DP World Sues Hong Kong-Based China Merchants over Control of Djibouti Port

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DP World, one of the globe’s largest port operators has sued a Chinese state enterprise in Hong Kong over infringement of its exclusive port agreement with a strategically located African nation, in the city’s first court case involving China’s Belt and Road Initiative.

The Belt and Road Initiative is a development strategy adopted by the Chinese government involving infrastructure development and investments in countries in Europe, Asia and Africa.

A legal filing by United Arab Emirates’ (UAE’s) DP World at the Hong Kong High Court against China Merchants Port Holdings Company Ltd, accuses the company of causing the Djibouti government to revoke the firm’s exclusive right to run the country’s ports.

Hong Kong-based China Merchants Port Holdings, a subsidiary of state enterprise China Merchants Group, deals mainly in the construction of ports, marine container logistics and operating container terminals.

It has actively participated in large-scale port infrastructure projects in multiple countries under China’s ambitious Belt and Road Initiative in recent years.

China Merchants Port Holdings controls the controversial 1,150-hectare Port of Hambantota, which Sri Lanka handed over to China on a 99-year lease.

Its inroads into Djibouti, located strategically between the Arabian Sea and the Mediterranean Sea, has been at the centre of legal disputes between the African nation and the UAE state enterprise for years.

In the documents filed to the Hong Kong court in August last year, DP World accused the company for 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 Djibouti government held 66% of DCT’s shares under state enterprise Port Autonome International de Djibouti (PAID), while DP World held 33.34% through its subsidiary, Dubai International Djibouti FZE (DID).

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 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.

An International Monetary Fund report said Djibouti’s external public debt to GDP ratio has already reached 85%.

At the end of 2016, 32% 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.

This means that the debt that Djibouti owes China is about 44% of its GDP.

Located 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.

China’s first overseas military base was set up there in 2017. The US established their base in Djibouti following the attacks on Sept 11, 2001. It is also home to French and Japanese military bases.

“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 statement, which highlighted the unfairness of its concession agreement with DP World.

In February last year, DP World 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.

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