Egypt's energy companies have terminated a long-term deal to supply Israel with gas after the cross-border pipeline sustained months of sabotage since a revolt last year, a stakeholder in the deal said on Sunday.
Ampal-American Israel Corporation, a partner in the East Mediterranean Gas Company (EMG), which operates the pipeline, said the Egyptian companies involved had notified EMG they were "terminating the gas and purchase agreement."
The company said in a statement that the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company had notified them of the decision, adding that "EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal".
It said EMG, Ampal, which is controlled by Israeli businessman Yossi Meiman, and EMG's other international shareholders were "considering their options and legal remedies as well as approaching the various governments".
Before the sabotage, Egypt supplied about 40% of Israel's natural gas, which is the country's main energy source.
In October 2011 EMG took legal action against the Egyptian government's energy companies and filed an $8 billion lawsuit against the Egyptians, claiming they had breached agreements obligating them to supply natural gas to the company.
A source close to EMG shareholders told Ynet the deal's termination will set Egypt 30 years back - both economically and politically. The shareholder was referring to the fact that the gas deal was included in the 1979 peace agreement between Israel and Egypt.
'Decision not political'
Israeli officials have said the country was at risk of facing summer power outages due to energy shortages.
Companies invested in the Israeli-Egyptian venture have taken a hit from numerous explosions of the cross-border pipeline and are seeking compensation from the Egyptian government of billions of dollars.
The Egyptian decision is a potential blow to the country's ties with Israel, already tested by the toppling of Israeli ally President Hosni Mubarak a year ago.
Egypt was the first of two Arab countries to sign a peace treaty with Israel, in 1979, followed by Jordan in 1994.
Minister of Energy and Water Uzi Landau said Israel has been preparing for the possibility that the supply of gas from Egypt would end. According to him, "Israel is working towards cementing its energy-related independence and the speedy development of its own (gas) sources."
Yuval Steinitz's office said the finance minister views the Egyptian announcement with "great concern," while Opposition Leader Shaul Mofaz called the decision to terminate the deal "a new low in the relations between the countries and a clear violation of the peace treaty."
Knesset Member Binyamin Ben-Eliezer, who signed the gas deal with Egypt during his term as infrastructure minister, told Ynet the deal's termination is yet another indication that a conflict between Israel and Cairo is possible.
He claimed the Egyptian energy companies could not have terminated the deal without the government's backing. "The decision is political. A private company cannot terminate a deal between countries," he said.
Mohamed Shoeb, the head of the Egyptian Natural Gas Holding Company said Sunday it has terminated its contract to ship gas to Israel because of violations of contractual obligations.
Critics charge that Israel got the gas for bargain prices and that Mubarak cronies skimmed millions of dollars off the proceeds. Israel insists it is paying a fair price for the gas.
Shoeb said the decision to cancel the deal was not political.
"This has nothing to do with anything outside of the commercial relations," he told The Associated Press.
He said Israel has not paid for its gas in four months. Israeli Foreign Ministry spokesman Yigal Palmor denied that.
Shoeb told Egyptian TV the decision has been in place since Thursday.
Officials in Jerusalem said the termination of the gas deal is not indicative of a crisis in the relations between the countries but is rather part of a dispute between a private company and state-owned Egyptian firms.
The officials said they have been in discussing the matter with Egyptian representatives, who said the deal's termination is the result of a financial dispute that hads yet to be resolved by the courts.
Reuters, AP contributed to the report