The Great Israeli Natural Gas Robbery

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The following is an op-ed submitted by Yossie Hollander,
Chairman of the Israeli Institute for Economic Planningrobbery

At times there are critical moments when indecision or inaction can cause repercussions that can last for decades if not more. The Natural Gas Robbery is perhaps one of the greatest scandals in the history of the modern state of Israel. At best, it is an extreme example of bad government that, as it stands now, is costing Israeli consumers tens of billions of dollars, including, of course, the Hareidi population.

Indeed, the deal is costing Hareidi families more, because larger families tend to use more natural gas – especially with blechs left on over Shabbos and Yom Tov.

Why should the Hareidi population care?

Why should the Hareidi population care?

The answer is, of course, economics. If these funds are siphoned off by Big Oil conglomerates then the money neither ends up in the hands of individual families nor in the hands of the Israeli government. It is therefore crucial that every segment of Israel’s population be aware of the closed-door deals that is transpiring now – and speak out against it.

The Issue

The current debate really concerns the future of the price of natural gas throughout Israel. Companies want to maximize profits. A conglomerate of gas companies headed by Noble Energy (a US company) and Delek (owned and controlled by Yizhak Tshuva) want to sell the gas that belongs to the citizens of Israel at a price that is high as possible. The general public wishes to purchase natural gas at the lowest possible price. In a completely free market, the laws of supply and demand should be the determinants of gas prices. However, energy and fuel markets are generally subjected to government regulation to protect consumers from both price volatility as well as to protect crucial supply needs. In this case, the government has unknowingly granted a monopolistic concession to the Nobel-Delek partnership.

What then should be the determinant for how gas supplies should be priced? Two factors should be employed. The first is that every step should be taken to ensure as much healthy competition as possible. The second step is that oil and gas economists should be employed in order to determine the ideal pricing that would balance both helping to grow the economy as well ensuring that crucial supplies be made available. This is generally decided by sticking to the general industry standard in world markets. The current estimates of Israel’s top private energy economists come in at about half of the pricing structure that the government had agreed to give the big Gas conglomerates.

In other words, they sold the farm.

Currently, the government’s efforts at preventing monopolistic competition have been minimal and ineffective, and the outsized pricing structure has failed to include adequate price ceilings.

Let’s look at an example using real numbers. The common IRR (internal rate of return) in the oil industry is some 8-10%. Noble/Tshuva and the other partners rate of return is pegged at an astounding 23%. Indeed, under a new agreement, it may even be significantly higher. That may not sound like much of a difference, but, in actuality, it is huge.

One million dollars invested at 10% a year, will yield $17.5 million after 30 years. A 23% profit margin per year, will yield a profit of $498 million after 30 years. This is a bad deal, both for the government as well as its citizenry.

Here, of course, the numbers are significantly higher. It is not just one million being invested but hundreds of millions.
There is a Halachic obligation to be concerned for excessive costs to the public. The Gemorah in Moed Katan 27b tells us that when Jews were burying their dead in the finest clothing, Rabban Gamliel HaZakain arose and declared that enough was enough. He decreed that from that point on, we bury our relatives in tachrichim. The case concerning gas is no different.

As it is the Hareidi population is still suffering from the repercussions of the cuts initiated by the last government. Kollel families are barely able to put food on the table and the situation has not been relieved. It is crucial for the Haredi community not to look the other way and weigh in on an issue that affects them the most.

Yossie Hollander is the Chairman of the Israeli Institute for Economic Planning and a co-founder of the Fuel Freedom Foundation, a nonpartisan organization dedicated to reducing the cost of vehicles by opening the market to cheaper fuel choices. He is a successful entrepreneur and philanthropist with more than 40 years of experience building successful software companies. In addition, he is the founder and chairman of Our Energy Policy Foundation, which is dedicated to creating an open dialogue and consensus on U.S. energy policy. Mr. Hollander serves on the executive board and management committee of the Weizmann Institute of Science. He is a member of several Board of Directors, including USC and a member of the advisory board of the Cornell University Center for a Sustainable Future.




4 COMMENTS

  1. This is an immoderate and incorrect comment. You cannot go back after having signed a contract and out of jealousy for the fact that the other side succeeded (against all odds–no one though that Israel even had gas), start to renegotiate all the terms of the contract.

    I think that Netanyahu and his team have done a very good job of trying to put an end to this mess. Other non-admirers of Bibi (like Nehemia Stressler of Haaretz, ordinarily no admirer of Bibi), agree.

    So let’s have a little balance.

  2. Not quite sure I understand what the chareidi population has to do with the price of gas. However the price of gas is determined it shouldn’t matter whether or not the recipient is chareidi chiloni or anything else for that matter. When I pull up to the gas station or go to the grocery store they don’t change the price based upon my lifestyle

  3. WHen a country is run by monopolies in industry, resources and education, the public suffers. Let all POLITICAL PARTIES scream, yell and stop this thievery.

  4. “Indeed, the deal is costing Hareidi families more, because larger families tend to use more natural gas – especially with blechs left on over Shabbos and Yom Tov.”

    The author of this article doesn’t seem to know that in Israel the gas you use for cooking is LP gas and not natural gas. There may be exceptions to this, but in general you have local tanks at the houses that are filled by one of the gas companies.
    Natural gas is not the same as LP gas and even with cheap natural gas available it is not possible to just switch over from LP to natural gas. So the introduction is simply not correct.