The European Investment Bank (EIB), the European Union's long-term lending Institution, is providing loan facilities totalling ECU 99 million for the Lesotho Highlands Water Project (LHWP).

A loan of ECU 44 million goes to the Lesotho Highlands Development Authority (LHDA), to fund the Matsoku Tunnel and Weir scheme. The funding will benefit from an interest rate subsidy (according to the Lomé Convention) which will be used for environmental protection measures. A second loan of ECU 45 million to the Trans-Caledon Tunnel Authority (TCTA) is to finance the foreign exchange costs of the Mohale Dam. A third loan of ECU 10 million to LHDA will be signed shortly.

The financing is for Phase 1B of the LHWP, one of the largest infrastructure projects currently under implementation in Africa. Governed by a Treaty between the Republic of South Africa and the Kingdom of Lesotho, the project is to transfer water from mountainous Lesotho to the industrial heartland of South Africa, mainly in Gauteng Province. The additional water supplies will contribute to safeguarding South Africa's industrial development potential and bring clean piped water to households in the previously disadvantaged urban and peri-urban communities, a priority of South Africa's Reconstruction and Development Programme. The project will also provide local job opportunities for thousands of Lesotho nationals who have depended on remittances from the South African goldmines.

The project is estimated to cost ECU 1 098m. Three quarters of the funding will be financed on a non-concessional basis, largely through the South African capital market. The World Bank, the Development Bank of Southern Africa, and EIB are foreseen to cover some 11% of the funding required.

The LHDA Contract was signed in Luxembourg on 25 May by the Ambassador of Lesotho, HE Mr RV Lechesa, and the TCTA Contract was signed in Pretoria on 29 May by Ms Martie van Rensburg, Chief Executive of the TCTA.

The EIB, established in 1958 by the Treaty of Rome, finances capital investment projects which further the European Union (EU) policy objectives. It also participates in the implementation of the EU's co-operation policy towards third countries that have co-operation or association agreements with the Union. The Fourth Lomé Convention was concluded in 1989 for a period of 10 years and is accompanied by two Financial Protocols, spanning 1991-1995 and 1996-2000. The total financial aid available under the second Protocol amounts to ECU 14.6 billion, of which ECU 12 billion as grant aid from the EU member states, ECU 1 billion managed by the EIB as risk capital finance, and up to ECU 1.6 billion in the form of loans from the EIB's own resources.In addition to this, EIB has a lending mandate from its Member States to provide long term financing for South Africa totalling ECU 675 million over the period 1995-1999.

The conversion rates used by the EIB for statistical purposes during the current quarter are those obtaining on 31.03.98 when 1 ECU = 5.42 LSL/ZAR, 0.64 GBP, 1.08 USD.