Al Jazeera English does a great first dig into the EMG gas deal between Egypt and Israel –theft from the Egyptian people involving many who are still in power in Egypt today, and with the blessing of the United States. It underplays the extent to which Hussein Salem was a key member of the Egyptian intelligence establishment, close to Field Marshal Abu Ghazala (Mubarak's chief rival in the early 1980s) and granted some protection from the Reagan administration after being caught in one of the scams in the US-Egypt military aid relationship. It's a story at the heart of how corruption, power, and strategic interests interact in the Middle East – very much worth watching.
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.
A lecturer in neurology at Ain Shams University, Ramez Reda Moustafa, issued the following statement via Twitter:
To the doctors in the field (tahrir and elsewhere), my experience with the gas used by the police: It causes extra-pyramidal symptoms (involuntary jerks in extremities and trunk mimicking a convulsive seizure, occulo-gyric crisis, etc.) and little respiratory distress. The jerking is relieved by low-dose (3-5mg) diluted diazepam given slowly IV.
The type of gas used is still uncertain but it is certainly very acidic and is not the regular tear gas used in January. Please try to capture as many videos as possible of the symptoms for documentation (and eventually legal action).
There is mounting indication that it might be CR gas as opposed to normal tear gas which is CS gas:
CR gas is a lachrymatory agent (LA) exerting its effects through activation of the TRPA1 channel. Its effects are approximately 6 to 10 times more powerful than those of CS gas. CR causes intense skin irritation, particularly around moist areas, blepharospasm causing temporary blindness, coughing and gasping for breath, and panic. It is capable of causing immediate incapacitation. It is a suspected carcinogen. It is toxic, but less so than CS gas, by ingestion and exposure. However, it can be lethal in large quantities. In a poorly ventilated space, an individual may inhale a lethal dose within minutes. Death is caused by asphyxiation and pulmonary edema.
The effect of CR is long-term and persistent. CR can persist on surfaces, especially porous ones, for up to 60 days.
. . .
In the late 1980s, CR was used in the townships in South Africa. It caused some fatalities, particularly among children.
Republican groups in northern Ireland have alleged that British Army and Royal Ulster Constabulary units used CR gas against Republican prisoners.
Because of its alleged carcinogenic properties, the United States does not utilize CR for riot control. The U.S. military classification for this chemical agent is combat class chemical weapon causing serious side effects for humans.
If anyone can confirm this, it would be most useful. I've breathed in a fair amount of the stuff myself and I feel it lingering in the back of my throat. People in Tahrir, though, are permanently in it.
Update on 2011-11-22 21:12 by Issandr El Amrani
For what must be the third or fourth time since the Egyptian revolution began on January 25, the Sinai gas pipeline that takes Egyptian gas to Israel has been attacked. These attacks are not particularly dramatic, but are enough of a bother that it takes several weeks to restore the flow of gas to Israel — and often Jordan, which is affected by the pipeline. The people behind the attacks are thought to be Sinai-based Islamists who oppose the sale of gas to Israel, but we don't really know for sure. The attack took place only 60km east of the Suez Canal, and it could very well be people from the Nile Valley carrying out the attacks — and they don't have to be Islamists, either, since plenty of other people oppose the gas deal.
Since the revolution, the interim government has reviewed gas prices but thus far everything indicates that the sale of gas will continue. From what I've been able to gather (and I'd like to write something longer on this one day), Egypt was selling the gas to Eastern Mediterranean Gas (EMG), the private firm that then sold the gas to the Israeli National Electricity Company, at around $3 per mbtu (that's million British thermal units — the standard measurement for these things). EMG then sold it to the Israelis for around $4.5 per mbtu, pocketing a 50% profit margin for no more than the transaction costs and some of the infrastructure between the two countries. The market price for gas (which is not as fungible as oil since it tends to rely on pipeline infrastructure unless shipped as LNG) is currently around $4.40 for futures in North America, but spot markets in recent years passed the $10 per mbtu mark. Either way, there is no doubt that the price of the gas sold by Egypt to EMG was well below market prices, and that the company made an easy profit without investment of its own (I'll leave the issue of whether EMG sold the gas to Israel at a fair price aside.)
EMG is owned in large part by an Egyptian business, Hussein Salem, who has long been known to be a frontman for the Mubarak family (and is a former security official), and Yossi Meiman, an Israeli businessman close to the Sharon clan in Israeli politics (he owns the Israeli energy company Merhav), as well as some additional minority investors from South East Asia. Incidentally, although this was not widely known until after the revolution, Salem (who has been arrested in Madrid recently and is wanted by the Egyptian authorities) also had a similar deal set up with Jordan, involving the same kind of markup, and this deal (it's not clear with who on the Jordanian side, but I'd look at the royal family or the security services) is also being reviewed by the Egyptian authorities.
In the last few years, when lawsuits were filed in Egypt against the sale of gas to Israel, the government often claimed that it was only selling gas to EMG, and has no transactional relationship with Israel. This is the ideal time to turn the argument on its head. If EMG was involved in high-level corruption under the previous regime, it is perfectly understandable if the Egyptian government, which controls the sale of natural gas, were to decide to terminate its relationship with EMG. This does not mean that EMG can't sell gas to Israel: it would just have to meet its commitment from elsewhere than Egypt. Legally, this procedure may be dicey. EMG is free to resort to international arbitration, or even sue (which would provide an opportunity to look into its accounts). But my feeling talking to energy people in Cairo from multinationals (many operate in Egypt — huge ones like BP, BG or Statoil and independents like Apache) is that they don't care if the Israeli gas contract is not honored. They want to cover their bacon first, and have assurances that their own substantial investments in Egypt will be untouched. They don't care about the Israelis and understand if the deal is cancelled, it will be an understandable political exception.
Now, it's likely that there were personal commitments from Mubarak to successive Israeli governments that the gas would continue. If these exists on paper, let the government make them public. If they don't — well, an oral contract is as good as the paper it's written on and we fall back to a relationship between Egypt and EMG. And then let's see that contract and get the details of how this massive fraud was conducted. There remains a lot of uncertainty of what the state-to-state relationship is, however, considering former FM Nabil Al-Arabi's statement that Israel should pay the difference in price for already purchased gas.
Another aspect of this story is that it is widely believed the US encouraged this deal as a peace-building measure. It was certainly true of the 1980s and 1990s, but I have no details of what role the US played in the EMG deal. That's another question worth investigating, because the US Embassy in Cairo knew who Hussein Salem was (he was previously convicted of fraud by a US court in a corrupt deal involving the Egyptian army and US military aid), so if it did pressure the Egyptian government on the deal (which initially involved no American investor) one should ask why they did so if they knew of the corruption involved. It may be involved today because a US investor in EMG is threatening to sue the Egyptian government to respect its commitments to Israel. This is something worth digging into, particularly as US pressure in favor of the EMG deal was said to be strong in 2005, precisely at the time the Bush administration was pressuring Mubarak on democracy. Was there a quid-pro-quo there, considering the democracy promotion was abandoned in 2006 as Egypt's policies generally became more explicitly pro-Israeli (of course there was the Hamas election too at the time)?
It will probably fall to the next parliament and president of Egypt to make a decision about the Israeli gas deal. But it appears right now that negotiations are underway to continue the gas flow at a renegotiated price, so the matter could soon be resolved. I am all in favor of selling gas to Israel — it makes sense as part of a coherent and transparent energy policy, if domestic needs and LNG export commitments are sufficiently covered. But not to an Israel that continues to occupy Palestine and the Golan Heights, and wages punitive wars against civilian populations as it did in Lebanon in 2006 and Gaza in 2009. Just like the boycott campaign against South Africa in the 1980s, a boycott campaign against Israel today makes moral sense. Those Egyptians who support it need to demand greater transparency on the deal (i.e. access to contracts, prices, individuals involved etc.) from their government, and help those of us from other countries (US, Israel) who want to greater clarity on their governments' involvement in what was clearly, from the very beginning, a massively corrupt endeavor.
If anything positive is to come from rumored Saudi-Qatari reconciliation, I would love it to be a fast-track project to set up a rig on Lebanon's shore to get this gas out before the Israelis suck it all up. After all the Gulf states have a stake in Lebanon and the money and expertise to pull it off.
Trouble is brewing in the waters off the coast of Lebanon and Israel about the future of one of the largest discoveries of natural gas in the eastern Mediterranean.
A field known as Leviathan might contain 16 trillion cubic feet of gas – enough to serve Israel’s domestic needs and make the country a substantial exporter.
But Lebanon is eyeing some of that income, badly needed to pay off its $50bn national debt. Some Lebanese politicians say the field may extend into their country’s as yet undeclared maritime zone.
Israel and Lebanon are still formally at war and the two neighbours have never agreed a maritime boundary.
Another problem is that Lebanon has not even passed an oil and gas law that would regulate drilling off its coast.
In spite of late night negotiations this week between Saad Hariri, the prime minister, and Nabih Berri, the speaker of parliament, the passage of any such legislation may still be months away.
In the meantime, Israel has unilaterally placed a line of buoys extending two miles into the sea off the two countries’ land border for what it describes as “security reasons”. Lebanon’s government has raised this with the United Nations, fearing that the floating line of Israeli-placed markers may encroach on its maritime territory.
Hizbollah, the armed Shia movement, and its allies have taken up the cause of what they call the defence of Lebanon’s natural resources – and they charge their western-backed political opponents with weakness in regard to the issue.
Mr Berri, from the Shia Amal movement, an ally of Hizbollah, has urged Mr Hariri’s government of national unity to counter what he sees as Israel’s designs on the country’s gas.
“Lebanon’s army, people, and resistance will be ready to thwart any attempt to steal its natural resources,” he said during a visit to neighbouring Syria.
In the meantime, things looking better in Lebanon — for now. I was there a few weeks ago, it looked positively bustling! Let's hope there not another summer war as some are predicting.