Sources inform ''Globes'' that a compromise is emerging in the talks between the Ministry of Finance and the Tel Aviv light rail consortium Metro Transport Solutions (MTS). Under the proposed compromise, MTS will obtain risk insurance for the project against termination of the franchise agreement. The insurance indemnity will exceed MTS's self participation.
Sources involved in the talks expressed optimism that a deal could be reached. They said that foreign banks financing the project have eased their positions on the fundamental issue of the distribution of the risk between the state and MTS.
The Ministry of Finance and the light rail financing committee are still waiting for the foreign banks' consent to the compromise. An answer is due by Thursday, according to a committee decision from last Thursday.
The Ministry of Finance and MTS still disagree over the sharing of the risk in the event of termination of MTS's franchise during the set-up phase of the project due to the dismantling of the MTS consortium. This disagreement is the last deal breaker of MTS's franchise agreement. The parties have reached agreement on several other potential deal breakers.
MTS is a consortium comprising Africa-Israel Investments Ltd. (TASE:AFIL), Egged Israel Transport Cooperative Society Ltd., Siemens AG (NYSE: SI; XETRA: SIE), China Civil Engineering Construction Corporation (CCECC), and Sociedade de Construcoes Soares da Costa SA of Portugal.
The banking syndicate financing MTS is headed by German government owned banks KfW Bank Group and BayernLB. The syndicate insists that if MTS's franchise is terminated, MTS's liability should be limited to the equity invested in the project. The Ministry of Finance has rejected this demand outright, on the grounds that since the Tel Aviv light railway project, as a BOT project, MTS bears full liability for damages caused by its liquidation.
MTS has proposed to commit in advance to paying up to €200 million in compensation, as a kind of self participation. The Ministry of Finance demanded a commitment of €400 million, and to have the right to sue for damages beyond this amount. MTS responded by offering to buy insurance for damages in the event of its liquidation.
The sources added that talks have been held in the past few days with foreign risk insurers that have expressed their willingness to insure the Tel Aviv light railway project.
Several other secondary issues still remain open. The most important of these is MTS's request to sell any water pumped during the earthworks and its request to greatly increase the number of milestones, which will give it the right to receive parts of the set-up grant.
Published by Globes [online], Israel business news - www.globes-online.com - on June 22, 2010
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