"The National Oil Company".. Investments That Could Bring Millions to the Treasury, Concerns Related to the Lifting of Government Support

Exclusive to SadaNews - The Palestinian Cabinet announced in its last weekly session yesterday, Sunday, the formation of an establishment board of directors for the National Oil Company, which is under establishment, and commissioned it to prepare the legal framework for the company and to prepare the opening financial statements for the company, separating it from the statements of the Petroleum Authority. The Cabinet had approved in its session No. 75 the establishment of a governmental oil company aimed at enhancing investment, strengthening the energy sector, regulating the market, and diversifying supply sources. The Council confirmed the continued mission of the General Petroleum Authority in setting policies, organizing the oil sector, and supervising it. So what is this company being discussed and what are its benefits?

According to private sources, the company will have a high capital, and will bring in millions of dollars for the public treasury, while ensuring that the government's share remains the largest at 51%, and the share of the private sector at 49%, keeping control and dominance in the hands of the government while introducing significant investments from the private sector.

Majdi Al-Hassan, head of the General Petroleum Authority and Undersecretary of the Ministry of Finance, stated: "Separating the General Petroleum Authority from commercial operations is an important step towards enhancing transparency and organizing the oil sector, allowing the authority to focus on its supervisory and regulatory role, while commercial operations are managed by a specialized entity according to clear professional foundations. This step has been awaited for its impact on improving performance and raising the efficiency of managing this vital sector."

Dr. Muhammad Abu Rubb, director of the Government Communication Center, commented: "The establishment of the company will not eliminate the role of the authority. To clarify.. the governmental oil company aims to enhance investment, strengthen the energy sector, regulate the market, and diversify supply sources, while the General Petroleum Authority's role continues in setting policies and overseeing the oil sector. In the energy sector, for example, there is the Palestinian Electricity Transmission Company, alongside the Energy Authority."

An anonymous economic expert told "SadaNews": "The establishment of this company is positive in terms of providing revenues for the public treasury, as it involves creating a company with high capital, but on the other hand, there are concerns from both sides: The first is that the government completely lifts its support from fuels, which would lead to prices aligning with Israeli prices, and the second is that if prices match those in Israel, then fuels in the Palestinian territories lose their value in terms of price relative to Israel, thereby potentially leading to reduced consumption at gas stations in the West Bank, which could result in decreased revenues for the Palestinian National Authority from fuels, or it may boost the phenomenon of smuggling."

Moreover, the economic expert and businessman Samir Halila told "SadaNews": "This decision is not related to prices; you can sell gasoline 15% cheaper than that in Israel, this is what the Paris Economic Protocol allows. However, the value of fuel taxes and value-added tax brought the Palestinian Authority around 3.3 billion shekels last year, which is approximately one-third of the value of untransferred clearance revenues." He acknowledged that the concern regarding the potential elimination of the price margin due to the waiving of part of the tax revenues remains valid, especially in light of the absence of a system that organizes and monitors public companies as seen in previous experiences."

He added: "In general, I do not expect an increase in price, as fuel prices are among the highest in the world. The importance of the company lies not in distribution, but in the Palestinian Authority's ability to attract investment, storage, and importation, and eventually in producing oil derivatives by establishing a refinery. However, it is premature to judge this, as government directions regarding this matter need to be understood."

Regarding the positive aspect of establishing this company in principle, Halila asserts that it opens the door for government partnership in at least two matters: storing derivatives instead of leaving this matter to the private sector, and importing derivatives directly from outside Israel, which is currently permitted by law.

He continues: "I would prefer that the private sector leads and the government contributes for two reasons: the government's current inability to invest due to cash flow shortages, and the Israeli government's stance towards a Palestinian public company, which may be negative compared to a private company."

It is noted that the government talks about government support for fuels amounting to 700-800 million shekels annually, before it decreased to 600 million shekels in the current year's budget due to the effects of the financial crisis.

It is known that government support is a reduction in the tax margin on fuel taxes, which results in a lower price margin compared to Israel, valued between 50 agoras to one shekel per liter, especially for diesel fuel.

It is also noted that the annual fuel consumption rate in the Palestinian territories exceeds 1.4 billion liters, with an average monthly demand of about 95 million liters. Palestine imports all its fuel derivative needs (gasoline and diesel) from the Israeli market. Diesel constitutes more than 60% of the consumption rate. Taxes (value-added tax and excise tax) account for more than two-thirds of the final price for the consumer.

Economist Dr. Tarek Ashour affirms that "the Palestinian Constitution in its Article 21 of the Basic Law amended in 2003 is clear and decisive: the economic system in Palestine is based on principles of free economy, and the executive authority may establish public companies regulated by law. He pointed out that this exceptional text, which grants the government a license to intervene in the free market, is exactly what the government relies on today. But the deeper question remains: Is everything that is constitutionally permissible economically required? The difference between what is permissible and what is required is the essence of economics, a difference that sometimes disappears in our decisions."

He adds: "In the case of the oil company, no law has yet been issued to regulate its work, and the establishment council is only tasked with preparing the legal framework and financial separation, which means we are facing a governmental company managed by executive decisions before it is subjected to legislative oversight."

According to Ashour, the deeper question remains: Is this decision the beginning of privatization in the oil sector, meaning the governmental company will serve as the nucleus for a major national company that will later be offered for public subscription as happened in the telecommunications sector? Or are we witnessing the beginning of nationalization and government expansion in managing the economy, in a manner that contradicts the spirit of Article 21 of the Constitution, which establishes a free economy and makes public companies an exception rather than the rule?"

He adds: "Dr. Mohamed Mustafa, thirty years ago, built the telecommunications sector on the principles of free market, competition, and partnership with the private sector, resulting in a successful company that continues to provide profits to investors to this day. Today, as he endorses a governmental oil company, it seems as if he is writing a completely different chapter in his economic thought. Have the circumstances changed or have the convictions changed?"

He continues: "Answering this question requires transparency from the government, wide community discussion, and the courage to acknowledge that the economy is not managed through trial and error, nor through hasty decisions lacking deep economic feasibility studies, but through a long-term perspective that considers the peculiarities of the Palestinian economy under occupation and also the principles of the free market endorsed by our Constitution."