Saudi Arabia reckons with its costly megaprojects as $500 billion ‘The Line’ is reviewed

DUBAI, United Arab Emirates — Saudi Arabia’s sovereign wealth fund is reassessing its flagship $500 billion futuristic city called The Line.

The public investment fund has tapped consulting firms to conduct a strategic review into the feasibility of the 105-mile linear city, located at Neom — itself a huge new development in Saudi Arabia.  

Neom confirmed the news, first reported by Bloomberg, saying that strategic checks are “common practice” on long-term megaprojects.

But the move comes amid global scrutiny of Saudi Arabia’s ambitious infrastructure agenda, as well as growing pressure on public finances.

Neom did not detail what the review would be focused on, but “it’s likely that it’s going to look at technical feasibility, financing and also economic impact,” according to Tim Callen, a visiting fellow at the Arab Gulf States Institute. 

“I think these are all areas where people have had questions in the past; is the technology there to actually achieve what Neom wants to do? Is the cost of development too high? That’s clearly become an even more pressing issue as oil prices have headed down the last couple of years,” Callen told CNBC’s Access Middle East on Friday. 

The site of The Line, in Saudi Arabia’s northwestern desert, is currently a sprawling construction site replete with cranes and pile drivers, and a recently built road. Long parallel tracks cut through the sand, comprising the spine of what planners say will be a high-speed rail system.

It’s designed to be a high-tech city sandwiched between two glass skyscrapers — each more than 1,600 feet high — which the Saudi government says will eventually house 9 million people.

The project is just one of the hyper-futuristic venues planned in Neom, the brainchild of Saudi Crown Prince Mohammed bin Salman and a region that the kingdom hopes will bring millions of new residents to Saudi Arabia and revolutionize living and technology in the country.

It’s a core pillar of Vision 2030, which aims to diversify the Saudi economy away from oil revenues and create new jobs and industries for its burgeoning young population.

The cost of Neom as a whole has been estimated to be as high as $1.5 trillion. After many years of seemingly unlimited spending, 2024 began to see an abrupt shift as the Saudi budget deficit grew and the price of a barrel of oil fell well below what the kingdom needs to balance its budget.

“It’s clear that if oil prices, as you were saying earlier, are around $70 a barrel, that’s a very different environment than if they are $100 a barrel, where they were on average in 2022,” the Arab Gulf States Institute’s Callen said. International benchmark Brent crude was trading at $70.15 per barrel at 2:15 p.m. London time on Friday.

“So many of these projects are going to have to be reassessed, reprioritized. Does that mean Neon is not going to happen? No, I think Neom will definitely continue in some form. But whether it’s on a smaller scale and over a longer duration than originally envisaged, is quite likely, I think.”

There has also been a fair amount of criticism for what some in the kingdom describe as a “yes-man” mentality at Neom, where consultants and advisors are said to provide highly optimistic forecasts and cost-revenue projections in an effort to stay in their employers’ favor.   

“I don’t think expectations were managed well from a leadership perspective at the project level,” Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, told CNBC.  

“For a project of this scale to succeed, it has to adjust to market realities and it has to build trust.”

Solomon praised Neom and The Line as being “one of the boldest ideas I’ve seen that has actually gone into execution,” but added that “the architectural and consulting firms involved have an important role here and they should have more of a sense of ownership and responsibility to carry.”

In tandem with the planned “assessment” of The Line, job cuts are planned across Neom as a whole, one consultant who works for the project told CNBC.  

“They’re finally starting to make financially sound decisions,” the consultant, who asked to remain anonymous due to restrictions on speaking to the press, said.

Neom did not immediately respond to a CNBC request for comment.