Oman - Technical Assistance Project

HLE Cy DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1382a-OM REPORT AND RECOMMENDATION OF THE -PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE SULTANATE OF OMAN FOR A TECHNICAL ASSISTANCE PROJECT April 4, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Equivalents 1 US Dollar c iani Rial (RO) 0.345 RO 1 a US $ 2.9 RO 1,000 a US $ 2,900 RO 1 million - US $ 2.9 million Fiecal Year January 1 to Decenber 31  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMIENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE SULTANATE OF OMAN FOR A TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed loan to the Sultanate of Oman for the equivalent of USS2.75 million to help finance a technical assistance project. The loan would have a term of 10 years, in- cluding 3 years of grace, with interest at 7-1/4 percent per annum. PART I - THE ECONOMIY 2. An economic report on "The Economy of Oman" dated September 12, 1972 (EME 55a) was distributed to the Executive Directors on September 22, 1972 (R72-221). An economic mission visited Oman in November/December 1973 and is preparing its report. Its main findings are given below. Country data are provided in Annex I. 3. The Sultanate of Oman covers an area of almost 260,000 sq. km. With the exception of the narrow fertile coastal plain in the north, a number of oases in the interior and parts of the plain in Dhofar, the country is mostly desert or mountainous terrain. The Hajar mountains receive about 10 inches of rainfall mostly in the winter, a considerable portion of which percolates underground and supplies the interior of Oman and the Batinah Coast, (which receives no more than 4 inches of rainfall a year), with water for irrigation and domestic use throughout the year. The Dhofar province receives about 25 inches of rainfall a year mainly from the summer monsoons. 4. The Sultanate of Oman is an independent monarchy. Sultan Qaboos bin Said, who replaced his father Sultan Said bin Taimur in July 1970, has effected a number of political and social reforms and removed many of the restrictions imposed on the people by the former regime. Such reforms have attracted back a number of Omanis who had hitherto lived abroad. The Sultan, who is also the Prime Minister, rules the country through the cabinet which is the highest executive body in Oman. There are as yet no representative bodies in the country. The Government is engaged in a guerrilla war in the southern province of Dhofar, that was originally started a decade earlier. More recently, this has grown into a political movement known as the Popular Front for the Liberation of Oman and the Arab Gulf (PFLOAG). Sustaining military operations against this movement continues to constitute a major drain on the resources of Oman. 5. Little is known about the size of the population of Oman, its cha- racteristics or geographical distribution. Estimates of total population vary from a low of 450,000 to a high of one million. On present evidence, a population figure of 600,000, with an annual rate of growth of about 3 percent, is considered to be the most plausible estimate. The Batinah coast  - 2 - and a few oases in the interior are the most densely populated areas. About 80 percent of the population are employed in agriculture and fisheries and the remainder in construction, trade, services and handicrafts. Little is also known about the mineral resources of the country other than oil. Small quantities of copper, silver and other minerals have been mined in the past and deposits of manganese, copper and asbestos are known to exist. IHowever, the mineral potential of Oman has yet to be established and the Government has contracted two foreign firms to investigate the mineral wealth of the country. On the other hand, oil in commercial quantities was discovered in 1964 and exports of crude oil started in 1967. The main oil fields are located in the Al-Rub Al Khali (Empty Quarter), about 250 miles west of Muscat. Omani crude oil is of good quality with low sulphur and wax content. Total proven reserves are modest, and are currently estimated at 300 million tons - equivalent to between fifteen and twenty years of production at present levels. Exploration activities in the interior by the Petroleum Development (Oman) Ltd. (PD(O)), which is the only producer and major concessionaire, are continuing. Two other companies, which have recently been awarded offshore concessions, are expected to commence exploration work soon. Though Oman is not a member of the Organization of Petroleum Exporting Countries (OPEC) or the Organization of Arab Petroleum Exporting Countries (OAPEC), the PD(O) Ltd. has, in prac- tice, matched price and other adjustments negotiated with the various oil companies in the area. Recent Economic Performance 6. Prior to the discovery of oil, Oman had a subsistence economy entirely dependent on limited agriculture and fishing. The economy probably grew very slowly, if at all. Since 1967 when oil exports began, gross na- tional product at current prices has grown at an annual rate of about 22 percent per year. During the period 1967-70, oil was the leading sector responsible for these high rates of growth as oil production and exports increased from some 20 million barrels in 1967 to over 120 million barrels by 1970. However, oil production declined in 1971 and 1972 due to technical problems. Adoption of new production techniques has now overcome these difficulties. Oil production reached 106 million barrels in 1973, marginally above 1972 but still below the 1970 level. Government revenue from oil was estimated at $198 million in 1973. The contribution of the oil sector to GDP did not decline to the same extent because of the rise in crude oil export prices. Between 1971 and 1973 construction and public administration replaced oil as the leading growth sectors. It is expected, however, that with the anticipated increase in oil production and prices in 1974, oil will again resume its preeminent role. Meanwhile, the production of the traditional sectors has virtually stagnated. Output of agricultural products and fish has increased by about 3 percent per year while non-oil exports in 1973 declined to about half their 1967 value. GNP at market prices in 1973 is estimated at OR 136 million ($395 million) and the per capita income is ex- pected to reach OR 226 ($655) as compared with a per capita income of OR 84 ($201) in 1967 and less than OR 40 ($100) in earlier years. However, in spite of the relatively high per capita income and the high rates of growth in the recent past, Oman remains extremely underdeveloped reflecting decades of poverty and neglect.  -3- 7. The relatively high level of income generated has enabled the economy to sustain high levels of expenditure. This is particularly true in the post-1970 period when the Government launched major investment projects aimed at providing the minimum standard of economic and social infrastructure as well as a substantially increased defense effort designed to cope with the uprising in the Dhofar province. Gross capital formation increased from 15 to 35 percent of GNP between 1970 and 1973 while the ratio of defense expenditures to GNP grew from 14 to 31 percent over the same period. Because of the increase in defense expenditure as well as the recurrent expenditure brought about by investment in social infrastructure (education, health, housing, etc.), the ratio of national savings to gross national product dec- lined from 59 percent in 1970 to 30 percent in 1973. Over the same period the ratio of public to total consumption increased from 38 to almost 61 per- cent. Gross fixed investment which as a percentage of GNP had been declin- ing between 1967 and 1970, increased sharply in 1971, and averaged around 35 percent of GNP between 1971 and 1973. Up to 1970, the oil sector accounted for the bulk of fixed investment. However, the ratio of investment in the oil sector to total investment declined from almost 75 percent in 1970 to about 30 percent in 1973. Over the same period, the ratio of public to total investment increased from around 10 to almost 60 percent. Private investment outside the oil sector has remained around 10-15 percent of the total. Private consumption outside the oil sector is estimated to have increased by 22 per- cent per vear during 1970-1973. However, this increase was unequally distri- buted as between regions and income groups. 8. The higher levels of public expenditures, particularly for capital prolects and defense since 1970, brought about a marked deterioration in the financial position of the Government. The budget which showed a surplus of OR 25 million in 1970, registered its first deficits of about OR 18.6 million in 1972 and OR 23 million in 1973. This deterioration took place in spite of a 40 percent increase in revenue resulting from successive upward revisions in oil prices and in the Government's share which reached OR 68 million in 1973. Between 1970 and 1973, development expenditures increased from an estimated OR 0.3 million in 1970 to OR 30 million in 1973 while defense expenditures rose from an estimated OR 12 million to about OR 42 million in 1973. The overall budgetary deficits in 1972 and 1973 were financed partly by short-term borrowing from banks at home and abroad and partly by drawing down Government reserves. The increased level of economic activity and Government operations brought about a substantial increase in money supply which grew from OR 7.6 million in 1970 to over OR 22 million in 1973, an average annual rate of increase of about 42 percent. As a result of the expanded Government expend- itures and the limited production capacity of the economy, inflationary pres- sures were exerted on prices, wages and rents. 9. The balance of payments of Oman experienced similar trends. Oil ex- ports which are the major component of the balance of payments, stagnated in 1971 and 1972 because of a decline in oil production while Government expendi- tures were increasing at a substantial rate. As a result, the balance of pay- ments moved from a surplus position of about OR 30 million in 1970 to its first deficit position of around OR 16 million in 1972 and an estimated deficit of about OR 24 million in 1973. The country's gross foreign exchange reserves  - 4 - declined from OR 60 million in 1971 to about OR 30 million in 1973, equivalent to about 5 months of Imports of goods and services at the 1973 level. However, with the rise in oil prices and output, Oman is expected to move to a surplus financial position both on the balance of payments and the budget, beginning in 1974 and probably continuing to the end of the decade. Development Potential 10. The Government's development policy has, since 1970, aimed at the creation of the essential infrastructure, the provision for the needs in education, health and housing, the initiation of resource studies and efforts at institution building, with the first two aims receiving the highest prior- ity. The allocation of development expenditure reflected these aims and the priorities assigned by the Government to each. The lheavy investment program undertaken by the Government since 1970 has resulted in the completion of a reasonably adequate network of roads, a modern port and airport, and the im- pressive gains made in education, health and housing. Hlowever, it has had little spread effect, and has taxed both the country's financial resources and its fragile administrative and institutional set up. Severe manpower shortages were only marginally relieved by the efforts of the Government to induce educated Omanis to return to the country. Oman is now entering a new and, probably, a more difficult phase in its economic development. The re- cent substantial rise in oil prices is expected to relieve the strain on financial resources of the country and to result in a surplus financial position throughout the decade. However, the country's development efforts in the future are likely to continue to be constrained by manpower shortages, inadequate knowledge about investment opportunities and the weaknesses of institutions in practically all fields. Dealing with these constraints is likely to prove more difficult and time-consuming than during the first stages of development when the Government addressed itself to the more obvious needs. In order to cope with these new constraints, the Government is currently attempting to reorient its development strategy towards manpower training and institution building as the highest priority with less emphasis placed on social and economic infrastructure. In so doing, it has turned to the in- ternational community including the World Bank, the International Monetary Fund, the UNDF and bilateral aid donors for technical aassistance in manpower training and institution building. 11. The financial position and prospects for Oman over the next five years are good mainly as a result of the developments in the oil sector. These include not only the recent price increases, but also an expected 30 percent increase in oil production in 1974, as well as Oman's recent purchase of a 25 percent participation in clie oil company. It is projected that GNP may grow by 25 percent annually to 1979. A substantial surplus on the bal- ance of pavments leading to a high level of foreign exchange reserves is ex- pected to develop by the end of 1974 and may continue for the remainder of the decade. In spite of that, Oman needs to continue to look for foreign aid not so much for the capital transfer element but mainly because of the value of technical assistance and institution building components that can be associated with such borrowing.  -5- External Assistance 12. Up till recently the Government of Oman has shown little desire to borrow externally for capital development projects. The major development projects inaugurated to date have been financed on a cash basis from Govern- ment resources, without recourse to bilateral or international aid channels. However, Oman has, since 1967, received technical assistance from bilateral donors particularly the United Kingdom, Abu Dhabi, Qatar, Kuwait and Saudi Arabia. Over the past year, the Government, faced with a deteriorating fi- nancial position, seems to have modified its policies of financing development projects exclusively out of its own resources. As a result, Oman contracted its first two medium-term loans mainly from private sources in 1973. These were loans of $35 million from the Eurodollar market, and of $25 million equivalent in Arabian Peninsula currencies. Though both loans were original- ly contracted to finance future development projects, they were fully dis- bursed in December 1973 and partly used to pay for a part of the 25 percent equity participation in the Petroleum Development (Oman) Ltd. At the end of December 1973, Oman's outstanding external debt amounted to the $60 million mentioned above, all of which has been disbursed. Debt service payments are scheduled to begin in 1975 and would amount to $3.1 million in that year equivalent to 1.6 percent of exports of goods and services at 1973 levels. Debt service payments are projected to grow to $21.6 million by 1978, but the debt-service ratio - given the rapid growth in oil exports -- is not expect- ed to be more than 2 percent. Oman can service substantial additional borrow- ing on conventional terms. PART II - BATK GROUP ACTIVITIES 13. There have been no Bank Group operations to date in Oman. The coun- try's economic situation and prospects suggest a threefold strategy for the Bank: (i) helping to overcome the major immediate constraints to development -- the absence of information and statistics, trained manpower and essential institutions; (ii) helping to broaden the benefits of growth, especially through assistance to the agricultural and social service sectors; and (iii) helping to devise and implement a long-term strategy for the diversification of Oman's economy. 14. Lending activity would be used primarily as a vehicle for the creation of essential institutions and the provision of technical assistance, as well as a means of directing local financial resources toward specific high priority objectives. It would be unrealistic to anticipate that this contribution could be made to Oman's development without some direct in- volvement through project lending. However, to counteract the capital transfer effect of its borrowing, the Government has agreed to off-serting arrangements with the Bank. It has subscribed $5 million to the March 74 two-year bond issue and has agreed to lend to the Bank $30 million with interest at 8 percent per annum and average maturity of about 15 years.  - 6 - 15. The first three projects in the lending program are designed to help overcome the most serious constraints to Oman's development: the short- ages of trained manpower, essential institutions, a data base, a project pipe- line and established guidelines and procedures for the efficient use of the country's oil-generated resources. The proposed education project would ini- tiate the lending program, and will begin dealing with Oman's long-term re- quirements for trained manpower. A proposed technical assistance project will focus on the country's medium-term needs for appropriate institutions, a development strategy and investment program, and project identification and preparation work. A power project, presently under consideration, will help introduce short-term improvements in the way in which the Government uses its resources, particularly in the procurement of goods and services. In later years, agricultural projects will have priority, with an emphasis on irrigation and agricultural credit activities. IFC has made no investments in Oman but has expressed an interest in a proposed cement factory, port operating company, and fertilizer operation. PART III - TEE PROJECT 30. The proposed technical assistance project would be an integrated program of assistance to help Oman overcome its critical administrative and institutional constraints, accelerate the establishment of an adequate Govern- ment structure and guide the future development of the economy. It would provide teams of specialists for economic planning and for the management of the agricultural and transportation sectors. The project would be carried out in association with the Kuwait Fund for Arab Economic Development which has agreed in principle to participate in the financing of the economic planning component of the project. Should participation of the Kuwait Fund not be finalized, the Government is committed (and is able) to supply adequate funds from its budget (Section 3.01 of the draft Loan Agreement). A loan and project summary is attached as Annex III together with a map of Oman. 31. The project is based on a Government request in late 1972 for Bank assistance in its institution-creation efforts and on the findings of a Bank appraisal mission to Oman in August/September 1973. Negotiations were held in February 1974. The Oman delegation consisted of John Townsend, Economic Advisor to the Government, and Ali Dawood, Undersecretary of Development. In addition, a representative of the UNDP participated in negotiations, to coordinate UNDP's on-going technical assistance efforts with those of the proposed project. UNDP did not participate in financing this project. its allocation for Oman being exhausted. 32. The proposed technical assistance project is an essential first step in Oman's development. The country has begun to embark on a major devel- opment program, but still lacks the administrative machinery and expertise required to direct these development efforts. The assistance for economic planning would help devise the general framework and strategy for development. It would also help develop at an early stage in the project the essential data  - 7 - base needed for effective planning and economic policy-making. Sector spe- cialists would provide operational assistance to the agricultural sector, which employs about three-quarters of the population and will be the major focus of future development, and the transportation sector, which has received the major share of investment activity during the past three years, but lacks the institutional machinery needed to maintain this investment. The planning and agricultural teams would be located in the newly created Ministry of Dev- elopment. The transport team would work within the Ministry of Communications and Public Services. A background summary and description of the proposed composition and objectives of the three teams is given below. A. Economic Planning and Management 33. Background - Oman has embarked on a major investment program during the past three years, generated by its oil revenues. In the desire to move ahead quickly, before the essential expertise and administrative machinery had been fully established,,the development effort has been unavoidably ad hoc and largely uncoordinated. Investment decisions were made for a number of obvious priority projects, but without establishing the general objectives of Oman's economic development and without serious attention to economic priorities or the financial implications of the projects undertaken. 34. The result has been a rapidly expanding level of development ex- penditure, but without adequate direction, design or attention to the implica- tions of such investment activity. This has contributecd to major budgetary and balance of payments deficits in FY 1972 and FY 1973 (paras. 8 and 9), to an imbalanced development effort dealing almost exclusivelv with physical infrastructure until 1972, and social infrastructure thereafter. Much of the investment effort has also been wasteful, and has generated severe inflationary pressures. 35. Now that the Government has succeeded in stimulating economic growth, it recognizes the need to administer this development and guide its future di- rection. It wishes to replace the piecemeal studies, investigations and in- vestment activity with a more orderly program of development, geared to Oman's social and economic needs. The proposed team of specialists would help devise the investment programs, identify and prepare individual projects, coordinate external aid and prepare a national development plan. 36. Rationalization of the decision-making process has recently begun with the creation of a Ministry of Development, in November 1973. The Min- istry replaces the General Development Organization which itself succeeded the Center for Economic Planning and Development in April 1973. The Ministry is burdened by a legacy of conflict and inefficiency in its predecessor orga- nizations. It is presently responsible for a variety of functions in addi- tion to planning, including the departments of agriculture, oil and other op- erational entities. It also maintains an tndefined relationship with the De- partment of Finance and the Office of Economic Advisor to the Government,  - 8 - whose functions are in some respects similar to those of the Ministrv. It is also probably the largest public entity with over 900 emPloyees, including 36 expatriates, yet lacks the authority, definition, guidance and adrministra- tive framework to function effectively. 37. Objectives. The overall function of the planning team specialists would be to advise and assist the Government to: (a) Reorganize and strengthen the development planning organiza- tion through clarification of its functions and powers, im- prove its organization, operation and administration and train Oman staff capable of carrving oiit planning tasks; (b) Prepare recommendations for the organization and strengthening of the Government's administrative machinery, especially eco- nomic management and planning institutions; (c) Strengthen the statistical service; (d) Formulate economic measures and policies; (e) Identify and supervise general preparation of investment projects; (f) Prepare national, economic and social development plans and programs; and (a) Ensure coordination of economic assistance to Oman. 38. Composition. Because the economic situation in Oman is changing so rapidly, and the Bank's Icnowledge of this new member countrv is still limited, there is an advantage in maintaining a degree of flexibility regarding the number and specialities to be provided. A tear leader would be recruited initially, whose first responsibilities would be to advise on the composition of the team and the appropriate organizatioral machinerv for economic plan- ning and-management within which the team would operate. The team would be required for about a three-vear period and in addition to the team leader would probablv comprise the following specialists: (i) planning specialist to help prepare a development pro-ram; (ii) project specialist experienced in project preparation and analysis; (iii) technical specialist probably an engineer, to help deal with consultants and contractors, evaluate investment pro- posals and help carry out projects; (iv) public administration specialist to advise on organization and management, administrative techniques, statistical services, etc.;  - 9 - (v) administrative assistant to hanidle the administrative needs of the team, and advise on the Mlinistry's methods and pro- cedures, filing and general clerical and secretarial duties; (vi) translator, to translate documents from English to Arabic, and vice versa, and to act as interpreter if not all members of the team are Arabic-speaking. 39. The estimated cost of the economic planning part of the project has been based on the above composition. The actual size, specialties and timing, however, will be determined in agreement between the Government and the Bank on the basis of the recommendations of the team leader. The Kuwait Fund would share in the financing of the team, and in the responsibility for recruitment and supervision of the team members, along the lines of a similar IBRD-Kuwait Fund planning team effort in the Yemen Arab Republic. B. The Agriculture and Fisheries Team 40. Background. About 70 percent of the working population is engaged in agriculture and an additional 10 percent in fisheries. Subsistence farm- ing dominates Omani agriculture. The main agricultural settlements occur along the Batinah coast, northwest of Muscat, in oases in the interior from Iski, Nizwa to Ibri, at Sur and the vallevs behind and around Salalah in Dhofar province in the south. Of the estimated 36,000 ha. under cultivation, about half are planted with dates with lucerne intercropped on about a third of this area. Fruits such as limes, mangoes, melons and bananas, onions, vegetables are also grown, as well as wheat and tobacco. Oman is presently a net importer of food. In 1971, agricultural exports accounted for $1.3 million while imports of food and live animals were about $13 million. How- ever, with improved husbandry, adequate inputs and improved water supplies, agricultural (especially dates) production can undoubtedly be increased and with proper processing, markets for any surplus are expected to be found. 41. There are presentlv two Departments of Agriculture in Oman respon- sible for guiding agricultural activity. The larger of the two, responsible for all Oman save Dhofar Province, is based in Muscat and is located in the Ministry of Development, while the Dhofar department is part of the Dhofar Development Department. The Muscat department was established in 1970 and the Dhofar department in 1971. A Department of Fisheries was created in early 1974 but consists essentially of a single expatriate. It will be in- corporated into a single Department of Agriculture and Fisheries (Section 4.06, draft Loan Agreement). With few experienced Omani and expatriate specialists at the Central Government level, the Departments' capacity to supervise agri- cultural development is extremely limited. 42. Livestock: Both intensive and extensive types of livestock hus- bandry are practiced in Oman. No livestock census has been carried out. The goat population is estimated at about 140,000 with cattle about half this num- ber and sheep about half the number of cattle. Because of isolation, 0mani  - 10 - livestock are free of major diseases. There is potential for extensive beef cattle production onlv on thie southern face of the jebel in Dhofar (about 300,000 ha.) if watering points are provided, and if sufficient water re- sources are proven in the Salalah plain to irrigate forage crops for fatten- ing. 43. Fisheries: The in-shore and off-shore fisheries potential along the 1,700 km coast of Oman is considerable. The traditional fishing indus- trv provides a plentiful supply of fresh fish for the coastal population and limite(d supplies of dried fish for both the interior population and livestock feeding. 44. Recent Developments in Agriculture: A number of maior contracts and rroject ngreements for development of the a&ricultural sector have been concluded in the past eighteen months. Demonstration and experimentation farms for the production of limes, dates, vegetables and livestock are being established under a $6 million contract with an American firm, the Farm Ma- chinerv Corporation. Five major groundwater and soil surveys are underwav, financed bv Saudi Arabia. The UNDP has processecl requests for four projects, valued at about A1.4 million -- a national farm economic survey, a water re- sources center (to coordinate the groundwater investigations), crop experi- mentation and extension and a soils and water management project. In the fisheries sector, the Government has concluded two agreements with the U.S.- hased Mardela Co. to develop commercial and indigenous fishing in the Gulf of Oman. 45. The ProDosed Assistance Program. There is an urgent need for tech- nical assistance in order to assist the Government in developing its agricul- tural and fisheries potential and increasing the income of its predominantly rural population as well as coordinating the variety and magnitude of contracts entered into for land and water resources survevs, agricultural and fisheries develonment. The prolect, which would be coordinated with and assisted bv the four URNP projects, particularlv in the development of statistics, would pro- vide this nssistance bv increasing the Covernment's executive capacitv through institution building and training to: (i) service, coordinate and provide overal.] direction of constultant contracts, the fisheries and experinental farm projects, and other international and bilateral investigations and studies; (ii) strengthen the capacitv of the Department of Agriculture and Fisheries to plan and direct national. projects and programs; (iii) establislh a viable organization to administer infrastructure services in the agricultural and fisheries sectors; and (iv) establish and administer a national wnter policv.  - 11 - 46. Effective operation and implementation of the agricultural and fish- eries assistance program requires (1) that a single Department of Agriculture and Fisheries be established for Oman which could form the base for a Ministry of Agriculture and Fisheries, and (2) that the four UNDP projects will become fullv operative and staffed in accordance with the requirements set forth in the UNDP project documents. The Department would become an agency of the Ministry of Development or any successor thereto until such time as the estab- lishment of a Mlinistry of Agriculture and Fisheries is deemed necessary. 47. The project provides for a tean of four experts in the first two years and possiblv a fifth (credit specialist) in year three, with provision for short-term consultant and ancillary services for a period of three years. The team would be composed of: (a) agricultural advisor to the tIinister of Develonment and leader of the IBPD team (three years); (b) agricuiltural advisor and coordinator to the Director of Agriculture for research and extension (three years); (c) animal health and husbandry advisor and coordinator to the Director of Agriculture (three years); (d) advisor and coordinator for organization and administration to the Director of Agriculture (three years); and (e) agricultural credit advisor and coordinator to the Director of Agriculture (one year). Administrative and secretarial assistance, drivers and vehicles will also be provided together with adequate housing for the experts and a headquarters building with conference and store facilities for the Department of Agriculture and Fisheries. C. The Transportation Team 48. Background. Oman's emergence into the modern world and the discoverv of oil have stimulated the economy generally and placed new demands on the transport system. The Government's major construction programs have generated imports which stimulated the growth of internal transportation. These growth trends were accelerated after 1970 when the new Government accelerated the pace of public construction and lifted many of the arbitrary restrictions on imports previously in force. 49. The Ministry of Communications and Public Services is the agency vith overall responsibility for the transport sector. In addition to the purely transport-related agencies such as Civil Aviation, Ports Authority, Transport and Roads, the Ministry Is also responsible for Posts and Telegraph,  - 12 - Public Wa'rks Department (the agencv responsible for government buildings), Housing (for governmnent employees), Power anci Water. The Undersecretary of Coimnunications is the individual in the Yiristrv to whom the directors of the eight agencies report. 50. Ports. Oman's port facilities are generally adequate and comprise Minah (Port) Qaboos, now being completed at Mutrah, near Muscat, a lighterage port at Minah al Fahal restricted to oil shipments, a general lighterage port at Muscat and a small general port at Raysut. 51. tMinah Qahoos is the only deep water port and, when completed in 1974, will have eight berths. tTp to the present most cargoes for OMan havr been handled through Port Rashid (Dubai) and trucked in. When all eight berths at Minah Oaboos have been completed and full alongside cargo operations are put into effect, giving the port a capacity of 1.0 million tons/year, the majority of imnorts will divert here from Duhai. The port will be controlled by an autonomrous port authority, w7hich will be backed by a UNDP-financed five vear technical assistance project which, among other thincgs, will provide four expatriate personnel; a general manager, an administration and finance special- ist, an operations/traffic srecialist, and an engineering specialist to operate the authority, as well as to train Omnani counterparts. Institutionallv there- fore the innediate needs of nort manageTment will be met. 52. At present, Petroleun Development (Om.n) (rDO), the oil concession- aire, operates the lighterage port at 1finah al Fah.l for its own exrlusive utse. the port at Raysut, in Phofar Province, has recently been comnpleted. It has five berths, which are expected to handle ahout 45,000 shipping tons annually, and is adequatelv managed by the Raysut Harbor Auithority. 53. Civil Aviation. In addition to Sih International Airport, there are primitive airstrips in many parts of tl-e country, includirg several in otherwqise inaccessible locations in the mountains. Only a few of these are served by regular f]iRhts. 54. A Director of Civil Avintion has been appointed recontly. IPis responsibility covers the international airport at Sib, as well. as the ad- ministration of all civil aviation in Oman. The Overseas Development Admin- istration (Creat Britain) is providing overall advisory assistance, while Tnternational Air Radio Ltd., a British firm, is effectively providing under a five-year contract, technical expertise in operations and maintenance and in the training of Omani personnel. No additional- technical assistance is needed in this subsector. 55. Roadls. Poad's provfde the principal means of internal. transport in Orman. Because of the dry climate, sparse vegetation and high stubsoil strengths it is possible to traverse most of the country, excluding the mountainous regions, in a four-wlheel-drive vehicle. Only comparatively few villages cannot he reached1 in this way. The construction and maintenance of roads, therefore, is not needed so muchl for purnoses of access, blut more to redtuce the onerating costs of motorized transport, and to improve service.  - 13 - 56. Since 1970 the Government has embarked on a program of constructing paved roads to modern standards; and up to the present about 235 km have heen completed. Work on about 90 km is in progress, and is expected to commence shortly on a further 250 km. The costs of the 120 km Sohar-Buraimi roacl, one of the routes on which work is expected to start in the near future, will be met by the Government of Abu Dhabi. Additionally the Armv is undertaking the staged improvement of the main route fror Buraimi to Dhofar Province in the south of Oman. 57. The organization for planning, constructing and maintaining the road network is in its initial formative stages. Until recently, the Plan- ning and Development Department, responsible directly to the Sultan, has handled the planning and supervision of all road construction projects. This department is seriously understaffed and has almost no capability to prepare terms of reference for highway studies or to monitor effectively the wor]. of consultants and contractors. Recently, responsibility for roads and transport has been transferred to the lIinistry of Communications and Pub- lic Services. The IMinistry's Roads and Transport Department is equally short of the expertise needed to plan, design and supervise road projects to improve the network as well as maintain it, and it looks to the Bank and this project to provide urgentlv needed technical assistance. 55. The problems of maintaining and renairing the growing Government fleets of motor vehicles and mechanical equipment are now cause for serious concern. The project uill therefore also provide badly needed expertise to organize and operate workshops and maintenance proframs. The Proposed Assistance Program 59. In order to provide the Government with the capability to initiate sttudies, monitor the work of consultants and contractors, to administer effectivelv its road construction program, the network's maintenance an(d to provide an effective mechanical services derartrent, technical assistance is urgentlv reqtuired. 60. This project provides for a team of eight specialists over a three- year period. They are: (i) a Planning and Design Engineer (Roads) who would also act as team leader; (ii) a Construction and Maintenance Engineer (Roads); (iii) a Mechanical Engineer; (iv) a Mechanical Supervisor (Vehicle Workshop); (v) a Mechanical Supervisor (Equipment lWorkshop); (vi) an Accounting and Storekeeping Specialist (Poads and Workshop);  - 14 - (vii) a Training Specialist (Roads and 1Jorkshops); and (viii) a Special Transportation Advisor. The specialists would operate within the Department of Poacls andl Transport, excent for the Special Transport Advisor whose duties will cover the whole transport sector. I-'ith the exception of the last-named all would be in executive Positions, and would train Om ani counternarts to eventually take over. 61. The Transportation Advisor would desirably have transportation economics as his main discipline. His primar' task would1 be to advise the Undersecretary (Communications) on the economic inplications of policy deci- sions affecting the transport sector. Together wi.th the undersecretary and tile planning engineer of the particular mode as a team, be would prepare terms of reference for any needed study and monitor its progress to completion. Additionally, he would assess development needs in the sector as a whole and ensure that adequate data are collected for this purpose; assess the budgetary implications of the Government's operations in the transport sector as a whole and advise on user charge policies; and prepare recommendntions for management and planning of Oman's transport sector on a permanenit basis, including thie preparation of a continuous development plan, based upon sound1 economic criteria. 62. In roads, technical assistance wi11 he directed to ensuring that data on the networl. are collected, systematic traffic counting initiated and the work of consul tants and contractors suitably monitoredl. The maintenance requirements of the network will be ascertained and the organization, person- nel and equipment needs for this purpose identified. The need for vehicle control regulations will also be studied. In addition basic cost accounting and storeleeping procedures will be introduced and the necessary staff trained to implerent them. f3. In the field of mechanical workslhoms the mechanical engineer's prime concern will be to review projected requirements for velhicles and equipmelnt ard to ascertain how best the maintenance and repair facilities shotild ,be deploved to meet them. He should then draw up, for Co-rernTett approval, a program for the realization of these objectives in terms of buildings, manpower and eouipment. More immediately, the two mechanical supervisors, with their counterparts, shiould cnncentrate on day-to-day wor]:- shor operations and should institute standard procedures for inspection and repair work. Most importantly, the accounting and storekeeping sPecialist should institute rational storekeeping procedu.ires, ensure that the new mecha- nical stores hold an adeqtuate inventory of the fast-moving itemis, and through Government pressure on sunpliers, ensure thiat acents for the various equipment types in popular use are committed to stocking spares inventories in keeping with the needs of the Covernment's fleet. Similarly, new accounting procedures should be set up which would allocate quickly and accurately the maintenance, repair and operational costs against each vehicle or equipment item for the user department. The training will cover mechanics, technicians and super- visors as well as drivers.  - 15 - D. Implementation 64. The proposed project would he executed by the Ministry of Development for the planning team and for the agricultural team, and the Ministry of Com- munication and Public Services for the transport team (Section 3.02(c) of the draft Loan Agreement). The liaison with other technical assistance projects would be the responsibility of the chiefs of each team within their respective sectors, with the chief of the economic planning team responsible for general liaison and coordination with the UNDP and bilateral aid efforts. The Agricultural and Transportation specialists (except the special transportation advisor), would undertake executive responsibilities on behalf of their re- spective Directors. Counterparts will be essential to the successful opera- tion of the project. The Government will recruit Omani counterparts with suitable background or training potential for on-the-job training by the specialists (Section 4.05 of the draft Loan Agreement). 65. The proposed duration of the project is three years. The results would be reviewed at the end of the second year to consider the need for ex- tending the technical assistance, under arrangements to be determined in the light of the then prevailing financial situation. Recruitment of the initial team members is expected to begin by mid-1974. The timing of project imple- mentation would depend on the ability to recruit the specialists required, and the availability of qualified Omani counterparts which would help ensure the Government's ability to use the technical assistance services effectively. In the rapidly evolving circumstances of Oman, there may be some advantage in phasing the implementation, or modifying the composition and structure of the teams in the course of implementation. The desirability of providing data collection specialists initiallv before the recruitment of the full teams will also be explored. 66. Project Cost and Financing. The overall cost of the project is estimated at US$5.9 million equivalent, including contingencies (20 percent), with a foreign exchange cost of US$3.9 million equivalent. The proposed Bank loan of US$2.75 million represents about 47 percent of total project costs. The loan would finance 50 percent of the foreign exchange cost of the economic planning team and 77 percent of the foreign exchange cost of the agricultural and transport teams. The Kuwait Fund would cover 50 percent of the foreign exchange cost of the planning team, or about $450,000 equivalent. The Government would finance the balance of the foreign costs of the agricul- ture and transport teams and all of the local costs of the project, or about $2.7 million. The financing plan is summarized in Annex III. Details of project costs are in Annex IV, and summarized in the following table:  - 16 - R.O. (000) US$ (000) Proposed Item Local Foreign Total Local Foreign Total Loan 1. Economic Planning 117 252 369 350 755 1,105 370 2. Agriculture 296 420 716 889 1,260 2,149 1060 3. Transport 104 371 475 312 1,131 1,443 870 4. Equipment 40 34 74 110 103 222 - Total 557 1,077 1,634 1,670 3,249 4,919 2,300 Contingencies (20%) 111 215 327 330 651 981 450 (Physical - 10%) price escalation- 10%) Grand Total 668 1,292 1,960 2,000 3,900 5,900 2,750 67. Procurement. The specialists for the economic planning and manage- ment team would be recruited on an individual basis. The agricultural and transportation teams and short-term consulting requirements would be procured from consulting firms, although individual recruitment might be resorted to in special cases. Suitable specialists, acceptable to the Bank, would be employed under terms of reference and on terms and conditions agreed with the Bank (Section 3.02 of the draft Loan Agreement). Appointment of the three team leaders (or of consulting firms in the event that direct recruitment is not resorted to) would be a condition of effectiveness of the loan (Section 8.01 of the draft Loan Agreement). Office space, housing and equipment (com- prising vehicles and office equipment for the three teams) would be provided by the Government. 68. Disbursement from the loan would be made on the basis of 50 percent of the foreign exchange cost of the planning team specialist services, and 77 percent of the foreign cost of the agriculture and transport specialists and short-term consultants, including foreign travel and report production. In addition to offices, housing and equipment, the Government would provide the necessary supporting staff and personnel (clerks, drivers, etc.), opera- tion and maintenance of vehicles and equipment and local travel required for the satisfactory operation of the three teams. The Government will also pro- vide separate full annual reports and brief quarterly reports on the progress of each team, and arrange for a review of the program at the end of the sec- ond year so that the terms of reference may be amended if necessary (Section 4.03 and 4.04 of the draft Loan Agreement).  - 1 7 - PART IV - LEGAL INSTRUMtENTS AND AUTHORITY 69. The draft Loan Agreement between the Sultanate of Oman and the Bank, the report of the Committee referred to in Article III, Section 4(iii) of the Articles of Agreement, and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. The draft Loan Agreement contains covenants which are typical for technical assistance projects. 70. I am satisfied that the proposecl loan wlould comply with the Articles of Agreement of the Bank. PART V - RECONMENDATION 71. I recommend that the Executive Directors approve the proposed loan. Robert S. M&cNamara President Attachrnents April 4, 1974   Annex I Page 1 of 1 paes OOUNTRY DATA - OMAN AREA POPULATION DNSITI 2 o 2 Oo lion (mid-1971) 2 Per km2 Per km2of arable land SOCIAL DIDICATORS Reference Countries Oman R Kuwa _.=I& _96 iS7 iv a9 o Ey ONP PER CAPITA US$ (ATIAS BASIS) / 4.50/Y 320 /a 3,76C 250 /a DEiDRAPHIC Crude birth rate (per thousand) 50 49 43 /b 47 Crude death rate (per thousand) 21 14 7 7 IL Infant mortality rate (per thousand live birth.) 104_ Life expectancy at birth (years) 53 64 55 Groas reproduction rate 12 3*5 3 .6 3.5 Population growth rate _/T. 2.0 3.2 9.7 3.3 Population growth rate - urban 4 /c 5/c 7 /d 5.2 /e,f Age structure (percent) 15:64 45 L7 43 46.1 65-64 andove52 51 55 50.7 65 and over 3 3 2 3.2 Denendoncy ratio Lit *. O.9 I 1.GA 1 .L 1.6 Urban population as percent of total 4 /c 5 /c 51 /d 22 Ai, j 44 If Family planning: Na of acceptors cumulative (thousj IC No. of users (% of married woman) ENPLOYhENT Total abor force (thousands) 150 2,700 /k 240 2,000 Percentage employed in agriculture .. 73 59 70 2 j7 Percentage unemployed 74 71 2 64 INCoi4E DISTRIBUTION Percent of national income received by highest 5% Percent of national income received by highest 20% Percent of national income received by lowest 20% Percent of national income received by lowest 40% MiSTRIBUTION OF LAND OWIRSIP % owned by top 10% of owners % owned by smallest 10% of owners H1ALTH AND NUTRITION Population per physician 24,570 /l,m 3,770 /k 910 /k 3 oO /k Population per cursing person 37,670 /l n 53,70 7ik 9 146 7o 3 3,0 7k o Population per hospital bed 2,730 _560 7i 190 7 '950 7 Per capita calorie supply as % of requirements /5 '3 /Ir 100 Per capita protein supply, total (grams per day)& 5O 7i . c9 Of which, animal and pulse 17 7i: 5 Death rate 1-4 years /7 1. Tr EDUCATION AdJustd /9 primary school enrollment ratio 23.7 Yo/k 92/k 83 Adjusted secondary school enrollment ratio 23 .72 676k 6927 3z Tears of schooling provided, first and second level 26 12 12 12 Vocational enrollment as % of sec. school enrollment 23 /k 3 /k 4 Adult literacy rate % 3A 3 2i 7. . 140 /a NDUSINa ye-rage No. of persons per room (urban) Percent of occupied units without piped water Access to electricity (as % of total population) Percent of tural population conected to electricity CONSUMPTION Radiore-ceivers per 1000 population 180 131 224 Passenger cars per 1000 population 4 /m 7 159 5 Electric power conaumption (kwh p.c.) . 224 3,487 14i Newsprint consumption p.c. kg per year 0.3. 2.0 /t 0.2 Notes: Figures refer either to the latest periods or to aceount of environmental temperature, body weights, and the latest years. Latest periods refer in principle to distribution by age and sex of national populations. the years 1956-60 or 1966-70; the latest years in prin- /6 Protein standards (requirements) for all countries as estab- ciple to 1960 and 1970. lished by USDA Economic Research Service provide for a minimum & The Per Capita GNP estimate is at market prices for allowance of 60 grems of total protein per day, and 20 grams of years other than 1960,calculated by the eame conversion animal and pulse protein, of which 10 grame should be animal technique as the 1972 World Bank Atlas. protein. These standards are somewhat lower than those of 75 L2 Average number of daughters per woman of reproductive grame of total protein and 23 grams of animal protein as an age. average for the world, proposed by FAO in the Third World Food a Population growth rmtes are for the decades ending in Survey. 1960 and 1970. Li Some studiea have suggested that erude death rates of children A Ratio of under 15 and 65 and over age brackets to ages 1 through 4 may be used as a first approximation index of those in labor force bracket of ages 15 through 64. malnutrition. Li FAO reference standards represent plosiological re- I Percentage enrolled of eorreaponding population of school age quirements for normal activity and health, taking as defined for each oountry. /a 1