The Free Trade Agreement (“FTA”) between European Free Trade Association (“EFTA”) States of Iceland, Liechtenstein, Norway and Switzerland and the Gulf Cooperation Council (“GCC”) was signed on 22 June 2009 in Norway. The FTA established EFTA-GCC Joint Committee as the body responsible for supervising the implementation of the FTA.
Showing posts with label GCC. Show all posts
Showing posts with label GCC. Show all posts
Thursday, August 27, 2015
Free Trade Agreement Between European Free Trade Association and GCC Countries
Friday, May 6, 2011
Precautionary Measures
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An issue which often causes a lot of concern is injunctive relief.
From time to time, bank accounts may be frozen and other precautionary measures put in place by the Omani court. Application is often made to the Judge in charge of Emergency Measures, which is an ex parte, paper application which involves no court hearings.
A typical scenario works like this: a Claimant sues a Defendant and becomes worried that the Defendant may have meagre assets against which to enforce a final, non-appealable court judgment.
This fear is perhaps justified given that it may take one or two years from the date of filing a case to actually obtaining a court judgment which can be enforced.
In such circumstances, the Claimant applies in writing to the Judge in charge of Emergency Measures, explaining the circumstances, and the traditional request is for all the bank accounts of the Defendant in Oman to be frozen, so that monies can flow into those accounts, but not out.
The Judge makes a decision on this application without informing the Defendant.
Indeed, it is often the case that the Defendant's first knowledge of an injunction being granted is when a representative of the Defendant attends the Bank to perform a routine transaction and is alerted by the Bank that an injunction has been put in place by court order.
However, the injunction can be challenged by the Defendant, but to do so, a fresh court case has to be filed against the Claimant, and in the meantime, the injunction remains in place.
A Claimant may also seek an injunction as regards property in the hands of a third party. For instance, if A sues B and comes to know that C is about to pay a large sum of money to B, a request might be made to the Judge in charge of Emergency Measures to injunct the monies so that C has to retain them and cannot pay them over to B.
Lawyers are often asked what is the standard of proof required to convince a Judge to issue an injunction order? The answer, unsatisfactory as it is, is that what is required is whatever documentary evidence and skilled written argument it takes to persuade the Judge! From experience, it does seem that the Judges are especially concerned about litigant parties who could be perceived to be a "flight risk" or who have strong ties with overseas countries, especially with countries outside the GCC region. It could well be that the Judges are mindful that an Omani court judgment may not be enforced by countries outside the GCC.
So, what is the first thing to do if your assets are injuncted? The starting point is for a lawyer to go to court to peruse the file and to obtain a copy of the injunction order.
The next step is to file a court case against the beneficiary of the injunction.
There are a number of statutory provisions which provide technical, procedural reasons as to why the injunction should be cancelled by the judiciary.
By way of example, Article 375 of Royal Decree 29/02 (as amended) states: "The judgment debtor should be notified of the attachment minutes and the relevant order within ten days from the date of levying it, otherwise it shall be considered null and void."
Accordingly, the Courts have a right to cancel the injunction if a Court official does not serve the injunction order on the affected party within 10 days after the Judge in charge of Emergency Measures signed that order.
In conclusion, the area of injunctive relief and precautionary measures under Omani law is an intricate and complex subject. It is also little-known that a party can still apply to the Omani courts for injunctive relief even when the contract in question states that any dispute will be settled by arbitration. This is because courts always have the right to make injunction orders because an injunction request is considered to be an ancillary request, which is separate and distinct from the issue of which body has jurisdiction over the substantive dispute.
-James Harbirdge, Partner (Oman)
Tuesday, October 5, 2010
Jeremy Miocevic Joins Curtis as Corporate Partner in Dubai
Curtis, Mallet-Prevost, Colt & Mosle LLP has announced that Jeremy Miocevic has joined the international law firm as a partner in its Dubai office.
Mr. Miocevic's practice focuses on mergers and acquisitions, private equity, international funds, and general corporate advisory and structuring.
“The addition of Jeremy Miocevic as a partner strengthens Curtis’ position in Dubai and the Middle East,” said Peter F. Stewart, Managing Partner of Curtis in Dubai. “Jeremy’s strong client relationships, both in the region and in specific sectors, will bolster Curtis' ability to help clients in the UAE and throughout the GCC region.”
Mr. Miocevic is moving to Curtis from a prominent UAE law firm, where he was involved in a wide range of local and regional M&A and private equity transactions and advised a number of clients on structuring, establishing and marketing private equity, real estate or other targeted investment funds.
Mr. Miocevic has counseled some of the largest investment banks and private equity firms in the United Arab Emirates, as well as multinational and regional companies. His work covers deals both inside the UAE as well as cross-border transactions within the GCC, Middle East and Africa.
Mr. Miocevic advises the full range of industry sectors, with particular experience in logistics and supply chain management, water treatment, food and beverage, media and publishing, financial services, and retail. He brings to Curtis more than four years of experience practicing in the UAE where he has a strong knowledge of local laws and regulations relating to his areas of practice.
He also previously served as group legal counsel for Ricardo Plc, a global automotive engineering consultancy. Prior to that, Jeremy was Sole Counsel at Kinsford Development Ltd., a UK-owned boutique venture capital company. He also has been a corporate and commercial solicitor at Allens Arthur Robinson, one of Australia’s largest law firms, where he was a member of the M&A team.
Mr. Miocevic received his B.A. in philosophy and his LL.B. with honors from the University of Auckland, New Zealand. He was admitted to the Bar as a barrister and solicitor of the High Court of New Zealand in 1999 and subsequently admitted as a barrister and solicitor of the Supreme Court of Victoria, Australia in 2001.
Monday, October 4, 2010
Mary Allan Joins Curtis as Infrastructure Partner in Muscat
International law firm Curtis, Mallet-Prevost, Colt & Mosle LLP has enhanced its Infrastructure practice by adding Mary Allan as a partner based in Muscat, Oman.
Ms. Allan comes to Curtis from the Oman office of Denton Wilde Sapte, where she was head of infrastructure/projects. She has focused her work on projects in utilities and general mandate work for energy clients in utilities and the energy sectors. She has done much of her work on behalf of governments, particularly regarding regulatory issues for new power and water projects.
Ms. Allan has spent almost her entire career within the Middle East. She has been based most of the time in Muscat. She was in the Oman capital first from 1996 until 2002 and then, after a four-year stint in Denton’s Dubai office, she returned to Muscat in 2006 where she has been ever since.
“Mary Allan is well-connected within the Middle East and has represented a number of major clients in the energy and infrastructure sectors,” said Bruce Palmer, managing partner of Curtis’ Muscat office. “Her experience in Oman and across the GCC region will enable Curtis to establish itself further as one of the area’s leading international law firms.”
Ms. Allan has been recognized as one of the top practitioners in Projects and Energy by Chambers & Partners Global Directories which quoted sources praising her "excellent experience in the projects area" and by Legal 500 which called her “an excellent lawyer, extremely good in relation to project work and knowledge of the Oman legal system.”
The Curtis Infrastructure Development practice handles a broad range of domestic and international transactions, including some of the world's largest and best known project finance transactions and projects in the international petroleum and power industries. Our lawyers counsel infrastructure clients on the full range of corporate, financial and regulatory issues they face, representing project sponsors, investors, lenders, developers and state entities operating in a wide array of industries. The firm has particular expertise within the Energy sector, covering every segment of the industry – power plants, oil and gas exploration and development, refineries, substations, greenfield facilities, terminals, tankers, pipelines, transmission lines and mining – and spanning the generation, transmission and distribution aspects of electric energy development, regulation and financing.
Monday, September 20, 2010
Royal Decree Relaxes Foreign Shareholding Restrictions
Real Estate Law Update
A recent amendment to Omani land use laws could well prove to be a tipping point in the liberalization of the real estate sector in Oman. The Land Law of 1980 and its subsequent amendments originally paved the way for corporate ownership of land, by permitting wholly Omani (or GCC) owned companies and public joint stock companies with at least 51% Omani shareholding to own land in the Sultanate.Yet even after the enactment of the Land Law, corporate ownership of land remained highly restricted, as Omani companies with foreign ownership – even joint stock companies with greater than 51% Omani shareholding – could not own and utilize real property except for limited purposes complementary to their business objects. For example, these companies could use land only for installing a showroom, warehouse or business office, for providing staff accommodation, or for other administrative purposes. Only wholly Omani owned companies were permitted to engage in real estate development as a business object.
Trading and investing in real estate development, as well as the reselling of real estate property, remained the exclusive preserve of wholly Omani owned companies with related real estate objects until 2004, when these business fields were opened up to wholly GCC owned companies. However, ownership of land in the Sultanate by companies with non-Omani GCC shareholding is subject to conditions which include a well-defined timeline for development of the land along with restrictions on reselling the land without first completing the planned developments to the property. Real estate companies with non-Omani shareholding had to content themselves with usufruct rights over land granted by the Government or by private parties. Usufruct as a beneficial interest in land is time-bound and has limited assignability, which can be a deterrent to undertaking long-term real estate development projects.
These restrictions are now changing. The recent amendments to Omani land use laws issued by Royal Decree 76/10 seek to relax the foreign shareholding restrictions as well as the limitations on the usage of land. The amendments enable public and closed joint stock companies with a minimum of 30% Omani shareholding to own land in the Sultanate. More significantly, the amendments allow these companies to engage in real estate development as a business object, a key permission that previously had been restricted to wholly Omani (and later, GCC) owned companies. Although the amendments do not purport to grant ownership rights to companies that are not in the real estate development sector, they represent a watershed event for real estate development companies that are executing various ITC and non-ITC projects in Oman. (Integrated tourism complexes, or ITCs, are large-scale planned developments that usually include residential properties, hotels, shopping and entertainment facilities.)
Pursuant to the amendments, real estate companies must do the following in order to own land:
- obtain prior approvals from the relevant government authorities for a specified real estate project;
- not dispose of the land within four years of the registration of ownership;
- obtain a building permit for the land;
- register the sale of units only after the completion of construction of the units and the basic infrastructure related to them; and
- have real estate development as a business object stated in its commercial registration.
The amendments also increase the permitted foreign shareholding in companies for entitlement to usufruct. Omani companies with up to 70% foreign shareholding and a minimum of 30% Omani (or GCC) shareholding are now entitled to usufruct over land for national development projects.
Furthermore, the amendments amend the Law on Ownership of Real Estate in Integrated Tourism Complexes, authorizing the Ministry of Tourism (with the prior approval of the Ministry of Finance) to exempt investors in tourism projects – including ITC projects – from the payment of usufruct fees for five years in relation to the undeveloped project area. The amendments make it obligatory to commence an ITC project within two years of securing the land. Lastly, another significant development is that the amendments allow the developer to subdivide the project land in coordination with the Ministry of Tourism, with the proviso that the subdivision will be in accordance with the designated purpose for which it was earmarked.
Wednesday, May 26, 2010
Judge’s Verdict: In Case of a Dispute
This article was written by Curtis partner James Harbridge of the firm’s Muscat office. It originally appeared in the Muscat Daily and is republished here with permission.
When an Omani entity signs a contract with an overseas entity, both sides are looking forward to a mutually beneficial relationship. At the time the contract is signed, neither party can imagine the possibility of being in a dispute in due course.
But the reality is that it is best to be prepared for trouble further down the line. Naturally, Omani companies will want to have their disputes heard locally in Oman’s courts. But is that always the best option?
Certainly, if the contractual courter-party is incorporated in a fellow GCC state, an Omani final court judgment is automatically enforceable against the counter-party by the courts. In such circumstances, the Omani entity may have a large monetary judgment in its favour, but how can it actually get the money if the English defendant refuses to pay up in accordance with the Omani courts’ final decision? The problem arises because Omani court judgments are not automatically enforceable in England.
First, the lawyer for the Omani company will apply to the Primary Court’s enforcement department if he or she knows that the defendant has assets in Oman or is owed any money by parties located in Oman. The enforcement department can then freeze such assets so that the Omani company can obtain the value of the judgment.
But often an overseas company will have no assets in Oman. Accordingly, the Omani company may have to file a fresh court case in England, where the final Omani court judgment may only have evidential value. In other words, the scenario can become a protracted and uncertain one.
To avoid complex, time-consuming and costly situations like this, the Omani party may, before signing the contract, look ahead and seek legal advice as to how best to ensure that there will be no enforcement issues.
One solution, in some circumstances, is for the contract to state that any dispute will be settled by the arbitration taking place in, say, Muscat. Both England and Oman are signatories to the New York Convention on arbitral awards, meaning that an arbitral award rendered in Oman should be automatically enforceable in England.
Before singing a contract, it always pays to think carefully about whether it should be governed by Omani law or a foreign law. Equally, the question of courts versus arbitration is a vital factor, as no one wants to get a court judgment which cannot be enforced. A short, pre-contract meeting with a lawyer can make all the difference as to whether you obtain an enforceable or non-enforceable decision on your dispute.
Wednesday, May 12, 2010
Enhancing Public Private Partnerships in GCC
This article was written by Curtis partner Roger Stark and associate M. Adil Qureshi of the firm's Washington, D.C., office. It originally appeared in the April 2010 issue of Infrastructure Journal and is republished here with permission.
Current market conditions for infrastructure finance present numerous challenges. Government revenues are shrinking and private infrastructure investors are both scarce and risk averse, thereby creating an acute need for alternative sources of capital. Privatisations have become increasingly unpopular and difficult to execute, largely eliminating another source of government liquidity.
Despite declarations by some economists that emerging economies are no longer interdependent with developed ones, the countries of the Gulf Cooperation Council saw a drop of US$44.6 billion in project lending in the first quarter of 2009 as compared to the same period in 2008. Declining oil prices put additional pressure on GCC government budgets, while lenders tightened credit standards, increased spreads and shortened loan tenors. In this harsh environment, well-structured Public Private Partnerships are viable alternatives for implementing major infrastructure projects, and comprehensive legislation to support programmatic deployment of P3s is receiving increased attention.
a. P3s in the GCC
Over the past decade, members of the GCC (which includes Bahrain, Kuwait, Qatar, United Arab Emirates (UAE), Oman, and Saudi Arabia) have been at the forefront of global infrastructure spending as measured by volume of expenditures. A young and rapidly urbanising population combined with historical under-investment in infrastructure has created significant pressure on GCC governments to address pent up infrastructure demand. Governments in the region have responded decisively, undertaking projects valued at over US$2 trillion dollars through January 2010 (as cited in this presentation. However, significant additional infrastructure needs remain unmet.
The P3 model is directly responsive to these needs. When effectively managed, private sector involvement increases the likelihood that infrastructure projects will be completed on time and on budget and introduces efficiencies and innovations in complex projects. Skilful use of the P3 model can improve the quality and availability of public services and, where desirable, take expensive projects off the government's balance sheet. However, the opportunity to use a P3 model for a large volume of projects begs the question of how best to implement P3s quickly, effectively and in furtherance of applicable government policies.
b. Legislative vs. Ad Hoc Approach to P3s
P3s can be implemented using programmatic enabling legislation or ad hoc transactional documents. Programmatic enabling legislation facilitates uniform implementation of government polices, while ad hoc documentation only supplies terms for the specific deal at hand. Although such legislation is not a substitute for transactional documentation, it does provide a baseline of uniform guidelines that support and implement government policies and reduce the time and resources required to negotiate and document each transaction.
By contrast, the absence of effective legislation may result in projects that fail to adhere to governmental objectives or, worse, end in disputes that diminish governmental credibility and exacerbate public scepticism about the transparency of P3s. In the current environment, where competition for capital extends beyond individual projects to entire markets, countries and regions, programmatic legislation is an important tool for managing costs, mitigating risks and securing competitive advantage.
This article focuses on recent P3 developments in GCC countries and the prospects for using legislation to increase the efficiency and effectiveness of P3 transactions. Part II of this article summarises the development of ad hoc P3s in various GCC countries. Part III of this article offers recommendations regarding key elements of a statutory approach to P3s, with an eye to addressing some of the shortcomings present in an ad hoc approach.
II. Ad Hoc P3s in the GCC
In the absence of enabling legislation, key elements of a P3 are memorialised in contracts among the parties. This ad hoc approach forces the parties to cover more ground in each contract, effectively 'starting from scratch' with every new P3 project. Ad hoc P3s also run a greater risk of interpretational ambiguities that may have to be resolved by regulators, arbitrators or courts. As a result, ad hoc projects may be less attractive to private partners than those implemented pursuant to a clearly articulated statutory framework.
A brief survey of P3s in the GCC reveals a region where benefits of P3s are recognised, but most projects are implemented on an ad hoc basis. While governments of the region have recognised the need to promote private sector participation in public services and infrastructure, there remains a considerable gap between rhetoric and results, particularly with regard to formalising a legal framework for P3s.
Of the six GCC nations, Oman, Bahrain and Kuwait have made the greatest strides toward formalising a programmatic legal approach to P3s. Both Oman and Bahrain have implemented P3-frameworks as part of privatisation programs aimed at encouraging private participation in government owned assets. In 2004, Oman promulgated a statute which authorised a broad range of P3 structures and created a high-level Ministerial Committee to oversee a national "privatisation" program that includes the use of P3s.
Bahrain enacted a similar law in 2002, contemplating "privatisations" in the tourism, communications, transportation, power and water, oil and gas, and municipal services sectors, as well as "any other service and production sectors." In 2004, the Bahraini government set out to develop an administrative and legal framework for P3s and has continued to pursue programmatic use of the model.
Kuwait has embraced a similar approach. After an extended period of deliberation, the Financial and Economic Affairs Committee of the National Assembly of Kuwait approved a "privatisation draft law," establishing a framework for private sector investment in power, education and telecommunications projects. This step was preceded by the passage of a Build Operate Transfer Law in 2008 and, more recently, the creation of an entity called the Partnerships Technical Bureau to implement its P3 program.
In the remainder of GCC countries, Qatar, the UAE and Saudi Arabia, the legislative framework for P3s is less developed. For example, Qatar only recently began to privatise its water and power sectors under a P3 format and, despite much discussion about the privatisation of port and municipal services, progress toward a formal P3-enabling framework remains in its early stages.
In the UAE, the governments of Abu Dhabi and Dubai have made sizable investments in power and desalination plants, airports, roads, schools, water facilities and hospitals, displaying a strong commitment to infrastructure development and creating a number of interesting prospects for private sector participation. Abu Dhabi also has implemented ad hoc P3s in the power, water and education sectors (including the Abu Dhabi campus of Zayed University and the Paris-Sorbonne P3 project on Reem Island). However, despite recent calls for further private sector participation, there does not appear to be any P3 legislation on the horizon for the UAE.
A similar situation prevails in Saudi Arabia where there is no formal P3 law and regulation of P3s is typically addressed in deal documentation. While there is no specialised P3 ministry in Saudi Arabia, the government has established a Supreme Economic Council (SEC) to supervise privatisation and monitor implementation of P3s and other structures involving private sector investments. The SEC has approved a nationwide strategy, authorising privatisation of the telecommunications, power, water, industrial parks, postal services, education, and air and rail transportation sectors. Under this mandate, P3s have been implemented in air transportation and desalination.
Still, potential for more projects remains untapped and would likely benefit from programmatic P3 legislation. In summation, the countries of the GCC fall into one of two categories: those that have taken tentative steps toward well-developed P3 programs and those that have taken few if any such steps. Given the potential for increased use of the P3 model, the stage is set for a more comprehensive approach to P3s in the region.
III. Creating an Enabling Legal Framework for P3s
Statutory frameworks for P3s can encompass a wide variety of transactions, assets and public service sectors. For purposes of this article, the discussion below assumes projects with (1) expected useful lives in excess of 40 years, (2) capital costs in excess of US$100 million, and (3) at least partial ownership of the project by the relevant private parties. The assets of the P3s may revert to the sovereign government at the end of an established period, or may be transferred and conveyed to the private party. Thus, P3s may be viewed either as traditional "concession" contracts or as privatisation vehicles.
Effective statutory frameworks identify and implement key governmental objectives (typically focusing on the desire to attract private capital), while allowing flexibility to accommodate varied investor requirements regarding project structures, risk profiles and return of capital. Equally important, effective frameworks establish basic legal and structural paradigms that can be reused (not reinvented) in each successive P3 project. These considerations are especially important with regard to three key elements of the framework: delegation of public duties to private parties, procurement rules and procedures, and dispute resolution.
a. Key Elements of Legislation Authorising P3s
Effective P3 programs hinge on the ability of governmental entities to delegate some of their functions to one or more private parties. Thus, P3 legislation should unambiguously identify the governmental entities authorised to enter into P3s, the types of functions or services that may be delegated to private parties and the types of assets or facilities that may be developed, constructed, owned and operated under a P3 structure. These determinations require careful balancing of government policy objectives, the public interest and the need to incentivise private sector participation.
Legislation authorising government entities to enter into P3s also may specify categories of permissible transactions. For example, some jurisdictions may wish to limit P3 transactions to a build-lease-transfer format, while others may contemplate more long-term (or even more permanent) arrangements for private participation. At a minimum, the P3-enabling legislation should identify the sectors in which P3s are authorised and any limitations on the structure and duration of private sector participation.
Legislation also should designate, or create, a governmental entity to oversee and facilitate P3 development and implementation (P3 Entity). For example, a P3 Entity should be authorised to both receive P3 proposals from constituent government entities (e.g., authorities, municipalities, etc.) and propose P3 projects and issue "requests for proposals" (RFPs) for P3s.
In evaluating proposed projects, the P3 Entity should be required to perform an economic analysis (see "value for money" discussion, infra) and an initial risk/reward assessment of the proposed project. The P3 Entity also should have the authority to enter into P3 contracts (see infra) and ancillary arrangements including contracts to retain professional advisers (e.g., engineers, financial advisers, attorneys) and take other actions necessary or desirable to effectuate the goals of the P3 statute.
Finally, P3 legislation may authorise certain types of government financial support including credit enhancement instruments (e.g., bonds, letters of credit) and, in limited cases, sovereign guarantees. Other types of governmental support may be appropriate depending on the project and the government's objectives. At bottom, however, P3 legislation must answer the central question of whether the delegation of public functions will require the commitment of public credit to or on behalf of private parties and, if so, whether such commitments conflict with constitutional or public policy constraints in the relevant jurisdiction.
b. Procurement Rules and Procedures
P3s are often hindered by a lack of clarity regarding how existing procurement laws should be applied to the project at hand. Ambiguity in this area can lead to inefficiencies, increased costs, delays or even cancellations of projects. Where management of the P3 procurement process is tasked to a P3 Entity, such entity's responsibilities may include setting eligibility criteria and methodology for selecting and evaluating projects, preparing RFPs, and evaluating proposed projects with a view to prioritising those that should proceed and eliminating those that should not.
The P3 unit also should perform economic assessments and feasibility appraisals of potential projects. For example, the Private Finance Initiative implemented in the United Kingdom utilises the concept of "value for money" to determine whether a particular project is suitable for implementation through a P3. To ensure continuity and uniformity, it is advisable that value for money assessments within a particular sector be undertaken by a single governmental entity. In essence, the goal should be to create a degree of sector specialisation among the government officials that will be charged with reviewing, developing and implementing P3s.
Once it is determined that a given transaction is suitable for the P3 structure and a private partner is selected [procurement rules should specify whether private partners will be selected pursuant to an objective scoring system or whether the government will be permitted to exercise a degree of subjective discretion (e.g., by entering into "competitive negotiations" with multiple bidders). The former approach offers the benefits of clear-cut transparency, while the latter offers the potential for achieving better results for the government if pre-established rules and procedures for avoiding ex parte communications are observed.], the transactional details of the P3 will be set out in a P3 contract. The contract, among other things, should address the following matters:
c. Dispute Resolution Mechanisms
Dispute resolution provisions simultaneously present some of the most simple, and the most complex, issues encountered in negotiating public/private transactions. Some issues may be considered simple because the basic principles of transparency, impartiality of decision maker(s) and neutrality of fora are intuitive and widely understood. Nevertheless, different parties often will view these basic principles from vastly different perspectives. Even greater complexity arises where different dispute resolution processes apply depending on the type of transaction, the type of document, or even the particular contractual clause in dispute.
The basic elements of infrastructure projects consist of the operational components (i.e., hard assets) that comprise a project and capital investments necessary to bring them into existence. Generally speaking, debt (and sometimes equity) participants in capital intensive projects will require that investment disputes be litigated in the courts of a jurisdiction with a well-established reputation for predictable and consistent decisions on such matters. For commercial lenders and international financial institutions, New York or London are typically the jurisdictions of choice. This preference is heightened where, as in P3 transactions, the government participant is perceived to enjoy a "home-field" advantage in its own courts. Thus, a P3 program that fails to reasonably accommodate such lender preferences to the extent appropriate is at risk of reducing its pool of potential investors.
By contrast, a somewhat different analysis applies to issues arising in the context of "operational" aspects of a project. Although a detailed discussion of the topic is beyond the scope of this article, it may be said that some operational disputes where relatively small amounts are at issue may be made subject to binding arbitration under the aegis of an internationally recognized institution (e.g., ICSID, ICC, UNCITRAL) using impartial arbitrators in a neutral location.
Such arrangements may be structured consistent with the preferences of international sponsors and investors and should also serve the objectives of achieving an expedited hearing of the disputes by a panel of arbitrators/experts with specialised expertise in the matters at issue (e.g., allegedly defective construction materials). One area of particular concern to private investors is the enforceability of contracts against the government and the finality of judgments handed down by courts or arbitral tribunals outside the host country. Investors will desire certainty on this count, seeking waivers of sovereign immunity and assurances that foreign judgments and arbitral awards rendered in accordance with the P3 contract will not be litigated again in the courts of the host country.
To the extent, consistent with constitutional and public policy constraints, P3 legislation should provide an appropriate degree of certainty by authorising narrowly tailored waivers of sovereign immunity and allowing for the enforcement of foreign decisions against public or semi-public entities in the host country. Given the political sensitivity attached to such considerations, P3 statutes of various countries reflect a variety of approaches to achieving such certainty [For example, Brazil and India were for some time viewed as difficult jurisdictions in which to enforce foreign arbitral awards against public entities. However, in recent years, Brazil has adopted legislation that facilitates the enforcement of arbitral awards subject to the requirements that (a) the arbitration is held in Brazil; (b) the language of the arbitration is Portuguese; and (c) the proceeding is carried out in accordance with Brazilian arbitration law. India is said to be evaluating similar reforms. See Arnold Wald & Jean Kalicki, "The Settlement of Disputes Between the Public Administration and Private Companies by Arbitration under Brazilian Law." Journal of International Arbitration, August 2009.] Nevertheless, P3 legislation should make every effort to conform with best international practices in this area, to the extent consistent with local law and with the objectives of the P3 program.
IV. Conclusion
In light of the mounting population pressures confronting countries of the GCC, P3s have an important role to play in meeting long term public infrastructure needs. The implementation of a comprehensive P3 statute can improve the volume and efficiency of P3 transactions while mitigating the costs assigned to government balance sheets. Effective P3 statutes also will improve the ability of governments to compete for private sector partners and capital. Although natural resource wealth will mitigate the short term need for such capital, the GCC's long term infrastructure needs will require increased utilisation of P3s as a cost-effective vehicle for programmatic infrastructure development.
Tuesday, February 16, 2010
GCC Unified Industrial Code
Recently, the GCC states have sought to unify the general administrative regulations of industrial establishments in the region. The objective is to speed the process of industrial development and enable integration amongst GCC nations. To accomplish these objectives, the Unified Industrial Regulations Law, RD 61/2008 (the “UIR Law”), and its accompanying Executive Regulations, MD 46/2009, were passed in Oman. The UIR Law and the Executive Regulations have set out a harmonized framework for the administration of GCC industrial projects.
First, the UIR Law and Executive Regulations provide a definition for “industrial establishment,” which includes all plants at which some sort of transformation of a product takes place. The definition includes establishments involving assembling, mixing, compiling, separating, processing or packaging, provided that machinery is involved in these steps. This defines the scope of the UIR Law and the projects to which it will apply.
In addition, the UIR Law requires anyone wishing to establish, modify, improve, expand, merge or divide an industrial establishment to obtain a license from MCI. The Executive Regulations set out the procedures and documents required for obtaining the license.
The UIR Law also provides an industrial register, similar to a commercial register, which will include information on all industrial projects.
Certain establishments are exempt from the requirements of the UIR Law, including projects that are governed specifically by special separate laws or treaties, or projects that are carried out solely by the government or any of its entities without the participation of private-sector entities. In addition, the UIR Law specifies that mineral ore extraction and oil extraction are exempt from the requirements of the UIR Law.
While this regulatory framework is new and its implications are still emerging, it should provide greater cohesion amongst large industrial projects in the GCC region and facilitate the transfer and sharing of information about projects.
Tuesday, January 26, 2010
Private Equity Opportunities for GCC Family Businesses
This article, written by Curtis partner Peter Stewart and associate M. Adil Qureshi of the firm's Dubai office, was first published in the December 2009 issue of the The Brief magazine. It has been reprinted here with the permission of the publisher.
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The slowing of the world economy and the restrictive credit environment has pulled back the curtain on many Gulf Cooperation Council (GCC) family firms, revealing structural weaknesses. However, the challenges posed by the economic crisis are not without opportunity.
Indeed, the crisis provides strong impetus to reshape GCC family businesses in ways necessary to ensure firms’ long-term survival and success. For many family firms, private equity can provide an effective framework for accomplishing this goal.
As the summer months passed, economists, business people and commentators speculated over the timeline of an economic rebound in the Gulf region. Such discussion looked at a range of economic indicators, including employment, oil demand, budget projections and inflation. In their commentary, one factor – the health of family businesses – seemed to be overlooked.
Family Ties
Family businesses are a vital part of the economic fabric of the GCC economy. Some estimates indicate family businesses conduct more than 90 per cent of commercial activities and employ more than 70 per cent of the workforce in the GCC.
The defaults of the massive Saad Group and Ahmad Hamad Algosaibi and Bros (AHAB) earlier this year made it clear that the family sector would not emerge unscathed from the economic crisis. That controversy marked an end to loose credit practices regionally and exacerbated restrictive credit conditions.
The most obvious benefit of private equity investment is liquidity. There has been much talk of the appeal of family firms’ holdings to the many private equity firms operating in the GCC in recent years. Such firms could purchase unproductive units, use sector-specific expertise to retool them and potentially combine them with other units, unlocking synergies. If family firms can make the difficult decisions necessary to part with such business units, private equity could provide them with badly needed cash while making a profitable return.
The benefits of private equity, however, may go beyond liquidity. Private equity firms can bring to bear the managerial expertise necessary to reshape family businesses by helping to pare down unproductive business units, boost productivity, raise funds, reform corporate governance, professionalise functions, and institute new systems and processes. These steps can prove crucial to securing the prosperity of the company. If permitted to invest in the company and to influence management, private equity can reshape the business for future growth.
There are a number of steps family firms can take to increase the likelihood that private equity firms will invest in their business. The first of these steps is formalising corporate governance in line with international standards. The process of strengthening internal controls, risk management mechanisms, and monitoring and reporting frameworks can reveal weaknesses and valuation affecting issues while instilling enhanced managerial discipline. Additionally, firms can recruit independent non-executive board members and bolster the influence and accountability of their boards by instituting typical board committees with written charters, policies and procedures in line with international standards.
Separation of Powers
Perhaps the most significant governance step that family firms can take is to separate ownership and management. Top management and the board of directors should coordinate with, but be independent of, the family. Such a measure would typically serve to encourage professionalization of management, avoid succession conflicts, and increase transparency.
The improvement of governance and the professionalisation of management prior to a deal should also facilitate the implementation of new systems and processes after a deal. Further, the implementation of standard practices, including accounting practices, will signal to investors the reliability of a firm’s figures and improve the likelihood of a successful transaction and later exit.
Lastly, family businesses in the GCC should be flexible and creative in structuring private equity deals. While often majority and controlling stakes cannot legally be sold, GCC family businesses should be open to transferring larger stakes and more control in order to allow private equity investors to realise expected returns. Structures involving hybrid securities, debt, dividends and warrants can be considered. Family firms may also consider allowing private equity investors the chance to exit through partial IPOs. Nasdaq Dubai has recently decreased its minimum offering requirement to 25 per cent in a bid to encourage this behaviour and entice more family businesses to offer shares for public trading.
Family firms have an honoured legacy in the Gulf for pioneering industries, exploiting new opportunities, and creating wealth. Today, many of these pioneers stand at a crossroads. Will they respond to current pressures by continuing with old ways of doing business, or by embracing change that will enable them to meet the challenges of an increasingly global economy? For many family firms, private equity investment can be an effective catalyst for change helping to meet those challenges.
Friday, December 4, 2009
Oman Petrochemical Producers Targeted by Protectionism
In early December 2009, members of the Gulf Petroleum & Chemicals Association (GPCA) will convene in Dubai for the organization’s Fourth Annual GPCA Forum. Recent dumping accusations made by Asian and European petrochemical producers against GCC companies likely will rank highly among topics for discussion.
China, India and the E.U. each have complained of dumping by GCC producers in recent months, in some cases leveling tariffs on GCC products. “Dumping” is the term used when a producer sells its product on the international market at a price lower than either the cost of production or the price on the local market.
In June, China launched an anti-dumping investigation into Saudi methanol exports, placing a provisional tariff on Saudi methanol. In August, India levied tariffs on exports of poly-propylene from Oman and Saudi Arabia ranging between one and eight times production costs. In September, the EU launched an anti-dumping investigation against the UAE and Iran relating to exports of poly-propylene tripthalate, the substance used to make plastic bottles.
With the exception of Iran, all of the countries involved in these claims are members of the World Trade Organization (WTO). The WTO allows member states to take action against dumping when it causes material injury to the competing domestic industry. Prior to taking such action, members are required to show that dumping is taking place, calculate how much lower the export price is compared to the exporter’s home market price, and show that the dumping causes or threatens to cause harm.
The complaints raised by China, India, and the E.U. accuse GCC countries of subsidizing natural gas, a crucial input in the production of plastics and other petrochemicals. The low price of feedstock is said to reduce the prices of goods produced in the region to unfairly low levels compared with the international market.
In an interview with Abu Dhabi’s The National, the GPCA rebutted the subsidy allegation, emphasizing that the natural gas used in the production of petrochemicals is a by-product of crude oil production. In the words of the organization’s secretary general Dr. Abdulwahab Al Saadoun, “It is not a subsidy, because there is no cost incurred.”
According to the GPCA, Asian and European claims of dumping mask growing protectionism. In an October 2009 statement, the organization stated “the GCC industry and our governments will not accept the application of anti-dumping regulations against exports of petrochemicals and chemicals from the Gulf. We have seen a surge in protectionist actions brought by countries to block imports. These cases are baseless and violate international rules.”
A surge of protectionism would come as no surprise to the GPCA. The global financial crisis has affected the petrochemical industry worldwide, restricting credit, causing economic contraction and substantial declines in demand for petrochemical products. According to the GPCA, GCC producers have been the least affected by the crisis, making them ripe targets for protectionist policies. “During downturns,” Dr. Al Saadoun remarked in an interview with Arabian Oil & Gas, “there are moves toward protectionism and this is a key challenge we want to address through the collective efforts of all the members.”
Unless settled by the governments of the involved countries, the WTO Dispute Settlement Body may hear disputes between WTO members. History provides some indication as to how the WTO may rule on any cases brought before it. At the time of Saudi Arabia’s accession to the organization in 2006, Saudi negotiators successfully persuaded WTO member states that the country’s low domestic costs of feedstock were justified when compared against the additional costs associated with export. Experts believe that the WTO’s acceptance of this position will undercut European or Asian anti-dumping measures in any hearing before the WTO.
While the anti-dumping duties can exact a cost on regional producers during the time it takes to resolve these disputes, there may be an unexpected benefit for the members of the GPCA. As a result of these challenges, Dr. Al Saadoun has pledged that the “GPCA will strengthen coordination with GCC governments to ensure that exports of petrochemicals and chemicals from the Gulf region are not restricted by antidumping regulations and other trade restrictions.” To that end, the young organization has established an advocacy committee that will create a mechanism to alert its members about anti-dumping cases.
As a result of the anti-dumping challenges, GCC producers seem to have gained a new advocate eager to meet its aims of speaking on behalf of the industry and developing a range of tools and resources available to all of the region’s producers.
Monday, November 30, 2009
Tendering in Oman: Practical Issues
Foreign companies wishing to tender in Oman need to understand a wide range of matters such as legal procedures, applicable government policies, the procurement guidelines, approvals required, and the implications of policy and law changes.
In this article, we highlight some issues which may impact on tendering in Oman.
Monday, November 9, 2009
GCC Interconnection Grid
The vision of an interconnected power system for the states of the Gulf Cooperation Council (GCC) is nearly as old as the 27-year old organization itself. The introduction of the concept in 1982 has, in recent years, proven extraordinarily prescient. Today, the GCC Interconnection project is nearing completion just as electricity demand projections appear set to take off.
The countries of the GCC have experienced increases in demand driven by population growth, urbanization and industrialization. According to some sources, demand for electricity in Oman has been growing at 6-7% per year. Demand growth is forecasted at 15% annually until 2020
The GCC Interconnection Grid is a crucial element of the GCC’s plans to meet the growth in demand. The linking up of electricity systems between Gulf states will reduce long term investment costs for generation by reducing required levels of reserves, adding efficiencies and creating opportunities in energy trading.
Phase I of the interconnection was completed in July 2009, linking Bahrain, Saudi Arabia, Qatar and Kuwait in what is referred to as the GCC North Grid. Phase II of the plan, also complete, involves the internal connection of the electricity grids in the UAE and Oman, known as the GCC South Grid. Phase III will bring the project to completion with the linking of the North and South grids. The final of the three phases of the USD 1.407 billion interconnection project is scheduled for completion in 2011.
According to GCC Interconnection Authority (GCCIA), the body responsible for constructing, operating and maintaining the interconnection, each GCCIA member state will be capable of importing up to the value of its interconnection size. In Oman’s case, potential imports amount to 400MW. As a result, operational reserves in the region are expected to fall.
Additionally, lower operating and management costs to consumers will be achieved by using energy from the most economic generation unit available for dispatch in the interconnected system.
Further, available spinning reserves will be shared to cover emergency conditions and provide emergency support to any system experiencing a blackout.
The benefits of interconnection, however, could stretch far beyond cost savings. If all goes according to plan, the Interconnection Grid will enable the export of power to the Mediterranean basin and to Europe.
Legal Framework for Interconnection
Just as crucial as the technology behind the GCC Interconnection Grid are the legal arrangements making interconnection possible. In the words of GCCIA spokesman Hassan Al-Asaad, “legal agreements are the basis for the entire project – without them there we have no interconnection.”
The members of the GCC Water & Ministerial Committee have undertaken to sign the General Agreement of Power Interconnection Grid with the GCCIA. The General Agreement lays out the fundamental agreement between member states with regard to use of the interconnection. The General Agreement includes provisions relating to connection fees, rights of interconnection, performance, defaults, termination, and governing law, as well as the regulatory principles committed to by the parties.
Regulation of use of the interconnection will initially be carried out by the GCCIA Board. At a later stage, authority will be transferred to a Regulatory & Advisory Committee that will ensure compliance with regulatory principles and performance standards. Finally, when member states take the step of forming a regional energy regulator, permanent authority will vest in that body.
In addition to the General Agreement, state utilities must enter into a Power Exchange and Trading Agreement (PETA) which sets out the terms on which the parties may connect and have access to the grid and the terms by which parties may schedule transfers of power. The PETA is made up of three separate components:
Friday, November 6, 2009
Legal Issues in Retention of Employee Passports
The practice of employers retaining their employees’ passports has been justified on the grounds of “safekeeping” and as a foolproof method of ensuring that an employee does not leave the country without the prior knowledge of the employer. Some employers are also known to deny free access to their employees to use their passports or to travel freely. A passport is a formal government document that certifies one’s identity and citizenship and permits a citizen to travel abroad. As a matter of fact, most governments prefer that their citizens exercise caution in agreeing to handover their passports to employers or to any other persons. In most countries, retaining the passport of a person without appropriate judicial authorisation is not permissible. The courts in many GCC countries have consistently held in cases filed by aggrieved employees that passports should not be retained by employers. Further, retention of passports may also be an infringement of the Forced Labour Convention of the International Labour Organisation (ILO) which requires member-states ratifying the Convention to undertake to suppress the use of forced or compulsory labour in all its forms within the shortest possible period. Forced or compulsory labour is defined as all work or service which is extracted from a person under the menace of any penalty and for which the person has not offered voluntarily. In the UAE, government circulars have been issued periodically proscribing the practice of retaining employees’ passports. A similar circular was issued in November 2006 in Oman by the Ministry of Manpower upholding the right to retain one’s passport but without prescribing a penalty [or private right of suit] for its infringement. Consequently, enforcement is no easy task. The ostensible justification that employers hold forth is that their employees may be controlling substantial parts of their assets and withholding their passports gives them the leverage to counter any attempt to misuse the authority vested in the employees. But this is a restraint on the right to free movement and could give undue advantage to the employer in a dispute. Further, the Supreme Court has ruled that foreign workers are no longer required to obtain the permission of their employers to seek new employment in Oman. The impact of this ruling could remain largely illusory if the employer retains the passport of the employee seeking new employment. Retention of the employees’ passports may be an efficacious means to exercise control over the employees but it is clearly not a legal option available to employers. This underscores the need for employers and governments to devise a legally enforceable mechanism to remove the uneven bargaining power between parties.
Monday, October 26, 2009
Enforcement of Court Judgments and Arbitral Awards
There is often a lot of confusion about the effects of Oman Court judgments and Oman arbitral awards rendered in Oman. This post should provide some clarity.
First, there is a distinction between court judgments and arbitral awards.
A final, non-appealable Oman Court judgment should be automatically enforced in any of the other GCC states, by virtue of the 1996 Treaty for the Enforcement of Judgments, Judicial Delegation, and Courts Summons between the Arab Gulf Countries Cooperative Council (AGCC).
Outside the GCC, it is unlikely that a final Omani court judgment would be automatically enforceable. Almost certainly, the case would have to be heard again by the courts of that country.
Second, there are two relevant types of arbitral awards in Oman. The first type is an arbitral award rendered in Oman. This award should be automatically enforced in any country which, like Oman, has signed the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards (the “NY Convention”). Under the requirements of the NY Convention, any country that is a member of the convention is required to give effect to private agreements to arbitrate disputes. In addition, member countries are required to recognize and enforce arbitration awards made in another contracting country. Oman signed the NY Convention in 1999 and currently there are 144 member countries worldwide.
A second type of arbitral award involves those awards rendered in a fellow member state of the NY Convention. If the respondent to the claim fails to pay the award, the claimant may seek to enforce the award in an Omani court.
This particular scenario has not yet been tested in Omani courts, but the terms of the NY Convention would require the Omani court to enforce the arbitral award, just as the courts of all signatories to the NY Convention.
Wednesday, October 14, 2009
Corporate Ownership of Real Estate
Companies in Oman seeking to own land are subject to a number of restrictions under Omani law. The land or real property owned by a company in Oman must be used only for the limited purpose of furthering the objects of the company such as for building the administrative office, warehouse, staff residences, etc. An exception has been made in relation to wholly owned Omani companies whose business objects include owning, developing, and disposing of real property. Additionally, certain wholly owned GCC companies with real estate development objects have also been exempted from this legal stipulation for restricted use of land.
Corporate ownership of real estate is subject to the following restrictions:
One option available to non-GCC companies in Oman that are interested in real estate development is to obtain usufruct rights over the land. Usufruct is a right in land acquired from the owner of the land to exploit and benefit from the land. Usufruct can be obtained for a maximum initial term of fifty years extendable for further terms. The owner of the land must obtain the mandatory governmental approvals before granting usufruct rights. A company can obtain rights to beneficial use of the land by entering into a usufruct agreement with the owner which is subject to government approvals for the usufruct and for the development plans.
Thursday, October 1, 2009
IWPP Finance in Oman and the GCC
After years of remarkable expansion followed by a precipitous decline in the wake of the global financial crisis, the credit market for international water and power projects (IWPPs) in Oman and the GCC appears poised for a recovery.
While 2008 saw a project volume in the Middle East of about US$50 billion, nearly six months passed before the GCC saw its first IWPP financing of 2009. Bahrain’s Addur IWPP closed on 29 June, raising US$2.1 billion and bringing the overall project volume for the region to US$6.7 billion for the year.
The financial crisis forced project lenders to write down the value of project debt, driving up the cost of borrowing. Further, it wiped out the secondary market for project loans as banks shunned the formerly popular practice of packaging debt in off-balance sheet vehicles.
The capital that commercial banks were willing to lend came at a higher cost and decreased tenor. Whereas tenors running from 15 to 20 years at 100 bps over Libor were once common, the Addur project received debt at a tenor of eight years at 350 bps over Libor. Today, the cost of capital averages at 250 bps over Libor.
The revival of IWPPs in the region has been driven by loosening credit conditions linked to new trends in IWPP finance. Specifically, banks are making increasing use of hard or soft mini-perm structures. In a hard mini-perm, debt is offered at a short tenor, in the range of seven years, requiring early refinancing. In a soft mini-perm, a longer tenor is used, but incentives are used to encourage the lender to refinance well before maturity.
Another key trend has been the rising profile of export credit agencies and international development banks. Export credit bodies provide access to large amounts of relatively inexpensive capital and offer added confidence to commercial banks. Development banks have also played a key role by providing an additional source of capital and a backstop for project debt.
Finally, banks have been favoring government supported projects. For instance, an IWPP with a concession or off-take agreement is a stronger candidate for financing given its relatively secure future cash flows. Additionally, governments may guarantee the obligations of state-owned parties entering into such agreements.
Increasing electricity and water demand has led the government of Saudi Arabia to tender projects in form of engineering, procurement, construction (EPC) contracts, rather than build, own, operate (BOO) or build, own, transfer (BOT) contracts.
Oman aims to avoid such a measure. Continuing on its program of privatization, Oman expects to see the close of a club financing of an IWPP in Salalah this year. RFPs have been released for projects at Barka, Sohar, Duqum, and Ghubrah, with another for an IWPP in Mirbat on the way. Additional projects are being studied, including a solar plant in the south of the country.
In past projects, the Oman Power & Water Procurement Company (OPWP) has entered into off-take agreements. In the case of the Barka and Sohar IPPs, the OPWC will purchase the output under a 15-year agreement.
IWPP finance and execution in Oman implicates a range of complex legal issues, including:
In addition, it is often necessary to put in place all the project agreements in order to obtain IWPP finance. Depending on the project, these agreements may include:
As the credit market revives -- and as the oil prices rebound -- Oman grows increasingly likely to meet its goal of increasing output through an ambitious program of privatization.
Monday, August 24, 2009
Renewable Energy Update: Carbon Finance
On June 29, 2009, the newly created International Renewable Energy Agency (IRENA) announced that its headquarters would be located in Abu Dhabi’s Masdar City, marking a high point in the Gulf Cooperation Council’s (GCC) embrace of a future in renewable energy.
In late July, the Sultanate of Oman led the GCC further, announcing the creation of a Designated National Authority (DNA) pursuant to its commitment as a ‘non-Annex B’ party to the Kyoto Protocol.
The creation of a DNA is a crucial step that will ultimately allow Oman to host projects, including renewable energy and clean technology projects, that reduce greenhouse gases under the Kyoto Protocol. These projects can provide an additional revenue stream to Oman from emissions credits sales in developing international carbon markets.
The Growing Market for Carbon Allowances
Many experts believe that the environmental and economic costs of climate change will trigger a reordering of financial and industrial resources on a global scale. In order to prevent widespread environmental disruption, regulatory intervention aimed at promoting innovation will be required on national, regional and international levels.
The need for innovation is not limited to the development of new technologies. The drive for creative solutions to global warming has resulted in the creation of new financial products and markets aimed at managing and transferring the risks and costs of global warming. The so-called ‘cap-and-trade’ system is a key element of the Kyoto Protocol, an international agreement implementing the United Nations Framework Convention on Climate Change.
Under Kyoto’s cap-and-trade regime, certain member states (Annex B nations) are limited in the level of carbon or greenhouse gases they emit into the atmosphere. Each member is issued emission allowances, one unit of which corresponds to one ton of greenhouse gas and indexed to the global warming potential of carbon dioxide (CO2). Under Kyoto, emissions allowances are freely tradeable between Annex B members.
Also under Kyoto, non-Annex B members, primarily developing countries free from Kyoto’s carbon emission limits, are permitted to monetise investments in carbon reduction projects by developing projects under the Protocol's Clean Development Mechanism (CDM). Projects under the CDM program are accredited by the CDM Executive Board, an implementing body of the Protocol, and result in reductions in carbon emissions, the implementation of which will earn emissions reduction credits (CERs) which can be sold on the open market to emitters in Annex B member nations.
Projects in Oman developed under the CDM must be approved by both the Oman DNA and comply with requirements established by the CDM Executive Board.
According to the World Bank, the overall carbon market was valued at US$126 billion at the close of 2008, more than double its value in 2007. The secondary market for CERs saw a five-fold increase in both volume and value over the prior year. Despite the uncertainty created by the expiration of the Kyoto Protocol in 2012, project developers are still reviewing and investing in credible projects in certain markets.
Opportunities in Renewable Energy
The Sultanate’s decision to establish a DNA also will present businesses in Oman with new opportunities in the renewable energy space. While wind, biogas, geothermal and wave energy pose strong opportunities for Oman, the greatest promise is held by solar energy. According to the Omani Authority for Electricity Regulations (AER) May 2009 report, Oman is the beneficiary of some of the highest levels of solar density in the world. If harnessed, solar energy could provide for all of Oman’s electricity needs.
Work to achieve this goal is underway. In May, the Public Authority for Electricity and Water (PAEW) of the Sultanate announced a tender for the first large-scale solar power plant in Oman on a build, own and operate basis.
The sale of CERs could facilitate the benefits posed by solar energy by helping finance such projects. According to AER, Oman’s origination of CERs could save anywhere from three to 18 percent of the operational and capital costs of solar and wind grids.
Legal Issues Related to CDMs
Firms seeking to participate in CDMs will face a number of unique legal issues. Specifically, firms will need to comply with CDM rules in order to ensure that CERs are properly issued. CERs must be validated, registered, verified and certified by the proper national and international authorities and independent auditors before issuance. When selling CERs, parties must carefully negotiate and adequately record the agreement, identifying responsibilities, establishing rights and allocating risk with an eye to the unique aspects of the asset and the particular risks that may arise. Risks include the classification of the CER property right in both the host and purchasing country, the tax treatment of CER revenue and the use of national and international emissions reduction registries to track and record CERs.
While it remains to be seen exactly how Oman’s DNA will be implemented, it is clear that any potential CDM projects must adhere to Omani law, as well as CDM rules.
Certainly some time is needed before the details of these policies come into focus, but it is clear that Oman is taking seriously opportunities in renewable energy and that many firms in Oman stand to benefit from this initiative.
Thursday, July 9, 2009
Hot Topic: Nuclear Energy in the GCC
Earlier this month, Oman’s Ministry of Foreign Affairs signed a Memorandum of Understanding (MoU) with the Russian Federal Atomic Energy Agency (Rosatom) that deals with cooperation in the peaceful use of nuclear power. The MoU could lead to Russia and Oman engaging in joint research projects and even building nuclear reactors together.
The MoU details Russia and Oman’s plan to establish a working group to promote Oman’s plans to develop nuclear power. The countries also plan to draft an intergovernmental agreement for cooperation in peaceful nuclear energy. Both countries have stated that they plan to cooperate in the following areas:
Oman has long had plans to diversify its economy and encourage sustainable economic development policies, and the peaceful use of nuclear power fits in with those plans. Cooperation between Oman and Russia on nuclear power can help the Sultanate develop infrastructure, provide employment opportunities and training, and benefit from Russian expertise and technology.
Oman is not the first country in the Middle East to seek nuclear energy development. Bahrain, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates (UAE) and Yemen have all expressed their intention to develop nuclear energy. The UAE has already signed a bilateral agreement with the United States on nuclear cooperation and is also talking with France to cooperate on nuclear energy. In addition, the North African countries of Algeria, Egypt, Libya, Morocco and Tunisia have also expressed interest in nuclear energy.
MENA states have a number of motivations for this interest in nuclear energy, such as powering water desalination plants and air conditioning, diversifying beyond oil, and furthering scientific and economic development. Some countries have even stated that they prefer to sell their oil rather than use it to meet domestic demand, and constructing nuclear reactors would enable them to do that.
Energy demand is growing rapidly in Oman and the GCC, with electricity and desalination demands estimated to increase by about 10 per cent annually by 2015. Recently, a GCC-wide electricity grid was introduced which allows GCC states to share power during peak periods. The GCC electricity grid is designed to address what has been labeled a “power crisis” in the region.
GCC states are looking to nuclear and other alternative energy sources as providing potential solutions to the power crisis. Solar energy is another potential resource, with new projects underway. Earlier this month, Abu Dhabi opened the largest solar power grid in the Middle East and North Africa. Oman is also in the process of developing solar energy projects in response to the growing electricity demand.
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.
Wednesday, March 11, 2009
GCC - Singapore Free Trade Agreement
The recent signing and implementation of the landmark GCC-Singapore Free Trade Agreement (GSFTA) is poised to bolster trade and create business opportunities between Oman and Singapore.
The GSFTA provides a framework for integration of the Gulf economy with that of the Asian financial center by promoting and facilitating the greater flow of goods, services, investment, and people between the two regions.
The Agreement also represents a political milestone for the GCC as the first Free Trade Agreement (FTA) entered into by the organization comprised of member states Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
The GCC is Singapore’s seventh largest trading partner, with bilateral trade reaching a record height of S$42.4 billion in 2007, up 127% since 2002. Total exports from the GCC to Singapore were worth S$34.8 billion, while Singapore exported an estimated S$7.5 billion worth of goods to the GCC. Singapore’s investments in the GCC totaled S$357 million in 2006. Oman’s primary exports to Singapore are petroleum crude, refined petroleum products, alcohols phenols and derive, lime cement stones, and heating and cooling equipment.
The GSFTA covers primarily Trade in Goods, Trade in Services, and Government Procurement. Additionally, it streamlines customs procedures, pledges ongoing cooperation in areas such as air services, Halal certification, and business visit cooperation, and commits the parties to complete negotiations on bilateral Investment Guarantee Agreements (IGAs) within two years.
Key elements of the GSFTA include:
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