Ethiopia’s venture in jointly developing the Port of Berbera with DP World and Somaliland has raised eyebrows from its neighbours in the east and the south. Leaders, both in Djibouti and Somalia, have shown their displeasure, prompting Ethiopia’s senior diplomats to shuttle to Djibouti, reports Tamrat G. Giorgis, Fortune Staff Writer.

Before a last minute change of schedule, a high-level delegation led by Worqneh Gebeyehu (PhD), foreign affairs minister, was to leave for Djibouti on Saturday, hoping to reassure senior officials there that the deal with Somaliland over the Port of Berbera would not affect the “treasured” relationship between the two countries.

Senior government officials in Djibouti are reportedly displeased with the timing of the deal Ethiopia made with Somaliland and DP World, a Dubai based multinational company, to jointly develop the Port of Berbera, south of Djibouti. Negotiated by a team lead by Mekonnen Abera, director of Ethiopia’s Maritime Authority, the deal was made two weeks ago in Dubai, with officials from the Ministry of Transport. Gezae Abera, a retired army general now retained as a consultant by the government, was also involved during the negotiation, according to people familiar with the deal.

It is a deal that pits Ethiopia with its immediate neighbours east and south, putting it in a classic position of between stone and a hard place.

A memorandum of understanding was signed over a year ago with Ethiopia agreeing to take a 19pc share in the newly developed port, while Somaliland retains 30pc and DP World the remaining majority share. In 2016, Somaliland’s parliament accepted the tripartite deal, allowing the port operator to invest over 440 million dollars in redeveloping Berbera Port. It was first opened in 1968, and historically served as a naval and missile base for the government of Somalia after independence. It had changed hands between the Soviet Union and the United States during the cold war years.

Since the early 2000s, the United Nations has been using the port to import food aid to help Ethiopia and other countries in the region, the former country using it occasionally for the imports of general cargo. But, Berbera does not have the capacity to encourage the use of large commercial and containerised cargo. Its waters are shallow to anchor large vessels, according to maritime experts. The road between the port and Ethiopia`s border town, Togochale, was built in 1972, with financial aid from the European Union (EU); it is now in poor condition.

For Ethiopian authorities, who are very keen on exploring alternative ways to access the sea than being entirely dependent on Djibouti, the development of the Port of Berbera has a strategic value, according to a senior official from the Ministry of Foreign Affairs. Concerns are lurking, though, over the response from Djibouti, whose ports handle Ethiopia`s imports and exports, which comprise close to 70pc of the cargo it services.

DP World being involved in the development project of Berbera has not helped to ease the growing tensions with Djibouti, nor has the time that the deal was signed, an event that gives discomfort to Djibouti’s authorities, although Ethiopia`s officials urged it was a sheer coincidence.

The agreement between the three parties was signed only two days after authorities in Djibouti seized a container terminal in Doraleh, developed in 2006 by DP World, which owns 33pc of the shares after it had signed a concession agreement to build and operate the port. However, disagreement over the fairness of the concession agreement led Djibouti to seek redress from an international arbiter and courts in London. Its leaders allege that the concession agreement was “corrupt” and disadvantages its national interest for it gives board governance and a managerial and operational mandate to a minority shareholder.

“This leonine concession agreement contains provisions as to dispossessing the majority shareholdings of the Djibouti State and its prerogative,” reads a statement issued by the Ministry of Foreign Affairs & International Cooperation.

Failing to obtain a ruling in its favour, Djibouti’s President, Ismail O. Guelleh, passed a decree to make the contract “null and void” by February 22, 2018, provided that DP World disagrees to renegotiate the terms up until February 21. A meeting in Dubai between the two parties, held on January 28, could not help overcome the stalemate. Djibouti took steps to “restore” its rights over the national asset and immediately kicked out DP World’s senior staff from its territory late last month. It was a move characterised by DP World as an “illegal termination and expropriation” in breach of the agreement it signed.

“We consider the law, the attempt of the government to enforce its terms, the purported termination and expropriation to be in breach of the government’s obligations under its agreements with us, in force since 2004, and international law,” a DP World statement said. “To protect our interests, we have been compelled to commence a new arbitration against the Government in London, seeking a declaration that the contracts are valid and binding on the Government and to obtain urgent interim relief.”

DP World first went to Djibouti in the early 2000s, after agreeing to manage the Port of Djibouti under a 20-year concession agreement. A dissident businessman, Abdurahman Boureh, the chairman of the Djibouti Ports & Free Zones Authority (DPFZA), was instrumental in persuading the emirs in the United Arab Emirates (UAE) to look west for expansion. Following this, their companies commenced in building and operating the largest and most luxurious hotel in Djibouti, Kempinski Djibouti, built on the shores of the Red Sea. Through the years, the company partnered with the government there in developing Horizon Oil and Doraleh Container terminals, spending over half a billion dollars in foreign direct investment.

Djibouti had contributed 88 million dollars in equity and DP World the remaining 44 million dollars, although sources in Djibouti say that the latter sum was raised from a management fee the company had collected for managing the old Port of Djibouti.

“The terminal is the largest employer and biggest source of revenue in the country, and has operated at a profit every year since it opened,” DP World said.

Djibouti does not see it that way. The concession agreement is in fact viewed as a document that stripped the country of its sovereignty, for it restricts Djibouti from building any port without the express permission of DP World, according to Aboubaker O. Hadi, chairman of DPFZA.

“The terms with DP World were worse,” Aboubaker told Fortune in a telephone interview late last week. “How can a private company dictate its terms on the very sovereignty of an independent nation?”

The concession agreement is in fact viewed as a document that stripped the country of its sovereignty, for it restricts Djibouti from building any port without the express permission of DP World, according to Aboubaker O. Hadi, chairman of DPFZA.

Signed for 50 years, the 400-page document was considered by some of the authorities in Djibouti as a “mistake” the country is struggling to overcome while losing court battles due to what Aboubaker described as the “white man`s justice”, rulings that he sees as biased against Africans.

A bitter fight, however, began between the government of Djibouti and Boureh in the late 2000s, which created a cleavage between Dubai and Djibouti. But geopolitics in the Middle East since 2015 has changed almost everything.

The contending parties of the Saudi-led coalition and the Iran-led alliance were desperate in bringing countries of the region to their respective sides. Sudan and Somalia gave their support to the Turkey-Iran-Qatar alliance; Egypt and Eritrea moved to help the alliance between Saudi and UAE; however, Djibouti declined to cooperate with the UAE’s request to launch fighter jets bombarding positions held by Houthi rebels in Yemen.

Djibouti had waged a series of court battles against both Boureh and DP World in the United Kingdom with hardly any success. The emirs in Dubai, again persuaded by Boureh, had announced their decision to develop Berbera, thereby poking Djibouti in the face.

Djibouti was able to handle 150,000 twenty-feet equivalent units (TEU) containers before a massive investment was made in developing a brand new terminal. The hope was that the expansion would position it to handle over 1.6 million TEUs a year, a volume of cargo much larger than Ethiopia’s 250,000, Djibouti`s 50,000 and Somaliland`s 20,000 TEUs. The idea was to reposition Djibouti as a hub for transshipment, competing with other ports in the region such as Aden (Yemen), Salalah (Oman), Sokhna (Egypt), Jeddah (Saudi) and Jebel Ali (UAE). The latter three are managed by DP World.

“The transshipment didn`t happen,” said Aboubaker. “It was diverted to Jebel Ali and Jeddah.”

A veteran of the maritime sector, Aboubaker believes that DP World was in Djibouti to make it a captive and redirect volume mainly to its home base in Jebal Ali.

“Africa’s volume is too small to impress them,” he said. “The fight is over transshipment.”

Divorcing with DP World, and further court battles hanging over its head, Djibouti has entered into a deal with the Pacific International Lines (PIL), a Singapore-based maritime company, to get transshipment cargo. Aboubaker foresees that the deal will bring Djibouti as high as 350,000 TEUs, boosting traffic by 33pc.

The idea was to reposition Djibouti as a hub for transshipment, competing with other ports in the region such as Aden (Yemen), Salalah (Oman), Sokhna (Egypt), Jeddah (Saudi) and Jebel Ali (UAE). The latter three are managed by DP World.

“The transshipment didn`t happen,” said Aboubaker. “It was diverted to Jebel Ali and Jeddah.”

A veteran of the maritime sector, Aboubaker believes that DP World was in Djibouti to make it a captive and redirect volume mainly to its home base in Jebal Ali.

“Africa’s volume is too small to impress them,” he said. “The fight is over transshipment.”

Ethiopia’s agreement to get involved in developing Berbera Port as a shareholder was a grape too sour for Djibouti to swallow.

“They tell us we have stabbed them in the back,” a person involved in Ethiopia-Djibouti affairs for over two decades told Fortune.

Aboubaker believes it is legitimate and understandable for a landlocked country such as Ethiopia to look for alternative ports in the region. Moreover, he believes that his country’s actions to develop its ports for the transshipment business are just as justified.

“But we wish them [Ethiopia] well,” said Aboubaker.

It appears that Worqneh`s message to the Djibouti authorities would have been the same as that given by Aboubaker, according to Ethiopian authorities. He would have tried to reassure the authorities there that Djibouti remains “central to Ethiopia’s access to the sea” regardless, for Ethiopia has invested over 15 billion dollars in developing infrastructure on the corridor, according to a senior diplomat familiar with the issue.

“The joint venture was made at the request of Somaliland and has been in discussion for over a year,” said this diplomat.

It is a statement confirmed by the highest authority in the Somaliland government. Muse Bihi Abdi, president of Somaliland, made a statement last week affirming that the agreement is “nothing new,” but an extension to an earlier deal between Somaliland and DP World which was approved by the Parliament in his country.

Experts in the industry view the involvement of the government in the deal as unwise.

“It could have been better had they made the deal through a state-owned company, keeping the whole issue as commercial as it can get,” said the maritime expert.

But Ethiopian authorities argue that the agreement on the Berbera port has little to do with recognising the sovereignty of a country and is only aimed at advancing the commercial interests of the most significant nation, with the largest population and the biggest economy, in the region.

Neither were the Somalians down south convinced by Ethiopia’s statements on its involvement in Berbera’s development. They see it as an incursion on their territorial integrity.

Having a tense relationship with the sultanates in the UAE, Mogadishu views the tripartite agreement with suspicion, and declared it “null and void”.

Beginning in June 2017, the relation between Mogadishu and Dubai became rough after the leaders of the former refused to cooperate with the Saudi-led alliance that levied a blockade on Qatar; Qatar was accused of funding terrorism in the region. Before it shifted its allegiance back to the Saudi-UAE camp, Somalia had first supported Qatar, raising fury from the country’s wealthiest former supporters.

The deal must have been endorsed by and consulted with the federal government of Somalia, Hassan Ali, its prime minister, told The National, a Dubai based English daily. Somalia is now preparing to petition the Arab League in seeking its support against the tripartite agreement, diplomatic sources disclosed.

Pundits see Somalia’s recent objection over DP World`s involvement, described by an Ethiopian diplomat as “measured in its statement”, as possibly putting it back on a collision course with the emirs.

Despite the strong objection from Somalia and reservation from Djibouti, Ethiopian authorities – operating both at the highest and operation levels – hope that the deal will not affect the relationship with Djibouti, a country they value the most in the region.

“Were there for Ethiopia when it was trying times for its people,” Aboubaker told Fortune.

He was referring to the late 1990s, when Eritrea had blocked access to the sea and Ethiopia suddenly flooded Djibouti with cargo, all the while going through a bloody war with its northern neighbour. Overnight, Djibouti had to process Ethiopia`s entire import and export cargo, while it was little prepared to do so.

UPDATE: This story was updated from its original version, incorporating a correction that Gezae Abera, a retired general, was a lead negotiator. He was not.

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