Israel Corp in talks on $4b gas deal with Tamar

Idan Ofer may defect from Yosef Maiman to Yitzhak Tshuva.

Yosef Maiman's biggest customer, Idan Ofer, is about to defect to Yitzhak Tshuva. Israel Corporation (TASE: ILCO) has resumed negotiations with the Tamar partners - Tshuva-controlled Delek Group Ltd. (TASE: DLEKG), Noble Energy Inc. (NYSE: NBL), Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), and Alon Natural Gas Exploration Ltd. (TASE: ALGS) - to buy 1.5-2 billion cubic meters of natural gas a year. If a deal is struck, it will mean a $4 billion deal for the Tamar partners.

A deal would mean that the Tamar partners will have won back Israel Corp., after losing it to East Mediterranean Gas Company (EMG), in which Yosef Maiman owns 20.6% stake through Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL) and his private company Merhav Group.

A deal also means that Israel Corp. will join private power producers Edeltech Ltd., which has already signed a contract with the Tamar partners, and Dorad Energy Ltd., which is in talks on a contract. All three companies previously signed gas supply contracts with EMG, which had $15 billion worth of contracts at its peak.

So far as is known, EMG is not in breach of its contract with Israel Corp., which could cause difficulties for Israel Corp. to terminate the contract without drawing a sharp reaction from EMG. For this reason, Israel Corp. may present a deal with the Tamar partners as a supplemental supply agreement or as a back-up deal.

The Israel Corp.-EMG contract

In December 2010, Israel Corp. subsidiaries signed a series of gas supply contracts with EMG, after a lengthy bidding battle against Tamar for the prestigious deal. Israel Corp. said that it preferred EMG because the Tamar partners would not commit to price terms or timetables because of the Sheshinski Committee, which submitted its recommendations two weeks after the deal with EMG was signed. At the time, the Tamar partners blamed Minister of Finance Yuval Steinitz for dooming Tamar.

The Israel Corp.-EMG contract included an option to increase gas deliveries to 2.9 billion cubic meters for the Mishor Rotem power station, which is under construction by Israel Corp. subsidiary OPC Ltd., and an option for another subsidiary Israel Chemicals Ltd. (TASE: ICL). When the contract was signed, Israel Corp. said that it would buy only 50-60% of its projected gas needs, leaving an opening for the Tamar partners to reach a deal by March 2011.

At the time, Israel Corp. CEO Nir Gilad said, "We conducted negotiations with two parties, and at a certain stage the Israeli supplier was unable to commit to the timetable necessary for our activity and to the deadline for signing the agreement itself. We have introduced positive discrimination in favor of Israeli gas by splitting the quantity, but that too has a time limit."

However, shortly after the EMG contract was signed, in February 2011, the regime of Egyptian President Hosni Mubarak collapsed, and with it the supply of Egyptian gas to Israel. Israel Corp. was forced to withdraw its ultimatum to the Tamar partners to exercise the option to supply gas. Nonetheless, the negotiations with the Tamar partners were broken off after Gilad made accusations against Tamar.

Sources affiliated with Israel Corp. later said that the company had alternative sources of natural gas, including importing liquefied natural gas (LNG). Israel Corp. subsidiary Oil Refineries Ltd. (TASE:ORL), which was required to begin using natural gas in the first quarter of 2011, has signed a gas supply contract with the Tamar partners.

Published by Globes [online], Israel business news - www.globes-online.com - on February 1, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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