Gaza’s gas: the EU’s burned millions

by Cecilia Ferrara, Assia Rabinowitz*

Gaza power plant. Photo: Cecilia Ferrara

«You can see that in this moment there isnt electricity in my apartment – says Yousef via Skype –I have a fuel generator to be used during the power cuts and if I run out of fuel, like now, I have a transformer connected to a car battery and I can switch on a couple of bulbs, recharge the laptop, or watch television”. “We got used to this situation – he adds – It has been going on since five years ago”.

Yousef al Helou, reporter from Gaza for Al Etejah tv, talks about life under power cuts. In the Gaza Strip electricity is off minimum 8 hours per day and he’s one of the privileged who owns a fuel generator (and who can buy the fuel). Just a few days ago, for his television, he had to cover the story of the Dahrir family –father, mother and three children- killed by a house fire. The electric company had cut the power of the family house and a non-extinguished candle had caused the tragedy

During the funeral procession, a group of citizens passing by the Gaza Electricity distribution company shattered the windows and windshield of a vehicle outside the building. A demonstration of rage for the nth casualty of the power cuts. Last September, in the Bureij refugee camp, a house fire with identical dynamics killed two baby children one of 3 years and the other of18 months. Again people went on the street in one of the rare protests against Hamas.

Energy is a primary issue in Gaza: for the citizens – 1.7 million inhabitants in 365 km2; for water desalinization and depuration; for the hospitals and the patients; for Hamas’ government which – on energy – is playing with people consensus; and last but not least for one of the rare infrastructural Arab investment in Gaza, the Gaza Power Plant (GPP).

But on Gaza’s Energy issue there is the hand of the big businesses, Israeli, Palestinian and British. And 250M euros from European Union, at least not very well spent.

The Gaza Power Plant paradox and the electricity business

When you are in Gaza, you will be told that it is better not to talk about Energy, on the other hand anybody can tell you by heart the Energy need of the Strip and from where it comes from. The electric network in Gaza is supplied with 167 Mega Watt for a demand of 300/350 MW. An engineer who works in the Energy sector and whom we met a couple of months ago, showed us a leaflet with the sources of electricity: IEC (Israeli Electric company) 120 MW, Egypt 17MW, Gaza Power Plant 60 MW. The technician gathered the sheet, took a pen and overwrote next to the number of the GPP ‘30MW’. “They wish they could produce 60 MW..” whispered nearly to himself.

What is it the Gaza Power Plant (GPP)? Why it provokes such irony? And why most of all does it produce so little power?

The only power plant in the Occupied Territories, the GPP is the offspring of the Oslo Agreements of the early nineties and of those times when Rabin and Arafat were constantly shaking hands to please the world cameras. Those were the times when the world thought that soon a Palestinian State would be born. Yet, it wasn’t the public funds that invested in the economical potential of the future State, but a bunch of Arab and American private investors that decided to bet on the businesses of the energy sector and electricity production.

Gaza: You Can Make Good Business

The Gaza Power Plant was meant to be the symbol of energetic independence from Israel. The first company to invest in the GPP was the Lebanese Consolidated Contractors Company (CCC), one of the largest construction multinationals, launched 60 years ago by Hasib Sabbagh and Said Khouri, two Palestinian Engineers who had fled in 1948 from the region of Haifa. The CCC had made the big money with oil exploration and construction of oil pipelines in Yemen, with the business of reconstruction in Kwait after Desert Storm and other important contracts in the Middle East. In 1999, CCC came back to the lost Palestine territories and found the Palestinian Electric Company (PEC), a company for utilities that owned 99% of the Gaza Power Generating Company (CPGC), the company that today runs the Gaza Power Plant. PEC was 33% owned by CCC, 33% by Enron while the remaining 33% of its stocks were listed in the Nablus Stock Exchange . Nevertheless, Enron stepped out of the company after its well-known 2002 bankruptcy. Morganti, an American company, controlled by the same CCC took its place.

The CCC invested in Gaza not only “for Palestine”, but also because of an extremely convenient contract signed with the Palestinian National Authority (PNA). According to the contract the PENRA (Palestinian Energy and Natural Resources of the Ministry of Energy) has to pay 2.5 M dollars per month to the Gaza Power Generating Company in exchange for GPP’s production of 140MW. This is the so-called “capacity payment” as the money is disbursed no matter if GPP actually produces 140MW. On the other hand the PNA was obliged to provide the fuel for the power plant, taking on its shoulders the risk of price floating and the supply challenges (source: United Nations Information System on the Question of Palestine (UNISPAL) West Bank and Gaza Energy Sector Review, May, 2007). The contract, signed in 2004, iseffective until 2024 but could be renewed for another five years.

“It was the only way to bring private investors in the area – says Luai Shaath engineer from the GPP – You need to consider that the GPGC put on the table 150 M dollars in order to build the power plant, but now we are left with bank debts that we have to repay and the interests”.

Since 2004 GPGC has received, as capacity payment 30 millions dollars per year, or a total of 240 millions dollars up until today. By today, the PNA could have bought the company back.

More over the price of electricity sold by the GPP is far more expensive than that from Israel and Egypt (2,3NIS – shekel – per kw/h, against 0,56 NIS from Israel and 0,32 NIS from Egypt). But maintaining a Palestinian production of electricity is considered strategic, even if it’s in the hands of private investors.

“This is only another bad contract – declares Omar Shabban from the Gazean think thank Pal Think – just as it had already happened for the mobile phones network Jawal or PalTel. The lawyer who wrote the contract should be indicted. And it’s not even a matter of corruption. It is just that Business is stronger than Politics”.

Who pays the Fuel? And who profits?

The power plant should have produced 140 MW but it never did. First of all, two years after it became operative , in 2006 the GPP was bombed by the Israeli aviation as retaliation for the kidnapping of the soldier Gilal Shalit (“we had insurance by IDF that we wouldn’t be targeted – remembers bitterly Luah Shalit – we are not a military nor a political structure”). The bombing destroyed three transformers that were substituted only last autumn, in 2012. In any case the electrical network in Gaza doesn’t have the capacity to receive 140 MW, there is a UN managed project on the run to ameliorate the performance of the network. But indeed the biggest obstacle to a full performance of the GPP had always been the fuel supply that – according to the contract – is the burden of the local government.

When in 2006 Hamas won the election, in the Gaza Strip for about 2 years there was political chaos and a violent fight between Hamas and Fatah, which at the end was expelled. In 2007, Israel declared Hamas hostile government and started an embargo against the Strip. The fuel daily need for the power plant was 650.000 liters of diesel whereas Israel would permit the entrance of less than half of the amount. But above all Hamas wouldn’t have the money to buy it.

What happened was that in 2006 the EU took over the responsibility of supplying oil to the power station. “In those days the political perspective was at an impasse: we couldn’t work with the elected government. The priority was at the time to help people by by-passing Hamas”, explains Michael Docherty, director of the office for Israel, Palestine and Jordan, for EuropAid in Bruxelles.

The European Union put in practice an emergency line of finance in order to avoid a humanitarian crisis : “We didn’t have any other choice – says Docherty – the ground lines for electricity coming from Israel and Egypt weren’t enough and they wouldn’t properly work”. That’s how the Eu started to buy millions of euros of fuel by Dor Alon 1988 ltd, on of the biggest Israeli oil industry with which the PNA had already an agreement.

Brussels paid 40 million euros in 2006, 75,5 million in 2007, 81 million in 2008 and 39 in 2010 for a total amount of 235 million euros. Besides some EU member countries and Switzerland contributed buying fuel for more than 70 million euros, 65 of which came only from Germany. More than 300 million euros were paid on the nail to Dor Alon, without even having any direct contact with the company. The Palestinian Authority sent the invoices and Brussels paid

The EU, the Monopoly and the Gift to the PNA

The money paid for the fuel in those years is a sensitive issue at the EU. Eu inspectors followed the fuel trade step by step, as petrol is a typical good of contraband. Despite that strict control, the EU was a toy in the hands of PNA and Israel.

Why did the Palestinian Authority choose only one Israeli supplier even though the economical annex of the Oslo agreement required opening up the oil market to competition? “Israel would block any other supplier – they say from EU – and in any case it was a decision of the PNA”. Off the record they admit that it has been ages since when the European Union had started asking to read the PNA contract with Dor Alon, (“If you find it please let us know” they used to say ironically) but they couldn’t get hold of it. “We don’t have any problem on a change of supplier, to stop with Dor Alon – says the number 2 of the Palestinian Energy Authority, Abdelkarim Abdeen – but they won a tender in 2010, and earlier in 2006 and 1994”. And the contract? “we ask. “Ah no we don’t have it – he answers – the Ministry of Finance has it”. Abu Hantash economist for the Mas Policy Institute in Ramallah, who made a research on the oil sector in the Occupied Territories told us in an interview that not only the EU is looking for the contract, “The contract with Dor Alon has always been considered the result of corruption that nobody could confirm. International organizations and human rights NGOS have been trying to see the contract without success”.

Dor Alon was founded in 1988 by the Kibbutz Movement and found its roots in an intuition of the businessman David Wiessman. It was an insignificant company in the newly liberalized oil market. Nevertheless, in 1994, it obtained, surprisingly, the monopole of the distribution of petrol and gas in West Bank and Gaza.  “People from Dor Alon were in Oslo during the peace talks and negotiated directly with Arafat and Mohamad Rashid..”explains the former representative of Dor Alon in Gaza, Mamoun Al Khozondar “That is the first time that I had an argument with Arafat because it was a very corrupted contract”. Mohamad Rashid was the economic advisor to Yasser Arafat and is now hidden in the UK: last June he was found guilty by the Anticorruption court of siphoning off millions of dollars in public funds, and sentenced to 15 years in prison.

This particular contract sealed thanks to Rashid has been lobbied by an oil transport company, which was also a partner of Dor Alon and had good acquaintances in the Occupied Territories. This company is the Shefer and Levy owned by the controversial Israeli businessman Koko Ovadia, found guilty of fiscal fraud in 1998.

Thanks to this exclusivity in the Occupied Territories, the small Dor Alon had a sharp growth. Business with the Palestinian Authority reached peaks of 39% of the company ‘s sales. Today the empire of “Dudi”Wiesmann has expanded in many other fields and reached the United States: Alon USA, satellite of Dor Alon, has refineries in Texas, the line of “7eleven” shops and the gas station FINA. Since 2005, it is one of the few Israeli companies listed in the New York Stock Exchange.

The second reason of anxiety for Brussels were the taxes that Israel forced them to pay on the fuel bought from Dor Alon. According to the Paris Protocol, that money was paid back monthly to the Palestinian Authority as “Clearance Revenues”. Nevertheless, the Palestinian authority did not receive the full amount paid, but only 62% of the disbursement, after discounting for local taxes on oil products, (49% of excise tax and 13% of VAT) and the 1% commission put by Israel for structural expenses.

Therefore it is possible to calculate about 155 million euros that the Palestinian Authority got‘for free’. And nobody would worry about that too much except for the European Court of Auditors (ECA) that in 2008 produced an Audit on the money paid by the Directorate-General for Development and Cooperation — EuropeAid to Dor Alon. And the ECA did not like what they saw: the 62% of the total disbursement that went directly to the Palestinian Authority in “Clearance Revenues” had to stop immediately. The EU started making pressure on Israel: the oil supply – they claimed – is humanitarian aid, therefore it must be cleared of all the taxes. Israel simply declined the responsibility and denied the EU request. (link to the document). This was happening in July 2009, a few months before the EU stopped buying fuel from Dor Alon.

A Gift from God to the Palestinian People

One of the reasons why the Hamas government doesn’t have the money to pay Dor Alon, is that in Gaza only 40% of citizens pay the electricity bill. Between the end of 2010 and the end of 2011, Hamas bought car fuel from Egypt, basically smuggling around 600.000 liters per day of cheap Egyptian fuel through the tunnels under Rafah’s border.

Even the Palestinian Ministry of Energy, Omar Kittaneh, reckoned that using industrial oil for energy is a waste of money: “The Gaza Power Plant was meant to run with natural gas: burning industrial oil is like burning directly euros”.

Ironically they wouldn’t need to go far in order to get the gas. In front of Gaza’s shore two respectful gas fields have been discovered: Gaza Marine 1 and Gaza Marine 2 with 1.3 trillions of cube meters meaning a 15 years lasting reserve. The rights of exploitation are 60% of Bg group, a British company which is also a big player in gas exploration and production, 30% of the – again them – Consolidated Contractors Company (CCC) and 10% of the Palestinian Investment Fund (PIF), the PA sovereign fund.

The CCC had been working with Bg group already in Kazakhstan and when they got involved into the Palestinian power plant business they went and asked immediately to their partner Bg a deal to buy gas that the British were extracting and producing in Egypt. According to a recent article by Viktor Kattan, director of Al-Shabaka think thank (http://al-shabaka.org/sites/default/files/Kattan_PolicyBrief_Eng_April_2012.pdf ), Bg told the Arab multinational that they knew about the gas fields in front of Gaza. They managed to obtain the exploration rights for the blocks in front of the strip and they discovered Gaza Marine 1 and 2. In 1999, Arafat called those discoveries a “Gift from God to the Palestinian people”, the Bg group found the field within the 20 miles which are the exclusive economic zone for PA following the Oslo agreements. The gas discovery could have meant not only the energetic independency, but also a rich earning for the Palestinian Authority, as the PA would have got the 22% of the profit from the gas sale.

Since 2002, Bg has the authorization from the Palestinian government to initiate the project for the gas’ sale, but not even a cube centimeter has been extracted because Israel never gave the security clearance. Tony Blair both as premier and as head of the Middle East Quartet (since 2007) lobbied a lot in favor of an agreement between Israel and Bg but without any success. As a matter of fact, Bg closed its representative office in Tel Aviv in 2008 withdrawing from the negotiation. From time to time some declarations and rumors about new agreements or the Bg giving in came out on the media. We asked the local media, but they refused to be interviewed for this article.

“The gas off shore Gaza is a political issue – says Ministry Omar Kittaneh – the extraction could be ready in six months. It would be the solution to all our problems and it’s under our feet”.

Epilogue

Under the feet of the Gaza people instead there is only sand and polluted water. Water waiting for desalinization and depuration which are both more and more necessaries. For a while, after the November war and thanks to the beginning of a new dialogue between Hamas and Fatah, all the problems were put aside, even electricity “To us the war ended in a victory and now we all wait for the reunification (between Hamas and Fatah ndr) – told me a friend from Gaza – Palestinian people (including myself ) would rather not eat if this could help the reunion.” But at the end of January a new tragedy, that of the Dahrirs, drew back citizens’ attention towards Hamas and electricity.

The Qatar in July 2012 started transferring around 20 millions liters of oil to the Power Plant with all sorts of obstacles. Israel didn’t allow to transfer the oil via Rafah, so the trucks must pass through the Sinai where the risks of being attacked by the armed groups of Bedouins are very high. Meanwhile supplies of gasoline are smuggled from the Hamas’ tunnel. For entrepreneurs electricity continues to be such a great deal that the Palestinian Electrical Company (PEC), owned by the CCC Kouri has launched in 2010 another company for electricity production in the West Bank, the PPGC. The PPGC already has an agreement with the Palestinian Investment Fund to do a feasibility study for the construction of a power plant in the West Bank.

Another greedy business with guaranteed revenues.

*in collaboration with Hagar Shefaz

logo_journalismfundThis report has been done with the support of the Journalismfund without which this article would not have been possible.