In transit: The roads, skies and seas are set to see an increase in passenger and cargo traffic

As one of the most modern and efficient shipping centres in the region, the transport and logistics facilities on Bahrain’s Muharraq Island continued to draw business to the Kingdom throughout 2011. The Khalifa Bin Salman Port (KBSP), which opened in 2009, showcases the government’s dedication to further developing the country’s transport offerings, which it sees as integral to its diversification push.

LOCATION, LOCATION, LOCATION: Muharraq Island is located in the north-east corner of the country and is connected to Manama and the rest of Bahrain by three causeways. The country’s main port, KBSP, Bahrain International Airport (BIA) and related warehousing facilities and logistics services are based on the island.

If Muharraq is the heart of transport and logistics services, the King Fahd Causeway (KFCW) is arguably the country’s most important artery. Stretching 26 km between Bahrain and Saudi Arabia, the causeway saw nearly 17m movements in 2010, which equates to use by around 46,800 travellers a day.

Inevitably, the recent political unrest in Bahrain and the Arab region in general affected the transport sector, culminating with the temporary closure of the KFCW in March 2011 due to security concerns. As of early 2012, the Kingdom had seen a recovery in passenger numbers at its airport and on the KFCW (the country’s only terrestrial link), as well as a moderate rise in container throughput at the KBSP.

INROADS AND EXROADS: As in many fast-growing economies, traffic in Bahrain has increased and can be acute at rush hour and on weekends, when visitors from Saudi Arabia and the rest of the Gulf travel to the country. The overall number of registered cars has doubled in the last 10 years, reaching 478,193 in January 2012. However, a variety of upgrades are planned or are under way which should substantially alleviate existing congestion problems. The Ministry of Works (MoW), which oversees road design and construction, projects is in the process of implementing a comprehensive plan for the nation’s road and highway system.

The overall plan for the Kingdom’s road network is well known. Bahrain hopes to build a dedicated highway system that connects the country’s most important existing transport centres – the KFCW, the Hidd Industrial Area and the KBSP to the proposed Qatar-Bahrain Causeway (QBC) in the south of the country. Additionally, a high-speed ring road around Manama is gradually taking shape that will replace the network of smaller roads and highways serving the capital city.

Projects currently under construction include a connection between the North Manama Causeway and the planned Mina Salman Interchange, which will offer motorists coming from the KBSP a direct route to Northern Town. The contract for the long-awaited Mina Salman Interchange was awarded in August 2011 to the Indian contracting firm AFCONS. When complete, the interchange will form an important part of the Manama Ring Road, greatly increasing capacity and easing congestion around the capital.

Roads are designed and maintained by the Roads Planning & Design Directorate (RPDD) and the Roads Projects & Maintenance Directorate (RPMD), both under the umbrella of the MoW. Throughout 2010 nearly 200 design and planning projects were executed by the RPDD, representing a significant increase in both expenditure and output over 2009, when 36 projects were carried out. In addition, the Sitra Causeway and the Reef Island Access Road Bridge were completed. Expenditure for 2010 was BD66.9m ($176.46m), compared to BD47.3m ($124.76m) in 2009. In 2011 22 road projects were successfully tendered, for an outlay of some BD56 ($147.9m). These projects are expected to be built in 2012. Further works are also on the table, with bids invited for 13 projects worth BD17m ($44.9m) in January 2012, according to the MoW.

KFCW UPGRADE: Perhaps the most anticipated improvement to Bahrain’s transport network is the expansion of its terrestrial international link. An upgrade to the 26-km KFCW with Saudi Arabia is under way. The KFCW sees an average of 45,000 vehicles a day, swelling to around 60,000 per day on the weekends. A $5m expansion plan was approved in July 2010 as part of a long-term effort to ease the congestion that has come with the growth of commercial traffic between the two nations. A roadway designed to accommodate 150 lorries a day now routinely sees 1200. These numbers are straining the causeway’s infrastructure, with delays at Saudi Customs at times keeping lorries on the Bahraini side of the causeway for up to two days. Limited parking space is also an issue. While improvements to the Customs regime on the Saudi side of the border have helped ease such delays, expanding road capacity is the only solution for a nation positioning itself as a major trans-shipment centre. The envisioned improvement of the roadway would increase the number of departure lanes from 10 to 17 and the number of arrival lanes from 13 to 18 on both sides of the border.

The project will also include a $4.2bn, 90-km railway running parallel to the highway that links Bahrain and the Saudi city of Dammam, which will be part of the $25bn GCC-wide rail project. Engineering for the rail link should be completed by the end of 2012 or early 2013, according to Ramez Al Assar, a World Bank advisor to the GCC’s secretary-general. In accordance with an agreement signed by GCC leaders in 2009, construction should begin in 2014 and finish by 2017.

QBC SET TO START: While talk of the QBC has been under way for years, many are hopeful that 2012 will see the start of construction work. The project has gained momentum thanks to increasing political consensus and, perhaps more importantly, Qatar’s successful bid for the 2022 FIFA World Cup. The agreement for hosting the football tournament requires Qatar to complete 40% of the infrastructure for the QBC by 2016, meaning time is of the essence.

VINCI Construction, a French firm, has been awarded the contract to design and build the causeway, and Texas-based KBR is acting as project manager. The design of the QBC has been completed and includes a provision for a high-speed train which will link up with the GCC rail project. The UAE and Saudi Arabia have already begun constructing their sections of the $25bn GCC rail network, while Qatar, Kuwait, Oman and Bahrain are all at various stages of developing metro and rail systems that will link with the wider network.

DESIGN & DETAILS: The QBC will stretch some 40 km, with 34 bridges and 6 km of actual causeway. This configuration is considered more environmentally friendly than the original design, which called for nearly half of the length (20 km) to be causeway.

From the beginning of construction, it will take four years to build the passenger portion and an additional two years for the rail component. The total cost of the road section is estimated at $3bn, and the price tag for the train portion has not yet been determined.

To get a sense of the potential impact the QBC could have on Bahrain’s economy, one should note the effect the KFCW has had on the country. Currently, some 40,000-50,000 vehicles a day travel between Bahrain and Saudi Arabia, bringing goods, businesspeople, workers and tourists to and from the island. The importance of the KFCW to economic development can hardly be overestimated. When the second causeway opens, it will reduce travel time between Bahrain and Qatar from five hours to less than one, enhancing connectivity to the benefit of all parties. Importantly, it will increase options for Bahraini companies and citizens, allowing access to hitherto inconvenient markets.

PORTS: The General Organisation of Seaports (GOP) oversees the regulation, development and promotion of the Kingdom’s maritime and logistics services. Its main investment has been the construction, launch, and maintenance of a new facility to replace the Mina Salman Port, which has been in operation since 1962. The new port, KBSP, was opened in 2009, ushering in a new era for Bahrain’s transport sector.

A major factor contributing to the Kingdom’s investment in KBSP was the desire to diversify Bahrain’s economy by becoming a trans-shipment centre for the northern Gulf. This investment is paying off, with trans-shipment volumes at KBSP during its first year of operations topping that of the port of Mina Salman. This growth continued into 2010, during which container throughput grew by a further 31% over 2000.

“The massive investments in the petrochemicals industry in the industrial city of Jubail on Saudi Arabia’s Gulf coast present an ideal opportunity to capture business, as KBSP is an alternative choice to enter the Saudi market,” Marco Neelsen, the CEO of port operator APM Terminals, told OBG. “We are in the process of establishing a feeder network to Jubail, which, once it comes on-line in the coming 12-24 months is expected to export 600-700 containers per day, with a number of the largest petrochemicals companies building facilities in the area. KBSP should expect to cater to a large number of these containers, as Dammam Port does not have the current capabilities to meet the increase in capacity this will necessitate.”

CAPACITY: KBSP currently has four gantry cranes, giving the port a capacity of 1m twenty-foot equivalent units (TEUs). Capacity could be increased to 2.5m TEUs relatively easily with the addition of more equipment, as the land and main infrastructure is already in place. However, with current operations standing at about 40% of capacity, no further expansion is necessary in the short term, according to operator APM Terminals.

The fact that KBSP is operating below capacity is not necessarily an indication of a lack of business interest. While the recent political unrest in Bahrain, and the Arab region in general, has had an impact on trade volumes, the GOP is also selective about the contracts it chooses. Among the characteristics expected of companies looking to set up shop in the Kingdom’s logistics and industrial zones is the willingness to make long-term commitments, use Bahrain as a distribution centre and agree upon key performance indicators.

In an attempt at another kind of diversification, the ports are also likely to play a central role in the Kingdom’s bid to service its growing energy needs. Looking to options further afield than neighbouring gas powerhouses Qatar and Iran, Bahrain cemented a deal with Russian giant Gazprom in early 2012 to import liquefied natural gas (LNG) through sea routes. A $1bn LNG terminal to service this gas trade, located near the KBSP, is expected to open by the end of 2014 and start off with a capacity of 400m cu feet per day.

SHIPBUILDING & REPAIR: Bahrain’s second-largest maritime facility is operated by the Arab Shipbuilding and Repair Yard (ASRY), located next to the KBSP on Muharraq Island. This has been servicing and repairing vessels since 1977, making it one of the most experienced shipyards in the Gulf. With a number of planned ship repair and maintenance facilities in the works in other Gulf countries, ASRY will face increasing competition in the coming years, particularly given that some 50% of its business comes from the Arab world.

With this in mind, ASRY is looking to diversify. In particular, 2008 saw the founding of the offshore division, which aims to service rigs, vessels and other equipment involved in the rapidly growing offshore oil and gas extraction industry. Bahrain, Saudi Arabia and Kuwait have all increased investment in developing known offshore fields in the northern Gulf, creating potentially profitable opportunities for the repair yard. In addition, the company hopes to begin providing on-site repair services in the coming years.

ASRY is also involved in a joint venture with US-based Centrax, a power-generating manufacturing company, to build power barges equipped with 123-MW turbines. These barges will serve as mobile power plants, providing excess capacity for areas that face seasonal surges in demand. They also have potential for humanitarian use as sources of power for coastal areas devastated by natural disasters.

AIR TRANSPORT: Sitting within an hour of three of the world’s most rapidly expanding airline centres, BIA, managed by the Bahrain Airport Company (BAC), has had to market its competitive advantages heavily to maintain market share. The international airports at Dubai, Abu Dhabi and Doha have all been expanding aggressively, with collective capacity at the airports expected to reach 190m passengers per year by 2015, compared to BIA’s 9m. The political unrest throughout the Arab world and in Bahrain has created some unforeseen challenges, but the resulting slowdown in business has also presented an opportunity for the local aviation industry to reassess its comparative strengths and begin to implement long-term strategies to progress to the next level and carve out its niche in the competitive regional landscape.

The airport’s main carrier is the country’s flagship, Gulf Air, which operates 460 flights per week to 49 destinations. The first commercial airline in the Middle East, Gulf Air was founded in 1950 by Freddie Bosworth, a British pilot. Ownership transferred to the Gulf in 1973 when a consortium of the governments of Bahrain, Qatar, Abu Dhabi and Oman bought a controlling stake in the company. Starting in 2002, Bahrain’s original partners sold their share as each state chose to focus on the development of their own sovereign carrier.

REGIONAL FOCUS: Facing increasing competition from other players in the GCC, Gulf Air chose to reposition itself as a regional player, drawing on its strengths as an efficient, good value, open point of entry. Gulf Air was joined in 2007 by another Bahrain-based carrier, Bahrain Air, which currently operates 136 flights per week to 18 destinations. The two Bahraini carriers account for over 50% of weekly operations at BIA. Another 39 international airlines, including British Airways, Cathay Pacific, KLM and Lufthansa, operate an additional 460 services per week to 49 destinations. The BIA is continually looking to attract more carriers and, to that end, the BAC provides a number of services for carriers that use the airport, such as serving as an intermediary with the state on regulatory issues and furnishing connections to travel agents.

DIVERSIFYING: As in the other branches of Bahrain’s transport sector, the aviation industry is seeking to diversify its services. Bahrain Airport Services (BAS), formed in 1977 to provide ground support for the industry, operates a total of six distinct business lines: passenger and ramp handling, cargo terminal services, catering services, a premium lounge at BIA, and aircraft engineering and line maintenance. It has also set up an Aircraft Engineering Training Centre, that has Edexcel accreditation to award UK Higher National Diploma certification to its graduates, which are drawn from the GCC and beyond.

BAS has also diversified into areas that are not strictly aviation-related, such as hospital catering and provisioning gourmet food products for supermarkets. Now expanding regionally, BAS formed a joint venture with logistics provider Agility to provide ground-handling services at Kuwait International Airport.

AT THE AIRPORT: Originally built to handle a capacity of 5m passengers a year, BIA has had to continuously expand to accommodate passenger growth, which has more than doubled in the last 10 years to 7.8m in 2011. Part of this growth has already been accommodated simply by operating the airport 24 hours a day, expanding the number of runway slots and easing congestion at peak travel times.

More capacity has come as a result of continual refinements in service delivery and organisation of the airport. A master plan, currently being implemented, is due to expand the existing airport’s capacity to 13.5m, and will involve upgrading existing infrastructure and extending the terminal building. The request for proposal for the main contractor for the terminal extension is expected to be issued by the end of 2012. Before then, a number of smaller contracts are due to come to tender, including those for the construction of air bridges, the ICT system and baggage-handling services. Once complete, over 40,000 sq metres will have been added to the airport facilities, including 3000 sq metres of retail facilities, up to five additional gates and 40 more check-in counters.

LOGISTICS: Maintaining a congestion-free and modern airport and port are essential to Bahrain’s ongoing success as a logistics centre (see analysis). BAC works closely with DHL, which it sees as a strategic long-term partner. The logistics company reaffirmed its intention to retain Bahrain as its regional centre as well as its base for its North African operations in mid-2011. In addition, BIA caters to another nine cargo carriers: Falcon Cargo, which is a subsidiary of the national carrier, Gulf Air; British Airways; Qatar Airways; Kalitta Air; Lufthansa; Martinair Holland; Emirates Sky Cargo; Polar Air Cargo; and Aerologie GmBH of Germany.

In February 2012 SAMEL, a joint venture between Agility and Germany’s Schmidt Heilbronn, was established to provide dry bulk logistics services throughout the Middle East, and will establish its base in Bahrain. According to Wolfgang Hoppmann, the CEO of SAMEL, the Kingdom was chosen as its base of operations due to its competitive rates, proximity to diverse markets, the regulatory climate and competitive infrastructure at Bahrain Logistics Zone (BLZ), and the dedicated Customs-bonded space for logistics players. Located between KBSP and BIA, BLZ offers warehousing, office and commercial space, purpose-built infrastructure, IT support, dedicated Customs support and a one-stop shop for registration, licensing and visa processing.

"The fact that the Kingdom’s key transport locations are adjacent to major industrial, manufacturing and logistics facilities, offers a major differentiator for Bahrain,” Kamal bin Ahmed, the minister of transport and acting chief executive of the Bahrain Economic Development Board, told OBG. “The government will continue to work closely with the private sector to ensure investment and planning is structured to facilitate and support continued investment and growth." Bahrain’s dedicated industrial parks and investment zones have received international accolades. Bahrain International Investment Park (BIIP) was ranked first in the Middle East region for promoting foreign direct investment by fDiIntelligence, a division of the September 2011. BIIP, BLZ and BIA also ranked highly for the quality of facilities, ease of transport and cost-effectiveness in the survey. Additionally, BLZ was ranked 10th for cost-effectiveness by fDi’s “Middles East Free Zones of the Future” report for 2011-12.

“For obvious reasons, logistics are very sensitive to a country’s economic situation. In 2011 we saw a major slowdown, though things have improved,” Luai Alagha, the country manager at Aramex, a transportation and logistics service company, told OBG. “One thing that was highlighted, however, was the ability of the port and logistics zone to keep operating more or less as normal while a lot of other business that takes place in more central areas was disrupted.”

OUTLOOK: Overall, the Kingdom’s transportation infrastructure has remained competitive, with its main port not recording a single closure, its aviation services expanding and its road network being upgraded. The coming years will see the country’s status as a transport centre bolstered by the QBC, further cementing it as a regional centre for transport and logistics.

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The Report: Bahrain 2012

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