Jerusalem train on disaster track

The Jerusalem light rail project is evidently in more trouble than previously thought. The state is expected to reopen the financing agreement for  the project, and may amend the franchise agreement as well after experts at the treasury found that the delays are running at about 18 months.

The City Pass consortium recently asked Bank Hapoalim and Bank Leumi to consider increasing loans to the project. The treasury, consortium members and the banks are in talks on the difficulties, and are expected to agree action plans within a month.

The franchisees have yet to achieve a single milestone in the project, and as a result have not received any part of a state grant of NIS 1.4 billion, although they have already invested an estimated NIS 500 to 600 million.

About two months ago TheMarker reported that Accountant General Yaron Zelekha and his deputy Avi Dor had visited light rail work sites to inspect the rate of progress following assessments that the project had suffered delays lasting months.

City Pass representatives noted that delays were taking place during the first ever use of the Appitrack system for laying tracks, which allows the work to be computerized and requires trial runs prior to operation. Some consortium members have accused the Jerusalem Municipality of delays in issuing construction permits for areas designated for the rails.

The municipality, however, rejected this and said the process used to lay the rails required careful scrutiny. Only last week the franchisee was forced to replace a 100-meter concrete strip next to Mount Herzl because cement was found to be damaged. The state has decided not to set any fines at this stage and made suggestions to improve and speed up the process.

It appears that while construction on the rails began in December 2006, only 1 kilometer has been laid so far. City Pass is due to hand over the project on February 15, 2009, but current forecasts see the completion in mid-2010.

Jerusalem's mass transit project includes eight lines. The tender was issued for the length of the first line, totaling 13.8 km, which runs from Pisgat Ze'ev through Jaffa Road to Mount Herzl. The route will be extended at a second stage to Neve Yaakov in the north and Hadassah Hospital in the south.

The Jerusalem light rail is a "Build/Operate/Transfer" (BOT) project in which the franchisee is to construct the line, receive a concession to operate it and charge users for 30 years.

The cost of the project is estimated at NIS 1.9 billion, including the state grant of NIS 1.4 billion.

City Pass won the tender to build and operate the line in 2002, outbidding the Passim group, which included Africa Israel and Germany's Siemens.

The City Pass consortium consists of Ashtrom (27.5%), Polar Investments (27.5%), Harel (20%), and France's Alstom (20%) and Veolia (5%).

The financing agreement was signed, after five delays, in February 2005, with Bank Hapoalim and Bank Leumi providing City Pass with 280 million euros in a short-term loan and $100 million in a long-term loan. The state grant is paid out in milestone-linked increments, as is the credit from the lending banks.

City Pass has approached the financing banks, requesting that their credit be increased. The banks, however, are not obliged to provide further credit at this early stage, and are likely to demand that the group continue with its own financing.

The treasury responded that in accordance with the concession agreement, a review is currently being conducted, and will take about a month.