Lesotho Highlands Water Project — Cross-Border Royalty Payments for Water

Under the 1986 Treaty on the Lesotho Highlands Water Project, the Lesotho Highlands Development Authority (LHDA) and South Africa's Trans-Caledon Tunnel Authority jointly operate a system of dams and more than 120km of 5-metre-diameter tunnels that transfer highland river water from Lesotho into South Africa's Vaal River system. The Katse and Mohale dams are complete and operating; the Polihali dam (Phase II) is under construction, targeted for completion around 2030.

In exchange for roughly 800 million cubic metres of water transferred a year — supplying about 60% of the water needs of Johannesburg's roughly 5.5 million residents — South Africa pays Lesotho a royalty now approaching R4 billion (around US$240 million) a year, equivalent to roughly 15% of Lesotho's government budget, up from R780 million (about 5% of state income outside taxes) in 2015. The scheme's benefits to Lesotho's national treasury are well documented, but benefits to the highland communities whose catchments generate the water are contested: communities displaced during the first two construction phases report inadequate compensation and resettlement to areas lacking electricity, water and sanitation. In November 2025, representatives of 72 communities across 18 settlements filed a complaint with the African Development Bank alleging stream pollution, farmland loss, forest degradation and reduced pasture access without adequate consultation or benefit-sharing.