Egypt terminates gas deal with Israel

[April 23, 2012]  CAIRO (AP) -- The head of the Egyptian Natural Gas Holding Company said Sunday it has terminated its contract to ship gas to Israel because of violations of contractual obligations, a decision Israel said overshadows the peace agreement between the two countries.

The 2005 natural gas deal has become a symbol of tensions between Israel and Egypt since the uprising. For many Egyptians, it typifies the close relations the regime of deposed President Hosni Mubarak forged with Israel and how his associates benefited greatly from such business deals.

Critics charge that Israel got the gas at below-market prices and that Mubarak cronies skimmed millions of dollars off the proceeds, costing Egypt millions of dollars in lost revenue.

Egyptian militants have blown up the gas pipeline to Israel 14 times since the uprising more than a year ago.

Israel insists it is paying a fair price for the gas.

Mohamed Shoeb, the head of the Egyptian Natural Gas Holding Company, said the decision to cancel the deal was not political.

"This has nothing to do with anything outside of the commercial relations," Shoeb told The Associated Press.

He said Israel has not paid for its gas in four months. Israeli Foreign Ministry spokesman Yigal Palmor denied that.

Shoeb told Egyptian TV that the decision to cancel the contract was made Thursday because "each side has rights and we are representing our rights."

On Sunday, Israel Finance Minister Yuval Steinitz said the unilateral Egyptian announcement was of "great concern" politically and economically.

"This is a dangerous precedent that overshadows the peace agreements and the peaceful atmosphere between Israel and Egypt," he said in a statement. Israel and Egypt signed a peace treaty in 1979, but relations have never been warm.

The Israeli side said the decision was "unlawful and in bad faith," accusing the Egyptian side of failing to supply the gas quantities it is owed.

Israel insists it is paying a fair price for the gas. Israel's electricity company has been warning of possible power shortages this summer, partly because of the unreliability of the natural gas supply from Egypt.

For the long term, Israel is developing its own natural gas fields off its Mediterranean coast and is expected to be self-sufficient in natural gas in a few years.

Hussein Salem, a close friend of Mubarak was among the shareholders of East Mediterranean Gas Co., which is a joint Egyptian-Israeli company that carries the gas to Israel. Once a close friend of Mubarak, Salem fled Egypt for Spain and was sentenced in absentia to seven years in jail over the natural gas issue.

On the Israeli side, EMG sought international arbitration in October because of the Egyptian side's failure to supply the quantity of gas stipulated in the contract -- because of the frequent bombings.

Under the 2005 deal, the Cairo-based East Mediterranean Gas Co. sells 1.7 billion cubic meters of natural gas to the Israeli company at a price critics say is set at $1.50 per million British thermal units -- a measure of energy.

The gas deal has been the subject of litigation in Egypt. An appellate court last year overturned a lower court ruling that would have halted gas exports to Israel. Opposition groups that filed the suit before the uprising claimed that Israel got the gas too cheaply under the 15-year fixed price deal between a private Egyptian company, partly owned by the government, and the state-run Israel Electric Corporation.

Ibrahim Yousri, a former Egyptian diplomat who had brought the issue to court, welcomed the decision announced Sunday.

"It has become a scandal bigger than the (ruling) military council can withstand," Yousri said. He said there are gas shortages in Egypt, and growing economic woes, further enflaming popular unrest. He called the business deal a "treason" to national interests, adding, "This is a great political step."

[Associated Press; By SARAH EL DEEB]

Additional reporting by Ian Deitch in Jerusalem.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.