Private prison franchisee demands huge compensation

"I cannot say that it was unexpected, but when it really happens, it seems unexpected," said the owner of Minrav Engineering and Construction, Abraham Kuznitsky, minutes after being informed yesterday of the High Court of Justice's decision against his operating a privately-run prison near Be'er Sheva.

Minrav and Africa Israel were the co-winners of the state tender to operate Israel's first private prison.

Kuznitsky has spent the last four years on the project and is considered the driving force behind it.

After the project's cancellation, the state is expected to open negotiations with the franchisee over compensation. The franchise agreement requires the state to pay such compensation to the tender winners for their expenses so far in building the prison, which cost about NIS 220 million. But the question of compensation for future earnings and payment for other expenses may very well reach arbitration, and even the courts.

"At least financially, our situation now is better than if the decision had not been made," said Kuznitsky. But he did not leave any room for doubt as to his intentions: "We will demand the NIS 200 million we have invested, and we will present the state with a demand for at least another NIS 150 million," he said. Kuznitsky said the state will have to compensate them for all the damages in the eight months since they finished building the project, including not only for expenses for training staff, but also all for future income from the operation

He said the companies had trained 120 employees and that is a tragedy since they gave up other work - and now will be unable to find new jobs - and they could even sue him.

The court's decision came after construction was completed, but it did not allow the prison to be used until before it made its ruling.

The tender for Israel's first privately-run prison was a Build-Operate-Transfer contract. The franchisee builds, runs and maintains the facility for a set period of time in return for regular payments, and at the end of the operating period the facility is handed over to the state. The NIS 1.5 billion tender required building a prison in 32 months to house 800 prisoners. The bidders competed over the price the state would pay for every prisoner, with Minrav and Africa Israel winning with the lowest price of NIS 218.90 per prisoner per day.

The tender process started at the beginning of 2003 and the winners were chosen at the end of 2005

Both the treasury and Africa Israel said yesterday they were still studying the decision. Sources at Africa Israel said they did not expect the company to suffer financial damage from the ruling as the state is required to compensate the firm.