Ministry pullout derails TA transit project for now

Steinitz: Can’t reach understanding with bid winner.

Light Rail Tel Aviv (photo credit: Courtesy)
Light Rail Tel Aviv
(photo credit: Courtesy)
After a year and a half of renegotiations between the Finance Ministry and Metropolitan Transportation Systems (MTS) consortium over the financing of the Tel Aviv light rail project, Finance Minister Yuval Steinitz announced on Thursday that the government was backing out of the deal.
The ministry is due to foreclose on MTS’s bank guarantees in two weeks.
“The relevant parties in the Finance Ministry completed a precise and accurate process, and at the end of it a clear decision was reached that the Tel Aviv light rail project should be completed without the company that had won the bid [to build and operate it]. I am convinced that this decision will lead to an end to the foot-dragging in the implementation of this important project and that the state will be able to complete it as fast as possible in a safe and alternative fashion,” Steinitz said.
The announcement came hours after MTS rejected the Finance Ministry’s final offer for building the project. The two sides have been holding intermittent negotiations for months, with the gap between them on the estimated at roughly NIS 250 million, mainly in government guarantees, out of a NIS 10 billion budgeted for the 22-km. Red Line. Several more lines are planned.
The threat of nationalization has been hanging over the deal for months and each side has accused the other of underhanded actions.
MTS won the tender to build one of the country’s most ambitious infrastructure projects in 2006 and was supposed to start physical work on the line in 2008, but then the global economic crisis hit.
MTS was forced to find alternative funding after its main lender went bankrupt. MTS eventually succeeded in finding new lenders, but said that the terms of the deal with the ministry had to be changed.
Initially the Finance Ministry refused to discuss any substantial changes to the contract, but in July it began renegotiating in earnest. After marathon talks it became clear that the sides could not find middle ground and the deal was broken off.
They will now enter arbitration to determine the compensation MTS will receive for the cancellation of the deal.
It is unclear what the cancellation of the agreement with MTS will mean for the light rail project, but in any case it will not meet its original 2013 deadline for the Red Line to become operational.