Legal action confirmed in cancelled Tanzanian water project

26 May 2005, source edie newsroom

British water company Biwater has confirmed it is taking legal action over a cancelled water contract in Tanzania. Part of the case could be heard in British courts due to the insurance policy the company holds with the ECGD. As exclusively reported in edie news last week, (see related story), Tanzania has terminated a ten-year water utility contract with City Water Services Limited - a joint venture of Biwater International and German firm Gauff Ingenieure - after complaints that the water supply had got worse, not better, since the contract was awarded.

The Tanzanian Government said that City Water, formed as part of the privatisation programme which was a pre-condition for Tanzania qualifying for the Highly Indebted Poor Country Initiative of the World Bank and the IMF, was not living up to its side of the deal and had failed to install new pipework or make necessary investments.

The government claim that City Water should have invested US$8.5 million over the first two years, but in fact only US$4.1 million had been forthcoming.

City Water's Chief Executive, Cliff Stone has said the firm offered to invest a further US$5 million over the next year, but the government terminated the contract, in a statement to the press rather than to the company, anyway.

City Water are also claiming breach of contract, saying it has a ten year deal which has been unfairly broken. The company does acknowledge that the works are behind schedule, however.

Biwater's involvement with the project is backed by an ECGD Overseas Investment Insurance scheme. The US$4.335 million policy will protect against "risks of expropriation, war and restrictions on remittances."

Any case in relation to that policy would likely be heard in a British court.

A spokesperson for the World Development Movement told edie that the Tanzanian government would have to pretty sure of its case to act in the manner in which it has. The spokesperson said that international consultants Price Waterhouse Coopers, who advised on the original privatisation of the water services, had been called in for advice before the government made its decision to terminate the contract.

A senior source at another international water firm said the case was indicative of significant changes in the international water industry. He said the traditional lease models do not seem to be working as they are too restrictive and each country looking for privatised water services needed to be assessed case by case.

The source, who did not want to be named, told edie that all companies were now retrenching their assets as privatised services were proving too much of a hot potato.

By David Hopkins