Council must clear roadblock quickly or capital could be facing crisis

FAILURE to resolve quickly this latest controversy in Edinburgh's £512 million tram project could break up the construction consortium, send costs spiralling and plunge the city council into a financial crisis.

Out-of-the-blue demands for between 50 million and 80 million from the consortium comprising German giant Bilfinger Berger, Siemens and CAF could hardly have come at a worse time – two days before final arrangements were made to close Princes Street from today.

The precise reasons for the demand – and its costing – are unclear. But sources familiar with the situation say that Siemens is furious at the potential delay and could pull out if there is no early resolution.

The sudden demand for extra up-front cash is understood to have come from Bilfinger Berger, one of Germany's largest civil engineering and construction project groups.

Last week it posted 2008 results showing increased in output volume, a 49 per cent rise in net profit to 200 million (177 million) and a dividend raised by 11 per cent. However, since the year-end, it is understood to have lost 90 million on a Norwegian contract.

David Mackay, chairman of Transport Initiatives Edinburgh (TIE) gave every indication yesterday of facing down the demand. The budget for the project leaves him no room to be anything other than implacable.

TIE has little by way of reserves. The project has a budgeted cost of 512 million. Of this, 500 million will be met by the Scottish Government, which has made abundantly clear that it will not give a penny more.

A further 45 million will come from Edinburgh City council, which is struggling to raise funds from developers to cover this bill.

That leaves reserves of just 33 million – and with unanticipated costs and extra work almost certain further down the line, TIE will struggle to keep the project from breaking its budget limits.

Further lengthy delays at this stage would prolong traffic chaos at the heart of the Scottish capital. This has already driven residents and commuters to distraction with an unprecedented number of road works, diversions, blockages and traffic snarl-ups that have plagued the city centre form months.

Private developers hit by the recession are struggling to meet the tram levy by which the city council hopes to raise the bulk of the 45 million it has pledged. So far it has received just 3 million.