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