US embassy cable - 04DJIBOUTI1530

C O N F I D E N T I A L DJIBOUTI 001530 
 
SIPDIS 
 
LONDON, PARIS FOR AFRICA WATCHER 
 
E.O. 12958: DECL: 12/01/2014 
TAGS: PREL, PGOV, ECON, ENRG, DJ 
SUBJECT: SWITCH IN BUTANE GAS SUPPLIER GIVES ENOC EXCLUSIVE 
ACCESS TO DJIBOUTIAN MARKET 
 
Classified By: Pol/Econ Erinn C. Reed for reasons 1.4 (b) and (d). 
 
1. (U) The Government of Djibouti recently decided to switch 
providers of Butane cooking gas from a Yemeni company to 
Emirates National Oil Company (ENOC). The offer of a lower 
price for Butane gas is in contrast to the trend in global 
markets, where prices have gone up recently. However, the new 
deal is not only beneficial to the Government of Djibouti. 
With control over Djibouti's supply of Butane, ENOC now has 
an exclusive hold on providing hydrocarbons to Djibouti. The 
three other oil company's present in Djibouti (Shell, 
ExxonMobil and Total) have reportedly been informed of the 
decision, but negotiations are said to be ongoing in this 
matter. 
 
2. (U) The switch from the Yemeni company, which has 
subcontracted the rights to butane filling for Djibouti from 
Djiboutian businessman, Abdourahman Boreh's company, SOMPEC, 
for the past six years, to ENOC caused a two week gap in the 
supply chain of Butane. The shortage caused difficulties for 
hospitals, hotels, restaurants, and the expatriate community. 
The average Djiboutian family cannot afford Butane gas, but 
relies heavily on liquid gas at a fraction of the price. The 
Butane shortage nearly doubled the price of liquid gas for 
Djiboutian families. The two week shortage elicited no price 
controls or explanations from the Government. 
 
3. (C) Comment: The shortage in cooking gas and the resulting 
rise in price of liquid gas raise interesting questions 
regarding the government's attitude towards price regulation 
of gas. Djibouti has seen an unprecedented increase in fuel 
costs in the past two years, prompting the Government to 
issue promises to mitigate the effect of soaring 
international prices. However, as evidenced in this recent 
shortage and hikes in petrol prices this year, this is not 
always the case. The question remains whether the Government 
still stands behind the International Association of 
Hydrocarbons of Djibouti, the government entity responsible 
for regulating oil prices on the local market. The slow 
takeover of the Djiboutian oil and gas market by ENOC is also 
an issue that raises many unanswered questions, especially 
now that it seems to be receiving a monopoly from the 
government. Whether these moves towards ENOC will edge out 
competition and effectively close the market to free 
enterprise is one of the unknowns that could have a large 
impact on Djibouti's ability to attract investors. End 
Comment. 
RAGSDALE