By Jon Cronin
BBC News business reporter
Tanzania says water supplies in its biggest city are deteriorating
Tanzania has pulled the plug on a British and German-run company supplying water to the country's commercial capital, Dar es Salaam.
Private utility City Water has been stripped of its 10-year contract to supply services in the country's biggest city.
Dar es Salaam's three million residents have increasingly had to cope with erratic supplies and water shortages, which have hit homes and businesses.
The government said a new company, known as Dar es Salaam Water and Sewerage Corporation, would be set up to take over the running of the city's services.
However, reports on Tuesday said City Water planned to challenge the government's decision to terminate its contract in court.
When the company was awarded the contract in 2003, there were hopes among supporters that Dar es Salaam's aging water supply network would be improved under private control.
Privatisation was a condition of Tanzania receiving debt relief from the World Bank. The East African nation is one of the world's poorest countries.
At the time, a pop song - backed by the UK Department for International Development - was used to promote the merits of water privatisation to Tanzanians.
The song's lyrics included: "Young plants need rain, businesses need investment. Our old industries are like dry crops and privatisation brings the rain."
However, Tanzania's water minister Edward Lowassa said the quality of water and sewage services had since declined, while much investment had failed to materialise.
"The water supply services in Dar es Salaam and in the neighbouring places have deteriorated rather than improved since this firm took over some two years ago," Mr Lowassa said last week.
City Water is owned by Britain's Biwater International, Gauff Ingenieure of Germany and Tanzanian investors Superdoll Trailer Manufacturers Limited.
A spokeswoman for Biwater said the company was waiting for a reply to a request for clarification from the government on its announcement that City Water's contract had been terminated.
Mr Lowassa met workers at City Water on Tuesday to discuss how the shake-up would affect their jobs.
Much of Dar es Salaam's water pipe network dates back to the 1950s.
Businesses in Dar es Salaam have struggled with poor water supplies
Under City Water's contract, the company was required to invest $8.5m (£4.6m) in the system during the first two years. Officials said only $4.1m had been invested so far.
The government's decision to ditch the company was seen by many Tanzanians as long overdue, according to the BBC's Noel Mwakugu, in Das es Salaam.
"Many people believe that it should have happened a long time ago. City Water has not been an effective company. The infrastructure is aging and the problems are not being addressed, yet services are being paid for," he said.
"Some restaurants have had to buy in truck loads of water just to maintain supplies. My landlord had to invest in a pump because the water pressure is very low."
UK campaign group World Development Movement welcomed Tanzania's decision to cancel City Water's contract.
The group's head of policy, Peter Hardstaff, called on the World Bank and the International Monetary Fund to stop their support for the privatisation of utilities in developing countries.
"This is yet another example of water privatisation failing to deliver clean water to poor communities," he said.
"Biwater's involvement in the Dar es Salaam contract is covered by the UK Export Credit Guarantee Department, so the UK taxpayer could end up footing the bill for the UK's disastrous policy of promoting water privatisation in developing countries."
A spokesman for development agency ActionAid said Tanzania's government had taken decisive action over the issue.
"We pointed out that there were problems with City Water some time ago," he said.
Biwater has operations in a number of countries in Africa, including South Africa, Nigeria and Zimbabwe.
Once a bastion of African socialism under former leader Julius Nyerere, Tanzania has in more recent years embarked on a policy of privatising major industries.
The move has proved unpopular with some Tanzanians, who argue key business roles in the country are being occupied by foreigners.