Friday, April 24, 2009

War-ravaged Gaza power company pays shareholders‏

Gaza's hobbled power plant makes millions despite turmoil

* Profits largely paid as dividends to investors

* EU wouldn't pay plant directly, citing lopsided terms

by Adam Entous

GAZA, April 23 (Reuters) - Running a power plant in Gaza might sound like a losing venture but, thanks to payments from the cash-strapped Palestinian government, its owners are making profits and promise another year of "unstoppable growth".

While Gaza's 1.5 million residents, blockaded by Israel, face electricity shortages, the Palestine Electric Co.'s (PEC) PEC.PL profits were $6.3 million in 2008, up from $4.4 million in 2007. Profits are largely distributed in tax-free dividends. The gains came even though the plant has been operating at less than half capacity due to the embargo that chokes fuel and spare parts, and past bombings by Israel.

Critics decry what they call a lopsided deal that guarantees the PEC a fixed annual fee from the Palestinian Authority, which is bankrolled with aid from Western governments.

Shareholders say the 20-year contract, which began in 1999 when the late Yasser Arafat was president, is fair and that dividends are a reward for investing in a high-risk environment. "When people are investing, they should get a return," said Walid Salman, the PEC's executive managing director.

Salman said the firm also invested in the people of Gaza, providing free water for schools, hospitals and refugee camps.

Past efforts by West Bank-based Prime Minister Salam Fayyad to reopen the PEC's contract stalled. Many large PEC shareholders play a powerful role in the Palestinian economy and are close to Arafat's successor Mahmoud Abbas, officials say.

Opponents of reopening the contract say it would undercut the PA's standing at a time when the United States, the European Union are trying to promote large-scale foreign investment.

Under the terms of the contract, the PA is obliged to pay the PEC a roughly $29 million annual "capacity charge", in addition to providing it with fuel to run the plant.

According to annual reports, the PEC's board declared $6 million in dividends for 2006, a year when Israel bombed the plant, cutting electricity supplies. Profits that year were $7.4 million. For 2007, it declared $3.6 million in dividends.

The dividend for 2008 has yet to be declared.

"Almost everybody's profits are going down but this company's profits are going up," said a senior Palestinian official who spoke on condition of anonymity because he works with PEC board members. "It is a pretty healthy profit margin."

Salman dismissed that, pointing to far larger profits at other companies, including a Palestinian mobile phone giant.

"We are working in a very exceptional situation. It's the minimum profit an investor would accept," he said of the firm's goal of paying 10 percent annual returns. He said similar projects in other developing countries produced double that.

Consolidated Contractors Co. (CCC) is the biggest PEC shareholder. In 1999, the firm teamed up with Enron Corp to build the 140-MW plant. The start of a Palestinian uprising in 2000 and Enron's collapse in 2001 set back the $150 million project but the plant began operating in 2003.

Other major shareholders include the Palestine Investment Fund (PIF), a holding company for public assets, whose board, appointed by Abbas, includes top CCC executive Samer Khoury, and the Arab Palestinian Investment Co. (APIC), which lists Abbas's son Tarek as a vice president.

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