Djibouti Rejects Court Ruling to Hand Back Container Terminal

Djibouti ordered the nationalization of the Doraleh container terminal, a vital port facility pictured above, in 2018. PHOTO: YASUYOSHI CHIBA/AGENCE FRANCE-PRESSE/GETTY IMAGES

Djibouti has rejected a U.K. court ruling to hand back control of a container terminal to global port operator DP World, after taking it over two years ago and allowing a Chinese state entity to build a separate terminal for the growing African market.

The London Court of International Arbitration this week asked the East African country to restore DP World’s rights to run the Doraleh terminal for 25 years in line with a deal signed in 2004. It was the court’s fifth order in favor of DP World since Djibouti nationalized the facility in January 2018.

“This ruling comes as no surprise,” Djibouti’s government said in a statement. “It is the outcome of the iniquitous provisions of the concession, which could force a state to set aside and disregard its own law, to revive a concession that was terminated on the grounds of the higher interest of the Djiboutian nation.”

The statement said Djibouti is open to discussing paying “fair compensation” but won’t accept the court’s order. Legal experts said the LCIA can’t enforce any rulings if governments don’t abide.

“We encourage all parties to abide by the court’s ruling,” a DP World spokesman said. “We were never offered compensation and we don’t want it. We want our concession back.”

The spokesman said the port operator has lost more than $1 billion in business since it was forced out of the Doraleh terminal.
The case reflects Beijing’s growing influence in developing African nations, which have been willing to lease state assets in return for Chinese state investments.

Along with the concession that gave DP World the exclusive right to move containers in Djibouti, the Dubai-based operator owned 33% of the Doraleh terminal, with the government holding the rest.

After nationalization, Djibouti offered a quarter of its stake to Chinese state behemoth China Merchants Ports Holdings, which is active across the world in port construction, container logistics, and terminal management.

China Merchants also built a separate container terminal in Djibouti as part of Beijing’s Belt and Road Initiative, the multi-trillion-dollar China is undertaking to build out global supply chains by running seaports in Europe, Asia, and Africa.

These gateways afford Chinese vessels priority handling and lower docking fees, giving China’s carriers and their shipping customers an advantage in the contest to deliver as much cargo as possible in the shortest time to European markets.

Djibouti stands at the entrance to the Red Sea and about 12% of all seaborne trade passes by there on giant vessels using the Suez Canal. There are no other ports along the coastline of East Africa with infrastructure to handle, store and trade cargo.

Djibouti’s location at the Horn of Africa also makes its ports strategically important for nations looking to exert influence across the region. The U.S. has a military installation in Djibouti for monitoring sea traffic tied to the Middle East. China also has a military base in Djibouti, it's first in a foreign country.

DP World has separately sued China Merchants for breach of exclusivity in moving containers in and out of Djibouti. The case will be heard at Hong Kong’s High Court in March.

China Merchants executives say their own terminal, which includes a China-backed $3.5 billion free trade zone, is legal under a separate deal with Djibouti.

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