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International Law

: Indonesian Law Reporter (ILR)

The Tanzania Water Privatization Problem

By Mohamad Mova Al 'Afghani

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Guardian issued an interesting article elaborating the Dar-es-Salam Water Privatization problem:

At 11.30am on June 1 2005, three British expatriates were detained by the police in Tanzania. Cliff Stone, Michael Livermore and Roger Harrington were the senior managers at City Water, a consortium responsible for managing Dar es Salaam's water supply. After being held for several hours, the men were served with notices describing them as "undesirable immigrants" and told to leave the country.

I do not know the privatization scheme of Dar-es-Salam water service, but it appears to me that they are using a leasing scheme, where the authority retains ownership of the infrastructure (plus doing some administrative work) and the private operator runs the water treatment, extend network, and in this case, do the billing.

There is one contractual issue that I would like to highlight in this Dar-es-Salam case:

City Water repeatedly complained to the Tanzanian water ministry that its bid was based on flawed information supplied by Dawasa. According to a subsequent World Bank report, signed by the bank's then-president, Paul Wolfowitz, City Water stopped paying its monthly fee for leasing Dawasa's piping and other infrastructure in July 2004, less than a year into the contract. The company was also insisting that its operating fee be raised.
Asked by Dawasa to assess if this was justified, auditors PricewaterhouseCoopers and the British engineering consultants Howard Humphreys rejected City Water's arguments. (Biwater, for its part, directs blame at Dar es Salaam's water authority, saying that Dawasa had "barely started" big capital-works projects on which rehabilitation of the system depended.)

In infrastructure projects, it is common to assume that the local authority knows more about the condition of the installations, more than the investors. The investor then makes the bid (and calculate the prices) based on these estimates. And then, if they won the bid, the contract is concluded. What can make things worse is if the investor puts some clauses on the contract, making the authority liable for imperfect or inaccurate information they supplied to investors. In the Tanzania case above, the Govt was lucky because the PwC audit confirm that they were correct. But what if the result is otherwise?

Some lessons for government's lawyers:

Make sure the client makes proper disclosures
Find a way to get around with the clause that puts the burden of liability on the client's shoulder, for giving inaccurate information
Put a clause that the counterpart is also responsible for their own judgement, in addition to information supplied by the client
Find a win-win solution if a case on imperfect information arise, in any event, avoid the Court

Full post as published by Indonesian Law Reporter (ILR) on August 18, 2007 (boomark / email).