* Riyadh metro projected to carry 1.16 mln people daily at
* Poorer Saudis, women may be major customers
* Metro projects could diversify economy in top Saudi cities
* Part of effort to curb rise in domestic oil consumption
* Assembling foreign labour force will be challenge
By Marwa Rashad and Praveen Menon
RIYADH/DUBAI, July 30 A $22.5 billion plan to
build Riyadh's first metro rail system aims to achieve more than
improving the quality of life in the congested Saudi capital: it
is part of an ambitious effort to shift the country's economy
The government awarded contracts for the system to three
foreign-led consortia on Sunday. Six rail lines carrying
electric, driverless trains and extending 176 kilometres (110
miles) are to be completed by 2019.
Similar projects are underway in other top Saudi cities;
last August the government approved a $16.5 billion plan to
modernise the transport system in Mecca, including construction
of a metro, and Jeddah is preparing plans to build a metro that
would cost around $9.3 billion.
The projects are part of an effort to improve social welfare
for millions of poorer Saudis in the wake of the 2011 Arab
Spring uprisings in the region. Saudi Arabia escaped serious
unrest, but it aims to ensure social peace by ramping up
spending on hospitals, schools and other infrastructure.
In the longer term, the world's top oil exporter is trying
to diversify its economy away from oil, to reduce its
vulnerability to the next big drop in global energy prices.
The metro systems could aid that drive by changing the way
Saudi cities operate, helping them develop easily accessible
commercial and light industrial districts which house companies
outside the oil sector, while stimulating real estate projects
and other investment along the rail lines.
"I think the metro will transform Riyadh. With 170 km of
rail, people will always be close to the metro. It'll not just
solve the traffic problem but also connect the financial hub,
airport, malls and other parts of the city," said Miguel Jurado,
head of Spanish firm FCC Construction, which will help
to build the project.
Ibrahim al-Sultan, head of the government body which
supervises the project, estimated that each riyal spent on it
would generate an indirect economic return of 3 riyals.
Concern about the country's extreme dependence on oil was
underlined this week when Saudi billionaire Prince Alwaleed bin
Talal, in an open letter to the government, called for immediate
steps to diversify the economy.
The metro systems may also help Saudi Arabia manage its oil
resources more efficiently; only about 2 percent of Riyadh's 6
million population currently use public transport, leaving most
of the rest dependent on gasoline-guzzling cars.
Growth in domestic oil consumption, as the country's young
population expands, has been outpacing rises in oil production
capacity. So over the next decade or two, Saudi Arabia could be
forced to cut back its oil exports; the metro systems buy it
time before it faces such a crunch.
"The metro will drive down energy requirements for the
transport sector, if the metro is incentivised by the government
as a replacement to motor vehicles, and reduce environmental
pollution," said John Sfakianakis, chief strategist at
investment firm MASIC.
The Riyadh metro is projected to carry 1.16 million
passengers daily when launched, increasing to nearly 3.6 million
within 10 years - a significant fraction of all trips in the
country, which currently has a population of about 28 million.
Saudi Arabia now consumes about 500,000 barrels per day of
oil in the form of gasoline, and exports under 8 million bpd.
While the metros are unlikely to persuade some Saudis to
abandon their love for the automobile, others may welcome the
chance to escape severe traffic congestion in the big cities.
Despite the country's oil wealth, analysts estimate millions
of people live near the poverty line, and they will have a
financial incentive to use the systems.
The metros may also have a social impact by making it easier
for women to move around, in a country where they are not
allowed to drive for religious reasons. The Riyadh metro
carriages will have special "family sections" giving women
"For sure I will use the metro - it will be a major solution
for the women problem in our society, since we don't drive,"
said Alaa Hassan, a female university student in Riyadh.
"I go to my university by minibus and I pay 2,000 riyals
($535) per month; other classmates who live nearer pay 800 to
1,000. For sure the metro will be cheaper."
The government has not said exactly how it will fund the
Riyadh metro project, although bankers have been speculating
about possible issues of sukuk (Islamic bonds) which could help
to deepen the country's market in state-backed debt.
After more than two years of high oil prices, financing is
not expected to be a problem; the government's budget surplus in
2012 alone was 386.5 billion riyals ($103 billion).
But assembling the labour force to complete the project on
time may be a challenge, because the country has been tightening
controls on its large population of foreign workers in an effort
to reduce unemployment among Saudi citizens.
A crackdown on illegal foreign workers caused tens of
thousands of people to be deported or decide to leave the
country this year. Fees designed to encourage companies to limit
their use of foreigners, who are cheaper to hire than Saudis,
have hurt profits at some Saudi construction firms.
"The workforce will be a challenge...We will need about
15,000 people during the whole period of work," FCC's Jurado
said. "We have a period of eight to ten months to arrange for
all these workers."
(Additional reporting by Reem Shamseddin and Mahmoud Habboush;
Editing by Andrew Torchia)