Saudi Arabia sets aside $16 billion for NEOM contract terminations

 

Saudi Arabia allocates $16 billion to settle and terminate NEOM contracts

Saudi Arabia has allocated approximately SAR 60 billion ($16 billion) over the 2026–2030 period to settle and terminate contracts linked to its flagship NEOM development, according to a report published by Semafor on June 7.

The planned expenditure highlights the scale of the kingdom's effort to restructure the ambitious mega-project after years of rapid expansion and mounting costs. The termination allocation represents nearly two-thirds of NEOM's remaining capital budget for the period and exceeds the Public Investment Fund's (PIF) reported cash reserves of approximately $15 billion.

 

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Since its launch by Crown Prince Mohammed bin Salman in 2017, NEOM has consumed an estimated $64 billion in spending. However, several major components of the project have since been scaled back, delayed, or suspended amid changing economic priorities and fiscal pressures.

Contract Termination Costs

Industry experts note that the $16 billion figure does not represent a conventional penalty. Most major construction agreements in the Gulf region include "termination for convenience" clauses, allowing project owners to halt work while compensating contractors for completed work, mobilization costs, materials, and demobilization expenses.

As projects progress, the cost of terminating contracts often approaches the cost of completing them. Under revised plans, NEOM's construction budget for 2026–2030 was reduced from $71 billion to $30 billion before an additional 15 percent capital expenditure reduction lowered total allocations to roughly $25.5 billion. Of that amount, approximately $16 billion is earmarked for contract settlements, leaving about $9.5 billion available for ongoing construction activity.

Several major contract cancellations have already been confirmed. Italian contractor Webuild reported the termination of its $4.7 billion Trojena dam and lake project, which was approximately 30 percent complete at the time of cancellation. The company also confirmed the cancellation of a €1.4 billion ($1.6 billion) high-speed rail link intended to connect The Line with Oxagon.

 

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Other contractors, including Hyundai Engineering & Construction and Eversendai, have also disclosed contract terminations linked to project restructuring.

NEOM Scales Back Ambitions

Originally announced as a $500 billion futuristic city development, NEOM has undergone significant revisions in recent years.

The project's centerpiece, The Line, was envisioned as a 170-kilometer linear city designed to house up to nine million residents. According to reports, only about 2.4 kilometers of foundation work have been completed. Construction activity on the project was suspended in 2025, and officials have indicated that work is unlikely to resume before 2030.

Similarly, Trojena, the planned mountain resort that had been selected to host the 2029 Asian Winter Games, has seen major portions of its development halted following project reviews and the postponement of the sporting event.

Sindalah, the luxury tourism island intended to serve as a premier Red Sea destination, has also reportedly received no new funding allocation under PIF's latest strategy.

Oxagon Emerges as Priority Project

Among NEOM's various components, Oxagon—the industrial and logistics hub located on the Gulf of Aqaba—appears to be the primary beneficiary of continued funding.

PIF has allocated approximately $3 billion toward Oxagon's green hydrogen facility and port infrastructure. The hydrogen project is reportedly nearing completion, while the port terminal is expected to begin operations in 2026.

Analysts view the decision as evidence of a strategic shift toward projects with clearer commercial prospects and identifiable revenue streams.

Fiscal Pressures Intensify

The restructuring of NEOM comes amid broader fiscal challenges facing Saudi Arabia.

 

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Government data showed a first-quarter 2026 budget deficit of SAR 125.7 billion ($33.5 billion), while military expenditures increased sharply following regional security tensions. At the same time, lower oil revenues and ongoing commitments to other Vision 2030 projects have placed additional demands on public finances.

PIF, which manages approximately $925 billion in assets, has increasingly focused on selective investment priorities and liquidity management. The fund's latest strategy emphasizes domestic investments while reducing international exposure.

Economists note that the kingdom's challenge is no longer whether to continue every element of NEOM, but how to manage the costs associated with restructuring a project whose contractual commitments were made during a period of significantly greater expansion plans.

While much of NEOM's original vision has been scaled back, Saudi authorities continue to support selected projects that are expected to generate long-term economic returns, particularly in logistics, renewable energy, and industrial development.

Source: House of Saud