Identifier
Created
Classification
Origin
07MUSCAT97
2007-01-30 13:25:00
UNCLASSIFIED
Embassy Muscat
Cable title:  

OMAN 2007 INVESTMENT CLIMATE STATEMENT

Tags:  EINV EFIN ETRD ELAB ENRG KTDB OPIC PGOV USTR 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHMS #0097/01 0301325
ZNR UUUUU ZZH
R 301325Z JAN 07
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 7722
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS MUSCAT 000097 

SIPDIS

SIPDIS

STATE FOR NEA/ARP, EB/IFD/OIA
STATE PASS TO USTR (JBUNTIN)
COMMERCE FOR ITA COBERG
TREASURY FOR OIA VALVO

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB ENRG KTDB OPIC PGOV USTR
MU
SUBJECT: OMAN 2007 INVESTMENT CLIMATE STATEMENT

REF: 2006 STATE 178303

UNCLAS MUSCAT 000097

SIPDIS

SIPDIS

STATE FOR NEA/ARP, EB/IFD/OIA
STATE PASS TO USTR (JBUNTIN)
COMMERCE FOR ITA COBERG
TREASURY FOR OIA VALVO

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB ENRG KTDB OPIC PGOV USTR
MU
SUBJECT: OMAN 2007 INVESTMENT CLIMATE STATEMENT

REF: 2006 STATE 178303


1. Per reftel request, Embassy submits the following
Investment Climate Statement for 2007.


2. Begin text of Investment Climate Statement:

Economic Overview

Oman's economy is based primarily on petroleum and natural
gas, which are expected to account for 79% of the
government's revenue in calendar year 2007. Oman's proven
recoverable oil reserves are estimated at 4.8 billion
barrels, though the Ministry of Oil and Gas estimates that
there are potentially 38 billion barrels of recoverable oil.
Oman's oil production for the first ten months of 2006
averaged 740,700 barrels per day (bpd),a 4.4% drop from the
774,000 bpd over the same period in 2005. The government has
estimated production at 730,000 bpd over the course of 2007.


The Oil and Gas Ministry projects that the current dip in
production, which has fallen from close to 1 million bpd in
2000, should be reversed by 2010. The government has
committed to making significant investments in enhanced oil
recovery techniques on behalf of majority state-owned
Petroleum Development Oman (PDO) during the course of the
current five-year economic plan (2006-2011). In 2007, the
government will invest $1.53 billion in petroleum production.
PDO, in partnership with Royal Dutch Shell, controls 90
percent of reserves and the lion's share of total production.
Further PDO exploration will result in production increases
in smaller fields, rather than larger ones. The company will
focus on using more nimble foreign operators to obtain better
production from its mature fields, such as the Harweel
cluster, which is geographically difficult to produce, and
the Daleel cluster, which produces only about 15,000 bpd.

Complementing PDO's production is U.S.-owned Occidental

Petroleum, which will invest over $3 billion in its recently
acquired Mukhainza field. The government expects the
investment will result in an increase in the field's
production from 10,000 bpd to 150,000 bpd within a five-year
time span. Occidental is Oman's second largest producer,
with a current production rate of 50,000 bpd. The combined
efforts by PDO and Occidental could potentially boost
production numbers to approximately 850,000-900,000 bpd by

2011.

Oman has developed its natural gas industry to the point
where liquefied natural gas (LNG) will account for an
estimated 12% of government revenues in 2007. Oman LNG began
operations in April 2000 with two 3.3 metric ton per annum
(MTPA) LNG production trains. Completion of a third
liquefied natural gas (LNG) train, Qalhat LNG, necessitated
the expansion of 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, representing
approximately 8% of LNG shipped worldwide annually. Off-take
of much of the production from this plant has 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. As a result of investment in this sector,
gas production is up 25% over the first 10 months of 2006
compared to the same period in 2005.

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. Six
LNG transport vessels currently operate under the Omani flag,
with three other vessels expected to join the fleet by 2008.

Concerns have been raised about the availability of
sufficient natural gas reserves to power Oman's
industrialization plans. Oman's gas reserves were revised
downward from 30.3 trillion cubic feet (tcf) at the end of
2004, to 24.2 tcf in 2005, according to the Ministry of Oil
and Gas. Official estimates claim that potential gas
reserves stand at 33.8 tcf, reflecting efforts to encourage
international companies to actively explore for gas. The
government, which has allocated over $1 billion in the 2007
budget to invest in gas production capabilities, awarded a
tender to BP in December 2006 for the exploration of a deep
gas field recently discovered by PDO that potentially holds
10 tcf of recoverable gas. BP intends to invest $650 million
to develop the Khazan and Makaram gas fields over the next
six years. With the new fields being developed by British
Gas along the Saudi border, the government is optimistic that
indigenous reserves will increase by a sufficient amount to
meet forecasted demand. Oman still exports gas to the United
Arab Emirates, but will begin importing gas in 2008 to
support its own growing industrialization initiatives.

With limited reserves, Oman is focused on diversifying its
economy away from oil and gas production. The long-term
'Oman Vision 2020' development plan highlighted the need for
the Omani economy to diversify through a process of
Omanization, industrialization and privatization. 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, including a petrochemical plant
(with Dow Chemical),a steel rolling mill, a fertilizer
plant, and an aluminum smelter (being built by Bechtel).

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 programs, including power generation projects
in Salalah, Sohar, Barka, Rusayl, and the Sharqiyah region,
and a water production plant in Sur. Other power and water
generation projects are scheduled for Salalah, Sohar, and
Duqm.

Oman is developing its light manufacturing sector through
industrial estates managed by the Public Establishment for
Industrial Estates (PEIE). More than 235 factories operate
in the industrial estates, with a total investment of $1.3
billion. The most developed is Rusayl Industrial Estate,
located on the outskirts of the capital. The government is
looking to further promote small and medium-sized enterprise
development through its association with the Sanad and
Intilaaqah ("take-off") programs. These programs provide
counseling and training assistance for microbusiness
formation.

In addition to industrialization efforts, Oman is
aggressively marketing itself as an upscale, environmentally
conscious tourist destination. In 2004, Oman welcomed 1.5
million tourists, generating revenues of $284 million.
Through aggressive marketing campaigns and improved
infrastructure, Oman hopes to triple the industry's one
percent contribution to GDP and eventually create over
114,000 tourism-related jobs. International investors are
taking advantage of significant improvements in local
infrastructure to develop ambitious new tourist projects.
Investors hope to lure 3 million visitors annually with
resorts like the $160 million Barr al-Jissah Resort and Spa
(already fully operational),the $800 million Wave project,
the $1 billion "Omagine," and the $15 billion Blue City
development just north of Muscat.

The Ministry of Tourism and government-owned Oman Tourism
Development Company, now called OMRAN, are moving forward on
plans to construct 16 hotels and a convention center within
the next five years, which will alleviate the chronic hotel
room shortages in Muscat. OMRAN primarily serves as the
government's investor in tourism projects, either as the sole
investor or in partnership with the private sector. The
Wave, which represents the first opportunity for non-GCC
residents to purchase freehold property, has already broken
ground, and the Blue City is set to initiate construction in
the early part of 2007. Multi-hotel complexes near the towns
of Yiti and Sifah are also in final planning stages, and the
government is planning to finish a three-hotel convention
center complex by 2010.

Complementing Oman's development as a tourist destination is
Gulf Air's recent decision to consolidate its hubs at Muscat
and Manama after the withdrawal of the Abu Dhabi emirate from
the consortium. As a result, Gulf Air has rolled out new
service from Muscat to Paris, London-Heathrow, Bangkok,
Jakarta, Kathmandu, Karachi, Mumbai and Kuala Lumpur. To
support the increases in air traffic, the government is
finalizing plans to build a second runway and much-needed new
terminal at Muscat's Seeb International Airport by 2011, a
new terminal and taxiway at Salalah Airport by 2010, and new
airports at Sohar, Ras al-Hadd, and Duqm.
Oman is focusing on its port infrastructure as well. Two of
Oman's principal ports, Sohar and Salalah, are aggressively
moving forward on expansion of their respective operations.
The Port of Sohar, a 50-50 joint venture between the
Sultanate and the Port of Rotterdam, will anchor the $12
billion industrial development planned for the region. Oman
is confident that the Port's advantageous location outside
the Strait of Hormuz and within 300km of three large gas
reserves will lend to its success. In addition to its berths
for industrial liquids, Sohar is positioning itself as Oman's
largest container port with over 7 square kilometers of land
and a projected 10 dedicated shipping berths. The port is
already doing brisk business, with its operations handling
volumes that were not expected until 2008.

The Port of Salalah has risen quickly to become a key
transshipment hub for Maersk and its parent company, A.P.
Moller (APM). Operated by Salalah Port Services (SPS),which
is 30% owned by APM Terminals and 20% owned by the government
(with the remaining 50% owned by pension funds, Omani
corporations, and private investors),the port handled 2.23
million 20-foot equivalent units (TEUs) in 2004, ranking it
as the world's 31st busiest port. Plans are ahead of
schedule to expand the capacity of the port by adding two
berths to the existing four in operation. Once completed,
the $234 million expansion, shared roughly evenly between SPS
and the Omani government, will increase capacity by 1.8
million TEUs, bringing total capacity to 4.38 million TEUs.
The government, which is considering a package of incentives
to promote a proposed free zone adjacent to the port,
recently oversaw the signing of a memorandum of understanding
between the Salalah Free Zone Corporation and the Jebel Ali
Free Zone Authority in Dubai. Salalah officials are also
depending on the growth of tourism through the construction
of four new resort projects by 2010.

The Omani government is finalizing plans to develop a port at
Duqm, a lightly populated area along the Arabian Sea. Master
plans call for the construction of a drydock facility, oil
refinery, and fish processing center to compete with Dubai's
Jebel Ali port complex. The Duqm development plan also calls
for the construction of an airport to facilitate passenger
movements and cargo shipments.

In moving forward on these initiatives, the government is
encouraging job-related 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. 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 number of expatriates in Oman is around 660,000, roughly
one-quarter of the population. In January 2007, the Ministry
of National Economy reported a 15.2% increase in the number
of expatriates working in the private sector over the same
period in 2006, bringing their number to 489,350. By
contrast, the Ministry of Manpower reported that only around
44,000 Omanis are formally working in the private sector.
Despite government efforts to replace expatriate workers with
Omanis, Oman still depends heavily on South Asian and other
foreign labor to fill jobs that require physical labor,
clerical work, or certain technical skills.

Public companies are traded on the Muscat Securities Market
(MSM). A dramatic downturn in the 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. Observers attributed the sell-off to overzealous
speculation, combined with abnormally high equity valuations,
uninformed investors, and a lack of transparency. The market
began to recoup some of its losses in 2003, and by January
2007, the MSM bucked regional trends to close at an all-time
high of 5829.100, up 14% from 2005. During this time, the
MSM witnessed several high-profile offerings. AES Barka
Power Company, a subsidiary of the AES Corporation of
Virginia, mobilized capital equal to seventeen times the
amount of shares offered through its IPO. Similarly, strong
investor interest propelled the IPOs of Omantel, Dhofar Power
Company, and Taageer Finance Company. Most recently, Bank
Sohar floated its IPO in January, which was oversubscribed
five times.

The strong performance of the MSM is partly reflective of the
government's efforts 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 in the interest of enhancing
efficiency and service offerings. In January 2007, the
government's regulatory agency, the Capital Market Authority
(CMA),moved to encourage additional foreign investment in
the market with the complete lifting of the 49% cap on
foreign holdings in mutual funds. The 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 seminars emphasizing the importance of accurate
media reporting 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. The government hopes to attract over $12
billion in new foreign investment over the next 25 years.
Investors transferring technology and management expertise,
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 Promotin and Export Development
(OCIPED),opened in 1997to attract foreign investors and
smooth the pathfor business formation and private sector
projec development.OCIPED also provides prospective forign
investors with information on government reglations, which
are not always transparent and somtimes contradictory.
Nevertheless, despite OCIPE's efforts to assist new business
development, ad the Ministry of Commerce and Industry's
effort to establish a 'one-stop shop' for government
clearances, the approval prcess for establishing a business
can be tedious,particularly with respect to land acquisition
an labor requirements.

With Oman's accession to th World Trade Organization in
October 2000, automtic approval of majoity foreign
ownership (up t 70 percent) is available. Registration of
thes joint ventures is treated in the same manner as tat
common to all registrants. The foreign firm mst supply
documentary evidence of its registratin in its home country,
its headquarters location its capital holdings, and its
principal activites. If a subsidiary, it must demonstrate
its auhority to enter the joint venture. Except in thepetroleum sector, where
concession agreements withthe
Ministry of Oil and Gas determine the terms f investment,
new entities with greater than 70 ercent foreign ownership
are subject to the approval of the Minister of Commerce and
Industry.

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 and 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. For example, the government recently completed a
tender that included the privatization of an existing power
plant in Rusayl in addition to the construction of a new
power plant in Barka. One approach to partial conversion was
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 must be licensed by the Ministry of
Commerce and Industry. In addition, a foreign firm
interested in establishing a company in Oman must obtain
relevant approvals 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 for an additional
five years;
- 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 years of a project, with
packaging materials exempted for five years.


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. Oman
maintains a strong and effective regulatory regime with
respect to its formal financial institutions, and local banks
are subject to Central Bank regulations on lending practices
to individuals and corporations outside the Sultanate. The
government reinforced its anti-money laundering regulations
through the March 2002 ratification of the "Law of Money
Laundering" and the July 2004 promulgation of implementing
regulations. Under these provisions, the commercial banks
work closely with the Central Bank and the Royal Oman Police
to identify suspicious transactions. Individuals have to be
resident in Oman to open a bank account and transfer funds.
For foreign bank transfers, Omani banks require complete
documentation of the source of funds before approving the
transaction. Omani banks, which maintain a strict "know your
customer" policy, will not process transfer requests from
unknown or suspicious foreign financial institutions.


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 the
event that a property was to be nationalized, Article 11 of
the Basic Law of the State stipulates that the Government of
Oman will provide prompt and fair compensation. Furthermore,
under the U.S.-Oman Free Trade Agreement, Oman will follow
international law standards for expropriation and
compensation cases, with access to international arbitration.



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 $26,000. A Court of Appeals exists
for cases where the sum disputed is greater than $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 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. All litigation and
hearings are 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 question 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 employees, distributed
evenly among different administrative levels, to qualify for
these incentives.

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. For this reason, 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 Ministry of Tourism is finalizing the
implementing regulations and preparing to designate the
zones, such as the Wave and Blue City, within which the law
will apply. The law does not apply to commercial real
estate, which cannot be owned by non-GCC nationals.

Oman will provide strong intellectual property rights
protection under the U.S.-Oman Free Trade Agreement. The
government is finalizing revisions to its industrial property
and copyright laws to comply with these obligations prior to
the Agreement's entry into force. Under its FTA obligations,
Oman will provide increased IPR protection for copyrights,
trademarks, geographical indications, and patents. Oman will
also improve enforcement and protection of undisclosed test
data from unfair commercial use.

These revisions will build upon Oman's existing intellectual
property rights regime, already strengthened by the passage
of WTO-consistent intellectual property laws on copyrights,
trademarks, industrial secrets, geographical indications and
integrated circuits in 2000. Further, in October 2000 Oman
issued new, WTO-consistent IPR legislation to protect patents
and other intellectual property rights.

Under Oman's TRIPs-compliant 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. Oman's
copyright protection law extends 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.

In October 2005, the government designated the Ministry of
Commerce and Industry as the primary investigative authority
on intellectual property issues, 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. Enforcement of the copyright protection
decree by this committee has been effective, as once
plentiful pirated video and audiotapes and computer software
have largely disappeared from local vendors' shelves. For
example, in 2006, the government conducted a series of
coordinated sweeps that netted over 40,000 counterfeited
media products.

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. The
BSA recently praised Oman for its efforts in combating
software piracy, and the government signed a three-year
contract with Microsoft Corporation for the use of the
company's licensed products in 2006. 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.

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 (USPTO) in the area
of intellectual property rights protection. Several Omani
officials have traveled to the United States for IPR
training, and the USPTO hosted IPR seminars for government
officials in January and December 2006.


Transparency of the Regulatory System

The government recognizes that its regulatory environment can
hamper investment and commercial activity. In addition to
ownership and agency requirements already mentioned,
licensing of business activities can be time-consuming and
complicated. The absence of a particular clearance can 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 in the local
private sector. Because decisions often require the approval
of multiple ministries, the government decision-making
process can be tedious and non-transparent.

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. Chaired by
the Minister of Transport and Communications, the TRA's
temporary committee members include officials from the
Ministry of National Economy, Ministry of Defense, and Royal
Oman Police. 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 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 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 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. Finally, the CMA moved to shorten
the time period companies have to file their financial
statements after the close of the fiscal year from three
months to two, and shortened the time period in which
companies have to hold their annual meeting after the close
of the fiscal year from four months to three.


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 an authorized broker. Since the 1998 market
downturn, MSM statistics show that the percentage of foreign
investment in the MSM increased from 16.16% at the end of
2005 to 23.28% at the end of 2006, the second highest level
since the opening of the market.

The banking sector currently consists of 14 banks (five
domestic and nine foreign),with Bank Muscat being the
largest. Most recently, the Bank of Beirut and the
Commercial Bank of Qatar announced that they would be
expanding their operations to Oman. In addition, there are
three government controlled lending entities. The sector has
largely rebounded from the 1999 economic downturn, as
provisional 2006 figures from the Central Bank indicate a
combined net profit of $410 million, up from $320 million in

2005. 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 th Capital
Market Law and the Commercial CompaniesLaw that stipulated
that boards of directors of al jointly listed companies must
appoint an interal audit committee, an internal auditor, and
a lgal advisor.

In November 2005, the government st limits on the
remuneration of boards of directrs by amending the
Commercial Companies Law throuh Royal Decree 99/2005. Under
the decree and acompanying regulations, the remuneration for
a bord of directors may not exceed five percent of acompany's net profits, up to a maximum of 200,00 RO.
($516,000),unless the compay'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) are also required
to resign from the boards of public companies. Most major
contracts are awarded through
a slow, rigorous, but generally clean tender process. Oman
advertises tenders in the local press, international
periodicals, and on the Tender Board's website. Also,
bidders are now requested to be present at the opening of
bids, and interested parties may view the process on the
Tender Board's website.
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 2006,
Transparency International ranked Oman 39th best out of 133
countries in its "Corruption Perception Index."


Bilateral Investment Agreements

After consultations with Congress, the United States began
Free Trade Agreement (FTA) negotiations with Oman in March

2005. On January 19, 2006, U.S. Trade Representative Rob
Portman and Omani Minister of Commerce and Industry Maqbool
bin Ali Sultan signed the FTA. Following Congressional
approval of the FTA in September 2006, the President signed
the FTA into law on September 26, 2006. Sultan Qaboos signed
the FTA shortly afterwards. The FTA will be brought into
force once the governments of both the United States and Oman
certify that respective regulations are in compliance with
the provisions of the Agreement. The FTA supplants 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

Oman,s 2003 Labor Law governs employee/employer relations in
the private sector, and enumerates the protections afforded
both Omani and migrant workers. The law sets the minimum
working age at 15, provides clear guidelines on wages and
working hours for Omani citizens, and specifies the penalties
for noncompliance with the its provisions. In conjunction
with the U.S. - Oman Free Trade Agreement, Oman made
significant amendments to the 2003 Labor Law. The amendments
and associated Ministerial Decisions allow for more than one
union per firm, require employers to engage in collective
bargaining over terms and conditions of employment, and
specify guidelines for conducting strikes. The amendments
also prohibit employers from firing or otherwise penalizing
workers for engaging in union activity, and increase the
penalties for hiring underage workers or engaging in forced
labor.

The minimum wage for Omanis working in the private sector,
including salary and benefits, is 140 R.O. (about $363) 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. There is no minimum wage
for non-Omanis, however. In addition, non-Omanis in retail,
personal service outlets, construction, and petroleum fields
typically work up to seven days a week, depending on their
contracts. Oman relies heavily on expatriate labor,
primarily from India, Bangladesh, Pakistan and Sri Lanka, to
perform menial and physically taxing work. Expatriates also
fill many managerial positions.

However, 'Omanization', the localization of labor, is a high
priority for the government. Foreign nationals may not be
employed as human resource officers, guards, light vehicle
drivers, Arabic typists, agricultural workers, forklift or
mixer operators, entry level accountants 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. The
government continues to expanding its Omanization drive to
areas outside the capital of Muscat, particularly in the
retail, transport, and light manufacturing sectors.

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 working age, and the worst
forms of child labor. Oman has not ratified conventions
related to freedom of association or collective bargaining,
or the conventions related to the elimination of
discrimination with respect to employment and occupation.


Foreign Trade Zones/Free Ports

The government is keen to establish free zones to complement
the Sultanate's port development. Salalah's free zone is
taking shape, as the Salalah Free Zone Company (SFZC) is
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.
A proposed incentive package, which has yet to be officially
approved by the Omani government, reportedly will include a
30-year tax holiday, duty-free treatment of imports and
exports, permission for 100% foreign ownership, and tax-free
repatriation of profits. Additional benefits include a
one-stop shop for business registration and a low 10 percent
Omanization requirement. U.S.-based Octal Petrochemicals,
India-based TVS Group, and government-supported Salalah
Methanol are the anchor tenants. The government recently
oversaw the signing of a memorandum of understanding between
the Salalah Free Zone Corporation and the Jebel Ali Free Zone
Authority in Dubai to explore areas of cooperation. The
government is also evaluating the establishment of a free
zone adjacent to Sohar Port. In addition, the government
opened a free trade zone at an interior border crossing point
with Yemen (al-Mazyounah) in 1999.

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;
duties are refunded if the vehicle is re-exported within six
months.


Foreign Direct Investment Statistics and Major Foreign
Investors

Systematic information on foreign direct investment is
limited. As per Capital Market Authority statistics from
December 2006, foreign participation equaled 24% in terms of
shares held in the Muscat Securities Market. Foreign capital
constituted 25% of the shares held in finance, 25% in
manufacturing, and 18% 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 Oman's
petroleum and gas sectors. 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. Bechtel is constructing
an aluminum smelter on behalf of Sohar Aluminum.

End text of Investment Climate Statement.
GRAPPO