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Private Solutions for Infrastructure in Lesotho

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Private Solutions for Infrastructure in Lesotho A COUNTRY FRAMEWORK REPORT Private Solutions for Infrastructure in Lesotho PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY THE WORLD BANK A Country Framework Report Private Solutions for Infrastructure in Lesotho THE WORLD BANK Washington, D.C. Copyright © 2004 The findings, interpretations, and conclusions expressed in The International Bank for Reconstruction and Development/ this report are entirely those of the authors and should not be THE WORLD BANK attributed in any manner to the Public-Private Infrastructure 1818 H Street,NW Advisory Facility (PPIAF) or to the World Bank, to its affil- Washington, DC 20433, USA iated organizations, or to members of its Board of Executive Telephone 202-473-1000 Directors or the countries they represent. Internet www.worldbank.org Neither PPIAF nor the World Bank guarantees the accu- E-mail [email protected] racy of the data included in this publication or accepts All rights reserved responsibility for any consequence of their use. The bound- Manufactured in the aries, colors, denominations, and other information shown United States of America on any map in this report do not imply on the part of PPIAF or the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Copyright is held by the World Bank on behalf of both the World Bank and PPIAF. Dissemination of this work is encouraged, and the World Bank will normally grant per- mission promptly and, when reproduction is for non-commercial purposes, without asking a fee. Permission to photocopy portions of this publication should be addressed to: Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, U.S.A., telephone 978-750-8400, fax 978-750-4470, or through the Internet at www.copyright.com For questions about this publication or information about ordering more copies, please refer to the PPIAF web- site or contact PPIAF c/o the World Bank, 1818 H. Street, Washington, DC 20433. Fax: 202-522-7466. Http://www.ppiaf.org. Email: [email protected] Contents Introduction and Acknowledgments 1 1. Executive Summary 3 Infrastructure Reform 3 Cross-Cutting Themes 4 Sectoral Overview 5 Electricity 5 Telecommunications 7 Transportation 8 Water and Sanitation 9 Solid Waste 10 Private Participation Opportunities 11 Action Plan 12 PPI Facilitation Unit 12 Specific Priorities for Action by Sector 12 Cross-Cutting Actions 13 2. Cross-Cutting Themes, Sector Comparisons, and an Action Plan to Frame PPI in Lesotho 14 Macroeconomic Policies and Economic Development Strategy 14 Political Environment 15 Capacity for Public Sector Financing of Infrastructure 15 Business Environment and Investment Regime 17 Underdeveloped Status of Basic Infrastructure 17 Human Capital Deficiencies 17 Administrative and Legislative Barriers to Business 18 Reform Initiatives and Privatization Policies 18 Competitive and Transparent Procurement Procedures for PPI 19 Financing Environment for PPI 20 Environment, Land Use, Urban Planning, and Biodiversity Issues 21 Capability Assessment of Local Contractors 22 Comparison of Infrastructure Coverage in Lesotho and the Region 23 Electricity Sector 23 Water Sector 24 i Private Solutions for Infrastructure in Lesotho Telecommunications Sector 24 Transportation Sector 24 Sector Reform Status and Cross-Cutting Challenges 25 Sector Interaction, Priorities for Expansion, and the Role of the GOL in Promoting a Pro-Poor Growth Strategy 29 The Promise of PPI 32 The Responsibility and Potential Consequences of PPI 34 A Proposed Strategy for PPI in Lesotho 34 An Action Plan to Realize the Potential of PPI in Lethoso 35 Tier 1: Create PPI Oversight Capacity within the Public Sector 36 Tier 2: Priority Actions by Infrastructure Sector 36 Tier 3: Cross-Cutting Enabling Measures 37 3. Electricity 40 Institutional and Market Structure 40 An Institutional Barrier? 41 Sector Policies and Regulation 41 The New Regulatory Commission 41 Sector Performance 42 Supply Situation 43 Demand Side 45 The Issue of Electricity Tariff 45 Rural Electrification 47 Role of Output-Based Aid in Rural Areas 48 Key Initiatives 49 LECPrivatization 49 Service Territory for the LEC 49 Privatization of Muela? 49 Issues and Recommendations 49 LEC Concession to a Private Sector Firm and Basotho Participation in the Electricity Sector 50 Case for a Multisector Regulatory Agency 50 Time for Multi-Modal Rural Utility? 50 Opportunities for PPI 50 A Vision for the Future? 51 4. Telecommunications 52 Institutional and Market Structure 52 Transition from a Public Monopoly to a Competitive Market Structure 52 Sector Policies 54 Sector Performance 54 Lesotho’s Teledensity Improvement under the Competitive Landscape 54 Comparison of Lesotho’s Achievements to Regional Benchmarks and Trends 55 Fixed-Line Services 56 Wireless Services 57 Internet Services 57 Tariffs and Affordability 58 Sector Regulation 59 Exclusivity Regulation 59 Granting of Licenses and Regulation of Fees 59 Universal Service and Coverage Regulation 60 Interconnection Arrangements 61 Competition Regulation and Dispute Resolution 61 ii Private Solutions for Infrastructure in Lesotho Tariff Regulation and Change Process 61 LTA Regulatory Processes, Staffing, Financing, and Performance 61 Key Issues and Recommendations 62 The Policymaker Must Stay Engaged with the Sector Regulator 62 Social Goals Favoring Universal Service Should Be Balanced with Goals Favoring Industrial Growth 62 Undertake and Make Use of Planned Rural Demand Study 62 The LTA Should Explore Substitute Peformance Targets with TL 62 The LTA Should Explore the Concept of License-Free Spectrum 63 The Potential for PPI 63 5. Transportation 64 Road Network Subsector 64 Road Network Subsector Institutional and Market Structure 64 Road Network Subsector Policies 66 Road Network Subsector Performance 67 Public Transportation Subsector 68 Traffic and Transportation 68 Traffic Flow and Toll Road Potential 68 Lesotho Freight and Bus Corporation 68 Summary of the Key Issues in the Road Sector 69 Freight Transportation Subsector 69 Rail Freight Service 69 Truck Freight Service 70 Summary of Key Issues in the Freight Subsector 71 Aviation Subsector 71 Institutional and Market Structure 71 Aviation Subsector Policies 72 Aviation Subsector Performance 72 Summary of Key Issues in the Aviation Subsector 73 Recommendations for the Transport Sector 73 Policy 73 Institutional 74 Regulation 74 Potential PPI Projects 74 FDI-Oriented Projects 74 Projects That Enhance Basotho Business Opportunities Using Output-Based Aid and/or Performance Contracts 75 6. Water and Sanitation 76 Institutional Structure 76 Water Sector Policies 79 Sector Performance 82 Water 82 Sanitation 84 Regulation 85 Recommendations for the Water and Sanitation Sector 85 Opportunities for PPI 86 7. Solid Waste Sector 88 Institutional and Market Structure 88 Solid Waste Sector Policies 89 Sector Performance 89 Recommendations 90 iii Acronyms and Abbreviations BOT Build-Operate-Transfer MIA Moshoeshoe I International Airport COWMAN Committee on Waste Management MNR Ministry of Natural Resources DOE Department of Energy MOF Ministry of Finance DRR Department of Rural Roads MOPWT Ministry of Public Works and Transport DRW Department of Rural Water MTCE Ministry of Tourism, Culture, and Environment DRWS Department of Rural Water Supply NES National Environmental Secretariat DTT Department of Traffic and Transportation NGO Nongovernmental Organization DWA Department of Water Affairs NREB National Rural Electrification Board EIA Environmental Impact Assessment NREF National Rural Electrification Fund EU European Union OWC Office of the Water Commissioner FDI Foreign Direct Investment PPI Private Participation in Infrastructure GDP Gross Domestic Product PPIAF Public-Private Infrastructure Advisory Facility GNP Gross National Product PPP Public-Private Partnership GOL Government of Lesotho PPSU (Water) Policy, Planning and Strategy Unit ICT Information and Communication Technologies PSPC Power Sector Policy Committee IP Internet Protocol RB Roads Branch ISP Internet Service Provider RRMP Rural Roads Management Program LEA Lesotho Environmental Authority RSA Republic of South Africa LEA Lesotho Electricity Authority SACU South African Customs Union LEC Lesotho Electricity Corporation SADC Southern African Development Community LFBC Lesotho Freight and Bus Corporation TL Telecom Lesotho LFCD Lesotho Fund for Community Development TRASA Telecommunications Regulatory Authority of LHDA Lesotho Highlands Development Authority South Africa LHWP Lesotho Highlands Water Project UNDP United Nations Development Programme LNDC Lesotho National Development Corporation VAT Value-Added Tax LPU Lesotho Privatization Unit VCL Vodacom Lesotho (wireless) LTA Lesotho Telecommunications Authority VIP Ventilated Improved Pit Latrines LTC Lesotho Telecommunications Corporation VOIP Voice Over Internet Protocol MCC Maseru City Council WASA Water and Sanitation Authority MCST Ministry of Communications, Science, and WF Wireless Fidelity Technology WSIP Water Sector Improvement Program iv Private Solutions for Infrastructure in Lesotho Tables Table 1. Potential Private Participation in Infrastructure Projects 11 Table 2. GOL 2002/03 Capital Expenditure Budget, US$ 16 Table 3. Comparative Infrastructure Benchmarks for Lesotho and Selected Countries in Sub-Saharan Africa 25 Table 4. Summary Comparison of Sector Reforms within Lesotho 26 Table 5. Comparison of Multi-Utility Regulatory Institutions in
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