EUROPEAN COMMISSION TEAM ARRIVES TO IMPLEMENT

C O N F I D E N T I A L JERUSALEM 002853

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/GREENE/WATERS/WAECHTER; NSC FOR
ABRAMS/DORAN/LOGERFO; TREASURY FOR NUGENT/ADKINS; USEU FOR
LERNER

E.O. 12958: DECL: 07/06/2016
TAGS: EAID EFIN ECON PREL PGOV KWBG
SUBJECT: EUROPEAN COMMISSION TEAM ARRIVES TO IMPLEMENT
TEMPORARY INTERNATIONAL MECHANISM


Classified By: Consul General Jake Walles for reasons 1.4 (b) and (d).


1. (C) Summary: European Commission officials said July 5
that the Commission's Management Team to implement the
Temporary International Mechanism (TIM) would be fully
operational in Jerusalem during the week of July 10. The
Acting World Bank Country Director said the Emergency
Services Support Program (ESSP) would be ready to accept
donors' donations in mid-July and planned to release funds in
early August for non-salary expenditures in the health,
education, and social affairs sectors (though the
Quartet-approved TIM document only refers to health sector
expenditures). Commission officials were not prepared to
discuss their plans on how to screen and disburse allowances
to healthcare sector employees. The Commission is ready with
another 40 million euro tranche under Window II of the TIM.
While the Commission had expected the World Bank to take the
lead on setting up a needs-based allowance system (Window III
in the TIM),the Bank again declined to take the lead. The
Commission proposed that the first meeting of the TIM
Consultative Group be held July 17. End summary.

TIM Management Team on the ground
--------------


2. (C) Richard Weber, Director of the regional EuropeAid
office at the European Commission, told USAID Mission
Director, ConGen EconChief, and USAID and Embassy EconOffs
July 5 that his visit to Jerusalem was timed so he could
supervise the establishment of the Commission's TIM
Management Team in Jerusalem. While five staff are already
on the ground, including TIM Management Team Head Hans
Duynhouwer, there would be a total of 30 staff divided
between operational, finance, and administrative groups with
almost half focused on finance, audit, and accountability
functions and many from local firms affiliated with
international accounting firms. Weber said the team would be
fully staffed by the week of July 10. World Bank Acting
Country Director Faris Hadad-Zervos said that Claus Alstrup
would arrive that week from World Bank headquarters to
provide technical assistance based upon the Bank's experience
elsewhere with similar mechanisms. Before actual operations
can begin, the Commission is waiting for President Abbas to
sign an agreement covering the European Commission
contribution to all three windows of the TIM. Weber said
that the Commission would be using HSBC's London branch as
its main financial intermediary for TIM implementation.

Window I: ESSP
--------------


3. (C) Weber said the Commission is waiting for the World
Bank to commence the latest version of the Emergency Services
Support Program (ESSP) but stressed that it should be no
later than the beginning of August. According to Weber, the
European Commission, Spain, Belgium, Denmark, Germany,
France, Italy, and the United Kingdom have already pledged to
provide funds to the ESSP. He noted that Spain had indicated
it may request a single donor trust fund be set up for its
contribution.


4. (C) Hadad-Zervos described how the Bank had revised the
ESSP mechanism so that the funds, a likely maximum of USD 7
million per month based on past expenditures, would flow
through the Office of the President, not the PA Finance
Ministry. He noted that the focus would still be on a
defined list of non-salary expenditures for the health,
education, and social affairs sectors, as the ESSP operated
previously, and that the "nuts and bolts day-to-day work"
would still be with the PA ministries of health, education,
and social affairs. Hadad-Zervos also noted that the Bank is
willing to consider adding more sectors, such as water and
sanitation, if donors so request. (Note: The Bank continues
to focus on the three sectors, not just the health sector as
stipulated in the Quartet-approved TIM paper. We have noted
this disparity to Hadad-Zervos, who said that the Bank is
including all three sectors as a result of specific
instructions from World Bank President Wolfowitz. He said

Wolfowitz had instructed Bank staff to shift the flow of
funds to the President's Office under the ESSP and not to
change anything else. Wolfowitz relayed this to the European
Commission's Benita Ferrero-Waldner in a June 15 letter.
(Post e-mailed a copy of the letter to NEA/IPA). If this is
of concern to the USG, we believe it needs to be raised in
Washington with World Bank headquarters. The World Bank
prepared a concept note and implementation note on the ESSP
for interested donors which Post e-mailed to NEA/IPA. End
Note.) Hadad-Zervos said the Bank is seeking funds from
donors by the end of July. At the beginning of August, he
hoped President Abbas would sign an agreement with the World
Bank, thereby allowing the flow of funds to start immediately
thereafter.


5. (C) We pressed Weber for more details on how the European
Commission planned to screen and disburse allowances to
healthcare sector employees. Weber noted that the Commission
had distributed application forms to public sector hospitals
and that it was the Commission's understanding that
non-public sector healthcare workers are being paid,
including those at Palestinian Red Crescent Society (PRCS)
facilities. He stressed that the Commission would only
consider allowances to those workers who had not received a
salary, essentially only PA employees.

Window II: IERC
--------------


6. (C) Weber confirmed that the Commission had exhausted its
remaining funds under the Interim Emergency Relief
Contribution (IERC) program (first tranche of 40 million
euros) to finance diesel supplies for the Gaza Power Plant.
Weber said a second tranche of 40 million euros would be used
to pay any utility bills owed by the Palestinian Authority to
Israeli suppliers that were not already being paid by the GOI
from the clearance revenue escrow account. Weber said the
Commission would also consider purchasing fuel, under the
IERC, for stand-alone generators in Gaza, especially the
700,000 liters needed per month by hospitals.

Window III: Needs-based allowances
--------------


7. (C) Weber said that the Commission had assumed the World
Bank would take the lead on Window III. Hadad-Zervos clearly
stated to the group that the Bank has no plans to take the
lead on Window III but is willing to offer technical
assistance. Weber said the TIM management team would consult
locally with UN agencies and others in order to formulate a
mechanism to screen applications for needs-based allowances.
He pressed USAID and ConGenOffs on what the USG could offer,
and we suggested that they invite USG representatives to
participate in their consultative meetings. We also
suggested that they build upon existing approaches, such as
the WFP's use of local councils to screen Food-for-Word and
Food-for-Training beneficiaries and the European Commission's
on-going humanitarian assistance program. We also noted that
current beneficiaries of food assistance should not be
overlooked since they, too, need cash to pay for expenditures.


8. (C) Weber said he had met separately with Palestinian
Monetary Authority Governor George Abed and the heads of
local banks. Weber said the bankers had told him they would
be willing to deliver funds to the beneficiaries, even if
those beneficiaries do not hold bank accounts at their banks.
The bankers said they would need a list of
Commission-approved beneficiaries which they would then vet
through their own anti-terrorism compliance programs before
disbursing funds.

Proposed Consultative Group meeting
--------------


9. (C) Weber said he hoped that the first meeting of the
Consultative Group could be held July 17 in Jerusalem and
proposed the following participation: European Commission,
United States, IMF, World Bank, United Nations, and Russia.

At the moment, there are no contributing donors but those
could be included in future meetings. He also said the TIM
implementing team would serve as the Consultative Group's
Secretariat and that they would reach out to Norway and

SIPDIS
Switzerland since both had already expressed interest in
participating in the TIM.

Other European Commission activities
--------------


10. (C) Weber noted that the Commission is also awaiting
President Abbas' signature on an agreement that would make a
Commission-funded audit team (4-5 people initially and then
additional experts as needed) available to the Office of the
President within a week after signature. Weber noted that
the Commission is urgently looking at purchasing generators
for hospitals in Gaza under a separate non-TIM mechanism. He
also confirmed that the Commission would be supplying
scanning equipment for the Rafah passenger crossing once the
situation returns to normal.
WALLES