Bethel Finance: "IEC conditions won't jeopardize gas agreement"

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Bethel Finance news:
The gas supply agreement between Israel Electric Corporation (IEC) and the Tamar partnerships will remain valid even if the conditions set by IEC are not fulfilled, according to a senior lawyer close to IEC. This means that the demands of the IEC board will not stand in the way of Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva and his partners in Tamar in their bid to take over the market of rival EMG, which supplies Egyptian gas, estimated at $15 billion.

On Thursday, the IEC board approved the commercial terms of the roof agreement with the Tamar partnerships, but sprung a surprise when it appended two requirements to its decision: that final signature on the agreement will be conditioned on Tamar undertaking that the price in the agreement will be a "floor price" for future agreements with other customers (a "most favored nation" clause); and a demand that the price set will be subject to any government decision on regulating the price of gas, so that the price will not be higher than the regulated price of natural gas.

The Israeli partners in the Tamar offshore gas field, Delek Group, Alon Gas, and Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), estimated at the end of last week that the banks financing the development of the field would find it very difficult to accept the board's second condition, because there is no way of knowing now what the regulated price of gas will be, if such a thing comes about. If so, the closing of the finance for developing Tamar is liable to be delayed.

The board's decision sets it on a collision course with the Ministry of Finance and with Antitrust Authority director David Gilo, who see these clauses as a real threat to competition in the natural gas market. Last week, "Globes" revealed that Gilo had already expressed the view that the "most favored nation" clause probably represented a cartel arrangement. Gilo's opinion was given in response to an approach from the Ministry of Finance, and was not communicated directly to IEC. The IEC board's insistence on introducing its conditions into the agreement indicated a change in the corporation's attitude to the private power producers. The IEC board now sees these producers as a strategic threat to the corporation's future, after years in which it adopted a neutral stance.

The IEC board's approach is backed by the IEC workers' committee, which fears that the introduction of private producers will be at the expense of power plants that IEC wishes to build in the future: project D, and a further project named E. Only recently was the workers' committee assured that project E, which is likely to be a nuclear power plant, will be constructed by IEC workers.

Clal Finance raised its target prices for the Tamar partnerships in the wake of the agreement, which it described as "good for both sides". It estimates that the agreement will ensure Tamar regular annual revenue of $600 million initially, and $1 million after the option to raise the amount of gas is exercised.

Under the agreement, Tamar will supply to IEC 3 billion BCM annually, and will raise the quantity by 60% if IEC fails to find additional suppliers by the end of 2013. The price for the additional quantity will be the same as for the basic quantity, even though supplying the additional quantity will oblige Tamar to lay an additional pipeline to Ashkelon, at a cost of $500-800 million.

Clal Finance estimates that the agreement signed paves the way for Tamar to sign further agreements with Dalia Power Energies, Dorad, Israel Corporation (TASE: ILCO) (OPC), Nesher, Paz Oil Company Ltd. (TASE:PZOL), Delek Ashkelon, and others.