TEMPORARY INTERNATIONAL MECHANISM: UPDATE AND

C O N F I D E N T I A L JERUSALEM 003933 SIPDIS SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/MAHER/STEINGER; NSC FOR ABRAMS/DORAN/WATERS; TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON; BRUSSELS FOR LERNER; PLEASE PASS TO USAID FOR KUNDER/MCCLOUD/BORODIN E.O. 12958: DECL: 08/29/2016 TAGS: EFIN EAID KWBG SUBJECT: TEMPORARY INTERNATIONAL MECHANISM: UPDATE AND CONSULTATIVE GROUP REVIEW SCHEDULED FOR SEPTEMBER 1 REF: JERUSALEM 3563 Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d). ¶1. Action request for Department in para. 11. ¶2. (C) Summary: Window II (fuel) and Window III (allowances) of the Temporary International Mechanism (TIM) continue to function. Window I, the World Bank's Emergency Services Support Program (ESSP),is still pending as the Bank finalizes the grant agreement with the PA Office of the President. The TIM continues to disburse only European Union funding but is speaking actively with other interested donors. The first meeting of the TIM Consultative Group is scheduled for September 1, in anticipation of the Quartet's scheduled three-month review of the mechanism in mid-September. ConGen seeks guidance on raising USG concerns about the expansion of the ESSP beyond the health sector; the payment of PA debt to one private sector firm; and the TIM's payment of allowances based on PA employment. End summary. Window I: ESSP -------------- ¶3. (C) Stefano Mocci of the local World Bank office confirmed to EconChief August 28 that neither disbursements nor procurements had begun under the Emergency Services Support Program (ESSP),since the Bank is still negotiating the grant agreement with the PA Office of the President. He said they are resolving final issues on procurement and expect disbursements to start the first week of September, specifically for utility payments for the Ministries of Health, Education, and Social Affairs. Mocci confirmed that the Bank had received USD 19 million combined from the European Commission, DFID, and Austria. Only DFID and Austria have earmarked their contributions for non-recurring costs in the health sector. He said the following contributions are anticipated: -- USD 3 million from Belgium; -- USD 6.5 million from Sweden; -- USD 12.7 million from Spain; and -- USD 5.5 million more from DFID. ¶4. (C) Mario Mariani of the European Union's Management Unit of the Temporary International Mechanism (TIM) confirmed that 8 millions euros of the European Commission's total 10 million euro contribution to the ESSP had been disbursed to the Bank. Though the Commission indicated a preference for it to be used for the health sector, it could be disbursed for other sectors, such as education and social affairs, if there are pressing needs. Window II: IERC -------------- ¶5. (C) Mariani told EconChief August 28 that the TIM had expended over 1.5 million euros for fuel for health and water sector generators in Gaza under the Interim Emergency Relief Contribution (IERC). He said that the TIM is also planning to disburse more than 5 million euros to the Gaza Power Generating Company (GPGC),which operates the Gaza Power Plant, to cover the PA's debts to it for April, May, and June. The TIM is making these payments, according to Mariani, in order to ensure that the GPGC has sufficient funds to restart production once the Egyptian transformers are delivered, since the company has not earned any other income since before the government hand-over. (Note: Four transformers belonging to the GPGC were destroyed in an Israeli air strike June 28, thereby cutting off the plant's ability to generate and transfer approximately 50 percent of the electricity needed in Gaza. Former PA Finance Minister and Palestinian legislator Salam Fayyad told Consul General that he thinks it is "ridiculous" that the GPGC is getting part of the debt it is owed by the PA covered under the TIM, while other Palestinian private sector firms struggle to survive with large debts owed to them by the PA and other humanitarian needs go unmet. Consolidated Contractors Company (CCC) is the major shareholder in the GPGC. End note.) Though ConGenOffs had heard that health sector providers are asking the TIM to purchase new generators, Mariani said that the TIM would not be purchasing generators, only fuel for generators. He said there is an ongoing discussion with the World Bank about having the ESSP cover generator procurement and the purchase of spare parts. Window III: Allowances -------------- ¶6. (C) Mariani confirmed that the TIM had completed disbursement of a first tranche of 4 million euros in allowances to 11,562 members of the Palestinian public health sector. He said a second tranche of allowances would be disbursed over a two-day period, beginning September 4. After this September disbursement, Mariani said no further disbursements are planned for health sector workers. ¶7. (C) Mariani said that the TIM had begun disbursement of a one-time flat-rate allowance of NIS 1500 (USD 341) for a variety of other recipients outside the health sector, and payments should start appearing in individual bank accounts August 29 or 30. Mariani described the composition of the group receiving the needs-based allowance as follows: -- A maximum of 50,000 PA civil service employees who were on the PA payroll both in January and June and who earn a basic monthly income below NIS 2000 (USD 588); -- 7,000 to 8,000 PA pensioners earning a pension less than NIS 2000; and -- 40,000 social hardship cases. Mariani said that PA security service employees are not included in this scheme and neither are those on the unemployment rolls. ¶8. (C) Mariani said that the TIM Management Unit had received the names and bank account numbers from the PA Office of the President. TIM auditors are verifying that the individuals are eligible for payment per the criteria and then their names are forwarded on a rolling basis for payment to HSBC London. He said that the social hardship cases would likely be paid last since they were the hardest group to verify. Since many of them do not have bank accounts, their payments would be disbursed through banks for pick-up by the beneficiary who would have to present valid identification. Other interested donors -------------- ¶9. (C) While the European Union has, to date, been the only source of financing for the TIM, Mariani said the following countries have indicated interest: Australia, Japan, Switzerland, and Norway. No Arab donors have voiced interest, but Mariani commented that the TIM management unit is not pursuing donors; rather, it is letting them come to it. Mariani shared the TIM Management Unit's August 14 document "Implementing donor contributions to TIM." (Note: ConGen e-mailed the document to NEA/IPA. End note.) First meeting of TIM Consultative Group scheduled for September 1 -------------- ¶10. (C) The first meeting of the TIM Consultative Group is scheduled for September 1 at 15:00 local in Jerusalem, according to the invitation addressed to the Consul General (e-mailed to NEA/IPA),the agenda is as follows: -- Introduction by chair (Richard Weber, Director, European Commission); -- Update on donor contributions to the TIM; -- Update on progress made by the TIM: A) Window I - ESSP (David Craig, Country Director, World Bank); B) Window II - IERC Phase II (Hans Duynhouwer, Head of TIM Management Unit); and C) Window III - Payment of Allowances (Hans Duynhouwer, Head of TIM Management Unit); -- Update on the fiscal situation (IMF) and the socio-economic situation (World Bank); and -- Next steps for the TIM. ¶11. (C) Action request: ConGen proposes to have EconChief and the Acting USAID Mission Director attend the TIM Consultative Group meeting, September 1. ConGen requests guidance from the Department on how to address the following specific issues: -- the broadening of the ESSP pilot to include the PA Education and Social Affairs Ministries; -- the TIM's payment of three months of the debt that the PA owes the GPGC; and -- the TIM's payment of both health sector and needs-based allowances based on individual's employment status with the PA. End action request. WALLES