Abu Dhabi solidifies its transport capabilities with new projects

With major port, airport, road network and railway projects under way, Abu Dhabi’s transportation sector has become a major focus of investment in recent years. International investors and developers are playing a central role in infrastructure planning, construction and management, which is seen as a strategic priority driving the emirate’s economic growth and diversification initiatives. Home of the country’s capital, Abu Dhabi City, and comprising 86.7% of its land area, 30% of its population and around 60% of the national GDP, Abu Dhabi remains an important player in the administration and development of both local and national transport systems. Efficient road, railway and public transport networks are expected to promote the internal movement of people and goods, while expansions at ports and airports will support exports and help capitalise on the emirate’s strategic geographic position between Asia, Europe and Africa, making it a natural transit hub.

Performance

The transport and storage sector accounted for Dh27.75bn ($7.55bn) of the emirate’s GDP in 2017, or 3.3% of the total, according to the “Statistical Yearbook of Abu Dhabi 2018”, published by Statistics Centre - Abu Dhabi (SCAD). To compare, in 2016 the sector contributed Dh27.62bn ($7.52bn) to GDP, or 3.6%. As a share of non-oil GDP, the sector contributed or 5.2% in 2017, down from 5.3% in 2016.

Indicative of the capital-intensive nature of the industry and the significance of infrastructure investments, transport was responsible for gross fixed capital formation of Dh17.1bn ($4.7bn), comprising 9.4% of the total across the economy. Meanwhile, the total stock of foreign direct investment in 2016 – the last year for which figures were available – stood at Dh1.3bn ($353.9m). While this was a significant drop from Dh4.9bn ($1.3bn) in 2015, this is mostly due to changes in the classification system that year, according to SCAD.

Oversight

In 2016 the Abu Dhabi Department of Transport (DoT) was incorporated into the Department of Municipal Affairs and Transport (DMAT). The merger between the two separate local bodies, each with wide mandates, was part of the government’s efforts to achieve efficiencies and integration across their respective dockets. Currently, many of DMAT’s major transport projects are contracted and overseen by the Abu Dhabi General Services Company ( Musanada), which was founded in 2007 for the management of broader infrastructure developments.

Streamlining Delivery

Efficient and on-budget project delivery has also become an increasingly important priority for Abu Dhabi’s government as it has sought to enhance the allocation of public resources. Musanada considers a number of factors when pre-qualifying and selecting private sector partners, including previous experience of similar projects, sector specialisation and financial capability. Preference is usually given to small and medium-sized enterprises (SMEs), following the government’s overall strategy of promoting SME growth. The organisation is also in the process of easing private sector participation in the development of transport networks, including through the use of public-private partnerships (PPPs). While foreign investors and contractors are welcome, they are obliged to establish a local presence first.

Musanada’s procurement systems are linked to the Abu Dhabi Department of Economic Development’s supplier classification system, which conducts initial registration and licensing processes. Fully automated governance systems are used to ensure that projects are planned, monitored and controlled on a regular basis, helping to ensure reliable delivery within the approved budget, while a change control process ensures that potential variations and claims are kept to a minimum. Musanada also works with regulatory bodies, including the DoT, to obtain permits during construction and ensure alignment with the Abu Dhabi Surface Transport Master Plan (STMP). The organisation serves the DoT as one of its major clients for road construction and upgrades, while collaboration with Abu Dhabi Airports Company (ADAC) focuses on the expansion of the emirate’s airports and ensures that related infrastructure is delivered on time.

Airports

There are two international airports serving the emirate: Abu Dhabi International Airport (AUH), located 30 km east of Abu Dhabi City; and Al Ain International Airport (AAN), some 15 km north of Al Ain. There are also two smaller domestic airports: Sir Bani Yas Airport, on Sir Bani Yas Island; Dalma Airport, serving Dalma Island; and Al Bateen Executive Airport, an international business aviation airport located in the capital.

All facilities are operated by ADAC, which was founded in 2006 as part of a broader restructuring to support business and tourism development. That same year the company launched a Dh30bn ($8.2bn) investment programme for AUH. Employees and assets from the Department of Civil Aviation were integrated into ADAC in 2007, and in 2009 terminal 3 was opened. The terminal became the home of Etihad Airways, the UAE government-owned flagship carrier.

Abu Dhabi International

In 2017 AUH saw a total of 154,543 aircraft movements, according to SCAD, down from 168,535 in 2016. The drop reflects a cooling in the emirate’s economy, the use of bigger aeroplanes, such as the Airbus A380, and efforts by global airlines to eliminate less profitable routes. Etihad’s moves to strengthen its performance and increase efficiency have also had an impact. In 2017 the airline accounted for 70-75% of the airport’s daily traffic at its peak, with this figure reaching 85-90% when its international partners were factored in. The dip can also be partly attributed to the cancellation of direct flights to Qatar, which used to number several per day.

AUH benefits from its location between Europe, Africa and Asia, with some 80% of the world’s population within eight hours’ flying time. While passenger numbers dropped slightly in 2017 to 23.4m, this followed a record year for the facility, with 24.5m people flying through the airport, up 5.1% on 23.3m in 2015.

One factor supporting strong passenger growth in 2016 was the introduction of the Smart Travel System in terminals 1 and 3 in the first quarter of that year. The system includes automated check-in, bag drop and boarding, as well as unmanned immigration control gates with biometric verification and facial recognition technology. The system makes passing through the airport quicker and more straightforward, and eases the management of passenger traffic.

The top-five departure destinations in 2016 were India, which accounted for 18.6% of the total, followed by the UK, Saudi Arabia, Germany and the US. In 2017 non-Arab Asian countries comprised 4.99m passenger arrivals, followed by 2.93m from Europe and 1.53m from GCC member states. As for departures, non-Arab Asian, European and GCC countries accounted for 4.93m, 2.93m and 1.54m passengers, respectively.

Some 734,290 tonnes of freight were handled by AUH in 2017, down somewhat from 799,867 tonnes in 2016, and reflecting the overall slowdown in traffic. The air cargo market is dominated by volumes from Asia and Europe, with non-Arab Asian countries accounting for 187,804 tonnes of cargo discharged and 108,416 tonnes loaded at AUH, while European countries accounted for 139,166 tonnes of freight discharged and 125,342 tonnes loaded.

Midfield Terminal

One of ADAC’s most important ongoing projects is the Midfield Terminal Complex (MTC) at AUH. Upon completion, the multibillion-dollar development is expected to increase the overall annual capacity of AUH to 60m passengers. The MTC’s centrepiece, the Midfield Terminal Building (MTB), will be the largest building in Abu Dhabi, visible from a distance of 1.5 km, and will be able to process 8500 passengers per hour through 65 gates. Upon completion the terminal will offer 30,000 sq metres of airline lounge space, 35,000 sq metres of food and beverage space, and a 27-km-long baggage handling system able to process up to 19,000 bags per hour. The MTB’s three-star transit hotel will cater to transfer passengers.

The project is being executed by a consortium of international companies, including Turkish global airport developer TAV, Middle Eastern builder Consolidated Contractors Company, Dubai-listed construction firm Arabtec, US architectural firm Kohn Pedersen Fox and Egypt’s Engineering Consultants Group.

Nevertheless, the MTC has experienced some delays due to complexities in its unique engineering, and ADAC has yet to set an official date for the commencement of commercial operations. However, in 2019 the MTC is entering the operational readiness assessment phase, involving testing to ensure that every part of the complex is fully operational. As current facilities at AUH are near capacity, the MTC should provide the capacity for future passenger growth, while maintaining Abu Dhabi’s position as a global transit hub.

AL AIN INTERNATIONAL

Opened in 1994, the second-busiest airport in Abu Dhabi, AAN, has maintained growing numbers in recent years despite the broader economic environment. The facility is served by one terminal and a 4000-metre runway with a parallel 4000-metre taxiway that can be utilised as an additional runway when it is needed.

Aircraft movements at AAN have maintained upward trajectory, rising from 24,579 in 2015 to 25,749 in 2016 and 29,797 in 2017, while passenger numbers rose from 61,271 in 2015 to 96,679 in 2016 and 136,519 in 2017 due to a boost in the frequency of existing flights and the opening of a new route to Cairo, Egypt. The airport is served by two scheduled flights: Air India Express to Kolkata and Nile Air to Cairo. Freight volumes rose from 596 tonnes in 2016 to 1177 tonnes in 2017. Being adjacent to the Omani border, AAN also serves nearby areas of the UAE’s south-eastern neighbour.

The airport is at the heart of an aviation sector cluster, Nibras Al Ain Aerospace Park, covering five sq km, the park will bring together an aviation academy; maintenance, repair and overhaul businesses; manufacturers; administrative units; and residential complexes for aerospace employees. The cluster was developed jointly by the aerospace wing of Abu Dhabi’s Mubadala Investment Company and ADAC. “AAN is supporting the growth of the aviation sector,” Mohammed Al Katheeri, senior vice-president of strategy and communications at ADAC, told OBG in an interview. “Investments are also being made in logistics capacity around the airport.”

Etihad

Etihad Airways has seen major expansion since it began operations in November 2003. Its fleet is currently around six times the size it was in 2006, with 115 aircraft now serving 100 destinations worldwide.

However, Etihad’s performance as a business has been affected, like other regional airlines, by rising fuel prices, as well as by losses incurred by its subsidiaries Italian flag carrier Alitalia and Germany’s Air Berlin, which entered into receivership in 2017. Such circumstances over the past two years led Etihad to adopt a new efficiency strategy. In 2017 the airline carried 18.6m passengers, up from 18.5m in 2016, at a load factor of 78.5%, with available seat kilometres rising by 1% to 115bn due to moderate capacity growth. This helped Etihad improve its core operating performance by 22%, despite the strong headwinds. Revenue from core operations increased by 1.9% in 2017, from $5.9bn in 2016 to $6.1bn, while passenger and cargo yields improved as a result of strategic refocusing, including better capacity management, the use of newer technology, an increased focus on direct flights and the use of more fuel-efficient aircraft. Etihad Cargo carried 552,000 tonnes in 2017, down 6% on the previous year, however, revenues only dropped 0.8% as a result of stronger load factors and better yields. Unit costs fell by 7.3%, despite the impact of higher fuel prices, while administration and general expenses dropped by $162m, down 14% on 2016.

This allowed the airline to mitigate its losses in 2017 to $1.52bn, from $1.95bn in 2016 – the second year of losses since 2010. In a statement released by Tony Douglas, the new CEO of Etihad Aviation Group as of January 2018, it was noted that 2017 results reflected the improving quality of revenues, progress in streamlining costs and the strengthening of the airline’s balance sheet. According to Douglas, 2017 figures represented “solid first steps in an ongoing journey to transform this business into one that is positioned for financially sustainable growth over the long term”.

Roads

Abu Dhabi’s road system has expanded dramatically since the establishment of the UAE. In 1975, the first year for which full figures were available, Abu Dhabi had an estimated 591 km of roads. As of 2017 there were 1852 km of one-lane roads, 4856 km of two-lane roads, 1906 km of three-lane roads, 2288 km of four-lane roads and 457 km of five-lane roads in the emirate. In addition, there were 19,512 km of internal roads; 14,522 km in the Abu Dhabi Region, 2115 km in the Al Ain Region and 2845 km in Al Dhafra.

Ongoing investment in the emirate’s road network is creating opportunities for a range of contractors, with several major projects pushing ahead in 2018 and 2019. January 2018 saw the opening of the Sheikh Khalifa bin Zayed Highway, formerly known as the Mafraq-Ghuwaifat Highway. Started in March 2014, the project entailed a six-phase programme of work on a 246-km stretch of the 327-km motorway, for a total investment of Dh5.3bn ($1.4bn). The road links the capital to the border of Saudi Arabia to the west, forming a vital transport corridor and a major route for the growing Al Gharbia Region. Also in Al Gharbia, the Madinat Zayed-Al Mirfa road is being upgraded, with the new link expected to be inaugurated in early 2019.

To the east, in September 2018 construction reached the halfway point on the Dh338m ($92m), 140-km Al Faya-Razeen-Al Quaa road development project, an important route for the emirate’s agriculture sector in particular. Meanwhile, in and around Abu Dhabi City, the Capital STMP has laid out a clear roadmap for urban transportation development, including roads, buses, and light rail transit network and metro systems. Project stages will be carried out until the end of 2030.

Electric Uptake

Abu Dhabi was quick to embrace electric vehicles (EVs). In 2012 the Middle East’s first rapid electric vehicle charging station was installed in Masdar City, reducing the time needed to charge EVs from six hours to 30 minutes. Charging stations are now found in a number of locations in Abu Dhabi, and the government is working on a regulatory framework that will promote EV usage. Carmakers, including Renault, offer EVs on the Abu Dhabi market, with the automotive sector seeing potential in the emirate due to the government’s goals of reducing its carbon footprint.

Plans unveiled by the UAE government in its “The State of the Future” report at the World Economic Forum conference in Davos in January 2017 predicted that 90% of cars nationwide would be electric by 2035, necessitating extensive investment in infrastructure for EVs, including power networks and charging stations. However, challenges remain. “Although environmentally friendly vehicles will become standard in the future, adoption is still slow given the limited number of charging stations. There is also a lack of federal incentives to encourage car owners to switch to EVs,” Khaled Al Mansoori, CEO of driver training and road safety institute Emirates Driving Company, told OBG.

Road Safety

The government has undertaken a number of programmes to boost safety on the roads. The Drive Safe, Save Lives campaign began in 2009, encouraging passengers to use seat belts and child safety seats, and drive slower. Similarly, in 2011 the UAE Together social media campaign was launched by Abu Dhabi Police and Saaed. In 2016 Abu Dhabi’s road traffic mortality rate was 11.6 per 100,000 people. To compare, this figure was 4.3 in Germany and 2.9 in the UK.

“Transport corporations are increasingly aware of the importance of safe driving as a key factor in revenue optimisation,” Mansoori told OBG. “It has a significant impact in decreasing insurance spending, repairs and fuel consumption. Improved road safety drives increased profits as well as employee well-being.”

Saaed, the road traffic management wing of the Ministry of Interior, has also recognised the importance of safe roads to society and the economy. “We strive to continuously improve traffic awareness for the public,” Ibrahim Yousef Ramel, CEO of Saaed, told OBG. “By analysing traffic data and reports, we can determine the geographic patterns of minor accidents, demographics of responsible parties, and identify factors that may contribute to the reduction of accident rates in coordination with public sector partners and other concerned entities,” he added.

Etidah Rail

Growing traffic on the roads has helped catalyse the development of the Etihad Rail network, the UAE’s first commercial railway system. The rail line connects to into the broader GCC regional network currently under development and could eventually connect the UAE with Oman and markets in the wider Middle East and beyond, with the total value of rail projects across the Arabian Peninsula estimated at $79bn. The Etihad Rail network is operated by a company of the same name, majority-owned by the Abu Dhabi government (70%), with the remainder held by the federal government. Overall, the UAE railway network is expected to expand across 1200 km.

Commercial operations on the rail line commenced in December 2015. The first stage includes a 264-km connection linking the gas producing areas of Shah and Habshan in Al Dhafra to the Port of Ruwais on the Gulf. The track is specifically designed to transport sulphur produced at the Shah and Habshan oil and gas fields to Ruwais for Abu Dhabi National Oil Company. By the end of 2017 some 15m tonnes of granulated sulphur had been transported on the line, equivalent to more than 950,000 truck trips. The railway operates 240 wagons and seven locomotives, and each journey has the capacity to transport 22,000 tonnes of sulphur per day, and each train produces approximately 70-80% less carbon dioxide than the equivalent number of trucks.

Next Phase

In November 2018 the UAE Ministry of Finance and Abu Dhabi Department of Finance signed an agreement for the financing of the second stage of the railway’s development. That same month Etihad Rail announced it was in the advanced stages of commercial and technical negotiations with a range of potential joint venture partners. Pre-qualification applications for design-and-build contracts attracted bids from leading construction companies and contractors in Spain, Italy, China, India and the UAE. The second stage of the network will run 605 km from Ghuwaifat on the Saudi border to Fujairah on the east coast, raising the system’s capacity from 6.35m tonnes per year to over 45m. As well as providing opportunities for a range of contractors, once built, the new rail link is expected to bring significant economic, social and environmental benefits. “It is a logical step to move from trucks to rail. It is cleaner, cheaper and has fewer health and safety risks,” Ross Thompson, chief commercial and strategy officer at Abu Dhabi Ports, told OBG. “It will also strengthen the transportation corridor from Fujairah to the Khalifa Industrial Zone Abu Dhabi (KIZAD).”

Ports

All commercial and community ports are managed and operated by Abu Dhabi Ports, which was established by Emiri decree in 2006. Abu Dhabi Ports owns and operates 11 ports and terminals, nine of which are in Abu Dhabi. Outside the emirate, the firm is responsible for Fujairah Terminals at the Port of Fujairah in the Northern Emirates and the Kamsar Container Terminal in the Republic of Guinea. Abu Dhabi Ports also manages KIZAD, a major industrial, logistics and trade complex adjacent to Khalifa Port (see analysis).

Ports play a central role in the economic development of Abu Dhabi, contributing 3.6% of the emirate’s non-oil GDP, comprising a value-added contribution of Dh19.6bn ($5.3bn) in 2017. Khalifa Port, situated midway between Abu Dhabi and Dubai, has become one of the leading ports in the region since its inauguration in 2012. It is currently undergoing a Dh10bn ($2.7bn) expansion, with nearly Dh4bn ($1.1bn) coming from Abu Dhabi Ports itself, and the remainder financed by the company’s international partners.

In 2016 Abu Dhabi Ports signed a deal with Chinese state-owned China Ocean Shipping Company, better known as COSCO, which will invest Dh2.7bn ($734.9bn) over the life of the port to raise its annual capacity from 2.5m twenty-foot equivalent units to 8.5m. In May 2018 the port operator signed another deal worth Dh4bn ($1.1bn) with Switzerland-based Mediterranean Shipping Company to establish a new container terminal at Khalifa Port. Both deals are expected not only to raise capacity, but to support the growth of international maritime connectivity, and encourage further partnerships and greater trade volumes.

Outlook

While the slowdown in the economy has effected development in some sectors, the strategic importance of transport has seen major projects continue to move forward. With activity picking up in 2018, opportunities for international partners to develop, finance and manage key infrastructure projects are likely to continue. A solid flow of investment in major projects, ranging from the MTC at AUH, the container terminal expansion at Khalifa Port and improved roads in Al Dhafra, all bode well for the sector’s coming years.