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Analysis – Israel To Privatise Haifa Port, China Invests, Washington Concerned

Analysis – Israel to privatise Haifa Port, China invests, Washington concerned

Haifa, Israel (PortSEurope) March 18, 2020 – In 2015, the Israeli government decided to sell off state-owned assets in order to raise funds to reduce debt, but also to introduce modern efficiencies into state businesses. Haifa seaport was one of the selected assets set for privatisation. Haifa Port is the largest and leading port in Israel in both cargo transportation and passenger and tourist ship
service. In 2015, it was announced that China’s state-owned Shanghai International Ports Group (SIPG) was awarded the concession of Bayport terminal, port of Haifa, for 25 years from 2021. Bayport terminal is expected to be in full operation in 2021. SIPG will be responsible for the construction of new facilities at the back terminal, deployment and installation of the equipment and daily running and operation of the terminal. With a total of 1,500 meters of quay length, a 78 hectares surface and a 17.3 meters draft, Bayport new terminal is expected to handle annual container throughput of 1.86 million TEU. SIPG is a global terminal operator, the exclusive operator of all the public terminals in the Port of Shanghai and provides cargo handling, port logistics, port commerce, pilotage, tugboat, shipping tally, and other port related services. A presence in the Mediterranean, together with assets owned and managed by China’s COSCO Ports Shipping and China Merchants Group, would expand Chinese activities in the region, close to the Suez Canal. Together with Haifa port that could form part of a transport corridor with Middle East countries. This fits into Beijing’s “One Belt and One Road” strategy. The new Silk Road (part of the Belt and Road initiative – BRI), also known as One Belt, One Road – OBOR), is a Chinese economic strategy to seek better access for Chinese-made products in European markets, which includes acquiring stakes in ports and other transport facilities, and cooperation agreements with countries along the Silk Road routes. Israel seeks at least NIS 1 billion ($287.6 million) for the privatization of its port in the northern city of Haifa, and is open to the possibility of selling it to another country, according to an official government document sent to ministries for comments prior to final government approval. Reviewed by the local business newspaper Calcalist, the document reveals that Israel is looking to sell 100% of the port to a single strategic buyer, combined with a fund-raising effort for the port. The document states that if the winning bidder offers no more than NIS 1 billion, the entire sum will go towards the port, but any additional sums will go to state coffers. NIS 400 million (approximately $115 million) of the requested payment are intended for the port’s development, with state-owned Israel Ports Development & Assets Co. Ltd. investing a similar sum to upgrade the docks by 2030. Regarding those eligible to apply for the tender, the document says state-linked Israeli corporations will not be permitted to participate, but foreign states or corporations owned by foreign states will be allowed to bid pending proper regulatory and security authorization. The privatization of Haifa’s port was signed in principle with the Israeli ministers of finance and transportation in December 2018. The agreement included a very generous retirement plan for the port’s employees, intended to cut the workforce from 1,000 people to 700, in return for a 10-year grace period. It is significant that part of the port’s revenue comes from Israeli shipping line ZIM Integrated Shipping Services Ltd, which might choose to relocate some of its business to the new Chinese-operated terminal – the port has estimated in the past that the future rivalry could see its revenues fall and its employee count cut by as much as half. For the fiscal year 2018, Haifa port reported an 85% increase in net profit to NIS 177 million ($50.9 million). Washington has concerns with the SIPG development and does not want to see a new Chinese business with the latest technology at a port where the U.S. Sixth Fleet is a regular visitor. Also, Washington is concerned that China will use the harbour to improve its standing in the Middle East and potentially gather intelligence on U.S. interests. In Beijing’s view, Washington constitutes the biggest external challenge to Israeli-Chinese relations. In 2000, Jerusalem succumbed to heavy U.S. pressure and cancelled the sale of the Phalcon Airborne Warning and Control System (AWACS) to China, much to Beijing’s displeasure. Haifa Municipality claims that the plan for the new port will hinder any future development of the neighbouring airfield into an international airport. Haifa is the base of Israeli main naval fleets. Israeli submarines, often reported to be capable of launching nuclear missiles, dock there. Haifa port regularly hosts joint U.S.-Israeli naval drills. The SIPG deal has raised intelligence and security concerns that are prompting an Israeli inter-agency review. Some Israeli officials frown on the mushrooming relationship with Beijing. Former Mossad head Efraim Halevy, for instance, has consistently warned against Chinese involvement in the Red-Med high speed rail project to connect the cities of Eilat (a port on the Gulf of Aqaba at the Red Sea) and Ashdod (a Mediterranean Sea port), concerned it could trigger a crisis with the U.S. administration. The 260 km of electrified double-track rail (not including the additional 100 km Tel Aviv – Beersheba section), if built, is expected to serve both passengers and freight, including minerals mined from the Negev Desert. The freight service will serve as an alternative to the Suez Canal, allowing countries in Asia to pass goods to Europe through Israel. The line is part of a greater plan relocate the Port of Eilat 5 km further inland. The most pressing threat to the relationship with China comes from Israeli discussions on whether to withdraw from the Haifa port contract, which could arguably enable Chinese companies to monitor visiting American vessels and U.S. warships. The Chinese government rejects this, arguing that the lease agreement is merely an economic contract, not a military or political one. But against the backdrop of the U.S.-China trade war, Israel’s hesitation kindles fear in Beijing. As a further example of China’s aggressive move into the Mediterranean and specifically into Israel, Pan Mediterranean Engineering Company (PMEC), part of China Harbor Engineering Company Ltd, has won in February a tender to upgrade Ashdod’s main dock for NIS 1 billion (€270.3 million). The upgrade is part of a comprehensive plan for Israel’s Port Company to promote and upgrade the sea ports in Haifa and Ashdod, including planning the expansion of silos at Ashdod Port, restoration of the fuel pier and passengers and the restoration of the old breakwater in Haifa port and more, in order to increase efficiency, and make ports more competitive and improve the level of services. Upgrading piers with a total length of 850 meters, will allow large container ships of about 400 meters in length and a carrying capacity of 18,000 containers to use the port. The upgrade will include deepening the eastern part of the platform to about 17.5 metres and strengthening it to carry cranes of 130 tons, as well as deepening the western part to about 16 metres and adapting it to receive large nuclear vessels. The upgrade works are expected to begin in May and will last for about three years. PMEC also won the tender to construct Ashdod’s Southport Project. Israel Electric Corp (IEC) said in July 2019 that it is selling the Alon Tavor power plant to a consortium of Chinese Harbor, Rapac Communication and Infrastructure Ltd unit Rapac Energy, and Mivtach Shamir Holdings Ltd. China Harbour Engineering is a subsidiary of China Communications Construction Co, providing infrastructure construction, including marine engineering, road and bridge, railways, airports and plant construction. Whilst China is not a controlling partner in the consortium, its presence is likely to again raise concerns about the growing Chinese investments in Israel’s infrastructure.  Copyright (C) PortSEurope. All Rights Reserved. 2020.

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