Consortium: Not just payments behind Egypt gas halt to Israel

The decision to halt Egyptian natural gas exports to Israel was not simply due to commercial differences, international shareholders in the consortium involved said on Wednesday, dismissing claims they were behind in payments.

"Any attempts to characterize this dispute as a mere commercial one is misleading," shareholders in East Mediterranean Gas Company said in a statement to Reuters.

"This is a government-backed contract sealed by a memorandum of understanding between Egypt and Israel that specifically refers to the [1979] peace treaty."

Israeli Prime Minister Benjamin Netanyahu has tried to play down termination of the 2005 deal, saying cancellation of the contract supplying Israel with 40 percent of its gas needs resulted from a business rather than diplomatic dispute.

Egyptian officials also said it was a trade issue, although there have been growing public calls for Egypt to review ties with Israel since the overthrow of Hosni Mubarak, for whom a peace treaty with Israel was a cornerstone of regional policy.

Sunday's announcement that Egyptian state-owned oil and gas companies would stop the gas sales, which were part of a 20-year deal, was the dramatic conclusion to a year of sabotage and pipeline attacks that had already disrupted supplies.

EMG's international shareholders said the Egyptian oil and gas companies act as third-party guarantors of their government's obligations to supply 7 billion cubic meters of gas annually to Israel.

"Egypt's public explanation that EMG was behind on payments is incorrect," said the international shareholders, who include Thai energy giant PTT, US businessman Sam Zell, Israel's Merhav and Ampal-American Israel Corporation.

The Egyptian Natural Gas Company is a also a shareholder in EMG.

The Egyptian oil and gas companies "failed to protect the pipeline from attack, failed to repair it promptly and have delivered almost no gas to EMG since February 2011," the international shareholders said.

The Egyptian oil and gas companies are substantially indebted to EMG as a result of the penalties they have incurred due to their failure to supply the gas, the shareholders said.

They dismissed Egypt's announcement that it is prepared to renegotiate the deal, saying EMG has been renegotiating with Egypt for months without success.

EMG initiated arbitration against the Egyptian oil and gas companies in October as a result of supply shortfalls and said this latest step will be put before that tribunal as well.

"EMG's international shareholders are actively considering legal avenues and will likely seek substantial damages under multiple applicable bilateral investment treaties," they said.

EMG board member Nimrod Novik said last July the group's international shareholders could pursue legal claims against Egypt for US$8 billion in damages over contract violations in gas supplies.

Immediate comment was not expected from officials in Egypt, which on Wednesday celebrates Sinai Liberation Day.

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