SALALAH PINS ECONOMIC HOPES ON PORT, FREE ZONE,

UNCLAS MUSCAT 001510

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ARP, EB/CBA
COMMERCE FOR ITA COBERG

E.O. 12958: N/A
TAGS: ECON EINV EIND EWWT PREL MU
SUBJECT: SALALAH PINS ECONOMIC HOPES ON PORT, FREE ZONE,
AND TOURISM DEVELOPMENT


This message contains sensitive business information. Please
protect accordingly.

--------------
SUMMARY
--------------


1. (U) The city of Salalah is banking on the growth of its
port, free zone, and tourism industries in ongoing efforts to
develop its economy. Government and private sector officials
express confidence that proposed investments in these sectors
will reshape Salalah by 2010 and position the region for
sustained economic growth. End Summary.

--------------
PORT EXPANSION CONTINUES
--------------


2. (SBU) On October 8-9, Econoff and POLE Assistant traveled
to the coastal city of Salalah in far southern Oman to review
key development projects and plans with government and
private sector stakeholders. The current anchor of Salalah's
future is the Port of Salalah, which has risen to become a
key transshipment hub for Maersk Sealand and its parent
company A.P. Moller (APM). In 2005, the port handled 2.49
million 20-foot equivalent units (TEUs),ranking it as the
world's 34th busiest terminal. Virtually all business is
transshipment in nature, though it does provide import/export
services for Salalah's few main industries, including Raysut
Cement, Salalah Mills, and Dhofar Fisheries. The port also
generates intermodal business for priority land shipments to
Jebel Ali in Dubai and Bahrain, which shaves 2 to 3 days off
of transit time.


3. (SBU) Marco Neelman, Planning Director for the Port of
Salalah, confirmed that plans to expand port capacity remain
on-track. The port will add two berths to the existing four
currently in operation by the first quarter of 2008, with the
fifth expected to come on-line by the first quarter of 2007.
Once completed, the $234 million expansion, shared roughly
evenly between the Port of Salalah and the Omani government,
will increase capacity by 1.8 million TEUs, bringing total
capacity to 4.38 million TEUs. The Port of Salalah continues
to contemplate building an additional three berths with a
2.99 million TEU capacity should demand continue to rise.

--------------
FREE ZONE TAKING SHAPE
--------------


4. (U) Complementing the port's growth is the formation of a
free zone. Salalah Free Zone Company (SFZC) technical
advisor Shahzada Irshad Mohammed outlined the company's
efforts to promote the free zone to prospective tenants.
Mohammed noted that the master plan, embodied in a June 2005
Royal Decree, called for the development of two land parcels
-- one approximately 800 hectares in size, the other roughly
1900 hectares. He commented that the SFZC was presently
working with the government to finish the first phase of the
project, which includes the establishment of roads and
utility lines, as well as the leveling of industrial plots.


5. (U) Mohammed also highlighted SFZC's efforts to finalize a
competitive incentive package to entice tenants. The
package, which has yet to be officially approved by the Omani
government, would include a 30-year tax holiday, duty-free
treatment of imports and exports, permission for 100% foreign
ownership, and tax-free repatriation of profits.
Furthermore, Mohammed added that the SFZC has teamed up with
the Ministry of Commerce and Industry to establish a one-stop
shop for business registration, and has secured from the
Ministry of Regional Municipalities, Environment, and Water
Resources an expedited environmental impact assessment
approval mechanism. Finally, Mohammed stated that SFZ
investors would only be subject to a 10% Omanization
requirement.


6. (SBU) With these incentives, Mohammed noted that the SFZC
had already signed three anchor tenants: U.S.-based Octal
Petrochemicals, India-based TVS Group, and
government-supported Salalah Methanol. He remarked that SFZC
also had finalized a contract with an herbal medicine
producer and was close to concluding a contract with a steel
company. With heavy industry "locked-up," Mohammed stated
that the SFZC would turn its sights to developing downstream
industries. In addition, through the June 2006 signing of a
memorandum of understanding, the SFZC is exploring ways to
partner with the successful Jebel Ali Free Zone.


--------------
TOURISM NUMBERS PROMISING
--------------


7. (U) Aside from port and free zone development, government
officials are depending on the growth of tourism for further
economic development. Akram Hassan Abdullah al-Murazza,
Director General of Commerce and Industry for the Dhofar
Governate, Ministry of Commerce and Industry, noted that by
2010, "Salalah will have another face." He highlighted
government plans to promote tourism through the construction
of a new $60 million passenger airline terminal capable of
handling 2 million passengers per year. Khalid al-Rawas,
Director General of Tourism for the Dhofar Governate,
Ministry of Tourism, stated that the government anticipates
opening the new terminal by the time four new tourism
projects come on-line. Egyptian-based ORASCOM is developing
a resort complex that will include three five-star hotels, a
marina, commercial complex, 18-hole golf course, and
residential housing. Construction is set to begin at the
start of 2007. Complementing this project will be the
construction of an exclusive resort on the island of Suda
(just off the coast from Salalah),a 200-room hotel in the
nearby town of Mirbat, and a commercial complex in Salalah.


8. (SBU) Edward Chaaya, General Manager of the Salalah Crowne
Plaza Hotel, echoed the potential of Salalah's tourism
industry. He commented that awareness of Salalah as a
destination was growing, in part due to successful efforts in
attracting a weekly Swedish charter flight. With the
addition of this seasonal service, Chaaya noted that his
property's yearly occupancy rate had doubled from 40% to 80%.
Coupled with the growth of the port and the development of
the free zone, Chaaya remarked that both his hotel and the
Salalah Hilton would be expanding by 100-200 rooms to
accommodate increased demand. (Note: Chaaya currently turns
away 15% of the Swedish tour operator's business. End Note.)
He speculated that with the various hotel projects on tap,
Salalah would mature as a tourist destination by 2015.

--------------
COMMENT
--------------


9. (SBU) Salalah's officials were eager to promote their city
as an up and coming destination for economic growth, and
recent gains in each of the highlighted sectors appear to
support this enthusiasm. The Port of Salalah continues to
grow in terms of cargo handled on a transshipment basis. The
Port holds the long-term view that demand for its services
will continue to outstrip supply, and with the expectation
that the free zone will take hold, there's considerable
justification for the port's further expansion. After being
spurned by U.S.-based Hillwood in 2002, the SFZC has
re-grouped and is now moving forward on developing the
necessary infrastructure for its site and securing tenants.
Tourism also appears to be well-positioned for further
growth; the success of the Swedish charter operation and the
substantial increase in visitors to this year's six-week long
Khareef Festival (celebrating the monsoon rains) bode well
for the completion of the proposed tourism-related projects.

FONTENEAU