Freight lines take priority in Gulf

13 September 2011

Rail plans in the Middle East are firmly focused on the need to transport freight around the region, but whether rail services can compete with tried and tested modes of transport remains to be seen

As the GCC states sketch out their rail development plans, cargo transportation has emerged as a priority. The two largest member states Saudi Arabia and the UAE are implementing local bulk rail freight projects ahead of regional passenger railways and non-bulk cargo lines.

To run one 15,000-tonne train [on the SAR railway] is equivalent to taking 600 trucks off the road

Spokesman, Saudi Railway Company

Saudi Arabia’s debut project will transport bulk cargoes from the kingdom’s northern mines to the Gulf coast. Due to open in September, the Saudi Railway Company’s (SAR) 1,400-kilometre line, formerly known as the North-South minerals railway, will carry cargo from mines at Al-Jalamid and Az Zabirah to Ras al-Khair through Al-Jawf and Hail. SAR is owned by the Public Investment Fund, the investment arm of the Saudi Finance Ministry.

The $2.8bn railway will transport more than 10 million tonnes of bulk cargo a year, with two daily trains delivering 15,000 tonnes each.

“One train will carry bauxite and one will carry phosphates,” says a spokesman for SAR. “To run one 15,000-tonne train is equivalent to taking 600 trucks off the road. SAR plans three projects in three phases: first to transport minerals from the mines and then to launch [intercity] freight and passenger services.”

Saudi Landbridge link

Progress on Saudi Arabia’s other flagship freight project has been less successful. Saudi Railways Organisation operates a railway from Dammam to Riyadh and has long planned to extend the line west from Riyadh to the Red Sea port of Jeddah, a venture known as the Saudi Landbridge project.

The $7-8bn scheme is intended to link the Gulf and the Red Sea, reducing the need for the containerships plying the world’s busiest east-west and north-south trade routes to enter the Straits of Hormuz.

“Historically, if we look at the US, we can see how rail opened up the great spaces of the west,” says Aamer Alireza, chief executive officer of Jeddah’s Red Sea Gateway Terminal. For Saudi Arabia, the Landbridge will make trade more efficient between east and west, and will help to consolidate development of the hinterland. It will have a dramatic impact.”

Attempts to develop the Landbridge as a build-operate-transfer project stalled after it failed to attract private backers.

“It was far too large to deliver as a single project and it was asking too much to expect the private sector to shoulder the risk,” says Joss Dare, managing partner, Dubai office at UK legal firm Ashurst. “Saudi Arabia can build the Landbridge, but there are questions to be resolved over how to structure it.” It is expected that the scheme will now move ahead as an engineering, procurement and construction project.

The big success stories for rail freight internationally are bulk movements over long distances

Industry consultant

In the UAE, bulk rail freight plans are also taking priority over passenger lines. Etihad Rail is focusing on developing a 300km railway to carry granulated sulphur from western Abu Dhabi to the port of Ruwais. Abu Dhabi National Oil Company (Adnoc) is the sole customer for the project, the business case for which rests on captive cargo volumes. Sulphur must travel in specialist containers to reduce the risk of contamination.

On launching in 2014, the line will carry 20,000 tonnes of bulk cargo a day, delivered by two trains of 20 wagons. In May, the programme management contract for the scheme was awarded to US-based Aecom.

Subsequent phases of the UAE rail network will include a link from Abu Dhabi to Jebel Ali and Dubai, which will then connect with the northern emirates.

“We are waiting to find out the details of the business case and funding structure for phases two and three,” says Arash Aghdam, director of rail and transit at Aecom.

Freight prioritised in the Gulf

Again, the need to transport freight around the country is taking precedence over passengers. “Container rail links will develop under stages two and three,” says Aghdam. “There has been talk about private-sector investment, but we don’t know quite where.”

GCC trade, 2008
Rest of world38.2
Intra-GCC trade11.6
Islamic countries8.9
Arab countries4.9
Source: GCC

The government of Abu Dhabi is expected to complete its freight transport masterplan this year. Meanwhile, Etihad Rail chief executive officer Richard Bowker says the designs are ready for phases two and three. “We hope that these next stages will be complete by 2017-18,” he adds.

Bowker expects the network to carry up to 50 million tonnes of cargo a year by 2030. He says the railway is critical to future industrial growth in the UAE and regionally.

“The UAE is diversifying its industrial base away from petrochemicals,” he says. “It needs a logistics infrastructure to move raw materials and finished products to and from the industrial facilities … Rail offers the most cost-effective solution for intermodal container movements and for bulk consignments, such as cement and iron ore.”

Qatar has different priorities. As it prepares to host football’s 2022 Fifa World Cup, it needs to build the infrastructure to move thousands of people around the country. The government has unveiled a $36bn railway master-plan that includes high-speed intercity passenger services and urban transportation. It also includes freight lines, with 651km of track to transport 11 million tonnes of cargo a year.

GCC rail network

The GCC railway, which has been under discussion for more than a decade, is seen as less of a priority as its benefits, aside from passenger travel, are less clear. Although many say the railway will boost regional trade, data suggests that such intra-regional trade forms only a small proportion of the external trade. Only about 10 per cent of the GCC states’ external trade is with fellow member states.

The proposed GCC Railway is a 2,200km single-track railway running south from Kuwait City through Saudi Arabia and the UAE to Muscat in Oman. Qatar and Bahrain will link into the north-south line across a causeway into Saudi Arabia. The final cost is expected to exceed $15.5bn once the spur line is built.

Rail will need to compete on price, speed and efficiency if it is to win volume from the Arabian peninsula’s dominant modes of transport: trucking and sea freight.

“The big success stories for rail freight internationally are bulk movements over long distances,” says one industry consultant. “Rail can compete for high-value goods over short distances, but probably only in places where there is a cost-based road tax system. We found some movements for which rail could be competitive. Even then, that would depend on having motivated rail operators and cooperation agreements for cross-border facilitation.”

Another consultant is equally sceptical. “The region is well connected in all directions by sea and road, and I can’t see much potential, initially, for intra-regional rail freight,” he says.

Mohammed Muallem, vice president and managing director UAE for ports operator DP World, says the market will decide whether rail can compete with trucking and shipping. “It needs long distances, not short ones,” he says. “The GCC strategy is for each country to develop its own network, then connect together. I can see strong value coming out of that approach, [but] it will not happen overnight.”

Optimistic deadline for GCC railway

With the focus on cargo lines, the original 2017 deadline for the completion of the GCC railway looks increasingly optimistic.

Member states are expected to agree on final designs by 2012 and to approve the rail authority and an overall project consultant by the close of next autumn’s 2012 GCC Summit. With one year before that happens, passengers may have to wait longer than they expected to be able to travel around the Arabian peninsula by train

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