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 over 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. The scheme currently transfers roughly 800 million cubic metres of water a year, supplying about 60% of the water needs of Johannesburg's roughly 5.5 million residents.

In exchange, South Africa pays Lesotho a royalty for the water transferred — now nearly R4 billion (around US$240 million) a year, equivalent to roughly 15% of Lesotho's entire government budget, up sharply from R780 million (about 5% of state income outside taxes) in 2015. It is one of the largest and longest-running transboundary payments for a bulk hydrological service anywhere in the world.

The scheme's benefits to Lesotho's national treasury are large and well documented, but its benefits to the highland communities whose catchments generate the water are contested. Communities displaced during the first two construction phases were, by local accounts, "not treated well or adequately compensated," with some resettled to areas lacking electricity, water and sanitation and cut off from communal grazing land. In November 2025, representatives of communities from 18 settlements (affecting at least 72 communities in total) filed a complaint with the African Development Bank alleging the project is marketed as climate-positive infrastructure while causing stream pollution, loss of cultivable farmland, forest degradation and reduced pasture access, without adequate consultation or benefit-sharing; compensation is described in that reporting as "often paltry and delayed."

The project therefore illustrates both the scale a treaty-based national payment for a watershed ecosystem service can reach, and the governance gap that can persist between a national-level payment flow and the local stewards of the ecosystem actually generating the service.

Read the full analysis: https://theconversation.com/the-lesotho-highlands-water-project-is-40-years-old-and-going-strong-but-history-weighs-on-its-successes-277860