Muscat needs to reassure Japanese bank

08 December 2009

It would make sense for Muscat to provide the bank with some reassurance with guarantees

Oman Power & Water Procurement Company (OPWP) has stated clearly that it will not ask the government to guarantee its payments for the power produced by the Barka 3 and Sohar 2 independent power projects.

While Muscat’s confidence is admirable, it may need to reassess its stance in light of Dubai World’s request for a debt standstill.

Dubai’s decision not to bail out Dubai World has already knocked investor confidence throughout the Gulf.

In this context, it may not be the best time for other GCC governments to withdraw direct financial support for infrastructure projects. Japan Bank for International Co-operation (JBIC) is now asking Muscat to clarify its level of support for the Barka and Sohar schemes and Oman should think carefully.

The Japanese bank has played a pivotal role in ensuring that projects elsewhere in the region have gone ahead in a tight project finance market, demonstrating that it is one of the few lenders still willing to finance them.

In October, JBIC provided a $2.5bn loan to the Shuweihat 2 independent water and power project in Abu Dhabi. Now two of the eight groups bidding for the Barka and Sohar projects include Japanese companies, meaning they could be eligible for JBIC funding.

Given this, it would make sense for Muscat to provide the bank with some reassurance it will intervene in the unlikely event that OPWP fails to meet its financial obligations.

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