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

UNCLAS SECTION 01 OF 03 MUSCAT 000728 
 
SIPDIS 
 
SIPDIS 
 
FOR EB DAS AMB. DAVID GROSS FROM THE AMBASSADOR 
 
E.O. 12958: N/A 
TAGS: ECPS ECON PGOV OTRA MU
SUBJECT: SCENESETTER: VISIT OF EB DAS AMBASSADOR DAVID A. 
GROSS 
 
REF: STATE 62749 
 
¶1.  Greetings and welcome to the Sultanate of Oman.  My team 
and I look forward to your arrival on May 12 in conjunction 
with the USTDA Information and Communication Technology 
regional forum, May 14-16.  In addition to conference 
activities, we are seeking a meeting with the 
Telecommunications Regulation Authority and a visit to the 
burgeoning investment and IT and business incubation center 
known as Knowledge Oasis Muscat. 
 
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Economic Overview 
----------------- 
 
¶2.  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. 
 U.S.-owned Occidental Petroleum is the second largest 
producer in Oman, and is making sizable investments at 
present in enhanced oil recovery efforts in mature fields. 
 
¶3.  High oil prices in 2005 led to a record Omani budget 
surplus of $3.8 billion and a blistering GDP growth of 21.7 
percent, despite the fact that oil production has been in 
steady decline since 2001.  The 2006 budget, announced on 
January 1, projects massive government spending on industrial 
and tourism projects that could produce a deficit as large as 
6 percent of GDP.  The government also unveiled its Seventh 
Five-Year Plan, to cover 2006-2010, which projects a hike in 
the average investment rate over that period to 24 percent of 
GDP.  Thanks to windfall oil prices and strong tourism 
growth, Oman's economy is currently running at a brisk pace. 
 
¶4.  Oman actively seeks private foreign investors, especially 
in the industrial, information technology, tourism, and 
higher education fields.  The largest single industrial 
investment target is the port city of Sohar, near the UAE 
border.  It has witnessed over $12 billion in government 
investment alone in the financing of several industrial 
projects in Sohar, including a petrochemical plant (with Dow 
Chemical), a steel rolling mill, a fertilizer plant, and an 
aluminum smelter (being built by Bechtel).  Investors 
transferring technology and providing employment and training 
for Omanis are particularly welcome.  The permitted level of 
foreign ownership in privatization projects is 70 percent, 
with up to 100 percent in certain cases.  The government has 
proceeded with several major privatization projects, 
including power generation projects in Salalah, Barka, 
Rusayl, and the Sharqiyah region. 
 
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Telecommunications Regulatory Authority 
--------------------------------------- 
 
¶5.  The Telecommunications Regulatory Authority (TRA) was 
established in 2002 with an interim board composed of 
experienced IT officials.  Its main mission is to develop 
telecommunications infrastructure and to attract foreign 
investment.  Engineer Nashiya bint Sa'ud al-Khurusi (with 
whom you will be meeting), Member Responsible for Technical 
Affairs and Radio Spectrum Management, is the main mover and 
shaker at TRA.  Al-Khurusi was educated in Egypt and was the 
first female to represent Oman in international IT 
conferences in 1972.  She is a tough negotiator, as the U.S. 
side learned during our Free Trade Agreement negotiations in 
¶2005. The TRA's other major interim board member is Colonel 
Muhsin al-Hafidh, Member Responsible for Legal Affairs and 
International Representation.  Al-Hafidh is also the head of 
IT at Royal Oman Police.  His inclusion on the board 
illustrates the strong interest Oman's security services have 
in telecommunications and IT. 
 
¶6.  About two months ago, the TRA issued tenders soliciting 
consultants to help prepare for the offering of a second 
fixed line and internet service provider.  Other activities 
of the Authority include its recent regulatory decision 
against Omantel, ordering them to provide a more competitive 
atmosphere with telecom newcomer Nawras.  Specifically, 
Omantel was ordered to allow subscribers who switch to Nawras 
to retain their original phone numbers. 
 
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Omantel vs. Nawras:  A Healthy Competition? 
------------------------------------------- 
 
¶7.  Omantel's initially successful initial public offering, 
which privatized 30 percent of the company and generated 
millions of dollars in July 2005, reflected the public's 
strong belief in the potential of the telecommunication 
industry.  Omantel's subsidiary, OmanMobile, is the largest 
mobile telecommunication service provider.  Omantel Board of 
Directors is headed by Nasser al-Shukaili, Secretary General 
of Taxes, and its CEO is Dr. Muhammed al-Wahaibi, a former 
officer in the Royal Court and guest speaker at the USTDA 
conference.  Despite its annual increase in profits, Omantel 
faces some major challenges, including its ability to keep 
share prices from declining below its initial offering price, 
to prevent even further decline and discontent over 
privatization and government-promoted IPOs.  Another 
challenge for Omantel will be preparing for its cross-border 
operations in Yemen after recently receiving an official 
invitation to negotiate with the Yemeni government on a 
mobile telephone operating license. 
 
¶8.  Telecom newcomer Nawras is a partnership between the 
Qatari Qtel, a Danish telecommunication consortium, and Omani 
investors.  In its 18 months of operation, Nawras's 
aggressive advertising and market positioning has resulted in 
100,000 subscribers, many of whom migrated from OmanMobile. 
Consumers have benefited from the competition with improved 
services and reduced prices.  However, Nawras faces fierce 
competition from well-established OmanMobile.  A contact 
recently informed PolOff that Nawras has filed a lawsuit 
against it competitor over roaming charges.  Allegedly unfair 
recruitment policies and backlash over the Danish cartoon 
controversy have also affected its image and bottom line. 
 
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Security: VoIP 
-------------- 
 
¶9.  Security entities are still playing a major role in the 
telecommunications sector.  The Royal Office and Internal 
Security Service are represented on the board of directors of 
Omantel and Nawras Telecom.  In addition, the CEO of Omantel 
and a least one of the Vice Presidents are former security 
officials.  Although Omantel organized a seminar on VoIP/SIP 
earlier this month, service from VOIP providers such as 
Net2Phone and Skype were cut some months ago due, 
unofficially, to security services' inability to monitor 
their communications.  U.S. firm GO2Call recently spoke with 
Omantel and the TRA to discuss the use of Go2Call's software 
to monitor VoIP. 
 
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Information Technology Council and the Technical Secretariat 
--------------------------------------------- --------------- 
 
¶10.  The Information Technology Council and the Technical 
Secretariat (ITTS) office of the Ministry of National Economy 
 
SIPDIS 
is in charge of implementing Oman's e-government project and 
drafting e-legislation that is due to be issued by the end of 
this year.  It has been heavily involved in IT projects at 
Knowledge Oasis Muscat, which just opened offices for Hewlett 
Packard and Huwaui. There have been talks that the 
Secretariat may develop into a Ministry of Communications and 
 
SIPDIS 
Technology.  The current head of the IT Council is Minister 
of National Economy, Ahmed bin Abd al-Nabi Macki, who holds 
national economy and finance energy portfolios.  Although 
Oman has one of the lowest internet subscription rates in the 
region, it expects to have over 185,000 internet users by 
¶2009. 
 
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Investment Projects: Tourism 
---------------------------- 
 
¶11.  With Oman aggressively marketing itself as an 
environmentally conscious tourist destination, international 
investors are taking advantage of significant improvements in 
local infrastructure to develop ambitious new tourist 
projects.  U.S. construction and financial firms are joining 
a slew of regional and international consortiums that seek to 
capitalize on the region's annual 6.5 percent growth as a 
tourist destination.  Investors hope to lure 3 million 
visitors annually with resorts like the $800 million Wave, 
the $160 million Bar al-Jissah Resort and Spa (venue for the 
USTDA conference), and the massive $15 billion Blue City 
development just north of Muscat. 
 
¶12.  In 2004, Oman welcomed 1.5 million tourists, generating 
revenues of $284 million. Through aggressive marketing 
campaigns and improved infrastructure, Oman hopes to increase 
the industry's meager 1 percent contribution to GDP to 3 
percent.  The Omani government estimates that the tourism 
sector could eventually create over 114,000 jobs.  To achieve 
these ambitious figures, the Ministry of Tourism has spent 
$30 million to market the country internationally through 
¶2005. 
GRAPPO