x Abu Dhabi, UAEMonday 24 July 2017

Israel plans for US$10bn nest egg in anticipation of large offshore gasfields

The proposed sovereign wealth fund is still in the planning phase, but officials have said some revenue would be invested in areas such as education and health.

JERUSALEM // Israel is planning a national investment fund that would put to work an anticipated natural gas bonanza to fuel an export-geared economy and provide a nest egg of US$10 billion (Dh36.7 bn) in less than a decade for future generations.

The proposed sovereign wealth fund is still in the planning phase, but officials have said some revenue would be invested in areas such as education and health.

Also being discussed are using some of the proceeds to endow a new set of export orientated, technology-based industries that would build on what has been the country's greatest resource: human capital.

The fund would mark the beginning of a strategic development for Israel in an oil-rich region where it has few allies for economic growth. It would also make it the latest member of a club whose members have typically been energy exporting titans such as Saudi Arabia, the United Arab Emirates.

Israel would become a role model of a developing economy that moved into developed economy status, said Glenn Yago, senior director at the Milken Institute economic think tank. The institute was enlisted by the Israeli government to map out alternative structure for such a fund. The driving force behind the fund was the 2009 discovery of two large offshore natural gasfields with estimated reserves of 25 trillion cubic metres.

A consortium headed by US-based Noble Energy has said it will begin extracting gas from the deepwater fields in about a year, with the production expected to far exceed Israel's domestic gas needs. Noble Energy also recently said it had found a significant find off Cyprus, also part of the Levant basin.

Even before the first gas has been extracted, Israeli officials are working on what to do with the proceeds from its sale. Officials estimated that gas receipts will bring in between $2bn to $3bn per year.

Based on Bank of Israel and finance ministry assessments, the fund could be managing $10bn by 2021, with revenues starting to accumulate by 2015, said Mr Yago.

Recommendations for the fund's structure were recently submitted to the office of the prime minister, Benjamin Netanyahu, but no decision has yet been taken on who will manage the fund and where the investments will go, officials said.

Once a proposal had been finalised, it would need parliamentary approval.

A finance ministry official, who asked not to be named, noted it would likely take until the end of the decade for the fund to start building a critical mass.