US embassy cable - 04DJIBOUTI711

C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000711 
 
SIPDIS 
 
STATE FOR AF, AF/E, AND AF/EPS 
CJTF HOA PASS MARCENT 
 
E.O. 12958: DECL: 05/17/2014 
TAGS: PREL, PGOV, ECON, EPET, DJ, TC 
SUBJECT: EXXON-MOBIL NOTIFIED OF TERMINAL CLOSURE AND LEAD 
ROLE FOR ENOC'S HORIZON LTD. 
 
Classified By: AMBASSADOR MARGUERITA D. RAGSDALE. 
REASONS 1.4 (B) AND (D). 
 
 1. (C) Summary:  Exxon-Mobil has received notification that 
it must terminate its operations at the existing port 
effective May 2005 and relocate to the new Doraleh port. 
Storage tanks would be available at the new port for either 
rent or a possible shareholding arrangement with Horizon 
Terminals Ltd. of Dubai, which would manage the new oil 
terminal.  Exxon-Mobil's representative in Djibouti shared 
with Ambassador his angst over the notification and will be 
consulting with offices in Addis Ababa and in Fairfax to 
decide on next steps.  A number of issues remain unresolved, 
including compensation -- if any -- to the company for loss 
of its existing facility.  Ethiopia may have interest in a 
stake in Doraleh, but this would not appear to be welcome 
news for Doraleh shareholders. End summary. 
 
2. (C)In a meeting with Ambassador and DCM at the 
Ambassador's residence May 15, Alain Adam, Director General 
of Exxon-Mobil operations in Djibouti (Mobil),  shared two 
letters his company had received on the future of Mobil's oil 
storage facilities at the existing port of Djibouti.  The 
first, dated 10 May 2004 from Abdurahman Boreh, in Boreh's 
capacity as Chairman of Djibouti Ports and Free Zones 
Authority, gave "official notice" that Mobil's existing oil 
terminal at Djibouti's port would be closed effective May 
2005.  The letter went on to state that the move had become 
necessary for security and environmental reasons, that this 
was a "final notice," and that services after the closure 
"will be provided by the new oil terminal at Doraleh Port." 
(Note: Boreh, who is close to President Guelleh, is a 
prominent Djiboutian businessman with a 40 per cent stake in 
Doraleh port. Construction of Doraleh port is being managed 
by Emirates National Oil Company (ENOC), and its shipping and 
terminalling subsidiary Horizon Terminals Ltd. (Horizon) will 
control the oil terminal. End note) 
 
3. (C) The second letter, from Elmi Obsieh Waiss, Minister of 
Equipment and Transport, was also dated 10 May.  It, too, 
confirmed the changeover date of May 2005 and the decision of 
the government of Djibouti to relocate petroleum activities 
to the new port at Doraleh. Waiss's letter asked Mobil to 
"take all arrangements necessary to conform to this new 
organization."  Total and Shell directors in Djibouti, 
according to Adam, received the same letters. 
 
4. (C) Adam complained that the letters made no mention of 
how Mobil, Shell or Total would be compensated for their 
facilities at the existing port or what would happen to 
current employees working for the companies in Djibouti. He 
said he would be meeting with Waiss for further explanation 
and would follow that meeting with consultations in Addis 
Ababa with Mobil offices there and with Fairfax headquarters. 
 
5. (C)  Ambassador told Adam she would speak to Boreh 
directly to find out more details about the content and 
implications of the letters, and reached him by telephone in 
Dubai.  In an extended conversation, Boreh stated that for 
the past three years the Government of Djibouti had been 
telling Mobil that its terminal facility at the existing port 
must be moved because of pollution caused by leakage from 
containers belonging to the oil companies.  He said Mobil had 
also been told of the intention of the Government to build a 
new oil terminal facility at Doraleh, and indeed, had been 
invited to invest in the project.  "Mobil expressed no 
interest in investing in this new facility," Boreh said. 
"None of the oil companies expressed interest, except Total 
initially. They thought we were bluffing and that we would 
never build such a facility.  Well they were wrong," he said. 
 
6. (C) Boreh added that the shift in terminals is occurring 
primarily because of the leakage of oil from the existing 
aging tanks. It was important for Mobil and the others to 
understand, he said, that there is no plan to create a 
monopoly in oil services and facilities in Djibouti.  Horizon 
will not do trading in oil.  It will only do storage in 
Djibouti and Mobil and other oil companies will be obliged to 
rent storage tanks from Horizon.  It is not in Djibouti's 
interest, he continued, to have such a monopoly.  "We are not 
here to close down the business of Mobil, but merely to 
upgrade operations."  Boreh told Ambassador that the cost of 
renting storage from Horizon is an issue that can be 
discussed as well as the possibility of shareholding in the 
same storage facilities.  He said he expected overall cost of 
operations for the oil companies to decline with the reduced 
labor force requirement resulting from the shift. Ambassador 
subsequently conveyed to Adam the content of her conversation 
with Boreh. 
 
7. (C) In a follow-up, Adam informed Ambassador that he, 
along with Total and Shell representatives, met with Waiss on 
May 18.  It was a short meeting.  In a nutshell, Adam said, 
Waiss told the group of the need to move their operations 
because of pollution over the preceding years, including 
damage to the existing port facilities. (Note:  Adam 
acknowledges pollution, but said Mobil has been engaged in 
vigorous clean-up operations at the port.  End note)   Adam 
said he asked Waiss what the Government of Djibouti intended 
to do about employees who would lose their jobs at the 
current facilities and who were already circulating Waiss's 
letter. Adam said Waiss had replied that if his letter was 
being circulated, it is because the oil companies had 
released it, not the Government of Djibouti. In any case, 
Djiboutian employees are "our problem, not yours," Waiss 
reportedly told the group. 
 
8. (C) Comment:  Adam has made no effort to hide his angst 
over the demand broached by Boreh and the government but has 
perhaps been less aggressive in efforts to learn more about 
the Doraleh project (currently well underway as septel 
reports) or to figure creative ways Mobil might profit from 
the proposed new arrangement. This might call his 
effectiveness into question. We believe the Government is 
serious about its intent to close the existing terminal and 
were told the new facility is scheduled to come on line in 
May 2005.  We do not believe, however, that the Government 
has considered the issue of compensation for this American 
company or for others affected.  Boreh told Ambassador that a 
consultant will look at the matter of what happens to both 
the land under the existing terminal facility and the 
compensation issue and make recommendations to the Government 
of Djibouti.  Meanwhile, Adam is enroute to Addis Ababa and 
expects to have shortly views of his organization on 
recommended and preferred next steps here in Djibouti. 
Embassy is ready to assist, in consultation with Mobil. 
 
9. (C) Comment continued for Embassy Addis Ababa:  According 
to Boreh, Ethiopia has asked for a stake in the Doraleh 
facility, but it is unclear how it would finance 
participation.  Boreh was less than enthusiastic, we might 
add, about such a partnership, even if it were possible.  He 
said the Ethiopians are far too difficult people with whom to 
work.  End comment. 
RAGSDALE