Neom, Pt 2: The Emperor’s New Clothes

0:08Tony Harris, the education expert you heard from in the last episode, was just a few months into his job at NEOM when he got his first real impression of the project's CEO, Nadmi al-Nasir. He called all of us together. And at that point, I think there were about between 400 and 500 people at the camp at that time. The denizens of Neom piled into the camp's cafeteria. Saudis, expats. He called everyone together, and he literally started screaming and shouting. It was as though your four-year-old was having a tantrum on the floor. What was he saying when he was yelling? He was admonishing people for not working hard enough, essentially was his message.

0:56And what was going through my mind was, this can't actually be happening. And I thought to myself, okay, very soon what's going to happen? He's going to stop his performing, and somebody's going to come in, and there's going to be some interesting intervention, and there's going to be some little lesson about how not to manage. But oh no, this was for real. This was for real. I was shocked. I mean, you know, I have lived all over the world. I've taught all over the world. I've encountered people from different cultures. I've never seen anything like this.

1:46Nadmi Al-Nassar has built a reputation over the decades of getting things done. Reporter Rory Jones. Like, he is a doer who is going to execute, and he's going to bludgeon his way through whatever project he's working on, and he's going to get it finished on budget and on time. And this is the kind of guy that MBS brings into the project pretty early on. Mohammed bin Salman, Saudi Arabia's crown prince, was on a mission to construct what amounted to a brand new, futuristic city-state within his country. Neom was his vision, his baby. But every visionary needs a right-hand man. MBS's was Nadmi.

2:33Nadmi, everyone we talked to who called him by his first name, became Neom's CEO in 2018. He's an engineer by training, with round glasses and a trim salt-and-pepper mustache. He came to the CEO job with a track record of delivering on big projects. He'd expanded Saudi Arabia's biggest oil field in the 90s and built a new university complex on the Red Sea. And according to Rory's reporting, he made no apologies for his, let's call it aggressive management style. We heard this recording of Nadmi describing how he runs projects. and he says, I drive my people like slaves. That's how I get my projects done.

3:15I drive everybody like a slave. And when they drop down dead, I celebrate. That's me. When they drop down dead, I celebrate, said Nodmi in a private meeting. We reached out to him for an interview, but he didn't respond. People like Tony and Andy, the ski executive, had moved thousands of miles from home to the middle of the desert to help build Neom. But they were quickly realizing that there was something strange about this place. It wasn't just the project's screaming CEO. Neom was also bleeding money. Dysfunction reigned. And very little was actually being built. How long did it take you before you started to think, this is not something that I want to be part of?

4:06He was in the neighborhood of maybe a month and a half, two months. That quickly? Oh yeah. And that's, I'm actually probably being generous. I think that honeymoon period lasted for probably a month or so. And then we started asking questions.

4:30Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Saturday, April 26th.

4:45This episode is the second in our two-part deep dive into neon. Today's episode, The Emperor's New Clothes.

5:16To Tony, one of the most surprising things about NEOM was how people approached spending. One of the things that emerged, which I found absolutely fascinating, was one of the most important metrics NEOM uses to evaluate projects is the speed at which you spend money. Now, just let that sink in a little bit. The speed at which you spend money. It's not about how effective was the project, how many people did it reach, how many lives did it change. No, it's about how quickly you spend money. Were you spending enough money? No, we couldn't spend money quickly enough. We could not spend money quickly enough.

6:08Tony recalls one project he worked on, a hackathon and online leadership program for kids. The idea was to promote NEOM's education efforts. There really weren't any kids at NEOM yet, since it was still mostly a construction site, so the leadership program was online. And when Tony learned how much he'd been authorized to spend on it, he was flabbergasted. half a million dollars. In my world, it would have been about 10 % of that. $50 ,000. Yes, instead of 10 times that. So I went with the flow, believe me. Did you spend half a million dollars? Yes. And look, it was a successful project, as it should have been.

6:53Half a million dollars for some online webinars.

7:00For Andy, over at Neom's Mountain Development, it was the same story. It was, gosh, a couple months into it, we had these, I think, there's something like a town hall meeting. As Andy remembers it, Nodmi had called all of Neom's sector heads together. Andy, plus the heads of the sports sector, the health sector, biotech, energy. Nodmi's message? It was, if each of the sector heads don't spend the money that was allocated in this quote-unquote fiscal year, it'll be brought before the founding board to explain why. And for this fiscal year, calendar year, I think I was supposed to have spent$600 or$700 million.

7:42$600 or$700 million. Andy says he'd only managed to spend$200 ,000 or$300 ,000. And I can feasibly conceive of a way to expend that sum of money between July and the end of that year. Why did they want you to spend so much money? Oh, you know, even in our country, you have the government approach to, if you don't, you know, spend it or lose it. But it was, I think it was honestly an embarrassment to nod me. It was an expression of progress to have expended these funds. And therefore, if they weren't expended, that would be a very direct indication of a lack of progress. Money's being spent, and therefore we are working.

8:24Yes. Evidence. That's right. What were you spending money on in the time that you were there? Consultants and master planners and subcontractors to feed the master planning process. In 2024, Neom would conduct an internal audit, and the auditors would call out this culture of spending. They described Neom's CEO, Nodmi, as having a, quote, spend-the-budget strategy. But very little of that budget was actually going to build stuff. Instead, it was going to consultants. Remember, consultants had played a key role in the early days, coming up with ideas for Neom. But years into the project, Neom had its own staff of experts, people like Tony and Andy.

9:12And still, Neom's executives leaned heavily on consultants. According to people familiar with Neom's spending, in a single year, Neom paid McKinsey$130 million. and price Waterhouse Cooper's$260 million. Here's Tony again. They didn't want us to make any decisions. What they did want us to do was to hire one of the aforementioned consulting companies to research the issue and make a recommendation. Why? Very, very curious. Now, I thought about that myself. One reason Tony eventually concluded was that it was a way for Neal's bosses to protect themselves. If the project fails or there's a problem, I can always turn around and say, look, it's not me.

10:02We paid these guys and their associates. Don't blame me. Nobody ever wants to take responsibility. And one understands why not. Because the system of management over there is ruthless. and so people are afraid to make decisions. Make a mistake and you might just find yourself being berated by Nadmi. According to people who worked with him, Nadmi once told an executive in a meeting to walk out into the desert and die so that he could urinate on his grave. Another time, after a deal fell through, he gathered his staff and demanded to know why he hadn't been given a heads up. He said, quote, if you don't tell me who is responsible, I'm going to take a gun from under my desk and shoot you.

10:53This is according to people with knowledge in the meeting. It was full-on, the shining, Jack Nicholson-type stuff. As one of Nonmi's direct reports, Andy says he both witnessed and was on the receiving end of the CEO's wrath. I never even conceived of somebody in a leadership role having this disposition. I didn't think it would actually ever exist. I never thought I'd actually see it. What impact do you think that his style had on the overall project and the people who work there? The impact it had on everybody in the organization was one of constant fear. Constantly, anywhere near his presence, walking on eggshells and or ice.

11:35You just didn't know if it was going to break through and he was going to lose his s**t. Neom says employee welfare is a top priority and that workers are encouraged to anonymously voice concerns. A spokeswoman also said the project has a, quote, robust governance framework, unquote, and takes expert advice into consideration when making decisions.

11:56Neom's designs were ambitious, and that was also true for Neom Mountain. Soon after joining the project, Andy got his first real peek at the plans for the mountain region. And they were an eyefall. They were intriguing. They were extremely creative. extremely out there. And I'm an open-minded fella. Some of them seemed outlandish. Some of them seemed very creative. They included plans for something called The Vault, a glittering glass building filled with stores and hotels that Andy said they were going to have to dynamite part of a mountain to build. My first thought was, huh, who's going to come here for this?

12:39Why would you actually go to Saudi Arabia from anywhere to go to this? and it just didn't make any sense. Mm-hmm. Did you think it looked cool? No. I thought it looked ludicrous. It looks inane. It was actually, it was just, let me go straight to it. It looked idiotic. The master plan also called for an artificial lake with a dam that bowed outward in defiance of traditional engineering. Plus, that desert ski resort Andy was trying to build. And that wasn't all. Talk about the palaces. So you ask about the palaces, but you have to bundle them together with the mansions. I found out that we were to build, I think it was the neighborhood of 40 mansions and 15 palaces in the mountain environment.

13:30The Wall Street Journal obtained some early concept art for these mansions and palaces, and the designs are wild. One palace looks like a ribbon of molten metal suspended over a canyon. Another reminded me of the Eye of Sauron from the Lord of the Rings, a pointy black tower with a red light beaming out the top. Who's buying these, by the way? To Andy, the mansions and palaces just didn't make sense. Because there was no demand model. There's no sensibility to it. So honestly, it was an extremely perfect, more of the same stupidity, way of thinking that seemed to permeate the project. Neom Mountain was getting more expensive.

14:13It's a trend that would continue long after Andy left the project. Reporter Elliot Brown saw some internal Neom documents from 2023. By this time, Neom Mountain had been renamed Trojena. So in 2021, the documents estimate that Trojena was going to cost about$18 billion, and then by 2022, it's jumped up to$27 billion, And then by 2023, toward the end of the year, when this presentation's from, it is$39 billion. And this was happening at projects all across Neom. But as Neom's costs ballooned, it didn't seem to change the project's course. That 2024 audit Neom conducted suggests one reason why. Elliott got a look at a version of that audit.

15:03It was labeled Final Draft. And it's pretty damning. According to NEOM's auditors and Elliott's own reporting, as costs rose, rather than push for cutbacks to NEOM, executives sometimes just fudge the numbers. So there was this measure that the crown prince really cared about. It's called IRR, or Internal Rate of Return, that's very commonly used by real estate developers and private equity. IRRs are basically the percentage of a project's costs that come back to you every year as profit. Now, a lot of what Saudi Arabia was spending on at Neom wasn't supposed to make money. It was infrastructure, stuff like roads and utilities.

15:44But other stuff definitely was supposed to be profitable, like the hotels or the apartments they were going to sell on the line. They wanted to have these buildings make money, so they said everything needs to get, you know, around 9 % IRR. As Neom's costs grew, Elliott's reporting shows that executives manipulated the IRRs to keep them around that 9 % sweet spot. So you can see this with Trojana. In this fall 2023 document we have, you can see that they had a glamping site. Glamping, like this is sort of, you know, what do they call it, glamorous camping, like sort of fancy tents? Yeah, and they originally were estimating that they'd get$216 a night.

16:29Well, after costs went up, they looked at it closer and said, well, actually, we were readjusting that to$704 a night. $704 a night for glamping. Must be really glammed up.

16:47A boutique hiking hotel. The rooms were originally targeted for$489 a night. And, you know, then they said, actually, we're going to get$1 ,866 a night. It fixed the problem because the costs had hurt the IRR, and it was down to 7%. And then they added the changes to the hotel rooms, and it brought them up to 9.3%. How widespread was this practice? It was common. We've talked to a lot of people who took part in it. Manipulating the IRRs meant that Neom's executives didn't have to confront their higher-ups, MBS in particular, with the realities of cost. An added dollar of projected cost could just be balanced out by another dollar of expected profit.

17:35They could keep the Neom dream going, buoyed by fuzzy math. Elliott says it's an arrangement that seemed to suit both MBS and the people working for him. We call it a mutual dance of delusion. The crown prince would go to the people running Neom and say, I want completely crazy architecture that defies what we know about how buildings are built, as though it could sort of get done realistically. And then they would, you know, according to this audit and, you know, the former employees we talked to, essentially delude him with how well it was looking on paper. Elliott calls it a mutual dance of delusion.

18:15Tony Harris has another term for it. The emperor has no clothes. To Tony, MBS was the emperor in the fable, parading around in the nude while his advisors complimented him on his new suit. And nowhere was this dynamic more evident than with the line, MBS's plan for those massive parallel skyscrapers running 106 miles into the desert. Come on, nobody's going to live in a structure like that. When you're inside there, it's going to have the atmosphere of an airport terminal or a shopping mall. Tony didn't work on the line, but the schools he was building were supposed to be housed in it.

18:56From the beginning, people at NEOM had concerns about the line. You get a flavor of them in an internal document Rory and Elliot saw. They collected staff feedback on the design after MBS first proposed it. At the end of the document, they have 20 pages of comments sort of highlighting risks and concerns. A lot of the comments were bordering on disbelief, essentially. One of them I remember was like, cost will be astronomical. Will mean Neom will need to absorb significant building infrastructure costs as sunk investment to attract investment. Another one was like, we're letting design lead use.

19:33Use will usually drive design. We are using design to drive use. People are saying, we're really not building something here that people are one of going to live and work in were really letting our imagination drive the thinking here. People also singled out practical issues. The line would negatively affect Neom's wind farm. Because the height and continuous nature of the line will create windshade when wind comes from the north or south. Many, many birds would die. The large mirrored surface of the walls of the structure would likely cause extensive losses in bird populations due to bird strikes.

20:13So were there concerns? There were an enormous number of concerns. The question is more how deeply did those get voiced at the top? According to Rory and Elliot's reporting, the answer is not so much. Instead, MBS's executives shielded him from the full scope of Neom's challenges and costs. To Tony, it was baffling. Right in front of us is this craziness. If someone would just say to him, it's not a good idea to build a middle school 300 meters up in the sky in a glass tunnel in the middle of the desert. That doesn't sound like a great idea, does it? Did you have an urge or any ability to be the one to say that?

21:09the urges were always there but if you wanted your job i mean they brooked absolutely no dissension zero the slightest wavering the slightest sign of resistance you were out on your ear and that was made very very clear how do they make it clear that you'd be sort of fired if there was any dissent. By witnessing people who were fired? Elliot and Roy's reporting confirms that employees were often fired for challenging higher-ups on Neom's costs and feasibility. A Neom spokeswoman said that Neom, quote, champions excellence, professionalism, diversity, and ethical conduct, end quote, and requires staff to uphold those values.

21:55Did anybody around MBS play the role of bad cop? To the best of my knowledge, no. Ski executive Andy Wirth again. So that must have been a strange position for you to be in working in this. Like your job is to build out this resort. But like it's only a few months in where you're starting to see, well, this isn't possible. Yeah, they're not plausible. They're not possible. They're lunacy and more. But so what do you do as an executive who has a history of getting things done in an environment where you don't think the goals are achievable? Try and change it. Did you try to change it? Yes.

22:38How that went is after the break.

22:58One of Andy's favorite things to do at Neom was go hiking up in the mountains. I just love getting into the backcountry. And I did that many times alone, just solo hiking back there. Sometimes he'd camp overnight. One of his favorite spots was a literal oasis with palm trees jutting out of the desert rock. The hikes irked his boss, Nodmi. I got in so much trouble with Nodmi, which I didn't care at all about him and getting in trouble with him. It was something I found great pleasure in, actually, by the time I left. Andy was quickly souring on Neom. The plans for Neom Mountain just didn't make sense to him.

23:34And he was increasingly worried about their impact on Neom's pristine mountains. These areas, Ryan, are beautiful. They are absolutely gorgeous and beautiful. And, you know, if you go to parts of Arizona and you see high mountain desert and you see the mountainous areas, whether they be Red Rock or other, they're still starkly beautiful. This area is beautiful. If you and I had gone to Moab, Utah in the 30s before mountain cut bikes were even conceived of, this is what that was like. It was warm because it was June, July, August. I didn't mind that. But it was intriguing. I thought it was beautiful.

24:12And to go in there and to destroy it made no sense. And frankly, quickly became quite angered about the whole deal. Andy spent much of his career running ski resorts. So he's definitely not the kind of environmentalist who wants to shut people out of nature. He wants them in it. But not at the expense of destroying a place. He believes development can and should be balanced with conservation. And he was not seeing that balance at Neomountain. Not only was it creative stupid, it was creative destructively. What was the thing that would have destroyed it the most? Of the top 10, vault number one, the lake number two, number three, some of the other smaller, if you will, developments, the hospitality property.

25:06It's so much in the way of high explosives and destruction of a landscape that it's hard to even conceive of. And then Andy learned that MBS himself knew these mountains. I found out from some of the folks close to the royal family that the crown prince had spent many of his formative years around this area. And so I started developing an appeal to him directly, to MBS, to shut down some of these things that were just lunatic and appeal to his direct sensibilities on this and maybe a place that had fond childhood memories. So I started crafting a message to go directly to him, to Mohammed bin Salman.

25:45Andy's proposal was essentially to throw out the master plan for Neo Mountain. There would be no vault, no lake. Instead, they'd play up the natural beauty of what they had. The plan would be much cheaper, and in Andy's view, still achieve Neom's goals. He began developing his pitch in secret. And then he says Nodmi got wind of it. Word got out, and he absolutely, bleeding from his eyeballs, screaming. At you. Oh, yeah. To your face. Yeah, which happened all the time with me, and it didn't matter to me. I made the mistake of laughing at him a couple times because it was actually funny to watch doing this kind of in his mode.

26:27But yeah, it drove him batshit crazy when I advanced that thought. Because there was just no way I could get this two-page document rationalizing a different approach to the mountain region. I could not get that to the Crown Prince without going through Nodmi's desk.