Business dispute threatening multi-million dollar solar project   

Approximately 111 kilometres southwest of Kampala, is a huge solar project, one of the largest investments in the vastly rural district of Gomba in Central Uganda. 

The project, known as Kabulasoke Solar Power Station, sits on about 280 acres of real estate, with the solar park occupying about 90 acres. 

It is an imposing investment that undeniably promises to offer new prospects in a district and the region as a whole, where majority of the population has no access to electricity. 

However, the promise, notwithstanding, the project now stands on leaky grounds, undermined by more than five years of court battles that have just refused to end.  

On various dates in 2017, Great Lakes Energy, an energy company incorporated in the Netherlands, and Xsabo Power, a local firm that operates solar and wind power, entered into different investment and ancillary agreements. 

The agreements, documents before court show, culminated into a project company that would build, develop, and maintain a 20-megawatt capacity solar photovoltaic generator facility in Kabulasoke.  

Great Lakes Energy, it had been agreed, would fund the project in return for a shareholding, while Xsabo Power, which had other shareholders, would remain the project company.  

Court documents further indicate that on various dates between 2017 and 2018, Great Lakes subsequently advanced the project loan tranches that grossed $15.15m (Shs59.2b) with a maturity date of December 2020. 

However, somewhere in 2019, Great Lakes and Xsabo developed a dispute, when the project company accused the funder of inflating the cost of the engineering and construction component to a tune of $6.45m (Shs25.5b) to defraud the project owners. 

Initially, Xsabo had asked Great Lakes to look for engineers to construct the solar power station, but it later claimed that it had discovered that Great Lakes’ beneficial owner - Humphrey Kariuki Ndegwa, a Kenyan businessman - had instructed the contractor, ImMODO Power Africa, to inflate the project cost by $6.45m as purported consultancy fees, from which he earned a secret commission of $3m (Shs12b). 

“[Great Lakes] in conjunction with its ultimate beneficial owner, Mr Kariuki, and others, conspired to defraud [Xsabo] by dishonestly inflating the true cost of the project and secretly siphoned $6.12m back to themselves or received $3m as secret commission under the guise of this consultancy,” Xsabo noted in defense of an arbitral cause that had sought to enforce a return of Great Lakes share as it had been directed by the London Court of International Arbitration. 

Great Lakes denied the claims. Indeed the London Court of International Arbitration indicated that none of the claims, particularly of fraudulent conspiracy, were made out.

Court documents further indicated that Great Lakes was also seeking orders to force Xsabo to reinstate the investment agreement, on which it had become a shareholder in the project company as well as reinstate shares that had been unfairly withdrawn.  

Great Lakes also accused Xsabo of failing to repay advanced sums to a tune of $15.15m (Shs59.2b), more than three years beyond the December 31, 2020 maturity date. 

In the ensuing legal battle, the two companies have faced off in arbitral and court proceedings, which have dragged on to the detriment of the project.     

In 2021, Great Lakes filed a claim in which it indicated that it feared that Xsabo might abuse an existing quota allocation that requires the solar project company not to draw more than $60,000 from the project account. 

The money is proceeds from power sales to Uganda Electricity Transmission Company (UETCL), which holds a 20-year power purchase agreement with Xsabo. 

However, whereas arbitration proceedings by the London Court of International Arbitration confirm Great Lakes as a 60 percent shareholder in the project and recognise agreements entered between Great Lakes and Xsabo as valid and enforceable, the Commercial Division of High Court, while acknowledging the arbitration order requiring the transfer of shares to Great Lakes as its rightful entitlement, ruled that doing so is contrary to public policy, as it fetters the discretion of Electricity Regulation Authority (ERA), a public body entrusted with licensing and approving a change of control. 

“… this court finds the following orders …. handed down on January [10], 2023 to be unenforceable for being contrary to public policy,” Justice Stephen Mubiru of the Commercial Division of the High Court, ruled in an April 24, 2023 arbitration cause that had sought to enforce two phases of awards by the London Court of International Arbitration, among which included reinstatement of Great Lakes’ shares.   

Court also took the view that because the issue regarding shares was already before the High Court and the Registrar of Companies, the order by the London Court of International Arbitration was contrary to public policy as it conflicted with local judgment on a matter, which, if decided in Great Lakes favour, would compel extension of a bitter relationship.  

In another August 18, 2023 ruling resulting from a miscellaneous cause, whereas Justice Mubiru recognised that there was an existing request for protective measures that would protect Great Lakes interests in the business, he declined to issue new extensions because that had already been catered for. 

Great Lakes had sought an extension of protective measures reasoning that because interim measures were about to expire, Xsabo would freely access funds remitted by UETCL to the project account, yet access and withdrawals had been limited to or below $60,000 for operations and service expenses. 

Great Lakes had reasoned that once the arbitral tribunal renders the final award, the interim measure of protection would lapse, thus giving Xsabo or their agents free access to funds remitted by UETCL. 

However, Justice Mubiru ruled that “it appears to me that the purpose of this application will be met given that the expression “until the final determination” of the London Court of International Arbitration … contained in the order attains a precise clarification and or elaboration. 

“The court order will, therefore, be varied, elaborated on, changed or amended to fit the initial intention … to preserve the subject matter of the dispute and ensure that it enures to the benefit of the party that succeeds in the arbitral proceedings, hence, until the arbitral award becomes enforceable as a decree of this court,” he ruled.

Whereas the project continues to generate power, it is constrained by unending court battles that continue to impact its performance.  

Asked how the legal battles have affected performance of the project, Ms Ziria Tibalwa Waako, the chief executive officer of ERA, which issued Xsabo with a license in 2015 as the project company, had not reverted as promised by press time.  

Still in court 

Early this year on February 19, Greats Lakes and Xsabo, appeared for the hearing of an arbitration cause in the Commercial Division of the High Court, resulting from the final award rendered on September 11, 2023, in the London Court of International Arbitration. 

Great Lakes is seeking orders to enforce the last phase of the arbitral awards and is also seeking leave of court to enforce awards resulting from the arbitration and judgment of the High Court. 

The Kabulasoke Solar Power stalled for over a year with the Electricity Regulatory Authority saying that whereas the license was still valid, the license holder – Xsabo – the project owners, had encountered challenges related to land acquisition and inflated compensations. 

However, the project was subsequently completed in 2019 and subsequently started supplying electricity to UETCL. 

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