The government of Djibouti has seized control of a container terminal operated by United Arab Emirates-based DP World, saying that the contract between the two parties was damaging the sovereignty of Djibouti.

The government announced the nationalisation of the Doraleh Container Terminal (DCT) in Djibouti on Thursday, placing the blame for the termination of its contract with DP World - the world's fourth largest port operator - on the Dubai-owned company's refusal to "settle amicably".

A statement on behalf of President Ismail Omar Guelleh's office said the government had "decided to proceed with the unilateral termination of the concession contract ... awarded to DP World".

DP World won a 30-year concession in 2006 to operate the DCT, which opened in 2009.

The Doraleh port is particularly crucial to its landlocked-neighbour Ethiopia: more than 95 percent of the country's imports come through Djibouti, authorities say.

Despite being a tiny country, Djibouti has become a major strategic player because of its position on the Bab al-Mandeb Strait, the key shipping lane to Europe from the Gulf and Asia beyond.

Sources told Al Jazeera that the souring of relations between the two parties goes back to when Djibouti refused to allow the UAE to establish a military base on its territory.

For the UAE, Djibouti's location is ideal, along the Red Sea and close to Yemen's Aden, one of the region's most important ports.

Somaliland connection

Sources tell Al Jazeera that matters took a turn for the worse when the UAE was seen as trying to undercut Djibouti's competitiveness by offering Ethiopia to use a facility in Somaliland at attractive rates.

DP World announced in November last year it would build an economic free zone in Somaliland to capitalise on strong growth at the Port of Berbera, which was already under the company's management.

DP World signed a 30-year concession agreement to manage the Port of Berbera in May 2016.

Announcing the DCT nationalisation decision on Thursday, Djibouti's transport ministry said that it was merely implementing a law adopted in November last year that "sets a legal framework allowing for the renegotiation, if necessary, of contracts already concluded dealing with the management or exploitation of strategic infrastructure.

"In the current case, the concession contract for Doraleh container terminal contains elements that are in flagrant contravention of state sovereignty and the higher interests of the nation".

The sources told Al Jazeera there was a heated meeting in Dubai in mid-February between Emirati and Djibouti officials where Sultan Ahmed bin Sulayem, the chairman of DP World, said something to the effect that the UAE would "send Djibouti back" to the conditions in which it existed before 2005.

The threat prompted the Guelleh government to move to seize the DCT, the sources said. Al Jazeera could not independently confirm the account.

Incidentally, Abdourahman Boreh, the architect of the DCT concession, fell out with Guelleh and has been in exile in the UAE for the past 10 years.

Djibouti's account

In an official statement on Thursday, the Djibouti government announced that it "has decided to proceed with the unilateral termination with immediate effect of the concession contract awarded to DP World".

The government made this decision "in application of the law of November 8, 2017" which "aims to protect, in the context of strategic infrastructure contracts, the best interests of the nation", "especially those relating to the sovereignty of the state and the economic independence of the country", the statement said.



"It should be noted that our country has terminated its collaboration with DP World as an extension of a continuing failure to comply that this economic partner would have opposed to all its efforts to settle amicably."



The statement said it should be noted that the DCT "will now be under the authority of the Doraleh Container Terminal Management Company (SGTD)", a company in which "the state holds all the shares".

DP World, for its part, has accused Djibouti of "illegally" seizing the container terminal and said it is seeking international arbitration to protect its rights.

"The illegal seizure of the terminal is the culmination (of) the government's campaign to force the DP World to renegotiate the terms of the concession," DP World said in a statement late on Thursday.

"Those terms were found to be 'fair and reasonable' by a London Court of International Arbitration tribunal."

It said "DP World has commenced arbitration proceedings before the London Court of International Arbitration to protect their rights, or to secure damages and compensation for their breach or expropriation".

In 2014 the government of Djibouti had brought a legal challenge against DP World, accusing it of bribing the head of Djibouti's port authority and calling the overall agreement unfair.

DP World operates multiple related businesses from marine and inland terminals to maritime services across several continents.

The company was founded in 2005 by merging Dubai Ports Authority and Dubai Ports International, which had been founded in 1999.

It purchased P&O Group of the UK in 2006 for £3.9bn ($7bn), which was at the time the world's fourth largest ports operator.