MINISTER PREDICTS SLOWER GDP GROWTH FOR OMAN

C O N F I D E N T I A L MUSCAT 000771

SIPDIS

SIPDIS

STATE FOR NEA/ARP, EB/IFD/OMA
COMMERCE FOR COBERG

E.O. 12958: DECL: 08/07/2017
TAGS: ECON EFIN EWWT MU
SUBJECT: MINISTER PREDICTS SLOWER GDP GROWTH FOR OMAN


Classified By: DCM Alfred F. Fonteneau, reasons 1.4 b and d


1. (U) On August 7, Omani Minister of National Economy Ahmed
bin Abdulnabi Macki announced that Oman's Gross Domestic
Product would grow by 7% over 2007, a projected 8% decline
from the 15% growth rate recorded in 2006. Macki highlighted
that the economy would continue to expand in spite of the
lower oil production rate, which is off slightly more than 5%
over January-May 2007, as compared the same period in 2006.
The Minister forecasted that GDP growth would stem from the
performance of the non-oil sectors, which are expected to
grow by 16% on the strength of domestic demand and rising
petrochemical activity. Macki also stated that Tropical
Cyclone Gonu would have only a minimal impact on the
Sultanate's economic output.


2. (SBU) The continued development of Oman's petrochemicals
industries, however, recently has been called into question.
On July 5, the trade publication "Chemical Week" reported
that the government and Dow Chemicals decided to shelve plans
to construct a petrochemicals plant in the port city of Sohar
on the account that costs had ballooned from an estimated
$2.6 billion to $4.5 billion. Sohar Industrial Port
Corporation Deputy CEO Jamal Aziz told Econoff that the port,
which plans to host the complex, has not received any
indication that the project would be canceled. Calls to the
Oman Petrochemicals Industries Company, which represents the
joint venture, and the regional Dow office have gone
unanswered.


3. (C) PolEconoff's July conversation with Oman International
Container Terminal (OICT) CEO Lawrence Teo added to increased
speculation that the petrochemicals complex would not
materialize. He commented that his company, which handles
the container traffic for the Port of Sohar, was counting on
a "certain company" to provide 420,000 twenty-foot equivalent
units (TEUs) per year in traffic in its initial projections.
He cautioned that this expected volume most likely will not
materialize now, leaving a gaping hole in the company's
efforts to fill the 800,000 TEU capacity the terminal
currently has available.


4. (C) In addition to the uncertainty surrounding the
construction of the polyethylene plant, Teo criticized the
government for not being more effective in advertising the
potential of the port, and for pursuing policies, such as
charging $2.60 per metric ton shipped from the port, that
drove business away to Dubai. For example, he cited that
Oman Polypropylene Plant, a prime customer for the port,
instead trucks its product to Dubai's Jebel Ali port to take
advantage of lower handling costs.


5. (C) Comment: The loss of the Dow project would be a
serious blow to government efforts to diversify its economy
through large-scale industrial projects based in Sohar. It
would also represent a major setback for U.S. investment in
Oman, which recently witnessed New Jersey-based PSEG's
divestiture from its profitable electric utility project.
While costs have been previously cited as possible obstacles
to construction, the looming gas shortage in Oman is also
weighing heavily on the minds of project planners and
government officials. Furthermore, the OICT CEO's comments
also cast an initial shadow over a port that until now has
been heralded as the shining beacon of Oman's future. End
Comment.


GRAPPO