Dubai asks contractors to fund schemes

17 November 2009

Transport authority seeks alternative financing arrangements for rail projects, including the metro

Dubai’s Roads & Transport Authority (RTA) is asking contractors to find their own funding for some of the emirate’s largest transport projects, say sources close to the authority.

Projects affected include the $7.6bn Dubai Metro and the $866m Al-Sufouh tram scheme.

Sources working for the RTA say it has struggled to meet its financial obligations for the past six months. Some contractors have in turn asked their respective governments for financial support. Contractors could also fund their work on the projects by borrowing money from export credit agencies or banks. The alternative would be to fund the work from their own cash balances.

The RTA is talking to the Dubai Rapid Link consortium, which is largely made up of Japanese firms, regarding funding for the Dubai Metro scheme. The team is building the first two phases of what is Dubai’s largest transport project. “My information is that the Japanese contractors on the metro are talking to the RTA about finding an alternative source of funding for the project,” says one financier close to the scheme.

According to a consultant working on the metro, Dubai Rapid Link will consider funding the work out of its own resources in the short term if the RTA agrees to dramatically increase its payment for completing the metro.

Under the initial contract, RTA agreed to pay $4.2bn, but Dubai Rapid Link now says the project will cost $7.6bn because the RTA has made changes to the design.

The RTA has also asked the consortium of France’s Alstom and the local/Belgian Bel Hasa Six Construct, which is working on the Al-Sufouh tram scheme, to find funding to continue that project. “The RTA has approached the contractors to explore the possibility of funding the Al-Sufouh tram,” says one source close to the project.

The transport agency is holding similar talks with Chinese construction contractors also working on projects for the RTA. A source close to Dubai’s Department of Finance says the Chinese government withdrew an offer to fund projects involving its contractors after the removal of Nasser al-Sheikh as director general of the department in May.

The RTA’s decision to ask for financial help appears to mark a change from Dubai’s position in March, when the Department of Finance said government agencies, including the RTA, would honour all payments.

“The government of Dubai will continue to meet all of its contractual obligations, including to construction contractors, as per the terms agreed with all third parties,” said the Department of Finance statement at the time.

The RTA and the Department of Finance declined to comment.

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