Morocco - Second Rural Electrification Project

Document of The World Bank FOR OFmFCIAL USE ONLY A4J Z GZ-A4A? Repsit No. P-5261-M0R MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$114.0 MILLION TO THE KINGDOM OF MOROCCO FOR A SECOND RURAL ELECTRIFICATION PROJECT AUGUST 30, 1990 This dowment has a restricted distribution and may be used by recipients oniy In the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit - Moroccan Dirham (DH) US$ 1.00 - DH 8.82 (May 1990) DH 1.00 - US$ 0.113 HEIGHTS. MEASURES AND ENERGY CONVERSION FACTORS 1 meter (m) - 3.281 feet (ft) 1 kilometer (km) - 1,000 m - 3,281 ft 0.6214 miles 1 kilowatt hour (kWh) - 1,000 watt hours 1 Megawatt (MW) - 1,000 kilowatts 1 Gigawatt-hour (GWh) - 1 million kilowatt hours 1 kilovolt-ampere (kVA) = 1,000 VA I megavolt-ampere (MVA) - 1,000 kVA PRINCIPAL ABBREVIATIONS AND ACRON-M$ USED ICB - International Competitive Bidding LCB - Local Competitive Bidding LV - Low Voltage MEM - Ministry of Energy and Mines MF - Ministry of Finance MI - Ministry of Interior MV - Medium Voltage NREP - National Rural Electrification Program NREPI - National Rural Electrification Program - First Phase ONE - Office National de l'Electricite FISCAL ER January 1 - Deceimber 31  FOR !.MCUAL USE ONLY SECOND RURAL ELECTRIFICATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Kingdom of Morocco. Beneficiary: The Office National de 1'Electricite (ONE). Loaa Amount: US$114.0 million equivalent. Terms: Twenty years, including five years of grace, at the Bank's standard variable interest rate. Onlending Terms: Out of the total loan amount, US$17.5 million would be onlent to ONE on the same terms as the Bank loan. ONE would assume the foreign exchange and variable interest rate risks on its share. The rest of the loan would be made available tc ONE as an equity contribution. Financing Plan: Proposed IBRD loan US$ 114.0 million Government (local US$ 104.7 million authorities through the Ministry of Interior) ONE USS 1.3 million TOTAL US$ 220.0 million Economic Rate * of Return: 17.8X Staff ARpraisal Report: Report No. 8426-MOR Maps: IBRD No. 22099 No. 22100 This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A SECOND RURAL ELECTRIFICATION PROJECT 1. The following memorandum and recommendation on a proposed loan to the Kingdom of Morocco for US$114.0 million is submitted for approval. The proposed loan would be at the Bank's standard variable interest rate, repayable over a period of 20 years including a five-year grace period, and would assist in the extension of electricity supply in rural areas. 2. Macroeconomic Context. Si-vre the mid 1980s, the Moroccan economy has experienced reasonable export-led growth despite the burden of heavy debt service payments. As a result, per capita incomes have grown by 11 since 1984, and with this has come increased demand and higher expectations for the availability of basic goods and services, in both urban and rural areas. However, human resource and sdcial development have lagged behind, partly as a result of expenditure constraints needed to reduce the Government's budget deficit. This lag is illustrated by the fact that only 25% of the rural population, which represents about 60X of the total population, 1;as access to electricity. Most of the energy needs of the rural population without access to electricity are being met by fuelwood and charcoal, contributing to a severe problem of deforestation, and by petroleum products such as kerosene, diesel oil and butane gas derived from import-d oil. Frequently, these forms of energy provide services of poorer quality and at a higher cost to the economy than the same services based on electricity. Therefore judicious substitution of electricity for other energy forms would enhance the economically efficient use of energy, by reducing per unit energy costs for rural customers. In addition, it would provide rural customers with access to a range of new services that would improve their living conditions. It would contribute to increasing productivity in the agriculture sector, and create decentralized economic activities leading to increased employment opportunities and reduced migration of families to urban areas. Towards these ends, rural electrification has become a key part of the Government's policy for rural development. 3. Rationale for Bank Involvement. The Bank has to date financed eight investment operations in the energy sector including a loan made in April 1980 to finance the first phase of the 15-year National Rural Electrification Program (NREP1). Through its support to the power subsector the Bank has contributed to the Government's strategy of : (i) encouraging a technically and economically efficient expansion of the power system; (ii) rationalizing energy pricing policy, by simplifying the electricity tariff and assisting in carrying out an electricity tariff study and an energy pricing study aimed at reducing economic distortions; (iii) improving the financial performance and managerial capabilities and autonomy of the power sector entities; and (iv) introducing better coordination and coherence between the different entities involved in the energy sector. 4. The proposed project would follow up on NREP1 and the Bank's involvement would help ensure its efficient implementation. Experience from  - 2 - NREPI identified a number of areas where implementation can be improved such as: (a) the importance of clarifying, at the early stage of project design, the responsibilities of the various entities involved in the project which are the Ministries of Finance (MF), Interior (MI), Energy and Mines (MEN) and the implementing agency, ONE; (b) the need to review the ownership of the project facilities and to ensure better coordination between the connection of the consumers and the electrification of the villages; and (c) finally the timely availability of local funds in accordance with the project requirements. All the necessary measures to introduce these improvements are reflected in the design of the proposed project and in the supporting legal agreements. Moreover, the proposed project would permit the Bank to follow up on the institution building efforts initiated under previous operations, and aimed at strengthening ONE's planning and marketing capabilities, and its financial performance. 5. Project Objectives. The proposed project is the second phase of the NREP. Its main objectives would be to: (a) expand electricity supply to the rural areas; (b) improve the reliability and quality of service of the existing rural distribution network; (c) strengthen the administrative, planning and financial capabilities in the power subsector; (d) implement institutional reforms aimed at delineating and streamlining the responsibility for planning, implementing, operating and managing the rural distribution system; and (e) encourage further reforms in the electricity tariff structure. The proposed project would also contribute towards the Government's policy of improving the efficiency with which energy is consumed. 6. Proiect DescriRtion. The proposed project would provide electricity to about 170,000 new consumers in 462 villages.1' It would include: (a) construction of about 5,850 km of distribution lines and 70 MVA of transformers capacity; (b) construction of operating buildings and supply of vehicles and specialized equipment for enhancing ONE's operating facilities in rural areas; and (c) consultants' services to assist in detailed engineering design. The proposed project would also strengthen ONE's distribution department through technical assistance, training and logistical support to plan, monitor and implement the rural electrification program. The project, to be implemented by ONE over a period of 6 years, provides funds for civil works, equipment, installation and erection, training and technical assistance. The total cost of the project including interest during construction is estimated at US$220.0 million with a foreign exchange component of US$122.4 million (56%). A breakdown of the costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbuisement schedule are sho .L in Schedule B. A timetable of key project processing events and the status of Bank group operations in Morocco are given in Schedules C and D, respectively. Two maps are also attached. The Staff Appraisal Report, No. 8426-NOR dated August 30, 1990 is also attached. 7. Agreed Actions. The 3overnment and ONE have agreed on a comprehensive set of actions aiming at ensuring better coordination among the various entities involved in the implementation of the national rural electrification program and at improving ONE's financial viability and its