SMART DIRECTION

Saudi Arabia 2016 | ECONOMY | VIP INTERVIEW

TBY talks to Dr. Osama Al-Bar, Mayor of the City of Mecca, on developing a public transport system, creating visitor capacity, and smart city initiatives.

How has the Mecca Metro Project progressed since its initiation?

The first phase of the metro project includes lines B and C, followed by line A and D. We have a 10-year program to finish the whole package. During the first phase, 122km of rail will be built, and on completion will reach a final length of 182km with a total of 88 stations. At present the schedule for the completion of the overall project is set for 2029. Our plan is that the first 40km for lines B and C will be completed by 2020. We are already in the last stage of procurement and the consortium and contractors are ready. We should be able to commence work by 1Q2016, and by 2019 we should be at the testing or almost operating stage. One of the benefits of the Metro Project is to ease the problem of traffic congestion, which currently causes a lot of lost time for the public. Other objectives are to reduce pollution, along with creating job opportunities. The project is expected to have a 2.2 benefit to cost ratio for investors, which is very high compared with other similar projects, based on a study conducted by Ernst & Young.

Where does the project stand in terms of governmental financing?

There has been an absence of public transport in Saudi Arabia for the last two decades. In the late 1970s the first public transportation company, the Saudi Public Transport Co. (SAPTCO), was set up in Riyadh and was run by the government. Public transportation is something that must be subsidized—it is not a profitable business. When the government subsidy disappeared about 20 years ago, public transportation service declined. For example, there is still no local SAPTCO service in Mecca. Our current public transport project was started under the auspices of Al-Balad Al-Ameen, which is a private-sector company owned by the municipality. Before the start of project, the government had already invested about $2 billion in the Mashaaer metro system, an asset owned by the government. Therefore, we, along with the government's company, entrusted that asset to the private sector and designed and executed the first phase of the metro network in Mecca. In mid-2012, when oil prices were increasing, King Abdullah bin Abdulaziz Al Saud approved the development of the rapid transit system in Riyadh and in the same decree he stated that all cities in Saudi Arabia could benefit from this program. Therefore, Mecca city applied with the consent of our local authority and the Ministries of Finance and Transport, and we received approval in 4Q2012 to start our program backed by the government's financial guarantee. This enabled us to put aside our initial plan to proceed as a PPP project, and instead decided that this would be a turnkey project.

What is the private sector's involvement in this project and what is the status of the awarding of contracts?

As we have the government's decree that it will provide full financial support, the only involvement by the private sector now is contractual. There are various contracts; for example, Parsons Brinckerhoff won the project management office (PMO) contract. There are other contracts in the pipeline and about 10 contracts are yet to be awarded to the private sector, including two in civil works, one for rolling stock, and one in electromechanics. The bidding is already finished and we have nominated the successful companies and consortium. We hope to announce these contracts in 1Q2016 once we receive central government approval.

Visitor numbers in Mecca are increasing rapidly. What levels do you expect going forward?

In 2015 we had six million overseas visitors for Umrah and about three million for the Hajj. We also had about 12 million visitors from inside Saudi Arabia. So the total is around 20-21 million visitors. In 2016, the government is going to introduce a different approach. The number of Umrah visitors will be increased because now most of the infrastructure in Mecca can accommodate up to about 30 million. This means that from 2016 the real number of visitors from outside the Kingdom will increase by 50%. This is the government's target. The city is ready, but the number of visitors we receive depends on the economic situation in other countries around the Islamic world, where our visitors come from. For example, Indonesia is one of the most important origins of pilgrims and is in a good economic situation, but if that changed it would affect visitor numbers.

What are the highlights of other ongoing large projects in Mecca in the real estate and construction sector?

In the real estate sector we have various megaprojects underway to improve the informal settlement areas. There are about 55 such areas remaining in Mecca, where sanitation conditions need to be improved. Some of these areas are only 400m from the Holy Mosque and the value of the land there is very high. We have started to develop these areas with the first four projects hopefully commencing in 2016. Some 10 such areas have already been cleared to start a project called King Abdul Aziz Road. This is a 4km stretch of road being built by the private sector. Other opportunities are in the services sector because our visitor numbers are set to double over the next few years. This number may even be tripled or quadrupled in five years, potentially to 25 million visitors. This will require a lot of services in catering, guiding and tours, hotels, and private transportation. All of these services will be booming and they should be provided 100% by businesses in the private sector. The government should only be involved in granting the required licenses and visas for these activities.

What plans and new regulations do you aim to implement to enable Mecca's transition into a smart city?

Our vision for Mecca is to become a smart and green environment and one of the most livable cities in the world by 2025. It is a very challenging program. We started the process for a project to build the first 400MW solar energy plant here. We completed the bidding process and the winning contractor was ACWA Power. However, with decreasing oil prices this project has been postponed. The drive for renewable energy will be re-launched through the King Abdullah City for Atomic and Renewable Energy. Furthermore, Mecca is one of the few cities that could start this process again economically. One of the problems up until now has been with the Saudi Electricity Company because it has not yet introduced smart meters. Between 2016 and 2018 it plans to switch around three million houses in Saudi Arabia to smart meters. The benefit is that if energy is generated from solar panels, wind power, or any other home source, this goes into the power network and the household is compensated for it. This will encourage people to use renewable energy sources.

What are your goals and expectations for Mecca in 2016?

We are working to complete the road network in Mecca. We started a huge program in 2013 to complete the city's four ring roads. By 2016, 80% of this program will be finished and we will start on a new access road that will take people direct from Jeddah to Haram and from Medina to Haram. That will commence in 2016. We also hope that the first signs of Mecca's transformation to a smart, green city will be evident by 2020.