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Sun 7 Dec 2008 01:36 AM

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Saudi to renegotiate terms on major contracts

Big development projects to go ahead but on reduced-cost basis, says central bank.

Saudi Arabia plans to push ahead with development projects despite falling oil income, hoping to tap opportunities created by falling construction costs, the Saudi central bank governor said in published remarks."We intend to make sure that these developmental projects go ahead and get adequate financing as it is an opportunity to implement more projects while there is less pressure on resources as the global economy slows down," Hamad Al-Sayyari told the London-based weekly Middle East Economic Digest.

"[Al-Sayyari] says that with global construction activity slowing and construction costs moderating, it is a good time for Riyadh to push ahead with development spending, even if it means tapping into the country's financial reserves," MEED said in its latest issue, published late on Friday.

Italy's Saipem, SpA, a major contractor for Saudi Arabian oil company Aramco's $9 billion Manifa oilfield project, said last month the Saudi firm planned an analysis "aimed at cost optimisation" on the project.

It was one of several reports of Saudi Arabia, the world's leading oil exporter, aiming to renegotiate contracts it signed at the height of the commodities price boom.

"Some government projects will also be financed from the government's budget," Al-Sayyari said in the interview with MEED.

"The Saudi economy has a lot of resilience," Al-Sayyari said. "The banking system is strong and stable, with high liquidity and high profit and capital ratios. Government finances are in good shape, with good surpluses this year, and the current account is strong, with a substantial financial surplus."

"We are optimistic about the economy," he said. "Of course, developments in the oil price will have an impact on government revenue, and that will be reflected in next year's budget, which is going to be a challenge, but at the current oil price we think the government's finances will be okay." (Reuters)

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