THE REPORTER — The Ethiopian government canceled the planned Ethio-Djibouti fuel pipeline project, reports the Ethiopian weekly English newspaper, the Reporter.
In 2014 the South Africa-based infrastructure investment group, Black Rhino, proposed to the Ethiopian government to build a 550km long pipeline to transport diesel, gasoline and jet fuel from the Port of Djibouti to central Ethiopia.
A senior Ethiopian government official stated that the government has canceled the project due to financial reasons. The official said though the pipeline project is viable, the government wants to protect the Ethiopian Railway Corporation which will soon start transporting petroleum products.
“We have built a new railway line to Djibouti with an investment cost of four billion dollars. And 100 fuel tanker wagons are ready to transport fuel from Djibouti. We have to maximize the use of the railway and pay back the loan to the Export Import (EXIM) Bank of China first,” the Ethiopian official said.
The project is estimated to cost 1.5 billion dollars. The Ethiopian government had reviewed and accepted the proposal in principle. Backed by the US investment group Black Stone, Black Rhino has undertaken a feasibility study on the project, which was going to be the first fuel pipeline in Ethiopia.
He said that while the country has a newly-built railway line, the construction of another expensive infrastructure cannot be justified. The International Finance Corporation (IFC) – the investment arm of the World Bank – had expressed interest in financing the planned Ethiopia-Djibouti fuel pipeline project.
“It is not that the project is unable to secure loan but while we are having the railway line in place building another fuel transport infrastructure is not economically a sound decision,” the Ministry of Transport official said. However, he said the construction of the pipeline can be considered after four or five years.
Ethiopia’s annual fuel import, which is growing at a rate of ten percent, has reached 3.8 million MT. The country so far uses tanker trucks to transport the fuel from the Port of Djibouti to central Ethiopia costing the country dearly. Fuel theft, adulteration and waste are also other challenges with the road transport.
The governments of Ethiopia and Djibouti signed a framework agreement on the planned pipeline construction in 2015.
Port deal underscores Djibouti’s reliance on Ethiopia
When Djibouti makes international headlines, it is usually in connection with the many superpowers that have built military bases on its shore. France, the United States, China, Italy and Japan all have a major military presence in the tiny East African nation. But for Djibouti’s government, there is another major power that is even more important: Ethiopia.
It is difficult to overstate just how dependent Djibouti’s economy is on its much larger neighbour. There is almost no fresh water in Djibouti, so it must import water from Ethiopia. Most of its electricity comes from Ethiopia too. Little grows in Djibouti’s arid desert landscape, so fresh fruits, vegetables and grains are trucked across the Ethiopian border every day.
Economically, by far Djibouti’s most valuable assets are its ports. But these too are almost entirely reliant on a healthy trading relationship with Ethiopia, which, being landlocked, requires an outlet to the sea.
More than a century ago, when the old Port of Djibouti was built by the French colonisers, it was connected with a railway that linked Addis Ababa to Djibouti City. Given the size differences of the two countries – today Ethiopia’s population is more than 100 million, while Djibouti’s is less than 1 million – the port was never about trade with Djibouti, but trade with Ethiopia. It is no coincidence that today, the new Doraleh Container Terminal is the end of the line for the new Chinese-built Addis-Djibouti standard gauge railway.
If trade from Ethiopia dries up, ships will no longer be queuing at sea for their turn to dock at these ports. This is significant because there are two separate situations that threaten the trading relationship between Ethiopia and Djibouti. The first is the brewing political crisis in Ethiopia.
In February, Prime Minister Hailemariam Desalegn unexpectedly submitted his resignation. Immediately, the ruling party declared a state of emergency, which was recently ratified by Parliament. Despite this, the widespread anti-government protests continue, especially in the Oromia region which surrounds the capital Addis Ababa, as well as in Amhara Region. At the same time, a power vacuum within the ruling coalition has created uncertainty about Ethiopia’s political future, prompting fears of further instability. A new prime minister is expected to be announced soon.
This is potentially very bad news for Djibouti. Any disruption to Ethiopia’s economy will have a knock-on effect on Djibouti, while a political crisis may precipitate a humanitarian emergency that would result in an increase of refugees across the border. Although Djibouti has recently reformed its refugee laws, earning praise from the United Nations Refugee Agency, it remains ill-equipped to deal with a major refugee influx.
Ethiopia is considered an anchor in the Horn of Africa, so any disruption will have knock-on effects. ‘Unrest in Ethiopia has serious implications for regional stability,’ says Emily Estelle, a senior analyst for the Critical Threats Project at the American Enterprise Institute.
The second situation of some concern to Djibouti’s government is Ethiopia’s recent acquisition of a 19% stake in the Port of Berbera in neighbouring Somaliland. Berbera is positioning itself as a rival to Djibouti, and is clearly making a major play to handle more Ethiopian freight. Somaliland is also in the process of building the Berbera trade corridor, which will eventually link Berbera to Addis Ababa by road.
Historically, one of Djibouti’s strategic advantages has been its stability. In an inherently unstable part of the world – its other neighbours include Eritrea, Somalia and Yemen – Djibouti represents a relatively low-risk investment destination. But Somaliland is providing competition on this front.
The self-declared republic operates entirely independently of Somalia proper, even though this independence is not formally recognised by anyone else. Nonetheless, Somaliland has successfully established a peaceful democracy marked by regular transitions of power – in marked contrast to President Ismaïl Omar Guelleh’s long rule in Djibouti (19 years and counting).
Therefore Somaliland too is becoming an attractive investment destination on the coast of the Horn of Africa – and Ethiopia, in acquiring its Berbera stake, clearly agrees. What does this mean for Djibouti? Will Ethiopia incentivise local freight traffic to run through the port in which it retains a financial interest? Or is there enough cargo to go around?
That’s the view of port operator DP World’s chairman and CEO Sultan Ahmed bin Sulayem. ‘I am so excited about the prospects of working with the Ethiopian government. Ethiopia is home to approximately 110 million people. The ports of Berbera and Doraleh will provide significant capacity to the region. Both these ports and more capacity will be needed to serve the region’s growth potential in the future,’ he said.
Sulayem’s comments came even after DP World suffered a dramatic setback in Djibouti. Until recently, DP World operated both the Berbera port and the Doraleh Container Terminal in Djibouti. But in February the Djibouti government unilaterally cancelled the DP World contract and seized its stake in the port, claiming that DP World had obtained the contract in a corrupt manner – a charge the company denies.
If all goes according to plan, Sulayem is right – a rising Ethiopia should provide more than enough trade to keep both Berbera and Doraleh busy, and fill the coffers of both the Djibouti and Somaliland governments. But against a background of increasing political instability in Ethiopia, there can be no guarantees that the plan is going to work – and tiny Djibouti may pay the price for hitching its wagon so close to Ethiopia’s train.
Djibouti signs port deal with Singapore-based Pacific International Lines
DJIBOUTI (Reuters) – Djibouti’s Doraleh Container Terminal Management Company has signed a deal with Singapore-based Pacific International Lines (PIL) to raise by a third the amount of cargo handled at the port, the country’s Ports and Zones Authority said on Tuesday.
The agreement is expected to raise performance at the Doraleh Container Terminal, allowing it to handle an extra 300,000 20-foot equivalent unit containers (TEU) annually, the authority said, without providing any further details.
Last month, Djibouti ended its contract with Dubai’s DP World, one of the world’s biggest port operators, to run the Doraleh Container Terminal, citing failure to resolve a dispute that began in 2012. [nL8N1QC6D5]
DP World called the move an illegal seizure of the terminal and said it had begun new arbitration proceedings before the London Court of International Arbitration, which last year cleared DP World of all charges of misconduct over the concession to run the terminal.
The Doraleh terminal has a capacity of 1.6 million TEUs per year. “This agreement is a first important step towards Doraleh Container Terminal fulfilling its capacity potential,” the ports authority said.
PIL is one of Asia’s biggest shipping companies, ranked “11th amongst the top container ship operators in the world,”, it said on its website.
‘Significant’ consequences if China takes key port in Djibouti: U.S. general
WASHINGTON (Reuters) – The top U.S. general for Africa told lawmakers on Tuesday that the American military could face “significant” consequences should China take a key port in Djibouti, as Beijing becomes increasingly muscular in Africa in an effort to expand its influence.
Last month, Djibouti ended its contract with Dubai’s DP World, one of the world’s biggest port operators, to run the Doraleh Container Terminal, citing failure to resolve a dispute that began in 2012.
DP World called the move an illegal seizure of the terminal and said it had begun new arbitration proceedings before the London Court of International Arbitration.
During a congressional hearing on Tuesday, which was dominated by concerns about China’s role in Africa, lawmakers said they had seen reports that Djibouti seized control of the port to give it to China as a gift. China has already built a military base in Djibouti, just miles from a critical U.S. military base.
“If this was an illegal seizure of that port, what is to say that government wouldn’t illegally terminate our lease before its term is up,” said Representative Bradley Byrne, a Republican.
In a letter to U.S. Defense Secretary Jim Mattis, Byrne said he was concerned about China’s influence in Djibouti and the impact it would have on U.S. military and intelligence assets.
Djibouti is strategically located at the southern entrance to the Red Sea on the route to the Suez Canal.
Marine General Thomas Waldhauser, the top U.S. military commander overseeing troops in Africa, said that if China placed restrictions on the port’s use, it could affect resupplying the U.S. base in Djibouti and the ability of Navy ships to refuel there.
“If the Chinese took over that port, then the consequences could be significant,” Waldhauser said during the House of Representatives Armed Services Committee hearing.
Djibouti hosts a vital U.S. military base that is home to about 4,000 personnel, including special operations forces, and is a launchpad for operations in Yemen and Somalia.
“There are some indications of (China) looking for additional facilities, specifically on the eastern coast. … So Djibouti happens to be the first,; there will be more,” Waldhauser said.
China has sought to be visible in Africa, including through high-profile investment in public infrastructure projects, as it deepens its trade ties.
Waldhauser said that the United States would be unable to match the scale of that investment throughout the continent, noting Beijing’s construction of shopping malls, government buildings and even soccer stadiums.
“We’ll never outspend the Chinese in (Africa),” Waldhauser said, noting some of the Chinese investments in Djibouti.
U.S. Secretary of State Rex Tillerson said on Tuesday the United States will give more than $533 million in humanitarian aid for victims of conflicts and drought in Ethiopia, Somalia, South Sudan and the West and Central African countries bordering Lake Chad.
But Tillerson contrasted the United States’ work on the African continent, which he said promoted “sustainable growth,” with that of China, which recently pledged $124 billion for its Silk Road plan to expand links between Asia, Africa, Europe and other places.
Tillerson said China’s investment in Africa “encouraged dependency.”
Earlier this year, the U.S. military put countering China, along with Russia, at the center of a new national defense strategy.
The Pentagon said China was a part of “revisionist powers” that “seek to create a world consistent with their authoritarian models.”
Waldhauser said he was in the process of rewriting U.S. military strategy in the region with China in mind.
“China has been on the African continent for quite some time, but we as a combatant command have not dealt with it in terms of a strategic interest,” Waldhauser said.
“We are taking baby steps in that regard,” he added.
Reporting by Idrees Ali and Phil Stewart; additional reporting by Mark Hosenball; Editing by Jonathan Oatis