When Security Became an Issue, Bidders Had the Upper Hand

Two groups - Pasim and City Pass - submitted bids for the Jerusalem light rail tender yesterday. The tender committee said its choice will come after a three-month appraisal of the bids, and the final signing of the contract is expected in mid-2003. If all goes to plan, the first trains should leave their stations in 2006.

A grading system will be applied to the bids, so that weighted consideration is given not just to the cost aspects, but also to the technical quality of the bid (20 percent weighting) and a general impression (5 percent).

The tender to build the system, at a projected cost of NIS 1.7 billion, was issued in July 2001. It will be built by a private concern through the BOT - build, operate transfer - arrangement. The contractor builds the project, operates it for a lengthy period defined in advance, and gets income from user fees.

Originally five groups bid for the tender after the pre-qualification stage:

l Pasim - includes Vestra, the company that operates a similar system in Hanover, rolling-stock manufacturer Siemens, Africa-Israel, the Canadian firm CHIS, which joined at a later stage, and the Feuchtwanger Group.

l Adanim - including rolling-stock manufacturer Bombardier, the Clal Group, the Dutch operating company HTM, Hahandasa Corp., and Building and Properties.

l City Pass - which includes rolling-stock manufacturer Alstom, the CGEA operating company, Astrom, Elco and Poalim Investments

l Ariel - includes engineering concern SNC Lavalin, the German operating company SSB, Dankner Investments, Delek Group and Baran.

l City Line - was compelled to pull out of the tender early on, after Bombardier, of the Adanim group, acquired Adtranz, a company that had been competing as part of the City Line group.

One of the first problems to emerge after the tender was announced was the deterioration in the security situation in Jerusalem. Bus bombings led to a decrease in the number of passengers. This raised fears among contenders of a possible blow to their income as a result of terror attacks, since the cooperation agreement between the developer and the state is the BOT arrangement.

In an attempt to alleviate the groups' concerns, the tender committee decided the contractor would not bear any losses from a decline in passengers due to terror attacks. However, this did not reassure the contending groups because aid would be provided only when passenger traffic declined more than 10 percent - meaning that even under this arrangement they would incur heavy losses.

Last December the tender committee announced a safety net for the competing groups. The committee would publicize annual forecasts for the expected number of passengers and if the number of passengers was lower than forecast, the state would compensate the franchisee at a rate of 62 percent of the difference. If the actual number of passengers was higher than the forecast, the state would receive monetary reimbursement, at a rate of 25 percent of the difference.

Meanwhile, two of the contending groups - Adanim and Ariel - indicated they might drop out of the tender. One explanation was that Palestinian groups were exerting political pressure on Canadian companies that belonged to their groups, in part due to the route of the train.

The first line of the light rail system, extending 13.8 kilometers, will begin in Pisgat Ze'ev in northern Jerusalem, cross Jaffa Street in the city center, and reach its terminus at Herzl Street in the west.

Along the way, the line will also pass through Shuafat, an Arab neighborhood that has often been the site of violence. Meanwhile, sources in the tender committee claimed that the two groups' decision to drop out could actually be attributed to business reasons. This view was reinforced by the subsequent decision by Canadian company CHIC to join the Pasim group as a partner.

Following the departure of Adanim and Ariel, only two contenders remained in the tender process, Pasim and City Pass. This situation gave them added clout, since the dropout of either of the two remaining groups would have essentially canceled the tender. This led to a few decisions to sweeten the deal for the remaining contenders. For instance, in January the tender committee said the state would provide assistance to a franchisee if it were forced to suspend work during the construction phase as a result of the security situation, or if direct damage to the railway cars or tracks was caused by terrorist incidents.

Meanwhile, the contestants asked for - and received - a series of deferrals of the final date for submission of proposals. At first, the final date was set at January 2002. But in December 2001, following a request by the contenders, it was decided to postpone the date to the end of March, 2002. In February, the tender committee announced an additional deferral, to May 2002. In early May, the committee once again pushed off the final date for submission - to June 4.

In May, the Pasim group asked to postpone the date for providing financial guarantees to the state - of NIS 30 million - until the date of selection of the winner of the tender. This meant a change in the conditions of the tender which, as in other infrastructure tenders, require that guarantees be submitted to the state at the proposal-submission stage. This is meant to ensure that the group does not withdraw its candidacy in the tender even if it wins in a more attractive project.

The second candidate in the tender, City Pass, evidently realized that the Pasim group had a cash-flow problem, and objected. City Pass argued that the failure to provide guarantees in a tender of this scope was problematic. The tender committee found itself in a quandary, since yielding to Pasim's request would have infuriated City Pass, and vice versa.

In the end, it was agreed that the deadline for submitting the guarantees would be postponed to a date midway between the proposal submission and the awarding of the tender; the problem was resolved.

On announcing the winner of the tender, the tender committee will have completed its work, and a public transit board will take its place. The board will include representatives of the Transport Ministry, Finance Ministry and Jerusalem Municipality to oversee the work of the franchisee. At some future date, following the passage of appropriate legislation, the board will evolve into the Public Transport Authority, similar in nature to the Airports and Railways authorities.