By Amit Acco, Partner |
In a significant shift impacting the Onshore natural gas and oil drilling industry in Israel, the Israeli government has made a decision that will directly affect foreign workers in the sector.
This decision will lead to a reduction in the expected salaries for foreign nationals employed in Onshore natural gas and oil drilling operations. This change aims to address the rising operational costs in the industry and improve the sector's overall feasibility, while allowing the Foreign nationals a B-1 work visa.
Background to the Decision
The Ministry of Energy and Infrastructure expressed concerns about the high costs associated with bringing foreign expert workers into the off shore drilling sector, which involves complex drilling operations, specialized equipment, and significant investment. The high costs of employing foreign workers have been cited as a major barrier to further development.
The Ministry highlighted that foreign workers in the sector are typically employed for limited periods, either under a three-month or a one-year permit. The first pathway allows for foreign workers to stay for up to three months – which does not allow the foreign nationals to remain in the project upon expiry of the visa. The second pathway allows workers to stay for up to a year but mandates a salary that is double the average wage in Israel, resulting in salaries significantly higher than global norms. This pathway is the most expensive, with basic worker salaries reaching up to NIS 49,982 per month, placing a heavy financial burden on companies operating in the sector.
Reduction of the Operating Cost by a Reduction of Salaries
To allow a reduction of the salaries, the government requested to align the salaries of foreign expert workers in the sector with international wage standards to reduce costs and improve the attractiveness of drilling projects. This proposal was made in light of the fact that the off shore gas and oil drilling industry in Israel relies on foreign teams due to the lack of local expertise and the specialized nature of the work, which requires unique training and a rotating workforce.
Currently, the training period for Israeli workers in this sector is extensive—around one year—while the industry itself does not offer stable long-term employment, as workers must move between various drilling sites globally. As a result, the employment of foreign workers has been considered the most viable solution for the sector.
However, the cost of employing foreign workers at the current wage levels has been identified as a hindrance to the continued operation and expansion of drilling activities in Israel while reducing of its global competitiveness.[1]
Pathways for Bringing Foreign Workers
There are currently two main pathways for employing foreign expert workers in the Israeli gas and oil drilling sector:
- SEA B-1 Work Visa (Up to 90 Days): This pathway allows for foreign workers to be employed for periods of up to 90 days per year, without the need to pay the higher "expert salary" as required for longer-term workers.
- The Long-Term Pathway (One Year): Under this pathway, foreign workers can be employed for a period of one year, but they are required to receive a salary that is double the average wage in the Israeli economy, effectively placing a significant financial burden on employers in the sector. According to the Ministry of Energy and Infrastructure, this wage requirement is substantially higher than the global market rate[i], which limits the competitiveness of the Israeli sector.
The Ministry of Interior also presented another option, where workers in projects using unique technology and machinery that could be exempted from the "expert salary" requirement, provided they meet certain conditions.
Government Committee Discussion and Decision
The government therefore had consider either to:
- Create a New Salary Category for foreign expert, involving creating a new sub-category that would allow for a lower minimum salary for foreign workers in the onshore gas and oil drilling sector or;
- Using the unique technology and machinery Pathway, that will categorize onshore drilling sector as a unique technology and machinery project, which would exempt it from the requirement to pay the expert salary.
After considering these options, the committee decided to amend the procedure for employing foreign workers in unique technology and machinery jobs. Specifically, the condition that 50% of the workers employed on a project must be Israeli workers was waived for onshore gas and oil drilling projects. This decision is expected to lower the overall cost of employing foreign workers in this sector and encourage further investment in exploration and drilling activities.
The final decision made to include the Onshore projects in the unique technology and machinery projects, while allowing these project to have more than 50% foreign national in the general employment headcount.
Editor Remarks
The Israeli government's decision to reduce expected salaries for foreign workers in the onshore gas and oil drilling sector marks a strategic shift aimed at improving the sector's financial viability. By aligning salaries with international standards and adjusting employment procedures, the government seeks to ease the financial burden on companies and promote further development of Israel's natural resources.
Given the steady demand for foreign expert workers, this policy is expected to significantly impact operational costs and the sector's ability to attract foreign talent. The author believes a similar approach should be adopted for large-scale power plant construction and operations to ensure long-term sustainability.
Detailed Explanation
Historically, only large-scale projects deemed of national interest, employing over 50% Israeli workforce, were permitted to apply under the unique technology and machinery category and recruit foreign nationals under the condition of paying them a minimum monthly salary of 5,880.02 NIS.
Other companies that were not of national interest and/or les than 50% local work force, were required to compensate foreign experts staying in Israel for over three months at a prevailing wage of double the average salary, which currently amounts to 26,306 NIS.
The recent policy change will allow private sector Gas and Oil companies to apply under theunique technology and machinery category, enabling them to remunerate foreign employees at minimum wage levels. This change aims to enhance the competitiveness of Israel's gas and oil industry.
Notably, these companies are no longer mandated to demonstrate 'national interest' or maintain a workforce comprising more than 50% Israeli employees.
Let's consider a theoretical example of "Tel Aviv Drilling Ltd.," an Israeli gas and oil drilling company with 100 foreign employees.
Scenario Under the Previous Policy:
Previously, to employ a foreign expert for over three months, Tel Aviv Drilling Ltd. could not demonstrate that their private drilling project was of national interest and that more than 50% of its workforce were Israeli citizens, as the company only employed 20 Local Israeli. Thus, the company was required to apply under the foreign expert path, and pay the foreign expert at least double the average Israeli salary, which currently stands at 26,306 NIS per month.
Assuming the employment of five foreign experts, the monthly salary expenditure would be:
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Per Expert: 26,306 NIS
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Total for 100 Experts: 26,306 NIS × 100 = 2,630,600 NIS per month. This equals to 31,567,200 NIS per year.
Scenario Under the Revised Policy:
With the recent policy amendment, Tel Aviv Drilling Ltd. can now apply under the unique technology and machinery category without needing to prove national interest or maintain a workforce with over 50% Israeli employees. This change permits the company to employ foreign employee at the minimum wage of 5,880.02 NIS per month.
For the same 100 foreign employees, the monthly salary expenditure would now be:
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Per Expert: 5,880.02 NIS
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Total for 100 Experts: 5,880.02 NIS × 100 = 588,000 NIS. This equal to 5,880,000 NIS per year.
Cost Savings Analysis:
Annually, this results in significant cost reductions, enhancing the company's financial flexibility and competitiveness in the gas and oil industry.
It's important to note that while the revised policy offers substantial financial benefits, companies must still comply with all application procedures and requirements set by the Population and Immigration Authority. This includes submitting detailed project descriptions and demonstrating the unique technological or mechanized nature of the work necessitating foreign expertise.
[1] Wage Discrepancies and Global Comparisons: The Ministry of Energy and Infrastructure noted that the cost of employing foreign workers in Israel is disproportionately high compared to similar projects globally. For instance, a comparison with Romanian drilling projects revealed that the gross salary for workers without specialized expertise ranged between 2,500 euros and 6,000 euros per month, which is significantly lower than the wages being paid in Israel under the current regime.
In light of these disparities, the Ministry recommended adjusting the wage levels for foreign workers to bring them in line with international standards, which would ultimately make Israeli drilling projects more competitive.
