The State Comptroller’s Report released on Monday criticized the government for insufficient oversight on foreign investments in essential national infrastructure.
“Along with the economic advantages and their contribution to the market’s development, the investments of foreign companies and their involvement in the Israeli market could also have negative implications,” the report said.
The state comptroller expressed specific concern about cases in which “the companies controlling [national infrastructure] belong to factors with interests that do not align with Israeli interests.”
These investments could also hurt Israel’s economic interests in that local companies could become less competitive locally and internationally, the report said.
The comptroller pointed out that many Western countries have regulatory bodies to examine the security risks in foreign companies investing in strategic assets.
The comptroller called on the Defense Ministry, Finance Ministry and National Security Council to fully implement the decision to form a committee to oversee foreign investments to ensure that Israel takes national-security interests into consideration when entering a contract with a foreign company and ensure the committee plays a more robust role in the process.
“The cabinet decision from October 2019 on the matter of establishing a system is a positive step, but its implementation and actions must be followed,” the report reads.
Among the committee’s weaknesses is that going to the committee is voluntary, the report said. Ministries opening infrastructure tenders – such as defense, transportation or communications – are not required to consult with the Foreign Investments Committee at any point in the process. They are also not required to follow the committee’s advice.
In addition, there is a lack of clarity about when in the tender and selection process the ministries should go to the committee, if they choose to do so. The report pointed out that this could lead to situations in which the state already made a commitment to a foreign company and then backs down from it as a result of the committee’s recommendations, which could lead to losses and hurt Israel’s foreign relations.
The comptroller criticized ministries for opening tenders that were not limited to private companies and allowed state-owned actors to bid to take part in essential infrastructure projects. This could be a security risk, and it also would give those government-backed companies an unfair advantage over the privately owned ones in those tenders.
The report does not mention any specific cases, but one such example is the project to build two lines of the Tel Aviv Light Rail, in which several Chinese government-controlled companies were part of bidding groups.
Among the comptroller’s recommendations is that the advisory committee report on its activities to the security cabinet to keep ministers apprised of the issue at hand and aware of the risks of signing contracts with foreign companies without seeking the panel’s advice.
The committee should also determine at what point in the tender process it should be consulted.
The report also suggested that the committee examine foreign companies’ ownership, including whether they are private or government-owned.
“Foreign control of security assets could harm a broad range of national interests, including national security, strategic assets and the ability [for Israeli companies] to compete internationally,” the report concluded. “Foreign economic involvement in national infrastructure and influential areas of the market… must be examined in the future in light of security and business considerations.”