JORDAN'S LIGHT RAIL PLAN STILL LACKS FUNDING; REVIVED

UNCLAS AMMAN 002190 SENSITIVE SIPDIS FOR NEA/ELA AND EEB/TRA E.O. 12958: N/A TAGS: ECON ELTN EINV PGOV JO SUBJECT: JORDAN'S LIGHT RAIL PLAN STILL LACKS FUNDING; REVIVED OTTOMAN-ERA RAIL LINE CONFIRMS COMMUNITY INTEREST REFS: A) AMMAN 2032 B) AMMAN 1646 C) AMMAN 1633 D) AMMAN 460 E) 08 AMMAN 3139 ¶1. (SBU) Summary: Jordan continues taking small steps to implement its plans to establish a light railway linking its two largest cities, Amman and Zarqa. The project has been fraught with financial difficulties due in part to the domestic impact of the global financial crisis as well as to Jordan's owns budget problems (ref B). Convinced that light rail is needed and feasible, the government of Jordan signed an agreement with the International Finance Corporation to identify project partners and administer the bidding and financing process. In the meantime, Ottoman-era train infrastructure began being used during the month of Ramadan for daily train service between Amman and Zarqa on a trial run. After a slow start, the train ferried more than 7,000 passengers and service is now available on a daily basis, possibly paving the way for future light rail service. End Summary. Planned Light Rail Project Stalled by Lack of Funds -------------- -------------- ¶2. (U) Jordan's Public Transportation Regulatory Commission (PTRC) announced in 2008 plans to establish light rail service connecting Jordan's two largest cities, Amman and Zarqa. The railway would serve an estimated 100,000 commuters daily for the 16-mile, one-way trip. PTRC's plan was to finance the project, estimated at $332.7 million, through a Build-Operate-Transfer (BOT) arrangement. In what was thought to be a major step toward realizing the project, PTRC signed a BOT agreement with a Pakistani-Chinese consortium of companies specialized in building railways in January 2008. PTRC had planned to subsidize the cost by $90 million, but ultimately terminated the agreement after the consortium failed to secure the necessary financing for the project. ¶3. (U) PTRC previously signed a similar agreement that also ended with the same unsuccessful results. Under a 2007 arrangement, an alliance of three Kuwaiti companies and a Spanish group formed the Jordanian-Kuwaiti Infrastructure Company to construct and manage all operations of the light rail system. PTRC terminated that agreement in March 2009 and Zahi Bani Saeed, Secretary of the Steering Commission for the Light Train Project, said the company's failure to secure funding was again the main reason for cancelling the project. ¶4. (SBU) Mahmoud Khazaleh, Director General of Jordan Hejaz Railways (JHR),the government entity managing Jordan's railways operations, asserted that the project is economically feasible and told EconOffs that the international economic crisis was the main reason companies were not able to secure financing for the project. He further commented that consecutive GOJ administrations had delayed moving forward on the plan, which resulted in much higher expenses, mainly for land acquisition as land prices have soared significantly in recent years. Comment: Questions of financing these kinds of development projects are paramount and not unique to the light rail project. Jordan is facing a severe budget deficit this year and the 2010 budget situation is likely to be worse given drops in government revenues, a decline in foreign grants, and mushrooming capital expenditures in the first half of 2009 (ref B). The budget equation will remain very important as the rail and other projects progress. End comment. World Bank Help for Rail Line -------------- ¶5. (SBU) Undeterred, PTRC Director Jamil Mujahid told Jordanian media in August 2009 that the failed agreements would not prevent PTRC from going through with its plans. PTRC subsequently announced it was going to finance the project on its own and had established a commission that would screen project bids. Mujahid further noted the GOJ would cover costs of building a new wide-gauge railway and would seek BOT agreements with investors for new equipment and machinery. ¶6. (SBU) Hejaz's Khazaleh echoed Mujahid's statement, telling EconOffs that the GOJ would spend $90 million on building the railway's infrastructure instead of using the funds to subsidize the potential investor, as initially planned. In hopes of attracting foreign investment, including from "capable American companies such as Amtrak," the Ministry of Transportation signed on September 16, an agreement with the World Bank's International Finance Corporation (IFC) authorizing the latter both to seek investors able to implement the project and to manage the bidding and financing operations. IFC will reassess the feasibility of the project over the next 18 months, taking into account previous studies conducted by the GOJ, and is expected to float an international tender for potential bidders to begin project implementation, according to Khazaleh. Ottoman-Era Rail Revived as a Test Balloon -------------- ¶7. (SBU) Convinced of the future success of light rail service, PTRC began a trial run on August 21 between Zarqa and Amman to alleviate Ramadan traffic congestion. After a slow start - only a handful of passengers rode the train at the start of the experiment - JHR transported more than 7,000 passengers during Ramadan. JHR has since made the Zarqa-Amman route part of its regular operations with the train making two daily trips between the cities, operating on an old rail line originally constructed in 1908 as part of the Ottoman Empire's Hejaz railway made famous in "Lawrence of Arabia." Bani Saeed said PTRC would consider adding another train to facilitate operations, depending on demand, and would examine ways to further improve the service. In addition to this service, there is regular passenger roundtrip rail service from Amman to the outskirts of Damascus twice a week as well as daily cargo traffic. Riding the Rails: Low Fares and Lots of Noise -------------- - ¶8. (SBU) Two EconOffs joined 50 commuters for the morning trip from Zarqa to Amman on September 14. Commenting on the lower ridership, the train engineer reported that return trips carry an average of 200 passengers with a maximum capacity of 400. The train -- two engines, a kitchen car (closed for Ramadan),six passenger cars with bathrooms, and a caboose -- departed 15 minutes late a few hundred feet away from the old Zarqa station of the former Hejaz railway line. The first half of the slightly bumpy, but enjoyable 50-minute ride was through the trash-strewn and crowded urban areas that characterize modern, industrialized Zarqa (ref A). EconOffs briefly glimpsed the desert landscape before arriving at Amman's outskirts. While officials from the Zarqa Municipality who were part of the team that rode the train's initial run complained that the 1970's-era cars were old and uncomfortable, EconOffs were pleasantly surprised by the clean, air-conditioned accommodations. Other riders were likewise satisfied with the service and the low fare of 250 fils (35 cents),less than a can of soda. The duration of the trip was also comparable to the rush hour drive time to Amman, and instead of gridlock, the only obstacle was the occasional sheep on the train tracks. Visit Amman's Classified Web Site at http://www.state.sgov.gov/p/nea/amman BEECROFT