Jordan - Building a regional hub with rail

29 September 2009

Jordan is one of the region’s more unassuming rail markets but Amman hopes rail can establish the country as a new trade hub.

Jordan could be the perfect node for transport links between the Arabian Peninsula, North Africa and the Levant. And with the Suez Canal nearby, the kingdom is also well situated to link east and west

In particular, Jordan is tapping into the growing market for imports to Iraq. With Iraq’s infrastructure still struggling to recover from the twin blows of war and chronic under-investment, there is a lucrative opportunity to establish a new gateway to the country.

Amman is spending $700m on a new port at Aqaba and establishing a new free trade and industrial zone around its southern city. Last year, Abu Dhabi consortium Al-Maabar won a $5bn contract to convert the old port into a residential and tourist development.

This huge new project needs a rail link to become viable. Accordingly, a JD4.5bn ($6.4bn) rail project has been proposed to run the entire length of the country, from Aqaba to the Syrian border, via Amman. Spurs off this main line are planned to connect to the borders with Saudi Arabia and Iraq.

Iraq is working to rebuild its minerals railway in the east of the country. A rail link at the Jordanian border offers a rapid outlet to the Red Sea via a modern port at Aqaba.

Project timing

Amman has selected French bank BNP Paribas to lead an international advisory team for the project. The Transport Ministry signed an agreement on 21 April with the bank to lead the team of Canada’s CPCS Transcom, which will act as technical consultant, and US law firm Chadbourne & Parke and the local IB Law, which will provide legal support (MEED 24:4:09).

The team is now at work establishing the concession terms before an international tender will be issued for the selection of a private operator on the project.

Jordan’s Transport Minister Sahl Majali says the government is still considering financing structures for the project. BNP Paribas and its team will help finalise the funding model.

Funding is the potential stumbling block. Jordan does not have the financial reserves of other countries and has scant resources for all the infrastructure projects it would like to push forward. Amman has appealed for inter-national donors to contribute towards the cost of the rail network.

“The Aqaba railway is an exciting project and the client is very sophisticated, but finance is going to be an issue,” says Ala Ghanem, regional director for business development at UK rail group Invensys.

“I believe they have the money but they have not yet been clear where the money is coming from. Jordan is in a great strategic position, with close ties to the Mediterranean area, so there is huge potential there. The king has recognised this and is pushing these strategic projects. It is just a question of clarifying the financing so we can gauge the real cost and potential returns on investment.”

Amman has had difficulty bankrolling rail projects this year as credit markets have dried up. In April, the Transport Ministry decided to completely restructure the JD236m commuter railway proposed between Amman and Zarqa after terminating the contract of a winning consortium for the second time in a year.

The 28-kilometre-long light railway will now be built as a public procurement scheme, after the government abandoned the build-operate-transfer framework it had previously employed.

Amman scrapped a contract award to Kuwait’s Aknan Global and Spain’s Ineco after the consortium failed to raise funding for the project by the agreed deadline.

Affordable packages

In March 2008, a consortium of Pakistan’s Infrastructure Development Company and China Railway Engineering Corporation was dropped from the project for unspecified legal reasons.

The ministry has assembled a committee to divide the project into more affordable packages and international bidders may need to partner with a local firm. Once the railway is completed, the government will appoint an operator to oversee the running of the project. It will be Jordan’s only current passenger rail service.

“The new structure makes the project more affordable for companies,” says one rail source in Amman. “The economic situation means contractors have found it difficult to raise money for the whole project.”

The Amman-Zarqa railway has suffered a series of false starts since a feasibility study into the scheme was started in 1998. However, despite the embarrassment of seeing successive contract awards collapse, the government is persisting with the scheme.

Jordan’s experience demonstrates the importance governments around the region are now placing on their rail projects. The difficulties of launching these projects in a downturn are outweighed by the long-term benefits to the national business and tourist infrastructure.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.