Mukumbura may be far, but Kamchatka is a lost world

Clearly he hadn’t heard of the Russian Far East, not just a long way but among the most remote places on earth and, like Hwange National Park near Victoria Falls, it hosts a wildlife paradise next to a massive deposit of coal.

Krutogorskoe on the Kamchatka Peninsula is just over 6 000 km from Moscow, similar to a flight between Harare and Mumbai on the east coast of India.

Since Czarist times, Russia has portrayed itself as part of Europe, but most of this country lies in Asia. Kamchatka juts like an arm into the Bering Sea, east of both China and Japan, selling itself as the “land of Fire and Ice,” a tourist destination for those “who’ve been everywhere”.

Fire? Some 29 active volcanoes pepper the region which is also known for earthquakes. And ice: winter temperatures of -40˚ might be the reason just 340,000 people live in an area the size of Britain. Ports freeze over and the ground is hard to work.

With such a low human presence, nature has thrived including endangered species like the tundra wolf and sea otter. A fifth of all Pacific salmon spawn in these waters, and from rare trees and grasses to finback whales off the coast, little wonder that in 1997, UNESCO proclaimed much of the peninsular a world heritage site.

Coal for the taking

Then in 2012, it looked like things might change. A viable coal deposit near the east coast had come to the attention of an Icelandic prospector, Ingo Skúlason. For a decade and beyond, a drama would play out involving Russia, India and, ultimately, Singapore where arbitration between the parties took place with an appeal due to be heard.

Skúlason knew Russia well, having lived there since shortly after the Berlin Wall came down and was chair of an NGO, the Russia-Iceland Friendship Society; the local abbreviation is ORDI.

Recent reports in the Moscow press recall how, in September 2017, Skúlason was visited by US mining consultant John L. Weiss and London barrister Stuart Isaacs KC. On landing in Moscow, Isaacs and Weiss filled in the mandatory immigration cards, penning ORDI’s street address as their place of residence during the stay.

The same newspaper describes Isaacs and Weiss as Ingo Skúlason’s “long-standing partners”; together they approached Russia’s state-owned Rosneft with an offer to buy an oil field in Kurdistan. The deal fell through when it emerged they did not have authority from the owner.

The same newspaper describes Isaacs and Weiss as Ingo Skúlason’s “long-standing partners”; together they approached Russia’s state-owned Rosneft with an offer to buy an oil field in Kurdistan. The deal fell through when it emerged they did not have authority from the owner.

Skúlason’s company, Kleros Capital, is registered in the British Virgin Islands, a tax haven near Puerto Rico in the West Indies. In the early days of Kleros, he had several mining firms on his books and had written about the growing market for coal.

Between 1970 and 2010, the population of India had doubled to 1.2bn. The state-owned power monopoly was unable to keep up and, in a democracy, 200m people without the lights on at home became an issue big enough to topple the government. Parliament changed the law, allowing Independent Power Plants or IPPs; companies with muscle and money enough to generate electricity and charge for it.

Blue-print for southern Africa

Zimbabwe and South Africa with their shortage of power have looked at this option for their state monopolies, but made little progress. India showed how easily it could be done.

The Tata Corporation, known globally for its trucks and buses, took up the challenge; Tata Power was soon the biggest IPP in the country and within a decade almost every home was wired. The result was a massive demand for coal, still one of the cheapest sources of power; universities in Delhi and Johannesburg lead the world in researching how to burn it more cleanly.

For Kleros, it seemed a perfect fit. Coal on the Kamchatka Peninsula was remote but plentiful, and close to other big users, including Japan and South Korea. And Tata Power had the millions it would take to develop a mine from scratch, even when ports freeze over and the ground is hard with ice.

In 2012, Kleros and Tata Power signed a year-long contract, agreeing not to compete with each other and, vitally, to keep their dealings confidential lest a rival company should do a deal with Moscow. A further three-year term was inked, and John Weiss checked the viability of mining the coal.

It became clear that Tata alone had the money needed to move ahead, but Kleros wanted a majority stake in the mine. The Indian company walked away.

But in a zone so far from the capital and with little industry, the Russian government pushed ahead. At the end of 2017, they put the site on auction. In a dearth of bidders, Tata bought the license for just $4m.

For those who dreamed of bringing industry to the peninsular, an environmental survey showed an Eden undisturbed: plants, animals and sea life on the Red list of species threatened with extinction. Any company digging up the earth would harm their reputation. Not to mention the volcanoes and earthquakes. Tata surrendered their rights.

In 2019, Kleros claimed that, in buying a licence no-one else wanted at the time, Tata Power had breached the agreement not to compete and robbed their would-be partner of an opportunity. For damages, they demanded $200bn.

The two decided it should be settled not in court but on neutral territory at the Singapore International Arbitration Centre or SIAC. Each would pick a panel member who, between them would choose a third. The verdict would be decided by a simple majority and could not be appealed but might be “set aside” for a fresh hearing if one of the parties could show cause. They could also challenge the award of damages.

The road to Singapore

Tata Power chose Amal K. Ganguli. Well-known at the bar in Delhi and vice-president for the Asian Society of International Law, Ganguli has authored more than two-dozen papers on arbitration and the legal process.

For Kleros it was more difficult; the cost of litigation was beyond their means and they secured funding from Omni Bridgeway, an Australian company that pays the fees in exchange for a share of the damages if their client wins. Arguably, this provides an incentive to push for a high award though there is no evidence Omni Bridgeway made such an approach.

With finance secured, Skúlason chose for the panel his former colleague, Stuart Isaacs KC who, though based in London, had worked extensively in Singapore. Ganguli and Isaacs then picked Professor Lawrence Boo, a Singaporean who had arbitrated on more than 300 cases. Accidents happen and during the process, Boo sent an email of substance to one of the lawyers working for Kleros.

Boo and Isaacs voted 2:1 against Ganguli, demanding that Tata Power pay damages of $500m to Kleros.

The case was largely ignored around the world. Krutogorskoe — site of the deposit — is hard enough to say and few could find the Kamchatka Peninsula on a map. Not so in Russia. News outlets in Moscow followed the arbitration and dug up notes on the plan in 2017 to sell the Kurdish oil field, making clear that Ingo Skúlason and barrister turned arbitrator, Stuart Isaacs had a prior close association possibly not revealed to the SIAC.

There is nothing to question the integrity of Isaacs, now 75 and still in demand. However, Russian media has indicated that Isaacs, Weiss and Skulason have been investigated before by the authorities in Moscow.

It remains to be seen if this matter will be raised in the appeal and for SIAC, renowned for its fairness and impartiality, whether the prior link between Skúlason and Isaacs, who had handed down an award in the former’s favour, is reason enough to set aside the verdict.

The SIAC has rejected Tata Power’s application once before, and it is due to be heard on appeal along with a challenge to a payout of $490m.

Coal is in high demand across the world. Poland and Bangladesh depend on it, South Africa, Botswana and Zimbabwe are major producers but there remains little interest in the Kamchatka Peninsula.

The arbitration has raised heads in Moscow but, for now, the “land of fire and ice” is safe from mining.

The greater worry may be in Singapore, famously incorruptible and trading hub of the world, a city with an economy larger than Malaysia from which it split in 1965.

Here, reputation is everything, and the government works to keep it that way. For this reason alone, nerves might to be on edge as its own court hears the appeal.