PRETTY MUCH EVERYTHING: What Went Wrong at Saudi Arabia’s Futuristic Metropolis in the Desert.
It was supposed to be a launch party for the new Saudi Arabia.
Will Smith, Tom Brady and other celebrities gathered on a sandy island in the Red Sea packed with luxury hotels. Superyachts floated nearby while Alicia Keys played for business executives who had flown in from London and New York. Spotlights blared into the night sky.
The October event was the lavish opening of the first part of Neom, a planned metropolis defined by cutting-edge technology and psychedelic architecture, a cornerstone of the country’s plan to pivot its economy away from oil.
The truth for the project was less glamorous.
The relatively simple, low-rise development, known as Sindalah, was over three years late and on track to cost nearly $4 billion, three times its initial budget. Hotels were unfinished, high winds disrupted ferries and golf, and much of the site was still under construction.
Saudi Crown Prince Mohammed bin Salman, Neom’s mastermind, was a surprise no-show. Neom board documents say the party cost at least $45 million. Many Neom staff viewed his absence as a sign of disapproval.
Weeks later, Neom’s boss of six years, a former crown prince favorite, left the project and a new crew of executives was installed to turn Neom around.
After spending more than $50 billion, the crown prince’s sci-fi-inspired dreams — an arid-mountain ski resort, a floating business district, and the Line, the 106-mile-long pair of Empire State Building-height skyscrapers that is Neom’s centerpiece — have collided with reality.
Ozymandias, call your office.
The accounting gimmickry was knee-deep, too:
Bids on early work from contractors ran high. One way executives hid rising costs was to beef up profit assumptions, according to the internal audit and some of the former employees.
The crown prince encouraged Neom to use a commonly used investment metric known as the internal rate of return, essentially the percentage of an investment that comes back in annual profit. If a hotel costs $1 million to build, and is worth $1.1 million a year later, it would have an IRR of 10%.
At Trojena, the planned ski resort, a fall 2023 review found that costs had surged by over $10 billion, according to an internal presentation reviewed by the Journal. That caused the IRR to fall to 7%, below the project’s target of around 9%.
To cover the gap, estimates for the rate at an “inventive glamping” site were readjusted to $704 a night, up from $216, according to the presentation. A “boutique hiking hotel” room was pegged at $1,866 a night, up from $489. The changes helped to push the IRR up to 9.3%.
The audit said Antoni Vives, who oversaw the broad vision at Neom and then ran Sindalah, justified rising costs with higher assumptions on revenue, rather than reassessing them as too expensive. He told colleagues and McKinsey consultants in an email before a key meeting that “we must not proactively mention cost at all.”
Dissent was also quashed. A Sindalah project manager was “removed after they challenged cost estimates,” the internal audit report found.
An attorney for Vives said that work at Neom “was done with total honesty and with the ambition that the project demands, in addition to absolute loyalty to the leadership of the country.”
“Absolute loyalty” to multibillion-dollar boondoggles that nobody but the well-connected ever asked for gets you… well, something like Neom or four years of the Biden administration.