DP WORLD ON EFFICIENCY AND PROFITABILITY AT THE

C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000732

SIPDIS

DEPARTMENT FOR AF/E
LONDON, PARIS, ROME FOR AFRICA WATCHER

E.O. 12958: DECL: 09/07/2018
TAGS: PREL ECON EWWT EINV DJ
SUBJECT: DP WORLD ON EFFICIENCY AND PROFITABILITY AT THE
PORT OF DJIBOUTI

REF: DJIBOUTI 618

Classified By: PolOff Rebecca K. Hunter for reasons 1.4 (b) and (d)


1. (C) SUMMARY: In a recent meeting with EmbOffs, two top
managers at the Dubai Ports World-managed Port of Djibouti
were concerned that meager investment in port infrastructure,
lack of freedom to raise tariff rates, and a large backup of
Ethiopia-bound goods were endangering profitability.
However, they said that construction progress on the new $300
million Doraleh Container Terminal, slated to open in
December, was exactly on schedule. END SUMMARY.


2. (SBU) On September 4, EmbOffs met with Port of Djibouti
Director General Jerome Martins Oliveira and Container
Terminal Director Gerhard Botha. Oliveira, a Portuguese
national, has worked in Djibouti for approximately one year.
Before he was named Director General, he was the Port's Chief
Financial Officer. Previously, he managed a Dubai Ports
World (DP World) food processing factory in Senegal. Botha
is a South African national and has worked in Djibouti since

2006.

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TARIFFS AND "TRYING TO BREAK EVEN"
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3. (C) Oliveira said that although DP World was supposed to
have the responsibility for managing tariff rates under its
agreement with the GODJ, in practice the GODJ had prevented
DP World from raising prices. On August 14, the night before
DP World planned to implement a general rate increase
(reftel),Oliveira said that he received a phone call from
the Secretary-General of the Presidency (Ismael Houssein
Tani),instructing him not to implement the rate hike.
Oliveira said he had received no formal, written
communication of this instruction from the GODJ. Citing the
rising prices of steel, fuel, and other necessities, Oliveira
said that he planned to implement the rate increase in
January 2009, even over the GODJ's objections.


4. (C) Likewise, Oliveira said that he would like to raise
berthing rates for the DP World-owned jetty at the new
Horizon bulk liquid and fuel terminal, which he described as
unprofitable, as it had not yet recouped the cost of its
construction. Oliveira said that 75 percent of Port revenues
currently come from the present Container Terminal. His
stated financial goal this year is to "break even."

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STRAINED INFRASTRUCTURE, INSUFFICIENT INVESTMENT
-------------- ---


5. (C) Botha and Oliveira both bemoaned a lack of sufficient
investment in Port infrastructure, despite sharply increasing
shipping volumes. Both physical and human resources were
strained, they said. Botha said that he was looking forward
to the imminent arrival of a long-awaited project manager for
the new Doraleh site; since he was currently managing that
$300 million project while simultaneously running the
existing Container Terminal. Both men also said that finding
competent Djiboutian employees was extremely difficult.
Botha said that while DP World provided some training in
technical skills, the Djiboutian work force was lacking in
harder-to-teach "soft skills," such as basic management
techniques.


6. (C) Oliveira and Botha blamed the current backlog at the
Port on problems with Ethiopian importers. Oliveira said
that in order to limit demand for foreign exchange, the
Government of Ethiopia was making it difficult for Ethiopian
importers to open letters of credit quickly enough to pay for
their goods and pick them up from the Port in a timely
manner. However, Oliveira said, "we're a transport facility,
not a storage facility."

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RAILROAD SPURS: WHO PAYS?
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7. (C) Oliveira agreed that improved rail links to Ethiopia
could be a part of the solution. In the long term, he
acknowledged that--as indicated by Sultan bin Suleyam's
recent Ethiopia visit--DP World would be interested in owning
and managing the Addis-Djibouti rail line, and in building an
oil pipeline. In the nearer term, Oliveira said, both DP
World and the GODJ want to link the new Doraleh port to the
existing railroad via a short connector. However, Oliveira
said, despite recent suggestions by the Minister of

DJIBOUTI 00000732 002 OF 002


Transport, DP World was not interested in shouldering the
estimated $23 million cost of such a spur.

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SHOWING OFF DORALEH IN DECEMBER
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8. (C) Botha reported that contractor Odebrecht was making
excellent progress at the Doraleh Container Terminal site.
Cranes were expected to arrive in October, he said, and
everything was on track for a December opening. Oliveira
said that Djibouti planned to host the 7th annual Pan African
Ports Cooperation conference in December to showcase the new
terminal. The December 15-18 event might also include some
African transport ministers, whom the Minister of Transport
had invited spontaneously and en masse at the end of another
recent conference.


9. (C) COMMENT: While highlighting the bright spot of
on-schedule progress at Doraleh, DP World's on-the-ground
Djibouti team expressed frustration that they were not being
given the proper tools to do their job. Profitability
without cutting corners, they implied, would require adequate
investment, appropriate manpower, and real freedom to set
market-based rates. The GODJ's instruction to DP World to
avoid raising tariff rates follows a recent trip by President
Guelleh to Ethiopia, and likely reflects the GODJ's desire to
maintain harmonious relations with neighboring
Ethiopia--whose goods account for approximately 80 percent of
the volume at the present Container Terminal. Despite
operational challenges, the Port of Djibouti remains one of
Djibouti's largest employers, and its chief economic engine.
END COMMENT.
WONG