Contracts for GCC rail project likely in December

Contracts for the GCC rail project are expected to be awarded in December this year while the $15.5 billion (Dh56.93bn) project is set to be fully operational by as early as 2016, a senior official said.

The regional railway, according to Dr Ramiz Al Assar, Senior Chief Representative, GCC Secretariat General, and senior transport specialist at the World Bank, was declared commercially and financially feasible by all the member states last month.

The project is now in the implementation phase. The GCC Secretary General office is now long listing consulting firms for the detailed engineering design and is expected to finalise the request for proposal and terms of reference next month.

Thereafter the secretariat would short-list consulting firms in November and award the contracts in December.

"We plan to award the contracts at the end of this year or very early next year," Al Assar told Emirates Business on the sidelines of the Rail Infrastructure Middle East 2010. "We will go through the international competitive bidding process, long list consulting firms, then do some prequalification and short listing. The dates are tentative but we hope to award in the shortest period."

The GCC Secretariat General office will also study the formation of a GCC railway authority and is planning to award contracts related to this in July.

"With regard to the formation of the GCC railway authority, the Secretariat General has completed the feasibility the study and we expect to conclude this within six to eight months and we hope that it would be endorsed at the next 31st GCC summit in Abu Dhabi in December," Al Assar said.

Ibrahim Al Sabti, Director of Transportation Department at GCC, said the secretariat is looking at awarding the contract to one or two companies. "We will try our best to select the best consulting firm to do the detailed engineering design," he said. "We have done the economical and financial study and now we'll go to phase two, which is preparing the detailed engineering design. Probably it could be one company where they will form a joint venture or some type of consortium, but probably it will be one or two."

Al Assar said the project is "too big" to be awarded to one consultant or one contractor. "It is important to look how to integrate several consultants working in the member states during the design and also when the project goes into construction," he added.

Construction costs

Al Assar said each member state will pay the capital cost based on the length of the railway in that country.

The rail has a total length of 2,177km with Saudi Arabia (695km) and the UAE (684) having the longest lines. The costs that the kingdom and the Emirates are expected to bear are $3.8bn and $4.4bn, respectively. Oman with 306km will shoulder $2.8bn, Bahrain with 64km will bear $2.7bn and Kuwait with 145km will shoulder $1bn.

Currently, commitments of more than $7bn, or 1,274km, have been made, therefore the amount that would have to be raised by the GCC national railways will only be in the range of $8.3bn.

"There's about 1,300km of GCC railway already committed, and that will further strengthen the implementation," Al Assar said. "These countries will do this 1,300km whether there's a GCC link or not, so you only have an additional link of about 1,000km and that translates to about $10bn."

Only 903km will have to be added to the existing or planned projects, equating to $8.3bn capital cost – Saudi Arabia with 515km ($3.4bn), Bahrain with 64km ($2.7bn), Kuwait with 145km ($1bn), Oman with 80km ($700 million), Qatar with 83km ($300m) and the UAE with 16km ($200m).

"These mega transport projects are never financially viable in a sense of returning money to the government," Al Assar said. "They are public service offerings, which means this will be subsidised. The governments will pay the initial capital infrastructure cost and maybe even buy the rolling stock like in the case of North South railway."

Al Sabti said: "You start the project even if it is not feasible, but economically it is because you reduce pollution, road accidents, road maintenance and all these make the investment worth it. At the beginning, yes, there will be subsidy, probably in the first six or seven years."

Private sector

The private sector will only have a role to play once the project is commissioned.

"The final form of the project will be in the shape of concession to the private sector. It is financially feasible for them to come and invest. We are hoping that international firms will invest in our area… this will happen probably by the end of 2016," Al Sabti said.

"The concession is for operations and maintenance," Al Assar said. "Maybe there will not be an ongoing or continuing annual subsidy or it will be on a decreasing basis that eventually the government will give you the infrastructure and you operate and maintain it as a stand alone."

But the area in which the private sector can participate can still be broadened, Al Assar said. "We're still discussing how the private sector can participate," he said. "Although a decision has been made to move the detailed engineering and design there's still room to be able to manoeuvre or explore options for the private sector."

Speed upgrade

The GCC Secretariat General office is looking at upgrading the speed of the railway project to 350km from the currently planned 200km per hour.

The decision, which is expected to be taken by the end of this year, will increase the cost estimates of the project to $25.6bn, or 65 per cent higher than the current estimates. The faster train will not only be more expensive in terms of capital cost it will also be more costly in terms of operational cost as it will be run on electricity.

Power, generated usually by gas, is deemed more expensive due to shortage of sources. Qatar is the only gas-rich country in the six-country group and most of its supplies are locked up by a moratorium study.

A number of states such as Saudi Arabia, Kuwait and some emirates in the UAE are already experiencing power shortages due to a dearth of gas contracts.

"The project is currently estimated at $15.5bn if we use diesel. But if we plan to go for electricity it will cost us more than $25bn," Al Sabti said.

"It is an option we are currently looking at and hopefully the decision will come this year. The implementation will take a while," Al Assar said.

When deemed feasible by the member states, the study will go through their respective ministries of transport and finance before it lands with the joint ministerial committee between the ministries of finance and foreign affairs. Once approved, it will go to the GCC summit.

"When you talk about the cycle at least one year is required to evolve," Al Assar said. "The money to be spent on upgrading the speed is actually an opportunity cost, which you can spend on other sectors such as education and healthcare."

The 200km per hour train will be pushed through while the upgrade may be taken in the mid or long term once the passenger volume picks up, he said.

"In my opinion, in the short term the 350km per hour proposal may not happen unless it becomes a political decision," Al Assar said.

"The decision to go for 200km per hour is an educated decision based on thorough feasibility. It is not an arbitrary study because of politics. It is based on forecast volume while the 350km per hour proposal only has to do with the passenger traffic and it can only be implemented when the heads of the member states see some benefit or potential for having that," he added.


National railways

Contracts regarding the Dh16 billion Emirates railway project are expected to be awarded by the end of this year, a senior official said.

"I would say by the end of this year you are going to see the awards in the market," said Bassam Mansour, expert Trains and Railway Systems, UAE National Transport Authority. "Most of the UAE railway is part of the GCC railway section," he said. "Majority of the works are within the UAE, accommodating all the interconnection in Abu Dhabi and the Northern Emirates."

Mansour said operations will start in 2016. World Bank estimates the UAE will contribute 31 per cent of the total length and 28 per cent of the total cost of the GCC rail project.

"We are trying to develop the UAE railway regulations and standards," said Mansour.

Meanwhile, other GCC countries are also planning rail projects. Oman has appointed consultants to conduct a feasibility study of a 200km railway network that will begin in Sohar and extend to Duqum.

Kuwait has put forth plans of a $132bn model city, which will include a railway system, with an investment of more than $11bn.

Qatar will also see a series of railway projects over the next 10 years. Qatari Diar Real Estate Investment Company, in partnership with Germany's Deutsche Bahn, has developed a conceptual railway design.

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