Dar es Salaam Water Distribution

cancelled

The Government of Tanzania (GOT) awarded the provision of water and sewerage services in the area of Dar es Salaam Water and Sewerage Authority (Dawasa) to City Water Services Ltd (CWS) under a 10 year lease contract in February 2003. Dawasa's service area included the city of Dar es Salaam, coastal towns of Kibaha and Bagamoyo, and settlements along the two transmission mains of Upper and Lower Ruvu. DAWASA had about 100,000 water customers and 22,000 sewerage customers. The 50-50 joint venture between British Biwater International and German Gauf Ingeniure held a 51% stake in CWS and took over the provision of services in July 2003. Later, the Super Doll Trailer Manufacturer Company became the local partner with a 49% stake. The lease contract was awarded through a competitive tender, whose bidding criterion was the lowest tariff. Although there were three prequalified bidders, only one bid was ultimately received. Prior to the deal, water produced and distributed by Dawassa was not metered and bills were established on the basis of estimations, while only about 50% of the customers paid their water bill regularly. The water transmission lines had many weak points and were liable to burst at anytime. Only about 10% of the population was served by sewerage systems. The sewerage infrastructure built in the early 1980s was at various stages of collapse. Under the contract, the Dawasa’s water supply and sewerage assets remained in government hands with Dawasa acting as the asset holding authority. CWS was to bear the commercial risk as its revenues were to come only from bills collected. CWS also became responsible for: 1. Operating and maintaining the water supply and sewerage assets and extending services to un-serviced areas. 2. Upgrading about 135,000 existing connections (87,000 active, 13,000 inactive and an estimated 35,000 illegal connections), creating 35,000 new connections, installing about 173,000 meters and laying a total of about 960 km of primary and secondary pipes with the main objective of reducing UfW as well as rehabilitating existing sewers, 15 pumping stations and nine stabilization ponds. 3. Contributing US$8.5 million to finance the working capital of the operation, inventories and operational equipment, of which US$2.5 million was to be paid at the commencement date of the lease contract; 4. Forming a Tanzanian registered operating company to identify local partners to take up a minimum of 20% but not more than 49% of its shareholding (Super Doll became that local shareholder); 5. Paying a rent to Dawasa for the assets as follows: Tanzanian shillings 50 million every month throughout the first year; Tanzanian shillings 75 million a month during the second year; and Tanzanian shillings 100 million a month from the third to the 10th year. Dawasa assumed responsibilities for: 1. Defining and executing the capital investment program including all procurement and contributing US$12.5 million, or about 10% of the cost of the construction activities from internal sources; 2. Monitoring the private operator and requesting independent financial and technical auditors to review the private operator’s performance annually. GOT was to also bear the foreign exchange risk. Energy and Water Utilities Regulatory Authority (EWURA) was to regulate the provision of water supply and sanitation services on behalf of GOT and audit the private operator in relation to its license. The consortium began providing services in August of 2003. However, CWS did not have monopoly rights over its service area. Before the contract was awarded, many private companies were already licensed to run water supply and sanitation businesses. Trucks owned by individuals and private companies were delivering clean water to city residents, while others were emptying sewerage tanks. The total capital investment program for Dawasa was expected to amount to US$164.5 million and was funded by the Word Bank (US$61.5 million IDA credit), the African Development Bank (US$48 million loan), and the European Investment Bank (US$34 million loan) along with the agreed to contributions from CWS (US$8.5 million) and the GOT (US$12.5 million). In May 2005, the Tanzanian government terminated the 10-year contract with City Water, claiming the company had made less than half the required investment (US$4.1 million out of US$8.5 million) and failed to improve services. The dispute began after the company pressed the government to review the contract, claiming that operating conditions were different from what it had expected. The government claimed, however, that there was no justification for review of the contract. Biwater was taking legal action over the cancelled water contract, seeking compensation for alledged damages. The government had formed a new firm, the state-owned Dar es Salaam Water and Sewerage Corporation, to replace CWS. None None