Int'l cos reluctant to bid for new TA light rail tenders

Tel Aviv light rail credit: Bar Lavi
Tel Aviv light rail credit: Bar Lavi

The uncertain security and economic situation caused by the war is deterring international companies from bidding to operate the Green and Purple Lines.

Exactly one year ago NTA Metropolitan Mass Transit System published a tender worth an estimated billions of shekels for the operation of the Tel Aviv metropolitan region light rail Green and Purple Lines, which should begin running before the end of the decade. The tender required collaborations between Israeli and foreign companies and there was major interest in Israeli public transport activities both in Israel and internationally.

The tender was unusual in that public-private partnership (PPP) tenders usually include building, maintenance and operating the project. However, for the Green and Purple lines operation was separated from construction and maintenance, adding major costs and integration difficulties, as well as leaving an opening for lawsuits and the transfer of responsibility between the operator and the builder and the maintenance consortium.

The procedure for submitting bids for the tender was scheduled to close at the start of 2024, but due to the war, the deadline for filing bids was postponed several times by NTA and is now set for the end of this month, one year after publication of the tender.

However, sources close to the matter have told "Globes" that international companies are afraid to join the tender due to the uncertain security and economic situation in Israel. The government is considering canceling the tender, especially in view of NTA's refusal to allow further significant postponements.

In addition, some of the companies that are interested in the tender have a built-in advantage because they are also building and maintaining the lines. Thus, the Purple Line construction and maintenance tender was won by the consortium of Israel's Shapir Engineering and Industries (TASE: SPEN) and Spain's CAF Group, while the Green Line construction and maintenance tender was won by Israel's Electra (TASE: ELTR) and Dan and France's Alstom. Shapir and CAF as well as Electra and Alstom are interested in the operating tender, in addition to Dan in a separate consortium.

The relative advantage

Shapir and CAF Group have experience in operating the Jerusalem light rail, while Electra has won the tender through its Electra-Afikim unit to operate the Nofit light rail between Haifa and Nazareth. Dan has won the tender to operate the Jerusalem light rail Blue Line. These companies have an in-built advantage because they are building and maintaining the lines and if they win the operations tender, it would save them investing in integration and any claims that exist between the operator and the company maintaining the line.

Therefore, in the tender documents, these companies have to commit to not initiating any lawsuits against NTA, in order to moderate their relative advantage. But following pressure exerted by the companies, this condition is expected, according to sources in the sector, to undergo a certain "softening."

Alongside the relative advantages of these companies and the difficulties of Israeli companies in finding international partners in the current period, competition could be harmed in a tender that is critical for the companies, both from a business and strategic point of view. This is because the bulk of the investment in transport projects is in the construction phase, and the bulk of the profits come from the maintenance and operation phase, so the tender can be relatively profitable for infrastructure projects for those who win it.

In addition, all the Israeli players aim to gain as much experience as possible in operating light rail lines in preparation for the enormous challenges of the Metro and the competition in the variety of tenders that will be published as part of that project.

In all this the Israel Competition Authority accepted NTA's view in March that bids submitted by companies that have already won the operation of light rail lines in the past should not be disqualified. At the same time, the Competition Authority ruled that winning public transport operators would have to relinquish operating bus lines that compete with the light rail route.

The backup plan

If the tenders for operating the Green and Purple lines are cancelled, the plan is to operate the lines through the consortia building the lines (Shapir and CAF on the Purple Line, and Electra, Dan and Alstom on the Green Line) for several years, then publishing a new operating tender. The government believes that from the beginning the split between maintenance and construction and operation was a basic mistake, because there is more sense in dealing with fewer players in the establishment of infrastructure projects and saving on lawsuits and passing any blame between the various contractors - as demonstrated by the work on the Tel Aviv light rail Red Line, where project components were split between different contractors.

The Green Line, which is due to begin running in 2028 runs 39 kilometers from Rishon Lezion and Holon in the south to Herzliya in the north with four kilometers of underground tracks in Tel Aviv. The Green Line will have 63 stations and the trains are expected to carry 200,000 passengers per day.

The Purple Line, which will begin operating in 2027 will run along Tel Aviv's Arlozorov Street via Givatayim and Ramat Gan to Aluf Sadeh and then to Givat Shmuel and Or Yehuda in the east. The Purple Line will be 27 kilometers long, with 46 stations and will carry 200,000 passengers per day.

NTA said, "The tender to operate the light rail lines is not a large and significant tender by any criteria. NTA is prohibited at this stage from referring to the tender procedure and its details."

Published by Globes, Israel business news - - on May 2, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Tel Aviv light rail credit: Bar Lavi
Tel Aviv light rail credit: Bar Lavi
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