EMG shareholders pursue legal action against Egypt

JERUSALEM–International shareholders in Israel's East Mediterranean Gas Co (EMG) are pushing ahead with legal claims against Egypt for US$8 billion in damages from contract violations in gas supplies, a company official said.

The decision came after saboteurs in the Sinai Peninsula last week for the third time this year blew up part of the Egyptian pipeline that feeds gas to Israel and Jordan.

Nimrod Novik, a member of the EMG board, told Reuters on Monday that shareholders from the United States, Thailand and Israel met a few days ago and decided to "seek protection from the international court of arbitration in Washington".

Gas supplies to Israel have resumed since the 4 July attack, although only at about 30 percent, officials say. Egypt's MENA news agency reported on Sunday that repairs to the pipeline were expected to be completed by the end of the week.

The group of shareholders first raised the possibility of taking legal action against Egypt in May, after two previous pipeline attacks halted gas supplies for over a month.

Novik said the Egyptian government's failure to deliver contractual quantities has already caused Egypt a loss of nearly US$500 million as well as serious problems to the Israeli energy market, which gets about 40 percent of its gas from EMG.

The disruptions have also undermined Egypt's reputation as a reliable supplier and caused serious financial losses to EMG, Novik said.

"Consequently, the shareholders instructed their lawyers to take the steps required for claims in excess of US$8 billion. The lawyers have advised the government of Egypt as well as the United States and other relevant governments that this process is under way," he said.

One official who represents EMG shareholders said the arbitration process requires the company to meet with their Egyptian counterparts within weeks to try and reach a settlement outside of court. If they fail, the official said, the US court will take over within weeks of the meeting.

Israel has hailed the 20-year natural gas deal it signed with Egypt in 2005 as one of the most important agreements to emerge from the historic peace deal the countries reached in 1979.

But there has been some uncertainty over relations between the two countries in the wake of the political turmoil in Egypt that led to the ousting of President Hosni Mubarak. Israeli Prime Minister Benjamin Netanyahu has said the Egyptian government is losing control in Sinai.

Egypt has since said it will review its gas contract with Israel amid accusations Mubarak's administration had improperly negotiated the sale of gas at preferential prices. It has even ordered a former energy minister and six other officials to stand trial.

Israel says the price it pays for gas is on par with international standards and that it will not renegotiate the price, which was already adjusted upward about a year ago.

Israeli energy officials say the Egyptian government receives more than US$3 per million British thermal units (BTU) from Israel.

"EMG's price is higher than that of any other Egyptian export venue, is better than other regional exporters receive and is in line with international prices," Novik said.

EMG is owned by Egypt Natural Gas Co, Thailand's PTT, Israel's Merhav Group, Ampal-American Israel Corp and American businessman Sam Zell, chairman of EGI, who also represents shares that were sold by Egyptian businessman Hussain Salem in 2008.

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