Electricity Non-Payment and Arrears Destabilize the Palestinian Economy

April 8, 2015

JERUSALEM, April 8, 2015 – The electricity sector in the Palestinian Territories has been undergoing reforms to increase its efficiency but non-payment to the largest supplier, the Israel Electric Corporation (IEC), remains a key challenge that is impacting the overall fiscal situation. A recent World Bank report examines the factors that deter the systematic payments, including the lack of institutionalized and transparent invoicing by the IEC, as well as the high interest rates for late payments set unilaterally by the Israeli regulator. 

“The outstanding payments owed to the Israeli Electric Company took a heavy toll on a struggling Palestinian fiscal situation,” said Steen Lau Jorgensen, World Bank Country Director for West Bank and Gaza. “Non-payments have led to arbitrary cuts in power supply, deduction of arrears from tax revenues owed to the Palestinian Authority by Israel and to the accumulation of debt. The challenge is how to place the provision of electricity services on a financially sustainable basis.” 

The Palestinian territories are highly dependent on electricity provided by the IEC, around 88% of total consumption. The Palestinian energy market has limited options to develop indigenous sources of electricity and Israeli restrictions have prevented the construction of power networks in large parts of Area C which comprises 60% of the West Bank. The absence of peace and stability continues to discourage private investment in the sector. 

The non-payment by Palestinian distribution companies and municipalities for purchased electricity has put further constraints on the Palestinian Authority’s budget and has hindered economic stability. In fact, the two largest non-payer electricity distributors account for 70% of the total non-payments during 2010-2013 (the Gaza Electricity Distribution Company accounts for 42% and the Jerusalem District Electricity Company for 26%).

To recover part of the debt to IEC, in 2012, the Government of Israel has deducted an estimated US$280 million from clearance revenues that it collects on behalf of the Palestinian Authority. The amount deducted represents 14% of the PA’s total revenues, a mechanism commonly referred to as ‘net lending’. As of February 2014, the remaining balance accumulated brought the debt to US$330 million. This has increased the fiscal burden on an already deteriorating Palestinian economy. 

The report lays out high network losses arising from poor infrastructure and electricity theft, which cause significant revenue loss to Palestinian distributors. Overall electricity bill collection rates from the citizens decreased in the West Bank from 90% to 81% between 2011 and 2013, and increased in Gaza from 65% to 71% during the same period following the installation of a pre-paid meter pilot project.  

The Palestinian Energy and Natural Resources Authority initiated several measures especially targeted at reducing electricity non-payment but a comprehensive strategy is needed. “The non-payment of electricity bills by the Palestinian electricity distributors has reached unprecedented levels and calls for decisive action by the distribution companies and relevant municipalities.

On the other hand, the IEC should coordinate with Palestinian counterparts on the establishment of a web-database for timely and transparent transfer of invoicing and payments data,” said Roger Coma Cunill, World Bank Energy Specialist.

Media Contacts
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