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The Growing Private Sector in Oman

by Sophie Smith

On 7 July 2021, Oman announced that it is entering a new stage of its economic partnership with Saudi Arabia.[1] The state-owned Oman News Agency reported that government officials and private sector representatives had come together to identify viable areas for economic cooperation and investment to strengthen trade ties, commercial exchange and investment opportunities, particularly in non-oil sectors.[2] Such efforts are notably intended to generate favourable conditions for private sector investments to encourage their involvement in the two economies.[3] This comes as part of the Sultanate’s latest attempts to attract the private sector to Oman in an effort to create more employment opportunities and encourage sustainable economic growth in line with its economic development plan, Vision 2040.

 

Privatisation in Oman

Over the past decades, Oman focused on drafting new laws and constructing new bodies to strengthen the private sector and stimulate privatisation in the country. In fact, dating back to 1994, Oman was the first Gulf Cooperation Council (GCC) country to launch its first independent power project (IPP), awarding the Manah Power Project to the privately-owned United Power Company.[4] This was followed by the adoption of Royal Decree 42/96 two years later, which laid out the policies and regulations of privatisation.[5] However, the law was later repealed in 2004 as Oman approved the Privatisation Law under Royal Decree 77/2004, which built on the earlier decree, setting out the restructuring and privatisation of public utilities.[6] In the same year, the government also implemented Royal Decree 78/2004, which established a regulatory authority and regulations to facilitate the privatisation of the energy and related water sector.[7]

 

The impetus behind privatisation has accelerated in recent years. In 2019, Oman passed two laws concerning the private sector. The first is the Privatisation Law, superseding the 2004 law, which regulates the privatisation of state assets to expand private sector involvement in the ownership and management of various economic projects.[8] This notably includes foreign investors being able to own up to 100% of onshore companies. Similarly, the Public-Private Partnership (PPP) Law, sets out the framework for PPP projects to encourage partnerships with the private sector in developing new initiatives.[9] This is further supported by the Tawazun (Offset) Programme, an economic tool that supports projects and programmes, which aim to strengthen the private sector and economic diversification at large.[10] In conjunction, the government also created the Public Authority for Privatisation and Partnership (PAPP) in 2019 to lead the preparation and awarding of tenders in consultation with relevant ministries for PPP projects.[11] However, in a government restructuring, the PAPP was abolished a year later under the Royal Decree 110/2020, transferring its competencies to a PPP unit under the Ministry of Finance, to cut government expenditure and streamline the work of the public sector bodies.[12]

 

Such efforts spurred a number of privatisation initiatives, particularly in the energy sector, where several projects have seen private sector involvement, including the privatisation of the operational Al Rusail power plant through a 99% share sale to the private company SMN Power Holding Company, in the first privatisation of a state-owned power generation company in 2006.[13] And, more recently, in 2019, the government sold a 49% stake of the Oman Electricity Transmission Company to the State Grid Corporation of China.[14] In the same year, a private consortium, formed by the Kuwait-based Gulf Investment Corporation and the Alternative Energy Projects Company together with the Saudi renewable energy major, ACWA Power, which is involved in several projects in Oman, signed an agreement for the development of the Ibri-2 IPP, the largest utility-scale photovoltaic solar IPP, with the Oman Power and Water Procurement Company.[15] Similar initiatives are also taking place in the solid waste sector as the Oman Environmental Service Holding Company (Be’ah) is promoting several projects for private investment in an effort to support a circular economy. This included a Waste-to-Energy IPP, estimated at $700 million (USD), that will use municipal waste for power generation.[16] Beyond energy, private sector involvement is being equally explored in other sectors—in early 2020, the government announced a portfolio of 49 projects for PPP implementation in sectors of health, education, environment, transportation, government services, agriculture and fisheries.[17] Indeed, the government finalised five projects for PPP implementation in March 2021, including in education, health care and infrastructure.[18] This involves the seaport developments in the Musandam Governorate and the South Al Batinah Governorate, alongside the expansion of educational infrastructure and development of dialysis centres.[19]

 

Motivations Behind Privatisation

The drive behind privatisation comes as part of Oman’s economic development plan, Vision 2040.[20] Privatisation is intended to help the government realise its goals under the Vision, contributing towards reducing the country’s reliance on the oil and gas industry, which made up 72% of the government’s revenue in 2020.[21] Privatisation aims to contribute to the country’s sustainable development and strengthening its economic resilience. In this regard, the private sector is designed to play a leading role in establishing a competitive environment based on innovation to leverage Oman’s competitive advantage. Moreover, a focus on privatisation will likely help with job creation, especially for the youth, as the private sector absorbs the new workforce into the labour market more effectively. This comes as the government aims to achieve the following two targets by 2040: 1. to have 83% of skilled labour make up the total labour in the private sector and 2. to have 40% of total jobs created in the private sector to be held by Omanis.[22] In turn, by transferring assets to the private sector, public services should be delivered in a more efficient and advanced manner at a lower cost while reducing government expenditure on managing these services.

 

Such motivations are becoming ever more appealing as Oman has been operating on a budget deficit since 2014, reaching -17.32% of GDP in 2020 amidst the COVID-19 pandemic.[23] This is coupled with Oman’s negative economic growth in the last two years that saw a decline of -6.4% in 2020.[24] And, in the same year, unemployment nearly tripled to 4.97% of the total labour force.[25] In June 2021, news outlets reported that Oman is planning its second debt sale of the year after tapping into the international debt market in January to procure 3.25 billion USD.[26] Against this backdrop, it thus appears that privatisation efforts are becoming increasingly essential as the government attempts to revitalise the economy in a sustainable manner.

14 July 2021

 

Notes

[1] Oman News Agency, ‘New Stage of Omani-Saudi Economic Cooperation in the Making,’ Oman News Agency, July 7, 2021. https://omannews.gov.om/NewsDescription/ArtMID/392/ArticleID/35341/New-Stage-of-Omani-Saudi-Economic-Cooperation-in-the-Making.

[2] Oman News Agency, ‘New Stage of Omani-Saudi Economic Cooperation in the Making.’

[3] Oman News Agency, ‘New Stage of Omani-Saudi Economic Cooperation in the Making.’

[4] US International Trade Administration, ‘Oman – Country Commercial Guide,’ US International Trade Administration, September 13, 2020. https://www.trade.gov/country-commercial-guides/oman-renewable-energy.

[5] Royal Decree 77/2004 Promulgating the Privatisation Law (Muscat:  Sultanate of Oman, 2004). https://www.blueumbrella.com.om/pdf/laws/Privatization Law.pdf.

[6] Royal Decree 77/2004 Promulgating the Privatisation Law.

[7] Royal Decree No.78/2004 promulgating The Law for the Regulation and Privatisation of the Electricity and Related Water Sector (Muscat: Sultanate of Oman, 2004). https://omanpwp.om/PDF/Sector Law English.pdf.

[8] The Privatisation Law Promulgated by Royal Decree 51/2019 (Muscat:  Ministry of Justice and Legal Affairs, 2019). https://www.papp.om/document/51-2019-e.pdf.

[9] The Public Private Partnership Law Promulgated by Royal Decree 52/2019 (Muscat: Ministry of Justice and Legal Affairs, 2019). https://www.oman.om/wps/wcm/connect/724841fd-e8a3-42da-9214-67857a0f4fc7/PPP+Law.pdf?MOD=AJPERES&CACHEID=724841fd-e8a3-42da-9214-67857a0f4fc7.

[10] Oman Observer, ‘16 projects launched so far under Oman’s Tawazun programme,’ Oman Observer, November 19, 2020. https://www.omanobserver.om/article/7727/Business/16-projects-launched-so-far-under-omans-tawazun-programme.

[11] Royal Decree No. 54/2019 Establishing the Public Authority for Privatisation and Partnership and Promulgating its System (Muscat: Government of Oman, 2019). https://www.papp.om/document/54-2019-e.pdf.

[12] Royal Decree 110/2020 Abolishing the Public Authority for Privatisation and Partnership (Muscat: Ministry of Justice and Legal Affairs, 2019). https://mjla.gov.om/eng/legislation/decrees/details.aspx?Id=1260&type=L.

[13] SMN Power Holding SAOG, ‘Our Company,’ SMN Power Holding SAOG, n.d. https://www.smnpower.com/our-company.php.

[14] Nama, ‘Annual Report: 2019,’ Nama, 2019. https://www.nama.om/en/resources/annual-report/.

[15] ACWA Power, ‘ACWA Power, Gulf Investment Corporation, and Alternative Energy Projects sign Oman’s largest utility-scale solar PV independent power project,’ ACWA Power, May 4, 2019. https://www.acwapower.com/news/acwa-power-gulf-investment-corporation-and-alternative-energy-projects-sign-omans-largest-utility-scale-solar-pv-independent-power-project/.

[16] Conrad Prabhu, ‘Projects worth $2.5 bn open for investment in Oman,’ Oman Observer, December 28, 2020. https://www.omanobserver.om/article/5921/Business/projects-worth-25-bn-open-for-investment-in-oman.

[17] Oman Observer, ‘Pipeline of 49 projects for PPP implementation,’ Oman Observer, May 9, 2020. https://www.omanobserver.om/article/13394/Business/pipeline-of-49-projects-for-ppp-implementation.

[18] Prabhu, ‘Projects worth $2.5 bn open for investment in Oman.’

[19] Prabhu, ‘Projects worth $2.5 bn open for investment in Oman.’

[20] The Government of Oman, Oman 2040 (Muscat: The Government of Oman, 2020). https://www.2040.om/Oman2040-En.pdf.

[21] PWC, ‘Oman Budget 2020 Key Highlights,’ PWC, n.d. https://www.pwc.com/m1/en/services/tax/me-tax-legal-news/2020/oman-budget-2020-key-highlights.html.

[22] The Government of Oman, Oman 2040.

[23] IMF, ‘Net lending/borrowing (also referred as overall balance),’ IMF, n.d. https://www.imf.org/external/datamapper/GGXCNL_G01_GDP_PT@FM/ADVEC.

[24] IMF, ‘Real GDP Growth,’ IMF, n.d. https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD.

[25] The World Bank, Unemployment, total (% of total labor force) (modeled ILO estimate) – Oman,’ The World Bank, 2021. https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=OM.

[26] Yousef Saba, ‘Oman hires banks for sukuk in second international debt foray of 2021,’ Reuters, June 7, 2021. https://www.reuters.com/world/middle-east/oman-hires-banks-sukuk-second-international-debt-foray-2021-2021-06-07/.