Cancelled Egypt-Israel gas deal 'not political'

Egyptian energy companies, citing a trade dispute, have terminated a deal to supply Israel with natural gas in a step that may further erode bilateral ties strained by a popular revolt that toppled Egypt's pro-Israeli dictator last year.

But the head of an Egyptian gas company was quick to defuse speculation the decision was politically motivated.

"It is a trade dispute not a political issue," Mohamed Shoeib, chairman of the Egyptian company EGAS, said.

Shoeib confirmed the decision, saying the 20-year-old deal with Israel had been terminated on Thursday.

Shoeib told Egypt's Hayat TV that "EGAS ended the deal because the other party didn't fulfill its commitments."

An Israeli partner in the business made the cancellation public on Sunday.

Israel, which relies on Egypt for 40 percent of its natural gas supply, worried about facing further energy cuts after a series of sabotage attacks on the pipeline running through the volatile Sinai peninsula contributed to shortages.

Israeli Finance Minister Yuval Steinitz expressed "great concern" about the suspension, saying it had set "a dangerous precedent which casts a shadow on the peace agreements and the peaceful atmosphere between Egypt and Israel."

Egypt was the first of two Arab countries to sign a peace treaty with Israel, in 1979, followed by Jordan in 1994. The gas deal was extremely unpopular in Egypt, which supplied Israel with Egyptian gas at a discounted rate, much to the fury and humiliation of locals.

The Egyptian decision was announced in Israel by the Ampal-American Israel Corporation, partner in the East Mediterranean Gas Company (EMG), which operates a cross-border pipeline supplying gas to Israel.

Ampal said the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company had told EMG they were "terminating the gas and purchase agreement."

The company gave no reasons for the Egyptian decision but said legal redress was under consideration.

"EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal," Ampal said in a written statement.

The Egyptian decision followed a dispute over damages caused by a series of blasts on the pipeline supplying Israel, via the Sinai desert region on its border where lawlessness has risen since autocrat Hosni Mubarak's overthrow in 2011.

Explosions have caused extensive disruptions in service in the past year, and Israel has warned residents to expect electricity outages in high-demand summer months.

Ampal and two other companies have been seeking US$8 billion in damages from Egypt for not safeguarding their investment against the pipeline blasts.

It said EMG "initiated arbitration" against EGPC and EGAS last October, accusing the Egyptian firms of a "longstanding failure to supply the gas quantities owed."

Ampal said in its statement on Sunday that in light of the cancellation, EMG, Ampal, and EMG's other international shareholders were "considering their options and legal remedies as well as approaching the various governments" concerned.

But Shoeib denied the decision bore any diplomatic significance.

Ties with Israel are deeply unpopular in Egypt, where sympathy for occupied Palestinians runs high.

The Muslim Brotherhood, Egypt's most powerful political force, has been lobbying the country's military rulers to open its crossing to the Hamas-ruled Gaza Strip and supply the besieged territory with electricity.

The main Islamist groups have, however, vowed to respect Egypt's peace treaty with Israel.

(Reuters, Al-Akhbar)