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Carmelton, the concessionaire for the Carmel tunnels project in Haifa, is demanding NIS 100 million from the state in compensation for delays in authorization of the project and changes in its specifications.

In a recent letter to the Carmel Tunnels Authority, which includes representatives from the finance and transportation ministries, Carmelton claimed it incurred heavy losses due to delays in getting statutory approval for the project. Carmelton also said some of the rock that needs to be drilled differs from original specifications and, therefore, the company requires more expensive drilling equipment.

The Carmelton consortium is composed of the Spanish company Dragados (40 percent), Nechasim Ve'binyan (20 percent), Discount Investment-Ashtrom (20 percent) and FIBI Holdings (20 percent).

Carmelton's demands for compensation pose a serious dilemma for the government. If the consortium were to pull out of the project now - a time when foreign firms are reluctant to invest here given the current security climate - the state could be left without a concessionaire. However, in other infrastructure projects, such as the light railway, the state has said it would not capitulate to the demands of foreign companies, even canceling tenders if the demands were exaggerated.

Carmelton won the NIS 150 million BOT (build, operate, transfer) tender in September 1998. Authorization of the project, which includes two 5.5-kilometer subterranean tunnels, was delayed due to objections by local residents.

At press time, no comment was available from Carmelton.