Morocco - Private Sector Development II - Power Sector Reform (Formerly listed as Private Sector Development (PSD II Power)

Report No. PIC2142 Project Name Morocco-Private Sector Development rc@) II Power Sector Reform Region Middle East and North Africa Sector Electric Power and Other Energy Project ID MAPA5464 Borrower Office National de l'Electricite (ONE) Implementing Agency Office National de l'Electricite (ONE) 65, rue Othman Ben Affane Casablanca, Morocco Contact: M. Benhima, Director General Tel: 212.2.268.886 Fax: 212.2.205.698 Date this update prepared February 1996 Date initial PID prepared January 1995 Projected Appraisal Date March 1996 Projected Board Date July 1997 Background 1. Against a background of organizational and financial problems, allied with power supply shortages, the Moroccan authorities have decided, with the Bank's advice and financial assistance, to overhaul the existing legal framework and practices of the power sector based on the recommendations of the ESMAP/World Bank Energy Sector Institutional Study, carried out in collaboration with a GOM task force. These reforms include: (i) preparation and implementation of the Electricity Code, which will regulate the activities of the entire power sector; (ii) establishment of an independent Regulatory Body to monitor the activities of the sector utilities/IPPs and set up electricity prices based on sound criteria; (iii) introduction of private investments, through the participation of both Independent Power Producers (IPPs), which will be responsible for building and operating all new thermal generation (including the 4x330 MW Jorf Lasfar thermal plant, for which contract negotiations and financial closure are underway) and privatization of some of the distribution networks, all utilizing competitive bidding among recognized/reliable undertakings; and (iv) reorganization of ONE. Project Description 2. The Bank loan supports the implementation of the above reforms. It will finance the installation of HV/MV transmission lines and substations associated to the Jorf Lasfar power scheme. The specific project components include the construction of 840 circuit-kilometers of 2 kV transmission lines and expansion of seven 2 kV substations and technical studies and specialized training for ONE.  Project Objectives 3. The main objective of the proposed project is to support the Government efforts to reform the power sector through the issuance of new legislation and regulation which will on one hand open and liberalize the power sector through the participation of private capitals in power generation (first) and distribution (subsequently), and on the other hand establish transparent rules to regulate efficiently and competitively the sector through an independent agency. These measures will provide for the development of a modern and efficient infrastructure and it will alleviate the existing fiscal burden imposed on the Budget by the sector through the elimination of government capital contributions. Project Cost and Financing 4. The cost estimate of the Bank financed project is estimated at US$172 million, including physical and price contingencies as well as custom duties and other taxes. The project will be financed by the proposed Bank loan of US$90 million (contracts for goods and for installation costs of transmission works as well as consultants services and training). The remaining portion of the project, US$82 million, will be financed by ONE. Project Implementation 5. The transmission/substation works will be implemented by ONE. The capacity of ONE to carry out the transmission and distribution works is adequate as demonstrated through the successful completion of similar works in the past. Rationale for Bank Involvement 6. The proposed project and its reforms are fully coherent with the Bank's support to private sector development, one of the major objectives of the Bank's country assistance strategy. The three main compelling justifications for Bank involvement are: (i) the recent Private Sector Assessment (PSA) has identified as first priority for the development of the private sector, the provision of modern infrastructure, particularly power and communications, by private, efficient suppliers; (ii) the proposed project will on one hand open and liberalize the power sector through the participation of private capitals in power generation and distribution, and on the other hand establish transparent rules to regulate efficiently and competitively the sector through an independent body; (iii) it will substantially alleviate the existing fiscal burden imposed on the Budget by the sector through the elimination of government capital contributions and sector debt write-offs; and (iv) it will facilitate the consolidation of macroeconomic balances by allowing budgetary resources to be reallocated to great priority-notably-social sectors. Project Benefits 7. The first and foremost benefit will be to permit private investment with internal competition and transparent/predictable regulation. The -2 -  project will allow ONE to meet power demand while eliminating the existing power curtaients and improving the reliability of supply. In addition, the proposed project would improve sector efficiency through the competition among the sector entities, it will promote the use of economic electricity prices and eliminate subsidies. Finally, it will reduce the existing fiscal burden imposed on the Budget by the sector through the elimination of budgetary contributions, thus furthering the effects of other PSDP for removing the repression of the financial system by the Budget. Environmental Aspects 8 The proposed project is included in category "B" of the Bank's environmental classification. An annex on Environmental Aspects is attached to this PID. Contact Point: Mr. J. Larrieu, Task Manager The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)473-0249 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending February 21, 1997. Environmental Aspects The proposed project is included in category B of the Bank's environmental classification. During appraisal of the project, an Environmental Analysis was carried out in order to confirm that the facilities to be constructed under the proposed project are in line with adequate standards and that they do not have an adverse impact on the environment. The loan agreement will include the appropriate measures addressed to mitigate eventual adverse effects of the project, all in line with the recommendations included in the Environmental Analysis. - 3 -