Djibouti is also ordered to pay $148m for non-payment of royalties for container traffic

Apr 20 , 2019

The London Court of International Arbitration fined Djibouti 385 million dollars along with interest for breach of contract.

DP World took the government of Djibouti to court in London, charging that allowing China Merchants, a Chinese state-owned conglomerate based in Hong Kong, to develop a free zone in Djibouti is in violation of its agreement with the government of Djibouti, and that it has an exclusive right for any development in Djibouti for half a century.

DP World and Djibouti had signed the agreement for the development of Djibouti Port in 2000. In the agreement, Djibouti gave exclusive rights to DP World for the development of a port and free zone facilities, including container handling facilities, construction, development and terminal management.

Four years after the initial agreement, DP World and the government of Djibouti signed another agreement to develop Doraleh Container Terminal. DP World retained 33.3pc ownership, while Djibouti’s state-owned Port of Djibouti kept a 66.6pc interest in the new terminal. DP World was also awarded a concession to run the terminal.

The terminal is the primary handler of international shipments for Ethiopia, which ferries 13.5 million tonnes of imports and 1.8 million tonnes of export cargo yearly.

In 2013, China Merchants bought a 23.5pc interest in the Port of Djibouti. China has also developed a separate 3.5-billion-dollar free zone facility in Djibouti as an essential part of its trillion-dollar global investment rollout the “Belt & Road Initiative.”

In the intervening years, the partnership between Djibouti and DP World has deteriorated, culminating in a heated dispute that led Djibouti to annul DP World's concession at the Doraleh Container Terminal, which hosts three berths and accommodates 15,000 twenty-foot equivalent units (TEU) and super post-Panamax vessels with its 18m draft and 1,050m quay.

The agreement termination by the government of Djibouti removed DP World from Doraleh Container Terminal and transferred operations, staff and assets to the government of Djibouti's wholly-owned entity, Société de Gestion du Terminal de Doraleh (SGTD), a company specifically established to manage the container terminal infrastructure.

Subsequently, Djibouti awarded the Doraleh concession to a Singapore-based firm, Pacific International Lines.

Following the termination of the concession agreement, DP World initiated legal proceedings against the government of Djibouti in the arbitration tribunal of London and the High Court of England & Wales. DP World also sued China Merchants in a Hong Kong court for building an international free zone at Djibouti.

Last August the Tribunal in London upheld the validity of the concession agreement that gave rights to DP World to operate the terminal. The High Court of England & Wales issued an injunction against the government of Djibouti’s annulment of the partnership deal with DP World and prohibited the Port Authority from removing directors of the terminal appointed by DP World until further orders are issued by the London-based arbitration tribunal.

The latest ruling favoured DP World by issuing fines against Djibouti for allowing China Merchants to develop a free zone facility. The tribunal also ordered Djibouti to pay Doraleh Container Terminal 148 million dollars in legal costs and unpaid royalties for container traffic that was not transferred to Djibouti Container Terminal once it became operational.

"We've no time for these distractions," Aboubaker O. Hadi, chairman of Djibouti Ports & Freezone Authority, replied to Fortunevia email.

Yet DP World, which operates over 78 ports across the world, pledges to continue its legal battles to uphold its rights.

“Doraleh Container Terminal and DP World will continue to seek to uphold their legal rights in a number of legal fronts,” reads a statement from DP World.

PUBLISHED ON Apr 20,2019 [ VOL 20 , NO 990]

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