The clock is ticking far faster for Oman than for the other major oil producers in the GCC. At current extraction rates, the sultanate has just 17 years of oil production left, leaving the government no option but to accelerate its economic diversification.
Oman has traditionally been a small and stable projects market worth $6bn-8bn a year. However, the decade ahead is likely to see a significant step-up in spending as the government works towards its aim of making the non-oil sector the mainstay of the economy. Already the pipeline of unawarded projects for the next five years is almost double the total value of contracts signed in the preceding five.
Compared with its neighbours in the GCC, Oman has a small projects market. In terms of annual contract awards, it is regularly the fifth-largest market in the region behind Kuwait, but ahead of Bahrain. It is, however, by far the most stable market, rarely experiencing wide fluctuations in the value of contracts awarded each year.
In terms of annual contract awards, Oman is regularly the fifth-largest market in the region
Omans limited oil and gas reserves mean the government will never be able to match the outlay in revenues seen in the UAE or Saudi Arabia, yet it is a market where international and local contractors can benefit from specific opportunities. In recent years, these have included the sultanates airports programme, its extensive new road and expressway plans, and its wastewater and sewerage projects.
A remarkable feature of the Oman projects market is its stability. Annual contract awards over the past six years have neither exceeded $8bn nor fallen below $6bn. In 2012, the value of projects awarded was $6.6bn. The comparative stability of the projects market compared with its neighbours makes it relatively easy to forecast future project activity. However, with some large-scale projects in the pipeline, there is a distinct possibility that the sultanate could experience a substantial increase in activity over the medium term.
In terms of sectors, Oman is a relatively diverse projects market, with no one sector dominating. The transport sector is generally, but not always, the largest in terms of annual awards, followed by power, construction and water. This is primarily due to the roads and airports programme that has been implemented over the past half-decade.
Unlike other GCC states, construction is not the largest sector. Oman has a limited private sector, which makes it difficult for real estate schemes to be developed. It also does not possess the same kind of drivers for large-scale masterplanned projects as its neighbours.
The key factors triggering project activity differ from sector to sector. Strong demographic growth has resulted in high water and electricity demand growth, which in turn has required investment in power generation, desalination and wastewater facilities. Investment in these sectors is not an option, and the sultanate is expected to maintain spending in utility projects over the next decade.
Capital investment in the hydrocarbons sector has been shaped by Petroleum Development Omans objective of stabilising and maintaining oil and gas production. This has consisted of a number of major projects utilising enhanced oil recovery techniques as the sultanates main producing fields age.
Transport, and infrastructure in general, has been the major driver of project activity. The largest single contract over the past seven years was awarded for the construction of the Muscat airport terminal, while other airports at Duqm and Salalah have also been let over the same period.
The construction of new roads and the widening and upgrade of existing ones is the other key aspect of the transport investment programme. Oman is a vast country, and the government has prioritised the improvement of transportation access to remote areas as a means of accelerating economic activity.
The main findings of MEED Insights Oman Projects Market 2013 report include:
- The government is targeting downstream industrialisation, transport and tourism as ways to diversify the economy. These are the main drivers of project activity in Oman.
- In 2008-12, the sultanate awarded more than $33bn-worth of contracts. For the next five-year period to 2017, its pipeline of unawarded projects is valued at $65bn; this suggests a significant step-up in spending, although not all projects are likely to succeed.
- By and large, the projects market is dominated by government or government-linked bodies. It is hoped that the private sector will play a greater role in project development over the next decade.
- In terms of annual contract awards, Oman is regularly the fifth-largest market in the region