United Arab Emirates’ DP World, one of the world’s largest port operators has sued China Merchants Port Holdings Company Ltd, a Chinese state enterprise in Hong Kong, over infringement of its exclusive port agreement with the strategically located African nation in the city’s first court case involving China’s Belt and Road Initiative.
The tiny African nation has, for years, been at the centre of legal disputes between the UAE state enterprise and herself.
Situated on the Horn of Africa, Djibouti’s strategic location by the Bab-el-Mandeb Strait, which acts as a gateway between the Gulf of Aden and the Red Sea and the adjacent Suez Canal, makes it a desirable location for foreign military bases too.
The United States, France, Japan and the latest entrant, China, have since set up their overseas military bases in Djibouti.
News agency FactWire says it has obtained a legal filing by DP World at the Hong Kong High Court against China Merchants Port Holdings Company Ltd, accusing it of causing the Djibouti government to revoke the firm’s exclusive right to run the country’s ports.
According to the court papers filed in August last year, DP World accused the Chinese company of causing the Djibouti government to nationalise the Doraleh Container Terminal, despite the 30-year concession agreement that allowed DP World to exclusively run the terminal.
DP World, which operates 78 ports in 42 countries including Terminal 3 in Kwai Chung, Hong Kong, said under its agreement with the Djibouti government, it would have “full and exclusive right to establish, develop, and operate the Doraleh site”.
The concession agreement, which took effect in February 2004 for a period of 30 years with the option for two 10-year renewals, also said 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.
Joint-venture company Doraleh Container Terminal S.A. (DCT) was created to develop and operate the terminal.
The Djibouti government held 66.66 percent of DCT’s shares under state enterprise Port Autonome International de Djibouti (PAID), while DP World held 33.34 percent through its subsidiary Dubai (International) Djibouti FZE (DID).
Two years later, both parties signed a 2006 Concession Agreement in which DID relinquished their role in the development of the Doraleh Container Terminal but DID’s exclusivity right over other port and free zone projects remained in full force.
Three years later in 2012, China Merchants Port Holdings began negotiating a partnership with Djiboutian authorities over the development of ports and free-trade zone projects in the nation. In July of that year, they signed a strategic partnership agreement.
The Chinese firm is a direct competitor of DP World and was actively looking to invest in ports to strengthen its position in East Africa.
Djiboutian authorities sold 23.5 percent of the country’s shares in DCT to China Merchants Port Holdings, effectively allowing the Chinese firm to hold 15.67 percent of the shares, contradicting the concession agreement, the legal filing said.
In 2014, China Merchants Port Holdings and Djibouti decided to build Doraleh Multipurpose Port next to the Chinese People’s Liberation Army Support Base in Djibouti.
Djibouti then attempted to revoke DP World’s exclusive agreement by using corruption allegations, while it developed its partnership with China Merchants Port Holdings 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 however thrown out.
Djibouti again sued Boreh in 2017 at the London Court of International Arbitration for bribery but those charges were again dismissed. The court found no corruption was involved.
Nevertheless, Djiboutian authorities seized control of the Doraleh Container 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.
DP World 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 DP World and stated that its agreement with Djiboutian authorities is still valid and binding.