On Friday, 23rd February the government of Djibouti cancelled its contract with DP World for the concession of Doraleh Container Terminal (DCT) and took control of the facility
The government of Djibouti said, in an official statement, that it has taken this decision “in the light of the recent performance of DCT and to rectify irregularities in the agreement covering its operation.”
Specifically, the statement continues, “contrary to a statement released by the government of Dubai, the agreement with DP World was not a BOT agreement, but a joint venture between DP World (33%) and Port Autonome International de Djibouti (66%).
“Since 2008, DCT has achieved only 57% of its total capacity, despite operating in a stable import-export environment. 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 favout of their main asset at Jebel Ali. The original agreement, which included a number of irregularities, excluded Djibouti from decision-making processes and the management of the company.”
It then adds that negotiations the government has undertaken in good faith over the past six years to find a solution were rejected by DP World…Last month DPFZA engaged DP World in detailed discussions, worth 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.
“In response, the government has asserted its legal right to assume management of DCT. 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.”
This is the second time that Djibouti has cancelled DP World’s concession at DCT. As previously reported, In 2014 it abrogated it amidst allegations of widespread bribery by DP World, which DP World strenuously denied. That went to arbitration and in 2016, DP World won.
The government of Djibouti has clearly decided that the only way to end this unhappy marriage with DP World is to act swiftly and kick it out – possession is nine tenths of the law.
The United Arab Emirates immediately denounced Djibouti’s cancellation of DP World Ltd’s contract, calling it an “arbitrary” flouting of a signed agreement.
Dubai’s government said Djiboutian authorities “illegally seized control” of Doraleh on Thursday and that DP World has begun arbitration proceedings before the London Court of International Arbitration to protect its rights.
Some sources have tried to link the dispute with the war in Yemen, as Djibouti and Yemen are separated by just 40 kms across the Mandeb Strait. However, Djibouti has recently granted Saudi Arabia permission to build a new military base on its territory and the UAE and Saudi Arabia are on the same side in the conflict, so this would not directly explain its decision to expel DP World. Nevertheless, the government did reject the UAE’s request to set up its own military base in the country.
Explaining its decision to cancel the contract, Djibouti Ports & Free Zones Authority (DPFZA) cited DP World’s decision to develop “other ports close to Djibouti”. The UAE firm has certainly focused on developing Jebel Ali, but that is its home port,and the comments could be aimed at recent agreements signed with ports in the two breakaway Somali states.
Last March, DP World signed a contract to expand and operate the Port of Berbera in Somaliland, while sister company P&O Ports concluded a 30 year contract to operate Bosaso in Puntland.
However, both agreements were reached after Djibouti’s legal agreement with DP World began, and so could be seen as a result of the dispute rather than a cause of it.
Djibouti may also be keen to see another foreign firm drive the expansion of port facilities in the country. DP World has taken the lead in port development over the past decade but the government may now be banking on China Merchants Group to fulfil the same role in the future. The Chinese firm has invested US$590M in Doraleh Multipurpose Port, which was completed last May, and has expressed its desire to turn Djibouti into the ‘Shekou of East Africa’.