Egypt Independent

Controversial gas-to-Israel deal back in the spotlight



When the public prosecutor indicted six people on corruption charges for the deal that sells Egyptian gas to Israel, it threw the spotlight back on some of Egypt’s most controversial issues: national sovereignty, corruption and Israel. It also began a process of revealing what is behind the deal, something that has never before fully been brought into the open.

Former Minister of Petroleum Sameh Fahmi and five others have been indicted for harming national interests, wasting public money and allowing other entities to benefit from it, the attorney general announced yesterday. He estimated that the country wasted at least $714 million in potential revenue from the deal to date, while independent analysts opposed to the deal put the number of losses much higher, up to $8 million per day.  

Kamal Hamouda, a petroleum expert with the “No to the catastrophic gas deal with Israel” campaign, contends that the loss is in the billions. He told Al-Masry Al-Youm that due to the ministry’s failure to negotiate an equitable price for the deal $1.5 billion dollars of potential revenue has been lost, besides the kickbacks and other forms wasting public money.

Previous analysis states that the deal had a political dimension, in that it was designed to reassure the US that Egypt has a stable relationship with Israel, and that the price adjustments preserved Egypt’s economic rights.

Former president Hosni Mubarak and his sons also take center stage in the deal. Mubarak is reportedly being interrogated for his role, while other reports suggest that the Mubaraks were some of the main beneficiaries thanks to kickbacks.

Critics say that from a legal perspective there are many procedural issues that are cause enough to revaluate the deal. “As it is a scarce natural resource, any deal involving natural gas should pass through the People’s Assembly before being signed,” said Emad Gad, a researcher at the Ahram Center for Strategic Studies.

Legally, the deal has many implications that make its legitimacy on a local level dubious. Natural gas is extracted from Egypt and sold by the government — reportedly at lower than market price — to East Mediterranean Gas (EMG), which in turn sells it to Israel. EMG is owned by Hussein Salem, who has been missing in action since January 30, suspected to be hiding in Saudi Arabia.

The deal, which was inked in 2005 and lasts for 20 years, fixed for 15 years a maximum price of $1.25 per million British thermal units (Btu). Global gas prices in the meantime went up to $4 per million Btu, and the cost of exporting it was allegedly up to $2.56 per million Btu.

Since 2008 the deal has been a subject of public outcry in Egypt as world gas prices increased and the Egypt’s price to Israel remained the same. The fact that the gas is sold to a country that many Egyptians still consider an enemy state despite the 1979 peace treaty helps keep the issue on people’s minds.

It became even more sensitive as Egypt went through two energy crises in 2010 with price hikes for electricity and propane gas tanks. 

The Supreme Administrative Court issued an order on 27 February 2010 to halt all natural gas exports to Israel. The order — which should have been immediately binding — also stipulated that specific details of the deal need to be revised, including the amount exported and its pricing. But the exports continue.

The gas deal to Israel has become a political playing card.  “It is one of the demands of the 25 January revolution, it must be addressed,” said former ambassador to Algeria Ibrahim Yousry.

Yousry spearheaded the campaign against the deal and submitted the notice to the public prosecutor’s office last year leading to the aforementioned ruling. 

“The court ruling is clear and binding. Sameh Fahmi — former petroleum minister — claimed they were negotiating halting protection. There is no negotiating. It is a court order that needs to be implemented,” Yousry said.

Current Petroleum Minister Abdullah Ghorab said Egypt is trying to amend natural gas export deals due to public disapproval. Exports to Israel reportedly represent only 4% of Egypt’s gas exports. 

An unnamed source says that the Ministry of Petroleum has proposed to EMG a deal to revisit the pricing, and increase the ministry’s revenue by $200 million annually.

“We already revisited the prices based on the court ruling, and the deal went through all the correct legal channels,” said former Egyptian ambassador to Tel Aviv Mohamed Bassiouny.

Regardless of the legal implications of the deal, it has obvious political and strategic dimensions that will make using it as an electoral promise difficult. Until now, neither the Egyptian government nor EMG has revealed details of the agreement.

It is also unclear whether or not the Egyptian government is liable internationally, because it sells to Israel through a third party. 

“It will all depend on the details of this agreement,” said Hassan Abu Taleb, also a researcher at the Ahram Center. Abu Taleb believes that presidential candidates using the issue in their campaign platform is “merely an electoral promise, to nudge the emotions of the public. I don’t believe any candidate will be able to implement ‘cutting the gas supply to Israel.’”

Practically, if Egypt cuts the supply to EMG — who would then not be able to supply Israel — a system of international arbitration between the two may be needed to decide on the issue. “Almost every time the Egyptian government entered international arbitration against a private company, the private company won,” said Abu-Taleb.

Bassiouny believes that the gas deal cannot be changed since the currently-ruling Supreme Council of the Armed Forces declared in its fifth communiqué that it maintains all international deals and treaties. 

“This is a deal we must respect,” Bassiouny said.

Still, many believe that the issue is purely internal, and that will keep international parties from being able to take recourse if the court ruling is followed fully. “This deal has to do with a deal between the Egyptian government and EMG.  It is a corruption case, that is where it begins and ends,” said Gad. 

“As a man of the law, I don’t care about potential international pressure, I care about the law only,” Yousry said. “As a politician, I say that if there is pressure against implementing the law, then the objecting parties should make up for the financial loss incurred on Egypt by the deal.”

When campaigning for the upcoming presidential elections began a month ago, the prevalence of the gas deal as a campaigning tool highlighted its importance in the Egyptian psyche.

From an electoral perspective, the deal hits two birds with one stone. First and foremost, it is a corruption case that supposedly deals with negligent and thieving government officials, as well as greedy businessmen. Second, it involves Israel. Strong antipathy toward the neighboring state will continue to mobilize voters.

So far, presidential candidates such as the head of the Karama Party Hamdeen Sabahy, and pro-reform judge Hisham El Bastawisy have pledged to cut the gas supply to Israel if they're elected. Even Amr Moussa, the veteran diplomat, said that Egypt’s position towards Israel would change if he is elected, and that the gas deal is one issue “open for revisiting.”

As in any election worldwide, campaigns will undoubtedly include promises that cannot be implemented. The sensitive gas to Israel deal may be one such promise. However, it is one that activists appear to have serious intentions of pressuring the future government to see through. 

“If they do not cancel the gas deal, then we need another 25 January revolution just for that,” Yousry said.