VZCZCXYZ0000
OO RUEHWEB

DE RUEHJM #4427/01 2831353
ZNY CCCCC ZZH
O 101353Z OCT 06
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5299
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY C O N F I D E N T I A L JERUSALEM 004427 
 
SIPDIS 
 
SIPDIS 
 
NEA FOR FRONT OFFICE; NEA/IPA FOR 
WILLIAMS/SHAMPAINE/STEINGER; NSC FOR ABRAMS/DORAN/WATERS; 
TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON 
 
E.O. 12958: DECL: 10/06/2016 
TAGS:              
SUBJECT: PA DECISION TO BREAK TIES WITH ISRAELI FUEL 
SUPPLIER PROMPTS SUPPLY CUT AND FATAH COMPLAINTS 
 
REF: JERUSALEM 1884 
 
Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d). 
 
 1.  (SBU) Summary:  In late September 2006, the PA's Ministry 
of Finance advised its long-time petroleum product supplier, 
the Israeli company Dor Alon, that the PA will not renew its 
contract with the company after its December 31, 2006 
termination date.  The PA Acting Minister of Finance 
announced publicly October 5 that his ministry had signed a 
new agreement with another Israeli supplier, PAZ.  Since the 
PA failed to make full payment of invoices due September 30, 
Dor suspended shipments October 1, resulting in serious 
shortages of petroleum products in several Palestinian 
cities, but then resumed shipments October 5.  The 
Fatah-aligned head of the PA General Petroleum Corporation 
complained publicly that he was not consulted about the 
change in petroleum suppliers.  End summary. 
 
------------------------ 
PA Strikes New Fuel Deal 
------------------------ 
 
 2.  (SBU) The Acting Minister of Finance and Minister of 
Planning in the Hamas-led government Samir Abu Isheh notified 
the Dor Alon company in a September 28 letter that the PA 
would not renew its contract with the company after it 
expires at the end of the year, according to press reports. 
(Note:  Dor has been the sole supplier of petroleum products 
to the West Bank and Gaza since 1994.)  Abu Isheh announced 
publicly October 5 that his ministry had signed a new 
contract with the Israeli petroleum company PAZ.  Abu Isheh 
asserted that the PAZ contract would save the PA NIS 75 
million (USD 23 million) a year and also allow the PA to 
purchase crude oil from foreign sources for processing at 
PAZ's refinery.  Abu Isheh also said that the PA had paid 
only NIS 90 million of the NIS 142 million due to be paid to 
Dor by September 30.  He added that the PA owes Dor a total 
of NIS 350 million. 
 
------------------ 
Fuel Shipments Cut 
------------------ 
 
 3.  (SBU) Dor suspended petroleum shipments to the West Bank 
and Gaza October 1, according to press reports.  In 
conversations with Econoff and Econspecialist October 5, 
gasoline retailers attributed the cutoff to both Dor's anger 
over the PA decision as well as its desire to secure payment 
of still outstanding invoices prior to the termination of the 
supply contract.  (Note:  Dor has previously suspended fuel 
shipments due to nonpayment of invoices (reftel).   According 
to press accounts, Dor derives as much as 40 percent of its 
revenue from sales to the PA.  End note.)  Palestinians 
reacted to the news by rushing out to purchase as much 
diesel, gasoline and LPG as possible, thus quickly 
exacerbating the situation.  Several gas stations in 
Bethlehem and Ramallah closed October 4 for lack of fuel. 
Petroleum products, however, remained available in some areas 
through black market sales, according to one 
retailer/distributor. 
 
--------------------------------- 
Flow Resumes as Competition Looms 
--------------------------------- 
 
 4.  (SBU) Dor resumed shipments on October 5.  Palestinian 
petroleum retailers suggested to Econoff that Dor may have 
reversed itself out of concern about immediately losing 
business to PAZ.  They explained that PAZ had not only 
expressed interest in filling the void left by Dor's 
stoppage, but had actually sent truckloads of petroleum 
products to West Bank crossings.  The Palestinian General 
Petroleum Corporation (GPC), however, refused to allow PAZ 
products to be enter and be distributed, according to 
petroleum retailers. 
 
------------------------------------- 
Another Venue for Fatah-Hamas clashes 
------------------------------------- 
 
 5.  (SBU) GPC Director General Hosam Abu Al-Rob (Fatah) 
complained on Palestine Radio October 4 that the GPC had not 
been involved in the decision not to renew Dor's contract. 
He said that the Ministry of Finance had not coordinated with 
 
the GPC on the matter nor had it informed the GPC directly of 
its decision.  The Fatah-affiliated Union of Public Employees 
issued a statement October 3 holding the government for the 
fuel shortages because of its decision to change suppliers. 
 
 6.  (C) Suhail Jabr, a Ramallah gasoline retailer and diesel 
distributor, suggested to Econoff October 5 that Abu Isheh's 
move to sever ties with Dor and the GPC's subsequent refusal 
to allow PAZ shipments into the West Bank amounted to yet 
another chapter in the conflict between Hamas and Fatah. 
Jabr and fellow fuel dealer Mohammed Abu Al-Hassan reported 
that they had declined PAZ offers for immediate deliveries of 
fuel during the Dor cut-off out of fear of getting caught up 
in the Hamas-Fatah feud.  Jabr claimed that efforts are 
underway to transfer authority over the GPC from the Ministry 
of Finance to the President's Office as a means of blocking 
the PAZ deal.  Both dealers characterized the contract with 
PAZ as a positive development, particularly given allegations 
of corruption against some of the beneficiaries of the 
current system. 
 
------------------------------ 
President's Office Staying Out 
------------------------------ 
 
 7.  (C) Muhammad Mustafa, Economic Adviser to President 
Abbas, told EconChief October 5 that Acting Finance Minster 
Abu Isheh had advised him on September 24 that his ministry 
was considering changing petroleum suppliers.  Abu Isheh 
added that, since the existing contract with Dor required 
three months notice of non-renewal, the PA would have to make 
a decision by September 30.  Mustafa said that he complained 
to Abu Isheh of the short notice, but volunteered to engaged 
four consultants to examine the Dor and PAZ contracts.  Based 
on this review, Mustafa sent a letter to Abu Isheh -- 
subsequently leaked to the press -- raising a number of 
concerns but not stating a Presidency position on the matter. 
 Nevertheless, Abu Isheh went ahead and signed the contract 
with PAZ without going back to the Presidency or the GPC. 
 
 8.  (C) Mustafa advised that the PA owed Dor a NIS 130 
million payment by September 30, but the Ministry of Finance 
paid only NIS 70 million of this amount, so Dor suspended 
shipments.  Mustafa said that, in a goodwill gesture, the 
president of Dor later called Abu Mazen from the U.S. and 
expressed his company's interest in maintaining a positive 
relationship with the PA.  Mustafa suggested that Dor, likely 
aware of PA Presidency interest in privatizing the petroleum 
procurement and distribution network, has concluded that it 
needs to preserve its ties to the PA if it hopes to re-enter 
the market once privatization allows for multiple suppliers. 
 
WALLES