Campaigners in Tanzania have called on their government not to repay $61.5 million to the World Bank on loans for a water project which yielded ‘no positive results’.
The Dar es Salaam water supply and sanitation project, which lasted from 2003 to 2010, also included loans of $48 million from the African Development Bank and $34 million from the European Investment Bank. The loans are due to begin being repaid later this year.
A condition of the loans, as well as debt relief for Tanzania, was the privatisation of Dar es Salaam's water. City Water, a consortium which included Biwater from the UK and HP Gauff Inegnieure GmbH from Germany, began operating Dar es Salaam’s water in 2003. However, as the World Bank says, City Water “was unable to meet many of its targets and obligations from the start”. One of the reasons was because shareholders failed to invest promised equity. In May 2005, fearing that City Water was about to collapse, the Dar es Salaam water authority terminated their contract, and on 1 June the company’s three British managers were deported.
In 2007, a UN arbitration ruled that Tanzania was justified in terminating the contract, and ordered City Water to pay $5.6 million in damages. But City Water was bankrupt, so has paid nothing, and its owners, including Biwater and Gauff, had created legal structures which prevented them from being responsible. In 2008, a tribunal at the World Bank found that Tanzania had violated a trade treaty between the UK and Tanzania, but that Biwater and Gauff had not suffered any losses and damages as a result.
The project continued back under public ownership, but the World Bank’s evaluation in 2010 found that overall it had been “moderately unsatisfactory”. For example, by 2009, 70 per cent of customers were meant to have access to water 24 hours a day, but in reality only 30 per cent did.
Agenda Participation 2000 Executive Director, Moses Kulaba says, "Is it necessary for the government to repay money borrowed to implement a project with the World Bank when there are no results?" Mr Kulaba told the Tanzania Daily News that to a large extent, the project failed to improve water supply and the billing system, and both the government and World Bank should share the blame.
The World Bank loan is due to begin to be repaid on 15 November 2013, though $6.6 million has already been paid in interest and charges. Furthermore, part of the process of privatising Dar es Salaam's water was a condition of Tanzania qualifying for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. By 2005, Tanzania had qualified for $6.8 billion of debt cancellation, though this only applied to World Bank, African Development Bank and European Investment Bank loans made prior to 2003. Debt payments fell from over 20 per cent of government revenue in the 1990s to between 1 and 2 per cent from 2007 to 2011.
New lending, such as for the Dar es Salaam water project, has increased the Tanzanian government’s foreign debt again to $7.7 billion, 30 per cent of GDP. Debt payments are expected to reach 10 per cent of government revenue by the end of this decade, including payments on the water project. This is assuming the economy grows by 7 per cent a year. If growth is less, debt payments will be higher in relative terms.