Etihad Rail tender suspension casts further doubt on GCC network

27 January 2016

Move follows job cuts earlier in January

Abu Dhabi has suspended the tendering process for contracts to build the second stage of the Etihad Rail project, adding to speculation that progress on the GCC rail network will be delayed.

A statement released by Etihad Rail on 26 January said all bidders have been informed in writing of the tender suspension. The 684-kilometre second stage of the UAE rail network was retendered in early 2015.

Etihad Rail said it is reviewing the most appropriate options for the timing and delivery of this phase of the project, and that the review and suspension will not affect the operations of the first phase.

“We have been working closely with our partners and stakeholders to assess our strategic priorities for the year [2016],” Etihad Rail chairman Nasser Alsowaidi said in a statement. “As a result, a decision has been taken to suspend the tendering process for stage two while we review the most appropriate timing for this investment.”

Spending unapproved

Sources in Abu Dhabi said at the end of last year that the spending required for the second phase was not approved by the Abu Dhabi Executive Council (Adec).

Contracting groups submitted technical bids for the second phase of the UAE’s national rail network in September 2015.

The second phase of the project, which will connect Abu Dhabi with the Saudi border and Dubai, has been tendered before, with bids submitted in November 2012.

Following prolonged negotiations and a change in the design, including the possibility of dropping a link to Al-Ain that would connect to the Omani rail network, the project was retendered in 2015.

Original scope

The original scope for the second phase involves building rail lines in Abu Dhabi emirate between Ghuweifat and Ruwais, a link to Al-Ain, and a line to Jebel Ali in Dubai. It also included a branch line between Mussafah and Industrial City Abu Dhabi.

Two groups had been shortlisted for the phase 2 contracts when they were previously tendered. The two groups were:

  • Salini Impregilo (Italy) / Samsung C&T (South Korea) / Tristar (local)
  • China Railway Construction Company (China ) / Ghantoot Group (local)

Unlike the first phase, where the financing deal was oversubscribed, phase 2 of the project is understood to have failed to attract the same level of enthusiasm from the financing community.

The second phase of the project has many, smaller offtakers that mainly comprise logistics and construction materials companies, unlike in the first phase where the financing was structured around a single offtaker – Abu Dhabi National Oil Company (Adnoc). Adnoc was to pay Etihad Rail for the delivery of sulphur to Ruwais for export, a feature that helped reassure lenders that the risk will be taken on by Adnoc.

The decision to suspend the tender follows the firm’s retrenchment of nearly a third of its employee headcount during the first two weeks of 2016. It is understood the uncertainty facing the second phase of the Etihad Rail project was one of the reasons for the restructuring initiative.

GCC railway

The move to delay the second stage of the UAE rail project casts further doubt on the progress of the planned rail network that will connect the six GCC states. The GCC Secretariat said in August 2015 that it is aiming for the network to be operational in 2018.

“The current economic situation requires a review of nearly every government infrastructure project,” says a prominent rail consultant. “The announcement of the suspension of the tendering process, while disheartening to bidders, will also have a broader implication and could exert a knock-on effect on the regional railway and mainline rail projects across the [GCC].”

The consultant tells MEED the announcement by Etihad Rail is a commendable move compared with leaving the public to speculate on the true status of the scheme.

“The next ideal development is for the GCC Secretariat to come up with an official statement on the status of the GCC rail project sooner than later,” the consultant says.

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