Israel Electric Corporation (IEC) (TASE: ELEC.B22) is considering raising electricity rates to Israeli consumers to cover the debts of Palestinians, after Prime Minister Benjamin Netanyahu decided to release tax money owed to the Palestinian Authority, which Israel had withheld, in part to pay its debt to the IEC.
Israel currently supplies all electricity needs to the West Bank. Palestinian customers receive the electricity through the Palestinian Authority and the Jerusalem District Electricity Company Ltd., each of which operate in different cities in the territories. The two entities' aggregate debt to IEC currently totals NIS 730 million. Each month, IEC sends a warning letter about the debt, and it is in talks with the Palestinian Authority and the Jerusalem District Electricity Company, but no agreement has been reached on payment.
In late 2012, former Minister of Finance Yuval Steinitz halted the transfer of tax revenues collected by Israel on behalf of the Palestinian Authority in response to the UN General Assembly's recognition of the State of Palestine. The withheld funds were due, in part, to pay the Palestinians' debt to IEC. However, following US President Barack Obama's visit to Israel last week, Netanyahu decided to release the withheld funds as a goodwill gesture to the Palestinian Authority. Under a decision by the political security cabinet, Minister of Finance Yair Lapid will order the Ministry of Finance to transfer the funds to the Palestinian Authority immediately.
Electricity industry sources told "Globes" that the decision greatly reduces the chances that IEC will collect the Palestinians' debt. If there is no alternative, the utility will have to record the debt in its books as lost debt and ask the Public Utilities Authority (Electricity) to recognize it as an expense to be covered by electricity tariffs.
A rough calculation estimates that a 3% electricity rate hike for one year is needed to cover the current debt in full, but this is not a long-term solution to the non-payment of the Palestinian Authority's debts.
Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2013
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