UAE federal rail moves into construction

30 October 2011

After early setbacks, construction work on the UAE’s $11bn federal railway project is set to get under way with the award of the scheme’s first major civil engineering contract

Key fact

The entire network is expected to carry up to 50 million tonnes of cargo a year by 2030

Source: MEED

After a difficult start, the first phase of the UAE’s $11bn federal railway project is now moving onsite after the award at the end of October of the first major civil engineering contract.

The award by project developer Etihad Rail of the main civils and track works contract on 26 October to an Italian-led consortium comprising Saipem, Tecnimont and the UAE’s Dodsal Engineering & Construction puts the project on track to be begin operating in 2014.

It is a major milestone in what is arguably Abu Dhabi’s most strategically significant civil engineering project as it seeks to drive the diversification of its industrial base away from its heavy focus on petrochemicals.

Central to the plan is the development of a national-scale transport and logistics network that can facilitate the movement of raw materials and finished products to and from the industrial facilities and around the federation. And rail is seen as the most cost-effective solution, providing a versatile and clean mode of transport that cannot be matched by pipelines or roads.

The railway offers significant benefits to the economy and society through the introduction of a new industry

The first phase of the new network, which could one day be part of a network connecting to northern Saudi Arabia, Jordan and Syria, is a 266-kilometre railway in the Abu Dhabi desert that will initially support a key energy development by Abu Dhabi National Oil Company (Adnoc).

The line will transport granulated sulphur from the oil and gas processing facilities at the $20bn Shah gas development in the Empty Quarter of southern Abu Dhabi to the port of Ruwais in the Western Region.

The first stage of the first phase will see a line built between Ruwais and oil and gas processing facilities at Habshan to transport 10,000 tonnes a day (t/d) of sulphur. Once the track is extended to processing facilities at Shah in the second stage, the line will be used to transport 20,000 t/d. The entire network is expected to carry up to 50 million tonnes of cargo a year by 2030.

So far progress on the project has been difficult, with contract awards delayed or cancelled. But the award in October of the civils package puts in place a key piece of the puzzle and follows the awards in July and September of two major rolling stock packages.

The Saipem/Tecnimont/Dodsal contract includes the design, procurement and construction of the railway infrastructure, as well as its testing and commissioning.

The scope of works involves carrying out the earth works and track site grading, bridge structures, communication systems and the development of the depot at Mirfa.

Rolling stock for UAE railway

At the end of July, Etihad Rail awarded the first rolling stock contract. US-based Electro-Motive Diesel (EMD) won a contract to design and manufacture seven heavy-haul freight locomotives for the first phase of the project. The locomotives are scheduled to be delivered by 2012. The company will design, manufacture, deliver, test and commission the locomotives.

In September, China South Locomotive & Rolling Stock Corporation won a contract to supply 240 covered wagons for the first phase. Etihad Rail also signed a memorandum of understanding with Emirates Steel to use the first phase of the railway to transport steel across the UAE. As commodities such as steel must be transported in bulk, using rail will significantly lower the costs, especially over long distances. The lack of an existing rail network in the UAE means that raw materials and finished goods are transported by road, causing heavy congestion.

Earlier setbacks to railway

The project’s progress has not been without its problems. At the end of 2010 and in January this year, the railway’s development was interrupted by the cancellation of three key contracts. The first was the project management consultancy (PMC) contract that had been awarded to the US/French Parsons-Systra in late 2010. The PMC was later awarded to the US’ Aecom-Parsons in April.

The second deal to be cancelled was the preliminary engineering contract with the UK’s Parsons Brinckerhoff. The UK’s Atkins, which was initially due to carry out preliminary engineering only on the first phase, is now working on the preliminary engineering for the entire federal railway. Etihad Rail also cancelled plans to award a separate contract for the study on the impact and mitigation of sand dunes on the railway. The Saipem-led consortium is now expected to carry out this sand study.

The prequalification process for the civil engineering package was seen by many bidding companies as symptomatic of problems on the project. Of the estimated 23 groups that submitted prequalification documents, about 20 were prequalified, which contractors claimed showed a lack of focus on the part of the client.

Now that the main construction contract has been awarded, the project has passed a key milestone and should progress without any future procurement strategies.

Richard Bowker, chief executive officer of Etihad Rail, has always maintained that the timeline is achievable. The UAE’s railway is also competing with markets that hold huge lucrative potential, such as Qatar and Saudi Arabia. Indeed, Doha is the place to be at present as it has three major rail projects underway and appears to be progressing well.

Some industry observers have also expressed confusion as to why Abu Dhabi is spending a lot of time and effort in developing a nation-wide railway if it isn’t going to be electrified.

“There is no justification for it,” said Bowker in May. “The environmental arguments are extremely marginal and you need high levels of traffic to justify it. We’re not saying electrification can never make sense – where traffic is high, it would make sense. We can have electrification in the future, but [for now] it will be diesel locomotives.”

There have also been conflicting reports circulating the market early this year, with regards to the possibility of the high-speed railway line that will run between Abu Dhabi and Dubai.

“What we said was that our priority is on the 1,200-kilometre mixed-traffic network,” said Bowker. Last year, he had said that if ever there were a railway line to be justified, then the Abu Dhabi-Dubai-Sharjah line was it.

Initial feasibility studies carried out last year showed that there is a strong demand for a high-speed passenger line between the two emirates. However, the cost of building the high-speed line is not included in the budget set aside for the federal railway. Therefore, it unclear if financing can be secured to develop it.

In September 2010, Etihad Rail appointed Swiss bank UBS as financial adviser. The bank was due to provide financial advice in developing a financial plan for the construction and operation of the national railway.

In April, Bowker said that in the “relatively near future we will make some decisions”. However, no firm decision has been made since.

Rail advantages for the UAE

The benefits of building a federal railway have been well-documented. For the UAE, the railway offers significant benefits to the economy and society through the introduction of a completely new industry for the country and the wider region.

There are also advantages in terms of reducing congestion, improving safety and decreasing the environmental impact. Rail is a cost-effective way to move large amounts of aggregates, steel, iron ore and sulphur, as well as large numbers of passengers. One of the major motivations behind the project is to improve the transportation of freight regionally and beyond.

With markets such as Saudi Arabia and Qatar moving ahead fiercely with their own development, the UAE rail network is in danger of being overlooked. Qatar’s $35bn rail programme has already attracted the interest of more than 80 companies just for the first phase alone.

Keeping this in mind, the UAE needs to ensure it does not suffer any more delays or cancellations if it is to keep up with regional competition.

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