US firm seeks legal action to ensure Egypt keeps gas flowing to Israel

US investors in the East Mediterranean Gas Co (EMG) have taken legal steps against the Egyptian government to ensure gas flow resumes to Israel, an official in a partnering firm with EMG told Reuters on Monday.

The American firm EGI which is also a partner in EMG said that it was seeking international arbitration over what it contended was Egypt's failure to protect its investment as stipulated in a US-Egyptian agreement.

EMG which exports Egyptian natural gas to Israel had its work disrupted in late April when supplies were halted for more than a month following explosions on Egypt's side of the pipeline in the wake of the country's political turmoil and ouster of President Hosni Mubarak.

In a letter to the Egyptian government, EGI accused Egypt of "failing to provide EMG with full protection and security" for its investment and "refusing to resume delivery of gas to EMG."

There was no immediate official comment from Egypt.

The official who spoke on the condition of anonymity told Reuters that arbitration, which could lead to a ruling that Egypt violated its agreement and force it to pay a large compensation, could take place in Washington DC within six months.

"We don't think there is a political decision to stop gas exports to Israel, but rather a problem in the decision making process within the Egyptian government," he added.

The official said EMG invested $550 million in the off-shore pipeline that connects al-Arish, Egypt to Ashkelon, Israel.

Israeli Prime Minister Benjamin Netanyahu on Monday alluded to a weaker Egyptian state when he said that Egypt was having trouble maintaining control in the Sinai Peninsula, where saboteurs had blown up the pipeline, disrupting gas flows to Israel and Jordan.

"Egypt is currently run by a transition government," Mr. Netanyahu was quoted by an official as telling a parliamentary committee. "Egypt is having difficulty asserting its sovereignty in Sinai. We saw this in the gas explosion."

Under an agreement signed in 2005 Israel will receive natural gas from Egypt for 20 years. Egyptians called the deal “unfair” as their country’s gas export to Israel was lower than the market price.

Since the April 27 disruption, the official said, Egypt was losing four million dollars a day.

Last month, Egypt’s Prime Minister Essam Sharraf said that the government was in the process of reviewing the country’s gas contracts with all of Israel and Jordan in a bid to boost the country’s returns to between three billion to four billion dollars.

EMG is owned by Egyptian businessman Hussain Salem, Egypt Natural Gas Co, Thailand's PTT, American businessman Sam Zell, chairman of EGI, Ampal-American Israel Corp and Israel's Merhav.

Mr. Salem is a controversial figure known for his close ties to the former Egyptian regime and Mr. Mubarak. He was being investigated for financial violations involving his activities in the oil sector and the export of Egyptian gas to Israel. He fled the country in January and authorities requested Interpol to issue a warrant for his arrest. He was caught in Dubai reportedly with $500 million cash in his possession.


(Dina Al-Shibeeb, an editor at Al Arabiya English, can be reached at: [email protected])