A tender to build a power plant in Rotem seems to have created an international diplomatic incident.
A group that includes the South Korean company Posco and the Japanese company Mitsubishi had been poised to announce this week that it won the tender to build the plant on behalf of OPC, a company controlled by the Israel Corporation.
But after the U.S. embassy allegedly got involved, and American officials met with Israel Corp. executives, sources told TheMarker, the company announced it would reopen negotiations with the American bidders, Woodgroup and General Electric.
The tender is for a turnkey project costing an estimated $350 million to $400 million. It includes providing gas turbines capable of producing 400 megawatts of power plus all the EPC (engineer-procure-construct).
The tender process lasted six months and drew various international corporations, including Siemens and Alstom. It ended a few weeks ago with a best and final contest between two groups. One consisted of Posco and Mitsubishi, as contractor and supplier, respectively, and the other of Woodgroup and General Electric.
The Asian partners were expected to win, having bid an estimated $20 million less than the Americans. Mitsubishi reportedly offered an innovative turbine design that is not yet in use, which was examined by professionals from the Israel Electric Corporation.
But meanwhile, the American companies asked the ambassador to step in, sources told TheMarker. Apparently, either U.S. Ambassador James Cunningham or the U.S. economic attache met with Israel Corp. executives, the sources said.
The Israel Corp. denies a meeting ever occurred, and the U.S. embassy declined to comment. But either way, Israel Corp. decided to delay announcing a winner and hold another round of negotiations with the American bidders this week.
Though the Rotem plant is being built by a private entrepreneur, Israel Corp. won the construction rights in a government tender that bound it to enforce a reciprocal purchasing agreement - meaning that if it employs foreign contractors, the contractors must spend at least 20% of the value of the deal employing local workers or buying local raw materials. It's not yet clear how Posco would meet that obligation.
In its international operations, Israel Corp. depends on the American and South Korean governments in various ways. For example, when its shipping subsidiary, Zim, was on the brink of financial collapse, it reached an agreement with South Korea's Hyundai and Samsung shipyards to delay an order of new ships.
And electric car company Better Place is dependent on Washington regulators. Israel Corp. is Better Place's lead investor.
But there are other ties as well: Posco is building a Peruvian power plant for Israel Corp. subsidiary Inkia.
Israel Corp., controlled by Idan Ofer and Sami Ofer, holds 80% of OPC. The remaining 20% is held by Dalkia, of the Veolia Environnement group.
In 2004, OPC won a government tender to build a power plant at Rotem. As part of the deal, the Israel Electric Corporation agreed to buy electricity from the plant for the next 20 years. Under the electricity supply deal that OPC signed with the IEC and the government in November 2009, OPC must finish obtaining financing for the project within two years, and have the plant running by the beginning of 2014.
The project's financing is being led by Bank Leumi, which beat out Israel Discount Bank and Clal Finance in an extended tender process. Leumi is pulling together a consortium of lenders, which are expected to provide 80% of the project's funding. OPC is expected to fund the rest with its own capital. The 20-year contract with the IEC is estimated to be worth NIS 3.8 billion. OPC also has the option of increasing its operations by selling electricity to private consumers.
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