World Bank: Palestinian electricity grid to cost $3b

Vivien Foster Photo: PR

Talks on separating the Palestinian electricity grid from Israel are making progress says the World Bank's Vivien Foster.

Building an independent energy system in the Palestinian Authority (PA) and the Gaza Strip will cost $3 billion and will take until 2030 to complete, according to a master plan for the Palestinian energy sector prepared by the World Bank in cooperation with the PA. On the other hand, the World Bank estimates that development of the Gaza Marine Palestinian natural gas reservoir is likely to yield $2.7 billion in royalties for the PA. The master plan was presented following significant progress in recent weeks in talks on various energy matters between Israeli and Palestinian agencies, mediated by special US Middle East emissary Jason Greenblatt.

"I think that great progress has been made in recent weeks in building trust between Israelis and Palestinians, and we're very optimistic," Economist Vivien Foster, World Bank Group global lead for energy economics, markets & institutions, told "Globes." Foster headed the writing of the report.

In the framework of the talks, the parties discussed an increase in the supply of electricity to the Gaza Strip, the signing of a general agreement making it possible to separate the Palestinian electricity sector from the Israeli electricity sector, and an arrangement for paying the rapidly growing Palestinian debt, although a settlement was reached last June. World Bank experts prepared the plan in recent months in cooperation with the PA, and with the help of Israeli and European groups. This plan, the first of its kind, also includes economic feasibility studies.

Foster told "Globes," "The investment required to set up a Palestinian electrical grid is enormous, compared with what has been invested in this area to date, but we believe that it can be done through the business sector, while taking advantage of the technological progress and abundance of natural gas in the region. The big challenge is building infrastructure that will ensure that developers can receive revenue for electricity, and therefor enable them to obtain bank credit. Our first message is that there is no energy security without financial security, and our second message is that cooperation between the Palestinians, Israel, and the international community is an essential element in the success of the project."

"Globes": Is your plan designed to give the Palestinians energy independence by 2030?

Foster: "No. We're taking about energy security. In the case of Palestine, energy independence is impossible, for the simple reason that they lack the resources for it, and they will have to import fuel from the region. We're talking about diversifying sources of energy and increasing the resilience of the Palestinian economy against shocks."

A supply of electricity to the Palestinians is a sensitive subject of growing importance, given that Palestinian electricity consumption is growing 3.5% a year, compared with 2.5% annual growth in Israeli electricity consumption. The Palestinians are already the largest customer of Israel Electric Corporation (IEC) (TASE: ELEC.B22), which is having difficulty collecting debts from some of the consumers, because the High Court of Justice has forbidden IEC to cut off electricity to those customers. The Gaza Strip already receives electricity from 10 IEC wires, which provide 70% of the electricity consumed there. In the future, the Gaza Strip is supposed to be connected to an IEC ultra-high voltage wire (161 megavolts), construction of which was halted after Hamas took power there. Completion of the project is likely to greatly relieve the electricity shortage in the Gaza Strip, but depends on getting a political green light and payment arrangements.

The World Bank believes that solar energy can supply the most immediate and available solution to the Palestinian population's needs. "Solar energy is the only real local sources of energy that the Palestinians have," Foster says. "It can supply a margin of safety that will guarantee the basic needs of the population and a supply of electricity to hospitals, water and sewage systems, and other facilities. The main obstacle to the development of solar energy on rooftops is the territory. We're starting a project based on a fund that will offer construction grants, which will be repaid over the years through savings on more expensive alternative fuel and on the electricity rate. In the West Bank, rooftop facilities can reach a 500-megawatt capacity. Ground facilities in Areas A and B can reach 130 megawatts, but the interesting figure involves the enormous potential of solar fields in Area C. 3% of the open space in this area can be used to build land facilities with a capacity of 3,000 megawatts. There are a lot of political and legal problems, but technically, this is a very big potential."

"An unusual combination of interests"

In the West Bank, following years of delay, the necessary approvals were obtained for connection to the natural gas pipeline of a first power station in the Jenin area. This power station will be able to supply 450 megawatts - half of the capacity currently needed by the Palestinian population in the West Bank.

The power station, which is being built by a group of private developers, is designed for operation by natural gas purchased from the Israeli reservoirs, or from the Palestinian Marine reservoir. The Jenin area is also more advanced in cooperation with IEC, reflected in the signing of the first agreement of its kind for the supply of electricity to substations built in the area. This agreement is supposed to be a first stage in a general agreement for the sale of electricity slated by signing by IEC and the PA to ensure that the Palestine Electricity Transmission Company (PETL) will be the sole Palestinian agency dealing with IEC.

"What 's interesting about the gas story is the unusual combination of interests of both Israelis and Palestinians wanting to develop the gas. The Palestinians want to generate electricity by themselves, and the Israelis want to sell gas - so the stars are very well aligned. A very complicated system of agreements is still needed, for example to enable the power station to sell the electricity surpluses it generates to the Israel electricity grid, but there is a lot of progress," says Foster.

What about the Palestinian gas reservoir?

"The conversion to gas is an urgent need for the Palestinians. The power station in the Gaza Strip is designed to operate on natural gas, but it is operating on diesel fuel, and the result is that the local electricity that it produces costs the Palestinians three times as much as the electricity that they buy from IEC. This is a huge millstone around the Palestinians' necks.

"As for development of Gaza Marine, we estimate that the PA can get $2.7 billion in royalties from the sale of gas over the 25-year life of the reservoir. The problem with Gaza Marine is the costs of developing it, which amount to $1 billion. In order to raise financing for such a project, gas sale contracts amounting to two BCM a year must be signed in advance, while the gas consumption of the Palestinian economy is projected to reach only one BCM a year in 2030. This means that exports markets must be found for the gas.

"I think it's not worthwhile waiting; it's worthwhile taking advantage of the opportunity created by Israelis developing their own reservoirs in order to push this forward."

How can business concerns be persuaded to build the Palestinian energy sector, given the situation in the field?

"The key question is ensuring the ability to generate revenue (from selling and supplying electricity, A.B.). We're working very closely with the Palestinian distribution companies on improvement in this area, and on a plan to ensure revenue, and we're seeing initial results. The reconciliation between the West Bank and the Gaza Strip is helping us a lot. The second matter is ensuring that the revenue will not be used for other purposes. The Palestinian government currently regards revenue from the sale of electricity as a cash cow for funding plans in other areas, and we want to create a clear priority for the payments. We have ensured that the banking mechanism for preventing use of the money for purposes of terrorism is already arranged. The first agreement for selling electricity in the Jenin area is already proving itself and generating revenue. There was also major progress in setting electricity rates based on the cost of supplying the electricity."

What are the next measures needed?

"The most urgent step is increasing the supply of electricity to the Gaza Strip, following the internal Palestinian reconciliation. There is now two or three hours of electricity a day there. The local power station, which is capable of supplying 130 megawatts, must be restored to full activity. In the long term, what is critical is upgrading the supply of electricity from Israel through the new 161 ultra-high voltage line (construction is likely to take 2-3 years to complete, A.B.)."

Published by Globes [online], Israel Business News - www.globes-online.com - on November 14, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Vivien Foster Photo: PR
Vivien Foster Photo: PR
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