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04DJIBOUTI711 2004-05-17 13:39:00 CONFIDENTIAL Embassy Djibouti
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					C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000711 



E.O. 12958: DECL: 05/17/2014

REASONS 1.4 (B) AND (D).

1. (C) Summary: Exxon-Mobil has received notification that
it must terminate its operations at the existing port
effective May 2005 and relocate to the new Doraleh port.
Storage tanks would be available at the new port for either
rent or a possible shareholding arrangement with Horizon
Terminals Ltd. of Dubai, which would manage the new oil
terminal. Exxon-Mobil's representative in Djibouti shared
with Ambassador his angst over the notification and will be
consulting with offices in Addis Ababa and in Fairfax to
decide on next steps. A number of issues remain unresolved,
including compensation -- if any -- to the company for loss
of its existing facility. Ethiopia may have interest in a
stake in Doraleh, but this would not appear to be welcome
news for Doraleh shareholders. End summary.

2. (C)In a meeting with Ambassador and DCM at the
Ambassador's residence May 15, Alain Adam, Director General
of Exxon-Mobil operations in Djibouti (Mobil), shared two
letters his company had received on the future of Mobil's oil
storage facilities at the existing port of Djibouti. The
first, dated 10 May 2004 from Abdurahman Boreh, in Boreh's
capacity as Chairman of Djibouti Ports and Free Zones
Authority, gave "official notice" that Mobil's existing oil
terminal at Djibouti's port would be closed effective May

2005. The letter went on to state that the move had become
necessary for security and environmental reasons, that this
was a "final notice," and that services after the closure
"will be provided by the new oil terminal at Doraleh Port."
(Note: Boreh, who is close to President Guelleh, is a
prominent Djiboutian businessman with a 40 per cent stake in
Doraleh port. Construction of Doraleh port is being managed
by Emirates National Oil Company (ENOC), and its shipping and
terminalling subsidiary Horizon Terminals Ltd. (Horizon) will
control the oil terminal. End note)

3. (C) The second letter, from Elmi Obsieh Waiss, Minister of
Equipment and Transport, was also dated 10 May. It, too,
confirmed the changeover date of May 2005 and the decision of
the government of Djibouti to relocate petroleum activities
to the new port at Doraleh. Waiss's letter asked Mobil to
"take all arrangements necessary to conform to this new
organization." Total and Shell directors in Djibouti,
according to Adam, received the same letters.

4. (C) Adam complained that the letters made no mention of
how Mobil, Shell or Total would be compensated for their
facilities at the existing port or what would happen to
current employees working for the companies in Djibouti. He
said he would be meeting with Waiss for further explanation
and would follow that meeting with consultations in Addis
Ababa with Mobil offices there and with Fairfax headquarters.

5. (C) Ambassador told Adam she would speak to Boreh
directly to find out more details about the content and
implications of the letters, and reached him by telephone in
Dubai. In an extended conversation, Boreh stated that for
the past three years the Government of Djibouti had been
telling Mobil that its terminal facility at the existing port
must be moved because of pollution caused by leakage from
containers belonging to the oil companies. He said Mobil had
also been told of the intention of the Government to build a
new oil terminal facility at Doraleh, and indeed, had been
invited to invest in the project. "Mobil expressed no
interest in investing in this new facility," Boreh said.
"None of the oil companies expressed interest, except Total
initially. They thought we were bluffing and that we would
never build such a facility. Well they were wrong," he said.

6. (C) Boreh added that the shift in terminals is occurring
primarily because of the leakage of oil from the existing
aging tanks. It was important for Mobil and the others to
understand, he said, that there is no plan to create a
monopoly in oil services and facilities in Djibouti. Horizon
will not do trading in oil. It will only do storage in
Djibouti and Mobil and other oil companies will be obliged to
rent storage tanks from Horizon. It is not in Djibouti's
interest, he continued, to have such a monopoly. "We are not
here to close down the business of Mobil, but merely to
upgrade operations." Boreh told Ambassador that the cost of
renting storage from Horizon is an issue that can be
discussed as well as the possibility of shareholding in the
same storage facilities. He said he expected overall cost of
operations for the oil companies to decline with the reduced
labor force requirement resulting from the shift. Ambassador
subsequently conveyed to Adam the content of her conversation
with Boreh.

7. (C) In a follow-up, Adam informed Ambassador that he,
along with Total and Shell representatives, met with Waiss on
May 18. It was a short meeting. In a nutshell, Adam said,
Waiss told the group of the need to move their operations
because of pollution over the preceding years, including
damage to the existing port facilities. (Note: Adam
acknowledges pollution, but said Mobil has been engaged in
vigorous clean-up operations at the port. End note) Adam
said he asked Waiss what the Government of Djibouti intended
to do about employees who would lose their jobs at the
current facilities and who were already circulating Waiss's
letter. Adam said Waiss had replied that if his letter was
being circulated, it is because the oil companies had
released it, not the Government of Djibouti. In any case,
Djiboutian employees are "our problem, not yours," Waiss
reportedly told the group.

8. (C) Comment: Adam has made no effort to hide his angst
over the demand broached by Boreh and the government but has
perhaps been less aggressive in efforts to learn more about
the Doraleh project (currently well underway as septel
reports) or to figure creative ways Mobil might profit from
the proposed new arrangement. This might call his
effectiveness into question. We believe the Government is
serious about its intent to close the existing terminal and
were told the new facility is scheduled to come on line in
May 2005. We do not believe, however, that the Government
has considered the issue of compensation for this American
company or for others affected. Boreh told Ambassador that a
consultant will look at the matter of what happens to both
the land under the existing terminal facility and the
compensation issue and make recommendations to the Government
of Djibouti. Meanwhile, Adam is enroute to Addis Ababa and
expects to have shortly views of his organization on
recommended and preferred next steps here in Djibouti.
Embassy is ready to assist, in consultation with Mobil.

9. (C) Comment continued for Embassy Addis Ababa: According
to Boreh, Ethiopia has asked for a stake in the Doraleh
facility, but it is unclear how it would finance
participation. Boreh was less than enthusiastic, we might
add, about such a partnership, even if it were possible. He
said the Ethiopians are far too difficult people with whom to
work. End comment.