UPDATE 1-US firm seeks restart of Egypt gas flow to Israel

Mon May 30, 2011 9:15am EDT

Related Topics

* Gas supplies stopped for more than a month

* EGI says disruptions affect U.S.-Egypt agreement

* Israeli PM says Egypt losing control in Sinai

(Adds details, Netanyahu comments, paragraphs 6-7)

JERUSALEM, May 30 (Reuters) - U.S. investors in the East Mediterranean Gas Co (EMG) have taken legal steps against the Egyptian government to ensure gas flow resumes to Israel, an official from a U.S. partner in EMG told Reuters on Monday.

EMG exports Egyptian natural gas to Israel. Supplies have been halted for more than a month following explosions on Egypt's side of the pipeline in the wake of the country's political turmoil and ouster of President Hosni Mubarak.

In a letter to the Egyptian government, U.S.-firm EGI, a partner in EMG, said it was seeking international arbitration over what it contended was Egypt's failure to protect its investment as stipulated in a U.S.-Egyptian agreement.

The letter accused the Egyptian government of "failing to provide EMG with full protection and security" for its investment and "refusing to resume delivery of gas to EMG".

There was no immediate official Egyptian comment.

Israeli Prime Minister Benjamin Netanyahu said on Monday Egypt was having trouble maintaining control in the Sinai peninsula, where saboteurs had blown up the pipeline, disrupting gas flows to Israel and Jordan.

"Egypt is currently run by a transition government," Netanyahu was quoted by an official as telling a parliamentary committee. "Egypt is having difficulty asserting its sovereignty in Sinai. We saw this in the gas explosion."

Arbitration, which could lead to a ruling that Egypt violated its agreement and force it to pay a large compensation, could take place in Washington within six months, the official said.

Israel receives natural gas from Egypt under a 20-year deal signed in 2005.

"We don't think there is a political decision to stop gas exports to Israel, but rather a problem in the decision making process within the Egyptian government," said the official, speaking on condition of anonymity.

The official said EMG invested $550 million in the off-shore pipeline that connects El-Arish, Egypt to Ashkelon, Israel.

Since the April 27 disruption, the official said, Egypt was losing $4 million a day.

EMG is owned by Egyptian businessman Hussain Salem, Egypt Natural Gas Co, Thailand's PTT, American businessman Sam Zell, chairman of EGI, Ampal-American Israel Corp AMPL.O AMPL.TA and Israel's Merhav. (Reporting by Ari Rabinovitch; editing by James Jukwey)

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