June 2018

Doraleh : taking back its sovereignty

By Cherif Ouazani
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For almost 18 years, the State of Djibouti had entrusted the management of its commercial port, the country’s economic hub, to DP World, a company founded in the UAE. This proved to be a really bad deal. Since the government ended the contract in February 2018, the container port’s activity has already increased fivefold.
 
On 22 February 2018, the Djibouti authorities ended its contract with Dubai’s DP World, one of the world’s biggest port operators, for the management of its Doraleh Container Terminal (DCT), ending a partnership that began in 2000 when the management of the port of Djibouti, the country’s economic hub, was entrusted to the Emirati group. Other port operators had expressed their interest, but President Ismaïl Omar Guelleh (IOG) wanted a “reliable and available partner”. At the time, it was a relatively modest structure, on the up and up, originating from a friendly country.
To get the full measure of this case, one has to understand the importance of the port to the life of Djibouti a country practically born with this infrastructure built between 1897 and 1917 by colonial France, along with a railway serving Addis Ababa, capital of Ethiopia. The nomadic populations in the desert settled around the new port and pastoralists became dockers! Devoid of any resources, with a semi-desert climate, Djibouti’s only wealth is its strategic location, on a straight line between Asia, Africa and Europe. And its position as a gateway to Ethiopia, an emerging market of 100 million consumers, and to East Africa and its 250 million people. This context encouraged the gradual establishment of a major logistics and commercial platform. Yet, the choice of DP World was a mistake. Why did this strategic partnership turn out to be such a bad deal?
Abdillahi Adaweh Sigad is the new Managing Director of the Société de Gestion du Terminal à Conteneurs de Doraleh (SGTD – Doraleh Container Terminal Management Company) which succeeded DCT. He explains the trickery. “The deal with DP World consisted of sharing the profits generated by the Ethiopian market against an increase in international trade and the transhipment market. In 2004, we processed 200,000 tons annually for Ethiopia and as much for the international market. Ten years later, the Ethiopian market had grown to 700,000 tons, while the international market had remained at 200,000 tons. At the same time, Jebel Ali [DP World’s major home port in Dubai, Ed.] had increased its production tenfold, from 200,000 to nearly 2 million tons. To put it plainly, DP  World’s policy therefore consisted in establishing itself in Djibouti and throughout the zone in order to promote direct import-export activities and above all to protect Jebel Ali’s strategic transhipment activity, for which Djibouti is geographically better positioned. The concession contract also included an exclusivity clause for all port activity in Djibouti and made it virtually impossible to build new structures. The requests and attempts by the Government of Djibouti to renegotiate the terms of the concession contract had all been rejected by the Emiratis. In November 2017, the Djibouti parliament passed a law on strategic infrastructure contracts, authorising the government to review all operations affecting national sovereignty. Three months later, a presidential decree ended the concession and the legal existence of DCT.
Since then, DP World has threatened to take legal action against companies that sign a contract with the Djiboutian State involving the Doraleh terminal. “The concession was terminated after a transparent legal process,” says Hassan Issa Sultan, Djibouti’s Inspector-General. DCT no longer has any rights over the Port of Doraleh, since the concession no longer exists. The parties will be compensated in accordance with the law, and we are not intimidated by threats and media hype.” Abdillahi Adaweh Sigad adds, “The execution of this contract went against the best interests of the nation and adversely affected the country’s development imperatives.” Djibouti can turn the page on DP World for good when the compensation becomes effective. Who will benefit? DCT’s two shareholders: the Port of Djibouti SA (PDSA, majority shareholder with 66.6% of the capital) and DP World, minority shareholder. In the meantime, Doraleh is regaining its momentum. In January 2018, before the ending of the contract, DCT was operating at a rate of 23 containers per hour. After the Emiratis left, this figure rose to 40 containers per hour. The result is that production rose from 4,800 containers in January to over 24,000 in April. In March, the Singaporean shipping operator PIL signed an agreement to increase the port’s transit capacity by more than a third. Other discussions are ongoing. 
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