Going Off The Rails

Gulf governments must put aside their differences if they are to turn the dream of a pan-GCC railway into reality. Published in Bloomberg Businessweek, 1 July 2014

It takes almost four and a half hours to trundle along the 449 kilometres of rail line from Riyadh in the dusty centre of Saudi Arabia to Dammam on the Gulf coast. Right now it is the longest passenger journey you can take by train in the GCC, but if the plans of the region’s governments are realised, within a few years you should be able to go much further, from Kuwait City all the way along the Gulf coast and across the Hajar mountains to Muscat. The total network will be around 2,177km long and the trains will speed along it at up to 350km/h.

However, turning such ambition into reality is not easy and at times it seems as if the project is moving at the speed of an old-fashioned handcar rather than that of a modern, high-speed train.

The GCC governments have set themselves a deadline of 2018 to complete the network, but they are all but certain to miss this goal. While some services will be up and running in four years’ time, it will not resemble a coherent network until well into the next decade.

“It is very unlikely that the whole planned GCC railway network will be completed by 2018,” says Tim Risbridger, head of transportation and infrastructure at EC Harris, a construction industry consultancy firm. “Currently, only the UAE and Saudi Arabia are actually building their sections of the network whereas the other countries are at various stages of the planning process. Significant portions are likely to be in place by 2018, but most indicators now suggest the entire network won’t be fully operational until 2020 or 2021.”

Even that timeframe might prove to be rather optimistic for certain sections. Kuwait, for example, has a long history of delaying big projects and the often-tense relations between Bahrain and Qatar do not bode well for the idea of a rail bridge connecting the two countries.

The railway project has been on the table since 2003 and in some ways the long gestation period serves to highlight problems with the GCC project as a whole. While the six countries have much in common, in terms of language, culture, autocratic governments and a reliance on oil revenues, there is also much that separates them.

“There’s always been this tension between the lofty ambitions of the GCC secretariat and the fact it’s really just a collection of six member states that sometimes have very different priorities,” says Kristian Coates Ulrichsen, the Baker Institute Fellow for Kuwait at Rice University in the US. “They don’t have any mechanism for coordinating their policy or pooling sovereignty like the European Union does with the European Commission or the European Parliament.”

Those tensions have been as apparent as ever in recent years. In May 2009, the UAE pulled out of the monetary union project a few weeks after Riyadh was announced as the home for a new monetary council, a precursor to a regional central bank. A few years later, in 2012, Oman announced it would not support Saudi Arabia’s proposal for a broader political union. A common thread in both is that while Riyadh is keen to push for closer cooperation, the smaller countries are wary of being overwhelmed by their larger neighbour.

Even the rather loose political bonds that now connect the six countries at times seem to be under strain. In March, Saudi Arabia, Bahrain and the UAE withdrew their ambassadors from Qatar in protest about perceived interference in their domestic affairs. Although a truce was later brokered by Kuwait, the diplomatic spat could easily break out again.

Yet, for all these problems, there are also a few good reasons why the railway project might succeed where other attempts at regional cooperation have floundered. The most significant factor is the potential economic gains.

“The main benefits from the GCC rail network will be the provision of cheaper, easier, more effective transportation of goods and products,” says Mohammad Alkhas, chief executive officer of Aramex, a UAE-based logistics company, which operates in the region.

Proponents of the GCC railway point to a host of other benefits that could come from the project, from the jobs it will create, to the environmental benefits of taking trucks off the roads, and the creation of an alternative freight route which bypasses the Strait of Hormuz. Just as importantly, with each country developing its own section, there will be no obvious loss of sovereignty.

Such relatively prosaic schemes have worked before, most notably the GCC power grid that was completed in November 2012. The idea had been conceived in 1986, so it took a long time to develop, but it nonetheless shows the six governments can work together at times.

“The GCC power grid could be a useful precedent for the GCC railway,” says Coates Ulrichsen. “It could well be that these non-political, technocratic issues involving investment in infrastructure are the way forward. These are practical steps they can take while they leave the big ticket political items that they’ve never been able to agree on to one side.”

On the other hand, there is not a great deal of intra-GCC trade, because most of the economies produce the same commodities that get sold to other parts of the world rather than to each other. According to the Gulf Petrochemicals & Chemicals Association, an organisation very much in favour of the railway, the value of cross-border trade in the GCC hovers around 3 percent of regional GDP.

That goes some way to explaining the lack of urgency being shown by most governments. Even Saudi Arabia and the UAE, which have made the most progress to date, will find it hard, if not impossible, to meet the 2018 deadline to complete their sections.

In the case of Saudi Arabia, the GCC railway forms just one part of a heavy workload for its rail sector. It is also developing the North-South line to link mines in the north with industrial facilities on the Gulf coast, the Landbridge project which will run from coast to coast, and a high-speed line serving Mecca, Jeddah and Medina in the west.

Elements of some of these lines could form part of the GCC network, including the section from Ras al-Zour to Jubail, that is part of the North-South line, and the link between Jubail and Dammam, which forms part of the Landbridge. However, that still leaves long sections that need to be developed going north from Ras al-Zour to the border with Kuwait and south from Dammam to the UAE.

In other countries, the GCC railway will also form just part of wider national networks. In the UAE, for example, the first stage of what is known as Etihad Rail is currently under construction. Once complete it will be used as a freight line, transporting granulated sulphur from inland sites to Ruwais on the coast. The 264km route will be operated by in partnership between Etihad Rail and DB Schenker Rail, a subsidiary of Deutsche Bahn.

A second stage will fill out the network in Abu Dhabi, including links with Saudi Arabia at Ghweifat, and with Oman at Al Ain, and bring the rail line up as far as Dubai. A third and final phase will connect the Northern Emirates.

The link between the UAE and Oman will present one of the most significant physical challenges to the entire GCC railway project, according to Risbridger, although it is far from the only one.

“Some of the biggest challenges are land and property acquisitions and services diversions in built-up areas, and sand movement in desert areas,” he says. “The section between Al-Ain in the UAE and Sohar in Oman passes through the Al-Hajar mountains, which rise to 10,000 feet. This terrain makes this section the most challenging of the whole GCC rail route.”

Another issue, for some of the countries at least, is finance. Until the final route has been decided and construction contracts have been awarded, it will not be clear just how much the entire project will cost, but it is certain to be in the tens of billions of dollars. The repeated revisions to the plans over the years have added to the costs, but for most countries it will still be affordable. Bahrain and Oman, however, are liable to need some help from their richer neighbours.

For now, Bahrain is still finalising where the lines should run. The link between Bahrain and Saudi Arabia will be a new crossing which runs parallel to the existing King Fahd causeway, but Manama has yet to finalise other elements. In May, Bahrain’s Transport Minister Kamal bin Ahmed Mohammed said the route of its portion of the railway will be charted within two months.

Oman has been making slighter faster progress. In February, the Ministry of Transport & Communications signed a 25-month contract with Italian firm Italferr for the initial planning phase of its national rail network. Announcing the deal, Minister of Transport & Communications Ahmed bin Mohammed al-Futaisi said that contractors could start work next year. “The pre-qualification tender for contractors hopefully will be floated soon,” he said. “The first contractor will be awarded the actual work early in 2015.”

Things are going less smoothly in Kuwait, where the Communications Ministry put plans for the national rail network on hold in early 2013. The country has long had difficulty in delivering large projects because of the failure of the government and parliament to develop a decent working relationship and it seems the rail project is falling victim to the same problem.

“In Kuwait, you have the problem that the parliament is inherently mistrustful of the government whenever it signs a contract,” says Coates Ulrichsen. “It will scrutinise and if necessary threaten to reopen the bidding. So it’s not a good investment climate in many ways. Unless the government steps in and constructs the rail line with state money they’ll struggle to do anything on time.”

There are also potential problems in Qatar, where the authorities have their hands full preparing for the World Cup in 2022, which may yet be taken away from them, as well as massive infrastructure schemes including a new port and airport. Its long-distance passenger and freight rail, which includes its portion of the GCC railway, is currently under technical and commercial evaluation, according to recent statements by Qatar Rail’s chief executive officer, Saad al-Muhannadi.

Qatar Rail, which was established in 2011, is planning to build the long-distance lines in four stages. The enabling works are due to start in 2015 and the fourth and final section will not be completed until 2030. The first phase will connect Doha to the Mesaieed industrial area to the south and on to the Saudi border. A second phase will run from the new Hamad International Airport via Doha to the causeway to Bahrain. The final two phases will provide connections to Ras Laffan in the north and Dukan in the west.

That timetable suggests that the part of the GCC railway running through Qatar will not be ready by 2018. Srinath Manda, programme manager for the MENA transport practice at consultancy firm Frost & Sullivan, says the World Cup could enforce a more realistic deadline. If Doha does manage to complete its section in the run-up to the tournament it is likely to be one of the first to do so, he says.

“Considering the current stage of the GCC Rail project, it is likely to miss its 2018 deadline,” says Manda. “Two or three countries may be ready by 2020. Country level networks in the UAE and Qatar are expected to be completed, considering the major events coming up in these countries, with Expo 2020 in the former and the FIFA World Cup in the latter.

“The entire network completion could take another three to five years since large countries like Saudi Arabia and Oman are likely to need longer to realise their individual parts.”

All this comes at a time when the GCC governments have been scaling back their spending plans, wary of overstretching themselves in case oil prices start to decline. Whether that could affect the railway’s development remains unclear, but it is a possibility. “The GCC governments could become more selective in their project spending,” says Garbis Iradien, deputy director of the Institute of International Finance in Washington DC. “Unnecessary projects could be postponed or cancelled, while crucial projects or ones where they think there are efficiency gains could go on. I don’t think the GCC Railway would be a priority project. It’s not very urgent so I think it could be postponed, but this is very subjective.”

There are many things that have held back the development of rail lines in the region until now, other than financial issues. For one thing most of the countries are small, so it has made more sense to develop roads rather than rail lines. In addition, the desert terrain is difficult, with shifting sands threatening to swamp lines in remote areas.

If GCC governments can get the railway lines to work, then there are undoubtedly some potential benefits for businesses and the wider economies. Etihad Rail estimates that a single freight train can carry the same load as 300 trucks, and will be far quicker and safer. It should also be cheaper, but for the full potential to be realised it will require some changes to customs procedures, which the various governments may find difficult to agree on.

“For the rail network to maximise its contribution, a number of regional cross-border customs issues, currently being addressed by the GCC Customs Union, will need resolution,” says Alkhas. “If these issues were to be resolved, then we believe a sizeable percentage of land freight could move to rail … [and] rail freight would not only play a major role in driving enhanced cross-border trade, but the costs for suppliers and consumers in moving goods and products across the region will be significantly reduced.”

For passengers, meanwhile, it probably won’t ever make sense to travel the entire distance of the line, unless you are a big fan of watching desert landscapes gently unfurl beside you, but shorter journeys on certain sections would make a lot of sense. It would be far easier to get a train from Doha to Manama than to fly for example, and the option of hopping on a train from Abu Dhabi to Dubai would be enticing for those unnerved by the standard of driving along the E11 highway.

For most of the countries involved, the GCC rail line will be the first railway ever, so a cultural change will be needed. However, the experience of the Dubai Metro suggests that is an obstacle that can be overcome. There were many sceptics when the network was being built, but at rush hour these days the trains are packed.

In its early days, Dubai Metro faced its own fair share of challenges, but it will be nothing compared to the ups and downs the GCC railway project will face in the years ahead. The technical and financial obstacles are ones the region’s governments can deal with. The real test will be whether they have the political will to do it.