"We'll support any agreement that will satisfy both parties, the Israeli regulators and the companies, and facilitates developing the gas fields as rapidly as possible. I believe this is also in Israel's interest," Special Envoy for International Energy Affairs at the US Department of State Bureau Amos Hochstein said in a "Globes" interview. He added, "We have no intention of intervening in discussions concerning legal rights (of Noble Energy, A.B.)."
US involvement in development of the Israeli natural gas sector over the past two years has been mostly behind the scenes. For example, US mediation played a key role in the Jordanian government's decision to sign a letter of intent ahead of a strategic agreement to purchase gas from the Leviathan reservoir for the Jordanian National Electric Power Company (NEPCO). Signing the agreement is reportedly expected at the end of this month. US involvement became open following the decision of Antitrust Authority director general Prof. David Gilo to rescind a compromise agreement with Delek Group Ltd. (TASE: DLEKG) and Noble Energy, and to declare the 2007 transaction in which those companies acquired the licenses in which the Leviathan reservoir was later discovered to be an agreement in restraint of trade. Gilo's decision is subject to a hearing scheduled at the end of the month.
Last week, Prime Minister Benjamin Netanyahu received a worried call from US Secretary of State John Kerry. This week, a US State Department spokesman expressed veiled criticism of the Israeli regulator's behavior. After being asked what the Obama administration's stance was on the Antitrust Authority director general's decision, the spokesman answered, "The US does not intervene in legal disputes but we believe that it is important for all countries to have a strong investment climate, including a consistent and predictable regulatory framework,"- criticism perceived in some circles in Israel as patronizing.
"This dispute has consequences for the investment environment in Israel and the incentives for a company like Noble Energy to invest in Israel," Hochstein attempts to explain. "The second issue that bothers us is that we supported Noble Energy's talks with potential buyers like Jordan and Egypt, and we believe that the gas discoveries in Israel should be an opportunity for fostering a new level of cooperation between the countries in the region: Jordan, Egypt, the Palestinian Authority, Turkey, and Cyprus. It can be an opportunity for bolstering security and enhancing prosperity for all those operating in these areas. We wanted to ensure that the agreements and letters of intent are respected and implemented."
"Globes": Can you understand why your involvement in a legal dispute like this is interpreted in Israel as an effort to protect a private company's commercial interests?
Hochstein: "The US does not speak in the name of Noble Energy - it is an excellent company that can speak for itself. We will support any agreement, but as long as there is doubt and uncertainty, and no agreement with the regulator, it is hard to visualize any agreement to sell gas from Leviathan or Tamar for export to Egypt, Jordan, or anyone else. The company exporting gas from Israel has to know with certainty what its rights are in the reservoir and what the regulatory regime is. Stability and the ability to foresee the regulatory framework are an essential need in the energy sector - this is a special sector in which the major investment is made at the initial stage, with an expectation for a return on the investment."
"The rules of the game must be known"
The foreign media that reported the Antitrust Authority director general's decision were usually more critical than the Israeli media. The "Financial Times," for example, attributed the decision to a "mood of economic populism… in Israel." Other reports portrayed the Israeli regulators as capricious and acting contrary to Israel's national interests. The sharpest criticism came from commentators considered pro-Israel. Israel is "shooting itself in both knees," economic and political commentator Norman Bailey wrote.
Hochstein prefers not to comment on such criticism, but US administration sources are afraid that the Israeli regulator has climbed too high a tree, which is liable to lower the chances of finding a compromise solution.
"Globes": The Antitrust Authority in Israel operates according to US antitrust rules, so why are you so surprised at the decision?
"We don't deny the regulator's right to act on behalf of the Israeli public, but a great many considerations are involved. Energy is a very young industry in Israel, and it's an industry that can become a source of jobs and the ability to create a cleaner economy. When you come to an economy that still has to grow and develop specialization, it is important for the government, and not just the regulator, to see the complete picture and all the aspects involved. A company that wants to invest in Israel has to know exactly what the rules of the game are, what the taxes are, the market prices, the export rules and the antitrust rules. In addition, it is important to make sure that any agreement reached in any of those areas will be valid."
Noble Energy is threatening to petition for international arbitration against Israel. What is your stance?
"I'm always optimistic, and I always believe that politics is the art of compromise, but Noble Energy will decide for itself whether it will institute legal proceedings or seek international arbitration. That is a decision that they have to make. It's true that international arbitration is one of the tools available to companies for these purposes."
"Nothing has been canceled"
Hochstein joined President Barack Obama's administration three and a half years ago, after spending more than 15 years advising US elected officials, candidates for public office and thought leaders on domestic and global energy policy intiatives. He served as policy director and policy advisor to to senior Democrats in Congress. Before that, he worked in the private sector in companies dealing in connections with the administration and in energy. The description of his current job, which he entered a year ago, says he "advises the Secretary on global energy security and diplomacy, as well as promotes US interests to ensure energy resources are used to increase economic opportunity, stability and prosperity around the world."
As part of his current job, Hochstein pays particular attention to the Middle East. Among other things, he played a key role in the attempts by the US to mediate between Israel and Lebanon on the dispute over the dividing line between the two countries' exclusive economic zones (EEZs).He is also responsible for implementing US sanctions against Iran and is currently leading the effort to curb ISIS energy holdings and revenue. Hochstein's appearance at an energy conference in Israel last November made him a recognizable figure in local energy sector circles. He says, "My job is to encourage the use of energy as a basis for cooperation, rather than as a cause of conflict, which makes our mandate fairly flexible." He was also involved in the Tamar and Leviathan transactions with customers in Jordan, saying "We created the connection between the parties, and took part in the initial meetings between Noble Energy and its potential customers," adding, "We're always glad to serve as a mediator, and to support parties in reaching agreement. He cites an agreement that was completed for the sale of gas from Tamar to potash companies on the Jordanian side of the Dead Sea. The talks about gas from Leviathan were not completed. My impression is that the parties were very close to an agreement when the regulator had his change of heart. A decision must be made about the deadlock that will make Nobel Energy willing to develop the project."
Globes: Will the planned ceremony in Washington at the end of the month for signing a gas agreement with Jordan be called off?
"I don't know anything about a planned ceremony. I understand that the companies spoke about the intention to sign an agreement, but nothing was settled, so nothing was canceled. The reports about such a ceremony were premature."
Hochstein, who came to Israel following the Antitrust Authority director general's announcement that he was revoking the agreement with Delek Group and Noble Energy, has held a series of meetings here, among others with senior officials in the Ministry of National Infrastructure, Energy, and Water Resources and the Prime Minister's Office. "We're glad that the prime minister directed the chairman of the National Economic Council to examine the state of the gas sector, following the Antitrust Authority's decision," Hochstein says.
Was progress achieved in your contacts with parties in the Israeli administration?
"There are good discussions. Everyone realizes the urgency, and that a decision solving all the unsolved and outstanding matters must be taken, so that the market does not feel that the laws are constantly changing, and that companies can invest here. We'd like to see more US companies coming to invest here. I think that they understand the strategic importance, that the strategic moment must be seized in time. Israel has a new sector and a new energy source that can supply the needs of its neighbors. The challenge is to weigh all these matters together from the regulatory, economic, and strategic perspectives."
How are Jordan and Egypt perceiving Israel's behavior?
"I believe that at the moment, everyone is waiting patiently for Israel to solve this problem and move forward. I think that at this point, it's fair to expect the government to work with the companies and reach a compromise."
"Globes" recently reported that pressure was being applied to Israel Electric Corporation (IEC) (TASE: ELEC.B22) to withdraw its petition demanding over $4 billion in compensation in international arbitration against Egyptian natural gas companies. The lawsuit was filed after Egypt failed to renew the supply of gas to Israel, and canceled its agreements with IEC and EMG. The total damage caused to the Israeli economy by the Egyptian gas crisis is estimated at NIS 20 billion. Israel has had bad experience with its neighbors in carrying out gas agreements.
"I can't say anything about past transactions, and certainly not about those that have reached arbitration and the courts. For the future, my answer is relevant for this region, just as it is relevant to any other region around the world: to the extent that the process leads to the signing and implementation of a more transparent agreement, there will be fewer disputes in the future. We see a rare opportunity for regional cooperation in the Middle East - Secretary of State John Kerry and Vice President Joseph Biden said this explicitly: Israel and Lebanon have the potential to export gas, Egypt already has export infrastructure, and Jordan and Turkey have demand for gas. There is so much potential here that it would be a pity to let it get away. There's a short window of opportunity here, and we want to support it."
Published by Globes [online], Israel business news - www.globes-online.com - on January 4, 2015
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