Egypt freezes gas import talks after Israel wins $1.76b ruling

Egypt freezes gas import talks after Israel wins $1.76b ruling

Cairo cuts off negotiations after International Chamber of Commerce orders Egyptian companies to pay up for violating gas deal with Israel

Lee Gancman is a breaking news editor at The Times of Israel.

Gas pipelines in Sinai have been sabotaged repeatedly by militant groups. (AP)
Gas pipelines in Sinai have been sabotaged repeatedly by militant groups. (AP)

Cairo has ordered a freeze on talks to import Israeli gas following a ruling by the International Chamber of Commerce that Egyptian gas companies must compensate the Israel Electric Corporation $1.76 billion over a cut to the supply in 2012.

The ruling, made by three arbitrators in a closed session, ends 3.5 years of deliberations in which the Israeli Electric Corporation was claiming over $4 billion in damages stemming from Egypt canceling their bilateral gas deal in 2012.

Egyptian government owned gas companies EGPC and EGAS are set to foot the bill.

In response, Egypt’s Oil Ministry ordered the gas import talks frozen until after the case is appealed and the ruling is clarified, according to Bloomberg.

Israel is set to become a major gas supplier with the discovery of a massive offshore field and has looked for regional buyers, including Jordan and Egypt.

Before 2012, Israel imported natural gas from Egypt, though the pipeline, running through the restive Sinai Peninsula, was dogged by frequent sabotage. The deal, initially slated to last 20 years, was finally canceled by Egyptian authorities following the 2012 ouster of president Hosni Mubarak.

Sunday’s freeze on gas import talks applies primarily to Egyptian Dolphinus Holdings Ltd., a gas trading company currently in negotiations to import gas from Israeli’s offshore Leviathan field.

Dolphinus, which already signed a deal in March to import gas from a second Israeli offshore field, is seeking to import to Egypt up to 4 billion cubic meters of gas per year for 10-15 years.

Major troubles in the initial gas deal began during the anti-Mubarak uprising in 2011 when the government’s loss of control of the Sinai allowed militant groups to constantly sabotage the pipeline supplying Israel. Running through the restive north Sinai, from the city of El-Arish to the Israeli port city of Ashkelon, the pipeline proved too hard to defend against frequent bombings and was put out of service in 2011.

The 2012 cancellation of the deal by Egyptian authorities put the official stamp on the end of the bilateral gas deal.

The halting of the gas, which was to be used by the IEC for electricity production, forced the company to procure fuel from more expensive sources, resulting in a loss of over NIS 10 billion and brought the company close to collapse. This forced the IEC to seek help from the Finance Ministry and resulted in Israeli electricity costs rising by as much as 30%.

The initial legal suit against the Egyptian Gas Companies was filed by the East Mediterranean Gas Company (EMG), the company which built and operated the pipeline between 2008 and 2011. Owned mostly by Israeli-American businessman Yosef Maimon and foreign partners, EMG filed the suit on behalf of the IEC in February 2012.

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