Exactly one year ago, the NTA Metropolitan Mass Transit System published a multi-billion-shekel tender to operate the green and purple light rail lines in the Tel Aviv metropolitan area, which should start before the end of the decade. The tender required cooperation between Israeli and foreign companies and there was great interest in Israeli public transportation activities in Israel and internationally.
The tender was unusual as public-private partnership tenders usually include the construction, maintenance and operation of the project. However, for the Green and Purple Lines, the operation process was separated from construction and maintenance, which added significant costs and difficulties in integration, as well as leaving room for lawsuits and shifting responsibility between the operator, builder and maintenance union.
The bidding procedures for the tender were scheduled to close at the beginning of 2024, but due to the war, the deadline for submitting bids was postponed several times by the NTA and is now set for the end of this month, one year after the publication of the tender.
But sources familiar with the matter told Globes that international companies are afraid to join the tender due to the unstable security and economic situation in Israel. The government is considering canceling the tender, especially in light of the NTA's refusal to allow further significant postponements.
In addition, some companies interested in bidding have a built-in advantage because they also build and maintain the lines. Thus, the tender for the construction and maintenance of the Purple Line was won by the consortium of the Israeli company Shapir Engineering and Industries (TASE: SPEN) and the Spanish CAF Group, while the tender for the construction and maintenance of the Green Line was won by the Israeli companies Electra (TASE: ELTR) and Dan. And the French company Alstom. Shabbir and CAF as well as Electra and Alstom have shown interest in the commissioning tender, as well as DAN in a separate consortium.
Comparative advantage
Shapir and the CAF Group have experience operating the light rail line in Jerusalem, while Electra won the tender through its Electra-Afikim unit to operate the Novit light rail line between Haifa and Nazareth. Dan won the bid to operate the Blue Line light rail in Jerusalem. These companies have a built-in advantage because they build and maintain the lines, and if they win the operating tender, it will save them the investment in integration and any claims that exist between the operator and the company maintaining the line.
Therefore, these companies must commit in the tender documents not to file any lawsuits against the National Tourism Authority, in order to mitigate their comparative advantage. But after the pressure exerted by companies, it is expected, according to sources in the sector, to witness a certain “easing.”
In addition to the relative advantages of these companies and the difficulties that Israeli companies face in finding international partners in the current period, competition may be harmed in a tender that is extremely important for companies, both from a commercial and strategic perspective. This is because the largest portion of investment in transportation projects is in the construction phase, and the largest portion of profits comes from the maintenance and operation phase, so tendering can be relatively profitable for infrastructure projects for whoever wins.
In addition, all 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 to compete in a variety of tenders that will be published as part of this project.
In light of all this, the Israel Competition Authority accepted the NTA's view in March that bids from companies that had already won to operate light rail lines in the past should not be excluded. Meanwhile, the Competition Authority has ruled that the winning public transport operators will have to give up operating bus routes that compete with the light rail route.
Backup plan
If tenders for the Green and Purple Lines are cancelled, the plan is to operate the lines through the consortiums that build the lines (Shabert and CAF on the Purple Line, and Electra, DAN and Alstom on the Green Line) for several years. Then publish a new operating tender. The government believes that separating maintenance, construction and operation from the beginning was a fundamental mistake, because it makes sense to deal with fewer players in creating infrastructure projects, saving lawsuits and passing any blame between different contractors – as was demonstrated by the work on the Red Line light rail. In Tel Aviv, where the project components were divided between different contractors.
The Green Line, which is scheduled to begin operation 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 contain 63 stations, and trains are expected to carry 200,000 passengers daily.
The Purple Line, which will begin operating in 2027, will run along Arlozorov Street in Tel Aviv via Givatayim and Ramat Gan to Aluf Sdeh and then to Givat Shmuel and Or Yehuda in the east. The Purple Line is 27 kilometers long, includes 46 stations, and will transport 200,000 passengers daily.
“The tender to operate the light rail lines is not a large and significant tender by any standard. The NTA is prohibited at this stage from referring to the tender procedures and details,” the NTA said.
Published by Globes, Israel Business News – en.globes.co.il – on May 2, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
