In Effort to Break Monopolies, Israel to Build Private Ports in Haifa and Ashdod

If it goes ahead, the new ports in Haifa and Ashdod will mark a major step forward in efforts to break powerful public sector monopolies and the unions that dominate them.

Over the next few days, the government will begin a multi-billion-dollar undertaking to develop two privately operated ports, one in Haifa and one in Ashdod.

The first step comes Wednesday when Prime Prime Minister Benjamin Netanyahu and Transportation Minister Yisrael Katz hold a news conference to announce the terms.

Officials close to the deliberations over the plan told TheMarker that the Israel Ports Company will publish in the next several days two tenders to build infrastructure for a new port in Haifa Bay and another in South Ashdod.

If it goes ahead, the ports project will mark a major step forward in the government’s efforts to break powerful public sector monopolies and the unions that dominate them. Israel’s two biggest ports are run by state-owned enterprises, but costly labor practices and abuses at the ports cost the economy some NIS 5 billion a year, according to a report compiled by the Antitrust Authority in 2009.

The move will also represent a major undertaking for the economy, with the cost of developing each of the two ports estimated at $1.1 billion. In addition, the cost of constructing the transportation infrastructure will require some NIS 700 million at each port.

If the tenders do not generate interest among overseas bidders, or if it becomes apparent that bidders do not believe it to be economically feasible to develop two private ports, the government would rescind one of the two tenders within 90 days after publication.

In addition, over the next several days the government will also issue performance qualification documents ahead of tenders to purchase and operate equipment for the two new ports. In the framework of these tenders, which will be published subsequently, the port operator will be required to buy the equipment and operate the port for 25 years.

Terms for bidding by international groups will be based on how much they are prepared to pay the state for use of the pier and other payments.
The centerpiece of the Haifa Bay port will be a 1,000-meter-long pier with a capacity for as much as 1.4 million shipping containers annually. The Ashdod facility will have a 1.050-meter pier, with the same capacity.

Victory for Katz

The outlines of the port plans represent a victory for Katz, who has been lobbying hard for two privately operated ports to be developed in parallel. He was met with powerful opposition the Finance Ministry officials, who have asserted that Israel’s economy isn’t big enough to support two new ports.

The politics of the ports was further complicated by competition between the cities of Haifa and Ashdod to host the new port, if only one were to be developed.
The new ports will most likely be financed in two ways: The Israel Ports Company will issue bonds in the capital market while charges for services at the port for importers and exporters will be raised.

Almost immediately after it was formed, Prime Minister Benjamin Netanyahu’s new government announced a plan to reform the ports and create private sector competition for the state-owned facilities. The idea is that competition will force the state-owned ports to become more efficient.
Histadrut must agree

The plan to build one or more private ports, however, will require the consent of the Histadrut labor federation, which has fought reform not only at the ports but at other state monopolies as well.

Negotiations are due to begin immediate after the first tender are published with the unions, whose leadership has been weakened by allegations of conflicts of interest between union chief Alon Hassan and companies he controlled that did business with the port.

Treasury officials have opposed developing two ports simultaneously. They acknowledge that the economy needs an additional port, but that a second one will not be economically viable for another eight to nine years after the first has begun operations, which is projected to be in 2018.

Officials at the Transportation Ministry say otherwise. They maintain that because Israel lacks deep water ports that can service the biggest cargo vessels, the economy needs two additional ports as soon as possible. The addition of another pier will spur demand for maritime services.

In addition, they acknowledge that big infrastructure projects like the one being contemplated rarely meet their timetables and that delays in developing two ports one after the other could create a shortage of port capacity in the years ahead.
Transportation Ministry officials are also stressing that the political conditions that have enabled the port reform to move forward now may not exist again in the future. Treasury officials answer back that it is sufficient for the groundwork of port reform to be put into place to ensure it proceeds in the years ahead.

In fact, port reform has been delayed repeatedly. The government first approved developing new ports in May 2007, with an end-2008 deadline for the transportation and finance ministers to agree on terms and the location. But intense opposition from the ports workers committees blocked any progress until now.
Netanyahu was called in to resolve the divisions between the two ministries.

Albatross Aerial Photography