Morocco - Natural Gas Development Network

Report No. PIC4839 Project Name Morocco-Natural Gas Development (@) Network Region Middle East and North Africa Sector Oil and Gas Project ID MAGU44169 Borrower Private Gas Company Implementing Agency Ministry of Energy and Mines (MEM) Contact Mr. Sennoun Gas Division, MEM Tel:212.7.77.36.74 Fax:212.7.77.47.39 Date initial PID prepared May 1994 Date this update prepared February 1997 Project Appraisal Date March 1998 Project Board Date July 1998 Background 1. Morocco is poorly endowed with national energy resources, and the country depends on costly imported oil to meet nearly 90 percent of its commercial energy needs. The Government of Morocco (GoM) has been evaluating alternative strategies for meeting fuel requirements at least cost and to diversify sources of energy supply, and has recently embarked on various options to decrease the dependence on imported oil. GoM is negotiating the reinforcement of the existing power interconnection with Algeria, and with foreign investors the introduction of independent power production (IPPs). In addition, the construction of a new power interconnection line with Spain is underway. GoM is now considering importing Algerian natural gas via the Maghreb- Europe Gas Pipeline (GME). 2. The GME came on stream in November 1996 and runs from Algeria to Southern Spain across Morocco and the Straits of Gibraltar. Construction works started in mid-1994 both in Morocco and Algeria over the 1,400 km-long pipeline that will connect the Hassi R'Mel gas field to Spain and Portugal. 3. The GME will cross the Moroccan territory over a 540 km-long section, from the Algerian border south of Oujda to the vicinity of Tangiers on the Atlantic Ocean, providing the country with royalty gas for transit rights and the opportunity to develop the use of a cost- effective, cleaner fuel. However, Morocco has not developed the gas sector yet and has to set up a complete institutional framework and construct the physical infrastructure required for gas transmission and distribution. Project Objectives  4. The planned use of gas requires Morocco to prepare a long-term gas development strategy to meet the necessary institutional and investment needs. Therefore, the World Bank, through the Project, would: (a) encourage the utilization of gas as a cost-effective, cleaner fuel alternative to oil and coal, mainly for power generation and in the industrial sector; (b) assist Morocco in finalizing and implementing the necessary institutional, regulatory and organizational framework for creating a national gas industry; and (c) encourage and facilitate private sector participation in the ownership, financing, construction and operation of the new Moroccan gas industry. The project would also have a broader impact by taking the initial steps toward a regional energy supply network which could enhance energy trade within Maghreb countries and between Maghreb and Southern Europe. Project Description 5. The project would consist of the following components: (a) assistance in finalizing the institutional framework of the gas sector; (b) construction of a 240 km-long transmission line between the GME and the area of Casablanca, on a Build-Own-Operate basis by a private sector gas company (GPC), to initially supply gas to two independent power projects to be built in Kenitra and Mohammedia as well as industries along the pipeline route and in Casablanca areas; and (c) technical assistance and training to implement the project and the agreed institutional reforms. The cost of the proposed transmission pipeline is estimated at US$180 million. Project Benefits 6. The proposed project would help establish the foundation for the development of the gas industry, thus enabling Morocco to diversify its sources of energy supply. Because gas would be used primarily in power plants and industrial units located close to densely populated cities, substituting gas for currently used high-sulfur heavy fuel-oil and coal would significantly contribute to mitigating air pollution and improve the health conditions of the population. 7. Significant institutional benefits are expected. The Ministry of Energy and Mines is currently the GoM's front-runner in terms of sector restructuring and private sector development. The Ministry is keen to keep up the pace of reforms. The project would help the Government implement and secure the new policy in the energy sector which would be beneficial to other energy sub-sectors (petroleum refining and distribution, power generation). Project Implementation 8. The gas pipeline will be implemented by an international consortium selected through a competitive bidding process. The selected sponsors will form a special purpose company which will be locally incorporated. Project Cost and Financing 9. Total project cost is estimated at US$130 million; the current scope and contribution of the Bank guarantee are currently under review. -2 -  Project Sustainability 10. The project is one of the physical components of a comprehensive energy chain that will include: (a) other facilities, such as thermal power plants; and (b) long term contractual agreements between gas seller(s), gas purchasers, facilities operators and power purchaser(s). Implementation of the Project is subject to the existence of the other links, so that the Project will be self-sustainable. Lessons from Past Operations in the Country/Sector 11. This is the 'first of its kind' project in Morocco dealing with a sector with no previous experience in gas lending. The ex-post evaluation of similar projects in Argentina, China and Indonesia suggests the importance of: (a) emphasizing and facilitating the establishment of a competent natural gas regulatory authority; (b) having gas sales contracts in place before construction of the gas pipeline commences; and (c) addressing properly the issue of gas demand management to rationalize gas consumption. Environmental Aspects 12. The project would contribute to improving the environmental conditions in some major Moroccan cities. The facilities would be built mainly in rural, open areas where population is scarce, except in the vicinity of towns and cities or close to industrial areas. However, particular attention will be paid to agricultural areas along the route, and wetlands near Kenitra. The preparation of the project will follow the Bank's environmental guidelines and Category A is proposed. The mechanisms for environmental assessments and clearances necessary for the project will be defined prior to appraisal. Program Objectives Category 13. The project will be instrumental in supporting the introduction of natural gas in Morocco, thus contributing to the government's efforts to attract private capital for infrastructure projects and to encourage healthy competition in the energy market through interfuel diversification. Contact Point: Mr. A. Ferroukhi, Task Manager The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)473-3239 Fax No.: (202)522-1500 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 March 21, 1997 - 3 -