Thursday, August 2, 2018

Container Terminal Seizure Takes Another Turn as Port and Logistics Group Win Court Victory

Alleged Government Offers of Compensation Branded Untrue
Shipping News Feature
DJIBOUTI – DUBAI – WORLDWIDE – The situation regarding the seizure of the Doraleh Container Terminal by the authorities has taken yet another turn this week as the London Court of International Arbitration (LCIA) again confirmed the illegitimacy of the Government of Djibouti’s action when it took control of the Djibouti port facility from logistics group DP World in February and subsequently expelled all the group's staff from the country.

If the situation regarding the build up to the problems at Doraleh appear convoluted, that may be nothing as to the complications which are yet to come. To precis the situation as we have previously reported, in 2017 the government accused DP World of corruption, took the case to court, and lost. It then chose to take control of the assets agreed in the long term management and development contract, actions then deemed illegal by the London court.

As the latest statement from DP World points out, it was the UAE based group which designed, built and operated the terminal following a concession awarded in 2006. The Terminal is the largest employer and biggest source of revenue in the country, has operated at a profit every year since it opened, and was generally seen to have been a great success for Djibouti under DP World’s management.

Attempts by the government to renegotiate the terms of the concession failed in court when another LCIA tribunal found the terms ‘fair and reasonable’. Following the enactment of Law No. 202 in Djibouti, which purports to empower the government to terminate its infrastructure agreements, DP World was compelled to commence a new arbitration in February 2018 seeking a declaration that the Concession Agreement was valid and binding on the government. The Tribunal, comprised of Professor Zachary Douglas QC, has definitively confirmed that the Concession Agreement, which is governed by English law, remains binding and in force notwithstanding the government’s purported termination of it under Law 202.

The Djibouti counsel has been arguing that the concession agreement was not for DP World to design, build, and operate Doraleh, but a joint venture between DP World (33.33% share) and Port Autonome International de Djibouti (66.66% share). In addition DP World developed other ports in countries close to Djibouti and used aggressive tactics such as deliberate slowing of development of Doraleh in favour of their main asset at Jebel Ali. This led to the terminal only achieving 57% of its total volume, despite operating in a favourable import-export environment.

It further argued that the original agreement was flawed and excluded the Djibouti authorities from being able to exercise any control over certain vital aspects when it came to decision making and management of the facilities.

Subsequent to the expulsion the waters were further muddied when the government seemingly entered into new concession agreements with container operators CMA CGM and PIL, directly contrary to the ruling of the court and something which potentially spells another round of proceedings, with DP World stating it ‘reserves the right to take all available legal actions, to protect the company, including claims for damages against any third parties that interfere or otherwise violate its contractual rights’.

In the latest twist, press reports state that the Djibouti Ports & Free Zone Authority (DPFZA) claims it has now offered DP World in the region of $500 million to drop all claims, this represents $334 million for the company’s 33% stake in the terminal and with the rights to extend and develop the port, plus circa $170 million compensation. Speaking to the Handy Shipping Guide today DP World stated this is untrue and said claerly it has not received a formal offer from the Djiboutian government at any time.

So the question is of course what next? Taking governments to court is one thing, getting them to rectify any wrongdoing and holding them to account is quite another. In addition this relatively simple commercial matter first instituted by the government, thus seemingly precluding it from a defence of sovereign immunity on two grounds,and also appearing to be just one facet of a much bigger political game. Some while ago reports circulated that Djibouti plans to gift the Doraleh facility to the Chinese government, something which immediately sparked a reaction in Washington, and which was promptly refuted by Djiboutian officials.

Referring to the country as ‘a strategic choke point in the Horn of Africa’ Republican congressman Bradley Byrne, a member of the House Armed Services Committee, on hearing of the alleged Chinese offer wrote a formal letter to the Secretary of Defense James Mattis expressing concerns over the expansion of Chinese authority and the impact on US influence in the region. One telling paragraph reads:

“If Djibouti is willing to confiscate a port terminal operating under a legal 30-year agreement, what is to stop President Guelleh from reneging on the twenty-year lease the US signed in 2014 for Camp Lemonnier? The growing correlation between the billions spent by Beijing and actions taken by Djibouti harmful to the interests of the US and our allies raises serious questions.”

There are several other facets to this political game, one we mentioned in an article in March when an agreement between DP World and the government of Ethiopia saw them take stakes in the Somaliland Port of Berbera. This lit the blue touch paper between that government and that of Somalia which promptly saw the port operator banned from working in Somalia in support of its official view that Somaliland is an illegal state.

Back in 2015 the Djibouti government forced the closure of the UAE consulate there which led to neighbouring Eritrea to offer to install the Gulf Cooperation Council (GCC) military base in Eritrea rather than Djibouti. At that time Eritrea had been at war with Ethiopia for nearly two decades, a conflict finally resolved just last month with the signing of a peace treaty. During those hostilities 100% of Ethiopia's sea borne supplies routed through Djibouti.

Whilst the two were in conflict therefore they did not pose much of a threat to Djibouti as a major trade route to the heart of the continent. The two in harness however might mean a very different picture. If Addis Ababa and Asmara can work in harmony it might mean a profitable future for both, with landlocked Ethiopia able to play face-off between ports in Djibouti and facilities in Eritrea. Ethiopia and Eritrea say they are committed to upgrade sea port facilities, presumably Assab and Massawa, both historically important but almost forgotten since the start of hostilities.

The spark set off by the DP World dispute may go some way to lighting a fire under the authoritarian rule of Djiboutian President Ismail Omar Guelleh. Djibouti has profited since he came to power in 1999, largely on the cash garnered from both the port incomes and the rents stumped up by a variety of foreign governments (the United States, China, Japan, Saudi Arabia, and former colonial ruler France all have bases in Djibouti). China in particular has invested more of late but, as Djibouti is the only country hosting both Sino and US military bases, the Americans, and others, might be persuaded to transfer some such interests elsewhere.

Photo: The Doraleh terminal, seen here at night, has been a large jewel in the Djibouti freight crown for some time.