Prior to 1971 the Sharia Courts had jurisdiction over all civil and criminal matters, as well as personal status matters in the sultanate of Oman. However, after the succession of Sultan Qaboos bin Said Al Said, the judicial system was reformed in the sultanate, and Sharia Courts currently only govern matters relating to family disputes and inheritance.
The 1996 Basic Statute of the State (promulgated by Royal Decree No. 101 of 1996 and known as the Basic Law) reshaped and codified the legal system in Oman, creating separate structures for the executive bodies, the judiciary, and the rights and obligations of individuals. The principles of the Basic Law entail that Oman is a free market based on cooperation between the public and private sectors. The law also provides that the religion of the state is Islam, and that sharia law is the basis of legislation.
Oman has two types of legislation: primary and secondary. Primary legislation, also referred to as a sultani decree or a royal decree, is promulgated by the sultan. Secondary legislation, also referred to as ministerial decisions or regulations, are promulgated by ministers and government bodies in accordance with the respective authority given to them by the royal decrees. If there is a contradiction between the provisions of legislation and the Basic Law, provisions of the Basic Law will prevail.
As the country is a civil law jurisdiction, Omani courts are given considerable discretion to interpret the legislation on a case-by-case basis. In cases involving commercial disputes, the commercial court judge’s discretion extends to allow them to interpret or amend an agreement in a way that accurately represents the respective parties’ intentions when the terms of said agreement are ambiguous or poorly drafted.
Judges may use a previous judgement recited by the legal representation in their statement of claims as persuasive precedent, but it is not legally binding. Judges in Omani courts tend to rely heavily on the statement of claims presented to them in the commercial and civil courts.
It is therefore important for your legal representation to ensure that the statement of claims covers all of the points needed to argue your case. Conversely, criminal and Sharia Courts require legal representation to have a more interactive role, as they are more likely to require cross-examination of witnesses.
Business in Oman
Until some years ago the process of commercial registration would take several months to complete. To a certain degree, the commercial registration process has since become easier, as law firms are permitted to submit documents online, through the Ministry of Commerce and Industry (MoCI) e-portal (www.business.gov.om). Oman’s efforts to ease this process have reduced considerably the time taken to incorporate. The remaining documents, licences and capital requirements may be formalised after the online registration is complete.
Set-up costs remain relatively high, and the post-registration requirements typically take another two to eight weeks to finalise, depending on whether special permissions or licences are required from other government ministries. Additionally, investors must comply with the Omanisation laws introduced by the Ministry of Manpower (MoM). These laws require all companies to hire a certain percentage of Omanis, depending on the industry the business is involved in. Meeting the Omanisation rate enables the foreign company to employ non-Omanis.
If the foreign company does not meet the minimum prescribed Omanisation percentages, it must submit an Omanisation Plan to the MoM detailing how it intends to achieve the required percentage. Persistent failure to meet the thresholds could result in the company being fined and blocked from obtaining further labour clearances for non-Omanis.
The laws concerning companies have undergone significant recent changes. In July 2019 Oman issued Royal Decree No. 50 of 2019, which led neighbouring countries to do the same. The new Foreign Capital Investment Law (FCIL) seeks to attract more foreign investment by creating more incentives, increasing the number of sectors open to foreign investors and removing local ownership requirements. The law is due to come into effect in January 2020. In the meantime, foreign investors and companies must continue to comply with the old FCIL.
The new Commercial Companies Law (CCL), as promulgated by Royal Decree No. 18 of 2019, took effect in April 2019. The new law made several progressive changes to the rules governing companies and other entities in the sultanate, with the hope of improving corporate governance and transparency.
One of the most notable modifications under the new CCL is the introduction of a single shareholder corporate vehicle. This new structure may help entities establish their businesses more quickly as it eliminates the need for shareholder agreements and other private agreements that would otherwise be in place between shareholders of a company. It is likely to be an attractive option for foreign investors in 2020, when the new FCIL takes effect.
Under the previous regime, only certain business structures were allowed to have foreign ownership, and typically, foreign investors performed business in Oman through a registered Omani agent or distributor, by establishing a limited liability company (LLC) with a local Omani partner, by creating a private joint-stock company (Société Anonyme Omanaise Close, SAOC), or by setting up a branch office if working on a government contract. The full list of the different types of entities – some of which are only available to Omani nationals – is as follows:
• SAOCs or public joint-stock companies (Société Anonyme Omanaise Générale, SAOGs);
• Holding companies;
• Commercial agencies;
• Branch offices;
• Commercial representative offices; and
• Joint ventures.
LLCs are the most common incorporated business structure in Oman. Companies that wish to be incorporated in the form of an LLC must have a minimum of two shareholders. The maximum number of permitted shareholders increased from 40 to 50 under the new CCL. The liability of the shareholders is limited to the nominal value they have contributed to the LLC’s share capital.
Under the previous regime, if a non-Omani investor wished to become a shareholder of an Omani LLC, at least 30% of the share capital of the Omani LLC had to be owned by either an Omani national or a fully Omani-owned corporate entity. This requirement will be eliminated for companies carrying out certain activities when the new FCIL comes into force. Regardless, Omani LLCs may be 100% owned by GCC nationals or fully GCC-owned companies, without a need for a local shareholder. This rule also applies if the foreign investors are US nationals. Pursuant to the free trade agreement (FTA) which is currently in force between the US and Oman, US nationals and 100% US-owned companies are permitted to own 100% of an Omani LLC. However, it should be noted that the US ownership requirements are strictly enforced. If the US entity has a shareholder or several shareholders that are not US nationals, the application to establish a company pursuant to the FTA will be denied.
The minimum share capital required for registering an LLC with foreign ownership participation is OR150,000 ($390,000). If the LLC is a financing or a lending company, the share capital requirement is greater. However, the new CCL is silent on the minimum share capital requirements which will allow shareholders of LLCs that are wholly owned by GCC or US nationals to further limit their liabilities with respect to their capital contributions.
The new CCL introduced the sole shareholder company (SSC), which can be owned by a single shareholder rather than two. Currently, this structure is only available to Omani, GCC and US entities. Additionally, a natural person may not be a shareholder for more than one SSC, and an SSC may not set up another SSC.
Joint-stock companies are based on the French société anonyme structure and may take the form of either a private SAOC or a public SAOG. Incorporating a company under this structure is more complicated when compared to an LLC by virtue of the additional information and approvals needed from the MoCI. Similar to an LLC, at least 30% Omani ownership is required for joint-stock companies.
SAOC: SAOCs are closed joint-stock companies, meaning they do not offer their shares for public subscription. SAOCs require a minimum of three shareholders. As with LLCs, the transfer of shares in an SAOC is subject to the shareholder’s pre-emptive rights. A minimum share capital of OR500,000 ($1.3m) is required for SAOCs, although only a partial payment of the shares is required upon incorporation. It is also necessary to have a board of directors to manage the company, with at least three directors and no more than 11. Under the new CCL, SAOCs may now offer securities other than shares to the public.
SAOG: SAOGs are open joint-stock companies, meaning that at least 40% of shares must be issued to the public freely. Each SAOG must have a minimum share capital of OR2m ($5.2m). The new CCL states that the minimum share capital of an SAOG may be reduced to OR1m ($2.6m) if the SAOG previously existed in Oman in another legal form and converted to an SAOG. Additionally, the amendment to the Insurance Companies Law, promulgated by Royal Decree No. 39 of 2014, requires any insurance company wishing to establish operations in Oman to have a minimum paid-up share capital of OR10m ($26m).
SAOGs must offer to the public at least 40% of their shares that are in issue. Shares for SAOGs are purchased through the Muscat Securities Market, which is closely monitored by the Capital Market Authority, the sector regulator. The Central Bank of Oman governs foreign investments in financial institutions and regularly issues circulars, which have a similar binding effect as ministerial decisions or regulations. SAOGs are also required to comply with Code of Corporate Governance and the Executive Regulations of the Capital Market Law.
Similar to SAOCs, SAOGs must have a board of directors responsible for managing the company. The minimum number of directors required is five, but, the maximum has been reduced under the new CCL from 12 to 11, as there is now an additional stipulation that there must be an odd number of directors. One- third of directors must be independent. SAOGs also require the appointment of an auditor.
Under the new CCL, a holding company is defined as a company that owns at least 51% of shares in a subsidiary company. The minimum share capital of a holding company is OR2m ($5.2m). LLCs that fall under this definition are now required to convert to joint-stock companies and update their activities on their commercial registration documents and constitutional documents to include “conducting the business of a holding company”. Such LLCs must convert to joint-stock companies by April 2020, otherwise they can be punished under the new CCL.
Partnerships are companies that are formed between a minimum of two individuals. They can take several forms, including general and limited. General partnerships: A partner in a general partnership has unlimited joint and several liability. General partnerships require registration within one month of the execution of the partnership agreement. A partner requires the consent of the other partner(s) to transfer his or her interest. A partnership may dissolve upon the death, incapacity or bankruptcy of one of the partners, unless the other partners unanimously agree to continue. Limited partnerships: Limited partnerships require at least one of the partners to have unlimited liability and at least one of the partners to have liability limited to the extent of the capital they contributed.
Omani nationals and GCC nationals may also establish a sole proprietorship. The minimum share capital for incorporating this form of a business is comparatively low, at OR3000 ($7790), and only one shareholder is permissible. The sole proprietorship will be named after the respective individual who owns it. A sole proprietor is not protected by a corporate veil, and as such, he or she may be found personally liable for debts incurred by the sole proprietorship. It is common practice in Oman for a sole proprietor to convert their business into an LLC, as the conversion process is relatively easy to do.
If a non-Omani supplier wishes to sell goods in Oman without incorporating a company, then a commercial agent may be appointed in order to distribute, market and promote the sale of the goods. Foreign investors should seek legal advice before entering into an agency agreement, since there are several requirements that need to be complied with under the Commercial Agency Law (Royal Decree No. 26 of 1977 and amended by Royal Decree No. 34 of 2014). If the agency agreement is not with a registered agent in Oman and registered with the MoCI, the foreign investor could find him or herself without a right to legal recourse in the country.
For non-Omani entities, a branch office may only be established if the foreign parent has a contract with either a government body or a quasi-government body. The registration of the branch office remains valid for the duration of the contract. Although its scope is limited, a branch may be an attractive option for a foreign investor as it allows the foreign company to keep 100% of the business without diluting control of its operations or assets. It should be noted that branch offices are not permitted to undertake private sector work, their sole purpose being to perform the government contract that established it. In addition, the foreign parent company is required to submit an undertaking that it will be fully responsible and liable for the debts, losses and liabilities of the branch office. The rationale behind this provision is that a branch office is not, strictly speaking, a separate legal entity, but is treated as part of the foreign parent.
Commercial Representative Office
A commercial representative office may only be used for the purposes of marketing and promotion of the foreign parent’s products or services to retailers, not directly to consumers. The commercial representative office may not sell products or services, or engage in other commercial activities. The representative office may hire and/or sponsor employees.
A joint venture is an unincorporated business that does not have a separate legal personality. It is formed by way of contract between two or more investors with the intention of working together in a common business venture. Although it is not treated as a separate legal entity, as it cannot independently form agreements, joint ventures must keep their own audited accounts and it is taxed as a separate legal entity. Investors tend to prefer incorporating their business in forms other than this, as the shareholders of the joint venture may be subject to unlimited joint and several liability.
In February 2017 the New Tax Law was published under Royal Decree No. 9 of 2017, to be effective for all tax years starting from January 2017. The law applies to companies and permanent establishments that are operating and registered in Oman. It requires companies to pay an annual income tax of 15% on the net profits of the enterprise. The change in laws also means that entities are no longer exempt from paying income tax for the first OR30,000 ($77,900) earned on their net profit. Sole proprietorships are now required to pay a 3% income tax if they meet the following requirements:
• Registered capital not exceeding OR50,000 ($130,000);
• Maximum gross income of OR100,000 ($260,000);
• An annual average number of employees not exceeding 15; and
• The trade activity qualifies for this reduced tax rate, according to the Ministry of Finance (MoF). Provisions for penalties have been also been enhanced under the New Tax Law. Failure to file tax returns on their due date could now lead to the company or permanent establishment being fined a minimum of OR100 ($260) and maximum of OR2000 ($5190). Additionally, failure to submit information requested by the tax authority or to attend scheduled hearings could result in a fine of at least OR200 ($520) but no more than OR5000 ($13,000).
Although income tax has increased in Oman, companies incorporated in free zones and special economic zones (SEZs) still benefit from tax advantages, including exemptions and incentives. In addition to other commercial advantages, free zones allow 100% foreign ownership.
Currently, Oman has three free zones in Salalah, Sohar and Al Mazunah, and two SEZs in Duqm and Muscat with the intention of attracting different types of businesses to Oman. Each area has its own set of incentives, requirements and rules.
Most free zones are restricted to trading activities, not service provision. Furthermore, free zones are not intended to facilitate trade onshore in Oman. If a free zone company wishes to sell or distribute its goods in Oman, it must appoint an agent or establish one of the other entities described above.
Salalah Free Zone: The Salalah Free Zone is located in the south of Oman. It has been established for investors involved in industrial activities, logistics, tourism and other mixed-use developments. In addition to allowing full foreign ownership, this free zone allows for a relaxed Omanisation rate of 10%, a 30-year tax holiday and no Custom duties. Additionally, investors do not need to meet any capital requirements to be able to incorporate here.
Sohar Port and Freezone: This free zone is located near Sohar Port and the Sohar Industrial Estate, west of Muscat, near the Strait of Hormuz. It seeks to attract investors in steel and metal, trade, logistics and the food sector. However, it also welcomes investors interested in incorporating companies with other trade activities. Companies incorporated under the Sohar Port and Freezone enjoy full exemptions from Customs duties on imports. The share capital declared to the Sohar Port and Freezone in the investor’s application must be deposited in the company’s bank statement. The Omanisation requirement is reduced to 15% for the first 10 years, and firms are given a 25-year tax holiday.
Al Mazunah Free Zone: Situated in the south of the sultanate, the Al Mazunah Free Zone borders Yemen. It is designed for investments in warehousing, food processing and general industry, with a particular focus on trade with Yemen. Similar to the Sohar Freezone, companies incorporated in this zone enjoy full exemptions from Customs duties on imports and no minimum capital requirements. Investors may also benefit from a 30-year tax holiday and relaxed Omanisation rates of 10%. Moreover, Yemeni nationals are able to work here without having to obtain a visa or work permit.
Duqm Special Economic Zone: Duqm is seen internationally as a key gateway to the Middle East, South Asia, and North and East Africa. It includes a port and dry dock, as well as a fishing port, fisheries industries, industrial estates, logistics, tourism and other mixedused developments. Investors are given a relaxed Omanisation rate of 25%, as well as no minimum capital requirements, a 30-year income tax exemption and zero Custom duties. Investors are also offered competitive land lease rates.
Knowledge Oasis Muscat Economic Zone: This economic zone was established to attract investors wishing to incorporate IT service companies in Oman. These investors enjoy reduced Omanisation rates of 25%. The zone requires a minimum capital investment of OR20,000 ($51,900).
Labour Law & Omanisation
Foreign employees must obtain a labour clearance from the MoM before being able to start employment in Oman. The clearance will have to be applied for by the employer of the foreign employee. The cost of the labour clearance increased from OR201 ($522) to OR301 ($782) over 2018. The majority of employees in the Omani private sector are non-Omani, and they represent around 88% of the total workforce.
Since 1988 the government has run an Omanisation programme to increase the number of nationals in the public and private sectors. The government has focused more on Omanisation in the private sector since 2002, with the MoM designating certain jobs for Omani nationals only.
Different industry sectors have different Omanisation percentages. If a company fails to meet the required percentages, it must submit an Omanisation plan to the MoM detailing how the company intends to train and hire more nationals in the coming years.
Companies are rewarded for their compliance with the Omanisation quota in several ways, including by obtaining a green card, which gives that company priority when dealing with ministerial approvals – processes which could otherwise be lengthy and bureaucratic. Meeting Omanisation requirements also increases the goodwill of the company, as it becomes publicly recognised for its high employment rate of nationals through media publications.
Some companies and individuals are critical of Omanisation, given that non-Omani specialists may transfer skills to the local workforce. While this may be true to a certain extent, the argument fails to consider that there are Omani nationals who are also capable of transferring skills to the expatriate workforce. In fact, according to certain statistics provided by the Public Authority of Manpower Register in 2017, 87% of the registered Omani jobseekers, or around 38,688 people, had at least a general diploma.
Additionally, in 2017 the MoM and the National Training Fund established various training programmes to equip and prepare Omani nationals prior to their employment in the private sector. The cost of such training is covered by the government and ensures that the employees hired in any given company participating in this programme will be properly prepared and skilled for the position.
The minimum monthly salary for Omani nationals working in the private sector is OR325 ($844). The salary is comprises of OR225 ($584) for the basic salary and OR100 ($260) as allowances. All Omani employees who have been working for at least six months with their current employer as of January 1 of each year are entitled to a salary increase of at least 3%, as long as he or she does not receive a poor performance review.
All Omani employees must also be registered with the Public Authority for Social Insurance (PASI). PASI was formed as a social insurance to provide or Omani nationals in old age, disability, death, for occupational injury and disease. Under the Social Security Law, the employer must contribute 11.5% of the employee’s gross salary – which includes 1% for occupational injuries and disease – to PASI, while the employee must contribute 7%. Under the Labour Law, non-Omani employees are entitled to an end-of-service gratuity payment based on the amount of time the employee spent working for the company.
If employed more than one year but less than three years, the payment shall equal 15 days’ worth of the employee’s basic salary. If the employee has worked with the company for three years or more, they are entitled to one month’s basic salary for each year worked. Those who have been working for less than one year do not qualify for end-of-service gratuity.
Mergers & Acquisitions
Foreign companies may choose to acquire or invest in a pre-existing Omani company, through share or asset purchase. Acquisitions in Oman may be challenging for several reasons, which is why sound legal advice is recommended. It may be difficult to gather sufficient information about the targeted company from a due-diligence perspective as the amount of publicly available information is relatively limited. Moreover, foreign companies in Oman require a minimum of 30% Omani ownership by either an Omani individual or a fully Omani-owned company. In addition, employee contracts would have to be transferred as part of an asset deal.
The law restricts foreign ownership of land in Oman. Such affairs are regulated by the Land Law (Royal Decree No. 5 of 1980). While GCC nationals are given similar, but more limited, rights to land ownership to Omanis, non-GCC nationals and companies with non-GCC shareholders may only own property in designated areas of the country, known as integrated tourism complexes (ITCs).
Omani law imposes further restrictions on corporate ownership of land. It is only possible for companies that are incorporated as LLCs fully owned by Omanis and/or GCC nationals, and for joint-stock companies with a minimum of 30% Omani shareholding to own real estate in Oman. Additionally, companies may only own property for the purpose of using it as a warehouse space, staff accommodation, office space or for meeting the company’s trade objectives.
Real estate development companies are given less restrictions on the use of land, as they are also able to (re)construct and resell property as residential and commercial units. This is also conditional upon the real estate development company stating in its commercial registration documents at the MoCI that one of its objectives is real estate development.
Although non-Omani or non-GCC nationals and non-Omani or non-GCC-owned companies are treated similarly to Omanis with respect to land ownership, they are subject to some restrictions that Omanis and wholly Omani-owned companies do not face. The law requires GCC entities that own a vacant plot of land to develop the plot within four years of the date of purchase. The law also limits the fully owned non-Omani or non-GCC corporate entity’s land use to investment purposes. Corporate entities that are unable to own land in Oman have the option of entering into a usufruct to carry out a particular project on another party’s land that the government considers to be “a contribution to the Omani economy and/or social development”. Usufruct allows the holder of the agreement to use and exploit the plot for the purposes of the project. The usufruct holder’s rights also grant the ability to mortgage the land. The mortgagee’s rights with respect to the mortgage remain protected even after the termination of the usufruct; it essentially gives the usufruct holder the capacity to act as the owner of the land without actually having freehold ownership.
The usufruct agreement must have an expiry date on which the holder is obliged to return the land to its original owner. The duration of a usufruct must not exceed 50 years; however, the agreement is eligible for renewal upon expiration.
ITCs are governed by the ITC Law, as promulgated by Royal Decree No. 12 of 2006 and Ministerial Decision No. 191 of 2007, the latter of which outlines the principles relating to the rights and obligations of ITC developers and purchasers. The purpose of developing ITCs is to market and encourage tourism in Oman. This enables non-Omani companies to own real estate and/or develop units for investment or for residential purposes within the ITC areas. ITCs are usually required to consist of commercial, residential and tourism components. It is permitted for non-Omani individuals and foreign companies to purchase residential and non-residential property, and register the freehold with the Ministry of Housing.
Although it is not legally required to do so, most private sector, large-scale construction projects in Oman use the Omani Standard Documents for Building and Civil Engineering Works – referred to as the Standard Contract – issued by the MoF. This is from the Fédération Internationale des Ingénieurs-Conseils (FIDIC), an internationally renowned organisation that forms contract templates for construction and engineering projects. In March 2017 the FIDIC published the fifth edition of this standardised contract, the 2017 White Book, which the Standard Contract will be based on following approval by the MoF and the Ministry of Legal Affairs. The 2017 White Book made major amendments to the fourth edition that was published in 2006.
In Oman most disputes in relation to construction contracts – also known as muqawala contracts or contracts to build – occur because of ambiguity arising out of the responsibility for the scope of work, which is why it is essential for the contracting parties to ensure that this provision in their contract is well drafted to reflect the expectations of the employer with regard to the project, as well as the exact scope of work to be performed by the contractor.
It must be noted, however, that this scope of work is usually subject to change for reasons uncontrollable by the parties to the agreement. The parties must also account for such occurrences by considering variations, agreeing on them and documenting them as the project progresses, rather than trying to deal with it at the end.
Variations are addressed under Omani law in Article 640 of the Civil Code (promulgated by Royal Decree No. 29 of 2013), which requires a contractor to immediately notify the employer of any variation that is necessary to complete the project, and specify the additional costs of such variation. If the contractor fails to notify the employer, then the contractor shall bear the additional costs of that variation. Moreover, Article 640 gives the employer the right to withdraw from the agreement and suspend the execution of the project, if the variation is substantial.
Under Article 51 of the Standard Contract, the engineer, who is usually appointed by the employer, is designated to represent the employer. Any orders made by the engineer to the contractor which would have the effect of increasing the contract price require the express consent of the employer.
The Standard Contract gives the engineer the right to make variations that:
• Increase or decrease the amount of any work included in the agreement;
• Omit any such work;
• Change the style or quality of any such work;
• Change the levels, line positions and dimensions of any part of the works; and
• Carry out any necessary additional work for the completion of the project. The 2017 White Book extends the list of circumstances which allow for a variation, including provisions dealing with the following:
• The process for requesting variations;
• Agreeing on their effect on the project; and
• The consultant’s remuneration. Article 628 of the Civil Code stipulates certain basic requirements which must be included in a construction contract in order for it to be valid. These are as follows:
• The location where the work will be performed;
• The type of development that will be made;
• The method of performance;
• The time it will take for the performance to complete; and
• Consideration for the works being done.
Although Oman has made efforts to diversify its economy beyond oil and gas amid the current oil crisis, it continues to be the country’s main source of income, contributing to 78% of its economy annually. The oil and gas sector in Oman is governed by laws administered through the Ministry of Oil and Gas (MOG) and the Ministry of Environmental and Climate Affairs, with the consent of the sultan. The main law that regulates hydrocarbons-related activities is the Oil and Gas Law (promulgated by Royal Decree No. 8 of 2011). To date, the MOG has not passed any regulations for the implementation of the Oil and Gas Law, and the host granting agreements have not yet been standardised. The oil and gas concession agreements are granted though exploration and production sharing agreements (EPSAs). The terms of each EPSA agreement are bespoke and negotiated by the MOG and the respective concession holder.
After its execution, the EPSA requires ratification and endorsement by royal decree to be enforceable. This royal decree does not disclose the terms of the agreement. It merely announces the EPSA’s execution of the EPSA in the Official Gazette. Any amendments to the EPSA must be subject to the written consent of both the concession holder and the MOG.
The Oil and Gas Law prohibits the concession holder from waiving or transferring its rights and obligations under the EPSA without prior consent from the MOG, which must be followed by a royal decree.
EPSAs are governed by the laws of the sultanate of Oman and are usually drafted in English. Although this is negotiable between the parties to the agreement, most EPSAs have arbitration provisions listed as their dispute resolution forum. This tends to be held in a third-party, internationally renowned arbitration centre so as to prevent domestic dispute resolution bias.
Companies operating in oil and gas upstream activities are classified differently under the tax laws in Oman, and are required to pay an income tax at the premium rate of 55%. The calculation of the taxable income is subject to the terms of the EPSA, and it may be deductible from the MOG’s oil production share rather than the concession holder’s share.
Privatisation & Foreign Capital Investment
In 2019 several ministries in Oman announced their plans for over 16 new public-private partnerships (PPPs) through long-term contracts with the private sector. This prompted the issuance the PPP Law (as promulgated by Royal Decree No. 51 of 2019) and the Law on the Establishment of the Public Authority for Privatisation and Partnership (PAPP, as promulgated in Royal Decree No. 54 of 2019). Both pieces of legislation were released shortly after the implementation of the new FCIL and the Privatisation Law (as promulgated by Royal Decree No. 51 of 2019).
These four new laws complement each other in providing a framework for new PPP projects in Oman and encouraging diversification of the economy through foreign investment. However, it must be noted that the law does not apply to public utilities projects, even if they entail a partnership between the public and private sector, as there is a separate set of laws for such projects. Additionally, the relevant regulations for these four laws have yet to be finalised, and are due in 2020. This may lead to uncertainty with their implementation in the meantime.
Private Sector Investors
The PPP Law states that a private sector investor must own at least 60% of the PPP. Private sector investors are expecting the regulations to address some of the gaps in the PPP Law in order to fully assess the potential of PPP projects. For example, an investor would ideally require a sovereign guarantee from the relevant ministry in order to assure that such ministry would take certain actions and/or refrain from taking certain actions that could have an impact on the project. Although there is no mention of this under the new PPP Law, it is likely that the regulations for it will provide the necessary guidance. Additionally, the regulations for the new FCIL will need to consider which business activities will be open to 100% foreign ownership and which will be prohibited, as the PPP Law and the Privatisation Law state that a winning bidder for a PPP project may be a company that is 100% foreign-owned.
The PPP Law sets out the basic provisions that should be included in the PPP contract between the government entity and the private sector investor. It sets a maximum time period of 50 years for the PPP contract, which is significantly longer than the time limit for power and water purchase agreements.
The provisions in the PPP Law concerning the terms of PPP contracts have been left broad and ambiguous. This should give the parties discretion to negotiate and determine critical clauses, such as indemnity and compensation. However, such discretion may be limited by the upcoming regulations.
Contracts must be governed by Omani law. The PPP Law introduced an adjudication procedure for resolving disputes regarding PPP contracts. Parties have 60 days of the date they are made aware of the issue to file an application for adjudication of a claim. The case will be heard by the board of directors of the PAPP.
The board shall hear the grievance submitted by the partner or the project company regarding any decision or procedure related to the launching, conclusion or implementation of the partnership contract, provided that the grievance be submitted within 60 days from the date of the partner’s certain knowledge of the decision or procedure. The board shall decide on said grievance within 30 days from the date of its submission. The regulation shall specify the procedures for submitting, hearing and deciding on grievances. The board’s decision on the grievance shall be final.
Scope of the PAPP
In addition to hearing and deciding on the outcome of the claims, the PPP Law gives the PAPP the authority to coordinate with the relevant ministries to evaluate tender documents and consider which bidders meet their requirements under the book of conditions and specifications, and the incoming regulations which will come into effect in 2020. The PAPP is also authorised to award tenders and negotiate with the winning bidder.
Ultimately, the PAPP must obtain approval from MoF for a PPP project. To do so, they will need to ensure that the PPP project provides public services of social and economic importance to Oman, and that it satisfies any other requirements that will be set out in the relevant regulations for the PPP Law.
Oman has shown great initiative in developing and diversifying its economy through the plans for new PPP projects, and the new laws that came into force are a promising start for actioning these plans. Issuing and implementing clear regulations for these new laws will help ensure the sultanate makes the most of reforms.