Private Israeli-Palestinian gas deal still hostage to politics

Fri Jan 31, 2014 8:30am EST

* Palestinians to buy Israeli natural gas in 20-year deal

* Governments have yet to endorse agreement publicly

* Despite scepticism, energy companies say deal is win-win

By Noah Browning

RAMALLAH, West Bank, Jan 31 (Reuters) - A billion-dollar deal signed this month involving an Israeli natural gas field and a Palestinian power firm marked a rare private-sector victory over political conflict, but it may need top-level support to succeed.

Palestinian officials say implementation will depend on guarantees by the governments of both sides, whose mutual distrust has grown amid troubled U.S.-backed peace talks.

The deal's Palestinian backers say Israel has pledged that any future political or security crisis will not interrupt the gas supply. No such assurance has been made publicly, however.

"There was a kind of guarantee from top levels in Israel ... that there would be a continuous flow of gas no matter what happens on the political front," said Samir Huleileh, CEO of the Palestine Development and Investment Inc holding company.

PADICO holds an 18 percent stake in the Palestine Power Generation Company (PPGC) at the centre of the deal, which Huleileh said had received the guarantee from Israeli Prime Minister Benjamin Netanyahu's office less than a year ago.

Netanyahu's office did not respond to a request for comment.

Under the agreement, PPGC is to buy $1.2 billion of gas over 20 years from the U.S.-Israeli group developing the huge offshore Leviathan gas field.

At a signing ceremony on Jan. 5, Israeli billionaire Yitzhak Tshuva, whose Delek Group is a major stakeholder in Leviathan, hailed the deal as historic and said it would bolster peace efforts. Delek officials, however, declined to speak to Reuters on any Israeli political backing for the deal.

Palestinian Deputy Prime Minister Mohammed Mustafa said his government looks favourably on the agreement, but that final approval would come only after it had seen the text of the contract and studied Israel's political commitments.

The Palestinian Authority exercises limited rule in the occupied West Bank, captured by Israel in 1967 along with the Gaza Strip and East Jerusalem. The Palestinians want that land for a future state.

SCEPTICISM

Palestinians in the West Bank now buy electricity from Israel. If the PPGC were to get Palestinian government approval for the gas deal and complete a planned $300 million power plant in the northern West Bank, it would give Palestinians greater control over their electricity supply.

Some Palestinians oppose the deal, saying deeper economic ties with Israel runs counter to the quest for independence.

"To assume that Israel will honour this agreement and will continue to deliver the gas for a whole generation is quite an assumption," said independent economic analyst Nasser Abdul Kareem.

"We have to free our country and people first, not make deals between an occupier and the occupied. We need to be less dependent on Israel, look east, diversify our partners and investors, especially among the Arabs, not stay hostage to Israel," he said.

But according to Walid Salman, PPGC's chief executive, the Leviathan deal makes the most economic sense.

"Commercially, the agreement is a win-win. What's in the mind of the Palestinian Authority and Israel is not my field," he told Reuters, referring to possible political complications.

"Palestine and Israel are neighbours - if you're going to get fuel, it's best is to get it from your neighbour not from overseas."

Salman, who is also a regional manager for Palestinian Consolidated Contractors Company (CCC), said progress was being made in negotiations with exploration companies for the development of an offshore Gaza gas field found in 1998.

Gas from the field could generate net profit of $150 million a year from sales at home and abroad, Palestinian Prime Minister Rami Hamdallah said late last year.

Officials have said a preliminary agreement between CCC and British Gas could lead to the start of production in 2017. (Additional reporting by Ali Sawafta, editing by Ari Rabinovitch and Alistair Lyon)

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