A report recommending the go-ahead for the extension to Newhaven – the intended terminus under the original plan – says the early costs for taking the trams to Newhaven could be met by using dividend payments from Lothian Buses.
The rest of the money would be borrowed and loan repayments would be financed from the profits expected to be generated once the extension becomes operational.
Loan repayments are estimated at £9.5m a year over 30 years.
Councillors are due to decide next week whether to agree the plan in principle and approve an initial programme of works.
The project’s cost was estimated at £144.7 million when last reported to the council in June, but since then inflation has added a further £2.5m and an extra £15m contingency allowance has been built into the plan, taking the total cost to £162.2m.
The existing tramline from the airport to York Place in the city centre cost £776m and began carrying passengers 18 months ago. The report says the extension to Newhaven will bring forward development of the Leith Waterfront area and increase the attractiveness of employment locations in the city centre and West Edinburgh
It says: “Over the next decade Edinburgh is expected to be home to a faster-growing population than anywhere else in Scotland. An extension to the current tram line will deliver high capacity public transport where it is needed.
“Leith Walk is one of the most densely populated corridors in the UK, with 124 residents per hectare compared to the Edinburgh average of 18. With over 50 per cent of households in Leith not owning a car compared to 39 per cent Edinburgh average, there is already a mature public transport market in North Edinburgh.”
The city’s SNP-Labour coalition is divided on the proposal, with Labour keen to see it built but the Nationalists claiming the financial case is not robust enough, especially as the council is facing a spending squeeze.
Council leader Andrew Burns said: “If the decision was to go ahead, the project can be funded without any impact on the short, medium or long-term revenue budget for the council.
“We’re not going to have to shut anything, stop doing anything, review services.”
Mr Burns was unable to say how much profit the trams were expected to make as the figures are “commercially confidential”.