The increase in budgets in recent years for infrastructure development, with an emphasis on the development programs of Israel Railways, and Israel National Roads Company Ltd., formerly the Public Works Department, (or Ma'atz) have in turn brought about a change in approach at the Ministry of Finance and the Ministry of Transport as far tighter fiscal control over the implementation of the road and railway network development program is concerned. Before the structural changes were introduced, Israel Railways and Israel Roads often failed to meet timeframes and overran budgets for major projects, of which the most notable is the upgrade of the rail link to Jerusalem (via Bet Shemesh), which was even mentioned in the State Comptroller's report.
The government's decision to allocate NIS 40 billion to a five-year plan for Israel Railways and Israel Roads made change imperative. Three years ago, at the initiative of then Ministry of Finance Accountant General Dr. Yaron Zelekha, the development budgets of both utilities were subjected to external control for the first time. US engineering consultants Parsons Brinckerhoff were chosen to oversee Israel Railways' budget while a UK construction consultancy firm, Northcroft, was chosen to supervise Israel Roads' development and maintenance program.
The external control made a marked contribution to increased budget efficiency, and reduced the extent of the budget overruns. While relations between Parsons Brinckerhoff and Israel Railways were sometimes strained, amid claims that the company sometimes tended to take the Finance Ministry's side, the cooperation between Israel Roads, headed by general manager Alex Wiznitser, and Northcroft has been a great success.
Northcroft has over 165 years experience in the construction and property industry and employs over 400 people in 14 countries. The company has extensive international experience in the transport and infrastructure fields. Two thirds of the company's activity focuses on civil construction and engineering projects, and the other third on infrastructure and transport management.
"Israel Roads didn't want any external control either at first, but I believe that they are now our biggest advocates," says Ehud Neiger, the local representative for Northcroft, which plans to open a permanent office in Israel.
180 degree change
The man in charge of Northcroft's activity in Israel is infrastructure manager Joseph Infante, who for the past three years has been closely monitoring Israel Roads' budget. Asked by "Globes" whether the all-too familiar overspends in the Israel Roads' budget had now stopped, Infante replies, "If there were any budget overspends we didn't find them, but seriously, I think that Israel Roads has undergone a 180 change compared to what it once was."
Globes: What changes has Israel Roads made out as a result of external control?
Infante: "The old Public Works Department (Ma'atz) had some very good engineers, but the whole process of program implementation was very cumbersome and ineffective. The department used to do everything itself, from design to project delivery. Today, it is just a coordinating body, which works more with the private sector. When we came in we found that it would put out tenders before they were actually ready, because they wanted to get budgets from the government, and the result was that the projects collapsed and overran their budgets. Today, all the planning is far better. Projects are assessed in terms of cost-benefit analysis, and if I had to point to the key change, it is that when a project gets underway today, there is a very good chance that it will be executed according to the original plan exactly."
According to Infante, one of the changes the UK company made was to integrate road safety in road design and construction. "Taking into account road safety issues when planning a tender was something that didn't exist in Israel Roads before we came in. You have to think about how roads can be made safer as early as the design and construction stage. This is an element which didn't exist in the Israel Roads before. Safety in the old Ma'atz was somewhat neglected, and we held seminars for engineers and managers to familiarize them with it. Today safety has an impact on road design, construction and maintenance. In contrast to the commonly-made claim, when you invest in road safety, it doesn't always cost more and it can even save a considerable amount of money over the long-term."
Government companies do not like supervision. Was Israel Roads cooperative?
"There was a certain reticence at first, and we were seen as someone there to watch over them, but we made it clear that we were there to cooperate. I was happy to discover that Israel Roads was willing to adopt many of the changes we suggested, so the supervision was quite easy. Today, for example, between 40 to 50 of the procedures at Israel Roads were adopted on our recommendation. They didn't see us as an enemy but a partner. Instead of hiding figures as they sometimes used to do, the relationship was very open, and this, perhaps, is the big difference in comparison to other places in Israel where the cooperation with the auditing body does not work all that well."
Infante says he feels that professionally, standards at Israel Railroads are just as good as those at other government companies throughout the world. "Israel Roads has made extremely good progress in its project management. They are not the best but they have clearly fallen in line with European countries and the US."
No budget overruns
Is Israel Road's budget now balanced and free of overruns?
"We didn't find any irregularities in the budget and had there been any we would have been the first to report them to the Finance Ministry accountant general. Israel Roads' budget is now highly transparent. If, for example, it happens that the budget isn't balanced - no new projects will be approved. If there were any budget deviations we didn't find them."
The government has cut Israel Roads' development budget by NIS 3 billion. There is now strong disagreement in the sector about whether more money should be spent on maintenance or on building new roads. What is your view on this?
"We are not consulted about priorities, only fiscal control. The cuts will clearly mean that there will be less money for the road building and maintenance that the economy needs, but this is an internal decision for the government of Israel to make. The cuts will definitely require Israel Roads to be more efficient if it wants to meet its original development program. Looking at it from the national perspective, it may be worthwhile taking some of the projects that have been cancelled because of the cutbacks and privatizing them, in accordance with a list of priorities set out by the government."
Is privatizing road maintenance the solution?
"As for road maintenance, I think that Israel Roads took a very important step here when it put out a tender for the maintenance of 300 kilometers of roads by the private sector under the Private Finance Initiative (PFI) method. Israel is one of the first countries in the world to attempt to farm out road maintenance under a PFI deal, which is a long-term contractual engagement, and which is very stringent fiscally. It is very difficult to estimate road maintenance costs, so this project is very unique. My personal view is that the PFI method would be right for a lot of projects in Israel, especially in maintenance, and it could also be expanded to other projects such as the running and maintenance of hospitals, infrastructure facilities, and others.
"In the UK, for example, 15% of the projects today are carried out with this method, and many countries worldwide, including the US, are gradually adopting it. However, as far as projects like toll roads or railway lines where users pay for the use of the infrastructure, the BOT method would be preferable."
Published by Globes [online], Israel business news - www.globes-online.com - on April 3, 2008
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