Saudi Arabia, Opecs top oil producer and the biggest Middle Eastern economy, is releasing payments owed to the contractors after long delays.
Payments have been regularised and will rise in the coming period, media reports cited the kingdoms Finance Minister Ibrahim Al-Assaf as saying in a televised interview on 19 October. The delay in payments was due to technical reasons, the minister said without elaborating.
The interview was broadcast hours after the Saudi government sold $17.5bn in bonds, the largest emerging market debt sale ever, in its first foray into the international bond market. The debt issue did not include Islamic bonds but the government has plans to issue sukuk in the future as one of the ways to cover budget deficit, Al-Assaf said without giving further details.
The delays in payments came after the government was forced to cut costs as price of oil, the main source of revenue for the kingdom, slumped more than 50 per cent from mid-2014 peak of the $115 a barrel. Riyadh capped the award of new projects and withheld payments which created severe cash flow problems. Contractors subsequently cut tens of thousands of jobs and stopped paying wages, which created a labour market crisis and attracted criticism from foreign governments.
The government has now started paying some major construction companies as well as companies outside the construction industry, according to news agency Bloomberg, which cited unnamed sources.
Some companies were told that 30-to-40 per cent of their outstanding dues will be paid this year, while the remainder could be settled in 2017.
Saudi daily Okaz reported last month that the government had started to pay dues owed to Saudi Binladin Group (SBG), the kingdoms biggest construction company, citing Abdullah Basodan, adviser to company Chairman Bakr bin Mohammed Binladin.
SBG and Saudi Oger had both relied heavily on multi-billion dollar state contracting were among the worst affected contracting sector players.
Oger is currently in talks with potential buyers to the sell its stake in Jordans Arab Bank which could help it raise about $1bn. The company owes about SR15bn ($4bn) to banks, plus billions more to contractors, suppliers and employees.