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The state and gas: The "wealth fund" is missing NIS 12 billion

The Wealth Fund is supposed to coordinate gas royalties for the citizens of Israel.

Originally, it was supposed to have about NIS 12.8 billion.

In practice it has less than a billion.

Although the importance of gas production is becoming clear these days in the face of the gas crisis in Europe, nonetheless: non-cooperation between regulators has prevented efficient collection

Tags

• Tamar

• Whale

• The gas layout

• State Comptroller

Sonia Gorodisky

Monday, October 18, 2021, 08:30 Updated: Tuesday, October 19, 2021, 16:09

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"In the wealth fund - only NIS 741 million instead of a forecast of NIS 12.8 billion by 2022. The government is not working effectively to exploit the revenue potential inherent in the gas resource and increase the wealth of the public coffers," writes State Comptroller Netanyahu Engelman in a special report examining the benefits of implementing an outline. gas.

the data presented by the auditor although not new and have been published only three and a half months by the tax Authority, but a report on the implementation of the outline benefits of gas may stimulate interest in light of the energy crisis and shortage of gas in Europe.

The state revenue is transferred to the wealth fund from the levy on surplus natural gains (Sheshinsky tax) that is applied only after the investments in exploration, development and construction have been fully repaid plus a return, which embodies the entrepreneur's risks and the required financing expenses. This, in order to ensure that the use of natural resources is also made for the benefit of future generations.

According to the auditor's report huge difference between the optimistic forecasts about the fund wealth and the reality is due the following reasons: "the exemptions granted outline gas projects gas, gas prices fell and continuation of the process until the discoveries were announced buffers."

If it comes to the gas prices in the world - Israel has no control, The other two sections are an outgrowth of the state's management, to which natural resources belong.The state's share in the economic value derived from the natural resource is obtained from three types of income: royalties at a certain rate from resource sales - under the Ministry of Energy; The holders of the project on the levy of natural profits and the taxable income are subject to the responsibility of the Tax Authority.

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Tamar Reservoir.

"The manner in which the information was transferred between the Ministry of Energy and the Tax Authority was not properly regulated" (Photo: Walla! NEWS system, Tomer Applebaum)

The Ministry of Energy did not cooperate with the Tax Authority

It follows that the responsibility for the levies on natural profits is divided between two different bodies: the Ministry of Energy and the Tax Authority. Although this is a particularly complex taxation, since in order to start collecting it, a certain profit threshold must be reached, Engelman's audit shows that the manner in which the information is transferred between the Ministry of Energy and the Tax Authority has not been properly regulated.

"Not regulated delivery of information between the Ministry of Energy Tax Authority ... Department of Energy has not taken the steps required for the provision of information and cooperation between them despite appeals Tax Authority over the years 2016-2020", Ntcb report.

"Given the range of issues on the agenda , Their complexity, the large sums involved and the impact of each other on each other, it is very important that the regulators formulate rules for cooperation between them. An agreed and coordinated work procedure will contribute to ensuring the state's fair share of the profits from gas production, "the comptroller writes, and recommends the establishment of a joint team for the Tax Authority and the Ministry of Energy.

As for the "concessions given to entrepreneurs", it can be expanded to say that at least some of them were approved in the gas outline approved two years after the optimistic forecast regarding the wealth fund, to which Engelman referred (Bank of Israel forecast from 2013).

Whale rig, there is also positive criticism of the development of three different gas sources (Photo: Official website, Albatross)

Why did they reject the declaration of the reservoirs as a "discovery"?

In the following, the auditor details the importance of the date of recognizing the project as a "discovery". To the extent that the determination that the search phase has ended, a discovery has been made and given strong to the developers is rejected, the developers will continue to receive the high benefits limited to the search phase instead of the lower benefits to which they are entitled at the set-up stage.

Although the results of the "Whale" drilling were already made public in 2010, the Ministry of Energy set a date for the discovery only in January 2014. This required the Tax Authority to consider setting a different date for the end of the search period than the Ministry of Energy. "

Incorrect classification and classification of expenses harms the state's revenues from gas receipts. It should be noted that during the deferral period between 2013 and 2014, the holders of the rights in" Whale "spent hundreds of millions of shekels, which are considered their position under the Natural Profits Law. Written in the report.

On the positive side, the auditor notes that some of the goals for which the gas layout was formulated have been achieved: three gas reservoirs have been developed, and in 2022 three separate inlets connected to the national gas system are expected to operate. Moreover, the operator's cross-holding in the "Tamar" and "Whale" reservoirs has been reduced to the obligor in the outline and another operator will begin to supply gas to the economy.

"This will reduce centralization and greatly improve the surplus in the gas economy. In recent years, gas consumption in the local economy has increased, and further competition in the industry is expected with the start of gas flow from the" Shark "and" Crocodile "reservoirs and the" separate sale "from the Tamar reservoir. "Gas export contracts have been signed for neighboring countries amounting to billions of dollars and the strategic position of the State of Israel in the region has been improved," the report said.

The auditor noted in the report that during the audit period in accordance with the principles set out in the gas outline, there are still cross-holdings between the holders of the rights in the gas reservoirs (for example, Delek, which owns the Levitan reservoir before selling all its holdings in Tamar and must do so by December 17, 21). One of the two reservoirs (Noble Energy, which operates the Tamar and Whale reservoirs) - something "that could lead to a fear of violating sections of the Competition Law that were not exempted under the gas layout," the comptroller writes.

To illustrate the importance of the issue, the auditor refers to the IEC tender for the purchase of gas in 2018 - the period of approaching the date of gas production from the Leviathan reservoir.

After opening the bids, it became clear to Hachi that these were two identical bids for details.

IEC employees are preparing for winter.

Is the agreement between the IEC and the Whale Partnership a "prohibited restrictive arrangement"?

(Photo: Walla! NEWS system, Yossi Weiss)

Were prices matched illegally?

In the circumstances that arose, and since the rights holders in "Tamar" and "Leviathan" refused to improve their bids, HHI chose as the supplier the rights holders in the "Whale" project, inter alia, on the grounds of diversifying the sources of supply. The amount of gas purchased. In June 2019, HHI and the rights holders in the Leviathan project signed a gas supply contract.

Tamar Petroleum, Isramco, Dor and Everest, which hold about 53% of the rights in the Tamar project, petitioned the district court claiming that HHI determine the winner according to one and only consideration - the price of the bid, which as stated was the same in both bids. The majority rights holders in "Tamar" demanded that the court order the Lehi to split the purchase of gas from "Levitan" between the "Tamar" project and the "Levitan" project, to renegotiate or cancel the tender and re-edit it.The court rejected the petition and upheld Hahi's decision regarding the winner.

The majority rights holders in Tamar appealed to the Supreme Court against the district court's decision.

The Supreme Court, like the District Court, harshly criticized the conduct of the party responsible for the proposal on behalf of the rights holders in Tamar and on behalf of the rights holders in Levitan (both through the same representative, the marketing director of Noble Israel), noting that the concern was hidden. For prohibited coordination of prices.

In August 2020, the Supreme Court dismissed the appeal and added an explicit and exceptional provision to forward the decision in this matter to the Competition Commissioner, who was not a party to the proceeding.

The Competition Authority did not comment on whether the agreement between HHI and the Leviathan partnership is a prohibited restrictive arrangement, which violates the competition law or does not meet the conditions set out in the gas outline.

Therefore, the agreement between Hachi and Leviathan came into force, the comptroller writes.

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