Oman’s PPP modifications give it platform to diversify and boost investment

After a slower start than some of its Gulf peers, Oman is set to ramp up its PPP pipeline in the coming years to support its ambitious Vision 2040 plan.

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Announced at the start of 2022, Oman’s ‘Maydayn Vision’ will target sustainable economic and social development through strengthening the country’s PPP programme.

Under the plan, the sultanate aims to attract foreign direct investment, develop multiple new industrial hubs and launch alternative energy projects.

The Maydayn Vision underscores the launch of the sultanate’s PPP law in 2019 - the first of its kind in the country.

While PPPs have been utilised in Oman for around three decades, particularly in the power and water sector, there was previously no specific regulations, structure or guidance to support such initiatives.

According to Thomas Wigley, energy and infrastructure partner at Trowers & Hamlins and based in Oman, the national PPP Law follows international best practice and contains provisions which will provide comfort to investors.

“There are many positives in the law, for example, the possibility of a 50-year concession term, the ability to propose projects to MoF [the Ministry of Finance] and also a clear grievance procedure if a bidder feels unfairly treated,” says Wigley.

“However, as we are still at an early stage, important provisions such as the market position in relation to change in law and termination provisions, including any compensation, have not yet been determined,” he cautions.

In a surprise move on 18 August 2020, Oman effectively dissolved its Public Authority for Privatisation & Partnership (Papp) unit as part of a wider government restructuring, causing analysts to fear that the move was a step backwards for the PPP market.

However, the newly reorganised MoF now manages the legacy assets of Papp and is understood to be preparing a pipeline of projects in the education, healthcare, logistics and utilities sectors to be delivered with private sector participation. 

“The PPP unit, now fully transitioned into the MoF, is currently undergoing a detailed review and screening of all government projects for their suitability to be procured as a PPP to ensure good dealflow,” affirms Dominic Holt, partner at PwC’s Middle East deals, infrastructure and government division.

“The law is robust and the robust processes are being adopted. Furthermore, with the PPP unit now in the MoF this means that the budgets for deals that are coming to market should be secured, and the highest approvals are in place prior to commencing a procurement. However, this is yet to be tested,” adds Holt.

Wigley understands from the MoF that government guarantees may be available, depending on the project. “This will be essential if the projects are to progress,” he suggests.

“PPP remains a priority for the Oman government, and even though the macroeconomic picture is improving with sustained high oil prices, the attractions of PPP remain,” Wigley says, adding that the sultanate’s positive post-pandemic credit ratings will make the proposed slate of projects easier to finance and should make the projects attractive to a broader range of bidders.

There are 49 initiatives planned for implementation under the PPP model, including seaport developments at Liwa Port, school buildings and healthcare centres.

Forty-two schools are to be developed by selected firms to meet the demand in various governorates and utilise private sector expertise in multipurpose construction.

Planned healthcare schemes include the procurement of a Haemodialysis Services Project across the country and a Drug Rehabilitation Centre in Sohar.

In the power sector, the Manah II solar PV IPP is being tendered, with bids having been recently submitted. 

At the end of November, Oman’s Ministry of Finance and the Ministry of Transport, Communications and Information Technology (MTCIT) has invited Expressions of Interest (EOIs) for a partner to design, construct, finance, operate and maintain the Salalah-Thumrait Truck Road (STTR).

The 67km road, the first of its kind in Oman, will be designed specifically for heavy vehicles and will be developed under a PPP agreement. 

According to PwC’s Holt, moving into projects like this should not be a major transition for Oman’s government. “Oman has a strong track record of IPPs and IWPPs and so the concept of PPP-type deals is not new,” he says. ”However, the ability to transition this success to other sectors is still to be confirmed.”

Convincing the market

Holt says a key challenge will be to persuade the market that Oman’s current deals and future pipeline will materialise.

“Since the issue of the PPP law there has been little real dealflow. The movement of the PPP into the MoF has taken a long time and the key players have now turned their resources elsewhere, especially Saudi Arabia.”

To entice the market back, Holt says the contractual frameworks will need to be very much aligned to Middle East market norms and have appropriate risk allocation. 

“For example, Oman’s lack of sovereign guarantees under the IPP programme may be a deterrent if applied to these new deals. Arguably Oman may have to offer incentives to the market.”

According to Wigley, Oman has been an attractive home for foreign direct investment for many years outside of PPP projects and “all of those positives also apply to future PPP investments”.

He continues: “Oman is a large country and so there is a significant requirement for roads, hospitals and schools, this offers excellent opportunities to investors. There is also significant support through the foreign capital investment law and recent reforms to the securities law and company commercial law.”

Almost 50% of projects in Oman are being proposed as PPP projects, indicating state-level confidence in the PPP structure to achieve the government's aims of creating an attractive environment for foreign investment.

“That being said, it is too early to properly gauge its effectiveness as the first projects have not yet progressed to financial close,” Wigley cautions. As deals get closer to that stage, it will become clear whether Oman can properly claim to be one of the world’s foremost PPP markets.