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The light rail projects for Jerusalem and Tel Aviv are both facing difficulties. In a body-blow to the future Jerusalem light rail, the French company Veolia, which was supposed to run the train system after its construction, is abandoning the project.

Moving on to Tel Aviv, the city can't even get a response to the compromise it offered MTS, the consortium supposed to build an urban train system, in order to settle issues in dispute. It's waited a month and gotten no answer, causing not a little consternation in government circles.

As for the Jerusalem system, Veolia not only wants out of running the future train; it's trying to sell its 5% stake in Citypass, the light rail consortium.

In recent days Veolia has been sending feelers to the Egged or Dan bus consortiums, to potentially replace it as project operator.

Any change in the ownership structure of Citypass, or in the identity of the project operator, requires the permission of the state. Also, the attempt to add Egged to the consortium could arouse opposition at the Antitrust Authority.

Veolia has had to contend not only with the delays and difficulties in building the light rail project itself, but with political pressure at home as well. Two months ago a French court heard a lawsuit by a pro-Palestinian group, demanding that the light rail project be halted.

The organization based itself on an article in French law that allows the court to void business agreements, signed by French companies, that violate international law.

The political pressure on Veolia has been mounting in another direction. According to various reports abroad, the French firm had been losing major projects in Europe because of its involvement in the Jerusalem job. Observers claim that's the real reason Veolia opted out.

Also, for two years the Jerusalem project has been held up by battles between Citypass, the city of Jerusalem and various ministries. (The disputes even include whose fault the delays are.)

Last week the spat between Citypass and the state reached a new low, after the group admitted it couldn't meet the new deadline for the Jerusalem light rail project. It expects to run nine months behind schedule, the consortium said. The state then accused the business consortium of deliberately dragging its feet and of effecting "a hostile takeover of the streets of Jerusalem."

Sources in Israel's transportation sector called Citypass's announcement "chutzpah," on the grounds that it and the state had agreed on a new schedule only a year earlier. And that was a month after an arbitration process during which the new schedule was ratified.

In response to Citypass' announcement, the state contacted the arbitrators accompanying the process, asking them to enforce the franchise agreement and force Citypass to finish the works as set in the new schedule, by September 2010, "finally restoring normalcy to Jerusalem."

The state also asked for permission to stop paying Citypass, including the upcoming installment of NIS 32.5 million.

Citypass can meet the agreed-on schedule, the state insists: "This isn't inability to complete the project on time. At most it's a crude attempt to squeeze more money from the state," wrote the state in its letter to the arbitrators. "[Citypass] already advised the state and the arbitrators that it doesn't intend to finish the works on time, but it doesn't settle for words: It is making sure to work at a pace that assures it won't meet the agreed-on deadline for completion."

In summation, the state accuses Citypass of making life in Jerusalem intolerable.

Citypass denies the allegations, which it called "absurd," and claims the state is indulging in baseless legal gambits in response to the lawsuit Citypass filed against it because of the delays.

Sources in the know suspect that the delays ruined the project's business model. The cost of the works grew, and there were delays in the transfer of state funding for the companies involved in the project, while the companies needed the money to return their own loans. The upshot, if so, was heightened tensions between the partners in Citypass, mainly between equipment provider Alstom, operator Veolia and the Israeli contractor Ashtrom.

After some changes, the partners in Citypass are Ashtrom (27.5%), Alstom (20%), Polar Investments (17.5%), Israel Infrastructures Fund (10%) and Veolia (5%).

The Jerusalem project involves building eight lines. Only the first one has passed the tender process, which Citypass won. The line is supposed to start in Pisgat Zeev, pass along Jaffa Street and end at Mount Herzl. The cost of that line alone is projected at NIS 2.4 billion. The state is providing NIS 1.4 billion.