The Israeli Haaretz newspaper has uncovered that East Mediterranean Gas Company (EMG), and Egyptian-Israeli consortium, has informed Israel's private Dorad Energy firm of its desire to increase the gas price, which was agreed upon in 2006. This comes after EMG agreed with the Egyptian government to raise the gas prices last February. Israeli TheMarker economic newspaper said EMG entered into intensive negotiations with Dorad to change the deal's prices and terms and discuss Dorad's demands to amend the fixed penalty clauses in contracts and the agreed-upon timetables for the supply of natural gas.
Dorad, a world economic group, has won a contract to establish a private power station in Askelon. The group signed an initial contract with EMG in 2006 to buy a billion cubic meters of Egyptian natural gas annually for 15-20 years for $100-125 million per year. After that, the two parties signed a final contract in 2007. However, EMG called for amending the contracts after the Egyptian government's decision to raise the price of the exported natural gas to Israel by up to 70% compared to the current prices.
Haaretz has also uncovered that an EMG representative has recently met with a delegation from Israel Electric Corporation, one of the most important consumers of the Egyptian natural gas. The two sides agreed on amending prices in future deals only, but Dorad will not enjoy this advantage, as it will be forced to increase prices as soon as possible.
According to TheMarker, Dorad's ability to bear the high prices of natural gas is less than that of Israel Electric Corporation because the contracts Dorad signed with the Israeli government to establish the Askelon power station provide that the company has to deposit $60 million in the Israeli banks to show its seriousness in implementing the project. However, Dorad postponed depositing the financial guarantees and establishing the power station due to the global financial crisis and Cairo's failure to pump the agreed-upon amount of natural gas.
In addition to the abovementioned obstacles, Dorad may face economic penalties from EMG because the contracts between the two parties include penalty clauses based on the principle of "Take or Pay" and provide that the natural gas should be exported to the group as of 2011 at most. If the group was unable to receive natural gas in this period, it would have to pay its prices whether it benefited from it or not. Due to the obstacles it faces, Dorad had to postpone establishing the power plant to 2012-2013. Therefore, it tries to persuade the Egyptians to change the contract's penalty clauses in exchange for increasing prices.
