Saudi Arabia’s Neom: Land of plentiful PPPs or a desert mirage?

The futuristic visions of Saudi Arabia’s new city in the desert has got plenty of people excited. But is it realistic and can it attract the investment it needs to become a reality?

Credit: Getty

All eyes are on Saudi Arabia’s planned megacity, Neom. Frequently touted as the “world’s most ambitious project”, the $500bn district is being built from scratch over an area 33 times the size of New York City.

Located in the Tabuk Province in the north west of the kingdom, the city will comprise multiple regions, including a floating industrial complex, global trade hub, tourist islands, and a ‘linear city’ – all powered exclusively by renewable energy sources.

A major building block of the development is 'The Line' – a 170km-long ‘linear city’ that will be only 200 metres wide. It is the first of its kind in the world. Its buildings will be constructed as one continuous structure with a mirrored exterior, meaning it will simply melt into the desert. The car-free city is planned to be large enough to accommodate millions of residents.

Billed as a ‘vision of a new future’, Neom is a centrepiece of Saudi Arabia’s Vision 2030, positioning the country as a key player in global development. The project is part of a wider ambition to transform the kingdom into an innovation hub through the introduction of value chains of traditional and future industries that will stimulate local investment, private sector job creation and GDP growth.

Neom will be backed by the Public Investment Fund of Saudi Arabia, as well as local and international investors. First announced in 2017, with a view to some parts being completed by 2025, the project has since been blighted by delays. Developers now say they expect the city to be complete by 2039.

On-the-ground progress

According to Deloitte partner Tim Jones, planning and construction are now well underway. “There is a real energy at the Neom site. A lot of our people in the infrastructure sector are really excited to work there. There is a real sense that they are working on a once-in-a-generation project.

“It’s quite easy for those who are outside of Saudi Arabia to be cynical about the scale and feasibility of the project but, in reality, there is a huge amount of backing from local and global partners and consultants. There’s highly credible talent on the ground helping to make it a reality,” Jones adds.

Deloitte has been advising on numerous aspects of the Neom programme, including property and real estate, as well as the city’s mobility strategy.

“We’re very positive about the infrastructure opportunity in Saudi… Neom clearly represents an enormous opportunity for private and public partners alike,2 Jones continues. “The scale of its ambition is greater than anywhere in the world.”

Will Neom leverage PPPs?

More generally, PPPs in Saudi Arabia are helping to drive the kingdom’s economic diversification plans.

In April this year, a pipeline of 200 projects spanning 17 sectors, involving more than $50bn in investment, was approved by Saudi Arabia’s National Center for Privatisation and PPP (NCP).

Projects include four airports, seven desalination plants, six wastewater treatment plants, 10 strategic water reservoirs and a transit-oriented development project in Makkah.

However in Neom, only employee housing has so far seen itself opened up to PPP investment, with local partners clinching a contract to operate 15 Phase One housing clusters over 10 years.

Jumping into Neom will clearly take something of a leap of faith from investors - as Neom’s head of infrastructure PPPs, Jan van Schoonhoven has previously admitted to Partnerships Bulletin. He pointed out that there is no demand model that can be applied to a completely new city. So while there is plenty of interest in the concept of Neom at this stage, it remains to be seen whether it will translate into investments if and when the PPP opportunities do start to appear.

The good news is that Saudi Arabia is already looking to actively engage the PPP market on projects across the country, which could help give investors the confidence to make the leap from projects in existing cities out to Neom.

Jones expects to see major future opportunities within Neom for PPP deals in sectors like transport, energy, water, and social infrastructure. “The Saudi government is very keen to leverage Neom as a powerful tool to generate private investment,” he comments. "They [the government] like the rigour and due diligence which PPP brings to projects… they are attracted by the discipline and structuring of such deals, as well as the opportunity to transfer knowledge." 

According to Mohamed El Kandri, co-founder and CTO of Saudi Aramco-backed tech startup IR4LAB, Neom “is one piece amid a giant plan for the kingdom’s thriving futuristic economy, pitched at global investors”.

El Kandri says Neom's upcoming PPP announcements will most likely take a phased approach, in line with the different phases of the project itself.

Joss Dare, global co-head of projects at law firm Ashurst, expects Neom to present “very significant” project finance and PPP opportunities in the transport sector. 

“For example, the Spine at Neom [the transport infrastructure supporting The Line development] is slated to include approximately 150km+ each of high speed, freight and metro railways.  

"All of these projects are likely to seek to be structured to access private capital in some form and, therefore, present a huge opportunity for the region's PPP players,” Dare adds.

Belgian-headquartered construction firm Besix is also actively eyeing PPP opportunities at Neom.

Nicolaas de Koning, the firm's head of bids and assets for the Middle East, says: “Neom is on our list. We are cautious but we are definitely looking. We will look to see where it aligns with our values, ambitions and capabilities.”

In particular, Besix is looking at Neom housing projects. “There is a huge need for worker accommodation ­– they are tendering now and they will tender in future. They are providing housing for the people that need to build and operate Neom,” De Koning says.

Van Schoonhoven told Partnerships Bulletin that the project needs the “doers and thinkers in the project finance world, creative minds that look at Neom from a new perspective and help develop new models”.

He suggests that the pioneering work done here could “change how we look at project investments around the world” in the future. 

“Given the unprecedented scope of the kingdom’s most ambitious project yet, Neom may also make use of new innovative PPP model agreements,” agrees  El Kandri.

“Saudi Arabia has been innovative on other fronts... so there is a willingness to be creative across the board, including in terms of funding the project and attracting private investors.”