This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 DJIBOUTI 000390 
 
SIPDIS 
 
STATE FOR AF AND AF/E 
LONDON, PARIS FOR AFRICA WATCHER 
 
E.O. 12958: N/A 
TAGS: ELTN PGOV ECON EINV DJ
SUBJECT: DJIBOUTI-ADDIS RAILWAY RESURRECTED 
 
 
¶1. SUMMARY: After two decades of financial 
and technical setbacks, the Djiboutian- 
Ethiopian Railway Company (CDE) is soon to 
be privatized.  COMAZAR, a South African 
company and RITES, an Indian company, are 
the last two contenders for the contract. 
Djibouti reportedly favors COMAZAR while 
Ethiopia reportedly prefers RITES.  END 
SUMMARY. 
 
¶2. Pol/Econ Officer and Econ Assistant on 
March 21 met with Ahmed Doualeh, the 
Djibouti-Ethiopia Railway Company's (CDE) 
financial director, to inquire about 
progress in the railway's privatization.  He 
explained that the CDE is a joint venture 
between the Government of Djibouti (GoD) and 
the Government of Ethiopia (GoE), each with 
a 50% share, but the CDE receives no 
subvention from either of the two 
governments.  The main task of CDE is to 
transport Ethiopian cargo to and from the 
Port of Djibouti.  CDE also serves as a 
passenger train, especially during the 
summer months when many Djiboutians travel 
to Ethiopia to escape the heat. 
 
------------------------ 
HISTORICAL BACKGROUND 
------------------------ 
 
¶3. The French began construction of the 
railway in 1897 and completed it in 1917, 
linking Addis Ababa to the port in 
Djiboutiville.  The CDE's headquarters were 
located in Paris until 1956, when they were 
transferred to Addis Ababa.  The railway was 
first referred to as the Imperial Railway, 
then the Franco-Ethiopian Railway, and in 
1981 was called the Djibouti-Ethiopian 
Railway following a treaty between Djibouti 
and Ethiopia.  CDE main stops are: Djibouti, 
the outlet to the port; Dire-Dawa, the 
maintenance center where the bulk of 
employees are employed; and Addis-Ababa, 
site of the headquarters and Ethiopian 
terminal station. 
 
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WAR-TIME SETBACKS 
------------------------ 
 
¶4. On the eve of Djibouti's independence in 
1977, the Ogaden war broke out between 
Ethiopian and Somalia in the Ogaden region. 
Somalia destroyed nearly all of the railway 
bridges, halting CDE movements for a year. 
The French responded by providing the CDE 
with new equipment, and the CDE became 
operational again. In 1978, to avoid 
dependence on the railway, Ethiopian 
President Mengistu Haile Mariam developed 
the road infrastructure between Addis Ababa 
and the ports located in what is now 
Eritrea.  The Ethiopian goods carried by CDE 
decreased to 10%, while trucks using the 
Eritrean-Ethiopian corridor carried the bulk 
of the cargo. 
 
¶5. Eritrea closed its ports during the 1993 
war for independence, and Ethiopia began 
using Djibouti port. However, trucks 
continued to be given preference over the 
railway. Since then, CDE has deteriorated 
for technical and financial reasons.  Its 
machinery and equipment have become outdated 
and obsolete, and the competition from 
trucking companies harsher. The CDE 
currently carries a mere 4% of the total 
cargo moving between Djibouti and Addis 
Ababa. 
 
------------------------ 
OWNERSHIP DISPUTED 
------------------------ 
 
¶6. The share of decision-making power has 
been disputed for many years. Ethiopia 
claimed that since 681 km out of the total 
781 km railroad are located within its 
borders, Ethiopia should own 90% of CDE. 
Also, some Ethiopians in positions of power 
did not see the CDE's development as a 
priority, according to Doualeh. (COMMENT: 
This is believed to be due to historical 
disputes between ethnic groups. END COMMENT) 
Following intensive debates, the GoD was 
able to convince the GoE that private 
management was the only solution to save the 
dying CDE. 
 
------------------------ 
RECENT CUTS 
------------------------ 
 
¶7. Out a total number of 2600 employees, CDE 
recently dismissed 150 Djiboutian and 718 
Ethiopian workers.  CDE also sold the 
Djiboutiville "Club des Cheminots" to GXA, a 
local insurance company, to gather money to 
compensate laid-off workers.  CDE may sell 
more of its patrimony, such as houses and 
land, if necessary.  Doualeh indicated that 
the privatization of the CDE would probably 
lead to an additional reduction of 
personnel. 
 
¶8. CDE owes several months of wages to its 
staff and a great number of unpaid bills to 
many private businesses in Djibouti, 
including oil companies.  Also, many CDE 
staff members have worked with the company 
for two or three generations and will not be 
easily dismissed. It is not known how these 
issues will play out after the railway 
contract is awarded. 
 
------------------------ 
RAILWAY RENAISSANCE 
------------------------ 
 
¶9. Six foreign companies from the US, 
Canada, South Africa, India and UAE showed 
interest in the management of the CDE. 
Only RITES from India and COMAZAR from South 
Africa were retained by CDE for the final 
selection process, Doualeh said.  COMAZAR, 
created in 1995, is a reputable private 
railway operator present in fifteen African 
countries.  RITES, a Government of India 
Enterprise, is a multi-disciplinary 
consultancy organization specializing in 
railways and other transportation sectors, 
both in India and in 13 countries worldwide. 
The winner will be selected during a board 
meeting in Addis Ababa on March 27-28, as 
indicated by Doualeh. 
 
¶10. The European Union, which has been 
holding back a 45 million Euro ($54 Million) 
grant for many years, is expected to release 
the grant to the firm that will be selected 
to take over the CDE. However, more funding 
will be needed for a complete overhaul of 
equipment and infrastructure.  Also, the EU 
recently gave one million Euros ($1.2 
Million) to CDE for the purchase of spare 
parts for the locomotives.  Thanks to this 
assistance, 6 locomotives are currently 
operational, however at least 14 locomotives 
are still needed. 
 
------------------------ 
NOW TWO PORTS 
------------------------ 
 
¶11. In addition to the Port of Djibouti, 
there is also the Port of Doraleh that 
recently opened for business. Doraleh Port 
welcomes the extension of the railroad up to 
the port and has reserved land for this 
purpose.  Doraleh Port has an oil terminal 
in operation and will add a container 
terminal and a duty-free zone, all of which 
could effectively utilize rail links between 
Ethiopia and Djibouti. It is now only a 
matter of financing.  Doualeh said that the 
CDE could take a major role in transporting 
food aid to Ethiopia once it is renovated. 
 
¶12. COMMENT. A symbiotic relationship has 
developed between Djibouti and Ethiopia. 
Despite its numerous internal problems, 
Ethiopia remains Djibouti's main economic 
partner.  And Ethiopia heavily relies upon 
Djibouti's rail and port links. Other links 
through Somalia, Sudan, and Kenya, while in 
progress or under consideration, are not as 
feasible, so Djibouti looks better each 
passing day. And with Dubai's current 
involvement in Djibouti, the future impact 
of a new railway could be extensive. END 
COMMENT.