Sources inform ''Globes'' that the Ministry of Finance is planning to make most of the cuts needed to meet the budget framework by outsourcing dozens of state-financed transportation projects, using the private-public partnership (PPP) and build-operate-transfer (BOT) methods. The sources added that most of the cut in the development budget, which totals NIS 15 billion, will be made in the 2013 budget.
On Monday, Ministry of Finance director general Doron Cohen held a confidential meeting with BDO Ziv Haft managing partner Shahar Ziv, who presented some new models for applying the method. BDO Ziv Haft recently handled the Ministry of Defense's BOT tender for the IDF Training Base City, in which a new method, in which the finalists were required to include bank financing agreements in their final bids, was successfully implemented.
The Ministry of Finance's current managers believes that the PPP method not only saves money from the state budget, but also strongly stimulates the private sector, creates jobs and economic growth, including business product. The ministry published many PPP tenders for infrastructure projects during the second half of the 2000s, but retreated from the method in the past three years, because of two top officials who are no longer at the ministry: former accountant general Shuki Oren and former budget director Udi Nissan.
The main reason for the Ministry of Finance's cooling attitude toward PPP projects was the dispute with the Metro Transit Solutions (MTS) consortium, which was supposed to build the metropolitan Tel Aviv light railway's Red Line. After three years of discussions, the government cancelled the franchise agreement, nationalized the project, which will be built with state funding. The ministry now intends to publish PPP tenders for the light rail's other lines. This is largest infrastructure project planned for the coming years, with an estimated investment of NIS 40-50 billion.
However, in order to publish PPP tenders, the Ministry of Finance will have to overcome fierce resistance from Minister of Transport Yisrael Katz. He told "Globes" that he would agree to "creative" financing solutions for the project, such as increasing building rights and bond issues, but refuses outright to take administrative responsibility for the light railway from government company NTA Metropolitan Mass Transit System Ltd..
In an interview with "Globes", Katz said that he would agree for other state-funded projects to be built by the PPP method. He prefers the private financing initiative (PFI) method, which was used to build Road 431, for example, over the BOT method, used to build Road 6 (the Cross-Israel Highway), because under PFI projects, drivers do not pay a toll, and the franchisee's revenue comes from payments by the state on the basis of the number of vehicles using the road.
The largest multiyear plan prepared by the Netanyahu government is for transportation projects: NIS 100 billion, of which NIS 15 billion is due to spent in 2013.
The Bank of Israel estimates that NIS 58 billion has to be cut from the state budget over the next three years: NIS 11 billion in 2013; NIS 21 billion in 2014; and NIS 26 billion in 2015. The cuts are needed because of the budget additions approved by the government, including for infrastructure projects. Cohen, who has less antipathy toward the business sector than his predecessor, and considers it a partner (he has served as a senior executive is some of Israel's biggest companies), is behind the revival of PPP tenders, which make it possible to continue the effort to improve infrastructures without breaching the budget in the coming years.
Published by Globes [online], Israel business news - www.globes-online.com - on September 5, 2012
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Budget cuts now