- US$235m Desalination Award Exposes the Hidden Cost of Sovereign Guarantees
Ghana’s latest international arbitration loss is about far more than a desalination plant, an unpaid water bill or a disagreement over tariff adjustments. It raises a more troubling question: how many financial liabilities are quietly accumulating behind government guarantees issued to support public infrastructure projects?
According to disclosures by Spanish infrastructure group Cox, an International Chamber of Commerce tribunal has ordered Ghana Water Company Limited (GWCL) to pay US$235 million to Befesa Desalination Developments Ghana following the termination of the water purchase agreement governing the Teshie-Nungua desalination plant.
The awards, issued on September 17, 2026, also require the payment of interest from April 1 until the amount is settled. GWCL must additionally bear most of Befesa’s legal and other arbitration costs.
More significantly, the Government of Ghana was found liable under a sovereign guarantee to satisfy the amounts awarded if GWCL fails to do so, subject to the prohibition against double recovery.
That detail transforms what might have been treated as a commercial dispute involving a state-owned utility into a direct fiscal risk for the country.
The project was conceived as a response to persistent water shortages in parts of Accra. Under a 25-year agreement signed in 2011, GWCL committed to purchase the plant’s entire output to provide potable water to an estimated 500,000 residents.
The arrangement provided the private developer with long-term revenue certainty. The government’s sovereign guarantee, meanwhile, reassured lenders and investors that GWCL’s obligations would ultimately be honoured by the state.
Such guarantees can help governments attract private financing for essential infrastructure. They reduce investor risk and may allow projects to obtain financing on better terms.
But they also create obligations that do not always appear immediately in the national debt figures. The liability remains largely invisible until the state-owned entity defaults, the contract is terminated or an arbitral tribunal issues an award.
In the Teshie case, that contingent liability has crystallised into a reported US$235 million obligation, before the full effect of continuing interest and legal costs is calculated.
The award illustrates a recurring weakness in the governance of public-private partnerships: governments may celebrate the signing and commissioning of major projects while paying insufficient attention to the long-term affordability of the underlying contracts.
Tariffs, indexation and political reality
At the heart of the dispute was the tariff GWCL was required to pay for water produced by the plant.
The agreement reportedly contained fixed and variable charges and a mechanism for adjusting prices over time. Cox alleged that GWCL stopped applying the contractual indexation formula and continued paying the original rate.
Befesa argued that the adjustments should have been calculated using Ghana’s Consumer Price Index. GWCL’s alleged failure to make the required payments ultimately contributed to Befesa terminating the agreement in 2025.
This points to a fundamental tension within many infrastructure contracts.
Private investors expect tariffs to reflect inflation, exchange-rate movements, financing costs and operational risks. Public utilities, however, often operate under political and regulatory pressure to keep consumer prices affordable.
When governments sign contracts containing automatic price adjustments but later resist the financial consequences, the dispute is merely postponed. The immediate political cost of higher tariffs may be avoided, but the eventual cost can reappear as accumulated arrears, interest, legal fees and arbitration awards.
The lesson is not that every contractual tariff should automatically be passed on to consumers. It is that the state must establish, before signing, whether the public utility can realistically meet the obligation over the life of the agreement.
If the tariff is commercially necessary but socially unaffordable, the subsidy must be transparent and budgeted. It should not be hidden through non-payment.
The outcome should not be simplified into a claim that every concern raised by Ghana about the plant was rejected.
Cox said counterclaims against Befesa, including a US$144.5 million claim, were substantially dismissed. However, Global Arbitration Review reported that GWCL was expressly left free to pursue a separate claim concerning repairs, following a finding that a condition survey of the plant was not properly conducted.
The tribunal’s reported award establishes financial liability under the terminated agreement and sovereign guarantee. It does not necessarily amount to a finding that the facility operated without technical problems or that every aspect of the private operator’s performance was satisfactory.
Indeed, the plant was shut down on several occasions, with GWCL referring to longstanding technical and contractual difficulties.
A serious national review must therefore examine both sides of the transaction: why payment obligations were not met and whether the state adequately documented and pursued concerns about the plant’s condition and performance.
If technical deficiencies existed, were they formally recorded? Were contractual remedies activated promptly? Were independent inspections undertaken? Did the state preserve the evidence needed to support its counterclaims?
Governments often weaken their position in arbitration not only by breaching agreements, but also through poor record-keeping, delayed action and fragmented coordination among ministries, utilities and legal advisers.
Befesa and Standard Bank reportedly commenced the arbitrations in October 2024, initially seeking more than US$355 million in defaulted payments.
The US$235 million award is therefore below the amount originally sought. This matters when assessing the outcome. It suggests that the tribunal did not simply accept every element of the claim presented by the investors.
Nevertheless, a US$235 million liability remains substantial for a country managing competing demands for debt service, health, education, infrastructure and essential public services.
The ultimate cost may also rise because interest continues to accrue until payment. Delayed settlement could therefore turn an already significant award into a larger burden.
The government must now determine whether it is commercially wiser to negotiate a settlement, pursue any available challenge or resist enforcement. That decision should be based on a realistic assessment of the legal position—not a politically attractive promise to fight indefinitely.
Attempts to delay payment can be expensive where the grounds for challenging an award are narrow. They may also expose state assets abroad to enforcement proceedings and damage Ghana’s credibility with lenders and infrastructure investors.
The immediate response should go beyond identifying who signed the contract or assigning partisan blame.
Ghana needs a comprehensive audit of sovereign guarantees and long-term purchase commitments involving state-owned enterprises. Parliament and the public should know the total potential exposure, the institutions involved, the circumstances under which each guarantee may be called and whether funds have been provisioned to meet those obligations.
Major contracts should also be subjected to stronger affordability tests, independent technical scrutiny and continuous monitoring after execution.
The central question is not whether Ghana should partner private investors. The country needs private capital to close its infrastructure gap.
The real question is whether the state possesses the institutional discipline to negotiate complex contracts, monitor performance, honour sustainable obligations and enforce its rights when private partners fail.
The Teshie-Nungua award is a warning that sovereign guarantees are not ceremonial assurances placed at the end of contracts. They are promises ultimately backed by taxpayers.
When those promises are poorly evaluated, weakly managed or politically ignored, the cost eventually moves from the fine print of an agreement to the public balance sheet.
