VZCZCXYZ0004
RR RUEHWEB

DE RUEHMS #0384/01 1471223
ZNR UUUUU ZZH
R 261223Z MAY 08
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 9615
INFO RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS MUSCAT 000384 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EEB/TRA 
COMMERCE FOR ITA THOFFMAN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EAIR MU
SUBJECT: OMAN INFRASTRUCTURE INVESTMENTS PAVE WAY FOR 
GROWTH 
 
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Summary 
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¶1. (SBU) Oman's investment in its infrastructure is paying 
dividends, as port development has led to greater foreign 
participation in various downstream industrial opportunities, 
while improvements to Oman's air transportation network will 
facilitate increased tourist arrivals.  Road construction 
figures prominently in the Sultanate's plans, highlighted by 
the building of a modern expressway from Muscat to Oman's 
border with the United Arab Emirates.  The government is also 
considering a plan to build its first rail network to connect 
three of its principal ports.  End Summary. 
 
------------------------------------------ 
Port Infrastructure Benefits from Windfall 
------------------------------------------ 
 
¶2. (U) The government has used its windfall from oil 
revenues, in part, to diversify Oman's economy through 
infrastructure development.  The largest single industrial 
investment target is the northern coastal city of Sohar, 
which has witnessed over $12 billion in government investment 
alone.  The Port of Sohar, a 50-50 joint venture between the 
Sultanate and the Port of Rotterdam, anchors the industrial 
development planned for the region.  Oman is confident that 
the port's advantageous location outside the Strait of 
Hormuz, approximately 160 kilometers by road from Dubai and 
within 300km of three large gas reserves, will lend to its 
success.  In addition to its berths for industrial liquids, 
Sohar is positioning itself as Oman's largest container port 
with over 7 square kilometers of land and a projected 10 
dedicated shipping berths.  The complex, currently 80% 
leased, is projected to employ 8,000 people, with a further 
30,000 indirect jobs created.  In 2007, port traffic reached 
600 vessels.  Officials anticipate further increases of 50% 
each successive year over the next three years as more 
industrial projects come on-line. 
 
¶3.  (U) Most recently, the Sohar Industrial Port Corporation 
(SIPC) signed an agreement with VALE of Brazil for the 
construction of a $1 billion iron ore pellet plant.  VALE 
will ship iron ore from Brazil to the plant for processing 
and export to the Gulf, Middle East, and southeastern Asian 
markets.  Production is reportedly expected to start by the 
end of 2010.  In addition, SIPC signed an agreement with 
India-based SKIL Group of Companies for the management of 
Sohar's 4,300 hectare Special Economic Zone that will serve 
as the hub for the expected downstream industries created 
from the port's industrial development. 
 
¶4. (SBU) The Port of Salalah, located in the far south of 
Oman, is a key container transshipment hub for Maersk and its 
parent company, A.P. Moller (APM).  Operated by Salalah Port 
Services (SPS), which is 30% owned by APM Terminals and 20% 
owned by the government (with the remaining 50% owned by 
pension funds, Omani corporations, and private investors), 
the port handled approximately 2.5 million 20-foot equivalent 
units (TEUs) in 2007.  The port added one berth to its 
existing four in 2007, and will open its sixth in 2008.  Once 
completed, the $234 million expansion, the cost of which will 
be shared roughly evenly between SPS and the Omani 
government, will increase capacity by 1.8 million TEUs, 
bringing total capacity to 4.38 million TEUs.  Media report 
that the port will also invest in four new gantry cranes 
capable of handling the largest container ships. 
 
¶5.  (U) The government is promoting the free zone adjacent to 
the port in Salalah with a package of incentives and is in 
partnership discussions with the Jebel Ali Free Zone 
Authority in Dubai.  Anchoring the zone is OCTAL 
Petrochemicals, formed in 2006 by a U.S.-based private equity 
group and local investors, including the Suhail Bahwan Group, 
with an initial investment of $300 million.  The company will 
officially inaugurate its 300,000 metric tons per annum 
(mtpa) APET (amorphous polyethylene terephthalate) plant on 
July 24.  OCTAL is also building a 500,000 mtpa PET 
(polyethylene terephthalate) plant in Salalah to target the 
soft drink and bottled water markets in the Middle East, 
Europe, and the U.S.  The company estimates that global 
export sales capacity will reach $500 million by the end of 
2008, with net exports eventually reaching $1.1 billion. 
 
¶6. (SBU) Nourhan Beyrouni, Corporate Communications Director 
for OCTAL, noted to Econoff that the company chose Salalah 
based on its advantageous access to the world's largest 
markets, including New York.  He added that the Sultanate's 
 
reputation for stability and respect for the rule of law were 
also important considerations in choosing Oman.  Beyrouni 
remarked, "All you have to do is think about the business. 
You don't have to worry about anything else."  He continued 
that the company's relationship with the port has been 
"straightforward," which was different than his experience in 
working with the Jebel Ali port authority.  On gas 
availability, which has been a prominent concern in Oman's 
industrialization plans, Beyrouni asserted that OCTAL would 
have ample supply. 
 
¶7. (U) The Omani government is developing a port at Duqm, a 
lightly populated area along the Arabian Sea.  Master plans 
call for the construction of a drydock facility, oil 
refinery, petrochemicals complex and fish processing center 
to compete with Dubai's Jebel Ali port complex.  The Duqm 
development plan also calls for the construction of an 
airport to facilitate cargo shipments and tourism.  In April 
2008, the government awarded a $440 million contract to 
Korean-based Daewoo and local contractor Galfar for the 
construction of Duqm's drydock. 
 
¶8. (U) Port Sultan Qaboos in Muscat is a relatively small 
port that serves as the primary import gateway for Oman.  It 
features eight useable deep water berths, including four 
container berths and four general cargo berths.  The two 
deepest berths can accept ships with drafts of up to 12.5 
meters.  Port Sultan Qaboos is operating at or near capacity, 
having received over 1,800 vessels in 2007.  Given its 
location opposite the historic Muttrah corniche, plans are 
underway to develop the port's potential to receive greater 
numbers of cruise ships through the construction of a $1.2 
million passenger terminal. 
 
----------------- 
Airport Expansion 
----------------- 
 
¶9. (U) In consideration of plans to build 16 new luxury 
hotels in Oman over the next five years, the government is 
moving ahead on an ambitious plan to develop its airport 
infrastructure to accommodate increased tourist arrivals. 
The government has contracted with technical consultants from 
ADPI (a subsidiary of Airports de France) and architectural 
and engineering design firm COWI-Larsen (in association with 
Copenhagen Airports), to develop plans for new passenger and 
cargo terminals at Muscat and Salalah International airports. 
 The combined cost for these two projects is estimated by the 
Ministry of Transport and Communications to be $3 billion. 
 
¶10. (SBU) The Muscat airport project entails the construction 
of a new mid-field, 32 jetway passenger terminal with a 
capacity of 12 million passengers per year.  The design 
allows for the eventual expansion of the facility to 
accommodate up to 48 million passengers per year.  It also 
includes a new 3,900 meter runway that can accommodate the 
A-380, a control tower, and a 200,000 ton cargo facility, as 
well as a 40-room airside hotel, shopping arcade, and food 
court.  The government anticipates having the first stage of 
the airport ready by 2011, and work is already underway to 
provide appropriate drainage for the terminal and runways. 
Bechtel will be bidding on the estimated $1 billion 
construction contract for the terminal, to include parking 
garages, access roads, and support buildings.  It has teamed 
up with Bahwan Engineering Company, a prominent local firm 
that worked with Bechtel on the Sohar Aluminum project, and 
ENKA from Turkey.  Prequalification applications are due June 
21, with the contract expected to be awarded in May 2009. 
 
¶11. (U) The project design for the airport in Salalah calls 
for the construction of a new six jetway passenger terminal 
to accommodate two million passengers per year, along with 
100,000 tons of cargo capacity to handle traffic generated by 
the Port of Salalah and the Salalah Free Zone.  The 
government anticipates opening the new airport in Salalah by 
¶2011.  In addition, the government plans on constructing 
regional airports in Sohar, Ras al-Hadd, Duqm, Haima, and 
Adam. 
 
------------------------- 
Longer Wings for Oman Air 
------------------------- 
 
¶12. (U) To facilitate tourist arrivals to Oman, the 
government is building the capacity of its national carrier, 
Oman Air, after its withdrawal from the Gulf Air consortium 
in 2007.  The government, which had increased its 
shareholdings in Oman Air to 82% in 2007, has recently 
 
offered to buy out the remaining shares of the company from 
individual shareholders.  Oman Air currently flies to 23 
destinations, mostly in the Middle East and India.  In late 
2007, Oman Air began long-haul operations to London and 
Bangkok via wet-lease aircraft; it will acquire A330 aircraft 
in 2009 and Boeing 787 aircraft on a lease-basis in 2012. 
The balance of its fleet is comprised of 12 Boeing 737-700 
and -800 series aircraft, as well as three ATR turboprops. 
 
------------------------- 
Expansion of Road Network 
------------------------- 
 
¶13. (SBU) The government is further expanding its system of 
paved roads, which stood at 17,533 kilometers at the end of 
¶2006.  Construction is underway in the capital area on the 
Southern Expressway, which will alleviate traffic congestion 
in Muscat by providing an alternative artery into and out of 
the city.  This dual-lane road will eventually be extended to 
the border with the United Arab Emirates, providing a safer, 
more efficient roadway to Dubai.  The government is also 
constructing dual-lane roads from Muscat to Sur to facilitate 
tourist traffic to the southeastern coastline, as well as 
from Sohar to the city of Buraimi on the UAE border to 
promote onward traffic to Abu Dhabi.  Other single-lane roads 
are being built to connect interior cities with these main 
highways.  U.S.-based Parsons International serves as the 
consultant for most of the capital's road projects. 
 
---------- 
Train Talk 
---------- 
 
¶14. (SBU) The government is considering establishing its 
first internal rail network.  Minister of National Economy 
Ahmed bin Abdul Nabi Macki told media outlets in mid-April 
that he was reviewing plans to construct a 200 kilometer 
network between Sohar and Barka, located 60 miles north of 
Muscat, with a possible extension to Duqm.  Estimates place 
the total cost of the dual cargo-passenger project at 20 
billion rials (USD 52 billion), though the Minister declined 
to confirm this figure to the media. 
 
GRAPPO