TANZANIA: Water concession goes down the drain

The 10-year contract awarded to b the City Water consortium to manage the operations of Tanzania's Dar es Salaam Water and Sewerage Authority (DAWASA) was expected to herald a series of such deals across the continent. Yet the government of Tanzania has now cancelled the contract, throwing doubt on the future of water services in Dar es Salaam and on the process of offering management contracts across the continent as a whole.

As in the power sector, the stateowned utilities that had been set up in many countries following independence had largely failed to extend the provision of water and waste water services beyond the largest towns. Moreover, even existing urban water distribution infrastructure had begun to decay because of a lack of investment, while the rapidly growing, vast, informal suburbs that had grown up around most of the continent's major cities remained largely ignored by water utilities.

In response to this situation, multilaterals such as the IMF and the World Bank threw their weight behind a policy of offering operating contracts to foreign private water sector companies. Very few African countries had managed to attract interest from such firms in bidding for concessions in the past but it was now hoped that multilateral and bilateral donors would be able to provide some of the investment required for infrastructural improvement and to guarantee the concession process.

Hopes were therefore high in 2003 when the City Water consortium was awarded a contract to manage DAWASA's operations. Biwater from the UK and German engineering company Gauff were the main partners in the venture, while Tanzanian firm Superdoll Trailer Manufacturers also held a stake, as the terms on the contract required the two companies to offer equity in City Water to a local partner.

A total of $145m was provided by a number of agencies and donors, including the World Bank, the British government, Agence Franaise de Dveloppement (AFD) and the European Investment Bank, while the African Development Bank (ADB) signed a contract to provide a $47m loan plus a grant of $ 1.65m for technical assistance.

The concession covers the whole of Tanzania's Pwani (or Coast) Province, which comprises not only the estimated 4m people of Dar es Salaam but the northern coastal town of Bagamoyo and the surrounding area. However, events in Dar es Salaam were always going to prove the litmus test of City's Water's success and it seems that the government was not content with the speed of progress being made.

Announcing the government's controversial decision to revoke the contract, Edward Lowassa, the Tanzanian minister of water, said that the company had failed to comply with the terms of the contract in improving and extending the city's water distribution network.

He argued that Dar es Salaam's water services had actually declined over the course of the past two years, while government figures indicated that revenues had fallen and only $4. Im out of the $8.5m required under the contract had been invested during the two-year period. Lowassa revealed that a new company, Dar es Salaam Water and Sewerage Corporation, would be set up to replace City Water.

However, City Water claims that it has succeeded in signing up about 10,000 new customers over the past two months and has responded to the contract cancellation by indicating that it will take the government to court over the decision.

The company has questioned the accuracy of some of the figures given to it before taking up the contract and has also claimed that it is owed $3m by the government. The company's chief executive, Cliff Stone, conceded that its work was behind schedule but argued that it had attempted to renegotiate the contract with the government. Stone said: "We accept there is a serious problem but we proposed on 9 May that we put in a further $5m over the next year and borrow a further $6m. We said 'Let's talk about it' but the government announced to the press that the contract had been terminated."

It appears that the government has had a change of heart in cancelling the contract so quickly. When City Water was awarded the contract, the company acting CEO Graham Gorrod summed up the challenge perfectly. He said: "We understand the immediate need for improvements in the system, but unfortunately, the residents of Dar es Salaam and Bagamoyo will not notice a difference overnight. The problems that affect the water and sewerage systems will take a great deal of work to fix properly. A quick fix will not work. Dar es Salaam and Bagamoyo need long term, reliable and sustainable water and sewerage systems, and that is what City Water will provide over the 10-year period." It was always going to take many years to make inroads on Dar es Salaam's desperate water supply problems. Distribution networks take a long time to improve, particularly in built up urban areas and it was always going to be difficult to greatly increase the proportion of homes receiving piped water, given the ongoing process of urbanisation.

It therefore seems likely that the government was never entirely convinced by the wisdom of launching a tender, although the concession process was a prerequisite for debt relief under the Highly Indebted Poor Countries (HIPC) initiative.

Continental repercussions

The government's decision is also likely to have implications for the whole of Africa. Even before Dar es Salaam decided to cancel the contract, the anticipated wave of concessions had failed to materialise. While private water companies are well established in some countries, largely in francophone North Africa, there was little tradition of water sector privatisation elsewhere on the continent.

Concessions were planned in Lagos and in Ghana but local opposition proved fierce. At the same time, few major foreign companies believed that they could make a profit in Africa, even with donor support.

Another factor that seems to have signalled a move a way from private concessions was a switch in South Africa's attitude. While the country was never an advocate for wholesale water sector privatisation, the South African government had spent several years looking at the various options on offer.

Local authorities were permitted to select their own solutions and some concessions were offered, but a period of national soul-searching concluded that while the private sector may have a role to play in particular cases, a large-scale programme of offering concessions was unlikely.

Corning from by far the richest country in Africa, and one that has been able to compare and contrast the operations of private and public operators at close hand, this conclusion seems to have had a lasting impact on government thinking elsewhere on the continent.

Finally, the past couple of years have seen multilaterals like the World Bank firmly distance themselves from a policy of privatisation as a panacea. They now largely concede that both the public and private sectors have key roles to play in the provision of services such as water and electricity supplies, and infrastructure, such as roads and railways.

Current thinking seems to be that each sector and each case needs to be considered on its own merits. Yet the water sector will always be a case apart. While the provision of standpipes to rural villages is an attractive target for development NGOs, few donors have been prepared to invest in wastewater treatment plants or new pipes. They are just not attractive enough.

In addition, it is not a particularly profitable sector in developing countries and so private firms are loath to invest in longterm infrastructure. Moreover, as the case of DAWASA has demonstrated, even large-scale donor support cannot guarantee success. There are no easy answers but it is now time for some soulsearching.

In recent years, the IMF has urged African governments to invest any money saved through structural adjustment programmes and debt relief in two areas: schemes that will boost growth in the long term, such as transport links and the power sector; and social services such as health and education. Yet extending water and waste water services across Africa's major cities saves people time and it saves lives and so should qualify under both categories.

If the IMF cannot come up with successful, alternative funding structures for the provision of water in Africa, it should allow governments far greater scope for water sector investment in their annual budgets.