Morocco - Power Distribution Project

Document of The World Bank FOR OFFICIAL USE ONLY 4 Ao A4/ q0 / Report No. 6916-MOR STAFF APPRAISAL REPORT MOROCCO POWER DISTRIBUTION PROJECT January 20, 1988 Industry & Energy Division Country Department II Europe, Middle East and North Africa Regional Office This doumment has a retrited disibudon ad may be used by redpgent only In the perfonmance of their offcha dutes Its contents may not othewise be didosed without World Bank autodizion.  CURRENCY EQUIVALENTS Currency Unit = Moroccan Dirham (DH) US$1.00 = DH 8.0 (December 1987) DH 1.00 = US$0.125 WEIGHTS, MEASURES AND ENERGY CONVERSION FACTORS 1 kilogram (kg) = 2.206 pounds (lb) 1 ton (metric) = 1,000 kg = 2,206 lb = 1.102 short ton = 0.984 long ton 1 meter (m) = 3.281 feet (ft) 1 kilometer (km) = 1,000 m = 3,281 ft = 0.6214 miles 1 cubic meter = 35.3147 cubic feet 1 barrel = 42 US gallons = 159.0 liters 1 kilocalorie (kcal) = 3.968 British thermal units (Btu) = 4.187 joules 1 kilowatt hour (kWh) = 1,000 watt hours 1 Megawatt (MW) = 1,000 kilowatts 1 Gigawatt-hour (GWh) = 1 million kilowatt hours 1 kilovolt-ampere (kVA) = 1,000 VA 1 megavolt-ampere (MVA) = 1,000 kVA 1 ton of oil equivalent (toe) = 10.2 million kilocalories at lower heat value = 1.00 ton of crude oil = 0.95 ton of butane - 0.93 ton of propane - 0.97 ton of gasoline or naphtha = 0.99 ton of kerosene - 0.98 ton of jet fuel - 1.00 ton of gas oil - 1.06 ton of fuel oil = 1,316 cubic meters of natural gas = 1.78 tons of domestic coal = 1.66 tons of imported steam coal - 11,860 kWh of electricity - 4,160 kWh of hydroelectricity generation on a thermal replacement basis = 4.00 cubic meters of fuelwood FISCAL YEAR January 1 - December 31  - j - wFOX OMCIAL USE ONLY PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CIRFP - Centre Inter-Regies de Formation Professsionelle DEPP - Direction des Entreprises Publiques et de Participation DRSC - Direction des Regies et Services Conc#4ds FEC - Fonds d'Equipement Communal HF - High Frequency RV - High Voltage ICB - International Competitive Bidding LCB - Local Competitive Bidding LIB - Limited International Bidding LV - Low Voltage MARA - Ministere de l'Agriculture et de la Reforme Agraire ME - Ministere de l'Equipement, de la Formation Professionelle et de Formation des Cadres MEM - Ministere de l'Energie et des Mines MIL - Ministere de l'Interieur et de l'Information MIS - Management Information System MV - Medium Voltage NREP - National Rural Electrification Program ONAREP - Office National de Recherches et d'Exploitation Petroliere ONE - Office National de l'Electricite PERL - Public Enterprise Rationalization Loan PCBs - Polychlorinated Biphenyls RAD - R6gie Autonome Intercommunale de Distribution d'Eau et d'Electricit6 de Casablanca RADEEF - R6gie Autonome de Distribution d'Eau et d'Electricite de Fig RADEEM - R6gie Autonome de Distribution d'Eau et d'Electricite de Mekn6s RAK - R6gie Autonome Intercommunale de Distribution d'Eau et d'Electricit6 de Kenitra RDE - R6gie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Tetouan SAMIR - Societe Anonyme Marocaine de l'Industrie du Raffinage SCP - Societe Ch6rifienne de P6troles SIRTI - Societe Inter-R6gie de Traitement Informatique SNPP - Societe Nationale des Produits Petroliers USAID - United States Agency for International Development This document has a restricted distribution and may be used by recipients only In the performance of their oflicial dutiosf Its contents may not otherwise be discl without World Dank authoiation.  - {i - KINGDOM OF MOROCCO POWER DISTRIBUTION PROJECT LOAN AND PROJECT SUMtMARY Borrower: Kingdom of Morocco Beneficiaries: The Office National de l'Electricite (ONE) and the electricity distribution utilities (Regies) of Casablanca, Meknes, Kenitra, Fes and Tetouan. Loan Amount: US$90 million equivalent. Terms: Twenty years, including five years of grace, at the standard variable interest rate. $66.5 million and $23.5 million would be onlent to ONE and the Regies, respectively, on the same terms. ONE and the R6gies would assume the foreign exchange and the variable interest risk. Prolect The project is an integral part of the investment programs of Description: ONE and the five participating R6gies and will be implemented during 1988-1994. Emphasis is placed on financial reforms, strengthened planning procedures, and improved coordination among power subsector entities. The project aims at rehabi- litation, upgrading and expansion of the electricity distri- bution systems of the beneficiaries and rehabilitation of thermal power stations operated by ONE. It comprises: (a) construction, rehabilitation and extension of substations, distribution stations and switching stations; (b) extension and rehabilitation of distribution networks; (c) construction of operation centers; (d) imported spare parts and replacement items for thermal plants; (e) materials, equipment, utility vehicles and training for hot line works; (f) teleprotection and telecommunication equipment; (g) computer hardware and software, training materials, training and fellowships; and (h) distribution planning analyses. Benefits: In addition to improved institutional performance, benefits are and Risks expected from: (i) expanded electricity sales, (ii) reduced distribution losses, and (iii) longer lifetimes and lower operating costs of rehabilitated facilities. No special technical risks are foreseen, and no major implementation problems are expected. The main risk concerns whether the Government will be able to implement the policy actions required to strengthen the beneficiaries' financial performance and ensure the elimination of financial arrears. The Government is making every effort to implement the commitments made under the Public Enterprise Rationalization Loan (2820-MOR), with which the project is coordinated, and is expected to do the same under the proposed Project, which will be monitored closely.  - iii - MOROCCO POWER DISTRIBUTION PROJECT PROJECT COST ESTIMATES 'LIC !/C S'dN WLC VIC Su F/C as I CoST iIlS J1 lillio0 9 shllioto of 7OThL 1. 0o1 .................... 4.8 4.1 $.1 4. Distribution 347.05 335.93 682.93 43.33 41.99 I5.37 49.2 thertal Equipmentt ICB 30.15 52.10 12716 3.t3 6.51 10.34 63.0 Thermal lEuipment, Others 214.34 41.53 65.81 3.04 S.19 6.13 63.0 lot Line Equipment 5.50 1.16 14.26 0.69 1.09 1.18 61.4 Carrier Curreat,Teleprot,Equip. 11.20 17.17 2N.37 1.40 2.15 3.5S 10.5 Teleconuunicatios lquipment 16.80 25.66 42.41 2.10 3.21 5.31 60.4 leteeical Au lstJDte 0.12 1.16 1.2I 0.01 0.IS 0.16 . 0.9 T otal 4u3e Cost 53.66 482.31 917.97 54.46 60.29 114.75 52.5 Coysieal Cotitges: y 21.76 24.12 45.90 2.72 3.01 5.74 52.5 PBica Contingency 109.34 121.04 230.38 2.81 3.11 6.04 52.5 Total Contingencies . 131.12 145.16 276.26 5.59 6.19 11.78 52.5 6mb-Total 566.70 627.47 1194.25 60.05 66.43 126.52 52.5 .. grB ........ ......................... Casablanca 60.56 101.36 161.92 7.57 12.61 20.24 62.6 Masst 130.21 27.4U 57.69 3.78 3.43 1.21 47.5 teletts 11.28 14.49 25.7? 1.41 1.81 3.22 56.2 int 9.25 14.31 23.55 1.16 1.19 2.94 60.8 tetanan 13.81 7.93 21.t5 1.73 0.99 2.12 36.S Technical Assistance 0.51 5.15 5.12 0.07 0.64 0.72 90.0 Sotal Base Coat 125.14 110.67 296.40 15.72 21.33 37:05 57.6 Co&tingecies: Physicl Contingtt ey 6.29 8.53 14.62 0.79 1.07 1.85 5l.6 Price ContingencY 31.55 42.83 14.39 0.63 1.12 1.95 57.6 Total Contingencies 31.64 51.36 61.21 1.61 2.1 3.80 51.6 Sub-Total 163.56 222.03 385.61 11.33 23.52 40.85 57.6 total Baseline Cost 561.40 652.98 1214.38 13.1711.62 151.60 53.8 total tPisical Continlency 28.07 32.65 60.12 3.51 4.06 7.59 53.8 Total price Continlency 140.39 163.17 304.16 3.69 4.30 t.99 5.6 TOTAL P10.1OJ COST 730.36 849.50 1579.86 77.38 90.00 167.38 53.8 Interest During Construction -Bank finaced 0.00 0.00 0.00 0.00 0.0 0.60 -Other 112.98 82.35 '195.34 1.93 1.53 19.6 43. tOtAL ItIIICIIC tIIOItID 843.34 931.86 1775.20 66.31 93.53 166.84 $2.7 lots: The euch e rate is aused to be adjusted each year fro tUe Dec.19817 ltevl Of 1SJ1: .-1 is proportion to the difference btmeen tse projected local aId WoW infltion raite  - iv - MOROCCO POWER DISTRIBUTION PROJECT FINANCING PLAN - SJMMARY (In US$ Million) Local Foreign Total ONE 68.1 6.3 74.4 RUgies 20.2 2.2 22.4 IBRD - 90.0 90.0 TOTAL 88.3 98.5 186.8  v &POROCCO POWER DISTRIBUTION PROJECT DISBU Category Amount 2 (US$ million) Goods 67.41 1002 of foreign and local ex-factory cost expenditures and 78% of local expenditurea for other items procured locally Works 21.72 60% of expenditures Technical Assistance and Training 0.87 100X of expenditures TOTAL 0o. 01 EstmatdEBRD Disbursements IERD Fiscal Year (US$ million) FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Annual 1.8 15.3 18.9 18.9 15.3 10.8 5.4 3.6 Cumulative 1.8 17.1 36.0 54.9 70.2 81.0 86.4 90.0 1/ Includes retroactive financing of $3 million for spare parts for ONE.  - vi - MOROCCO POWER DISTREBUTION PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No L SECTrOR BACKGROUJND ......... ..............* a............. 1 A. THE ENERGY SECTNOR .................................. 1 Energy ResourceL ... ............... ................... 1 Energy Sector Organization .................................. . 1 Past Energy Consumption and Supply .............. 2 Future Energy Consumption and Supply ............................. 3 Government Enetgy Policy .................................. 4 Energy Pricing .................................. 5 B. THE POWERSUBSECTOR .......6 .......... **.6 Rural Electrification 6 C. POVER SUBSECTOR MIMUES .......**..*......................... 7 Electricity Tariff ................... ............................ 7 Coordination Among Agencies ...........*.. ....................... 8 Financial Difficulties 9................................. ........ 9 Managerial Autonomy ............ ...* ** ... ..................... 9 The R63ies' Management Systems ..9............................... . 9 Cost Allocation for Multipurpose Water Projects ................. 9 D. PAST BANK LENDING TO THE ENERGY SECTOR .................. 9 E. BANK ASSESTANCE STRATEGY FOR THE POWER SUBSECTOR ........ 10 Objectives for the Power Subsector .........10 PERL 11 National Water Supply Rehabilitation Project .................... 11 The Project .............. 11 This report was prepared by Messrs./Ms. R. Hamilton, A. Leoni, H. Verdelho, C. Christofides, S. Kebet-Koulibaly, and W. Kiapper (consultant) on the basis of an appraisal mission in June/July 1987.  - vii - Table of Contents (cont'd) Pate No. ML BORROWER AN)D BENEFICIAREES ..................... 12 A. ONE ..................................................... 12 Organization and Management ...................................... 12 Planning .......... ............................................... 13 Personnel .....................*......................*.**........... 13 Training ........................... .............................. 13 Existing FacilitiesLosses ........... ..................*.*,****.*.. * * * * * 13 System Losses .............................................. 14 Number of Consumers .......... ........................ 14 B. llIE REGs ES ..........adT........................................... 14 Organization and Management ................................ 14 Planning ..........C.............................................. 14 Personnel anL Training ................. ............................ 15 Sales and Consumers ............................... 15 Electricity Losses ............................. 15 UL SUJBSEC MOR IIIVES?TMEPIT PROGRAM . ..................... 16 Introduction .................. 16 Electricity Demand Forecast .................................. 16 ONE's Investment Program ......... ......................... 16 The Regies' Demand Forecast ................................... 17 The Regies' TnveeAment Programs .................................. 17 Coordinated Investment Program - Actions under the Project ....... 18 IV* THlE PROJECT .............................. 19 Project Genesis ..................................004-a 19 Objectives and Scope ........................................ .... 19 Project Description .................................. 19 Project Cost Estimates ..................................... 20 Status of Project Preparation .................................. 22 Project Implementation and Management ............................ 22 Land Acquisition ...... ........ ......... .......... 22 Training and Other Technical Assistance .......................... 22 Monitoring and Evaluation .................................. 23 Loan Amount and Financing Plan .................................. 23 Procurement .................. 24 Disbursements .................................. 25 Environmental Impact .............. .................... 25 27 V. FINAINCIAL ASPECTS .. ................... 28 A ONE .................................. 28 Past Financial Performance .......... .. ..................... 28 1986 Financial Situation .................................... .... 29 Public Sector Arrears ........... ....................... 29  - viii - Table of Contents (cont'd) Pasge No. Future Financial Performance ....... ... ............ .......... 30 Tariffs .............................. 31 Government Contributions ...... ........................ ........ 31 Investment Financing .................... . 32 Net Internal Cash Generation ................................... 32 Debt Limitation ........ 32 Accounting .e.................................34 External Auditing . a a .......... 34 Insurance ....aa.. ***... aa...a.. aa... aaa. * . 34 B. THE REGDES .. *...................... 34 Past Financial Performance ......*...*............*..*........ 34 Accounts Receivables .......................................... 35 Investment Financing ..... ...................................... 36 Future Financial Performance ...................... .............. 36 Accounting ........ aaa....a..... aa.. aa.. a.*a.. a*a..a.aa.a..aa.aa.aa..a.a*.*. 38 Auditing ............ ........................................... 39 Personnel and Training ..... a a a a a a a a a a a .............a ...... 39 Management Information System a a a a a a a a a a a a a a a a a a a a a a a . 40 Insurance ...,.................A... , aaa. a aaaaaaae aaaaa aa a a a . aaa 40 VL PROJECTY JUSTIFICATION ...................... a 41 Relationship to Policy Objectives aaaa..... 41 Least Cost Justification ..a...a.aa..a.. aa.. a a. a a a a. ....... . 41 Economic Rate of Return ........ ........ a ................... 41 VIL AGREEMEN TO BE REACHED AND RECOMMENDATIONS ....aaa...... 43 ANNEXES 1. Policy Reform Matrix 2. Morocco: Energy Balance, 1985 3.1 ONE: Organization Chart 3.2 Electricity Sales, Losses and Generation 3.3 ONE and the i'gies: Breakdown of Sales by Economic Sector 3.4 ONE: Gross Generation and Efficiency of Generating Plants on Interconnected System 3.5 Maximum Demand and Installed Capacity of Generating Plants 3.6 ONE: Number of Consumers 3.7 ONE: Number of Personnel 3.8 ONE: Networks Inventory 3.9 Statistical Data and Forecast of Regies  - ix - Taole of Contents (cont'd) 4.1 Bulk Supply Tariffs 4.2 High and Medium Voltage Tariffs (ONE and R6gies) 4.3 Low Voltage Tariffs for Regies 5. Estimates of the Long-Run Marginal Cost of Electricity 6.1 ONE and the Regies: Forecast of Sales by Economic Sector 6.2 ONE and Five R6gies: Forecast Number of Consumers 6.3 ONE: Projected Capacity Balance 6.4 ONE: Projected Energy Balance 7. ONE: Investment Program (1987-1995) 8.1 R6gie of Casablanca: Investment Program (1987-1994) 8.2 R6gie of Meknes: Investment Program (1987-1994) 8.3 Regie of Kenitra: Investment Program (1987-1994) 8.4 R6gie of Fes: Investment Program (1987-1994) 8.5 Regie of Tetouan: Investment Program (1987-1994) 9. ONE and the Regies: Projected Investment Expenditures by Year 10.1 ONE: Project Cost Estimates 10.2 ONE: Distribution Project Cost Estimates 11.1 Regie of Casablanca: Project Cost Estimates 11.2 Regie of Meknes: Project Cost Estimates 11.3 R6gie of Kenitra: Project Cost Estimates 11.4 Regie of Fes: Project Cost Estimates 11.5 Regie of Tetouan: Project Cost Estimates 12.1 List of Distribution Equip. & Materials Included in the Project 12.2 Contract Packages with IBRD Financing 13.1 Project Implementation Schedule 13.2 Estimated Disbursement Schedule 13.3 Project Monitoring Guidelines 14.1 ONE: Income Statements 1983-1990 14.2 ONE: Sources and Applications of Funds 1983-1990 14.3 ONE: Balance Sheets 1982-1990 14.4 ONE: Notes and Assumptions on the Financial Statements 15.1 R6gies: Basic Financial Indicators 15.2 R4gies: Key Financial Parameters 15.3 R6gie of Casablanca: Income Statements 1983-1994 15.4 Regie of Casablanca: Sources & Applications of Funds 1983-1994 15.5 Regie of Casablanca: Balance Sheets 1983-1994 15.6 R6gie of Casablanca: Notes and Assumptions on the Financial Statements 15.7 Regie of Meknes: Income Statements 1984 - 1994 15.8 R6gie of Meknes: Sources & Applications of Funds 1984-1994 15.9 Regie of Meknes: Balance Sheets 1984-1994 15.10 R6gie of Kenitra: Income Statements 1984-1994 15.11 R6gie of Kenitra: Sources & Applications of Funds 1984-1994 15.12 Regie of Kenitra: Balance Sheets 1984-1994 15.13 R6gie of Fes: Income Statements 1984-1994 15.14 R6gie of Fes: Sources & Applications of Funds 1984-1994 15.15 R6gie of Fes: Balance Sheets 1984 - 1994 15.16 Regie of Tetouan: Income Statements 1984 - 1994 15.17 Regie of Tetouan: Sources & Applications of Funds 1984-1994 15.18 Regie of Tetouan: Balance Sheets 1984 - 1994 16. Rate of Return Analysis 17. Selected Documents in Project Files MAP Morocco: Power Distribution Project, Project Area  MOROCCO POWER DN PROJECT L SECTOR BACKGROUND A. THE ENERGY SECTOR 1.01 Energy Resources. Morocco has a wide variety of energy resources including: oil, natural gas, oil shale, coal, hydro, uranium, biomass, wind and solar energy. However, the currently known reserves are either small or have high per unit costs of production, with the result that there has been only limited domestic commercial energy development. In 1985 imports (oil 95S, coal 52) supplied 88.41 of the country's commer<ial energy demand and contributed to a stock increase of 5.3X of demand. Oil exploration has found only small reserves, and production is less than 20,000 tons per year. Limited reserves of natural gas have been discovered and production is almost negligible. Morocco's oil shale reserves are estimated to be over 100 billion tons, containing more than 6 billion tons of oil. However, the prospects for early development have been dampened by declining international oil prices as well as the discontinuation of significant development of oil shale technology in other countries. Morocco has proven coal reserves of about 12 million tons and probable and possible reserves of 50-60 million tons in the Jerada coal basin, 60 km south of Oujda. In 1985, production was 775,000 tons of which 578.000 tons were fed to a 165 MW mine-mouth power station operated by the Office National de l'Electricit6 (ONE). The country's hydropower potential is estimated at 4,600 GWh per year (1.1 million toe) under average hydrological conditions. Of this potential, 1,800 GWh has already been tapped and new hydro projects with an annual prodisction of 300 GWh are under construction. Natural forests in Morocco, covering about 5.3 million hectares, are an important source of energy for a large proportion of the population. Fuelwood consumption, estimated at about 3.4 million toe in 1984, is sufficiently high to cause deforestation at a rate of about 20,000 hectares per year. Seven to 10 million tons (60-80 billion toe) of uranium are contained in Morocco's 50 billion tons of phosphate reserves. Extraction, however, is far from economic with present technology and prices. Solar and wind resources are abundant, but neither is likely to contribute significantly to the country's energy supplies. 1.02 Energy Sector Orsanization. The Ministry of Energy and Mines (MEM) is responsible for the overall planning and development of the energy sector. It has tutelage over a number of energy-related public enterprises including: (i) the "Office National de Recherches et d'Exploitation P6troliere" (ONAREP); (ii) the "Societe Anonyme Marocaine de l'Industrie du Raffinage" (SAMIR); (iii) the "Societ't Cherifienne des P6troles" (SCP), which is 75% owned by ONAREP and the Treasury, with the rest being held by large French oil  companies and some private shareholders; (iv) the "Societ6 Nationale des Produits P6troliers" (SNPP), which is the holding company for the 502 of the shares the Government has in the major petroleum distribution companies, the other 502 of which are held by major international oil companies; (v) the "Charbonnages du Maroc", operator of the Jerada coal mine; and (vi) ONE. The Ministry of the Interior and Information (MII) has a role in the energy sector by virtue of having tutelage over 10 publicly-owned utilities (RUgies) entrusted with the distribution of electricity in the main urban areas. These Regies are also responsible for water distribution, and the Regie of Casablanca has recently been entrusted with sewage disposal as well. Other ministries with involvement in the sector include the Ministry of Equipment (ME) which constructs dams for hydrogeneration, and the Ministry of Agriculture and Agrarian Reform (MARA) through its responsibility for forest protection and management. 1.03 Past Energy Consumption and Supply. Commercial energy consumption grew at an average of 7.41 per year from 1965 to 1980,1' but the growth rate declined between 1980 and 1986 to an average of 2.0% per year (Table 1.1). This decline exceeded the reduction in economic growth. The GDP elasticity of energy demand averaged 1.47 over the period 1965 to 1980, but was only 0.61 from 1980 to 1986. Tt- reduction is due partly to energy conservation measures implemented by the Government (para. 1.07). 1.04 Most cf Morocco's commercial energy consumption consists of oil products, nearly all of which are imported. Oil consumption grew from 601 of commercial energy consumption in 1965 to 792 in 1986. The growth in the share of oil was due mainly to the fall in the share of hydroelectricity from 201 in 1965 to 31 in 1986. Consumption of coal, mostly by ONE's Jerada coal power station prior to 1980, grew at about the same rate as total commercial energy consumption until 1980, but coal's share doubled from 8% to 16% between 1980 and 1986 as a result of increased coal imports mainly for use in industry. Natural gas consumption has been practically negligible. Domestic coamercial energy production, mostly coal and hydroelectricity, declined by 221 between 1980 and 1984 before recovering by 13% in the following two years. The decline was due to a drought between 1981 and 1985 which severely reduced hydroelectricity generation. In 1985, domestic energy supplies accounted for only 11.61 of total primary commercial energy demand (Annex 2). 1.05 Morocco's per capita consumption of commercial energy of 237 kg of oil equivalent in 1985 was the fourth lowest among EMENA countries. Traditional energy in the form of fuelwood consumption continues tc play a large role in Morocco. The energy balance in Annex 2 shows that traditional energy accounted for 391 of total energy consumption in 1985. The energy balance also highlights the importance of energy used for electricity generation which absorbed 291 of total primary commercial energy, including 24% of oil products and 631 of coal, as well as all the hydroelectricity. 1/ Source for data prior to 1980: Joint UNDP/World Bank Energy Sector Assessment Program, "Morocco: Issues and Options in the Energy Sector" (Report No. 4157-MOR) March 1984, p.4.  -3- Table 1.1 Historical Commercial Energy Consumption and Domestic Supply (thousand toe) 1980 1981 1982 1983 1984 1985 1986 Consumption Hydro 363 246 138 116 88 117 154 Petroleum Products/a 3807 3833 4012 4038 4193 4215 4108 Coal 371 444 436 545 496 638 853 Natural Gas 52 65 60 63 63 66 67 Total 4593 4588 4646 4762 4840 5036 5182 Growth Rate (X) - 1.3 2.5 4.2 4.0 2.9 Domestic Supply Hydro 363 246 138 116 88 117 154 Oil 12 17 15 17 16 20 23 Coal 354 417 397 375 365 368 361 Natural Gas 52 65 60 63 63 66 67 Total 781 745 610 571 532 571 605 Growth Rate (2) -4.7 -18.2 -6.4 -6.9 7.3 6.0 a/ Excludes use and losses in refining aind non-energy uses (112 of petroleum consumption in 1985) Source: Ministry of Energy and Mines 1.06 Future Energy Consumption and SupplY. Commercial energy consumption is forecast by the Ministry of Energy and Mines to grow by 4.4% per year between 1986 and 1992 (Table 1.2), slightly faster than projected GDP growth of 4% per year during the next Five-Year Plan (years 1988 through 1992). This forecast, which was prepared by summing the projected demands for individual end-use sectcrs, implies an energy/GDP elasticity greater than 1.0, in contrast to the average value of 0.6 experienced between 1980 and 1986 (para. 1.03). A rationale for the increased elasticity is that the early 1980's were a period of transition during which the economy made a structural adjustment to a new energy situation spurred by rapid increases in domestic energy prices. In the next few years, the domestic prices are not expected to increase in the same way as long as international prices remain below them. Consequently, with more intensive energy conservation measures not being as attractive at the margin, energy demand is likely to grow more rapidly relative to GDP. If demand grows more slowly than forecast, the main consequence would be lower imports of oil. There would not be much impact on energy investments.  - 4 - Table 1.2 Forecast Commercial Energy Consumption (thousand toe) 1987 1988 1989 1990 1991 1992 Consumption Hydro 192 313 445 471 471 504 Petroleum Products/a 3938 4022 4208 4393 4678 4873 Coal 1075 1178 1184 1229 1239 1239 Natural Gas 76 76 76 76 76 76 Total 5281 5589 5913 6169 6464 6692 Growth Rate (%) 1.9 5.8 5.8 4.3 4.8 3.5 Domestic Supply Nydro 192 313 445 471 471 504 Oil 25 25 25 25 25 25 Coal 412 437 ..7 482 482 482 Natural Gas 76 76 76 76 76 76 Total 705 851 983 1054 1054 1087 Growth Rate (2) 16.5 20.7 15.5 7.2 - 3.1 a/ Excludes use and losses in refining and non-energy uses Source: Ministry of Energy and Mines 1.07 Government Energy Policy. The Government's long-term objective is to reduce oil imports while attempting to meet energy needs in a cost-effective way. With respect to energy demand, the Government's objectives include: (a) promotion of energy conservation through price measures (paras. 1.09 to 1.12) and non-price measures; and (b) encouragement of economically-profitable interfuel substitution. Non-price measures already carried out include energy audits of large industries, a publicity camnaign and shortening the work week to five days. For interfuel sulostitution, ONE's power station at Mohammedia (2xl5O MW) and cement plants were converted to permit the use of coal.  1.08 On the supply side, the Governmont has sought to increase production of domestic energy resources directly through public enterprises and in recent years by encouraging private initiatives through the use of more attractive new petroleum exploration agreements. Efforts are continuing to develop a wide range of energy resources by constructing additional multipurpose hydro projects, expanding coal production, intensifying exploration for oil and gas, investigating the potential of wind, solar, nuclear energy and oil shale, and examining a possible power interconnection with Spain. To strengthen its centralized energy investment planning capabilities, MEM has set up a micro-computer-based planning unit with USAID financing. 1.09 Eneray Pricing. Morocco's domestic prices for petroleum products exceed international prices as shown in the following comparison for the fir.t three-quarters of 1987: Table 1.3 retroleum Prices (DH/metric ton) Domestic Economic Price as X of Retail Prices /a Cost /b Economic Cost Super Gasoline 8,337 2,328 358 Regular Gasoline 8,212 2,096 392 Kerosene 3,996 1,808 221 Gas Oil 4,223 1,693 240 LPG 2,958 3,158 94 Heavy Fuel Oil 1,875 1,154 162 ai Source: Government of Morocco. b/ Source: World Bank. CIF prices in Morocco were supplemented by local distribution margins fixed by the Government. The Government has decided to maintain domestic oil prices at their present nominal level for an indeterminate period and to use the additional revenues to reduce its budget deficit. 1.10 Oil product prices are set by the Government at both the ex-refinery and consumer levels. As shown above, the current structure of retail and ex-refinery prices is distorted with respect to the international structure of prices. As a result, domestic prices do not provide correct economic signals to guide decisions concerning trade of crude oil and products and refinery mix. Under the Public Enterprise Rationalization Loan (PERL) (Loan 2820-MOR), a study is being undertaken to estimate the economic and financial costs resulting from these distortions with the objectives of bringing ex-refinery prices in line with relative cif prices and inducing each refinery to optimize its operations and its purchases of crude oil or products.  1.11 Since fuel oil constitutes the largest operatiug cost element for ONE, the high domestic oil prices have resulted in domestic electricity prices exceeding the marginal cost level. In 1987, ONE's average revenue was 1552 of the weighted average long run marginal cost (Annex 5). 1.12 Consumers of imported coal such as ONE pay the international pri-4 plus a 191 value added tax and other small taxes. The September 1986 price for coal delivered via Casablanca to ONE's power station at Mohammedia was DH 463 (US$52) per ton excluding taxes and DH 600 (US$68) jar ton with taxes. The domestic coal price at Jerada was fixed at DH 621 per ton in December 1986. B. THE POWER SUBSECTOR 1.13 The power subsector is comprised of: (a) ONE, responsible for nearly all public power generation (about 881 of Morocco's total generation) and transmission, and distribution to all high voltage customers and to medium and low voltage customers in some cities and rural areas; (b) ten communal distribution entities (Regies) each responsible for distribution at medium and low voltage in a city plus, in most cases, some surrounding communities; (c) 18 small isolated systems operated by MII; and (d) captive plants operated by industries which occasionally sell to or buy from ONE electrical energy, of which the largest captive plants belong to Maroc Phosphore (284 GWh in 1986), Maroc Chimie (71 GWh in 1986) and SAMIR (43 GWh in 1986). The entities' shares of the power market in 1986 are given in Annexes 3.2 and 3.3 and summarized below: Table 1.4 Final Electricity Supply by Entity (1986) a/ tGWh) ( ONE (interconnected system) b/ 2783 42 ONE (isolated systems) 28 - R6gies 2877 44 Ministry of Interior and Information 19 - Autoproducers' own use 858 13 Total Sales 6565 100 a/ Excludes losses in transmission and distribution. b/ ONE also supplies electricity to the R6gies and purchases electricity from autoproducers. 1.14 On a national level, total generation increased by 8.12 per year from 3,599 GWb in 1976 (of which hydro 998 GWh or 282 of the total) to 7,852 GWh in 1986 (of which hydro 643 GWh or 81 of the total). Data on the growth of the subsector are given in Annex 3.2. 1.15 Rural Electrification. The first phase of the National Rural Electrification Program (NREP) was completed in 1986, with Bank assistance (Loan 1695-MOR). Electricity was brought to 287 villages in which about 60,000 new customers would eventually be connected. Management of the NREP is  - 7 - the responsibility of MII, and of ONE's distribution department, under the auspices of the Interministerial Committee for Rural Electrification chaired by the Minister of Energy and Mines. ONE also supplies electricity to rural areas which were electrified before the NREP was established. In order to finance the maintenance and expansion of these networks, ONE can allocate from its operating surplus to a "Special Fund" an amount equal to 4 1/22 of gross revenues. C. POWER SUBSECTOR MSSUES 1.16 The power subsector in Morocco is well run technically, and demand is met with a high quality of supply. There are, however, some issues facing the power subsector including: (a) an inappropriate structure of electricity tariffs; (b) inadequate coordination among the agencies operating in the subsector; (c) financial difficulties of ONE and some R6gies; (d) excessive restrictions on the managerial autonomy of ONE and the R6gies; (e) a need to strengthen the Regies' management systems; and (f) the failure to charge users the costs of the relevant portion of civil works for hydro projects. 1.17 Electricity Tariff. Morocco's electricity tariff structure has been gradually simplified and improved over the past decade (Annex 4). Regional variations in retail rates have been reduced, and a progressive structure has been introduced for residential customers. 1.18 An important additional source of funds for ONE and the Regies are revenues obtained from connection charges for new customers. These cover, in the case of ONE, the cost;of connection plus 20% for ONE's overhead expenses, and in the case of the R6gies, the cost of connection plus 202 for overhead expenses, plus, for some customer categories, a contribution for grid expansion. 1.19 The tariff level is currently greater than the long-run marginal cost. The weighted average long-run marginal cost for ONE is estimated to be DH 0.45 per kWh compared to ONE's average revenue in 1987 of DH 0.70 per kWh (Annex 5). This discrepancy is due to the fall in 1986 in the international fuel oil price. If the international price were equal to the current domestic fuel oil price (DH 1770 per ton paid by ONE compared to the international price in mid 1987 of DH 884), the marginal cost (DH 0.70/kWh) would be equal to ONE's 1987 average revenue. If the international price increases as projected by the Bank and if the domestic price remains unchanged over the next several years, the LRMC for ONE would increase relative to ONE's average sales revenue, but still remain below it through 1994. 1.20 The tariff structure has the following defects: (a) margins between the R6gies' selling and buying prices vary greatly among the Regies, because of historical accident, without economic justification; (b) the low-voltage rate of DH 0.563/kWh for the 0-200 kWh block for residential customers is below the marginal cost to low and medium- voltage customers of DH 0.69/kWh for ONE customers (however, in Casablanca, the largest city in Morocco, the LRMC for medium and low- voltage customers is only 0.56); while the principle of offering a subsidized life-line tariff to low-income customers is justifiable,  Morocco's low-rate block of 200 kWh is too large, since over 90% of the low-voltage customers of ONE and the Regies consume less than 200 kWh/month (a more appropriate block would be 0-50 kWh); (c) although the higher daytime energy charge for medium and high-voltage customers provides some incentive to shift electricity consumption to night-time hours, there is no separation in the tariff structure between peak hours and other daytime hours, nor is the charge for maximum demand (in kW) by the customer directly related to his demand during periods of peak demand on Morocco's power system. (d) each R6gie's purchase price is invariant with respect to the voltage level of supply; this has led to disputes between the Regies and ONE concerning the allocation of responsibility and cost for the construction of substations and other supply facilities; (e) connection charges exceed the separable costs of connection, thereby probably discouraging new customers, and the charges for ONE's customers are at different levels from those for customers of neighboring Regies. The Government recognizes that these defects need to be rectified and is carrying out a study, financed under PERL, to develop specific proposals for their resolution (para. 7.02). The electricity tariff study (financed under PERL) includes calculation of the economic cost of electricity (long-run marginal cost) and will recommend a tariff level and structure which reflect the economic costs as far as possible subject to constraints imposed by the need to satisfy financial objectives (specified to the consultants by the Government) and possible social constraints (also specified by the Government). The Government will consult with the Bank on the appropriate financial objectives and social constraints before gXving these to the consultants. 1.21 Coordination Among Agencies. There is inadequate coordination within the subsector due to the split of responsibilities among agencies, especially between ONE and the Regies. This has resulted in the following operational problems: (a) insufficient exchange of information between ONE and the Regies concerning demand forecasting and investment planning; (b) disputes over the criteria for creation of new Regies; new Regies are favored by the Ministry of the Interior and Information as a means to foster local responsibility; (c) unclear definition of the boundaries between the service areas of ONE and the R6gies; (d) disputes over the construction of facilities connecting the distribution systems of the Regies to ONE's bulk supply points, leading, in some cases, to non-optimal configurations of connecting lines and substations; (e) lack of standardization of equipment of ONE and the Regies; and  (f) lack of coordination between the two training centers for low-level personnel operated by ONE and the R6gies, respectively. Problems (a) and (d) will be addressed through electricity tariff reform and the establishment of coordinated investment planning under PERL (Para. 7.02) and the proposed Project (para. 3.10). These measures are expected to provide or lead to at least partial solutions to the other prnblems. Whether further actions are needed can be best determined after these measures are implemented. 1.22 Financial Difficulties. ONE and the Regies have experienced financial difficulties attributable to: (a) drought from 1981 to 1985 which reduced hydrogeneration and increased thermal generation, thereby increasing ONE's fuel expenses by over 20X; (b) mounting financial arrears by government departments, which have obliged the Regies to increase their arrears to ONE, and ONE to increase its arrears to its fuel suppliers; and (c) failure to increase the margins between the Regies' buying and selling rates to compensate for increased operating costs caused mainly by inflation. These difficulties are being alleviated by improved rainfall since 1985, annual tariff increases during 1984-1987 and increases in the R6gies' margins in 1986 and 1987, and will be further addressed under PERL (Annex 1 and para. 7.02) and the proposed Project (paras. 5.09, 5.11, 5.14, 5.25 and 5.28). 1.23 Manaxerial Autonomy. All financial activities of ONE and the Regies are subject to advance approvals by the Government, which, if they are not promptly granted, result in costly and irritating delays for the enterprises and for the supplier. who are forced to wait for their bills to be paid. This issue, as it concerns ONE, will be addressed under PERL (para. 7.02) and, as it concerns the Regies, is being addressed under the National Water Supply Rehabilitation Project (Loan 2825-MOR) (Annex 1). 1.24 The R6gies' Management Systems. The accounting systems differ among the Regies and from that used by ONE. Independent audits of the accounts are not required by law and are not being performed. Management information systems are poorly developed. Until recently many R6gies limited their investment planning horizon to one year. This issue will be addressed under the proposed Project (paras. 3.10 and 5.38) and the National Water Supply Rehabilitation Project (para. 7.03). 1.25 Cost Allocation for Multipurpose Water Projects. The Government pays the full costs of civil works for multipurpose water projects instead of charging users. The justification given for this practice is that these works are considered to be public goods, like roads, for which it is difficult to allocate costs. Although the Bank's view is that a satisfactory cost allocation can and should be made, measures are not proposed at this time for two reasons. First, electricity prices currently exceed economic costs (para. 1.19). Second, the fact that ONE does not pay a share of the costs of dams (it pays for the hydroelectric plants) does not by itself lead to inefficient planning, since the Government decides on multipurpose water projects taking into account all benefits and costs.  - 10 - D. PAST BANK LENDING TO THE ENERGY SECTOR 1.26 The Bank has supported the Government's efforts to expand domestic energy production and exploit energy resources efficiently through a series of loans to the energy sector. These include: the Petroleum Exploration Project (Loan 518-MOR) which led to the discovery of the Meskala gas field; the Petroleum Exploration and Appraisal Project (Loan 2271-MOR) which financed development drilling of the Meskala gas field; the Jerada Coal Mine Modernization and Expansion Project (Loan 2508-MOR) intended to increase coal production to 1 million tons by 1989; and the Oil Shale Engineering Project (Loan 2114-MOR) which financed studies to assess the technical and economic viability of commercial exploitation of the Timhadit oil shale deposit. 1.27 Three Bank loans have been made to help expand the power subsector in Morocco. The first--936-MOR, made in October 1973--was for US$25 million and financed the foreign cost of 2x20 MW combu3tion turbines plus transmission system investments. The Project Performance Audit Report (1982) concluded that the physical facilities were successfully completed with only minor delays and within the SAR cost estimates. However, ONE met the main financial covenant only in the final years, reaching self-financing levels of 241 of investment in 1978 and 221 in 1979, and the covenant requiring that government bills be paid within 90 days was not met. A study of power subsector organization was carried out, but the recommendations were not implemented. The second loan--1299-MOR, made in July 1976-was for US$49 million and financed part of the foreign cost of the multipurpose Sidi Cheho-Al Massira Hydro Project including a 120-MW power station and 200 km of 225 kV transmission line. The Project Completion Report written in 1984 noted that the physical facilities were completed on time. ONE's financial and accounting organizations were improved. However, from 1980 on, ONE failed to meet the covenant requiring self-financing of 20% of the investment program because of the Government's failure to raise electricity rates to compensate fully for fuel price increases in 1980, and the severe drought conditions in 1981 and 1982. Accounts receivable increased to four months of sales by October 1982. The Government also failed to take action to improve the organization of the power subsector. 1.28 The third loan--1695-MOR, made in April 1980--was for US$42 million to finance the first phase of the 15-year National Rural Electrification Program. The Project Completion Report prepared in 1987 concluded that the project was successfully executed, and at a substantial cost underrun because of the appreciation of the dollar. However, completion was delayed by 2 1/2 years largely because of changes in the centers to be electrified and the Government's slowness to ratify the agreement with the executing agency (ONE), to make local funds available and to grant import licenses for equipment also manufactured in Morocco. ONE met the 20% cash generation covenant only in 1986. 1.29 The Bank has contributed jointly with the UNDP to three studies of the energy sector: "Morocco: Issues and Options in the Energy Sector" (March 1984), "Morocco: Energy Assessment Status Report" (January 1986); and a "Household Energy Strategy Study", now underway with assistance from USAID. A "Power Subsector Study" was completed in 1984.  - 11 - E. BANK ASSISTANCE STRATEGY FOR THE POWER SUBSECTOR 1.30 Objectives for the Power Subsector. The Bank supports the Government's objectives: (i) to encourage the power subsector to satisfy growing electricity demand caused by economic growth at least cost and without deterioration in quality of service; (ii) to achieve financial and managerial autonomy for ONE and the Regies; and (iii) to reduce government contributions to ONE. 1.31 Three new lending operations, a Public Enterprise Rationalization Loan (PERL), the National Water Supply Rehabilitation Project, and the proposed Power Distribution Project, provide a coordinated approach to assisting the Government to realize these objectives. 1.32 PERL. The PERL combines a package of structural reforms at the macro level with specific reforms for selected public enterprises and sectors including ONE and the power subsector. It focuses on the following objectives: (i) settlement of the financial arrears of the public sector; (ii) reforms in the system of government oversight of the public enterprises;(iii) reduction of government transfers to public enterprises; (iv) strengthening of investment planning procedures; (v) pricing reforms; and (vi) restructuring of individual enterprises including the possibility of privatizing some of them. The specific measures provided under PERL to address the main power subsector issues are summarized in Annex 1 and para. 7.02. 1.33 National Water Supply Rehabilitation Project. The National Water Supply Rehabilitation Project (Fourth Water Supply Project) includes measures to strengthen the financial policies of the water supply sector and strengthen the sector institutions through institutional and administrative reforms, training programs and investment planning. Some of these measures (summarized in Annex 1 and para. 7.03) will benefit the electricity departments as well as the water departments of the Regies. 1.34 The Proiect. The Power Distribution Project would assist ONE and the Regies in rehabilitating, upgrading, improving and expanding power facilities, particularly the distribution networks. The Project would also contribute to improved management, plar.ning, accounting and technical capabilities, seek to achieve a satisfactory financial performance of ONE and the Regies' electricity departments, and follow up on the implementation of policy actions formulated on the basis of the power subsector studies carried out under PERL. Whereas the PERL is largely oriented towards ONE, the present operation would give more attention to the Regies - it would be the first Bank operation to assist the R6gies' electricity departments. The present operation also complements the National Water Supply Rehabilitation Project by encouraging the realization of financial objectives for the electricity departments of the Regies which are fully consistent with the objectives established for their water departments. 1.35 The financial measures under PERL and the proposed Project to raise tariffs and reduce Government contributions are designed to ensure not just that the power subsector enterprises are financially autonomous, but also that  - 12 - the subsector is a substantial net contributor to Government thereby reducing the fiscal deficit. The actions under the project to raise the tariff margins of the five participating Regies and to establish them as new borrowers would help remove limits to further electrification which could result from continuing the previous practices of restricting investments to levels which could be financed from internal funds, and of increasing connection charges to new customers, thereby possibly reducing the number of new connections demanded. 1.36 The actions initiated under these projects to reform the tariff structure, improve coordination within the power subsector, strengthen the management and planning capabilities of ONE and the R6gies, and generally increase economic efficiency, will require gradual implementation over several years, and the implementation of some of them would eventually require capital investments. Further assistance will be needed to implement these investments and to expand electrification in Morocco, where still less than half the population has access to electricity. I. BORROWER AND BENEFICIARIES 2.01 The borrower would be the Kingdom of Morocco which would on-lend the loan proceeds to ONE and the Regies of Casablanca, Meknes, Kenitra, Fes and Tetouan, which accounted for 701 of electricity sales by all the R6gies in 1986. (The remaining Regies of Rabat, Tanger, Marrakech, Safi and El Jadida do not need to borrow from the Bank at this time since they can implement their investment programs from internally generated cash. The non- participating Regies would, however, benefit from the provisions under the proposed project for payment of Government bills. The Government intends to make all efforts so that they will pay their current bills promptly and settle their outstanding financial arrears according to the same schedule agreed with the participating Regies and the Bank (para. 5.25). Further they would benefit from actions taken under PERL and the proposed Project to reform the tariff structure and establish a coordinated, least-cost investment program for the power subsector (paras. 7.02 and 3.10), and the actions under the National Water Supply Rehabilitation Project to establish new general and cost accounting systems and strengthen the Regies' management information systems (para. 7.03)]. A. ONIE 2.02 Organization and Management. ONE was established in 1963 as a Government-owned enterprise when the subsector was nationalized and the generating facilities, together with a number of distribution networks, were transferred to it. ONE is responsible for the generation and transmission of electricity throughout Morocco and for distribution except in those areas where distribution systems are operated by the Regies, and in those isolated small systems which belong to MII, some of which, however, are operated by ONE on behalf of MII.  - 13 - 2.03 ONE's management reports to an eight-member Board under the chairmanship of the Prime Minister, who is normally represented by the Minister of Energy and Mines. The other Board members are representatives of the Ministries of the Interior and Information, Finance, Planning, Equipment, Management and Labor. Since ONE's establishment, the Board has held an average of more than three meetings per year. Under PERL, the role, operating methods and composition of the Boards of Directors of public enterprises, including ONE, will be reviewed, and recommendations are expected to be made for reforms aiming at a greater participation on Boards of qualified outside professionals. 2.04 The General Manager (Directeur G6neral) is ONE's chief executive. He delegates day-to-day business through a Deputy General Manager to four directors who are responsible for five departments: administrative services, finance, equipment services, generation and transmission, and distribution. Currently, the Director of Finance is also the Director of Administrative Services. The current organizational structure (Annex 3.1) is satisfactory and ONE's management is knowledgeable, competent and strong. 2.05 Planning. ONE's planning staff are competent and well-informed. However, there is a need for increasing the number of personnel and computer resources to permit more detailed demand analysis and greater use of generation planning models. ONE is only in the early stages of implementing systematic procedures for establishing priorities among distribution projects, expenditures on rehabilitation, studies and miscellaneous projects. In general, more attention needs to be paid to coordinating the expenditure programs submitted by the various departments of ONE by ensuring that procedures for handling details such as inflation, interest during construction and physical contingencies are established properly and applied uniformly. ONE is taking action to acquire more computer resources. Recommendations for strengthening ONE's demand forecasting and planning capability are expected to be developed by the coordinated investment study (para. 3.10). Distribution planning analyses for ONE would be carried out under the proposed Project (para. 3.06). 2.06 Personnel. Between 1981 and 1986 the number of ONE's regular personnel increased from 5,767 to 7,500 (Annex 3.7), or 5.4% per year compared to a 6.3% annual increase in generation. Nevertheless in 1985 the number of thermal and hydro production employees per MW of thermal and hydro capacity was rather high - 1.10 and 0.96, respectively, compared to "normal" levels of 0.6 and 0.4, respectively. This is partly due to the fact that ONE has many isolated small diesel stations (18) and a large number of small hydro plants in operation (21). The number of connections per employee was modest at 71 (a normal figure would be about double) but this is not surprising in view of the fact that most urban centers are served by k6gies. 2.07 ONE has some difficulties in recruiting and retaining suitably qualified staff. The problem is in part general, due to a shortage of technicians in the country, and in part because of the rather low salaries in comparison with the private sector, particularly for new staff. However, career development possibilities in ONE are reasonable, and there are substantial fringe benefits after a minimum number of years of service. Assurance of adequate personnel compensation is expected to be pr3vided for in ONE's contract-program (para. 7.02).  - 14 - 2.08 Training. ONE is fully aware of the importance of training and has an efficient training center in Casablanca with some 250 places to train about 400 technicians annually. Trainees are contractually obliged to remain a number of years in the employment of ONE. Assignment to special training abroad, particularly in France, is quite common for higher-level staff. In general, ONE's training activities are satisfactory ane efforts are being made to improve them further. 2.09 Existing Facilities. ONE's total installed capacity in December 1986 was 1,957 MW of which 610 MW was hydroelectric and 1,347 MW thermal (1,185 MW steam, 136 MW combustion turbine and 26 MW diesel - see Annex 3.5). Total installed capacity increased at an average annual rate of 8.8% between 1976 and 1986. During this period the mix of hydro and thermal plant changed from 48:52 to 31:69. The major generating stations and load centers are interconnected by a 225-kV grid extending 2,832 km (see Annex 3.8 and the map). There are also 937 km of 150-kV transmission lines, 6377 km of 60-kV subtransmission lines, 175 km of 30-kV and 9,569 km of 22-kV distribution lines. There exists an interconnection with Algeria, which for political reasons is not presently being used. Maintenance of facilities is generally satisfactory. 2.10 System Losses. In the last eleven years, ONE's losses, as a percentage of total generation, averaged 15.2%, including station own consumption of 7.1X (Annex 3.2). Transmission losses were high at an average of 6.82 (although only 6.51 in 1986). The extremely low distribution losses (average 1.41 of total generation) reflect the fact that ONE's sales to low and medium-voltage customers (22 kV and below) constitute only 20% of its total sales. Distribution losses for medium and low-voltage networks represent about 7.01 of the related generation, a reasonable figure. In the peripheries, nevertheless, where rapid urban expansion has taken place, lines may be too long or overloaded. The Project would address this problem through the rehabilitation program which is expected to lead to a small overall loss reduction by 1992-93. In addition, plans are being made to examine the distribution and transmission losses of ONE and the R6gies through the UNDP/World Bank Energy Sector Management Assistance Program (ESMAP). 2.11 Number of Consumers. The number of ONE's consumers increased by 7.51 per year from 284,000 in 1976 to 587,000 in 1986 of which 991, in 1986, were at low voltage (Annex 3.6). ONE served 3,853 customers in 1986 at medium voltage and 115 at high voltage. B. THE REGIES 2.12 Organization and Management. The provisions governing the management and operation of the R6gies responsible for water and electricity distribution are set out in Dahir No. 1-61-218 dated October 21, 1961 for the Regie of Casablanca and Decree No. 2-64-394 dated September 29, 1964 for the others. The R6gies are financially and administratively autonomous enterprises under the tutelage of MII. Since the creation of the first R6gie in Casablanca in 1962, the number of Regies has increased to reach 16. Of these, 10 are involved in the distribution of electricity (as well as water). The Regies are either communal or intercommunal. The communal R6gies (of Fes, Marrakech and Meknes) each serve a single urban center or city, while each of the intercommunal Regies provides service to more than one center, in most cases a city plus several small nearby communities.  - 15 - 2.13 Each Regie is managed by a board, a managing comittee, and a management team headed by the director. In most R6gies, the board is chaired by the provincial Governor. Two-thirds of the board is composed of representatives elected from the conmunal council (or the intercommunal council depending on the type of R6gie), and the remaining one-third of government representatives appointed by MII. The latter group usually includes representatives of the Ministries of Interior and Information, Finance, Equipment, and Energy and Mines (non-voting member only). 2.14 Planning. Of the five R6gies included in the project, only Casablanca has a master plan for electricity distribution. This plan was prepared in the late 1960s but has not been updated nor a system of data collection established to enable this exercise to be carried out on a regular basis. Until recently, many R6gies limited their investment horizon to one year, and actual investment expenditures were constrained to what could be financed from internally generated cash. The process of participating for the first time in a Bank-supported project has encouraged the Regies to prepare long-term investment programs. 2.15 Personnel and Training. The number of personnel in the five Regies in 1986 was 900 in Casablanca$ 214 in Meknes, 281 in Fes, 220 in Tetouan and 138 in Kenitra (Annex 3.9). The numbers of Regies' staff are generally appropriate in relationship to their work. 2.16 The R6gies have their own training center for their low-level technical personnel (para. 5.37). Located in and operated by the R6gie of Casablanca (RAD), this training center provides various courses of up to a two-year period for technicians. 2.17 Sales and Consumers. The following table presenting sales and the number of consumers for each Regie in 1985 shows the diversity among the Regies by size, by composition of sales and by voltage level (Annex 3.9 provides more details). Table 2.1 Electricity Sales by Five Regies in 1986 Medium-Voltage Number of Total