The Status of Receivables and Payables in Palestinian Local Authorities — Fiscal Year 2023

·        An old and ongoing plague....and the concept of Net Lending!

·        Episode No. (22)

·        The State Audit and Administrative Control Bureau (SAACB), in its 2024 annual report, revealed material imbalances in the management of receivables and payables of local authorities, particularly those related to electricity and water services, which resulted in a large accumulation of mutual debts between local authorities, the Ministry of Finance, and a decline in the quality of services provided to citizens!

·        The report concluded that weak governance, lack of oversight, and the absence of effective legal procedures were primary causes for the continued accumulation of indebtedness, which requires corrective measures including: strengthening collection systems, activating oversight mechanisms, regulating the relationship with distribution companies, and establishing the principle of financial commitment as a basis for the continuity of support and projects.

·        Main observations and violations at many Palestinian local authorities:

• Local authorities delayed payment of electricity and water bills, and monthly clearance revenues debts accumulated at the Ministry of Finance!
• The rise of debts owed by citizens, resulting from the absence of prepaid payment systems and weak collection!
• The decline in the quality and continuity of electricity and water services due to failure to implement development and maintenance projects!

·        The Ministry of Finance suspended support projects for authorities that did not comply with payment or settlement! The report indicated that some local government bodies did not comply with scheduling and settling electricity and water debts with the Ministry of Finance, as it was found that 29 local authorities did not comply with settling electricity debts, while 20 local authorities did not comply with settling water debts!

• The continued monopoly of the two national electricity companies, and Mekorot for energy and water sources, and the imposition of late-payment fines!
• The absence of a Palestinian monitoring system to accurately track consumption quantities and bills!
• Some authorities used electricity and water revenues to cover operating expenses instead of paying obligations!
• Weak legal frameworks for debt collection, and a high operating salaries line at the expense of financial obligations!
• Ineffective scheduling and settlement procedures, and the absence of public-awareness campaigns for citizens.
• There are authorities that distribute electricity without a license, and others that have not opened bank accounts dedicated to projects!
• Accumulated debts on some local council members, and on government institutions!
• Variations in collection rates among authorities, and differences in collection procedures!

·        The concept of "Net Lending" : Net Lending refers to the amounts that the Palestinian government covers on behalf of local authorities and other Palestinian entities as a result of the Israeli side deducting those amounts directly from the clearance revenues, although the original principle is that local authorities should pay their obligations directly to Israeli electricity and water suppliers. Therefore, Net Lending is considered a financial obligation on the Palestinian government toward the general treasury, because it represents debts that were actually paid (via deduction from the clearance revenues) on behalf of local authorities or beneficiary entities without those entities reimbursing the government!

·        Financial and administrative impact: High Net Lending leads to a decline in net revenues transferred to the Palestinian Authority, and this constitutes an increasing burden on the general budget, weakening the government's ability to finance its other obligations. In addition, this reflects a failure in local authorities' commitment to pay electricity and water bills on time, and weaknesses in local billing and collection mechanisms.

·        In many cases, the occupation authorities withhold amounts from the clearance revenues ("piracy"), claiming they belong to Palestinian institutions or entities that do not agree to transfer their dues, which complicates the clearance process and negatively affects the monthly financial flows to the Palestinian side, not to mention many cases of full seizure of the clearance revenues by the Israeli occupation authorities!