FUEL SHORTAGES CONTINUE IN WEST BANK; CORRUPTION

C O N F I D E N T I A L JERUSALEM 004544 SIPDIS SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/SHAMPAINE/STEINGER; NSC FOR ABRAMS/DORAN/WATERS; TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON E.O. 12958: DECL: 10/16/2016 TAGS: ENRG PGOV ECON ETRD KCOR KWBG IS SUBJECT: FUEL SHORTAGES CONTINUE IN WEST BANK; CORRUPTION EXACERBATES PROBLEM REF: JERUSALEM 4427 Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d). ¶1. (C) Summary: The PA's exclusive supplier of petroleum products, the Israeli company Dor Alon, continues to restrict shipments of petroleum products to the West Bank and Gaza Strip. Fuel shortages are particularly acute in the northern West Bank. The severity of shortages, however, may have as much to do with long-standing corruption in the West Bank's fuel distribution network than with restricted deliveries by Dor Alon. End Summary. -------------- Fuel Supply Remains Restricted -------------- ¶2. (SBU) Dor Alon continues to restrict its supplies to the West Bank and Gaza. Dor Alon first cut-off shipments immediately after the PA failed to pay in full invoices due September 30. According to press accounts, the PA owes Dor Alon NIS 350 million. The cutoff also followed the PA's announcement that it would not renew Dor Alon's exclusive supply contract after December 31, 2006 (reftel). After resuming shipments on October 5, Dor Alon began restricting supplies again starting October 8, according to press reports and Palestinian gasoline retailers. 3 (C) Mohammed Abu Al-Hassan, a major gasoline retailer in the northern West Bank, told EconSpecialist October 16 of serious shortages of gasoline and diesel in the Jenin area. He said that many gas stations are closed and some of his customers -- factories and municipality offices -- have run out of diesel. Al-Hassan stated that individuals who found no gasoline available at his station October 15 reacted by beating his son. He said it is possible to purchase petroleum products directly from Israeli suppliers but doing so would violate PA law. -------------- Corruption Worsens Situation -------------- ¶4. (C) Al-Hassan asserted that the impact of the shortages has been exacerbated by well-entrenched corruption within the PA's petroleum distribution system. Al-Khouajja Company, the sole distributor in the West Bank of PA procured petroleum products, officially distributes shipments based on orders retailers place with the Palestinian General Petroleum Corporation (GPC). In practice, however, Al-Khouajja Company demonstrates a great deal of independence in determining who gets what and when, particularly when shortages occur, according to al-Hassan. Al-Hassan alleges that Khouajja, for example, is fully supplying Ramallah gas stations in which it has a financial stake while ignoring the less influential customers in the northern West Bank. Keeping gasoline available in Ramallah also reduces pressure from PA officials working and residing there. Al-Hassan complained that his pleas for help from the GPC have gone unanswered. ¶5. (C) Suhail Jabr, a Ramallah gasoline retailer and diesel distributor, told Econoff October 12 that on the previous day he received only a quarter of the petroleum products he had ordered from the GPC. Jabr explained that the GPC is rationing fuel deliveries. Jabr added, however, that significant quantities of petroleum products are now available on the black market in the West Bank, albeit at higher prices. He asserted that Dor Alon and at least one other Israeli company, SONOL, are shipping petroleum products into the West Bank outside the established distribution network. He claimed that Dor Alon and al-Khouajja Company are diverting some GPC-ordered shipments to the black market as a means of maintaining sales at higher prices while also denying the PA significant tax revenues generated from authorized transactions. -------------- Gaza Retailers Share Losses, Lessen Impact -------------- ¶6. (C) Mohammed Al-Khozendar, owner of several gas stations in Gaza, advised EconSpecialist October 16 that Dor Alon is limiting the flow of petroleum to Gaza, but not severely. For example, there are no long lines at Gaza gasoline stations. Nevertheless, supply is not meeting demand, particularly in the case of LPG, and the situation will grow worse over time if Dor Alon does not resume full shipments, according to Al-Khozendar. (Note: The fuel distribution system in Gaza is much more transparent than in the West Bank. Gaza retailers receive a pre-determined percentage of the total amount provided by Dor Alon. Therefore, when volume is cut, everyone still receives the same percentage share of the amount supplied. End Note.) (Comment: The severity of the fuel shortages in parts of the West Bank as compared to Gaza, therefore, would appear to support al-Hassan's assertion that the situation in the West Bank has as much to do with corruption than with the actual cut in fuel shipments. End Comment.) WALLES