The Egyptian General Petroleum Corp has confirmed that it canceled a gas supply agreement with Israel because the East Mediterranean Gas Supply Company, the Egyptian-Israeli consortium which operates the pipeline, was in breach of its commitments, Egyptian television reported Monday.
"We canceled the gas export contract to Israel because the East Mediterranean company had failed to honor its commitments," the television quoted EGPC as saying in a statement.
Egyptian oil ministry spokesman Hamdy Abdelaziz also confirmed the decision to suspend the agreement because the Egyptian Natural Gas Holding Company, an EGPC company, had not received its dues from EMG, which handles gas shipments from Egypt to Israel.
"This is a disagreement between two companies in contractual dispute. The foreign company did not pay for the gas it's receiving from EGAS, and the company in return stopped pumping gas until they pay their bills," Abdelaziz said.
"This is not a disagreement with Israel as a nation, this is only a trading issue."
Egypt's al-Ahram newspaper reported on Monday that the decision to terminate the agreement with Israel was taken at a meeting Thursday between EMG, EGPC and EGAS because of the non-payment of around $100 million.
"This is a contractual dispute. The Israeli company didn't pay its overdue bills and we had to stop pumping gas. There is an article in the contract that says if any party does not fulfill its contractual obligations, the contract is considered void," EGAS spokeswoman Inas Elsheikh said.
The Ampal-American Israel Corp. said Sunday that the Egyptian government had informed the company that it was terminating the gas supply agreement with EMG.
Ampal, which holds a 12.5% stake in EMG, said in its statement that the move was illegal, in bad faith and ran counter to the peace treaty between the two countries. It also demanded that Cairo rescind the decision.
EMG is owned by Egyptian businessman Hussain Salem, EGAS, Thailand's PTT, EGI -- controlled by US businessman Sam Zell -- Ampal, Israel's Merhav Group and Israeli institutional investors.
Gas supplies from Egypt to Israel began in May 2008 under an agreement between the two governments to supply up to 7 billion cubic meters/year. In 2010, EMG supplied Israel with 2.1 Bcm of Egyptian gas.
Israel used to rely on Egyptian gas for 40% of its needs but supplies in 2011 were erratic because of frequent bomb attacks against Egyptian gas infrastructure in the Sinai Peninsula, where the pipeline to Israel originates.
The pipeline and other related infrastructure has been attacked 14 times since the fall of Egyptian president Hosni Mubarak in February last year and supply has been interrupted as a result to Israel, Jordan and Syria.
Jordan, which relies on Egyptian gas for roughly 80% of its power generation requirements, receives gas through the Arab Gas Pipeline, which goes on to Syria and then to Lebanon, while Israel gets Egyptian gas through a smaller subsea spur line.
Israel and Jordan have received only limited amounts of gas in the past 15 months. Israel's energy and water ministry said Egyptian supplies fell by 67% last year to 825 million cubic meters, with deliveries to local customers on only 137 days in 2011.
Supplies were last cut on March 5 and have yet to resume.
Gas sales to Israel have been controversial in Egypt despite the existence of a peace treaty between the two countries since 1979.
The previously banned Muslim Brotherhood, now a powerful political force in Egypt, was among the strongest opponents of the agreement to sell gas to Israel and has accused the government of selling gas at below market price.
