MOROCCO: Getting serious on private power

31 January 1997

IF any country in the region is serious about private sector power generation, it is Morocco. The government has already signed contracts for the largest private power project in the region and is working on plans for at least another three self-financed power stations.

'We believe privatisation will happen through the private sector taking in charge all it knows how to do. This means the private sector is invited to invest in all types of generation,' says Ali Fassi Fihri, development & programmes director at power utility Office National de l'Electricite (ONE). Although ONE is still far from handing most of its power stations over to private companies, Fassi Fihri says he believes the strategy is feasible in the long term. 'We have no immediate plans to sell any particular power station at the moment, but in principle we are not against it,' he says.

A first step was made with the agreement in 1996 to sell two existing coal-fired units at Jorf Lasfar to the Zurich-based ABB Asea Brown Boveri and CMS Energy Corporation of the US, as part of a $1,500 million build- operate-transfer (BOT) scheme. 'Financing a new $1.5 billion plant would be quite difficult for the Moroccans. The decision to sell the old units was a smart way for the government to reduce the overall cost of the new units. The sponsors, ABB and CMS, will make an up-front down payment for units one and two,' says ABB's Max Abitbol, senior vice-president responsible for the Middle East and Africa.

Under the deal, ABB and CMS will buy two 300-MW units, build two additional units of the same capacity and operate the whole plant for 30 years, including the construction period.

The Jorf Lasfar project is not only large compared to other coal-fired BOT ventures in the world, it is also highly unusual in its financial structure. 'The Moroccan government will not provide a guarantee for the utilities' monthly power purchase payment obligations. A new, alternative structure was developed by ABB/CMS to make the transaction acceptable to Moroccans, to the sponsors and to the lenders,' Abitbol says.

The solution was a mixture of smaller securities, including special accounts for large power customers, and a performance bond of more than $200 million. Abitbol says the new structure did not make commercial loans more expensive: 'It was more a matter of feasibility.' The investors are putting up 30 per cent of the project cost in equity and 10 per cent in what they call quasi-equity, or income generated by the two existing generation units and reinjected into the project. Export credits will cover 40 per cent of the project, and the remainder will be funded by commercial loans, which are partially guaranteed by the World Bank. The loans are fully underwritten by Banque Nationale de Paris, ABN AMRO, CreditSuisse and ABB Structure Finance. ABB says commitments by lenders should be finalised by 26 January.

The participants are keeping ONE's kWh purchase price from the project company under wraps, but Abitol says about 40-50 per cent of it is the cost of coal. The price curve will stay flat for seven-eight years, then rise by 2-2.5 per cent a year, Abitol says.

The price movements will not be directly relayed to the consumers. Fassi Fihri says ONE may be a state company but it operates on an independent financial basis and does not receive subsidies. Consumer prices are set by an inter-ministerial commission with the aim of balancing ONE's books. 'We had a profit of about $70 million in 1996, so we put prices for industrial consumers down for 1997,' he says. Industrial and agricultural consumers tend to subsidise household consumers, who pay lower prices. 'We hope that Jorf Lasfar will have no impact on prices,' Fassi Fihri says.

If the power purchase price agreed with ABB and CMS is based on a variable coal price, much will depend on the value of the dirham, as all coal is imported. Consumer prices will peak in the early years of Jorf Lasfar and become much lower after about 10 years, says ONE's development director.

Negotiating the Jorf Lasfar deal was a lengthy process, but it is hoped that the lessons learned will ensure that the next BOT projects will go ahead faster. 'We now have some experience in dealing with the private sector, we are not in the same position as we were,' says Fassi Fihri.

However, the next BOT schemes are to be structured differently. ONE in early January decided to go ahead with the first combined-cycle BOT power plant, to be located in Tangier. A previous plan to build facilities in Mohammedia and Kenitra has been frozen (see Morocco). The plant is to use gas from the Europe-Mediterranean line going from Algeria to Spain and will have a capacity of 370-470 MW.

In this project, ONE wants to participate with a majority stake, while leaving everything else to the private sector. 'The private sector does designs better than us, it procures equipment better than we do, and it operates plants better. We want to let the private sector do all these things, but as far as the investment is concerned, we want to be a part of it,' Fassi Fihri says. Demand in Morocco will initially not warrant the operation of the new plant at full capacity and ONE fears a private investor may demand too high a power- purchase price to cover the full investment cost.

Yet another type of contract, is envisaged for a planned 200-MW wind power plant in southern Morocco. 'What we are looking for is a minimum capacity guarantee during peak hours and we are prepared to pay, even expensively, for this,' Fassi Fihri says. For this project, ONE wants to see all equity invested by the private sector.

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