Strapped for Cash, Defense Ministry Looks to Banks to Fund Projects

The Defense Ministry is desperate for funds for several endeavors, including the relocation of a handful of major army bases, and is hoping the banks will ease restrictions on lending in order to fund them.

With planned budget cuts looming, the Defense Ministry is hoping to circumvent the pinch by borrowing from Israel's banks, and wants the banks regulator to ease up on restrictions in order to enable it to do so.

The ministry wants bank funding for projects including moving army bases from the center of the country into the periphery, thus freeing up costly land in Israel's center.

The projects, which would be carried out by private contractors, would cost tens of billions of shekels. The Defense Ministry is currently too cash-strapped to carry out these projects on its own.

Instead, defense sources called on Banks Commissioner David Zaken to ease regulation on banks when it comes to state projects.

Currently, the banks are limited to loaning no more than 20% of their total loans to construction projects. The two big banks, Leumi and Hapoalim, which fund most construction projects, are almost near their limit, meaning they are unlikely to be able to take on more big projects.

The Defense Ministry, represented by BDO Ziv Haft, wants Zaken to exempt private-sector projects being carried out on behalf of government entities from that 20% restriction.

"Infrastructure projects have significantly lower risk than other real-estate projects and creating another category for PFI [private finance initiative] projects will significantly ease things for banks in terms of financing," said Shaul Ben Shimol, head of the corporate loans department at BDO Ziv Haft, who is working with the Defense Ministry.

The Defense Ministry wants to use bank funding in order to move an information systems base from central Ramat Gan into Be'er Sheva, to evacuate camps near the Glilot interchange and to build logistics centers on a 300,000-meter plot.

The IDF uses advanced computing equipment at the bases set to be evacuated, and it also cannot hit the pause button in order to move the equipment in gradual shifts. Therefore, the defense establishment wants to take advantage of the move in order to supply the new bases with even more advanced equipment. Evacuating the existing bases and building new ones is expected to cost tens of billions of shekels.

The Defense Ministry intends to carry out these projects via private contractors under public-private partnerships. Under these projects, the ministry supplies the contractors with securities and guarantees, while the contractors secure funding for the project and for operations. The state used this method to fund the construction and operation of Israel's toll road Route 6, and it is also being used to build the "Ir Habahadim" city of IDF training bases in the Negev. Thus, the Defense Ministry can launch these projects now while staving off the date it has to actually pay for them.

Emil Salman
IDF