Gas Decision Highlights Fault Lines in Governance, Business

Both Noble Energy and Leviathan responded to Sunday’s ruling by Israel’s High Court striking down part of the gas deal framework by saying that it hope the government would resolve the issue and allow for the continued development of the Leviathan gas field. In a statement early Monday, Texas-based Noble Energy called the decision “disappointing,” saying that the “stability clause” that the court ruled unconstitutional was an essential part of the deal.

In a statement, Noble Energy Chairman and CEO David L. Stover said that “the Court’s ruling, while recognizing that timely natural gas development is a matter of strategic national interest for Israel, is disappointing and represents another risk to Leviathan timing.Development of a project of this magnitude, where large investments are to be made over multiple years, requires Israel to provide a stable investment climate.”

The “stability clause” is a part of the framework deal between the government and the licensees of the Leviathan gas field, Noble Energy and Delek Drilling, which promises that the conditions of the deal – including taxes, royalties, and licensing fees – will not change for at least ten years. The Court ruled that the government had no right to lock in future governments to a deal signed now. In its decision, it gave the government a year to pass a law in the Knesset that will arrange the conditions of taxation and royalty payments for that period of time.

In its own statement, Delek said it hoped that the matter would soon be resolved as well. “We plan to make a decision by the end of the year on how to continue with the development of Leviathan,” Yossi Abu, chief executive of Delek subsidiaries, Delek Drilling and Avner Oil, told investors. “We will act to ensure that the development timetable will not be harmed.”

The decision has enraged members of Israel’s business community, as well as members of the government. In a statement, Prime Minister Binyamin Netanyahu said that the decision “severely threatens the development of the gas reserves of the State of Israel. Israel is seen as a state with excessive judicial interference in which it is difficult to do business. Certainly nobody has any reason to celebrate that the gas is liable to remain in the depths of the sea and that hundreds of billions of shekels will not reach the citizens of Israel.”

Other MKs and business commentators lamented the decision because it would make it very difficult for any foreign business to make deals with Israel. “You can’t really blame the gas companies for demanding this,” said Channel One commentator Ehud Yaari. “Over the past three years they have been through three different plans and frameworks, which were changed by the government because of different pressures. You can’t do business long term under such circumstances.”

Those favoring the decision – prominent among them Zionist Camp MK Shelly Yechimovich – said that it was the only decision that made sense. “The government cannot make decisions on resources belonging to all Israel just because it decided to do so, and anyway we should not be in a rush to give away our gas, since prices on the world market are very low right now. Israelis have had enough of the tycoons getting their way, and getting the money that belongs to them.”

Speaking on Israel Radio Monday morning, Minister of Immigrant Absorption Ze’ev Elkin said that the decision pointed out a much greater problem – the interference of the High Court in areas where it did not belong. “The court wants to make changes and implement or strike down laws as it sees fit, but it does not want to take responsibility for the consequences of those decisions. In this case, the court’s decision will force everyone to dig deeper into their pockets, to pay more for electricity, since we now have less cheap gas to work with. The court is constantly interfering in these areas, and it is time that a law be enacted that will finally regulate the relationship between the government and the court.”

In response, Meretz MK Zehava Gal-On praised the court’s decision, saying that the framework developed by the government served only “to line the pockets of the greedy tycoons that the government favors. Netanyahu is used to saying that ‘he gets what he wants,’ but in this case the court denied him his wishes.”