Saudi Arabia to 'radically scale back' NEOM project amid budget shortfalls
The Saudi Crown Prince is reportedly planning to transition toward building AI data centers as his flagship development project falters
Saudi Arabia’s $1.5 trillion flagship Neom project is set to be significantly “downscaled and redesigned” after years of delays and budget overruns, the Financial Times (FT) reported on 25 January, citing people briefed on the matter.
Prince Mohammed bin Salman (MbS), Neom’s chair, is planning something “far smaller,” the people said, signaling the failure of the original, highly ambitious concept after the initial construction phase.
“It shows that the system has a capacity to adjust its goals,” said one of the people.
Launched in 2017, Saudi Arabia’s NEOM, a sprawling high-tech development on the northwestern Red Sea coast, was introduced as the crown jewel of Vision 2030.
The Line, a planned 170km linear city viewed as the centerpiece of the futuristic desert megaproject, was to redefine urban living.
However, The Line will now be “radically scaled back,” the FT wrote.
“The Line will be a totally different concept. It will use the existing infrastructure in a totally different manner,” one of the people said.
Neom could now become a hub for data centers as part of the Crown Prince’s plan to position the Kingdom as a leading AI player, the people said.
“Data centres need water cooling, and this is right on the coast, so it will have seawater cooling. So it will be a major centre for data centres,” one of the people explained.
Neom said in a statement it was “always looking at how to phase and prioritise our initiatives so that they align with national objectives and create long-term value.”
The plan to scale back NEOM comes as Riyadh is under mounting pressure to cut spending amid oil prices that remain well below levels needed to balance the Kingdom’s current budget.
On Monday, Saudi state oil company Aramco launched its first bond sale of the year to raise $2 billion. Aramco is a key contributor to state finances, making large dividend and royalty payments from oil sales to fund Saudi spending.
Oil is now trading at roughly $66 a barrel on world markets, while the kingdom needs levels above $90 a barrel to balance its current budget.
The kingdom also faces mounting costs as it prepares to host the Expo international trade fair in 2030 and the football World Cup in 2034.
Neom is owned by Saudi Arabia’s $1 trillion Public Investment Fund (PIF), which is also chaired by MbS.
According to the FT, the PIF’s portfolio of megaprojects is also being reviewed.
The fund has come under criticism for failing to deliver returns on its huge investments over the past decade.
In November, the New York Times reported that the fund “is running low on cash for new investments” because MbS and his advisors “have spent a vast portion of the nation’s bounty on projects that are in financial distress, and they are frantically trying to turn things around.”