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Egypt terminates gas deal with Israel

03 May 2012

Mohamed Shoeib, head of the state-owned Egyptian Natural Gas Holding Company (EGAS), said on April 22 that the 20-year gas-supply contract with Israel, signed in 2005, had been cancelled because Israel had not paid for the gas for the past four months. "This has nothing to do with anything outside of the commercial relations," he said.

Egypt says the gas contract has been cancelled because of Israeli non-payment, while Israel says $8bn of gas has not been delivered
Egypt says the gas contract has been cancelled because of Israeli non-payment, while Israel says $8bn of gas has not been delivered

The Egyptian decision was announced in Israel by Ampal-American Israel Corporation, which holds a 12.5% stake in East Mediterranean Gas (EMG), the operator of the cross-border pipeline supplying gas to Israel. Ampal said Egyptian General Petroleum Corporation (EGPC) and EGAS had told EMG they were terminating the gas and purchase agreement.

"EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal," Ampal said in a written statement.

Israel says the gas supply, which at one time accounted for 40 per cent of its needs, has been continuously disrupted in recent months. Unknown saboteurs have blown up the pipeline in the Egyptian Sinai more than 14 times in the past year.

The gas agreement with Israel has emerged as a focus for public protest in Egypt. The decision to cancel the deal has been welcomed inside Egypt, with presidential candidate Amr Moussa arguing that it was a natural step given the corruption that tainted the agreement. Others said that Egypt needed the gas amid shortages of its own, although an Egyptian minister said yesterday that Israel was welcome to negotiate a new contract.

Israeli officials initially reacted angrily to the Egyptian decision, calling it a "dangerous precedent" that could endanger the 1979 peace treaty between the two countries. But yesterday, Israel back-pedalled on its criticism of Cairo, painting the dispute as purely commercial in nature.

"We don't see this cut-off of the gas as something that is born out of political developments," the Israeli Prime Minister, Benjamin Netanyahu, said. "It's actually a business dispute between the Israeli company and the Egyptian company."

Ampal and two other companies have been seeking $8 billion in damages from Egypt for not safeguarding their investment against the pipeline blasts, Reuters reported.

Ampal said EMG had "initiated arbitration" against EGPC and EGAS last October, accusing the Egyptian companies of a "longstanding failure to supply the gas quantities owed".

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