Tanzania Electric Supply Company Limited v. Independent Power Tanzania Limited
ICSID · Investment (ICSID and treaty) · Tanzania · 12 Jul 2001
Why it matters
This case is a landmark ICSID award addressing the interplay between contractual obligations and investment treaty arbitration. It clarifies the standard for adjusting a reference tariff based on changes in underlying assumptions and the implied duty to act reasonably and prudently in cost incurrence. The tribunal also set a precedent on handling bribery allegations in arbitration, requiring a proper pleading and prima facie case before granting discovery.
Summary
TANESCO, a Tanzanian state-owned utility, entered into a Power Purchase Agreement (PPA) with IPTL, a joint venture between Tanzanian and Malaysian companies, for a 100 MW diesel power plant. The PPA provided for a Reference Tariff to be adjusted based on changes in underlying assumptions. Disputes arose when IPTL substituted medium-speed diesel engines for the originally specified slow-speed engines, and the parties could not agree on tariff adjustments. TANESCO served a notice of default and sought to terminate the PPA, while IPTL initiated court proceedings in Tanzania. The arbitration was conducted under ICSID rules in London. The tribunal first decided preliminary issues, holding that the PPA was valid, TANESCO was not entitled to terminate, and the tariff should be adjusted based on changes in assumptions listed in a 1995 letter. Later, TANESCO raised bribery allegations, but the tribunal dismissed them for lack of evidence. The tribunal found IPTL in breach of its implied obligation to act reasonably and prudently in incurring certain costs, leading to adjustments in the tariff. The tribunal ordered the parties to cooperate to commence commercial operations and apportioned costs equally. The award is significant for its detailed analysis of tariff adjustment mechanisms and the treatment of bribery claims in investment arbitration.
The detail
Parties: Tanzania Electric Supply Company Limited v. Independent Power Tanzania Limited
Case number: ICSID Case No. ARB/98/8
Outcome: TANESCO's claims largely dismissed; IPTL found in breach of implied obligation to act reasonably and prudently on certain costs; tariff adjusted; each party bears own costs and shares arbitration costs equally.
Applicable law: Power Purchase Agreement dated 26 May 1995, Addendum No. 1, ICSID Convention, ICSID Arbitration Rules, law of Tanzania
Issues in play: Contractual interpretation of the PPA and Addendum No. 1; implied obligations of good faith and reasonable/prudent conduct; bribery allegations under Tanzanian law.
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