The Middle East is no stranger to large-scale infrastructure ambition. Saudi Arabia’s Vision 2030 has catalysed a generation of megaprojects — from giga-developments to energy transition initiatives — that depend on long-term financial models built years before construction begins. But as regional and global disruptions reshape logistics networks, freight costs, and supply chains, the assumptions underpinning those models are under pressure.
Is your financial framework resilient enough to absorb that shift without derailing the project?
The Advisory team at BDO Saudi Arabia prepared this overview to help protect the economics of major projects for project sponsors, CFOs, and business leaders navigating financial uncertainty in changing market conditions.
Financial assumptions that look solid until they do not
In large projects, minor cost changes rarely stay minor. They compound across financial models, inflating CAPEX, compressing margins, and threatening debt serviceability. When logistics conditions change, three categories of assumptions warrant immediate attention.
- Capital expenditure tied to imported equipment and materials
Projects that reached financial close under a different global supply environment are particularly exposed when pricing was fixed without adequate indexation. A contract signed two years ago may reflect freight rates, insurance premiums, and lead times that bear little resemblance to today’s reality. - Contingency provisions
Industry norms typically set these at 5–15% of project cost — a range calibrated for manageable, project-specific risks rather than systemic shocks. When freight and insurance premiums rise in tandem with broader disruption, those buffers can erode faster than anticipated. Whether current provisions can sustain these pressures without triggering a funding shortfall is a question that should be tested before it becomes urgent. - Operation and maintenance cost escalation across the concession period
For projects where energy inputs, spare parts, and skilled labour are import-dependent, long-term operation and maintenance forecasts built on stable supply assumptions may significantly understate future costs.
Equally important — and often overlooked — is the review of force majeure and change-in-law provisions within the concession agreement itself. These clauses determine whether relief for additional logistical costs can legitimately be sought from the public authority, and understanding that entitlement before entering any discussion is a strategic advantage.
Assessing viability: what a structured reassessment should cover
When supply conditions shift materially, a qualitative assessment is not enough. Project economics need to be rerun with updated inputs to generate a revised and defensible view of financial performance.
That reassessment should begin with rebuilding the base-case scenario using current logistics, procurement, and financing assumptions, then tracing the effect on IRR and DSCR across the full concession term. The objective is not simply to identify deterioration, but to quantify it precisely enough to support decision-making.
If revised returns breach lender covenants or fall below equity hurdle rates, the appropriate response is proactive engagement rather than delay. Renegotiation with the procuring authority or financing parties is far more productive when initiated early, before covenant breaches become formal defaults.
Before any renegotiation, however, sponsors should fully map the relief already available contractually. Price adjustment mechanisms and indexation clauses may provide cost recovery without requiring formal amendment, and understanding that baseline is essential before any external discussion.
One dimension often underweighted in this process is refinancing risk. A shift in a project’s cost profile can affect its risk rating and the terms on which future refinancing becomes available. Where refinancing is anticipated within the concession period, the assumptions underpinning those future terms should be revisited to ensure they remain realistic under the new financial outlook.
Scenario planning: from risk tool to strategic asset
The instinct in a disrupted environment is to react — to update the model once, agree a revised position, and move forward. That instinct, however well-intentioned, leaves projects exposed to the next disruption.
The more durable approach is to integrate scenario planning as a continuous discipline across the project lifecycle, rather than deploying it only when a crisis has already materialised.
During procurement, scenario modelling gives sponsors and public authorities the analytical foundation to negotiate more resilient risk-sharing frameworks from the outset, particularly around cost pass-through mechanisms and availability payment structures. The risks that are hardest to manage mid-project are often those allocated too hastily at financial close.
Once the project is operational, scenario planning serves a different function: establishing predefined trigger thresholds that allow sponsors to activate contingency measures before financial covenants are breached. For example, identifying the logistics cost increase level at which DSCR falls to a critical threshold creates the conditions for a measured, pre-planned response rather than a reactive one. The difference in outcomes — financial, reputational, and relational — can be significant.
When disruptions do alter project economics to the point where concession amendments or government support become necessary, scenario analysis provides the structured, evidence-based foundation those discussions require. Requests grounded in rigorous financial modelling are meaningfully more likely to be considered than those presented as estimates or projections without analytical support.
The broader point for Saudi Arabia
Saudi Arabia’s project pipeline is among the most ambitious in the world. The scale of that ambition creates both opportunity and complexity — and the companies most likely to protect the economics of their investments are those that treat financial resilience as an ongoing management discipline, not a one-time exercise at financial close.
Stress-testing assumptions, reassessing viability under new conditions, and deploying scenario planning across the project lifecycle are not defensive measures. They are the foundations of informed decision-making in an environment where conditions continue to evolve.
How BDO Saudi Arabia can help
BDO Saudi Arabia works with project sponsors, investors, and public authorities across the Kingdom to provide the financial modelling, advisory, and assurance support that large projects require at every stage of their lifecycle.
For more information on how BDO Saudi Arabia can support your project portfolio, please contact our advisory team.
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