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Oryx Energy Tanzania faces legal setback, ordered to pay over Sh468 billion
What you need to know:
- The financial burden that has been growing annually at an average rate of 8 percent, includes the initial claims, arbitration costs and accrued interest since 2016
Dar es Salaam. Oryx Energy Tanzania is facing a significant financial challenge after losing a prolonged legal battle against Oilcom Tanzania, with the company now required to pay Sh468 billion.
The amount includes the initial claims, arbitration costs and accrued interest since 2016. The financial burden has been growing annually at an average rate of 8 percent, compounded by commercial interest rates and inflation.
Oryx Energy is a market leader in the domestic liquefied petroleum gas (LPG) sector with over 40 percent market share in Tanzania.
However, the company now faces a substantial financial challenge following consecutive legal defeats. On May 3, 2024, the High Court of Tanzania enforced the Arbitral Tribunal's final decision from November 30, 2023, which favoured Oilcom’s claim.
This enforcement was followed by a ruling on September 12, 2024, when the Appellate Court dismissed Oryx’s appeal against the inclusion of a particular member in the Arbitral Tribunal.
A source within the company, who requested anonymity, revealed that despite the mounting challenges, Oryx is committed to resolving the dispute and continuing its investment in Tanzania.
The company, which has long been an integral player in the country’s energy sector, is exploring every possible avenue to settle the matter amicably.
This, the source said, was because left without any other tangible solution, the situation is also likely to have wider economic repercussions, considering that the company could be forced to scale back its operations, affecting more than 700 employees. Furthermore, contractors and the entire energy supply chain, particularly in the LPG sector, may also be impacted.
The impact could extend beyond the company itself, potentially affecting lending institutions, as Oryx owes substantial sums to various creditors.
Economic analyst Edward Chalo weighed in on the legal dispute, suggesting that it could paint a bad image of Tanzania’s business environment. Chalo, who has worked with the World Bank, believes the case could raise concerns among both domestic and international investors.
“It could potentially influence Oryx’s future investment decisions in Tanzania,” he said.
Legal expert Selemani Mwamba BAKARI said the case calls for improvements to Tanzania’s arbitration.
"Arbitration is still a relatively new concept within Tanzania’s legal system. It’s crucial to ensure that the process is perceived as fair and unbiased, as any hint of injustice could undermine investor confidence," Bakari said.
The bone of contention between Oryx Energy and Oilcom dates back to late 2016, when they entered into agreements for the operation of their business activities.
The companies agreed that any disputes between them would be resolved through an arbitration platform consisting of three arbitrators, with each party having the right to choose an arbitrator and one chosen by both parties to serve as the chairperson.
However, a conflict arose later when Oilcom expressed dissatisfaction with the implementation of the agreements, claiming that Oryx violated the business terms they had agreed upon.
This led the two parties to enter into the arbitration process, which ruled in favour of Oilcom.
During the arbitration process, Oryx found itself in a dispute with the former Controller and Auditor General (CAG), Prof Mussa Assad, who had been appointed as the arbitrator representing Oilcom.
Oryx discovered that Prof Assad had a previous relationship with Oilcom, having worked with the company as a business consultant in 2006, a detail they were not initially aware of.
However, Prof Assad refused to step down, stating in his response on March 16, 2022, that he had never had any direct contact with Oilcom and had only worked with the Ilala Municipality, which was the client involved in the project.
Following Prof Assad’s stance, Oryx was forced to file a case (Case No. 138 of 2022) in the High Court to contest his appointment as the arbitrator.
On October 18, 2022, the High Court delivered its decision, dismissing Oryx's case.
Dissatisfied with the High Court ruling, Oryx filed an appeal to the Court of Appeal and Oilcom raised an objection to having the appeal dismissed.
On September 12, 2024, the Court of Appeal, in a ruling delivered by a panel of three judges, led by Ferdinand Wambali, along with judges Lilian Mashaka and Benhajj Masoud, agreed with Oilcom's objection and dismissed Oryx's appeal.
