Delek and Paz face off in Palestinian fuel contract: The NIS 2.5 billion a year Palestinian Authority fuel contract is the large

Oct 15, 2009 (Globes - McClatchy-Tribune Information Services via COMTEX) --
DLKGF | Quote | Chart | News | PowerRating -- Yitzhak Tshuva and Zadik Bino both want to supply fuel to the Palestinian Authority. Sources inform "Globes" that Delek Israel Fuel Corporation Ltd. (TASE: DLKIS), controlled by Tshuva through Delek Group Ltd. (TASE: DLEKG), is in preliminary talks with Palestinian officials to provide fuel to the Palestinian Authority, a market currently dominated by Paz Oil Company Ltd. (TASE:PZOL), controlled by Bino through Bino Holdings Ltd., and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL), controlled by president and CEO David Wiessman.

The NIS 2.5 billion a year Palestinian Authority fuel contract is the largest in the industry. Paz has held the contract since 2007, and last year extended it by two years through the end of 2010. Paz handles 70 percent of the contract, for the delivery of fuel to the West Bank, and Dor Alon supplies the Gaza Strip.

The 2007 contract between Paz and the Palestinian Authority stipulates that either party has the right to terminate the contract with 90 days prior written notice, without the need to cite a reason. So far as is known, the Palestinian Authority has sent no such notice to Paz, which is making deliveries as usual.

Delek Israel first contacted the Palestinian Authority several months ago. However, industry sources say that the talks picked up following the appointment of a new head at the Palestinian Energy Authority and after David Kaminitz became CEO of Delek Israel.

Israel fuel sources knowledgeable about the Palestinian Authority say that Prime Minister Salem Fayyad has instructed the Palestinian Energy Authority to open negotiations with Israeli fuel companies to supply fuel either alongside Paz, or instead of it.

The Palestinian Authority has the right, under its contract with Paz, to bring in an additional fuel supplier. An Israeli fuel source said, however, "This may be an attempt by the Palestinian Authority to improve the terms of its contract with Paz. All the fuel companies are in contact with the Palestinians, but Paz still holds the contract."

A Palestinian Authority contract is a strategic goal for all of Israel's fuel companies. Dor Alon and a partner held the contract for 12 years. After acquiring the Ashdod refinery in 2007, Paz wrested the contract from Dor Alon, by offering the Palestinians significantly better terms and lower prices. At the request of the Palestinian Authority, Dor Alon retained the fuel supply contract to Gaza, because the company owns the Nahal Oz fuel terminal, which supplies fuel to Gaza.

Energy sources believe that Paz has a built-in advantage over the other fuel companies because it now owns the Ashdod refinery. To win a contract with the Palestinian Authority, Delek Israel will have to reach a deal with Israel Corporation (TASE: ILCO) Oil Refineries Ltd. (TASE:ORL), which owns the Haifa refinery, or import fuel and store it at Delek's fuel terminal in Ashdod.

Paz's share fell 0.8 percent in early trading to NIS 558.20. Delek Group's share fell 0.3 percent to NIS 639 and Delek Israel's share fell 0.9 percent to NIS 165.20. Dor Alon was unchanged at NIS 66.

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