Jordan Links To GCC Network, Opportunities Abound

On the back of continued regional unrest and an attempt to fuel its dull economic outlook (we forecast real GDP growth of 1.9% in 2013, with risks tilted largely to the downside), the Jordanian Ministry of Transport has approved plans to build a 509km rail corridor in a bid to integrate its domestic network with Saudi Arabia and the Gulf Cooperation Council (GCC). The four-year (2013-2017) North-South corridor will run from the Syrian border, via Port Aqaba (first phase), before it connects with Saudi Arabia's 2,750km North South Line at the border and stretches all the way down to Riyadh.

Little information concerning the fine print of the deal has been announced, and the financing - in whatever format - remains a potent risk. However, the statement highlights the opportunities for construction majors in the region - especially western ones, due to their expertise, historical ties and geographical proximity.

Connecting The Dots

According to official Saudi data, as much as US$100bn may be spent on more than 6,000km of track in the GCC by 2020. On the back of that the region's wealthy oil producers are expected to pump US$16bn into their ambitious inter-GCC rail-network project, which is currently one of the largest rail ventures in the world. A feasibility study is scheduled for Q114, after which the project will be launched and then expected (hoped) to be operational in 2019.

To date, the only operating major rail systems in the GCC are the 60-year-old freight and passenger link between Riyadh and the port of Dammam in Saudi Arabia, and Dubai's new metro line. However, the UAE and Saudi Arabia have together already constructed 200km of railroad as part of the inter-GCC rail project.

One Union, Finally?
GCC Rail Network

Plenty Of Bounty

The benefits of such cooperation are plentiful. Stronger economic ties and a common market could bring plenty of bounty for the currently loosely grouped GCC members (Kuwait, Saudi Arabia, Bahrain, Qatar, UAE and Oman). The proposed rail-link would give a strong push to the common market and increase intra-regional trade and investment. The network could also connect remote mountain areas of the wider GCC, which have largely failed to benefit from the region's petrodollar wealth.

A case in point, several ports in the GCC are looking to expand their current capacity on the assumption that they will eventually be connected to the network - a potent example being the port of Salah in the far south of Oman, which is expected to double its cargo handling capacity by 2014. The latter could become a major link between the GCC and the outside world, comfortably located outside the roam of the treacherous Strait of Hormuz.

The network could also bring further geo-political rewards and stability by potentially integrating into its prosperous union countries such as Yemen, which is currently left outside, torn by insecurity and violence.

The UAE Building Its Share
UAE Rail Network

Too Many Chefs In The Kitchen?

High oil prices and solid sovereign wealth funds makes the hefty price-tag still a surmountable target for its members. Hence, any financial woes are unlikely to halt the project. However, bureaucracy, politics and pride might. Currently, all GCC members and Jordan are individually pursuing their targets and segments of the GCC railway system alone, with little integration across the board. There holds particular difficulty in making six distinct national rail systems compatible with each other. For example, the Omani transport ministry has announced that their trains will run on electricity, whilst other GCC states have agreed on ones powered by diesel. The regions tiresome customs procedure is another issue that could stop the network in its tracks. There is also the technical challenge of building one of the world's biggest rail networks on shifting sands in remote deserts.

Still, despite these challenges, we are seeing stiff competition amongst the big construction players, equity as well as debt investors; all on the hunt for attractive contracts and yields. In fact, on the back of a stagnant West and a slowing East, we note a plethora of global engineering players with an increased presence in the GCC. Notable examples being, US giant Bechtel, South Korea's SK Engineering & Construction and from Europe Alstom, Vinci, OHL and Saipem.


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