Israel’s Finance Ministry is deducting billions of shekels from the Palestinian Authority’s debts while also depleting the Norwegian fund where “Gaza money” has been stored since the war began. This marks a significant development, as the PA’s debt to the Israel Electric Company has led to substantial loans at high interest rates, damaging the company’s credit. Ultimately, this financial strain was passed on to Israeli consumers, Israel Hayom reported on Sunday.
The initiative, spearheaded by Finance Minister Bezalel Smotrich over the past year, culminated on Sunday when he informed the political and security cabinet of its completion. The process successfully recovered the full debt of 1.9 billion shekels ($520 million), which had remained outstanding for over a decade.
Additionally, and equally significant, the Finance Ministry issued an executive order on Sunday regarding the Norwegian fund, which had received millions offset from the Palestinian Authority’s funds by the State of Israel. These funds, earmarked for Gaza (275 million shekels per month – $75 million), amounted last May to a total of 1.4 billion shekels ($380 million). The order directs that the funds be used to settle the PA’s debts to Israeli companies: half will be allocated to the companies that supplied fuel to the PA, while the other half will go to the Israel Electric Company.
It helped that over the past two years or so, the Biden administration boycotted Minister Smotrich and as a result was unable to negotiate with him. As a result, American demands for interest rate reductions were met with a firm rejection from the Finance Ministry, which refused to compromise on even a single shekel. The ministry stressed that such “discounts” create negative incentives and pointed out that no Israeli consumer would receive similar concessions.
Since last May, when Norway unilaterally recognized a Palestinian state, Minister Smotrich halted the transfer of offset funds to the Norwegian fund and began accumulating the amounts separately within Israel. Now, the funds, which were originally intended to be returned to the Palestinian Authority after the war, are being redirected to cover debts owed to the IEC, in coordination with the United States.
Behind the scenes, Finance Ministry Deputy Director General Yoray Matzlawi led the negotiations with the PA and various American officials. Matzlawi achieved what his predecessors could not: ensuring the full transfer of funds to the Electric Company from the PA’s accounts, including the accrued interest on arrears, without any reductions.
The Palestinian Authority’s debt to the IEC has been an ongoing issue for the State of Israel for 15 years. In 2016 and 2020, former Finance Ministry Director General Shai Babad (currently the CEO & President at Strauss Group) reached two agreements with the PA to settle the accumulating debt. However, the PA repeatedly violated these agreements, preventing a resolution to the longstanding financial dispute.
On Sunday, 1.1 billion shekels are being fully cleared and transferred to the Israel Electric Corporation, sourced partly from the Norwegian fund and partly from the funds accumulated in Israel. After reaching agreements with the U.S. Ambassador to Israel, the use of the Norwegian fund for PA purposes was prevented. Norway will now receive a formal letter from the Finance Ministry requesting the funds for the payment of various debts.
