21 November 2005
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8 October 2013
The past three decades have seen a renaissance in railway innovation and development worldwide. Numerous high-speed passenger services have been introduced in Europe and Asia and many major cities now have state-of-the-art light rail commuter systems. The macroeconomic advantages of rail transport have been recognised in the Middle East, where it is fast emerging as a key feature in planning future transport infrastructure.
Historically, railways are not unknown in the Middle East, but since the 1950s railway development has suffered from a lack of investment. However, things are changing. As roads in the region reach saturation point, there is an increasing need for alternative means of ground transportation. Dubai is leading the way with the Dubai Light Rail Project (DLR), probably the highest profile and most developed Gulf Cooperation Council (GCC) rail project to date. At more than 60km, the $3.4bn (£1.95bn) DLR will be the longest fully automated metro system in the world and has a target of 1.85 million passengers a day by 2020.
The DLR is only one of the planned rail projects for the GCC. At a regional level, plans are afoot to establish a rail network linking GCC countries. In July 2005, the GCC gave Saudi Arabia the task of commissioning a technical study on the project. However, national rail projects appear the priority, rather than the ambitious GCC rail link.
More than $8bn (£4.6bn) is expected to be spent in the GCC on rail projects in the next five to seven years. Following the DLR, Dubai's Palm Monorail is set to be the next major scheme. Dubai is also planning a guided transport system for the newly established Dubai International Financial Centre; a tram system to cater for Dubai's expanding Al Sufouh area; a monorail system for the massive Dubailand project; and an extension to the DLR. Outside Dubai, expected projects include metro and light rail systems in Abu Dhabi, Kuwait and Riyadh; the Saudi Minerals Railway; the Saudi Landbridge; and the Makkah-Medina passenger railway.
The regulatory regimes governing the rail sector in the GCC are generally project specific, depending on the intended scope and use of individual projects. The legislative environment in this area is still developing and there is a lack of uniform standards in key areas such as safety, security and interoperability. Prospective contractors and investors, in addition to having a general awareness of the commercial, political and social environment, must carefully assess the applicable regulations, including whether 'local' participation or ownership is required, any requirements to hire nationals (so-called 'isation' rules), consents required and, crucially, where the risks and liabilities lie.
While GCC countries are focusing on their national projects, it is essential they address questions of interoperability at an early stage, to ensure national developments will be able to link up with, or even form part of, the envisaged GCC rail link. GCC countries will need to implement a regulatory framework to facilitate the GCC rail link, which takes into account the cross-border elements and promotes a level playing field in relation to funding, taxation, isation rules, safety regulations and operational standards, running costs and maintenance, technical specifications and interoperability, integrity of track, connectivity and dispute resolution. A single GCC rail agency/regulatory body should be considered to ensure a common approach to safety and interoperability. Regulations will, moreover, be required to coordinate uniformity in power supply, signalling systems, liability standards, third-party access, congestion management, security and border controls, licensing, competition and pricing.
Mobilising private capital to develop GCC rail infrastructure presents a challenge. While it was initially suggested that the bulk of the DLR financing would come from the private sector, it is currently being financed by the local municipality. This is indicative of the majority of current rail projects in the region, which are being funded out of public funds or by government-backed real estate developers.
Unlike projects such as power, water and waste plants, ports, education and other community services, most Middle East rail projects have failed to attract private finance. A principal reason for this is that the projects focus on passenger services, where captive passenger numbers are forecast to be low and fares depressed by the need to encourage usage, making it difficult to underpin project financing with robust revenue streams.
An exception is the Saudi Landbridge Project, involving the addition of more than 1,000km of track to link Saudi's major cities and the Red Sea with the Arabian Gulf. Landbridge forms the cornerstone of Saudi's rail system expansion and will be structured as a build, operate and transfer (BOT) concession. As such, the existing lines and core assets of the incumbent Saudi Rail Organisation (SRO) required for operating Landbridge, along with selective SRO staff, will be transferred to the concessionaire, a company to be incorporated under Saudi law.
What differentiates Landbridge from other rail projects in the region is that it is driven by demand for freight services. In order to attract private finance, projects must contemplate sufficient usage to generate revenue; Landbridge is underpinned by the prospect of long-term freight contracts. Nevertheless, public subsidies are likely to play a part, with the land required for the project to be made available by the Saudi government by way of a lease at nominal rent.
The BOT structure of Landbridge may set an example for the GCC rail link, although if the project is to attract private investment it will need to demonstrate potential for significant investor returns. Given the response to Landbridge, the emphasis may therefore need to be on freight transportation, followed later by passenger traffic and tourism.
The number of rail projects in the GCC is gathering pace. Dubai is leading the way and has already started work on implementing its plan to develop a network of urban rail transportation, with the DLR as its foundation. However, if the bigger picture of the GCC rail link is to come to fruition and the project is to attract contractors and investors to capitalise from an integrated approach, it is essential that the GCC countries work together from an early stage to establish clear laws and regulations for the funding, design, construction and operation of the project.
Mhairi Garcia is a corporate associate in the Dubai office at Ashurst