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The U.S. government plans to invest $250 million in a desalination facility in the Caesarea area to serve the Palestinian Authority. The facility, which will be close to the planned Hadera desalination plant, will provide 100 to 150 million cubic meters of drinking water annually to Palestinian West Bank residents.

It is unclear what method will be used to construct the plant, one of the largest in the world. An international tender may be published, but the U.S. administration usually closes its tenders to foreign companies.

Nor has it yet been determined whether the tender will be for construction of the facility, or a BOT tender in which the bidders build the plant, operate it for the duration of a franchise - during which time they are entitled to the revenue it generates - and then transfer the plant to the state.

Construction will be financed by the U.S. administration, and the water sales to the Palestinian Authority will be subsidized as part of its aid package.

Industry sources believe the construction of two desalination plants in close proximity could draw bidders to the Israeli tender for the Hadera facility. Building and operating neighboring plants will substantially lower the construction and operating costs involved.

Another question involves the timing of construction. Building the two plants together would reduce fixed costs by an estimated 10 percent and 5-10 percent in variable costs, reducing the price of desalinated water by about 10 cents per cubic meter.

Feverish negotiations between Israeli, U.S., Palestinian and Jordanian officials center on an underground pipeline from the plant to the West Bank. Political sources say that since the death of PA chair Yasser Arafat, the plans have become more feasible. Arafat always said "water from the mountain aquifers is ours forever," while the current Palestinian leadership believes otherwise.

Water sector sources believe that if no solution is found for Palestinian water needs in the next five years, population growth will outpace water resources, leading to a worst-case scenario of anarchy and civil strife over water.