TED Case Studies

Lesotho Water Exports




          CASE NUMBER:          196 
          CASE MNEMONIC:      LESOTHO
          CASE NAME:          Lesotho Water Exports

A.   IDENTIFICATION

1.   The Issue

     Water is the only natural resource in relative abundance in
Lesotho. The Republic of South Africa (RSA) showed long standing
interest in utilizing water from the Lesotho Highlands to meet a
growing demand of water by industry.  A $5 billion joint venture
between Lesotho and RSA will build a network of dams and channels
in the remote mountains of Lesotho to funnel rainwater to the
industrial heartlands of South Africa.  The dams will trap water
which normally runs into the Orange river and out west into the
Atlantic Ocean, and instead turn it north towards Johannesburg. 
The prime objective is to turn Lesothožs only abundant natural
resource -water- into export revenues.  In addition, on the way
down, it will generate enough hydro-electricity to supply all
Lesotho's power needs and reduce its dependency.  However, the
project is likely to cause environmental damage in terms of
population dislocation, grazing land flooding, and degradation of
the site by workers and tourists.

2. Description.

     From Lesotho's lowlands in the west (1500 - 1700 m above sea
level), the land rises to the foothills in the central area and
finally to the Maluti Mountains in the east, which continue into
the Drakensberg Mountains at the border with the RSA (the west side
of the Drakensberg is in Lesotho).  This topography strongly
influences the distribution of rainfall, which amounts to 800
millimeters per year in the western part of the country and up to
1200 millimeters per year in the eastern part. Lesotho's main
watercourses flow southwest, generally feeding the Orange River and
crossing South Africa to the Atlantic Ocean.

     RSA's interests in Lesotho's Highlands waters resulted in two
water export feasibility studies in the 1950s and 60s. Both failed
because agreement could not be reached between the two governments
on payment for water exports. However, a new feasibility study was
launched. The resulting preliminary study (1979) recommended a
70cm/sec. water transfer scheme, as well as a hydropower generation
component, reflecting Lesotho's desire to replace electricity
imports with locally produced energy. The final feasibility study
(1983) concluded there were no unsolvable environmental, socio-
economic or legal difficulties. It measured the quantities of water
available for transfer, dimensioned the dams, tunnels and
hydropower facilities, and prepared cost estimates.

The Treaty

On October 24, 1986, an agreement between the two countries to
proceed with the implementation of the so-called Lesotho Highlands
Water Project (LHWP) was signed.  The "Treaty on the LHWP between
the Government of the Kingdom of Lesotho and the Government of the
Republic of South Africa" covers the rights and obligations of each
party and lays down the quantities of water to be delivered, the
cost sharing provisions, and the scope and calculation of payments
for the water.  The Treaty provides that the RSA will be
responsible for all the costs of the LHWP related to the delivery
of water to the RSA, covering the cost of implementing, operating
and maintaining the scheme. In addition, the RSA would provide loan
guarantees if required by lenders.  Thus, Lesotho has virtually no
financial obligation for the water transfer component of the
project.  The Treaty also provides that the RSA will pay Lesotho
the equivalent of $60 million (at 1983 prices) a year in water
royalties. The royalty would be a net benefit to Lesotho as the
cost of exporting the water would be paid in full by the RSA.

     The World Bank has approved a loan of $110 million in
September 1991 for Lesotho to finance the first phase of the
project. Other donors include the African Development Bank, the
European Development Fund, the European Investment Bank, the United
Nations Development Program and other multilateral financial
institutions as well as some western countries.

     There is a long standing interest of the government of Lesotho
in developing the countryžs hydro power potential. The objective is
to improve the security of energy supplies at the lowest economic
cost. Indeed, the use of local energy resources in Lesotho is
confined to traditional fuels such as dung, agricultural residues
and local vegetation. However, availability of these resources
cannot easily be expanded. The supplies of upstream water in the
highlands, on the other hand, are a large and untapped source for
power production. Therefore, the development of hydro power is the
only promising possibility for Lesotho to expand the supply of
locally available energy and reduce its energy bill. Indeed,
Lesotho is almost completely dependent on imports from South Africa
for commercial energy; about 90% of all electricity is imported.
     
     In addition, energy needs in South Africa are growing
steadily. The area around Johannesburg is expected to grow fast,
accomodating over 40 percent of South Africa's urban population by
the year 2000 and over half of its industry. The region's needs,
currently supplied by the Vaal river only, will grow accordingly.

     Therefore, the Lesotho Highlands Water Project is a
multipurpose project with the combined objective of selling water
to South Africa and generating hydro power to meet Lesotho's
electricity needs and replace imports from South Africa.

     The LHWP covers the 1990-2017 period. It consists of a water
transfer component and a hydropower component. The water transfer
component consists of a series of reservoirs, transfer tunnels,
delivery tunnels and pumping stations. The project will dam some of
the rivers flowing southwest, and turn their flow northward (see
map below). Future phases will send more water from increasingly
distant rivers into Katse's reservoir, the linchpin of the project.

     By 1997, some 18 cubic meters of water are expected to be
delivered to South Africa every second, while another dam and a
power station will generate 72 megawatts of electricity per hour.
By the final stage of the project in 2020, four dams will be built
and a network of interconnecting tunnels will deliver 82 cubic
meters of water per second.

     An additional benefit of the project lies in the associated
infrastructure building and economic growth. Indeed, the Minister
of finance and economic planning of Lesotho, Dr Moeketsi Senaoana,
has forecast a growth rate of nine percent for the coming financial
year 1995-96; he said that the expected growth was partly due to
the start of the construction of the Mwela hydropower component of
the LHWP. 

3.   Related cases.

     COLORADO Case
     ATATURK Case
     ISRAELH2 Case
     SAUDI Case
     RIOGRAND Case
     MARSH Case

     Key Words:
     (1): Domain                   = AFRICA
     (2): Bio-geography            = TEMPerate
     (3): Environmental Problem    = WATER

4.   Draft author:  Yannick Poivey

B.   LEGAL CLUSTER.

5.   Discourse and Status: AGRreement and COMPlete

6.   Forum and Status: LESOTHO and UNILATeral

     The agreement takes place between two countries (Lesotho and
South Africa) and invloves exports of one commodity from one
country to the other.

7.   Number of parties affected: 2

8.   Legal standing: Treaty

     Lesotho and South Africa are bound by a bilateral "Treaty on
the Lesotho Highland Water Project between the Government of the
Kingdom of Lesotho and the Government of the Republic of South
Africa", signed in 1986. 
C.   GEOGRAPHICAL FILTERS.
9.   Geography
     Continental domain: Africa
     Geographic site:    Southern Africa
     Geographic impact:  Lesotho
10.  Sub-national factors: YES
     A specific institution, the Lesotho Highlands Development
Authority (LHDA), was established in 1986 to handle all aspects of
the project.
11.  Habitat type:  Dry

D.   TRADE FILTERS.

12.  Type of measure:  Regulatory standard [REGSTD]

13.  Impact: DIRect

     The Treaty provides for actual exports of water from Lesotho
to South Africa.

14.  Relation to Impact
     Directly related:        YES WATER
     Indirectly related:      YES AGRICultural
     Not related:             NO
     Process:                 YES WATER

15.  Trade product identification: WAATER

16.  Economic data

     When the project is achieved by 2020, 82 cubic meters of water
will be delivered.

17.  Degree of competitive impact: HIGH

     The construction of the dam may be regarded as offensive
protection, in that it would boost the competitiveness of water
exports from Lesotho and act as a subsidy. However, no water
exports pre-existed the construction of the scheme; therefore, it
is impossible to assess any change in competitiveness due to the
project.

18.  Industry sector:  UTILity

19.  Exporters and importers: LESOTHO and South Africa [SAFR]

     Due to physical constraints and transportation costs, there is
no international market - except local and bilateral - for non-
bottled water. 

E.   ENVIRONMENTAL CLUSTERS.

20.  Environmental problem: WATER

     Environmental concerns associated with the project have been
the subject of intense studies.  The altitude and expected
temperature of the Katse reservoir make it unlikely that it will
have any major problem with water weeds or water-borne disease
vectors. No major impacts on the ecology of the Vaal river system
are expected to result from the transfer of water from the
Senqu/Orange system, since the waters of both systems originate
from the same geological base. The water transferred from the Katse
reservoir will be virtually free of chemical residues and
pathogens.  Screens will be used to prevent the passage of fish
from one system to the other.

     In addition, the two participating governments have agreed
under the treaty to take all reasonable measures to ensure that the
implementation, operation and maintenance of the project are
compatible with the protection of the existing quality of the
environment. Environmental studies carried out in 1985 during the
last stage of the feasibility study covered a wide array of issues:
(1) agricultural and land use in the project area; (2) social
structure and the rural economy; (3) conservation and cultural
heritage issues; (4) impact on water quality and fishing; (5)
effects on tourism; (6) health effects. As a result, LHDAžs
Environment Division has prepared a plan with six main components
to deal with expected environmental impacts: (1) biology, aquatic
weeds, fisheries, conservation of biological diversity, monitoring
of the effects of compensation flows on river ecology; (2) public
health, including baseline surveys monitoring and provisions for
health care of the construction work force; (3) cultural heritage
including preservation, restoration and enhancement of
paleontological, archeological, and historic resources in the
project area; (4) watershed management, including soil surveys,
water quality monitoring sedimentation studies and land reclamation
studies; (5) enviromental education for the population affected by
the project; (6) development of a geographic information system
(GIS) for the project area as a basis for watershed management and
local land use planning. Total environmental, compensation and
rural development costs were estimated in 1989 at $39 million, or
4% of total project base costs.

     Sources external to the World Bank are much more critical of
the environmental consequences of the project. According to the
Oslo-based Association for International Water and Forest Studies
(FIVAS), the project could seriously damage Lesotho's
environment. According to a FIVAS spokesman, "the logic behind
this project is to supply water for growing industry in South
Africa, not for development in Lesotho". He claimed that no
adequate surveys had been done on how the region's ecology and
climate would be affected. The organization believes that the
project would destroy the kingdom's environmental balance. The loss
of arable land would increase Lesotho's dependence on foreign food
imports; indeed, the project would cause the loss of 11,000
hectares of grazing or arable land, affecting 20,000 mostly
subsistence farmers. The diversion of the Sengu river would
accelerate erosion. 

     Other side-effects of the project might damage the
environment. Ordinary cars have now access to some of Africa's
highest mountains along the road to the main dam (more than 3,000
meters above sea level), an area previously only accessible by
four-wheel drive vehicles and tribesmen on horseback. As a
corollary, tourists are arriving in greater numbers. They might
cause damage to the local environment and particularly threaten a
site of archeological, historic and cultural significance.
     Finally, the project is already facing a serious problem of
squatter camps growing at an alarming rate. In addition to the
20,000 people working there, hundreds of job-seekers come from all
over the country in response to publicity about the project as
Lesotho's leading employment-generator. In the long-run, the
project area will be among the most densely-populated areas in
Lesotho.

21.  Species information

     The construction of the dam may endanger the survival of a
certain number of species, although measures have been taken to
ensure the preservation and protection of the natural heritage on
the site of the water project. Indeed, concern over the possible
impact of the Katse dam, especially on rare species of alpine
flora, has led the government of Lesotho to undertake special
studies in the project area in order to identify rare and
endangered species and recommend measures for their conservation.

22.  Impact and EffectL HIGH aand Structure [STRCT]

23.  Urgency and lifetime: MEDium and 100s of years

     Available water resources in Lesotho far exceed present and
future demand, and total water consumption accounted for about 2%
of available supply in 1990. So far, water not used in Lesotho is
"lost" downstream to RSA. In addition, the potential to expand
irrigated agriculture is limited because the country's topography
restricts the irrigable area to 16,000 ha. Therefore, allowing for
increased water consumption resulting from normal population growth
and additional use for industry, irrigation and domestic use,
available water resources far exceed future domestic
requirements.

24.  Substitute: Conservation [CONSV]

     Water exports are mainly devoted to domestic and industrial
needs in South Africa. Therefore, a decrease in the consumption
growth could lead South Africa to stay self-sufficient and avoid
water imports.

26.  Culture:  NO

27.  Human rights:  YES

     A major issue is the relocation of people. More than 20,000
people are likely to lose their homes or part of their property
when the dams are built. Farmers cannot be compensated with new
fields because of the intense land pressure there. The compensation
scheme involves building homes for people whose property is
destroyed and providing seedlings for lost trees. For each hectare
of land lost, people receive 1,000 kg of maize every years for 15
years. This is however insufficient for a year for a family of six,
which is the average family size in Lesotho. 

     Under a rural development plan several auxiliary projects,
such as land use planning, rural training and building feeder
roads, will be implemented. However, actual implementation has
not yet taken place.

27.  Trans-boundary issues:  YES

     The Senqu/Orange river, which originates in Lesotho, is an
international waterway which flows through the RSA and forms the
boundary between the RSA and Namibia before reaching the Atlantic
Ocean. With the implementation of the whole LWHP, about 40 percent
of the total estimated yield of the Senqu/Orange River basin would
eventually be diverted to the RSA. Therefore, a generous margin is
also left to meet future water-based developments of Namibia.

     It has to be noted that in 1983 an upsurge in guerilla
violence took place in Northern Lesotho over rivers providing water
to South Africa. At that time, Lesotho was convinced that its
neighbor wanted to control the rivers to ensure a continuing supply
of water to Transvaal province, suffering like the rest of South
Africa from a prolonged drought. Information Minister Desmond
Sixishe said in 1983: "We have known for a long time that if [South
Africans] took a foothold in that part of Lesotho, they would be
very happy because that would give them a free hand on our water".
Thus history raises concerns over the possibly conflictual
developments of Lesotho's water exports to South Africa, as the
latter probably exerted substantial pressure on its tiny neighbor
to set the project on foot.

28.  Relevant literature.

"Finance Minister forecasts 9 per cent growth rate in 1995-96". BBC
Summary of World Broadcasts, April 11, 1995.

Marius Bosch, "Lesotho, S. Africa dams tackle nature head-on".
Reuters World Service, February 8, 1995, BC cycle.

Greg McIvor, "Development: NGOs urge aid agency to drop Lesotho dam
project." Inter Press Service, March 22, 1993

Peter Reina, "Huge project is launched in a tiny mountain kingdom".
ENR, January 25, 1993, p.26-27.

Leloko Mohale, "Lesotho: massive water project brings dislocation
and poverty." Inter Press Service, September 18, 1992

"World Bank grants loan to Lesotho". Agence France Presse, July 27,
1991.

World Bank, Staff Appraisal Report, Highland Water I, 1989.

Tonic Sakaike, "Lesotho fears clash with South Africa over water".
Reuters North  European Service, October 8, 1983.



Go to Super Page 1/11/97