Djibouti: Government Seizing DP World Terminal May Alter Shipping Routes

Djibouti: Government Seizing DP World Terminal May Alter Shipping Routes

Background

Amid an ongoing legal dispute with Dubai-based DP World, the fourth largest port operator worldwide, the government of Djibouti unilaterally terminated a concession contract on February 22. The contract was awarded to DP World in 2006 for a container terminal in the Port of Doraleh, an extension of the Port of Djibouti. The contract was reportedly terminated by a presidential decree and the assets of the terminal which includes the Doraleh Container Terminal (DCT), were expropriated. The move has been widely considered as the nationalization of private property.

The legal dispute goes back to 2014 when the government of Djibouti accused DP World of bribing the head of Djibouti’s port authority and calling the overall agreement unfair. However, the international arbitration court dismissed the claims in 2017 and called the terms fair and reasonable. According to some media outlets, the recent takeover of the port came after DP World attempted to undermine Djibouti by offering Ethiopia, for which the Port of Doraleh is the most important import hub, the use of a competing facility in the Port of Berbera in Somaliland at attractive rates. Prior to this, the United Arab Emirates, which owns DP World, was reportedly prohibited from setting up a military base in Djibouti. This is believed to have led to deteriorating relations between both governments and have contributed to the current situation.

Significance of the Port of Doraleh

Located on the Horn of Africa, Djibouti’s strategic position on the confluence of the Red Sea and the Gulf of Aden has not only made it the world’s only country to host both a US and Chinese military base, but also an important shipping lane to Europe and Asia. Since its inauguration in 2006, the Port of Doraleh has become the country’s largest single employer and a significant source of revenue. It also serves as a crucial gateway to its landlocked-neighbor Ethiopia: more than 95 percent of Ethiopia’s imports come through the Port of Doraleh which is connected via rail to Addis Ababa, the capital of Ethiopia. Ocean carrier schedules show that a majority of container shipping lines operating either as single or joint alliances servicing Djibouti, including Maersk Line, MSC, CMA CGM, Hapag Lloyd, COSCO, Pacific International Lines and Yang Ming among others, call at the Doraleh Container Terminal.

Source: https://www.beforward.jp/beforward_somalia

Outlook

In a statement on February 23, DP World said that it has commenced arbitration proceedings before the London Court of International Arbitration to protect its rights, or to secure damages and compensation for breach or expropriation. At the same time, the president of the Djibouti Ports & Free Zones Authority said in a recent interview that the government of Djibouti would compensate DP World and buy out all of its shares.

Despite an immediate change of senior management in the Doraleh Container Terminal (DCT) following the nationalization of the port, no operational disruption has been reported. In case of an unexpected disruption, liner services are likely to call at the competing Doraleh Multi-Purpose Port, which was opened in April 2017. Like the Doraleh Container Terminal, the Doraleh Multi-Purpose Port is located in the Port of Doraleh but has a smaller handling capacity, hence going through this terminal may increase transit times in case of terminal changes by container shipping lines. The facility is held by Chinese port firm China Merchants Holding International (CMHI), which holds 23.5 per cent of shares in Djibouti’s port holding company. According to local media, CMHI may be in line to take over the concession contract from DP World. CMHI is also aiming to complete the Doraleh International Container Terminal (DICT) by 2020, which will be situated close to the Port of Doraleh and have a handling capacity of 3 million TEU, even larger than DCT’s current capacity.

Should DP World be forced out of Djibouti, it will likely continue to invest its resources and boost capacity plans at the Port of Berbera in Somaliland in the midterm in an effort to create a competing port facility with direct access to land-locked Ethiopia and potentially an alternative transshipment hub for container lines.

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