Bold transport plans in Bahrain include new causeway

As Bahrain marks the 30th anniversary of the opening of the King Fahd Causeway linking it to Saudi Arabia, the country’s transport sector is gearing up for expansion in both the short and medium term. GCC funds are being used to complete upgrades to the road network and airport facilities, while the government is investing in infrastructure improvements and new public transport initiatives.

As it works towards the goals of its Economic Vision 2030, Bahrain is also appraising the potential for more ambitious infrastructure projects in the medium term. The construction of a second crossing to Saudi Arabia, to be known as the King Hamad Causeway, would ease congestion on the existing route, which has seen traffic levels balloon in the last three decades. It would also enable Bahrain to connect to the GCC-wide rail network. Saudi Arabia and Bahrain made a commitment to the new causeway in September 2014, with the project in the planning stage in late 2015.

While the construction costs of some major pan-regional infrastructure projects may come at a time when GCC economies are adjusting to lower global oil prices, Bahrain’s transport sector has already been buoyed by existing levels of activity and the immediate prospect of improvements delivered by smaller schemes.

By The Numbers

According to Central Informatics Organisation (CIO) data reported by Bahrain’s Economic Development Board, the transport and communications sector was characterised by renewed vigour in 2014 and the first quarter of 2015. Annual growth in the sector was 4.5% in 2012, but dipped to 2.5% in 2013. In 2014 it rebounded to 6.2%, and in the first quarter of 2015 year-on-year growth was 7.3%. The industry showed the fourth-highest growth by sector in 2014, behind social and personal services (7.5%), restaurants and hotels (9.9 %), and construction (7.3%). In the first quarter of 2015 it was only outperformed by construction (7.5%) and social and personal services (8.3%). The sector’s GDP contribution at constant prices grew from 6.9% in 2013 to 7% in 2014, and in the first quarter of 2015 stood at 7.3%. In 2014 the sector was valued at BD788.7m ($2.08bn) up from BD740.3m ($1.95bn) in 2013.

Causeway Traffic

Growth in the sector can also be measured in the volume of traffic entering the country. Traffic in both directions on the King Fahd Causeway was at record levels in 2014 and the growth continued into 2015. The numbers of passengers travelling in both directions grew each year between 1999 and 2007, when 7.42m passengers arrived in Bahrain and 7.61m left for Saudi Arabia, according to CIO data. The number of arrivals fell for two consecutive years in 2008 and 2009 before surpassing the previous record in 2010, when 7.54m travellers arrived in Bahrain. In 2011 the numbers fell again by around half a million, but have been on an upward trajectory ever since. In 2014, 11.03m people used the causeway to drive to Saudi Arabia, representing a rise of 84% since 2010. Arrivals in 2014 totalled 10.99m, an increase of 64% when compared to 2009.

If the time frame is extended back a further 10 years the growth is even more dramatic. In 1999 total annual traffic on the King Fahd Causeway, in both directions, was 7.26m, but by 2014 it had tripled to 22.02m. The upward trend continued into 2015. Combined traffic in both directions was up by 10% from 12.48m between January and July 2014 to 13.66m for the same period in 2015. In March 2015 Bahrain News Agency reported that February 28th had been the busiest day in the causeway’s history, with 62,266 people leaving Bahrain and 38,377 arriving.

Congestion

However, businesses using the causeway to export their products from Bahrain to Saudi Arabia faced some lengthy delays in 2015. In April hundreds of lorry drivers were parked at Khalifa Bin Salman Port (KBSP), 25 km east of the causeway, with local press reporting that some had been waiting to cross for eight days. Business leaders told OBG that the problems were particularly acute for companies in the food business whose vehicles were turned back if they did not reach Saudi Customs before 2pm. Bahrain’s minister of the interior met Customs officials and security advisers to discuss the issue, which was also raised in talks between the two countries. The delay was partly due to heightened border security following terrorist attacks in Saudi Arabia. “The causeway has been a very negative issue, but it is being addressed at the highest level and we are confident our tenants will see an improved service in the future,” Gerry Sharkey, project director of Bahrain International Investment Park (BIIP), told OBG.

Road Improvements

The kingdom is also improving its internal road networks. In recent years the Ministry of Works has invested BD184m ($485m) on remodelling junctions, bridges and tunnels, and widening existing highways. This work is ongoing, with a number of schemes due for completion in early 2016, while some of the more ambitious infrastructure improvements are at the master planning stage (see analysis). The net effect of this activity is that Bahrain’s network of highways is expanding, with efforts being made to prevent congestion and maintain the efficient flow of goods and people around the kingdom.

Airport Expansion

Bahrain International Airport (BIA) is also expanding to enable it to cater to more passengers and cargo, thanks to $1bn in investment by the Abu Dhabi Fund for Development. In March 2015 the first contract of the Airport Modernisation Programme was awarded to Cyprus Building and Road Construction Company. The BD1.14m ($3m) deal was for the first enabling works, and a second enabling works contract worth BD10m ($26.3m) was won by Bahrain’s GP Zachariades Engineering and Construction later in the year. By the end of 2015, Bahrain Airport Company (BAC) anticipated that a further seven contracts with a combined value of BD300m ($790m) would be awarded to cover main works and infrastructure, piling, loading bridges, baggage handling systems, horizontal and vertical passenger transport systems, information and communications technology, and security screening equipment. BAC was anticipating that construction work on the new terminal building would begin in early 2016 and be completed by the fourth quarter of 2019. It also hopes that the modernisation programme will help to attract more airlines and cargo companies to BIA, and help existing airlines to expand and increase the routes they can offer.

The new terminal will be four times larger than the existing facility and capable of handling 14m passengers a year. Ministry of Transport and Telecommunications (MTT) figures show that, including transit passengers, 8.1m people passed through BIA in 2014, an increase of 10% on the previous year. The upward trend continued in the first seven months of 2015, when passenger numbers were up by 8% on the same period in 2014. BAC expects 8.7m passengers to have used the airport by the end of 2015, and annual growth in passenger numbers of 5-7% over the next five years.

Air Cargo

BIA has seen a decline in the volume of goods passing through the airport, and a particularly sharp drop in exports. MTT data shows an 11% fall in cargo handled by BIA, from 245,145 tonnes in 2013 to 219,332 in 2014. The decline in air cargo shipments from Bahrain bucks the recent trend for the wider Middle East region. Although global figures issued by the International Air Transport Association (IATA) in August 2015 showed a slowdown in air freight movements in the first half of 2015 compared to the same period in 2014, the Middle East experienced the strongest growth of any region in the world. Demand for air freight across the Middle East grew by 15% from June 2014 to June 2015 and capacity rose by 19%, according to IATA. For the first six months of the year demand grew by 14%. IATA attributed this growth to the pursuit of “a successful hub strategy connecting with both long-haul and short-haul markets”, and it said economic growth was driving demand for air freight. In Bahrain, year-on-year freight movements fell by 1.4% in June 2015, and in the first six months of the year the overall volume of freight handled at BIA was down 6% from 111,062 tonnes to 104,306. That was 16% below the figure for the first three months of 2013, when 124,459 tonnes of cargo was shipped through BIA.

The decline in cargo volumes is particularly pronounced when exports are taken in isolation. In the first half of 2013 exports totalled 44,579 tonnes, falling by 21% to 35,444 tonnes in the same period of 2014 and by another 10% to 31,758 in 2015. Full-year data shows a drop of 17% from 84,338 tonnes in 2013 to 70,306 in 2014. Over the same period the total value of Bahrain’s exports through all ports fell by 13% from BD3.88bn ($10.2bn) to BD3.38bn ($8.9bn), according to the CIO.

BAC attributes the recent fall in cargo volumes to the reduction in services and flights by two operators. However, it is looking to capitalise on the projected growth in air freight in GCC countries by improving facilities and connectivity to attract new entrants. Europe’s largest all-cargo airline, Cargolux, became the most recent freight company to operate from BIA in March 2015, and will serve 25 new destinations from the airport, bringing the number of cargo airlines at BIA to 15.

Airport Operations

Several companies are involved in the running of BIA and its facilities, which include the passenger terminal and a 25,000-sq-metre, 24-hour cargo facility equipped with bonded warehouses, cold-chain facilities, livestock and break-bulk handling, and mail services. BAC was formed in 2010 and has 330 staff, while Bahrain Airport Services (BAS) provides passenger and cargo handling, in-flight catering, aircraft engineering and maintenance. In addition, BAS operates the Dilmun Lounge which is provided for premium-class passengers and BAS Aircraft Engineering Training Centre.

Bahrain Duty Free Complex, which is listed on Bahrain Bourse (DUTYF), invested in improvements to its outlets and range of goods in 2014, and had its most profitable year ever, making BD8.56m ($22.6m), a 33% increase on the previous year’s profit of BD6.45m ($17m). The firm’s first-half results for 2015 showed profits of BD5.2m ($13.7m), a 49% rise on the same period in 2014.

National carrier Gulf Air, which is owned by the state holding company Mumtalakat, accounts for 40% of traffic at BIA according to BAC, and serves 43 cities and 24 countries from the airport. According to Mumtalakat, Gulf Air reported a net profit, after government grants and impairments, of BD15.8m ($41.6m) in 2014, compared to a net loss of BD12m ($31.6m) in 2013. Increased passenger numbers and yields led to a 14% rise in revenues to BD349.4m ($920.5m) for the year.

Sea Ports

KBSP has been the country’s foremost maritime gateway since it became fully operational in 2009. The 110-ha site, which features an 1800-metre quay, a 900-sq-metre container terminal, and roll-on/roll-off and passenger facilities, is operated under a 25-year management contract by APM Terminals Bahrain, which is a joint venture between AP Moller-Maersk Group and Bahrain’s YBA Kanoo. It is equipped to handle container, break-bulk and cruise liner traffic.

KBSP was built on reclaimed land at Hidd to provide an alternative to Mina Salman Port, which is situated on an 80-ha site in the north of the main island. Mina Salman is operated by the Department of Ports and Maritime Affairs.

Spare Capacity

KBSP’s four ship-to-shore cranes each have a reach of 18 rows and the capacity between them to handle 1m twenty-foot-equivalent units (TEUs) a year, yet the port is working well below capacity. MTT figures show that although KBSP saw growth in cargo volumes in its first three years of operation, from 367,589 TEUs in 2010 to 525,309 in 2012, in 2013 and 2014 loads fell to 429,843 and 432,941 TEUs, respectively.

However, APM Terminals Bahrain is bullish about future prospects and the port’s ability to respond to increased business without having to invest in improvements to its infrastructure. The company says its 1m-TEU capacity could be expanded to 2.5m TEUs simply by investing in cranes to serve the existing jetty. “A lot of ports are not able to expand easily because they don’t have the space or the infrastructure,” Mark Hardiman, the managing director, told OBG. “Bahrain has more than sufficient capacity for current volumes, which can be ramped up fairly easily if need be. It’s not just that we have additional berth space, but that the capacity of the infrastructure is sufficient behind the berths, including shed space, for example.”

The company also says that KBSP is geared to handle cargo both speedily and efficiently, citing average figures of 35 gross moves per hour, thus making it extremely competitive in the region. “Around the northern Gulf, countries such as Kuwait, Saudi Arabia and others have all made plans for the near future,” Hardiman said. “We are well positioned to capitalise on these opportunities while maintaining our strong local position and contribution to Bahrain’s economy.”

That proximity is underlined when sailing times to the expanding ports and industrial centres on either side of the Gulf are taken into account. KBSP is 150 nautical miles from Jubail, where Saudi Aramco recently completed its SATORP refinery joint venture with Total, as well as the $20bn Sadara petrochemicals complex, a joint venture with the Dow Chemical Company. Sailing east, KBSP is just 195 nautical miles – less than a day away at 10 knots – from Assuleyah in Iran, the port that serves Pars Special Economic Energy Zone (PSEEZ), which was created in 1998 to capitalise on the resources in the South Pars field, the biggest independent gas field in the world. With sanctions set to be lifted, output from PSEEZ could increase significantly as Iran’s hydrocarbons sector ramps up exports.

Cruise Control

While KBSP’s management vies for more cargo trade, Bahrain has seen a sharp upturn in cruise liner traffic, a trend that looks set to continue. Ministry of Interior data shows that during the cruise season which ran from November 2013 to March 2014 41,210 passengers arrived in the kingdom by sea, a figure which rose by 52% to 62,448 from November 2014 to March 2015. In March 2015 Cruise Arabia Online reported that Bahrain’s share of the Middle East cruise port-of-call market would double in 2016. It said German cruise ships operated by AIDA, TUI and Phoenix Reisen would increase the number of visits to Bahrain to 54 in the 2015-16 season.

Logistics

One of the sector’s key value propositions is the close proximity of the port, airport and industrial zones, all served by a well-developed and expanding road network. BIA is just 13 km from KBSP, and a cluster of business zones collectively known as Salman Industrial City has been created near the port. This includes BIIP, Bahrain Logistics Zone and Bahrain Investment Wharf. These facilities are clustered together for convenience and are managed to international standards to attract investors, but they do not offer better tax incentives than other sites in the kingdom. “There are no free trade zones in Bahrain,” Sharkey told OBG. “We are covered by GCC law and under this you have to pay 5% tax to export to GCC countries if you are based in a free zone. Companies based in BIIP are not in a free zone, so they do not have to pay this duty. This is a very compelling selling point for establishing a base here.”

Outlook

With modern industrial facilities such as those at KBSP and BIA operating well below capacity, there is room for growth in Bahrain’s freight transport segment. This could signal expansion opportunities, but it may also be indicative of increased competition. “The most imminent risk is from overcapacity,” Hardiman told OBG. “It will become increasingly tough to compete in trans-shipment, with so many new ports adding capacity in the region.” However, Bahrain is investing in key improvements to its airport and in upgrading its internal road networks. Additionally, its plans with Saudi Arabia to build a second causeway offer an opportunity to ease congestion and connect Bahrain to the planned GCC rail network.

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The Report: Bahrain 2016

Transport chapter from The Report: Bahrain 2016

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