Egypt-Israel Gas Deal: Behind Closed Doors

On March 25 the Cassation Court accepted an appeal for the retrial of former Minister of Petroleum Sameh Fahmy. The ex-official was charged with the wasteful use of public funds by allegedly facilitating the sale of Egyptian natural gas to Israel at a significantly below market prices. For his role in the deal, Fahmy was accused of corruption, negligence and the subversion of public interest.

The foundational elements of the deal in question stem from the 1979 Egypt – Israeli Peace Treaty.  The treaty stipulated for increased cooperation on behalf of Egypt and Israel in the realms of trade and commerce.

The 2000 sales agreement at the heart of the Sameh Fahmy’s case outlined Egypt’s willingness to provide Israel with 1.7 billion cubic meters of gas annually for 15 years. Officially, the sale would take place between the Egyptian Investment Authority and an intermediary company.  The East Mediterranean Gas Co (EMG) was eventually established in 2000 to serve as the intermediary.

Public reaction to the sale of Egyptian gas to Israel has always been a controversial issue, evinced by repeated bombings of the Sinai gas pipeline in the wake of the uprising that toppled the Mubarak regime.  In 2011 following the 25th of January revolution, gas supplies to Israel were frozen.  In April 2011 Egypt’s new government cancelled the 15-year deal to sell gas to EMG.

Simultaneous to the cessation of sales of Egyptian gas to EMG and as a result of residual political momentum stemming from the revolution, charges of Mubarak era corruption were filed against several officials. The case against Sameh Fahmy commenced in June 2012 and concluded with a verdict of 15 years imprisonment.  The ex-Minister of Petroleum was not the only former official charged in the deal, however Fahmy did receive the harshest sentence. In addition to others, former Chairman of the Egyptian General Petroleum Corporation (EGPC) Ibrahim Saleh received a three-year jail sentence.  The former Chairman of the Egyptian Natural Gas Holding Company (EGAS) Mohamed Ibrahim Youssef received 10 years imprisonment.  Businessman Hussein Salem, former partner in the East Mediterranean Gas Co (EMG), the Israeli-Egyptian consortium, fled to Spain. He was sentenced in absentia in October 2011 and received 7 years imprisonment for profiteering, and 15 years for his role in the Egypt-Israel gas deal.

The prosecution asserted in all of the above cases that the defendants ordered the sale of gas to Israel at discounted prices resulting in a loss of 714 million USD.
The gas deal with Israel and subsequent sentencing of high-level officials from the Mubarak regime has been hotly debated in the mainstream press as well as the Egyptian oil and gas sector. Ostensibly, the prosecutions assertions focus on the economic elements of the case: the price disparity between the negotiated price of Egyptian gas to Israel and international market prices.  However confidential documents exclusively obtained by Egypt Oil and Gas demonstrate the degree to which it is impossible to separate the economic merits of the case from broader political events resulting from the end of the Mubarak regime.  Given the broader corruption endemic of the Mubarak regime, and the parasitic bureaucracy characteristic of Egypt’s political system, it is hard to delineate clear legal points in which to assign particular blame for the deal with Israel.

The internal documents starkly highlight that individuals higher than ex-Minister Fahmy coordinated the gas deal with Israel. The documents indicate that then Minister of Petroleum Fahmy took direction from various individuals such as Omar Soliman, the former Head of Intelligence Services and former Prime Minister Atef Ebeid.  Amr Moussa, former Minister of Foreign Affairs, emphasized in a 1993 letter the importance of studying “the preliminary strategic plans to exchange gas with Israel and Gaza.” In the document Moussa stated that he had referred to then Prime Minister Atef Ebeid for further instruction. This shows that Ebeid had much more pull in the gas deal than originally thought. 

In 2000, the General Authority for Investments and Free Zone issued a decision in support of the establishment of EMG. This company, owned by business tycoon Hussein Salem, sought to “buy all remaining gas supplies from EGPC and other oil companies in Egypt.”  According to confidential documents and testimony in Fahmy’s case, the initial agreement to support EMG included a stipulation that effectively gave the company the right to eventually purchase all supplies of natural gas produced in Egypt. EMG had already established agreements for the sale of Egyptian natural gas to the Electrical Authority in Israel.  Upon receiving this information then Minister of Petroleum Fahmy replied via official letter objecting to the arrangement citing the long-term consequences of such a monopoly. 

Fahmy’s defense team has repeatedly used this letter as proof of his general objection to the Israeli gas deal and, specifically, his refusal to grant EMG absolute rights in purchasing Egyptian natural gas.  Fahmy requested that EMG only buy “certain gas quantities as agreed with EGPC.”

In 2003 in the midst of negotiations an Israeli newspaper Ma’aref published an article stating that Egypt’s negotiations with Israel were not “smooth enough.” The newspaper further reported that Israeli Minister of Infrastructure Yousef Paritzky sought cessation of negotiations with Egypt in favor of securing a deal with British Gas.  In a confidential letter to Sameh Fahmy obtained by Egypt Oil and Gas President Mubarak stated that the newspaper story was the result of Fahmy’s lack of cooperation.  In the letter Mubarak calls for ex-chief of intelligence services Omar Suleiman to interfere in order to put added pressure on Fahmy to close the deal.

Mubarak testified at Sameh Fahmy’s case telling prosecutors that he was well informed about the details of the sale. During questioning, Mubarak stated that the sale price of natural gas offered to Israel in the agreement was, according to his knowledge, much higher than those offered to Italy and Spain and, as such, comparable to international market prices.
According to court testimony, when asked about the sale price Omar Suleiman noted that the pricing of the gas sold to Israel was suitable at the time. He stressed that a specialized committee in EGPC assessed the price and found it acceptable. When directly asked about his involvement in the gas deal with Israel, Suleiman stated that he helped facilitate the deal with Israel through his connections.

This testimony and confidential documents obtained by Egypt Oil & Gas unmistakably show that other high-ranking individuals in the Mubarak regime were involved in the coordination of the Egypt-Israel gas deal. It appears that Fahmy was not the only government official making decisions. Omar Suleiman’s testimony shows that he used his connections to facilitate the deal while confidential documents show that Prime Minister Ebeid was pulling strings behind closed doors, and may have been the major decision maker on the deal. With the new legal developments of Sameh Fahmy’s case it is expected that more information will materialize in the coming period. Hopefully, the retrial will bring to light the extent that other major players had their hands on the Egypt-Israel gas deal.

By Ethar Shalaby


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