Identifier
Created
Classification
Origin
06RABAT151
2006-01-30 13:57:00
UNCLASSIFIED
Embassy Rabat
Cable title:  

LIBERALIZATION OF MOROCCO'S ELECTRICITY SECTOR

Tags:  ENRG ECON SENV MO 
pdf how-to read a cable
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

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.

--------------
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.

--------------
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.