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 SIPDIS NEA FOR FRONT OFFICE AND NEA/IPA; NSC FOR SHAPIRO/KUMAR; DEPT PLEASE PASS TO USAID FOR ANE/MEA:BORODIN; TREASURY FOR KNOWLES; JOINT STAFF FOR LTGEN SELVA 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 JERUSALEM 00002095 002 OF 002 they are offered. RUBINSTEIN