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Palestine Economic Policy Research Institute

Final Report
Round Table Discussion (10)

Electricity Crisis in Gaza:


Causes, Consequences and Treatments

November 2013

ii

Executive summary
Electricity Crises in Gaza: Causes and Economic and Social Consequences
Background and Justifications
For years now, Gaza is suffering from a chronic crisis in the electricity supply. This crisis is an
extension of an ongoing series of crises escalating in severity in accordance with the changes in
conditions and contexts affecting such crises. The aspects of the crisis vary due to the multiplicity
of sources of electrical energy that supply Gaza Strip. Gaza is supplied with electricity from three
primary sources: Israel (120MW), Egypt (27MW), the Palestine Electric Company (PEC), the said
quantity depends on the amount of fuel available for the production of electricity. In average,
(PEC) provides about 65 MW, or more than 50% of its full capacity, which is around 120 MW.
Thus, the total supply of electric power in the Gaza Strip from the aforementioned three sources is
about 212 MW. On the other hand, Gaza needs of electricity vary seasonally, with the peak
totaling (440 MW) in summer and winter, and decrease to 380 MW the rest of the year. As a
result, there is a significant deficit up to more than 150 MW in fulfilling the needs of the Gaza
Strip, and this deficit is followed by a recurring interruption of electricity for homes and economic
& services facilities.
Electricity crisis in Gaza has become one of the outstanding problems that affect various aspects of
the lives of the Palestinian citizens in Gaza. Such crisis is considered very complex due to its
impacts and its economic, financial and social consequences. In addition, several parties and
various effects contributed to the emergence of this crisis and still contribute to its continuation
and aggravation in many cases.
Recently, electricity crisis in Gaza has witnessed important developments represented by the
impact of the above mentioned three production sources. Therefore, the electricity sector in Gaza
witnessed an unprecedented crisis in the provision of electricity requirements, which required
rationing of electricity for different purposes and cut offs for long hours for subscribers of various
categories. This was accompanied by significant consequences that affected various aspects of life
in Gaza. In light of the continued fallout of this crisis and the expansion of its effects, it is now
necessary to have a discussion to address all its dimensions and associated circumstances.
Through this round table discussion, MAS seeks to have a serious discussion between the various
parties in concern to consider the implications of electricity crisis in the Gaza Strip as well as the
other internal and external factors that might have an influence on its emergence and aggravation,
and to examine the options available to decision-makers and interested parties at the local level to
deal with this crisis.

Presenters:
Dr. Samir Abdullah: Moderator
Mr. Fuad Al- Shubaki: Head of General directorate of Petroleum
Dr. Omar Kettani: Chief of the Palestinian Energy Authority
Eng. Ali Abu Shahla: A businessman- Gaza

Key Questions
1. What are the main factors that contributed to the emergence of the electricity crisis and
exacerbated during the previous stage?
2. What are the main effects of the crisis on the economic and social levels?

3. What are the measures taken by the Palestinian decision-maker and the relevant authorities
during the last period on this issue?
4. What are the alternatives to get out of the crisis?
The electricity sector in Gaza is one of the problems haunting both the decision-makers in the
Palestinian National Authority and citizens alike. Gaza Strip is suffering a shortfall in the
provision of electricity needs ranging between 120 and 170 MW, or representing 30% to 40% of
the Strip total needs of electricity. In order to contribute in finding a temporary solution to the
electricity crisis, the European Union (EU) undertook to finance the purchase of fuel necessary for
the PIC power plant in Gaza, but it stopped funding after mid-2007 events in Gaza. Then, it
resumed supplying the plant with fuel upon the request of the Palestinian National Authority
(PNA), and then stopped again entirely on November, 2009. The decrease in the level of
coordination between the relevant authorities in the West Bank and Gaza contributed greatly to
reduce the chances and conditions for the continuation of the European grant. Other causes for
freezing the grant from European Union were: the poor performance of local authorities and of
Electricity Distribution Company (EDC) in the Gaza Strip in collecting electricity fees from
subscribers1 and insufficient collected fees to pay the costs of electricity production. Despite the
improved performance of the Company in collecting the bills in the last years, the Company's
willingness to contribute in covering the cost of fuel imported from Israel has not improved to the
same degree.
The PNA continued to pay the prices of fuel necessary to run the power plant amounting 37
million shekels per month from the public treasury. The PNA also pays a total of 40-45 million
shekels per month to the Israel Electric Company for electricity supplied to the Gaza Strip from
Israel. Under the financial distress experienced by the PNA, it has become difficult for the public
treasury to continue bearing such obligations and to spend hundreds of millions of Dollars every
year to settle the prices of electricity on behalf of subscribers.
On April, 2011, the Energy Authority in both Gaza and Ramallah signed an agreement under
which the (EDC) in Gaza is committed to transfer the collected bills of electricity to the treasury of
the PNA (4 million US Dollars per month). Things went very well for several months. But these
understandings stopped after a while when the discharged government in Gaza tended to rely on
the smuggled Egyptian fuel through tunnels. In this context, the Qatari government has initiated to
send shipments of Qatari fuel to Gaza in order to run the Palestinian power plant, but the Qatari
fuel flow to PEC has been associated with technical and security issues on the border with the
Gaza Strip.
On the other hand, the Energy Authority in Ramallah recently concluded an agreement with its
counterpart in Gaza to import fuel for the power plant from Israel, provided that the fuel will be
totally exempted from the so-called "blue" tax for 3 shekels per liter, while retaining the VAT.
Such exemption would reduce the cost of fuel liter by about one third. The decision of exemption
seemed to meet approbation from all parties, and Israel immediately resumed pumping quantities
of diesel fuel for the power station to resume its activity. Indeed, the first stage of the agreement
has been implemented through the purchase of about 600 thousand liters of industrial diesel from
Israel at a price of 4.26 Shekel per liter. Although this price is higher than the Egyptian fuel which
is 2.2 Shekel per liter, this development formed a step in the right direction in dealing with the
current crisis. But later, the Palestinian government in Ramallah declared reducing the value of
exemption on the blue tax from 100% to only 50%, attributing that to reasons relating to the
suffocating financial crisis faced by the Palestinian Authority. In the wake of the new resolution,
the cost of liter of fuel increased up to about 5.7 Shekel per liter, which was not accepted by the
authorities in Gaza and thus led to freezing the agreement and escalation of the crisis.

Estimations indicate that the total debts of the Electricity Distributing payable by consumers in Gaza amounting to more than three
billion Shekels, i.e. more than 800 million US Dollars.

In the context of the initiatives and efforts to address the crisis, it was recently revealed about a
proposal by the government in Gaza requires that the Relief and Works Agency for Palestine
Refugees (UNRWA) import fuel to run the Palestinian power plant from the Israeli source, and the
Qatari government will pay the prices of fuel directly to UNRWA. In addition, the issue of the
Israeli line 161 was also discussed so as to resume supplying Gaza by about 150 MW of electricity
along with joint coordination with the Energy Authority in Ramallah.
The continuing crisis would have negative impact on large sections of Gaza, especially due to the
fact that the supplied electrical energy is mainly consumed by household and service sectors, up to
75% of total supply, and the remaining 25% is consumed by industries and other productive
activities. Data indicates that many of the workshops, factories and economic establishments have
completely or partially stopped their businesses as a result of the constant interruptions of
electricity. This in addition to the negative impact associated with the interruption of electricity in
the service sectors, particularly in the health sector field. In a related context, such impacts
influenced the educational system in Gaza through affecting the work of the equipments and
computers that rely on electricity, which eventually affects the school environment, and affecting
the ability of students to access the school.
Dealing with the electricity crisis in Gaza and searching for a solution can not be reduced by just
covering the price of electricity or covering the shortage in the fuel needed to run the local power
plant, but rather should include all axes and dimensions associated with the crisis, including topics
related to the technical and non-technical loss; collection of electricity bills and its efficiency; and
the growth in the rates of consumption in future etc.
Until what outcome the proposed initiatives might produce, there still be the need for finding
immediate solutions to deal with the problem of electricity in Gaza. Such solutions must basically
be based on a national vision where all efforts band together and potentials are exploited for the
sake of public interest and help prevent the deterioration of the humanitarian situation and living
conditions of the population in Gaza.

Summary of the speakers participations:


Dr. Samir Abdullah: Moderator
Dr Abdullah opened the meeting pointing out the complexities and ramifications of this crisis and
the disastrous impact on the humanitarian, Economic and Social situation of the citizens in the
Gaza Strip. He emphasized on the importance of electricity and the importance of taking
appropriate measures to reduce the crisis of electricity in Gaza.
Dr. Samir pointed out on the sources to provide electricity to Gaza. Despite the multiple sources
that provide electrical power to the Gaza Strip, their supply capacities are only less than half of
what it needs (about 220 MW, while some estimates that Gaza needs up to 450 MW). The amount
of electricity supplied to Gaza during the last five years has deteriorated. In the last months, the
electricity supply is less than one-third, which led to the distribution of electricity to areas in
rotation for several hours that does not exceed six hours per day.
Mr. Fouad Shobaki: The Director General of Petroleum Body in the Ministry of Finances
Shobaki said that Israel deducts an average of 50 million shekels a month from the proceeds of the
Authority to pay Gazas electricity bill. In addition, the transfer of $ 3.5 million per month from
the treasury of PNA to the Gaza Electricity Company with the delivery of fuel to the station. The
treasury only collects 7 million shekels a month from the salaries of Gaza Authority employees.
Shobaki noted that there is a gap between what is collected (NIS 7 million) in the Ministry of
Finance, which does not exceed 15% of what is paid to the Israeli Electricity Company (NIS 50
million) which is the price of the electricity bill for Gaza.

Dr. Omar Katana: Chairman of the Energy Authority Ramallah


Katana revealed that the total amounts Israel deducted from the proceeds of the Palestinian
National Authority for the price of electricity, amounted to NIS 7 billion since 2001. About 58% of
the total (4.2 billion) out of 7 billion shekels for the electricity bill Gaza Strip. Katana said that the
Energy Authority is starting to install prepaid meters in Gaza, in the coming weeks, which would
include 10 thousand meters in the first batch. Stressing out that meters will be installed first for the
institutions that do not pay, including government institutions.
According to the Katana, the installation of prepaid meters is part of a short term plan to alleviate
the electricity crisis in the Gaza. Also included a commitment of the Gaza Electricity Company as
issued by the Regulatory Board of the electricity sector, especially with regards to tariff, adding
that tariffs in Gaza currently does not cover the cost of production or energy imports.
Also, the plan includes the rehabilitation of distribution networks, which contribute to reducing
losses in networks that are distributed in areas that use electricity imported from Israel, and thus
raise the 110 MW per year to 120 MW, noting that negotiations are underway with the Israeli
company to supply the Gaza Strip additional hundred megawatts that are funded by the Qatari
government by UNRWA. There should be a contract between the Israeli company and the
electricity distribution company in the Gaza Strip immediately, like the rest of Palestinian
companies. The Gaza Electricity Distribution Co. has agreed on this proposal, and now the Israeli
company conducts an examination about the possibility of providing Gaza with this additional
amount.
He pointed out that the problem is that the areas that feed from the three sources are separate, what
prevents the transfer of the surplus in one area to another area is because Israel still refuses to
connect networks in three regions of a single network, for this, the plan proposed to take into
account the separation between the three regions until that we they can be connected.
With regard to the supply of fuel, Katana said that an agreement was reached a few years ago to
buy the necessary fuel for the plant from Israel. The Palestinian Electric Company preferred the
use of fuel smuggled from Egypt through tunnels, despite our repeated warnings that this source is
not stable, and fuel that comes through it does not match the specifications required for the
operation of power plants.
In this context, he pointed to the negative impact of Egyptian fuel on the power station, where it
was stated that any station needs 5 maintenance cycles over the life span of 25-30 years, but what
happened to the Gaza plant exhausted four sessions maintenance so far, due to the poor quality of
fuel thats being used.
Ali Abu Shahla: Businessman Gaza
Ali commended the important information contained in the plan put forward by Dr Katana, saying
it is a promising plan and should be implemented as soon as possible. He focused on the issue of
decline in the collection of electricity bills. To solve this problem he suggested installing prepaid
meters. He also pointed out on the need to reconsider the concession granted to the electricity
company in Gaza, in terms of the concession period, the level of production and the obligations of
the Palestinian National Authority about the paying for the production of electricity, according to
the Energy maximum production, regardless of the size of the actual production of the company.
Summary of the debate:
The debate was distributed between the participants in the West Bank and Gaza. The discussion
focused on the following themes:
Engineer Rafiq Maliha: Director General of the Palestinian Electric Company Gaza
Mr. Rafiq presented data that differs from the one displayed by Dr. Katana, especially with regard
to the demand side, where he pointed out that up to 450 megawatts at peak time. He focused on a
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very important point in the short term which is the cost of fuel needed to operate the plant, that
must be supplied cheaply and without taxes in order to be running the station as required. He
pointed out that the cost of fuel accounts for about 90% of the cost of producing electricity.
Alternatively, he suggested that if the power station is enable to get fuel then use gas.
Ahmed Abu Omrein : Director, Center for Energy Information in the Palestinian Energy
Authority Gaza
Mr. Abu Omrein spoke on collection, and pointed out to a rise in the percentage of collection in
the past years, where it reached 70%. It appeared to be that there are no exceptions to the
electricity bill, as the collection includes all electricity consumers in Gaza, whether individuals or
institutions. The collection of electricity bills of institutions is based on a clearing system and
deducting expenses related to the provision of electricity to the institution. Mr. Abu Omrein
addressed the issue of political division between the West Bank and Gaza, and the effect on the
consolidated accounts between the parties. He pointed to the introduction of prepaid meters, but
the number remains small due to lack of funding in this area. He emphasized on the need to
provide adequate funding for renewable energy projects in Gaza. He noted that Katanas plan does
not represent a radical solution to the problem of electricity in Gaza.
Mr. Amr Hamad: Economist - Gaza
Wondered about the possibility of finding a relationship and direct dealing between the Israeli
Electricity Company that supplies electricity and its counterpart in Gaza in order to overcome the
problems and difficulties associated with the financial aspects and the flow of fuel.
Mr. Yasser Alalam: business development consultant Gaza
Alalam believes that the discussion of the consequences of the crisis should have been done a long
time ago. He focused on the study of the main reasons for the high price of fuel and the search for
alternatives to offset the rising cost of fuel. He pointed out to take into account additional variables
on the plan in the short term, and the need to improve the actual supply of electricity in proportion
to the increasing need for electricitys energy.
D. Saifuddin Odeh: PMA Gaza
He pointed out that the problem of electricity in Gaza accumulated since a very long time, and that
the development of electricity networks is very bad. He discussed the issue of the purchase of fuel
by the Palestinian Electric Company as an investment company, so that the process of buying fuel
in terms of quantity and price are not subject to the political situation. On the other hand, he said if
the collection of electricity bills is 100%, still this will not solve the problem of electricity and will
continue the fluctuation in electricity production.
Mr. Fadi Altaweel: Economic Researcher Gaza
He noted the problem of an increasing demand for electricity service without restriction, in
contrast, the presence of a decreasing offer of the electricity service without limits. He also
mentioned the need for a rationalization for consumption by citizens and institutions in Gaza.
Mr. Jihad Harb: PLC Ramallah
Mr. Jihad commented on what has been discussed in this symposium, and explained that electricity
is a commodity like any other commodity that is consumed and be paid for it. He also emphasized
that the fundamental problem is the problem of the political division and work to end it so as to
solve the rest of the crises experienced in Gaza.
Mr. Ziad Juelss: Director of Electricity Company of Jerusalem Ramallah
Mr. Juelss emphasized on the need to separate the two frames, the first frame is the matter of
generating electricity, and the second frame is the problem of the collection of electricity bill from
the consumers. It also pointed out that there are no statistics speak for losses in electricity in the
Gaza Strip, nor the level of collection of the electricity bill of the citizens.

The main recommendations:


During the debate many of the recommendations focused mainly on the following points:
 Improve the efficiency of local authorities and electricity distribution company in the
collection of the price of electricity from the consumers, and do not give any exceptions to any
natural or legal side. And work on the installation of prepaid meters for subscribers to ensure
greater achievement.
 In order to contribute in addressing the current crisis it is necessary to reflect the improvement
in the level of achievement by increasing the level of the contribution of the subscribers in the
Gaza Strip to pay the prices of electricity and transferred to the PNA treasury, which funds
buying fuel for the production of electricity by the electricity company in Gaza.
 It is necessary to increase the level of coordination and cooperation between the parties related
to the theme of electricity in both the West Bank and the Gaza Strip in order to agree on a
diagnosis of the crisis and to find radical solutions to them.
 It is important to study options for the use of renewable energy sources (solar energy) to
generate electricity as this has a positive environmental impact, and as a contribution to
address the fuel crisis in Gaza. It is possible to set up projects to generate electricity from solar
energy in the Sinai desert because of the many advantages for the region.
 It is necessary to take advantage of the electricity linkage project with the eight regional
countries, and to overcome the difficulties faced by the Palestinians to take advantage of this
project.
 It is possible to find a solution to the crisis by increasing the production capacity of the
Palestine Electric Company, which operates at half capacity. This calls for the allocation of
resources for this project.
 Activating the agreement of running line carrier 161 from the Israeli side to increase the
electrical energy received from Israel.
 It is also important to allocate financial resources for the rehabilitation of existing networks in
order to reduce the rate of technical losses caused by the poor state of these networks.
 Must give serious consideration to study the issue of linking production lines and distribution
in the Gaza Strip in the distribution network in order to enhance the ability to transfer loads
and electrical energy from one region to another within the Gaza Strip.
 Study options for using natural gas to generate electricity instead of industrial diesel.
 Separate the electricity issue from the political situation because of its sensitivity.

Attendance Record for the Round Table (10)


Name
Hanin Jparini
Omar Kettani
Hazem Shannar
Ibrahim Abu Kamesh
Ziad Ghannam
Saed Abu Farha
Jihad Harb
Fuad Shubaki
Mohammed Abdullah
Majd Aqrouq
Ziad Juelss
Jafar Sadqa
Ameen majjad
Mohammed Hittawi
Fadi Al-Tawil
Moean Rajab
Sayf Awdeh
Ali abu Sahlah
Ahamd abu Amreen
Fawzi Hassonah
Yossif Shahth
Ghaidaa Al-Ameer
Rafiq Maliha
Yassir Al-Alem
Amro Hamad
Nabeel Kassis
Ibrahim Hantash
Bashar Gharaba
Mohammed Al-Azaizaa

Foundation
Palestine TV
Palestinian Energy Authority
Ministry of National Economy
Newspaper New Life
Palestine News Agency 24
Al-Ayyam newspaper
PLC
Ministry of Finance
The Turkish news agency
Siraj Solar Systems
Jerusalem Electricity Company
Agency WAFA news
MAS
MAS
Economic researcher
Al-Azhar university
PMA
AA-Consulting Eng
PENRA
PENRA
PITA
G12
GPGC
Consultant
Economist
DG- MAS
MAS - Researcher
MAS
Gisha/Maslak