The power of Tanzania government to unilaterally change contracts

There is no question that government contracts ARE contracts. The terms of such contracts can, in the ordinary course of things, be enforced - and the Tanzanian government held liable for breach of contract.
However, things are “once in a blue moon” in the ordinary course.
Government contracts are not seemingly cast in stone since the Tanzanian government (“the government”) can change or cancel them by enacting laws and promulgating regulations—through rulemaking.
The government, led by President Dr John Magufuli, has a wide majority in parliament, and it can pursue legislative contemplations to reconsider deals entered into with certain contractors in public infrastructure programmes that involve it.
So, how can the government introduce unilateral changes to contracts by enacting legislation? The ability of foreign investors to seek compensation under bilateral (BITs) and multilateral investment agreements (MITs) or other foreign investment protection frameworks when deal terms are changed or modified is outside the purview of this fifth part of our 11-part article series on Tanzania government contracting. 

This possible window of redress would not be available to purely Tanzanian domestic individuals and entities that bid on and execute government contracts.  
A glance at Tanzania’s system of government shows that legislative power is a significant characteristic of the system.
The Parliament may pass laws “in relation to all Union Matters and in relation to all other matters concerning Mainland Tanzania,” and the House of Representatives may pass laws “in Tanzania Zanzibar over all  matters which are not Union Matters” (Art. 64 (1) and (2) of the 1977 Constitution).
 Such laws may comprise laws that change or cancel legally binding agreements, subject to any limits on legislative power imposed by the Constitution as was explicitly stated in the famous case of Rev. Christopher Mtikila v. Attorney General 1995 (TLR 31 HC).

But would an argument that a law - passed either by the Union Parliament or the Zsnzibar  House of Representatives - caused hardship on a contractor be meritorious? And: would such a law warrant the imposition by the courts of any limits upon the legislative power of the Parliament or the House Representatives? Granted, legislative power is capable of abuse; however, it is not to be hypothesised that the Parliament or the House Representatives will improperly use that power.
As highlighted above, legislative power is restricted by its jurisdiction and the basic rights and duties enshrined in the 1977 Constitution.
I believe that a statute that cancels a contract can be declared unconstitutional, not by reason of cancelling the contract, but by reason of the Parliament or the House of Representatives not having jurisdiction over the subject matter.
It should be noted that on  July 10, 2017, President Magufuli assented to the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (Unconscionable Terms Act).

The Act intensifies the control of the government over mining, oil and gas operations in Tanzania. It also requires the National Assembly to put any new agreement containing “unconscionable” terms under the microscope.

It also stipulates that the National Assembly may direct the government to renegotiate existing agreements if they are deemed to be unconscionable by the standards set out in the Unconscionable Terms Act. Section 7(1) of this Act provides that if the parties fail to reach agreement on the unconscionable terms, “such terms shall cease to have effect…and shall… be treated as having been expunged.”
Whether other terms would be substituted for the unconscionable terms remains unclear, especially if these terms would render the implementation of the government contract impracticable.      

Another point to note is that section 22 of the Tanzania Investment Act, 1997 allows the expropriation of investments - this is part of the Tanzanian State’s right to regulate internal matters, which include investment matters. Be that as it is, expropriation is subject to due process of law and payment of compensation.

However, a flagrantly negligent government contractor whose negligent actions or omissions cause harm to the economy of Tanzania may risk not being compensated. Moreover, debates linger over what amounts to “fair compensation” in the event of expropriation.  You may ask: “If a statute and a government contract are in conflict, which one prevails? The statute prevails.

Lilian Kyaruzi ([email protected]) is a legal director in Isidora & Company and an international development enthusiast. The views expressed here do not necessarily reflect those of  Isidora & Company.