EGYPT-GAZA POWER IMPROVEMENTS POSSIBLE, BUT MAJOR

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 000503

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E.O. 12958: DECL: 3/23/2013
TAGS: ECON ENRG KWBG PHUM EG IS
SUBJECT: EGYPT-GAZA POWER IMPROVEMENTS POSSIBLE, BUT MAJOR
WORK REQUIRED

REF: A. OSC GMP20080322950022

B. 2006 JERUSALEM 2604

C. 2006 JERUSALEM 4335

Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d)


1. (SBU) Summary: Palestinian Energy Authority (PEA)
Chairman Omar Kattaneh confirmed press reports that tenders
would be offered for construction of high-voltage lines to
increase the ability of Egypt to provide the Gaza Strip with
power. The project aims to boost Gaza's supply of
electricity from Egypt from 17 MW to 150 MW by 2010.
Gaza-based contacts estimated that the project will cost USD
30 million and take longer than two years to complete. In
addition, significant upgrades to the electrical grid within
the Gaza Strip are required. Even if successful, Palestinian
contacts do not believe that Egyptian power will fully
substitute for Gaza's current reliance on Israeli electricity
supplies, given likely increases in demand. The Gaza Power
Plant, if provided with a steady and reliable source of
natural gas and all necessary spare parts and maintenance,
could produce 150 MW of cheap electricity and compete with
Egyptian and Israeli electricity suppliers. End summary.

Egypt-Rafah Power Line Tenders To Be Issue Soon
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2. (SBU) Following press reports of Egyptian plans to supply
electricity to the Gaza Strip (Ref A),Palestinian Energy
Authority (PEA) Chairman Omar Kattaneh told Econoff on March
21 that the construction tenders to build power lines between
the Egyptian grid and the Gaza Strip (Rafah) would be issued
"not before the end of March, but some time very soon." He
said the PEA aims to increase Egyptian electricity flow into
Gaza from 17 MW to 150 MW by the year 2010 in an attempt to
diversify Gaza's power supply and to reduce Gazans'
electricity bills. PA officials have previously told
Econoffs that such a project could reduce Gazan,s
electricity bills by 44 percent (Ref B). Gaza-based contacts
said that the project should cost around USD 30 million. The
Islamic Development Bank has reportedly agreed to fund the
construction of the power lines to Rafah.

Without Major Improvements in
Gaza Grid, Project Mostly Useless
--------------


3. (C) Gaza Power Plant (GPP) Project Manager Rafiq Maliha
told Econoff on March 21 that the expanded Egypt-Rafah power
line connection would be "mostly useless" without major
infrastructure investment in the Gaza power grid. He said
that the project's power lines would stop at Rafah, requiring
construction of a major transmission line to bring the
electricity to central and northern Gaza. Maliha opined that
the PEA's two-year construction estimated was very ambitious
and estimated completion would take "at least a few years."



4. (SBU) Note: The May 2007 World Bank West Bank/Gaza Energy
report estimated that the PA needed to invest USD 68 million
in transmission lines, substations, and distribution lines in
Gaza. End note.


5. (C) In addition, Palestinian power-sector contacts say
that reports that Egypt will "replace" Israel as a supplier
of electricity to the Gaza Strip are exaggerated. Not only
is the project to increase Egyptian supply still years away
from completion, but demand for electricity in the Gaza Strip
is expected to rise dramatically in the same time period,
particularly if imports and exports area allowed to return to
previous levels and the Gazan private sector is revived. The
increase in demand, these contacts suggest, will eat up the
extra capacity brought on line by this project.

Gaza Power Plant Wants To Compete
--------------


6. (C) Maliha said that if and when the Egypt-Rafah power
lines were completed and power grid infrastructure upgrades
made, the Egyptian electricity supply would make the GPP much
less competitive, as Egyptian power plants burn natural gas,
not expensive industrial diesel like the GPP. "Our prices
are much higher than those in Egypt," he said. He noted that
an Egypt-Gaza natural gas pipe connection would allow the GPP
to compete with Israeli and Egyptian electricity suppliers.
Maliha said that, with such a pipeline installed, his plant
could convert to burning natural gas "overnight" and that its

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output capacity would be 150 MW with minor upgrades and a
regular supply of spare parts and maintenance. He added that
the plant was designed in the year 2002 to produce 280 MW,
but would require two additional turbines to reach that
output level. (Comment: Despite Maliha's optimism on the
GPP's potential, we see little prospect of these conditions
being met and expect Gaza will rely on outside sources -
Israeli and Egyptian - for electricity for the foreseeable
future. End Comment.)
WALLES