BEN-ELIEZER DISCUSSES ENERGY REFORMS AND

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 002510

SIPDIS

E.O. 12958: DECL: 06/23/2016
TAGS: PREL PGOV SENV KWBG ENRG IS GOI EXTERNAL ECONOMY AND FINANCE
SUBJECT: BEN-ELIEZER DISCUSSES ENERGY REFORMS AND
COORDINATION WITH JORDAN AND PALESTINIANS

REF: A. TEL AVIV 02469

B. TEL AVIV 00990

Classified By: Ambassador Richard H. Jones for reasons 1.4 (b) and (d)


1. (C) Summary: National Infrastructures Minister Binyamin
Ben-Eliezer told the Ambassador on June 21 that he is looking
to Central Asia, particularly to Azerbaijan, for long-term
oil contracts. He reported that he recently returned from a
trip to Baku in which he discussed with Azeri officials the
possibility of extending the BTC oil pipeline to Israel.
Ben-Eliezer also discussed with the Ambassador the
possibility of British Gas (BG) returning to the negotiating
table. He was not optimistic that the GOI would sign a deal
with BG, however, because the company is "playing games" with
the price, he claimed. He reported that the reorganization
of Israel Electric Corporation (IEC) would begin in March
2007 and take approximately three years, during which time
IEC would be split into production, distribution, and
transport units. In response to the Ambassador's question,
he seemed confident that he could work with the unions to
avoid major disruptions during the privatization process.
Ben-Eliezer expressed interest in the Red-Dead Sea water
transfer project, and appeared anxious for the World Bank
feasibility study to begin despite the fact that the study is
not yet fully funded. In a discussion about water,
electricity, and sewage issues, Ben-Eliezer said that the
Palestinian Authority owes Israel NIS 350 million ($78
million),but that the GOI is trying to get them to cooperate
and pay the debt on their own before the GOI uses withheld
tax revenue to pay off the PA's bills. He said that there is
a lot of work to be done, but that Israel will not deal with
Hamas unless it accepts the Quartet's conditions. End
summary.

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Looking for Oil Cooperation
In Central Asia
--------------


2. (C) National Infrastructures Minister Binyamin
Ben-Eliezer told the Ambassador on June 21 that he recently
returned from an oil and gas conference in Azerbaijan, where
he met with government officials and discussed extending the
Baku-Tbilisi-Ceyhan (BTC) pipeline to Israel. According to
Ben-Eliezer, the pipeline is currently expected to run 220
km. from Azerbaijan to Georgia and Turkey. Adding Israel
would extend the pipeline an additional 400 km., and
Azerbaijan could subsequently use the Ashkelon-Eilat pipeline
to transmit oil to the Red Sea for sale to customers in East
Asia. Ben-Eliezer mentioned that bringing oil through the
Ashkelon-Eilat pipeline would cut the time and price of
transport to Asia by one-third for the Azeris, but he did not
specify on what he based his calculations. He said that the
oil would not be shipped until 2011, so there is time to
decide if the pipeline would run under water or over land, or
even if the oil would more profitably be shipped by tanker.
International Relations Director Gabby Levy added that the
GOI would be interested in building three separate pipelines
under water for oil, gas, and water, and that it is currently
doing a feasibility study to check the possibilities (ref A).
Ben-Eliezer commented that Kazakhstani officials are
currently in Israel, and that he has met with them to discuss
oil projects as well. He said that he plans to look to
Central Asia, particularly Azerbaijan, for long-term oil
contracts of perhaps 20 years.

--------------
Still Interested
in British Gas
--------------


3. (C) Ben-Eliezer reported that he is also interested in
acquiring more gas suppliers, noting that Israel only has
Eastern Mediterranean Gas (EMG) and Yam Tethys Group (YTG) as
its current suppliers. The Ambassador asked about the
possibility of Israel and British Gas (BG) returning to the
negotiating table. Ben-Eliezer responded that he hoped BG
would "come back," but that he was unsure. He said that
Prime Minister Ehud Olmert had met with British Prime
Minister Tony Blair, and that Ben-Eliezer himself had
discussed the issue with the British industry minister at the
conference in Azerbaijan, but added that overall he is
pessimistic about the possibility of concluding a deal with
BG because the company is "playing games" with the price.
(Note: According to BG officials, the GOI offered BG $3.10
and BG had asked for at least $4.00, noting that current
market prices are currently in the $7-10 range. End note.)
Ben-Eliezer commented that he recently spoke with Egyptian
Intelligence Chief Omar Soliman, and claimed that Soliman
told him that he would "try to get us BG." He mentioned that
he is also in talks with Russia's Gazprom, and hopes to sign
an MOU by the end of the year for Bluestream gas via Turkey,
but did not add additional details.
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Electricity "Reorganization"
--------------


4. (C) Moving on to the electricity sector, Ben-Eliezer said
that for now he is planning on dividing the Israel Electric
Corporation (IEC) into 3 units: production, distribution,
and transport. He added that for the time being it would be
a "reorganization," instead of a complete privatization,
because he wants to move slowly on the project. He claimed
that he cannot take risks with the plan, and that he has to
ensure that there are no further power outages at the hands
of the labor unions like those experienced three weeks ago.
In response to the Ambassador's question on the timeline for
the privatization, Ben-Eliezer responded that it would begin
by March 1, 2007, and take a total of three years. Levy
added that there would only be one transport company because
Israel is small, that there will be several production
companies, and that distribution companies will be
established regionally. The Ambassador asked how Ben-Eliezer
would deal with the unions, and Ben-Eliezer replied that he
has good relations with them and will guarantee their future.
He said that "things will have to change, but I will
overcome." The Ambassador said that while the U.S. supports
reform in the energy sector, the reforms should not unfairly
disadvantage American investors in the Yam Tethys Group
(YTG). (Note: Per ref B, an association of independent
power producers (IPPs) has proposed changes to Israel's
Natural Gas Law to force natural gas suppliers to sell to the
state-run Israel Natural Gas Lines (INGL) at a fixed price.
This would create a gas monopsony, which would benefit the
IPPs at YTG's expense. End note.) Ben-Eliezer replied that
he would look into the issue, and mentioned that he met with
YTG last week to discuss the development of a gas field 100
km. up the coast off Haifa that is three times the size of
YTG's current field off Gaza's coast.


5. (C) The Ambassador asked Ben-Eliezer when the
privatization of the oil refineries would be complete.
Ben-Eliezer replied that the GOI has issued the tender for
the Ashdod refinery, and plans to proceed by privatizing the
Haifa refinery in two-three years.

--------------
Red-Dead Water Coordination
--------------


6. (C) Ben-Eliezer told the Ambassador that he was in Jordan
last week, and that he is very concerned about the
Jordanians' lack of water. He said that the GOI is
interested in beginning the World Bank (WB) feasibility study
for the Red-Dead Sea water project, and that the WB fund
currently has $11 million of the $15 million necessary to
begin the study. He commented that he wants them "to just
start" the study, since it could take two years, and that he
would "help them get the rest of this money" later.
Ben-Eliezer reported that the Red-Dead project would produce
a total of 850 million cubic meters of fresh water annually,
of which three-fourths would be sent to Jordan, and
one-fourth would be delivered to Israel and the Palestinians.
The Ambassador noted that this would be very significant for
Jordan, and Ben-Eliezer agreed, adding that there is a lot of
tension in the region caused by the lack of water, and that
he hoped this would solve the problem for years to come.

--------------
Coordination with the Palestinians
--------------


7. (C) The Ambassador asked Ben-Eliezer about his
coordination with Palestinians on issues such as the Hebron
waste-water treatment plant and electricity supplies.
Ben-Eliezer responded that for now the Palestinian Authority
is not paying for water or electricity, and that they owe
Israel approximately NIS 350 million ($78 million). He said
that the GOI is willing to coordinate with the Palestinians,
and that he is trying to meet with Palestinian Authority (PA)
President Mahmud Abbas, but added that he will not meet with
Hamas. He commented that Palestinian terror groups do not
understand that by targeting the power plant in Ashkelon,
they risk hurting Gaza residents because that power plant
supplies Gaza with electricity. The Ambassador asked whether
the GOI would use withheld tax revenues to cover the NIS 350
million the PA owes Israel, and Ben-Eliezer replied that it
was possible, but the government is not doing that for the
moment. He explained that the GOI can keep the funds, but it
is trying to convince the Palestinians to cooperate with
Israel and to pay the debts themselves.


8. (C) Ben-Eliezer commented that there is a lot of work to
be done on water, sewage, and electricity, and that the GOI
wants to help, but opined that Hamas wants to continue to
play a "bloody game," and does not know how to proceed. He
emphasized that he says every day that he is ready to sit
with the PA, but only under the condition that Hamas accept
the Quartet's conditions of recognition of Israel, cessation
of violence, and acceptance of prior agreements. "They're
our neighbors and we have to work together," he explained.
Ben-Eliezer noted, however, that he listens to Palestinian
radio daily -- born in Basra, Iraq, he reads, writes, and
speaks Arabic -- and that he knows from this that Hamas will
never recognize Israel. He said that it may become more
pragmatic in the future if Palestinians pressure the group
to change its policies, but speculated that, overall, Hamas
will never change its beliefs.


9. (C) Ben-Eliezer noted that he is close friends with
Abbas, but said that, unfortunately, Abbas is very weak. He
claimed that after Gaza disengagement, he spoke with Abbas,
in Arabic, and told him that the problem was now among the
Palestinians, not between the Israelis and Palestinians, and
that he should lead his people. Ben-Eliezer said he feels
sorry for Abbas, and characterized him as having had
pragmatic, acceptable, and realistic views for the past 15
years.

--------------
International Partnership
for the Hydrogen Economy
--------------


10. (C) The Ambassador asked about Israel's application to
join the International Partnership for the Hydrogen Economy
(IPHE),and what research it is undertaking in the field of
alternative energy sources in order to qualify. (Note:
Israel applied to join the IPHE in 2005, but to date has not
qualified for membership. End note.) Ben-Eliezer claimed
that Israel's lack of commitment to the IPHE is because the
GOI does not have the budget, not because it is not
interested. International Relations Director Levy added that
Israel has had the terms of reference for the IPHE for some
time now, and that it based its application on private-sector
interest, but noted that the private sector expects the
government to finance research and development initiatives,
and unfortunately there are "no support funds this year."
The Ambassador said that the U.S. strongly supports renewable
energy research. Levy said that Ben-Eliezer does as well,
and that he has been talking about renewable energies since
his first day on the job.

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