Tanzania cancels South African firm’s power contract

May 31, 2006

A war of words has erupted between Tanzania’s minister for energy and minerals, Dr. Ibrahim Msabaha and South African firm Net Group Solutions over Tanzania’s decision not to renew the firm’s contract for managing the Tanzania Electric Supply Company (Tanesco) “over poor performance.”

By Vision Reporter

A war of words has erupted between Tanzania’s minister for energy and minerals, Dr. Ibrahim Msabaha and South African firm Net Group Solutions over Tanzania’s decision not to renew the firm’s contract for managing the Tanzania Electric Supply Company (Tanesco) “over poor performance.”

Msabaha said Tanzania was dissatisfied with the quality of management provided by Net Group, adding that the Government was obliged to listen to the views of the public following complaints about the quality of service being offered by Tanesco.
The two-year contract expires in December.

Net Group chairman Jap du Preez, who flew into Dar es Salaam last week to respond to the minister’s allegations, said his company was considering legal action, according to this week’s The EastAfrican newspaper.

“Legally, we have a long list of issues on which we can take the Tanesco board to task. However, it is not our style,” said du Preez. 
du Preez insisted that they lost the contract because of comments made by influential people.

“Legally, the Government has only notified us that our contract will not be extended, which is their prerogative. However, the reasons given to the press and the public are contractually inaccurate and we could take legal action, but that could bar us from getting work in East Africa for a long time,” du Preez said in a statement.

Tanzania has been undergoing a serious power crisis that has led to load shedding.

Which has been partly attributed to the low water levels in the six water reservoirs used for hydropower generation.

Mr du Preez said, that to salvage Tanesco, the utility firm should be divided into three separate legal entities – generation, transmission and distribution – which must then be partially or fully privatized when the East African Power Pool starts operating, to ensure competition in the market.

Governments cannot run sensitive utilities such as Tanesco no matter how hard they try. Even super managers will fail if they do not have equally competent owners who share the same vision; that’s why one should have a change in ownership and structure, said Mr. du Preez. His comments are likely to further fuel the debate.

Independently, The EastAfrican has established that Tanesco is in the red and only an immediate injection of funds can save it.

Tanesco owes dependent Power Tanzania Ltd and Songas Tsh40 billion ($32 million). Mr du Preez has already sounded the alarm saying that the utility urgently requires $200 million between now and January next year, if it is to continue operating.

He further said that if a rescue plan were not found soon, the current financial position would completely cripple the management of the utility.

Should Net Group Solutions decide to go for international arbitration, its case will be the fourth to be filed against Tanzania in less than 10 years.

Cases taken for international arbitration include one filed by Tanesco against Independent Power Tanzania Ltd seeking to compel it to reduce the cost of building the power plant from $150 million to $90 million. The case ended in favour of Tanesco, although the cost was reduced by only $27 million.

In another case, MSI/Detecon, which owed 35 per cent as a strategic investor in the Tanzania Telecommunication Company Ltd (TTCL) went to a London court to restrain Tanzania from interfering with the 2001 agreement between the two firms.

MSI/Detecon ended up paying only $65 million out of the $120 million it had said it would invest in TTCL pending verification of its financial accounts of the firm. Biwater, owner of City Water, has also sued the government over the termination of a $102 million 10-year Dar-es-Salaam water privatization contract. The government accused City Water of failing to invest even half the required amount to the city’s water system. The matter is still pending before court.

Other contracts in dispute involve the mining industry where the government feels short-changed since it is not reaping the full benefits of the fast expanding sector, particularly gold mining.

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