Lesotho Highlands Water Project

Introduction

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In a recent trial in Lesotho, the High Court of Lesotho found the chief executive of the Lesotho Highlands Development Agency (LHDA) guilty of accepting brides from multinationals to secure tenders in the Lesotho Highlands Water Project (LHWP). The Court has subsequently brought various multinationals to court for their part in the bribery. Lesotho is a small, mountainous country, poorly endowed with natural resources - except for water. There have been plans since the 1950s to export Lesotho’s water to neighbouring South Africa.

The manifestation of these plans has resulted in a massive construction of dams and channels known as the Lesotho Highlands Water Project, involving an estimated US $8 billion. The Project promises huge royalties from water sales as well as from hydroelectric power. The Project also promises the development of the rural areas of Lesotho and compensation for those who have been displaced and otherwise affected by the dams.

However, in most past cases, the construction of large dams has been controversial; higher-then-  expected costs, poor bottom-line returns, non-deliverance of promises of benefits to the people, as well as high environmental damage and disruption of displaced people’s lives. Large dam construction has in the past been wracked by corruption, bribery and a lack of transparency in the tender-process.

Corruption and bribery can distort the tendering process and may substantially increase the cost of the dam to the host country and its backers. In the High Court of Lesotho, key players in the LHWP have been accused of taking part in bribe-payments made by bidding companies to Mr Ephraim Sole, Chief Executive of the LHDA.

Through an extensive, international network of bank accounts and ‘agents’, bribes were paid to Mr Sole, who was able to materially influence the tendering procedure and outcome through his unchecked power as LHDA CE.  Sole was accused of accepting more than $6 million in bribes from multinationals. Sole has been convicted and sentenced to 18 years in prison. He was  convicted and the strong and independent stance taken by the court against a senior government official is a good indicator of the Lesotho Government's strong commitment to the rule of law and of addressing corruption.

However, even more significant is the subsequent trials of the bribe-paying multinationals. Acres International (Canada) and Lahmeyer International (Germany) and Spie Batigonells / Schneider Electric (France) have been tried and convicted of bribery and inflating the costs of the LHWP. Cases against a further three multinationals are still pending. This is a significant move in international business in which multinationals from developed countries could largely evade prosecution for wrongdoings in developing countries.

The home countries of these firms actively support and promote these multinationals through export-credit agencies to conduct business in developing countries. All too often, bribery of government officials forms part of the business of multinationals’ foreign operations. In many cases, these multinationals escape liability as home governments turn a blind-eye to their operations, despite new laws meant to police this form of conduct, such as the OECD Anti-Bribery Convention.

The LHWP case study also has significance due to the World Bank’s involvement in the funding of the LHWP. The World Bank has been criticised for showing reluctance to blacklist the convicted firms from further contracts in which The Bank is involved. A further issue has arisen: The Government of Lesotho does not have sufficient resources to take on bribe-paying multinationals in complicated and draw-out trials, further attempts to convict bribe-paying firms and enforce the rule of law, which may have weakened the Government's position.

Lesotho's Government has asked donors for direct aid to developing countries to assist in this regard. The high profile given to the so-called LHWP Trials and the involvement of the World Bank has created a North-South, David and Goliath-style debate.  Lesotho's Government has been commended for its strong stance on corruption.

The LHWP case will serve as a precedent for future cases involving corruption and bribery by multinationals around the world. It is an example to other developing countries that it is possible to take on multinationals and it will be a test of whether these multinationals and supporting institutions will accept the validity of decisions made by foreign courts.

This case study contains a broad range of articles documenting the background to the LHWP and the details of the corruption and bribery involved and the various trials of Mr. Sole and the multinationals. It further documents the significance of the trials for future multinationals conduct in developing countries and the important debate around the World Bank’s stance on the issue.

(Photo- Henner Frankenfeld/PictureNET Africa:March 1997 Katse dam; part of Lesotho highlands water project dam construction)

ANTI-Corruption Significance

  • Corruption and Debarment - Prepared for Tiri (the governance-access-learning network), December 2004
  • Fiona Darroch; The Lesotho Highlands Water Project: Bribery on a Massive Scale, August 2004 (PDF 56KB)
  • Baffour Ankomah, Khalid Bazid; 'What can a mosquito do to an elephant?', Interview with the Lesotho Minister of Justice, New African, May 2003, Issue 418 (PDF 48KB)
  • Van Vuuren, H; Challenging the corrupters; Mail & Guardian, 29 August 2003 (PDF 36KB)
  • Maema, L; Prosecuting bribery in Lesotho, 11th International Anti-Corruption Conference; Seoul, Republic of Korea, 25 May 2003 (PDF 104KB)
  • Hawley, S; Turning a Blind Eye - Corruption and the UK Export Credit Guarantee Department; The CornerHouse; June 2003, pp. 37-40 (PDF 336KB)
  • Department of Water Affairs and Forestry; Minister Kasrils pledges support for ongoing action against companies involved in LHWP corruption, 21 May 2002 (PDF 116KB)
  • Heinrich Böll Stiftung; Notes of the HBS breakfast meeting on the Lesotho corruption case; Maseru, 28 November 2002 (PDF 124KB)
  • Camerer, L; Lesotho takes on corruption analysis, Mail & Guardian, 6 June 2002 (PDF 100KB)

Funding of Anti-Corruption Trials

  • States News Service; Opening statement for hearing on anti-corruption strategies of regional development banks, Washington, 21 April 2005 (PDF 36KB)
  • CIOB International News; Lesotho remains firm against corruption despite lack of funding help from EU or World Bank, 02 August 2004 (PDF 36KB)
  • Chantelle Benjamin; SA to help Lesotho sue corrupt contractors, 18 March 2004 (PDF 36KB)
  • Zwane, S; SA and Kingdom set on collision course with World Bank, Sunday Times, 2 December 2001 (PDF 52KB)
  • Darroch, F; The Lesotho corruption trials - A case study; Transparency International, 2002. pp. 56-58 (PDF 300KB)

Acres Trial

  • Rex versus Acres International Limited, Judgement delivered in the High Court of Lesotho on 13 September 2002 (PDF 456KB)
  • The Crown versus Acres International Limites, High Court of Lesotho (PDF 824KB)
  • Kasrils Welcomes Lesotho Bribery Sentence, 29 October 2002
  • Patricia Adams, The Committee on Foreign Relations of the United States Senate: Combating Corruption in Multilateral Development Banks, to the US Senate Committee on Foreign Relations, 25 May 2004
  • Multinational Monitor July/August 2004 (PDF 76KB)
  • Agence France Presse, Canadian firm loses appeal against Lesotho bribery conviction, 15 August 2003 (PDF 44KB)
  • David Pallister, Western firms face bribery blacklist, 19 March 2004 (PDF 32KB)
  • Acres International Limited v. The Crown, Court of Appeal of Lesotho, 15 August 2003 (PDF 232KB)
  • Rex v. Acres International Limited, High Court of Lesotho, 14 June 2002
  • In re: Notice of debarment proceedings - Acres International Limited, Case No 18, 21 August 2001 (PDF 2.7MB)
  • Maclearn, M; Another watershed for acres; Canadian Business.com, 15 September 2003 (PDF 84KB)

Impregilo SpA

  • Italian firm charged with bribery in Lesotho, 3 March (PDF 32KB)
  • David Pallister, Lesotho corruption trail leads abroad, 20 June 2003 (PDF 36KB)

Lahmeyer

  • Crown v. Lahmeyer International GmbH, High Court of Lesotho, 6 March 2001 (PDF 80KB)

Schneider Electric

  • Electrical Company Must Stand Trial in Lesotho Bribery Case, 12 December 2003 (PDF 44KB)
  • Leading Company Implicated in Lesotho Bribery Case 11 November 2003 (PDF 44KB)

Spie

  • SAPA, Water Scheme Bribery Trial Postponed, 15 October 2003 (PDF 36KB)
  • Saeed Shah, Amec Challenged Over Alleged Link to African Bribery Trial, 10 February 2003 (PDF 44KB)

General

  • Magreal, C; Lesotho trial aims to end corruption culture, Mail & Guardian, 29 June 2001 (PDF 44KB)
  • News24.com; German company fined for bribery, 26 August 2003 (PDF 76KB)
  • Blustein, P; Big firms accused of bribery in dam project; Washington Post, 13 August 1999 (PDF 76KB)
  • Evans, R and Hencke, D; A blind eye; The Guardian, 10 June 2003 (PDF 80KB)
  • Lesotho Highlands Water Project; Minutes of Meeting of LHWP Participants; Pretoria, 17 November 1999 (PDF 84KB)
  • Hoover, R; Global company fined R10m for Lesotho bribery; International Rivers Network, 25 Febuary 2004 (PDF 24KB)
  • Business Day, Lesotho ''Will Continue to Fight Graft'' 10 September 2004 (PDF 44KB)
  • Guido Penzhorn, Comments on the Current Lesotho Bribery Prosecutions, Presentation before the Senate Foreign Relations Committee on 21 July 2004 (PDF 72KB)
  • Government Commended on Corruption Bust in Water Project 16 March 2004 (PDF 36KB)
  • Linda Ensor, Lahmeyer fine raised for bribery in Lesotho, 8 April, 2004 (PDF 80KB)
  • Peter Eigen, Prosecute Multi-Nationals who Bribe Government 17 May 2005 (44KB)
  • SAPA, Lesotho to Prosecute Third Company 28 August 2003 (PDF 40KB)

Sole Trial

  • Estelle Ellis, Nepad man in bribe scandal, 13 December 2004 (PDF 36KB)
  • Lesotho water chief must serve 18 years, 14 April 2003 (PDF 24KB)
  • SAPA, South African Sentenced for Water Project Bribery, 17 September 2003 (PDF 32KB)
  • South African accuses Italian firm of bribery in Lesotho water project, 3 June 2003 (PDF 32KB)
  • Mashupha Sole to sue judge who sentenced him, 7 November 2002 (PDF 24KB)
  • Hoover Ryan; Sole's appeal dismissed; International Rivers Network, 18 December 2002 (PDF 80KB)
  • Rex v. Ephraim Masupha Sole; High Court of Lesotho, 20 May 2002 (784KB)
  • Ephraim Masupha Sole v. The Crown, Court of Appeal of Lesotho, 14 April 2003 (PDF 248KB)
  • The Crown v. Jacobus Michiel Du Plooy, High Court of Lesotho, 15 March 2001 (PDF 44KB)

World Bank Involvement

  • Antonio Tricarico, The Lesotho Highlands Water Project, Massive Dams for Massive Disasters, Reform the World Bank Campaign (PDF 92KB)
  • Emad Mekay, Development: World Bank Pressed on Canadian Corruption Case, 23 March 2004 (44KB)
  • The Economist, Small place, big wave 21 September 2002 (36KB)
  • Africa Energy Intelligence, Last Contract before Black List, 6 October 2004 (PDF 32KB)
  • Emad Mekay, Development: Poorest Pay for World Bank Corruption - U.S. Senator, Press Service, Washington, 14 May, 2004 (PDF 44KB)
  • David Bruser, World Bank puts sanctions on Oakville engineering firm, 24 July 2004 (PDF 36KB)
  • David Pallister, World Bank corruption inquiry may blacklist firm, 16 March 2004 (PDF 36KB)
  • News Release No:2004/311/S: World Bank Statement on Lesotho Court of Appeals Ruling (PDF 28KB)
  • Bretton Woods Project; Bank silent on corporate corruption in Lesotho, 8 September 2003 (PDF 64KB)
  • International Rivers Network; Three letters to the Washington Post on the LHWP corruption case reveal very different perspectives, 1999 (PDF 104KB)
  • RSA Department of Water Affairs; "Don't Corrupt the Truth," Kasrils tells protesters, Pretoria , 17 November 1999 (PDF 80KB)
  • Engelberts, H and Pottinger, L; Letter to Mr James Wolfensohn, President of The World Bank; International Rivers Network, 15 November 1999 (PDF 116KB)
  • Tricarico, A; Letter to Mr James Wolfensohn, President of The World Bank; Reform the World Bank Campaign, Rome, 19 November 1999 (PDF 68KB)
  • Madavo, C; Reply to Mr Tricarico, Reform The World Bank Campaign, The World Bank, 30 November 1999 (PDF 64KB)
  • International Rivers Network; Companies charged with corruption should be suspended from World Bank contracts, 26 November 1999 (PDF 76KB)

LHWP CONTRACTORS

* Case pending
** Convicted and fined

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