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05RABAT626 2005-03-29 17:58:00 UNCLASSIFIED Embassy Rabat
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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

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

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.