Knesset committee advances legislation seeking to make natural gas companies pay

2nd and 3rd readings approved for amendment that aims to stop delaying of payments into sovereign wealth fund

Sue Surkes is The Times of Israel's environment reporter

Workers on the Tamar gas processing rig on June 23, 2014. (Moshe Shai/FLASH90)
Workers on the Tamar gas processing rig on June 23, 2014. (Moshe Shai/FLASH90)

Gas companies suffered a setback in the battle over money they are ordered to deposit into a sovereign wealth fund, as a Knesset committee on Monday advanced legislation that would compel them to pay up despite ongoing legal proceedings over the debt.

The companies are engaged in a dispute with authorities over the sums of money they have been ordered to pay into the fund. While proceedings are ongoing, they have been exempted from paying, but an amendment to the 2011 Petroleum Profits Taxation Law seeks to force them to deposit the money regardless of court appeals, and would give tax authorities enforcement tools, such as fines, in the case of nonpayment.

The amendment was approved in a first Knesset reading in March but was stalled by elections later that month.

On Monday, the Knesset Finance Committee gave the go-ahead for its second and third readings.

The legislation is being pushed by Minister of Science and Technology Orit Farkash-Hacohen (Blue and White), with the backing of Finance Minister Avigdor Liberman of Yisrael Beytenu.

Farkash-Hacohen chaired the Public Utilities Authority, a regulatory body, during the formulation of a deal with the partnership developing the Tamar offshore natural gas fields, which went into commercial operation in 2013. She was forced out her position in 2015 after opposing the pricing mechanism that was agreed on, claiming it was unfair to the public.

Orit Farkash-Hacohen. (Yanai Yechiel)

Following the discovery of natural gas reserves off Israel’s Mediterranean coast in the early part of the millennium, the Knesset passed a law mandating the creation of a sovereign wealth fund. Companies profiting from Israel’s gas and other natural resources are supposed to pay 50% of their profits into this fund, to be used for the benefit of the Israeli public. This is in addition to 12.5% in royalties and to corporation tax, both of which the companies regularly pay.

Several years ago, the Bank of Israel forecast that by 2022, the fund would have NIS 14.2 billion ($4.3 billion), with around NIS 270 billion (over $82 billion) accruing by 2030.

But the fund has not even been set up because the minimum investment of NIS 1 billion ($305 million) has not yet been reached.

According to the Israel Tax Authority,  just NIS 741 million ($225.7 million) had entered the fund by the end of June 2021. The authority predicted that the NIS 1 billion mark would be hit by the end of this year.

From 2011 to 2020, a total of NIS 486 million ($148 million) was collected from the gas reservoirs, with a further NIS 225 million ($68.5 million) collected during the first half of this year, the authority reported.

Workers on the Tamar natural gas processing rig, June 23, 2014. (Moshe Shai/FLASH90)

The Tamar partnership only paid its first installment of some $15 million at the end of last year. The rest comes mainly from the Mari-B Yam Tethys gas field, which closed in 2012. The money is being managed temporarily in a wealth fund by the Finance Ministry’s Office of the Accountant General.

That the wealth fund contains so little is thanks to complex formulas agreed on by the government that allow the companies to reap certain profits before starting to pay, as well as legal disputes and appeals by the companies over the payment demands.

Farkash-Hacohen said the amendment was “another important step on the road to restoring hundreds of millions of shekels to the public.”

She added, “I have been working since I entered the government to pass the amendment, which has already passed its first reading and I am glad we will continue to advance it. The fund deposits tax money from Israel’s natural resources, resources that belong to us all.”

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