US pressure over China prompts Israeli review of $1.5bn tender

Israeli prime minister Benjamin Netanyahu will force additional checks on whether a Hong Kong-based company will be allowed to bid for the construction of a $1.5bn desalination plant, according to three Israeli officials, buckling to pressure from US officials.

The decision was made on the eve of a lightning visit by US secretary of state Mike Pompeo, who will spend a few hours on the ground meeting Mr Netanyahu and his rival-turned-ally Benny Gantz, who will be sworn in as deputy prime minister on Thursday. 

Competing bids from the Hong Kong-based CK Hutchison Holdings’ Israeli subsidiary and a rival Israel firm were due to be opened on May 24, even as US officials raised concerns both publicly and privately about increased Chinese influence on the Israeli economy.

The new layer of checks will probably delay the final decision on whether or not the Hong Kong construction company will be allowed to build and control almost a quarter of Israel’s water needs until 2049.

The plant’s intended location, near the Israeli military base of Palmachim, also perturbed US officials, particularly as American soldiers regularly spend time on the base during tests of Israeli weapons systems developed with US aid. 

“The business with the Chinese is an issue of concern for us with Israel,” assistant US secretary of state David Schenker said last week. “The US wants trade and investment on fair and reciprocal terms with reliable partners. China’s business dealings, by contrast, are opaque, transactional and geared to benefit the Chinese Communist party.”

Israel had set up a committee to review foreign investments into sensitive sectors in October, partly to appease the US over its longstanding concerns about Chinese investment into so-called dual-use start-ups, a port in Haifa and interest by telecoms equipment groups Huawei and ZTE in expanding in Israel.

But the desalination plant, Sorek B, remained outside its scope because the tender had been published earlier, before the committee was formed. The chairman of the Israeli committee had already told the US that it would try to bring the project within its purview, a person familiar with the decision said last week. 

The chairman of Israel’s foreign investment advisory committee had already told the US that her committee would discuss the project despite it not being formally within her powers, according to an American defence official, who added Washington remained “engaged in dialogue with Israel about the best way to review potential foreign investment and economic activities with a view on their impact on national security”.

Mr Netanyahu would now ask his new finance ministry to work with the defence ministry to ensure US concerns were adequately addressed, an Israeli official said.

“This was going to become an irritant, and now at least we can take more time to hear what our friends in Washington have to say,” said one Israeli official briefed on the decision. 

Israel’s defence establishment, stung by an incident in the 1990s when the Jewish state was forced to cancel a signed contract to sell Phalcon spy planes to China after US pressure, had rallied against the decision to allow Hutchison to compete. 

“We have to make decisions today to make sure we are not stuck between the Americans and the Chinese tomorrow — why put ourselves in that silly position?” Ram Ben-Barak, who served until 2011 as the deputy director of Mossad, Israel’s foreign intelligence service, told the Financial Times.

“We don’t have anything against China, or Hutchison as a company — but if our best ally, the US, has concerns about this project, we should recheck it, and give them all the information they need to be calm and relaxed here,” he said.

It was important for Israel to keep its closest foreign partner on side, Mr Ben-Barak said, even if there was no immediate evidence that an investment by Hutchison, controlled by the Hong Kong billionaire Li Ka-shing, would allow a backdoor entry for the Chinese government into the surveillance of the Palmachim base. 

“The right solution will be to open the bids, and to choose the company that will build this project well, fast — and will not be Chinese, ” said Mr Ben-Barak, who later served in parliament with the Yesh Atid political party. 

Spokespeople for Mr Netanyahu and the Israeli Ministry of Defence declined to comment, and a Hutchison Whampoa spokesperson did not reply to an email sent outside office hours. Israel Desalination Enterprises, the second bidder in the tender, declined to comment.

The US state department and the Department of Defense did not immediately comment.

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