The Czech Transportation Ministry intends to revise its $4.1 billion highway contract with Housing & Construction (Shikun u'Binui).
Bloomberg news agency yesterday quoted a report from the Czech CTK news agency stating that last week the cabinet had ordered the ministry to try to makes changes to the contract, claiming that it has loopholes and is too expensive.
The appendix the ministry intends to sign with Housing & Construction will close the loopholes and specify the government's obligations, CTK reported, citing Transportation Minister Milan Simonovsky. Talks started yesterday, he said.
Simonovsky said last week the government has 12 months to renegotiate the terms. Housing & Construction project director Amir Ronen said the contract cannot be changed because the 12-month deadline only allows for the conclusion of additional contracts, such as financing for the project, CTK reported.
In June 2002, Housing & Construction, together with two partners, signed an agreement with the Czech government to build the D-47 road as the first private finance initiative (PFI) project in the Czech Republic. In such projects, the PFI is used to build and maintain physical assets, such as school and hospital buildings, roads and prisons.
The principle behind the PFI is that the public sector decides on the outcomes that need to be delivered, and the private partner designs, builds, finances and operates the asset, typically over a 30-year period.
The public sector pays an annual charge to the private sector which varies according to service quality achieved. This project is the largest construction project that an Israeli company has ever undertaken abroad.
The previous cabinet, ousted in June elections, picked Housing &Construction without a tender, and signed a contract to build the highway linking the two largest eastern cities, Brno and Ostrava.
It is difficult for the Czechs to withdraw from the contract as they would have to pay penalties that are not clearly defined in the contract.
Housing & Construction said yesterday that most of the ministers in the new cabinet were also members in the one that approved the project.
The company's head of human resources, administration and corporate secretary, Moshe Traurig, said that the agreement had been duly signed and was submitted to the Czech government for ratification last weekend. The government decided to go ahead with the project and to negotiate certain details, but not the price.
After the report became public yesterday, Housing & Construction lost 1.3 percent on the Tel Aviv Stock Exchange.
The company is hoping to be listed on the Tel-Aviv 25 as of December 15. In October Housing & Construction gained an impressive 14 percent, based on assessments that it would make it into the Maof index and also thanks to the Czech contract.
However, as Elco Holdings and Agis gained momentum (the former jumped 33 percent since October and the latter 43 percent since August), the prospects of Housing & Construction moving up grow dimmer.
Elco and Agis now both have a higher market cap than Housing & Construction, and are expected to make it to the blue-chip list instead of the faltering Koor and Industrial Building (Mivnei Ta'asiya).
Problems with the Czech government could leave Housing & Construction on the Tel-Aviv 100 for another six months.
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