Sunday, May 17, 2009

More cash flow woes for Blue City? Reports that planned Public Buildings have been shelved.

Observant readers will have noticed there have been no press releases from Blue City (aka Al Madina A'Zarqa) lately about how basically everything is on track. Things can't be going well when there are not even stories to report of meaningless progress milestones, contracts signed, or glittering awards won for things not yet built. Lets see what the next "Quarterly News Bulletin" says, expected this month, unless Issue No. 2 of this riveting mag is delayed too.

Meanwhile, the Dragon’s sources in BCC1 have informed Muscat Confidential that construction of eight of the planned Public Amenities buildings in Phase One have been “indefinitely suspended”, whatever that means.

Fortunately our sources were clearly undeterred by an earlier note (reported here) from BCC1 top management threatening their staff with disciplinary action if they shared news with the media…

Buildings affected by the cash-saving axe are (apparently): A Mosque, Police Station, City Hall, Medical Centre, Post Office, Nursery and Kindergarten, Primary School, and Fire Station.

Of course, the original plan had a 27 hole golf course, already cut back to 18 holes, and BCC1 management were even considering building only a 9 hole course until it was pointed out that no-one would come to play at a 9 hole course in the middle of nowhere. . .

As noted in some of the PR releases from Blue City,
Phase one, a 2.5 sq km development, comprises around 5000 apartments and 500 villas. Initial sales began in December 2007, with one-bedroom apartments priced at about $179,400 and two-bedroom apartments at around $291,200. Three-bedroom villas are being sold from around $535,600.

The project is set to include three five-star hotels, an 18-hole golf course, shops, schools, mosques and police stations. Slated for completion in 2012, the phase one site is expected to create around 7000 jobs.

Or to quote from His Highness Sayyid Haitham Bin Tariq Al Said, as reported in OCIPED's newsletter in 2007
“Al Madina A’Zarqa is planned to become a model for a lifestyle that adapts to the surrounding environment. The project has not excluded traditional Omani architectural design and construction; on the contrary, it is inspired by architectural elements to be found in the local environment. Al Madina A´Zarqa is planned to be a model for those seeking relaxation in an integrated community that meets the need of daily life, including family and work requirements”.

The problem with public amenity buildings is, of course, that while they might meet the integrated needs of residents daily lives, they cost good money to build while providing didly-squat in terms of sales income to the developers. So presumeably the residents daily lives will be a little less complicated and a little more relaxed in Blue City. I mean, really, who needs a lousy post office?

I hope those buying the Blue City's apartments and villas (actually, relative to other Oman developments, I must say they are very competitively priced) looked very carefully at their contracts to check exactly what hard guarantees they really have with regard to general facilities and other public amenities. Perhaps this is why they have not been cancelled but merely 'indefinitely suspended'...?

This was all expected. Those in the know were long predicting - even before the global crisis and GCC's regional meltdown in the off-plan speculative real estate model – that the grandiose plans for Blue City would be forced to revert to a standard integrated tourism development complex: A few hotels, apartments and villas; maybe a marina and some shops and restaurants, a golf course and Spa, and some beaches to sunbathe on. Throw in some diving and fishing/dolphin watching, and you can imagine a 'Shangri La by the Daymaniats' experience quite easily, and very nice for a week or two's holiday I'm sure it will eventually be.

The Government are also, it seems, still pressing ahead with their side of the deal, with a tender for the overhead powerlines that will carry power to Blue City's town issued last week.

But the whole stand alone economic model; all the "it's a new city for 200,000 people we're building, the future commercial capital of Oman, blah blah blah" crap, so hyped before the construction was delayed and contractual sales targets missed, always relied on massive internal economies of scale – Lots of businesses and residences with local staff who would need schools and universities for their kids, whose teachers would need a hospital, whose nurses would go out to restaurants, etc etc. So cut backs might indicate the real future is not so grand, at least unless the Government steps in and forces some Ministries to move up there.

It didn’t help either when the 'Medical City' planned to be built next door, and promising the usual Dubai-esque array of yet more universities, hospitals, schools, etc etc etc, was cancelled in October last year.

Sue Hutton of NewsBriefsOman pointed out in March this
recent article from UK based MoneyWeek
on why not to buy property in Oman:

Sadly, Oman's property boom is likely to be little more than a mirage – and one that sounds remarkably like Dubai's. The developments are huge – the first will consist of 4,000 homes – with tiny properties "pressed closely together on modest plots". These shoe-box homes don't come cheap. An 82 sq m one-bedroom flat will set you back £210,000. But at least it's in a convenient location – right next door to Muscat airport.
Pundits argue that Oman is a better bet than Dubai because it's pursuing a steadier process of development. Perhaps they haven't noticed that it's currently building an entirely new town in the desert northwest of Muscat. The Blue City will have accommodation for 200,000 people when it is completed in 2019. What's unclear is where these 200,000 people will come from.


Another fear is Oman's track record. Last October thousands of tourists found their holiday plans cancelled when Oman announced that the Gulf Co-operation Council Summit would take place from 26-30 December. Every room in six of its leading hotels was requisitioned for the conference, causing thousands of bookings to be cancelled. A country that tolerates foreign investment rather than welcoming it isn't a reassuring prospect for anyone thinking of sinking thousands into off-plan properties. In short, we suspect that if you're patient, you'll find better opportunities closer to home long before Oman is ever worth buying into.

Hmmm. A little harsh at the end I thought.

Perhaps this is why Blue City changed their logo to a stylised plug hole?


  1. Hi Dragon. I rally need some online translator to understand you fully. I heard about your blog but am a lazy guy. In this coming months I will read it every day.

    I just came to say hi

  2. "you'll find better opportunities closer to home long before Oman is ever worth buying into." --- wow, that is very harsh.

    I do think that Oman needs to change their attitude towards potential investors and tourists. Oman is trying to build itself as a cultural center to distinguish itself from UAE and other Gulf countries, but it seems like they are not doing a great job!

  3. This Blue City thing sounds like a bad, broken record: secrecy, incompetent management, funding problems, court cases, exorbitant fees to shady advisors, resort in stead of new city, non payment of contractors and consultants, false and incomplete information to the public, junk-status bonds, unhappy buyers, etc. etc. Doesn't really sound like a great investment opportunity to me.

  4. I honestly wouldn't buy a one bed apartment in Oman for £210k if I was a european investor. I can get something in the London for that amount. Especially since there are still so many problems in management in other projects in Oman. I.e Risk is high.

  5. Congratulations UD, you are living up to the spirit of your blog to provide biased and “always” irreverent opinions! You should also add to your introduction that you are a “purveyor of false and ancient information to your readers”. I would suggest you double check the credibility your BCC1 sources. Where do you get this shite? All of your information is so out of date it is comical. Stop staring at the computer screen, get off your arse and get the facts for yourself if indeed you truly want to be even remotely credible.

    You are a consultant to the government? For the sake of us all we can only hope that they don’t listen to your “consulting” advice. You say that you admire the vision of HM but you are the first to criticize real accomplishments towards realization of the vision. Clueless hypocrite comes to mind! At least we can be comforted that YOU are not our visionary leader. If this was the case we would all still be living in the Stone Age.

    A blog can be a great thing, generating real discussion on real facts related to real issues. Yours is purely GIGO! Double ZERO, the ouzo stupor, my ding dong and Willie Delusional are true testament. Do the right thing and advise your readers accordingly.

  6. Hey John-man, Dude what's a "ding dong and Willie Delusional" that are testifying for you? Sounds like sex talk from a sixth grader. Abd

  7. Muawiyah
    Welcome. I can only imagine the mess Google translator would make of my posts! Has anyone fluent in both English and Arabic ever tried it? My Arabic is almost non-existant.

    I like your new blog a lot. Its real. Keep it up.

    PR is hard. And the press and public fickle. It would help if they got the visa thing sorted out properly here for the owners of the integrtaed tourist developments and allowed people who own a house to be entitled to an employment visa, not just a 6 month visit visa.

    Yep. Not everyone agrees with you tho’… lol

    Me neither. I can think of a LOT of places to spend that sort of money. But if you have loads of money, I guess why not. I think that’s why a lot of the ‘real’ purchasers are wealthy GCC citizens [esp. Qatari, Kuwaiti] and Europeans ex-UAE who have loads of cash and want to escape Dubai-land.

    Wow. Where is the love?

    I have no problem with HM’s vision, and confirm I have insufficient talent to be anything remotely close to a visionary (that’s a pretty soft target of a strawman tho’ john. I’m sure you can do better than that!). It’s the people HM has to rely on to actually implement things properly I worry about. And I suspect that’s people like you. I don’t think HM would be very impressed by the reputational and financial cock-up that is Blue City.

    But apart from an emotive rant, I see no actual information in your comment.

    You ask for a “real discussion on real facts related to real issues.”

    Then why don’t you stop whining and actually contribute? As you seem to be connected to BCC1 management, I’d have thought it trivial for you to give us the up to date facts to back up your claims. EG:
    Have the Public Utility buildings been deferred?
    Is BCC1 up to date in its payments to contractors?
    Has BCC1 met its (even re-adjusted) sales targets?
    Will the original 27 hole golf course be completed in phase 1?

    Oh, and more news on Blue City and the legal dispute between the shareholders to come soon readers. I’d keep an eye out for some overseas press conferences soon…

  8. Well well, the BCC1 management back on line. This time as ‘john’. How interesting. Also very interesting is the way the management now portrays itself as the ‘guardians’ of HM’s vision. So, ‘john’, is that really what makes you guys at BCC1 tick? Or is it maybe more the money, the egos, etc. that count? Tell us the truth please (as always, right ‘john’?). And indeed, if UD and all those bloggers have it all wrong, why don’t you provide us with the real facts. I believe this has been suggested to you many times before. So yes please, provide us with some hard facts regarding fees paid to so called ‘advisors’, moneys paid to get rid of the Bahrain-crew, the financial status of the project, the status and actual value of the bonds, re-sale values of previously sold units, customer satisfaction, and of course the actual sales figures.

  9. Love UD? Not with your disrespect, lies and cheating! I am willing to forgive you but only if you change your evil ways. It is utterly clear you fear change by your posted quotes and information that is over 2 years old. Looking forward to the 2nd newsletter? It was issued 3 months ago and included sales figures. Get up to date man! I am looking forward to the 3rd newsletter due next month. After all it is a quarterly publication isn’t it? You have got Sidi thinking that units are £210,000, when they are less that ½ of that. Did you ever think about asking them what the sales prices are? It is clearly mentioned in the newsletter. You can also go and visit them in their new offices, if you had the gumption. Planning, what has changed? Don’t you read the press that they just signed the designer for the first 18 hole golf course? It was never planned for 27.

    Detailed company financial information Ibrahim? What company provides this unless it is publically traded? Can you get this information from the wave, muriya and others? I don’t think so. HM’s vision? Don’t you know that HUNDREDS of OMANIS are already employed on the project? Not to mention that millions of Rials in contracts have already been awarded to OMANI companies. There are pictures of the construction in the newsletter. I guess this is meaningless to you. I think those employed and feeding their families from this employment would disagree. They have already received a certificate of appreciation from the ministry of manpower. Exorbitant fees? Define exorbitant. Surely you know that financing was arranged from international markets, with international regulations and international standards.

    These are my biased and irreverent opinions!

  10. Anyone putting money into what is in effect sand and a sexy website is taking a huuuge gamble.

    I wonder how many 'purchasers' at BCC1 actually plan to live there or even rent out. I suspect the vast majority were along for the ride, planning to sell at a profit in a few build phases time. They have been bitten. Hard.

    Resale prices at other developments seem to be correcting nicely at the moment. Apartments at The Wave are sensible money now. It will be interesting to see what happens in the next 12-24 months regarding all these new developments. Personally I like to see something concrete (literally).

  11. John,

    Welcome back.

    I disagree with the baseless personal accusations, for the record, ie "disrespect, lies and cheating... evil ways... fear change… et al]. So, for that, a big “fuck you too”.

    But to be frank, John, get a grip.

    If you are who you purport to be (ie BCC1 management or Cyclone employee), this is pathetic.(Oh, BTW, I did state the prices were relatively cheap compared to other developments. Which they should be, because Blue City is not a city yet and is in the middle of no-where (albeit incredibly beautiful).)

    I have no problem with the vision, the employed Omanis, the ITD.

    I even have no problem with where the land came from, and who now owns it.

    I have no problem with the idea that a new city could be constructed there, and that that could be a great thing for Oman and the non-Omani who might choose to buy/live/invest there. Business is business , and business is what Oman needs.

    But, yes, I have a problem, within the confines of the limited information available, with the demonstrable performance and capability of the people entrusted with executing this project.

    So stop with the draping yourself in the flag of nationalism and the ‘wishes of HM’, as if that takes you and your buddies beyond public scrutiny and comment. Fuck right off with that attitude. I wish, I wish, His Majesty or the HRH behind Cyclone would order a full independent forensic audit of the Blue City project. The second-hand tales of malfeasance are such that we smell them all the way down here in little ol’ Muscat, John. I am convinced these rumours are totally incorrect am am sure Blue City and BCC1 would fly through such an audit will a firm 'well done chaps'.

    So, John, why not:
    Start actually delivering on this project, without putting your snouts so deep in the trough that the project fails.

    Stop not paying your contractors because your original business and financing model has failed.

    Stop paying yourselves obscene amounts of money (despite your talent for what you do) for non-performance.

    And stop pretending that criticism of this project is unpatriotic.

    Too big to fail? Let’s see.

    The way to deal with criticism is to publish facts. You are not going to force everyone to acquiesce to a potential con job and to stop asking questions just by shouting ever louder that ‘everything is totally OK’ and that such inquiries in and of themselves upset the international investors.

    You have failed to address any of the queries raised by me, or my readers, that are material. Instead you’ve responded with bluster and a childish defensiveness that, IMHO, only serves to show how correct people are to be concerned about the governance of this project, and the extent to which (effectively) Government resources are being used.

    Because this IS an important project. It IS a lot of money. It IS a company that routinely makes hay with the national and strategic importance and their associated Government support.

    Have the Public Utility buildings been deferred or not?
    Are you up to date (within the confines of usual good business practice) with your contractors?

    There are more questions, obviously. (eg :Has Blue City impacted the effective country risk used to calculate the interest payments on our Sovereign debt?)

    Oh, but please forward me the links to the quarterly mag! Awesome.

    And let’s do the math. Say 1000 Omanis temporarily employed, for a debt of $1000 million (plus the millions in payments owed the contractors). That’s about $1,000,000+ per employee. At the coupon you’re paying on the debt, I bet you could have given 1000 Omanis a free payment of $50,000 a year for the rest of their lives.

    What actual intrinsic value have you generated so far? Show us that you’re producing a competitive return with the investment debt, infrastructure spend, and the base value of the land (even taking account of incremental multiplier effects), and I’ll be your biggest fan.

  12. Gosh UD, you have been offered a one-off opportunity to be forgiven by the mighty Blue City managment, and this is how you respond? Shame on you. You're doomed.
    I can't help comparing the Blue City managment with the Bush administration (and I'm sure Mr. Russell was/is a strong supporter). They are the good guys, the others must be the bad guys. Bloggers are part of the axis of evil. Uncle Sam (or 'anonymous, 'Loki', 'Shareholder', 'john', etc) will crush you all and will soon announce his 'mission accomplished'. Right?

  13. As mentiond before: the successful sale of residential units will determine whether this project can move forward. Sales have failed (that's a fact, no matter what the original financial model was) and will continue to fail (no matter how deep you stick your head in the Blue City sand), so the Blue City will simply not happen. If an audit will ever be conducted, don't be surprised if people do end up in prison. As far as return on investment for Oman is concerned: as negative as it can be. That is the sad reality for Oman.

  14. Nice tirade UD. Feel better now? Are you showing us your IQ with your eloquent language? Are you feeling threatened because your accusations are unfounded to your readers? Are you upset with previous management, current management or are you just upset with life? The CEO on cover of the newsletters says “our sales have now surpassed the 500 units sold threshold”. Looks like they sold over 500 units then. You mention huge salaries to their staff. How can you know this? Are you distressed because you wanted to be a part of the project but your CV was rejected? I have been to their offices (have you?) and don’t see a fleet of porsches, bmws, audis and jags out front. Unfounded accusations as typical. Contractor not being paid? Why would anyone most notably a contractor work without being paid? Certainly it isn’t AECO charity. Would you work if you were not being paid? How wonderful it must be for Oman to have seed money coming from international sources to start a major project. A project ultimately to provide thousands opportunities for generations to come. After all, isn’t this why Oman and its projects are being promoted? Your calculation is shortsighted and flawed.

  15. Hey John,

    So. More mis-direction, non-sequiturs and rhetorical questions. And still no answers! LOL.

    Have the Public Utility Buildings been deferred (for at least 2 years, BTW) or not?

    Oh, and watch your own promo video at the old website. Towards the end, it clearly states that there will be an 18 and a 9 hole golf course in Phase 1. Same info (“2 golf courses in phase 1”) at the old Bovis website. Looks like you’re the one who doesn’t know what’s going on John. Perhaps you weren’t at the meeting that discussed cutting it back to 9 holes either…

    And, tell you what, I’ll post a photo of the new sales office – you know, the one that has just finished but still hasn’t been open to the public.

    All the contractors say they have not been paid for months. They (mostly) work on because otherwise they will probably get zero. Bovis decided to cut its losses and walk anyhow. But I’ll wager BCC1 management are still being paid.

    As Blue City is now offering zero interest terms until 2011, I’d have been surprised if you hadn’t managed to move some properties to the institutional investors (like Abu Dhabi pension fund). 500 units ‘sold’ out of…what... 5553 units in phase 1? But what really counts is not so much headline sales numbers (where just deposits have been taken) but ‘collections’ – ie cash. This doesn’t sound much better than you’d already made in November last year.

    The debt agreement, mortgaged against all the land (not just Phase 1) targets the next big interest payment date of 7 November 2009 in just 5 and a half months, which originally called for $455.0m of aggregate collections. Blue City are therefore having to renegotiate the terms of the bond to avoid effective foreclosure on the whole project.

    With free land in a prime and pristine location, oh, and a billion dollars in up-front loaned money, you’d have to be an idiot not to be able to show some Omanis being employed. That’s not the same as value creation John.

    Roll on an audit once those bond holders start to crack the whip. Then we’ll see where all that money went…

  16. Shout, bark and attack till the critics shut up. That does indeed very much sound like the Bush doctrine and would, as such, reduce the world to 'the law of the jungle'. What's next, 'john'? Preemptive strike on bloggers? Waterboarding maybe? It seems to me that you guys at Blue City have lost your senses.
    Lucky for all of us, such doctrines are in reality utterly inoperative (see Bush's track record) and the critics/bloggers will not shut up until real answers are provided. Those answers will apparently not be provided by the Blue City managment, so it seems that also in future we will have to rely on the blogs, grapevines, little birds and maybe one day an audit as main sources of information on Blue City.

  17. Taking into account the more than 400 units already sold during the first launch some 2 years ago, this figure of 500 units sold to date is not very impressive at all. It only confirms that sales have been far too slow for a long time now and are, in fact, almost zero if you exclude the bulk-sale to the pension fund as the 'one-off' exception to the rule, which it really is. My friends at main contractor AECO can therefore not be paid from sales revenues and are currently forced to fund their works from the advance payment received when the contract was signed with Blue City. This will obviously come to an end when the advance is substantially amortised. Then what? Sales will pick up and money will come in? Sure, John.


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