DOE vs.

Geo Construct

PARTIES:
▪ Department of Energy (DOE)
▪ GeoConstruct, Inc. - an American geothermal development company which is a worldwide
industry leader in the exploration and development of geothermal energy resources, dam
project and alternative energy sources.

PCCI - Philippine Chamber of Commerce and Industry

PDRCI – Philippine Dispute Resolution Center, Inc.
CIAC - Construction Industry Arbitration Commission

The FACTS:

• In January 2015 - parties entered into a Geothermal Service Contract and Construction
(GSCC)

Under the GSC, GeoConstruct was granted a non-exclusive contract to construct a

geothermal energy and Dam project in Western Visayas.

AS PER GSCC PROVISIONS:

(a) in the event the plant has been successfully cofacility constructed and operated, the net
revenue generated from plant operations shall be shared by the government and Geotherm
on a 60-40 basis (i.e., with the government to have a 60% share).

(b) GeoConstruct was to be issued a Non-Exclusive Geothermal Exploration Permit valid

for a period of 6 months

Purpose of permit: To conduct a geological exploration studies to delineate and identify

potential geothermal resources.

(c) if no commercially viable geothermal resources were identified within that period, DOE
can unilaterally terminate or rescind the GSCC by sending written notice to GeoConstruct
without any liability whatsoever to the government.

ARBITRATION CLAUSE OF GSCC:

“Any dispute or disagreement arising out of or in relation to the GSC which may
subsequently arise between the Government of the Republic of the Philippines (as
represented herein by the Department of Energy [DOE]) and GeoConstruct shall be
submitted to final and binding arbitration pursuant to the Arbitration Rules of the
Philippine Chamber of Commerce and Industry (PCCI) before a panel of 3 arbitrators
created in accordance with the said rules. Each party shall have the right to appoint one
arbitrator, and the two arbitrators thus chosen shall appoint the third arbitrator, who shall
 serve as the chairman of the Tribunal. Both parties shall equally share the arbitration costs
and expenses. The place of arbitration shall be the Philippines and Philippine law shall be the
substantive law.”

• One week before the 6-month deadline: GeoConstruct submitted a Technical Report to the
DOE indicating that on the basis of the three generally-accepted criteria for determining
commercial viability of a potential geothermal viability site --- which are

(i) quantum of energy (temperature and flow rate);

(ii) cost of production, including exploration and development drilling and

construction of transmission grid for geothermal energy; and

(iii) proximity to markets --- it believed that the Western Visayas site was
commercially viable.

Accordingly, it requested permission, pursuant to the GSC, to commence actual drilling,

exploration and subsequent construction of the geothermal plant facilities.

• Upon examination of the Technical Report, and based upon the professional opinion of a
foreign geothermal energy expert that it hired to review GeoConstruct’s Technical Report:

the DOE indicated that it did not believe that the site was commercially viable.

• Consequently, the DOE cancelled the GSC and informed GeoConstruct accordingly.

• GeoConstruct vehemently disagreed with DOE’s decision and accused DOE of acting in bad
faith stating: that the real reason for the cancellation of the contract was that GSC
found a new foreign partner to whom it wanted to issue the contract on more
favorable terms.

GeoConstruct also stated that:

❖ it had already spent a significant amount in conducting the

preliminary studies and,
❖ it had already committed personnel, machinery, construction and
equipment to the project based on its expectation that the project
would go through smoothly.

It cited its earlier application documents where it stated that it planned

to spend approximately US$ 1 million for surface exploration, US$15
million for drilling, and a further $450 million for constructing the
geothermal energy plant and dam.

As the negotiations for a peaceful settlement of the problem proved fruitless,

• October 1, 2015 - GeoConstruct filed a notice of arbitration with the PCCI

• The PCCI then immediately forwarded the notice to PDRCI,
and sent a letter to the parties saying that:

the PCCI does not itself arbitrate disputes as it is a business organization and
not an arbitral institution, but has referred the notice to PDRCI as its
designated arbitration arm pursuant to a formal PCCI resolution issues
sometime in the early 2000s.

Although this was not disclosed in the letter, it appears that many years ago, one of the
PCCI’s committees was the Committee on Arbitration, which was tasked to resolve
business disputes among its members, and those referred to it by the business community.

However, the members of this committee had later formed PDRCI in 1996, as a result
of which the committee was dissolved, the arbitration activities spun off to PDRCI, and the
latter designated as PCCI’s arbitration arm.

It also appears that several of Geotherm’s local executives used to attend PCCI’s road
shows in the 1990s, and PCCI often mentioned at the time that one of the services it offered
was arbitration through its Committee on Arbitration.

• Thereafter, PDRCI (after GeoConstruct had paid its provisional advances on costs) invited
GeoConstruct to appoint its party-appointed arbitrator and likewise invited the DOE to
submit its response to the notice, with a similar invitation for DOE to appoint its own
arbitrator.

➢ Geotherm: appointed a highly experienced geological engineer with over 3 decades’

worth of experience in the geothermal industry as its party-appointed arbitrator.

➢ DOE (through its counsel, the Office of the Solicitor General (OSG)): sent a formal
response to PDRCI declining to arbitrate and appoint its own arbitrator on the
ground that PDRCI has no jurisdiction over the issue.

That under the rules, it should be the Construction Industry Arbitration

Commission (CIAC) which should have jurisdiction;

• PDRCI then communicated with DOE stating that in light of the PCCI letter, there was
a prima facie basis to consider PDRCI as having jurisdiction, subject to the Tribunal’s
final determination of jurisdiction after appropriate proceedings.

Accordingly, in the light of DOE’s refusal to appoint its arbitrator, PDRCI then appointed a
highly experienced PDRC lawyer-arbitrator to be DOE’s a party-appointed arbitrator.
The two arbitrators subsequently appointed an expert arbitrator as the chair of the Tribunal.