Manufacturing: Wooing investment

A buoyant industrial sector is leading the way for Oman’s economic diversification

oer-manufacturing

Oman’s efforts to attract foreign investment for developing its manufacturing base have received a shot in the arm, if the investment commitment from a host of Chinese firms is any indication. The Sultanate’s government has succeeded in marketing Duqm as an attractive investment destination for Chinese investors, who have been looking for a manufacturing and transhipment base for exports to South East Asia, West Asia and the entire Middle East and North Africa (Mena) regions. It is a win-win situation for both China and the Sultanate as Oman could strengthen its manufacturing base and thereby create employment opportunities for its young population, while China could easily capture important export markets in the region due to the strategic location of Duqm, which is close to international marine routes that connect East and West.

 

With the signing of investment deals worth $3.1 billion for building a host of major industries in April, China reiterated its commitment to Duqm where the country is building a large industrial park – the single biggest investment of any country in Oman.  Oman has been striving for foreign investment, especially for developing the country’s special zone in Duqm, for the last couple of years. The country’s Duqm authority, in coordination with the Ministry of Commerce and Industry, has also conducted road shows to attract foreign investors to the special economic zone as part of a larger plan to diversify the economy away from hydrocarbon sector.Oman Wanfang, the master developer of China Oman Industrial Park, has laid the foundation stone for building the industrial park in April– which is divided into three main segments – heavy industrial area, light industrial area and mixed use area. Simultaneously, as many as 10 Chinese firms have signed land lease agreements for building various projects. These projects, which are expected to change the face of Duqm as a major manufacturing and trans-shipment hub, range from a $2.3 billion methanol venture to $406 million-power project and a five-star hotel.

STRATEGIC INVESTMENT

The investment commitments for a wide range of industries will create thousands of job opportunities for local Omanis and is considered as a major boost to the government’s efforts to attract much-needed foreign direct investment to prop up the economy at a time oil prices are ruling low. Some more Chinese firms are expected to enter Oman with additional investment commitments, which will take the total investment to $10 billion within few years.

Land lease agreements were signed by Oman Wanfang, which was granted by the Special Economic Zone Authority at Duqm (Sezad) with the usufruct on 1,172 hectares of land for developing the China-Oman Industrial Park, with Chinese investors.

Oman Wanfang, which is a consortium of six Chinese private firms, will develop, manage and attract direct foreign investment from China for building a host of light, medium and heavy industries as well as tourism projects. Among the major projects, the methanol venture with a capacity to produce 10 million tonnes – the single largest investment from China, will be developed by Mingyuan Holdings Group Co. using natural gas supplied by the Oman government as feedstock for producing methanol.

Another major power project to generate 300 megawatt of electricity will be set up jointly by two Chinese firms—Hebei Electric Power Design and Research and Ningxia Electric Power Design Institute. The capital expenditure for the project, which will have two identical power units, is estimated at $406 million. Also, a five-star hotel, which will have a gross floor area of 50,000 square metres, is planned for Duqm by Ningxia Residence Construction Development (Group) Co.

Similarly, Ningxia Zhongke Jiaye New Energy and Technology Management Company is planning to establish a 1GWp solar equipment manufacturing base with an estimated capital expenditure of $94 million, while Wuhan Xiao Long Auto-Tech Co. Ltd. plans to build a high-mobility SUV project with an estimated investment of $84 million. Also, Ningxia Water Investment Group Co. signed a land lease agreement to build a desalination project with an investment of $81 million. Ningxia Ningqiao Commercial Investment and Operation signed an agreement to build a building material manufacturing and trading facility with an investment of $46 million. Yet another Chinese firm also signed an agreement to build a $10 million-unit to manufacture non-metal composite pipes for oil industry.

A series of other industries, including a large refinery and petrochemical complex, are already taking shape in the newly emerging Duqm port city. Oman Oil Company and Kuwait Petroleum Industry in April signed a shareholder’s agreement for building the mega refinery. Duqm Refinery, a 50:50 joint venture between Oman Oil Company and Kuwait Petroleum International, is seeking 65 per cent of its $7 billion capital expenditure for building the refinery from international and local lending institutions. The company is aiming at reaching a financial closure for the project by the year-end. The 230,000 barrels per day capacity-Duqm refinery is also in an advanced stage to award its engineering, procurement and construction (EPC) contract for building the main processing unit. A tender for selecting an EPC contractor for the main project was floated way back in 2015. Also, the land leveling work for the project, which stretches more than 900 hectares, was completed in May 2016.

There are three main packages for the refinery project – the main processing facility, utilities and a package for building facilities outside the refinery. The third package work includes storage facilities for fuel, an 80 km-long pipeline between the refinery and a major crude storage facility at Ras Markaz.

 

PETROCHEMICAL COMPLEX

Also, the expansion programmes of state-owned Oman Oil Refineries and Petroleum Industries Company (Orpic), the Sultanate’s major petrochemical firm, are expected to further strengthen non-oil sector in the coming years. For instance, Orpic’s $6.4 billion-petrochemical complex called Liwa Plastics Industries Complex (LPIC) will help strengthen the non-oil export revenue of the Sultanate. With the completion of LPIC, Orpic will be producing a total of 1.4 million tonnes of polyethylene and polypropylene per annum by 2020 – all for export markets. LPIC is the largest petrochemical project undertaken in Oman, which will contribute 2 per cent to the gross domestic product (GDP) of the Sultanate and support creating a wide-ranging downstream industry in the Sultanate.

Upon commissioning in 2020, Liwa Plastics Industries Complex will transform Orpic’s product mix and business model, double company profits, create new business opportunities and generate significant employment opportunities. The LPIC project is expected to create about 900 direct, and some 1,200 indirect jobs, during the project lifetime.

In 2016, Orpic awarded four contracts for engineering, procurement and contracting (EPC) packages worth $4.5 billion for building Liwa Plastics Industries Complex Project to CB&I and CTCI Corporation joint venture (steam cracker and utilities), Tecnimont (plastics unit), NGL Extraction GS Engineering and Construction and Mitsui joint venture (NGL Extraction) and Punj Lloyd (NGL pipeline). The Sohar Refinery Improvement project, which is expected to be ready by the year-end, will also support petrochemical production. In fact, several large gas-based industries, including a steel producer and a fertiliser firm, have announced their plans for enhancing capacity few years ago. However, lack of natural gas for these industries is a major hindrance for these industries for expanding their capacity. The Omani government is unable to commit natural gas for mega industries for long-term. However, once BP’s Khazzan tight gas project starts natural gas production, the situation will change. BP will supply almost 1 billion cubic feet of natural gas per day, which is a 30 per cent growth in production, from the fourth quarter of this year.

 

INDUSTRIAL ESTATE

The country’s industrialisation drive was mostly facilitated by the Public Establishment for Industrial Estate (PEIE), which manages more than six industrial estates spread across the country. PEIE, which acts as a one-stop-shop for new entrepreneurs, manages Rusayl, Raysut, Sohar, Sur, Nizwa and Buraimi. The PEIE is planning to build industrial estates in several locations.

PEIE is planning to invest in developing new industrial estates and expanding existing ones to meet the growing demand for industrial plots from entrepreneurs.The PEIE, which acts as a one-stop-shop for entrepreneurs, plans to build three industrial estates – one each in Thumrait, Shinas and Al Mudhaibi. There are also ongoing expansion projects for further developing existing industrial estates, which will help diversify the country’s economy and create employment opportunities for Omani youths. Oman’s industrial estates had attracted investment to the tune of RO6 billion till the first half of 2016. The number of projects in various industrial estates has touched 1,688, of which 277 projects are under construction, and 349 projects have been allotted land.

PEIE has attracted investments of RO228 million in various industrial estates in the first half of 2016, and provided a total employment of more than 46,000 job opportunities, of which 17,000 were for locals.

The leased area in various industrial estates had touched 33.2 million square meters in the first half of 2016. A master plan was prepared for the Sohar Industrial Estate for further developing the estate in seven phases. The master plan covers both basic infrastructure and social investments such as housing, recreational and commercial facilities, which are required to support the industrial estate.

However, a plunge in commodity prices across the world has affected the Sultanate’s non-oil exports as well. According to the latest official statistics, Oman’s non-oil exports, which constitutes around 27 per cent of total export revenue, declined by 19.6 per cent to RO2,243.1 million for the first eleven months of 2016, compared to the same period of the previous year.  Among various non-oil product categories, exports of minerals, chemicals, plastics and base metals have all showed a decline. Total exports also witnessed a 19.3 per cent plunge at RO8.19 billion in the first eleven months of 2016 from RO10.15 billion for the same period of 2015. Higher exports from gas-based industries, especially aluminium smelter, petrochemicals, fertiliser and iron and steel plants, are partially helping the Sultanate to enhance its non-oil export base.


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