Gaza Siege Intensified After Collapse of Natural Gas Deal

Electronic Intifada, January 23, 2009 - Israel claims its recent moves are retaliation for continued rocket attacks originating in Gaza that despite their consistency cause scant damage and few actual casualties. But the reasons may include motivations with roots back in 2000, when the British firm British Gas Group (BG) discovered proven natural gas reserves of at least 1.3 trillion cubic feet beneath Gazan territorial waters worth nearly $4 billion.*

The Palestinian Investment Fund (PIF), a financial holdings company owned primarily by independent Palestinian shareholders, is investing in the project and heads the negotiations in coordination with Mahmoud Abbas' government in the West Bank. BG won a majority stake in the concession to develop the Gaza Marine Field and originally targeted Egypt for the sale of the natural gas. But pressure from then-British Prime Minister Tony Blair led the company to redirect its efforts toward Israel and develop plans for an underwater pipeline that would transport the gas to an Israeli refinery at Ashkelon. That deal could have eventually provided Israel with approximately 10 percent of its annual energy requirement, and would have generated approximately $1 billion for the PIF. The Hamas election victory in 2006 put all that in jeopardy.

The Palestine Investment Fund was set up by Salam Fayyad, a World Bank veteran lauded by the United States as a practical thinker and fiscal reformist who would deliver transparency to the Palestinian Authority's financial dealings. In 2003, then PA Finance Minister Fayyad consolidated a varied collection of Palestinian Authority holdings into the fund audited by Standard & Poor's and now valued at an estimated $1.3 billion. The fund's portfolio includes Palestine's most profitable company, Paltel, and serves as the primary vehicle for private investment in Palestinian sustainable infrastructure.

The PIF is ostensibly overseen by the Palestinian Authority; revenue generated by the fund could potentially be available to a Hamas-led government. Through the deal structured with the PIF, BG owns 90 percent of the Gaza Marine license. Consolidated Contractors Company, a Palestinian owned construction firm, owns the remaining 10 percent. The Palestinian Authority retains an option to take a stake in the concession once production is sanctioned. After the 2006 Palestinian election results, Israel began stalling in its negotiations with BG. Any deal that could result in funds reaching Gaza would seriously undermine official Israeli policy toward Hamas. For its part, Hamas assured it would not interrupt development of the project, but reserved its right to restructure parts of the deal it deemed harmful to Palestinian interests. In an interview with Dow Jones Newswires, Minister of Economy Ziad al-Zaza reiterated Hamas opposition to any sale of fuel to Israel....