Biwater Response to Outcome of ICSID Arbitration
28 July 2008

Biwater(1) is pleased that an ICSID Arbitral Tribunal(2) has upheld its claim that the Government of Tanzania broke the terms of the Bilateral Investment Treaty (BIT) between the UK and Tanzania on four separate counts.

The Tribunal found that conduct of the Government of Tanzania (including the seizure of the assets of Biwater's subsidiary City Water(3), and the deportation of City Water's staff, amongst other acts) constituted an unlawful expropriation of Biwater’s assets, a failure to provide fair and equitable treatment, unreasonable and discriminatory conduct and a failure to provide full protection and security.

Larry Magor, director of Biwater, said. “City Water was subject to repeated and blatant breaches of international law, and this is confirmed in the decision of the Tribunal.”

However, although the Tribunal awarded declaratory relief in respect of the above violations (in the form of a declaration of wrongdoing), it decided not to award damages on the technical ground that it did not consider that Biwater had proved that the violations in question caused loss, since the value of Biwater's investment in City Water had already been reduced to zero by the time they were committed.

While the award of declaratory relief is a welcome vindication of Biwater's claim against Tanzania, the Tribunal's failure to provide a remedy through a damages award is frustrating.

“The rationale is hard to fathom,” said Larry Magor. “We had invested approximately US$14m in City Water over a two year period. The Tribunal found that the Government of Tanzania violated the terms of its investment treaty with the UK on four separate counts, and yet it did not provide any effective remedy in respect of these violations."

This echoes the view taken by one of the arbitrators, Gary Born, in his separate Dissenting Opinion. Mr Born states that: "In circumstances where a State deliberately conducts itself in a manner it knows at the time to be wrongful, disregarding the basic legal rights and protections of private parties, it is at best anomalous for a tribunal to grant no affirmative relief. It is ancient law that there is no right without a remedy…while BGT(1) did not demonstrate a quantifiable monetary loss, it did demonstrate an unacceptable breach of fundamental international rights and protections. In my view, that breach demands a remedy beyond merely declaring it a violation of the relevant BIT…"

Biwater has always maintained that its investment in Tanzania was a long term one. In line with the business plan approved by the World Bank and the Tanzanian government, Biwater expected City Water to be loss making in the first few years of the investment but to become profitable as the company became more established.

It should be noted that the violations of international law were committed by Tanzania precisely at a time when Biwater’s investment in the company was at its peak, but before the company had an opportunity to begin making a profit.

In Biwater's view, the Tribunal's decision not to award damages or costs has sent an extremely negative message to the international investment community. As a result of this decision, Tanzania has in effect been permitted to violate fundamental international rights without any effective sanction. 

It is inconceivable that the Millennium Development Goals for water and sanitation can be met without the participation of the private sector. The skills and capacity simply do not exist in sufficient volume within the state and community sectors. The Tribunal's decision not to award damages is unlikely to encourage this participation.
 
“We invested in Tanzania in good faith and the failure of the contract is down to political bad will,” said Larry Magor.

The Republic produced very few documents and no witnesses from central government to the Tribunal, whilst Biwater on the other hand made all requested contemporaneous documents as well as two senior witnesses available to the Tribunal.
 
The Biwater Group has been doing business in Africa for forty years and it remains committed to the continent. It can point to a number of contracts which are delivering substantial improvements to local people and where there is a productive and harmonious relationship with the local authorities.

The real losers are the people of Dar es Salaam. Had City Water continued to operate it would now be well into the second half of its ten year contract and would be starting to deliver the kinds of benefits originally envisaged.

Instead, according to the Tanzanian press, water and sanitation provision is in a dire state after three years under public management despite the improvements made by City Water and the availability of $140m from international donors.

The Tanzanian people may also wish to reflect on the millions of dollars squandered by their government on a separate action against City Water which came to a close earlier this year. Since City Water is, for all practical purposes, defunct, has no functioning board and no assets, the action was completely pointless.

Ends

For more information contact:
Steve Marinker
Citigate Dewe Rogerson
0207 282 2841 / 07779 031 936

1. The action was brought by Biwater Gauff (Tanzania) Ltd (BGT), referred to in this statement as Biwater
2. ICSID Award ARB/05/22
3. City Water Services, the management company which operated the lease contract in Dar es Salaam, in which Biwater Gauff (Tanzania) Ltd was the majority shareholder