companies.
Egyptian Natural Gas Chairman Mohamed Shoeib said in an interview on state television that the company hasn’t been paid for the gas it is sending and, therefore, EMG is in breach of the deal. “It was our right to end the contract, per the terms of the contract,” he said.
‘Exercising Our Rights’
Egyptian Oil Minister Abdalla Ghorab said yesterday in a telephone interview that this is “a contractual matter, and we are exercising our rights under the contract.”
“We want to believe this is a commercial dispute, and not a political one,” Israeli Foreign Minister Avigdor Liberman said in an interview with Israeli Army Radio today. “The peace agreement is important to Israel, and no less so to Egypt.”
The gas agreement, valued at $2.5 billion, was signed in 2005 and was supposed to run 15 years, according to the website of Israel’s Foreign Ministry. The gas supply had been interrupted sporadically when the Sinai pipeline that carries the fuel was bombed 14 times since the start of Egypt’s political turmoil. The latest attack took place on April 8.
The termination of a gas accord with Israel was the right step and affirms Egypt’s sovereignty, Muslim Brotherhood spokesman Mahmoud Ghozlan said in a telephone interview today.
Ghozlan said the agreement to supply gas was signed by the Mubarak government and that Egypt needs the gas more than Israel does. The Brotherhood holds almost 50 percent of the seats in the Egyptian parliament’s lower house.
“If there’s a contract that’s breached, should we continue even if the contract gives the Egyptian side the right to terminate the contract?” Ghozlan said.
EMG considers the gas-termination attempt unlawful and in bad faith, and consequently demanded its withdrawal,” Ampal said in an e-mailed statement filed yesterday with the Tel Aviv Stock Exchange. Ampal shares declined 19 percent to 0.78 shekel at 3:24 p.m. in Tel Aviv today.
EMG had previously requested that the Egyptian gas companies be brought to international arbitration for failing to meet their contractual obligations to supply gas over the past year.
Until the Sinai pipeline attacks began, Egyptian gas had accounted for some 40 percent of fuel used to meet Israel’s electricity needs.
More Expensive Fuels
Israel Electric Corp. has resorted to using more expensive substitute fuels, and raised its rates by 9 percent on April 1. The company said the termination of the Egyptian gas deal may not have an additional negative financial impact since the supply had already been interrupted for more than a year.
“I don’t see an impact on inflation expectations or on monetary policy from this announcement since the impact is already priced in,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc.
Israel is hoping to make up the shortfall in its fuel supply by tapping into significant gas discoveries over the past three years off its Mediterranean coast totaling about 30 trillion cubic feet.
Finance Minister Yuval Steinitz said that Israel must hasten arrangements to bring gas to market from the Tamar discovery earlier than the current target date of April 2013. It may be possible to begin pumping from Tamar before the end of this year, he said today at a conference in Jerusalem.
Former Defense Minister Benjamin Ben-Eliezer, seen as the Israeli official who was closest to Mubarak, expressed concern over the gas termination, pointing to the pipeline running from Sinai into Israel as an essential component of the peace agreement between the countries. “It’s a severing of the last link between Israel and Egypt,” he told Army Radio today.
To contact the reporters on this story: Calev Ben-David in Jerusalem at firstname.lastname@example.org
To contact the editors responsible for this story: Andrew J. Barden at email@example.com