Israel studies a model for tax on exports amid continued regional hostility
Israel’s finance ministry approved a proposed model for tax on natural gas exports according to a statement by the then minister of finance Yair Lapid. The proposal will be presented to the Knesset for final approval in the coming weeks. The plan suggests a netback model for determining the transfer price for exports taxation. The state would determine the expected profit for each export deal and then subtract the accepted return on investment on this kind of transaction. The proposal also included a clause guaranteeing that the gas price for exports is always higher than the price of the natural gas sold domestically.
In June 2013, Israel approved to export 40% of its natural gas. The controversial decision of the Netanyahu cabinet ensured 540 bcm of the estimated 900 bcm of natural gas resources will remain at home. The decision spurred the outrage of those who believed the country should save most of its gas for domestic use after years of energy vulnerability and natural gas dependence on Egypt. A petition was filed by environmental groups against the decision on export quotas, but Israel’s Supreme Court rejected the petition in October 2013 on the grounds that the decision achieved an equilibrium between domestic and market needs.
Since, Israel has been exploring various options to export its gas. Talks with its immediate neighbours led to the signing of letter of intents to sell natural gas to Egypt, Jordan and the Palestinian authority, all undergoing severe energy crises and in desperate need for the hydrocarbon. Israel is also considering using Egypt’s unused export terminals to reach far-reaching markets in Europe and Asia.
Israel and Cyprus are now also pitching an East Med pipeline to the EU in order to receive EU support and funds. The proposed pipeline could carry as much as 10 billion cubic meters (bcm) to Europe annually. The proposed project comes at a time when the EU is looking to diversify its sources of supply. However, regional politics continue to constitute a challenge for the newly hydrocarbon-rich Eastern Mediterranean countries. The discovery of natural gas is complicating a solution for the Cyprus problem. Renewed tensions between Turkey and Cyprus threaten the smooth progress of exploratory activities in Cyprus’ Exclusive Economic Zone. The maritime border conflict between Israel and Lebanon is yet to be resolved. And an Israel-Jordan deal is now questionable following the attacks on al-Aksa Mosque.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat