OPIC PROMOTES POLITICAL RISK INSURANCE TO THE

UNCLAS SECTION 01 OF 02 JERUSALEM 002230

SENSITIVE
SIPDIS

NEA/IPA FOR GOLDBERGER/LENTZ; EEB/IFD/OIA FOR CULLINANE;
TREASURY FOR AHERN
DEPT PLEASE PASS TO OPIC FOR VP RODNEY MORRIS
DEPT PLEASE PASS TO USAID FOR ME/MEA: NANDY/BORODIN

E.O. 12958: N/A
TAGS: ECON EFIN EINV KWBG IS
SUBJECT: OPIC PROMOTES POLITICAL RISK INSURANCE TO THE
PALESTINIAN MARKET

REF: JERUSALEM 916


1. (SBU) Summary: Overseas Private Investment Corporation
(OPIC) officials discussed the Palestinian Political Risk
Insurance (PPRI) project during a visit to Jerusalem and
Ramallah in early December. PPRI, announced during the May
2008 Palestine Investment Conference in Bethlehem (reftel),
would indemnify Palestinian exporters for penalties and fees
incurred if products are delayed or damaged due to border or
checkpoint closings or procedures. OPIC, in partnership with
the Middle East Investment Initiative (MEII),aims to make
the product available to West Bank businesses in mid-2009.
End summary.


2. (SBU) OPIC Vice President Rodney Morris, James Williams,
and Eric Jowett visited Jerusalem and Ramallah December 2-5
to advance the PPRI project, a partnership between OPIC and
MEII to provide political risk and trade disruption insurance
for West Bank exporters. The project is designed to protect
against losses, including those suffered due to closings or
delays at Israeli checkpoints or commercial crossings.
OPIC's product is expected to be bundled with a traditional
insurance policy that covers damage done to goods in transit.
The insurance will be offered initially in the West Bank
through the National Insurance Company (NIC),with the goal
of including additional Palestinian insurance companies in
the future. OPIC will reinsure NIC for most of the losses
sustained under the program. OPIC believes affordable
political risk insurance will enable Palestinians to expand
export markets, generating additional business, and promoting
job creation.

Palestinian traders don't do traditional business deals
-------------- --------------


3. (SBU) Business representatives emphasized the informal
nature of business arrangements undertaken by West Bank
exporters, given ongoing restrictions on the movement of
goods within the West Bank and to Israel. OPIC noted that
these informal arrangements present significant challenges in
designing a trade disruption insurance policy. While a
policy would normally insure against penalties or late fees
assessed due to delay and/or damage, exporters told OPIC they
rarely sign formal contracts with their buyers, and entirely
avoid deals that involve late fees.


4. (SBU) Exporters also shy away from large-scale, long-term
contracts (which are the most profitable) because of the
uncertainties. Other traders said they do not begin
negotiations on the final price of the goods until the
shipment arrives at its destination and the buyer assesses
the damage or delay. One businessman said that PPRI might
give him the confidence to seek out formal contracts with
larger companies that would involve penalties, and that he
could easily fulfill such orders. However, he said the
credibility of his business remained his priority, and he
would remain hesitant to take on larger deals without more
consistent, formalized practices at the commercial crossings.

Damage and delay
--------------


5. (SBU) Although the rates vary by sector, shippers told
OPIC that, on average, 10 percent of goods are damaged while
going through the crossings. Agricultural producers did not
report significant damage, but noted that delays at the
crossings directly impact the shelf life and therefore the
quality and value of their goods. OPIC noted that under the
current system (with no third-party monitor),it could be
difficult to determine whether the damage actually took place
at the crossing or during other parts of the journey.

If we build it, will they buy?
--------------


6. (SBU) Traders and insurance contacts alike stated that
increased awareness and education about insurance and the
PPRI would be key to its success. They also noted that the
restrictions on Palestinian movement and access have doubled
or tripled the cost of exporting in recent years, and that
they must carefully consider whether purchasing additional
insurance is cost-effective for them.


7. (SBU) OPIC's efforts to advance the PPRI project follow

JERUSALEM 00002230 002 OF 002


the re-formulation of the World Bank's Multilateral
Investment Guarantee Agency's (MIGA) political risk program.
In early November, MIGA extended guarantee coverage to local
(Palestinian) investors in addition to foreign investors, and
expanded the program to cover existing investments with
sufficient new capital. MIGA's product does not cover
political risk and/or damage or delay at crossings and
checkpoints.


8. (U) Based on their discussions during this visit, OPIC
will work with MEII to determine if the product as currently
designed should be offered broadly in the West Bank, or
limited to specific sectors. OPIC will also continue
discussions with NIC and others to determine whether the
product can be broadened to enhance its value and
marketability. OPIC aims to have these matters finalized by
the end of the first quarter of 2009.


9. (U) OPIC has cleared this message.
WALLES