Dubai planning private transport scheme

19 August 2010

Transport project is latest sign of Dubai dropping direct procurement model

Dubai’s Roads and Transport Authority (RTA) is planning to launch its first public private partnership (PPP) and is currently seeking advisers to help run the process.

The project is expected to be the first of several PPPs launched by the RTA and comes as Dubai changes its model for financing infrastructure projects in the emirate in the wake of an economic slowdown and debt crisis at its state-owned firms.

The RTA’s first project involves the development of a AED200m ($54m) water transportation scheme that will run along the coastline of Dubai, with the possibility of extending the service into neighbouring emirates including Sharjah and Abu Dhabi.

The RTA’s first project involves the development of a AED200m water transportation scheme

Potential advisers for the scheme have already been approached and the RTA is expected to select a group of consultants to run the bidding for the scheme before the end of August. Advisers were invited to bid in consortiums of legal, financial and technical consultants to the RTA by late July. Clarification meetings were held in mid-August.

The RTA hopes the private sector will take on the operation of 10 ferries, each with 100 passenger capacity and develop docking stations along the Dubai coast under a seven-year franchise agreement.

The RTA faces significant time pressures to develop the scheme quickly. Construction of the ferries is due to be completed by a Chinese supplier in October and if the RTA does not pay for them soon after that date it will begin to incur financial penalties. “The RTA wants someone to buy the boats and operate a ferry service under a PPP. The whole process is driven by the October deadline,” says a source close to the scheme. “Unfortunately, it would take about six months to run a process like this and they have about 12 weeks.”

Once appointed the adviser will have to prepare documentation for the project, seek interest from potential operators, run a competitive bidding process and select a winning bid. All major milestones for an organisation that is used to direct procurement.

Khalid Zahed, director of marine transport at the RTA confirmed that the organisation was exploring marine transport PPP projects, but would not give details on the scheme. He says, “The RTA is in the process of developing water transport projects on PPP basis. It is not decided as to which water transport project will be included and an announcement on the details of the PPP transit scheme will be made available once finalised.”

Sources close to the RTA also say the company is looking at using the PPP model to develop multi-storey car parks around the emirate. Abu Dhabi is already planning to develop around 30 multi-storey car parks in partnership with the private sector.

Dubai is increasingly moving towards private sector provision of services and development of infrastructure. Dubai Electricity & Water Authority (Dewa) is making progress towards its first independent power and water project (IWPP) at Hassyan. The UK’s HSBC has been selected to advise on the development of the scheme (MEED 28:06:10).

In the past Dubai has funded infrastructure development through direct government spending, or short term borrowing. The slowdown in the economy and the troubled financial state of many government-owned companies has forced the emirate to look at alternatives.

Work on the RTA’s $1.1bn Al-Sufouh tram project has already stopped because of issues with payments to the contractor on the job (MEED 11:06:10).

Attracting private sector interest in these schemes may prove challenging. “Organisations like the RTA are not creditworthy,” says a source close to the water transport scheme. “They will need some sort of government backing to give the private sector assurances that they will be repaid for the services they provide.”

Investors may not be reassured by a Dubai government guarantee though and could require some sort of backstop from the federal government, or Abu Dhabi.

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