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Aug 18 2008

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Middle East economy: New transport links and connections

The Middle East transport map is being transformed through the construction of major new highways and rail links and the expansion of the region’s airports

The roll-call of major transport projects in the MENA region suggests an ambition not just to facilitate the movement of people and goods, but to use these investments to take overall economic development to a higher plane. The Saudi Landbridge bids to revolutionise trading links in the Gulf; the north-south minerals railway in Saudi Arabia will lead to the creation of a huge new industrial complex at Ras al-Zour, producing aluminium and phosphatic fertiliser; the two east-west highways in Algeria will produce new clusters of economic activity alone their routes, and lay the basis for an expansion of trade across the Maghreb; the Dubai World Central airport aspires, as its name suggests, to turn Dubai into the principal hub for global aviation. Urban transport systems are also being upgraded, with the Dubai light railway set to come into service in 2009, and work now getting under way on a tram system in the city. Ground will be broken in November for the third line of the Cairo metro, and the Syrian government has recently published designs for the Damascus metro, which could go out to tender over the next 12 months.

Saudi links

The 1,000-km Saudi Landbridge has been one of the most challenging of the major transport projects in the region. Its main selling point is that it will dramatically improve the freight links between Jeddah—the site of the kingdom’s largest port—and the rapidly expanding capital, Riyadh, whose population is now some 5m. It will also open up transshipment opportunities for both Jeddah and Dammam. With the Landbridge, shippers from the Far East will have the option of using Dammam as a transshipment point to Jeddah and onwards to the European market. Likewise, vessels plying the main east-west route will be able to use Jeddah to send containers up to Dammam and onwards without having to travel round the Arabian peninsula and into the Gulf through the Strait of Hormuz. The total delivery time between the two terminals will be less than 48 hours, compared with up to seven days by sea. However, the project is lagging more than two years behind schedule. The government has had to grapple with complex issues related to the financial structure of the project, and has had to come up with a generous subsidy to ensure its viability. There have also been legal tussles about land acquisition.

Financial offers from four consortia were opened at the end of February, but there has still be no official word on an award—suggesting perhaps that some complications have yet to be resolved. Asciano, an Australian firm represented in Tarabot, one of the four consortia, announced in April that the group had been selected as preferred bidder for the project, which is said was worth some US$6bn. Asciano said that it envisaged holding a 5% equity stake through its Pacific National subsidiary. The other members of Tarabot include Saudi Arabia’s ACWA and Muhaidib groups, Orascom Construction Industries of Egypt, Obrascon Huarte Lain of Spain and BNP Paribas . (Asciano has recently rejected a takeover bid from a US-based equity firm.) The project is based on a 50-year concession, in which the private sector will hold 80%. In a sign that an award could be imminent, the government at the end of July approved the formation of a new company to oversee the Landbridge project.

Three separate groups of Saudi and international (German, Chinese and Australian) contractors are now working on the 1,766-km minerals railway running from the Jalamid phosphate mine in the north to Ras al-Zour on the Gulf, via the Zabiragh bauxite mine. The railway, which is scheduled for completion in 2011, is being financed by a holding company established by the Public Investment Fund , a branch of the Ministry of Finance. About 35% of the finance will be in the form of equity, including a tranche to be offered to the public, with the remainder in loans.

PPP makes its debut

Elsewhere in the region, the public-private-partnership model is being considered for a number of transport projects: the phenomenon is understandable, being born more of financial necessity than choice as in the oil-rich Gulf. The PPP contract for Amman’s Queen Alia International Airport (QAIA) reached financial close in late 2007 and claims to be the first true airport PPP in the region, since the long-delayed concession agreement for the greenfield Enfidha airport in Tunisia, awarded earlier that year, was let on a build-transfer-operate (BTO) basis—a legal obligation. The complexity of the QAIA debt package also illustrates an advantage enjoyed by the region’s worse-off states, in the involvement of the International Finance Corporation—the private sector arm of the World Bank Group—and the Islamic Development Bank : other development institutions such as the African Development Bank and the European Investment Bank (EIB) are also heavily involved in the region’s infrastructure funding—the EIB has even suggested that it could contribute towards the Damascus metro in a PPP guise.

SOURCE: Business Middle East