Riyadh right to fund rail link

21 August 2009

Riyadh will rekindle enthusiasm for the Landbridge scheme and reaffirm its commitment to the kingdom’s transport infrastructure.

After months of speculation, Riyadh has bowed to the inevitable and taken the decision to bankroll the Saudi Landbridge itself. Two bid rounds over two years have failed to deliver a winner and it appears that after all the wrangling, the banks are still too cautious to finance a project of this scale.

MEED has argued for some time that the shift to a public-procurement structure is the only sensible course of action. The freight railway linking Saudi Arabia’s Gulf and Red Sea coasts was in danger of drifting indefinitely. In the current market, it is simply not realistic to expect international banks to fork out $7bn for a 50-year build-operate-transfer concession when the financial returns are uncertain.

It is not realistic to expect international banks to fork out $7bn for a concession whent he financial returns are uncertain

Ever since the Finance Ministry decided to relaunch the Haramain high-speed railway between Mecca and Medina as a public procurement scheme early last year, the Landbridge has received an ambivalent response from engineers, investors, and even the government itself.

Banks and construction groups bidding for the Landbridge must have looked at the financial security enjoyed by contractors on Haramain and asked why they were taking on so much risk on a project of the same size. With Mecca and Medina welcoming 10 million visitors a year, the returns from the Haramain railway are virtually guaranteed. Projected revenues from the Landbridge are more opaque and much less immediate. The project has the potential to alter the entire trade network of the Arabian Peninsula, but it will take decades to achieve that change.

By stepping in, Riyadh will rekindle enthusiasm for the project and reaffirm its commitment to investing in the kingdom’s transport infrastructure, industrial capacity and economic development. The Landbridge is too important a project to be allowed to drift any longer. Riyadh has made the right decision.

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