Oil Price Discount Pledged for Pipeline, Israeli Says

Times Staff Writer

Israeli Foreign Minister Shimon Peres received a 1985 promise that Israel would enjoy up to $700 million in oil price discounts for its guarantee not to interfere with a proposed Iraqi pipeline, but he did not pass along the offer to political rival Yitzhak Shamir, his partner in Israel's coalition leadership, an aide to Peres said late Tuesday.

Peres, who was prime minister at the time, did not report the offer because he "evidently did not think it was very serious," the aide said.

The promise was made by Swiss oilman Bruce Rappaport, a principal figure in the $1-billion pipeline venture, during a September, 1985, meeting with Peres. Under the arrangement, Israel would have received $65 million to $70 million in oil discounts annually for 10 years for agreeing not to attack the pipeline being built by Iraq, its long-time enemy.

The failure to inform Shamir of the arrangement raises questions about whether Peres was trying to keep the deal secret from an equal partner in Israel's "national unity" coalition. Although the two men rotate the post of prime minister--with Peres serving in the job during the first half of the four-year term and Shamir currently holding it in the second--the approval of both officials is required for major actions.

The disclosure came a day after the release in Washington of a newly declassified memo to U.S. Atty. Gen. Edwin Meese III, a document that cites an alleged plan to pay Peres' Labor Alignment party a portion of the proceeds from the pipeline project. The memo was written by attorney E. Robert Wallach, a long-time friend of Meese who was hired by Rappaport to work on the project.

The purported payment plan is a primary focus of an investigation of Meese by independent counsel James C. McKay, who is looking into possible violations of the Foreign Corrupt Practices Act. The law prohibits U.S. citizens, firms or their agents from making payments to senior foreign officials or political parties in exchange for under-the-table favors.

Attorney General May Act

The 1977 act also states that the attorney general may, "in his discretion," file civil suit to prevent a violation of the law if one appears imminent.

At the White House, spokesman Marlin Fitzwater said Tuesday: "Ed Meese has been (Reagan's) friend and adviser for years and years going back to California. He knows him to be a man of integrity, and he stands behind him--period." When asked whether Reagan wants Meese to serve in his post as the investigation of him continues, Fitzwater replied: "Oh, absolutely."

Peres, who is now foreign minister, again denied Tuesday that he or his party had been offered any bribe and his aide branded the charge "nonsense."

However, for the first time since the key memo outlining the pipeline plan was disclosed by The Times last month, there were strong signs here that the case may become a domestic Israeli political issue as well.

Call for Official Inquiry

Two rightist members of the Israeli Knesset (parliament) called Tuesday night for the establishment of an official commission to investigate the case, and another senior government source said in an interview: "I think it will start rolling as an internal problem."

Israel Radio devoted nearly half an hour to the story on one of its main evening newscasts, and it was also featured more prominently than previously in the country's newspapers and on television.

Peres' office tried to head off any domestic political fallout by releasing new details on the background of the project showing that it previously had been approved in principle by Shamir, who heads the rightist Likud Bloc. The Labor Alignment and Likud, which are normally arch-rivals, have been joined since September, 1984, in the coalition government.

The aide said that Peres "did not do anything about it (the payment offer). He did not report it. He did not pursue it. . . . Peres' attitude toward the whole construction of the pipeline was based on strategic considerations. He saw it as a contributing element to the stability of the region and he did not think that the offer of discounted oil was of any consequence."

Gives Letter to Rappaport

Peres did pursue Rappaport's request for his help in reviving the project, however, giving the oilman a two-page, handwritten letter addressed to Meese and expressing his continued interest in the project. The text of that letter was also released in Washington Monday.

The Wallach-Meese memo, which said that the alleged arrangement for channeling some pipeline funds to the Israeli Labor Alignment "would be denied everywhere," said the payments to Israel could total $700 million but did not specify what amount of that money would go to the party.

The Peres aide said Tuesday night that the memo apparently referred to a promise that Israel could purchase up to 300,000 barrels of oil per year through the pipeline contractor at a discount from then-prevailing market prices equal to $65 million to $70 million a year. But he stressed that this would have been an incentive for the state, not for Peres personally or for his party in the plan to construct the pipeline, which was never built.

The Wallach memo says that information about the payment plan was supplied by Rappaport, a friend of Peres and contributor to the Labor coalition.

Denies Suggesting Bribe

Rappaport, who acted in the deal as the representative for Bechtel Group, Inc., the huge U.S. construction firm seeking to build the pipeline, also has strongly denied knowing about or suggesting any plan to bribe Peres or Labor.

His aide said Tuesday that Peres had not previously disclosed many details about Israel's knowledge of the pipeline project because "there was no need."

The aide said that Rappaport's offer "was to remain secret since nobody wanted the world to know that Iraq and Jordan are agreeing to oil sales to Israel."

Noting that the Sept. 19, 1985, letter from Peres to Meese refers to the need for "discretion" in the arrangement, the aide said that this had been misinterpreted as referring to "payments." Instead, he said, it "means towards the Arabs. . . . The Iraqis were afraid that this would look like an Iraqi-Israeli deal."

Earlier Tuesday, Peres' office arranged for newsmen to interview Hanan Bar-On, former Foreign Ministry deputy director general, about the pipeline project. Bar-On was in charge of American affairs at the ministry from 1979 until his retirement from government service last March.

Bar-On said that officials here and in Washington had long been concerned about the destabilizing effect in the region of the Iran-Iraq war. He revealed that Israel first proposed to the United States in 1981 that potential flash points in the Persian Gulf could be reduced if Iraq would reopen a long-unused pipeline to the Israeli port of Haifa.

Says Agreement Given

He said that the proposal for the new Iraqi oil pipeline, to the Gulf of Aqaba, was raised by the United States in early 1984. Bar-On said the government under then-Prime Minister Shamir gave its verbal agreement to the line that same year.

Peres' aide said that agreement was repeated verbally to Secretary of State George P. Shultz in a meeting on June 5, 1984, with then-Israeli Defense Minister Moshe Arens, and that it was repeated to the secretary by Peres and Shamir during a meeting in October, 1984.

When the project appeared to be stalled in the summer of 1985, the Peres aide said, Bechtel decided to try and rejuvenate it with approaches directly to Washington and indirectly through the government of Israel. That was when Rappaport came to see Peres, he said.

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