Financing one of the main challenges in rail projects

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By Ahmed A. Namatalla, Staff Reporter  www.gulfnews.com

Abu Dhabi: Structuring and finance procurement are the main challenges facing Gulf rail projects, industry heads concluded at the first session of a regional rail conference held on Monday.

In order to speed implementation of planned rail projects in the Gulf Cooperation Council (GCC), including a $20-$25 billion (Dh74-Dh92 billion) track linking all six member states, governments are being forced to assume more of the risk and use public funds to finance these projects.

Countries that have tried to use a full public-private-partnership model, such as Saudi Arabia, have had to assume more control of their projects because of the lack of historical transportation data which would be used by lenders to assess risk.

Reliable data

“If you want to do it correctly, you have to have reliable historical data on traffic patterns, people and cargo movement,” Frank Beckers, head of the Middle East, Africa and Asia Project and Capital Advisory unit at Deutsche Bank, said during a panel discussion at MEED’s Middle East Rail Projects 2009 conference.

“If you don’t have those numbers, it’s very much like looking into a crystal ball because you have to predict how much is going to be taken away from other transportation modes,” he added.

Sufficient funds

But a project structure in which a government regulator assumes more of the risk may not necessarily be a bad option for GCC countries as their governments hold sufficient funds to see their projects to profitability in the long term.

Joss Dare, a partner at Ashurst, a legal consultancy which served as an adviser on the Dubai Metro project, said more government control of rail projects means speedy implementation and avoidance of conflicts that may result from conflicts of interest between the designing, construction and operation and maintenance companies.

“One of the challenges is making sure you’re continuing the build process in a safe and timely manor,” Dare said of the ongoing construction of Dubai Metro’s Red and Green lines.

“And it’s a challenge I think [the Dubai government] is meeting very well.”

GCC countries have announced rail projects worth more than $100 billion including high speed train lines and light and heavy city metro systems.