Dubai accuses Djibouti of seizing DP World port
the Doraleh container terminal.
Djibouti argued that a new law passed in November allows the government to renegotiate long-term contracts.
"[The law] sets a legal framework allowing for the renegotiation, if necessary, of contracts already concluded dealing with the management or exploitation of strategic infrastructure," Djibouti's transport ministry said, according to AFP.
DP World has contested this ruling and started arbitration before the London Court of International Arbitration against Djibouti.
The Dubai government-owned maritime giant said that the court has already judged the original contract with the Djibouti government as "fair and reasonable".
DP World said it is seeking damages and compensation for the alleged breach in the agreement, describing the Djibouti government's actions as "oppressive and cynical".
UAE daily The National said the latest move is part of a "long campaign" by Djibouti to obtain more favourable terms for the lease.
DP World has demanded the original conditions to be reapplied and confirmed that legal action is being taken.
"This effort culminated in a final demand that the contract be renegotiated by 21 February and the termination of that contract by presidential decree on Thursday and expropriation of all of the assets of Doraleh container terminal SA," said DP World.
"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."
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DP World also argued that it had helped bring "hundreds of millions of dollars of direct and indirect benefits to Djibouti and enhanced its attractiveness as a leading investment destination in East Africa".
Djibouti is strategically placed on the East African coast, at the entrance of the Bab al-Mandab with 40 percent of the world's oil shipments passing through the Red Sea strait.
The coastal nation is also a staging post for much of the imports and exports for fast-growing East African economies such as Ethiopia.
A number of militaries have joined shipping companies in exploiting Djibouti's prime strategic location.
China operates a naval base adjacent to the Doraleh terminal, while the US, France, Italy, Spain, Saudi Arabia and Japan militaries all have facilities there.
The UAE has sought to expand its influence in East Africa with a string of concessions, including a military base in Somalia's breakaway region of Somaliland.
It has also built up its presence in neighbouring Yemen where it is allied to both the government and southern separatists.
The UAE has established military and business facilities in Yemen's southern port of Aden and the island of Socotra.