Saudi railway Deutsche Bahn's Desert Rose

Despite problems at home, the German rail operator is making big profits overseas advising on projects such as a new high-speed line in Saudi Arabia.
The new station at King Abdullah Economic City is one of five on the Haramain High Speed Railway.

The Haramain High Speed Railway, a new link between the Saudi Arabian cities of Mecca and Medina, is supposed to be operational on March 15, 2018. That means Niko Warbanoff has lots to do.

The head of DB Engineering and Consulting, a subsidiary of Deutsche Bahn, the German state-railway operator, knows he faces a huge technical and political challenge. No train has ever shot across the Arabian desert at 300 km/h, and his firm, which is advising the Saudis, has never turned around a project this size in just six years.

Even more difficult, as non-Muslims Mr. Warbanoff and many of his 250 employees are unable to visit the holy pilgrim city of Mecca, home to the largest and most impressive of the five stations of the international mega-project.

It is costing €9 billion ($9.82 billion) and will cut the journey time between Mecca and Medina to just two and a half hours – from six in a bus – and carry 45,000 people every hour. The Saudis are financing it, and a Spanish consortium with  German suppliers – such as Siemens, for example – is building it. Everything is being supervised by Deutsche Bahn. No train will go into operation, not a single kilometer of track cleared for use, before Mr. Warbanoff’s team has given the okay.

Deutsche Bahn is well-advised to defend and expand on this asset. Maria Leenen, CEO, SCI Verkehr Consultants

The HHR is one of Deutsche Bahn’s international flagship projects. At about €50 million, it’s not only the largest individual contract that the DB Engineering and Consulting has won for the company. The project also fits perfectly into new CEO Richard Lutz's strategy to promote and expand international activities and balance out the state-owned company's weakening domestic business.

So it is fitting for Mr. Lutz that his first business trip accompanying German Chancellor Angela Merkel was to Saudi Arabia and the United Arab Emirates last weekend. It’s likely the chancellor’s shine will rub off on Mr. Lutz’s firm.

“Having the Federal Republic of Germany as owner in the background helps our business in all countries,” said Mr. Warbanoff.

DB Engineering and Consulting is involved in six projects on the Arabian Peninsula, mostly in a consulting function, as project planners, or in operational control as they are with the HHR. In the UAE, it even runs a freight railway line for transporting granulated sulphur.

With the region’s nations wanting to invest $80 billion in expanding their railway systems, Deutsche Bahn is hoping for more contracts. A billion-dollar metro system is being planned, for instance, in the Saudi capital Riyadh, as is a freight railway line across the Arabian Peninsula that could shorten transport times between Europe and the Persian Gulf by six days.

At the moment, however, some of these dreams have been put on ice. With the fall in oil prices, money has run short in the Gulf states.

But Mr. Warbanoff is staying involved and is not only focusing on Arabia. Asia is the new target. His staff in India has recently risen from three to 150. DB Engineering and Consulting will see “above-average growth” he said, mostly from external contract work. The subsidiary currently employs 4,300 people. It has a sales objective of €500 million ($54.6 million) for 2017.

02 p14 Deutsche Bahn in Arabia-01

“DB Engineering and Consulting has been very successful for a long time on international railway markets. They are undoubtedly one of the leading and most recognized players in this segment,” said Maria Leenen, CEO of SCI Verkehr transport consultancy.

For Deutsche Bahn, which does about 80 percent of its business in Germany, it’s the profitability of the consulting business that’s interesting. Profit margins for external projects are double-figures and much higher than the parent company’s profit margins, Mr. Warbanoff said, without giving a figure. On average, none of Deutsche Bahn's business areas have achieved 6 percent for years.

Ms. Leenen believes that in addition to margins, an overseas presence is “of strategic importance.” Freight transport, for instance, is increasing globally, with Deutsche Bahn now operating several trains from Germany to China. It’s a huge advantage to already have links with partner railways companies in Asia or the Middle East from consultation projects. “Deutsche Bahn is well-advised to defend and expand on this asset,” said Ms. Leenen.

Mr. Lutz agrees. At his first annual results presentation as head of the company, he recently said that without foreign business, Deutsche Bahn would be in worse shape today than it is. Now he has to convince critics of foreign projects that the metro in Mecca could be a windfall for Deutsche Bahn.

 

Dieter Fockenbrock is Handelsblatt's chief correspondent for the companies and markets desk, focusing on corporate governance, opinion and rail transport. To contact the author: [email protected]