Excerpt from the "Bank of Israel – Annual Report for 2014" to be published soon - Transport infrastructure development between 2012 and 2015: The plans and their execution
Excerpt from the "Bank of Israel – Annual Report for 2014" to be published soon: Transport infrastructure development between 2012 and 2015: The plans and their execution.
Graphs & Data
- Most transport infrastructure investment plans overrun the planned timetable for their completion, leading in the medium term to a smaller investment than planned in the transport infrastructure.
- The slow progress affects the ability to plan the location of dwellings and businesses and limits the government’s ability to direct resources to other purposes.
This box deals with the budgeting and execution processes of planned transportation infrastructure investments in Israel, and with some of the reasons that they have been carried out only partially.
In recent years, the government has made several decisions on transport infrastructure investment plans aimed at improving and expanding the roads network and the public transport system, including the “Netivei Israel” transport development plan, the light railways in Jerusalem and Tel Aviv, and the Jerusalem-Tel Aviv railroad. A substantial part were considered comprehensive reforms in the transport infrastructure, and these were budgeted accordingly and approved by the government. When the actual execution of the plans is followed up over time, we find that they have run into problems and/or have been delayed. Consequently, only part of them has been carried out and most in this group have overrun the planned timetable for their completion, leading in the medium term to a smaller investment than planned in the transport infrastructure.
Figure 1 illustrates this: It shows the changes that have occurred in the last few years in the expected expenditure on transport development. The extent of the changes in the expected plans of the relevant government ministries in 2012 can be seen in the figure. From 2012 to 2015, the expenditure was supposed to increase from NIS 11 billion to 23 billion—in other words, more than double. This increase was half of the total increase in the state budget which the existing expenditure rule allowed over this 3 year period, despite the fact that a considerable part of the budget increase was already earmarked for expenditure on other items. The 2012 plans for 2015 included, among other things, an expenditure of NIS 4.9 billion on the light railway in Tel Aviv, NIS 3.6 billion on the Netivei Israel plan, NIS 1.5 billion on the light railway in Jerusalem, and NIS 1 billion on the railway electrification project.
The figure also shows that the difference between the 2012 forecast for 2015 and the forecast for 2015 at the beginning of 2015 is NIS 10 billion, i.e., a decline of 45 percent, despite the fact that the government has not cancelled any important transport development plans. Expenditure being less than forecast is no indication of any saving or efficiency since transport infrastructure projects in Israel overrun the original cost by 31 percent, on average. The decline in the forecast shows that the transport infrastructures development plans are carried out at a slower pace than planned.
The slow progress has importance beyond the lack of transport infrastructures: The delay affects the ability to plan the location of dwellings and businesses, since the construction of residential neighborhoods requires roads and access to employment opportunities for future residents, and business operations are affected by their accessibility to transport infrastructures. Moreover, since investments in transport infrastructures are large and complex, they require multiyear budgeting and planning. Since the government is subject to a multiyear expenditure ceiling, surplus multiyear budgeting in the infrastructures item limits its ability to direct resources to other purposes. It is therefore important to improve the planning, budgeting and control abilities of the entities responsible for large transport infrastructure projects.
Plans that have already been assigned a budget therefore proceed at a slow pace for many reasons. Among the main ones are:
v Disagreement between government ministries, and between them and the contracting companies, on the extent of the project or on the content of the relevant government decision.
v Disagreement over the pricing of the elements of the project or over the method for indexing the budgets earmarked for it.
v Frequent changes in the project specification, for example converting junctions to interchanges, a change in a highway route, the addition of a road in order to link the project with another project, the addition of a railroad track, and a technological change requiring an infrastructure upgrade. The performance sometimes does not progress until agreement has been reached on all these.
v Overly optimistic estimates of the cost of the project and the ability to carry it out. These require changes in both the timetable and the cash flows necessary for the project.
v Delays in publishing tenders, checking them, and deciding on who has won them.
v Changes in the priorities of the relevant decision makers and of the government. Changes in the companies carrying out the projects and in their abilities.
In order to demonstrate some of these phenomena—note that not all are fundamentally negative, such as changes in priorities and technological changes—we will review two of the largest and most important projects put together in the last few years for the purpose of transport development: The Netivei Israel plan and the red line in Tel Aviv.
On February 24, 2010 the government decided to adopt the Netivei Israel plan and to invest NIS 27.5 billion in transport infrastructures over the years 2010–20. Half of the budget for the plan was allocated to interurban roads and to railways, and the other half to planning future projects and the railway electrification project (see Table 1). The decision stated that the budget for the plan would be added to the Ministry of Transport budget and that there would be no option to cut it without a specific resolution. In 2013, the government decided to cut the Ministry of Transport’s development budget and the decision gave details of which part of the cut applied to Netivei Israel. The aggregate cut in 2013–20 is NIS 1.7 billion, around 6 percent of the total of the plan.
Table 1: The Netivei Israel Plan
The cost (in NIS billion, at 2010 prices)
The Emek (Valley) Railroad – Connecting Afula and Bet Shean to the railway
Cross-Israel Highway northbound
Highways in the north
Roads and railways in the south
Planning and eminent domain
Railway electrification, rolling stock and maintenance
One of the main elements of the plan is the electrification project—the replacement of diesel trains with an electrified railway system. This project requires planning, the purchase of appropriate equipment and a comprehensive upgrading of the infrastructure. The cost of the project was NIS 11.2 billion in 2010—40% of the budget for the plan—and in the 2013–14 budget, its expected cost increased to NIS 14 billion. The State Comptroller’s Office examined the matter in 2013 and the examination showed that the original cost assessment was NIS 2 billion in 2004 (in 2014 prices), and it is unclear how the cost estimates in 2004 and 2010 were calculated. In the 2015 budget, the cost of the project again rose, this time to NIS 17 billion. Part of the differences between the estimates derives from the fact that the Ministries of Finance and Transport do not agree between them on the content of the plan, and the lack of agreement concerns aspects whose cost, according to estimates, reaches NIS 4 billion. As of the beginning of 2015 the electrification project has not yet got underway. The fact that this project is not progressing may delay the operation of the railway line between Jerusalem and Tel Aviv once its construction has been completed, since it is intended solely for electric trains.
The Red Line in Tel Aviv
As described in Box 2.2, in this report and in previous reports, the level of development of public transport in metropolises in Israel is below that of other advanced economies. The main project intended to deal with this problem—the light railway—is focused on the Tel Aviv metropolis and has been in development for more than two decades already. In 1997, NTA (the Tel Aviv Metropolitan Mass Transit System Ltd.) was set up as the government company to be in charge of the project’s implementation, and the cornerstone of the railway was laid. In 2001, the route of the line between Bat Yam and Petah Tikva was approved, and in 2003, the first tender for its construction was published. In 2006, a group of companies was chosen to construct the line, and in 2008—eleven years after the cornerstone was set down—work began. In 2010, the project was nationalized due to dissatisfaction with the pace at which work was progressing, and it was decided that NTA would manage its continuation. In 2011, excavation work began in three different locations, but in view of the pace at which the work was progressing, it was decided, in 2014, that in order to provide a temporary solution a Metronit bus rapid transit system would operate on the route.
From the way things developed, this project was shown to suffer, among other things, from freezes, changes in concessionaires, financial problems, changes in the contracting entities, and many changes in both the anticipated completion date and the estimates of its overall cost. The current estimate for the cost of the Red Line is NIS 16.1 billion (at June 2014 prices), but this is now being re-examined. To date, NIS 2 billion has been expended on the project, NIS 1.5 billion of which on preliminary work on site; NIS 0.5 billion of this was invested in 2014. The expenditure on the Red Line is expected to increase to NIS 0.9 billion in 2015, and is expected to continue to increase over the next few years. For the sake of comparison, the 2012 estimate of the expenditure from 2013 to 2015 was NIS 8.5 billion, meaning that the project is progressing at an extremely slow rate in comparison with the estimate. The completion date is not known at this time, but the forecast is for around 2025. The lack of a transport solution for the Tel Aviv metropolis for such a long period of time entails high costs both in terms of economic productivity and in terms of the negative impact to the welfare of inhabitants, loss of time, and air pollution. Likewise, it is holding back high density building in the metropolis, which would have provided a response to housing demand.
 See Box 6.3 in the Bank of Israel Annual Report for 2009.
 See "The anticipated performance of the state budget in 2012 against the budget objectives" (December 2011), Bank of Israel.
 See Box 6.3 in the Bank of Israel Annual Report for 2009.
 Government decision number 1421 of February 24, 2010: “Netivei Israel – Transport Plan for the Development of the Negev and the Galilee, 5770-2010.
 Government decision number 192 of May 13, 2013: “A reduction in the budget of the Ministry of Transport, National Infrastructures and Road Safety".
 State Comptroller, annual report 65a, 5774-2014: “Israel Railways Corporation Ltd. – Organization for the Electrification of the Railway Lines".
 Ministry of Transport and Road Safety budget proposal for fiscal year 2015, page 50.
 The original date for its completion was in 2008. At the beginning of 2015, it was expected to be completed at the beginning of 2018.
 Bank of Israel 2011 Annual Report, page 96.