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C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000288 
 
SIPDIS 
 
DEPARTMENT FOR NEA/ARP (HARRIS) 
 
E.O. 12958: DECL: 08/01/2019 
TAGS: ECON EIND EINV SA
SUBJECT: KING ABDULLAH ECONOMIC CITY PROJECT ON LIFE SUPPORT 
 
REF: 08 JEDDAH 0414 
 
JEDDAH 00000288  001.2 OF 002 
 
 
Classified By: CG Martin R. Quinn for reasons 1.4 (b) and (d) 
 
¶1.  (C) Summary.  The King Abdullah Economic City (KAEC) 
megaproject has hit a wall. The project depended on outside 
investment, with the developer, Emaar KSA, providing the 
infrastructure and handling project management.  Since the 
slowdown caused by the global financial crisis, investors 
have held back.  The result is that the project is very much 
behind schedule. Plans articulated as recently as January for 
thousands of residents to move in and schools to open by 
September have been put on ice.  Only a handful of small 
office and multi-unit residential building, all near the 
beach, are completed.  With few if any major investors 
signing on to invest in the city, Emaar may soon be squeezed 
to the point of bowing out or being forced out involuntarily. 
 Rumors and speculation are rife. End summary. 
 
KAEC megaproject is in serious trouble 
-------------------------------------- 
 
¶2.  (SBU) Construction companies working at KAEC tell of 
payment slowdowns and non-payment of invoices by Emaar, 
putting them in the unexpected position of having to lay off 
staff at what is reputed to be the world's largest private 
construction project.  In June Turner Engineering, a KAEC 
contractor, told EconOff that they were being paid late and 
had begun layoffs.  The port project at KAEC has also 
reportedly been delayed, and some in Jeddah believe it will 
never get off the ground since there is no extant commercial 
or industrial activity nearby to justify a second port larger 
than the nearby Jeddah port, a mere 90 minutes away by car to 
the north. 
 
There is nothing out there 
-------------------------- 
 
¶3.  (SBU) Econoff recently met a Saudi woman who bought a 
villa at KAEC two years ago.  She was asked to come out and 
finalize the purchase of the property and visited the site 
for the first time.  Though her villa is ready, as are a 
collection of other units built close to the beach, she said 
there is nothing else out there now and that under the 
circumstances she couldn't envision living there. In fact 
there is no infrastructure, no schools, hospitals, retail 
establishments, etc.  It would be a hardship to reside there 
even for a few days. (Note that the AEI World Forum, presided 
over by Helmut Schmidt, was held at KAEC in early May.  The 
organizers re-purposed an office building into a hotel for 
the event.) 
 
Government's focus is on KAUST, not KAEC 
---------------------------------------- 
 
¶4. (C) On the other hand, the neighboring King Abdullah 
University of Science and Technology (KAUST) is being worked 
on 24/7 in a frantic rush to complete construction in time 
for the September 5 start of classes and the September 23 
grand opening.  King Abdullah recent visit to the site 
touched off reports that he was not pleased by its progress. 
Emaar told EconOff in late 2008 that a significant portion of 
the laborers had been siphoned off from KAEC to assist with 
KAUST -- since waiting for approvals to import additional 
labor would have taken too long.  The labor crunch was cited 
as another contributing factor to the delays at KAEC.  But 
that factor alone cannot account for the failure of KAEC to 
advance.  More critical has been the failure -- in the global 
economic downturn -- to attract the marquee corporate tenants 
that are needed to create jobs and lure skilled workers to 
the distant, desolate desert location. 
 
Rumors that project developer Emaar will be replaced 
--------------------------------------------- ------- 
 
¶5. (C) ConGen contacts have been speculating for months that 
KAEC will run out of money and the King will have to rescue 
it with a direct injection of funds.  Rumors have circulated 
that the Saudi Bin Laden Group or Saudi Aramco will take over 
the management from Emaar.   Each rumor promises an imminent 
announcement but so far there has been none.  Post has heard 
from credible sources in the business community that the 
Royal Commission for Jubail and Yanbu has been asked to take 
over the project from Emaar and that the business community 
 
JEDDAH 00000288  002.2 OF 002 
 
 
would welcome that development.  With three decades of 
experience in developing infrastructure for industrial cities 
in Saudi Arabia and with a reputation for understanding 
private sector investment requirements, the Royal Commission 
is well-placed to drive the build-out of the physical plant 
of the city.  Whether it has the know-how to develop the 
modern, high-quality residential communities that Emaar has 
delivered in Dubai is another story.  For now, one contractor 
speculates that the government is waiting for Emaar to cry 
uncle and beg to be let off the hook rather than asking them 
to leave.  The latter would likely entail a payment to Emaar 
for the estimated one billion dollars it has already sunk 
into the city. 
 
¶6. (C) Comment:  Although some in Jeddah credit rumors that 
the project itself will unravel by the end of August, with 
Ramadan underway, it seems more likely that the saga will 
continue to play out for a few more months.  While there are 
reasons to wonder if KAEC eventually may be abandoned, there 
are examples in Saudi Arabia and other GCC countries of 
megaprojects that eventually were completed after seemingly 
insurmountable challenges.  While KAEC's near prospects are 
in doubt, it is probably too early to write it off 
completely.  In all likelihood, as a project which bears the 
King's name, KAEC will receive additional focus and attention 
from the Saudi government once KAUST opens in September. End 
Comment. 
 
QUINN