Neom terminates $1bn tunnel contract at heart of The Line

• Hyundai received formal notice
• Settlement for completed work
• Neom projects still under review

Saudi Arabia’s Neom has cancelled a roughly $1 billion tunnelling contract at the heart of its flagship “The Line” giga-project, according to public documents.

South Korea-listed Hyundai Engineering & Construction said in a market filing on March 13 it had received formal notice from Neom a day earlier that a June 2022 contract had been terminated as part of a restructuring.

Neom has been contacted for comment.

The cancellation comes against a deteriorating fiscal backdrop. Riyadh has been reviewing giga-project spending since 2024, after years of heavy spending ran into rising costs, execution hurdles and lower crude prices that squeezed budgets – exposing international contractors to cancellations. 

The Iran-Israel war has compounded that pressure, disrupting Strait of Hormuz shipping and constraining crude exports from Saudi Arabia, the world’s second-largest oil producer, even as Brent surged towards $120 a barrel before easing to around $100. 

Hyundai was part of a consortium with engineering and construction firms Samsung C&T and Greece-based Archirodon.

Its share of the contract was worth approximately $540 million, out of a total value of about $1 billion.

The contractor said settlement for work already completed had been finalised. Other consortium members have been contacted for comment.

“The contract termination is due to the client’s business restructuring,” Hyundai said in its disclosure.

“There has been no financial loss for the company to date. However, details of the termination amount and other specific settlement terms have been withheld from disclosure due to confidentiality clauses in the contract.”

Neom

The tunnelling works were part of a broader package to deliver more than 28 kilometres of underground infrastructure, including separate tunnels for high-speed passenger and freight rail, which Neom had said would make the movement of people and goods “faster, safer and easier”.

Excavated rock from the project was to be reused in tunnel linings and other construction works within Neom to minimise environmental impact.

“The sheer scope and scale of the tunnelling work to be undertaken highlights the complexity and ambition of the project,” Nadhmi Al-Nasr, Neom’s CEO at the time, said of the awarding of the contract. 

Neom, the $500 billion futuristic desert city, backed by the $1 trillion Public Investment Fund (PIF), is a centrepiece in Crown Prince Mohammed bin Salman’s Vision 2030 plan to diversify the economy away from oil and attract foreign direct investment (FDI).

However, Saudi Arabia’s foreign inflows remain below target, with net FDI at 72 billion riyals ($19 billion) in the first nine months of 2025, far short of the $100 billion annual goal.

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Neom groups the Oxagon, Trojena, Sindalah, Magna and The Line projects in a 26,500 square kilometre Red Sea zone – more than 30 times the size of Singapore.

Oxagon has been built, while the rest of Neom is being restructured and jobs are being cut. 

Mohammed Al-Jadaan, the Saudi finance minister, told the Future Investment Initiative in Riyadh in 2024 that “Neom is a 50-plus-year plan”, adding that anyone expecting the project “in its grand size” to be built, fully operational and profitable within five years was “foolish”.

“We are not foolish. We are wise people,” he added.

At a board meeting in late 2024, PIF approved sharp cuts to project budgets – some by as much as 60 percent.

Last month, in a first public acknowledgement of shift in priorities, Khalid Al Falih, Saudi’s former investment minister, now replaced by Fahad AlSaif, said Neom and The Line have been pushed down the pecking order as the state diverts spending toward construction needed for the 2034 World Cup and Expo 2030.

Contracts issued by PIF have fallen sharply since last year.