British Gas in negotiations to enter $400m israel natural-gas pipeline tender

By TAL MUSCAL
Jerusalem Post
July 24, 2002

British Gas International officially told the Infrastructure Ministry
yesterday that it is in negotiations with the consortium bidding on the
natural-gas pipeline. The consortium is composed of Paz Oil Co., Pazgas,
Africa Israel Investments and Scorpio Communications. The project is worth an estimated $400 million.

The National Infrastructure Ministry's tender committee is scheduled to meet
this morning to discuss developments in the tender process.

British Gas, which last week withdrew from the negotiating table with the
Israeli consortium and the government, told the tender committee that its
entry into the group could occur without amending the Natural Gas Law.

British Gas had requested special decision-making rights in the project, as
a condition of its participation. According to the Israeli companies vying
for the tender, British Gas will hold a 26 percent stake in the project, if
negotiations are fruitful

"Negotiations with British Gas began two days ago, and its board of
directors has yet to approve the entrance into our consortium. We are
optimistic, but at this time there is an Israeli consortium and foreign
company interested in joining," an unnamed executive of one of the
consortium partners told The Jerusalem Post.

Executives at British Gas's Herzliya offices were tight-lipped last night,
refusing to discuss the ongoing negotiations.

According to the tender guidelines an international consortium chosen to
build and operate the system will receive a 30-year concession. At first the
pipeline will serve only state-owned Israel Electric and in the future will
support other Israeli natural-gas distributors.

Industry analysts claim that British Gas's inclusion in the project will
allow the government to award the project to the Paz Africa Israel group,
the sole consortium to bid in the complicated venture.

British Gas entered into negotiations with the consortium after Tractebel, a
subsidiary of energy giant Suez Lyonnaise SA pulled out of the venture in
June, citing the volatile security environment in Israel.

In the absence of a key foreign partner, as stipulated by the tender
guidelines, government officials were left with two choices, either voiding
the tender and giving the project to a state-owned company, or allowing
Israeli natural-gas providers to build the pipeline. The latter option would
go against the Natural Gas Law.

Under the legislation, approved last December, fair competition is provided,
prohibiting the financing and operation of the pipeline by suppliers of
natural gas to Israel Electric or by government companies.

On Sunday, Paz and its partners criticized Prime Minister's Office
director-general Avigdor Yitzhaki's decision to invite Yam Thetis, a future supplier of natural gas to Israel Electric, into talks with the government over the pipeline project.

The Paz Africa Israel group pledged to complete construction of the project by December 2003, and warned that the transfer of the project to third-party hands, including Yam Thetis, would harm the consortium and erase large sums spent on design and development projects.