Gaza gas talks with Israel, UK firm quietly ongoing
By Marian Houk
Middle East Times
Published June 28, 2007
While some Palestinians have angrily said they are prepared to write off Gaza in the wake of Hamas' recent rout of Fatah forces there, cooler heads are pondering the implications concerning Gaza's maritime assets - in particular, the natural gas deposits off Gaza's Mediterranean coast.
At least one commercially-exploitable gas field, Gaza Marine, is located within a Palestinian maritime economic activity zone demarcated in 1994 by the Oslo Accords.
Negotiations quietly underway for months to agree on commercial arrangements to exploit and market Gaza Marine gas were reportedly progressing slowly toward completion, when Hamas took over the Gaza Strip almost two weeks ago.
BG Group, formerly British Gas reports that, after a few days of cautious reevaluation of the situation last week, negotiations with the Israeli government were continuing.
BG is conducting the negotiations along two tracks. Israel is to be one of the major customers, and the Palestinians will be another.
Described as commercial, these negotiations, nonetheless, have important political and strategic ramifications.
BG "has been in Israel and areas of Palestinian Authority since 1996," and it holds the exploration license "for the entire marine area offshore the Gaza Strip," its Web site says.
BG Group also holds 90 percent of the equity in the exploration license, while the Consolidated Contractors Company, an Athens-based group of expatriate Palestinian capitalists with significant connections elsewhere in the Middle East and Persian Gulf region, and indeed around the world, holds 10 percent.
However, BG's share could be "reduced to 60 percent if Consolidated Contractors Company, and the Palestine Investment Fund [PIF] exercise their options at development sanction," according to the BG Web site.
During a recent discussion at their Ramallah offices, PIF officials indicated to the Middle East Times that they are, indeed, interested in becoming an active partner, once the project is sanctioned. They said that could take place in 2011, assuming there was a gas sales agreement a year from now.
The Gaza Marine field is estimated to hold 1 trillion cubic feet of gas. Anticipated revenue for the output of the Gaza Marine field is expected to be some $4 billion. After expenses, the profit will be, perhaps, around half that amount - and half of that profit, or something like $1 billion, should go to the Palestinian Authority (PA).
The negotiations are proving to be painstaking, and the parties are reportedly going into great detail. They are now translating each other's gas laws. An Israeli official with knowledge of the negotiations told the Middle East Times that it is no secret that price is the main issue on the table now. He also indicated that both sides wanted to reap tax revenues from the deal.
Why should Israel expect to receive taxes from the sale of Gaza oil? The official explained: "If you want to sell something to me, you should pay taxes on the sale."
Less than one month ago, the Hamas national unity government economy minister, Ziad Al Thatha, denounced the proposed deal with Israel as treachery, and said it was equivalent to the 1917 Balfour Declaration, by which the British Government promised its support for the creation of a Jewish national home in Palestine.
Immediately after the recent Hamas takeover in Gaza, Palestinian President Mahmoud Abbas disbanded the national unity government led by Hamas-affiliated prime minister Ismail Haniya, and replaced it with a 30-day emergency cabinet. Hamas leaders have since been pushing for negotiations with Abbas, but he is refusing - at least until Hamas apologizes.
Hamas spokesman Sami Abu Zuhri told Reuters in Gaza June 22 that the Islamist movement would not hinder plans to drill for natural gas off the shores of the Gaza Strip. "We do not want to overturn existing situations," he said.
But, he suggested, some aspects of the proposed deal to sell a large part of the gas to Israel, "which are contrary to Palestinian interests, should be renegotiated."
Abu Zuhri's remarks indicate Hamas' interest in being a player in this important negotiation.
From the beginning, the idea was to sell a good part of Gaza's gas to Israel. But, in mid-2005, during the process of Israel's "disengagement" from the Gaza Strip, Palestinians decided that they preferred to sell to Egypt instead.
This decision was reversed several months ago, after a personal intervention by former British prime minister Tony Blair, who pleaded Israel's case with BG after being contacted by Israeli Prime Minister Ehud Olmert.
Blair has just been nominated as a special envoy of the Quartet to the PA. The Israelis are ecstatic, while Palestinian officials are merely politely welcoming the appointment.
It is not clear when these Gaza offshore gas deposits were first discovered, or by whom.
Whether by great good luck, or by design, the 1994 "Gaza-Jericho first" Agreement negotiated under the Oslo process between Israel and the Palestine Liberation Organization (PLO), demarcated a 32-kilometer (20-mile) maritime zone for Palestinian fishing and economic activities off Gaza's Mediterranean coastline.
The Gaza Marine field is located in the Mediterranean, some 25 kilometers to 30 kilometers or so, offshore Gaza.
This demarcation was reconfirmed in the September 1995 Israel-Palestinian Interim Arrangements Agreement.
A map delineating this zone was attached to these agreements, and signed by the late Yasser Arafat, PLO chairman, and Israel's later-assassinated prime minister Yitzhak Rabin, and it was witnessed by the foreign ministers of the United States, the Russian Federation, and Egypt.
Retired Israeli brigadier general Shlomo Brom told the Middle East Times in a recent interview in his Tel Aviv office at the Institute for National Security Studies that Israel had no interest in seeing the Palestinians impoverished.
At the same time, he indicated, it was also in Israel's interest to diversify its sources of supply. With this proposed deal, Israel would be able to buy natural gas from the Palestinians as well as from Egypt. Israeli demand for natural gas is expected to rise significantly in future years.
In 1999, BG obtained licenses to Israeli offshore concessions, and shortly thereafter, BG was awarded the Gaza license, for a period of 25 years. The agreement was approved by a decision of the Palestinian "cabinet," a PIF official told the Middle East Times.
This agreement was subsequently endorsed and signed by Arafat November 8, 1999, during a visit to London.
An Israeli challenge to Palestinian ownership and control of the Gaza maritime gas field was rebuffed in 2000 by a ruling of Israel's High Court, which determined that the Oslo agreements had settled the matter.
However, a senior official in Israel's ministry of national infrastructure told the Middle East Times recently that the Gaza gas deposits were "given to the Palestinians in 1999 by [then Israeli prime minister Ehud] Barak." When questioned, he insisted on this wording.
Asked if there were any strings attached, the Israeli official said that, in exchange, the PA "agreed to allow Israel to have full security control of the sea off Gaza."
An official of BG Group in London, who wished to remain anonymous, told the Middle East Times that she "didn't disagree with this account," adding that "the area is under Israeli security control."
This is a detail that Palestinian officials have evaded addressing directly.
This previously-undisclosed aspect of the Gaza gas deal seems to indicate that the status of occupation will, technically, continue much longer and, perhaps, indefinitely.
Though this must have been done with at least tacit agreement by Palestinian officials, they have neither confirmed nor opposed the amended arrangement.
It is in apparent conformity with the 300-page long "Gaza-Jericho first" accord, concluded May 4, 1994, which established the Palestinian Authority (Article III, Transfer of Authority). This agreement also gave the PA territorial and functional jurisdiction over Gaza's land and territorial waters, while authorizing the PLO to conclude "economic agreements."
However, foreign relations, as well as internal and external security, remained Israel's responsibility (Article V, Jurisdiction).
Another part of the agreement says that the Palestinian maritime economic zone would be a "closed" area "in which navigation will be restricted to activity of the Israel Navy."
Nevertheless, the Oslo Accords were only supposed to be in effect for an interim period that should have come to an end about five years later, in May 1999. At that time, Arafat threatened to make a unilateral declaration of a Palestinian state, but was strongly dissuaded.
At the time of Israel's "disengagement" from Gaza in September 2005, Israeli Brigadier General Michael Herzog was a visiting military fellow at the Washington Institute for Near East Policy. He wrote an article entitled, "A New Reality on the Egypt-Gaza Border (Part II): Analysis of the New Israel-Egypt Agreement," in which he explained that Israel continued to maintain control over all of Gaza's external security, including over its territorial waters. He also wrote that "in the agreed arrangements, Egypt gave de facto recognition to Israeli control of the sea off the Gaza coast."
In a subsequent telephone interview from his office in Washington, DC, Herzog said that while Palestinians weren't very happy with the arrangement, they had realized they would have to accept it.
Herzog became chief of staff for Israel's defense ministry in January 2007, just months after Israel's "Second Lebanon War." He is now working with newly-appointed defense minister Barak.
In a March 2006 telephone conversation, Ghassan Khatib, then Palestinian minister of planning in Ramallah, indicated that he had become involved only when his colleague, then fellow minister for internal affairs - who had also been appointed Palestinian coordinator in anticipation of Israel's disengagement" in the summer of 2005 - suddenly left for "medical treatment." At the time, Fatah official Mohammad Dahlan reportedly complained bitterly of a lack of Israeli coordination during the "disengagement."
Khatib said he wasn't aware of all the details, and that "the Israelis simply told the Palestinians what they had to accept."
The control of another's air or maritime space is, under international law, one of the criteria determining that that territory is occupied.
Another is the matter of "effective control." International law experts say the test for this criterion is not mere physical presence, but, rather, whether or not one party actually acts militarily against the other, at will.
A deal negotiated between two parties, when one of them is occupying the other, could be said to have been concluded under a state of coercion.
In addition, the exploitation of natural assets belonging to a people who have been prevented from exercising their right to self-determination, is also an important issue in contemporary international law.
Present PIF chief Mohammad Mustafa is Abbas' representative in the Gaza gas negotiations being conducted by BG.
The PIF Web site says that chief objective is "to safeguard and consolidate the Palestinian people's investments and property, both in Palestine and abroad."
The sole shareholder is the Palestinian Authority.
The Palestine Investment Fund was set up by decree October 1, 2000 to house many of Arafat's investments, as part of a reform effort. Its Articles of Association were adopted in August 2002, and it began operations a number of years later - either in 2003, or April 1, 2004, depending on how "began operations" is defined.
The first PIF director general, Mohammed Rashid, who is no longer living in the Palestinian territory, was formerly Arafat's personal financial advisor.
Mustafa told the Palestinian News Agency WAFA in late May that selling the gas to Israel "would achieve a better trade balance with Israel, given that the annual value of our imports from Israel exceeds $1 billion and this includes oil, electricity, and foodstuffs."
Mustafa then also noted that "the Palestinian market is very small and cannot absorb all the discovered quantities of gas [and] the viable development of the project needs a market capable of absorbing commercial quantities of gas in order for it to cover costs and achieve profitable investment returns".
The Palestinian Energy Authority will also buy Gaza gas, to run the Gaza power plant much more economically than at present, where fuel is the source of electricity.
BG and the Palestinians are insisting that Israel must pay the going market price for the gas. The Palestinians, apparently, will also have to do the same.
Mustafa also told WAFA that he was "negotiating with BG on a series of conditions and mechanisms that would guarantee the smooth flow of Palestinian funds."
Palestinian approval of the deal with Israel will depend on guarantees that the Palestinian share of the profits will not be blocked, as Palestinian tax and customs revenues have been, Mustafa indicated.