Saudi and Spanish firms settle rail deal

20 November 2016

Preliminary agreement needs to be ratified by Saudi government

A preliminary agreement has been reached requiring the Saudi Railways Organisation (SRO) to compensate the Al-Shoula consortium, which includes several Spanish firms, €150m ($158m) for additional costs arising from delays in payment related to the construction of the second phase of the $11bn Haramain High-Speed Rail (HHR) project.

The preliminary agreement, which needs to be approved by the Saudi government before it can be enforced, was reached following the visit to Madrid on 25-26 October of Rumaih Mohammed al-Rumaih, Saudi Railways Organisation president, according to an international media report.

It is understood that a dispute over payments led to a series of delays and setbacks for the project.

In May, Spanish Public Works Minister Ana Pastor had announced that the completion of the project had been put back by 14 months from January 2017 to the first quarter of 2018. This follows Saudi Arabia’s pledge to bring its payments to the railway consortium up to date.

In September, an independent arbitrator, Paul Taggart, was appointed to help resolve the contract.

The local Al-Shoula Group-led consortium, which includes six Spanish companies - Talgo, Indra, OHL, Dimetronic, Renfe and Adif – signed a $7.9bn deal for the rolling stock and systems of the 450km second phase of the HHR in 2012.

Phase 2, which covers a 450km route, comprises the construction of the railway tracks, installation of signalling and telecoms systems, electrification, construction of the operational control centre, the procurement of 35 trains, and the operation and maintenance of the railway for 12 years.

In 2012, Al-Shoula secured a loan of just over SR3bn from a group of six Spanish banks to help finance phase 2 of the project, covering the supply of rolling stock and systems. The financing, which is in the form of advance and performance bonds, was partly guaranteed by the Spanish export credit agency Cesce and the Official Credit Institute of Spain.

Rolling stock supplier Talgo announced in July 2015 that the $200m deal it had signed five months earlier with SRO for the supply of six high-speed trains had been cancelled. It is understood no clear explanations were given for the cancellation at the time.

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