At the last second, before the natural gas monopoly begins to strangle the economy, a moment before what will be called in a year or two the most extortionist and aggressive force around, Prime Minister Benjamin Netanyahu, National Economics Council chairman Prof. Eugene Kandell, a member of the gas committee, and Prime Minister's Office director general Harel Locker, must intervene. They must halt the signing of the natural gas supply contract between the Tamar partners and Israel Electric Corporation (IEC) (TASE: ELEC.B22). Otherwise, there will be misery for generations.
All prices in the economy will soar by far more than they have risen to date. Netanyahu must intervene, even though this contradicts his economic ideology, and even though he, like almost the entire public, knows that government intervention in a commercial contract is not the wise solution, but at best, the least bad solution.
The prime minister is the supreme authority, and his intervention is required not just because the conduct of his ministers - Minister of Finance Yuval Steinitz and Minister of Energy and Water Uzi Landau - has been weak until now, a kind of capitulation coated by a concoction of numbers, threats, quotes, and economic fantasies.
It is possible that the agreements between IEC's management and the Tamar partners are the best deal that can be achieved. It is possible that the letter written by Ministry of Energy electricity administration economist Doron Aharon, disclosed last week, which states, "The Tamar agreement is the mark of Cain on IEC's forehead… IEC has agreed to overpay Tamar NIS 30 billion," is a mistake or something.
But it is also possible that this is the swindle of the century, the idiocy of the century, and most of all - the indifference of the century. Since we are talking about multiyear contracts that will affect the entire economy, matters must be crisp and clear, and not suspect as they are now.
The moment gas begins flowing from Tamar in April 2013, Tamar will be a monopoly. It will be Israel's biggest monopoly, the exclusive producer of natural gas. Its largest customer will be IEC, a government-owned company that is sustained by public money. The government has abandoned the management of negotiations on the terms of natural gas supply from Tamar in favor of IEC.
In contrast to any proper arrangement for the contracts, and instead of IEC chairman Yiftach Ron-Tal and CEO Eli Glickman approaching the regulators - the Public Utilities Authority (Electricity), the Antitrust Authority, the Ministry of Finance, and the Ministry of Energy and Water Resources - to ask for their opinion before signing the gas supply contracts with the Tamar partners, the entire cost of which will fall on the public, they tried to be clever. IEC's management held lengthy negotiations, drew up and signed contracts, but said that they were subject to regulatory approval.
This management should not be allowed to handle negotiations that will affect the entire economy. After all, it is obvious that any price set for IEC's gas purchases will fix the minimum price for all other gas supply contracts with other customers, who will have to pay much more - that is, if there is anything left for them at all.
There is a reason that Manufacturers Association of Israel president Amir Hayek asked the Natural Gas Authority to guarantee a supply of natural gas for industry, including small and medium-sized businesses. Moreover, most independent power producers (IPPs) have already received commitments, which IEC already has in practice, that the government or IEC will buy their electricity at a rate that fully reflects costs. In other words, the price for natural gas contracts with the Tamar partners is irrelevant, as the government will finance it.
So it is the public that will in any case pay the full price for the natural gas - whether to IEC or the IPPs, or in the form of the cost of food, clothing and transportation. Now that it is clear that the economy will pay the full price, IEC should not be the party that sets the future price of natural gas, but the government.
The only possible solution under these circumstances is for the government to sit opposite the Tamar partners, negotiate the gas supply terms, and sign the contracts. The state, through the government ministries, the Public Utilities Authority, or another regulator, should be the party that distributes the natural gas, prices it, and sells to every large and small firm in the country.
True, this is unquestionably a step back from the correct intention of getting the government, its ministries and officials, out of the business sector, but in the current circumstances, and in view of what will happen when the Tamar monopoly rears its head, it is the only choice left. It is the least bad alternative.
Published by Globes [online], Israel business news - www.globes-online.com - on June 17, 2012
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