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Treasury derails payment over Israel Railways' budget wreck
By Avi Bar-Eli

For the first time since the inception of Israel Railway, the Ministry of Finance has not paid out the monthly provision allocated to the train service. The funding was suspended after the railway overspent its budget by a whopping NIS 4 billion, precluding approval of the railway's development plan. Knowledgeable sources say that the railway will become insolvent within about two weeks if funding is not renewed, and will be unable to pay its suppliers. The railway's 2008 development budget totals NIS 2.5 billion.

The original development agreement for Israel Railways was signed in 2003. It included a NIS 20 billion budget for its projects, but by 2006 spending had vastly overshot the plan. A review conducted by an external auditor showed that overspending had reached NIS 9 billion.
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The treasury says that the overspending amounted to cost overruns of tens of percentage points beyond the original plans, putting the financial feasibility of those plans into jeopardy. In August of 2007 the government agreed to allow an increase of NIS 29.5 billion to the railway's budget, subject to an adjusted development plan which had not been completed.

Last month Israel Railways asked to augment its development budget by another NIS 3 billion to NIS 4 billion, which precluded approval of a new development agreement. In a letter from the Deputy Director General of the Finance Ministry's budgets department, Amit Lang, and Deputy Accountant General Avi Dor, to the Director General of the Transportation Ministry, Gideon Siterman, the treasury officers told the Transportation Ministry that it had no choice but to suspend further cash injections to the railway.

The ballooning cost estimates for its projects stem largely from the A1 high-speed train route to Jerusalem. That had originally estimated at NIS 3.8 billion but the latest estimates put the cost nearer to NIS 6 billion.

Meanwhile, Israel Railway's management is said to have held an urgent meeting with the heads of Shapir Engineering and the Austrian earthworks company Alpine Engineering. These are are slated to perform earthworks for the Sha'ar Hagai to Emek Arazim portion of the A1 line, which is to cost NIS 1.6 billion. The companies won the tender to carry out the project more than six months ago, but have still not been given the go-ahead to begin work.

Sources in attendance described the meeting as "difficult", adding that representatives of the company had hinted that they would be forced to sue the railway for monetary compensation because of the delay, and rising costs of labor input in the interim.
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