Oman strikes $1 billion privatisation deal with China

The oil industry contributes about 44% of GDP but Muscat aims to reduce this share to 22% by 2020 through investments totalling $106 billion.
Sunday 22/12/2019
Technicians fix the electricity power in Salalah, Oman.    (AP)
Time to upgrade. Technicians fix the electricity power in Salalah, Oman. (AP)

LONDON - The Omani Electricity Holding Company, known as Nama Group, said it completed the sale of a 49% stake in the Oman Electricity Transmission Company to the China National Electricity Grid Corporation for about $1 billion.

The deal represents one of five privatisations planned by the Oman Electricity Company in the country’s efforts to strengthen its coffers, which have been depleted over the past few years because of low oil prices.

Oman Electricity Company spokesman Mansour al-Hinai said a deal to sell a stake in the Muscat Electricity Transmission Company was scheduled for the second quarter of next year. He said Nama had received 14 non-binding offers to invest in the company.

Oman has fewer energy reserves and smaller production than its wealthy neighbours. Muscat expects a budget deficit of around $7.3 billion, equivalent to 9% of GDP, this year.

The Omani government collected $3 billion from global bond markets, confirming interest by global financial markets despite three rating agencies having reduced Oman’s credit classification to high risk.

Oman previously announced plans to privatise the land and maritime transport sector over a 3-year period, in line with the government’s plans to diversify the economy and increase revenues.

Oman sold stakes in both electricity companies after receiving about 25 offers from foreign investors. Muscat was trying to address the financial imbalances without resorting to borrowing, which has become costly because of the downgrade of the country’s credit rating.

The Omani government is relying on the Omani International Group for Logistics — Asyad — which has assets of about $10 billion, to maximise the financial returns of the state’s investments in ports, free trade zones, maritime and land transport companies and logistic services.

Asyad is seeking to privatise companies, including Oman Shipping, which reports good results and plans to add five ships to its fleet. By 2022, the company’s fleet will stand at 72 ships.

Muscat is looking to the private sector to invest in projects in the transport sector but this is contingent on the government’s restructuring of the sector.

The Omani government owns more than 60 companies but, because it has fewer energy and oil reserves than its neighbours, it is exposed to greater financial risks, which threaten the financing of social and job-creation programmes.

In recent years, the Omani government planned to sell state-owned assets to address a budget deficit that has accumulated after the downfall of oil prices since mid-2014. The government expects the deficit to reach $7.3 billion (9% of GDP) in the 2019 budget.

Omani ports and free zones will not be immune to the Omani Group strategy in enhancing their role in the local economy despite difficulties in improving their performance.

A reduction in port activity has affected the country’s economy. The sector is facing tremendous challenges because of fluctuations in the global economy and economic conditions internally.

Data published by the Central Bank of Oman indicated that Oman’s economy slowed in the first half of the year because of the decline in non-oil sector activity, reflecting the difficulties the government will be facing in implementing reforms.

The data showed that Oman’s economy shrank 1.9% from January-June. Low oil prices in recent years affected Oman’s financial situation but the economic downturn this year stems from the slowdown in non-oil industrial activities and the services sector.

The Central Bank reported that the non-oil sector shrank 3.4% during the first half of this year. The oil and gas sector grew 2.1% during the same period. Domestic oil and gas production increased 1.5% and 5.6%, respectively.

The oil industry contributes about 44% of GDP but Muscat aims to reduce this share to 22% by 2020 through investments totalling $106 billion.

Despite Oman’s return to financial markets with the sale of $3 billion in bonds last July, Muscat’s financial position remains weak.

Fitch Ratings said Oman’s economic growth was expected to be 1.8% this year because of the country’s commitment to the OPEC+ agreement to reduce oil production.