Netanyahu Sees Red Sea-Negev Rail Spurring China Trade: Freight

Israel is planning a train link between its Red Sea and Mediterranean ports intended to serve as an overland alternative to the Suez Canal and to spur increased trade from China, India and other Asian countries.

The cabinet approved on Feb. 5 a 350-kilometer (218-mile) line to link the city of Eilat, Israel’s sole Asian-waters port, to the existing rail system, connecting to the Ashdod port. The project may start as early as this year.

To Prime Minister Benjamin Netanyahu, the link is a means to increase trade with the expanding economies of Asia, reducing dependence on Israel’s traditional export markets in Europe and the U.S. and transforming Israel into a Middle East trading hub. The premier says having an overland cargo route to the Mediterranean will boost the country’s value as a strategic partner to China and India and would be “useful” in case “problems” arose with the Suez Canal.

“How can we get the great Asian economies interested?” Netanyahu asked during an interview with Bloomberg News in Tel Aviv on Feb. 20. “We can build a train line from the Red Sea to Ashdod to link Asia and Europe.” The project “will help open up markets.”

Israeli officials in recent discussions with Chinese and Indian counterparts have raised the possibility of companies from there taking part in building and operating the estimated 8.6 billion shekel ($2.3 billion) project, expected by the government to take five years once construction gets under way.

Chemical Exports

The government estimates the rail link will multiply cargo traffic at the Eilat port, which primarily handles chemical exports to, and merchandise imports from, Asian markets. According to a Ministry of Transport study, chemical exports from Eilat that totaled 2.4 million tons in 2008 may rise to as much as 5.4 million tons in 2020. Shipping containers could increase from 2,000 20-foot containers, or TEU, to 210,000 TEU.

The government is selling the port to private owners and expects to complete the process this year. Five companies -- Maman Cargo Terminals and Handling Ltd., Gadot Chemicals Tankers and Terminals Ltd. (GDTN), Papo Maritime Ltd., Mifalei Tovala Ltd. and Gold Bond Group Ltd. (GOLD) -- have reached an advanced stage in the sale, the Finance Ministry announced on Feb. 21. In two months, after the government works out provisions to safeguard the interests of port workers, the contenders can submit bids.

Mifalei Tovala is a subsidiary of publicly traded Israel Chemicals Ltd. (ICL), which extracts minerals from the Dead Sea to make potash and fertilizers. Acquiring the port may help it contain labor actions and other contingencies that have sometimes delayed its exports to Asia, said Joseph Wolf, an equity analyst at Barclays Capital in Tel Aviv.

Sustaining Edge

“One of Israel Chemicals’ biggest advantages over their rivals is their time-to-market shipping to India and China,” Wolf said in a phone interview. “Controlling transportation and making sure that edge is sustained is an important part of their strategy.”

Israel Chemicals shares are down 0.8 percent this year in Tel Aviv; Potash Corporation of Saskatchewan Inc., the world’s largest fertilizer producer by market value, is up 5.8 percent in New York trading over the same period.

Linking Eilat by rail to Ashdod, along a route used in ancient times by caravans bringing spices and incense from Arabia and India to Europe, has been contemplated for decades. It was first promoted by Netanyahu while he was finance minister in 2003. He revived the idea after becoming prime minister in 2009 as part of a nationwide rail development program.

Southern Negev

For Israel, the link isn’t just an economic investment. Netanyahu has stressed its importance in spurring development of the country’s southern Negev desert and possibly strengthening relations with Jordan. Its Aqaba port sits adjacent to Eilat and could also be connected to a Mediterranean rail link.

“There is no reason it can’t be an Eilat-Aqaba-Ashdod line,” Netanyahu told parliament last March. “This will advance prosperity, stability and peace in the region.”

The total amount of cargo loaded and unloaded at Eilat in the first three quarters of 2011 was 1.6 million tons. At Ashdod it was 14.4 million tons, according to Israel’s Central Bureau of Statistics.

Those amounts pale next to the Suez Canal, used to carry about 8 percent of global annual seaborne trade. In January alone, 81.5 million net tons passed through the Egypt-controlled waterway.

The canal has remained open during the past year of political upheaval, which forced the resignation of Egyptian President Hosni Mubarak. It was closed for four months in 1956- 1957 as Egypt and Israel fought the Sinai War. It shut again for eight years after the 1967 War as Egyptian and Israeli forces occasionally fired at each other from positions on either bank.

‘Second Option’

“It’s always important in terms of risk management to have a second option,” said Philip Damas, director of liner shipping at Drewry Shipping Consultant Ltd. in London. “In terms of cost, between having the cargo delivered by rail to a Mediterranean port of Israel, as compared to having it go all the way by ship, I’m a little skeptical of it being competitive.”

The Ministry of Transportation has issued a non-binding “Request for Information” packet outlining the project. Last year more than 80 interested bodies, including Siemens AG (SIE), Alstom SA (ALO), Samsung Engineering Co Ltd. (028050) and Veolia Transportation Inc., asked for it, the ministry said.

“It is important for China and India to have another route of connection for their exports to Europe in addition to the Suez Canal,” Israeli Finance Minister Yuval Steinitz told Bloomberg News during a visit to Beijing on Feb. 29.

‘Extra Insurance’

The Eilat-Ashdod port link will be “extra insurance” for Asian exporters in uncertain times and during periods of crowding in the Suez Canal, Steinitz said, adding that initial discussions have started with Chinese officials on possible participation in the project. The China Civil Engineering Construction Corp. (BCALAZ) is already involved in building another rail line in Israel to connect the cities of Haifa and Karmiel.

India is interested in participating in the building of the link, said an official at the Ministry of External Affairs who declined to allow his name to be used as is standard practice in his ministry. Discussions have taken place, he said.

“Once this project is formed and the road map is clear, Indian companies will evaluate their participation, but I do see good Indian interest in this,” Urban Development Minister Kamal Nath told The Hindu Daily on Feb. 14, after discussing it with Trade Minister Israel Katz during a visit to Israel.

In addition to boosting Israel’s economic and strategic standing, the link will be “useful in case there are queues or lines or other problems with the sea route of the Suez Canal,” Netanyahu said in a Jerusalem speech on Feb. 19. “We will connect Eilat to Ashdod and Eilat to Tel Aviv and this changes Israel.”

To contact the reporter on this story: Calev Ben-David in Jerusalem at cbendavid@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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