Geopolitics

Troubled Waters: The Djibouti – DP World Port Dispute

May 18, 2020

Eren Ersozoglu

 

 

Key Judgments

 

KJ-1. Djibouti has enacted legislation to break terms of the agreed concession agreement. The government accused the port operator of paying bribes, but it is almost certain that Djibouti was seeking a pretext to end the agreement for self-interest.

 

KJ-2. Djibouti argued that Dolareh was not being developed as promised, with DP World focusing on Gulf investments instead. Djibouti has facilitated China, proven in development projects. Selling Djibouti’s stake in China Merchants Port Holdings (CMP) in 2013, and an adjacent Chinese port construction supports this judgment.

 

KJ-3. Control of Dolareh Container Terminal is unlikely to return to DP World despite LCIA ruling. To date, no damages were paid, but it is likely international pressure will influence compensation based on the risk of losing foreign investments. This will likely be independent as Djibouti states it cannot accept ‘arbitrary’ convictions.  

 

KJ-4. DP World continues to expand and invest in ports in the region, stoking competition with the Dolareh Container Terminal. Djibouti’s economy heavily depends on handling Ethiopian trade (90%). Competition is a factor influencing the seizure of the port, as Djibouti claims the terminal was being underdeveloped to protect Jebel Ali port.

 

 

Escalation

 

In 2004, DP World and Djibouti entered a 30-year concession agreement. DP World agreed to design, construct, and operate the terminal. Operations began in 2006, almost immediately causing conflict. Djibouti campaigned to renegotiate terms. in 2012, Djibouti accused the port operator of paying bribes and launched an arbitration case with LCIA, both failed. In 2013, Djibouti sold 23.5% of 66.66% stake in the terminal to CMP. Dubai left with 33.34% of the terminal. In 2015, Dubai was seeking an overseas base to strike against Houthi rebels; they sought to use DP World’s facilities as a tool for this purpose. This soured relations with Djibouti further. In 2018, 22nd February, Djibouti ended the contract through a presidential decree, nationalising control of the port. Six court rulings to date have been in favour of DP World. In November 2019, DP World sued Hong Kong for bypassing the concession agreement. So far, Djibouti has not reimbursed DP World for the reported $1bn lost in revenue.

 

 

China / DP World Dispute

 

CMP is a state-owned conglomerate while Dubai is the main stakeholder in DP World. The case in Hong Kong is China’s first legal dispute as a result of its Belt and Road initiative. China also has its first overseas military base in Djibouti. Chinese financiers hold 77% of Djibouti’s debt. This could be a major factor that will influence China to ensure that the port is a success. If DP World wins in Hong Kong, this will not only damage Chinese influence but will result in court-ordered damages to be paid. While a court may seek to require CMP returning stake share to DP, Djibouti’s stance on this issue makes it unlikely in practice. 

 

 

Analysis

 

1. Satellite map / imagery of Dolareh Container Terminal by Google Maps

 

 

 

2. China’s Red Sea Express 2 graphic visualisation. Djibouti key transit point for China.

 

 

 

3. Map of commercial bases and military bases in the region.

  

 

 

4. UNCTAD now ranks Djibouti 55th globally in shipping liner connectivity a decrease since nationalisation of the port.

 

 

 

5. Steady increase that can be attributed to the flow of Ethiopian exports.

 

 

 

 

Image: Tesfa News (link)

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