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The port city of Sohar is the new gateway to prosperity for the country and its people. Srinivasan Iyer reports

The stage is set for Sohar to make its impact and show the world its true potential. Over the course of the next few months many multibillion-dollar, high-profile projects will come onstream and change the face of Al Batinah region and its contribution to the sultanate’s economy.
Jan Meijer, CEO of Sohar Industrial Port Company (SIPC), has witnessed the birth and growth of this unique industrial port and its complementary facilities. “Five years ago not a single contract was signed. The developments you see today – the urea, aluminium, iron and steel and petrochemical plants – have taken place only over the last four years. Now we will start reaping the fruits of that labour.”


Indeed, in the next few months the city will witness heightened momentum and soon see the likes of Sohar Aluminium, Shadeed Iron and Steel, PVAXX Industries, SAG Sohar, Sohar International Urea and Chemical Industries (SIUCI) start churning out their output. Work is progressing furiously at the US$2.4bn Sohar Aluminium plant and the first metal could be poured out as early as June this year.


This greenfield project is expected to have a dramatic impact on the socio-economic growth of the Batinah region, and support the wider national economy. Also nearing completion are SIUCI and Shadeed Iron and Steel. When operational, SIUCI will have a production capacity of 3,500 tonnes of granular urea and 2,000 tonnes of ammonia per day. The Shadeed Iron and Steel project, comprising a 1.5mn tonnes per year direct reduction iron (DRI) plant, will be operational by the fourth quarter of this year.

The reasons for the proliferation of manufacturing units in Sohar are not far to seek. A major magnet is world-class infrastructure, whose backbone includes a state-of-the-art port with dedicated berths for liquid cargo, bulk cargo, general cargo and container traffic, low tariffs, adequate power supply and cheap and assured gas supplies. The port is also on an important trade route with easy access to the rest of the Gulf and increasingly important markets like India, China and Southeast Asia.

As the port is located outside the strait of Hormuz, shipping companies are not liable to pay higher insurance premiums that are usually applicable when ships enter the Gulf. According to figures available from SIPC, investments in Sohar port area exceed US$12bn.

Test of diversification
For Oman, this is also a test of its diversification plans to reduce its dependence on oil and gas as a major revenue generator. Oil and gas accounted for nearly 70 per cent of gross domestic product (GDP) in 2007. Oil production has been falling at a compounded annual rate of 4.5 per cent over the last four years. Figures released by Petroleum Development Oman in February show that output, which reached 700,000 barrels per day (bpd) in 2003, fell to 561,000bpd in 2007. The consensus is that Oman was compelled to diversify and the Sohar strategy has worked well. The response from domestic and international investors has been overwhelming and has taken the government by surprise
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"The commissioning of these projects will instantly add between 1-1.5 per cent to the GDP this year. Going forward, Sohar is easily expected to contribute between 3-4 per cent," says V Gowribalan, vice president - asset management, Fincorp. The sultanate has not placed all its eggs in the manufacturing basket and anticipates tourism to pay off handsomely as well. Gowribalan explains that returns from manufacturing are expected to be steady compared to tourism, which is far more seasonal in nature. Besides, the tourism infrastructure is not yet fully ready. Oman is an emerging destination and it needs to be marketed heavily overseas before returns start accruing. Most analysts agree that developed economies such as the US, UK, Germany and Japan initially started off with a strong manufacturing base. Emerging powerhouses like China and India have moved into higher gear thanks to their industrial capabilities.

Employment opportunities
The benefits of a strong manufacturing base are manifold. It will result in more jobs, stimulate downstream industries and generate export revenue. According to Gowribalan, the large-scale projects will directly employ at least 8,000 people.

"However, this will have a multiplier effect. There will be more supermarkets, taxis, restaurants and schools, which will require a lot more people." Sohar at present is a city of approximately 100,000 people. As the industries continue to grow, the city and its adjoining areas would have a population of at least 500,000 in the next five years.

This phenomenon has a wider significance for the Batinah region as it means more employment for nationals. Says Tony Kinsman, CEO, Sohar Aluminium, "We have 850 people on board now and we will be employing a total of 1,000 once the smelter is fully operational. We are recruiting Omani personnel and we will continue to recruit people from the region. Although we are having some difficulty in recruiting skilled technical staff with five to ten years experience, we are training and grooming young Omanis who will eventually fill senior technical and management positions. And as their skills grow, they will command good remuneration."

B N Singh, managing director of Shadeed Iron and Steel, agrees. Singh is personally visiting various institutes like Sohar University, Sultan Qaboos University, Sohar Institute of Technology and Technical Skills Institute to recruit personnel. "We will be recruiting as much local staff as possible. My philosophy is to induct inexperienced but qualified candidates. We will train them so that they can gradually take over." Analysts agree that Omanisation is the way to go given the shortage of skilled talent.

Downstream potential
Others like Meijer expect the quantum of employment opportunities created by downstream industries to be much more than the mega projects. “The challenge now is to build it out further. Now that the base industries are already there, it is time to get the downstream industries going. These require a lot less investment and generate a lot more employment,” says Meijer. The focus will now be on downstream industries. Although the likes of Alcan and Mitsui have signed up to take a big chunk of Sohar Aluminium and Shadeed Iron and Steel's production, the manufacturers have earmarked a part of their output for domestic consumption. Says Singh, "Shadeed will first meet the requirements of companies in Oman, followed by those in the GCC and then look at international exports."


Again, at least 60 per cent of Sohar Aluminium's total output of hot metal is earmarked for downstream industries in Sohar. SAGTAK will source aluminium in liquid form from Sohar Aluminium where value-added products like aluminium busbars, rods, cables and billets will be produced.

Singh goes on to add that the availability of hot briquetted iron from Shadeed will create opportunities for electric arc furnaces and rolling mills, which in turn will churn out value-added products. These downstream industries will in essence thrive because of Sohar's cluster development model that allows companies to leverage their synergies when operating within a cluster. Besides sharing the same infrastructure and utilities, members of a cluster will also benefit from economies of scale. Right now there are three clusters – petrochemicals, metals and logistics.

The idea of an agro-processing cluster looks promising with an agreement signed by Al Hafri Sugar Refinery to set up an integrated sugar refinery complex. Exports Even after the domestic demand is met, there will be ample scope for exports. Aromatics Oman's entire output of 814,000 tonnes of paraxylene and 210,000 tonnes of benzene are slated for exports. PVAXX, which will produce shipping pallets, intends to capture a significant share of the fragmen-ted, but rapidly expanding, global pallet market estimated to be worth US$30bn annually through its revolutionary recyclable pallets. Similarly, SIUCI is well positioned to cater to the growing demand for urea, which is currently pegged at 130-135mn tonnes per year and seen growing at 2-3mn tonnes per year.

Even Oman Polypropylene and Oman Methanol have set their sights on exports. These exports can be further developed as practically every company has put in place future expansion plans.

However, those plans hinge on the availability of gas supplies. Oman has so far committed all its gas supplies till 2012. SIUCI says it is prepared to undertake an expansion to double its capacity provided it gets new allocation of gas supplies. Shadeed Iron and Steel also has plans to double its capacity, but that too hinges on the availability of gas. There are at least six petrochemical ventures and all of them have made provisions for future capacity expansions. Says Meijer, "The lack of availability of gas is not going to be a limiting factor. There are pipelines emerging everywhere and the problem of lack of availability of gas will definitely be solved." Long-term security of gas supply is literally in the pipeline thanks to the Dolphin Project, which will bring gas from Qatar's North Field, the world's largest known reserves.

Airport appeal
While the primary focus is on the industrial infrastructure, the government is seriously addressing the transport infrastructure in the region, with an airport planned in Sohar. Sohar's appeal will climb a notch once the airport is ready. Work on the design of the airport, which will be capable of accommodating the Airbus A380 super-jumbo, has already started. The airport's development will be overseen by the Ministry of Transport and Communications, and is part of broader plan to improve the transport infrastructure. The proposed airport will be designed to cater to 500,000 passengers per year and will have the capacity to handle 100,000 tonnes of cargo per year. Opinion, however, is divided on whether the airport will live up to its billing.

Says Kinsman, "The airport will be a useful thing to have. I can see the business community using it because they have the money and will travel business class. The success of that airport depends on the nature of aircraft that will be used and international flight connectivity from Muscat or Dubai. Ideally, a regular service using a 30-50 seater plane will make a lot of sense."

Gowribalan reiterates Kinsman's belief, saying the success of the airport will depend on the kind of aircraft used. He says that since Sohar is halfway between Muscat and Dubai, a helicopter service is not a bad idea. "I know it sounds fancy, but that is how the service has been developed in Sao Paolo, Brazil." Meijer thinks the airport can be developed as one specialised for cargo and chartered flights. "The airport may not be able to compete with Dubai or Muscat but it can be utilised to move high-value goods like apparel or fresh farm produce."

Growing pains
Sohar is the fastest growing city in Oman and that pace will continue as new services crop up in and around the city. There are other aspects to Sohar as well which could touch upon the region's social fabric. So far the people of the city were dependent on agriculture and fishing for their livelihood, which will change as more people take up jobs with companies and give up their traditional way of life.

Says Kinsman, "Sohar with the port around it will be an industry oriented city. It is a beautiful town and the port is unlikely to overshadow and take away from the character of the town. The difference between the two is that Muscat being the capital will continue to employ a large number of people in the government sector while in Sohar it will be the other way around." Kinsman adds, "It is okay to say that Sohar has a marvellous future. However, the path will not be smooth. Sohar's culture and the circumstances of its people will change dramatically over a short period of time. And accommodating the changes will not be easy. For example, there are many large families with low incomes. One or two members of a family will win jobs and they will earn several times their earlier salaries. They will be the primary earners and this will raise questions about whether the individual's or family's priorities come first. These are potential social issues and the community needs to recognise this and start planning forward."

Meijer has a different view. "Omani culture is very tolerant. Of course people think it is great to have LuLu and Home Centre, but Sohar is unlikely to turn into another Dubai." Room for everyone But with more and more middle class and management level executives moving into the city and making it their new home, the needs of expat and Omani families like housing, schools, hospitals, restaurants and other aspects of social life have to be taken into account.

Rents that were on the rise for the last year or so are likely to abate once fresh supply of apartments come online. In fact, there are a series of property developments that are coming up. The Saud Bahwan Palm Gardens, comprising 149 villas and 288 deluxe apartments, is slated for completion in May this year. Another leading developer, Majan Gulf Properties, will create a residential complex comprising 570 units.

With the city taking a distinctly business profile, corporate executives will soon be able to use the facilities of Crowne Plaza Sohar. "A soft opening is scheduled for July end or early August," informs Harish Neel, sales director, Crowne Plaza Sohar. The hotel will feature 126 rooms, including six suites equipped with Wi-fi Internet access and a 24-hour business centre. "The soft launch entails the opening of one floor comprising 44 rooms and one or two restaurants. Overall the hotel will have six restaurants, including a sports bar and a Mediterranean restaurant. Apart from this the hotel will feature a la carte and buffet dining, a 24-hour coffee shop and a patisserie."

Guests can keep themselves occupied at the outdoor swimming pool, ten-pin bowling alleys, health club and sauna and massage facilities. A banquet hall capable of holding nearly 300 guests will make it possible to conduct big functions and meetings.

"Some of the issues in Sohar are not issues at all. Problems like rents, schools and entertainment are essentially growth problems and will eventually be solved," says Gowribalan.

Looking ahead
There is no doubt that the sultanate's bold move to develop Sohar as a maritime and industrial hub has paid off. Says Meijer, “When we conceived the project in 1999, we had expected only 50 per cent of the area to be occupied by 2010. But the response has been overwhelming. Now we are looking ahead to 2043." SIPC's mandate set out in July 2002 was further enlarged in November last year when the government extended the existing concession agreement to 2043. The new concession extends the port authority's area from 2,000 hectares at present to over 6,000 hectares. It also facilitates the joint development and management of future bulk facilities as well as the Sohar Special Economic Zone and other future projects. “Sohar is going to be much bigger and more exciting, and will have a big influence on the region,” says Meijer.