Morocco - Oil Shale Engineering Project

Document of FILE GOPy The World Bank Fl L FOR OFFICIAL USE ONLY Report No. P-3223-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE OFFICE NATIONAL DE RECHERCHES ET D'EXPLOITATIONS PETROLIERES WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO FOR AN OIL SHALE ENGINEERING PROJECT March 3, 1982 Tbis document has a restricted distribution and may be used by recipients only in the performance of their official dties. Its eontents may not otherwise be disclosed without World Bank authorintion.  CURRENCY EQUIVALENTS (February 1981) Currency Unit Dirham (DH) DH 1.00 Us$0.19 US$1.00 DH 5.30 WEIGHTS AND MEASURES 1 barrel 159 litres 1 gallon per short ton 4.2 litres per metric ton (gal/ton) (equals about 0.4% by weight) 1 metric ton 1,000 kilograms I ton of oil equivalent (toe) 1.5 tons of coal equivalent 1150Nm3 natural gas 1 kilocalorie per kilogram (kcal/kg) 1.8 Btu/lb (heating value) ABBREVIATIONS BRPM Bureau de Recherches et de Participations Minieres DMC Davy McKee, Inc. OCP Office Cherifien de Phosphates ONAREP Office National de Recherches et d'Exploitations Petrolieres ONE Office National de l'Electricite SAI Science Applications, Inc. bbl/day barrels per day toe metric ton of oil equivalent tpd metric ton per day tpy metric ton per year MOROCCAN FISCAL YEAR January - December  FOR OFFICIAL USE O0W3LY KINDGOM OF MOROCCO OIL SHALE ENGINEERING PROJECT Loan and Project Summary Borrower: Office National de Recherches et d'Exploitations Petrolieres. Guarantor: The Kingdom of Morocco. AnDunt: US$20.0 million equivalent. Terms: Seventeen years including four years of grace, at an interest rate of 11.6% per annum. Pro;ect Description: The objective of the project is to generate information and analysis on the characteristics of Moroccan shale resources and on the technical and economic viability of the alternative options for their development, taking into account Morocco's environmental, financial and manpower constraints, so that the Government can make an informed decision regarding future investments in oil shale. The project consists of: (a) construction and operation of a test station at Timahdit; (b) technical evaluation of alternative retorting processes; (c) preparation of a comprehensive feasibility study of commercial oil shale retorting operations at Timahdit, which will be divided into separate components for the mine and for the retorting plant and infrastructure; and (d) comparison of the economics of shale retorting with direct combustion in power plants. The potential long-term benefit from the project would be the eventual replacement of a significant portion of Morocco's oil imports by local production of shale oil, thus saving foreign exchange and relieving balance of payments problems. The mDre immediate benefits stem from the comprehensive information which the project would generate and which will enable the Government to make an educated decision as to whether and how to develop Morocco's oil shale resources. The project would also have important training and institution-building effects. The main risks facing the project are the uncertainty of the ultimate development of oil shale retorting technologies and the eventual viability of commercial exploitation of shale resources, particularly 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.  ( ii) as regards the locally developed T3 process, and the possibility of competing projects or contractual arrangements which would prejudice the Government's final investment decision. The first risk has been reduced by designing the project as the first phase in a long-term program for shale development with built-in decision points so that the results of each phase are carefully evaluated before further investments are made. The second risk is reduced by assurances that all parallel studies would be appropriately coordinated with the Bank-financed studies, and that the Bank would have the right to suspend/premature the loan should the Government undertake commitments which would frustrate the purpose of the project. Estimated Cost Local Foreign Total ------(US$ million)------- Timahdit test station - construction 2.8 4.6 7.4 - start up and operation 0.8 2.0 2.8 Technical evaluation of retorting processes - additional tests in foreign pilot plants - 0.4 0.4 - additional information by licensors - 0.8 0.8 - evaluation - 0.5 0.5 Feasibility Study - additional drilling 0.5 0.4 0.9 (including lab testing of shale samples) - mine study - 2.2 2.2 - plant and infrastructure study - 1.8 1.8 Comparison retorting versus direct combustion - 0.2 0.2 General technical assistance - 0.9 0.9 Base Cost 4.1 1/ 13.8 17.9 Physical contingency 0.8 2.8 3.6 Price contingency 0.8 3.4 4.2 Total Project Cost 5.7 1/ 20.0 25.7 1/ Includes $1.3 million in taxes.  ( iii) Financing Plan Local Foreign Total ----(US$ Million)---- Bank loan - 20.0 20.0 Government 5.7 - 5.7 Total 5.7 20.0 25.7 Estimated Disbursements FY1982 FY1983 FY1984 FY1985 FY1986 FY1987 Annual 0.4 7.0 8.2 2.5 1.8 0.1 Cumulative 0.4 7.4 15.6 18.1 19.9 20.0 Rate of Return; Not applicable Appraisal Report; No separate report.   REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE OFFICE NATIONAL DE RECHERCHES ET D'EXPLOITATIONS PETROLIERES WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO FOR AN OIL SHALE ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Office National de Recherches et d'Exploitations Petrolieres (ONAREP), to be guaranteed by the Kingdom of Morocco, for the equivalent of US$20.0 million, to help finance an oil shale engineering project. The proposed loan would have a repayment period of 17 years, including 4 years of grace, and would carry an interest rate of 11.6 percent per annum. PART I - THE ECONOMY 1/ 2. A basic economic mission visited Morocco in November 1978, and updating missions in September and December 1979 and in May 1980. A report entitled "Morocco: Basic Economic Report" (3289-MOR) was distributed to the Executive Directors in December 1980. A mission to review Morocco's Five Year Plan (1981-85) and development prospects was in the field in December IS181. Country and Economic Data Sheets are attached as Annex I. Initroduction 3. Compared with many developing countries, Morocco is well endowed with natural resources. It has a considerable agricultural potential both in irrigated and rainfed areas. The Atlantic and the Mediterranean coastlines offer considerable fish resources. Morocco also has the world's lalrgest and most easily recoverable phosphate reserves, which makes the pliosphate sector a key export sector. Other minerals such as iron ore, manganese, lead and zinc are also exported, but in much smaller amounts. Coal and hydropower plants satisfy only a small part of the country's energy requirements, which are essentially met with imported oil. Morocco has however uranium and oil shale resources which it plans to exploit. In addition, Morocco's proximity to Europe has favored trade, tourism and labor migration with the EEC countries. 4. During the first 15 years after independence (1956), a conservative approach to economic policy predominated in Morocco. GDP increased at an average rate of 4% a year in the 1960s. Growth accelerated somewhat under the 1968-72 development plan as the economy derived substantial momentum from exports. However, a relatively weak savings effort and a smail 1/ Part I is substantially the same as Part I of President's Report No. P-3176-MOR of December 10, 1981 on a proposed Middle Atlas - Central Area - Agriculture Development Project.  -2- externally financed resource gap resulted in only a slow rise in the share of resources allocated to investment. Morocco thus entered the 1970s with no major financial imbalances, but a relatively limited growth capacity. Although some industrialization had taken place, over half of the labor force was employed in the relatively inefficient traditional agricultural sector, and primary products accounted for close to 90% of merchandise exports, with phosphates representing about a quarter of the total. Economic Performance in the 1970s 5. During the 1970s, economic policy became more ambitious. The 1973-77 Development Plan aimed at an acceleration of economic growth, as well as an improvement in income distribution. To accomplish this, the original plan strategy included two key elements: an intensified savings effort and the development of exports. However, in 1974, with the sudden jump in phosphate prices, phosphate export earnings more than quadrupled. As a result of this windfall, the value of merchandise exports doubled and budgetary receipts rose by 70% between 1973 and 1974. Although the petroleum import bill also quadrupled in 1974, the current account of the balance of payments remained in surplus. The plan's concern for exports and savings lost some of its urgency, and the Government launched a massive public investment program which brought about a sharp acceleration in the rate of growth of the economy and a considerable increase in demand for imported goods and services, whose share in GDP doubled from 19% in 1972 to 39% in 1977. 6. The phosphate boom, however, was shortlived; as early as mid-1975, phosphate exports started falling in both volume and value, and prices continued to decline until 1980. Markets for other exports as well as for tourism and labor migration were also negatively affected by the world recession and restrictions imposed by the EEC. Agricultural production and exports entered a period of prolonged stagnation, and Morocco turned from a net exporter to a net importer of foodstuffs. As a result of all these factors, the growth of exports of goods and nonfactor services, which in constant prices had exceeded 8% a year in 1968-72, was only 1% a year in 1973-77. 7. Stimulated by the high investment level, a high GDP growth rate of 7.3% a year was achieved during the 1973-77 plan period. This growth was led by the expansion of the construction and service sectors. The pattern of investment, however, favored economic and social infrastructure more than the productive sectors. In addition, public investments in industry, agriculture and transport tended to be capital intensive and to emphasize import substitution. 8. Accelerated investment and growing public expenditures created strong pressures on both the balance of payments and the Government budget. While investment jumped from about 15% of GDP in the early 1970s to 32% in 1977, gross domestic savings rose briefly from 13% of GDP in 1972 to 21% of GDP in 1974 thanks to phosphate receipts, but fell back to 10-11% in  -3- 1976-77. The large resource gap which emerged as early as 1975 rose to an unsustainable 20% of GDP in 1977 (in current prices). To help finance the gap, Morocco borrowed heavily from the international capital market, which led to rapid increases in external debt and the debt service burden. By the end of 1977, external debt outstanding was close to 40% of GDP. The debt service ratio rose from 5.6% of exports of goods and services in 1975 to 10.7% in 1977, and 18.5% in 1978. 9. The Government's overall budget position also deteriorated considerably during the period 1973-77. While budgetary revenues increased rapidly as a result of the windfall phosphate profits in 1974 and 1975 and of the growth of import duties and taxes in following years (reaching 23% of GDP in 1977), the growth of expenditure far exceeded that of revenues. Total budgetary outlays rose from 20% of GDP in 1972 to nearly 42% in 1977, in response to a number of pressures. These included not only the large scale public investment launched under the plan, but also the rapid increase in defense spending in response to growing tensions in the Western Sahara, and the acceleration of current expenditure for social programs (particularly education). As a result, the Government's overall budget deficit increased sharply, reaching peaks of 17 and 18% of GDP in 1976 and 1977. The expansionary monetary and fiscal policies pursued during the period led to some acceleration of domestic inflation, but excess demand was largely allowed to spill over into the external sector. Rec,ent Developments 10. In order to redress the rapidly deteriorating financial situation, the Moroccan Government in 1978 adopted a three-year stabilization program, characterized by a substantial retrenchment of investment and import levels. In 1978, the first year of the adjustment, public investment was cut back by nearly half in real terms and the growth of current budgetary expenditure held down to about 13% (or less than 3% in real terms). These measures of fiscal restraint were combined with tight credit policies and stringent import controls. As a result, the overall budget deficit declined to about 12% of GDP and the external payments situation improved in 1978. Since then, however, the stabilization program encountered a number of obstacles, including poor harvests, petroleum price increases and the rise in interest on the commercial debt. In addition, internal pressures led to some relaxation of the highly restrictive fiscal policy adopted in 1978. Altlhough the economy continued to make slow progress toward equilibrium, by 1981) both fiscal and external imbalances were still substantial. The resource gap (in current prices) remained at about 10% of GDP and the ratio of the overall budget deficit to GDP at about 11%. 11. The reduction in the Government deficit during the 1978-80 period was achieved chiefly through cutbacks in the level of budgetary investments, which dropped from 22% of GDP in 1977 to 12% in 1980. The growth of current expenditure proved difficult to restrain because of the continuing need to maintain defense and social expenditures, the growing interest payments on the public debt and the rising cost of consumption subsidies. The latter  -4- e; i-Li 9-9-80 reaching 2% of GDP, as price increases for subsidized staple food and petroleum products could not catch up with the rise in import costs for these products. Reflecting these pressures, the growth of current expenditure accelerated to 16% in 1979 and 22% in 1980. 12. In the external sector, non-oil imports were reduced substantially and remained below the 1977 level in nominal terms due to a sharp reduction in capital goods imports (by about two-thirds in real terms between 1977 and 1980). Oil imports on the other hand increased 2.5 times in value due to price increases. Export earnings improved in 1979 and received a significant boost from the recovery of phosphate prices in 1980. Thus, despite a large increase in the petroleum import bill (from less than $400 million in 1977 to $1 billion in 1980) and a rise in external debt interest payments by about $350 million between 1977 and 1980, the current account deficit was reduced from $1.8 billion, or 18% of GDP, in 1977 to about $1.4 billion, or 8% of GDP, in 1980. The growth of external borrowing slowed considerably during the period. However, the absolute level of gross external capital requirements rose because of growing amortization payments on mediumr-term commercial credits contracted earlier and the rise in the interest rate on these credits in 1980 (paragraph 21). 13. The budgetary and balance-of-payments constraints had a serious impact on the levels of investment and economic activity in 1978-80. Annual GDP growth dropped to 4% in 1978-80. The adverse impact of the stabilization program on employment has probably been substantial in contrast with the rapid rate of employment creation during 1973-77. On the whole, the demand management policies followed since 1978 have had a high cost in terms of growth and employment and appear to have been only partly successful in their short-term stabilization objectives. These results brought out the urgent need to address adequately the long-term structural weaknesses which are at the root of the continuing financial imbalances in the Moroccan economy, and which must be corrected if an acceptable rate of economic growth is to be achieved over the medium term without unsustainable external deficits. Medium Term Prospects 14. Projectionsl/ of the likely outcome of the continuation of past policies without concerted effort to implement major structural reforms suggest that Morocco would be faced with a prolonged period of slow growth, rising unemployment and continued large external imbalances which would keep the country in considerable dependence on external borrowing and could jeopardize its creditworthiness. To forestall such a deterioration, the Government adopted a strategy in the development plan for 1981-85 which aims at narrowing the external resource gap while accelerating growth and spreading the benefits of growth more widely. The main objectives are to 1/ For details on these Bank projections, see Morocco - Basic Economic Report, December 30, 1980 (No. 3289-MOR), Chapter III.  achieve a significant increase in domestic savings and exports, a reduction in the elasticity of imports with respect to GDP, and a rise in productivity and the employment rate. The Plan's projections show that, if achieved, such changes would permit a gradual acceleration of annual GDP growth to 6.5% p.a., somewhat higher than Bank projections, in 1981-85, accompanied by a reduction of the resource gap to about 7% in 1985. 15. The containment of imports would result in part from the substitution of imports of food products (cereals, sugar, vegetable oil, meat and dairy products) to be brought about by an acceleration of the rate of growth of agricultural production. This will require a wide range of institutional reforms in addition to a review of prices of certain inputs and outputs, and a greater allocation of resources to rainfed areas and to projects with high rates of return. The Government also intends to follow a determined policy in 1981-85 in the area of energy conservation, including in particular maintaining domestic energy prices at high levels, and making the necessary investment allocations to increase energy production from local sources. 16. An essential role in the achievement of the Plan's objectives will have to be played by export promotion aimed at exploiting Morocco's comparative advantage as regards phosphates and phosphate derivatives as well as the current favorable export prospects for manufactured goods, agricultural products and tourism. Exports of goods and nonfactor services are expected to rise at 8.5% p.a. in real terms over 1981-85. While feasible, such a growth rate would require implementation of the supporting investments and incentives pol ciies. 17. Narrowing the resource gap while maintaining at the same time high investment levels would require an increase in domestic savings as well as rationalization of the pattern and content of investment. A vigorous recovery in domestic savings, which would rise from 11.5% of GDP in 1980 to 16% by 1985, would make it possible to narrow gradually the resource gap from about 10% in 1980 to 5% of GDP by 1985. Such a rise in the domestic savings rate would exceed the performance in 1973-77 when savings averaged 14% of GDP. It would demand intensive efforts to increase public savings (through an increase in budgetary savings and an improvement in the performance of public enterprises) and to stimulate private savings (through a revision of interest rates and inprovements in financial intermediation). 18. Given the feasible level of investment, the future rate of growth of the economy will depend to a large extent on the sectoral allocation and the efficiency of investment as well as institutional reforms. Under the Plan, the Government will start fewer large capital-intensive projects and pay particular attention to the allocation of investments to priority subsectors. Priority is given to projects that are export oriented, less capital intensive and which use a greater proportion of domestic resources. In addition, particular attention will be paid by the Government to manpower planning and to the employment effect of investments in order to ensure that unemployment doeis not rise.  -6- Social Development 19. Comparatively slow economic growth and employment creation up to the early 1970s were accompanied by widening income disparities. The limited data available indicate that in the 1970s, while disparities continued to grow, household incomes increased in both urban and rural areas, and the lower income groups shared in the real increase in incomes. In addition, infant mortality has declined and life expectancy has increased, both significantly. More recently, partly in response to the demands of locally elected assemblies, the Government has shown more awareness of social problems and greater interest in the issue of basic needs. Social expenditures have been at a high level in recent years, accounting for more than half current outlays. However, social indicators still appear to be at low levels in Morocco. The limited effectiveness of past social policies in reaching the lower income groups, especially in rural areas, is increasingly recognized as a major issue, and the new strategy of the 1981-85 Development Plan emphasizes rural development in rainfed areas, where most of the poorest households in Morocco currently live, and improved mechanisms to deliver services to meet basic needs at an affordable cost, especially in rural areas. An effort is also being made to increase the involvement of local communities in providing basic needs, particularly for sites and services for low cost housing, water supply, sewerage and electrification. Although rapid results cannot be expected in any of these areas, implementation of these policies would help meet the needs of low-income groups, while holding down the budgetary cost of social programs. External Debt and Debt Service 20. Morocco sharply increased external borrowings after 1974. Nearly all of the increase came from Arab and commercial sources. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about $70 million in IMF compensatory financing in August 1978. Agreement was reached with the IMF in 1980 for Morocco to draw on the Extended Fund Facility (EFF); the agreement provided for the use of IMF resources in the amount of SDR 810 million over the 1980-83 period, an amount subsequently increased to SDR 956 million ($1.2 billion). However, as Morocco did not satisfy performance criteria at the end of July 1981, its purchases under the EFF were suspended pending an understanding 4ith the IMF. Discussions between the Government and the IMF are now at an advanced stage for replacement of the EFF by a one-year standby arrangement for 1982. 21. From the low levels of 1974-75, Morocco's external debt rose rapidly to $7.1 billion (disbursed only) by December 1980. Gross inflow of medium and long term capital reached $1.57 billion in 1980. Debt service amounted to $800 million in 1979 and $1.2 billion in 1980 (22% and about 28%, respectively, of total exports of goods and services). The debt service rose considerably in 1980 due mainly to the steep rise in interest on commercial credits. As a result of recent and projected borrowings, debt service may be expected to average $1.8 billion annually in the early 1980s. Because of the growing burden of debt service, external borrowing has become more restrictive and selective since 1978. If debt service is to stay manageable, the Government  - 7 - will, have to continue this policy over the next few years. Limits on commercial borrowing are to be incorporated in the framework of the standby arrangement with the IMF, and efforts should be continued to seek loans on softer terms. 22. Loan commiitments from nultilateral and bilateral official sources to Morocco rose from $205 million in 1975 to $1376 million in 1978. Since then, they have averaged $700--800 million a year (excluding grants). Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1980, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 7 percent. The share of the Bank Group in debt service was 21 percent in 1976 and declined to 15 percent in 1977, and 6 percent in 1980. By 1985 the Bank Group's shares in debt outstanding and in debt: service are projected at about 10 percent and 11 percent respectively. PART II - BANK GROUP OPERATIONS IN MOROCCO 23. Bank and IDA lending to Morocco has supported 50 projects, financing a total of $1,833.1 million (net of cancellations), of which $1,379 million has been lent since the beginning of FY1975. IDA credits, totalling $50 million, have been made available for five projects. A Third Window loan for $25 million for the third education project was approved in March 1976. IFC investments have amounted to $31.2 million ($17.1 million afte!r cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1981, and notes on the execution of ongoing IBRD/IDA prolects. In some cases delays in project implementation have been caused by aanagement problems and budgetary constraints; however, overall periormance in project execution has been improving and is satisfactory. 24. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which have accounted for 27 percent each of total comnitments; the balance is represented by utilities (16 percent), tourism (9 percent), education (9 percent), roads (6 percent), energy (3 percent) and urban development (3 percent). While limited as regards the transfer of resources to Morocco (Bank Group gross disbursements amounted to 2.2 percent of t:otal fixed investment during the 1973-77 Plan period), the main objectives of Bank lending in previous years were to foster and strengthen development institutions, provide technical assistance, especially for project preparation, and increase productive capacity, in order to improve the balance of payments. 25. While these objectives remain, in recent years Bank lending has increasingly focussed on supporting a number of policy objectives: to promote exports and other foreign-exchange earning activities; to reduce imports, particularly of food and energy; to lower unit costs for the delivery of basic services, widen their distribution among regions and increase access by lower-income groups; to increase employment and improve income distribution; and to bring about structural adjustment.  - 8 - 26. Since- FY1975, lending in agriculture has emphasized improvement in the productivity of rainfed agriculture and livestock, which employ over 80 percent of the rural population, primarily small farmers. The Fes-Karia-Tissa Agriculture Project, approved in June 1978, directly addresses these objectives in the favorable cereal producing zone. The Loukkos project, approved in May 1980, and the recently approved Middle Atlas project extend support of these objectives to less favorably endowed regions and finance investments for agricultural development, erosion control, forestry and livestock. They should have a significant poverty impact and address major issues in developing Morocco's relatively densely populated but poorly endowed muntainous regions. Continued Bank support of rainfed agriculture is expected to be provided through an integrated rural development project in the Khemisset province, which is under preparation. A fourth line of credit to Caisse Nationale de Credit Agricole (CNCA) has helped provide credit to small and medium farmers, and a fifth project is under preparation. Increased export earnings are expected to result from a Bank-supported project for vegetable marketing and production, as well as from a project currently under preparation to improve the efficiency of the coastal fishing industry. Projects are also under preparation for research and extension, for irrigation rehabilitation, and for development of small- and mediumrscale irrigation. 27. Increased foreign exchange earnings or savings and, more recently, job creation, have been the key objectives of Bank projects in industry and tourism. A ninth line of credit to the Banque Nationale pour le Developpement Economique (BNDE), incorporating a pilot component for export-oriented industries, as well as a second line of credit for small scale industries with an emphasis on job creation have recently been approved by the Board. A project focussing on the development of electro-mechanical industries is being prepared. A fourth line of credit to Credit Immobilier et H8telier (CIH) for tourism projects was also recently approved by the Executive Directors, in a sector which has contributed a substantial share of Morocco's foreign exchange earnings and provided significant employment. A project to increase mineral export earnings and raise the incomes of small-scale miners in Southeastern Morocco, a region largely bypassed by previous development efforts, is being presented to the Executive Directors shortly. 28. Projects to improve basic infrastructure and services have concentrated on improving the efficiency of existing investments and extending services to rural and low-income urban groups. A second urban development project was approved by the Board in FY1981, which would continue to support the Government's efforts to provide shelter, basic services and employment to low-income urban families. A third highway project approved in FY1980 supported the Government's road maintenance efforts and a fourth project now being prepared would continue support for  - 9 - maintenance and improve rural access roads. A loan for village electrification approved in FY1979 is helping bring power to over a hundred small towns and villages. A third water supply project, recently approved, will provide access to safe water in small towns and semi-rural areas, as well as expand a pilot component initiated under the second project to provide credit for house connections to low income urban families. In addition, a project to strengthen the capacity of local comnunities to prepare and implement their own development programs and provide financing for such programs through the Communal Infrastructure Fund (FEC) is being prepared. It will not only help to widen the distribution of infrastructure and services but will also support the Government's policy of encouraging administrative decentralization and local participation. 29. Education continues to need attention to ensure Morocco's manpower development. While recent projects have focussed on secondary level technical education and teacher training, attention has also been given to expanding basic education in the rural areas and ensuring a greater orientation in primary schooling towards practical training. This would be complemented by future projects in non-formal education and vocational training. The Government's recent policy supporting primary health care would be tested through a project currently being prepared as a first phase in at nationwide program to reorganize medical and paramedical training, health education, nutrition, environmental sanitation and family planning services, especially in rural areas. 30 In order to aim at reducing the impact of the oil import burden on the Moroccan economy, a project was approved in April 1980 to contribute to the Government's efforts to accelerate the exploration and development of its petroleum resources. Additional projects for development of possible gas resources as well as coal and hydropower, are under consideration. 31. The sectoral objectives implied in these projects as well as other objectives relating to price policy, efficiency and composition of the pub-Lic sector investment program, and measures to mobilize domestic savings, wouLd be reinforced by the policy changes envisaged under a possible Strlctural Adjustment Loan which has been appraised. Negotiations for the loan began in mid-1980, but were not completed by the time the release of the second tranche of the IMF's EFF was postponed (see paragraph 20). The Government has requested resumption of negotiations; further progress would depend on the IMF and the Bank reaching agreement with the Government and may require reappraisal of the structural adjustment program.. PART III - THE ENERGY SECTOR Morocco's Energy Balance 32. Energy-consumption. Morocco is highly dependent on imports for its energy supply. In 1980, its primary energy consumption amDunted to  - 10 - 4.6 million tons of oil equivalent (toe) while its domestic supply was only 0.9 million toe or about 20% of total consumption. To cover the deficit, Morocco imported 3.7 million toe of petroleum and 0.02 million toe of coal for a total cost of DH 4.2 billion ($917 million). Morocco's energy bill has put a heavy strain on the country's balance of payments; in 1980 it accounted for 25% of imports, absorbing about 44% of export revenues. The Moroccan Government considers the reduction of the country's dependence on energy imports of the highest priority. Intensification of petroleum and gas exploration, expansion of hydroelectric power generation capacity, and development of the country's large oil shale deposits are the main routes promoted by the Government to develop the country's domestic energy supply. In parallel with these efforts, the Government is attempting to curb the growth of energy demand through pricing policy and a campaign to induce energy savings. The Bank is supporting the Government's objectives in the energy sector through several loans which aim at developing local energy supplyl', and additional loans in this sector are under preparation. The proposed project is an extension of the Bank's strategy in the energy sector. 33. Per capita consumption of primary energy in Morocco amounts to about 0.23 toe, a relatively low figure compared with countries with similar per capita incomes. Energy consumption has grown at an average of 8% per annum over the last 20 years. Light motor fuels account for about 45% of total energy consumption, electricity for 25%, and the balance of 30% is distributed among lubricants and other industrial users, of which the phosphate mines (6%) and the cement industry (5%) are the most important single consumers. Petroleum, which represents about 80% of total energy consumption, is imported mainly as crude and is refined in Morocco in two refineries with a total capacity of 4.9 million toe per year. 34. Local energy supply. Locally produced and consumed primary energy in 1980 amounted to 0.90 million toe, or about 20% of total consumption -- of which petroleum accounted for 0.01 million toe (1.4%), natural gas for 0.12 million toe (12.9%), coal for 0.38 million toe (41.7%), and hydroelectric power for 0.39 million toe (44%). 35. Domestic production of petroleum peaked in 1963 when a production rate of 150,000 tpy (3,000 barrels per day) was achieved. Due to depletion of the producing fields, output has been declining steadily since 1963 and now is only about 15,000 tpy. Total identified oil reserves amount to no more than 4 million tons. New exploration efforts so far have led mainly to the discovery of additional natural gas, production of which doubled between 1979 and 1980 to 156 million mJ and for which new drilling results are very encouraging. 1/ Loan 936-MOR, First Power Project, Report No. 26a-MOR. Loan 1299-MOR, Sidi Cheho-Al Massira Hydro Project, Report No. 1156-MOR. Loan S-18, Petroleum Exploration Project, Report No. 2735a-MOR.  - 11 - 36. Coal in Morocco is only mined underground in the Jerada area in northeastern Morocco. Present annual production is 0.8 million tons (0.52 million toe) of which about 0.2 million tons is exported. The remainder is usecl primarily for power generation. Production is expected to increase to 1.2 million tons by the late 1980's, with the implementation of a limited mechanization program. Although there are about 80 million tons of probable reserves in the Jerada area, difficult geological conditions and high mining costs make further expansions unlikely and the possibilities for full mechanization to achieve higher production rates are limited. Outside of the Jerada area, there are some occurrences of coal and lignite in Morocco, for which an exploration plan has been prepared. However, the likelihood of discovering major new deposits appears very limited. 37. Existing hydropower facilities presently yield an average of about 1,500 GWh per year, generated from about 620 MW installed capacity. The new Bank-financed Sidi Cheho-Al Massira power plant (Loan 1299-MOR) has added 120 MW installed capacity. The development program through 1990 aims at add:Lng another 1,190 MW installed capacity, with the construction of 14 dam;. Development of additional hydro sites is, however, constrained by Morocco's hydrological conditions and increasing competitive demand for downstream water resources for irrigation and domestic water supply. 38. Unconventional forms of energy are not promising in the short to medium term. Although the uranium contained in Morocco's large phosphate reserves (about 50 billion tons) could represent a very large energy potential as a domestic fuel base for nuclear power plants, the lead time requjired for developing a nuclear industry in Morocco makes it only a remDte alternative domestic energy source. Renewable energy sources -- solar, biomass, wind and geothermal -- are being studied, but their development appears likely only on a small scale. 39. As identified energy resources in Morocco are very limited, Morocco has no other choice but to intensify its petroleum and gas exploration efforts and attempt to develop new energy resources, such as oil shale, if it is to reduce its dependence on imported energy. The Bank is supporting this effort under the Petroleum Exploration Project (Loan S-18) which finances the foreign exchange component of the Governmant's oil exploration program from early-1980 to mid-1983, as well as preliminary studies relating to oil shale. The proposed project would follow up on these preliminary studies and assist the Government in evaluating the options for developing its large identified oil shale resources, estimated to contain a crude oil equivalent of about 6 billion tons. 40. Energy pricing and conservation. The Government's objective with respect to energy pricing is to keep prices of energy sources equal to or above their economic value. Although in the past there have been some departures from this rule in the case of fuel oil, the present pricing structure for oil products results in prices which are above their imported cost by about 15% for fuel oil and by as much as 250% for gasoline. Electricity tariffs and coal prices have also been raised regularly to  - 12 - better reflect the cost of production. The Government's pricing policy is part of an extensive program to promote energy conservation. This program has already resulted in a substantial reduction in the rate of growth of energy consumption. In the future, strict adherence to the present pricing policy, together with further measures to promote energy conservation -- mainly in industry -- are expected to keep the total annual growth rate of energy consumption at a level of 5% during the next few years, as compared to an historical annual growth rate of 8%. Energy and Mining Sector Organization 41. The energy and the mining sectors -- both of which are involved in oil shale development -- are under the responsibility of the Ministry of Energy and Mines (MEM) which provides overall planning and policy making in these sectors. The MEM was created in 1977 to consolidate Government activities in several subsectors and is separated into two main operating departments; Energy and Mines. The Ministry oversees several public enterprises of which the main ones are; (i) the Office National de Recherches et d'Exploitation Petroliere (ONAREP) for petroleum and oil shale development; (ii) the Bureau de Recherches et de Participations Minieres (BRPM) for non-fuel mineral exploration and production; (iii) the Societe Anonyme Marocaine de l'Industrie du Raffinage (SAMIR); (iv) the 50% ONAREP-owned Societe Nationale des Produits Petroliers (SNPP) for the distribution of petroleum products; and (v) the Charbonnages du Maroc, operator of the Jerada coal mine. The Ministry also has administrative control over the Office National de l'Electricite (ONE). 42. With overall responsibility for energy and mining, the Ministry will play an important role in coordinating the efforts required for the development of oil shale, if the latter's economic viability is demonstrated. ONAREP would carry the main responsibility for oil shale mining and retorting. The Moroccan refineries, SAMIR and the Societg Cherifienne des Petroles (SCP), and the national petroleum distributing company (SNPP), would also have a significant role to play. The Moroccan mining community would contribute extensively to oil shale development by providing assistance and expertise for the critical mining aspects. Morocco has a long mining tradition, possessing the world's largest reserves of phosphate rock as well as other fuel (coal) and non-fuel minerals (iron, lead, zinc, manganese, cobalt and copper). The largest mining company is the Office Cherifien des Phosphates (OCP) an autonomous public enterprise which mines 18 million tpy of phosphate rock. OCP's long experience in open pit mining would greatly benefit Morocco in its oil shale development effort, as would BRPM's previous experience in prospecting and testing the Timahdit shale reserves. 43. Prior to mid-1981, BRPM was responsible for research, exploration, development and production of both fuel and non-fuel mineral resources (with the exception of phosphates). However, the rapid growth of activity in the hydrocarbon sector prompted the Government to create a new public enterprise, the Office National de Recherches et d'Exploitations Petroliares  - 13 - (ONAREP), to take over BRPM's responsibilities for oil, gas, and oil shale, including the implementation of the ongoing Bank-financed Petroleum Exploration Project (Loan No. S-18). The law (dahir) creating ONAREP has been passed by the Moroccan Parliament and was published in the official bulletin in November, 1981. Approval of the implementing decree, which sets out the administrative structure of ONAREP, is a condition of loan effectiveness (Loan Agreement, Section 7.01 (e)). The division of staff, assets and liabilities between BRPM and ONAREP has been agreed in principle and separate accounts were established for ONAREP as of January 1, 1982. A provisional opening balance sheet is being prepared, and will be reviewed by external auditors selected with the Bank's approval. Approval of the regulations transferring the relevant staff, assets and liabilities from BRPM to ONAREP, which would give ONAREP a satisfactory operational and financial base, and submission to the Bank of the provisional opening balance sheet and the auditors' opinion, are conditions of loan effectiveness (Loan Agreement, Sections 5.01 (c); 7.01 (d) and (e)). A full audit of the final opening balance sheet would be carried out by September 1, 1982 (Loan Agreement, Section 5.01 (d)). 44. The Director and Secretary General of ONAREP have been officially appointed and all of BRPM's technical and support staff working in petroleum and oil shale have been transferred to ONAREP, including about 105 engineers and geologists. ONAREP will be initially organized into divisions along the same functional lines as BRPM in order to preserves organizational cohesion and continuity of operations: (i) the Petroleum Exploration Division, re! onsible for oil and gas research and exploration activities, including the $90 million exploration program carried out under the Bank-financed Petroleum Exploration Project; (ii) the Technical Division, responsible for the physical execution of ONAREP's exploration and production work as well as for procurement and maintenance of ONAREP's facilities and equipment; (iii) the Oil Shale Division, responsible for the exploration and mining of Morocco's oil shale deposits and the development of an oil shale retorting capacity; (iv) the Administrative Division, in charge of personnel and contract management; and (v) the Financial Division, which handles accounting and financial matters. Confirmation of the appointment of the Division Chiefs and adequate professional and support staff for the Administrative and Financial divisions is a condition of loan effectiveness (Loan Agreement, Sections 4.01 (b)(i) and 7.01 (b)). ONAREP also expects to establish in the future units for budgeting and audits as well as for planning and evaluation. Management consultants, to be financed under the Petroleum Exploration Project, would be hired by September 1, 1982, to assist ONAREP in reviewing its organizational structure, operational methods, administrative and financial procedures and staffing requirements, taking into account not only ongoing and planned petroleum exploration and oil shale development operations but also the possibility of future production activities. The results of this review would be submitted to the Bank by June 1, 1983, and ONAREP and the Bank would subsequently agree on a program to implement the recommended changes (Loan Agreement, Section 4.01 (c)).  - 14 - 45. The institutional measures concerning the legal, physical and financial establishment of ONAREP mentioned in the above paragraphs are also reflected in a proposed Loan Assumption Agreement which would transfer the ongoing Petroleum Exploration Project (Loan S-18) from BRPM, the original Borrower, to ONAREP as successor agency to BRPM for petroleum activities. This agreement would also change disbursement percentages for seismic surveys from 80% of total expenditures to 100% of foreign expenditures, to facilitate direct payment to contractors, and would increase the limit for contracts procured under local competitive bidding procedures from $300,000 to $400,000 per individual contract, for contracts totalling less than $9 million, to facilitate standardization with equipment already purchased. The proposed Loan Assumption Agreement is being submitted concurrently with the Oil Shale Engineering Project to the Executive Directors. Oil Shale Development 46. State of the art. Oil shale, a sedimentary rock containing organic matter, is found in abundance in many parts of the world. Identified oil shale reserves contain over 290 billion toe (2,000 billion barrels), of which 5-10% are considered exploitable at present technology and prices. Developing countries account for 28% of the total reserves identified with the largest deposits located in Brazil, Zaire and China. Oil shale can be used for the production of shale oil and gas through a retorting processl/ or can be burned directly as a low-grade fuel. Its commercial exploitation started during the last century, mainly in Europe. Most of the oil shale industries, however, except those in the USSR and China, shut down after World War II because of their uncompetitiveness with petroleum fuel. 47. With the increase in oil prices, interest in oil shale has been revived and extensive work is presently taking place, mainly in the United States, Germany, Brazil and the USSR, to develop new processes both for direct combustion and for the retorting of oil shale. Retorting of oil shale can be done either in surface plants supplied with mined shale or in situ, leaving the shale in the ground. Both surface and in situ retorting are technologically complex operations for which several processes are presently under development. Most of the surface processes are continuous, i.e., a continuous flow of shale is run through a special vessel (retort) where it is heated, creating the chemical reaction leading to the production of oil. Some of the older surface processes, as well as the in situ process, are batch processes where a certain volume of oil shale is isolated (either in a vessel or underground), retorted, and then removed (or left in place in case of in situ retorting). The most well-known processes are being developed in the United States by Tosco, Union Oil, Occidental, Paraho, and Superior; in Germany by Lurgi-Ruhrgas; and in Brazil by Petrobras. Most of these retorting processes have been tested at a pilot plant scale; however, none has reached the state of commercial application. Because of the complex technology involved in retorting processes and the lack of commercial experience, none of these processes can be considered today as industrially proven. In the USA, two commercial scale projects 1/ Thermal decomposition of the shale's organic matter into oil, gas, water and residual carbon.  - 15 - (Exxon/Tosco and Union Oil) are under construction and are expected to be completed by the late 1980's. 48. Oil shale development faces some problems in the downstream treatment of its products. Because of the characteristics of the shale oil produced -- typically, a higher carbon to hydrogen ratio and more sulfur and nitrogen than in most crude oil -- the refining of such a product requires a specifically designed treatment cycle which normally is not acco modated in existing refineries. Another obstacle facing development of the oil shale industry is its environmental impact. A large industrial oil shale operation (50,000 bbl/day) will require the mining of more than 25 million cubic meters of shale per year (50 million tons) and disposal of even larger volumes of spent shale and overburden. The latter aspect alone, if not adequately planned and controlled, can cause serious damage to the region's ecology. Also, the various chemical reactions taking place during the retorting process lead to the production of pollutants and toxic elements which must be extracted from the gases and shale oil. Finally, the large volumes of water needed as well as the pollution of the non-recycled water by residual organic materials are likely, if not controlled, to affect the hydrological conditions in the area where the oil shale operation is located. With the extensive work which has been undertaken, mainly in the USA, satisfactory technical solutions have been found to mDst of these problems. The complexity and extent of the environmental problens inherent to oil shale exploitation will require extensive long-term planning as well as large investments in land reclamation and pollution control devices to limit the social and ecological disturbance which will be caused by such an industry. 49. Oil shale retorting is highly capital intensive. Its economics are still uncertain as there has been no recent commercial experience in oil shale retorting except in the USSR and China. Estimates for the capital cost vary within a wide range from $30,000 to above $50,000 per barrel of daily capacity and estimates for operating costs range from $25 up to $50 per barrel (in 1980 terms). Although these costs appear high, the rising cost of energy and in particular, of imported fuel, makes the exploitation of selected oil shale deposits a potentially competitive alternative for the energy supply of countries dependent on imported energy. As mentioned in the recent Energy Policy Paper.!, despite the uncertainties surrounding the process technologies, efforts to define oil shale prospects should be viewed by developing countries with known oil shale reserves as a sound investment. Morocco is a prime candidate for such efforts. 50. Moroccan oil shale prospects. Moroccan oil shale reserves identified to date are estimated at over 100 billion tons, containing more than 6 billion tons of oil in several deposits of which the three major ones are located at Timahdit in the central plateau about 250 km east of Rabat, Tarfaya located in the far southeastern region and Tangiers, on the northern coast. The most favorable deposit for early development of an oil shale industry appears to be Timahdit, where proven reserves of about 3.3 billion 1/ Energy in the Developing Countries. August, 1980; p.22.  - 16 - tons of oil shale have been identified with an average oil content of 17 gal/ton of shale. 51. The Timahdit deposit, which was discovered in 1966 by BRPM, has been extensively studied since 1974. About $1 million have already been spent on geological exploration work as well as on testing of the shale. The exploration work carried out by BRPM -- which included drilling of 72 holes with a total length of 22,000 m and digging of 200 m of shafts and galleries -- showed that the deposit presented very favorable characteristics. A 6 km2 plateau was identified containing some 2.9 billion tons of shale with a favorable overburden ratio of 1:1 and hardly any waste layers within the oil shale bed. This plateau is suitable for open-pit mining and the mining costs for this deposit are likely to be below those for underground oil shale mines. 52. Testing of the Timahdit shale has been done both in Morocco and abroad. About 19,500 samples were analyzed in BRPM laboratories and about 800 tons were tested in three different batch retorts built in Rabat and Timahdit by BRPM with individual capacities of 200 kg, 3 tons and 50 tons each. In addition, about 1,000 tons of shale were shipped abroad for testing in laboratories and pilot plants in the USA (Tosco, Occidental, Paraho and Union Oil) as well as in Germany (Kloeckner/Lurgi-Ruhrgas) and in the USSR. The various tests and the associated prefeasibility studies showed that extraction of oil from Timahdit shale was technically feasible with high recovery rates for all the retorting processes tested. While Timahdit shale is "leaner" than high grade Colorado shale (17 gal/ton compared to about 30 gal/ton), it has a high proportion of residual carbon, which may substantially reduce the need for external energy in the extraction process. Further testing of a wide range of samples covering the entire deposit may still be needed. However, it can already be concluded that the combination of the relatively good quality of the shale and the favorable geological characteristics of the deposit make Timahdit a potentially suitable site for industrial oil shale exploitation. Nonetheless, while the preliminary studies conducted by the process holders indicated that Timahdit shale could be retorted at costs comparable to US oil shales, they focused only on retorting per se and did not take into account mining costs, downstream treatment of oil and gas or infrastructure requirements, which would account for at least two-thirds of the total cost of a commercial oil shale operation. The studies thus do not provide sufficient data to allow any conclusions as to the overall economics of shale oil extraction in Morocco nor as to the retorting process most appropriate for the Moroccan context. 53. The T3 process. In parallel to the work done by the foreign process holders, the Moroccan Government and BRPM, in view of the complexity, costs and uncertain timing of availability of the retorting processes being developed abroad, decided to explore the possibility of the implementation of a simple surface process. With the technical assistance of a US scientific consulting firm, SAI (Science Applications, Inc.), the T3 process -- so named for the three main Moroccan oil shale deposits -- was  - 17 - developed. A preliminary study of the feasibility of the T3 process carried out by SAI indicated that a commercial plant based on the T3 process might be economically viable in Morocco with today's oil prices. On the basis of these provisional results, BRPM contracted further studies on the T3 process to SAI in July, 1980 which were financed under a special allocation within the Bank's Petroleum Exploration Loan ($ 2.5 million). This included (i) a preliminary comparative study of known retorting processes; (ii) design of a testing program for the T3 process; and (iii) preliminary design of a T3 pilot plant. The preliminary comparative study identified four processes -- Paraho, Lurgi, Union Oil SGR and T3 -- which are considered the most suitable for the Moroccan context. An outline of the T3 testing program has been drawn up and the preliminary design of a pilot plant has been completed. 54. The T3 process is an improved version of the older NTU process (Nevada, Texas, Utah) developed by the US Bureau of Mines before World War II. It consists of a pair of coupled batch retorts, with one retort burning and producing oil through direct generation of heat while the other one is cooling down. The combustion air which is needed in the burning retort is first passed with some water through the cooling retort, thus generating steam which is used to preheat the shale as well as to help control the temperature in the burning retort. The production and use of steam is expected to increase the oil yield and retorting rate as well as the overall energy efficiency of the process. Favorable energy efficiency and water utilization ratios may make T3 more appropriate for the particular characteristics of Moroccan shale. However, oil recovery rates, while acc ptable, are somewhat lower than for continuous processes and, when combined with the slow throughput of a batch process, indicate that capital and operating costs per barrel of oil produced might be higher than for continuous processes. The multiplicity of retorts needed for a T3 commercial plant means that operation would not necessarily be simpler than a continuous process but would, on the other hand, prevent complete shutdown in case of malfunctions. Because T3 is at a very preliminary stage, its development to an industrial stage would probably take longer than for continuous processes. However, the availability or appropriateness of processes being developed abroad cannot be guaranteed and thus T3 as a locally developed process is perceived by the Moroccans as a hedge against total dependency on foreign process-holders. Government strategy 55. Shale Retorting. Because of the early stage of development of shale retorting technologies, the limited understanding of their adaptability to the particular characteristics of Timahdit shale, the physical, financial and human resource constraints in Morocco, as well as the uncertainty of the economic viability of shale oil extraction, the Government has concluded that any decision to undertake commercial exploitation of its oil shale resources should only be taken after a phased program of experimental testing and the technical and economic evaluation of the various options available. A subsequent phase in the Government's long-term shale development program would involve the construction and  - 18 - operation of one or more full-scale demonstration plants which might cost anywhere from $50 million to $300 million. This would permit further reduction of the technical unknowns concerning the operation of the process in question, particularly as regards scale-up issues, before proceeding to a third phase, the development of a complete commercial retorting operation. The commercial operation would include development of the mine, retorting plant, oil upgrading and gas treatment facilities, infrastructure and oil distribution network. It has been estimated that such an operation could cost between $750 million and $3 billion, depending on the process and plant size chosen. The first commercial plant could have a capacity of 10,000-20,000 bbl/day; however, the long-term Moroccan objective is to produce at least 50,000 bbl/day, which would cover a significant portion (2.5 million tpy or about two-thirds) of current oil imports. 56. In view of the increasing interest worldwide in oil shale, a number of private foreign companies have approached the Moroccan government to explore the possibility of an eventual collaboration for the development of its shale resources. In addition to the studies and pilot plant testing to be carried out under the Bank-financed engineering project, the Government has recently signed two contracts to undertake preliminary studies on shale retorting prospects. The first study, to be financed jointly by the American oil shale company Tosco, the Banque de Paris et des Pays-Bas (Paribas) and the Government, would analyze the technical and economic feasibility of adapting the Tosco retorting process for a commercial plant at Timahdit. The second study, of which the first phase would be financed entirely by Royal Dutch Shell, would carry out preliminary geological exploration and feasibility studies on the Tarfaya shale deposit, to determine the desirability of establishing a demDnstration plant for testing a new retorting process being developed by Shell, with a view to eventual commercial retorting operations at Tarfaya. 57. It is clearly in the Government's interest to attract potential investors and to explore with them as many as possible alternative options for the development of its shale resources, in order to maximize the range of choices available for a final investment decision. However, it is essential that the various studies be carefully coordinated in order to avoid duplication of efforts, and that the results of all such studies be compared so that any decision to invest in oil shale retorting on a commercial scale be made on the basis of a thorough evaluation and comparison of all potentially viable alternatives. The Bank welcomes the existence of parallel studies on Morocco's oil shale resources which can be used as input to the comparative studies to be financed by the Bank, provided, however, (i) that such projects do not involve commitments which would limit the Moroccan Government's options for future investment decisions, and (ii) that they are adequately coordinated with and, to the extent appropriate, integrated into the Bank financed projects (see para. 82). Assurances were therefore obtained during negotiations that the Bank would be fully informed about all planned and on-going studies or signed contracts concerning oil shale retorting, that any parallel projects or studies would be appropriately coordinated with the studies financed under  - 19 - the proposed project, and that the results of all the different studies (whether financed by the Bank or not), and possible follow-up thereto, would be reviewed and discussed with the Bank (Guarantee Agreement, Section 4.03 (a)). Furthermore, should the Government enter into any contract or other arrangement with third parties which would (i) interfere with the carrying out of the proposed Bank-financed project or (ii) restrict in any way the Government's freedom to apply the conclusions of the project-financed studies regarding the choice of retorting process, the Bank would have the right to suspend and premature the proposed loan (Loan Agreenent, Section 6.01 (b)). 58. Direct combustion of shale. As a parallel route to oil shale retorting, the Office National d'Electricitg (ONE), in cooperation with the Russian foreign trade agency, Neftechimpromekport, and Kloeckner, Steinmueller and Deutsche Babcock AG, of Germany, has conducted tests and studies on the direct combustion of oil shale in power plants. A 1,000 ton sample of Timahdit shale -- with a heating value of about 1,100 kcal/kg and an ash content of 60% -- has been tested in a lignite-fired power plant in Germany by Deutsche Babcock, which showed that the Timahdit shale would burn satisfactorily in a power plant. However, although there is wide industrial experience with burning low calorific solid fuel, there is only limited experience with burning fuels with a very high ash content such as shale. Presently, the only two large-scale shale-fired power plants are in Estonia, USSR, where the ash content does not exceed 50% and the shale has an unusually high calorific value of 2,400 kcal/kg. A new shale-fired power plant is under construction in Romania, where shale characteristics are closer to those in Timahdit than are those in Estonia. Based on the Russian experience, Moroccan authorities feel that the direct combustion of shale may be a viable means to achieve early reduction of the oil imports in the important consumption sector of thermal power plants. ONE plans to start construction of a demonstration shale-fired power plant of 200 MW in 1983 in the Timahdit area. A feasibility study has been prepared by Neftechimpromekport and will be submitted to the Bank for review (see para. 67). Development of direct combustion and of shale retorting in Timahdit are not necessarily mutually exclusive as the Timahdit deposit contains sufficient reserves to supply both the power plants and the retorting plants envisaged. However, because of the high cost and complexity of both developments and in view of limited Moroccan financial and human resources, priorities may eventually have to be established between the retorting and direct combustion routes. PART IV - THE PROJECT Project Concept and Background 59. The proposed engineering project would increase the Moroccan Government's understanding of the technical, managerial and economic constraints, risks and benefits involved in the development of an oil shale retorting industry, so that it can make an informed decision on whether and  - 20 - how to proceed with further investments in oil shale. The eventual commercial exploitation of Morocco's oil shale resources could help significantly in reducing Morocco's energy imports, thus alleviating an important drain on the balance of payments. The project would also strengthen the local institutional capacity to design, implement and evaluate oil shale retorting operations. 60. In July 1980 the Bank agreed to finance various studies on oil shale development in Morocco under a special allocation in the Petroleum Exploration Loan (see para. 53). In October of the same year, an identification mission visited Morocco to discuss with the Government and BRPM the next steps in their oil shale development program and the scope of a possible engineering project. Following the mission, BRPM/ONAREP pursued the preparation of this project, which was appraised by the Bank in February 1981. Negotiations were held in Washington in August and October 1981; the leader of the Moroccan negotiating team was Mr. Mohamed Douieb, Director General of ONAREP. The main features of this project are outlined in the Loan and Project Summary. A Supplementary Project Data sheet is attached as Annex III. Project Objectives 61. The oil shale engineering project will: (a) increase knowledge of the characteristics of Moroccan shale, shale oil and retorting by-products; (b) facilitate the selection of the optimum retorting process for Morocco, taking into account the particular characteristics of the shale, the operating parameters of the various retorting processes under development and Morocco's environmental, financial and manpower constraints; (c) determine the economic viability of commercial scale oil shale retorting in Timahdit, with attention to mining, retorting plant, infrastructure, refining of shale oil and treatment of by-products, environmental impact and the relative viability of direct combustion of shale for power generation; and (d) give practical training to Moroccan technicians in the construction and operation of a small-scale retorting plant and test station. Project Description 62. The project consists of: (a) construction and operation of a test station at Timahdit; (b) technical evaluation of alternative retorting processes and, if deemed necessary, additional testing of Timahdit shale in existing pilot plants; (c) preparation of a comprehensive feasibility study of commercial oil shale retorting operations at Timahdit. This study will be divided into separate components for the mine and for the retorting plant and infrastructure;  - 21 - (d) comparison of the economics of retorting of shale with its direct combustion in power plants. 63. A test station will be built in Timahdit in order to test the operation of the T3 process, to enable extensive analysis of Timahdit shale, to generate sufficient samples of shale oil, off-gas and retorted shale for an initial examination of oil upgrading requirements and treatment of by-products and spent shale, as well as to provide on-site practical training to Moroccan engineers and technicians in the construction and operation of a retorting plant. The test station will include a module of two batch retorts of 80t capacity each, based on the T3 process, with related equipment, instruments, laboratory and a small open pit mine for supplying the shale. The design of this test station is based on the design work performed by SAI (see para. 53) which will be reviewed to ensure that all relevant parameters could be investigated and to facilitate to the extent possible, future testing of different processes. The design will also be submitted to an independent safety audit before construction is undertaken (Loan Agreement, Section 3.01 (b)(ii)). The T3 process was chosen for the initial phase of operation for this test station in view of the importance of obtaining experimental data on this process, which has never yet been operationally tested, as opposed to other known processes for which pilot plants, and in some cases semi-work plants, do already exist. A batch process such as T3 may also be more suitable for training purposes due to its relative simplicity (See para. 54). 64. Under the proposed project the test station will be run for 12 months in( uding a three-month start-up period. During these months approximately 50 test runs will be made; an outline of the proposed test program has already been approved by the Bank and the detailed test program would be submitted to the Bank for approval before commencing operation of the test station (Loan Agreement, Section 3.01 (b)(i)). The tests will be aimed at analyzing both the main operating parameters of the T3 process (retorting rate, off-gas composition, mechanical behavior) and the key characteristics of Moroccan shale (granulometry, combustion temperature, fusing of spent shale, mechanical strength of shale in retort, breakdown of organic matters into different products). General technical assistance will be provided for the design, implenentation and evaluation of the test program (see para. 70). The test station could continue to operate after the twelve-month period included in the project for additional testing of a wide sampling of the Timahdit shale deposit and may eventually be mDdified later on to test other processes or equipment. 65. The technical evaluation of alternative retorting processes will be based on analysis of the results of the tests already undertaken in pilot plants abroad as well as on the information about the Timahdit shale gained from the test program in the Timahdit test station and would continue the analysis begun in the preliminary comparative study financed under the Petroleum Exploration Loan (see para. 53). Input from several process licensors will be obtained, and for clarification of special issues, additional test work by one or two licensors is expected. Assurances were obtained during negotiations that the consultants would have adequate access  - 22 - to the information necessary for carrying out the studies (Loan Agreement, Section 3.02 (c)). The results of any studies being carried out in parallel with the Bank-financed project (see para. 56) will be integrated into this evaluation. The evaluation will focus on critical parameters such as oil yield, combustion of residual carbon, quality of oil produced and of by-products, overall energy efficiency, retorting rate, water consumption, and manpower requirements. These results will determine which retorting process or processes will be used for the economic feasibility study. The terms of reference for this evaluation, for which an outline was discussed during negotiations, will be agreed by loan effectiveness (Loan Agreement, Sections 3.02 (b)(i) and 7.01 (c)) and consultants would be hired by August 1, 1982 (Loan Agreement, Section 3.02 (a)(ii)). 66. The feasibility study will provide a comprehensive analysis of the economics of different commercial operations for production of oil from shale. A final production capacity of 50,000 bbl/day will be assumed to be built up from an initial production rate of lO,OOObbl/day. The feasibility study will be broken down into two parts: (i) the mine component will include review of existing geological data, gathering and evaluation of additional geological, hydrological and geotechnical data based on additional boreholes, detailed mine planning for initial production rates of 10 million tpy (to be expanded over time to 50 million tpy), and estimates of capital and operating costs, to determine the likely price of shale for delivery by the proposed mine. An important aspect of the mine study will be the evaluation of the environmental impact of disposal of spent sbhlle and eventual land reclamation. Spent shale produced from the retorting at the test station will be analyzed in order to determine its physical and chemical characteristics (e.g., stability, organic residues) and recommend measures for adequate environmental protection. As it is planned that the mine could eventually supply both the commercial-scale oil shale retorting plant and the direct combustion plant planned by ONE (see para. 58), the mine study is a crucial element in the analysis of the feasibility of both the proposed retorting and direct combustion plants, and special emphasis is being placed on this component in the first months of project implementation. Terms of reference for this study, have already been agreed and consultants would be hired by August 1, 1982 (Loan Agreement, Section 3.02 (a)(ii)). (ii) the retorting plant and infrastructure component will include a preliminary site layout, process flowsheets, basic design features of critical components, as well as a comprehensive overview and capital and operating cost estimates for all production and support facilities (in addition to the mine) necessary to produce oil from shale such as: handling, crushing and sizing of raw shale; treatment, storage and transportation of the oil produced; utilization of the gas; water and power supply; pollution control;  - 23 - transportation infrastructure and housing. As part of the analysis of the utilization and treatment of the products of retorting, samples of shale oil produced in the test station will be analyzed in refineries to determine an adequate flowsheet for the treatment of this oil, and samples will also be burned in oil-fired power plants to determine whether this would be a possible use for the oil. An assessment of the environmental conditions at Timahdit and the standards to be used for pollution control will also form part of this study. The retorting process or processes to be used in this study will be chosen following the comparative evaluation of retorting processes described in para. 64 above. Terms of reference will be agreed by March 31, 1984 (Loan Agreement, Section 3.02 (b)(ii)) and consultants would be hired by June 30, 1984 (Loan Agreement, Section 3.02 (a)(iii)). The two components of the study will be integrated for the assessment of the technical, financial and economic viability of the production of oil from shale in Timahdit. 67. The comparison between retorting of shale and direct combustion will investigate the impact of each of these routes on the reduction of oil imports and will compare the costs required to achieve the same impact and the relative constraints and risks involved. It will consist of a comparison of the results of the economic feasibility study for shale oil production described above with the economic feasibility study for a direct combustion demonstration plant prepared by ONE (see para. 58). The terms of reference for this study will be agreed by September 30, 1985 (Guarantee Agreement, Section 3.01 (b)) and consultants would be hired by December 31, 1985 (Guarantee Agreement, Section 3.02(a)). During negotiations, assurances were obtained that prior to initiating construction of a shale-fired power plant, the feasibility study for the power plant will be discussed with the Bank (Guarantee Agreement, Section 4.03(b)). Project Implementation 68. Except for the comparison between retorting and direct combustion, which will be carried out under the supervision of the Ministry of Energy and Mines, the project will be implemented by ONAREP's Oil Shale Division. The Division comprises five sections: (i) the geological and mining exploration section, which will design, manage and evaluate the exploration of the Timahdit and other shale deposits; (ii) the mining section, which will supervise the implementation of the mining study financed under the project; (iii) the pilot plant section, responsible for the contruction and operation of the Timahdit test station and the implementation and analysis of the shale testing program; (iv) the retorting section, in charge of the technical evaluation of alternative retorting processes and the retorting plant feasibility study; and (v) the planning section, which will coordinate all aspects of the feasibility studies as well as undertake the overall financial and economic analysis. The latter section will also coordinate the various components of the Bank-financed project and ensure in turn their coordination  - 24 - with parallel projects in the sector. In addition to these technical sections, a small administrative unit will be attached directly to the Division Chief to supervise contract management for the project. 69. The Shale Division will be staffed with about thirty engineers, geologists and financial analysts, m,ost of whom are already in place. Confirmation of the appointment of the Division Chief, all section heads and a contract management specialist is a condition of loan effectiveness (Loan Agreement, Section 4.01 (b)(ii) and 7.01 (b). Through the exploration and test work already carried out by BRPM for Timahdit, ONAREP has accumulated considerable expertise in the technical aspects of shale mining and retorting. However, ONAREP's staff lack practical experience in the management and mDnitoring of the multiple aspects of an oil shale retorting operation, which would be gained under the proposed project. As direct involvement in the construction and operation of the test station is considered vital for the desired technology transfer, the station will be operated mainly by Moroccan personnel who will be trained on the job by consultants during the start-up and initial operating phase. A detailed organization chart and job descriptions for the Oil Shale Division were agreed with ONAREP during negotiations. 70. For the execution of the Engineering Project, ONAREP has obtained or will obtain assistance from consultants whose qualifications, experience, and terms and conditions of employment will be satisfactory to the Bank (Loan Agreement, Section 3.02(a) and Guarantee Agreement, Section 3.02 (a)). About 670 man-months of consultant services will be financed through the loan, in particular, for: (i) The management of the test station construction which has been entrusted, with Bank approval, by ONAREP to Davy McKee Inc., (DMC), a US engineering and construction firm with wide experience in construction management of large-scale industrial plants as well as oil shale pilot plants. The project manager will assist ONAREP in procuring the equipment, supervise the construction and commissioning of the test station and assist during the start-up period. About 110 man-nxnths are allocated for these tasks; (ii) General technical assistance for the duration of the project and in particular, to assist ONAREP in the definition and implementation of the test program in the Timahdit test station and in interpreting the test results, for which O0AREP has retained, with Bank approval, the services of Science Applications Inc. (SAI). SAI will provide about 135 man-months of staff to ONAREP during the construction, start-up and operation of the station; (iii) The technical evaluation of retorting processes, the mine as well as the retorting and infrastructure components of the economic feasibility study and the comparison of  - 25 - retorting shale and direct combustion, will be carried out by experienced consulting firms selected in accordance with Bank guidelines. A total of 425 man-months have been allocated for these studies. 71. The projected project implementation period is about 4 years. Construction of the Timahdit test station, which is on the critical path, is expected to require 13 months from the time the first equipment orders are placed (May 1982). After a start-up phase of 3 months (third quarter of 1983) the testing program requires 9 months of plant operations and is thus expected to be completed by mid 1984. The technical evaluation of retorting processes will start in mid 1982, and, after consultation of process licensors and, if necessary, execution of additional tests in foreign pilot plants, will be completed by the last quarter of 1984. The mine component of the feasibility study is expected to be underway by mid 1982, but the retorting plant and infrastructure component will not be undertaken until the preliminary results of the comparison of retorting processes are available in mid 1984. Finally, the comparison of direct combustion versus retorting will be done in early 1986, once the feasibility study has been completed. The project would be completed by March 31, 1986. A detailed time schedule showing the execution of the different project components is given in Annex IV. Project Costs and Financing Plan 72. The total cost of the project has been estimated at $25.7 millioni/ inc uding taxes, of which $20.0 million or 78%, are in foreign exchange. Taxes are estimated at $1.3 million. The total costs for equipment and construction of the Timahdit test station have been estimated at $7.4 million, including $1.4 million for the services of DMC as Project Manager, expected to total about 110 man-months at an average cost of $12,500 per man-month. These estimates have been compiled by SAI and confirmed by DMC after a detailed review of test station design and cost. Operating costs for the test station are estimated at $2.8 million, including about $1.0 million for the services of SAI, estimated at 70 man-months at an average cost of $14,000 per man-month. $1.7 million have been allocated for consultant services for the technical evaluation of retorting processes, including additional testing, if necessary, by process licensors and 100 man-months of the services of consultants and process licensors, at an average cost of $12,500 per man-month, including all fees, reimbursables, transportation and subsistence. $3.1 million have been allocated for the mine study, including $0.9 million for additional exploration of the deposit and 170 man-months of consultant services at an average cost of $12,500 per man-month. The plant and infrastructure component of the feasibility study and the comparison between shale retorting and direct combustion are estimated to cost $2.0 million for 155 man-months of consultant services at an average cost of $12,500 per man-month. $0.9 million have been allocated for general technical 1/ mid I9M1 prices.  - 26 - assistance to cover the cost of the services to ONAREP provided primarily by SAI throughout the project, expected to amunt to 65 man-months at an average cost of $14,000 per man-month including all fees, reimbursables, transportation and subsistence. To the total base costs of $17.9 million, $3.6 million have been added for physical contingencies, representing 20% of base costs for the construction of the test station as well as for studies and technical assistance. $4.2 million have been added as price contingencies based on assumed local inflation of 11% in 1981, 10% in 1982 and 9% in 1983 and thereafter and international inflation of 9% in 1981, 8.5% in 1982, and 8% in 1983, 1984 and 1985. Total contingencies amount to 43% of estimated base costs. The costs discussed above do not include the $2.5 million allocated to oil shale studies under Loan S-18 (Petroleum Exploration Project), which are to cover the work previously contracted to SAI (see para. 53). 73. The proposed engineering loan of $20.0 million will be made to ONAREP at 11.6% interest per annum for 17 years including a 4-year grace period. It would finance all the foreign exchange cost of the project (78%) with the exception of the indirect foreign exchange costs incurred in the erection and operation of the test station and in carrying out additional drilling work for the mine study. The $0.2 million earmarked for the comparative study of retorting versus direct combustion, will be onlent to the Government. Finalization of financing arrangements for this comparative study satisfactory to ONAREP, the Government and the Bank is a condition of loan effectiveness (Loan Agreement, Sections 3.01(c) and 7.01(a)). 74. The local cost comoonent of $5.7 million (22%) will be financed by the Moroccan Government through annual budget allocations to ONAREP. Dur .g negotiations, assurances were obtained that the Government will (i) provirce ONAREP with the necessary local funds through annual budget allocations; and (ii) provide financing for any cost overrun, both in local or foreign currency, for completion of the project (Guarantee Agreement, Section 2.02). ONAREP would assume the foreign exchange risk. Procurement and Disbursements 75. As most of the equipment packages are small (below $300,000), limited international tendering (LIT), according to Bank guidelines, will be followed for procurement of all equipment, totalling about $3.2 million. The mechanical erection of the test station (estimated to cost about $1.4 million), will be contracted according to international competitive bidding (ICB). Civil works and electrical erection will be contracted locally according to local procedures and will be financed by the Government. Additional geological drilling will be carried out and financed by ONAREP. Technical assistance will be contracted internationally according to the Bank's guidelines.  - 27 - 76. Disbursement of the Bank loan will be made against: (a) 100% of the foreign exchange cost of equipment procured under ICB or LIT (b) 100% of total cost of mechanical erection contracts procured under ICB; and (c) 100% of the foreign exchange expenditures and 85% of local expenditures for consultant services (including provision of information and testing of shale by process licensors). The proposed loan is expected to be fully disbursed by September 30, 1986 (Annex V). 77. Retroactive financing of an amount not exceeding $2.0 million is recommended to complete the financing of the studies already contracted to SAI (see para. 53) which were initially financed under the Petroleum Exploration Project, as well as the engineering design work carried out by DMC with Bank approval and downpayments for long lead-time equipment items (Loan Agreement, Schedule 1, para. 4). ONAREP's Financial Position 78. ONAREP's initial financial position will not be determined until the separation of assets and liabilities between BRPM and ONAREP is finally agreed (see para. 43). The final opening balance sheet will be audited by September 1, 1982 and annual accounts will be audited and submitted to the Bank regularly thereafter (Loan Agreement, Section 5.02). In addition, submission of ONAREP's approved 1982 work program and budget is a condition of effectiveness (Loan Agreement, Sections 5.01 (c) and 7.01 (d)). Because of the nature of its activities -- hydrocarbon exploration and development (of which petroleum exploration represents about 90%) -- the future financial position and the cash generating capacity of ONAREP cannot be predicted. Should a major discovery of oil or gas take place, ONAREP could enjoy a very sound financial position; otherwise it will have to rely on budgetary allocations to cover its obligations over the next few years, as BRPM had in the past. The future soundness of ONAREP's financial position and its capacity to service its debt depends, in the final analysis, on the Guarantor, the Moroccan Government. 79. In the past, BRPM/ONAREP has had considerable cash flow problems, and has periodically accumulated serious short-term arrears. Some of the cash flow difficulties will be alleviated by using direct payment disbursement procedures under the proposed loan whenever possible, in order to avoid the administrative bottlenecks that have delayed presentation of reimbursement requests under the Petroleum Exploration Project. Nonetheless, to ensure that ONAREP can meet its continuous payment obligations, assurances were obtained during negotiations that ONAREP would maintain sufficient working capital to meet its short-term financial obligations in a timely fashion (Loan Agreement, Section 5.07). ONAREP's ability to meet the requirements of this covenant is  - 28 - further guaranteed by the Government (Guarantee Agreement, Section 2.02). The Bank will carry on a continuing dialogue with ONAREP concerning appropriate financial guidelines, which would be agreed once ONAREP's financial structure is mDre clearly defined and in the light of the possibility of a future project for gas production, which could convert ONAREP into a revenue-generating entity. Benefits and Risks 80. The potential benefits of oil shale development in Morocco are substantial if not presently quantifiable. A 10,000 bbl/day shale retorting plant, currently envisaged as the minimum scale commercial operation, would replace close to 15% of Morocco's present oil imports; a 50,000 bbl/day plant could produce up to 2.5 tpy of oil, which represents about two-thirds of current oil imports. If oil shale retorting technology proves to be viable, Morocco would be in a position to meet a significant portion of its demand for oil by local production based on the proven reserves at the Timahdit oil shale deposit. The nore i mmdiate benefits from this engineering project will stem from the comprehensive and reliable information which the project will generate and which will help the Moroccan Government to make an educated decision on whether or not to proceed with further investments in oil shale development, on the selection of the optimum retorting process for an eventual commercial plant and finally, on the priority to be assigned between possible routes for exploitation of national oil shale resources (retorting and direct combustion of shale). An additional benefit from the project, and more specifically of the test station operation, is the practical experience which the implementation of the project will provide to the Moroccans. It is crucial that the Moroccan engineers as well as the Government officials who will be responsible for the very large investments required for oil shale development gain an in-depth understanding of the operational, technical and economic issues involved in oil shale development, which will strengthen them for future negotiations with foreign process holders. 81. The principal project risk lies in the uncertainty of the ultimate development of an oil shale retorting industry in Morocco (see paras. 48-49). The technical, environmental and financial constraints facing the embryonic oil shale industry are such that nobody can presently assess whether or not oil shale retorting is a viable alternative for the production of domestic fuel. There is a possibility that the proposed project would be a wasted effort if oil shale development did not prove to be a realistic alternative. However, in the face of the urgency and extent of Morocco's energy dependency problem and in view of the long lead time required and uncertainties involved in developing any new energy source, the Moroccan Government believes that the risk of investing in the development of an unproven technology must be taken. However, the Government is aware that, particularly in view of the enormous financial and human resources required to implement a full scale retorting operation, final commercial investment decisions must only be taken after extensive studies and testing, and for this reason has adopted a phased approach to its shale development program, with decision points carefully built in at the end of each phase before further investments are undertaken.  - 29 - 82. Another risk for this project could be that the Government might make commitments before the completion and review of the studies financed under the proposed project, which would limit its freedom to choose among the various investment options. Any agreement which would bind the Government to one retorting process or to a particular foreign partner, would frustrate the basic purpose of the studies financed under the Bank project, whose aim is to assist the Government to make a decision on future investments in oil shale on the basis of a neutral comparison of all available alternatives and an objective assessment of the technical and economic viability of the approach chosen. The execution of contractual arrangements, which would constrain the Government's freedom regarding final investment decisions, or hinder in any way the execution of the studies financed under the proposed project, would be considered a special event of loan suspension (see para. 57). The addition of these remedies to those normally provided under the General Conditions would allow the Government the flexibility to enter into contractual arrangements with other partners which would be consistent with the objectives of the proposed project, while safeguarding the Bank from proceeding with the project if changing circumstances affect the basic rationale of the project and render it invalid. A related risk concerns the access by the consultants hired to carry out the comparative analysis of retorting processes to confidential information on the technical aspects of such processes, which is generally protected under secrecy agreements. Assurances were obtained during negotiations that the consultants would be given adequate access to the necessary information (see para. 65). 83 A related risk concerns the viability of the locally developed T3 process (see para. 54). The chances of developing the T3 process to a commercial stage presently appear limited and therefore further work on the T3 process, in particular the testing of the process in the Timahdit test station, might be viewed as unjustified. However, only a small part of the total project relates exclusively to the evaluation and development of the T3 process (9% of total base project cost). Moreover, the attempt by the Moroccans to develop a local process will serve as a practical training tool for Moroccan engineers and technicians which would prove valuable for any program to develop oil shale extraction, while avoiding commitment at this preliminary stage to a particular foreign retorting process. 84. Another potential risk relates to the capacity of ONAREP to implement this engineering project and effectively assess options for future investments. The appointment of qualified staff to ONAREP's Oil Shale Division is a condition of effectiveness and ONAREP and the Bank have agreed on staffing plans and organizational structure for the Division (see para. 69). The consultant contracts with SAI and DMC have been examined with a view to maximizing on-the-job training for Moroccan counterparts, and contracts for the various studies to be financed under the project will also focus on the crucial aspects of technology transfer and institution-building.  - 30 - PART V - LEGAL INSTRUMENTS AND ATJTHORITY 85. The draft Loan Agreement between ONAREP and the Bank, the draft Guarantee Agreement between the Kingdom of Morocco and the Bank, the draft Loan Assumption Agreement (Loan S-18) and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 86. Among the features of the Loan and Guarantee Agreements which are referred to in the text and listed in Section III of Annex III, the following conditions are of special interest: Special conditions of effectiveness of the loan are: a) Approval by the Council of Ministers of the implementing decree concerning ONAREP's administrative structure (Loan Agreement, Section 7.01(e)). b) Finalization of arrangements for the study comparing shale retorting and direct combustion (Loan Agreement, Sections 3.01(c) and 7.01(a)). c) Confirmation of the employment of division chiefs for the Financial, Administrative and Shale Divisions and of additional staff for ONAREP's Oil Shale Division (Loan Agreement, Sections 4.01(b) and 7.01(b)). d) Agreement on the terms of reference for the technical evaluatio- of retorting processes (Loan Agreement, Section 3.02 (b)(i) and Se-.tion 7.01(c)). e) Submission to the Bank of a provisional opening balance sheet for ONAREP together with a qualified auditor's opinion thereon, and of ONAREP's approved 1982 work program and budget (Loan Agreement, Section 5.01 (c) and 7.01 (d)). f) Approval of the regulations for the transfer of BRPM's assets liabilities and staff relating to petroleum and oil shale activities, to ONAREP (Loan Agreement, Section 7.01 (e)). 87. Special events of loan suspension are; any contractual arrangement which (i) interferes with the carrying out of the project, or (ii) restricts in any way the ability of the Borrower or the Guarantor to apply the conclusions of the project studies in selecting the most appropriate shale retorting process (Loan Agreement, Section 6.01(b)). 88. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 31 - PART VI - RECOMMENDATION 89. I recommend that the Executive Directors approve the proposed loan. Alden W. Clausen President Attachments Moeen A. Qureshi March 3, 1982 Washington, D.C.  - 32 - ANNEX I TABLE 3A Page 1 of 6 MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGCITED AVE AGES LAND AREA (ThULSAND SQ. I M.) - MOST RECENT ESTIMATE>- TOTAL 447.0/C MIDDLE INCOME AGRlCULTURAL 203. 77c MOST RECENT NORTH AFRICA 6 MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA 6 CARIBBEAN ChP PER CAPITA (USS) 200.0 310.0 740.0 865.5 1616.2 ENERGY CONSUMPTIUN PER CAPITA (KILOGkAMS OF COAL EQUIVALENT) 169.3 222.2 315.2 758.3 1324.1 POPULATION AND VITAL STAIISTICS POPULAT1ON, MID-YEAR (THOUSANDS) 11626.U 14993.0 19538.0 LRBAN POPULATUON (PERCENT OF TOTAL) 29.3 34.6 39.9 45.2 64.2 POPULATIOh PROJECTlONS POPULATION IN YEAR 2UO (MILLIONS) 35.6 STATIONARY POPULATION (MILLIONS) 81.0 YEAR STATIONARY POPULATION IS REACHED 2090 PUPFULATIIN DENSITY PER SQ. Km. 26.0 33.5 43.7 36.3 34.3 PER SQ. KM. AGRICULTURAL LAND 59.0 76.0 92.9 442.7 94.5 PUPULATION AGE STRUCTURE (PERCENT) 0-14 YhS. 44.8 47.6 46.3 44.2 40.7 15-64 YRS. 52.6 48.3 50.4 52.4 55.3 b5 YhS. AND ABOVE 2.6 4.1 3.3 3.4 4.0 POFULATIUN GROWTH RATE (PERCENT) TUTAL 2.6 2.5 2.9 2.7 2.4 URBAN 3.7 4.2 4.5 4.6 3.7 CRUDL BIRTh BATE (PER THOUSAND) 50.2 47.4 44.2 41.5 31.4 CRUDE DEATH BATE (PER THOUSAND) 20.8 16.4 12.8 12.8 8.4 GROSS REPRODUCTION RAIE 3.6 3.5 3.2 2.9 2.3 FAtilLY PLANNING ACCEPTORS, ANNUAL (IHOUSANDS) .. 25.1 78.0 USERS (PERCLNT Or SDARRIED WOMEN) .. 1.0 5.4 FOOD AND NUTRITION INUEX OF FOOD PRODUCTION PER CAPITA (1969-71-IUU) 99.0 98.0 85.0 96.3 108.3 PEtR CAPITA SUPPLY OF CAL,OIES (PERCENT OP REQUIREMENTS) 96.0 102.0 105.0 110.4 107.6 PROTEINS (GRAMS PER DAY) 62.0 66.0 67.0 73.4 65.8 OP WHICH ANLIAL 55D PULSE 13.0 13.0 13.0 17.1 34.0 ChILD (AGES 1-4) MUOTALITY RATE 30.3 21.9 15.7 14.9 7.6 hEALTh LIFE EXPECTANCY AT bIBTH (YEARS) 46.9 51.9 56.4 55.9 64.1 INFANT MORTALIIVY BATE (PER THWUSAND) .. .. .. ., 70.9 ACCESS To SAFE WATER (PERCENT UF POP ULATION) TOTAL 30.6 51.0 55.0 59.4 65.7 URBAN 58.7 92.0 100.0 83.9 79.7 RUhAL 19.0 28.0 25.0 40.8 43.9 ACCESS TU EXChETA DUStOSAL (PERCENT OF POPULATION) TOTAL *- 29.0 .. .. 59.9 UKbAh .. 75.0 .. .. 75.7 RURAL .. 4.0 .. . 30.4 POPULATIoN PEA PHYSICIAN 9406.1/d 12814.5 11037.4 4174.5 1728.2 PoPULAIlON PER NURSIN( PERSON .. 2742.2 1693.5 1780.5 1288.2 POPULATION PER hOSPITAL bED TOUAL 626.0 664.3 773.6 647.4 471.2 URBAh .. 454.7 623.4 547.2 558.0 RURAL *. 5821.4 3089.5 3361.1 AWIlSNIONS PER HUSPUTAL BED .. 15.5 16.5 25.3 PODUS UNo AVERAGE SIZE OfP HOUSEHOLD TOTAL 4.8 5.5 URBAN 4.3 4.9 bUKAL 5.1 5.8 AVEBAGE INNbER OF PERSONS PER ROOKl TOUAL 2.2 2.4 URBAN 2.1 2.1 RURAL 2.3 2.6 ACCESS TO ELECTRICITY (PERCENT Uo DWELLINGN) TOTAL 76.1/e .. URBAN 85.47T 68.4 65.0 KRUAL 30.8 .. ..  - 33- ANNEX I TABLE 3A Page 2 oof 6 MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGHTED AVE.AGES - MOST RECENT ESTIMATE)- a MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 lb ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 47.0 52.0 72.0 85.1 101.7 MALE 67.0 67.0 90.0 101.5 103.0 FEMALE 27.0 36.0 54.0 67.5 101.5 SECONDARY: TOTAL 5.0 13.0 20.0 38.0 35.3 MALE 7.0 18.0 25.0 48.1 34.9 FEMALE 2.0 7.0 15.0 28.3 35.6 VOCATIONAL ENROL. (X OF SECONDARY) .. 2.0 3.0 11.3 30.1 PUPIL-TEAChER RATIO PRIMARY 43.0 34.0 39.0 34.9 29.6 SECONDARY .. 20.0 21.0 23.8 15.7 ADULT LITERACY RATE (PERCENT) 14.0 21.4 28.0 43.0 80.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 11.0 14.8 19.6 18.3 42.6 RADIO RECEIVERS PER THOUSAND POPULATION 45.8 62.4 87.4 121.0 215.0 TV RECEIVERS PER THOUSAND POPULATION 0.4 11.6 32.6 37.4 89.0 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 22.0 16.2 10.7 35.9 62.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. 2.0 3.0 3.2 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3369.7 3951.7 5117.3 REMALE (PERCENT) 10.1 14.1 15.6 10.5 22.6 AGRICULTURE (PERCENT) 62.5 56.9 52.7 43.5 35.0 INDUSTRY (PERCENT) 13.8 17.4 20.7 27.3 23.2 PARTICIPATION RATE (PERCENT) TOTAL 29.0 26.4 26.2 26.4 31.8 MALE 52.1 45.2 44.2 47.0 49.0 FaIALE 5.9 7.5 8.2 5.7 14.6 ECONOMIC DEPENDENCY RATIO 1.6 2.0 1.9 1.8 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 18.0/f 20.0/f HIGHEST 20 PERCENT OF HOUSEHOLDS 43.37? 49.07 -* LOWEST 20 PERCENT OF HOUSEHOLDS 7.07? 4.07T. LOWEST 40 PERCENT OF HOUSEHOLDS 18.0/f 12.0/f POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN 107.0 157.0 389.0 271.4 RURAL 66.0 101.0 238.0 144.6 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USs PER CAPITA) URBAN .. .. 242.0 400.8 513.9 RURAL .. .. 157.0 290.9 362.2 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN 51.0 38.0 28.0 22.1 RURAL 49.0 45.0 45.0 29.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for host Recent Estimate, between 1976 and 1979. /c Excludes the ex-Spanish Sahara; /d 1962; /e Brick buildings only; /f Consumption expenditures of households. Revised June, 1981  - 34- ANNEX I D50N1flO OP SOIAL SMICATUS Pi e 63 kin.:; Although tha data .rs dosea ton en._ nraiiy jodgsd th -ant aothoritatv- and -val.hl. it ebold Al- he noted that they -y -t ho Oter naconlly cangaablo b - t. o the l.,. of otaaaoiad ddiaitiona -deaete nod by dLffsront onutrisa in tol1atttng tb. dot.. The data AoS,noe thai.... uaef,r to d-aoibo orderv of mwtnda bltoat trada. and thr-ant-e cetain.l -Jot difforseog heave cntrius. Th. S- no.goPn ton (l) toe o- toatoy - g owft the enhJot oouCto -s (2) A naty group with -.nt higher averag main th the.. c try group of rho sobjct country (enopt tr "Capitol Serpilr Ci apeftere" groop thre 9fiddie Intn Unrtb AUt.en idi te"ta chats.1t-1.W hnree Ofsrna eoi-oiuo atotiaol. In the rpfea. gro-p data the s. vroa* n pop.Ition, ned$ad -rinastir -an far eah ndictato ad sha odi A- neJority of the cootries in a artup he. dat. for that 4dtaare. Si-o the covrag of c .nti .tan the Idicator dapode -t the aLiatlbity of data a Ld tont -eif.-e, -tauti stt he roisnd t. ralti vug of eon indicator to Aanthao. Thea avrgn r nl sful it cmpert5 the vaioe of o.indicator e at rAn arts the rotatr Aad onfetonin gropa. ltASa(thou.and s4.k..) Poroletior Ott Scent.1 goAaotl wrbo n rura -Pourir(total, ik Total woface er.uyi in ard are d Inlad .at.ra. orhot end -utu divided hy thinrtepcto uta.r at hop1Pi1tai heda AFlps4LV5 - getmntt Of ag-irat-re none ua twlraily or peroatetly .evailble it poblit not prOvers genera ned aparinte-d hospital end te- e, pasren, nethe and kittrht gerdue rr to lie fellow; 19)g data. hhilitotlotcnrr. KoPitala ore estsbliishte pereetly statfnd by at l-as on phyniciAo. fp.hi -eiro ing prioipeily oeatr- GNP PER CAPITA (till - GNP Par .aPite otaeaet --ret nrket prione, cal- dal cars art nut i-oidad. Sr-1 hoapitols, hvr, Saolod healrh clalted by -n c-t-tiou etbod at World leok Atlon (1977-79 beeia); 1960, as asdio.. caters eat potaetly staffnd hy A phyaicmn (her by 197i, rud 1979 daro. asic.l a..sietaut, oars. ntddifo, err.) WUbit offe ia-patint eArs- dori- end provide A 1iic-d r-tg of -sioni foilititmn. Fot sttie- URWIC! CitIfPl PtO CAPITA - Aro-al oora-priot of -oercin1 eogy I(oa tionl popsecbun hospital, inclde VW. yraialgare epirala, end Ig Tta potoloun, neturo1 g.e otd hrydo-, -cacit and aSotborel .is- ar r-rs bo.Ptptna laco or -urI hoepitaic ad asiol Aad eat-roty tricityl io lilogrsn of coaI aqoitalrtot P co.pite; i960, 1970, acd 1979 loettre. tpciclieod hoepiraln -t ir1ndd only osatr tatal. data. Ade.isscu our B.aettol Oo - Total arur of W.Uiagen to or diouhorse. tout hoopital. dldvdd by the oubat of beds. POPtCLA7lOt AlM VITAL STATISTICS Total Popolotict. Kid-lear (ohousAtod) - As of July 1; 1960, 1970, .ed 1979 HOMSIi data. Avrn ie ftoaed age o hnood total.ob-, -s rura - irhc ob lolo (rpr-t of total> - Ratio ot arber tc coelpt ulttr A1 bouhold conirMo ropo itdodal= h aaoliigqetr dOt aret dotet 'oo ofub-u none toyottartl -oerablity of dots end thei sir eal., A b-od-r to lodger to r- a e ioldad in aeo oura;1960, 1970ed 1979 dr.hooehldfrotitioi purpos.. Po. tirPro_tecinAeoawaa of toan o.-total. oba.. asd tuo -Atrpa PPonlatio it coa 200. - Cutreut poplatico plr.i-tic era ho...tdon 19t0 bet of Patnen Par rou In all orhao. and rura no-piad rouroa ttalt oplatcoby er act se act their norrolity oct fartility tr, detiga., onep,uctittiy. botIltoge ertlde o-nnen.nutre Projeotioc Poaae..r flo artolity t-t- tonprin or choso levlsasus unotPied Palle. in ift.xeotrcyatbirthtintraeiu oith conryspo rit non Otn to Eleotrtityin (erst.of dua11leaal -' toa. -ru.As oa lee M o tnnel lito nce tobiliria.r7. yers hl. pore- Cooutir 'ultZewt lotiiyi i ing qar- on P.--eata cotafo fsrtlt tyoetoe hv.- three lee-1osau dncline in of total. arhat, and ruro dwellioao r_potittly. tactility acoc_dino to iroc- lava1 otd ten fatly pl.ooIng parfontt.. tEch t.oocoy I, 'h.r aeoigoed cue of thee. oilo -obtoetioan of -ntolity EDUCATION e,cd -tsrilicy trade for poojetriocprps Aduto ftrline Satins Sttoi-nrv toPo1etioc - ire eotio....ry popoletico thor, is o- ocruh stin r-er'hoL - ttal. n ad f-me - Groon total,1 nae Aad tans the birth -tar ie tqua rthi dthut re, end alo- th,g t,rtr n etie of ell oats at the pooeovy lao a aruoa of -eapaltrs eactc tto This i. achieved only fttet feriiy ltote doulto to prnr colaa ltin.-; totally larluoa childra ogad h-il ohs repiecentu le-o of oult -elepctticrte. hnr oath genorecicr year hut odlaetd for dif feret latgth.ofu prisry edatine; frr ot acoo roplurs. ireni1 noattly. The ttoeypupulattorsin on ontiewth e_tv.r..l ..ocett. earolnet my mad 199 pottunt 1eti"arod orthe nt of. nth Projcte oharetritistc of the poplaion s1tat non Ppila .rs bab! or b.or the uffitia tobo ASo.. io rho year 2000, octid tote .t. tadclire of ferrilicr rers cto lplate- inoonda- ached - totL al adfa - C---,"d es obrv; -aodary stin burl tdcto eeree ee oryuso pproved prisry iaetrutia; You etationty p.oralar.io .a rothod - The yao is tciev popu1atico procUre. gootrol -orronl,o rouc,hor tr-itag taoctoefor puPtb atm e hor-mehad. coal fi c1 ar f eecr pondeac cacre_ 00 ganoaly _ocoto lnit,y. nelde Per oo. k. - Al-y-a popuioticr pro aqoer ktlonter (100 hecturr..) orfttoo ocina nrac of ancodar) notnelinti-ultane tote- oao 1960,1.1971 art 1979 dae maclade ttlohttcl, indostoin, or other progr- nbih oprata tideped- Pato. h. :atiotue ld- C"Putdo bv o gtocrlma ety do fpareatet of e-aroder iaottitona- coly; 1960, 1970 eod 1979 data.Prltuhrrto-rro. a aedary - Te.a ardousrrodi Popolotior ode itr torur frprant - Chiltr.. (0-ic yaral), -ckiro-ag. (15- piar ad uoeoo rrl divde by ,tfer of tuhtei the 64 yeoral act retired (65 yeorn otd -vr ,potren ot ott-you popo- otr.p..n. Lte laiat o; 1960. 1970,.ad 1979daa Adult liteacyeto ercatl - Litera.te adult. (ebl to read ot- ire Ponolti- Growh et R rsot rr - oa aolb h autos of total old- eep-rcetogo of totol Salt pupoltto Sagd 11 yo.areadovr ysurpopoitioco too 191-6g! 96 0-0 at1970_79. Porulatic, Groth Sate (parcoot) - other - aaToalCgocuh rate.aofpolstipopo--IP...ltPTl- Crude i. a.(o thouned)9- eAtua Live bIrths ps- thoosad of nud-yoe tore seat tog .a. that sight puranea; eacldes atlanta. hears and popolati.a; 1960. 1970, c.d 1979 daro.. et:irayvoholn.1 Crde"lat Ste (oar rhounotd - Auooi death. Per rh..oooda of sit-yearRadio touiar ta thouoad porulotict - All rypan of roto.vv- for rAdio ptatiot; 1960. 170, art 1979 dore broeoote to ga-rt pubic par thooaad of populorton; onoldoo. Groneoul rc St- Ae..oge ouber of dough,rer o oe ill her-Cr lise rnov. n otr ad t yer _a rogietr_ti_ ofrai bar tirol osprodcitpurtot if ab. . .o.taoe ostrogn.-ecific ftr- ente weIt offot; data too -nn yeats sty net he cogperthl sis- tility fu..e; usaly fivaya vtgaaigi 1960, 197, and 1979. oust ttarian abolished liounin.. teell 'Iton -Adocoptre. doonl 1(thunad) Aaoual shar rf -cop.ot. TV Sciturefear th-Auand ootitinn - TV r fnias o hvadoet to of hrbtcootrol ti. ce epinofotnafaly plouiugpooe.4na public pa thouand P1oIoltict; eaiedne alinarud TVreovn fnly Pi-ooir - teats (rorcoto nete P=nt Lacoooofociti c.oeottin rod in our abet retiatr-rio of TV eato at in ofet. totoo cld-beit oar (11-46 yeaoe to use birth-corrl devi.o. tcSwree iclelt( aheoae ro trioinn S- a the -Aeago oit all stvntwne t ae g gop. coeiro-diygnrliira aewpapn' dafind oe psrrudie piblicatton devted pltaaeri ly t-raudiaageora a It in ronadasd Pou ANt NTtotTniMo to ho "daily" if it appaer- at leaat foo tiaa 0wek todno of toadPood-occ oat Cuotta 11969-71-idOl - Icta of too coittoo-uI Ciase Aana1 Attendanc rar Cootte oar tatr - Maad o ho w,nt of yrdoctio of all foo - dintirio. P'odcriot ta1idt ered oot fendAdoctichen go ld doting the year inriodit dnai4 et driv-ic riusa is on celeoter Ys- hboce Coditictosovo otinoy goods Cog,. egroute end eabilo oolr.. merestd of euor) ohioh ate e`ible r oad t oclircaca (..g, toffee nod to oro -cloto) . Atoruteo' ponduci.or f eac conryt hoe on. dFORy0CE neciealscosgeprooot prltn oighta; 1961-65. 1970, end 1979 data. Totel Labor Porc (tho-nadel - rtot-it-ly notiva pure.inladiag Pnr coricta ocurly of. calria (.rso ofrairnvs-- C-puo foo rnttocsed mlyn u Docladiugboaeivte:r. aetaet. Per toy. Available supplies t dpia oati rtti io ty .ts .as rt ... otoblt; 1960. 1970 ad 1979 dtsr. rptta r hno oeoi e uplo ult tolfn,ao, faal (nrnu' P lo ob.orforco a , paceag of totel Ileo forr. quactitiosusotd it toot prooasu' and loes otirib ou aqMo Arclue(te -labor foc in trn-Its, fuoaa- . hooting ad ouceace arneadby TAO boaod ca phyailolgicel nee ds for .oIa ecri- tiait septerg f total labor forco; 1969. 1970 ad 1979 dane. itd se_ distiobhtioc of popolacion, ert n11nica 10 percent for roses eatend oao ry tte otd gas es parce-og Of toral lebor force; 190, hocsbltleal;191-5,191,. ant 9197 dote 1970 dtt1979 tote. Pot a dic eculyo rci (aren ort taty Pootein coucof per topita Parcctorta Sac Ioucatl-crl oe d am ucr tio t o un-op,ly ot fond pet toy. Net repyly of food ie deieAs bv.h- oityotarcnutde toal es d aelbo rc daira.tan tot all.. cuotinestab;Iisbad 'by USlA provide too ebbtiarcetage f ctot1l stIa oct ftas Wpupuicto of ellagu.reap-ctivoly; oluca Of 0Seeof toaprtei pu day ott-- 20 gSat of aia-I and 1960, 1970. end 1979 dtor. The.e eon ha..d or ILl's pettitputto ratee pclao prti,of thih 10 aton ahould h pnar prti.Ta.oud alntn s-s autr f rht ppluto.ed loog tine ctad -da o ba ca roes f 75 gcaaa oft cot pr-i tnt 123 grane of few neinareat tra f ntiou sourc=. oiaL- l potioo tecra o aswvd p,oopad by FAO it the Third uccouic1 Deroodnt Ratio - Ratio of pupulatto adn 15 end 61 ond ovr Acrid Food Scovoy; 1961-61, 1970 ort 1977 tt,to a-bn totalf oodd._ labor fnrce. Per caPit. orotei. soorly trot euloo act pulsePcrcsplyo. o a rivo fra =atoal ad po1.aae inlgr Pa tt day; 1961-65, 1970 cot 1977dt.- INOCME olTIST OllST Child (es14 trtylt Sra Curt thousad> A- dnnldrtha peltabo-eud in Pecatr ntPiarb e(both In ceah and bitt - Sa-icd byr~itbhe oao roap1-Ayour, a thiltreric able tgS ru;frsocdvlpo or 5 perat iroa1 pra,Pooroa 2l pu-tot, no ooe 0 par-t ara aaeie ylos Ilifetbo;l,190ed97 date. ... of hoonebolte. HEALTH POVEttTY TAALGPT GitUPS Lit !, soao at-~, - llrhIer> vr5 casbe of onto of lis. trnioi The following netioto to very opproc itootma of p-vrcylona Infn roiylo Pet thousod) k-Idro tdoths of ofant order coo year tatterd Aolbslut oet ieth at Is u ela obna ua ofoa prrnoRd iv bitcha. Abouepvryicnioe sca enlylb lt btn ol l. Moose to loft Wate (onou f oueicl no. re1ar uab-O~l~aaltri .-tiuly eeq-t diet pin ehastrio no-toad1 heq ir n A. nor bsr of poupis (totl ro,ot rrl wrraeebeaco toa tfu ltaly"-.d. Pu -.dlql . toe tcAu h at frc prototto borehlle, sptiog, and eooitory alle) e lara ralotiw poverty more leve is on-thivd of e-.So. Par -pito courdredae Ic wihi reP.-t-I.aofce ooa truo oe fetetd onltof Slt. Abeotsy Povb t inton invo.l- Cforot). - 1ob re. sonable tot.0 eut capd -th the MoaOi t orounbet of ieMoshol ad1 onrb -dotarret of. puahigh- Cofhe adi roac t-o er-'holt petosucogna of thaOrr.oy.cntce popolotiota. Incosne disposal any inoludo~ ~ ~ ~ ~~at po'.l b_ ol.~ and oat-bl arb ae-hd ttysherrh seo tic.l ofitha en ti roei rlsaa ProjerIior l.oerro P... t.S -f thil l. ti.... ttl.l. di:p.-l ay i.ld. ~ ~ ~ ~ ~ ~ ~ ~ Sa 198 PPolotto. a Ot Pbveouo Ppueco iodividdby rushr o prctiolag physi- y11 cin qaifa - ro ntal. scool enonrooiy leel PoroleirrtSrtePeo - Populetino dividdt by tanhr of practicing nele act fanol gra.tooenua p-rocleloes end a..ei.aret .ur....  - 35- Population 19.5 (mid-1979) ANNEX I GNP Per Capita: US$ 740 (1979) Page 4 of 6 MOROCCO - ECONOMIC INDICATORS Amount (million US$ at Annual Growth Rates (X) current prices) Actual Projected Indicator 1980 1976 1977 1978 1979 1980 p/ 1981 1982 1983 1984 1985 NATIONAL ACCOUNTS Gross domestic product a/ 17640 10.2 6.5 3.4 4.5 4.0 3.9 5.7 6.2 6.6 6.7 Agriculture 3253 4.3 -13.2 23.6 -1.7 6.2 3.5 3.5 3.5 3.5 3.5 Industry 5599 8.8 10.0 -2.0 8.3 0.5 4.0 6.0 7.4 7.4 7.4 Services 8788 13.3 8.3 4.3 4.2 13.0 4.0 5.2 6.2 6.9 7.0 Consumption 15767 11.7 2.0 7.4 3.3 5.1 4.0 2.3 4.1 4.8 6.0 Gross investment 3849 20.1 11.0 -23.1 -1.2 -5.8 -5.2 15.7 12.8 10.2 8.0 Exports of GNFS 3273 6.3 9.8 3.8 5.5 4.8 7.6 6.5 8.8 9.6 6.8 Imports of GNFS 5247 23.8 13.5 -16.1 -1.1 -9.2 -0.3 -1.0 4.8 4.5 5.0 Gross national savings 2429 13.9 20.6 -16.6 11.5 .. -2.2 20.9 10.6 14.1 7.7 PRICES GDP deflator (1969 = 100) . 152.0 163.7 177.1 189.8 208.8 Exchange rate (USt per DH) . .226 .222 .240 .256 .254 Share of GDP at Market Prices (%) Average Annual Increase (W) (at constant 1969 prices) (at constant 1969 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Gross domestic roduct 4.0 4.9 5.7 5.9 6.8 Agriculture - 29.1 19.9 15.1 13.6 12.5 10.7 3.5 -0.5 3.2 3.5 3.5 Industry b/ 23.5 27.6 30.6 29.5 31.6 32.4 4.7 8.6 5.0 6.6 7.3 Services b/ 47.4 52.5 54.3 56.9 55.8 56.9 4.1 5.5 7.3 5.9 7.2 Consumption 89.2 88.8 87.3 88.7 82.3 79.7 4.1 4.7 5.8 4.1 6.1 Gross investment 10.3 16.0 24.6 16.7 18.5 18.9 8.0 15.9 -2.4 9.4 7.3 Exports GNFS 27.4 18.9 14.8 15.4 16.9 17.3 1.3 2.6 6.3 8.0 7.2 Imports GNFS 26.9 22.5 24.4 20.8 17.8 15.9 3.5 7.2 2.1 2.7 4.3 Gross national savings 11.0 11.1 19.1 16.1 19.5 21.3 3.5 13.1 3.1 10.0 8.7 As X of GDP 1960 1970 1975 1980 e/ PUBLIC FINANCE Current revenues 16.5 16.6 23.3 22.3 Current expenditures 15.6 14.9 20.2 21.7 Surplus (+) or deficit (-) 0.9 1.7 3.1 0.6 Capital expenditure 3.8 5.9 12.2 12.1 Foreign financing .. 1.4 3.7 5.5 1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS GNP growth rate (%) 4.0 6.0 5.9 5.6 6.7 GNP per capita growth rate (X) 1.6 3.1 3.0 2.5 3.8 Energy consumption growth rate (%) 3.8 6.7 4.3 5.9 6.8 ICOR 3.09 2.77 3.87 2.88 2.74 Marginal savings rate 0.10 0.40 -0.002 0.33 0.24 Import elasticityc/ 0.95 1.44 0.28 0.76 0.80 a/ At market prices. b/ Share of GDP at factor cost beginning in 1985 and sectoral growth rates at factor cost beginning in 1980-85. c/ Goods only. e/ Estimate. p/ Preliminary. EMENA CP II-B  - 36 - Population : 19.5 (mid-1979) ANNEX I GNP Per Capita: USi 740 (1979) Page 5 of 6 MOROCCO - EXTERNAL TRADE Amount Annual Growth Rates (t) Indicator (million US$ at (at constant 1969 prices) current prices) Actual Projected 1980 1975 1976 1977 1978 1979 1980 e/ 1981 1982 1983 1984 1985 EXTERNAL TRADE Merchandise exports (FOB) 2414 -22.8 12.8 8.0 3.5 4.0 6.9 7.6 6.0 9.3 10.4 6.5 Primary products 1823 -25.3 13.1 2.1 3.8 3.5 7.3 3.8 3.9 4.1 4.3 4.3 Phosphate rock 765 -29.9 12.0 7.5 10.4 3.2 -7.5 5.0 5.0 5.0 5.0 5.0 Others 1058 -22.5 13.8 -0.9 0.0 3.6 17.1 3.0 3.2 3.4 3.7 3.9 Intermediate & manufactures 591 -8.5 11.0 36.0 2.3 7.0 5.5 17.5 10.7 20.7 21.7 9.9 Merchandise imports (CIF) 4283 21.4 7.8 31.4 -26.4 9.7 -11.5 0.7 4.7 5.5 5.0 5.7 Food 720 35.5 -24.0 32.9 8.6 1.2 10.7 -5.1 -5.3 -5.1 -5.2 4.9 Petroleum 1006 12.8 2.9 14.5 10.7 12.2 -12.5 3.8 -4.4 3.8 4.1 3.0 Machinery and equipment 805 51.7 20.4 76.3 -57.9 -3.2 -19.9 1.0 17.2 13.3 10.2 10.6 Others 1752 5.2 14.8 4.9 -10.7 19.1 -13.8 2.4 4.5 5.4 5.4 3.2 PRICES (1969 - 100) Export price index . 256.5 207.8 201.9 211.4 231.7 264.2 291.5 319.8 348.7 380.6 411.3 Import price index . 205.0 211.7 223.4 236.1 252.4 293.4 326.0 351.4 379.2 408.7 437.9 Terms of trade index . 125.1 98.2 90.4 89.5 91.8 90.0 89.4 91.0 91.9 93.1 93.9 Composition of Merchandise Trade (E) Average Annual Increase (X) (at current prices) (at constant 1969 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Exports 2.0 -0.7 7.5 8.1 6.9 Primary products 89.5 89.7 86.9 75.5 61.3 59.8 .. -2.2 4.7 4.1 6.0 Intermediates & manu- 10.5 10.4 13.1 24.5 38.7 40.2 .. 9.0 17.8 16.0 8.1 factures Imports 4.0 8.1 0.0 4.5 5.4 Food 27.3 16.8 24.9 16.8 9.6 6.6 .. 14.0 0.8 -3.8 -1.8 Petroleum 7.4 5.5 10.7 23.5 24.2 23.4 .. 9.5 10.2 1.8 2.0 Machinery and equipment 6.7 24.0 23.9 18.8 28.2 32.3 .. 12.8 -3.0 11.3 8.7 Others 58.6 53.7 40.5 40.9 38.0 37.7 .. 3.8 -5.4 4.5 5.6 Share of Trade with Share of Trade with Share of Trade with Industrial Countries (Z) Developing Countries (X) Capital Surplus Oil Exporters (%) 1960 1970 1975 1960 1970 1975 1960 1970 1975 DIRECTION OF TRADE Exports 72.3 73.7 60.8 27.7 25.4 38.8 .. 0.9 0.4 Imports 76.7 74.9 65.7 23.3 25.1 33.9 .. .. 0.4 e/ Estimate. EMENA CP II-B  - 3? - Population 19.5 (mid-1979) ANVEX I GNP Per Capita. US$ 740 (1979) Page 6 of 6 MOROCCO - BALANCE OF PAYHENTS, EXTERNAL CAPITAL AND DEBT (million USF at Current prices) Indicator Actual Pro3ected 1970 1975 1976 1977 1978 1979 1980 e/ 1981 1982 1983 1984 1985 1990 BALANCE OF PAYMENTS Exports of goods and services 775 2580 2288 2486 2955 3694 4364 5136 5852 6758 7872 8926 16088 Of whichb Merchandise f.o.b. 488 1530 1245 1283 1488 1938 2413 2851 3314 3951 4759 5477 10336 Imports of goods and services 946 3134 3691 4364 4353 5268 5911 6369 6899 7911 8791 9865 16604 Of which, Merchandise f.o.b. 625 2267 2305 2820 2626 3245 3770 4158 4693 5344 6046 6846 12178 Net current tranfers 27 8 47 52 50 44 127 - - - - - - Current account balance -144 -546 -1355 -1826 -1348 -1530 -1420 -1233 -1047 -1153 -919 -939 -516 Special grants 100 435 360 260 420 97 300 250 200 150 100 - Current account balance after grants -144 -446 -920 -1466 -1088 -1110 -1323 -933 -797 -953 -769 -839 -516 Private capital 21 21 38 53 45 37 88 25 28 31 35 39 79 MLT loans (net) 90 304 336 1338 1109 946 1188 1083 901 1121 882 979 727 Official 716 643 683 554 612 618 Private 367 159 437 329 368 109 Other capital 56 104 30 68 -73 73 -111 -70 -42 -30 - - - Monetary movements -23 17 16 6 8 53 158 -105 -89 -169 -147 -179 -289 International reserves 161 437 548 609 772 917 814 972 1061 1229 1376 1556 2681 Of which, Gold 21 85 82 104 154 360 415 360 360 360 360 360 360 Reserves as months imports 2.0 1.7 1.8 1.7 2.1 2.1 1.7 1.8 1.8 1.9 1.9 1.9 1.9 EXTERNAL CAPITAL AND DEBT a/ Gross disbursements 175 664 725 1787 1182 1405 1567 Concessional loans 164 121 634 334 321 750 DAC 109 73 107 100 76 97 OPEC 42 41 507 189 179 598 IDA 1 4 3 - - 1 Other 13 3 17 45 66 69 Non-concessional loans 500 614 1151 857 1113 817 Official export credits 3 22 27 2 2 11 IBRD 16 110 59 68 72 137 64 Other multilateral 7 2 7 51 7 13 Private 25 380 531 1049 732 967 729 Suppliers credits 127 10 171 10 8 16 Firincial credits and bonds 253 521 878 722 957 713 External Debt .Debt outstanding and disbursed 703 1753 2330 4069 5123 6182 7097 Official 1121 250 1975 2456 2833 3482 Private 632 1080 2094 2667 3349 3615 Undisbursed debt 239 652 801 1024 2280 2337 2018 Debt service Total service payments 58 145 162 264 547 798 1191 Interest 23 50 66 148 252 411 618 Payments as X exports of G+S 7.5 5.6 7.1 10.7 18.5 21.6 27.3 Average interest rate on new loans (X) 4.4 7.3 7.7 6.8 7.0 8.2 8.1 Average maturity of new loans (years) 18.5 14.7 11.7 13.1 13.2 15.9 13.7 As 7 of Debt Outstanding at End of Most Recent Year (1979) Maturity structure of debt outstanding Maturities due within 5 years 38.5 Maturities due within 10 years 73.2 Interest structure of debt outstanding Interest due within first year 6.9 EMENA CP II-B a/ From IBRD External Debt Reporting System. There are sizeable discrepancies in some years between the external capital and debt service flows reported under the IBRD Debt System and those recorded in the official balance of payments statistics shown in the upper part of this table. e/ Estimated.  - 38 - ANNEX II Page I of 9 A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of September 30, 1981) Loan or US$ Million Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Eighteen Loans Fully disbursed 411.4 Four Credits Fully disbursed 36.0 1017 1974 Maroc-Phosphore Industry 50.0 0.3 1018 1974 Kingdom of Morocco Agriculture 32.0 11.0 555 1975 Kingdom of Morocco Agriculture 14.0 11.8 1201 1976 Kingdom of Morocco Agriculture 30.0 6.4 1202 1976 Kingdom of Morocco Tourism 21.0 12.3 1220-T 1976 Kingdom of Morocco Education 25.0 19.7 1299 1976 Kingdom of Morocco Power 49.0 1.9 1361 1977 CNCA Agriculture 35.0 0.0* 1383 1977 CIOR Industry 45.0 0.4 1416 1977 Kingdom of Morocco Agriculture 41.0 37.4 1428 1977 BNDE DFC 43.2 14.9 S-7 1977 Kingdom of Morocco Engineering 1.5 1.0 1528 1978 Kingdom of Morocco Urban Development 18.0 15.7 1602 1978 Kingdom of Morocco Agriculture 65.0 62.2 1625 1978 Maroc-Phosphore Industry 50.0 10.7 1681 1979 Kingdom of Morocco Education 113.0 112.9 1687 1979 Kingdom of Morocco DFC (SSI) 25.0 15.3 1695 1979 Kingdom of Morocco Power 42.0 41.9 1704 1979 CNCA Agriculture 70.0 51.6 1724 1979 Kingdom of Morocco Water Supply 49.0 40.4 1757 1980 Kingdom of Morocco Agriculture 58.0 52.5 S-18 1980 BRPM Oil Exploration 50.0 37.7 1830 1980 Kingdom of Morocco Highway 62.0 62.0 1848 1980 Kingdom of Morocco Agriculture 34.0 34.0 1943 1981 CIH Tourism 100.0 100.0 1944 1981 Kingdom of Morocco Urban Development 36.0 36.0 20061/ 1982 Kingdom of Morocco Water Supply 87.0 87.0 20371/ 1982 BNDE DFC 70.0 70.0 20381/ 1982 Kingdom of Morocco DFC (SSI) 70.0 70.0 Total 1783.1 2/ 50.0 1017.0 of which has been repaid 203.0 0.9 Total now outstanding 1580.1 49.1 Amount Sold 20.1 of which has been repaid 17.7 2.4 Total now held by Bank and IDA 1577.7 49.1 Total undisbursed 1005.2 11.8 1017.0 NOTE 1/ Not yet effective. 2/ A $29.0 million loan for a Middle Atlas - Central Area - Agricultural Development Project was approved by the Board on January 5, 1982. * US $40,783.65 undisbursed. B. STATEMENT OF IFC INVESTMENTS (As of September 30, 1981) US$ Million Loan Equity Total 1963/1978 BNDE Development Bank - 2.7 2.7 1966 CIL Canning Factory 0.9 0.5 1.4 1976 Marrakech Cement Cement Factory - 1.4 1.4 1977/1980 Temara Cement Cement Factory 4.8 3.5 8.3 1979 Agadir Cement Cement Factory 12.5 2.2 14.7 1980 SOMIFER Copper Mining 13.0 2.3 15.3 Total Gross Commitments 31.2 12.6 43.8 Less cancellation, terminations, repayments and sales 14.1 3.4 17.5 Total commitments now held by IFC 17.1 9.2 26.3 Total Undisbursed - 0.4 0.4 1/ Annex II will be updated at grey cover stage.  - 39 - ANNEX II Page 2 of 9 C. PROJECTS IN EXECUTION AS OF SEPTEMBER 30, 1981 1/ Ln. No. 1018 Sebou II Development Project; US$32.0 million of June 27, 1974; Date of Effectiveness: February 28, 1975; Closing Date: December 31, 1982. The project as originally appraised was completed in November 1980, except for the procurement of sugarcane transport equipment ($0.7 million). Funds have been virtually fully committed for the costs of additional infrastructure works foreseen under an amendment to the Loan Agreement made in July 1980. Cr. No. 555 Meknes Agricultural Development Project; US$14.0 million of June 11, 1975; Date of Effectiveness: November 14, 1975; Closing Date: June 30, 1984. After a 2-year initial delay, project implementation has picked up momentum. Major activities concerned with the land consolidation and redistribution program have been completed in one district and works have been started in the remaining three districts. Progress is slower than expected, mainly because project implementation proves mDre complex than anticipated. However, the first results of the completed components are promising. Because of the initial delay and the complexity in implementation, the original closing date was extended by three years. Ln. No. 1201 Doukkala I Irrigation Project; US$30.0 million of February 27, 1976; Date of Effectiveness; July 20, 1976; Closing Date: June 30, 1981. The project includes sprinkler irrigation for 15,400 ha., infrastructure and equipment and a research laboratory on bilharzia. Irrigation and drainage works have been completed and put in service. Agricultural development has been satisfactory. The balance of the loan remaining undisbursed is expected to be cancelled shortly, after the last disbursement requests have been processed. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 40 - ANNEX II Page 3 of 9 Ln. No. 1202 Bay of Agadir Tourism Project; US$21.0 million of February 27, 1976; Date of Effectiveness: October 29, 1976; Closing Date; December 31, 1981 The project consists of infrastructure works and public facilities for developing Agadir into a major tourism area. Most infrastructure works were completed in December 1980, except for the construction of public facilities (representing some 20% of the total project costs). This delay is mainly due to administrative and project management problems. Project completion is expected to be delayed by about 18 months, and an extension of the closing date is being considered. Ln. No. 1220-T Third Education Project; US$25.0 million of March 18, 1976; Date of Effectiveness: October 1, 1976; Closing Date: May 1, 1981. The project is designed to expand and improve primary and secondary education in rural areas and specialized training to meet manpower needs in education, agriculture, health and tourism. After an initial two-year delay, there has been improvement in project implementation. Construction of primary schools, secondary schools, a teacher training college and a rural development and extension training center is largely completed. Construction is still delayed for the health and tourism components. A two year extension of the Closing Date is being considered. Ln. No. 1299 Sidi Cheho - Al Massira Hydro Project; US$49.0 million of July 2, 1976; Date of Effectiveness: November 16, 1976; Closing Date: December 31, 1981. The project comprises the construction of the Al-Massira dam, of a 120-MW power station including a 225-KV substation and of about 200 km of 225-KV transmission line, and the preparation of preliminary designs and bid documents for the Merija compensating dam and power station. The project should be fully completed in the near future and disbursements are on schedule. However, ONE has experienced difficulties in collecting arrears from other public agencies. The balance of the loan remaining undisbursed is expected to be cancelled shortly, after the last disbursement requests have been processed. Ln. No. 1416 Doukkala II Irrigation Project. US$41.0 million of June 16, 1977; Date of Effectiveness: December 1, 1977; Closing Date: June 30, 1984. The project aims at extending irrigation and related agricultural development in the Doukkala perimeter by 16,600 hectares; it also calls for provision of extension and credit services, and village infrastructure. The land consolidation program and the enlargement of the main canal are proceeding according to schedule. Implementation was slowed down due to budgetary constraints facing Morocco which caused an initial delay of about two years. However, project implementation has resumed vigorously and the initial delay may be fully recovered.  - 41 - ANNEX II Page 4 of 9 Ln. No. 1428 Eighth BNDE Project; US$45.0 million of June 16, 1977; Date of Effectiveness: December 21, 1977; Closing Date: September 30, 1982. The project is designed to meet part of the Banque Nationale de Developpement Economique's (BNDE) requirements for financing of the import component of specific industrial enterprises, and of a small-scale industry pilot project for which up to $5 million of Bank financing is included. The loan is fully committed. An amount of about $2.8 million was cancelled. About two-thirds of the loan have been disbursed. Ln. No. S-7 Sewerage Engineering Project; US$1.5 million of August 30, 1977; Date of Effectiveness; August 18, 1978; Closing Date: October 31, 1982. The project includes the preparation of a sewerage Master Plan for the Casablanca-Mohammedia region and of a priority first stage project. It would assist Morocco in developing the design and planning criteria for urban sewer systems and strengthening the institutional and financial bases for the development of this sector. Project implementation has been delayed by about 15 months, due to administrative and budgetary difficulties, but studies were laitnched in May 1980, and are now proceeding satisfactorily. Ln. No. 1528 Rabat Urban Development Project; US$18.0 million of March 31, 1978; Date of Effectiveness: November 21, 1978; Closing Date; March 31, 1982. The project is designed to improve living conditions of the urban poor in Rabat. It includes upgrading of slum infrastructure and social services in three squatter areas with a total population of about 60,000; an experimental sites and services housing scheme; an employment generation program; and related technical assistance. While construction is proceeding satisfactorily on two sites, that of another site is delayed due to technical difficulty. There has been some delay in the non-physical aspects of the project due to the lack of experience in Morocco with this kind of project. Extension of the closing date is being considered. Ln. No. 1602 Fes-Karia-Tissa Agriculture Project; US$65.0 million of September 6, 1978; Date of Effectiveness: February 18, 1979; Closing Date: June 30, 1986. The project aims at (i) improving the standard of living of about 33,900 farm families cultivating about 256,000 hectares in the Fes-Karia-Tissa region, and (ii) contributing to the growth of agricultural production and to a reduction in Moroccan dependence on imported food commDdities.. These aims would be achieved through a reorganization and strengthening of agricultural extension and soil conservation services, training, the provision of credit and infrastructure. Although somewhat delayed, implementation is proceeding satisfactorily, due to excellent project management and good interagency coordination.  - 42 - ANNEX II Page 5 of 9 Ln. No. 1625 Maroc Phosphore Expansion Project; US$50.0 million of October 27, 1978; Date of Effectiveness: March 23, 1979; Closing Date: June 30, 1982. The project consists of expansion of existing production facilities at Safi through (a) the erection, on the site of the existing Maroc Phosphore plant, of an additional unit and ancillary facilities to produce for export 165,000 tpy of phosphoric acid, and (b) the construction of sulphur melting and storage facilities as well as of new phosphoric acid concentration and storage facilities. Conmmrcial operations have begun and the project will probably be completed on schedule. Maroc Phosphore's technical management appears satisfactory. Ln. No. 1681 Fourth Education Project; US$113.0 million on April 25, 1979; Date of Effectiveness: October 16, 1979; Closing Date: Decenber 31, 1984. The project consists of the construction, furnishing and equipping of 11 technical high schools, a technical teacher training college, two higher institutes of technology, an institute of applied engineering and an extension of Mohammedia Engineering College and associated technical assistance. Implementation has been proceeding slowly, and the contract for technical assistance has not yet been awarded. Ln. No. 1687 Small Scale Industry Integrated Development Project; US$25.0 million of April 25, 1979; Date of Effectiveness: December 17, 1979; Closing Date: December 31, 1983. The project consists of support for a new Government program to assist small and labor intensive industries through technical, managerial and financial assistance. The extremely strong demand for this kind of credit has resulted in virtually full commitment of the loan within the first year of the project. Ln. No. 1695 Village Electrification Project; US$42.0 million of May 22, 1979; Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984. This project, which is the first stage of a 15-year village electrification program, would provide electricity to about 60,000 dwellings in 220 villages located in 17 provinces. Administrative and budgetary problems initially delayed project start-up. Consultants have now been recruited and bid documents are under preparation. The Project Unit has been established, though staffing of the unit has been slow.  - 43 - ANNEX II Page 6 of 9 Ln. No. 1704 Fourth Agricultural Credit Project; US$70.0 million of May 23, 1979; Date of Effectiveness: December 5, 1979; Closing Date: June 30, 1983. The project aims at increasing Morocco's agricultural production thereby improving the standard of living of about 475,000 of Morocco's farm families. The project will cover mDst of the Caisse Nationale de Credit Agricole's (CNCA's) mediumr- and long-term lending program and farm investment program through August 1982. Cofinancing of $75 million is provided by IFAD and KfW. To alleviate CNCA's short-term liquidity problems due to the recent drought, its lenders, including the Bank, have increased their disbursement percentages under their respective loans. Ln. No. 1724 Second Water Supply Project; US$49.0 million of July 2, 1979; Date of Effectiveness: February 4, 1980; Closing Date; June 30, 1984. The project is designed to iuprove access to safe water supplies for the population of the Mid-Atlantic Coast and the Greater Agadir area. It consists of: (i) the expansion of bulk water production and transmission facilities along the Mid-Atlantic Coast; (ii) the expansion of bulk water production and transmission facilities in Agadir; (iii) the establishment of a revolving fund to facilitate house connections for low income families; and (iv) studies on accounting and managenment systems. Administrative problems have created some initial delays, but there is strong demand for the credit facilities for low-income house connections, and the project is now proceeding satisfactorily. Ln. No. 1757 Vegetable Production and Marketing Project; US$58.0 million of November 15, 1979; Date of Effectiveness: April 17, 1980; Closing Date; June 30, 1984. The project is the first phase of a long-term program for development of off-season vegetables for export. $50.0 million of the loan is to be on-lent for long and mediumr-term farm investments and incremental short-term production costs of vegetable quality control centers, for two small producer packing stations, and for seedling greenhouses benefitting about 8,000 farm families and creating seasonal employment. The balance of the loan would help finance infrastructure in the project area, and technical assistance. Implementation is proceeding satisfactorily. Overall production did not progress as scheduled due to two cold winters, but greenhouses, which have resisted frost fairly well, are gaining acceptance with the farmers and the prospects of rising production are promising.  - 44 - ANNEX II Page 7 of 9 Ln. No. S-18 Petroleum Exploration Project; US$50 million of May 19, 1980; Date of Effectiveness: October 24, 1980; Closing Date: December 31, 1983. The project aims essentially at accelerating the petroleum exploration and development efforts of the Bureau de Recherches et Participation Miniere (BRPM), the national enterprise for oil and mineral exploitation and development (excluding phosphates). It also provides technical assistance in prospect evaluation, analysis of results of exploration, and exploration management. Drilling so far has shown encouraging results and hiring of the consultants is proceeding slowly. Administrative problems delayed initial disbursements. The project will be transferred shortly to the new petroleum development agency, the Office National de Recherche et d'Exploitation Petroliare. Ln. No. 1830 Third Highway Project; US$62.0 million of May 19, 1980; Date of Effectiveness: September 29, 1980; Closing Date: June 30, 1984. The project comprises Ci) a three-and-a-half year time slice of the Government's pavement strengthening and preservation program; (ii) strengthening and management of the road maintenance program and (iii) technical assistance for the Ministry of Transportation to improve transportation planning and to study road maintenance. The pavement strengthening and maintenance activities are progressing satisfactorily. The hiring of consultants for technical assistance is behind schedule due to the slow preparation of the terms of reference. Ln. No. 1848 Loukkos Rural Development Project; US$34.0 million of December 22, 1980; Date of Effectiveness; September 30, 1981; Closing Date:June 30, 1987. The project should increase incomes and productivity of very poor subsistence farmers in the Loukkos Basin by reversing the declining trends caused by soil erosion and inappropriate farming practices. It consists of: (i) development and erosion control works on 15,000 steeply sloping hectares in Upper Loukkos; (ii) development of field crops and small irrigation improvements in Middle Loukkos; (iii) establishment and maintenance of pine plantations in the Izarene Forest; (iv) construction of roads and social service facilities in the Project area; and (v) execution of a cadastral survey on about 500,000 hectares of land. Once proven, the project implementation methodology could be widely replicated throughout Morocco's mountain and steppe land. Project implementation is in its early stages but is progressing satisfactorily.  - 45 - ANNEX I I Page 8 of 9 Ln. No. 1943 Fourth Hotel Development Project; US$100.0 million of February 5, 1981; Date of Effectiveness: April 9, 1981; Closing Date: December 31, 1985. The project would provide funds over a three year period to the Credit Immnbilier et H8telier (CIH), a Moroccan development bank specializing in the tourism and housing sectors, for the development of tourism hotels. It also includes studies for developing policies in the tourism sector and training of CIH staff in appraisal methodologies for tourism projects. Commitments so far have been extremely rapid. Ln. No. 1944 Second Urban Developmaent Project; US$36.0 million of April 16, 1981; Date of Effectiveness; August 4, 1981; Closing Date: July 31, 1986. The project would support the Government's efforts to provide shelter, basic services and employment to low-income urban families through a program for slum upgrading, sites and services and provision of serviced land for small-scale industries, to be implemented in the cities of Meknes and Kenitra. Assistance is also provided to strengthen the mmnicipal services of the project cities. Implementation is on schedule, due to the efficient coordination through the provincial Governors' offices. Ln. No. 2006 Third Water Supply Project; US$87.0 million of September 28, 1981. Not yet effective. Closing Date: December 31, 1986. The project would include the construction of two regional water supply systems and the expansion and upgrading of the water supply facilities in about 32 small centres scattered throughout Morocco. It would also provide revolving funds to facilitate house connections for low incore households, equipment, technical assistance training and studies. Ln. No. 2037 Ninth BNDE Project; US$70.0 million of November 3, 1981. Not yet effective. Closing Date; December 31, 1986. The project would include a pilot component in the line of credit to BNDE, to finance export-oriented industrial sub-projects. The project would also focus on strengthening organizational aspects of BNDE in the field of project appraisal, portfolio monitoring and export promotion. Ln. No. 2038 Small Scale Industry II; US$70.0 million of November 3, 1981; Not yet effective. Closing Date. June 30, 1986. The project consists of (i) a line of credit to the Government to be relent to BNDE and commercial banks for relending to small scale industries (SSIs); (ii) financing of the foreign exchange costs of technical assistance provided by the Government to SSIs; and (iii) financing of studies relating to the structure of incentives for SSIs.  - 46 - ANNEX II Page 9 of 9 Ln. No. 2082 Middle Atlas - Central Area - Agriculture Development Project: US$29.0 million. Not yet signed. Closing Date: June 30, 1988.  - 47 - ANNEX III Page 1 of 3 MOROCCO OIL SHALE ENGINEERING PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project: Seven months (July 1980 through January 1981) (b) Agency which prepared project: Bureau de Recherches et de Participations Minieres (BRPM) (c) Project first identified by the Bank: October 1980 (d) Appraisal mission: February 1981 (e) Negotiations: August and October 1981 (f) Planned effectiveness date: June 1982 Section II: Special Bank Implementation Actions None Section III: Special Conditions (a) Conditions of effectiveness: (i) Approval by the Council of Ministers of the implementing decree concerning ONAREP's administrative structure (para. 43); (ii) Finalization of arrangements for the study comparing shale retorting and direct combustion (para. 73); (iii) Confirmation of the employment of division chiefs for the Financial, Administrative and Oil Shale Divisions and of additional staff for ONAREP's Oil Shale Division (paras. 44 and 69);  - 48 - ANNEX III Page 2 of 3 (iv) Agreement on the terms of reference for the technical evaluation of retorting processes (para. 65); (v) Submission to the Bank of ONAREP's provisional opening balance sheet together with qualified auditors' opinions thereon, and of ONAREP's approved 1982 work program and budget (para. 43). (vi) Approval of the regulations for the transfer of BRPM's assets, liabilities and staff relating to petroleum and oil shale activities, to ONAREP (para. 43). (b) Events of loan suspension; The Government would have entered into contractual arrangements which would interfere with the carrying out of the project or restrict in any way the Government or ONAREP's freedom to apply the conclusions of the project studies in selecting the most appropriate retorting process (paras. 57 and 82). (c) Other conditions; (i) The Government would keep the Bank fully informed of all on-going or planned studies and signed contracts regarding shale retorting in Morocco, coordinate such studies with the Bank-financed project and discuss the results of both the studies financed by the Bank and those in parallel projects before undertaking further investments (para. 57). (ii) The Government would not undertake the construction of an oil shale-fired power plant unless the results of the relevant feasibility study prepared by ONE had been discussed with the Bank (paras. 58 and 67); (iii) The consultants hired to carry out the comparative study of alternative retorting processes would have adequate access to the necessary information on the retorting processes to be examined (paras. 65 and 82). (iv) ONAREP's final opening balance sheet would be audited by September 1, 1982 (para. 43), and annual audited accounts would be submitted regularly to the Bank (para. 78); (v) ONAREP would have carried out and submitted to the Bank a study on its operations, structure, procedures and staffing requirements, by June 1, 1983 (para. 44);  - 49 - ANNEX III Page 3 of 3 (vi) Operation of the test station would not begin until the Bank has approved the detailed test program and a safety audit has been carried out (paras. 63-64); (vii) ONAREP would maintain at all times sufficient funds to cover its current liabilities (para. 79).  MOROCCO OIL SHALE ENGINEERING PROJECT Time Schedule for Project Implementation 1981 1982 1983 1984 1985 1986 _ I, III I v I II III IV I Ii III IV I "1 III IV I II III IV I II IIl IV 1. Construrction and Operation of Timihdit Test Station Procurement of Equipment Erection of Plant Start-up Teat 2. Evalutation of Retorting Processes Preparation of TOR's Selection of Consultant and Contract Negotiation Supply of Information by Process Holders- Updating T3 PrefeasibilitV Studv __ Comparison 3. Feasibility Study of Commercial Oil Shale Retorting a) Mine StudV Preparation of TOR's Selection of Consultant and Contract Negotiation Geological Audit Additional Drilling Mine Planning _ - - 1 Costs b) Plant and Infrastructure Study Preparation of TOR'sa Selection of Consultant and Contract Negotiation StudyV 4. Comeparision Retorting and Direct Combustion ____________________ Industrial Project Department Decmber 1981 World Bank - 23527  - 51 - ANNEX V MOROCCO OIL SHALE ENGINEERING PROJECT Disbursement Schedule Estimated Disbursements (US$ million) Bank Fiscal Year Quarter Quarterly Cumulative FY1982 I - II -- III-- IV 0.4 0.4 FY1983 I 1.3 1.7 II 1.8 3.5 III 1.8 5.3 LV 2.1 7.4 FY1984 I 2.1 9.5 II 2.1 11.6 III 2.0 13.6 IV 2.0 15.6 FY1985 I 0.7 16.3 II 0.6 16.9 III 0.6 17.5 IV 0.6 18.1 FY1986 I 0.6 18.7 II 0.6 19.3 III 0.4 19.7 IV 0.2 19.9 FY1987 I 0.1 20.0 Industrial Projects Department Decenber 1981