The binational project is aimed at helping SA, which has a shortage of water, buy affordable water from Lesotho, which will use the money for development.
The completion of this phase of the project means Lesotho will now able to deliver almost 27m³ of water a second to SA, up from the previous 18m³ a second.
The construction includes Mohale Dam a 145m-high structure with a capacity of 950m³ and a 32km tunnel which feeds the Katse Dam.
Water from Katse, the highest dam wall in Africa at 185m, is transferred via numerous tunnels into the Vaal Dam in Gauteng.
Construction of the Mohale Dam and the tunnel to Katse started in 1998 and was completed last year. At the peak of construction , more than 8000 jobs for local and regional workers were created.
But the project was tainted by corruption. German engineering contractor Lahmeyer International was fined R10,6m in the Lesotho High Court for bribery relating to the water project, and Canadian company Acres International was fined R15m on similar charges. The former head of the Lesotho Highlands Development Authority, Masupha Sole, was also found guilty of corruption.
Lesotho will get fixed and variable royalties from the transfer of water to SA. On average the royalties will amount to R15m a month.
The next phase, if both governments agree to it, involves building the Mashai Dam and a water conveyance tunnel to the Katse Dam.