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    Duqm spending continues, as deficit figures released

    Muscat finalised the construction contract on a key downstream scheme at Duqm on the east-central coast in late August. 

    The move was spurred by the long-awaited award earlier in the month of the main packages on the greenfield refinery that forms the centrepiece of the new economic hub under development at the site.

    The government’s insistence on maintaining spending on capital projects considered strategically essential throughout a three-year downturn in oil revenues was reflected in fiscal data for the first half of this year published at around the same time – showing a continued sizeable budget deficit.

    However, the shortfall narrowed and the sovereign has successfully raised sufficient external finance to bridge the gap, including a multi-billion dollar loan from China – which is also planning heavy investment in Duqm.

    Duqm 1

    The Special Economic Zone Authority at Duqm (SEZAD), a government agency, on August 30 signed a 199.1 million riyal (US$517.4 million) engineering, procurement and construction (EPC) contract with the Netherlands’ Royal Boskalis Westminster. This covers the dredging, reclamation and marine infrastructure on the proposed bulk liquids terminal, which will serve chiefly the import and export needs of the planned new refinery.

    The scope laid out in some detail in the announcement of the deal’s finalisation is said to include excavation of around 26 mcm of material to dredge the dock to a depth of about 18 metres, the reclamation and development of a 2.4-km stretch of breakwater for the liquids quay and a dual-berth marina, a 1-km quay wall, and associate marine infrastructure works.

    A second EPC contract will be tendered at a later date for the topside facilities by Duqm Petroleum Terminal, a dedicated subsidiary of state-owned Oman Oil Co. (OOC) that will manage the envisaged seven-berth terminal on completion, scheduled for 2020.

    Royal Boskalis had been issued with a letter of intent (LoI) for the contract in early January – with closure of the deal coming shortly after and presumably prompted by the award by Duqm Refinery & Petrochemical Industries Co. (DRPIC) of the three main EPC packages on the estimated US$5.65 billion, 230,000 bpd refinery at the start of the month.

    Muscat’s refusal to submit to the level of austerity urged by the IMF and ratings agencies in the face of sharply lower revenues accruing to the oil-dependent state treasury has been reflected in substantial deficits since 2014 – resulting in increasing indebtedness and successive sovereign credit ratings downgrades.

    Fiscal data released in late August showed only a marginal 2.6% decrease in state spending during the first half of this year to 6.4 billion riyals (US$16.6 billion) – suggesting that the government is likely to overshoot the 11.7 billion riyals (US$30.4 billion) budgeted for the full year.

    A 33% surge in hydrocarbon revenues over the period to 2.8 billion riyals (US$7.3 billion) cut the shortfall to 2.4 billion riyals (US$6.2 billion) from 3.5 billion riyals (US$9.1 billion) during the corresponding period in 2016.

    However, the figure again implies that the deficit for the whole of 2017 will exceed the 3 billion riyals (US$7.8 billion) anticipated in the state budget in January and validates the government’s foreign borrowing in the interim well in excess of the 2.1 billion riyals (US$5.5 billion) planned at the start of the year.

    Muscat staged conventional and Islamic bond issues worth a combined US$7 billion in March and May, while in early August it secured a US$3.55 billion, five-year loan from a group of Chinese banks. Domestic borrowing has also continued, with the Central Bank of Oman in late August announcing its intention to sell 10-year development bonds worth 150 million riyals (US$390 million) this month.

    Oman’s urgent need for foreign investment to assist with economic development goals coincides with Duqm’s potential place in Beijing’s ‘Belt and Road’ initiative to develop land and sea infrastructure links between China, the Middle East, Africa and Europe. This has recently led to increasing Chinese involvement in Muscat’s long-standing plan to transform the strategically located port into a major downstream industrial and trading hub.

    China Wanfang, a consortium of six private-sector Chinese investors, signed a usufruct agreement with SEZAD last year for an 11.7-square km portion of land in order to create a giant industrial park, claimed to entail investment of up to US$10 billion.

    Some details have subsequently emerged on plans for the so-called Sino-Oman Industrial City. In early August, China Wanfang chairman Ali Shah claimed in an interview with the local press that the first phase would cover 10 projects worth a total of US$3.2 billion. This would include a major methanol plant eventually planned to become part of an integrated methanol-to-olefins petrochemicals plant.

    Later in the month, Shah revealed that a feasibility study was under way on the establishment of a new refinery – of similar capacity to the OOC/KPI facility – which would form part of a second phase of 25 projects.

    - newsbase

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