Israeli Court Rejects Stability Clause

Israel’s High Court of Justice has struck down the stability clause in the regulatory natural gas framework, arguing that the terms went further than governments can go in a democracy.

The decision will cause more uncertainty offshore and further delay the development of the giant Leviathan field. After a few weeks’ deliberation, it decided March 27 to give the government a year to come up with a legal solution to the stability clause or the whole framework would expire. "A commitment that binds the government to the framework including no changes in legislation for ten years cannot stand," the justices said. However they approved the implementation of the energy monopoly through article 52 for the antitrust law.

The decision is a serious blow to the prime minister Benjamin Netanyahu, who staked his reputation on the framework. "When I want something I get it," he said last September during a crisis in the process of the framework's approval. But in a majority decision of 4 to 1, the court rejected the stability clause – an essential element of the framework if further gas assets development is to be possible, according to the producers.

"The High Court of Justice's decision is a grave threat to the development of Israel's gas reservoirs," said Netanyahu on his Facebook account. "Israel is perceived as a state with legal intervention that makes it harder to make business. Certainly no one has a reason to celebrate that the gas might stay deep under the sea and billions of shekels lost to Israel citizens. We will look for other ways to overcome the heavy damage that was caused to the Israeli economy by this bizarre decision."

Netanyahu's failure is all the more dramatic, after his personal appearance at the court – a first for a serving Israeli PM.

The judges wrote: "The public may question whether the court should intervene in the matter and, if it is essentially an economic issue, to refrain from engaging. The answer is that beneath the economic issue lies a fundamental legal issue, which is the limits to the government’s authority in a democracy; and how far its residual authority can stretch, where the legislature did not explicitly authorize it,” the judges wrote.

In a filing to the Tel Aviv Stock Exchange, Delek Drilling, Avner and Ratio, the three Israeli partners to the Leviathan partnership, highlighted the positives of the decision and said that they would work towards settling the stability issues with governmental bodies in order to achieve the framework's goals.

Noble Energy's response was harsher. "The Court's ruling… is disappointing," CEO David Stover said, "and represents another risk to Leviathan timing. Development of a project of this magnitude, where large investments are to be made over multiple years, requires Israel to provide a stable investment climate.

"Noble Energy has consistently maintained that stability is a minimum condition for project development, and our position has not changed. As we have stated before, we will vigorously defend our rights related to our assets to protect shareholder value. It is now up to the government of Israel to deliver a solution which at least meets the terms of the framework, and to do so quickly."

Ya'acov Zalel