Sector investments will contribute to economic diversification plans

With the sultanate’s grid of air, land and sea connections unrecognisable in comparison to what it was just a generation ago, Oman’s transport infrastructure has seen some spectacular growth in recent years.

The country is not resting on its laurels, either. Ambitious plans to boost airports, construct new maritime terminals, create a faster, better road network and to play a major part in the region’s forthcoming new railway system will all help transform Oman – and the wider Middle East. Indeed, what is being planned and executed now is of geostrategic consequence to global supply chains, altering the flow of goods throughout the Arabian Peninsula and beyond.

National Vision

Oman is also open to foreign investment and eager to see overseas expertise, as well as capital, applied to the development of this strategy. The private sector is involved in all aspects of the transport programme’s implementation, both in terms of local enterprises and multinational giants.

Given the scale of these ambitions, it is no surprise that there are and have been challenges. Capacity issues are principle among these, on the human resources side in particular, although these are being addressed. At the same time, the sultanate is blessed with many natural resources on the construction side, giving it few of the supply bottlenecks seen in some neighbouring Gulf states, which are also racing to fulfil ambitious new infrastructure programmes.

As a sign of the progress the country has made, many Omanis like to remind the visitor that as recently as 1970, the country had only 10 km of asphalted road, while the then-Sultan was one of the only people to own a car. Since then, Oman’s development has been astonishing. According to the National Centre for Statistical Information (NCSI), in 2013 the sultanate had 32,605 km of asphalted road, of which 2258 km is dual carriageway, along with 31,446 km of graded roads. That year alone, 129,000 new driving licences were issued. In 1970 the only airport taking civilian planes was Bait Al Falaj, which was un-asphalted and used mainly for military purposes. This old pioneer is now buried under modern buildings in central Muscat, and the country is served by two international airports, with three others in development. Some 8.31m passengers went through Muscat International in 2013, and 750,00 through Salalah International.

Port Players

At sea, Oman has long been an important nation in the Indian Ocean, as the centre of a maritime empire that included much of the East African coast, including the island of Zanzibar, now a semi-autonomous part of Tanzania, and until 1958, Gwadar in Balochistan, now part of Pakistan. Yet in modern times, that empire closed in on itself in reaction to industrialisation and globalisation, with the ports of Salalah and Muscat dealing largely with fishing, local trades and little in the way of international commerce.

In 2013, however, according to the NCSI, the Port of Salalah loaded some 6.78m deadweight tonnes (dwt) of goods, and unloaded 1.16m dwt. The port is also a global container trans-shipment centre. Port Sultan Qaboos (PSQ), meanwhile, in the capital Muscat, loaded 1.03m dwt and unloaded 4.3m dwt. Some 2858 vessels called at that port during the 12 months.

Additionally, the Port of Sohar, north-west of Muscat, is now becoming the main centre for marine cargo for the north of the country, while an entirely new port, Duqm, is under construction in the middle of the sultanate. Two other smaller ports, Shinas and Khasab, are also currently being expanded.

New Network

Soon to appear too is an entirely new form of transport for the sultanate – rail. This will see Oman’s major cities and economic centres connected by quick new links, hooking them up internationally to a pan-Gulf rail network being planned that will run through GCC nations from Kuwait to Saudi Arabia.

Location Benefits

All this activity links to two major trends. The first of these is geostrategic. Oman lies on the Arabian Sea, the north-western part of the Indian Ocean, which is itself the key maritime arena for traffic between Africa and Asia, as well as between Europe and Asia, via the Suez Canal and Red Sea. With the growth of the economies of India and China – along with other major South-east Asian economies, such as Indonesia – and Africa’s recent development, this arena is more vital than ever. The sultanate is superbly placed to take advantage of this global shift.

Furthermore, growing concerns over instability in the Gulf region may see trade shift to Oman’s more stable shores. The sultanate overlooks the Strait of Hormuz from its exclave of Musandam, with much of the world’s oil and gas supply passing through this narrow channel. However, in the future, many argue that much of this traffic could be redirected via a safer route – the Arabian Sea ports of Oman, coupled with the forthcoming GCC rail network and potential oil and gas pipelines in the region. The use of ports in the sultanate along with fast land routes would also cut journey times to destinations such as Jebel Ali in the UAE, and to locations further up the Gulf.

Growth Drivers

The second trend is the economic growth and development of the sultanate itself. In 1970 the GDP of Oman was around $300m, with a per capita GDP of $343, according to IMF and World Bank data. By 1980, those figures had risen to around $6bn and $5284; by 1990 to $11.7bn; and $7169 and by 2000 they reached $19.9bn and $8096. A decade into the 21st century, the numbers were $58.8bn and $20,221. Since then, GDP has continued to grow, standing at $80.6bn in 2013, giving per capita GDP of $22,181, with annual GDP growth of 5.1%. Meanwhile, the country’s population has also increased, totalling 3.63m in 2013, according to the World Bank, up from around 2.4m 10 years earlier. This gives Oman one of the fastest rates of population growth in the world – hitting 9.2% in 2013 – with this creating a major demand for all kinds of goods and services, as well as for a transportation and logistics sector to deliver them.

Road Routes

The pressure of population and economic growth on existing infrastructure is evident in the capital, where road congestion in the old centres of Muscat, Ruwi and Wadi Al Kabir is a major problem. Meanwhile, the city has begun stretching out westwards along the more easily traversed Sultan Qaboos Street highway to the airport, with the Al Khuwair district now a major commercial and residential centre.

A developed strip then unfolds through Seeb, Barka and on to Sohar, where the highway splits in two, with one road turning inland, across to Al Ain in the UAE and on to Abu Dhabi, while the other road continues along the country’s coast, also crossing into the UAE for Fujairah and Khor Fakkan before heading back into Omani territory for the Musandam exclave.

Head south from Muscat, however, and the highway quickly brings you to less populated regions, particularly after Sur. A long strip of undeveloped, rocky desert land separates the north and south of the country, with the new development at Duqm – itself just a small fishing village until a few years ago – more or less half way to the province of Dhofar and the city of Salalah, where urban life begins again.

Diversification Plans

Oman is a very mountainous country, with the hills stacked up close to the coast in many areas. For centuries, the inhabitants of the mountains led different lives to those of the coastal and urban dwellers, making for a social and economic division in the country, alongside a geographical one. Overcoming those divisions by ensuring all inhabitants have access to the benefits of economic growth has been a priority of Sultan Qaboos bin Said Al Said, with this objective built into the sultanate’s development plans – and the design of its transportation and logistics sector. Oman has been carrying out a series of national five-year plans within the remit of the Vision 2020 strategy, announced in 1995 and now being updated to Vision 2040. Vision 2020 highlighted diversification away from hydrocarbons as the main motor of economic growth, towards services, finance and industry. Transport and logistics are naturally key to all of these, with their role recognised still further in Vision 2040, which, press reports indicate, will also place particular emphasis on the growth of the logistics sector.

A good example of the links between transport and other economic sectors is tourism. According to the World Travel and Tourism Council, tourism contributed 3% to GDP in 2013, making this sector a major priority in the diversification strategy, which aims to boost its contribution to 8.2% by 2024. Yet currently, a number of Oman’s tourist attractions are not as easy to reach as they might be. Building a new airport at Ras Al Hadd, close to the country’s main turtle beaches, and widening and straightening the road from Muscat to the integrated tourism complex at Jebel Sifah are therefore two examples of transport projects vital to tourism.

Spending

The current, eighth five-year plan, for 2011-15, is now coming to an end, with the next iteration under development. Under the 2011-15 scheme, nearly $25bn was earmarked for the sector, out of a total $78bn allocation for social and transport infrastructure. This included OR6bn ($15.5bn) for the national rail project, OR2.4bn ($6.2bn) for airport expansion and OR1.2bn ($3.1bn) for road network development.

The impact of this and earlier allocations can be seen in the sector’s strong growth. According to the Kuwait Projects Company’s Asset Management Company ( KAMCO), transport registered 7% expansion in 2013, after 9% growth in 2012. The sector’s contribution to GDP in 2013 was 4.8%, the third-largest contributor in the services sector, according to KAMCO.

Key Agencies

The main government agency for the sector is the Ministry of Transport and Communications (MTC), currently headed by Ahmed bin Mohammed bin Salim Al Futaisi, who reports directly to the Cabinet and the Sultan. The government – and the MTC – has a major role in the sector, not only in terms of strategic planning, but through participations in and ownership of a string of key transport companies. Oman Shipping Company, for example, is 80% held by the Ministry of Finance and 20% owned by the Oman Oil Company, which itself is wholly government-owned.

In the aviation sector, the airports are managed and operated by the Oman Airports Management Company, which is government-owned, as is Oman Air. The country’s rail initiative is similarly led by the state-owned Oman Rail, while road projects are tendered by the MTC and by local municipalities and governorates, which also have public works departments.

In ports, there is considerably more private sector involvement, however. The Salalah Port Services Company is 30% owned by the AP Moller-Maersk Group, along with other private shareholders, with the government’s stake at 20%, in addition to the 11% held by government pension funds. Sohar Port and Freezone is a partnership with the Port of Rotterdam, while the Port of Duqm is a joint venture between the government and Consortium Antwerp Port, with a 28-year lease. The Port Services Corporation, a public joint stock corporation, manages and operates PSQ under a concession agreement with the government.

Road Projects

Some 65% of all the projects currently being floated by the government tender board are in the road sector, according to Contractors, Oman’s construction industry magazine, with roads the second-largest source of public transport expenditure after airports. While current figures were unavailable at the time of press, press statements by the MTC put the number of road projects under way at the start of 2014 at 67 at a total cost of OR2.15bn ($5.6bn). One of the largest of these is the Al Batinah Expressway, a multi-package, OR1bn ($2.6bn) project. With an expected completion date of 2016, the all-weather, eight-lane, 265-km highway will link Muscat to Khatmat Al Malaha, on the border with the UAE, via the new Sohar port and industrial zone. Package 10 of the project was floated by the MTC in August 2014, with results expected by the end of the year, while the previous packages were under construction or at the planning stage.

Other important road projects include the Bidbid-Sur dual carriageway project, which widens the existing single carriageway route along a 255-km stretch. The project also includes service roads and interchanges, as well as underpasses and overpasses, with work on the first sections awarded to two Turkish construction companies, Ozkar Insaat and STFA.

A third key project is the Diba-Lima-Khasab project, which is a challenging, 65-km coastal road through the Musandam exclave. The mountainous terrain requires the building of 18 bridges and seven tunnels, with the road vital in plans to develop the peninsula as a tourism destination. Elsewhere, the Adam-Thumrait road dualisation project is also under way, which will see the existing 715-km single carriageway between these two towns widened to dual carriageway.

The tendering process for these and other road projects is open and transparent, with many international and local companies competing.

On The Road

The rapid population and economic growth of the sultanate in recent times has led to a surge in car ownership, with congestion in some urban areas one result – particularly as road widening and expansion projects lead to lane closures and delays.

Another issue related to the increase in car journeys is a rise in traffic accidents, with 2013 NCSI figures showing 7829 accidents and 913 deaths on the roads that year. According to a 2013 World Health Organisation report, Oman had the highest road accident death rate in the GCC, with 30.4 deaths per 100,000 people; Bahrain had the lowest, with 10.5.

Measures have been taken to try and improve this safety record. In 2013 the minimum age at which a driving licence could be issued was raised from 16 to 18, while fines were also increased. Yet many locals say that more needs to be done, both in terms of training for drivers and enforcement of existing regulations.

Out At Sea

One project aimed at reducing congestion in Muscat – and thus improving the country’s road safety record – is a plan to make ferry services a more popular choice for commuters. The National Ferry Company already has some services operating in the north of the sultanate, having invested some OR500m ($1.3bn) in rehabilitating berths at Shanna and Masirah, with routes from both ports to Muscat planned. Alongside these lines, there are more tourist-oriented routes from the Musandam port of Khasab to Bandar Abbas and Khasab to Qashm already operating.

Additionally, the minister of transport announced in April 2014 that the MTC was working on a new plan to launch commuter ferries around the capital, with these linking in to a wider, integrated plan for public transport in the Muscat governorate.

Port Progress Report

According to Andre Toet, the CEO of Sohar Industrial Port Company, “Oman Vision 2040 seeks to leverage the country’s strategic location to create a logistics hub for the region. At the same time, the aim is to make Sohar port the region’s preferred port and freezone, thereby putting Oman on the map as a strategic location for business, industry, logistics and maritime transport, with the ambition at Sohar Port and Freezone to achieve 90 million tonnes of goods throughput by 2020.”

In 2014 Port Sultan Qaboos (PSQ) become the country’s main cruise ship terminal, after transferring its previous role as a busy commercial and industrial port to the Port of Sohar. This is part of the government’s overall ports strategy, which aimed to ease congestion at PSQ, which is right in the heart of Muscat, while also spreading industrial and commercial development out along the north coast. Some $14bn in investments is going into Sohar and its associated industrial zone.

“The importance of developing the ports in-line with industrial estates is underlined by the fact that 500 direct jobs and 1500 indirect jobs are created for every square kilometre of developed industrial land,” Jamal T Aziz, CEO of Sohar Freezone, told OBG.

The transition of commercial traffic from PSQ to Sohar has not been without its challenges, however. There have been objections from Muscat businesses used to having goods brought straight to the city, rather than to Sohar, which is 200 km away. Container traffic in particular was affected, with a build-up of containers at Sohar in the summer of 2014 resulting from increased inspection processes, alongside the shift from PQS and a seasonal build up in shipments for Ramadan. Bottlenecks resulted in the port, with some calls for the transition from PSQ to be delayed. Yet few expected such a major shift in supply chains to occur without some hiccups, with the port authorities working overtime to resolve these teething troubles.

In addition, the Port of Sohar has been engaged in a workforce development programme to train up its professional staff to handle much larger vessels in terms of pilotage and linesmen. Meanwhile, efforts are under way to establish the port as a call-in for vessels heading for Fujairah, further up the coast. Sohar can now offer such ships bunkerage and repair facilities, fresh water and other supplies, making itself a better business proposition for international lines. At Duqm, meanwhile, progress on the construction of an entirely new port has been rapid. One of its most outstanding features is its new, $1.5bn dry dock, which is already completed and being managed and operated by the Oman Dry Dock Company.

Initial container operations are also due to start early 2015. Eventually, the port will be able to handle some 3.5m TEUs, from a 1600-metre-long dedicated quay. The port is also set to be a major oil and liquids terminal, with the associated Duqm Special Economic Zone home to a refinery and petrochemicals complex. Bulk dry cargoes will also be handled, with the intention to establish Duqm as a centre for minerals refining, a move supported by the recent passing of a new minerals law. The port has been designed with large ships in mind too, with a 19-metre draught approach channel and 18-metre draught alongside the quays. The port can also be further extended, with 10 km of commercial berths planned for its second phase.

One other port of great significance in the hydrocarbons sector is Mina Al Fahal, operated and managed by Petroleum Development Oman. The port, which is located in Muscat, has a major refinery, with a subsea pipeline filling tankers offshore.

Trans-Shipment Hub

Further south, the Port of Salalah is undergoing a major expansion programme. This port has long established itself as a global transshipment hub, as well as serving the southern part of the sultanate. According to the Journal of Commerce, the port came third in the Europe, Middle East and North Africa region in 2013 in terms of average container moves per ship – a standard measure of efficiency and productivity – at 91 gross moves per hour. This was 26% up on the figure from 2012.

Salalah’s container terminal handled some 1.63m TEUs in the first six months of 2014, according to the port’s first-half 2014 report, which was 7% down on the same period of 2013, although the general cargo terminal saw its volume up 28%, half-on-half, at 5.47m tonnes. This reflected increased exports of minerals, particularly for construction. These volumes are clearly set to expand further, with a major expansion in capacity now under way, in tandem with the development of the Salalah Free Zone.

The port also unveiled plans in mid-2014 for a new cruise terminal, along with berths dedicated to naval forces, a multi-product and multi-user liquids terminal and multi-modal transport hook-ups to the rail project and expanded road networks. This upgrade programme should see cruise ship calls at Salalah, which is the centre for khareef (monsoon) season tourism, increase from the 34 registered in 2013. Indeed, during the first four months of 2014, 21 ships called at the port, indicating that the trend is already moving upwards even before the works are complete.

Let The Train Take The Strain

Hooking up the port to the rail network is just one part of this ambitious new scheme, which forms Oman’s contribution to a GCC-wide rail programme. This is a nine-phase project to build a standard-gauge, double-track, mixed-traffic network. The railway will be able to accommodate freight trains travelling at a speed of 120 km per hour, as well as 220-km-per-hour passenger trains, with the former managing a 32.5-tonne maximum axle load.

Some 46 stations, eight marshalling yards and nine intermodal terminals, served by 40 mainline diesel freight locomotives and 30 shunting locomotives, plus passenger units, are all envisaged in the plans. The networks will eventually have 2244 km of track, 35 km of which will be through tunnels, with 40 km over bridges. When shunting yards and industrial areas are included, the total track jumps to 12,000 km.

Bidding For Phase One

The first phase is a 136-km link between Sohar and Sunaynah, at the UAE border, with a 27-km branch to Al Buraimi and an 8-km Sohar yard branch. Bidding for civil works for this section began in August 2014, with announcements likely at the end of the year. The project will then roll out southwards, via Duqm to Salalah, with further links across to the UAE and Yemen all part of the plan. Oman Rail is the key agency for the project, with the government-owned firm keen to see Omanis heavily involved in the network’s construction, a policy that has led to an opening of registration for vendors for all kinds of products and services ahead of time, with small and medium-sized enterprises particularly encouraged.

“Salalah operates very well as a trans-shipment hub, but we need to move past this model to stay competitive. The railway is essential for transporting containers around Oman and on to the GCC,” David Gledhill, CEO of the Port of Salalah, told OBG.

Outlook

The sector faces further transformation in the years ahead, as it becomes a vital link for supply chains serving the rest of the Arabian Peninsula, as well as a trans-shipment centre for traffic between Europe, Africa and Asia. At the same time, Oman’s location is attracting naval attention – its ports are already vital players in international anti-piracy operations – while the growing importance of the Indian Ocean to global powers is already evident in the increasing numbers of navies calling at Salalah, and likely soon at Duqm.

Coordinating this maritime-based development with land-side and air-side growth will of course be vital. The signs are there that this is already well under way, via airport expansion and a host of road and rail projects. However, there will likely be bumps along the road, given the scale of the undertakings. In addition, the government will also likely need to reconcile its desire for Omanis to take the leading role in this development process with the short time scale envisaged and the realities of human resource availability.

The government’s large role in the sector may also require adjustment in the future. “The transport and logistics sector in Oman needs more competition,” Tarik Mohamed Al Junaidi, deputy CEO of the Oman Shipping Company, told OBG. “At the end of the day, this will drive innovation, cut costs and ultimately benefit the customers.” The opportunities for transport and logistics investment are likely to extend for many years.