OMAN INFRASTRUCTURE INVESTMENTS PAVE WAY FOR

UNCLAS MUSCAT 000384 SENSITIVE SIPDIS STATE FOR NEA/ARP, EEB/TRA COMMERCE FOR ITA THOFFMAN E.O. 12958: N/A TAGS: ECON EINV EAIR MU SUBJECT: OMAN INFRASTRUCTURE INVESTMENTS PAVE WAY FOR GROWTH -------------- Summary -------------- ¶1. (SBU) Oman's investment in its infrastructure is paying dividends, as port development has led to greater foreign participation in various downstream industrial opportunities, while improvements to Oman's air transportation network will facilitate increased tourist arrivals. Road construction figures prominently in the Sultanate's plans, highlighted by the building of a modern expressway from Muscat to Oman's border with the United Arab Emirates. The government is also considering a plan to build its first rail network to connect three of its principal ports. End Summary. -------------- Port Infrastructure Benefits from Windfall -------------- ¶2. (U) The government has used its windfall from oil revenues, in part, to diversify Oman's economy through infrastructure development. The largest single industrial investment target is the northern coastal city of Sohar, which has witnessed over $12 billion in government investment alone. The Port of Sohar, a 50-50 joint venture between the Sultanate and the Port of Rotterdam, anchors the industrial development planned for the region. Oman is confident that the port's advantageous location outside the Strait of Hormuz, approximately 160 kilometers by road from Dubai 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 complex, currently 80% leased, is projected to employ 8,000 people, with a further 30,000 indirect jobs created. In 2007, port traffic reached 600 vessels. Officials anticipate further increases of 50% each successive year over the next three years as more industrial projects come on-line. ¶3. (U) Most recently, the Sohar Industrial Port Corporation (SIPC) signed an agreement with VALE of Brazil for the construction of a $1 billion iron ore pellet plant. VALE will ship iron ore from Brazil to the plant for processing and export to the Gulf, Middle East, and southeastern Asian markets. Production is reportedly expected to start by the end of 2010. In addition, SIPC signed an agreement with India-based SKIL Group of Companies for the management of Sohar's 4,300 hectare Special Economic Zone that will serve as the hub for the expected downstream industries created from the port's industrial development. ¶4. (SBU) The Port of Salalah, located in the far south of Oman, is a key container 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 approximately 2.5 million 20-foot equivalent units (TEUs) in 2007. The port added one berth to its existing four in 2007, and will open its sixth in 2008. Once completed, the $234 million expansion, the cost of which will be 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. Media report that the port will also invest in four new gantry cranes capable of handling the largest container ships. ¶5. (U) The government is promoting the free zone adjacent to the port in Salalah with a package of incentives and is in partnership discussions with the Jebel Ali Free Zone Authority in Dubai. Anchoring the zone is OCTAL Petrochemicals, formed in 2006 by a U.S.-based private equity group and local investors, including the Suhail Bahwan Group, with an initial investment of $300 million. The company will officially inaugurate its 300,000 metric tons per annum (mtpa) APET (amorphous polyethylene terephthalate) plant on July 24. OCTAL is also building a 500,000 mtpa PET (polyethylene terephthalate) plant in Salalah to target the soft drink and bottled water markets in the Middle East, Europe, and the U.S. The company estimates that global export sales capacity will reach $500 million by the end of 2008, with net exports eventually reaching $1.1 billion. ¶6. (SBU) Nourhan Beyrouni, Corporate Communications Director for OCTAL, noted to Econoff that the company chose Salalah based on its advantageous access to the world's largest markets, including New York. He added that the Sultanate's reputation for stability and respect for the rule of law were also important considerations in choosing Oman. Beyrouni remarked, "All you have to do is think about the business. You don't have to worry about anything else." He continued that the company's relationship with the port has been "straightforward," which was different than his experience in working with the Jebel Ali port authority. On gas availability, which has been a prominent concern in Oman's industrialization plans, Beyrouni asserted that OCTAL would have ample supply. ¶7. (U) The Omani government is developing a port at Duqm, a lightly populated area along the Arabian Sea. Master plans call for the construction of a drydock facility, oil refinery, petrochemicals complex 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 cargo shipments and tourism. In April 2008, the government awarded a $440 million contract to Korean-based Daewoo and local contractor Galfar for the construction of Duqm's drydock. ¶8. (U) Port Sultan Qaboos in Muscat is a relatively small port that serves as the primary import gateway for Oman. It features eight useable deep water berths, including four container berths and four general cargo berths. The two deepest berths can accept ships with drafts of up to 12.5 meters. Port Sultan Qaboos is operating at or near capacity, having received over 1,800 vessels in 2007. Given its location opposite the historic Muttrah corniche, plans are underway to develop the port's potential to receive greater numbers of cruise ships through the construction of a $1.2 million passenger terminal. -------------- Airport Expansion -------------- ¶9. (U) In consideration of plans to build 16 new luxury hotels in Oman over the next five years, the government is moving ahead on an ambitious plan to develop its airport infrastructure to accommodate increased tourist arrivals. The government has contracted with technical consultants from ADPI (a subsidiary of Airports de France) and architectural and engineering design firm COWI-Larsen (in association with Copenhagen Airports),to develop plans for new passenger and cargo terminals at Muscat and Salalah International airports. The combined cost for these two projects is estimated by the Ministry of Transport and Communications to be $3 billion. ¶10. (SBU) The Muscat airport project entails the construction of a new mid-field, 32 jetway passenger terminal with a capacity of 12 million passengers per year. The design allows for the eventual expansion of the facility to accommodate up to 48 million passengers per year. It also includes a new 3,900 meter runway that can accommodate the A-380, a control tower, and a 200,000 ton cargo facility, as well as a 40-room airside hotel, shopping arcade, and food court. The government anticipates having the first stage of the airport ready by 2011, and work is already underway to provide appropriate drainage for the terminal and runways. Bechtel will be bidding on the estimated $1 billion construction contract for the terminal, to include parking garages, access roads, and support buildings. It has teamed up with Bahwan Engineering Company, a prominent local firm that worked with Bechtel on the Sohar Aluminum project, and ENKA from Turkey. Prequalification applications are due June 21, with the contract expected to be awarded in May 2009. ¶11. (U) The project design for the airport in Salalah calls for the construction of a new six jetway passenger terminal to accommodate two million passengers per year, along with 100,000 tons of cargo capacity to handle traffic generated by the Port of Salalah and the Salalah Free Zone. The government anticipates opening the new airport in Salalah by ¶2011. In addition, the government plans on constructing regional airports in Sohar, Ras al-Hadd, Duqm, Haima, and Adam. -------------- Longer Wings for Oman Air -------------- ¶12. (U) To facilitate tourist arrivals to Oman, the government is building the capacity of its national carrier, Oman Air, after its withdrawal from the Gulf Air consortium in 2007. The government, which had increased its shareholdings in Oman Air to 82% in 2007, has recently offered to buy out the remaining shares of the company from individual shareholders. Oman Air currently flies to 23 destinations, mostly in the Middle East and India. In late 2007, Oman Air began long-haul operations to London and Bangkok via wet-lease aircraft; it will acquire A330 aircraft in 2009 and Boeing 787 aircraft on a lease-basis in 2012. The balance of its fleet is comprised of 12 Boeing 737-700 and -800 series aircraft, as well as three ATR turboprops. -------------- Expansion of Road Network -------------- ¶13. (SBU) The government is further expanding its system of paved roads, which stood at 17,533 kilometers at the end of ¶2006. Construction is underway in the capital area on the Southern Expressway, which will alleviate traffic congestion in Muscat by providing an alternative artery into and out of the city. This dual-lane road will eventually be extended to the border with the United Arab Emirates, providing a safer, more efficient roadway to Dubai. The government is also constructing dual-lane roads from Muscat to Sur to facilitate tourist traffic to the southeastern coastline, as well as from Sohar to the city of Buraimi on the UAE border to promote onward traffic to Abu Dhabi. Other single-lane roads are being built to connect interior cities with these main highways. U.S.-based Parsons International serves as the consultant for most of the capital's road projects. -------------- Train Talk -------------- ¶14. (SBU) The government is considering establishing its first internal rail network. Minister of National Economy Ahmed bin Abdul Nabi Macki told media outlets in mid-April that he was reviewing plans to construct a 200 kilometer network between Sohar and Barka, located 60 miles north of Muscat, with a possible extension to Duqm. Estimates place the total cost of the dual cargo-passenger project at 20 billion rials (USD 52 billion),though the Minister declined to confirm this figure to the media. GRAPPO