Saudi Arabia pledges to settle outstanding payments by year end
London - The Saudi government announced that it would settle all outstanding payments owed to the private sector before the end of the fiscal year.
The official Saudi Press Agency said the kingdom’s Economic and Development Affairs Council, which is led by Deputy Crown Prince Mohammed bin Salman bin Abdulaziz, has put together a “package of solutions and procedures” to “immediately begin to settle these dues”.
The council also announced that it had reviewed hundreds of contracts, with some being cancelled, rescheduled or otherwise changed. The Saudi government plans to halt projects estimated to be worth more than $267 billion because of what it described as a level of spending that “was not commensurate to the economic and developmental return”.
The downturn in the kingdom’s construction industry is due to the government scaling back on contracts because of low oil prices. This has resulted in delayed payments, which led to major financial difficulties for some firms.
“I don’t recall the exact amount now but it’s billions of dollars,” said Saudi Minister of Finance Mohammed al-Jadaan. “The ministry is now every day seeking to make thousands of payment orders.”
The delayed payments have been a public relations disaster for Saudi Arabia and some once-powerful construction companies are close to bankruptcy. Thousands of foreign labourers working for Saudi Binladin Group and Saudi Oger were stranded in the kingdom for months without pay.
Binladin Group has said it recently received “some payment” from the government to pay its remaining staff.
Once the Saudi government’s preferred builder, the Binladin Group’s fortunes changed during the 2015 haj, when 107 people were killed and hundreds more injured after an unsecured crane belonging to the firm crashed in Mecca’s Grand Mosque. An investigation by authorities found the firm “in part responsible” for the accident.
This situation with Saudi Oger, which is owned by the family of Lebanese Prime Minister-designate Saad Hariri, is different. In an interview with Bloomberg News in April, Prince Mohammed said of the firm: “We have paid them many instalments but they have debt in and out of Saudi. So as soon as money is transferred to their bank accounts, the bank withdraws it.”
“Saudi Oger can’t cover its own labour costs. That’s not our problem. That’s Saudi Oger’s,” he said. “The contract between us and Saudi Oger, we will honour it but if the bank withdraws our instalments and Saudi Oger can’t pay a thing to its own contractors and workers, that’s their own problem. They can take them to court.”
The Reuters news agency citing unnamed sources, reported that Saudi Oger requested that banks agree to a freeze in repayments on at least $3.5 billion of its debt.
The sources said Oger’s debt to local banks was estimated at $3.46 billion, of which $1.86 billion was already committed and a further $1.6 billion consisted of credit that was allocated but was later undrawn.
The firm is reportedly also looking for buyers in its stake in the Jordan-based Arab Bank, while its Telecom wing is in talks about a potential stake sale with Saudi Telecom.