US embassy cable - 04DJIBOUTI856

UNCLAS SECTION 01 OF 03 DJIBOUTI 000856 
 
SIPDIS 
 
STATE FOR AF, AF/E, AF/EPS, AND NEA/ARP 
 
E.O. 12958: N/A 
TAGS: PREL, PGOV, ECON, ETRD, EFIN, ET, DJ, TC 
SUBJECT: DORALEH PORT: DJIBOUTI'S ECONOMIC GATEWAY FORGES 
AHEAD 
 
REF: A. DJIBOUTI 822 
 
     B. DJIBOUTI 711 
     C. DJIBOUTI 597 
 
 1. (U)Summary: With the help of Emirates National Oil 
Company (ENOC), Djibouti is moving ahead with its major port 
construction project at Doraleh. Increasingly seen as the 
future economic lifeline for Djibouti, the port's site 
manager, an Indian national of Dubai residency, admits that 
he is under pressure to complete the port two months ahead of 
schedule.  Shifts working day and night are expected to bring 
the project to fruition by November, 2004 vice January, 2005. 
 A primary segment of the port is an oil storage terminal 
facility that includes what ENOC describes as four storage 
tanks for the U.S. Navy.  In addition, the port is expected 
to have the capability to dock and service the largest of 
military vessels.  The port project has its own primarily 
imported labor force, and includes a housing camp with 
sleeping quarters, recreation facilities and meal delivery 
systems to make it self-sustaining.  Dubai has taken the lead 
in development of the project, with the support of key 
Djiboutian businessman Abdurahman Boreh and President Ismail 
Omar Guelleh.  As a result, the port has created high 
expectations for the economic development of Djibouti. Yet 
precise percentages of share ownership in the project remain 
vague, with even Ethiopia expected to take a small share. 
While the port project still has its skeptics, only stability 
in the region would appear to be the more difficult and 
unpredictable hurdle for Doraleh. End Summary. 
 
2. (U) President Guelleh's self-proclaimed economic gateway 
to Djibouti's prosperity -- its mega oil and container port 
at Doraleh-- is forging ahead at a pace of construction 
intended to bring the project to fruition two months ahead of 
schedule.  Ambassador, Pol/Econ, and Econ assistant made 
their second visit in two months to the port site, located 
seven kilometers from the existing port, to assess progress 
and to meet with the project manager.  Touted as a complement 
to the United Arab Emirates port of Dubai, the new port of 
Doraleh is expected to open Djibouti to markets in the Horn 
of Africa and beyond. 
 
3. (U) Our hosts for a tour and briefing were K.K. Menon, of 
Emirates National Oil Company (ENOC), Site Manager for the 
Doraleh project, and Ayanleh Idriss Hassan, Terminal Manager 
for Horizon Ltd., an ENOC subsidiary.  Horizon, which will 
operate Doraleh's oil terminal, focuses primarily on the 
Singaporian and African markets for ENOC. ENOC established 
Horizon, according to Idriss, in order to consolidate and 
independently develop ENOC's oil and chemicals terminalling 
business globally. 
 
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Ties that Bind 
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4. (U) The port of Doraleh is the brain-child of Abdurahman 
Boreh, a prominent and self-assured Djiboutian businessman, 
who successfully convinced President Guelleh of the merits of 
taking advantage of the single income outlet available to 
resource-poor Djibouti -- that of services.  He began by 
establishing a partnership with Dubai investors and by 
encouraging the President to bring in Dubai Ports 
International to manage its existing port and international 
airport.  Dubai Ports International is investing USD 300 
million to develop the container terminal in Doraleh while 
ENOC is financing the port's oil terminal at a cost of USD 
130 million.  The port will include an oil terminal, whose 
construction began in June 2003, oil storage facilities, an 
oil refinery, a container port, a Free Zone and an industrial 
area with power station and desalinization plant.  Partners 
in the Doraleh project will also construct, at their own 
expense, a new road from Doraleh port to the national road 
linking Djibouti to Ethiopia. The Doraleh port, to be 
completed by January 2005 and to be made operational by May, 
2005, is not expected to replace or adversely affect Dubai 
port activities, according to Menon. It's primary focus will 
be Africa. 
 
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Status report 
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5. (U) Menon told us that the port's "clients" have applied 
pressure on ENOC to complete construction of the port ahead 
of schedule.  He is now on target to complete the project in 
November 2004, vice January 2005.  To remain on track, Menon 
is preparing to put in place a lighting arrangement at the 
port site that will allow night construction.  He also stated 
that "the U.S. Navy" is pushing for quick completion of the 
project in order to activate the four oil storage tanks set 
aside for the Navy's use.  According to Menon, of the U.S. 
Navy's four storage tanks at Doraleh, two have dimensions 20 
meters high x 47 meters deep and two have dimensions 20 
meters high x 37 meters deep.  All tanks will be equipped 
with a special membrane to prevent oil leakage and pollution 
of the soil beneath the storage tanks.  A total of nine 
storage tanks are currently under construction and we were 
shown the extent of progress on tanks reserved for the U.S. 
Navy. (Note: Embassy is still trying to confirm a U.S. Navy 
contractual engagement for Doraleh with ENOC. End note)  Oil 
companies currently operating in Djibouti, such as Exxon 
Mobil, Menon said, would be free to lease remaining tanks in 
the pool from Horizon.  (Note:  Mobil, Total and Shell have 
been informed of the Government of Djibouti's intent to close 
the companies' existing storage tanks at the current port as 
soon as the new Doraleh facility is on line. See Ref B. End 
note)  When completed, the Doraleh oil terminal will have the 
capability to store 240,000 cubic meters of clean petroleum 
products, including gasoline, diesel, jet fuel and kerosene, 
as well as fuel oil, chemicals, edible oil and liquefied 
petroleum gas. 
 
6. (U) Ambassador asked about the potential of the port to 
allow docking at port side of large U.S. military vessels. 
Menon responded that the Doraleh port would have a depth of 
28-30 meters and that the extent of the causeway into the sea 
would allow these vessels to acquire maximum security cordons 
to meet U.S. military standards and requirements. 
 
7. (U) On challenges encountered in the quest to speed up the 
project, Menon said he had had some difficulties with the 
causeway that will service the oil terminal because of a 
delay in delivery of necessary materials, due to the vacation 
season in Europe.  ENOC also faced problems with a local 
company contracted to crush stones for the project.  The 
company stopped its services temporarily in a dispute with 
Menon and ENOC over payment of "royalties" the company said 
it was obliged to make. Menon said ENOC refused to pay the 
royalties and contacted President Guelleh directly in the 
matter.  The matter was quickly resolved with no royalties 
being charged and services resumed. 
 
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Manpower Resources 
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8. (U) According to Menon, 322 local staff and 68 expatriates 
are currently working at the Doraleh site.  The number of 
expatriates is expected to reach as high as 340 in the short 
term because of ENOC's inability to recruit Djiboutians with 
the necessary skill sets to perform some of the 
highly-skilled jobs that the port requires, such as welding. 
Djiboutians employed are working primarily as laborers, 
drivers and security guards.  Menon blamed the cultural habit 
of chewing "khat" for the paucity of qualified workers.  He 
also spoke about a work ethic that discouraged Djiboutians 
from accepting jobs that required more than three hours of 
physical activity daily. (Note: At the site, shifts begin at 
0830 and end at 1830, with a two-hour lunch break. Use of 
"khat" is strictly forbidden during work hours. End note.) 
When questioned about the recent Afar demonstrations over 
hiring for Doraleh and the new Free Zone, (reftel A) Menon 
seemed unaware of the demonstrations and responded that 
tribal issues, in any case, were not within ENOC's purview. 
(Note: There are indications Boreh has assumed the role of de 
facto labor broker in local hiring for the Doraleh work to 
avoid such conflict. End note). 
 
9. (U)  Construction of housing for expatriate workers -- of 
Malaysian, Indian, Filipino and other origins -- at the 
project site is nearly complete.  It consists of 
self-contained modular living quarters with private 
bathrooms.  The compound has its own source of electricity, 
chillers for cooling, and a huge and modern kitchen. 
Currently, expatriate workers are housed half in a hotel in 
town and half at the completed portion of the camp.  All will 
continue to receive their meals at a local hotel, with 
specialized foods geared to nationality, until the kitchen at 
the Doraleh camp is complete. There are no housing provisions 
for Djiboutian workers. 
 
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Sorting Out Partnerships 
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10. (U) On our questions regarding the role and percentage of 
holdings in the port by investors, and specifically by 
Abdurahman Boreh, Menon declined to comment.  (Note: Boreh 
told Ambassador he owned 40 per cent of the Doraleh project, 
with ENOC owning the remaining 60 percent.  Some place 
Boreh's holdings at 20 percent, with the rest of the 40 per 
cent share divided equally between the Government of Djibouti 
and President Ismail Omar Guelleh. In addition, at the May 
18-20 meeting in Djibouti of the Ethiopia-Djibouti Economic 
and Commercial Ministerial Working Group, Ethiopia requested 
land at Doraleh to invest in and build a petroleum depot to 
accept petroleum products in transit to Ethiopia. The 
Djiboutian side explained to the Ethiopians that, for 
security reasons, it preferred to place petroleum activities 
at Doraleh in the hands of ENOC.  After much discussion of 
this issue, Djibouti rescinded and agreed to include Ethiopia 
in the project because of the two countries' "strategic 
partnership."  It is unclear if Ethiopia will follow through 
on its request and also unclear as to which partner would 
provide the percentage to Ethiopia.  End note). 
 
11. (U) Menon told us that when studies were made a few years 
ago about the feasibility of the Doraleh project, "even 
President Guelleh did not believe it could materialize." 
ENOC believed in it from the beginning, he said proudly. The 
location is good as it is close to the sea with minimum need 
to reclaim land to build the port's infrastructure, he added. 
 
 
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More Investments Planned 
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12. (U) Menon commented that ENOC also planned to build a new 
hotel "of high standing" near the beach of Doraleh.  It will 
complement, he explained, the Haramous housing development 
project recently contracted by the Government of Djibouti to 
a Saudi investor. 
 
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Comment 
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13. (U) Comment: Post understands that the U.S. Trade and 
Development Agency (TDA) will likely fund U.S. company 
Han-Padron's feasibility study and full market forecast for 
all aspects of the Doraleh project and for a Master Plan for 
all port sectors of Djibouti. (Ref C)  Post believes this is 
a project worthy of investment.  While the port project still 
has its skeptics, Embassy fully expects it to be successful 
and is confident the port can open new and broad commercial 
opportunities for U.S. business.  With Dubai taking a 
pervasive lead role financially in the future of Djibouti, 
and with a government increasingly affirming its commitment 
to necessary internal social and economic reforms, only 
stability in the region would appear to be the more difficult 
and unpredictable hurdle for Doraleh.   End comment. 
RAGSDALE