Weddnesday July 22 2009

Riyadh: The government of Saudi Arabia has been forced to foot the bill to ensure that work continues uninterrupted on several mega development projects in various regions of the kingdom.

The government has so far extended financing worth more than 11 billion Saudi riyals (Dh10.7 billion) to offset a marked decline in the volume of financing from the crisis-hit banking sector.

In the aftermath of the global meltdown, several international banks have withdrawn from financing the multi-billion dollar projects.

Taking this situation into account, the government is planning to pump in additional funds to save stricken projects, with the financing programme expected to swell to 20 billion riyals by the end of the year, according to well-informed sources.

While local banks are in better shape than their foreign counterparts, they do not have the capacity to fund multi-billion-dollar projects.

Before the global financial crisis set in, Saudi Arabia had mapped out a large list of ambitious new economic cities, petrochemical plants, railways, ports, power and water projects for private investment. But several of the projects failed to get off the ground due to the global downturn.

The government financing is being extended mainly through the Public Investment Fund (PIF), a state-owned investment arm.

Government funding has so far been extended to several vital projects in the power, petrochemical and transport sectors, especially the railways.

Last week, PIF extended financing worth 2.6 billion riyals to the Saudi Electricity Company for implementing some of its projects.It had earlier extended financing worth 1.3 billion riyals to Saudi International Petrochemical Company (Sipchem) to build its steel plant in the Jubail industrial city.

The government last year took over financing of the multi-billion-dollar Makkah Madinah high-speed rail project (Haramain Railway) amid failure to secure private funding for it.

The first phase of the project is estimated to cost 6.7 billion riyals.

The $5.5 billion Ras Al Zour water and power generation project is facing the same fate, after the original bid winners failed to come up with their own financing arrangements.

According to financial experts, the government's strong intervention to save these projects is a manifestation of its determination and keenness to implement these vital projects on schedule besides sending a clear signal to the private sector about the strength and potential of the economy.

Source: Gulf News