This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 RABAT 000626 
 
SIPDIS 
 
DEPT FOR NEA/MAG 
USDOC FOR ITA/MAC DAVID ROTH 
STATE PLEASE PASS USTR DOUG BELL 
 
E.O. 12958: N/A 
TAGS: EMIN ECON ETRD EINV SENV MO
SUBJECT: PHOSPHATES: LIFEBLOOD OF MOROCCO, OR ENVIRONMENTAL 
DISASTER? 
 
¶1.  Summary:  Phosphates and their derivatives account for 
three percent of Morocco's economy and 17 percent of its 
yearly exports.  Morocco has virtually-limitless phosphate 
reserves and state-owned phosphates company OCP is the 
world's largest exporter of phosphate rock, phosphoric acid 
and fertilizers, with a global market share of 27 percent. 
OCP exported $1.7 billion worth of phosphate rock, 
phosphoric acid and fertilizers last year, 26 percent more 
than in 2003, and a new company record.  But while the 
phosphates industry is a major contributor to GDP and 
employs tens of thousands of people, it is also the source 
of serious environmental concerns.  OCP has gone to 
considerable lengths to mitigate the industry's 
environmental impacts, but phosphate processing remains - 
literally - a dirty business.  End Summary. 
 
¶2.  The state-owned Office Cherifien des Phosphates (OCP) is 
the largest phosphates exporter in the world.  OCP began 
mining phosphate rock since the 1920s, and has been 
processing the raw material into phosphoric acid and other 
derivatives since 1965.  A kingdom-owned monopoly with 
unique and practically limitless natural reserves, OCP can 
hardly go wrong.  Its $1.7 billion worth of exports in 2004 
was 26 percent higher than 2003 and quadruple its 2000 
exports of $430 million.  The company employs nearly 30,000 
Moroccans, including 20,000 in its mining operations and 
3,000 engineers and technicians at each of two processing 
plants at Jorf Lasfar and Safi. 
 
¶3.  Morocco holds 75 percent of the world's proven phosphate 
reserves, enough to last several hundred years at current 
rates of production.  Three-quarters of these deposits lie 
in two zones in the country's center-west.  The most 
significant deposits are centered around the town of 
Khoribga, and roughly another 25 percent lies near Ben 
Guerrir.  An additional one or two percent is located in 
deposits in the Western Sahara, 100 km east of Laayoune. 
 
¶4.  The open pit mines at Khoribga and Ben Guerrir produce 
22 million tons of phosphate rock each year.  Roughly half 
of this is transported by rail directly to ports in 
Casablanca and Jorf Lasfar for export; the rest is taken to 
processing plants near Jorf Lasfar and the southern town of 
Safi to be converted into phosphoric acid and fertilizers, 
95 percent of which is exported.  Another 1.5 million tons 
of raw phosphate rock is mined at Bou Craa in the Western 
Sahara and transported on a 120 km-long system of conveyor 
belts - the longest conveyor in the world - to the sea port 
of Laayoune for export.  OCP directors say the Western 
Sahara mines are not profitable and their reserves are not 
great.  The mines are kept open, managers say, because they 
generate badly-needed employment in a politically-sensitive 
region. 
 
¶5. In addition to its sales of raw phosphate rock, OCP runs 
two processing plants, one at Jorf Lasfar and another at 
Safi.  The Jorf Lasfar plant processes eight million tons of 
raw phosphate rock each year into two million tons of 
phosphoric acid, about half of which is further processed 
into fertilizers.  The Safi plant coverts six million tons 
of rock each year into 800,000 tons of 54 percent 
concentrated phosphoric acid for industrial use, as well as 
high-purity acid for use in pharmaceuticals and food 
products.  Safi makes another 800,000 tons of fertilizers. 
India is Morocco's number one customer for phosphate 
derivatives, accounting for over half of OCP's yearly sales. 
Another 30 percent goes to Europe, and 11 percent to the 
Americas, chiefly to Mexico and Brazil. 
 
¶6.  The Jorf Lasfar and Safi plants each employ 500 
executives and engineers, 500 technicians and 2,000 
laborers.  The jobs are relatively well paid and come with 
one of the best benefit packages in Morocco.  Most plant 
employees - particularly the engineers and technical staff - 
come from Rabat and Casablanca, though OCP directors say 
they try to employ local staff whenever possible.  The Safi 
plant, for example, contracted out 720,000 days worth of 
work to local area residents between 2001-2004. 
 
-------------------------------------------- 
Accessing New Capital Through Joint Ventures 
-------------------------------------------- 
 
¶7.  With virtually inexhaustible reserves, OCP directors say 
the company will expand as fast as it can gain access to 
investment capital.  The firm has programmed $1.2 worth of 
its own investments through 2009, and has signed several 
joint ventures in recent years to increase its access to 
capital.  Phosphates processing is a capital-intensive 
business with a long timeline for re-payment.  OCP's joint 
ventures provide the double attraction of supplying much- 
needed investment, while securing long-term purchasing 
guarantees from the joint venture partner. 
 
¶8.  OCP formed a $230 million joint venture with India's 
Birla Group in 1997 (which was joined on March 21, 2005 by 
India's Tata Chemicals), which produces 330,000 tons of 
phosphoric acid per year for sale to India.  OCP created 
another venture in January 1998 with a German-Belgian 
concern to produce high-purity phosphoric acid for use in 
pharmaceuticals and food products.  In September 2004, OCP 
signed a $200 million deal with Pakistani group Fauji to 
build a new phosphoric acid facility at Jorf Lasfar that 
will produce 375,000 tons a year, and three months later 
signed yet another deal with Brazil's Bunge Fertilizantes 
for the construction of an integrated production unit for 
phosphoric acid and fertilizers. 
 
¶9.  Not all is rosy for the future of Morocco's phosphates 
industry, however.  High transportation costs, driven upward 
by the cost of fuel on world markets, have cut into OCP's 
bottom line.  OCP is also facing competition from expanding 
production in places like China and India.  The company is 
responding to higher shipping costs by increasing the 
percentage of value-added processing done in Morocco. 
Purified phosphoric acid and fertilizers bring a higher 
price per weight and are less sensitive to transport costs. 
At the same time, OCP executives say, a growing world 
population living on finite agricultural land portends a 
constant growth in demand for fertilizers as farmers push 
their lands for higher and higher yields. 
 
¶10.  Perhaps more importantly, the industry faces growing 
concerns over environmental impacts.  The process of 
converting raw phosphate rock into phosphoric acid is a 
messy one; it involves first the production of sulfuric acid 
from raw sulfur, putting toxic sulfur-dioxide into the air, 
and produces gypsum slurry, a by-product that is pumped 
untreated, directly into the sea. 
 
------------------------ 
Environmental Nightmare? 
------------------------ 
 
¶11.  OCP managers profess strict adherence to international 
environmental norms.  Both the Jorf Lasfar and Safi plants 
are gearing up for ISO 14001 certification of their 
environmental management regimes, with an audit scheduled to 
take place in May 2005.  The plants dump gypsum into the sea 
at outlets near each plant, but managers claim environmental 
impact assessments done by independent agencies show little 
or no impact: Jorf Lasfar managers said there was none, 
while Safi's chief of environmental quality said impact 
there was limited to a two km radius around the point of 
evacuation and was well within international norms.  The 
larger danger, said Safi general manager Abderrahim Nadifi, 
is the SO2 emission from the sulfuric acid facility's 
smokestacks.  To minimize the impact of sulfur emission, OCP 
is converting its smokestacks from single absorption to a 
Monsanto-engineered double absorption process that greatly 
reduces the amount of sulfur dioxide that escapes into the 
air.  The conversion to double absorption is a costly 
process, but it helps OCP recover 99.7 percent of the SO2 
generated and is part of OCP's efforts to meet ISO 14001 
certification. 
 
¶12.  Plant managers say they go beyond what is required by 
Moroccan law, for example matching ISO and U.S. standards 
"as much as practical," although there is no legal 
requirement for them to do so.  Environmental committees at 
each plant evaluate the impact of all new actions. 
 
------------------------ 
Carbon Credits, Per Kyoto 
------------------------ 
 
¶13.  OCP is in the process of deploying a Heat Recovery 
System that captures heat from its smokestacks and uses it 
to generate energy, cutting down the plants' reliance on 
outside energy sources.  Phosphoric acid production involves 
exothermic chemical reactions.  OCP facilities capture the 
heat released during this process through a Monsanto- 
engineered recovery system and use it to generate power for 
consumption by the plants.  As a result, only 12 percent of 
the energy consumed at the Safi plant is "imported" from 
outside the facility.  The heat capture system allows the 
plants to use less coal-fired energy, thus earning "carbon 
credits" they can sell on a secondary market through the 
Kyoto Protocol's Clean Development Mechanism. 
 
¶14.  The Jorf Lasfar plant is spending $12 million to 
install its heat recovery system, which will allow it to 
generate 16 megawatts of energy.  These 16 megawatts will 
allow the plant's coal-fired electrical facility to reduce 
CO2 emissions by over 100,000 tons per year. 
 
--------------------------------------------- -- 
OCP's Future, and the Involvement of U.S. Firms 
--------------------------------------------- -- 
 
¶15.  OCP managers say they will continue to seek joint 
venture partners to increase the company's access to 
investment capital, and continue to steer their production 
toward higher value-added products like fertilizers and high- 
purity phosphoric acid.  Directors doubt the state company 
will ever be privatized, though divisions have in the past 
been spun off.  Fertima, a marketing and re-sale unit of 
fertilizers was sold to private investors four years ago, 
and its stock is now selling at double its opening price. 
 
¶16.  Although phosphate extraction is reserved for OCP (and 
is carved out of the U.S.-Morocco FTA), U.S. firms do play a 
role in OCP's processing operations.  Monsanto's Enviro-Chem 
Systems division licenses its environmental engineering 
technologies and equipment, notably for the SO2 double- 
absorption process and heat recovery systems; Jacobs 
Engineering (Florida) is providing engineering services for 
the recently-signed Pakistani joint venture; and Chas Lewis 
& Co. (St. Louis) provides sulfuric acid pumps for both of 
OCP's facilities.  OCP has been using Monsanto technology 
since 1976, and Safi plant managers called their 
relationship with the U.S. firm "exemplary."  "We don't have 
a business relationship with Monsanto," said one director. 
"We are married to them." 
 
¶17.  Comment:  Phosphates clearly play a key role in 
Morocco's national economy, generating tens of thousands of 
jobs and adding millions of dollars to state coffers each 
year.  With both plants located fairly far from large urban 
centers, consciousness among Moroccans of the adverse 
environmental effects from the plants' operations is fairly 
low, for now.  OCP managers seem to understand that 
environmental consequences must be addressed, and are 
willing to spend money to deal with them, before they become 
high profile, or irreversible.