Box Potential For Privatised Eilat
BMI View: BMI believes that the end to the long-running saga of the Port of Eilat's privatisation could provide upside risk to our throughput forecasts for the facility, and could see the port become a serious entry point for containers entering Israel once again. The Eilat Port, which handles 6% of Israel's total foreign trade, is set to become the first national port to be privatised by the government, and the move will be watched with interest by port operators as the Mediterranean facilities of Ashdod and Haifa are also intended to be handed over to private operators over the coming decade.
Papo Maritime submitted an ILS15mn (US$ 3.84mn) deposit in September to guarantee its bid for the proposed privatisation of the Israeli Port of Eilat. Papo Maritime was the sole bidder for the port after Gold Bond Group and Gadot Chemical Tankers and Terminals failed to submit the required deposit. The bidding procedure has been postponed twice amid complications and efforts by the state to relax the conditions of the bidding made after the response was underwhelming.
The winning bid made by Papo was US$120mn in total. An initial offer of US$100mn was raised to US$105mn, plus an option the company agreed to grant the state on the port's revenue for US$15mn. The franchisee has won the right to operate the Port of Eilat for the next 15 years, with an option to extend this by a further 10, provided certain trade targets are met.
|A Future Box Role?|
|Port of Eilat Tonnage Throughput|
BMI believes that the privatisation of the port could lead to a resurgence in container handling at Eilat. One of the changes made to the government auction of the port after the first one failed in July was to introduce easier terms with added incentives for boxes. The port used to handle more containers, with throughput of 30,000 twenty-foot equivalent units (TEUs) in 2004, but this has dwindled to nothing in recent years. There are, however, a number of factors that could lead to this picking up once more.
Firstly there are the incentives provided in the reviewed privatisation auction, and the fact that Papo Maritime will be looking for ways to enhance the port's money-making potential. Secondly there are infrastructure plans in development which will enhance the port's connectivity to the rest of the country, and the population base around the Mediterranean littoral; in February 2012 the Israeli cabinet approved long-mooted plans for a railway line to be constructed across the Negev Desert, linking the Port of Eilat with the country's Mediterranean ports. From the start of construction the project will take five years. BMI remains sceptical that the railway could ever become a rival to the Suez Canal, as is planned. However, it will almost certainly boost box throughput at Eilat.
The privatisation of the Port of Eilat will be closely followed by those with concerns in the two primary Israeli ports, the Mediterranean facilities of Ashdod and Haifa. Despite strong union opposition, operations at the two ports will also be gradually privatised over the coming decade. Given their large size relative to Eilat, and the fact that both are to have new container terminals in the coming years ( see our online service, 'Much Needed Investment In Container Terminals', October 12 ), we believe that the competition to win a stake in these two ports will be much more fierce than was encountered at Eilat, where Papo Maritime won by default.