2-2 : Evaluation of the Natural Gas Sector Performance in the Fifth Five-Year Development Plan (1996-2000).

2-2-1: Evaluation of the Sector Performance in relation to the approved Objectives of the Plan: It can be concluded from the performance indicators of the sector during the Fifth FiveYear Development Plan, shown in Table No. (2-1), that the performance of the Sector is distinguished in relation to the increase of reserves and employment of Omanis. Certain indicators of the Sectors lagged behind the plan target due to factors directly related to the slow implementation of the development programmes of the industries based on the Natural Gas and the energy projects included in the Privatization Programme. The Fifth Five-Year Development Plan aimed at an accelerated rate of growth for the Natural Gas Sector. During the Plan period, the value added of the Sector increased from about OR. 47 million in 1995 to about OR. 102 million in 2000, with an average annual growth rate of about 16.7% compared to the target growth rate of 36.4%. The daily production rate for the associated and non-associated Natural Gas increased from about 664 million cubic feet in 1995 to about 1495 million cubic feet in 2000, i.e. with an average annual increase of about 17.6% The actual annual growth rate of the government revenues from the Gas was less during the Plan period as 3.9% compared to the target of 5.3%. This lowering in the growth rates of the value added of the Sector and the Government revenues from the Natural Gas from the planned, is attributed to the reasons mentioned above. The Sector accomplished tangible achievements in the field of reserves, where the proven reserve of the associated and non-associated Gas, increased by a gross rate of 18.1% by the end of 1995, leading to a total proven reserve of about 20.9 trillion cubic feet at the end of 2000. Also, the expected reserve increased by a total rate of 10.2% during the period to reach about 30.3 trillion cubic foot by the end of 2000. The number of Omani workers in the Sector increased from 55 employees in 1995 to about 102 employees in 2000, with an average annual rate of increase of 13.1 %, whereas the average annual increase rate achieved for the total number of workforce did not exceed 4.6% and as a result the Omanization rate in the Sector increased to about 58.6% in 2000 compared to about 39.6% in 1995.

Table No. (1-2) Economic Indicators for Gas Sector in Fifth Five Development Year Plan (1996-2000)
(Mn. R.O.)
Detail Actual 1995 1. Value Added of Sector (Mn. R.O.) Planned Actual 2. Share of Gas in GDP (%) Planned Actual 47.0 46.9 Fifth Five Year Development Plan 1996 66.0 48.4 1997 73.0 56.3 1998 81.0 62.9 1999 89.0 66.6 2000 222.0 101.6 Average Annual Growth (%) 36.4 16.7

0.9 0.9

1.2 0.8

1.2 0.9

1.2 1.2

1.3 1.1

3.4 1.3

1.6** 1.1**

3. Expected Reserve (TNSCF) Associated Non-Associated

27.5 3.0 24.5 17.7 1.4 16.3 663.8 440.3 223.5

28.3 3.0 25.4 19.1 1.4 17.8 701.8 448.8 253.0

28.5 3.1 25.3 19.1 1.4 17.7 987.1 645.5 341.6

29.1 3.3 25.9 20.4 1.5 18.9

29.3 3.3 25.9 20.4 1.6 18.9

30.3 3.7 26.6 20.9 1.9 19.0 1495.0 682.0 813.0

2.0 4.5 1.7 3.4 6.1 3.2 17.6 9.1 29.5

4. Actual Reserve (TNSCF)* Associated Non-Associated

5. Average Production (MNSCF/Day) Associated Non-Associated

1005.8 1119.1 642.8 690.3 363.0 428.8

6. Natural Gas Revenue Planned Actual

61 61

56 56

59 57

63 63

75 58

79 73

5.3 3.9

7. Share of Natural Gas in Total Revenues (%) Planned Actual

3.3 3.3

2.9 2.8

3.0 2.5

3.1 3.4

3.7 3.2

3.7 3.2

3.3*** 3.0***

8. Total Employment in Gas Sector Omani Expatriate Omanization (%)

139 55 84 39.6

135 59 76 43.7

177 86 91 48.6

175 96 79 54.9

158 90 68 57.0

174 102 72 58.6

4.6 13.1 -3.0 8.2

In P.D.O., including 0.3 TNSCF in Gulf Stream Companies area in 1998 Indicates the average share of Gas in GDP Indicates the average share of Gas in Total Revenue

2-2-2: Evaluation of the Performance of the Sector related to Policies and Mechanisms approved in the Plan: i To achieve the vision and the Sector Objectives, the Plan adopted a number of policies and mechanism which were observed during the Plan. The most important of which are : 1. Increase of the value added of the Natural Gas through the activation of approved industries depending on the Gas, wherever economically feasible: To achieve this, the Ministry of Oil and Gas allocated 3.9 trillion cubic feet of Gas for the Industrial Projects that were expected to be established during the period of the Fifth Five-Year Development Plan. A number of infrastructure projects, necessary for securing the Gas for the proposed projects in Sur, were accomplished to serve this strategy. Work is also going on to establish such services for the projects in Sohar and Salalah. 2. Encouragement of Gas exploration to increase its reserves in the Sultanate through provision of appropriate incentives to government and Private Companies: The effort of the government continued in presenting the different regions to the Oil exploration companies. The government financed and executed an intensified programme for the exploration of Gas with a total cost of about OR. 59.6 million during the Plan period. Due to this, 3.63 trillion cubic feet were added to the expected reserve of the Sultanate during the years of the Plan. The Companies were also encouraged to explore and extract Gas whenever it is economically feasible. 3. Provision of Gas locally at reasonable prices that are socially and environ mentally acceptable, provided that they are competitive to other fuel alterna tives: Gas pricing was conducted for some of the projects with prices suitable for their economies. A Gas Master Plan was prepared, through which proposals for Gas prices will be provided. The selling price of Gas to the Ministry of Electricity and Water was at a fixed price of 1.5 US $ for every thousand cubic foot. 4. Utilization of associated Gas whenever economically feasible instead of nonassociated Gas to encourage Gas conservation: The Oil Companies abided by the directives of the Ministry of Oil and Gas for the utilization of the associated Gas in its different operations. For example, the rate of exploitation of the associated Gas in the PDO fields reached about 92% in 2000 and it is expected to increase to 95% in the coming years. 5. Export of Liquefied Natural Gas to improve the balance of payments and attainment of a high value added for this resource, and giving priority to the Gas projects that achieve the highest level of value added. The implementation of the liquefied Natural Gas project, at both upstream and downstream levels was achieved according to the approved Plan. The export of liquefied Gas began in April 2000 according to the sales and purchase

agreements to South Korea, Japan and India. This will improve the balance of payments position. Also, a number of gas based industrial projects, prepared by the Ministry of Trade and Industry are under'study. The priority of these projects will be determined according to the results of the main study for the Gas Sectors. 6. Provision of allocations necessary for funding the plans and programmes of Gas exploration, and encouragement of the foreign capital to invest in the areas of Gas exploration, extraction, processing and export of Gas: The government provided the needed funds for implementing the Gas exploration programmes. The total actual approbations for the programme reached OR. 59.6 million, in comparison with OR. 42 million approved in the Plan, i.e an increase of 41.9%. Also, 13 agreements were signed with International Companies for Oil and Gas exploration. As mentioned above, about 3.9 trillion cubic feet of Gas were allocated for the Industrial projects promoted by the Ministry of Trade and Industry. 7. Sufficiency of domestic demand for Gas supplies to meet the future needs for a period of 50 years: The Ministry of Oil and Gas is carrying out intensived efforts to increase the proven reserve of Gas. The available proven reserve was distributed to meet the requirements of the Government Gas system and the Industrial projects for 25 years. This was due to the consideration that, this period is sufficient for covering the deficit through exploration programmes for Gas and importation from outside the Sultanate. 8. Conduction of technical and economic feasibility study for establishing an autonomous agency for the management and development of the Gas Sector. Oman Liquefied Natural Gas Company (OLNG) was established as a core for achieving this policy. The company will carry out the management of the government Gas system and supplying Gas to all consumers whenever that is economically feasible. 9. Promotion, so that the private sector executes the project for establishing a domestic Gas distribution system: One of the Omani companies (The Capital Company for Gas and Power) expressed its interest in establishing the project. Hence, 0.3 trillion cubic feet of gas were dedicated for the project and negotiation of Gas sale-price agreement is being conducted. 10. Preparation of a Plan for the funds required for the Gas projects, to be pre sented to the Financial Affairs and Energy Resources Council for revision and approval and speeding up the identification of the region specified for devel opment and upgrading of the petrochemical projects.: Achieve this, the following has been accomplished: Estimation of the funds required for the Gas projects necessary for the different uses.

2.Preparation of a study for Gas supply to Sohar and Salalah. 3.Establishment of Oman Gas Company to supervise the implementation of these projects. The company put forth two invitations for tenders for Gas pipes installation to Sohar and Salalah. 4.Preparation of the Gas Master Plan that will include the recommendations regarding the locations of the projects, the ethane extraction station for the Petrochemical project and the suitable Gas prices. 2-2-3: Evaluation of the Performance related to the Implementation of the Sector Investment Programme in the Plan. The actual total investment, for the up stream of the liquefied Natural Gas, during the Plan period, reached about OR. 496.2 million compared to the planned, estimated at O.R. 461.0 million. The actual investments for the liquefied gas exploration programme during the Plan period rose to O.R. 63.3 million, compared to the plan target of OR. 42 million. In the domain of the government developmental projects for the Gas Sector, the amended approbations for Sector reached about OR. 57.3 million during the Fifth FiveYear Development Plan as shown in the Table No. (2.2) below, of which OR. 38.5 million were used with implementation rate of 67.2%, though, this dose not reflect the actual implementation which exceeds that. This is because of the settlement with the Ministry of Finance has not been concluded. The major projects which were executed by the Ministry of Oil and Gas in the Sector in the Fifth Five-Year Development Plan are the followings: 1.Consulting services for the liquefied Natural Gas project worth a total amount of OR. 4.2 million. 2.Various developments for the facilities of the government Gas System at a total cost of OR. 1.2 million Table (2-2) Public Investment in Gas Sector in the Fifth Five-Year Development Plan (1996-2000)
Detail
Ongoing Projects New Projects Total Revised Allocations Mn. R.O. 26.2 31.1 57.3 Commitments Mn. R.O. 26.1 28.1 54.2 Actual Expenditure Mn. R.O. 26.1 12.4
38.5

Expenditure as (%) of Revised Allocation 99.6 39.9 67.2

2-3 : Obstacles and challenges of the Natural Gas Sector in the Sixth Five-Year Development Plan (2001-2005): In the light of the results of the analysis of the Natural Gas Sector, the performance during the Fifth Five-Year Development Plan could be summarized in the following: 1. The inability to increase the value added for the Omani Gas as targeted in the strategy of the vision: 2020 and the Fifth Five-Year Development Plan is due to

the non-implementation of gas based industrial projects and the lack of a suitable organizational, legal and an investment framework, and a clear Plan for these projects.' 2.The difficulty and complexity of the geological compositions in the Sultanate which affect the exploration of Gas and the success rate. 3.Seeking to increase the Gas reserve to comply with the domestic needs and requirements of the Industrial projects for 35-50 years. 4.Decline of the actual demand for the domestic consumption to a level less than that expected in the Plan as a result of the delay in the implementation of a number of projects such as the project of electrical stations in Barka, Al Kamil and Salalah and the other in intermediate industrial projects. 5.The high cost for the Gas development projects and infrastructure projects to supply them with Gas. Also, strong linkage between these two kinds of projects, so that establishing of the industrial projects necessitate the establishment of the infrastructure projects. Also, the uncertainty about the private sector leads to delay in implementing the required infrastructure projects and vise versa. 4 : Objectives of the Sixth Five-Year Development Plan (2001-2005) for the Natural Gas Sector: 1-1: Major Sector Objectives in the Plan: In accordance with the vision for the Natural Gas Sector, the major approved objectives for the Sector in the Sixth Five-Year Development Plan include: 1.To increase the Natural Gas reserves through prospection and exploration and proving the reserve. 2.To cover the open areas and the abandoned areas with Oil agreements for exploration and production of Oil and Gas under the umbrella of production sharing. 3.Continuance of implementing the new techniques for improvement of all areas of the Gas Sector. 4.To increase the value added of the Natural Gas, and production of 72 thousands barrel daily of Oil condensates and pursuing the processing of these condensates.
5

Upgrading and expanding the government Gas system to meet the increasing domestic demand. Encouragement of the domestic and foreign private sector to take a greater role in implementation of the Gas Sector projects.

61

Diversification of the Gas resources, through importation from neighbouring countries, if found economically feasible. 8 - Rationalization of use of the Natural Gas.
9

Provision of employment opportunities for the Omanis in the Sector. So that the Omani workforce annual growth rate attains 14.1% on average for the

Plan period and Omanization rate becomes 90.4% by the end of the Plan period. 2-4-2: Targeted Economic Indicators for the Sector in the Plan: In the light of the major objectives for the Sector in the Plan, and the assumption of implementing the approved gas based industrial projects, the Plan aims at increasing the major economic indicators of the Sector as: 1.The growth of the proven non-associated Gas during the years of the Sixth FiveYear Development Plan at an annual rate of 0.5% and the expected reserve by annual rate of 1.9%. Therefore, it is expected that the proven non-associated Gas reserve will increase from about 19.0 trillion cubic feet in 2000 to about 19.5 trillion cubic feet in 2000 to about 19.5 trillion cubic feet by the year 2005. Also, an increase of the expected reserve from 26.6 trillion cubic feet in 2000 to about 29.2 trillion cubic feet in the year 2005. 2.The annual demand for the Natural Gas is expected to grow from about 694.9 million cubic feet per day in 2000 to about 1848.7 million cubic feet per day in the year 2005 i.e. it is expected that the average annual growth of demand for the Natural Gas to reach 21.6% for the period of the Plan. 3.The domestic product for the Sector will grow during the Plan by an average rate of 16.6% to reach about OR 218.7 millionin 2005, compared to about OR. 101.6 in 2000. 4.The workforce in the Sector will grow from 174 employees in 2000 to 218 employees in 2005. Also, the number of Omani workforce in the Sector will increase from 102 in 2000 to 197 employees by 2005. The Omanization rate rises from 58.6% in 2000 to about 90.4% in 2005. The table No. (2-3) and figure (2-1) explains the targeted economic indicators for the Gas Sector in the Sixth Five-Year Development Plan (2001-2005).

Table No. (2-3) Planned Indecators for Gas Sector in the Sixth Five-Year Development Plan

(2001-2005)
Detail
Actual 2000 1. GDP of Gas Sector (Mn. R.O.) 2. Average Demand for Gas (MNSCF/Day) 3. Non-Associated Gas Reserve (TNSCF) Planned Actual 4. Total Employment in Gas Sector Omani Expatriate Omanization (%) Sixth Five-Year Development Plan 2001 2002 2003 2004 2005 Average Annual

101.6 694.9 19.0 26.6 174 102 72 58.6

146.5 1161.5 18.8 26.9 171 109 62 63.7

172.5

198.7

214.7 1815.4 19.2 28.6 214 183 31 85.5

218.7 1848.7 19.5 29.2 218 197 21 90.4

16.6 21.6 0.5 1.9 4.6 14.1 -21.8 9.0

1404.4 1711.0 19.0 27.5 186 134 52 72.0 19.1 28.0 201 159 42 79.1

*To meet the increasing demand for Natural Gas, it is expected that about 0.3 trillion cubic feet of Gas will be purchased from Gulf Stream Company wijth a total cost of OR. 38.7 million.

diagram

The alternatives presented for the distribution of the non-associated proven Gas during the Period are manifested by the following two alternatives which are also shown in Table No. (2-4) below : Table No. (2-4) Alternative Distribution of Proven Gas Reserve Among Users in the Sixth Five-Year Development Plan (2001-2006)
(TNSCF) Alternative I Uses Actual Gas Demand Ministry of Electricity and Water Ministry of Defence and Other _Local Consumers NG Project (Two Trains)
L

Alternative II Actual Gas Supply* 6.0 4.8 Deficit Actual Gas Demand 1.2 6.0 Actual Gas Supply* 4.5 1.3 7.8 Deficit 1.5

1.3 7.8

1.3 7i

0.0 0.0

1.3 7.8

0.0 0.0

Industrial Projects under the Ministry of Commerece -J^Jridustry 5.0 Total ~~ '^allocated Gas includes the qua

5.0 20.1

5.0 18.9

0.0 1.2

5.0 20.1

3.3 16.9

1.7 3.2

ntities purchased from Gulf Stream Company.

2-5: Approved Policies and Mechanisms to achieve the Sector objectives in the Sixth Five-Year Development Plan (2001-2005)
i

To achieve the Sector objectives stated in the Plan in the required manner, the Plan adopted a package of policies and mechanisms, the main of which are: 1.Intensifying the technical efforts to convert the expected reserves to proven reserves. 2.Continuance of assessment for the Gas exploration operations to ensure the optimal determination of the possible reserves. 3.Intensification and diversification of the marketing methods for the open areas and to work towards the promotion of the terms of concessions agreements. 4.Motivation and encouragement of all the Companies working in the areas of exploration and production to use the most advanced technologies and participation in transfer of technology and acquired expertises to the Companies working in the Sultanate in these areas. 5.Allocation of suitable quantities of the proven Gas reserves to the approved gasdependent industrial projects. 6.Broadening the government Gas plant in Gibal and addition of a new train and Gas compressors and drilling of new wells. 7.Provision of gas to the industrial projects at economic prices that are appropriate for the government and investors. 8.Provision of funds for the operation, amelioration and maintenance of the programmes of the government Gas system facilities. 9.Supporting Oman Gas Company. 10.Implementation and improvement of training programmes that aim to raise the technical efficiency of the national workforce in all areas, and those necessary for the provision of attentive Omani cadre and leaders in the Companies organizational Structures. 11.Optimal utilization of the expatriate workforce and in the areas where there is lack of national cadre, and supervision of Omanization ratios in all Companies together with the upgrading of the managerial and technical standards of Omani workers.

2-6: The Investment Programme for the Natural Gas in the Sixth Five-Year Development Plan (2001-2005)
It is expected that the gross investments in the investment programme for the Natural Gas for the period of the Sixth Five-Year Development Plan (2001-2005) to reach about OR. 432.0 million. The major constituents of the investment Programme for the Sector in the Plan, as indicated in Table No. (2-5) below, are as follows: 1. Total investment for the new Natural Gas projects of the Ministry of Oil and Gas for the Plan period, which are estimated at OR. 115.6 million, of which OR. 66.0 million are for the government prospection for Gas programme.

Investments of the pipeline project for Sohar and Salalah associated with Oman Gas Company which are estimated at OR. 149.4 million for the Plan period. , Cost of purchase and transportation of the Natural Gas which will be funded from the General Budget, the total of which is estimated to be about OR. 167 million for the Plan period. Table (2-5) Investment Programme for the Gas Sector in the Sixth Five-Year Development Plan

(2001-2005)
(Mn. R.O.)
Detail Sixth Five-Year Development Plan 2001 1. Ministry of Oil and Gas Projects 16.6 13.0 3.6 52.5 11.0 80.1 2002 24.6 13.0 11.6 96.9 30.0 151.5 2003 22.0 13.0 9.0 0.0 42.0 64.0 2004 30.0 14.0 16.0 0.0 42.0 72.0 2005 22.4 13.0 9.4 0.0 42.0 64.4 115.6 66.0 49.6 149.4 167.0 432.0 Total

- Exploration of Natural Gas , -Others 2. Pipe line Project to Sohar and Shalalh 3. Cost Of Purchase and Transportation of Gas Total

Chapter Two

Gas Sector
.1 : preamble:
Itanate since the dawn of the blessed renaissance, and for diversifying its resources and base focused in increasing the natural gas reserve and its maintenance. The Sultanate also to replace the other power sources by the natural gas to meet the direct demand for electrical Dwcr and its generation. The Vision for Oman's economy very much relies on the natural gas to face the challenge of dwindling oil reserves. This is in line with its fourth dimension aiming to set up the appropriate iditions for realization of economic diversification and the optimal utilization of the available itural resources, as well as the distinguished geographic location of the Sultanate.

Evaluation of the Natural Gas sector performance during the Sixth Five-Year Development Plan (2001-2005) :
: Evaluation of the performance of the sector related to the approved objectives in the can be inferred from the performance's indicators of the sector shown in Table No (2-1) that the rrnance was distinguish, particularly to that related to value added, revenues and employment of lis. Certain indicators related to reserves receded from the planned due to factors directly related thods of assessing these reserves. following is a review of the sector performance during the Plan for each approved objective.

a- Increasing natural gas reserve : The government programme for the gas exploration led to addition of about (5.3) trillion cubic feet (Tn cu ft) of natural gas during the Plan period ; (4.8) Tn cu ft by PDO and about (0.4) by Occidental company. In spite of this, the volume of the non-associated natural gas receded from the planned levels. The volume of the proven reserve and that of expected reserve receded - as illustrate in Table No (2-1) and Figure No (2-1) below - at an average annual rate of (13.3%) and (8.3%) respectively compared with the planned growth rates estimated at (0.5%) and (1.9%). is recess in volume of natural gas reserves was due to that the technical assessment procedures to decrease in the expected reserve for Seeh Roul field in PDO concession region, and use of international standards for assessment of gas reserves which stipulate that the computing of reserve volume should be based only on amounts produced.

Table No (2-1) Performance indicators for gas sector during the Sixth Five-Year Development Plan (2001-2005)
l

D e t a i l s 2001
2000

The Sixth Five-Year Plan 2004 2001 ! 2003 2005

average annualf growth rate for th| Plan period (%)

1- Value added of sector (O.R million) -Planned -Actual 2- Relative share of sector in total GDP (%) -Planned -Actual 3- Non-associated expected reserve (TnCF) -Planned

-Ex patri ate -Om aniz atio n (%)

30.3

20. 9

146.5 172.5

8 1

101.6

158.9 167.8

54 0 25

1 198.7 7 212.4 3 6 3 . 0 2.6 2.5

2.1 2.1

2.3 2.1

5 0 8

1.3

290

2 6. 9 2 7 . 5 33.4 3 4 . 2 7 7

28. 0 34.

73.4

-Actual 4- Non-associated proven reserve (TnCF) -Planned -Actual 5- Average production (MnCF/Day) -Associated -Non-associated

272 18.8 178 74 24. 3.0 60. 73. 4 2.9 4 6 45 733 0 273 460 3.2 174 102 72 58.

1 9 . 0

7 6

19.1 . 24. 6 9 852

3.

2 5 . 1

266
1

6. Natural gas revenue (O.R Million) 6 -Planned -Actual 7. Share of natural gas in total revenue (%) -Planned -Actual 8. Total employees in gas sector -Omani

587 2. 5 81 4 87. 6 0 7 2 9 3.2 2.6

7 8 9

491 340 151 69.2 214.7 247.9

2 853 288 565 218.7

27 16. 1 421.8 64 6 32. 7 2. 9 89 3. 393. 6 6 2.6 * 2.5 8

-13. 3 11.2 1.6 17. 4

85 250.9 2. 8 2. 6 3.3 504 6.2 371

133 73.6

3.9 39. 9

28. 6 33. 8

29.2

3.4 19.7 8.6 55 19. 5 0 453 97 82. 4

0.7 -8. 3

3.2 5.0 25. 9 34.7

19. 2 24.

10. 2 91 8

-1.4

6.1 7.0

' Average relative share of sector for the Plan period

Coverage of open areas and the abandoned regions with oil agreements for exploration and production of oil and gas under the umbrella of equal shares of production : The marketing of open areas resulted in signing of ten agreements with seven international companies for oil and gas exploration covering (14) concession regions. The 2005 witnessed the signing of four petroleum concession agreements with three international petroleum companies. Continuance in application of new techniques for improving all areas of the gas sector : Good results were obtained regarding drilling techniques and seismic tests for reservoirs. Such results included the techniques used to raise the extraction factor from the discovered gas fields which include the re-pumping of the gas to reservoir so as to obtain a higher extraction rate of condensed oil and gas.Also, the gas pressure technique at the surface when starting drilling. Field tests were conducted with participation of oil companies and Sultan Qaboos University (SQU). d- Increasing the value added for natural gas : The increase in value added of the natural gas through encouraging the establishment of natural gas based industries is one of the important elements of the economic diversification policy, unng the Plan period, a number of achievements were realized, whereas the liquefied natural gas (LNG) factory commenced operating at full capacity and the proceed of establishing a number of natural gas based industries such as Galahat company for LNG, Omani-Indian fertilizer company, the methanol project, and the Omani fertilizer project at Sohar

Figure No (2-2) I Value added for natural gas sector during the Sixth Fiver Year Development Plan (2001 - 2005)
____________________________________________________________________________________________________ __.

450 400-i 350 f 300 -250 147 200 159 150 100 50

2004

~3 zr

173 K,8

21 2

199 215

2 4 8

219

2001

2002

2003

2005

Planned

rj Actual

e- Upgrading and expanding the government gas system : The demand for the government gas system increased due to new consumers from power static desalination plants at Salalah, Al kamil and Barka, in addition to Raysut cement company.'? meet such increase, the Plan period witnessed upgrading and expansion of production, process! and transport of gas facilities. The main achievements realized included : Upgrading production facilities in the fields Establishment of the gas supply pipelines to both Salalah and Sohar Work began in 2002 in Seeh Nyhaida gas station project, in central of Oman, with production capacity of (20) Million cubic meters (Mn cu.m.) of gas and approximately (3.(j thousand barrels of condensate per day and commenced operating in 2005 Expansion of the government gas plant in Jybal and increasing its maximum capacity to Mn cu.m. of gas per day relative to the current capacity of (18) million.
(23)

The government gas plant expansion project had been put to bidding and working t0| implement the project of gas compressors and drilling according to the plan and schedule- I fEncouraging the local and foreign private sector to assume a greater role in implementation of the gas sector projects : The government provided several incentives for the private sector to

implement the gas base projects and negotiated the sale of gas with a number of potential investors of such projects. important achievements in this regard included : Signing of gas sale agreements to Omani-Indian fertilizer company, the methanol project a

mani fertilizer project in Sohar. ton of stations for reducing gas pressure for industrial projects to encourage vestors. ernment provided all types of support for the Omani gas company. he gov fication of the gas sources through importing from neighboring countries, if found economically feasible : fi t vears of the Plan witnessed negotiation, discussion and exchange of data and information he Emirate Company regarding the possibility of the Sultanate participation in the Dolphin ct which aims for transporting Qatar gas to the UAE An agreement was signed with the npany to provide the Sultanate with gas starting from 2008, in addition negotiation were conducted with Iran to discuss the possibility of gas import. Rationalization the use of the natural gas : The gas use, during the Plan period, was according to the needs and in a rationed manner. The ssociated gas had also been used in the fields by oil producing companies and the surplus was directed to the nearby gas facilities. The ratio of flared gas to the total produced reached about (5.54%) in 2005 compared with that in 2004 of (8.15%). 'revision of employment opportunities for Omanis in the sector, so that the Omani labour force attain an annual growth rate of (14.1%) on average for the Plan period and Omanization rate reaches (90.4%) by the end of the Plan period: The actual Omani labour force in the sector by the end of 2005 totaled about (453) compared with (102) in 2000, an average annual growth rate of (34.7%). The actual Omanization rate, by the end of 2005 reached (82.4%) which was below the targeted (90.4%), this was due to the need of expatriate labour force as result of the expansion of sector activities. Demand for the natural gas : The increase in demand for the natural gas was result of establishment of many gas based industries as well as new gas consumers whereas it increased - as illustrated in Figure No (2-1) - from about (1474) Mn cu ft per day in 2000 to (2512.4) in 2005. Thus, the average demand for gas in the Plan period increased to (2270.1) Mn cu ft per day compared with the planned estimated at (1588.2) i.e an increase of (42.9%).

. Evaluation of the sector performance related to approved policies and mechanisms in the Plan : ac ieve the sector objectives, the Plan adopted a package of policies and mechanisms which e abided to during the Plan period.The main achievements included : sifying the technical efforts to convert the expected reserves to proven reserves :

Latest technical means and application of the latest achievements of modern technology hused in order to further the reserves. Continuance of assessment for the gas exploration operations to ensure the determination of the possible reserves : The companies operating in the sector, and in coordination with MOG, conducted a continue assessment for the reserves, as well as that the international standards and measures for detent the reserves were adopted during the Plan period. Intensification and diversification of the marketing methods for the open areas and towards the promotion of the terms of concession agreements : The signed agreements were characterized by flexibility and transparency, and provided all facilities, in order to attract a large number of international companies to explore for gas Urging and encouraging all the companies operating in the areas of exploration production to use the most advanced technologies and participate in transfer of techno and acquired expertise to the companies operating in the Sultanate in these areas : In order to achieve this, field tests were conducted with participation of the oil companies SQU, which achieved good results in methods of drilling and seismic tests for reservoir addition, a centre for studies was established for development and modernization. The followed - up the new technologies and advanced techniques so as to be used in all the gas se activities for improving and upgrading the gas reservoirs, drilling, raising production facility efficiency and processing. Allocation of suitable quantities of the proven gas reserves to the gas dependant indusi projects : The MOG, and in coordination with the concerned authorities, committed to the allocatior the required amounts of natural gas for industrial projects according to the needs of each proj throughout the project life, such that it docs not affect the domestic demand for natural gas Provision of gas to the industrial projects at economic prices that are appropriate for the government and investors : It was agreed to determine an appropriate price for such projects in a manner that serve the pubt interest. Some initial agreements were signed for the sale and purchasing of gas to some pre such as the Omani-Indian fertilizer company, the methanol project, the Omani fertilizer project Sohar, Shadid iron company, Sohar aluminum company, Oman oil refinery and Sohar refinery. Provision of funds for operation, improvement and maintenance programmes government gas system facilities Financial allocations were approved for the development, improvement, operation, mainte

pffiriencv of aas facilities and work was on to raise the efficiency of establishments hance the production capacities to meet the demand for gas orting Oman Gas Company vernment provided all kinds of pysical and moral support to the Company so as to be rarrv out the required functions. Due to this, the Company accomplished a number of ortant strategic projects such as the gas pipelines to Salalah and Sohar. nlementin^ and improving training programmes that aim to raise the technical efficiency e national labour force in all areas and those necessary for the provision of attentive Omani cadres and leaders in the companies regulatory structures : achieve this, the oil companies operating in the gas area, conducted training courses, executed lining and qualification programmes for Omanis so as to work in the gas activities. Many nployees were also sent in scholarships to specialize in the gas areas, particularly the technical :as. Positive results were attained after their return regarding the required work efficiency. Optimal utilization of the expatriate labour force, and in the areas where there is lack of onal cadre, and monitoring the Omanization ratios in all companies together with the upgrading of the occupational, managerial and technical levels of the Omani employees : e companies operating in the sector recruited expatriate labour force only in the areas where Omani labour force was available. Omanis were trained and qualified in the different areas o replace the expatriates in a sedate planned manner that do not affect the production levels and work efficiency.

Evaluation of the performance related to the implementation of the sector investment programme in the Plan : The Plan anticipated that the total investments for the projects of the natural gas sector to reach O.R (432) million during its period. The following review the components of the sector's investment programme : Regarding the government developmental projects for the gas sector - as indicated in Table No below - the amended approbations at the end of December 2005 increased to about O.R (68.7) ion compared with the planned estimated at about O.R (68.4) million, an increase of O.R (0.3) The actual used reached O.R (28.3) million at an implementation rate of (41%
)

Table No (2-2) The government investments in gas sector - development budget for the Sixth Five-Year Development Plan (2001-2005)

D e t a i l

Approved

Amendments

Amended

Commitment Expenditure % iniplenieiii s 4.8 23.5 28.3

99.9|| Ongoing Projects New Projects Total 18.8 49.6 68.4 -14.0 14.3 0.3 4.8 63.9 68.7 4.8 29.1 33.9

36.71

41.|1

The major projects which were executed in the Plan for the sector were : Drilling of new gas wells in Jybal, by O.R (8.0) million Expansion of the government gas plant (train G), by O.R (6.8) million The gas line and pressure reduction station for Barka power station, by O.R (2.9) million Installation of gas compressors for wells in the government gas plant -2nd phase - by O.R^ million Regarding the budget of the government programme for gas exploration, the actual investi increased to O.R (78.1) million for the Plan period compared with the planned estimated at O. million i.e an increase of (18.3%) from the planned. With respect to the budget for cost of purchase and transport of natural gas, its approbations be divided into two parts as follows The total purchase cost of natural gas increased during the Plan period to about O.R (39.8) miUi compared with the planned estimated at O.R (38.7) million, an increase rate of (2.8%). This can be ascribed to that the project execution faltered after the Gulf Stream company (formerly) sol its concession region to another company, whereas in 2004 the allocations for gas purchase we| transferred to Oxidcntal company. The actual total approbations for natural gas transport decrease during the Plan period from O.R (128.4) as planned to O.R (58.7) million, a decrease of (54.3%). The total planned approbations for implementation of Sohar and Salalah gas pipelines during tn Plan period, totaled about O.R (149.4) million. The two projects were accomplished by the end o 2002 by the Oman gas company whereas it is the

authority undertaking the supervision and financi g of the two projects.

Chapter Four

Tourism Sector
A.1: INTRODUCTION The Tourism Sector is distinguished by its broad and strong interlacing relations with other Sectors, such as Industry, ^Agriculture and Services. The .development of the Tourism Sector leads to the activation of other Sectors an^Tgrrs^uefitly, the develop- J ment of this Sector is considered as one of the effective mechanisms for the incessant -~> qrowth of the national economy. Many countries seek the attraction of foreign investments in tourism areas through furnishing the suitable legislative environment. The Tourism Sector in the Sultanate is characterized by solid components that qualified it to take a distinctive role in accelerating processes of diversification of the production base of national economy and its activation. The most prominent component being the strategical geographical location of the Sultanate whereas, the Sultanate is located in the far South East of the Arabic Peninsula with its coasts extending to about 1700 om ete from Hormuz Strait in the North and to the boundaries adjacent to the Yemen Republic, and thus emerging at three seas which are the Arabian Gulf, Gulf of Oman and the Arabian Sea. The entire Sultanate is dotted with many of historical antiquities, fortresses and forts which are in the midst of a series of mountains and the three seas, in addition to the clean environment. The Sultanate is famous for its kindness andjiospitality of its people, political stability and Security, and the presence of tourism infrastructure in the form of hotel chains and tourism establishments. The tourist will enjoy both ancient and recent civilizations through the variety of tourism and such as caravans, cultural and medicate and diving tourisms. The vision for the Tourism Sector is related to the fourth dimension, of the vision for Oman's Economy: Oman 2020 which involves setting up of the appropriate. conditions for economic diversification, the optimal utilization of the available natural resources and the distinguished location of the Sultanate. The long term objectives for the sector's vision is as follows: Making Oman as a major hub and starting point for tourists coming to the region and the neighbouring countries. Raising the relative contribution of the Sector to 5% of the GDP. ne private sector should undertaken a leading role in tourism activities and to raise tOmani workforce, participation to 80% of the total workforce in the tourism sector

The vision 2020 for the Sector is based mainly on : 1. 2. The activities and self-constituents for Tourism Sector. The development of the International Tourism Sector

For accomplishing this vision a three dimension strategy was laid down: 1. Considering the Tourism Sector as ajuajor and important Sector that should be improved with the maintenance of the natural resources, values and cultural identity of the Omani Society. 2. Re-eyaluation of the State role in the sector activities. 3. To entrusf the primary role in the development of the sector to the private sector and the work towards the attraction of foreign capital to invest in the Sector. 2-4 : Evaluation of the Tourism Sector performance during the Fifth Five-Year Development Plan (1996-2000): 2-4-1: Evaluation of Sector performance related to the objectives approved in the Plan: The evaluation process for the Tourism Sector is restricted to the follow up and assessment of the performance indicators for the hotels and restaurants Sector, as a result of the lack of data, although the Tourism Sector is broader than this, because it involves other subsidiary Sectors. From the performance indicators of the Hotel and Restaurant Sector shown in table No. (4-1) and Figure No. (4-1) below, the following can be concluded. 1.The actual GDP for the Hotels and Restaurants Sector, in current prices, increased from OR. 46.9 million in 1995 to OR. 52.7 million in 2000, achieving an average annual growth rate of about 2.4% while the Plan Target for the other services Sectors was 4.6%. 2.The Sector during the period 1996-2000 was able to maintain its relative contribution to the GDP, which averaged 0.9%. The relative contribution decreased in the 2000 to about 0.7% as a result of the rise in GDP of Oil Sector, due to the noticeable rise in Oil prices. 3.Revenues of the Hotels increased from OR. 35 million in 1995 to OR. 46 million in 2000, at an annual average growth rate of 5.4%. 4.The total number of hotel guests increased from 352 thousands in 1995 to 710 thousands in 2000 i.e. with an average annual growth rate of 15.1%. 5.The number of nights spent increased from 880 thousands in 1995 to 1405 nights in 2000, with an average annual growth rate of 9.8%. 6.The rate of room services declined from 52% in 1995 to 42% in 2000 as a result of the tangible increase in the established facilities of the Sector, which was not met with an appropriate increase in demand for Sector services. 7.The Omani work force in the Tourism Sector increased from 730 employees in 1995 to 1509 in 2000, i.e an average annual growth rate of 15.6% and thus the Omanization rate increased to about 37% in 2000, compared to 31% in 1995.

Table No. (4-1)

Economic indicators for the Tourism Sector in the Fifth Five-Year Development Plan

(1996-2000)
Detail 1995 1996 1 2 Value Added of Sector (Mn. RO.) Share of Sector in GDP (%) 46.9 0.9 35 39 2855 352 880 52 2339 730 1609 31.2 54.1 0.9 40 52 3065 435 1089 49 3054 896 2158 29.3 Fifth Five-Yea 1997 53.1 0.9 42 64 3476 463 1158 51 3133 998 2135 31.9 1998 52.1 1.0 43 89 4657 529 1386 47 3849 1377 2472 35.8

r Plan
1999 52.0 0.9 40 102 5138 627 1341 41 3790 1385 2405 36.5

Average Annual 2000 Growth (%) 52.7 0.7 46 100 5312 710 1405 42 4093 1509 2584 36.9 2.4 0.9* 5.4 20.7 13.2 15.1 9.8 -4.2 11.8 15.6 9.9 3.4

3. Hotels Revenue (Mn. RO.) 4. Number of Hotels 5. Number of Rooms 6. Number of Occupants (Thousands) 7. Number of Nights Spent (Thousands 8. Occupancy Rate (%) 9. Total Employment in Tourism Sector a - Omani - Expatriate - Omanization (%)

* Indicates the average share of Tourism in GDP for the Plan period.

Although the Sector growth rates are less than the targeted rates, the established potentials for the Sector broadened tangibly because of : 1.The number of hotels in the Sultanate increased from 39 hotels in 1995 to 100 hotels in 2000 with average annual growth rate of 20.7%. 2.The number of Hotel rooms increased from 2855 rooms in 1995 to 5312 rooms in 2000, with an average annual growth rate of 13.2%.

4-2-2:Evaluation of the Sector Performance related to the approved policies and mechanisms in the Fifth Five-Year Development Plan: In order to improve the institutional framework for the Tourism Sector during the Plan period, the following steps were taken: 1.Introduction of a tourism fee of about 4% from the revenue of the lodging establishments and some of the restaurants and dedicating half of its returns for the development of the Tourism Sector activities. 2.Formation of a National Committee for tourism and a tourism promotion and marketing committee with most of their members from the private sector. 3.A draft Law for regulating Tourism was prepared for encouraging the private sector to invest in Tourism sector. A number of measures were taken, the most important are : a. Provision of governmental soft loan to tourism projects totaling, for the period of the Plan, about OR. 31.9 million, of which about 24.1 were gov ernment loans and 7.8 as loans from the Oman Development Bank. b. Starting the preparation of a comprehensive Plan for development of Al Sawadi resort for tourism. c. Allocation of land areas in the different Wilayats of the Sultanate for tourism purposes. Beside this, certain measures were taken to facilitate foreigners entrance to the Sultanate. A training preconception for a group of graduates of the Archeology College of Sultan Qaboos University to work as tourists guides, was presented to the Council of Ministers. A situational study on the prospect of Omanization in the Tourism Sector, and the importance of establishing a Hotel and Tourism Training Colleqe in the Sultanate. 4-2-3:Evaluation of the performance related to the Implementation of the Investment Programme of the Sector in the Fifth Five-Year Development Plan: The amended approbations for the Sector in the Fifth Five-Year Development Plan reached about OR. 15.8 million, as indicated in Table No. (4-2). About OR 8.8 million were used, with an implementation rate of 55.7%. The main projects implemented in this Sector are the following: 1.Al Filaj Castle theatre, at a cost of about OR. 1.2 million. 2.Promotion and Marketing Programme for Tourism, at OR. 0.5 million.

Table No. (4-2) Public Investment Tourism Sector in the Fifth Five-Year Development Plan (1996-2000)
Detail Ongoing Projects New Projects Total Revised Allocations Mn. R.O. 11.6 4.2 15.8 Commitments Mn. R.O. 8.6 2.2 10.8 Actual Expenditure Mn. R.O. 6.8 2.0 8.8 Expenditure as (%) of Revised Allocation 58.6% 47.6% 55.7%

4-3: Challenges and Obstacles facing the Tourism Sector during the Sixth Five-Year Development Plan period (2001-2005): It could be concluded from the evaluation results of the Tourism Sector performance in the Fifth Five-Year Development Plan, and the expectations related to the improvement of the Tourism Sector internationally, specially those countries competing with the Sultanate, that the sector will face during the Sixth Five-Year Development Plan period the following: 1 Shortage of tourism infrastructure services, specially those of roads, electricity and Communication Services, etc. 2.Red tape in the Government resulting in delay in granting license for allocation of tourism areas and the procedure to obtain tourist visa. 3.Lack of educational establishments specialized in tourism field to prepare the trained Omani workforce. 4.The limited foreign and local investment in the Tourism Sector and insufficient promotion for the Tourism Projects. 5.Lack of complete entertainment facilities. 6.High tourism services prices compared to other touristic countries in Africa and Asia. [J; The private sector is lacking an effective professional institution due to the shortage of qualified and competent cadre.

8. Increased touristic loss attributed to that, the production inputs such as foodstuffs, preparations and workforce are mainly imported, which leads to that remittance of most of the revenues generated from tourism.

4-4: Objectives of the Tourism Sector in the Sixth Five-Year Development Plan: In accordance with the vision for Oman's Economy: Oman 2020, and its long term objectives related to the Tourism Sector, and depending on the abilities relished by the sector, and based on the analysis results of the expectations related to the international tourism market, the following objectives are formulated for the sector in the Sixth FiveYear Development Plan: 1. 2. To achieve an average annual growth rate of 6.1%. Activation of the private sector role and increase of its contribution to the Sector development. Maintaining the social, environmental and cultural factors to accomplish the Sector's sustainable development. Achieving a regional balance in tourism development. Development of Omani workforce to meet the expected increase in the demand labour in the sector on the one hand and increase of the rate of Omanization 50% on the other. angmg self-funding resource for the projects aiming for sector development.

4-5: Policies and mechanisms to achieve the sector objectives in the Sixth Five-Year Development Plan:
To overcome the challenges facing the sector and preparation of the appropriate climate for the activation of the sector role in diversifying the national income sources, and to achieve its planned objectives, The Sixth Five-Year Development Plan adopted a number of policies and mechanisms that include the followings: 1.Preparation of a National Strategy for Tourism Sector development in the Sultanate and to work towards securing a statistical system and establishing a complete database about the activities of the sector to help in preparation of the integrated system for account (T.S.A.) for the sector. 2.Facilitating the procedures related to tourists attraction. 3.Developing the infrastructure in the different tourism estates. 4.Diversification of product, though creation of new modes of tourism. 5.Continuance of establishing integrated touristic projects similar to the Sawadi proposed Project in the other regions. 6.More attention to tourism marketing and promotion. 7.Redistribution of the tourism charges, so that 3% to be allocated for Tourism Sector, 1% for the Ministry of National Heritage and culture, in order to improve the sector and enable it to contribute to self funding of its projects such that the outcome from these charges be directed to the expenditure aspects that guarantee sector improvement and defining the appropriate mechanism for following-up. 8.Endeavoring to establish a tourism college at diploma level and considering the possibility of introducing tourism specialization in Sultan Qaboos University. 9.The Ministry of Commerce and Industry, in coordination with the Ministry of Finance, Transport and Housing, should study the appropriate means regarding the ownership and use of tourism lands for investors in the tourism projects. 10.Encouraging the private sector to establish entertainment and services facilities in touristic areas. 11.Encouraging the internal tourism through preparation of a guide for the tourist areas and intensification of use of media to inform the public about touristic locations. 12.Accomplishing the sustainable development through the sound environmental planning to preserve the natural resources consistent with the environmental, social and cultural factors while planning for tourism development.

4-6: The Investment Programme for Tourism Sector in the Sixth Five-Year Development Plan:
The Tourism Sector is considered to be one of the sectors that received a special treatment in the investment programme for the Sixth Five-Year Development Plan, so as to enable it to achieve its ambitious objectives. In the domain of the investment programme for the government sector in the Plan,the total approbations for the sector in the development programme for the Plan periwere OR. 57.6 million as. an independent project for tourism development. These approbations will be approved depending on the actual economic feasibility studies for these projects. It is expected that the private sector, during the Plan period, will invest about OR. 122.8 million in the Tourism Sector aiming to furnish about 3000 rooms, and establish other touristic facilities. Some of the most important new projects of the sector in the plan are: 1.Al Sawadi touristic project, which is expected to include 5 star hotels and golf course. 2.Bander Al-Jasa Resort Project to be constructed in Aljasa area in Muscat. It includes four touristic grand hotels consisting of more than 700 suites and rooms of varying in sizes and levels.

Ch apt

er Four

Tourism Sector

preamble :
Itanate's tourism sector is characterized by constituents that qualified it to take a distinctive -derating processes of diversification of the production base of national economy and of other sectors due to its interlacing relations with industry, agriculture and services. development of the sector is considered as one of the effective mechanisms for the incessant of the national economy. The Plan awarded special attention to tourism whereas it aimed ieve an average annual growth rate of (6.1%) in addition to other objectives, policies and misms to achieve it. The following paragraphs review the evaluation of the sector performance P l a n . It is important to mention that the evaluation process for the sector is restricted to the follow-up assessment of the performance indicators for the hotels and restaurants sector, as a result of the k of integrated accounts system (TSA) for tourism sector, although the sector domain is broader i this as it involves other subsidiary sectors such as tourist guidance, travel and tourism agencies, a i r l i n e s a

n d c a r r e n t a l .

: Evaluation of the tourism sector performance during the Sixth Five-Year Development Plan (20012005) :
: Evaluation of the sector performance related to the approved objectives in the Plan : From the followings it could be inferred that the performance of the sector was good, related to alization of approved objectives as for targeted growth rates and other objectives : To achieve an average annual growth rate of (6.1%) : The economic indicators for the sector performance illustrated in Table No (4-1) below, indicate the followings: The actual GDP (sector value added), at current prices, increased from O.R (54) million in 2000 to O.R (86.7) million in 2005 achieving an average annual growth rate of about (9.9%), hence the sector exceeded its planned growth rate estimated at (6.1%) by a large margin. owever, the performance of the sector was marked by slowdown in growth rates during the first three years as result of September 11th events and the price war between the hotels. The growth rates accelerated strongly in the last two years driven by improved international economy performance, particularly of the GCC States economics, efforts of the Ministry Tourism (MT) related to tourism promotion of the Sultanate and addressing the issue of price war between hotels. The Figure No (4-1) below

indicates the sector actual value added compared with the planned for the Plan period

Dispite the increase in sector growth rates, its relative share in the GDP at current prices ecreased slightly from that planned estimated at about an average of (0.8%) to (0.7%). This ould be ascribed to the increase in oil sector growth rates from the planned due to the increase of oil prices and strong growth of the other non-oil sectors. The Plan period witnessed positive developments in the other economic indicators of the sector, whereas : Revenues of hotels increased from O.R (45.7)million in 2000 to O.R (78.6) million in 2005 i.e an average annual growth rate of (11.5%). The number of hotels and residential facilities increased from (100) in 2000 to (153) in 2005. The number of hotel rooms increased by rate of (6.4%) whereas it increased from (5312) in 2000 to (7247) in 2005. The number of hotels guests increased from (710) thousand in 2000 to (1408) thousand in 2005 i.e an average annual growth rate of (14.7%), while the number Kof tourist nights increased by an average annual growth rate of (4.5%). Room occupants increased from (42%) in 2000 to (47%) in 2005.lt is worth mentioning that there was a marked improvement in room occupancy during 2005 compared with 2004. The occupancy in the five and four stars hotels reached about (69%) in 2005 reflecting the high level of tourists visiting the Sultanate. pment f national labour force to meet the expected increase in sector volume on the one hand and increasing Omanization rate to (50%) on the other : The total number of employees in hotels increased from (4093) in 2000 to (5366) in 2005, anaverage annual growth rate of (5.6%), and was (11.1%) for national labour force and (1.7%) for expatriates. Accordingly, Omanization rate increased from (36.9%) in 2000 to (47.7%) in 2005 which was close to the targeted of (50%).

The important achievements related to qualification and training are manifested in the] fallowing:

Establishment of Oman Academy for Tourism and Hospitality in November 2001 to] provide the qualified Omani cadre in all specialties. -Establishment of Tourism department in College of Arts -SQU -The Omani private sector, through the National Institute for Hospitality, provided short'] training courses in a number of tourism areas ranging between (3) months to an year. c- Activation of the private sector role and increase of its contribution to the sector of development: Ministry of Tourism implemented a number of procedures beside continuance of the support and! encouragement policies introduced during the Fifth Five-Year Plan which were as follows : The government continuous commitment to provision of soft loans to private sector including establishing tourism projects at the different regions. The total government loans to private sector totaled about O.R (46) million during the Plan period. The government, also provided loans to the private sector for investment in tourism field through ODB. The total amount of loans during the Plan period reached about O.R (923) thousand. Other forms of support provided by the government included : -Mirbat tourist village, by O.R (4) million -Barr Al-Jissah project, by O.R (5) million -Muscat golf playground, by O.R (3) million. Through the private investment promotion and protection law, a set of advantages exemptions were provided to the private sector which include exemption from taxes jffl business profits for a period of (5) years subject to renewal for another (5) years The government's contribution to the implementation of infrastructure facilities for tounsn projects that serve the tourism sector Activating cooperation between private sector establishments operating in the field .J tourism and the Ministry of Tourism (MT) with respect to the marketing programmes oil Sultanate Allocation of tourist lands under the law regulating land usufruct in the Sultanate art | amendments. Rent is for (50) years subject to renewal, in addition the investor is exemp s from rent for (5) years and nominal rents ranging between (50-300) Pisa per sq.m acco to the Wilayats. Allowing foreigners to own housing units or investment in integrated tourist comply

btaining environmental approvals from concerned authorities before execution of the tourism project. Implementing environmental tourism projects in some of the tourist locations Jenefiting from the heritage sites for holding cultural events according to an annual programme.
Achieving regional balance in t o u r i s m development : MT sought to implement tourist projects in the various govcrnorates and regions of the Sultanate. Such projects include Ban- Al Jissah resort in Muscat governorate, Mirbat coastal village in Dohfar governorate, Al I luta cave in the Ad Dakhlyah region, establishing two hotels in Msandam governorate. setting tourist plots in a number of the Sultanate regions such as Ras Alhad ii Wilayat Sur,Wilayat Shinas. Al Sawadi area and Wilayat Salalah. In addition to, establishment of tourist and services u t i l i t i e s in a number of the Sultanate Wilayats and regions such as Khasab, Diba, Masirah, eL Jabal el Akhadar. Jabal Shams. Wadi bani Khalid and Ar- Rustauq. reation of self-finance resources for the projects aiming for sector development: The sector was able to realize financial resources from chargeing (4%) on tourist establishments (hotels, tourist restaurants) ; (3%) were for MT and (1%) for Ministry of Heritage and Culture (MHC). The tourist charges contributed to creation of additional financial resources for the Sector. Their total proceeds reached about O.R (1.7) million, and were used for covering part of the cost of the marketing programmes and execution of a number of tourism services projects.

Evaluation of the sector performance related to approved policies and mechanisms in the Plan : e Flan period was distinguished by wide strides undertaken to accelerate the development of tourism sector, whereas the Tourism Law was approved under the Royal Decree No 33/2002 and ibhshment of Ministry of Tourism under the Royal Decree No 61/2004. In addition, most of the PProved policies and mechanisms were accomplished which include : reparation of a national strategy for tourism sector development: is regard, an action plan regarding the identification of tourism priorities (Plan Action Priority)

was prepared together with a strategic plan for tourist marketing with assistance from Consultancy Finn (IDI). b- Work towards provision of a statistical system and establishing an integrated da regarding the sector activities for accessing an integrated account system (TSA): For upgrading of the tourism sector statistical system, the MT in collaboration with Miif National Economy conducted statistical surveys for the number of tourists and their expeij all over the Sultanate, in addition to Kharif Salalah surveys. In spite of these efforts, till} final TSA was not accessed.This could be ascribed to the interlacing components of rhef lack of specialized cadre and multiple authorities responsible from tourism statistics expected that the Ministry in cooperation with Ministry of National Economy be able to pj a statistical system and establishing an integrated database by the end of 2007, particular! the conduction of surveys which were needed for TSA. c- Facilitating the Sultanate entrance procedures: The MT coordinated with concerned authorities in ROP in regard to the tourists' en! procedures. A number of new procedures and measures were approved and were in force mid of 2003 which include : (63) countries' citizens can access entry visa from the Sultanate consulates abroad local sponsor and pre-approval of the directorates general of passports and residence, issuing visa. (15) countries' citizens can access tourist visas from directorate general of passports residence or any of its branches on the local sponsor request and under his responsibiltj| administration is obliged to take decision within two days from receipt of request. Transit travelers of all nationalities could obtain a (72) hour transit visa at As- Seeb internal! airport under sponsorship of the airlines. Residents of GCC States were permitted entrance by a visa obtained at entrance gj reduced fees.Also, travelers on tourist ships could land at reduced fees d- Tourism promotion and marketing : In 2001, the government formulated a tourism promotion and marketing strategy g included a comprehensive study for the tourism sector in the Sultanate. According j results of the study, points of weakness, strengths, competition and available oppo for the Sultanate to appear as a distinguished tourist hub were determined. A num.., marketing and promotion programmes were prepared to highlight the Sultanate m potentials. The important programmes and activities executed by the Ministry in include : tourism exhibitions, observance for activities of conferences' tourism support, holding training courses and mobile fairs, opening of a number of tourism co abroad, issuance of tourist booklets, publications and maps, media adds and announ supporting, patronizing the establishment and organization of tourist events

Structure facilities in the tourism sites : local and external investments for establishing tourism projects, the government infrastructure facilities to the outside boundaries of the project, while the investor ute the internal facilities. Many projects on this regard were executed which include electricity supply, some roads lighting, construction of toilets and other services. The tourism r through the approved allocations, participated in these projects whereas its contribution ached about O.R (24) million. versification of product through creation of new modes of tourism : ttract larger number of tourists, the MT executed a number of environmental, cultural and eriture tourism projects. Environmental tourism projects included the camping centre at Jabal Shams, the tourist centre at Miqaisl and Wadi bani Khalid, adventure projects included the mountain path and mountain nbing projects, and for the culture tourism, the Al Falij theatre in Wilayat Barka was opened presented many cultural events. savoring to establish a tourism college at diploma level and considering the possibility of introducing tourism specialization in SQU: nan Tourism and Hospitality Academy was established in 2001 and a tourism department College of Arts in SQU was established in the academic year 2001/2002 which offers Bsc degree. Encouraging internal tourism : Entry of Tourism awarded great importance for developing and improving internal tourism. In is regard, the Ministry executed a number of projects and activities which included : Wing many tourist gatherings in a number of regions and Wilayats which included regions of Ash Sharqiyah, Ad Dakhliyah and Ad Dahirah. Execution of the guidance signboards project for tourism sites in Ash Sharqiyah, Ad Dakhliyah and along Muscat-Salalah road. tnting and distributing of tourism booklets to some of the Sultanate regions comprising detailed information for tourism sites in each region, stabhshing youth houses in Niabt Al Ashikhira (Ash Sharqiyah region), Sahnout (Dohfar ^ernorate) for provision of residential facilities at suitable rates, in addition to youth houses Project in Ad Dakhliyah region which will be executed this year. gning work for the establishment of a number of bathrooms in many tourist sites in or mation with Ministry of Regional Municipalities, Environment and Water Resources (MRMEWR).

Completion of Sultanate of Oman Tourism Map for benefit of all those concern" internal tourism. Maintenance, reparation and furnishing of a number of forts and castles appended! Ministry and introduction of visual and sound effects to attract nationals and resident Establishing many projects that serve internal tourism such as rehabilitation of paths, preparation of (60) sites for mountain climbing sport, development of some hi villages to facilitate their reach by nationals and residents and paving some of tbf leading to tourist sites. Establishing service utilities in Wadis and other suitable sites such as Wadi bani H Wadi Shab, el Jabal el Akhadar, Jabal Shams, Al Muqasil, Khor Rouri and Ain Al Ka iEncouraging the private sector to establish entertainment and services facilities ing sites : Not much was achieved regarding this policy, and private sector was reluctant to enter 1 investments due to the low profits of this type of projects particularly those related! entertainment and plays, and the weak purchasing power in the Wilayats. The Minisj coordination with concerned authorities sought to overcome these obstacles so as to enc| the establishment of such entertainment facilities. jUsufruct of tourism lands for investors in the tourism projects: The council for economic coordination approved flexible and attractive mechanism fori lands through granting the land usufruct by the investor for (50) years subject to renewal,'! an annual nominal rate of (300) Pisa per sq.m. in Muscat and Dohfar govemorate and (10| per sq.m in the other regions.The investor was also exempted from rent for five years froj of signing the usufruct agreement. Currently, the programme for investment incentives isj revision to be amended in a form that encourage the foreign investor. k- Encouraging the establishment of integrated tourist projects : The MT adopted the concept of integrated tourist projects, and Barr Al Jissah resort, in y construction works began during the Plan period, comes as the first project of this integ tourism projects 4-2-3 : Evaluation of the performance related to the implementation of the sector invest*1 programme in the Plan : a- The government investment programme : The amended approbations - as indicated in Table No (4- 2) below - reached about 0.1 *. million compared with the original approbations of O.R (65.3) million i.e a decrease or (. This reduction could be attributed to that some of the constituents of tourism develep programmes were converted to concerned sectors which might serve the tourism sc jm as roads projects and others.The actual expenditure at the end of December 2005 tota (31) million i.e an implementation rate of (48.2%) and the reduction was due to that allot

loping and marketing the tourism sector in the Sultanate, by O.R (5.5) million, jblishment of the local theater at Salalah, by O.R (3.7) million ! Bustan Palace Hotel development, by O.R (2.7) million Al Huta Cave development, by O.R (1.7) million Renovations in Muscat Intercontinental Hotel, by O.R (1.1) million tablishment of a hotel in Khasab (Vlsandam governorate), by O.R (2.1) million. Tabic No (4-2) Government investments in tourism sector in the Sixth Five-Year Development Plan (2001-2005)
(Mn. R.O.) % implementation

Approved ojects 7.7 ' '57.5

Amendments

Amended

Commitment s 6.6 33.4 40.0

Expenditure

-1.1 0.1 -1.0

6.6 57.6 64.3

6.3 24.6 31.0

95.1% 42.8% 48.2%

5.3

rhe private sector investment programme : overnment encouraged private sector investing in the tourism sector through formulation of laws, policies, procedures and incentives which attract it. 2 local and foreign private investment estimates reached about O.R (113) million for pishing a number of tourist projects. The private sector, with support from the government, ' to execute or commence executing many mega tourist projects which their investment ost exceeded O.R (90) mi l l i o n . The most important of these projects were : BarrAUissah tourist resort The first phase of Mirbat tourist resort Cheddi resort im er of hotels and hotel apartments projects in the different Wilayats ing clubs .

Div

Chapter One

Oil Sector
1-1 : INTRODUCTION
The Oil Sector emerges, among all economic sectors as the most important sector according to its contribution to the gross domestic product (GDP), export earnings and government revenues. The importance of the Sector, also stems from its strong indirect effect on the various national economic sectors. First through the circulation of its revenues internally by government expenditure, and secondly through its forward and backward linkages with other sectors. The two prominent features of the Oil are its fluctuation in international price and non-renewable nature. In accordance with this Oman's development strategy aims at reducing the dependence on oil through diversification of the national economy's production base. The vision for the sector is reliant on achieving the optimal utilization of the national wealth of the Oil reserves through determining the production level that secures the required revenues to meet the burdens of development without interfering with the required technical measures and taking into consideration the importance of oil for the future generations. The vision aims at diversifying the production base, so that the Oil sector contribution to GDP be decreased from 33.5% in 1995 to about 9% in 2020. The most important elements of the approved strategy for achieving the Sector vision are: 1 Utilization of the most effective procedures that could enable the sector to increase the Oil reserve in a continuous manner and maximizing its revenues and rationalizing its costs. 2. Working towards achieving a higher value added for the Oil resource through its interlacement with other Sectors, specially for export-oriented refining and purification operations. A continuous work towards increasing Oil reserves. 4. A stable Oil policy for the Sultanate and aligning its development more closely with the policies adopted at the international level so that the oil giants are insinuated to invest in the Sultanate. on inuance of granting concessions for exploration and production in future under e umbrella of equal production sharing agreements so that the state need not 3Ve to bear the risks encountered during the exploration stage. work towards obtaining the best revenue to the state through the proportions or recovery of costs and sharing of production in the new agreements.

5.

6.

2.The contribution of PDO to total production was about 93.7% followed by Oxy by 4.7%, Japex 0.9%, Noves 0.4% and Petrogas (formerly ELF) 0.3%. 3.The increased production, above that targeted bV the Plan, was a direct result of the efforts represented by: -Addition of new 18 fields to the production lines. -Drilling of more than thousand development wells. -Usage of secondary techniques for improving some of the production fields, such as injection with water or gas which led to increase in the rate of extraction. Oil Agreements : Within the framework of the objectives of the Plan aiming to increase the reserved Oil, and the government policies aiming to encourage the International Oil Companies to invest in the areas of exploration and production of Oil, thirteen new agreements were signed during the Plan period covering fourteen regions; three of which were off-shore areas and others offshore, land-areas. Oil Exploration : In accordance with the Plan objectives aiming to increase the Oil reserves, continuous efforts were intensified in the area of exploration during the Plan period. These efforts resulted in adding about 359 million barrel of Oil and condensates to the proven reserve of the Oil. Increasing the proven reserves: The plan aimed at increasing the proven reserve of Oil yearly to exceed the annual production. The sector performance shoed that the volume of the proven reserve of Oil increased from 5.2 billion barrel at the end of the 1995 to about 5.8 billion barrel by the end of 2000, i.e. a total increase of 11.5%. This increase in the reserve was due to the methods employed for revising the reserve assessments and the exploration efforts. Due to this increase, it was possible to maintain the depletion factor in the general reserve for PDO below 6.5% per year inspite of the increase production levels. Reduction of cost of production : The Plan concentrated on the importance of reducing the cost of production. The average cost of production was reduced for PDO, during the period (1996-2000), to about 3.6 US dollar/barrel compared to the planned average of 3.7 US dollar/barrel. This decrease was a result of the optimal utilization of the utilities and establishment and a lower paid workforce. Sector value added and exports. The plan expected that, the value added for the Oil sector will retract during its period by an annual average rate of about 0.7%.

Table No. (1-1) The Major Economic Indicators for the Performance of the Oil Sector in the Fifth Five-Year Development Plan (1996-2000)
(Mn. R.O.) i Details 1995 The Fifth Five-Year Development Plan 1996 1. Average price (US S Per Barrel ) Planned Actual 16.4 16.4 15.0 19.4 1997 15.0 18.6 1998 15.0 11.9 1999 15.0 17.4 2000 15.0 26.7 Annual Average for the period 15.0 18.8

2. Average daily production (Thousand Barreis) Planned Actual 3. Value Added Of Sector Planned Actual 4. 5. Annual Growth Rate Of Sector (%) Planned Actual Share Of Sector in Total GDP (%) Planned Actual

853.0 852.0

878.0 885.0

888.0 904.0

882.0 899.0

878.0 904.0

875.0 *955

880.2 909.4

1974.0 1908.0 1924.0 1915.0 1905.0 1909.0 1973.2 2416.5 2387.3 1609.7 2299.2 3618.3

1912.2 2466.2

12.8 12.8

-3.3 22.5

0.8 -1.2

-0.5 -32.6

-0.5 42.8

0.2 57.4

0.7** 12.9**

37.3 37.2

33.7 41.1 4.8 4.7

31.0 39.2

28.7 29.7

28.1 38.1

28.8 47.5

30.1 39.1

6. Production Cost per Unit for Government (US S / Barrel) Planned Actual 7. Production Cost per Unit for Company (US S / Barrel) Planned Actual 8. Total Government Oil Revenue Planned Actual 9. Net Government Oil Revenue Planned Actual

5.1 4.5

4.7 4.8

5.0 4.6

4.6 4.5

4.5 5.2

4.7 4.8

4.0 3.6

3.7 3.5

3.7 3.7

3.8 3.7

3.8 3.6

3.6 3.5

3.7 3.6

1549.0 1504.0 1533.0 1528.0 1523.0 1522.0 1549.0 1901.7 1996.4 1266.2 1642.6 2855.7

1522.0 1932.5

1373.0 1473.0 1502.0 1496.0 1491.0 1491.0 1372.7 1473.0 1748.9 1240.2 1201.6 1721.0

1490.6 1476.9

10. Crude Oil Exports Planned Actual 11. Proven Reserve of Oil (Billion barrel ) 12. Total number of Employees in Exploration & Production Companies Omani Expatriate Omanization (%)

1828.0 1782.0 1803.0 1791.0 1782.0 1776.0 1800.9 2275.0 2234.0 1430.0 2127.0 3426.0

1786.8 2298.4

5.2

5.2

5.4

5.6

5.7

5.8

5.5**

5041 3567 1474 70.8

4936 3583 1353 72.6

4762 3483 1279 73.1

4657 3473 1184 74.6

4367 3333 1034 76.3

4152 3310 842. 79.7

-3.8** -1.5** -10.6** 2.4**

The performance of the Sector regarding this expectation, was very distinguished. The sector value added increased during the plan period from about OR. 1973.2 million in 1999 to about OR. 3618.3 million in 2000 reflecting an average annual increase of about 12.9% compared to the planned retraction rate estimated at about 0.7%. Hence, the relative contribution of the Sector to the GDP increased in 2000 to about 47.5% compared to 28.8% in the plan. The value added for the sector in 1998 was below the plan projection of 15.9% as the oil price reduced to US $ 11.9 per barrel as compared to the plan projection of US $ 15 per barrel. The crude Oil exports increased from about OR. 1800.9 million, in 1995 to about OR. 3426.0 million in 2000, reflecting an average annual increase of 13.7%, although the Plan expected an annual retraction value for these exports by an average annual rate of 0.6%. The increase in the growth rates of the value added and exports of the Oil Sector during the Plan period, are attributable to the increase in the average price of Oil from the prices assumed in the Plan (US $15) since its average for the period reached about US $ 18.8 per barrel. The increase in oil prices made the general budget of the State healthier. The annual average government revenue from oil was 27% more than the plan projection. It was OR 1932.5 million as against the plan projection of OR 1522 million. g. Oil Industries (Refining) The Plan aimed at increasing the value added for the Omani Oil, and accordingly, the Oman Refinery Company (ORC) continued to meet the domestic consumption for most of the Oil products. The Company production increased from about 26.5 million barrel in 1995 to about 28.6 million barrel in 2000. It is worth mentioning that the decreased production of the company in 1997 to about 23.8 million barrel was due to the temporary closure of the refinery for maintenance purposes. h. Omanization: Within the framework of the objectives of the Plan aiming at the development of the Human Resources, the companies working in the area of Oil exploration and production increased the rate of Omanization. The Omanization rate in these Companies increased from about 70.8% in 1995 to 79.7% in 2000. It is important to mention that the number, of workforce in the Sector continue -to decrease gradually during the Plan period as a result of the decreasing d rationing of costs policies. The workforce decreased from 5041 employes in 1995 to about 4152 employees in 2000 i.e. a total reduction of 17.6>--Oue to the Omanization policies, observed by the Companies working the sector the reduction rates varied between Omani and the expatri? ~he Omani

workforce decreased, during the Plan period by an annual value not exceeding an average of 1.5%, being reduced from 3567 employees in 1995 to about 3310 employees in 2000. Whereas thaf of the expatriate was of an average of 10.6% as a result of the decrease from 1474 employees in 1995 to about 842 employees in 2000. 1-2-2: Evaluation of the sector performance in relation to the approved objectives of the Plan: During the Fifth Five-Year Development Plan many of the approved policies and mechanisms were implemented. The most important of these are : a. Continuance of studying and revising the costs for all Companies working in the area of exploration and production and comparing them with the costs at the regional and international levels. The following was accomplished: Revision of all annual proposed budgets by the Companies and thereafter amended or approved. Evaluation of the tenders submitted by the construction companies for the projects to be executed by these companies: Participation of the Oil Companies working in the Sultanate with the International Companies in studying and comparing the costs by a third party. Organizing periodic meetings for Gulf Cooperation Council (GCC) Oil Companies in the areas of drilling and production operations aiming at cooperation, development of work and rationing of expenditure. b. Implementation and development of the Omanization Programmes and opti mal utilization of foreign workforce: The Companies, working in the Oil area sought raising the Omanization rates as indicated in Section 1-2-1 above, together with employment of expatriate workforce with lower wages and as a result lowered their costs. To increase Omanization rates, the PDO undertakes programmes for developing and training Omanis, and allocates approximately US$ 32.7 million annually for training, and imposed an Omanization Plan to be strictly followed by the contracted Companies working for it. c. Securing the required financial approbations for continuance of exploration development and production operations by PDO as per the approved technical programmes and in accordance with budgets submitted by the company: The required finance has been provided in order to implement the projects in coordination with the concerned government units. The budget for the exploration was reduced during the years 1998 and 1999 by about US$ 125 million in accordance with the reduction and rationalization of government expenditure, which was approved by the government in 1998 in order to face the situation arising from the significant decline in the Oil prices.

, Rationalization of expenditure for the different exploration and production operations through the usage of latest technology: The following were achieved : i Usage of the three dimensional surveys which resulted in lowering of costs. Horizontal drilling which contributed to raising levels of production of the horizontal wells. Application of advanced technology to reduce the cost of wells' drilling and design operations. Optimal utilization of the mechanical lifting which helped in the improvement of the productivity of wells. e. Continuous evaluation for the plans of associated water disposal and observance of implementation of laws and regulations of environment conservation: The Oil Companies apply the laws and regulations regarding the maintenance of the environment through setting up plans for disposal of associated water and approving them by the units concerned, together with issuing periodic reports containing all information and specifications to be presented to the concerned units. 1-2-3: Evaluation of the Performance related to the Implementation of the Sector Investment Programme in the Plan : The actual capital costs for the Oil Companies decreased during the period 19962000, as shown in the table No. 1-2 below, to about OR. 1492.5 million, compared to the planned cost for the same period which was estimated to be about OR. 1679.7 million, i.e. with an implementation rate of about 88.9%. This decrease in the capital expenditure for the Oil Companies is attributed to the reduction in the Oil prices in 1998. The actual total capital costs for the PDO, for the period 1996-2000 amounted to about OR. 1403.3 million realizing an implementation rate, compared to the Planned, of about 97.4%. The implementation rate for the other Oil Companies did not exceed 37.3%. Their total actual capital costs for the period 1996-2000 were about OR. 89.2 million, compared to the planned estimated at about OR. 239 million.

Table (1-2) Planned and Actual Capital Costs for the Crude Oil Companies during the Fifth Five-Year Development Plan (1996-2000) (OR. Million) Detail 1996 1997 1998 1999 2000 Total of Plan Total Capital Costs 1440.7 1403.3 239.0 89.2 37.3% 345.0 285.8 344.0 257.8 340.0 324.0 333.0 300.7 317.7 324.2 1679.7 1492.5 88.9% Performance Ratio (Actual/Planned)%

1. 2. -

P.D.O. Planned Actual Other Oil Companies Planned Actual

298.0 271.2 47.0 14.6

298.0 234.2 46.0 23.6

293.0 298.8 47.0 25.2

285.0 291.5 48.0 9.2

266.7 307.6 51.0 16.6

97.4%

Total of Crude Oil (1+2) Planned Actual

In the domain of the government investment programme for the Oil Sector, excluding the PDO, as indicated in table No. (1-3), the total amended approbations for the Sector, which involve the allotments of the Ministry of Oil and Gas for the maintenance projects and maintaining the pumping lines and pipes for the Plan period, amounted to about OR. 1.5 million for the Plan period. Of this amount about OR. 0.4 million were used with an implementation rate of 26.7%. It is important to mention that this rate does not reflect a slackening in implementation, but rather a delay in completing the settlement operations between the implementing Companies and PDO and the Ministry of Finance.
Table (1-3) The Government Investments for the Oil Sector in the Fifth Five-Year Development Plan (1996-2000) Detail Ongoing Projects New Projects Total Revised Allocations Mn. R.O. 0.0 1.5 1.5 Commitments Mn. R.O. 0.0 0.5 0.5 Actual Expenditure Mn. R.O. 0.0 0.4 0.4 Expenditure as (%) of Revised Allocation 0.0% 26.7% 26.7%

1-3:

Challenges and Obstacles of the Sector in the Sixth Five-Year Development Plan :

It could be concluded from the results of the evaluation of the performance of the Oil Sector in the Fifth Five-Year Development Plan, that the Sector will face a number of challenges and obstacles during the coming Plan period, arising from volatility of Oil prices, from one side, and necessity of working towards reduction of cost of production from the other side. The major challenges are as follows: 1.Providing the appropriate methods and procedures to raise the extractable level, from the heavy Oil of high viscosity. 2.The optimal utilization of the associated natural gas and engendering the best

methods for disposal of the water produced with the Oil in accordance with the laws and regulations concerning the environment. 3.A higher Relative cost of production per unit of Oil in the Sultanate compared to other countries. 4.Difficulty in finding Oil in large quantities, and the decrease in chances of achieving high success rates in the exploration drilling and the continuation of intensified exploration operations in most of regions of the Sultanate throughout the years. 5.Searching and continuance work for getting new technologies for the different exploration operations. 6.The gradual difficulty in the marketing operations of the open areas due to the failure of these companies in the past in finding Oil or Gas, and the disinterest of some of the International Companies in investment in such areas where chances of success are lower than other areas of the world. 7.Effect of the decline of Oil prices on reducing the exploration and development programmes. 8.The lack of success, till now, in finding economically feasible Oil amassments in the regional waters of the Sultanate.

1.4: Objectives of the Oil Sector in the Sixth Five-Year Development Plan (20012005):
1-4-1: Major Objectives of the Sector in the Plan : For accomplishing the targeted strategy for the Oil Sector in the vision, the Plan seeks to achieve the following objectives : 1.To increase the average daily production of crude Oil to reach 907.8 thousand barrel. 2.To cover the open areas and the abandoned regions with new Oil agreements for exploration and Oil and Gas production under the umbrella of equal shares of production agreements. 3.Oil concession companies should formulate and implement exploration programmes that allow optimal and continuous assessment of the Oil potentials of the concession regions. 4.Maintaining the volume of proven reserve of Oil so that its volume by the end of the Plan period should not be less than its volume in 2000, which was estimated at about 5.8 billion barrel. This can be achieved by increasing the Oil reserve of PDO to be, as or more than the quantity of oil produced annually. Also by working towards increasing the general total reserve by the participation of all Oil Companies operating in the Sultanate. 5To seek the increasing the production capacity of Oil while maintaining a rate of annual depletion for the reserve so that it will not exceed 6.5% of the remaining reserve of the Oil. To work towards reduction of the production cost per unit for PDO and ratio nalizing the costs of production for all Companies.

7.Continued application of new techniques for improving all areas of the Oil sector. 8.Continuance of efforts to raise the value added for Oil.
i

9.Encouraging the private sector to take an increased role in the development of the Oil Industries. 10.Provision of employment opportunities for Omanis in all Oil companies and in all areas including exploration, production, refining and distribution, such that the rate of Omanization increase from about 79.7% in 2000 to about 93.5% in 2005. 1-4-2: The targeted Economic Indicators in the Sixth Five-Year Development Plan for the Sector: Based on the approved Sectoral objectives in the Plan, the Plan aims to achieve the following improvements in the quantitative and qualitative indicators of the Sector: a. The value added for Crude Oil Sector: Despite the expectations, which point that the average Oil price would be above 20 US$/barrel, however, due to prudence and precautionary considerations, the Plan adopted 18 US $/barrel as an average price of Oil during its period. Accordingly, given the levels of production and the targeted prices mentioned above, it is expected that the value added for the crude Oil sector will retract during the Plan period at an annual rate of about 7.1 % in the average. b. The Operating Costs: It is expected that the annual average operating costs for PDO to remain at its actual level of 2000 during the period of the Plan, which was estimated to be about OR. 132 million. Regarding the other producing Companies, it is expected that the annual average operating costs will increase during the Plan period to about OR. 31.4 million compared to about OR. 21.6 million for 2000. c. Production cost per unit in PDO: It is expected that the production cost per unit would decrease in PDO during the Plan period for the government, from about 5.2 US $/barrel in 2000 to about 4.8 US $/barrel in 2005 and increase for PDO from 3.5 US $/barrel in 2000 to about 3.9 US $/barrel in 2005. d. The Proven Reserve of Oil : It is anticipated that PDO will add to its Oil reserves during the Plan period, through the new explorations and revision of the reserves estimates, about 354.8 million barrels on average per year. Also, it is expected that the other working Companies will implement the exploration programmes and appraising of reserve estimates. Accordingly, it is expected that, the proven reserve of Oil remain at its actual level of 2000 at the end of the Plan period which is estimated to be 5.8 billion barrel, regardless of the targeted increase in the levels of production of Crude Oil.

e.

Omanization : It is expected that the total workforce in the Oil Companies will increase during the period of the Plan from 4152 employees fn 2000 to about 4790 employees in 2005, with an annual increase rate of 2.9% on average. The total Omani workforce is also expected to increase in these Companies during the Plan period from 3310 employees in 2000 to about 4481 employees, with an annual increase rate of 6.2% on average. Accordingly, the Omanization rate in these Companies will increase from about 79.7% in 2000 to about 93.5% in 2005.

Table No. (1-4) below explains the targeted indicators for the Oil Sector in the Sixth Five-Year Development Plan (2001-2005). Table No. (1-4) Planned Indicators For Oil Sector in Sixth Five-Year Development Plan (1996-2000)
(Mn. R.O.)
Detail Actual 2000 1. Average daily production (thousand barrels) - Crude Oil - Condensate 2. Average price (US S / barrel) 3. Value Added of the Sector 4, Current Expenditure by Government in P. D. O. 5. Current Expenditure of Other production Companies 6. Production Cost per Barrel . in P.D.O. - Government - Companies 7. Production Cost per Barrel in Other Companies - Oxidental - Noves - Petro Gas 5.5 6.9 6.4 3.5 4.7 5.4 5.9 2.3 3.5 5.9 6.0 2.8 2.9 6.5 6.0 3.4 2.0 7.8 4.3 2.9 1.4 9.6 8.2 3.4 2.9 7.0 6.1 3.0 -23.9 6.8 5.1 -0.6 5.2 3.5 4.7 3.7 4.7 3.8 4.7 3.9 4.8 4.0 4.9 3.9 4.8 3.9 -1.2 2.2 21.6 35.3 32.9 31.4 28.9 28.5 31.4 5.7 132 133 132 132 132 132 132 0.0 955.0 888.0 67.0 26.7 3618.3 978.0 904.0 74.0 18.0 2525.8 987.4 910.0 77.4 18.0 2552.7 987.4 909.0 78.4 18.0 2545.3 979.7 910.0 69.7 18.0 2537.3 969.9 906.0 63.9 18.0 2506.4 980.5 907.8 72.7 18.0 2533.5 0.3 0.4 -0.9 -7.6 -7.1 Sixth Five-Year Development Plan 2001 2002 2003 2004 2005 Total of Plan Annual Average Annual

Average Growth Rate(%)

- Japex
8. Targeted addition to P.D.O il Reserve (Million Barrels) 9. Targeted Reserve of Oil Companies (Million Barrels)
10

426 5848 4152 3310 842 79.7

441 5901 4730 4062 668 85.9

375 5915 4755 4213 542 88.6

297 5853 4738 4312 426 91.0

351 5846 4696 4424 272 94.2

310 5802 4790 4481 309 93.5

354.8 5863.4 4742 4298 443 90.6

-6.2 -0.2 2.9 6.2 -18.2 3.2

-Total Employees "Omani - Expatriate ~_l^nization (%)

1-5 : Policies and Mechanisms to Achieve the Objectives of the Sector in the Sixth Five-Year Development Plan:
The Sixth Five-Year Development Plan, in order to addrfess the challenges facing the Sector and provide the appropriate climate to activate the Sector to achieve its planned objectives, adopted a variety of policies and mechanisms which could be represented in the followings: 1.Intensification and diversification of the procedures of marketing the open areas, and work towards improvement of the clauses of the concession agreements and their major preconditions. 2.Formulation of strategies that maintain the best exploration programmes for PDO, both technically and financially. 3.Supervision of the assessment procedures for the Oil capacities in the concession areas in general and assessment of the new Oil explorations. 4.Continuous revision of the Oil reserves of the producing fields, using the optimum technical methods, with conduction of studies aiming to increase the reserves. 5.Formulation of rules and technical standards to ensure that, the annual production should not exceed 6.5% of the total Oil reserve, with the implementation of technological methods that are capable of increasing the chronological age for the Oil reserve. 6.Upgrading and maintenance of the utilities and installations for refining the Oil products. 7.Development, diversification and expansion of the Oil Industry. 8.Continuance of the efforts for increasing the extraction index of the Oil reservoirs. 9.Encouragement of all Companies in the areas of exploration, production, refining and distribution to use the most advanced technologies in these areas to decrease the cost per unit of production. 10.Coordination between all producing Companies and the supporting services companies in the Oil Sector, the Ministry of Trade and Industry and the Ministry of Oil and Gas to establish industries or supporting services for the Oil Sector and working towards the improvement and implementation of such ideas. 11.Encouraging the domestic and foreign private sectors to set up Oil refining and Oil products industries. 12.Continuance of formulation and implementation of Omanizatioin Programmes in all companies, with the supervision of the rates of Omanization, together with the promotion of the managerial, technical and other jobs undertaken by Omanis. 1-6 : The Investment Programme for the Oil Sector during the Sixth Five-Year Development Plan : In order to implement the policies and mechanisms for the Sector and achieve its objectives, the Plan aims at achieving total volume of investments in the investment programme for the Sector, to reach OR. 1814.9 million during its period. The major constituents of the Programme are :

PDO : It is expected that the gross capital costs of the company, during the years of the Sixth Five-Yeaf Development Plan, to be about OR. 1650 million, to be financed by the Ministry of Finance. 2. Other Oil producing Companies: It is estimated that the gross capital costs, which will be insured by the producing Companies (Oxy, Japex, Petrogas, Noves) about OR. 66.4 million during the years of Sixth Five-Year Development Plan, to be financed by the Companies and retrieved from the government according to the signed agreements with the . Companies. 3. The Exploration Companies excluding PDO: It is expected that the total expenditure for all the companies working in the activities of exploration, except PDO, to be about OR. 98.5 million, financed by the Companies and be retrieved from the value of the oil produced on discovery. The Table No. (1-5) below gives the Investment Programme for the Oil Sector in the Sixth Five-Year Development Plan (2001-2005). Table No. (1-5) Investment Programme for Oil Sector in the Sixth Five-Year Development Plan (2001-2005) (Mn. R.O.)
Detail Actual 2000 -P.D.0 -Other Production Companies Exploring Companies * 307.6 16.6 31.0 Total 355.2 Sixth Five-Year Development Plan 2001 328.3 22.3 19.2 369.8 2002 343.3 18.6 24.7 386.6 2003 336.7 14.5 23.2 374.4 2004 320.0 8.2 18.8 347.0 2005 321.7 2.8 12.6 337.1 Total for Plan Period

1650.0 66.4 98.5 1814.9

Chapter One

Oil Sector
1_1 Preamble : The oil sector emerges among all economic sectors as the most important sector according to its contribution to the gross domestic product (GDP), export earnings and government revenues.The "mDortance of the sector, also stems from its strong indirect effect on the various national economic llors.First, through the circulation of its revenues internally by government expenditure, and secondly through its forward and backward linkages with other sectors. The two prominent features of the oil are that it is a dwindling non-renewable wealth and the fluctuation in prices due to external factors. In accordance with this, Oman's development strategy sought to reduce dependence on oil through diversification of national economy production base. The Vision for the sector is reliant on achieving the optimal utilization of the national wealth of oil reserve through determining the production level that secures the required revenues to meet the burdens of development without detriment to the required technical measures and taking in I consideration the importance of oil for the future generations. The Vision aims at decreasing the contribution of oil sector to GDP from (33.5%) in 1995 to about ( 9%) in 2020.

1-2 : Evaluation of the Oil sector performance during the Sixth Five-Year Development Plan (2001-2005):
1-2-1 : Evaluation of the performance of the sector related to the approved objectives in the Plan: Consistent with the oil sector Vision, a number of objectives were approved in the Plan. The 'followings were achieved regarding these objectives. a- Increasing the daily average rate of oil production : The Plan aims at increasing the average rate of daily production of crude oil and condensates for all the producing companies to (979.8) thousand barrel; (907.8) crude oil and (72.0) condensates, ihe data of Table No (1-1) indicates that production rates of oil and condensates were continuously decreasing during the Plan period from about (955.8) thousand barrel per day in 2001 to (774.8) thousand in 2005. Its average for the Plan period reached about (845.5) thousand barrel per day i.e a decrease of (13.7%) from the planned. Crude oil daily production decreased to (779.0) thousand barrel and that of condensates to (66.5) thousand barrel, a reduction ratio compared with the planned of (14.2%) and (7.6%) respectively. The reduction in the daily production of crude oil and condensates of PDO was attributable to the technical obstacles related to the production operations in the fields. The most important of which was the reaching of many major fields the age of maturity resulting in increased associated water production.

Table No (1-1) The economic indicators for the performance of the oil sector in the Sixth Five-Year Development Plan (2001-2005)
1 1r

D e t a i l s 2000 1- Average price (US$/barref) - Planned - Actual 2- Average daily production (thousand barrel) - Planned - Actual 3- Value added of sector (O.R million ) - Planned - Actual 4- Relative share of sector in total GDP (%) - Planned - Actual 5- Operating cost of PDO (O.R million) - Planned - Actual 6- Operating cost of other companies (O.R million) - Planned - Actual 7- Production cost per unit for PDO relative to government (USS/barrel) - Planned - Actual 8- Production cost per unit for PDO relative to the Company (USS/barrel) - Planned - Actual 9- Targeted addition to PDO oil reserves (million barrel) - Planned - Actual 10- Targeted reserves of all companies (million barrel) - Planned - Actual 11- Total number of employees in exploration . production and refinery companies - Omani - Expatriate - Omanization % 5847.6 4152 3310 842 79.7 449.0 3.5 5.2 23.3 129.7 47.3 3616.1 954.8 26.7

The Sixth Five-Year Plan 2001 2001 2003 2004 2005

Average annual

18.0 23.0

18.0 24.3

18.0 27.8

18.0 34.4

18.0 50.3

18.0 32.0

978.0 955.8

987.4 897.4

984.7 1 979.1 819.5 779.7

969.9 774.3

979.8 845.3

2525.8 3105.5

2552.7 2545.3 3101.3 3211.7

2537.3 3771.0

2506.4 5362.8

2533.5 3710.5

36.1 40-5

34.8 39.7

33.6 38.3

33.1 39.6

32.0 45.2

33.9 40.7

132.0 143.3

132.0 165.9

132.0 193.2

132.0 191.3

132.0 197.1

132.0 178.2

35.3 22.2

32.9 25.0

31.4 29.5

28.9 30.7

28.5 42.0

31.4 29.9

4.7 5.0

4.7 5.8

4.7 7.3

4,8 7.4

4.9 10.2

4.8. 7.2

3.7 3.9

3.8 4,6

3.9 5.8

4.0 6.4

3.9 7.2

3,9 5.6

441.0 230.0

375.0 135.6

297.0 122.0

351.0 -494.0

310.0 -281.0

354.8 -57.5

5901.0 5803.0 4778 3944 834 82.5

5915.0 5705.9 4685 3837 84S 81.9

5853.0 5846.0 5572.2 4803.2 4895 4012 883 82.0 5270 4205 1065 79.8

5802.0 5380.1 5938 4748 1190 80.0

5863.4 5452.9 5113.2 4149.1 964.0 81.2

f open areas and the abandoned regions with new oil agreements for ation and production of oil and gas under the umbrella of equal shares of production agreements: n 'ns the Plan period (14) oil agreements were signed with (11) international companies, an raiment volume of about O.R (83.1) million for oil and gas exploration in open concession regions covering (16) concession regions. Seven exploration companies abandoned eight regions due to un-success in achieving economical explorations. c- Increasing the proven reserve of oil: The Plan aimed for maintaining the volume of proven reserve of oil so that its volume by the end of its period should not be less than its volume in 2000 estimated at about (5.8) billion barrel. The data of Table No (1-1) indicates a reduction in volume of proven reserve in 2005 to about (5.5) billion barrel i.e a decrease of (6.9%) from the planned. The reduction was a result of the re-assessment studies and application of internationally approved criteria for computing the reserve. d- Maintaining the rate of annual depletion for the reserve : The Plan aimed at maintaining a rate of annual depletion for the proven reserve so that it will not exceed (6.5%). It could be inferred from data of Table No (1-1) above, that the actual annual depletion rate was within the planned whereas it reached (5.7%). In spite that the Plan period was characterized by reduction in levels of proven reserve, the depletion rates were maintained within the targeted levels. This was due to fallback of production rates during the Plan period particularly that of PDO. e- Oil concession companies formulating and implementing exploration programmes that allow optimal and continuous assessment of the oil potentials of the concession regions : The results of exploration operations indicated that PDO added about (373.09) million barrel of crude oil and condensates to the reserve during the Plan period. Occidental company added about (6.8) million barrel during 2003 and 2004 and about (6.15) million barrel of crude oil in 2005. f- Reduction of the production cost per unit: The Plan anticipated the reduction of production cost per unit for all companies. The sector actual performance indicators showed that the cost for all companies increased above the planned level during the Plan period except that of Novcs. In the domain of PDO - as illustrated by Figure No (1 -1) - the average production cost per unit for the government increased to (7.2) USS compared with the planned estimated at (4.8) US$ per barrel i.e an increase of (50%). For the Company, it increased to (5.6)US$ relative to the planned jmated at (3.9)USS per barrel i.e an increase of (43.6%). The increase in production cost per ni could be ascribed to a number of factors. The most important factors include the reduction

in production, improved methods for oil extraction, execution of assessment and management programmes for reservoirs to increase extraction rates in PDO concession region resulting in increased operating and capital costs of the Company.

Figure No

(1-1)

Production cost per unit for PDO relative to the government in the Sixth Five-Year Development Plan (2001 - 2005)

As for Occidental, Dalil and Petro-Gas companies, the average production cost per unit for the Plan period increased compared to the planned by (144.8%), (216.7%) and (55.7%) respectively. It reached about (7.I)US$ per barrel for Occidental, (9.5) US$ per barrel for Dalial and PetroGas companies. Noves company was distinguished by decrease in average production cost for the Plan period whereas it reached (3.6)US$ per barrel compared with the planned estimated at (7)US$ i.e a decrease of (48.6%). Generally, the increase in production cost for the producing companies was due to intensified efforts, improved methods and techniques and endeavouring to increase production. g- Continuance in application of new techniques for improving all areas of the oil sector: The companies conducted studies based on use of new techniques to further production through water flooding, injection with gas and steam to increase production and rate of extraction. The studies also enabled the accurate selection for wells' drilling sites. h- Working towards increasing the value added of oil: The efforts continued during the Plan period for increasing the value added of oil sector whereas Sohar refinery project implementation started in 2003 and the commercial operation during the third quarter of 2006. This will increase production of oil derivatives, developing and expansion of oil refining industry.It is expected that, the project will create a qualitative change in Omani oil refining industry and promote industrial interlacement with other industries in view of the fact that the oil residuals from Oman Refinery Company (ORC) will be used as raw materials in
/

efjnerv. Further. Sohar refinery products will be utilized in the poly-propylene production

t the products of which will be used in a number of industries of economic importance h il domestically and externally indicating the presence of industrial clusters phenomenon for the sector. '

F courasine the private sector to take an increased role in the development of the oil industry : Cuidance supervision and follow-up for oil companies were carried out to ensure offering the local private sector priority and larger role in provision of supporting services of oil industries at its all stases. Accordingly, Dalil and Petro-Gas companies performance in oil production improved. Oxidental was able to produce the gas beside oil and PDO became a major distributor for oil products. jEmployment and Omanization : The total number of employees in the major companies for oil production, exploration and refining increased during the Plan period from (4152) in 2000 to (5938) in 2005, an average annual growth rate of (7.4%). The national labour force grew by the same rate where it increased to (4748) in 2005 compared with (3310) in 2000. Thus, the Omanization rate in 2005 was maintained at the level realized in 2000 of about (80%) which was below the planned in spite of increased number of Omanis employed. The un-success in achieving the targeted Omanization rate could be attributed to that some companies, particularly PDO, recruited highly qualified foreign experts to overcome the problems which faced the production and the execution of a number of projects to increase production. k- Contribution of sector to GDP, exports and government revenues : Spite of decrease in oil production rates, the sector performance during the Plan related to its share in GDP, exports and government revenues was good. The increase in the actual average of oil prices to (32) US$ per barrel relative to the planned estimated at (18)US$ led to : Growth of sector's value added-as illustrated in Figure No (1-2) - from about O.R (3616.1) million in 2000 to O.R (5362.8) million in 2005, an average annual rate of (8.2%) for the Plan period compared with the planned negative rate estimated at (7.1%). Increase in oil exports volume from about O.R (3426) million in 2000 to O.R (5160) million in 2005, at an average annual rate of (8.5%) for the Plan period whereas exports were expected to retract at average annual rate of (7.6%). The total oil revenues in the State General Budget grew from O.R (2855.7) million in 2000 to O.R (4334.5) million in 2005, an average annual rate of (8.7%) for the Plan period compared with the planned negative rate estimated at (7.7%).

1-2-2 : Evaluation of the sector performance related to approved policies and mechanisms in] the Plan : The main approved policies and mechanisms achieved were : a- Intensification and diversification of the procedures of marketing the open areas and work towards improvement of the clauses of the concession agreements and their major conditions: Efforts exerted during the Plan period related to this policy resulted in : Signing of (20) agreements with (14) international exploration companies in (18) concession regions including the deep sea area from north Ras Alhad to Wilayat Salalah. Improving the conditions of agreements with PDO related to concession region No (6). This included the subordination of the Company imports to taxes, cancellation of revenue earned by the Company for additions to reserve, separation of oil from the gas, raising gas value used by the Company and reducing government contribution to the technology studies centre of Shell company. Signing an agreement with Occidental-Mkhiznah company for operating Mkhiznah field b- Formulation of strategies that achieve the best exploration programmes for PDO both technically and financially : Efforts continued for new techniques that assist in oil and gas exploration operations. Specialized companies had been turned to during the Plan period to provide PDO with information and new techniques which were represented in the following :

Chapter Two

Gas Sector
2-1: INTRODUCTION : The Sultanate, since the dawn of its blessed renaissance, and for the purpose or Hiversing its resources and production base, concentrated on increasing the natural gas reserve and maintenance of this resource. The Sultanate, also aims to replace the other oower sources by the Natural Gas to meet the direct demand of electrical power generation. The vision for Oman's Economy very much relies on the Natural Gas Sector to meet the challenge of the dwindling Oil reserves. This is in accordance with its fourth dimension, aiming to prepare the favorable conditions for achievement of the economic diversification, and work towards the optimal utilization of the available natural resources as well as, the distinguished geographic location of the Sultanate. Based on this, the vision for the Natural Gas Sector is based on increasing the reserves of the Natural Gas and its optimal utilization, such that the contribution of the Sector in the GDP shall not be less than 10% in 2020.

The strategic objectives of the vision for the Natural Gas Sector are as follows:1.Provision of the Gas locally at reasonable prices that are socially and environmentally acceptable, provided that they are competitive to the other fuel alternatives. ,2. Utilization of the associated Gas, wherever it is economically feasible instead of the nonassociated Gas in order to encourage Gas conservation. 3. Encouragement of Gas exploration to increase its reserves in the Sultanate through provision of appropriate incentives to the Government and private companies. Increasing the value addition in the Gas through industrial activities wherever proved to be economically feasible. To study the technical and economical feasibility of establishing an autonomous agency for the management and development of this sector. Five-Year Development Plan, and in accordance with the vision for the Sector, 5 to fullfil a number of objectives, the most important of which are to increase the a ural Gas reserves, increase of the value added generated from the Gas and ensuring employment opportunities for Omanis.