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Dubai port operator sues China over control of Djibouti seaports

13 Feb 2019, 12:51 pm
Financial Nigeria
Dubai port operator sues China over control of Djibouti seaports

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Djibouti's total debt to China is about 44 percent of the African nation’s GDP.

Doraleh Container Terminal in Djibouti

DP World (DPW), one of the world’s largest port operators, has sued China Merchants Port Holdings Company Ltd (CMPort), a Chinese state enterprise, in Hong Kong over infringement of the Dubai-based company’s exclusive port agreement with Djibouti. FactWire, a Hong Kong-based investigative news agency, said on Tuesday that it obtained a legal filing by United Arab Emirates’ DPW at the Hong Kong High Court against CMPort, accusing it of causing the Djibouti government to revoke DPW’s exclusive right to run the country’s seaports.

Hong Kong-based CMPort is a subsidiary of China Merchants Group (CMG), a state enterprise that deals mainly in the construction of ports, marine container logistics and operating container terminals. CMG has been involved in infrastructure projects in various countries under China’s Belt and Road Initiative (BRI).

The BRI is an ambitious project to strengthen infrastructure, trade, and investment links between China and over 60 other countries. The multibillion initiative, first proposed by Chinese President Xi Jinping in 2013, involves countries from South-east Asia to Eastern Europe and Africa. Collectively, the countries account for over 30 percent of global GDP and 62 percent of the world's population.

However, critics have accused China of using the BRI for “debt-trap diplomacy” to extract strategic concessions from foreign governments. Sri Lanka's handover of its Hambantota Port is often cited as a prime example of that claim. Sri Lanka formally handed over control of its port on the southern coast of Hambantota to China as part of a 99-year lease agreement. The $1.3 billion port was built by China with loans from a Chinese state-owned bank. But when the Sri Lankan government defaulted on loan repayment, as the port incured heavy losses, the government signed the lease to enable China recoup its investment.

CMPort, which has been sued in Hong Kong, controls the Sri Lankan 1,150-hectare port handed over to China. The total debt of Sri Lanka to China is estimated at $8 billion. The Center for Global Development has also found eight more BRI countries at serious risk of not being able to repay their loans.

FactWire said Djibouti, a strategically located country on the northeast coast of the Horn of Africa, has been involved in legal disputes with the UAE state enterprise for years.

DPW said under its agreement with Djibouti, it would have “full and exclusive right to establish, develop, and operate the Doraleh site.” According to court documents filed in August last year, DPW said its 30-year concession agreement with Djibouti was supposed to allow the firm exclusively run the Doraleh Container Terminal (DCT) but the Chinese firm caused the Djiboutian government to nationalize the terminal. The concession agreement, which took effect in February 2004, also says Djiboutian authorities cannot grant concessions for any other port capable of handling ocean-going vessels or free zone facilities within the country for the duration of the agreement.

The government held 66.66 percent of DCT’s shares under state enterprise Port Autonome International de Djibouti (PAID), while DPW held 33.34 percent through its subsidiary Dubai (International) Djibouti FZE (DID). Despite being a minority shareholder, DPW retained control of the terminal's operations and management.

Eight years after the agreement with DPW took effect and three years after the terminal began operation, the Djiboutian government started discussion with CMPort in 2012 and later sold 23.5 percent of its shares in DCT to the Chinese firm, thereby contradicting the concession agreement.

In 2014, CMPort and Djibouti decided to build Doraleh Multipurpose Port next to the Chinese People’s Liberation Army Support Base in Djibouti. Operations at this port began in mid-2017, also in violation of the agreement between Djibouti and DPW, according to court documents.

Also per the court filing, Djibouti attempted to revoke DPW’s exclusive agreement by using allegations of corruption, while it developed its partnership with CMPort on various projects. In 2012, Djibouti sued Abdourahman Boreh, a former presidential confidante who was involved in the negotiation and execution of the agreement between DP World and Djibouti, for corruption at the High Court of England and Wales. The case was thrown out.

Djibouti again sued Boreh in 2017 at the London Court of International Arbitration for bribery and those charges were again dismissed. The court found no corruption was involved. Nevertheless, Djiboutian authorities seized control of the terminal on February 22, 2018 and transferred concession staff and assets to Societe de Gestion du Terminal (SGTD), a public company created to manage the terminal.

“SGTD, whose sole shareholder is the State of Djibouti, has successfully taken over the operations of the Doraleh container terminal,” the Djibouti government had said in a press release, highlighting the unfairness of its concession agreement with DPW. “The implementation of this concession agreement was severely prejudicial to the fundamental interests of the Republic of Djibouti, to the development of the country and to the control of its most strategic infrastructure asset.”

DPW, in February last year, sued Djibouti at the London Court of International Arbitration over the takeover of the terminal. Seven months later, the court ruled in favour of the Dubai port operator and stated that its agreement with Djiboutian authorities is still valid and binding.

“An International Monetary Fund report said Djibouti’s external public debt to GDP ratio has already reached 85 percent,” FactWire said. "At the end of 2016, 32 percent of this debt was owed by the central government. Sixty-eight percent consisted of government-guaranteed debt of public enterprises, 77 percent of which was owed to China’s EximBank, which is directly under China’s State Council.”

Accordingly, Djibouti's total debt to China is about 44 percent of the African nation’s GDP.

Located on the Horn of Africa, Djibouti’s strategic location has made it the choice place for various global powers to set up military bases.  The US established its base in Djibouti after the attacks on September 11, 2001. China’s first overseas military base was set up there in 2017. The African country is also home to French and Japanese military bases. Djibouti acts as a gateway between the Gulf of Aden and the Red Sea and the adjacent Suez Canal.

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