Saudi business leader asks king to help building firms

Abdulrahman Al Zamil, president of the Council of Saudi Chambers business association.

Abdulrahman Al Zamil, president of the Council of Saudi Chambers business association.

A leading Saudi Arabian businessman has asked the king to intervene to ensure that the government makes delayed payments to construction companies, in a sign of growing pressure on the economy due to low oil prices.

Some construction firms have seen scheduled payments from the government delayed by over six months, Abdulrahman Al Zamil, president of the Council of Saudi Chambers business association, wrote in a letter to King Salman.

"If the delay in payments continues, these companies will be at risk of default, or go completely out of business," said the letter, seen by Reuters on Monday.

Direct pleas to the monarch are not unknown in Saudi Arabia, but the letter underlined the pressures facing the Saudi construction sector, which has run into difficulties since the second half of last year as the government has reduced spending in response to low oil prices.

The finance ministry has cut advance payments to firms doing state construction work, the government has awarded fewer contracts, and its payments to companies for work already done have slowed, industry executives say.

Despite shrinking oil revenues, the government does not lack money to pay its debts; it still has about $600 billion in overseas assets. But the spending clampdown appears to have slowed approvals for payments and their disbursement.

Partly because of the payment delays, some firms have delayed paying their staff or laid off thousands of workers, and several have begun talks to reschedule debts. Jabal Omar Development said last month it was in talks with creditors after failing to make a 650 million riyal ($173 million) first repayment on a 3 billion riyal government loan.

In his letter, Zamil said construction companies hoped authorities would investigate the situation and create a mechanism for the firms to receive money owed to them.

"The contracting sector seems to have been hit twice, first by controls on government spending on projects, and second by delays in receiving financial payments," said prominent local economist Fadl al-Buainain.

"Adding to that the tightening liquidity and banks being reluctant to lend to contractors because of increased risk, the result becomes a painful negative impact on these companies."

John Sfakianakis, a Riyadh-based economist, said: "It's not the government's intention to see growth slow in the private sector and it will surely take an appropriate course of action."

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