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The Lesotho Highland Water Development Project - What Went Wrong?
(Or, rather: What went Right? For Whom?)

by Nicholas Hildyard

first published 10 July 2002

Summary

In July 2000, 19 corporations and individuals were being prosecuted in the Lesotho courts, accused of bribing a top official in the Lesotho Highlands Water Project (a scheme intended to divert water from Lesotho to South Africa). This presentation to a Chatham House Conference in London on "Corruption in Southern Africa -- Sources and Solutions" looks at those who have benefited institutionally and financially from the project so as to consider the daily institutional practices that actively encourage the flouting of guidelines and anti-corruption regulations. It sheds light on the institutionalised racism that assumes the Third World to be inherently corrupt and corruptible, a view that underwrites bribery.

Contents

Introduction

I have been asked to discuss the charges currently being prosecuted in the Lesotho courts against 19 corporate and individuals accused of bribing a top official in the Lesotho Highlands Water Project in order to gain project contracts. My allotted task is to explore the question: "What went wrong?"

I want to turn this question around. Instead of asking "What went wrong?" I would like to ask, "What went right? For whom?" I want to do so because I would like you to consider the possibility that what went most "wrong" - and continues to go most "wrong" - from the perspective of project affected people, human rights groups, environmentalists and a range of other civil society groups concerned with accountability, transparency, equity and sustainable development is precisely what went most "right" from the perspective of those who have benefited institutionally and financially from the project.

Taking this approach may, I hope, challenge us to reconsider some widely held explanations of corruption and "development failure", whether in Southern Africa or elsewhere, and to look afresh at proposed solutions. It may encourage us, for example, to focus less on the perceived "lack of political will" to tackle corruption and more on those vested interests that daily generate immense political will to block investigations when they are initiated and to undermine anti-corruption drives. It may encourage us to look not only at how regulations could be improved but also at the daily institutional practices that actively encourage the flouting of existing development guidelines and anti-corruption regulations. Or again, to look not only at ways of opening up decision-making to public participation and scrutiny but also at the institutionalized racism that assumes the Third World to be inherently corrupt and corruptible and which thereby underwrites bribery even where nominally accountable procedures are in place.

I will return to these points later. First, I would like to look at some specific examples of how "what-went-wrong-for-civil-society-went-right-for-corporations" - and how this phenomenon may actively have laid the ground for corrupt practices. I leave it to the courts to decide whether or not such corruption took place as alleged. My concern here is to examine how the actions (and inactions) of the public institutions involved may have aided and abetted bribe giving, regardless of whether or not any bribery actually occurred.

What-Went-Wrong-Went-Right 1: Sanctions busting

From its outset, the Lesotho Highlands Water Project was founded on rule breaking. The project, which is intended to divert water from Lesotho to South Africa, was first conceived during the Apartheid era when South Africa was subject to international sanctions. To avoid the difficulties of international financiers openly aiding the then-apartheid regime, the project's financial advisers -- Chartered WestLB -- set up a London-based trust fund through which payments could be laundered. It was an arrangement which, to say the least, was of borderline legality - yet it was sanctioned at the highest international level, not least through the Directors of the World Bank (who collectively represent the bulk of the world's governments). From a civil society perspective, this was the first thing to "go wrong" with the project. For the companies and bureaucracies, however, it was the first thing to go "right". Indeed, the project could not have proceeded without such sanction busting.

Rule breaking on this scale is hardly conducive to encouraging good project governance. Moreover, it did not stop there. Throughout the project cycle, numerous World Bank guidelines - intended to ensure that the project is implemented without adverse effects on the environment and on people - have been flouted; the project was approved on the basis of a deeply flawed and inadequate environmental impact assessment, striking construction workers have been shot, and project-affected peoples moved without proper compensation. The World Bank - one of the project's principal players - has done little to ensure compliance. On the contrary, it has dodged and ducked its critics, even maintaining the convenient fiction that Lesotho is the borrower for the project (despite South Africa in fact responsible being for repaying the loans) where this has proved useful in evading its responsibilities. In 1998, for example, residents of a local township filed a claim with the World Bank's Inspection Panel, pointing out that as the project effectively ignores demand side management in South Africa, it is in breach of World Bank rules for water projects. In response, the Bank stated: "As important as demand side management in the water sector is, there is no specific reference in the project to such measures, nor is there a legal requirement in the loan for RSA [Republic of South Africa] to implement such policies, since this is a loan to [Lesotho-based] LHDA."

Again, it is doubtful if the project would have got the go ahead had the Bank's guidelines been properly enforced. What went wrong once again went right.

What-Went-Wrong-Went-Right 2: The "good ole boys" syndrome

Funding for the project has come from the World Bank; the European Investment Bank; the German, British and French bilateral aid agencies; the UK Commonwealth Development Corporation; commercial banks including Banque Nationale de Paris, Dresdner and Hill Samuel; and a number of export credit agencies (including Germany's Hermes, France's COFACE, South Afrikaans's SACCE and Britain's ECGD). The ECGD's support amounted to £66 million and went in loan guarantees five UK companies: Balfour Beatty, Kier, Stirling, Kvaerner Boving and ABB Generation's UK subsidiary.

Not one of these agencies however ever vetted the corruption records of the companies bidding for contracts. Even today, there is no binding requirement for any of them to undertake such a vetting process of the companies they award contact to. Yet, most of the companies now in the dock in Lesotho - charged with passing some £2 million in bribes to a key official in order to win the contracts for the project - are no strangers to allegations of corruption. Spie Batignoles and Sogreah, for example, were involved in Kenya's Turkwell Gorge Dam which, because of bribes reportedly paid to Kenya's president and energy minister, cost more than twice what the European Commission said it should have cost.

Impreglio, Dumez and Lahmeyer were three of the principle firms involved in the Yacyreta Dam in Argentina and Paraguay, which Argentina's President Carlos Menem called "a monument to corruption".

Lahmeyer and Impregilio also had contracts on Guatemala's Chixoy Dam. Various sources estimate that between $350 and $500 million were lost to corruption on this project.

ABB and Dumez worked on the Itaipu Dam on Brazil/Paraguay border. The dam was originally projected to cost $3.4 billion, but the final cost cam to around $20 billion. Numerous corruption allegations surround the project.

As for Balfour Beatty, it was banned in 1996 from bidding for contracts in Singapore following allegation (denied by the company) of corruption. It was also involved in the Pergau dam in Malaysia. Here an article in yesterday's Observer is particularly pertinent. The author, Gregory Palast, quotes barrister Jeremy Carver, an advisor to Transparency International. Carver reportedly told Palast: "I went to a DTI reception. I was introduced to someone who identified himself as the chairman of a company and we were talking about corruption. He announced with great pride that he personally handed over the cheque to the government minister for the Pergau dam 'bribe' in Malaysia." Identifying Carver's interlocutor as "the chairman of Balfour Beatty", Palast continues: "The corporate honcho was not confessing, but boasting about the payment which he may have considered not a bribe but just the cost of doing business Malaysian-style."

Balfour Beatty is part of the Lesotho Highland Project Contractors consortium. In March 1991, according to Swiss bank records which form the basis of the prosecution's case, the consortium allegedly paid 585,000 pounds via an intermediary into a Swiss bank account controlled by a Lesothan official. Only one month earlier a building contract was signed, worth one hundred and thirty five million pounds.

In March 1994 the consortium allegedly paid another two hundred thousand pounds to the official's account. Two weeks later, they signed the contract to build another dam, worth forty one million pounds.

Altogether this consortium alone allegedly handed over a million pounds in bribes.

Yet even when this evidence was set out in the charge sheets against the companies, many of the funding agencies which supported them appear to have taken no steps to scrutinize the allegations. In the case of the UK Export Credits Guarantee Department, for example, the agency at first denied that Balfour Beatty, one of the companies it supported, was being prosecuted (a position it justifies on the grounds that although the charges had been filed, the case has still to come to court); it has made no inquiries to the chief prosecutor in Lesotho; and its own inquiries appear to have ended when assured by the company that no wrong doing took place. Meanwhile, demands from non-governmental organizations that the company be suspended from applying for other credits pending further investigations (it is currently seeking one for the equally controversial Ilisu Dam) have been resolutely rebuffed.

Yet again, what went wrong from a civil society perspective - the total absence of any good governance mechanisms requiring the vetting of contractors or mandatory investigations where allegations have been made of a company - went right for the companies. Indeed, had checks been undertaken and their results made public, it is an open question how many of the companies would have been awarded contracts.

What-Went-Wrong-Went-Right 3: Don't Let Financial Oversight Get In The Way Of My Career

Internal investigations into the consistent failure of World Bank staff to implement operational directives on issues such as resettlement and environment have repeatedly highlighted the "pressure to lend" as a major reason for non-compliance. The Lesotho saga adds a further twist to this indictment.

Leaked correspondence between the World Bank and the Lesotho government suggests that the Bank knew of corruption allegations against Masupha Sole, the former director of the Lesotho Highlands Development Authority who is alleged to have taken the bribes, as early as 1994. The Bank's reaction, however, was to berate the Lesotho authorities for having suspended Sole from his post pending an investigation into the project's accounts. Their reason: it would interfere with project construction timetables and could lead to costly overruns.

In a letter to Mr Pekeche, Principal Secretary at the Ministry of Natural Resources, Praful Patel of the Bank's Southern Africa Department, gripes: "While the undertaking of a management audit may be normal practice, the suspending of key management staff in order to conduct such an audit is most unusual. In our view, the absence of key members of senior staff from the project during this critical time could seriously jeopardize the progress of the project."

Instead of picking up the ball and immediately suspending the companies pending a corruption inquiry - the minimum that the Lesotho authorities' audit should have prompted - the Bank effectively turned a blind eye to the corruption charges. Yet again, what went wrong for civil society - the institutional pressure to push ahead with the project regardless of evidence of corruption - went right (in this case, very right) for the companies. Had suspensions been instituted at this stage in the proceedings, many of the companies might not have been awarded contracts for the second phase of the project - constructing the Mohale Dam.

Indeed, it now emerges that, despite previous assertions to the contrary, the Bank - and the South African authorities - knew full well of the corruption charges at the time that Mohale was approved. Nonetheless, the Bank pushed to have Mohale built now, rather than in a decade's time when the water may be needed in South Africa, because the contractors were in place and it would be therefore be cheaper than waiting.

What-Went-Wrong-Went-Right 4: Not My Patch, Guv

Now that the corruption charges have been laid against the companies, history looks set to repeat itself. Although the Bank has instigated an internal investigation, the investigators - Arnold and Porter, a prestigious Washington-based law firm - have been subject to innumerable restrictions. For example, the firm has been denied complete access to World Bank files and is only allowed to copy files which it could have obtained via third parties. Once completed, the investigation will not be made public.

Meanwhile, demands by NGOs that any conviction in the Lesotho courts should result in the companies being debarred from World Bank contracts, as required under World Bank rules, are being steadfastly resisted. Convictions in the court, the Bank has stated, will have no bearing on the Bank's future dealings with any of the companies.

Instead, the Bank is insistent that it will only disbar companies if its own internal investigations show that a company has been involved in corruption involving a project component specifically financed by the World Bank. Since the Bank only made a small contribution to the multimillion dollar financing scheme, this would mean that few - if any - companies are affected.

That position is based on the narrowest legal interpretation of the Bank's guidelines and a singularly selective view of the Bank's involvement in the project. Not only did the Bank finance the design of the project: it was also responsible for setting up and coordinating the financing programme. Indeed, in a confidential 1991 World Bank project document, the Bank explicitly states;

"In the early stages of project preparation, the Government of Lesotho explicitly requested that the Bank be the lead agency in the rising of the massive amounts of funds required for implementing the project and in helping to guide the complicated and sensitive negotiations between Lesotho and the Republic of South Africa. That the proposed project has reached its current stage is clear evidence of the Bank having successfully fulfilled this role to date."

Clear evidence too that the Bank's claim to be a passive bystander in the project - the basis for restricting its action in the event of a conviction - is nothing short of hogwash. Hogwash, however, which, like so much of the Bank's previous actions and inactions, will ensure that "what-goes-wrong-goes-right" - at least for the companies' accused of corruption.

Drawing Conclusions

Where does all this lead us? What immediate conclusions might we draw from the pattern of institutional behaviour documented above?

First - and most obvious - that the problem of corruption is unlikely to be addressed by new regulations unless and until the well-documented structural and institutional barriers to their rigorous implementation are addressed. Put simply, the World Bank and other funding agencies are institutionally predisposed to behaviour that "makes-things-go-wrong-for-civil-society-and-right-for-the corporations-that-benefit-from-the-projects-they-finance-or-underwite".

Second, that addressing those institutional and structural barriers will require root-and-branch overhaul of the mission, management and culture of institutions such as the World Bank. Institutions which act so consistently to the detriment of openness, accountability and democratic decision-making processes do not do so because of minor, easily remedied institutional failures. Their delinquency is far deeper-seated. Combating the pressure to lend, for example, requires more than mere exhortation to take seriously the World Bank's guidelines: it requires radical changes in incentives; severe career penalties for those who flout the rules; and legally-enforceable means of redress for those who suffer the consequences.

And, third, that such radical change is unlikely to come about through the goodwill of the institutions under scrutiny. Public pressure is essential if change is to be achieved.

In that respect, the Lesotho corruption trial represents an opportunity not to be missed. It offer the chance to hold the World Bank and other funding agencies to account; to insist that they formally suspended all the accused companies until the Lesotho case arrives at its conclusion; that they instigate thorough, independent investigations of the allegations immediately and publish their findings; and that they debar any company found wanting from all future contracts and support.

The Lesotho Government has played its part - exploding the myth that all Third Worlders are on the take in the process. It is now up to those outside Lesotho to take up the fight. And to "Organise! Organise! Organise!" to ensure this time it is civil society, not the companies, which find themselves at the right end of any official decision.

Appendix 1: Lesotho Highlands Water Development Project

(ABB, Balfour Beatty, Coyne et Bellier, Impregilo, Knight Piesold, Kvaerner, Lahmeyer International, Sogreah)

(Excerpt from Dams Incorporated: The Record of Twelve European Dam Building Companies; Feb 2000, The Corner House, published by Swedish Society for Nature Conservation)

The Lesotho Highlands Water Project (LHWP), Africa's largest civil engineering project, involves the construction of five dams in Lesotho's Maluti Highlands over 30 years, due for completion in 2020. The scheme would divert about 40% of the water (called "white gold" by the project authorities) in the Senqunyane river basin, via a complex series of tunnels, to South Africa's Ash river and from there into the Vaal dam 70 kilometres south of Johannesburg. Official estimates put the total project cost at $8 billion, but these costs are not thought to include numerous unforseen and costly problems. These problems include serious damage to the riverbed where the water is delivered by tunnels -- a cost that may not be incorporated into the project price -- or that of defending the Katse dam from possible sabotage during a military invasion in September 1998, to list just two.

Lesotho, which is surrounded by South Africa, will sell the water to supply South Africa's Gauteng province. Without the Muela dam, the hydropower component of LHWP, Lesotho is completely dependent on South Africa for its electricity. However, LHWP's proponents did not study Lesotho's potential alternative energy sources, nor did they not study water conservation as an option. Experts believe, for instance, that water conservation could meet Gauteng's water needs for another 12 to 15 years.

Work began in 1986 with the construction of an access road linking the Katse dam site with the South African border. Phase 1A, already completed, consists of the 182 metre-high Katse dam on the Malibamatso river, the 72MW Muela dam on the Nqoe river (45 kilometres north of Katse), 82 kilometres of water tunnels, and 200 kilometres of access roads at an estimated total cost of $2.5 billion. Phase 1B of the project, due for completion in 2003, includes the $1 billion Mohale dam on the Senqunyane river and the Matsoku wier, with about 35 kilometres of associated tunnels connecting the new reservoirs to Katse. The Mashai dam, scheduled for completion in 2008, would be built under Phase 2, and the Tsoelike dam would be completed in 2017 under Phase 3. The final phase would be the Ntoahae dam that is planned for completion in 2020. Doubts have been expressed as to whether or not there will be enough water in the river to build all the dams.

The Lesotho Highlands Development Authority (LHDA), a semi-autonomous state corporation, is responsible for overseeing the projects and for raising the finance. The Trans Caledon Tunnel Authority (TCTA) is the implementing agency for the small part of the project that takes place in South Africa. Both agencies are represented on the Joint Permanent Technical Committee (now called the Lesotho Highlands Water Commission), a supervisory body set up by Lesotho and South Africa.

The Companies

Lahmeyer International was part of the Lahmeyer Macdonald consortium, with Mott Macdonald (UK) and Consult 4 (South Africa), which carried out the 1986 feasibility study for the LHWP. Dumez (France) and LTA (South Africa) started the access road to the Katse dam in 1989. Sogreah was the lead company, with Coyne et Bellier and Sir Alexander Gibb (UK) in the SCBG-Europe consortium which designed and supervised construction of the Katse dam. The Highlands Water Venture consortium led by Impregilo built the Katse dam. The other firms in the consortium are Hochtief (Germany), Bouygues (France), Keir International (UK), Stirling International (UK), Concor (South Africa) and Group Five (South Africa). The tender price was $480 million, and the final cost $510 million. Knight Piesold was also part of the design/supervision joint venture on Katse dam, according to company documents. The Lahmeyer Macdonald consortium carried out an environmental audit for the Muela dam in 1997. The Lesotho Highlands Project Consortium won the contract for the Muela dam. The consortium consists of Spie Batignolles, LTA, Campenon Bernard, ED Zublin and Balfour Beatty. ABB Generation and Kvaerner Boving formed a join venture to install turbines, generators and ancillary plant at the Muela dam.

The Funders

The off-shore funding of Phase 1A of the project involved 25 different facilities coordinated by seven lead banks in six different currencies, five multilateral agencies and five government aid programmes. Five South African banks provided the bulk of the commercial loans and export credits. The commercial banks include Banque Nationale de Paris (which loaned $19.7 million) and Credit Lyonnais ($17 million) from France, Dresdner Bank ($15.8 million) and Kreditanstalt fur Wiederaufbau (KfW) from Germany, and Hill Samuel ($14.5 million) from the UK. The World Bank loaned $150 million to the project and the UK's Commonwealth Development Corporation $36 million. Export credits included $118 million from Germany's Hermes, $82 million from the UK's Export Credit Guarantee Department, $104 million from COFACE of France and $107 million from SACCE of South Africa. In March 1993, the Norwegian Agency for Development Cooperation (NORAD) rejected an application by Kvaerner Energy for $9.4 million in credit support for the Muela dam. Norway's aid minister Kari Nordheim-Larsen refused the funding because the contract was for one of a series of dams whose cumulative social and environmental effects had not been studied. Germany, France and Britain, however, provided bilateral aid.

Sanctions Busting

When the project finance was agreed, South Africa -- which will receive all the water from the project -- was subject to international sanctions. To avoid the difficulties of international financiers openly aiding the then-apartheid regime, LHDA's financial advisers -- Chartered WestLB -- set up a London-based trust fund through which payments could be laundered. Although Lesotho was the nominal borrower for the project, South Africa is in fact responsible for repaying the loans. The fiction that Lesotho is the borrower is still maintained, however, in the face of criticism of the project. In 1998, for example, residents of a local township filed a claim with the World Bank's Inspection Panel, pointing out that as the project effectively ignores demand side management in South Africa, it is in breach of World Bank rules for water projects. In response, the Bank stated: "As important as demand side management in the water sector is, there is no specific reference in the project to such measures, nor is there a legal requirement in the loan for RSA [Republic of South Africa] to implement such policies, since this is a loan to [Lesotho-based] LHDA."

Corruption

The project hit the business newspaper headlines in August 1999 after the Lesotho government accused Masupha Sole, the former CEO of LHDA, of taking nearly $2 million in bribes from ten companies and two consortia. The charge sheet listed details of who allegedly paid Sole, and how much they paid him:

  • ABB, $40,410;
  • Impregilo, $250,000;
  • Sogreah, $13,578;
  • Lahmeyer International, $8,674;
  • Highlands Water Venture (consortium including Impregilo, the German firm Hochtief, the French firm Bouygues, UK firms Keir International and Stirling International, and South African firms Concor and Group Five), $733,404;
  • Lesotho Highlands Project Contractors (consortium including Balfour Beatty, Spie Batignolles, LTA, ED Zublin), $57,269;
  • Acres International (Canada), $185,002;
  • Spie Batignolles (France), $119,393;
  • Dumez International (France), $82,422;
  • ED Zublin (Germany), $444,466;
  • Diwi Consulting (Germany), $2,439;
  • LHPC Chantiers (international consortium), $63,959.

Switzerland's highest court decided on 20 May 1999 to give legal assistance to the Lesotho government in its case against Sole. Swiss newspaper Sonntags Zeitung reported that a court there found evidence that the 12 companies had paid money into Sole's bank accounts -- payments that Sole could not adequately explain. In November 1999, the Lesotho authorities announced that the companies were to be prosecuted for having "wrongfully, unlawfully and corruptly made payments/transfers" to Sole. The World Bank is considering paying for the prosecution.

The companies involved have denied the charges. Prior to the announcement that the Lesotho authorities would prosecute, Romano Allione of Impregilo told the Washington Post, "no payment for whatever sum at whatever time has been made by Impregilo" to Sole. Meanwhile, interviewed on 12 November 1998, Anthony Collings, a Sogreah partner and project manager for the Katse dam, said: "We at the moment are still not in a position to say anything other than as far as we're aware nothing of that nature has ever gone on ... We wasted quite a bit of time following up what was said in the newspapers about direct payments. We did a major search. We drew a complete blank. We found nothing in there that implied anything improper whatsoever." Dr. J. Zimmerman, head of hydro-power and water resources development at Lahmeyer International, described newspaper reports alleging his company's involvement in bribery as a pretense. "We can safely state that we do not know of any payments to Mr. Sole and without knowing details we can also not contribute to the clarification of these wrong publications," Zimmerman said. Richard Chappell, an official at the Canadian Department of Foreign Affairs and International Trade, told Canadian NGO, Probe International, that it was "not treating this issue at all", despite the involvement of Acres International, a Canadian company. Acres itself has denied any wrongdoing: "We did not make any such payments and we have no knowledge of any improper transactions." In December 1999, the Lesotho authorities issued an arrest warrant against James Griffiths of Acres for failing to appear in court to hear charges against him.

In June 2000, the cases eventually came to court. Proceedings against one consortium, however, were postponed to allow the Lesotho authorities time to trace a frenchman, Max Cohen, who had absconded. Cohen is alleged to have laundered the payments made by the consortium via two Panamanian shell companies.

The World Bank is undertaking an internal investigation of the charges, although restrictions have been placed on the investigators' access to documents. The report will not be made public.

According to its guidelines, the Bank can debar companies found guilty of corruption from bidding on Bank-funded projects. The guidelines do not require that a company be convicted, only for their involvement to have been established "through an administrative process that permits the accused firm or individual to respond to the allegations". Nor do the guidelines allow the World Bank any discretion: once it has been determined that a firm "has engaged in corrupt or fraudulent practices in competition for, or in executing, a Bank-financed contract", action must follow. The guidelines apply not only to any joint ventures and subsidiaries involved but also to the parent company and any other subsidiaries. However, Daoud Khairallah, the World Bank's acting general counsel, has told the Washington Post that the Bank would act against firms only if it could prove that World Bank funds had been tampered with. Transparency International's director Jeremy Pope comments: "If you're bribing, you're bribing; and if you're unfit to be bidding for business, you're unfit."

Water Wars

In 1998, the project helped set off what one South African river ecologist called southern Africa's "first water war". In September, South African troops invaded Lesotho, ostensibly to restore order in the face of public protests against the government. In fact, the invasion was prompted in large part by a concern to protect the Lesotho Highlands project -- South Africa's largest investment in the region. When the shooting was over, 17 people had been killed near the project's Katse dam and many more had died fighting in the capital, which was left in ruins. South Africa's Star newspaper stated: "Protection of the dam and its pipeline supplying [the region] with water was a top priority of the occupation forces."

Inequitable Access to Water

Official claims that the project is needed to meet the water needs of South Africa's poor black communities are increasingly under challenge. The biggest obstacle to providing South Africa's poor with water is not so much a question of supply as of equity. As Lori Pottinger of the US-based NGO International Rivers Network points out:

"Low income black people in the townships near Johannesberg are subject to often indiscriminate water cut-offs, inadequate taps (usually just one for every 50 people in a yard), inadequate pressure and badly leaking apartheid-era pipes. Only the rich can afford this project's expensive water, which has made water bills rise dramatically. The project's high costs also uses public funds that could have been used to fix these leaking pipes, which waste up to half the water that runs through them, and other efficiency measures."

Suppression of Workers

Labour conditions at the construction sites of the dams have also led to controversy. In 1996, workers on the Muela dam organised a series of strikes to protest about the unequal treatment of workers from Lesotho compared to those of other countries; Lesotho workers earn less for the same jobs than South Africans. The strikers were also protesting about police harassment and the contractors' dismantling of negotiating structures set up with the local construction workers' union. On 14 September 1996, the consortium of contractors building Muela (Spie Batignolles, LTA, Campenon Bernard, ED Zublin and Balfour Beatty) called the police to evict workers from the construction camp, shortly after sacking 2,300 Lesotho workers for "illegally striking". At least five workers were shot dead and more than 30 injured. Despite promises to investigate the matter and to inform the public of its findings, the World Bank and the Lesotho Highlands Project Authorities have never released any report on the incident. No representatives of the affected local communities were included on the committee that undertook the investigation.

Social and Environmental Impacts

Meanwhile, associated social and environmental problems continue to mount. The 1986 feasibility studies carried out by Lahmeyer and Mott McDonald concluded that there were no major "environmental obstacles" to the project. No comprehensive environmental impact assessment was ever made, however, nor were erosion or sedimentation studies conducted for Phase 1A. The downstream impacts also appear to have been overlooked. Not surprisingly, the environmental and social impacts of the project have been more severe than predicted. Soil erosion, already a major problem, has been aggravated by the construction of the dams and will be worsened still further as displaced villagers are forced to cultivate and overgraze steeper hillsides. A preliminary estimate of soil losses has predicted that the tunnels and the Muela outlet will be completely blocked in 50 years.

Loss of Livelihoods

Of the total land area of Lesotho, less than 10% is suitable for arable farming. The Mohale valley, which would be flooded when the Mohale dam is completed, contains Lesotho's most fertile land and is the only region in the country to produce a surplus. Phases 1A and 1B of the project will together result in the loss of 4,635 hectares of grazing land and 1,500 hectares of arable land, according to the World Bank. Measures taken to help the 24,000 people who lost their farms, homes or access to communal grazing land as a result of Phase 1 of the LHWP have been heavily criticised as ineffective. Because Lesotho has so little arable land, those evicted to make way for the reservoirs have not been given replacement farmland but are forced to find new livelihoods. The Mohale will affect another 7,400 people.

Initially, the project emphasised training for resettlers in skills that were useless in Lesotho. One of the project consultants, who had long experience with forced resettlement for dams, was reported to have said privately that the chance of the project creating alternative livelihoods for affected people was "virtually nil". Two Lesotho NGO workers, Motseoa Senyane and Thabang Kholumo, reported in September 1999 that a "social fund" set up with LHWP revenues has been used as a tool for opportunistic politicians rather than for the benefit of resettled communities. In a letter to the Washington Post, they stated: "In Lesotho, we see the same stretch of road repaired, torn up the next week, repaired again the following week and then torn up once more at the end of the month. We see workers increase the height of unused dams and then cut spillways in them that effectively reduce their carrying capacities to their original levels. These projects are supported by the LHWP's social fund." Meanwhile, the Butha-Buthe international school, originally built for the children of foreign workers employed on Phase 1A of the project, faces closure due to lack of funds. The school is one of the most modern ever to be built in Lesotho. If it closes, local school children will be deprived of a major educational resource.

Inadequate Compensation

It has taken the LHDA years to build replacement houses for displaced people. Many of those displaced by powerline construction in 1990-91, for example, were still without housing in October 1995, according to the World Bank. Others who lost homes to earthquakes caused when the Katse reservoirs were filled were forced to live in temporary storage-shed type housing for months, including over a very harsh winter. Houses in the Mohale resettlement sites already suffer from cracked walls.

Villagers also complain that compensation payments have been inadequate or remain unfulfilled. The compensation package provided for a lump payment for people who lost less than 1000 square metres of land. Those who lost more were to receive an annual delivery of corn for 15 years. Even LHDA health officers admit that the handouts are insufficient to "sustain the life of an individual". In 1993, an LDHA survey revealed widespread dissatisfaction, the majority stating that the cash compensation did not reflect the productive value of the land. The payments also failed to take account of the loss of wild plants, fuel wood and building materials.

Although the project authorities originally undertook to provide fodder to compensate for the loss of grazing lands, this was done for five years only. In 1997, the villagers were told that the implementation period for compensation would extend over 50 years and that they would receive money instead of fodder and grain handouts. No lump sums, however, would be paid unless villagers could produce a "financial plan". A year later, no payments had been made. "Our cattle are dying," villagers wrote in a letter to the project authorities. "Our oxen are becoming too weak to plough and sow the fields."

Worse Off Because of the Project

Although some families may have benefited from the LHWP training schemes, others are worse off. A schoolchild whose family was uprooted by the Katse, when asked to comment on the dam, wrote:

"There is nothing worse than working hard at something and then have something come and destroy it. We were satisfied with the way we were working. We were plowing maize and beans. We were eating fresh maize. We had trees. We had firewood and people were buying it from us. We were getting money and we were able to go to school. When LHDA came and destroyed everything that was important to my family, we started to become poor. The dam took our fields and our trees. That was the end of our money. We needed to look hard to find enough money for us to attend school. We were given maize, beans, and a little money, but it is not as much as we were producing before. That was the end of our fire and fresh maize. Now, when I look at the dam, I still get very angry."

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