This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 11 MUSCAT 000161 
 
SIPDIS 
 
STATE FOR NEA/ARPI, EB/IFD/OIA 
STATE PASS TO USTR (JBUNTIN) 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB ENRG KTDB PGOV MU
SUBJECT: OMAN 2006 INVESTMENT CLIMATE STATEMENT 
 
REF: 05 STATE 201904 
¶1.  Per reftel request, Embassy is pleased to submit 
the following Investment Climate Statement for 2006. 
¶2.  Begin text of Investment Climate Statement: 
Economic Overview 
 
Oman's economy is based primarily on petroleum and 
natural gas, which is expected to account for 81% of 
the government's revenue in calendar year 2006. 
Oman's proven recoverable oil reserves are estimated 
at 4.8 billion barrels.  The main producer of oil is 
the government majority-owned Petroleum Development 
Oman (PDO, in partnership with Royal Dutch Shell), 
which controls 90 percent of reserves and the lion's 
share of total production.  Oman's gas reserves were 
revised downward from 30.3 trillion cubic feet (tcf) 
at the end of 2004, to 24.2 tcf, according to the 
Ministry of Oil and Gas.  Official estimates claim 
that potential gas reserves stand at 33.8 tcf, in 
light of efforts to encourage companies actively to 
explore for gas.  Oman's oil production for the first 
eight months of 2005 averaged 774,400 barrels per day 
(b/d), a 1% drop from the 782,500 b/d over the same 
period in 2004.  U.S.-owned Occidental Petroleum is 
the second largest producer in Oman, and its 
production is estimated at around 50,000 b/d.  The 
Omani government recently signed a production 
agreement with Occidental Petroleum for the 
development of the Mukhaizna oil field in Dhofar 
(previously owned by PDO), which Occidental projects 
to yield 150,000 b/d within five years. 
 
Oman LNG began operations in April 2000 with two 3.3 
metric ton per annum (MTPA) LNG production trains for 
a total production rate of 6.6 MTPA.  In 2003, the 
Omani government awarded a tender for the 
construction of a third liquefied natural gas (LNG) 
train, Qalhat LNG, to expand 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.  Off-take of much of the 
production from this plant has already 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.  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.  Four 
LNG transport vessels currently operate under Omani 
flag, with two more scheduled for delivery by mid- 
¶2006.  It is further expected that three other 
vessels will join the fleet in 2008. 
 
The government encourages the private sector to take 
on a greater role in financing infrastructure 
projects.  The capital area and other population 
centers have modern, well-developed communications, 
utilities, and road systems.  Additional investment 
is extending this infrastructure to rural areas. The 
long-term 'Oman Vision 2020' development plan 
highlighted the need for the Omani economy to 
diversify beyond its present reliance on petroleum, 
through a process of Omanization, industrialization 
and privatization.  The government has proceeded with 
several major privatization projects, including power 
generation projects in Salalah, Barka, Rusayl, and 
the Sharqiyah region.  The government is also 
partnering with the private sector in the financing 
of several industrial projects in Sohar, including a 
petrochemical plant, a steel rolling mill, a 
fertilizer plant, and an aluminum smelter. 
 
In late 2001, a consortium led by the British Airport 
Authority became the strategic partner for Muscat's 
Seeb International Airport and Salalah Airport. 
However, the consortium dissolved in November 2004 
following disagreement with the government over 
delayed construction of new airport terminals. 
Management of the airports has reverted to the 
government, and new airport expansion plans are 
underway.  The latest plan envisions a second runway 
and a new terminal with a 12 million passenger per 
annum capacity at Seeb International Airport by 2009, 
along with a new terminal capable of accommodating up 
to 2 million passengers per annum in Salalah, also to 
be completed by 2009.  The government has also 
announced plans to build a commercial airport in the 
Ras al-Hadd area in eastern Oman to facilitate an 
expected increase in tourism traffic, and announced 
plans in January 2006 to build airports in Sohar and 
Duqm. 
One of the most successful diversification projects 
thus far is the Port of Salalah, opened in 1998.  The 
container transshipment port, originally established 
jointly by the government and private sector, is now 
30% owned by APM Terminals (a division of Maersk) and 
20% owned by the government, with the remaining 
ownership divided among pensions funds, Omani 
corporations, and private investors.  The port 
handled more than 2.2 million TEUs in 2004, 
surpassing its 2004 target of two million TEUs. 
Aside from being the 31st largest port in the world 
and one of the largest in the region, Salalah Port 
ranks among the most efficient container ports.  It 
is currently adding two new berths and extending its 
breakwater to meet sustained increases in demand. 
The Port of Salalah will be able to handle 4.38 
million TEUs once construction is completed.  The 
Omani government formed its own company in 2004 to 
pursue the establishment of an industrial free zone 
at the Port of Salalah, possibly with a foreign 
partner.  The first phase of the zone is expected to 
be ready by March 2006. 
 
According to the 2003 national census, the number of 
expatriates in Oman is 559,000, one-quarter of the 
population.  In January 2006, the Ministry of 
National Economy reported a 1.5% percent decrease in 
the number of expatriates working in the private 
sector during 2005, bringing their number to 418,000. 
There also has been a modest decline in the number of 
expatriates employed in the public sector.  Despite 
government efforts to replace expatriate workers with 
Omanis, Oman still depends heavily on South Asian 
labor to fill jobs that require physical labor, 
clerical work, or certain technical skills. 
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 government encourages 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. 
 
Continued development and population pressures have 
also contributed to a growing water problem. 
Aquifers are being seriously depleted.  There are 
increasing levels of salinity in groundwater in 
coastal agricultural areas.  A Middle East 
Desalination Research Center officially opened in 
1997, with its headquarters in Muscat; initial 
funding for this center came from Oman, the United 
States, Japan, Israel, and Korea.  MEDRC is looking 
for additional sponsors to fund its research 
endeavors. 
 
Oman is developing more light manufacturing 
industries.  In order to provide facilities for these 
efforts, the Public Establishment for Industrial 
Estates manages industrial estates throughout the 
country.  More than 235 factories operate in 
industrial estates, with a total investment of $1.3 
billion.  The original and most developed is Rusayl 
Industrial Estate, located on the outskirts of the 
capital.  A dramatic downturn in the Muscat 
Securities Market (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.  The MSM dropped from an all-time 
high of 509 points in February 1998 to 152 at the end 
of December 2001.  Observers attributed the sell-off 
to overzealous speculation, combined with abnormally 
high equity valuations, uninformed investors, and a 
lack of transparency.  However, in 2002 and 2003, the 
market began to recoup some of its losses, ending 
2003 at 272.7, a 42% gain over 2002.  This momentum 
continued in 2004.  In April of that year, the market 
crossed the psychological barrier of 300 points, 
ending the month at 306.  The MSM re-indexed in May 
2004, going from a triple-digit base to a four-digit 
one and reached 3,500 (350 in the old system) by 
early January 2005.  By the end of December 2005, the 
MSM surpassed 4700.  AES Barka Power Company, a 
subsidiary of the AES Corporation of Virginia, 
recently floated $29.1 million (35% of its paid up 
capital) for initial public writing.  According to 
press reports, public writing mobilized capital equal 
to seventeen times the amount of shares offered, 
showing a strong demand in the Omani market for 
portfolio investment.  On July 28, 2005, 
telecommunications giant Omantel floated 30 percent 
of its shares to Omani investors, which constituted a 
significant milestone IPO for the Omani capital 
market.  Foreigners were able to begin purchasing 
Omantel shares on October 27, though at the end of 
2005 over 99% of the stock remains with Omani 
investors.  Dhofar Power Company in southern Oman, a 
subsidiary of New Jersey-based PSE&G, also issued an 
IPO in 2005, as well as Taageer Finance Company, 
whose initial offering was available to foreign 
investors. 
 
Since 1998, the government has introduced numerous 
measures 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.  The government's regulatory agency, the 
Capital Market Authority (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 a recent 
seminar that emphasized accurate media reporting as 
integral 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.  Investors 
transferring technology 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 Promotion and Export 
Development (OCIPED) opened in 1997 to attract 
foreign investors and smooth the path for business 
formation and private sector project development. 
OCIPED also provides prospective foreign investors 
with information on government regulations, which are 
not always transparent, and sometimes contradictory. 
Nevertheless, despite OCIPED's efforts to become a 
'one-stop shop' for government clearances, the 
approval process for establishing a business can be 
tedious, particularly with respect to land 
acquisition and labor requirements. 
 
With Oman's accession to the World Trade Organization 
in October 2000, automatic approval of majority 
foreign ownership (up to 70 percent) is available. 
Registration of these joint ventures is treated in 
the same manner as that common to all registrants. 
The foreign firm must supply documentary evidence of 
its registration in its home country, its 
headquarters location, its capital holdings, and its 
principal activities.  If a subsidiary, it must 
demonstrate its authority to enter the joint venture. 
Except in the petroleum sector, where concession 
agreements with the Ministry of Oil and Gas determine 
the terms of investment, new entities with greater 
than 70 percent foreign ownership are subject to the 
approval of the Minister of Commerce and Industry. 
As part of its WTO accession package, Oman is also 
expected to allow 100 percent foreign ownership in 
certain services sector, such as banking, law, 
accountancy, and information technology. 
 
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 & 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 (e.g., electricity).  One 
approach to partial conversion will be 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 with total capital of 
$52,000 or more must be licensed by the Ministry of 
Commerce and Industry.  In addition, a foreign firm 
interested in establishing a company in Oman must 
obtain approval 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; 
- 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 (10) years of a 
project. 
 
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. 
Late in 2001, Oman began implementing a new law for 
the prevention of money laundering, with updated 
regulations on financial crimes being issued in July 
¶2004. 
 
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 any event, were a property to be 
nationalized, Article 11 of the Basic Law of the 
State stipulates that the Government of Oman will 
provide prompt and fair compensation. 
 
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 U.S.$26,000.  A 
Court of Appeals exists for cases where the sum 
disputed is greater than U.S.$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 also 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.  Lastly, the Sharia Court deals 
with family law, such as wills, divorces, personal 
and some criminal matters.  All litigation and 
hearings must be 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 controversy 
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 
ownership to qualify for these incentives.  This law 
is expected to change soon to reflect recent 
developments in foreign investment regulations. 
 
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.  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 
government is finalizing the implementing regulations 
and preparing to designate the zones within which the 
law will apply.  It is expected that these 
implementing regulations will be in place when the 
first residences are offered for sale at tourist- 
designated projects such as The Wave and Blue City. 
The law does not apply to commercial real estate, 
which cannot be owned by non-GCC nationals. 
 
Oman has a 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.  In May 2000, Oman revised its trademark 
law to be TRIPs compliant. 
 
Oman enacted a copyright protection law in 1996, but 
did not announce enforcement mechanisms until a 
ministerial decree in April 1998, which extended 
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.  Thereafter, the government 
stepped up efforts to curtail software piracy in 
Oman, including raids on businesses to ensure that 
Omani firms use no pirated software. 
 
Enforcement of the copyright protection decree by the 
Ministry of Heritage and Culture, the Ministry of 
Commerce and Industry, and the Royal Oman Police has 
been effective, as once plentiful pirated video and 
audiotapes and computer software have largely 
disappeared from local vendors shelves.  The 
Ministry of Commerce and Industry estimates that in 
2005, the government confiscated and destroyed more 
than 20,000 pirated CDs, VCDs and other media.  In 
October 2005, the government designated the Ministry 
of Commerce and Industry as the primary investigative 
authority, 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. 
 
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.  In late December 2004, a 
government raid of four unauthorized software 
resellers in coordination with BSA resulted in 
confiscation of pirated software.  Oman's enforcement 
efforts recently received praise from the BSA. 
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. 
 
In mid-2000, the government introduced new, WTO- 
consistent intellectual property laws on copyrights, 
trademarks, industrial secrets, geographical 
indications and integrated circuits.  Further, in 
October 2000 Oman issued new, WTO-consistent 
intellectual property rights legislation to protect 
patents and other intellectual property rights. 
 
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 in the area of intellectual 
property rights protection. 
 
Transparency Of The Regulatory System 
 
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, and is composed of four 
senior officials (one from the Ministry of National 
Economy, one from Omantel, one from the Royal Oman 
Police, and the Minister of Transport and 
Communications, who serves as the chairman).  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 recognizes that its regulatory 
environment can hamper investment and commercial 
activity.  In addition to the ownership and agency 
requirements already mentioned, the licensing of 
business activities can be time-consuming and 
complicated.  The absence of a particular clearance 
will 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 among 
the local private sector.  Because decisions often 
require the approval of multiple ministries, the 
government decision-making process can be tedious and 
non-transparent. 
 
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 also 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 also 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. 
 
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 a local broker.  Since the 1998 market 
downturn, MSM statistics show that the percentage of 
foreign investment in the MSM has remained stable at 
around 14 percent. 
 
The legacy of the economic slowdown continues to 
impact the banking sector, although most banks showed 
a significant increase in profitability during 2004 
and 2005.  Corporate profitability declined 
significantly in 1999, but has experienced a robust 
recovery in subsequent years.  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 the Capital Market Law and the 
Commercial Companies Law which stipulated that the 
boards of directors of all jointly listed companies 
should appoint an internal audit committee, an 
internal auditor, and a legal advisor. 
 
In November 2005, the government set limits on the 
remuneration of boards of directors by amending the 
Commercial Companies Law through Royal Decree 
99/2005.  Under the decree and accompanying 
regulations, the remuneration for a board of 
directors may not exceed five percent of a company's 
net profits, up to a maximum of 200,00 R.O. 
(US$516,000), unless the company'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) were also 
required to resign from the boards of any public 
companies.  Most major contracts are awarded through 
a slow, rigorous, but generally clean tender process. 
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 2005, Transparency 
International ranked Oman 28 out of 133 countries in 
its "Corruption Perception Index," the highest among 
Arab nations. 
 
Bilateral Investment Agreements 
 
Oman and the United States signed a bilateral Trade 
and Investment Framework Agreement (TIFA) on July 7, 
¶2004.  This agreement established a U.S.-Oman Trade 
and Investment Council, which met for the first time 
in Washington in September 2004.  The US-Oman Free 
Trade Agreement, signed January 19, 2006, will 
supplant 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 
 
A new Labor Law was promulgated by Royal Decree in 
2003, providing additional protections for workers 
and raising the minimum working age from 13 to 15. 
Implementing regulations adopted in early 2004 
clarified the role and scope of workers' 
representative committees as outlined in this law. 
In addition, the government is expanding its 
Omanization drive to areas outside the capital of 
Muscat, particularly in the retail, transport, and 
light manufacturing sectors. 
 
Oman relies heavily on expatriate labor, primarily 
from India, Bangladesh, Pakistan and Sri Lanka, to 
perform menial and physically taxing work, as well as 
to fill managerial positions.  Omani labor law 
stipulates basic practices to safeguard workers; 
employers set wages for Omanis within guidelines 
delineated by the Ministry of Manpower.  The minimum 
wage for Omanis working in the private sector, 
including salary and benefits, is 120 R.O. (about 
$312) 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.  However, non-Omanis in 
retail, personal service outlets, construction, and 
petroleum fields typically work up to seven days a 
week, depending on their contracts. 
 
'Omanization', the localization of labor, is a high 
priority for the government.  Foreign nationals may 
not be employed as technical assistants, guards, 
light vehicle drivers, Arabic typists, agricultural 
workers, forklift or mixer operators, 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. 
 
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 
age, and the worst forms of child labor. 
 
Foreign Trade Zones/Free Ports 
 
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 and have duties refunded if it 
re-exports the vehicle within six months.  In 1999, 
the government opened a new free trade zone at an 
interior border crossing point with Yemen (al- 
Mazyounah).  Oman is currently planning to develop a 
free trade zone in Salalah, adjacent to the 
international container transshipment port that 
opened in November 1998.  The first phase of the 
Salalah free trade zone is expected to be ready by 
March 2006, with the government set to finalize a 
list of incentives for companies willing to establish 
operations there by the first quarter of 2006.  The 
government has also expressed its intention to 
establish a free zone at Sohar port, in conjunction 
with plans to expand the existing port and industrial 
zone. 
 
Foreign Direct Investment Statistics And Major 
Foreign Investors 
 
Systematic information on foreign direct investment 
is limited.  As per Capital Market Authority 
statistics, total investment in listed Omani 
companies with foreign participation was $2.4 billion 
in September 2004, of which 8.94% was foreign 
investment.  Foreign capital constituted 7.49% of 
capital invested in finance, 3.03% in manufacturing, 
and 8.94% 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 the petroleum 
sector.  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. 
Construction is set to commence during the second 
half of 2006. 
 
End text of Investment Climate Statement. 
BALTIMORE