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Djibouti severs contract with DP World for container terminal

The government of Djibouti has come up with an unexpected but strong decision related to the concession contract of Doraleh Container Terminal (DCT).
A communiqué signed by Mohamed Abdoulkader Moussa, Minister of Equipment and Transport, indicated that the government would discontinue its concession contract with global port operator DP World, as of February 22.
The new move will make the government of Djibouti the full owner of the modern port based on a law issued late last year.
Experts said that the decision the taken by the government of Djibouti is very strong. Sources close to the issue told Capital that the government fully owned the container port the same day the letter was issued.
Previously, DP World, a Dubai based company, agreed with the government of Djibouti to manage the Port of Djibouti, the oldest port in the country, and it was also responsible for managing DCT, an exclusive container port that opened in December 2008.
“Pursuant to the law of 8 November 2017 on strategic infrastructure contracts, the Government of the Republic of Djibouti has decided to proceed with the unilateral termination, with immediate effect, of the concession contract awarded to DP World for the operation of DCT,” a communiqué issued on Thursday stated.
It elaborated that, in terms of strategic infrastructure contracts, the November 8 2017 law is designed to protect the nation’s best interests, especially those relating to state sovereignty and economic independence.
The Djibouti government pointed out that it had established a legal framework allowing for renegotiation, when required, of concluded contracts bearing on the management or operation of strategic infrastructure. “The law also authorizes the government to terminate the contracts in question,” it added.
According to their statement, the Doraleh Container Terminal concession agreement contained elements in flagrant violation of the sovereignty of the state and the best interests of the nation. It went on to say that there had been attempts to speak with relevant bodies from the DP World side.
“These factors have been talked about on several occasions with the management of DP World,” it said.
The statement added that since 2012, the Republic of Djibouti has tried everything within its power to renegotiate this contract without calling into question the interests of its partnership with DP World and the development objectives of Djibouti’s port activity.
“Good faith attempts by the Government of Djibouti and its representatives to reach a negotiated solution or to resolve the issue amicably have been rejected without reason by the management of DP World,” it further stated.
The communiqué also claimed that the latest attempt, dated February 1, 2017, was answered only by a resolution taken by DCT’s board of directors in which the state of Djibouti, the 66.66 percent majority shareholder of DCT, will be contested in a new arbitration procedure without its consent.
“As a result and in accordance with the law of November 8, the government today issued a decree terminating the concession,” it added.
As stipulated by the law of November 8, normal compensation procedures will be implemented.
The November 8 law article one stated the government may renegotiate or, as necessary, terminate, in whole or in part, all contracts relating to the design, construction, management or operation of strategic infrastructures when it considers that the stipulations of these contracts prove to be contrary to the fundamental interests of the Republic of Djibouti.
In article two it added that should it be decided, as the case may be following an unsuccessful renegotiation attempt, to terminate, in whole or in part, a contract referred to in Article 1, such a decision shall be pronounced by an Order in Council of Ministers.
“The decree of cancellation of the contract specifies the possible methods of compensation of the holder of the contract in question and indicates, if necessary, the recovery by the State or by any other public establishment or public company, to the need specifically created for this purpose, of the rights and obligations under the relevant contract to preserve the continuity of the public service,” the law issued in November last year added.
In its statement on Thursday DP World claimed that DCT is the successful port since the beginning.
However on Friday Djibouti Ports and Free Zones Authority (DPFZA) said that the government of Djibouti took this decision in light of the recent poor performance of the DCT, and to rectify irregularities in the agreement covering its operation.
“Since 2008, DCT has achieved only 57 percent of its total volume, despite operating in a favourable import-export environment,” DPFZA argued.
The government of the Republic of Djibouti has henceforth taken over the management of the terminal. In another appointment letter signed by president of Djibouti, Ismail Omar Guelleh, and issued on February 22 Warsama Hassan Ali was appointed Director General of DCT.
DPFZA on its statement on February 23 sated that DCT has now been placed under the authority of the Doraleh Container Terminal Management Company (DCTMC), a fully state-owned company that will be managed by DPFZA. “The port will be managed and developed in line with DPFZA’s strategy to develop Djibouti as a world-class trade and logistics hub, building on its existing position in the region,” the authority said.
“In the meantime, DP World developed other ports in countries close to Djibouti and used aggressive tactics such as the deliberate slowing of the development of DCT in favour of their main asset at Jebel Ali, which is in the UAE,” the authority added.
Last year DP World agreed with the self independent Somaliland to manage the Port of Berbera with massive new port and related facilities.
The authority also added that the original agreement, which contained a number of irregularities, excluded Djibouti from decision-making processes and the management of the company.
The communiqué indicated that the decree authorizes the requisition of all the goods and personnel essential to the running of DCT. “The decree also authorizes the automatic transfer of all contracts and personnel necessary for the operation of the terminal,” it added.
It has also given an assurance to the partners that work will be continuing as usual. It said that the government of the Republic of Djibouti assures all partner operators, associated companies and site employees of its commitment to maintaining continuity of service and to developing Doraleh’s port activities.
DCT is an instrument essential to Djibouti’s economic strategy.
Experts at Djibouti told Capital that the new decision may have a positive effect on the Ethiopian side. They said that tariff decreases at the port may occur because of the recent announcement that other ports in Djibouti managed by Djibouti Ports and Free Zones Authority declared a price decrease on port handling.
“At the recent meeting held in Addis Ababa with private stakeholders several issues were raised from both sides including the current new decree allowing the government of Djibouti to manage the DCT directly. They argued this could give an opportunity for the government to answer questions easily,” an expert based in Addis Ababa told Capital. He added that the effect would be observed in the coming few months.
Djibouti was the first destination for DP world when the two bodies agreed to port management in 1999. Since 2000 DP World began managing the old port in Djibouti and in 2008 it developed a container terminal at Doraleh with about one third share. In the past few years the government of Djibouti claimed that there was a hidden deal on the port handling and related issues affecting the benefit of the country.
It has been disclosed that there were attempts to solve issues through negotiation. However it did not work out. DPFZA said that negotiations undertaken in good faith by the government of Djibouti and its representatives to find a solution to this situation, going back six years, were rejected by DP World.
According to the authority statement that issued last Friday, last month, DPFZA engaged DP World in detailed discussions, with a view to finding a good faith settlement that included the purchase of DP World’s stake. “DP World declared their desire to sell their shares in DCT, but subsequently added an additional restriction on Djibouti developing new ports on its territory. This condition, which poses a serious threat to Djibouti’s national sovereignty, was rejected by the government of Djibouti,” it claimed.
The company’s move to east Africa is its second footprint after the Arab world, it then became a global company. Early in the 2000s the gulf state agreed with the government of Djibouti to establish and operate ports along the coastlines of the country in the Aden Gulf.
The major aim of the project is to boost the port handling capacity of Djibouti, which is the nearest alternative port and almost equivalent to the distance of Assab for Ethiopia which is not really preferred given the tense conditions between the two nations due to a three year border conflict between the end of 1998 to early 2000.
Capital’s effort of get a comment about the issue from Ahmed Shide, Minister of Transport, and Mekonnen Abera, head of the Ethiopian Maritime Affairs Authority was unsuccessful.
Djibouti is a major outlet for Ethiopia’s import/export. In the past few years the country concluded three new ports with a huge handling capacity.
The new railway also makes Djibouti’s ports ideal for Ethiopia.
It was recently announced that another three ports and related facilities will be built in the coming weeks. One of the projects is also a port that is exclusively a container terminal like DCT.


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