East Africa’s opportunity in energy and infrastructure disputes

East Africa’s opportunity in energy and infrastructure disputes

By Hamid Abdulkareem, Jacob Omorodion and Thomas Dauvillier 

Recent public health emergencies and regional conflicts have highlighted the need for states to develop robust core infrastructure, deepen their economic resilience, and decrease their susceptibility to external shocks. Simultaneously, governments are increasingly conscious that their investment projects must take account of environmental, social and governance (ESG) factors.

In East Africa, the region’s ongoing and potential infrastructure projects face a unique set of circumstances, which may trigger future disputes. These include, among others, competition for control over natural resources, exigencies and opportunities arising out of the climate crisis and energy transition, as well as complexities related to the Belt and Road Initiative (BRI). In navigating these issues, East Africa is positioning itself at the forefront of the energy and infrastructure discussion.

What follows is a brief overview of the webinar that discussed these topics, the intersections between them, and how they might inform future disputes involving East African energy and infrastructure.

Increased energy and infrastructure investments 

A paradox prevails in East Africa: while among the regions heralded as having the greatest economic potential, it nevertheless has experienced a shortfall in foreign investment. Multiple explanations have been suggested for this quagmire, including poor feasibility studies and inadequate regulatory support.

Nonetheless, the region is home to several large infrastructure projects, both public and private. Several of these form part of larger investment drives, such as the BRI or the United Nations initiatives, which is notably supported by the Economic Commission for Africa. Where large projects go, disputes often follow. In a recent example, Kenya prevailed in an International Centre for Settlement of Investment Disputes (ICSID) arbitration in which WalAm Energy, a United States company, alleged that Kenya had improperly terminated its exploration licence in a geothermal project. The ICSID tribunal ruled in favour of Kenya, stating that WalAm Energy’s licence had been correctly terminated because of a failure to undertake physical work over a continuous six-month period.

For companies seeking to balance their obligations under emissions cap-and-trade schemes, East Africa also offers significant investment opportunities. This can prove  to be a major economic opportunity for the region, and it could serve as one of the means to sustainably fund investment to fill the energy and infrastructure gap. As of now, only a few African states have adopted regulatory frameworks related to cap-and-trade schemes (whether related to local or international investments) this is likely to change. As these schemes evolve in the future, so will the need for companies to seek clarification about their rights and obligations under applicable regulations. This could also give rise to disputes related to the interpretation and implementation of such cap-and-trade regulations.  

Competition for control of natural resources

States may also encounter stiff competition for the control and utilization of shared natural resources. For instance, the Nile Basin Initiative (launched in 1999), which comprises ten Nile Basin countries, has generated important projects for riparian states. While 90% of Egypt’s population depends on the Nile for water, Ethiopia uses the river to produce up to 6,000MW of energy through the Grand Ethiopian Renaissance Dam (GERD). In turn, Sudan benefits from the GERD to facilitate irrigation. 

Given their vital interests in management of the Nile’s resources, it is no surprise that tensions arose between states. As uncertainty remains over the scope of rights to the Nile’s waters, future projects by other riparian states – including Rwanda, Burundi, Democratic Republic of the Congo, Tanzania, Uganda, and Eritrea – or associated companies, may generate further private and public disputes.

Developing landscape for dispute resolution 

The opportunity exists for East African arbitration centres to establish themselves as leading fora to resolve these cutting-edge disputes. The same applies to local dispute resolution professionals. East Africa has the opportunity, in this regard, to hold itself out as a leading region for legal thought on the many novel and consequential questions that will inevitably arise.

African arbitration centres are increasingly deepening their capacity, particularly in relation to disputes connected to the continent. For example, Kenya has introduced significant government and private sector reforms to create a strong arbitration regime, culminating in the establishment of the Nairobi Centre for International Arbitration (NCIA). Kenya is not alone. The Kigali International Arbitration Centre (KIAC) experienced a surge in cases managed in 2020, with parties coming from multiple
jurisdictions.

These commendable efforts demonstrate East Africa’s growing sophistication in overseeing the resolution of international disputes, particularly in issues of key concern for the region. It remains to be seen whether these new arbitration centres will compete favourably with their more traditional counterparts (e.g. the ICC International Court of Arbitration, London Court of International Arbitration, Hong Kong International Arbitration Centre or ICSID) which continue to feature prominently in the administration of disputes arising from the region. 

Attracting foreign investment, shaping the conversation

While seeking to become a magnet for foreign investment in infrastructure projects, East African states have also identified an opportunity to position themselves at the cutting edge of dispute resolution concerning key global dynamics, including the energy transition, resource nationalism, and the emergence of China as a global economic power. As associated economic activity accelerates, practitioners and experts will do well to follow legal developments in East Africa as it becomes a locus of next generation disputes and dispute resolution.  ( (ALB)

— Hamid Abdulkareem is counsel, and Jacob Omorodion and Thomas Dauvillier are associates, with Three Crowns LLP in London, Washington, DC, and Paris

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