Rail

Train Times Winter 2014

Contents Enabling rail transportation Introduction Page 1 around the world Qatar Rail Development Program: Progress update Page 2 Welcome to the Winter edition of Clyde & Co’s rail newsletter, Jakarta’s Airport Rail Link: Update on written by our legal experts who have a particular focus recent developments on the rail industry. In this edition, we provide updates on Page 4 developments in Doha and Jakarta and a review of the current The Tanzanian railway system: rail market in Tanzania. A big history Page 6 The Qataris have very ambitious plans to deliver a light rail system, a Further information high speed railway and a metro, which if delivered, will comprise 300km Page 8 and 98 stations. Compare this with the London Underground network which is just over 400km. Even if only part of the Qatar metro system is delivered, given the size of the population it is a very significant undertaking. The Lusail light rail system is a much more modest undertaking but is well advanced. The high speed railway is a longer term aspiration.

Indonesia, with almost 240 million people, is the world’s fourth most populous country. A new link to the airport is badly needed but competing demands on the nation’s resources dictate that alternative finance sources be found. In our autumn edition of Train Times, one of our partners with 20 years’ experience in the country examined the prospects for this new rail link. In this edition, we provide an update.

Finally, a look at Tanzania - a resource rich country in East Africa with aspirations to deliver transport infrastructure. Given the constraint on public sector finances, much of it is likely to be delivered using PPP structures. Our final article describes the structure of the rail sector in the country and the prospects for development.

We hope that you find our newsletter informative. If you would like to discuss any of the issues raised, please feel free to contact one of our experts or email us at [email protected]. Clyde & Co – A leading international law firm with over 1,500 lawyers operating over 6 continents. Qatar Rail Development Program: Progress update A significant proportion of Qatar’s infrastructure investment is currently focused on the development of a modern rail network via execution, under the control of the Qatar Rail Company (Qatar Rail), of the Qatar Rail Development Program (QRDP). The QRDP consists of a two phase metro network, a light rail transit system and a long distance passenger and freight rail network.

Qatar Rail has awarded USD 32 billion in contracts to date City. Thereafter, the Green Line will stop at the Qatar National with the aim of delivering one of the most sophisticated rail Library (currently under construction), turn south at Huwar networks in the Middle East region, whilst simultaneously Street and eventually cross the Hamad Medical Center before supporting national infrastructure development including turning into Musheireb. the construction of the New Doha International Airport and the New Doha Port. One of the key drivers is the provision Red Line (Coast Line) of rail services in advance of the FIFA 2022 World Cup. The Red Line will run at ground level along Al Khor Coast Road, before turning into the Qatar University campus, and During a press conference held on Monday 9 December then east along the southern boundary of the Doha Golf 2013, Qatar Rail released information relating to its plans Club. The Red Line will then descend underground as it and progress in developing Qatar’s transport system, and passes the Grand Hyatt Hotel before it stops at the Katara in particular, released route maps and a timeline for the Cultural Village. Thereafter, the Red Line is designed to run high-speed long distance line between Qatar and KSA. In this between the Qatar International Exhibition Center and article, we provide details of this progress update by reference the Intercontinental Hotel into the Dafna central business to the three distinct projects which comprise the QRDP. district, past the City Center Mall and Doha Convention Doha Metro Center. It will subsequently run along Majlis Al Taawon, parallel to the Corniche, towards Musheireb. Finally, the Qatar Rail intends to deliver an operational metro system, Red Line will run along Al Matar Street, turning east into consisting of surface level and underground line sections, the Hamad International Airport. with 37 stations, in 2019. The number of stations is set to increase to 56 by 2026. Qatar Rail has confirmed that tunnel The Doha Metro project also includes the construction of boring works (which may operate at up to 20-25 meters below the Musheireb and Education City Stations, the package ground) at four interconnected lines are presently underway, for which has been let in one “Major Stations” contract. and work has officially commenced for the set-up of metro Musheireb Station is located in the heart of Downtown stations at 20 locations. Qatar Rail has also released route Doha and is designed to be the major interchange station maps for three of the coloured metro lines. for the Red, Green and Gold lines. Education City Station will link the Green Line with the long distance passenger Gold Line (Historic Line) rail track. The Gold Line is to run from east to west initially beneath Al Waab Street, starting from the Villagio mall. The route The majority of the Phase One (Initial Network Scheme) map shows that thereafter the Gold Line will cut through Doha Metro contracts, including the main construction the residential areas of Fereej bin Mahmoud to follow contracts for the Red Line North, Red Line South, Green Al Adhwaa Street into Musheireb station and then curve Line and Major Stations, were awarded in May 2012. We south to follow Ras Abu Abboud Street past the north end understand that the Gold Line packages (underground of the Doha International Airport runway. and at-grade) are at the prequalification stage of the tender process. The second phase of this project, due for Green Line (Education Line) completion by 2026, will also include the construction of The Green Line will also run east to west and initially at a Blue Line (City Line) which is intended to connect newly ground level from the Al Rayyan Stadium before passing built residential and commercial areas of West Bay and underground below the Dukhan Highway and past Education Airport City North along the C-Ring Road. Train Times Winter 2014

2 Lusail Light Rail Transit project Conclusion The Lusail Light Rail Transit (LRT) project is designed to Qatar Rail has undertaken to achieve economic viability, consist of a 30.5km track and 37 stations. The majority of social responsibility, environmental effectiveness and the track will be at grade but four of the lines include 10km operational excellence in delivering the QRDP. The of underground tunnels and a 1km section is elevated. intention is to establish a high quality and integrated Passengers will be able to transfer between the Lusail LTR public transport network that results in a shift from lines and the Doha Metro lines at the Lusail Marina/Pearl private vehicles to public transport across Qatar, whilst station. Qatar Rail’s objective is to create an integrated recognising freedom of choice in transport. In particular, transport system for the visitors, employees and residents the rail network is designed to achieve more efficient of the Lusail city. movement of people and goods, with the objective (fittingly termed “keep traffic moving”) of reducing traffic congestion, We understand that this project is at an advanced stage including heavy urban traffic and construction site traffic. with 60% of the tunnelling works and 50% of the Al Khor The rail network will offer a quick and safe mode of public Bridge works complete at present. Qatar Rail’s anticipated transport, significantly reducing private car trips and saving completion date is 2017 although it is rumoured that trains commuting time, and with the side effect of reducing traffic may start running between 3 stations as part of the first pollution and accident rates. phase in 2016. The QRDP is a manifestation of Qatar’s commitment to Long distance delivering a sustainable future for a growing economy and An important part of the QRDP’s vision is the construction an increasing population, and a continual upward surge of a long distance passenger and freight rail network in infrastructure development. The project is designed which serves two purposes: (1) the connection of densely to align with the transportation objectives contained in populated and industry heavy centres in Qatar; and (2) the Qatar National Development Framework 2012-2032 linking the 6 GCC (Gulf Corporation Council) countries and additionally, Qatar’s National Vision 2033 strategy. (Qatar, KSA, UAE, Kuwait, Bahrain and Oman) as part of the This is aimed at transforming Qatar into an advanced, wider GCC rail network. sustainable country with a high standard of living for The long distance network is to be phased in order to meet future generations with focus on the 4 “pillars” of economic, GCC commitments and domestic demands. We understand environmental, human and social development. The that Qatar Rail is currently in the process of awarding a citizens of Qatar and QRDP stakeholders alike eagerly wait design contract for the first phase of the network, namely to see how Qatar Rail will successfully deliver this leading- the mixed (passenger and freight) track connecting Doha edge rail project within the confines of an ambitious to KSA. Qatar Rail anticipates that construction will programme and how this will impact on doing business in commence in the third quarter of 2015, with completion Qatar and the daily lives of many more generally. due in approximately 2017-2018, before the onset of testing Alexa Hall and final fit-up works. Associate, Doha The remainder of the long distance rail network consists of: T: +974 4496 7316 E: [email protected] –– Freight rail line from Port Mesaieed to Ras Laffan Laura Warren –– High speed passenger rail line connecting Doha Partner, Doha and Bahrain T: +974 4496 7434 –– Mixed (passenger and freight) rail line from Doha E: [email protected] to Dukhan –– Mixed (passenger and freight) rail line from Doha to Al Shamal Qatar Rail expects that the rail network will be at least 350km long, with a scheduled completion date of 2029.

Train Times Winter 2014

3 Jakarta’s Airport Rail Link: Update on recent developments In mid-November 2013, Ibu Emma Sri Martini, the Chief Executive Officer of PT Sarana Multi Infrastruktur (SMI), provided some additional information on the SHIA Rail Link project. SMI is the Indonesian state-owned company that has been charged with retaining the experts to prepare the feasibility study. SMI will also conduct the project tender. Ibu Emma’s comments suggest that the SHIA Rail Link project is still in its pre-feasibility study stage, but that SMI believes that study will be completed in Q1 2014 and that SMI will offer the project through competitive tender to be held in Q1 2014. If correct, this would suggest that potential consortium members may now be seeking to establish relationships with one another.

However, for several reasons we believe the schedule We expect that the capital expenditure budget of the SHIA described by SMI may be ambitious. Rail Link project is likely to require material government support by way of the Government’s VGF. The VGF regulation We note that public statements from a senior Transport is relatively new and untested, but is generally understood Ministry official made at the end of October 2013 indicated to limit VGF funding to no more than 50% of capex, and that the pre-feasibility study is being finalized. A news not allow for any operating subsidy. We expect that the report from early September 2013 quoted Ibu Emma as VGF proposal will be considered very carefully by both the saying that the pre-feasibility study had been completed, Transport Ministry and the Finance Ministry, and may require but was under review at the Transport Ministry. This review approval as part of the state budget process. (We hope to process is of uncertain duration and may lead to additions confirm information on this approval process shortly.) or changes suggested to SMI, which may then require additional time for the expert team to prepare and for the In theory the SHIA Rail Link project, like all other Transport Ministry to review the revised pre-feasibility Indonesian PPP infrastructure projects, should not be study. Further, the timeline set out in the 2013 PPP Book offered until at least 75% of the land required for it has (published by the National Development Planning Agency been obtained and paid for, and should be eligible to utilize on 18 November) indicates that the pre-qualification phase funding provided by the Government’s land acquisition of the competitive tender may not take place until the fund and/or land revolving fund for this purpose. Like the second half of 2014, with bidding and evaluation taking VGF funding, these land funds are relatively untested. place in the first half of 2015. In late October 2013 an SMI representative advised that the Moreover, we believe it will be difficult, although not Transport Ministry had not yet determined the final route for impossible, for the Transport Ministry and SMI to execute the SHIA Rail Link project. Naturally this important question several essential steps in project preparation between now must be answered before land acquisition can proceed. and the end of Q1 2014. These steps relate to viability gap funding (VGF), land acquisition, route selection and fare levels.

Train Times Winter 2014

4 Finally, an SMI representative further stated in late October Most importantly, these documents would include the form 2013 that SMI was currently working out the appropriate of concession grant agreement, the project’s fundamental fares to be charged to SHIA Rail Link users. This crucial asset for funding purposes. This agreement is the source question directly impacts on the attractiveness of the of owner’s rights to a long-term revenue stream on which project’s operating model to operators, owners and financiers will rely. Additionally, these documents may financiers, as does the related question of the regime for include the form of tripartite agreement, a document that tariff adjustment over the life of the project. Tariff levels is central to bankability. In this agreement the project and adjustment mechanisms will also directly impact the company will provide, and the government concession level of operating subsidy, if any, to be offered to the project grantor will permit, financier step-in and other protective by local or national government. rights lenders need to assure they can act to save the concession and the revenues under it to be used to repay In addition to considering the pre-feasibility study and the them if the project encounters troubles during its long life. related issues mentioned above, prior to the project tender the Transport Ministry and any funding support providers Michael Horn will need to carefully review, and in our experience Partner, Singapore can be expected to extensively comment on, project T: +65 6544 6553 documentation offered in the tender. E: [email protected]

Train Times Winter 2014

5 The Tanzanian railway system: a big history The railway system of mainland Tanzania has a total track length of 3,676 kilometers with two separate networks, run by two separate organisations. These are the Tanzania - Zambia Railway Authority (TAZARA), which maintains and operates a 975 km network including the Tanzania - Zambia railway line from Dar es Salaam to Kapiri Mposhi in Zambia, and Tanzania Railways Limited (TRL), which maintains and operates over 2,706 km of track in the rest of Tanzania, including Tanzania’s railway links to Kenya and Uganda.

The Ministry of Transport is the key Government ministry –– Surface and Marine Transport Regulatory Authority with regards to railways with responsibility for the (SUMATRA) – the semi-independent cross sector development of transport throughout the country. regulatory agency that is able to enact regulations regarding railway safety etc TRL Network All railway services in Tanzania (apart from the TAZARA Licenses: Any party wishing to operate a rail transport network) were originally operated by the Tanzania Railways service in the future must apply to SUMATRA for a Corporation (TRC). TRC was established in 1977 and until licence under the Railways Act 2002. Conditions under the early 1980s played an important role in the economic which licences will be issued are outlined by the Railways development of Tanzania and her neighboring countries. (Licensing of Railways Operators) Regulations, 2006. These However, since 2004 there has been a marked decline include a requirement for applicants to submit a Safety in the volume of freight traffic and passengers on the Plan and an Environmental Impact Assessment Report for network due to the operational efficiency of the TRC being approval before a licence is granted. constrained by infrastructural problems, caused largely by Looking to the future: Through the Government, RAHCO inadequate investment. In September 2007, RITES of India is working with stakeholders, financiers and development was awarded a concession to take over the operations of partners to ensure that railway financing is enhanced. This TRC, following which RITES and the Tanzanian Government will include making use of Public Private Partnerships and formed TRL to take over the activities of TRC with RITES establishment of Railway Infrastructure Funds (RIF). owning 51% of the shares of TRL and the Government owning 49%. TRL began operations in October 2007 but The Government’s plans for the next 50 years include: due to budgetary constraints and managerial issues little –– Upgrading 982 km of railway from Dar es Salaam to Isaka improvement was made in the running of the network. –– Upgrading 1094 km of railway from Isaka to Mwanza and The venture was eventually terminated in July 2011 and Tabora to Kigoma full ownership and control of TRL was handed back to the Government. Today TRL and therefore the Government –– Construction of 12km of railway from Kange to the remains the sole party responsible for the operation of all proposed port at Mwambani in Tanga and about 25 km of railways in Tanzania outside the TAZARA network. railway from Kidomole (Link line) to the proposed port at Mbegani in Bagamoyo The key bodies involved in the TRL network today are: –– Construction of about 664 km of railway line from –– Reli Assets Holding Company Limited (RAHCO) – the Arusha to Musoma legal owner of the TRL network and the party which acts as landlord of the railway network on behalf of the Government. Notably, it is empowered to enter into agreements with other persons

Train Times Winter 2014

6 TAZARA network The Managing Director acts as the Chief Executive Officer The TAZARA network is comprised of the line from Dar of TAZARA and is responsible for the general running of its es Salaam to New Kapiri Mposhi, and the surrounding affairs, with the Deputy Managing Director assisting with branches of railway. The network comprises one day to day affairs. Under the Tanzania- Zambia Rail Act component of the Southern African Development 1995, the Managing Director is appointed from Zambia, and Community railway network, which links eleven of the Deputy Managing Director from Tanzania. the Regional body’s member states. It is managed and Regulation: Neither the application of the Railways maintained by TAZARA, a statutory body jointly owned by Act 2002 nor SUMATRA’s regulatory mandate extends the Republic of Tanzania and the Republic of Zambia. to operations along the TAZARA network. Nonetheless TAZARA’s main business is freight and passenger railway there remains scope for SUMATRA’s involvement as it is transportation services and it acts as a key channel for all within the Minister of Transport’s discretion to appoint kinds of major imports and exports from all over the world, an inspector under the Tanzania- Zambia Rail Act 1995 particularly minerals out of Zambia and DRC. Over the which will likely be the Chief Inspector of Railway Safety, a last four decades TAZARA has transported over 50 million SUMATRA appointee. passengers and more than 30 million metric tons of freight Tanzanian’s railways must be viewed as two very separate between the two countries and across the region. networks as they differ in ownership, management and Management structure: Tanzania and Zambia share the regulation. The TAZARA network is a well established managerial responsibilities of the TAZARA network with railway system with its own autonomous management. the joint control being reflected in the Council of Ministers The TRL network provides investors with significant and the Board of Directors. opportunity going forward, particularly as after the recent The Council of Ministers consists of three Ministers failure of the concession the Government will be looking responsible for finance, transport and trade or commerce for new partners. This is especially the case if they are from both Tanzania and Zambia. Its main function is to willing to enter into PPP agreements with the Government shape the overall policy and long term development of of Tanzania. TAZARA. Chairmanship of the Council rotates between Tanzania and Zambia annually. Peter Kasanda Legal Director, Dar es Salaam The Board of Directors consists of the Secretaries T: +255 (0) 768 983 000 responsible for transport in each country, as well as two E: [email protected] individuals with experience in transport, commerce, industry or finance from both Tanzania and Zambia. These individuals will be appointed by both Tanzania and Zambia’s respective Minsters of Transport.

Train Times Winter 2014

7 Rail at Clyde & Co Clyde & Co is an international law firm with over 295 partners and 2,500 staff in 37 offices around the world. We have built our reputation by providing high quality, expert and sector-specific advice.

Our rail team comprises lawyers who have undertaken –– Privatisations, mergers and acquisitions, alliances and extended secondments within the rail industry and joint ventures, corporate restructuring and fund raising therefore have detailed knowledge of how the industry –– Economic and safety regulation works. With the benefit of a worldwide network of offices we –– Station development and redevelopment are able to deploy this experience anywhere in the world. –– Rolling stock issues such as rolling stock acquisition and We have advised participants from across the rail sector refurbishment including train operators, infrastructure managers, –– Rail disputes, including disputes arising out of major construction companies, infrastructure maintenance derailments, civil cases and criminal investigations and companies, lenders, insurers and reinsurers, regulatory prosecutions bodies and central and local governments. In summary, we are able to offer a one stop shop advising Our experience is international and includes advising on: on all issues arising in the rail industry wherever they may –– Infrastructure projects, including PPP projects, project arise. This includes complimentary issues such as property finance and construction issues and planning, competition, employment and pensions and –– Train operation, including concessions and rail health and safety. franchising (bidding, mobilisation and transfer schemes For further information on our rail expertise please contact as well as general advice) and access arrangements [email protected].

“With great industry knowledge, “Clyde & Co offers a comprehensive the [rail] team at Clyde & Co is service to its transportation clients.” very responsive and reassuring Legal 500, 2009 when faced with limited information and tight deadlines.” Legal 500, 2012

Train Times Winter 2014

8 Further advice should be taken before relying on the contents of this Newsletter.

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