VZCZCXYZ0000
RR RUEHWEB

DE RUEHRB #0151/01 0301357
ZNR UUUUU ZZH
R 301357Z JAN 06
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 2612
INFO RUEHCL/AMCONSUL CASABLANCA 1137
RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
RUEHMD/AMEMBASSY MADRID 5320
RUEHAS/AMEMBASSY ALGIERS 3679
RUEHTU/AMEMBASSY TUNIS 8582
RUEHFR/AMEMBASSY PARIS 3961
RUEHNK/AMEMBASSY NOUAKCHOTT 2941

UNCLAS RABAT 000151 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR NEA/MAG AND EB/ESC 
USDOC FOR ITA/MAC DAVID ROTH AND AARON BRICKMAN 
USDOE FOR GINA ERICKSON AND YOUNES MASIKY 
STATE PASS TO USAID FOR JENNIFER RAGLAND 
 
E.O. 12958: N/A 
TAGS: ENRG ECON SENV MO
SUBJECT: LIBERALIZATION OF MOROCCO'S ELECTRICITY SECTOR 
 
REF: 05 RABAT 2311 
 
¶1.  SUMMARY:  Morocco is opening its electricity sector to 
private operators, eliminating restrictions on who can 
generate and sell electricity to whom, and at what price. 
Private producers will be able to sell power to any client - 
including in Europe - through an electrical interconnection 
with Spain.  Morocco and Spain are doubling the capacity of 
the undersea link between them, which will help to further 
integrate the Moroccan power market with that of Europe. 
With these reforms the GOM hopes to attract the investment 
needed to keep up with rapid growth in Morocco's energy 
demand, and bring prices closer in line with those on world 
markets.  END SUMMARY. 
 
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THE SECTOR 
---------- 
 
¶2.  Until 1994, the state was the sole producer of 
electricity.  Since then, private firms have been allowed to 
generate power under license for sale exclusively to the 
Moroccan National Electricity Office (ONE) through long-term 
guaranteed purchase contracts.  ONE remains the sole buyer 
of electricity in Morocco, purchasing power at pre- 
negotiated rates from these producers.  Private small 
industries are allowed to produce up to 10 megawatts (MW) of 
electricity for their own use, and can sell what they do not 
use to ONE at pre-established rates. 
 
¶3.  The vast majority of Morocco's electricity is generated 
by fossil fuel combustion.  Over half of the country's power 
is generated by a coal-fired plant run by Michigan-based CMS 
Energy; an additional 17 percent is generated in a combined- 
cycle plant using natural gas from Algeria, 15 percent is 
from fuel-oil, six percent from renewable energies (Ref A) 
and between five and ten percent is imported each year from 
Spain.  Domestic electricity demand grew by 8.5 percent in 
2005, the third year in a row of greater than seven percent 
growth. 
 
------------------------- 
EXPANDED LINK WITH EUROPE 
------------------------- 
 
¶4.  Morocco and Spain are doubling their existing 700 MW 
electrical interconnection - an undersea cable stretched across 
the 15-km wide Strait of Gibraltar - to a 1,400 MW capacity.  The 
new link will be completed by the end of 2006.  Morocco buys 
electricity from Spain only when the price in Spain falls below 
Morocco's own cost of production.  The average price of imported 
power rises to nine cents per kilowatt hour (kWh) during peak 
hours and falls to as low as 3.6 cents/kWh during off-peak 
periods. 
 
¶5.  There is also a 1,300 MW power interconnection between Morocco 
and Algeria, though transactions between the two are limited to an 
as-needed basis and the balance at the end of the year is always 
zeroed out, so each country gets back what it has given to the 
other. 
 
------------------ 
OPENING THE MARKET 
------------------ 
 
¶6.  The Ministry of Energy has drafted legislation that will 
allow private firms to produce and distribute electricity on 
an open market immediately upon entry into force of the new 
law.  The draft law, based on the results of a study done in 
2004 by McKinsey and Co., will begin the interagency 
clearance process in the coming weeks and then pass to 
parliament for consideration.  Ministry of Energy Director 
for Electricity Abderrahim El Hafidi expects the law to be 
approved in 2006 and come into effect in 2007. 
 
¶7.  El Hafidi called the reform a "progressive 
liberalization" that will initially create two separate 
electricity markets - one that is liberalized immediately, 
allowing private firms to generate and sell power openly, 
and another, parallel market that continues to be regulated 
as now and in which ONE remains the sole purchaser.  The 
parallel market scenario was developed so the government 
could continue to respect the long-term contracts signed 
with its contract producers like CMS.  ONE will retain its 
role as sole purchaser in the regulated market segment until 
these generators' contracts expire. 
 
¶8.  Three major private generators are operating under long- 
term purchase contracts with ONE: CMS, the Compagnie 
Eolienne du Detroit, and the Entreprise d'Electricite de 
Tahaddart.  Under the liberalization, these generators, 
which together account for three quarters of ONE's supply, 
will preserve their purchase contracts until the end of 
their previously agreed terms.  When those contracts are 
completed they will enter the deregulated side of the market 
and sell their production at market rates. 
 
¶9.  The Ministry's objectives for the reform are to ensure 
price competitiveness within the sector, to further 
integrate the Moroccan electricity market with the more 
liberalized European market, and to attract investment in 
the areas of generation and distribution.  An independent 
national electrical regulatory agency will be created, and 
ONE will eventually become a private entity that will 
compete with other purchasers. 
 
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COMMENT 
------- 
 
¶10.  The liberalization of Morocco's electricity sector is 
another important step in the GOM's economic reform process. 
Opening the generation sector to private companies and 
allowing the sale of power on an open market should help 
bring in the investment needed to keep up with a growth rate 
in demand that will double the country's need for power in 
ten years.  Integration with the European market through an 
expanded link with Spain should also bring a competitive 
price advantage to consumers.  Post will continue to monitor 
progress of the reforms and encourage the GOM to keep them 
on track.  END COMMENT.