Morocco - Jorf Lasfar Power Plant

Report No. PIC4885 Project Name: Morocco-Jorf Lasfar Power Plant Region: Middel East and North Africa Sector: Electric Power & Other Energy Project ID Number: MA-GU-45615 Guarantor: The Kingdom of Morocco Project Sponsors: ABB Energy Ventures Inc. 202 Carnagie Center, Suite 100 Princeton, New Jersey 08540 and CMS Generation Fairlane Plaza South 330 Town Center Drive, Suite 1000 Dearborn, Michigan 48126-2712 Contacts: M. Karlsson, Vice President Finance, ABB Tel: 609-243 7554 Fax: 609-243 9174 M. Cardenas, Executive Director, CMS Tel: 313-436 9273 Fax: 313-436 9533 Date this PID prepared: February 1997 Projected Appraisal Date: March 1997 Projected Board Date: June 1997 Background 1. To resolve certain organizational and financial difficulties, allied with power supply shortages, the Moroccan authorities have decided, with the Bank's advice and financial assistance, to overhaul the existing legal framework and practices of the power sector. These reforms include: (i) preparation and implementation of the Electricity Code, which will regulate the activities of the entire power sector; (ii) establishment of an independent Regulatory Body to monitor the activities of the sector utilities and set up electricity prices based on sound criteria; (iii) introduction of private investments, through the participation of Independent Power Producers (IPPs), who will be responsible for building and operating new thermal generation and through the award of power distribution concessions to private operators; and (iv) reorganization of the Office National de l'Electricite (ONE). 2. Following the new policy on private participation, the Government of Morocco (GOM) issued competitive bidding for the concession (lease) of the two existing 330 MW coal-fired/steam- based turbo-generators (units 1 and 2) at Jorf Lasfar and for the  construction and transfer of ownership to ONE of units 3 and 4, in exchange for the right to operate the four units for a period of thirty years. The contracts, for which negotiations and financial closure are progressing satisfactorily, were awarded to the consortium ABB Energy Ventures B.V. (ABB) of Switzerland and CMS Generation Co. (CMS) of USA. Project Description 3. The power plant is located along the coast near the port of Jorf Lasfar, 100 km. south of Casablanca. The existing power plant consists of 2x330 MW coal-fired/steam-based turbo-generators (units 1 and 2) which were commissioned respectively at the end of 1994 and during early 1995. The project provides for expansion of the power plant through the addition of two 330 MW turbo-generators (units 3 and 4) of similar characteristics as the existing generators, to be developed by the project Sponsors. Project Sponsors 4. The Sponsors of the project are ABB Energy Ventures B.V. (ABB) and CMS Generation Co. (CMS). A special purpose company, Jorf Lasfar Energy Co. (JLEC), has been established by the sponsors under the laws of Morocco. Each sponsor will own 50 percent of the shares of JLEC, which will be responsible for paying the Transfer of Possession Fee (TPF) to ONE for units 1 and 2, for the construction and commissioning of units 3 and 4, and for the operation of the entire power plant. Project Objectives and Benefits 5. The Bank guarantee would help bridge the financing gap of US$184 million for the project, which is critical to the completion of the financing package. The proposed guarantee would also achieve additionality by helping the Sponsor borrow at more favorable market terms. The project will decisively help establish a credible framework for private sector entry in the energy sector and set a model for a contractual and security package for future energy projects in Morocco, without necessarily creating a need for further Bank guarantee support at the same level. Also, by increasing the country's power generation capacity, the social benefits of the project exceed the benefits anticipated by the sponsors and lenders and would, by itself, justify Bank support of a privately-sponsored project. Project Implementation 6. Financial closure for the project is expected to take place shortly. The transfer of units 1 and 2 and the start of construction of units 3 and 4 should follow after financial closure. Commissioning of the latter units is scheduled 33 and 39 months after closure (March and September 2000 respectively). This timetable is contingent upon the progress of the negotiations between ABB/CMS, ONE, GOM, and the lenders. - 2-  The Security Package 7. The security package includes a set of contractual agreements that define the rights and obligations of the different participants in the project. The package includes among other the following main agreements: (i) Power Purchase Agreement; (ii) Transfer of Possession Agreement (TPA); (iii) Construction and Procurement Agreement (CPA); (iv) Coal Handling and Storage Agreement (CHSA); (v) Coal Procurement and Supply (CPS); (vi) Financing Agreements; and (vii) Government of Morocco (GOM) Project Agreements. Risk Coverage 8. The proposed guarantee, as currently envisaged in discussions with the Sponsors, would backstop certain GOM obligations, and GOM's guarantee of the payment obligations of ONE. Details of the different obligations of the GOM, ONE and the Sponsors, and consequently of the Bank, are currently being negotiated. Rationale for Bank Involvement 9. The Bank's strategy in Morocco has been to support policies and investments that encourage economic growth and efficiency through social development, private capital investments, environmentally friendly projects and sound public sector management. The Bank's country strategy, private sector development (PSD) lending program and economic and sector work focus on: (i) the financial sector; (ii) private provision of infrastructure services; (iii) vocational training; and (iv) enterprise competitiveness. The core objective of the Bank's PSD program is to achieve higher private investment and private sector growth. The proposed Bank guarantee is part of a multi-year PSD program to assist Morocco. Its compelling justifications include: (a) provision of modern infrastructure, particularly power, by efficient private suppliers; (b) reduction of the power sector's fiscal burden on the Budget through the elimination of government capital contributions and sector debt write-offs; and (c) consolidation of macroeconomic balances by allowing budgetary resources to be reallocated to the areas of highest priority, notably the social sectors. Environmental Aspects 10. The proposed project has been included in category "A" of the Bank's environmental classification. The project sponsors are familiar with Bank environmental requirements. They have retained adequate consultants (Radian, USA), who have completed an Environmental Assessment (EA) in line with Bank guidelines. The report and executive summary are currently being reviewed by the Bank. -3-  Contact Point: Mr. J. Larrieu, Task Manager The World Bank 1818 H Street N.W. Washington, D.C. 20433 Telephone No.: (202) 473-0249 Fax No.: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending March 28, 1997 - 4 -