The white gold of Lesotho

Derek Griffiths says the landlocked state in southern Africa offers some lessons for Wales

Within Lesotho water is widely regarded as ‘white gold’, a description uncannily similar to a headline deployed to describe Welsh water on this site last week (here). The waters of Lesotho’s Orange river that rise in the Maluti mountains are exported to meet the demands of the industrial complex of Gauteng, comprising Pretoria, Johannesburg and Vereeniging. Gauteng is a Sesotho word for land of gold. However, the Sotho speaking people lost the yellow stuff both there and at Welkom in the Free State, that adjoins Lesotho to the west, many years ago. European settlers simply took it for nothing.

However, in recent years Lesotho has negotiated better terms for its white gold. During the 1990s I worked as a specialist construction and commercial law adviser for the Lesotho Highlands Development Authority’s water project. This delivers water to South Africa through a 105 kilometre tunnel network bored through the Maluti mountains. It is stored behind two very large dams to enhance the Vaal river water system on which the Gauteng conurbation relies. En-route the water is used to generate power at the Muela power station in Lesotho.

The project and its funding is being carried out under a treaty between Lesotho and South Africa. In broad terms the treaty provides that, with the exception of developments that exclusively benefit Lesotho, South Africa bears the costs. During Phase 1 in the 1990s, which cost about about $3.6 billion, Lesotho bore the costs of constructing the Muela power station and the soft costs of things like environmental protection, local health clinics and other socio-economic inputs related to long term benefits for the country. But South Africa paid for everything else.

In addition to bearing most of the capital and funding costs, South Africa pays Lesotho a royalty for each cubic metre of water it receives. Lesotho also benefits from the sale of electricity surplus to its needs that the Muela power station passes to the South African grid.

After a period of consultation following the completion of Phase 1, Phase 2 of the Lesotho Highlands Water Project is now under construction.  Assuming that they replicate the conditions drawn up on Phase 1, the contracts will provide that the contractors must provide training and job opportunities for people in the localities of the construction sites.  Contracts on Phase 1A , that had been let before I joined the Authority, contained some such provisions, but, following my advice, the Authority beefed them up for Phase 1B by incorporating provisions along the lines of those used to develop Cardiff Bay.

Wales and Lesotho are similar in both size and population. They also have winds in common, to which both countries are turning attention as a source of energy. Lesotho has rather more days of sunshine than we do and so is also looking at solar energy on a large scale.

Where we differ is that Lesotho is a sovereign state in its own right. Lesotho is considerably poorer than Wales in natural resources. We have farming land that a Lesotho farmer would die for as he looks on to the Free State over which his ancestors might have ranged. Lesotho does not have the sea that we have to fish and by which to generate energy by wave or tidal power. However, if it did, as a sovereign state it could freely look at ways of developing these natural resources.

Of course, Lesotho is encircled by South Africa. The larger state could have exploited without compensation the waters of the Orange river that rise in Lesotho but exits to the sea through its territory. To its credit it does not, although it did do so in 1998 to protect its investment at the Katse dam.

Wales has close links with Lesotho. At the level of non-governmental organisations there is Dolen Cymru. At political level there are exchanges between our National Assembly and its Lesotho counterpart. At diplomatic level the last Lesotho High Commissioner, Prince Seeiso Seeiso was a frequent visitor to Wales. Even allowing for the constraints of our present constitutional settlement it seems to me that we could learn a lot from our Basotho counterparts in Lesotho.

Last year I sought out the views of ‘M’e Maemili Ramataboe about funding infrastructure projects to develop our natural resources. A Mosotho, she was part of the Treasury team tasked with her counterparts in South Africa in raising funds for the massive engineering project of the Lesotho Highlands Water Project when I joined it in 1994. She left in 2001 to join Shell and BP Petroleum Refineries in Durban as Corporate Treasurer. Seven years later she left to become Principal Officer and Chief Executive of the South African Government Employee Pension Fund. It is the largest in Africa and the tenth largest in the world. She left that post to become a consultant for pension funds under the wing of the Financial Services Board and last year was sitting on the Competition Commission and Competition Tribunal Audit Committees.

At the time I sought her views the idea of Wales raising funds by borrowing bonds along the lines of Welsh Water as not-for-distributable profits structures was in the air. At the end of the exchange of e-mails Maemeli opined the idea is a good one structurally. She added that for international finance purposes what is important is the project’s credit rating based on the revenue streams. This is because the investment must make financial sense to investors. She also said that a lack of a government guarantee was no impediment because a company like Welsh Water should be recognised as a developmental initiative. A conference in Sydney on the United Nations Principles of Responsible Investing that she had recently attended showed that investor appetite for developmental projects was high on the agenda.

The requirement that there must be revenue streams is a reminder that there is nothing on this earth that can be delivered for free and the only sources of the revenue to pay for what is required to be developed is the user. The only debate is whether the revenue stream is provided by general or local taxation, whether it is hidden at the point of delivery, or charged to those who use the services be they rail or air passengers, road or energy users, or consumers of water.

Derek Griffiths is a consultant in construction law, contracts & ADR

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