Post-Mubarak Egypt may cut gas to Israel

Former Egyptian Oil Minister Sameh Fahmy has been arrested with five associates on charges of supplying Israel with natural gas at below-market prices, indicating a possible cutoff of supplies that could prove to be costly for Israel politically and economically.

It could, in particular, bode ill for the historic 1979 peace treaty between Egypt and Israel following the Feb. 11 downfall of President Hosni Mubarak, who was a staunch supporter of the treaty even though it is deeply unpopular among Egypt’s 80 million people.

On Thursday, Egypt’s public prosecutor ordered the detention of the former officials for 15 days and said the gas contract with Israel had incurred losses of more than $714 million for the state.

Fahmy and the others are to be questioned on allegations that include profiteering and squandering the national wealth.

The move against Fahmy marked an intensification of a crackdown by the supreme military council, which has been the interim government since Mubarak was driven from office.

The prosecutor also ordered the detention of Hussein Salem, who has a 28 percent stake in the East Mediterranean Gas Co., which owns and operates the gas pipeline between Egypt and Israel. He is also a former intelligence director who was close to Mubarak.

Salem, who is a partner in EGM with Israeli business Yosef Maiman, is believed to have fled the country with his family in late January. The Israeli business daily Globes reported that Salem was in Dubai but his whereabouts aren’t confirmed.

The controversial gas deal with Israel is clearly mushrooming into a major national scandal and the indications are that it will be used as one of the key issues to prosecute Mubarak and his close associates on corruption charges during his repressive 30-year rule.

Given the widespread opposition among Egyptians to the 1979 peace treaty, the gas deal may also be exploited to whip up anti-Israeli sentiment to justify a possible abrogation of the pact.

That would become more likely if Islamists, barely tolerated under Mubarak, score heavily in future elections and that’s a prospect about which the Israelis are becoming increasingly alarmed.

Under the 2005 gas deal, EMG agreed to sell the state-owned Israel Electric Corp. 60 billion cubic feet of gas a year for 15 years at a price of $1.50 per million British thermal units. Industry experts have said the Egyptian gas was badly under-priced and this was costing the state some $13 million a day in lost revenues.

Opposition groups complained EMG, partly owned by the government, was violating Egyptian regulations by selling it to Israel at that price.

The government insisted the deals were concluded on commercial terms but the renewed focus on the contract, and particularly the detention of Fahmy, indicates the government is heeding the public outcry.

The gas exports began in May 2008 through a 750-mile pipeline running from Port Said, at the northern Mediterranean end of the Suez Canal, across the Sinai Peninsula. Branch lines also take gas to Jordan and Syria.

The Egyptian supplies received by Israel totals about 40 percent of its gas consumption, which is used to power electricity generating plants.

In November, Egyptian opposition groups filed a lawsuit seeking to have the gas supplies cut off. A court ruled in their favor but in February the Supreme Court annulled that ruling.

On Wednesday, Egyptian Prime Minister Essam Sharaf, appointed after Mubarak’s resignation, ordered a review of the gas contracts with Israel and Jordan, including a retroactive price adjustment to 2008. That would require the approval of the Supreme Court.

Sharaf’s spokesman, Ahmed al-Samman, said the revised contracts, with higher fees, could boost Egypt’s revenue by $3 billion-$4 billion.

Egypt’s economy has slithered since the pro-democracy uprising that brought down Mubarak. Foreign reserves have fallen $5 billion over two months to $30 billion.

If the gas is cut off, Israeli officials say the Jewish state could get by on its own energy resources, largely from a Mediterranean Mari-B gas field off the southern port of Ashdod, and a costly increase in imported fuel.

Israel has discovered much bigger gas fields off its shores with combined reserves of 25 trillion cubic feet. But the Tamar field, which holds 8.4 trillion cubic feet and is closest to being developed, isn’t likely to come on-stream until mid-2012 or early 2013.

UPI