Transport Perspectives 2 | Transport Perspectives / September 2013

M&A trends in transport infrastructure

Dr. Steffen Wagner and Tobias Wölfel

Mergers and Acquisitions (M&A) in the transport and logistics sector are highly dependent on overall economic growth and business confidence. As a result, total transactions values remain subdued due to the euro debt crisis and the subsequent worsening of global GDP growth numbers.

General overview Graph 1: Transport and logistics transactions by regional distribution Graph 1 shows a sharp decline in deal values from H1 2011 to H2 2011 while 60,000 600 the numberGRAPH 1 of deals increased over 50,000 500 this period, highlighting an increase 60,000 600 GRAPH 1 40,000 400 in distressed transactions at the peak 50,000 500 30,000 300 of the euro crisis. However since the 40,000 400 second half of 2011, there has been a 20,000 200 30,000 300 steady increase in total transactions 10,000 100 Number of deals values. In H1 2013, total transaction (USD m) Deal value 20,000 200 0 0 values grew by 3% compared to H2 10,000 100 Number of deals Deal value (USD m) Deal value 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2012 and by 11% compared to H1 0 0 2012. Transaction volumes have not 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H been similarly affected by the current 2008 2008APAC 2009 2009 Latin2010 America2010 2011 2011 Number2012 2012of deals2013 EMA North America economic climate. In the first half of APAC Latin America Number of deals 2013 however, transaction volumes Source: Thomson Financials Database,EMA 2013. North America sharply declined while transaction values continued to rise, indicating a significant increase in average deal sizes. Which regions and subsectors are responsible for this trend? Graph 2: Transport and logistics transactions by subsector GRAPH 2 60,000 600 While the EMA region still accounts 50,000 500 for theGRAPH largest 2 share of global M&A 60,000 600 40,000 400 activities in the transport sector, 50,000 500 emerging markets in ASPAC and Latin 30,000 300 40,000 400 America are gaining importance. In H1 20,000 200 2013, transactions in ASPAC accounted 30,000 300 10,000 100 Number of deals for almost 50% of total global deal (USD m) Deal value 20,000 200 0 0 value. 10,000 100 Number of deals Deal value (USD m) Deal value 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 0 0 Transport infrastructure transactions 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H gaining importance 2008Infrastructure2008 2009 2009Airlines2010 2010 2011 2011 2012Number2012 of 2013deals Other transport & logistics When looking at M&A activity by Shipping Infrastructure Airlines Number of deals subsector, the significant increase Shipping Other transport & logistics in transactions values in transport infrastructure deals is striking, as shown Source: Thomson Financials Database, 2013. in Graph 2. This includes primarily airports, ports, and road operations. 100% 76% 86% 88% 64% 96% 85% 80% 78% 79% 78% 32% GRAPH 3 100% 80% 76% 86% 88% 64% 96% 85% 80% 78% 79% 78% 32% GRAPH 3 68% 60%80% © 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides68% no client services 40%60% and is a Swiss entity with which the independent member 36% firms of the KPMG network are affiliated.

40% 24% 20% 20% 22% 21% 22% 36% 14% 15% 12% 4% 24% 20%0% 20% 22% 21% 22% 14% 15% 1H 2H 1H12% 2H 1H 2H 1H 2H 1H 2H 1H 2008 2008 2009 2009 20104% 2010 2011 2011 2012 2012 2013 0% 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2008 2008 Infrastructure2009 2009 2010 2010 Total excluding2011 2011 infrastructure2012 2012 2013

Infrastructure Total excluding infrastructure

GRAPH 4 8% 7.8% 7% 1.4x GRAPH 4 8% 6% 7.8% 7% 1.4x 2.2x 5.7% 5% 1.6x 6% 2.2x 4% 5.7% 5% 1.6x 3.6% 4%3% 3%2% 3.6% 2%1% 0% 1% Global GDP Trade growth Seafreight 0% Global GDP Trade growth Seafreight

45 GRAPH 5 40 45 35 GRAPH 5 40 30 35 25 30 20 25 15

EBITDA margin EBITDA 20 10 15 5 EBITDA margin EBITDA 10 0 5 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 0 1Q 2Q 3QInfrastructure4Q 1Q 2Q 3Q Logistics4Q & Freight1Q 2Q Forwarder3Q 4Q 1Q 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 Infrastructure Logistics & Freight Forwarder

GRAPH 6 12

GRAPH 6 1210

108

EV/EBITDA 64

EV/EBITDA 42

20 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 Transport Perspectives / September 2013 | 3

© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 4 | Transport Perspectives / September 2013

Transaction values of infrastructure targets more than tripled in H1 2013 to US $16bn. As shown in Graph 3, this accounts for almost 70% of total transaction value in the transport and logistics sector, far above the average 20% in previous years. At the same 60,000 600 time,GRAPH transaction 1 values of freight forwarders, logistics service providers 50,000 500 and land transport companies 40,000 400 (included in ‘Other transport & 30,000 300 logistics’) – which usually hold the 20,000 200 largest share of the total sector value – 10,000 100 Number of deals declined significantly by over 75%. (USD m) Deal value 0 0 However, transaction volumes in 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H infrastructure declined by almost 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 20% in H1 2013, showing an evident APAC Latin America Number of deals number of large cap transactions in EMA North America this subsector. The largest of these transactions are shown in Table 1. Other significant transactions occurring in 2012 included1: • Qatar Investment Authority

acquisitionGRAPH 2 of stocks in Heathrow Airport holding company FGP Topco 60,000 600 for US $1.4bn. 50,000 500 • VINCI acquisition of Portuguese 40,000 400 state terminal operator ANA for US 30,000 300 $4bn. 20,000 200

10,000 100 Number of deals • Aéroports de Paris (ADP) acquisition (USD m) Deal value of shares of a total of US $874m in 0 0 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H Turkish operator TAV. 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 • Private equity investor Global Infrastructure Partners (GIP) Infrastructure Airlines Number of deals Shipping Other transport & logistics acquisition of Edinburgh airport in the UK for US $1.3bn. Graph 3: Infrastructure transaction values as share of total transport & logistics transaction values

100% 76% 86% 88% 64% 96% 85% 80% 78% 79% 78% 32% GRAPH 3 80%

68% 60%

40% 36%

24% 20% 20% 22% 21% 22% 14% 15% 12% 0% 4% 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013

Infrastructure Total excluding infrastructure

Source: Thomson Financials Database, 2013.

1. Thomson Financials Database, 2013. © 2013 KPMG International Cooperative (“KPMG GRAPH 4 8% International”). KPMG International provides no client services and is a Swiss entity with7.8% which the independent member 7% 1.4x firms of the KPMG network are affiliated.

6% 2.2x 5.7% 5% 1.6x 4% 3% 3.6% 2% 1% 0% Global GDP Trade growth Seafreight

45 GRAPH 5 40 35 30 25 20 15 EBITDA margin EBITDA 10 5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 Infrastructure Logistics & Freight Forwarder

GRAPH 6 12

EV/EBITDA 4

0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 Transport Perspectives / September 2013 | 5

Table 1: Largest infrastructure transport transactions completed in H1 2013

Date Target Name Description Acquiror name % of shares Value of transaction EV to EBITDA acquired (USDmn) 05/2013 Port Botany (Australia) Port operator Investor group 100 4,527 - 02/2013 Stansted Airport Ltd (UK) Airport operator Manchester Airport Group 100 2,380 14.2 04/2013 Australian Infrastructure Assets Airport and road Australian state-owned Future 100 2,081 - operations Fund Management Agency 05/2013 Terminal Investment Limited SA (Netherlands) Terminal operator Global Infrastructure Partners 35 1,929 - 06/2013 Aeroports de Paris SA (France) Airport operator Investor group of Credit 10 965 10.7 Agricole SA, and Vinci SA 05/2013 Port Kembla Port Corp (Australia) Port operator Investor group 100 798 - 02/2013 Aeropuerto Internatcional Luis (Puerto Rico) Airport operator Aerostar Airport Holdings LLC 100 628 - 06/2013 Terminal Link SA (France) Terminal operator China Merchants Holdings 49 539 - 01/2013 Vaninskiy Morskoy Torgovyi Port (VMPT, Russia) Port operator Mechel-Trans 73 503 -

Source: Thomson Financials Database, 2013.

Main drivers of M&A in transport Furthermore, infrastructure operators to privatizations and divestments of infrastructure are less affected by overcapacities non core activities of building and What are the main drivers behind this than freight forwarders or carriers construction conglomerates, availability trend of increasing M&A activity in the and also less dependent on contracts of relevant targets for investors have transport infrastructure segment? First like logistics service providers. While been low, especially when compared to of all, public budget restraints across margin pressure for transport and the vast number of transactions in the debt ridden countries have forced logistics companies remains high due other transport and logistics subsectors. national governments to privatise to the sector’s fragmentation and cost Therefore, transaction multiples for national infrastructure and look for pressures such as rising fuel costs, infrastructure targets constantly rose private operators and investors in order the regional position of transport over the past four years – from EV/ to secure the sustainable operation infrastructure on strategic transport EBITDA of 6.3 in 2009 to over 10.0 in of strategic transport infrastructure network hubs ensures operators 2012/2013, in line with trading multiples and hub networks. On the other hand, a significantly smaller degree of of the respective peer group. private investors like pension funds competition. Hence, operating profit are constantly looking for investment margins are substantially higher than Outlook opportunities with steady cash flows logistics and freight forwarding peer The share of infrastructure within and growth perspectives. Transport groups (Graph 5) and cash flows steady, total transport transaction values is infrastructure targets including making infrastructure operators an ideal expected to remain high in the near ports and airports can offer these target for pension and state funds and future. A major driver will likely remain opportunities. Graph 4 shows that investors keen on steady returns. privatizations of national infrastructure global trade is growing faster than in order to cope with rising government At the same time, strategic investors debt ratios and secure sustainable global GDP, while container throughput are also looking for inorganic growth is even outgrowing trade. While the traffic growth. In Japan, the government opportunities, especially in emerging has announced its intention to sell multiplier is expected to be lower in the markets where growth forecasts are future as compared to the past 15 years, rights of airport management and significantly above the mature markets operation of 29 government owned the trend is nevertheless expected to in Western Europe and North America. airports2. Furthermore, a number of continue. Although numbers of transactions in large transactions have been announced infrastructure have been rising due in 2013 but not yet completed. Among

2. Financial Times, December 2012, http://www.ft.com/cms/s/0/66083b98-3dfb-11e2-91cb-00144feabdc0.html#axzz2a42nbvvF © 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 60,000 600 GRAPH 1 60,000 600 GRAPH 1 60,000 600 GRAPH 1 50,000 500 50,000 500 40,000 400 40,000 400 30,000 300 30,000 300 20,000 200

20,000 200 Number of deals 10,000 100 Number of deals Deal value (USD m) Deal value 10,000 100 Deal value (USD m) Deal value 10,000 100 Number of deals Deal value (USD m) Deal value 0 0 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 0 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 0 20081H 20082H 20091H 20092H 20101H 20102H 20111H 20112H 20121H 20122H 20131H 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 APAC Latin America Number of deals North America EMAAPAC NorthLatin America America Number of deals EMA North America

GRAPH 2 GRAPH 2 60,000 600 GRAPH 2 60,000 600 50,000 500 50,000 500 40,000 400 40,000 400 30,000 300 30,000 300 20,000 200

20,000 200 Number of deals 10,000 100 Number of deals Deal value (USD m) Deal value 10,000 100 Deal value (USD m) Deal value 10,000 100 Number of deals Deal value (USD m) Deal value 0 0 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 0 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 0 20081H 20082H 20091H 20092H 20101H 20102H 20111H 20112H 20121H 20122H 20131H 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 InfrastructureInfrastructure Airlines Number of deals Other transport & logistics ShippingInfrastructure OtherAirlines transport & logistics Number of deals Shipping Other transport & logistics

100% 100% 76% 86% 88% 64% 96% 85% 80% 78% 79% 78% 32% 76% 86% 88% 64% 96% 85% 80% 78% 79% 78% 32% GRAPH 3 100% GRAPH 3 76% 86% 88% 64% 96% 85% 80% 78% 79% 78% 32% GRAPH 3 80% 80% 68% 60% 68% 60% 68% 60% 40% 36% 40% 36% Transport Perspectives / September 2013 | 7 24% 36% 20% 24% 22% 21% 22% 20% 20% 22% 21% 22% 15% 20% 24% 14% 15% 20% 14% 12% 22% 21% 22% 12% 4% 20% 14% 4% 15% 0% 12% 1H 2H 1H 2H 1H4% 2H 1H 2H 1H 2H 1H 0% 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 20081H 20082H 20091H 20092H 20101H 20102H 20111H 20112H 20121H 20122H 20131H 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 InfrastructureInfrastructure Total Total excludingexcluding infrastructureinfrastructure Infrastructure Total excluding infrastructure these, Canadian state-owned Public Graph 4: Historic multipliers of trade and sea freight growth over GDP Sector Pension Investment Board (15 year CAGR) agreed to acquire Hochtief Airport GmbH (HTA), for an estimated US 8% GRAPH 4 8% $1.439bn. In Turkey, Dogus Holding 8% 7.8% GRAPH 4 7% 7.8% agreed to acquire the operating rights 7% 1.4x 7.8% of Galata port from state-owned 7% 1.4x 6% 2.2x TC Basbakanlik Ozellestirme Idaresi 2.2x 6% 5.7% 2.2x 5% 1.6x Baskanligi, for US $702m. In Spain, 1.6x 5.7% 5% state-owned AENA airports authority 4% 1.6x aims to raise around US $7.9bn in a 4% 3.6% 3% 3.6% partial privatization before the end of 3% 3.6% 2% the year, while Abertis Infraestructuras, 2% 2% which holds stakes in 29 airports across 1% Europe, the USA and Latin America, is 1% 0% Global GDP Trade growth Seafreight working on a divestment strategy for 0% Global GDP Trade growth Seafreight its airport division and recently agreed Global GDP Trade growth Seafreight to sell Belfast International airport and Source: IMF, Drewry, JP Morgan. Stockholm’s Skavsta airport to ADC & HAS Airports Worldwide according to Reuters News3. Graph 5: Infrastructure vs. logistics and freight forwarders average EBITDA With transaction multiples high, margins public budgets low and growth 45 prospects steady, M&A in transport 45 GRAPH 5 4540 infrastructureGRAPH 5 is expected to remain 40 GRAPH 5 4035 a recurring theme on the sector’s 35 3530 agenda. 30 30 25 25 20 2015 EBITDA margin EBITDA EBITDA margin EBITDA 15 10 EBITDA margin EBITDA 105 5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 20101Q 20102Q 20103Q 20104Q 20111Q 20112Q 20113Q 20114Q 20121Q 20122Q 20123Q 20124Q 20131Q 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 InfrastructureInfrastructure Logistics & Freight Forwarder Infrastructure Logistics & Freight Forwarder Source: Bloomberg, 2013.

Graph 6: Infrastructure companies average trading multiples

GRAPH 6 12 GRAPH 6 12 10 10 8 8 6 6

EV/EBITDA 4 EV/EBITDA 4

EV/EBITDA 4 2 2 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13

Source: Bloomberg, 2013.

3. Reuters News, 07/22/2013; Reuters News, 06/13/2013; Reuters News 03/20/2013 © 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 8 | Transport Perspectives / September 2013

Bridging the Gulf – opportunities and challenges for the GCC railway

Daniel Lawrence

Following the recent hiatus in UK rail franchising activities, many European rail operators have been turning their attention increasingly to developments overseas. One area eliciting particular interest is the Middle East. The region holds huge potential for rail operators, due to an extensive transport investment plan driven by the ambition and wealth of the Governments. The estimated budget for rail development in Saudi Arabia alone is believed to be US $90bn over 30 years4. The region also has the benefit of being largely free from incumbent operators.

Giving particular impetus to rail The current market Challenges to overcome development in the region is a planned An overview of the current market is There are five key issues which must be railway running from Kuwait’s border outlined in Table 2. overcome: with Iraq to the Omani coast, linking all six Gulf Cooperation Council (GCC) The potential for the railway Commercial issues 5 This is of most relevance to potential nations . Each member state is If implemented properly, the project will operators. It is also the issue that has undertaking or planning rail projects likely bring benefits of easier (and thus been least addressed. Each member of which will either form part of this increased) trade within the region, and a the GCC is responsible for constructing network or will feed into it. shift of people and goods away from the their track, systems and stations8. But roads and onto the rails. This should also While not the largest global rail project what of the ‘above the rail’ operation? have the effect of boosting safety. Rail (China’s estimated investment in high Who will operate the trains, who will is, worldwide, significantly safer than speed rail is $300bn6), this is arguably procure the operators, and who will set road travel. By putting more goods and the most complex rail project being fares and tariffs? The answers to these passengers onto the railways, this will undertaken in the world. This complexity questions have taken a back seat as the reduce the volume of traffic on the is due to challenges of connecting six GCC grapples with questions around region’s notoriously congested independent countries, all of whom immigration, security and highways. Given the geography of the (with the exception of Saudi Arabia) did standardization (see below). Taking gulf region, it will likely also offer not have significant existing railway passenger rail as an example, will the significantly reduced journey times for track before the project commenced. countries establish a similar model to cargo compared to sea transportation. Indicative of these challenges is the Eurostar (or indeed Gulf Air) where the However, while the potential for freight delay in progress in setting up the Gulf member states have an individual stake is clear, the passenger case is less so. In Rail Authority, which will oversee the in the operation? Will they award the GCC region, people may be more project. The decision was announced in franchises or access rights to private hesitant to swap their cars for a train 2009, with the stated intention to set up operators from any country? And will than, for example, in Europe. The Dubai the Authority the following year. they permit multiple operators to Metro, while a hit with expatriates and However this has been delayed and the compete on the same track? The role of tourists, is still significantly underused GCC is now hoping that the authority the operator during the build phase also by Emiratis. The region’s governments will be in place by the end of 20147. needs to be clarified. These questions will need to work to encourage modal can likely only be answered by the This article identifies the potential the shift alongside the investment in rail to establishment of a Gulf Railway railway brings, and the key challenges ensure an appropriate return on Authority. that must be overcome before the GCC investment is earned. railway proves a realizable opportunity for foreign operators.

4. UK Trade & Investment, https://s3.amazonaws.com/ProductionContentBucket/pdf/20120718165007495.pdf. 5. Gulf Cooperation Council members are Saudi Arabia, Kuwait, Qatar, the UAE, Oman and Bahrain. 6. Moneyweek, http://moneyweek.com/ride-the-trend-for-high-speed-rail-links-56710. 7. http://www.menarailnews.com/mena/kuwait/gcc-rail-authority-by-2014. © 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services 8. http://www.policymic.com/articles/13190/for-gcc-countries-a-challenge-within-reach-the-gulf-rail-network. and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Transport Perspectives / September 2013 | 9

Table 2: Overview of the current market

Country GDP (PPP adjusted, US$bn) Goods exports p.a. (US$bn) Population Current transport Non GCC operators in the market Saudi Arabia $740 $365 27m Rail, bus and coach, small university metros Renfe UAE $271 Not Available 5m Metro, bus and coach, monorail Serco Qatar $189 $114 2m Bus and coach None at present Kuwait $166 $104 3m Bus and coach None at present Oman $91 $47 3m Bus and coach None at present Bahrain $32 $20 1m Bus and coach None at present Total GCC $1,489 $650 41m UK (Comparator) $2,323 $479 63m

Source: World Bank, 2011.

The economy issue for the railway. In the UAE for checks being carried out, particularly on A significant part of the delay to date is example, 80% of residents are not cargo vehicles. In April 2012, for due to the global economic downturn. Emirati10. For passenger trains to example, queues of trucks up to 17km Falling global trade levels impacted efficiently operate cross-border, there long were reported at the border from infrastructure projects worldwide. Given would need to be a way to ensure the UAE to Saudi Arabia, as customs that the pan-GCC railway is immigration controls are in place. The and border officials carried out predominantly freight, it may also have Eurostar between London and necessary checks11. A robust system suffered, with the GCC deciding not to continental Europe faces similar must be in place in order to search procure major contracts at the low point challenges. This has been mitigated by freight trains without causing significant of the economy. With the economy passport checks taking place before delay to the cargo, or to other trains stabilizing, and confidence returning to boarding the train. However, the using the network. the region, we may see an increased pan-GCC railway is more complex, The GCC has announced it expects speed of progress. involving six jurisdictions instead of (for agreement on immigration, security and border controls purposes) two. The Immigration customs by the end of 201312. right balance will need to be struck A major challenge facing the project between ensuring smooth running of Standardization from a passenger (and staff) perspective train services, and maintaining border Each member state is charged with is the subject of immigration. Like the controls. building its own railroad, which will EU, citizens of the GCC countries are eventually feed or become part of this free to travel from country to country Security and customs network. Many projects are already in visa-free, and have the right to work in Linked to the above issue is one of construction, with Saudi Arabia and the the other countries9. However, many security and customs. At present, road UAE leading the way. As a result, by the expatriate and migrant workers do not traffic between some GCC countries is time the Gulf Railway is implemented, it enjoy this right. This poses a significant subject to strict controls, with extensive

9. http://www.arabnews.com/node/307252. 10. Gulf News, http://gulfnews.com/news/gulf/uae/general/conference-explores-views-of-expats-about-uae-society-1.1186146. © 2013 KPMG International Cooperative (“KPMG 11. http://gulfnews.com/news/gulf/uae/general/truckers-at-uae-saudi-border-no-closer-to-answers-1.1003789. International”). KPMG International provides no client services 12. http://gulfnews.com/business/construction/gcc-railway-authority-may-be-established-by-2014-1.1142891. and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Transport Perspectives / September 2013 | 11

may be that different countries already For many operators, the priority is to gained a minority stake in a new UAE have various standards and operating keep building relationships in the region freight operator), but runs the risk of models which it will be challenging to (with governments and potential joint causing significant integration issues integrate. On the most important venture partners). Two guiding principles when the projects are eventually linked standards, the GCC member states for the region seem particularly relevant: up. There are also opportunities to have been consistent. For example, the operate bus and coach services in the • Approval and decisions can take a rail networks in Saudi Arabia and the region, which require far less long time to be made. However once UAE are both being built using the investment. the decision is made, things typically standard (1,435mm) gauge13. However, move quickly. until the Gulf Railway Authority is in Conclusion place to set standards, significant • Relationships are important to ensure This project is incredibly ambitious. interaction is required between a wide operators are constantly up to date However, the GCC region has range of public and private sector bodies with the latest developments. famously delivered projects in ways to ensure consistency. Until the Gulf Railway Authority is and at speeds that others would Implications for operators established, there will likely be little deem impossible due to the ambition For operators, the delay in progress is certainty for operators. In the of the countries in the region. As frustrating. Many operators are aware of meantime, individual countries with many things in the region, if the major potential opportunity in the (particularly Saudi Arabia and the UAE) the political will is there, ambitious GCC region but the delay in progress seem to be making significant progress projects can be delivered. does not give them the ability to in developing their sections of the effectively plan. railway. This may provide more immediate opportunity for operators (for example, Deutsche Bahn have recently

13. http://www.etihadrail.ae/sites/default/files/pdf/factsheets.pdf and © 2013 KPMG International Cooperative (“KPMG http://www.railway-technology.com/projects/saudi-landbridge. International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Contact us

Andrew Robinson Partner - Transport and Logistics KPMG in the UAE T: +971 4 424 8912 E: [email protected]

Dr Ashley Steel Global Chair – Transport and Logistics T: +44 (0)20 7311 6633 E: [email protected]

Shazar Dhalla Global Executive – Transport and Logistics T: +44 (0) 20 7694 8242 E: [email protected]

Dr Steffen Wagner Global Head of Rail and Bus T: +49 69 9587 1507 E: [email protected]

Daniel Lawrence Manager – Transport Advisory KPMG LLP (UK) T: +44 (0)20 7694 8348 E: [email protected]

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