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04DJIBOUTI856 2004-06-21 12:53:00 UNCLASSIFIED Embassy Djibouti
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E.O. 12958: N/A




1. (U)Summary: With the help of Emirates National Oil
Company (ENOC), Djibouti is moving ahead with its major port
construction project at Doraleh. Increasingly seen as the
future economic lifeline for Djibouti, the port's site
manager, an Indian national of Dubai residency, admits that
he is under pressure to complete the port two months ahead of
schedule. Shifts working day and night are expected to bring
the project to fruition by November, 2004 vice January, 2005.
A primary segment of the port is an oil storage terminal
facility that includes what ENOC describes as four storage
tanks for the U.S. Navy. In addition, the port is expected
to have the capability to dock and service the largest of
military vessels. The port project has its own primarily
imported labor force, and includes a housing camp with
sleeping quarters, recreation facilities and meal delivery
systems to make it self-sustaining. Dubai has taken the lead
in development of the project, with the support of key
Djiboutian businessman Abdurahman Boreh and President Ismail
Omar Guelleh. As a result, the port has created high
expectations for the economic development of Djibouti. Yet
precise percentages of share ownership in the project remain
vague, with even Ethiopia expected to take a small share.
While the port project still has its skeptics, only stability
in the region would appear to be the more difficult and
unpredictable hurdle for Doraleh. End Summary.

2. (U) President Guelleh's self-proclaimed economic gateway
to Djibouti's prosperity -- its mega oil and container port
at Doraleh-- is forging ahead at a pace of construction
intended to bring the project to fruition two months ahead of
schedule. Ambassador, Pol/Econ, and Econ assistant made
their second visit in two months to the port site, located
seven kilometers from the existing port, to assess progress
and to meet with the project manager. Touted as a complement
to the United Arab Emirates port of Dubai, the new port of
Doraleh is expected to open Djibouti to markets in the Horn
of Africa and beyond.

3. (U) Our hosts for a tour and briefing were K.K. Menon, of
Emirates National Oil Company (ENOC), Site Manager for the
Doraleh project, and Ayanleh Idriss Hassan, Terminal Manager
for Horizon Ltd., an ENOC subsidiary. Horizon, which will
operate Doraleh's oil terminal, focuses primarily on the
Singaporian and African markets for ENOC. ENOC established
Horizon, according to Idriss, in order to consolidate and
independently develop ENOC's oil and chemicals terminalling
business globally.


Ties that Bind


4. (U) The port of Doraleh is the brain-child of Abdurahman
Boreh, a prominent and self-assured Djiboutian businessman,
who successfully convinced President Guelleh of the merits of
taking advantage of the single income outlet available to
resource-poor Djibouti -- that of services. He began by
establishing a partnership with Dubai investors and by
encouraging the President to bring in Dubai Ports
International to manage its existing port and international
airport. Dubai Ports International is investing USD 300
million to develop the container terminal in Doraleh while
ENOC is financing the port's oil terminal at a cost of USD
130 million. The port will include an oil terminal, whose
construction began in June 2003, oil storage facilities, an
oil refinery, a container port, a Free Zone and an industrial
area with power station and desalinization plant. Partners
in the Doraleh project will also construct, at their own
expense, a new road from Doraleh port to the national road
linking Djibouti to Ethiopia. The Doraleh port, to be
completed by January 2005 and to be made operational by May,
2005, is not expected to replace or adversely affect Dubai
port activities, according to Menon. It's primary focus will
be Africa.


Status report


5. (U) Menon told us that the port's "clients" have applied
pressure on ENOC to complete construction of the port ahead
of schedule. He is now on target to complete the project in
November 2004, vice January 2005. To remain on track, Menon
is preparing to put in place a lighting arrangement at the
port site that will allow night construction. He also stated
that "the U.S. Navy" is pushing for quick completion of the
project in order to activate the four oil storage tanks set
aside for the Navy's use. According to Menon, of the U.S.
Navy's four storage tanks at Doraleh, two have dimensions 20
meters high x 47 meters deep and two have dimensions 20
meters high x 37 meters deep. All tanks will be equipped
with a special membrane to prevent oil leakage and pollution
of the soil beneath the storage tanks. A total of nine
storage tanks are currently under construction and we were
shown the extent of progress on tanks reserved for the U.S.
Navy. (Note: Embassy is still trying to confirm a U.S. Navy
contractual engagement for Doraleh with ENOC. End note) Oil
companies currently operating in Djibouti, such as Exxon
Mobil, Menon said, would be free to lease remaining tanks in
the pool from Horizon. (Note: Mobil, Total and Shell have
been informed of the Government of Djibouti's intent to close
the companies' existing storage tanks at the current port as
soon as the new Doraleh facility is on line. See Ref B. End
note) When completed, the Doraleh oil terminal will have the
capability to store 240,000 cubic meters of clean petroleum
products, including gasoline, diesel, jet fuel and kerosene,
as well as fuel oil, chemicals, edible oil and liquefied
petroleum gas.

6. (U) Ambassador asked about the potential of the port to
allow docking at port side of large U.S. military vessels.
Menon responded that the Doraleh port would have a depth of
28-30 meters and that the extent of the causeway into the sea
would allow these vessels to acquire maximum security cordons
to meet U.S. military standards and requirements.

7. (U) On challenges encountered in the quest to speed up the
project, Menon said he had had some difficulties with the
causeway that will service the oil terminal because of a
delay in delivery of necessary materials, due to the vacation
season in Europe. ENOC also faced problems with a local
company contracted to crush stones for the project. The
company stopped its services temporarily in a dispute with
Menon and ENOC over payment of "royalties" the company said
it was obliged to make. Menon said ENOC refused to pay the
royalties and contacted President Guelleh directly in the
matter. The matter was quickly resolved with no royalties
being charged and services resumed.


Manpower Resources


8. (U) According to Menon, 322 local staff and 68 expatriates
are currently working at the Doraleh site. The number of
expatriates is expected to reach as high as 340 in the short
term because of ENOC's inability to recruit Djiboutians with
the necessary skill sets to perform some of the
highly-skilled jobs that the port requires, such as welding.
Djiboutians employed are working primarily as laborers,
drivers and security guards. Menon blamed the cultural habit
of chewing "khat" for the paucity of qualified workers. He
also spoke about a work ethic that discouraged Djiboutians
from accepting jobs that required more than three hours of
physical activity daily. (Note: At the site, shifts begin at
0830 and end at 1830, with a two-hour lunch break. Use of
"khat" is strictly forbidden during work hours. End note.)
When questioned about the recent Afar demonstrations over
hiring for Doraleh and the new Free Zone, (reftel A) Menon
seemed unaware of the demonstrations and responded that
tribal issues, in any case, were not within ENOC's purview.
(Note: There are indications Boreh has assumed the role of de
facto labor broker in local hiring for the Doraleh work to
avoid such conflict. End note).

9. (U) Construction of housing for expatriate workers -- of
Malaysian, Indian, Filipino and other origins -- at the
project site is nearly complete. It consists of
self-contained modular living quarters with private
bathrooms. The compound has its own source of electricity,
chillers for cooling, and a huge and modern kitchen.
Currently, expatriate workers are housed half in a hotel in
town and half at the completed portion of the camp. All will
continue to receive their meals at a local hotel, with
specialized foods geared to nationality, until the kitchen at
the Doraleh camp is complete. There are no housing provisions
for Djiboutian workers.


Sorting Out Partnerships


10. (U) On our questions regarding the role and percentage of
holdings in the port by investors, and specifically by
Abdurahman Boreh, Menon declined to comment. (Note: Boreh
told Ambassador he owned 40 per cent of the Doraleh project,
with ENOC owning the remaining 60 percent. Some place
Boreh's holdings at 20 percent, with the rest of the 40 per
cent share divided equally between the Government of Djibouti
and President Ismail Omar Guelleh. In addition, at the May
18-20 meeting in Djibouti of the Ethiopia-Djibouti Economic
and Commercial Ministerial Working Group, Ethiopia requested
land at Doraleh to invest in and build a petroleum depot to
accept petroleum products in transit to Ethiopia. The
Djiboutian side explained to the Ethiopians that, for
security reasons, it preferred to place petroleum activities
at Doraleh in the hands of ENOC. After much discussion of
this issue, Djibouti rescinded and agreed to include Ethiopia
in the project because of the two countries' "strategic
partnership." It is unclear if Ethiopia will follow through
on its request and also unclear as to which partner would
provide the percentage to Ethiopia. End note).

11. (U) Menon told us that when studies were made a few years
ago about the feasibility of the Doraleh project, "even
President Guelleh did not believe it could materialize."
ENOC believed in it from the beginning, he said proudly. The
location is good as it is close to the sea with minimum need
to reclaim land to build the port's infrastructure, he added.


More Investments Planned


12. (U) Menon commented that ENOC also planned to build a new
hotel "of high standing" near the beach of Doraleh. It will
complement, he explained, the Haramous housing development
project recently contracted by the Government of Djibouti to
a Saudi investor.




13. (U) Comment: Post understands that the U.S. Trade and
Development Agency (TDA) will likely fund U.S. company
Han-Padron's feasibility study and full market forecast for
all aspects of the Doraleh project and for a Master Plan for
all port sectors of Djibouti. (Ref C) Post believes this is
a project worthy of investment. While the port project still
has its skeptics, Embassy fully expects it to be successful
and is confident the port can open new and broad commercial
opportunities for U.S. business. With Dubai taking a
pervasive lead role financially in the future of Djibouti,
and with a government increasingly affirming its commitment
to necessary internal social and economic reforms, only
stability in the region would appear to be the more difficult
and unpredictable hurdle for Doraleh. End comment.