Oman’s rail strategy gathers steam

For those with a stake in Oman’s proposed railway system, 2015 quickened the pulse. After several years of deliberations, the authorities began tendering for four separate stages of the proposed nine-segment national rail network. The network is anticipated to eventually comprise a total of 2135 km of standard-gauge track, with a total projected cost estimated at $15.5bn. The sections so far placed under tender amount to 1414 km and at least $6bn of investment. The 207-km first section will link the port town of Sohar with the UAE border at Buraimi, while sections two, three and four (which will total 1207 km) will provide another border link with the UAE at Hafeet, before continuing all the way down to the southern port of Salalah – linking Haima and the central port of Duqm along the way, and possibly Yemen.

Contracts

Given the significant sums that will be involved in construction, Oman’s railway has understandably undergone an extended period of gestation. An initial consultancy contract was awarded to Dorsch Gruppe in 2012 to provide assistance in designing the tender for the preliminary design consulting (PDC) contract, which was won in August 2013 by Italian state railway group Italferr with a $37m bid. Italferr’s role, which is due to be completed in January 2016, will involve designing the railway’s infrastructure, and providing specifications for rolling stock and other systems. At around the same time as the PDC contract, two additional contracts were awarded: one to Abu Taman Grant Thornton to develop the organisational structure of the Omani Railway Company, and another to Dar al Takwwn Advertising Agency to develop the railway’s brand identity.

Following preliminary training of Omani engineers in Rome, Oman Rail – the public organisation that will be responsible for the sultanate’s railways – was founded in June 2014, under the auspices of the Ministry of Transport and Communications. Pre-qualification for submitting tender bids for the first section of works followed in September 2014, with five consortia announced as being in the running the following May: Larsen & Toubro, Salini Impregilo, China State Construction Engineering Corporation, Porr Bau and Saipem. An OR222.6m ($576.3m) contract for a project management consultancy for this first phase was awarded to Spain’s Técnicas Reunidas in February 2015. Under the contract, the engineering company will also oversee procurement of rolling stock for the line (which is expected to run diesel locomotives, though with a view to possible future electrification), as well as supervise the tendering for an operations maintenance contract later in 2015.

Leading on from this initial contract activity, Oman Rail announced in May 2015 that it would be floating the tenders for the next three segments, as well as tendering the 10-year operations contract, before the end of the year. Pre-qualification for the systems contract in 2014 has also seen five consortia shortlisted: Alstom, Ansaldo STS, Bombardier, Siemens and Thales. Oman Rail also announced that the contracts for constructing the various segments of the railway would fall under the in-country-value scheme. This obliges contractors to allot 10% of the total value of their contracts to domestic companies, and is intended to encourage the creation of a domestic supply chain for the rail industry within Oman.

Funding

Meanwhile, the GCC railway has been slow in getting off the ground, and there has been some uncertainty as to who will fund it and how far it will go. The initial agreement called for a completion date of 2018, and as recently as 2013 media reports were indicating that a GCC fund of $10bn would be used to support railway construction in Oman, at a rate of disbursement of $1bn per year, with the network reaching as far as Salalah in the south.

More recent statements, however, see the schedule potentially slipping to 2020, and see the proposed Oman segment of the GCC route taking cargo only as far as Sohar and Muscat. The question of funding has also become more ambiguous: media reports in early 2014 indicated that GCC members had tried and failed to secure private sector interest in funding the network, with the result that funding would now be provided almost entirely by member state governments. Moreover, talk of an intra-GCC fund seems to have shifted from building the railway itself to creation of a “sustainable railway development fund”. As such, responsibility for funding Oman’s rail network now appears to be falling directly on the government. The minister of transport and communications, Ahmed bin Mohammed bin Salem Al Futaisi, said in January 2015 that such funding would be covered by a mixture of bonds, loans and government support.

The stop-start nature of the GCC rail project is by no means atypical. Despite having made substantial progress in certain areas – most notably defence cooperation and the creation of a common market – some of the GCC’s more ambitious projects have sometimes been slow to move forward (talks on a single currency, for instance, have stalled since 2010). While there is a clear economic rationale to improve logistics links between the Gulf states, trade – and growth – is still sometimes viewed as a zero sum game. Having invested billions in developing port and air infrastructure, some states will no doubt fear that the arrival of rapid rail transit could see business shift elsewhere and expensive infrastructure left idle.

Dilemma

All of which leaves the Omani authorities with the difficult decision of where to prioritise funding for rail. The decision is made doubly difficult in light of the recent fall in oil prices, which has squeezed the government’s investment budget, as well as by recent reports that the UAE has decided to retender phase two of its Union Rail project. In this light, the decision to quickly follow up the first tender with the three additional tenders linking up Oman’s ports represents a sound hedge. It demonstrates to Oman’s neighbours a confidence-building commitment that, if needed, the sultanate intends to go ahead with its part of the GCC network, while also allowing the option of refocusing on internal links should reciprocal routes not be rapidly forthcoming.

The rationale for cross-border links could also receive a boost from the forthcoming 680-km road link with Saudi Arabia, which is set to be completed by the end of 2015. It will be the first direct link between the two countries, cutting some 1400 km from the current route, which passes through the UAE. Figures in the logistics sector are already well aware of the potential, with Ali Thabet, country manager for Oman at DHL, telling OBG that the link offers the sultanate an effective entry point into the region’s biggest export market. “Oman and Saudi Arabia have the potential to be the biggest trade link in the region,” Thabet said. “The existing routes between the two countries have old regulations; they’re not efficient. This new route will have more capacity and new technology at the border crossing. It will be competitive.”