The intercity bus services in the Kingdom of Saudi Arabia have been served by a single operator since 1979. The Transport General Authority is leading the liberalization of the market in KSA targeting to serve all the kingdom with the best class services.
The TGA seeks to procure best in class intercity bus services’ providers targeting operational excellence, while increasing the safety standards and providing a very effective travel, not only for locations with very high demand that have been previously served, but also for other locations to ensure the all-inclusive provision of the services for all residents, tourists and beneficiaries in the Kingdom.
The main objectives of the liberalization process include:
- Improve service quality providing high quality, safe, reliable, punctual and affordable services, that are integrating with other transport modes
- Enable competition and encourage innovation from private sector
- Increase the number of passengers and maintain the share of bus transportation usage
- Smooth transition between the current and new operators
- Deregulation of market in long term that is contingent on the emergence of a competitive and professional market for procurers and operators
In this context, under a Ministerial Resolution (Council of Ministers Resolution 664), a PPP model has been proposed, studied and launched to the market with the objective of awarding three concession for the investment and operation of the network during 10 years (plus a 2 potential extension) through a net cost contract model.
Saudi Arabia-s Transport Sector and Concessions’ key figures
KSA’s strategic transportation framework –under the National Transportation and Logistics Strategy and Vision 2030 programs–, is expected to create business opportunities and operational synergies in different sectors and industries. As Saudi Arabia advances towards improved public transport across all travel modes, the liberalization of the Intercity Bus Market project is expected to further boost land mobility, paving the way for an affordable, safe and reliable means of transportation.
The Intercity Bus Services (ICB) has been defined to provide services across Saudi Arabia’s large are and diverse geography. Saudi is the 13th largest country in the world, with over 2.1 Mn km2 of total area in a vast geography, ranging from mountains, forests and deserts. Climate is also diverse, with temperatures reaching up to 45oC/110oF in summer and close to or below 0oC/32oF in some regions of the country.
In order to account for network diversity and land span, the ICB Concessions were structured in 3 different areas, (North, North-West and South) with a total of 76 routes. It is expected to cover more than 200 cities, towns and villages, averaging more than 400 trips per day and more than 200 million bus-km per year. The proposed network has 20 core stations in all regions and governorates of the Kingdom, covering key domestic and international urban passenger and cargo hubs.
Figure 1. Saudi Arabia ICB Market Configuration
Saudi Arabia’s ICB passenger demand is expected to grow significantly over the next years. Following a drop in ridership, mostly due to increased low-cost aviation competition and Saudization Laws affecting families of expat works in the Kingdom, the market looks promising. COVID-19 recovery is positively following key macroeconomic projections and ridership should return to pre-COVID levels in 2023. As a result, demand forecast results indicate a ~2.1% CARG (’23-’35) reaching up to 5.8 Mn pax/year in 2035 in the base case scenario. Several additional opportunities for land mobility are also taken into account, namely megaprojects such as NEOM and ambitious domestic tourism targets from the National Tourism Strategy. Those opportunities combined lead to a 4.0% CAGR (’23-’35) and 7.2 Mn pax/y in the optimistic scenario is forecasted.
As the Intercity Bus Market Liberalization is the first attempt of opening the market for the private sector in Saudi Arabia, different options were studied to evaluate the best framework for the desired level of service provided (i.e. O&M Contract, Public-Private-Partnerships (PPP), Full Liberalization) and a PPP with a net cost contract was selected as an intermediate step for the full liberalization.
The commercial approach defined a Net Cost contract to allow for the greater flexibility and opportunities to the private sector while relieving the Authority of ridership risk and revenue liabilities. The following conditions were established and published to the service provision.
Figure 2. Project Framework – Contract Type
Looking forward, , as part of the Net Cost contract configuration, operators have the high incentives to grow the market, extract positive outcomes and maximize their profits through several business levers: Ridership Opportunities, Revenue & Fares Maximization, Improved Operations and Asset Management.
Figure 3. ICB Market – Key business levers
The project timeline has key milestones to kickstart each phase. Following the RFP Publication, operators have submitted their bids for evaluation and will be awarded contracts, starting the Mobilization Phase. Service is expected to begin in Q3 2023.
- Tendering Phase: submitted bids are evaluated and best proposals will be awarded
- Mobilization Phase: operators begin mobilizing fleet, personal and operations to begin service in the following year
- Concession Start: operations begin with the awarded operators providing services under the Concession Agreement for the duration of the contract
The process is illustrated below:
Figure 4. Project Timeline
As the project advances towards the Contract Award, key lessons learned have been compiled under different project interfaces. While the desired outcome will be greatly dependent on successful project implementation, main takeaways include:
- Project Scope: the definition of the concession areas and network requirements are highly dependent on market attractiveness and demand opportunities; while having the country objectives as a its main strategic guide, a balanced approach between service level and project economics is needed to properly define the project scope
- Concession Configuration: different options are possible to balance Government and Private Sector participation; while a Direct Contracts and Gross Cost Contracts are preferred in urban concessions due to higher service level requirements (such as punctuality and maximum fares), a Net Cost contract configuration can adequately match the government desires for Private Sector Participation without
- Additional Opportunities: several business and operational opportunities are present for operators to explore; these opportunities are maximized in the proposed Net Cost Contract configuration as operators have the highest incentive to invest in further revenue generation due to high operational freedom and the absence minimum revenue guarantee
About the authors
Patricia Chica holds a MSc. in Civil Engineering and an MBA, and is a Senior Engagement Manager at ALG firstname.lastname@example.org
Lucas Augusto Machado holds a BSc. in Chemical Engineering, and is a Consultant at ALG. email@example.com
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