A regional leader in the liberalisation and privatisation of its power and water utilities, Oman promotes 100% non-government ownership of generation assets. Its independent power, water, and water and power plants (IPPs, IWPs and IWPPs) are models for private investment and have brought in foreign players with the technology and capital to develop the modern utilities needed to meet rapidly rising power and water demand.


Privatisation dates back to 1994 when development started on the Manah power project on a build-own-operate-transfer (BOOT) model by United Power Company (UPC). Next, in 2002, private firms were invited to invest in the Salalah Power System, but it was the Sector Law, promulgated in 2004 and implemented in 2005, that set out the parameters for independent utilities projects and catalysed development.

“Oman has one of the most advanced privatisation programmes in the region, and one of the most hands-off approaches to utilities development,” Mary Allan, a partner at international law firm Curtis, Mallet-Prevost, Colt & Mosle, in Muscat, told OBG. “The government buys the power or water for a contracted price, but otherwise the private sector is allowed to get on with its job. It’s quite rare in the Gulf, and has created a lot of confidence in Oman. The regulatory regime for power and related water has established a clear framework, particularly for international investors.”

Project Parameters

The Sector Law currently applies predominantly to power and “associated” water – that is IPPs and IWPPs, and usually not IWPs. This is expected to change, with new legislation adopted to embrace water-only facilities as well, though no timeline has been announced. At present, there is one (small-scale) IWP, operating at Sur, completed in 2009. The $377m Ghubra IWP, with capacity of 42m imperial gallons a day (MIGD) is due to commence commercial operations in 2014, and a third plant, Quryat, is expected to launch in 2016 with 46-MIGD capacity.

IPPs do not usually function as concessions, but are build-own-operate projects in which the government provides an off-take agreement – or power-purchase agreement (PPA) – licensed by the regulator. Unlike elsewhere in the region (Abu Dhabi, for example), the government does not take a stake in the project company. IPPs are generally run by consortia, and rules currently forbid project companies from operating more than one plant, though individual shareholders in one plant can bid for other projects. Off-take contracts are usually 15 years for power plants and 20 for water plants. Zoher Karachiwala, CEO of UPC, told OBG that there is no reason for project companies not to have their contracts renewed, taking them to the end of the plant’s lifespan. However, with no independent projects having reached the end of their contract terms, this is still a subject of speculation, and decisions are likely to be made on a case-by-case basis.

Oman Power and Water Procurement Company (OPWP) has recruited consultants to map out various scenarios, including renewing the previous PPAs, negotiating new PPAs and various other possibilities. An acid test will come in 2017 when the Al Kamil power plant comes to the end of its current contract. Karachiwala said that renewal will depend on two calculations – how efficient it is given the technological progress since its launch, and the lead-time on any potential replacement plant. At Manah, one of the first IPPs in the Middle East and Oman’s sole BOOT power plant, the transfer date is 2020. Like other independent projects, the authorities have not revealed what will happen to the plant after its transfer. Options include selling it back to UPC, selling it to another investor, or bundling it with new power projects and reselling.

Business Environment

The power sector is certainly good business for private investors. The Manah plant is one of the country’s most profitable enterprises, according to Milan Maksimovic, general manager of Serbian engineering firm Energoprojekt in Oman. The deals have no demand risk and little price risk. A small degree of what Maksimovic refers to as construction risk and operational risk does exist, however, meaning that there have been some disputes between project companies and contractors. Further, Oman’s gas supply means that fuel shortages are not impossible.

There have also been times at which PPAs have been interpreted differently by different parties, though Karachiwala said that these have not been serious disagreements, particularly compared to other emerging markets. “I would not even call them disputes, just minor problems in interpretation,” he said. “Payment always comes on time from OPWP, we’ve never had to chase it up.” He adds that corruption is almost non-existent in Oman, whereas it has to be factored into investment decisions when considering dealing with public contracts elsewhere in the world. Oman is expected to continue rolling out independent projects along current lines. For the time being, it seems unlikely that merchant selling models will be introduced, due to the sultanate’s relatively small population and growth that is sensitive to international oil prices.

Project Roll Out

As demand for power and water rises, IPPs and IWPPs continue to be rolled out. Early efforts on the Sohar II and Barka III IPPs were achieved in June 2012, contributing around 987 MW to the Main Interconnected System (MIS) during peak demand in the summer. Meanwhile, commercial production of potable water and power at Salalah IWPP commenced in March and May 2012, respectively, increasing capacity by 445 MW and 15 MIGD. April 2013 saw two new IPPs commissioned – Barka 3 and Sohar 2, both gas plants with installed capacity of 745 MW each.

A request for qualifications on Salalah II IPP was issued in late 2012. The plant will have an installed capacity of 400 MW on a 15-year PPA, and should be operational by 2016. As part of the deal, the Dhofar Generating Company, which is currently owned by Dhofar Power Company, will be privatised, bringing further private investment to the Salalah grid, on which demand is expected to rise at 10% a year to 2018 – with potential to reach up to an average 17% annually if industrial growth is higher than expected, according to OPWP.

The sultanate’s flagship utilities investment is, arguably, the 2000-MW Sur IPP, which is due to be commissioned in April 2014. It will be the country’s biggest power plant yet, and a major landmark for IPPs in the country. The $1.5bn project, which attracted a range of international players, was won by a consortium including Japan’s Marubeni and Chubu Electric, making it the first major investment by Japanese companies in power generation in Oman.

Grid Upgrades

To transmit the power from the new plant to Muscat, part of the sultanate’s electricity grid is being upgraded to 400 KV from 220 KV. Other supporting infrastructure, including transformers and substations, is also being installed. But even Sur may soon be overtaken by another large plant. In November 2013, Hilal Al Abdali, client and contracts and interface manager at OPWP revealed plans to construct a 3000-MW plant costing as much as $2.4bn. The greenfield project, which would feed into the MIS, would bring on a third of its capacity in 2017 and the remaining 2000 MW in 2018. Al Abdali implied that the project could be executed as a single unit or as two plants, though further details were not available at the time of research.


In Oman, some have doubts about handing power and water assets to foreign companies, but the success of the independent projects has helped to assuage concerns. Furthermore, the obligation to offer 30% of project companies on the Muscat Securities Market (MSM), the national bourse, after a certain period (usually four years) provides an opportunity for individual Omanis to participate in the sector and take a share of the usually generous profits.

While often referred to as initial public offerings, these listings, strictly speaking, are different as there is an obligation for existing shareholders to offload part of their stake, which they cannot purchase back on the open market. The obligation to offer shares is seen as beneficial for all parties involved. For the public (and indeed institutional investors), it provides an opportunity to take a stake in successful companies and generate income from their often substantial profits.

For the original investors, the offerings are a chance to recoup some of their capital expenditure – because the capital expenditure has already been made, the cash raised in the floatation is not usually channelled back to plant investments, but goes to the original shareholders. For the MSM, these flotations, usually heavily oversubscribed, provide a welcome injection of liquidity and boost volumes. For example, Sembcorp Salalah’s offering in September was the largest of 2013 on the MSM, raising OR53m ($137.3m) in an oversubscribed issue. “It works very well,” Karachiwala told OBG, “the value of the company rises when it goes to market, there is no concentration risk for investors.” Prices of project companies tend to trade in a band on the market, due to the stable, long-term contracts by which the companies operate. Thus the Omani IPP model has proven successful, with a range of international players competing in the tenders and taking the lead in expanding Oman’s power and water capacity, and the model will likely continue for forthcoming projects.