Johannesburg – The Lesotho government is running the risk of being unable to pay its public servants and funding the Covid-19 expenditure should a German company seize €50-million (R857-million) of its assets.
Prime Minister Moeketsi Majoro told the Joburg High Court this week that order in favour of renewable energy firm Frazer Solar GmbH (FSG) would bring the mountain kingdom to its knees.
FSG signed a supply agreement with Lesotho in 2018 to provide up to 40 000 solar water heating systems, 350 000 solar lanterns, 1.5-million LED lights and some solar photovoltaic capacity, nationwide.
Despite the supply agreement being signed off, the project did not proceed. FSG then claimed that Lesotho had materially breached the provisions of the agreement and it had suffered “significant” damages as a result.
FSG’s lawyers have begun a worldwide enforcement action against assets held by the government of Lesotho. The enforcement followed an arbitration ruling in South Africa against the Kingdom of Lesotho, which awarded damages to FSG.
Independent arbitrator Vincent Maleka directed Lesotho to pay FSG damages of €50-million in addition to a pre-award interest of €754 273 and post-award interest of 1.7% a year.
Read more: These are some of the Kingdom of Lesotho’s major assets
Majoro, in an affidavit trying to persuade the court to urgently set aside the arbitration award, said the contract between the two parties was entered into fraudulently.
“The supply agreement was signed by an unauthorised member of cabinet on the frolic of his own, acting without the power to incur legal obligations on behalf of the kingdom,” said the prime minster. He further argued that the €50-million award would bring the kingdom’s economy to its knees as it constituted 2.2% of the country’s gross domestic product.
“If the kingdom were to pay the entire claim, the kingdom would be unable to pay salaries of government employees, which include employees performing services to the public such as teachers, police and health workers, and dilute the kingdom’s ability to procure needed health facilities to combat the global pandemic.”
Majoro has since launched a commission of inquiry to establish whether the country is obliged to pay FSG.
Majoro was sworn in as the new premier last May following the resignation of Tom Thabane. He was previously finance minister in the Thabane cabinet from 2017 to 2020.
Should Lesotho fail in its urgent bid to set the award aside, FSG will be free to seize Lesotho’s assets around the world.
The World Bank said Lesotho’s economy is expected to be boosted by construction-related projects.
These are some of the Kingdom of Lesotho’s major assets
Lesotho’s assets include royalties paid to its government by the Trans Caledon Tunnel Authority (TCTA), as well as payments for power from Eskom.
TCTA is South Africa’s state-owned entity charged with financing and implementing bulk raw water infrastructure projects.
It is an agency of the Department of Water and Sanitation.
The entity assists the government in its pursuit of water security for South Africa and in realising its constitutional obligation of ensuring universal access to this essential resource.
Lesotho, a mountainous enclave within SA, earns much of its foreign exchange by selling water and power to SA from the Lesotho Highlands Water Project.
Water royalties amount to $70-million a year (R1-billion), FSG has stated.
The project was instituted as a bi-national project spanning the borders of SA and Lesotho in accordance with a treaty signed in 1986.
The project diverts water from the Senqu River System in Lesotho to SA’s economic hub, the water-stressed Gauteng region.
In Lesotho, the authority implements the programme, while in South Africa, TCTA is responsible.
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