Oman's efforts to set up public-private partnerships will not only shield it against volatile oil prices, but also help it achieve the twin objectives of economic efficiency and diversification.
In response to the dramatic fall in oil prices and the fiscal squeeze on public finances, governments across the MENA region in recent years have sought to engage the private sector in building, financing, and operating projects of all sizes, and Oman is no exception. In July 2019, the government of Oman passed three critical laws in quick succession, covering PPPs (Royal Decree No. 52 of 2019), FDI (Royal Decree No. 50 of 2019), and privatization (Royal Decree No. 51 of 2019). All three laws had been in development for several years, and comprise a central component of the Sultanate’s Vision 2040 and strategy to diversify the economy.
Less rich in natural resources than its peers, Oman has had a long-standing commitment to economic diversification. Notably, the Sultanate has an excellent record with independent power plants (IPPs) and independent water and power plants (IWPPs), launching the region’s first IPP in 1994. With the new laws in place, the focus is now shifting toward PPPs and privatization. While the privatization law will facilitate asset sales, the PPP law will shift capital expenditure from the budget to the private sector, such as with the development of infrastructure for Khazaen Economic City, a 52-million-sqm integrated economic city and the largest PPP project in Oman to date. The first phase of the project will include the first dry port in Oman, a free zone, logistics and industrial complexes, and residential and commercial components. Moreover, the city will offer access to international maritime routes and preferential market entry under FTAs with the US, the GCC, and Singapore, to name a few. In particular, the PPP model has become the go-to option in the healthcare sector. In the face of overstretched public services and a growing population, the government has been steadily shaping a healthcare development plan that will see the expansion of public health care services through PPPs. One of the most highly anticipated projects is the USD1-billion International Medical City (IMC). Developed under a PPP between the government on Oman, Saudi-based Apex Medical Group, and US-based Methodist International and General Electric, the 866,000-sqm project will house a healthcare complex, a health resort, a medical education complex, and a convention center. Another major development in the healthcare sector took place in early 2020, when UK-based IHG announced that it won a contract under a PPP arrangement with Oman’s Ministry of Health to design and build three hospitals worth USD702.2 million. Elsewhere, in the education sector, the government is looking at whether the University of Oman project is feasible as a PPP. By the end of 2019, the newly established Public Authority for Privatization and Partnership (PAPP) was evaluating 46 projects under the PPP model. Some of the well-known projects are the National Project for Hazardous Solid Waste Treatment, Al-Falah Hospital, the Burj al-Sahwa Transport Hub, Al Batinah Coastal Road, Muscat Expressway, Khasab Port Development, Shinas Port, and the Mina al-Sultan Qaboos project. These projects will certainly go a long way in helping the government achieve its goal of delivering priority public projects valued at around OMR2.5 billion by 2020. Although all the details of Oman’s planned PPP structure will be available in July 2020, TBY learned about how the authority selects and awards projects in an interview with Dhafir Awadh Bader Al Shanfari, CEO of PAPP. “The process starts with identifying which projects can be done using a PPP model. In coordination with the Supreme Council of Planning and the relevant government bodies, we then conduct a full PPP feasibility study for the project. That study identifies value for money and comes up with ways to reduce costs and share the operating expense risk with private investors. Once the feasibility is established, we run a transparent, competitive bidding process to award the PPP project.” Indeed, the need to rely on the private sector for economic growth has built momentum to the point where private investment flows are maintaining the growth in almost all major sectors in Oman. And while the recently introduced Foreign Capital Investment Law will further expand opportunities for the private sector, the government’s biggest challenge is to offer support and ensure stability.