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Following the adoption of the
privatization Act of 1995, the Government of Lesotho (GoL) embarked on a
divestiture program focused on the food, airlines, construction, tourism
and pharmaceutical industries. The program started slowly, but gained momentum
and twenty-four transactions were completed. The program’s focus was
affected by a rapid deterioration (1997/1998) in the banking, electricity,
water and telecommunications sectors. The resulting crisis and the increase
in fiscal burden prompted GoL to give priority to the major utilities and
banks, which became the central focus of the program. The PPSD project was
restructured to provide support to: stabilize the banking sector and avert
a banking crisis; promote the creation of a vehicle that would allow some local
participation in the share ownership of divested GoL assets (Investment
Fund); introduce a financial specialist team at Lesotho Telecommunications
Corporation (LTC), which made significant progress with the collection of
debts and downsizing the corporation; and begin work on the establishment
of a regulatory framework for the telecommunications, electricity and water
sectors, to encourage private investment.
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The divestiture program adopted in 1995 was supported by
the World Bank’s privatization and Private Sector development (PPSD)
project approved in May 1994 and closed in December 2000 for an amount of
$US 11 million.
The Bank is currently supporting
privatization in Lesotho through a Utilities Sector reform Project for an
amount of US$28.6 million. The project, starting in June 2001and closing in
December 2005, will support the government’s objective of giving priority
to divestiture from the utilities sectors, together with the introduction
of a stable, transparent and modern utilities regulatory framework for the
electricity and telecommunications sectors. These reforms will help pave
the way for private sector investment capital and management to help to
improve the coverage, efficiency, affordability and reliability of
electricity and telecommunications services, thus releasing scarce GoL
resources to be redirected to priority activities such as social service
delivery.
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The first stage of the privatization of LTC is now
complete and the consolidation process is underway, particularly in terms of
strengthening the regulatory and policy capacity in the sector as it
adjusts to the new ownership structure. The bid was won in August 2000 by
Mountain Kingdom Communications Consortium as a strategic partner with a
share holding of 70 percent. The consortium was led by South Africa Power
Company ESKOM and includes Zimbabwe’s Econet Wireless International and
Mauritius Telecom. This has been facilitated by the adoption in 1999 of a
Telecommunications Policy which put an accent on regulatory and legal reforms
of the sector in order to promote economic growth and private investment.
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A cornerstone of GoL’s overall economic growth and
employment generation strategy is to attract private foreign and domestic
capital and expertise, given limited public resource availability relative
to the investment requirements. Improved business infrastructure will
permit Lesotho to take advantage of the contiguous large regional market
that has opened up with the changes in South Africa. Increased private
sector participation in the provision of goods and services will lead to
greater integration and the improved use of resources.
With the support of the World Bank,
priority is given to the privatization of Lesotho Electricity Corporation
(LEC) and the consolidation of the Lesotho telecommunications Corporation
(LTC) privatization. The implementation of the reforms stated in the1999
Telecommunications policy is expected to accelerate. This will help attract
new capital and encourage LTC to engage essential investment program.
More specifically for
the electricity sector, the 1969
Electricity Act, which created the Lesotho Electricity Corporation (LEC)
provides the legal basis for LEC to generate, transmit, distribute and
supply electricity in the country. Power generation and transmission
distribution are in practice carried out by separate entities, although all
assets are owned by GoL. The Muela hydroelectric power plant supplies LEC
with about 85 percent of its power requirements. One of the important
modifications to the original Act is the requirement that the LEC should be
financially self-sufficient and should be operated fully on a commercial
basis.
However, LEC have been making losses and has been unable
to meet increasing demand for services. These losses have been mainly due
to its inefficient operations which have required fiscal transfers and
therefore adversely affected the national budget. In 1999, LEC made
significant losses, primarily due to non-collection of revenues, and GoL
transfers to cover these losses represented an important percentage of
government expenditures.
The government has decided to privatize LEC,
through the sale of a majority of shares to a strategic investor, and the
transfer of full management control to this investor. To accomplish the
privatization, the government intends to take three key preliminary
actions. First, put in place a credible regulatory framework for electricity;
second, prepare a power system control function from LEC and established it
as an independent entity to ensure that the purchasers of LEC do not have
control over the country’s future trading with the Southern Africa Power
Pool (SAPP); and third, set up adequate arrangements to reduce staffing at
LEC in a way that essential skills are retained in the country.
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Project Appraisal Document to the Kingdom of Lesotho for
a Utilities
Sector Reform Project, the World Bank, Washington, DC, 2001.
Privatization
and Private Sector Development Assistance Project, the World Bank,
Washington, DC, 1994.
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