Developing the Occupied Territories: an Investment in Peace – Vol. V – Infrastructure – World Bank Report

DEVELOPING THE OCCUPIED TERRITORIES

AN INVESTMENT IN PEACE

Volume V: Infrastructure

The World Bank

Washington, D.C.

September 1993

Copyright (c) 1993

The International Bank for Reconstruction and Development/THE WORLD BANK

1818 H Street, N.W.

Washington, D.C. 20433, U.S.A.

All rights reserved

Manufactured in the United States of America

First printing September 1993

Second printing October 1993

The six-volume series, Developing the Occupied Territories: An Investment in Peace, is published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors.

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ISBN 0-8213-2692-9

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CONTENTS

PREFACE – vii

I. OVERVIEW AND SUMMARY – 1

A. Infrastructure and the Development of the OT – 1

B. Local Government and Public Administration – 2

C. Electric Power – 3

D. Water Supply and Sanitation – 5

E. Transportation – 7

F. Solid Waste – 9

G. Housing – 9

H. Public Utilities – 10

I. Role of the Private Sector – 13

J. Environment and Natural Resources – 14

K. Estimated Investment – 15

Box 1.1: The Issue of Jerusalem – 4

II. LOCAL GOVERNMENT AND PUBLIC ADMINISTRATION – 17

A. The System of Local Government – 17

B. Legal Framework – 18

C. Control Over Revenues – 18

D. Allocation of Capital Funding – 19

E. Priorities for Strengthening Local Governments in the OT – 20

Annex 2.1: Local Government Notes. 22

Annex 2.2: Statistical Data for Resources Mobilization Calculations – 23

Annex 2.3: The Civil Administration – 24

III. ELECTRIC POWER – 25

A. The Present Electricity Supply in the OT – 27

B. Summary of Power Sector Problems – 32

C. Strategy for Developing the OT Power Sector – 33

D. Organizational Structure of the Electric Power Sector – 34

E. Technical Assistance to the OT Power Sector – 37

F. Immediate/Interim Period Investment for the OT Power Sector – 38

G. Long Term Investment Requirements for the OT Power Sector – 40

Annex 3.1: Electricity Supply in Israel – 42

IV. WATER SUPPLY AND SANITATION – 45

A. Existing Situation – 45

B. Institutional Arrangements – 46

C. Supply and Demand – 48

D. Financial Situation – 57

E. Recommendations and Proposed Strategy – 60

F. Investment Needs – 63

Annex 4.1: Tariff Structures for Various Municipalities in the OT – 65

Annex 4.2: West Bank and Gaza: Estimates of Rehabilitation Costs – 66

Annex 4.3: Water Use in the Occupied Territories – 67

V. TRANSPORTATION – 68

A. Present Conditions of the Transport Network – 68

B. A Strategy for Future Development – 77

VI. SOLID WASTE SERVICES – 83

A. Current Arrangements – 83

B. Alternative Arrangements – 85

C. Constraints on the Sector and Recommendations for Further Action – 88

Annex 6.1: Assumptions – 91

VII. HOUSING – 92

A. Present Status of the Housing and Urban Land Sector – 93

B. Housing Sector Strategy – 99

C. Next Steps to Improve Housing Sector Performance in the OT – 104

BIBLIOGRAPHY – 109

Preface

1. At the request of the sponsors and organizers of the Middle East Peace Talks, the World Bank has been supporting the work of the Multilateral Working Group on Economic Development by providing analyses of the key economic issues and developmental challenges facing the Middle East region. At its second meeting in Paris in October 1992, the Working Group requested the Bank to expand its contribution to include, inter alia, an assessment of the development needs and prospects of the economies of the West Bank and the Gaza Strip (commonly referred to as the Occupied Territories). In response to this request, a Bank mission visited the Occupied Territories during the period January 21-February 24, 1993. The mission comprised five teams focusing on the following areas: Private Sector Development, Agriculture, Human Resources, Infrastructure and Macroeconomics. Each team was in the field for about two weeks. The mission was led by Prem Garg who, together with Samir El-Khouri, stayed in the field throughout to provide continuity and guidance to the five teams. The staffing of the five teams was as follows:

Agriculture:

Gert van Santen (Team Leader)

Ulrich Kuffner (Water Resource Engineer)

Merle Jensen 1/ (Horticulture Specialist)

Human Resources:

Fredrick Golladay (Team Leader)

Maureen Field 1/ (Education Specialist)

Radwan Ali Shaban 1/ (Human Resource Economist)

Infrastructure:

Alastair McKechnie (Team Leader)

Ulrich Kuffner (Water Resource Engineer)

Lawrence Hannah (Urban Specialist)

Nail Cengiz Yucel (Transport Sector Specialist)

Ted Moore 1/ (Power Engineer)

Macroeconomics:

Michael Walton (Team Leader)

Samir El-Khouri (Fiscal Analyst)

Ishac Diwan (Macroeconomist)

Private Sector Development:

Albert Martinez (Team Leader)

Robert Mertz (Financial Sector Specialist)

Joseph Saba (Legal Specialist)

Dileep Hurry 1/ (Regulatory Environment and Tourism Specialist)

2. Mission members travelled extensively in the West Bank and Gaza, visiting municipalities, farms, businesses, industries, academic institutions, refugee camps and NGO-run facilities. Mission members also travelled in Israel, as needed, and paid several visits to Amman. The representatives of the key bilateral and multilateral donors in Jerusalem, Tel Aviv and Amman responsible for the Occupied Territories were kept briefed about the work of the mission. Close contact was also maintained with the field staff of UN agencies.

3. The Bank mission was received warmly by all sides, who took keen interest in the work of the mission and provided superb logistical and counterpart support for the field work. The main counterparts on the Israeli side were the Bank of Israel and the Civil Administration in charge of the Occupied Territories. On the Palestinian side, the main counterparts were the Technical Committees of the Palestinian Team to the Peace Conference, consisting mainly of Palestinians who are members of the bilateral or multilateral peace teams. The Ministry of Planning was the main contact on the Jordanian side. The Bank would like to thank all concerned parties, especially the Israeli, Jordanian and Palestinian hosts, for the excellent support and cooperation that the Bank mission received for this field work.

4. This report is based on the findings of the above mission. This report is in six volumes:

– Volume 1 provides a summary overview of the key findings and recommendations of the study. After commenting selectively on the current socioeconomic situation in the OT and its evolution over time, it discusses prospects for sustainable development in the future and outlines the priority agenda of policies and programs needed to promote such development.

– Volume 2 explores the strategic choices at the macro level that will be faced by the OT in the future and the implications for economic relations between the OT and the rest of the region. It looks at the present situation, relating the current crisis to a history of rapid, but unbalanced, growth and to a sequence of shocks that have buffeted the economies and the people of the OT. The study then examines several policy choices for the future affecting the structure of development in the OT. Finally, it outlines some illustrative scenarios for the future, focussing on the consequences of current developments in the region.

– Volume 3 reviews the performance of the private sector in the OT; assesses the environment in which it operates and its future prospects; and makes recommendations for accelerating private sector development in the future.

– Volume 4 reviews the evolution and structure of the agricultural sector in the OT; analyzes its current characteristics; assesses OT competitiveness in the immediate and longer term; outlines the main policy options and their implications; and provides a preliminary assessment of sectoral financial and technical assistance (TA) needs.

– Volume 5 assesses the current situation in the infrastructure sectors (electricity, water supply and sanitation, transport, housing and solid waste services) in the OT; identifies the major issues confronting these sectors; and outlines priorities for TA and investment needs. As local authorities are major institutions in the delivery of public services in these sectors, the study also includes a review of their current situation and makes recommendations for improving the functioning of municipalities.

– Volume 6 reviews the current status as regards human resource development; analyzes options for enhancing individual welfare and labor productivity in the OT; and outlines investment and TA priorities for strengthening existing programs and for laying the foundation for later reforms.

5. It is worth highlighting two limitations of this study right at the outset. First, a number of key issues bearing upon the future development of the OT (e.g., the allocation of land and water resources, the disposition of Israeli settlements in the OT, the future status of expatriate Palestinians, the territorial issues surrounding Jerusalem and, most importantly, the nature of the proposed "autonomy" for the OT) are the subject of ongoing bilateral negotiations between the Israelis and the Palestinians. Many of these issues involve competing claims to property rights, and their resolution is likely to be based primarily on political and security considerations. As the Bank mission to the OT was a technical mission, with neither the mandate nor the expertise to deal with political or security aspects, this study does not take any positions on issues that are on the agenda for bilateral negotiations. The focus instead is on policies, institutions and investments – where optimal choices are largely invariant to the eventual political arrangements to be agreed at the bilateral negotiations.

6. The second limitation relates to the definition of the OT. Israel has annexed East Jerusalem and considers it part of Israel. The Palestinians, on the other hand, consider East Jerusalem part of the West Bank as per the pre-1967 boundaries. Much of the data on the OT are, directly or indirectly, from official Israeli sources, which treat East Jerusalem as part of Israel and exclude it from the OT data. Furthermore, data on East Jerusalem from Palestinian and Israeli nonofficial sources are also sparse and selective. Therefore, purely as a practical matter, and without implying any Bank stance on the issue, the bulk of the analysis in this report concerns the OT excluding Jerusalem. However, where the results of the analysis might be particularly sensitive to the definitional issue, it is so noted in the report, together with a discussion in qualitative terms. To a somewhat lesser extent, similar data limitations apply to Israeli settlements in the OT, and a parallel approach has been adopted in this report in dealing with issues related to Israeli settlements.

7. Lastly, the study has had to cope with very serious data gaps and inconsistencies. A population census has not been carried out in the OT for more than 25 years. Accordingly, most of the demographic and labor force data are based on extrapolations and on sample surveys, the reliability of which are undermined by problems of nonresponse, especially since the onset of the Intifada in 1987. Data available on trade between the OT and Israel and on the profitability and competitiveness of the agricultural, industrial and service enterprises are also very limited. Independent Palestinian data, when they exist, are often based on nonstandard definitions, with indeterminate sampling and non-sampling errors. In many instances, data differ between sources, and, even when the same source is used, there are gaps and apparent inconsistencies. Given these data problems, the report uses estimates that appear plausible in light of the mission's field observances. In cases where the data differences among various sources are particularly sharp (e.g., population, unemployment and social indicators), the report attempts, where possible, to examine the reasons for these differences and to indicate the implications of alternative estimates for the results of the analysis.

8. In view of the limitations on the mission mandate, the data and definitional difficulties and the time and resource constraints, this study can only be considered a beginning. The analysis in the study, especially for the longer term, is necessarily incomplete; as, and when, progress is made in the bilateral negotiations, the study will need to be updated and expanded to take account of the agreements reached. Also, notwithstanding the care exercised in locating and interpreting the data from various sources, the empirical underpinnings of this study leave something to be desired, and, therefore, the conclusions of the study should be treated only as indicative of broad trends and priorities. Further, in-depth studies and project feasibility work will be required before the findings of this report could be used to make operational decisions.

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1/ Bank consultant.

I

OVERVIEW AND SUMMARY

1.1 This study aims at: a) assessing the current situation in the infrastructure sectors (power, water supply and sanitation, transport, housing and solid waste services) in the Occupied Territories (OT); b) identifying the major issues confronting these sectors; and c) establishing priorities for technical assistance and development needs. As local authorities are major institutions in the delivery of public services in these sectors, the study also includes a review of their current situation and recommendations on improving the functioning of municipalities. The report primarily focuses on sectors where public authorities would play a direct role in the provision of services. Accordingly, the telecommunications sector and petroleum distribution activities, which are, in general, provided through private initiatives, have been excluded from the study. With the implementation of the recommended strategy for private sector development outlined elsewhere in the study, it is expected that these services will be provided by private enterprises.

1.2 Because of the paucity of detailed information, the study, at times, relies on observations made in the field and anecdotal evidence. Also, the study attempts to cover several sectors and a wide area of institutional, investment and policy issues. Therefore, some of the recommendations made need further analysis and in particular, the estimated investment needs of the OT should be regarded as indicative magnitudes. In all cases, it is recommended that before implementation the investments identified and individual projects included in the program be subjected to comprehensive feasibility studies establishing their economic and financial viabilities.

A. Infrastructure and the Development of the OT

1.3 The services provided by infrastructure sectors lie at the foundations of the economic and social life of the OT. The basic water supply, transport and power facilities and the services provided in these sectors, to a large extent, determine both the quality of life and the industrial and agricultural development potentials of the OT. However, despite some positive improvements in service levels under the Israeli administration, in all these vital areas the level, and particularly the quality, of service provided is below that generally found in countries with comparable incomes. Moreover, the poor state of the existing physical facilities for sewerage, water supply and solid waste and drainage, and the inadequacy of service provided in these areas, has already placed a heavy strain on the environment.

1.4 The basic reason for the poor state of the infrastructure sectors and the inadequacy of the services provided is related to the governance of the OT. First, the institutional structure to formulate, implement and manage investments is inadequate, and Palestinians are only weakly involved in the decision-making process. The lack of an effective mechanism for responding to the wishes of the population has resulted in formulation of policies and investments that do not serve the needs of the OT well. Second, there is no sovereign guarantor to enable international borrowing and no formal financial sector to provide funding for maintaining and developing infrastructure services in response to the growing demand. Third, there is some evidence that not all of the tax revenues collected by the Israeli authorities from residents of the OT have been made available to the Civil Administration (CA) for inter alia, investment and municipal services.2/ Fourth, municipalities have been forced to siphon funds from the utilities to maintain municipal services. Consequently, utilities have had to finance almost all their investment from their remaining internal resources. Furthermore, these internal resources were further depressed by frequently low levels of efficiency which in turn were due to inadequate investment and institutional weakness.

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2/ The World Bank paper on Economic Development and Policy Choices in the West Bank and Gaza estimated that there was a net revenue loss to the OT of about 6% of GDP in 1991.

1.5 The recovery program, therefore, must start with technical assistance and studies to build a technical capability and institutional framework to develop rational policies and efficient investment programs. Particular attention should be given to the creation of analytical capacity for the economic and financial evaluation of investment and operational improvement priorities. Without strong institutions, investments to redress infrastructure shortcomings are unlikely either to be implemented efficiently or be sustainable in operation. Existing local government structures, despite their weaknesses, and the utilities appear to be the starting point in establishing an adequate institutional capability. In addition, a significant inflow of funding is needed initially to carry out rehabilitation works and, subsequently, to expand capacity to meet demand.

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