US embassy cable - 05MUSCAT243

UNCLAS SECTION 01 OF 02 MUSCAT 000243 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CBA, NEA/ARPI 
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT 
STATE PLEASE PASS USTR/JBUNTIN AND JFENNERTY 
 
E.O. 12958: N/A 
TAGS: ECON, KPRV, EIND, ETRD, ECPS, KTEX, PREL, MU, Economic Affairs 
SUBJECT: OMAN OFFICIAL ON PRIVATIZATION, FTA HOPES 
(C-NE4-01168) 
 
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Summary 
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1. (SBU) In a meeting on February 1, National Economy Under 
Secretary Abdul Malik al-Hinai outlined the Omani 
 
SIPDIS 
government's privatization strategy for a visiting USG 
official in the power, water, telecommunications and 
transport sectors.  He predicted the sale of 30 percent of 
state-owned telecoms incumbent Omantel will come in 
March-April, while larger scale privatization of telephone 
landline, power distribution and wastewater services must 
await further government expenditures to extend 
infrastructure to rural and outlying areas.  He expressed 
Omani government determination to reach a Free Trade 
Agreement with the USG expeditiously, and hopes it will 
produce immediate benefits in terms of new investment.  He 
indicated Oman's desire for a liberal rules of origin 
delineation.  End summary. 
 
2. (U) Visiting EB Special Advisor J. Frank Mermoud met 
February 1 with Ministry of National Economy (MNE) Under 
Secretary Abdul Malik al-Hinai.  While Mermoud lobbied for 
 
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U.S. firm Bechtel's ultimately successful bid on an aluminum 
smelter project in the industrial port of Sohar, he likewise 
solicited Hinai's views on the proposed bilateral Free Trade 
Agreement (FTA), and on the Ministry's plans for 
privatization, which Hinai oversees. 
 
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FTA Wishes, Expectations 
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3. (SBU) The Under Secretary emphasized the investment and 
industrial ramifications of an FTA, saying the Omani 
government is committed to concluding the agreement as 
expeditiously as possible with the U.S. in hopes of spurring 
bilateral trade.  Hinai indicated that his personal barometer 
of the success of an eventual FTA will be the amount of 
investment it brings into the Sultanate.  He had heard of 
such successes from his Jordanian colleagues following 
implementation of that free trade pact.  Possibly laying down 
a marker on Oman's FTA negotiating position, he said he hoped 
Oman could be treated as a developing nation where rules of 
origin are concerned, saying such a measure will be vital to 
Oman's garments industry.  But overall, he emphasized the 
need for FTA to produce immediate, tangible benefits for 
Oman's business community. 
 
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Sectoral Privatization Plans 
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4. (U) Al-Hinai gave a brief run-down of the government's 
privatization strategy and status by sector. 
 
Power: The Sultanate has already privatized some aspects of 
the power sector, including two operations (in Barka and 
Dhofar) that have U.S. corporate participation.  He deemed it 
possible that, by 2006, nearly all power generation plants 
will be fully privatized.  A longer-term prospect is 
privatization of power distribution networks.  He indicated 
that the government feels obligated to extend electrification 
to remaining rural areas before agreeing to sell off that 
infrastructure. 
 
Desalination and Wastewater: A number of desalination 
projects are in the cards for Oman.  A facility in Sohar is 
currently under construction by a Belgian-led consortium 
(Tractabel), and there are currently studies on enlarging the 
Barka desal facility near Muscat and building a new plant in 
Sur.  The Sohar project will be huge, he said, since the 
facility will have to meet the water needs of both the 
Batinah (the most populous of Oman's eight regions) and 
Dakhiliyah regions.  The plant in Sur will be vital to 
agriculture in Oman's Sharqiyah region, which has been under 
prolonged drought.  As for wastewater, there are two 
state-owned firms operating in that field (in Muscat and 
Dhofar).  While the MNE is committed to privatizing them 
eventually, the government again insists on extending the 
basic infrastructure into a complete network before selling 
the firms off. 
 
Telecommunications: A second mobile phone operator (Qatar's 
Q-Tel, in a consortium with TDC of Denmark and local 
investors) has recently been licensed to offer competition to 
state-owned incumbent Omantel.  Hinai reported that the 
long-awaited public offering of 30 percent of Omantel shares 
is "imminent," guessing that it could occur as early as the 
March-April timeframe.  He said telecommunications 
privatization was not wholly in MNE's purview, since the 
sector's value is treated as a major asset by the Ministry of 
Finance.  The new Telecommunications Regulatory Agency (TRA) 
will soon be fully operational and professionalized, which 
will further facilitate privatization.  He cautioned, 
however, that Omantel (and by implication, the government) 
needed to invest significantly more to expand fixed lines and 
Internet infrastructure to the remote parts of the Sultanate 
still without service. 
 
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Most Attractive Investment Areas 
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5. (U) Asked for the more prospective sectors of the Omani 
economy for U.S. businesses, al-Hinai listed power, 
desalination and wastewater as being the most attractive, in 
part due to the existing U.S. presence in those fields in 
Oman.  (The wastewater network in Dhofar, for instance, was 
initially started under a USAID grant.)  He thinks a new port 
project for the remote central coast town of Duqm might also 
be of U.S. interest, with fish farming, a dry dock and an 
asphalt factory among the envisioned industries there.  But 
apart from large U.S. corporations like Dow and Bechtel, 
al-Hinai said he strongly hopes FTA will make Oman more 
attractive and viable for American small and medium-sized 
enterprises. 
 
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Comment 
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6. (SBU) While ambitious, Oman's privatization plans still 
envision a predominant role for the government in developing 
infrastructure and undertaking capital investment.  Current 
budget surpluses make such investments possible, but there is 
a serious risk of public spending "crowding out" private 
investment.  In the meantime, Oman continues to hope that the 
FTA will yield significant new prospects for American 
investment.  With Dow already planning a large presence in 
Oman, and Bechtel reporting to us February 13 that they won 
the aluminum smelter bid, there is a growing momentum for 
American firms in the Sultanate on the eve of FTA 
negotiations. 
BALTIMORE