Now Reading
The Gulf’s Great Train Journey

The Gulf’s Great Train Journey

As the GCC embarks on a colossal rail network, the region’s trade and logistics sector is poised for metamorphosis.

After decades of reliance on oil wealth and resources to generate income and fuel transport, GCC states are on a major threshold of development. As intra and inter-trade ties grow, the union is looking to transform the face of logistics in the region by introducing a massive rail network.

Valued at $15.5 billion and dubbed the GCC Rail, the network will connect the six wealthy Arab states and have a major impact on the region’s economy by stimulating trade and lowering fuel consumption.

The line will link Oman in the south to Kuwait in the north through the UAE, Qatar, Bahrain and Saudi Arabia. With a completion date of 2018, each of the GCC states will work on an individual link before the common network is connected.

“The GCC region is characterised by a sustained increase of GDP which requires moving larger volumes of freight, more passengers. Therefore a higher rhythm of economics and social development must be sustained by the permanent improvement of our transport infrastructure and services,” said Nadhem Bin Taher, acting director general of the UAE’s National Transport Authority (NTA) during his address at the Middle East Rail conference.

“Having a regional network will also connect the major ports in the region. Railways are expected to play a vital role in solving the transport needs of the society as a part of integrated transport system including shipping and aviation.”

Apart from the major benefits that the development of railways provides for trade, it will also offer employment opportunities for local workers.

“Firstly there are the jobs directly connected with the construction and operation of the rail network. This is likely to encompass a wide supply chain involving many companies and service providers,” says Jonathan Barnes, partner of capital projects and infrastructure at PwC.

“Secondly there are the jobs which are created by new industry being enabled by the railway providing better connectivity and opportunities to transports goods and products. As the passenger service comes online, the labour market of the GCC will be less geographically restricted increasing options for the local population to seek work.”

MAJOR RAIL PROJECTS IN THE GULF

Among the GCC states, the UAE and Saudi Arabia are the leaders in rail investment with both planning major networks carrying both freight and passenger services in addition to the common rail.

The UAE alone is planning to invest $25 billion in its railway infrastructure, accounting for 10 per cent of the entire MENA region’s investment in the sector.

The Emirates’ Dhs40 billion Etihad Rail project, stretching 1,200 kilometres, is on track to begin operations by the first quarter of 2014, according to officials. The project’s first phase will see a 266-kilometre long rail network running from Shah and Habshan to Ruwais, carrying sulphur granules from ADNOC factories to be exported from the Ruwais port.

“We are currently in the testing and commissioning stage for the first phase and we see operations starting up soon,” says John Lesniewski, sales director at Etihad Rail.

Stage two will link the Saudi Arabian border to Dubai and extend to Al Ain where it will connect to the main GCC rail network.

“Tenders [for stage two] have been awarded and we anticipate that the construction will start between now and the summer. It is definitely on line to be completed by 2018,” he says, downplaying concerns about not meeting the 2018 deadline.

The final stage of the network will include a line running from the northern emirates to the industrial areas of the country.

Lesniewski says that the UAE is also considering operating passenger services along the Etihad rail line but freight is currently the priority.

Other rail projects in the country include the Abu Dhabi light rail, the Dubai Metro Purple and Blue lines, an extension to the Red line and the development of the region’s first tram system.

Among Saudi Arabia’s most prominent projects are the Haramain high-speed link, connecting the cities of Mecca, Medina and Jeddah, and the North South railway line, running from Riyadh to Haditha (near the border with Jordan).

The Haramain link, which is around 450-kilometres long, will have trains running at speeds of 400 kilometres per hour, with the project valued at $12 billion. It will be completed at the end of 2015, according to the Kingdom’s rail officials and is part of a plan to efficiently transport pilgrims, which includes expansions at airports in Madinah and Jeddah.

“Although the driving case for the railway isn’t economic, greater numbers of pilgrims will have an obvious economic impact on the Kingdom and improved connection between the cities should ease both domestic business and leisure travel,” says Barnes.

“Notably, the station at King Abdullah Economic City will substantially improve the city’s connection with Jeddah allowing journey times to fall from around an hour to about twenty minutes.”

The Kingdom is also investing massively in metro projects across three major cities in a bid to reduce traffic congestion and smoothen transportation services. The $23 million Riyadh Metro project is 176 kilometres long and will have six different lines interconnecting the main locations across the city.

The government is also constructing the Jeddah Metro, an 180 kilometre network with three railway lines running across the city.

Elsewhere the 1,418 kilometre North-South railway line is set to be instrumental in transporting freight to ports or manufacturing centres, with passenger services also set to be included, according to officials.

TRANSFORMING INTRA-REGIONAL TRADE

Despite the GCC’s heavy investment in metro projects, freight transportation tops government priorities.

“Presently, the GCC countries are highly dependent on road transport, accelerated economic development as well as rapid increase of population will generate more requirements for transport,” says Taher.

With the shifting of freight from road to rail addressing congestion, accident and environmental problems, he argues.

A common railway link also has the potential to transform trade in the region, according to Barnes.

“Intra GCC trade, which is currently quite low, is well positioned for a boost as cross border trade is better enabled,” he says.

“The petrochemicals industry, a core pillar of economic activity across the GCC, stands to benefit from the GCC railway through improved ability to manage their supply chain and better access to markets for their downstream products (including plastics, chemical and manufacturing).”

The development of the rail network could also be a faster and an environmentally friendly mode of transport while helping the GCC to save road taxes.

“Enhanced multi-modal networks that include rail in the region offer potentially the ability to re-distribute goods quicker and closer to their destination via a faster mode, while in the process reducing the numbers of trucks on the roads and need for so many trans-shipment points,” says Barnes.

“It is expected that there will be a noticeable move away from shipping containers across the straits towards the adoption of the new rail network.”

PUBLIC PRIVATE PARTNERSHIPS IN RAIL

With investment opportunities worth $250 billion in the region’s rail industry, GCC governments are increasingly looking to attract the private sector through potential partnerships.

Lesniewski says that there are many opportunities for the private sector to invest in rail.

“They obviously will have to invest some of their working capital and funds to participate but early investment at this stage would reap great benefits in the future and will also create numerous opportunities for local companies to start up with the industry and reap the benefits and profit which will come in the future,” he says.

However, experts bemoan that investment or partnerships in infrastructure projects are traditionally less attractive to the private sector due to their risky nature.

NTA director Taher says that private sector investors were discouraged when told that the returns on investment on the rail projects were just 7.18 per cent.

But rail experts also called for a certain amount of investor transparency since rail is a long-term investment.

“We need to make sure that we create an adequate legal framework and we give predictability to the market” says Vasile Nicolae Olievschi, an advisor to the NTA.

“If there is a predictability to the market, the private sector will come because they know that there is time to recover their investments and there are many domains where the private sector could be successful.”

Governments could also utilise private sector investments in certain areas of operation, experts argue.

“If a public private partnership (PPP) type structure is not appropriate for full project delivery, it may still be an attractive option for particular elements of a rail project, such as private sector investment in rolling stock for example, and real estate developments which are focused upon the new rail or metro infrastructure,” says Andrew Herring, partner at Eversheds.

Although considering PPP options is a good practice, Herring argues that funding need not be a major worry for the GCC, where state entities have easy access to extensive capital.

REGULATORY FRAMEWORKS ARE ESSENTIAL

With railways poised to transform trade and logistics in the region, one of the main challenges that GCC governments face is a lack of regulation.

“We need to create an adequate legal and institutional framework to operate a railway because this is a young industry,” says Olievschi, with mass policies for transport needed to offer equal conditions in cross border rail travel.

Herring says that appropriate legal standards also have a “key role in delivering compatible technical and operational standards.”

The UAE is already working on a law to regulate and govern the rail sector.

“The federal law will cover all the operators of all the rails within the UAE and will look into issues such as operations, safety and implementation,” says Abdulla Mohamed Al Nuaimi, Minister of Public Works and chairman of the NTA.

The first draft has already been sent for approval, and the law is expected to be in force early this year, according to Al Nuaimi. Though there is currently a technical committee with members from all the GCC states looking at a number of common rules, Olievschi does not rule out the possibility of a common rail authority.

“One of the main aims of GCC rail is to transport from one destination to other without stopping at the border and this is a very complex issue because it means that a lot of rules should be fully interchangeable between two countries.”

However, a common rail authority might require the GCC to iron out even minute details related to cross-border policies.

“Shippers, consignors and end customers require consistency of service, and the establishment of a common rail authority could be one way of achieving this,” says Herring.

“However, if such an authority is established it will need to consistently and effectively promote the interests of all the GCC states.”


© 2020 MOTIVATE MEDIA GROUP. ALL RIGHTS RESERVED.

Scroll To Top