The UAE’s Train Journey

The glamour and neon lights of the Yas Hotel made an unlikely tableau for the launch of an idea grounded in the past but with ambitions for the future.

The world-famous venue was chosen by Abu Dhabi to formally introduce Etihad Rail, formerly known as Union Railways, its ambitious $10-billion, 1,200 km rail network for which it will break ground later this year. The first trains carrying granulated sulphur from new plants in Shah and Habshan, the locations of major oil and gas field developments, along the 260 kms to Ruwais should roll on the tracks in 2013. Ruwais is the site of the UAE’s major oil refineries, a natural gas liquids fractionation plant and a sulphur handling terminal, among other plants.

“Rail is a great way to transport high-volume goods: commodities, containers, aggregates, cement and sulphur. Railway can do it better than anything,” says Richard Bowker, Etihad Rail’s chief executive officer, in an interview with Gulf Business.

“In most of the places in the world, you always have to deal with things sorted out 100 years ago,” he adds.

“But here there is an opportunity to learn from the best of the best and apply that in a way for the best possible results in the UAE.”

Etihad Rail is a key part of planned investments by Abu Dhabi to shore up its economy to flourish beyond the day when its oil dries up. Its 2030 economic development plan calls for the emirate to boost a number of industries, including alternative energy and tourism, while also spending billions to beef up infrastructure such as rail.

“The development of an integrated railway network signifies the inception of a new chapter of transport in the UAE,” says Nasser Al Sowaidi, chairman of the board of directors of Etihad Rail. “The rail network will form an imperative part of the country’s infrastructure and promote integration between various methods of transportation, both current and planned for the future.”

In total, the planned rail network, which is scheduled to be completed in 2018, would stretch from oil and gas fields in the country’s western region and through Dubai’s busy ports and up to the northern emirates and the Omani border. The railway expects to ship 50 million tonnes of a variety of goods in the first few years.

While railways have long been a part of many nations’ transportation systems, such a network has only just recently
become viable in countries like the UAE. Increasing freight traffic to and through the country has made rail necessary to both reduce costs and increase efficiency of moving the goods.

Bowker says one total rail shipment can carry the equivalent freight of 300 trucks. And with coffers flush from escalating oil prices, a rail network becomes a go-to investment choice for Gulf governments.

Etihad Rail’s management says the network will also be better for the environment compared to truck fleets, even though they have decided to use diesel, rather than electric, engines.

The second stage of the network, for which preliminary engineering is being conducted, would lay tracks inside the emirate of Abu Dhabi from Ruwais to Gweifat, which is located on the border with Saudi Arabia, about 240 kms west of Abu Dhabi city. This stage would also include lines from Tarif to the new Khalifa Port and the Kizad industrial zone in Abu Dhabi, ending at Jebel Ali port in Dubai. The third stage would involve tracks from Jebel Ali northward through the emirate of Sharjah, where they will split, heading to both Khor Fakkan in Ras Al Khaimah and to Fujairah, where a major oil and gas port is being increasingly used to reach the Indian Ocean by bypassing the Straits of Hormuz.

The trains would have double-decker carriages and travel at speeds of 120 km/h. A planned passenger rail line going as fast as 200km/h for commuters between Abu Dhabi and Dubai has been put on hold for now. Still, Bowker says the rest of the 1,200km network – what he calls the core lines of the rail system – would also be able to accommodate passenger traffic, and would do so.

“There is strong potential demand for passenger service,” Bowker says. “But we have a colossal amount of work to do to get the first stage running. It’s all about priorities.”

Putting the priority on freight makes sense, agrees Nabeel Kazerooni, senior executive officer at Injazat Capital in Dubai. “In this part of the world, passenger volumes are not that big, given the size of the populations,” he says.

Etihad Rail is capitalised at Dhs1 billion ($270 million) and is 70 per cent owned by the government of Abu Dhabi, while the UAE federal government owns a 30 per cent share.

“It seems to be on track,” says Marina Petroleka, head of infrastructure analysis, industry research, for Business Monitor International in London. “The contracts are going out; the construction is to start this year.”

There was, however, one misstep last fall when Etihad Rail seemingly abruptly cancelled key contracts with two American companies and a French firm. In January, the company quietly dismissed major design and management contracts just two months after they had been awarded. The railway cancelled a management contract with a joint venture between Parsons Corp. of Pasadena, California, and the Paris-based SYSTEA. It also dropped a preliminary engineering agreement on the project’s first two phases with Parsons Brinckerhoff of New York.

“A decision was taken and we did it,” Bowker says, declining to detail reasons why the contracts were dropped. “No projects has ever gone from A to Z without difficult decisions that have to be executed and that was probably one of them.”

The industry, he says, has taken the reversal in its stride. “The evidence of how keen the market is and how serious we are can be seen in the fact that the tenders for the main ETC contract due March 1 had over 20 bidders. This tells us the interest is overwhelming,” he adds.

For engineering and construction firms, Etihad Rail’s plans present a lifeline at a time when the global economy is still reeling from the slowdown in residential and commercial construction.

Last September, Al Habtoor Leighton formed a joint venture with John Holland, the Advance Rail Group, specifically to target opportunities in the rail sector. Al Habtoor Leighton has been particularly hurt by the crash in the construction sector with many projects cancelled or delayed. The diversification into rail is an astute way to insulate the company from further weakness in that core sector, according to research firm, BMI.

The political unrest in the Middle East has not deterred Abu Dhabi from pursuing its aggressive plan of development. It hired Bowker, a former vice chairman at British Waterways, in 2009 and has aggressively partnered with engineering and design firms to build the network.

“We are dead, dead serious” Bowker says. “This is all-systems go.”