Wednesday, Sep 09, 2009


   (From THE WALL STREET JOURNAL) 
   By Stefania Bianchi

DUBAI -- Dubai's ruler will open the first line of a driverless, air-conditioned mass-transit railway Wednesday, after four years of planning and construction, at what has turned out to be an inauspicious time.

The city-state has been pummeled by the global financial crisis and economic downturn. Real-estate prices have tumbled and some of the emirate's most ambitious development projects have been halted.

Dubai has vowed to spend through the downturn, announcing its first forecast budget deficit in years to support infrastructure projects such as the rail system.

Unlike some of its neighbors, Dubai doesn't have much oil and financed much of its recent, explosive growth with debt. Dubai's government and its many related companies are estimated to have debts of almost $85 billion, more than double the city-state's gross domestic product, according to investment bank EFG-Hermes.

That figure doesn't include the cost of the Dubai Metro. Construction costs have soared to 28 billion dirhams ($7.62 billion) from the 15.5 billion dirhams originally estimated, according to the emirate's Road & Transport Authority, or RTA.

Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, who is prime minister of the United Arab Emirates, said Tuesday the emirate can meet its debt obligations. Bankers have expressed concern about whether Dubai can repair or restructure two bonds, totaling about $4.5 billion, that are due by the end of the year.

"I don't blame them," he said, referring to those expressing declining confidence. "I assure you that we're all right, that the United Arab Emirates is all right."

The RTA has said it expects the metro will generate $4.6 billion over the next 10 years. To raise cash, it has offered naming rights for 23 of the planned 47 stations, as well as the two metro lines, which will extend over 46 miles, much of it above ground on elevated rail. So far, about $490 million has been raised from the sales.

The new system will be the first urban railway among the Persian Gulf's Arab states. Iran already operates a metro in Tehran.

A crucial challenge will be weaning the emirate's drivers out of their air-conditioned cars. Motorists in the sheikdom benefit from inexpensive fuel subsidized by the government, and no tax on vehicles. And the first phase of the metro is launching just as road congestion eases because of a wave of layoffs in the financial and construction industries.

"The metro is a long-term investment," said Simon Williams, chief economist for the Middle East at HSBC Holdings PLC. "Its value will show itself when Dubai eventually returns to growth."

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Margaret Coker and Andrew Critchlow contributed to this article.

(END) Dow Jones Newswires

09-09-09 0406GMT