South Africa
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Lesotho Highlands Water Project Phase II
An integral player in South Africa’s infrastructure ecosystem.
17 Jul 2026
Connecting regions through water delivery
- Region: Lesotho and South Africa (Integrated Vaal River System / Gauteng)
- Sector: Water
- Finance instrument: Senior loan facilities / project finance debt
- Total facility commitment: R1.41 billion
SDGs*
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12,838
employment
opportunities
created for Basotho citizens
as of March 2025.
Once completed, Phase II
is expected to have a
62.8%
increase in water transfers
to South Africa
44,000
hectares under formal
environmental protection
with a comprehensive resettlement and livelihood restoration framework aligned to international standards.
Overview
12,838
employment
opportunities
created for Basotho citizens
as of March 2025.
Once completed, Phase II
is expected to have a
62.8%
increase in water transfers
to South Africa
44,000
hectares under formal
environmental protection
with a comprehensive resettlement and livelihood restoration framework aligned to international standards.
Key impact stats
Overview
12,838
employment
opportunities
created for Basotho citizens
as of March 2025.
Once completed, Phase II
is expected to have a
62.8%
increase in water transfers
to South Africa
44,000
hectares under formal
environmental protection
with a comprehensive resettlement and livelihood restoration framework aligned to international standards.
Project background
Overview
The Lesotho Highlands Water Project (LHWP) is a bi-national water infrastructure programme between the governments of South Africa and Lesotho, designed to secure long-term water supply to South Africa’s economic heartland.
TCTA, a state-owned entity responsible for financing and developing large-scale raw water infrastructure, was appointed by South Africa’s Department of Water and Sanitation to manage the financing and cost recovery for the LHWP Phase II.
Phase II of the programme centres on the construction of the Polihali Dam and a 38 km transfer tunnel connecting it to the Katse Dam system and the surrounding infrastructure.
Once complete, Phase II is expected to increase water transfers to South Africa by around 62.8%, raising supply to approximately 1,270 million m³ per year, while also delivering 30 million m³ annually to Lesotho and supporting additional hydropower generation.
Contribution and impact
Overview
Socio-economic and regional impact
Phase II is central to long-term water security for South Africa's economic hub (Gauteng) and the broader Integrated Vaal River System.
Annual transfer capacity has increased by 62.8% to ~1,270 million m3 to South Africa and 30 million m3 to Lesotho.
The project also supports regional cooperation and economic development through water royalties.
Employment and local economic development
As of March 2025, the project has created 12,838 employment opportunities for Basotho, including:
- 3,935 unskilled roles
- 8,903 skilled roles; and
- The engagement of 68 young professionals
Structured set-aside commitments on major contracts (including LSL1.446 billion for the dam and LSL283 million for the tunnel) have supported local enterprise participation, supplier development, and broader economic inclusion.
Social and community infrastructure
The project includes significant investment in social infrastructure, including access roads, bridges, bulk power supply, housing, and water systems.
These interventions have improved connectivity and access to essential services in remote areas, while also laying the foundation for long-term regional development in the Mokhotlong district and surrounding communities.
Resettlement, livelihood restoration and ESG management
A comprehensive compensation, resettlement, and livelihood restoration framework is being implemented for affected households.
This includes housing support and measures to re-establish agricultural and income-generating activities.
The project also incorporates environmental and social safeguards aligned with international standards, including the formal protection of approximately 44,000 hectares.
Investment opportunity
Overview
LHWP II provides exposure to essential infrastructure with strong sovereign backing and an established cost-recovery framework through the Integrated Vaal River System tariff structure.
TCTA continues to demonstrate reliable access to funding across commercial banks and development finance. Between 2018 and 2025, TCTA raised approximately R26.5 billion to refinance a portion of Phase I debt and fund Phase II construction, highlighting the scale, strategic importance and bankability of the programme.
Important Information
This communication is provided for general information only and should not be construed as advice.
All the information in this communication is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessarily reflect those of Ninety One.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
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