Legal Scholars Advance the Principle of Odious Debts

LHWP: What went wrong?

(July 10, 2000)

This detailed account of the history of the
LHWP, the ensuing corruption scandal and the role of the World Bank was
presented at the Chatham House Conference on corruption in South Africa.

Presentation to Chatham House Conference, July 10th 2000 “Corruption in Southern Africa – Sources and Solutions”

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

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.



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). 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 funders – 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.



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

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

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.



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



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

Appendix I

(Excerpt from “DAMS INCORPORATED: The Record of Twelve
European Dam Building Companies”; Feb 2000, The CornerHouse, published
by Swedish Society for Nature Conservation)

Lesotho Highlands Water Development Project (ABB, Balfour Beatty, Coyne et Bellier, Impregilo, Knight Piesold, Kvaerner, Lahmeyer International, Sogreah)

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.”

Appendix II


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

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.

Appendix III

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

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.”


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

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.

Adams, P. (1999) “Foreign aid corruption case puts Canada on trial”, National Post, 20 Aug 1999,

web-site, accessed 7 Nov 1999.

Blustein, P. (1999) “Big Firms Accused of Bribery in African Dam Project”, Washington Post, 13 Aug 1999: 1.

Collings, A. (1999) Anthony Collings, partner with Sogreah, interview with Chris Lang, 12 November 1999.

DWAF (www 1) Department of Water Affairs and Forestry, South Africa. Web-site: accessed 7 November 1999.

Dodwell, D. (1992) “Project that posed a real banking challenge – The
complexities of financing the Lesotho High-lands water scheme”,
Financial Times, 6 Jan 1992.

FIVAS (1996) Power conflicts, FIVAS, Norway, Jan 1996. accessed
27 June 1999.

Graham, G. (1990) “Lesotho signs FFr2bn water tunnel project”, Financial Times, 27 Sept 1990.

Greybe, D. (1999b) “Corrupt firms face blacklist”, Business Day, Johannesburg, 30 July 1999.

Ozanne, J. (1989) “Maseru’s ‘white gold’ – Lesotho Highlands Water Project”, Financial Times, 4 Oct 1989.

Pottinger, L. (1998) “Lesotho Dam’s Sea of Debt Could Drown Regional
Water Conservation Efforts”, World Rivers Review, International Rivers
Network, web-site: accessed 22 Oct 1999.

QED (1998) “Lesotho: Africa Review 1998”, Quest Economics, March 1998.

Tricario, A. (1999), Lesotho Highlands Water Project — Trip Report, Reform the World Bank Campaign, Rome.

Senyane, M. and T. Kholumo (1999) Unpublished letter to the editor of the Washington Post, sent 15 Sept 1999.

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