The Palestinian Authority (PA) has halted payments to Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL). The PA cancelled a check to Dor Alon amounting to tens of millions of shekels. In response, the company has announced that it is halting the supply of fuel products to the PA until the debt is settled.
Sources familiar with the matter say that the action is a response by the PA to the suspension of transfers of tax receipts by the Israeli government, and that in any case the PA has no money with which to pay the debt. They say the halting of payments to Dor Alon is the opening shot, and that other Israeli suppliers to the PA are liable to encounter similar problems.
Dor Alon claims that it has suspended deliveries because of a debt of hundreds of millions of shekels. 40% of the company’s sales are to the PA.
Other Israeli fuel companies said today that the PA was not an attractive customer, because there was high risk, due to low profit margins and because credit payment had been extended by 60 days. The companies said that transactions with the PA should only be carried out on a cash basis.
Dor Alon has supplied the PA with fuel since 1994, under a contract that was extended for several years. The contract was extended for five years in 2004, and is estimated to be worth NIS 1.5 billion annually. Under the latest contract, Dor Alon became the exclusive fuel supplier to the PA.
The Palestinian Authority buys 50 million liters of gasoline a month from Israel. In 2005, the PA bough 513,000 tons of diesel, 87,000 tons of gasoline, and 117,000 tons of cooking gas.
Dor Alon said in response to the report that PA officials had promised to transfer the payment this week, but that supply would not be resumed until it was certain that the payment would be made. The company believes it is in a strong position to collect the debt, through assignment of NIS 200 million of money belonging to the PA in the hands of the Israeli government. Dor Alon further said that it had approached the state requesting clarifications about continuing supply to the PA, in the light of the suspension of transfers of tax revenues, but that it had not received any instructions. The company made clear that, if the halting of supply to the PA became permanent, this would have a negative effect on its profits.
Palestinian finance minister Mazen Sonoqrot called on Dor Alon to act wisely and responsibly. He said the PA was due to receive aid from the EU this week, and that this would enable it to clear its debt to Dor Alon.
He said that the company knew the PA was in a financial crisis, but would have to wait patiently. "This is winter time, the fuel is very important, and vital for the Palestinian population, and supply must not be cut off," he said.
Published by Globes [online], Israel business news - www.globes.co.il - on February 26, 2006