How bilateral investment treaties are hurting Tanzania

Dar es Salaam. Bilateral investment treaties (BITs) have continued to be a thorny problem for the government after another investor filed a civil case at the International Centre for Settlement of Investment Disputes (ICSID).

The government has confirmed it is aware of the case.
Last week, Australian company Indiana Resources won a claim worth $109.5 million (Sh260 billion) against Tanzania after breach of contract on the Ntaka Hill Nickel Project in 2018.

Hardly nine days after that case, UK real estate developer Pennyroyal Limited filed Case Number ARB/23/26 against Tanzania over a terminated lease for an island resort project in Zanzibar.

According to ICSID rules, the investor was required to submit an intention to open a case, which gives six months of discussions between the government of Tanzania and the investor and if they fail to reach an agreement, then the complainant will submit an application to officially file a case.

“It is true that the company submitted that intention last year, and on July 20, this year, they decided to file the case,” said the Solicitor General, Dr Boniphace Luhende.

“However, the discussions can continue while the case continues to be heard. Even after ending, there is still room for discussions. The compensation they claim will be known after the session of receiving the document of claims before the panel of judges, who will preside over the case. That is when the complainant will explain how the claims are, the compensation and how the BIT was breached,” he said.

The owner of Pennyroyal Limited, Mr Brian Malcolm Thomson, is demanding compensation as a result of the decision of the Zanzibar government to terminate the lease contract for 411 hectares for the Luxury Hotel construction Project in the village of Matemwe in Unguja North ‘A’ District.

In a statement quoted by the media, Mr Thomson said: “The termination of the contract did not consider the investment that had already been started by Pennyroyal in the project as recorded by ZIPA through quarterly reports, and there was construction going on.”

According to a data technology specialised company (Tatic), from 1965 to 2019, the government of Tanzania has signed 20 BITs, including those that continue to be implemented, while the Office of the Solicitor General advises improvements.

“These BITs are a matter of debate, some claim that they are not friendly to the signing countries as some sections of the BITs protect the investor of the relevant country, not only in Tanzania but also in many other countries, where BITs require the relevant country to provide information to the investor before any changes are made and provide the latter with compensation,” said Dr Luhende.

“But the investor’s intentions were good in attracting investment. It is quite possible that his cases are minor rather than the investment made. Through our experience, we have been giving advice to the Government every time we finish a case, explaining the challenges and areas for improvement, now maybe we should evaluate it,” he said.
Dr Luhende also advised pundits to conduct studies and advise the Government on measures to avoid the challenges of such treaties.
According to ICSID, the government of Tanzania has lost five cases of BITs filed by five different investors from Sweden in 1999, The Netherlands in 2001 and two British islands (UK and Northern Ireland 1994).

There are also two other pending cases of BITs between Tanzania and Canada (2013) as well as one between Tanzania and two British islands (UK and Northern Ireland 1994), making a total of four BITs from The Netherlands, Canada, England and Sweden.

Prof Francis Matambalya, an expert in international trade and investment agreements, said the challenge that causes the country to enter into such conflicts are the lack of a structure that lays the foundation for signing such treaties, corruption and involvement.

 “We need to have our own model so that when we make discussions, it helps us to have the collective stand that we want as a nation, it will help the leader to respect his/her predecessor, but the most important thing is integrity because you can have a good module, but is not implemented,” said Prof Matambalya.

An independent analyst of international trade and investment agreements, Ms Roselian Jackson advised the government to review the treaties in order to reflect changes in global investment needs.

“Those BITs are outdated, they prevent a country to make any policy reforms, many countries have already started to improve such treaties,” she said.

Ms Jackson also said the new World Investment Report 2013 advises on abandoning BITs because they have not shown the effectiveness of direct investment.

“Many countries have terminated such treaties between 2021 and 2023 because of the trend of the situation and the type of investment in the world,” she said.

 According to Pennyroyal, which was handed over the land in 2014 by the Zanzibar government, it was already in the initial stages of the construction of the hotel for sea resort tourism, but on July 25, last year, the Zanzibar Investment Promotion Authority (ZIPA) announced that it would not renew the permit for the construction.

According to ZIPA, it revoked the permit after the Minister of Lands terminated the land lease contract.