A major contract on Dubai’s AED40bn ($10.1bn) Arabian Canal project has been terminated, causing significant delays to the scheme, which will not open in time for its original completion date of 2012.

Dubai’s Roads & Transport Authority (RTA) has ended its contract with the joint venture of US-based Parsons International and UK-based Halcrow for the design of the canal between Emirates road and the Gulf.

It is a critical component of the project as it links the inland sections with the sea.

The delays are a result of the global economic downturn, according to the project’s developer, Dubai-based Limitless.

“To proceed with the three-year timeframe is not right given the current market conditions,” says Ian Raine, project director for the Arabian Canal at Limitless. “We have rescheduled the overall construction programme. That will affect the delivery date. We are responding to market conditions.”

The RTA was managing the section of the canal between Emirates road and the Gulf because it involved major diversions to Emirates road and Sheikh Zayed road.

“What was agreed early on was that the RTA would be responsible for the detailed design from Emirates road [to the coast],” says Raine.

“The reason for this was because there are 13 major highway crossings and the arrangements for Sheikh Zayed road are quite complex.

“We agreed because of the rescheduling and resequencing of the project that we would only do detailed design up to Emirates road. There is no point at the present time doing 13 major crossings, so that has been put on hold until the time is right to proceed.”

Limitless has delayed the construction work on the inland section, which has been divided into two packages. It has put the tender for package 2 of the excavation on hold. “We had a good response for package 2, but we have put an award on hold as it is only reasonable to the tenderers,” says Raine.

Work is ongoing on the first excavation package, but Limitless has instructed the contractor to slow down. “We are still proceeding on the earthworks for package 1,” says Raine. “We are going at a reduced rate. It is not the rate we originally intended, but the important thing is that it is still going on.”

Abu Dhabi-based Tristar Transport & Contracting won the package 1 contract in September 2008. The first phase involves digging a total of 200 million cubic metres of earth (MEED 15:1:09).

The canal is the central feature of a $50bn real estate development Limitless is planning to build for the area inland of Al-Maktoum International airport in Jebel Ali.

It covers an area of 140 square kilometres and includes residential areas and commercial centres.

The development will be built on man-made hills using material excavated from the canal.

The project is the latest major real estate scheme in Dubai to be delayed. Palm Deira, Dubai Waterfront and Dubailand have all suffered major setbacks over the past six months.