Better together: Changes are under way in transit system privatisation for rail and road

If all goes according to the transport authorities’ plan, by 2030 30% of trips taken in the emirate will be handled by public transit – more than triple the 9.5% for recorded in mid-2011. Owned and operated by the Roads and Transport Authority (RTA), Dubai’s public transit system includes local buses, inter-city buses, marine transport and a two-line metro.

ON TRACK: The relatively new Dubai Metro has offered a healthy fillip to RTA’s efforts. The Red Line, during its first two years of operation, has seen impressive growth. Annual ridership grew 50%, from 38.8m in 2010 to just over 60m in 2011. Completed in September 2009, the line runs from Jebel Ali to Rashidiya via Sheikh Zayed Road, an artery highway linking Dubai to neighbouring Abu Dhabi. The Green Line, completed in September 2011, has also shown promise. Running between Dubai Creek and Etisalat, the line carried nearly 9m passengers during its first three months of operation, according to data from the Dubai Statistics Centre.

With ridership rising faster than anticipated, the authorities are taking steps to boost the system’s efficiency and prevent trains from becoming overcrowded. In July 2012 the RTA announced a plan to introduce four express trains on the Red Line. The trains, which began services in late 2012, stop at 13 out of the line’s 27 stations, reducing travel time for commuters. The current plan introduces the express trains in the early morning, leaving open the possibility of introducing other express services at a later date.

Following the opening of the Dubai Metro, RTA has lined up a $1.1bn light rail project to link Dubai Marina to Burj Al Arab and Mall of the Emirates via the Al Sufouh district. The project began in 2008 and was initially scheduled for completion in 2011. In the wake of the global economic downturn, however, planners pushed the completion date back to ensure that there would be adequate capital for construction. In February 2012 Dubai’s Department of Finance announced a dual-currency financing model totalling $675m to fund the project’s first phase. The facility is made up of a 13-year, $401m loan that will amortise beginning in 2015 and a six-year, $274m Islamic ijara facility. The latter is split evenly between dollars and dirhams and is set to begin its three-year amortisation in 2015. Citibank, Deutsche Bank and HSBC arranged and underwrote the financing. Authorities now expect the project’s first phase to be up and running in the first half of 2014, Adanan Al Hammadi, the CEO of RTA’s Rail Agency, told local press in June 2012.

The tramway’s first phase, 10.7 km of track covering 13 of the line’s 19 total stations, has an expected price tag of Dh4bn ($1.08bn), according to the RTA. France-based Alstom and UAE-based Cofely Besix Facility Management are leading the consortium constructing the line. In February 2012 the consortium also won a 13-year, $156.54m maintenance contract for the future light rail’s rolling stock and fixed installations. As of late 2012 the project was still progressing though beginning to near completion, according to the RTA.

A DIVERSE STREAM: As the RTA expands the reach of public transit through heavy investments in the metro and light rail, it is also looking for more sources of capital to continue funding projects in the future. Over the past 10 years, stakeholders in Dubai have discussed possibilities for diversifying revenue streams for public transport on a number of occasions. Rather than solely relying on public funds for investment, the system could generate capital from users, private investors and other stakeholders. Such a model, proponents of this approach contend, would more accurately reflect and distribute the system’s costs.

The authorities have taken concrete steps to make partial privatisation a reality. In January 2011 the RTA submitted draft legislation for partial privatisation. The project gained momentum in October 2011, when Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, the chairman of the Dubai Executive Council, issued two resolutions clearing the way for increased private investment in public transport. One resolution granted the RTA’s Public Transportation Agency (PTA) the authority to issue bus and bus station operation licences to private operators. The other defined conditions under which the RTA will license private companies for abra, or water taxi, operations.

IN THE CLEAR: Even before the Executive Council issued its privatisation resolutions, the RTA had already begun diversifying its revenue streams. In July 2007 the RTA’s first toll system, called Salik, was implemented on Sheikh Zayed Road. Motorists using the main artery are required to place a Salik tag on their windshields. While passing under the tollgates, the tag uses radio frequency identification (RFID) technology to automatically deduct the toll of Dh4 ($1.08) from a prepaid account. This system, similar to Singapore’s electronic toll collection, allows the government to collect tolls without inhibiting the flow of traffic.

Although the system’s primary goal is not revenue collection, it does generate a significant amount of capital. These funds are re-invested into transport infrastructure, according to RTA authorities. Since earning money is not its main aim, the public transit authority does not regularly release revenue statistics. Still, some data is available; in 2010 the system collected Dh800m ($217.76m), according to an RTA report. In order to raise more capital up front from Salik tolls, RTA announced a plan in April 2011 to securitise future revenues. Lead arrangers of the deal included Citibank, Commercial Bank of Dubai, Emirates NBD and Dubai Islamic Bank. The resulting six-year, $800m financing deal includes both conventional and Islamic components. Capital raised from the deal is earmarked for infrastructure investment, the government said. The success of the agreement could help the RTA better prepare for projected population growth. Indeed, raising capital up front could provide funds for major infrastructure projects early on, avoiding problems in the future.

BUS SYSTEM CHANGES: During talks of privatisation, bus lines are one of the key targets for possible acquisition by private stakeholders. Aspects of the bus system already include private operators. Independent companies build and operate the 600 air-conditioned bus shelters across the city. RTA also takes on a guiding role to ensure the system functions smoothly. As of July 2012 some shelters were not yet equipped with air conditioning. Since cabling and electricity can present challenges for providing power to shelters’ climate control systems, the public transit authority began exploring alternatives like solar energy.

As for the bus lines themselves, the authorities have been introducing changes to improve performance, cut costs and boost revenues – changes that will likely make the system more attractive for private investors. Continuing modifications are positively affecting on-time performance. The public bus schedule adherence rate rose from 17% to 77% between 2008 and 2010.

Tweaks to the system have also helped to increase operating efficiency, reducing expenses by over Dh16m ($4.36bn) in the first quarter of 2012. A rise in fares, meanwhile, has boosted revenues by Dh3.27m ($890m) during the same period, RTA CEO Mattar Al Tayer said in a July 2012 statement. RTA expects the bus system to recover its up-front costs by 2016. If the authority meets that goal, it will be in a stronger position to negotiate prices for bus line operation licences, as it will no longer have debt overhead.

PRIVATE TAXIS: Privatisation has already been carried out smoothly in Dubai’s RTA-administered taxi system. The RTA’s own Dubai Taxi Corporation (DTC) was established in May 1995 with a fleet of 81 vehicles. The transit authority currently licenses five additional franchise operators: Cars, National, Metro, Arabia and City taxi companies. These franchises operate on the same terms as their public counterpart, using the same fares and guidelines. The major difference is that DTC assumes the role of a regulator rather than a business owner.

In the past few years, private operators’ share of taxi cars in service has been on the rise. In 2006, 5887 total cabs were operating in Dubai, with 2762, or 53.5%, owned by the five franchises. By 2011 the share of private cabs rose to 56%, with 4438 out of 7942 total cabs owned by franchises, according to data from the Dubai Statistics Authority. Private operators’ share of total trips has hovered around 60% for the past three years.

Partial privatisation of the transit system could help RTA reach its goal of making 30% of all transportation activity public by 2030. Introducing private stakeholders raises capital for service expansion. How privatisation will affect efficiency and funding for the network will likely depend on how the government structures its agreements with operators. With current services enjoying upgrades and new services on the way, indications are that RTA’s ongoing activities are helping creating many new opportunities for future stakeholders.