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Government wins Sh60 billion geothermal energy exploration dispute

By Kamau Muthoni | July 12th 2020

The Kenyan government has won a $600 million (Sh62.1 billion) court battle against a US-based firm which had lodged a case after cancellation of a licence to explore geothermal at Suswa geothermal fields.

The dispute now unveils an untold story that WalAm Energy Inc, a firm which had sued Kenya before International Centre for Settlement of Investment Disputes (ICSID) in London for breach of contract, had no resources to carry out the massive project.

ICSID, in its judgement seen by the Sunday Standard, condemned WalAm Energy Inc to pay Sh500 million in suit costs after finding that its inability to raise money for the project for over four years gave the government no hope that it could rely on it to deliver green energy power and in time.

WalAm Energy Inc got a licence on September 5, 2007, but four years later it had done nothing in Suswa.

The Joe Smouha-led tribunal agreed with Kenya’s Attorney General’s office that the Ministry of Energy had a right to recall the licence. “In view of the long history of inability to deliver, or to establish that it could acquire financial resources to do so, Kenya’s decision to terminate the licence was not unreasonable,” the tribunal ruled on Thursday.

Energy sources

Kenya’s principle source of energy is petroleum and electricity, with wood fuel meeting the energy needs for the majority.

Wood accounts for 68 per cent of the fuel used in the country for heating and cooking while electricity is used by nine per cent of Kenyans. Others, which include solar and geothermal, account for one per cent.

In the case, the court heard that Kenya is focusing on geothermal power as climate change has made hydropower unreliable. In addition, it is a green energy source with no emission and is readily available, at 95 per cent.

WalAm Energy, in court papers, argued that the government erroneously pulled the plug on the tender award to explore for geothermal power in the Suswa fields.

The firm claimed it was it unfair for the State to have backed off from the deal as it resulted in it incurring losses for which it ought to be compensated.

But Kenya, through Attorney General office, contested the claims, saying WalAm Energy pulled the wool over the Government’s eyes to clinch the tender.

In its counter-argument, the Government raised questions about the firm’s country of origin, telling the court that it presented itself as a Canadian company before changing to American. It also argued that ICSID does not have powers to hear the case.

“Kenya’s preliminary objections raise questions about the nationality of WalAm Energy Inc, which had represented itself as a Canadian company for purposes of being granted the licence. The company later changed its position to claim it relied upon its incorporation in the United States of America as the basis for arbitration by ICSID,” the AG argued in his court papers.

The case started during AG Githu Muigai’s term. Canada had not ratified the Convention on the Settlement of Investment disputes between States and nationals of other States, which sets up ICSID by the time the licence was revoked.

The deal between WalAm Energy and Kenya was signed by the then Energy minister Kiraitu Murungi in 2007 under the Geothermal Resources Act of 1982.

According to court documents, the signature gave WalAm Energy exclusive rights to explore, drill, extract, produce and dispose geothermal steam and other geothermal resources in Suswa for 30 years. It was required to drill at least three geothermal wells which were to gauge the capacity of power which ought to be generated. The wells were to be the basis of negotiations with Kenya Power and Lighting Company (KPLC).

The tribunal noted that it could not have negotiated with KPLC as it never met deadlines it had proposed.

“Far from adhering to its own timetable, nothing of the character required for work on the ground occurred before the forfeiture. WalAm’s inability to deliver was reinforced by its failure to engage in a competent manner with KPLC,” the tribunal noted.

The move to seek private investment for geothermal exploration was mooted after the government realised it did not have enough capital to execute the undertaking.

The firm also got the Akiira Ranch concession while Africa Geothermal International Ltd was awarded the tender to prospect for resources in Longonot.

However, in 2012, the business relationship went sour after the Energy ministry cancelled WalAm Energy’s licence and repossessed the Suswa fields on account that the firm never carried out an environmental impact assessment study and an accompanying report on the same.

The Ministry of Energy had expressed its frustrations with lack of progress several times.

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