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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