Even as United States-sponsored peace talks between Israel and the Palestinians unravel, quiet negotiations over 1.4 billion shekels ($402 million) in unpaid electricity bills owed by the Palestinians are making progress.

The Israel Electric Corporation provides the Palestinians about 7% of its total production via high-voltage electricity lines. – Photo: Reuters

The debt, which has been run up by the Palestinian Authority’s refusal to pay the Israel Electric Corporation for power supplied in the West Bank and East Jerusalem, has almost doubled in the past year. IEC continues to supply electricity for political reasons.

About 850 million shekels of the debt is owed by the East Jerusalem Electric Company and the rest is owed directly by the PA.

The IEC has already written down some 150 million to 200 million shekels of the debt in its 2013 financial reports, which means it is accounting for it as if it will not see the money in the near future. The negotiations are focused on arranging for the rest to be paid over 10 to 20 years.

Isaac Molho, Prime Minister Benjamin Netanyahu’s personal representative to the talks with the Palestinians, is responsible on the Israeli side for the negotiations.

Last December TheMarker reported that Palestinian Finance Minister Shukri Bishara proposed writing off half the debt and paying the rest back over 20 years. Israel rejected the proposal out of hand. But at the same time the offer worried the Israelis in light of the IEC’s severe financial situation, and because several of the recovery plans for the IEC were based on receiving the full amount from the Palestinians.

The IEC sells the Palestinians some 4 billion kilowatt hours of electricity every year − about 7% of the company’s total electricity production. One billion kWh are supplied to the Gaza Strip, for which the payment is paid out of the tax receipts Israel collects on behalf of the Palestinians and then transfers to the PA. The rest of the electricity is supplied by the IEC to the East Jerusalem Electric Company, or directly to PA facilities in West Bank cities.

For years the Palestinian debt grew because the PA did not collect all it was owed by Palestinian consumers, who are supposed to pay the PA for electricity, after which the PA is supposed to transfer the funds to the IEC. In the past, many Palestinians grew accustomed to not paying their electricity bills at all − whether for ideological reasons or because they began to be dependent on foreign donors. In addition, the Palestinian electric distribution system is plagued by widespread electricity theft.

The situation has gotten worse in recent years, after the former Palestinian Prime Minister Salam Fayyad presented a previous proposal for debt forgiveness, in which he offered to wipe out the debts of Palestinian consumers who started paying for electricity from then on. But in fact this only reduced the Palestinian payment ethic even further.

As a result, the Palestinian debts to the IEC started ballooning quickly, and are growing at an estimated pace of 90 million shekels a month. At the end of 2012 the debt totaled 514 million shekels, and by the end of 2013 it had reached 1.1 billion shekels.

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