Strong linkages: Plans to improve infrastructure and expand the main airport

A good transport system is a key enabler in any economy, but in the case of Bahrain, an island country, this holds particularly true. Although the nation has relatively small reserves of oil and gas, it has historically been a trading centre, and in the 1970s and 1980s it emerged as the main entrepôt for the Gulf region. As an open economy with a limited internal market, the kingdom has had to develop an accommodating business environment as well as actively seek foreign investment.

GAINING AN EDGE: Bahrain also seeks to be competitive with regards to connectivity, and the country has been continuously improving its road, air and sea links. The economy appears to have bounced back from the downturn precipitated by the unrest of early 2011, and this is evident in the growing volume of sea and air traffic.

Moreover, in response to the island’s political crisis, the GCC countries announced a $10bn fund to support Bahrain’s economy, providing various forms of financial support to the government on generous terms. Much of this money is in turn finding its way toward infrastructure spending, with a view to create jobs for the local population and enhance competitiveness (see Economy chapter).

REGULATORY ENVIRONMENT: Overall, the Ministry of Transport (MOT) has responsibility for the development of the island’s transport system, as well as facilitating the movement of people, goods and information. As such, its remit encompasses land, sea and air transport as well as postal services.

In December 2012 the ministry launched a reorganisation programme, bringing a number of hitherto separate bodies under one umbrella and merging a number of sub-departments, as well as rebranding its identity and logos. This was in accordance with the ministry’s own Strategic Plan for 2013-15, which aims to enhance regulation, improve safety and increase capacity among staff. Over the longer term, transport development in Bahrain is informed by Vision 2030, a comprehensive development strategy drawn up by the island’s Economic Development Board (EDB) in 2008, which aims to double Bahraini household disposable income by 2030 and develop a much stronger private sector. In particular, Vision 2030 recognises that infrastructure and connectivity are key to realising these goals.

The Civil Aviation Authority (CAA) acts as the regulator for the aviation sector in the kingdom, while Bahrain International Airport (BIA) is operated by Bahrain Airports Company (BAC), a state-owned firm that is structured as a public limited company in which the state holding firm, Bahrain Mumtalakat Holding, is the sole shareholder.

The General Organisation of Sea Ports (GOP), which under the MOT rebranding is due to become the Ports and Maritime Affairs Directorate, formerly operated the old port at Mina Salman, and now acts as the ship registry and is responsible for ensuring compliance with safety regulations and various international maritime conventions.

The country’s main port, Khalifa Bin Salman Port (KBSP), is currently operated by Danish firm APM Terminals Bahrain. The road network comes under the Roads Projects and Maintenance Directorate, which is part of the Ministry of Works (MOW), but the island’s small size means that there are no large highways operated on a concession basis. The King Fahd Causeway, which links Bahrain to Saudi Arabia, is operated jointly by both governments.

SEA TRANSPORT: In 2009 Bahrain opened a new port at Hidd, to replace the ageing Mina Salman Port that had been built in the 1960s. Management of the new facility was transferred to APMT in a 25-year contract. Although the port was impacted by the events of 2011, when falling business brought a drop in throughput, the return of investment in 2012 has resulted in a rising volume of trade.

In 2012 KBSP handled 525,000 twenty-foot equivalent units (TEUs), compared to 375,000 TEUs in 2011, and 443,000 tonnes of general cargo compared to 216,000 tonnes of general cargo in 2011. Due to the fact that a high proportion of the island’s imports arrive by sea, these figures are indicative of the noticeable economic recovery in Bahrain in 2012, with growing industrial production feeding through into greater volumes passing through the port.

“Overall, demand on port capacity is higher than supply, which illustrates an optimistic business environment,” Marco Neelsen, the managing director of APM Terminals Bahrain, told OBG. “Bahrain can take advantage of this scenario by playing a vital role in facilitating trade through the Northern Gulf.”

LNG: In addition to the container and general terminals, Bahrain is actively considering establishing a liquefied natural gas (LNG) terminal at KBSP, in a bid to ensure security of supply for the industrial sector. In 2012 local press reported that Bahrain was due to issue a tender to construct an LNG terminal with the capacity to import up to 400m cu feet a day, with cost estimates varying from $300m to $1bn. As of May 2013, the tender has not been awarded, although nine bids have been submitted.

Although there is no national champion in the shipping industry, Bahrain is a shareholder in United Arab Shipping Company (UASC), which is jointly owned by the governments of Kuwait, Iraq, Saudi Arabia, Bahrain, Qatar and the UAE. The company’s headquarters are located in Kuwait.

UASC has introduced new lines in 2013, including West Africa, Australia and the western seaboard of the US, as well as introducing direct connections between Bahrain and Jeddah, Port Said and Turkey, avoiding the need for trans-shipment.

Other international shipping lines serving KBSP include China’s Hanjin, Germany’s Siemens, Denmark’s Maersk, Switzerland’s MSC and France’s CMA, among others. The total tonnage registered under the Bahraini flag is fairly small, about 750,000 tonnes according to GOP estimates, and is divided among approximately 400 vessels.

The GOP is in the process of preparing a new maritime code that will update the country’s shipping regulations and incorporate into law the provisions of a number of international maritime conventions to which Bahrain is a signatory, but which have not been applied yet. Work on this new code commenced in 2008 and is expected to be complete around 2015. An innovative online ship registry portal is expected to open by the end of 2013.

AVIATION: At the beginning of 2013 Bahrain was home to one operating national carrier: Gulf Air. The airline was founded in 1950, with the governments of Qatar, Abu Dhabi and Oman taking stakes in the company in 1974, although the most prominent hub remained in Bahrain.

Gradually, however, these shareholders withdrew one by one to set up their own airlines and develop their own hub capacity – the last being Oman in 2007. This left Bahrain as the sole shareholder in Gulf Air and meant that the airline was forced to bear the costs of a network designed for a significantly larger catchment area while competition within the region sharpened considerably.

As a result, Gulf Air regularly posted losses that ultimately had to be borne by the public purse. Gulf Air is held as part of Bahrain Mumtalakat Holding. As a non-listed company, its financial results are not in the public domain, but a 2012 report by a market intelligence group (the Centre for Asia-Pacific Aviation) forecast that the carrier was estimated to experience losses in the region of $500m in 2011.

RESTRUCTURING: In an effort to stem these losses, Gulf Air announced a period of extensive restructuring toward the end of 2012, which is due to take three years to implement fully. The carrier plans to shift from a long haul and transit focus to concentrate on short-haul flights within the MENA region and to the Indian subcontinent, as these are both more lucrative and less costly to operate.

In order to experience additional savings, Gulf Air has revised its aircraft orders with Boeing and Airbus to focus on smaller, narrow-body craft, saving an estimated $2.5bn, and has set an aim to trim its outgoings by 24% during 2013.

CHANGES: Bahrain Air was founded in 2008 and formerly operated on a low-cost, point-to-point model. In early 2013, it offered over 40 routes, mostly serving MENA and South Asia. However, on February 12, 2013, the company released a statement via its website announcing that it was suspending all operations and had applied for voluntary liquidation, at the recommendation of the board following an extraordinary general meeting.

The carrier, which had just four aircraft, was negatively affected by regulations put in place at the height of the political crisis in 2011 – which banned flights to Iraq, Iran and Lebanon – as well as by the subsequent reluctance of many travellers to visit or transit through Bahrain. Although carriers were eligible for compensation by the government for losses that were incurred under this measure, the company claims that this had not been forthcoming. Moreover, the events of the Arab Spring in 2011 forced Bahrain Air to suspend its routes to a number of other destinations, including Damascus.

The company stated that with the CAA reducing the number of slots available to Bahrain Air while still demanding payments of past debts owed to the government, the shareholders felt there was no other option but to liquidate the company. However, in April 2013 local logistics firm Almoayed Wilhelmsen filed a lawsuit against the company’s decision to enter voluntary liquidation, claiming that it was owed BD25,000 ($65,800) by the company and calling for a declaration of bankruptcy instead.

AIRPORTS: BIA, which was first founded in the 1930s, is owned and operated by BAC, which is itself a subsidiary of the state holding company Bahrain Mumtalakat Holding. Since 2009, however, Hochtief Facility Management, a subsidiary of German engineering group Hochtief, has been engaged as the airport’s facility manager, with the contract due to run until at least 2016. According to the latest figures available, in 2012 some 8.48m passengers passed through the BIA, an increase on the 7.8m seen in 2011. Over the same period some 256,826 tonnes of cargo passed through the airport, however, a decrease compared to 322,000 tonnes in 2011.

BIA was built in 1994, when its capacity was set at 3.5m passengers a year. Subsequent annual expansions have since raised its capacity to 8m-9m passngers. Although BIA remains one of the smoother airports for transit within the region, which is partly attributable to its smaller size, both its age and ever-rising traffic dictate that it will have to be expanded again at some point down the road.

While the authorities have long recognised this, the most pressing concern for the government in terms of transport has long been the future of Gulf Air, meaning that the future of the airport has received less attention than might otherwise have been the case. While the expansion project remains at the scoping and design stage, the MOT recently approved the allocation of BD335m ($882m) for the expansion of the airport and the refurbishment of the existing terminal. While BIA currently has just one runway, BAC projections forecast that this should suffice for the next 20 years or so.

A CLEAN FACE: Once a design has been selected, the earliest that work is likely to begin is some time in 2014, with construction taking around two to three years to complete. One option that is apparently being considered is to build the extension first, then a temporary terminal building, which would allow the refurbishment of the old terminal to be completed much more quickly.

Another possibility is to reconfigure the layout of the existing airport and alter certain procedures to minimise disruption while work is ongoing. Although it remains too early to say what exactly the new terminal will feature, the aim is to raise capacity to around 13.5m passengers a year, compared to 9m currently, and add 13 new gates, 40 more check-in counters and four more baggage reclaim belts. While Gulf Air is drawing down its fleet and network, the authorities wish to keep as many destinations reachable from Bahrain as possible, and therefore are keen to see other carriers fill in the gaps left.

Although new routes are unlikely to come onstream in 2013 given logistical constraints and continuing wariness among investors, BAC is holding discussions with a number of carriers with a view toward 2014. In 2012 BIA boasted connections to over 40 destinations, served by 26 passenger carriers and 10 cargo carriers. Over the longer term BAC aims to diversify its revenue stream away from purely aviation-related business. The airport complex covers 5.6 sq km, and much of that is undeveloped.

“Our development plans and repositioning of the BIA as a result of the recent realignment in the aviation sector in Bahrain are going to be more focused on enhancing the passenger experience, retaining the airport’s competitive advantage and striving to increase the airport’s profitability by striking a balance between aero and non-aero revenues.” Mohamed Yousif Al Binfalah, CEO of BAC, told OBG.

LOGISTICS: Indeed, logistics, as a key industry that is fairly labour-intensive, is a field that the Bahraini government has been keen to support in recent years. The island offers a number of advantages to logistics companies looking for a regional base.

The first is its strategic location, which is convenient for the giant Saudi market and other GCC countries, as well as the generally high quality of infrastructure. Setting up a business in Bahrain is considered easier than in many other countries, which is partly because there are fewer procedures involved. Most logistics firms that OBG spoke with considered the Customs department relatively efficient and to have a helpful attitude toward solving problems. Competition in the industry is healthy and there are many smaller firms. In addition, the sector has a high proportion of Bahraini employees, which most companies estimate at around 70%.

INFRASTRUCTURE UPGRADES: In addition to the aforementioned Mina Salman Bridge, a number of new flyovers and relief roads are under construction in and around the capital of Manama. However, Bahrain stretches just 50 km by 30 km, severely constraining capacity to build new roads. Over the longer term, the authorities are looking to develop the public transport system, which now is limited to taxis and a few bus services along key routes. Many buses are old and considered poor in terms of frequency and reliability. As a result, Bahraini roads are far more congested than they might otherwise be.

As well, the rising population, which the EDB projects to increase from around 1m in 2013 to 1.5m in 2020, will necessitate greater investment in public transport. In 2010 the MOW outlined a 20-year plan to develop a BD3bn ($7.9bn) public transport network consisting of trams, buses and a light railway network, although the events of 2011 put this on hold. Under the scheme, the light railway will consist of six lines and be developed in three phases: the first involves building a 13-km stretch of light railway and an 11-km tram line.

By 2030, the year when the system is slated for completion, the lines will link the airport with the population centres of Muharraq, Manama, Isa Town and Riffa, and thus to Qatar and Dammam in Saudi Arabia. The new airport is due to include a bus terminal, which will form the backbone of a revitalised public transport network in the island nation. Air-conditioned bus shelters, which have proved to be successful in Abu Dhabi, are another possibility to entice citizens out of their cars.

LAYING RAIL: In additional to this commuter rail-type service, Bahrain is also planning to link to the GCC Railway. The pan-GCC rail network, due to be completed by 2018, will stretch over 2000 km and enable the transport of goods from Kuwait to Salalah in Oman and from Jeddah in Saudi Arabia to the Fujairah Port in the UAE. Total investment in the GCC network is estimated at $30bn. The Bahraini section of the network will consist of rail connections to both Dammam in Saudi Arabia, already a railhead, and a new rail link to Qatar, which is likely to share a route with the planned Qatar-Bahrain Causeway. This will stretch 45 km and cut the car journey time between the two countries from four and a half hours to just over half an hour by car. Estimated costs for the new causeway stand at around $5.5bn.

An accord was signed in 2008 between Bahrain and Qatar to build the causeway, but it remains unclear how much each country will contribute to the cost. The credit crunch and upgrades to plans have meant that work had yet to commence on the project as of May 2013 However, as part of its winning bid to host the 2022 FIFA World Cup, Qatar has committed itself to completing at least 40% of the project by 2018 and to finishing the road and rail sections of the bridge in time for the event. The new road and rail links are likely to have a great multiplier effect on Bahrain and help ensure its position as a transport hub for the Upper Gulf.

OUTLOOK: Transport continues to play a key role in the kingdom’s bid to attract foreign investment, and in turn, the continued investment inflows are testament to the quality of the country’s infrastructure. While Bahrain’s sole active airline continues to suffer in the face of sharp competition, the decision to proceed with the airport expansion demonstrates confidence in the kingdom over the longer term.

Maritime transport and logistics have rebounded from 2011 and the country is likely to remain a significant transport hub for the Upper Gulf, although not on the same scale as some other centres in the region. Over the short term, bottlenecks on the King Fahd Causeway are set to continue to present challenges for firms in Bahrain. However, over the long term these issues should be resolved. Meanwhile, the causeway to Qatar promises to give the local transport sector a significant and much-welcomed boost.

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The Report: Bahrain 2013

Transport chapter from The Report: Bahrain 2013

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