Gov't mulls takeover of Tel Aviv light rail

The government is preparing for the possibility that financing negotiations with Tel Aviv light rail franchisee MTS could fail.

The government is preparing for the possibility that financing negotiations with Tel Aviv light rail franchisee Metro Transport Solutions (MTS) could fail, after dragging on for more than two years.

Budget Director Udi Nissan is considering alternative financing for the project, by publishing new tenders for building the railway from state financing. he option has been discussed with Ministry of Transport officials as advance planning for a scenario in which attempts to finance the railway's construction through the private sector fail.

The ministries are considering breaking up the Tel Aviv light rail project into three tenders: one for construction, one for equipment vendors, and one for the railway operator under a long-term contract.

Nonetheless, government sources close to the project note that the discussions are only preliminary and that no decision has been made. A source said, "We prefer for the private sector to carry out the project. But if the efforts fail, we'll have to prepare to fund it from the state budget. This is an important project for the economy, and it cannot be delayed further. If the franchisee won't become more flexible, we'll have to move on."

Prime Minister Benjamin Netanyahu will have to make the final decision. Prime Minister's Office director general Eyal Gabai is already dealing with the matter. Earlier this week, Tel Aviv Mayor Ron Huldai asked Netanyahu to intervene forthwith and order the immediate start of construction.

Sources inform ''Globes'' that the government negotiating team, lead by Deputy Accountant General Avi Dor, is due to meet MTS officials during November for a final effort to reach understandings on the financial closing for the railway. The gap between the parties is over NIS 1 billion, mostly relating to interest margins.

The closing of the NIS 10-11 billion in financing for the Tel Aviv light railway has already been postponed five times since May 2007. The financial crisis and the financial troubles of Lev Leviev-controlled Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY), which owns 20% of MTS, have prevented the consortium from closing the financing with the state.

Sources believe that if the financing is not secured with the next two months, the Tel Aviv light rail project will grind to a halt, without ever getting started. For this reason the Ministries of Finance and Transport are considering new tenders for it.

Transport industry sources believe that even if MTS secures financing, Africa-Israel may try to sell its stake in the consortium. Possible buyers include Shafir Civil and Marine Engineering Ltd., Shari Arison-controlled Shikun u'Binui Holdings Ltd. (Housing and Construction) (TASE: HUCN), and foreign infrastructure contractors.

Africa-Israel's partners in MTS are Egged Israel Transport Cooperative Society Ltd. and Siemens AG (NYSE: SI; XETRA: SIE), China Civil Engineering Construction Corporation (CCECC), and Sociedade de Construcoes Soares da Costa SA of Portugal

Published by Globes [online], Israel business news - - on October 20, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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