Oman's ports prepare for pick-up in trade with Iran

Published in MEED, 6 October 2015

There are ports, fishing harbours and fuel terminals up and down the length of the Omani coast – from Khasab, on the Musandam peninsula in the north, to Salalah in the far southwest. In terms of economic activity, however, only a few of these facilities are really significant. They include the container ports of Sohar, Duqm and Salalah, each of which has a special economic zone attached to it, as well as the oil terminal of Mina al-Fahal and the liquefied natural gas (LNG) berth at Qalhat.

The fortunes of some of these ports have been slightly mixed in recent years. After growing steadily in the first decade of the millennium, container volumes have shown some volatility since 2010.

According to data from the Washington-based World Bank, there was a fall in the overall number of 20-foot equivalent units (TEUs) handled by Omani ports in 2011, followed by a recovery in 2012 and then another dip in 2013.

There are some reasons to suppose that the future should see further growth, given a combination of the country’s geographic position and regional political issues – most notably, the recent deal to ease international sanctions against Iran. Oman could prove attractive both for international companies wanting a jumping-off point into Iran and for Iranian companies looking for a route to international markets.

In particular, the Port of Sohar lies just 400 kilometres across the Gulf of Oman from the Iranian port of Chabahar, which makes it well placed to deal with the potential upswing once trading conditions with the Islamic Republic ease.

Other ports could also benefit and Iranian investors were among those in a delegation that visited the Duqm Special Economic Zone in November.

“The geographic positioning of Oman and its prior ties with Iran mean it would stand to gain from increased trading activity,” says one Gulf-based analyst. “Oman and its ports could accrue enormous economic benefits.”

The Port of Sohar is also well placed for any international firms that would rather avoid the time and cost of passing through the Strait of Hormuz into the Gulf. In the longer term, the planned GCC railway, which is expected to be linked to the Port of Sohar, could offer a viable overland route from Sohar into the UAE and the rest of the region.

Oman International Container Terminal (OICT), which operates the Sohar container facility, is preparing for further growth with plans to invest $120m in expanding capacity. The aim, according to Hutchison Port Holdings, which is part of the OICT joint venture, is to increase annual throughput from 800,000 TEUs to as much as 6 million TEUs.

Work is ongoing on a third terminal, Terminal C, at the site, and construction of Terminal D could get under way in 2019.

At the other end of the country, the Port of Salalah is well placed as a trans-shipment hub for goods travelling between Asia, Europe and east Africa. A series of projects are planned and under way there to upgrade and expand the facilities.

The government has signed a memorandum of understanding with the Salalah Port Services Company to construct and operate three more deep-water container berths at the port, which will take the total to nine berths with a combined length of 3,555 metres.

Bids for the consultancy services contract on the $525m project are due to be submitted by late October, according to MEED Projects, which tracks project activity around the region. The general cargo terminal at Salalah is also due to be revamped at a cost of some $200m.

Elsewhere in the country, the Ministry of Transport is planning to invest $400m to develop the smaller port of Shinas, north of Sohar, with new warehousing and industrial facilities. An award for the main contract was expected in June 2016, although as yet no tender has been issued.

At Sultan Qaboos Port in Muscat, meanwhile, the authorities are pressing ahead with plans to gradually transform the site into a leisure and cruise shipping facility. Since August 2014, all commercial activities have been moved to Sohar, including container and general cargo ships, roll-on/roll-off ferries and others. An award on the $50m project to convert the port is expected in June 2016. The work will include constructing new berths for cruise ships and ferries, as well as a marina, hotel, shops and restaurants, and should be completed by the end of 2019.

While the extent of the plans seem to bode well for the Omani ports and shipping sector, there may yet be difficulties ahead, given the way low oil prices are leading to a sharp deterioration in public finances. According to UK-based bank HSBC, hydrocarbons account for 48 per cent of overall GDP and 95 per cent of government revenues, and the lender says it expects the government to cut spending if prices do not recover.

That could spell trouble for some of the plans to expand and improve the country’s ports. Some port projects have previously been placed on hold before being revived, including the plan for three new berths at Salalah, which was held up from 2011 until earlier this year. Further fiscal pressures could see similar events unfolding there or at other ports.

An area of budget the government appears reluctant to cut is defence spending, which could be good news for the new naval base the Ministry of Defence is building for the Royal Navy of Oman close to the town of Mirbat, some 80km east of Salalah. The first package, worth $50m, was awarded in August to Oman Company for Building & Contracting, covering residential buildings and associated facilities. Bids were submitted for a second package, worth an estimated $200m, in July and are under evaluation. This second contract includes the construction of a jetty, breakwaters, ramps, a pontoon and other facilities.

In addition, the Ministry of Agriculture & Fisheries is also developing the facilities at a series of fishing harbours around the coast, including at Barka, Nabur, Mussanah and Quariyat, with the projects costing between $30m and $50m each. Work on all of these is already under way and so they are unlikely to be affected by any belt-tightening by the government. However, bidding is still ongoing for a slightly larger project to build a new fishing harbour at Duqm, costing an estimated $100m, with an award due by the end of the year.

If the government can maintain its investment ambitions, then the expansions planned for the sultanate’s ports and fisheries will be to the long-term benefit of the country, as they should help it diversify its exports. “Oman’s economy would benefit from rising exports if they help to diversify the export mix away from oil, which is about 65 per cent of total goods exports,” says Steffen Dyck, a senior analyst at US ratings agency Moody’s Investors Service.