DJIBOUTI-ADDIS RAILWAY RESURRECTED

UNCLAS SECTION 01 OF 03 DJIBOUTI 000390 SIPDIS STATE FOR AF AND AF/E LONDON, PARIS FOR AFRICA WATCHER E.O. 12958: N/A TAGS: ELTN PGOV ECON EINV DJ SUBJECT: DJIBOUTI-ADDIS RAILWAY RESURRECTED ¶1. SUMMARY: After two decades of financial and technical setbacks, the Djiboutian- Ethiopian Railway Company (CDE) is soon to be privatized. COMAZAR, a South African company and RITES, an Indian company, are the last two contenders for the contract. Djibouti reportedly favors COMAZAR while Ethiopia reportedly prefers RITES. END SUMMARY. ¶2. Pol/Econ Officer and Econ Assistant on March 21 met with Ahmed Doualeh, the Djibouti-Ethiopia Railway Company's (CDE) financial director, to inquire about progress in the railway's privatization. He explained that the CDE is a joint venture between the Government of Djibouti (GoD) and the Government of Ethiopia (GoE),each with a 50% share, but the CDE receives no subvention from either of the two governments. The main task of CDE is to transport Ethiopian cargo to and from the Port of Djibouti. CDE also serves as a passenger train, especially during the summer months when many Djiboutians travel to Ethiopia to escape the heat. -------------- HISTORICAL BACKGROUND -------------- ¶3. The French began construction of the railway in 1897 and completed it in 1917, linking Addis Ababa to the port in Djiboutiville. The CDE's headquarters were located in Paris until 1956, when they were transferred to Addis Ababa. The railway was first referred to as the Imperial Railway, then the Franco-Ethiopian Railway, and in 1981 was called the Djibouti-Ethiopian Railway following a treaty between Djibouti and Ethiopia. CDE main stops are: Djibouti, the outlet to the port; Dire-Dawa, the maintenance center where the bulk of employees are employed; and Addis-Ababa, site of the headquarters and Ethiopian terminal station. -------------- WAR-TIME SETBACKS -------------- ¶4. On the eve of Djibouti's independence in 1977, the Ogaden war broke out between Ethiopian and Somalia in the Ogaden region. Somalia destroyed nearly all of the railway bridges, halting CDE movements for a year. The French responded by providing the CDE with new equipment, and the CDE became operational again. In 1978, to avoid dependence on the railway, Ethiopian President Mengistu Haile Mariam developed the road infrastructure between Addis Ababa and the ports located in what is now Eritrea. The Ethiopian goods carried by CDE decreased to 10%, while trucks using the Eritrean-Ethiopian corridor carried the bulk of the cargo. ¶5. Eritrea closed its ports during the 1993 war for independence, and Ethiopia began using Djibouti port. However, trucks continued to be given preference over the railway. Since then, CDE has deteriorated for technical and financial reasons. Its machinery and equipment have become outdated and obsolete, and the competition from trucking companies harsher. The CDE currently carries a mere 4% of the total cargo moving between Djibouti and Addis Ababa. -------------- OWNERSHIP DISPUTED -------------- ¶6. The share of decision-making power has been disputed for many years. Ethiopia claimed that since 681 km out of the total 781 km railroad are located within its borders, Ethiopia should own 90% of CDE. Also, some Ethiopians in positions of power did not see the CDE's development as a priority, according to Doualeh. (COMMENT: This is believed to be due to historical disputes between ethnic groups. END COMMENT) Following intensive debates, the GoD was able to convince the GoE that private management was the only solution to save the dying CDE. -------------- RECENT CUTS -------------- ¶7. Out a total number of 2600 employees, CDE recently dismissed 150 Djiboutian and 718 Ethiopian workers. CDE also sold the Djiboutiville "Club des Cheminots" to GXA, a local insurance company, to gather money to compensate laid-off workers. CDE may sell more of its patrimony, such as houses and land, if necessary. Doualeh indicated that the privatization of the CDE would probably lead to an additional reduction of personnel. ¶8. CDE owes several months of wages to its staff and a great number of unpaid bills to many private businesses in Djibouti, including oil companies. Also, many CDE staff members have worked with the company for two or three generations and will not be easily dismissed. It is not known how these issues will play out after the railway contract is awarded. -------------- RAILWAY RENAISSANCE -------------- ¶9. Six foreign companies from the US, Canada, South Africa, India and UAE showed interest in the management of the CDE. Only RITES from India and COMAZAR from South Africa were retained by CDE for the final selection process, Doualeh said. COMAZAR, created in 1995, is a reputable private railway operator present in fifteen African countries. RITES, a Government of India Enterprise, is a multi-disciplinary consultancy organization specializing in railways and other transportation sectors, both in India and in 13 countries worldwide. The winner will be selected during a board meeting in Addis Ababa on March 27-28, as indicated by Doualeh. ¶10. The European Union, which has been holding back a 45 million Euro ($54 Million) grant for many years, is expected to release the grant to the firm that will be selected to take over the CDE. However, more funding will be needed for a complete overhaul of equipment and infrastructure. Also, the EU recently gave one million Euros ($1.2 Million) to CDE for the purchase of spare parts for the locomotives. Thanks to this assistance, 6 locomotives are currently operational, however at least 14 locomotives are still needed. -------------- NOW TWO PORTS -------------- ¶11. In addition to the Port of Djibouti, there is also the Port of Doraleh that recently opened for business. Doraleh Port welcomes the extension of the railroad up to the port and has reserved land for this purpose. Doraleh Port has an oil terminal in operation and will add a container terminal and a duty-free zone, all of which could effectively utilize rail links between Ethiopia and Djibouti. It is now only a matter of financing. Doualeh said that the CDE could take a major role in transporting food aid to Ethiopia once it is renovated. ¶12. COMMENT. A symbiotic relationship has developed between Djibouti and Ethiopia. Despite its numerous internal problems, Ethiopia remains Djibouti's main economic partner. And Ethiopia heavily relies upon Djibouti's rail and port links. Other links through Somalia, Sudan, and Kenya, while in progress or under consideration, are not as feasible, so Djibouti looks better each passing day. And with Dubai's current involvement in Djibouti, the future impact of a new railway could be extensive. END COMMENT.