Etihad Rail is planning to raise commercial funding for the development of the $1bn phase 1 of the UAE rail network and has already talking to banks to help arrange a deal.

The first phase of the project is already under construction and will be used by Abu Dhabi National Oil Company (Adnoc) for the transport of sulphur between Habshan and Ruwais.

Several banks, including international and Abu Dhabi-based lenders, have been approached to suggest financing ideas to Etihad Rail and meetings are understood to be planned for later this month.

The Swiss bank UBS had previously been working as a financial adviser to Etihad Rail on the development of all three phases of the UAE rail network, which will eventually cover the whole of the UAE, including passenger services and link up to a planned GCC rail network. However, its work did not involve advice on raising funding for the project. If Etihad Rail does go ahead with seeking commercial funding it will be the first sign the project may not rely solely on government cash to pay for its development.

It is unclear exactly how much the company will look to raise and financing is currently being provided by the Abu Dhabi government, which owns 70 per cent of Etihad Rail. “We expect there to be a significant dirham tranche on any financing that is done, based on some kind of off take agreement of the sulphur that is transported for Adnoc,” say one banker close to the project. Etihad Rail is understood to have been evaluating the possibility of raising commercial funding for the project for about the last year.

Phase one is due to be completed in 2014 and tendering for phase two started in late 2011 (MEED 18:11:11). In total, the UAE rail network is expected to cost about AED40bn ($11bn).

The project is one of the few large infrastructure schemes that is still progressing in Abu Dhabi amid a review of spending by the Executive Council, which early last year led to the cancellation of plans to develop the Mafraq-Ghweifat road project as a public private partnership (PPP) (MEED 12:05:11).