Is­rael, Egypt gas part­ners near deal to con­trol EMG pipe­line

The Daily Star (Lebanon) - - FRONT PAGE - By Mirette Magdy and Yaa­cov Ben­meleh

The com­pa­nies de­vel­op­ing Is­rael’s largest nat­u­ral gas fields and an Egyp­tian part­ner are close to a deal that would give them con­trol of the pipe­line to Egypt, elim­i­nat­ing some of the out­stand­ing le­gal dis­putes that have im­peded progress on a $15 bil­lion ex­port con­tract.

Is­rael’s Delek Drilling LP, U.S.based No­ble En­ergy Inc. and an Egyp­tian com­pany are in ad­vanced talks to buy 37 per­cent of East Mediter­ranean Gas Ltd., which op­er­ates the un­der­sea pipe­line that con­nects to Egypt’s Si­nai Penin­sula, peo­ple fa­mil­iar with the mat­ter said.

The buy­out would give the com­pa­nies the largest vot­ing bloc in EMG and they ex­pect to reach an agree­ment with other stake­hold­ers to con­trol and op­er­ate the pipe­line, the peo­ple said.

The stakes un­der dis­cus­sion in­clude those cur­rently owned by busi­ness­men Sam Zell and Yossi Maiman, who had suc­cess­fully filed ar­bi­tra­tion cases against Egypt over a pre­vi­ous deal.

The buy­out would clear a ma­jor ob­sta­cle to the use of EMG’s pipe­line to trans­port 64 bil­lion cu­bic me­ters of nat­u­ral gas from Is­rael’s Ta­mar and Leviathan fields to Egypt’s Dol­phi­nus Hold­ings Ltd. over 10 years.

The Tel Aviv Oil & Gas In­dex, which was down 0.6 per­cent be­fore the news, re­versed the losses to close 0.3 per­cent higher.

Hailed as a break­through in a re­gion fraught with con­flict, the Is­raeli-Egyp­tian gas ex­port deal an­nounced in Fe­bru­ary adds eco­nomic depth to a re­la­tion­ship dom­i­nated by se­cu­rity and clouded by mu­tual sus­pi­cion since the two coun­tries signed a peace deal four decades ago.

Though it takes the most pop­u­lous Arab coun­try a step closer to its goal of be­com­ing an en­ergy hub for the East Mediter­ranean, the deal has been held up by four sep­a­rate ar­bi­tra­tion cases against Egypt, which used to send gas in the other di­rec­tion.

The sec­tion of the pipe­line that runs through north­ern Si­nai was re­peat­edly at­tacked by mil­i­tants and, with its own re­serves dwin­dling, Egypt ul­ti­mately can­celed gas ex­ports to Is­rael in 2012 to di­vert sup­plies for do­mes­tic use.

Is­rael Elec­tric Corp., the sta­te­owned util­ity that was us­ing the gas, sued Egyp­tian state en­ti­ties for dam­ages. Some EMG share­hold­ers, in­clud­ing Zell and Maiman, filed sep­a­rate suits. Egypt has said it was keen to set­tle the cases be­fore any gas deal is im­ple­mented.

EMG Man­ag­ing Di­rec­tor Maamoun ElSakka and an official at EGI, which is man­aged by Zell, both de­clined to com­ment. Egyp­tian Oil Min­is­ter Tarek El-Molla, rep­re­sen­ta­tives for Maiman and a spokes­woman for the Leviathan part­ners did not im­me­di­ately re­spond to re­quests for com­ment.

Since the sup­ply dis­rup­tions, both Is­rael and Egypt have made sig­nif­i­cant off­shore gas dis­cov­er­ies that could trans­form the re­gion and boost their economies. The deal an­nounced in Fe­bru­ary would send gas from Is­rael to Egypt, where it can be used do­mes­ti­cally or re-ex­ported us­ing ex­ist­ing in­fra­struc­ture.

Delek and No­ble could pipe the gas via Jor­dan or build new in­fra­struc­ture but all par­ties in­volved pre­fer to use the ex­ist­ing EMG pipe­line as it is the short­est ex­ist­ing route and re­quires the least in­vest­ment.

The three part­ners will cre­ate a joint ven­ture to buy the stakes, half of which will go to No­ble and Delek, and the rest to their Egyp­tian part­ner, said the peo­ple, who spoke on con­di­tion of anonymity as the ne­go­ti­a­tions are con­fi­den­tial.

Delek is con­ven­ing a share­holder meet­ing on July 1, where it will re­quest ap­proval to scrap div­i­dend pay­ments so the com­pany can pay $200 mil­lion to fi­nance its por­tion of the EMG deal, ac­cord­ing to a Tel Aviv Stock Ex­change fil­ing this week.

The sides ex­pect to reach an agree­ment within the next few months, with the aim of pip­ing the first gas from the Ta­mar field to Egypt by the be­gin­ning of next year, the peo­ple said.

The buy­ers started test­ing the state of pipe­line more than one month ago, though due dili­gence on the Egyp­tian side hasn’t be­gun due to se­cu­rity con­cerns, the peo­ple said. The com­pa­nies will need to in­vest in the pipe­line to re­verse its di­rec­tion.

Once the buy­out takes place, the deal will hinge on fi­nal­iz­ing a pre­lim­i­nary un­der­stand­ing that Egypt said in Fe­bru­ary had been reached with Is­rael’s elec­tric­ity com­pany.

Then-prime min­is­ter Sherif Is­mail de­clined to give de­tails of the plan but peo­ple fa­mil­iar with the mat­ter said that the deal in­volves re­duc­ing the $1.76 bil­lion fine set by an in­ter­na­tional ar­biter and spread­ing the pay­ments over mul­ti­ple years.

IEC “is not aware of this arrangement,” com­pany spokes­woman Dalia Bodinger said by phone.

The two sides hope to start pip­ing gas by the be­gin­ning of next year,

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