The interest for a Major in the oil & gas industry in gaining a foothold in Qatar goes far beyond mere geological considerations. While Qatar\u2019s natural resources are attractive, the recent and massive investment in science and education is a more important incentive for potential investors. The natural resources are finite and when extinguished new energy sources will be required. Qatar is a world leader in researching these new sources and gaining access to this knowledge is a key objective for every company ready to compete on the future energy battlefield.<\/p>\n
Besides, in order to promote scientific research and education on its soil and to attract FDI and skilled labour, Qatar is implementing a whole new business environment, through the reshaping of its legal system and multiple financial incentives. Therefore, not only a company wishing to invest in Qatar would benefit from a state-of-the-art research environment, it would also enjoy a much safer political and legal framework than in the majority of other producing countries.<\/p>\n
Since the 1980\u2019s Qatar has experienced huge changes, with rapid economic development and dramatic FDI increases. A thriving financial centre has grown out of nothing and world class sporting, scientific and educational facilities have been developed.<\/p>\n
This report will evaluate the changes in the Qatar business environment and consider several policies and their impact. The focus will move to the oil and gas industry, with key challenges and advantages in the industry identified, before advice will be given for any prospective new firms.<\/p>\n
Qatar at a Glance<\/p>\n
Qatar is an unusual and unique setting for operations. It is important not to group Qatar with other gulf countries enjoying similar economic and social developments or as another generic Middle Eastern nation. Qatar is not a new Dubai or an Arabic-oriented Miami.<\/p>\n
So while Qatar leverages its natural resources, it understands they are finite and can\u2019t be relied on indefinitely. A 2008 document, Qatar Vision 2030, set the Emir\u2019s objectives for Qatar up until 2030; to build tomorrow\u2019s Qatari economy and society by attracting foreign investments and knowledge, diversifying its economy, investing abroad and promoting education and culture; to compete in the knowledge based international business environment.<\/p>\n
Qatar natural resources give it the ability to fund this economic diversification. As a wealthy country the main issue is not how to finance a Science Park: it is attracting leading scientists and academics to develop projects there.<\/p>\n
Therefore, the Qatari government has launched projects in partnership with foreign companies and universities. Instigated in 1995, after the peaceful coup by the current Emir, a crucial element of these development programs has been Qatar\u2019s paradigm: a small country with huge financial and natural reserves, with complete economic control by the Government.<\/p>\n
A Qatari elite comprising of Royalty, government officials and businessmen control the political, economic and business landscape. For instance the Prime Minister is also Qatar Investment Authority (QIA) CEO and the Deputy Prime Minister, Abdullah bin Hamad al-Attiyah, Qatar Petroleum (QP) Chairman. This is relevant as Qatar is an Arabic country. So when a deal is concluded and a contract written, the relationship goes beyond mere economic cooperation.<\/p>\n
The possibilities available in Qatar are becoming clearer: Qatar\u2019s energy industry is radically different to elsewhere, such as say Russia. By gaining a foothold in Qatar, a Major in the energy industry doesn\u2019t only drill oil for short term profit to satisfy shareholders; it also has access to a unique environment for building future business models and investing in \u201cflexible options\u201d by benefiting from the Qatar scientific and educational revolution.<\/p>\n
The Oil and Gas Industry in Qatar.<\/p>\n
The Qatar economy relies upon its energy industry, especially to generate Government income (70% of total). Despite attempting to diversify the economy the energy industry accounted for 50% of GDP and approximately 85% of export earnings.<\/p>\n
Qatar is integral to the worldwide energy industry and can become essential, as despite their large reserves they are currently the 22nd largest exporter of oil and 5th in gas production (Exhibit 1).<\/p>\n
Exhibit 1<\/p>\n
1.213 million<\/p>\n
21<\/p>\n
0.142 million<\/p>\n
69<\/p>\n
0.753 million<\/p>\n
22<\/p>\n
0<\/p>\n
209<\/p>\n
2.541 billion<\/p>\n
12<\/p>\n
76.98 billion<\/p>\n
11<\/p>\n
20.20 billion<\/p>\n
33<\/p>\n
56.78 billion<\/p>\n
5<\/p>\n
0<\/p>\n
144<\/p>\n
25.47 trillion<\/p>\n
3<\/p>\n
Qatar\u2019s North Gas Field, discovered in 1971, is the world\u2019s largest non-associated gas field. Accounting for 14.4% of world reserves and is sufficient to support planned production of natural gas for 200 years.<\/p>\n
Qatar is the world leader in Liquefied Natural Gas (LNG). Large investments have been made in gas to liquid projects, with $20 billion invested in Ras-Laffan Industrial City. Qatar has ordered the world\u2019s largest LNG tankers and trains to help develop their distribution network. QP has stakes in the Qatari LNG operations; Rasgas and Qatargas.<\/p>\n
QP is the state owned energy company responsible for all phases of the oil and gas industry in Qatar. It makes huge profits and has a wide asset portfolio (Exhibit 2 and 3). It is a crucial component in the Qatar economy.<\/p>\n
Foreign energy companies in Qatar operate through a variety of special contractual arrangements with QP, including joint-ventures (JV) and production-sharing agreements (PSAs).<\/p>\n
Exhibit 2<\/p>\n
Sales<\/p>\n
118,140,863<\/p>\n
32,447,388<\/p>\n
168,488,206<\/p>\n
46,275,286<\/p>\n
Other Operating Income<\/p>\n
6,447,876<\/p>\n
1,770,909<\/p>\n
5,901,367<\/p>\n
1,620,810<\/p>\n
Exhibit 3<\/p>\n
232,604,448<\/p>\n
63,884,812<\/p>\n
185,902,097<\/p>\n
51,058,011<\/p>\n
49,703,545<\/p>\n
13,651,079<\/p>\n
60,132,185<\/p>\n
16,515,305<\/p>\n
282,307,993<\/p>\n
77,535,890<\/p>\n
246,034,282<\/p>\n
67,573,316<\/p>\n
Since the 1995 coup, Qatar has continually strived to improve economic freedom, the taxation system and make it easier to set up businesses, attempting to attract FDI. With the most influential set of laws discussed later.<\/p>\n
Qatar\u2019s main economic objective is to fund the diversification of its economy through growth in the energy industry. However, as discussed earlier, the country appreciates the need for technological support from international companies.<\/p>\n
To attract FDI, especially the energy industry Majors, the country has implemented two major sets of policy: the reshaping the economic and legal environment, and the construction of a knowledge-based society.<\/p>\n
A Changing Economic And Legal Environment.<\/p>\n
Economic Snapshot<\/p>\n
Since 2000 GDP growth has been strong and forecasts predict the economy will continue to grow rapidly (Exhibit 4).<\/p>\n
Exhibit 4<\/p>\n
Many of the reforms target the energy sector: the objective is to fund growth of other sectors through Government revenues from energy.<\/p>\n
Exhibit 5 and 6 suggests that this appears to be succeeding as there is a correlation between the growth in the energy sector and other sectors.<\/p>\n
Exhibit 5<\/p>\n
Exhibit 6<\/p>\n
The recession affected all sectors and led to low 2008 and 2009 growth rates. This was due to low oil prices reducing the budget surplus, and thus government investment. However, Qatar recovered well in 2010 with GDP growth doubling to 17.4% in 2010 from 8.6% previously.<\/p>\n
Exhibit 7<\/p>\n
Year<\/p>\n
Overall Score<\/p>\n
Business Freedom<\/p>\n
Trade Freedom<\/p>\n
Fiscal Freedom<\/p>\n
Government Spending<\/p>\n
Monetary Freedom<\/p>\n
Investment Freedom<\/p>\n
Financial Freedom<\/p>\n
Property Rights<\/p>\n
Freedom From Corruption<\/p>\n
Labour Freedom<\/p>\n
2002<\/p>\n
61.9<\/p>\n
55<\/p>\n
77<\/p>\n
87.5<\/p>\n
56.7<\/p>\n
81.2<\/p>\n
50<\/p>\n
30<\/p>\n
50<\/p>\n
70<\/p>\n
2003<\/p>\n
65.9<\/p>\n
55<\/p>\n
73<\/p>\n
87.5<\/p>\n
70.2<\/p>\n
87.1<\/p>\n
50<\/p>\n
50<\/p>\n
50<\/p>\n
70<\/p>\n
2004<\/p>\n
66.5<\/p>\n
55<\/p>\n
76.6<\/p>\n
87.5<\/p>\n
69.7<\/p>\n
90<\/p>\n
50<\/p>\n
50<\/p>\n
50<\/p>\n
70<\/p>\n
2005<\/p>\n
63.5<\/p>\n
55<\/p>\n
76.6<\/p>\n
99.9<\/p>\n
75.5<\/p>\n
81.7<\/p>\n
30<\/p>\n
50<\/p>\n
50<\/p>\n
56<\/p>\n
60<\/p>\n
2006<\/p>\n
62.4<\/p>\n
60<\/p>\n
74.6<\/p>\n
99.9<\/p>\n
71.7<\/p>\n
75.7<\/p>\n
30<\/p>\n
50<\/p>\n
50<\/p>\n
52<\/p>\n
60<\/p>\n
2007<\/p>\n
62.9<\/p>\n
60<\/p>\n
76.4<\/p>\n
99.8<\/p>\n
71.4<\/p>\n
72.4<\/p>\n
30<\/p>\n
50<\/p>\n
50<\/p>\n
59<\/p>\n
60<\/p>\n
2008<\/p>\n
62.2<\/p>\n
60<\/p>\n
70.8<\/p>\n
99.8<\/p>\n
72.1<\/p>\n
69.4<\/p>\n
30<\/p>\n
50<\/p>\n
50<\/p>\n
60<\/p>\n
60<\/p>\n
2009<\/p>\n
65.8<\/p>\n
75.7<\/p>\n
81.6<\/p>\n
99.9<\/p>\n
69.1<\/p>\n
67.3<\/p>\n
40<\/p>\n
50<\/p>\n
50<\/p>\n
60<\/p>\n
64.7<\/p>\n
2010<\/p>\n
69<\/p>\n
73.7<\/p>\n
82.2<\/p>\n
99.9<\/p>\n
73.7<\/p>\n
65.9<\/p>\n
45<\/p>\n
50<\/p>\n
65<\/p>\n
65<\/p>\n
69.1<\/p>\n
When all the aspects of economic freedom are considered, Qatar is ranked 2nd regionally and 39th in the world with a score of 69 (Exhibit 7and 8). Qatar ranks 50 in the ease of starting a business, as well as showing a rapid improvement in its Business Freedom score (Exhibit 7, 9 and 13).<\/p>\n
Exhibit 8<\/p>\n
Exhibit 9<\/p>\n
Overall freedom to start, operate and close business is relatively well protected in Qatar. The new 2010procedure to register for taxes and obtaining a company seal, increased the number of days required for starting business from 6 to 12 (Exhibit 10), but this is lower than the world average of 35 days. The Heritage Business Freedom score has also improved, especially since 2008 (Exhibit 7), and is above the international average; however there is room for improvement to be a world leader.<\/p>\n
Exhibit 10<\/p>\n
Procedures (Number)<\/p>\n
8<\/p>\n
Time (Days)<\/p>\n
12<\/p>\n
Cost (%of income per capita)<\/p>\n
9.7<\/p>\n
Minimum Capital Required (% of income per capital)<\/p>\n
79.8<\/p>\n
Exhibit 11<\/p>\n
While most economic freedom indicators have improved since 2000 the property rights, business and fiscal freedoms have experienced tremendous improvements (Exhibit 7).<\/p>\n
Exhibit 12<\/p>\n
Exhibit 13<\/p>\n
Saudi Arabia<\/p>\n
11<\/p>\n
12<\/p>\n
4<\/p>\n
United Arab Emirates<\/p>\n
40<\/p>\n
37<\/p>\n
2<\/p>\n
Kuwait<\/p>\n
74<\/p>\n
69<\/p>\n
0<\/p>\n
Algeria<\/p>\n
136<\/p>\n
136<\/p>\n
0<\/p>\n
Nigeria<\/p>\n
137<\/p>\n
134<\/p>\n
0<\/p>\n
Angola<\/p>\n
163<\/p>\n
164<\/p>\n
1<\/p>\n
Equatorial Guinea<\/p>\n
164<\/p>\n
161<\/p>\n
0<\/p>\n
Iraq<\/p>\n
166<\/p>\n
166<\/p>\n
0<\/p>\n
Venezuela<\/p>\n
172<\/p>\n
170<\/p>\n
1<\/p>\n
Those evolutions (partly due to changes in the legal systems discussed later) have attracted an increasingly number of foreign companies, as shown by the increase in FDI and Net Foreign Assets (Exhibits 14 and 15).<\/p>\n
Exhibit 14<\/p>\n
Exhibit 15<\/p>\n
As already mentioned, FDI and Foreign Assets are crucial for Qatar: to increase energy industry revenues and to create its knowledge-based society, it has to attract skilled labour and technology-based companies.<\/p>\n
An Evolving Legal Framework<\/p>\n
These improvements of its business environment have been possible thanks to the reshaping of its legal framework.<\/p>\n
Financial Liberalisation<\/p>\n
The 2000 investment law is a milestone in Qatar history: it has turned the country from a hostile-environment for FDI into a magnet for investors.<\/p>\n
It is also important to note that the Articles 2, 5 and 8 of this law directly target the energy industry (Exhibit 16). By creating the opportunity to own oil \u201cblocks\u201d and to settle for 50 years in Qatar, the government expect foreign companies to bring their technology and skilled labour to undertake long-term projects that will be mutually benefit. The effect of this has been seen with the large increase in FDI since the law was enacted (Exhibit 14).<\/p>\n
Exhibit 16<\/p>\n
Foreign investors may invest in all the sectors of the national economy provided that they have one or more Qatari partners whose share is not less than 51% of the capital.<\/p>\n
The Minister may issue a decree allowing foreign investors \u2018 share to exceed 49% up to 100% of the project\u2019s capital, in the sectors of agriculture, industry, healthcare, education, tourism, exploitation and development of natural resources, energy or mining.<\/p>\n
Requiredreal estate may be leased to the foreign investor to establish his investment project, for a period not exceeding 50 years renewable.<\/p>\n
The foreign investments shall not be subject, eitherdirectly or indirectly, to expropriation.<\/p>\n
Another major shift was the creation of the QFC (Qatar Financial Centre) and QSTP (Qatar Science and Technology Park, studied in more depth later), two, tax free, free trade zones in which sponsors are not required and 100% foreign ownership is allowed. Improvements in fiscal freedom have also been seen with the corporate tax rate slashed to 10% from 35% in 2010 for a foreign corporation in Qatar.<\/p>\n
The QFC aims to attract banking and insurance companies while QSTP targets technology-based firms; they both have the same regulation. Therefore, from a legal point of view, both institutions share the same financial and legal incentives (Article 12; Exhibit 17).<\/p>\n
Exhibit 17<\/p>\n
The objectives of the QFC Authority shall be the following:<\/p>\n
To establish, develop and promote the QFC as a leading location for international finance and business designed to attract international banking, financial services, insurance businesses, corporate head office functions, as well as other business.<\/p>\n
Notwithstanding any provision to the contrary in any other law or regulation, entities that are approved, authorised or licensed to carry on their activities in and from the QFC will:<\/p>\n
1. not be subject to any nationalisation or expropriation measures or any restriction on private ownership;<\/p>\n
2. have freedom to repatriate profits and realise investments;<\/p>\n
4. Not be subject to any taxes except those set by or determined in accordance with the Regulations.<\/p>\n
5. Be owned up to 100% by persons, companies and other entities which are not nationals of, or resident in, the State.<\/p>\n
A Knowledge-Based Economy<\/p>\n
As explained, Qatar has attempted to transform itself into a knowledge-based society by attracting foreign companies and universities to bring their skills and knowledge to Qatar and pave the way for the construction of a diversified economy and educated country.<\/p>\n
For that purpose the Qatar Foundation was created in 1995. It then lead to the creation, in 2009, of Education City within QSTP (Exhibit 18).<\/p>\n
Exhibit 18<\/p>\n
Qatar Science and Technology Park (QSTP)<\/p>\n
The idea underpinning QSTP is to attract foreign investors by providing them with world-class research facilities and a network of informal contacts that allow firms to benefit from each other\u2019s knowledge generation. The legal and financial incentives have already been discussed.<\/p>\n
By entering QSTP, foreign companies, especially in the energy industry, may take a decisive option for the future of their business: the large range of opportunities offered to them, through partnerships with other companies, can help them to shape their future business model.<\/p>\n
Exhibit 19<\/p>\n
ExxonMobil<\/p>\n
ExxonMobil Research Qatar<\/p>\n
ExxonMobil is working to develop automated remote gas-detection technologies to identify emissions at liquefied natural gas production and transportation facilities.<\/p>\n
Airbus, Qatar Petroleum, Qatar Airways, Rolls Royce, Shell and Qatar Fuel<\/p>\n
The consortium is working on developing a clean-burning aviation fuel derived from natural gas.<\/p>\n
Shell<\/p>\n
The programme builds upon Shell\u2019s extensive experience in the GTL field and focuses on catalyst testing, product development and GTL by-product research.<\/p>\n
Total<\/p>\n
The Total Research Centre<\/p>\n
It will undertake R&D activities in: multiphase oil and gas production carbonate reservoir modelling, acid gas management, polymer production and air-quality management.<\/p>\n
Comparison with the USA<\/p>\n
It is interesting to compare Qatar with the USA to identify areas of success and areas with room for improvement.<\/p>\n
One key difference between Qatar and the US is that they epitomize two opposite political paradigms, while managing to both be magnets for technology-based companies.<\/p>\n
Two opposite Political Systems<\/p>\n
The US is one of the biggest countries in the world, the economic powerhouse of the world and epitomizes the spirit of entrepreneurship. Contrary to Qatar, each individual is expected to succeed through hard work and innovation. As shown earlier, in Qatar major scientific, economic or educational projects are launched by the government and individuals have little room for manoeuvre. For example, in the energy industry QP instigates projects.The US has little to no state ownership. The largest US company energy company, ExxonMobil, is the world\u2019s largest publically traded energy corporation. Government intervention in the market is limited to regulations. The Government intervention in Qatar means that selected individuals have large power and this encourages corruption. As Exhibit 16 shows 2004 was the high point, which coincided with Qatar\u2019s GDP growth and the availability of profitable opportunities. Recent efforts by the authorities have reduced corruption and the situation is improving.<\/p>\n
The low level of corruption and the high property rights scores (Exhibit 22) mean that it much safer to do business, through easier contract enforcement and a more independent judicial system, in the US than Qatar; though Qatar is improving due to the 2000 laws.<\/p>\n
Exhibit 20<\/p>\n
Exhibit 21<\/p>\n
Economic Freedom Ranking (Out of 179 countries)<\/p>\n
39th<\/p>\n
Total Economic Freedom Score (Out of 100)<\/p>\n
69.0<\/p>\n
Property Rights (Out of 100)<\/p>\n
65.0<\/p>\n
Business Freedom (Out of 100)<\/p>\n
73.7<\/p>\n
Investment Freedom (Out of 100)<\/p>\n
45.0<\/p>\n
Freedom from Corruption (Out of 100)<\/p>\n
65.0<\/p>\n
Exhibit 22<\/p>\n
One common objective: attracting skilled labour and fostering innovation, scientific research and education<\/p>\n
Both countries encourage scientific research, creating partnerships between universities and companies and attracting technology-based companies.<\/p>\n
A comparison of QSTP and Silicon Valley gives an indication of different approaches towards one objective. Silicon Valley has a location-specific advantage in the generation of knowledge related to the computer industry. One may consider that QSTP is the Qatari equivalent to the Silicon Valley, except that it is specialised in the energy field. Indeed, both have similar characteristics: they foster innovation by clustering companies, universities and scientists. If they share similar objectives, they were built through opposite processes: while Silicon Valley was created bottom-up, QSTP was constructed top-down. Silicon Valley was built organically thanks to innovative entrepreneurs, while QSTP is an artificial government creation: if both places operate the same way to foster innovation, they also reflect the economic patterns of both countries and can be used as examples of the business environment as a whole.<\/p>\n
Some major families (Al Thani, Al fardan, al-Attiyah\u00e2\u20ac\u00a6) are at the head of the country\u2019s political and economic institutions.<\/p>\n
The government\u00a0is strong and active: Its intervention regards all the economic and social aspects.<\/p>\n
A booming economy: GDP growth averages 15% annually.<\/p>\n
Skyrocketing FDI.<\/p>\n
A developing stock market.<\/p>\n
A three-strata society: Locals ,Western expatriates, Asian (Indian) expatriates.<\/p>\n
The Kafala system can cause maltreatments regarding blue collar Asian and Indian workers.<\/p>\n
Education system developing under the Supreme Education Council and Qatar Foundation.<\/p>\n
Development of health care provisions by Supreme Council of Health, and the Hamad and Sidra Medical and Research Centres.<\/p>\n
Attraction of foreign companies and skilled workers to foster technological headways.<\/p>\n
Construction of research centers (QSTP).<\/p>\n
Technological improvements are mainly undertaken in the energy and \u201cgreen\u201d industry.<\/p>\n
A stable political and economic environment.<\/p>\n
Protection of foreign investors.<\/p>\n
Low corruption, through favouritism and political connections.<\/p>\n
Qatar Vision 2030: Government initiative- fostering education, scientific and economic diversification through major projects.<\/p>\n
A favorable tax environment (tax rate was reduced to 15%).<\/p>\n
Law No. (13) 2000:obligation to enter into a JV, as minority shareholder, to set up a business in Qatar, except for specific exceptions where 100% ownership is allowed.<\/p>\n
Expropriation is forbidden.<\/p>\n
Creation of free-trade zones (QSTP and QFC), with 100% ownership and no tax.<\/p>\n
Advantages<\/p>\n
A diversified asset portfolio<\/p>\n
When entering in Qatar, a company has the possibility to create a diversified and audacious assets portfolio. In fact, Qatar is one of the only countries worldwide to have built LNG integrated supply chains and to have its own ships. Therefore, for instance, ExxonMobil has its most diversified asset portfolio in Qatar: it has taken positions in short, middle and long term options, with different levels of risks as shown by Exhibit 23.<\/p>\n
Exhibit 23<\/p>\n
This possibility to invest in flexible options given by QSTP is almost unique. By providing scientific and educational facilities to address the exhaustion of natural resources, Qatar also offers foreign and domestic companies state-of-the-art facilities to develop energy alternatives to fossil fuels. The programs developed for instance by Shell in QSTP (Exhibit 19) allows it to develop futuristic gas-to-liquids technology while producing LNG to finance this investment.<\/p>\n
A safe business environment<\/p>\n
The other major advantage of implementing an energy business in Qatar is the increasingly safe environment and the ease with business can be conducted, shown by independent ranking systems, compared to other producing countries. (Exhibit ?).<\/p>\n
As already mentioned, it is possible to run oil and gas operations in Qatar through two main options: either a JV (minority shareholding) with QP or a 100% ownership of a hydrocarbon \u201cblock\u201d.In many countries, like Russia, in which BP experienced difficulties in a JV, the political instability and the lack of protection of minority shareholders make a participation in a JV very risky. In Qatar a company involved in a JV is well protected (Exhibit ?).<\/p>\n
Regarding the ownership of a \u201cblock\u201d, we have seen that companies are well protected against expropriation and since the mid-1970s and the nationalization in of Shell and Dukhan Services there have been no cases of expropriation of foreign investment in Qatar. Qatar is vastly improving in regards to its respect of property rights with a 30% increase in their property rights score from Heritage in 2010, ranking it well above average.<\/p>\n
So Qatar is a safe country to invest in, especially when comparing with other producing countries (Exhibit ?).<\/p>\n
Challenges<\/p>\n