US embassy cable - 05DJIBOUTI65

C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000065 
 
SIPDIS 
 
STATE FOR AF, AF/E 
STATE ALSO FOR AF/EPS COMMERCIAL COORDINATOR ADA ADLER 
LONDON/PARIS FOR AFRICA WATCHER 
 
E.O. 12958: DECL: 01/17/2015 
TAGS: PREL, ECON, ETRD, PGOV, MARR, MOPS, DJ, TC 
SUBJECT: TOTAL AND MOBIL TRY TO HOLD LINE ON DORALEH MOVE 
 
REF: A. 04 DJIBOUTI 1034 
 
     B. 04 DJIBOUTI 899 
     C. 04 DJIBOUTI 856 
 
Classified By: AMBASSADOR MARGUERITA D. RAGSDALE. 
REASONS 1.4(B) AND (D). 
 
 1. (C) Momar Nguer, Total's Director of Refinery and 
Marketing for East Africa and the Indian Ocean, and boss of 
Total Djibouti's Chief Executive Francois de Charnace, told 
Ambassador 1/16 during a de Charnace-hosted dinner, that 
Total, Mobil and Shell had each received new communication 
from the government of Djibouti reiterating the companies' 
obligation to move their oil operations at the current port 
to the new Doraleh port.  However, the deadline for the 
obligatory move, the letter informed, was now December 2005 
vice August 2005. The letter was signed by Djiboutian 
businessman and Doraleh port investor, Abdurahman Boreh, in 
Boreh's capacity as "President of the Ports Authority and 
Free Zones in Djibouti." 
 
2. (C) Nguer, on a four-day visit from Total headquarters in 
Paris, said he would meet the following day with Djibouti's 
Ministers of Energy, Foreign Affairs, and Finance, as well as 
with Prime Minister Dileita Mohamed Dileita. Nguer described 
several concerns of Total regarding the obligatory move: 1) 
that closure of Total's facilities at the current port would 
place Total at the mercy of Emirates National Oil Company 
(ENOC) for storage pricing, perhaps compromising its ability 
to meet economically existing fuel delivery contracts; 2) 
that given Djibouti's financial straits, there is no 
certainty Total could be compensated for the value of its 
existing infrastructure at the current port, including new 
fire fighting equipment; and 3) that there may not be a 
sufficient volume of business to sustain operations of four 
oil companies, although ENOC says it plans no role in 
marketing the fuel products it will store. At the same time, 
he said, Total had obligations it would need to fulfill and 
would be obliged to lease at Doraleh. 
 
3. (C) The Director of Mobil Oil Djibouti, Alain Adam, back 
January 16 from a month's holiday in France, provided 
Ambassador January 17 with a copy of the Boreh letter about 
which Nguer had spoken.  The letter stated clearly that no 
oil/fuel-related activities would be permitted from the 
existing port after 31 December 2005.  Adam said there is no 
way Djibouti can compensate Mobil for the value of its 
infrastructure, which he estimated at USD 25 million and he 
does not expect Exxon/Mobil would accept a USD 25 million 
write-off. Yet, he said, Mobil will repeat will be obliged to 
lease tanks at Doraleh because it has existing contractual 
obligations it must honor.  These include a contract with 
French Forces of Djibouti to provide 30 per cent of the 
Forces' fuel needs. (Total is contracted to provide the 
remaining 70 per cent).  Moreover, Adam said he believes 
Mobil will want to participate in a solicitation from DESC to 
provide certain fuel products to Camp Lemonier over a 
three-year period.  The products and quantities are 1.3 
million U.S. gallons of Jet A-1, 16,000 U.S. gallons of 
premium unleaded mogas, and 1.7 million U.S. gallons of #2 
diesel. Deadline for bids is January 24.  Adam will be in 
contact with Mobil Fairfax regarding the solicitation. 
(Comment:  The solicitation tracks with Ambassador's 
understanding from Camp Lemonier that the Camp's fuel 
requirements would be let under a formal bid process. We 
would urge Mobil to compete, if this will help maintain its 
presence. End comment) 
 
4. (U) Meanwhile, construction of Doraleh port proceeds at a 
steady pace.  During a visit to the site January 13, 
Ambassador, Pol/Econ, and Econ Assistant were told that the 
U.S. Navy may increase its tank use at Doraleh from four to 
eight. (Note: Four are currently contracted to the U.S. Navy 
under a DESC arrangement. End note)  Doraleh site manager 
K.K. Menon stated that completion is expected at the 
beginning of August. Key remaining projects include laying of 
pipes that will carry the fuel, surfacing of the port area, 
and completion of the jetty and two tanker berths.  Two 
primary roads leading from the port to the city of Djibouti 
and to the main road to Ethiopia, as well as 150 houses for 
displaced families, are under construction at the expense of 
port investors. 
5. (C) Comment: The primary concern of both Mobil and Total 
in Djibouti is the value of their existing investment and 
whether and how adequate reimbursement can be obtained should 
they be obliged to relocate.  Mobil's Adam plans to bring his 
chief executive out to Djibouti for discussion of this issue 
at an early date.  Neither company has indicated a 
willingness to accept a major write-off, for bottom line 
reasons.  Both suspect that the Government of Djibouti will 
attempt, in the last analysis, to assess the oil operators -- 
including U.K.'s Shell -- a penalty for environmental damage 
that would equal the value of their current investment.  If 
this happens, a vigorous legal challenge from these companies 
is likely.  End comment. 
RAGSDALE