Saudi Arabia Turns to Nightmare for Spanish Consortium

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Taxpayer, get ready to open your wallet.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

When, in October 2011, the Saudi Railways Organization (SRO) announced its decision to award the bid to build a high-speed rail line between Medina and Mecca to a Saudi-Spanish consortium, it was like a dream come true for the Spanish infrastructure and rail companies involved. Decades of patient lobbying of the House of Saud by Spain’s former King Juan Carlos I had finally paid off.

Never before had Spanish companies won a tender for a project so big, so prestigious and so lucrative on the Arabian peninsula. The project’s total contract value is worth €6.74 billion. But the dream is already souring. What was originally meant to be a pioneering feat of engineering and the perfect global showcase for Spain’s mastery of high-speed rail infrastructure is now plagued by political intrigue, delays, and technical problems.

The biggest problem is something that can be found just about everywhere in Saudi Arabia: sand. Turns out, fast trains don’t work well when the rails are covered in sand, especially when large sections of track are built with ballasted track, the conventional (and cheapest) method for building rail lines, but which happens to be particularly susceptible to wear and tear and even track failure in desert areas.

Despite the construction of a 1.5 meter containment wall to keep the sand out, sand is still getting in, thanks mainly to the desert wind. In fact, in some places there’s so much sand that it’s almost impossible to see the tracks.

Naturally, none of the consortium partners wants to take responsibility for cleaning it up. After all, it would amount to a permanent and expensive undertaking that has not been budgeted for, in a project that expressly forbids cost overruns. According to the consortium member OHL – a Spanish construction company that is drowning in debt and has just been downgraded by Moody’s while it’s mired in a massive scandal in Mexico – its contractual obligations do not include keeping sand off the tracks.

To a certain extent you can understand the firm’s logic: it was hired to help build the infrastructure, not maintain it. That responsibility, argues OHL, ultimately belongs to Spain’s semi-publicly owned train manufacturer Talgo and its publicly owned rail operators RENFE and Adif, which were chosen to operate and maintain the system once it’s up and running.

The only way OHL will do the clean-up job is if it is paid more money to do so. For this and a number of other reasons, the consortium has finally done what Spain’s Ministry of Public Works dreaded the most: it has asked for more funds — an absolute minimum of €1.4 billion — from the Saudi government to cover its client’s — SRO’s — “unforeseeable demands,” such as keeping sand off the rail tracks.

In other words, a project that was supposed to improve the international reputation of Spanish business could end up doing it irreparable harm, especially considering this is not the first time this has happened. In 2014, another Spanish-led consortium employed the exact same ruse in the expansion of the Panama Canal. As I warned at the time, Spain has begun exporting its national construction model: habitually underestimating total costs when submitting bids and then asking for more money later.

With predictable consequences: the Spanish government — on behalf of Spanish taxpayers — intervened in the Panamanian stand-off by indirectly bailing out the Spanish company leading the project.

The chances of a similar outcome transpiring in the Medina-Mecca rail link are worryingly high, for three reasons: first, this time around, the consortium in charge of the project is being led by two public entities, Adif and RENFE; second, the contract for the project states that cost overruns are expressly prohibited, which suggests that the Saudi government actually did its homework before deciding to hire Spanish contractors; and third, Saudi Arabia is no longer in a financial position to throw good money after bad.

Indeed, in a desperate bid to rein in its spending, the Saudi government recently began delaying payments to public contractors as the slump in oil prices pushed the country into a deficit last year. Some companies working on infrastructure projects have been waiting for as long as six months to get paid, as the government seeks to preserve cash.

As such, any efforts by the Spanish-led consortium to secure €1.4 billion or more of additional funds are likely to be futile. In the meantime, the clock continues to tick down. The Medina-Mecca train line is scheduled to be inaugurated on Jan 1, 2017. If the project is not ready by then, the consortium will have to pay $1 million for each day it runs over the deadline. In theory, that shouldn’t be a problem: besides the erection of 125 kilometers of overhead cables, most of the work has already been completed, including the construction all five stations.

However, the dry desert wind continues to blow, and the Arabian sand continues to pile up on the unused tracks. And no one wants to pay to clear it up, not even Spain’s cash-strapped taxpayers, though they won’t be given a choice in the matter. By Don Quijones, Raging Bull-Shit.

“Citizens should not be put under general suspicion,” said Carl-Ludwig Thiele, Bundesbank board member in charge of cash issues – because that’s what the foes of cash have been doing. Read…  “Freedom Always Dies Bit by Bit”: Bundesbank Takes Sides in War on Cash

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  34 comments for “Saudi Arabia Turns to Nightmare for Spanish Consortium

  1. Domenic D
    March 12, 2016 at 11:51 am

    Lovely! Socialism sounds great when there is a wallet full of cash and it’s not yours. I say if the public has to pay for it the railway should be nationalized until the public is fully paid back. Then after the public is paid back in full the rail is then sold to the first company that can maintain it without help.
    I guess now rail is too big to fail as well. blah!

    • Chip Javert
      March 12, 2016 at 7:15 pm

      Oh great. The entity causing the problem will nationalize the railroad – until it is paid back. Yea, that out to work.

      You are assuming two facts not in evidence for [all of] socialism:

      1) the (socialist) government represents the people – it most assuredly does not;
      2) the (socialist) government is ethical – QED.

  2. March 12, 2016 at 12:04 pm

    I don’t see how it can be so bad. I spent months in Tayma and we went days, sometimes 6 or 8 days without sand in our food, mouths and ears. I would think that an engineer could take a bamboo poll and tell if it was a good idea to build a track for a rocket train in this serpentine sanctuary. I’m not an expert like you, Wolf, but my gut tells me that Sherlock Holmes would say, “My dear Mr. Watson. This is a case of have more money than common sense on one side and incomprehensible greed and Keystone Cops organizational skills on the other.”

    • Bob Miller
      March 12, 2016 at 12:31 pm

      Wolf. I’d like to make a suggestion…well, actually it’s a complaint. If it doesn’t cost a million dollars, essentially even if it does, you should fix it so we can edit our comments. In order to get here first so everyone gets to read my opinions, I have to really hurry and I make mistakes. I guess it would be okay to make mistakes if people liked you.

      • March 12, 2016 at 2:27 pm

        I’m using a software package and cannot make any modifications to it.

        In general, editing your own comments after they’re published is a bad idea (past say the first minute or so) because other people are going to read the original and react to it, and if you change it afterwards, suddenly the whole thing might not make sense anymore.

        If you want readers to be aware of an error you’ve made, you can reply to your own comment with the correction. This way, everyone is on the same page, so to speak.

        • Dan Romig
          March 13, 2016 at 6:05 pm

          My mom, who was an editor for West Publishing and has a degree in Rhetoric, always advised me to proof-read twice. But, I still make an occasional mistake. We’re human. All’s well … no worries.

    • Petunia
      March 12, 2016 at 1:12 pm

      Seems to me the Bedouins should have been the first to know they couldn’t keep the sand off the tracks. Elevating a fast train seems like a naturally good idea anywhere, less likely to have interference of any kind. Just thinking out loud.

      • March 12, 2016 at 2:20 pm

        Yes, but very expensive! Much cheaper (during the bidding process) to lay the track on the sand :-]

        • John Doyle
          March 13, 2016 at 9:45 pm

          Maybe not so expensive in the long run. The railway can’t operate as it is. Is that cost effective? Spend double and get a line that works seems the cheaper option. [20-20 hindsight talking].

      • Chip Javert
        March 12, 2016 at 7:25 pm

        Based on the article, the contractor does not appear to be in the railroad business; they are in the bribery and over-billing business. Sand – who cares?

  3. 2banana
    March 12, 2016 at 12:11 pm

    It’s like a railroad company never built a line through a desert before…

    • Vernon Hamilton
      March 13, 2016 at 6:50 am

      Indeed, there have been railroads in Saudi for a century or more.

      • R
        March 13, 2016 at 11:55 pm

        The people who built them left no written records. Remember, this is Saudi Arabia for God’s sake.

  4. Gary
    March 12, 2016 at 12:36 pm

    I’m sorry but I do not understand this article at all. An extra 1.4 billion? So what? That’s only an hour’s worth of QE. A drop in the bucket (or a grain of sand in the desert LOL).

  5. Brett
    March 12, 2016 at 2:14 pm

    Lets be honest here, who could have possibly foreseen sand piling up on railway tracks traversing thousands of miles of desert made up of, well, sand. you would have had to be some sort of genius.

    • Bob Miller
      March 12, 2016 at 2:35 pm

      I’m not going to lay claim to that genus thing, but I did suspect there’d be a few challenges. Nevertheless, the guy in Tayma with me said he approved of it. That, however, didn’t alter my opinion of the situation since his lifetime goal was to get his picture taken with Richard Petty.

  6. Bigfoot
    March 12, 2016 at 2:30 pm

    Wow! They just now figured that SA has sand storms. If I’d have known they needed help, I could have loaned them one of my archived National Geographic mags from the 70’s.

    I don’t have a solid stat but I believe that hardly any of these rail systems in the world recoup their construction costs & the majority don’t cover their operating expense either without subsidies. I suppose most were never intended to run as a profitable business regardless of what was portrayed initially.

    • NotSoSure
      March 12, 2016 at 2:45 pm

      Well, isn’t this equivalent to that mythical bridge in Brooklyn?

      Oh well, taxpayers are now well accustomed to being abused. As Malcolm Gladwell would say: “it’s all due to repetitions, guys”.

    • MC
      March 12, 2016 at 5:12 pm

      Yes, every single one of them is a financial black hole.
      High speed railways may be nice for the ordinary traveler (until you look at ticket prices in countries like Italy) but are nicer for those building the infrastructures and rolling stock. It’s pork barrel in its purest form on truly gargantuan scale.
      And just wait until Maglev arrives: in Japan, the country which pretty much invented pork barrel as we know it, profitable conglomerates such as Mitsubishi and effectively bankrupt companies such as Nippon Sharyo are already lining up at the Maglev trough. Given the Tokyo-Nagoya chou shinkansen line is planned to take until 2047 to be completed it means three decades of contracts. Kuroda-san had better order a new printing press or two. That will help stimulate the economy.

      To continue on the tren, I find deeply ironic Saudi Arabia picked a Spanish consortium for the job: one thing that struck about LAV (high speed railways) is the number of stations located in the middle of nowhere. If the LAV themselves were pork barrel, those stations are the icing upon it. They remind me of the innumerable unused airports which popped up in Spain herself, Italy and Poland and were built for exactly the same reasons.
      Somewhere Keynes is shaking his head and repeating “This is not what I had in mind”.

      • Chip Javert
        March 12, 2016 at 7:30 pm

        The stations are obviously required so you have a place to hide from the blowing sand.

    • d
      March 13, 2016 at 2:52 am

      cheap efficient public transport is required, to move the people, who drive the economy, around.

      Why is it that the Japanese, and possibly Germans are the only people who understand, that subsidizing the public transporter of the people, is a good economic investment, and stimulus on which they get a good return.

      All Japaneses railways are nationally, and regional subsidized, they work, run on time, Are in continuous upgrade, and everybody is happy with them.

      More importantly the timetables efficiently mesh with bus timetables. Japan the only country where I have ever regularly seen buses, waiting at a stop point on the route, for departure time, as it was early to that synchronization point. Again.

      The British instead of controlling the unions, privatized, rail now the communist dominated, extortionist rail unions, are even more out of control, and rail in Britain, is expensive and unreliable.

      Much of the shinkansen is elevated and shielded to keep the rail way from the airborne grit and water, from rice paddies.

      Spanish constructors couldn’t self design and build a, durable, successful, high speed rail line to save themselves.

      A Small (compared to coming costs ) consultancy fee, spent with any Japanese rail constructor, would have returned the result, large environmental problems here being. 1, 2, 3, Etc.

      Of course Spain dosent need to speak to the people who LEAD high speed rail development.

      They just charge more to fail at reinventing the wheel.

      • Randy
        March 13, 2016 at 11:51 pm

        How about the forkin Saudi’s. Don’t they know they have some sand between Medina and Mecca?

        • d
          March 14, 2016 at 1:51 am

          How about the Saudis paid the Spanish to build them a rail line that works. .

          If you had ever worked in Saudi you would understand, Saudis don’t work.

          Dont have the technical expertise, to build a high-speed, or standard rail-line.

          Dont subcontract, to advise the ( allegedly technical skilled Spanish engineers in anything but cultural and religious protocols.) people they have hired, to do the job.

          Big mess in Panama, and now this In Saudi.

          Spain is making EU engineers and estimators look stupid, something must be done about Spanish International Engineering Contracting. German supervision perhaps?.

  7. j rdl
    March 12, 2016 at 2:55 pm

    OK, now they realize that the problem in the desert may be the sand.
    I’m wondering… may the problem in offshore construction be the salted water?

    • Randy
      March 13, 2016 at 11:48 pm

      And you came to that conclusion without even going down to the sea . . .or do you live at the beach. The Saudi’s, who are totally immersed in forking sand, apparently never thought about the sand blowin in the wind?

    March 12, 2016 at 3:11 pm

    1.4 Billion Dollar broom?

  9. Paulo
    March 12, 2016 at 3:37 pm

    I remember one day driving by the WalMart in Florence Oregon. Sand had drifted in and they were basically doing what we do with snow removal, except it was every morning!! Somebody was asleep at the switch, excuse the pun. Either the supervising engineers were bogus, or it was straight forward manager interference; I suspect both. In snow country you don’t build flat roofs. In sand country, you know it will drift in and bury everything as it has done forever.

    “Stupid is as stupid does”; Forest Gump

    By the way, this has sweet eff all to do with Socialism as an above poster remarked. Northern European socialist countries run some damn fine bullet trains, maybe the best in the world. China does just fine as well as basket case Japan. The so-called capitalist US does not operate even one high speed train, yet has regular derailments on freight and slow pax lines. Your bias was showing.

    • Oleaginous Outrager
      March 12, 2016 at 4:17 pm

      ” the contract for the project states that cost overruns are expressly prohibited”

      Very probably the funniest line in the history of government contracts.

    • Chip Javert
      March 12, 2016 at 7:49 pm


      I think you confused “operating safe high-speed trains” with having “cost-effective high-speed trains”. Besides tax-payer subsidies, several northern European countries have (until recently) had lots of oil money to subsidize less-than-cost-effective investments.

      Norway & Finland have populations of 5M (each); Sweden is 9.5M (by comparison, LA county is 10.5M). It’s a lot easier to get things done in small homogenous population.

        March 12, 2016 at 8:15 pm

        Sweden is no longer homogeneous. They are being ripped apart. They are about to learn a very painful lesson: A “homogeenous” population is stable, safe and peaceful. What they have is hell on Earth and their future is going to be worse.

  10. TArthur
    March 13, 2016 at 12:06 am

    One inexpensive option could be to get the US EPA involved in a “desert preservation” program. Aimed at maintaining the status quo in modern desert-scapes, the visionary leadership of the EPA would cause the Arabian peninsula to somehow lose all the sand. Problem solved

  11. Vernon Hamilton
    March 13, 2016 at 6:56 am

    “…construction model: habitually underestimating total costs when submitting bids and then asking for more money later.”

    This model is not exclusive to Spain. In fact, it is SOP in many sectors here in the States.

  12. Randy
    March 13, 2016 at 11:41 pm

    Everywhere on earth, when an engineering/construction contract goes to design phase, the stability of the soil (sand) is taken into account . . .but NOT in Saudi Arabia! That’s funny . . . .LOL! I guess the big thinkers were out in Las Vegas enjoying American culture!

  13. March 14, 2016 at 11:11 pm

    Doesn’t sound like this train is going to run on time.

Comments are closed.