Kingdom's rail plans roll ahead

28 March 2002

Supreme Economic Council secretary-general Abdulrahman al-Tuwaijri said at the MEED Congress in Dubai on 19 March that a new law on railways was one of the larger items of legislation expected to be passed by the summer. The kingdom has long mulled the possibilities of rail transport for industrial, commercial and passenger uses and the new law is expected to precipitate the creation of a major private rail network. Abdulaziz al-Ouhali, the deputy minister for transport affairs, said in early March that a new network would increase freight transport by about 20 per cent to 30 million tonnes a year and ferry 23 million passengers a year.

An existing line, built in the 1950s, runs between the capital and Dammam in the Eastern Province. The proposed new links will connect Riyadh with the far north as well as the Red Sea coast. They will also link the major cities in the west, providing both industrial and passenger services. Another line will run along the Gulf coast from Jubail to the existing link at Dammam. The full length of the envisaged network exceeds 2,000 kilometres, crossing vast stretches of desert and the ragged mountains that fringe western Arabia.

A Communications Ministry report published in 2000 sets out plans for some of the lines. Based on a study prepared by the World Bank, it concentrates on the necessity of a railway line for the exploitation of the kingdom's mineral reserves. 'The utilisation and feasibility of the mineral projects depend basically on the availability of a safe, cheap and reliable mode of transport to transport these minerals from the mines to manufacturing and exporting sites,' says the report. The government has long desired to increase its output of mineral products as part of its ambition to diversify the economy.

At Al-Jalamid near the Jordanian border, there are proven reserves of 213 million tonnes of phosphate ore. A feasibility study compiled in 1990 by the US' Jacobs Engineeringsuggested the construction of either a railway or a slurry pipeline to transport the ore to processing facilities at Jubail. The pipeline was ruled out on technical grounds and the kingdom started to look seriously at the possibilities of a major rail project.

The past decade has involved painstaking work by the Deputy Ministry for Mineral Resources, the Communications Ministry and the World Bank to co-ordinate the massive projects involved. A bidding process to exploit the reserves began in 1995, but progress has been slow. Only this year, Saudi Arabian Mining Company (Maaden)selected Saudi Ogeras a partner in the development of the project. They are expected to sign a joint venture agreement to carry out the plans early in the fourth quarter.

The Communications Ministry envisages the main railway line running from Al-Qurayya to Riyadh via Al-Jawf, Hail and Qassim, with two branch lines connecting it to mining projects. The Al-Jalamid branch would join the line at its far northern end, while another short branch would create access to the substantial bauxite reserves that Maaden is now planning to exploit at Al-Zabirah. The main line will stretch about 1,100 kilometres, mainly over rugged stony desert, and is projected by the ministry to cost about SR 5,826 million ($1,554 million) over a 30-year period. This cost includes operation and maintenance as well as the purchase of equipment and construction of infrastructure.

The second line will connect Jeddah Islamic Port with Riyadh. It will provide a means of transporting goods and containers across the kingdom from coast to coast by joining the existing line that runs between the capital and Dammam. The World Bank estimates the east-west line, which will be more than 1,000 kilometres long, will cost SR 6,516 million ($1,738 million) on a similar cost basis. The line running up the east coast, from the Dammam terminal to the industrial city of Jubail and its port facilities, will be included as part of one of these two projects.

Communications Minister Nasser bin Mohammad al-Saloum said last July that a line connecting the principal urban centres in the west was being considered. That line would run from the industrial city of Yanbu to Jeddah through the holy cities of Mecca and Medina. However, a passenger line would be hard pressed to turn a profit. In contrast, the World Bank estimates an internal rate of return on the other two projects of about 18 per cent.

The plans have experienced false starts before. In mid 2000 a group of German and Canadian companies was linked to the scheme. Representatives from Dornier SystemConsult, Bombardier, German Railways Consulting Companyand Deutsche Bankheld discussions in Riyadh with government officials in the hope of developing concrete proposals for the railway. The talks failed to yield results. Japan has also been involved on the fringes of the project. Its failure to commit to an investment in the railway in late 1999 contributed to Arabian Oil Companynot renewing its oil licence in the Neutral Zone between Saudi Arabia and Kuwait.

Early indications suggest a build-operate-transfer (BOT) model is favoured for the project. However, the private sector is not keen to carry all the risk itself. 'The ministry doesn't understand that the private sector can only do this with some government money,' says a contractor following the project. 'There is this difference of opinion between Maaden and the ministry and no plans can go ahead until it has been resolved.'

A source close to the rail projects says that there will be no movement until the government makes a key decision on how the plans will be developed. He says that there are two choices: either all the proposed lines will be carried out together within the context of privatising the Saudi Railways Organisation, which runs the existing Riyadh-Dammam link; or the Jalamid line will be treated separately and be developed by Maaden and Oger. He said the second option would lead to a more rapid development of the kingdom's railways because a new private sector player would want to do new feasibility studies. But he said that the first possibility would be more likely to attract investors because the mining route is more valuable. The decision is expected soon.

The most decisive element in the proposals is the weight the government places on the mining projects. The north-south line, connecting Riyadh with Al-Jalamid and Al-Zabirah, is central to proposals to exploit minerals, in which the government has invested significant capital. However, the plans have been under development for the past decade, sending a clear indication that urgency is not the key to this project. The saga of the kingdom's efforts to develop its mines and railways is not set to end for some time yet.

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