A Study About Dubai Metro Construction Essay

A rapidly expanding population, plus increasing numbers of tourists the target is 15 million annually by 2010 has placed great strain on Dubais transport infrastructure. Congestion is frankly horrendous. The Dubai Metro system, currently under construction, aims to ease this congestion and reduce passenger travelling time.

The Dubai Metro will be one of the most advanced urban rail systems in the world and will be the catalyst for tourism, financial and economic growth. Investment costs for the full system have been assessed at a grand total of about AE$14.3bn, including civil works, stations, system fixed equipment, trains, engineering and financing[1].

4 Lines are being constructed [1]

About Dubai Metro

The Metro network will be fully integrated within the network operated by the Roads & Transport Authority (RTA), a body created in 2005. Routes will be organized around the backbone provided by the rail system. Taxi stations and park-and-ride facilities will be included in key Metro stations to further enhance the system’s role [1].

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The Project

With an economy increasingly based upon financial services, air transport, property development and tourism, Dubai also has a rapidly growing population and severe traffic congestion problems. Population increase is forecast to continue at an annual rate of 6.4% to reach some 3 million by 2017, with tourist numbers projected to reach 15 million by 2010 [4].

From initial studies beginning in 1997, Dubai Municipality has identified the need for a rail system to supply additional capacity, relieve growing motor traffic and support continuing urban development. Systra was awarded the preliminary engineering contract, and now a consortium of four companies headed by Japan’s Mitsubishi Heavy Industries (MHI) is leading the project to build the first two lines of a high-tech driverless rapid transit system. Other consortium members include the Japanese Obayashi and Kajima corporations, and Yapi Merkesi of Turkey. The Metro network will be fully integrated within the network operated by the Roads & Transport Authority (RTA), a body created in 2005. Routes will be organised around the backbone provided by the rail system. Taxi stations and park-and-ride facilities will be included in key Metro stations to further enhance the system’s role.

“Taxi stations and park-and-ride facilities will be included in key Metro stations to further enhance the central system’s role. ” Groundworks began in February 2006, centred around the 52.1km Red Line. In August 2006 a second contract worth US$.12bn was awarded to the MHI consortium for bulding the 17.6km Green Line, intersecting with Red Line at two stations.

Green Line will link strategic locations Dubai Airport and Healthcare City. The aim is to open in 2010, one year after the Red Line. In June 2007 Serco (operator of the London Docklands Light Railway) was named as preferred bidder for initial consultation and the system’s operation and maintenance. The £400m contract, potentially for up to 12 and a half years, relates to the first two lines. The 52.1km (32.5 mile) Red Line will have 29 stations, four of which will be underground. It will run from Rashidiva to Jebel Ali passing the American University of Dubai. It is planned that the first phase will open in 2009. The whole 52.1km is expected to take 60 minutes to travel, with an estimated 32,000 passengers per hour. The 17.6km Green Line which will have 14 stations – six underground and eight at ground level – from Al Ittihad Square to Rashidiya bus station through Deira City Centre and Dubai Airport Terminals 1 and 3. It will be progressively extended to serve the Deira and Bur Dubai central areas and Souks up to Burjuman and Wafi shopping centres. Interchange stations will be built at Al Ittihad Square and Burjuman with direct connections to the Red Line. Underground sections in the city centre are on the Red Line from the intersection of Sheikh Rashid and Sheikh Khalifa Bin Zayed roads to just before the intersection of Salahuddin and Abu Bakr Al Siddique roads and from Garhoud to Oud Metha Road on the Green Line. Elsewhere, trains will run on elevated viaducts, the design and aesthetics developed specifically to enhance the urban architecture along its corridor. In no location will tracks cross highways, ensuring full mode segregation. A key objective is to minimise the impact on road traffic and on city life during the works. Underground works will be carried out without affecting buildings, and authorities have stated that residents will not be disturbed by excavation work. Visually intrusive overhead contact lines are obviated a third rail collection system. All stations, elevated or underground, will feature platform screen doors for passenger safety and facilitating full air conditioning. The driverless, fully automated trains will be fully air-conditioned and designed to meet Dubai’s specific requirements. The trains will offer standard class with a women and children only section plus a first class section (‘carriage for VIPS’). Five-car sets will be approximately 75m long, seating around 400 passengers but with standing room for many more. Numerous double doors will allow fast and smooth flows.

Rolling stock is to be supplied by Kinki Sharyo under a US$456.2m contract to supply 385 cars, with shipments scheduled from 2008. The main depot will be at Rashidya with an auxiliary depot planned in the Jabel Ali area. Supplied by the Mitsubishi-led consortium, the automatic train control system will allow headways of between 90 seconds and two minutes. In 2005 MHI contracted Alcatel (now Alcatel-Lucent) to supply the driverless train control system and a communications system which covers on-train video surveillance, passenger information, public address and the integrated control centre. The project’s signalling system is moving block and fully automated with in-cab signalling [4].

In full operation, Dubai Metro is projected to carry approximately 1.2 million passengers on an average day, and 355 million passengers per year.

The operating cost including staff, maintenance and power should be approximately AE$570m per year, planned to be met through fares and additional revenues such as advertisement space and joint development.

“A key objective of the engineering studies is to minimise the impact on road traffic and on city life in general during the works [4].”

In May 2007 the 49km Purple Line received approval, moving ahead of another future projection, the Blue Line. Parsons Brinckerhoff has been contracted for initial design work on the express, eight station line. The Blue Line will link the current international airport with the new Dubai World Central International Airport which is being built at Jebel Ali, part of a 140km² multi-mode transport hub. Nine-car trains configured for the demands of airport passengers will take 40 minutes between line termini. Starting construction in March 2009, Purple Line services are scheduled to begin in December 2012.

With the Blue Line to follow the Purple Line, Dubai RTA expects 318km of metro lines to be in operation by 2020. To further reduce the area’s reliance upon road transport, the authority is considering adding 268km of light rail lines that will serve as feeders to Dubai Metro [4].

Infrastructure

The 52.1km (32.5 mile) Red Line will have 29 stations, four of which will be underground. It will run from Rashidiva to Jebel Ali passing the American University of Dubai. It is planned that the first phase will open in 2009. The whole 52.1km is expected to take 60 minutes to travel, with an estimated 32,000 passengers per hour[1].

The 17.6km Green Line which will have 14 stations – six underground and eight at ground level – from Al Ittihad Square to Rashidiya bus station through Deira City Centre and Dubai Airport Terminals 1 and 3. It will be progressively extended to serve the Deira and Bur Dubai central areas and Souks up to Burjuman and Wafi shopping centres. Interchange stations will be built at Al Ittihad Square and Burjuman with direct connections to the Red Line[1].

Underground sections in the city centre are on the Red Line from the intersection of Sheikh Rashid and Sheikh Khalifa Bin Zayed roads to just before the intersection of Salahuddin and Abu Bakr Al Siddique roads and from Garhoud to Oud Metha Road on the Green Line[1].

Elsewhere, trains will run on elevated viaducts, the design and aesthetics developed specifically to enhance the urban architecture along its corridor. In no location will tracks cross highways, ensuring full mode segregation. A key objective is to minimize the impact on road traffic and on city life during the works. Underground works will be carried out without affecting buildings, and authorities have stated that residents will not be disturbed by excavation work. Visually intrusive overhead contact lines are obviated a third rail collection system. All stations elevated or underground will feature platform screen doors for passenger safety and facilitating full air conditioning [1].

2- Financial Structure

The total cost of the underground project is estimated to be $ 3.4bn U.S.

Mashreqbank and Mizuho banks have signed a joint agreement to provide facility to the contracting consortium that won the contract to build the Dubai Metro. The sponsors of the project are the Roads & Transport Authority (RTA), The contracting consortium consists of the Japanese Obayashi, Kajima and Mitsubishi corporations and the Turkish, Yapi Merkezi [1], The consortium won Dhs12.45 billion Metro contract and also won a Dhs1.88 billion contract to carry out maintenance of the project for 15 years [1]. The driverless fully automated trains will be supplied by Kinki Sharyo under a US$456.2m contract to supply 385 cars [1].In May 2007, Dubai Roads and Transport Authority (RTA) signed the agreement with the international consultant, Parsons Brinckerhoff Parsons Brinckerhoff Parsons Brinckerhoff International to carry out consultancy Services including the initial designs of Dubai Metro Purple line. The Design is expected for completion in June 2008. Parsons Brinkerhoff will prepare the initial designs to serve the airports & passengers, design the interchanges for the Purple Line with the airports and both the Red & Green Lines, set the technical specifications of the project and specify the optimum technology for use in the metro, and to tender the project for construction and evaluate the bids [2].

3- Project Risks Identification

Identifying project risks muddle through all stages of the project and anticipate them, from the planning, design, execution, construction etc and continue after the completion of the project with the operation of the project for as long as the project is alive, one of the most important things that depend upon the success or failure of shoes. The failure to identify risks properly does not lead only to difficulties in completion of the project, but may lead to considerable financial damage and failure of the project altogether in some cases. The failure to identify the risks of the project or the failure of managing the risks efficiently was and stills the reason behind the failure of many projects.

4- Risk Management

Risk identification and mitigation is an integral part of risk management process. The main objective is to identify and mitigate the risks involved in a project, which would hinder the development process and can cause delays.

Risks can be technical, institutional or commercial, the idea is to identify the risks and mitigate them. Mitigation by;

Minimizing the impact of the risk

Shifting the risk to third party

Transferring the risk

Accept the risk

The Dubai metro project is a necessity of the local people, thus there is a commercial viability of the project. Because something similar hasn’t been done before in Dubai, technical and development risks may arise during the course of the project, but these risks can be addressed by awarding the contracts to the right party, which have the capacity and capability to fulfill the contract. Now, I would look in to the ten risk categories one by one; risks would be identified and then a mitigation process will be devised. At the end a table would outline the summary of risk management.

5- Dubai metro project’ risks.

Main risks in metros are the technical risks financial, completion , supply operational and safety risks. Identifying project risks, including technological, market risks and investment appraisal

a- Commercial Risks

The commercial viability of a metro project is measured in association with several factors like, the competitions of the other means of transport and the project’s commercial, economical, industrials and social feasibility. Dubai metro is a necessity to the city, at least because of the traffic congestion, which blocks roads and distracts economical and social cycle. (It takes a one and half hour minimum to drive a 20 km “motorway” between Dubai and Sharjah) in the peak hours.

The project company is responsible to identify the market they are operating in, the competition and the viability of project. Due diligence to address commercial risks might be carried out by the financial and market specialists who can find out, if the project is feasible or not. Advanced mechanisms can adapt in order to find commercial viability or the project. Most commercial risks would by enlarge, stay with the project company, because the y have to ensure that they have available project which would motivates investors to invest in the project. However, at the same time the investors may carry out their own due-diligence in order to satisfy their own requirements.

b- Completion Risks

The completion risks are associated with the construction of the project, supply of materials, supply of devices and equipments of the metro and with the installation and readiness of the signaling, control and operating system of the project. These risks are shared by the consortium project company, EPC contractor, the suppliers and the local authorities.

Completion of Dubai Metro project depends on the financing, planning, design, construction, execution and implementation, materials supply, the EPC contractor and the consortium project company and its capability to get manage the risen risks during each of these stages of the project efficiently. It is very important to consider several aspects like accessibility to the site by workers and supplies, regulation, technology, skills and experience, right planning and right design, operation and management…etc. All these aspect can be a cause of delay to the project competition.

In Dubai’s Metro project, its consortium project’s company responsibility to ensure the completion timetable and budget. Because it is something being done for public benefit, the company would not have much trouble in getting the permits and site acquisitions. Company can get an EPC contractor, so that all the risks of quality, on time delivery, according to specifications, would be shifted to the EPC contractor. If any delays happen in this category the EPC contractor would be responsible for it, and they would have to compensate the project company. Most risks are shifted to EPC contractor, but some might be allocated to government as well, whereby they have to provide some agreements which makes site acquisition easy.

The EPC contractor is responsible to use proven and established technology to overcome any technical risks. By doing so, the EPC contractor is responsible for all the technical difficulties during the project. The EPC contractor should use effective ways of engineering and development that overcome any delay

c- Financial Risks

Financial risks are major source of risk because, if the company is not able to finance the project, then it can halt all the operations and the project would be severely delayed. Dubai metro project has been financed ‘awarded’ $3.4 bn by the local government. But the risk is still there as a result of the devaluation of the dollar and the oil rapid price increase, which affected the materials cost and the earning of the workers. We will talk about the financing risk in general and the way to mitigate it. The due-diligence for financial risks would be carried out by the Project Company, and financial institutions. The Project Company would carry out their due-diligence to show that they have a viable project, which would generate a reasonable amount of cash flows. The financial providers would carry out their own due-diligence to ensure that the project is financially viable, generates enough cash to repay loans and interest payments. They want to be secured form their side as well.

The major sources of finance would be commercial banks, international banks, bond issues etc.

Typical types of risks that occur when dealing in foreign currency include; transaction risk, economic risks and translation risks.

Translation Risks is an uncertainty associated with the translation of foreign currency denominated accounting statements into the home currency.  This risk is extensively discussed in Multinational Financial Management courses.

Transactions Risks is an uncertainty associated with the home currency values of transactions that may be affected by changes in foreign currency values. This risk is extensively discussed in the Multinational Financial Management courses. To reduce the transaction risks, the company may use, spot rates, forward rates or may invoice using local and/or foreign currency. The economic risks can be reduced by borrowing money in the foreign currency. Translation risk can be mitigated by opening up subsidiaries in other countries to perform operations in that country, this would reduce the exchange exposure and figures of subsidiary can be included in the group accounts of the Project Company. Currency Swaps, Forward Rates Agreements, Currency Options etc can be used to reduce the currency and interest risks. The Project Company can use expert advice from financial institutions and can bring in experts to overcome such problems.

Dubai metro project has backing by number of organizations such as; Mashreqbank and Mizuho Corporate Bank, so it is assumed that the Project Company would be able to rise finance for this project.

d- Operation Risks

Operation risks take place after the project is completed and starts running. General operation of the project will be run by Serco, Dubai Roads and Transport Authority (DTA) has selected it for a contract to operate and maintain the two lines of the metro. The five year contract, worth up to $800 million, covers operation and maintenance of the Red and Green lines, which will both open in September 2009. The contract also includes pre-launch consultancy and planning, and a further five-year extension may be awarded when the contract expires in 2014. They have to mange all the operation risks and are subjected to penalty according to the agreement if they fell [1].

The operation risks is about monitoring and controlling the performance and all the possible risks related to the functionality or use of the metro, the condition of the trains and tracks and the signaling and the other operating and controlling systems. Serco operator should be in charge for this risk, as well as the maintenance. The project company might contract the operations of the metro to another company, by doing so operating risks are shifted from the project company to that company. The general operations of the metro, management, maintenance, daily operations etc will be the responsibility of that company. Operational risks, if not dealt carefully, can reduce the revenues and can increase technical risks too.

e- People Risks

The task of employing labour workers can be shifted on recruitment agency’s shoulder. The project company can provide additional training to the labour if required. project company would allocate their own project team to coordinate all the activities together. The due-diligence for selecting recruitment agencies is carried out by the project company and/or EPC contractor. The local recruitment agencies would have a better knowledge of skills available in the area. However, for technical and complex jobs, the EPC contractor might bring in their own people from other countries if required. The project management team allocated by the project company should make sure that the coordination of all the activities takes place and everybody is aware of their roles and responsibilities. Also, by following standard methodology and transparent communication system, the coordination among team members would be increased. The team will be divided into number of small teams to improve coordination and communication. It is the responsibility of EPC contractor to prevent union culture at the site. For any delays caused by strikes, protests etc EPC contractor will be penalized. Before people start work for the company, they will be assessed and will be provided necessary training, if required. This risk would be shared by EPC contractor and Project Company. It is the responsibility of EPC contractor to follow all health and safety rules and regulations.

f- Environmental Risks

The environmental risks are shared by number of parties in the project; government, Project Company, EPC contractor and the local council. The due-diligence for environmental risks is carried out by; Project Company, EPC contractor and local environmental agencies. Because the metro is being built under-ground and over-ground as well, so the environmental agencies would be particularly interested in the impact on local ecology. They also need to ensure that the environmental rules and regulations are also followed, because any trouble with them can stop the project.

It is the responsibility of EPC contractor to follow all the standards laid in the book. A strong control mechanism should be put in by the contractor to constantly identify the environmental impact of the metro and when a breach is found, it should be solved immediately.

It is the responsibility of EPC contractor to abide by all environmental rules and regulations. If there is a major change because of a change in environmental policies, the EPC contractor can be given a certain degree of leverage.

g- Input-supply Risks

Input supply risk would cause significant detrimental effects,a partner that cannot provide the components or raw materials necessary to meet typical demand involves input supply risk. Input supply risk poses a big threat to the project to operate normally. Therefore the lenders and the BTSC must sort out the supply of widely used commodity like fuel and other raw materials on appropriate prices. Input supplies contract runs until the debt is cleared.

Get long-term materials supply contract as to ensure the widely input supply to metro construction

h- Political Risks

The political risks are not in the control of the organization. When they happen, they happen; it is the organization that should be flexible enough to accommodate the changes. The Project Company would carry out the due-diligence for this matter. Dubai doesn’t have any political instability, the country is not involved in any terrorist activities, and there is no on going war. The country attracts a large number of investors form all parts of the world every year, this signifies, that the country is politically stable.

Project Company would employ legal experts who would guide them on how to react to the political changes taking place in the country.

i- Technology Risks

Technological risks can be associated with the type of technology being used, how reliable the technology is, is it established or no? is there any commercial market for the technology, how much the technology costs etc.

By using an EPC contractor, the technological risks are again shifted to the EPC contractor, they are responsible for using an established technology, any delays that occur because of technological change, EPC contractor would be responsible for it.

Metro usually has risks associated with the signaling system, again it is the responsibility of the EPC contractor to use an established technology, which is new, and reliable and offers a viable solution.

A particular emphasis is given to environmentally friendly technology nowadays. Again it is the responsibility of EPC contractor to use such technology.

Risk

Risk Explanation

Mitigation

Responsibility

Commercial

Commercial viability

Market demand is there

Project Company

Market Demand

Market demand is there

Project Company

Infrastructure Availability

The country has the necessary transportation, communication network available

Project Company

Price fluctuations

Can be dealt with by issuing EPC contractor

EPC contractor

Completion

Permits

Government would help in issuing permits

Government agreement, Project Company

Site acquisition

Government would help in site acquisition

Government agreement, Project Company

Late delivery of parts

By Issuing EPC contract

EPC Contractor

Cost Overruns

Specification changes

Inadequate performance during construction

Force Majeure

By getting insurance

Insurance Company

Financial and Economic Risks

Loan

Using banks, bond issues other financial institutions to get loan

Project Company is responsible for financial viability of the project

Cash Flow

Project company has to ensure that project would generate enough cash flow

Project Company

Exchange rate Fluctuations

Hedging, Forward options, call options

Project Company

Interest Rate fluctuations

N/A

N/A

People

Conflicts

EPC is responsible

EPC contractor

Motivation

Empowering them, increase their responsibility, involvement in decision making

Project Company

Appraisal

Project Company is responsible for a good appraisal scheme

Project Company

Union Culture

EPC is responsible that no union culture takes place

EPC contractor

Strikes

EPC is responsible

EPC contractor

Communication

Advanced communication mechanisms

Project Company, EPC

Roles and responsibility

EPC is responsible to clear the roles and responsibilities

EPC contractor

Environmental

Local ecology

Project company needs to find our the potential difficulties in development

Project Company, EPC

Rules and regulation

Project Company needs to ensure that the project follows all rules and regulations

Project Company

Technology

Reliability

EPC contractor use advance technology, which is established, has potential demand in the market and would not cost much. Also the signalling system should be advance and reliable

EPC Contractor

Established

Cost

Signalling System, Demand

Input supplies risk

Availability of supplier

EPC and project company can work together to carry out the procurement process

EPC and Project Company

Supplier selection

Expertise

Technology

Operational

General operations

Maintenance

Issue a maintenance contract, and the contractor would be responsible for maintenance

O&M Contractor

Operation cost

O&M contractor would ensure that the cost doesn’t go over board

O&M contractor

Degradation

O&M would be responsible for upgradation

O&M contractor

Technology

EPC contractor needs to ensure that the technology is viable

EPC contractor