The ferry saga continued – Business Consultant Essa to the rescue!

I should have done a post on this last week, but, ah, work sometimes gets too crazy.

Essa Al Zedjali, Editor of the hard-hitting Times of Oman, and (according to the Times of Oman) one of Oman’s most eminent intellectuals and authors, took issue last week with the pricing of the infamous new ferries, saying they were far too expensive and should cut their prices, and effectively asking for public money to subsidise the ferries even more than they are already... (see below). I actually agree with him.

I’d have preferred he comment on the lack of jetties, the half-assed decision to buy them in the first place, the lack of trained Omanis to run it, and who's actually paying for all this, but let’s get the financials right first!

The details are below, but the bottom line is:
- Almost no matter what they charge, the ferries are highly uneconomic. The cheapest way to operate the boats is to, er, not operate them at all.
- The most likely face saving 'solution' is to write-off the capital investment of the boats and jetties, and then try to cover the visible running costs through fares. Thats what the NFC is for, and is trying to do at least on paper. Even then, the Government is effectively subsiding the tickets by a HUGE amount.
- By my estimate, the true cost to the Government of a return ticket is around 400 rials per person if they only run 3 times a week and get some money from transporting cars eventually. Not counting the 90% fuel subsidy, the cost is around 140 rials per person per trip.
- To break even just on running costs, with generous assumptions on occupancy and cheap fuel, prices would need to be ~twice what the NCA currently charge.

Taking account of the true value of diesel, running the trip only 3.5 times a week, the Government will need to provide an effective annual subsidy of ~12-13 million rials a year, mostly through cheap fuel and providing the boats for free.

Ignoring the cost for the boats and jetties, and the fuel subsidy, the Government will still have to subsidise operations to the tune of 1.5 to 2 million rials per year.

Countries all over the world subsidise their ferry’s for social benefit reasons. Its obvious from the basic calculations below that Oman will have to do the same. I think the real answer is that the subsidy should be transparent, so people are aware that it is NOT an economic business. And you have to avoid giving the ferry company principals a blank cheque to pay themselves a fortune for running a money losing business.

At current fares, they will only pull in at most about 1 million a year, and with Essa’s suggested prices about half that. Compared to the costs, it makes no real difference to the real subsidy either way.

So, as I said on this blog previously, this is a great trip, mostly paid for by the Ministry of National Economy. And I’m almost afraid to say, I amazingly find myself agreeing with Essa. (I know, I find it hard to believe too. That’s why I had to run the numbers myself!) The subsidy needed is so high, that the price of the tickets is almost immaterial. Better to make them as cheap as you can, at least for Omani’s or residents, and fill the boat. Make up some of the money in the Khasab hotels, and on food and booze.

Personally, I’d take the second ferry and turn it into a floating Casino, based out of Khasab. And maybe think about running the ferry to Dubai and or Iran, as well as the Muscat-Khasab route.

I'm just glad I don't own the ferries... But I wish I was able to be Chairman of the company that does, and pay myself heaps of Government money for running a loss making business. Nice work if you can get it.

Picture: One of Oman's ferries in its most economic setting: out of the water, unused.

Details
I decided to try and guestimate the breakeven price for the tickets.
Capital Costs
2 Ferries: reported purchase price ~26 million rials
Jetties: I dunno, but lets say another 5 million
Assuming a 6% discount rate (seeing as how the Government effectively owns them and can borrow the money pretty cheaply), and a 20 year life, that means you need 2.6 million rials per year to pay all that off.

Operating Cost
Crew of 12 x 2 ferries, manpower to run the jetties, some marketing people, … Probably about 1 million rial per year at least
Maintenance: Those ferries are pretty high tech: say 200k per year
One Ferry return trip Muscat to Kasab burns about 60,000 litres of diesel. Even at Government subsidized rates of 130 biaisa per litre, that’s 7,800 rials per return trip. (You should note, at current international rates for diesel, the Government could instead sell that same diesel for ~60,000 rials!).

If we do a trip every day (just to try and get the investment back by working the ferries as much as possible) that’s 2.8 million rials worth of subsidised fuel per year.

So, combining the above, it means every trip costs the owners ~18,000 rials. Just to break even. Running on highly subsidized fuel. What a deal.

Now, the income side.
The boats seat ~200 people. I don’t have the exact numbers, but lets say 10 VIPs, 20 1st Class, and 170 Tourist class. At the current rates from NFC, assuming VIPs don’t pay, and a 90% capacity, they receive ~8,300 rials in fares if they fill the boat. At Essa’s suggested rates they would take in at most ~3,700 rials.

So, even with current NFC rates they lose at least 10,000 rials per trip, 3.6 million rials a year. If they cut them further as suggested by Essa you’d lose around 15,000 rials a trip, or 5.3 million a year. (Note: If they had to pay real prices for the fuel though, that would amount to annual losses of ~27 million rials a year, and they may as well give away the seats it makes so little difference).

Of course, if the boats are empty at current prices, Essa’s absolutely right that you are probably better of cutting prices to fill the boat. The NCA’s original prices seem to be designed to roughly cover visible running costs based on subsidized fuel and assuming almost full occupancy. Their latest fare cut is probably just to try and lose less money and get more than 5 passengers a day. And of course the last thing you actually want to do is run the boat at all, because it just burns more cash!

Opinion: Times of Oman 5th October 2008

Two giant ferries in the Gulf of Oman!
Essa bin Mohammed Al Zedjali
Sunday, October 05, 2008 11:57:50 PM Oman Time

A FEW weeks ago I had read a news item in local papers that the second ferry named ‘Hormuz’ had joined the fleet of the government-owned National Ferry Company (NFC). A few days ago the local papers reported that the NFC has reduced the Muscat-Khasab-Muscat ticket price from RO74 to RO44 for the economy class and to RO85 for the first class.

The news item has been warmly received by the citizens. But we still demand that the company offers further reductions which are more in line with the income of the citizens and take into account the cost of living and the price hike that has affected people from all walks of life. This reduction is demanded because the two-way air ticket costs only RO49 for the 45-minute flight while it takes 6 hours by ferry.

A committee comprising representatives of the Ministry of Tourism, the Ministry of Transport and Communications, the Ministry of Commerce and Industry, the Ministry of National Economy and Oman Chamber of Commerce and Industry should have been formed before the launch of the ferries to determine the right prices of tickets. But it seems the board of the National Ferry Company has fixed the prices without taking into account the opinion of the said authorities.

This shows that the decision to fix the prices of tickets is taken randomly by the NFC board, without any consultation or coordination with the government authorities concerned, which has shocked and upset the citizens and made this issue the talk of the town during the last two months.

This project is of vital significance and aimed at facilitating the movement of citizens and residents to and from the northern coastal areas as part of the government’s wise policy of boosting domestic tourism. For this purpose, the NFC should have financial support from the government in order to enable it to run such a project safely and efficiently. The company could, at present, reconsider the prices of tickets, though it may increase them gradually later on.

We once again appeal to the National Ferry Company to reconsider the ticket prices and suggest a two-way ticket of RO20 for adults and RO10 for children for the economy class provided the ticket price does not include provision of food and drinks. We also suggest that the two-way first class ticket should not cost more than RO50 and should not include food and drinks. The passengers could have their meals at the coffee shops on the ferry.

By doing this, the NFC could rightly achieve the objectives of its logo "navigation in nature" as many people will prefer to travel within the country by two of the fastest ferries in the world in complete comfort and safety.

Oman Ferries loosing money like crazy - take one of the most subsidised trips in the world today!

Word is the vaunted car/passenger ferries Oman purchased earlier this year - the car ferry without any jetties to load cars - are loosing money fast.

I heard that the average number of passengers on the Muscat - Kasab ferry run at the moment is 5 people. 5. Unfortunately, the ferry burns fuel like there's no tomorrow - 30,000 litres of diesel per trip. Plus the ferries were designed down in terms of weight to save money, and are therefore apparently more suitable for short, 1-2 hr type trips rather than the long 6hr+ run being used here. This means the maintainence programme is greater than anticipated, plus they are pretty high tech, so the work has to be done by expensive mechanics from Australia. So not only is the money being poured down its throat, the bills to keep it running are huge too.


Now, don't get me wrong. There's no doubt these are beautiful, world class, state of the art boats. The second ferry Hormuz just successfully broke the world speed record of its sister Shinas in July. However, as anyone who owns a boat knows, big engines and high speeds on water take 1 thing: lots and lots of hydrocarbons.

The organisational and business capability to ensure the boats are used efficiently and economically here in Oman has been a total unmitigated cock-up. Despite ordering the ferries 3 years ago, no jetties were built, nor Omani crew pre-trained. The demand for the service is obviously not great (especially as they can't put cars on them), plus there has been precious little marketing of the service either. The pricing structure is also a disaster - too expensive to come close to filling the boat or compete with going by air, but not enough to actually pay even the running costs, let alone getting capital and interest payments back. As a result, the things are just burning through the cash at a rate of knots, if you'll excuse the pun. I don't know who is responsible for the project, but he's damn lucky he's not working for me or investing my money.

I'd recommend taking a 3 day trip to Kasab as soon as possible, while you can. It'll be like having your own private multi-million dollar boat cruise. (although pack a nice lunch - food is apparently pretty spartan, and there isn't a bar either, so think about taking some magic masafi). The boats are beautiful, the trip is great, and the Ministry of National economy is paying most of your bill, so go for it!

Austal Ferry - Hormuz

Second Oman Ferry Betters Sister's Speed Record

The second of Austal’s two 65 metre vehicle-passenger ferries built for the Sultanate of Oman has become the first diesel-powered vehicle ferry to reach a speed of 56 knots. “Hormuz” recorded a maximum speed of 56 knots (103.7km/h) and a service speed of 52 knots during sea trials held near Henderson in Western Australia yesterday.

The feat makes it the fastest diesel-powered vehicle passenger ferry in the world – a title previously held by its sister vessel “Shinas”, which recorded a maximum speed of 55.9 knots last year.

The vessel is scheduled for delivery to Oman next month, where it will join “Shinas” in providing a new tourism service to Oman’s spectacular Musandam Peninsular as flagships of the Sultanate’s expanded marine transport network.

The unrivalled performance of the two 65 metre vehicle-passenger catamaran ferries showcases the world-class ability of the Austal design team, who successfully developed a new, customised, high efficiency hull design capable of delivering record-breaking performance, while Austal’s construction team managed to meet demanding weight targets.

New Ferrys, No more visas for Indian mechanics, and a visit by Sudan

In the news yesterday:

New Ferry - No crews or Facilities ready in time
Firstly, we now have taken delivery of the first fast ferry, aimed at providing a great fast connection to Musandam (and Salalah and Masirah). They look pretty sleek, and it is a great idea. But it was interesting to note that the ferry project has been on-going for 4 years, yet there are still no Omani crews trained, no dedicated jetty facilities started, no finalized regulations or procedures, no fare structures… IE the typical 'couldn't organise a piss-up in a brewery' from the Omani side. Even worse, a source close to the project tells me the fuel tanks are apparently too small to last the full trip from Muscat to Khasab, so there will have to be a refueling stop on the way, at a jetty that hasn’t yet even been built. Ah well. Once they eventually get it together it looks like a nice trip.

No more visas for Expat semi-skilled workers announced
The Ministry of Manpower announced their latest cunning plan to boost Omanisation, with the policy to deny new visas for expat workers in a swath of employment jobs: including car repair, workshops and even commercial cleaning services. In the long term it seems a good idea, plus in the short term it should increase the salaries of those expats here already, as most employers will not be running out to hire Omanis in these roles. But worryingly, the edict specifically excludes large companies, so presumably the Bahwans, Zubairs and the other big family companies have essentially been given exemptions. Which is bizaar, as these larger companies are exactly the firms best placed to implement long term training and are making enough profit to support the higher wages this policy will demand. Better get your hair cut fast...
Ban on visas for several professions

Sunday, July 27, 2008 10:58:36 AM Oman Time
MUSCAT — The Ministry of Manpower has announced that it has stopped issuing visas to companies engaged in the following activities: Import and export, cleaning, barber shop, laundry, electronic repair, garbage cleaning and selling, textile shops, mobile GSM shops, health clubs, workshops in aluminium, iron, wood, car repair and all related activities, tailoring shops and beauty parlours.

As per the new rule, companies engaged in these activities will not be eligible for visa clearance. Accordingly, existing companies cannot bring in new expatriate recruits, nor can new companies be set up. However, those currently employed in these activities can renew their visa. Ministry sources say the objective of the move is to enhance Omanisation and bring more local talent to the fore. “There is plenty of local talent but there’s very little space available for them,” said an official. Ministry sources also revealed that the visa restrictions apply only to small, grade 3 and 4 companies and not to those that have been awarded the ‘green card’ for compliance with labour laws and Omanisation targets.
…

Genocidal Regime visits Oman
And finally, Sudan delegation arrives in Oman to start bolstering its support in the region, in the light of the ICC genocide charges against several high ranking Sudanese, including its President Al Bashir. As Sue Hutton pointed out in a comment on the previous post on this topic, Oman has long had a foreign policy founded on friendly relations with basically everybody, as befits a small country. But it still doesn't require supporting these idiots in the face of the horrendous actions taken for many years against civilians in Dharfur, supported by the government of Sudan in support of the Chinese oil extraction efforts. Dipolomancy is indeed often a distasteful business in the pursuit of National interest.

Interesting to note that The Times of Oman seemed to come out in support of the recent arrest of Radovan Karadzic for genocide by the ICC. How ironic.
Sudan envoy arrives with message for HM

ONA
Sunday, July 27, 2008 11:54:13 PM Oman Time
MUSCAT — Moosa Mohammed Ahmed, assistant of the Sudanese president and his envoy, arrived here yesterday on a visit to the Sultanate during which he will convey a message to His Majesty Sultan Qaboos bin Said from Sudanese President Omar Hassan Ahmed Al Bashir. Moosa Mohammed and the delegation accompanying him were greeted on their arrival at the royal airport by Sayyid Badr bin Hamad bin Hamoud Al Busaidi, secretary-general of the Foreign Ministry and the Sudanese ambassador to the Sultanate.

The Guardian article of a couple of weeks ago gives a nice summary, including the reaction of Sudan's principal supporter and arms dealer, China.

This morning China – Sudan's biggest arms supplier and a leading investor in the country – said it had "grave concerns and misgivings" over the ICC's decision.
"The ICC's actions must be beneficial to the stability of the Darfur region and the appropriate settlement of the issue, not the contrary," a spokesman for the foreign ministry in Beijing, Liu Jianchao, told reporters.
When asked whether China would use its position as a veto-wielding UN security council member to obstruct the court's actions against Bashir, the spokesman declined to rule this out, saying: "China will continue consultation with other members of the UN security council but, as for the outcome, that I don't know."

China are being somewhat disingenuous, as they voted (along with the rest of the UN Security Council) to allow the case to be refered to the ICC in the first place.
The interesting part will happen if the ICC do actually issue an international arrest warrent for Al Bashir (at the moment he's still essentially on trial in absentia), although that's unlikely to happen in time to nap him in September if he visits New York.

Sudan's ambassador to the UN, Abdalmahmood Abdalhaleem Mohamed, said Bashir planned to visit the general assembly in New York in September and warned that any attempt to arrest him there would be seen as a declaration of war.

For those who agree with the Times of Oman that Al Bashir is innocent, consider what he has been allegedly organising against the civilian African people in Dharfur:

...The plan was put into action, in the form of killings, mass rape and ethnic cleansing, after a revolt broke out in Darfur in 2003. "His motives were largely political. His alibi was a 'counterinsurgency'. His intent was genocide," Moreno-Ocampo said.

Three years ago a UN commission on Darfur ruled that the killings, despite their scale, did not constitute genocide. But Moreno-Ocampo argued that Bashir's guilt was far greater now because forces under his control had pursued the 2.5 million Darfuris made homeless in the conflict into the relief camps.
"Bashir organised the destitution, insecurity and harassment of survivors. He did not need bullets. He used other weapons: rape, hunger, and fear. As efficient, but silent," Moreno-Ocampo said.
"They are raping women, raping girls, raping in groups - raping to destroy the communities," he told CNN.

.

I know, its not black and white. The insurgency in the south started back in the 1980s, and the initial response of the Sudanese Government to arm and support the Arab Tribes was probably reasonable. But they've gone a long way from that now, with Government aircraft used repeatedly against unarmed women and children, and the GOS operating regularly in conjunction with the Janjaweed Arabs.

See these for some actual data on what's been going on in Darfur...
US State Dept Report
Médecins Sans Frontières
Boston News