EDINBURGH'S tram line will only run from the airport to the city centre under a new deal set to be struck to rescue the embattled project.
Tram chiefs are locked in talks with contractor Bilfinger Berger about a "mature divorce" which will see a scaled-back route built up to York Place.
The Evening News understands this section could be up and running by June 2012 and cost less than 500 million, but it raises a huge doubt over whether the full route out to Newhaven will ever be completed.
Business leaders in Leith said today the latest development is a "disgrace" and a "kick in the teeth" to traders, who have suffered years of tram-related turmoil.
Under the new proposals, tram firm TIE would be able to cut free from its contract with the German construction giant after the first phase is completed – ending the long-running dispute.
Council sources are hopeful that an agreement can be thrashed out within weeks, and the German firm has been instructed to provide full costings for completing the line to York Place.
Most of the work Bilfinger Berger has carried out has been between the airport and Haymarket, meaning it is more difficult to get a new contractor to work on that section. But there are fears that the tram would not be profitable if it did not run into the city centre and York Place is the nearest stop that would allow for trams to turn.
Councillor Gordon Mackenzie, the city's transport leader, said discussions had taken place with Bilfinger on a "mature divorce", where it is agreed "at some point along the route they step back from the project".
He said: "For technical reasons, it makes a lot of sense for the consortium to complete from the airport to Haymarket. It also makes a lot of sense to do Haymarket-York Place. After York Place, there is less of a reason for them to be involved because after then it is mainly utility works that have been done."
But the proposals have been criticised by Leith firms. Gordon Burgess, chairman of the Leith Business Association, said: "It is a disgrace. We have had to put up with three years of disorganised chaos from TIE, which has been blundering along making mistake after mistake.
"There are real concerns that we have had to endure this and there will be nothing at the end of it. To have nothing down Leith Walk for years is a real kick in the teeth and there should be a full public inquiry."
Some have expressed fears that if the line is cut off at York Place it will be impossible to get funding or support for extending it down to Leith at a later date, unless the proposed short-route proves to be a hugely popular success.
But Cllr Mackenzie said that if an agreement was reached with Bilfinger to provide the first phase, discussions could then start immediately on how to build the second phase.
Cllr Mackenzie said: "The current situation is untenable and the sooner we get it resolved and make progress down Leith Walk the better."
Opposition groups have been in talks about what position they will take on the 545m scheme ahead of a crunch council meeting tomorrow. Councillor Jeremy Balfour, leader of the Tory group on the council, said: "Clearly we have to see how much it will cost to get the tram to York Place, what that will mean for the later stages and what money will be left over. We want best value and we want the tram to be built to Newhaven as quickly as possible."
A spokesman for Edinburgh Trams said: "We remain fully committed to finding a mutually acceptable resolution to the dispute negotiations.