A verdict by an Egyptian court against former oil minister Sameh Fahmi and business tycoon Hussein Salem for 15 years on charges of squandering public funds in selling Israel natural gas “below market price” on Thursday, would put the ‘peace pipeline’ contract between Egypt and Israel on idle.
Five former high ranking officials from the oil and gas authority, together with Salem, were charged of profiteering and causing the Egyptian government to lose $714 million by allegedly setting prices below international market rates, “hurting the country’s interest” and “enabling others to make financial gains,” according to the prosecutor general.
The Egyptian government upheld its termination of a deal in April after a violation of contracts on the side of East Mediterranean Gas Company, the intermediary that manages the Egypt-Israel pipeline.
“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 to The National on April. “It’s actually a business dispute between the Israeli company and the Egyptian company.”
However, the demise of the gas contract puts Egypt in between a growing nation weighs energy needs against a fraying relation with Israel that have been increasingly in a downward trajectory since the popular Jan. 25 uprising last year which have forced President Hosni Mubarak to resign and paved the way for the countries first Islamist president to be elected last week.
“I think it’s both political and commercial,” said Magdy Nasrallah to the National, a consultant to energy companies in Egypt and a professor in the department of petroleum and energy at the American University in Cairo. “Everybody has to realize that things in Egypt are changing very fast. We have serious economic problems and we’re not going to keep subsidizing Israel’s gas needs,” he added.
Egyptians believe that Israel only pays a fraction of the market rate for natural gas bought from Egypt, while Egypt must import other types of fuel at market prices to keep up with domestic demand.
The payment dispute reveals that the creation of the East Mediterranean Gas Company contract presents rather murky negotiations between Egypt to sell it to Israel without the two countries ever having to sign a formal deal.
“The whole arrangement was totally illogical from the start,” said Joseph Paritzky, Israel’s former minister of national infrastructure and energy to The National. “The idea of Israel buying gas from Egypt was good, but what was actually created had no transparency and the characters were suspicious,” he added.
The gas deal with Israel has come under increased public scrutiny over the last year, especially on price bases, which has not been revealed until now. The worsening security situation further complicated the issue followed by more than 14 bomb attacks by militants on the pipeline near al-Arish in Egypt’s North Sinai.
As of 2010, Israel was relying on the 2.1 billion cubic meters of gas imported from Egypt through East Mediterranean Gas Company for as much as 40% of its energy needs.
Yubal Steinitz, Israel’s finance minister, voiced deeper concern about the decision to end the contract, which served to increase tensions between the two countries. He told The National that Egypt’s decision was a “dangerous precedent that clouds the peace agreement between Israel and Egypt.”
Meanwhile, Mohammed Shoaib, the chairman of EGAS, denied that increasing domestic demand had anything to do with the cancellation of the contract with Israel. He said that decision was based solely on EMG’s failure to make payments.
The decision to terminate the gas agreement set in motion a series of unsettled cases between Egypt, Israel and EMG, as well as lawsuits from EMG shareholders against the Egyptian government. The unresolved deal is expected to last more than a year, if not longer.