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Cablegate: Water Project Financing Workshop Presses for Alternatives

VZCZCXRO7228
PP RUEHROV
DE RUEHTV #2499 3100942
ZNR UUUUU ZZH
P 050942Z NOV 08
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC PRIORITY 9081
INFO RUEHXK/ARAB ISRAELI COLLECTIVE
RUEAEPA/HQ EPA WASHDC

UNCLAS TEL AVIV 002499

SIPDIS
SENSITIVE BUT UNCLASSIFIED

DEPT FOR NEA/RA, NEA/IPA, OES/SENV
EPA FOR INTERNATIONAL
AMMAN for ESTH - Bhalla

E.O. 12958: N/A
TAGS: SENV EAID PREL KPAL KWBG JO IS
SUBJECT: WATER PROJECT FINANCING WORKSHOP PRESSES FOR ALTERNATIVES

1. (SBU) On November 5-6, the Milken Institute hosted a Financial
Innovation Lab in Jerusalem to promote the idea of using public
sector bond-issuing mechanisms for financing water, wastewater, and
environmental remediation projects in the region. 60 Israeli,
Palestinian and Jordanian officials, academics and businesspersons
joined with US municipal bond finance experts to explore the water
infrastructure situation in Israel, the Palestinian Territories and
Jordan, and to evaluate the possibility of using this avenue to fund
greatly needed facilities. The Milken Institute is based in Santa
Monica, California, and promotes market-based solutions to public
policy and economic development problems. Embassy ESTHOff attended
the two-day, off-the-record workshop.

2. (U) The program had four phases: first, defining the problem;
second, reviewing case studies; third, describing of the bond
funding mechanism used by public utilities and authorities in the
United States; and fourth, considering the use of bond financing
tools in the Israel/Palestinian context. On consecutive days, the
dismal state of Israel's polluted rivers and the region's dire water
and wastewater situation were outlined by academics, civic
authorities, and NGOs such as Friends of the Earth Middle East.
Case studies of the Kidron, the Yarkon, the Jordan, and the
Alexander Rivers were offered, and the conditions of Lake Tiberias
(the Sea of Galilee), the aquifers, and the watershed of the
Israel/Palestine/Jordan geographical region were described.

3. (SBU) Barclays Capital (formerly Lehman Brothers) Managing
Director Peter Taylor and Susan Weil of Lamont Financial Services
explained the municipal bond financing mechanisms used in the US.
Participants expressed interest in the idea, but questioned its
application in the region. Is the legal framework for such
bond-issuing municipal authorities sufficiently established in the
region? Creation of a transnational issuing authority (to address
the border-transcending nature of water and waste treatment
problems) also raised questions of legal jurisdiction. Given the
estimated 40% loss of distributed West Bank water due to theft and
seepage, is it even possible to assure the reliable revenue stream
needed as proof of repayment potential? Can wastewater service be
billed for (and viably denied to non-payers) like freshwater
delivery? When addressing a public good such as cleaner rivers or
public parks, which generate negligible user fees at best, where
will the revenue stream come from? Would the World Bank or other
donors agree to placing their aid funds in an escrow account as
security for bond issuers, as some financing structures call for?
While all of these questions may find answers, they point to the
need to adapt the financing model to the regional realities. One
participant sagely observed that the problem was really not one of
money or water, but rather of relationships: the need to improve the
cooperation and interactions among the responsible authorities of
the three governments involved.

Cunningham

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