Morocco - Petroleum Exploration and Essaouira Appraisal Project

Document of FLE The World Bank FOR OFFICIAL USE ONLY Report No. P-3509-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOP TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$75.2 MILLION TO OFFICE NATIONAL DE RECHERCHES ET D'EXPLOITATIONS PETROLIERES WITH THE GUARANTEE OF KINGDOM OF MOROCCO FOR A PETROLEUM EXPLORATION AND APPRAISAL PROJECT April 4, 1983 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. KINGDOM OF MOROCCO CURRENCY EQUIVALENT Currency Unit - Dirbam (DH) US01 = DH6.3 DHI = US$O.159 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS BBL barrels BCF billion (standard) cubic feet BD barrels per day BRPM Bureau de Recherches et de Participations Minihres MEM Ministry of Energy and Mines MW Megawatts ONAREP Office National de Recherches et d'Exploitations P6troli6res ONE Office National de 1'Electricit6 SAMIR Soci6t6 Anonyme Marocaine de l'Industrie du Rafinage SCP Soci4t4 Ch4rifienne des P6troles TOE Tons of crude oil equivalent FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO PETROLEUM EXPLORATION AND APPRAISAL PROJECT LOAN AND PROJECT SUMMARY Borrower: Office National de Recherches et d'Exploitations P6trolibres (ONAREP) Guarantor: Kingdom of Morocco Amount: US75.2 million equivalent, including the capitalized front-end fee. Terms: Amortization in 17 years, including 4 years of grace, at the standard variable interest rate. Project Objectives and Description: The proposed project aims to: (i) complete the delineation and appraisal of gas reserves discovered at Meskala, including adjacent areas in the Essaouira basin, in order to assess their potential contribution to meeting national energy needs; (ii) carry out the preparatory studies necessary to identify the policies, investments, institutional arrangements and modifications to Morocco's overall energy strategy, necessary for eventual development and marketing of gas and condensates; (iii) evaluate and promote additional petroleum prospects among foreign oil companies, in order to attract further foreign investment for petroleum exploration; and (iv) strengthen ONAREP's technical and managerial capacity so that it can plan and carry out its functions as cost-effectively as possible. The project comprises: (a) drilling, testing and completion of up to 9 appraisal/exploratory wells; (b) geophysical studies; (c) technical studies (reservoir engineering, gas utilization, detailed design of pipeline and surface facilities); (d) gathering, analysis and presentation of data for exploration promotion; and (e) technical assistance and training for ONAREP. The main benefit from the project would be the eventual design and implementation of a gas development project which would permit the replacement of imported petroleum products by domestic natural gas and liquid condensates. Additional benefits would be the generation of information needed for Government decisions on energy investments and policies; the attraction of foreign risk capital for investment in petroleum exploration; and the strengthening of ONAREP's capacity to design and implement petroleum exploration and development strategies. Project risks which relate to the uncertainties concerning the commerciality of the Meskala reservoir and the justification of an exploration program of the proposed scope, have been reduced by a flexible This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. (ii) project design combining a prudent balance between appraisal and exploration and decision points which permit adaptation of the work program to evolving results. Another risk concerns ONAREP's ability to implement the project efficiently, which has been reduced by technical assistance and training. Project Cost Estimates I/ Local ForEign Total -------(US$ Million)----- Drilling and well testing 16.7 32.6 49.3 Geophysical surveys 1.0 5.9 6.9 Technical studies 2.4 2.8 5.2 Exploration promotion 3.3 13.1 16.4 Technical assistance 1.9 9.1 11.0 Total Base Cost 25.3 63.5 88.8 Physical contingencies 2.5 5.8 8.3 Price contingencies 3.2 5.7 8.9 Total Project Cost 31.0 75.0 106.0 Front-end fee - 0.2 0.2 Total Required Financing 31.0 75.2 106.2 Financing Plan IBRD - 75.2 75.2 ONAREP 31.0 . 31.0 Total 31.0 75.2 106.2 Estimated disbursements: -----USt Million---- Bank fiscal year 1984 1985 1986 Annual 30.2 35.0 10.0 Cumulative 30.2 65.2 75.2 Rate of Return: Not applicable Appraisal Report: Staff Appraisal Report No. 4283-MOR dated April 4, 1983 1/ Includes duties and taxes of $9.1 million equivalent (DH 57.3 million) estimated on the basis of a rate of 12.1% on all imported materials and services. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$75.2 MILLION TO THE OFFICE NATIONAL DE RECHERCHES ET D'EXPLOITATIONS PETROLIERES WITH THE GUARANTEE OF KINGDOM OF MOROCCO FOR A PETROLEUM EXPLORATION AND APPRAISAL PROJECT 1. I submit the following report and recommendation on a proposed loan to the Office National de Recherches et d'Exploitations Petrolibres, with the guarantee of the Kingdom of Morocco, for the equivalent of US$75.2 million including the capitalized front-end fee, to help finance a petroleum exploration and appraisal project. The loan would have a term of 17 years, including 4 years of grace, at the standard variable interest rate. PART I - THE ECONOMY 1/ 2. A basic economic mission visited Morocco in November 1978, and updating missions in September and December 1979 and in May 1980. A report entitled "Morocco: Basic Economic Report" (3289-MOR) was distributed to the Executive Directors in December 1980. A report on Morocco's Public Sector Investment Program for 1981-85 is expected to be distributed to the Board shortly. An economic mission on industrial incentives and export promotion was in Morocco in September 1982. Country and Economic Data Sheets are attached as Annex I. Introduction 3. Compared with many developing countries, Morocco is well endowed with natural resources., Morocco has the world's largest and most easily recoverable phosphate reserves, which makes the phosphate sector a key export sector. Other minerals such as iron ore, manganese, lead and zinc are also exported, but in much smaller amounts. Coal and hydropower plants satisfy only a small part of the country's energy requirements, but Morocco has some uranium and oil shale resources which could become significant energy sources in the long term. There are moreover preliminary indications of natural gas reserves. Morocco has also a relatively good agricultural potential. In addition, Morocco's proximity to Europe has favored trade, tourism and labor migration with the EEC countries. 1/ Parts I and II are essentially the same as in the Oulmis-Rommani Agricultural Development Project (Report No. P-3413-MOR of November 22, 1982). -2- 4. During the first 15 years after independence (1956), a conservative approach to economic policy predominated in Morocco, and GDP increased at an average rate of 4% a year in the 1960s. A relatively weak savings effort and conservative external borrowing policies permitted only a slow rise in the share of resources allocated to investment. Morocco thus entered the 1970s with no major financial imbalances, but a relatively limited growth capacity. Although some industrialization had taken place, over half of the labor force was employed in the relatively inefficient traditional agricultural sector, and primary products accounted for close to 90% of merchandise exports, with phosphates representing about a quarter of the total. Economic Expansion in the Mid-1970s 5. During the 1970s, economic policy became more ambitious, and the original 1973-77 Development Plan strategy stressed an intensified savings effort and development of exports. In 1974, with the sudden jump in phosphate prices, phosphate export earnings more than quadrupled, and although the petroleum import bill also quadrupled in 1974, the current account of the balance of payments remained in surplus. The Plan's concern for exports and savings lost some of its urgency. The Government launched a massive public investment program which brought about a sharp acceleration in the rate of growth of the economy, and GDP grew at the rate of 6.7% per year between 1973-1977. The expansion.of the investment program also led to a considerable increase in demand for imported goods and services, whose share in GDP doubled from 19% in 1972 to 37% in 1977. 6. The phosphate boom, however, was shortlived and phosphate exports started falling in both volume and value as early as mid-1975. Phosphate prices continued to decline until 1980. Markets for other exports as well as for tourism and labor migration were also negatively affected by the world recession. Agricultural production and exports entered a period of prolonged stagnation and Morocco turned from a net exporter to a net importer of foodstuffs. As a result of all these factors, the growth of exports of goods and nonfactor services, which in constant prices had exceeded 8% a year in 1968-72, averaged only 1% a year in 1973-77. 7. Accelerated investment, growing public expenditures, and particularly increased defense spending in response to growing tensions in the Western Sahara, created strong pressures on both the balance of payments and the Government budget. While investment jumped from about 15% of GDP in the early 1970s to 32% in 1977, gross domestic savings rose briefly from 15% of GDP in 1972 to 20% of GDP in 1974 thanks to phosphate receipts, but fell back to 10-12% in 1976-77. The large resource gap which emerged as early as 1975 rose to an unsustainable 20% of GDP in 1977 (in current prices). To help finance the gap, Morocco borrowed heavily from the international capital market, which led to rapid increases in external debt and the debt service burden. The debt service ratio rose from 5.6% of exports of goods and services in 1975 to 10.7% in 1977. - 3 - 8. The Government's overall budget position also deteriorated considerably during the period 1973-77. While budgetary revenues increased rapidly as a result of the windfall phosphate profits in 1974 and 1975 and of the growth of import duties and taxes in following years (reaching 22% of GDP in 1977), the growth of expenditure far exceeded that of revenues. Budgetary outlays rose from 19% of GDP in 1972 to 39% in 1977. As a result, the Government's overall budget deficit increased sharply, reaching peaks of 18% of GDP in 1976 and 1977. Stabilization Program 1978-1980 9. In order to redress the rapidly deteriorating financial situation, the Moroccan Government in 1978 adopted a three-year stabilization program, characterized by a substantial retrenchment of investment and import levels. In 1978, the first year of the adjustment, public investment was cut back by nearly half in real terms and the growth of current budgetary expenditure held down to 3% (in real terms). These measures of fiscal restraint were combined with tight.credit policies and stringent import controls. As a result, the overall budget deficit declined to about 10% of GDP and the external payments situation improved in 1978. Later, however, the stabilization program encountered a number of obstacles, including poor harvests, petroleum price increases and the rise in interest on the commercial debt. In addition, internal pressures led to some relaxation of the highly restrictive fiscal policy adopted in 1978. By 1980 both fiscal and external imbalances were still substantial: the resource gap (in current prices) remained at about 11% of GDP, and the ratio of the overall budget deficit to GDP at about 12%. 10. The reduction in the Government deficit during the 1978-80 period was achieved chiefly through cutbacks in the level of budgetary investments, which dropped from 27% of GDP in 1977 to 12% in 1980. The growth of current expenditure proved difficult to restrain because of the continuing need to maintain defense and social expenditures, the growing interest payments on the public debt and the rising cost of consumption subsidies. The latter tripled in 1979-80 reaching 2% of GDP, as price increases for subsidized staple food and petroleum products could not catch up with the rise in import costs for these products. Reflecting these pressures, the growth of current expenditure reached 27% in 1980 and their share of GDP represented 22%. 11. In the external sector, non-oil imports were reduced substantially and remained below the 1977 level in nominal terms due to a sharp reduction in capital goods imports (by about two-thirds in real terms between 1977 and 1980). Oil imports on the other hand increased 2.5 times in value due to price and volume increases. Export earnings improved in 1979 and received a significant boost from the recovery of phosphate prices in 1980. Thus, despite a large increase in the petroleum import bill and a rise in external debt interest payments, the current account deficit before grants was reduced from $1.8 billion, or 17% of GDP, in 1977 to about tl.4 billion, or 8% of GDP, in 1980. 12. The adverse impact of the stabilization program on employment has probably been substantial in contrast with the rapid rate of employment creation during 1973-77. On the whole, the policies followed since 1978 have had a high cost in terms of growth and employment and appear to have been only partly successful in their short-term stabilization objectives. Recent Developments 13. In 1981, the economy was subjected to strong external shocks: a substantial increase of imports of cereals, following a drought which reduced agricultural value added by about 23% in real terms; a large appreciation of the US dollar; and a rise in foreign interest rates, which further increased the cost of debt service. As a result of these factors, economic and financial performance worsened. Gross domestic product fell by 1.3% in real terms, the Treasury deficit reached 14% of GDP in 1981, and the current account deficit reached $1.9 billion in 1981 (12.6% of GDP). Economic activity improved in 1982 as agricultural production recovered thanks to a good harvest, but phosphate prices weakened. adversely affecting export earnings. GDP is estimated to have increased by 5 to 6% in real terms but the external payments situation has not improved significantly. The budgetary situation improved somewhat as a result of a combination of tax increases and expenditure restraining the measures adopted in the framework of a stand-by agreement reached with the IMF in April 1982, but the Treasury deficit remains high. Medium Term Prospects 14. The initial development strategy in the 1981-85 Plan period was to reach a high rate of GDP growth (6.5%), needed to obtain an acceleration of employment creation and a strengthening of Government programs for social and regional development. The Plan projection was, however, too ambitious and although the financial constraint lessened somewhat in 1982 as the economy recovers from the 1981 drought, Morocco's external financial situation will remain difficult in 1982-85 and will continue to constrain GDP growth. 15. Bank projections for the 1981-85 Plan period are based on the assumption that exports of goods and non-factor services could grow by 5.8% in real terms, while imports of goods and non-factor services would be allowed to rise by no more than 0.5% p.a. in real terms, as the need for food imports is expected to diminish, the increase in capital goods and oil imports to slow down, and payments for military equipment to be lower. Moreover, the growth in investment expenditures would not exceed 3.1% p.a. in real terms. Given these assumptions, domestic savings could recover from the abnormally low 1981 level (7.8% of GDP) to reach 12.5 % of GDP in 1985, the resource gap would gradually decline from 13.3% of GDP in 1981 to 7.5% in 1985, while GDP could still grow at about 4.5% p.a. in real terms or just over 1% per capita. 16. The projected export growth would result from an increase (in real terms) of 6.6% in phosphate and phosphate based products and 9.5% p.a. in manufactured products between 1981-85. Such a performance would depend upon - 5 - identification of new markets and could be accomplished only if high priority is given to export promotion. In the case of finished and intermediate products, the extent to which the projected increase in exports would materialize depends on the revision of incentives granted to exporters, the diversification of Moroccan exports towards non-traditional exports and new markets, and the appropriate level of the exchange rate. 17. A sustained reduction of the trade gap will be difficult to achieve unless growth of merchandise imports is drastically curtailed. This would require not only a higher increase in agricultural output so that the level of food imports would decline in real terms, but also an effective domestic pricing policy so as to limit the growth of petroleum imports (assumed at 1.3% p.a.) from 1981 to 1985. It would require moreover a reduction of the capital goods imports growth to 1.8% p.a. in 1981-85 through cuts in Treasury civilian investment with respect to the level planned in the 1981-85 Plan, and a revision of the various investment codes so as to reduce financial incentives to imported capital goods. 18. In view of the projected stagnation in per capita household incomes, any significant increase in domestic savings would mainly come from substantial improvements in Government savings performance. As part of the 1982 stand-by arrangement between Morocco and the IMF, several measures and reductions in real Government expenditures were implemented in 1982. The Bank's projections assume that progress will continue in this area. 19. Given the strong constraints on investment levels, the future rate of growth of the economy will depend to a large extent on the sectoral allocation and the efficiency of investment. In conformity with the Plan objectives, the Government should start fewer large capital-intensive projects and restrict the allocation of investments to priority subsectors. Priority is to be given to projects that are export oriented, less capital intensive and which use a greater proportion of domestic resources. In addition, particular attention will have to be paid by the Government to manpower planning and to the employment effect of investments in order to prevent unemployment from rising. Social Development 20. Social expenditures have been at a high level in recent years, accounting for more than half of current outlays. However, social indicators still appear to be at a relatively low level in Morocco. The limited effectiveness of past social policies in reaching the lower income groups, especially in rural areas, is increasingly recognized as a major issue, and the strategy of the 1981-85 Development Plan emphasizes rural development in rainfed areas, where most of the poorest households in Morocco currently live, and the need to improve mechanisms for delivering services to meet basic needs at an affordable cost, especially in rural areas. An effort is also being made to increase the involvement of local communities in meeting basic needs, particularly for low cost housing, water supply, sewerage and electrification. Although rapid results cannot be expected in any of these -6- areas, implementation of these policies would help meet the needs of low-income groups, while holding down the budgetary cost of social programs. External Debt and Debt Service 21. Morocco sharply increased external borrowings after 1974. Nearly all of the increase came from Arab and commercial sources. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about t70 million in IMF compensatory financing in August 1978. In October 1980, the IMF approved an extended arrangement for a three-year period in the amount of SDR 810 million in support of a medium term program of financial adjustment. This arrangement was interrupted in 1981 when it appeared that the assumptions and targets of the EFF program were no longer possible. It was replaced in 1982 by a stand-by arrangement in the amount of SDR 281 million and purchase of SDR 236 million under the Compensatory Financing Facility. The 1982 financial program, which was supported by the standby arrangement now drawing to a close, sought to reduce the deficit in the current account of the balance of payments (excluding grants) to 10% of GDP and to decrease the overall Treasury deficit by one-third to 8% of GDP. Other major elements of the program included an upward revision of the interest rate structure, restraint in overall credit and monetary expansion, further trade liberalization, and progress with respect to both tax reform and reform of the state enterprises. Preliminary data indicates that the targets under the standby for end-1982 were met. The performance criteria of the program were observed and Morocco was able to make the last drawing under the standby arrangement in February 1983. Discussions are underway of a possible further standby arrangement for 1983/84. 22. From the low levels of 1974-75, Morocco's external debt rose rapidly to $8.4 billion (disbursed only) by December 1981. Gross inflow of medium and long term capital reached tl.8 billion in 1981. Debt service amounted to $1.2 billion in 1980, $1.3 billion in 1981 and $1.5 billion in 1982 (27%, 31% and 35% respectively, of total exports of goods and services). As a result of recent and projected borrowings, debt service may be expected to average t1.8 billion annually during 1982-85. Because of the growing burden of debt service, external borrowing has become more restrictive and selective since 1978. If debt service is to stay manageable, the Government will have to continue this policy over the next few years while taking special measures to expand exports. 23. Loan commitments from multilateral and bilateral official sources to Morocco rose from $205 million in 1975 to $1368 million in 1978. In 1979-80 they have averaged $700-800 million a year (excluding grants). In 1981 they are estimated at $1759 million. Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1981, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 7.5%. The share of the Bank Group in debt service was 21% in 1976 and declined to 15% in 1977, and 7% in 1981. By 1985 the Bank Group's shares in debt outstanding and in debt service are projected at about 10 and 11% respectively. - 7 - PART II - BANK GROUP OPERATIONS IN MOROCCO 24. Bank and IDA lending to Morocco has supported 61 projects, financing a total of $2,109.7 million (net of cancellations), of which $1,351.5 million has been lent since the beginning of FY1978. IDA credits, totalling $50 million, have been made available for five projects and a Third Window loan for $25 million has been made for an education project. IFC investments have amounted to $61.6 million ($41.6 million after cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments and notes on the execution of ongoing IBRD/IDA projects as of February 28, 1983. Overall performance in project execution is satisfactory, although in some cases, delays in project implementation have been caused by management problems and budgetary constraints. 25. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which have accounted for 28 percent and 26 percent, respectively of total commitments; the balance is represented by utilities (16 percent), tourism (9 percent), education (8 percent), roads (6 percent), energy (4 percent) and urban development (3 percent). The main objectives of Bank lending in previous years were to foster and strengthen development institutions and to increase productive capacity, in order to improve the balance of payments. While these objectives remain, Bank lending now also focuses on supporting a number of other policy objectives: to contribute to the reduction of the Treasury deficits; to lower unit costs for the delivery of basic services, widen their distribution among regions and increase access by lower-income groups; and to increase employment and improve income distribution. 26. Since FY75, lending in agriculture has emphasized improvement in the productivity of rainfed agriculture and livestock, which employ over 80 percent of the rural population, primarily small farmers. The Meknes and Fes-Karia-Tissa Agriculture Projects address this objective in the favorable cereal producing zone. The Loukkos, Middle Atlas, Forestry and Oulmas-Rommani projects extend support to less favorably endowed regions. Four lines of credit to Caisse Nationale de Cr6dit Agricole (CNCA) have helped provide credit to farmers, and a fifth project is under preparation. An irrigation project aims at development of small and medium schemes. Increased export earnings are expected to result from the Bank-supported project for Vegetable Marketing and Production, as well as from a project currently under preparation to improve the efficiency of the coastal fishing industry. The scope of future lending is likely to be expanded to include projects aimed at improving input supply and marketing nationwide. 27. Increased foreign exchange earnings or savings have also been the key objectives of Bank projects in industry, mining and tourism and led to nine lines of credit to the Banque Nationale pour le DAveloppement Economique (BNDE) for industrial projects and four lines of credit to Cr6dit Immobilier et H8telier (CIH) for tourism projects. A project to increase mineral export earnings and raise the incomes of small-scale miners in southeastern Morocco was approved by the Board in FY82. - 8 - 28. Projects in basic infrastructure and services have concentrated on improving the efficiency of existing investments and extending services to rural and low-income urban groups. A second urban development project aims at supporting the Government's efforts to provide shelter, basic services and employment to low-income urban families and a third urban project is helping to provide finance to low income housing. Two highway projects support the Government's road maintenance efforts and improve rural access roads. A loan for village electrification is helping bring power to over a hundred small towns and villages, and a third water supply project is providing access to safe water in small towns and semi-rural areas. 29. Five education projects have focused on secondary level technical education and teacher training, on expanding basic education in the rural areas and on ensuring a greater orientation in primary schooling towards practical training. Further lending will be focussed on vocational training and on primary education. 30. In order to reduce Morocco's dependence on oil imports, the Government has made considerable efforts to develop national resources, notably of gas and oil shale. These efforts are being supported by the Bank through a first gas exploration project and an engineering project aimed at studying the viability of developing the country's oil shale resources. A second exploration and appraisal project is the subject of this report, and additional projects for coal and hydropower development are being studied. 31. Morocco's disbursement performance improved in FY82. Disbursement shortfalls are, however, still being experienced, particularly for a few projects in new sectors, due mainly to institutional or project management problems. These cases are being closely monitored and implementation schedules have been established specifying critical actions, in agreement with the Government. In some projects, implementing agencies have been slow in submitting disbursement requests to the Ministry of Finance for transmittal to the Bank, but the Government has recently taken effective measures to resolve this problem. The rate of disbursement has also been affected by the appreciation of the dollar against other currencies. PART III - THE ENERGY SECTOR 32. Morocco suffers from a drastic imbalance between domestic energy production and consumption. Domestic demand for commercial energy totalled about 4.75 million tons of energy equivalent (TOE) in 1981, compared to about 0.69 million TOE of domestic primary production (coal: 0.35 million TOE, hydropower: 0.26 million TOE; natural gas: 0.06 million TOE and oil: 0.02 million TOE). The growing energy deficit has been met almost entirely by oil imports, whose cost rose to $1.0 billion in 1981, absorbing half of Morocco's export earnings. In view of Morocco's serious balance of payment problems, the Government has made reduction of the energy import bill one of its highest priorities, through moderating the growth of energy demand, diversification of energy sources, and the development of domestic energy resources. -9- Energy Demand 33. Morocco's energy consumption is still relatively low for a country of its income level (238 TOE per million $ GNP, compared to 334 TOE for Tunisia). Electricity represents a large and growing proportion of final energy consumption (20% in 1965; 26% in 1980) and is projected to account for as much as 40% in 1995. In 1981, installed generating capacity totalled about 1,840 MW, of which 66% was thermal and 34% bydro. The increasing reliance on oil products for both electricity generation and final consumption (71% of total commercial demand in 1965, rising to 85% in 1980), has been characterized by a sharp increase in the use of fuel oil, which by 1980 represented 45% of the petroleum market. 34. From 1965-80, demand for commercial energy in Morocco grew by an average 7.4% p.a., declining to 6.5% p.a in the latter five years. Depending on success in moderating energy demand increases, total demand could grow to between 8.6 million TOE (low forecast) and 13.1 million TOE (high forecast) by 1995. The Government is encouraging energy conservation by maintaining the prices of most energy resources (except electricity and, to a lesser extent, coal) above their opportunity cost to the economy. In-plant conservation measures and fuel switching might also have some impact on industrial energy consumption. Recent petroleum price increases have virtually eliminated the subsidies which formerly constituted a considerable drain on the Government budget. Measures to increase and rationalize electricity tariffs are being discussed with the Government in the context of the proposed Dchar-el-Oued multipurpose dam and power project, to be negotiated shortly. Coal pricing would also be addressed through a future project, under preparation. Gas from existing small fields is sold under long term contracts, and is priced significantly below its opportunity cost. On the assumption that future natural gas would be used primarily to replace fuel oil, either directly or through electricity generation, the Government is expected to price any gas produced from currently undeveloped fields or new discoveries (such as Meskala) at a price linked to that of fuel oil, with enough of a discount to encourage gas conversion and rapid market penetration. The Government has confirmed to the Bank its intention to set the price for all new gas on the basis of the cost of alternative energy sources. Energy Supply 35. The Government is planning to substitute imported steam coal for oil products in future thermal power plants and might also convert some of the high energy-consuming industries if alternative domestic energy sources do not materialize. Increased use of imported coal could lower energy import costs by about 20%. Morocco's oil import bill can only be significantly reduced by the development of domestic energy resources. The investments required for the exploitation of currently known resources are large and their economic viability-must be carefully examined; in some cases they also present considerable technical risks. Morocco's total hydropower potential is estimated at 1.1 million TOE per year, of which about one-third is already developed. The next slice of dams, planned for the 1990's, are multipurpose - 10 - and their economic justification will depend on complementary irrigation investments as well as their energy contribution. Domestic coal production is expected to be limited to the technically difficult Jerada anthracite mine, and production is not likely to surpass 0.6 million TOE per year. Wind, solar and biomass energy could contribute to meeting specific energy needs, especially in rural areas, but are not expected to have a significant impact on the commercial energy balance. Morocco's large phosphate reserves could contain large amounts of uranium; however, its extraction for use in nuclear power plants does not appear economic with present technology. Several large oil shale deposits exist in Morocco and are estimated to contain 6 billion tons of oil. The Government is examining the technical and economic viability of extracting the shale oil through retorting with the assistance of the Bank (Oil Shale Engineering Project: Loan No. 2114-MOR) as well as of foreign petroleum companies. Also under consideration is the direct combustion of the shale in power plants. The considerable technical uncertainties, combined with the large minimum investments required, make it difficult to predict the potential contribution of oil shale to national energy supplies. 36. Several small oil fields were discovered in the 1950s and early 1960s in the Gharb and Essaouira basins (see Map No. IBRD 16879). Annual oil production peaked in 1963 and declined to 350 BD (19,000 TOE/year) by 1981. A number of small and shallow gas fields have also been found in these basins, and a small amount of gas (60,000 TOE p.a.) has been produced since 1975. Several additional small gas discoveries were made in the late 1970s and remaining recoverable reserves in all these fields are estimated to total about 1.5 million TOE. In 1981, gas and liquid condensates were discovered at Meskala in the Essaouira basin by exploration supported under the first petroleum exploration project (Loan No. S-18 MOR). If natural gas were available in sufficient quantities, it is estimated that it could replace nearly 60% of the direct demand for boiler fuels and at least half of the demand in electricity generation, primarily by replacing fuel oil. The availability of both natural gas and condensates could permit about a 40% reduction in the oil import bill by 1990. The Meskala gas is the best current prospect for alleviating Morocco's dependence on energy imports in the 1980s. The Petroleum Exploration Subsector 37. Morocco possesses all the necessary geological elements for petroleum deposits: source and reservoir rocks, traps and sealing sediments; but high quality reservoir rocks have not yet been found and this is the main issue affecting petroleum prospects. Off-shore and on-shore petroleum exploration was relatively active in Morocco after independence, primarily through joint ventures between the foreign oil companies and the Bureau de Recherches et de Participations Mini6res (BRPM), the state agency then responsible for hydrocarbon exploration. Discoveries were quite small and limited to the shallower horizons and in the early 1970s, foreign exploration activity diminished sharply. However, in view of rising prices for imported oil and new prospects, primarily for gas, the Government encouraged BRPM to intensify exploration on its own. In 1980, the Bank agreed to support an expanded three-year program of petroleum exploration and exploration promotion - 11 - by BRPM including drilling of deep gas prospects in the Essaouira basin, through the first petroleum exploration project (Loan S-18 MOR). The principal result of this project was the discovery of natural gas at Meskala in the Essaouira basin in 1981. Following the Meskala discovery, the Bank and ONAREP agreed to focus the remainder of the project on the initial appraisal of the Meskala prospects rather than continue a wider-ranging exploration program. The discovery well (MKL-101) was followed by a second appraisal well (MKL-102), tested in mid-1982, which also indicated the presence of gas, although with less encouraging results. Two more appraisal wells (relatively close to the discovery) and an exploratory well about 20 kms from the discovery are currently being drilled. 38. Meskala lies in the most productive basin found in Morocco to date; and the presence of natural gas and liquid condensates in the discovery area has been established by the tests of the MKL-101 and MKL-102 wells. The gas is of good quality and is rich in liquid condensates, and there are strong indications (principally from the unusually high formation pressures in MKL-101 and MKL-102 and more distant previously drilled wells), that the gas may spread over a large regional area, and may extend into the deeper Paleozoic horizons underlying the proven Triassic reservoir. On the other hand, the Triassic reservoirs encountered in the wells drilled to date have low porosity and low permeability, and the geological and geophysical knowledge of reservoir extent is still poor. The exploration and appraisal work initiated under the ongoing project is expected to provide better information on the quality of the reservoir. However, given the unknown extent of the reservoir and insufficient data on recoverability, it is not yet possible to estimate economically producible reserves. These uncertainties can only be resolved through a program of drilling and geophysical surveys to appraise the Meskala discovery and explore its potential extensions in the surrounding area. In view of the urgency of meeting Morocco's energy needs from domestic resources, and the impact that establishing significant natural gas resources would have on Morocco's overall energy investment strategy, it is essential that the potential of the Meskala discovery be assessed as quickly as possible. 39. The Meskala discovery coincided with renewed interest by foreign oil companies in Morocco's prospects. Three off-shore exploration contracts have been signed recently with ARCO, Mobil and AMOCO. Interest in the on-shore has been less active. The Kuwait Foreign Petroleum Company (KFPC) has expressed recent interest in new on-sbore exploration and Apex and SCP (50% French-owned) are continuing work on existing small discoveries. The 1958 Petroleum Code, already relatively liberal, is currently being revised to give additional incentives to foreign investors. ONAREP is continuing its efforts to interest foreign oil companies in joint ventures and a first phase formal exploration promotion campaign is being financed under the current petroleum exploration project. 40. ONAREP has shown the Meskala discovery to several foreign oil companies which visited Morocco in the past year as well as to its current joint venture partners. At a time when the international oil industry is curtailing new exploration activity, a discovery of gas and condensates, - 12 - expected to be oriented towards the domestic market and for which export potential has not yet been demonstrated, is not likely to generate much interest among foreign oil companies. However from the point of view of the Moroccan Government and ONAREP, the quality of the gas and the associated condensates, the proximity of the Meskala discovery to the internal market, combined with Morocco's high energy import bill, make the Meskala gas prospects very promising. ONAREP has therefore decided to proceed on its own to assess the Meskala discovery. At the same time, it will continue the pre-drilling geological and geophysical work in the remainder of the Essaouira Basin as well as in other basins, and actively pursue the promotion of priority exploration areas with foreign oil companies. International oil companies may be more interested in participating in subsequent phases of the eventual development of Meskala, once the size and commerciality of the field is established and particularly if export potential is demonstrated, and ONAREP intends to reopen this question at that point. Sector Organization 41. The Ministry of Energy and Mines (MEM) is responsible for planning, coordination and policy-making in the sector. It also supervises several public enterprises which manage the sector's key activities, most notably: the Office National de Recherches et d'Exploitations P6troli4res (ONAREP) for hydrocarbon and shale exploration and development; Charbonnages du Maroc, operator of the Jerada coal mine; the Office National d'Electricit6 (ONE), for electricity generation and trasmission (except in major urban areas); and two petroleum refineries (SAMIR and SCP). Energy prices are set by a special commission under the Prime Minister's Office. The current Five-Year Plan (1981-85) foresees a major expansion in energy related investments, which represent more than 10% of the total investment budget. Government budgetary contributions are expected to finance part or all of the investments in most categories, averaging over half the investment costs; the remainder would be financed by foreign private investment, cash generation from the enterprises and grants or loans. Coordination and planning of energy and energy-related investments need to be strengthened and proposed investments are not always subjected to a least-cost analysis. 42. ONAREP. In view of the increased activity and priority of petroleum exploration, the Government created the Office National de Recherches et Exploitations PetroliZres (ONAREP) as a separate public enterprise in November 1981, to take over from BRPM the exploration and production of oil, gas and oil shale, as well as to serve as the national counterpart in joint ventures with foreign oil companies. The staff, equipment and facilities assigned to these tasks were transferred to ONAREP and the final separation of assets and liabilities between the two organizations was agreed in September 1982. Under the direction of a General Manager and Secretary General, ONAREP's Directorate for Petroleum Exploration carries out the planning and supervision of exploration and related geological and geophysical studies, as well as the promotion and follow-up of joint ventures; the Technical Operations Directorate is responsible for the design and execution of well drilling, testing and completion as well as the planning and supervision of production projects. Separate divisions reporting directly to the General Manager are - 13 - responsible for oil shale studies, administration and finance. ONAREP's staff currently ,totals nearly 1,000 employees including about 90 Moroccan technical professionals and 3 teams of expatriate technical specialists (totalling 17) working under bilateral assistance contracts (USA, USSR and Romania). 43. ONAREP's management is competent and dynamic, but the shortage of middle management personnel and the relative youth of many of its technical staff, who lack extensive field experience, have overburdened the senior managers with day-to-day operational concerns. Conscious of the need to strengthen its management and streamline its operations if it is to undertake an accelerated program of increasing size and complexity, ONAREP commissioned a diagnostic study of its short and medium term objectives, management structure and systems, procedures, financing and financial control, and staffing needs. This study, which is being financed under the current petroleum exploration project, is expected to be completed by June 1983 and the consultants will make recommendations concerning ONAREP's future development which would be implemented under the proposed project (see para. 49). In the short term, ONAREP would be reinforced by technical assistance for the implementation of Che project, as well as by the proposed staff training program (see paras. 49 and 51). Role of the Bank 44. The Bank has previously supported the Government's efforts to improve energy supply and distribution through several projects: to increase the generation and transmission capacity cf ONE (Loan 936-MOR for $25 million, and 1299-MOR for $49 million), both completed without major implementation problems; to expand the rural electricity distribution network (Loan 1695-MOR for $42 million); to support an intensified program of petroleum exploration (Loan S-18-MOR for 50 million, see below); and to analyze the technical and economic feasibility of oil shale retorting (Loan 2114-MOR for $20 million). A Project Performance Audit Report was carried out for the first power project (Loan 936-MOR) which signalled the continuing issues of the fragmented power sector organization as well as cost recovery (tariff adjustments). In early 1982 the Bank carried out an overall energy assessment and a power subsector study which examined the prospects, planned investment programs and policies in the sector (Reports No. 4157-MOR and 4135-MOR). The Bank would continue to support through the proposed project and other projects in the power and energy sector under preparation, the Government's efforts to analyze, select and implement the policies and investments for meeting energy needs at least cost to the economy. Particular attention would be paid to reducing energy imports and to minimizing the budgetary impact of proposed investments by * improving cost recovery and management efficiency in the sector. 45. The first petroleum exploration project, approved in early 1980, helped BRPM (the original Borrower) to upgrade its exploration equipment and improve the methodology and criteria used for selecting, exploring and evaluating petroleum prospects. Initial implementation and disbursement delays stemmed from difficult deep drilling conditions, from BRPM's resistance to accepting technical assistance, and from cumbersome procedures for Government release of funds for prefinancing equipment and seismic contracts. - 14 - Since the creation of ONAREP and its assumption of BRPM's role in the hydrocarbon sector, implementation has accelerated. ONAREP has been far more receptive to external technical assistance and the Government has accepted the use of direct payment procedures to minimize procurement and disbursement bottlenecks. The lengthy procedures involved in the establishment of ONAREP, particularly for the splitting of assets betweeen BRPM and ONAREP, delayed the transfer of the loan from BRPM to ONAREP (see para. 59). The substitution agreement was declared effective on February 25, 1983. 46. In view of the potential impact of significant gas supplies on Morocco's overall energy strategy, the Bank has encouraged ONAREP to concentrate its exploration program on the appraisal of the Meskala discovery in order that the Government may make informed decisions regarding energy- related investments without delay. The Bank has played a key role in helping ONAREP define a least-cost field appraisal strategy as well as identifying appropriate project implementation arrangements to maximize technology transfer and institution-building. The proposed project would provide the information necessary for the Government and ONAREP to determine the policies, investments and institutional arrangements appropriate for the eventual development of the Meskala gas reserves while continuing to promote complementary exploration by foreign oil companies in other prospective areas of the country. PART IV: THE PROJECT Project Objectives and Background 47. The project was identified in December 1981, during the implementation of the petroleum exploration Project (Loan No.S-18 MOR), and prepared by ONAREP. It was appraised in November 1982. Negotiations were held in Washington in March 1983; the leader of the Moroccan negotiating team was Mr. Hassan Belkoura of the Prime Minister's Office. The main features of this project are outlined in the Loan and Project Summary at the beginning of this report; a Supplementary Project Data Sheet (Annex III) and Maps No. IBRD 16879R and No.IBRD 16880R, are also attached. A Staff Appraisal Report, No.4283-MOR, dated April 4, 1983 is being circulated separately to the Executive Directors. 48. The proposed project is designed to: (1) complete the delineation and appraisal of the Meskala gas discovery, including exploration of adjacent areas in the Essaouira Basin, in order to assess the potential contribution of the gas and condensate reserves to meeting Morocco's energy needs; (2) carry out the preparatory studies necessary to identify the policies, investments, institutional arrangements and modifications to Morocco's energy strategy necessary for eventual development and marketing of the gas and condensates; - 15 - (3) evaluate and promote other petroleum prospects among foreign oil companies, with a view to attracting further foreign investment for petroleum exploration; (4) strengthen ONAREP's technical and managerial capacity, so that it can plan and carry out its functions as efficiently and cost-effectively as possible. Project Description 49. The project would include the following components: a) Drilling, testing and completion of up to 9 deep appraisal/exploratory wells within the Essaouira Appraisal Area (See Map No. IBRD 16880R). Appraisal wells would be located in the vicinity of the MKL 101 discovery well; exploratory wells would be in more distant locations, in order to search for new hydrocarbon reservoirs; b) Geophysical studies of the Essaouira Appraisal Area, including (i) high resolution seismic surveys, initially in the vicinity of the Meskala discovery and expanded, if warranted, to cover the entire area; and (ii) an airborne gravity and magnetic survey of the Essaouira Basin, to help provide a greater understanding of the structure of the Meskala fault block ("borst") and its relation to the larger basin; c) Technical studies, including: (i) a reservoir engineering study of the Meskala area (20m/m); (ii) a comprehensive assessment of the potential market and alternative uses for natural gas in Morocco (13m/m); (iii) detailed design of pipeline and surface facilities for an eventual gas development project, if warranted by established reserves(100m/m). d) Gathering, analysis and presentation of data for exploration promotion including: (i) reconnaissance seismic surveys of the Essaouira Basin and other onshore petroleum basins (these surveys and the high resolution seismic surveys refered to in b) above, would total 48 seismic crew/months); (ii) integration of geological and geophysical studies into technical data packages and formal presentations in Morocco and abroad to foreign oil companies by industry consultants (12m/m). e) Technical assistance for strengthening ONAREP's institutional capacity, including: (i) technical support for the operational management of the geophysical and drilling components of the proposed project (272m/m); (ii) provision of skilled drilling technicians (150m/m); (iii) implementation of the recommendations of the diagnostic study of ONAREP's management and structure (see para. 43) (25 m/m); (iv) in-country and fellowship training for ONAREP's technical staff. The training program, which covers a portion of ONAREP's 1981-85 training program, includes 215 m/m of fellowships and about 10 one-week in-country seminars. 50. The exploration strategy proposed under the project is a prudent balance between accelerated appraisal of the Meskala gas reserves and - 16 continuing exploration of the surrounding area to search for better reservoirs. It represents the minimum program needed to fully assess the potential of the Meskala discovery in order to make an informed decision on its eventual development. However, in order to maximize the effectiveness of ONAREP's exploration activities, the proposed project is designed to be flexible and allow for changes within each project component as new information becomes available. A number of decision points are foreseen for review of the project's results and modification, as appropriate, of the project's orientation or activities: -- The objectives and locations for the first five wells have been agreed between ONAREP and the Bank (2 appraisal/3 exploratory). A decision on the location and objectives of the subsequent four wells, tentatively identified, will only be finalized once the results of the first phase high resolution seismic survey have been analyzed to determine the correlation between the seismic reflections and the results of the initial appraisal drilling. Moreover, this final group of wells could be reoriented based on results up to that point: either to focus more closely on the Meskala discovery; to appraise a more promising discovery within the Essaouira Appraisal Area; or, if drilling results have been very discouraging, to explore other on-sbore prospects. The mix between the high resolution seismic surveys in the Essaouira Appraisal Area and the reconnaissance surveys of other basins for exploration promotion will also be decided on the basis of the first phase high resolution survey. The drilling and seismic work programs would be reviewed every six months and would not be modified without the Bank's consent (Loan Agreement, Section 3.02 (b)). Disbursements for specialized well services and seismic services would only be made on the basis of agreed work programs (Loan Agreement, Schedule I, Part 4(b)). The methodology and criteria for deciding on the work programs would be detailed in a Supplementary Letter. -- The detailed design of the pipeline and surface facilities for eventual gas production would only be initiated if sufficient reserves and well productivity are confirmed (Loan Agreement, Schedule 2, Part C(l)(b)); the criteria for this decision would be detailed in the terms of reference for these studies. The reservoir engineering study, the gas utilization study, the institutional reinforcement of ONAREP and the consultant services for exploration promotion, represent follow-up phases to initial studies financed under the current petroleum exploration project. Their precise terms of reference would be decided on the basis of the results and recommendations of the respective first phases, which are expected to be completed in mid-1983. Project Implementation 51. In view of the expansion of its activities foreseen under the proposed-project, the difficult nature of deep high pressure drilling, the complex geology of the Essaouira Basin, and the shortage of technical staff with field experience (see para. 43), ONAREP has obtained (with the Bank's approval) the technical support of an international oil company, Elf Aquitaine - 17 - (France), to set up a task force which will be responsible for all exploration/appraisal activities in the Essaouira Appraisal Area. The task force will be comprised of ONAREP technical staff and 11 expatriate specialists with backstopping from Elf Aquitaine headquarters, to maximize technology transfer to ONAREP (totalling 272 m/m). The 11 expatriate specialists would include: 1 project coordinator, 4 drilling superintendants, 2 drilling engineers, I completion engineer, 2 geologists and 1 geophysicist, and would be assigned for the last phase of the current project and the duration of the proposed project. The task force would be supervised by a joint ONAREP/Elf Aquitaine committee which would meet at least once every two months, to review results, evaluate the exploration strategy and review the proposed work programs. Key members of the task force are already in place; the remaining expatriate specialists would be in place by September 1, 1983 (Loan Agreement, Section 3.02(a)). 52. Drilling will be carried out by ONAREP, under force account. Force account, combined with the technical support for drilling management described above, is considered the most cost-effective manner of implementing the drilling program. However, because of the long average drilling time for previous wells, ONAREP will also use externally contracted drilling technicians for two of its rigs to ensure that all four rigs maintain industry standards and drilling pace. Contractors have already been selected with the Bank's approval to carry out the seismic surveys (CGG-France), magnetic and gravity survey (Carson Geoscience-USA) and for supply of drilling technicians (Forasol Foramer-France). The reservoir engineering study, the gas utilization study, exploration promotion work and institutional reinforcement activities, would be carried out by experienced consulting or engineering firms on terms and conditions satisfactory to the Bank. The project would be implemented over three years. The project is expected to be physically completed by December 31, 1985; drilling would be completed by December 1984; technical studies by June 1985; and geophysical and seismic surveys and interpretation by September 1985. Project Costs and Financing Plan 53. The total project cost has been estimated at $106.2 million of which the foreign exchange cost, with the capitalized front-end fee, amounts to $75.2 million or 71%. These estimates include taxes and duties equivalent to $9.1 million or about 8.5% of total project cost. The project cost is in line with industry costs in developing countries, particularly if viewed in the light of the difficult drilling conditions and the remoteness of the project area from infrastructure and facilities. The cost estimates are based on mid-1982 prices1 except for recently signed contracts (technical support, seismic surveys, drilling technicians and gravity magnetic survey), which are based on actual costs. A physical contingency of 10% was applied to local and foreign costs, with the exception of the gravity magnetic survey for which the work program is well defined. Price escalations for foreign costs have been 1/ Costs were reviewed at negotiations but remained unchanged, as costs of materials and services in the oil industry have generally not increased since mid-1982. - 18 - assumed at 8% for 1982 and 1983, 7.5% for 1984 and 7% for 1985; price escalations for local costs have been assumed at 13.8% for 1982, 9% for 1983 and 1984 and 7.5% for 1985. No price escalation was included for 1983 for contracts just signed. Drilling costs were based on ONAREP's recent expenditures for drilling activities as well as upon budget estimates for imported materials and equipment. The rate given in the Elf-Aquitaine contract was used to estimate the cost of technical support for project management (22,250 per man-month, including subsistence and travel). This rate, though high, is deemed reasonable since ONAREP is seeking a high level of expertise from an international oil company where the opportunity cost of personnel is high. In estimating the cost of the studies and other consultant services, a rate of $15,250 per man-month was assumed. Training costs were estimated at $4,650 per man-month for foreign fellowships, and at about t20,000 average cost per in-country seminar. 54. The proposed Bank loan of USt75.2 equivalent would finance 100% of the foreign exchange cost, including $0.2 million for the capitalized front end fee. ONAREP would finance the local costs. ONAREP would be the Borrower for the Bank loan and would bear the foreign exchange risk as well as the risk of variations in interest rates on the Bank loan. The Government has guaranteed to provide ONAREP with sufficient funds to repay the principal, the interest and other charges on the Bank loan (Guarantee Agreement, Section 2.02(c)). The Bank retains the option to refinance the Bank loan in the event of a future development loan (Loan Agreement, Preamble, Para. C). The possibility of cofinancing for the project is presently under discussion. It was agreed during negotiations that, in the event such cofinancing materializes before December 31, 1983, the Government and ONAREP would request cancellation of the corresponding portion of the Bank loan. 55. Due to competing claims on tight budgetary resources, the Treasury has on occasion delayed disbursement of allocated budget funds to ONAREP. The resulting cash flow problems can lead to depletion of stocks and costly interruption of exploration activity. In order to insure that ONAREP has sufficient funds to meet the financing requirements of the project, assurances were obtained from the Government that it would allocate and disburse funds so that ONAREP would be able to carry out the project in a timely manner (Guarantee Agreement, Section 2.02(a)). In return, ONAREP gave assurances that it would identify, in collaboration with the Treasury, and subsequently submit the documentation on progress of work, payments made and cash flow projections, needed for the Treasury to periodically reassess ONAREP's financing requirements (Loan Agreement, Section 5.04). In order to facilitate these assurances, the Government and ONAREP agreed upon and submitted to the Bank a timetable projecting the allocation and release of funds to ONAREP throughout the project implementation period, which would be updated annually. - 19 - Procurement and Disbursement 56. The drilling, completion and testing of wells would be carried out by force account (estimated at about $12.8 million), using Bank-financed materials, equipment and service contracts. Goods and services would be procured through ICB according to Bank guidelines (for a total amount of $38.0 million),with the exception of specialized equipment, materials and services which are available from a limited number or single suppliers (totalling $24.0 million), which would be procured under LIT or other procedures acceptable to the Bank. In addition, direct purchases using ONAREP's own procedures (LCB), of equipment and services costing less than W150,000 would be allowed, up to an aggregrate amount of $2.0 million. All bid packages having value of $500,000 or above would be subject to Bank review prior to contract award; other packages would be reviewed subsequently. Consultant services would be procured according to Bank guidelines. In certain cases (technical support, gravity and magnetic survey, seismic surveys) the contractors or consultants have already been selected with Bank approval (see para. 52). Total advance contracting is estimated at about $20 million. Some $7 million of these services and long lead-time delivery items contracted since November 15, 1982 according to Bank guidelines, would be financed retroactively (Loan Agreement, Schedule 1, part 4(a)). 57. Disbursement would be for (i) 100% of the foreign exchange cost of the following categories: equipment and materials, specialized well services, specialized geophysical services and training; (ii) 100% of the foreign costs and of 80% of the local costs for consultant services; and (iii) the front-end fee. Disbursements are expected to begin by September 1983 and be completed by June 30, 1986. ONAREP is expected to make considerable use of Procedure III-Direct Payments, to avoid administrative bottlenecks and accelerate disbursements. Reporting, Accounts, Audits and Insurance. 58. Assurances were obtained that ONAREP would prepare periodic progress reports and foward to the Bank all studies financed under the project (Loan Agreement, Section 3.05). An understanding was reached during negotiations that ONAREP would keep the Bank regularly informed of the drilling and testing status of the wells and the seismic surveys. Assurances were also obtained that ONAREP would inform the Bank of any additional studies or exploration to be carried out in the Essaouira Appraisal Area and exchange views with the Bank on such activities or on any plans to develop the resources discovered or appraised under the project (Loan Agreement, Section 4.07). 59. Because of the delays in agreeing on a final separation of assets and liabilities between ONAREP and BRPM (para. 45), ONAREP's opening balance sheet (January 1, 1982) could not be certified. An action plan based on recommendations by the auditors was agreed upon by ONAREP and the Government, to clarify most of the outstanding issues for the audit of the 1982 accounts and permit certification of 1983 accounts, and on this basis the transfer of Loan No. S-18 MOR from BRPM to ONAREP was made effective. Assurances were - 20 - obtained during negotiations that ONAREP would complete this action plan by December 31, 1983 (Loan Agreement, Section 5.01(b)). ONAREP will continue to have its annual accounts audited by independent auditors satisfactory to the Bank and submitted to the Bank within 6 months after the end of each financial year (Loan Agreement, Section 5.02). In addition, ONAREP's financing, accounting and financial control procedures will be reviewed as part of the two phase institutional study (para. 43). ONAREP maintains insurance coverage against blow-outs, fires or cratering. An understanding was reached during negotiations that the Government would cover additional expenses arising from such accidents, if complementary insurance were deemed too expensive. ONAREP's Financial Position 60. ONAREP's opening balance sheet (January 1, 1982) indicates total assets of $77.5 million equivalent. 83% of ONAREP's capital was represented by Government equity. For the immediate future, ONAREP will continue to rely heavily on Government budgetary support, provided to ONAREP as equity. However, during 1982-84, it is expected that ONAREP's debt/equity ratio would increase to about 40/60, primarily due to the increased long term debt represented by the two existing Bank loans and the proposed loan. In order to ensure that ONAREP's capitalization remains satisfactory, assurances were obtained during negotiations that the Government would not convert any of its equity contributions to ONAREP into debt without prior agreement of the Bank (Guarantee Agreement, Section 3.02). Due to the uncertain nature of petroleum exploration, it is impossible to predict ONAREP's medium term revenues at this stage. Nonetheless, ONAREP must even now maintain sufficient liquidity to be able to carry out its operations efficiently. Assurances were therefore obtained from ONAREP and the Government that ONAREP would maintain at all times a quick ratio of not less than 1.0 (Loan Agreement, Section 5.05; Guarantee Agreement, Section 2.02(b)). In addition, a full review of ONAREP's financial situation is scheduled for March 31, 1984, at which time the Bank would decide whether or not to refinance Loan S-18 MOR (First Petroleum Exploration Project) out of a subsequent development loan. The prospects for gas development should be sufficiently clear by that time to allow a more complete evaluation of ONAREP's future finances and the determination of appropriate financial performance targets. Benefits and Risks 61. The main benefit of the proposed project would be the eventual design and implementation of a gas development project which would permit the production and delivery of natural gas and liquid condensates to replace imported petroleum products. Firmly establishing the size and commerciality of the Meskala reserves, whether the results are positive or negative, will help the Government to take important decisions on its future energy investment strategy. An additional benefit would be the attraction of foreign risk capital for investment in petroleum exploration or development, stimulated either by the Meskala prospects or by the improved data and analysis on other petroleum prospects generated by the exploration promotion component of the project. Finally, the technology transfer and managerial - 21 - know-how to be provided through technical assistance and training will improve ONAREP's ability to plan and design the most cost-effective strategy for exploring and developing Morocco's hydrocarbon resources. 62. The Meskala gas discovery constitutes the best current prospect among Morocco's energy resources for significantly reducing Morocco's dependence on imported oil before the end of the 1980's. Nevertheless, there are a number of risks inherent to petroleum exploration projects, which are discussed below and which could affect the eventual commerciality of the gas discovery. The principal risk in this project rises from the fact that the reservoir of gas and liquid condensates discovered at Meskala may not be large enough, or that recoverability may be too low, to justify commercial production. If the reservoir deteriorates away from the discovery or is absent, the prospects for an economic development of Meskala would be limited. However, any improvement of the Triassic reservoir in some direction from the discovery well, the proving of better reservoirs in other more distant locations in the surrounding area, or the discovery of reservoirs in the Paleozoic, would make development highly commercial. Although it is still premature to give firm estimates on Meskala reserves and production potential, three scenarios were constructed, based on the judgements possible from currently available information: (i) a "best estimate" of recoverable reserves of 330 BCF gas and 20 million BBL liquids, which would produce an average of 1.1 million TOE p.a; (ii) a high scenario, with 460 BCF gas and 27.6 million BBL liquids, or 1.5 million TOE p.a; and (iii) a low scenario, with 210 BCF gas and 12.6 million BBL liquids, or 0.5 million TOE p. a. At constant petroleum prices as of end March, 1983, and assuming high average drilling costs and low per-well productivity and recoverability, the rate of return for the "best estimate" scenario is 24%; 41% for the high scenario; and 20% for the low scenario. The rate of return is 14% even if the low gas estimate is combined with 50% less liquids. A sensitivity analysis assuming a 15% drop in oil prices from current levels still gave acceptable rates of return. Because of the structure and location of the domestic energy market, there is no risk that even the high estimate for gas production could not be absorbed. 63. The proposed project represents the minimum program needed for an adequate assessment of the Meskala discovery and a determination of its commerciality. The flexibility of the exploration strategy adopted under the project, which combines both appraisal and exploratory drilling to assess the reservoir near the discovery well while at the same time exploring other zones either in the Triassic or Paleozoic horizons within the Essaouira area which might have better quality reservoirs, reduces the risk of overdrilling the Meskala discovery. The decision points built into the project design (see para. 50) allow for adequate flexibility during implementation to take into account the results of the drilling and seismic surveys as they evolve. Overall, the proposed investment of some $100 million is the least cost program to assess fully the commerciality of the Meskala discovery. It does not pose-an unreasonable risk for Morocco, given the promising results of the drilling to date and the limited alternative options for reducing its energy deficit. - 22 - 64. Risks relating to the ability of ONAREP to implement such an accelerated exploration program, given the difficult drilling and conditions, have been reduced by the provision of technical support for project implementation (see para. 51) and the longer term institutional reinforcement activities. There is also a risk that the exploration promotion work would not result in additional foreign investment. However even in the absence of new investment, the information generated would help ONAREP and the Government in formulating Morocco's future petroleum exploration and overall energy development strategies. PART V: LEGAL INSTRUMENTS AND AUTHORITY 65. The Guarantee Agreement between the Kingdom of Morocco and the Bank, the Loan Agreement between the Bank and the Office National de Recherches et d'Exploitations Petrolibres and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed separately to the Executive Directors. 66. Special conditions of the proposed loan are listed in Section III of Annex III. 67. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI: RECOMMENDATION 68. I recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachments April 4, 1983 - 23 - ANNEX I Page 1 of 6 TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGHTED AVENGES AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 446.6/c MIDDLE INCOME AGRICULTURAL 202.2 /c MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 /b ESTIMATE b MIDDLE EAST LATIN AMERICA $ CARIBBEAN GNP PER CAPITA (US$) 220.0 340.0 900.0 1253.6 1902.0 ENERGY CONSUMPTION PEE CAPITA (KILOGRAMS Of COAL EQUIVALENT) 163.2 214.0 302.3 713.5 1259.9 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 11626.0 14993.0 20182.0 URBAN POPULATION (PERCENT OF TOTAL) 29.3 34.6 40.6 47.3 65.7 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 35.5 STATIONARY POPULATION (MILLIONS) 81.2 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. EM. 26.0 33.6 43.8 35.8 35.2 PER SQ. KM. AGRICULTURAL LAND 61.1 75.0 96.6 420.9 92.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.8 47.6 46.1 44.3 39.7 15-64 YES. 52.6 48.3 50.7 52.4 56.1 65 YRS. AND ABOVE 2.6 4.2 3.2 3.3 4.2 POPULATION GROWTH RATE (PERCENT) TOTAL 2.6 2.5 3.0 2.8 2.4 URBAN 3.7 4.2 4.6 4.6 3.8 CRUDE BIRTH RATE (PER THOUSAND) 51.8 47.3 44.9 41.2 31.4 CRUDE DEATH RATE (PER THOUSAND) 23.4 17.2 12.7 12.2 8.4 GROSS REPRODUCTION RATE 3.5 3.5 3.2 2.9 2.1 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 25.1 78.0/a USERS (PERCENT OF MARRIED WOMEN) .. 1.0 5.4/d FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71=100) 99.0 98.0 88.0 100.4 110.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 100.8 103.0 106.5/e 108.5 108.4 PROTEINS (GRAMS PER DAY) 64.6 66.5 68.3e/ 71.9 66.0 OF WHICH ANIMAL AND PULSE 13.8 12,6 13.5/a 18.0 34.0 CHILD (AGES 1-4) MORTALITY RATE 36.8 26.6 15.5 15.1 5.6 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 46.7 51.7 56.5 56.9 64.2 INFANT MORTALITY RATE (PER THOUSAND) 160.5 136.3 107.2 104.3 64.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 30.6 51.0 55.0/d 59.1 65.6 URBAN 58.7 92.0 100.0/d 83.1 78.9 RURAL 19.0 28.0 25.0/d 39.8 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 29.0 .. .. 59.3 URBAN .. 75.0 .. .. 75.3 RURAL .. 4.0 .. .. 30.0 POPULATION PER PHYSICIAN 9406.1 12814.5 11037.4/d 4015.5 1617.3 POPULATION PER NURSING PERSON .. 2742.2 1826.3/e 1802.2 1063.5 POPULATION PER HOSPITAL BED TOTAL 625.6 664.3 773.6/e 641.7 477.4 URBAN .. 454.7 623.4/e 538.3 679.8 RURAL .. 5821.4 3089.6/e 2403.3 1903.4 ADMISSIONS PER HOSPITAL BET .. 15.5 17.9/e 25.5 27.3 ROUSING AVERAGE SIZE Of HOUSEHOLD TOTAL 4.8 5.5 URBAN 4.3 4.9 RURAL 5.1 5.8 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.2 2.4 URBAN 2.1 2.1 RURAL 2.3 2.6 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN .. 68.4 65.0/e RURAL .. .. - 24 ANNEX I Page 2 of 6 TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGHTED AVERGES - MOST RECENT ESTIMATE)NES MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 lb 1970 /b ESTIMATE lb MIDDLE EAST LATIN AMERICA & CARIBBEAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 47.0 52.0 75.0 88.7 104.3 MALE 67.0 67.0 93.0 104.5 106.4 FEMALE 27.0 36.0 56.0 72.0 103.3 SECONDARY: TOTAL 5.0 13.0 22.0 39.7 41.3 MALE 7.0 18.0 27.0 49.3 40.4 FEMALE 2.0 7.0 17.0 29.0 41.8 VOCATIONAL ENROL. (% OF SECONDARY) 30.2 2.3 2.8 10.1 33.7 PUPIL-TEACHER RATIO PRIMARY 42.4 34.3 40.3 34.1 29.9 SECONDARY 6.3 20.4 21.0/f 23.7 16.7 ADULT LITERACY RATE (PERCENT) 13.8 21.4 28.0 43.3 79.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 10.7 14.8 19.6/d 17.8 42.8 RADIO RECEIVERS PER THOUSAND POPULATION 45.6 62.4 107.5 131.3 270.5 TV RECEIVERS PER THOUSAND POPULATION 0.4 11.6 38.4 44.1 107.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 22.1 16.2 11.8 31.5 63.7 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. 2.0/e 1.7 2.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3388.7 3945.2 5294.8 FEMALE (PERCENT) 10.0 14.2 15.8 10.6 24.4 AGRICULTURE (PERCENT) 62.0 57.0 52.0 42.4 31.3 INDUSTRY (PERCENT) 14.0 17.0 21.0 27.8 23.9 PARTICIPATION RATE (PERCENT) TOTAL 29.1 26.3 26.2 26.0 33.6 MALE 52.1 45.2 44.2 46.2 50.4 FEMALE 5.9 7.5 8.3 5.6 16.8 ECONOMIC DEPENDENCY RATIO 1.6 2.0 1.9 1.9 1.3 INCOME DISTRIBUTION RURAL .. .. 219.0./i PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 18.0/a 20.0/ . HIGHEST 20 PERCENT OF HOUSEHOLDS 43.3 49.0_ .. LOWEST 20 PERCENT OF HOUSEHOLDS 7.0_/ 4.0& LOWEST 40 PERCENT OF HOUSEHOLDS 18.0/& 12.0 .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN 107.0 157.0 389.0 279,2 RURAL 66.0 101.0 238.0 178.6 184.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 242.0 403.6 518.0 RURAL .. .. 257.0 285.6 371.1 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN 51.0 38.0 28.0 22.1 RURAL 49.0 45.0 45.0 30.9 Not available Not applicable. NOTES Ia The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. lb Unless otherwise noted, data for L960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. Ic Excludes the ex-Spanish Sahara; /d 1976; /e 1977; If 1975; La Consumption expenditures of households. May, 1982 - 25 - ANNEX I DE_IMITIua0g_ O IM NCTags Page 3 of 6 Notes Although th data e. drama fro saurca.. ealy j.dgod th. mat authoritative ad roliabl. it should ao ha notad that they my not ha Inter- nationally oopra _~. beca of the loak .f tandardiand dafinition« and concept. uand by different coutria to collecting the date. The data are, somd- theles . u~aful to d*scribe order of magntuda, Indicate trend., att ch artat cartan .jor ditfferences hte-n countrieé. The referec group tre (t) the tome counry group of the bajec country and (2) a country group with somewhat highar average intoa tha the country group of thV subject country (oxcept for "ggh ic il exporters" group whera "Mtddlc Incom North Aftita and Hiddle faat i c hosen haocucc of attonar socio- ultural affånitle. l th. roferecea group data the avmtag., ar population waight*d afithmtlc mage for each indicator ad shon only when majorIty of the countrica In a group has data fot that indicator. Sice the coerage of countr. ana the idicato, dep.nd oe the availability of data and is nog uaifota, ca.on mot be oatct~ed n relatiog avetra. of on- Indicator to another. Thema averaga. are only ~usful in co9parg tha value of 0ne indicctr at time among the coentty and eferenaca groupo. AREA lthou..and q.kt.) Poltio per KoaIta Bod - total. urban, ard total - Popltattor (total, total - Toca surfac, area compialtg land area and inland atera; 1979 data. utba. aed rural) divided by their repecie ter af hospital tda Agricultra,l - Eatiate of agticoltural area ued taporarily or pcr~aently alable in public td prit., gnro~al and specLaload hospital and te- for cror,, pasture.. narkat and kitchor gardans or to li fallo~; 1979 dta. habilitation certer.. Hospitals oro esatbhlishmtta pet.ali ntly staffed hy at tea1t tre physia. Esatablihents providing ptrnciplly custo- GNP PER CAPITA (US$> - GNP pet capita otinates at curtent aarkat yrtces, oat- dlal car a ot lncludtd. Rrta hospitals, hosver. Inclde health lated by ~sm conversion ethod a World gank Atla. <1978-0 hast.); 1960, ord mdIcal centers rot permanently staffed by a phyaicio (hut by 1970. ord 1980 data. -dical asi.tant. nusa, måewtfo, tc.) which offt 1t-patnt ao o- datton and provida a l1ltad rga of edical fatilitie. For statia- ENERGY CONSUMPTI0N PER CAPITA - toual coaomptlio of coamtial .egy (oal tical purpose. urban hospital& include WHOs principalg/tgnra1 hospital., and lignite, p ~tolun.atural gaa atd hydro-, tnulear an.d gothrmal rlac- ad total hoapict. loal or rou1 hoptalt and medIcal ad marterlty tricity) it tiogra of coal equivat per capita; 1960. 1970, and 1979 centera. Speciall-sd hoapita att Icluded orly undr total. data, Admåsion. per Bosatal god - Total nombar of adeissions to or dicharg.. froe hospitla divided by the number of beda. POPLATION 9UD VITAL STATISTICS Tutal P Molation, Mid-Y-eu (tnouand. ) - a of July 1; 1960, 1970. and 1980 HOUSING tuta. Aveage Sila of Itosehold (prsons PE hoosehold) - total, urh, and rrl- Urban Population (pe hrcnt of total) - atio of tban to total populo; A horsebuld consista of a group of irdivid.aa uho shae living quarttra differt definition. of urba.a ay affect coparabl.ity of data and thair ma mala. A boarder ot lotger may or my not a included ir amng coutrioe; 1960. 1970, and 19gM ta, rh. houaehold fot statioal purpose.. Poolation Proottlinavrgemee of toeran pr roo - total, utban, and total -uaverags nuat Population fr ear 2000 - Cutt~t population projectlonl ar. based or 1980 har of persone p e r all urban, and total ocrpied co.vntloneal total populaton by ogo ond set ond their mttallty and fettliaty toate. taeltrgs, respactivly. Dwellings eoclud. non-perant structres ad Projection yaraters fot martality rate copria of chre. Levla aotua- ooccupied parts. tog litfarxpectancy et bItht inreasineg oli country'e yat capita WioR Acass to Electricty (pertoe of dwellngr) - total, urban, and tural - tevet, art femae lifu epectuacy atahbiling at 77.5 yeara Te para- Conventional d 'llinga with l-ctricity lo living quartere as parcetag. oecars for fertility rae alao have thra - ~evel d a gfieg declin, in of total, urban, ted total dw.lling. ~rpetivaly. ftrtilityaor tooinces laval ond paet faily planning performanca. tuch country ia that maigned 0ne of thate rin. c-oinati~on of sortallty EDUCATIOll ord fertlity trend fot projection purpos.. Adjuted Erollmat Rato stiotnaty polatio - " . ,tatoeary pouation thr La no grovth atrce Primary school - total, ealo ond fnal. - Gtr total. . .1l ond f.-.a ihe orthb tala la equl to th death rat , and also ch. ag. ttucture te- nrollmrt of all oges at the prinary tvel uu percentages of repective ma.n aconat.t i i achieved oaly afttr fbtliy .ate t le to primary bchool-age popolatonr; norgally ircludes cildre ag d 6-Il tho rPlacemnt taet of unt not reproduction rat . hen.each ganeration years but adjoted fot diffet ldngtha of ytimtry euc.ation; fot of oman replae Itelf eactly. the statorty poPlacion sie was contrile ith universal edocation entollmnt ray ~excd 100 0 reret etisatedon thr basi of ta projected characteristica of tha polation otroe s.- pupila ar blow or bohv. tho official echool agr. to the year 2000, and the re of 0erline of fartility rat t e rPluc.- Secondary tchoal - total, mala and fele - Computetd above; ecodary mn ael. education reqires at leasc four years of pprovtd priaty in.tructlon; Year statonary population i reachad - The yeat when cartionary population provida geera, vocatioral. or teache- irain Lg inatcton for p.pla s100 ritl te reachd. o,oully of 12 to 17 year. of age; cotrrspondence coursec ar geterally ?puation DUn'iy exc.lded. Per sq. ka. - llid-y.ar yotulao ya qart kiloar (tO0 het~tas) of Vocatiol entollmet (prcent of secondary) - Vocatioral Institutn. rotat ara; 190, 1970 att t979 dato. includo hachnical, itduatrll. at other progät ra s whi oproate Indapand- Petros. kg. agtioultual land - Copt d aabova fot agricultral land ently or a taptrtesta of ~eortaty injitutioa. orly; 1960. 1970 and 1979 tata. Pupilt-teacherrtio - primary, and seconcdur - trial astenta entollad le Popltaiton A St(ouctr (peret) - Childrer (0-14 years) .. or-.ga (15- primtry ord econdary lovela tivided by uers of reahet. le tho 64 yeoas), art rtird (6 yea and over) as perags of atd-ygar popu- corr-apondtng levela. latio; 1960. 1970. od 1480 data. Ad t literatcy ratt (pec~et) - Litetatea dlta (abla to r-d .d vrite) Population Grbh Rate (pert) - total - Annual growth rate, of total . id aI aperna g of total edult pgulatio agd 15 yars and over. yeat popclatlon fot 1950-60, 1960-70, and 1970-80. Populaton Growth tate (prant) - urba- Annual groth rate. of urban Popu- CONSUMPTION -at,ons fot 1950-60, 1960-70, and 1970-0. Pasenge, Cara (pr thous-ad populatio) - P.a.ger caracompris. motot Crude Birr Oate (per thouand) - aual tlIv birth per thoand of ald-year oot. sartng las tha elght person.; exclbte . abolances, heatau. and population; 1980, 1970. and 1980 data. militaty tehicleg. Crue DeathRare (per thousand) - Aua-l death. pr tihoeand of ndl-year Radlo Rateivers (ptt thoutand pop.utaiLo) - All tyypt of ~eceivere fot tadio "polatlon; 1920. 19(0. and 1980 data. broadcast. toa g tnrl public par tho~.ud of .poulario; txcluda. un- Groes Reproduction Rata - Average number of daughtrtaooan till bart lo icen!edreceiver In counttrle and In e r tegistraton of radio er: notmal rrtoutlve paod If tho tperitnces preaent ag-aectti fot- set, aa lo effect; dato fo brt yea y ert he comparable ica cillty ra.; aly five-yer v.re rndlng lo 1960. 1970. and 1980. ooat coootiabolaih.d faoacest. Family 2aning -hActor, Annal (thoeua - Anua. tu.bat of acceptora TV Reriver. (per thouand polIion) - TV tre.eiar for broadca,, to af birth-otrottt device rdet auspicaa of national faelly planning progr. ganral poblic p t thruaond popltlo; eclud.. .lc..esed V rtteiver. P I nni 2- U ge(pc, e .orcent ut eatnind men) - P trenga of ctrtae lo countttat and le yers whe regiratlor of TV a.ta a ffgct. ri d1 of chitd-bartng agg (15-44 years) oto u1. btrth-toetrol device. to Nveppr Cittuaton (yat thoaad poipua) - Show. tho avrage cir- all marrisd wofn in gas a grop. culation of "ily generalneret newspapet", deftned asarodlcal publicatio devoted primrly to recotdig gaetal nawa. tt i conideed FOOD AND NUTRITION to ho "atly" tf it appeart at lerat forisa natt. ndx of Food Ptoduction per Capita (1969-7l.l00) - 2 nda of Jot capIta annual tinam An4ual httendancP pr Capita per Year - ka.ed ot the numer of ,totion of alt fond co~m.dtia. Protion ercludes sead ond f~ad and tic.ta ..1 during th y.ar. includirg adeisstora to drive-ij cinma, ia o calendat yer bas. Co"oditi , cov.t primary good. (..g. sugraee and -obil unitm. insteed of eugar) iohoteditle and con. tan ntri.en (e.g. .offre and tea te eoxludd). Agegatear production of each country i basad or LAOR PORCg ational.arrage producer ptite welght; 1961-65. 1970. an 1980 data. Total Laotr Fotcg (thousands) - Ecooialatly acitv parsons, including fet capita supply of calortas (prcent of raqiremnta) - Copied ftom armad fotrac and u pr.oyed hot exclading hoaetive, atudents, att.. erergy aquvatatt of tat frid suppliea ovailable in country par capita covring population of all aRen. Definitions a aous countrie ute per day. Available suppliera copri. domstic production, import les nco rparbla; 1960, 1970 and 1980 data. txprte, ord changes lo atoc. et suppl.saeoclde atlaal f e de Feml. (tert) - Feaale tabot foreaa pete ntaga of toal laoro for. quntiitesue in food pro singaa , and alo in distribution. Ruire- oAriulture (pernt) - Lahor force it fareing. forstry, hrnting and n ereat estated ty F0 baaed n physolog aad. for orml acti- fiahing a- percentage of total labor forc,; (960, 1970 and 1980 data. oity nd halth cons rtng envlc.ironm.ntal taperature. body vdigtsta, a Lusty (percant) - La.or (otro tt 1a,ig. onstlucto. .anufacturig atd di.tribto of .poulation. and allowig 10 percent for tt an alectriilty, watera gas ae Perentag~ ed total labor fotta; nous.hold leIel; 1961-65. 1970 ort 1977 dato. 1960. 1970 god 1980 d-ta. Par capirt supply of pr,n! (gra21pr day) - Protein coatent of par capita Participator taterent) - total, oa, ord fem. - patiiarton ot netosupply of frid par day. Ne supply of ford Is defined as ov.e. ho- activity tutear o. patad as total. eala, art fatale bot forte as qoirecnt for ull countrife l etablish,d by USDA provide fot nim perctta*age of total. .01« ord feala poplation of a11 na retpectively; allowanes of '60 rom of total protein per day ond 20 gra. of antal and 1980, 1974, and 1980 tuta. Thaar are baerd on LO'. patl ipation rates pate prot.n af rhh 10 gra shl"ad ha an al protIn. Ttemestand- ref.lcting a.-s . ttruccu of rio population, and 1ong tI- t-red. A arda rae 1ower han ihoir of 75 grama of total protejn ord 23 grr,s of for gettfatef art fra nttonal orces. un1eal -rotein a an verag, for tha world, proposed by ted in the Third Mooic Datendenc tio - Raio of opoulation udr 15 and 65 and over .orld ford urvoey; 1961-65, 1970 ord 1977 dta. 4o tho total bot fotot. fer capita prtin uPply fro. ania nd Pu - P-iotein .upply of ford de- tive = fo anima ort polesi lo gtaar per day; 161-65, 1970 and 1977 data. INCOME DISTRIBUTION chitt (aa 1-t) Daoth Rate (per thoan d) - Annual trott, per thousad in P-retage of Private nome (both in cath and kind) - Received by tiche.t age 0000p 1-4 yeart, to childrre in this ate group. fr mast de.lopinoon- 5 percet, richeht 20 perret. orte t t0 ptrcent, ad pooreer 40 percet trie data dalived 'rom life tablet; 1960, 1970 and 1980 data. of hosholds. åEALTH- POVERTY TARGET GROUPS Life Exctancy at 3irch (yrs) - Averaig norer of yeat~ of lif remaining The oltowing etimate ure very appr oat meue. of poverty e1 ,1 at birth; 1960. 1970 ad 1990 data. ond shol ha interprtit n c toidratle cauti. nfant Nortality tate iper nouand)t - Anua dt1rh of loant-a ondar one Ea t ed ota PYo-rty Incoc. (roel (US$ per apita) - urban ond rural - of ag. per thousand liv. birtht; 1960, 1970 and 1980 dato. Aburta povrty nm- r e o hot incom lev.I blow which a eina1l Acces roto Sae 00ter percet of .polton; - ot r, and raul - Nua- ritiotnlly aeqat , t plus es,ential rot-fond requqirepents i rot ber of people (taol. arian, and rorat> wtlh reosoabecestoaot affordable. ater supply (acludtreratoe sfae watae or ntreatadtuotaa cnated Estimated Relativ Porty iteam Levtl 101S Er capita) - -.t.n ond rrt - ater such fatat rom prorect boreholus, spring,, and sanitary rI ge as Ru rattiv poetty enor. (ont ts one-thIrd of averaga p,r cpirta percentages of their respective poyultione. tn an rbaareoarubic fpeonal ine of the country. Urban total ;s dertoed from the rotat onti O c.tortapt lorct not ore that 200 n oter froma h op a (e.e1 with adjusent for hlgherostof living to urOan areas. considered as being rithhtn reasroale acceea of that hos. In rotat areor Ettedco Population geoo Absote Poverty ttomer Level (percent) ra reasonabla acess roult t:py that the nousewift or 22bg af rio household arl - Percent.f population (orban art turai) who are "absolut ao not have to spend disop,ortionat, part of the day in fttching the poor'. family'saernd. Acces to fxcre ota Disp rcenr of po.ulto - tot , urban, and rural - Nubrt of peopte (1.tal, oba, and rural) served by excreta dospral u Iercentageo tir rtct~ive oopul,aiog. Eorsta diapoal oay oo.ode lo. collecion ord 2diposal, wich or uttnout treatont. of human reta aon wate-ater by ~ater-borne systae or the use of it prvlpr art sind- car toetallationo. Population rer pheiia - Populalon divid.d by nomber of pra-iSng phy.i- Econolc und Social Data Divislo n lans qualified from a -edicl schoola univesty leval. conromi Aneotal ana projecitio DrttDe ment foputlrtioor Nur_ig Person- Population divided bytnumbr ofnporttog May 1982 nalr ad fera graduatenarse,. aastatat nurse., prtlcal nurs c antd nursing auoliate.- - 26 - Population 20.8 million (mid-1981) ANNEX I GNP Per Capital US$ 870 (1981) Page 4 of 6 MOROCCO - ECONOMIC INDICATORS Amount fl (million US$ at Annual Growth Rates (%) current prices) Actual Projected Indicator 1980 1977 1978 1979 1980 1981e/ 1982 1983 1984 1985 NATIONAL ACCOUNTS Gross domestic product a/ 17820 6.0 2.2 4.8 3.6 -1.3 4.0 5.1 4.5 4.3 Agriculture 3229 -12.3 18.0 -1.7 6.2 -23.0 7.0 9.6 3.1 2.5 Industry 5752 8.0 -0.9 7.7 -2.5 -0.5 3.7 4.6 5.4 5.1 Services 7762 8.5 4.0 5.1 6.4 3.4 3.7 4.3 4.3 4.3 Consumption 15770 5.3 4.2 5.8 2.5 2.2 1.3 4.2 3.5 3.6 Gross investment 4025 15.6 -25.9 1.3 -7.3 -3.6 6.5 -1.1 3.7 3.2 Exports of GNFS 3273 10.3 3.3 0.9- 3.7 3.5 4.5 7.0 6.3 5.3 Imports of GNFS 5247 14.5 -17.4 3.3 -9.8 10.7 -1.9 -0.6 2.2 2.3 Gross national savings 2606 1.5 -15.4 3.2 6.0 -20.6 9.5 15.6 13.2 1.7 PRICES GDP deflator (19b9 = 100) . 172.0 186.5 200.2 218.4 241.2 Exchange rate (US$ per DH) . .222 .240 .256 .254 .193 Share of GDP at Market Prices CE) Average Annual Increase (%) (at current prices)d/ (at constant 1969 prices) (at constant 1980 prices) 1960 1970 1975 . 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Gross domestic product 4.0 4.6 5.1 3.7 5.1 Agriculture -1 29.1 19.2 17.9 18.1 17.1 15.1 3.5 -2.1 3.8 2.5 2.5 Industry k/ 23.5 27.2 35.2 32.3 34.9 35.8 4.7 7.1 4.2 3.9 5.5 Services -/ 47.4 53.6 46.9 49.6 47.9 49.1 4.1 5.5 5.9 4.0 5.5 Consumption 89.2 85.5 85.5 88.5 87.7 84.0 4.1 4.8 5.8 3.0 4.2 Gross investment 10.3 18.5 25.4 22.6 20.0 20.0 8.0 9.3 -2.8 2.0 5.1 Exports GNFS 27.4 17.6 22.5 18.4 20.5 22.7 1.3 2.1 4.9 5.5 7.1 Imports GNFS 26.9 21.6 33.4 29.4 28.7 26.7 3.5 8.1 0.5 1.7 4.0 Gross national savings 11.0 14.8 19.3 14.6 14.5 17.9 3.5 15.3 -4.4 3.0 10.0 As % of GDP 1960 1970 1975 1980 1981 PUBLIC FINANCE Current revenues 16.5 16.1 23.3 21.6 23.3 Current expenditures 15.6 14.5 20.2 21.8 24.7 Surplus (+) or deficit (-) 0.9 1.6 3.1 -0.2 -1.4 Capital expenditure 3.8 5.7 12.2 12.4 12.6 Foreign financing .. 1.3 3.7 5.6 9.3 1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS GNP growth rate (%) 4.0 6.0 5.2 3.4 5.1 GNP per capita growth rate (%) 1.6 3.1 1.8 -0.1 2.0 Energy consumption growth rate (%) 3.8 6.7 5.6 4.3 5.0 ICOR 3.09 3.0 4.1 6.2 3.9 Marginal savings rate 0.10 0.38 -0.15 0.27 0.28 Import elasticityL/ 0.95 1.84 0.13 0.95 0.78 a/ At market prices. b/ Share of GDP at factor cost beginning in 1985 and sectoral growth rates at factor cost beginning in 1980-85. c/ Goods only. d/ Projected years at constant 1980 prices. e/ Estimates. f/ 1977-1980 at 1969 prices, 1981-85 at 1980 prices. January 27, 1983 EMENA CP II-B ID 0180B P.1 - 27 - Population : 20.8 million (mid-1981) ANNEX I GNP Per Capita: US$ 870 (1981) Page 5 of 6 MOROCCO - EXTERNAL TRADE Amount Indicator (million US$ at Annual Growth Rates (%)1/ current prices) Actual Projected 1980 1975 1977 1978 1979 1980 1981 1982 1983 1984 1985 EXTERNAL TRADE Merchandise exports (FOB) 2414 -21.9 10.7 5.3 1.8 5.1 1.0 4.0 7.8 6.7 5.1 Primary products 1823 -25.2 7.7 5.4 0.0 5.8 -8.1 1.2 3.4 3.8 3.5 Phosphate rock 765 -29.9 9.6 9.6 3.2 7.4 -5.4 0.0 3.0 5.0 4.0 Others 939 -22.3 6.5 2.8 -1.7 14.7 -10.0 2.1 3.7 2.9 3.1 Intermediate & manufactures 591 -1.4 23.8 5.0 7.1 2.8 27.4 9.8 16.3 11.8 7.6 Merchandise imports (CIF) 4283 21.2 14.4 -19.9 6.6 -7.1 9.3 -1.9 0.5 3.9 4.0 Food 720 37.8 0.4 8.6 2.2 3.4 32.5 -16.8 -0.9 2.1 4.5 Petroleum 1006 12.8 8.7 11.0 12.1 -11.9 10.8 0.0 -1.1 3.3 3.2 Machinery and equipment 805 51.7 26.7 -44.3 -3.2 -19.8 7.5 3.0 -2.5 4.0 2.9 Others 1752 4.0 13.0 -15.1 12.5 -5.2 -0.3 2.6 3.7 5.0 4.8 PRICES (1980 = 100) Export price index . 89.9 68.4 69.7 83.5 100.0 123.3 125.1 137.1 153.5 171.8 Import price index . 64.1 67.9 73.0 79.2 100.0 122.3 130.9 140.2 154.3 169.8 Terms of trade index . 140.3 100.7 95.5 105.4 100.0 100.8 95.6 97.8 99.5 101.2 Composition of Merchandise Trade (%) Average Annual Increase (%) (at current prices) (Constant 1969 prices) (Constant 1980 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Exports 2.0 -1.2 6.6 5.2 7.6 Primary products 89.5 89.4 86.9 74.4 60.5 49.1 .. -2.7 5.3 1.3 3.3 Intermediates & manu- 10.5 10.6 12.9 25.6 39.5 50.9 .. 8.1 12.1 14.0 13.0 factures Imports 4.0 9.1 0.7 2.4 4.0 Food 27.3 16.9 25.0 16.9 16.9 15.5 .. 14.0 3.0 0.7 2.4 Petroleum 7.4 5.5 10.8 23.6 23.6 22.4 .. 9.6 5.3 2.4 2.8 Machinery and equipment 6.7 24.1 24.0 18.9 18.7 19.2 .. 12.8 -7.0 2.4 4.5 Others . 58.6 53.5 40.2 40.6 40.7 42.9 .. 5.5 2.9 3.3 5.1 Share of Trade with Share of Trade with Share of Trade with Industrial Countries (%) Developing Countries (%) Capital Surplus Oil Exporters (%) 1960 1970 1980 1960 1970 1980 1960 1970 1980 DIRECTION OF TRADE Exports 72.3 73.7 76.5 27.7 25.4 21.6 .. 0.9 1.9 Imports 76.7 74.9 72.9 23.3 25.1 8.3 .. .. 18.8 1/ 1975-1980 at 1969 prices, 1981-1985 at 1980 prices September 22, 1982 EMENA CP II-B ID 0180B p.2 - 28 - Population 20.8 million (mid-1981) ANNEX I GNP Per Capita: US$ 870 (1981) Page 6 of 6 MOROCCO - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (million US$ at current prices) Indicator Actual Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990 BALANCE OF PAYMENTS Exports of goods and services 2288 2486 2955 3694 4364 4132 4087 4669 5401 6193 11297 Of which: Merchandise f.o.b. 1245 1283 1488 1938 2414 2283 2180 2575 3077 3618 7163 Imports of goods and services 3691 4364 4353 5268 5912 6095 5780 6276 6930 7734 12812 Of which: Merchandise f.o.b.a/ 2305 2820 2628 3245 3770 3840 4054 4365 4994 5714 9856 Net current tranfers 47 52 50 44 128 102 - - - - - Current account balance -1355 -1826 -1348 -1530 -1420 -1861 -1692 -1607 -1529 -1541 -1515 Special grants 435 360 260 420 314 313 84 197 320 150 232 Current account balance after grants -920 -1466 -1088 -1110 -1106 -1548 -1609 -1410 -1209 -1391 -1283 Private capital 38 53 45 37 88 68 76 85 96 106 171 MLT loans (net) 838 1338 1109 946 971 1205 1071 1425 1371 1666 1359 Official .. .. .. .. .. 1315 994 736 878 982 1092 Private .. .. .. .. .. -110 77 689 493 684 267 Other capital 28 68 -73 73 -200 17 .. .. Monetary movementsh/ 16 6 8 53 247 258 462 -100 -258 -381 -263 International reserves 548 609 772 917 814 508 470 543 653 787 1635 Of which: Gold 82 104 154 360 415 278 278 278 278 278 278 Reserves as months imports 1.8 1.7 2.1 2.1 1.7 1.0 1.0 1.0 1.1 1.2 1.5 EXTERNAL CAPITAL AND DEBT c/ Gross disbursements 725 1787 1182 1405 1567 1807 Concessional loans 111 636 325 293 750 1089 DAC 63 109 91 76 96 138 OPEC 41 507 189 168 584 837 IDA 4 3 - - 1 2 Other 3 16 45 49 69 112 Non-concessional loans 614 1151 859 1113 818 718 Official export credits 22 27 2 2 12 128 IBRD 59 68 72 137 64 129 Other multilateral 2 6 53 7 13 86 Private 531 1050 732 967 729 375 Suppliers credits 10 171 10 8 16 6 Financial credits and bonds 521 879 722 957 713 368 External Debt Debt outstanding and disbursed 2330 4069 5123 6182 7097 8381 Official 1250 1975 2456 2833 3482 4865 Private 1080 2094 2667 3349 3615 3515 Undisbursed debt 801 1024 2280 2337 2058 2901 Debt service Total service payments 162 264 547 798 1191 1340 Interest 66 148 252 410 618 738 Payments as % exports of G+S 4/ 7.2 10.7 18.7 21.8 27.0 31.3 Average interest rate on new loans (%) 7.7 6.8 7.0 8.2 8.1 8.5 Average maturity of new loans (years) 11.7 13.1 13.2 15.9 13.7 8.0 As % of Debt Outstanding at End of Most Recent Year (1980) Maturity structure of debt outstanding Maturities due within 5 years 47.9 Maturities due within 10 years 88.0 Interest structure of debt outstanding Interest due within first year 7.3 a/ c.i.f. for projected years. b/ Projected values include IMF credits. c/ Years 1976-80 from IBRD External Debt Reporting System, 1981 from the SOP statistics. There are sizeable discrepancies in some years between the external capital and debt service flows reported under the IBRD Debt System and those recorded in the official balance of payments statistics shown in the upper part of this table. d/ Excluding debt service on IMF loans. January 27, 1983 EMENA CP 11-B ID 0180B p.3 - 29 - ANNEX II Page 1 of 8 A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of February 28, 1983) U i Loan or US$ Million Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Twenty-six Loans Fully disbursed 672.6 Four Credits Fully disbursed 36.0 1018 1974 Kingdom of Morocco Agriculture 32.0 7.8 555 1975 Kingdom of Morocco Agriculture 14.0 10.2 1220-T 1976 Kingdom of Morocco Education 25.0 12.3 1416 1977 Kingdom of Morocco Agriculture 41.0 27.6 1428 1977 BNDE DFC 35.6 1.8 S-7 1977 Kingdom of Morocco Engineering 1.5 0.4 1528 1978 Kingdom of Morocco Urban Development 18.0 13.4 1602 1978 Kingdom of Morocco Agriculture 65.0 57.7 1681 1979 Kingdom of Morocco Education 113.0 103.1 1687 1979 Kingdom of Morocco DFC (SSI) 25.0 11.9 1695 1979 Kingdom of Morocco Power 42.0 41.0 1704 1979 CNCA Agriculture 70.0 21.7 1724 1979 Kingdom of Morocco Water Supply 49.0 22.8 1757 1980 Kingdom of Morocco Agriculture 58.0 47.3 S-18 1980 BRPM Oil Exploration 50.0 16.9 1830 1980 Kingdom of Morocco Highway 62.0 40.6 1848 1980 Kingdom of Morocco Agriculture 34.0 31.7 1943 1981 CIH Tourism 100.0 61.4 1944 1981 Kingdom of Morocco Urban Development 36.0 34.2 2006 1982 Kingdom of Morocco Water Supply 87.0 85.3 2037 1982 BNDE DFC 70.0 67.8 2038 1982 Kingdom of Morocco DFC (SSI) 70.0 70.0 2082 1982 Kingdom of Morocco Agriculture 29.0 29.0 2109 1982 Kingdom of Morocco Mining 9.5 9.5 2110 1982 Kingdom of Morcco Forestry 27.5 27.1 2114 1982 ONAREP Oil Shale 20.0 20.0 2149! 1982 Kingdom of Morocco Education V 50.0 50.0 22171/ 1982 Kingdom of Morocco Agriculture 30.0 30.0 Total 1922.7 50.0 952.5 of which has been repaid 256.0 1.3 Total now outstanding 1666.7 48.7 Amount Sold 20.1 of which has been repaid 17.7 2.4 Total now held by Bank and IDA 1664.3 48.7 Total undisbursed 942.3 10.2 952.5 NOTE a/ Does not include the Housing Development Project, loan of $60 million, approved March 15, 1983; the Fourth Highway Project, Loan of $85 million approved March 29, 1983; and the Small-and-Medium Irrigation Project, Loan of $42 million, approved March 29, 1983. 1/ Not effective as of March 31, 1982. B. STATEMENT OF IFC INVESTMENTS (As of February 28, 1983) US$ Million Loan Equity Total 1962/1978 BNDE Development Bank - 2.7 2.7 1966 CIL Canning Factory 0.9 0.5 1.4 1976 Marrakech Cement Cement Factory - 1.3 1.3 1977/1980 Temara Cement Cement Factory 4.7 3.6 8.3 1979 Agadir Cement * Cement Factory 12.5 2.2 14.7 1980 SOMIFER Copper Mining 13.0 2.3 15.3 1981/1983 Casablanca Cement Cement Factory 15.8 -2.1 17.9 Total Gross Commitments 46.9 14.7 61.6 Less cancellation, terminations, repayments and sales 16.5 3.5 20.0 Total commitments now held by IFC 30.4 11.2 41.6 Total Undisbursed 11.6 0.3 11.9 * Agadir Cement has been cancelled. - 30 - ANNEX II Page 2 of 8 C. PROJECTS IN EXECUTION AS OF FEBRUARY 28, 19831/ Cr. No. 555 Meknes Agricultural Development Project; US$14.0 million of June 11, 1975; Date of Effectiveness: November 14, 1975; Closing Date: June 30, 1984. After a 2-year initial delay, project implementation has picked up momentum. Major activities concerned with the land consolidation and redistribution program have been completed in one district and civil works (roads, destoning and irrigation rehabilitation) have been started in the remaining three districts. Progress is slower than expected, mainly because project implementation has proven more complex than anticipated, which has been aggravated by project management problems. However, the first results of the completed components are promising. Because of the initial delay and the complexity in implementation, the original closing date was extended by three years. Ln. No. 1220-T Third Education Project; US$25.0 million of March 18, 1976; Date of Effectiveness: October 1, 1976; Closing Date: September 1, 1983. The project is designed to expand and improve primary and secondary education in rural areas and specialized training to meet manpower needs in education, agricultural extension, health and tourism. After an initial two-year delay, construction under the education and agriculture components is largely completed .and funds are committed for the equipment and technical assistance components, but lengthy delays have been experienced in the implementation of the health and tourism components, for which a portion of the funds have been reallocated to the education components. Ln. No. 1416 Doukkala II Irrigation Project. USt4l.0 million of June 16, 1977; Date of Effectiveness: December 1, 1977; Closing Date: June 30, 1984. The project aims at extending irrigation and related agricultural development in the Doukkala perimeter by 16,600 hectares; it also calls for 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 31 - ANNEX II Page 3 of 8 provision of extension and credit services, and village infrastructure. The land consolidation program and the enlargement of the main canal are proceeding according to schedule. Implementation was slowed down due to budgetary constraints facing Morocco in 1980-81 which caused a delay of about two years. Project implementation has resumed vigorously under excellent project management. Ln. No. S-7 Sewerage Engineering Project; US$1.5 million of August 30, 1977; Date of Effectiveness: August 18, 1978; Closing Date: October-31, 1983. The project includes the preparation of a sewerage Master Plan for the Casablanca-Mohammedia region and of a first phase project. It would assist Morocco in developing the design and planning criteria for urban sewer systems and strengthening the institutional and financial bases for the development of this sector. Project implementation was delayed by about 15 months, due to administrative and budgetary difficulties, but studies were launched in May 1980, and are now proceeding satisfactorily. Ln. No. 1528 Rabat Urban Development Project; US$18.0 million of March 31, 1978; Date of Effectiveness: November 21, 1978; Closing Date: March 31, 1983. The project is designed to improve living conditions of the urban poor in Rabat. It includes upgrading of slum infrastructure and social services in three squatter areas with a total population of about 60,000; an experimental sites and services housing scheme; an employment generation program; and related technical assistance. After initial delays, project implementation has recently improved significantly. Infrastructure works are under way and housing improvement loans are being made. Relocation to sites and services areas is under progress and some enterprises have started operation in the industrial zone. Disbursements, however, remain low and the matter is under review with the Government. An extension of the closing date is under consideration. Ln. No. 1602 Fes-Karia-Tissa Agriculture Project; US065.0 million of September 6, 1978; Date of Effectiveness: February 18, 1979; Closing Date: June 30, 1986. The project aims at (i) improving the standard of living-of about 33,900 farm families in the Fes-Karia-Tissa region, and (ii) contributing to the growth of agricultural production and to a reduction in Moroccan dependence on imported food commodities. These aims would be achieved through a reorganization and strengthening of agricultural extension and soil conservation services, training, the provision of credit and infrastructure. Although somewhat delayed, implementation is now proceeding satisfactorily, due to excellent project management. - 32 - ANNEX II Page 4 of 8 Ln. No. 1681 Fourth Education Project; US$113.0 million on April 25, 1979; Date of Effectiveness: October 16, 1979; Closing Date: December 31, 1984. The project consists of the construction, furnishing and equipping of 11 technical high schools, a technical teacher training college, two higher institutes of technology, an institute of applied engineering and an extension of Mohammedia Engineering College and associated technical assistance. Implementation was initially delayed; however, most major contracts have now been signed and disbursements are expected to accelerate. Ln. No. 1687 Small Scale Industry Integrated Development Project; US25.0 million of April 25, 1979; Date of Effectiveness: December 17, 1979; Closing Date: December 31, 1983. The project consists of support for a Government program to assist small and labor intensive industries through technical, managerial and financial assistance. The loan is fully committed, and earlier disbursement delays are being remedied subsequent to the recent introduction of simplified administrative procedures. Ln. No. 1695 Village Electrification Project; US$42.0 million of May 22, 1979; Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984. This project, which is the first stage of a 15-year village electrification program, would provide electricity to about 60,000 dwellings in more than 200 villages throughout the country. Problems of interministerial coordination and budgetary allocations delayed project start-up for about one year. Orders have now been placed for most of the equipment but no payments have yet been made. However, implementation is well under way and the project is expected to be completed with only a slight delay. Ln. No. 1704 Fourth Agricultural Credit Project; USt70.O million of May 23, 1979; Date of Effectiveness: December 5, 1979; Closing Date: June 30, 1983. The project aims at increasing Morocco's agricultural production thereby improving the standard of living of about 475,000 of Morocco's farm families. The project covers most of the Caisse Nationale de Cr6dit Agricole's (CNCA) medium- and long-term lending program and farm investment program through mid-1983. Cofinancing of $75 million is provided by IFAD and the Federal Republic of Germany (through KfW). CNCA's on-lending as well as repayments were severely affected by the 1980-1981 drought, slowing disbursement of the Bank loan. Disbursements have, however, accelerated and are expected to be completed by the closing date (including funds from cofinancing sources). - 33 - ANNEX II p. 5 of 8 Ln. No. 1724 Second Water Supply Project; US$49.0 million of July 2, 1979; Date of Effectiveness: February 4, 1980; Closing Date: June 30, 1984. The project is designed to improve access to safe water supplies for the population of the Mid-Atlantic Coast and the Greater Agadir area. It consists of: (i) the expansion of bulk water production and transmission facilities along the Mid-Atlantic Coast; (ii) the expansion of bulk water production and transmission facilities in Agadir; (iii) the establishment of a revolving fund to facilitate house connections for low income families; and (iv) studies on accounting and management systems. Administrative problems created some initial delays, but there is strong demand for the credit facilities for low-income house connections. The project is now proceeding satisfactorily and disbursements are expected to increase accordingly. Ln. No. 1757 Vegetable Production and Marketing Project; US$58.0 million of November 15, 1979; Date of Effectiveness: April 17, 1980; Closing Date: June 30, 1984. The project is the first phase of a long-term program for development of off-season vegetables for export. $50.0 million of the loan is to be on-lent for long and medium-term farm investments and incremental short-term production costs of vegetable quality control centers, for two small producer packing stations, and for seedling greenhouses benefitting about 8,000 farm families and creating seasonal employment. The balance of the loan would help finance infrastructure in the project area, and technical assistance. Implementation is proceeding satisfactorily. Overall production did not progress as scheduled due to two cold winters, but greenhouses, which have resisted frost fairly well, are gaining acceptance with the farmers and the prospects of rising production are promising. Ln. No. S-18 Petroleum Exploration Project; US050 million of May 19, 1980; Date of Effectiveness: October 24, 1980; Closing Date: December 31, 1983. The project aims essentially at accelerating the Government's petroleum exploration and development program. It has recently been transferred from BRPM, the original Borrower, to the new petroleum development agency, the Office National de Recherches et d'Exploitations Petroli6res (ONAREP). The project also provides technical assistance in prospect evaluation, analysis of results of exploration, and exploration management. Drilling so far has shown encouraging results, particularly as regards natural gas prospects and has recently focused on appraising the Meskala gas discovery. Procurement problems initially hampered project implementation but the loan is now fully committed. Administrative problems (due to the loan transfer) have also delayed disbursements. - 34 - ANNEX II p. 6 of 8 Ln. No. 1830 Third Highway Project; US$62.0 million of May 19, 1980; Date of Effectiveness: September 29, 1980; Closing Date: June 30, 1984. The project comprises (i) a three-and-a-balf year time slice of the Government's pavement strengthening and preservation program; (ii) strengthening and management of the road maintenance program and (iii) technical assistance for the Ministry of Transport to improve transport planning and to study road maintenance. The pavement strengthening and maintenance activities are progressing satisfactorily. Disbursements have lagged due to delays in payment of contractors as well as transmittal of reimbursement requests to the Ministry of Finance, but have recently accelerated. Ln. No. 1848 Loukkos Rural Development Project; USt34.0 million of December 22, 1980; Date of Effectiveness; September 30, 1981; Closing Date; June 30, 1987. The project should increase incomes and productivity of very poor subsistence farmers in the Loukkos Basin by reversing the declining trends caused by soil erosion and inappropriate farming practices. It consists of: (i) development and erosion control works on 15,000 steeply sloping hectares in Upper Loukkos; (ii) development of field crops and small irrigation improvements in Middle Loukkos; (iii) establishment and maintenance of pine plantations in the Izarene Forest; (iv) construction of roads and social service facilities in the Project area; and (v) execution of a cadastral survey on about 500,000 hectares of land. Once proven, the project implementation methodology could be widely replicated throughout Morocco's mountain and steppe land. Project implementation is progressing satisfactorily. Ln. No. 1943 Fourth Hotel Development Project; US$100.0 million of February 5, 1981; Date of Effectiveness: April 9, 1981; Closing Date; December 31, 1985. The project provides funds over a three year period to the Credit Immobilier et H8telier (CIH), a Moroccan development bank specializing in the tourism and housing sectors, for the development of tourism hotels. It also includes studies for developing policies in the tourism sector and training of CIH staff in appraisal methodologies for tourism projects. Commitments and disbursements have been extremely rapid. Ln. No. 1944 Second Urban Development Project; US$36.0 million of April 16, 1981; Date of Effectiveness: August 4, 1981; Closing Date: July 31, 1986. The project consists of the provision of shelter, basic services and employment to low-income urban families through a program for slum upgrading, - 35 - ANNEX II p. 7 of 8 sites and services and provision of serviced land for small-scale industries, to be implemented in the cities of Meknes and Kenitra. Assistance is also provided to strengthen the municipal services of the project cities. Implementation is on schedule, due to the efficient coordination through the provincial Governors' offices, but some delays in approval of contracts by the Ministry of Finance have occurred. Disbursements remain low due to administrative problems, currently being examined by the Government. Ln. No. 2006 Third Water Supply Project; US$87.0 million of September 28, 1981; Date of Effectiveness: March 15, 1982; Closing Date: December 31, 1986. The project includes the construction of two regional water supply systems and the expansion and upgrading of the water supply facilities in about 32*small towns scattered throughout Morocco. It would also provide revolving funds to facilitate house connections for low income households, equipment, technical assistance, training and studies. Project implementation is progressing satisfactorily, although disbursements have lagged. Ln. No. 2037 Ninth BNDE Project; US$70.0 million of November 3, 1981. Date of effectiveness: November 2, 1982. Closing Date: December 31, 1986. The project includes a pilot component in the line of credit to BNDE, to finance export-oriented industrial sub-projects. The project also focusses on strengthening organizational aspects of BNDE in the field of project appraisal, portfolio monitoring and export promotion. Effectiveness was delayed due financial and to managerial problems, which have since been remedied. Ln. No. 2038 Second Small Scale Industry Project; US70.0 million of November 3, 1981; Date of Effectiveness: February 24, 1983. Closing Date: June 30, 1986. The project comprises (i) a line of credit to the Government to be relent to BNDE and commercial banks for relending to small scale industries (SSIs); (ii) financing of the foreign exchange costs of technical assistance provided by the Government to SSIs; and (iii) financing of studies relating to the structure of incentives for SSIs. Ln. No. 2082 Middle Atlas Agriculture Development Project: US$29.0 million of March 5, 1982. Date of Effectiveness: November 30, 1982. Closing Date: June 30, 1988. The project consists of interrelated forestry, range and cropping land development to bring about production increases of meat, milk, fodder, cereals and wood, on about 600 ha. in central Morocco, as well as to raise income and employment among the target population. - 36 - ANNEX II p. 8 of 8 Loan No. 2109 Small-Scale Mining Project: US$9.5 million of April 14, 1982. Date of Effectiveness: November 19, 1982. Closing Date: December 31, 1988. This pilot project would increase the productivity of small-scale lead and zinc mining operations through provision of equipment and facilities, as well as credit to miners, in a remote region of Morocco thus increasing exports and raising rural incomes. The project would also strengthen the financial, technical and administrative base of CADETAF, the implementing agency, and finance studies as a basis for future expansion of mining activities. Implementation is proceeding satisfactorily. Loan No. 2110 Forestry Project: US$27.5 million of April 14, 1982. Date of Effectiveness: October 28, 1982. Closing date: June 30, 1988. The project consists of destumping about 30,000 ha of eucalyptus plantations and degraded oak and cork forests and replanting with eucalyptus, pine and acacia; upgrading and construction of forest and access roads; pasture improvement over 2,000 ha; and technical and institutional support. Project implementation has commenced satisfactorily. Loan No. 2114 Oil Shale Engineering Project: US020.0 million of April 14, 1982. Date of Effectiveness: February 25, 1983. Closing date: September 30, 1986. The engineering project would finance studies and the construction of a shale retorting test station to generate information and analysis on the characteristics of Moroccan oil shale resources and on the technical and economic viability of alternative options for their development. Project implementation is proceeding slowly. Loan No. 2149 Fifth Education Project: US150.0 million of November 5, 1982. Not yet effective. Closing date: March 31, 1988. The project is designed to improve the effectiveness of primary education and support expanded science and mathematics teaching at the senior secondary level, through construction of four senior secondary teachers training colleges, 40 rural primary schools and the provision of teaching aids to about 700 primary schools and related technical assistance. Construction of physical facilities is underway although there have been delays in defining the terms of reference for the proposed technical assistance. - 37 - ANNEX III Page 1 of 2 KINGDOM OF MOROCCO PETROLEUM EXPLORATION AND APPRAISAL PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section 1: Timetable of Key Events (a) Project identification: December 1981 (b) Time taken by the Borrower to prepare project: 10 months (c) Agency responsible for project preparation: Office National de Recherches et d'Exploitations Pgtroli6res. (d) First Bank mission to review project: July 1982 (e) Departure of appraisal mission: November 1982 (f) Date of completion of negotiations March 1983 (g) Planned date of effectiveness August 1983 Section II: Special Bank Implementation Action None Section III: Special Conditions a) Drilling and seismic work programs would be reviewed by ONAREP and the Bank every six months and not modified without the Bank's consent; disbursements would only be made for specialized well services and seismic services on the basis of agreed work programs (para. 50). b) The detailed design of the pipeline and surface facilities for eventual gas production would not be initiated unless sufficient deliverable reserves are confirmed (para. 50). - 38 - ANNEX III Page 2 of 2 c) The full team of expatriate staff for the task force for project implementation would be in place by September 1, 1983 (para. 51). d) ONAREP would submit to the Government the necessary documentation needed for the Government to assess ONAREP's financing requirements and the Government would agree to allocate and disburse funds so that ONAREP would be able to carry out the project in a timely manner and to repay the principal, interest and other charges on the Bank loan (paras. 54 and 55). e) ONAREP would keep the Bank informed (i) on the status of well drilling and testing; and (ii) on additional studies or exploration work in the Essaouira Appraisal Area. ONAREP would exchange views with the Bank on such activities and on any plans to develop the resources discovered or appraised under the project (para. 58). f) ONAREP would agree to complete an action plan to clarify all questions regarding its assets and liabilities by December 31, 1983 (para. 59). g) The Government and ONAREP would ensure that ONAREP maintained a quick ratio of 1.0; the Government would agree not to convert any of its equity contributions to ONAREP into debt without prior agreement from the Bank (para. 60). IBRD 16880R 9420' 9 9½, FEBRUARY 1983 MOROCCO PETROLEUM EXPLORATION AND ESSAOUIRA APPRAISAL PROJECT ESSAOUIRA APPRAISAL AREA Essaouira Appraisal Area Boundary To Mr-a ONAREP Perrnit Oil Field 7-DGas Fields KE-HOUM " Gas Wells KECHOULA c- Dry Hole - Triassic Gas shows 0 Drilling eI Proposed Wel Sites M Tentahve Well Sites K AfL-106 _ Main Roads MKL-103 FKM-201 M --MK --- 1 International Boundaries L- ' - - Indica es the Terato ry of the form er CM'.---3 Spanish Sahara (Western Sahara) 0 2 4 6 8 b0 |(ILOMETERS ' '402 SRHALEM ZEL- 01(,,- Th's map has been prepored by The World Bank' s taff -xclusnfy- for the con c of tle read-r and, -s1xcusvalv fö, the, nema use of The Wo AaLI and the Mnt-Mana K,nanc Corporat,o The denomnations used an the boundarnes shown_--._rh . Oth-saap do rnot "mply',, the part of The World nank and the Intemnathonaf Frnance Corporao,~- an ug eo the fega1 strlu-- of any femfay or any ndoement r a Ptan of suchbound-ne MAURITANIA ML 9'43 9',20' pgj --- ·· t ..a VI NVIlffiW VY d - I WNIO1 -- ýN -,l 0,,,~~N SiVIflV 0100'0 0' 0[000 00000Vp00jri 0.e ' 10 000M . -ounr,-0000'0s 1 0sräue'p0c01 r0v0 r ~ 00000 : L-----r----- 09 001 00'G .00 OL 00009 ODOV/18NO 0 0 0000 £0< é0jY ,,., | 0, la • - , 1CV1 01 - ---- . - ------ - - . ,>i | ibl.j. --i-- -