Legal framework black hole threatens to derail PPP plan

Unique requirements of PPP rail financing require robust legal framework to be in place

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By  Angela Giuffrida Published  December 24, 2005

Plans for a US $3.8 billion (AED14 billion) emirates-wide freight railway could be scuppered because the necessary legal framework is not yet in place in the UAE.

Findings in a pre-feasibility study, commissioned earlier this year by Abu Dhabi’s Department of Planning and Economy, led to the conclusion that the most viable way forward would be to build a cargo network financed by a Public Private Partnership (PPP) scheme.

But legal implications would need to be overcome for such a scheme to work, according to Horst Draudt, a director at Dornier Consulting, the company behind the study.

Dornier is now leading a year-long research programme into the 700 km-long Emirates Railway, which will link Abu Dhabi with Dubai, Sharjah, Fujairah and Ruwais.

Various financial options will be analysed, as well as cargo volumes, construction, and integration with other transport modes.

Draudt said that the biggest challenge of adopting a PPP-style funding scheme would be defining the roles between the government and private enterprise.

“Abu Dhabi Department of Planning and Economy has asked for as much investment from private investors as possible,” he said.

“But in order for this to work we need to create a clear understanding of what the government and private enterprise can handle. Railways are different to other types of construction because they need a lot of specific legislation in place, which would have to be provided by the government.

“A PPP model would not therefore be that easy to achieve, but this is something that we’re going to analyse in the study.”

Such a scheme would also need government subsidy backing, said Matthias Lohmann, business development manager at Parsons Transportation.

He cited Bangkok’s sky train as the only fully privately funded project in the world that has been successful.

“False hopes are attached to these schemes,” he said. “It has been done before but it has not really been successful from a commercial standpoint; you might be able to sustain the project, but you will never recover the design and building costs.”

“A strong financial planning model needs to be in place early on for any rail project to be a success,” added Lohmann.

“Finance is the most crucial aspect involved; if the right model isn’t in place from the beginning, then things could go drastically wrong. There are other ways that the private sector can be approached for funding, but governments need to consider that deals of this kind can take up to a year to finalise.”

Draudt estimates that if all goes to plan, the Emirates Railway could be operating by 2015. There is also the possibility of integrating the system with a passenger network, which would require a separate rail line.

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