Japanese builders are owed billions of dollars on projects that include the Dubai Metro and Palm Island, according to a top diplomat and leading contractors from the country,
Japanese builders have played a pivotal role in Dubai’s construction boom, spearheading work on the Dh28 billion (US$7.6bn) Metro and helping to build Nakheel’s palm-shaped islands off the emirate’s coast.

But as the global financial crisis brought many projects to a standstill, an increasing number of foreign companies, especially builders, have reported payment problems mainly linked to Dubai developers.

“Some Japanese construction companies are facing very serious debt problems as Dubai can’t pay,” said Seiichi Otsuka, the Japanese consul general in Dubai. “Some companies engaged with the construction of the Metro are facing some payment issues.” He said companies were also owed money by Nakheel.

Mitsubishi Heavy Industries (MHI), a part of the giant Mitsubishi Group, and Taisei Corporation, one of Japan’s largest contractors, are among those firms affected by non-payment on contracts that date back years in some cases.
MHI led a consortium of five contractors, including four Japanese companies, that was awarded a Dh12.45bn contract in May 2005 to plan and develop the Metro’s Red Line. The following year, the same Mitsubishi-led consortium won a Dh4.08bn contract to build the Green Line. Other members of the consortium were Mitsubishi Corporation, Obayashi Corporation and Kajima Corporation of Japan, and Yapi Merkezi of Turkey.
Ten of the 29 stations on the project’s Red Line opened in September, with the Green Line expected to be operational next year.

“MHI executed the construction of the Dubai Metro and some other contracts and we are still awaiting payment,” said Koji Okamoto, the general manager of the Middle East office of MHI in Dubai. The company has contracts in the Middle East valued at $150bn.

Taisei is believed to be owed several billion dollars across a number of projects in Dubai and elsewhere outside the UAE.

The company is still awaiting payment from the Roads and Transport Authority (RTA) for completed projects including Doha Road near the Burj Dubai and the Arabian Ranches interchange. It is owed funds from Nakheel for the Gateway Towers and vehicular tunnel projects on Palm Jumeirah, in addition to several infrastructure schemes on Palm Jebel Ali and Almas Tower at Jumeirah Lake Towers.

Taisei is also owed money for its construction of Nakheel Hotels’s Djibouti Palace Kempinski, the second phase of which opened earlier this year in the east African nation.

Limitless, an arm of Dubai World, is believed to owe funds to the contractor for work on its Downtown Jebel Ali scheme. In 2007, Taisei secured a Dh1.3bn contract to construct four buildings in the east quarter of the development.

The Japanese government has not discussed the payment issues with the Dubai Government, nor has it intervened with financial assistance to those companies affected, Mr Otsuka said.

“We are in a position to push both sides to make an amicable solution,” he said. “So far, we have not been officially requested by the Dubai Government to explore so-called public financing. But if they try to involve the [Japanese] government we would have to give serious consideration to such a request.”

Mr Otsuka said it was difficult to put a figure on the outstanding debt as some payment was due shortly.

Foreign contractors operating in Dubai continue to report payment problems despite moves to ease liquidity through a $20bn bond programme. Half of that has already been raised and Dubai has announced plans to borrow the second $10bn.

The UK Association for Consultancy and Engineering estimated earlier this year that as much as Dh3bn was due to contractors. Nelson Ogunshakin, the chief executive of the association, said last month a “substantial” amount of that figure was still outstanding.

The same month, Lord Davies, the UK minister of state for trade, called on the companies to ensure outstanding payments were settled.

“It is inappropriate to reveal details about our arrangements with contractors as we respect the confidentiality of our business exchanges,” said a Nakheel spokesman. “We remain committed to working in partnership with our contractors over the long term.”

A spokeswoman for Limitless said: “As is the case with businesses across the world, we have discussed arrangements with some suppliers. At the same time, we are being as flexible as possible with our own clients, sub-developers at Downtown Jebel Ali, by continuing to agree new payment schedules for investors who are committed to developing there.”
RTA officials were not available for comment.