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The World Bank’s International Centre for the Settlement of Investment Disputes rules in favour of Tanzanian people

01 August 2008

The UK water company Biwater has failed in its bid to claim up to US$20 million in damages from the Tanzanian government following the collapse of a controversial water privatisation contract in 2005.

This case was heard at the International Centre for the Settlement of Investment Disputes (ICSID). In 2003, a subsidiary of Biwater, City Water Services, took on a water privatisation contract in Dar es Salaam. The Tanzanian government cancelled the contract after less than two years, citing City Water Services’ failure to meet the targets set in the contract. One of City Water’s parent companies, controlled by Biwater, launched this legal action alleging its investor rights had been breached and sought damages from the Tanzanian government.

The Tribunal has found that while technical breaches of Biwater’s investor rights did occur, Biwater was not entitled to compensation because the breaches were worth zero in monetary value and that the termination of the contract was inevitable.

A history of failed privatisations

For years, the World Bank has attached privatisation conditions to its grants and loans on the grounds that inefficient state-owned enterprises should be replaced by private operators. The rationale behind this is that private companies are more efficient in managing utilities, such as water or electricity, and that they should lead to enhanced provision of essential services. The case of Biwater is a clear example of how privatisation has failed to provide better and cheaper services to poor citizens in poor countries.

Biwater was awarded the licence to run Dar es Salaam's water and sewage service from 2003, following heavy pressure from the World Bank and the International Monetary Fund, which made debt relief and further loans to Tanzania contingent on the sell-off of state-run enterprises.

However, City Water soon found itself in trouble. It was collecting less revenue than the former government-owned utility, and could not meet performance targets. The company demanded its operating fee be increased, but reports by independent consultants rejected its arguments. Internal World Bank reports were also highly critical of City Water's performance. The claim also outraged anti-poverty campaigners as City Water was performing worse than the state-run utility it replaced.

"The Tanzanian water privatisation project was a scandal right from the beginning," said Vicky Cann of the World Development Movement. "It's absolutely right that this court has found that Tanzania owes Biwater nothing, but shocking that Biwater saw fit to drag the government of such a poor country through the courts in the first place.”

Externally imposed, internally rejected

With the public angered by sharply higher water prices but little improvement in supply, Tanzania unilaterally cancelled City Water's contract in May 2005.

Mussa Billegeya from the Tanzanian Association of NGOs said that "the whole process of privatising water services in Dar es Salaam was opposed by civil society here. However, under pressure from the World Bank, the government of Tanzania moved on with the privatisation. The subsequent failure of this policy and now the legal case should be a lesson to the World Bank, aid donors and governments that privatisation is not a solution for problems in developing countries. In fact, this failure has added a burden to a country that is already struggling to reach its international poverty targets on access to water."

This case provides a unique opportunity to the World Bank and bilateral donors involved in pushing privatisation in developing countries to reflect on the damage done in the past and start recognising the share of responsibility which they may have had in failed privatisations, such as the one in the Tanzanian water sector. It is not about the World Bank – or others involved in failed privatisations – blaming themselves for what went wrong. It is about learning the lesson and stop attaching privatisation conditions on the Bank’s development finance.

Key links:

World Development Movement: www.wdm.org.uk/campaigns/water/private/tanzania.htm

Food and Water Watch: www.foodandwaterwatch.org/press/releases/biwater-to-get-nothing-from-tanzania/index.html

In the press:

Tanzania Standard: http://dailynews.habarileo.co.tz/business/index.php?id=6174

The Guardian: www.guardian.co.uk/business/2008/jul/28/utilities.tanzania