DP World faces loss of Yemen port Deal.

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Yemen’s moves to scrap Dubai ports operator DP World’s contract to manage two container terminals in the strategic port of Aden have highlighted the risks big companies face in the fast-shifting Middle East political landscape.

As post-revolutionary states review deals done by previous regimes, DP World is threatened with an early exit only four years into a 30-year management deal signed under Ali Abdullah Saleh, the Yemeni president of more than three decades who stood down in February. The dispute is a blow to DP World that comes at a time of rapid change in the Middle East ports industry, where a potent combination of politics and commerce has heightened competition for business in a region central to world oil and non-oil trade.

DP World’s future in Yemen was thrown into doubt after the country’s anti-corruption body called in June for the renegotiation of the contract to operate both the Aden container terminal and the nearby Ma’alla container terminal. While the body made no allegations of corruption, it claimed the Dubai company had not fulfilled its contractual investment obligations, an allegation DP World rejected at the time as “misleading and unfounded”.

Gulf of Aden Ports Corp, the port’s authority, has begun talks with DP World to cancel the 2008 contract “amicably”, according to an unnamed Yemeni official cited by Reuters news agency late last month. Waed Abdullah Bathib, Yemen’s transport minister – who had criticised DP World this year along similar lines to the corruption commission – did not respond to a request by the Financial Times for comment. DP World also declined to comment.

The company, listed in Dubai and London, is controlled by Dubai World but operates independently of the state-owned conglomerate, which restructured $25bn in debts last year. The Aden port deal is just a small part of DP World’s expanding global portfolio, which analysts say is growing faster than the industry average.

Reports of the moves to cancel the DP World contract triggered jubilant crowds on the streets of Aden, celebrating the news as a victory for ridding the Arab world’s poorest country of part of the economic legacy of the former regime.

“The new government wants to be seen to be as proactive as possible to make changes to situations that were seen as unsatisfactory to Yemenis,” said one Yemen government official, who declined to be identified because he was not authorised to speak to the media. Aden, a historic and once-thriving port thanks to its strategic location near the entrance to the Red Sea, had fallen on harder times by the time DP World arrived. Once a storied staging post for global trade, Aden lagged behind regional rivals.

such as DP World’s home hub of Jebel Ali, as well as newer ports such as Djibouti. Hopes rose in Yemen that DP World, with its global ports expertise spanning 60 terminals across six continents, would help revive former glories, or at least halt the decline.

But Brian O’Neill, a Yemen analyst and former editor of the Yemen Observer newspaper, said the contract with DP World had failed to deliver the needed “fresh start” because the government agreed terms that were too favourable to the company.

“Like much else undertaken by the Saleh regime, this was done with a mixture of cynicism, intrigue and incompetence,” he wrote, in an article published this month on the website of the Carnegie Endowment for International Peace. Yemeni officials including Mr Bathib, the transport minister, were unhappy because – they claimed – promises under the contract to raise container traffic from 500,000 20ft-equivalent units a year in 2008 to 900,000 had faltered, with throughput dropping as low as 140,000 a year in 2011.

Officials say virtually all of Aden’s historic transshipment business has slipped away, with container traffic moving across the Bab al-Mandab strait, which joins the Red Sea to the Indian Ocean, to nearby Djibouti – another DP World-operated port. DP World has not made a public comment about these allegations and it may yet oppose any move from Yemen to strip it of the contract. .

Yemeni officials admit that a significant part of Aden port’s problems are linked to domestic instability, which came close to civil war after a popular uprising against Mr Saleh in early 2011 opened longstanding regional and tribal fissures.

The port was also hit by strikes and rising piracy in the Indian Ocean. Aden also finds itself operating in an increasingly competitive regional market, highlighted by the opening this month of a giant new port and industrial zone in Abu Dhabi, capital of the United Arab Emirates.

Kuwait has also been developing a new facility just a few kilometres from Iraq’s Grand al-Faw terminal, causing tensions between Baghdad and Kuwait City, in another sign of how ports and politics in the region mix. Back in Yemen, although officials insist the decision to end the DP World contract is final, Abu Bakr al-Qurbi, foreign minister, has launched a last round of diplomacy to see if the argument can be resolved without expelling one of the UAE’s highest profile companies.

Faced with massive post-conflict investment needs, the Yemeni government can ill-afford to antagonise a rich regional power like the UAE, which could be an important source of aid and restructuring money.