Royalty highness

28 September 2010 By Christopher Swann

Giving away energy resources too cheaply as Israel has done always gets governments in a pickle. Voters demand a better deal while firms balk at retroactive hikes. With energy prices out of the headlines, now is a good time to think about fixing flawed royalty structures.

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Noble Energy, a U.S. independent energy firm, is fighting proposals in Israel to increase the government's tax and royalties on recent natural gas discoveries.

In 2009, Noble and Israeli energy firm Delek found a large natural gas field, Tamar, and identified a further large prospect, known as Leviathan, which could bring the total reserves to some 22 trillion cubic feet of gas. This is equivalent to nearly 4 billion barrels of oil.

Yuval Steinitz, Israel's minister of finance, set up a committee to reexamine taxes and royalties. The review committee, led by Hebrew University economics professor Eytan Sheshinski, will make recommendations in the coming months.

Noble has said any increase in the 12.5 percent royalty rate charged by the government would hurt Israel's credibility with international investors.

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