Morocco - Power Distribution Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16613 IMPLEMENTATION COMPLETION REPORT MOROCCO POWER DISTRIBUTION PROJECT (Loan 2910-MOR) May 30, 1997 Private Sector Development, Finance and Infrastructure Division Maghreb and Iran Department Middle East and North Africa Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit = Moroccan Dirham (DH) 1987: US$1.00 = DH 8.00 (December) 1988: US$ 1.00 = DH 8.24 1989: US$1.00 = DH 8.49 1990: US$1.00 = DH 8.25 1991: US$1.00 DH 8.76 1992: US$1.00 DH 8.58 1993: US$1.00 DH 9.35 1994: US$1.00 = DH 9.21 1995: US$1.00 = DH 8.52 1996: US$1.00' = DH 8.75 FISCAL YEAR: January 1 to December 31 WEIGHTS AND MEASURES kVA = kiloVolt Ampere kW = kiloWatt kWh = kiloWatthour GWh (GigaWatthour) = 1,000,000 kWh kV (kiloVolt) 1,000 Volt MW (MegaWatt) 1,000 kW ABBREVIATIONS AND ACRONYMS DRSC Direction des Regies et Services Concedes ESMAP Energy Sector Management Assistance Program ICB Intemational Competitive Bidding ICR Implementation Completion Report LCB Local Competitive Bidding LIB Limited Intemational Bidding LRMC Long-Run Marginal Cost MEM Ministere de 1' Energie et des Mines MII Ministere de 1' Interieur et de I' Information MIS Management Information System MV Medium Voltage ONE Office National de 1' Electncite PERL Public Enterprise Rationalization Loan RAD Regie Autonome Intercomunal de Distribution d'Eau et d' Electricite de Casablanca RADEEF Regie Autonome de Distribution d'Eau et d' Electricite de Fes RADEEM Regie Autonome de Distribution d'Eau et d' Electricite de Meknes RAK Regie Autonome de Distribution d'Eau et d' Electricite de Kenitra RDE Regie Autonome de Distribution d'Eau et d' Electricite de Tetouan SAL Structural Adjustment Loan USAID United States Agency for Intemational Development Vice President: Kemal Dervis Director : Daniel Ritchie Division Chief: Amir Al-Khafaji Task Manager : Jorge A. Larrieu Consultant-Author: Alvaro J. Covarrubias  FOR OFFICIAL USE ONLY TABLE OF CONTENTS Page Preface Evaluation Summary ii PART I: IMPLEMENTATION ASSESSMENT A. Statement and Evaluation of Objectives 1 B. Achievement of Objectives 3 C. Major Factors Affecting the Project 14 D. Bank Performance 15 E. Borrower Performance 16 F. Assessment of Program Outcome and Sustainability 17 G. Future Operation 17 H. Key Lessons Learned 18 PART II: STATISTICAL TABLES 1. Summary of Assessment 20 2. Related Bank Loans 21 3 Project Timetable 21 4. 4A. Loan Disbursements: Cumulated Estimated and Actual 21 5. 4B. Loan Utilization 21 6. Key Indicators for Project Implementation 22 7. Key Indicators for Project Operation 23 8. Studies Included in the Project 24 9. 8A. Project Costs 25 10. 8B. Project Financing 25 11. Economic Costs and Benefits 26 12. Status of Legal Covenants 27 13. Compliance with Operational Manual Statements 30 14. Bank Resources: Staff Input 30 15. Bank Resources: Staff Missions 31 APPENDICES A. ICR Mission Aide-Memoire 33 B. Borrower's Contribution 39 and Comments to the ICR Map IBRD 19903 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.   IMPLEMENTATION COMPLETION REPORT MOROCCO POWER DISTRIBUTION PROJECT (Loan 2910-MOR) PREFACE This is the Implementation Completion Report (ICR) for the Power Distribution Project in Morocco for which Loan 2910-MOR in the amount of US$90 million was approved on February 16, 1988 and made effective on May 9, 1990. The loan was closed on June 30, 1996, one year later than originally envisaged, at which time the undisbursed amount of US$12.79 million was canceled. The last disbursement was made on November 5, 1996. The ICR was prepared by Alvaro J. Covarrubias, Consultant, under the supervision of Jorge A. Larrieu, Principal Power Engineer. The ICR was reviewed by Amir Al-Khafaji, Division Chief, Private Sector Development, Finances and Infrastructure, and Rene Costa, Project Advisor, Maghreb and Iran Department. The Borrower and Beneficiaries provided comments which are incorporated in the ICR as Appendix B. Preparation of the ICR began during a mission carried out by Mr. Covarrubias in December 1996 (Appendix A: ICR Mission Aide Memoire). It is based on the Staff Appraisal Report, the loan and project agreements, supervision reports, correspondence between the Bank and the Borrower (the Government) and beneficiaries (ONE, RAD, RADEEF, RADEEM and RAK), internal Bank memoranda, and interviews with Bank and Borrower officials and staff involved in project implementation. The Borrower provided a project completion report on the components carried out by RAK, RADEEM and RADEEF. Additionally, ONE and RAD, directly provided the Bank with completion reports on the implementation of their components.  ii IMPLEMENTATION COMPLETION REPORT MOROCCO POWER DISTRIBUTION PROJECT (Loan 2910-MOR) EVALUATION SUMMARY Project Objectives 1. The broad objectives of the project were to: (a) encourage the power subsector to satisfy growing electricity demand at least cost and without deterioration in quality of service; (b) achieve financial and managerial autonomy for the National Electricity Office (Office National de I' Electricite, ONE), and the municipal distribution utilities, (referred to as Regies); and (c) reduce Government contributions to ONE. The institutional development objectives of the project were to assist in implementing policy actions derived from studies carried out under the Public Enterprise Rationalization Loan (PERL, Loan 2820-MOR) and assist ONE and the Regies in improving their management, planning, accounting, technical capabilities and financial performance (paras. 3-5). 2. To achieve these objectives, the project included components for ONE and the R6gies of Casablanca, Fes, Kenitra, Meknes, and Tetouan, comprising: construction and rehabilitation of power transformer substations; extension and rehabilitation of distribution networks; rehabilitation of thermal power plants; acquisition of equipment for hot line maintenance, telecontrol and communication; and various studies to find solutions to ONE's operational and managerial problems. The project's objectives were relevant to the power subsector of Morocco. They were congruent with the Government's and the Bank's policy for the power subsector prevailing at that time. The project focused on power distribution because in 1986 Morocco's per capita consumption of electricity (343 kWh) was the fifth lowest in the MENA region and the majority of the population lacked --and still lacks-- access to electricity service (paras. 6-9). Implementation Experience and Results 3. Physical objectives were partially achieved. ONE completed the rehabilitation of thermal plants, introduced hot line maintenance equipment, and achieved most of the communication components but completed only 88 percent of the power distribution part financed by the loan. While RADEEF, RADEEM, and RAK almost fully completed their components by end of 1995, RAD completed only 75 percent of its project component. The RDE (T6touan) component was withdrawn and the funds were reallocated to ONE to do sector related studies. Overall, 85 percent of the physical components were completed, 90,000 new consumers were added, and some improvements were made in the efficiency of ONE's thermal power plants (paras. 10-25).  iii 4. Institutional objectives were partially achieved. The project accomplished very little in improving financial and managerial autonomy of ONE and the Regies. Until 1993 cash generation made it possible for ONE to self-finance less than 19 percent of its annual investment program (in 1992 it was not able to self-finance any portion of this program). Since 1994 cash generation has financed 30 percent or more of ONE's investment program because of less investment, less fuel consumption, more hydroelectric generation, and more revenues from a boost in sales and tariffs. Accounts receivable of ONE and the Regies were very large until 1992 (in the range 9.2-9.5 months) and declined steadily to 4.7 months in 1996, yet remained far from good practice of 45 to 60 days. The Offices, which represent about 10 percent of ONE's sales, account for more than 20 percent of the arrears The Regies buy about 50 percent of ONE's output and have arrears to ONE as high as 6-10 months (paras. 26-32). 5. Electricity tariffs. The level and distorted structure of the tariffs prevailing during the period 1988-1995 were not appropriate to recover cost based on economic principles nor were they sufficient to meet the self-financing ratio in every year. Tariffs had remained at an average of DH 0.8 5/kWh (about 10 UScents per kWh) since 1992. Tariffs had subsidized residential consumption of up to 500 kWh per month (industrial and commercial consumers bearing the difference) and differentiated tariffs applied to bulk sales to the Regies were inconsistent with the uniform tariff schedule applied to the end consumer countrywide. The tariff schedule effective since 1996 has eliminated part of these problems: average tariff was increased by 6 percent, the same tariff will be gradually applicable to all Regies, and the subsidy limit is now lowered to 200 kWh per month for domestic consumers (nonetheless still high). Moreover, it would be desirable for the Government to adopt a policy to index tariffs to pass to consumers changes in fuel prices, exchange rates, and inflation (para. 36). 6. Project costs andfinancing. The project was completed at a cost of US$135.4 million, or 19.1 percent below the appraisal estimate of US$167.4 million. The decrease is explained by ONE's significant lower investment in distribution and thermal equipment and by a slight decrease in distribution investment by the Regies. The Bank loan financed US$77.2 million, or 57 percent of project financing requirements. ONE financed US$40.6 million (30 percent), and the Regies financed the balance US$17.6 million (13 percent) (paras. 38-39). 7. Project economic performance. The project's economic performance was reevaluated using the method described in the SAR, i.e. calculating the internal rate of return of the stream of net benefits of ONE and the Regies over the period 1988-2021. The result is a project economic rate of return lower than the appraisal estimate (9.8 versus 12.4 percent), mainly because of lower sales and tariffs (as a proxy for project benefits) than estimated at appraisal (paras. 40-41). Summary of Findings, Future Operations and Key Lessons Learned 8. The major factors affecting the achievement of program objectives were tepid commitment by the Government to implement measures that would make ONE and the Regies more autonomous, slow procurement of goods and services, and uncontrollable natural events (the 1992-1995 drought that drastically reduced hydroelectric generation). The Government was committed to the implementation of the physical part of the project but tepid in implementing the measures needed to improve the power subsector performance. For example, it did not provide  iv financial and management autonomy to ONE and the Regies, nor did allow the cost of service to be fully recovered through an appropriate level and structure of tariffs, nor did it pay off its arrears. It fail to simplify the bureaucratic procedures, in particular those affecting procurement of goods and services as well as disbursement of funds (paras. 42-43). 9. ONE-Government Contract Program. The 1989-1991 Contract Program did not achieve the objective of improving the finances of ONE. The revised Contract Program for 1993-1995 achieved part of its objectives: tariffs were increased in 1994 and 1996 and measures were taken to decrease arrears (paras. 34-35). 10. Procurement of goods and services had an initial delay of about one year because the Moroccan bidding documents did not fully meet the Bank's procurement guidelines. The Moroccan Government refused to follow the Bank guidelines requiring a bid security issued by a bank (foreign or local) elected by the bidder. In order not to delay procurement, the Bank had to accept the Moroccan practice of requiring by law a bid security issued by a local bank and a deposit of 10 percent of the bid security in the Treasury. Although standard bidding documents were subsequently agreed upon with the Bank, procurement was later slowed down by cumbersome bureaucratic procedures within the beneficiaries; and by slow approval of relatively large contracts by the Government. Also, inadequate procurement arrangements created a large number of small contracts (about 340 contracts) many of them under local competitive bidding which, inter alia, burdened supervision by the Bank (paras. 44-46). 11. Loan disbursement was very slow. Disbursements began with a delay of more than 2 years and reached a cumulative level of less than 3 percent of the appraisal estimate three years after loan approval. This was caused by the 27 month delay in making the loan effective and the initial procurement problems. Taking into consideration that in June 1995 the sector began to show progress on reforms and financial matters, the Bank extended the loan closing date by one year to June 30, 1996. At that time hardly 60 percent of the loan was disbursed, but procurement was expedited and US$77.2 million (86 percent of the loan) had been disbursed when the last disbursement occurred on November 5, 1996 (paras. 47-48). Bank Performance 12. Project identification was deficient. The Bank staff identified and prepared the project as a power subsector adjustment loan. However, at time of project appraisal the Loan Committee instructed the staff to appraise it as a mere power distribution investment project and rely on conditionalities to improve the institutional aspects of the sector that were already part of the PERL. That led to a project whose major conditionalities were elsewhere, and a poor design of the procurement of goods and services. During project preparation the Bank provided satisfactory support to the Government, ONE, and the Regies, but appraisal of the project by the Bank is deemed deficient (para. 50-51). 13. Bank supervision was mixed, but overall it was marginally satisfactory. After loan approval, several supervision missions were lax in recommending remedies when the Borrower was in noncompliance with guidelines applicable to Bank loans: during 16 months the  v Government avoided signing the loan agreement and it took an additional 11 months to meet the conditions of effectiveness. Perhaps the Bank would have been more effective in expediting project implementation by threatening to cancel the loan in 1989. Until 1993, Bank supervision continued to be deficient: little pressure was exerted upon the Government and beneficiaries to meet the institutional objectives of the project. In 1993 Bank supervision improved as it reacted and reallocated project funds to carry out additional studies intended to enhance the sector. It gave good advice, not always heeded by the Government, about the importance of increasing electricity tariffs and eliminating subsidies at a fast pace, and of giving full autonomy to ONE as a way to improve its financial and operational performance (paras.52-53). Borrower Performance 14. Project preparation by the Borrower (the Government) and the beneficiaries (ONE and the Regies) was very slow but satisfactory. It took the Borrower about two years to prepare the project and 27 months to meet the conditions for loan effectiveness. On the institutional development front, until 1993 the Government was lax in increasing tariffs and in taking measures to reduce the arrears due to ONE and the Regies. It was not until 1994 and 1996 that the Government approved tariff adjustments allowing ONE to be in compliance with the self-financing covenant, and established tariff margins enabling the Regies improve their financial situation. But it did not devolve power to ONE, which would have enabled to become autonomous in managing its operations and finances. All of the above dwarfs the good accomplishments (albeit with delays) by ONE and the Regies in imnlementing 85 percent of the physical components of the project. Consequently, Borrower performance in project implementation is deemed deficient on account of the unsatisfactory performance of the Government and the marginally satisfactory performance of the beneficiaries (paras. 54- 57). Project Sustainability 15. Prospectsfor the project to be sustainable are uncertain because: (i) the tariff margin given to most Regies is not yet enough, in some instances, to cover even their investment and operating costs; (ii) the reorganization of ONE is still on-going and full satisfactory results are yet to be shown; and (iii) some of the measures (reduction of arrears, enacting of the Electricity Code) contemplated under a proposed power sector loan (Power Sector Reform Project, appraised in March 1996) have not yet been implemented (para. 58). Project Outcome 16. The outcome of the project is unsatisfactory because: (i) physical achievements were partial; (ii) the economic rate of return of the project (9.8 percent) was lower than the appraisal estimate (12.4 percent); (iii) the finances of ONE and the Regies were only partially improved with some key indicators of financial performance (mainly tariffs to the Regies and the arrears due to ONE and the Regies) remaining below targets; (iv) coordination among the sector entities continues to be weak; and (v) sustainabilitry of the project is uncertain (para. 59).  vi Future Project Operation 17. Several measures recently taken or to be taken by the Government, ONE, and the Regies in the areas of sector reform, private participation, arrears, and sector monitoring and evaluation would reflect a satisfactory plan for fuiture project operation. The Government is considering implementing several reforms (through a Power Sector Reform project, appraised by the Bank in March 1996) which aims to restructure the Moroccan power sector (separating the regulatory and policy making role of the Government from the commercial functions of power generation, transmission, and distribution, to enable efficient private participation in the sector through fair competition). Also, the proposed IPP at Jorf Lasfar (the Bank would provide a Partial Risk Guarantee for this operation) is another good example of opening the sector to private operators. Moreover, in 1996 ONE initiated a reorganization. Although the decentralization of activities (the first phase of the ONE's reorganization) and the appointment of new directors and managers slowed operations initially, it was followed by the injection of a new dynamic to ONE's operations. On the pervasive problem of arrears, ONE and the Regies have initiated aggressive measures to abate them, such as cutting service to delinquent ciustomers, replacing the monthly billing with a quarterly billing system, and rescheduling payments of arrears with entities providing essential economic benefits for which cutting service is not an option (pas. 60-64). Key Lessons Learned 18. The following main lessons can be drawn from the project (para. 66): Lesson 1. Bank management and staff should strictly enforce the Bank's guidelines for project processing to avoid problems during project implementation. For example, in cases when signature of the loan and its effectiveness take excessively long time, there is an obvious lack of commitment by the Borrower to the project's objectives, the Bank should cancel a loan having excessive delays in effectiveness. Lesson 2. Bank management and staff should strictly enforce compliance with critical covenants to prevent the project from deviating from its objectives and, to preserve Bank credibility. For example, in this project Bank management and staff were tepid in enforcing covenants in tariffs and accounts receivable and, as a consequence of noncompliance with those important covenants, the financial problems of the power subsector persisted throughout implementation. Lesson 3. Project design should avoid procurement arrangements involving: (i) allocation of small amounts of funds to many beneficiaries; and (ii) local competitive bidding for small construction services (it invites the Borrower to split procurement among a large number of contracts to favor local contracting). As was the case in this project, that situation introduces implementation delays and high costs of coordinating and supervising suppliers. Lesson 4. With hindsight, projects with many institutional development objectives should have all the reform measures and related covenants included in one loan covering all the activities of the target institution and not dispersed among other operations.  IMPLEMENTATION COMPLETION REPORT MOROCCO POWER DISTRIBUTION PROJECT (Loan 2910-MOR) A. Statement and Evaluation of Objectives Introduction 1. The degree of electrification in Morocco is low compared to other Middle East and North Africa countries. Electricity consumption per capita is now about 455 kWh (it was 343 kWh in 1986), reflecting a low level of rural electrification. This value is low compared to 650 kWh in Algeria, 669 kWh in Tunisia, 755 kWh in Egypt, and 1,016 in Jordan. It is growing at an annual rate of about 5.7 percent. 2. During the period 1973-1992 the Bank made five loans to Morocco's power subsector of Morocco totaling US$320 million. These have assisted Morocco in developing thermal and hydroelectric generation, transmission system, power distribution, and rural electrification. These loans have also attempted to improve the organization of the Moroccan power subsector and its economic, operational, and financial performance. In particular, the ongoing loan 3262-MOR (Rural Electrification Project approved in 1992) followed and largely overlapped with loan 2910- MOR (the subject of this ICR). These two loans have common objectives regarding the institutional side of the power sector. Project Objectives and Components 3. The broad objectives of the project were to: (a) encourage the power sub-sector to satisfy growing electricity demand caused by economic growth at least cost and without deterioration in quality of service; (b) achieve financial and managerial autonomy for the National Electricity Office (Office National de 1' Electricite, ONE), and the municipal distribution utilities, (referred to as Regies); and (c) reduce Government contributions to ONE. 4. The institutional development objectives of the project were to assist in implementing policy actions derived from studies carried out under the Public Enterprise Rationalization Loan (PERL, Loan 2820-MOR)1 and assist ONE and the Regies in improving their management, 1 The PERL committed the Government to develop and furnish to the Bank by September 1988, a proposal of policies and procedures for the oversight of ONE, and by January 1, 1989 and after exchanging views with ONE and the Bank, implement these policies and procedures. It also committed ONE to prepare and, by October 31, 1988, furnish to the Bank for review and comments a three-year, corporate development plan setting forth its development objectives and performance targets and actions to achieve them. By November 30, 1988 and after exchanging views with the Government and the Bank, conclude arrangements with the  2 planning, accounting, technical capabilities, and financial performance. These objectives were to be met through actions specified and covenanted in the loan agreement and its subsidiary agreements. 5. The physical objectives of the project were to support ONE and the Regies in: (i) rehabilitating and upgrading their existing facilities with a view to reducing energy losses, improving the reliability and quality of service and saving investment in new capacity that would otherwise be needed; and (ii) expanding their networks at least cost, enabling extension of electricity service to a greater share of the population. 6. To achieve these objectives the project included components for ONE and the R6gies of Casablanca, Fes, Kenitra, Meknes, and Tetouan, as follows: (a) construction of one new substation (225/20kV - 160MVA), reinforcement of four existing substations (60/20kV -11 OMVA), rehabilitation of two substations (60/20kV - 240MVA), and construction and reinforcement of distribution stations (20/0.380kV, totaling about 250 MVA) involving the supply and installation of about 750 transformers and about six stations (20kV); (b) network extension and rehabilitation of old distribution networks involving about 900 km of 20-kV lines and cables, about 1,700 km of low voltage cables, and about 90,000 electricity meters; (c) construction of about 50,000 square meters of space for ONE's operations centers consisting of customer service offices, warehouses, workshops, training centers, and housing; (d) import of spare parts and replacement items required for thermal plants, (e) materials, equipment, utility vehicles, and training for hot line work; (f) tele-protection and telecommunication equipment, computer hardware and software, training material, training fellowships; and (g) studies to: (i) develop an improved information system for ONE's investment planning; (ii) identify, evaluate and recommend measures to improve the organization and efficient operation of ONE's distribution department; and (iii) identify, evaluate, and recommend least-cost equipment norms and work practices for ONE's distribution system. 7. The project, once completed, was to connect to the main grid some 90,000 new customers, improve the availability of power facilities and the quality of service, contribute to the Government to implement the corporate plan. The plan and the procedures and policies were to be included in a contract-program between ONE and the Government.  3 reduction of distribution losses, and improve the planning, managerial, and financial capabilities of the beneficiaries. 8. The project's objectives were relevant to the power subsector of Morocco. They were congruent with those pursued by the Government and the Bank policies for the power subsector prevailing at that time.2 The objectives were clearly stated in the Staff Appraisal Report. One of the important reasons why the project focused on power distribution was that in 1986 Morocco's per capita consumption of electricity, 343 kWh, was the fifth lowest in the MENA region and the majority of the population lacked (and still lacks) access to electricity service. Also, because of the lack of coordination among the utilities operating in the sub-sector, it was appropriate to include ONE and the main Regies in the project. 9. With the benefit of hindsight it can be stated that the original project's components were appropriate to achieve the physical objective of extending electricity service (ideally at least cost) but they were not suitable to pursue the important institutional development objectives of improving sector coordination, giving financial and operational autonomy to ONE and the Regies, and improving their management and operational performance. That is why, during project implementation, the Government and ONE agreed with the Bank on the allocation of funds to finance studies (on the Electricity Code, organization of ONE, IPPs) to enhance sector performance. The actions taken as a result of the studies somehow improved ONE's finances and autonomy from the Government toward the end of the project. However, since the Regies were already beneficiaries of Bank assistance in the water sector, it would have been preferable to lend to the Regies for both sectors (this would have given the Bank more leverage in handling these entities). B. Achievement of Objectives Implementation Organization 10. Physical components were implemented by each beneficiary i.e., ONE, RAD, RAK, RADEEF and RADEEM. Each Regie set up a project coordination unit. In ONE, the distribution component was assigned to a Project Unit in the Distribution Department and the rehabilitation of thermal generation plants, the communication equipment, and the high voltage hot line equipment components were assigned to corresponding departments. In ONE, overall project coordination and financial matters were handled by its Finance Department. Loan disbursement was handled by ONE's Treasury Department. With respect to the Regies, loan disbursement and financial matters were coordinated by the Directorate of Distribution and Concessions at the Ministry of Interior and Information. Physical components are expected to be completed, with a delay of two years, by the end of 1997. 2 The Bank's policy for the electric power sub-sector prevailing in 1988 is detailed in OMS 3.72.  4 Physical Objectives 11. Physical objectives were partially achieved. ONE completed the rehabilitation of thermal plants, the introduction of hot line maintenance equipment, and most of the communication components but completed only 88 percent of the power distribution part financed by the loan. While RADEEF, RADEEM, and RAK almost fully completed their components by the end of 1995, RAD completed only about 75 percent of its project component. The RDE (Tetouan) component was withdrawn and the funds were reallocated to ONE for doing additional studies. 12. ONE-Distribution: Under the project fewer medium-voltage lines were reinforced as compared with the appraisal estimate (392 km versus 730 km), significantly more low-voltage lines (1,484 km versus 1,260 km), but less than half the distribution substations appraised (319 versus 690 substations), and built about 45,000 sq. meters (50,000 sq. meters were appraised). It connected about 90,000 new customers. The decreases are explained by: (i) overestimates made at appraisal; (ii) the postponement of non-priority works; and (iii) the cancellation of underground medium-voltage lines in relatively small villages. 13. ONE-number of new connections: Connections increased from 677,000 in 1988 to 1,208,000 in 1996, an increase of 531,000 or 78.4 percent (a cumulative annual growth rate of 6.6 percent). The project contributed 90,000 new connections to this increase, equivalent to about 17 percent of the total increase. 14. ONE-rehabilitation of thermalplants: This component was fully and satisfactorily completed. However, the loan financed only about 85 percent of its cost because ONE had to acquire some urgently needed equipment and material without a prior no objection by the Bank. 15. ONE-protection/communication/carrier equipment: Only 50 line carrier links were installed because the supplier failed to supply the 70 contracted. Tele-control of 13 points was added and 29 switchboards were commissioned. 16. ONE-hot line maintenance equipment: Albeit with some delay, the equipment and utility vehicles for doing hot line maintenance work on 225-kV and 60-kV lines were commissioned, personnel were trained, and, by mid-1996, this component became fully operational. This equipment is helping ONE improve the maintenance and operational conditions of its high voltage network. 17. RAD: This Regie expanded the transformation capacity of the 220/20 kV substations Sidi Othman and Dar Bouazza by 240 MVA (160 MVA guaranteed), and rehabilitated 80 MVA and 240 MVA, respectively, at the 220 kV and 60 kV Oulad Haddou and ADE, Camiran, and Chavigne. Regarding low voltage distribution, RAD added 136,320 consumer meters a figure that well exceeds the 86,000 meters estimated at appraisal. With agreement of the Bank, the 290 km underground cable extension was abandoned (instead overhead distribution lines were constructed), and an 80 MVA transformer was purchased using proceeds of the loan. Overall RAD completed about 75 percent of the physical components financed by the loan.  5 18. RADEEF: This R6gie completed the Narjiss and Zouaghas distributors and the 20 kV feeder expansions, as considered at appraisal, but canceled those at Bensouda; instead the Fes-South substation was expanded (SF6 power circuit breakers and a calibration desk). 19. RADEEM: The main components (reinforcement of the Zehrom substation and acquisition of circuit breakers, transformers, meters, cables and hardware) were completed with some minor changes and about one year's delay when compared to the project appraisal. 20. RAK: The main components were also completed with some changes and about one year's delay when compared to the appraisal (reinforcement of the substations Maamotra and Fouarat, extension and reinforcement of switching substations, and acquisition of cables, measurement instruments and a meter calibration bench). 21. RDE: This component was canceled and the funds reallocated to finance consultant services for additional studies for the Government and ONE (on the Electricity Code, asset insurance, IPPs, stock control, ONE reorganization) ONE: Technical Operations 22. In spite of past financial problems, the technical operations of ONE have somehow improved. Electricity production increased steadily from 7,710 GWh in 1988 to 12,330 GWh in 1996 (average growth of 5.7 percent per year), including electricity imports from Algeria and purchase from local suppliers (Table 1.1). The imports and local purchases increased to about 11 percent of total electricity output during the dry hydrology experienced in years 1992-1994, especially in 1993 when the hydroelectric plants delivered only one third of their average generation. 23. With respect to physical expansion of the power system, ONE's installed capacity grew from 1,952 MW in 1988 to 3,414 MW in 1995 (average growth of 8.3 percent per year) of which 3,019 MW is guaranteed because a substantial part of the increase was in gas turbines (Table 1.2). A major capacity addition to the system occurred in 1995-1996 with the commissioning of the JorfLasfar thermal power plant. Also, the transmission and distribution systems were significantly extended during the period 1988-1995, with the addition of 1,316 km of 220-kV lines; 1,009 km of 60-kV lines; 6,362 km of distribution lines, 1,534 MVA in 220-kV and 60-kV power transformers; and a large number of high and medium-voltage substations (Table 1.3). 24. Energy losses. Distribution losses have remained on the order of 9-10 percent in RAK, RADEEM and RADEEF, and about 6 percent in RAD. ONE is making an effort to keep distribution losses in the range 6-7 percent, which is considered the economic level for large distribution systems. ONE will benefit from the implementation of the recommendations made by the EdF/ESMAP loss reduction study (a one percent reduction in energy losses could save ONE about DH 32 million/year). ONE's losses in power plants (due mainly to consumption by auxiliary services) and its high voltage transmission system are in line with utility experience elsewhere and do not pose a particular problem. 25. Some improvement was achieved in the efficiency of thermal plants. Oil and coal steam plants decreased fuel consumption to 2,444 kCal/kWh in 1995 from 2,542 kCal/kWh in 1991 (a  6 3.9 percent improvement). This improvement was due mainly to the commissioning of the Jorf Lasfar coal-fired thermal power plant, which has a lower specific coal consumption. Also, gas turbines decreased their fuel consumption to 3,228 kCal/kWh in 1995 from 3,491 kCal/kWh in 1991 (a 7.5 percent improvement) because of the installation of more efficient gas turbines. Similarly, diesel plants improved to 2,156 kCal/kWh from 2,513 kCal/kWh (14.2 percent improvement). For all plants combined, the average fuel consumption improved to 2,499 kCal/kWh in 1995 from 2,588 kCal/kWh in 1991 (a 3.4 percent improvement). Table 1.1: ONE: Generation and purchase of electricity (GWh) Year Total Hydro Steam Combustion Purchase Local Algeria 1987 7300 825 6321 97 57 0 1988 7710 936 6408 174 174 18 1989 8102 1157 6634 230 54 27 1990 8815 1220 7124 225 143 103 1991 9347 1266 7105 241 94 641 1992 10001 981 7276 690 122 932 1994 10996 454 7768 933 136 1027 1993 10318 855 7866 1343 109 793 1995 11404 618 9736 773 74 243 1996 12330 Total 95963 Table 1.2: ONE: Generation installed capacity (MW) Hydroelectric Steam Gas turbine & Diesel Year Installed Effective Installed Effective Installed Effective 1988 620 592 1185 1175 147 129 1989 620 592 1185 1175 147 129 1990 687 657 1185 1175 147 129 1991 687 657 1185 1175 180 160 1992 687 657 1185 1175 345 308 1993 687 657 1185 1176 444 308 1994 927 881 1845 1830 609 308 1995 927 881 1845 1830 642 308 (a) % 50 49 26 56 337 139 Note(a): % total increase in the period 1988-1995  7 Table 1.3: ONE transmission and distribution facilities over the period 1988-1995 1988 1992 1995 a/ b/ 220-kV system: Transmission lines (km) 3,337 3,864 4,653 39 20 Substations (number) 26 30 33 27 10 Transformers (number) 36 44 48 33 9 Transformers (MVA) 3,370 4,110 4,380 30 7 60-kV system: Sub-transmissions line (km) 7,779 8,195 8,788 13 7 Substations (number) 135 150 154 14 3 Transformers (number) 129 167 176 36 5 Transformers (MVA) 2,463 2,855 2,987 21 5 Distribution system 20, 22, 55-kV lines (km) 11338 14799 17700 56 20 Note a -: % total increase in the period 1988-1995 Note b : % total increase in the period 1992-1995 Institutional Objectives 26. Institutional objectives were partially achieved. The project accomplished very little in improving the financial and managerial autonomy of ONE and the Regies, as indicated below. 27. ONE 'sfinancial performance. Although in recent years the self financing and the debt service coverage improved and reached the covenanted targets, the accounts receivable and arrears to ONE remained very high and never met the covenanted targets. Also, tariff levels and structures were not set in accordance with LRMC principles, nor were they adjusted timely when changes occurred in fuel oil and coal prices. 28. ONE's selffinancing and debt service coverage. Until 1993 cash generation enabled ONE to finance less than 19 percent of its annual investment program (in 1992 it did not finance any). Only in 1994 did cash generation begin to finance 30 or more percent of ONE's investment program because of less investment, less fuel consumption (and more hydroelectric generation) once the drought was over, and more revenues from a boost in sales and tariffs. Until 1992 debt service coverage was adequate. Although in 1993 and 1994 the debt service coverage ratio was  8 below 1.5, ONE did not default on this covenant. In 1995 and 1996 ONE's debt service coverage again met an acceptable target (Table 1.4). Table 1.4: ONE's investment program, cash generation, and self financing Invest. Prog. Cash Gen. Self Fin. DSC Year (DH million) (DH million) (Percent) (Ratio) 1991 3,605 604 18 1,8 1992 3,170 (217) -4 1.6 1993 7,176 455 17 1.2 1994 5,274 1,290 30 1.0 1995 2,998 1,119 33 1.5 1996 4,832 1,498 49 1.8 29. Accounts receivable. Accounts receivable and arrears have become a chronic problem for ONE and the Regies. They were very large until 1992 (in the range 9.2-9.5 months) and declined steadily to 4.7 months in 1996, yet are still far from the two months required by the Bank (Table 1.5). Although ONE has made a considerable effort to reduce them (it rescheduled 90 percent of the arrears of small, non-solvent communities and that of ONCF and ONEP) until early 1997, no satisfactory plan to reduce arrears of the Regies to acceptable levels has been submitted to the Bank. (submission of this plan is a condition for negotiation of the Power Sector Reform Loan). To reduce arrears, ONE will replace monthly billing with quarterly billing to the Administration and cut service to delinquent customers. It should be noted that the purchase contract for private power, possibly starting by mid- 1997, will require ONE to pay invoices to the private operator within 45 days. Consequently, if electricity bills are not paid to ONE in full and on time, ONE's finances will be in jeopardy. Table 1.5: ONE's accounts receivable (1991-1996) Year (DH billion) (months) 1991 4.5 9.2 1992 5.0 9.5 1993 4.8 8.5 1994 3.9 6.1 1995 3.9 5.8 1996 3.4 4.7 30. The Regies buy about 50 percent of ONE's output and payment of their electricity bills is very important for ONE's finances. In this regard, it has been very difficult to reduce the arrears of RAD and RADEEM, which have exceeded 6 months and 10 months, respectively. Their arrears to ONE are explained by: (i) the insufficient margins between the bulk tariffs of ONE and  9 the retail tariffs; and (ii) the poor payment records to the Regies by the Administration and local governments. The Regies have initiated new measures to improve collection rates, primarily by cutting service to all delinquent customers. The results were effective in 1994, but the measures lost momentum in 1995 and 1996. 31. The Offices, which represent about 10 percent of ONE's sales, account for more than 20 percent of arrears. These are mainly the railways, the water utility, and the phosphate concerns, which were reported to be incurring in heavy losses. Because of the economic importance of these companies they have not been disconnected from electric service. Payment of their arrears has been rescheduled. 32. The Administration and local governments have always had a poor payment record. In 1992-93 the Government initiated a coupon system (vignettes) earmarked for the payment of utility bills, which, however, proved to be insufficient to cover electricity bills. 33. Financial management: After much prodding from the Bank, ONE agreed to conduct studies on risk assessment (its assets are not insured) and stock control. In April 1996, foreign consultants issued a report on asset insurance, their recommendations will be implemented during 1997 following internal consultation. Also, local and foreign consultants reviewed the stock control management and recommended changing over to a more efficient system (particularly the procurement of equipment and spare parts for the operational units), which is now being put in place. External auditing of accounts is done routinely. 34. ONE 's Contract Program: To improve the financial situation of ONE, the Contract Program for 1989-1991 specified the measures to be taken by the Government and the complementary actions to be taken by ONE. This Contract Program did not achieve its objectives. Since the Government did not meet its commitments, ONE, in turn, could not meet its requirements, as indicated below. The Government: (a) did not introduce a new tariff structure based on LRMC principles (a study began in 1988 and by end 1991 was not finished); (b) did not increase tariffs by 5 percent in May 1989, January 1990, or January 1991 (no adjustment in 1989, only 4.5 percent in 1990, and no adjustment in 1991); (c) did not pay off existing arrears to ONE nor prevent accumulation of new arrears (by end 1991 arrears to ONE were about 9.2 months of billing); and (d) did not increase financial autonomy by reducing controls (while approval by the General Comptroller was mandatory for large contracts only, clearance by the General Accountant continued to be mandatory for all cash transactions). ONE: (a) invested only DH7,400 million over the period 1989-1991 and not the DH8,700 million target; (b) was unable to finance its capital expenses as agreed (ONE's cash generation was DH2,700 million or well below the DH4,400 million target; ONE borrowed DH3,900 million instead of the DH4,900 million target; it was unable to reduce the accounts receivable to two months: arrears mounted to 9.2 months of billing by end 1991).  10 35. ONE's financial situation was reviewed in 1992. It led to a revised Contract Program for 1993-1995 which set up the measures to be taken by the Government on tariffs, contribution to investment, and pay-off of arrears, as well as complementary actions to be carried out by ONE. The objectives of the revised Contract Program were partially achieved; in 1994 and 1996, the Government authorized appropriate increases in electricity tariffs and initiated measures to reduce the arrears due to ONE, which was reduced to 4.7 months by end 1996. 36. Electricity tariffs. The level and distorted structure of the tariffs prevailing during the period 1988-1995 were not appropriate to recover cost based on economic principles or sufficient to meet the debt service coverage and self financing ratio in every year. They had remained at an average of DH 0.85/kWh (about 10 UScents per kWh) since 1992. Tariffs had subsidized consumption of up to 500 kWh per month (industrial and commercial consumers bearing the difference) and differentiated tariffs applied to bulk sales to the Regies were inconsistent with the uniform tariff schedule applied to the end consumer countrywide (tables 1.6 and Table 1.7). The small tariff margins for the Regies compounded with the high level of accounts receivable, have been stressing their finances to the limit. The tariff schedule effective since 1996 has eliminated some of these problems: the average tariff was increased by 6 percent, the same tariff will be gradually applicable to all Regies, and the first and second block of domestic consumption (subsidized) limits were set at 100 and 200 kWh per month, which nonetheless still high (Table 1.8). Moreover, it would be desirable to adopt a policy to index tariffs to pass to pass changes in fuel prices, rate of exchange and inflation, on to consumers.  I1 Table 1.6: Evolution of retail tariffs over the period 1988-1995 Category 1988 1989-1992 1993 1994-1995 1. Domestic with minimum: 0-500 kWh 0.750 0.775 0.822 0.842 > 500 kWh 0.880 0.952 1.009 1.122 2. Domestic without minimum: 0-500 kWh 0.900 0.030 0.987 1.011 > 500 kWh 1.056 1.143 1.211 1.347 3. Mix: 1st.& 2nd.Tranche. 0.750 0.775 0.822 0.842 = 200 kWh 0.600 0.682 0.723 0.790 201-500 kWh 0.680 0.775 0.822 0.880 > 500 kWh 0.880 0.952 1.009 1.112 4. Power: with minimum 0.790 0.902 0.956 1.060 without minimum 0.948 1.083 1.148 1.272 5. Government lighting: with minimum 0.880 0.952 1.009 1.090 without minimum 1.056 1.143 1.211 1.308 6. Medium voltage: at high demand 0.851 0.885 0.938 1.000 at low demand 0.680 0.708 0.750 0.800 Table 1.7: Evolution of bulk tariff to Regies over the period 1988-1996 1988 1989-1992 1993 1994-1995 1996 1. RADEEF hightime 0.67151 0.67521 0.74582 0.79518 0.83915 low time 0.53721 0.56448 0.59666 0.63615 0.67233 2. RADEEM high time 0.63972 0.70655 0.74693 0.77371 0.83673 lowtime 0.51178 0.56532 0.59755 0.61897 0.67300 3. RAK high time 0.63950 0.70757 0.70754 0.74786 0.83673 lowtime 0.51161 0.56607 0.56604 0.59883 0.67300 4. RAD hightime 0.69011 0.73101 0.77268 0.80435 0.87205 lowtime 0.55209 0.58481 0.61815 0.64348 0.70523  12 Table 1.8: 1996 Tariff schedule for end consumers Category DH/kWh Domestic use 0-100 kWh 0.8420 101-200 kWh 0.9095 201-500 kWh 0.9851 > 500 kWh 1.3464 Private lighting with minimum 0-100 kWh 0.8420 101-200 kWh 0.9095 201-500 kWh 0.9851 > 500 kWh 1.3464 Private lighting without minimum 0-100 kWh 1.011 101-200 kWh 1.087 201-500 kWh 1.183 > 500 kWh 1.616 Power (industry) with minimum 0-100 kWh 1.060 101-500 kWh 1.113 > 500 kWh 1.272 Power (industry) without minimum 0-100 kWh 1.272 101-500 kWh 1.336 > 500 kWh 1.527 Time of day high demand time 1.0714 low demand time 0.7820 peak demand time 1.1657  13 Training 37. The training component was vaguely defined in the SAR and, despite the specific assistance given by a Bank specialist during project supervision, neither ONE or the Regies were able to define a training program for their staff. This was so because donor countries (France, Canada, and Italy) made available training programs under bilateral agreements at better financial terms than the Bank, most of them non-reimbursable. Thus the training component included in the loan, other than providing training to ONE's operational staff on hot line maintenance, had a negligible impact on ONE and the Regies. Consequently, funds allocated in the loan for staff training were not utilized. Project Costs 38. The project was completed at a cost of US$135.37 million, or 19.1 percent below the appraisal estimate of US$167.37 million. The decrease is explained by the significantly lower investment in distribution and thermal equipment done by ONE (about 22 percent below the appraisal estimate), and by a slight decrease (5.4 percent less) in distribution investment done by the Regies, in particular the cancellation of the US$2.72 million component of RDE (Tetouan). It should be noted that the total project cost was only about 3.1 percent of the 1988-1996 investment program of ONE and the Regies combined. Project Financing. 39. The Bank financed US$77.21 million (57.0 percent of the US$135.37 million project financing requirement). ONE financed US$40.58 million (30 percent), and the Regies financed the balance US$17.58 million (13.0 percent). Contribution of local funds to project financing was not a problem since it represented about 1.4 percent of the financing requirements of the 1988- 1996 investment program of ONE and the Regies combined. Project Economic Performance. 40. The project's economic performance was reevaluated using the method described in the SAR, i.e., by calculating the internal rate of return of the stream of net benefits. Net benefits of the program were taken as the difference between (a) the actual incremental revenues plus rehabilitation benefits, and (b) the actual investment program of ONE and estimated programs for the Regies, plus fuel costs and operating and maintenance expenses (O&M) over the period 1988- 2021 (Part II, Table 9). The result is an economic rate of return lower than the appraisal estimate (9.8 versus 12.4 percent) 41. Since the information on the Regies' actual investments is very incomplete (moreover, the Regie of Tetouan was removed from the project), their investment program over the period 1988- 1996 was assumed to be about 10 percent of ONE's investment program, which is consistent with the estimate made in the SAR. The rehabilitation benefits were estimated as 1.2 percent of sales (the same proxy used in the appraisal), incremental O&M costs were the actual costs over the period 1988-1996, and estimated for 1997 and beyond. Incremental fuel costs were the actual costs for the period 1988-1996 and were estimated for 1997 and beyond by taking fuel prices  14 equivalent to US$180/ton for fuel oil and US$60/ton for coal. While less thermal generation decreased fuel consumption in 1993, ONE's O&M costs increased significantly due to additional gas turbine based generation and to power purchases from Algeria (at 4 UScents/kWh). Also, the additional purchases from autoproducers is reflected in higher operating costs beyond 1997. Actual benefits are lower than the appraisal estimate because of lower actual sales and tariffs. C. Major Factors Affecting the Project 42. The major factors affecting the achievement of project objectives were the Government's tepid commitment to implementing measures which would provide autonomy to ONE, slow procurement of goods and services and an uncontrollable natural event (the 1992-1995 drought that reduced hydroelectric generation). 43. The Government was committed to implementing the physical part of the project but tepid in implementing the measures needed to improve performance in the power subsector e.g., it did not provide financial and management autonomy to ONE, nor did it allow the cost of service to be recovered through appropriate levels and structures of tariff, nor did it pay off its arrears, nor did it simplify bureaucratic procedures, in particular those affecting procurement of goods and services as well as disbursement of funds. 44. Procurement of goods and services was initially delayed for about one year because the Moroccan bidding documents did not fully meet the Bank's procurement guidelines. The major point at issue was the bid security required from the bidder. The Moroccan Government refused to follow the Bank guidelines requiring a bid security issued by a bank (foreign or local) elected by the bidder. Following a lengthy exchange of views, the Bank, in order not to delay procurement any further, had to accept the Moroccan practice requiring, by law, a bid security to be issued by a local bank and a deposit of 10 percent of the bid security in the Treasury. This exception was made only for the distribution project. Although standard bidding documents were subsequently agreed upon with the Bank, procurement was later slowed down by two factors: (i) the slow issuance of specific bidding documents because of the beneficiaries' cumbersome bureaucratic procedures; and (ii) the slow approval of relatively large contracts by the Government. 45. Project implementation involved about 340 contracts, of which the Bank reviewed and financed 74 contracts for ONE (41 ICBs, 31 LCBs and 2 Other) and 30 contracts for the Regies (RAD 11, RADEEM 7, RADEEF 7 and RAK 5). ONE alone approved of about 290 contracts. The large number of contracts was the consequence of inadequate procurement arrangements for installation/civil works. US$22 million (25 percent of the loan) was allocated to ONE to finance works through contracts of less than US$500,000 under LCBs. Obviously, this invited the beneficiaries to create a large number of small contracts to maximize local participation. This resulted in slow procurement and a heavy supervision burden for the Bank, which had to review every procurement exceeding US$200,000 equivalent in accordance with provisions established in the loan agreement.  15 46. The performance of contractors was satisfactory, the supply of goods and services was of good quality, and ONE's and Regies' technical staff performed marginally satisfactorily in supervising the supplies and the works. ONE and the Regies carried out the physical components in a satisfactory manner. But, although the loan closing date was extended by one year, ONE and RAD could complete only 88 percent and 75 percent of their respective project distribution components. 47. Loan disbursement was very slow compared to the appraisal estimate. Disbursements began with a delay of more than 2 years and reached a cumulative level of less than 3 percent of the appraisal estimate three years after loan approval. This was caused by the 27 month delay in making the loan effective and the initial procurement problems. Taking into consideration that in June 1995 the sector began to show progress on reforms and financial matters, the Bank extended the loan closing date by one year to June 30, 1996. No more extensions of the closing date were granted. At that time hardly 60 percent of the loan was disbursed, but procurement was expedited and when the last disbursement occLrred on November 5, 1996, US$77.21 million, or 85.8 percent of the loan, was disbursed. 48 To facilitate disbursements and payments to a large number of suppliers, the Bank and the Government had agreed that a special account was to be opened in the Treasury. However, the special account was never opened by the Government because of two obstacles which were never removed: (i) no simple procedure was found acceptable by the Treasury to pay suppliers directly or through letters of credit; and (ii) ONE and the R6gies would have been required to pay first and then submit documentary evidence to obtain reimbursement from the Treasury. This procedure could not work. ONE and the Regies could not afford to finance the payments to suppliers and obtain refunds through the slow and cumbersome Government bureaucracy. Thus, the burden to pay all suppliers directly or through letters of credit was placed mostly on the Bank. 49. The adverse hydrology during the period 1992-1995 forced ONE to decrease low cost hydroelectric generation, install inefficient gas turbines, to generate more from thermal plants, and to purchase more power from Algeria (at 4 US cents/kWh) and local suppliers. This situation increased ONE's operation costs during the dry years. D. Bank Performance 50. Project identification was deficient. The Bank staff identified the project as a power subsector adjustment loan and prepared it as such. However, at time of project appraisal the Loan Committee instructed the staff to appraise it as a mere power distribution investment project and rely on conditionalities to improve the institutional aspects of the sector that were already part of the PERL. Unfortunately, this led to a project whose major conditionalities were elsewhere, compounded by poor design of the procurement of goods and services. For these reasons, project appraisal is deemed deficient. 51. During project preparation, the Bank provided satisfactory support to the Government, ONE, and the Regies by doing five preparation missions in the period July 1985 to November  16 1987. Unfortunately, changes in the project team caused by the Bank's reorganization process in 1987 introduced unwanted delays in project preparation and appraisal. 52. The Bank made extensive supervision of the project. Over a period of 7 years spanning June 1988 to September 1995 (15 supervision missions comprising 91 staff-weeks, costing about US$450,000). After Board approval and before the loan had been signed and declared effective, the Bank staff carried out three supervision missions. However, none of them raised the issue of poor ownership of the project by the Government as demonstrated by the unusually long time it was taking to sign and comply with the conditions to make the loan agreement effective. The Government avoided signing the loan over a period of 16 months. It signed the loan agreement in June 1989 and 11 months later met the conditions of effectiveness. The Government argued that there was no point in making the loan effective and paying commitment fees while the beneficiaries were not ready to initiate procurement of goods and services. The Bank accepted that argument. Perhaps the Bank would have been more effective in expediting project implementation by threatening to cancel the loan in 1989. Until 1993, Bank supervision continued to be deficient and little pressure was exerted upon the Government and Beneficiaries to meet the institutional objectives of the project. 53. On the positive side, the Bank reacted to the problems by reallocating project funds to carry out a series of studies intended to improve the sector. It gave good advice, not always heeded by the Government, about the importance of increasing electricity tariffs and eliminating subsidies at a fast pace, and of giving full autonomy to ONE as a way to improve its financial and operational performance. In the later stages of project implementation, as a result of the Bank's close dialogue with the Government and ONE and pressure exerted by the Bank (informal suspension of disbursement to the Regies, including cancellation of US$3.5 million for RAD) the sector began to show improvements. Then the Bank was flexible; waived noncompliance with important covenants when progress was made in the tariffs, arrears and reorganization of ONE, and extended the loan closing date by one year. E. Borrower Performance 54. Project preparation and implementation by the Borrower (the Government) and the beneficiaries (ONE and the Regies) was very slow but satisfactory. It took the Borrower about two years to prepare the project and more than two years to meet the conditions for loan effectiveness. Procurement of goods and services was very slow, and the Government did not make arrangements for a special account facilitating loan disbursement. Although the loan agreement gave the Borrower and Beneficiaries plenty of time (6 years), it took 7 years to complete about 85 percent of the physical components of the project (see Part II, Table 6: Key indicators of project implementation). 55. On the institutional development front, until 1993 the Government was lax in taking measures to initiate payments of its arrears to ONE and the Regies. Also, it was not until 1994 and 1996 that the Government approved tariff adjustments allowing ONE to start meeting compliance with important financial covenants (self financing,) and approved tariff margins enabling the Regies to improve financial position. But the Government did not devolve power to ONE to enable it to become  17 autonomous in managing its operations and finances. This shows the initial low level of commitment the Government had to the institutional objectives of the project, although it did react positively late in project implementation. (see Part II, Table 10: Status of Covenants). 56. Regarding training, ONE and the Regies did not avail itself of all opportunities offered by the project to enhance the skills of their staff through a well-prepared training program. Instead, they preferred to use ad-hoc training offered by bilateral agreements with donors. This is understandable because of the grant element of the training offered by the bilateral donors. 57. All of the above overshadowed the relatively good accomplishments (albeit with delays) of ONE and the Regies in implementing 85 percent of the physical components of the project. In view of the great importance that the Bank attached to the financial and institutional development objectives of the project, overall Borrower performance during project implementation is rated as deficient on account of the unsatisfactory performance of the Government and the marginally satisfactory performance of the beneficiaries. F. Assessment of Project Outcome and Sustainability Project Sustainability 58. The prospectfor the project to be sustainable is uncertain because: (i) the tariff margin granted to most Regies is not yet enough to cover in some instances their investment and operating costs; (ii) the reorganization of ONE is still ongoing and fully satisfactory results have yet to be shown; and (iii) some of the measures (reduction of arrears, enacting of the Electricity Code) contemplated under a proposed power sector loan (Power Sector Reform Project, appraised in March 1996), have not yet been implemented. Project Outcome 59. The outcome of the project is unsatisfactory because: (i) physical achievements were partial; (ii) the economic rate of return of the project (9.8 percent) is lower than the appraisal estimate (12.4 percent); (iii) the finances of ONE and the Regies were only partially improved with some key indicators of financial performance (mainly bulk tariffs to the Regies and arrears due to ONE and Regies) remaining below targets; (iv) coordination among the sector entities continues to be weak; and (v) the project sustainability is uncertain. G. Future Project Operation 60. Several measures taken recently or to be taken by the Government, ONE and the Regies in the areas of sector reform, private participation, reduction of arrears, and sector monitoring and evaluation, may reflect a satisfactory plan for future project operation.  18 61. On sector reform, the Government is about to implement a Power Sector Reform project. This operation is aimed at restructuring the Moroccan power sector along the lines of the current Bank paradigm for power sector development (unbundling of the commercial functions of distribution, transmission and generation of power from the regulatory and policy making functions of the state, enabling efficient private participation in the sector through fair competition, and extension of electric service when justified, without endangering the natural and the social environment). 62. The proposed IPP in Jorf Lasfar (the Bank would provide a Partial Risk Guarantee for this operation) is a good example of opening the sector to private operators. When this operation is implemented, the market will send a clear message on the willingness to pay for power generation by the Government and, consequently, it will serve as reference point for gauging and adjusting electricity prices. Otherwise, the sector will be subjected to more financial stresses than in the past. 63. In 1995, ONE initiated a reorganization. The implementation of the first phase of the reorganization (decentralization of activities) and appointment of new directors and managers initially slowed down ONE's operations, but it has been followed by the injection of a new dynamic into ONE's operations, this was already sensed by the ICR mission in December 1996. 64. On the pervasive problem of arrears, ONE and the Regies have initiated aggressive measures to abate arrears by cutting service to delinquent customers, replacing monthly billing to the Administration with a quarterly billing system., and rescheduling payments of arrears with entities providing essential economic benefits, when cutting service is not an option. 65. Last but very important, ONE, the Regies, and the Government are already monitoring the sector through a set of performance indicators in line with those recommended by the Bank (Table 6 of Part II of this ICR). H. Key Lessons Learned 66. Based on the experience of this project, the following lessons can be offered: Lesson 1. Bank management and staff should strictly enforce Bank guidelines for project processing to avoid later problems during project implementation. For example, in cases when signature of the loan and its effectiveness take an excessively long time, there is an obvious lack of commitment by the Borrower to the project's objectives, and the Bank should cancel a loan having excessive delays in effectiveness. In this project, loan effectiveness took 27 month and project implementation was later plagued with problems caused by weak ownership by the Borrower. Lesson 2. Bank management and staff should strictly enforce compliance with critical covenants to prevent the project from departures from its objectives as well as to preserve the Bank's credibility. For example, in this project Bank management and staff were tepid in enforcing covenants in tariffs and accounts receivable early in project implementation, and as a  19 consequence, the financial problems of the power subsector persisted throughout implementation. Lesson 3. Project design should avoid procurement arrangements involving: (i) allocation of small amounts of funds to many beneficiaries; and (ii) local competitive bidding for small construction services (it invites the borrower to split procurement into a large number of contracts to favor local contracting). As was the case in this project, that situation introduces implementation delays and high costs of coordination and supervision of suppliers. It would be better to concentrate procurement in one beneficiary and arrange turn-key contracts for complete and easily supervised works. Lesson 4. With hindsight, projects with a high number of institutional development objectives should have all reform measures and related covenants included within one loan covering all the activities of the target institution, rather than dispersing them among other operations. In this case, lending to improve ONE should have covered all related actions, studies, and covenants should all have been included in this loan and not dispersed in the PERL. Lesson 5. A Contract Plan between the Government and a Government-owned power utility is not by itself an effective mechanism for improving the operational and financial performance of the power utility because there is no legal check on the Government's tendency to act on the basis of political forces. This tendency usually results in the Government's not complying with the agreements contained in the Contract Plan, which, eventually, makes it impossible for the power utility to comply with its own commitments. However, a Contract Plan could be used as an instrument of last resort because, in the absence of a legally binding contract, it can help to clarify roles, allocate responsibilities, and promote a meaningful dialog between the Government and the power utility.  20 IMPLEMENTATION COMPLETION REPORT MOROCCO POWER DISTRIBUTION (Loan 2910-MOR) PART II: STATISTICAL TABLES Table 1: Summary of Assessment A. Achievement of Substantial Partial Negligible Not applicable objectives Macro-economic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender concems X Other social objectives X Environmental objectives X Public sector management X Private sector development X B. Project sustainability Likely Unlikely Uncertain Operational & Policy X C. Bank performance Highly satisfactory Satisfactory Deficient Identification X Preparation assistance . X Appraisal x Supervision X D. Borrower performance Highly satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance __X 1Future Operation X E. Assessment of outcome Highly Satisfactory Unsatisfactory Highly . Satisfactory Unsatisfactory X  21 Table 2: Related Bank Loans Loan No. Title Amount Date of Approval Status _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (U S$ m ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ L-0936-MOR Power Project 25.0 October 1973 Completed L-1299-MOR Sidi Cheho-Al Massira Hydro Project 49.0 July 1976 Completed L-1695-MOR Village Electrification Project 42.0 April 1980 Completed L-2910-MOR Power Distribution Project 90.0 June 1989 This ICR L-3262-MOR Rural Electrification Project 114.0 November 1992 On-going Total (US$ million): 320.0 Table 3: Project Timetable Steps in project cycle Date planned Actual date Identification n.a. November 13,1984 Preparation n.a. Julv 23, 1985 to Dec. 30, 1986 Appraisal n.a. May 30, 1987 Negotiations n.a. November 30, 1987 Board presentation n.a. February 16, 1988 Signing April 16,1988 June 21, 1989 Effectiveness September 19,1988 May 9, 1990 Amendment # I n.a. October 25, 1994 (closing date extension) Amendment # 2 n.a. November 1996 (reallocation of funds) Project completion December 31,1994 December, 1997 (estimated) Loan closing June 30, 1995 June 30, 1996 Last disbursement September 30, 1995 November 5, 1996 Table 4A: Loan Disbursement: Cumulated, Appraisal Estimate and Actual (US$ thousand) _ FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 Appraisal 1,800 17,100 36,000 54,900 70,200 81,000 86,700 90,000 90,000 90,00 Actual 0 0 1,200 2,200 16,700 25,500 32,400 53,800 67,800 77,21 Percent of Appraisal 0.0 0.0 1.3 2.5 18.5 28.3 36.0 59.8 75.4 85.8 Date of final disbursement: 11/05/9 Table 4B: Loan Utilization (US$ thousand) Office National de l'Electricite (ONE) 58,121 Regie de Casablanca (RAD) 11,404 Regie de Kenitra (RAK) 2,060 Regie de Fes (RADEEF) 1,972 Regie de Meknes (RADEEM) 3,653 Total 77,210  22 Table 5: Key Indicators for Project Implementation Implementation Indicators in SAR's Estimated Actual Report A. EXPANSION -- Engineering start January 1987 1988 -- Engineering completion December 1990 December 1992 -- Supervision start April 1988 January 1992 -- Supervision completion December 1994 December 1997 (estimated) -- Procurement start November 1987 January 1989 -- Procurement completion December 1992 December 1993 -- Supply of equipment start October 1988 January 1991 -- Supply of equipment completion June 1993 December 1994 -- Construction start October 1988 January 1992 -- Construction completion December 1994 December 1997 (estimated) B. REHABILITATION -- Engineering and supervision start July 1987 n.a. -- Engineering and supervision completion December 1994 December 1997 (estimated) -- Procurement start April 1988 January 1989 -- Procurement completion December 1993 September 1995 -- Installation works start July 1988 September 1992 -- Installation works completion July 1992 September 1996 C TECHNICAL ASSISTANCE December 1994 December 1997 (estimated) -- Procurement start October 1988 -- Procurement completion June 1989 -- Services and training start October 1989 -- Services and training completion December 1994  23 Table 6: Key Indicators for Project Operation l__ _ _ _ _ _ _ _ _ __ _Year Indicators for ONE and Re ies Unit 1996 --1997 --1998 --1999 and beyond 1. Market Electricity coverage percent Customers at year's end (breakdown by category) thousand Annual electricity production, ONE, Total: GWh -- Hydroelectric GWh -- Oil fired plants: GWh -- Coal fired plants: GWh Annual electricity purcha. zd, Regies GWh Annual electricity purchased, ONE GWh Annual sales GWh Annual load factor percent Average tariff of electricity sold DH/kWh _ -Average tariff of electricity purchased DH/kWh __________________ -Fuel-oil price at ONE's power plants DH/ton _ PoCoal price at ONE's To plta l -2. Effiency p : |-Employees number -Employees per thousand customers number -Waiting time for a new customer to be connected tdays -Depraecation ch age: vhou/u -Frequencytum on utages itimes/year Sales per employee MWh Energy losses percent Fuel consumption, fuel oil, ONE gr./kWh Fuel consumption, coal, ONE kCal/kWh Production cost, ONE, Total: DH/kWh -- Fuel cost: DH/kWh --Energy purchased.- DH/kWh --Salaries: DH/kWh --Operation and maintenance: DH/kWh --Depreciation charge: DH/kWh -Availability of thermal plants, ONE percent -3. Financial Rate of return on assets in operation percent Cash operating margin percent -Self financing percent -Debt service coverage ratio number -Debt/Equity ratio number Accounts receivable days of bill. Arrears, Total: days of --- Government: billing  24 Table 7: Studies Included in Project No. Study Purpose as defined at appraisal Status Impact of Study 1. Electricity Tariffs To develop structures and levels of electricity Completed Negligible Study tariffs for the power sub-sector on the basis of the long run marginal costs of electric power. 2 Least-cost Coordinated To develop a coordinated least-cost investment Completed Modest Investment Study program for the proper development of the power sub-sector and measures to strengthen the capabilities of the power utilities in demand forecasting and investment planning activities. To facilitate the proper coordination of said activities among the power utilities. Additional studies not defined at appraisal 3 Risk assessment To assess risks to ONE's assets and determine Completed Not yet known. appropriate level of insurance Implementation will begin in 1997 4 Stock control system To study ONE's stock control system and Completed Implementation recommend changes for its improvement of new system began in 1995 and would be completed in 1997 5 Reorganization of ONE To study ONE's organization structure and Completed Study started in recommend improvements (first 1995. phase) Implementation began in 1996 and early results in 1997 show a positive impact on ONE's operations and management 6 Electricity code To study existing legislation and prepare and enact Completed Draft Code new Electricity Code prepared. Enacting is ____ pending 7 Independent Power Assist the Government and ONE on the Completed Assisted ONE Producers (IPP) arrangements and negotiations of IPPs and Government in Jorf Lasfar IPP  25 Table 8A: Project Cost (US$ million) Ap raisal Esti ate Actual Component Cost Local Foreign Total Local Foreign Total Variation Costs Costs Cost Costs Cost Cost 1. ONE - Distribution 43.38 41.99 85.37 28.94 40.63 69.57 - Thernal Equipment (ICB) 3.83 6.51 10.34 0.95 7.73 8.68 - Thermal Equipment (LIB) 3.04 5.19 8.23 0.91 3.81 4.72 -Hot Line Equipment 0.69 1.09 1.78 0.20 1.14 1.34 - Carrier/Protection. Equip. 1.40 2.15 3.55 0.46 5.45 5.91 - Telecornmunication Equip. 2.10 3.21 5.31 0.04 6.58 6.62 - Technical Assistance 0.01 0.15 0.16 0.00 1.86 1.86 Total Base Cost 54.45 60.29 114.74 31.50 67.20 98.70 -Physical Contingencies 2.72 3.01 5.73 - Price Contingencies 2.87 3.17 6.04 Total Cost (ONE) 60.04 66.47 126.51 31.50 67.20 98.70 -22.0 2. REGIES _ __ X___ - Casablanca (RAD) 7.57 12.67 20.24 8.61 11.33 19.94 - M6knes (RADEEM) 3.78 3.43 7.21 6.35 5.75 12.10 - Kenitra (RAK) 1.41 1.81 3.22 2.27 0.27 2.54 - Fes (RADEEF) 1.16 1.79 2.95 0.06 2.03 2.09 - Tetouan (RAT) 1.73 0.99 2.72 0.00 0.00 0.00 - Technical Assistance 0.07 0.64 0.71 0.00 0.00 0.00 Total Base Cost 15.72 21.33 37.05 17.29 19.38 36.67 - Physical Contingencies 0.79 1.07 1.86 - Price Contingencies 0.83 1.12 1.95 Total Cost - (REGIES) 17.34 23.52 40.86 17.29 19.38 36.67 -5.4 TOTAL PROJECT COST 77.38 89.99 167.37 48.79 86.58 135.37 -19.1 The costs exclude interest during construction Actual technical assistance cost is included in the actual cost for Regies' components Table 8B: Project Financing (US$ million) A praisal Estimate Actual/Latest Estimate Local Foreign Local Foreign Source Costs Costs Total Costs Costs Total IBRD 0.00 90 00 90.00 29.50 47.71 77.21 ONE 68.10 6 30 74.40 38.58 2.00 40.58 RAD n.a. n.a n.a. 8.61 0.00 8.61 RAK n.a. n a n.a. 0.46 0.00 0.46 RADEEF n.a. na. na. 0.06 0.00 0.06 RADEEM n.a. na. n.a. 6.48 1.97 8.45 Total Regies 20.20 2.20 22.4 17.58 TOTAL 88.30 98.50 186.80 83.69 51.68 135.37 The appraisal estimate includes interest during construction  Table 9: Economic Costs and Ben--fits7l INCREMENTAL COSTS (current DH million) INCREMENTAL BENEFITS (current DH million) j Net Y-EARR ONE Rd6gies ONE ONE Rdgies ONE Regies Rehabilitation 4 Net Deflator Benefits esfments F i -- - --IInvestment Invesmnt uel Cost O&M OMRevenues Revenues Benefits Benefits Index_ 1987 DH million (See Note) 92(999 119881 943 7 94A~ 100.0 98.4 42.7 447.7 266.7 54.0 (510O8) 94~O - 49 9 1-,9-89 1,488 5 148 9 219.0 213.2 91.6 -- 911 5 5725 591 (618 1) 95.6 (5948B) 1,990' 2,315 7 231 6 29-70 343 4 139.1 1,455 5 869 5 65.2 (936 6) 100.0 (861 6) 1,991 3,590.4 359 0 596.0 520,9 189.9 1,894.1 1,1871 699 (2,105,1) 106.4 (1,820.2) 1,992 T 3,018 7 301 9 i 1.040.0 949 9 222.6 2,410.5 1,391 5 75.7 (1,655.4) 109.4 (1,392 1) 993 3,7622 705l 1 -8. ,0. 2513 2,878.5 1,570.5 81.2 (6,069.4) 114.3 (4,885.3) --99 5,042.5 504 3 1,6770 1,59891~ 322.7 3,723.0 2,0170 90.8 (3,314.6) 117.0 - (2,606 3) 1,995 3,7620 376.2 1,207.0 2,089 9 35. 4,195~9 2,218 9 96,2 1271 124.6 __ 94A 1,996 4.830.5 483.1 642.0 185939.8 4,895.9 2,498 6 ' 104 6 (712.2)' 131.4 (498,6) 1,997 0,0 0.0 (3930) 4,965.9 399.8 5,418.9 2,498,6 104 6 3,049 4 131.4 - ~ 2,1135~0 1,998 0 0 04 _3_)4959398 5,1. ,9. 0. 309 3. .3 1,999 0.0 0~0 (393.0) - 4,965.9 399.8 5,418,9 2,498.6 i 104.6 3,049.4 131.4 2,135.0 1,999 00 00~~~~~~~~~~-- (3930) 4,9659 9 5,4189 -,98 146 0934215 2,000 0.0 0.0 (393 0) 4,96591 399.8 5,418 9 2,498.6 -104.6 3,049 4 131.4 2,135 0 2,001 0.0 0.0 (393.0)1 4,965.9 I399.8 5,418.9 2,498.6 104.6' 3,049.4 131.4 2,135.0 2,002 0.0 0.0 - (393.0) 4,965.9 399.8 -- 5,418.9 2,498.6 104.6 3,049 4 131.4 2,135.0 2,003 0.0 0.0 -- (393.0) 4,965.9 - 399.8 5,418.9 2,498.6 104.6 3,0494 1-31.4 2,135,0 2,004 - - 0;0.0 (393.0) 4.965.9 399.8 49 2,498.6 - -- -1-0-4.6 --3,0-494A 13-1.4 - 2,13-5.0 2,005 -~0.0 0.0 - (393.0) 4,965.9 398 5,418.9 I 2,498.6 104.6 3,049.4 131.4 2,135.0 2,006 0-00 - 0.0 (393.0) 4,965.9 ___399.8 5,418.9 2,498.6 104.6 3,049.4 131.4 -2,135.0 2,007 0000 (9.) 4,965.9 399.8 5,418.9 2,498.6 104.6 3,049.4 __131.4 2,135.0 2,008 0.6 0. 0.0 (393.0) 4,965.9 __ 399.8 5,418.9 2,498.6 104.6 __3,049.4 -1-31.4 2,135.0 2,009 G0 00 (~393.0) ------4,965.9 _ 399.8 5,418.9 2,498.6 104.6 -----3,049.4 131.4 2,135.0- 2,010 0. 0(393.0) 4,965.9 399.8 5,418.9 2,498.6 104.6 3,049.4 131.4 2,135.0 2,011 _ 00 __ 0.0 ~~~~~~~~ ~~~(393.0) 4,965.9 399.8 5,418.9 24861.6_ 3094 131.42,3. 2,0121 _ 0.000 (393.0) 4,65939. 548. ,4986 ---104.6 3,049.4 _1.42,135.0 2,013 0.0 00 (9.) 4,965.9 ____399.8 5,418.9 2,498.6 104.6 3,049.4 131.4 2,135.0 2,014 ~~~~0.0 - -60.(3304,6.39. 5,19 2486 104.6 3,4. 1142150 2,0153. . __ (393.0) 4,965.9 399.8 5,418.9 2,498.6 146 3,049.4 131.4 2,135.0 2,016 0.0 0. 330 _ 4959 398 5,418.9 _ 2,498.6 104.6 3,049.4 131.4 _ 2,135.0 2,017 0.0 0.0 (393.0) _ 4,965.9 399.8 5,418.9 2,498.6 104.6 3,049.4- 131.4 2,135.0 2,018 __ _ 0.0 0.0 __ ~~~~~~~~~~(393.0) 4,965.9 399.8 5,418.9 2~,498610.6 3 ,04-9.4 131.42,30 2,0 19 0.0 __0.0 _(393.0) 4,965.9 399.8 5,418.9 2,498-.6 1- 0-4.6 ---3,049.4 1.42,135.0 2,020 0.0 0.0 ~~~~~~~~ ~ ~~~~(393.-0) 4,965.9 399.8 5,418.9 2,498.6 104.6 3,049.4 131.4 __ 2,135.0 2,0210. . (39-3.0 - -4,965.9 399.8 5,418.9 2,498.6 ---104.6 3,049.4 131.~4 2,135.0 I___ NOTE: R6gies' investment program is assumed to be equal to _______ 10.0 I% of ONE's investment ______ ERR=l 9.8%  27 Table 10: Status of Legal Covenants LOAN AGREEMENT Status Original Revised Covenant Description Comments SECTION Date Dates 4.01 CP Annually Records and accounts for project ONE submitted. and open special account. Submit Regies submitted audited reports. with delays. Special account not open 4.02 C 11/30/95 Implement Power Sub-Sector Action Plan (see Sched. 7, below) 4.03 (a)(i) NC 09/30/92 Electricity bills due to ONE and Arrears were 9.2 in Regies as of 07/31/88 to be paid in 1991 and decreased five annual installments, starting to 4.7 months in 09/30/88 1996 4.03 (a)(ii) CD 11/30/95 Bills of public agencies to be paid in accordance with guidelines for payment suitable to the Bank 4.03 (a) (iii) CP Annually Public agencies to receive budgetary allocation sufficient to cover their obligations under 4.03(a)(i) and (ii) Schedule 6 CD Subsidiary loan agreement Sched. 7, A. 1 CD Carry out electricity tariffs study =______________ ______ _________ on the basis of LRMC Sched. 7, A.2. CD 03/31/90 Completion of tariff study Sched. 7, A.3. C Exchange views with the Bank Sched. 7, A.4. CD 10/31/90 06/30/96 Implement new tariff structure Sched. 7, B. 1(b) C 11/30/89 Completion of least-cost coordinated investment study Sched 7, B.2.(a) C Maintain technical committee Sched. 7, B.2.(b) C Annually Implement annual plans recommended by technical committee, as agreed with the Bank Sched. 7, C. 1-.2. C 09/30/88 Propose policies and procedures related to oversight of ONE's financial operations Sched. 7, C.3. C 01/01/89 Implementation policies and I procedures as agreed with the Bank Key to Status: C = Complied with CD = Compliance after Delay NC = Not Complied with CP = Complied with Partially  28 Table 10: Status of Legal Covenants (Continued) ONE PROJECT AGREEMENT Status Original Revised Covenant Description Comments SECTION Date Date 2.03 CP Quarterly Project progress reports Submitted with delays 4.01 CP Annually Submit certified audited financial Submitted with statements, and auditor's reports delays 4.02 CP Annually Internal cash generation at least Yes in 1994, 1995 25% in 1988, 1989 and 1990, and and 1996; No in 30% thereafter. 1991, 1992, 1993. 4.03 C 05/01/88 Tariff increase of at least 5 % by 05/01/88 4.04 C Annually Debt service ratio at least 1.5, or ONE to seek Bank agreement before incurring new debt 4.05 CP Fuel bills to be paid within 30 days Unpaid bills often exceeded 30 days 4.06 CP Prompt billing by ONE Schedule A. 1-4 CD 12/31/89 06/30/96 Submit study and implement Implementation 01/01/92 recommendations to improve underway investment planning and operations of distribution system Schedule B.1-2 CD 11/30/88 Submit three-year corporate Underway development plan to Bank, set implementation plan, monitor implementation, progress reports, update plan every three years and submit to Bank Schedule B.3 CD 06/30/90 06/30/96 Develop and submit management information system to the Bank Schedule B.4 C 12/31/90 Implement results of least-cost study Key to Status: C = Complied with CD = Compliance after Delay NC = Not Complied with CP = Complied with Partially  29 Table 10: Status of Legal Covenants (Continued) LOCAL UTILITIES Status Original Revised Covenant Description Comments PROJECT Date Date AGREEMENT 4.01 (b)(i) CP Annually Records, accounts and financial Normally qualified and statements to be audited by with disclaimers CD independent auditors for each year starting 12/31/88 4.01 (b)(ii) CP Annually Submit to Bank certified copies of and financial statements and auditors CD reports 4.02 (a)(i) NC Starting in 1988. produce enough Regies incurred in operating revenues from electric losses power operations to cover operating expenses related to electric power operations. 4.02 (a)(ii) CP Annually Based on actual results for current year prepare projected results for following year showing compliance with 4.02 (a)(i) 4.02 (a)(iii) CP 11/30/95 If projections under 4.02 (a)(ii) are not in compliance with 4.02 (a)(i), take appropriate actions to achieve compliance with 4.02 (a)(i). 4.03 (a)(i) CP Annually Intemal cash generation to cover at least 30% of capital expenditures. 4.03 (a)(ii) CP Annually Based on actual results for current year prepare projected results for following year showing compliance with 4.03 (a)(i) 4.03 (a)(iii) CD 11/30/95 If projections under 4.03 (a)(ii) are Complied with in not in compliance with 4.03 (a)(i). 1990, 1991, 1993 take appropriate measures to achieve compliance with 4.03 (a)(i) 4.04 (a)(i)A CP 09/30/88 Balance due to ONE as of 07/31/88 to be paid off in five equal annual installments, starting 09/30/88 4.04 (a)(i)B NC All ONE bills, except those in A above, to be paid no later than the earlier of (i) the due date and (ii) __60 days after the date of the bill.  30 Table 10: Status of Legal Covenants (Continued) 4.04 (a)(ii) NC Unless in compliance with 4.04 Funds were (a)(i) no funds generated by or transferred to water allocated to electricity department departments shall be transferred to other departments. 4.05 (a)(b) CP 11/30/95 Submit to Bank five year least-cost investment program for Bank review 4.05 (c) NC 11/30/95 Following exchange of views, implement least-cost plan Sched. A.1-3 NC 06/30/88 Propose training program Sched. B. 1(a) CD 10/31/89 Develop, introduce and apply Underway suitable cost accounting Sched. B. 1 (b) CD 04/30/89 Develop, introduce and apply Underway I suitable MIS Sched. B. 1(c) CD 09/30/90 Develop, introduce and apply Underway general accounting system Sched. B.2 CD 09/30/90 Develop and apply method to Underway forecast customer contributions to construction programr Key to Status: C = Complied with CD = Compliance after Delay NC = Not Complied with SOON = Compliance expected in reasonably short time CP = Complied with Partially Table 11: Compliance with Operational Manual Statements All the statements of operation manual have been complied with. Table 12: Bank Resources: Staff Inputs Stage of Planned Revised Actual Project Cycle Weeks US$(000) Weeks US$ Weeks US$(000) Through Appraisal n.a. n.a. n.a. na. 225.2 410.9 Apraisal-Board n.a. n.a. n.a. n.a. 83.8 172.6 Board-Effectiveness n.a. n.a. n.a. n.a. 56.1 132.3 Supervision n.a. n.a. n.a. n.a. 91.1 258.5 Completion 8.0 20.7 8.0 16.5 8.0 17.6 TOTAL 462.2 991.9  31 Table 13: Bank Resources: Missions Stage of Number Days Specialized Ratings Types of project cycle Date of in staff skills - Implcmentatien Developmcnt Problems persons field represented Status Objectives Identification 07/01/85 3 23 E, FA, C n.a. n.a. Preparation 1 01/27/86 3 32 E, FA C n.a. n.a. Preparation 2 04/13/86 5 21 E, FA, Sp, C n.a. n.a. Preparation 3 07/00/86 1 n.a. FA n.a. n.a. Preparation 4 11/24/86 4 24 E, FA, Sp, C n.a. n.a. Appraisal 11/30/87 4 E, FA, Ec, C n.a. n.a. Appraisal to No Board missions approval. Approval to Supervis. effectiveness 1 to 3 Supervision 1 06/19/88 3 18 E, FA, Sp n.a. n.a. Procurement Supervision 2 08/29/88 2 19 Fa, E 1. 1 Procurement Financial I___________ _ ________ _ _______ _____ I nvest . plang. Supervision 3 10/31/88 10 I1 1 Procurement ! ____________ |__ _ |Invest. plang. Supervision 4 05/21/89 1 12 FA 2 1 Financial Supervision 5 10/03/89 3 17 E, FA(2) 3. 2. Financial Impl. delay Supervision 6 01/23/90 3 11 E, FA(2). 2 2 Financial Impl. delay Supervision 7 06/23/90 3 6 E, FA(2). 2 2 Financial I___________ Impl. delay Supervision 8 12/01/90 1 6 E 2 2 Progress reports Supervision 9 03/06/91 3 14 E, FA (2), 2 2 Special Account, Arrears Supervision 02/10/92 2 17 E, FA 2 2 Special 10 Account; Financial; Arrears, Audits by Regies Supervision 09/28/92 2 11 E, FA 3 2 Financial; 11 Tariffs; Arrears Supervision 10/18/93 2 15 E, FA 3 3 Financial; 12 Arrears; Disbursement  32 Table 13: Bank Resources: Missions (continued) Supervision 09/12/94 3 21 E, FA (2) U S Financial; 13 Arrears; Disbursement Supervision 07/12/94 3 21 E. FA, Ec. U S Financial; 14 Disbursement Supervision 09/11/95 1 11 E U S Financial; 15 1 I I I Disbursement Completion 12/03/96 1 10 C I I Kev to specialized staff skills: Kev to ratings: Implementation status E = Engineer as shown in Supervision Form 590: Ec = Economist I = no significant problems; FA = Financial Analyst 2= moderate problems; L = Lawyer 3= major problems, actions being taken; Sp. = Specialist 4= major problems, actions yet to be addressed; C = Consultant Kev to ratings: Development objectives S = Satisfactory as shown in Supervision Form 590: U = Unsatisfactory 1= all objectives substantially achieved; n.a. = not available 2= major objectives achieved, minor objectives remained; 3= major objectives are likely to be achieved; 4= major objectives not achieved;  33 APPENDIX A AIDE MEMOIRE OF THE ICR MISSION  34 ROYAUNlE DU MAROC Projet de Distribution de L'Electricite (Pret 2910-NIOR) Mission de Preparation du Rapport d' Achevement du Projet Aide - Memoire 1. Une mission de la Banque Mondiale, composee de M. Alvaro J. Covarrubias a visite le Maroc du 3 au 13 decembre 1996 afin de demarrer la preparation du Rapport d'Achevement du Projet de Distribution d'Electricite (pret 29 1 0-MOR). La mission remercie les representants des Ministeres de l'Interieur et des Finances ainsi que ceux de l'Office National de l'Electricite (ONE) et des Regies de Casablanca, (RAD), Fes (RADEEF), Meknes (RADEEM) et Kenitra (RAK) pour la collaboration efficace, et pour I'accueil que lui a et reserv& L'aide memoire resume les sujets principaux discutes et les accords conclus lors de cette mission. La liste des personnes rencontrees se trouve en Annexe 3. Rapport de I'Emprunteur 2. La mission a confirme aux representants du Gouvernement, de 1' ONE et des regies RAD, RADEEF, RADEEM et RAK que, dans le cadre des directives et accords des prets de la Banque Mondiale, les agences qui beneficient des emprunts ont la responsabilite de preparer, apres cl6ture du pret, un rapport d'achevement du projet conjointement avec la Banque. Le rapport de 1'emprunteur represente la derniere etape du suivi du projet de distribution de l'e1ectricite. 11 devrait etre prepare et soumis a la Banque dans un delai de six mois apres la cl6ture du pret, c'est a dire, le 31 decembre 1996. La mission a encourage le Gouvernement, l'ONE et les Regies a saisir cette occasion pour faire une evaluation retrospective du projet qui vient de s'achever et presenter un point de vue independant sur la mesure dans laquelle le projet a rempli ses objectifs, ainsi que de s'exprimer librement sur la qualite de 1'action de la Banque. La Banque, de son cote, preparera un rapport d'achevement du projet dans lequel le rapport de 1'emprunteur et ses commentaires sur la partie preparee par la Banque seront annexes sans aucune modification. Le rapport sera transrnis aux membres du Conseil d' Administration de la Banque. 3. Puisque le projet de distribution de 1'electricite a eu des composantes qui sont propres pour chacun des beneficiaires du pret de la Banque, la mission a convenu avec le Gouvernement que l'ONE et les Regies preparent des rapports d'achevement des composantes du projet qui les concernent lesquels seront parties d'un rapport global d'achevement du projet du point de vue de l'emprunteur (le Gouvernement). Ce rapport devrait avoir un resume analytique d'environ 10 pages et, si necessaire, avec des annexes detailles. La Direction des Regies s'est engage a coordonner les Regies, preparer le rapport de 1'emprunteur et de l'envoyer a la Banque le 21 Janvier 1997.  35 4. La mission a suggere aux autorites marocaines que les rapports mentionnes ci-dessus fassent le point sur les realisations physiques, les problemes poses par la passation des marches et le decaissement du pret, les etudes realises (tarifs, coordination de l'expansion a coat minimum, organisation de l'ONE), la formation du personnel technique et administratif, et en general sur I'achevement des objectifs envisages initialement (voir Annexe 1). Par exemple, les rapports discuteraient les raisons pour lesquelles le projet n'aurait pas accompli les buts financiers (tarifs, arrieres, creances) et d'autonomie operationnelle et financi6re de l'ONE et les Regies. Plan d'operation future du projet de distribution de l'electricite 5. La bonne operation future des composantes physiques du projet semble etre assuree par la qualite satisfaisante de l'equipement acquis, la bonne execution du montage, les programmes d'entretien mis en place par l'ONE, la RAD, la RADEEF, la RADEEM et la RAK, et par les stages a 1'exterieur du personnel technique charge de l'operation des nouvelles technologies utilisees dans les systemes de production, transport et distribution d'electricite. 6. Neanmoins, le projet, n'a pas accompli les buts d'assainissement financier et d'autonomie financiere et operationnelle de l'ONE et des Regies. Donc, le Gouvernement, l'ONE et les Regies devront travailler ensemble pour arriver A une solution permanente des problemes financiers qui posent aux Regies d'un c6te les marges prix d'achat/prix de vente aux abonnes, et de l'autre les arriers crees par le long cycle de facturation, particuli&rement celles des administrations. Indicateurs clis de performance du projet. 7. L'ONE et les Regies deja utilisent un ensemble d'indicateurs techniques et de gestion qui permettent d'evaluer leurs performances. Au minimum, les indicateurs cles de performance presentes dans l'Annexe 2 seront utilises par l'ONE et les Regies pour faire le suivi du performance du projet de distribution de l'electricite. Renseignements et donnees complementaires 8. L'ONE, la RAD et la RADEEF ont prepare et delivre a la mission une bonne partie des renseignements supplementaires et donnees statistiques demandes par la Banque, ainsi que des parties des rapports d'achevement des composantes du projet qui les concernent. Les renseignements et les donnees statiques de l'ONE et des regies RAD, RADEEF, RADEEM et RAK qui n'ont pas pu etre delivres a la mission seront envoyes A la Banque Nfondiale par courrier au plus tard le 30 decembre 1996. Annexes (3) Casablanca, le 13 d6cembre 19 Alvaro J. Covarrubias Representant de la Banque Nlondiale  36 ANNEXE I Rapport d'Achevement du Projet de Distribution de I'Electricite (Pret 2910-MOR) Rubrique ONE Regies Gouvernement Rapport d'achevement du projet X X X Evaluation retrospective X X X Operation future du projet X X X Indicateurs de performance technique et gestion X X X Contrat programme ONE! Gouvernement X X Realisations physiques X X Passation des marches et decaissement du pret X X Etudes: expansion, tarifs, organisation X X Cr6ances et arrieres: statistiques 1988-96 X X X Baremes de tarifs: 1988-1996 X X X Formation du personnel technique et administratif X X Assistance technique (consultants) X X Echeancier d'investissement projet: 1988-96 X X Echeancier d'investissement total: 1988-96 X X Finances: statistiques 1988-96 et previsions X X Inflation et valeur du dollar: statistiques 1988-96 X X Prix CIF du fiouil et du charbon X  37 ANNEXE 2 Rapport d'Achevement du Projet de Distribution de I'Electricite (Pret 2910-MOR) Indicateurs Clis de Performanice du Projet Nombre d'abonnes (par categorie) Nombre d'agents (effectifs du service electricite + proportion des effectifs en corrunun) Nombre d'agents par mille abonnes Production annuelle d'electricite (Gwh), Note I Energie annuelle vendue (Gwh) Energie annuelle vendue par agent (Gwh) Cout d'exploitation par kWh genere (oCi achete dans le cas des Regies) (DH/kWh) Cout d'exploitation par kWh genere (hors coats de combustible et arnortissement) Cout d'exploitation par kWh vendue (DH/kWh) Pourcentage de pertes energie (%) Delai de branchement d'un nouvel abonnr, par categorie d'abonne (ours) Arrieres, par categorie d'abonne et total (jours de chiffre d'affaires annuel) Rendement de chiffre d'affaires (%) Ratio d'exploitation (hors amortissements) Ratio d'exploitation (+ amortissements) Taux de rentabilite des actifs (%) Couverture de la dette a long terme, Note 2 Taux d' autofinancement des investissements (%) Note I Pour l'ONE = generation propre plus V'energie achet6e Pour les Regies = achats d'energie Note 2 Generation interne de fonds/service de la dette a long terme Generation brut de fonds (hors amortissement)/dette a long terme  38 ANNEXE 3 Rapport d'Achevement du Projet de Distributioni de I'Electricite (Pret 2910-MOR) Liste des Reprisentants Conitactis par la Mission Nom Agence ou Ministere Ville M. Aboulfath Directeur de Regies, Ministere de l'Int6rieur Rabat M. Berrada Direction des Regies, Minist&re de l'Interieur Rabat M. Eddoumy Direction des Regis, Nlinist&re de l'Interieur Rabat M. Samir Adjoint au Directeur de Tresor, Ministere de Finances Rabat M. Nlestassi (*) Charge de mission, Nlinist&re d'Incitation de l'Economie Rabat M. Benhima Directeur General, ONE Casablanca M. Nakkouch Directeur Financier, ONE Casablanca Mime. Boughaba Chargr6e de la Division Finances et Tresorerie, ONE Casablanca M. Akhanchouf Division Finances et Tresorerie, ONE Casablanca M. Allabi Directeur de la Distribution, ONE Casablanca M. Baakil Ingenieur Chef, Services Techniques, ONE Casablanca M. Benmammas Distribution, ONE Casablanca Mile. Lambrani Directeur de la Planification, ONE Casablanca M. Kettani Chef de la Planification, ONE Casablanca M. Fadili Planification, ONE Casablanca M. Berradi Directeur General, RAD Casablanca M. Afitou Directeur General a.i., RADEEM NJeknes M. Lahbib Chef Division Electricite, RADEEM Nleknes M. Medarhri Chef Division Finances, RADEEM NMeknes M. Rziki Finances. RADEEM Meknes NI. Souihel Directeur General Adjoint, RADEEF Fes M. Bahbah Chef de Finances, RADEEF Fes Mlle. Dassouli Attachee de Direction, RADEEF Fes M. Elhassan Ing6nieur de Distribution, RADEEF Fes M. Chigri Directeur General, RAK Kenitra M. Adulidat Chef, Service Electricite, RAK Kenitra M. Lahmouch Chef, Service Comptable et Financier, RAK Kenitra (*) NM. Jorge Larrieu (Banque mondiale) avait deja contact NI. Mestassi  APPENDIX B BORROWER'S CONTRIBUTION AND COMMENTS TO THE ICR Note: The beneficiaries' (ONE and the four Regies: RAD, RAK, RADEEM, and RADEEF) contribution to this report has been duly incorporated in the text of the draft version of the report during its preparation. The comments attached to this section- only RAD, RADEEF and the Directorate of the Regies (Ministry of Interior) submitted their comments- are the beneficiaries' comments on the final version of the report which was submitted for their comments in French. Some of these comments were incorporated in the final version of the main text, and others were not incorporated because either the Bank's evaluating team (the author and TM) do not agree with these views or they do not provide critical input to the report's outcome. They are included in this section in order to record their views on the project.  40 MINIST'ERE DE L'INTORIEUR Raba:, Ic SECRETIARIAT GENEIAL DIRlECTION DES REGIES & SERVICES CONCEDES /DRSC Observations sur le riapport d 'achdvemneiit du projet d'clectricitW Pret 2910 MOR Proposition.s de iodification coinme suit: P'ii-4 .... Lcs r'gies achietent enivirons 50 pour ceiit de la productioll de ifONE et lours arieres do paienent s'6telndeit de 6 4 10 inmeis au 30 Avril 1997 repr6sentent: 7 moi. pour la RALDlEM, 4 moisp our la R?AD, 2 mois puur la RADEE etI(Ja RAK et un moi.v pour la RAIl). C elte amWelioration esx due esse-nticllenieiii a la. misc en place de i'chcFancicr cl'upurcient cxs arrikr&6 des l]Mgies vis et vis de I'CNA d'un muonlafl dCe 1. 645,8 Mli)H sur une pfriode allant d'octobrc 1992 cL Sepzcmbre 1.995. i)urcant ceice pe'i<de, lexs rc;gics nt honorr$ aussi /ieni echSd77anCvs que la/acturation wensuelle. Pii-5: ..... Les tarifs coiilportalent uni subventien petw la trancJze de cDIsommatlo ) residenitielle allant jusqu'a 500 Kwh par inois Ws seas n ateu ds felment pear. le th&fefiee et les tarifs d4f ei appliqucs en vrac aux r6gies nic cuncordaienit pas aLi tarif lfliffnlie applique au conisommiiiiateur final sur l'cnscinble du territoire. Le barcnuc cl] vigucur depuis 1996 a climine uie paltie de ces problimnes: le tarif inoyeni a ete augmcnit de 6 pouLr cent, lc m8nme tarif sera applique progrcssivenient a toutes les R6gies, et la 6ubveiitieii prcmie're iranchfe est actuellernent 1init6e a uni plafend de N0 /I 00 Kwli par lmois ......... Piv-14: ...... ;uL le front de deveIoppeinelit institutionieJ, jusqu'ei 1u-44 I'Etat aaiglig de pte-J&e4es mesw:eurzz n eoairce p our pracidor LUX yeomenti do ses z de 1'PONE et les :gies.. accord un effbrt considderablc j I'assainissemeni des arricirds Ves Admininstrations et dCS Collectivl/cdS lucales vis a vis de 'ONET ct des rc.sgies. Ln cffe/. pJo ur le/V Admi in is/ratwios pu//iqu Cs, deazx opdrat ions d'apuremnent des arl-ie'rs (0111 C/  4 1 !ze!w'vA'-It k-0 ]<ti' SO agi2.%ci.vssunia'scoi(iecalvile's loaleos frois PltX7dans 7Up'et-C1CIf des urricdrds unt al,} mi.s en place en 1986, 1991 et 1995. Ln uire;: I'LEiaf a inslaurPY, cot, :pler de janvier 1993 un sysl&me de ri'!glelnentpar vignelles cie.v cnLU olnIlainla s d'cau ci el'lestricihI des admninisiraiion.s et des col/ectivitis locckles pour rniddier al ia reconstitution de nouveaux arr,dr&s. C'e4e eist ei+En 1994 ct 1996 la sihuatioui des rIg es s'est ainJlioree .. . Pv-1 7:... Ie remplaceiinent de la factuirationi mefiel4e svemes.trielle en faveur d' systeme de facturatioin tTimestrielle pour ls adinministrations et lesV collectivile s. locals. et le r eechelomicmeiit des ........ Proposition d'inclure ce qui suit: Piii-lIO: * La mise en pl/ce azi .cin (des regies a purtir de janvier 1994 de l/a .onfllf iLsion des marchds en vue de sinplifier la proceidure de passaiion des x archds. * I'our Jacili/er la prucddure en mnathilre de r&glement de.es./burnisseurs, I'cautorisatlion de .'v//ice des changes pour les paienients en devise a eie supprinice. * La proc,Gdure de jugcmenm reconz,nanidde par la ban que (IZors t(axe t hors droil d& douane) est d@e.fvorable aux rigies. Ein c@jLI, la/burniture du cdhle 20 Kv iz la IA9J, /ancLde par A 1 esxi revenue ca 92% plus cher (lue Ic prix du cdhle tlocal. * Lu'adoption de lafi/rnul/ du crldif documiientaire dats les cu/hiers (le cba-ges typev n a pas peritmis ci la RADILTEF de r6cuperur les 1'0% de la retenue de garaunie en 12 mois. Piii-1 1: * L'ins.ination d'un plan cher de d6caissemnent de 60. 000 $ US )a raineL des retards de rZ-g/ement des fiurnis.eurs pur /a ban que qui sVs:.t iraduit par un pr4finance)iieni par la rdgie en attecnfdnt ILe renibourseme d a hdelanque. Pour lc cas de la RAK, 51% dU iuntant eJu pr'L2 a d/d prJ-Jinancd par la rdgic. Le bIlocage du pr0ci par la I,wnque pour des raisons d'arr-eirds de la RAD1I Ek vi.v a vi. do I UNAJN' n 'a tas did jusuJfid et a cauxs de grave.s pr4ludices t~ la la?gie  IG-*5-S7 09:2S R A 0 E E F42 *.<--X r' E S5- FRET 2.910 NOR. PROJET DE DISTRIBUTION D'ELECTRICITE RAPPORT D'ACHEVEMENT COMMENTI2ARES DE LA RADEEF. 1) FRESENTATION-DE LA COMPOSANTE RADEEF. La Dartle du pret deast