Lesotho Highlands Water Project Gets US$171.5 Million Loan

The New Development Bank is providing the project loan.

By Sneha A on
28th August 2023

South Africa's Trans-Caledon Tunnel Authority (TCTA) has signed a loan agreement with The New Development Bank (NDB) to support the implementation of phase 2 of the Lesotho Highlands Water Project (LHWP). 

According to the agreement signed on 21 August, NDB will provide financing of ZAR3.2 billion (US$171.5 million) under the sovereign guarantee of South Africa. 

The funds will be used to support the construction of the Polihali dam and reservoir, a 38km water transfer tunnel, roads and bridges, telecommunications infrastructure, and will extend electricity and other development infrastructure to Lesotho.

The LHWP is a multi-phase partnership project between Lesotho and South Africa. Its entails harnessing the water resources of the highlands of Lesotho through the construction of a series of dams and tunnels to deliver water to South Africa and electricity to Lesotho. 

The LHWP’s water transfer components are defined by the treaty as South Africa's responsibility, while Lesotho is in charge of the hydropower components. The TCTA is the implementing authority of the LHWP on behalf of the government of South Africa. The Lesotho Highlands Development Authority (LHDA) is handling Lesotho’s share of the project.

The main works of phase 1 were completed in 2003 and included the construction of the Katse and Mohale dams and the 72MW Muela hydropower plant and dam.

Phase 2 was launched in November 2020 and aims to increase the current annual supply rate of water to South Africa from 780 million cubic metres to 1,270 million cubic metres. The major work includes the construction of a dam with a storage capacity of 2,325 million cubic metres at Polihali on Lesotho’s Senqu and Khubelu rivers and a 38km water gravity transfer tunnel from the Polihali dam to the Katse dam.

The ZAR7.68 billion contract to build the Polihali dam was awarded in November 2022 to the SUN joint venture, comprising China’s Sinohydro Bureau 8 and Sinohydro Bureau 14, South Africa’s Unik Civil Engineering, and Lesotho’s Nthane Brothers.

The ZAR9.2 billion contract to build the transfer tunnel was awarded to the Kopana Ke Matla joint venture, comprising China’s Yellow River Company and Sinohydro Bureau 3, as well as Unik Civil Engineering. 

The total estimated cost of phase 2 is ZAR32.6 billion. Further funding has been sourced from multilateral development banks including the African Development Bank and commercial and institutional investors. Commissioning is planned for 2028. 

LHWP phase 2 component overview map
LHWP phase 2 overview
Source: AfDB



Phase 2 also includes the development of a hydropower plant at Oxbow on the Malibamatso river in Lesotho. The LHDA set a deadline of March 2023 for the submission of bids from engineering, environmental and social consultants.

Proposed hydropower station at Oxbow
Proposed hydropower station at Oxbow
Source: LHDA

Phases 3 and 4 of the LHWP have been conceptualised and will comprise the building of new dams and associated infrastructure. Once completed, the overall project will consist of five dams and about 200km of tunnels and water transfer works between Lesotho and South Africa. It will transfer about 2,000 million cubic metres of water annually from Lesotho to South Africa.

The NDB was jointly established by Brazil, Russia, India, China and South Africa to mobilise resources for infrastructure and sustainable development projects in the BRICS and other emerging market economies.

Top photo: Loan signing (Source: Twitter/X @NDB_int)

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