VZCZCXYZ0002
RR RUEHWEB

DE RUEHRB #0325/01 1041642
ZNR UUUUU ZZH
R 141642Z APR 09
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9984
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEHCL/AMCONSUL CASABLANCA 4563
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS RABAT 000325 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/MAG 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EINV SENV MO
SUBJECT: MOROCCO'S NEW ENERGY STRATEGY LEAVES A FEW HOLES 
 
REF: A. RABAT 284 
     ¶B. 08 RABAT 693 
     ¶C. 08 RABAT 1109 
     ¶D. 08 RABAT 1110 
 
 ¶1. (SBU) Summary: Morocco's new energy strategy aims to 
avert an urgent electricity supply-demand imbalance, as well 
as lessen Morocco's dependence on energy imports and exposure 
to price swings, but geography and natural resources make the 
latter goal elusive.  The Ministry of Energy's short term 
plan will address electricity concerns by boosting generation 
and reducing consumption.  Over the longer term, Morocco 
seeks to diversify energy sources, reduce Morocco's expensive 
dependence on petroleum (all imported), and eventually become 
an exporter of electricity by exploiting domestic renewable 
resources.  The success of the ambitious strategy will depend 
on continued access to financing for infrastructure 
development, improvements in the economics of new and cleaner 
energy technologies, and luck (as regards domestic 
hydrocarbon development).  Perhaps most important will be the 
political mettle to raise prices and reform subsidies, and 
establish and maintain a regulatory, financial and legal 
framework to attract sufficient outside investment in energy 
projects.  Barring an oil strike, however, Morocco will 
continue to be at the mercy of fluctuations in the world oil 
markets.  End Summary. 
 
----------------------------------------- 
OUTLINES FAMILIAR, BUT A FEW MORE DETAILS 
----------------------------------------- 
 
¶2.  (SBU) The public roll-out of the long-anticipated energy 
strategy at a March 6 symposium confirmed the outlines 
reported Ref B, but added further specifics regarding how the 
Ministry of Energy, Mines, Water, and Environment (MEMEE) 
anticipates easing electricity supply constraints and the 
financial strain of high energy costs.  Our contacts at 
Morocco's National Center for Nuclear Energy, Sciences, and 
Techniques expressed (pleasant) surprise at hearing nuclear 
power identified as an "open choice" (along with natural gas 
and solar power) in the King's letter to the energy 
symposium.  It was, they informed Econoff, the first time the 
King had publicly endorsed nuclear power as an option for 
electricity generation. 
 
¶3.  (U) The strategy's short term and medium term objectives 
principally aim at addressing a growing supply deficiency in 
the electrical sector (Morocco imported 17 percent of 
electricity consumed in 2008), through construction of new 
gas- and coal-fired power plants, and wind production.  Wind 
generation capacity is expected to grow to 1500 megawatts 
(MW) by 2012 through identified projects, with a more vague 
projection of 2200 MW by 2020.  However, according to the 
National Electricity Office (ONE), technical constraints 
related to grid stability would cap wind generation at 1500 
MW absent grid renovation and reinforcement.  The Ministry 
further took action to reduce demand by allowing (after years 
of requests from ONE) an augmentation of electricity tariffs 
paid by business and industrial consumers effective March 1, 
as well as introducing an incentive plan that offers smaller 
customers the chance to reduce their rates in exchange for 
lowering their consumption.  Other elements of the medium and 
long term plan aim at boosting energy efficiency in 
transport, buildings, and industry, in part through 
legislation to authorize efficiency standards for the first 
time. 
 
---------------------------------------- 
WHAT MATTERS MOST: ELECTRICITY SUPPLY... 
---------------------------------------- 
 
¶4.  (SBU) The strategy responds unevenly to the two most 
pressing energy problems facing Morocco.  The first is the 
supply-demand imbalance for electricity (Ref D), a result of 
6 years of annual demand growth between 6 and 8 percent. 
Assuming availability of project financing, and sufficient 
interested investors for independent power producer-type 
projects, the Ministry's and ONE's capacity expansion plans 
should alleviate generation capacity constraints.  The 
much-delayed tariff hikes are a start on the cost increases 
needed to provide incentives for efficiency measures and 
shore up ONE's finances to permit capacity investment.  ONE 
Head of Regulations and Authorizations Mustapha Achour told 
Econoff on March 30 that the tariff hikes, while finally 
covering the losses ONE incurred selling power, were 
insufficient to provide financing for new investment. 
However, he affirmed, ONE has no plans to finance or 
construct future production facilities itself, prefering to 
sign power purchase agreements (PPAs) with independent power 
producers (IPPs), of which two exist already in Morocco. 
Only one new power plant currently under construction will be 
an ONE-owned facility, a combined-cycle solar and gas thermal 
plant at Ain Beni Mathar, which required state ownership and 
financing to benefit from a Global Environmental Fund grant. 
 
¶5.  (SBU) In a conversation with Econoff, MEMEE's Director of 
Electricity Abderrahim El Hafidi argued that the 
international credit crunch was unlikely to impact the 
planned building of plants and infrastructure investment. 
Because nearly all of the power plants on the drawing board 
will be constructed subsequent to PPAs with ONE, with state 
guarantees, they are "the safest investment possible" for 
investors, he argued, and would easily attract domestic and 
foreign financing.  The formal requests for proposals for the 
biggest chunk of new generation, four coal-fired plants 
totaling 2020 MW at two sites (Jorf Lasfar and Safi), should 
be issued in June, he predicted.  Hafidi noted that the GOM 
calculates Morocco's required energy sector investments 
through 2012 at over USD 10 billion (two thirds of that for 
electricity production), and welcomed U.S. firms' interest in 
bidding on upcoming contracts. 
 
¶6.  (SBU) On the demand side, allowing ONE to raise the 
tariffs for business and industrial customers will help 
encourage economies of consumption, as will the "-20/-20" 
plan.  This incentive program, directed at residential 
customers and local public agencies, proposes a 20 percent 
reduction of the per kilowatt-hour price if the customer can 
demonstrate a 20 percent reduction in consumption from the 
prior year.  The Ministry of Energy predicts that this plan 
alone could reduce peak demand by 300 MW (equivalent to 
adding a new mid-sized thermal power plant). 
 
---------------------------- 
... AND PETROLEUM DEPENDENCY 
---------------------------- 
 
¶7.  (SBU) The second critical area facing Morocco is its 
dependence on imported petroleum, but the GOM appears to have 
fewer options to ease this concern.  Petroleum accounted for 
61 percent of primary energy consumption in 2008, and over 87 
percent of Morocco's energy costs for 2008.  The Ministry's 
plan has two principal petroleum foci: diversification of 
supply options and elimination of fuel oil for electricity 
generation.  Removing petroleum from the electricity fuel mix 
could reduce consumption needs by approximately 1.6 million 
tonnes (MT) per year (of the total 9 MT consumed in 2009), 
although some of the fuel oil is a byproduct of refining 
other petroleum products and its phasing out may not result 
in an equivalent reduction of import demand.  Plans to 
improve vehicle efficiency by subsidizing the replacement of 
older vehicles may help as well, but at the moment the GOM 
targets only commercial truckers (with an anticipated budget 
of USD 63 million), lacking sufficient funds to subsidize 
replacement of the far greater number of old, inefficient 
private vehicles.  (Note: The average age of Moroccan 
vehicles is 13 years.  End Note.)  The Ministry of Energy 
projects total petroleum demand to double nonetheless to 18 
MT per year by 2030. 
 
¶8.  (SBU) In the meantime, Morocco aims to reduce its 
potential vulnerabilities as an import-dependent country by 
upgrading and increasing the number of ports able to receive 
petroleum and product shipments to address a bottleneck in 
capacity -- current ports are incapable of night operations 
and often must suspend operations in heavy weather in 
winters.  Said El Aoufir, Director of Combustible Fuels at 
the Ministry of Energy, told Econoff that the 
"multiplication" of importation points, and increases in 
refinery capability, will ensure sufficient supply, although 
Morocco will remain vulnerable to price swings.  MEMEE 
regulations require refiners and distributors to maintain a 
total of 90 days supply in stock, adding a cushion against 
supply disruptions.  However, Morocco's supply options remain 
limited, with Saudi Arabia, Russia, and Iran accounting for 
96 percent of all imports.  Alternatives to these suppliers 
are rare, El Aoufir, explained, because crude oil from most 
other sources is either too heavy (and unsuited for Morocco's 
refineries) or too light (producing too much gasoline and not 
enough diesel for Moroccan markets).  Although the Ministry 
sets rules for importers to follow in terms of stockpiles, 
the Moroccan refiner SAMIR and other refined products 
distributers are responsible for their own 
commercially-negotiated supply contracts (usually of one year 
duration), El Aoufir said.  Moroccan petroleum importers do 
not benefit from concessionary rates from any of their 
suppliers, nor have they ever tried to hedge against price 
increases, he added. 
 
-------------------------- 
ANY CHANCE OF FINDING OIL? 
-------------------------- 
 
¶9.  (SBU) Moroccan officials remain optimistic that the 
Kingdom could hold as-yet undiscovered hydrocarbon wealth. 
M'hamed El Moustaine, Director of Exploration at the National 
Office of Hydrocarbons (ONHYM), told Econoff that due to a 
dearth of historical exploration activity, Morocco has a 
"deficit" of 70,000 test wells compared to the "world 
average" of 10 wells per 100 square kilometers of exploration 
area.  (Note: Morocco's "deficit" is in part due to 
exploration companies' lower expectations of finding 
commercially viable deposits than in other regions.  End 
Note.)  ONHYM has constantly fine-tuned its policies for 
exploration and production concessions to attract exploration 
partners, Moustaine explained, and assesses itself in the top 
ten countries with the most favorable terms for explorers and 
producers worldwide.  ONHYM allows 8 year exploration 
permits, along with conversion to a 25 year production 
concession on terms that allow ONHYM to partner up to 25 
percent for investment and production, with the other 
partners free to sell their 75 percent without conditions. 
Moustaine explained that most exploration currently occurs in 
well-understood formations in the northern part of the 
Kingdom, where explorers have a very good chance of 
discovering small, but exploitable gas deposits which are 
usually sold locally.  A few explorers, however, have begun 
drilling in less-well characterized formations, and some 
offshore drilling has begun in both the north Atlantic coast 
and the areas off of Western Sahara.  Moustaine noted that 
exploration in Western Sahara is depressed due to companies 
facing pressure from Algeria -- Algeria, he stated, tells 
companies doing business in Algeria that they must avoid 
Western Sahara or lose the right to work in Algeria. 
 
¶10.  (SBU) Notwithstanding the uptick in drilling activity 
this year (six active drilling rigs compared with the norm of 
two, according to Moustaine), petroleum imports will continue 
to command a large portion of Morocco's import bill, 
continuing a serious burden on the Kingdom's balance of 
payments (Ref A).  A parallel budgetary burden, and equally 
worrisome in the long term, is the enormous bill for general 
subsidies on petroleum products for transportation fuel 
(whose cost to the government varies with world petroleum 
prices), and especially for butane.  Subsidized generally as 
a cooking fuel, butane sells for approximately half its cost 
to the importer, with the treasury making up the difference. 
As expected with general subsidies, the GOM believes the vast 
majority of its subsidy spending supports middle and upper 
class consumers, but it lacks the statistics to reveal the 
true proportions.  Septel will explore the GOM's 
deliberations of reforms to target subsidies to the 
populations who are most in need. 
 
¶11.  (SBU) Comment: Morocco's new energy plans appear to 
adequately address the tight electricity market through 
capacity expansion, but two question marks remain.  The first 
is whether the Ministry's optimistic assessment of the 
availability of credit to finance the required new generation 
capacity is correct in the context of a global credit 
shortage.  Morocco has witnessed slowdowns or stoppages in 
2009 of many projects funded by foreign investment, so even 
ONE's guaranteed PPAs may not attract financing as plentiful 
or as affordable as expected.  The subsidy and tariff 
question will be even more delicate, as long term financial 
stability for ONE and increased efficiency of electricity and 
hydrocarbon use will require difficult political decisions to 
raise the costs of energy consumption for consumers.  No 
amount of planning or strategy, however, can free the Kingdom 
from its petroleum import dependency, so every announcement 
of potential gas and oil finds will continue to make headline 
news as Moroccans aspire to join their North African 
neighbors as petroleum producers. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.intelink.sgov.gov/wiki/Portal:Moro cco 
***************************************** 
 
Jackson