PA BUDGET: UAE SUPPORT ARRIVES; EUROS PLAN FOR 2010

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 002095

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E.O. 12958: DECL: 11/09/2019
TAGS: EAID EFIN EUN KWBG AE
SUBJECT: PA BUDGET: UAE SUPPORT ARRIVES; EUROS PLAN FOR 2010

Classified By: Consul General Daniel Rubinstein for reasons 1.4 (b) and
(d).


1. (SBU) Summary. The Palestinian Authority (PA) has
confirmed receipt of a significant contribution of budget
support from the UAE totaling nearly USD 150 million, that
will allow the PA to make its payroll early this month, prior
to the Eid al-Adha holiday. Based on numbers the PA has
provided to donors, the PA is now approximately USD 180
million short of its target for external budget support for

2009. European budget support in 2010 will ramp up for the
February salary payment, but the European Commission (EC) has
decided that it will not fund fuel deliveries to the Gaza
Power Plant in 2010. End Summary.

Larger than Expected UAE Contribution
--------------


2. (SBU) PA Ministry of Finance Director General Mazen
Jadallah confirmed to EconOff on November 20 that a
contribution of 100 million Euros (USD 148.5 million) had
been received from the UAE. He said that he and his
colleagues had been surprised by the "additional"
contribution on top of the USD 100 million they had been
expecting, but called it "a very welcome surprise." Prime
Minister Fayyad expressed his appreciation to the Consul
General for the U.S. effort that helped make the UAE
contribution a reality at a critical time. Jadallah
confirmed that the PA would make its November salary payment
early, prior to the Eid al-Adha celebration on November 27.


3. (SBU) Fayyad told donors at the AHLC in New York in
September that the PA needed an additional USD 400 million in
external budget support before the end of 2009. Since that
announcement, the PA has received approximately USD 75
million from European donors in addition to the UAE's USD
148.5 million.

2010 EC Support to Start in February
--------------


4. (C) Locally-based EC Head of Coordination Roy Dickinson
(please protect),told EconChief on November 20 that the EC
package of budget support for 2010 will begin disbursing in
February. European budget support for December (a Spanish
and Swedish contribution) will total 15 million Euros. He
said that, while "January is tight," the EC has "cobbled
together" Irish, Finnish, and Dutch money to come up with
14-15 million Euros. The 2010 package working its way
through Brussels, he said, is expected to be approved on
December 9, and will total 120 million Euros in payroll
support and 38 million Euros in social welfare payments.


5. (C) The social welfare payments are disbursed quarterly.
Dickinson said the payroll support would be front-loaded, and
start at 20 million Euros per month for February through May

2010. Thereafter, the monthly disbursement will decrease,
though he hopes bilateral assistance will keep the overall
European contribution relatively constant through the year.
He indicated that Spain and Germany had already made firm
2010 commitments of budget support totaling 50 million Euro
between them. He also noted that it had become common for
the EC to "run out" of budget support funds mid-way through
the year, and go back to Brussels for additional funds. He
speculated that the same would be true in 2010, and that an
additional 50 million Euros could be secured.

EC to Stop Funding Gaza Fuel
--------------


6. (C) Dickinson noted that the EC is likely in for "a bumpy
ride" following its decision to stop paying for fuel to the
Gaza Power Plant in 2010. (The EC has been paying Israeli
suppliers approximately USD 10 million per month to provide
industrial fuel for the plant.) Dickinson said the reason
behind the cut off was an internal "Court of Auditors" report
that found an irregularity in the EC's support for Gaza fuel
oil, due to the fact that the EC was paying VAT to the GOI.
EC efforts with the GOI to get a VAT waiver were
unsuccessful. Of the EC's USD 10 million contribution each
month, USD 6 million was paid as VAT. The PA, he noted, had
little incentive to get this waived, as most of this VAT (USD
5.7 million per month) was subsequently returned to the PA
under the Paris Protocol agreements governing petroleum tax
transfers. Dickinson added that the EC remains prepared to
facilitate bilateral European contributions for fuel oil, if

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they are offered.
RUBINSTEIN