No justification for Eilat rail link and int’l airport

Top economists warn that the high-speed train project to Eilat is not worthwhile and will cost the economy billions of shekels, but Prime Minister Benjamin Netanyahu does not care if tens of billions of shekels are spent on it. The big question is why should the state finance both a high-speed train and a competing new airport for Eilat.A month ago, Dr. Yacov Sheinin, one of Israel’s leading experts on transportation project, was asked if a Tel Aviv-Eilat passenger train was worthwhile. “Today, Eilat receives two million tourists a year,” he replied. “If it were to receive 30, 40, or 50 million tourists – then it would be worthwhile.”

Sheinin’s remarks reechoed this week, in the new struggle over the Timna airport project north of Eilat. Israel Airports Authority economics committee chairman Shaul Meridor, who represents the Ministry of Finance, announced his resignation on Sunday to protest the Airports Authority financing the project. He waved an economic opinion which stated that the Airports Authority would be financially destroyed if it financed the NIS 2 billion project from its budget.

The Ministry of Transport claimed in response that this was a personal battle by Meridor, and accused him of trying to torpedo a government decision to build the critical project. But the main point was lost in the heat of battle: at the same time that the government is planning the airport, it is promoting construction of a NIS 30 million passenger and cargo railway to Eilat.

Most of the railway’s astronomical cost is because Netanyahu wants the trip from Tel Aviv to Eilat to take just two hours, instead of the two and a half hours according to the planners’ proposal. The reason is that only the shorter travel time will the train serve as an alternative to domestic flights to Eilat. It is not necessary to be an economist or transportation expert to realize that if the vision of a bullet train is realized, there will be no need for an airport for domestic flights at Timna. On the other hand, if a bullet train to Eilat is not economically justifiable, then the idea of building another airport to compete against the train is crazy. Instead of one white elephant, Israel could end up with two.

The Ministry of Transport says that the new airport is a critical project because Eilat’s current airport is congested and too close to the city. Keeping the airport open blocks the city’s development, bothers residents and tourists, and jeopardizes passenger safety and security. The transport experts also assert that Israel needs a second civilian airport to handle international flights in an emergency, if Ben Gurion Airport is closed by strikes, missile attacks, or the weather. We’re convinced. The airport is critical. But if that is the case, why is a passenger train in the style of Japan’s bullet train or France’s TGV also needed?

Why a train?

Under the name “train to Eilat” are in fact two different projects. The first is building a cargo railway that will transport cars imported from the Far East to the center of the country, as well as phosphates from the Dead Sea back to Eilat for export to China and India. An examination of the economic value of this project by Sheinin found economic logic to this project. Sheinin’s basic assumptions were modest. A disel train traveling at 40-45 kilometers per hour on a single track would cost $900 million. With these figures, Sheinin calculated that the project would yield returns of 8-9% annually.

However, two years ago Prime Minister Benjamin Netanyahu and Transport Minister Yisrael Katz fell in love with a far more grandiose, if not to say megalomaniac project. Instead of a cargo railway they decided to build a multi-purpose project. This included a double track, electric railway with tunnels and bridges that could carry cargo at 140 kilometers per hour and passengers at up to 260 kilometers per hour. Following a visit to China, Katz was convinced that the Chinese could build the project swiftly and cheaply, and they would take on much of the financing. Netanyahu was thinking on a global strategic scale – a railway linking Eilat and Ashdod ports would serve as a land bridge and alternative trade route to the Suez canal. The project, Netanyahu believes, could make Israel a strategic asset for China, the rising superpower.

Building a cargo railway raises complex problems. The Egyptians, for example, are not party to Netanyahu’s enthusiasm for a project that would threaten one of their two main sources of income. Sources inform “Globes” that the day after Katz returned from China, the Egyptians sent a sharp message to the Chinese regarding their opposition to such a project. Israel has continued with business as usual but the Egyptian threat has given the Chinese second thoughts about participating in the project. The Egyptians also have other ways of harming the project without being drawn into an open conflict with Israel. With talk of Al Qaida gangs in the Sinai, it wouldn’t be hard to persuade a gang of Bedouin to hot a trade route with a 200 kilometer stretch off the eastern coast of the peninsular. There are also more trivial problems – the Eilat railway would only reach Nahal Shachoret and from there trucks would be needed to transport merchandize to and from the port.

For the cargo railway venture there is at least a concrete economic base but for a passenger rail link there is no reasonable economic opinion. The last study on this subject was carried out by Ezra Sadan when he was finance ministry director general. He began from a positive viewpoint that the Chinese would achieve the impossible and reduce costs by 50% to $3.7 billion. Even with such generous assumptions, Sadan found that there would be a need to quadruple the traffic to 2.8 million passengers to and from Eilat annually to break even.

This would assume that nobody flied in and out of the planned new international airport at Timna and that a huge number of new hotels are built in Eilat. Sadan calculated that the number of hotel rooms in Eilat must be more than double from 11,000 today to 24,000. He concluded, “Ultimately planning a railway to Eilat is purely an economic project, and such a project would almost certainly be doomed to economic failure it has no purpose. That would undoubtedly be the fate of a project focusing on building a railway principally to carry passengers. Such a project would cause damage of billions to the national economy.”

And what does the prime minister think about the opinion of the economists? Somebody present at the cabinet meeting when Netanyahu demanded shortening the train journey to Eilat from Tel Aviv to two hours told “Globes” that the prime minister was informed this would add NIS 30 billion to the project. Netanyahu responded, “When you get to 100 billion, tell me.”

Published by Globes [online], Israel business news – – on February 26, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

הסקירות באתר זה נערכות על ידי מודלים כלכליים. הסקירות מיועדות למטרות אינפורמציה בלבד ואין באמור בהן משום המלצה לרכישה ו/ או מכירה של נייר ערך כלשהו, או תחליף לייעוץ אישי, הדרוש לצורך ניהול ניירות ערך. הסקירות עוסקות בתחזיות, אשר במהותן אינן ודאיות. בפועל, יכולות להתרחש סטיות משמעותיות מהתחזיות, עקב גורמים רבים. לפיכך, נדרשת מיומנות מקצועית לשימוש בתחזיות, אשר אינה נחלת הכלל, ואין לעשות שימוש בתחזיות אלו ללא ייעוץ מקצועי מתאים. המידע המוצג באתר זה הינו חלקי ולא מעודכן באופן שוטף ועלולות לחול בו טעויות. מודלים כלכליים בע”מ אינה נושאת באחריות כלשהי לגבי החומרים הכתובים באתר.

גודל פונט