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Israel inaugurates Chinese-run Haifa port terminal, in likely boost for economy

$1.7b terminal operated by state-owned Shanghai firm to handle large vessels of some 18,000 containers; Transportation Minister Michaeli says it will accelerate trade, lower prices

Ricky Ben-David is The Times of Israel’s Startups and Business editor and reporter.

View of the Haifa Bay on April 24, 2018.  (Yossi Zamir/Flash90)
View of the Haifa Bay on April 24, 2018. (Yossi Zamir/Flash90)

Israel on Wednesday officially inaugurated a new port terminal in Haifa Bay, the first of two recently built private port terminals that are expected to fuel competition, decrease import costs, and present a boon for the Israeli economy. Almost all of Israel’s international trade is handled via maritime routes and the Haifa port is the busiest shipping hub in the country, managing approximately half of all freight.

China’s state-owned Shanghai International Port Group (SIPG) won the tender in 2015 to operate the commercial shipping facility for 25 years, an arrangement that stoked controversy in Israel and abroad. The project’s proximity to Israel’s submarines, among other issues, raised security concerns, especially after reports revealed that neither the cabinet nor the National Security Council had any input on the deal. The project also raised the ire of the US, which sometimes docks military vessels in Haifa.

The new Haifa terminal, built by two Israeli companies, will allow large shipping vessels of about 400 meters long carrying some 18,000 containers each to dock in Israel, the Transportation Ministry said in a statement on Wednesday, and will provide unloading and loading services, shortening their times.

Israel has been able to handle smaller vessels carrying several thousand containers, and has been experiencing severe traffic jams at seaports, driving up prices for goods — everything from household products, raw materials, and automotive parts.

The delays cost the Israeli economy approximately NIS 700 million ($218 million) every month, according to a Channel 13 report two weeks ago.

The Haifa Bay terminal had been under construction for six years, at an investment of $1.7 billion (NIS 5.5 billion) that includes advanced infrastructure and technologies, Yitzhak Blumenthal, CEO of the government-owned Israel Ports Company, has said. In a statement on Wednesday, he called the opening of the new terminal “one of the most important infrastructure projects for Israel’s future.”

“It is a modern technological port, the opening of which will revolutionize the economy, and impact us all, from industrialists to consumers, as it will lower the cost of living,” Blumenthal said.

The opening of the private terminal will drive competition among Israel’s three international seaports — Haifa, Ashdod, and Eilat — which will vie to “improve and streamline the level of port service in Israel, help to meet the economy’s needs, ensure Israel’s readiness to cater to large ships, and allow Israel to prepare for the shifts that are taking place in the maritime trade industry,” he added.

Transportation Minister Merav Michaeli said Israel was “now embarking on a new adventure – delivering on the promise of the Bay Port, and soon the South Port [in Ashdod], to accelerate Israel’s economic development, increase export and trade, bridge social gaps, and lower prices.”

Transportation Minister Merav Michaeli speaks via video at an event on Wednesday, September 1, 2021, inaugurating new port terminal in Haifa. (Ra’anan Cohen)

A year after Israel normalized ties with the UAE and Bahrain, opening up trade between Israel and the Gulf, Michaeli said the terminal was an opportunity to “strengthen our regional capabilities in maritime trade” and leverage it “not only for local prosperity, but for the realization of opportunities and a genuine contribution to our neighbors in the Middle East.”

The transportation minister painted a picture in which the port will “soon serve not only in economic development and employment, but become cleaner, as a place of leisure, culture, and entertainment that brings pride and pleasure to all residents of Haifa and surrounding area, as commonly seen in leading port cities worldwide.”

SIPG Israel CEO Miao Qiang said the opening of the Bay Port “will bring great promise to the Israeli economy” and “position Israel as a leading port state for the entire region.”

Chinese-built infrastructure and investments in Israel

Chinese companies are handling major infrastructure and transportation projects in Israel, including winning the tenders to build and operate a private terminal in Ashdod, along with operating the one launched Wednesday in Haifa. Chinese firms are also building a key section of the Tel Aviv light rail system, and bidding to build additional lines.

Chinese workers attend the opening ceremony of the construction works for the new Tel Aviv Light Rail on February 19, 2017. (Flash90)

Dan Catarivas, the director-general of Foreign Trade and International Relations at the Manufacturers’ Association of Israel, told The Times of Israel in a phone interview that Chinese companies are operating large infrastructure projects all over the world, especially maritime projects, and he expects to see more such companies bidding for additional ventures in Israel as well.

In the face of US misgivings, Catarivas said Israeli governments have managed in recent years to navigate the geopolitical waters “quite well.”

“Israel is a small country that is very dependent on trade. The US is its most important ally but it also needs to look out for its own interests. There is a fundamental understanding that the US-China rivalry is here to stay and will accompany us for many years,” said Catarivas, who also served as the first economic counselor of Israel in Beijing over 30 years ago.

Amid a US-China trade war that has ebbed and flowed in recent years under both the Trump and Biden administrations, Israel and China have seen warming relations and more interest in Israeli innovations, especially in medical tech, robotics, food tech, and artificial intelligence.

But US pressure has had an impact. It was cited as one of the reasons Chinese investments have “waned” after reaching a peak in 2018, according to a report by the Institute for National Security Studies earlier this year. Other reasons include: a change in priorities in the Asian giant, and new restrictions on taking capital out of China; the spread of the pandemic; and a change in the investment climate in Israel with regard to Chinese companies due to US pressure. Chinese investments in Israel account for less than 10% of foreign capital investments in Israel, “way behind investments originating in the United States and Europe,” the report said.

Participants at a panel at the GoForIsrael conference for Chinese investors in Tel Aviv on Dec. 3, 2019 (Dror Sithahkol)

Washington’s main concerns lie in potential dual-usage, where various technologies would have both civilian and military applications. At the same time, Israel has regulations in place to prevent the sale of sensitive military-related technology to China (and other countries), following a 1990s deal where Israel had to scrap the sale of advanced airborne radar systems to China amid fierce US opposition.

Israel clearly knows what the limits are, according to Catarivas. The agreement for the new Haifa terminal was a business decision, and frankly, a “done deal.”

The new terminal is a “very welcome” development, especially from importers and experts, and is expected to significantly increase competition. “There’s been a crisis at the ports and an urgent need to increase capacity,” said Catarivas.

Ashdod’s South Port, under construction by Beijing-based contracting firm China Harbor at an approximate investment of NIS 3.3 billion ($930 million), is expected to open later this year.

The privatization of Haifa port

Several international bidders are now gearing up to hopefully acquire other sections of Haifa’s port in a massive deal that is expected to close by the end of this year.

Investment groups from Israel, Europe, India, and the United Arab Emirates are competing for the deal, which is estimated to be worth as much as $600 million, Reuters reported last month.

The firms are expected to place formal bids in October, the report said, citing “sources with knowledge of the matter.” Authorities will likely announce a winner before the year ends, and transfer ownership at the beginning of next year.

The Israeli government voted last year to move forward with privatizing Haifa’s port in an attempt to spur competition and decrease costs.

Among the bidders are Israel’s Shipyards Industries, which has partnered in the initiative with Dubai’s DP World. Shipyard Industries and DP World have also discussed exploring a direct shipping route from Dubai’s massive Jebel Ali port to Eilat.

Also in the running is the UK’s DAO Shipping, which paired up with Israel’s Generation Capital and the London-based Lomar. Adani Ports, an Indian firm, has teamed with Israel’s Gadot Group, and a fourth bidder is working with Israel’s Shafir Engineering, Reuters reported.

Last year, eighteen applications were filed for the acquisition, indicating a high level of interest in the project.

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