VZCZCXRO7245
RR RUEHDH RUEHDIR
DE RUEHDE #0457/01 2951433
ZNY CCCCC ZZH
R 221433Z OCT 09
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC 6693
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHDE/AMCONSUL DUBAI 9985

C O N F I D E N T I A L SECTION 01 OF 03 DUBAI 000457 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR NEA/FO; NEA/ARP/BMCGOVERN;COMMERCE FOR TYLER 
HOFFMAN 
 
E.O. 12958: DECL:  10/22/2019 
TAGS: ETRD KIPR EFIN ECON PREL AE
SUBJECT: U.S. CONTRACTORS STILL OWED FOR DUBAI PROJECTS 
 
REF: A. A DUBAI 000392 
     ¶B. B DUBAI 000354 
 
DUBAI 00000457  001.2 OF 003 
 
 
CLASSIFIED BY: Justin Siberell, Consul General. 
REASON: 1.4 (b), (d) 
¶1. (C) SUMMARY:  U.S. companies who in part helped fuel the real 
estate and construction boom in Dubai continue to lament the 
lack of payment to them by both the Government of Dubai entities 
and private property developers across Dubai.  The amount of 
money owed to U.S. contractors varies quite significantly. 
However, anecdotal reports coming from individual U.S. company 
disclosures to USG officials puts the total so far just short of 
USD 400 million.  It is not clear whether the USD 400 million is 
the bulk of money owed or represents the tip of the iceberg of a 
much larger amount of IOUs to U.S. entities.  The sentiment of 
the vast majority of contractors who recently convened at the 
Consul General's residence centered on frustration over the lack 
of clarity and communication from authorities regarding plans to 
repay debts.  Contractors are now considering writing off some 
of these debts owed to them as the fiscal reporting year ends 
and they begin the process of closing their books.  END SUMMARY. 
 
 
 
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NO ACCOUNTABILITY AND NONPAYMENT RAMPANT 
 
---------------------------------------- 
 
 
 
¶2. (C) Hamed I. Zaghw, Managing Director in the Dubai office for 
Parsons, a U.S. based international construction and engineering 
firm, told Consul General and econoff in a gathering of U.S. 
business representatives at the Consul General's residence that 
there is no accountability among Dubai based developers when it 
comes to honoring debts owed to his company and others.  Zaghw 
fears Parsons may never recover a substantial amount of funds 
owed to it by the Government of Dubai and other private 
developers.  Zaghw reported to the Consul General that Parsons 
is owed approximately USD 200 million for services it provided 
to Government of Dubai entities, primarily Dubai's Roads and 
Transport Authority (RTA), and other local developers.  Zaghw 
noted that the company has inquired about the unpaid debts at 
the highest levels within the Dubai government.  However, senior 
Dubai government officials have only expressed sympathy for the 
company's plight, but have not offered any commitments or 
clarity regarding a repayment roadmap or plan to resolve 
liabilities. 
 
 
 
¶3. (C) Meanwhile, private developers also have been slow to pay 
or have simply refused to pay debts or honor contracts in part 
because of real cash flow constraints, but in some cases simply 
because of opportunism.  Zaghw speculated that some small and 
medium sized developers have simply been refusing to pay, not 
because of lack of funds, but to exploit the perception that the 
crisis has made all developers broke.  The current trend of 
nonpayment has been especially exacerbated by the large 
developers in Dubai which tend to set the tone for the rest of 
the market.  Ali Odeh, Chief Executive Officer for Turner 
International's Middle East operations, noted that smaller and 
medium sized developers look at large developers such as Nakheel 
who have all but stopped paying contractors and naturally 
question their own obligation to pay.  Nakheel is currently 
committing the bulk of its cash to pay back bond holders (Ref A). 
 
 
 
------------------------------------- 
 
CONSOLIDATION: A TACTIC TO HIDE DEBT? 
 
------------------------------------- 
 
 
 
¶4. (C) Zaghw also raised concerns about how the wave of 
consolidation among developers has made it increasingly 
difficult to maintain a consistent record of debts owed to his 
company (Ref B).  Victor Arca, Director at Thinkwell, a small 
architectural design company, echoed a similar sentiment to 
Zaghw, explaining that many new managers at the newly 
consolidated developers have begun to deny responsibility for 
previous debts and contracts owed to his firm.  Apparently, the 
frequent changing of management at consolidated developers has 
left an accountability vacuum as it relates to honoring or 
managing debt obligations.  Leslie Orr, director of Middle East 
operations for CB Richard Ellis Property Management Company, 
said that there is a real lack of empowerment among the growing 
 
DUBAI 00000457  002.2 OF 003 
 
 
stable of interim managers and new leadership at the heavily 
in-debt and newly consolidated developers. 
 
 
 
¶5. (C) Many of the U.S. contractors participating in the round 
table discussion with the Consul General and econoff admitted 
that they feared the consolidation trend would potentially 
facilitate the disappearance of debts owed to their companies. 
Although, there is no specific evidence that debts have been 
nullified as a result of the recent wave of consolidation, many 
contractors complained that they have not been able to connect 
directly with decision makers and worse have not been able to 
get a commitment from developers about the total amounts owed to 
them.  There is also significant uncertainty as to the quality 
of book keeping by the major developers who owe so much to so 
many.  Jack Greenwald, Partner at the Dubai law firm of 
Chadbourne and Parke LLP, noted that all companies should be 
actively negotiating with individual debtors to pin down a 
number for total debts owed in order to be able to collect once 
the market recovers. 
 
 
 
-------------------------------- 
 
PATIENCE IS KEY TO RECOVER DEBTS 
 
-------------------------------- 
 
 
 
¶6. (C) Ali Odeh noted in the same meeting that patience would be 
the most critical tool that U.S. companies could utilize in the 
current environment.  Mr. Odeh explained that his company had 
already taken significant haircuts in debts owed to it by 
Nakheel and other developers.  For example Turner had also moved 
to accept asset and land acquisitions in place of cash from 
developers.  Odeh explained that the negotiated settlements were 
unprecedented in Turner's history, but more importantly 
represented a way forward for his company to recoup some losses 
and show solidarity with Nakheel and the Government of Dubai 
during this tough time.  Odeh is confident that patience will 
bear the most fruit for his and other companies who give a break 
to cash-strapped Dubai, Inc and continue to "show loyalty" to 
the city  in spite of the mounting IOUs on their financial 
statements.  Odeh urged U.S. companies to seek new business in 
nearby markets less affected by the financial crisis, in 
particular Doha, Abu Dhabi and Saudi Arabia.  In fact, Mr. Odeh 
pointed out that Turner had logged some of its best order 
numbers in the last six months due these tactics. 
 
 
 
-------------------------------- 
 
LEGAL RECOURSE NOT A VIABLE PLAN 
 
-------------------------------- 
 
 
 
¶7. (C) Odeh cautioned his peers not to pursue legal action 
against delinquent companies or, worse yet, government entities 
in Dubai.  He warned that legal recourse is not a prudent 
approach to deal with mounting debts.  Most of the U.S. 
contractors present at Sunday's discussion conceded that they 
had taken the legal option off the table mainly because of the 
bleak outlook for arriving at a resolution.  Odeh explained that 
in addition to incurring huge legal fees, a lawsuit would almost 
certainly affect a company's ability to operate in Dubai in the 
long-term.  According to Odeh, companies that filed lawsuits in 
the past against Dubai, Inc entities had been black listed by 
authorities.  Also, although Jack Greenwald noted that firms 
should seek legal counsel, he too reiterated that they avoid 
going down the road of litigation.  Greenwald said that the 
Dubai courts are currently swamped with contract dispute cases. 
He also revealed that the Dubai Courts had been particularly 
slow in carrying out simple administrative processes on contract 
dispute cases with clients spending up to a year waiting to come 
before a judge. 
 
 
 
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COMMENT 
 
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DUBAI 00000457  003.2 OF 003 
 
 
 
 
 
¶8.  (C) The growing chorus of anxious contractors awaiting 
payment from Dubai Inc and the Government of Dubai merely adds 
to the ongoing saga of Dubai's economic hardship.  Also, 
although high profile developers such as Nakheel have begun to 
pay back bond holders, contractors continue to struggle to 
operate in Dubai under a mounting load of IOUs from Nakheel and 
others.  As Dubai pushes through this tough economic environment 
and early signs of a recovery begin to emerge, there is now 
legitimate concern that debts owed to contractors may be 
forgotten, lost or even nullified amid the large wave of 
consolidations.  As legal recourse remains an ineffective way 
for U.S. contractors to pursue payments for services rendered, 
the only option is to continue to negotiate and wait for 
business to pick up.  END COMMENT 
SIBERELL