text: GCC transport projects | Ashurst
  Middle east transport update 25 Jun 2018 GCC transport projects to watch this year
  Although the GCC transport market is currently experiencing a historically low level of active transport projects, there is every reason to believe it stands on the brink of a major period of expansion.
  The initial shock of the oil crash has now been absorbed by the oil producing GCC countries and the oil price is accepted as being at a new normal level. The historic correlation between oil price and infrastructure spending across the GCC is being trumped by certain socio-economic factors, which are providing a catalyst for growth and an urgent need for infrastructure development in the region. Significantly, the population of the GCC countries is growing rapidly (since 1970 the population of the GCC has grown at a faster rate than China (sixfold from 7.8 million to over 50 million)) and the demographic spread is becoming more youthful. This has created a challenge for the leadership of these countries as existing infrastructure is generally incapable of delivering healthcare, education and employment to a level that this younger population crave and require. Consequently, improved infrastructure in the GCC is no longer a luxury but a necessity. In particular, the new youthful leadership of Saudi Arabia has publically tied itself to an agenda not just of public sector reform but also of massive infrastructure development.
  However, the talk of a mass social infrastructure spend has not yet translated to market opportunities. In this briefing, we intend to highlight those opportunities which we believe have the greatest chance of coming to market in the next 12 - 18 months and where those active in the transport sector should continue to focus their energies.
  Saudi Arabia continues to shape the GCC market more than any other country. It has allocated nearly US$14.4 billion in its 2018 budget to infrastructure and transport (an increase of 5.5% on the 2017 figure). The country's strategy for railway development as set out in the government's Vision 2030 plan, which seeks to diversify Saudi Arabia's economy and reduce its dependence on oil, will provide a number of opportunities to focus on over the coming year. Some key projects to watch are:
  Saudi Landbridge: Saudi Railway Company (SAR) recently announced that it soon expects to launch tenders for contracts to build a link between the Red Sea and the Arabian Gulf with the construction of a new 950 km railway between Jeddah and Riyadh, primarily for container traffic (but also to carry passengers). The initial tender is expected for consultants to help develop the project.
  Yanbu-Jeddah Link: SAR is also considering a procurement by way of a PPP of a 340 km rail link connecting the industrial cities in Yanbu and Jeddah (and its port) via the King Abdullah Port, north of Jeddah. Again, it is understood that consultants will be procured to further develop the project in the latter half of 2018.
  Riyadh-Dammam Electrification: SAR is also seeking to imminently issue a PPP tender for the electrification of the 460 km Riyadh-Dammam rail network, the GCC region's oldest operating mainline railway.
  Saudi City Public Transport: a programme of projects being developed by Metro Jeddah Company which includes the Corniche Tram PPP, the Obdhur Creek Crossing PPP and a marine transport PPP.
  The United Arab Emirates continues to grab the headlines with proposals for revolutionary new forms of passenger transport such as Hyperloop and flying taxis. The Government of Dubai has increased the 2018 budget for infrastructure spending by 46.5% from 2017, however, we cannot expect to be taking off in these futuristic modes of transport any time soon and the industry should focus its attention on the following projects over the next 12-18 months:
  Etihad Rail Stage 2: tendering for the construction of Phase 2 of the landmark, country-wide rail network project is due to begin after the appointment of project management and engineering consultants. Upon completion, the Etihad Rail network will span approximately 1,200 km across the UAE, providing both freight and passenger services.
  Dubai Metro Green Line Extension: the RTA is considering developing the 11 station Green Line extension using a PPP model. Up to four of the stations could be developed as transit oriented development projects, where the station is developed to also feature hotels and retail shops. The project is expected in the market in 2018.
  The Kingdom of Bahrain continues to try and gain some momentum for its key transportation infrastructure projects. However, with a fiscal deficit of around US$3.4 billion projected in the 2017-2018 budget it will be difficult for the government to allocate the required funding to deliver these project, an issue compounded by a revenue estimate based on US$55 a barrel oil pricing. Should the price of oil drop below this then it will only further compound the projected deficit, putting much needed transport projects at risk. Some of the projects to watch, however, include:
  Light Rail Transport: Bahrain expects to procure its under-study light rail network using a PPP model. The tender for transaction adviser is expected to be issued in the second half of 2018 or early 2019.
  King Hamad Causeway: a four-lane road causeway running parallel to the King Fahd Causeway, as well as a new 70 km railway track will be constructed, which will connect a passenger terminal in Salmabad and freight facilities at Khalifa bin Salman Port in Bahrain with Saudi Arabia's railway system. The project is expected to be owned by the private sector through a new company with a 25-30-year PPP arrangement. Advisers are expected to be appointed in the near future and pre-qualification requests are due to be issued in the second quarter of 2018.
  With a 2018 goal of privatising up to six companies to try and increase non-oil revenues and private sector participation the economic outlook for Oman is more optimistic than in previous years. This is certainly supported by the 2018 budget which saw an increase in infrastructure spending while at the same time pricing its revenues on a conservative US$50 per barrel oil price. What this means is that the anticipated revenue and spend should be relatively equal and the overall fiscal deficit will reduce from around 13% of GDP in 2017 to an anticipated 10% of GDP in 2018. However, there is a lack of track record in delivery of transport infrastructure projects and therefore, despite the increased spend, the pipeline still remains uncertain. The project to be watched is:
  Oman Mineral Line PPP Project: the Oman Railway Company recently went to market for advisors on a new "pit to port" rail PPP, the Oman Mineral Railway, which is scheduled for release into the wider market in Q2 2018. The Oman Mineral Railway is anticipated to be a single track railway extending from Thamrait in Dhofar Governorate to the Port of Duqm via the mining hubs of Al Shuwaymiyah and Manji. Envisioned in Phase 1 is a 377 km length connecting the Port of Duqm with Al Shuwaymiyah and Manji. Another 276 km section will be added in Phase 2 connecting mining areas in Thamrait with the junction of Phase 1 at Amal.
  Kuwait has one of the more established PPP regulatory regimes regionally speaking (with a number of PPP laws having been introduced) but has not, to date, been able to procure private sector finance for transport infrastructure through these means. However, Kuwait is increasingly turning to private sector finance to kick-start its transport construction programme, and has shifted responsibility for procurement of key transport projects from the Kuwait Authority for Partnership Projects (KAPP) (which has been stalled in the delivery of a number of PPP projects) to the Public Authority for Roads and Transportation (PART), with the intention of driving delivery of projects by that part of Government which is ultimately responsible for transport, rather than through the centralised PPP unit. The transport project that we understand to be a key focus of PART is:
  Kuwait National Rail Road: An integrated railway system with 511 km double track total length which will link Kuwait city to Kuwait airport, seaports, and other GCC countries. The railway will serve freight and passengers and will have a 120 km/hr regional lines speed and a 200 km/hr high speed. According to PART, the first phase of the Kuwait National Rail Road has an estimated budget of KD900 million (US$2.9 billion) and is expected to become operational by 2023. The project will be implemented as a build, operate, and transfer (BOT) agreement and the construction element will be tendered as two design-build-maintain packages, one covering civil works and the other encompassing railway infrastructure and stations. Locomotives and rolling stock will be procured directly by PART and leased to separate passenger and freight operators.
  The project is currently in the feasibility study phase and has been delayed due to a number of factors including, the restructuring of KAPP, the reissue of the Kuwaiti PPP law and awaited approval of compensation packages for land owners within the proposed railway route.
  Nevertheless, PART expects to appoint a consultant in the third quarter of 2018 to draft tender documents for the first phase of the railway (and we understand that it is yet to issue the request for proposals for such transaction advisory role but this should be expected imminently).