Wednesday, April 29, 2009

Doing business in Oman: Alternative Energy

A study on renewable energy sources commissioned by the Authority for Electricity Regulation (AER) has found that the level of solar energy density spread throughout Oman is among the highest in the world, capable of generating more than enough electricity to meet domestic requirements and allowing for the export of any surplus. It also identified wind energy potential in coastal and mountainous areas of Salalah comparable to inland Europe where large numbers of wind turbines are operational.

The study has recommended the creation of a national authority to administer clean development mechanisms to assist renewable energy investment and policies. The international consultant conducting the study also assessed the potential of biogas, geothermal and wave energy.

Many private sector entities have shown interest in supporting solar and wind energy initiatives. Rural Areas Electricity Company SAOC, responsible for power generation and distribution in remote parts of Oman and the largest consumer of diesel in Oman, will identify locations for solar/wind energy pilot projects possibly as hybrid systems. Solar power, because it is an intermittent energy source, requires a backup supply, which can partially be complemented with wind power. Oman Power and Water Procurement Company SAOC will also conduct competitions for large-scale renewable energy projects.

The price of electricity generated using domestically produced gas is highly subsidized. Despite technological advancement and increased efficiency, renewable energy generation continues to be highly capital-intensive. Consequently, private sector initiatives will also need government support in terms of subsidizing the electricity price for domestic consumption; land concessions for installation and operation of generation plants; and tax and customs exemptions. Given the long-term benefits of using renewable energy and the dire need to reduce the reliance on depleting hydrocarbon resources, going solar may prove to be the most cost effective solution for averting an energy crisis and for reducing Oman’s carbon footprint.

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Monday, April 27, 2009

FTA Alert: GCC-South Korea FTA

Leaders from the GCC and South Korea recently held talks in an effort to finalize a GCC-South Korea Free Trade Agreement (FTA) by the end of this year. The GCC is South Korea’s second largest trading partner, just after China. The FTA is expected to result in a 400% increase in South Korean investments in the UAE, with similar increases expected in Oman.

Oman and South Korea have enjoyed particularly strong ties over the last several years and the FTA will bring great benefits to both countries. Oman exported $5 billion in oil and gas to Korea in 2006, while importing $350 million in Korean products and services in 2006. Korean exports to Oman grew 219% from 2004 to 2006, as Omani exports to Korea grew 207% in the same period.

Further evidence of the strengthening relationship between Oman and Korea can be found in last month’s launch of the Oman-Korea Friendship Association (OKFA). The OKFA will promote friendship and social ties between Oman and Korea. The founding members of the OKFA include senior members of the Suhail Bahwan Group, Oman Trading Establishment, Oman Oil, and Towell Auto Centre, among others.

The FTA will enable both Oman and Korea to further their existing strong relationship and will likely result in greater Korean investment in Oman.

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Thursday, April 23, 2009

Focus On: Hormuz Oil Spill

In the early morning of March 20, 2009, two U.S. Navy vessels, the USS New Orleans (an amphibious assault ship) and the USS Hartford (a nuclear powered submarine), collided in a highly unusual incident in the Strait of Hormuz, between Oman and Iran. Both ships were damaged, and 15 soldiers were injured, though none of them seriously.

Neither ship was disabled by the damage sustained and the nuclear reactor aboard the Hartford remained uncompromised. The USS New Orleans, however, ruptured its fuel tanks and spilled 25,000 gallons of diesel fuel into the Arabian Gulf.

While diesel fuel was visible from the surface shortly after the accident, an aerial search conducted by the U.S. Navy that day found that the spill had disappeared from view. A Navy spokesman suggested that due to its low density, the fuel had likely dissipated.

Others sources speculated that the spill could have taken a trajectory toward Musandam, a popular resort destination in Oman considered by some to be an ecotourism treasure.

At this point in time, there have been no reports of environmental damage in the area around Musandam. Nevertheless, the incident raises the question: who may be held liable for environmental or ecological damage resulting from accidents at sea?

This question is a particularly relevant one for countries and companies with assets located along busy waterways.

Liability of Military Ships
The United Nations Convention on Law of the Sea (UNCLOS) provides that military ships are generally immune from all liabilities.

There are, however, exceptions to immunity for certain events and activities in territorial seas. Specifically excluded from immunity is loss or damage resulting from non-compliance with the laws or regulations of a coastal state concerning passage through the territorial sea or any act of willful and serious pollution contrary to the convention.

These exceptions to immunity, however, are applicable only in territorial seas, not in straits used for international navigation, such as the Strait of Hormuz. Significantly, the U.S. is not a party to UNCLOS, meaning that these exceptions could not be applied to attach liability to a U.S. military vessel.

Liability of Commercial Vessels
The liability of commercial vessels is an even more complex matter, subject to international conventions and a wide range of domestic laws, both of the flag nation of the commercial vessel and of any affected nation. Moreover, countries whose shores have suffered pollution have often taken matters into their own hands by bringing civil suits and/or criminal charges locally and abroad.

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Tuesday, April 21, 2009

FAQ: What is a credit bureau?

Many recent news articles have reported on the opening of the first private credit bureau in Oman. These reports raise the questions of what exactly credit bureaus do and what does the opening mean for Oman?

Credit bureaus collect information about consumers and companies from various sources and sell it to other entities, such as financial institutions, that use it to assess risk and credit worthiness. For example, a credit bureau may collect information about a consumer’s payment history, total liabilities, and criminal background, compile this information into a report, and sell it to a bank. The bank will use the report to determine the level of risk involved with giving a loan or other credit to this consumer. Based on the risk level, the bank will determine what terms to offer the consumer on the loan.

Credit bureaus in Oman will enable banks to make more informed decisions in lending to consumers. Consumers with good credit should be able to obtain better loan terms and interest rates because the bank can be confident the risk is low and the loan will be repaid. Consumers with poor credit histories may receive less favorable terms because the risk to the bank that the consumer will default on the loan is higher.

Currently in Oman, information about a consumer’s credit history is not readily available and it is difficult for banks to gauge risk levels and customize the terms of the loan. Thus consumers with good credit share the risk of consumers with bad credit because banks simply do not have the information to make informed decisions about individuals and tailor loans accordingly.

Some consumers have raised concerns about the security of their information and potential confidentiality breaches. Credit bureaus in other parts of the world typically employ very high security standards with respect to the information they obtain in order to avoid the serious problems associated with such breaches, though breaches have occurred.

In addition, consumers have raised issues about how it is possible for a credit bureau to obtain the information for the credit report in the first place. Typically banks or other financial institutions provide information about consumer bank accounts, loans, liabilities, income, and payment history to the credit bureau. Publicly available court records may also be a source of information. The terms of individual agreements between consumers and banks or financial institutions determine what banks and financial institutions are permitted to do with the consumers’ information.

While these concerns are commonly raised in connection with credit bureaus, it is expected that the introduction of credit reporting to Oman will provide distinct advantages to both consumers and financial instructions.

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Monday, April 13, 2009

Sarah Hestad, Associate (Oman) will speak about IP in Oman

Curtis Oman will be presenting at an upcoming seminar and workshop regarding intellectual property protection on April 13th and 14th at the Knowledge Oasis Muscat. Associate Sarah Hestad from the Oman office will give a presentation on practical considerations for protecting intellectual property in Oman. She will also outline the local legal framework for copyrights, trademarks, patents, and trade secrets and discuss case studies and examples for how companies protect their intellectual property in Oman.

This is the first seminar of its kind in Oman. Other presenters include a senior official from the European Patent Office and a senior official from the Intellectual Property department of Oman's Ministry of Commerce and Industry. For more information about the seminar, please click here.

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Thursday, April 2, 2009

Doing Business in Oman: End of Service Benefits

Companies and employees both should be aware of their rights and obligations when an employee leaves the company. For example, depending on the individual circumstances, the company will probably be required to pay an “end of service benefit” to the employee. Article 39 of the Labor Law (Royal Decree 35 of 2003) states that expatriate employees are generally entitled to an end-of-service gratuity payment on the termination of their employment contract and provides the calculation for the gratuity. The gratuity is calculated as follows:

Length of Employment

Gratuity

1 to 3 years

15 days basic salary
for each year of service

3 years or more

1 month basic salary
for each year of service


The gratuities are calculated based on the final basic salary, and any fraction of a full year is paid on a pro rata basis. No end of service benefit applies to employees who have been employed for less than a year.

If the employer establishes and operates a separate fund scheme approved by the government, then the expatriate employee may be entitled to receive the higher of the amounts payable under Article 39 or the separate fund payments, but not both.

Foreign companies operating in Oman or seconding employees to Oman should take steps to avoid possible “double dipping” by employees. This could happen to if an employee attempted to take advantage of a pension scheme operated by the employer outside of Oman, as well as the benefits payable under Article 39.

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