Transport masterplans still a priority

13 January 2016

While governments remain committed to the sector, some projects will be delayed or scaled down

The urgent need for Middle East and North Africa (Mena) countries to diversify their economies away from hydrocarbons, decongest key cities and decentralise trade underpinned the recent focus on investment in comprehensive transport infrastructure schemes.

The common aspiration is to build a multi-modal logistics and transport infrastructure integrating sea, air, rail and roads that would allow people and cargo to travel with ease within their national territories and beyond.

These investments are long overdue. Only a few countries have existing mainline rail or urban light rail systems, and the majority of rail track in countries such as Iraq, Egypt, Jordan and Iran has fallen victim to years of neglect, disrepair or vandalism. Until recently, the reliance on cars as the primary mode of transport in the GCC states has also hampered the development of rail infrastructure.

Integrated masterplans

Hundreds of kilometres of roads across the region also need to be expanded, dualled and rehabilitated to comply with international standards. Airports and seaports need to be integrated into the existing or planned rail, metro and road schemes as well.

These requirements have led to the development of integrated multibillion-dollar city-wide or country-wide transport masterplans in Qatar, Abu Dhabi, Bahrain, Jeddah and Mecca, among others.

2016 will be a cautious year, but I expect there will be major awards around the second and third quarters

Harj Dhaliwal, Parsons

None has caused as much excitement in recent years as rail. Nearly 47,000km of track is planned and under way, with budgets estimated to be in excess of $220bn. If all these plans come to fruition, the length of the existing mainline rail network will be more than doubled, while the length of urban rail systems will grow fivefold.

This excitement peaked in 2013, when some $33bn of contracts were awarded, primarily on the Riyadh and Doha Metro schemes. In 2014, the value of total contract awards dropped to $11.5bn, and this fell further to $7.4bn in 2015.

The fall in contract awards in 2014 reflects to some extent the assimilation of the investments arising from the previous year’s awards into the economy as spending began, while the rest of the planned schemes were undergoing design and further planning.

Fiscal concerns

The delay in contract awards in 2015, however, is caused primarily by fiscal concerns as most countries come to terms with the prospect of incurring deficits for the first time in years, due to falling oil revenues. Saudi Arabia, the largest market for future rail projects in the region, delayed the award of several packages for the first phase of the Mecca Metro this year. The same is true for the first segment of Oman Rail and the second phase of Etihad Rail.

The next 12 months might see more delays in project awards, although governments say they remain committed to most of these schemes.

“2016 will be a very cautious year, but I expect there will be major contract awards around the second and third quarters,” says Harj Dhaliwal, vice-president and head of rail sector for Middle East and Africa at Parsons.

Dhaliwal expects projects such as the Mecca Metro to be out in the market by 2016. Passenger rail, he says, will also take off. The Kuwait Authority for Partnership Projects (KAPP) indicated that the state’s $20bn rail road and metro projects will be tendered in 2016.

 Mena transport awards by year

Rail scrutiny

What is certain is that nearly all of the planned rail projects will be facing greater scrutiny in terms of their viability prior to being tendered. The process of scrutinising rail projects before they are awarded will include reassuring clients that the rail infrastructure will be self-sustaining, at least from an operations cost perspective.

“What we do not want to happen is for the [rail] asset to be a drain on public infrastructure budget over its lifetime,” Dhaliwal says. “It is important to drive the perspective that the initial rail infrastructure investment may be underwritten as a government investment, with long-term operations self-supporting.”

An inevitable consequence of this exercise is that some projects will have to be scaled down or put on hold.

A review of the phasing of these big-budgeted schemes is also likely to take place to allow for appropriate phasing of schemes to fit with the fiscal budget. Over the coming year, and indeed perhaps over the medium-term, key government decision-makers will prioritise rail projects in terms of funding and will also focus on what private sector finance can offer.

Road deals

Nearly $190bn-worth of road and street projects were awarded across the Mena region between 2005 and 2015, averaging $17bn in annual awards. The GCC states, led by the UAE and Saudi Arabia, accounted for more than 75 per cent of this overall contract value.

The road contracts awarded in 2015 alone have an estimated value of $21.9bn, three times the size of awarded rail contracts during the year. Considering that this value already dropped by 25 per cent from the previous year’s contract awards value, the roads sector features tremendous opportunities.

Nearly $190bn-worth of road projects were awarded in the Mena region between 2005 and 2015

Source: MEED

Qatar has the largest active masterplanned road scheme in the region. This includes the $20bn expressway programme and the $14.6bn local roads and drainage programme.

Other major road projects under execution include the Emirates Road masterplan and the Mafraq-Ghuweifat road development in the UAE. One third of the 328km Mafraq-Ghuweifat road had been completed as of August 2015, with nearly two more years remaining on the project.

Kuwait has also awarded several hundred million dollars-worth of road contracts this year, including upgrades for the Nawaseeb road and the roads that link Mina Abdulla city and Wafra, and Mina al-Zour and Wafra. Nearly a dozen projects, with budgets totalling $4.5bn, are tendering or in the prequalification stage and are due to be awarded in 2016. These include several sections of the northern regional road and the Al-Ghouse road schemes.

Seaport sector

The value of contracts awarded in the region’s seaport sector rose by 37 per cent year-on-year to reach $840m. This value, however, is just under half the average annual contract awards since 2005. A marked increase in capacity-building in seaports across the region over the past few years had resulted in project awards slowing down, starting in 2014.

The Central Algeria trade port and Egypt’s 10 Ramadan port and Safaga industrial port expansion are among the key seaport projects set to be awarded in 2016.

Airports and aviation

Middle East airlines, which generated cumulative profits of nearly $6bn in 2010-14, could generate up to $3bn in profits in 2015 alone due to lower jet fuel prices, a cost that accounts for carriers’ largest single operational expense. At the end of September, Emirates airline reported a net profit of $1bn in the first half of its fiscal year.

However, low oil prices aside, bad news for the sector abounds. Emirates’ revenues are 2.3 per cent down year-on-year due to the confluence of a strong dollar that weakened other currencies, particularly the Chinese yuan and Russian rouble, and the

intensifying conflicts in Syria, Iraq and Yemen. Low-cost airline Flydubai registered a $40m loss in the first half of 2015 for similar reasons.

Regardless of the geopolitical and economic uncertainties, popular opinion holds that the Mena region will continue to outpace global passenger demand growth over the long term.

Passenger traffic in the Middle East has been growing at an average of 9.9 per cent a year since 2010, compared with a global average of 6 per cent, according to US airline manufacturer Boeing. Annual growth to 2034 is estimated at 4.9 per cent, adding 237 million passengers a year on routes to, from and within the region.

The number of pilgrims visiting Saudi Arabia for the hajj and umrah is expected to exceed 25 million by 2030, more than three times the volume recorded in 2014. Some 70 million passengers passed through Dubai International airport in 2014 alone, marking a 15 per cent uptick in passenger traffic compared with the year before. At 58.7 million as of the end of September 2015, the hub has registered a year-to-date passenger increase of 12 per cent.

Such growth requires at least 3,000 new commercial planes, with some of these replacing old aircraft. Middle East airlines already have an order backlog of more than 1,000 units, mainly with Boeing and Airbus. This number is expected to grow with the lifting of economic sanctions against Iran, which has said it will require up to 90 new aircraft a year over the next five years.

Air cargo

Besides passenger transport, cargo is also expected to drive air traffic, given the region’s strategic location between Europe, Asia and Africa. Bolstering the region’s strength as a centre for travel and trade is its access, within an eight-hour circle, to 80 per cent of the world’s population, which accounts for 65 per cent of global economic activity.

Growth will require more modern and efficient airports. Some $6bn-worth of airport projects were awarded in the Mena region in 2015, only slightly down from the previous year.

A frontrunner has been selected for the $4.3bn Terminal 2 project at Kuwait International airport. Kuwait’s capacity-building efforts have gathered pace with the start of prequalification for a contract for a passenger support terminal that will accommodate some 4.5 million passengers annually until Terminal 2 becomes operational in 2020. The passenger support building is set to become operational 450 days from the date of contract signing.

In Saudi Arabia, $13bn-worth of expansion, renovation and new airport projects are under way. The kingdom’s 27 airports handled 74 million passengers in 2014, some 10 per cent more than in 2013. The same year saw the completion of construction work and the start of operations at the Prince Mohammad bin Abdulaziz airport in Medina, the first airport in the region to be developed on a public-private partnership basis.

Bahrain’s terminal expansion contract is also under bid. The number of passengers that passed through the airport in 2014 exceeded 8.5 million, twice its official capacity.

In Dubai, Al-Maktoum International, the emirate’s second airport, is undergoing small extension projects while it awaits a funding decision on the major $32bn expansion plan that will make it the world’s largest airport, with a capacity to handle 200 million passengers a year.

Oman airports

Passenger numbers at Oman’s airports had increased 15 per cent year-to-date by September 2015. The sultanate is developing five of its hubs: in Muscat, Sohar, Salalah, Duqm and Ras al-Hadd.

The structures for the new 12 million passengers-a-year terminal in Muscat is nearly complete, while the interiors and systems work still remains to be carried out.

In 2016, some $27bn-worth of airport projects are scheduled to be awarded. Realistically, only a fraction of these could be released to the market, due to the overall trend towards more conservative public infrastructure spending.

Even the extension of Qatar’s Hamad International airport, which is the largest and most promising proposed project, with an estimated budget upwards of $5bn, could be delayed.

Nonetheless, aviation is a major investment area, offering opportunities to contractors and private finance companies alike.



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