The Accountant General Division of the Ministry of Finance has signed a settlement with the MTS consortium in relation to the cancellation of the franchise agreement for constructing the Tel Aviv light rail. Under the terms of the settlement, the state will retain the bank guarantees of NIS 140 million on which it foreclosed. In addition, MTS will have to pay NIS 5 million, covering part of the state's legal costs in the arbitration procedure.
The settlement comes after five years of proceedings against MTS, the original concessionaire of the Red Line project. The settlement was reached after a panel of arbitrators consisting of judge emeritus Yehudit Tsur, judge emeritus Boaz Okun, and Adv. Eli Zohar, found that the concessionaire had fundamentally breached the franchise agreement by failing to raise the necessary finance for the project, and that the state had cancelled the concession agreement and foreclosed on the guarantees lawfully.
In 2006, MTS won a huge tender to construct the Tel Aviv light rail project. In May 2007, the concession agreement was signed, under which all the work of constructing the Red Line was to have been completed by 2013, against a state grant of NIS 1.7 billion.
However, in three years MTS did not manage to complete financial closing of the project, and even demanded that the state should fundamentally alter terms of the agreement, until, in the end, the state decided to cancel it. In 2010, the government decided to carry out the project with financing from the state budget, through government company NTA.
Following the cancellation, MTS sued the state for loss of expected profits from the project and expenses totaling NIS 2.7 billion. The state counter-claimed for compensation of NIS 3.5 billion for damage caused by MTS's breach of the agreement. After five years of arbitration, last July the dramatic arbitration ruling was handed down rejecting MTS's claim entirely.
MTS is a consortium comprising Africa-Israel Investments Ltd. (TASE: AFIL ), 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 - www.globes-online.com - on April 18, 2016
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