Bahrain modernises transport through big-ticket projects

 

With investment rising despite subdued recent growth, Bahrain’s transport sector remains an important and dynamic non-oil growth driver. The kingdom’s public transportation, aviation, maritime and roadway infrastructure are set to undergo a dramatic transformation in the coming years, as the country implements a host of big-ticket projects across all segments of the transport sector.

Offering new rail and road links to Saudi Arabia, and promising to significantly boost multi-modal connectivity domestically, the King Hamad Causeway is slated to have a major economic impact in Bahrain. It is set to boost cargo volumes and passenger flows while reducing road congestion and encouraging public transport ridership. The causeway will connect to the kingdom’s first-ever metro system, which is set to come on-line by 2030, and Bahrain International Airport (BIA), which is itself undergoing a transformative modernisation programme that will enhance both cargo- and passenger-handling capacities, more than doubling the latter.

Supported by a recent $10bn financing agreement from its GCC neighbours, a number of domestic roadworks are also set to resume in the short term, addressing rising congestion while offering new opportunities for the private sector. Indeed, Bahrain is increasingly developing new transportation projects under a public-private partnership (PPP) framework, offering investment opportunities across the sector, and further supporting an anticipated macroeconomic recovery in 2020.

Structure & Oversight

Bahrain is located in the Gulf, off the coast of Saudi Arabia and to the north-west of Qatar. Bahrain’s archipelago spans 780 sq km and comprises 33 natural islands. Its largest island, also called Bahrain, is home to the capital Manama and BIA. The kingdom has a well-developed motorway system benefitting from its link to Saudi Arabia via the King Fahd Causeway. The Khalifa Bin Salman Port (KBSP), its primary maritime centre, offers cargo and passenger facilities.

Bahrain’s Ministry of Transportation and Telecommunications (MTT) is the primary government entity responsible for transport sector development in the kingdom. The MTT is responsible for developing, regulating and streamlining transport segments including Civil Aviation Affairs (CAA), Ports and Maritime Affairs (PMA), Land Transport Affairs (LTA) and the Bahrain Post, in addition to overseeing telecoms regulation. The Ministry of Works, Municipalities Affairs and Urban Planning (MWMAUP) is another important public actor in the transport space, holding responsibility for developing public infrastructure including buildings, roads and drainage systems. There are 13 directorates operating under the MWMAUP, including directorates for road projects and maintenance, planning and design, financial resources and materials engineering.

Air, Land & Sea

The CAA is responsible for regulating all areas of the kingdom’s aviation sector, serving as the primary government body in charge of law and policy-making, regulatory enforcement, issuing licences and permits for aircraft registration, personnel licences, aircraft operations and airline schedules. It oversees seven directorates that are responsible for aeronautical licensing, air navigation systems, air traffic management, air transport, aviation security, aviation safety and security, and meteorology. A separate entity established in 2008, the government-owned Bahrain Airport Company (BAC) is responsible for operating and managing BIA, which is currently in the midst of a $1.1bn modernisation and expansion project.

The Land Transport Affairs (LTA) within the MTT is mandated to develop and regulate transport systems and infrastructure, although it does not hold responsibility for constructing road networks. The LTA oversees four directorates responsible for land transportation planning and studies, transportation projects, regulation, and monitoring and enforcement. It is primarily concerned with improving the kingdom’s public transportation network, in line with the country’s long-term economic development agenda, Bahrain Economic Vision 2030.

The PMA, meanwhile, is responsible body for regulating, developing and promoting all activities related to the ports and maritime industry. This includes supervising legislative compliance; marketing KBSP; applying competitive principles; monitoring ports performance and services; and licensing ports and marine commercial services. More specifically, the authority was responsible for a project to deepen Bahrain’s approach channel to 15 metres, which was completed in 2010, as well as updating maritime regulations, operating and managing its vessel traffic management system, and upgrading its port service area at KBSP, a BD136.3m ($361.5m) project that began in 2009. KBSP is operated and managed by APM Terminals under a 25-year concession agreement and PPP signed in 2009.

Long-Term Vision

The MTT and the MWMAUP have both decided to align short-term policy-making and development objectives with Bahrain Economic Vision 2030, which calls for advanced “infrastructure [linking] Bahrain to the global economy”. Advancing infrastructure network includes improving planning processes for land utilisation, transportation networks and electricity supplies, among others. In addition, through attracting public and private funds, Bahrain Economic Vision 2030 hopes to achieve increased private sector involvement to enhance the country’s public infrastructure.

The MTT’s road master plan calls for an expansive upgrade programme for the kingdom’s road network, with an emphasis on reducing traffic congestion. The integrated transport strategy, which was approved and launched in 2008, initially envisioned a public transport network comprising six transit lines using various transit systems, including light rail transit (LRT), monorail, tramways and bus rapid transit, all assisted by an advanced feeder services system.

In 2015 the MTT drafted another master plan that included a new location for a GCC Railway landing point, a new airport and a logistics island with a peripheral outer link. The strategy targeted raising daily public bus ridership from 16,000 to 28,900, increasing the total route length served by buses from 220 km to 700 km, expanding bus network coverage to 77% of the total population and introducing a new bus operator. The MTT announced that the first phase is complete.

Global consultancy Egis reports that public transport development has become the major task of the MTT since 2015, moving to appoint a consultant to undertake feasibility studies for phase one of a planned LRT route, and notes that both the MWMAUP and the MTT are collaborating closely to update the kingdom’s current transport master plan, which is expected to be finalised by the end of 2019.

Growth & Investment

The transport and communications sector recorded “unusually subdued” growth in 2018, according to the Ministry of Finance and National Economy (MOFNE), which reports the sector expanded by 0.2% that year. According to MOFNE data, transport and communications accounted for 7.24% of GDP in 2018, higher than social and personal services (6.29%), real estate and business activities (5.86%), and trade (4.5%). It was outweighed, however, by construction (7.28%), government services (13.19%), manufacturing (14.51%) and financial services (16.51%). This stands in sharp contrast to investment in the sector, with the Bahrain Economic Development Board reporting that the manufacturing, transport and logistics sector attracted record-breaking direct investment inflows of $830m in 2018, the equivalent of 24% of total direct investment during the year. The sector saw 32 companies created or expanded during 2018, creating a total of 2222 new jobs.

Bahrain ranked 22nd globally on the DHL Global Connectedness Index 2018 and second in the GCC region, while ranking third in the MENA region in the World Economic Forum’s “Global Enabling Trade Report 2016”, making it an attractive location for investors. Also helping its investment outlook is the government’s ambitious transport development agenda, which has seen the kingdom launch and resume a host of important big-ticket transport projects in the coming years. These plans should help the sector play a more significant role in supporting non-oil growth and economic diversification, most notably through the construction of a second causeway to Saudi Arabia, a new metro system, and a sweeping modernisation programme at BIA. Project work will be supported by a $10bn financing agreement finalised in late 2018, and allocated to Bahrain from the Gulf Development Fund. A previous $7.5bn financing agreement disbursed in 2011 was allocated in large part to deliver a series of new infrastructure projects. In October 2018 international media reported that the new financial package, valued at 25% of the kingdom’s GDP and 28% of public debt, is expected to make an impact on infrastructure development, supporting projects including BIA’s modernisation and roadworks.

Bilateral financing from Kuwait and the UAE has already been channelled into new road and airport projects in Bahrain, with the new financing package expected to help expedite delivery of stalled projects, in addition to bolstering both transport and macroeconomic growth (see analysis).

Roads & Bridges

Bahrain’s sole land link to Saudi Arabia, the King Fahd Causeway, opened in November 1986 but has become increasingly congested by rising traffic volumes, leading the government of Bahrain to launch a major new road project in September 2018. In its 2019 “Macro Research” review of Bahrain, international ratings agency Fitch reported that the King Hamad Causeway is the largest transport project currently in Bahrain. It is also one of the most expensive under development, with an estimated budget of $3bn to $4bn. It will include a rail line for the GCC railway project, which envisions the construction of 2177 km of rail linking the UAE and Saudi Arabia, its primary financiers, to Oman, Kuwait, Qatar and Bahrain. The first phase is scheduled for completion by the end of 2021, linking the UAE, Oman, Saudi Arabia and Qatar, with Kuwait and Bahrain joining the network in 2023.

The expansive long-term project will entail construction of a new causeway with road and rail links between Bahrain and Saudi Arabia. The connections will dovetail with the construction of Bahrain’s first metro project, with Fitch reporting the project’s launch offered a significant upside to its transport infrastructure outlook for Bahrain.

Construction on the 25-km bridge, a new fourlane motorway and a parallel railway, is expected to commence in mid-2022 and finish before 2027. Jointly sponsored by the MTT, and Saudi Arabia’s Ministry of Transportation and the King Fahd Causeway Authority (KFCA), the King Hamad Causeway project will be procured under a PPP model, and the KFCA tendered a contract for transactional advisory services in November 2018. The successful bidder was announced in October 2019 on the sidelines of the Future Investment Forum held in Riyadh, winning a contract estimated at $8.9m. The winning consortium was made up of financial, technical and legal companies, namely KPMG, AECOM and CMS.

Aside from the King Hamad Causeway, the government is actively investing in new domestic road networks, announcing in June 2019 that it was set to jump-start $80m worth of road projects that had been stalled for more than five years (see analysis).

Rail

One of the most important components of the King Hamad Causeway project is its link to the GCC railway. The MTT reports that Bahrain’s GCC railway line will be an integrated, interoperable network creating new multi-modal links offering connectivity to road, air, port and urban transport both in Bahrain and the broader GCC, and offering an environmentally friendly alternative to air and sea travel. The causeway’s rail connection will connect to a passenger terminal in Salmabad, as well as facilities at KBSP, and on to the existing railway in Saudi Arabia, which runs between the industrial city of Dammam and Hofuf.

The MTT forecasts that 8m passengers will use the connection annually by 2050, with the Salmabad passenger terminal expected to eventually link to the planned Bahrain Metro network, which will itself connect with BIA’s passenger terminal, marking an important step forward for multi-modal connectivity in the kingdom. KBSP’s freight connections and facilities will allow for an estimated 600,000 twenty-foot equivalent units (TEUs) and 13m tonnes of bulk freight shipments on the rail line every year by 2050, and the MTT reports that the rail connection will boost port business and help the kingdom achieve its goal of becoming a major trade and logistics centre.

According to the ministry, the project will also make a significant contribution to regional and domestic growth, helping the kingdom diversify its transportation network, while reducing transport and logistics costs, facilitating regional trade and boosting employment for GCC nationals.

Aviation

Bahrain’s national carrier, Gulf Air, was one of the first airlines in the Middle East when it began operations in 1950. Although competition from GCC neighbours, particularly the UAE, has been steadily increasing in recent years, Gulf Air remains an important international carrier, serving 51 cities, 29 countries and three continents. It operates twicedaily flights to more than 10 cities in the region, as well as direct services to India and Europe. In 2019 the carrier opened three new routes: Malaga, Spain; Salalah, Oman; and Male, Maldives.

Its fleet is composed of 34 wide- and narrow-body aircraft, and the company is in the midst of expanding its fleet, expecting to receive 39 new aircraft by 2023, with an order backlog composed of Boeing’s 787-9 Dreamliner, and Airbus’ A320neo and A321neo. The carrier is one of 39 airlines operating out of BIA today, along with Air Arabia, Air India, British Airways, Cathay Pacific, EgyptAir, Emirates, Etihad Airways, Ethiopian Airways, flydubai, KLM, Kuwait Airways, Saudia, SriLankan Airlines, Pegasus Airlines and Turkish Airlines, among others.

Aviation Statistics

For years, BIA has been operating at nearly double its maximum annual handling capacity of 4m passengers. Its last upgrade was completed in 1994, when the authorities built a new passenger terminal and cargo-handling facilities. BAC reports that passenger volumes have more than doubled in the years since, rising from 4.15m in 2002 to hit 5.14m in 2004, 6.7m in 2006 and 9.05m in 2009. Although passenger numbers slumped to 7.79m in 2011 and 7.37m in 2013, they have since rebounded to reach 8.1m in 2014, 8.59m in 2015, 8.77m in 2016 and an all-time high of 9.08m in 2018, the last year for which statistics are available. Meanwhile, air cargo volumes have dropped significantly in recent years, falling from a peak of 385,278 tonnes in 2007 to 342,734 tonnes in 2009, 279,2400 tonnes in 2011 and a 10-year low of 207,936 tonnes in 2015. Volumes have since rebounded to 289,325 tonnes and 288,235 tonnes in 2017 and 2018, respectively.

Airport Upgrade

BIA’s current $1.1bn modernisation officially commenced in January 2016, when a joint venture between the UAE’s Arabtec Construction and Turkey’s TAV Construction received a letter of intent to begin construction on a new terminal. Enabling works were completed the same year.

The project, which includes the construction of a new passenger terminal, is largely funded by the Abu Dhabi Fund for Development, and comprises seven projects in total. It is expected to significantly ease congestion and potentially boost passenger arrivals, in line with broader Bahrain Economic Vision 2030 infrastructure mandates. Scheduled for completion in the first quarter of 2020, the new passenger terminal will comprise 210,000 sq metres of built-up area, including a 4600-sq-metre departure hall with 104 check-in counters, 36 passport control booths and 24 security checkpoints. “The new terminal will bring about a lot of changes to the aviation value chain, including in services, where 150 new employees will be hired to meet the increased capacity,” Salman Al Mahmeed, CEO of Bahrain Airport Services, told OBG.

The airport’s existing terminal will also be upgraded, with an emphasis on boosting cargo-handling capacity. Additional upgrades include the construction of 24 new air bridges, additional arrival and departure lounges, and airport aprons. Upon completion, the MTT expects BIA to be capable of handling 14m passengers and 130,000 aircraft movements annually, as well as 4700 pieces of luggage per peak hour. This expansion plays into Bahrain’s larger strategy, which could develop BIA’s as a stop-over destination for long-haul flights between Asia and Europe (see Tourism chapter).

Plans are also being considered to develop a second airport, although the completion of this project is likely more than 15 years away. Feasibility studies for infrastructure surrounding the project were under way as of November 2018.

Ports

KBSP officially launched operations in April 2009 in the Al Hidd industrial area, approximately 13 km from BIA. It connects to the kingdom’s previous primary maritime centre, Mina Salman, with a 5-km purpose-built causeway. The commercial port is located on 110 ha of reclaimed land and offers facilities including a 1800-metre quay; a 900-sq-metre container terminal served by four 61-metre post-Panamax cranes; and general cargo, roll-on/ roll-off (ro-ro) and passenger facilities.

KBSP also features a cruise ship terminal that has recorded a steady increase in port calls and visitor numbers in recent months. According to official statistics provided by the MTT, 15% of ships making call at KBSP in the second quarter of 2019 were cruise ships, 31% were container vessels and 54% were general cargo vessels.

The MTT reports the port is expected to help transform Bahrain into the northern Gulf’s premier trans-shipment centre, in line with Bahrain Economic Vision 2030 goals. The wording of this statement, which put an emphasis on the northern Gulf, is important, as the UAE and Oman have also aggressively pursued port development and new port projects to become major regional shipping centres. However, Bahrain could benefit from its strategic position in the middle of the Gulf, its deepwater berths and an approach channel with a draught deep enough to handle the largest oceangoing container vessels. Overland links to mainland Saudi Arabia and close proximity to the Saudi regional capital of Dammam lend it another competitive advantage.

The port has recorded mixed recent performance, with the MTT reporting a 13% year-on-year (y-o-y) decrease in the total number of container vessels making port call at KBSP in the first half of 2019, easing to 131 from 151 vessels a year earlier. General cargo vessel calls also fell, by 30% y-o-y, although the total number of cruise ships visiting the port increased by 31% over the same period. In TEUs, shipments dropped by 5.87% y-o-y in the second quarter of 2019, falling from 110,683 to 104,188, although general cargo volumes surged by 46.32% y-o-y to hit 212,187 tonnes over the same period. Ro-ro unit volumes also recorded a modest increase, rising from 10,300 units in the second quarter of 2018 to 10,444 units a year later.

Shipping volumes are expected to surge in the coming years thanks to support from the kingdom’s expansive infrastructure development programme, rising numbers of cruise ship calls and the completion of the King Hamad Causeway. Indeed, KBSP’s strong growth prospects are reflected in the recent initial public offering of its operator, APMT, which launched in December 2018. APMT’s $31.3m offering, described as the most successful in the kingdom in a decade, was 5.4 times oversubscribed, with total demand reaching 97.4m shares worth BD64.3m ($170.6m) (see Capital Markets chapter).

Urban Transport

Another major big-ticket transport project expected to move forward in the short term is the Bahrain Urban Transit Network, or the Bahrain Metro. Officially announced in August 2018, the project is also expected to be developed under a PPP model, with the government announcing plans to issue a tender for the project in late 2019. Valued at up to $2bn, the project is slated to reach a total length of 109 km on completion.

The urban transit project’s first phase envisions the creation of an automated, driverless system connecting Manama’s main residential, business, administrative and recreational areas. This first 28.6-km phase is expected to include 20 stations operating across two lines. The first line will connect BIA to Seef Mall through Airport Avenue and the King Faisal Highway, then travel onwards to The Avenues mall, Bab Al Bahrain and City Centre Bahrain mall, spanning nine stations in total.

The second line will run from Juffair to the educational area in Isa Town along Al Fateh Highway, the Diplomatic Area, Bab Al Bahrain, Al Farooq Junction, Salmaniya, Zinj, Tubli and Salmabad. Passengers will be able to transfer at interchange stations in Bab Al Bahrain and Al Farooq Junction. According to the MOFNE, the metro will eventually be expanded to six lines, with construction on the first phase of the project expected to wrap up in 2030.

Outlook

With passenger and cargo volumes rising across its roads, port and airport, Bahrain’s transport sector is set to benefit greatly from its sweeping infrastructure development agenda. Although many big-ticket projects, including a new airport, metro system and the King Hamad Causeway, are years away from completion, the kingdom has made significant recent progress in launching and resuming critical transport projects to address the issue of congestion. Rising investment across the sector and Bahrain’s efforts to leverage its geographic position will further support long-term expansion, putting the sector on track to achieving its 2030 targets.

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The Report: Bahrain 2020

Transport chapter from The Report: Bahrain 2020

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