The prevalence of railway construction and operational networks in the UAE is increasing. Significant projects are underway to build a UAE-wide railway network that connects to a railway system spanning the Gulf Cooperation Countries.
This article reviews UAE federal railway laws and laws applicable within the Emirates of Dubai and Abu Dhabi. It also considers typical structures deployed by parties investing in and/or constructing railway networks within the UAE.
Public transport in the United Arab Emirates (UAE) was non-existent until the 1970s when the first bus service was opened in Abu Dhabi. The first train system was built around the same time. However, these were not passenger trains; they were used to construct Port Rashid in the absence of adequate roads.
Construction and use of rail systems remains limited in the UAE. Low petroleum prices encourage private use of cars and airplanes. The technical challenges of building, running and maintaining rail network operation in sandy environments discourages construction. The main commodity produced by the nation is oil, which is moved more easily and cheaply by pipeline.
Currently, the only significant rail system in the UAE is the Dubai Metro. Construction of the Dubai Metro was finished in 2009. Smaller rail systems have subsequently been completed, including: the Al Sufouh Tram (around Dubai Marina), the Palm Jumeirah Monorail (on and off the Palm, Dubai), the Dubai Trolley (a tram system in Downtown Dubai) and the Dubai Airport 'People Mover'. In 2013, the Etihad Railway (Phase 1) freight line connecting gas fields at Shah and Habshan to the port of Ruwais, commenced operation.
Rail transport, however, looks set to become increasingly common in the UAE and across the Middle East. Industrialisation, urban development, tourism, worsening traffic problems and the need for a more effective, sustainable and environmentally friendly network for public and freight transport have boosted railways' appeal.
According to organisers of Middle East Rail 2018, the UAE and the Kingdom of Saudi Arabia account for a significant proportion of the USD $69 billion of rail projects under construction in the Gulf Cooperation Council (GCC) nations. The UAE's planned projects include the Abu Dhabi Metro and Light Rail, skyTran Yas Island and the Dubai Metro and Tram expansion. The Etihad Railway (Phase 2) aims to link the seven Emirates of the UAE (and connect with the GCC Railway) and the GCC Railway aims to connect the six GCC nations.
Regulations and best practices to be considered when starting a project
As is the case in every nation, and on most types of infrastructure projects, a necessary pre-condition for success is having and adhering to the appropriate legislative and regulatory framework. The UAE government has developed a clear vision and a carefully-planned strategy in pursuit of playing a leadership role in rail transport. Development in this sector is to be achieved through regional and international collaboration, developing and re-shaping policies and enacting laws to promote rail efficiency and safety.
We examine UAE Federal rail law below, as well as pertinent legislation in force in the Emirates of Dubai and Abu Dhabi.
Key provisions of Federal Law No. 8/2020 on the Regulation of Railways In May 2020, Federal Law No. 8/2020 came into force. Federal Law No. 8/2020 provides a regulatory framework for development of railways in the UAE. It is also expected to pave the way for private sector participation in the UAE's railway projects.
Federal Law No. 8/2020 and its Implementing Regulations govern Federal Railway(s), those in charge of developing, operating, regulating and maintaining the Federal railways and the users of Federal Railway services.
Federal Law No. 8/2020 defines a Federal Railway as:
"The railway which is designated by virtue of a resolution of the Cabinet in agreement with the member emirates of the Federal Supreme Council and which connects the emirates of the State together or which is connected to a railway outside the State's borders and the associated facilities and land."
Under Federal Law No. 8/2020, Railway Services are defined as:
"Passenger or cargo services via the Federal Railway. The services of maintenance of the Federal Railway Assets shall not be deemed as operation of such Assets."
The definition of a 'Federal Railway' is broad. It includes rail transport systems for transportation of people and/or goods. Additionally, it includes trains that are guided by single or multiple tracks or other guidance systems that are classified as railways pursuant to the Implementing Regulations of Federal Law No. 8/2020.
Federal Law No. 8/2020 also designates the Ministry of Energy and Infrastructure (MEI) as the Federal Railway Regulator. In respect of the Federal Railways, the MEI's duties include:
- proposing legislation and regulation;
- updating and developing new transport strategy, safety policies and safety systems;
- performing control and regulatory functions;
- setting the conditions and procedures to be met for the licensing of infrastructure managers and operators;
- issuing safety permits;
- developing and approving performance criteria;
- conducting technical investigations into rail incidents or accidents; and
- settling disputes related to the railway assets and services.
Federal Law No. 8/2020 also sets out the obligations of the: (i) Infrastructure Manager; and (ii) the Operator and penalties for violations of Federal Law No. 8/2020.
In addition, Federal Decree-Law No. 2/2009 on the Establishment of the “Etihad Rail” Company was promulgated to manage the development, construction and operation of the United Arab Emirates' national freight and passenger railway network applies to the Etihad Rail Network (which is the UAE's national railway network).
Legislative framework in Dubai Within the UAE, the Emirate of Dubai is arguably the most advanced Emirate in terms of its development of legislation and regulation of rail transport. In Dubai, the Roads and Transport Authority (RTA) takes responsibility for planning and regulating traffic, the roads and transport in general.
The rail sector in Dubai is governed by the following laws:
- Executive Council Resolution No. 1/2017 on the Regulation of Railways in the Emirate of Dubai is the most recent and important law. This is based on but repeals Dubai Regulation No. 5/2009 on the Regulation of Railways in the Emirate of Dubai (as amended by Dubai Regulation No. 4/2012 Amending Dubai Regulation No. 5/2009 on Railways in Dubai).
- Dubai Decision No. 68/2010 on the Issuance of the Implementing Regulation of the Dubai Regulation No 5/2009. Even though Dubai Regulation No. 5/2009 has been repealed, Dubai Decision No. 68/2010 remains applicable to the extent that it does not contradict Executive Council Resolution No. 1/2017;
- Dubai Executive Council Decision No. 1/2014 on the Regulation of Dubai Tramway, and the Dubai Rail Planning and Design Guidelines (RPDG); and
- The Dubai Municipality Building Regulations and the requirements of the Dubai Electricity and Water Authority (DEWA) will apply to developers of rail networks.
Similar to Federal Law No. 8/2020, Executive Council Resolution No. 1/2017 has a wide definition of a 'Railway'. It includes most forms of heavy and light rail infrastructure, including tram and monorail systems.
Executive Council Resolution No. 1/2017 designates the RTA as the railway regulator, with duties including, but not limited to:
- planning, designing and developing the public railway network in Dubai;
- regulating works that establish, develop, operate and maintain the railway network in Dubai; and
- regulating construction, development, operation and maintenance of private rail networks within Dubai.
In addition, Executive Council Resolution No. 1/2017 sets out the roles of the Safety and Regulatory Authority (SRA) and the Rail Agency of the RTA (Agency).
The SRA is an organisational unit within the RTA, which has the responsibility to, among other things:
- issue Safety Status Certificates;
- issue Operational Safety Certificates;
- stipulate railway safety conditions; and
- investigate accidents.
The Agency, on the other hand, is responsible for, among other things:
- issuing No Objection Certificates (NOCs);
- issuing verification of compliance with the relevant requirements;
- recommending land to be reserved for the public railway network;
- adopting land reserved for the public railway network; and
- determining the principles and standards of qualification and approval of contractors, consultants and operators.
If a party wishes to make an application to develop and operate a rail network in Dubai they must apply for a development permit and obtain the relevant NOCs. The process is set out in Dubai Decision No. 68/2010 and the RPDG. There are three key phases: (i) pre-design phase; (ii) design phase; and (iii) prior to operations phase.
Pre-design phase Developers are required to submit a Conceptual Master Plan and a Development Brief to the RTA. The documents must clearly identify the requirements for public rail transport. Once these documents are reviewed and approved, the RTA will issue the NOC in principle.
The Developer must then produce an Urban Master Plan, confirm the requirement for public rail transport, undertake a Feasibility Study to confirm the mode of rail transportation required, prepare the development's Traffic Impact Study (TIS) and finalise the Transportation Master Plan (TMP).
After confirming the feasibility of the proposed rail project, the Developer is required to produce a Project Brief and issue it to the RTA, along with the proposed development's TIS and TMP. The Project Brief should describe the scope and extent of the proposed railway project. It should also include details required in the RPDG, such as a description of the project background, its purpose and scope, benefits, funding strategy, cost-sharing arrangements (if any), station-planning information, potential impacts of the project, power demands and water supply demands.
Upon review of the Developer's Project Brief, the RTA may request additional information or clarification, which the developer must address. Once the RTA is satisfied with the information, it will issue the development NOC.
Design phase Once the development NOC has been issued, the Developer can appoint a RTA-prequalified Designer to prepare the Concept Design for the Project. The Developer must ensure that the entity(ies) appointed to undertake works is/are recognised by the RTA, in possession of an RTA prequalification NOC and licensed by the Dubai Municipality. Failure to do so will result in the RTA's rejection of submitted deliverables or completed work.
The Developer is also required to appoint a RTA-prequalified third party reviewer (known as an Independent Review Body or IRB) to check and verify the appointed Designer's/Contractor's work on behalf of the RTA. The appointment of the IRB, as well as its scope of work and contract terms, must be approved by the RTA. The Developer should develop all stages of the design in accordance with the RDPG and any additional input provided by the RTA.
The Developer is required to submit the Concept Design to the IRB and, once approved, develop the Preliminary Design. Following this, the Developer needs to make Preliminary and Detailed Design submissions to the RTA in order to obtain the RTA's permit to proceed to construction. The RTA applies fees for the review of the Preliminary design and Detailed Design submissions.
Prior to the operations phase The Developer must obtain a Safety Certificate and the Operator must obtain an Operational Safety Certificate in order to carry out railway operations.
Legislative framework in Abu Dhabi In Abu Dhabi, the Department of Transport (DOT) is responsible for all aspects of transport development and policy in the Emirate. Currently, the DOT does not have any rail networks within its responsibility. In the Emirate of Abu Dhabi, the applicable laws are Federal Law No. 8/2020 and/or Federal Decree-Law No. 2/2009.
How projects are financed
The way a project is financed will inevitably depend on its scale. Smaller projects tend to be financed by lenders on a 'corporate' or 'full recourse' basis. Larger projects usually require specific types of 'project finance'. This usually involves raising finance on a limited recourse basis for the specific purpose of developing a large, capital-intensive project, where the borrower is a Special Purpose Vehicle (SPV). Repayment terms depend on the financing arrangements. Typically, loan agreements on large-scale projects are based on Loan Market Association standard finance documents.
In the UAE, some local banks take an active role in financing UAE based projects. In some instances Islamic finance structures, which are an alternative to conventional financing, have been deployed.
How to prepare relevant contracts
Even though the number of rail projects in the UAE is limited, developers have used: (i) construction only; (ii) design-and-build; and (iii) turnkey contract models for project delivery. Separately to rail projects, developers of large-scale projects often use Public Private Partnership (PPP) type arrangements (albeit limited in the UAE to date), where the project involves private sector investment and/or expertise.
When determining which model is most appropriate, a number of factors will need to be considered, including the project's nature, scale and complexity, the amount and availability of funding, the risk appetite of the parties as well as the commercial, legal and technical factors.
Construction-only contracting This is arguably the most common contracting model used in the UAE's railway sector. It involves the employer engaging a professional design consultant to prepare the design and specifications for the works and engaging a contractor to carry out those works. Responsibility for the function of the railway design remains with the designer, whilst the contractor is only responsible for performance of the works. To the extent that design defects exist, the contractor is not obligated to rectify them.
Design-and-build contracting The design-and-build procurement model generally requires one party to design and construct the project. In some cases, the employer may provide an initial design, after which the responsibility for the developed design is transferred to the contractor. Under this model, the contractor takes all the responsibility for the design and performance of the works.
PPP Under the PPP model, a public authority engages a private entity, which is often a SPV incorporated for the purposes of undertaking the design, construction and maintenance of the project, for a specific term. The introduction of a PPP law in the UAE arguably demonstrates the country's growing interest in participating in PPP structures. In theory, the PPP model allows the employer to efficiently leverage private sector expertise to attain its development goals. At the same time, the model benefits private sector participants as it facilitates funding due to a governmental or quasi-governmental entity being involved.
Handling disputes on railway projects
The RTA does have its own Rules of Arbitration and Conciliation. However, the most commonly used method of dispute resolution arising from infrastructure contracts in the UAE is arbitration via the Dubai International Arbitration Centre or the London Court of International Arbitration in the Dubai International Financial Centre. This is due to factors such as the need for significant expert engagement for technical issues, as well as the qualification, flexibility and technical expertise usually expected from an arbitral tribunal.
Dubai Law No. 22/2015 on the Organization of Public-Private Partnership in the Emirate of Dubai stipulates that the UAE law will be the governing law of PPP contracts and that arbitration cannot be conducted outside of the UAE.
As such, government and government-related employers in Dubai have historically requested submission to the Dubai International Arbitration Centre, seated in Dubai. In Abu Dhabi, employers tend to prefer to submit to dispute resolution before the Abu Dhabi Commercial Conciliation and Arbitration Centre.
This article was originally drafted by DWF (Middle East) LLP for Lexis Nexis.