Document of The World Bank Report No. 17727-LSO PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$45 MILLION TO THE LESOTHO HIGHLANDS DEVELOPMENT AUTHORITY FOR LESOTHO HIGHLANDS WATER PROJECT - PHASE 1B April 30, 1998 Water & Urban I Africa Region CURRENCY EQU1VALENT Currency Unit = Loti (plural: Maloti (M)) US$1.000 M3.65 (1995) M 4.40 (i996) = M5.00 (1 998) FISCAL YEAR GOL, LlI-DA, TCTA, DWAF April I - March 31 MEASURES AND EQUIVALENTS I millimeter (mm) 0.03931 inches (in) or 0.00328 feet I meter (m) = 39.37 inches (in) or 3.2f feet I hectar (ha) = l0,000m = 107,584 sq. feet I kilometer (km) = 0.62 mile (mi.) I square kilometer (km) = 0.386 square miles (sq. miles) I miliion cubic meters (hmi) 81 I acre feet or 264 million US gallons ! cubic metcr per second (mr's) = 353 cubic feet per second 15,840 US gallons/minute ABBREVIATIONS AND ACRONYMS ADB = African Development Bank AiDS Acquired Immune Deficiency Syndrome CAS Country Assistance Strategies CMA =Common Monetary Area (Lesotho, Swaziland. Namibia and RSA) DBSA = Development Bank of Southern Africa DWAF =Department of Water Affairs and Forestry, South Africa EA = Environmental Assessment ECA =Export Credit Agency EDF =Environmental Defense Fund EIA =Environmental Impact Assessment EIB =European Investment Bank EPP =Emergency Preparedness Plans ERR =Economic Rate of Retum ESKOM =Power Utility of the RSA ESSG =Environnmental and Social Services Group, LHDA ESW Economic and Sector Work EU = European Union GDP -Gross Domestic Product GIS = Geographical Information System GNP =Gross National Product GOL = Government of Lesotho GON =GovernmentofNamibia IBRD = International Bank for Reconstrtction and Development IDA =International Development Association IRN = international Rivers Network IFC International Finance Corporation IFR Instream Flow Requirements JPTC Joint Permanent Technical Commission LDC = Less Developed Country LEC = Lesotho Electricity Corporation LHDA = Lesotho H-ighlands Development Authority Li-IWP =Lesotho Highlands Water Project LNDC = Lesotho National Development Corporation masl =meters above sea level MINR = Ministry ofNatural Resources, Lesotho MOP =Memormndum and Recommendation ofthe President MIW =Megawatt NGO =Non-Governmental Organization NPV = Net Present Value ODA =Overseas Development Administration (UK) OECD =Organization for Economic Cooperation and Development OVTS = Orange Vaal Transfer Scheme (RSA) PCG =Partial Credit Guarantee PIC = Public Information Center PFP =Policy Framework Paper PPF = Project Preparation Facility RDAP = Resettlementand Development Action Plan RDP =Rural Developmcnt Program RIS =Reservoir Induced Seismicity RSA =Republic of South Africa SACU =Southern Africa Customs Union (Lesotho, Swaziland, Botswana, Namib:a and RSA) STD =Sexually transmitted Disease TCTA =Trans Caledon Tunnel Authority (ESA) UK = United Kingdom UNDP =United Nations Development Programme USAID =United States Agency for international Development WEFA = Wharton Econometric Forecasting Association WRMS =Water Resource Management Study Vice President: Callisto Madavo Country Dircctor: Pamnela Cox Sector Manager: Jeffrey Racki Task Leader: Joha Roome Lesotho Highlands Development Authority Lesotho Highlands Water Project - Phase 1 B Project Appraisal Document Table of Contents Project Financing Data 1 Block 1: Project Description 2 1. Project development objectives 2 2. Project components 2 3. Benefits and target population 3 4. Institutional and implementation arrangements 3 Block 2: Project Rationale 5 5. CAS objectives supported by the project 5 6. Main sector issues and Government(s) strategy(ies) 5 7. Sector issues to be addressed by the project and strategic choices 6 8. Project alternatives considered and reasons for rejection 6 9. Major related projects 7 10. Lessons learned and reflected in the project design 8 11. Indications of borrower commitment and ownership 8 12. Value added of Bank support 8 Block 3: Summary Project Assessments 9 13. Economic Assessment 9 14. Financial Assessment 10 15. Technical Assessment 10 16. Institutional Assessment 11 17. Social Assessment 13 18. Environmental Assessment 14 19. Participatory Approach 15 20. Sustainability 16 21. Critical Risks 16 22. Possible Controversial Aspects 18 Block 4: Main Loan Conditions 20 23. Negotiations and effectiveness conditions 20 24. Other loan conditions 21 Block 5: Compliance with Bank Policies 21 List of Annexes Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Project Costs Annex 4: Economic Analysis of Phase 1B Annex 4A: Economics of Delaying Phase lB Annex 5: Financial Analysis Annex 6: Procurement and Disbursement Arrangements Annex 7: Project Processing Budget and Schedule Annex 8: Documents in the Project File Annex 9: Status of Bank Group Operations in Lesotho Annex 10: Country at a Glance Annex 1 1: Environmental Analysis Annex 12: Social Analysis Annex 13: Policy Letter - LHWP Revenue Fund Annex 14: Key Implementation Steps INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Africa Regional Office South Africa, Lesotho, Swaziland, Botswana, Namibia Project Appraisal Document Lesotho Lesotho Highlands Water Project - Phase lB Date: April 30, 1998 [ I Draft [X] Final Team Leader: John Roome Country Director: Pamela Cox Project ID: LS-PA-1409 Sector: Water Supply - Other (WY) Lending Instrument: Specific Investment Loan PTI: [ ] Yes [X] No Project Financing Data [X] Loan [] Credit [ ] Guarantee 1] Other [Specify] For Loans/Credits/Others: Amount (US$m): US$45 million NOTE: As an enclave project serviced by South Africa, maturity and grace terms close to those relevant to South Africa will apply. Discussions are ongoing between the Bank, South Africa and Lesotho regarding additional support to the project in the form of: (i) a South African Rand denominated loan for CMA costs of LHWP phase IB; (ii) an IDA credit to GOL to support the enhanced RDP, and (iii) IFC support for any eligible private sector tourism venture in the Highlands. These would be processed as stand alone operations. roposed Terms: Multicurrency IX] Single currency (US$) Grace period (years): 5 years [] Standard Variable [] Fixed [X] LIBOR-based Years to maturity: 15 years Commitment fee: 0.75% Service charge: % i ir ia 5 .............................................................................................................................................................................................. Financing plan (USSm) Source Local Foreign Total South African Capital /Money Markets and Water Users 826 826 European Investment Bank (EIB) to LHDA (Matsoku) 59 59 Development Bank of Southern Africa (DBSA) 47 47 Government of Lesotho (GOL) 26 26 European Investment Bank (EIB) to TCTA (Mohale Dam) 50 50 Export Credit Backed Non-CMA Commercial Loans 60 60 Non-CMA Commercial Loans (ECA Co-payment) 11 11 IBRD (phase IB Loan) 45 45 IBRD (phase IA Loan 3393) 8 8 Total 958 174 1132 .... .................................................................................................................................. Borrower: Lesotho Highlands Development Authority (LHDA) would be the borrower of record. The IBRD loan will be serviced directly by the Trans Caledon Tunnel Authority (TCTA) on behalf of South Africa. LHDA has provided the Bank with authorization to copy TCTA directly on relevant loan notices. Guarantors: The Bank will accept guarantees from both the Kingdom of Lesotho and the Republic of South Africa (as primary obligor) with the proviso that should any of the other lenders be given any greater security beyond this, the Bank would share in such security. This is a departure from the phase IA security arrangements where a more complex trust mechanism was in place. Responsible Agency: Lesotho Highlands Development Authority Estimated disbursements (Bank FYtUS$m): i 1999 2000 2001 2002 2003 2004 2005 Annual 10 8 8 7 5 4 3 Cumulative 10 18 26 33 38 42 45 Guarantees: [XI Partial Credit [] Partial risk A partial credit guarantee was considered as a possible financing mechanism in the event that frms pre-qualified for the major civil works would not have access to ECA funding. However, all but two pre-qualified firms had access to ECA funding. However, LHDA's bidding rules would only have used this option if one of these frms is the lowest evaluated bid based on it's own funding and, if the combination of the PCG with the lowest evaluated stand alone finance bidder would have given a better overall works and financing package. This option was not taken up. Project Appraisal Document Page 2 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1B Expected effectiveness date: 7/30/98 Closing date: 12/31/04| Mid Tenn Review: 9/30/00| Block 1: Project Description 1. Project development objectives (see Annex I for key performance indicators): The main objectives of the project are: (a) to put in place the physical and managerial capacity for Lesotho to transform its principal natural resource of abundance - water - into export revenues that can be applied to poverty reduction and economic stability while (i) protecting the environment and mitigating any adverse social and enviromnental impacts and (ii) maximizing the local development spin-offs of the project in Lesotho; and (b) assisting South Africa in developing its lowest cost alternatives for supply of water to the Gauteng Region. 2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): * The Lesotho Highlands Water Project (LHWP) is a multipurpose project which, by a series of dams and tunnels, will control and develop the water resources of the highlands region of the Kingdom of Lesotho and will redirect a portion of the water presently leaving Lesotho in the Senqu/Orange River northward to the Vaal River basin where it will be utilized for municipal and industrial purposes in the Gauteng Province of the Republic of South Africa (RSA). Concurrent with water transfer, the LHWP will take advantage of the head differential between the highlands and lowlands of Lesotho to generate hydroelectric power. The LHWP was planned to be implemented in five phases, which would together transfer 70m3/s of water to South Africa. * Phase IA, which transfers 16.8m3/s to South Africa is about 97% complete and delivered first water in January 1998 and will deliver electricity by late 1998. Costing about US$2.5bn, phase IA comprises a 185m high dam at Katse, a 45km tunnel (capable of delivering 30m3/s) to a 72MW power plant and a 55m high dam at Muela, and a 37km tunnel to the Ash river in South Africa. * The current project is phase IB of the project, which will transfer another 11. 8m3/s to Gauteng. Component Category Cost Incl. % of Contingencies Total (US$m) Main Project Works: Construction of (i) a 145m high concrete face rock- Physical 531 60% fill dam at Mohale: (ii) a 32km long, 4.1-4.6m diameter concrete lined tunnel from Mohale to Katse, capable of delivering 9.6m3/s; (iii) a 15m high concrete weir at Matsoku and a 5.6km long, 4.5m diameter tunnel capable of delivering 2.2m3/s to Katse; (iv) associated advance infrastructure including upgrading of 59km, and new construction of 21km, of mountain road, and construction of the Maseru bypass, construction camps, power supply and telecommunication facilities; (v) mitigation of environmental impacts of construction. Engineering Supervision: Engineering Detailed Design and Construction Project Management 105 12% Supervision services for the main project works. Environmental and Social Action Plan: Implementation of a full Physical; 140 16% Environmental Action Plan including (i) Resettlement of effected Project communities, (ii) Compensation for project related losses, (iii) Income Management; Restoration and Rural Development; (iv) Natural Environment and Institution Building Heritage; (v) a Public Health Program; and (vi) Program Monitoring and Evaluation. Administration and Capacity Building: Institutional Support for LHDA Institution Building; 108 12% through short and long term technical assistance in Engineering (344mm), 'roject Management Finance and Administration (384mm), Environment and Social issues (600mm) and Operations and Maintenance (48mm) - plus training and studies as required, and including the services of both an Engineering and an Environment/Social Panel of Experts and a Disputes Review Board. Operating and Administrative costs for LHDA. Total 884 100% Financing Costs 248 Total 1132 Project Appraisal Document Page 3 Country: Lesotho Pmject Title: Lesotho Highlands Water Project - Phase 1 B 3. Benefits and target population: a) The population of Lesotho as a whole, and the poor in particular, will benefit from the project revenues, which will continue to be deposited into a dedicated Revenue Fund (see 4 below). Under the project treaty (see 4 below) 56% of the cost savings between LHWP and the next lowest cost alternative accrue to Lesotho in the form of water Royalties. (See section 4). Phase IA and IB together will produce an average of M122-128 million (US$36-38 million) per annum, with incremental revenues from phase IB amounting to about M30 million (US$9 million) per annum. A full discussion of the estimated royalties (derived from complex formulae) is included in the project file. See section 4g on how the royalties will be applied to poverty reduction and macroeconomic stability. b) Industrial and Urban Water Users in the Gauteng region of South Africa: The Project is the least cost solution to provision of water to Gauteng. In terms of the project treaty, approximately 44% of the cost savings between LHWP and the next lowest cost alternative will accrue to water uses in Gauteng. The unit cost of incremental water from phase lB is about 2/3 that of the next lowest cost alternative. Although bulk water prices have increased significantly as a result of LHWP, they are lower than they would have been without the project or with another project. For phase IA and IB combined this means savings of about $30 million per annum. c) During the construction phase of the project, further benefits will accrue to Lesotho nationals - including about 3000 project workers (M200 million), Basotho contractors and suppliers to the project (M140 million), LHDA employees (M250 million). Together these benefits are estimated to amount to about 6.5% of GDP in 1998 and 3.9% of GDP in 2002 (See section 13 and annex 4 for more details). d) While they will suffer compensated losses as a result of the project, local Highland communities will benefit from better access, health services and other rural development activities. (See section 17, annex 12 and documents in the project files). 4. Institutional and implementation arrangements (see diagram in Annex 5): a) The project was authorized by the signing of an international Treaty between Lesotho and the RSA in October 1986, in which the two parties committed themselves to the commencement of the LHWP. It covers the rights and obligations of each party, lays down the quantities of water to be delivered, the cost sharing provisions and the scope and calculation of the payments for water. (A copy of the Treaty is available in the project file). The new democratically elected governments in both South Africa and Lesotho fully support the project. Key provisions of the Treaty include: * RSA will pay Lesotho royalties for water transferred and Lesotho will receive all hydroelectric power generated by the project. (There is no major hydro investment in phase IB but there was in phase IA where capacity was installed to allow generation form the incremental IB water). Royalty payments to Lesotho are based on 56% of the cost savings between the 5 phase scheme in the initial feasibility study and the alternative project of the same magnitude considered at the time. Fixed royalties represent the difference in fixed costs and variable royalties represent the difference in variable costs. Royalty payments are NOT influenced by the actual costs of LHWP, but will vary with various inflation indicators, the real price of electricity in South Africa and the fnal hydrology for the scheme. (See project files for details) * The Treaty commits the parties to the first two phases of the project (IA and IB), with provision for future phases, but does not specify the revenue and cost implications of not proceeding with phase lB. The Treaty also makes no provision for postponement of phase IB. Any such decision would imply a re-negotiation of the treaty. * RSA is responsible for all costs of the LHWP related to the transfer of water (including construction, operation and maintenance, and social and environmental mitigation measures), whether incurred directly by RSA or initially financed by loans to GOL or LHDA. These debt service and cost related payments will be met by South Africa regardless of the performance of the project. Lesotho is however responsible for any hydro-power costs or any ancillary development. * The population affected by the project should be left no worse off as a result of the project. * Re-negotiation envisaged for 1998. This would cover future phases of the project but would not allow for retroactive changes to the funding and Royalty arrangements for phase 1. Any changes would need to be mutually agreed. * Provision is made for arbitration in the event of disputes and the Bank's Phase IA and IB loan documentation provides remedies for any revision to treaty that would threaten the implementation of the project. b) The responsible government departments are the Ministry of Natural Resources (MNR) in Lesotho and the Department of Water Affairs and Forestry (DWAF) in South Africa. c) The Lesotho Highlands Development Authority (LHDA), created by Order 23 of 1986 as a result of the Treaty, is charged with the engineering, construction, and operation and maintenance of the LHWP in Lesotho. LHDA is overseen by a Board, currently appointed by the Lesotho Minister of Natural Resources, and a Joint Permanent Technical Commission (JPTC). LHDA's mandate comprises three elements (i) to capture and transfer water from Lesotho to South Africa, and by so doing to generate royalties, (ii) to generate hydroelectric power for Lesotho, and (iii) to promote sustainable development in the Highlands of Lesotho. LHDA is currently undergoing a significant organizational and cultural change, and the "governance structure" that defines the relative roles of LHDA, its Board and the JPTC is being revised. See section 16 for details. d) The Joint Permanent Technical Commission (JPTC) comprises representatives of both governments and is responsible for ensuring that (i) the project is efficiently implemented and operated, (ii) that funds expended by LHDA for the implementation of the water transfer component qualify as costs for reimbursement under the Treaty, (iii) that the agreed quantities of water will be Project Appraisal Document Page 4 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B delivered to RSA according to the established time schedule. See Section 16 for a discussion of the "Governance Structure". e) The Trans Caledon Tunnel Authority (TCTA) in South Africa is charged with the engineering, construction, and operation and maintenance of the project works in South Africa (mainly related to phase IA, and to any possible phase 2) and has been designated by RSA as the authority responsible for ultimately bearing all project costs and for servicing the project debt. TCTA will in turn sell all bulk water received to DWAF in RSA with the aim of full cost recovery. DWAF will in turn sell this water, combined with other bulk water to the Water Boards and large industries in South Africa. Historically this has been done on a financial cost recovery basis. However, in recent years more active use of economic pricing has lead to pricing above what would normally be required in any one year for simple debt service. See section 6 and Annex 5. f) Before proceeding with phase IA, GOL obtained a riparian no objection to the entire phase I of the LHWP from the United Nations Council on Namibia in 1985 and subsequently on 21 June 1991 from the newly independent Government of Namibia. Lesotho has written to Namibia, providing details on phase I B to confirm the no objection. A copy is available on file. g) Lesotho decided at the start of the LHWP (phase IA) to deposit all revenues (including Royalties and incremental SACU Revenues) into the Lesotho Highlands Water Revenue Fund. To date, from phase IA SACU Revenues and the first fixed annual water royalties about M335 million (almost US$75 million) has been deposited into the Fund, of which M215 million has been committed and M 150 million disbursed on community identified labour based infrastructure projects including 1,1 00km of roads, 210 small dams, 60 foot bridges and a number of forestry and soil conservation projects. These projects have injected about M120 m into local communities, and provided about 15,000 full time job equivalents. In addition, about M40 million has been spent on other public sector projects. While this has been successful in starting a poverty focused public works program, the Fund has suffered from a number of weaknesses in technical review (raising questions about the sustainability of some investments), transparency and accountability. The selection of some of the initial projects were not transparent, technical designs were weak (and hence some dams and roads have been washed away), and weaknesses have been detected in fnancial control and monitoring. A limited number of legal proceedings for fraud have been initiated. The extent, to which the Fund should be poverty targeted and exactly how this should be done was, till recently, not clear. To regularize matters, Fund operations were suspended by GOL in early 1997. For FY 97 (ended 3/97) a combined technical and financial audit was completed in December 1997, and a copy of these reports was sent to IBRD prior to negotiations. In addition full technical reviews are being conducted on all sub- projects. The Government of Lesotho (GOL) has also clearly placed the Development Fund at the center of its poverty alleviation strategy and has recognized the need for a radical overhaul of the Fund's operations and has undertaken a process of consultations to put this in place between April and June 1998. The letter of sector policy, completed after a broad consultation process envisages a two window approach to the use of the LHWP resources. The first would be a community driven, labour intensive, poverty focused Social Fund (absorbing about M75 per annum - based on current absorption capacity - and then increasing in proportion to water revenues), with the rest being transferred directly to the budget. The latter will be used to offset any potential falls in revenue to due SACU re-negotiation and to falling miner remittances. Parallel discussions are ongoing between the Bank and GOL on strengthening budgeting procedures. A full range of reforms of the legal framework of the remaining Social Fund, its management and operating procedures has been proposed and is being implemented with IDA assistance (in the form of a Leaming and Innovation Loan. The new Social Fund will be based on International Best Practice and will include mechanisms to overcome weaknesses identified in the audits and technical reviews. A summary description of the historical performance of the Revenue Fund and the background to, and analysis of alternative proposals for the future operation of the Fund are included in the project files along with other detailed reports and analyses (including audit reports). Assurances were obtained during negotiations to formalize GOL's commitments in the form of a policy letter which is attached as annex 13. GOL has also agreed (i) not to re-open the Fund for new commitments until the new procedures have been put in place, nor recommence disbursements on existing commitments until each project has been subject to a "technical review" by a qualified appropriate authority, and (ii) to undertake annual technical and financial audits of the LHWRF, and to make these audits publicly available. In addition, prior to effectiveness of the loan, GOL will submit to IBRD an enacted legal notice implementing new LHWP Revenue Fund structure and procedures, per the Policy Letter, and an interim operations manual for the Fund, acceptable to IBRD. Implementation period: Seven years Executing agencies: Lesotho Highlands Development Authority and its contractors and consultants Project coordination: The project is the main activity of LHDA - hence no explicit co-ordination unit is needed. The IBRD loan will be managed by the Development Finance unit in the Treasury Division. A senior assistant to the CEO has recently been appointed. This should improve general co-ordination between different LHDA business units. Project oversight (policy guidance, etc.): LHDA's Board, the Joint Permanent Technical Commission and the two governments. Accounting, financial reporting and auditing arrangements: LHDA has a well established accounting, financial reporting and internal auditing function. Audits are conducted under contract by a qualified regional private sector auditor selected under a bidding procedure. Under phase IA all audits and financial statements (both project and loan) have been submitted on time and audits have been unqualified. Similar provisions will be included in the phase IB loan documentation. A Management Accounting Study has recently been completed for LHDA and Performance Indicators for the project as a whole and for each operational unit have been drafted. A common set of indicators is now being introduced at LHDA. These are in the project file. Project Appraisal Document Page 5 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B ............................................................................................................................................................................................................................................................... Monitoring and evaluation arrangements: a) LHDA implements the bulk of its mandate through contractors. These are monitored by suitably qualified consultants and LHDA has a staff of local and expatriate staff to oversee the work of the consultants and contractors. These are all subject to monitoring and reporting requirements. In the case of the Environmental Action Plan, a specific Monitoring and Evaluation component has been included in the project and a specific monitoring and evaluation plan drafted. A copy is on file. An M&E manager has been appointed, with an important selection criterion being the willingness/ability to feed back M&E lessons into operations. An M&E advisor is currently being recruited under the loan. The project also has a conflict resolution system in place for resolving differences with the communities. b) The LHDA Board, JPTC and respective government departments provide "first in line" monitoring and evaluation of the performance of LHDA; c) Engineering and Environmental/Social Expert Panels for phase IB are already in place, joining those for phase IA; d) Regular IBRD and other Donor Reviews monitor progress on at least a biannual basis. A mid-term review is envisaged for September 2000, and specific benchmarks to be reviewed at that time are included in the Loan Agreement. e) Local NGOs provide an informal and formal review of progress. LHDA is working with the Lesotho Council of NGOs to formalize the role of the NGOs in monitoring and evaluation. A study in this regard is complete and a memorandum of understanding between LHDA and the NGOs has been drafted. f) International NGOs provide an ongoing review of progress - but with differing degrees of intensity. Some are constructively critical while supporting the project, while others are opposed to the project. Block 2: Project Rationale 5. CAS * Lesotho CAS report 155110-P dated 25 January 1996 was discussed by the Board in May 1996 objective(s) * No South Africa CAS has yet been presented to the Board. However, the MOP for the Industrial supported by Competitiveness and Job Creation Project (#P-7050-SA) dated May 8, 1997 has an abbreviated country the project assistance strategy discussion. a) The Lesotho CAS has four broad objectives: (A) Fostering Labour Intensive Growth; (B) Investing in Human Resources; (C) Maximizing the Poverty Reducing Impact of LHWP and (D) Improving Institutional Capacity. The LHWP supports the objective of fostering growth since a key strategy in this regard is maintaining macro-economic stability - for which the revenues generate by LHWP are critical (phase IA and IB combined would contribute about 4% to GDP and 10% to Government revenues once both are operational from 2007). In addition LHWP explicitly supports the third objective - maximizing the poverty reducing impact of LHWP. First, the revenues provided by the project are Lesotho's best opportunity to reduce poverty. This hinges on (i) generating the revenues via the LHWP and (ii) applying them effectively through the Development Fund, which is supported by ongoing ESW and the proposed Poverty Reduction Project (LIL, FY98). Second, this CAS objective explicitly involves ensuring that the local spin-off effects of the project (to the Lesotho economy) are maximized through appropriate contracting procedures, involving the communities and NGOs in project activities and ensuring that the rural development activities as well as income restoration, are implemented according to international best practice. A revised CAS will be presented to the Board late in FY98, and contains a similar emphasis on LHWP. b) The Country Assistance note for South Africa identifies four priority areas where the Bank can be of assistance to South Africa: (A) Growth and Stability; (B) Poverty and Inequality; (C) Capacity Building; and (D) Regional Issues. With respect to the last point, joint development of infrastructure in general and water in particular is highlighted, in particular given South Africa's acute water shortages and the opportunities for the "win-win" joint management and development of water resources by South Africa and her neighbors. c) A sub-regional (SADC) assistance strategy (covering these regional issues more fully) is nearing fmalization. This emphasizes a key role for the Bank in facilitating both the regional management of water resources and development of common infrastructure projects (including those that will benefit smaller SADC countries while building on South Africa's economic strength). 6. Main sector issues and Government(s) strategy(ies): a) Lesotho: Less than 6% of Lesotho's water is consumed domestically, with the surplus running though South Africa to the sea. The project implements the GOL strategy to maximize the benefits from the sale of its sole natural resource - this excess water. While there are a number of important outstanding issues in the domestic water supply and sanitation sector (e.g. increasing coverage, increasing cost recovery etc.), this domestic sector is separable from the export possibilities. b) South Africa: South Africa is chronically short of bulk water. Available water per capita is just 1300 m3/capita. (Israel 450 m3/c, Mexico 4226 m3/c, USA 9913m3/c). Water is generally accepted to be scarce at 1700 m3. The situation in the industrial heartland of Gauteng is even worse - with the region comprising almost 60% of the national GDP and 42% of the urban population - yet having just 8% of the total water run-off. By the mid-1980s water demand in Gauteng had outstripped the Mean Annual Utilizable Runoff of Vaal River - creating the need for inter-basin water transfers. Till the early 1990s South Africa had adopted a very "supply side" approach to water resource management, focusing primarily on engineering solutions to supply water to Project Appraisal Document Page 6 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase I B meet growing needs. However, the policies of investing to supply whatever bulk water is demanded are no longer viable as the incremental cost of providing this water is projected to accelerate (from about US$0.08/m3 in 1985 to about US$0.55/m3 by 2010). Indeed, unless South Africa addresses demand side issues, demand will outstrip supply by 2030 - at which point desalination (US$1/ m3 at the coast) becomes a serious consideration. Furthermore, such schemes would absorb billions of dollars (more than $10 billion over the next 30 years) in investment costs. Almost 50% of South Africa's water has in the past been administratively/judicially allocated to agriculture - and most of that to low value crops. Such water uses are no longer economically viable. (Many farmers with riparian rights on the Vaal River value water at about US$0.01/m3, (albeit at lower quality and assurance levels) but to meet these riparian needs as well as other growing urban needs, additional water resources need to be developed at about US$0.20-25/m3. Note, however that no new irrigation is being added and all incremental water is for urban use) . A full set of demand side/conservation measures is therefore being implemented to manage the demand for water. In addition to the re-establishment of a water conservation directorate in the DWAF, a very active water conservation program focusing on piloting comprehensive retail demand management packages, and an impressive program to clear "invasive alien" vegetation from catchments, significant legislative and economic changes (eg. pricing, reform, separation of land and water rights, and limited water trading) are being developed to address this imbalance, but such a transition will take at least 10 years to be fully implemented. Inter alia South Africa is moving away from a policy of pricing bulk water at the rate required to service project loans, and towards a more economic pricing basis. A summary of South Africa's water resource management strategy is included in the project files, as is a copy of the latest draft Water Pricing Policy. (See reference to demand management in controversial issues). These actions are thought to be "cutting edge" and more ambitious than those in most Borrowing and OECD countries, matched only in a few localities in the US. This program will lead to a significant delay in future phases of LHWP beyond phase IB saving South Africa hundreds of millions of dollars in capital expenditure. It is estimated that with these demand management actions it will be possible to maintain the same bulk water price (RO.85/m3) through the mid 2030's, as opposed to a four fold increase to about R2.90/m3 without such measures. Access to water supply and sanitation is a critical issue in South Africa, with over 12 million people lacking adequate access. The delivery of retail water services (in particular to those that have traditionally been excluded from service) in an efficient, equitable and sustainable manner is a very important national issue, with significant poverty implications. While closely related, the discussion in this document focuses on the bulk water sector. c) Regional Issues: Most of the countries in the region face similar water shortages and allocation challenges. Furthermore, many of the water resources are shared and as scarcity increases many nations plan to exploit the same finite resources. Institutions need to be developed to ensure (i) responsible water resource management within each country, and (ii) mechanisms to resolve regional water resource issues and (potential) conflicts. In recent years there has been a growing awareness of the need to manage water resources on a regional basis. Since 1995, South Africa has been a leader in forging regional water sharing protocols. As the largest power in the region, their relation with Lesotho in the LHWP will be taken as a test case of whether South Africa is truly committed to regional water management solutions. The LHWP is one of the very few successfully implemented projects in the world aimed at regional water management. 7. Sector issues to be addressed by the project and strategic choices: The project focuses in the case of Lesotho only on the water export sector, and in the case of South Africa on the development of the least cost supply of bulk water to Gauteng. While not deminishing their importance, the project does not explicitly attempt to address broader water sector issues in either country, although this is done indirectly. a) Lesotho: A water resource management strategy (WRMS) study has been conducted using funds from the LHWP Revenue Fund to address the options of the management of the water sector. This has been reviewed by the Bank and a draft strategy has been received by the Bank. The proposed strategy still requires more work and consultation before a fully acceptable WRMS is in place. It has however been chosen to focus this project on the strategic issue of exploitation of the export potential in the water sector and rather to address the domestic water sector in the CAS and country dialog discussions. A water sector intervention (important for poverty reduction) has been included in the potential future IDA support to Lesotho, in the most recent draft CAS. An identification mission visited Lesotho in March 1998 in this regard. b) South Africa: As important as demand side management in the water sector is, and even though this is an area of active dialogue between SA and the Bank, there is no specific reference in the project to such measures, nor is there a legal requirement in the loan for RSA to implement such policies, since this is a loan to LHDA. This is however a high profile issue in South Africa that has the full commitment of all SA Authorities. Ironically, the high cost of phase I of the LHWP (relative to that of the rest of the Vaal River System) which is now being faced by consumers, has helped, indirectly, to focus attention on the need for demand management, and will lead to the postponement of future phases of the project beyond lB. 8. Project alternatives considered and reasons for rejection: a) The full 5 phase (70m3/s) LHWP design was determined in 1986 to be the least cost solution to meet water demand in Gauteng. This analysis of supply options led to the signing of the treaty for phases 1A and IB and for the Bank to finance phase IA. Subsequent analysis looking at the next project after phase I B confirms that phase IB is the next least cost addition after IA. b) Optimization studies for phase IB have lead to the selection of a dam type, location and full supply level at Mohale that is lowest cost, least risk and least environmentally harmful. (A full analysis of this is included in the project files). In addition the final Project Appraisal Document Page 7 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1B design for the Matsoku diversion reduced both the costs and the environmental and social impact of the scheme. (This resulted in a reduction in inundated land and no resettlement from the Matsoku Diversion component). Detailed designs for the specific project works have taken into account social and environmental aspects as well as engineering approaches (e.g. the reduced number and improved location of adits for the Mohale Tunnel, and the selection of drill and blast methods for Matsoku Diversion contract will increase the amount of local labour used by the project). c) With Bank help, South Africa started in 1995 to put in place a series of demand side alternatives to manage water demand. These will take a number of years to fully implement, and their impact is still uncertain. It is agreed that phase lB (technically) could be delayed by at least 7 years, and perhaps longer but demand management will not obviate the need for LHWP phase IB. The Treaty however specifies the dates for delivery of water from each phase. The two governments have decided to retain this schedule (as reviewed in 1993), and not to delay the project since the structure of the Treaty, the extent to which phase IA costs are sunk for phase IB, and in fact that phase lB is already well advanced, means that any conceivable delay would carry a net cost rather than a net benefit . See sections 13 and 22. d) Alternative institutional options for phase IB considered in a 1994/5 study included a more private sector (i.e. BOOT) option for implementation. However, it was decided to proceed with the existing broad institutional approach due to (i) the size of the dam and the associated geological and other risks - which make this a high risk project for the private sector alone, and funding a project with such a risk profile entirely on a private sector basis is untested; (ii) the need to re-negotiate the Treaty if this route were to be chosen, and (iii) the shortage of time to fully agree and then implement such a change. Detailed changes have however been made in the LHDA's organizational structure. Alternative structures and their logic are set out in the Organization and Manpower Study (copy in project files). e) In terms of organizational structure, a split of business units into rural development and compensation, water transfer and hydropower (which would have simplified cost apportionment) was rejected in favor of a spilt into rural development and compensation, construction, and operations - emphasizing the benefits of "common culture", the need to co-ordinate operations and the differing degrees of "permanence" of the different structures. Within the construction design a "general contractor" mode of implementation with separate engineering consultants and contracts, was chosen over a "design and build" option, and within the Environmental and Social Services Group (ESSG) a decentralized, bottom up structure was chosen over the alternatives of (i) a old centralized "top-down" structure and (ii) a more radical proposal to shift the entire operations of the ESSG to a form of community trust, the former having not worked well in phase IA and the latter being perceived as too risky (in the face of weak local capacity) to be implemented in the short term across the whole project. Variations of this theme will however be implemented in some cases (e.g. to compensate losses of community assets). f) Various alternatives were considered for the overall Governance Structure of the project. The option of retaining the phase IA structure was rejected since all options aimed at overcoming weakness in the current establishment. The option of moving towards a full binational authority was rejected since it was not politically acceptable to Lesotho. g) An option to provide funding in the IBRD phase IB loan for phase 2 preparation activities was rejected given the large number of issues that still need to be resolved before any decision can be made on phase 2 (including the impact of demand management activities in South Africa as an alternative, the completion of a full or at least strategic EIA before any decision to proceed, and Treaty re-negotiation). 9. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Sector issue Project Latest Form 590 Ratings [Bank-financed projects only] IP DO Bank-financed Engineering of Water Transfer Lesotho Highlands Water Engineering: Used to ICR rating of satisfactory and Scheme prepare phase IA likely to be sustained Water Transfer Scheme (Phase IA) Lesotho Highlands Water Project Phase IA (Ln S S 3393) Use of Development Funds Poverty Alleviation Project (LiL - FY 99) - proving Resources support to turn the Development Fund into a Social Fund. Appraisal due early FY99 Other development agencies DBSA/EIB etc. Lesotho Highlands Water Project DBSA's implementation review of phase IA currently underway. Draft report on file. Project Appraisal Document Page 8 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase I B 10. Lessons learned and reflected in the project design: a) Bidding Documents for Civil Works Contracts in Phase lB were drafted to include enhanced provisions for: Environmental Monitors (both Natural Environment and Social); Local Contractor Development; Training of Local Engineers; Enhanced Labour Relations Capacity; Health and Safety standards; use of local labour from selected communities; and RSA minimum wage levels. b) Full lining with precast reinforced concrete segments included in design of Mohale Tunnel; c) Inclusion of Dispute Review Boards from the beginning of contracts; d) Pre-bid meetings arranged with potential bidders for local contractors and suppliers to enhance local business opportunities; e) Labor incidents during Phase IA have led to the strengthening of labor unions so that they are more responsive to their member's needs, and over all institutional strengthening of labor relations within Lesotho. f) Reservoir induced seismicity is likely and measures have been taken to fully instrument this activity and identify and consult with villages that might be effected; g) LHDA has been reorganized based on the experience of Phase IA. A new structure has been put in place and a more responsive culture is being implemented, starting with a very rigorous managerial selection process. Increased emphasis is being placed on improving the management skills and training of staff. h) Design of compensation packages and resettlement strategies based on analysis of the entire household production system impacted, including fuel sources, other common property, cash crops, and a calculation of total proportions of assets lost - and the presentation of a wider range of compensation and resettlement options, with flexibility to choose between them; i) Better targeting of affected households for income restoration planning, combined with an annuity type of safety-net compensation; j) Responsive complaint management based on operational field teams, a conflict resolution mechanism and local project offices; k) Partnering with communities to enhance local unskilled employment and avoid squalid communities around construction sites; 1) Continuous in depth consultation with local communities in the design of resettlement and social impact mitigation strategies and of EIA/EAP as a whole - and plans for similar role in implementation and monitoring; m) Methods to devolve housing construction to owners and local contractors, to minimize cost (cost savings accrue to households), generate local employment, and maximize owner involvement and satisfaction; n) Advance implementation of latrines and other infrastructure in host communities; o) Closer ties between construction schedules and key resettlement activity completion; p) Complete full EIA prior to implementation and development of EAP; q) Pre-defmed commercial lending terms sheets; r) Early agreement (at negotiations) on cost sharing for the development activities in the EAP; s) Strengthened management and project selection procedures, for Development Fund, as well as enhanced direct community participation - based on international best practice. 11. Indications of borrower commitment and ownership: With the Treaty signed for phase IA and IB both countries are committed to the project which will proceed with or without the Bank's involvement. No provision is made in the Treaty for not proceeding. Legal and Financial Advisers and Engineering and Environmental Expert Panels have been appointed and have completed almost all of their work. "Advance infrastructure" (Roads, Power Supply, Telecommunications, Contractor Camps) is almost completed. Bids have been received for all major contracts and awarded for Matsoku Diversion - 12/97, Mohale Tunnel - 12/97, and Mohale Dam - 3/98.) Financing bids have been received and evaluated and packages with major private and official financiers finalized. Engineering supervision contracts for the major contracts have been signed by LHDA. A full EIA/EAP process is complete - with over US$5 million invested to date. (Although the EAP will updated on a continuous basis as the project evolves). Resettlement of the first effected communities (96hh) is almost complete. To March 31, 1998 about US$200 million has been spent on phase lB. 12. Value added of Bank support: The Bank's fmancial role in this project is very minor (about 3%) - funding only main works engineering design and supervision, technical assistance to LHDA including the environment and engineering expert panels and the Disputes Review Boards and training. There is no other readily available alternative source of foreign long term funding for such services, the alternatives being CMA capital market offerings, or short term foreign commercial credit. However the Bank's support is more valued by both governments for the Bank's appraisal and supervision process since this (i) provides comfort to other lenders - in particular EIB (with whom IBRD has cross-effectiveness clauses) and the Export Credit Agencies, (ii) allows the Bank to play a facilitation role between South Africa and Lesotho and to provide monitoring and evaluation for the implementing agencies, and (iii) ensures Bank's environmental and social policies adhered to. In addition the Bank's advice helps Lesotho maximize benefits of project and has provided support on water resource management issues to South Africa. More specifically, to date the Bank has added value by: (i) being an initial catalyst in bringing phase IA of the project to fruition after the Treaty has been signed - many other financiers depend on the Bank's appraisal and supervision to justify their involvement; (ii) being a catalyst in setting new standards in the Region for dealing with the social and environmental issues related to dams, including the standards set by the EIA/EAP process Project Appraisal Document Page 9 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B on phase 1B (including the community participation aspects) and the advance preparation of the Emergency Preparedness Program. Many of our partners (such as DBSA) are now adopting very similar standards and the Department of Water Affairs in South Africa is now adopting such standards for its other projects; (iii) establishing a credible, valued relationship with South Africa, which has allowed the Bank to work effectively on other water issues (Vaal River pricing, regulation); and (iv) providing an example of how to forge effective partnerships with the Borrower for addressing the social and environmental issues relating to dams and addressing the concerns of the NGOs in an open manner. Block 3: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8) 13. Economic Assessment [X] Cost-Benefit Analysis: [X] Cost Effectiveness (see Annex 4&4A): NPV=US$ 1.2 bn at 10% Analysis: ERR= 15.9% 20% cheaper than alternative supply options The following are the key conclusions: a) The LHWP is the least cost alternative to supply water to the Gauteng area (based on 1985 feasibility study and confirmed using Vaal Augmentation Planning Study being used to choose the successor project to phase IB). More specifically, phase IB is the cheapest of available alternative supply augmentation schemes - with a unit reference cost of Ml. 14 (excluding Royalties) compared to M2. 18 for the Orange Vaal Transfer Scheme and MI .72 for the Tugela Vaal Scheme (at 12% discount rate). b) Since 1994 SA has started to pursue demand management more aggressively than most countries. Changes to date in demand patterns suggest that water from phase lB may not be needed for 7 years after the treaty delivery date of 2003. Depending on the success of various demand management initiatives, it is thought that this may be extended by up to 10-12 years. Some have suggested that this could be longer, but without any evidence or economic analysis. However obtaining such changes in demand would require significant investments and carry increased risks of water restrictions. c) Delaying phase lB is not economical from South Africa's point of view since there would be additional costs to be weighed against the time value of the delay including (i) higher capital costs due to loss of IA contractor mobilization advantages, (ii) higher administrative and maintenance costs to keep part of the LHDA structure in place and rebid and fmance the main works, (iii) compensating Lesotho delayed SACU payments and foregone hydropower benefits and (iv) forgoing the opportunity to turn off the alternative "pump storage" Tugela system. At a 5% real financial discount rate no conceivable delay makes sense. At the SA social discount rate of 8%, only with delays of at least 10 years do these costs begin to meet the benefits. Even a 15 year delay would only net a RlOOm "saving"(Real 1995), which would be outweighed by the costs of demand management required to achieve this delay and the increased risks of water restrictions (due to less buffer storage against variable rainfall and the uncertain timing and extent of the impact of demand management). In addition Lesotho would suffer significant economic costs from delay (M485m for a 15 year delay on NPV basis at 10%, in addition to the "shock" of a M260m (6.5%) loss of GDP in 1998 - M145m, (7.4%) loss of government revenue). South Africa would need to either compensate Lesotho for such losses, or bear the political costs of breaking the Treaty - after it has placed a heavy, and internationally unique, emphasis on regional solution to water management issues. See section 22. Proceeding now with phase IB carries lower overall costs and risks and allows time for demand management to take effect and significantly delay future Vaal augmentation projects beyond phase IB. d) Phase IB has a base case economic rate of return of 16%, equivalent to M4.5 billion Net Present Value (1995 prices, 10% discount rate) over the life of the project based on a "consumer surplus" analysis - using contract prices for main works and conservative assumptions on economic losses in the downstream Orange river in SA and assuming that the water will not be needed for 7 years beyond the Treaty date. Sensitivity analysis is satisfactory allowing for very significant delays and cost overruns before the ERR falls below 10%. e) The permanent incremental benefits to Lesotho, from phase IB, include additional royalties of about M30m per year (1995 prices, US$9 million, equiv. to 1% of 1995 GDP and 2.5% of 1995 Government Revenues) to be deposited in the Development Fund. Toge.ther with phase IA (and the associated fixed royalties) the project is expected to generate about M130-140 million per annum (1995 prices, US$36-38 million, equiv. to 4% of 1995 GDP and 10% of 1995 Government Revenues), once phase IB is operational at full capacity. Lesotho will, in addition receive M12m ($3.3m) per year in incremental hydropower benefits (due to larger flow of water - costs for these investments are already sunk into phase IA), as well as permanent benefits arising from the tourism opportunities and the M700m of permanent infrastructure (roads into the highlands, housing, Maseru bypass, power and telecommunication, etc.). f) The construction of Phase IB is expected to generate about 3,000 jobs for Basotho, equivalent to 16500 person-years of employment (yielding about M200m in wages for construction workers and M275m for Basotho employees at LHDA). Increased SACU revenues and other economic activity should yield about M300 million, while tax revenues are expected to be about M100 million. It is expected to generate about M140m in sub-contracting/supply opportunities for Basotho companies. Project Appraisal Document Page 10 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1B These initial benefits are expected to account for 6.5% of GDP in 1998 (3.9% in 2002), as well as 7.4% of government revenues in 1998 (9.3% in 2002). g) The environmental and social losses of the project are estimated to be close to M300m (1995 prices). Compensation and mitigation expenditures of M370m are planned, which, if implemented successfully, should slightly more than compensate for the losses incurred. The possible net benefit from compensation and environmental mitigation are not included in the benefits and, if included, would have a very minor impact on the rate of return. A detailed analysis of the environmental economics of the project is included in the project file. 14. Financial Assessment (see Annex 5) a) Although the project is financed by LHDA, in terms of the Treaty, South Africa is responsible for the servicing of all debt. b) Financing for the project has been finalized. Since LHDA and TCTA have significant CMA capital market presence, there is very little risk that the project would not be fully financed, at appropriate cost and risk. c) LHDA and TCTA have attempted to match currency of expenditure with currency for funding. d) The main non-CMA costs, apart from the IBRD phase IA and IB loan fnanced institutional and engineering costs, are the costs of the construction of the Mohale Tunnel (about 25% of total costs) and the Mohale Dam (about 40%/O). Contractors were required to provide fully fmanced bids, including Export Credit Agency (ECA) backing where applicable. The terms of such financing was used in evaluating the overall costs of the bids. In parallel LHDA approached both EIB and (through a bidding process) various "stand-alone" private commercial financing sources. After evaluating the various options, LHDA and TCTA chose to use a combination of contractor and stand-alone commercial funding (with ECA backing) for the Mohale Tunnel, while the non-CMA costs of the Mohale Dam will be funded through a direct loan from EIB to TCTA - passed on to LHDA. e) CMA costs will be funded as follows. EIB has approved a loan of ECU 54m to cover the costs of the Matsoku Diversion. DBSA has already approved a loan of R200m for infrastructure and environment costs, and has offered a further R250m for the CMA costs of the Mohale Dam, which is under consideration. For all other CMA costs, LHDA and TCTA are managing phase 1A and IB funding as a "pool". LHDA has negotiated open ended commercial facilities with limits of up to M2.6bn, with just under Mlbn drawn down as of 31 March 1998. SA and Lesotho have agreed that the amounts outstanding under these facilities will be repaid down to zero by TCTA by 2003. TCTA will make payments to LHDA to cover both the IB CMA costs as they become due, as well as the repayments to meet the agreed limits. From their side, TCTA will then fund these CMA payments to LHDA, their other overall expenses and the servicing of all debt (CMA and non CMA), through a portfolio of money and capital market offerings, and income from the sale of water. f) GOL funding for ancillary development in phase IB amounts to about $26m (about $15m towards the EAP and about $1 Im towards the cost of an upgraded Maseru Bypass and Telecoms system). In terms of the treaty, any concessionality in water transfer funding (defmed as the difference between the attained funding rate and the IBRD rate) will accrue to Lesotho. The EIB loan for Matsoku includes a significant element of concessionality, amount to about US$10m in NPV terms. This will be applied to funding the GOL contribution to the EAP. g) The IBRD loan will be serviced directly by TCTA. IBRD will copy TCTA with all bills for payment. A letter to this effect from LHDA has been received by IBRD. h) LHDA is not a revenue earning authority for its water transfer activities, rather these items are funded, ultimately by South Africa, under the terms of Article 10 of the treaty. Thus, no direct financial assessment of LHDA has been provided. A cash flow analysis is provided in annex 5, showing the cash required to be transferred by South Africa to LHDA for its operating and debt service requirements (as mentioned above). i) The LHWP hydropower activities under phase 1A performed by LHDA are revenue earning. A revised "interface" study has recently (11/97) been completed to revise the bulk price at which LHDA will sell its power to LEC (the Lesotho Electricity Corporation). These transactions are small relative to the main operating impact of LHWP on LHDA. The consultant's recommendations have however been made to ensure that LHDA is able to make an adequate rate of return on Muela assets. j) From South Africa's point of view, the project costs are serviced by the Trans-Caledon Tunnel Authority (TCTA). A full analysis of the financial viability of TCTA has been completed - showing its annual cost obligations under the project (actual payments, debt service, royalties), and the revenues that it will raise from the sale of water to DWAF and its overall debt portfolio. The full analysis, is included in the project files. A summary is included in annex 5. k) For fnancial planning purposes TCTA has adopted a very conservative water demand growth profile - one that assumes a very slow rate of demand (such that phase IB water would not be needed for about 15 years after the treaty date - 2018). Based on this scenario, TCTA and DWAF have agreed a viable tariff policy/trajectory for the Vaal River System that would maintain the 1998/9 real bulk water price of RO.95 through at least 2020/30. Of this, the real equivalent of about RO.75 would accrue to TCTA to service LHWP debt. (Thus, phase lB will not lead to any increase in water charges over and above what has already been implemented in the move to a more economic pricing of bulk water in South Africa). Using this to project its income statements and balance sheets and assuming that significant demand management would indeed be possible and that the next scheme after phase IB could be significantly delayed,TCTA's debt is projected to peak at around R18bn (nominal/current) and all of the debt is expected to be redeemed by 2016. A further sensitivity analysis was performed, reducing the demand by a further 15% below the already low demand scenario. This means that TCTA debt would peak at R23bn and would be fully Project Appraisal Document Page 11 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B redeemed by 2021. Both scenarios are within TCTA/DWAF's guidelines to redeem all project related debt within 20 years of project completion and within debt profiles that are fundable in the market. 15. Technical Assessment a) The technical aspects of the LHWP have been thoroughly investigated by a number of qualified professionals and institutions - starting with the initial feasibility studies in the mid -1980s. Given the design structure (common use of the Katse Dam and the IA water transfer and delivery tunnels) the technical viability of phase IB is very closely linked to the technical viability of phase IA. No major technical issues are envisaged. b) The project's track record on engineering implementation is good with phase IA likely to be delivered just 8% over cost and nine months behind schedule. Both delays and overruns are largely attributable to the need for more tunnel lining than originally anticipated. For phase IB, full concrete lining of the Mohale Tunnel has been adopted to deal with rock durability issues in the tunnel. c) An engineering expert panel (names and CVs on file), acceptable to IBRD, has already been appointed under multi-year contracts for phase IB and has met four times (most recently in November 1997) to review the tender designs and documents, pre-qualification arrangements, award recommendations and progress on detailed designs. Copies of these panel reports are available on request. The Engineering panel under phase IA worked well - ensuring significant design improvements (e.g. pre- formed joint, shear keys) and was augmented as needed to address key issues such as reservoir induced seismicity. d) Suitably experienced and qualified design and supervision consulting engineers were appointed after a prequalification and proposal process for the tender design of the major contracts. Based on their satisfactory performance and the provisions of the bidding documents, the same consultants have been retained for the detailed design and construction supervision. The joint venture for the Mohale Dam comprises Snowy Mountains /SMEC (Australia,) Harza (USA), Nippon Koei (Japan) and a consortium of SA firms (BKS, Chunnet Fourie, Consultburo, Melis and Du Plessis, and Stewart Scott). The Mohale Tunnel consultants are LHTP ( Mohale), comprising Lahmeyer (Germany), Mott McDonald (UK), and Ninham Shand, Van Niekerk, Kleyn and Edwards, Keeve Steyn and Knight Piesold (all SA). The Matsoku Diversion consultants are a joint venture comprising Lesotho Consulting Engineers, FM Associates (both Lesotho) the same SA firms as for the Mohale Tunnel. e) Major Works Contracts were awarded in December 1997 for Mohale Tunnel and Matsoku Diversion. The contract for Mohale Dam was awarded in March 1998. Bids were generally very competitive and low tenders were all well below the engineer's estimate (just under R600m in total). In addition the average of the bidders with experience in phase IA were over R600m below those without 1A experience, reflecting learning and mobilization advantages. All major works contracts were awarded to the same consortium comprising Hochtief (Germany), Impregillio (Italy) and Concor (SA). f) LHDA has proposed a program of technical assistance under the project that would ensure suitable client-side expertise, augmenting the local LHDA capacity. Unlike in phase IA and phase l B design where a consulting firm provided in-line managers, for phase lB (with the exception of the consulting engineers noted above) individual service contracts will be written, mainly for technical support. Recruitment to fill these positions is well advanced. Most managerial functions in the new organization have already been assumed by Basotho after a very rigorous assessment and selection process. Progress in filling other positions is satisfactory. LHDA will provide a commitment to ensure that all senior technical and management positions are filled with people with skills and experience acceptable to IBRD and that the Bank will be consulted prior to any senior management changes. g) Two annexes to the November 1996 pre-appraisal mission aide memoire provide a detailed review of many of the technical issues (including a summary of the Dam type and location selection process, the height selection process, safety aspects and procedures, hydrology, seismicity, design criteria, construction materials and the implementation schedule) and are included in the project files. This assessment concludes that the technical aspects of the project have been well taken care of. h) Emergency Preparedness Plans (EPPs) for all phase IA and lB dams have already been prepared. (First time that an EPP has been prepared before appraisal for a Bank financed project. The EPP for Mohale also sets a standard to which other DWAF dams will adhere in future). A copy of the consultant's report, the Bank's comments there on and the final EPPs are available in the project file. i) Reservoir Induced Seismicity measuring up to Richter 3.5 was experienced in phase IA. Full summaries of this activity and actions taken are available in the project files as annexes to the April 1996 and April 1997 mission aide memoires (along with a bibliography of relevant source materials). The Phase 1A seismicity was reviewed by the Expert panel who concluded that there was no risk to the Dam structure or of a massive slope failure, but who did recommend enhanced monitoring, which LHDA has implemented. All LHWP structures (IA and IB) have been designed to withstand activity of up to Richter 6.5. An RIS expert has been retained on the phase IB Engineering Expert Panel. The main implication of the reservoir induced seismicity is social rather than engineering. LHDA has commissioned the Mohale Dam design consultant to (i) review micro- seismic data recorded at Katse, (ii) carry out seismo-tectonic mapping and analysis of the area surrounding the future Mohale Reservoir, (iii) interpret aerial photography, and (iv) develop a seismo-tectonic model for the mechanism that might trigger RIS. The objective of the work will be to identify villages that could potentially be affected by RIS at Mohale. This will allow the LHDA to take preemptive mitigation measures such as public awareness programs, strengthening structures and, if necessary, resettlement. (See section 24 for related legal provisions). Project Appraisal Document Page 12 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B j) The following documents are also available on file: (i) a tentative plan for construction supervision and quality assurance, and (ii) a preliminary Operations and Maintenance Plan. k) Sedimentation studies for phase 1A concluded that the chances of the sediment delta reaching the intake tunnel in 50 years was less than 0.5%. Similar studies for phase 1B conclude that sedimentation provides no technical risk to the project. Summaries of the assessments and full bibliographies are included in the project file. 16. Institutional Assessment: Governance Structure: a) The structural relationship in place for phase IA, between LHDA, its board and JPTC was cumbersome and slow. With South Africa fully responsible for all costs, yet having no day to day management responsibility, the JPTC had become the organ through which South Africa could exercise some control over the project. This led to micro-management, delays, cumbersome procedures and a culture under which JPTC could often "object" to something but was not accountable for getting the results. This was complicated by the need to get agreement amongst both parties on relatively minor issues. A study in early 1996 (copy in project files) proposed an alternative structure under which (i) the JPTC would retain ultimate accountability for the project, but would shift to more of a policy formulation and monitoring role, (ii) LHDA's Board would assume a greater executive role, but its members would be appointed on the basis of merit and skills, by the JPTC, based on a set of proposals from GOL (who may at their discretion nominate South African residents in addition to Lesotho residents) and would be subject to performance contracts. The Board would have sufficient powers delegated to it to ensure that it could operate effectively, and (iii) the chief executive of LHDA would be appointed by the Board after consultation with the JPTC. (More detailed documents are in the project file). An alternative arrangement, favored by some on the South African side would rather have moved towards a full binational authority - with one joint Board and allowing the placement of South African nationals in line positions. While this alternative may have provided for smoother implementation of the project it was unacceptable to Lesotho. In the interests of moving forward, the consultants' proposed governance structure has been accepted by both parties. Amendments to the LHDA Treaty and the LHDA Order, to implement the new governance structure, have been drafted and their execution is specified as a condition of effectiveness. A new governance structure is critical to making progress in changing the culture of, and reaping the benefits of the new organizational structure for LHDA. After the new structure has been put into effect, it will be important for Board and JPTC members to be selected against rigorous criteria. LHDA Organization: a) Under phase IA an Organization and Manpower study was completed. (Copy on file). This clearly identified weaknesses in the LHDA management structure and more importantly weaknesses in its culture and processes. This included: an overly bureaucratic style; multiple, diffuse decision makers; limited accountability, delegation or performance incentives; limited cost responsibility; not enough capacity building; a dominant engineering culture in all business units; and a very Maseru based structure. b) The study also set out a new organization structure, job descriptions and training needs for LHDA through 2003. The new structure is based around three core business units (Environmental and Social Services Group, Construction and Operations and Maintenance), supported by various corporate service functions including, legal, fnance and administration, public relations etc. This new structure has been accepted by all parties and is appropriate for a project of this nature. After initial delays, implementation of the structure has begun and is well advanced. Detailed organization structures, staffmg levels and job descriptions have been agreed for the entire organization. Management positions are currently being filled through a rigorous selection process. All management and staff positions will be filled by mid-1998. c) The major organizational challenge facing LHDA is however, not one of structure but one of implementing a cultural shift - from a bureaucratic public service organization into a more flexible, nimble, commercially and customer oriented organization. More specifically (i) the Enviromnental and Social Services Group (ESSG) needs to complete the move towards becoming a more decentralized, community based organization, (ii) the Operations and Maintenance Group needs to shift from a construction culture to a 24-hour commercial engineering service organization and (iii) Construction needs to maintain its current finite life-span, contracting out culture - but needs to start addressing the questions of the approach to the future beyond phase IB (including how to wind down should phase 2 not go ahead in the medium term). One critical element of the cultural change is the already approved revision of the powers of delegation to allow more effective (and accountable) decentralized decision making. d) The new CEO has attached major importance to the issue of cultural renewal. A consultant has been appointed to assist with the implementation of the study recommendations - and this is due to be complete before the presentation of the project to the Board. A copy of this work program is in the project files. Key to the change process is the selection of key managers, the most senior of whom will be put on performance contracts. Some will be expatriates funded under the institution building component of the project. Given the critical nature of the management positions, IBRD will seek assurances that LHDA would ensure that all senior technical and management positions are filled with people with skills and experience acceptable to IBRD and that the Bank will be consulted prior to any senior management changes. e) As of November 1997, all general managers and most branch managers were appointed after a rigorous and transparent selection process. This process of appointment has continued through early 1998. All appointments have been made with Project Appraisal Document Page 13 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B personnel with qualifications and experience satisfactory to IBRD. f) It has been established as a condition of effectiveness that LHDA, appoint after consultation with IBRD, personnel with qualifications and experience satisfactory to IBRD as the two remaining managers in the Field Operations Teams (FOTs) of the Environmental and Social Services Group. g) A significant training program is envisaged to complete this transformation. Unfortunately, the full program and policy will not be available until after the proposed Board date - so the submission of such a program has been established as a condition of disbursement for the IBRD training funds under the project. 17. Social Assessment: (See Annex 12) Phase IA: Phase lB of the LHWP will benefit from the lessons learned from Phase IA, and from a careful and thorough planning process carried out by consultants to the implementing agency. By the time the project will be effective, the following would have been completed: all replacement housing and phase IA resettlement; almost all of the RDP infrastructure; a new decentralized organizational structure in place; a new compensation policy (that will ensure at least an annualized compensation payment scheme which serves as a safety-net); a resettlement and development action plan for lB agreed with the communities; compensation packages in place for Stage I resettlers; development plans based on training and self sustained income generation; and a conflict resolution mechanism. Phase 1B process: A major "resettlement and development study" has been undertaken to determine, with the affected communities, their preferences for compensation, resettlement, and development programs. The study has involved a very significant consultation process. Full documentation is available in the project files, as are the resettlement and development action plan, the compensation policy, rates and procedures and the environmental action plan. Impact: Phase IB will involve the resettlement of up to 360 households (about 99 before construction begins - i.e. by mid-1998, 172 before impoundment of the reservoir, and 89 after impoundment - the latter resettlement being voluntary). Due to changes in household formation, contingency planning and budgeting for the RDAP has taken into account the eventuality of 360 households being eligible for resettlement. Of the 360 households to be resettled, about 40% have opted for resettlement in the scheme area, with 60% opting for resettlement in the lowlands or peri-urban areas around Maseru. A further 300 households will be entitled to compensation for losses, primarily of land. About 2,360 ha will be lost due to the inundation (of 150,000 ha in the scheme area). This will mean the loss of about 1,635 ha of grazing lands and 700 ha of arable land. A further 575 ha of arable land that will not be inundated may need to be compensated for if the households using that land choose to resettle far away. This would then be available to remaining households. About 25 ha will be lost to other project infrastructure. Compensation: The revised compensation policy provides for direct compensation for all losses such as physical assets, arable lands and gardens, grazing land and other common property resources such as medicinal plants. Arable land losses will be compensated for by land for land, cash (annualized payments or lump-sum) or grain. Based on field surveys, community preferences are for annualized cash payments (39%), lump-sum cash pay-outs (22%), income earning property (16%), grain compensation (10%). Just 1% opted for "land for land" (although it is suspected that some of those wishing cash alternatives may actually have in mind the acquisition of land). These preferences are likely to change during the preparation of individual household compensation packages. Resettlement: The resettling of the 99 households that need to move in Stage I (already almost completed) has enabled all aspects of the resettlement strategies to be tested before the larger resettlement of 172 families in Stage 2. (The stage I resettlement has gone very well, with the key lesson being to accelerate delivery the parallel services - eg. enhanced sanitation to coincide with the physical resettlement). Another 29 families will relocate in the same area. Resettlement in stages 1 and 2 will involve moving: (a) 85 households to nearby or in the scheme area; (b) 128 households to the "foothills" area; and (c) 38 families to Maseru or other and 20 are still to make up their minds. Resettlement "uphill" has been discussed thoroughly with proposed host villages. Housing sites have been selected. Not all the land of all the villages to be inundated will be lost (some is above the eventual water line), but some alternative farm lands have already been identified in the host communities, where there are informal markets for farmland or rights to sharecrop. All resettlers, in addition to being resettled or relocated, will get high quality dwellings in their preferred styles with equivalent floor space and upgraded construction materials. They can choose "owner construction" or the use of local contractors or cooperatives to obtain lower-cost housing solutions with relatively high building standards - with any cost savings accruing to the households. Houses will be built with heat retaining material or have heating devices supplied, and will be accompanied by home garden plots. Upgraded water supply and sanitation will be provided. Direct compensation at replacement cost will enable those being moved to replace kraals and other structures. Host communities will benefit from additional schoolrooms or schools, clinics, water supplies, sanitary facilities, other service facilities, access roads, and some of the training programs for income generation. Access roads will also compensate for lost access due to the reservoir. Development: In addition to resettling those affected by the project, the development component aims at providing development opportunities in the form of infrastructure (mainly roads and water), training and restoration of the self generated income earning potential of people affected by the project. Special additional development components in agriculture, range management, forestry, fisheries and tourism are included as is a full training and non-agricultural income restoration program that includes the offer of secondary and tertiary education for qualifying children and a small business credit scheme. A full monitoring and evaluation program has been designed and is being implemented. Project Appraisal Document Page 14 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B Public Health: A full Public Health program has been proposed, not only to try to mitigate the potential negative impacts of the project (the biggest of which are AIDS, and other STDS), but also to provide general medical services to the work force, resettlers and other local communities. It will also provide training and capacity building to Ministry Staff. A program to provide water supply and sanitation to national standards for all communities in the catchment area (over and above those directly affected by the project) is also included. The Leribe Trauma unit will continue to serve the general public as well as the project itself. The community public health benefits in phase IA were quite substantial. Remaining Issues: a) Provisions provided for in the compensation policy, rates and procedures will need to be assessed with respect to : (i) the mechanism for the payment of annualized cash, and (ii) the rules for the draw down of capital lump-sums. LHDA has committed to undertake an audit of the implementation of the new compensation policy by September 30, 2000. The main purpose of the audit would be to review the progress with the new compensation options, in particular the details of the cash compensation, be it in the form of an annuity or a lump-sum. Particular attention would be paid to reviewing the extent to which the compensation payments are applied to the benefit of the entire household. b) The details of some of the Development components will need to be further refmed during implementation specially with respect to (i) relationships with other GOL activities, (ii) detailed timing and procurement planning, and (iii) sustainability. 18. Environmental Assessment: Environmental Category [XI A [ ] B [ I C (See annex 11 for discussion) After initial delays the progress on natural environmental management in phase IA has been good. Highlights include: (i) Commencement of an erosion control and watershed management program (albeit later than expected); (ii) Initiation of the Katse Botanical Garden for plant species rescued from the Reservoir area; (iii) Surveys completed and a captive breeding program established for the Maluti Minnow (for IB); (iv) Interactive environmental awareness video and publications and posters prepared and distributed, environmental presentations delivered to schools and communities; (v) Erosion control and revegetation much improved along Northern Access Road; (vi) Effective construction monitoring; (vii) Protection of sponges during construction; (viii) Establishment of vulture sanctuary; (ix) Water quality monitoring program for reservoir and main inflowing tributaries established; (x) Fisheries development project initiated on the reservoir. The Phase IB Environmental Assessment (EA) was synthesized from the results of fourteen coordinated baseline studies of physical, chemical, ecological and social aspects of the Lesotho Highlands. The EA work was monitored by the Bank, a multidisciplinary review team composed of international experts funded by UNDP and UNESCO in collaboration with the National Environmental Secretariat and a panel of experts. Open forum meetings were also held on the draft report which included international experts, NGOs, government officials and people from highland communities. While preparing the baseline studies, consultations were held in individual communities throughout the highlands. The EA report lists the participation context and summaries of the people's perceptions. A synthesis of the consultation process and major evaluation reports are in the project file. Major Impacts: Major impacts of the project include resettlement of about 360 households living in and near the inundation and construction zones. Partial loss of land and other assets by a further 300 households. The reservoir will inundate 2,360 ha of land; 1635 ha of grazing land and 700 ha of arable land. This is discussed above. Other Impacts: (The reader is referred to the annex or the EA summary for full descriptions) a) With the loss of more than half of the existing habitat as a result of the project, the Maluti Minnow, an endangered species currently found only in nine known aquatic habitats in the IB catchment, will probably not exist in the wild state unless mitigation measures are successful. To a lesser extent, the Rock Catfish is also threatened by the new reservoir. One terrestrial plant, the Spiral Aloe, is also an endangered species endemic to the Lesotho Highlands. However, none of the existing populations are threatened directly by the reservoir or associated construction activities, but increased human activity in the highlands will jeopardize the species. Other than the impacts on the endangered species, the overall impact on fauna was found to be low. A total of 13 wetlands comprising 39.2 ha will be inundated, all of which are currently in cultivation or used for grazing. b) Usual major civil works related environmental impacts (e.g. spoil dumps, health and public safety) are expected, as is in an increase in sexually transmitted diseases (STD), including AIDS, imported by construction crews and truck drivers. Safety threats will increase owing to a large influx of vehicles and heavy machinery. Based on performance and safety records from Phase IA, the threat is not considered to be excessive. c) The sediment yield studies conducted as a part of project design conclude the useful life of the reservoir will not be threatened. In spite of best efforts, the project will contribute to serious, but local erosion that will need to be compensated for. d) Flow in the Senqunyane River will be altered as a result of impoundment. Currently, flows immediately downstream of the dam range from 0 - 550 m3/s with a mean annual flow of 8.6 m3/s. The treaty agreement calls for an amenity flow of 0.3 m3/s that can be shaped to seasonal requirements provided that the annual average does not exceed 0.3 m3/s. The current dam design has been engineered to release up to 1.5 m3/s (Minimum Operating Level) to 2.2 m3/s without using the bottom outlets. Structures have been added to allow flood simulations of up to 50 m3/s . At the downstream confluence of the Senqunyane and the Senqu Rivers, the reduction of the mean annual flow as a result of the dam and an amenity flow of 0.3 m3/s will be approximately 40%. Human and biological communities downstream of the dam will experience reduced flows after closure. LHDA has Project Appraisal Document Page 15 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1s commissioned a long-term study on the instream flows that will be required. (See Issues below). To some degree, the downstream water quality will also be changed, but not to a significant extent given the current dam design for discharges. A more detailed discussion on this issue is in the project files, in the fornm of an annex to the April 1997 aide memoire. e) Significant impact is expected on the Ash River at the northern outlet to RSA. The additional water will cause heavy scouring and erosion in the river with negative effects on the riparian and existing aquatic communities down to the Saulspoort Reservoir. Mitigation: A full EAP with a base cost of almost M450m million has been developed. In addition to the social program noted above, the EAP includes (i) a Construction Impact Mitigation component (built into the contractor contracts at a cost of just over M1Om) and (ii) a Natural Environment and Heritage Component. The latter includes the establishment of Catchment Conservation Committees and Enviromnental Awareness Campaigns, Environmental Resource Conservation activities including a breeding program for the Maluti Minnow and the planning of biosphere reserves, and a comprehensive envirommental monitoring program. See Annex 11, Annex 2 and the EAP for details. Issues: a) The EAP is a commitment to action and stresses a flexible response to issues that arise, and allowing for corrective action enroute. This means that systematic monitoring is important and management of the program is placed at a premium. The recent revisions to the EAP include strong performance indicators, as well as a full Monitoring and Evaluation program. These will continue to be strengthened. Recent organization changes (see 16 above) have resulted in a more field oriented structure and a new ESSG management team. b) Further work is required on detailed scoping of some components. Their detailed implementation arrangements need to be spelled out in more detail (specially where there is an interface with other GOL departments) as do some of the contract packages and procurement timetable and their performance indicators (PIs). Much of this has been done, but further work will be monitored as part of the supervision process. c) The EA was conducted without the benefit of a full Instream Flow Requirements Study, which will only be completed by July 1999. LHDA has committed to complete the full Instream Flow Requirement studies and on the basis of thereof commit to a series of actions, acceptable to IBRD, for the management of downstream compensation releases from Matsoku, Katse and Mohale Dams, and/or mitigating any adverse downstream impacts identified in the study, prior to the impounding of Mohale Dam. 19. Participatory Approach: (Social Aspects) Identification/Preparation Implementation Operation Beneficiaries/community groups (Affected) IS+CON IS+CON+COL IS+CON+COL Local Intermediary NGOs IS+CON IS+CON+COL IS+CON+COL Academic institutions IS IS IS Local government (for Development Fund) IS+CON+COL IS+CON+COL IS+CON+COL Other donors (EU, EIB, ADB, ODA, DBSA) IS+CON+COL IS+CON+COL IS+CON+COL International NGOs (Christian Aid, EDF, IRN) IS IS IS Project: a) A model consultation and public participation approach has been used in the development of the phase IB EIA and EAP - in particular on social (resettlement and compensation) issues. This has involved the local communities in Phase IB Area, through a structured consultation process (see description in the resettlement and development action plan on file), and a range of local NGOs through the Lesotho Council of NGOs (LCN). Active dialog has been maintained with international NGOs who have been copied with major documents (eg. drafts of the EIA, EAP, Compensation Policy etc). It is intended to maintain these participation structures into phase lB. b) A community participation unit has been established in LHDA and an overall participation strategy developed for the project (a copy of which is in the project files). This includes the funding of a study of local NGOs to determine their ability and willingness to play differing implementation and/or monitoring roles vis the project. c) The EIA, EAP and compensation policies have been reviewed by various public meetings in Maseru and discussed in various pitsos (local meetings) in the Highlands over the last two years. Copies of these consultation records are in the project files. d) Documents have been reviewed by Bank missions, the panel of experts and a specially created UNESCO/UNDP IB EIA review team at various points over the last two years. Copies of these reviews are on file. e) A Public Information Center has recently been established in Lesotho and will be stocked with fnal versions of baseline studies and EIA and EAP. f) Until very recently, consultation in South Africa has only been at the bulk retailer level. It has been agreed for any future projects that their will be even more collaboration. Until recently there has been little direct consultation with greating communities. However, future consultations are now planned. Bank: In the supervision of phase IA and the preparation of phase IB, in addition to the project activities mentioned above, the Bank has maintained an open participatory approach including: a) inclusion of a participation expert in the project team - and regular meetings with communities and local NGOs during various Project Appraisal Document Page 16 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase I B missions - as well as inviting NGOs to participate in mission field trips, as well as to suggest sites to visit; b) close co-operation and joint missions with other funding agencies including EU, EIB, ADB, ODA, and DBSA - with an attempt to focus interventions; c) regular debriefings in London and Washington, and ongoing correspondence with major international NGOs - in particular Christian Aid, Environmental Defense Fund (EDF), and International Rivers Network (IRN); d) recent commencement of dialogue with South African NGOs over the impact of the project on the poor in South Africa, and the issues surrounding the potential to delay phase 1B. 20. Sustainability: With respect to the main water transfer elements of the project sustainability is assured: a) Funding is secure through the treaty and water user revenues; b) Technical risk due to sedimentation and hydrology are extremely low (any increase in downstream releases will reduce the attractiveness of the project but will not make it non-viable); c) Operations and Maintenance Capacity is important, but with funding guaranteed, a strong supervision program, and an organization in place and a training program well advanced risks are extremely low. d) The funding analysis for TCTA shows that their funding ability is very robust against downturns in demand. With respect to the sustainability of the utilization of the revenues: a) The sustainability of the activities funded by the project revenues, while outside the scope of the project are critical to achieve the project's objectives. These will depend on (i) the operations and transparency of the Revenue Fund, (ii) the effectiveness of the Social Fund window within the Revenue Fund, and (iii) the effectiveness of the overall budgetary process of the Government of Lesotho. The Bank is supporting GOL in all of these areas. With respect to the sustainability of the mitigation measures: a) There is some residual risk on the sustainability of the long term self generated income restoration measures taken for phase 1A and to be taken in phase IB. This is however mitigated by the fact that the new compensation policy ensures at least a cash annuity for 50 years equal to the real value of the lost production. b) The participation structures created under the project would not be replicable throughout the country, given the cost of their establishment. Over time they will need to be integrated into the local decision making structures. c) The long term sustainability of livelihoods in the Highlands is not assured, with or without the project. For those that remain in the project area, there is a residual risk that they will not be able to sustain a self generated income stream over and above that of the compensation policy. d) LHDA is committed through the Treaty to at least mitigate, if not enhance livelihoods. It has also committed to a flexible approach to the EAP, agreeing to modify as and when required - and will support this with careful monitoring and evaluation. e) Building sustainable interventions will depend on LHDA retaining a top class team of managers and professionals in the ESSG - that will focus on reaching out to communities and other GOL institutions to ensure the sustainablity. 21. Critical Risks (see fourth column of Annex 1): W 4 ~ ....................................................... ....................................................................................................................................................................... Project outputs to development objectives ..................................................................................................... ............................................................................. ......................................................................... Risk Risk Rating Risk Minimization Measure(s) ............................................... d f..... .....I.................................... .............I................. ...................... ................. .................. ..................... Under political pressure, GOL may override Moderate risk, high and negative * Formal commitment in the policy letter and technical concerns and reopen the impact if it comes to pass a commitment not to re-open the Fund Development (Social) Fund window of the prematurely; LHWRF before putting the new procedures * Effectiveness condition based on the in place, hence reducing the poverty . enactment of new legal notice with respect reduction effectiveness of the project to the operations of the Fund, and the revenues. (See para 4g) submission of an interm operations manual acceptable to IBRD; * De Facto low case IDA support to GOL should the fund be re-opened prematurely; * Continued dialogue at technical level and communication of risks to political level. ... ........................... ............. .............................................................................................................................................;i GOL may be unable to design details of an . Modest risk * Support through Poverty alleviation project effective Social Fund. (LiL FY99) and related PHRD grant and access to International Best Practice GOL may not use the incremental revenues Modest risk .* Ongoing dialogue through PFP, ESW etc. going to the budget in an effective macro- economic or poverty reducing manner. Project Appraisal Document Page 17 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B Risk Risk Rating Risk Minimization Measure(s) 1.111 E 1111 - Il "'l "'ll" " " ....................... . .......................................... ................................ ; . .............................. ................... Changes in final hydrology may reduce Modest Risk of small reduction; * None - true climatic risk revenues to Lesotho low switching risk Changes in ESKOM price may reduce real Modest Risk of small reduction; * None - but this is a transfer payment royalties to Lesotho low switching risk between SA and Lesotho Worker and population behavior may not Substantial risk that AIDS/HIV .. * Best efforts education/awareness program. respond to AIDS program will increase as a result of the * Distribution of condoms and establishment project of sentinel sites. Actions to restore long term self generated Substantial risk that some Compensation policy ensures a minimum incomes (over and above 50 year households will not be able to 50 year safety net, with minimum compensation) may not be successful, or restore self generated income compensation may be very slow in taking root Multiple sources of income/family ..................................................................................................................................I...............................................................................................; Cash compensation options may be abused . Moderate risk of some abuse .* Full compensation review by 9/00 by one member of household to the * Ongoing monitoring detriment of others * Community conflict resolution system GOL may be unwilling or unable to assume Substantial risk that GOL will be * Phased involvement of GOL in planning its responsibilities in taking over activities as unable to take up at least one of and operations stages - with strong project draws to a close (public health, water its commitments monitoring and sanitation, environment groups, VDCs) ........................................ ............................................................................... ....................................................... .................. Good progress on demand management in Substantial risk of 20/20 Strong evidence of SA commitment to SA will lead some to argue that the project hindsight secondguessing of demand management could have been delayed, while poor decision to proceed Robust economics of proceeding with phase progress could be blamed on proceeding IB now with phase l B too soon wtpaeItoson................................ ........................ ................................................................................... ............. The Instream Flow Requirement Study may Substantial risk that some action .* Project economics robust; indicate need for greater releases or further will be needed, low switching * Some flexibility in dam design. LHDA mitigation risk commitment to mitigate or release, ...................................................................................................... ......................................................................................I.............................................................. Project components to outputs ..................................................................................................... ...................................................................................................................................................... Risk Risk Rating Risk Minimization Measure Land may not be available in sufficient Modest/Low * Significant consultation and peoples quantities for those who want it, and/or involvement program communities current receptive response is Stage I resettlement successfully conducted not maintained. ..................................................................................................... ........... Attempts to breed Maluti Minnow in Modest risk that Maluti Minnow * Captive Breedng Program captivity, and to protect alternative sites, may become extinct Panel of Experts Review may fail Alternative sites to be protected Reservoir Induced Seismicity Negligible risk to dam/tunnel Engineering Expert Panel includes RIS structures. expert. Substantial risk of damage to * Structures designed to R6.5. community structures (to be * Advance analysis of potential impact on mitigated). villages, LHDA response plan prepared and public information campaign carried out before impounding Adverse geology may delay completion and . Substantial Risk of some delay * Project economics robust; increase costs low switching risk * Full tunnel lining built into designs, strong expert panel, consultants and contractors ................................................... ................................... LHDA's change process may be slow to Moderate risk of some delays ..* Good initial progress prior to Board take effect, delaying outputs and their Presentation and strong management quality. Very important for the . commitment establishment and operations of the field operations teams. Project Appraisal Document Page 18 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase I B ..................................................................... ..................................................................................................................................................................................... Risk Risk Rating Risk Minimization Measure .................................................................................................................................................................................................. LHDA unable to continue attract and retain Moderate risk of less than * Most positions in place before Board with good managers and staff, specially in the optimal staffing but low risk of other key positions as a condition of ESSG (also impacts on sustainablity and major weakness effectiveness development objectives) * Salary review completed for LHDA ............................................................. ..................... .......................................................... .......................................... ............................... Labour Unrest may delay project Modest risk of some impact, low .1 Stronger labour relations clauses in switching risk consultant and contractor contracts. ........................................................................................................................................................................................................................................................... b ......................................................................................................................................................................................................................................................... Overall project risk rating ................................................................ ............................................................................. ........................................................................................................ Risk Risk Rating Comments ~~~~~~~~~~~~~~~~~~~............... ....................... ....................................... ................................ ..................................... That the project will not be able to: (a) reduce poverty; and Moderate Challenge will be to maximize the poverty (b) stabilize/support the macro-economy Low reduction impact of the revenues that are .____________________________ .____ generated That the project will not be able to generate Low export revenues . .... .. ............................................................................................................ ; That the project will not fully mitigate or Moderate . Inspite of a good EAP there is some residual compensate for all adverse social and risk that some impacts may not be mitigated. enviromnental impacts That the project will not be the least cost for Low the supply of water to Gauteng; that it could have been delayed . Moderate ...... ......................................................................................................................................................................................................... That the project will not maximize the . Low risk of no positive impact, potential development impact moderate risk of not being :maximized 22. Possible Controversial Aspects: a) The project has been in the spotlight from international NGOs. Although a detailed series of meetings and consultations have been undertaken, some International NGOs (e.g. EDF, IRN) may not support the Bank's decision to proceed with the funding of phase IB at this time - partly related to the issues set out below (basically judgment calls on whether progress in phase IA has been satisfactory and whether the economics of delays to phase IB are acceptable), but partly on principle as part of the larger "big dams" debate. This has taken further importance with the appointment of Prof. Asmal (the SA minister concerned) as Chair of the recently established World Commission on Dams. The argument against large dams contends that they: are not economically viable; are not socially acceptable; are environmentally disastrous; can be a major cause of impoverishment, and can result in unacceptably high international debt. For this project however, the economics show that this is lowest cost supply, has a good ERR and demand management in being put in place; Socially the numbers involved are low, there has been "good planning" but implementation key; Environmentally the impact is limited and has been well managed; Poverty-wise the project supports poverty reduction activities and does not squeeze out other activities; and fiscally SA bears the debt, not Lesotho and users pay - not tax payers. Proceeding with this project will require a significant ongoing commitment of supervision resources from the Bank to deal with this debate. At the same time the project provides an opportunity to advance the debate that not all big dams are necessarily bad. A "powerpoint" note outlining these issues is available in the project file. b) Local NGOs have been critical of LHDA's level of performance on the social aspects of the project. The Lesotho Council of NGOs has however recently signed a declaration endorsing the implementation of the project. They agree that LHDA's performance has improved in recent years, but they argue that there is still room for further improvement. One local NGO (Highland Church and Solidarity Action Group) has from time to time taken a more aggressive stance against the project - supporting calls for phase IB to be delayed. As of mid-March 1998 they seemed to support the Lesotho Council of NGOs position and have no objection to the project proceeding to phase 1B. c) The Bank has clearly stated that it will not proceed with funding of phase 1B unless there is satisfactory progress on the social and environmental issues in phase IA. There has been significant progress in the last 24 months. By the time of the effectiveness of the IB loan the following will have been achieved: all replacement housing and phase IA resettlement completed; almost all of the infrastructure RDP completed; all long-standing compensation complaints resolved; a new decentralized organizational structure in place; a new compensation policy (that will ensure at least an annuity type of compensation safety-net) agreed with communities and operational; a resettlement plan for lB agreed with the communities and the resettlement of 99 stage I households complete; income restoration plans in place (where applicable) and some progress on training and self sustained income generation; a conflict resolution mechanism agreed. Some may however argue whether progress on income restoration has been sufficient to allow the Project/Bank to proceed with phase lB at this stage. The project team's view is that (i) income restoration was intended as a 15 year process - and we are now at year 7; (ii) there Project Appraisal Document Page 19 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1 B has been some progress (although with significant initial delays) - good in the identification of income restoration plans and the provision of training as well as in the provision of alternative but temporary, project related employment but still limited and unproved in the establishment of sustainable long term alternative sources of income; and (iii) the revised compensation program provides a minimum protection that will at least ensure a protection of the cash income previously earned. In the April 1998 report, the Enviromnental and Social Expert panel endorsed proceeding with phase IB. d) Over the last three years South Africa has started to implement significant demand management measures in the water sector - with achievements in the intervening period and future plans that are more ambitious than all but a handful of other countries. While it is fully recognized that this will delay successor bulk water development projects to phase IB, the project is currently being implemented in line with the treaty schedule, as amended with a one year acceleration in 1993. Some may argue for a delaying phase lB to allow the demand side measures to work. An analysis of this timing issue - and the costs, benefits and risks of a further delay has been prepared and in the project file. A summary is included in section 13 above and in Annex 4A After initial claims by some in the industry that a delay of up to 17 years in phase lB is possible, with significant savings (which was echoed by some NGOs) all major players in the SA water industry (including DWAF, Rand Water and the Water Conservation Campaign) now agree that, on the basis of the economics it makes sense to proceed now with phase IB, and to concentrate future demand management activities on delaying the next project - while Mohale Dam limits the risks of water restrictions in the interim. On balance the project team concurs with the view that the current timetable should be adhered to since (i) our analysis suggests that although a delay of 7-11 years would be technically possible, it is not economically advisable at this stage (see section 13 and annex 4); (ii) although claims have been made for longer delays there is insufficient analysis to support such claims at this stage - and the economics suggest that even a 15 year delay would save just RlOOm - which would need to be offset against the costs of demand management actions needed to obtain that delay and the increased risks of very costly water restrictions should these fail (iii) by international standards South Africa is moving well on demand management and has committed not to proceed with any successor project to LHWP till these issues have been resolved; (iv) All major players in the South African Water Sector now, on balance, support proceeding according to the current timetable; and (v) Lesotho would loose almost R500m from a 15 year delay, as well as bearing an immediate shock due to the inability to manage a "soft landing" - losing about R260m (6.5%) of GDP and about RlSOm (7.4%) in Government revenues in 1998. This would have a major negative impact on the 2 million people of Lesotho. As such South Africa would either have to compensate Lesotho for these losses or bear the political consequences of breaking the Treaty - in an environment where South Africa places a strong emphasis on the development of regional infrastructure, including water resources. e) Some have claimed that, in view of the uncertainties over demand management, phase IB should be delayed until new detailed demand management studies due in late 1999 have been completed. However, Lesotho, South Africa and the Bank do not agree since (i) the economics of delay shows that it is unlikely that even long delays would be economically viable; (ii) even a short term delay would impose significant real costs on South Africa and Lesotho; and (iii) while the demand management studies will address the long term potential for demand management, they will not, at this stage, be able to conclusively address the likely speed of implementation and changes in consumer behavior. f) Some South African NGOs and community based organizations (civic associations) have gone further to argue that by increasing the cost of water in Gauteng, LHWP has placed water out of the reach of the poor. It has been argued that if the treaty had not been in place, and if a delay in phase IB were possible, the price of bulk water would have been lower for the poor. Without the phase IA of project, the price of water would have had to increase more than with the project to match supply and demand, or economic growth would have been constricted as supply was rationed. Furthermore since the economics of delay actually shows increased financial costs due to a delay, it is unlikely that the bulk price would be any lower if phase lB were to be delayed, in particular given SA bulk water pricing policy's emphasis on movement towards economic pricing. The pricing of water for the poor, and the access of the poor to water is related more closely to retail water policy and urban retail infrastructure delivery policies in SA than LHWP. After subsequent discussions with the Bank and the Department of Water Affairs, these civic associations, backed by a resolution of their 600 member general council have endorsed the implementation of phase IB and support the application of DWAF for funding by the Bank. g) On April 23, three individual residents of Alexandra township in Gauteng filed a claim (as affected individual end users) to the Bank's Inspection Panel. They claim that the Bank failed to consider demand management alternatives to phase IB (which would have allowed the project to be delayed) and to consult with them on the project, hence forcing them to pay too much for water. They also claim that a previous planned appeal to the Panel by the civic associations (see above) was withdrawn because of intimidation by the South African Government. The Bank's analysis supports the SA and Lesotho government view that while phase lB could be delayed by 4-11 years (or longer if demand management is very successfully followed), this does not make economic sense given the advanced state of the project, the sunk costs and the South Africa's Treaty obligations to Lesotho. Hence, if anything a delay in phase IB would as likely raise bulk water prices. h) Some NGOs claim that the project is a relic of the old Apartheid and Military Governments. This is strongly denied by both governments who fully support the project. It is also argued that had the potential for demand management been accepted at the time of treaty negotiation, then the treaty should have been negotiated on a different basis. There are some who criticize the Bank's role in bringing phase IA to fruition in the regional political climate that prevailed in the mid 1980's. Project Appraisal Document Page 20 Country: Lesotho Project Title: Lesotho Highlands Water Project - Phase 1B i) Although bulk water estimates and downstream water quality surveys have been completed, a full set of downstream studies to determine the full Instream Flow Requirements will only be completed by about June 1999. Some may argue that the EIA should only be considered complete once these IFR studies have been completed and that a decision on phase IB postponed until that time. This would delay the entire project at significant costs. A contract to conduct this work has started, and LHDA has committed itself in the Loan Agreement to "mitigate or release" based on these studies. Mohale Dam outlets have been sized for a long term flow of 1.5 - 2.2 m3/s, with the potential to simulate floods of up to 50m3/s. j) Although the Revenue Fund has made significant progress in terms of implementing a labour based infrastructure program, it has not been without its problems. The FY 96 and FY97 audits were heavily qualified. GOL has commissioned a follow-up financial and technical audit and is implementing significant changes in the way in which the Fund is operated. (See block 4 above) Since a prime rationale for the Bank's involvement in the project is the benefits to Lesotho, some may argue that a stronger track record be required in this regard in order to proceed. k) During unrest related to a strike at the 'Muela construction site in September 1996, six striking workers were killed by police. An intenal commission of inquiry was completed early in 1997. A copy of various mission reports are available on the project files, along with the commission report. Following the call of various NGOs (including Amnesty International) an independent commission of inquiry into these events was convened and has submitted its report, early in 1998. While the NGOs support the Bank's role in this, some may argue that the incident, and the delays in the inquiry are evidence that Lesotho does not have the capacity to manage such a large project. On the other hand, Industrial Relations and working and safety condition have, aside from this incident, been good on the project, and LHDA has already taken actions to improve Industrial Relations in phase IB. Recommendations are before the government for improving government capacity to monitor labor relations and to improve the capacity of the police to deal with any such issues in the future. Block 4: Main Loan Conditions 23. Negotiations and Effectiveness Conditions Prior to Negotiations the Borrower submitted to IBRD evidence of: a) Consultants appointed for the Instream Flow Requirements Study b) A brief setting out the status of any major court cases pending against LHDA (e.g. Swissboro, Communities), and LHDA proposed response; c) A draft Policy Letter covering GOL intentions for the LHWP Revenue Fund; d) An Environmental Action Plan, Resettlement and Development Action Plan, Compensation Policy, Rates and Procedures - all agreed by JPTC e) Detailed implementation plans and performance indicators for the EAP; f) Agreement between South Africa and Lesotho on the extent of the EAP and on the cost allocations (i.e. what is Lesotho responsible for, if anything, over and above the RSA responsibility) and GOL's fnancing plan for any GOL requirements; g) Time bound and monitorable action plan to apply the new compensation policy to phase IA; h) Supplemental Technical and Financial Audits of LHWP Revenue Fund (FY96) and fnancial audits for FY97; i) Appoint after consultation with IBRD, personnel with qualifications and experience satisfactory to IBRD as General Manager of the Environmental and Social Services Group; j) Formation of the commission of inquiry into events at Muela Prior to Board Presentation, the Borrower submitted to IBRD: a) Signed Policy Letter covering GOL intentions for the LHWP Revenue Fund; b) A report by the Independent Commission into the Muela labour incident; Prior to Effectiveness, the Borrower will submit to IBRD: a) Cross Effectiveness conditions with the loan documents for the Mohale Tunnel and Matsoku Diversion; b) Appoint after consultation with IBRD, personnel with qualifications and experience satisfactory to IBRD as managers of the FOTs of the Environmental and Social Services Group; c) Completion of an action plan, agreed at negotiations, to apply the new LHWP compensation policy to Phase IA (defined as communication of the new policy and agreement with each household on which of the new options will apply to them); d) Completion of all phase IA resettlement compensation housing; e) Amended LHWP Treaty and LHDA Order, reflecting the new Governance Structure; f) Enacted legal notice implementing new LHWP Revenue Fund structure and procedures, per the Policy Letter, and an interim operation manual for the Fund, acceptable to IBRD; g) Resolution of all outstanding compensation claims and issues identified prior to 30 June 1997; h) Signature of the South African Guarantee Agreement; ............. .......................................................................................................................................................................................................................................... ..... ProJect Appraisal Document Page 21 Countzy Lesotho Project Tle: Lesotho Highlands Water Project - Phase t B 24. Other Loan Conditions: Similar undertakings as in the ohase 1A loan to: a) undertake annual auditing of both LHDA's accounts and the IBRD project loan and to submit to IBRD such audit reports and audited financial statements no later than four months after the end of the financial year, b) maintain appropriate financial records and accounts; c) take out and maintain insurance acceptable to IBRD and seek an insurance expert's to advice on the appropriateness of such insurance (with a copy of this advice to IBRD) d) employ an expert panel for engineering as well as dam safety inspections and an expert panel for environment and social issues; e) commit GOL to funding its share of the project including its share of (a) the JPTC operating costs, (b) the rehabilitation and maintenance of roads and border crossings, (c) the environmental, compensation and rural development action plan, and (d) LHDA's operating costs; f) provide IBRD with appropriate remedies should the Treaty or the LHDA order be amended, suspended or changed in any way as to materially and adversely impact on the ability of LHDA to undertake its obligations g) LHDA shal consult with the Bank and take into account the Bank's views on: (i) any proposed changes to the LHDA's management structure; and (ii) the qualifications and experience of individuals to be appointed to senior management positions h) use of agreed procurement documents and procedures. i) require GOL as guarantor to maintain its commitment to depositing the revenues from the project into the LHWP Revenue Fund and to the auditing there-of (via the Policy letter), IBRD would seek the following additional commitments in the loan agreements: a) LHDA would implement the EAP and RDAP as presented at negotiations, unless mutually agreed; b) LBDA shall prior to commencing the impounding of the Mohale reservoir (target Oct. 2001): (a) submit to IBRD evidence that all effected households in the respective inundation zones (phase 2) have been satisfactorily resettled (including income restoration plans prepared, compensation options agreed and first compensation effected, and related infrastructure completed according to the Resettlement and Development Action Plan); (b) submit an action plan, acceptable to IBRD, for LHDA's response to any reservoir induced seismicity, and will have implemented an information campaign educating villagers on what to expect in terms of RIS; (c) complete the full Instream Flow Requirement studies and on the basis of thereof commit to a series of actions, acceptable to IBRD, for the management of downstream compensation releases from Matsoku, Katse and Mohale Dams, and/or mitigating any adverse downstream impacts identified in the study. c) LHDA shall, prior to the commence,ment of the contracts for the Mohale Tunnel and Mohale Dam construction works, submit evidence satisfactory to IBRD that all households effected by the construction will have been satisfactorily resettled (including income restoration plans prepared, compensation options agreed and first compensation effected, and related infrastructure (excluding access roads) completed resettled according to the Resettlement and Development Action Plan. d) At IBRD's discretion, a default on the IMRD loan will be deemed to exist, should the Mohale Dam contract not become effective by December 31, 1998 e) LHDA has committed to undertake an audit of the implementation of the new compensation policy by September 30, 2000. The main purpose of the audit would be to review the progress with the new compensation options, in particular the details of the cash compensation, be it in the form of an annuity or a lump-sum. Particular attention would be paid to reviewing the extent to which the compensation payments are applied to the benefit of the entire household. Block 5: Compliance with Bank Policies [XI This project complies with all applicable Bank policies. [The following exceptions to Bank policies are recommended for approval:... The project complies with all other applicable Bank policies.] Cox Task Tea Leader: John Roome eountry Director: Pamela Cox- Annex 1 Lesotho Highlands Water Project - Phase lB Project Design Summary Narrative Summary Key Performance Indicators Monitoring and Supervision Critical AssumptionstRisks CAS Objective1 (CAS Objective to Bank Contribution in Lesotho 2 to * Imprvement in key poverty * Poverty Monitoring * Establishment of effective (i) reduction of poverty; and indicators for Lesotho - * Marco-Economic Data from Local Government and specially those related to Bank Macro-economic community processes crucial access to services, dialogue to sustainability * Social Fund operational by * CWIQ * Other macro-economic and 6/98 with (i) appropriate poverty reduction strategies poverty targeting implemented as planned mechanisms, (ii) about M75 m per annum disbursed and (iii) (measures of poverty alleviation - e.g. km of access roads, income to communities, access to water ..................... ............... ......e..... .. ..... . .. .. . .t.. ....... ............ ...... .......................................................... ..........)..................... (ii) enhancement of economic * Contribution to GDP: * Annual WB/vfF * GOL retains overall macro- stability in Lesotho - M260m(6.5%/o) - 98 supervision economic discipline - M183m (3.9°/O) - 00 * To GOL Revenue: - M145m (7.4%) - 98 - M197m (9.3%) - 00 Contribution towards * LHWP continues to be a * Published reports * Bank's role as adding value assisting South Africa4 in model forjoint water * Ongoing Dialogue in the process perceived (i) the regional development development of infrastructure on a win-win basis and (ii) contributing towards * Access to urban water supply * DWAF records * Sustainability depends on SA poverty alleviation and by local urban communities water policy in two respects: empowerment through increases (i) allocation of bulk water; effective management of water * Productivity rates for water and (ii) retail delivery resources in urban areas framework * 95% of incremental water * Water conservation program going to high value users in SA will be implemented to including industry and delay future capital programs domestic consumption and manage demand patterns * Incidence of water in a effective manner restrictions in Gauteng decreases 'Often relates to the combined imnpact of phase IA and IB 2'CAS May 1996, similar emphasis in May 1998 CAS 3 To be provided fron log frame for Poverty Reduction LiL to reform the Developmnent Fund into a Social Fund (6/98) 4No fomnal SA CAS yet. Lesotho Highlands Water Project Phase IB Annex I Page 2 of 11 Narrative Summary Key Performance Indicators Monitoring and Supervision Critical Assumptions/ Risks Development Objectives Development Obj. to CAS Obj. 1. Capacity in place for * Cumulative combined phase IA * LHDA and Revenue Fund * Revenue Fund is in place and Lesotho to transform its and IB Royalties (in 1995 Rand) Records and Audits appropriately uses the principal natural of M375m by 12/2000, M650m resources resource of abundance - by 12/2004 and MI 50m by * GOL does not reopen the water - into export 12/2007. (Note: the structure of Social Fund before new revenues: the treaty makes it very hard to procedures are in place. split IA and IB royalties * Social Fund operational and (a) Physical accurately) appropriately poverty targeted * Cumulative increased SACU * Overall GOL Budgeting revenues from phase IA and IB process strengthened to of M745m, with tax revenues of ensure appropriate use of M370m by 2003; project resources * External Resources maintained in budget to buffer external shocks ................... .......... ..................... .... .......... ............................................................. ..................................................................... ....................................... (b) Managerial and * Localization of key long term * Project Records * Management in Operations Institutional capacity in positions by 2003, without any * LHDA Management and Environmental and Social place to manage the project loss of performance Accounting System Services Group critical. * Measures of LHDA institutional * Performance Appraisal performance: System - Audits within 4 mo. of FY end - WACC <15% -Fin. Cost <33% - < 5% Cont. Cred. >90 days; - Ind. disputes days lost <1.8% * New governance structure in place and new Board and JPTC members appointed by 12/98 * 90% of LHDA staff members performance satisfactory * Key measures from LHDA transformation process * Successful renegotiation of Treaty by 12/98 2. Lowest cost alternative * 16% ERR based on consumer * Post project evaluation * Assumes political stability for supply of water to the surplus analysis reports remains and countries Gauteng Region. * Unit reference value of water of continue to want to seek Ml.20/m3 compared to mutually beneficial solutions Ml.72/m3 for next best * SA maintains parallel alternative (at 12% IRR) progress in Demand Management and bulk water management. Joint development of new projects is only a success if this is a last resort after significant demand management * Retail distribution and access improved to improve access for the poor. Lesotho Highlands Water Project Phase lB Annex 1 Page 3 of 11 Narrative Summary Key Perfornance Indicators Monitoring and Supervision Critical Assumptions and Risks Development Objectives Develooment Obj. to CAS Obj. 3. Any adverse social and * As specified in monitoring and * World Bank Supervision environmental impacts evaluation plan. Details below. Missions mitigated5 * Local NGOs * International NGOs * Environment Expert Panel * Periodic Reviews of the National Environmental Secretariat ..... ...... ............. ..... . ......................... ..... . ................................................................... ...... ........ SP rovidesup'to"-date......... Workforce and Worksite * All disturbed sites restored to * Construction Records and * ISP provides up-to-date impacts mitigated contract standards within one reports records of the Health status of year of decommissioning and to * Occupational Health and the Workforce full use within 5 years Industrial * The GOL policy on HIV * Death rates on site6 observation/records from testing allows this * Disabling Injury Incident Rate worksites <1 per annum * Observance of OH/IH standards * LBDA and contractor severe accidents < 0. 1/o.pa. * Workforce STDs rates < baseline Household standards of * This will need to be reviewed * LHDA's Monitoring Unit: * Rest of GOL progra m for living have been household by household against longitudinal against baseline macro-economic stability and maintained, if not the data base maintained by studies of 1988 and 1995 poverty reduction maintained improved (i.e. LHDA. (°/e Income Restored and cross sectional against so that that gains from LHWP compensation completed, long terms and shortterm) non-affected households are net gains in terms of income restored etc.) * LHWP compensation poverty and economic database stability and do not simply * Conflict Resolution database make up for losses elsewhere ..................... . ..... . ....................... . ..... .............................................................................. .................. ...................................... ........................... ............. Natural Communities and Key indicators not decreasing * Comprehensive set of * GOL maintains good populations of key species within lB area: Annual Field Surveys for environmental policies in exist in sustainable * Index of Range Condition catchment, wildlife and parallel with LHWP densities * Vegetation biomass vegetation monitoring * Natural vegetation * Index of avain abundance programs * Avifuana * Individual counts per site * Spiral Aloe * Seedling/adult ratio per site * Maloti Minnow * Density of fish by subcatchment ~~~~~~~~~~~~~~...... ......................... .............y ...... ................... X... ................................. .............. .............................................. ......... ................... Down stream impacts * To be defined after IFR study in * IFR monitoring program * Appropriate mitigation is mitigated/limited 6/99 possible ......................................... ................. .. ................................................... .................................................................... ............................. Quality of water harvested * 15 standard water quality * Water quality monitoring and delivered maintained measures do not exceed and modeling program .......................................................... ....... ................... time..................................................................................................... .................... Public Health maintained * Key Health Indicators (morbidity * Morbidity pattern * See below or improved for affected and mortality) for Workforce, assessments communities (resettled and Resettlers and Host Communities * Sentinel Center results host) at least stable Vs baseline * See below * See below 5Some measures may be both mitigation and development 6 Compared to intemational compactors. Target is clearly zero. Phase IA had 27 accident related project deaths to 12/97 Lesotho Highlands Water Project Phase 1B Annex I Page 4 of 11 Narrative Summary Key Performance Indicators Monitoring and Critical Supervision Assumptions/Risks Development Objectives Dev. Obj. to CAS Obi. 4. Local development spin-offs maximized; Econmic spin off effects m 3000 jobs for Basotho, (16500 person- * LHDA economics section * Poverty and economic from Construction years of employment) generating contractual records stability impacts are M275m by 12/03 * LHDA to propose how to maximized to the extent * Of which 30% from highland monitor highland job rates that benefits are not communities by 9/00 within 6 months of concentrated among a * M150m in sub-contracting/supply contractor mobilization few, and to the extent opportunities for Basotho by 2003; that wages are spent * 60% of stage 2 housing to local domestically ...... . ... ................................... ........................................................................................ ..........o Local road infrastructure * Access times / cost of transport to * Survey Samples * GOL maintains provided with wider clinics /shops reduced infrastructure after benefit than affected * Cost of basket of imported goods falls transfer populations in local markets ...... . ..e.!*qCommnit Infrastructure used ~~~~~~~~~~~~~~~~~~~~~~~...... .......... _.............................................. ............................................ .................... ...........I................................. ................. Ecological responsibility * Catchment Community Conservation * Project reports * GOL takes over and awareness increased Committee fully operational by 9/99 programs at end of among local communities, * GOL reps fully active in CCCC project with the full involvement * Ecotourism generates 10% of locally of GOL in integrated generated income by '03 * Surveys catchment management * Attainment specific index of * Index from sample . environmental awareness questionnaire . . . . ............................~~~~~~~............................................................... ................................................................ .................................. Soil Erosion limited in the * Bare ground index declining * Annual sample surveys * Range manage programs catchment area. * Rate of soil loss in cultivated * Annual field surveys mitigate pressure on soil catchments below 12 tlhafyr * Areas impacted by gullies under conservation regime * All cultivated lands in catchment provided with erosion protection - - ~~~~~~~~~~~~~~~~~~~..=........................... .............................................................................. s................ ................................................ .............. Public health improved for * Public Health System established by * FOT reports * GOL government all villages in the LHDA successfully transferred to GOL * Annual Assessment of institutions pick up the catchment, i.e. over and (phase 1B activities accepted in budget) Capacity building ongoing operating costs above the resettled and by 09/03. Action plans by 9/00. program of facilities (e.g. public host communities. * Key Health Indicators (morbidity and * Growth monitoring data < health) or alternative mortality) improving 5yr olds arrangements made for * Antenatal IRV rates fall from 16% to * Annual Anthropometry long term sustainability 14%by '00, 12%by '03 * STD patients HIV prevalence falls from 40% to 38% by 9/00 and 35% by 2/03 * Diarrhea episodes/child/yr. falls to 6 by 09/00; 2 by 09/03 - where WATSAN in place. Helminthic infection falls by 10% by '00; 25% by '03 * Stunting falls from 47% to 10% by '03, 35% by '00 * Severe PEM falls from 7% to 3% by '03 and 5% by '00 * Antenatal clinic attendance increases to _ 85% by '03 and 70% by '00 Lesotho Highlands Water Project Phase 1B Annex 1 Page 5 of 11 Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions/Risks Supervision Project Outputs _ Outputs to Development Oby. A. Major infrastructure * Delivery of 2.2 m31s water from * Monthly reports from e Short term hydrology may (Mohale Dam, Mohale Matsoku Diversion by 03/01 and 9.6 supervising engineers either delay filling of Tunnel and Matsoku m3/s from Mohale to Katse - 01/03 and contractors to reservoir or South Africa's Diversion) completed to * Overall Cost of Phase IB, limited to LHDA and quarterly drawdown; allow water transfer on time US$ 1.2bn. from LHDA to IBRD * Downstream releases may and within cost * Mohale Dam ready for Impounding - * Engineering Panel need to be increased, hence 10/01 Reports twice a year reducing water to be * Mohale Dam and Tunnel completed * Projected cost to transferred; within cost - 10/02; completion from 6 * Changes in hydrology will * 59km upgraded Access Roads monthly LHDA report - alter the annual flow of completed by 12/97 based on engineers royalties around the average; * Mohale Camp transferred 1/98 submissions * Changes in the real price of * 21km new Maseru Bypass complete ESKOM power will impact 7/98 the real level of royalties; * EPP implementation. * A unilateral decision by * RIS Mitigation plan (6/00) Lesotho not to proceed with * Estimated time and cost to phase 2 would result in a fall completion of each contract at key in revenues. benchmark dates'; * Better rainfall and faster * By MTR (9/30/00): demand management in - Dam: 600/JIM300m RSA will make the delay - Tunnel: 800/aM725m option relatively more - Diversion: 95%tdM230m attractive in hindsight. * Contractors mobilized: - Dam: 4/98 - Tunnel: 1/98 - Diversion: 1/98 Compensation implemented * Communities and LHDA prepared * LHDA report to IBRD, * Erosion of the value of any for those impacted by the for commencement of new compared to action plan cash income relative to what project (as set out in the compensation policy with effect from submitted at might have been earned by EAP) 4/98 - with all mechanisms agreed negotiations and as the households in question and in place, including register verified by supervision had there been no project * Households and conmnunities missions (Very low risk) compensated per EAP in right * Compensation data base * Cash delivery mechanism amount and on time s / register of LHDA avoids diversion of funds by * Less than 5% complaints remain * Conflict Resolution one member of hh unresolved after 6 months, 25% mechanism reports * Purchasing power of cash more than 3 months (by 9/00) * LHDA reports based on compensation will fall * Arable land loss < 900ha compensation data-base relative to that of grain in * Grazing land loss mnaov-a-i.i . '00:-0OO) : (' -000) '"' 00) 0O CMA IV - First Corp 637,500 562,500 487,500 412,500 412,500 - ABSA 637,500 562,500 487,500 412,500 412,500 CMA V - Nedbank 350,000 350,000 350,000 350,000 350,000 - Rand Merchant Bank 350,000 350,000 350,000 350,000 350,000 - Societe Generale 350,000 350,000 350,000 350,000 350,000 - Investec 300,000 300,000 300,000 300,000 300,000 TOTAL FACILITIES CMA IV,V 2,625,000 2,475,000 2,325,000 2,175,000 2,175,000 For financial planning purposes TCTA has adopted a very conservative water demand growth profile - one that assumes a very slow rate of demand (such that phase 1B water would not be needed for about 15 years after the treaty date - 2018). Based on this scenario, TCTA and DWAF have agreed a viable tariff policy/trajectory for the Vaal River System that would maintain the 1998/9 real bulk water price of R0.95 through at least 2020/30. Of this, the real equivalent of about R0.75 would accrue to TCTA to service LHWP debt. (hus, phase lB will not lead to any increase in water charges over and above waht have already been implemented in the move to a more economic pricing of bulk water in South Africa). Using this to project its income statements and balance sheets and assuming that significant demand management would indeed be possible and that the next scheme after phase 1B could be significantly delayed,TCTA's debt is projected to peak at around R18bn (nominal/current) and all of the debt is expected to be redeemed by 2016. A further sensitivity analysis was performed, reducing the demand by a further 15% below the already low demand scenario. This means that TCTA debt would peak at R23bn and wvould be fully redeemed by 2021. Both scenarios are within TCTA/DWAF's guidelines to redeem all project related debt within 20 years of project completion and within debt profiles that are fundable in the market. Table 3 shows TCTA's project income statement and Table 4 shows TCTA's projected balance sheet. Both are shown in current Rand. Lesotho Highlands Water Project Phase lB Annex 5 Page 5 of 7 Table Three: TCTA Income Statement TCTA INCOME STATEMENT F Ilncomne-Amor,tsoHton orldoe *ue toRoIt a aOnt eflod) Expenses Royalties 169,760,745 134,615,Z13 143,314,472 161,226,495 185,894,973 199,807,963 214,409,293 310,836,425 446,194,000 626,590,840 - Fixed Portion 111,061,433 85,245,178 92,064,792| 99,429,975 107,384.373 115,975,123 125,253,133 184,037,945 270,412,120 397,324,120 Variable Portion 58,699,312 49,370,040 56,749,680 | 61,796,520 78,510,600 83,832,840 89,156,160 126,798,480 175,781,880 229,286,720 Financina Cost 1,235,863,333 1,423,296,792 1,360,353,225 1,331,049,544 2,107,466,676 2,294,225,763 2,589,108,127 2,935,465,159 743,127,184 -5,084,328,376 22,373,301,219 Capital Market 721,476,949 759,772.694 1,084,127,383 1,069,717,192 1,125,747,397 1,069,33,836 1 1,273,738,830 919,350,205 - Foreign Loans Debt ServIcing 278,722,312 282,292,338 287,145,950 203,149,357 206,844,203 224,147,966 233,090,535 41,820,954 32,822,088 -16,319,371 18,319,371 Local Loans hbteredt Payments 125,394,171 123,719,251 125,195,878 125,220,060 120,998,815 113,250,508 103,639,723 55,058,328 9,808.123 Moneyllarketinterest 110,269,901 257,512,510 364,384.014 432.962,936 653,876,261 887,493,452 978,639,239 1,919,235,671 700,496,893 -5,066,509,505 -22,391,620.590 JPTC, TCTA, LHDA Expenses 16,936,834 17,660,935 19,456,079 21,207,943 23,098,017 115,755,544 125,130,196 135,235,003 274,367,945 406,504,357 602,632,077 NotCai,ti SlwortfaiU Ixce} - 456,240,487 525,382,120 799483126 568,896,733 - 59,48,516 709,585,670 7,,443,904,052 14 7707,562,026. -3,48,,594,022 Non-Cashflow Items Reallsed discount on Water Stock 36,086,211 50,056,930 63,869,342 82,574,642 65,753,903 32,166,435 93,099,919 55,152,348 LHDA operatlons & maint. 37,845,500 41,630,400 45,792,700 50,372,900 55,410,200 Reallsed FEC Coat 107,460,762 113,830,094 122,118,761 40,910,661 - - - - TCTA Assets Amort & Dep 39,532,885 39,606,805 39,636,793 39,667,031 39,699,683 39,734,947 39,773,032 40,014,336 40,368,390 40,989,347 41,655,303 LHDA Assets Amort& Dep 147,731,199 147,731,199 147,731,199 147,731,199 147,781,199 239,737,855 239,737,385 239,737,385 239,737,335 239,737,325 239,737,635 Plus. ProfitRoss prior year 824,997,043 1,748,286,590 2,966,968,517 3,897,171,633 4,865,303,189 5,936,528,176 9,424,149,407 -2,281,994,593 -36,645.234,784 -139,378,921.427 Cumulative profilioss to date 824,997,043 1,748,286,590 2,966,968,517 3,897,171,683 4,865,303,189 5,936,528,176 7,064,448,929 8,911,263,863 -8,445,791,869 -49,072,169,078 -175,587,122,260 Shortfall/(Excess) Phase 1A 216,356,111 114,447,723 110,620,539 -216,946,020 -366,718,243 -613,274,745 -878,474,545 Shorttall/(Excess) Phase 16 239,884,376 410,934,397 688,862,587 785,842,752 1,026,204,759 1,322,860,415 1,628,784,462 -847,790,114 -6,443,904,052 -12,707,562,026 -36,489,594,022 Totul ShortatllI(Exosasf Phee t1AIl I- 458,240,487 525,382,1201 799,433,126 568,396,7331 659,436,516 09585,670 750,309,916 fl7J790,14 46.4J3.9040521 12,707,562,026 63,489,594,022 Water Sales: Volume 1,165,600,000 1.246,100,000 1,325,700,000 1,420,000,000 1,481,400,000 1,543,800,000 1,608,800,000 1,963,100,000 2,340,800,000 2,726,800,000 3,155,800,000 Tanff 0.7550 0.831 0.9140 1 0050 1.1050 1.2160 1.3380 2.1540 3.4690 3.1450 4.6210 WearSale , s Si -« '880,028,f000 1,035,509,100 s+2t1i9890200t 1,427,100,000 1,636,847,000 1152,574,400 4,228,517,400 ,120235,200 8,575,736,000 114583,067,33, Notes: 1. Shotmall mens to captalisaeon otInterest 2. RoyalIes Induded In Phase IA costs 3. JPTC expenses Included In Phase 18 costs 4. TCTA expenses Included In Phase 1A costs 5. Income was tfirsty allocatd to cover Phase lA expenses and the excess to Phase 1B Lesotho Highlands Water Project Phase lB Annex 5 Page 6 of 7 Table Four: TCTA Balance Sheet TCTA BALANCE SHEET (Current Rand) (Full Income - Amoflisetlon period equal to Royalty payment period) BALANCE SHEET ==,0__ mj Funds Employd Long-Term Liabiities Cummi (Profit)Loss to date C e3ot8 fas: Emnloymert d Funds , 6 , 2 9M9 92 Fixed Assets , 8 . 9 01 t89t7692r 70 S 7 6 6 Capalisation cf Phase 1 Bc c 0 4 Current Assets a ' - 4 - W 01,, Accounts Receivable 072484 1.',4 '17)44 5,079 'a35920981888 MO'181945988 . 9865 Prepaymenets *4505480594506"" 9.7,8 ,705 A94506847886 88069750 ,70 Cash Resources 8 -1732,282 .--21 2 .17228 7 2 18741 2 1322 Current Liabilties { ,81w - - Net Cuentakf 9 - e9 s - Accounts Payable 03,4se,78 4)39,848 -533,821.7m -wo,24,279 -784,829171 82Z243,9fl -1,014,961 001 ,-988.788194 -966,558,021 447,8929%~~~~~~~~~~~~~~~~. ............ Short-term Loans 1,042,128,329.-t718,2a8A70 -Z820.78%426 .Z9P5A28406 J,745j20329 8,088,128,701 -8,080,397,488 .1Z274,75%944 1,38830...4...... ... .... Lesotho Highlands Water Project Phase 1B Annex 5 Page 7 of 7 Bulk Water Tariff: The breakdown of current proposed (98/99) bulk water tariff for the Vaal River System is shown below. Cost component I Cents per kilo liter Cost of operation and maintenance of existing works 8.75 Cost of investiations and planning 2.25 ............... ............. .................... -TZ.............. . .......................................... ........................................................................... .......................... Provision for remption of past subsidy wien back 8.50 .............................................................................................................................. .......................................... Cost for new works - TCTA portion for Lesotho Highlands Water Project (LHWP) 75.50 Total tariff 95-00 This bulk tariff has been steadily increasing over recent years in part to cover the costs of LHWP IA, and in part to send a signal to consumers on the relative cost of water. The tariff was RO.55 in 1996/7, and RO.86 in 1997/8. End User Water Prices: The end user water tariffs consist of the following three components: * Raw water component- charged by the Department of Water Affairs and Forestry and includes a charge by the TCTA for the cost of the Lesotho Highlands Water Project. * Rand Water component - includes a levy for the Water Research Commission. * Municipal component - to cover retail distribution. The end users at many local authorities pay block tariffs to discourage high consumption and to charge a higher tariff for the higher usage. The Johannesburg Municipality have the following structure: Block 1 - 0 to 10 kilo litres per month Block 2 - 11 to 20 kilo litres per month Block 3 - 21 to 40 kilo litres per month Block 4 - 41 and greater per month The graphs below sets out the end user tariffs for Johannesburg for 1998/9 assming that the Municipality gives through the raw water and Rand Water increases, maintaining their tariff component at the same level to be increased from 1 July 1998). JOHANNESBURG TARIFF COMPOSITION Municipal tariffs only increasing on I July 1998. 1998199 Financial Year Existing tariff for this component is shown. R6.00 R5.00 R4.00- R300 0 ~~~~~~~~~~~~~~~MUNICIPAUTY flR3.00 -lRDW 2 l l E3~~~~~~~~~~~~~~~~ DWAF R2.00_ R 1.00 - R 0.00 1 2 3 4 BLOCK Annex 6 Lesotho Highlands Water Project - Phase lB Procurement and Disbursement Arrangements Procurement Table A: Project Cosb by Procurement Arrangements (in USSmillion equivalent) Expenditure Category Procurement M o Total Cost (inc. cont.) ICB NCB Other N.B.F 1. Major Civil Works Mohale Dam 125.3 125.3 Mohale Tunnel 214.9 214.9 Matsoku Diversion 57.8 57.8 2. Infrastrue Civil Work 133.2 133.2 3. Consultant Services Engineering Services 76.4 28.3 104.8 (17.8) (17.8) Institutional Support 4S.8 48.8 (26.7) (26.7) 4. Other Environment Action Plan 140.0 140.0 Operating, Admin., Training 1.0 58.4 59.4 (0.5) (0.5) Total 127.0 768.0 885.0 (45.0) (45.0) Note: N.B.F. = Not Bank-financed. Excludes financing costs Figures in parenthesis are the amounts to be financed by the Bank Phase 1B loan (Advance lB items funded under the 1A loan are not included) Lesotho Highlands Water Project - Phase 1B Annex 6 Page 2 of 3 Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review Consultant Services <$100,000 . Firms: Least cost above . All .minimum technical threshold para 3. and 3.6 *--------------------------------------------------- ----4 ......................................................... ................................ <$100,000 . Firms: Consultants All qualifications para 3. and 3.? Firms: Quality and Cost .> $100,000 with Based Selection notification of technical evaluation, but not "no ................................................................. ................................................................. _.... .............. ............ ................................ *.Individuals: para. 1 15 3 . . > $50,000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..................................... Mohale Tunnel and Mohale Firms: Sole Source All Dm Supervision Contracts 1Para 38 8-3.1 1 DmSiDCnrcs4Rr3.8-3.................................. 1.1 .................... .................. ..... <$S250,000 . Firms: Sole Source All $lm.a.re.pie) . * para 3.8- 3.11 I ~~~~~All TORs . .......................... . ..................................................................................................:...Al..................................................... - Non Bank Funded goods, works and services will be procured under LHDA and financing agency regulations. * The IBRD will only fund non CMA training and consultants services, both procured under Bank guidelines. * Engineering design and supervision services will be provided by firms. * Most of the institutional consultant services will be individual service contracts. LHDA reviewed the options for firms as opposed to individuals but decided that individuals provided benefits in terms of the variety of skills needed, better integration into the main LHDA organization (as opposed to being a team within a team) and better cost effectiveness. Procurement will be based on a process of (i) placing advertisements in appropriate international press, (ii) formation of a shortlist of candidates from the application pool, based on explicit criteria, (ii) interviews for the top ranked candidates. * Where the phase IB loan would finance the continuation of a period of service for an individual already employed under phase IA, this individual may be extended on a sole source basis, with the Bank's prior no objection, subject to a satisfactory performance review. * The members of the two international expert panels (engineering and enviromnent) have already been appointed based on their recognized expertise. It is intended to retain the same membership through implementation. Should the need arise for replacement of staff this will be done through a sole source appointment. * The two large detailed design and supervision contracts (Mohale Dam and the Mohale Tunnel) have already been awarded to international consortia and will be retroactively financed back to April 1, 1997 and September 1, 1997. These consultants were selected through a process acceptable to the Bank - under which shortlisted consortia bid for the engineering contracts in two phases - first the tender design and documentation, and second the detailed design and supervision, with evaluation based on the full proposal and the second phase to be awarded at the discretion of the Borrower. (For both contracts the Borrow has exercised this option after a detailed review of consultants' performance.) * This retroactive financing will not exceed USS 4.5 million. * Provision is made for the recruitment of consultants up to US$250,000 per contract, to an aggregate of US$1,000,000 to allow for emegencies. * A standard simple form individual service contract will be used. A copy is on file. * The Bank's standard consultancy documents will be used for all firm procurement and contracts. * A ful timetable for all procurement was has been prepared and will be reviewed on supervision missions * A standard procurement process for (i) simple and (ii) complex procurement cases is already in the project file. Lesotho Highlands Water Project - Phase lB Annex 6 Page 3 of 3 Disbursement Table C: Allocation of Loan Proceeds Expenditure Category Amount in US$million Financing Percentage 1. Consultant Services 39.5 100% of Foreign Expenditures 2. Training 0.5 100% of Foreign Expenditures 3. Unallocated 5.0 Total 45.0 Disbursement Conditions * There will be no withdrawals under category 2, until the Bank has received a training policy and detailed long term training plan, both acceptable to the Bank and agreed by JPTC Use of statements of expenses (SOEs): - May be required for co.ntracts of less than $200,000 Special account: - Authorized allocation of US$2 million, initial deposit in a commercial Bank of US$1 million, until cumulative withdrawls and expenditures reach US$4million - Direct Payment: minimum amount above 20% of the Special Account Deposit Annex 7 Lesotho Highlands Water Project - Phase lB Project Processing Budget and Schedule A. Project Budget (US$000) Planned Actual US$628,000 B. Project Schedule Planned Actual (At final PCD stage) Time taken to prepare the project (months) 57 months 57 months First Bank mission (identification) 09/15/1992 09/15/1992 Appraisal mission departure 06/23/1997 06/23/1997 Negotiations 08/31/1997 12/05/1997 Planned Date of Effectiveness 12/31/1997 06/30/1998 Note: Project was conceived in 1986 in terms of the LHWP Treaty. IBRD role in phase lB was first discussed in September 1992. Some of the early Bank resources committed were (i) low intensity and (ii) included in IA supervision. Hence preparation time is somewhat overstated. Prepared by: Lesotho Highlands Development Authority and their consultants Preparation assistance: IBRD Loan for LHWP Phase IA (Ln 3393), Borrower Funds Bank staff who worked significantly on the project included: * AFTU1: Mr. John Roome (Task Team Leader), Mr. Donal O'Leary (Engineering, Hydro, Public Information), Ms. Mehmaz Teymourian (Financial Analysis), Ms. Asamanetch Fantaye (Operations Analyst), Ms. Robin Harris (Task Assistant). - Other Africa: , Mr. Cyprian Fisiy, AFTE 1 (Social), Mr. Gus Tillnan, AFTEI (Natural Environment), Mr Kam Chetty (Social/NGOs), Mr Fani Zulu (NGOs/Press), Ms. Ann Duncan and her Social Fund LiL Team * CVPs: Mr. Dan Aronson, ENVSP (Social), Ms. Susan Jacobs, ENVSP (Participation), Mr. Mike Gain, TWUWS (Economics and Water Resources), Mr. Rafik Hirji, ENVLW (Natural Environment / Water - Instream Flow Requirements) * Consultants: Mr. P.N. Gupta (Engineer - Dams Specialist), Mr. Bill Moler (Dams and Tunnels Engineer/Geologist), Mr. Stephan Klasen (Economist), Mr. Andrew. Parker (Development Fund) * Service Functions: Mr. Steve Gaginis (Disbursements), Mr. T. Mpoy-Kamulayi (LEGAF) * Country Director: Ms. Pamela Cox (AFCO1) * Technical Manager: Mr. Jeffrey Racki (AFTU1) The projects quality Assurance Team Comprised * Ms. Karen Rassmussen (Chair), Mr. Robert Goodland (Natural Environment), Ms. Cynthia Cook (Social), Mr. Gene Tidrick and Mr. Ridley Nelson (Economics), Mr. John Briscoe (Water Resources and Overview), Ms. Elizabeth Adu (Legal), Ms. Elena Folkerts Landau (Financial), Mr. Isaac Sam (Informal/History) Annex 8 Lesotho Highlands Water Project - Phase lB Documents in the Project File These are some of the key documents in the project files: Institutional - LHWP Treaty (1986) - Organization and Manpower Study Reports, with Exec. Summary - including proposed organizational Charts (1997) - Work Plans for Implementation of Organization and Manpower Study (1997) - Management Accounting Report and Performance Indicators (1997) - Governance Study and Steering Committee Recommendation (1997) - DBSA draft review of LHWP experience (1997) Engineering - Mohale Dam Optimization Study Report - Mohale Damn Engineering Contract and Workplan - with consultant qualifications - Mohale Tunnel Engineering Contract and Workplan - with consultant qualifications - Matsoku Diversion Decision Note - Engineering Expert Panel CVs - LHDA-LEC Interface Study - Summary of Seismicity in phase 1A - Summary of Sedimentation in phase IA - World Bank review of technical aspects of Mohale Dam - Details summary of technical aspects of phase lB - Emergency Preparedness Plans - Engineering Expert Panel Reports (Phase 1B) Financial LHWP Foreign Exchange Financing Strategy (Final Strategy and Conclusion) LHWP CMA Financing Strategy LHWP Concessional Financing Strategy LHWP lB Cost and Financing Plan Financial Analysis of TCTA Environmental/Social - lB Environmental Impact Assessments (ETA), with Executive Summary - lB Environmental Action Plan (EAP) - Compensation Policy, Rates & Procedures - lB Resettlement and Development Action Plan - lB Community Participation Policy and Strategy - lB Public Health Action Plan - lB Natural Environment Action Plan - IFR Study Workprogram (1997) - Environmental Expert Panel Reports (Phase IA and Phase 1B) - UNDP/UNESCO ELAWEAP Review Mission Reports lB Resettlement and Development Study Lesotho Highlands Water Project - Phase 1B Annex 8 Page 2 of 2 Water Resource Management - Lesotho Water Resource Management Study (TAMS) (1997) - Lesotho Draft Water Resource Management Strategy (1997) - South Africa-Sumnmary of Water Resource Management Strategy - South Africa-White Paper on Water Resource Management - South Africa-Draft Water Pricing Policy - South Africa-Orange River Replanning Study (ORRS) - South Africa-Vaal Augmentation Planning Study (VAPS) - South Africa Water Pricing Strategy (Other SA Water Pricing Documents) (1995-1998) - A Summary Note by TCTA and DWAF on Water Resource Management in South Africa (1997) - Vaal River Pricing (1998) Economics - Summary of Economics of 1B (WB pre-appraisal aide memoire annex 20) - Environmental Economics of IB (WB pre-appraisal aide memoire annex 18) - Projected Royalties from LHWP phases IA and lB (WB pre-appraisal aide memoire annex 22 and 22A) - Summary of Economic Impact of Phase 1A and Projections for Phase lB (aide memoire June, 1996) - Feasibility Study of LHWP (1986) - Economics of Phase lB, LHDA - Economics Impact of Phase 1A (TRC, Baffoe, Doggert) - Economics of Delaying Phase lB Labour - Internal GOL Investigation into events at Muela - Independent Commission of Inquiry into events at Muela Development Fund - Improving the focus of the Lesotho Highlands Revenue Fund Issues and Reform Options (Sackey, 1997) - Lesotho Highlands Water Development Fund: A review of current operations plan of action and agenda - Use of Lesotho Highlands Revenues (Coopers & Lybrand 1991) - Development Fund Audit FY94, 95, 96 - Study of Lesotho Highlands Waste Revenues (TRC Africa, 1996) World Bank Loan - LHDA proposal for technical assistance (position descriptions and TORs) - Procurement Guidelines and Timetable - Disbursement projects Annex 9 Lesotho Highlands Water Project - Phase lB Status of Bank Group Operations in Lesotho IBRD Loans and IDA Credits in the Operations Portfolio Difference Between expected Original Amount in US$ Millions and actual Last ARPP Loan or Fiscal disbursements a/ Supervision Rating b/ Project ID Credit Year Borrower Purpose No. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Dev Obj Imp Prog Number of Closed Loans/credits: 20 Active Loans LS-PE-1391 IDA 21950 1991 GOVERNMENT OF LESOTHO INDUSTRY AND AGRO-IN 0.00 21.00 0.00 2.85 2.71 0.00 S S LS-PE-1396 IBRD 33930 1992 LES H/L DEV. AUTH. HIGHLAND WTR.I 110.00 0.00 20.00 21.64 39.86 7.14 S S LS-PE-1392 IDA 22870 1992 GOVT OF LESOTHO EDOC. SECTOR DEVELOP 0.00 25.20 0.00 13.53 11.79 9.94 S S LS-PE-1401 IDA 26120 1994 GOVERNMENT PRIVATISATION/RESTRU 0.00 11.00 0.00 7.40 -.39 0.00 S S LS-PE-1403 IDA 28570 1996 GOVERNMENT ROAD REHAB. & MAINT 0.00 40.00 0.00 34.05 10.71 2.33 S S Total 110.00 97.20 20.00 79.47 64.68 19.41 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 104.69 137.16 241.85 of which has been repaid: 2.31 10.96 13.27 Total now held by IBRD and IDA: 184.89 121.55 306.44 Amount sold : 0.00 0.00 0.00 Of which repaid : 0.00 0.00 0.00 Total Undisbursed : 79.47 2.47 81.94 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS - highly Satisfactory, S - satisfactory, U = unsatisfactory, HU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Note: Disbursement data is updated at the end of the first week of the month. Annex 10 Lesotho Highlands Water Project - Phase 1B Country at a Glance - Lesotho Sub- POVERTY and SOCIAL Saharan Low- Lesotho Africa income Development dlamond Populabtion mid-1996 (millions) 2.0 600 3,229 GNP per capita 1996 (US$) 670 490 500 Life expectancy GNP 1996 (billions US$) 1.4 294 1,601 Average annual growth, 1990-96 Population (P6) 2.1 2.7 1.7 Labor force (56) 2.3 2.6 1.7 GNP Gross per primary Most recent estimate (latest year available since 1989) capita enrollment Poverty: headcount index (% of population) 49 .. ..olm, Urban population (% of total population) 23 31 29 Life expectancy at birth (years) 61 52 63 Infant mortality (per 1,000 live births) 76 92 69 Child malnutrition r(5 of children under 5) 21 .. .. Access to safe water Access to safe water (% of population) 57 47 53 Illiteracy (% of population age 15+) 29 43 34 Gross primary enrollment (% of school-age population) 99 72 105 Lesotho Mate 93 78 112 Low-income group Female 104 65 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1995 1996 Economic ratIos' GDP (billions US$) 0.1 0.2 0.9 0.9 Gross domestic investmenVGDP 18.7 49.4 83.2 89.2 Exports of goods and serviceslGDP 13.2 12.7 21.5 25.5 Openness of economy Gross domestic savings/GDP -70.4 -76.6 -16.9 -1.8 Gross national savingslGDP 14.2 46.3 59.8 72.9 Current account balance/GDP -12.3 -5.0 -33.3 -32.1 Interest payments/GDP 0.1 1.7 1.7 1.6 Savings E Investment Total debtVGDP 9.4 70.8 77.4 95.4 Svn Total debt service/exports 0.8 6.8 6.3 5.5 Present value of debtlGDP .. Present value of debVexports .. Indebtedness 1975-85 1986-96 1995 1996 1997-05 (average annual growth) GDP 4.2 6.9 9.1 12.7 5.9 Lesotho GNP per capita 1.8 0.9 4.7 9.8 2.3 Low-income group Exports of goods and services 5.0 7.3 2.1 30.7 14.0 STRUCTURE of the ECONOMY 1975 1985 1995 1996 Growth rates of output and investment (%) (%6 of GDP) Agriculture 32.5 21.4 11.3 14.3 30 Industry 13.2 29.7 39.0 41.2 20 Manufacturing 5.7 11.2 16.2 16.5 \ 0 Services 54.2 48.9 49.7 44. 10 0 I Private consumption 151.2 152.0 96.1 85.2 .10 91 92 93 94 95 96 General govemment consumption 19.3 24.6 20.8 16.6 Importsofgoodsandservices 102.4 138.7 121.6 116.5 GDI -0D-GDP 1975-85 1986-96 1995 1996 Growth rates of exports and imports (%) (average annual growth) Agriculture -4.7 0.3 -20.1 54.7 40 Industry 11.0 13.8 18.2 11.7 30 Manufacturing 15.5 9.0 20.4 14.1 20- Services 5.1 5.5 9.5 6.2 10/ Private consumption 3.1 -2.5 -6.4 0.2 o General govemment consumption 9.9 3.7 5.4 -13.7 - a4 92 96 Gross domestic investment 7.9 17.1 27.8 19.2 -20 Imports of goods and services 4.8 2.2 8.6 5.3 Gross national product 4.6 3.3 6.9 12.2 Exports - _- -Imports Note: 1998 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Lesotho Highlands Water Project - Phase lB Annex 10 Page 2 of 2 Annex 10 Lesotho Highlands Water Project - Phase 1B Country at a Glance - Lesotho PRICES and GOVERNMENT FINANCE 1975 1985 199S 1996 Domestfc prices Inflation (%) (% change) 100 T Consumer prces 14.2 13.2 6.3 Implicit GDP deflator 30.5 17.0 3.0 so - ± Government finance o (% of GNP) 91 92 94 95 96 Current revenue 38.0 o -- Current budget balance 13.8 -G DP def. I+ CPI Overall surplus/deficit 3.2 TRADE 1975 1985 1995 1996 (millons US$) Export and import levels (mill. USS) Total exports (fob) . 22 168 197 1,500 Diamonds 7 8 Live animals 1.1 12 12 Manufactures . 2 43 45 10 Total imports (cif) 335 1,168 1,203 I * ] Food 66 328 370 500 Fuel and energy 32 216 243 Capital goods , 56 368 303 o U Export price index (1987=100) 68 90 91 92 93 94 9s 96 Import price index (1987=100) 95 Exports * Imports Terms of trade (1987=100) 72 BALANCE of PAYMENTS (millions US$) 1976 1988 1998 1996 F CurrentaccountbalancetoGDPratio(%) Exports of goods and services 26 39 210 o Imports of goods and services 171 343 1,179 Resource balance -145 -304 -969 . 20 Net income 123 249 451 *40 Net current transfers 21 62 50 I I Current account balance, 40 before official capital transfers -1 7 -468 40- Financing items (net) 2 14 687 Changes in net reserves -1 -21 -219 -100 Memo: Reserves including gold (mill. US$) .. 44 588 753 Conversion rate (local/USS) 0.7 2.2 3.6 4.3 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1995 1996 (milrions US$) Composition of total debt, 1995 (mill. USS) Total debt outstanding and disbursed 14 175 659 IBRD 0 0F tG A IBRA 0 0 .54 57 28GA 5 IDA 8 62 153 159 28 Total debtservire 1 19 40 E IBRD 0 0 4 4 124 8 IDA 0 1 3 3 153 Composition of net resource flows Official grants 17 45 59 Ofricial creditors 5 35 33 Private creditors 0 -6 9 Foreign direct investment 0 5 23 D.38 Portfolio equity 0 0 0 252 World Bank program Commitments 0 4 11 40 A - IBRD E - Bilateral Disbursements 2 8 20 19 B - IDA D - Other multilateral F - Private Principal repayments 0 0 1 1 C - IMF G - Short-term Netflows 2 8 19 17 _ Interest payments 0 1 5 5 Net transfers 2 8 14 12 Development Economics Annex 1 1 Lesotho Highlands Water Project - Phase 1B Summary Of Natural Environment Issues A. PROGRESS IN PHASE IA, AND LESSONS LEARNED. After initial delays the progress on natural environment management in phase 1A has been good. Highlights include: * Commencement of an erosion control and watershed management program (albeit later than expected); * Opening of the Katse Botanical Garden for plant species rescued from the Reservoir area; * Surveys completed and a captive breeding program established for the Maluti Minnow; * Interactive environmental awareness video and publications and posters prepared and distributed; * Erosion control and revegitation much improved along Northern Access Road; * Effective construction monitoring * But slow progress on limnnological studies Key lessons learned from phase IA include: * Completing a full EIA before commencing the EAP; * Preparation of implementation plans and performance indicators prior to project commencement; * Agreement on the cost allocation between the countries prior to project commencement; S Strengthened environmental monitoring from the start of the project - build into contracts. B. ENVIRONMENTAL ASSESSMENT FOR PHASE 1B The Phase lB Environmental Assessment (EA) was synthesized from the results of fourteen coordinated baseline studies of physical, chemical, ecological and social aspects of the Lesotho Highlands under the direction of the Environment Division of LHDA. The cost of these studies was approximately R20 million (US$5 million). The studies included inter alia, wildlife and botanical surveys, water quality, human and livestock demographics, land use, conservation areas, archeology, human use of natural resources, soil erosion and sediment yields, hydrology and downstream ecology. Downstream impacts in South Africa drew on the Orange River Replanning Study and a fill IFR study that will look in more detail at the downstream impacts of the hydrological changes is underway and will be completed by June 1999. The EA work was carefully monitored by Bank environmental and social staff, a multidisciplinary review team composed of international experts funded by UNDP and Unesco in collaboration with the National Environmental Secretariat and a panel of experts. Scoping meetings were held with technical experts, government representatives and NGOs. Open forum meetings were also held on the draft report which included international experts, NGOs, government officials and people from highland communities. While preparing the baseline studies, consultations were held in individual communities throughout the highlands. The EA report lists the participation context and summaries of the people's perceptions. The EA report provides (i) an overview of the environmental and social conditions in the highlands; (2) a description of each of the project major sub-components; (3) an evaluation of the impacts of each component on each of 79 Important Ecosystem Components that were defined in the scoping meetings; (4) a resettlement plan, (5) an Environmental Action Plan (EAP) with recommended mitigation measures for all environmental and social impacts; (6) a monitoring program; and (7) a bibliography of project studies. C. EA FINDINGS The reservoir will inundate 2,360 ha of land (including 1635 ha of grazing land and 700 ha of arable land.) None of this land is considered to be pristine wildlife habitat as most of the land in the highlands has been used for agriculture or livestock grazing. Lesotho Highlands Water Project - Phase lB Annex 11 Page 2 of 9 The social implications of the project will be treated in the annex on social issues. However, the loss of land by inundation is also an environmental issue in that very important aquatic habitat will be lost. In the case of one species, the Maluti Minnow, the loss of habitat is significant. The minnow is an endangered species and it is only found in nine known aquatic habitats in the LHWP area and is endemic to Lesotho highlands. The minnow requires clean and running water and five of the existing habitats will be converted or threatened by the flooding of the Mohale reservoir. With the loss of more than half of the existing habitat, it is probable that the minnow will cease to exist in the wild state unless mitigation measures are successful. To a lesser extent, another species, the Rock Catfish is also threatened by the new reservoir. This species is also endangered, but it is found outside of Lesotho in the Orange River Drainage in RSA. It is not as close to extinction as the Maluti Minnow. One terrestrial plant, the Spiral Aloe, is also an endangered species and it is also endemic to the Lesotho Highlands. The plant populations were intensely surveyed during the biological studies and none of the existing populations are threatened directly by the reservoir or associated construction activities, but increased human activity in the highlands will jeopardize the species in that it has relatively high value as a horticultural specimen. Currently, it is routinely harvested by local people and sold for horticultural purposes. It is feared that even more people will attempt to collect the plant from the wild for sale to tourists. Other than the impacts on the endangered species, the overall impact on fauna was found to be low. The Lesotho Highlands does not have a rich biological diversity with relatively low species counts of vertebrates with 52 species of manmals, 106 sureyed species of birds, four surveyed reptiles and five species of frogs. Despite the low species count, the diversity is important globally in that many of the species are endemic to Lesotho or adjacent highlands in South Africa. Flow in the Senqunyane River will be drastically altered as a result of impoundment. Currently, flows immediately downstream of the dam range from 0 - 550 m3/s with a mean annual flow of 8.6 m3/s. The treaty agreement calls for an amenity flow of 0.3 m3/s that can be shaped to seasonal requirements provided that the annual average does not exceed 0.3 m3/s. The current dam design has been engineered to release up to 1.5 m3/s at minimum operating level, without using the bottom outlets. At higher reservoir levels, the dam design permits releases up to 2.2 m3/s without using the bottom outlets. The release outlets have been spaced vertically so as to allow offtake of the amenity flow at various levels in the reservoir to ensure suitable water quality of the releases. At the downstream confluence of the Senqunyane and the Senqu Rivers, the reduction of the mean annual flow as a result of the dam will be approximately 40%. Based on the results of the IFR study, LHDA will develop a plan of operation to manage the downstream impacts and establish procedures for monitoring impacts and making adjustments to downstream releases if necessary prior to the impounding of the Mohale Dam. The effects on river water quality downstream will be minimal. There will be slight reduction in suspended solids, water temperature and dissolved oxygen between the released water and current levels in the river. The natural action of flowing down the river channel will quickly increase the sediment load, temperature and dissolved oxygen. There will be a reduction of fish and fisheries downstream from the reduced flows, but the impacts will not be increased by changes in water quality. The reduced quantity of freshwater into the downstream reservoirs in South Africa may reduce the dilution capacity and impact downstream water quality changes in the reservoirs. A total of 13 wetlands comprising 39.2 ha will be inundated, all of which are currently in cultivation or used for grazing. Less than one hectare of other wetlands will be damaged by access road or transmission line construction. The erosion and sediment yield studies conclude that even using the most drastic estimates of sedimentation, the useful life of the reservoir will not be threatened. The project will contribute to serious, but local erosion. While extensive efforts are being taken to control erosion during construction, there will be some local damages that can not be avoided. While the erosion will not be great in the overall context of the highlands, it will be severe to the individual farmers or households that will lose fields or gardens as a result of the erosion. Lesotho Highlands Water Project - Phase lB Annex 11 Page 3 of 9 The project will interfere with normal living activities in the highlands and the local population's use of natural resources. Useful medicinal and culturally important plants and animals will lose habitat and will become less common than before the project. The project will also induce psychological stresses in the local populations which in turn can affect the wild flora and fauna since the local people use the plants and animals for magic and protection from spirits. The use of relatively rare birds, especially the large raptors, in magic ceremonies is very common and this activity is likely to increase with the added amount of cultural stresses induced by the project activities. Human and biological communities downstream of the dam will have to cope with reduced flows after closure. At present, there are little hard data as to how much flow would be necessary to maintain the existing communities. LHDA has commissioned a long-term study on the instream flows that will be required. To some degree, the downstream water quality will also be changed, but not to a significant extent given the current dam design for discharges. The project will have a serious impact on the Ash River at the northern outlet to RSA. The additional water will cause heavy scouring and erosion in the river with negative effects on the riparian and existing aquatic communities down to the Saulspoort Reservoir. Sediment yields, estimated at 800tIkm2/yr will increase with the increased water volume and flooding. Return period for various size floods at Saulspoort Dam can be expected to decrease considerably. The EA lacks a discussion on the limnological changes which are ongoing during the filling of the Katse Reservoir. The dam has been closed over one year, but no systematic limnological studies have been undertaken. Katse Reservoir is the highest, deepest and coldest reservoir in sub-Saharan Africa which makes it incredibly unique. Information on chemical, physical and biological changes as the system converts from a flowing river to a standing reservoir is mostly lacking. There are some measurements on water quality being carried out, but no comprehensive limnological research is being undertaken. This lack would be regrettable if Katse Reservoir was to be the only reservoir in the project, but becomes more of a loss when the information will not be available to make predictions on biological productivity for Mohale Reservoir as well. Reservoir levels will fluctuate 50-70m over long-term cycles which are influenced by climatic cycles and 5-20m over an annual cycle. These fluctuations will not permit growth of stable vegetation in the drawdown zone and will make access to the water difficult during periods of low operating levels. The EA highlights potential adverse effects on human health and safety. From experience with Phase 1A, there is expected to be an increase of sexually transmitted diseases (STD), including AIDS, imported by construction crews and truck drivers. Other STDs are expected to increase, but pose a less serious threat than AIDS as they can be cured by proper treatment and medication. Safety threats will increase owing to a large influx of vehicles and heavy machinery operating on narrow mountain roads. The roads are common transport corridors for pedestrian and animal traffic and the local populations are unused to such a large amount of vehicular activity. There will be serious threats to the construction force which is normal for large construction projects. Based on performance and safety records from Phase 1A, the threat is not considered to be excessive. 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I-- ... 11  'l.:::;::::::::::::::::::;:::::;:-::a .. . .. . . . ............ :::::::::::::::::::::::::::::-:-..: ... ::::::::!:::::::::::::::::::::::::::::: ........... ............................. :::::::::::::::: ..................I....I...........I........................................... .............. -.- -.. ........................ .................................-......I............ ..........  -  6 JO t, 238d II XOUUV Ell =Rcl - POfOJJ MUM SPUBWTH OXPOWI Lesotho Highlands Water Project - Phase lB Annex 11 Page 5 of 9 D. MMIGATION MEASURES The EAP has outlined a series of mitigation measures to counteract the negative effects of the project to the extent feasible. Even before the plan was completed, actions had been taken to include environmental and social protection measures into the construction contracts. Further, mitigation measures undertaken in Phase IA have been extended to cover similar elements of Phase lB. While the major part of the EAP addresses social issues which are discussed in another annex, there are strictly environmental mitigation actions that are being undertaken. The possible extinction of the Maluti Minnow has been taken seriously. LHDA has contracted a research program on breeding and propagating the species in captivity with the hopes of re-introducing the minnow into suitable habitats in the highlands. Captive breeding programs are expensive, but results elsewhere have been promising with new advances in genetic engineering and reproduction research. Even if the program is successful, the minnow would remain endangered because of the species strict habitat requirements. A similar program is not envisaged for the Rock Catfish because of its wider distribution and more robust habitat requirements. At the field leyel, barriers will be established between the reservoir and upstream minnow habitat to prohibit the passage of fish that would prey on the Maluti Minnow. LHDA will sponsor research and prepare a conservation program for the Umbraculate Frog, an endangered species in the highlands. The research will focus on habitat requirements, niche characteristics and competition with other species as weli as mapping the existing populations. LHDA is also undertaking a propagation research program with the Spiral Aloe. Given the recent advances in plant reproduction research and tissue culture, the potential for a success is greater with the Spiral Aloe than the Maluti Minnow. If moderately successful, it may be possible to give propagules to highland farmers to grow the species commercially which would lessen the threat to wild populations. The Public Health issues are being addressed by the Environment Division of LHDA to the extent possible. There is an active health education component to increase the awareness in the highland communities to the severity of STDs. This is being done in conjunction with other public health programs at the community, village and national levels. Safety awareness programs are being undertaken by LHDA and the contractors to lessen the risk of accidents. LHDA has been carrying out environmental awareness programs in the highlands since the middle of Phase IA using posters, videos and group training techniques. In addition, LHDA is preparing some areas for protected reserves with full collaboration of the local communities. These programs stress the values of wild plants and animals in the daily lives of the people. LHDA is also carrying out aluminum can recycling programs to lessen the amount of litter from beverage cans. Many of these programs will continue with a greater emphasis on training people to utilize the prepared material for community awareness efforts. The focus will be on local schools and user groups. The programs and materials will be developed by the same personnel which implemented the programs during Phase LA. Mitigation measures for reduced downstream flow will await the conclusion of the instream flow requirement studies. In the interim, the impact of the reduced flows on downstream communities will be monitored as a part of the instream flow studies. If necessary, adjustments to compensatory flows could be made before the conclusion of the studies. LHDA contracts for construction now require enviromnental monitors working for the contractors. In addition, LHDA monitors construction for environmental damages. The necessity for enviromnental monitors was a lesson learned from Phase 1A. The monitors require that erosion control devices be in place during the initial construction instead of waiting until the end of the period to restore damaged areas. In Phase 1B, the erosion control devices are put in place immediately, before damage occurs or becomes serious. For the most part, this important improvement will go unnoticed because by all except the environmental monitors. Lesotho Highlands Water Project - Phase lB Annex 11 Page 6 of 9 The following tables summarize the Engineering and Natural Environment components of the EAP. CONSTRUCTION MITIGATION: (Costs are included in the relevant construction contracts) Water Quality Monitor incoming and outgoing water quantity & quality, identify pollution sources, carry 1997-2003 Management out control measures, provide alternative water sources for local communities Erosion Construct adequate runoff control and bypass facilities, minimize soil exposure and of Control scarification, maintain strict standards for grading and cutting Access Provide alternative access where necessary for local communities, construct bypasses and of Management footbridges to ensure safe commuting Pollution Provide waste handling facilities, safe storage areas for chemicals & fuel, monitor spillage n Abatement and seepage, take immediate measures against accidental pollution events Site Stockpile all available topsoil, landscape and revegetate exposed areas and spoil dumps as Rehabilitation soon as possible, apply ecologically appropriate vegetation coverage, monitor reclaimed sites Site Minimize initial disturbance to construction sites, rehabilitate all disturbed areas, monitor Landscaping reclaimed sites and rehabilitate where required, construct screens to minimize visual impacts Croplands Minimize site impacts to arable lands, retain topsail for use in land reclamation, reclaim n lands to arable potential Local Provide unskilled and semi-skilled jobs to local residents Employment Occupational Provide high standard construction accommodation, provide health care facilities and Health education, maintain industrial health legal requirements Housing Careful site management of explosives and blasting programs, compensate for house N damage Community Establish communications forums with local communities, avoid village site impacts from Impact construction access and equipment, repair all damage to community property, facilitate Avoidance hiring of local people Public Safety Maintain speed restrictions on construction access roads, utilize warning signs, fence off to hazardous sites, maintain strict precautionary standards when blasting, prevent access to construction sites Community Limit and control dust dispersion from construction sites, access roads and plant sites, Health monitor dust impacts to surrounding communities and environment Noise Control Limit and control noise generation from construction sites, access roads and plant sites, monitor noise levels in surrounding communities Lesotho Highlands Water Project - Phase 1B Annex 11 Page 7 of 9 NATURAL ENVIRONMENT AND HERITAGE Project Features : Duration Estimated ! ! ! ' Total Costs Integrated Catchment Management I.. - - - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ;Catchment 1 Provides a consultative, planning and implementation 1998-2003 1,775,000 * I Conservation ' mechanism for sustainable resource conservation and l I Coordination utilization activities within the Phase 1B catchment Committee i I Environmental Raise environmental awareness on value of natural 1998-2003 4,325,000 Awareness resource bases and the relevance of LHDA programs amongst rural communities, project workforce and other I ~~~~~stakeholdersII -_ _- _ _ -_---------______________________- -_-_________________. Recycling , Removal of as much discarded reusable material as 1998-2003 1,600,000 _piramt . . . . Lsijl nr_eLct_o aeato rey - ngdep ts__ I _ - _____ Environmental Resource Conservation ; Planning of ; Obtain broad-based community support for biosphere 1 1998-2000 p1,520,000 biosphere conservation measures and develop a biosphere i reserves e conservation plan a Implementation a Implement the biosphere conservation plan, based on 2000-2006 X 25,240,000 of biosphere outcome of planning study. See Note at ireserves I i end of table TSoil & water Implement community-based soil and water conservation 1998-2003 T 1,535,000 I conservation : programs, and provide practical education in conservation I I … …1atPrimaryand Secondary School level. _… Z Conservation & Protection and management of wetlands on a sustainable 1998-2003 439,000 (*) I rehabilitation of I basis to regulate the flow and quality of water in the I I a wetlands catchment, and to contribute to the biodiversity of the -I---I ____________---F----1----~~ Conservation & Enhancement of existing Aloe polyphylla populations and I 1998-2003 835,000 (*) sustainable use 'habitats within the LHWP Phase lB catchment area l of the spiral aloe lthrough community participation and sustainable and _ .Ieconomic use of the splecies _ _ Plant germ ICollect plant genetic resources in the reservoir- and other X 1999-2000 1 425,000 'plasm conserva- ; project areas prior to habitat inundation and destruction Ition land retain in seed storage banks, botanical garden I I ... plantins and other forms for future use and distribution. X __ ___________…____I___________________________-___…___…__-1- …- - Propagation of Provide alternative (nursery cultivated) sources of 1998-2003 p 1,023,000 medicinal plants I principally used medicinal plants to meet demands from a for community a traditional healers and local communities and reduce X use ressure on wild Ppulations in the LHWP area. I - -_ | Conservation of Ensure protection and long-term sustaining of the maloti 1998-2003 19,755,000 the Maloti minnow through protection and enhancement of remaining Minnow Ihabitats, monitoring of abundance and conservation status, I a captive breeding for restocking, and comrnunity awareness l … - and tourism ro rams ;TConservason of IDevelop a conservation plan for the umbraculate frog Rana 1998-1999 285,000 'the Umbraculate Ivertebralis within the Phase 1B catchment I I FT - °t - ------l -- ---------------------------+- T Waterquality | Prediction and assessment of Mohale reservoir water 2002-2003 210,000 !modellin! quality through the use of computer modelling. ! ! Lesotho Highlands Water Project - Phase lB Annex 11 Page 8 of 9 Project iFeatures X Duration Estimated ! ! ! . ! Total Costs Soil erosion ; Assessment of the erosions rates for all sub-areas of the 1998-2003 1,040,000 modelling project catchment, and assessment of the reductions ; possible in erosion rates through changes in land use - L2ractices-I __ 8____ Environmental Resource Monitorin…z ;TLand cover and ;Providebaseline landuse/landcover mapagainstwhich ;1997-2003 1,105,000 I land use 'future change can be measured, establish historical trends ' i monitoring in land use and land cover change, and research the ; linkages between observed change and agricultural ipractice, management policies, hydrological patterns and l - F| waterqualitycharacteristics I Vegetation Determine seasonal and annual changes in cover, species 1998-2010 1,140,000 monitoring 'composition and extent of erosion, assess impacts of land- ; use, grazing and project-related activities on vegetation, 'and identi& mit ation and enhancement 9p ortunities. … Soil erosion' ; Measure rates and patterns of soil loss within the 1998-2010 5,344,000 (*) monitoring ' catchment to provide support information to soil and water I | conservationproams. jWetland - Monitor trends in cover, condition and use within - 1998-2010 340,000 (*) monitoring ' representative wetland types in sub-catchments, collect I I eperiodic data which reflect wetland species composition, I Icondition, utilization and trend I _h--I --1- - - - - - _ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Terrestrial Monitor the status, seasonal and annual distribution and 1998-2010 1,020,000 I fauna I abundance, of key terrestrial faunal species, assess impacts I I monitoring of land degradation, monitor the impacts of construction, j j and identify mitigation measures for protection of i terrestrial fauna. Aquatic species Monitor the status, seasonal and annual distribution and 1998-2010 T1,435,000(*) monitoring abundance, of key aquatic species, assess impacts of land X § degradation, monitor the impacts of construction, and | | -1-identif mitigation measures for protection of aquatic biota.+ Water quality Monitor Phase 1B catchment water quality to ensure water 1997-2010 13,670,000 monitoring I delivered to Katse , RSA and downstream ecosystems I I +g_ | meets.Rprovedreirnements. + tiDonwnstream - Monitor and assess impacts of altered flow regimes on - 1999-20 10 1,315,000 I river regime I downstream ecosystems and resource uses and relate these ' nnonitoringj ,t the flow relea!sei2reLne................... ; Construction Regular audit of environmental protection measures at all j 1998-2003 j 340,000 _' SiteAuditig_ 'ILHWP Phase_ B construction sites _ _ Total NEAP Budget 65,716,000 Note: 1. For items marked (*), Lesotho is responsible for 23% of the costs 2. Only M3.6 out of a planned M25m has been approved initially for biosphere reserve implementation E. REMAINING RISKS All identified moderate to very high impacts of Phase 1B wili be addressed through the mitigation, management, compensation and compensation programs described in the EAP. Due to the nature of some impacts and/or limitations on practical methods of mitigation, some residual impacts will remain afler project completion. The most important of these so far identified include the foilowing: * river flows in the lower Senqunyane will remain lower or much lower than under pre-project conditions Lesotho Highlands Water Project - Phase lB Annex 11 Page 9 of 9 * water quality in the lower Senqunyane will differ from that under pre-project conditions * upstream riverine habitats will be permanently lost through inundation * some habitats of rare and endangered species such as the Maloti minnow will be permanently lost * a portion of the arable and grazing land in the catchment will be permanently lost * access to many parts of the catchment will be permanently altered by the presence of the large reservoir * changes and impacts to the cultural identity of the rural communities will occur on a continual basis * the incidence of STDs and especially H[V will probably increase markedly during and following the project. EA is an ongoing process and does not end with the production of an EA report. EAs simply can not forecast all future problems and prescribe the perfect mitigation measure. It is essential that the process continue with an effective monitoring program. The EAP has a relatively precise monitoring regimen that will be able to quickly identify problems before they become serious. There is always the risk that if problems do not occur at once, the monitoring becomes less and less rigorous to the point that problems then can be overlooked or missed. It is essential that monitoring be adjusted periodically to make the process less routine and more proactive. There is value in continuing with a modified version of an expert panel. An annual visit of the entire project area by a small expert team can often point out small problems missed in the more routine monitoring process. In addition, the monitoring unit will be more tuned to performance if there is expectation that their work will be evaluated. Annex 12 Lesotho Highlands Water Project - Phase lB Summary Of Social And Resettlement Issues Phase lB of the LHWP will benefit from the lessons learned from Phase IA, and from a careful and thorough planning process carried out by consultants to the implementing agency. A. PROGRESS IN PHASE 1A. AND LESSONS LEARNED. 1. Resettlement and Relocation: Phase IA required the resettlement of about 75 families due to the inundation of the Katse Reservoir (25 involuntary, 50 voluntary). These were divided into three phases. The first 25 households were satisfactorily resettled prior to impoundment of the darn, mostly with intact social networks, and provided with latrines, spring protection and one year's health services program. Of these 25 households, vegetable gardens have been re-established for the 17 who expressed an interest in gardens. The 18 housing units, 10 kraals, 2 stables, 10 latrines and 9 fences under phase 2 were completed by mid-1997 and all remaining structures including 65 housing units, a cafe and a school, (constructed by conventional contracts) and 13 additional units, and a school (by a community cooperative) were recently completed. In addition about 200 houses were replaced and moved only a few scores of meters, as a safety measure to move out from under power lines or back from road alignments. Although initial implementation of these moves were significantly delayed, the last 6 units got delayed by the contractor's cash flow problems and were recently completed. 2. Compensation: In total, for phase IA, about 1800 ha of arable land and 3000 ha of common grazing land has been appropriated for project works, affecting about 3000 households (many losing just access to grazing land). All such losses are being compensated: (a) for losses of gardens or field areas under 1000 square meters, single cash payments were made; (b) for aggregate field losses over 1000 square meters, in-kind payments of grain - with beans added since 1994 - were being made for 15 years at a rate based on a high estimate of farm yields; (c) for the loss of grazing, in-kind compensation of fodder based on a calculation of yields is given for five years to the community for internal reallocation to those actually suffering losses, while they made any necessary adjustments to their herds and flocks. After initial delays in compensation deliveries, and other related problems, direct compensation is now on target. The compensation policy has been substantially modified and now provides for a 50-year time frame, a cash (annuity or lump sum) and a land for land alternative and the scope encompasses compensation for loss of access to common property resources, public infrastructure, bushwood fuel, useful grasses, medicinal plants, and wild vegetables. It also sets a threshold income of M3960 against which a family should not fall below within the first 10 years of resettlement. This policy is being retrofitted to phase IA. Completion of this process is an effectiveness condition 3. Ad-hoc Compensation: During the early years of phase IA, a large number of cases of relatively minor impacts of the project on communities and individuals were not adequately addressed in a timely manner. After a couple of sweep-up programs, these are now being addressed by a committee on conflict resolution. In addition to the conflict resolution system, a decentralized management system hass now been put in place to ensure that such complaints are adequately addressed in a timely manner. The decentralization of management to field operation teams will contribute in a significant manner to the timely resolution of complaints. Resolution of all compensation claims registered with LHDA prior to 30 June, 1997 is a condition of effectiveness. 4. Income Restoration: In addition to direct compensation, the rural development program (RDP) is aimed at restoring incomes and sources of livelihood. Phase IA included provisions for a Rural Development Program (RDP) that was meant, through training and agricultural intensification/diversification activities, to provide both directly and indirectly affected people with the means to take over their own income production before or at the end of the 15-year compensation period and the general economic improvement of the project areas. For the first few years, implementation of the RDP was delayed, and on the agriculture side was weak, with no particular priority put on the directly-affected households. Intensified supervision by the Bank, starting in 1994, assisted in better defining the priorities and stepping up the pace of implementation. a) A key first step in this process was to ensure that individual and household income restoration plans for the 300 category III Seriously Affected Persons were completed and training commenced prior to the appraisal of phase 1B. In this regard, as of September 30, 1997: (i) 313 households were reported as having had their incomes restored (M3,600 per household for a total of Ml,126,000); (ii) 513 SAPs have been trained in Lesotho Highlands Water Project - Phase lB Annex 12 Page 2 of 9 various skills, 44 were in training, and another 275 candidates are awaiting training at the TRDC; (iii) a satellite training center is opened in Katse and has trained 14 SAPs with 20 others in training; iv) 15 business plans have been prepared for SAPs; and (v) 17 of the 25 Phase 1 Katse Shoreline relocation households have had their home gardens established (the other 8 did not wish to have gardens). b) In addition other income restoration/generation activities carried out to date include: (i) the establishment of an employment bureau with the placement of 329 workers on short term employment; (ii) the promotion of high value crops such as, seed potato, pea seed production, sunflower production, and probably the production of pyrethrum; (iii) the introduction of basket weaving; (iv) the creation of a credit facility; (v) the promotion of poultry and livestock production; (vi) the creation of 6 construction/production cooperative groups; and (vii) the reactivating of the Ha Soai Mohair project. C) The following issues remain to be addressed: (i) the limited market capacity for most of the agricultural products for which assistance in organizing producers cooperatives to facilitate the marketing process is being pursued; (ii) the lack of "seed capital" to kick start business initiatives after training - although a credit facility has recently been established; (iii) the continued monitoring of income restoration plans is required to ensure their robustness. The emerging trend in the Highlands is the move away from the large corn fields with poor yields to more intensive small scale activities around the homestead. As the home garden concept becomes a viable model, land may not be a major constraint to income restoration; (iv) the success of the income restoration program will depend on the intensification of field demonstration and extension work, and the degree of monitoring and post-installation support services provided to the beneficiaries. d) There is no guarantee that those who have been through the training center will automatically restore long term incomes and sources of livelihood. This has two implications. First, the field operation teams (FOT) have a crucial role to play in monitoring their performance and to suggest remedial measures to the technical support services. Second, monitoring of income restoration and the quality of life in the scheme area is an imperative if the provisions of the treaty are to be fulfilled. Fortunately, the option to retrofit the new compensation policy in the Phase IA area provides an appropriate safety net for those whose incomes might not be restored through the training and field extension work. 5. Development: Under the concept of construction communities, the RDP also included a number of small-scale infiastructure programs (water and sanitation, feeder roads, impacted village facilities) to improve conditions in project zone villages. 35km of feeder roads construction are now completed, with another 54km being implemented by labor based methods within the next 2 years. Village water supply and sanitation has been supplied to 17 villages and has been planned and is being implemented in another 35. Advance installation of 157 latrines in project area schools is complete. After initial delays, community infrastructure in six villages (worth US$3m) has effectively been completed, although work in Butha Butha is not yet complete.. 6. Community and NGO Relations: LHDA's initial approach in Phase IA to community and NGO relations has evolved into one of community participation in both the IA and the lB area. This participatory approach depends on two-way communication and joint decision-making, thus it encourages greater transparency and accountability of all stakeholders. To enhance this participatory framework, the LHDA has: (a) established a Community Participation Unit (CPU) in Headquarters to coordinate participation and NGO issues; (b) instituted four Field Operations Teams, each including a community participation officer, to make LHDA more accessible to communities (c) developed an LHDA policy and strategy on participation; (d) developed gmudelines for conflict resolution that respect and include traditional and local government institutions; (e) facilitated the election by residents of IA and lB of local committees to liaise with LHDA on various issues including compensation, conflict resolution, and development; (f) introduced the People's Invovement Program in lB and, in consultation with Phase IA stakeholders, elected to retrofit and adapt the PIP in IA communities as well; (g) scheduled monthly meetings with NGOs in Maseru; (h) collaborated with local and international NGOs hosting workshops on the socioeconomic impacts of the LHWP; (i) extended a standing invitation to NGOs to attend LHDA-community meetings in the Highlands on all issues, () provided funding for an independent consultantcy to assess the capacity of local NGOs and recommend measures for improved NGO involvement in LHWP; and (k) worked with local NGO partners toward developing a separate fund for NGO capacity building. To sustain this participatory approach, LHDA must address the following remaining challenges: Lesotho Highlands Water Project - Phase 1B Annex 12 Page 3 of 9 * All field operation team positions are to be filled with qualified candidates, those candidates should report for duty free of obligations from past jobs, field teams need adequate funds, training and supplies to carry out their work effectively, and the CLA system should be retrofit into the IA area. * Field Operations Teams must take responsibility for verifying, monitoring and reporting on grievances. Of further importance, it is the responsibility of the FOTs to resolve grievances. * Highlands community members have called on LHDA and NGOs to collaborate more fully so that there is consistency of information that reaches the communities. LHDA can take the lead on this by continuing to invite NGOs to attend Liaison committee meetings in the Highlands and regular meetings in Maseru, finalizing and implementing the Memorandum of Understanding between LHDA and the NGO community, and facilitating NGO involvement in project implementation and monitoring. 7. Lessons learned from Phase 1A include: a) better targeting of affected households for income restoration planning; b) partnership with communities to enhance local employment and avoid squalid communities emerging around construction sites; c) continuous consultation with local communities in the design of resettlement and social impact mitigation strategies; d) methods to devolve housing construction to owners and local contractors, to minimize cost, generate local employment, and maximize owner involvement and satisfaction; e) design of compensation packages and resettlement strategies based on analysis of the entire household production: system impacted, including fuel sources, other common property, cash crops, and a calculation of total proportions of assets lost; f) responsive complaint management based on operational field teams and local project offices; g) closer ties between construction schedules and key resettlement activity completion; h) avoid creating false expectations and a culture of entitlement; i) involving women in every aspect of planning and implementation; j) working in close collaboration with existing development agencies; and k) introduction of new initiatives should be incremental and take into account local sensitivities; 1) need for early agreement on funding and cost sharing of EAP (this time before negotiations) to avoid delays in program start-up. B. ANALYSIS OF SOCIAL AND RESETTLEMENT ISSUES FOR PHASE 1B. The Process: 8. The key input to social and resettlement planning for Phase lB was the extensive consultancy contracted to the Huntings Consult 4 consortium. This sixteen-month study included all aspects of impact assessment, development and mitigation planning. The scope of analysis extended from resettlement proper to aspects of tourism and infrastructure in the scheme zone. The only social impacts not covered by this consultancy include planning for the road upgrading program into the project area, the dam site, and the impact area below the dam. Organized in six phases, the study covered baseline analysis, detailed planning for each of the impacted areas and the areas receiving resettlers and is reported in 18 volumes. 9. A key element of the analysis and planning effort was the "Public Involvement Program" (PIP), which made consultation the cornerstone of mitigation planning. The PIP was based on "community liaison assistants" (CLAs), secondary school leavers working in or near their home villages, and Area Liaison Committees (ALCs) composed of householders representing their villages. Under the supervision of study team staff, CLAs live in and are in continuous dialogue with a small set of villages concerning issues of study and planning discussed at weekly or more frequent meetings with senior staff. ALC members convene and guide community reaction, but much of the work is done household by household. As more information has been developed in this way and from external analysis by other study team members, the PIP mechanism has allowed potentially affected people to digest new ideas and successively to Lesotho Highlands Water Project - Phase lB Annex 12 Page 4 of 9 refine their own plans on how to manage the replacement of the assets they lose or the fact that they will need to resettle away from their present communities. 10. The findings of the Task 3, 4, and 5 reports were presented at day-long workshops in Maseru, to which a wide variety of stakeholders were invited, including ALC members and other villagers, NGOs, relevant govermnent staff, academic and research organization staff, implementing agency staff and managers, and visiting members of the Bank's project team, Panel members, and other donor staff and consultants. In addition, key aspects of the early draft of resettlement and compensation options were translated into Sesotho and discussed widely in the scheme and project areas. Special seminars were held on the draft compensation policy and methods, and on the environmental assessment. Further to the impact analyses and assessments, seminars were also held to review the Environmental Action Plan. 11. The final Environmental Action Plan comprises the following 5 volumes: vol. 1 - Summary of the EAP; vol. 2 - Policies and Implementation Procedures; vol. 3 - Resettlement and Development Action Plan; vol. 4 - Public Health Action Plan; and vol. 5 - Natural Environment Action Plan. All these planning documents are based on detailed analytical and empirical studies conducted during the investment design phase. 12. Other affected vitlages not covered by Contract 1012 but within the dam site have been included in this participatory resettlement and development planning. This was enforced by variation orders to the construction contract provisions which require the employment of additional CLAs for those communities to ensure their integration into the PIP operation. 13. During the preparation contract, four Bank supervision missions and three visits by the Panel of Environmental Experts have enabled the consultants to get steady feedback from social impact experts. Key Findin2s 14. The Phase lB Scheme area covers 150,000 ha in three administrative Districts under two different Chieftaincies (Thaba Bosiu and Matsieng). Settlements are dispersed and average about 20 households per village. Three settlements along the existing road into the project construction area offer clinics, schools, and other urban services. The area is nearly uniformly at high altitude(2000 - 2500m above sea level) in a temperate climate with prolonged winters and frost threats. Farmers have not invested heavily in their agriculture even though excellent soils may be found in a few villages in the basin part of the inundation area. 15. Of 83 villages in the scheme area, 46 villages and 590 households (of a total of 926 households in those villages) will suffer tangible losses of physical structures and land. Of these, 13 villages with 239 households will have to be entirely resettled. In the 33 other affected villages, 352 of a total 697 households will lose some land once the reservoir is filled starting in 2001. Final decision as to the number of households that might be eligible for voluntary resettlement after inundation in the year 2003 is estimated at 71 households. The land that will be lost includes 1275 hectares of arable land and 1635 hectares of grazing. 16. Three surveys have established the socioeconomic profiles of those affected. The great majority engage in agriculture, with average arable holdings of 2.2 hectares in cereal (maize and wheat), pulses, and an important but illicit cash crop that occupies approximately 15 percent of fields. Cereals and pulses provide up to 60 percent of subsistence, the balance being purchased with cash from other farm and non-farm sources. Quantifying all farm yields at local market rates, farmers in the area gross about M 1800 per hectare from crops, M 1660 from the collection or grazing of all common property resources, and another M 300 or so from privately owned fuel sources (trees and shrubs). Households also normally own a home garden. Educational levels are low, with only about 10 percent of project zone people having post-primary education and over one-third having no formal education at all. Only about 18 percent of surveyed adults now have skills outside agriculture, and half of those do handicraft. Proposed Miti2ation. 17. The social aspects of the EAP includes (i) resettlement, (ii) compensation, (iii) income restoration and development program, and (iv) public health. A mitigation plan for the Natural Environment and Heritage is also being implemented as part of the EAP. Lesotho Highlands Water Project - Phase IB Annex 12 Page 5 of 9 Resettlement 18. The resettlement program will take place in three stages: i) pre-construction (by mid 1998), ii) pre-inundation (by the end of 2000), and iii) post-inundation in 2003. The 99 households that need to move in Stage 1 wili enable all aspects of the resettlement strategies to be tested before the larger resettlement of 172 families in Stage 2. Resettlement will involved moving: (a) 85 households to nearby areas usually "uphill" from their existing sites to villages that will not be moved; (b) 128 households to the "foothills" area, mainly in Thaba Bosiu, an area of a 1970s World Bank agriculture project; and (c) 38 families to Maseru or other areas where they wish to pursue urban trades or be near kinsmen to get land or other assistance. 20 families which initially intended to resettle in the scheme area have not made up their minds on the final resettlement sites. Resettlement "uphill" has been discussed thoroughly with proposed host villages, which, in some cases, are the places from which the new villages derived. Housing sites have been selected. Not all the land of all the villages to be inundated will be lost (some is above the eventual full supply line), but some alternative farm lands have already been identified in the host communities, where there are informal markets for farmland or rights to sharecrop. The foothills area at Thaba Bosiu will facilitate contact between the resettlers and their paramount chief. Negotiations for reception of the resettlers in this area have been facilitated by the chief s active collaboration in the process. Land markets are more active there, and land for purchase or lease has been readily identified despite the apparent higher population density of the area. There are more possibilities for crop intensification and market garden operations, as the zone is within easy distance of Maseru. 19. All households to be resettled will get dwellings in their preferred styles with equivalent floor space and significantly upgraded construction materials. The lessons of Phase 1A have provided the framework for working with owners through local contractors or cooperatives to ensure least-cost housing solutions while respecting relatively high building standards. Houses will built with appropriate materials to retain heat or will have heating devices supplied, and will be accompanied by home garden plots. Direct compensation at replacement cost will enable those being moved to replace kraals and other structures. Host communities will benefit from additional schoolrooms or schools, clinics, water supplies, sanitary facilities, other service facilities, and access roads. Project Features Duration Estimated Total Costs Reseltlement Replacement T Siting, design and construction of replacement houses for 1 997-2003 65,176,000 housing and 1 all households who relocate, using owner built and owner l other structures i contractor built options where possible. Includes stoves/heaters, toilet and fencing, relocation of graves I where necessary, and disturbance allowances. I Access roads Mitigation of impacts of route severance and interference, 1997-2003 1 145,900,000 and initiation of rural development through construction of I I ia system of roads around the dam and in the foothills. i IDetails are given in the RDAP. Community IProvision of buildings for community consultations, 1997-2003 1 24,291,000 infrastructure ' resettlement transit facilities, primary health care development i programs, construction teaching & adult education, income u restoration and generation, community participation, etc.; extension of schools; strentheningof existinfacilities. Community | Provision of information dissemination between LHDA and 1997-2003 5,661,000 participation ffi affected individualsl households through the system of iCLAs; provision of organized community participation through ALCs and the CALC; implementation of capacity- I building projects Lesotho Highlands Water Project - Phase lB Annex 12 Page 6 of 9 ComiDensation 20. At the household level, compensation packages are being prepared which will take into account all land and other assets lost to the project. These losses are being compensated at full replacement cost. In the absence of established costs for rural land, replacement cost is being calculated by capitalizing the full gross production value of the crop and grazing land at a 4.5 percent discount rate per annum which converts to M37,172.34 lump-sum per hectare for arable land according to 1996 base figures. The PIP has enabled the consultant and the individual households to evolve a variety of options for receiving compensation. At the present state of choice-making, which is still being negotiated during the preparation of the compensation packages, 1 percent has chosen to receive land directly, 38 percent a lump sum (in the form of an investment asset, usually a row of rooms [ma-linel for rent in the Maseru peri-urban area, or a business), 10 percent to receive their compensation in grain as in Phase IA, and about 40 percent as an investment account in the form of an annualized payment. LHDA has committed to undertake an audit of the implementation of the new compensation policy by September 30, 2000. The main purpose of the audit would be to review the progress with the new compensation options, in particular the details of the cash compensation, be it in the form of an annuity or a lump-sum. Particular attention would be paid to reviewing the extent to which the compensation payments are applied to the benefit of the entire household. 21. These forms of compensation will provide an income roughly equivalent to the income being lost. To assist the affected people in restoring and improving their own capacities to earn income above and beyond what will flow from the investment of their compensation, they will be provided with the following development options: (a) job reservation for non-skilled labor in all the construction work of the project, and in the eventual maintenance and other permanent work; (b) training opportunities that would have been decided on the basis of aptitudes, preferences, and market analysis; (c) the identification of land and the extension of technical packages to intensify and diversify crop and livestock production; (d) access to the projected reservoir drawdown zone for limited forms of production; (e) redistribution of land abandoned to the project by resettlers moving to the foothills; (1) reservation of certain options in tourism development if such options.prove viable after further analysis and the observation of developments in the Katse area. A new Rural Development Center and sub-centers will facilitate access to training, employment, and other possible options. 22. Part of Phase lB implementation will be the retrofitting of the community participation system (for communication and conunuity-based monitoring), the new compensation options, and a redoubled development to the Phase IA area. Costs for doing so will appear in the Phase 1B budget. Project Features Duration Estimated Total Costs Comn ensgton Procurement & Provision of 500 tons maize and 15 tons beans to 500 B 1997-2003 3,435,000 delivery of grain : households. Distribution to affected people on time. & pulses i Monitoring and evaluation of impacts of grain l _…+comppensation on affected households. Compensation Timely distribution and provision of cash to project affected , 1997-2003 , 8,700,000 cash payments individuals; monitoring and evaluation of use of cash X -~~~"comEensation by affected households. Compensation for Distribution and provision of cash payments to 1997-2003 11,100,000 loss of communal communities; periodic reviews of the communal resources l assets data to update payment schedules; monitoring and _…+evaluation of use of communal cash payments . Cash payments Timely distribution and provision of cash to project affected- p 1997-2003 1,035,000 for individually individuals; monitoring of use of payments; collaboration owned properties iwith forestry activities. Iaswets III -_a--s- I______--------------------------------- --- --- --- Temporary land Provision of annual cash payments to people affected by lB 1997-2003 1,835,000 acquisitions. l construction; monitoring of the impacts of payments on l I standard of living , ! Lesotho Highlands Water Project - Phase 1B Annex 12 Page 7 of 9 Development Project , Features Duration Estimated I . : I I ~~~TotalCosts Agricultural T Increase crop, livestock and fish production; provide food 1998-2003 22,116,000 production security and cash income to households; develop (crops, livestock I sustainable production through entrepreneurship; and fisheries) _collaborate with catchment management roiects. _ Range Mitigation of impacts of inundation and resettlement 1 1998-2003 1 4,754,000 management I through management of rangelands; involvement of l Icommunities in managing rangeland resources; integrated rangeland development with catchment management ; I PIOSL -- - - - - - -- - - - - - Forestry ; Mitigation of impacts of inundation and resettlement ;1998-2003 ; 4,844,000 through wood and fuel production technology; establish I tree nurseries ; promote the use of alternative fuels;; involve communities in tree and shrub planting, _…__ _ Z coliaboration with catchment management rojects. Tourism 1 Development of tourism facilities through encouragement 1 1998-2003 1 8,013,000 development of private sector investment; assisting affected communities ; ; _andlromotion ito develop ecotourism facilities. Training and Preparation of income restoration plans for affected 1998-2003 - 11,002,000 non- '; households; organization of training of affected people in agricultural Iappropriate skills; development of special opportunities for l income ;women; prvision of fonnal education to all children from generation I affected households; participation of affected people in I tourism; facilitation of short term employment on project ; activities; development of credit facilities; encouragement ; l of co-operatives. X Monitoine and Evaluation Project Features j Duration l Estimated Total Costs Mon itoring&Evaluation _____bli--m-n-T---o--i-e-p-r-o-i-e-s-i-a-t-s-f-p-o- -- -- -- -- -- -- ---- -- -- - --- -- -- -- -- Establishment ; Provideperiodicestimates of progress of affected 1998-2003 1,250,000 of objectives for I households towards restoration of income and living I I measunng standards, define the indicators, procedures, analyses, imjpacts |reporn& systems to accomplish effective monitoring. Establishment IObtain feedback on restoration of living standards of 1998-2003 1 592,000 of participatory Iaffected people; train CLAs, ALC members and NGO staff M&E system I in participatory M&E; facilitate development by the affected communities of their own criteria and evaluation ; ifor acceptable standards of living; securing appropriate …action to solve problems Strengthening Build capacity of the M&I Branch in identification of key 998-2003 - 1,105,000 monitoring & I indicators for M&E, co-ordination of M&E programmes, I information z preparation of RFPs for contracted services, evaluation of t branch contractor proposals, etc. !_! Lesotho Highlands Water Project - Phase 1B Annex 12 Page 8 of 9 Public Health Project Features Duration Estimated Total Costs Construdion Work Force Healthcare Clinical ; Provide adequate clinical facilities, services, referral and an I Services ; evacuation system for the construction workforce. ; 1998-2003 ; Included in amain I ffi ffi contracts Occupational i Monitoring of occupational health and industrial hygiene in - - Included in health the construction work force 1998-2018 ; main monitoring I i contracts Local Comrmunities Healthcare Preventive T Strengthen provision of comprehensive preventive health health care care services to the local communities with special emphasis 1998-2018 ; 800,000 - ______ on community involvement and nartc!pat on - - - - __ Health T Develop and establish a health monitoring and disease monitoring _ surveillance system for the local communities '1999-2018 + 500.000 Medical care Strengthen provision of primary medical care services and * I I … I ~~~~~referral for the local comimunities. 1 1999-2003l 750,000 MOHSWCapazciy Building _ _ Monitoring and Strengthening capability in Health Systems Research, I evaluation ___ - Monitr andvlatooMHW 2000-2003 _ 450,000 Clinical skills Strengthening clinical skills and abilities to use specialized _________ eqient and rocedures. '2003 1 400,000 t t Management On the job training in management skills Specific tasks for 1 - skills ,MOHSW and CHALpersonnel 1998-2003 _ 200,000 Water & Sanitation… Water & jProvision of water, sanitation, refuse disposal and health I I sanitation education to Mohale catchment area communities ' 1997- 2003 1 14,000,000 Clinical & Evacuation Services Maintenance of Provide adequate clinical facilities, services, referral and an I the Leribe evacuation system for the construction workforce at the '1998-2003 ; 22,298,000 Trauma Unit i Leibe Trauma Unit Total PHAP Budget 38,598,000 Imnlementation Arrany-ements. 23. Implementation of the Phase 1B resettlement and development activities will be embedded in the new LHDA organizational structure, within the Environmental and Social Services Group. A Field Operations Team (FOT) Manager has already been assigned to the 1B area (to be based at Mohale), and sub-offices will be set up at key village areas to be moved or to receive resettlers. CLAs and ALCs will be brought under the FOT supervisory umbrella, working with the Community Participation Officer under the general guidance of the Community Participation Unit at Headquarters. For the first year of implementation, a variation order to the preparation contract with the Huntings Consult 4 Team is enabling the continuation of management and implementation advisory services, the training of permanent staff, and the supervision of final compensation arrangements and the Stage 1 Resettlement. 24. The LHDA Panel of Enviromnental Experts, recently reinvigorated and comprising resettlement, rural development, environment and public health experts, will continue to make at least annual visits, and the World Bank will supervise the resettlement and social development activities, normally semi-annually, including both social development and participation expertise. Lesotho Highlands Water Project - Phase lB Annex 12 Page 9 of 9 25. Stage 1 resettlement is almost complete. Resettlement and development activities will be continued throughout the life of the project, and the permanent operations of the project will involve services guaranteed under treaty obligations for the betterment of the affected population. Remainini Risks. 24. The involvement of an extensive team of consultants, LHDA staff, and advisors from various donors, local universities, the Panel and the World Bank has anticipated and worked to mitigate resettlement and development risks. Both preparation and the PIP have been evolutionary in nature, implying that all decisions are not final. Some critical proposals of this collective preparation team might still be rejected or modified by government authorities or by the communities and affected people, although the open and intense communication should ensure that no surprise outcomes are encountered. Once under implementation, the main risks are that: (a) promised land or the general welcoming posture offered in the host communities might not be forthcoming; (b) land in the receiving areas may not prove to be as readily available as presently expected; (c) changes in the macro-economy could erode the value of any investment income relative to what might have been earned by the households had there been no project; and (d) options to restore income-generating capacities will prove difficult to bring to fruition. These risks have been diminished by: (a) the intensive collaboration with chiefs and people in the host communities, where in addition the resettlers have kinsmen; (b) the multiplication of options for income restoration; (c) the establishment of a flow of permanent income derived from the innovative mechanism of the annualized compensation for the 50 year project life; (d) the increased macro-economic adjustment in South Africa and Lesotho which is stabilizing both the economy and the bi-national relationship; and (e) the permanence of the water royalties for Lesotho, some of which fund poverty reduction activities in the Highlands. Annex 13 Lesotho Highlands Water Project - Phase lB Policy Letter - LHWP Revenue Fund (typed from original version) Background The Lesotho Highlands Revenue Fund (LHRF) was created in 1992 with a view to ensure a proper accounting and subsequent use of water royalties accruing to the Kingdom of Lesotho as a result of the development of the highlands water resources under the successive phases of the Lesotho Highlands Water Project. The institutional arrangements and operating procedures applicable for the use of the proceeds of the LHRF Fund are set forward in Legal Notice No. 91 of 1992. As currently articulated, the objectives of the fund are to (i) promote economic development and diversification through capital expenditures on projects, consistent with Lesotho's Public Sector Investment Program (PSIP) and through enhancement of the capacity of the public and private institutions to identify, prepare and implement suitable projects; (ii) stabilize Government revenues; and (iii) generate supplementary long-term revenue flows for the Government from income derived from other investment. To meet these objectives, a Revenue Receiving Account has been established, with four sub- accounts: the Development Account; the Revenue Stabilisation Account; the Long-term Revenue Supplementation Account; and the Administrative Account. Each sub-account is dedicated to a specific purpose. Through the operations of the LHRF, funds from Development Account finance development projects expected to contribute to the overall economic development of Lesotho. The Revenue Stabilisation Account is to be used to complement government's general revenues when the need arises. The Long-term Revenue Supplementation Account may be used to offset any shortfall in expected government's revenue on a need basis. Finally, the Administrative Account is set up to cover all administrative costs associated with the management of the LHRF. Revisions to Arrangements for Managing Lesotho Highlands Water Project Revenues GOL has recognized that the existing arrangements for the LHRF need revising. However as against the envisaged date of 1 April for completion of the reformulation of the LHRF, activities still to be undertaken predict that the reformulation will be complete with the operational manual by end of May 1998. Cabinet has already decided that approximately M75 million a year for the next four years will be available for the revised fund from the proceeds of the water royalties. The remaining royalties will be managed as part of GOL's general budget. This simpler arrangement for managing the royalties ends the need to maintain the system of five sub- accounts. In future, only one account, for the revised fund, will need to be maintained. Lesotho Highlands Water Project - Phase IB Annex 13 Page 2 of 3 A workshop was held on 3 November, 1997 with key policy makers, made up of representatives from government ministries, NGOs, political parties and the private sector. After considerable debate, it was agreed that the revised LHRF would have the following primary objectives: Objectives 1. To reduce poverty in Lesotho, with particular emphasis in poverty-stricken areas. 2. To support local initiatives for employment creation and sustainable income generation. 3. To improve and protect the environment and the natural resource base of the country. It was also agreed that the revised objectives will operate with the following key features: Features 1. Community leadership in project identification, design, iinplementation, monitoring and evaluation. The foregoing would be reinforced through community-based training. 2. Projects that are financially, technically and environmentally viable and are subjected to constant supervision for sustainability. Clear guidelines for project screening and prioritisation be designed and there be transparency and accountability at all levels. 3 .The capacity of implementing agencies be enhanced for efficient administration and utilisation of resources. This includes the LHRF management, Local Government structures, non- governmental organizations and other locally-based organizations (but only as far as capital expenditure is concerned, such as training and office buildings, not recurrent expenditure). Consultative Process In order to design and establish a revised LHRF that is responsive to the needs of communities, the Ministry of Economic Planning has decided to hold a number of workshops with key stakeholders. The first workshop, on November 3, 1997 was for policy makers. During the workshop broad consensus was reached on how a revised fund would operate. In particular, the workshop agreed on the primary objectives and key features of the reformulated LHRF. Over the past two years, studies and reports by various agencies were produced that investigated the operations of the existing LHRF. Many recommendations were made relating to how the LHRF might be reformulated. These recommendations were considered at a second workshop held in December 1997. The December workshop, focused more on the range of detailed design issues associated with establishing a revised LHRF, including appropriate institutional arrangements. Lesotho Highlands Water Project - Phase lB Annex 13 Page 3 of 3 Further consultations with communities took place at district level, from end of February to mid March, 1998. The aim of these consultations was to seek the views of the community, including the poor on a wide range of issues including (i) basic needs of the poor; (ii) how the Government, the community and various stakeholder groups can join hands to meet these needs, under the new LHRF. Participants in these community-based workshops included: Principal and Area Chiefs, District Development Councils Non Governmental Organizations and some members of the community who had been elected by the community to serve as the community spokespersons at the workshops. This latter category was comprised of equal number of men and women and it had been encouraged that the category should include the poor - "the people who are actually affected by poverty". Other participants were senior government officials at the district level. At these workshops, consensus was reached on many critical design issues concerning community basic needs for poverty alleviation, and measures to strengthening community capacity to enable it to play an active and leading role in the LHRF. To complement the information from community-based workshops, the Government has selected twenty two villages all from poor areas (according to previous studies) and engaged a consultant to run a participatory needs assessment in those villages. In April, the results of these various consultations and workshops will be consolidated into an Operational Manual for the revised LHRF and community contributions and inputs will be given considerable weight during the preparation of this document. This manual will contain information on all policies and procedures to do with the revised Fund. It will be made available to all communities. A one-day workshop to discuss possible new government arrangements for the reformulated LHRF is also planned for April. A new Legal Notice replacing the existing notice will also be prepared based on the outcomes of the workshops. Annex 14 Lesotho Highlands Water Project - Phase 1B Key Implementation Steps * Thehllowing shows some of the key implementation steps in phase IB: LHWP - KEY IMPLEMENTATION STEPS Apr 30 98 1998 | 1999 1 2000 | 2001 | 2002 _ TaskNae 0102 043104 01 021 03 04 01 021 031 04 01 02 031 04 01 IQ21 031Q41 WORKS,ENGINEERING Mohale Dam Works Mohale Tunnel Wores _e_ _ _r_ Matsoku Dbersion Wods* Mohale SelsmF Plmn INSTNAL Ammend LHDA Order/Treaty Appoint New JPTC/Board Futal LHOA MgL Appontments Continue Cutural Change Prog. Traiing Policy and Program LHWP Revenue Fund Legal Notice LHWP Revenue Fund Manual New Social Fund Operational Vaal River Demand Study . |NATURAL EWIRONMENT Undertake IFR Study Mitigation or Release Strategy Est. Catchment Conserv. Commn.____________ Est. Speces Cons/Breeding Prog. ._. Launc Ens. AwarenessPRecycling Biosphere Reserve Study/Plan mplemernt Blospheres Estatsh Envionmentl Monitoerng _ SOCIAL PROGRAM C ._.. Plan to Apply? Compenston Po-licy~ Apply Now Compensation Policy_ _ Compensation Poficy Review?. St I Reset0neln. Plans (99hh) = St. 2 R"es~inc Plans (1 72hh)._| St. 3 Resettelnc. Pbns (99hh) . ... Commundty Infrastructure__= _ Training/income Programs Est. Monitorlng and Ev?aluation. Est. Range ManagementUForesty._ Est. isdDevelopmnentCenters._.. Est. 1 st Healthcae Centers LESOTHO HIGHLANDS WATER PROJECT PHASE iii cOh4RACT, iNTiEftOAOi PK06a(AMMk COETARUCON 4W-. WWI4 IW ¶5(11 MOHAMA AOVANCED INFtRASYRUICTURE n¶50 O.. NIRA,WWWW ~0II1 CONSTRUCTION OF MAOHALE CAMAP 1014 rESIGN COjISTkUCfION POWER SUPPLIES t4oNu s 146 sl SWSINS 20101 TRANSWSIsSON LINE TO MOHALE ¶000o rESIGOJPHAst S 1AtCEbS ROADS 5114 NtS Oi- 2000 MOUNTAIII ROAD E. MOH4ALE AC CEE5.MD - CONSTRUCTION CONT.ACT 1017 MOHALE DAMICON$UL'IND CONTRACT ITAO*1 H PTOOI&CONSIRICTIWISUPMWIVO CONTRACT AWARD C.~t4S0I 5..61101 2000 MORALE DAM CONSTRIJCTION CONTRACT Ii EpOIJoINOOCT,4 10009 MOHALE TUNNEL CONSULTING CONTRACT TAEI I I I ITII4I I I IOIIWIIIH CONTRACT A.WARAND 2003 MATEOKU DrVERSION CONSRULTING CONTRACTII ' - EI iT PHASE INTRACOMMUNICATIONS CONtSULTiNi3 2..PHASEiSCOMMUNICATION SUPPLYM &INSYALLATION 206CONTRACT _ , _ | dOWSWAr4Afz ,u-zM,o'nur 23 ^2 DeI MDIIO]tS IP~~~~~~~~~~~~~~~~~~~RD 2951 4 . N A M BA' t S,,,j aiE "' T - E u.vof_1. -ucosEAreaAhAOP Mt;u : y o y %' ~ ~ IA 0AA93 H,= rH DANzf,2 "DW 5 0 U T H 9.tcU.9(r$ * < \ 2R°'"'i';2 <' ', g 'A F R I C A Map CAPON2 fld'Po!. ol Th Wo dIaUcln.i emt za< P Ut l t3 The ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ (h. (A rl''f AFRICAlugPlKu Y- 3 hl b . X vpeql t; K>/ Q > / /~~~~~~~p1 £ . M,qbak. \ M:: ck;s S sso atsoku CAN2 S ' AAAAAA3FAAIAAA'A' B(-A' 9t:a A', 'al SCA>X < )iherin 4 29-30 _g < Cce lu 1( h Tl.b. J < = Ullyl] f/ 2 c T9~~~~WA(P~~~4 O;AACAAA/ 4NAA( "*"T;AL,4 crn;'2C3M olsuAe '! A AsnP'.O AAtAA2A' AEAA/AAA22'A 5; .Cl '2"f'e C. 2 t erl;;> - _ '(,ASA22'A(BA A 9' ) ' (A \ !S3AAAO( 3A2 ' e I eq ,A,qA MIBO 30900~~~~~ ',A 2 'AM 'e t; 2 B MsT2A,A30 C IH44 AI f . f.2 OMPssk ( ~HIGHLANDS WATER PROJECT (PHASE IB) BAr7 ' AtNl N. J iAb- PROJECT LAYOUT, AND ELECTRIC "'A FfSz r, Uq e-eo2si oaO v3 t o30ob m ~~~~~~~~~~~DAhLS i RESERVOIRS 5AE OD C'J'A* tvr dUe L IAAAA L. 3conlOqO z v' 2 -"- NEW ROADS EARTH ROADS / TRACKS "- - - - - - ROADSTOBE UPGRADED A RIVERS 32 30 ;J \, o~i) d cil _TUNNELS SELECTED CITIES AND TOWNS ;-