This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 002510 
 
SIPDIS 
 
E.O. 12958: DECL: 06/23/2016 
TAGS: PREL PGOV SENV KWBG ENRG IS GOI EXTERNAL ECONOMY AND FINANCE
SUBJECT: BEN-ELIEZER DISCUSSES ENERGY REFORMS AND 
COORDINATION WITH JORDAN AND PALESTINIANS 
 
REF: A. TEL AVIV 02469 
     ¶B. TEL AVIV 00990 
 
Classified By: Ambassador Richard H. Jones for reasons 1.4 (b) and (d) 
 
¶1.  (C) Summary:  National Infrastructures Minister Binyamin 
Ben-Eliezer told the Ambassador on June 21 that he is looking 
to Central Asia, particularly to Azerbaijan, for long-term 
oil contracts.  He reported that he recently returned from a 
trip to Baku in which he discussed with Azeri officials the 
possibility of extending the BTC oil pipeline to Israel. 
Ben-Eliezer also discussed with the Ambassador the 
possibility of British Gas (BG) returning to the negotiating 
table.  He was not optimistic that the GOI would sign a deal 
with BG, however, because the company is "playing games" with 
the price, he claimed.  He reported that the reorganization 
of Israel Electric Corporation (IEC) would begin in March 
2007 and take approximately three years, during which time 
IEC would be split into production, distribution, and 
transport units.  In response to the Ambassador's question, 
he seemed confident that he could work with the unions to 
avoid major disruptions during the privatization process. 
Ben-Eliezer expressed interest in the Red-Dead Sea water 
transfer project, and appeared anxious for the World Bank 
feasibility study to begin despite the fact that the study is 
not yet fully funded.  In a discussion about water, 
electricity, and sewage issues, Ben-Eliezer said that the 
Palestinian Authority owes Israel NIS 350 million ($78 
million), but that the GOI is trying to get them to cooperate 
and pay the debt on their own before the GOI uses withheld 
tax revenue to pay off the PA's bills.  He said that there is 
a lot of work to be done, but that Israel will not deal with 
Hamas unless it accepts the Quartet's conditions.  End 
summary. 
 
--------------------------- 
Looking for Oil Cooperation 
In Central Asia 
--------------------------- 
 
¶2.  (C) National Infrastructures Minister Binyamin 
Ben-Eliezer told the Ambassador on June 21 that he recently 
returned from an oil and gas conference in Azerbaijan, where 
he met with government officials and discussed extending the 
Baku-Tbilisi-Ceyhan (BTC) pipeline to Israel.  According to 
Ben-Eliezer, the pipeline is currently expected to run 220 
km. from Azerbaijan to Georgia and Turkey.  Adding Israel 
would extend the pipeline an additional 400 km., and 
Azerbaijan could subsequently use the Ashkelon-Eilat pipeline 
to transmit oil to the Red Sea for sale to customers in East 
Asia.  Ben-Eliezer mentioned that bringing oil through the 
Ashkelon-Eilat pipeline would cut the time and price of 
transport to Asia by one-third for the Azeris, but he did not 
specify on what he based his calculations.  He said that the 
oil would not be shipped until 2011, so there is time to 
decide if the pipeline would run under water or over land, or 
even if the oil would more profitably be shipped by tanker. 
International Relations Director Gabby Levy added that the 
GOI would be interested in building three separate pipelines 
under water for oil, gas, and water, and that it is currently 
doing a feasibility study to check the possibilities (ref A). 
 Ben-Eliezer commented that Kazakhstani officials are 
currently in Israel, and that he has met with them to discuss 
oil projects as well.  He said that he plans to look to 
Central Asia, particularly Azerbaijan, for long-term oil 
contracts of perhaps 20 years. 
 
----------------- 
Still Interested 
in British Gas 
----------------- 
 
¶3.  (C) Ben-Eliezer reported that he is also interested in 
acquiring more gas suppliers, noting that Israel only has 
Eastern Mediterranean Gas (EMG) and Yam Tethys Group (YTG) as 
its current suppliers.  The Ambassador asked about the 
possibility of Israel and British Gas (BG) returning to the 
negotiating table. Ben-Eliezer responded that he hoped BG 
would "come back," but that he was unsure.  He said that 
Prime Minister Ehud Olmert had met with British Prime 
Minister Tony Blair, and that Ben-Eliezer himself had 
discussed the issue with the British industry minister at the 
conference in Azerbaijan, but added that overall he is 
pessimistic about the possibility of concluding a deal with 
BG because the company is "playing games" with the price. 
(Note:  According to BG officials, the GOI offered BG $3.10 
and BG had asked for at least $4.00, noting that current 
market prices are currently in the $7-10 range.  End note.) 
Ben-Eliezer commented that he recently spoke with Egyptian 
Intelligence Chief Omar Soliman, and claimed that Soliman 
told him that he would "try to get us BG."  He mentioned that 
he is also in talks with Russia's Gazprom, and hopes to sign 
an MOU by the end of the year for Bluestream gas via Turkey, 
but did not add additional details. 
---------------------------- 
Electricity "Reorganization" 
---------------------------- 
 
¶4.  (C) Moving on to the electricity sector, Ben-Eliezer said 
that for now he is planning on dividing the Israel Electric 
Corporation (IEC) into 3 units:  production, distribution, 
and transport.  He added that for the time being it would be 
a "reorganization," instead of a complete privatization, 
because he wants to move slowly on the project.  He claimed 
that he cannot take risks with the plan, and that he has to 
ensure that there are no further power outages at the hands 
of the labor unions like those experienced three weeks ago. 
In response to the Ambassador's question on the timeline for 
the privatization, Ben-Eliezer responded that it would begin 
by March 1, 2007, and take a total of three years.  Levy 
added that there would only be one transport company because 
Israel is small, that there will be several production 
companies, and that distribution companies will be 
established regionally.  The Ambassador asked how Ben-Eliezer 
would deal with the unions, and Ben-Eliezer replied that he 
has good relations with them and will guarantee their future. 
 He said that "things will have to change, but I will 
overcome."  The Ambassador said that while the U.S. supports 
reform in the energy sector, the reforms should not unfairly 
disadvantage American investors in the Yam Tethys Group 
(YTG).  (Note:  Per ref B, an association of independent 
power producers (IPPs) has proposed changes to Israel's 
Natural Gas Law to force natural gas suppliers to sell to the 
state-run Israel Natural Gas Lines (INGL) at a fixed price. 
This would create a gas monopsony, which would benefit the 
IPPs at YTG's expense.  End note.)  Ben-Eliezer replied that 
he would look into the issue, and mentioned that he met with 
YTG last week to discuss the development of a gas field 100 
km. up the coast off Haifa that is three times the size of 
YTG's current field off Gaza's coast. 
 
¶5.  (C) The Ambassador asked Ben-Eliezer when the 
privatization of the oil refineries would be complete. 
Ben-Eliezer replied that the GOI has issued the tender for 
the Ashdod refinery, and plans to proceed by privatizing the 
Haifa refinery in two-three years. 
 
--------------------------- 
Red-Dead Water Coordination 
--------------------------- 
 
¶6.  (C) Ben-Eliezer told the Ambassador that he was in Jordan 
last week, and that he is very concerned about the 
Jordanians' lack of water.  He said that the GOI is 
interested in beginning the World Bank (WB) feasibility study 
for the Red-Dead Sea water project, and that the WB fund 
currently has $11 million of the $15 million necessary to 
begin the study.   He commented that he wants them "to just 
start" the study, since it could take two years, and that he 
would "help them get the rest of this money" later. 
Ben-Eliezer reported that the Red-Dead project would produce 
a total of 850 million cubic meters of fresh water annually, 
of which three-fourths would be sent to Jordan, and 
one-fourth would be delivered to Israel and the Palestinians. 
 The Ambassador noted that this would be very significant for 
Jordan, and Ben-Eliezer agreed, adding that there is a lot of 
tension in the region caused by the lack of water, and that 
he hoped this would solve the problem for years to come. 
 
---------------------------------- 
Coordination with the Palestinians 
---------------------------------- 
 
¶7.  (C) The Ambassador asked Ben-Eliezer about his 
coordination with Palestinians on issues such as the Hebron 
waste-water treatment plant and electricity supplies. 
Ben-Eliezer responded that for now the Palestinian Authority 
is not paying for water or electricity, and that they owe 
Israel approximately NIS 350 million ($78 million).  He said 
that the GOI is willing to coordinate with the Palestinians, 
and that he is trying to meet with Palestinian Authority (PA) 
President Mahmud Abbas, but added that he will not meet with 
Hamas.  He commented that Palestinian terror groups do not 
understand that by targeting the power plant in Ashkelon, 
they risk hurting Gaza residents because that power plant 
supplies Gaza with electricity.  The Ambassador asked whether 
the GOI would use withheld tax revenues to cover the NIS 350 
million the PA owes Israel, and Ben-Eliezer replied that it 
was possible, but the government is not doing that for the 
moment.  He explained that the GOI can keep the funds, but it 
is trying to convince the Palestinians to cooperate with 
Israel and to pay the debts themselves. 
 
¶8.  (C) Ben-Eliezer commented that there is a lot of work to 
be done on water, sewage, and electricity, and that the GOI 
wants to help, but opined that Hamas wants to continue to 
play a "bloody game," and does not know how to proceed.  He 
emphasized that he says every day that he is ready to sit 
with the PA, but only under the condition that Hamas accept 
the Quartet's conditions of recognition of Israel, cessation 
of violence, and acceptance of prior agreements.  "They're 
our neighbors and we have to work together," he explained. 
Ben-Eliezer noted, however, that he listens to Palestinian 
radio daily -- born in Basra, Iraq, he reads, writes, and 
speaks Arabic -- and that he knows from this that Hamas will 
never recognize Israel.  He said that it may become more 
pragmatic  in the future if Palestinians pressure the group 
to change its policies, but speculated that, overall, Hamas 
will never change its beliefs. 
 
¶9.  (C) Ben-Eliezer noted that he is close friends with 
Abbas, but said that, unfortunately, Abbas is very weak.  He 
claimed that after Gaza disengagement, he spoke with Abbas, 
in Arabic, and told him that the problem was now among the 
Palestinians, not between the Israelis and Palestinians, and 
that he should lead his people.  Ben-Eliezer said he feels 
sorry for Abbas, and characterized him as having had 
pragmatic, acceptable, and realistic views for the past 15 
years. 
 
------------------------- 
International Partnership 
for the Hydrogen Economy 
------------------------- 
 
¶10.  (C) The Ambassador asked about Israel's application to 
join the International Partnership for the Hydrogen Economy 
(IPHE), and what research it is undertaking in the field of 
alternative energy sources in order to qualify.  (Note: 
Israel applied to join the IPHE in 2005, but to date has not 
qualified for membership.  End note.)  Ben-Eliezer claimed 
that Israel's lack of commitment to the IPHE is because the 
GOI does not have the budget, not because it is not 
interested.  International Relations Director Levy added that 
Israel has had the terms of reference for the IPHE for some 
time now, and that it based its application on private-sector 
interest, but noted that the private sector expects the 
government to finance research and development initiatives, 
and unfortunately there are "no support funds this year." 
The Ambassador said that the U.S. strongly supports renewable 
energy research.  Levy said that Ben-Eliezer does as well, 
and that he has been talking about renewable energies since 
his first day on the job. 
 
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JONES