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Sun 5 Oct 2008 04:00 AM

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Singing the blues?

Legal disputes between company owners and negative financial ratings has done nothing to boost investor confidence in The Blue City. Despite difficult times, CEO Richard Russell says Oman’s most ambitious development will be implemented and delivered on time.

Singing the blues?
Richard Russell, CEO of The Blue City, Phase One.
Singing the blues?
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Singing the blues?
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Singing the blues?
The Blue City development will cost a staggering US$20 billion.
Singing the blues?
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Singing the blues?
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Singing the blues?
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Singing the blues?
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Singing the blues?
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Legal disputes between company owners and negative financial ratings has done nothing to boost investor confidence in The Blue City. Despite difficult times, CEO Richard Russell says Oman’s most ambitious development will be implemented and delivered on time.

It can't be easy to paint a positive picture about a project that has seen its fair share of negative press but the new CEO of Blue City Company One, hired just three months ago to deliver the first phase of a US$20 billion city development, says he doesn't fear a thing.

"I would like to see the vision implemented and delivered. Do I fear that this won't happen? No, not really. We're not going into this with our knees shaking because it can't be done. There are always challenges but it isn't something we're afraid of," stresses Richard Russell, CEO of Blue City Company One.

Located 45 minutes from the capital city of Muscat, The Blue City, (Al Madina A'Zarqa in Arabic,) will total around 32 sq k and will be situated along the coast of Al Sawadi adjacent to the Gulf of Oman. The project, a vision set forward by His Majesty Sultan Qaboos Bin Said in his 2020 plan aims to diversify the country's economy.

The future

Around 12 phases of development are expected to take place over a time span of at least 20 years with investment emphasis targeting six economies - hospitality, healthcare, education, sport, entertainment and commercial trade.

"If you look at the demographics, 65-70% are under the age of 20 which means you've got this resource that you need to provide opportunities for and that's the impetus behind this 2020 plan. This is diversified development for the country," says Russell.

Blue City Company One, a sub-developer, float under government-backed holding firm Al Sawadi Tourism and Investment Company (ASIT) - the master developer.

Around 15 institutions, mainly big banks, have invested in Blue City through the purchase of bonds administered by the Bank of New York. These bonds, like equities, are traded on the Irish Stock Exchange.

The bond issue thus far totals around US$925 million which is being spent on construction. The sale of residential units is used to supplement this money.

In August of this year the project came under fire following a Fitch agency rating that warned of financial weaknesses due to stalled revenue targets. Reports suggested this was due to a redesign of the master plan. Legal problems also ensued over the ownership of the parent company. Russell claims the Fitch rating is a misunderstanding.

"The rating from Fitch is a bit misleading. The financing for phase one is already done. The rating said there was a disconnect on how we're collecting some revenues but what happened is the revenue collection was late and that's why they put the negative rating on but the actual number of units sold was above projection," he says.Phase one, a 2.5 sq k development with a focus on hospitality will consist of around 5,000 apartments and 500 villas. Initial sales began in December, 2007 and the launch saw 400 residential units sold in the first week.

A one-bedroom apartment is being sold for US$179,400, a two-bedroom apartment costs US$291,200 while a three-bedroom villa costs US$535,600.

Three five star hotels, an 18-hole golf course, shops, schools, clinics, luxury properties and tourism oriented facilities are on the agenda. On completion, which Russell claims will be 2012, the development is expected to create around 7,000 jobs.

"The Oman market is perfect for investors looking to benefit from the strong rental market as the economy expands and multinational companies enter the country. Speculators can take advantage of substantial capital gains and end-users can take advantage of living in one of the most attractive countries in the region," says Harry Wickes of Cluttons Oman.

While the start date was delayed, Russell states the completion date is on schedule as workers play catch up around-the-clock. To date, the CEO says they are also on budget.

"We're squeezing the program to get the work done. To get around that we've wrapped up the resources to fill in the gap. We're on track with the budget. There is another Guarantee Maximum Price (GMP) and as far as everything is going right now, we're on track," he says.

The GMP contract he refers to is worth around US$2 billion and is a different kind of contract to what numerous other developers tend to use as this is a ‘not-to-exceed' price type of deal. Russell believes this enforces transparency.

"There is a mark off on every item they bring in it's what we call a ‘Cost Plus' contract. This is to complete all of phase one - vertical infrastructure, which is the building units, public facilities, police stations, schools, hotels and landscaping," explains Russell.

Different phases

Due to the huge scale of this rising city, there is a strong possibility that each phase will require new contractors as project bosses aim to reap the benefits of each targeted area of the six economies. It is also likely that each phase will require a new CEO.

"I will start with developing and refining the plan, not the master plan but the entire development. We have a detailed master plan for phase one that's been taken to the next stage of design, construction. When we go to the next stage of the development, we'll have a stage two master plan. The next stage could be phase six on our plan but we don't know yet," Russell reveals.

As for investment, Wickes believes investors, speculators and end-users need to be educated. "They are being sold part of a city not a resort. Buyers will have to wait longer to get maximum benefit of living in a city with all its associated add-on amenities. Buyers need to trade this off with today's lower unit prices. The market needs more information about the development," says Wickes.Construction started one year ago with the setting up of labour camps for construction teams belonging to building contractors AECO Elliniki Technodomiki of Greece and Enka of Turkey who have formed a joint venture. Unlike numerous other developers, Blue City Company One is boastful of work camps that cater to staff and families.

"I think we're a model for the entire Gulf. We have daycare facilities and accommodation for single and married workers. We're also planning an elementary school. It's prominent, it's landscaped and well laid-out," says Russell.

To date, actual permanent work on the project consists of filling and ground compaction. The next step will be the creation of utilities and roads. Actual buildings will start to emerge by the end of this year according to Russell.

One major aspect to this mind-blowing development is that residents currently living on prime Blue City land will be relocated.

The good news according to Russell is that communities will be fully integrated into the city. Residents will supposedly also be given similar new locations. Those currently living by the beach for example will be moved to new accommodation by a beach.

"We will rebuild property for local people whose homes we will build over. They will be integrated into the project. We will provide better facilities. It's a fishing village, so we want to provide a proper marina, proper housing and schooling," claims Russell.

Asked what happens if some residents prefer not to leave their homes, Russell explains.

"I believe if we explain the benefits of relocation and what they will get out of it we won't have any issues. It's not like we're moving people into the desert somewhere, those on the beach will be relocated to another beach. It's a different deal to what's happening in other developments in the region."

While the Omani Government is determined to attract investment into numerous sectors other than oil in order to protect the future of the country, many will be watching the emergence of each phase of The Blue City with baited breath. Only time will tell if the final result is one of a fully-integrated complete city as intended...or a series of individual pieces that fail to fit into a highly ambitious puzzle.

Al Madina A'Zarqa - Blue City Phase One

Area of phase one:2.2 sq k

Total area:32 sq k Population:27,000 Number of properties:5,553 Hotels:Three five star hotels

Characteristics:High-end, quiet residential area, luxury properties, tourism orientated

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