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. -------------- TARIFFS AND "TRYING TO BREAK EVEN" -------------- ¶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." -------------- --- 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." -------------- RAILROAD SPURS: WHO PAYS? -------------- ¶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. -------------- SHOWING OFF DORALEH IN DECEMBER -------------- ¶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