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04DJIBOUTI869 2004-06-23 08:18:00 CONFIDENTIAL Embassy Djibouti
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					C O N F I D E N T I A L SECTION 01 OF 03 DJIBOUTI 000869 



E.O. 12958: DECL: 06/21/2014


REASONS 1.4 (B) AND (D).

1. (C) Summary: Mobil is enroute to a likely showdown with
the Government of Djibouti over compensation and other issues
arising from Djibouti's announcement that Mobil must close,
on environmental grounds, its existing oil storage and
distribution facility at Djibouti port by May, 2005. Mobil
will not accept the Government's requirement that it move its
operations at that time to new storage facilities at Doraleh
port, now under construction, and says it will close down its
Djibouti operations. Mobil does not support the view that a
sound customer base exists to justify the move. It also
states that the move would require Mobil to join forces with
a prime competitor, Emirates National Oil Company (ENOC),
which it is unwilling to do. It also insists the U.S.
military based in Djibouti has not helped Mobil by choosing
to purchase its fuel needs from competing giant Total of
France. Mobil has expressed informal interest in offering
for sale to the U.S. military its current office and
warehouse space. End Summary.


Getting to the Point


2. (C) Alain Adam, Director General of Mobil Oil Djibouti,
met with Ambassador 6/22 following his return that morning
from three days of talks with Mobil officials in Brussels.
Adam and his colleagues had discussed the future of Mobil's
petroleum operations in Djibouti following the government of
Djibouti's May 10 letter to Mobil, Total and Shell advising
the three companies that they would be obliged to close their
oil terminal facilities at the existing port of Djibouti in
May 2005. (Ref B) The three companies were offered the
chance to relocate their services to Doraleh port, now under
construction, which would involve leasing tanks from port
shareholder Emirates National Oil Company (ENOC), through its
subsidiary Horizon Ltd.

3. (C) Adam shared with Ambassador Mobil's official response
to the May 10 letter, cleared by Mobil's lawyers in Brussels
and Paris. Addressed to the Minister of Transports, Elmi
Obsieh Waiss, the letter made the following points:

-- Closing Mobil's existing terminal would pose grave
operational problems for Mobil and have adverse consequences
for Mobil's continued international presence in Djibouti;

-- The 12-month notice to Mobil for implementation of
relocation is very short given the consequences that could
accrue to Mobil, in social and financial terms;

-- As requested during the meeting Mobil's representative had
with the Minister of Energy on May 16, Mobil asks to be
provided all necessary information, including alternatives,
in order that it be able to evaluate the operational, legal,
social and financial implications of a possible closing and
transfer of its activities;

-- The Exxon-Mobil group questions the reasons which led the
Government of Djibouti to take its decision and is standing
by to know the methods the Government will use to ensure full
compensation to Mobil for any consequences resulting from
closure of its facility.


Your Competitor Is Not Your Friend


4. (C) Adam told Ambassador that Mobil's competitor Shell
(UK) had agreed to make the same points in a similar letter
to the Minister. (Comment: Contrary to Adam's understanding,
Ambassador has learned that Shell may actually be leaning
toward moving to Doraleh. End comment) Total would not
agree to send such a letter, according to Adam, and has
decided that France's interests in Djibouti would not lead it
to take a position that might provoke a showdown with the
Government. It would re-locate to Doraleh. Commander of
French Forces in Djibouti, General Gerard Pons, confirmed
this separately to Ambassador during her weekly meeting with

5. (C) Ambassador queried Adam about the position Mobil has
decided to take. She advised that by casting its letter in
the terms that it had, Mobil may have backed itself into a
corner and created an obstacle to its current and future
business prospects in Djibouti. In addition, Djibouti may
decide not to compensate Mobil or might prolong the issue of
compensation on technical or environmental grounds. Timing,
on the other hand, would be of the essence to Mobil, given
the obligations it would need to settle with its employees
before completing the shutdown of its operations.

6. (C) Adam replied that Mobil would pursue the case legally
if Djibouti were not clear on compensation. He said Mobil is
adamant that it (a) will not repeat not invest in Doraleh
because there is not a sufficient customer base to justify an
investment; and (b) it will not repeat not join with its
competitor ENOC in any investment scheme. He said 86 percent
of Mobil's business in Djibouti is geared to the Ethiopian
market. As Ethiopia recently requested "buy-in" into the new
port at Doraleh (see Ref A), this market share would end.
Ambassador cautioned that Ethiopia has not moved beyond the
discussion stage of this request.


Not Getting the Support
Required to Stay Alive


7. (C) Adam also said ten percent of Mobil's business is from
the Djiboutian government. As the government is already 100
million Djiboutian francs (USD 565,000) in arrears to Mobil,
he had given an order to discontinue all oil supplies on
credit to the Government effective from June 22nd until the
arrears are paid. This, he claimed, would put Djibouti in a
difficult situation in advance of June 27th national day
celebrations here. Adam said he expects Djibouti to pay the
arrears soonest. Adam continued that it does not help
Mobil's position that "90 percent" of all business of the
U.S. military based at Camp Lemonier, under administrative
support of Brown and Root, is being given to France's Total.
He said he did not trust Brown and Root's motives. (Comment:
Ambassador has raised with responsible officials at the Camp,
on two recent occasions, the issue of the Camp's purchase of
fuel from Total vice Mobil, a U.S. company. On each occasion,
the Camp said it had decided to vary its vendors "for force
protection reasons." In addition, she was told that Total
had made certain adjustments more favorable to Camp
servicing. End comment.)

8. (C) Adam stated to Ambassador that if the U.S. military
could use Mobil's office and warehouse facilities at the
port, Mobil would be interested in selling. This might
obviate an eventual showdown with the Government of Djibouti.
Adam estimated the value of the site at between USD 10-15
million dollars. Ambassador said she could not answer the
question of U.S. military interest in, or need for, the site
but would be pleased to pass on his informal offer. She also
asked for a site plan and would take a fuller tour at an
early date. Adam said Mobil would want to begin negotiations
with a buyer as soon as possible, which might also include a
severance package for its 44 employees.




9. (C) Comment: Mobil's tank site at the port -- which it
owns -- could be a potential gold mine. Embassy has learned
from another U.S. corporate source (strictly protect origin)
that the Government of Djibouti is being advised of the huge
potential value of the existing port site, in the heart of
Djibouti City, for future development of a residential,
commercial, or recreational complex. If true, Mobil may find
its request for "compensation" for its facilities swiftly
honored by the Government.

10. (C) Comment continued: On sale of Mobil's existing
facilities in anticipation of its departure, the informal
offer to the U.S. military is an intriguing one. We will
pass this expression of interest on to NAVCENT.

11. (C) As for Mobil's future here, this U.S. corporation
appears to have decided that the existing, or potential
investment climate in Djibouti would not support long-term
feasible investment. We are not sure this is a wise position
to take at this time, given the new economic momentum in
Djibouti. Yet Djibouti lacks oil resources and could offer
only services primarily as an oil products provider. Mobil
may have decided to cut its losses and invest in other
potentially lucrative exploration markets coming on line
elsewhere. End comment.