Kenya faces a Sh62b fine for revocation of Suswa geothermal plant construction tender

WalAm Energy Inc has taken Kenya to the London-based International Centre for Settlement of Investment Disputes (ICSID) court, accusing Kenya of breach of contract over the 30-year lucrative deal.

In a lawsuit filed, WalAm Energy argues that the Government of Kenya erroneously pulled out of the tender award to explore for geothermal power in the Suswa fields because it allegedly did not have the capacity to carry out the exercise, allegations the firm has given a deaf ear to.

The firm, represented by Nairobi-based J Miles and Co Advocates, says it is unfair for the State to retreat from the deal, even after it awarded the tender on competitive basis.

The company has argued that the back off by the government from the deal has resulted into incurring losses for which it ought to be compensated.

On the other side, Kenya’s Attorney General Prof. Githu Muigai has contested the claims, saying WalAm Energy deceived the government to clinch the tender.

Prof Githu in his counter argument has raised questions about the firm’s country of origin, telling the court that it presented itself as a Canadian company before changing to American.

He also argues that ICSID does not have the jurisdiction over 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,” reads part of Prof Githu’s presentation.

“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of Investment disputes between States and nationals of other States, which sets up ICSID by the time the licence was revoked,” Githu adds.

The energy deal between the US firm WalAm Energy and Kenya was signed by former Energy Minister Kiraitu Murungi in 2007 under the Geothermal Resources Act of 1982.

As documented in the court petitions, the appending of signatures by the minister gave WalAm Energy exclusive rights to explore, drill, extract, produce and dispose geothermal steam and other geothermal resources in Suswa area for a period of 30 years.

Insufficient finances

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 the Longonot area.

However, in 2012, the business relationship went sour after the Energy Ministry cancelled WalAm Engergy’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.

Geothermal resources in Kenya have been under development since 1950’s and the current installed capacity stands at 573 MWe against total potential of about 10,000 MWe.

All the high temperature prospects are located within the Kenya Rift Valley where they are closely associated with Quaternary volcanoes.

National output

Olkaria geothermal field is so far the largest producing site with current installed capacity of 573 MWe from five power plants owned by Kenya Electricity Generating Company (KenGen) (463 MWe) and Orpower4 (110 MWe).

10 MWt is being utilized to heat greenhouses and fumigate soils at the Oserian flower farm. The Oserian flower farm also has 4 MWe installed for own use.

Detailed exploration has been undertaken in Suswa, Longonot, Baringo, Korosi, Paka and Silali geothermal prospects and exploration drilling is expected to commence in year 2015 in Baringo – Silali geothermal area.