Wednesday, April 30, 2008

India booms, Inflation rages

A few tidbits in the news lately. Sorry, no juicy gossip right now. So its Indian growth, no revaluation, and a booming money supply.

First, India is booming. And this may have some serious implications for Oman.
I’ve already of heard of many NRIs [that’s Non Resident Indians in the jargon, ie Indian Expats] returning to India, both skilled and even labourers, because they can make more money and have a better quality of life in India.
It looks like the old Omani truism "Once Oman didn’t have oil, now we have oil, maybe someday we won't have oil… but we’ll always have Indians!" may be starting to bust.
Some employers are now unable to attract skilled Indian Engineers and other senior professionals at anything near the equivalent Omani wages. While this is good news for Omanis looking for work, it is not so good for Omani Businessmen, long used to an effectively limitless supply of cheap workers in the subcontinent. This is yet another thing to add to the inflationary pressures in Oman.

Employees in India set to strike it rich as wages seen rising 14.4%
NEW DELHI The explosive rate of growth in India has created a phenomenal demand for talent so much that wages are forecast to rise by 14.4 per cent during the year 2008, says a report.

"Wages are forecast to rise by 14.4 per cent during 2008, the fifth successive year of double-digit growth. This far outstrips wage inflation in China (8.6 per cent in 2007) and is second only to Sri Lanka, where wage growth has been driven by high inflation," global management consultancy firm HayGroup said.

The high level of demand for experienced employees is driving wage inflation and creating a culture of job-hopping. Staff turnover of 20 per cent or more is not unusual in high-demand sectors such as the service industry, as talented workers jump from employer to employer, following the promise of even higher wages.

"Reward programmes of companies are in crisis as wage inflation is witnessing an upward spiralling and staff turnover rates hit new highs," the Human Resource consultancy firm said.

"In an environment where employees can achieve a pay rise of between 40 per cent and 50 per cent by moving to a competitor, they are unlikely to stay put," HayGroup added.

In the year 2007, the middle management level witnessed the maximum increase in average annual base salary (16 per cent), while supervisory, senior management and the executive level had an average annual increase of 14 per cent in their base salaries.

No Revaluation for the Rial - CBO
The Government, in its firmest statement yet, has stated that it intends to neither de-peg the rial from the dollar nor revalue the peg. Of course, at this stage its hard to believe the dollar could fall much further, especially in an election year when US dollar almost always rises coming into November. So it probably will make little difference to future inflation I guess.

Dollar peg to stay
, says CBO’s Zedjali
MUSCAT The Sultanate has no plan to revalue the Omani rial or to drop its peg with the US dollar, Central Bank of Oman (CBO) Executive President HE Hamoud Bin Sangour Al Zedjali said on Tuesday.

Zedjali told Oman Tribune that a weaker rial helps attract foreign investments and make exports more competitive, which will offset inflation effects. “On the flip side, the falling greenback do have a negative impact on the currencies pegged to it,” he said.

“As a result of the dollar’s weakening, imported goods will cost more whereas the value of the exported goods will go down,” he added.

No shit. That doesn’t really do diddly-squat for the poor in Oman who are forced to buy hyper-inflated rice and oil. The infamous 'Family pack' hardly helps when you don't have the disposable income does it?

Sh. Zedjali continued:
According to the central bank chief, the interest rate policy of the Sultanate is in harmony with not only the economic conditions prevailing in the country but also with the present global scenario.

He said the balance sheets of the commercial banks at the end of 2007 showed total assets surged 42 per cent to RO10.3 billion compared to RO7.2 billion posted in 2006.

Personal loans also increased from RO1.8 billion in 2006 to RO2.6 billion.

Net profit reached RO213.8 million in 2007 as compared to RO162.9 million recorded a year ago.

On the personal loans offered by the banks, Zedjali said there is a limited ceiling of 40 per cent of the total banking loans to the personal loans. “Housing loans also shall not exceed 5 per cent of the total loans granted by the banks,” he added.

Again, the key questions go unasked and unanswered with Oman's totally vapid reporters, sorry, 'copy and pasters', from what passes for Oman's Fourth Estate. For Example, some questions I'd like to see asked:
If personal loans have increased by almost 50%, but are capped at 40% of total loans [by value I assume], what is the current level of loans vs the cap?
What’s the exposure of the banks’ assets to a fall in the raging Muscat Stock Exchange?
If Oman is booming while the global economy is looking weaker (thanks to high oil prices, huge subsidized investments and a stock-market and housing bubble in Oman, with the USA financial collapse) how exactly can a USA-based loose monetary policy, being applied defacto in Oman, be in harmony with all these conflicting forces? Oman’s money supply growth is already running over 40%, so is the CBO happy with that, and does it not see this as a significant contributor to domestic inflation? If the CBO is not happy with the record growth in the money supply, what is the CBO planning on doing about it, given that it has already admitted that it is not able to control Oman’s Monetary Policy?

Oman's annual money supply
17 Mar 2008 Oman's annual money supply, an indicator of future inflation, grew 40 per cent in January, its fastest pace in at least three years, the Ministry of National Economy said on Monday.

M2 hit $16.52 billion on January 31, compared with 4.54 billion rials a year earlier, the Ministry of National Economy said in its monthly bulletin on its website.

That is the biggest rise since at least December 2005.
Inflation accelerated for a seventh straight month to a 16-year high of 8.29 per cent in December, the latest available figure.

Oman, which pegs its rial to the dollar, relies heavily on imported food and has been hit by rising prices as the US dollar slides against major currencies. (Reuters)

Sunday, April 27, 2008

Rare interview with His Majesty Sultan Qaboos

Reported today in the Oman Tribune is an extensive interview with HM by a Kuwaiti journalist. The interview is pretty obsequious, but some of the answers are of great interest. Its in English, although not so much a translation from the original Arabic than a transliteration, so be aware that it would read a lot better if properly translated into English! (HM speaks perfect English, naturally).

He doesn't really ask (or report asking) any real tough questions, but it still gives some insight into what drives HM, his vision, and his steer on issues such a Government and development. Given HM's pretty snappy tone in reply to question 2, I can see why the questioner was at pains to answer gentle and open questions!

I’ll highlight 3 QAs, you can read the rest yourself if interested:

Firstly, on his state of health:
Q: Your Majesty, your people and the peoples of the region who followed up the march of the Renaissance want to be assured about your health.
A: I am here in front of you and I believe that you see me enjoying full health and welfare although when we grow old, our bodies become tired and whenever your bodyweight suffers an increase or decrease, many may believe that the man is sick. We have to remember that following a good diet is a treatment. Our Prophet (peace be upon him) said, "We are a nation that eats not until it feels hungry and when we eat , we don't stop until we are satisfied. The balance in diet means health and not bad health. I am fine and absorbed in the affairs of my country, which are my real health. I am here in front of you Mr Ahmed, hale and hearty following the same daily programme and the affairs of the country meticulously. As I told you earlier, I go to sleep with a clear mind, follow the news around me , the news of those whom we affect or get affected by and always remembering Allah, we feel serenity.

I wake up from my sleep relaxed the next morning and start follow-up paper work in front of me with accuracy because I don't like making mistakes in any decision. Whatever I approve, I will sent to the respective departments for implementation. Before making decisions , I reconsider them several times to make sure that they are sound right and that I did not make wrong . The land and people of Oman are in my heart and mind. My post is a rather a responsibility than a privilege. I told you we are delegated by our nations and our mission is to serve this nation that reacted with us to achieve the Omani Renaissance.

Secondly, On why Oman allegedly refused the immediate offers of external aid during the cyclone recovery last year.
Q: Your Majesty, when Cyclone 'Gonu' hit the Sultanate recently, it was said that you rejected any assistance, does this means that you do not need any favour that would be followed by harm?
A: That is not the right description, we did not reject assistance as critically suggested in your question. When the cyclone had come and gone, I and my people were able to identify the disaster's results. We also wanted to test our strength in the face of such a disaster, our people were subjected to such a test and I tell you that we succeeded. Such a test has waken up the people and the Omani nation whom we found stood united as one and capable of discharging its duty. Unfortunately, there are some people who figured out this disaster as God's punishment, such people are interpreting away from the Shariat cause. Let us take this issue as a warning from God so that people would understand that life is not always without hardships and therefore, they should be prepared for all that is ordained on them and this is natural. We should always say, Thanks God for what he has ordained and for his kindness. Such natural disasters in other countries are common, and permanent and not exceptional. What happened to us may happen once or twice, we consider it an exception if we compared with others who are experiencing disasters annually or repeatedly. With a high level of national cooperation and sentiments we were able to face this disaster, and I was extremely delighted for the Omani people's cooperation with which we were able to overcome such a cyclone with believing hearts free from any panic, fear or chaos.

And third, on the inflation issue:
Q: Your Majesty, under such circumstances, what about inflation in your country and will the current oil prices lead to more development?
A: Inflation is not that worrying and is not so major. It varies from other countries in which inflation reaches high figures. Our inflation is not that critical and when reaching a specific figure sometimes, it can be described as a healthy condition for speeding up growth. No doubt, oil prices have increased the income, and if so, as experts say, such prices may not continue. Its reaching such a stage was due to dollar devaluation. However, I cannot offer speculation in this regard, but had a decline taken place, as experts say, it won't be a major one. Let us leave the oil prices to Supply and Demand. They say that world oil reserves are full and that the market is flooded with oil, but these are the prevailing prices. No doubt that the oil prices will reflect on volume of funds in the region as it is the case in the Oman.

full article

Saturday, April 26, 2008

Oman Inflation remains a problem - but no riots yet

As everywhere, raising prices for basic food stuffs – rice, flour, oil, eggs, fish – is hitting low earners in Oman hard. No sign of any food riots here yet, but the price of basic sustenance for people who spend a significant proportion of their monthly income on food and rent is, as in most parts of the world right now, a huge issue. Recent reports put January Oman's food inflation at well over 20%, and rising. Most food in Oman is of course imported, and the link between Omani rials and US Dollar hasn't helped either. The global price of rice has tripled in the past 6 months.

For many of the poor in Oman, especially those expat semi-skilled workers from Indian, Indonesia, Pakistan and Sri Lanka who do not get accommodation and food as part of their package, the triple whammy over the past 12 months of rising rents (often more than 100%), the falling dollar, and rising food prices means their effective disposable income (and thus the money they can send home to dependents in their home country) has disappeared. A similar impact is being felt by the Omani lower classes, as in addition they usually have many dependents per income earner. The pay rises for public employees mandated by His Majesty earlier this year, while they may sound impressive in % terms, actually have not even filled the gap as base salaries are so low.

The problems are precipitating calls in Oman for further Government control. See this article today in The Tribune
Hamad Al Adawi, a consumer, said almost all essential commodities have gone up. It has made life difficult for the common man.

“We call upon the authorities to take steps to control prices. The government should fix the profit margin for each commodity. The departments concerned should inspect the distribution outlets and supermarkets to punish the manipulators.

Aziz Al Hasani, another consumer, urged the government to give top priority to measures that will arrest the trend.
I think this temptation for a central Government fix is a dangerous and expensively inefficient route that Oman should resist. Subsidies for essentials become very difficult to unwind later, and lead to all sorts of bad side effects such as corruption, blackmarkets, bureaucracy, rationing, and shortages. Just look at Egypt (see article and link at the end of this post as well). Even here in Oman, the price of a litre of petrol is still 120 biasa (for my foreign readers that’s about US$0.32 per litre, or $1.19 per US gallon), fixed by the Government with the petrol supplied by Government refineries running on Government crude oil. Given world spot prices for Gasoline are around $3.00 per gallon, this amounts to approx a $2.5 million subsidy per day (close to a billion a year) by the Omani Government. And in the current economic climate, any upward revision seems polically impossible.

The cement issue is also already leading to a robust blackmarket despite occasional arrests when the right payments aren't made, as standard economic theory predicts in any situation where a subsided product (eg Omani cement or Egyptian bread) is not available in sufficient quantity to meet demand. A contractor friend said last week (when we were discussing exposure on a contract with escalation clauses for rises in basic materials for a big building) that the contractor would have no problem getting cement, they would just have to get it on the blackmarket at 4 rials a bag, but we would insist on using the official price as stated in the contract for the escalation clauses. The Omani Government is already effectively nationising the national cement distribution system. This is an old-school Soviet central-planning type of solution that will not work guys.

The solution to the inflation issue is to enforce an indexed minimum wage for all employees (not just Omanis!), and to have a transparent indexing of wages and state benefits to consumer price inflation. Sure, enforce anti-profiteering legislation if necessary, and get rid of Government policies that are actively making things worse (like bans on cement importation), but direct market intervention to fix these problems just lead to worse problems.

So, OCCI, Ministry of Commerce, Ministry of Manpower, and Ministry of National Economy – please use cash and the market to slove these problems instead, and just pay people a living wage.

And maybe start to think about a system of progressive income taxation to enable a transfer of wealth from those that have the most to those who don’t.

Here's a picture of what's in store for Oman if Government intervention is used, and possibly what awaits if incomes are not increased properly: VOA article
Egyptian Bread Crisis Stirs Anger
By Challiss McDonough Cairo 24 March 2008

In Egypt, a shortage of subsidized bread has resulted in long lines and occasional clashes in which several people have been killed. The president has ordered the army to use its bakeries to try to end the bread crisis, but the roots of the problem are more than just simple supply and demand. Rising food prices and poverty have combined with corruption to create a bread problem that will not be easily solved. VOA Correspondent Challiss McDonough has more from Cairo.

An Egyptian woman carries a tray of bread at a public oven in Giza, Egypt, 16 Mar 2008
About 30 people are crowding around two small windows at a Cairo bakery, shouting at each other and jostling for the best place in line. The heat is blistering already, and women in the crowd shade themselves from the sun with plastic bags.

A woman named Fatma says she waits here for two to three hours every day to buy bread for her family of five.

Gesturing toward the chaos at the bakery window, she says, "What can I say? You can see this bread problem for yourself. The prices of everything have gotten so high."

This bakery is selling round loaves of government-subsidized bread, known locally as "balady" or country bread. The price is fixed at five Egyptian piasters, or less than one U.S. cent a loaf.

In recent months, rising food prices have fueled a shortage of this subsidized bread, leading to long lines and short tempers. Several people have been killed in fighting that has broken out in bread lines or clashes between customers and bakers.

Last week, President Hosni Mubarak ordered the army to use its bakeries to make balady bread in an effort to stem the shortage. But it is not simply a matter of supply and demand; even the president acknowledged that part of the problem is corruption.

Economist Hanaa Kheir el-Din is executive director of the Egyptian Center for Economic Studies.

"All other food prices have risen. There are a lot of food prices which rose sizably - look at the oil price for instance, rice, sugar, everything is rising - but balady bread has been kept at five piasters a loaf, and the flour which goes into it is delivered at a much lower price while the baker can sell it on the black market at several times the price," said Kheir el-Din.

The corruption is not limited to selling subsidized wheat flour on the black market.

At the bakery, a heavy metal door swings open and then clangs shut quickly, and a man scurries away holding five round pieces of freshly baked bread.

Another man who gives his name only as Samir waves his hand angrily toward the door.

He says the bakery employees let some people inside to get bread quickly while he and the rest are waiting in line outside in the sun for hours.

This is an emotional issue. Bread is such a vital staple food here that Egyptians use a different word for it than other Arabic-speakers do - they call it "aish," which literally means "life."

Egypt's government has taken other measures to try to rein in rising food prices, including stopping the export of locally grown rice. And other governments in the region are facing similar troubles - over the past few months, food prices have sparked demonstrations and riots in countries such as Morocco, Yemen and even wealthy Saudi Arabia.

In Egypt, the bread crisis is a symptom of a larger problem - one of stagnant wages that have failed to keep up with the cost of living. There is no shortage of bread for those willing and able to pay higher prices for it. Some people who buy the subsidized product resell it just down the street for twice the price. And unsubsidized bread is in plentiful supply at local markets, but that costs five times as much.

Fatma says the unsubsidized bread is too expensive, and the loaves are smaller than the real balady ones. She says she simply cannot afford to feed her children that way.

She says her family of five lives on a single pension of only 350 Egyptian pounds a month, or just over $60. That is similar to the wages earned by civil servants and factory workers, and even doctors in public hospitals.

Fatma says each of her family members eats two pieces of bread a day. If she had to buy unsubsidized bread at five cents apiece, she would end up spending about one quarter of her monthly income on bread alone.

The rising food prices have helped fuel protests and strikes by working professionals around the country.

Economist Hanaa Kheir el-Din says the entire wage system needs to be overhauled, and the food subsidies cannot be removed until ordinary working Egyptians can earn a living wage.

"You cannot pay a person 100 pounds a month as income and then let him buy whatever commodities are available in the market at market prices," said Kheir el-Din. "One has to revise the subsidy program along with revising the income policy, particularly wages in the government sector."

The World Bank says Egypt's economy has been growing at a healthy rate of seven percent per year, but at the same time, poverty has been growing too. So Egypt's poor are not seeing the benefits of the economic growth, and roughly 20 percent of the population is below the official poverty line, living on less than two dollars a day.

The last time the Egyptian government tried to remove subsidies on bread, in 1977, riots broke out and more than 70 people were killed.

But food subsidies now take up a huge portion of Egypt's annual budget, one that is growing as global food prices rise.

Kheir el-Din says the subsidies need to be targeted to the neediest people.

"Balady bread in particular should not be made available to people who can afford better bread," he said. "This should be targeted to the people who cannot afford to buy a 25- or 40-piaster loaf. But everybody may get this subsidized bread, and this is where the subsidy program has to be revised."

Back at the bakery, Fatma sighs as she stares at the raucous crowd pushing and shoving to get closer to the front. She shakes her head and moves into line, saying under her breath, "May God have mercy on the poor."

Tuesday, April 22, 2008

Oman completes Iranian gas deal

Well, it looks like the chaps have finally signed a real deal on Iranian gas, something few countries have been able to do lately. Now, I know it's not often the Dragon says this (and possibly I make the mistake of focusing on the bad stuff too heavily), but it looks like HM's Government have done something pretty good this time. I was afraid for a moment – after reading the article today in the totally useless Times of Oman – that there was just yet another Memorandum of Understanding. But, according to The Tehran Times they also signed a commitment deal to actually jointly develop Kish.
Iran, Oman ink $7b gas deal
Tehran Times Political Desk
TEHRAN, Apr. 21 (MNA) – Iran and Oman on Monday signed a $7 billion joint investment agreement on development and exploitation of the Kish gas field in southern Iran.
“The document which was inked on joint investment for development and exploitation of (Kish) gas field is valued at $7 billion which can increase to $12 billion,” First Vice President Parviz Davudi told reporters in a press conference with Deputy Prime Minister of the Sultanate of Oman Fahd bin Mahmud al-Said.

Earlier in a meeting, Iranian and Omani officials signed memoranda of understanding on cooperation in tourism and gas export. The two countries’ foreign ministers also signed an agreement on Iran-Oman strategic cooperation.
The key question now is what the pricing structure will be, and volume.

The Kish field is big, with Iranian NIOC reports of in-place gas of around 50Tcf and recoverable gas of 36Tcf. The daily production volume I'd expect to be around the typical Iranian standard gas development phase which is around 2bcf/d, with half going to Iran and half to Oman. [for comparison, that would mean Oman would get around half Oman's total demand right now, and 5 times what they are getting from Qatar via Dolphin]. That would leave enough gas for a Kish Phase 2, possibly with someone else (like India and PetroPars perhaps?)

But at what price has Oman secured the gas? That was always the issue with Iran in previous negotiations, also in the Iranian's negotiations with India and Pakistan. To some extent, if the deal is well structured on investment recovery it almost doesn't matter. Oman needs the gas. Anything less than $5 per Mscf would be outstanding (and unlikely). It also depends on the condensate deal too. I'd love to read the contract...

But, carping aside, a signed gas deal is cause for celebration. We can worry about getting it done and the price to be paid later...

Other links
Kish Gas Field
general Iran gas news

Monday, April 21, 2008

Omantel pays its huge premium for WorldCall

Omantel held a press conference in Lahore and issued a press release saying they had completed their acquisition of 65% of WorldCall telecom in Pakistan, by purchasing 488.8 mln shares for US$200mln. The event is summarised in the incisive Times of Oman .
Friday, April 18, 2008 10:59:25 PM Oman Time. MUSCAT: Omantel, the Sultanate’s biggest telephone company, has completed the acquisition of a majority stake in Pakistan’s Worldcall Telecom Limited.

As per the deal Omantel has acquired 488.8 million shares of Worldcall for a consideration of $200 million. Of this, 451.2 million shares were acquired from the sponsors itself while 37.5 million shares were purchased through the securities market route or from the public.
A press conference was arranged yesterday at a hotel in Lahore to mark the occasion. Omantel’s CEO Dr Mohammed bin Ali Al Wohaibi apprised the gathering of Omantel’s plans in Pakistan.
I continue to consider this a bizarre transaction, with limited economic justification beyond vapid talk of a huge market (see the full article for lots of bullshit about the strategic positioning of WorldCall). The deal values the Pakistani company at more than 30x net income (2007 income was just over $10mln), for a company that reported flat revenue from 2006 to 2007 and declining profits.
And, of course, the majority of the shares were bought from an Omani Businessman Sheikh Sulieman Ahmad Said Al Hoqani, using mostly the Government’s and the public’s money (as Omantel is a publicly traded company on MSM but still majority Omani Government owned). Hmmmm. Perhaps I just don’t have enough vision to see the huge income growth potential WorldCall offers Omantel, especially once wedded to Omantel’s experience and lower cost of capital, although I’m clearly not alone in that as the shareprice has stayed around 18 PKR. Omantel also seems to be financing the deal through a syndicated loan issue.
Certainly, the Muscat market shrugged off the news. Omantel’s shareprice is still rising, and once the long sought after strategic investor is found or announced, I would expect a further bump-up in Omantel share price if that strategic partner is a big mobile operator from elsewhere in the Gulf area.
Omantel therefore admit to having paid around 25 PKR (Pakistani rupee) per share, a 50% premium on the recent traded prices, but more than two and a half times, ie 250% what was the traded value of the company in 2007 before the rumour of the bid leaked. You can see the graph of the WorldCall share price here.

Somebody must be very, very, happy that Omantel decided to do this deal, and must be Sheikh Al-Hoqani and his associates in First Capital Securities Corp. Ltd. The relationship between WorldCall and First Capital Securities Corp. is also totally unclear, although they essentially share the same board of Directors and have the same CEO. And debt interest payments were around 50% of WorldCall's operating income. I wonder who holds that debt?

If you’re interested, you can find full publicly reported Financials on WorldCall here.

I posted on this previously in November 2007
Note, I misquoted WorldCall CEOs pay in the earlier post – he was reported as paid 1.6 mln PKR, not US dollars!

Sunday, April 20, 2008

Chairman of Oman Cables Industry fined for Insider Trading

In an article that made the front page of the Oman Tribune today, but can't be found on the on-line edition for some reason (so I can't give you a link), it was reported that the Oman Capital Markets Authority (CMA) had fined Janfel LLC a massive 240,000 rials for insider trading in the shares of Oman Cables Industry. Janfel LLC is, reportedly, owned by the Chairman and executive President of Oman Cables Industry. In addition, Janfel LLC also has to repay 173,418 rials in profits from that illegal dealing.

The Chairman of OCI (who was not actually named in the printed article) is Mustafa Bin Mukhtar Bin Ali Al Lawati. The Chairman of OCI was apparently personally fined 1,000 rials and ordered to return 63,559 rials in profits from the illegal purchase and sale of 1,850 OCI shares.

Wow. That must hurt. A total hit of around $1.2 million dollars. Naughty, naughty!

Its also not clear to me who the 'executive president' refered to in the article is. The Managing Director of OCI is Hussain Salman Al Lawati, but I don’t know if that is the same thing as 'executive president', and the Chairman himself is listed on the company web site as being non-executive.

I’ve never, ever seen a report like this before in the Omani press. This is a very interesting development, and must be part of the Government’s efforts to demonstrate an improved transparency and enhanced level of Government Regulatory activity controlling the Muscat Securities Market, which has previously had a bit of a reputation for being dominated by such dealings.

In fact, its hard to put it better than the OCI Chairman himself, who in his recent address to the 19th Annual General Meeting of Oman Cables Industry (SAOG), is quoted as saying, on the topic of Corporate Governance:
On behalf of the Board I am pleased to inform that OCI, an SAOG company, is consistently and progressively updating its work methods and management systems by improving the levels of transparency at all levels in line with international and Oman’s Capital Market Requirements.
Chairmans Report

Muscati, maybe this is one deal it's fortunate you weren’t tipped off on?

Oman and Iran finalise a gas deal?

It looks like Oman has finally cracked the Iranian gas deal problem. Several interesting pieces of information are coming together. I know, I know, there have been reports for years on Oman-Iran gas, and many Memoranda of Understanding on the various options signed between the 2 countries, but MOUs are always non-binding, and nothing was looking like progressing, with the Iranians playing Oman off against the UAE, especially Ras Al Khaimah.

At present, Oman is producing the West Buhka gas field offshore Musandam which sits on the border with Iranian waters (on the Iranian side its called the Hengam field and is undeveloped on the Iranian side). What complicated the issue is that the West Buhka field’s condensate and gas production are routed through RAK. ( for example see this article Ras al-Khaimah keen on Iran gas

This 3 way situation (combined with the Americans blocking at every opportunity) has significantly hindered a conclusion. But that looks like its changing.

1/ There have been recent reports from Iran that a deal was close on both the Hengam and Kish gas fields being developed by Oman. This article in The Tehran Times on Sunday was pretty explicit.
The Iranian Offshore Oil Company (IOOC) Managing Director Mahmud Zirakchianzadeh … said Iran and Oman would finalize talks on the development of Kish and Hengam gas fields and gas exports in the near future.

“Oman’s officials have offered good proposals on the development of Kish gas field and exports of Iran’s gas and we are studying them,” said the IOOC head, adding bilateral negotiations were expected to be finalized soon.

2/ Dr Rumhy, Minister of Oil and Gas, is accompanying His Highness Sayyid Fahd Bin Mahmoud Al Said, Deputy Prime Minister for the Council of Ministers who left for Iran today. It’s a pretty high powered delegation, also including HE Maqbool Bin Ali Bin Sultan, Minister of Commerce And Industry. Fahd begins four-day Iran visit today
Fahd will be accompanied by an official delegation comprising HH Sayyid Haitham Bin Tariq Al Said, Minister of Heritage and Culture; HE Yousuf Bin Alawi Bin Abdullah, Minister Responsible for Foreign Affairs; HE Maqbool Bin Ali Bin Sultan, Minister of Commerce And Industry; HE Dr. Mohammed Bin Hamad Al Rumhy, Minister of Oil and Gas; HE Hamed Bin Mohammed Al Rashdi, Minister of Information in addition to a number of government officials and OCCI chairman

OK. We’ve been here before you might say. But in addition…
3/ A reliable source at engineering consultancy McDermott tells me that they have been recently contracted by the Oman Government to do the pre-front end engineering and design [pre-FEED] feasibility for a new gas import facility in Musandam.

This is pretty important. Its fine to discuss gas, but if the engineering work is starting, a deal must be very, very close. There is only one place that gas will be coming from - The Iranian fields in the straights of Hormuz, ie Hengam and Kish.

Expect something official in the coming months. It would be great news for Oman, especially if the price is right.

Tomorrow, more on inflation and Omanhell.

Friday, April 18, 2008

HM visits his yacht

Those of you trying to get anywhere in the morning or evening yesterday will have noticed the motorway closures. Yep, HM visited the port yesterday morning and visited his yacht. He didn't take it out. Will try and find out when its likely to head for the high seas.

Thursday, April 17, 2008

Blue City starts to fight back against the rumours and lawsuits

A very interesting press release yesterday by Blue City, aka Al Madina A'Zarqa. You can read full versions in Times of Oman [which you should note is connected to the project through family connections, so is a common source of relentless positive spin for the project], and also at such sources as Zawya

It is far from the usual puff piece, but is very specific about emphasizing that the idea that funding of phase 1 is secure. It seems a story designed to reassure those who have put deposits on phase 1 properties, the investors that hold the bonds, and to ensure the stories around the project don’t stop the next selling phase being underwhelmed, which could easily happen if people don’t have that most magic of things in such real estate developments: confidence. A significant suspicion of things not being right with the underlying solvency of the project would be potentially catastrophic for the Blue City. This release is clearly designed to stop the rot, and is a follow-up to the big ad placed several days ago showing pictures of the completed construction workers buildings, initial roads made, reassuring quotes from the Turkish contractors, and lots of happy workers eating lunch. News of the law suit and the squabbles between AAJH and Cyclone have, obviously, seriously concerned the bond holders, and probably some of the recent phase 1 deposit payers. Add the global financial meltdown, and the increasing competition for similar residential/golf club places, and there is clearly a significant threat to the solvency of the project which rumours had hanging by a thread anyhow with very little of the money left. The bond holders must be very, very nervous.

Hence the way this article stresses how the financing of BCC1 is independent of the shareholders. A sample:
The funding of Al Madina A'Zarqa's first phase differs greatly from other developments in the Middle East. Unlike most other real estate projects in the region, Al Madina A'Zarqa does not rely solely on the pre-sale of off-plan property to finance the development.

This provides investors and purchasers with the highest levels of confidence that the project is protected from all manners of challenge during its lifetime.

The nature of the press release can be judged on the adjectives: quote - firmly on course, progressing without delay, independent legal and financial structures, independently financed, operating independently of the shareholders, highest levels of confidence, protected from all manners of challenge, formally rated at investment grade, major international institutions … regard them as sound investment, strict loan agreement, monitoring and supervision … overseen by the Bank of New York, strict supervision of fund releases, backed by a robust and secure financial legal structure. The word Independent is used 3 times, and Supervision 4 times, in a 530 word release.

Personally, I’d feel a lot more confident hearing all this from an independent reliable auditor that I could subsequently sue in the USA. That it’s coming from the CEO of BCC1 hardly makes me think of this as a good thing. The fact that he’s doing it at all smells more like panic to me.

And I still can't believe they can get away with saying its 'just 30 mins from Seeb International airport.' How? By helicoper? An F1 car at 4 am?

More to come.

Muscat Harbour Closed for 3 days

It was interesting to hear yesterday that the Muscat port is being closed for 3 days. Why? The port logistics guys (were weren't too thrilled I must admit, as they have stuff to do) said it was because His Majesty is paying the port a visit. Heh heh. I bet HM will be going for a spin in the new boat. Personally, I'd be like a kid on Xmas morning, just eager to open the presents. There aren't many times that anyone anywhere could get the sort of rush I imagine one gets on first opening a $400 million present.

If anyone is out there and can email a pic, I'd love to post it.

Tuesday, April 15, 2008

News update: Cement and No Tibet please, we're Omani

More so-called updates on Oman's continuing battle against raising inflation lately, and a burning stick passes through Oman.

The Government will import 100,000 tonnes of cement from Pakistan, as reported in The Tribune . 'Course, this is less than 2 weeks worth of internal cement production, so hardly a huge effect would be expected. Although not stressed in the article, it seems pretty clear that Government is now effectively going to nationalise almost the entire distribution system of cement in Oman. I'm not a big fan of Government's running businesses as they are usually so very very bad at it. Just look at Omantel.

Related to the cement is the recent imprisonment of people Court sends price manipulators behind bars . What's interesting is the article never actually says what they were selling, or what they actually did that broke the law. I can only presume it was those 'Asians' recently caught selling cement at 3 rials a bag.

The powerful Majlis announced they had found time in their busy schedules to talk a lot about Inflation though. (an excellent and traditional Government appoach to problems here), as reported in the almost totally information-free Times Of Oman Majlis panel discusses steps against inflation .

Free Tibet Rally Peaceful
Meanwhile, the Free Tibet rally, oops sorry, the Olympic Torch Parade passed off without incident, naturally. Sultanate celebrates Olympic spirit
Anyone around the route would have noticed the quite incredible security presence, there to make sure any protesters fool-hardy enough to turn up in support of the occupied country of Tibet could be given a dose of what the Chinese Government has been giving the protesting Bhuddist monks lately. I don't think anyone did.

The reception crowd of dignitaries were however, all given a briefing note of instructions that told them explicitly, if interviewed by the press, to say nothing what-so-ever about Tibet.

It was, quite rightly, seen as a diplomatic gesture of favour upon Oman by the Chinese, who do, after all, buy the majority of Oman's oil production. Oman is in no position to play around with China by allowing nasty protestors. Although I'm not sure there would have been any protests anyhow, to tell the truth. I don't think many Omani know anything at all about Tibet or its history, nor would they feel it was worth embarassing their guests with such things. It would not be at all polite.

Israeli and Omani Foreign Ministers meet in Qatar

Something you certainly won't be reading in Oman's local papers it seems is the meeting yesterday between Oman's Foreign Affairs Minister Yousef bin Alawi and the Israeli Foreign Minister Tzipi Livni. They met at her hotel in Doha, Qatar.

These are the first official talks since 2000, although it was reported they met at a secret meeting on the sidelines of the UN General Assembly in New York in September 2006.

Although the meeting has been widely reported across the world, including other Gulf papers, the item is conspicuous by its total absence in the all local Omani press, both English and Arabic.

It looks to me like the meeting was indeed no big deal. The Yahoo article indicates the Omani Minister played it down and described it as an opportunity for them to both listen to each other, but that Oman still disagreed with the Israelis on, well, probably about everything, and there were no plans to reopen the Israeli 'trade office' (ie an effective Israeli Embassy) in Oman. Thank goodness, given the Israeli's on-going fascist behaviour.

Article links: Yahoo news , BBC , Khaleej Times .

In the Israeli press too, Israel National News ,
In the context of the forum, Foreign Minister Livni met with her counterpart from the Gulf Emirate of Oman in what was hailed as a first-of-its-kind public encounter. Omani government officials, however, played down the meeting. An aide to Oman's Foreign Minister Yousef bin Abdullah said it was "not meant to have a result," but merely to allow Foreign Minister Livni and her counterpart to exchange views, according to the French news agency AFP.

Oman and Israel have maintained low-level diplomatic and trade relations, although the oil-rich state backs Hamas. The Omani Foreign Minister ruled out the possibility of re-opening Israeli trade office in his country, closed after the beginning of the Oslo War in 2000, until the PA is constituted as a state.

Another nice pic being printed everywhere but in Oman:

Monday, April 14, 2008

Shia Conspiracy to take over Oman

I’ve now heard this conspiracy theory from several Omani colleagues and friends independently, so, while I can’t say its true, I can certainly confirm it is a ‘currently circulating Oman rumour’.

This is the upshot of the rumour/conspiracy theory:
The Shias are coming. Its always been known that the Al Lawati clan here are Shia, and they have co-existed with the dominant Ibadhi and standard Sunni here with (apparently) no problem. But, so they say, they are now being infiltrated by Al Lawatis from Iran & enabling the rapid build up of a well resourced and organised Iranian Mafia. Iranian Government money is being channeled through these foreign Al Lawatis, and is being used to buy up large tracts of lands up and down along the coast, especially between Seeb and Shinas. In these villages (but also throughout Oman), new Shia mosques are being built with Iranian money, and there is also funding from Iran to encourage prostelizing and convert Omani Ibadhi’s muslims to Shia muslims. The black flags (indicating Shia) are starting to spread like a wave across Oman, and they have the support of (note by UD: of all people) the Minister of MONE.

So, there you go. All my sources are otherwise seemingly well balanced people. But it reminds me of the UN ‘Black Helicopter’ theory common in the southern and Mid west USA a while ago, with the UN poised to take over the administration. I have no evidence what-so-ever that the good Mr Mackie has even heard of the Shia, let alone is participating (they admitted it could be 'unknowingly') in a conspiracy. Muscati, I'd be interested to know your take on this, naturally!

As always, any actual data can be sent with fully confidential terms and assurances to undercover.dragon (at)

Sunday, April 13, 2008

The Ship story breaks records

Quick one. I was surprised at the response to the last post on HMs new Yacht. After posts on Municipality corruption, inflation, Ministers getting free land, oil and gas secrets, Blue City, etc etc, the most commented on post of the year so far was the one that I expected to be received as just a little tit-bit of a story, a new boat.


More later. Interested to see the more 'tabloid stuff' is better received. But, fear not, I'll keep mixing it up with the dryier but I think deeper stuff too. So? Next post - a conspiracy theory going around Muscat that's all about the battle for Oman's religious soul. Its got it all.

Friday, April 11, 2008

HM Gets a new toy

UPDATE: Prompted by the self serving whine-post linking here on the Sabla by Balqis, and for those who feel - like Balqis - that this post is some kind of unacceptable breach of HM's right to privacy, please take the time to check out the ultimate in hypocritical comments: while bitching about how much of an affront this post was, she was busy giving a day by day, blow by blow of HM's trip to Italy including pictures of HM and even more comments about, and pictures of, his yacht. LOL. What a total muppet. Enjoy!

Word is that His Majesty's new 'super-yacht', Al Said (renamed from its earlier working name Sunflower), will finally pull into port next week, following extensive post-commissioning work on the interior and shake down. Here's a pic.

You can see more at (believe it or not, these people exist) Its big. No, really really big. At 155metres (about 508 feet) long, based on length it will be (for a whle at least) the second biggest in the world, just behind Sheik Maktoum's Platinum/Golden Star. [But that one was a cast off from out-of-favour and too broke Prince Jefri Bolkiah of Brunei]. Check out all the biggies here and drool.

The old Al Said, built in 1982 and a mere 104m (but is still ranked a reasonable 16th in the world by length) will be taken over by the Ministry of Tourism and turned into a super-luxury cruising boat for really wealthy tourists. Nice.

Tuesday, April 8, 2008

More on Oman’s Gas and Oil

I can tell this is going to be a long post… And sorry about the delay in posting, been working hard on some legal and contracts stuff. But Anons comment on the previous post raises some issues. Also, Sue Hutton from News Briefs Oman sent an interesting link to a recent MEED article on Oman’s oil and gas. Thanks Sue! I’ve included some interesting quotes from MEED below. The link to the full article is Oman faces up to depleting reserves.

Anon (an Omani from the MOG, MONE or MOF perhaps?) also commented on the frustration of the Government with Shell, and that the Mukhaisna deal was not about the Qatari gas, and that new players are coming in because the Government is irked at Shell. But there are some misconceptions in parts of Anon's comments, according to my sources, having discussed them over the amber nectar in the past few days.

Firstly – Gas.
Petroleum Development Oman [aka PDO] (in which Shell is a 34% shareholder, with the Government with 60%) has never had ownership of the gas fields. The Government owns 100% of the gas fields (those not associated with oil) and always has. The reason the Government got BP and BG in, to attempt to develop these 3 potentially large fields PDO discovered on the Government's behalf (BPs Khazzan and Makarem fields, BGs Abu Butabal), is because the fields are deep and highly risky, and need a lot of upfront capital investment. This is because, unlike the Governments 'star' gas fields of Saih Rawl, Barik, Saih Nihyda and Kauther, the gas in these other fields is held in very low permeability rock and is difficult to get out at reasonable cost. The test wells were all very disappointing. Trust me, if the gas was clearly commercial, the Government would not be paying foreign companies to develop them!
BP's concession, won in early 2007, covers the long-term development of tight gas reserves from the central Khazzan and Makarem fields. With the two reservoirs estimated to contain 20 trillion cubic feet (tcf) of gas – more than 55 per cent of the sultanate's total proven gas reserves of 35 tcf – the project is an integral part of Oman's plan to ramp up its gas production.

Its important to realize that the 20 TCF referred to above in the MEED article for BPs Khazzan and Makarem is not a part of the 35 TCF figure for Omans gas reserves. The gas in BP and BGs fields is there in large volumes, and that’s where the 20 TCF is (+ about 9 TCF for Abu Butabal I’m informed) – in the ground. The 35 TCF reserves figure quoted by MEED is gas that is already shown can be produced, and there is even more in the ground than that.

I think it was a great initiative for the Government to get BP and BG into the country. Rumour has it BP committed more than $600 million in spending on wells and new gas processing plants, plus a big (maybe $100 million) signature bonus, all before the field is even declared commercial. This means the Government gets someone else to take all the risks up front, trying to develop fields that were far from obviously commercial. The decision has little to do with being irked at Shell, but everything to do with Shell’s advice to the Government that the development was going to be risky and expensive (and the fact money at risk would have been 100% Government money).

Secondly - Oil
In addition, the Government wisely wants to diversify the upstream with more players. It stimulates employment, gets new competition in the upstream, and helps accelerate activity (and thus hopefully faster oil and gas production). And at current oil prices over the past few years, there were a lot of companies willing to pay upfront to get into the game.
Instrumental to the changing fortunes of Oman's oil production was the decision in 2005 to split off several new concessions from acreage controlled by Petroleum Development Oman (PDO). While PDO, in which the UK/Dutch Shell Group is the main foreign shareholder, still produces more than 80 per cent of the sultanate's oil and nearly all its gas and condensate, the move is paying off.

Again, this removal of acreage from PDO is totally normal. The agreement between Shell and the Government in 2004 agreed that parts of the block 6 concession would be relinquished at regular intervals, as is common practice in oil concessions all over the world. What made the difference in how interested new companies were is the oil price. But I've been told that already Sinopec have asked to get out of their commitment to drill a deep well near Yemen, and Encana sold out of their eastern blocks after a few dry holes. OilEx are right now trying to develop a small heavy oil field in South Oman (PDO discovered it ages ago and concluded was not worth it at the time). Current prices make it much more attractive now. This would not have a big impact on Oman, but its a good sign and every bit of extra oil helps.
More than a dozen foreign oil companies are exploring and developing the sultanate's hydrocarbons assets. This is most notable on the Mukhaizna field, where work is being carried out by the US' Occidental Petroleum. The multi-billion-dollar enhanced oil recovery (EOR) scheme will increase capacity from 8,000 b/d currently to 150,000 b/d by 2011. The increase will come through the use of thermal injection techniques, one of several advanced oil production technologies being used in the upstream sector.

However, speculation has increased in recent months that Mukhaizna is falling behind schedule. Worse still, there have been suggestions that it will, at best, have a peak output of 100,000 b/d, rather than the target of 150,000 b/d. However, Al-Jashmi rejects this. "Every project has its own challenges but there is no change in Mukhaizna's original targets," he says. "There has been a delay in some project milestones because of contracting difficulties, and the [initial production] rate was not as high as we wished. But Occidental plans to make up for it."

Well, let’s see. But my friends in Oxy say they are significantly behind, and the new steam boilers are only working at 50% of design capacity due to allegedly poor design. Plus there are those 27 wells that collapsed. And their costs are skyrocketing.

To summarise Anon, the grass is always greener on the other side. I think Oman is realising that all international companies (see earlier posts on SinoHydro and the waste water project) are out to make as much money as they can, and care little for the Omani people, Actually I think the most senior levels of Government think that Shell has been a bastion of support through thick and thin for Oman. Yes, Shell over promised on production and proved reserves in the late 90s. But relationships last longer than that. And the deal Shell gave Oman on the tax they pay on their oil share is a fantastic one for Oman (I posted on this earlier) and much better than they are getting from anyone else (like Daleel or Oxy).

Shell has a history of being there for Oman. For example, I’ve been told by several sources that in the dark days of 1998, when Oman was close to defaulting on its international loan obligations (as oil was less than $10/bbl and income was much lower than budgeted), Shell actually loaned Oman on a handshake $600 million dollars cash on the very day they asked for it, with nothing in writing. Shell also negotiated an excellent deal with the Koreans on behalf of the Government to buy the LPG from Sur, with LPG take or pay contract linked to the oil price. That LPG price is one of the interesting parts of the gas issue.

OK. I'm sure the above has bored the pants off you, if you've gotten this far. More on the LNG, gas supply and demand issues mentioned in MEED soon. It’s an interesting tale.

Tuesday, April 1, 2008

Its now official - Oman importing gas from Qatar

It was finally announced yesterday by HE Dr Mohammed Bin Hamad Al Rumhy, Minister for Oil and Gas, that Oman would start gas imports from the Dolphin project in June, at a rate of 200 million standard cubic feet a day (around 5.6 million m3 per day). Tribune interview
The minister told Oman Tribune on the sidelines of a PDO function on Sunday that gas supplies to the Sultanate from Qatar under the Dolphin project could begin as early as May or June.

Gas through the pipeline will flow at the rate of 200 million standard cubic feet a day.

“We are working on a compressor station in Al Buraimi and as soon as that is finished, gas will flow and we hope it will be around May-June,” he said.

I tipped you off to this in February BTW Muscat Confidential archive.

Oman produces around 60 million m3 per day from its own fields, so this represents about 9% of gas supply volumes. Now, why is Oman importing gas from Qatar?
France's Total and Occidental Petroleum of the United States each hold a 24.5 percent stake in Dolphin, with the remaining 51 percent held by the Abu Dhabi-owned Mubadala Development Co.
(see the full article in the brilliant bastion of incisive journalism that is The Times of Oman Dolphin Gas article

So, as promised, the reason for the import of gas into a country that seemed to have lots of its own.

The key piece of info is to be found in the ownership of the Dophin project, which is now importing into the UAE around 3.5 billion cubic feet (99 million cubic metres) of gas per day from its concessions in the giant Qatar gas field. A couple of years ago, the Oman Government transferred the operations for developing the giant Mukhasina oil field away from Petroleum Development Oman to Occidental and Mubadala. The oil field is apparently a very heavy oil, and getting the most out of it means injecting steam to heat the oil. Now to generate that steam, you need to burn gas. Lots of gas. This is reason why the MOG awarded the field to Oxy – not because PDO couldn't do the job, but because Oxy promised that in return for getting the oil field they would provide the gas from their Dolphin project. I still haven't been able to find out the effective price Oman is paying for that imported gas.

As Oman is already facing more gas demand in future than they have in current reserves, this was a deal that Oman could not resist. It also helped justify the sale of gas to the Sohar and Salalah industries at give away prices (equivalent to just $5 per barrel oil price), which is why its attractive to refine Aluminum in Oman even though Oman doesn’t have any domestic bauxite aluminum ore).

The deal worked well in other ways. The cost of building the pipeline between UAE and Oman was effectively paid by supplying UAE with gas from Oman for a couple of years (around 125 million ft3/d) to help start-up the UAE gas-fired power stations before the Dolphin gas would arrive. Oman knew that the pipe flow could then be reversed later to enable Oman to import gas from Qatar indirectly.

My sources tell me the Occidental Mukhasina project is not exactly going to plan though. They are behind schedule, not producing as much oil as they promised, costs are rising, and even worse, around 27 of their new wells were totally damaged by injecting so much steam that they exceeded the maximum design temperature of the steel parts inside the wells, which then collapsed. My sources said this was done on the instructions of Oxy senior management in an attempt to try and meet their production targets, even though their engineers warned them of the risk.

So, thats the deal. Oman effectively gave a piece of the Mukhaisna oil field to Occidental and the Abu Ghabi Government, in order to have spare gas to sell at a huge discount to the Gas based industries. It would be interesting for the Majlis Al Shura committee to investigate the economics of all this, tying together the gas impriots, the Mukhasina deal, and the gas contracts to Sohar.

I'm sure its a great deal for Oman (for why else would it be done?), but it would sure be nice for the Government to be able to demonstrate that to an independent committee of the peoples representatives, wouldn't it?