The Arabist

The Arabist

By Issandr El Amrani and friends.

The Egypt-Israel treaty and the gas deal, cont.

A couple of days ago I blithely stated that Egypt's decision to cancel the agreement it had to supply natural gas to EMG was not a violation of the Egypt-Israel peace treaty. I am now cautiously walking that back; I am not so sure anymore. There was a memorandum of understanding signed between Egypt and Israel in 2005 that guarantees Egyptian supply of natural gas not just to Israel but to EMG specifically, in quite precise terms. I am reproducing the relevant portion below:

Here is the full copy of the MoU in PDF, which is also available on the Israeli Ministry of Foreign Affairs' website. It's signed by then Egyptian Minister of Petroleum Sameh Fahmy and then Israeli Minister of National Instructure (and Mubarak's best friend in Israel) Benyamin Ben Eliezer. I am not sure what relation it bears to the Egypt-Israel peace treaty, which it recalls in its preamble, as it does not seem to be an addendum to the treaty.

That seems about as black-and-white as it might get, but also raises a host of other questions. The most important thing about this document is what Israel is willing to do about it. If Egypt genuinely wants to cancel the deal (rather, say, than merely saying so as a negotiating tactic with EMG) it will have to take this engagement into consideration. What can Israel actually do to enforce this piece of paper, and is it willing to put the treaty at stake here? I doubt it, but it is will certainly use this as ammuntion to argue that the Egyptian government bears it ill-will and has not honored past agreements. (Of course Egyptians have at times argued that Israel has not applied either the letter or spirit of the treaty and the Camp David accords, likewise they have not done much about it otherwise.)

The other aspect is what it means for Egypt. I'm not sure how often countries guarantee delivery of gas to private companies that deliver it to other countries. While technically public, this is a document that was signed by its government in quasi-secrecy, certainly with no parliamentary scrutiny, and nary a word about it in the media. It will no doubt, considering the allegations of high-level corruption in the EMG case, revive the entire concept of odious agreements (like odious debt). Which will make some nervous when we are talking about a MoU that is directly linked to the peace treaty. Beyond the corruption elements in EMG (specifically those involving Hussein Salem) one argument might be made for renegotiation of the deal, which could be conceived under Article 8 of the treaty, commercial obligations to EMG notwithstanding. And continued supply of Egyptian natural gas to Israel, which after all is the country's closest export market. But that depends a lot on the political climate, and whether Egypt is willing to forego the gas exports (there might be good reasons to do so, such as domestic shortages). The other issue is the roll-on impact on other bilateral agreements, such as the QIZ deal, which generates tremendous export opportunities to the US for the textile industry. 

Already Minister of International Cooperation Fayza Aboul Naga (remember her?) is saying Egypt has no objection to selling the gas at a new price to Israel. From the newsletter of Beltone Research, an investment firm:

Minister of International Cooperation: Egypt ready to sell gas to Israel at new price

International Cooperation Minister Fayza Aboul Naga said the Egyptian government had no objections to reaching a new contract with new conditions and a new price for exporting gas to Israel, state-owned Al Ahram reported. Egypt annulled the contract last Thursday, saying Israel had not met the conditions of a gas export accord signed in 2005. Aboul Naga said Israel had been notified five times that it was not meeting its financial obligations under the old contract. Egypt's Electricity Minister, Hassan Yunis, said earlier that the natural gas being exported to Israel under the controversial deal would be used domestically. The gas contract with Israel, which signed a peace treaty with Egypt in 1979, was the largest trade deal between the two former foes and has always been controversial in Egypt. Israel downplayed the political significance of the cancellation on Monday, calling it a "commercial dispute" with no impact on diplomatic relations with Egypt. "We don't see this cutoff of the gas as something that is born out of political developments," Prime Minister Benjamin Netanyahu told a meeting of heads of the Israel Bonds fundraising organisation. "It's actually a business dispute between the Israeli company and the Egyptian company," Netanyahu's office quoted him as saying. In the meantime, the Israeli Finance Ministry called the Egyptian decision “a dangerous precedent that casts clouds over the peace agreements and the atmosphere of peace between Egypt and Israel.”

What's interesting here is that both the Egyptians and Israelis are playing down the diplomatic aspect of this. And as for Egypt — is it willing to renegotiate with EMG, or just a new company (which of course does not have the infrastructure in place, etc...) 

There are also some interesting comments by Nimrod Novik, an Israeli executive intimately involved with the EMG deal, in the last post on this issue, which shed light on some other questions from the Israeli perspective.

Update: More litigation on the way, according to Beltone.

Israeli corporation to take legal action against Egypt over terminated gas contract

Israel's Electric Corporation (IEC) said it will pursue international arbitration against the Egyptian government in order to be compensated for the damage caused by terminating its gas contract with Israel, Al Ahram reported. IEC issued an official statement on Monday mentioning that it will be taking legal action against Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS) for the violation of its gas supply and purchase agreement. Despite this, IEC indicated that its output would not be affected by the gas stoppage, as it uses fossil fuels to compensate for the loss. Egyptian natural supply has been repeatedly interrupted since February 2011, as unknown saboteurs bombed the pipelines in Sinai 14 times. "The company is using liquid fuels, which cost substantially more than Egyptian gas," the statement added. Israel depends on cheaper Egyptian gas for some 40% of its energy requirements.