GOVERNMENT REVENUES DIP ON LOWER OIL PRODUCTION

UNCLAS MUSCAT 000714 SIPDIS SENSITIVE SIPDIS FOR NEA/ARP, EEB/ESC/IEC E.O. 12958: N/A TAGS: ECON EINV EPET PGOV MU SUBJECT: GOVERNMENT REVENUES DIP ON LOWER OIL PRODUCTION REF: MUSCAT 29 ¶1. (U) Statistics released by the Ministry of National Economy reported government revenues of 2.21 billion Omani Rials (USD 5.74 billion) from January to April 2007, a 6% drop in revenues over the same time period in 2006. Heading the decline was revenue derived from oil production, which generated earnings of 1.36 billion RO (USD 3.52 billion),a 20% drop over the 1,689 million RO (USD 4.39 billion) figure posted over the same months in 2006. On the positive side, the decline was buffered by a 48% increase in gas revenues, which accounted for 346 million RO (USD 898.7 million) in total receipts, and an 18% increase in corporate tax revenues, which climbed to 75 million RO (USD 184.8 million). ¶2. (U) Overall expenditures are up 31% for the first four months of the current year to equal 1.54 billion RO (USD 3.99 billion). In efforts to bolster oil and gas production, government investment is up 66% to 384 million RO (USD 997.4 million). Of that amount, the government increased oil investment by 38% to reach 133 million RO (USD 345.5 million) and gas investment by a whopping 3,731% to reach 61 million RO (USD 158.4 million). The government is also investing heavily in infrastructure projects, reflected in the 45% increase in civil ministry expenditures, which accounted for 187 million RO (USD 485.7 million). ¶3. (U) On balance, the government retains a healthy 676 million RO (USD 1.75 billion) surplus, though that figure is down 43% from the 1.17 billion RO surplus (USD 3.04 billion) posted over the first four months of last year. Accounting for the drop is the combination of declining oil production, which, at 713,000 barrels per day, is 5% lower than in 2006, and the average price per barrel of $58.35, which is approximately $3 less than in 2006. ¶4. (SBU) Comment: As noted reftel, the government's penchant to estimate conservatively the price of oil in its annual budget projections provides it the cushion to run a surplus even when oil production and price figures are down. Even in the unlikely event of further revenue decreases, the government most likely will go beyond projected spending targets in the wake of anticipated spending on the recovery from Cyclone Gonu. Having realized that years of under-investment in its ability to explore for oil has resulted in steep production declines since 2000, the government will continue its robust investment program in this area. Furthermore, the government remains set on pursuing its priorities of enhancing infrastructure through road, airport, and port construction, and promoting industrialization through continued significant investments in the Sohar industrial port complex. GRAPPO