Egypt terminates Israel gas supply deal

The head of the Egyptian Natural Gas Holding Company has said it has terminated its contract to ship gas to Israel because of violations of contractual obligations, a decision Israel said overshadows the peace agreement between the two countries.

Israel received around 40% of its gas supplies from Egypt and uses it to generate electricity.

The announcement comes after the cross-border pipeline suffered numerous sabotage attacks which cut supplies.

Mohamed Shoeb, the gas company's top official, said Sunday's decision was not political. This has nothing to do with anything outside of the commercial relations,'' Shoeb said.

He said Israel has not paid for its gas in four months. Yigal Palmor, Israeli foreign ministry spokesman, denied the claim of not paying.

The 2005 Egypt-Israel gas deal has come under strident criticism from leaders of the popular uprising that toppled Hosni Mubarak, the longtime Egyptian president, last year.

Critics charge that Israel got bargain prices, and Mubarak cronies skimmed millions of dollars off the proceeds.

Israeli Finance Minister Yuval Steinitz said the move was of "great concern", and overshadowed peace agreements between the countries.

Egypt was the first Middle East country to sign a peace accord with Israel, in 1979, and the deal to supply energy has been a key part of agreements between the two states.

Israel has insisted it is paying a fair price for the gas.

A statement from the Egyptian Natural Gas Holding Company said it was ending supplies because the terms of its contract had been breached.

Ampal, the Israeli company which buys the gas, said in a statement that it considers the attempt to terminate the contract "unlawful and in bad faith", and demanded its withdrawal.

The company is using international arbitration to try to get compensation, after supplies were interrupted following frequent sabotage attacks on the gas pipeline across the Sinai desert in north-eastern Egypt.

There have been 14 attacks since last year's uprising which unseated President Mubarak.

Unrest in the area has increased over the last year partly due to tensions with heavily-armed Bedouin tribes who live there.