Identifier
Created
Classification
Origin
06MUSCAT161
2006-02-08 06:33:00
UNCLASSIFIED
Embassy Muscat
Cable title:  

OMAN 2006 INVESTMENT CLIMATE STATEMENT

Tags:  EINV EFIN ETRD ELAB ENRG KTDB PGOV MU 
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UNCLAS SECTION 01 OF 11 MUSCAT 000161 

SIPDIS

STATE FOR NEA/ARPI, EB/IFD/OIA
STATE PASS TO USTR (JBUNTIN)
E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB ENRG KTDB PGOV MU
SUBJECT: OMAN 2006 INVESTMENT CLIMATE STATEMENT

REF: 05 STATE 201904
UNCLAS SECTION 01 OF 11 MUSCAT 000161

SIPDIS

STATE FOR NEA/ARPI, EB/IFD/OIA
STATE PASS TO USTR (JBUNTIN)
E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB ENRG KTDB PGOV MU
SUBJECT: OMAN 2006 INVESTMENT CLIMATE STATEMENT

REF: 05 STATE 201904

1. Per reftel request, Embassy is pleased to submit
the following Investment Climate Statement for 2006.

2. Begin text of Investment Climate Statement:
Economic Overview

Oman's economy is based primarily on petroleum and
natural gas, which is expected to account for 81% of
the government's revenue in calendar year 2006.
Oman's proven recoverable oil reserves are estimated
at 4.8 billion barrels. The main producer of oil is
the government majority-owned Petroleum Development
Oman (PDO, in partnership with Royal Dutch Shell),
which controls 90 percent of reserves and the lion's
share of total production. Oman's gas reserves were
revised downward from 30.3 trillion cubic feet (tcf)
at the end of 2004, to 24.2 tcf, according to the
Ministry of Oil and Gas. Official estimates claim
that potential gas reserves stand at 33.8 tcf, in
light of efforts to encourage companies actively to
explore for gas. Oman's oil production for the first
eight months of 2005 averaged 774,400 barrels per day
(b/d),a 1% drop from the 782,500 b/d over the same
period in 2004. U.S.-owned Occidental Petroleum is
the second largest producer in Oman, and its
production is estimated at around 50,000 b/d. The
Omani government recently signed a production
agreement with Occidental Petroleum for the
development of the Mukhaizna oil field in Dhofar
(previously owned by PDO),which Occidental projects
to yield 150,000 b/d within five years.

Oman LNG began operations in April 2000 with two 3.3
metric ton per annum (MTPA) LNG production trains for
a total production rate of 6.6 MTPA. In 2003, the
Omani government awarded a tender for the
construction of a third liquefied natural gas (LNG)
train, Qalhat LNG, to expand the existing Oman LNG
plant in Sur. The expansion, which was completed in
December 2005, has brought Oman's total production
capacity to 10.3 MTPA. Off-take of much of the
production from this plant has already been
contracted to Spanish and Japanese buyers. A

September 2004 agreement guaranteed a long-term
natural gas supply from the government to Qalhat LNG
and outlined the terms of an investment partnership
between Oman LNG, Qalhat LNG, and the Spanish firm
Union Fenosa. In June 2003, Oman LNG signed a six-
year agreement with BP to supply twelve LNG shipments
over six years, beginning in 2004. The Omani
government is in the process of building its own
fleet of LNG vessels to facilitate spot sales. Four
LNG transport vessels currently operate under Omani
flag, with two more scheduled for delivery by mid-

2006. It is further expected that three other
vessels will join the fleet in 2008.

The government encourages the private sector to take
on a greater role in financing infrastructure
projects. The capital area and other population
centers have modern, well-developed communications,
utilities, and road systems. Additional investment
is extending this infrastructure to rural areas. The
long-term 'Oman Vision 2020' development plan
highlighted the need for the Omani economy to
diversify beyond its present reliance on petroleum,
through a process of Omanization, industrialization
and privatization. The government has proceeded with
several major privatization projects, including power
generation projects in Salalah, Barka, Rusayl, and
the Sharqiyah region. The government is also
partnering with the private sector in the financing
of several industrial projects in Sohar, including a
petrochemical plant, a steel rolling mill, a
fertilizer plant, and an aluminum smelter.

In late 2001, a consortium led by the British Airport
Authority became the strategic partner for Muscat's
Seeb International Airport and Salalah Airport.
However, the consortium dissolved in November 2004
following disagreement with the government over
delayed construction of new airport terminals.
Management of the airports has reverted to the
government, and new airport expansion plans are
underway. The latest plan envisions a second runway
and a new terminal with a 12 million passenger per
annum capacity at Seeb International Airport by 2009,
along with a new terminal capable of accommodating up
to 2 million passengers per annum in Salalah, also to
be completed by 2009. The government has also
announced plans to build a commercial airport in the
Ras al-Hadd area in eastern Oman to facilitate an
expected increase in tourism traffic, and announced
plans in January 2006 to build airports in Sohar and
Duqm.
One of the most successful diversification projects
thus far is the Port of Salalah, opened in 1998. The
container transshipment port, originally established
jointly by the government and private sector, is now
30% owned by APM Terminals (a division of Maersk) and
20% owned by the government, with the remaining
ownership divided among pensions funds, Omani
corporations, and private investors. The port
handled more than 2.2 million TEUs in 2004,
surpassing its 2004 target of two million TEUs.
Aside from being the 31st largest port in the world
and one of the largest in the region, Salalah Port
ranks among the most efficient container ports. It
is currently adding two new berths and extending its
breakwater to meet sustained increases in demand.
The Port of Salalah will be able to handle 4.38
million TEUs once construction is completed. The
Omani government formed its own company in 2004 to
pursue the establishment of an industrial free zone
at the Port of Salalah, possibly with a foreign
partner. The first phase of the zone is expected to
be ready by March 2006.

According to the 2003 national census, the number of
expatriates in Oman is 559,000, one-quarter of the
population. In January 2006, the Ministry of
National Economy reported a 1.5% percent decrease in
the number of expatriates working in the private
sector during 2005, bringing their number to 418,000.
There also has been a modest decline in the number of
expatriates employed in the public sector. Despite
government efforts to replace expatriate workers with
Omanis, Oman still depends heavily on South Asian
labor to fill jobs that require physical labor,
clerical work, or certain technical skills.
According to the government's recently published
Human Development Report, Oman's population is
growing at an estimated 3.3% annual rate, with 45.2
percent of the national population younger than 20
years old and 56 percent younger than 24 years.
(Note: this growth rate is considerably higher than
the 1.9% annual rate reported in the 2003 national
census. End Note.) More than 45,000 Omanis graduate
from secondary school each year; most are unable to
find immediate work or continue with higher
education. The government encourages training for
Omanis as a means to spur employment, and the
Ministry of Manpower increasingly uses its authority
to enforce Omanization efforts, particularly at the
lower end of the wage scale.

Continued development and population pressures have
also contributed to a growing water problem.
Aquifers are being seriously depleted. There are
increasing levels of salinity in groundwater in
coastal agricultural areas. A Middle East
Desalination Research Center officially opened in
1997, with its headquarters in Muscat; initial
funding for this center came from Oman, the United
States, Japan, Israel, and Korea. MEDRC is looking
for additional sponsors to fund its research
endeavors.

Oman is developing more light manufacturing
industries. In order to provide facilities for these
efforts, the Public Establishment for Industrial
Estates manages industrial estates throughout the
country. More than 235 factories operate in
industrial estates, with a total investment of $1.3
billion. The original and most developed is Rusayl
Industrial Estate, located on the outskirts of the
capital. A dramatic downturn in the Muscat
Securities Market (MSM),which lost nearly 70 percent
of its value from 1998 to 2001, hurt many small and
first-time investors deeply and undermined confidence
in the economy. The MSM dropped from an all-time
high of 509 points in February 1998 to 152 at the end
of December 2001. Observers attributed the sell-off
to overzealous speculation, combined with abnormally
high equity valuations, uninformed investors, and a
lack of transparency. However, in 2002 and 2003, the
market began to recoup some of its losses, ending
2003 at 272.7, a 42% gain over 2002. This momentum
continued in 2004. In April of that year, the market
crossed the psychological barrier of 300 points,
ending the month at 306. The MSM re-indexed in May
2004, going from a triple-digit base to a four-digit
one and reached 3,500 (350 in the old system) by
early January 2005. By the end of December 2005, the
MSM surpassed 4700. AES Barka Power Company, a
subsidiary of the AES Corporation of Virginia,
recently floated $29.1 million (35% of its paid up
capital) for initial public writing. According to
press reports, public writing mobilized capital equal
to seventeen times the amount of shares offered,
showing a strong demand in the Omani market for
portfolio investment. On July 28, 2005,
telecommunications giant Omantel floated 30 percent
of its shares to Omani investors, which constituted a
significant milestone IPO for the Omani capital
market. Foreigners were able to begin purchasing
Omantel shares on October 27, though at the end of
2005 over 99% of the stock remains with Omani
investors. Dhofar Power Company in southern Oman, a
subsidiary of New Jersey-based PSE&G, also issued an
IPO in 2005, as well as Taageer Finance Company,
whose initial offering was available to foreign
investors.

Since 1998, the government has introduced numerous
measures to revive the market and regain investors
confidence. The government announced a $260 million
bailout in November 2000, offering to aid "small
investors" and creating a national investment fund
made up of contributions from government pension
funds and the State General Reserve Fund, as well as
offering incentives for investment companies to
merge. The government's regulatory agency, the
Capital Market Authority (CMA),also took steps to
improve transparency in the market, including the
enforcement of the International Accounting Standard
(IAS) 39 and the establishment of new corporate
governance standards. The CMA also held a recent
seminar that emphasized accurate media reporting as
integral for market confidence and growth.

Openness To Foreign Investment

Oman actively seeks private foreign investors,
especially in the industrial, information technology,
tourism, and higher education fields. Investors
transferring technology and providing employment and
training for Omanis are particularly welcome. Omani
law relating to foreign investment is contained in
the Foreign Business Investment Law of 1974, as
amended. A Commerce Ministry spin-off, the Omani
Center for Investment Promotion and Export
Development (OCIPED) opened in 1997 to attract
foreign investors and smooth the path for business
formation and private sector project development.
OCIPED also provides prospective foreign investors
with information on government regulations, which are
not always transparent, and sometimes contradictory.
Nevertheless, despite OCIPED's efforts to become a
'one-stop shop' for government clearances, the
approval process for establishing a business can be
tedious, particularly with respect to land
acquisition and labor requirements.

With Oman's accession to the World Trade Organization
in October 2000, automatic approval of majority
foreign ownership (up to 70 percent) is available.
Registration of these joint ventures is treated in
the same manner as that common to all registrants.
The foreign firm must supply documentary evidence of
its registration in its home country, its
headquarters location, its capital holdings, and its
principal activities. If a subsidiary, it must
demonstrate its authority to enter the joint venture.
Except in the petroleum sector, where concession
agreements with the Ministry of Oil and Gas determine
the terms of investment, new entities with greater
than 70 percent foreign ownership are subject to the
approval of the Minister of Commerce and Industry.
As part of its WTO accession package, Oman is also
expected to allow 100 percent foreign ownership in
certain services sector, such as banking, law,
accountancy, and information technology.

In early 1999, the government amended its corporate
tax policy and lifted the requirement that foreign-
owned joint ventures include a publicly traded joint
stock company listed on the MSM in order to enjoy
national tax treatment. In 2003, Oman extended
national tax treatment to all registered companies
regardless of percentage of foreign ownership, i.e. a
maximum rate of 12% tax on net profit. Omani
branches of foreign companies are treated as foreign
companies and therefore taxed at a maximum of 30%.
Since Omani labor and tax laws are complex, investors
should consider engaging local counsel.

New majority foreign-owned entrants are barred from
most professional service areas, including
engineering, architecture, law, or accountancy. In
1996, existing foreign-owned professional service
firms were given timeframes within which to obtain
Omani partners (e.g., five years for accounting
firms). An exception exists for professional service
firms with subspecialties of critical importance to
Oman. Wholly U.S.-owned service firms present in
Oman include Ernst & Young, KPMG, and the law firm
Curtiss, Mallett, Colt, Mosle, and Prevost. Under
Omani commercial law, wholly foreign-owned branches
of foreign banks are allowed to enter the market.

The permitted level of foreign ownership in
privatization projects increased to 100 percent in
July 2004, based on a Royal Decree providing an
updated privatization framework. By privatization,
Oman refers not only to the conversion of a state-
owned or mixed enterprise into a private sector firm,
but also to the establishment of any new firm
providing a commercial service that had previously
been provided by the state (e.g., electricity). One
approach to partial conversion will be applied to the
state-run telephone company, Omantel in which the
government floated 30 percent of its stake in the
company, while retaining the remaining 70 percent.

Industrial establishments with total capital of
$52,000 or more must be licensed by the Ministry of
Commerce and Industry. In addition, a foreign firm
interested in establishing a company in Oman must
obtain approval from other ministries, such as the
Ministry of Regional Municipalities, Environment, and
Water Resources. Foreign workers must obtain work
permits and residency permits from the Ministry of
Manpower and the Royal Oman Police's Immigration
Office. Oman's investment incentives focus on
industrial development and include the following:
- Five year tax holiday, renewable once;
- Low-interest loans from the Oman Development Bank
(now available on a very limited basis, and only for
small firms);
- Low-interest loans from the Ministry of Commerce
and Industry;
- Subsidized plant facilities and utilities at
industrial estates;
- Feasibility studies supplied by the Ministry of
Commerce and Industry; and
- Exemption from customs duties on equipment and raw
materials during the first ten (10) years of a
project.

Conversion And Transfer Policies

Oman has no restrictions or reporting requirements on
private capital movements into or out of the country,
and there have been no reports of difficulty in
obtaining foreign exchange. The Omani Rial is pegged
to the dollar at a rate of 0.3849 Omani Rials to the
U.S. dollar. The Rial was devalued slightly in 1986
due to the collapse in oil prices, although the
government did not find the devaluation productive.
Late in 2001, Oman began implementing a new law for
the prevention of money laundering, with updated
regulations on financial crimes being issued in July

2004.

Expropriation And Compensation

Oman's belief in a free market economy and desire for
increased foreign investment and technology transfer
make expropriation or nationalization extremely
unlikely. In any event, were a property to be
nationalized, Article 11 of the Basic Law of the
State stipulates that the Government of Oman will
provide prompt and fair compensation.

Dispute Settlement

Oman is a party to the International Center for the
Settlement of Investment Disputes (ICSID). However,
the ultimate adjudicator of business disputes within
Oman is the Commercial Court, which was reorganized
in mid-1997 from the former Authority for Settlement
of Commercial Disputes (ASCD). The Commercial Court
has jurisdiction over most tax and labor cases, and
can issue orders of enforcement of decisions (the
ASCD was limited to issuing orders of recognition of
decisions). The Commercial Court can also accept
cases against governmental bodies, which the ASCD was
unable to do. In such cases, however, the Commercial
Court can issue, but not enforce, rulings against the
government. Many practical details remain to be
clarified.

Decisions of the Commercial Court are final if the
value of the case does not exceed U.S.$26,000. A
Court of Appeals exists for cases where the sum
disputed is greater than U.S.$26,000, and a Supreme
Court was established in mid-2001. Decisions of the
Supreme Court are final. However, a case may be re-
opened after a judgment has been issued if new
documents are discovered or irregularities (e.g.,
forgery, perjury) are found. There is no provision
for the publication of decisions.

Oman also maintains other judicial bodies to
adjudicate various disputes. The Labor Welfare Board
under the Ministry of Manpower hears disputes
regarding severance pay, wages, benefits, etc. The
Real Estate Committee hears tenant-landlord disputes,
the Police Committee deals with traffic matters, and
the Magistrate Court handles misdemeanors and
criminal matters. Lastly, the Sharia Court deals
with family law, such as wills, divorces, personal
and some criminal matters. All litigation and
hearings must be conducted in Arabic.

The Oman Chamber of Commerce and Industry has an
arbitration committee to which parties to a dispute
may refer their case when the amounts in controversy
are small. Local authorities, including 'walis'
(district governors appointed by the central
government),also handle minor disputes. While Oman
is a member of the GCC Arbitration Center, located in
Bahrain, that center has yet to establish a track
record.

Performance Requirements And Incentives

Since Oman's accession to the WTO in November 2000,
it has been subject to TRIMs obligations.

Under the Industry Organization and Encouragement Law
of 1978, incentives are available to licensed
industrial installations on the recommendation of the
Industrial Development Committee. 'Industrial
installations' include not only those for the
conversion of raw materials and semi-finished parts
into manufactured products, but also mechanized
assembly and packaging operations. Firms involved in
agriculture and fishing may also be included.
Companies must have at least 35 percent Omani
ownership to qualify for these incentives. This law
is expected to change soon to reflect recent
developments in foreign investment regulations.

In addition, companies selling locally produced goods
are given priority for government purchases, provided
that the local products meet standard quality
specifications and their prices do not exceed those
of similar imported goods by more than 10 percent.
This incentive is available to Omani-owned commercial
enterprises, as well as foreign industrial producers
in joint ventures with local concerns. The
government offers subsidies to offset the cost of
feasibility and other studies if the proposed project
is considered sufficiently important to the national
economy. Only in the most general sense of business
plan objectives does proprietary information have to
be provided to qualify for incentives.

Right To Private Ownership And Establishment

Under Oman's foreign capital investment law, non-
Omanis are not allowed to conduct commercial,
industrial, or tourist-related businesses, or
participate in any Omani company without a license
issued by the Ministry of Commerce and Industry.

According to Oman's commercial companies law, all
actions by private entities to establish, acquire,
and dispose of interests in business enterprises must
be announced in the commercial register, and may be
subject to the approval of the Ministry of Commerce
and Industry. Subject to the licensing and taxation
previously noted, foreign and domestic entities can
engage in all legal forms of remunerative activity.
Government entities do not compete with the private
sector, and public policy favors the privatization of
public utilities.

Protection Of Property Rights

Real property rights are recognized and enforced in
Oman, and records are well kept. There is no
contemporary history of arbitrary seizures of land.
Subject to government approval, GCC nationals may own
property anywhere in Oman. The government actively
seeks to promote tourism, and a key component of the
drive to attract investment is the ability to sell
villas and estates in mixed tourist/residential
developments slated for construction. The Ministry
of Housing, Electricity and Water issued a new law in
November 2004 allowing foreign nationals to own real
estate within government-recognized tourism complexes
in Oman. This law permits freehold ownership of
residential property, including full rights of
inheritance according to the laws of the owner's
country of origin, as well as residency status for
landowners and their immediate family members. The
government is finalizing the implementing regulations
and preparing to designate the zones within which the
law will apply. It is expected that these
implementing regulations will be in place when the
first residences are offered for sale at tourist-
designated projects such as The Wave and Blue City.
The law does not apply to commercial real estate,
which cannot be owned by non-GCC nationals.

Oman has a trademark law. Trademarks must be
registered and noted in the Official Gazette through
the Ministry of Commerce and Industry. Local law
firms can assist companies with the registration of
trademarks. In May 2000, Oman revised its trademark
law to be TRIPs compliant.

Oman enacted a copyright protection law in 1996, but
did not announce enforcement mechanisms until a
ministerial decree in April 1998, which extended
protection to foreign copyrighted literary,
technical, or scientific works; works of the graphic
and plastic arts; and sound and video recordings. In
order to receive protection, a foreign-copyrighted
work must be registered with the Omani government by
depositing a copy of the work with the government and
paying a fee. Since January 1999, the government has
enforced copyright protection for audio and
videocassettes, and destroyed stocks of pirated
cassettes seized from vendors. The government did
not extend protection to foreign-copyrighted software
until late 1998, when it declared that retailers must
halt the importation and sale of non-licensed
software by July 1, 1999. Thereafter, the government
stepped up efforts to curtail software piracy in
Oman, including raids on businesses to ensure that
Omani firms use no pirated software.

Enforcement of the copyright protection decree by the
Ministry of Heritage and Culture, the Ministry of
Commerce and Industry, and the Royal Oman Police has
been effective, as once plentiful pirated video and
audiotapes and computer software have largely
disappeared from local vendors shelves. The
Ministry of Commerce and Industry estimates that in
2005, the government confiscated and destroyed more
than 20,000 pirated CDs, VCDs and other media. In
October 2005, the government designated the Ministry
of Commerce and Industry as the primary investigative
authority, whose efforts are supported by the Royal
Oman Police. To improve inter-ministerial
coordination, a committee consisting of members from
the Ministry of Commerce and Industry, Ministry of
Information, Ministry of Heritage and Culture and
Royal Oman Police meets regularly to review
intellectual property concerns.

Nonetheless, under-the-counter sales of unauthorized
software and DVDs persist in various locations, and
authorities continue to grapple with effective
enforcement measures against such sales. To assist
government efforts, the private sector has been
active in promoting awareness and enforcement of
intellectual property rights. For example, in late
October 2003, 16 Omani companies signed the Business
Software Alliance (BSA) Code of Ethics, whose number
has now grown to almost 40. The Code of Ethics
declares that the signatories would neither commit
nor tolerate the manufacture or use or distribution
of unlicensed software and would only supply licensed
software to customers. In late December 2004, a
government raid of four unauthorized software
resellers in coordination with BSA resulted in
confiscation of pirated software. Oman's enforcement
efforts recently received praise from the BSA.
Furthermore, according to local satellite TV
representatives, the Ministry of Commerce and
Industry has staged sporadic raids on unlicensed
distributors of pirated satellite signals in response
to industry complaints.

In mid-2000, the government introduced new, WTO-
consistent intellectual property laws on copyrights,
trademarks, industrial secrets, geographical
indications and integrated circuits. Further, in
October 2000 Oman issued new, WTO-consistent
intellectual property rights legislation to protect
patents and other intellectual property rights.

Oman joined the World Intellectual Property
Organization (WIPO) in February 1997, and registered
as a signatory to the Paris and Berne conventions on
intellectual property protection in July 1999. Oman
also acceded to the WIPO Copyright Treaty and the
WIPO Performances and Phonograms Treaty in September

2005. The Ministry of Commerce and Industry, in
coordination with WIPO, has conducted a number of
seminars to raise national awareness of the
importance of protecting intellectual property. Oman
has also worked closely with the United States Patent
and Trademark Office in the area of intellectual
property rights protection.

Transparency Of The Regulatory System

In 2003, the Telecommunications Regulatory Authority
(TRA) began functioning as a legal and regulatory
body in Oman. The TRA oversees the process of
liberalization and privatization of the
telecommunications sector, and is composed of four
senior officials (one from the Ministry of National
Economy, one from Omantel, one from the Royal Oman
Police, and the Minister of Transport and
Communications, who serves as the chairman). In
addition, the new privatization framework law passed
in July 2004 provides for a new regulator for public
utilities that are being privatized in the power and
water sectors. In October 2005, the government
announced that it had awarded its first broadcasting
licenses to two Omani private sector enterprises, one
to operate a radio and television station, the other
to operate two radio stations.

The government recognizes that its regulatory
environment can hamper investment and commercial
activity. In addition to the ownership and agency
requirements already mentioned, the licensing of
business activities can be time-consuming and
complicated. The absence of a particular clearance
will stall the entire process. For example,
processing shipments in and out of the Mina Qaboos
Port can add significantly to the amount of time it
takes to get goods to market or inputs to a project.

Oman's tax laws can also impede foreign investment.
Although Oman amended its tax laws to allow national
tax treatment for joint ventures regardless of
percentage of foreign participation, branches of
foreign companies are taxed at 30 percent of income.
Oman's labor laws, which require minimum quotas of
Omani employees depending on the type of work, form
another potential impediment to foreign investment.
The government's Omanization effort has been the
subject of criticism in the Omani private sector,
which often complains that it can harm productivity
and restrict hiring and firing policies.

Government red tape and long delays in official
decision-making are other frequent complaints among
the local private sector. Because decisions often
require the approval of multiple ministries, the
government decision-making process can be tedious and
non-transparent.

The government has issued a series of regulations
aimed at increasing transparency and disclosure in
the financial market. The Capital Market Authority
(CMA) has ordered all public companies to comply with
a set of standards for disclosure. Under the
requirements, holding companies must publish the
accounts of their subsidiaries with the parent
companies' accounts. Companies must also fully
disclose their investment portfolios, including
details of the purchase cost and current market
prices for investment holdings. The new initiatives
also require publication of these financial
statements in the local press. At the same time, the
Central Bank has also introduced new rules to limit
the level of "related party transactions" (financial
transactions involving families or subsidiary
companies belonging to major shareholders or board
members) in Oman's commercial banks. The new rules
will help increase transparency in financial
transactions in local banks and the Muscat Securities
Market (MSM),and will help clarify the activities of
publicly traded companies.

Efficient Capital Markets And Portfolio Investment

There are no restrictions in Oman on the flow of
capital and the repatriation of profits. Access to
Oman's limited commercial credit resources is open to
Omani firms with some foreign participation. Joint
stock companies with capital in excess of $5.2
million must be listed on the MSM. According to the
recently amended Commercial Companies Law, companies
must have been in existence for at least two years
before being floated for public trading.

The Sultanate has two loan programs to promote
investment. The Ministry of Commerce & Industry
(MOCI) administers a program designed to promote
industrial investment. Formerly interest free, the
program now charges 4 percent interest, with generous
repayment terms. MOCI loans will match equity
contributions in the Muscat capital area, or 1.25
times equity for other locations. Projects with a
high percentage of local content or employing large
numbers of Omanis are given priority, as are tourism
projects outside the capital area. The Oman
Development Bank also administers a loan program to
support development of smaller loans to industry,
agriculture, fisheries, petroleum, mining, and
services.

Foreigners may invest in the MSM, as long as this is
done through a local broker. Since the 1998 market
downturn, MSM statistics show that the percentage of
foreign investment in the MSM has remained stable at
around 14 percent.

The legacy of the economic slowdown continues to
impact the banking sector, although most banks showed
a significant increase in profitability during 2004
and 2005. Corporate profitability declined
significantly in 1999, but has experienced a robust
recovery in subsequent years. The banking law issued
in November 2000 allowed more efficient control over
the financial sector by the authorities.
Furthermore, early in 2003 the Central Bank of Oman
promulgated new rules and regulations to ensure
proper and efficient management of the banks. The
effect of this circular was enhanced by the
implementation of a Code of Corporate Governance, as
well as amendments to the Capital Market Law and the
Commercial Companies Law which stipulated that the
boards of directors of all jointly listed companies
should appoint an internal audit committee, an
internal auditor, and a legal advisor.

In November 2005, the government set limits on the
remuneration of boards of directors by amending the
Commercial Companies Law through Royal Decree
99/2005. Under the decree and accompanying
regulations, the remuneration for a board of
directors may not exceed five percent of a company's
net profits, up to a maximum of 200,00 R.O.
(US$516,000),unless the company's Articles of
Association provides for a higher rate. The
regulations also require that company reports be
published within 2 months of the end of the financial
year, and that an ordinary meeting of the general
assembly be held within three months of the end of
the financial year.

Political Violence
Politically motivated violence is virtually unknown
in Oman. Since October 2000, there have been some
demonstrations, with the most recent occurring in May
2005, but these were generally orderly.

Corruption

Article 53 of the Basic Law of the State, issued in
November 1996, compelled ministers to resign their
offices in public shareholding enterprises. As of
1999, Under Secretaries (deputy ministers) were also
required to resign from the boards of any public
companies. Most major contracts are awarded through
a slow, rigorous, but generally clean tender process.
Contracts awarded through a ministry's internal
tender process are subject to fewer controls.
Although Oman is not a signatory to the OECD
convention on combating bribery, Sultan Qaboos has
dismissed several ministers and senior government
officials for corruption during his reign. In one of
Oman's biggest corruption scandals in several years,
over 30 government and private sector employees,
including the Under Secretary of the Ministry of
Housing, Electricity, and Water, were convicted in
October 2005 on counts of bribery and forgery, among
others. While Oman has not yet signed the UN
Convention Against Corruption, it has been recognized
by Transparency International for its efforts to
fight corruption. In 2005, Transparency
International ranked Oman 28 out of 133 countries in
its "Corruption Perception Index," the highest among
Arab nations.

Bilateral Investment Agreements

Oman and the United States signed a bilateral Trade
and Investment Framework Agreement (TIFA) on July 7,

2004. This agreement established a U.S.-Oman Trade
and Investment Council, which met for the first time
in Washington in September 2004. The US-Oman Free
Trade Agreement, signed January 19, 2006, will
supplant previous discussions regarding a Bilateral
Investment Treaty, as the FTA includes an investment
chapter.

OPIC and Other Investment Insurance Programs

Oman is eligible for Export-Import Bank of the United
States (EXIM) financing and insurance coverage. In
late 2003, the Overseas Private Investment
Corporation (OPIC) proposed an update to its existing
1976 bilateral agreement with Oman to reflect current
investment realities. An agreement has yet to be
reached on the proposed updates.

Labor

A new Labor Law was promulgated by Royal Decree in
2003, providing additional protections for workers
and raising the minimum working age from 13 to 15.
Implementing regulations adopted in early 2004
clarified the role and scope of workers'
representative committees as outlined in this law.
In addition, the government is expanding its
Omanization drive to areas outside the capital of
Muscat, particularly in the retail, transport, and
light manufacturing sectors.

Oman relies heavily on expatriate labor, primarily
from India, Bangladesh, Pakistan and Sri Lanka, to
perform menial and physically taxing work, as well as
to fill managerial positions. Omani labor law
stipulates basic practices to safeguard workers;
employers set wages for Omanis within guidelines
delineated by the Ministry of Manpower. The minimum
wage for Omanis working in the private sector,
including salary and benefits, is 120 R.O. (about
$312) per month. Work rules must be approved by the
Ministry and posted conspicuously in the work place.
The workweek is five days in the public sector and
generally five and one-half days in the private
sector. The labor law and subsequent regulations
also detail requirements for occupational safety and
access to medical treatment. However, non-Omanis in
retail, personal service outlets, construction, and
petroleum fields typically work up to seven days a
week, depending on their contracts.

'Omanization', the localization of labor, is a high
priority for the government. Foreign nationals may
not be employed as technical assistants, guards,
light vehicle drivers, Arabic typists, agricultural
workers, forklift or mixer operators, or public
relations officers, unless the employer can show that
there are no Omanis available for the position. Only
Omanis are permitted to work as taxi drivers, customs
expediters, and fishermen. Since 1999, the
government has 'Omanized' (i.e., banned expatriates
from working in) a number of low-wage jobs, including
vegetable and grocery shopkeepers, water tank truck
drivers, gas cylinder truck drivers, plow operators,
and real estate agents. Through concerted training
efforts, the government has also sought to increase
the number of Omanis employed as gasoline station
attendants, waiters, barbers, and hairdressers, while
allowing expatriates to remain employed in such
positions. The government recently announced its
intention to Omanize 24 more occupation
classifications over the next four years. The first
phase of the plan will include 16 occupation
classifications, mainly different varieties of
shopkeepers and repairmen.

In 1994, Oman became a member of the International
Labor Organization (ILO). Oman has since ratified
four of the eight core ILO standards, including those
on forced labor, abolition of forced labor, minimum
age, and the worst forms of child labor.

Foreign Trade Zones/Free Ports

Oman has no general provisions for the temporary
entry of goods. In the case of auto re-exports, a
company can import vehicles into the country for the
purpose of re-export and have duties refunded if it
re-exports the vehicle within six months. In 1999,
the government opened a new free trade zone at an
interior border crossing point with Yemen (al-
Mazyounah). Oman is currently planning to develop a
free trade zone in Salalah, adjacent to the
international container transshipment port that
opened in November 1998. The first phase of the
Salalah free trade zone is expected to be ready by
March 2006, with the government set to finalize a
list of incentives for companies willing to establish
operations there by the first quarter of 2006. The
government has also expressed its intention to
establish a free zone at Sohar port, in conjunction
with plans to expand the existing port and industrial
zone.

Foreign Direct Investment Statistics And Major
Foreign Investors

Systematic information on foreign direct investment
is limited. As per Capital Market Authority
statistics, total investment in listed Omani
companies with foreign participation was $2.4 billion
in September 2004, of which 8.94% was foreign
investment. Foreign capital constituted 7.49% of
capital invested in finance, 3.03% in manufacturing,
and 8.94% in insurance and services.

The largest foreign investor is Royal Dutch Shell
Oil, which holds 34 percent of Petroleum Development
Oman, the state oil company, and 30 percent of Oman
Liquid Natural Gas. Other companies, such as
Occidental Petroleum, BP Amoco, Novus Petroleum,
Hunt, and Nimr have also invested in the petroleum
sector. Two U.S. firms, Gorman Rupp (water pumps)
and FMC (wellhead equipment),have entered into
industrial joint ventures with Omani firms. Both
joint ventures involve modest manufacturing
operations. Since 1999, Oman has witnessed increased
foreign direct investment through the privatization
process. Major foreign investors that have entered
the Omani market recently include PSEG Global (U.S.),
AES (U.S.),and National Power (U.K.). Dow Chemical
of the U.S. announced a joint venture with Oman Oil
Company and the Government of Oman in July 2004 to
develop a large petrochemical plant in Sohar.
Construction is set to commence during the second
half of 2006.

End text of Investment Climate Statement.
BALTIMORE