The Development of Railway Infrastructure Projects in the GCC

The Development of Railway Infrastructure Projects in the GCC

By: Samuel Shay, January 2022

OVERVIEW

The GCC Rail Project is an integrated regional project that would cater to the transportation needs of the GCC countries. The project will connect all GCC countries and will provide an alternative model to the road, air, and sea transportation. It is also expected to significantly contribute to the region's economic growth diversify transport modes and reduce cost. The project will also promote and facilitate regional trade and support the national industries of the GCC and neighboring countries, as well as provide employment opportunities for the GCC nationals, and build the required institutional capacity for the development of the railway industry.

King Hamad Causeway project will connect the Kingdom of Bahrain to the Kingdom of Saudi Arabia with a causeway that will be constructed parallel to King Fahd Causeway and will include four lanes road and two rail tracks. The 75-kilometer railway will link the proposed freight yard at Khalifa Bin Salman Port to the existing railway line in Dhahran passing by the proposed King Hamad International station in the Ramli area in Bahrain. The line is eventually linked to the Dammam railway station.

The number of passengers using the GCC railway is expected to reach about 8 million passengers per year by 2050. Dammam railway station will be connected to all domestic railways in the Kingdom of Saudi Arabia, while the passenger terminal at King Hamad International station in Ramli will be connected to the passenger terminal at Bahrain International Airport and other commercial and residential areas in the Kingdom through the proposed Bahrain metro network.

The four lanes road of the new causeway will also increase the capacity of the existing King Fahad Causeway, and resolve the traffic congestion problems on the causeway. The freight yard located near Khalifa Bin Salman Port will facilitate the transportation of 600,000 containers and 13 million tons of bulk freight, which will boost the commercial operations at the port and make the Kingdom of Bahrain a major logistics hub.

King Hamad Causeway project will be executed in partnership between the Ministry of Transportation and Telecommunications in Bahrain, the Ministry of Transport in Saudi Arabia, and the King Fahd Causeway Authority. King Fahd Causeway Authority, in coordination with the Ministry of Transportation and Telecommunications in Bahrain and the Ministry of Transport in Saudi Arabia, has launched a tender for transaction services. The bids were received and evaluated, and the Transition Advisor consisting of KPMG (Financial Advisory), AECOM (Technical Consultant), and CMS (Legal Consultant) was appointed in November 2019.

“A flagship railway project designed to connect the Gulf Arab states is scheduled to launch in a few years. By bypassing Qatar, the project raises questions about prospects for full economic integration in the Gulf region in the midst of a regional financial crisis”.

A new project connecting the Gulf Arab states via national freight and passenger railways, inspired by a vision to enhance Gulf unity, will exclude Qatar when it is launched sometime between 2021 and 2023. As a member of the Gulf Cooperation Council (GCC) along with Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Bahrain, and Oman, Qatar’s exclusion raises doubts over prospects of better economic integration in the Gulf region amidst the current financial crisis. Conceived in 2009, the GCC Railway plan recognized the need to reduce Gulf reliance on oil and create efficient public transport and freight systems to support Gulf nations’ plans for growth and development over the next decade. The project was originally expected to be completed in 2018.

To reach the initial goal, Qatar’s participation in the railway venture was reconfirmed at the 37th GCC Summit held in Bahrain in 2016. Designed to connect Saudi Arabia to Qatar, the project prompted Qatar Rail to enhance interconnectedness with railways at its Abu Samra border with Saudi Arabia and in Bahrain. Qatar earmarked an additional investment of US$ 74 billion to develop cargo transportation at its Hamad Port – the country’s main seaport. But GCC financial challenges, including US$ 260 billion in loss resulting from an oil price collapse between 2014 and 2015, and the subsequent failure of the market to recover, delayed infrastructure spending on the Gulf Railway project. Besides Qatar, Saudi Arabia was the only other GCC state that completed major parts of the project’s 663 km railroad track in 2016.

The government-backed rail developer Etihad Rail which manages the UAE’s US$ 11 billion rail network – suspended tenders for a critical 628 km extension in the second stage of the project that would have linked Al Ain on the border with Oman to Ghweifat on the Saudi border in 2016. A year later, the UAE cautiously resumed bids to invite international investors to build its portion of the GCC railway.

Similar investment challenges pushed Oman to halt the construction of its railroads in 2016. Oman earmarked funding for a 375 km national rail network to transport minerals from Dhofar on the border with Saudi Arabia to Port Dugm on the Arabian Sea, which would have been interoperable with the GCC railway by 2018.

The rail sector in the Gulf Cooperation Council (GCC) area is rapidly evolving. In recent years, member states have gradually realized the importance of developing this aspect of the region’s infrastructure and the key role the rail industry can play in the diversification of economies and in facilitating GDP growth.

As of 2017, there were estimated to be over 1,380 active transportation projects in the GCC spanning the four key transportation sectors (rail, road, aviation, and maritime), with a total project value of nearly US$380 billion. A significant proportion of this investment has since gone towards developing the GCC’s rail infrastructure, most notably a GCC-wide project known as the GCC Railway Project. With an estimated cost of over US$240 billion, the GCC Railway Project is set to be one of the largest contemporary cross-border rail networks in the world, linking key cities across the GCC, into an integrated, pan-Arabian route of over 2,117 km. Originally tabled for completion in 2018, it is now expected to be completed in 2021.

A second major rift in the GCC Railway project came when Saudi Arabia, the UAE, and Bahrain imposed a blockade on Qatar for taking independent foreign policy stances in 2017. The blockade against Qatar changed the GCC railway designs to link Kuwait City to Dammam in eastern Saudi Arabia and Dammam to Qatar through the Salwa Canal. The railway would then link Qatar to Bahrain via a bridge, and Bahrain to Saudi Arabia through the King Fahd Causeway.

New design plans for the GCC railway will link Saudi Arabia, the UAE, and Oman in the first phase, which is expected to be finalized between 2021 and 2023. The second phase will connect Kuwait and Bahrain to other GCC states in 2025. Bahrain will develop the King Hamad Causeway, to build two tracks extending between Bahrain and Saudi Arabia, and as a causeway over the Persian Gulf—both of which will bypass Qatar. The Kuwait National Railroad will link Kuwaiti seaports to other GCC states, one connecting to Nuwaiseb on the Saudi border.

The updated US$ 15 billion railway project, which is estimated to really cost US$ 250 billion including the integrated national railways, will facilitate trade through a 2,117 km rail network and generate 80,000 jobs. But appealing to lenders and the public to invest in the railway system requires stability and steady rates of economic growth for the Gulf states. Foreign Direct Investment (FDI) flows to the GCC states have weakened over time, as their economies could face recession and shrink by 7.6 percent this year due to the recent oil crash and global pandemic, according to the International Monetary Fund (IMF). Saudi Arabia’s economy will face a 6.8 percent contraction this year alone.

This puts the future of the planned high-speed railway at risk. The GCC will continue to serve as a trade hub to meet the needs of the region’s rapidly growing population, and as an emerging market in which the potential for railways is strong. However, its efforts to integrate Gulf economies through the railway could falter given the lack of internal unity. Like all other GCC states, Qatar suffers from low oil prices. But the country exports gas from its giant Dome Field and has created a more diversified economy since the blockade was imposed. According to the IMF, Qatar’s economy remains robust which means that its exclusion from the GCC Railway project could be a loss for the rest of the region.

Still, there is substantial potential to boost exports in the GCC, given large export gaps in Kuwait, Oman, and Saudi Arabia followed by Qatar, with only the UAE not showing a negative export gap, according to an IMF report published in 2018.

As a result, Qatar, Oman, and Kuwait are discussing a free-trade zone independent of the GCC, which could compromise the railway project if Qatar is excluded. Qatar has conducted trade with Kuwait at an annual trade exchange growth rate of 27 percent since 2016, which reached a peak of US$ 534 million a year after the blockade in 2018. It provides 40 percent of foreign investments in Kuwait and exports gas to the country. Qatar trades with Oman as well, a country whose railway network will span 2,144 km to connect three deep seaports in Oman with other industrial areas in GCC countries. Qatar-Oman trade volume increased by 240 percent in 2018.

These realities show that there is a great deal of room to enhance intra-GCC trade. The GCC depends on imports to meet consumption and investment needs, far exceeding its non-oil exports which show a balance in constant deficit. But intra-GCC trade remains modest, despite low regional trade barriers, accounting for only 10 percent of total non-oil trade in 2016, suggesting weak regional economic relations—a consequence of relying on similar economic structures.

Qatar has proven to be able to absorb economic shocks better than other GCC states by diversifying its economy in the face of the oil price plunges and blockade given that it is not a major oil exporter. While it is not yet clear what Qatar’s exclusion from the railway venture entails in terms of actual numbers, the country has already developed alternative intra-Gulf trade routes that bypass the GCC Railway Project and weaken prospects for a full Gulf regional economic integration.

“The rail sector in the Gulf Cooperation Council area is rapidly evolving. In recent years member states have gradually realized the importance of developing this aspect of the region’s infrastructure and the key role the rail industry can play in the diversification of economies and in facilitating GDP growth.”

Unsurprisingly, there are a number of risks and challenges when embarking on an infrastructure project of this nature. There is a delicate interplay of issues that need to be evaluated and reconciled, including construction and engineering risks (linked to the design, engineering, and technical complexity of the project), financial risks (such as cost overruns and securing third party funding), social risks (public perceptions regarding the project) and political risks (such as policy and regulatory uncertainties and changes). If not properly assessed, managed, and monitored these issues can potentially cause delays to the completion of the project, further cost overruns, and regulatory infringements. There can also be significant complications when obtaining stakeholder consent for the proposed route.

Lack of adequate risk management at all stages of the value chain and throughout the life cycle of a rail project is a common issue, largely as a result of poor risk assessment and contractual risk allocation during the concept and design phases of a project.

Interface risk between the contracting parties and key third parties/stakeholders (such as other contractors, existing rail operators, and users) in addition to the interface risk associated with the assets involved in the project, for example with respect to the rail equipment, track, and materials to be used, means that potential issues need to be identified and assessed early in the project’s development with a strategy advanced in order to manage such risks.

Furthermore, the parties must ensure such issues are adequately addressed in the underlying contract, for example by identifying interface issues with existing properties, infrastructure, and utilities. This may also be undertaken by ensuring, amongst other things, that the contract contains adequate collaboration and cooperation provisions as well as clear design and specification obligations. Alternatively, a separate project-specific interface agreement may be agreed upon alongside the construction contract in order to add clarity in this respect.

The design of a project is obviously an integral factor as to whether or not it will be a success, meets the approval of stakeholders, is fit for its intended purpose and thus able to operate safely and in accordance with the required parameters. It is therefore imperative that a professional team, of design consultants and contractors with industry-specific knowledge and experience of working in the rail sector, is engaged. This will help reduce the likelihood of issues arising later in the project.

Not having the required licenses, permits, and consents in place can have a significant impact upon the program of a project (not least as this can significantly delay the obtaining of key approvals). Proper attention should therefore be given to obtaining the required development consents through ensuring early contractor involvement in the planning and application process. This should include identifying any property owners that may be impacted by the works in order to obtain the required consent.

The Benefits

Despite the many challenges and complexities associated with developing rail projects, there are also potentially a number of far-reaching, long-term benefits.

One obvious benefit of developing the rail infrastructure is that enhanced railway links enable individuals, goods, and services to be transported more easily and effectively both within and between GCC states. More efficient and cost-effective transport for people, goods, and services will contribute to developing tourism and commerce in the region, thus enhancing the region’s economy.

The primary mode of freight transport is currently by vehicle, which can be slow, inefficient, and expensive, as well as environmentally damaging. The use of rail will enable greater quantities to be transported within a shorter period of time and at less cost, facilitating more efficient trade. Railway hubs will require staff to operate and maintain the facilities. There will also be a need to service both staff working at and passengers traveling to, from, or through such transport intersections, creating employment, retail, and other investment opportunities.

Developing rail transport in underdeveloped areas can act as a catalyst for regeneration, for example by connecting urban hubs with remote rural areas. If planners can ensure that they interconnect these regions with other transport services, such as airports, ports, and other local transport infrastructure, this can help encourage inward investment and economic growth in such areas.

The environmental benefits must also not be overlooked. Whereas presently the majority of passengers and freight are transported within and between GCC states by either road or air, rail investment will eventually enable a greater volume of people and goods to be transported in a single journey, reducing the amount of heavy vehicle traffic on roads and lowering the average carbon footprint per journey.

NETWORK

The planned railway would begin at Kuwait City, pass through Dammam and Al-Batha Port in Saudi Arabia, Abu Dhabi and Al Ain in the UAE, and then enter Oman through Sohar before terminating at Muscat. From Dammam, branches will link to Bahrain through the proposed King Hamad Causeway, and to Qatar via Salwa port. The proposed Qatar–Bahrain Causeway between Bahrain and Qatar will provide additional connectivity.

Three stations are proposed to be constructed in Bahrain. After entering Bahrain from Dammam, the first station on the line will be at Khalifa bin Salman Port, followed by stations at the Bahrain International Airport and Amwaj Islands. From Amwaj, the line will head to Qatar.

INFRASTRUCTURE

A GCC Rail Authority was proposed to be established to oversee the development of the network. However, no authority to oversee the project has been established, and countries are currently independently carrying out rail projects within their territory.

The Gulf Railway is expected to boost free movement in the GCC by providing unhindered travel from Kuwait to Oman. GCC nationals have visa-free entry to each other's countries. The railway is also expected to boost intra-GCC trade by providing freight transport services. According to Abdul Rahim Hassan Naqi, Secretary-General of the Federation of the GCC Chambers of Commerce and Industry, the railway will provide more than 80,000 direct and indirect jobs once it is made operational.

Israel To Begin Promoting Railway Linking Haifa Seaport With Saudi Arabia

Prime Minister Benjamin Netanyahu and Transportation Minister Israel Katz agreed this week to begin promoting their “Tracks for Regional Peace” initiative that is intended to create a trade route connecting Europe with the Persian Gulf and Israel, Hadashot news reported Saturday evening.

“Tracks for Regional Peace” is based on the planned extension of railway tracks in northern Israel, which would link Haifa’s seaport to Jordan’s rail network, which in turn will be linked with that of Saudi Arabia and other Sunni Arab states. The network is envisioned as creating a regional transportation system to enhance trade relations and promote peaceful coexistence.

Prime Minister Benjamin Netanyahu and Transportation Minister Israel Katz agreed this week to begin promoting their “Tracks for Regional Peace” initiative that is intended to create a trade route connecting Europe with the Persian Gulf and Israel, Hadashot news reported Saturday evening.

“Tracks for Regional Peace” is based on the planned extension of railway tracks in northern Israel, which would link Haifa’s seaport to Jordan’s rail network, which in turn will be linked with that of Saudi Arabia and other Sunni Arab states. The network is envisioned as creating a regional transportation system to enhance trade relations and promote peaceful coexistence.

Goods would be shipped from Europe to Haifa, allowing them to bypass civil war-torn Syria.

“There are two central components at the heart of this initiative,” Katz explained when discussing the plan back in April. “Israel as a land bridge between Europe and the Mediterranean and Jordan; and Jordan as a regional transportation hub, which will be connected to a railroad system to Israel and the Mediterranean in the West; to Saudi Arabia, the Gulf states and Iraq in the East and southeast; and to the Red Sea, through Aqaba and Eilat, in the south.”

“Beyond its contribution to Israel’s economy, the Jordanian and the Palestinian economies, the initiative will connect Israel economically and politically to the region and will consolidate the pragmatic camp in the region,” he claimed.

The initiative is said to also offer shorter, cheaper, and safer trade routes in light of regional instability threatening passageways through the Strait of Hormuz in the Persian Gulf and the Bab al-Mandab Strait at the southern end of the Red Sea.

In a meeting this week, Katz and Netanyahu reached an agreement regarding the details of the initiative, with the latter instructing his office to begin advancing the plan in consultations with the US, European Union, and various countries in the Middle East and Asia.

Israel is expecting the US to play an important role in providing political backing for the plan.

Responding to a Times of Israel query on behalf of Greenblatt in April, a White House official said the proposal was “interesting,” but said the US does not yet have an informed position on it. While Katz has said that he has spoken with the leaders of the relevant countries regarding the initiative, there is no indication that any of them have agreed to its application.

The transportation minister, who opposes Palestinian statehood, has argued that connecting Israelis and Palestinians with the Sunni Arab world would dramatically increase trade and lay the groundwork for future regional peace.

Israel, EU Discuss Possible Rail Link Between the Mediterranean And Gulf States

JERUSALEM (Reuters) - Israel and the European Union (EU) have launched talks to deepen economic cooperation and discussed the possibility of creating a new trade corridor between the eastern Mediterranean and Gulf states, Israel’s Finance Ministry and central bank said on Monday.

The idea of establishing a “regional peace railway” that would boost the economies of Israel, Jordan, the Palestinian Authority, Saudi Arabia, and other Gulf states came up during annual discussions that also focused on the impact of the coronavirus crisis.

The new railway, the Bank of Israel said, would be a “shorter, faster, cheaper and safer” way to connect the East and West than current trade routes. It did not give any other details regarding the feasibility of such a project. The discussion came after Israel recently signed historic deals to normalize ties with Gulf states Bahrain and the United Arab Emirates.

CONCLUSION

Developing railway infrastructure is back on the agendas of governments across the GCC. There is a healthy and encouraging portfolio of ongoing and pipeline projects which, once completed, will have potentially significant and far-reaching effects for individuals and commerce. Yet the true measure of success will only really be quantified not solely by reference to contractual milestones and economic indicators but by the projects’ social impact and the positive legacies they leave for generations to come.