Oman has published a sustainable finance framework that is designed to help the indebted oil-producing Gulf country to diversify its economy and energy production and widen its funding base by tapping ESG investors.
Oman has been working on the framework since 2021, which is said is the first from a GCC country, as efforts accelerate in the region to attract capital to low-carbon and environmentally sustainable investments.
High population growth, urbanisation and rapid industrialisation has put pressure on Oman’s high-emitting energy sector and reserves, which have been heavily dependent on conventional fossil fuels – primarily oil and gas.
“Oman now appreciates the potential of renewable energy technologies,” the framework said.
The country has a high level of environmental risk around energy transition due to its high dependence on hydrocarbons and a high degree of water stress as one of the world's most arid states.
The oil and gas sector accounted for around 30% of GDP between 2018 and 2022, nearly 75% of government revenue and 58% of exports, according to Moody's, which published a second-party opinion on the framework.
Food security is also a significant area of focus as climate change impacts Oman's agricultural sector and increases the need for a sustainable food supply to reduce its “heavy reliance” on imports.
Oman will use the framework to issue green, social and sustainable bonds, loans or sukuk with environmental or social benefits across 14 "use of proceeds" categories, seven of which are green and seven are social. Credit Agricole and Standard Chartered are joint structuring banks.
The framework is the first from a Middle East sovereign since Sharjah in February, one of seven emirates in the UAE, which is a GCC member. Abu Dhabi energy company Taqa launched a green finance framework in April that allowed the state-controlled water and power provider to issue in green format.
More frameworks are expected from sovereigns in the Middle East, including Saudi Arabia, following the UN-sponsored COP28 climate meeting in Dubai in December, as momentum builds around the region’s ESG agenda and transition plans gather pace to diversify away from the oil and gas sector.
Moody's rated Oman's framework as "very good" but drew attention to challenges around protecting human rights and labour and said that while the eligible categories are consistent with Oman’s strategy to reach net-zero emissions by 2050, oil and gas-related investments are unlikely to decrease in the near term.
Supporting the vision
The sustainable finance framework supports Oman Vision 2040, which was implemented in 2021 and focuses on economic diversification and climate change. It also includes a renewable energy plan, which was published in 2022.
Under the renewable energy plan, Oman is targeting 10% of energy consumption from renewable sources by 2025, 20% by 2030 and 35%–39% by 2040 and is also aiming to reduce the oil share of GDP to 16% in 2030, and 8.4% by 2040, down from 39% in 2017.
Oman also launched a green hydrogen strategy in 2022 that aims to produce at least 1m tonnes of renewable hydrogen per year by 2030, up to 3.75m tonnes by 2040 and 8.5m tonnes by 2050, with an expected cumulative investment of US$140bn for the projects.
The country is rated Ba1/BB+/BB+ by Moody’s, S&P and Fitch, which upgraded Oman in September. Fitch said that Oman could benefit from large-scale investments in the green hydrogen sector from 2025, through projects aimed at using renewable energy to produce green steel to export.
The sultanate has been using high oil revenues to pay down debt and spread maturities to reduce external risk. Its debt fell to around 36% of GDP in 2023 and is expected to stabilise at around 35% in 2024 and 2025, according to Fitch.