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oPt: Report to the Ad Hoc Liaison Committee, 10 May 2022

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Country: occupied Palestinian territory
Source: Middle East Quartet

Please refer to the attached file.

Executive Summary

This report identifies progress achieved since the Office of the Quartet’s (OQ) Fall 2021 report to the Ad Hoc Liaison Committee (AHLC) and the critical next steps that are now required.

The water sector saw a combination of challenges and progress during the reporting period. Despite the initial quick response from the international community following the escalation in Gaza in May last year, efforts have slowed, with an outstanding funding gap of 20 million USD out of the identified need for 30 million USD. In addition, there is a need for the Government of Israel (GoI) to increase the pace of approvals for the entry of critical materials, mainly electromechanical and chemical materials.

Progress in implementing the Associated Works (AW) for the Gaza Central Desalination Plant (GCDP) continued with the completion of the Bani Said and Bani Suhaila connection points, allowing for the absorption of up to 10 million cubic metres/year (MCM/Y). Supply from Mekorot over these two connection points is currently flowing at a rate of approximately 600 cubic metres per hour. The tender process for two additional components of the AW is advancing, whilst construction of the AW package for a reconfiguration system in the Middle Area of Gaza has started. There have, however, been delays in finalizing the funding and procurement processes for the GCDP. All wastewater treatment plants (WWTP) continue to operate at full capacity with the exception of Khan Younis WWTP due to limited inflow of wastewater for treatment. Funding of approximately 74 million USD is needed to enhance the capacity of the wastewater treatment infrastructure in Gaza and to bridge the funding gap for operation and maintenance costs for water and wastewater facilities. In an encouraging development, the Joint Water Committee met in January of this year, the first such meeting since 2018, and provided an in-principle approval for the Tulkarem WWTP as well as agreeing to supply an additional 18-25 MCM/Y through the As Samoua connection point from Israel. The GoI approved a needed trunkline from the Al Bireh WWTP to Al Auja to implement a proposed reuse scheme, whilst in-principle approvals from the GoI for the remaining items in the Water and Wastewater Packages, which faces a 525 million USD funding gap, are still outstanding. In order to ensure the viability of the sector, GoI facilitation is needed to enable the import of prepaid water meters while a reconsideration of the decision to impose fees on the construction of pipelines in Area C is strongly encouraged. The Palestinian Authority (PA) has advanced its water reform agenda; meeting the timetable for achieving outstanding milestones is strongly encouraged.

In the energy sector, progress on the Gaza for Gaza (G4G) project continued, including on the detailed design in both Israel and Gaza. The Environmental and Social Impact Assessment in Gaza is also progressing well, with the first phase being completed this quarter. Financial and political support from Qatar and the European Union for the project remains strong with commitments of 60 million USD and 20 million EUR respectively, subject to a set of conditions. Recent Memorandums of Understanding on G4G entered into by Qatar, the PA, the Gaza Electricity Distribution Company and the owners of the Gaza Power Plant (regarding guarantees, conversion and expansion of the plant, electricity payment collections and a commitment to upgrade the Gaza electricity grid) should now pave the way for a finalization of the Gas Sales and Purchase Agreement as well as the Power Purchase Agreement. Completing these agreements remains critical for gas to be supplied to Gaza by the end of 2024. Finalizing energy sector reform efforts will be important as well. In addition, a feasibility study to evaluate a gas connection to the GCDP is currently underway, led by the Palestinian Energy and Natural Resources Authority with Palestinian Water Authority support. For all energy projects in Gaza, it is critical that the electricity grid is upgraded to enable evacuation of additional electricity, including from the G4G project and other sources. To this end, a roadmap should ideally be presented in the coming weeks by the PA followed by funding commitments. The PA also continued to advance the development of renewable energy in Gaza and the West Bank with materials for the construction of the Khan Younis solar photovoltaic (PV) site expected to arrive this quarter. Furthermore, it will be necessary to examine the electricity grid requirements in Gaza to support the establishment of utilityscale solar PV sites. In the West Bank, there is increased momentum for renewable energy projects, especially in Area C. Securing additional imports, both for Gaza (via Egypt and the 161 kV line) and for the West Bank (through additional imports from Jordan) remains important for enhancing energy security. In the West Bank, high voltage imports through the four new substations have helped reduce the cost of electricity, while also strengthening the role of the Palestinian Electricity Transmission Company in the energy sector as a central Palestinian institution.

In the telecom sector, despite initially encouraging discussions, limited progress has been realized towards concluding an agreement for 4G and 5G spectrum. The parties convened the Joint Technical Committee (JTC) twice during the reporting period on November 14, 2021 and April 26, 2022. In the second meeting, the GoI provided a proposal for the PA of 35 MHz for 4G only (in previous discussions during the JTC of March 2020, 5G had been included as a component of the GoI proposal). The PA responded with a request for 90 MHz for 4G deployment (including the 35 MHz offered by the GoI) and reiterated its request of 215 MHz for 5G. To meet Palestinian demand for mobile data in the West Bank and Gaza, a minimum of 335 MHz immediately, and 550 MHz in the short-to-medium term is needed. Given the GoI’s continued allocation of spectrum and incentives for 5G deployment to Israeli operators, a timely agreement on the allocation of frequencies for both 4G and 5G technologies in the West Bank and Gaza must be concluded to enable deployment of networks by summer 2023. The completion of the licensing and commencement of commercial deployment of ’fiber to home’ networks in the West Bank and Gaza are positive developments. Fixed network reconstruction continued slowly during the reporting period. The approval of the equipment needed for the development of the fiber network, the transmission backhaul network as well as the reconstruction of the fixed telecom network, is welcome. The prompt entry of materials is essential to enable the timely completion of these projects.

The PA’s dire fiscal situation continues to demonstrate the need for several key steps, including the resolution of a number of longstanding fiscal files between the parties that, in combination with planned internal reforms, will help close the budget gap and advance the goal of economic selfsufficiency. The GoI Ministry of Finance established committees to examine some of these files, including Allenby Bridge crossing fees and the 3 per cent handling fee, which will hopefully lead to the rapid resolution of these files. A focused engagement by the parties remains needed on these and other longstanding fiscal files, including exemption of PA fuel purchases from excise and other taxes. Launch of the eVAT pilot test on March 6, 2022 is a positive development. All Palestinian merchants have joined the program, issuing over 26,000 eVAT invoices by late April; some 400 Israeli merchants have joined the pilot program, issuing some 1,400 invoices in the same period. Expansion of the Israeli participation rate would enable a more robust pilot test and lead to inclusion of all Israeli traders at the conclusion of the six-month pilot phase. In addition, a draft Memorandum of Agreement to govern the eVAT system remains to be signed by the parties and completion of end-to-end testing is needed to move to integration and sharing of the eVAT data between the Israeli and Palestinian systems. The PA is progressing towards finalization of a new customs law in preparation for the transfer of customs authority from Israel to the PA, which could reduce revenue losses by an estimated 50 million USD.

In banking relations, the parties have continued to make progress towards establishment of a new correspondent banking mechanism, but much work is still required to conclude the new mechanism by the end of 2022. The parties are encouraged to accelerate progress, including inter alia, digitalizing the salaries of Palestinian workers as a means to address the cash surplus challenge in Palestinian banks, extending the immunity and indemnity letters to the Israeli commercial banks beyond July 2022, and preparing for the Palestinian Monetary Authority mutual evaluation process which is due to take place in the coming months. Moreover, it is important to note that the PA launched several reforms in recent months that will significantly improve the landscape of digital payments in the Palestinian economy in the near term.

In the justice sector, recent legislative amendments signed by the President in January and February have introduced several positive reforms to improve the efficiency of the judicial process but have also raised concerns over their potential effect on the independence of the judiciary and the rights of litigants and defendants. In the security sector, the long-awaited appointment of a new full-time Minister of Interior is an important step for the development of the sector. Further improvements in movement and access continue to be needed to enable PA police and security forces to provide effective law enforcement to Palestinian communities in Areas B and C.

Economic growth and job creation in the Palestinian market requires the accelerated facilitation and expansion of trade, both locally and internationally. In this regard, efforts have remained focused on expanding the cost-effective movement of goods by further developing the door-to-door program between the West Bank and Israel through the advancement of a Joint Staging Area to serve small and medium-sized companies. Efforts to create a similar program for trade with and via Jordan also continued. This has the potential to significantly increase transport-related cost savings and competitiveness of goods, particularly for bulk and raw materials. The economic situation in Gaza has seen some improvement since the escalation last May and the subsequently applied movement restrictions, driven primarily by increased agricultural exports (which doubled in the first quarter of 2022 compared to the same period in 2021) and the facilitation of Gazan labor to work in Israel. However, focus on restoring industrial activity remains key to generate jobs and increasing Gaza’s trade potential. With the increased flow of agricultural products across Gaza, the resumption of the Karem Abu Salem/Kerem Shalom crossing upgrade gains increased significance as it stands to substantially reduce damage and losses of perishable goods entering and exiting Gaza. Construction of the project is expected to begin in Q3 2022.


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