Avner Oil - Annual Report 2011 - Delek Energy Systems

will be required to establish additional facilities as aforesaid within a period of fouryears from receipt of the foregoing required approvals.(3) The Buyer or the sellers may terminate the agreement if the other party (and withregard to the sellers, also if only some of them) enters insolvency processes (asdefined in the agreement) which is likely to have an adverse effect on the discharge oftheir obligations pursuant to the agreement, by giving at last 120 days' written notice.The Buyer and the sellers agreed not to exercise any right they may have to lawfullyterminate the agreement other than in connection with significant or continued breachof material provisions of the agreement, and only after granting a 120-day period tothe party in breach to remedy such breach (unless a shorter period is stipulated in theagreement). It was also specified that if the gas flow from the Tamar project does notcommence by June 30, 2014 (other than force majeure events), the buyer mayterminate the agreement.(4) The sellers will not be limited to any sources of natural gas (either from Israel orimported) which they supply to the buyer under the supply agreement.(5) The agreement stipulates the annual contract gas volume, which changes over theterm of the agreement depending on the option, if exercised (in this section: "theannual contract quantity”).(6) According to the agreement, gas is supplied on an hourly basis with a maximumvolume per hour, according to procedures and mechanisms set out in the agreement.(7) Gas is delivered to the connection point at the INGL pipeline near the permanentreceiving terminal on Ashdod shore or at any other connection point agreed betweenthe parties.(8) Minimum bill quantity: The agreement determines the annual minimum bill quantity(the "minimum bill quantity") for which the buyer has committed to pay even if it doesnot consume that quantity, subject to provisions of the agreement, ("the minimum billquantity"). The minimum bill quantity is the annual quantity calculated as follows: 3.5BCM per year for the first five years from the commercial delivery start date and 2.5BCM per year for the remaining contract period, or 5 BCM per year if the buyerexercises the option (subject to adjustments based on the gas sales of the Tamarproject partners and the electricity production of IEC). The agreement includesprovisions concerning the calculation and adjustments of the minimum bill quantity,including for cause of force majeure or failure to supply by the sellers. The agreementalso specifies a mechanism for the accumulation of excess volume consumed by thebuyer in the course of any year, and its use to reduce IEC's undertaking to purchase aminimum quantity, as set out above, for the next few years. Furthermore, theagreement sets out provisions and mechanisms allowing the buyer to receive gas atno additional charge up to the volume paid for, on account of gas not consumed dueto activation of the minimum bill quantity.(9) The agreement includes several preconditions, the main ones being obtainingapproval from the Antitrust Authority, the Public Services Authority - Electricity, andthe Government Companies Authority.(10) Price of gas: The contract gas price is denominated in USD per energy unit (BTU).The price of the gas is set according to a formula that includes a base price andlinkage, based mainly on the US consumer price index for all urban consumers (CPI-U) plus 1% per year until 2019 and less 1% per year from 2020.(11) The agreement stipulates two dates when each party may request adjusting the price(based on the mechanism set out in the agreement) if that party believes that thecontract price is no longer appropriate for a long-term contract with a significant buyer:Eight and 11 years after the commercial delivery starts from the Tamar project. At thefirst adjustment date (after 8 years) the adjustment to the price will be up to 25%(increase or reduction), and at the second adjustment date the adjustment will be upto 10% (increase or reduction).(12) Gas quality: According to the agreement, delivery of natural gas must comply with thespecifications set out in the agreement. The buyer has the right to refuse to receivenon-compliant gas until such non-compliance is remedied. All disputes between theparties with regard to gas quality may be submitted to an expert for resolution at therequest of any of the parties.A-128