Morocco - Repowering of Power Plant Project

GLOBAL ENVIRONMENT FACILITY 13 qW MoI Morocco Repowering of Power Plant Project Document July 1994 THE WORLD BANK  GEF Documentation The Global Environment Facility (GEF) assists developing countries to protect the global environment in four areas: global warming, pollution of international waters. destruction of biodiversity, and depletion of the ozone layer. The GEF is jointly implemented bythe United Nations Development Programme. the United Nations Environment Programme, and the World Bank. GEF Project Documents - identified by a green band - provide extended project- specific information. The implementing agency responsible for each project is identified by its logo on the cover of the document. Global Environment Coordination Division Environment Department World Bank 1818 H Street. NW Washington. DC 20433 Telephone: (202) 473-1816 Fax: (202) 522-3256  CURRENCY EOUIVALENTS (As of May 1994) Currency Unit - Moroccan Dirham (DH) US$ 1.00 - DH 9.50 DH 1.00 - US$ 0.105 UNITS AND MEASURES cal. calorie - 4.187 Joules kcal. kilo-calorie - 1,000 calories - 4,187 Joules - 3.9683 BTU BTU British Thermal Unit - 0.252 kilocalories toe tonne of oil equivalent - 40.5 million BTU (10.2 million kcal.) V volt kV kilovolt - 1,000 volts KW kilowatt MW megawatt - 1,000 kilowatts kWh kilowatt-hour GWh gigawatt-hour - 1 million kWh ABBREVIATIONS AND ACRONYMS ESMAP - Energy Sector Management Assistance Program GEF - Global Environmental Fund GET - Global Environment Trust GHG - Greenhouse Gases GT - Gas Turbine HRSG - Heat Recovery- Steam Generator HV - High Voltage ICB - International Competitive Bidding IS - International Shopping LV - Low Voltage MEA - Ministry of Economic Affairs MEM - Ministry of Energy and Mines MF - Ministry of Finance MI - Ministry of Interior OECF - Overseas Economic Cooperation Fund (Japan) ONE - Office National de l'Electricite FISCAL YEAR January 1 - December 31   MOROCCO REPOWERING OF POWER PLANT PROJECT GRANT AND PROJECT SUMMARY Grantee: The Kingdom of Morocco Beneficiary: Office National de l'Electricite - ONE Amount: SDR 4.2 million equivalent (US$ 6.0 million) Terms: Grant Associated Bank Project: Free-standing project Objectives: To finance the attachment of a new gas/ light distillate fired gas turbine to an existing steam- based power generating unit at Kenitra in order to: (i) reduce GHG emissions at the existing plant; (ii) increase power generating efficiency; and (iii) promote replicability of modern repowering technology. Project Cost: US$ 45.7 million Financing Plan: ------ US$ million ------ Local Foreign Total _X GET 0.6 5.4 6.0 13 OECF 0.5 31.4 31.9 70 ONE 7.8 0.0 7.8 17 TOTAL 8.9 36.8 45.7 100 Economic Rate Not applicable of Return:   MOROCCO REPOWERING OF POWER PLANT PROJECT MEMORANDUM OF THE DIRECTOR TABLE OF CONTENTS page Sector Background . ........................................... 1 Power Sector Issues ........................................... 1 Power Sector Reforms .......................................... 2 Project Framework ........................................... 2 Project Objectives ........................................... 3 Project Optimization and Description ........... ...................... 3 Project Cost and Financing Plan . .................................... 3 Project Implementation .......................................... 4 Project Monitoring and Evaluation . .................................. 4 Rationale for GEF Funding . ...................................... 4 Sustainability ............................................ 5 Project Benefits ........................................... 5 Environmental Benefits . .......................................... 6 Project Risks ............................................ 6 Agreements reached at Negotiations . .................................. 6 ATTACHMENTS Cost Estimate and Financing Plan ................................ 8 Summary of Proposed Procurement Arrangements ................... 10 Disbursements .......................................... 11 Timetable of Key Project Processing Events ....................... 12 Bank Staff Inputs for Project Supervision through 1997 ................ 13   MOROCCO REPOWERING OF POWER PLANT PROJECT Sector Background 1. Morocco's GDP growth during 1985-1992 has averaged about 4.2 % per year. In order to sustain a robust economic expansion, the Government of Morocco will need to provide its economy with adequate and efficient energy (particularly electricity) supply by selectively allocating financial resources and adopting modern technologies. Morocco existing energy reserves (including oil, natural gas, oil shale, coal, and hydroelectric power) are either constrained or have high production costs, and their development has been limited. During the above period, energy imports (mainly petroleum) represented more than 80% of Morocco's commercial energy demand. Commercial energy consumption grew during the period 1985-1992 at an average of 4.5 e per year. 2. Electricity requirements within the interconnected system has increased rapidly, from 6,525 Gwh. in 1985 to 10,588 Gwh. in 1993, i.e. at an average annual rate of about 6.2 %; while power plant capacity has increased during the same period from 1,970 MW. to 2,220 MW. About 1,530 MW., or 69 %, are thermal-based power plants, which during 1993 consumed about 1,597 kTons. and 1,236 kTons. of liquid fuels and coal respectively. Maximum peak demand during 1993 was estimated at 1,850 MW. (para. 4). The increased use of electricity by industrial and residential consumers in Morocco as well as the implementation of a comprehensive rural electrification program (expected to increase the rate of electrification of the rural areas from 25 to 45%) would involve a significant expansion of electric generating facilities throughout the country. To ensure reliable electricity supply to its consumers and to replace aged thermal- based power plants, about 1,340 MW. generating capacity (of which 480 MW. hydro) will be installed during 1994 -1996 and an additional 1,900 MW. during 1997-2000. Power Sector Issues 3. The power sector confronts serious power supply shortages. Since early 1992, average available system capacity amounting to about 1,550 MW., has not been sufficient to meet peak demand. Programmed load shedding (up to 17% of peak demand) has been imposed mainly on industrial customers, causing a production loss of up to 1 of GDP. This was mainly due to the delays in the construction of hydro generating plants; the lack of water for power generation from multipurpose hydro schemes; and the poor availability of thermal plants. 4. The power sector faces also organizational, financial and power supply problems as a result of the dispersion of responsibilities among various ministries, central and local government agencies and inter- ministerial committees. Regulation, organization, decision making, policy implementation and administration of the electricity sector are not well coordinated. The main organizational problems are related to: (i) the sector's monopolistic structure and the lack of autonomy for setting electricity prices; (ii) the complexity of the sector organization and the excessive number of institutions associated to its administration and (iii) centralized controls at ministerial levels. The main financial problems affecting the sector are mainly due to: (i) the lack of regular adjustment of electricity tariffs; (ii) the magnitude of the arrears owed by both the local power distributing utilities (R6gies) and the public sector to ONE; (iii) the higher fuel consumption by thermal plants due to the low availability of the  - 2 - hydroelectric schemes; (iv) the high level of taxes imposed on the heavy fuel used for power generation; and (v) ONE's debt service obligations mostly to the State which the Government partially has had to subsidize through capital contributions. The Regies' profit margins on electricity sales have been used to subsidize their water operations. Furthermore, they have accumulated large arrears with ONE. Power Sector Reforms 5. In view of the above problems and to meet the challenge of expanding the interconnected system generating capacity, the Moroccan authorities have decided to overhaul the existing legail and regulatory frameworks and practices through the issuance and implementation of new sector regulating arrangements. The Government has established a sound strategy for the power sector which calls for the: (i) reform of the existing sector legislation and regulation to permit the operation of independent power producers (IPP's) and the investment of private capitals; (ii) rehabilitation of the sector's financial situation; (iii) reduction of current reliance on oil imports to meet energy needs in a cost effective manner while mitigating the adverse effects on the atmosphere by the use of energy combustibles; (iv) adoption of improved technologies such as combined- cycle and repowering power generating schemes; (v) promotion of energy conservation measures; and (vi) addition of power generating capacity to meet the country's demand. 6. The Bank is assisting the Government of Morocco in all of the above strategic areas through: (i) the ESMAP/ WB Energy Sector Institutional study, now completed in collaboration with a GOM's task force, which proposes detailed options to address the sector reforms; (ii) advice and financial assistance to prepare the new electricity code, establish a Sector Regulating Agency, prepare the bidding documents and power purchase agreements for contracting Independent Power Producers and update and implement the long- run marginal cost tariff study; (iii) the proposed GEF project; and (iv) the components in existing Bank operations (loans 2910-MOR and 3262-MOR). Furthermore, the proposed sector reforms will be supported by a new Bank loan, Power Sector Reform Project, currently under preparation and expected to be approved during FY96. Project Framework 7. As a result of the expansion of power generating facilities in Morocco, there is a need to introduce innovative technologies which would improve the efficiency of energy usage and reduce the greenhouse gases emissions significantly. Among them, the repowering technology applied to existing plants using topping cycle (combined cycle) is an attractive alternative. Most of the developing countries have been reluctant to adopt combined cycle technologies due sometimes to lack of familiarization with these schemes and/ or misleading perception that these innovative technologies are not fully proven. 8. The Government of Morocco requested GET assistance to implement the proposed repowering project. In response, GET granted a Project Preparation Advance to prepare a feasibility study for the introduction of the repowering technology in Morocco. This study has determined the optimal site and size of the scheme, the economic and environmental assessments and the detailed cost estimates. This proposal was prepared based on the results, conclusions and recommendations of this study. This Memorandum summarizes the objectives, main features, implementation arrangements, benefits and risks of the proposed project. A Technical Annex is attached which includes all necessary details supporting and justifying this operation.  -3- Project Objectives 9. The main objectives of the proposed project are to: (i) reduce Greenhouse Gases (GHG) emissions at Kenitra power generating plant; (ii) increase the production efficiency at Kenitra # 4 generating unit by reducing specific fuel consumption; and (iii) encourage the development and adoption of modern repowering technology both in Morocco and in other developing countries, which until now have been reluctant to adopt it. The above is to be implemented in the context of the introduction in Morocco of cleaner fuels such as natural gas to be soon imported from Algeria. The main GEF objective in supporting financially the proposed project is to demonstrate within a short time frame and on a broader scale the potential for fuel savings in power generation, thus avoiding additional greenhouse gas emissions to the atmosphere as well as to demonstrate to power utilities in other developing countries the considerable benefits associated with the repowering technology. Project Optimization and Description 10. The proposed project was formulated and defined with the assistance of a GET Project Preparation Advance (PPA) which financed a feasibility study to determine the optimum site, size and operating characteristics of the scheme. These parameters were determined in order to combine the least cost scheme with the highest power output and reduction of the volumes of C02, NOx and S02 emissions. 11. The project consists in attaching a 60 MW. new gas turbine (GT), capable of operating with both natural gas and light distillates, to the No. 4- 75 MW. steam- based power generating unit at Kenitra plant. The gas turbine will exhaust directly into a new heat recovery- steam generator (HRSG) and then the high pressure steam produced in the HRSG will be fully utilized by the existing steam turbine. The final arrangement of the gas turbine has been set in order that the degree of power plant operational flexibility, plant availability, and economies are optimum. The repowering of the existing plant has been also designed so the new gas turbine and existing steam plant are able to operate independently from each other, if so desired. The project also provides for a training program addressed to the operators of the new facility. Project Cost and Financing Plan 12. The total estimated cost of the project amounts to US$ 45.7 million, of which US$ 36.8 represent the foreign exchange component. This estimate includes physical contingencies, which were estimated at 10 % of the base cost, price contingencies which were calculated based on Bank's estimates for domestic and international price variations during the period of project implementation as well as local taxes and duties. The GET grant will finance consultants's services for preparation of technical design/ bidding documents and supervision of the construction, the supply and installation of the power substation and the control/ protection/ communication equipment. The remaining cost of the project, which includes the supply and installation of the gas turbine and associated equipment, will be financed by: (i) a concessional loan (20 years amortization period plus 10 years grace and 3 % a.p.r.) of about US$ 32 million requested by the GOM and to be negotiated with the Overseas Economic Cooperation Fund (OECF) of Japan on a parallel financing basis to fund the purchase of the new GT, HRSG and ancillary equipment; and (ii) ONE's counterpart funding amounting to US$ 7.8 million to cover the expenses related to project management and taxes/ duties.  -4- Project Implementation 13. The proposed project will be implemented by ONE in accordance to an agreed project implementation schedule. During negotiations agreement was reached with ONE that they will engage ENEL (Italy), under terms of reference acceptable to the Bank, in order to prepare the detailed design and bidding documents for the supply of the new gas turbine and ancillary equipment as well as for the supervision of the installation and commissioning of the repowering project. ENEL are the consultants who prepared the feasibility study. This is in line with Bank's Guidelines for Use of Consultants because they have deep knowledge of Kenitra plant, of the repowering technology and they successfully completed the feasibility study. ONE will engage this consultants before October 31, 1994. The contract for the supply and installation of the repowering scheme will be awarded on the basis of a turn- key contract to be procured through international competitive bidding in accordance to Bank's Guidelines for Procurement. This process is justified given the innovative nature of the project which requires an overall performance guarantee of the scheme. The project management will be under ONE's department of equipment, which is properly organized and staffed, as demonstrated through the successful completion in the past of larger and complex power generation schemes. Details of the project implementation arrangements and staffing; including those of ONE, the consultants and the turn- key contractor; will be submitted for Bank review before December 31, 1995 (by this date the turn- key contract will be in place). Detailed design is expected to start by October 1994, the bidding process by May 1995 and field construction by July 1996. Completion and commissioning of the project is expected to take place by December 1997. The Bank has assessed in detail the above arrangements and it has concluded that they are adequate. Project Monitoring and Evaluation 14. Project implementation monitoring standards will be established by ONE and their consultants and reviewed by the Bank, in order to achieve efficient physical implementation of the proposed project. Overall project execution will be monitored through target dates as indicated in the implementation schedule. Furthermore, a systematic monitoring and evaluation program developed specifically for the repowering project will be established by ONE, ENEL and the contractors. This program will be also reviewed by the Bank. Data on the repowering system will be collected during the construction and operation of the facilities. This include technical (efficiency performance, emissions' reduction and environmental benefits) as well as financial information which will permit to assess properly the costs and benefits of the scheme as well as its performance. This data bank will be utilized to promote repowering technology to other ONE's plants and developing countries. This program will be evaluated on a regular basis and a mid- term report will be issued to discuss the operation and viability of the project. During negotiations agreement was reached with ONE that the above programs, which are to be prepared with the assistance of both ONE's consultants and the turn- key contractor, will be submitted for Bank review before December 31, 1995. Rationale for GEF Funding 15. Carbon dioxide exhaust from fossil fuel power plants is a significant source of greenhouse emissions. Furthermore, advanced technologies in electricity generation which greatly improve plant efficiency are currently available in developed countries. The implementation of the proposed project will promote the adoption of advanced technologies in countries which until now have been reluctant to adopt the proposed scheme. The benefits derived by supporting this project through partial GEF funding include:(i) abatement of carbon dioxide, nitrogen oxides and sulphur dioxide emissions as compared to a  - 5 - stand alone gas/ steam turbine generators of the same capacity; (ii) substantial reduction on specific consumption of combustibles; and (iii) promotion of the repowering technology to other ONE's plants and developing countries. 16. Adoption of repowering technology by developing countries has been hampered by a number of perceptions on the part of national power planners and engineers. First is a general preference for installation of new equipment to meet electricity demands, rather than the refurbishment or upgrading of existing installations. Secondly, combustion turbines have historically been introduced in developing countries for short duration peaking service, often fueled by petroleum distillates with resulting high maintenance requirements. The long-term durability and lower maintenance costs of gas-fired combustion turbines remains to be demonstrated in the majority of developing country power systems. Lastly, repowering involves retrofit and disturbance to existing generation plant required to meet a Moroccan electricity demand that is already in excess of available capacity. The risk to system operations associated with the repowering installation is thus viewed as being significantly higher than new stand-alone additions to the generation mix. A successful repowering demonstration is therefore seen as the most effective means of promoting acceptance of the technique, and is designed to overcome remaining implementation and performance concerns. Sustainability 17. The repowering technology using a current design combustion turbine is an innovative technology that has been commercially used in developed countries during the past years. Second generation high efficiency advanced combustion turbines are available for commercial orders. Most major turbine manufacturers offer advanced gas turbines and major engineering firms have developed various modification schemes to retrofit existing steam turbines with existing steam generation boilers. The repowered combined-cycle plant has a significant advantage of having lower net plant heat rate as compared with a conventional steam plant of equivalent output. The gas turbine alone will have a higher efficiency, if proper credit is given to the energy derived from its exhaust to the steam-based power plant. 18. The proposed project is based on the effective use of conventional sources of energy (light distillates/ natural gas) to improve electricity generation efficiency and to reduce the carbon dioxide and other air emissions. The financial and environmental benefits derived from this technology, i.e. lower unit electricity generation costs and reduced gas emissions, will ensure the sustainability of the project. Project Benefits 19. The main benefits of the proposed project are: (i) reducing the greenhouse gas emissions in a cost- effective manner, as the net savings corresponding to avoided emissions resulting from the operation of the repowering scheme at Kenitra amount to about US$ 59 million during the project life span of 20 years; (ii) increasing the operational efficiency of the power plant by reducing the specific fuel consumption from 2544 kcal/kWh to 2166 kcal/kWh (about 31,000 tons/ year), equivalent to US$ 2.2 million/ year; and (iii) demonstrating its environmental and commercial viability for its applicability in other power plants in Morocco and other developing countries, through the detailed monitoring program established under the project, whereby detailed actual information (technical/ financial) would be available to demonstrate and prove the soundness and benefits of the repowering/ combined cycle power generation technology.  -6- Environmental Benefits 20. The proposed project would have a substantial positive impact on the environment. It will reduce significantly carbon dioxide emissions to the atmosphere resulting from the combustion of fossil fuels at thermal power generating plants. Furthermore, water pollution will be reduced (on the basis of incremental capacity added to ONE's system) since the GT unit is a direct combustion turbine and no hot/processed water (as compared with the steam- based plant) would be released. With the proposed scheme, carbon dioxide emissions will be reduced by at least 117,000 tons per year. As a result, the net savings over a period of 20 years will be about 2.3 million tons of carbon dioxide (about US$ 19 million). This represents about US$ 2.6/ ton of carbon dioxide saved, based on the proposed GEF contribution of about US$ 6 million. The proposed scheme is a highly cost-effective alternative to reduce carbon dioxide emissions as compared with other methods. 21. There would be also a reduction in NOx emissions amounting to about 15,860 tons, equivalent to US$ 10.3 million during the life of the project as well as in S02 emissions which are estimated at 58,630 tons, or US$ 29 million, also during the life of the project. Project Risks 22. No particular physical risks are associated with the proposed project. The feasibility report, on which this proposal is based, has concluded that an adequate match exists between the proposed gas turbine generator, heat recovery steam generator and the existing steam boiler of unit No. 4 at Kenitra. A comprehensive engineering design study, which will include the preparation of technical specifications and bidding documents, is being provided under the loan to deepen and finalize the analysis. The contractor's final design of the repowering scheme as well as the supervision of the project implementation, will be reviewed and monitored by an experienced consulting firm to be engaged by ONE as agreed with the Bank. Furthermore, ONE has agreed to prepare and to implement an adequate construction and operation monitoring program for the project. Project cost and proposed implementation schedule are based on prevailing market prices and normal construction periods respectively. AAgreements reached at negotiations 23. The following agreements were reached at negotiations with ONE: (i) ONE will engage before October 31, 1994, consultants's services for the preparation of technical design/specifications/ bidding documents and project supervision under terms of reference acceptable to the Bank; (ii) ONE will submit for Bank's review before December 31, 1995, details of the arrangements and of staff assignments for ONE, for the consultants to be retained for project supervision and for the contractor to be engaged for the construction of the project; (iii) ONE will implement the proposed project in accordance to an agreed implementation schedule; (iv) ONE will submit for Bank review before December 31, 1995, the monitoring and evaluation programs which will be prepared with the assistance of their consultants as well as of the contractors for the construction of the repowering project in accordance with GEF standards. Furthermore, ONE will submit to the Bank quarterly progress reports on the project, and before April 31, 1997 a mid-term review report of such scope and detail as the Bank shall reasonably request; (v) ONE will submit for Bank review before December 31, 1995, a comprehensive training program which will be prepared with the assistance of the contractors for the construction of the repowering project; and (vi) ONE's will provide the necessary counterpart funding to finance some of the domestic costs. The legal documents duly reflect the above mentioned agreements. Furthermore, the Grant Agreement with ONE includes remedies (suspension/cancellation/termination) in case the beneficiary fails to perform its obligations related to the  implementation of the project or to make available the necessary funds for the project. 24. Condition of effectiveness of the proposed grant is that both the Letter of Agreement between the Kingdom of Morocco and the Bank and the Grant Agreement between ONE and the Bank are duly signed. Furthermore, proceeds of the GET grant amounting to about US$ 1.1 million to finance the services of the consultants for the preparation of the project detailed design, bidding documents and supervision of project implementation, will be available after meeting the above mentioned condition of effectiveness. Release of the balance of the grant, about US$ 4.9 million, will be made only after the conditions of effectiveness of the OECF (Japan) loan are fulfilled (condition of disbursement). Attachments Washington, D.C. September 2, 1994  -8 Schedule A Page 1 of 2 MOROCCO REPOWERING OF POWER PLANT PROJECT Cost Estimate and Financing Plan (US$ thousand) Cost Estimate: LOCAL FOREIGN TOTAL - Design/Tech.Spec./Supervision 1,000 1,000 - Civil Works 363 363 - GT/HRSG/Pumps 19,388 19,388 - Other Mechanical Equipment 1,094 1,094 - Generator 2,875 2,875 - Power Substation 525 1,241 1,766 - Incinerator 80 80 - Control/Protection/Communication 2,484 2,484 - Automation 375 375 - Conception & Construction 2,906 2,906 - Management ONE 2,000 2,000 - Start-up 281 281 - Training 100 300 400 Base Cost 1/ 2,988 32,024 35,012 - Physical Contingencies 2/ 299 3,202 3,501 - Price Contingencies 3/ 145 1,550 1,695 - Duties 4/ 5,507 5,507 Total Cost 8,939 36,776 45,715  -9- Schedule A Page 2 of 2 MOROCCO REPOWERING OF POWER PLANT PROJECT Cost Estimate and Financing Plan (US$ thousand) Financing Plan: LOCAL FOREIGN TOTAL - GET Grant 603 5,397 6,000 - OECF loan 532 31,379 31,911 - ONE 7,804 7,804 Total Cost 8,939 36,776 45,715 1/ Excludes taxes and duties. 2/ 10X of base cost. 3/ 4 X per year 1996-1997. 4/ 20 X of imported goods.  - 10 - Schedule_B Page 1 of 2 MOROCCO REPOWERING OF POWER PLANT PROJECT Summary of Proposed Procurement Arrangements (US$ thousand) ICB IS Other Total - Design/Tech.Spec./Supervision 1,148 1,148 (1,148) (1,148) - Turn- key contract Repowering 36,671 36,671 (4,760) (4,760) - Incinerator 92 92 (92) (92) - ONE's Management 2,297 2,297 Total 36,671 92 3,445 40,208 (4,760) (92) (1,148) (6,000) - Figures in parenthesis to be financed by the GET grant. - All amounts include physical and price contingencies but exclude taxes and duties. - ICB: International Competitive Bidding - IS: International Shopping - Other: Procurement of consultants and ONE's management (force account)  Schedule B Page 2 of 2 MOROCCO REPOWERING OF POWER PLANT PROJECT Disbursements (US$ million) Category GET % of Expen- Grant ditures to be financed - Design/Tech.Spec./Supervision 1,148 100 - Turn- key contract Repowering 4,760 100 - Incinerator 92 100 Total 6,000 100 Disbursement Schedule (GET Grant) Bank FY 1995 1996 1997 Annual 1,000 2,000 3,000 Cumulative 1,000 3,000 6,000  - 12 - Schedule C Page 1 of 2 MOROCCO REPOWERING OF POWER PLANT PROJECT Timetable of Key Project Processing Events a) Time taken to prepare the project: 24 months b) Prepared by: MNIIE c) First Bank mission: July 1991 d) Appraisal mission departure: June 27, 1994 c) Negotiations: July 7, 1994 d) Grant Approval: September 7, 1994 e) Expected date of effectiveness: September 30, 1994 g) Relevant PCR's: N/A This report is based on the findings of an appraisal mission which visited Morocco during June 27-July 12, 1994. The mission comprised Jorge A. Larrieu (Task Manager), Jean Fran,ois Dupuy (LEGMN), Viren Shirohi (EMTEN) and Nichola Ciss6 (MNlIE). Peer reviewers were H. Garcia (IENPD) and R. Anderson (SA2CI). The project was cleared by Daniel Ritchie, Director MN1DR and Francois Ettori, division Chief MN1IE.  - 13 - Schedule C Page 2 of 2 MOROCCO REPOWERING OF POWER PLANT PROJECT Bank Staff Inputs for Project Supervision through 1997 Date Activity Skill Input Requirements S/W 10/94 Supervision Mission I Review o.f staffing arrangements Engineer 2 Review TOR for Consultants ENV Expert 2 Review TOR for Training Review monitoring/ evaluation Review Procurement 04/95 Supervision Mission II Review of Project Implementation Engineer 2 Review Progress Consultants Work ENV Expert 2 Review Progress Training Review monitoring/ evaluation Review Progress Procurement 08/95 Supervision Mission III Engineer 2 ENV Expert 2 04/96 Supervision Mission IV Engineer 2 ENV Expert 2 04/97 Mid-term Review Mission Review of Project Implementation Engineer 3 Review Project Impact ENV Expert 3 Review of Training Review Consultants performance Review Monitoring/ Evaluation Conduct Independent Evaluation Total S/W 22  I  MOROCCO REPOWERING OF POWER PLANT PROJECT TECHNICAL ANNEX   MOROCCO REPOWERING OF POWER PLANT PROJECT TECIHNICAL ANNEX TABLE OF CONTENTS page I. MOROCCO'S ENERGY AND POWER SECTORS .......................... 1 A. Energy Sector ........................................ 1 Energy Resources ....................................... 1 Past Energy Consumption and Supply ..........................1 Sector Organization ...................................... 1 B. Power Sector ........................................ 2 Electricity Supply ....................................... 2 Electricity Suppliers ..................................... 2 Existing Facilities ....................................... 2 Characteristics and Conditions of Power Supply ....................3 Power Generation Requirements ........... ...................3 C. Power Sector Issues ...................................... 4 D. Power Sector Reform ..................................... 5 1I. SCOPE OF THE PROJECT .........................................5 A. Project Background ...................................... 5 B. Project Description ....................................... 6 C. Project Optimization ...................................... 7 D. Project Costs and Financing Plan .7............... .. ... ... ... . . 7 III. IMPLEMENTATION AND MONITORING ARRANGEMENTS .8.. ...... . 8 A. Organization and Staffing ..8 B. Project Supervision . 8 C. Project Implementation Schedule ..8 D. Procurement and Disbursements ...9 E. Project Monitoring and Evaluation . 10 F. Training Plan for Operators . 11 G. Rationale for GEF Funding . 11 H. Project Replicability . 11 I. Project Sustainability . 12  -2- page IV. ENVIRONMENTAL ASPECTS ............................... 12 A. Environmental Analysis ............................... 12 B. Greenhouse Gas (GHG) Emissions .......................... . 13 V. PROJECT RISKS.. . .......................... 13 A. Project Risks .............. .............. 13 VI. AGREEMENTS REACHED .............................. 14 VII. TABLES Table 1 ONE's Power Market Table 2 Existing Power Plants Table 3 Power Capacity Balances Table 4 Power Energy Balances Table 5 1992 ONE's Power Plant Efficiency Table 6 Power Capacity Addition (1994-1998) Table 7 ONE's Investment Program Table 8 Project Optimization Table 9 Project Costs Table 10 Project Implementation Schedule Table 11 Procurement Table 12 Disbursements Table 13 Environmental Benefits VIII. ATTACHMENTS Attachment I Environmental Analysis of Existing Facilities  MOROCCO REPOWERING OF POWER PLANT PROJECT TECHNICAL ANNEX I. MOROCCO's ENERGY AND POWER SECTORS A. Energy Sector 1. Energy Resources: Morocco has a wide variety of energy resources including: oil, natural gas, oil shale, coal, hydro, uranium, biomass, wind and solar energy. However, the currently known reserves are either small or have high per unit costs of production, with the result that there has been only limited domestic commercial energy development. Over the past ten years, hydrocarbon imports supplied more than 80% of Morocco's commercial energy demand. Limited reserves of oil and natural gas have been discovered and production is less than 70,000 tons oil equivalent (toe) per year. Morocco's oil shale reserves are estimated to be over 100 billion tons, containing more than six billion tons of oil, however uneconomically exploitable. In addition, Morocco has proven recoverable coal reserves of about 12 million tons in the Jerada Coal basin. The country's hydropower potential is estimated at 4,600 GWh per year (1.1 million toe) under average hydrological conditions. Of this potential, 1,800 GWh has already been tapped and new hydro projects with an annual production of 750 GWh are under construction. Fuelwood consumption, estimated at about 3.4 million toe in 1984, is sufficiently high to cause deforestation at a rate of about 20,000 hectares per year. Some 7 to 10 million tons (60-80 billion toe) of uranium are contained in Morocco's 50 billion tons of phosphate reserves. Extraction, however, is costly with present technology. Solar and wind resources are abundant, but neither is likely to contribute significantly to the country's energy supplies before the 21st century. 2. Past Energy Consumption and Supply: Commercial energy consumption grew at an average of 4.2 X per year during the period 1985 - 1992. Most of Morocco's commercial energy consumption consists of petroleum and its derivatives, the bulk of which is imported. During the above period, energy imports (mainly petroleum) represented more than 80% of Morocco's commercial energy demand. Petroleum consumption grew at an annual rate of 3.2 Z from 4,296,000 toe in 1985 to 5,462,000 toe in 1992, and coal consumption increased at a rate of 3.1 Z p.a. from 662,000 toe in 1985 to 1,123,000 in 1992. Domestic commercial energy production consists mainly of hydroelectricity and coal. Hydroelectricity production, which has been characterized by its erratic patterns because of the production regime (influenced by release of water from the reservoirs for irrigation needs) and by severe drought periods), has been as low as 126,000 toe in 1985 and as high as 329,000 toe in 1991, while local coal production has remained virtually unchanged during this period. 3. Sector Organization: The Ministry of Energy and Mines (MEM) is responsible for the overall planning and development of the energy sector. It has tutelage over a number of energy-related public enterprises including:  - 2 - (i) the "Office National de Recherches et d'Exploitation Petroliere" (ONAREP); (ii) the "Societe Anonyme Marocaine de l'Industrie du Raffinage" (SAMIR); (iii) the Societe Cherifienne des Petroles (SCP), which is 75% owned by ONAREP and the Treasury, with the rest being held by local and foreign private shareholders; (iv) the "Soci6td Nationale des Produits P6troliers" (SNPP), which use to hold before the privatization 50% of the Government shares in the major petroleum distribution companies; (v) "Charbonnages du Maroc", operator of the Jerada coal mine; and (vi) the Office National de l'Electricie" (ONE). The Ministry of the Interior (MI) has a role in the energy sector through its tutelage over 15 publicly-owned distribution utilities (R6gies), of which 10 distribute electricity in the main urban areas. The 15 Regies are also responsible for water distribution, and the Regie of Casablanca (RAD) is responsible for sewage disposal as well. Other ministries with involvement in the sector include the Ministry of Public Works which constructs dams for hydroelectricity, and the Ministry of Agriculture and Agrarian Reform (MARA) through its responsibility for forest protection and management, the Ministry of Finance (MF), and the Ministry of Economic Affairs (MEA). B. Power Sector 4. Electricity SuRply: Electricity requirements within the National Interconnected System has increased rapidly, from 6525 GWh. in 1985 to 10,588 CWh. in 1993, i.e. at an average annual rate of about 6.2 %. Overall electricity losses and unaccounted for amounted during 1993 to about 1,626 GWh. or 15.3 Z. During the same period, maximum demand increased from 1,140 MW. in 1985 to 1,850 MW. in 1993. The number of ONE's consumers increased at an annual rate of 7 % per year from 538,210 in 1985 to 912,320 in 1993. ONE's forecast, which is prepared based partly on surveys of large industrial customers and partly on estimates made from a correlation between historical GDP growth and electricity consumption growth by other consumers, estimates that electricity requirements by 1998 will reach 14,850 GWh., an average annual increase of about 7 % p.a. from 1993, while maximum demand will amount to 2,525 MW. and ONE's number of consumers will amount to 1,109,00 by 1997. Table 1 includes details on electricity supply patterns. 5. Electricity Suppliers: Electricity consumers in Morocco are served by: (i) ONE, responsible for nearly all public power generation (about 84 % of Morocco's total generation), transmission and distribution to all high- voltage customers and to medium and low-voltage customers in some cities and rural areas (its own distribution sales represent 41 % of the total); (ii) ten municipal distribution Regies each responsible for distribution at medium and low voltage in the area of concession (representing 43 % of total sales); (iii) small isolated systems operated by Ministry of Interior (negligible); and (iv) captive plants operated by industries which occasionally sell electricity to or buy it from ONE (representing 16 % of the total). In addition, since June 1988, Morocco imports electricity from Algeria through a 220 kV. transmission link. In 1993 these imports amounted to about 1,000 GWh. or 9.5 X of the total consumption. 6. Existing Facilities: ONE's total nominal installed generating capacity in 1993 amounted to 2,220 MW. Total installed capacity increased at an average annual rate of 9.8% between 1978 and 1985 (when it was 1,930 MW.),  but has remained virtually constant since then. The major generating stations and load centers are interconnected through a 225-kV national grid extending 3,864 km. There are also 864 km. of 150 kV. transmission lines, 8,165 km. of 60 kV. subtransmission lines, and about 30,000 km. of distribution lines. Table 2 includes details on power facilities. 7. Characteristics and Conditions of Power Supply: Of the 2,220 MW. of nominal capacity installed, 687 MW. or 31 X is hydroelectric and 1,533 MW. is thermal (1,185 MW. or 53 % steam; 334 MW. or 15 X gas turbines; and 14 MW. or less than 1 X diesel). However effective capacity amounted only to 2,144 MW. (hydro: 657 MW.; steam: 1,175 MW.; GT's: 301 MW.; and diesel: 11 MW.). Because of the delays in the construction of hydro plants; the lack of water for power generation from multipurpose schemes; and the poor availability of thermal plants due to forced outages (overdue maintenance of the steam and gas turbines and ancillary equipment), average system peaking available capacity since early 1992 has amounted only to about 1,550 KW., which was not sufficient to meet peak demand in 1993, which was estimated at 1,850 MW. As a result, programmed load shedding (up to 17 X of peak demand) has been imposed mainly on industrial consumers, causing considerable losses to the productive sector. Table 3 includes details on power capacity balances and Table 4 on electric energy balances. 8. During 1992 ONE's thermal- based power plants consumed about 1,128 kTons of heavy fuel and 1,116 kTons of coal to generate about 7,585 GWh., of which 2,687 GWh were based on heavy fuel and 3,485 GWh. based on coal (2,513 GWh. with imported coal). The total fuel expenses amounted to US$ 193 million. ONE's overall thermal plant efficiency was equivalent to 2,495 kcal/ kWh., the most efficient plant being Mohammedia with an efficiency of 2,219 kcal/kWh. and the least Jerada plant with 3,386 kcal/ kWh. The average specific fuel cost of ONE's power generation in 1992 amounted to 4.77 cents US$/ kWh, while the lowest corresponded to Mohammedia plant at 3.86 cents US$/ kWh. and the highest to Casablanca plant at 5.36 cents US$/ kWh. Table 5 includes details on power plant efficiencies and specific fuel consumptions. 9. Power Generation Requirements: To meet the power supply requirements as well as to replace the aged thermal- based power plants, the sector has to implement a large expansion program through year 2000. This plan, which it is expected to overcome the existing power shortages, is divided in two stages. The first stage consists of the works which are currently under construction and should be completed during the period 1994- 1996. This short- term program consists in adding about 1,340 MW. of generating plants and includes the commissioning by July 1994 of the first 330 MW. steam- based unit at Jorf Lasfar and by the end of 1994 of two hydroelectric schemes (2x240 MW.), 2 x 100 MW. gas turbines (at Tit Mellil and Tetouan respectively); and by early 1995 the second 330 MW. steam- based unit at Jorf Lasfar. In the medium- term (1997-2000), ONE intends to commission several hydroelectric schemes with an aggregate capacity of 540 MW. Additionally, by the end of 1995 ONE intends to request proposals through international competitive bidding among recognized private operators for the: (i) installation and operation of two thermal- based power schemes of about 350 MW. each (combined cycle) at Kenitra and Mohammedia respectively; and  (ii) sale of the 2 x 330 MW. new units (I and II) at Jorf Lasfar as well as the construction and operation of the plant expansion (units III and IV of 330 MW. capacity each). Table 6 includes details on ONE's expansion program and Table 7 on the sector investment requirements. C. Power Sector Issues 10. The Moroccan power sector faces today organizational, financial and power supply problems as a result of the dispersion of responsibilities among various ministries, central and local government agencies and inter- ministerial committees. The regulation, organization, decision making, policy implementation and administration of the electricity sector are not well coordinated. The Moroccan authorities are currently addressing these problems in a firm and orderly fashion. 11. The sector confronts serious power supply shortages. As mentioned above, average available system peaking capacity has not been sufficient to meet peak demand and programmed load shedding has been imposed mainly on industrial customers, causing a production loss of up to 1% of GDP. This was mainly due to: (i) delays in the construction of hydroelectric generating plants; (ii) lack of water for power generation from the multipurpose hydro schemes; and (iii) poor availability of thermal plants due to frequent forced outages as a result of overdue maintenance of the steam and gas turbines. 12. The sector organizational problems are related to: (i) the sector's monopolistic structure and the lack of autonomy for setting electricity prices. ONE, the state owned utility, has the legal monopoly for power generation, transmission and power imports. Electricity prices are approved by the Permanent Inter-Ministerial Committee of Public Enterprises - CIPEP; (ii) the complexity of the sector organization and the excessive number of institutions associated to its administration (ONE operates under the mandate of the Ministries of Energy and Mines and Finances, ten R6gies owned by their municipalities which distribute both electricity and water are under the authority of the Ministry of Interior, and several auto-producers make uneconomic investments because ONE and the Regies provide unreliable supply); and (iii) excessive centralized controls at ministerial levels (the Ministry of Finance controls ONE's expansion plans while the Ministry of Interior controls the Regies, and the CIPEP controls tariffs). 13. The main financial problems affecting the sector are mainly due to: (i) the lack of regular adjustment of electricity tariffs; (ii) the magnitude of the arrears owed by both the Regies and the public sector to ONE; (iii) the higher fuel consumption by thermal plants due to the low availability of hydroelectric schemes; (iv) the high level of taxes imposed on the heavy fuel used for power generation; and (v) ONE's debt service obligations mostly to the State which the Government partially has had to subsidize through capital contributions. The Regies' profit margins on electricity sales have been used to subsidize their water operations. Furthermore, they have accumulated large arrears with ONE.  -5- D. Power Sector Reform 14. In view of the above problems, the Moroccan authorities have decided to overhaul the existing legal and regulatory frameworks and practices through the issuance and implementation of new sector regulating arrangements. These reforms aim to: (i) reform the existing sector legislation and regulation to permit the operation of independent power producers - IPP's through competitive bidding among recognized/reliable undertakings and the investment of private capitals; (ii) establish the Electricity Code as well as an independent Regulatory Agency to monitor the power utilities and the IPPs as well as set-up electricity prices to consumers based on sound financial and economic criteria; (iii) reduce the current reliance on oil imports to meet energy needs in a cost effective manner while mitigating the adverse effects on the atmosphere by the use of energy combustibles; (iv) adopt improved technologies such as combined- cycle and repowering of power plants; (v) promote energy conservation measures; (vi) rehabilitate the sector financial situation; and (vii) add power generating capacity to meet the country's demand. 15. The ESMAP/ World Bank Energy Sector Institutional study, already completed in collaboration with a GOM's task force, proposes detailed options to address these important issues. Based on the main recommendations of this study, the sector authorities have decided to prepare all the documentation required to implement the reforms of the power sector and they have requested Bank's advice and financial assistance to carry-out these tasks. At their request, the Bank has agreed that the experts needed to prepare the new electricity code, establish the Regulating Agency, complete the bidding documents and power purchase agreements for IPPs, and update and implement the long- run marginal cost tariff study, will be financed with available funds of existing Bank loans. Once the above tasks are completed, these reforms will be implemented at the earliest because of the urgency to meet the pressing power generation needs and the sector's lack of financial resources to support needed investments. The authorities have demonstrated their ownership and strong commitment to implement orderly these reforms by: (i) requesting Bank financing for the activities mentioned above; and (ii) suspending previous direct negotiations with two potential IPPs (after the Bank recommended to establish first the sector regulatory framework and then call for IPPs proposals through competitive bidding). II. SCOPE OF THE PROJECT A. Project Background 16. In order to serve the expected increase of electricity consumption in Morocco and to meet the challenge of more than doubling ONE's interconnected system generating capacity from 2,200 MW. to 5,440 MW. in seven years, there is a need to introduce innovative technologies which would improve the cost- efficiency of energy usage as well as benefit the environment by reducing greenhouse gas emissions significantly. Among these technologies, the repowering technology applied to existing plants using  topping cycle (combined cycle through the attachment of a new gas turbine to an existing steam- based scheme) is an attractive alternative. Most of the developing countries have been reluctant to adopt combined cycle schemes (including repowering plus incremental steam generation through gas turbines) due sometimes to lack of familiarization with these schemes and/ or misleading perception that these innovative and modern schemes are not fully proven. 17. Repowering schemes, including incremental steam generation, are typically implemented in existing steam- based power plants, aging from 10 to 20 years. The new gas/oil turbine is properly matched with the existing system in order to maintain the plant operation within design parameters. In general, the power plant generating output is increased up to 75%, while the reduction of specific fuel consumption may be as much as 40 X. Furthermore, because of the higher plant efficiency after repowering, the amount of carbon dioxide emitted to the atmosphere per additional kWh. produced may be reduced by as much as 35 X. Substantial reduction of nitrogen oxides and of sulphur dioxide are also achieved through the repowering schemes. 18. Given these background, and once the power sector authorities were persuaded and convinced of the potential benefits associated with repowering schemes, the Government requested GET assistance to implement the proposed project. In response, GET granted a Project Preparation Advance of US$ 500,000 to prepare a feasibility study and economic/ environmental evaluation for the introduction of the repowering technology in Morocco. This study has provided the optimal site and size of the scheme, the economic and environmental assessments and the detailed cost estimates. The proposed repowering project has been prepared based on the results, conclusions and recommendations of this study. B. Proiect Description 19. The project consists in attaching a 60 MW. new gas turbine, capable of operating with natural gas and light distillates, to the existing 75 MW. steam- based power generating unit No. 4 at Kenitra power plant. The high temperature gas from the new gas turbine will exhaust into a forced circulation Heat Recovery Steam Generator (HRSG). The high temperature- high pressure steam from the HRSG is then directly channeled to the existing boiler, where once mixed with the boiler steam, feed the existing steam- based turbine. The final arrangement of the gas turbine has been set in order that the degree of power plant operational flexibility, plant availability, and economies are optimum. The repowering of the existing plant has been also designed so the new gas turbine and existing steam plant are able to operate independently from each other. In addition to the installation of the new 60 MW. GT and the HRSG, the following main mechanical/electrical equipment and components are required: feed pumps, steam and gas ducts, power generator, main transformer, control and metering panels, automation system and other auxiliary equipment.  -7 C. Project ORtimization 20. The aim of the feasibility study carried- out by ONE consultants, ENEL (Italy), was to determine the optimum site, size and operating characteristics of the repowering scheme as well as its technical and economic viability. These parameters were determined in order to combine a least cost scheme with the highest power generating output capacity and the highest volume of C02, S02 and NOx emissions' reduction. Three possible candidate sites to implement the proposed project were considered: Casablanca (2x60 MW), Kenitra (4x75 MW) and Mohammedia (4x150 MW). In addition, three different CT's sizes were analyzed: 120 MW., 60 MW., and 35 MW., all attached to the above power plants under two repowering schemes: fully fired and with the HRSG for steam production. Due consideration was given to the limitation factors of the existing facilities, such as maximum allowable gas flow rate through the existing steam generators, new GT's back- pressure exhaust, site conditions and the new GT's adaptability to operate with natural gas, light distillate, heavy fuels and combinations among them. 21. The results of the optimization analyses have concluded that the optimal scheme is to install a 60 MW gas turbine at Kenitra power plant with a HRSG for steam recovery/ production capable to operate using natural gas or light distillates. The alternative of repowering Casablanca was disregarded as it was demonstrated that its technical and economic viability were inadequate. Repowering of the 120 MW. steam based unit No. 1 at Mohammedia- operating during the first two years using heavy fuel (for which a fuel treatment facility will be needed), and natural gas thereafter- was compared with the above mentioned scheme at Kenitra. 22. The main results are summarized as follows: (i) the proposed repowering scheme at Kenitra would increase annual energy output of unit No. 4 by about 76%, from 463 GWh per year to 818 GWh per year; while the one at Mohammedia unit No. 1 would increase by about 69%, from 933 GWh per year to 1580 GWh per year; (ii) the efficiency gains at Kenitra would be larger as plant efficiency will be improved by about 17.5% from 33.8% to 39.7%, while at Mohammedia efficiency will increase only by 14%, from 38.6% to 44.0%; (iii) specific fuel consumption at Kenitra will be reduced by about 14.9% from 2544 kCal./ kWh. to 2166 kCal./ kWh. This represents savings of about 31,000 tons/ year or US$ 2.2 million/ year. At Mohammedia the corresponding reduction would amount to 12.4%, from 2228 kCal./ kWh. to 1952 kCal./ kWh.; and (iv) production cost (based on a discount rate of 12% and fuel/ gas price increases of 3%/ year) at Kenitra would be 34 mills US$, while at Mohammedia it would be 35.2 mills US$. Details of project optimization are included in Table 8. D. Proiect Costs and Financing Plan 23. The total estimated cost of the project amounts to US$ 45.7 million, of which US$ 36.8 represent the foreign exchange component. This estimate includes physical contingencies, which were estimated at 10 % of the base cost, price contingencies which were calculated based on Bank's estimates for domestic and international price variations during the period of project implementation as well as local taxes and duties. The GET grant will finance consultants's services for preparation of technical design/ specifications and  -8- project supervision as well as the purchase and installation of the power substation and the control/ protection/ communication equipment. The remaining cost of the project, which includes the gas turbine and associated equipment and associated expenses, will be financed by ONE's counterpart funding amounting to US$ 7.8 million to cover the expenses related to project management and taxes/ duties; and the balance of US$ 32 million by a concessional loan (20 years amortization period plus 10 years grace and 3 X a.p.r.) requested by the Government of Morocco and to be negotiated with the Overseas Economic Cooperation Fund (OECF) of Japan on a parallel financing basis to fund the purchase of the new GT, HRSG and ancillary equipment. Table 9 includes details of project cost and financing. III. IMPLEMENTATION AND MONITORING ARRANGEMENTS A. ONE's Organization and Staffing 24. The proposed project will be implemented by ONE in accordance to an agreed project implementation schedule. The overall project management will be under ONE's power plants' construction and generation department, which is properly organized and staffed, as demonstrated through the successful completion in the past of larger and complex power generation schemes. Previous Bank's experience with ONE's technical staff has been satisfactory and their performance has been adequate. During negotiations it has been agreed with ONE that they will submit for Bank's review before December 31, 1995 (date by which the turn- key contract will be in place), details of the arrangements and of staff assignments for ONE, for the consultants to be retained for project supervision and for the contractor to be engaged for the construction of the project. B. Prolect Supervision 25. Although ONE is the project's implementing agency, therefore fully responsible for its adequate implementation, experienced consultants will be retained to assist ONE to supervise the turn- key contract. This consultants will assist ONE to evaluate proposals for the turn- key contract, to review the contractors' final design of the repowering scheme, to verify quality and performance of the different equipment to be supplied by the contractor, to supervise the installation of the scheme, and to verify performance guarantees. During negotiations it has been agreed with ONE that they will engage before October 31, 1994, consultants's services for the preparation of technical design/ specifications/ bidding documents and project supervision under terms of reference acceptable to the Bank. C. Project Implementation Schedule 26. Detailed design/ specifications/ bidding documents is expected to be completed by May 1995; the bidding process, including signature of the turn-key contract, by December 1995; field construction (civil works) is expected to start by July 1996; and the installation of the main equipment by February 1997. Completion and commissioning of the project is expected to take  - 9 - place by December 1997. The Bank has assessed in detail the above arrangements and has concluded that they are adequate. During negotiations ONE agreed to implement the proposed project in accordance to the above schedule. Table 10 includes details on project implementation schedule. D. Procurement and Disbursements 27. The following table summarizes the procurement arrangements for the project: USS Thousand ICB Is Other Total - Design/Tech.Spec./Supervision 1,148 1,148 (1,148) (1,148) - Turn- key contract Repowering 36,671 36,671 (4,760) (4,760) - Incinerator 92 92 (92) (92) - ONE's Management 2,297 2,297 Total 36,671 92 3,445 40,208 (4,760) (92) (1,148) (6,000) - Figures in parenthesis to be financed by the GET grant. - All amounts include physical and price contingencies but exclude taxes and duties. - ICB: International Competitive Bidding - IS: International Shopping - Other: Procurement of consultants and ONE's management (force account) 28. ONE will engage the consultants ENEL (Italy), ona sole source basis to prepare the detailed design and bidding documents for the supply of the new gas turbine and ancillary equipment as well as for the supervision of the installation and commissioning of the repowering project. ENEL are the consultants who prepared the feasibility study. This is in accordance with Bank's Guidelines for Use of Consultants because they have in- depth knowledge  - 10 - of the Kenitra plant, of the repowering technology and they have successfully completed the feasibility study. The contract for the supply and installation of the repowering scheme will be awarded on the basis of a turn-key contract to be procured through international competitive bidding in accordance to Bank's Guidelines for Procurement. This process is justified given the innovative nature of the project which requires an overall performance guarantee for the repowered scheme. The small contract (US$ 92,000) for the supply of the incinerator to dispose fuel/oil refuse at Kenitra will be awarded on the basis of International Shopping as prescribed by Bank procedures. All contracts will be subject to prior review by the Bank, except consultant contracts for less than US$ 100,000 (for these contracts the terms of reference, single source selection and individual assignements will be reviewed by the Bank). Table 11 includes details of the procurement arrangements. 29. The GET grant is expected to be fully disbursed during a period of 36 months. The proposed pattern does not reflect applicable Bank standard disbursement profiles because the project is sui- generis by nature, the installation of the scheme will be awarded through a turn- key contract, and the extent of the works is limited to adding equipment to an existing power plant, where major civil works will be not undertaken. The proposed project completion schedule is very conservative. Proceeds of the proposed GET grant would be applied to the payment of: (i) 100 % of the foreign expenditures for imported goods; (ii) 100 Z of the foreign and/ or local expenditures for associated installation and construction costs; and (iii) 100 % of the expenditures for consultants. All requests for disbursements of funds from the GET grant will be fully documented. The closing date for the GET grant is December 31, 1998. Table 12 includes details of the GET grant disbursements' schedule. E. Pro1ect Monitoring and Evaluation 30. Project implementation monitoring standards will be established to achieve efficient physical implementation of the proposed project. Overall project execution will be monitored through target dates as indicated in the implementation schedule. Furthermore, the project will be evaluated through a systematic and comprehensive evaluation program, to be developed by ONE, its consultants and the project contractor (once the turn- key contract is in place), specifically for the repowering project. Data on the repowering system will be collected during the construction and operation of the facilities. This will include technical (efficiency performance, emissions' reduction and environmental benefits) as well as financial information which will permit to assess properly the costs and benefits of the scheme as well as its performance. This data bank will be utilized to promote repowering technology to other ONE's plants and developing countries. The monitoring and evaluation programs will be reviewed on a regular basis and reports will be issued to discuss the operation and viability of the project. During negotiations agreement was reached with ONE that they will submit for Bank review before December 31, 1995, the monitoring and evaluation programs in accordance with GEF standards. Furthermore, ONE will submit to the Bank quarterly progress reports on the project, and before April 31, 1997 a mid- term review report of such scope and detail as the Bank shall reasonably request.  - 11 - F. Training Plan for ORerators 31. Provisions have been set to properly prepare and train the power plant personnel so they become receptive and familiar with the operation of the proposed installation. Although the construction would be somewhat intrusive and new to the power plant staff, it is expected that power plant staff acceptance and familiarization with the new facility will be quick and smooth because: (i) the compact nature of the additional equipment; (ii) the work which will be limited to attaching the gas turbine and the heat recovery- steam generator to only one of the steam boilers; (iii) the implementation of the proposed training plan; and (iv) the short installation period. During negotiations agreement was reached with ONE that they will submit for Bank review before December 31, 1995, a comprehensive training program which will be prepared with the assistance of the contractors for the construction of the repowering project. C. Rationale for GEF Funding 32. Carbon dioxide exhaust from fossil fuel power plants is a significant source of greenhouse emissions. Furthermore, advanced technologies in electricity generation which greatly improve plant efficiency are currently available in developed countries. The implementation of the proposed project will promote the adoption of advanced technologies in countries which until now have been reluctant to adopt the proposed scheme. The benefits derived by supporting this project through partial GEF funding include: (i) abatement of carbon dioxide, nitrogen oxides and sulphur dioxide emissions as compared to a stand alone gas/ steam turbine generators of the same capacity; (ii) substantial reduction on specific consumption of combustibles; and (iii) promotion of the repowering technology to other ONE's plants and developing countries. H. Prolect Replicability 33. Several developing countries are exhausting rapidly their fossil energy sources. Furthermore, the negative impact on the atmosphere derived from the emission of C02 and other pollutant gases by the combustion of fossil fuels is reaching alarming levels. It is increasingly important that developing countries, where the cost of energy is expensive as a result of the short supply and/or where the levels of gas emissions is substantial, take the initiative of reviewing their planning policies and adopt new technologies to address the above problems. The proposed project is considered as one that fits and addresses the above issues. Through the detailed monitoring and evaluation programs established under the project, detailed actual information (technical/ environmental/ financial) will be available to demonstrate and prove the soundness and benefits of the repowering technology. The proposed project will provide unequivocal data which is expected to be disseminated through the developing countries in order that their power utilities take the initiative to repower their existing power plants utilizing the proposed technology.  - 12 - I. Proiect Sustainability 34. The repowering technology using a current design combustion turbine is an innovative technology that has been commercially used in developed countries during the past years. Second generation high efficiency advanced combustion turbines are available for commercial orders. Most major turbine manufacturers offer advanced gas turbines and major engineering firms have developed various modification schemes to retrofit existing steam turbines with existing steam generation boilers. The repowered combined-cycle plant has a significant advantage of having approximate savings of up to 40 X based on net plant heat rate as compared with a conventional steam plant of equivalent output. The gas turbine alone will have a higher efficiency, if proper credit is given to the energy derived from its exhaust to the steam- based power plant. The proposed project is based on the effective use of conventional sources of energy (natural gas/ light distillates) to improve electricity generation efficiency and to reduce the carbon dioxide and other air emissions. The financial and environmental benefits derived from this technology, lower unit electricity generation costs and reduced gas emissions, which will be supported through comprehensive data base collected during construction/ operation of the project, will ensure the sustainability of the project. IV. ENVIRONMENTAL ASPECTS A. Environmental Analysis of Existing Facilities 35. An environmental analysis has been carried- out at the proposed project site of Kenitra, where the existing facilities - 4x75 MW steam based power generating units - operate using heavy fuel. The Bank's appraisal mission found some operational practices which have a detrimental impact on the environment. Details of the existing problems and the agreed actions to be undertaken by ONE are included in Attachment 1. The main aspects are summarized as follows: (i) fuel/ waste water disposed from the plant's filters fuel feeding system and oil/ waste water from the plant's equipment is frequently spilled into the nearby river because inadequate operation of the water/fuel/oil gravity separator. ONE has agreed to address the problem by installing an incinerator facility to burn all the waste fuel/oil which is disposed from the plant. The proposed project provides the corresponding funding; (ii) a few plant service transformers still contain polychlorinated biphenyl (PCB) insulating oil instead of mineral oil. ONE has agreed to follow normal worldwide practices on the subject, and it will replace the PCB insulating oil in these specific service transformers with mineral-based insulating oil whenever a leakage occurs; and (iii) fuel spills occur around the fuel storage tanks because proper practices are not followed during the draining of the steam condensate, a periodic maintenance activity. ONE has agreed to control the fuel spills by strictly enforcing its established operational practices.  - 13 - B. Greenhouse Gas (GHG) Emissions 36. The proposed project would have a substantial positive impact on the environment. It will reduce significantly carbon dioxide emissions to the atmosphere resulting from the combustion of fossil fuels at thermal power generating plants. This will be achieved through the operation of the proposed 60 MW. high energy efficiency gas/light distillate fired turbine. Furthermore, water pollution will be reduced (on the basis of incremental capacity added to ONE's system) since the gas turbine is a direct combustion turbine and no hot/processed water (as compared with the steam-based plant) will be released. 37. Heavy fuels typically contain over 85 X carbon by weight. For each pound of carbon fully burned 3.67 pounds of carbon dioxide is produced. The proposed scheme is a highly cost-effective alternative to reduce carbon dioxide emissions as compared with other methods. Specific emissions of C02 will be reduced annually by 15.4%, from 608 tons/ GWh. under the current performance of unit No.4, to 514 tons/ GWh. under the repowered scheme (existing unit No. 4 of 75 MW. plus the new 60 MW. GT). Furthermore, the existing unit No. 4 (75 MW.) at Kenitra exhausts under normal operating conditions about 59 tons/hr. of C02. With the proposed repowering scheme, the same unit will exhaust only 41 tons/hr. of C02. As a result, the net savings over a period of 20 years will be about 2.3 million tons of carbon dioxide, equivalent to a net savings of 19 million US$. This represents an investment of about US$ 2.6/ ton of carbon dioxide saved, based on the proposed GEF contribution of about US$ 6 million. 38. There would also be a reduction in NOx emissions. Since the exhaust heat from the gas turbine is fed to heat recovery steam generator (HRSG) and then to the existing steam boiler, less fuel would be burned in the existing boiler; and the boiler flame temperature would necessarily be less to compensate for the externally supplied heat. Specific emissions of NOx will be reduced annually by 62%, from 2.7 tons/ GWh. under the current performance of unit No.4, to 1 ton/ GWh. under the repowered scheme (existing unit No. 4 of 75 MW. plus the new 60 MW. GT). Furthermore, the existing unit No. 4 (75 MW.) at Kenitra exhausts under normal operating conditions about 0.24 tons/hr. of NOx. With the proposed repowering scheme, the same unit will exhaust only 0.15 tons/hr. of NOx. The net savings over a period of 20 years will be about 15,860 tons of NOx, equivalent to a net savings of 10.3 million US$. 39. Under the same assumptions also, specific emissions of S02 will be reduced annually by 27%, from 29.6 kg/ GWh. to 21.5 kg/ GWh . Furthermore, S02 emissions will be reduced from 1.5 tons/hr. to 1.05 tons./hr., or a net savings over a period of 20 years of about 58,600 of sulfur dioxide, representing savings equivalent to 29 million US$ during the life of the project. Table 13 includes details of the environmental emissions and benefits.  - 14 - V. PROJECT RISKS A. Project Risks 40. No particular physical risks are associated to the proposed project. Performance of the repowering project is highly dependent on proper design of the gas turbine and its associated equipment and its matching with existing components of steam- based power plant. The feasibility report, on which this proposal is based, has concluded that an adequate match exist between the proposed gas turbine generator, heat recovery steam generator and the existing steam boiler of unit No. 4 at Kenitra. A comprehensive engineering design study, which will include the preparation of technical specifications and bidding documents, is being provided under the loan to deepen the analysis. The contractor's final design of the repowering scheme as well as the supervision of the project implementation, will be reviewed and monitored by an experienced consulting firm to be engaged by ONE as agreed with the Bank. Furthermore, ONE has agreed to prepare and to implement an adequate construction and operation monitoring program for the project. Project cost and proposed implementation schedule are based on prevailing market prices and normal construction periods respectively. VI. AGREEMENTS REACHED 41. During negotiations the following agreements were reached with the Government and ONE as applicable: (i) ONE will engage before October 31, 1994, consultants's services for the preparation of technical design/ specifications/ bidding documents and project supervision under terms of reference acceptable to the Bank (para. 25); (ii) ONE will submit for Bank's review before December 31, 1995, details of the arrangements and of staff assignments for ONE, for the consultants to be retained for project supervision and for the contractor to be engaged for the construction of the project (para. 24); (iii) ONE will implement the proposed project in accordance to the implementation schedule detailed in para. 26 above and Table 10 (para. 26); (iv) ONE will submit for Bank review before December 31, 1995, the monitoring and evaluation programs which will be prepared with the assistance of their consultants as well as of the contractors for the construction of the repowering project in accordance with GEF standards. Furthermore, ONE will submit to the Bank quarterly progress reports on the project, and before April 31, 1997 a mid-  - 15 - term review report of such scope and detail as the Bank shall reasonably request. (para. 30); (v) ONE will submit for Bank review before December 31, 1995, a comprehensive training program which will be prepared with the assistance of the contractors for the construction of the repowering project (para. 31); and (vi) ONE's will provide the necessary counterpart funding to finance some of the domestic costs. 42. Furthermore, the Grant Agreement with ONE includes standard remedies (suspension/cancellation/termination) in case the beneficiary fails to perform its obligations related to the implementation of the project or to make available the necessary funds for the project. 43. Condition of effectiveness of the proposed grant is that both the Letter of Agreement between the Kingdom of Morocco and the Bank and the Grant Agreement between ONE and the Bank are duly signed. Furthermore, proceeds of the GET grant amounting to about US$ 1.1 million to finance the services of the consultants for the preparation of the project detailed design, bidding documents and supervision of project implementation, will be available after meeting the above mentioned condition of effectiveness. Release of the balance of the grant, about US$ 4.9 million, will be made only after the conditions of effectiveness of the OECF (Japan) loan are fulfilled (condition of disbursement).   MOROCCO TABLE