A special committee of ministers, headed by Prime Minister Benjamin Netanyahu, met yesterday to discuss strengthening ties between China and Israel. Before the meeting, a 40- page position paper, was prepared by the National Economic Council that addressed enhancing R&D ties between the two countries and encouraging joint investment.
The words “railway line” and “Eilat,” however, do not appear at all. True, the National Economic Council also does not address the sales of Tnuva Food Industries Ltd. or Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) to Chinese companies, but the train is different: not only is it a national project, it is a project that is strategically important to the relations between the two countries. “A railway to Eilat will increase the dependence of the rising powers - China and India - on Israel,” to quote, for example, Prime Minister Benjamin Netanyahu in his opening remarks to a January 2012 cabinet meeting on the subject.
The fact that the railway to Eilat is not on the National Economic Council’s agenda exemplifies the attitude held by members of professional ranks outside of the Ministry of Transport toward Netanyahu and Minister of Transport Yisrael Katz’s flagship project. While Katz’s office continues to work full steam on the railway to Eilat, other ministries regard the project with skepticism, to say the least. The Ministry of Finance estimates that the project will be astronomically expensive, and could cost between NIS 30 and 50 billion, the Ministry of Justice has pointed out serious legal issues with the implementation plan recommended by the Prime Minister’s Office, and everyone is waiting for the Chinese to explain how it is possible to finance such an economically unattractive project.
In February 2012, the government made a historic decision to build a railway to Eilat. At the time, there was talk of laying double tracks from Beersheva to Eilat, for freight and passenger trains that would be able to travel 250 Kmph, and could travel from Tel Aviv to Eilat in two hours. The budget estimate reported to the public was NIS 20 billion, and the target date for the project’s completion was five years from final approval by the planning committee. “Now it’s final: the Eilat railway project is underway,” announced the Ministry of Transport.
The implementation of the government decision has since been carried out on two fronts: statutory-planning and legal-financing. The responsibility for promoting the project was given to Minister of Transport Yisrael Katz. The Minister of the Interior (at the time Eli Yishai - A.B.) was meant to oversee the completion of the statutory planning no later than the end of 2012, and Prime Minister’s Office CEO Harel Locker was appointed to head the inter-ministerial committee to present options for financing and implementation.
Katz, with the help of the National Roads Company of Israel, made the most progress. The train already made most of the way through the planning committees, despite the reservations of the Ministry of Defense, and the anticipated strong objections of environmental groups and Israel Nature and Parks Authority over the route that cuts through a nature reserve. Recently, the committee of ministers for internal matters approved the project (“The railway to Eilat is underway,” the Ministry of Transport announced once again, and not for the last time), but the project still needs to pass the detailed environmental review being prepared by the Ministry of Environmental Protection, to receive approval from the Regional Commission for deposit to go through extensive discussions on each objection in order to return to the National Council for validation, and to deal with the petitions that will almost certainly be submitted to the High Court of Justice.
If everything goes according to the Ministry of Transport’s plan, the statutory process will be completed sometime in 2015 - then it will be possible to begin detailed planning. Meanwhile, the National Roads Company is in intensive talks with Chinese government company CCCC, which plans to build the project, and to host delegations from Spain and France along the proposed route.
Who will pay?
On the legal-financing front, little, if any, progress has been made. The committee, headed by Locker, has held many discussions on the project’s funding, the most recent of which took place in April, and ended with no conclusions. The government charged the team with presenting three implementation options by May, 2012: budgetary, partnership with the private concessionaire, and an agreement between the countries. Two years after the deadline, the staff tends to recommend the third option, an agreement between the countries. The problem is that this model has never been tried in Israel. The Attorney General objects to the idea in principle, because it bypasses the Mandatory Tenders Law. Legal experts fear that the solution, which bypasses the law designed to expedite the proceedings, will be used to deliver jobs worth billions to insiders and cronies.
Government sources from within the financing process have informed “Globes” that during the committee’s work of examining funding options, Locker instructed the various ministries to carry out additional examinations, necessary to assess the project, and including exhaustive economic and legal inquiries. According to the same sources, staff conclusions from the Transport and Finance Ministries will soon be submitted to the Minister of Transport.
Another problem, no less critical, is what will happen should a disagreement between the government and the contractor arise. If the government has had difficulty operating with private concessionaires, as was the case with the Jerusalem and Tel Aviv light rail projects, how will it deal with a concessionaire who is none other than the Chinese government?
And there is another little question that is waiting quietly for an answer: Who will pay? The budget estimate that was released to the public - NIS 20 billion - is incomplete, and misleading. This number refers only to the base price of laying the tracks from Beersheva to Eilat. The Ministry of Finance Budget Division checked how much is needed for the project, including the trains themselves, essential ancillary projects, such as, for example, connecting the train tracks to the Eilat Port. The budget estimate they reached was NIS 30-50 billion.
Anyone who doesn’t believe the Ministry of Finance can make do with the Ministry of Transport’s internal estimate, which ranges between NIS 27-40 billion. The Ministry of Transportation is not bothered. They like to say, “No one ever claimed this was an economical project. Railway projects are almost always uneconomical.” Netanyahu, as was reported in “Globes,” is acting grandiose. “When the cost reaches NIS 100 billion, then come to me,” he said in a government meeting.
But, with all that said, even the most national, most strategic project must be financed somehow. The Chinese have promised to bring attractive financing from government banks, but no formal financing plan has been presented as of yet. According to the Finance Ministry: “In the end, it will have to come from the state budget - there will be no alternative.” Even if, somehow, the money is found, there will be no escaping a choice between a light rail in Tel Aviv, or a high-speed train to Eilat.
To get to the bottom line, let us once again quote the Ministry of Transport announcement: “It should be noted that Israeli governments, for generations, have decided to build a railway to Eilat, but not one of those decisions came to pass,” said a report issued in January. “Unlike previous decisions, Minister Katz has decided to turn the vision into reality, and to actually implement the government decision,” the spokesperson went on to say. We will allow ourselves to be slightly more skeptical.
According to the Ministry of Transport, “After the completion of the planning process in the planning authorities, and after government approval, a proposal will soon be submitted to the government addressing the continuation of the process, including means for funding the construction of the train.”
Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2014
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