A summary of the key facts of the case is shown below. For further information on the Legal Teams, the Chinese sponsored Mafeteng Solar Project, and an overview of the Lesotho political situation, please click on the links.
Frazer Solar v Government of Lesotho Key Facts
About Frazer Solar GmbH
Frazer Solar (FSG) is a global developer of nationally significant renewable energy projects, with a particular focus on developing countries in Africa. The company recently launched the largest ever solar-healthcare project in Eswatini, bringing hot water to every clinic nationwide. In October 2021 the company completed negotiations which resulted in a binding contract being entered into with the Government of Eswatini for a EUR 100 million solar-storage project for related IPP company Frazium Energy.
The Solar Project - Lesotho
In 2018, FSG signed a binding agreement with the Prime Minister’s Office and the Government of Lesotho (GOL) to develop a major solar energy project with financing from the German government. The project pledged to deliver up to 40,000 solar water heating systems, 20MW of solar photovoltaic capacity, 1 million LED lights and 350,000 solar lanterns nationwide.
FSG’s solar project offered excellent value for money and would have generated more than 4 billion Maloti (over $280 million USD) in positive cash flows for Lesotho over the lifespan of the products.
The project was financed by German government development bank, KFW-Ipex, and included a contractually binding performance guarantee, which ensured financial viability and savings for the GOL. In this case, FSG made a binding commitment to guarantee a payback period of less than 10 years for products with lifespans of up to 25 years.
The electricity savings guaranteed by FSG’s solar project would have covered all repayment costs of the development loan from KFW.
The project was approved and signed-off under the express instructions of (former) Prime Minister Tom Thabane, and the main supply contract was signed by the minister in his office (former) Minister Temeki Tsolo. Prior to its completion, FSG discussed the contract and the project with The Minister of Energy, His Majesty the King, and the Ministers/Ministries of Public Works; Public Service; Local Government; Home Affairs; Prime Minister’s Office; Small Business; and the Ministry of Finance.
Additional engagement was undertaken with: Government Secretary; Lesotho Energy Company; Lesotho National Development Corporation; Lesotho Electricity and Water Authority; Maseru City Council; National University of Lesotho; Lesotho Chamber of Commerce; and the Lesotho Textile Exporters Association.
The Origins of the Dispute
In 2018, Lesotho’s Ministry of Finance, in particular the Minister of Finance – Dr Moeketsi Majoro - personally refused to conclude the finance agreement for the project and it was not able to proceed.
Frazer Solar is of the view that Dr Moeketsi Majoro had refused to approve the project because he preferred to personally support a Chinese-led renewables project in Mafateng. The Mafeteng project has since been subject to allegations of overcharging and corruption. The Lesotho Directorate of Corruption and Economic Offenses (DCEO) has commenced an investigation into this project. In addition, Frazer Solar believes that the well known political rivalry between Dr Majoro and the former Prime Minister Thomas Thabane also played a part.
Under the dispute resolution terms of its contract with the government, Frazer Solar implemented arbitration proceedings against the Government of Lesotho in 2019.
As a deterrent for breaches of the contract, both parties had agreed to a ‘liquidated damages’ clause in the Supply Agreement, which stipulated a pre-agreed formula be used to calculate a sum to be paid in the event that the contract was terminated prior to completion.
FSG’s claim was upheld and Lesotho was directed to pay Frazer Solar liquidated damages in the sum of EUR 50 million, in addition to pre-award interest in the amount of EUR 754,273 and costs.
The Government of Lesotho was informed about the legal case, the award, and the impending asset seizures on at least 25 occasions between 2019 and 2021, but refused to engage with the legal process.
The Asset Seizures
The Government of Lesotho did not engage with the legal process and no damages have been paid to FSG following the contractual breach.
In 2021, FSG was granted permission by the South African court to enforce its award against assets, royalties, and revenues owned by the Kingdom of Lesotho in foreign jurisdictions.
• Trans-Caledon Tunnel Authority Soc
On 17 May 2021, lawyers acting for FSG served notice to the Trans-Caledon Tunnel Authority Soc. Ltd (Centurion, South Africa) directing the transfer of royalties owed to the Government of Lesotho in connection to the Lesotho Highlands Water Project (LHWP), which delivers water into the Vaal River System in South Africa.
Annual revenues paid by the Trans-Caledon Tunnel Authority Soc. Ltd to the Government of Lesotho are approximately $70 million USD.
On 21 May 2021, lawyers acting for FSG served notice to Eskom directing the transfer of electricity revenues owed to the Government of Lesotho in connection to the Lesotho Highlands Water Project (LHWP), which delivers hydroelectric power into the South African national grid.
• West Indian Ocean Cable Company (WIOCC)
On 19 May 2021, lawyers acting for FSG received confirmation from the Supreme Court of Mauritius that FSG’s arbitral award had been recognised and was enforceable against assets held by the Kingdom of Lesotho in the jurisdiction of Mauritius. Enforcement activity is currently underway concerning the Government of Lesotho’s shareholding in the West Indian Ocean Cable Company (WIOCC), via the Lesotho Communications Authority (LCA). On 25 May 2021, service was made on WIOCC and the GOL’s shareholding has been provisionally seized.
On 19 May 2021, Prime Minister Moeketsi Majoro gave statements to the media claiming that he wasn't aware of the litigation, and that “Lesotho’s properties both in Lesotho and overseas are protected and we don’t think the action that [Frazer Solar] are proposing will succeed.”
On 18 June 2021, the Government of Lesotho issued a statement confirming that it had instructed legal representatives in South Africa to formulate an application for stay of execution at the same High Court in South Africa that granted FSG permission to enforce its arbitral award. This matter is set to be heard in a court hearing in November 2021.
The Government of Lesotho also announced the establishment of a Commission of Inquiry to ‘help Basotho to learn and understand what transpired up to the point an order to seize Lesotho’s assets was issued in South Africa.’
On 17 July, the Attorney General – Rapelang Motsieloa – ordered the Public Accounts Committee (PAC) to stop its probe into the Frazer Solar deal. Minister Tsolo gave evidence, but no evidence was heard or submitted from the Prime Minister, Dr Majoro.
On 03 August 2021, Fitch Ratings – a leading credit rating agency – highlighted legal action against the Government of Lesotho as a risk to Lesotho’s GDP revenues, stating: “Seizure under legal proceedings in South Africa by the German company Frazer Solar of Lesotho's foreign receipts including water royalties that South Africa pays to Lesotho, if successful, would lead to a potential 2% of GDP revenue loss.” Fitch has maintained a Negative Outlook ‘B’ rating for Lesotho, resulting from high external indebtedness, deteriorating public finances and a history of political instability.