Israel gas grid project in jeopardy

09 August 2002

The Israeli government is scheduled to take a final decision on 11 August on how to proceed with plans for setting up a national gas grid. The decision will clarify the Infrastructure Ministry's 4 August cancellation of a contract awarded earlier this year to an Israeli consortium. In April, Belgium's Tractebel, the international partner in the consortium, withdrew from the project (MEED 12:7:02).

Deputy infrastructure minister Naomi Blumenthal on 6 August told MEED that the contract with the consortium comprising Israeli firms Africa Israel Investments, Beitmannand Paz Oil Companywas annulled on the grounds that the companies could not meet the government's requirements without an international partner. The agreement was cancelled despite the start of renewed negotiations between the consortium and the UK's BG Groupin July about the foreign stake in the $400 million pipeline system.

BG at an earlier stage refused to become involved in the scheme due to Israeli legislation limiting to 26 per cent the maximum share available to any member of the consortium building the grid that is also a gas supplier. BG is negotiating with state-owned Israel Electric Company to supply natural gas from its Palestinian Authority-controlled offshore Gaza concession to clients in Israel.

Negotiations are understood to have started with a major Russian gas company to come on board as an alternative international partner. Officials from the Russian firm held talks in early August in Israel with both the Infrastructure Ministry and the consortium in an attempt to hammer out a possible agreement by 11 August, industry sources say.

'The outcome of the talks is still open and several options are possible, including BG or the Russian firm, or both, becoming involved in the project,' one source says.

Another option under consideration at the Infrastructure Ministry is splitting the project into two packages. According to this plan, the government would appoint a local contractor to build the Ashdod-Gezer pipeline, while issuing a new tender for the remaining part of the grid.

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