VZCZCXYZ0000
RR RUEHWEB

DE RUEHMS #1510/01 2951053
ZNR UUUUU ZZH
R 221053Z OCT 06
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 7314
INFO RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS MUSCAT 001510 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EB/CBA 
COMMERCE FOR ITA COBERG 
 
E.O. 12958: N/A 
TAGS: ECON EINV EIND EWWT PREL MU
SUBJECT: SALALAH PINS ECONOMIC HOPES ON PORT, FREE ZONE, 
AND TOURISM DEVELOPMENT 
 
 
This message contains sensitive business information.  Please 
protect accordingly. 
 
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SUMMARY 
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¶1. (U) The city of Salalah is banking on the growth of its 
port, free zone, and tourism industries in ongoing efforts to 
develop its economy.  Government and private sector officials 
express confidence that proposed investments in these sectors 
will reshape Salalah by 2010 and position the region for 
sustained economic growth.  End Summary. 
 
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PORT EXPANSION CONTINUES 
------------------------ 
 
¶2. (SBU) On October 8-9, Econoff and POLE Assistant traveled 
to the coastal city of Salalah in far southern Oman to review 
key development projects and plans with government and 
private sector stakeholders.  The current anchor of Salalah's 
future is the Port of Salalah, which has risen to become a 
key transshipment hub for Maersk Sealand and its parent 
company A.P. Moller (APM).  In 2005, the port handled 2.49 
million 20-foot equivalent units (TEUs), ranking it as the 
world's 34th busiest terminal.  Virtually all business is 
transshipment in nature, though it does provide import/export 
services for Salalah's few main industries, including Raysut 
Cement, Salalah Mills, and Dhofar Fisheries.  The port also 
generates intermodal business for priority land shipments to 
Jebel Ali in Dubai and Bahrain, which shaves 2 to 3 days off 
of transit time. 
 
¶3. (SBU) Marco Neelman, Planning Director for the Port of 
Salalah, confirmed that plans to expand port capacity remain 
on-track.  The port will add two berths to the existing four 
currently in operation by the first quarter of 2008, with the 
fifth expected to come on-line by the first quarter of 2007. 
Once completed, the $234 million expansion, shared roughly 
evenly between the Port of Salalah and the Omani government, 
will increase capacity by 1.8 million TEUs, bringing total 
capacity to 4.38 million TEUs.  The Port of Salalah continues 
to contemplate building an additional three berths with a 
2.99 million TEU capacity should demand continue to rise. 
 
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FREE ZONE TAKING SHAPE 
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¶4. (U) Complementing the port's growth is the formation of a 
free zone.  Salalah Free Zone Company (SFZC) technical 
advisor Shahzada Irshad Mohammed outlined the company's 
efforts to promote the free zone to prospective tenants. 
Mohammed noted that the master plan, embodied in a June 2005 
Royal Decree, called for the development of two land parcels 
-- one approximately 800 hectares in size, the other roughly 
1900 hectares.  He commented that the SFZC was presently 
working with the government to finish the first phase of the 
project, which includes the establishment of roads and 
utility lines, as well as the leveling of industrial plots. 
 
¶5. (U) Mohammed also highlighted SFZC's efforts to finalize a 
competitive incentive package to entice tenants.  The 
package, which has yet to be officially approved by the Omani 
government, would include a 30-year tax holiday, duty-free 
treatment of imports and exports, permission for 100% foreign 
ownership, and tax-free repatriation of profits. 
Furthermore, Mohammed added that the SFZC has teamed up with 
the Ministry of Commerce and Industry to establish a one-stop 
shop for business registration, and has secured from the 
Ministry of Regional Municipalities, Environment, and Water 
Resources an expedited environmental impact assessment 
approval mechanism.  Finally, Mohammed stated that SFZ 
investors would only be subject to a 10% Omanization 
requirement. 
 
¶6. (SBU) With these incentives, Mohammed noted that the SFZC 
had already signed three anchor tenants: U.S.-based Octal 
Petrochemicals, India-based TVS Group, and 
government-supported Salalah Methanol.  He remarked that SFZC 
also had finalized a contract with an herbal medicine 
producer and was close to concluding a contract with a steel 
company.  With heavy industry "locked-up," Mohammed stated 
that the SFZC would turn its sights to developing downstream 
industries.  In addition, through the June 2006 signing of a 
memorandum of understanding, the SFZC is exploring ways to 
partner with the successful Jebel Ali Free Zone. 
 
 
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TOURISM NUMBERS PROMISING 
------------------------- 
 
¶7. (U) Aside from port and free zone development, government 
officials are depending on the growth of tourism for further 
economic development.  Akram Hassan Abdullah al-Murazza, 
Director General of Commerce and Industry for the Dhofar 
Governate, Ministry of Commerce and Industry, noted that by 
2010, "Salalah will have another face."  He highlighted 
government plans to promote tourism through the construction 
of a new $60 million passenger airline terminal capable of 
handling 2 million passengers per year.  Khalid al-Rawas, 
Director General of Tourism for the Dhofar Governate, 
Ministry of Tourism, stated that the government anticipates 
opening the new terminal by the time four new tourism 
projects come on-line.  Egyptian-based ORASCOM is developing 
a resort complex that will include three five-star hotels, a 
marina, commercial complex, 18-hole golf course, and 
residential housing.  Construction is set to begin at the 
start of 2007.  Complementing this project will be the 
construction of an exclusive resort on the island of Suda 
(just off the coast from Salalah), a 200-room hotel in the 
nearby town of Mirbat, and a commercial complex in Salalah. 
 
¶8. (SBU) Edward Chaaya, General Manager of the Salalah Crowne 
Plaza Hotel, echoed the potential of Salalah's tourism 
industry.  He commented that awareness of Salalah as a 
destination was growing, in part due to successful efforts in 
attracting a weekly Swedish charter flight.  With the 
addition of this seasonal service, Chaaya noted that his 
property's yearly occupancy rate had doubled from 40% to 80%. 
 Coupled with the growth of the port and the development of 
the free zone, Chaaya remarked that both his hotel and the 
Salalah Hilton would be expanding by 100-200 rooms to 
accommodate increased demand. (Note: Chaaya currently turns 
away 15% of the Swedish tour operator's business. End Note.) 
He speculated that with the various hotel projects on tap, 
Salalah would mature as a tourist destination by 2015. 
 
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COMMENT 
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¶9. (SBU) Salalah's officials were eager to promote their city 
as an up and coming destination for economic growth, and 
recent gains in each of the highlighted sectors appear to 
support this enthusiasm.  The Port of Salalah continues to 
grow in terms of cargo handled on a transshipment basis.  The 
Port holds the long-term view that demand for its services 
will continue to outstrip supply, and with the expectation 
that the free zone will take hold, there's considerable 
justification for the port's further expansion.  After being 
spurned by U.S.-based Hillwood in 2002, the SFZC has 
re-grouped and is now moving forward on developing the 
necessary infrastructure for its site and securing tenants. 
Tourism also appears to be well-positioned for further 
growth; the success of the Swedish charter operation and the 
substantial increase in visitors to this year's six-week long 
Khareef Festival (celebrating the monsoon rains) bode well 
for the completion of the proposed tourism-related projects. 
 
FONTENEAU