Egyptian Economic Ties Eroding After Pipeline Blast

Fourth Sinai attack disrupts gas supply; Landau says prices will increase by 20%; EMG shareholders pursue legal action against Egypt.

Israel's most crucial tie to Egypt, an economic one, is deteriorating, National Infrastructures Minister Uzi Landau told Army Radio on Tuesday morning.

Earlier Tuesday, saboteurs blew up an Egyptian gas pipeline distribution station in northern Sinai that supplies natural gas to Israel, the official MENA news agency reported. The explosion was the fourth attack this year on pipelines in Sinai that supply gas to Israel and Jordan.

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"The most important economic connection between Israel and Egypt is eroding," Landau said. "Electricity disruptions are not expected since we have other energy reserves, however it will be more expensive."

"The price will increase by about 20 percent due to the use of gasoline and diesel, but my job is to maintain the supply of electricity to the Israeli economy," Landau continued.

"Israel was ready to allow Egypt to deploy more forces in Sinai to secure the pipeline, even at the beginning of the Egyptian uprising, in opposition to the peace agreement," he explained. "But I recommend against interfering since our neighboring country's situation is not simple. Israel needs to rely on herself and the Tamar reserves can supply [gas] needs for the next 25 years."

Nile television said flames from the blast near the town of Al-Arish could be seen up to 20 kms (12 miles) away. It gave no details on the causes of the explosion or the extent of the damages.

But MENA, without citing its sources, said there had been an attack on the station that is used to "export Egyptian gas abroad", including supplying Israel. Egypt also sells gas to Jordan and other countries.

The agency said fire trucks were trying to contain the flames and security forces were hunting down those responsible. It also said a security guard and his family were injured in the blast.

'EMG shareholders pursue legal action'

International shareholders in East Mediterranean Gas Co (EMG) pushed ahead with legal claims against Egypt for $8 billion in damages from contract violations in gas supplies, a company official said.

Nimrod Novik, a member of the EMG board, told Reuters on Monday that shareholders from the United States, Thailand and Israel met a few days ago and decided to "seek protection from the international court of arbitration in Washington."

Novik said the Egyptian government's failure to deliver contractual quantities has already caused Egypt a loss of nearly $500 million as well as serious problems to the Israeli energy market, which gets about 40 percent of its gas from EMG.

The disruptions have also undermined Egypt's reputation as a reliable supplier and caused serious financial losses to EMG, Novik said.

"Consequently, the shareholders instructed their lawyers to take the steps required for claims in excess of $8 billion. The lawyers have advised the government of Egypt as well as the United States and other relevant governments that this process is under way," he said.

One official who represents EMG shareholders said the arbitration process requires the company to meet with their Egyptian counterparts within weeks to try and reach a settlement outside of court. If they fail, the official said, the US court will take over within weeks of the meeting.