NEW FOREIGN FIRMS SEEK FOOTHOLDS IN OMAN

C O N F I D E N T I A L MUSCAT 000187

SIPDIS

SIPDIS

STATE FOR NEA/ARP, EEB/CBA
COMMERCE FOR ITA THOFFMAN

E.O. 12958: DECL: 03/02/2018
TAGS: ECON EINV ETRD PREL IR MU
SUBJECT: NEW FOREIGN FIRMS SEEK FOOTHOLDS IN OMAN

REF: A. MUSCAT 156


B. 07 MUSCAT 792

Classified By: Ambassador Gary A. Grappo for Reasons 1.4 (b and d)

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Summary
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1. (C) According to a key project development banker in
Oman, new foreign firms, including those from Iran and China,
are attempting to gain a foothold in Oman amidst the current
construction boom. So far, entry has not been easy, in spite
of Oman's generally clean tender process. Competence,
financing, language, and cultural barriers pose the greatest
difficulties for Iranians and other new entrants. Oman's
government is looking abroad for a strategic partner for its
telecom operator, but the banker believes that one of the
most promising sectors for foreign investment lies in the
emerging downstream opportunities from the industrial
development of Sohar. End Summary.

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It's Not Who You Know
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2. (C) On February 27, Econoff discussed foreign
participation trends in the Omani market with Oman Arab Bank
Deputy General Manager Michel LeFur. LeFur commented that in
general, Oman's clean tendering process favored greater
participation from international firms, and that with the
opening of the economy, local sponsorship was not as
important as it once was. "Knowing (Minister of National
Economy) Ahmed Macki or (Minister of Foreign Affairs) Yusef
bin Alawi isn't as important as it once was," stated LeFur.
To illustrate his point, LeFur recounted a story of a French
firm trying to cozy up to Macki on the basis of his knowledge
of the French language. "In the end, their efforts to get in
with the Minister didn't get them very far," he remarked.

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Iranian Interest
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3. (C) On Iran, LeFur acknowledged that there has been a
greater push by Iranian entities to establish closer
commercial relationships with Oman, but added that they had
accomplished little. For example, he questioned the veracity
of reports that Bank Saderat had signed a memorandum of
understanding for a $100 million line of credit with the Oman
Chamber of Commerce and Industry (ref A). (Note: A former
Chamber board member was equally dismissive of the link in a
subsequent conversation with Econoff. End note.)


4. (C) LeFur stated, however, that Iranian companies were
interested in bidding on Omani tenders, and that construction
officials from Iranian-controlled HICO Dubai had seen him
twice about obtaining financing for their bids in Oman.
LeFur said that HICO Dubai would most likely table the lowest
bid on one particular tender, but noted that its inability to
obtain financing would hurt its competitiveness. Language
issues and lack of market familiarity may also doom its
chances, he commented. According to LeFur, the Omani
government, in an attempt to be cordial, is letting the
company proceed despite these significant hurdles -- "It's
political." In signaling the local banking community's
wariness over doing business with Iranian firms, he added,
"We won't touch them."

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Chinese Stumbling
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5. (C) China is also making its presence known in the Omani
market, though LeFur acknowledged that first impressions of
the Chinese have not instilled a great deal of confidence in
their ability to handle high-profile projects. On the
construction of a new highway from Quriyat to Sur, LeFur
stated that the Chinese firm responsible for the southern
road extension was far behind schedule. He also raised the
incompetence of Chinese firm SinoHydro in constructing
Muscat's new wastewater system, another significantly delayed
project. As the financier for the Chinese firm, Oman Arab
Bank has already had to call in a performance guarantee of
$10 million from the Bank of China. Nevertheless, in spite
of the mis-steps, accentuated by the Chinese' lack of English
skills and cultural familiarity, the Omani government decided
not to re-tender the project, given that it would have cost
upwards of 70 million rials (USD 181 million) to put it out
for bid again. LeFur added that politics played a role in
keeping SinoHydro on-board, noting that China is Oman's
largest energy export market and home to growing Omani
investment.

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Help Wanted on Telecom
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6. (C) On government efforts to locate a strategic partner
for Omantel, the monopoly fixed-line operator, LeFur confided
that there is significant American interest in serving as the
financial consultant for the tender, He noted that JP
Morgan, Morgan Stanley, Lehman Brothers, Citibank, and
Rothschild have all expressed interest, although aside from
Citibank, LeFur felt that none had a sufficient grasp of the
region in general, and of Oman in particular.

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Downstream Opportunities Available
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7. (C) One area where LeFur saw significant potential for
foreign investment is in the downstream possibilities from
the industrial development of the port city of Sohar, about
two hours north from Muscat. LeFur commented that as a
result of government-owned Oman Oil's investments in
methanol, urea, aluminum, aromatics, and steel production
facilities, the company had established a subsidiary to form
downstream joint ventures. The company, known as Takamul, is
now considering 12 new projects related to aluminum and
minerals, but has encountered difficulties in finding foreign
firms to participate in the proposed ventures.
GRAPPO