LARGEST U.S. INVESTOR SELLS MOROCCAN POWER PLANT

C O N F I D E N T I A L RABAT 000368

SIPDIS

SIPDIS

STATE PASS TO DOC AND DOE

E.O. 12958: DECL: 02/26/2017
TAGS: EINV EIND ENRG EFTA MO
SUBJECT: LARGEST U.S. INVESTOR SELLS MOROCCAN POWER PLANT

Classified By: DCM WAYNE BUSH FOR REASONS 1.4 (B) AND (D)


1. (SBU) Summary. The largest American investor in
Morocco, electric utility CMS Energy (CMS),has agreed to
sell its $1.4 billion investment in Morocco, CMS Generation
Company (CMSGC),to the Abu Dhabi National Electric Company
(TAQA),pending approvals. CMSCG owns 50 percent of the
Jorf Lasfar Energy Company (JLEC),which is the largest
electric utility in the country. This reverses CMS's one-
time idea of doubling its investment in a country that it
still maintains is a good place to invest. CMS officials
explain that the divestment reflects a corporate decision
to reduce the company,s high debt load by selling off all
of its international holdings and concentrating instead on
CMS,s core Michigan-based domestic utility business. End
Summary.


2. (SBU) JLEC consists of a 1,356 megawatt coal fired
electricity generating plant in El Jadida that supplies 50
percent of Morocco's electricity. Previously, CMSGC and
Switzerland-based ABB each held 50 percent of JLEC.
According to JLEC's American General Manager, Larry Dewitt,
due to a corporate decision that overseas power plants were
no longer part of its core business, ABB, an equipment
supplier, decided to sell its stake to TAQA, and to get out
of JLEC completely. While CMSGC has also sold its
ownership interest to TAQA, it will maintain its name and
its role managing and operating JLEC. Dewitt will retain
his position with the company and oversee its efforts to
win a public tender to build a similarly sized power plant
near Agadir. While this is an obvious blow to the size of
cumulative American investment in Morocco, Dewitt, Chairman
of the American Chamber of Commerce in Morocco, emphasized
to Econoff that CMS's departure should not be misconstrued
as a negative comment on Morocco. The 10-year veteran of
Morocco even offered to attend the upcoming MEFTA
Investment Conference to help sell Morocco as a good place
to invest.


3. (C) On February 15, Econoffs visited JLEC's facility and
spoke with Dewitt, Daniel Dexter, CMS's Executive Managing
Director of International Operations, and Daniel Nally,
CMS's Director of International Asset Management. All
three emphasized that CMSGC was not leaving Morocco and the
entire staff would be maintained despite the fact that the
company would now be under Emirati ownership. Dewitt
recounted that when ABB decided to depart the electric
utility business, CMS's immediate response was to attempt
to buy out its partner. However, CMS was already carrying
a heavy debt load and could not afford to expand its
Moroccan investment.


4. (C) The sale, Dewitt argued, stems from concern by U.S.
investors that CMS's foreign exposure in Ghana, India,
Saudi Arabia and Morocco was playing a role in depressing
share prices. This argument helped convince the company to
sell all of its foreign holdings and concentrate instead on
its domestic electric utility business in Michigan.
Dewitt, Dexter and Nally believe that doing exactly the
opposite would probably make better business sense, given
the healthy profits CMS has realized in Morocco and
elsewhere. Dewitt noted that twice during JLEC's 10-year
existence the GOM has asked to renegotiate the revenue
sharing plan with JLEC because its profits exceeded
projections. The company agreed and today, JLEC rebates
$50 to $60 million dollars annually to the GOM.


5. (SBU) Dewitt and his colleagues judge the Moroccan
electrical market ripe for expansion, noting that Morocco's
demand for electricity is growing at approximately 10
percent per year. JLEC, they said, sells all the
electricity it can produce to the GOM. Helping maintain
margins is the fact that the company operates at 95 percent
capacity, well above the 82 percent the GOM projected in
its original negotiations.


6. (C) Company officials characterize the GOM as a very
good business partner and praised the general business
environment in Morocco. They welcomed efforts by the GOM
to expand electrical output through renewable energy
projects and potential private small gas fired electric
plants, should exploration firms find adequate amounts of
natural gas. Dewitt argued that new sources of electricity
would help reduce pressure on JLEC to maintain its
operations at high capacity levels. He added that his
company was a success story for the U.S.-Morocco Free Trade
Agreement because it had saved over $100,000 during 2006 on
duties for the purchase of equipment from the U.S. and he
plans similar purchases in 2007.


7. (SBU) Comment. The sale of CMSGC should be completed
by the middle of 2007 and will greatly reduce the size of
American investment in Morocco. However, Dewitt remains an
activist American businessman who is a strong proponent of
the Moroccan market. His offer (unconfirmed yet
unsolicited) to participate in the MEFTA Investment
Conference at his own expense typifies his feelings about
investing in Morocco, and he has previously stated that he
is prepared to remain in place as Chairman of the American
Chamber of Commerce in Morocco.
******************************************
Visit Embassy Rabat's Classified Website;
http://www.state.sgov.gov/p/nea/rabat
******************************************

Riley