of Sector Policy
The power sector in Palestine has been severely
neglected. Systems are old and
inefficient; electricity supplies are unreliable; generation is highly
dependent on Israeli sources; the institutional framework is weak and highly
fragmented; and consumption is considerably below regional standards.
In response to these conditions, in 1995 the Palestine National
Authority (PA) established the Palestine Energy Authority (PEA) as the sole
agency responsible for sector development.
(Decision No. 12 of 1995). This
Letter of Sector Policy (LSP) sets out the PA’s and PEA’s policy for the
development of the sector.
Objectives and Strategy
The PEA is committed to providing the citizens
of the Palestinian with reliable
electricity supplies, and is committed to doing so at a price that is
affordable and that permits the efficient long term development of the sector
and the economy as a whole.
Consistent with the above objectives and given
the urgent problems of the sector, priority is being given to: remedying
current system deficiencies; improving service delivery and public
accountability; and laying the legal, institutional, economic and financial
and technical basis for efficient system development.
Thus over the last two years the PEA has undertaken a number of
actions, studies and consultations aimed at improving system performance and
service delivery, and reforming the institutional framework.
These have been undertaken in conjunction with municipalities, village
councils and villages, and with the assistance of the World Bank, Norway and
other members of the donor community and villages.
As a result of these actions and deliberations,
the PEA has developed a medium-term (5-7 year) sector development strategy,
the main components of which are:
focus on rehabilitating existing networks and services and extend services to
currently unserved communities;
separate the ‘policy’ and ‘regulatory’ functions from the
‘commercial functions’ of power sector enterprises;
refocus and reorganize the PEA to be the main policy making body for the sector;
encourage maximum private sector participation in sector operations and
development, particularly in generation and distribution, thus minimizing the
need for government financial support;
consolidate transmission networks, systems and functions in the a new
establish three new autonomous and commercially-oriented regional distribution
utilities (one in Gaza and two in the West Bank) by consolidating the existing
electricity departments of municipalities, village councils and villages;
increase the operating/technical efficiency of the distribution utility
companies through energy end-use efficiency, energy conservation and better
load management; and
develop pragmatic tariff setting guidelines that will permit full cost
recovery and promote the commercial viability of sector enterprises while at
the same time providing for ‘lifeline’ rates for needy consumers.
strategy is guided by the
following core considerations:
the existing transmission and distribution system is currently weak and
fragmented, complete centralization of all components of the system in a
single public agency would be inefficient and would militate against efficient
long-term system development. In
particular, it would discourage private investment in the sector.
and commercialization can yield significant service benefits to consumers,
reduce the financial burden on the public sector, encourage private investment
and participation in the sector. “Unbundling”
and commercialization/privatization of key parts of the system (particularly
generation and distribution) is both feasible and desirable.
Also it is necessary in order to improve service and system quality,
and to yield efficiency gains to consumers and the economy as a whole.
functions and parts of the system (particularly policy, system development,
and transmission) cannot be efficiently privatized and must thus be retained
in the public sector to ‘significant extent.
But for these functions to be efficiently performed they should be
disentangled form each other.
While the PEA is fully committed to the strategy
outlined in this letter, we propose to act prudently, in close consultation
with stakeholders, and with due regard to questions of economic and technical
feasibility and strategic national interests.
Thus we propose to implement the reforms in carefully sequenced and
calibrated steps over the next two to three years.
Some of the key components of our institutional
reform strategy are briefly discussed below and are summarized in the attached
table and organogram (Exhibits 1 and 2).
Network upgrading is
critical to improving service reliability and efficiency.
Accordingly, since its establishment the PEA has undertaken a number
steps to remedy critical network deficiencies.
Among of our first actions was to begin to remedy the most critical
defects in the distribution network in Gaza with the assistance the government
of Norway. This program is now
being extended to cover the Northern West Bank, and we will shortly extend our
efforts to begin to address the most critical deficiencies in the Hebron and
central regions, i.e., in the southern West Bank.
Electrifying the Palestinian rural areas is a
crucial function to develop the a agricultural sector, water supply and other
sector in the villages.
Reforming the Institutional Framework
As indicated above, the PEA is convinced that
major system reforms are necessary for efficient sector development.
The key areas of reform are: 1) Overall Sector
Coordination, Policy Formation, and System Development; 2) Generation; 3)
Transmission; 4) Distribution; 5) Tariffs
and Regulation; 7)
Government Asset Holding; and 8) Legal Measures To Give Effect To The Proposed
Reforms. Each is briefly
Overall Sector Coordination, Policy Formation,
and System Development
The PEA will continue to be the sole PA agency
responsible for these critical national functions, and will of course lead the
reforms. In doing so, it will
divest itself of some of its current functions (see below) and reorganize
itself into a professional agency as shown in Exhibits 1 and 2, with offices
in both West Bank and Gaza. The
PEA would also continue to be responsible for those components of the sector
such as rural electrification, regional inter-connection, energy conservation
and research which cannot be realistically or efficiently commercialized.
Energy efficiency and conservation will be coordinated with the existing
Palestine Energy Center (PEC). Tariff
setting and regulation will be overseen by a separate independent commission
reporting to the Palestinian Authority (PA)
as discussed below and shown schematically under Exhibit # 2 .
In order to
increase system capacity and reduce supply dependency on Israel, the
PEA will encourage the creation of new generating capacity within Palestine.
In doing so, the PEA will encourage maximum participation by the
private sector through independent
power providers (IPPs). In this
context the PEA has been promoting private participation in the development of
a new generating plant in Gaza with interconnection to the West Bank.
The PEA will also diversify the sources of supply by encouraging the
purchases from neighboring countries while at the same time promoting regional
interconnection, system stabilization and scale economies.
The transmission network is not yet fully in
Palestinian hands. Also it is a
component of the system that can not be reasonably
privatized. However it needs to
be efficiently managed. To this
end the PEA would establish a new, professionally managed and commercially -
oriented company, Palestine Energy Transmission Company Ltd. (PETL) which
would eventually own, operate and develop the network. Board of PETL
would enter into power-purchase agreements with independent and
semi-independent generating companies and from neighboring countries, and
would sell power to regional distribution utilities (see below).
In order to reduce fragmentation and increase
efficiency the existing fragmented distribution system will be consolidated
into three new commercially oriented regional utilities, one in Gaza and three
in the West Bank (A privately owned utility already serves the Jerusalem
region.). The three new utility
(Gaza Region Electricity Utility (GREU), Nablus Electricity Utility (NEU), and
Southern Electricity Company
(SELCo) would be owned jointly by the PEA and the municipalities and
village Councils in the respective regions..
The members of the boards of the new companies would be appointed by
the respective municipalities, village councils and the PEA.
The new utilities would own the distribution networks, be responsible
for service delivery and operations within their regions.
They would of course do so within an overall policy framework
established under LSP and as administered by the PEA.
To help establish the new utilities as quickly and a efficiently as
possible, the PEA would contract technical assistance services from competent
international authorities and utilities for an initial period not expected to
exceed 5 years. While
privatization of the utilities is not considered practicable at this stage,
provision would be made for significant private participation within 5 years.
In order to help create a “level playing
field” for the private sector
participation, tariff setting would be done by a new independent commission,
the Palestine Energy Regulation Commission (PERC) reporting to the PA. While
the PEA would establish the overall policy for sector development, tariffs
would be set by PERC on the basis of commercial considerations with due regard
to the needs of especially vulnerable segments of the population.
The members of the Board of PERC would be appointed by the PA on the
recommendation of the Board of PEA. PERC
would include significant representation from the private sector.
Government Asset Holding
The PEA will divest itself of many of its
existing functions. However, for
reasons outlined above, government will need to retain ownership of
significant sector assets. In
order to ensure the efficient management of important national assets, these
assets would be vested in a small professionally managed holding company, Palestine Energy Holdings Ltd. (PEHL). The members of the Board of PEHL would be appointed by
the PA on the recommendation of the Board of PEA.
Legal Measures To Give Effect To The Proposed
In order to give effect to the proposed reforms
the existing law will need to be amended or a new law passed.
The PEA will take steps over the next few months to draft the necessary
legislation and present it to the Palestinian Council for debate and
As noted above, the PEA will act prudently and
on a timely basis. Accordingly,
the following time table is
Dr. Abdel Rahman Hamed
1: The Proposed Institutional
Framework of the Power Sector
E-Mail : firstname.lastname@example.org
Palestinian Energy Authority:
Main Office PEA. : Gaza -P.O Box 3041/ Tel: 972-7-2821702 , Fax : 972-7-2824849
Al-Bireh-P.O. Box:3591 / Tel: 972-2- 2986190/2 , Fax:972-2-2986191