Palestine's fund looks to double assets and develop offshore Gaza gas

Exclusive: The Palestine Investment Fund aims to start developing offshore field next year

Mohammad Mustafa, CEO of the Palestine Investment Fund, smiles at a news conference at the World Economic Forum in Davos, Switzerland Friday, January 27, 2006.  Photographer:  Adam Berry/Bloomberg News
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The Palestine Investment Fund aims to more than double its assets under management over the coming decade, as it invests in projects alongside partners and looks to develop the offshore Gaza Marine field, its chief executive officer said.

"It normally takes two to three years to develop it [an offshore gasfield]. Assuming no political difficulties, we hope to be able to start next year," Mohammad Mustafa said in an interview with The National at the World Economic Forum in Jordan.

Gaza Marine is a natural gasfield that lies offshore the Gaza Strip. The field, which was discovered on the cusp of this millennium by British Gas, falls under the jurisdiction of the Palestinian National Authority, which governs the West Bank. Estimated to hold up to a trillion cubic feet of gas, equivalent to Spain’s consumption in 2016, according to the US Energy Information Administration, the field’s discovery is a game-changer for the Palestinian economy.

The $1 billion (Dh3.67bn) development of the field would be “transformational” said Robin Mills, chief executive of Qamar Energy. “It would be a huge development as Gaza is very short of power.”

The second Palestinian uprising, or Intifada, in 2000 and Israeli restrictions have delayed the development of the field.

“For us it’s significant it’s … enough for our power generation needs and we could even export part of it if we want to,” said Mr Mustafa. “The biggest challenge there is security because it’s in the sea, so it needs coordination with the Israeli side. It hasn’t been possible so far, but we are hopeful that this could change soon. We have been trying to answer all the questions … to assure partly that this is not done for anything beyond developing the economy and creating jobs. We are working very hard to make that happen.”

The West Bank and Gaza rely on Israel to meet almost all of their energy needs and with demand for power forecast to grow 3.5 per cent annually through to 2030, about $3bn to $4 bn is required in investment to meet energy security goals, according to the World Bank.

The Palestinian economy pays about $2bn every year to Israel in order to cover its energy needs. The West Bank imports all of its electricity from Israel and Gaza, which is under an Israeli blockade, produces about 60 megawatts locally with 200MW coming from Israel.

"Energy is a strategic sector for us now, both conventional and renewable," said Mr Mustafa. "There is a huge energy insecurity [in Palestine] and commercially it's costly … We want to change this."
The fund aims to spend $2.5bn over the coming seven years on its energy sector. PIF is working on building a capacity of 700MW of electricity in the West Bank over the coming five years and is also implementing a solar energy programme that will generate 200MW of electricity. Solar energy is on public school rooftops is currently being used to generate electricity that is used by schools and in the West Bank's grid.

Founded in 2003, the sovereign wealth fund, which is controlled by the Palestinian National Authority, plans to more than double it’s $1.1bn in assets under management over the coming 10 years.

“The key to all of this is leveraging, and that’s one of the things we are trying to do, we are trying to convince others to co-invest with us. A lot of parties want to come in and are finding it difficult to start their own projects, deal with the obstacles and political risks,” said Mr Mustafa. “What we do is develop these projects, deal with the licensing, permitting, we establish the business and bring it to a point where we can present it to outside investors and banks. They find it more comforting that we are part of it … so de-risking these projects is providing us with an opportunity to leverage our investment.”

The fund has leveraged its capital with a ratio of about one to three, which means every dollar invested by PIF in a project is matched by two to three dollars from other investors.

PIF is currently undertaking a $600 million 480MW power plant in north of the West Bank which will generate electricity and create jobs while reducing the costs to consumers and the government. The sovereign wealth fund developed a private company to oversee the project and gave a letter of mandate to the World Bank’s International Finance Corporation to raise the debt for the project.

The fund is also taking part in a scheme to convert Gaza’s only power plant to operate on gas instead of diesel which will reduce the cost to about one-third of what it is today while increasing capacity.

The PIF is also trying to widen access to housing finance for low and middle-income residents and undertaking housing projects in East Jerusalem where homes are in short supply.

“We are investing more in East Jerusalem, housing there is very critical, there’s a huge shortage and it’s forcing people to leave the city,” said Mr Mustafa. “To get a licence to build a housing compound in East Jerusalem is a nightmare. It’s very difficult, it requires a lot of patience, a lot of work and a lot of lawyers. We have been working on some of these projects for 10 years and it's finally happening and we’re excited about that.”