GCC's rail challenge

A new regulatory framework needs to be created by member states

Nicholas Williams.
Nicholas Williams.

From the time hydrocarbons were first discovered until relatively recently, the GCC’s economy has largely been based on oil.

However, an advanced national and regional transport infrastructure has become increasingly important to support aggressive growth targets based on diversification – and an integrated GCC railway network is central to this.

Such a network will also promote economic cooperation between GCC countries and enable goods to be transported over longer distances more efficiently than by road, more quickly than by sea and more cheaply than by air

In 2009, it was announced that a GCC regional network could be operational by 2017, linking Kuwait City to Muscat in Oman, running down the southern side of the Arabian Gulf and serving Saudi Arabia, Bahrain, Qatar and the UAE.

The proposed length of the GCC Railway main line is approximately 2,177km, including around 180km of connecting lines to key traffic generators such as ports and industrial zones. The plan is that each country will build its own branches, stations and freight terminals to feed the core network.

However, a major technical challenge exists in the form of the extensive desert environment in which the network is being built, making both construction and maintenance difficult. An added complexity is a slow and unpredictable planning process arising from the need to integrate the network into newly developed urban regions.

The success of the network will also rely on the operating model which will affect all major parts of the rail value chain including infrastructure ownership and maintenance; rolling stock ownership and operations and sales.

Global best practice varies from the fully integrated to the highly fragmented. For example, the United States’ freight railroads are fully integrated and privately owned. The UK rail industry has a publicly owned rail network infrastructure with private operators.

France and Germany focus entirely on public ownership. New high-speed rail systems in Spain, Portugal, Belgium, and the Netherlands are partly based on public and private infrastructure ownership and maintenance, as well as concessions for operations including leasing of rolling stock. All options have specific advantages and disadvantages.

The total cost of the GCC rail network is estimated to be $15.5bn. However, some commentators have argued that this is an unrealistic estimate and the real cost could end up as high as $30bn. Even at the lower end of the range, obtaining funding in each country will not be without challenges.

The limited experience in the public-private partnership (PPP) funding model within the GCC is also an issue. PPP funding mechanisms have been mooted in the GCC region to help cover massive rail project costs. It was intended that the $7bn, 171km Kuwait Metro project across Kuwait City should be funded by a PPP model, but this initiative appears to have stalled.

It will be essential to the success of the GCC network that the six-member nations provide a GCC-level regulatory and legal framework under which the respective national authorities can deliberate and agree on technical, safety, commercial and legal issues.

This will be exacerbated by legal complications at the domestic level, due to the fact that rail development is a relatively new sector to most of the countries involved; but it will be crucial for the successful implementation of the project. Some of the decisions will require great political will and government financial support will also be critical.

However, projects in the member countries are progressing, and there seems to be an air of optimism, so it will be interesting to see how quickly the significant milestones will be achieved in the coming months and years.

Nicholas Williams is a partner at Simmons & Simmons

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