Oman focuses on port development

Strategically situated at the head of the Indian Ocean Oman, which borders Saudi Arabia and the UAE, is a gateway to the GCC region – a re-distribution point and transit hub for shipments to and from Asia, the Indian subcontinent, and East and Central Africa. Transportation and logistics in the sultanate has emerged in recent years as a pillar of development and a critical driver of the economy, benefitting all sectors. Seeking to develop Oman as a leading logistics centre in the region and reduce its dependence on hydrocarbons, the government continues to generously fund logistics infrastructure programmes.

Planning Ahead

The Sultanate of Oman Logistics Strategy (SOLS 2040), a blueprint initiated by the Supreme Council for Planning, lays out a general plan for government investment in the sector, aimed at helping to secure a place for the sultanate among the top logistics-centred economies of the world. Along with the Oman Logistics Plan 2020, SOLS 2040 lays out long-term objectives for increasing the contribution of the logistics sector to GDP, doubling the level of employment in the logistics industry to 80,000 jobs by the end of the decade, and improving Oman’s standing against international benchmarks set by the World Bank and World Economic Forum.

Logistics initiatives that received strong support in 2015-16 included port-handling capacity and land-transport connectivity projects aimed at addressing infrastructure bottlenecks. Strategic objectives were broadly focused on easing congestion and enhancing capacity by investing in infrastructure and technology for the upgrade of ports, airport facilities and new road links. These efforts showed significant promise in 2015, with the transportation and logistics segment combining to account for around $8.81bn of Oman’s GDP, according to market research company Frost & Sullivan.

Transport infrastructure objectives for the Ministry of Transport and Communications (MoTC) in 2016 included completion of construction work on Muscat International Airport’s passenger terminal, early development of a service corridor connecting the Port of Salalah to industrial and free zones, the implementation of public transport plans, and completion of new roads and expressway extensions.

Road Infrastructure

Across Oman, the government is pursuing significant infrastructure projects aimed at connecting disparate regions, moving people and goods safely and efficiently, and accessing new economic opportunities. Productivity is a major focus of public transportation policy – a fundamental requirement of manufacturers is to distribute their products to appropriate markets quickly and inexpensively.

As of February 2016 Oman’s government was working on 49 road projects worth a total of OR2.1bn ($5.5bn), with plans to complete 10 during the calendar year. General objectives for the sultanate’s road construction programme include reducing gridlock faced by motorists travelling to neighbouring countries, and improving connectivity across various sectors in Oman. For example, the recent opening of a portion of the Al Batinah Expressway is aimed at reducing travel time to the UAE. Similarly, a 680-km-long highway through the Empty Quarter that was completed after a two-year delay shortens the distance to Saudi Arabia by 800 km.

Public Transport

The transport firm Mwasalat is the leading government-owned public transport company in the sultanate, ferrying over 2m passengers from December 2015 through the end of April 2016. The company was re-branded from the Oman National Transport Company in November 2015, introducing a new fleet of 40 low-floor, red-colour buses in Muscat, and 10 larger white buses running between cities. The company has since floated a tender for an additional 33 inter-city buses and 85 city buses, but has not yet received order approval.

“We are in the process of purchasing a total of 118 buses. Once they have been delivered, our oldest vehicles in public service will only be three years old, so we will have completed a major overhaul of the fleet that has taken us through the first two phases of expansion,” Mwasalat’s chief operating officer, Bill Cahill, told OBG.

Higher-than-expected passenger figures through the first five months of operations indicate a positive market response to Mwasalat services in Muscat, predominantly driven by expatriate commuters of various nationalities. Two new services launched in 2016 bring to six the total number of routes operated by the company in Muscat. Each route has designated bus stops, though only roughly half of the stops on the primary Ruwi-Mabela route, for example, are currently being operated due to lack of infrastructure, including bus turn-out lanes and air conditioned shelters.

Cahill told OBG that, “Of the proposed stops, we are probably only serving 60%, because the other stops need road alterations in order to make them safe for use, and that work is currently being tendered by the municipality. We are waiting for their process to catch up with our development plans.”

The company’s expansion plans aim at improving public transport in the country, beginning with feeder lines off the main Ruwi-Mabela route in Muscat and gradually expanding networks to meet demand. “We know that there is pent up passenger demand in Muscat for public transport,” said Cahill. “What we do not know is how big that demand is. The only real way is to keep testing and growing and to get greater penetration. That is what our future plans are all about, except those plans have yet to be approved by the government.”

There is a political appetite to invest in public transport in Oman, but the market is relatively small, and in the current low oil price environment, any plans that require public financial support are dealt with on a priority basis, affecting timelines and delaying approvals.

Taxis & Ferries

Local public transportation in the majority of the country’s urban areas is limited to white-and-orange minibuses and baisa taxis. In June 2016 the MoTC granted licences to the Ibtikar IT Company and Mwasalat to manage taxi services at high-profile destinations in Muscat, including Port Sultan Qaboos, three- to five-star hotels, Muscat International Airport, and commercial centres and malls. Each taxi management company will have to follow the design for taxis put forward by the ministry and fix fare metres in vehicles.

This follows the example of Oman Airports Management Company (OAMC), which introduced a new electronic meter payment system for airport taxis in April 2016 following several years of delays. Aimed at enhancing overall transparency of the system, fares for airport taxis now begin from OR6 ($15.60) and increase at a rate of 200 baisa ($0.52) per km, comparable to previous pricing, but providing a greater level of standardisation.

Ferries comprise another element of the Omani public transport system, allowing direct transit between points at a capital cost much lower than bridges or tunnels. The National Ferries Company (NFC) registered roughly 15% growth in passengers in the first three months of 2016 over the same period in 2015, from 42,083 to 51,824 according the company’s statistics. NFC also saw a 27% growth in the total number of vehicles carried on board and, notably, a 512% rise in the volume of cargo moved, from 1164 tonnes in 2015 to 7130 tonnes in 2016.

Logistics Central

Logistics performance, both in international trade and domestically, is central to the economic growth and competitiveness of the sultanate, creating thousands of jobs and contributing a significant share of GDP.

“Logistics is a must if you want to diversify the economy,” Reggy Vermeulen, CEO of Port of Duqm Company, told OBG. “The efficiencies gained with proper infrastructure benefit the oil and gas industry, provide access to untapped mineral wealth by shrinking the distance between quarries and ports, and allow for economies of scale by providing access to international export markets, particularly Africa, India and the GCC region.”

Whereas reductions in government support have stalled logistics development in other countries of the region, Oman is comparatively insulated and logistics spending is expected to yield significant earnings. “Salalah is built. Sohar is built. Duqm is 85% built. So yes, we still have to invest massively in the remaining 15% to complete Duqm,” said Vermeulen. “But once this is done you can easily serve air-to-sea and vice versa, sea-to-sea and sea-to-road for any of the three ports. Once Duqm is complete, it is more a matter of changing policies and soft infrastructure in the country to make it smoother and faster rather than investing on a large scale.”

Rising Connectivity

Airport infrastructure is likewise developing quickly, with $6.1bn earmarked through to FY 2020/21 to support the completion of new regional airports and major terminal developments at two international airports (see analysis). By capitalising on the benefits accrued from reliable supply chain networks and increased connectivity to international markets, logistics performance has improved significantly over the past two years as measured by performance in quality, Customs, infrastructure, and tracking and tracing systems. Oman was ranked 48th globally in the 2016 World Bank Logistics Performance Index, as against the 59th spot it occupied in the previous index in 2014. In the GCC region, Oman trailed the UAE, (14th position), Qatar (30th) and Bahrain (44th), but finished ahead of Saudi Arabia (52nd) and Kuwait (53rd).

Spearheading the sultanate’s ambitions to evolve into a logistics-centred economy is the Oman Logistics Company (OLCo), a wholly government-owned entity tasked with developing the country’s first integrated logistics hub in Al Batinah South Governorate, aimed at transforming logistics into an economically viable sector. The project began as a government initiative to transform logistics into an economically viable sector by creating a city that caters to the growth of logistics-linked activities and stimulates investment in indirect support elements. It was rebranded in 2016 as Khazaen.

Work is scheduled to proceed in five stages, each phase consisting of five years in duration, depending on market needs and trends. Development of Block 1 of Khazaen has already commenced, with OLCo floating tenders and awarding contracts for infrastructure projects, service facilities and dry-dock operations and management.

Freight Haulage

The increase in fuel prices, after subsidies on petrol and diesel were lifted in January 2016, is having an impact on overland transportation costs in Oman, releasing a price pressure on all other categories of transported goods. Heavier goods, including cement and construction materials bulk loads, have seen the greatest cost increases, along with food items transported in refrigerated trucks. Another issue faced by companies engaged in freight haulage, particularly in the mining sector, is the reduction of truck tonnage limits. New legislation instituting load limits increases the number of trucks that companies must operate, thus raising costs.

At the moment there is no domestic rail option connecting interior quarries to ports. However, in 2016 provisional studies were carried out for a 337-km freight railway project connecting the mineral-rich region of Shuwaymiyah, which contains substantial reserves of limestone and gypsum, with Port of Duqm. The railway would have the capacity to carry 5m tonnes of gypsum, 5m tonnes of limestone and 1m tonnes of oil equipment each year. If given the go ahead, it is envisaged that the project will be carried out under a public-private partnership and, if an agreement is signed in 2017, it could be up and running by 2021, according to the local media.

Considering the long distances that have to be covered by mining companies to reach the ports, authorities are reviewing all options to enhance efficiencies. One proposed solution under consideration is the concept of road trains. Widely used in Australia and New Zealand, this approach consists of a single engine pulling multiple lighter trailers, one behind the other, thereby reducing costs. The option is under review, with tests having been conducted between Sohar and Muscat.

Rail Network

In the second quarter of 2016, the Omani government announced its intention to delay construction on an ambitious regional rail project connecting the sultanate with the rest of the GCC, in response to a decision taken by other Gulf countries to suspend work on their portion of the project. The estimated $15.4bn GCC Railway network – a 2117-km railway system intended to connect Kuwait, Bahrain, Saudi Arabia, Qatar, the UAE and Oman – had been slated for completion in 2018. The plan envisaged a rail line running from Kuwait, down the Gulf coast and through the UAE to Muscat, where it would link up with a domestic line connecting to Duqm and Salalah in southern Oman. The decision of the Omani government to delay construction followed a January announcement by state-backed Etihad Rail to suspend the Stage 2 tendering process for construction of track inside the UAE, linking the country’s domestic rail network to the Saudi border at Ghweifat and the Omani border at Al Ain.

The suspension of Etihad Rail’s plans made it difficult for Oman to award a deal for its own track, despite being ahead of its GCC counterparts in designing its part of the overall network. The sultanate subsequently cancelled a contract with a private consultancy company retained to manage the rail project. The MoTC could not confirm when the project could be re-launched, and no new official timelines for the GCC Railway project have been presented. Oman is now looking to shift its focus from using its railways to distribute imports of goods around the region via the GCC network, to expanding a domestic rail network aimed at facilitating seaborne exports of items such as raw materials.

“We are connecting the ports, as planned, but we might be utilising the railway for promising sectors such as mining,” Ahmed bin Mohammed bin Salim Al Futaisi, the minister of transport and communications, told local press in February 2016. “So instead of the initial plan of importing via Oman’s ports and then using the GCC rail project, we might start with exporting what we have in Oman.”

Port Facilities

Sea transport is the predominant mode of freight activity in Oman, facilitated by the country’s three major ports: Sohar in the north, midway between Dubai and Muscat; Duqm, approaching 85% completion in the centre of the country; and Salalah in the south, acting as a trans-shipment hub and a bridge to East Asia. At the heart of the appeal of Oman as a shipping hub is its strategic geopolitical location and proximity to GCC markets that can be accessed by road if traditional maritime routes through the Strait of Hormuz are in any way imperilled. Oman’s location also affords a degree of separation from growing overcapacity within the strait.

“I think I would be extremely worried if I was inside the strait, because they are really heading toward a tremendous overcapacity with mega-ports coming on-line in Abu Dhabi, Dubai, Qatar and Kuwait,” said Vermeulen. “That said, we are outside the strait, and outside the strait the number of big ports is more limited and the market is much larger. For the time being what is happening inside the Gulf will have a limited impact on our business in Oman.”

Sultan Qaboos Port

With the transformation of Muscat’s Port Sultan Qaboos (PSQ) in Muttrah into a mixed-use waterfront cruise and leisure destination initiated in September 2014, most commercial cargo vessel and cargo operations have now been shifted to Sohar Port in the north. The decision to move operations was made in light of difficulties with expansion at the centrally located PSQ, and the additional capacity available at Sohar to absorb PSQ freight capacity. As a result of the significant reduction in the number of vessels and volume of cargo handled at PSQ, Port Services Corporation (PSC), which operates and manages the gateway, submitted a proposal to authorities in April 2016 recommending either its liquidation, or the total buyout of private shares in the company, turning it into a wholly-owned government entity.

Sohar Port

The deepsea Sohar Port and adjacent free zone lie at the centre of global trade routes between Europe and Asia, approximately 200 km from Muscat and 160 km from Dubai. The location of Sohar provides an advantage for handling break bulk and project cargoes, and positions the port as a strong option for trans-shipments across the Arabian Peninsula. Since operations began at Sohar Port and Freezone in 2004, cargo volumes across all categories have grown by double digits to an average of almost 1m tonnes of cargo per week in 2015. From 2014 to 2015, the port experienced a 12% rise in total throughput and a 46% increase in break bulk cargo shipments to over 1.9m tonnes.

The port is also emerging as a significant regional automotive hub for the Middle East, handling over 200,000 vehicles per year. Capacity at the port’s container terminal – operated by Oman International Container Terminal (OICT) – has more than doubled since the relocation of commercial traffic from Muscat to Sohar in 2014, and cargo volumes have risen from 329,000 twenty-foot equivalent units (TEUs) in 2014 to around 540,000 TEUs in 2015. In the second quarter of 2016 OICT added four new post-Panamax quay cranes, capable of handling 20,000 TEU mega-container ships, as well as an automated truck appointment system, to reduce turnaround times at the terminal. Current capacity at the terminal is around 2m TEUs per year, and plans are under way to develop another container terminal, with the capacity to handle 5m TEUs per year.

The growth in size and efficiency at the current container terminal has helped to develop new lines and connections, including more direct links to Asia. Global container shippers Evergreen and Hanjin included Sohar as a regular port of call in 2015, and Mediterranean Shipping Services (MSC), the world’s second-largest container shipper, began calling at Sohar in 2016. With the lifting of international sanctions on Iran in early 2016, Sohar and the OICT are also eyeing expanded shipping and trade links with Iran, seeking to draw business from Iranian dry bulk and container line, the Islamic Republic of Iran Shipping Lines and the National Iranian Tanker Company.

Salalah Port

Situated in the Dhofar Governorate on the Arabian Sea, the Port of Salalah is a major trans-shipment hub and gateway to the Middle East, Indian subcontinent and East Africa. Salalah Port handled 2.57m TEUs in 2015, down 15% from 3.03m TEUs a year earlier. The decline in container terminal trans-shipment volumes – attributed to the rationalisation of services of its two largest customers and increased regional competition – was nevertheless partially offset by new volume records set at the port’s general cargo terminal, where throughput increased by 22% from 10.31m tonnes in 2014 to 12.54m tonnes in 2015. That followed an already robust 30% growth in bulk throughput in 2014 over volumes for the previous year.

In 2016 the downwards trend in container throughput was reversed. According to local media, during the first six months of the year the port saw a 29% increase in the volume of containers handled, at 1.58m TEUs, compared to the same period in 2015, while general cargo saw growth of 12%.

The handling of locally mined limestone and gypsum has been driving growth in the general cargo business at Salalah, and remains the largest commodity for the terminal followed by methanol, fuel and bagged material, mainly cement. Annual handling capacity received a boost in 2015, with the completion of an expansion project that added 20m tonnes of dry cargo and 6m tonnes of liquid bulk cargo capacity in a new deepwater General Cargo and Liquid Bulk Terminal.

Other recent developments at the port include a long-term land lease agreement signed between Oman Oil Company and Salalah Port Services Company in early 2016 to develop a new, mid-sized marine-bunkering and product-trading terminal, providing ships calling at the Port of Salalah with fuelling services by the end of the year. Main line connectivity forms a critical backbone of the port’s supply chain solution, and Salalah has been successful in developing new feeder connections to other ports in the region, launching a new shipping line in April 2016 that connects Salalah and Jebel Ali in the UAE, along with the Omani ports of Duqm and Sohar. Intermodal connections servicing nearby oilfields, and overland cargo shipments to Saudi Arabia are less developed and are likely to require greater investment over time.

Infrastructure at Salalah will receive another boost in 2017, when a project involving the construction of new container berths at the terminal gets under way. Completion of the berths will raise the port’s container handling capacity by 50% to reach 7.5m TEUs.

Port Of Duqm

Situated on the south-eastern seaboard, overlooking the Arabian Sea and the Indian Ocean, Port of Duqm provides a gateway to Al Wusta Governorate, which is home to the majority of the sultanate’s hydrocarbons and mineral wealth. Currently 85% complete, the port is being positioned as a multi-purpose commercial gateway, and the principal anchor of a 2000-sq-km special economic zone (SEZ) – the largest initiative in the sultanate’s modern history. Envisaged within the SEZ are clusters earmarked for investments related to, among others, refining and petrochemicals, light manufacturing, heavy industry, seafood processing, tourism and leisure, and mineral processing.

Investment in the SEZ is growing in line with the maturation of infrastructure serving various industrial clusters. “Duqm is currently going through the chicken or the egg period of its development,” Hilal Salim Al Sinani, chairman of the Marine Technology Company, a marine oil and gas operations contractor in Oman, told OBG. “Companies are very keen to invest, but want to see more significant industrial activity there first, and thus will likely need a stronger push from the government.”

Trans-Shipment Potential

In support of government development commitments to the port and SEZ, an airport is under construction at Duqm, while a proposed rail-based freight and passenger transport network is expected to eventually link the industrial port city with the national rail system. The Master Plan for Duqm port envisions dedicated terminals for general cargo, containerised cargo, liquids, petroleum products and bulk commodities. In the long term the port’s operators, the Antwerp port authority, from Belgium, envisage that much of the business of the new port of Duqm will be in the trans-shipment of goods. Short-term targets for the port are focused on supporting national growth objectives through 2020, whether in minerals, oil and gas, or construction of the port and SEZ facilities. The early container terminal, minerals terminal and project cargo terminal were functional in late 2016, though none were yet complete or operating at peak efficiency. The early container terminal, for example, was handling around 15 TEUs per crane per hour in August 2016, as compared to 35 targeted at a fully finished port. “For the moment, our success metrics are different than Sohar or Salalah,” Vermeulen told OBG. “For us it is more the volume of cargo that we are handling and, especially the very large project cargo, which is a new business for the country. This used to go by Jebel Ali in the past, and now it is going straight to the country via Duqm, so that is something we are really looking at as a key performance indicator.”

When completed in 2019-20, Duqm will have a capacity of 3.5m TEUs, capable of handling containers and general and bulk cargo, and accommodating eight vessels at a time. A planned feeder line was up and running in late 2016, connecting Duqm to Salalah, Sohar and Jebel Ali.

The port was also working to establish a direct connection to China to serve a 1200-ha Chinese-oriented cluster in Duqm, as well as adding a leg to the existing feed line or creating a dedicated service in the area of Mumbai, India.

Industrial Service

The Port of Duqm aims to become a major international export hub for industrial minerals in the next few years, banking on the commercialisation of substantial mineral resources in Wusta Governorate to generate a considerable percentage of long-term cargo volumes. For example, the port’s first shipment of 50,000 tonnes of dolomite – used primarily in the construction and steel industry – was loaded in early 2016, bound for India. The dolomite is produced in a quarry located about 30 km from the port that is proven to have a reserve of over 300m tonnes of product.

Given the potential for mineral-based industrial activities at Duqm, a dry bulk terminal with a capacity to handle up to 5m tonnes per annum of commodities was included in the port’s phase one development. Mining and mineral processing investment in mining activities is expected to grow once a pipeline bringing natural gas from central Oman becomes operational by 2018. The availability of gas as a fuel in the SEZ will enable investments in mineral processing units, cement and clinker plants, glass manufacturing and other value-enhancement activities.

The proposed railway linking Port of Duqm with Oman’s mining centres is an important part of the port’s ambitions, as completion of the project stands to substantially increase the volume of minerals passing through the port and will reduce the cost of carrying such commodities to the port.

Oman Shipping Company

With a fleet of 52 vessels at the end of 2016, 38 of them managed in-house, Oman Shipping Company (OSC) is the largest owner, manager and charter company in freight shipping in Oman. The national carrier was incorporated in 2003 as an initiative of the government through the Ministry of Finance (80%) and Oman Oil Company (20%).

Originally focused on the transport of liquefied natural gas, OSC has since diversified into crude oil, chemicals, dry bulk, container and general cargo market segments. In 2016 the company received delivery of the last of 10 medium-sized MR2 Product tankers constructed at HMD shipyard of Hyundai in Ulsan, South Korea, as part of Project Silver, which aims to have a total of 50 newly built vessels for Shell Oil Company in 2016.

The container-shipping arm of OSC, Oman Container Line, also announced a new fortnightly feeder service in 2016 called Oman Express, which connects the ports of Salalah, Duqm and Sohar to Jebel Ali in the UAE. A multi-purpose vessel that can move 350 containers or 8000 tonnes of general cargo will be used in the new feeder route.

Wasam Moosa Al Najjar, general manager for corporate planning at OSC, expected substantial growth potential for the national carrier in mining and bulk cargo, going on to note the importance of introducing regulations that would have the effect of promoting the carrier as a first choice for exporters in the country. “I think we have a large opportunity in the local market. Shipping is a truly cyclical, capital-intensive, speculative and global industry,” Al Najjar told OBG. “At present, the shippers and consignees in the sultanate take their shipping decisions only on spot economics, often overlooking quality and long-term sustainability. First-choice rights would enable us to provide stakeholders with long-term shipping solutions.”

Outlook

Government investment in transportation and logistics drove development in the sector between 2015 and 2016, from port-handling capacity and land-transport connectivity projects, to port and airport facility upgrades and new road links. Performance in the sector, viewed as a central component of sustained economic growth and competitiveness, has improved significantly over the past two years. Main-line connectivity forms a critical backbone of the supply chain solution beginning at the country’s three major ports, and each has been successful in developing new feeder connections to other ports in the region.

With the suspension of the GCC Rail project, Oman has also arrived at a key inflection point in strategic development of port infrastructure, balancing the relative merits of using ports for the internal growth of industry and export-oriented diversification, on the one hand, and logistics support in the regional and international arena, on the other.

“For the ports it can be quite simple,” Vermeulen told OBG. “If no growth is being seen locally, the port can restructure and diversify to an international approach. Oman has to diversify; it has to focus on using its available ports to boost internal growth, in order to be able to employ more people and meet Omanisation standards, for example.”

In parallel to the growing volume of cargo throughput at Omani ports, warehousing is a market segment poised for growth in the country, meeting the needs of transporters seeking a strategic location to store goods en route. “Warehousing in Oman is of great interest for foreign investors given the country’s strategic location, allowing easy access to the Middle East, East Africa and Asia,” Al Sinani of Marine Technology Company told OBG.

Ultimately, cargo volume growth to and from Oman could be challenged by surging competition from the UAE and Saudi Arabia, along with other countries which have similar portfolios and investment scenarios for the logistics industry. The task put to Oman is to consolidate its infrastructure and ease of doing business in order to increase efficiency and better compete with inner-gulf ports.

 

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The Report: Oman 2017

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