In the early 1920s, a Russian-Jewish entrepreneur, Pinhas Rutenberg, took his first steps in an attempt to obtain a franchise for providing British Mandatory Palestine with electricity generated from the waters of the Yarkon and Jordan Rivers. In September 1921, he received two franchises from the British government; however, beforehand, he and the British government learned that a substantive obstacle stood in the way of exercising those franchises.
In 1914, on the eve of the First World War, a Greek with Ottoman citizenship, Euripides Mavromatis, received from the Turkish regime a franchise to build and operate an electric power station in Jerusalem. British forces captured Jerusalem in 1917, and, a few years later, when Mavromatis discovered that the new British regime in Palestine was planning to grant Rutenberg a franchise for supplying and selling electricity throughout Palestine, he whipped out his franchise, claiming that Jerusalem and Jaffa were in his area of jurisdiction.
Over a period of four years, attempts were made to arrive at a solution. The working assumption was that Mavromatis would be willing to accept financial compensation in return for relinquishing his franchise. Early in the negotiations, the British made it clear to him that he had no right to operate in Jaffa and the surrounding area. Mavromatis therefore concentrated most of his efforts on the Jerusalem franchise and, in return for it, he demanded a gargantuan amount of money, which Rutenberg was not prepared to pay. Moreover, Rutenberg called Mavromatis a "franchise blackmailer," arguing that the Greek had no intention of providing Jerusalem with electricity, and that all he wanted was to make a profit from the franchise permit.
Mavromatis sought assistance from every possible source in order to further his claim. He turned to the English press, to British members of parliament who opposed the granting of the franchise to Rutenberg, even to the Greek government. In 1924, with no solution in sight, the Greek government, on Mavromatis' behalf, applied to the Permanent Court of International Justice (PCIJ) in The Hague, which had been created under Article XIV of the Covenant of the League of Nations, and asked the PCIJ to decide which side was right in this dispute.
The principal Greek argument was that the British government was not authorized to grant a franchise to Rutenberg and, in effect, to the Zionist Organization, and that it was, at the same time, depriving Mavromatis of his rights and totally ignoring them. An additional argument presented by the Greeks was that, under the terms of the peace treaty signed at Lausanne in July 1923 between the new Turkish republic and the Allies that had emerged the victors in the First World War, the British, who had replaced the Turks as the rulers of Palestine, also assumed all of Turkey's obligations, including the electricity franchise granted to Mavromatis.
In its application to the PCIJ, the Greek government rested its case on Article 26 of the mandate that the League of Nations had extended to Great Britain over Palestine: "The Mandatory agrees that, if any dispute whatever should arise between the Mandatory and another member of the League of Nations relating to the interpretation or the application of the provisions of the mandate, such dispute, if it cannot be settled by negotiation, shall be submitted to the Permanent Court of International Justice provided for by Article 14 of the Covenant of the League of Nations."
British Colonial Secretary Leopold Amery considered it vital to refute the claim of any "Zionist connection." He therefore turned to Rutenberg and to the president of the Zionist Organization, Dr. Chaim Weizmann, requesting that they clarify the nature of the relationship between Rutenberg and the Zionist Organization. As could be expected, the response was the unequivocal position that the electric power company established by Rutenberg in Palestine was an independent legal entity that was in no way related to the Zionist Organization.
The proceedings at The Hague continued for about six months, in late 1924 and early 1925. The British government was represented by the British attorney general, Sir Douglas Hogg, while the Greek government was represented by a celebrated attorney by the name of Politis.
Sum of a blackmailer
Sir Douglas argued that Mavromatis' claims were groundless because he had received a franchise from the Ottoman regime to establish an Ottoman company. With the dissolution of the Ottoman Empire by the end of the First World War, the franchise was no longer valid. Thus, the franchises the British government had given to Rutenberg were perfectly legal and did not infringe on Mavromatis' rights.
One of the key witnesses in the proceedings was Dr. Weizmann, who provided a lengthy affidavit in which he again argued that there was no connection between Rutenberg and the Zionist Organization and that Rutenberg's project would benefit all of Palestine's residents. In his affidavit, Weizmann referred to the sum of £375,000 that Mavromatis was demanding as compensation for waiving his franchise. At the time, this amount was regarded as exorbitant by any standard, and the British and the Zionists undoubtedly wanted to represent Mavromatis as a blackmailer.
Sir Douglas reiterated before the court the position of his government, namely that the franchises Rutenberg had received had nothing whatever to do with the Zionist movement. Granted, according to Article 4 of the British Mandate over Palestine, the Zionist Organization was extended certain rights in Palestine, but they did not include the area of electricity.
The PCIJ did not find the British and Zionist arguments convincing and, on March 26, 1925, it ruled in favor of Mavromatis. The verdict was summed up in the following two sentences that appeared in Haaretz the next day: "The Jerusalem concession that was given to Mr. Mavromatis and which was signed by the representative of the Turkish government on January 26, 1914, is still valid. Mr. Rutenberg's right to demand the expropriation (confiscation) of Mr. Mavromatis' concession is not in compliance with the international obligations undertaken by the British Mandatory government of Palestine."
At the same time, the PCIJ rejected Mavromatis' claim that he should receive compensation for the damages he had incurred. Mavromatis was not satisfied with this ruling and appealed the court's decision, arguing that major expenditures had been forced upon him by both the foot-dragging allegedly caused by Rutenberg and the protracted legal proceedings. In late 1927, the PCIJ rejected the appeal and Mavromatis was left with his franchise but without any compensation.
The verdict disappointed Rutenberg who, however, gave the impression that he was satisfied by the outcome. In a conversation with journalists, he explained that the creation of a power plant in Jerusalem would not be profitable for several years because of the difficulties involved in the excavation of tunnels and the insertion of pillars in the rocky earth and because of the low socioeconomic level of most of the city's residents. Rutenberg noted: "Today, the population of Jerusalem is small and poor and is scattered over a wide area. At this stage, the city's residents need only electric lighting and as yet the demand for electricity is extremely limited."
Rutenberg was therefore left with a franchise for all Palestine, excluding Jerusalem and vicinity - for a 20-kilometer radius from the Church of the Holy Sepulchre in the Old City. Further attempts to arrive at an agreement with Mavromatis proved fruitless. The British government and Rutenberg were prepared to pay him £80,000 but he considered that sum far too small.
In February 1926, Mavromatis received a franchise from the British Mandatory government for the establishment of a power station and a power grid in Jerusalem and its environs. As Rutenberg had predicted, Mavromatis looked around for a purchaser for his franchise and, in 1928, he sold the franchise to a British company, Balfour-Beatty. The British company established the power station and founded the Jerusalem Electric Corporation, which operated until the end of the Israel War of Independence of 1948.
The setback at The Hague was one of the few failures in Rutenberg's brilliant career as the provider of electric power to Palestine. He initially hoped that the Mandatory government would turn to him. When his hopes were dashed, he waited for the British-Jerusalem electric corporation to encounter failure, which it did but only after Rutenberg's death in 1942. From the mid-1940s onward, the company was unable to supply Jerusalem with enough electricity, and the Mandatory government turned to the Palestine Electric Corporation, which Rutenberg himself had founded, asking that it supply electricity to the Jerusalem company.
The process reached its culmination only after 10 years, when the Israel Electric Corporation acquired the shares of the Jerusalem Electric Corporation.