Case Study Details - Playbook of Solutions - Publicly Available Judgments

Challenges to investment

In 2013, Lesotho updated its energy policy to foster renewable energy (RE) and reduce reliance on fossil fuels and imported electricity. In light of the updated energy policy, a German developer proposed a RE and energy efficiency (EE) project in November 2017. After agreement, the developer and the Government of Lesotho (GoL) entered into a non-binding memorandum of intent on the content of the project.

Approach

On 24 September 2018, the developer signed a supply contract with the GoL, based on the memorandum, to develop a major solar and EE project financed by the German government through the German development bank (KfW). The project promised to take up to 40,000 solar water heating systems, 20 MW of solar photovoltaic capacity, 1 million LED lights, and 350,000 solar lanterns nationwide. Despite the project's approval by the Prime Minister, Lesotho's Ministry of Finance refused to conclude the financing agreement, preventing the project from proceeding. This refusal led to a legal dispute between the company and the GoL, which went to arbitration in December 2019. The contract included an agreed-upon process for resolving disputes, with both parties consenting to appoint an independent arbitrator in South Africa's jurisdiction to ensure fair and impartial treatment. Additionally, Lesotho’s procurement law permits certain exceptions to the competitive tender process for certain projects, where the funding is sourced from foreign governments or development finance organizations.

Key Enabling Conditions

The involvement of the German development bank (KfW) in the initial project financing created implications on foreign policy and was an incentive for parties to resolve the dispute in a transparent and diplomatic matter. In addition to legal transparency, clean energy investment in Lesotho has also been supported by financing and technical assistance from the World Bank Group and other development finance organizations.

Impact / Outcomes

The independent arbitration played a crucial role in facilitating successful litigation for the German company, underscoring the importance of enforcing contracts within a robust regulatory framework. The dispute highlighted the pivotal role of contract enforcement, regulatory compliance, public perception, and transparent reporting in influencing the investor climate. To provide additional transparency, the GoL makes legal judgements publicly accessible via the Lesotho Legal Information Institute (LesLII), reinforcing the legal framework and contributing to a more predictable and stable investment environment for clean energy in particular. Publicly available information regarding the ongoing dispute includes court decisions, media statements from the German company and GoL, as well as press articles. Increased investor confidence has resulted in continued investor interest in RE projects in Lesotho such as the 30 MW Ha Ranarothole solar farm project in the Mafeteng district, which was handed over to the government in 2023.

Additional Sources