There is nothing to match a long train -journey to an exotic destination. So there can be few more compelling ideas than linking Sohar with Mesopotamia, and Istanbul beyond, with a line that follows the coast of the Gulf.

Dreams do come true. Bids could be called as early as October for the contract to develop the designs of the GCC railway, a project that will unite Arabia with bands of steel.

The GCC project offers some of the best opportunities for rail businesses anywhere in the world. For travellers and traders, it will be an alternative to air, road and sea. And for the region, the project will be a declaration of growing economic interdependence.

The GCC railway is also a massive engineering challenge. From the north, it will start at Kuwait’s border with Iraq and head south through Kuwait City, across the Dibdibah plain and into Saudi Arabia. The route will then follow the Gulf coast to the railhead of the kingdom’s mineral railway at Ras al-Zour, Jubail industrial city and Dammam, the eastern terminus of Arabia’s only functioning railway, now almost 60 years old.

From there, the project will cross by causeway the 28 kilometres of the Gulf that separate Saudi Arabia from Bahrain, and pass through Manama to another causeway – this time 40km long – to Ras Eshareg on the northwest coast of Qatar. The railway will then head south through the centre of the Qatari peninsula to Doha, New Doha Port, the industrial city of Messaieed and into Saudi Arabia.

At the border town of Ghuweifat, it will enter the UAE, pass through the oil and chemicals centre at Ruwais and press on to Al-Ain before crossing the border with Oman to Sohar Industrial Port and, finally, its southern terminus at Barka on the Arabian Sea.

By the time it is done, the railway will connect six countries, five capital cities and two seas, and cross three deserts, two waterways and a mountain range. It will have bridges, causeways, tunnels and cuttings and be more than 2,100km long. And it will make possible uninterrupted train travel from Glasgow to the Gulf of Oman.

The GCC railway will be one of the most expensive infrastructure projects of the 21st century so far. The 980km Saudi Landbridge link between Jeddah and Riyadh is projected to require more than $5bn in funding. On a cost-per-kilometre basis, this suggests the GCC railway’s capital needs could be at least twice as big. The countries of the GCC are the only ones in the Middle East that could consider financing such an expensive project.

Political problems

But the greatest challenge is politics. “Any supranational project faces challenges that would not exist were it located in just one jurisdiction,” says Joss Dare, Middle East transport group head at UK law firm Ashurst. “In this case, those challenges are increased six-fold because the project seeks to involve all members of the GCC. It will require huge political will if it is to become a reality.”

The commitment to the project will soon be tested. In May, a GCC ministers’ meeting in Muscat approved a feasibility study of the project completed by Systra, Canarail and Khatib & Alami. The same team has since been mandated to study the viability of extending the line to Salalah and to the border with Yemen. But the project will only go ahead when a final blessing is provided at an annual GCC summit.

The organisation’s record for cohesive decision making is mixed. A GCC customs union was declared in 2003, but it is still not completely in place. A GCC common market was announced at the start of 2008, but the free flow of goods and people among its member states is still periodically interrupted. And the decision of Oman and the UAE to pull out of the 2010 currency union plan has highlighted that the GCC is not only not of one mind, but is still some distance from being capable of sustained economic co-operation.

One source close to the technical committee dealing with the project says planning for the GCC railway is progressing but it would be wrong to expect early action on the ground. The terms of a request for proposal for the GCC railway design contract were being finalised at the end of August. It is unlikely, however, that it will be issued before the start of 2010.

The railway, which is planned to carry mainly cargo, will be based on the 1.435-metre standard gauge used in most countries with a rail system. It will be single track everywhere but in the UAE, where there will be two. Trains will be diesel-electric. It is yet to be decided whether the project will be executed centrally by the GCC secretariat in Riyadh or delegated to GCC countries individually.

Most GCC states are gearing up for the challenge, though some are more advanced than others. Saudi Arabia’s Landbridge includes building a link from Dammam to Jubail that will be part of the GCC railway. It has a -regulator in the form of the Saudi Railways Organisation (SRO) and has had functioning railway services between Riyadh and -Dammam since 1951.

In Qatar, the Qatari Diar Real Estate Investment Company, a government investment firm, is preparing a national railway plan, including light rail. Work should start in early 2010 on the Qatar-Bahrain Causeway, which has been redesigned to accommodate the railway. Oman has begun defining the alignment of the GCC railway through the sultanate.

In July, the UAE issued a decree establishing the Union Railway Company with capital of AED1bn ($270m) and the -mandate to develop 9,000km of rail projects within the federation. Chief executive officer (CEO) Richard Bowker is a recognised railway industry figure who was previously CEO of UK coach and train operator National Express (see feature, page 22).

The company’s initial challenge is working out what it should build first: the GCC railway between the Saudi and Omani borders, the proposed federal railway, which calls for a line from Abu Dhabi through Dubai and the northern emirates to Fujairah, or a domestic rail network within Abu Dhabi emirate as envisioned in the Department of Transport’s 2009 Abu Dhabi Surface Transport Master Plan.

It seems the UAE is working on a triple-track strategy, though sources close to the federal National Transport Authority (NTA) say the GCC railway is the top priority. The NTA is expected to award the contract to devise a railway regulatory code in September.

The least active GCC state is Kuwait, though its representatives have attended all the GCC railway’s technical committee meetings. Initial work on a plan for a national railway, including the GCC line, has been financed by the Kuwait Overland Transport Union, a private body.

There is a long-standing commitment to a railway linking a new container port on Boubiyan Island with Saudi Arabia and the Iraqi rail system. But Kuwait is yet to vest authority with an executive body capable of implementing any part of its railway plans.

Major challenges

Getting GCC government approval remains the most immediate obstacle to progress on the project. But a host of other issues are not far behind. The project manager on the GCC railway feasibility study, David Lund, lists the biggest ones.

“Cost (due to) the long distances, adverse operating conditions, and revenue, because of the low population density, the relatively small size of the non-oil economy and the competitiveness of alternative modes,” he says. “[These are] car and truck, because fuel prices are very low and charges for infrastructure are generally nonexistent, and sea, because most development is along the coast.”

Railway specialists cite five further challenges that will have to be tackled. The first is interoperability. When trains cross borders, there must be no change in gauge, power source and other parameters.

The second is regulation. “Regulatory issues are partic-ularly fraught in the Gulf,” says Dare, who helped draft Dubai’s rail regulations. “Since, apart from Saudi Arabia, they currently do not have rail systems, most of these countries also do not yet have any regulatory architecture in place, whether in terms of competent regulatory bodies, or indeed the regulations themselves.”

Fare-box risk is the third challenge cited. “This is a key issue,” says -Darryl Murphy, associate global infrastructure partner at consultant KPMG. “Rail schemes, and partic-ularly heavy rail schemes, struggle to generate revenue.”

Whether operated by the public or the private sector, the GCC railway will need long-term projections of likely sources of revenue and clarity about the extent to which subsidies will be required. If any of the risk is to be transferred to the private sector, GCC governments will be have to provide at least some form of sovereign guarantee, say project finance specialists.

The fourth challenge is people. GCC rail sponsors are signalling that they want to attract highly qualified rail professionals. But the long-term health of the industry demands the development of local skill sets.

The final challenge is finance. The credit crunch and its consequences have severely reduced the appetite among banks for long-term project finance. The longest bankable tenor is now probably no more than 10 years. That means any rail project hoping to use bank credit will have to accept the need to refinance in due course and the risks that entails. Alternatives include unused credit pools such as Islamic finance.

The consensus is that there are no quick fixes or off-the-shelf solutions. “This is the start of a new industry in the GCC that will require an array of different delivery mechanisms,” says Murphy.

“Private-public partnerships will work for some but there are other international models that might work. The big question is: what level of private sector involvement does the government want to embrace? The answer, in this case, is complicated by the fact that there are six different governments who might have completely different approaches.”

Sponsors also need to learn the lessons of the Saudi Landbridge where, after more than six years of trying to mobilise private finance, the Saudi government has finally decided to pay for the project itself.

“Don’t attempt to transfer demand risk because sponsors and funders cannot predict it accurately in this sort of new-build system, cannot really control or price it and seriously don’t like it,” says Dare. “Keep the project’s debt requirement small enough to be deliverable and manageable. Don’t end up seeking a 50-year concession. Keep bid costs under control. And, finally, don’t let the tender process get out of hand.”