Dubai, Chinese firm battle in Hong Kong for Djibouti Ports

One of the world’s largest port operators has sued a Chinese state enterprise in Hong Kong over infringement of its exclusive port agreement with a strategically located African nation, in the city’s first court case involving China’s Belt and Road Initiative.

Hong Kong-based China Merchants Port Holdings, a subsidiary of state enterprise China Merchants Group, deals mainly in the construction of ports, marine container logistics and operating container terminals.

It has actively participated in large-scale port infrastructure projects in multiple countries under China’s ambitious Belt and Road Initiative in recent years.

China Merchants Port Holdings controls the controversial 1,150-hectare Port of Hambantota, which Sri Lanka handed over to China on a 99-year lease.

Its inroads into Djibouti, located strategically between the Arabian Sea and the Mediterranean Sea, has for years been at the centre of legal disputes between the African nation and the UAE state enterprise.

In the writ of summons filed to the Hong Kong court in August last year, DP World accused the company for causing the Djibouti government to nationalise the Doraleh Container Terminal, despite the 30-year concession agreement that allowed DP World to exclusively run the terminal.

DP World, which operates 78 ports in 42 countries including Terminal 3 in Kwai Chung, Hong Kong, said under its agreement with the Djibouti government, it would have “full and exclusive right to establish, develop, and operate the Doraleh site”.

The concession agreement also said Djiboutian authorities cannot grant concessions for any other port capable of handling ocean-going vessels or free zone facilities within the country for the duration of the agreement.

The concession agreement took effect in February 2004 for a period of 30 years with the option for two 10-year renewals.
Joint-venture company Doraleh Container Terminal S.A. (DCT) was created to develop and operate the terminal.

The Djibouti government held 66.66 per cent of DCT’s shares under state enterprise Port Autonome International de Djibouti (PAID), while DP World held 33.34 percent through its subsidiary Dubai (International) Djibouti FZE (DID).

Despite being a minority shareholder, DP World had the right to appoint most board members of DCT, thereby retaining control of the company’s operations and management.

Two years later, both parties signed a 2006 Concession Agreement in which DID relinquished their role in the development of the Doraleh Container Terminal.

However, DID’s exclusivity right over other port and free zone projects remained in full force.
Economic Hindrance

Doraleh Container Terminal commenced operations on February 2009 but the Djibouti government began expressing dissatisfaction with its agreement with DP World.

It said the concession agreement “gave a foreign company the opportunity to oppose the fundamental interests of the Republic of Djibouti by hindering its economic and social development process”.

Three years later in 2012, China Merchants Port Holdings began negotiating a partnership with Djiboutian authorities over the development of ports and free-trade zone projects in the nation. In July that year, they signed a strategic partnership agreement.

The Chinese firm is a direct competitor of DP World and was actively looking to invest in ports to strengthen its position in East Africa.