Saudi Arabia in arrears to construction contractors

Many understood the huge significance of the revitalization of the U.S. oil industry on the world market, especially impacting the financial position of Saudi Arabia.  In fact, 2015 data according to the CIA Fact Book has the U.S. and the kingdom almost equal in total year oil production.  And of course, the slide in oil prices has required Saudi Arabia to enact austerity measures.  As it turns out, the effects have come more quickly and severely than some predicted.

This past Sunday, Arab News reported that the kingdom has just made a Saudi riyal 40-billion (10.5 billion USD) late payment owed to private contractors.  And that amount still does not settle the matter.  Fahad Al-Hammadi, chief of the National Contractors’ Committee at the Council of Saudi Chambers, said:

The Saudi government is expected to pay up to 80 percent of the total dues to contractors during the remaining few weeks of this year by disbursing another SR100 billion (26.5 Billion USD)[.]

The lag in payments in concert with the penalties against the Saudi Bin Laden Construction Group for the Mecca crane disaster have left tens of thousands of expat workers out of work and stranded in the country.  An example is the Mohammad Al Mojil Group (MMG), which has directly appealed to Deputy Crown Prince Mohammed bin Salman that it could not continue operating in the current situation.

MMG has been typical of many companies who felt that the good times would continue to roll and became overextended.  Then, the founder, his son, and the chairman were sentenced by the Capital Market Authority (CMA) for fraud and manipulation and suspended the stock over the company’s losses.  The end result is that the company had to reduce its workforce from 25,000 to 3,000.

Officially, there is a lot of optimism that the payment plan will work and that construction projects will resume.  It was reported that some of the contractors from Germany, Turkey, Spain, and India confirmed that they are being paid their due.  Yet construction in Riyadh has been on hold for several months.  Construction sites for the planned metro subway system, medical facilities, roads, and highways still sit idle.  It’s anyone’s guess if the continued transfer of funds from the public treasury to private contractors will solve the problem, given the vastly reduced oil revenue.

John Smith is the pen name of a former U.S. intelligence officer.

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