Managing Director & CEO of the Geothermal Development Company Paul Ngugi before the Public Investments Committee on Commercial Affairs and Energy at Parliament buildings Nairobi on April 16, 2024.
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Sh2.4bn arbitration award haunts GDC bosses
The National Assembly has opened a full-scale inquiry into Sh2.4 billion that the Geothermal Development Company (GDC) paid to a UK firm that drilled incomplete wells in the Menengai geothermal field.
The Public Investment Committee on Commercial Affairs and Energy has summoned Attorney-General Justin Muturi to shed light on how the State handled the dispute at the London-based International Arbitration Tribunal (LCIA), which awarded $26.26 million(Sh2.4 billion at the time of the award in 2017 and Sh3.46 billion at current exchange rates) to a British energy firm, Cluff Geothermal Company.
The committee chaired by Pokot South MP David Pkosing wants Mr Muturi and Solicitor-General Kennedy Ogeto to appear next week to shed light on the controversial payments.
Mr Pkosing wants former GDC managing director Silas Simiyu, whose tenure the contract for the drilling of 20 geothermal wells in Menengai geothermal fields was awarded, the local and external lawyers who represented Kenya in the arbitration to appear before it to shed light on the payments.
The committee decided on the inquiry after the present GDC managing director Paul Ngugi revealed that the arbitral award was paid despite the company having cleared $14,551,954 (Sh1.9 billion) for the 14 wells the British energy firm drilled.
“We want to get to the bottom of this matter. At one point, you told us the GDC solely drilled the Menengai wells. Now you have told us there were private firms that did the surface drilling and you came in to complete the wells with rigs you said were slow,” said Mr Pkosing.
“How were the UK and local partners procured? We will start a full-scale inquiry starting with the Attorney-General and Solicitor-General next week. This arbitration case was a conduit to steal taxpayers’ money.”
MPs questioned why GDC contracted the services of Cluff, which Mr Ngugi confirmed had smaller rigs that could not deliver the wells.
“The arbitration to us appears to be like a kangaroo court where people cut deals to defraud the people of Kenya. You had no money to pay the contractor, he abandoned work, went to arbitration, won an award, and got paid Sh2.4 billion immediately. This entire thing appears suspect,” said Mr Pkosing.
“Where did the GDC get the billions of shillings to pay the arbitral award and not the project cost?”
Mr Ngugi told MPs that UK's Cluff Geothermal Company and its local partners-Great Rift Drilling and Ardal Risk & Support Services (K) limited-sued the GDC after decommissioning works.
The UK firm moved to LCIA, accusing GDC of breach of contract.
Mr Ngugi said the GDC in 2013 entered into a contract for the provision of drilling services for 20 geothermal wells at its Menengai geothermal field for $41,219,208 (Sh5.4 billion at current exchange rates).
Each well was to be drilled (top-holed) to a measured true vertical depth of 1,000 meters or a total true vertical depth to a minimum of 2,000 meters.
Mr Ngugi said due to financial challenges, Cluff Geothermal and its local partners abandoned works, suspended operations, and demobilised the drilling crew and equipment on June 23, 2016, and started charging stand-by charges even when his personnel demobilised from the site.
Cluff proceeded to declare a dispute and filed a notice of arbitration at the LCIA on April 15, 2017, seeking $26,264,509 in unpaid invoices for the period from March 2015 to June 2016, damages in the form of lost profits and consequential losses related to delayed payments of certain invoices.
Cluff also threatened to bring a suit against Kenya under the agreement for the promotion and protection of British investments in Kenya signed in September 1999.
Mr Ngugi said the Attorney General took over the case and entered an appearance before LCIA on behalf of GDC and appointed a co-counsel to handle the matter.
“The Solicitor General wrote a letter to the Head of Public Service Informing him of the outcome of the arbitration,” Mr Ngugi said.
“In the said letter, the office of the Attorney General & Department of Justice opined that the award was favourable to the State and GDC having knocked off over $23,000,000(Sh3billion at present exchange rates).”
Mr Ngugi said the Solicitor General in the letter further stated that the government of Kenya has incurred significant savings by defending the case fully.
On June 3, 2017, the LCIA ruled that GDC would pay the claimants the sum of $2,259,680 (Sh297.68million at present exchange rates) in respect of invoices issued for work done and a further $593,497.33 (Sh78.18million) in interest.
Former Attorney General Kihara, Solicitor General Ken Ogeto, and a British lawyer, Michael Sullivan QC represented Kenya in the London arbitration case.
