Sultanate mulling issuing bonds to fund $3bn rail project


09/02/2014 10:31 AST

Oman, which faces Iran across the Strait of Hormuz, said it’s poised to start raising cash for a US$3bn rail line offering an alternative route for oil and freight shipments that funnel through the 34km-wide channel.

The sultanate is considering issuing bonds by the end of 2014 to kick-start funding for the track, Abdulrahman al Hatmi, a director of Oman National Railway Co, said in an interview.

Iranian threats to close the Hormuz waterway have been a recurrent theme in western relations with the Islamic republic since the 1979 revolution. While tensions have begun to ease after an interim deal aimed at halting Iran’s nuclear programme, Hatmi said the 'very expensive' rail line is more than justified by the new trade opportunities bypassing the strait would offer Oman’s southern port of Salalah.

“We are moving fast now,” he said at a rail conference in Dubai. “One of the key changes we’ve made is to connect to Salalah, which is the mouth of the whole region and will play a major role in transforming the whole logistics map.”

Oman on Wednesday signed an RO13.6mn deal for design work with Italferr SpA, the engineering arm of Italy’s state railway. Awards to construction companies will take place by the end of this year, with work commencing by the first quarter of 2015, Hatmi said.

Rather than hugging the coast to reach Oman, the line will take the shortest route east from Abu Dhabi on the Arabian Gulf, crossing the border from UAE near the desert town of Al Ain before plowing through the Hajar Mountains, which rise to 10,000ft, and reaching the ocean near Sohar.

The terrain makes the leg the most challenging of the GCC line and the bill may be higher than the current estimate, according to Hatmi, who said studies are underway to pin down the final cost. From Muscat, Oman wants the line to continue south across its arid interior to the ports of Duqm and Salalah, ending at the border with Yemen, he said.

By circumventing the Strait of Hormuz, the railway would dilute the impact of further closure threats to a waterway through which some 20 per cent of crude supplies pass to reach global markets, equal to 35 per cent of seaborne traded oil, according to the US Energy Information Administration (EIA).

Oman will consider both conventional bonds and sukuk as funding options for the line, and could structure some contracts as public-private partnerships, under which successful bidders would assume a high degree of financial and operating risk, Al Hatmi said. International investors are also offering to buy trains and lease them back to the government, he said.

The GCC Railway has a projected cost of US$20bn and aims to provide a route spanning six Gulf countries by 2018.

Work is most advanced in the UAE, where the seven emirates that form the nation are backing the railway to boost integration and ease pressure on congested roads.

Saudi Arabia has built 200km of track, a rail symposium in Riyadh was told last month. The Arab world’s largest economy will award a design contract for other sections of the line running from Kuwait to the UAE border in two months, with five companies bidding, Mohammad Al Suwaiket, president of the Saudi Railway Organization, said in Dubai.

Progress in Kuwait has been far slower, with no consultant chosen to design 515km of track, said Mansour al Bader, chairman of the country’s advisory committee on the project. A construction tender will be issued in about 18 months with the aim of finishing work three years after the contract has been awarded. That’s likely be the end of 2019, a year late, he said.

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