A stop-start year for the region's transport sector

18 December 2018
Transport schemes made limited progress in 2018, but the inactivity belies the burgeoning pipeline of PPP projects planned across the Mena region

Two multibillion-dollar airports in Muscat and Jeddah, and two high-speed railways in Saudi Arabia and Morocco entered operations in 2018, reflecting the ambitions of these countries to diversify their economies, create jobs and provide more efficient means to transport people and goods within and outside their borders.

Construction works on metro projects in Riyadh and Dubai, as well as on new airport passenger terminals in Bahrain and Abu Dhabi, have also entered their final stages, with trial operations set to start by late 2019.

However, 2018 witnessed limited progress on some planned transport public-private partnership (PPP) initiatives, especially in Saudi Arabia. Regionally, no main contracts of consequence were tendered until the second half of the year, when Egypt and Abu Dhabi issued rail tenders and Dubai invited firms to bid for the substructure package of the first phase of Al-Maktoum International airport’s $33bn expansion.

Protracted planning

Awarded to selected contractors in early 2017, Saudi Arabia’s four airport build, operate, transfer (BOT) schemes have yet to reach financial close. The plan to privatise Riyadh Airport Company, for which US-based Goldman Sachs was appointed in 2017, is understood to have been put on hold, and the award of advisory contracts for several metro and mainline railway PPP schemes has also been delayed.

The unusually extended study, assessment and negotiations process for the planned transport PPP projects across the region is expected, a deal advisory expert tells MEED.

“Unlike in the more established utilities sector, transport PPP projects such as a greenfield metro scheme may have many unknowns and risks that need to be factored in to make them attractive to investors,” the executive tells MEED. “In the same manner, project owners need to make these projects meaningful to end-users, who will eventually pay for the service.”

PPPs are one of the only likely ways forward for upcoming rail projects in Bahrain and Oman, which face significant fiscal constraints, the executive says, although the absence of a PPP regulatory framework in both countries could further delay the execution of planned projects.

In Saudi Arabia, a “period of reflection” is setting in, especially for the metro projects, a Riyadh-based consultant tells MEED. “Until recently, there was no joined-up thinking between the various municipalities, but the National Centre for Privatisation (NCP) is now engaging with each of them,” he explains.

Some PPP projects that are moving ahead as of late 2018 include the King Hamad Causeway, the Corniche tram and water taxis and ferries in Jeddah, and the Bahrain light rail transit (LRT) scheme.

However, all these projects are merely approaching the transaction advisory phase, and another 12-24 months could be required to finalise funding and ownership structures before the formal procurement process begins.

Greenlit projects

With construction works on the Riyadh Metro network and the Dubai Metro Route 2020 due to be completed in late 2019, contractors had begun to worry that prolonged negotiations and consultancy work on new schemes – regardless of the funding source and structure – would result in shortage of work over the short to medium-term.

This changed in July, when Egypt tendered a high-speed railway and two monorail contracts, and in August when Etihad Rail resumed the procurement process for the second stage of the 1,200-kilometre federal railway network.

In November, Bahrain issued the transaction advisory tender for the King Hamad Causeway. Kuwait’s Finance Ministry also approved the budget for an international advisory contract for its national rail road project. These moves suggest that governments are responding to the pressure to build the GCC railway, or at least part of it, within the revised 2024 timeline.

In October, Saudi Railways Company (SAR) and China Civil Engineering & Construction Company (CCECC) announced a memorandum of understanding (MoU) for the implementation of the Saudi Landbridge, which will connect ports on the kingdom’s Red Sea and Arabian Gulf coasts via Riyadh.

These developments suggests it is highly possible that several new schemes could be contracted out between 2019-20, including the extension of the Dubai Metro Green and Red lines, for which the design contract is expected to be awarded imminently.

Aviation expansion

Following major delays, new airports in Muscat and Jeddah, and two small terminals at Kuwait International airport became operational in 2018. Construction works are also expected to be completed at new passenger terminals in Bahrain and Abu Dhabi international airports by the end of 2019.

In June, Dubai Aviation Engineering Projects awarded the enabling works contract for Concourse 1 and the West Terminal building and car parks at Al-Maktoum International. By December 2018, it also expects to receive bids for the $2.7bn substructure contract for these buildings. These contracts prove the political will exists to execute the first phase of the $33bn expansion of Dubai’s second airport, albeit over a longer timeline, which has been moved five years later to 2030.

The uncertainty facing the four airport PPP projects in Saudi Arabia has not kept Lebanon from using the model in the planned $500m expansion of Beirut’s Rafic Hariri International.

Ironically, the completion and planned expansion of some airports comes at a time when certain airlines – including Etihad Airways and Flydubai – are experiencing a challenging period in terms of profitability.

However, as John Strickland of UK-based JLS Consulting, says, “Airport investment cannot be viewed based on short-term performance.”

MEED’s 2019 Yearbook will be published in print on Tuesday 18 December

  • Provides an outlook for the region in 2019
  • Examines opportunities and investments
  • Explores the project market landscape
  • Assesses the risks and challenges ahead
  • Delivers unrivalled expert analysis and insight
  • Provides comprehensive sector-by-sector analysis

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