The revised opening date for the $14bn Haramain High-Speed Rail is now set to early September, dashing hopes of opening for this year’s hajj season.
MEED understands Saudi Arabia’s Transport Ministry and the local/Spanish Al-Shoula consortium were locked in a difficult series of negotiations in Madrid and Riyadh over the past five months, when it became apparent that they will be missing the March 2018 revised opening date of the landmark project.
The first phase of the project comprised one civil works and two passenger stations packages, while the $8.2bn phase two, which covered the track construction and maintenance; systems and telecoms; rolling stock; and the 12-year operation and maintenance contract, among others, was awarded to the Al-Shoula consortium, which included 10 Spanish companies.
Six Spanish banks provided SR3bn to finance the rolling stock. The financing was in the form of advance and performance bonds and was partly guaranteed by the Spanish export credit agency Cesce and the Official Credit Institute of Spain.
Given the project’s scale, it is conceivable that the contracts signed between Saudi Railways Organisation (SRO), the project client, and the local/Spanish consortium carried stringent penalty clauses for any expected delays, which proved self-fulfilling.
So far, it is understood that the Saudi government will be spending a total of roughly $400m to compensate the Al-Shoula consortium for the delays, since it appears that another set of contractors, not the consortium itself, are to blame for the delay.
This puts the Saudi government in a difficult spot where as much as it wants to seek compensation for the delay, it now has to account for the delay committed by other contractors on the project.
The Haramain High-Speed Rail is just the latest in a long list of complex projects in the kingdom and across the region that have sustained substantial budget overruns. It highlights the urgency of reforms that are required to foster efficiency in nearly every aspect of the kingdom’s economy, not least in the area of project procurement and management.