Oil price drop raises questions over Gulf rail projects

13 January 2016

The fall in oil prices has raised the risk that rail projects in the Persian Gulf could be cut back, according to a lawyer based in the region who specialises in rail transport.

Yvonne Cross, a Dubai-based senior associate with law firm Ashurst, said it “remains to be seen how the impact of the significant drop in oil prices might affect future construction plans”, including work on the GCC railway.

This is despite the increased confidence in public transport within a region traditionally dominated by road transport.

In 2014 Cross co-authored Runaway Train, an Ashurst report on rail projects in the MENA region.

Cross said projects with budgets already allocated, along with a serious community need, are likely to proceed. But she added those with less established budgets and business cases “may find themselves shelved for the time being – or at least scaled back or ‘value engineered’", as lower oil prices make road transport cheaper.

According to Cross the main driver for the GCC railway – which will consist mainly of freight traffic - is to ease pressure on roads, and, to a lesser extent, sea freight.

Another important factor is to improve inter-connectivity amongst GCC member states, increasing volume and efficiency of trade in the region and to improve the ease of doing business between member states.

“[This could]… potentially drive an economic boost that is not oil dependent,” she said.

Cross cited the success of the Dubai metro, which had far exceeded expectations since opening in 2009, as a factor which had increased confidence in public transport in the Gulf.

“This willingness of passengers to embrace public transport in the region has certainly increased the confidence of regional governments in passenger rail procurement,” she said. This was particularly visible in Dubai rail operator Etihad Rail’s desire to include a passenger link from Dubai to Abu Dhabi in its procurement of the National Railway Network.

Cross said this was a change from the original freight-only focus of the network.

There were also metros being constructed in Riyadh and Doha, the planned procurement of metros in Makkah, Jeddah and Kuwait and further metros in the early planning stage in Dammam and Madinah.

Cross added it was likely that a joint venture procurement process between Etihad Rail and German company DB Schenker Rail to run the first stage of the UAE National Railway Network was likely to be replicated elsewhere in the region.

She said the process had provided transparency and had “encouraged knowledge sharing while ensuring Etihad Rail remained an active participant in its operation and maintenance”.

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