Egypt has demanded that the Israeli government and Israel Electric Corporation (IEC) provide a letter of credit (L/C) to guarantee the electricity company's payments to Egypt for the gas that IEC has agreed to buy in a 15-year contract.

The Israelis are apparently not too keen on the Egyptian demand. Israeli Infrastructures Minister Joseph Paritzky said that if IEC were to provide a L/C, this would raise the cost of the deal by 3-4 per cent because of fees for the credit charged by the bank.

Trust not L/Cs

At a December meeting with Paritzky, Egyptian Oil Minister Sameh Fahmi reportedly said to the Israeli "We're waiting for your L/C to move the deal forward. We've already concluded 80 per cent of the deal, 20 per cent remains open, including the L/C. You have to be more flexible."

Paritzky declined to comment on the meeting but reportedly refused to provide the Egyptians with the L/C they wanted - on the basis that trust should be at the centre of deals between two governments not documentary credits.

Investment protection

After the meeting senior sources in Israel's finance ministry said they would not approve a L/C to guarantee Egypt's sale of natural gas to Israel and are reported to have said that the Egyptians are insisting on the L/C to protect their investments.

"They want the L/C because they'll have to spend hundreds of millions of dollars on building a special pipeline to transport gas to Israel," according to a source quoted in the Israeli media.

"They're forgetting that Israel has to build a pipeline to transport the natural gas within Israel. The Egyptians should give Israel a L/C, to guarantee that the investment in the pipeline within Israel won't be wasted," the source added.

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