Project power: Projects in sectors spanning transport to tourism are driving new builds

Demand for construction services has extended through 2015 driven by a solid pipeline of major public projects, as well as lively demand from the private real estate sector. Some of the infrastructure developments being implemented should keep contractors busy for years to come, and are expected to help maintain sector momentum through the economic slowdown forecast for 2016. A range of property segments, particularly integrated tourism complexes (ITCs) and affordable housing should also see plenty of medium-term activity.

A Deloitte C-suite survey reported in its 2015 GCC construction sector review found Oman to be one of the most promising countries in the region in terms of tender opportunities. Oman has emphasised private sector participation in infrastructure development – including management and ownership of assets – for two decades, with laws regularly updated to broaden the scope for public-private partnerships (PPPs).

Down The Track

The single biggest construction project currently on the table is the Oman National Railway, which should have a total length of 2135 km on completion, and is expected to cost $15.6bn, with completion pencilled in for 2020. Thus far, sections totalling 1414 km and at least $6bn of investment have been placed on tender. These include the first phase, a 207-km link between the port of Sohar and the border with the UAE at Buraimi, where the sultanate’s rail system will link to the UAE’s National Railway. It would then potentially link to a railway network connecting the GCC member states, to the rest of the Middle East, Europe and Central Asia. The other segments, phases two to four, entail a line from Salalah, the main port of the south, to Hafeet on the UAE border via the industrial zone of Duqm.

After many years of planning, concrete progress is being made on the network. In November 2015, Oman Rail, the government company overseeing the project, announced that it had received eight bids for the operations and maintenance (O&M) contracts for the first phase of the railway, with bidders from as far afield as the UK, India, Australia, and Italy, as well as a number of local companies. The railway network is seen as central to Oman’s goal of developing its position as a regional transportation centre, taking advantage of its position outside the Strait of Hormuz and between major emerging markets in the Middle East, Asia and Africa, as well as supporting manufacturing development.

Airports & Ports

The ongoing expansion of Oman’s airport capacity is similarly intended to help support diversification, particularly growing tourism. The development of Muscat International Airport is due for completion in 2017, Oman Airports Management Company announced in November 2015.

The $1.8bn project will increase the airport’s annual capacity to 12m passengers, and is being carried out by a consortium including US firm Bechtel, Turkey’s ENKA and local company Bahwan Engineering, awarded the contract in 2010. The airport design allows for further waves of expansion in three phases, taking capacity to 24m, then 36m, and 48m passengers over the next five decades.

The new OR365m ($944.9m) Salalah International Airport was officially opened in November 2015, having started operations in June, and was constructed by Larsen and Toubro India and Galfar. New airports have also recently opened at Duqm and Sohar, while a fifth is under construction at Ras Al Hadd.

In April 2015, Hong Kong-based Hutchinson Port Holdings announced that investments totalling $303m were being made to quadruple the capacity of the international container terminal at the Port of Sohar to 6m twenty-foot equivalent units by 2019.

DUQM Demand

One of the biggest mega-projects taking shape in the sultanate is at Duqm, with a port and associated special economic zone (SEZ). The SEZ, with total area of 1745 sq km and 80 km of coastline on the Arabian Sea, is the largest in the MENA region, and one of the biggest in the world. A central part of the country’s diversification strategy, it includes zones for industry, residential areas, tourism, logistics, and an education and training cluster. The Port of Duqm opened in 2011 and is at the heart of the growing development.

In October 2015, the government announced that nine international marine engineering companies had pre-qualified to participate in a tender for the construction of a bulk liquid berths terminal at the port. The contract, worth $1bn, is being overseen by the SEZ Authority at Duqm (SEZAD), and will include design, dredging, reclamation and jetty construction. In November 2015, seven pre-qualified companies were invited to submit bids for engineering, procurement and construction (EPC) contracts for the planned Duqm Refinery, which has a design capacity of 230,000 barrels of crude oil a day. The tender is likely to be awarded in two EPC contracts, one for the equipment and structures for processing crude oil, and the second for support utilities and infrastructure. The $6bn refinery is a joint venture between the Oman Oil Company (OOC) and the International Petroleum Investment Company (IPIC).

Power & Water

Meanwhile, more of Oman’s flagship PPP independent power and water plants are being rolled out. In May 2015, Oman Power and Water Procurement Company (OPWP) announced that it had signed off on a OR240m ($621.3m) deal to develop the second phase of the Salalah Independent Power Plant (IPP). The new 445-MW combined-cycle unit will be developed by a consortium of ACWA Power of Saudi Arabia and Japan’s Mitsui and Co, each with 45%, and Dhofar International Development and Investment Holding Company owning 10%.

Progress in stand-alone independent water plants (IWPs), relatively new to Oman, is also continuing. In August 2015, OPWP announced a shortlist of seven bidders for the $550m development of two desalination plants in Sohar and Barka, tendered together, with respective capacities of 250,000 and 281,000 cu metres of water per day. With water demand in Oman’s northern water distribution region – which includes Muscat and Sohar – expected to grow by an annual average of 6% between 2013 and 2020, investments in desalination are pressingly needed.

Rising Demand

The government’s investment drive is not only targeted at hard infrastructure. The 2015 budget allocated $4.2bn, or 11.3% of the total, to health care, as the authorities looked to ensure that health care provisions keeps pace with the sultanate’s growing population. Two of the biggest projects in health care are the $1.48bn Sultan Qaboos Medical City Complex at Barka and the $1bn Salalah International Medical City.

One of the most important sectors in the sultanate’s economic diversification plan is tourism, particularly given its potential for catalysing regional development. One of the planks of this strategy is the ITC concept. ITCs are self-contained zones in which foreign nationals can buy units freehold rather than leasehold, and which have leisure and some retail facilities on-site (see Tourism chapter). One of the market leaders, Al Mouj in Muscat, has the city’s only PGA certified golf course and a large modern marina.

ITCs have proved as popular with Omani and Gulf-national owner-occupiers and buy-to-let tenants as with expatriates, and developments like Al Mouj have become more residential than tourism-focused. The $600m first phase of Saraya Bandar Jissah ITC is due to be completed by 2017 and will include two luxury hotels as well as three residential zones. In July 2015, Omagine gained rights to 1 sq mile of beach-front land in Seeb, Muscat, to develop its $2.5m Omagine ITC, which will include a theme park and a range of hotel properties.

Oman’s population is forecast to grow at an annual average 3.7% a year between 2014 and 2019, according to a 2015 report by Qatar-based Alpen Capital, due both to relatively high birth rates among nationals, and expatriate arrivals. Real estate analysts see this growth driving demand for properties including family apartments and units in gated communities, while companies coming to Oman to work on big-ticket projects require grade-A office space of which there is a great shortage in Muscat.

In 2012 the government pledged to invest OR80m ($207.1m) a year in affordable housing to tackle a shortage; though the shortfall is not as acute as in some MENA countries, the sultanate’s growing population necessitates continual increases in the housing stock. The Ministry of Housing estimates that 6000 families are on the government housing waiting list, while 30,000 families live in shared homes.

In May 2015, the government announced new plans to construct more affordable housing complexes, including through potential PPPs, while making low-interest loans more readily available to low-income families via the Omani Housing Bank.