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Wed 4 Jan 2012 08:49 AM

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Dubai tram project still strangled by liquidity woes

Cash flow problems still delaying work on emirate’s planned Al Sufouh tram system

Dubai tram project still strangled by liquidity woes
Work on Dubai Metros Green Line also stalled in the wake of the financial crisis

Dubai’s long-awaited Al Sufouh tram project could see its launch date delayed further as liquidity woes continue to slow construction, Arabian Business has learned.

The consortium of firms behind the 14km tram scaled back work in the wake of the global crisis as Dubai’s Roads and Transport Authority (RTA) struggled to meet its payments.

The emirate’s transport chief Mattar Al Tayer last April called for an acceleration in the construction of the line, but contractors said the project remained plagued by cash concerns.

“[The financial issues] are not fully solved, but it’s progressing,” said Philippe Dessoy, the general manager for Sixco, a subsidiary of Besix and part of the consortium of firms that won the project in 2008.

“We are still hoping to get a solution very soon. We are still working on it, but not at full speed.”

Designed to stretch 14km along Al Sufouh Road, the tram is set to be the world’s first to run with ground power feeding the entire line, eliminating the need for overhead wires.

The first phase of the project will span 10.7km and cost AED4bn, the RTA said in April, and will see 13 of the network’s 19 stations open to the public.

On completion, the tram will link with the Dubai Metro at three stations along Sheikh Zayed Road and will also tie-up with the monorail on the Palm Jumeirah. Authorities say the line will include 25 vehicles each capable of carrying 400 passengers.

The tram, which was initially scheduled for completion in 2011, has been troubled by ongoing cash worries as the RTA has grappled with funding demands in the wake of the financial crisis.

The state agency saw work slow on a number of big-ticket projects such as the Dubai Metro’s Green Line as it struggled to pay trade creditors.

The Alstom-Besix Consortium began a work slowdown in 2008 but accelerated construction in December 2010 amid discussions over refinancing the project. Work was again suspended last January, as cash concerns continued. The tram’s launch date has since been pushed back to 2014.

Contractors said the problem of budget is at government level, but that a financing plan is being prepared.

The RTA said in January 2011 it would seek funding for nearly a third of its infrastructure schemes over the next five years in a bid to spread the risk and cost of large projects. Economists say its current funding woes are partly the result of a reserved lending policy among regional banks and global debt problems, which are being exacerbated by the eurozone crisis.

“We’ve had two very poor years of credit growth in the UAE banking system and no real signs of that picking up,” said Liz Martins, a senior economist at HSBC in the UAE.

“The loans-deposit ratio has actually risen back over 100 percent in recent months which means that banks feel more leveraged and this makes them perhaps less likely to extend credit, particularly during times when the global financial system is under stress as it is.

“It could be more external pressure that are keeping banks risk averse, but there also just hasn’t been that recovery we were looking for.”

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