Monday, March 24, 2008

Oman to Spend $4 Billion on Shipping Fleet

Oman to spend $4bn on shipping fleet
by Luke Pachymuthu
Monday, 24 March 2008

ArabianBusiness.com

Oman's state shipping firm will spend up to $4 billion in the next three to four years to expand its fleet size, a senior company official said, part of the sultanate's efforts to upgrade its oil industry.

Oman Shipping Company (OSC) is looking to grow its fleet mainly to meet demand for energy transportation, Chief Financial Officer (CFO) Kuldeep Mathur told newswire Reuters in a recent phone interview.

"We are expanding the fleet with a view of the future demands for our export grade crudes and products," he said.


Part of OSC's multi-billion dollar expansion includes a recent order to build 10 Very Large Crude Carriers (VLCCs), Mathur said.

In February, OSC placed two separate orders with South Korea's Hyundai Heavy Industries Company, the world's largest shipbuilder, to build five supertankers, and with Daewoo Shipbuilding and Marine Engineering Company to build another five VLCC's. The deals were valued at about $770 million each.

OSC is in discussions with the National Iranian Tanker Company (NITC) on securing a long-term charter contract for at least five of the recently ordered supertankers, Mathur said.

"Yes, we are discussing the option with them, along with others, but we are not decided yet," Mathur said declining to offer details.

International pressure and the implementation of broad-based sanctions on Iran, led by the US, have made it difficult for the Islamic republic to access funding from financial institutions.

"Sleeving through Oman would make sense, because it allows for Iran to get around the issue of financing," said a Singapore-based sales and purchase shipping broker, referring to the practice when one firm with limited credit uses another with better credit to do a trade on its behalf for a fee.

NITC was not immediately available for comment.

The expansion planned by OSC, whose stakeholders are the Ministry of Finance and Oman Oil Company, is part of the sultanate's broader vision to upgrade its shipping and chartering sector and depend less on leased vessels.

Oman, like other Gulf states, is also trying to diversify its economy away from oil, which generates almost half its gross domestic product but is seeing declining production.

OSC boasts a current fleet size of seven liquefied natural gas (LNG) tankers and two clean tankers, with four oil tankers including a VLCC and Very Large Gas Carrier on the order book.

The CFO said part of the expansion plan included growing the company's clean tanker fleet, by adding between 15 and 20 refined product tankers.

"We are looking at new and considering buying second-hand clean product tankers as well... we have certain refineries in Oman and taking position on this to provide employment prospects for these vessels," Mathur said, without giving details.

Oman, which operates two refineries - Oman Refinery Company and Sohar Refinery Company with a combined capacity of more than 225,000 barrels per day (bpd) - is planning a third facility of about 300,000 bpd at the southeastern city of Al-Duqm.

The proposed refinery, part of the Duqm Refining and Petrochemical Complex and is due for completion in 2012, will have a significant refined product export slate, sources familiar with the project said.

"We should see more potential for export of light distillate products like naphtha and gasoline to support growing regional demand," Mathur said.

Financing for the company's fleet expansion could likely come via loan arrangements from the North Asian institutions, Japan Bank for International Cooperation, Korea Export Insurance Corporation (KEIC), or European banks BNP Paribas and Societe Generale, Mathur said.

"We have a very good relationship with several banks, and could look to either one to finance our expansion plans," he added.

He said the expansion would include some general cargo and multi-purpose vessels. The firm now operates two Supramax bulk vessels. (Reuters)

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