The head of the Egyptian Natural Gas Holding Company said Sunday it has terminated its contract to ship gas to Israel because of violations of contractual obligations, a decision Israel said overshadows the peace agreement between the two countries.
Ampal-American Israel Corporation, a partner in the East Mediterranean Gas Company (EMG), which operates the pipeline, said it had notified Egypt it was "terminating the gas and purchase agreement".
The company said in a statement that the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company (EGAS) had notified them of the decision, adding that "EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal".
Mohamed Shoeib, chairman of EGAS, told Al-Masry Al-Youm that EGAS is using its right to terminate the contract due to EMG's breach of the gas supply agreement. He added that the decision was made after a thorough legal review by local and international legal experts.
A source within the petroleum ministry told Al-Masry Al-Youm that the dispute is purely commercial and has no other connotations.
The 2005 natural gas deal has become a symbol of tensions between Israel and Egypt since the uprising. For many Egyptians, it typifies the close relations the regime of deposed President Hosni Mubarak forged with Israel, despite wide hostility toward the Jewish state among his people.
Critics charge that Israel got the gas for bargain prices and that Mubarak cronies skimmed millions of dollars off the proceeds.
Egyptian militants have blown up the gas pipeline to Israel 14 times since the uprising.
Israel insists it is paying a fair price for the gas.
Companies invested in the Israeli-Egyptian venture have taken a hit from numerous explosions of the cross-border pipeline and are seeking compensation from the Egyptian government of billions of dollars.
The pipeline was financed by the National Egyptian Bank.
Ampal and two other companies have sought $8 billion in damages from Egypt for not safeguarding their investment.
Shoeib told the Associated Press said Israel has not paid for its gas in four months. Israeli Foreign Ministry spokesman Yigal Palmor denied that.
He told Egyptian TV the decision has been in place since Thursday.
The English website of the Israeli daily Haaretz on Sunday quoted sources close to EMG as saying "Egypt does not understand what it is doing. This move will bring back the country – politically and economically – by 30 years. This is a breach of the peace agreement with Israel."
On Sunday, Israel Finance Minister Yuval Steinitz said the unilateral Egyptian announcement was of "great concern" politically and economically.
"This is a dangerous precedent that overshadows the peace agreements and the peaceful atmosphere between Israel and Egypt," he said in a statement. Israel and Egypt signed a peace treaty in 1979, but relations have never been warm.
The Israeli side said the decision was "unlawful and in bad faith," accusing the Egyptian side of failing to supply the gas quantities it is owed.
Israel insists it is paying a fair price for the gas. Israel's electricity company has been warning of possible power shortages this summer, partly because of the unreliability of the natural gas supply from Egypt.
For the long term, Israel is developing its own natural gas fields off its Mediterranean coast and is expected to be self-sufficient in natural gas in a few years.
Hussein Salem, a close friend of Mubarak was among the shareholders of East Mediterranean, the joint Egyptian-Israeli company that carries the gas to Israel.
On the Israeli side, EMG sought international arbitration in October because of the Egyptian side's failure to supply the quantity of gas stipulated in the contract — because of the frequent bombings.
Under the 2005 deal, the Cairo-based East Mediterranean Gas Co. sells 1.7 billion cubic meters of natural gas to the Israeli company at a price critics say is set at $1.50 per million British thermal units — a measure of energy.
The gas deal has been the subject of litigation in Egypt. An appellate court last year overturned a lower court ruling that would have halted gas exports to Israel. Opposition groups that filed the suit before the uprising claimed that Israel got the gas too cheaply under the 15-year fixed price deal between a private Egyptian company, partly owned by the government, and the state-run Israel Electric Corporation.
Ibrahim Yousri, a former Egyptian diplomat who had brought the issue to court, welcomed the decision announced Sunday.
"It has become a scandal bigger than the (ruling) military council can withstand," he told the privately-owned channel CBC.
He said there are gas shortages in Egypt, and growing economic woes, further enflaming popular unrest. He called the business deal "treason" to national interests, adding, "This is a great political step."