Officials have conceded they may have to drastically cut back the length of the proposed route from the city's airport amid growing concern about the impact of a long-running dispute with a major contractor.
Legal wrangling has led to work grinding to a halt along most sections of the route.
More than 350m had been spent on the ill-fated project by the spring of this year and, by next March, this figure is expected to have shot up to 480m. Completion of the project is almost certain to be delayed until 2013 at the earliest, two years later than planned.
Although the Scottish Government has awarded 500m for the project, previously estimated at 545m, ministers have insisted they will not be providing any further help. The project was priced at 375m, for two separate lines, when it was backed by the then Labour administration at Holyrood in 2003.
With the council now responsible for finding the remainder of the funding, it says it is now having to plan for a 100m gap – or a cost increase of about 10 per cent – as a "contingency".
But there are concerns about further cost increases due to the bitter dispute with a consortium led by German firm Bilfinger Berger, which has warned that a further 100m is needed and that the project cannot be completed until January 2014.
The council is warning of a "high risk" of costs rising on the infrastructure works on the project, less than a fifth of which has been completed to date. A report for councillors, who will discuss the latest troubles for the project next Thursday, suggests that the council borrows millions of pounds to fill whatever funding gap it is left with.
It recommends that the council and its tram company Tie draw up detailed costs for curtailing the tram line at four different points – Haymarket, York Place, the foot of Leith Walk and Ocean Terminal – as well as the planned end-point at Newhaven Harbour.
Efforts to raise the bulk of the council's contributions from developers along the proposed route have stalled due to the economic downturn. Earlier this week one major developer, Forth Ports, said it could not afford to pay an upfront contribution of 29m, insisting it was only prepared to pay 3.2m.
A spokeswoman for Tie said: "This report confirms that it would be prudent for the council to plan for a 10 per cent contingency to the approved funding package."
Gordon Mackenzie, the city's transport leader, said: "As a public body, the council must prudently manage any risk and the directors' suggestion of adding a 10 per cent contingency figure is reasonable to work with as we look at our various options."
HOW TO FILL FUNDING GAP
A REPORT for Edinburgh councillors suggests that the council borrows millions of pounds to fill whatever funding gap it is left with.
It also recommends that the council and its tram company Tie draw up detailed costs for curtailing the tram line at four different points – Haymarket, York Place, the foot of Leith Walk and Ocean Terminal – as well as the planned end-point at Newhaven Harbour.
Halting the route would be a major U-turn, as the tram plan was intended to link north Edinburgh and Leith to the city centre and the airport.