Saudi Arabia is likely to cut billions of dollars in spending on some of its biggest development projects, and place other plans on hold, as the kingdom grapples with the scale of its vast economic makeover, Bloomberg reported on July 11.
A government committee led by the de facto Saudi ruler, Crown Prince Mohammed Bin Salman, is close to completing a sweeping review of mega projects including the sprawling desert development known as NEOM, people familiar with the matter said, asking not to be identified as the information is private.
NEOM, which is being developed on the Red Sea coast and includes plans for the world’s largest green hydrogen production facility, is expected to be allocated 20% less than its targeted budget for this year, the people said.
NEOM Green Hydrogen Company (NGHC) last year announced that it had achieved financial close on the green hydrogen production facility, which is currently being built at Oxagon at a total investment value of $8.4 billion (GM May 26, 2023). The project is being financed with $6.1 billion in non-recourse financing from 23 local, regional, and international banks, and investment firms.
There was no word this week on whether the green hydrogen plant will be part of the trimmed NEOM budget. Chinese solar equipment provider JinkoSolar Holding Co. Ltd. recently signed an agreement to provide 1 GW solar modules to the project. The order was placed by Larsen & Toubro Ltd, an Indian engineering firm that oversees the renewable energy generation for the NEOM Project.
NGHC has also concluded the engineering, procurement, and construction (EPC) agreement at a value of $6.7 billion with Air Products as the nominated contractor and system integrator for the entire facility. NGHC has also secured an exclusive 30-year offtake agreement with Air Products for all the green ammonia produced at the facility.
The mega-plant is slated to integrate up to 4GW of solar and wind energy to produce up to 600 mt/d of carbon-free hydrogen by the end of 2026, in the form of green ammonia.
The investment cuts mark a shift in priorities for Saudi Arabia, which under its Vision 2030 plan to reshape the economy has announced projects costing an estimated $1.25 trillion. Lower oil prices, weaker-than-projected foreign investment, and at least three more years of deficits in the national budget means it must now decide what to focus on first and at what pace, Bloomberg reported.
“The reality is that this kind of spending would create some sort of overheating in the economy and that’s not really desirable,” said Jean-Michel Saliba, Bank of America Corp.’s Middle East and North Africa economist. “There’s also a risk to the profitability of projects if they go ahead sort of unabated without financial constraint.”
Saudi Arabia had said in December that some projects would be delayed or accelerated after the government reviewed its ability to finance its commitments without affecting its credit rating. Even though some spending will be crimped, Saudi Arabia will continue to be a big spender on construction. The kingdom has slated capital expenditures of more than $50 billion for 2024 to support mega projects, according to Bloomberg.
Evidence of Saudi Arabia’s funding challenges have been piling up. The kingdom recently raised more than $12 billion by selling shares in state-backed oil giant Saudi Aramco and has been one of the most active issuers of international sovereign debt among emerging markets this year, Bloomberg reported.