After Israel Cuts Tax Transfers, Palestinian Electricity Debt Soars

A year after debt pact, Palestinian electricity bills to Israel are piling up

Lightning strikes over a power plant belonging to Israel Electric Company in Ashdod.
Ilan Assayag

A nearly year-old agreement between Israel and the Palestinians that aimed to settle old Palestinian debts and set up a mechanism for future payments has unraveled, leaving the Israel Electric Corporation carrying 800 million shekels ($222 million) of additional Palestinian debt.

Israeli officials have been at odds over how to handle the problem, with Energy Minister Yuval Steinitz and the Electricity Authority calling for power to be cut off to the Palestinian Authority and the Defense Ministry warning that such a move would raise tensions in the West Bank.

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A debt agreement between state-owned IEC and the Palestine Electricity Transmission Limited, or PETL, was lauded by IEC as “historic” when it was reached in May 2018. Among other things, PETL agreed to repay 915 million shekels in accumulated debt over the course of 48 installments and for the first time the sides set terms by which the Palestinians would buy some 2.8 billion shekels of power from IEC every year for the next 15 years.

However, nearly a year later the agreement has not been formally signed. Despite that, PETL – a PA government-owned company that provides power transmission services for Palestinian on the West Bank – repaid about 600 million shekels of debt.

However, over the course of 2018 it failed to pay its full monthly bill, allowing debt to pile up at a rate of tens of millions of shekels a month.

More recently, the debt soared after Israel in February belatedly implement a decision to withhold 500 million shekel annually in tax and customs revenues it collects in the same of the PA. The amount reflects Israeli estimates for how much the PA pays out to the families of terrorists in Israeli jails.

Netanyahu said the deductions could grow, if needed. In response, the PA has refused to accept any tax transfer from Israel, exacerbating its already difficult financial crisis.

It appears that as part of its response to the Israeli action, Palestinian payments to IEC were cut sharply. The amount due for February, which was paid in March was 200 million shekels short of the 250 million due.

As a result, the 600 million in accumulated arrears since the debt agreement was reached last May suddenly ballooned to 800 million shekels. All told, Palestinian debt to IEC now stands at 1.25 billion shekels.

The Netanyahu government’s decision to withhold funds from the PA was done as he is competing for right-wing votes ahead the April 9 election to demonstrate that his government is tough on terrorism. “This was a correct and justifiable measure. ... We mustn’t forget that it is part of our war on terror,” said Finance Minister Moshe Kahlon.

However, the government nor IEC has ever disclosed that Palestinian electricity debt was accumulating and grew sharply in March, apparently as a result of the decision to withhold PA funds.

The growing debt, which inevitably raises IEC costs and is paid for by Israeli consumers, marks another embarrassing episode regard electricity. In December Kahlon scurried to prevent and delay a sharp rise in electricity rates. This week this news emerged that IEC had been forced by the government forgo most of a $1.8 billion arbitration award it had won against Egypt for cutting off exports of natural gas after 2011.

In the case of the PA, IEC’s hands are tied vis a vis debt collection. Three years ago, the High Court of Justice issued a temporary injunction in a petition filed by the Palestinians that barred the Israeli utility from using the usual procedures from cutting off electricity for non-payment.

Under the court order, IEC can only act 60 days after it has consulted with Israel’s Electricity Authority and three arms of the security establishment. However, since the April 2016 order, the government hasn’t acted and has left IEC to deal with the problem alone.

The court’s reasoning was that cutting off power to Palestinian entities would be tantamount to collective punishment. While payments to IEC are made by PETL and other Palestinian entities, the power itself is used by ordinary Palestinians who have no mechanism for paying their bills directly to the Israeli utility.

On Wednesday, the Calcalist financial daily reported that the High Court had rejected an IEC petition in the matter and extended its temporary order till the end of the year. Justice Yitzhak Amit said IEC had failed to show it had an orderly procedure for stopping power. The court will reconsider the issue in November.