Djibouti plans to compensate DP World over contract termination
Djibouti would be prepared to pay DP World compensation of “more or less half a billion dollars as early as next week” to settle a dispute over control of the city’s Doraleh container terminal.
In an interview with the Financial Times, Aboubaker Omar Hadi, chairman of Djibouti Ports & Free Zones authority, rejected talk of arbitration to settle a long-running dispute over the most modern port in East Africa, saying that DP World had to accept it was no longer involved in running the facility.
“For us, arbitration is over,” he said. “They have to sit down with us, take their money and go.”
Last week, Djibouti opened the first phase of a $3.5bn free trade zone in which China Merchants Group and Dalian Port Authority have a stake. DP World, Dubai-based ports, and logistics company said the new facility was in violation of its exclusive 30-year concession to run Doraleh and warned that it was considering legal action.
DP World said in a statement: “This is yet another clear example by the Djiboutian government of violating its contractual obligations and the rights of foreign investors.”
In February, Djibouti seized Doraleh after accusing DP World of deliberately under-using the port in favor of other regional terminals, including Berbera in Somaliland, which DP World also runs.
“They were trying to control more and more ports in the Red Sea,” said Mr. Hadi, adding that DP World had shown no interest in using Doraleh to its full capacity. “That’s when we started saying there’s something wrong here,” he said.
Both Doraleh and Berbera are on the Red Sea, a narrow waterway separating the east coast of Africa from the Gulf and a thoroughfare for 30 percent of world shipping cargo.
Mr. Hadi said that the amount of compensation Djibouti was prepared to pay was subject to detailed calculations, but would be based on the net present value of DP World’s annual profits and dividends over the remaining 20 years of the concession.
DP World refused to comment. In the past it has rejected accusations that it purposefully starved Doraleh of traffic, saying it had consistently argued that the region needed several competing ports. Last year, DP World won an arbitration case against Djibouti, which had claimed it had paid bribes to win the original concession.
The dispute between Djibouti and DP World is part of a wider strategic maneuvering in which several countries and companies are jostling for shipping routes.
Djibouti, wedged between Eritrea and Somalia, has marketed itself as a base for both cargo shipments and military bases, part of whose rationale is to fight piracy in the waters off Somalia. The US, China, France, and Japan all have military bases in Djibouti within a few miles of each other.
Landlocked Ethiopia, the second-most populous country in Africa with 105m people, also needs access to ports. It has expressed an interest in swapping shares in its airline and telecoms companies in return for a stake in Doraleh, something Mr. Hadi said Djibouti had accepted in principle.
In May, Ethiopia took a 19 percent stake in Berbera port in which DP World holds a 51 percent stake. The self-declared-independent government of Somaliland has the other 30 percent.
This month, Ethiopia concluded a peace agreement with Eritrea, bringing to a close 20 years of hostility and giving it access to Assab and Massawa ports, also on the Red Sea.