The Knesset economic affairs committee discussion of royalties from natural resource finds brought top industry executives to Jerusalem to convey their position against raising the payments to the government.
The discussion is being led by committee chairman Ofir Akonis.
The committee is discussing MK Carmel Shama's private member's bill to raise royalties paid to the government on gas and oil found in its territory to 20%, from the current 12.5%.
Another bill being discussed is one proposed by Shelly Yacimovich and several other MKs, to concentrate the tax receipts from oil and gas companies in a national fund, similar to a plan in effect in Norway.
Akonis, referring to raising royalties, said, "It needs to be done in a measured and responsible way. I espouse a free economy with social sensitivity." He added, "We must not return to the years of the 70s and 80s. We must not let fundamentalist left organizations run Israel's economy."
When one of the audience members raised a ruckus at the last sentence, Akonis had her removed from the hall. Akonis said, "I will fight until my last drop of blood to prevent the economy's return to a situation in which the main victim was the citizen."
Noble Energy VP for Eastern Mediterranean Lawson Freeman told the committee, "We have been in Israel twelve years already. When we were considering the possibility of investing in Israel, we were presented with a booklet which presented the details, including royalties. We discovered the "Mary" well ten years ago, and it took us four years to set up the necessary infrastructures. We continued to drill, but the next two prospects that we drilled were dry and we lost our money. After "Mary B", the government considered raising royalties and closing the sea to drilling until its examination was complete. At the same time, the only international company that was here decided that it was too risky and ended its operations here. Four years ago, the government ruled that the royalties will not change, and reopened the sea to renewed drilling.
"We operate in Israel, and the decision for an oil company to operate in Israel is not simple; we are on a journey together with the State of Israel."
Another speaker on behalf of Noble Energy was famed Judge Abraham Sofaer. Sofaer said, "My testimony does not deal with Israel's right to change its royalties policy. Noble Energy relied on a clear invitation and promises for an investment of billions under terms that were set in a venture that seemed at the time to have a very low chance of success. If Noble's rights are impinged, the US government will have to decide whether to act on behalf of Noble in order to receive full compensation for the damages caused to it. The sides agreed in a contract between them, that a disagreement like this will be handled by the international court of justice. I don't need to tell you what a tragedy it will be if two allies like the US and Israel will have to resolve disagreements in a European court. Nobody wants that.
"It is correct that the natural resources that were discovered by Noble belong to Israel, but through its laws, the State of Israel transferred certain aspects of the rights to Noble, in return for a specified investment that it takes upon itself the full risk. Israel transferred, through licenses and leases, the right to sell the resources that will be discovered, Israel must not now raise the royalties just because Noble Energy discovered more gas than anyone expected."
Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva, appearing before the committee, read an impassioned prepared speech. Tshuva said, "The exploration sector is very important to Israel's economy and to its geopolitical standing. Since 1952, there have been 513 wells drilled in Israel - all of which were barren and all the investors lost their money. No one thought to compensate investors, and they took all the risk. Despite the risk, we continued to drill. We succeeded in convincing Noble Energy to invest in Israel despite the heavy cost it paid because of the Arab boycott. Noble should be hugged.
"In the US, royalties today are 12.5% in waters of this depth. To supply the gas, I need to run a pipeline from Europe at a cost of $6 billion. I need to pay for the infrastructures and defend my facilities. In the US there is not the problem of terror - the implication is that royalties here should drop by half. Look into the things deeply in order not to make a mistake!"
Published by Globes [online], Israel business news - www.globes-online.com - on October 5, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010