Gearing up: Continued investments in marine, aviation, road and rail ahead of 2022

In the past decade, countries across the GCC have been initiating comprehensive infrastructure overhauls, constructing airports, seaports, highways and roads in rapid succession. In 2013 alone, the six countries making up the GCC set aside a total of $350bn for transport projects – $45bn in Qatar alone, Doha Bank’s group CEO, R Seetharaman, told delegates at Doha Bank’s Real Estate, Infrastructure & Urban Development Summit in April 2013. Qatari authorities’ emphasis on infrastructure development is not surprising. Trade remains a key component of the state’s economic livelihood. Between 2000 and 2012, transport and communications’ share of GDP nearly tripled from 2.2% to 6.9%, according to data from the Ministry of Development Planning and Statistics (MDPS). The sector is also an important source of employment for the country. In 2012, transportation and storage accounted for 33,943 jobs, according to data from the MDPS. Although far lower than heavyweights like construction (506,328) and retail trade (142,799), the category accounted for more jobs than other major areas like accommodation and food service activities (28,959) and education (26,277) and health (18,880).

Transport Vision

Looking ahead, a growing transport and logistics sector fits within official plans for the country’s future. Qatar National Vision 2030, the government’s overall economic development strategy, focuses on developing industries where the state has competitive advantages, then cultivating more knowledge- and service-based activities. Well-developed infrastructure has been identified as crucial to both of these steps, and stakeholders recognise this. Infrastructure investment alone is set to reach $160bn by 2019, the former prime minister and foreign minister, Sheikh Hamad bin Jassim bin Jaber Al Thani, told delegates at the April 2013 Business and Investment in Qatar Forum in Berlin. FIFA’s selection of Qatar as the venue for the 2022 FIFA World Cup added impetus to transport projects that were already planned, including a new airport, seaport, causeway to Bahrain and railway system. Although the tournament is eight years away, the expected influx of visitors has spurred efforts to ensure projects are completed on time.

In 2013 a shake up of the cabinet saw the creation of a new Ministry of Transport, headed by Jassim Seif Ahmed Al Sulaiti, the chairman of state-owned transport firm Mowasalat. The new ministry is focusing on raising awareness of public transport, in addition to a raft of new projects focusing on rail, roads, air travel and increasing port capacity.

Ali Abdul Latif Al Misnad, chairman of Al Baida Group, told OBG, “Transport and logistics will be one of the most – if not the most – important sectors going forward given the amount of general cargo and materials that have to be imported for the state’s infrastructure agenda. The new port won’t be ready until 2016, so all of the relevant stakeholders in the public and private sectors need to work on establishing proper coordination and ensure that detailed follow-up is happening. Otherwise we will experience inefficiency and traffic congestion on the roads and in the port, which will ultimately delay project schedules.”

Ports Expansion

Ports facilities upgrades have been a feature across the Gulf. In total, countries of the region have allocated upwards of $36bn to boost maritime trade, according to a February 2013 report released by the Holland Gulf Chamber of Commerce.

Progress on ports development has been brisk. Oman is investing in a completely new port in Duqm, while Abu Dhabi completed its new Khalifa Port in late 2012.

Like its GCC neighbours, Qatar has also been investing in its ports infrastructure.

Given its hot desert climate and small size, the state has long relied on the sea to fuel economic development. In the past, it was pearling and fishing that sustained the peoples of the peninsula. Over time, Qatar grew into a crucial link in Gulf trade, acting as a regional entrepôt between the civilisations of Mesopotamia and the Indian Ocean. Although pearling and fishing have long since given way to the oil and gas industry, the country’s shores remain a key economic asset. In the last decade Qatar used its location and significant gas reserves to catapult itself to the helm of the global liquefied natural gas (LNG) trade.

The nerve centre for gas export operations, Ras Laffan, sits 80 km north of Doha along the Qatar’s north-eastern coast. State-owned Qatar Petroleum (QP) built the Ras Laffan Port as an LNG export facility in 1996. After ongoing expansion, the facility’s 56-sq-km area now includes LNG, liquid product, dry cargo and offshore support vessel berths. The complex is home to the world’s largest LNG export facility and the largest LNG fleet. Growth in recent years has also been strong. In 2012, 5834 vessels called on Ras Laffan with a total net tonnage of 128m tonnes, up from 5353 vessels and 119m tonnes in 2011.

Upgrades to Ras Laffan are ongoing. In April 2013, QP announced an agreement with a consortium led by France’s Total to construct the Ras Laffan 2 condensate refinery. The $1.5bn project, set to be complete by second-half 2016, will double the production of Laffan 1, a 146,000-barrel-per-day condensate facility completed in September 2009. The pair are set to make Ras Laffan the largest single condensate site in the world, according to the minister of energy and industry, Mohammed bin Saleh Al Sada. QP retains an 84% share of the venture, while Total and its consortium partners, Japan-based Cosmo Oil and Marubeni, own the remainder. The idea behind the project is to expand capacity for processing raw hydrocarbons resources into more complex products. “The project is in line with Qatar’s 2030 plan to produce value-added products which [will] meet the local demand and also be used for exports,” Al Sada said in a press conference following the announcement of the agreement.

Gas Transit

Ras Laffan’s shipyard, Erhama bin Jaber Al Jalahma, has also provided opportunities for the gas industry to boost value-added activities. The area hosts the operations of the Qatar Gas Transport Company (Nakilat), which has joint operations working in shipbuilding, ship repair and towage services. Nakilat has become one of the world’s largest LNG transport firms. Abdullah Fadhalah Al Sulaiti, the firm’s managing director, told OBG, “We operate 54 LNG vessels and four liquefied petroleum gas vessels shipping to the major LNG markets of the world under arrangements with Qatargas and RasGas. In addition to repairing some 71 ships in 2012, more than 50 LNG vessels and container and tanker ships, we also have started to do rig repair for onshore and offshore jack-ups.”

Export Isle

While Ras Laffan is the centrepiece of Qatar’s LNG infrastructure, Halul Island, located 80 km north-east of Doha, is the heart of Qatar’s marine oil export operations. According to QP, marine crude represents about 28% of the country’s total crude production, 10% from fields operated by QP and 18% from fields operated by a consortium made up of Total, Occidental and QP Development Japan. The 1. 5-sq-km island has 11 crude oil storage tanks capable of holding 5m barrels of oil and crude oil pumping facilities. Crude there is blended into export products and loaded onto tankers for shipment. In 2012, the port’s net tonnage rose slightly from 10m to 10.4m tonnes, according to data released by the MDPS in February 2013. Currently the island receives its power from several fuel-powered generators, but in December 2012, construction began on a new subsea cable system to connect the island to the mainland. The two 100-MW cables are set to give the island a production capacity of 200 MW, more than meeting its peak consumption of 30-40 MW. Planners designed the system to afford backup energy as well. The subsea cable’s $435m contract went to South Korea-based LS Cable and System in November 2012, and the cables are scheduled to begin operation in 2016.

Important Goals

While oil and gas remain Qatar’s key wealth generators, economic planners have turned their attention to another set of important, non-energy, infrastructure upgrades in recent years. With rising disposable income levels, demand for virtually everything – food, construction materials, clothes, cars and furniture – is on the rise. Between 2001 and 2008, imports grew from QR13.7bn ($4bn) to QR101bn ($27.7bn), but eased following the global financial crisis, settling at QR81.2bn ($22bn) in 2011, according to data from MDPS. A report released by Qatar National Bank in April 2013 attributed the reduction to fewer imports of machinery and transport equipment related to construction, which accounted for about half of incoming trade in the previous five years. “The completion of all new LNG production facilities by early 2011 played a large role in the slowdown of imports during 2008-11,” the report said. “The reversal of this trend in 2012 is an indication that project activity is again beginning to pick up with the roll-out of major infrastructure projects, such as the metro, roads and real estate developments.”

According to figures from the MDPS, imports totalled QR91.84bn ($25.15bn) in 2012, up nearly 13% on the previous year. This trend continued into 2013, with total imports reaching QR23.86bn ($6.54bn) in the second quarter, an increase of 4.2% year-on-year and 4.7% quarter-on-quarter.

Current Capacity

To boost capacity for upcoming projects, there are plans for expansion in the pipeline to complement the several ports currently in operation. One of the largest is the port of Mesaieed, located about 30 km south of Doha. Originally built as an export facility in 1949 for the inland Dukhan oil field, the area has grown into an industrial hub.

In 1968, companies there began using petroleum as feedstock for value-added products like petrochemicals, fertilisers and plastics. By the early 1980s, however, non-petroleum industries, such as steel, began to take off there as well. In addition to hydrocarbons and industrial exports, the port also operates bulk and general cargo berths. Mesaieed began receiving more merchant vessels in early 2012, when traffic was diverted from Doha Port during the upgrades. In that year, Mesaieed saw increased cargo throughput but fewer ships. Net tonnage rose 18% year-on-year from 24.1m to 28.4m tonnes, while ship numbers eased to 2082, down from 2112 in 2011.

The existing Doha Port, located in the shallow waters of the Doha Bay, remains Qatar’s main commercial gateway. Built in 1971, the port is located in the centre of Doha and used to import construction materials, consumer goods and other general cargo. As Qatar’s economy began to boom with the influx of wealth from hydrocarbons exports, the port also grew, expanding to its current nine quays and two container berths. Despite these expansions, factors like Doha Port’s urban location and channel restrictions have created bottlenecks. The depth of the bay, ranging from 7-12 metres, is not sufficient for larger cargo freighters. As a result, multiple smaller ships operate when fewer larger ships would suffice, compounding congestion issues. Despite these challenges, the number of vessels calling at the port continues to rise. In 2012, 1521 ships called on Doha Port, up nearly 30% from 1188 in 2011. Net tonnage, meanwhile, increased 12% from 7.4m to 8.3m tonnes, according to the MDPS.

Stakeholders are aware of congestion issues at the port and have begun taking steps to mitigate them. In early 2010, work began on the development of Al Ruwais Port, located in Ash Shamal on the northern tip of the peninsula. The 260,000-sq-metre complex’s construction is overseen by Ashghal, the Public Works Authority. Upon completion, which is scheduled for 2014, the port is set to have two berths, one for containers and one for general cargo. Al Ruwais, though not as large as other ports, could help ease pressure on the overcrowded Doha Port.

New Port Project

The far larger New Port Project (NPP) is beginning to emerge out of a sandy tract of land 30 km south of Doha, on the shores between Al Wakrah and Mesaieed. The port, which began with a June 2007 emiri decree, will radically boost Qatar’s maritime trade capacity. The QR27bn ($7.4bn) NPP is set to come on-line in stages. By 2016, planners are aiming for an initial operational capacity of 2m twenty-foot equivalent units (TEUs), more than twice that of the current Doha Port. By 2028, two more 2m-TEU sections are set to come on-line, giving the port an annual capacity of 6m containers. In addition, the facility will handle general cargo, vehicles, livestock and bulk grains. Construction work on the NPP’s facilities will also include a naval base for the Qatar Emiri Naval forces and an access channel for Qatar Economic Zone 3 (QEZ3), one of three industrial zones under the purview of the state-owned Manateq. The project’s planners hope QEZ3 can prime the pump for additional industrial development in the area by providing businesses with simpler regulations and infrastructure connections. The area is set to focus on building up value-added industries like downstream metals, petrochemicals and maritime industries. Port investments are significant, but progress could be instrumental to future economic plans. Export-oriented ports delivering LNG and other hydrocarbons around the world have been the dynamo driving the Qatari economy forward. Continuing to modernise port infrastructure could support those revenue streams and keep trading costs low for virtually every sector of the economy.

Aviation Gains

Although maritime trade remains a transportation lifeline, aviation has also become increasingly important for the Gulf as a whole. Many countries in the region are making moves to expand their roles in the global aviation sector, which they see as crucial to encouraging economic diversification. Indeed, busy airports directly boost the logistics and aviation services industries, in addition to generating positive knock-on effects for sectors like tourism, retail and professional services.

The region’s strategic position for long-haul flights, available capital and supportive government policies have created an environment conducive to aviation expansion. Indications so far are that these efforts are paying off. In February 2014, data released by the Montreal-based International Air Transport Association (IATA), a trade organisation that represents about 80%of the world’s carriers, showed the Middle East led the world in passenger growth in 2013. Middle Eastern carriers recorded an increase in passenger traffic of 12.1% for the year, down from 15.4% in 2012, but still well above the global average of 5.4% for 2013. The IATA pointed to the “continued strength of regional economies” and “solid growth in business-related premium travel, particularly to developing markets such as Africa” as factors supporting the growth of regional carriers. Among Middle Eastern airlines, capacity was also up during 2013, growing slightly faster than passenger traffic at 12.8%, while the load factor dropped by 0.1 percentage points to 77.3%, down from 77.4% the previous year.

The Qatar Civil Aviation Authority (QCAA) is the government’s main arm in the aviation industry, responsible for affairs relating to civil aviation, air navigation, weather forecasts and the general development of the sector. The QCAA has been working on opening Qatar’s skies to the world through bilateral agreements. In March 2013, its chairman, Abdul Aziz Mohammed Al Nuaimi, and his UK counterpart, Mark Bosly, signed a memorandum of understanding allowing their national carriers unlimited passenger and cargo carriage between the two states. Similar talks took place with China and India as well.

The Doha International Airport (DIA) remains Qatar’s major aviation gateway. It served 21.1m passengers in 2012 and over 23.2m passengers in 2013, up almost 10% year-on-year. Cargo volumes have risen as well. DIA handled more than 865.6m kg of cargo in 2013, up from 826.6 m kg in 2012. While DIA’s passenger and cargo numbers are substantial, Hamad International Airport (HIA), DIA’s upcoming replacement, is set to dwarf them. HIA’s design and preparations commenced in 2004. Planners originally said the opening date would be in 2009, but that date was pushed back several times. The intended April 1, 2013 opening also met with delays, due to safety and security requirements, airport authorities said. In January 2014, Abdul Aziz Mohammad Al Noaimi, chairman of the New Doha International Airport Steering Committee, announced that the airport was on track for a phased opening by mid-year 2014.

The airport will not be fully operational at first, however. Its construction has been planned in phases, working up to what its planners call “ultimate development”. “We are now working on the completion of Terminal 1 to its [HIA’s] ultimate capacity of 50m passengers per annum,” Bernardo Gogna, project director of the New Doha International Airport Steering Committee, told OBG. “Terminal 2 is also on the cards prior to 2022 to help distribute aircraft and passenger traffic and avoid congesting Terminal 1.” In addition to 50m passengers, the fully complete HIA is set to handle 2.5m tonnes of cargo and 360,000 flights per annum. The main terminal’s 600,000 sq metres of floor space will make it the largest building in Doha. The airport is also set to handle larger aircraft more efficiently due to its longer runways. One of them, measuring 4850 metres, is among the longest in the world and specially designed to serve Airbus’ A380, a coming addition to Qatar Airways’ fleet.

National Carrier

State-owned Qatar Airways has been instrumental in transforming the country’s role in the aviation sector. Alongside the region’s other two heavyweights, Emirates and Etihad, it has supported the GCC region’s recent ascent in the business. A combination of strategic location and aviation infrastructure investment has helped these carriers build up their clout. The three have expanded aggressively, both into highly competitive markets like Europe and North America and underserved areas like Africa and Asia. “The region’s carriers have successfully tapped into demand from emerging markets with the strength of their network structures and efficient hubs,” IATA said in March 2013. Growth in the GCC has also heralded more international partnerships between Gulf airlines and nearby regions. Etihad paid $370m for a 24% stake in India-based Jet Airways in May 2013. Following the announcement, Qatar Airways’ management said that it is interested in partnerships, though not acquisitions, in the sub-continent. The airline was looking into a codeshare relationship with India-based IndieGo in May 2013, Qatar Airways’ CEO, Akbar Al Baker, told reporters at a May 2013 conference in Dubai. There are about 500,000 Indian nationals in Qatar, according to estimates from the Indian Embassy in Doha – around 30% of the country’s total population.

Linking the expatriate community back to India presents a major opportunity for the transport sector “India is a huge market and a potentially lucrative one,” Al Baker said in a statement in January 2013. Stronger air links could boost commercial ties between Qatar and India. Bilateral trade between the two nations has trebled in the past decade, growing more than tenfold from $1.2bn to $14bn between 2005 and 2012, according to estimates from the Qatar Chamber of Commerce and Industry.

Qatar Airways also joined the OneWorld Alliance in October 2013, which is expected to improve the airline’s competitiveness and allow it to offer customers access to the international network.

Logistics

Infrastructure like HIA and the NPP will likely encourage continued growth in the logistics sector. Regional and international logistics operators have seen rising demand for their services in recent years as Qatar’s economy continues to grow. Homegrown projects, like Logistics Village Qatar (LVQ), have also seen progress. The 1m-sq-metre campus of warehouses, lorries and logistics facilities is the state’s largest logistics site. Built by the Gulf Warehousing Company, the second phase of construction was completed in 2012, but demand has more than grown to fill extra capacity. “As we near 100% utilisation of the LVQ in the next couple of years, we are already exploring the opportunity of setting up another such village in another part of Qatar,” the company’s board told shareholders in March 2013. Logistics investments are also set to flow in around the new airport. In March 2013, Dutch architecture firm OMA won the competition to design Airport City, a development built to house 200,000 residents living and working near the HIA. The project’s first phase is set to link the airport to logistics providers, homes, hotels and retail areas.

While steady investments are important for the construction of large logistics areas, streamlined Customs regulations are key to nurturing the industry as a whole. According to international logistics performance rankings, Qatar’s logistics sector has also progressed in this regard. On the World Bank’s Logistics Performance Index, which rates countries from 1 (worst) and 5 (best) based on the average of scores in six areas, Qatar rose from 2.95 to 3.32 between 2010 and 2012, putting it at 32nd in the world. In the World Bank and International Finance Corporation’s “Doing Business 2013”, a ranking of 185 countries graded on 10 categories, Qatar rose 17 places from 75 to 58 in the “Trading across borders” category. The authorities also introduced a website allowing electronic data to be submitted for Customs clearance, reducing the time it takes to import or export a container from 20 days (or more) to 17, according to the report.

Roads & Highways

While the coming infrastructure projects are set to boost Qatar’s international trade connections, upgrades for the country’s domestic transportation network are also in the pipeline. Ashghal, the Public Works Authority, announced over 30 roads and highway projects in April 2013 and awarded QR7.2bn ($2bn) in contracts the following June (see analysis). In addition to domestic highway upgrades, the authorities also have plans for two major bridge projects. Al Sharq Crossing, a $5bn set of bridges linking Katara Cultural Village, West Bay and the airport, took its first major steps in May 2013 when Ashghal awarded US-based engineering services firm Fluor a $185m supervision and management contract. The much-delayed causeway project connecting Qatar to Bahrain, meanwhile, also saw some positive steps. The government has listed the causeway as part of its infrastructure development plans for the 2022 FIFA World Cup. The link would provide incoming fans with a second international airport and more accommodation options. The project has run into delays several times, the most recent of which was due to rising construction costs, officials said in late 2012. Qatari authorities, for their part, are confident the project will be in place before 2022.

Road upgrades are set to be a welcome development, given the congestion challenges Doha currently faces. While building more roads and mass transit projects will likely mitigate some economic costs associated with congestion, the country’s authorities are experimenting with other ways to address the issue. The Qatar Mobility Innovation Centre, for example, is working on technologies that could ease congestion by using wireless communication to coordinate traffic. The project, called Masarak, is set to collect real-time traffic data from mobile phones, Bluetooth sensors and GPS devices. Using this data, the technology aims to coordinate traffic signals and inform drivers about congestion. In addition to using technology, the government is also looking for ways to adjust regulations in order to reduce the number of cars on the road. In June 2013, a committee made up of Shura Council and Ministry of Interior members issued several proposals to reduce congestion, including limits on licenses for expats, developing more commercial activities outside of Doha and staggering work hours. Some of these actions are already being put into place. In July 2013, the licensing section of the Ministry of Interior’s Traffic Department notified driving schools not to issue licences to certain classes of workers, according to local Arabic daily Arrayah.

On Track

The project that may do the most to help to address the problem of traffic may be the rail lines. Developing railways could deliver a double benefit, alleviating growing congestion issues while lowering transport costs for virtually all goods. Qatar Railways Company (Qatar Rail) was established in 2011, tasked with designing, constructing, operating and maintaining a passenger and freight rail system. Upon completion of Qatar Rail’s master plan, the state is set to have 750 km of track connecting 100 stations served by the Doha Metro, Lusail Light Rail Transit and long-distance passenger and freight trains.

The metro is set to have at least 48 stations connected by 131 km of rail, with around 80% of the system set to be built underground, while 48 km are planned to be built as elevated rail. In March 2014, Qatar Rail awarded Spain-based FCC with a QR2.57bn ($703.9m) contract to extend the metro system southwards to Barwa Village, Al Wakrah and the Qatar Economic Zone. A light rail transit (LRT) system will also connect areas such as West Bay and Lusail to the network. Qatar Rail said it has selected areas with higher populations and existing businesses, as well as areas where the government plans to construct stadia for the 2022 FIFA World Cup.

The freight and long-distance rail networks, meanwhile, are set to have seven stations and six freight yards connecting into the planned pan-GCC rail network. Freight will be the priority at first, followed by passenger services, Lines said.

Construction for phase one of the rail project is set to begin in the second half of 2013, Qatar Rail announced in June 2013. This phase includes contracts for the Red Line North, Red Line South, Green Line and Major Stations, worth a total of QR42bn ($11.5bn). In that month, Qatar Rail awarded a contract worth $1.4bn to build the Msheireb and Education City Stations to a consortium made up of South Korea-based Samsung C&T, Spain-based Obrascon Huarte and Qatar Building Company.

Mass Transit

Completion of rail projects will likely buoy ongoing efforts to improve the state’s public transport system. Managed by the state authority Mowasalat, Qatar’s public transit includes buses and taxis. In the past taxis were state run, but due to strong demand, the authority hired the franchise taxi operator Alm in July 2012. A month later Mowasalat announced plans for a water taxi that would connect the airport to areas like West Bay and Lusail. Nakilat Damen Shipyards Qatar (NDSQ) was in talks with the transit authority to build the water taxi fleet in June 2013, although no contract had been signed, NDSQ’s managing director, Jan-Wim Dekker, told reporters.

The benefits of more roads and expanded public transport system cannot be overstated. Reducing congestion on roads has clear economic benefits, as it cuts back on transport costs and time lost in transit. In addition, lower congestion reduces the incidence of traffic accidents. While injuries and loss of life impact individuals, accidents have a broader economic impact as well. Losses from road accidents could cost as much as QR10bn ($2.7bn) annually, according to a study by Abdulbari Bener, the head of the epidemiology department and medical statistics at Hamad Medical Corporation.

More roads could alleviate congestion, at least as a short-term stop-gap measure. In the long term, changes like expanded public transportation and other incentives for car alternatives could help decrease congestion in a more sustainable way, offering major social and economic benefits.

Outlook

With ample capital and political will behind several key infrastructure projects, Qatar’s transport sector seems on track for continued progress. Looking forward, possible changes in construction conditions seem like the biggest potential challenge on the road ahead. Materials and contractor costs could rise significantly as more infrastructure projects continue to break ground. In the past disputes with contractors and other factors have contributed to delays. With 2022 on the horizon, staying on schedule is a key priority for project managers. To that end, the authorities’ progress on Customs regulations is a positive sign, as smoother procedures lower costs and speed up projects. It is hoped that with the government introducing changes that ease the burdens of imported materials and labour, it will be easier for projects to finish on time and within the budget.