TANZANIA: Dubious Tanzania water privatisation increases debt

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TANZANIA:
Dubious Tanzania water privatisation increases debt

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.