Identifier
Created
Classification
Origin
05TELAVIV6617
2005-11-23 08:30:00
CONFIDENTIAL
Embassy Tel Aviv
Cable title:  

BUSINESSMAN DISCUSSES EGYPTIAN-ISRAELI GAS DEAL

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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 006617 

SIPDIS

E.O. 12958: DECL: 11/21/2015
TAGS: ENRG ECON PREL IS EG GOI EXTERNAL ECONOMY AND FINANCE
SUBJECT: BUSINESSMAN DISCUSSES EGYPTIAN-ISRAELI GAS DEAL
AND POSSIBLE FUTURE PROJECTS

Classified By: Ambassador Richard H. Jones for reasons 1.4 (B) and (D).

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 006617

SIPDIS

E.O. 12958: DECL: 11/21/2015
TAGS: ENRG ECON PREL IS EG GOI EXTERNAL ECONOMY AND FINANCE
SUBJECT: BUSINESSMAN DISCUSSES EGYPTIAN-ISRAELI GAS DEAL
AND POSSIBLE FUTURE PROJECTS

Classified By: Ambassador Richard H. Jones for reasons 1.4 (B) and (D).


1. (C) Summary: According to Nimrod Novik, the senior vice
president of the Merhav Group, "all systems are go" for the
export of USD 2.5 billion worth of Egyptian natural gas to
Israel over the next two decades. Novik, whose company is
the Israeli partner in the deal, noted that the Egyptians had
been sensitive to any Israeli control of assets, especially
in the Sinai. He denied reports that Israel would transship
gas to Turkey, saying the idea had been broached publicly to
provide Egypt with political cover for the deal, and
advocated development of the small gas deposit off Gaza for
Palestinian use. Novik also discussed the possibility of
joint Israeli-Egyptian power plant and desalination projects
in the Sinai. End summary.

--------------
Details of Israeli-Egyptian Gas Deal
--------------


2. (C) Novik told the Ambassador that after a 30-month delay
during the Intifada, "all systems are go" for the export of
USD 2.5 billion dollars worth of Egyptian gas to Israel. He
claimed that Merhav had secured "the best price in the
world," because the terms for the 20-year deal had been set
years ago when gas was much cheaper. Novik noted that the
Egyptians are particularly sensitive to any appearance that
Israelis own property or investments in the Sinai. They had
insisted that Egyptian subsidiaries hold title to land that
Merhav required for its pipelines from El-Arish. While the
Merhav Group has 30 percent of the equity and property, Novik
said its official share of the project is limited to 25
percent to ensure that the Israeli company does not have
voting rights.


3. (C) Novik claimed that Merhav's main customer, the Israel
Electric Corporation, would prefer to have access to the gas
immediately, but must wait until the third quarter of 2007
due to an inadequate and incomplete system of pipelines in
Israel. The Ambassador asked about reports that Merhav would
transship excess gas to Turkey or western Europe. Novik
admitted that the quantities Merhav has the right to purchase
far exceed current domestic Israeli requirements.
Nonetheless, he called the Turkish option unrealistic,
describing it as an attempt to provide Egypt with political
cover for exports to Israel.


4. (C) Novik also said that the Palestinian areas do not
figure in Merhav's calculation for the gas deal. He added
that the small gas deposit off Gaza is sufficient to fill
Palestinian needs for the next 15 years. He claimed that
British Gas had mishandled its initial attempt to develop the
field, choosing one of Arafat's cronies for their partner.
Maintaining competition would be good for the Israeli market,
Novik said he had spoken to PA Finance Minister Salam Fayyad
and urged him to move the project forward.

--------------
Possible Power and Desal Plants in the Sinai
--------------


5. (C) The Ambassador asked about reports that Merhav and its
Egyptian partners are negotiating to build a power plant in
El-Arish. Novik confirmed that this idea -- which he claimed
stems from talks at Camp David during Barak's term in office
and discussions between PM Ariel Sharon and President Hosni
Mubarak at Sharm El-Sheikh -- is still a possibility. He
noted that a 1,200-megawatt plant in El-Arish would have
ready access to Egyptian gas. It could supply power to the
Sinai, Palestinian areas, southern Israel and Jordan, and
could be coupled with a new desalination plant in the same
area with a huge capacity of 1,000 million cubic meters per
year.

-------------- --------------
Experience with Refinery Project Helped Seal Gas Deal
-------------- --------------


6. (C) Novik recounted Merhav's experience with Egyptian
partners in constructing an oil refinery in Alexandria in the
1990s, lamenting that "I had hoped the refinery would be a
precedent; it turned out to be a fig leaf." In a process
that Novik described as being "kicked out with glory," the
Egyptians had paid a generous price to buy out the Israeli
shares in 2000-2001, making it clear that they did not want
Israelis to own any Egyptian assets. Nevertheless, Novik
maintained that the cooperation established on the refinery
project helped overcome initial Egyptian uneasiness about a
gas deal.

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