7th Oct 2022

Gaza's gas: EU millions up in smoke

  • The EU has misspent €250 million on energy in Gaza (Photo: Cecilia Ferrara)

“As you can see, I have no electricity at home at this moment,” says Yousef via Skype. “I have a fuel generator that I can use during the power cuts. If I run out of fuel, like now, I have a transformer connected to a car battery with which I can switch on a couple of light bulbs, recharge my laptop or watch TV. But we‘ve gotten used to the situation; it’s been going on for five years.”

Yousef al Helou, a reporter from Gaza for Al Etejah TV, is talking about living with power cuts.

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The Gaza Strip suffers daily power cuts of eight hours or more. Yousef is one of the privileged people who own a fuel generator (and who can afford the fuel). Just a few days ago, for his TV station, he covered a story about the Dahrir family story - a father, mother and three children who were killed by a house fire. The electric company had cut the power of the family’s house and an unextinguished candle caused the tragedy.

During the funeral procession, a group of citizens passing by the Gaza Electricity distribution company shattered the windows and windshield of a vehicle outside the building.

It was a demonstration against what people see as the latest casualties of the power cuts. Last September, in the Bureij refugee camp, a house fire in identical circumstances killed two children, three years and 18 months old. Again, people came out on the streets in one of the rare protests against Hamas, the militant group which holds power in the strip.

The energy issue in Gaza is of paramount importance; for the citizens, 1.7 million of whom live in an area of 365 square kilometres; for water desalinisation and purification; for hospitals and their patients; for the Hamas government; and last but not least for one of the few investments in infrastructure in Gaza: the Gaza Power Plant (GPP).

It is an issue that involves Israeli, Palestinian and British business interests and €250 million from the European Union, which seems to have been spent somewhat carelessly, to say the least.

To better understand the dynamics, we have to go back to 2006.

Massive aid decided hastily

In January 2006, Hamas won the Palestinian elections. For several months, chaos reigned. The international community was looking for a way to continue its assistance programmes while avoiding negotiations with a party which is considered to be terrorist entity by many Western states.

"At the time, the political perspective was deadlocked, no co-operation was possible with this government. Fundamental for us, was to help people without going through Hamas," said Michael Docherty, Director of the Israel, Palestine and Jordan office of EuropeAid, the European Commission's development unit, in Brussels.

In June 2006, the soldier Gilad Shalit was kidnapped by a Palestinian commando.

In retaliation, Israel bombed the Gaza power plant. It had provided nearly 30 percent of the electricity needed in the region, with its destruction posing the risk of an imminent humanitarian crisis.

The European Union set up emergency relief to allow hospital generators and water pumps to operate. It also introduced a mechanism for purchasing fuel to help the plant resume electricity production.

"We had no other choice … there are insufficient lines from Israel and Egypt, and the ones that are there don’t work well!" Docherty said.

The implementation of this mechanism is subject to a highly secure protocol, with European auditors present at every stage of the fuel delivery process.

"Every three weeks, we received the bill … Then we checked if the amount corresponded exactly with what had been done at the plant, according to our records. Brussels then sent the payment to Dor Alon [the Israeli oil company that is the sole supplier of fuel to Gaza]. We were never in direct contact with them,” a contact involved in the procedure said.

"For every euro spent on aid, there is a euro going on audits," the source added, on the cost of the security arrangements.

The question if the support, which had been decided in a hurry, should have been kept up for long, was a controversial one.

First of all, the EU never launched a tender or signed a contract with Dor Alon for the supply of fuel. It merely took up the agreement between the Israeli company and the Palestinian Authority (PA), an organ of state run by Fatah, a more moderate Palestinian group which controls the West Bank under Israeli supervision. No-one has ever seen the contract in Brussels.

If anyone asked, they were presented with an old document that had never been revised. According to Docherty: "It is one of the reasons why we stopped the programme."

It was the only reason, however. Because for all these years, and despite the help of Europe, the plant has never worked properly.

Scarce and expensive electricity

If GPP has never operated at full capacity, it is primarily because the damage caused by the 2006 bombings was never fully repaired. Only three of all six turbines are operational.

The weekly delivery of fuel has been limited by Israel to 2.1 million litres (while demand is 600,000 litres per day). The fuel convoys from Israel were also regularly blocked at the checkpoint for "security reasons," which prevented the power plant from running smoothly.

In Gaza, almost everyone can tell you what the region's energy need is in terms of MW.

The electrical grid distributes a total of 167MW for an estimated demand of at least 300MW. The plant, which is supposed to produce 140MW, actually generates between 30 and 60MW.

The price it asks for its electricity is between four and seven times higher than energy which comes directly from Israel or Egypt (2.3 NIS per kWh, against 0.56 and 0.32 from Israel and Egypt’s electricity, respectively).

But maintaining a Palestinian-owned energy source is a strategic concern, even if it is actually held by private interests.

Energy dominance

A child of the Oslo Accords in the 1990s, the Gaza power plant, or Gaza Power Generating Private Ltd Co (GPGC), was one of the flagship projects of the future Palestinian state, a step on the path to energy independence.

Built between 1999 and 2004, the structure was designed to run on gas (because Egypt and its resources were close and natural gas had been discovered off the coast of Gaza in 1999). British Gas did some prospecting on the gas fields, but it never went further.

Also in 1999, a group of Palestinian investors who had fled Lebanon in 1948, the Consolidated Contractors Company (CCC), a close associate of British Gas, persuaded US firm Enron to invest in the construction of the power plant in Gaza.

The investors negotiated a "capacity payment" of $2.5 million per month, meaning that the Palestinian Authority (PA) must pay a monthly "rent" to the Palestine Electric Company (Pec), the owner of the plant, whether the 140MW that they are supposed to generate is generated or not.

The Pec is a private company listed on the Nablus stock market in the West Bank (in 2002 Enron was replaced by Morganti, a satellite of the CCC). Its profits are remarkable: in 2006 the company made a profit of $7.4 million, in 2008, $6.3 million.

In addition, CCC is about to extend its control over the energy sector.

Some of the company’s people are on the board of the Palestine Investment Fund (PIF), a Palestinian public investment fund established under the late Palestinian leader Yasser Arafat (whose financial advisor at the time, Mohammed Rashid, was the PIF’s director).

The PIF also has shares in Gaza Marine, the consortium that owns the gas reserves off the coast of Gaza. And the same people are in talks with the PA for the construction of the Palestinian Power Generating Company (PPGC), the future powerhouse of the West Bank, based in Jenin, which is also supposed to run on gas.

Golden deal for Dor Alon

As for the other side of the story, the history of Dor Alon, the Israeli fuel supplier, is equally baffling.

Dor Alon’s history is also linked to the Oslo Accords. A small company founded by an association of kibbutz in 1989, acquired in 1993 by a young businessman on the rise, David Wiessman, it obtained a fuel distribution monopoly for the PA in 1994.

"Dor Alon’s representatives went to Oslo and negotiated directly with Arafat and Mohamed Rashid," said the former representative of Dor Alon in Gaza, Mamoun Al Khozondar.

Mohamed Rashid, a former financial advisor to Yasser Arafat who had fled to London, was sentenced in absentia in Ramallah in June 2012 for corruption and misuse of public funds.

It seems that it was Rashid’s relationship with the fuel transportation company Shefer Levy (whose senior partner is Koko Ovadia, an Israeli businessman with close ties with the Israeli and Palestinian security services, convicted in 1998 for fraud tax on fuel and owner of Koko’s club in Rishon Lezion) that opened up the market for Dor Alon – or for all of the West Bank and Gaza for that matter.

A market that has constituted up to 39 percent of Dor Alon’s annual sales (in 2005, source: Dor Alon’s public annual reports), figures so high that each time the company presented its results it repeats: "We are dependent on the sales to the PA. If sales to the PA would stop, it could have a significant adverse effect on the results of Dor Alon Israel."

It is a captive market, according to Who profits, an NGO based in Tel Aviv which denounces the abuses of the occupation and the economic benefits that some Israeli companies enjoy because of it.

In 2006, things changed and a competing company, Paz, took over the market in the West Bank.

Dor Alon kept the Gaza market. Sales to the PA plummeted to 14 percent of previous figures in 2007. That year, the European Union purchased €75,559,237 worth of fuel from Dor Alon.

According to the official version, Dor Alon had kept the Gaza market because it owned the pipeline that allowed the delivery of fuel through the Nahal Oz checkpoint.

But this is no more than a moderately convincing explanation in light of the fact that in 2010 the Nahal Oz terminal was closed down by Israel, and that Dor Alon instead used the Kerem Shalom terminal, where the transfers are made directly from truck to truck.

Meanwhile, Dor Alon invested in the gas sector, expanded its interests in retail and restaurants (Pizza Hut, Kentucky Fried Chicken, Segafredo coffee shops in Israel), and opened supermarkets in colonies through its subsidiary Blue Square (acquired in 2003).

On the other side of the Atlantic, David Wiessman created Alon US in Dallas (in 2000), Texas. It is the largest Israeli oil company in the United States, which has bought the American brand name and distribution network of TotalFina and owns a lot of refineries.

Even though the few million European euros do not weigh very heavily in the books of a multinational like Dor Alon, it cannot be ignored that the deal with the PA was a masterstroke, and that the continued funding by the European Union brought in significant profits for Dor Alon.

A 'gift' to the Palestinian Authority

When the European Union decided to buy fuel from the Palestinian Authority in 2006, nobody was thinking of an issue that was to become a hundred million euro thorn in the side for the deal: taxes on the fuel.

Since the Paris Protocol in 1994, there is a tax transfer agreement between Israel and the PA, called Clearance Revenues.

Because, even though the PA buys from an Israeli company, it is the PA itself that is entitled to the VAT and the taxes, and not the Israeli treasury.

But then the taxes rose to more than 50 percent.

More than half of the amount that the European Union was paying Dor Alon landed in the PA’s treasury.

Faced with this situation, in the spring of 2009, the then EU commissioner for external relations, Benita Ferrero Waldner, called on Israel to sell the fuel without taxes, as humanitarian purchases. Israel said the agreement is a commercial, not a humanitarian one.

The reason for the refusal was obvious.

Israel uses this tax transfer agreement as political leverage, by blocking payments (as was the case in 2011, when Fatah-Hamas made reconciliation efforts).

More embarrassingly, in the late 1990s a major scandal was brought to light by a reporter named Ronen Bergman, who revealed that the money from the Clearance Revenues had been transferred to a secret account that only Arafat, Mohammad Rashid and Avi Matan, the partner of Koko Ovadia, had access to.

According to one source, the account at the Leumi Bank in Tel Aviv still exists, at least as a technical account to disburse money coming from Israel.

It is unclear in whose name the account is registered.

When asked what these funds (totalling more than €125 million, according to our calculations) have been used for, Ghassan Khatib, a spokesperson for the Palestinian Authority, replied that there are no details about the payments of the Clearance Revenues and that it is therefore impossible to find out.

The money supposedly ended up in the "general budget."

The Israeli side told us that details about the Clearance Revenues are "confidential."

According to the EU's Docherty, it is clear that Europe was aware of this deficiency from the beginning.

"We were not comfortable with this programme in the long run. It is one of the reasons why we stopped. In a sense we can indeed say it was a gift," he noted.


In 2009, the European Commission’s payments officially came to an end.

The PA was tired of seeing its manna go to Gaza requested the termination. The mechanism stayed open for donors to use, until 2010, as did Germany (€20 million).

People in Ramallah were happy about the news.

"The money that was intended for the power plant now goes to the most vulnerable, the poorest of the poorest,” according to Ghassan Khatib. “Because when you pay for electricity, you pay more for the rich than for the poor, since the rich use more electricity.”

Hamas' energy minister, Omar Kittaneh, goes even further: "If you pay to burn fuel, you might as well just burn euros."

After five years of technical support and more than €250 million euros of expenditure, the commission left the region in the hands of struggles between Fatah and Hamas, and it left Gazans with an acute energy crisis.

In 2010, Hamas started tests to make the plant work with fuel transported through tunnels.

For one year, Egypt supplied the fuel. But then President Hosni Mubarak fell.

Egypt’s petrol is subsidised, and the new government is not inclined to subsidise the Gaza market.

In 2012, the Gaza plant was in constant stop-and-go mode.

Today, part of the fuel is supplied by Qatar, part is still smuggled through tunnels, while umpteen negotiations between Israelis and Palestinians have been started and stopped to exploit the natural gas fields off Gaza that could mean a lower cost (and environmental impact) for the power plant.

This article was produced with support from by Cecilia Ferrara and Assia Rabinowitz, in collaboration with Hagar Shezaf. Translation by Rafael Njotea

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