SCENESETTER: VISIT OF EB DAS AMBASSADOR DAVID A.

UNCLAS SECTION 01 OF 03 MUSCAT 000728

SIPDIS

SIPDIS

FOR EB DAS AMB. DAVID GROSS FROM THE AMBASSADOR

E.O. 12958: N/A
TAGS: ECPS ECON PGOV OTRA MU
SUBJECT: SCENESETTER: VISIT OF EB DAS AMBASSADOR DAVID A.
GROSS

REF: STATE 62749


1. Greetings and welcome to the Sultanate of Oman. My team
and I look forward to your arrival on May 12 in conjunction
with the USTDA Information and Communication Technology
regional forum, May 14-16. In addition to conference
activities, we are seeking a meeting with the
Telecommunications Regulation Authority and a visit to the
burgeoning investment and IT and business incubation center
known as Knowledge Oasis Muscat.

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Economic Overview
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2. 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.
U.S.-owned Occidental Petroleum is the second largest
producer in Oman, and is making sizable investments at
present in enhanced oil recovery efforts in mature fields.


3. High oil prices in 2005 led to a record Omani budget
surplus of $3.8 billion and a blistering GDP growth of 21.7
percent, despite the fact that oil production has been in
steady decline since 2001. The 2006 budget, announced on
January 1, projects massive government spending on industrial
and tourism projects that could produce a deficit as large as
6 percent of GDP. The government also unveiled its Seventh
Five-Year Plan, to cover 2006-2010, which projects a hike in
the average investment rate over that period to 24 percent of
GDP. Thanks to windfall oil prices and strong tourism
growth, Oman's economy is currently running at a brisk pace.


4. Oman actively seeks private foreign investors, especially
in the industrial, information technology, tourism, and
higher education fields. The largest single industrial
investment target is the port city of Sohar, near the UAE
border. It has witnessed over $12 billion in government
investment alone in the financing of several industrial
projects in Sohar, including a petrochemical plant (with Dow
Chemical),a steel rolling mill, a fertilizer plant, and an
aluminum smelter (being built by Bechtel). Investors
transferring technology and providing employment and training
for Omanis are particularly welcome. The permitted level of
foreign ownership in privatization projects is 70 percent,
with up to 100 percent in certain cases. The government has
proceeded with several major privatization projects,
including power generation projects in Salalah, Barka,
Rusayl, and the Sharqiyah region.

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Telecommunications Regulatory Authority
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5. The Telecommunications Regulatory Authority (TRA) was
established in 2002 with an interim board composed of
experienced IT officials. Its main mission is to develop
telecommunications infrastructure and to attract foreign
investment. Engineer Nashiya bint Sa'ud al-Khurusi (with
whom you will be meeting),Member Responsible for Technical
Affairs and Radio Spectrum Management, is the main mover and
shaker at TRA. Al-Khurusi was educated in Egypt and was the
first female to represent Oman in international IT
conferences in 1972. She is a tough negotiator, as the U.S.
side learned during our Free Trade Agreement negotiations in

2005. The TRA's other major interim board member is Colonel
Muhsin al-Hafidh, Member Responsible for Legal Affairs and
International Representation. Al-Hafidh is also the head of
IT at Royal Oman Police. His inclusion on the board
illustrates the strong interest Oman's security services have
in telecommunications and IT.


6. About two months ago, the TRA issued tenders soliciting
consultants to help prepare for the offering of a second
fixed line and internet service provider. Other activities
of the Authority include its recent regulatory decision
against Omantel, ordering them to provide a more competitive
atmosphere with telecom newcomer Nawras. Specifically,
Omantel was ordered to allow subscribers who switch to Nawras
to retain their original phone numbers.

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Omantel vs. Nawras: A Healthy Competition?
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7. Omantel's initially successful initial public offering,
which privatized 30 percent of the company and generated
millions of dollars in July 2005, reflected the public's
strong belief in the potential of the telecommunication
industry. Omantel's subsidiary, OmanMobile, is the largest
mobile telecommunication service provider. Omantel Board of
Directors is headed by Nasser al-Shukaili, Secretary General
of Taxes, and its CEO is Dr. Muhammed al-Wahaibi, a former
officer in the Royal Court and guest speaker at the USTDA
conference. Despite its annual increase in profits, Omantel
faces some major challenges, including its ability to keep
share prices from declining below its initial offering price,
to prevent even further decline and discontent over
privatization and government-promoted IPOs. Another
challenge for Omantel will be preparing for its cross-border
operations in Yemen after recently receiving an official
invitation to negotiate with the Yemeni government on a
mobile telephone operating license.


8. Telecom newcomer Nawras is a partnership between the
Qatari Qtel, a Danish telecommunication consortium, and Omani
investors. In its 18 months of operation, Nawras's
aggressive advertising and market positioning has resulted in
100,000 subscribers, many of whom migrated from OmanMobile.
Consumers have benefited from the competition with improved
services and reduced prices. However, Nawras faces fierce
competition from well-established OmanMobile. A contact
recently informed PolOff that Nawras has filed a lawsuit
against it competitor over roaming charges. Allegedly unfair
recruitment policies and backlash over the Danish cartoon
controversy have also affected its image and bottom line.

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Security: VoIP
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9. Security entities are still playing a major role in the
telecommunications sector. The Royal Office and Internal
Security Service are represented on the board of directors of
Omantel and Nawras Telecom. In addition, the CEO of Omantel
and a least one of the Vice Presidents are former security
officials. Although Omantel organized a seminar on VoIP/SIP
earlier this month, service from VOIP providers such as
Net2Phone and Skype were cut some months ago due,
unofficially, to security services' inability to monitor
their communications. U.S. firm GO2Call recently spoke with
Omantel and the TRA to discuss the use of Go2Call's software
to monitor VoIP.

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Information Technology Council and the Technical Secretariat
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10. The Information Technology Council and the Technical
Secretariat (ITTS) office of the Ministry of National Economy

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is in charge of implementing Oman's e-government project and
drafting e-legislation that is due to be issued by the end of
this year. It has been heavily involved in IT projects at
Knowledge Oasis Muscat, which just opened offices for Hewlett
Packard and Huwaui. There have been talks that the
Secretariat may develop into a Ministry of Communications and

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Technology. The current head of the IT Council is Minister
of National Economy, Ahmed bin Abd al-Nabi Macki, who holds
national economy and finance energy portfolios. Although
Oman has one of the lowest internet subscription rates in the
region, it expects to have over 185,000 internet users by

2009.

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Investment Projects: Tourism
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11. With Oman aggressively marketing itself as an
environmentally conscious tourist destination, international
investors are taking advantage of significant improvements in
local infrastructure to develop ambitious new tourist
projects. U.S. construction and financial firms are joining
a slew of regional and international consortiums that seek to
capitalize on the region's annual 6.5 percent growth as a
tourist destination. Investors hope to lure 3 million
visitors annually with resorts like the $800 million Wave,
the $160 million Bar al-Jissah Resort and Spa (venue for the
USTDA conference),and the massive $15 billion Blue City
development just north of Muscat.


12. In 2004, Oman welcomed 1.5 million tourists, generating
revenues of $284 million. Through aggressive marketing
campaigns and improved infrastructure, Oman hopes to increase
the industry's meager 1 percent contribution to GDP to 3
percent. The Omani government estimates that the tourism
sector could eventually create over 114,000 jobs. To achieve
these ambitious figures, the Ministry of Tourism has spent
$30 million to market the country internationally through

2005.
GRAPPO