CAIRO: US investors in the East Mediterranean Gas Co. (EMG) are seeking international arbitration against Egypt’s government to ensure gas flow to Israel resumes, a US partner in EMG said on Monday.
“We don’t think there is a political decision to stop gas exports to Israel, but rather a problem in the decision making process within the Egyptian government,” the official told Reuters, speaking on condition of anonymity.
EGI, which is owned by American businessman Sam Zell, is taking the case to the International Center for Settlement of Disputes within the next six months, according to the official.
The two American companies together own 28 percent of EMG.
The case brought by the investors accuses the Egyptian government for “refusing to resume delivery of gas to EMG” and “failing to provide EMG with full protection and security.”
If Egypt is found to have breached the US-Egyptian agreement, the government will have to provide financial compensation to EMG.
“The investors are losing so legally they have the right to seek legal action because there is a contract,” said Magda Kandil, executive director of the Egyptian Center for Economic Studies.
“The new government should carefully take this into consideration, even if it means a negative outcome for Egypt, after all there is a deal both parties have to abide by,” Kandil told Daily News Egypt.
EMG exports natural gas to Israel, providing about 45 percent of the country’s electrical usage, however two recent explosions, once during Egypt’s 18-day revolution on February 5 and a second on April 27, have disrupted the gas flow.
Since April 27, according to the US official, Egypt has been losing $4 million a day.
Egyptian businessman Hussein Salem, American businessman and chairman of EGI Sam Zell, Egypt Natural Gas Co., Thailand’s PTT, and Ampal-American Israel Corp. all own EMG.
Ampal-American, which owns 12.5 percent of the company, announced earlier this month that EMG would resume gas flow and provide more security measures for the pipeline by the end of May; however, the supply has now been halted for more than a month.
Since the recent explosions, Ampal-American has been impacted by Egypt’s discontinuation of the gas flow.
The company announced last Thursday that they have been removed from Midroog’s watchlist, an affiliate of the Moody’s Investors Service, and downgraded debentures to BAA1 to BAA3, which is a “negative outlook.”
“Midroog announced in its report that in January 2011 it had placed the Debentures’ ratings on Midroog’s watchlist due to the destabilization of the political and financial environments in the state of Egypt,” the company said in a press release.
In a separate statement on Thursday, the company also confirmed that based on their current estimates, “even if during the years 2011 and 2012 Ampal were to receive no dividends from East Mediterranean Gas Co., Ampal expects that the impact on anticipated cash flow would not exceed $10 million.”
The gas deal between Egypt and Israel has been an ongoing controversy among Egyptians, especially recently after the country’s January 25 uprising against Hosni Mubarak’s regime.
Activists have constantly criticized the deal calling it “unfair” due to inflation, the current shortage of natural resources, and the fact that the agreement gives Israel gas for prices below the international standard, according to analysts.
In fact, according to Noran Ali, petroleum analyst at CI Capital, Egypt’s previous regime has never been clear about the costs of gas exports to Israel.
We don’t have a clear export price, it has never been officially announced, but it is said to be about $3, while the international standard price is $4, said Ali.
Egypt’s current Petroleum Minister Abdullah Ghorab said in March that talks are underway to adjust the gas contracts, adding that widespread public disapproval of the gas export to Israel are enough to make the government revisit the contract’s terms.
According to Kandil, if the gas deal with Israel is reassessed, Egypt could save $3 or $4 billion yearly.
Egypt has been exporting gas to Israel since 2005 under a 20-year deal.
