Keeping it local – Tanzania curtails investors’ recourse to international arbitration

Published by: Kwadwo Sarkodie   at 11/12/2018

With a new law, Tanzania has rejected international arbitration and is threatening its bilateral investment treaties. Kwadwo Sarkodie of Mayer Brown considers what this means for foreign investors and for the future of international arbitration in Tanzania.

On 12 September 2018, the Tanzanian Parliament signed the Public Private Partnership (Amendment) Bill 2018 (the PPP Bill) into law. The bill includes a provision requiring foreign investors to resolve disputes exclusively through Tanzania's domestic courts, without recourse to international arbitration. This has been a cause of alarm among international investors, not least because it comes just a year after new legislation handed the Tanzanian government and judiciary greater control over mining, oil and gas operations in the country, including the right to renegotiate or remove certain terms from existing contracts.

Attorney General Adelardus Kilangi, who has headed the efforts to steer the PPP Bill through the country's National Assembly, told lawmakers during the passage of the bill that the Tanzanian judicial system was best placed to hear disputes from international investors. He further commented that the amendments were necessary to counteract the “bias” of international arbitration institutions, such as the International Centre for Settlement of Investment Disputes (ICSID) and the panels of international arbitrators who hear such disputes.

The PPP Bill comes in the wake of several high-profile arbitral awards concerning the government of Tanzania or state-owned entities. In August 2018, Tanzania Electric Supply Co (Tanesco), wholly owned by the Tanzanian government, lost an appeal against an ICSID award in a long-running case against Standard Chartered Bank and was ordered to pay USD 148 million. Tanesco is also facing a claim from United States-based Symbion Power for USD 561 million. In 2008 an ICSID tribunal ruled against Tanzania regarding a claim by Anglo-German water company Biwater Gauff, although no damages were awarded.

In 2017 Acacia Mining, a UK-headquartered gold mining company, initiated arbitral proceedings against the government, after an export ban left it unable to export any gold from its two mines in the country. The government has in turn slapped Acacia with an USD 190 billion bill for unpaid taxes and penalties. In recent weeks the dispute has escalated, with Acacia accusing Tanzania of intimidation after criminal charges were brought against several current or former Acacia employees.

How the PPP Bill will impact existing contracts remains to seen. The amendment is directed at invalidating agreements by investors for dispute resolution outside of Tanzania. However, where an existing contract contains an arbitration clause (and, as is most often the case, stipulates the substantive and procedural law of a jurisdiction other than Tanzania), it is considered unlikely that an arbitral tribunal would consider itself bound by the PPP Bill for the purposes of determining jurisdiction. An investor who was party to such a contract may well, therefore, be able to secure an arbitral award notwithstanding the terms of the bill – albeit such an award would only be enforceable outside Tanzania.

Going forward, however, investors would face the prospect of transacting with government and quasi-government entities which were legally prohibited from entering into contacts providing for international arbitration. Given concerns about conceding home court advantage, as well as the time taken for resolution (given frequent case backlogs), the prospect of all disputes being resolved by the Tanzanian courts may well serve to dissuade investors.

The bill's amendments also raise issues with regard to the raft of bilateral investment treaties (BITs) that Tanzania is party to. Tanzania currently has around 10 BITs in force, including with Canada, China, Denmark, Germany and the United Kingdom. Most BITs contain clauses that confer on investors rights to ‘fair and equitable treatment’, oblige the host state to observe its commitments to investors (an umbrella clause) and protect against the expropriation of assets. Should Tanzania or Tanzanian state-entities refuse to comply with the provisions of existing contracts – including dispute resolution clauses which provide for international arbitration – investors qualifying for BIT protection may be able to bring umbrella clause claims against the government.

It is perhaps with this in mind that in October 2018, Tanzania gave notice terminating its BIT with The Netherlands, stating that the treaty, signed in 2001, was biased against Tanzania. The termination, which becomes effective in April 2019, can be expected to allow the Tanzanian government to better pursue the aims reflected in the PPP Bill. Since the government has publicly stated its opposition to other BITs, investors will be watching closely to see if further terminations will follow (although sunset clause provisions, which BITs invariably contain, will protect already-existing rights of qualifying investors for a set period).

The recent legislative amendments are perhaps reflective of the approach that has come to define the government of Tanzanian president John Magufuli. Dubbed ‘the bulldozer’ for his uncompromising style, he has initiated a raft of populist policies since taking office in 2015.  While these may have served to impact investor sentiment, such actions reflect broader views within Tanzania that international arbitration and the ICSID dispute resolution framework are slanted against the interests of the state. 

Similar steps have been taken by the South African government, which has given notice of termination of a number of its BITs with European states as they have come up for renewal over recent years. In July 2018 South Africa’s Protection of Investment Act came into force, requiring foreign investors to submit claims to mediation, following which recourse must be sought before courts or tribunals within South Africa (therefore heavily restricting access to international arbitration).

These steps reflected concerns, similar to those aired in Tanzania, that the decisions of international tribunals could serve to impede a government's pursuit of legitimate policy objectives (as the Vattenfall v Germany dispute – arising out of the German government's decision to phase out nuclear energy – shows, such concerns are not restricted to Africa).

The developments in Tanzania contrast, however, with other countries in the region. Kenya, for instance, despite recently facing an ICSID claim of some USD 5 billion from Cortec Mining (Kenya ultimately prevailed), appears to remain committed to arbitration as a form of dispute resolution. Proposed reforms to Kenya's PPP legislation do not indicate plans to follow the Tanzanian model. Time will tell as to which approach best balances the often-competing objectives of maintaining government autonomy on one hand, and maximising attractiveness as an investment destination on the other.

Kwadwo Sarkodie is a dispute resolution partner with Mayer Brown in London