Israel Phone Hero Bows Out of Key Battle as Finance Minister

Updated on
Moshe Kahlon
Israel’s Finance Minister Moshe Kahlon. Photographer: Gali Tibbon/AFP/Getty Images

Israeli Finance Minister Moshe Kahlon, who built a reputation as champion of the beleaguered consumer, has given up his first battle two weeks after taking office.

Kahlon, 54, said he’ll have nothing to do with formulating the country’s natural gas policy because of his friendship with an industry figure, drawing criticism from non-governmental organizations and local media. Before the March 17 election, he said the ties wouldn’t prevent him from becoming involved.

“This is certainly something that he should have said before the elections,” an attorney for the Movement for Quality Government, Yael Kariv-Teitelbaum, said in a phone interview. “That the Finance Minister won’t deal with the gas, one of the most pressing issues in the Israeli economy, is truly absurd.”

Israel’s failure to craft a coherent gas policy six years after it discovered large offshore reserves has held up the fields’ development, has complicated export deals and antagonized investors. Critics concerned that the government will let two companies monopolize the local gas industry say the finance minister sold out by sidestepping the debate. Kahlon spokesman Omri Haroosh said he acted on legal advice.

The government says the two fields can supply the country’s energy needs for decades, with leftover for export. Until regulatory issues are resolved, expansion of the Tamar field and initial development of the larger Leviathan have been suspended, stakeholder Noble Energy Inc., based in Houston, said on Feb. 19. Parliament’s finance committee is to meet Wednesday to discuss gas policy.

Regulatory Showdown

The large gas discoveries announced in 2009 and 2010 thrust Israel, then dependent on imported fuel, into uncharted territory. Debates raged over how much gas to export and how to divide profits between the state and investors. A new showdown erupted in December after antitrust commissioner David Gilo suggested he may break up the partnership that owns Leviathan to improve competition.

The government’s counterproposal would have Noble and its main Israeli partner, Delek Group Ltd., reduce their stakes in smaller offshore fields while leaving their partnership in Leviathan intact. Gilo said the proposal wouldn’t promote competition and quit on May 25. Kahlon dropped out of the debate the following day.

During the campaign, Kahlon said his relationship with Jackob Maimon, whom he described last week as “head of a group with holdings in the industry,” wouldn’t prevent him from breaking up the gas monopoly.

“I will deal with it, no matter who does or doesn’t own something,” he said in an interview with Channel 2 television. “A monopoly must be dismantled.” Maimon, contacted through his lawyer, didn’t respond to a request for comment. The extent of his gas holdings isn’t clear.

Perceived Conflict

Finance Ministry director-general Shai Babed told Army Radio his boss wanted to avoid even the perception of bias.

“The finance minister’s stance on the issue of concentration in the gas sector is that the gas sector is concentrated and all efforts must be made to reduce this concentration and boost competition,” Haroosh said in an e-mailed statement.

About 300 people protested on Saturday in Tel Aviv against the emerging gas deal, some waving signs saying, “Where is Kahlon?” and “You too, Kahlon?” Israel Radio reported.

Pulling out of the gas debate “significantly hurts his credibility, and might hint to people that he might not be as forceful as expected,” said Omer Moav, a professor at the University of Warwick and the Interdisciplinary Center Herzliya. “People who are opposing him might take this as a signal for weakness.”

Kahlon won fame in Israel for slashing mobile-phone service fees by 90 percent as communications minister in a previous government. That success was key to winning his new Kulanu party 10 of parliament’s 120 seats in the March election.

Housing Prices

He has laid out an ambitious agenda that includes bringing down housing prices that doubled in the past eight years and and increasing competition in the concentrated banking industry.

Yohanan Plesner, president of the Israel Democracy Institute in Jerusalem, said the finance minister’s voice is one of several in the debate, so Kahlon’s absence won’t be crucial.

“It has more to do with his public posture than with the actual policy outcome,” said Plesner, a former Israeli lawmaker who was involved in setting policy on gas production.

While “Kahlon has a lot of political power” and can ‘become a major player’’ on any issue he adopts, he has chosen to focus on housing and banking, and on other issues, he has deferred to Prime Minister Benjamin Netanyahu, he added.

Before the elections, staking out an anti-monopoly stance may have bolstered Kahlon’s prospects so “he wouldn’t be identified with the tycoons,” said Gideon Rahat, a political science professor at the Hebrew University of Jerusalem.

“Now it pays for him to change his mind, so the High Court of Justice won’t rule against him” if he’s challenged over his ties to Maimon, Rahat said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE