Hangover of oil dependence has only just begun.
It was supposed to be the biggest, most ambitious, most lucrative infrastructure project Spain’s construction industry had ever undertaken on the Arabian Peninsula. Launched three years ago, the high-speed rail link project between Medina and Mecca was a dream come true worth some €6.7 billion, the perfect payoff of decades of patient lobbying of the House of Saud by Spain’s former King Juan Carlos I. But now it’s a rotting financial albatross around the necks of 12 large Spanish companies.
Even from the beginning, things were not easy. Within a year and a half, the project was suffering significant delays. And two months ago, the consortium asked the Saudi government for more funds — “an absolute minimum of €1.4 billion” — to cover the Saudi Railways Organization’s “unforeseeable demands,” such as, amazingly, keeping desert sand off the tracks.
None of the consortium partners want to take responsibility — or the attendant financial hit — for keeping sand off the tracks. And the House of Saud, already hemorrhaging money due to the oil bust, is in no position to pay Spanish companies extra funds for it.
Now, news is leaking that the Saudi Railway Organization stopped paying advances on the consortium’s work over six months ago. According to the Spanish financial daily Expansión, the consortium could be owed hundreds of millions of euros in late payments. Although the reasons for non-payment are as yet unconfirmed, sources in Spain are blaming it on the House of Saud’s acute cash-flow problems
Saudi Arabia’s oil-dependent economy is in a bit of a pickle. For its budget to break even, the country needs an oil price of $104 a barrel, claims the Institute of International Finance. The current price is around $45. According to the IMF, Saudi Arabia may run out of financial assets needed to support spending within five years. So severe is the problem that the House of Saud now has little choice but to do something it hasn’t had to do for decades: ration its spending….
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