January 26, 2011 / 2:20 PM / 10 years ago

Israel to create wealth fund for gas profits -aide

* Fund for natgas profits could be running in a year

* Money from gas sales would be invested abroad

JERUSALEM, Jan 26 (Reuters) - Israel is looking to create a sovereign wealth fund to safeguard earnings from recently discovered natural gas reserves, one of the prime minister’s top economic aides said on Wednesday.

Gas production in Israel is set to soar in coming years following the discovery of two huge offshore fields that officials say could boost state receipts by to $4 billion per year.

Eugene Kandel, who heads the National Economic Council that advises premier Benjamin Netanyahu, said Israel will follow the path taken by Norway, Singapore and Chile and create its own wealth fund to manage the windfall within a year.

“We’re going to set it up in such a way that it’s going to be invested abroad,” Kandel told reporters. “It’s going to be run professionally without interference from current political needs, with an eye on long-term investment...

“We are working on implementation. We would like that to be set up within a year.”

Israel’s government on Sunday submitted a bill to tax profits from the fields at up to 62 percent. Kandel said no significant parliamentary opposition to the new law was expected. [nLDE70M029]

Netanyahu has alluded to the creation of a gas wealth fund in the past, saying its proceeds would be used for education and defence needs. Kandel said it would also give Israel a cushion for dealing with catastrophes like a major earthquake.

A number of countries have set up funds after major natural resource discoveries to prevent an outbreak of ‘Dutch disease’, which refers to the negative impact on the Netherlands of the 1960s after it found natural gas deposits in the North Sea.

As the Dutch currency strengthened it made non-gas exports less competitive. Manufacturing sectors declined and the economy soured. As in other countries, Israel’s sovereign wealth fund should ward off a similar fate, Kandel said.

Gas reserves at the Tamar and Leviathan sites in Israel’s territorial waters could together generate up to $4 billion in annual revenue for the country, officials say.

The Tamar field, discovered in 2009 by a group led by Noble Energy NBL.N of the United States and Israel’s Delek Energy DLEN.TA, has estimated reserves of 8.4 trillion cubic feet. Last month the partners confirmed that another new discovery, the nearby Leviathan field, was twice as big.

Tamar is expected to meet Israel’s demand for natural gas for decades while Leviathan will likely be targeted for export.

Kandel said that as Israel’s economy grows, the cash infusion from the natural gas will account for less than one percent of GDP, while other officials have said it will likely be two or three percent.

Writing by Ari Rabinovitch, Editing by John Stonestreet

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