Dubious Tanzania water privatisation increases debt

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Tanzania Archive 
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In Internet
PSRC (Tanz. privatisation agency)  
PSRC on DAWASA privatisation 
Globalization Challenge Initiative 

afrol News, 1 June - Privatising the Dar es Salaam Water and Sewerage Authority (DAWASA) was one of the conditions given Tanzania to receive the HIPC debt relief. Now, the government has raised a credit to fund the US$ 145 million upgrade of DAWASA, needed to sell off the company at a lower price. Concerns are the privatisation will produce higher water bills or even become another corruption trap.

The African Development Bank (ADB) yesterday sent out a release saying it had signed an agreement with Tanzanian Deputy Minister for Finance, Alhaj Adbisalaam Issa Khatibu, for a loan of approximately US$ 47 million. The loan was to partially finance the "Dar-es-Salaam water supply and sanitation project." The missing US$ 98 million are being lent from the World Bank, and - more surprisingly - from the European Investment Bank and Agence Française de Développement.

According to ADB, the "project" consists of improving "in terms of accessibility, quality, reliability and affordability [the water] services to the population." Further, the project would "contribute to poverty reduction and improve the economic and social well-being of the people of Tanzania by providing them with a better access to clean water, thereby, reducing the incidence of water borne diseases among the vulnerable groups."

The concept sounds promising, but critics don't agree that "poverty reduction" is the real aim of ADB's Dar es Salaam project. The project's aim, they hold, is merely to make it possible to find a buyer for DAWASA. The company - owned by the Tanzanian Ministry of Water - will significantly increase its value due to the new investment in infrastructure and billing. The most sceptical even fear the project only will enrich the President's family, basing their concerns on a recent privatisation scandal.

The International Monetary Fund (IMF) has insisted on privatising DAWASA for around five years, as a condition to include Tanzania in the enhanced Heavily Indebted Poor Countries (HIPC) initiative. HIPC inclusion provides Tanzania with a significant debt service relief, theoretically worth billions of dollars. The conditional structural reforms, including water supply privatisation, however often are a high price to pay.

This is not an IMF demand unique to its Tanzania policy. The Fund is promoting water supply privatisation all over the continent, often causing protests from civil society and international anti-globalisation groups. Although African state-owned water suppliers mostly are ineffective and run-down, they at least have provided many urban poors with cheap or free water. Protesters claim these international takeovers are excluding the poor from an affordable clean water supply.

The water supply and sanitation of Dar es Salaam indeed doesn't have the best of reputations. According to the DAWASA "owner" Festus Libu, Tanzanian Minister of Water, "infrastructure built in the 1970s is deteriorating rapidly." It is estimated that 50 percent of the water is lost through leakage and illegal links to the system. Libu holds DAWASA is suffering "from poor billing and revenue collection and inadequate water sources both in terms of quality and quantity."

The government agrees to the IMF cure of privatising DAWASA, as it has done with over 300 state-owned enterprises over the last years. The process of selecting a private operator for DAWASA has however been complicated. There has been one failed bidding process and a re-bid is ongoing. In the first round (in January 2000), only two bids were received by two French companies, Saur International and Vivendi. Both bids were finally rejected.

Before initiating the re-bid process, conditions had to become more favourable. According to the Ministry, privatisation of DAWASA will be "done in two stages." The first stage is to have the company leased to a private operator for 10 years. "During this stage, DAWASA will have its infrastructure rehabilitated and improved while at the same time its operations and management improved through engagement of [the] private operator." 

Loans totalling US$ 145 million are financing "the infrastructure rehabilitation and improvement" during this first stage. The winning bidder will only have to contribute with about US$ 6.5 million "to cover meters and standpipes," i.e. to secure its future invoicing. No wonder the governmental US Commercial Service has described this one of the most "significant investment opportunities" in Tanzania in its latest country report.

In the ongoing re-bid, Europe has however taken the lead. Eight companies made their submissions and three companies - from France, Germany and the UK - were determined pre-qualified bidders. This last "detail" may explain the co-financing from the European Investment Bank and Agence Française de Développement; institutions not normally engaged in Tanzania. The winning bidder is to be identified by September this year, according to schedule.

After the winning bidder has headed the ten-year process of improving DAWASA "in terms of infrastructure and management" - effectively financed by Tanzanian tax payers - the second stage will begin. According to R. Swere from the Ministry of Water, "the privatisation status of DAWASA will then change from lease to concession." It is not known whether this will require a payment to the Tanzanian state. 

While ADB maintains the main objective of its "project" is to improve the quality of the water supply and sanitation system to assure the "accessibility, quality, reliability and affordability services to the population," the Ministry clearly has identified opposite aims. The on-going strategy for DAWASA was "to reduce water leakage and unaccounted water from 50 percent to 25 percent," according to the government advertising that was to attract bidders. 

While reducing leakage would improve supply, reducing "unaccounted" tapping could imply cutting off water supply to many of the city's poor "squatters". The emphasis on improved billing - understandably interesting for a private operator - also raises concerns DAWASA may start charging for currently free services. These free services include providing water from the distribution mains at standpipes located around the city, which is used by individuals as well as water vendors. 

If Tanzanians didn't have enough reasons to fear the DAWASA privatisation, last months' scandalous privatisation of the Tanzania Electricity Supply Company (Tanesco) shocked the nation. The small South African engineering firm NET Group Solutions on 2 April beat several foreign companies to sign a lucrative contract to run Tanesco. 

During April, it turned out that NET Group Solution was "a very small firm" with inadequate capacity to handle Tanzania's national electricity grid. Then it was known that the firm's Tanzanian partner was a company owned by President Benjamin Mkapa's brother-in-law. "Most shocking was the fact that the directorship of the local firm includes primary schoolchildren," wrote the Nairobi-based 'East African' in an editorial. After the scandal was out, the government rejected a parliamentary demand to reveal the details of Tanesco's management contract. The privatisation process now continues secretly.

The dubious Tanesco deal is widely interpreted as a result of President Mkapa's desire to enrich himself and his family while serving his last presidential term. The next big parastatals to go are DAWASA and the Tanzania Railways Corporation; both processes carry a condition of including local investors at a minimum of 20 percent. Tanzanians hope they will not have to pay the maintenance of the Mkapa family for generations to come over their electricity and water bills and railway tickets.

Sources: Based on Tanzanian govt, ADB, World Bank, US govt and afrol archives

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