Initiative for the Palestinian Economy

Construction and Building Materials

Proprietary: Office of the Quartet Representative

 Disclaimer

The information contained in this presentation or document (presentation) is for general guidance on matters of interest only. It is provided on the
basis that OQR and OQR advisers are not engaged in rendering any professional advice and/or services of any kind. As such, it should not be used as a
substitute for consultation with professional accounting, tax, legal or any other advisers, nor should it be relied on in any way.

While the OQR has made every attempt to ensure that the information contained in this presentation has been obtained from reliable sources, OQR is
not responsible for any errors or omissions, accuracy, impressions or otherwise, or for any results which are consequential directly or indirectly from the
use of this information. All information in this presentation is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results
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In no event will OQR, its advisers, agents or employees thereof be liable for any decision made, action taken or omission of an action in reliance on the
information in this presentation and/or any discussions that followed it or for any consequential, special or other damages.

Proprietary: Office of the Quartet Representative

2
 Overview of the Palestinian construction sector

Sector description
Increasing household size in recent years (5.4 in 2007 to 6.0 in 2013) driven
by limited new housing construction
Housing construction not targeted at low to middle income (average unit
prices are higher than housing budget of 50% to 80% of population)
Significant challenges with titling, land registry and fragmented ownership;
only ~35% of West Bank land is registered (at current target registration
rate it will take approximately 80 years to register entire West Bank)
Tight mortgage lending standards (e.g., only 5-15% of Areas A/B available
for mortgages; of $500M AMAL program <1% allocated)
Lengthy permit process for new construction in East Jerusalem (24 to 84
months) and Area C

Baseline
Represents ~22% of GDP, at $2.3B
Accounts for ~16% of employment, at ~143K jobs
Average construction ~9,000 housing units 2008-2011
Regional benchmarks
Housing cost $550-700 per sq. m. in Palestinian Territories vs. $375-550 per
sq. m. in Turkey and $250 per sq. m. for affordable housing in India
Average mortgage rate 5 to 6.5% vs. 3.2%-4.0% in Israel

Proprietary: Office of the Quartet Representative

3
 Investment case

As artificial, externally imposed economic and political constraints are

removed, catch-up growth in Palestinian Territories will drive
increases in household income

Introducing large-scale affordable housing schemes will unlock

housing demand from new socio-economic segments

Increasing access to low-interest mortgages, through loan guarantees

and first loss schemes, will further boost demand
Engage
Improved land registration creates new investment opportunities
across West Bank

Modernised rental regulation (ending rent control, automatic right to

renewal) increases flexibility in rental market and spurs investments
in new rental property

4 Proprietary: Office of the Quartet Representative

 EXAMPLES OF
Creating profit opportunities in the housing sector KEY INITIATIVES

Mainly potential investable

opportunities

Mainly supporting
initiatives
Activities Status
Effective demand survey Under way
Understanding
demand
Further analysis ~100K dunums of Under way
Identification of suitable land identified in IPE
suitable land
PLA resource and capacity building Under way - ramping up of
Judges dedicated to land disputes land registration efforts
Land registration

PPP to drive affordable housing Affordable housing pilot

Urban infill and periphery development program initiated
Housing Donor financing of off-site infrastructure Ongoing private sector
development Leveraging affordable housing experiences discussions
from other regions, eg., Turkey, Africa
Consumer education AMAL restructuring under way
Mortgage
Training of banking personnel Financial literacy ongoing
financing
Affordable mortgage programs Mortgage market development
initiated
Sales & rental Development of specialised real estate Rental regulation
agents, with broad portfolio of houses improvements
5 Proprietary: Office of the Quartet Representative
 Potential projects and enablers for construction strategy
Potential projects Enablers

Develop housing tailored to specific Construction industry capacity

income groups and geographic areas

West Bank: Urban in-fill, urban Access to building materials

periphery, and planned city
developments Local or on-site capacity

Housing Gaza: Affordable housing on Skilled labour

construct- available state land
ion Machinery and technology

Upgrade substandard housing, Economic enablers for

e.g., connect to public water and development
sewage networks (focus on Gaza
and East Jerusalem) Financing availability

Other Basic infrastructure

Construct key projects required
infra-
by other sectors Governance process
structure

Land registration
Financing: expand existing low-
cost financing initiatives (e.g., National master plan in place
AMAL) and launch additional
Financing options to spur construction Permitting / zoning process
growth and enable low-income
rentals and home purchases Project management

6 Proprietary: Office of the Quartet Representative

 Data shows major pent-up demand for affordable housing and
significant opportunities

Mortgage affordability by income group

Maximum affordable mortage1, USD 000 Average unit price
~60% of households
300 - E. Jerusalem
can not afford average
house prices in
sampled markets

108 120 120 - Ramallah

96 100 - Reehan
84
72 90 - Nablus
60
48 70 - Al Jinan
36
N/A

Income distribution, % of households (annual household income)

18
17

14 14
13
11

5
4 4

<5k 5k-6.5k 6.5k-8k 8k-10k 10k-11.5k 11.5k-13k 13k-14.5k 14.5k-16k >16k

1 At 5% interest rate, 25 year mortgage, 50% DTI, no down payment

7 Reference: PCBS; interview with contractors Proprietary: Office of the Quartet Representative
 requiring 25-40K housing units per year
1
Significant housing construction required to curb trend toward over crowding
People per housing unit Historical data
6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 25,000 units built per year
5.9 40,000 units built per year
5.8
+11% p.a. To reverse
5.6 5.6 overcrowding
5.5 trend, 40K units
5.4 5.4 would have to be
constructed per
year
2007 2012 2013E 14E 15E 16E 17E 18E 19E

2 3
Estimates based on
Sector has proven capacity to build 33K units/year previously published reports
Housing units built in Palestinian Territories1 High growth years
Number of units (000) RAND arc study indicates that
33 32,000 units per year need to be
29 29 built to keep constant housing
27
density
20 19
PCBS, UN, and IPCC reports
17 17 17 indicate a total latent demand of
14 15 14 14 ~130K
13 13 13
11 Driven by overcrowding and
9 8
8 structural issues in the
5 6
3 existing housing stock
Would require construction of
25-40K units per year to fill
1990 1995 2000 2005 2010

1 Includes illegal units until 2007. 1990-2007 based on actual construction. 2008-2012 based on permits issued, which PCBS considers a good approximation
8
Source: PCBS Proprietary: Office of the Quartet Representative
 Opportunistic, targeted land registration can support
implementation of the IPE
1 Agreeing on criteria for land to be approved 2 Creating and empowering task force to drive
for fast-track registration registration

Key criteria for suitable land Task force needs mandate and resources to act
Geographically suitable for housing quickly and decisively
(topography, etc.) Potential membership
Location (proximity to infrastructure, existing Relevant PA ministries
urban centres) Palestinian Land Authority
Low cost of land Judiciary
Land suitable for registration (ideally: high Developers
ownership concentration, low dispute frequency, Investors
etc.) Facilitating agency (OQR/World Bank)

Applying criteria to map to identify suitable

3 4 Leveraging private sector investment
land

Private sector developers can play key role in

demarcation and surveying process
Appropriate mechanism (tendering, performance-
based contracts, etc.) for selecting and involving
private sector will need to be developed
Suitable areas for housing should be matched with
developers with relevant capabilities

9
Proprietary: Office of the Quartet Representative
 Housing need could be addressed with several different
housing types tailored to demographic and geographic
segments
Description Examples
Urban infill Dense construction in urban centres to Land in centres of East
take advantage of available land; Jerusalem, Ramallah,
targets mostly mid- to high-income Bethlehem, Hebron,
A
levels Nablus, Jenin, and other
cities

Urban periphery Construction around existing urban Reihan1; land outside,

West Bank

centres to increase city size Ramallah, Bethlehem,

B
Various price points to serve multiple Hebron, Nablus, Jenin,
income groups and other cities

Planned cities Newly constructed cities on the Rawabi can be tailored to

outskirts of existing urban hubs serve lower-income
C
Housing across income-levels with a segments
high level of standardisation and
possibly pre-fab elements

Gaza-focused Affordable housing to address TOKI case study for

affordable overcrowding and substandard housing Gaza-context
Gaza

in Gaza Strip (pre-fab housing as

D housing
possible solution)

1 PADICO
10
Proprietary: Office of the Quartet Representative
 Breakdown of housing types
West Bank Gaza

A Urban infill B Urban periphery C Planned cities D Gaza-focused

affordable housing

Within urban centres Just outside urban centres Close to urban hubs (but not Gaza Strip
Area directly connected)

Geo-
Small lots Medium Very large Large
Development size (1-20 dunum) (10-1,000 dunum) (1,000-6,000 dunum) (500-1,000 dunum)
graphy
$13K $13-16K $7-11K $0-8K
Land cost/unit1 ($100k 500k/dunum) ($50k 300k/dunum) ($20k-200k/dunum)

Household income Medium to high (>$10k) Medium to high (>$10k) Low to medium (<$10k) Low to medium
Demo-
graphics 3-5 4-7 4-6 4-7
Household size

Average size unit 120 120-150 100-150 115

(sqm)

Density (house-to- High Medium Medium Medium

lot ratio)2 (>300%) (100-300%) (100-300%) (100-300%)
Housing
Construction cost, ~$73k ~$73-91K ~42-63K ~$38-46K
incl. land

Height of building 4-8 2-6 2-8 (mixed) 1-3

(# of stories)

Connection to existing Connection to existing infra- All new infrastructure neces- All new basic infrastructure
Infrastructure (road, sewage, infrastructure structure; possible extended sary (incl. energy/water but necessary (incl. energy and
power, water, schools) capacity necessary also commercial infrastructure) water)

Project-by-project base with Medium scale projects with High-scale, high-capital High-scale projects, partially
Scale 10 to 30 units per projects several hundred units per projects for multi-thousand government-funded
(private investment) project (private investment) units per project (possibly
public investment)
1 Calculated using apartment size and land cost/sqm. Dunum cost reflects proximity to urban centre
2 Density is defined as ratio of living area per land area
Reference: Architects and contractor data; expert interviews
11
Proprietary: Office of the Quartet Representative
 Construction costs vary across housing types
Additional
Construction profit margin
Construction costs cost/unit for
USD/sqm USD (range) developer2

605
A Urban 65
infill
300
73,000 Note on unit costs
= 120 sqm 110 130
Land and other
costs (esp.
infrastructure)
depend greatly on
605 location + proximity
B Urban 65
periphery to infrastructure
West Bank

73,000
300 Labour and building
materials cost
= 120-150 91,000 depend on scale,
110 130
sqm size and quality of
building
+5% Government
provided land will
C Planned 420 help make housing
city 50 affordable
42,000
Land costs could be
210 reduced if area C is
= 100 to
unlocked
150 sqm 70 63,000
90 Building materials
costs can be
reduced through
new design,
400 processes and
D Affordable techniques
housing 50 38,000
Gaza

210
= 115 sqm 46,000
70 70

Land Labour Building Other1 Total

Land subsidy would decrease
materials
average unit cost to $38,000
1 Includes infrastructure access costs and fees 2 Below risk-adjusted market rates of return for
developers; additional subsidies for land, infrastructure, and capital may be needed
12 Reference: Interviews with contractors; case studies
Proprietary: Office of the Quartet Representative
 Analysis of potential supply and demand across housing types
in West Bank for projected income distribution in 2016
Outside solution Possible solution X % of total population
Value of
Const. Selling # units annual
Size2 cost price, Units, constructed investment,
Housing type sqm $k $k % annually $ M1

Urban infill
1 73 77 17 2.5K 4K ~240
A
120 sqm

Urban periphery
2 91 96 25 3.8K 6K
150 sqm

B ~660

3 73 77 16 2.5K 4K
Supply 120 sqm

Planned cities

4 63 66 19 2.8K 4.5K
150 sqm

C ~440
5 42 44 23 3.4K 5.5K
100 sqm

Rental

Maximum affordable 36- 48- 60- 72- 84- 96- 108- >
mortgage for housing <36
48 60 72 84 96 108 120 120
$ 000
= 15K
11 4 8 19 12 12 9 5 20
to 24K
Demand in %
1 Does not include roads, which come to an additional annual investment of ~$80M per year in the West Bank
2 Unit sizes are indicative, reflecting existing preferences, and may be reduced
13
Proprietary: Office of the Quartet Representative
 Affordable housing as a profitable industry
Enabler Description
Carefully priced at the exact price point (between 3 - 5x household
Price income range) given price elasticity of customers

Use of techniques such as aluminium concrete form etc. to lessen

Construction costs and construction cycle time (e.g.,: 20% less costs, 21 day cycle
time); construction process industrialised

In the outskirts of the city at lower land purchase costs; large plot
Land/ sizes (e.g.,: ~50,000 sqm) to build low density units and land cost
location managed at ~ 15-20% of overall cost/unit

High-rise structures avoided; development strategy is to buy parcel of

Development land, build as quickly as possible and achieve high inventory turnover
strategy on the units

Primary infrastructure connectivity provided by government; but

Infra- secondary infrastructure (internal roads, street lights, sewage
structure treatment ) managed at ~ 15-20% of overall costs

Selective use of alternate technology to lower costs (e.g.,: fly ash

Technology bricks); both process and building material technology used

Partnerships with lending institutions to provide loan schemes to the

Financing unorganised sector; innovations in lending such as Micro-Housing
finance and flexible credit check processes

14
Proprietary: Office of the Quartet Representative
 TOKI is a private-public partnership (PPP) example of
innovative construction methods enabling affordable housing

Overview Construction method Lessons learned

TOKI - the Turkish Formwork Alternate

Important to give
Housing Development program high profile
technology materials
Administration issues (TOKI reports directly
tenders for the disposal of to PM office)
government-owned land for Need to have a firm
mass housing projects. legal basis
TOKI has access to Important to provide
government-owned land innovative financing
Economical Pre-cast /
Contractors bid for the
design pre-fab
development of this land E.g., larger down-
The land development is payment for longer
split into: instalment plan
PPP revenue sharing Bank credit lines
for high-end housing
public ownership for
affordable housing
TOKI has adopted innovative
construction technology (pre-
cast factory built homes,
BETWEEN 2003-2012 aluminium and tunnel formwork
technology) to rapidly develop
535,000 housing units and supporting good quality housing communities
infrastructure completed at 2,350 sites across These building methods have
Turkey (approx. 64.5 million sqm) helped scale up rapidly (to
86% affordable housing (~$40,000 / unit; price 70,000 units constructed per year
per sqm $375-550) within 10 years)
14% luxury projects for fund raising

15
Proprietary: Office of the Quartet Representative
 Almost 10% of households do not have access to the public
water network, and ~50% do not have access to the public
sewage network

% households with access to basic infrastructure

99.9 98.0 96.7 95.5 91.4

54.4
44.0

Electricity Bathroom Refrigerator Washing Water public Sewage Telephone

machine network public
network

Substantial amount of housing is not connected to the sewage public network (close to
50%) and close to 10% does not have access to water public network
Access to electricity and basic housing equipment (bathroom, refrigerator, washing
machine) is on the other hand very high

16 Reference: PCBS
Proprietary: Office of the Quartet Representative
 There is scope to increase mortgage penetration to reach the
IPE ambition

PT needs to increase the mortgage market PT needs to increase the mortgage market growth
growth rate to reach the ambitious IPE target rate to reach the ambitious IPE target

Mortgage debt as percentage of GDP Current and estimated future outstanding mortgages
20111 in the Palestinian Territories 2011-20162
Percentage USD millions

US 77 6.5x
1.4x
OECD average 63 3,900
600
South Africa 39 430

Malaysia 32

Israel 30 2011 2013 2016 est.

Japan 23 % of GDP 4 6 28

Jordan 10
% of
residential 29 31 N/A
Brazil 7 debt
India 5
% of bank 6 7 N/A
Palestinian Territories 4 deposits3

1 References: 2011 or latest available, WMM (PT 2011), CESinfo (US 2010), Israel National Bureau of Statistics (2010), CIBC 2009
(others), National Mortgage Corporation (Malaysia 2012), EBRD (Jordan 2012)
17 2 Assuming 120m USD of outstanding loans in 2013 to be paid off by 2016 3 total bank deposits
Proprietary: Office of the Quartet Representative
 Potential for rental schemes in Palestinian Territories
Small share of housing is rented in Palestinian
Territories Potential initiatives

92.8 Develop existing rent

schemes and design
rental solution for low-
income housing by
making finance available

3.7 2.3
Use Gaza-focused
1.1 affordable housing and
Owned Rented Leased Other planned city projects to
enable increased access
to rental housing
whereas comparable economies show a
larger share of rental housing Investigate potential for
government to act as
Share ownership of total Social and informal housing rental agency, especially
Rental housing for low-income groups
Owned
Consider changing tenant
14.0 5.0 12.0 protection (rent control
29.0 27.0 and right to lease renewal)
21.0 17.0
which limits rental sector
33.0
65.0 68.0 71.0
38.0

Egypt Morocco Kuwait Jordan

18 Reference: PCBS, IMF

Proprietary: Office of the Quartet Representative
 GOI enabler
Enablers - construction PA enabler
Joint enabler
Current situation Description of enabler
East Jerusalem: Very limited housing Amend existing master plan to create more
construction due to only 11-13% of EJ residential and commercial areas and allow
having been zoned for residential for greater housing density. Ensure priority
purposes, restrictive regulations limiting processing of new master plans.
housing density, and very slow
processing of new master plans.
INSTITUTIONAL

Little/no Palestinian housing Allow Palestinian housing construction on

construction allowed in Area C due to selected land in Area C around urban
very slow permitting process centres, to facilitate affordable housing
Limited access to Area C for basic Grant permission for key Palestinian
infrastructure (roads, sewage etc.) infrastructure (roads, water, sewage,
which delays and complicates electricity, etc.) in Area C, connecting new
construction projects in Area A and B housing with pre-existing urban areas in Area
A and B

Insufficient imports of building Allow building materials to be imported for

materials into Gaza the private sector into Gaza in quantities to
meet forecast construction demand

Inefficient land registration processes; Increase land registration capacity in WB,

target registration rate would take over 80 by strengthening judicial and PLA capacity and
years to include all West Bank in land ensuring more targeted approach
organisation-AL

registry
Lack of ownership data regarding Ensure sharing of data and files regarding all
Palestinian owned land in Area C land in Area C, to facilitate titling and real
estate transactions

Underdeveloped mortgage market, Improve institutional readiness, strengthen

at $600 m (~5% of GDP), with limited consumer understanding, increase
consumer awareness and nascent underwriting capabilities, and grow deposit
banking capabilities base

19
Proprietary: Office of the Quartet Representative
 Overview of Palestinian building materials sector
Sector description
The Palestinian Territories building materials sector is largely dependent on
imports, specifically of cement (1.5M tonnes / year), steel (300K tonnes / year)
and sand (255K tonnes / year)
Domestic production is dominated by stone and marble (2.4 M tonnes/year),
and gravel (6.7 M tonnes/year). Stone and marble account for the largest
Palestinian manufacturing activity
The main issues facing domestic production of these key materials are a
Diffuse nature of the industry
Lack of modern machinery
Limited access to new quarry land
Lack of permits to use explosives to produce gravel
Rapid construction growth as a result of the IPE will amplify these challenges

Baseline
Along with construction,
Represents ~22% of GDP, at $2.3B
Accounts for ~16% of employment, at ~143K jobs
Regional benchmarks
Stone average international export (excluding Israel) price $~56 vs. Turkey
$60, driven by Turkeys higher local value added
Cement average price $115-123 vs. Turkey $75
Gravel production value for integrated crushers is 5x lower for Palestinian
versus Israeli run operations ($21 M versus $105 M)
20
Proprietary: Office of the Quartet Representative
 Investment case

As artificial, externally imposed economic and political

constraints are removed, catch-up growth in PT will drive
increase demand for building materials (tourism, agriculture,
construction, water, energy)

Increased demand will provide investment opportunities:

A domestic cement mill in WB to provide sufficient cement
to meet increasing needs (possibly another in Gaza?)
Engage More ready-mix concrete plants
More operational quarries

Take advantage of domestic stone and marble industry to

develop value-add proposition
Increased mechanization to improve local productivity in
international stone and marble exports (slabs and tiles)
Improve stone & marble processing (e.g., in industrial
zones) and introduce aggregation mechanism for small
producers to grow exports of high-value stone & marble

21
Proprietary: Office of the Quartet Representative
 Total availability of building materials could be increased from
12.5 M tonnes to up to 27M tonnes in three years

Expected availability of building materials Share

Local production (incl. exports) and imports imported
M tonnes %
27.0
Cement
3.7 46
Gravel
Stone 9.9
Sand
9.4 6
Steel
0.5
2.1
12.5 2.0
3.4 15
1.7

7.3 100
10.2

2.9
100
0.3 0.3 0.3
2013 Local Controlled Increased Truck staging areas 2016
cement mill use of mechani- and conveyers at
explosives sation commercial
crossings
Reference: Steel company, PCSC, USM, PCBS, PIF, PCBS
22
Proprietary: Office of the Quartet Representative
 Investable opportunity
Supporting initiative
Potential projects in building materials sector

Potential project Description

1 Conduct geological survey Determine size and location of

Increase reliable additional stone reserves
supply of key building
materials through Controlled and regulated use Facilitate access to gravel and
diversified imports 2
of explosives1 ensure future economic viability of
and increased local local production sites
productivity to support
incremental demand for Build local cement mill Substitute cement imports by
housing and 3
creating local production site and
infrastructure building up new partnerships with
international exporters

4 Build truck staging Facilitate all material imports; would

areas/conveyors have effects across materials if
import increase needed

5 Facilitate consolidation of the Improve/introduce access to

Increase local value stone and marble industry industrial zones to improve ability to
added and grow stone export higher value stone products
and marble exports

6 Increase mechanisation Improve local productivity in

international stone and marble
exports (slabs and tiles)
1 Provided by Israeli company
23
Proprietary: Office of the Quartet Representative
 1 Conduct geological survey to determine location and magnitude
of additional stone deposits
West Bank

Jenin
To counter risk of
depletion
Tubas
Tulkarm Conduct geological
survey to prioritize
Stone/marble as a key The four areas of areas for guiding
industry which faces Qalqilya Nablus Bethlehem, excavation and to
risk of depletion Nablus, Ramallah estimate the volume
Salfit and Jenin, each and type of the stone;
300+ quarries, 1,000 have 10%-20% of focus on Hebron and
factories and workshops the total, Bethlehem with
producing stone of estimated reserves of
Annual production of
Ramallah and Al-Bireh Jericho different colors
more than 2.38 M 1,500 cubic meters
and for different (estimated cost: $0.5 M
tonnes (of which 20%
uses for a 3,000-dunum
consumed domestically)
area)
Annual sales of around
$400 M (of which $70 M
1,200 dunum in
Jerusalem Hebron (200 A/B;
exports outside of
1,000 C) and
Israel)
Gaza Strip 1,500 in
Experts estimate stone Bethlehem Bethlehem (300
quarries in Area A/B to North Gaza A/B; 1,200 C)
be 70-80% depleted1
Gaza City Possible next step:
Factories have high Establish a transparent,
Deir Al-Balah concentrations in
Hebron affordable and efficient
Khan Yunis Bethlehem and Hebron, permitting process
which each have about for new quarries
25% of the total
Rafah

There are no quarries in Gaza because The Hebron Governate has the largest
its geology differs from the West quarrying area 40%-50% of the total -
Bank, and there are only a very small spread across Injasah, Sair, Beni Naim,
number of stone factories Sheyoukh, Tarfur and Tarqumiya

1 PIF, USM
24
Proprietary: Office of the Quartet Representative
 2 Pilot controlled and regulated use of explosives

Possible approach
with higher Investment
Current approach productivity need Potential impact

Explosives Explosives only at Controlled use for Costs Increase in

4 selected Palestinian- all quarries with covered production from
run quarries integrated by quarry integrated crushers of
To produce 4000 tonnes crushers (~12) owner ~900% or 2.1 M
of gravel without To produce 4000 tonnes if all 12 given
explosives tonnes of gravel explosive licenses
Production Time of Production under current
10 days time of 2 hours conditions
Total cost of $4600 One Cost decrease ~230%
(fuel for machine = detonation, to enable economic
2000 litres of diesel costing $2100 feasibility of crusher
($3800); salary for Israeli partner Time to produce
operator ($530); company to decreased from 10 days
machinery provide material to 3 days (assuming
maintenance costs and services use of one crusher)
($270)

Additional costs: Running the quarry requires a fixed cost of ~$200 for electricity used
to run crushing machines. A crushing machine can crush any amount between 500 - 1500 tonnes.
Therefore production in small quantities also increases the running costs for the crushing machines

Reference: expert interviews; quarry owners

25
Proprietary: Office of the Quartet Representative
 2 Increase output of gravel industry

Production levels of selected quarries

Overview
West Bank compared to capacity level
$57 M and 6.7 M tonnes output
of gravel across approximately Production Capacity
62 Palestinian sites (roughly 12 Jenin m tonnes m tonnes
integrated crushers and 50
2
recyclable crushers) 1
Tubas 1 Anabta x2 0.1 2.0
Only 1 Palestinian quarry Tulkarm
produces more than 1 million 6 Steps to increase
3 productivity
tonnes/year compared to 7+
Israeli-run quarries in the WB Qalqilya Nablus
2 Jenin x3 0.2 0.4 Pilot controlled
Cost of extraction using diggers Salfit use of
for Palestinian-run crushers explosives for
represents approximately one remaining 8
third of selling price, e.g. diesel quarries using
cost to run diggers (<10% for 3 Beit lba x2 0.2 0.9
Ramallah and Al-Bireh Jericho integrated
Israeli-run crushers using crushers
explosives) 4
Conduct
Israeli quarries in Area C Qalandia/ geological
furthermore produce $140 M 4 1.5 3.0+
Ram x4 survey to
worth of aggregates1 with Jerusalem
prioritize areas
estimated time to deplete of for guiding
~30 years excavation
Bethlehem
Gaza Strip 5 Samua 0.1 1.5
North Gaza
5
Gaza City
Hebron 6 Yasid 0.3 0.6
Deir Al-Balah

Khan Yunis
Total 2.4 6.0
Rafah

1 Palestinian Ministry of National Economy

26
Proprietary: Office of the Quartet Representative
 2 Gravel quarry process overview

Mineral extraction

Process
step

Dispatch to
Crusher customer

Can extract via fuel intensive digging turns the raw material into Trucks will then carry product to site of need
machines various types of gravel RMX plant, construction site, road works
Or via explosives $200/day to run (use depends on quality of gravel)
Description
Capacity: 500-1500 tonnes/day

Example: Produce 4,000 tonnes (average output of 1 blast with explosives)

Cost/ton
Time: 10 days With output of 400 tonnes/day Summary:
you would require the crusher
Cost
9/10 days
Extraction: $4,600
Time and
cost to pro- Fuel: $3800 Crusher: $1,800
A Labour: $530
Cost of crusher: A $1.6
duce with Total cost: $6,400
machines 9x$200 = $1,800
Machinery maintenance: $270
Output: 4,000 tonnes of gravel
Total cost of extraction: $4,600

Time: 2hrs With immediate output of 4,000 Summary:

tonnes, it would take the
Time and
Cost
crusher running at full capacity
Extraction: $2,100
cost to pro- 1 detonation: $2,100 3 days to process Crusher: $600
B B $0.68
duce with Total cost of extraction: $2,100
Cost of crusher: Total cost: $2,700
explosives
3x$200= 600 Output: 4,000 tonnes of gravel

27
Proprietary: Office of the Quartet Representative
 3 Two alternative approaches to build a local
production facility

Process steps

Quarry Clinker production Clinker grinding Dispatch

Packing plant

Additives

Gypsum

Clinker
Preheater Bulk
loading
Limestone (calcaire) Silo (if not
quarry Weigh-
bagged)
ing
Cement mills Bulk truck <__>
Raw mills
Cement mills
Clinker cooler

Clinker silos

(Cement and clinker export)

Cement silos

2 Clinker grinding station ($70-120 M)

1 Fully integrated cement plant ($260-340 M)

28
Proprietary: Office of the Quartet Representative
 3 Both options could help improve cement
supply security
Option chosen for impact estimate
1 Fully integrated cement plant 2 Clinker grinding station / cement mill

Description Fully integrated cement plant; from raw material Grinding of imported clinker (cement mill; clinker storage;
extraction to finished products cement storage; bagging + bulk dispatch)
Capacity impact 1.7 M tonnes of cement/year (output: 5000/tonnes kiln 1 2. M tonnes of cement/year (input .9 1.8 M tonnes
per day); typical plant 3x clinker/annum)

Capex $150 to 200 per ton produced/year $260-340 M $ 70 to 120 M ($70 120 per ton produced/year)
(-20% Chinese plants)
Cash Cost 141 (would be higher production cost than selling 92
$/Ton excl. price; hence only possible with imports of coal or pet
depreciation coke via Israeli or Gaza ports to decrease energy costs)
(Delivered bulk
cement)

FTE 200-250 (plus 4x indirect jobs) 80-100 (plus 4x indirect jobs)

Time to 30-36 months 12 -14months

implement

Financing (capex) Financing (capex)

Land (1-2 sqkm) Securing clinker supply (input .9 1.8 M tonnes
Raw material reserves of 50 years clinker/annum) and additive material (gypsum, pozzolana,
Fuel (3 GJ/ton clinker); key enablers would be import fly ash, limestone)
Enablers of cheaper solid fuels or alternative fuels programs Power (35 40 KwH/ton cement)
(e.g., materials such as Refuse Derived Fuel (RDF),
olive residue after pressing)
Power (110 kwHr/ton cement)
Clinker 1,5 M tonnes
Full independence from imports; reliability of supply; Increased degree of independence (can store clinker for
easy to scale up and down; strategic choice longer time and in large amounts)
Qualification/ Quick implementation and lower implementation costs
Rationale Big investment; slow implementation; environmental
impact; energy intensive Could be part of future integrated cement plant
Still dependent on imports of clinker (Jordan, Egypt)

29 Reference: Expert interviews

Proprietary: Office of the Quartet Representative
 4 Truck staging areas and conveyors at
commercial crossings

West Bank

Cement
Stone Situation today and
Jenin estimated impact on
Stone
import/export costs Potential options
Tubas
Tulkarm 7 main commercial Various options to
Cement crossings to import/ improve efficiency of
Sand Qalqilya Nablus export building material transports:
Impact on costs and Conveyors and
Salfit availability: truck staging areas
Transportation costs at commercial
+10 to 15% crossings
Ramallah and Al-BirehJericho Time to transport Opening hours
Sand +1.5 hours (mainly 24x7
border), even if Enable door-to-door
source and transportation
Jerusalem Stone destination just few Investment:
km apart Truck staging area: $
Stone Reduced certainty 1.3 million for space
Gaza Strip Cement Bethlehem regarding availability for 78 trucks (13
North Gaza of materials heavy trucks 18m+,
Gaza City Stone Increased imports of 18 medium size, 47
Deir Al-Balah cement, steel and sand small trucks)
Hebron demand for short-term Costs could be decreased
Khan Yunis
solutions by up to 30% with
Stone Sand marginal investment
Rafah
Aggregates,
(Tunnels, steel, steel, cement
cement, aggregates)

30 Reference: PCSC; expert interviews

Proprietary: Office of the Quartet Representative
 4 Exports of marble/stone across the value chain
Value chain within marble/stone sub-sector

Export funnel

Sales of domestic Potential actions

output
Provide incentives such as those potentially
Israel = 60% offered through industrial zones (see next
International = page)
15% Aggregation of SMEs products2 and improved
market knowledge
Local = 25% Blocks
Expand access to required machinery
Building
Slabs Tiles Better enforcement of PA restrictions on
Stones
(3-4cm) (1- exporting unrefined stone (blocks/cubes)
(3-8cm)
2cm)
Value increase
Selling price
Potential impact
$ per unit
Lower production costs
Israel Not sold 12-17 15-20 16-32
Allow smaller enterprises to export products in
International Not sold 30-50 40-70 30-65 aggregate opening up foreign markets
Enable companies to produce higher value
% of exports 0 14-15 26-27 56-57 products such as tiles with greater productivity
by value through improved access to machinery such as
polishers and resin lines

International (potential economic impact of $60 M unlocked

exports by 0 13.0 15.0 25.25 machinery project)
tonnes (000s)
Total tonnes of stone produced= 2.4 M
Total exports = $246 M1 which are driven by 25 (tiles)
to 50 (slabs) factories out of 1000

1 2011, Umcomtrade; 2 e.g., USAIDs COMPETE program pairs ~20 SMEs with ~3 larger stone factories who purchase unfinished
stone and process for onward sale to international markets
31 Source: USM, PIF
Proprietary: Office of the Quartet Representative
 Facilitating the consolidation of the stone and marble
5 industry will enable further investment and moving up the
value chain
Industrial Zones for stone
Current situation Consolidation of industry
and marble industry

Highly fragmented industry with Provide financing for larger Provide access for both large
over 1000 stone and marble (and medium) stone and and medium sized producers
factories and 300 quarries marble producers to absorb to industrial zones to increase
smaller operations in order ability to export higher value
60% of all stone and marble
to consolidate the industry products internationally
production is exported to Israel for
through the following
further processing which is then Incentivize small and
incentives:
often re-exported internationally medium size producers to
Only around 75 factories are
partner or form consortiums Ability for producers to
aggregate product to meet
capable of exporting high-value This will help ensure
large contracts
processed stone products such as stability in supply of raw
slab and tile capable of meeting material to larger Access to cheaper
international standards producers electricity and water costs
International market demand for Will lead to increased Increased stability in
Jerusalem stone is high and access to financing for export capability
growing. Due to fears that the purchases of necessary
local industry is not able to reliably machinery which will
Increased access to
international market
supply contracts, international enable increased
knowledge
buyers often choose to deal with international exports
Israeli middle men instead

32 Source: USM, PIF

Proprietary: Office of the Quartet Representative
 6 Improve access to advanced machinery to increase
productivity and utilisation rates

Overview of current status and Investment Potential

alternative approach Necessary steps need ($ M) impact ($ M)

Machinery Lack of sufficient machinery to increase Facilitate 0.85-1.15 60 (doubling

productivity and ability to produce imports of new per factory of intl tile and
higher value stone product machinery slab capable
Old machines take 3 to 4 days to (customs exports)
transform 1 m3 into slabs limitations)
Modern machines lead to
productivity increases of 5x to
7x for slabs (only 120 factories have
such machines)
International guidelines for tile
processing require specific machines
(different to Israeli standards); only
50 factories capable of
internationally exporting slabs and
25 factories for slabs and tiles today

Small size of most stone refiners and Financial Increase Productivity

restrictions to obtaining machinery support to buy AMAL etc. increase
make it unobtainable expensive +20% to
machinery +30% (within
slabs 5x to 7x)

33 Reference: USM, PIF

Proprietary: Office of the Quartet Representative
 6 High-value stone production and exports could be
doubled by providing advanced machinery to
75 factories

This could be addressed by increasing the number of stone companies producing

and exporting slabs and tiles, with significant capital investment

Local stone production Amortized Annual

industry produces limited Capex Capex (20yr) sales1
amounts of high-value add Potential solutions $ 000 $ 000 $ 000
stone for export
Machinery for high-quality slab production
Only ~75 of 1,000+ stone
factories are exporting Slab cutter 1,000 50
high-value processed stone Slab polisher 600 30
products such as slab and
tile TOTAL 1,600 80 800
The international market Machinery for high-quality tile production
demand (e.g., sizes of
Slab cutter 1,000 50
tiles)is not fully addressed,
and could absorb increased Slab polisher 600 30
output
Tile polisher 300 15
However, limited access to
finance for SMEs to TOTAL 1,900 95 1,600
purchase necessary
machinery (e.g., $600K slab
polisher)
Needed to address potential increase in domestic demand
Return on investment is highly attractive
Access to capital is key constraint in accessing lucrative high-value add
export market

1 Estimate based on current market: 50 slab producers with output of ~$40M and 25 tile producers with output of ~$20M
34
Proprietary: Office of the Quartet Representative
 Enablers for the building materials sector
Enablers Current situation Description
Use of explosives permitted at only 4 Issue permits to additional Palestinian
Permits and Palestinian gravel quarries; alternative quarry operators for controlled use of
licenses quarrying approaches lead to ~60% explosives, or allow current permit-
lower productivity holders to use explosives on additional
Stone and gravel quarries in Area A/B quarries
are facing a risk of depletion within the Expand zoning area and Improve
coming years permitting process for new quarries and
Limited information and rough estimates retroactive permitting for those currently
available on stone reserves across the in operation without the required
PT permits (e.g. Beit Fajjar quarries)
Increase use of more productive
equipment, e.g., integrated crushers
Conduct geological survey (3,000
dunams of land in Hebron and
Bethlehem) to locate reserves of stone
for new quarries

Key building materials (e.g., cement, Ensure import policy and process
Movement of steel, stone) are imported by facilitate diversified imports and take
goods and people consolidating supply base (~$500 M advantage of global capacity (e.g.,
currently) cement from Turkey, Southern Europe)
Temporary supply shortages have Extend opening hours at crossings (e.g.,
resulted in complete stand-still of until 8pm, 7 days per week)
Palestinian construction industry (e.g., Allow door-to-door transportation of key
for up to 1 week) items (vs. current back-to-back system)
Restrictions at commercial crossings Permit and financing for development of
(e.g., back-to-back transportation) infrastructure at commercial crossings
increase transportation time and costs (e.g., conveyor, truck staging area)
(~90 mins per crossing and 10-15%
cost impact) and decrease reliability of
material supply
35
Proprietary: Office of the Quartet Representative