Projects with high social welfare and business justifications are unlikely to see a funding cut.
While investors in the U.S. are pouring in funds into shale oil, the Saudi government is looking into ways to recoup its investments, running into billions of dollars, which are still work-in-progress, said multiple government sources.
Saudi Arabia’s Bureau of Capital and Operational Spending Rationalization, set up last year to help the government become more lean and efficient, is now compiling a list of projects which are under 25% in the completion status, said sources.
Incidentally, many of these projects are relics of a decade-long boom of high oil prices and lavish state spending which has come to a sliding halt, which in turn has made it difficult for Riyadh to fund them to their 100% completion.
The Bureau of Capital and Operational Spending Rationalization is currently studying the feasibility of the projects in light of the government’s reform drive, which is aimed at diversify the economy beyond oil exports.
“Some projects could be retendered so they can be executed in partnership with the private sector, possibly through build-operate-transfer (BOT) contracts,” said a source familiar with the plan.
Under BOT, contractors and private investors finance, build and operate the projects upto completion before transferring the ownership to the government.
“Other projects could be suspended if they do not meet the current economic objectives,” said a source. He went on to add, recommendations for some projects may be made within days.
With the government staring at a budgetary deficit, due to low oil prices, it started clamping down on infrastructure spending last year.
This February, Riyadh’s Finance Minister Mohammed al-Jadaan had stated that the Bureau had so far saved the kingdom some $21.33 billion.
The current plan to review unfinished projects goes to suggest that Riyadh is looking to save additional amounts this year.
At the end of 2016, the Bureau had submitted a report stating that to complete all the projects, the kingdom would need to spend 1.4 trillion riyals.
As per Faithful+Gould, consultants, the Saudi government could potentially save $13.3 billion from some unfinished projects.
With the change of priorities, it thinks only projects which have a strong social welfare and business justifications, such as power and water generation, are likely to survive the chop, while “vanity projects” such as sports infrastructure, perhaps even nuclear energy, transport systems are likely to face funding cuts.