TOTAL AND MOBIL TRY TO HOLD LINE ON DORALEH MOVE

C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000065

SIPDIS

STATE FOR AF, AF/E
STATE ALSO FOR AF/EPS COMMERCIAL COORDINATOR ADA ADLER
LONDON/PARIS FOR AFRICA WATCHER

E.O. 12958: DECL: 01/17/2015
TAGS: PREL ECON ETRD PGOV MARR MOPS DJ TC
SUBJECT: TOTAL AND MOBIL TRY TO HOLD LINE ON DORALEH MOVE

REF: A. 04 DJIBOUTI 1034


B. 04 DJIBOUTI 899

C. 04 DJIBOUTI 856

Classified By: AMBASSADOR MARGUERITA D. RAGSDALE.
REASONS 1.4(B) AND (D).


1. (C) Momar Nguer, Total's Director of Refinery and
Marketing for East Africa and the Indian Ocean, and boss of
Total Djibouti's Chief Executive Francois de Charnace, told
Ambassador 1/16 during a de Charnace-hosted dinner, that
Total, Mobil and Shell had each received new communication
from the government of Djibouti reiterating the companies'
obligation to move their oil operations at the current port
to the new Doraleh port. However, the deadline for the
obligatory move, the letter informed, was now December 2005
vice August 2005. The letter was signed by Djiboutian
businessman and Doraleh port investor, Abdurahman Boreh, in
Boreh's capacity as "President of the Ports Authority and
Free Zones in Djibouti."


2. (C) Nguer, on a four-day visit from Total headquarters in
Paris, said he would meet the following day with Djibouti's
Ministers of Energy, Foreign Affairs, and Finance, as well as
with Prime Minister Dileita Mohamed Dileita. Nguer described
several concerns of Total regarding the obligatory move: 1)
that closure of Total's facilities at the current port would
place Total at the mercy of Emirates National Oil Company
(ENOC) for storage pricing, perhaps compromising its ability
to meet economically existing fuel delivery contracts; 2)
that given Djibouti's financial straits, there is no
certainty Total could be compensated for the value of its
existing infrastructure at the current port, including new
fire fighting equipment; and 3) that there may not be a
sufficient volume of business to sustain operations of four
oil companies, although ENOC says it plans no role in
marketing the fuel products it will store. At the same time,
he said, Total had obligations it would need to fulfill and
would be obliged to lease at Doraleh.


3. (C) The Director of Mobil Oil Djibouti, Alain Adam, back
January 16 from a month's holiday in France, provided
Ambassador January 17 with a copy of the Boreh letter about
which Nguer had spoken. The letter stated clearly that no
oil/fuel-related activities would be permitted from the
existing port after 31 December 2005. Adam said there is no
way Djibouti can compensate Mobil for the value of its
infrastructure, which he estimated at USD 25 million and he
does not expect Exxon/Mobil would accept a USD 25 million
write-off. Yet, he said, Mobil will repeat will be obliged to
lease tanks at Doraleh because it has existing contractual
obligations it must honor. These include a contract with
French Forces of Djibouti to provide 30 per cent of the
Forces' fuel needs. (Total is contracted to provide the
remaining 70 per cent). Moreover, Adam said he believes
Mobil will want to participate in a solicitation from DESC to
provide certain fuel products to Camp Lemonier over a
three-year period. The products and quantities are 1.3
million U.S. gallons of Jet A-1, 16,000 U.S. gallons of
premium unleaded mogas, and 1.7 million U.S. gallons of #2
diesel. Deadline for bids is January 24. Adam will be in
contact with Mobil Fairfax regarding the solicitation.
(Comment: The solicitation tracks with Ambassador's
understanding from Camp Lemonier that the Camp's fuel
requirements would be let under a formal bid process. We
would urge Mobil to compete, if this will help maintain its
presence. End comment)


4. (U) Meanwhile, construction of Doraleh port proceeds at a
steady pace. During a visit to the site January 13,
Ambassador, Pol/Econ, and Econ Assistant were told that the
U.S. Navy may increase its tank use at Doraleh from four to
eight. (Note: Four are currently contracted to the U.S. Navy
under a DESC arrangement. End note) Doraleh site manager
K.K. Menon stated that completion is expected at the
beginning of August. Key remaining projects include laying of
pipes that will carry the fuel, surfacing of the port area,
and completion of the jetty and two tanker berths. Two
primary roads leading from the port to the city of Djibouti
and to the main road to Ethiopia, as well as 150 houses for
displaced families, are under construction at the expense of
port investors.

5. (C) Comment: The primary concern of both Mobil and Total
in Djibouti is the value of their existing investment and
whether and how adequate reimbursement can be obtained should
they be obliged to relocate. Mobil's Adam plans to bring his
chief executive out to Djibouti for discussion of this issue
at an early date. Neither company has indicated a
willingness to accept a major write-off, for bottom line
reasons. Both suspect that the Government of Djibouti will
attempt, in the last analysis, to assess the oil operators --
including U.K.'s Shell -- a penalty for environmental damage
that would equal the value of their current investment. If
this happens, a vigorous legal challenge from these companies
is likely. End comment.
RAGSDALE