Friday, September 11, 2009

Labor Law Alert: Omanisation

Earlier Omanisation policy aimed at reducing the reliance on foreign workers prescribes sector-wise Omanisation targets for the private-sector employers to achieve with a target of 90% for the revenue-rich sectors of oil and gas, banking and travel and tourism and 100% for marketing. The policy makes it mandatory for employers to employ Omani nationals for certain administrative posts such as receptionist and security officer. In addition, certain jobs have also been Omanised area-wise, limiting expatriate employment to certain regions.

The employers in the private sector are required to file their Omanisation plans annually with the Ministry of Manpower.

The implementation of the policy is two-pronged: (i) incentivising companies exceeding the prescribed target; and (ii) restricting foreign labour clearances for employers failing to meet the target. Private- sector companies exceeding their Omanisation targets and meeting other labour-related criteria are entitled to a ‘green card’ which guarantees preferential treatment in some Ministries and other government agencies.

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Wednesday, September 9, 2009

Doing Business in Oman: Potential Changes to the Marker Disruption Clause from a Borrower's Perspective

Following on from last month’s article on market disruption clauses, we consider here how the market disruption clause could be negotiated from a borrower’s perspective in a new loan agreement or amended in existing loan documentation. We are using the English style Loan Market Association syndicated loan agreement as the starting point for this discussion. However, even if a different starting point is used, many of the points will be equally applicable.

From a borrower’s perspective, the main aim will be to tighten the wording of the market disruption clause. Clearly, lenders and the agent will try and resist many of these changes and will emphasis that anything that is different from the standard in this clause will make it harder to syndicate and close the transaction.

Issues that could be raised on the market disruption clause by the borrower include:

  • consultation: currently there is no requirement for consultation between the lenders and the borrower when the lenders determine their actual cost of funds. The only requirement on a lender is to provide the costs of funds from “whatever source it may reasonably select”. A borrower would want to know that a lender had considered a broad range of funding options and selected the cheapest. In addition, the borrower may want to request a certificate from each lender certifying its source and costs of funds.
  • reasonableness: a borrower may seek to impose an obligation of reasonableness on the lenders in triggering this clause, such as a requirement that a lender’s actual cost of funding exceed an agreed amount above the relevant screen rate for LIBOR (London Interbank Offer Rate) – current wording merely refers to it being “in excess of LIBOR”. A further requirement could include an obligation on the lenders to negotiate in good faith in relation to agreeing on a substitute basis of interest and to use reasonable efforts to minimize their actual cost of funds.
  • increase the trigger threshold: the threshold for triggering this clause is a set percentage (usually between 25% and 50%) of participations in the loan. The threshold could be increased to make it harder for one or two lenders to trigger it.
  • reference banks: a borrower might seek to use the average funding costs of a number of reference banks (including some of the syndicate lenders) as the basis for calculating the interest rate payable as opposed to the relevant screen rate for LIBOR. This would be a move back to the previous market practice before the use of LIBOR was introduced.
  • interest periods: a borrower might seek the right to invoke shorter interest periods than the typically one-, three- or six-month periods, such as one week interest periods to assist the affected lenders in minimizing the actual costs of funds. However, this will create additional work for the agent and has potential cash flow implications for the borrower as interest is payable at the end of each interest period.

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Monday, September 7, 2009

Focus On: Clause 67 Still Causing Issues in Engineering Sector

It is over 28 years since the Standard Documents for Building and Civil Engineering Works (Third Edition) were introduced - and yet, after all these years, they still create legal issues which necessitate analysis and discussion.

For parties who have differences of opinion in respect of a contract governed by the Third Edition, it is inevitably clause 67 which is scrutinized.

Clause 67 states that any issue shall be referred to the Engineer who must give a written decision to the Employer and Contractor within 90 days of being requested to do so by either party. The Engineer's written decision is final if the aggrieved party fails, within 90 days from receipt of the Engineer's decision, to state in writing (to the Engineer and the other party) that it requires arbitration.

Moreover, if the Engineer fails to render his written decision within 90 days of being requested to do so, the aggrieved party must write to the Engineer and the other party in the 90 days following the expiry of the first 90-day period, stating that arbitration is required.

The above sounds straightforward but - in reality - things move less smoothly.

Before writing to the Engineer for a decision, the aggrieved party should draft in detail all the arguments for its position, and the request should be very precise and state exactly that which is sought from the Engineer. A failure in this regard would make it all too easy for an Engineer to make a decision refusing the request, especially as clause 67 does not require the Engineer to give reasons for his decision.

It should also be noted that clause 67 does not give room for maneuver, or for friendly talks between the parties. Basically, once you request an Engineer's decision, you are under the auspices of the procedural machinery set out in clause 67. You really have no option but to adhere to that contractual machinery.

Having said that, there is nothing to stop an aggrieved party from trying to find an amicable settlement after having rendered a notice requiring arbitration. Clause 67 does not specify any time-frames beyond the time when the aggrieved party renders its written notice requiring arbitration, although of course the aggrieved party cannot delay indefinitely. This scenario inevitably gives a window of opportunity for the parties to negotiate after the arbitral notice has come into existence.

In essence, an aggrieved party invoking clause 67 should remember the following:


a) do not violate any of the time periods stated in clause 67,

b) make sure that the requests to the Engineer give all the detailed reasoning and documents underpinning the request,

c) the requests themselves must be precise and very well-drafted, and

d) the time to hold friendly talks is only after you have rendered an arbitral notice.

In all of the above, lawyers can give cost-effective advice as the chances of avoiding a full-blown arbitration are much higher if legal input is obtained (behind the scenes, without the other party's knowledge) right from the start of the clause 67 process. The friendly talks after the arbitration notice of course also can take place without involvement of lawyers.

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Thursday, September 3, 2009

New Law Alert: Abolishment of Legalisation

A new royal decree has been issued this month abolishing the requirement of legalisation for foreign public documents. Royal Decree No. 47/2009 approves the Sultanate of Oman joining the 1961 Hague Convention, and replaces the existing system for legalising documents with a certificate known as an Apostille. The Apostille allows specific types of foreign public documents to be freely circulated in all nations that have approved the Hague Convention. Examples include patents, court rulings and notarial attestations of signatures, but do not include diplomatic documents and administrative documents dealing directly with commercial or customs operations.

Apostilles can only be issued by an authority designated by the country from which the public document originates and the Convention applies to public documents that have been executed in one signatory State and which have to be produced in another signatory State. For example, if a company in Oman wanted to use a notarized copy of the Memorandum and Articles of Association of a company based in England, it would only need to procure the England & Wales Apostille relating to that document, and affix it to the extract from Companies House.

The details of Royal Decree 47/2009 are emerging still and information has not yet been made public about how the Convention's provisions will be implemented under Omani law. However, companies in Oman will greatly benefit from the new decree as it will simplify the existing system and make it easier to do business with foreign companies. It is worth noting that Apostilles do not relate to the content of the underlying foreign public document; they only certify the authenticity of the signature, seal or stamp the document bears.

Each designated authority will maintain a Register recording all the Apostilles it has issued. The Registers, which can be accessed by any interested party, are designed to combat fraud and assess the origin of an Apostille in case of doubt.

For an updated list of signatory States to the Convention, see the “Status table of the Apostille Convention” under the “Apostille Section” of the Hague Convention website (http://www.hcch.net). You also can find a list of each State's designated authorities.

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Wednesday, September 2, 2009

Focus On: Mining in Oman

Oman has vast mineral resources which could provide project opportunities for both foreign companies and Omani companies and individuals. Specifically, Oman’s mineral resources include chromite, copper, dolomite, zinc, limestone, marble, gypsum, silicon, gold, cobalt and iron.

There are several projects either planned or already underway in the mineral sector, including plans to establish a “Minerals-City” to serve as a hub for a number of minerals based downstream processing projects. The Minerals City is planned by Takamul Investment Company, a majority Omani government-owned investment vehicle having Oman Oil Company as the majority shareholder. The projects will include a US$450 million salt/soda ash project in partnership with the Tata group, an Indian business conglomerate. The Minerals City will also include a silicon carbide processing facility at a cost of US $40 million, in partnership with SNAM Abrasives of India.

In addition, Brazil-based Vale International has established a subsidiary in Oman that is constructing a pelletizing plant in Sohar. The plant will produce high grade iron ore pellets that will supply the direct reduction facilities of the steel industry in MENA. Vale is also performing exploration studies in Oman to determine what minerals are suitable for potential development.

Several studies in the mining sector are also underway, including an economic feasibility study on silica and another on the exploitation of gold and copper ores in the Ghaizeen area. Gold in particular has tremendous potential in Oman, which is the only Gulf country with substantial gold reserves other than Saudi Arabia. In fact, the United States Geological Survey estimates that gold production in the Middle East will more than triple in 2009 from 2006 levels.

For those seeking to engage in mining activities in Oman, there is a comprehensive legal framework laid out in Oman’s Mining Law (Royal Decree 27 of 2003). The mining law includes provisions relating to the issuance of mining licenses, dispute resolution in the mining sector and environmental protection.

Joint ventures may be a good option for those seeking to get involved in the mining sector, as local license holders can partner with foreign investors to get the benefit of their technology and resources. In such a case, the Ministry of Commerce and Industry may issue a mining concession or license to an Omani company or individual for a particular site. If the license holder lacks the technology and resources to fully exploit the site, a foreign company can bridge that gap. The parties will enter into a mine exploitation agreement, in which the foreign company will assist with or execute mining operations under the local partner’s license. At a minimum, the Mining Law requires any mine exploitation agreement to include: (i) provisions relating to the payment of fees and taxes, and other financial matters; (ii) provisions relating to environmental conservation; and (iii) a dispute resolution mechanism that complies with the provisions of the Mining Law.

In addition to these minimum provisions, the parties also may consider the inclusion of market disruption clauses that provide for the consequences of any substantial changes in the market for the mining product. This is essential as prices for different minerals can change dramatically over the term of an agreement.

Further, the Mining Law requires that any dispute arising regarding a mining concession or license, or in relation to the drilling or exploitation of a mine, be resolved through arbitration rather than through the courts of Oman or another jurisdiction. The mine exploitation agreement should specify the location, language, governing law and applicable rules of the arbitration.

Oman’s mineral resources are expected to be a large source of revenue and growth for the Omani economy outside the oil and gas sector, presenting a wide array of project opportunities for investors.

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