Identifier
Created
Classification
Origin
06DJIBOUTI390
2006-03-27 14:19:00
UNCLASSIFIED
Embassy Djibouti
Cable title:  

DJIBOUTI-ADDIS RAILWAY RESURRECTED

Tags:  ELTN PGOV ECON EINV DJ 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
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


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.