The Light Rail Tenders Drove the Chinese Off the Rails

The NTA tenders for implementing the purple and green lines, at a scale of NIS 9 billion each, excluded the Chinese companies, possibly under American pressure. Shapir and Electra, the winning bidders already control a significant proportion of Israel’s infrastructure.

Yuval Sadeh

6:00 AM, 2/1/2022

Late at night Sunday, the NTA (Metropolitan Mass Transit System Ltd.) tenders committee announced the winning bidders in the giant tender for the two Gush Dan light rail lines. A group consisting of Alstom, Dan, and Electra won the tender for building the green line that will connect from Holon to Herzliya, with a bid of NIS 9 billion. A group consisting of Shapir Engineering and the Spanish company CAF won the tender to build the purple line that will connect from Yehud to Tel Aviv, with a bid of NIS 9.2 billion. NTA disqualified the proposal by the Shikun & Binui Group, Egged, CRCC, and CRRC—the latter being two Chinese companies sanctioned by the US government—with the claim it was “too cheap.”

The third line, the red line, is already in advanced implementation stages and performing trial runs. According to the NTA CEO Haim Glick, and also according to the company’s advertising campaigns, it is expected to operate commercially at the end of 2022.
The announcement was made after a delay of eight months that cost the economy an estimated NIS 800 million. Officially, the tender was delayed for only one reason—the unwillingness of various Israeli governments to evacuate a few dozen residents of Kfar Shalem who lived along the planned path of the purple line. The evacuation, which was supposed to take place already during the term of Transport Minister Bezalel Smotrich, June 2019 – May 2020, was delayed and stretched on. During the term of Transport Minister Miri Regev, May 2020 – June 2021, it appeared there was no intent for it to occur.
It was finally Minister Merav Michaeli who was forced to evacuate the residents, and despite the concerns it appears the political price she bore for it is negligible. The Finance Ministry evaluated in the past that every delay in the evacuation costs the economy about NIS 100 million per month.

The disqualification is headed to the court
The tender was also delayed because of “unofficial” reasons. Last June Calcalist reported that the American government expressed dissatisfaction that the Chinese infrastructure company CRCC was a candidate in the tender, because it had been included in the Biden administration’s blacklist of prohibited investments. American pressure was placed on the Finance Ministry, but also was raised in discussions between American officials and Prime Minister Naftali Bennett. An additional Chinese company, CRRC, was already denounced by the Trump administration. The two companies participated in the light rail tender in a joint group with Egged and Shikun & Binui, which was called Urbanix.
Since August, the NTA tenders committee, which was burned in the past by Chinese companies, began to claim that the Urbanix bid was too cheap, because the group uses dumping tactics, and that it was not economically viable. Meanwhile, Shikun & Binui and Egged claimed that they were being disqualified from the tender solely for geopolitical reasons and that these reasons were not mentioned in the tender, and therefore that the moves against them were improper. It is now reasonable to assume that Urbanix will head to the court. Sources in the group told Calaclist that they will demand compensation from the State for their disqualification but will not necessary request changing the tender’s results.

The winning bidders in the light rail tenders, from right: Electra CEO Itamar Deutscher, Dan CEO Ofir Karni, Shapir CEO Harel Shapira. Huge budgets are being directed at public transit.
(Photo: Liforn Aloni, Yonatan Bloom, Nimrod Gilckman)

Two days ago, before the official declaration that the Chinese Urbanix group was disqualified, Mekorot announced the winning bidder for its tender to build a water conveyance system in northern Israel. The winning bidder was the Ofek company. In this case too it is worth considering who the losers were—two Chinese companies that actually work in the field of trains and ports: CRTG and CHEC. It is possible that the loss by the Chinese companies in the Mekorot tender along with the loss by the Chinese companies in the NTA tender is no more than a coincidence, but even if this is the case, it is a change in trend that indicates the Chinese infrastructure companies’ honeymoon in Israel may be over.
This can have dramatic consequences for Israel-China relations and even for Israel-US relations, but first and foremost it will influence Israel’s future infrastructure tenders and lead large Israeli companies to think twice before they collaborate with Chinese companies.

Shapir’s and Electra’s Growth Engine in Infrastructure
Shapir Group fortifies its status as the strongest transit infrastructure group in Israel and its stock jumped by 5.1% on the day after the announcement of its selection, while the Stock Exchange as a whole dropped by about 1%. The company, which is traded at a value of about NIS 11 billion and is held by the four Shapira brothers (60%), holds a heavy slice of Israel’s transit infrastructure. Shapir already now operates, along with CAF, the red line of the Jerusalem light rail, and meanwhile is working on extending the line towards Neve Yaakov and Hadassah Ein Karem. It is also building and will operate the Jerusalem light rail green line.
This means that as of now, Shapir is active in three of the five light rail lines in Israel. It also holds parts of Road 6, the Road 1 Fast Lane, and is a candidate to purchase the government Haifa Port and to operate the Jerusalem light rail blue line. About a year ago the group was inserted into the list of concentrated entities in the economy, and as it continues to expand, the limitations on it will grow.
Shai Lindner, Shapir’s CFO, said about this that “Our competitors, each of them, run projects no smaller or more complex. After many years when there was only one or two players—mainly Shikun & Binui—now there are actually 5–6 players and the sector is very competitive. Even the Competition Authority Director-General saw that our presence creates competition and not concentration.”
The Electra group, which won the tender to build the green line with Alstom and Dan, also fortifies itself as a significant transit infrastructure company, and its stock also rose following its selection in the tender, by 4.2%. Electra, which is traded at a market value of NIS 8.8 billion and is controlled by the Zelkind brothers’ Elco group (47.8%), invested significant funds in recent years in transit infrastructure and recently even bought the public transit companies Egged Ta’aburah and Afikim, the latter of which now operates under the brand Electra Afikim. The company is also building the Ayalon highway Fast Lanes project.

The light rail red line. A successful test run.
(Photo: Tal Shahar)

The major entry by the two infrastructure companies to the Israeli transit sector indicates a change in trend regarding the companies’ attitude to the sector. A senior figure in the Israeli infrastructure industry told Calcalist a few months ago that infrastructure companies see the transit sector as a significant growth engine that can provide them a fixed cash flow over time rather than only temporary projects. An additional aspect that attracts many investors, including institutional entities, to the sector is the huge budgets Israeli governments have begun to allocate to the sector in recent years.
Dan CEO Ofir Karni told Calcalist that there has been a huge change recently in policymakers’ attitude and in the scale of budgets allocated to public transit in general and mass transit in particular. “It is clear to the entire market that they changed the dial slightly, and public transit in all its forms will become the main focus of infrastructure investments in the upcoming years.”
The main loser is Shikun & Binui, whose stock fell after the publication of the tender’s results by 0.5%. The company, valued at NIS 8.7 billion and controlled by Naty Saidoff’s OS Israel (46.6%), recently suffered the loss of senior officials, got embroiled in a bribery scandal in Africa, and presented a decrease in income in the two past quarters. An additional loser is its partner, the transit company Egged, which is seeking a buyer. One can assume that its potential price will now decrease with its loss in the tender process.
The tender itself, whose winning bidders were announced, as mentioned, this Sunday, includes the construction, planning, maintenance, equipping, and financing of the green and purple line projects of the light rail. The green line is expected to connect among Holon, Rishon Lezion, central Tel Aviv, Tel Aviv University, the industrial and business area in Western Herzliya, and the business area in Kiryat Atidim. Its length will be about 39 km and it will have 63 stops (including 4 underground stops).
The purple line will connect among Kiryat Ono, Yehud, central Tel Aviv, Bar-Ilan University, Sheba Hospital, and the Carmel Market. Its length will be about 27 km at ground level and it will include 45 stops.
The cost of the two lines is estimated at about NIS 30 billion, which consists of the price set in the two tenders, the preliminary work (Infra 1) that NTA has conducted, and the green line tunnels being dug by the Chinese company CSCEC through a separate tender that cost NIS 1.5 billion.
According to NTA, the green line will operate commercially in 2027 and the purple line in 2026. Past experience teaches that the work on infrastructure projects in Israel gets delayed, and the launch of a new line’s operation within four years of the announcement of the winning bidder seems almost imaginary.
However, the winning infrastructure companies claim the schedule can be shortened by shortening the stage of financial closure and as a result the State and NTA will shell out funds and finance night work and additional work teams.