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Rail
Train TimesWinter 2014
Enabling rail transportation around the world Welcome to the Winter edition of Clyde & Co’s rail newsletter, written by our legal experts who have a particular focus on the rail industry. In this edition, we provide updates on developments in Doha and Jakarta and a review of the current rail market in Tanzania.
The Qataris have very ambitious plans to deliver a light rail system, a high speed railway and a metro, which if delivered, will comprise 300km and 98 stations. Compare this with the London Underground network which is just over 400km. Even if only part of the Qatar metro system is delivered, given the size of the population it is a very significant undertaking. The Lusail light rail system is a much more modest undertaking but is well advanced. The high speed railway is a longer term aspiration.
Indonesia, with almost 240 million people, is the world’s fourth most populous country. A new link to the airport is badly needed but competing demands on the nation’s resources dictate that alternative finance sources be found. In our autumn edition of Train Times, one of our partners with 20 years’ experience in the country examined the prospects for this new rail link. In this edition, we provide an update.
Finally, a look at Tanzania - a resource rich country in East Africa with aspirations to deliver transport infrastructure. Given the constraint on public sector finances, much of it is likely to be delivered using PPP structures. Our final article describes the structure of the rail sector in the country and the prospects for development.
We hope that you find our newsletter informative. If you would like to discuss any of the issues raised, please feel free to contact one of our experts or email us at [email protected].
Clyde & Co – A leading international law firm with over 1,500 lawyers operating over 6 continents.
ContentsIntroduction Page 1
Qatar Rail Development Program: Progress updatePage 2
Jakarta’s Airport Rail Link: Update on recent developmentsPage 4
The Tanzanian railway system: A big historyPage 6
Further informationPage 8
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Train Times Winter 2014
Qatar Rail Development Program: Progress updateA significant proportion of Qatar’s infrastructure investment is currently focused on the development of a modern rail network via execution, under the control of the Qatar Rail Company (Qatar Rail), of the Qatar Rail Development Program (QRDP). The QRDP consists of a two phase metro network, a light rail transit system and a long distance passenger and freight rail network.
Qatar Rail has awarded USD 32 billion in contracts to date with the aim of delivering one of the most sophisticated rail networks in the Middle East region, whilst simultaneously supporting national infrastructure development including the construction of the New Doha International Airport and the New Doha Port. One of the key drivers is the provision of rail services in advance of the FIFA 2022 World Cup.
During a press conference held on Monday 9 December 2013, Qatar Rail released information relating to its plans and progress in developing Qatar’s transport system, and in particular, released route maps and a timeline for the high-speed long distance line between Qatar and KSA. In this article, we provide details of this progress update by reference to the three distinct projects which comprise the QRDP.
Doha MetroQatar Rail intends to deliver an operational metro system, consisting of surface level and underground line sections, with 37 stations, in 2019. The number of stations is set to increase to 56 by 2026. Qatar Rail has confirmed that tunnel boring works (which may operate at up to 20-25 meters below ground) at four interconnected lines are presently underway, and work has officially commenced for the set-up of metro stations at 20 locations. Qatar Rail has also released route maps for three of the coloured metro lines.
Gold Line (Historic Line)The Gold Line is to run from east to west initially beneath Al Waab Street, starting from the Villagio mall. The route map shows that thereafter the Gold Line will cut through the residential areas of Fereej bin Mahmoud to follow Al Adhwaa Street into Musheireb station and then curve south to follow Ras Abu Abboud Street past the north end of the Doha International Airport runway.
Green Line (Education Line)The Green Line will also run east to west and initially at ground level from the Al Rayyan Stadium before passing underground below the Dukhan Highway and past Education
City. Thereafter, the Green Line will stop at the Qatar National Library (currently under construction), turn south at Huwar Street and eventually cross the Hamad Medical Center before turning into Musheireb.
Red Line (Coast Line)The Red Line will run at ground level along Al Khor Coast Road, before turning into the Qatar University campus, and then east along the southern boundary of the Doha Golf Club. The Red Line will then descend underground as it passes the Grand Hyatt Hotel before it stops at the Katara Cultural Village. Thereafter, the Red Line is designed to run between the Qatar International Exhibition Center and the Intercontinental Hotel into the Dafna central business district, past the City Center Mall and Doha Convention Center. It will subsequently run along Majlis Al Taawon, parallel to the Corniche, towards Musheireb. Finally, the Red Line will run along Al Matar Street, turning east into the Hamad International Airport.
The Doha Metro project also includes the construction of the Musheireb and Education City Stations, the package for which has been let in one “Major Stations” contract. Musheireb Station is located in the heart of Downtown Doha and is designed to be the major interchange station for the Red, Green and Gold lines. Education City Station will link the Green Line with the long distance passenger rail track.
The majority of the Phase One (Initial Network Scheme) Doha Metro contracts, including the main construction contracts for the Red Line North, Red Line South, Green Line and Major Stations, were awarded in May 2012. We understand that the Gold Line packages (underground and at-grade) are at the prequalification stage of the tender process. The second phase of this project, due for completion by 2026, will also include the construction of a Blue Line (City Line) which is intended to connect newly built residential and commercial areas of West Bay and Airport City North along the C-Ring Road.
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Lusail Light Rail Transit projectThe Lusail Light Rail Transit (LRT) project is designed to consist of a 30.5km track and 37 stations. The majority of the track will be at grade but four of the lines include 10km of underground tunnels and a 1km section is elevated. Passengers will be able to transfer between the Lusail LTR lines and the Doha Metro lines at the Lusail Marina/Pearl station. Qatar Rail’s objective is to create an integrated transport system for the visitors, employees and residents of the Lusail city.
We understand that this project is at an advanced stage with 60% of the tunnelling works and 50% of the Al Khor Bridge works complete at present. Qatar Rail’s anticipated completion date is 2017 although it is rumoured that trains may start running between 3 stations as part of the first phase in 2016.
Long distanceAn important part of the QRDP’s vision is the construction of a long distance passenger and freight rail network which serves two purposes: (1) the connection of densely populated and industry heavy centres in Qatar; and (2) linking the 6 GCC (Gulf Corporation Council) countries (Qatar, KSA, UAE, Kuwait, Bahrain and Oman) as part of the wider GCC rail network.
The long distance network is to be phased in order to meet GCC commitments and domestic demands. We understand that Qatar Rail is currently in the process of awarding a design contract for the first phase of the network, namely the mixed (passenger and freight) track connecting Doha to KSA. Qatar Rail anticipates that construction will commence in the third quarter of 2015, with completion due in approximately 2017-2018, before the onset of testing and final fit-up works.
The remainder of the long distance rail network consists of:
– Freight rail line from Port Mesaieed to Ras Laffan
– High speed passenger rail line connecting Doha and Bahrain
– Mixed (passenger and freight) rail line from Doha to Dukhan
– Mixed (passenger and freight) rail line from Doha to Al Shamal
Qatar Rail expects that the rail network will be at least 350km long, with a scheduled completion date of 2029.
ConclusionQatar Rail has undertaken to achieve economic viability, social responsibility, environmental effectiveness and operational excellence in delivering the QRDP. The intention is to establish a high quality and integrated public transport network that results in a shift from private vehicles to public transport across Qatar, whilst recognising freedom of choice in transport. In particular, the rail network is designed to achieve more efficient movement of people and goods, with the objective (fittingly termed “keep traffic moving”) of reducing traffic congestion, including heavy urban traffic and construction site traffic. The rail network will offer a quick and safe mode of public transport, significantly reducing private car trips and saving commuting time, and with the side effect of reducing traffic pollution and accident rates.
The QRDP is a manifestation of Qatar’s commitment to delivering a sustainable future for a growing economy and an increasing population, and a continual upward surge in infrastructure development. The project is designed to align with the transportation objectives contained in the Qatar National Development Framework 2012-2032 and additionally, Qatar’s National Vision 2033 strategy. This is aimed at transforming Qatar into an advanced, sustainable country with a high standard of living for future generations with focus on the 4 “pillars” of economic, environmental, human and social development. The citizens of Qatar and QRDP stakeholders alike eagerly wait to see how Qatar Rail will successfully deliver this leading-edge rail project within the confines of an ambitious programme and how this will impact on doing business in Qatar and the daily lives of many more generally.
Alexa HallAssociate, DohaT: +974 4496 7316 E: [email protected]
Laura WarrenPartner, DohaT: +974 4496 7434 E: [email protected]
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Train Times Winter 2014
Jakarta’s Airport Rail Link: Update on recent developmentsIn mid-November 2013, Ibu Emma Sri Martini, the Chief Executive Officer of PT Sarana Multi Infrastruktur (SMI), provided some additional information on the SHIA Rail Link project. SMI is the Indonesian state-owned company that has been charged with retaining the experts to prepare the feasibility study. SMI will also conduct the project tender. Ibu Emma’s comments suggest that the SHIA Rail Link project is still in its pre-feasibility study stage, but that SMI believes that study will be completed in Q1 2014 and that SMI will offer the project through competitive tender to be held in Q1 2014. If correct, this would suggest that potential consortium members may now be seeking to establish relationships with one another.
However, for several reasons we believe the schedule described by SMI may be ambitious.
We note that public statements from a senior Transport Ministry official made at the end of October 2013 indicated that the pre-feasibility study is being finalized. A news report from early September 2013 quoted Ibu Emma as saying that the pre-feasibility study had been completed, but was under review at the Transport Ministry. This review process is of uncertain duration and may lead to additions or changes suggested to SMI, which may then require additional time for the expert team to prepare and for the Transport Ministry to review the revised pre-feasibility study. Further, the timeline set out in the 2013 PPP Book (published by the National Development Planning Agency on 18 November) indicates that the pre-qualification phase of the competitive tender may not take place until the second half of 2014, with bidding and evaluation taking place in the first half of 2015.
Moreover, we believe it will be difficult, although not impossible, for the Transport Ministry and SMI to execute several essential steps in project preparation between now and the end of Q1 2014. These steps relate to viability gap funding (VGF), land acquisition, route selection and fare levels.
We expect that the capital expenditure budget of the SHIA Rail Link project is likely to require material government support by way of the Government’s VGF. The VGF regulation is relatively new and untested, but is generally understood to limit VGF funding to no more than 50% of capex, and not allow for any operating subsidy. We expect that the VGF proposal will be considered very carefully by both the Transport Ministry and the Finance Ministry, and may require approval as part of the state budget process. (We hope to confirm information on this approval process shortly.)
In theory the SHIA Rail Link project, like all other Indonesian PPP infrastructure projects, should not be offered until at least 75% of the land required for it has been obtained and paid for, and should be eligible to utilize funding provided by the Government’s land acquisition fund and/or land revolving fund for this purpose. Like the VGF funding, these land funds are relatively untested.
In late October 2013 an SMI representative advised that the Transport Ministry had not yet determined the final route for the SHIA Rail Link project. Naturally this important question must be answered before land acquisition can proceed.
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Finally, an SMI representative further stated in late October 2013 that SMI was currently working out the appropriate fares to be charged to SHIA Rail Link users. This crucial question directly impacts on the attractiveness of the project’s operating model to operators, owners and financiers, as does the related question of the regime for tariff adjustment over the life of the project. Tariff levels and adjustment mechanisms will also directly impact the level of operating subsidy, if any, to be offered to the project by local or national government.
In addition to considering the pre-feasibility study and the related issues mentioned above, prior to the project tender the Transport Ministry and any funding support providers will need to carefully review, and in our experience can be expected to extensively comment on, project documentation offered in the tender.
Most importantly, these documents would include the form of concession grant agreement, the project’s fundamental asset for funding purposes. This agreement is the source of owner’s rights to a long-term revenue stream on which financiers will rely. Additionally, these documents may include the form of tripartite agreement, a document that is central to bankability. In this agreement the project company will provide, and the government concession grantor will permit, financier step-in and other protective rights lenders need to assure they can act to save the concession and the revenues under it to be used to repay them if the project encounters troubles during its long life.
Michael Horn Partner, SingaporeT: +65 6544 6553 E: [email protected]
Train Times Winter 2014
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The Tanzanian railway system: a big historyThe railway system of mainland Tanzania has a total track length of 3,676 kilometers with two separate networks, run by two separate organisations. These are the Tanzania - Zambia Railway Authority (TAZARA), which maintains and operates a 975 km network including the Tanzania - Zambia railway line from Dar es Salaam to Kapiri Mposhi in Zambia, and Tanzania Railways Limited (TRL), which maintains and operates over 2,706 km of track in the rest of Tanzania, including Tanzania’s railway links to Kenya and Uganda.
The Ministry of Transport is the key Government ministry with regards to railways with responsibility for the development of transport throughout the country.
TRL NetworkAll railway services in Tanzania (apart from the TAZARA network) were originally operated by the Tanzania Railways Corporation (TRC). TRC was established in 1977 and until the early 1980s played an important role in the economic development of Tanzania and her neighboring countries. However, since 2004 there has been a marked decline in the volume of freight traffic and passengers on the network due to the operational efficiency of the TRC being constrained by infrastructural problems, caused largely by inadequate investment. In September 2007, RITES of India was awarded a concession to take over the operations of TRC, following which RITES and the Tanzanian Government formed TRL to take over the activities of TRC with RITES owning 51% of the shares of TRL and the Government owning 49%. TRL began operations in October 2007 but due to budgetary constraints and managerial issues little improvement was made in the running of the network. The venture was eventually terminated in July 2011 and full ownership and control of TRL was handed back to the Government. Today TRL and therefore the Government remains the sole party responsible for the operation of all railways in Tanzania outside the TAZARA network.
The key bodies involved in the TRL network today are:
– Reli Assets Holding Company Limited (RAHCO) – the legal owner of the TRL network and the party which acts as landlord of the railway network on behalf of the Government. Notably, it is empowered to enter into agreements with other persons
– Surface and Marine Transport Regulatory Authority (SUMATRA) – the semi-independent cross sector regulatory agency that is able to enact regulations regarding railway safety etc
Licenses: Any party wishing to operate a rail transport service in the future must apply to SUMATRA for a licence under the Railways Act 2002. Conditions under which licences will be issued are outlined by the Railways (Licensing of Railways Operators) Regulations, 2006. These include a requirement for applicants to submit a Safety Plan and an Environmental Impact Assessment Report for approval before a licence is granted.
Looking to the future: Through the Government, RAHCO is working with stakeholders, financiers and development partners to ensure that railway financing is enhanced. This will include making use of Public Private Partnerships and establishment of Railway Infrastructure Funds (RIF).
The Government’s plans for the next 50 years include:
– Upgrading 982 km of railway from Dar es Salaam to Isaka
– Upgrading 1094 km of railway from Isaka to Mwanza and Tabora to Kigoma
– Construction of 12km of railway from Kange to the proposed port at Mwambani in Tanga and about 25 km of railway from Kidomole (Link line) to the proposed port at Mbegani in Bagamoyo
– Construction of about 664 km of railway line from Arusha to Musoma
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Train Times Winter 2014
TAZARA networkThe TAZARA network is comprised of the line from Dar es Salaam to New Kapiri Mposhi, and the surrounding branches of railway. The network comprises one component of the Southern African Development Community railway network, which links eleven of the Regional body’s member states. It is managed and maintained by TAZARA, a statutory body jointly owned by the Republic of Tanzania and the Republic of Zambia.
TAZARA’s main business is freight and passenger railway transportation services and it acts as a key channel for all kinds of major imports and exports from all over the world, particularly minerals out of Zambia and DRC. Over the last four decades TAZARA has transported over 50 million passengers and more than 30 million metric tons of freight between the two countries and across the region.
Management structure: Tanzania and Zambia share the managerial responsibilities of the TAZARA network with the joint control being reflected in the Council of Ministers and the Board of Directors.
The Council of Ministers consists of three Ministers responsible for finance, transport and trade or commerce from both Tanzania and Zambia. Its main function is to shape the overall policy and long term development of TAZARA. Chairmanship of the Council rotates between Tanzania and Zambia annually.
The Board of Directors consists of the Secretaries responsible for transport in each country, as well as two individuals with experience in transport, commerce, industry or finance from both Tanzania and Zambia. These individuals will be appointed by both Tanzania and Zambia’s respective Minsters of Transport.
The Managing Director acts as the Chief Executive Officer of TAZARA and is responsible for the general running of its affairs, with the Deputy Managing Director assisting with day to day affairs. Under the Tanzania- Zambia Rail Act 1995, the Managing Director is appointed from Zambia, and the Deputy Managing Director from Tanzania.
Regulation: Neither the application of the Railways Act 2002 nor SUMATRA’s regulatory mandate extends to operations along the TAZARA network. Nonetheless there remains scope for SUMATRA’s involvement as it is within the Minister of Transport’s discretion to appoint an inspector under the Tanzania- Zambia Rail Act 1995 which will likely be the Chief Inspector of Railway Safety, a SUMATRA appointee.
Tanzanian’s railways must be viewed as two very separate networks as they differ in ownership, management and regulation. The TAZARA network is a well established railway system with its own autonomous management.
The TRL network provides investors with significant opportunity going forward, particularly as after the recent failure of the concession the Government will be looking for new partners. This is especially the case if they are willing to enter into PPP agreements with the Government of Tanzania.
Peter KasandaLegal Director, Dar es SalaamT: +255 (0) 768 983 000 E: [email protected]
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Rail at Clyde & CoClyde & Co is an international law firm with over 295 partners and 2,500 staff in 37 offices around the world. We have built our reputation by providing high quality, expert and sector-specific advice.
Our rail team comprises lawyers who have undertaken extended secondments within the rail industry and therefore have detailed knowledge of how the industry works. With the benefit of a worldwide network of offices we are able to deploy this experience anywhere in the world.
We have advised participants from across the rail sector including train operators, infrastructure managers, construction companies, infrastructure maintenance companies, lenders, insurers and reinsurers, regulatory bodies and central and local governments.
Our experience is international and includes advising on:
– Infrastructure projects, including PPP projects, project finance and construction issues
– Train operation, including concessions and rail franchising (bidding, mobilisation and transfer schemes as well as general advice) and access arrangements
– Privatisations, mergers and acquisitions, alliances and joint ventures, corporate restructuring and fund raising
– Economic and safety regulation
– Station development and redevelopment
– Rolling stock issues such as rolling stock acquisition and refurbishment
– Rail disputes, including disputes arising out of major derailments, civil cases and criminal investigations and prosecutions
In summary, we are able to offer a one stop shop advising on all issues arising in the rail industry wherever they may arise. This includes complimentary issues such as property and planning, competition, employment and pensions and health and safety.
For further information on our rail expertise please contact [email protected].
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Train Times Winter 2014
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