EB SPECIAL REPRESENTATIVE MERMOUD TALKS BUSINESS

UNCLAS SECTION 01 OF 03 MUSCAT 000242

SIPDIS

SENSITIVE

STATE FOR EB/CBA, NEA/ARPI
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT
STATE PLEASE PASS USTR/JBUNTIN AND JFENNERTY

E.O. 12958: N/A
TAGS: BEXP ETRD KTDB EINV CVIS ELAB MU
SUBJECT: EB SPECIAL REPRESENTATIVE MERMOUD TALKS BUSINESS
IN OMAN (C-NE4--01168)

REF: MUSCAT 142

Contains Business Sensitive Information. Please handle
accordingly.


1. (SBU) Summary: During recent meetings with senior State
Department official Frank Mermoud, Omani government officials
and members of the local and American business communities
provided valuable insights into the upcoming free trade
agreement (FTA) talks and the issues facing American
companies in the Sultanate. Omanization, training, and visa
policy stood out among the concerns raised. One official
described the abundant opportunities available in the newly
privatized power and water sectors, yet lamented the lack of
American interest in current and upcoming projects. Mr.
Mermoud took the opportunity to register USG interest in
Bechtel's (successful) bid on an aluminum smelter project
with various officials in support of the company's formal
advocacy request. End summary.


2. (U) Department of State Special Representative for
Commercial and Business Affairs J. Frank Mermoud visited Oman
on January 31-February 1 as part of an effort to gauge the
overall climate for American commerce and investment in the
Gulf region. With FTA negotiations slated for the middle of
March in Muscat, this visit served as a reminder of the many
opportunities available to American firms in the Sultanate.
The two-day trip also highlighted additional areas where
American and Omani firms can work with the Embassy to
generate new business.

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Opportunities in the Power and Water Sector
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3. (SBU) Mr. Mermoud's initial meeting was with Bob Bryniak,
the Canadian CEO of the newly established Oman Power and
Water Procurement Company (Oman PWP). Privatization of
electricity and water services is yielding significant new
opportunities for American exports and investment, and two
U.S. firms (AES and PSE&G) are already active in the local
market. Future tenders include a prospective 400-600 MW
power and desalination plant somewhere in the Batinah coastal
region northwest of Muscat; the sale of the government's 585
MW Rusayl power plant; and a desalination project in the
eastern port city of Sur. Bryniak expressed his dismay that
American companies are overlooking the Omani market, despite
Oman PWP's efforts to lure them to the Sultanate. Instead,
British, Canadian, Dutch, Belgian, and other companies appear
to be increasing their presence in the local utilities
market. Bryniak's "wish list" for American firms would
include top names among engineering and technical firms
(e.g., Bechtel, Black & Veatch, Fluor, SAIC, Duke Energy,
etc.),as well as prominent consulting firms specialized in
privatization.

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Dow, Oman Oil Company
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4. (SBU) Mr. Mermoud visited the offices of Oman Oil Company
(OOC) for three separate meetings. The first was with
Assilah al-Harthy, Head of Corporate Affairs for OOC, who
complained bitterly about her poor treatment by Immigration
in the U.S. last spring. Although she claims she will visit
again in March or April 2005, she knows a number of Omanis
are refusing to travel to the U.S. on business for fear of
harassment or delay at American airports.


5. (SBU) The second meeting at OOC involved Bill Ray, the
British CEO of the Oman Petrochemicals Industries Company.
Ray is from the Dow Chemical Company, and he has been on the
job for a mere four weeks as Dow establishes its initial
presence in Oman under the terms of its joint venture with
OOC and the Omani government. Although there are only a
handful of people in Oman developing the project at this
time, the plan calls for up to 700-800 individuals operating
a petrochemical plant in Sohar by the end of the decade (a
figure which could include "several hundred" Americans).
Given Dow's strong commitment to hiring and training Omani
nationals, Mermoud commented that Dow's venture in Oman might
be an excellent future candidate for the Secretary's Award
for Corporate Excellence.


6. (SBU) Lastly, Mr. Mermoud met with OOC Deputy CEO Mulham
al-Jarf, who offered a positive outlook on U.S. investor
interest in Oman. He said the lower dollar was finally
beginning to pay some dividends for U.S. bidders. He gave
Bechtel's bid on the aluminum smelter project (partly owned
by OOC) a favorable review, and likewise noted that upstream
gas firm IHS Energy (based in Colorado) had recently been in
talks with OOC on a project. Al-Jarf shared a privately
commissioned study on the downstream manufacturing potential
for gas-fed industries in the Sohar Industrial Port area. A
schematic listed over 50 different products, ranging from
antioxidants to yarn, that can eventually spin out from the
industries going in to Sohar. Each family of products could
support foreign and Omani firms and employ many times the
number of personnel currently envisioned.

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Chambers of Commerce
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7. (SBU) Mr. Mermoud met with the President and Secretary of
the Muscat American Business Council (MABC) over dinner.
Both men raised concerns about the Omani government
Omanization policy and the implication for hiring qualified
workers, developing training programs, and budgeting for
business expansions. They also expressed an interest in
hearing about the Administration's plans to engage more
forcefully in the dialogue between Israel and the
Palestinians, as well as the need to assure stability in
Iraq. The MABC President indirectly raised USG visa policy
by stating his fear that the United States is failing to
attract enough businesspeople and students from the Arab
world.


8. (SBU) Mr. Mermoud traded thoughts on the FTA with Oman
Chamber of Commerce and Industry (OCCI) President Salim
al-Ghattami. Ghattami, who interrupted his attendance at an
out-of-town conference to meet with Mermoud, warmly welcomed
the opportunity to engage in dialogue on the FTA, which he
feels will be critical to the eventual success of the
negotiations. He was pleased with the Omani government's
preparations for FTA negotiations, including the fact that a
private sector representative from the OCCI will be a member
of the Omani negotiating team. He said the Chamber was
striving to be a transmission belt of private sector
questions and concerns about the FTA. Ghattami hopes the
U.S.-Oman treaty will create the job-growth seen in countries
such as Jordan, and attract large U.S. investments similar to
Dow's. While the Dow plant itself may not create lots of
jobs, he is confident it will foster spin-offs that multiply
job opportunities. Ghattami made a strong pitch to build
closer linkages between the OCCI and U.S. chambers of
commerce.

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Labor Concerns
--------------


9. (SBU) Mirroring concerns Mermoud heard elsewhere, Omani
businessman Rishi Khimji, of the Ajit Khimji Group of
Companies and the MABC Executive Committee, shared his
worries about the labor-related aspects of the FTA. He felt
that Omani regulations already give overwhelming advantages
to workers, particularly Omani nationals, and that labor
unions or other entities will make it even harder for
employers to fire non-performing or redundant staff. He was
also worried about the newly instituted workers
representative committees (reftel),whose every activity is
closely regulated by the government. He feared those
committees may give the government an open door to learn
about the inner workings of companies, particularly if a
member of the committee has an axe to grind against his
employer. While supportive of workers rights, Khimji said
the critical difference will be made in how the Omani
government implements its labor commitments. As for other
aspects of the FTA, Khimji was not concerned about any
adverse effect on the services sector apart from expected
losses in his own laundry operations, which are dependent
upon the rapidly disappearing Omani garment industry.
Regarding U.S. commercial opportunities, he was disappointed
at the lack of response when his company seeks a U.S.
supplier or partner in various deals, which he attributes to
the unattractiveness of Oman's small market.


10. (SBU) Mr. Mermoud ended his trip with a visit to the
local office of Halliburton to meet with senior manager Bud
Bierhaus, another MABC Executive Committee member who is soon
to be announced as the new head of South Gulf operations for
the company. Halliburton recently won several large
contracts with Petroleum Development Oman (PDO),the majority
state-owned oil company, which marks the first successful
back-to-back contracts in the company's experience in Oman.
Nonetheless, Halliburton remains concerned that "political
processes" within PDO prevented the firm from winning even
greater contracts. Mr. Mermoud suggested ways in which
Halliburton could work to reverse the damage of its
association with troubles in Iraq: touting its outstanding
Omanization record, for example. Other concerns voiced by
Bierhaus centered around labor and the excessive restrictions
on firing employees. Bierhaus asserted that labor rights
will be a big issue for Halliburton in the upcoming FTA
negotiations.

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Comment
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11. (SBU) Frank Mermoud's visit to Oman provided a glimpse at
the future potential for American business in the Sultanate.
Much of this potential remains untapped due to an apparent
lack of interest by U.S. firms that are busy seeking more
lucrative markets in the region. For those American
companies present in Oman, labor issues dominate their
concerns. As FTA negotiations begin in earnest, we will seek
to address these concerns while attracting greater interest
in Oman from the U.S. private sector.
BALTIMORE