Djibouti government plans to compensate DP World over contract termination

Djibouti government is planning to pay DP World compensation this week amid Dubai based port operator started a legal battle with the tiny horn of African nation over termination contract.

DP World said last week that it commenced an arbitration against the government of Djibouti before the London Court of International Arbitration.

In February, the government of Djibouti terminated DP World contract to manage the Doraleh Container Terminal.

Speaking to Financial Times, Aboubaker Omar Hadi, chairman of Djibouti Ports & Free Zones Authority, said Djibouti wants to resolve the dispute over control of the city’s Doraleh container terminal by paying a compensation that could be more or less half a billion dollars.

He emphasised that the Dubai based company should have to accept it was no longer involved in the managing of Doraleh container terminal.

“For us, arbitration is over, they have to sit down with us, take their money and go,” Mr. Hadi said.

Mr. Hadi said that the amount of compensation Djibouti was prepared to pay was subject to detailed calculations, but would be based on the net present value of DP World’s annual profits and dividends over the remaining 20 years of the concession.

The chairman accused DP World of ignoring the importance of the port said it had shown no interest in using Doraleh to its full capacity.

“They were trying to control more and more ports in the Red Sea,” said Mr. Hadi, “That’s when we started saying there’s something wrong here.”

Last week, Djibouti opened the first phase of a $3.5bn free trade zone in which China Merchants Group and Dalian Port Authority have a stake.

This is one of several new ports and trade facilities Djibouti is developing to create a free zone. Djibouti said the free zone will be jointly operated by Djibouti Ports and Free Zones Authority and China’s Merchants Holdings Company.

“Our strategic location and world-class facilities have seen Djibouti’s importance as a trade hub recognised globally,” Mr. Hadi.

In February, Djibouti seized Doraleh after accusing DP World of deliberately under-using the port in favour of other regional terminals, including Berbera in Somaliland, which DP World also runs.

Both Doraleh and Berbera are on the Red Sea, a narrow waterway separating the east coast of Africa from the Gulf and a thoroughfare for 30 per cent of world shipping cargo.