* Mass transit scheme was to cost $16.5 billion
* Now using cheaper materials in some areas
* No indication of how long delay will be
* Saudi projects suffering from government spending cuts
* Construction industry severely squeezed

A $16.5 billion mass transit project planned for Saudi Arabia's holy city of Makkah has been delayed so that its financing can be restructured, the head of the implementing body said on Wednesday.

The kingdom has been slowing infrastructure projects and paring back state spending as it grapples with the economic fall-out of two years of depressed oil prices.

‘The reason for the delay is some restructuring financially,’ Ali Abdelfattah, chief executive-designate of the Saudi government's Makkah Mass Rail Transit (MMRT), told a conference in Dubai.

Speaking more generally, Abdelfattah said that while work on privately funded schemes was largely unaffected in the kingdom, all government-funded projects were going through some sort of restructuring or replanning.

The Makkah plan includes building a metro rail system with 182 kilometres (114 miles) of track and 88 stations, according to an October 2015 document from MMRT, as well as a bus network. It was due to be completed in six phases over about 20 years. Major contracts for the project have not yet been awarded.

New budgeting constraints have caused changes to the Makkah plan such as modifications to the design of the metro stations, including those set to serve the area of the Grand Mosque, also known as al-Haram.

‘Initially we wanted something really iconic, especially for al-Haram main stations, and we found out it would be extremely expensive so we scaled down the finishing, the materials,’ Abdelfattah said.

There was no indication for how long the Makkah project would be delayed, but Abdelfattah added that the project was a top priority for the Saudi government.

The Saudi construction sector is being heavily squeezed by the cut-back in state spending, with contractors reporting reduced project pipelines, delays in receiving payments from the government and workers going months without being paid.