Oman's Slow Progress in Privatization

C O N F I D E N T I A L MUSCAT 000951 SIPDIS E.O. 12958: DECL: 2019/10/11 TAGS: ECON EINT ETRD MU SUBJECT: Oman's Slow Progress in Privatization CLASSIFIED BY: Richard Schmierer, AMB, Department of State, Embassy Muscat; REASON: 1.4(B),(D) ¶1. (SBU) SUMMARY: Privatization in Oman has been a methodical process and most likely will continue to be so for the foreseeable future. The recent economic downturn may have caused the government to rethink plans to privatize key sectors of the economy. The government continues to publicly express its intention to further privatize, although such efforts are now primarily focused on the electricity sector. The approach to privatization exemplifies the Omani approach to all matters of importance: a well-studied, step-by-step deliberative method. END SUMMARY. ¶2. (SBU) Vision 2020, Oman's overarching plan for economic development, is a three-pronged approach to privatize, Omanize, and diversify the economy. To implement Vision 2020, Oman created, and continues to create, five-year plans. Oman first tested the privatization waters with the sale of 40.5% of its shares in Oman Flour Mills in 1988. The sale preceded Vision 2020, which was implemented in 1995. That year, the government continued the privatization of Oman Flour Mills by further reducing its stake in the company to 51%. Buoyed by the success of the Oman Flour Mills privatization, the government started to experiment in privatizing the electricity sector in 1996 with the Manah Power Project. The electricity sector, which includes desalination stations, is now the focus of Oman's privatization efforts. The government has several large electricity projects up for bid, including the Barka III and Sohar II electricity generation plans. Telecommunications, pension funds, and sea ports have also been targeted for privatization. ¶3. (C) The recent economic downturn has served as an excuse for delays in privatization and may in fact have contributed to a rethinking of privatization in key sectors. Manal Al Abdwani, Director General for Planning and Follow-Up in the Ministry of Commerce and Industry (MOCI),said that it is fortuitous that the government has retained majority shareholder status in Oman Flour Mills, as government ownership ensures that the correct amount of inputs are ordered and distributed. Several sources in the business community confirm that Al Abdwani is highly influential within the MOCI, and a statement to this effect may indicate that further privatization in the food sector will be halting. ¶4. (C) Addressing what effects the economic downturn has had on Oman's plans for privatization, the Undersecretary for National Economy, Dr. Shaikh Abd Al Malik Al Hinai, stated that the "timing [for further privatization] is not right." On October 3, state owned Arabic daily "Oman" reported that the government postponed selling its stake in the Oman Telecommunications Company (OmanTel) due to the financial crisis. "Oman" also reported that several international firms offered bids. A well-placed source within the business community said that the terms of sale for OmanTel were such that no serious buyer was attracted. The perception within the business community is that the Ministry of Transport and Communications is waiting for a buyer that will be amenable to the Ministry's objectives even after the sale. ¶5. (C) COMMENT: Regardless of economic conditions Oman has had a stilted privatization process, although such conditions may now serve as a scapegoat for the lag. Privatization has been most successful in the electricity generation sector. Although the process is slow, it is also meticulously planned. It is possible that privatization of the electricity generation sector is serving as a guinea pig for larger privatization plans. END COMMENT. Schmierer