The United Arab Emirates will soon award contracts for the second phase of a vast railway project aimed at connecting the country’s industrial cities and boosting trade across the Gulf.

Etihad Rail – which is 30 per cent owned by the UAE’s federal government and 70 per cent by Abu Dhabi – will in the third quarter of this year grant tenders to build a network that will run to the Saudi Arabian border, the company’s chief executive said.

The $11bn railway system is part of a broader drive by Abu Dhabi, the UAE capital, to develop infrastructure to help it diversify its economy away from oil. A further surge in economic activity is expected if Abu Dhabi’s neighbouring emirate, Dubai, wins the bidding to host the World Expo exhibition in 2020.

“This [rail] project is critical for the UAE . . . being the logistic hub of the whole region,’’ says Nasser Saif al-Mansoori, Etihad Rail’s chief executive. “The capacity of the ports is growing, and you need another method of safe and environmentally-friendly transportation. You also need to relieve pressure on the highways to reduce accidents and reduce the cost of road maintenance.’’

Engineers and other workers have been braving the UAE’s sweltering desert heat and sandstorms to build the two-part first phase of the rail network, including creating safe underground crossing points for desert animals such as deer, camels and reptiles. The maiden freight train carrying granulated sulphate is due to roll from the oilfields of Habshan to Ruwais port by the end of the year, while the second part of the first phase linking the Shah oil and gasfield to Ruwais is scheduled to be finished by the end of next year.

While the $1.2bn funding for the first phase was secured by four banks and Abu Dhabi National Oil Company, the rest of the project will be financed by the UAE government.

The second phase will run along the coast and will connect Abu Dhabi’s new Khalifa port to Dubai’s Jebel Ali port and the inland oasis city of al-Ain. It will extend to Ghweifat on the border with Saudi Arabia.

The third stage of the Etihad Rail project is expected to be even more challenging. The route will cut through the mountains of Fujairah emirate, linking its port – a hub for the international oil industry – to Oman.

Plans to have a high-speed train on the network have been scrapped and instead the trains will run with a maximum speed of 240km, as the small size of the UAE does not “justify the cost” of superfast engines, according to Mr al-Mansoori.

The entire 1,200km double-track network, handling both freight and passenger services, should be complete by 2018. For the time being, the network will be focused mainly on transporting freight, reflecting the country’s economic priorities. Designs for passenger stations, however, are being reviewed, and passenger trains will be added to the service later, says Mr al-Mansouri.

“We have a strategy for passenger trains, the heaviest corridors are Abu Dhabi-Dubai and Dubai-Sharjah,’’ he says. “There is so much of economic return on such a project because it is very vital to the country.”

The Etihad Rail network is also seen as part of a bigger plan to link the six states of the Gulf Co-operation Council to each other, a key element in their stop-start efforts towards greater economic integration. Despite their enormous energy wealth, the Gulf states lagged behind other Middle Eastern countries in joining the rail age.

But, propelled by the oil price boom in the past decade, Gulf states are now spending billions of dollars on infrastructure, including rail.

Saudi Arabia – which this week awarded three foreign-led consortiums contracts worth $22.5bn to build a metro system in Riyadh– is spending up to $25bn on a rail network that will link the vast country’s cities and industrial ports. The kingdom has one passenger track, between Riyadh and Dammam, the main city in the oil-rich eastern province. Qatar, Kuwait, Bahrain and Oman are also planning to build railways.

“The integrated GCC Railway will provide the required infrastructure to enable rail to absorb increasing freight volumes efficiently and economically,’’ says John Sfakianakis, a Riyadh-based economist and the chief investment strategist of Masic, an investment company. “Safety is another issue. Trains are far safer than trucks – and efficiency is key here.”

Gulf officials say the railways will boost trade and communication not only among their own states, but also to Europe via Jordan, Syria, Iraq and Turkey. While the war in Syria highlights the potential problems with such plans for now, the land route has the great advantage of avoiding the east African piracy that has for years plagued trade via the Suez Canal.

“We can have cargo coming from China by ship, unload in Jebel Ali then go all the way to France,” says Mr Mansouri. “The rail will be very competitive.”

This article has been amended since original publication to reflect the fact that the railway system costs $11bn and that trains will run at a maximum speed of 240km.

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