Israeli officials are quietly voicing concern that the violence in the Palestinian West Bank could eventually come to jeopardize the economic viability of the most expensive infrastructure project ever undertaken in the country—Highway 6, or, as it known, the Trans-Israel Highway.
The Trans-Israel Highway is a 300-kilometer motorway that, when complete, will travel from the country’s south all the way to its northern border. In 1995, the government agreed that its first section, a 90-kilometer stretch adjacent to Israel’s heavily populated central region, would be a toll-road—financed, built and operated by a private company, with a 30-year franchise, five of which would be earmarked for construction. The firm that won the tender was Derekh Eretz, a consortium involving Israeli and Canadian elements.
The Israelis’ sense of disquiet is largely a result of the fact that, for a relatively large portion of the 90-km stretch of highway, currently under construction, the road runs adjacent to the Green Line, which is the original borderline separating Israel from the West Bank. Indeed, it brushes past two of the largest Palestinian cities in the West Bank—Tulkarem and Qalqiliya—both of which are under the full control of the Palestinian Authority.
Since the start of the Palestinian uprising last October, work on the Trans-Israel Highway has continued unabated, but not without incidents. Several weeks ago, Palestinian gunmen attacked a crew of construction workers, just north of Qalqiliya, wounding a security guard. Commentators were quick to point out that the incident could have been even more severe had the highway been operational, and had it involved snipers firing on motorists in their cars.
To Israel’s economic planners, the Trans-Israel Highway is of particular importance inasmuch as it represents the first major infrastructure project handed over in its entirety to the private sector. To the degree that such a modus operandi is favored for future infrastructure programs, the ability of the Israeli government to find investors willing to enter the field will largely be dependent upon the success of this venture. Should it fail, the government’s job will be considerably more difficult.
The tender for the Trans-Israel Highway was decided on the basis of the toll fee that will be charged for traveling on the road. Even then, the government provided a safety net. In the event that use of the road falls below the figure projected, the state will reimburse the concession holders with 75 percent of the difference. However, if the revenues are higher than expected, the concession holders will be required to pay 40-50 percent of the difference into the state’s coffers.
In order to convince drivers to use the toll road, its planners are aware that they have to provide a product that is of such as quality that people would opt to pay for its use instead of using lesser alternatives. Initially it will comprise of two lanes in each direction, but—depending on traffic—that may be increased to four lanes in each direction.
However, if travel on the Trans-Israel Highway is judged to be dangerous, it is unlikely that many drivers will use it, irrespective of its technical quality. The fallout from such a development would not only involved fewer tolls being collected—possibly forcing the government to pay compensation to the concession holders—but it will be increasingly difficult to convince the investment community that Israel’s economy is essentially immune to the violence and political unrest taking place in the Palestinian areas.
And then there is the issue of financing. Generally, 80 to 90 percent of the financing for a particular project will be acquired by way of private sector financial institutions, with 10 to 20 percent being provided by the entrepreneurs themselves. The more leveraged the project, the more competitive the bid.
Generally, most of the financial institutions involved are Israeli. For the Trans-Israel Highway, the bulk of the financing package was put together by local institutions, including Bank Hapoalim, Bank Discount, the First International Bank, and the Migdal and Mivtahim provident and pension funds. New Court Bank of Canada was the only sizeable foreign contributor.
From a bank’s perspective, financing infrastructure projects requires a real leap of faith. The institution providing the financing has to make a commitment that could run as long as 30 years. It difficult to do that if your country’s risk factor is perceived to be dangerously high.
The Trans-Israel Highway does not represent the first time that the ravages of the Middle East crisis have impacted on an Israeli infrastructure project. In July last year, the Israel financial daily Globes reported that Palestinian officials had contacted foreign ambassadors in Tel Aviv, in an attempt to pressure them to prevent companies in their respective countries from competing in an international tender for a light railway project in Jerusalem.
The Palestinians allegedly claimed that the proposed route for the railway had been plotted without their being consulted, and that sections of it pass through areas from which the then-prime minister, Ehud Barak, had agreed that Israel would withdraw, when he met several weeks earlier in Camp David with Yasser Arafat, for what would ultimately prove to be an unsuccessful round of peace negotiations. — (Albawaba-MEBG)
© 2001 Mena Report (www.menareport.com)
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