Electrification fiasco slows down Israel Railways

Israel Railways

Handing the electrification project to Spanish company SEMI in 2015 because its bid was the cheapest was disastrous.

At the entrance to Jerusalem, overlooking Ha’arazim Valley (Valley of Cedars), stands the highest bridge in Israel, which was built for the high-speed railway between Tel Aviv and Jerusalem. In recent weeks, two years after the bridge was built, placement of electrical poles along the bridge finally began, but there are still no electrical wires. No degree in electrical engineering is needed in order to realize that without wires, there will be no electricity, and without electricity, there will be no railway, because only electrified trains can run in the long tunnels on the line.

Explain this to Minister of Transport Yisrael Katz, who announced a few months ago that no technical problem prevented operation of the new route before the Passover holiday and that only the security requirements of Israel Police and rescue agencies stand in the way of the line's operation. Katz is now citing the eve of the Sukkot holiday as the new official target date for inaugurating the line, but sources at Israel Railways are already admitting that 2019 is a more realistic target date. It is a little difficult to believe that this is the same country that snatched nuclear archives from under the Iranians' noses.

This, however, is only a small part of the botched job. Electrification of the high-speed railway to Jerusalem is only a first stage in a giant project of converting all Israel Railways' passenger trains in Israel (except for two) from diesel to electrical operation. The same defective practices that delayed the high-speed train to Jerusalem is already evident in the future lines. Actually, electrification of the other lines will not continue until the line to Jerusalem is electrified.

This is much more than just another embarrassment for the Minister of Transport. It means that Israel Railways will be unable to implement the work plan in the coming years, which means that it will be impossible to increase the frequency of trains on overloaded routes and that new routes cannot be added at the planned pace.

Diesel trains: Expensive, slow, noisy, and polluting

The transition from diesel trains to electrified trains is the biggest challenge facing Israel Railways in the coming years. It is also the key to increasing the proportion of people traveling on railways in Israel, which is currently one quarter of the OECD average. The original estimated cost of the conversion of the railways, the tracks, and all the auxiliary systems was NIS 12 billion. Electrification of the railways is a necessary step - passenger trains have been electrically powered in all of the world's developed countries for many years. Diesel is not only more expensive, more polluting, and noisier; diesel trains are slower and on certain lines, such as the line to Jerusalem, cannot be used at all because of the lack of ventilation in the long tunnels.

The tender for supplying the trains (the mobile equipment, in professional jargon) was the relatively easy part. The winner was Siemens, which undertook to supply 330 railway carriages in 2019-2024 for NIS 3.8 billion.

The more difficult and challenging part was the tender for electrification of the tracks, and Israel Railways' management was well aware of it. This was the background for the disastrous decision to issue a tender for selecting a single contractor to undertake this entire prodigious project: building an elevated electrical system along 600 kilometers of double railway track, building a new command and control system, building 14 transformer stations to supply the electricity along the tracks, converting Israel Railways' maintenance and garage sites for handling electrified trains, and maintaining the electrified tracks for 23 years. The cost of the tender was estimated at NIS 3 billion.

On December 7, 2015, Israel Railways announced that it had selected the bid by Spanish company Sociedad Espanola de Montajes Industriales (SEMI). The Spanish company had never operated in Israel, but what tipped the scales in its favor was the fact that it offered to carry out the project for NIS 2 billion, NIS 1 billion less than the estimates.

The tender terms required SEMI to comply with technical requirements. SEMI's rating on the technical part of the tender was 70 - the minimum required to pass the technical stage.

Several weeks after winning the tender, a group composed of French company Alstom and Israeli company Afcon Control & Automation, which lost to SEMI in the tender, filed an administrative petition to the Tel Aviv District Court against Israel Railways alleging that an "invisible hand" had revised SEMI's technical rating from 66 to 70, thereby in effect enabling SEMI to win the tender.

Tel Aviv District Court Judge Dr. Michal Agmon-Gonnen was disturbed by the fact that the petitioners had used controversial investigative firm Black Cube to obtain evidence overseas and dismissed the petition. Alstom and Afcon appealed to the Supreme Court. The Supreme Court justices were impressed by the allegation that the tender results had been forged, and a compromise was reached after 18 months of litigation: Alstom and Afcom agreed to withdraw their petition in exchange for work in the project framework amounting to NIS 300 million and NIS 280 million. The state claimed that the compromise agreement was bad because it would increase the cost of the project by NIS 160 million and require splitting the work, but after Israel Railways turned the tender into a circus, the compromise had to be accepted.

During the entire legal proceeding lasting two years after the tender winner was selected, SEMI was unable to begin work on the project. In an extraordinary measure, however, it was decided with the petitioners' consent to allow SEMI to work on the high-speed train to Jerusalem because of its importance. SEMI worked freely on that line, on which it was to have finished the electrification work by July 2017, already a year behind schedule. The work done by SEMI on the line to Jerusalem left very little room for hope concerning progress on the electrification project for the other lines, which was suspended until the beginning of this year because of the legal proceedings. Actually, Israel Railways is already explicitly saying that work on the other lines will not be begun before electrification of the line to Jerusalem is completed. In other words, nothing will start before 2020.

Target: 86 million railway journeys a year

The consequences of the expected delay in the timetable for electrification of all of Israel Railways' lines are unimaginable. During 2017, Israel Railways posted 64.6 million journeys, and demand for 86 million journeys by 2022 is projected under the operating plan. The electrification project, originally slated for completion by the end of 2021, was to have provided a solution for this increased demand.

The delay therefore means poorer service by Israel Railways, which already suffers from overload on its routes. Looking beyond this, switching to railway transportation by the public, which is supposed to relieve road congestion, will probably not happen in the next few years.

Another solution for increasing the number of trains in the absence of electrical infrastructure could have been considered, but this is impossible because the equipment ordered by Israel Railways in the coming years is equipment for electrified lines: carriages, locomotives, etc. Israel Railways asserts that since the new carriages can also be operated by diesel locomotives, it can use them to lengthen some of the existing trains to seven or eight carriages, thereby reducing the load on the existing lines. This, however, will not help increase the frequency of the trains or add new lines.

The emerging delay in the electrification project is more than two years - an order to begin work was issued only in January 2016. According to sources involved in the project, work on additional lines in the project has not yet begun. Israel Railways says that work on other lines will begin only after the high-speed line is completed up to Glilot, which experts say will be possible only in April 2019. Simultaneous work on some of the lines, which involves additional costs for the contractor, is apparently being ruled out, even though SEMI's original contract with Israel Railways was planned differently with simultaneous work on at least four lines.

"SEMI has yet to get a shekel from the project"

It could have been expected that as a result of the delay caused by almost two years of litigation, the performance contractor would work at full speed on the main Israel Railways project in order to make up the time by increasing its number of workers, but as of now, this has not happened.

The system of fines for delays in the project is not motivating the Spanish work contractor to step up the pace. As of now, Israel Railways is refusing to sue the contractor while the project is taking place out of concern that the contractor will be driven away. It turns out that the guarantees deposited with the state by SEMI when the contract was signed were for electrification of up to 13 lines in the project, and since work is now proceeding only on the first 60-kilometer Tel Aviv-Jerusalem segment, payments for milestones in the projects are being made accordingly. As a result, according to a source familiar with the progress in the project, "SEMI has yet to get a shekel from the project."

The source adds, "The contractor has been working during this entire period and paying for salaries, equipment, and materials. Fines in cash are not usually exacted in such cases when milestones payments are being made; the contractor is notified that the state reserves the right to settle accounts at a suitable time in order to avoid further delays due to cash flow problems. Immediate payment is not demanded for the accumulated fines, and that is the situation of Israel Railways with SEMI."

Will the fines, which are already estimated in millions of shekels and which belong to the public, eventually be collected? In many infrastructure engineering projects, it is unusual to see the performance contractor paying fines, because at the end of the project period, the contractor also has complaints against the party that ordered the work; the usual result is a compromise between the parties.

The railway tracks electrification project: The state's failures in a major infrastructure project

* Putting a single foreign contractor in charge of Israel Railways' largest, most sensitive, and most difficult engineering project to date.

* Making the contractor responsible for all the coordination and approvals required in the course of the work, without being familiar with Israel and having offices and liaison personnel in the country.

* Selecting the cheapest bid in the tender, despite its low rating in the technical stage and the fact that the contractor had never operated in Israel.

* Retroactively improving the contractor's rating in the tender in order to make sure that the contractor would win the tender, thereby exposing Israel Railways to litigation that delayed the project by two years.

Published by Globes [online], Israel business news - www.globes-online.com - on May 17, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Israel Railways
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