More than seven years after it started commercial production, the Tamar Partnership has paid its first installment into a sovereign wealth fund aimed at ensuring that some of the profits of Israel’s natural gas bonanza are spent on strategic projects for the nation’s benefit.
The partnership transferred some $15 million at the end of last year, the business daily Calcalist reported Monday, with a further $300 million expected to be paid during 2021, in monthly installments of $25 million.
Now that the payments have started, any future deals the partnership signs will only increase the amount that must be paid into the wealth fund.
On the basis of the idea that Israel’s natural resources belong to all of its citizens, all of the gas companies drilling off the country’s Mediterranean coast are supposed to pay the state 62% on their profits. This is called the government take and includes the wealth fund levy, as well as royalties and corporate taxes, which have been paid all along.
In 2012, an inter-ministerial committee headed by then chairman of the National Economic Council, Eugene Kandel, predicted that by 2018, the fund would amass more than NIS 1.5 billion (according to 2012 dollar-to-shekel exchange rates), exceeding the NIS 1 billion required for the fund to start operating.
Until the partnership’s December payment, however, just NIS 450 million ($130 million) in levies had been collected and that was from the Mari-B Yam Tethys gas field, which closed in 2012. The sum was paid in 2013, and not a cent more went into the fund thereafter. The money has been managed temporarily in a wealth fund by the Finance Ministry’s Office of the Accountant General.
That the gas companies have been able to reap handsome profits from a publicly owned resource without having to pay into the wealth fund right away is thanks to the terms that the government agreed upon with the gas companies.
These set out a series of formulae, beginning with one that exempted Tamar’s owners from paying anything in levies until they had recouped twice the cash they invested, from day one of exploration (the high-risk part) to the start of commercial production — giving them a maximum of four years to do so.
In the case of the Leviathan gas field, the arrangement is slightly less generous — nothing has to be paid until 1.5 times the investment has been recouped — and the first levies on the profits from Leviathan’s wells are not expected until 2025 to 2026. The first payments from the Karish-Tanin gas fields, whose main owner is the Greek oil and gas company, Energean, will follow after that.
The sovereign wealth fund was recommended by a committee set up in 2009 and led by Eytan Sheshinksi. The committee’s recommendations (with amendments) were enshrined in the Petroleum Profits Taxation Law (better known as the “Sheshinksi law”) in March 2011 and details about the fund’s operation were set out in the Citizens of Israel Fund Law, passed in July 2014.
The fund’s capital can only be used once a billion shekels has accumulated, and can only be invested overseas, in foreign currency, to protect the stability of the shekel. Up to 3.5 percent of investment income can be spent annually on social, economic and educational projects for the first nine years.
The law also specifies that the funds can be used to help the country in an emergency.
The Tamar and Leviathan gas partnerships have meanwhile reached an agreement with the government to pay the state company, Israel Natural Gas Lines, fees to use the Israel-Egypt gas pipeline for eight years. In return, the state will provide 43% of the estimated NIS 650 million ($200 million) needed to build a new pipeline between southern coastal Ashkelon and Ashdod.
This will enable the companies to transmit the full amount of gas to Egypt pledged by the two partnerships.
According to Calcalist, the new pipeline and the absence of any new international contracts is expected to help stave off any short-term plans to build new gas pipelines to the Eilat area to allow gas exports to the Far East.
The partners in the Tamar project are Delek Drilling (22%), Noble Energy (25%), Isramco (28.75%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest (3.5%).
Joining Delek Drilling in the Leviathan partnership are Noble Energy/Chevron (39.66%), and Ratio (15%).
Under the Gas Framework, Delek Drilling is obliged to sell all of its holdings in Tamar by the end of 2021.