LESOTHO HIGHLANDS WATER PROJECT - PHASE II

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1 LESOTHO HIGHLANDS WATER PROJECT - PHASE II ABSTRACT The Lesotho Highlands Water Project (LHWP) is a multipurpose project which, through the construction of a series of dams and tunnels, manages some of the water resources of the highlands of Lesotho. Under Phases IA and IB, dams were constructed at Katse and Mohale, together with a weir on the Matsoku river and interconnecting tunnels, in order to store water and transfer it to the population centres of Gauteng in South Africa. In addition, the transferred water is used to generate electricity to provide for the power demands of Lesotho. A hydropower generating station was constructed at Muela for this purpose. Work is now starting on Phase II. Phases III and IV may be constructed later. 1. INTRODUCTION The Lesotho Highlands Water Project (LHWP) is a project between Lesotho and South Africa. It entails construction of dams and tunnels for the purpose of storing, diverting and controlling the flow of water of the Senqu/Orange River and its tributaries in order to effect delivery of water to the Republic of South Africa and to generate hydro-electric power in Lesotho. It is also meant to provide an opportunity for the two governments to undertake ancillary developments in their territories. The Lesotho Highlands Development Authority (LHDA) is a statutory body constituted under LHDA Order No 23 of 1986 as amended. The LHDA is charged with the responsibility for the implementation, operation and maintenance of the Lesotho Highlands Water Project (LHWP) in Lesotho. Overseeing the LHDA is the Board of Directors which in turn reports to the Lesotho Highlands Water Commission (LHWC). The Commission is a joint body made up of representatives of both the governments of Lesotho and South Africa. It has overall responsibility and accountability for the Project, and it acts on behalf of and advises the governments of Lesotho and South Africa; In addition, the Commission is the channel of all government inputs relating to the Project. The LHWP is a bi-national Project whose two main objectives are: (i) (ii) to develop Lesotho s water resources and alleviate water shortages in Republic of South Africa (RSA) through the construction of dams, tunnels as envisaged under Treaty signed between the Government of Lesotho and South Africa in October 1986 and, to develop hydropower generation in order to reduce Lesotho s dependence on imported energy. At the same time the Project is intended to safeguard the environmental and social aspects that include resettlement as well as compensation of the affected households, ensuring dam safety and preparedness for emergencies, and preparing for later phases of LHWP for further water transfers and hydropower generation. 2. LESOTHO HIGHLANDS WATER PROJECT After many years of study and debate, the Lesotho Highlands Water Project (LHWP) was selected as the most viable of several schemes to augment the supply to meet the projected water demand in the Gauteng region. 1

2 Lesotho is a landlocked country. So, all rivers rising in the mountains of the country flow through South Africa on their natural course to the ocean. Under international laws on shared river course, South Africa is entitled to an agreed volume of water in rivers which originate in Lesotho. So, under the LHWP, RSA is not buying water from Lesotho but rather, is buying the right to build in Lesotho the necessary structures to dam and extract a portion of the agreed entitlement before it reaches RSA. The LHWP was planned to be implemented 4 phases as described under Annexure I of the Treaty. Construction of Phase I infrastructure was completed in 2003 and the start of implementation of Phase II is eminent. 2.1 LHWP TREATY (1986) The Government of Lesotho (GoL) and the Government of the Republic of South Africa (RSA) entered into a Treaty based on the following: CONSIDERATION of the value of the water resources in Southern Africa RECOGNITION of the advantages of regional development and that co-operation between the two countries with regard to the development of mutual water resources can significantly contribute towards peace and prosperity of Southern African region and the welfare of its people. DESIRE to enhance the condition of life of the people of the Kingdom of Lesotho and the Republic of South Africa by raising the level of development of those resources. CONSIDERATION to the mutual benefits for the Kingdom of Lesotho and the Republic of South Africa to be derived from the enhancement, conservation and equitable sharing of the water resources of the Senqu/Orange River and its tributaries. WISH to promote the traditions of good neighbourly relations and peaceful co-operation between the two countries. 2.2 ROYALTIES The concept of paying a royalty to Lesotho was developed as the most convenient method for this cost effective convenience. Under a complex set of formulae/model documented in Protocol I of the bilateral Treaty, which itself took many years of negotiations to conclude. In terms Article 12 of the Treaty RSA undertakes to share with Lesotho, by way of royalty payments, on the basis of 56% on the part of Lesotho and 44% on the part of RSA, the net benefit computed in accordance with the procedure set out in the Royalty Manual. This is in addition to paying for the construction and on-going maintenance and operation of all structures required to facilitate the delivery of water including those in Lesotho. The net benefit can in simplified terms be described as the difference between: the cost, at its Present Value, of least cost estimate (Lesotho Highland Water Project) and the cost, at its Present Value, of the alternative or second least cost estimate water project with delivery capacity of 70m3 (Orange Vaal Transfer Scheme (OVTS)). In South Africa, the project is funded by charging a levy to water users in the Gauteng region. In Lesotho, the country s natural water resource is now referred to as liquid or white gold. Under the Treaty the royalties consist of fixed and variable components. These are paid monthly and will go on until the Lesotho share of benefit has been fully paid. 3. PHASE 1 Phase IA of the project comprises Katse Double Curvature Concrete Arch Dam, from which water is transferred under gravity via the concrete lined Transfer Tunnel to the Muela Hydro Power Station, from which the water discharges to Muela Concrete Arch Dam, before flowing through the Delivery Tunnel to the Ash River outfall in South Africa. Phase IB comprises the Mohale Concrete Faced Rockfill Dam. A concrete lined gravity tunnel connects Mohale Reservoir to Katse Dam from where 2

3 water flows through the Transfer Tunnel. An additional component of Phase I was the 19 m high Matsoku diversion weir transferring water to Katse reservoir. The published Nominal Annual Yield (NAY) of Phase I is 24.7 m 3 /sec or 780 million m 3 /annum and 72 MW of electricity is being generated mainly for use by Lesotho. Associated social development programmes and implementation of the project s environmental and social actions plan is on-going. 4. PHASE II AGREEMENT In terms of Article 5 of the Treaty, the LHWP shall be implemented by way of any or all phases described in Annexure I or such additional phases as may be required ultimately to deliver 70m 3 /s. This Article further makes provision for any of the 4 phases described under Annexure I to be modified by agreements between the parties. When it became evident that the Vaal River System would require augmentation by 2020, a feasibility study was undertaken to investigate alternative options for augmentation. Subsequently the parties agreed to go ahead with Phase II of the LHWP provided an acceptable agreement could be concluded to cover aspect of Phase II and solve those aspect that caused challenges and dissatisfaction during Phase I. The new agreement (Phase II Agreement) deals specifically with Phase II. The 1986 Treaty still remains valid as it deals with various aspects that are not covered in the Phase II Agreement. Hence, the two documents need to be read together. The Phase II Agreement was signed by the two Parties in August However, it did not automatically enter into force once signed. The reason for this was that the constitutional requirements for entry into force needed to be complied with first. The Government of the RSA ratified the Agreement in November 2012 and the Government of Lesotho did so in May

4 5. IMPLEMENTATION OF PHASE II 5.1 PHASE II COMPONENTS The major works that are expected to be carried out under Phase II are: Construction of a 163.5m high Concrete-Faced Rockfill Dam (CFRD) at Polihali on the Senqu River A 49.5m high saddle Embankment Dam Polihali Intake Tower that is 70m high and 8.0m diameter, free standing A 38.2km long tunnel connecting Polihali and Katse Reservoir. The diameter of the Tunnel will be 5.2m and concrete lined. Possible raising of the crest level and installation of radial gates at the Muela Tail Pond Dam. Advance Infrastructure access roads, feeder roads, management and labour camps, telecommunications systems, construction power system. Environmental studies and mitigation measures including In-stream Flow Requirements matters and baseline studies the full extent to be agreed when relevant studies have been undertaken. Compensation and livelihoods restoration programmes, mitigation measures, resettlement requirements and baseline studies together with public relations and awareness campaigns. The following works will also be carried out under Phase II when the relevant studies have been concluded and the Lesotho Government has made a decision: Construction of a 100m high dam at Kobong Construction of a 1200MW pump storage hydropower scheme connecting Katse and Kobong reservoirs 4

5 5.2 PROJECT MANAGEMENT UNIT (PMU) In terms of Article 6 (2) (a) of the Phase II Agreement Lesotho Highlands Development Authority is required to establish, as part of its institutional arrangements, a Project Management Unit to oversee and manage the implementation of Phase II and shall delegate to it the powers necessary for this purpose. The PMU duties include inter alia Commissioning and coordinating civil engineering design consultants; Commissioning socio-economic, public health and environmental studies; Public relations; Preparing contract documents for, and awarding, construction contracts; Project management; Monitoring utilisation of funds and processing funding requests; Coordinating implementation of the socio-economic, public health and environmental actions and mitigating measures, including resettlement and compensation, identified by the studies; and Commissioning of the completed Works. 5.3 POTENTIAL SERVICES/CONSULTANCY CONTRACTS The PMU will procure and supervise, on behalf of the LHDA, separate consultancy contracts in each of the following fields amongst others: Dam design and construction supervision; Tunnel design and construction supervision; Advance infrastructure for: o Access roads and bridges; o Construction camp accommodation; o Construction power supply; o Telecommunications; Feeder roads and bridges, or alternative measures to mitigate impeded access; Environmental and heritage studies; Socio-economic studies; Compensation, resettlement and livelihood restoration programmes; Public health studies; Public consultation/public relations programmes 5.4 POTENTIAL CONSTRUCTION CONTRACTS On the other hand the consultants will procure and supervise, on behalf of the LHDA, the following construction contracts: Dam Construction; Tunnel Construction; Access roads and bridges Construction camp accommodation Feeder roads and bridges 5

6 5.5 PROGRESS TO DATE Appointment of the PMU The Phase II Agreement was signed on the 11 th August Soon afterwards, the LHDA commenced with the prequalification process for the PMU. Twenty companies responded to the invitation for Expression of Interest and in November 2011 a short list of 6 entities was approved. The Request for Proposal (RFP) was issued to the shortlisted companies in December The closing date for the tenders was 30 January The evaluation process was concluded in August However, the contract was not awarded pending ratification by the respective governments. Ratification took place in May 2013 and the PMU Contract was awarded to CDM International Inc. in July Preparatory Works As part of Phase II preparatory works the following are in progress: 1. Contract Supervision of Construction of Polihali downstream gauging station (AECOM) 2. Contract Construction of Polihali downstream gauging station (LSP) Completed in Oct Contract 6000 Socio-Economic Baseline Study (CES) 4. Contract 6001 In-stream Flow Requirements (IFR) Baseline Study (INR) 5. Contract 6002 Biological & Archaeological (Heritage) Baseline Study (CES) 6. Contract 6008 Public Health Baseline Study (At tender stage) Contract will be awarded in February Indicative Programme Table 1 below provides a high level indication of how the programme is likely to unfold. Table 1 LHWP Master Programme Item Description Date 1 Government Sign Phase II Agreement Aug 12 2 Specialist studies - Environment & Social Jan 13 Dec 14 3 Establish Project Management Unit Sept 13 4 Issue Tenders Consultancy Services 4.1 Environmental Impact Assessment From Mar Advanced Infrastructure From Mar 14 Main Works From Jun 14 5 Issue Tenders - Construction 5.1 Advanced Infrastructure From Jan Feeder Roads From Jan Main Works From Jun 16 6 Construction 6.1 Advanced Infrastructure Sept 15 Jun Feeder Roads Jan 17 Dec Main Works Jan 17 Dec 22 7 Implementation of Environmental Programmes Jan 15 Dec 23 8 Start Impoundment to 2000 masl Pump Storage - Implementation Mar 14 Dec 22 The above timeline are indicative and may slightly change during the implementation. 6

7 5.5.4 Indicative Costs The costs indicated below are mainly from the feasibility reports. Table 2 Water Transfer Cost Estimate Item Dec 2011 Cost Estimate (mil) Engineering M 1,230 Main Works M 5,017 Advanced infra. M 1,300 Administration M 711 Environmental M 450 Social M 572 Total M 9,280 Table 3 Hydro-Power Cost Estimate Item Dec 2011 Cost Estimate (mil) Engineering & Administration M 735 Civil Works M 3,316 Equipment M 3,213 Infrastructure Arrangements. M 363 Transmission Lines M 440 Environmental & Social M Financing Arrangements Total M 8,092 In addition to the responsibility to implement and operate the project, the LHDA is charged with the task of raising the required financing in respect of approved project components, and in that process ensure that the most favourable terms are achieved. Since the LHDA is not equity based or financed establishment, much of the funding is raised by way of loans. The LHWP Treaty between Lesotho and South Africa provides that South Africa shall be responsible for all the project costs that are related to the delivery of water to South Africa. On the other hand, Lesotho is responsible for all the costs that are related to hydro-electric power generation. The Treaty further mandates the LHDA & TCTA to raise money by way of loans, credit facilities or other borrowings as may be required for implementation, operation and maintenance of the project. The parties to the Treaty, in undertaking to provide guarantees to the lenders, inherently and explicitly assumed responsibility for the servicing of the loans. South Africa on its part appointed the Trans Caledon Tunnel Authority (TCTA) to act as its agent in making debt-service payments related to interest and capital. As far as the loans for the Hydropower Project are concerned, the debt servicing is done by the Government of Lesotho Ministry of Finance and Development Planning. The financing arrangements for Phase II of the LHWP are covered in Article 13 of the Phase II Agreement between Lesotho and South Africa signed in August According to the Phase II Agreement, the LHDA, in consultation with TCTA, is responsible for preparing a funding strategy for Phase II, to be approved by the Lesotho Highlands Water Commission (LHWC). 7

8 ABBREVIATIONS AND ACRONYMS CES - Coastal and Environmental Services CFRD - Concrete Faced Rockfill Dam GOL - Government of Lesotho INR - Institute of Natural Resources LHDA - Lesotho Highlands Development Authority LHWC - Lesotho Highlands Water Commission LSP - Lesotho Steel masl - Metres above Sea Level MW - Mega-Watt(s) OVTS - Orange Vaal Transfer Scheme PMU - Project Management Unit 8