FILE COPYReport No. 1426-MOR

Morocco: Appraisal of theCIOR Cement ProjectMarch 4, 1977

Industrial Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Except where otherwise noted all figures are quotedin Moroccan Dirhams (DH)

US$ 1 = DH 4.50DH 1 US$0.22

WEIGHTS AND MEASURES

All weights and measures are in metric units.

1 metric ton (ton) = 1,000 kilograms (kg).1 metric ton (ton) = 2,205 pounds1 kilometer (km) = 0.62 miles1 meter (m) = 39.3 inches

I hectare (ha) 3 2.37 acres

I cubic meter (m ) = 35.31 cubic feet1 kilo calorie (kcal) = 3.9685 BTU

ABBREVIATIONS AND ACRONYMS

Arab Fund Arab Fund for Economic and Social DevelopmentAPCM - Associated Portland Cement Manufacturers LimitedASMAR = Cimenterie de Marrakech

ASMENT = Cimenterie de TemaraBEPI = Bureau d'Etudes et de Participations Industrielles

CIMA = Cimenterie MaghrebineCIOR = Cimenterie de l'OrientalODI = Office pour le Developpement IndustrielONCF = Office National des Chemins de Fer

ONE = Office National de l'ElectriciteONT = Office National des TransportsSAMIR - Societe Anonyme Marocaine de l'Industrie du Raffinage

SC IF = Societe Cherifienne de Materiel Industriel et Ferroviaire

SCP = Societe Cherifienne des PetrolesSNMC (A) = Societe Nationale des Materiaux de Construction

(Algerian Shareholder of CIMA)SNMC = Societe Nationale des Materiaux de Construction

(Maroccan Public Corporation)SORESMA = Societe pour la Promotion des Echanges Commerciaux

tkm = ton-kilometertpy - Metric Ton per Year

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

MOROCCO

APPRAISAL OF THE CIOR CEMENT PROJECT

Table of Contents

Page No.

SUMMARY AND CONCLUSIONS i- v

I. ItNTRODUCTION 1

II. THE COMPAN4Y AND ITS SPONSOR 1

A. Background .......................................... 1B. CIOR - Organization and Management .... .............. 4C. ODI - The Shareholder ............................... 5

III. CEMENT MARKET, PRICING AND DISTRIBUTION 6

A. The Cement Market in Morocco ..... ........... 61. Historic Supply/Consumption in Ilorocco .... ..... 62. Projected Demand/Supply in Morocco .... ......... 73. The Market for CTOR Cement in Morocco .... ...... 9

B. Cement Distribution and Pricing in Morocco .......... 101. Existing Distribution System .... ............... 102. Transport and Distribution of CIOR Production .. 11

C. Pricing ....................... ...................... 12

IV. THE PROJECT 14

A. Scope of the Project .............. .. ................ 14B. Raw Material Availability and Analysis .............. 15C. Technical Description .............. .. ............... 15

1. Production Facilities .......................... 152. Utilities and Infrastructure .... ............... 16

D. Ecology ....................... ...................... 16E. Manpower and Training ............. .. ................ 16F. Project Execution and Technical Assistance .......... 17G. Project Timing ................... ................... 17

This report was prepared by Miss Haug and Messrs. Duvivier and Cognet of theIndustrial Projects Department.

This document has a restricted distribution and may be used by recipients only in the performanceof their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization..

Page No.

V. CAPITAL COST AND FINANlCING PLAN 18

A. Capital Cost ................. 18B. Working Capital Requirements .......... .. ........... 19C. Financing Plan and Guarantees ......... .. ........... 20D. Procurement .................... .................... 21E. Allocation of Bank Loan and Disbursement ........... 22

VI. FINANCIAL ANALYSIS 22

A. Operating Costs .................. .................. 22B. Revenues ............ 23C. Financial Projections ....................... ........ 23D. Break-Even Analysis .............. .. ................ 25E. Accounting and Auditing Requirements .............. . 25F. Financial Rate of Return ............ .. ............. 25G. Major Risks .................... .................... 26

VII. ECONOMIC JUSTIFICATION 26

A. Economic Rate of Return ............ .. .............. 26B. Linkages and Employment ............ .. .............. 27C. Foreign Exchange Effects ............ .. ............. 28D. Regional Development Impact .......... .. ............ 28

VIII. AGREEMENTS REACHED AND RECONN7ENDATIONS .... .............. 29

MAP

IBRD 12528 - Location of Existing and Future Cement Plantsin Morocco

ANNEXES

1 Technical Terms and Process Description

2-1 CIMA - Organization, Financial Position and Present Legal Status2-2 CIOR - Organization and Management2-3 CIOR - Organization Chart2-4 ODI - Organization, Program and Financial Position

3-1 The Market for Cement in Morocco3-2 Cement Distribution and Pricing in Morocco3-3 Distribution and Transport of CIOR Production

4-1 Raw Material Availability and Analysis4-2 Detailed Project Description4-3 Plant Layout4-4 Process Flow Chart4-5 Utilities and Infrastructure4-6 Ecology4-7 Labor Force, Training and Technical Assistance4-8 Project Implementation Schedule

5-1 Detailed Capital Cost Estimates and Procurement5-2 Working Capital Requirements5-3 Bank-Financed Items5-4 Schedule of Disbursement

6-1 Production and Operating Cost Projections6-2 Distribution Cost Projections6-3 Notes to Financial Projections6-4 Income Statement Projections6-5 Source and Application of Funds Projections6-6 Balance Sheet Projections6-7 Financial Rate of Return and Sensitivity Analysis6-8 Break-Even Point Analysis

7-1 Economic Rate of Return and Sensitivity Analysis7-2 Foreign Exchange Effect7-3 Economic Development of the Oriental Region

MOROCCO

APPRAISAL OF THE CIOR CEMENT PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a proposed Bank loan of US$45 million equiva-lent to help finance a cement project to be owned and operated by Cimenteriede I'Oriental (CIOR) and to be located in Northeastern Morocco (OrientalRegion) near Oujda about 45 km west of the Algerian border. The plant willhave a nominal capacity of 1.2 million tons per year (tpy) of Ordinary Port-land cement. CIOR is a societe anonyme under Moroccan law, wholly owned bythe Office pour le Developpement Industriel (ODI), a Moroccan GovernmentAgency. CIOR was established in 1976 to continue implementation of an iden-tical cement plant which was started by Cimenterie Maghrebine (CIMA), aMoroccan-Algerian joint venture but was discontinued by the partners.Apart from the cement plant proper, the project includes: (i) relatedinfrastructure such as power connections, rail link and housing; (ii) dis-tribution facilities; and (iii) consulting services to strengthen CIOR'sdistribution function and financial management. The project is expected tocommence operations in late 1978.

ii. The project started in 1972 following an Intergovernmental Agree-ment between Morocco and Algeria, establishing CIMA with shares owned inequal parts by ODI of Morocco and the Societe Nationale des Materiaux deConstruction (SNMC (A)), the Algerian State enterprise for building materi-als. Both shareholders were committed to each purchase half of CIMA'sproduction and the project was therefore designed to meet the combinedprospective cement demand in the adjacent border regions of both countries.The project was appraised by the Bank in 1975 and its preparation proceededsmoothly until the end of 1975 at which time CIMA had expended about US$11million in preoperating expenses and initial payments on contracts. Earlyin 1976 cooperation between Algeria and Morocco on the project came to ahalt and a joint capital increase could not take place. As a consequence, byJune 1976 CIMA had virtually become insolvent and implementation of the jointventure stopped de facto.

iii. To proceed with the project without further delay and safeguardthe interests of both shareholders, the Moroccan authorities in mid-1976created CIOR as a wholly Moroccan owned company to take over projectimplementation. CIMA administered by a temporary administrator, remained inexistence and CIMA's assets and contracts were transferred to CIOR. Underthese arrangements SNMC (A) can either recover its share in CIMA's equity byrequesting the dissolution of CIMA or reenter the project at a later stage.Nevertheless, the present break-down of the joint venture arrangement impliesa 'Loss of the Algerian market which was to absorb 50% of the plant output.With half of the originally intended, and geographically close, market lostin Algeria, a reduction in project size was considered. However, since sucha reduction would have resulted in substantial penalty payments to suppliers

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given the advanced state of project implementation, and in view of theprospective deficit of domestic cement supply in Morocco plus the possibilitythat the originally joint project might be reestablished at a later stage theMoroccan authorities decided to continue the construction of the cement plantin its original scope.

iv. CIOR's Board of Directors is composed of representatives from ODIand several Ministries. ODI is an agency estabished to prepare investmentstudies and promote industrial projects; it is wholly state-owned, and de-pends financially on the Government and local banks to support its activitiesby grants, treasury advances and loans. Because of ODI's financial dependenceon the Government, the Government has agreed to guarantee O])I's performanceunder the Bank loan.

v. Cement consumption in Morocco has been increasing steadily sinceIndependence, averaging 14.5% per year in the recent past. Domestic produc-tion capacity has also been expanding substantially, but has failed to keepup with demand. In the last few years cement imports have therefore increasedsteadily and reached 25% of apparent consumption in 1976. On the basis ofMorocco's development prospects, cement demand is expected to continue itsrapid growth especially for housing, the shortage of which has become critical.It is estimated that cement demand will increase from 2.9 million tons in 1976to about 4.5 million tons in 1980 and 6 million tons in 1985, representingan average annual growth rate of about 9% during the next decade. To meetthis demand three new plants (CIOR being one of them) and expansions of exist-ing plants are under construction or planned. Notwithstanding this capacitybuild-up domestic supply in Morocco in the early 80's would either just aboutmeet or fall slightly short of forecasted demand. To optimally plan furtherexpansions of new domestic cement capacity, the Moroccan authorities agreed toundertake a detailed cement market study and to consult with the Bank on cementmarket prospects prior to expanding cement production capacity in Morocco.

vi. In the Oriental Region, the project's most natural market, theavailability of CIOR's entire production will result in a regional oversupply,for some 12 years until demand will have grown enough to absorb the plant'soutput. In the meantime, part of CIOR's production will be used to alleviateexpected shortages in other regions of Morocco, especially around Fez andCasablanca. Transport of CIOR's cement to these regions will be by rail inunit trains on the main Oujda-Casablanca line. Transport arrangements forthe project include the purchase of special wagons by the National RailwayCompany (ONCF) and a transport agreement between CIOR and ONCF.

vii. Cement prices in Morocco are controlled by the Government whichfixes the maximum prices at the ex-factory level, while control of wholesaleand retail prices was only recently introduced. Ex-factory prices whichremained virtually unchanged from 1958 to 1974 have been gradually increasedover the last two years to about US$33/ton. This is not high, however,when compared with domestic prices in Europe and North America. Ex-factorycosts of the new facilities coming on stream in Morocco after 1976 will be

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substantially higher than ex-factory costs of the existing cement plantswhich had been built at considerably lower capital costs and are almost fullydepreciated. In future ex-factory cement prices will be set at levels suchas to allow each enterprise a reasonable profit under conditions of efficientoperations without subsidies of any kind, except investment incentives forlimited periods of time to help finance new capacities or expansions, but inany case to allow the industry as a whole to earn a reasonable return on itscombined net fixed assets in operation as periodically revalued. The pricingmechanism is expected to lead to reasonable and relatively stable prices tothe consumer, while maintaining the principle of reward for efficient operationand at the same time avoiding windfall profits. It would allow adjustment ofcement prices with inflation and financing of investment incentives by intra-sectoral transfer payments without reliance on subsidies by the Governmentbudget or by other sectors. The Government agreed to undertake a study in 1977which would establish the details of setting up the above pricing mechanism.

viii. CIOR has been established primarily as a cement producing company.Its distribution activities will be essentially limited to the transportationto and the operation of a few distribution terminals (still to be built) andto sales (ex-plant and ex-terminal) through existing private distributionchannels starting at the wholesale level. CIOR agreed to update during 1977existing distribution studies in consultation with the Bank and to implementthe chosen distribution system as needed thereafter.

ix. CIOR is employing APCM, a British cement manufacturer and consultingfirm, to assist it in project preparation, detailed engineering, procurement,erection, construction supervision, start-up and training. The average costof APCM's consulting services has been about US$3,300 per man month. At thesame time, CIOR is carrying out a comprehensive training program for itstechnical staff, including training by APCM, foreign equipment suppliers andin Moroccan plants. To supplement this internal effort and to ensure efficientoperation of the plant after commissioning, CIOR has agreed to enter by end1977 into a technical assistance arrangement for the first operating years.

x. Total financing required for the project including interest duringconstruction, initial working capital and the pricing/distribution studiesto be undertaken by the Government, is estimated at DH 818.6 million (US$182million), 52% of which in foreign exchange. The proposed Bank loan of US$45million equivalent will cover 47% of the project's estimated total foreignexchange requirements. It will be made to CIOR for 14 years, including3 years of grace, at the prevailing interest rate plus a gurantee fee payableto the Government to bring total interest cost to CIOR to a 10% p.a. The remain-ing financing will be provided as: (i) DH 328 million (US$72.9 million) inequity or 40% of total financing required; (ii) Treasury advances from theMoroccan Government for 17 years including 3 years of grace totalling DH 256.5million (US$57.1 million); and (iii) DH 31.6 million (US$7.0 million) ofmedium term loans from Moroccan banks for initial working capital.

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xi. Procurement of civil works, equipment and services for the cementplant as well as for the distribution facilities is being carried out follow-ing ICB in accordance with the Bank's procurement guidelines. Contracts fornearly all of the plant items have been signed. The Bank loan will coverpart of the foreign exchange component of (i) equipment for the plant and dis-tribution terminals; (ii) civil works for foundations and buildings; (iii)training, plant erection and commissioning, as well as consultants' servicesfor inspection, accounting and distribution; and (iv) interest during con-struction on the Bank loan. Because of a major delay in loan processing dueto the break-down of the original joint venture, retroactive financing ofa maximum of US$5 million on the Bank loan is recommended.

xii. CIOR's projected operating cost in 1976 terms is expected to becompetitive with costs of new cement plants in Europe - North Africa - MiddleEast and has been estimated at US$17/ton at full production. Based on pro-spective ex-factory revenues averaging DH 180/ton in real terms in the initialyears of production and decreasing thereafter to DH 150/ton with decliningdepreciation of preoperating expenses and financial charges, the Company'sprofitability and debt service coverage are adequate. The financial rate ofreturn of the project is about 10.0% which is adequate for a cement projectunder price regulation. In order to establish and maintain CIOR on a soundfinancial basis, the Company agreed (i) to maintain at all times a debtservice ratio of 1.5, a current ratio of at least 1.3 and a debt/equity ratioof not more than 60:40, (ii) not to undertake - without prior consent of theBank - capital investments in excess of US$5 million annually until projectcompletion, and (iii) not to pay any dividends or make any other cash distri-bution unless after such payments its current ratio is at least 1.5. To backup CIOR's commitment, ODI as shareholder and the Government agreed to guaranteeCIOR's financial performance. To strengthen CIOR's financial department, anadequate accounting/budgeting and cost control system will be established withthe help of consultants.

xiii. The project has an economic rate of return of 13.8%. This economicreturn is adequate for a cement project but expectedly lower than the 16%rate of return of the original Moroccan-Algerian joint venture because ofthe additional transport costs for marketing initially the former Algerianshare of the plant's output in regions of Morocco more distant from the plantthan the original Algerian market. The annual net foreign exchange savingsfor the project average about US$30.0 million in real terms. The net foreignexchange savings are expected to offset the plant's foreign exchange costafter 5 years of operations.

xiv. Areas of potential project risks are market and distribution.The risk of the Moroccan cement industry growing more quickly than requiredby domestic demand and thus possibly generating severe regional supplyimbalances is being reduced by the Government's effort to monitor more

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closely cement market developments and the undertaking of a comprehensivedistribution study in consultation with the Bank. The major risk for CIORrelates to transport and marketing of a substantial part of its output atgreater distance than normal for cement. This risk is being reduced by theestablishment of an appropriate distribution system and specific transportarrangements with ONCF, the Moroccan railway company.

xiv. Based on the assurances and agreements spelled out in this appraisalreport, the project is suitable for a Bank loan to CIOR of US$45 million for14 years, including 3 years of grace at the prevailing interest rate plus aguarantee fee payable to the Government to bring total interest rate to CIORto 10% p.a.

I. INTRODUCTION

1.01 This report appraises a cement project of Cimenterie de l'Oriental(CIOR), a Moroccan company. CIOR is to construct and operate a cement plantwith a nominal capacity of 1.2 million metric tons per year (tpy) of OrdinaryPort:Land cement and market the output thereof. The plant will be locatedabout 45 km west of Oudja, in Morocco's Oriental Region, which borders onAlgeria. CIOR is wholly owned by the Office de Developpement Industriel(ODI), a Government agency to promote industrial development in Morocco.Bank financing of US$45 million is being sought for the project which isscheduled to be completed in late 1979.

1.02 The CIOR cement plant is part of Morocco's overall program to in-crease cement production capacity from about 2.0 to 4.2 million tpy by 1980to meet expected future domestic demand. Also, the project represents animportant component of the Moroccan Government's regional development programwhich--in the framework of the third Five-Year Plan (1973-77)--emphasizes theeconomic development of the Oriental Region. The project is considered vitalfor the timely development of important cement-consuming sectors, such ashousing, irrigation and infrastructure.

1.03 The project--originally designed as a joint venture between Algerianand Moroccan shareholders --was identified in mid-1974. The Bank assistedin its evolution and appraised the Moroccan-Algerian joint venture project inMarch 1975 and during short follow-up missions in July and September 1975.The Bank appraisal mission consisted of Miss Haug and Messrs. Duvivier andCognet of the Industrial Projects Department. Shortly after invitations tocarry out preliminary negotiations were issued in February 1976, cooperationbetween the sponsors came to a halt and processing of the project hadto be discontinued. In June 1976, the Moroccan Government requested the Bank

to reconsider a loan for the same cement plant under sole Moroccan ownership.In November 1976, a mission consisting of Mr. Duvivier and Messrs. Barrigerand Fournier (Consultants) reappraised the project.

1.04 Technical terms used in this report are described in Annex 1.

II. THE COMPANY AND ITS SPONSOR

A. Background

2.01 On July 26, 1972, a convention was signed between the Algerian andMoroccan Governments to create the Cimenterie Maghrebine (CIMA) as a jointventure to construct and operate a cement plant in Morocco's Oriental Region.The intergovernmental agreement stipulated inter alia that (i) CIMA would beowned on a 50:50 basis by Moroccan and Algerian interests, (ii) the Companywould be operated as a production company selling at ex-factory cost tothe shareholders its entire cement output in proportion to their respectiveequity participations, (iii) the Algerian shareholders would pay to theMoroccan Treasury a royalty of 7% of the ex-factory cost of their share of

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production but not exceeding 7 DH/ton, (iv) the Algerian shareholders couldexport free of any other tax their production share from Morocco and (v) theMoroccan and Algerian shareholders were to represent each 50% of votingrights; all major decisions were to require at least the consensus of two/thirds of voting shares, i.e. in practice the agreement of both parties wasneeded for Board decisions. The authorities designated simultaneously,SNMC(A)-- Societe Nationale de Materiaux de Construction, the Algerian Statemonopoly enterprise for construction materials and the Moroccan Bureaud'Etudes et de Participations Industrielles (BEPI), the predecessor of theOffice pour le Developpement Industriel (ODI), as CIMA's shareholders; theydefined in a supplementary agreement, also dated July 26, 1972, the proceduresto be followed during project preparation and implementation. Details on theintergovernmental convention and the BEPI-SNMC (A) Agreement are presented inAnnex 2-1.

2.02 Starting in 1973, CIMA proceeded with implementation of its taskto develop and construct the cement plant. In January 1973, a contract wassigned with APCM, a British consulting firm which called in a first phase forgeological investigations and a full feasibility study and, in the secondphase, for detailed engineering, procurement, training and project management.Suitable geological deposits were confirmed near Oudja in mid-1973; lendinginstitutions such as the Bank and the Arab Fund were requested in 1974 toprovide loan funds; the feasibility study was completed by early 1975, andfirst orders were placed in June 1975. By the end of that year, US$80 millionor nearly half of the estimated total fixed asset costs had been committed withthe approval of CIMA's Board. Following problems between the Governments ofMorocco and Algeria at the end of 1975, the Algerian shareholder ceased toattend routine Board meetings, the special shareholder meetings to decide onurgently required capital increases or the annual shareholders meeting. Sinceall major decisions and, in particular, capital increase, purchase orders andloan contracting require the participation of both shareholders, implementationof the project as a joint venture was de facto stopped. As of May 31, 1976,CIMA had signed contracts for equipment and civil works totalling DH 483 mil-lion (US$107 million), had made payments of DH 46.5 million (IJS$10.3 million)towards these contracts and for operating expenditures, leaving a cash positionof DH 13.3 million (US$3.0 million). For details see Annex 2-1, paras. 13-20and Tables 1-2.

2.03 At this point CIMA and its sponsors had three major options regard-ing the future of the CIMA project:

(a) First, Bankruptcy and Cancellation of the Project.

This measure would have involved (i) loss of the initialcapital of DH 75 million to the Algerian and Moroccanshareholders; (ii) penalties payable on contracts forwhich irrevocable letters of credit totalling US$48 mil-lion had been opened by a Moroccan Bank; (iii) the negativeeffect of bankruptcy by a Government-sponsored project onMorocco's standing with the local and foreign business

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community; and (iv) the incremental cost of importing

cement (estimated to be about US$10 million in foreign ex-change) to satisfy the demand of the Oujda region for atleast 2 years until another Moroccan cement project couldbe developed to take the place of CIMA in the OrientalRegion.

(b) Second, Change of Project Scope by Reducing the Plant Sizeto 600,000 tpy.

To avoid bankruptcy, CIMA or new sponsors could have triedto change the existing contracts to reduce project scope andbuild a 600,000 tpy cement plant to supply Morocco's OrientalRegion. By choosing this alternative (i) the sponsors wouldhave lost the economies of scale of a 1.2 million tpy plant,thus increasing unit cost of cement at least 10%, further(ii) the 600,000 tpy plant would have had to bear the fullcost of contracts completed for the 1.2 million tpy plant, in

particular pre-operating expenses, engineering cost and pre-liminary civil works for the larger plant, and (iii) penal-ties of up to US$20 million could have expected from can-celling part of existing contracts, since the manufacture ofthe mechanical equipment was far advanced. In addition, theimplementation of a reduced project would have excluded anyfurther participation by Algerian shareholders in this cementproject.

(c) Third, Implementation of the Original 1.2 million tpy Plantand Marketing of the Full Output in Morocco.

This alternative involves (i) full responsibility for projectfinancing by the Moroccan sponsors, (ii) additional investmentcost (US$4.3 million) and distribution cost (US$6.5/ton) formarketing the original Algerian production share in Morocco,during the first 10 years of production, but no delay inproject implementation or sunk investment cost due to bank-ruptcy or reduced size. Further, this option can be exercisedin a manner to allow the Algerian shareholder to re-enter thejoint venture at a later stage.

Comparing the economic cost and benefits of the 3 alternative above, thethird solution, i.e., continuing with the original project, appeared to bemost advantageous, since it resulted in a 13.8% economic rate of return ascompared to 12% for the reduced 600,000 tpy cement plant scope and a negativereturn in case of bankruptcy.

2.04 Taking into account the quantitative assessment above, it was alsoessential to Morocco, on whose territory the plant was being constructed, totake steps to permit the project to proceed on an orderly basis and do so in

a manner which would protect the interests of the Algerian partner and pre-vent CIMA from being forced into bankruptcy. After careful study the follow-ing steps have been taken.

(a) Appointment by the Moroccan Courts of a TemporaryAdministrator for CIMA with the objective of preventingits impending insolvency and maintaining its corporateentity.

(b) Creation of a new company, Cimenterie de l'Oriental(CIOR) fully owned by ODI, to continue implementation ofthe project.

(c) With the agreement of all suppliers, CIOR took over allcontracts signed by CIMA, but not yet completed. Asto CIMA's assets consisting mainly of mobile equipmentstudies and investments in site clearance and other pre-operating expenses, CIMA agreed to put these assets atthe disposal of CIOR. In exchange, CIOR provided CIMAwith two Moroccan bank guarantees totalling DH 75 million(equal to paid-in capital) for the above contracts andcosts of assets, cashable upon CIMA's request.

The above steps were executed according to the normal Moroccan legal proce-dures. The details of the contract adoption and the transfer of assets areregulated in an agreement entered into by CIOR and CIMA in November 1976.

2.05 The above arrangements permit smooth continuation of the projectand provide adequate protection of the interest of both CIMA shareholders.Maintaining CIMA in existence for the time being offers the advantage to allowthe Algerian shareholder to reenter the project. Conversely, by preventing thebankruptcy of CIMA, these arrangements preserve in full both parties' capitalcontribution in the company. In the event of liquidation of CIMA, CIMA'spaid-in capital would be shared equally between ODI and SNMC(A) which, underthe Moroccan legislation, would be entitled to repatriate its share in foreignexchange. The Moroccan Government has indicated its willingness to let theAlgerian shareholder either reenter the joint venture or benefit from theprovisions of the Moroccan legislation if it wishes to repatriate its share.Similarly the above arrangements provide adequate protection to CIOR since:(i) as assets placed at CIOR's disposal by CIMA are essentially non-tangible(studies) or mobile equipment their return to CIMA would not materially affectCIOR's ability to operate the plant; and (ii) In case CIOR has to make paymentsto CIMA under bank guarantees, ODI and the Moroccan Government are committed intheir respective Guarantee Agreements to make up for any shortage of fundspreventing CIOR from either carrying out the project or meeting its financialobligations.

2.06 The Bank has obtained an independent legal opinion that the abovesteps comply with Moroccan legislation. This legal opinion also confirmsthat Moroccan exchange legislation authorizes the free convertibility andtransfer of foreign capital such as SNMC(A)'s capital share, and that suchlegislation cannot be changed with retroactive effect.

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B. CIOR - Organization and Management

2.07 CIOR was registered as a "societe anonyme" under Moroccan law onJune 18, 1976, wholly owned by ODI. According to its By-Laws the Company isadministered by a Board of Directors headed by a President and including atleast 3 but not more than 15 members. All Board members are elected for aperiod of 6 years. At present, CIOR's Board consists of 10 members including5 representatives of ODI, and representatives from the Ministries of Industry,Finance, Public Works, and the Prime Minister's Office. Mr. Benjelloun, thePresident of ODI and also President of CIMA, was elected President of CIOR'sBoard of Directors. CIOR's Board exercises the wide powers traditionallyexercised by the Board of a "societe anonyme", e.g. establishment of annualand long term investment and operational plans, approval of all contracts,agreements and loans, appointment of the General Manager and approval offinancial statements.

2.08 CIOR's management team includes the staff originally hired by CIMAwith the exception of Mr. Tahari, the Algerian Deputy General Manager who wascalled back by SNMC(A) in early 1976. CIOR is headed by a General Manager,Mr. Ennadifi, a geologist by training, who is assisted by Mr. Ramzy, anEgyptian technical advisor, who brings to CIOR many years of experience incement manufacture in the Mediterranean region. Mr. Kerrou an experiencedmining engineer and the Production Manager, joined CIMA in 1974 and partici-pated in a 12-month training program in the cement plants of APCM in England.Mr. El Ayoubi has been appointed as manager for Finance and Administration andCIOR is currently recruiting a Commercial Manager. CIOR's management team hasshown to be well motivated and energetic and should continue executing theproject effectively, if supported by the technical assistance outlined in para.4.11. Details of CIOR's organization and management are given in Annex 2-2 andan organization chart is presented in Annex 2-3.

C. ODI - The Shareholder

2.09 ODI is a Moroccan Government agency, established in 1973 to promoteindustrial development in Morocco and in particular (i) to undertake pre-investment studies, (ii) to acquire equity participation in newly createdindustrial enterprises, and (iii) to contribute to regional developmentthrough investments in appropriate projects and cooperatives. Details onODI's objectives, investment program and financial results are given inAnnex 2-4. At present ODI promotes about 50 projects in various stagesof preparation and execution, the majority being medium-sized textile,agro-industry and mechanical projects. Few of ODI's projects have startedproduction yet. ODI can obtain funds through sales of equity participations,profits from its own operations, dividends, Government budget allocations,loans and bond issues; however, up to now, ODI has had to rely entirely onTreasury advances and other Government funds to meet its capital subscrip-tions, operational and pre-investment expenses. Under these circumstancesODI's long-term financial viability cannot be assessed; its creditworthinessfor the moment rests entirely on the Government's commitment to continuingfinancial support.

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III. CEMENT MARKET, PRICING AND DISTRIBUTION

A. The Cement Market in Morocco

3.01 A detailed description of the Moroccan cement market is presentedin Annex 3-1 and major findings are summarized below.

1. Historic Supply/Consumption in Morocco

3.02 While cement production began in Morocco as early as 1918 at aplant in Casablanca, domestic production was first stepped ulp in the earlyfifties to a total capacity of 900,000 tpy with new plants in Meknes, Agadir,Tangier and Tetouan. Originally, all 5 cement plants in Morocco were con-trolled by foreign interests, in particular Lafarge, the French cementmanufacturer who in the 60's owned 70% of Morocco's cement capacity. Im-plementing the Government s strategy of "Moroccanization", the Government,Moroccan banks and private Moroccan interests have acquired since 1971majority participations in the various cement enterprises. All compensationquestions were resolved and foreign partners have retained minority sharesand management contracts in the existing plants as well as a new plantrecently commissioned (ASMAR).

3.03 Following a temporary slowdown after independence in 1956, cementconsumption in Morocco increased steadily by 6.8% per annum during 1960-67and 14.5% p.a. during the 1967-76 period. Production capacities were grad-ually expanded to 1,000,000 tpy at Casablanca, 300,000 tpy at Agadir, 550,000tpy at Meknes, 60,000 tpy at Tangier, and 150,000 tpy at Tetouan for a totalof about 2.1 million tpy in 1975. Although the plants have been operatingclose to nominal capacity, domestic production has been failing to meetdemand since 1971, and imports have become necessary. These reached about25% of apparent consumption in 1976.

Morocco: Apparent Cement Supply and Consumption (1960-1976)('000 tons)

Average AnnualGrowth Rate

1967 1971 1973 1975 1976 1967-1976

(%)Domestic Production 868 1,481 1,624 2,022 2,160 -/a 10.7Net Imports - 101 40 207 740 /a -Net Exports 10 - - - - -

Apparent Consumption 858 1,582 1,664 2,229 2,900 14.5

/a Based on 10 months actual results extrapolated.

Import procedures during the early 1970's have been cumbersome and importsplus domestic production remained below actual demand. A repressed demand

thereby developed as witnessed by: (i) a black market for bagged cement,(ii) cement allocation by the authorities in provinces with severe shortages,(iii) increased production by Moroccan plants of low quality cement contain-ing an average of 20% inert additives and in some cases up to 25% of suchadditives, and (iv) the substantial jump of cement consumption in 1975/76following imports of large quantities of cement. These imports were greatlyfacilitated by a streamlining of import procedures and the creation in early1976 of SORESMA, a new Government agency to handle all cement imports.

2. Projected Demand/Supply in Morocco

3.04 Projected Demand - The steady growth of the Moroccan economy duringthe last ten years -- illustrated by a fast growth of cement consumption andan average GDP growth of 4.9% p.a. for 1967-1972 and 6.3% for 1973-76 -- isexpected to continue through the forecast period, i.e. 1985. Cement demandprojections using macro-economic indicators have been made (Annex 3-1); theyproject that, under "most likely circumstances", cement demand in Moroccowill reach about 4.5 million tons in 1980 and about 6.1 million tons in 1985.The following table summarizes the results based on various projection methodsand gives a range within which future domestic cement demand is expected tofall:

Morocco: Projected Cement Demand (1978-85)(million tons)

1978 1980 1982 1985

Low: Correlation with GDP - Low 3.03 3.82 4.66 5.92

Most Likely: International Comparison 3.57 4.48 5.16 6.14

High: Correlation with GDP - High 3.40 4.56 5.72 7.46

The "high" and "low" projections are based, for the 1976-1980 period on acorrelation with GDP derived from 1960-1975 observations, and beyond 1980 ona linear extrapolation of demand. The most "likely" projection is based ona comparison between cement consumption/capita and GNP/capita for a broadspectrum of countries with high cement consumption at different stages ofdevelopment over the 1955-75 period. The "low" projection and the "high"projection assume an annual growth rate of GDP of respectively 5.5% and 7%till 1980. These compare to the 7.5% growth target of the Third Plan (1973-77) and the 6 to 6.5% official growth estimate for the Fourth Plan (1978-82)period. The "likely" projection assumes annual growth rates of GNP of 7%till 1980 and 6% thereafter; it thus extrapolates till 1980 the recent fastgrowth of consumption/capita with GNP/capita in Morocco, and follows there-after the curve derived from international comparison. This "likely" projec-tion corresponds to an annual growth rate of cement of 11.5% till 1980 and7.5% thereafter; it appears reasonable considering past evolution and theprospects of sustained growth in one of the major cement consuming sectors,housing. Construction in this field is expected to expand substantially,spurred by the increasingly felt shortage of accomodations in Morocco.

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3.05 Projected Supply - By the end of 1976 Morocco's domestic cement

production capacity consisted of (i) about 2.1 million tpy capacity in old

facilities 80% of which use the energy intensive wet-process technology and

the remaining 20% using semi-dry process, and (ii) about 0.7 million tpy

additional capacity in new facilities being commissioned, consisting of ex-

tension of existing plants and one new plant, ASMAR. To further respond to

the increasing cement demand, expansions of 3 existing plants, and 3 new dry

process plants (CIOR, ASMENT and a new Casablanca plant) with a total capacity

of 3.6 million tpy are under construction or planned. The expansions of

Tetouan and Tangier and the new 600,000 tpy ASMENT plant near Rabat are

expected to be operative before 1980, with the expansion of Agadir slightly

Later. A new I million tpy project at Casablanca to be built by the Moroccan

State enterprise Societe Nationale des Materiaux de Construction (SNMC),

recently created, is still in an early preparation stage and is not expected

to start production before 1981-82. Assuming no delays in implementation of

this project, continuing operation of all old installations and a reasonable

average utilization rate of 90% of nominal capacity as has generally been the

case in the past, domestic production in Morocco is expected to develop as

follows:

Morocco: Projected Cement Production (1976-1980)('000 tons)

1976 1978 1980 1982 1985

Existing Plants 2,160 2,605 2,790 3,220 3,220

New Plants - 195 1,420 1,960 2,610

Total Production 2,160 2,800 4,210 5,180 5,830

3.06 Projected Demand/Supply Balance Based on the above demand and

supply projections, the following table shows the projected demand/supply

balance through 1985.

Morocco: Projected Production/Demand (1978 - 1985)

('000 tons)

1978 1980 1982 1985

Domestic Supply 2,800 4,210 5,180 5,830

Domestic Demand: - Low 3,030 3,820 4,660 5,920

- Likely /1 3,570 4,480 5,160 6,440

- High 3,400 4,560 5,720 7,460

Domestic Surplus (Deficit)- Low (230) 390 520 (90)

- Likely (770) (270) 20 (610)

- High (600) (350) (540) (1,630)

/1 For 1978, the short-term "likely" forecast is higher than the "high"

projections based on long-term trend projections.

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Assuming a "low" growth demand, domestic supply could catch up with demand inthe early eighties, allowing some temporary surpluses; in practice, supply insuch case would probably be smaller than indicated, by curtailing productionof the old Casablanca plant, the economic operation of which is becomingquestionable on account of excessive energy requirements and severe pollution.In the "most likely" and the "high" demand cases, there is a supply deficitthroughout the first half of the 1980s with the exception of a brief periodaround 1982 when, in the "most likely" case, demand and supply are in balance.From the above data, it appears that had one half of CIOR's production gone toAlgeria as originally planned, the prospective cement deficit in Morocco on anational basis would be substantially greater than shown and additional expan-sion projects had to be undertaken. On a regional basis, however, the avail-ability of half of CIOR's production to Morocco will, for the medium termresuLt in an oversupply in Morocco's Eastern Provinces as explained in paras.3.08 to 3.09.

3.07 Thus, while overall supply and demand appear to be balanced in theearly 1980s on a national basis, it is essential that further investments incement be optimally planned with respect to location and timing. To this end,the Moroccan Ministry of Industry is setting up, within the newly-created SNMC,and with the help of foreign consultants, a system to provide continuousmonitoring of the cement market. Within this system the authorities intend toundertake, as soon as the next 5-Year Development Plan (1978-82) is available,a comprehensive cement market study based inter alia on sectorial analysis.

3. The Market for CIOR Cement in Morocco

3.08 The market of the Oriental Region where CIOR will be located ispresently served by existing plants of the Western regions (mostly the Meknesplant) over distances of 400 km and more, supplemented by cement imports.When the CIOR plant was originally designed, with only half its productionallocated to Morocco, it was optimally located from a transport and distribu-tion point of view since the cement demand in the Oriental region (Provincesof Oujda, Nador, Figuig and Taza - IBRD Map 12528) was projected to reachabout 450,000 tpy in 1980 and 700,000 tpy in 1985. This demand would haveprovided a rapid absorption of the Moroccan allocation. Following the changeto a solely Moroccan-owned plant, the availability of half of the plant'soutput will result in a temporary regional oversupply even though, as indi-cated earlier, this additional supply will be needed on a national level.

3.09 Regional cement supply shortfalls will be essentially concentratedin the country's densely populated northwestern regions, Casablanca, Rabat,and Fez-Meknes. While these markets are accessible from CIOR through themain Oujda-Casablanca railway line, they are between 300 and 600 kilometersaway from the plant site and will therefore be penalized with high transportcosts. Nevertheless, half of CIOR's production will help offset the deficitsin those other regions as shown below. However, after a period of 12 yearsCIOR's entire production would be required for the expanding market of theOriental Region.

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Morocco: Projected Regional Supply/Demand in the Northern Regions

(000 tons)

1980 1982 1985

North-West Oriental North-West Oriental North-West Oriental

Regions Region Regions Region Regions Region

Demand 2,660 460 3,070 540 .3,830 680

Supply 1,980 938 2,290 1,173 2,940 1,173

Surplus - 478 - 633 - 493

(Deficit) (680) (780) - (890)

3.10 At the time the decision was taken to proceed with a solely Moroccan

project, the Moroccan authorities recognized that they had to provide for

satisfactory transport and distribution arrangements for the marketing of

CIOR's production outside the Oriental Region. As a result, a preliminary

study of transport and distribution was undertaken by CIOR and the Bank in the

Fall of 1976. The result of this study as well as the necessary steps for

further review and implementation of adequate distribution arrangements are

indicated in paras. 3.16 to 3.19.

3.11 In addition to the market study referred to in para. 3.07, the

Moroccan authorities agreed to undertake also a detailed distribution study

as well as a pricing study discussed in para. 3.25. The distribution study

will be undertaken prior to December 31, 1979 by the Ministry of Industry.

The Government agreed to consult with the Bank on terms of reference and

results of the study.

3.12 While the market and distribution studies will greatly assist

Morocco in preventing future imbalances in supply and in optimizing the

location of additional cement capacity, it will, as noted earlier, take a

good many years for the Oriental Region demand to grow to the point where

it can fully absorb CIOR's output. In order to ensure that new or expanded

facilities in Morocco will not further distort the project's distribution

pattern, assurances have been obtained from the Moroccan authorities to con-

sult with the Bank on cement market prospects within a reasonable period prior

to undertaking any significant increase in cement production capacity.

B. Cement Distribution and Pricing in Morocco

1. Existing Distribution System

3.13 The Moroccan cement market is characterized by an oligopolistic

situation with a large number of small individual consumers supplied by

a few producers. Cement producers consider themselves as production com-

panies only and typically sell all their output to independent wholesalers

who, in turn, sell to retailers or directly to consumers. With this trading

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pattern, the cement companies have no influence on prices at the consumerlevel, no means of transport or distribution outlets of their own, and as aresult little market transparency.

3.14 At present, there are about 100 wholesalers of construction mate-rials including cement. Typically, they are associated with one cement plant,do not carry stocks, but issue vouchers which enable the customer to pick upthe cement at the plant or railway station. Most plants request advance orcash payment from wholesalers. Cement retailers are numerous and generallytrade in a wide range of commodities. Typically, they carry small cementinventories, and own trucks enabling them to realize a substantial profit ontransport. Details of the Moroccan cement distribution system are given inAnnex 3-2.

3.15 None of the Moroccan cement producers own transport means. About18% of ex-factory shipments of cement are transported by rail, 2% by vesselsalong the Mediterranean coast, and about 80% by truck. Road transport isclosely regulated by the Office National des Transport (ONT), which controlsprivate truck operators with trucks exceeding 5.5 tons through licensing,assigning cargos and fixing freight rates. In addition to small trucks,vehicles used by enterprises tranporting their own products are also excludedfrom ONT's control. ONT's tariffs are high compared to operating costs oftrucks and have induced "illegal transport" and widespread ownership of trucksof less than 5.5 tons. For example, in 1973 only 12% of total cement ship-ments by trucks has been transported by ONT, the remainder being transportedin small trucks, despite the experience in other countries that cement ship-ments by road are most economically handled in 10 to 20-ton trucks. Tariffsof the railway company--Office National des Chemins de Fer (ONCF) -- areabout 30% below ONT tariffs on all distances exceeding 100 km. However, onback hauls, private transporters offer prices as low as DH 0.06/ton km, andthereby undercut the ONCF tariffs. Details on distribution channels andcement transport in Morocco are given in Annex 3-2.

2. Distribution and Transport of CIOR Production

3.16 Distribution: In 1974-75, ODI and CIMA undertook a preliminarysurvey to evaluate existing distribution channels and transport means in theOriental Region. This study concluded that the Company (i) should play agreater role in marketing than the existing cement producers, (ii) use theexisting wholesale-retail network in the Oriental Region, supplemented withown distribution outlets, including storage facilities, and (iii) acquirea minimum number of 20-ton trucks, including bulk carriers, to meet basicrequirements for distributing cement thus improving the transport servicesin the Oriental Region. Details of the survey are given in Annex 3-3.

3.17 The preliminary transport and distribution study for CIOR's salesoutside the Oriental Region as discussed in Annex 3-3, concluded that anoptimal solution would require unit trains with special wagons operating be-tween CIOR and a few distribution terminals centrally located in major marketareas and equipped with fast unloading/loading facilities. Possible majoralternnatives are (i) transport in bulk and bagging cement at the terminals,or (ii) bagging at CIOR's plant and transport/handling of bags on pallets.

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Prospective locations of the terminals are the major towni of Fez, 310 km fromthe plant and possibly Casablanca, where agreement on distribution will besought with other cement corporations such as SORESMA and SNMC who need to havetheir own facilities in these areas. A final decision on a specific solutionand additional investments is to be taken in the framework of an interregionaltransport and marketing strategy after additional studies and consultationsbetween the Government, CIOR, the other cement entities and ONCF (the railways)have been concluded.

3.18 To help arrive at such a decision, during April-July 1977 CIOR willupdate the preliminary transport and distribution study with the assistanceof qualified consultants to be engaged prior to April 1, 1977, on terms ofreference acceptable to the Bank. The Bank will finance the foreign exchangecost, estimated at US$50,000, of such work. CIOR has agreed to furnish to theBank for its comments the said distribution study by July 1, 1977 and takewithin 6 weeks after the receipt of the Bank's comments a decision, in agree-ment with the Government as to location and type of distribution terminals tobe constructed and operated by CIOR as part of the project and construct andequip the chosen terminals promptly thereafter. In addition CIOR agreed toenter into a transport agreement with ONCF on or before April 30, 1978.

3.19 Transport: Assurances have also been obtained from the Governmentthat (i) it will cause ONCF to purchase as needed the type and number ofrailway wagons required to transport CIOR's production outside the OrientalRegion as determined by the transport and distribution study outlined in thepreceding paragraph and agreed upon by the Government and CIOR in consultationwith the Bank, (ii) the Government will provide to ONCF promptly as needed, allfunds required for such wagons or facilities, and (iii) the Government willcause ONCF to enter into a transport contract with CIOR on or before April 30,1978.

C. Pricing

3.20 The cement pricing system in Morocco is described in detail inAnnex 3-2. Traditionally, the Government has been controlling cement pricesby fixing maximum prices at the ex-factory level. These ex-factory priceshave varied according to the producer, but the differentials reflect trans-port cost differences and ensure each cement plant a competitive price ad-vantage within a radius of about 200 km. The Moroccan authorities maintainedunchanged ex-factory prices from 1958 to 1975 1/, ranging from 97.7/ton(US$23.3/ton) bagged cement for the Casablanca plant to DH 122.6/ton(US$29.0/ton) bagged cement for the Agadir plant. Thus, Moroccan pricesaveraging US$24/ton in 1975 remained low compared to domestic cement prices

1/ Except for an adjustment reflecting increased costs of bags and taxes.

2/ Including all operating cost plus depreciation and financial charges,but excluding profit and profit taxes.

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in Europe averaging US$22.0 - US$34/ton, and the cost of importing cement inMorocco which reached US$39.5/ton cif that year. Such low ex-factory pricesmay have had a depressive effect on new investments in the cement sector.Following two increases, in 1976, cement prices for bagged cement to whole-salers (ex-factory, including taxes) averaged DH 148/ton (US$33/ton), butcement producers realised only about DH 120/ton (US$21/ton) because of a 15%sales tax and levies for a "price equalization and compensation scheme". TheGovernment started to levy the latter taxes in 1975 on certain producers whileincreasing official ex-factory prices to compensate for the high cost ofimports which are sold by the Government to wholesalers at the official ex-factory price in the Casablanca area.

3.21 In the past, the strict price control on the producer level didnot directly benefit the consumer. Wholesale and retail prices depend ontransport costs and margins of sales agents. These intermediaries chargedwhatever the market could bear, resulting in up to 50% price differentials toconsumers. In 1974/75, the authorities fixed profit margins of agentsuniformly at DH 6/ton of cement for wholesalers and DH 10/ton of cement forretailers, thus limiting the agents profit to 3-6% of sales.

3.22 The Government presently handles cement ex-factory price increasesfor existing plants in an ad hoc manner and without direct concern aboutthe producers' return on investment. As to new cement plants, the InvestmentConvention generally granted by the Government to investors also determinesthe company's ex-factory price. As a rule of thumb, the Government has setprices for new producers to enable them to earn a 10-12% return on equity andallows automatic price adjustments in case of official increases in laborrates, electricity tariffs, etc.

3.23 The production startup of the new ASMAR cement plant in 1976 and ofthe CIOR project in 1978 raises additional pricing problems for the Moroccanauthorities: ex-factory costs 2/ for existing cement plants range from DH 75to 100/ton, in 1976 terms, whereas for new cement plants corresponding costsof about DH 150 to 180/ton can be expected. In capital intensive industriessuch as cement, new plants have high unit costs as they are gradually broughtup to capacity operation, while fixed costs such as amortization of preopera-ting expenses and financial charges become negligible. The Moroccan authori-ties argue that fixing prices in reference to the actual costs of the newplants would (i) earn existing producers substantial windfall profits and (ii)lead to a sudden price increase of at least 25%.

3.24 The Bank discussed in detail various cement pricing mechanismswith the Moroccan authorities. It was agreed that a pricing mechanism

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should be adopted which would (i) allow producers to make reasonable profits,thus ensuring that capacity expansions will be forthcoming to meet demandgrowth while avoiding windfall profits for individual producers, (ii) ensurereasonable and relatively stable prices for consumers, and (iii) provide anadjustment mechanism for controlled prices to reflect the impact of inflationon operating cost and in the longer run, on capital cost, ancl (iv) provideincentives for cost-conscious, efficient operation by not covering automatic-ally the cost of each producer. To achieve this objective the Moroccanauthorities confirmed that

(a) cement prices will be established for each cement produceror importer on the ex-factory and ex-distribution c:enterlevel, taking into account specific transport economiesand market conditions. To ensure optimal resourceallocation, it is intended to set prices to allow t:heindustry as whole to earn a return of at least 10% onits combined net fixed assets in operation as period-ically revalued, and based on efficient operations.Cement prices will be fixed periodically and will beadjusted to reflect actual changes in unit costs oi-major inputs such as fuel and labor.

(b) within the framework of general price levels definedunder (a), the Government may grant import, invest-ment, transport and distribution incentives for newand expanding cement producers or importers. To coversuch incentives, taxes will be levied on the cementindustry. The Government agreed that tax revenues soobtained from cement producers would be at least aslarge as the expenditures for the various incentives.

3.25 Before introduction of the system described above I.t will benecessary to undertake a study to determine inter alia operat:ing proce-dures for the proposed pricing mechanism, investment incentives, originalprice levels, and procedures for reevaluating periodically fixed assetsof the Moroccan cement industry. The Government agreed during negotia-tions to undertake by December 31, 1977 such study and consult with theBank on its terms of references and results.

IV. THE PROJECT

A. Scope of the Project

4.01 The CIOR plant is one of the main industrial projects included inthe Moroccan Five-Year Plan (1973-75). The project aims at import substitution

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by satisfying the growing cement demand by local production, and develop-ment of the Oriental Region, one of the less developed areas of Morocco. Theproject consists of the construction and operation of a cement plant at ElAioun, about 45 km West of Oujda in Northeast Morocco, close to the Algerianborder, and the marketing of its output in the Oriental and NorthwesternRegions. The cement plant, wiLth a nominal capacity of 1.2 milion tpy, willproduce Ordinary Portland cement and possibly some special cement types.

B. Raw Material Availability and Analysis

4.02 Geological investigations undertaken by APCM, a large cement pro-ducer and engineering consultant of the U.K., in 1974/75 have confirmed theavailability of sufficient reserves of the two main raw materials, i.e.limestone and clay, to operate the plant at full capacity for over 50 years.The limestone which is immediately adjacent to the plant, has very littleoverburden and thus can be exploited by simple quarrying techniques. Thec:Lay deposit is located about 7 km from the plant; it is also easily access-ible and exploitable and, below a few meters of overburden, has a fairlyuniiform chemical composition. The low humidity and good quality of bothlimestone and clay allow production of clinker by the dry process and withoutadditional corrective components. Gypsum which is to be added in smallquantities to clinker for production of Ordinary Portland cement will bequarried from a high-grade deposit already operating about 50 km from theplant site, with 45 years recoverable reserves at CIOR's production rate.Additives required in limited amounts for the manufacture of special cementtypes can be purchased from other areas in Morocco, such as pozzolana, andstarting in the early 80's, blast furnace slag from the SONASID steelproject. Details on raw materials deposits are given in Annex 4-1.

C. Technical Description

1. Production Facilities

4.03 The project will utilize, as noted above, the dry process techno-logy which offers substantial fuel savings and does not require significantamounts of water which is scarce in the area. The cement plant consists of(i) two complete lines of mill and kiln with four-stage preheater at a ratedcapacity of 1,800 tpd of clinker, planetary coolers and electrostatic pre-cipitators, and clinker grinding facilities, as well as (ii) auxiliary equip-ment and installations such as equipment for the limestone and clay quarries,raw material crusher and blending, stockpile, cement storage and dispatchfacilities. Also included are a substation and all related electricalinstallations, workshops, a laboratory and a conventional control system,since the good quality of the raw material does not require sophisticatedcomputer controls. The two medium-size kiln and mill units have been choseninstead of one 3,400 tpd clinker production line because they offer greater

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reliability of maintaining CIOR's average production level and thus outweigh

possible economy of scale of larger units. A detailed plant description iscontained in Annex 4-2. General plant layout and process flow charts are

given in Annexes 4-3 and 4-4.

2. Utilities and Infrastructure

4.04 Utilities and infrastructure are described in greater detail inAnnex 4-5 and briefly summarized below. The plant has been designed to burnheavy fuel oil or natural gas. Initially, the plant will operate on heavyfuel oil, which will be supplied by rail from the Sidi Kacem refinery some400 km distant. Fuel price delivered at plant would at present be aboutDH 267/ton, i.e. it would be subsidized to the extent of about 25%. Moroccoand Algeria in the past discussed the supply of natural gas to the OrientalRegion. The use of natural gas as alternative fuel source would benefitMorocco and may reduce the economic cost of fuel in the plant by 20-40%.

4.05 The plant's power demand estimated at 122 million KWh per yearwill be supplied by the Office National de l'Electricite (ONE) from its highvoltage tansmission line passing near the site. CIOR has signed a supplycontract with ONE, who is constructing the two 60 kV connecting lines andthe 225/60 kV and 60/11 kV substations. Water requirements estimated at 16liter/sec are adequately supplied from a deep well operated by CIOR close tothe plant.

4.06 The plant site is conveniently located alongside the main roadand railway line Algeria-Oudja-Casablanca. A 2 km rail spur has been com-pleted to connect the plant to this line which CIOR will use for fuel supplyand cement shipments to other regions. Housing and recreation facilities forthe whole personnel, i.e. for about 440 families will be constructed at ElAioun, the nearest town located about 15 km from the plant site. A mainoffice building and a few houses will also be constructed in Oujda for CIOR'smanagement and commercial department.

D. Ecology

4.07 The plant is located in a semi-arid area without agricultural use.Nevertheless, it is designed to meet anti-pollution standards comparable tothose maintained by Western European c untries as detailed in Annex 4-6. Dustdischarge will be kept below 115 mg/Nm by the use of electrostatic precipita-tors or filters at the various dust generating stages of production. Liquideffluents consisting mainly of sewerage discharge will be treated in wastetreatment facilities. Appropriate noise abatement precautions have beentaken into account for the noise generating mills and crushers. CIOR hasagreed to (i) construct and operate the plant with due regard to ecologicalstandards, and (ii) monitor the pollution levels after production startup.

E. Manpower and Training

4.08 Cement factories are generally capital intensive. The projectwill therefore provide direct employment for only about 500 people, of which

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100 are unskilled workers, at an investment cost of about US$370,000 peremployee. CIOR intends to operate the plant with Moroccan personnel and aminimum of expatriate assistance. A training program for staff and skilledworkers is underway and includes (i) intensive training courses by APCM,CIOR's engineering consultants, in British cement plants, (ii) short-termtraining by equipment suppliers in European cement production facilities,and (iii) assignments in existing plants in Morocco. Recruiting and trainingof technical staff started in 1974 and is proceeding satisfactorily. Detailson manpower projections and training are contained in Annex 4-7.

4.09 CIOR has submitted to the Bank a detailed comprehensive recruit-ment and training program which is adequate. To ensure that recruitment andtraining continues satisfactorily, during negotiations, assurances have beenobtained from CIOR for continuing adequate and timely arrangements for re-cruitment and training of all personnel required for production, administra-tion and distribution.

F. Project Execution and Technical Assistance

4.10 CIOR has engaged APCM to provide project preparation and implementa-tion services. In a first stage, APCM carried out the geological studies,raw material analyses, the feasibility study and general plant design. In asecond phase, APCM is responsible as consulting engineer for detailed engi-neering, preparation of procurement documents, bid evaluation and contractpreparation, training, supervision of construction, erection and commission-ing. APCM subcontracted (i) detailed design and supervision of civil worksto Oscar Faber & Co., a British consulting engineering firm, and (ii) marketstudies for the feasability study and infrastructure studies and the localrecruitment and training study to the Moroccan consulting firm MaghrebProjects.

4.11 CIOR's contract with APCM provides an option for technical assist-ance after commissioning whereby APCM would make available 300 man month ofassistance during the first five years of operations. Since CIOR's staffwill be relatively inexperienced, more detailed arrangements are necessaryto ensure successful operation of the plant. Therefore, CIOR has agreed topropose to the Bank by September 30, 1977, adequate technical assistancearrangements to operate the plant efficiently after commissioning and enterpromptly after having received the Bank's comments into a contract satis-factory to the Bank.

G. Project Timing

4.12 The project implementation schedule, initially prepared by APCMand regularly updated by APCM and CIOR is shown in Annex 4-8. Equipmentdelivery, construction and erection schedules are based on informationprovided by suppliers, APCM's experience and actual progress on the con-struction site. Accordingly, the plant is expected to start production inthe third quarter of 1978. This time schedule is realistic since virtuallyall contracts have been signed, the main civil works started in September1976 and erection of the mechanical equipment is just starting.

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V. CAPITAL COST AND FINANCING PLAN

A. Capital Cost

5.01 Capital cost estimates are detailed in Annex 5-1 and are summarized

below:

Summary of Capital Cost Estimates

Local Foreign Total Local Foreig / Total %------Million DH------- ------Million US$------

Building and Civil Works 94.7 69.3 164.0 21.0 15.4 36.4 21

Infrastructure 57.5 8.8 66.3 12.8 2.0 14.8 9

Equipment and Erection /a 86.1 251.4 337.5 19.1 55.9 75.0 44

Freight 6.3 13.8 20.1 1.4 3.1 4.5 3

Preoperating Expenses 23.5 2.7 26.2 5.2 0.6 5.8 3

Engineering 5.0 11.3 16.3 1.1 2.5 3.6 2

Duties and Taxes 24.8 - 24.8 5.5 - 5.5 3

Total Base Cost 297.9 357.3 655.2 66.1 79.5 145.6 85

Physical Contingency 14.5 17.4 31.9 3.2 3.9 7.1 4

Price Escalation 30.4 20.1 50.5 6.8 4.4 11.2 7

Total Fixed Assets 342.8 394.8 737.6 76.1 87.8 163.9 96

Initial Working Capital 25.5 6.1 31.6 5.7 1.3 7.0 4

Total Cement Plant 368.3 400.9 769.2 81.8 89.1 170.9 100

Distribution Facilities 9.6 9.7 19.3 2.1 2.2 4.3

Distribution & PricingStudy 0.2 1.4 1.6 0.1 0.3 0.4

Total Project Cost 378.1 412.0 790.1 84.0 91.6 175.6

Interest DuringConstruction 13.2 15.3 28.5 2.9 3.5 6.4

Total FinancingRequired 391.3 427.3 818.6 86.9 95.1 182.0

/a Including commissioning and training by suppliers./b Includes indirect foreign exchange costs of US$4.8 minimum.

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5.02 Cost estimates for the plant proper are based on actual contractssigned and payments made by October, 1976 for equipment, buildings and civilworks. Infrastructure costs related to the plant are based on actual paymentsand contracts with ONE and ONCF's subcontractors who execute these projectcomponents. Cost estimates of the office and housing facilities are basedon data prepared by the architectural company appointed for the design andsupervision of execution of these works. Since CIOR will be granted taxconcessions under the Investment Code, import taxes and duties of only 5.1%of the cif value of imported goods, 7.5% to 10% on services and 1.7% on sharecapital have been added. Signature of the Convention between the Governmentand CIOR stipulating these advantages has been confirmed. Freight and in-surance to the plant site reflect the relevant charges included in contractssigned or suppliers' quotations. The engineering item covers APCM's servicesfor engineering and training, whereas the preoperating expenses item comprisesall other CIOR expenses before startup including geological studies, andmaterials and supplies used during startup. Total cost of consultants' ser-vices for the project is estimated to be US$5.4 million, including US$4.1million for the cement plant engineering at a cost of about US$3,300 per manmonth.

5.03 Possible omissions and changes in the project are expected to belimited because of the advanced stage of project implementation. To coverthese, physical contingencies of 5% have been added to the base cost ofplant equipment civil construction and infrastructure for which contractshave been signed, and not yet completed, and 10% for other cost items. Priceescalation rates of 12% per annum in 1976 and 8% per annum thereafter havebeen applied on all project costs to the extent they are subject to priceescalation except for local components of preoperating expenses for which auniform rate of 7% per annum has been used. The resulting price contingencyis only 7% of base cost plus physical contingencies, since (i) prices of mostequipment contracts are fixed price contracts; and (ii) the plant will becompleted less than 2 years from the date of the base cost estimate. Theestimated fixed assets cost excluding infrastructure, totalling US$125 perannual ton of cement produced, compares favorably with similar new plants inother countries. The total cost estimate decreased by about 15% from theinitial cost estimate prepared at the time of the appraisal of the CIMAjointventure project due to a favorable competitive market situation.

5.04 Capital cost of CIOR's additional distribution facilities areestimated between DH 18 - 20 million, depending on transport and handlingalternatives selected and location of the terminals (Annex 3-3).

B. Working Capital Requirements

5.05 Initial working capital requirements are estimated at DH 31.6million, as detailed in Annex 5-2. This also includes all working capitalrequired to operate the distribution terminals.

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C. Financing Plan and Guarantees

5.06 Total financing required of DR 818.6 million (US$182 million)including DH 28.5 million (US$6.4 million) for interest during constructionwill be provided as follows:

Financing Plan

DH Million US$ Million %

Capital 328.0 72.9 40Debt

- IBRD 202.5 45.0 25- Treasury Advances 256.5 57.1 31- Moroccan Commercial Banks 31.6 7.0 4

Total Debt 490.6 109.1 60

Total Financing Required 818.6 182.0 100

5.07 Equity financing will amount to US$72.9 million based on a 60:40debt/equity ratio which provides adequate capitalization for a cement proj-ect. All but DH 35 million (US$7.8 million) of CIOR's capital has beensubscribed or paid in. ODI and the Moroccan Government have agreed to makeavailable to CIOR the remaining DR 35 million when needed for timely projectimplementation and so as to maintain at all times a debt/equity ratio of60:40. CIOR will carry the foreign exchange risk of the Bank loan.

5.08 The proposed Bank loan of US$45 million equivalent will be madedirectly to CIOR and for 14 years including 3 years of grace at the pre-vailing interest rate (8.5% p.a. at present), plus a guarantee fee (1.5% p.a.)payable to the Government of Morocco, bringing the total financial chargesto CIOR to 10% per annum. The Bank loan will cover 47% of the project'sforeign exchange cost.

5.09 The Government has confirmed that Treasury advances totallingDH 256.5 million (US$57.1 million equivalent) will be made available as neededto cover the remaining debt financing requirements excluding working capital.The Treasury advances will be provided at terms and conditions to be agreedupon between the Government, CIOR and the Bank. It has been assumed for thefinancial projections and as discussed with the Government that the Treasuryadvances will carry 6.5% interest p.a. and be repayable over 17 years includ-ing 3 years of grace. The Arab Fund may provide a KD 7 million loan for theproject ($24.5 million equivalent) for 17 years, including 3 years of grace,with interest at 6.5% p.a. Its contribution would reduce accordingly theamount indicated for Moroccan Treasury Advances.

5.10 It is intended to cover the initial working capital requirementsof DH 31.6 million (US$7.0 million) through Moroccan commercial bank loans

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secured by current assets. ODI and the Government have agreed to providefunds for said working capital in the unlikely event that financing from localbanks would not be forthcoming.

5.11 ONCF, the Moroccan Railway Company will require about US$3 mil-lion equivalent to purchase new railway wagons to handle CIOR's cementtransport (paras. 3.16 - 3.19). Assurances have been obtained from theGovernment that adequate funds will be made available to ONCF promptly asneeded for this purpose.

5.12 To ensure timely project completion, ODI has agreed during negotia-tions to provide a cost overrun and project completion guarantee, i.e., makeavailable additional local or foreign exchange funds on terms and conditionssatisfactory to the Bank as and when needed to promptly complete the projectand in such form that CIOR can maintain the financial covenants outlined inpara. 6.05. Since ODI is financially dependent on the Government, the Govern-ment has agreed to guarantee ODI's performance under its obligations detailedin paras. 5.07, 5.11 and 5.12 above.

5.13 In addition, assurances have been obtained from the shareholder(ODI) not to transfer or sell its majority shareholding in CIOR without priorapproval of the Bank.

D. Procurement

5.14 Procurement of civil works, equipment and services for the cementplant has been through ICB in accordance with Bank Guidelines, regardless ofsources of financing. For purposes of bid evaluation, domestic equipmentsuppliers have been given a 15% margin of preference. In June 1975, CIMAsigned four fixed price contracts with Polysius (France) (after internationalcompetitive bidding, in which Polysius was the lowest evaluated bidder) forthe supply of the mechanical equipment; for its erection and commissioning;for the supply of appropriate spare parts; and for related training. Acontract for site preparation was signed in September 1975 with CTRA-ENATRA,a Moroccan civil works contractor, following ICB. Contracts for the civilworks, electrical equipment and process control equipment were signed re-spectively, in May 1976 with Construcos Technicos (Portugal), in June 1976with Brown Boveri (Switzerland) and in July 1976 with COMSIP (France), alsoafter ICB. Procurement procedures for the remaining 5 internationally bidpackages for the plant (generators, inspection services, quarry equipment,workshops and laboratory equipment) were completed in 1976 and contractsigned with various suppliers from the US, Japan and Western Europe. Finallythe additional distribution equipment will be bid through ICB in 1977-78.

5.15 Procurement of infrastructure (water supply, electricity and raillinks, housing and other social facilities) and miscellaneous mobile equipmentis being carried out through competitive bidding in accordance with localprocedures. These items are all being financed from Moroccan funds. Detailson procurement are given in Annex 5-1.

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E. Allocation of Bank Loan and Disbursement

5.16 As detailed in Annex 5-3, the Bank loan of US$45 million equivalentwill finance part of the foreign exchange cost of equipment, construction,erection, training and consulting services required by CIOR for the project.

5.17 More specifically, the US$45.0 million equivalent of the Bank loanwill finance:

(a) foreign exchange cost of equipment for the plantand distribution terminals, (US$20.2 million);

(b) foreign exchange cost of training, plant erectionand commissioning, and of consultant services forinspection, accounting assistance and distributionstudies (US$4.0 million);

(c) 47% of the total cost of civil works for foundationsand buildings, representing the total estimated foreignexchange component (US$18.0 million);

(d) interest during construction on the Bank loan (US$2.8million).

A detailed list of items to be financed by the Bank Loan is given in Annex 5-3.The Bank loan is expected to be disbursed by end of 1979 as shown in the dis-bursement schedule (Annex 5-4).

5.18 The original project was appraised in 1975 and ready for negotia-tions in January 1976. Due to the breakdown of the original joint venture,outside the influence of CIOR or the Bank, processing of a loan for thiscement plant has been delayed by more than one year. Consequently, advancecontracting and some retroactive financing could not entirely be avoided.Taking into account the exceptional circumstances of this project, retroa-ctive financing of up to US$5 million or 11% of the Bank loan, is recommended.

VI. FINANCIAL ANALYSIS

A. Operating Costs

6.01 Estimates of CIOR's operating costs and revenues are based on theproduction of 90% bagged and 10% bulk Ordinary Portland cement as expectedduring the early years of operation. CIOR's two production lines are expectedto be operative by the third quarter of 1978, gradually increasing outputto 98% capacity utilization by 1982 as shown in Annex 6-1. Such capacity

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utilization is conservative as it assumes only 310 operational days per year,

while plants normally operate 330 days per year and use this number for

establishing capacity; on such a basis CIOR's assumed capacity utilization

at full production (1982) would be 92%. Distribution costs are detailed in

Annex 6-2.

6.02 Operating cost projections are based on recent estimates prepared

by APCM and updated on the basis of data for existing cement plants in

Morocco. Projections in 1976 constant terms are given in Annex 6-1 and

those in current terms in Annex 6-3. To reflect projected inflationary cost

changes, it has been assumed that local costs would increase by 7% p.a. and

foreign costs such as those of spares and refractories, by 10% p.a. in 1976

and 7% thereafter. Based on the present fuel oil price in Morocco, CIOR's

operating costs in 1976 constant terms are projected to decrease from US$17.9/

ton cement in 1979 to US$16.6/ton in 1983 as the efficiency of the plant

improves and the plant operates near capacity, whereas operating costs in

current terms would reach DH 98/ton (US$22/ton) in 1979 and DH 119/ton

(US$26/ton) in 1983. The removal of the present fuel subsidy in Morocco

would add about DH 6.0/ton to the production cost of cement. Thus, even

without this subsidy CIOR's operating cost structure meets international

standards for operating costs of new cement plants.

B. Revenues

6.03 Under the new pricing system discussed with the Government, ex-

factory prices, investment and distribution incentives for new cement pro-

ducers, and taxes would be set at such levels to allow the industry to earn

a reasonable return on assets under conditions of efficient operations (para.

3.24). During the first years of production CIOR is therefore expected to

receive incentive payments like the other new producers, to compensate for

high initial costs due to heavy financial charges and depreciation and

higher operating costs as production builds up only gradually. Conversely,

thereafter these incentives would be removed and eventually taxes levied as

CIOR's total production costs decrease to an average DH 180/ton (US$40) in

current terms by 1982-84 as shown in Annex 6-4. Thus the financial projections

use net (ex-factory) revenues equivalent to DH 180/ton in 1976 real terms

for 1978-81, declining to DH 150/ton, thereafter in line with the present

ex-factory prices for new cement producers in Morocco. These revenue pro-

jections result in an acceptable financial situation (paras. 6.04-6.05).

C. Financial Projections

6.04 Financial statements in current terms have been projected on the

assumptions given in Annex 6-3. Detailed income, cash flow and balance

sheet forecasts through 1988 are given in Annexes 6-4, 6-5 and 6-6 and

selected items are summarized below:

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CIOR: Selected Income and Balance Sheet Items(DH million - current terms)

1978 1979 1980 1981 1982 1985

Production (1,000 tons) 195 821 938 1,055 1,173 1,173

Utilization ratio (%) a/ 49 b/ 68 78 88 98 98

Net Sales 39.8 202.8 246.9 298.0 300.1 350.5Operating Profit 3.2 53.2 83.3 124.4 123.1 145.0Net Profit after Taxes (Loss) (5.84) (4.37) 26.7 66.3 67.5 107.5

(as % of Net Sales) - - 11 22 22 30

Cash Generation 11.3 65.0 72.6 91.5 78.4 113.9Dividends - - 3.2 27.0 28.2 68.1

Long-term Debt 440.6 430.4 393.2 356.9 319.95 209.75Equity 322.2 317.8 321.0 348.0 376.2 536.5

Debt Service Coverage (times) - 1.5 1.7 1.7 1.6 2.3Current Ratio 1.3 2.5 2.0 2.1 2.1 2.2

Debt/Equity Ratio 57:43 57:43 55:45 51:49 46:54 28:72

a/ Equivalent to a 92% capacity utilization when based on the normal 330operating days per year rather than the assumed 310 days.

b/ On the basis of 4 months production.

The above table indicates that through the first full year of operation(1979), CIOR would experience small losses, partly on account of fast depre-ciation (3 years) of preoperating expenses. Starting in 1980, net profitswould gradually increase and reach levels in 1981-83 sufficient to makefurther incentives unnecessary and allow the assumed reduction in the ex-factory sale price. Simultaneously, as full production is being reached,projected cash flow should allow the start of dividend payments. In line withthe provisions of the investment convention dividend payments of 12% on equityhave been assumed after the allocation of net income after taxes to the legaland investment reserves.

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6.05 In order to establish and operate CIOR on a sound financial basis,assurances have been obtained from CIOR and its shareholder ODI, to maintainor guarantee that CIOR can maintain at all times a current ratio of at least1.3. and a debt-service ratio of 1.5. To back up ODI's obligation, theGovernment will be asked to guarantee ODI's performance under a shareholder'sguarantee agreement. In addition, CIOR agreed (i) not to incur any debt ifthis would result in a debt/equity ratio greater than 60:40, (ii) not toundertake - without prior consent of the Bank - additional capital investmentsof more than US$5 million annually until project completion, 1/ and (iii) notto pay any dividends or make any distribution of cash unless after suchpayments the Company's current ratio is at least 1.5.

D. Break-Even Analysis

6.06 The profit break-even point and cash break-even point in 1980, theyear in which CIOR would start repaying a portion of long term debt, wouldbe respectively at 68% and 47% of capacity. The profit break-even point andcash break-even point in 1982 to 66% and 59% respectively.

E. Accounting and Auditing Requirements

6.07 CIOR will require a first rate accounting and financial planningsystem to control its productivity and costs. The training of a chiefaccountant as part of APCM's training program is not sufficient to ensureadequate accounting standards and cost control after startup. Therefore,CIOR agreed to employ prior to June 30, 1977 on terms and conditions satis-factory to the Bank, qualified consultants who will define and implementpromptly a system of general cost accounting, cost control and budgeting, aswell as of financial planning on terms and conditions satisfactory to theBank. The foreign exchange costs of these accounting consulting services,estimated at US$250,000, are included in the Bank loan (para. 5.17). Inaddition, CIOR will have its accounts audited annually by an independentauditing firm acceptable to the Bank.

F. Financial Rate of Return

6.08 Financial rate of return calculations are in 1976 real value termsand are derived from the financial projections, i.e., they assume net ex-factory revenues in real terms equivalent DH 180/ton during 1978-81 and DH150/ton thereafter. The rate of return is calculated for the cement plantonly, i.e., revenues and costs of the transport and distribution activitiesare excluded from the calculations since CIOR will be reimbursed for theseexpenses which will, thus, not affect CIOR's rate of return. The assumptionsfor the calculations and for the cost/benefit streams are given in Annex 6-7.The financial rate of return is 10%; the sensitivity tests are summarizedbelow:

1/ The project will be considered complete when production and sales overa period of at least 90 days have reached 90% of rated capacity andcurrent ratio is at least 1.3.

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Sensitivity Tests on Financial Rate of Return

Case Rate of Return (%)

Base Case 10.0Capital Cost Increase 5% 9.4Operating Cost Increase 10% 8.6Revenue Decrease 10% 7.5Revenue Increase 10% 10.8

This rate of return is adequate considering that the Government wants to keepcement prices as low as possible to protect the consumer and encourage at thesame time necessary capacity expansions. By contrast with sales prices main-tained throughout at the same level of DH 180/ton as in the first years ofproduction, the rate of return increases to 12%; this is more in line withcement facilities in other countries. Another reason for the low financialreturn is the heavy infrastructure, largely the 440-unit housing complex,representing more than 10% of fixed asset costs, the cost of which is entirelyborne by CIOR.

G. Major Risks

6.09 The technical risks of this project are relatively small; they maybecome critical only in the unlikely event that CIOR were not to continuewith its training and technical assistance program and could not retainqualified technicians and administrative staff. The major areas of potentialrisk are market and distribution. Under the severe pressure of growingcement demand and insufficient domestic production in the next few years, theMoroccan cement industry could, if unchecked, commit itself to the construc-tion of additional production capacity leading possibly in the mid-1980's toan oversupply if growth of cement demand would be less than expected. Toavoid this risk the Government has agreed to undertake comprehensive marketstudies and will consult with the Bank prior to new expansions of cementproduction capacity (para. 3.12). The risk on account of distribution liesin the transport by rail and marketing in distant regions of Morocco of about300,000 to 600,000 tpy of cement for an extended period of time. This risk isbeing reduced by the establishment of an appropriate distribution component inconsultation with the Bank and based on a detailed study, and the implementa-tion of special transport arrangements with ONCF under Government auspices.

VII. ECONOMIC JUSTIFICATION

A. Economic Rate of Return

7.01 The economic rate of return of the project is about 13.8% in realterms. This is higher than the 10% financial return, mainly because therevenue per ton assumed in the financial projections is declining gradually

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and on average is substantially below the opportunity cost of imported

cement used for the economic rate of return calculations; this cost is

estimated at US$47/ton for bagged cement, including port charges and the

high cost of cement transport in the Mediterranean basin averaging 20-30%

of fob export prices. The economic rate of return calculations eliminate

the existing subsidies on fuel (valued at US$75/ton) and electricity (valued

at a cost 50% above current tariffs), shadowprice labor and take into accountcost of tansport by rail, investment cost and operating of distributionfacilities required to market CIOR's output in market areas outside the

Oriental Region. Detailed assumptions for the calculations and the cost

benefit streams are given in Annex 7-1.

7.02 The sensitivity analysis, details of which are contained in

Annex 7-1, is summarized below:

Sensitivity Tests on Economic Rate of Return

Case Economic Rateof Return (%)

Base Case 13.8

Capital Cost Increase (5%) 13.2Plant Operating Cost Increase (10%) 12.7

Transport and Distribution Cost Increase (50%) 12.8

Revenue Increase (10%) 16.2Revenue Decrease (10%) 11.1

Production of Blast Furnace Cement after 1984 14.7

The above economic rate of return is adequate, but not higher for the follow-

ing reasons: (i) additional costs are incurred in transporting, for possibly

up to 12 years, a substantial part of CIOR's production originally allocated

to Algeria, to market areas more remotely located than the original Algerian

market just across the border; (ii) the low opportunity cost assumed for

imported cement, based on presently low export prices which do not yet

fully reflect recent worldwide increases of capital and energy costs and (iii)

the reduced output assumed for CIOR by taking into account only production of

Ordinary Portland cement; such production could be reasonably increasedby about 20% through the manufacture of cement with additives such as blast

furnace cement, with a less than proportional increase in total costs. The

rate of return of the project with the production of an additional 200,000

tpy by using slag from the nearby SONASID steel project for the manufacture

of blast furnace cement would be 14.3%. The rate of return of the projectas a joint venture supplying also Algeria was, on a comparable basis, about

16%.

B. Linkages and Employment

7.03 While the plant and distribution terminals create about 500 addi-

tional jobs in the long run, some 1,200 Moroccans will be employed for

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an average of 2 years during plant construction. The indirect employment

effect of cement supply is difficult to quantify but is considerable in the

construction industry and the tertiary sector. The ready availability of

cement will induce self-help housing construction which, in Morocco, is a

major factor for absorbing unemployment and improving living conditions. In

theory of course, cement supply from imports as well as domestic production

generate the same indirect employment effects. In practice, however, because

of import regulations, port handling deficiencies and foreign. exchange re-

strictions, imports do rarely meet actual demand and only domestic production

can ensure continued adequate availability of supply.

C. Foreign Exchange Effects

7.04 As a project aimed at import substitution, the foreign exchange

savings obtained by this project is one of the major economic justifications.

Details of the projected foreign exchange effects of the project are given

in Annex 7-2. The net foreign exchange savings of the project, in 1976 real

value terms, increase from about US$17 million in 1979 to US$;34 million

per year at full production. In addition, total foreign exchange savings

are expected to offset the plant's net foreign exchange cost after 5 years

of production.

D. Regional Development Impact

7.05 The CIOR plant is one of the major projects planned by the Govern-

ment to develop the Oriental Region. Separated by the Middle Atlas and the

Rif mountain area from the developed Atlantic regions where most economic

activities including industry are located, the Oriental Region has suffered

from its remote location and is one of the large less developed regions of

Morocco. Its development will, therefore, greatly benefit from additional

investment. It is estimated that about one-third of the Moroccans living

abroad originate from this region where the unemployment level is substan-

tially above the national average. The CIOR project will be the first cement

plant in the area, thus facilitating the implementation of Morocco's invest-

ment program and private construction activities. Compared to imports,

cement supply from CIOR offers transport savings of DH 20-40/'ton. Morocco's

development plans and major projects for the Oriental Region are presented in

Annex 7-3.

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VIII. AGREEMENTS' REACHED AND RECOMMENDATION

8.01 The following major assurances and/or agreements have beenobtained:

(a) From the Government of Morocco: (i) to undertake a cementdistribution study in consultation with the Bank (para 3.11),(ii) to consult with the Bank on cement market prospectsprior to any significant increase in cement productioncapacity (para 3.12), (iii) to cause ONCF to implement theproject's transport component, and provide to ONCF thenecessary funds promptly as needed (para 3.19), (iv) toundertake by December 31, 1977, in consultation with theBank, a cement pricing study (para 3.25) and establish andmaintain an economically sound pricing mechanism (para 3.24),(v) to make available when needed for timely project imple-mentation DH 256.5 million in Treasury Advances on termsand conditions satisfactory to the Bank (para 5.09),(vi) that ODI disposes of sufficient funds to meet itsobligations under para 5.07 (equity financing), para 5.10(working capital), para 5.12 (project completion), andpara 6.05 (financial covenants), and (vii) that financingfor CIOR's initial working capital will be forthcoming(para 5.10).

(b) From ODI Under a Shareholder Guarantee Agreement: (i) tomake available when needed the remaining DH 35 million inshare capital (para 5.07), (ii) to provide cost overrun andproject completion guarantee (para 5.12), (iii) not totransfer or sell a majority share in CIOR without priorapproval by the Bank (para 5.13), and (iv) to provide fundsif needed so that CIOR can maintain the stipulated financialratios (para 6.05).

(c) From CIOR: (i) to update the transport and distributionstudies with the assistance of consultants to be hired priorto April 1, 1977 on terms of references satisfactory to theBank (para 3.18), (ii) to furnish to the Bank the resultingstudy by July 1, 1977 and implement a distribution systempromptly thereafter in consultation with the Bank andGovernment (para 3.18), (iii) to sign a transport agreementwith ONCF by April. 30, 1978 (para 3.18), (iv) to construct andoperate the plant with due regards to ecological standards,and monitor pollution levels after production startup(para 4.07), (v) to continue making adequate and timelyarrangement for personnel recruitment and training (para 4.09),(vi) to propose technical assistance arrangement for plant

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operation by September 30, 1977 and sign a contractsatisfactory to the Bank promptly thereafter (para 4.11),(vii) to maintain certain financial and investment cove-nants (para 6.05), (viii) to employ prior to June 30, 1977

consultants satisfactory to the Bank to define and implementadequate accounting, cost control and financial planningsystems (para 6.07), and (ix) to have its accounts auditedby an independent auditing firm acceptable to the Bank

(para 6.07).

8.02 Further, it will be a condition of effectiveness of the Bank loanthat the Shareholder's Guarantee Agreement has been duly authorized orratified by all necessary corporate action.

8.03 Based on the above agreements and assurances, the project providesa sound basis for a Bank loan to CIOR of US$45 million equivalent for 14 yearsincluding 3 years of grace.

Industrial Projects DepartmentMarch 1977

AiNEIX 1

Page 1

MOROCCO - CIOR CEMENT PRODUCT

TECHNICAL TERMS AND PROCESS DESCRIPTION

A. TECHNICAL TERMS

The following is a list of the most common technical terms used inthe cement industry:

CEMENT A hydraulic binding material in the form of anamorphous powder consisting of tri- and bicalciumsilicates, tricalcium aluminates and tetracalciumalumino-ferrites. Cement is produced by heating amix of raw materials (calcerous, argillaceous andif required other silica, alumina or iron oxide-bearing materials) which transforms into cementclinker through incomplete fusion at a temperature ofabout 1450°C. Clinker is ground together with smallquantities of gypsum, which acts as a retarder,controlling the setting time of the resulting cement.

The most common cement types are:

Ordinary Portland Cement used in ordinary concretestructures.

Rapid Hardening Cement used in structures requiringearly strength which is achieved by quick setting ofcement.

Sulphate Resisting Cement used in structures exposedto sea water or sulfurous materials.

Low Heat Cement used in structures of massive concreteblocks (e.g., dams) to avoid overheating duringsetting.

Superfine Cement used for special structures requiringhigh strengths and for prestressed concrete.

Portland Blast Furnace Cement prepared, in part, fromblast furnace slag and used in ordinary cementstructures.

Oil Well Cement used in the construction of oil wells(for lining).

Mixed Cement used for masonry work (mortar) and smallconcrete structures.

ANNEX IPage 2

CLINKER Clinkerization is the process of burning to produceincomplete fusion in the material heated. Less thauone-third of the material heated becomes fluid. Theoutput of this process is a rocky material calledclinker. Clinker is ground with small additions ofgypsum to produce cement.

COMBUSTION AIR Used with fuel to fire the kiln.

Primary Air is the small amount of air 1-njected intothe kiln together with fuel under high pressure.

Secondary Air, which constitutes the major part ofcombustion air, is provided by fans and is heatedup to about 800°C in the cooler prior to flowing intothe kiln.

COOLER Vessel in which hot clinker leaving the kiln is cooled,The cooler is designed as heat exchanger heating thesecondary combustion air. Three major s,rpes of coolexiare in use:

Air Quenching Grate Cooler: a moving g;ate, slightlyinclined on which the clinker falls from the kiln tobe cooled by fans under the grate.

Planetary Cooler: this consists of 8 to 14 cylindricaltubes (incorporated into the shell of the kiln) intowhich falls the clinker.

Rotary Cooler: (Internal Cooler) cylinder of sameconstruction as the rotary kiln and located under thefiring hood. It rotates on tires.

CRUSHING Raw materials are normally quarried in t:hle fonn of

large lumps aid blocks and mus. be sJ. xa 0

reduction in size before being futher processed ilitoa slurry or raw meal which in turn is fed to the kiln.The reduction of raw materials from a maximum admis-sible size to an aggregate of a specifi~-d size isachieved in a crusher. Major known types are;

Roll crusher: particularly suited feor roist materialliable to cause clogging.

Jaw crusher: particularly suited fer ½- e sizelumps.

Impact crusher: such as hammer crusher and hammermill ideally suited for raw materials of eement manu-facture if these are not too moist or too abrasive.This type allows drying during the zrushing; process.

ANNEX 1Page 3

Impelle crusher: which overcomes impact resistanceof material.

Gyratory crusher: suitable for hard materials whichare not too moist, and therefore, liable to clogging.

DUST COLLECTION Dust pollution has been a serious environmentalproblem posed by cement plants as dust is generatedat nearly every stage of the production process.Furthermore, large quantities of emitted dust alsorepresent lost production. Appropriated filtershave been developed:

Bag filter: A series of chambers with bags of nylonor other material installed, which dedust the air-stream loaded with dust particles. A system ofvalves permits reversal of the air stream in a parti-cular chamber to clean the bag and collect theaccumulated dust. Only suitable if temperatures ofthe airstream and particles do not exceed 1000 to1500C.

Cyclone: It consists of an upper cylindrical portionand a lower funnel shaped portion. The airstreamenters the cyclonic chamber tangentially at theupper portion. Through centrifugal force, dust par-ticles strike the wall of the chamber and slide downto the discharge opening of the funnel. The cleanedairstream leaves the cyclone through a central outletpipe. Cyclone's efficiency can be enhanced byarranging several units in line (multicyclonebatteries).

Gravel filter: A filter consisting of a series ofchambers filled with gravel. The dust-laden air-stream flows through the filter pockets thereby un-loading the dust particles. Cleaning of the filteris by reversal of airstream and simultaneous stirringof the gravel bed. This filter is suitable fortemperatures above 500°C and, threfore, often usedfor waste gases of clinker cooler and kiln.

Electrostatic filter: Electrostatic dust precipitationmakes use of the forces generated in electricallycharged bodies while the dust laden gas passes betweentwo electrodes connected to high tension (30,000 to80,000 V). The positive electrode collects the dustparticles which have received a negative charge,thereby neutralizing them. Dust must be removed

ANNEX 1Page 4

from time to time from the electrode. Optimumoperation is achieved at temperatures of 900 to 180°Cand 15-30% moisture. Therefore, a spraying towerfor cooling the gas and moistening the particles isoften employed with the electrostatic filter.

GRINDING Raw Grinding: Reduction of raw material size tospecified fineness by means of a mill.

Wet Process: The hard materials (limestone) aresubjected to preliminary crushing and soft materials(clay) are stirred with water to form a slurry. Thenboth materials mixed in the correct proportions, areground to fine slurry.

Dry Process: Crushed raw materials are dried andground into fine raw meal powder.

Cement Grinding: The preparation of cement powderfrom clinker and gypsum by means of a mill. Thefineness of grinding (Blaine value) has a significantinfluence on the properties of the resulting cement.

Grindability of a material depends on its properties,such as structure, cleavability, brittleness andhardness.

HOMOGENIZATION The thorough and complete blending of various rawmaterials to prepare a homogenous mixture. This canbe achieved in storage silos in which the pre-homoge-nized mix is stirred and mixed by an air-blower (dryprocess). Wet process plants use slurry tanks withinstalled rotating arms to achieve homogenization.The tanks serve simultaneously as storage facilities.

KILN A vessel in which the raw meal is burnt to be chemi-cally transformed into clinker (clinkering) at temper-atures of around 1450°C. A Shaft kiln typically witha throughput of between 50 and 250 metric tons perday, formerly operated on a discontinuous basisusing the dry process. New developments, usingpelletization techniques, operate continuously. ARotary kiln, a large cylindrical steel tube inclinedfrom the horizontal by 1 to 3 degrees, slowly revolves,supported by tires and rollers. It is suitable forwet as well as dry processes and is typically used inmodern large-scale plants with throughputs of 1,500to 4,000 tpd.

ANNEX 1Page 5

MILL Raw Mill: Grinds raw materials. The types employedin modern cement plants require prior crushing or rawmaterials. The most common type is the tube mill, ahorizontal cylindrical steel shell, equipped withlining and grinding media (e.g., cast steel balls -Ball mill) and which rotates at between 14 and 20r.p.m. The free fall (tumbling) of the grinding mediaprovides for the impact by which the material isground. Suitable both for wet and dry processes.

Compound Tube Mills: (or combination mills, compart-ment mills) have two or more compartments, separatedby slotted diaphragms and filled with different typesof grinding media, to achieve successively finergrinding.

Closed Circuit Mill with centrifugal separator andbucket elevators. The material ground in this tubemill is conveyed in a steady flow by a bucket elevatorto a separator, within which oversize particles arerejected by centrifugal action and returned to themillfeed.

Air-swept Mill: Tube mill or ring mill, the outputof which is continuously assorted by an air separator.Oversize particles are returned to the millfeed.

Ring Mill: Grinding elements (balls or rollers) rollunder pressure on a circular path (the grinding ring).Variations of this type are spring pressure or spring-loaded mills, centrifugal ring ball mills, centrifu-gal suspended roller mills, edge mills.

Cement Mill: (or Clinker M4ill), a tube mill whichrefines the mix of clinker and gypsum to cement powder.Compound mills with centrifugal separator are commonlyin use.

Wash MIill: A concrete tank with installed rotatingarms to break up and stir a soft raw material (clay).The resulting slurry is screened to remove stonesor other impurities prior to grinding. It is usedin dry as well as wet process plants.

PREHEATING SYSTEM is a heat exchange system designed to recover thecaloric content of the kiln exhaust gases with whichto heat up the raw meal.

ANNEX 1Page 6

Grate Preheater: The preheating system of the semi-dry process, consisting of a traveling grate whichmoves raw material pellets through a drying and apreheating chamber.

Suspension Preheater: The preheating system of thedry process consisting of one to four stages ofsimple or twin cyclones on top of each other. Thelower cyclones are used as heat exchangers, the topcyclones as dust collectores.

PREHO140GENIZATION, Storage facility which is also used for prehomogeni-PLANT OR BLENDED zation or blending of raw material.STOCKPILE:

RAW MEAL A homogeneous powder consisting of a ground raw mix.It is the kiln feed in the dry process.

RAW SLURRY Kiln-feed for the wet process kiln.

B. PROCESS DESCRIPTION

1. The cement production process is based on two basic raw materials--limestone and clay. When these raw materials present some (leficiencies insilica, alumina or ferric oxide, these deficiencies are rectified by addingsecondary raw materials such as sand, bauxite or pyrites. These raw materialswith a maximum specified block size (blasting) are reduced to aggregatesof pre-specified maximum dimensions in the crushing department and stored;pre-homogenization is achieved through intermediate storage. After proportion-ing according to weight and volume, the raw materials are ground to a fineraw meal powder in the raw mill. The raw meal is homogenized and then trans-ported, via conveyors, to the kiln department. Within the kiln, heat inducesa clinkering process, in which an incomplete fusion of the raw meal takesplace. This clinker is then ground together with a small percentage of gypsumto produce cement, which is shipped either in bulk or in bags.

2. Three types of processes have been developed; the wet, dry andsemi-dry processes.

The Wet Process

3. The raw materials, being wet in the natural state, are mixed withwater to create a slurry, whose titration (quantity ratio) can be controlledeasily. By means of pumps and ducts the slurry is introduced into the kiln,where the clinkering takes place. Energy consumption of the process is high(between 1350 to 2200 kcal/kg of clinker), since more than a liter of watermust be vaporized within the kiln per kg of clinker.

ANNEX 1Page 7

4. The main advantage of the process lies in its simplicity, easy opera-tional control and maintenance. However, for raw materials with a naturalhumidity of below 10 to 15%, the dry or semi-dry process usually operates moreeconomically because of lower energy consumption, even though investment costsfor the wet process are normally lower than for the comparable dry processequipment. The recent increases in fuel prices have increased the upper limitof humidity for the dry process applicability to about 15%.

The Dry Process

5. This process leaves the raw material in its natural state of humidityup to the raw mill stage; within the rawmill the material is ground and simul-taneously dried to a specified limit. The dry raw meal powder is homogenizedmechanically or by means of blowers, then introduced at the top stage of apre-heating system. Working as a heat exchanger, the system preheats thematerial by recovering the caloric value of the kiln exhaust gases whose flowis counter to that of the material (Counter flow system). Thus, part of thecalcination takes place in the preheater, with the final clinkerization takingplace in the kiln. Within the cooler, the secondary air recovers heat fromthe clinker, thereby cooling it down.

6. The intricate thermic equilibrium stage in the raw mill - preheater- kiln - cooler section allows a total thermic consumption for the dry processplants of 750 to 950 kcal/kg of clinker. Nevertheless, the saving in fuelare, in part, outweighed by disadvantages such as a more complicated processflow, which is sometimes difficult to control and to maintain. Continuous andautomated sampling for control is necessary. Investment costs are usuallyhigher than for the wet process, despite the use of the short kiln (about halfthe length of the wet process kiln).

7. The industry has developed several variations of the dry process,using long or short kilns cyclonic preheaters of one to four stages withsimple or twin/type cyclones within the stages. The decision as to the typeof dry process to be selected is a function of: (i) the supplier (some of thevariations are patented); (ii) the chemical components of the raw materialsand fuel (particularly their level of harmful alkalies and chlorides);(iii) fuel economy; and (iv) initial investment costs and operating costs,particularly control and maintenance.

The Semi-Dry Process

8. In this process the raw material is pelletized in a balling drum bymeans of between 12 to 20% of water. The wet pellets with a diameter of about1.5 cm discharge from the drum directly into a hopper or the feed end of atravelling grate preheater. The grate conveys the pellets through a dryingzone of about 300°C, then through a preheating zone of about 87°C. Kiln exhaustgases flow partly via a bypass through the drying zone, partly directly throughthe preheating zone. After passing through the preheating chamber, the hotpellets are stripped from the travelling grate and cascade into the short kiln

ANNEX 1Page 8

where they are heated further to clinkerize at about 1450*C. The pelletizedclinker is then cooled over a grate cooler.

9. The thermic consumption of this process is about 850 kcal/kg ofclinker, thus comparable to the dry process. However, the process is moreexpensive both in inital investment and operating costs, as it contains manymoving parts. Its suitability is confined to raw materials which lend them-selves to pelletization. Its advantage lies in the stability of the process,the accuracy with which it can be adjusted and controlled, and the removalof harmful alkalies and chlorides from the raw material in process, which isachieved by collecting the dust form the bypass in a cyclone dust collector.The resulting cement has, therefore a lower alkali content than can beobtained with dry process equipment.

Industrial Projects DepartmentNovember 1976

AIINEX 2-1Page 1

MOROCCO - CIOR CEMENT PROJECT

CIMA - ORGANIZATION, FINANCIAL POSITION AND PRESENT LEGAL STATUS

A. BASIC AGREEMENTS

1. On July 26, 1972, a convention was signed between representativesof the Algerian and Moroccan Governments to create a joint Algerian-Moroccanventure to construct and operate a cement plant in Oudja region. This con-vention has, however, not been ratified by the Moroccan authorities. Theenterprise was to be the first joint industrial venture between the twocountries and is supposed to manifest the mutual spirit of cooperation andfraternity.

2. The Convention defines the framework of cooperation and stipulates,in particular:

(a) The Company - to be named CIMA (Cimenterie Maghrebine) - willconstruct and operate a 1 million tpy cement plant in theOudja region.

(b) Share capital will be acquired on a 50:50 basis by one orseveral Algerian State enterprises and the Moroccan Stateor private Moroccan interests.

(c) Both shareholders will take 50% of the output at ex-factorycost. The latter being defined as the sum of the rawmaterial, utilities, labor, material and supply costs plusadministrative expenses, financial charges, depreciation,provisions for replacement investments, duties and taxes,and other income.

(d) The Algerian shareholders pays to the Moroccan Treasury aroyalty of 7% of the ex-factory cost but not exceeding7DH/ton (In July 1975, this amount has been amended to12DH/ton).

(e) The Government of Morocco guarantees tax free exportationof the Algerian production share to Algeria.

(f) The company, CIMA, is not to be liquidated without con-sultation among the two governments.

BEPI-SN14C(A) Agreement

3. BEPI (Bureau d'Etude et de Participations Industrielles) and SRRIC(A)(Societe Nationale de Materiaux de Construction) have been designated as therespective Moroccan and Algerian shareholders. Details of BEPI (and itssuccessor ODI) are contained in Annex 2-4.

ANNEX 2-1Page 2

4. The Agreement between BEPI and SNMC(A) was signed by their Presidents/General Managers on Sept. 12, 1972. It reiterates the articles agreed uponin the Intergovernmental convention and stipulates in addition the followingmajor points.

(a) The initial share capital is fixed at DH 2 million equivalentto 12,000 shares of DH 100 each.

(b) An engineering consulting firm will carry out the followingstudies and submit them to CINA's Board of Directors: marketstudy, determination of plant location, geological study,geotechnical investigation of the plant site, process choice,raw material analysis, financing plan, tender documents,bidding, overall justification and profitability study onthe basis of the bidding results, project implementationschedules and planning, etc.

(c) On the basis of these studies an extraordinary meeting ofthe shareholders will be held to decide on the financingplan and the amount of the necessary capital increase.

(d) Each shareholder will take delivery of its productionshare at the factory gate.

CINA By-Laws

5. By-Laws for CGMA were signed by the two shareholders on July 26,1972 and adopted by a special meeting of CIMIA's General Assembly onNovember 28, 1972. The Company was registered as a "societe anonyme" underMoroccan law on December 11, 1972.

6. According to its by-laws CIMA is administered by a Board ofDirectors consisting of at least 6 members but not more than 12 membersof which 50% represent the Moroccan shareholders and 50% the Algerianshareholders. At present, CINA has 12 directors. They are appointed fora period of two years and their nomination is renewable. The Board ofDirectors elects from among its members a president and vice-president.CIMA's president in 1974-76 has been Mr. Benjelloun, the General Manager ofODI. All directors must be Moroccan or Algerian nationals.

7. The Board of Directors is supposed to meet as often as necessaryin the interest of the Company, but at least 5 times per year. All majordecisions have to be approved with two-third majority. In case no suchmajority is found, the statutes require an elaborate process of reconcilia-tion by first seeking the judgment of a "commission de conciliation" whichis not binding, and second -- to nominate a "Tribunal arbitral" under thesupervision of the International Chamber of Commerce in Geneva. Theresponsibilities of the Board of Directors are the approval of:

ANNEX 2-1Page 3

(a) the annual and long-term investment and operationalplans,

(b) the accounts, depreciation, provision and dividendallowances,

(c) the general conditions of contracts between CIMAand third parties,

(d) all loans for more than two years.

8. In addition, the Board of Directors appoints an "Executive Com-mittee" consisting of the President and Vice President, CIMA's generalmanager and deputy general manager. This committee decides the mostimportant management problems in case the involvement of the Board ofDirectors is not called for.

9. The by-laws also foresee the annual meeting of a GeneralAssembly within 6 months of the end of the Company's fiscal year. The mainresponsibilities of the General Assembly are:

(a) Approving of the financial statements,

(b) Determining the amount of dividends, depreciationspecial reserves and provisions to be allocatedeach year,

(c) Nominating new members of the Board of Directorsand the Commissaires aux Comptes.

10. Overall, CIMA's organizational framework as laid down in the by-lawstakes considerable precautions to involve both shareholders in all majormanagerial decisions. However, it may not lend itself to fast decision making.In case of controversies between the two shareholder groups lengthy litigationmay impede the proper operation of the Company.

B. ORGANIZATIONAL STRUCTURE

11. The following diagramme outlines the organizational structure ofCIMA.

ANNEX 2-1Page 4

BOARD OF DIRECTORS

President - Mr. Benjelloun (ODI)

Vice President - Mr. Belhadi (SNMC (A))

Algerian Directors Moroccan Directors

1. Mr. Moussi 1. Mr. Bijad2. Mr. Zekri 2. Mr. Bensaho

3. Mr. Boudjabi 3. Mr. Kabbaj4. Mr. Djakarta 4. Mr. Aboulfadi5. Mr. Keraman 5. Mr. Belkora

The Algerian Directors on CIMA's Board are SNMC representatives, whereasthe Moroccan representatives are delegates from ODI as well as the concernedministries.

Mr. Ennadifi, the Moroccan General Manager of CIMA and Mr. Tahari,the Algerian Deputy General Manager are members of CIMA's Executive Committee.Mr. Tahari has been recalled by SNMC(A) since early 1976.

C. FINANCIAL POSITION

12. As of December 30, 1975 CIMA owned DH 75 million in equity capital,short-term debt of DH 1.4 million, commitments signed totalling DH 350 millionand DH 40 million in cash. Table 1 and 2 of this Annex give CIMA's financialstatements for further details. To ensure that CIMA could meet its finan-cial obligations vis a vis its contractors and personnel, Mr. Benjelloun,CIMA's president, called shareholder meetings for December 1'3, 1975, andApril 17, 1976 to decide on a further capital increases. No decision couldbe taken at these shareholder meetings, because they were not attended byrepresentatives of SNMC(A). As a result, as of May 1976, CIMA's positionhad become extremely difficult showing DH 482 million in commitments forcontracts and DH 13 million in cash, but being unable to either increase itscapital or contracting long-term debts.

D. PRESENT LEGAL STATUS

13. Following the break-down of CIMA's management after the shareholdermeeting of April 7, 1976, the Moroccan directors in accordance with Moroccan laws,called on the President of the Court of First Instance of Rabat to: (i) nominatea temporary administrator, who would inter alia call an extraordinary share-holders meeting and (ii) take all necessary legal steps in case this meetingwould not convene. Accordingly Mr. Ben Moussa was nominated by the Court onApril 21, 1976 as temporary administrator empowered with the same power asthe Board of Directors. Mr. Ben Moussa called the extraordinary shareholdersmeeting on June 7, 1976 and the annual shareholders meeting on July 7, 1976,

A4NEX 2-1Page 5

to approve the financial statements for fiscal year 1975. Again, no decisionscould be taken because of insufficient shareholder attendance. The share-holders were unable to act because of the absence of the Algerian shareholders.Simultaneously, the temporary administrator had also established CIMA'saccounts as of May 30, 1976, which confirmed the company's impending bankruptcy.

14. On account of the breakdown of the Company's management, and theimpending bankrupcy, the temporary administrator proposed certain measuresand agreements between CIMA and a new company Cimenterie de l'Oriental(CIOR) created on June 28, 1976 by the Moroccan authorities to continue theproject (as detailed in Annex 2-2) while keeping CIMA in existence. The Courtwas informed by the temporary administrator prior to making any arrangementsbetween CIMA and CIOR. The agreements are set forth in a convention signed onNovember 7, 1976 between the two companies and which specifies that:

(i) CIOR substituting itself for CIMA takes over, with ODI'sguarantee, all commitments or contracts previously entered intoby CIMA; CIMA therefore terminates all these contracts.

(ii) CIMA puts at the disposal of CIOR all its assets includingstudies, works under construction or completed.

(iii) CIOR provides CIMA with a first bank guarantee as a counter-part for payments accrued on contracts not yet completed byAugust 31, 1976 and a second bank guarantee as a counterpartfor completed contracts. The sum of the two guarantees isequal to CIMA's share capital already paid in minus cashat hand, and is cashable upon dissolution of CINIA or uponCIMA's request.

The termination of all contracts by CIMA and the substitution by CIOR withODI's guarantee was accepted by all of CIMA's suppliers, contractors andconsultants, and the corresponding contractual legal steps completed byDecember 1976.

16. By preventing CIMA's bankrupcy these arrangements make it possiblefor both shareholders to recover their capital contribution. In the eventof CINA's liquidation which could occur on the demand of either shareholder,CINA's net worth, equal to its paid-in capital could be shared equallybetween both shareholders. Under the Moroccan legislation, the Algerianshareholder would be entitled to transfer into foreign exchange its shareof the proceeds of dissolution of the company. Conversely, by keeping CIMAin existence, the above measures have made it possible (i) for the Algerianshareholder to reenter the project, detailed terms and conditions of suchreentry being subject to negotiations, and (ii) conversely Algeria would beable to withdraw its participation in CIMA if it wished to do so.

ANNEX 2-1Page 6

17. The Bank obtained confirmation of the legality of the measures taken

by the temporary administrator and the Moroccan authorities through an

independent legal opinion from Mr. Guedira, lawyer at the Moroccan Courts.

Mr. Guedira confirmed that:

(i) all actions undertaken by CIMA's temporary administrator

conform with Moroccan law and do not exceed his powers.

(ii) the Moroccan legislation permits the full transfer of equity

contributions in foreign exchange for all registeredforeign investments (such as SNMC (A)'s share in CIMA).

(iii) the exchange control legislation, like other Moroccan

legislation cannot be changed retroactively.

(iv) the convention entered into by CGIA and CIOR is legally correct.

Industrial Projects DepartmentJanuary 977

ANNEX 2-1Page 7

MOROCCO - CIOR CEMENT PROJECT

TABLE 1

CIMA - INCOME STATEMENTS (1974 - 76)(000 DH)

/1 /I May 31,Year Ending Dec. 31 1974 1975 1976

Revenues 56 772 431

ExpensesPersonnel 899 1,253 590Taxes 1 21 34Materials & Supplies 119 227 149Transport 166 152 95Administrative Expenses 167 305 169Financial Charges 4 14 95Depreciation 47 48 -

Total Expenses 1,292 2,020 1,133

Net Income (Loss)Li (1,348) (1,248) (702)

/1 Audited results.

/2 To be capitalized as pre-production investments.

Industrial Projects DepartmentDecember 1976

ANNEX 2-1Page 8

MOROCCO - CIOR CEMENT PROJECT

TABLE 2

CIMA - BALANCE SHEETS (1974-76)(Million DH)

/1 /L May 31,

1974 1975- 1976

ASSETS

Current Assets- Cash/Banks 22.5 25.1 13.3

- Accounts Receivable - - 0.2

Sub Total 22.5 25.1 13.5

Fixed Assets- Net Fixed Assets 0.2 0.5 0.4

- Under Construction - 38.6 46.5

Sub Total 0.2 39.1 46.9

Other Assets 7.4 12.2 14.7

TOTAL ASSETS 30.1 76.4 75.1

LIABILITIES

Current Liabilities 0.1 1.4 0.1

Equity 30.0 75.0 75.0

TOTAL LIABILITIES 30.1 76.4 75.1

/1 Audited results.

Industrial Projects DepartmentJanuary 1977

ANNEX 2-2Page 1

MOROCCO - CIOR CEMENT PROJECT

CIOR - ORGANIZATION AND MANAGEMENT

A. BACKGROUND

1. The Cimenterie de l'Oriental (CIOR) was created in June 1976 by theOffice pour le Developpement Industriel (ODI) to continue implementation ofthe Oudja cement project, which the Cimenterie Maghrebine (CIMA) was unableto pursue on account of the breakdown of its management and its impendingbankrupcy as detailed in Annex 2-1. CIOR was registered as a "societe anonyme"under Moroccan law on June 16, 1976 and established in Rabat, at the head-quarters of ODI. The company's statutes were approved and signed by theshareholders founding meeting on June 18, 1976. The initial capital wasfixed at DH 90 million equivalent to 90,000 shares of DH 1,000 each. Allshares are presently held by ODI, but there are no restrictions as to thenationality or legal status of possible shareholders.

CIOR By-laws

2. As presently defined, CIOR's by-laws provide the Company with anadequate organizational flexibility. According to the statutes, CIOR isadministered by a Board of Directors consisting of at least three membersbut not more than 15, elected by the General Meeting of shareholders for arenewable term of six years. At present, CIOR has nine directors. Eachyear, the Board elects a President or an Executive Director among its members.CIOR's President to date has been Mr. Benjelloun, the General Manager of ODI.

3. The General Meeting of shareholders also nominates each year, oneor more "Commissaires aux Comptes". The "Commissaires" are entrusted toreport to the next shareholders General Meeting on the Company's situation,and financial statements in particular.

4. The Board of Directors meets as often as necessary in the interestof the Company, at the convocation of the President or of at least two Boardmembers. Decisions are taken at a simple majority of present or representedmembers. The Board is vested with wide powers, as a matter of fact, withall powers "not explicitly exercised" by the General Meeting of shareholders.The Board may inter alia sell or purchase any goods, sign contracts and con-tract loans. The Board delegates to its President and one or more Directorswhatever power it deems advisable.

5. The by-laws also foresee the convening of the General Meeting ofshareholders at least once a year, within six months after the end of theCompany's fiscal year. The General meeting can also be called by the Boardor in case of emergency by the "Commissaires". Further, a shareholders

ANNEX 2-2Page 2

meeting has to be called by the Board when requested by shareholders re-presenting at least 25% of shares. Decisions are taken at a simple majorityof votes, assuming at least 25% of the votes are represented and whereby oneshare qualifies for one vote.

6. The General Meeting, generally determines for all major issuesthe course of the Company's activity. The main responsibilities of thegeneral meeting of shareholders are:

(a) Approving the financial statements, as presented by theBoard and after a report from the Commissaires aux Comptes.

(b) Determining the amount of dividends, depreciation, specialreserves and provisions to be allocated each year.

(c) Nominating the members of the Board of Directors and theCommissaires aux Comptes.

A Special General Meeting can also be convened and may, at a two-thirdsmajority decide to modify the Company's by-laws.

B. ORGANIZATIONAL STRUCTURE

Present Management Organization

6. The following diagram outlines the present organizational structureof CIOR.

BOARD OF DIRECTORS

President - Mr. Benjelloun - ODI

Directors

Mr. Benabderrazik - ODI

Mr. Rami Yahiaoui - ODIMr. Tahiri A. - ODIMr. Bijaad - Planning SecretaryMr. Belkoura - Secretary of Economic AffairsMr. Tahiri M. Y. - Ministry of IndustryMr. Kabbaj - Ministry of Public WorksMr. Aboulfadl - Ministry of Finance

ANNEX 2-2Page 3

CIOR - General ManagerMr. Ennadifi

Plant Manager Financial Director Technical AdvisorMr. Kerrou Mr. E;l Ayoubi Mr. Ramzy

All persons above are Moroccan nationals except the technical advisor whois Egyptian.

7. At present, day to day operations in CIOR are managed by Mr.Ennadifi, a geologist by background, assisted by the financial Director Mr. ElAyoubi and the technical advisor, Mr. Ramzy, a mechanical engineer who formany years managed cement operations in Egypt and other Mediterranean coun-tries. The Plant Manager, Mr. Kerrou, is a mining engineer who has beentrained in cement production for about one year by APCM in England. Beforeproduction start-up his major role will be construction supervision, recruit-ment and follow-up on project implementation.

8. The remaining personnel of CIOR must be considered support staff.At present, the managerial functions and decision-making process within CIORcan be described shortly as follows: The General Manager, Mr. Ennadifi,assisted by Messrs El Ayoubi and Ramzy, as well as the Consultant, APCM, pre-pare studies, contracts and other proposals for the consideration of theBoard of Directors. The General Manager and the technical advisor also handle,among other things, recruitment of personnel, with the help of an experiencedpersonnel officer Mr. Azzaoui and the local consultants Maghreb Consult.Supervision of plant construction is carried out by the Plant Manager inOudja with the assistance of the consulting engineer, APCM.

Future Organizational Structure

9. Including the General Manager, all staff will eventually live in theOriental Region. All plant personnel will live in El Aioun, a small townshipnearby the plant. The general management, and the staff of the financial andcommercial departments will live in Oujda where the company headquarterswill be located. The commercia:L department will also handle the distributionterminals located outside the Oriental Region. Housing will be provided forall staff in El Aioun and Oujda as detailed in Annex 4-5.

10. An organization chart of the Company is attached in Annex 2-3. Therecruitment and training for qualified labor and staff, and the technicalassistance are discussed in Annex 4-6.

ANNEX 2-2Page 4

11. CIOR agreed to undertake additional prepatory work to strengthen the

accounting and distribution function. To this effect, CIOR will hire experi-enced consultants to set up and initially provide assistance in operating anadequate system of general and cost accounting, cost control and budgeting,and financial planning (para. 6.07 main text). Further, the Company ispresently recruiting and has undertaken to hire experienced consultants tofinalize during 1977 previous distribution studies before implementing its newdistribution facilities as detailed in Annex 3-3.

Industrial Projects DepartmentJanuary 1977

MOROCCO-CIOR CEMrNT PROJECTCIOR ORGANIZATION CHART

D,CrEn, I9TI

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ANNEX 2-4Page 1

MOROCCO - CIOR CEMENT PROJECT

ODI - ORGANIZATION, PROGRAM AND FINANCIAL POSITION

A. BEPI - ODI: BACKGROUND

1. ODI (Office pour le Developpement Industriel) is the successor ofBEPI (Bureau d'Etudes et de Participations Industrielles). BEPI was foundedon December 31, 1957 as a Government owned agency to promote industrial devel-opment. The Bureau promoted active industrial investments during the 1958-64period. It did, however, not succeed in stimulating substantial Moroccisationof industry and its activities slowed down during the 1964-1970/71 period.

2. On June 6, 1973, BEPI was transformed into ODI. This move wasdesigned to strengthen the Government's effort of rapid industrializationby creating a new, dynamic agency for industrial promotion. The major tasksof ODI are:

(a) To undertake pre-investment and industrial sector studiesin order to identify new projects and industrial develop-ment potential in Morocco.

(b) To acquire equity participation in newly established enter-prises. ODI is prepared to sell its participation subse-quently to interested Moroccan enterprise or individual.

(c) To contribute to regional development by promoting indus-trial units with participation of local co-operatives,enterprises or farmers.

B. ORGANIZATIONAL STRUCTURE

3. ODI operates under the supervision of the Ministry of Industry;it is administered by a Board of Directors and managed by a General Manager.The Board of Directors consist of 13 directors all of whom are ex-officiomembers. They include the Prime Minister, the ministers of Industry, Fi-nance, Agriculture, Public Works, Planning, Labor, Interior, the EconomicAdvisor of the Prime Minister, and the Presidents of SNI, 1/ CDG, 2/ andBMCE. 3/

1/ SNI - Societe Nationale d'Investissements.

2/ CDG - Caisse de Depot et de Gestion.

3/ BMCE - Banque Marocaine pour le Commerce Exterieur.

ANNEX 2-4Page 2

4. The Board of Directors decides about all equity participations,cessions and creations of new industrial enterprises. However, a "Comitede Direction" consisting of the Ministers of Industry, Planning, Agricul-ture, Finance and ODI's General Manager screens proposals, before they aresubmitted to the Board. Due to the representation of all concerned highranking Government officials on ODI's Board good coordination and generalconsensus can be achieved before project implementation.

5. In June 1973, Mr. Benjelloun was appointed General Manager of ODI.He initiated a reorganization and recruited additional staff which at pres-ent include about 50 people. The following organization has been set up:

GENERAL MANAGERMr. Benjelloun

CHEMICAL | lINDUSTRY MANAGEMENT

FINANCE OF ADMINISTRATIONMECHANICAL SUBSIDIARIES

ELECTROMECH.INDUSTRY

ELECTRONICS

AGRO-INDUSTRY

Under the new organizational structure, the Departments responsible for pre-investment and sector studies in the 5 industrial sectors report directly tothe General Manager. They also provide technical expertise to ODI's subsid-iaries if so requested.

6. The Department for "Management of Subsidiaries" has the responsi-bility to follow-up and supervise the companies in which ODI holds equityparticipation. Few of the ODI promoted enterprises have yet started produc-tion. The role of ODI, therefore, has been mainly to review feasibilityreports, approve bids, negotiate contracts, follow-up on capital cost in-creases and initiate equity increases. In the future, ODI plans to super-vise closely the financial and technical performance of its subsidiaries,although ways and means of achieving such supervision have still to be de-termined.

ANNEX 2-4Page 3

C. INVESTMENT PROGRAM (1973-77)

Studies

7. During the fiscal year 1976, ODI has continued or initiated morethan ten industrial sector studies. These studies attempt to investigateMorocco's production and export potential in the field of synthetics, wool,silk, printing and paper, aluminum profiles, copper casting, agriculturalimplements, rolling mills and light metals. In addition, a study in co-operation with UNIDO analyses the posssible creation of an industrial zoneat Nouaceur, and a study on the industrial development of the Oriental re-gion will be started with the assistance of UNDP. These studies are under-taken by ODI staff and/or in cooperation with outside consultants or multi-national organizations. ODI disposes of an annual treasury advance of DH 3million for its pre-investment studies. In case such a study generates aproject and enterprises are created these costs are imputed to the project;otherwise it is transformed in a Government grant to ODT.

Investment Projects

8. During 1976, ODI has been considering 46 investment projects.Table 1, page 5 illustrates the required estimated capital cost and ODI'sfinancial participation. 18 of these actual or potential investments arein the agro-industrial sector, 16 in the electro-mechanical industry, 6 inthe textile and leather sector and 8 in the chemical and cement sector. Theestimated investment cost per project range from US$1 million - 200 million.Generally, ODI holds minority shareholdings of 10-20% or is acquiring a 50-100% participation in these newly created enterprises. In the agro-indus-trial sector, ODI has widely encouraged the participation of local farmerswho supply the new canneries, dairies, wheat or livestock processing plants.

9. However, few of the ODI promoted enterprises have yet started pro-duction. The investment projects are in various stages of project prepara-tion or execution. Numerous sector and pre-feasibility studies are underway, more than 20 companies have been created and a series of licensing ortechnical assistance arrangements have been signed with foreign partners.For the majority of ODI's projects, engineering consultants have been se-lected and are currently preparing feasibility studies or procurement docu-ments.

10. The total capital cost requirements of 31 of ODI promoted invest-ment projects has been estimated at DH 2,434 million (US$585 million). ODI'sparticipation will amount to about DH 614 million (US$147 million) of whichat least DH 211 million (US$51 million) has been paid. Some cost estimatesappear to be underestimated and ODI might have to provide about twice itsnow programmed capital participation to implement the identified projects.

ANNEX 2-4Page 4

D. FINANCIAL POSITION

11. ODI's statutes stipulate that its funds will be provided by (i)Government's subsidies, (ii) sales of participations, (iii) loans from pri-vate or public organizations, (iv) publicly placed bond issues after approvalby the Finance Minister, (v) profit from operations and (vi) non-Governmentsubsidies. In practice, ODI receives Treasury advances and subsidies for(i) its operational expenses, (ii) financing studies included in the annualprogram (see Table 1), and (iii) capital subscriptions in its subsidiaries.The annual operating, study and investment budget is approved by the Boardof Directors. The funds are made available to ODI by trimestrial alloca-tions.

12. The historical income statement and balance sheets are attached astables 2 and 3 and illustrate the financial structure. In 1971, when BEPIwas transformed into ODI, the Government disposed of all BEPI participationsand obligations. Therefore, the 1972-74 financial statements include onlyprojects initiated and executed during this time period. Since few of thesubsidiaries have started production, ODI's creditworthiness rests entirelyon the Government's commitment to continuing funding.

Industrial Projects DepartmentDecember 1976

ANNEX 2-4Page 5

MOROCCO - CIOR CEMENT PROJECT

TABLE 1

ODI - PROGRAM OF PARTICIPATIONS AND PROJECT PREPARATION

ODI Paid-inODI Total Capital

Capital Cost Equity Participation Dec. 31, 1976

(DH millionj (DH million) % (DH million) (DH million)

A. Agro-Industry

1. SICOR - cannery Oriental Region 36.00 13.0 39 5.02 1.532. SODERS - yeast processing 20.80 19.5 26 5.08 2.083. Fez dairy 5.0 2.0 10 0.20 0.204. Doukkala dairy 20.00 8.0 18 1.40 1.405. COMAGIS - Souss cannery 9.3 1.0 15 0.60 0.156. SAPROTA - Livestock fodder 8.4 4.0 46 1.84 1.607. SOTRAMEG - Yeast processing and alcohol 14.5 5.8 30 1.74 1.308. SNDE - Livestock development p.m. 3.0 25 0.74 0.749. SONAFAP - Fishmeal 4.2 1.5 100 1.50 1.0010. Habib Souss 5.0 1.6 20 0.32 0.3211. SMPA - Alfalfa pulp p.m. p.m. - 0.39 0.3912. EUCAPAN - Fiber panels 120.0 48.0 25 12.0 0.2513. Dehydrated fruits and vegetables p.m. - - - -14. Brewery p.M. - -

Subtotal 243.2 110.4 28 30.83 10.90

B. Electro-Mechanical Industry

15. SIMEF - Fez electrical and Mechanical 45.0 10.0 100 10.0 7.0016. MODULEC - Condensators 12.0 4.0 40 1.6 0.0417. SOMAFOME - truck components 184.1 64.9 63 40.9 9.4518. SONASID - integrated steel p.m. 494.0 10 49.4 3.0019. SOMAFON - car components p.m. 1.0 15 0.15 0.1520. Tinplate p. - - -m.

Subtotal 241.1 573.9 18 102.15 13.64

C. Textile and Leather Industry

21. SICOME - Meknes ready-made clothing 8.4 3.0 16 0.48 0.4822. SICOFES - Fez ready-made clothing 8.4 4.0 21 0.86 0.6423. ICOZ - Oued Zem cotton 193.0 65.2 89 58.06 58.0624. SETLAB - spinning 40.0 8.0 50 4.00

Subtotal 249.8 80.20 79 63.40 60.18

D. Chemical and Para Chemical Industry

25. SNEP - PVC manufacture 502.8 150.0 57 85.50 85.5026. CIOR - Cement 820.0 328.0 100 328.00 137.5027. Nitric Acid 160.0 - - 1.10 1.1028. Polyethylene p.m..- -

29. Sodium Carbonate p.m. - -

Subtotal 1,482.8 478.0 87 414.60 224.10

TOTAL 2.217.0 41242.5 49 610.98 312.89

P.M. - Pour memoire (projects inscribed, but not yet clearly defined or their cost adequately estimated)

Industrial Projects DepartmentJanuary 1977

ANNEX 2-4

Page 6

MOROCCO - CIOR CEMENT PROJECT

TABLE 2

BEPI - ODI: HISTORICAL INCOME STATEMENTS (1971-75)-(DH 000)

Year Ending Dec. 31 1971 1972 1973 1974 1975-/

A. REVENUES

Subsidy for Operation 1,759 1,799 1,799 3,208 n.a.Financial Charges 2 29 6 41 n.a.Other Income 346 294 735 117 n.a.

TOTAL REVENUE 2,106 2,122 2,540 3,366 4,351

B. EXPENSES

Personnel Expenses 1,062 1,242 1,509 2,336 3,016Taxes & Duties 4 3 4 9)Utilities 101 84 110 281 )Transport - Travel 84 96 91 168 )Administrative Expenses 214 167 220 312 ) 1,355Financial Charges 1 1 3 1 )Depreciation 259 218 223 212 )Other Expenses 381 82 39 181 )

TOTAL EXPENSES 2,106 1,893 2,199 3,500 4,351

C. PROFIT (LOSS) - 229 341 ( 134) -

1/ BEPI results for 1971 and 1972, ODI data thereafter.

2/ Starting 1975 ODI prepares annual "budgetde fonctionnement" instead ofIncome Statements.

Industrial Projects DepartmentJanuary 1977

ANNEX 2-4Page 7

MOROCCO - CIOR CEMENT PROJECr

TABLE 3

BEPI - ODI: HISTORICAL BALANCE SHEETS (1971-74)-(DH million)

2/Year Ending Dec. 31 1971 1972 1973 1974 1975

ASSETS

A. Current Assets

Cash & Banks 0.72 1.30 0.98 51.24 n.a.Receivables 15.54 0.71 0.26 0.20 n.a.

Sub Total 16.26 2.02 1.24 51.44 n.a.

B. Fixed Assets

Gross Fixed Assets 2.48 2.53 2.57 2.69 n.a.Less Depreciation 1.40 1.50 1.54 1.63 n.a.

Net Fixed Assets 1.08 1.04 1.03 1.06 n.a.

C. Participations

Participation 43.39 - - - -- CIMA/CIOR - 1.00 3.00 15.00 37.50- SNEP - - 0.45 1.46 65.55- Others - - 2.00 11.35 27.65

Sub Total 43.84 1.45 5.45 27.81 131.65

D. Other Assets 10.54 2.67 2.26 2.74 2.74

TOTAL ASSETS 71.27 6.62 10.97 84.08 n.a.

LIABILITIES

A. Current Liabilities

Payables 0.47 0.13 0.23 0.63 n.a.Short-Term Debts 2.26 0.07 0.02 - n.a.

Sub Total 2.73 0.20 0.25 0.63 n.a.

B. Long-Term Debt 55.18 - _ - -

C. Capital

Profit (Loss) - 0.23 0.57 0.44 0.44Subsidies- BEPI 0.16 1.10 0.42 0.42 0.42- for Operation 5.73 - - - -- for Studies 3.79 3.00 3.00 3.00 3.11- for Participations 2.69 1.00 5.45 78.11 180.29

Sub Total 12.37 5.11 8.86 81.53 183.82Provision for Loss &Damages 0.99 1.08 1.28 1.35 n.a.

TOTAL LIABILITIES 71.27 6.62 10.97 84.08 n.a.

1/ BEPI results for 1971 and 1972, ODI results thereafter.

2/ As of 1975, ODI prepares annual "Budget d'Equipment" instead of Balance Sheets.

n.a. - not available.

Industrial Projects DepartmentDecember 1976

ANNEX 3-1Page 1

MOROCCO - CIMA CEMENT PROJECT

THE MARKET FOR CEMENT IN MOROCCO

A. THE SUPPLY OF CEMENT IN MOROCCO

1. Several studies of the cement market in Morocco and its probablefuture developments have been undertaken. Between the various documents -differing in scope, methods and details - many cross references exist. Thisanalysis makes use of and comments on the following reports:

- World Cement Market in Figures (Cembureau) October 1973/74

- Le ciment au Maroc (Ciments Lafarge) February 1974

- Cimenterie du Gharb: Etude de la demandeglobale du ciment au Maroc (Promoconsult) April 1974

- CIMA - Etude de marche (Bureau d'Etude

Kadiri) May 1974

- ASMAR: Etude de marche (Societe Nationaled'Investissement) October 1974

- Rapport de project Cimenterie d'Oujda (BlueCircle Group/APCM) January 1975

- Etude de commercialisation de la productionde la CIMA (Office pour le DeveloppementIndustriel/ODI) February 1975

- Elements pour l'etablissement d'un plancimentier horizon 1975-1985 (Ministry ofIndustry) May 1975

- Comparaison de l'offre et de la demandeCiment 1976 - 1985 (Ministry of Industry) October 1976

Development of the Cement Industry

2. In Morocco, the cement industry started in 1918 with the operationof a plant on the outskirts of Casablanca. Initially this plant belonged tothe "Societe des Chaux, Ciments et Materiaux de Construction Le Palmier", butwas bought in 1930 by the "Societe des Chaux et Ciments du Maroc" a subsidiaryof the French Group Ciments Lafarge. The plant uses the wet process and till1938 supplied about 70% of domestic demand in Morocco with an output varyingbetween 200 and 300,000 tpy.

ANNEX 3-1Page 2

3. After 1945, cement demand increased steadily. While imports had tobe increased, domestic production was stepped up in the early fifties. In1953, the French cement manufacturer "Societe des Ciments Francais" startedin Agadir operation of a 50,000 tpy plant using the semi-dry process. Alsoin 1953, Lafarge entered production with another wet process plant nearMeknes with a capacity of 150,000 tpy. The Casablanca plant has graduallybeen expanded. A fourth kiln was installed in 1955 bringing the capacity toabout 500,000 tpy.

4. In the northern territory under Spanish Protectorate, the Tangierplant, "Cementos Tangier" was created in 1950 by a Spanish group. TheTangier plant, with a capacity of 60,000 tpy using the wet process, enteredoperation in 1953. The primary objective of this plant was to export toSouthern Spain. Following the union of Tangier with Morocco and the inten-sive development of new cement production facilities in Spain, the Tangierplant lost its export market and had difficulties in focusing on the Moroccanmarket. The "Cementos Marroquies" of Tetouan established by Spanish sponsorsentered production in 1954 using the dry process. With a 100,000 tpy capac-ity, Tetouan was primarily supposed to supply the Spanish protectorate inMorocco and export to Spain. The Tetouan plant also experienced marketingproblems after the independence and suffered from competition by the Tangiercement plant.

5. At the independence in 1956, the Moroccan cement production capacityamounted to 890,000 tpy generated by the five plants. Starting shortly beforeindependence the production dropped substantially with demand according tothe usual circumstances of decolonization. Only in 1960 did the productionreach the high level of output experienced before independence. Under thefirst Development Plan 1961-1965 demand was forecast to increase to about900,000 tons in 1965 which required a capacity of 1,100,000 tons at 80%capacity utilization. Existing facilities, mainly the Casablanca plant weretherefore expanded to bring total capacity to about 1,100,000 tons by the endof 1964. The capacity then increased very little until 1967 while capacityutilization and production increased at a modest rate with domestic consump-tion. After 1967, domestic cement consumption increased substantially (seeparas below) leading to a shortage of cement by 1970. The cement producers,therefore, increased capacity utilization and the ]4eknes plant added a secondkiln bringing its capacity to 400,000 tpy (500,000 ultimately). In 1969, theindustry employed 1,100 people of whom 17% were expatriates.

Recent Development and Domestic Production

6. Until 1971 all cement plants in Morocco were controlled by foreigngroups, whereby, Lafarge controlled the largest part of the market, produc-ing more than 70% of the domestic production. Beginning 1971, the Govern-ment's policy of "Moroccanization" of industrial enterprises was applied tothe cement industry. During a further expansion of the Casablanca plant,this enterprise was renamed "Lafarge-Maroc" and the Moroccan banks SNI, 1/

1/ SNI - Societe Nationale d'Investissement.

ANNEX 3-1

Page 3

BNDE, 1/ and CDG 2/ acquired together a 50% equity participation. Similarly,SNI and private M4oroccan interests bought respectively 40% and 10% equity inLafarge's Meknes plant, CADEM. The Agadir plant has now Moroccan majorityshareholders, whereas the Tangier plant has been bought by Moroccan interestand 50% of equity in the Tetouan plant has been acquired by Moroccans.

7. Further expansion of existing plants occured in 1973/74 when (i)the Tetouan and Agadir plants put in operation new kilns thus reaching annualcapacities of 150,000 and 270,000 tons, respectively, and (ii) a fifth kilnentered operation at the Lafarge-Maroc plant bringing the plant's capacity toabout 1,050,000 tpy.

8. The five plants now aggregate some 14 modern kilns. The Lafarge-Maroc, CADEM and the Tangier plants use the wet process; the Tetouan andAgadir works operate on the semi-dry process. In the past, Lafarge-Maroc andCADEM have used simultaneously fuel and coal, but now operate exclusivelyon fuel oil like the other plants. Clinker production and cement grindingfacilities in the various plants have not always been balanced: for sometime the Casablanca plant supplied clinker to the Meknes plant for grindingand bagging; the Agadir plant has produced some extra clinker for directexport.

9. The following table summarizes the recent cement productioncapacities and actual prodution in Morocco.

Domestic Cement Production and Capacities(000 tpy)

Nominal Actual Nominal ActualCapacity Production Capacity Production

Plant (1970) 1970 1971 (1974) 1973 1974

LAFARGE-1AROC 730 720 731 1,050 761 889(Casablanca)

CADEM (Meknes) 500 300 444 550 516 587

AGADIR 150 121 149 270 165 240

TETOUAN 100 82 95 150 120 132

TANGIER 60 61 61 65 62 67

Total 1,540 1,404 1,481 2,085 1,624 1,915

1/ BNDE - Banque Nationale de Developpement Economique.2/ CDG - Caisse de Depot et de Gestion.

ANNEX 3-1Page 4

New cement installations (including extensions) do produce their full nom-inal output only after a few years of operation as it generally takes timeto solve startup problems and complete final adjustment of the equipment.The actual production here above compared to the nominal capacities (whichinclude substantial proportion of newly installed equipment) representtherefore very high utilization of capacity, virtually full utilizationof the possible capacity.

Types of Cement MIanufactured

10. Until 1975 the plants produced essentially two types of portlandceL-ent: the 250/315 quality and the 20/25 quality. The 250/315 is a goodquality cement that can be used for reinforced concrete; it is producedby grinding up to 5% gypsum with the clinker. The 20/25 cement quality isproduced from clinker plus 5% of gypsum and about 25% limestone. Thesesubstantial additives result in a cement of poor quality which is used formasonry works and light construction. In the last years the share of the lowquality cement in total domestic production increased to about 35% despitethe clear consumer preference for the 250/315 quality cement to respond tothe pressure of demand, domestic cement producers have increased their totaloutput without expanding kiln capacity but by adding more inert material andproducing more low quality cement. To ensure sales of the poor 20/25 quality,producers had to establish quotas for each delivery to their agents. As aresult the black market for cement developed mainly for 250/315 cement.

11. In 1975, the industry started production of pozzolanic cement whichcontains in addition to clinker and gypsum, up to 20% of active pozzolana.The qualities produced are the CPAZ 400 and CPAZ 325. These qualities ofcement offer strength characteristics equal or higher to those of the ordinaryCPA 250/315 and are chemically resistant to aggressive waters. At the sametime, the Casablanca and Agadir plants now sell also other qualities ofmasonry cement which are respectively the CM 160/250 and CM 100/160. As aresult of this introduction of new qualities of cement, the average coeffi-cient of cement/clinker for the whole industry is now about 1.2. This highproportion of additives indicates that the utilization of available clinkerhas been stretched to the reasonable upper limit.

12. Several years ago, CADFIE produced small quantities of sulfateresistant cement, a special cement quality. The production was subsequentlyabandoned as uneconomical, so that no special cements are now produced inMorocco.

Import of Cement

13. The supply of cement in Morocco has been supplemented by imports ofvarying degrees over the past decade. Until 1970 imports of cements amountedto small quantities and consisted essentially of special types of cement,mainly white cement. From 1971 the demand for ordinary portland cement hasexceeded domestic production and substantial quantities had to be imported.Simultaneously the exports (proceeding previously at reduced levels) were

M4NEX 3-1Page 5

stopped. The evolution of imports and exports is given in the followingtable.

Nlet Imports (Exports) of Cement (1964-74)(000 tons)

Net ImportYear Import Export (Export)

1964 5.6 28.7 (23.1)1965 4.7 40.7 (36.0)1966 5.1 24.2 (19.1)1967 6.3 16.6 (10.3)1968 10.7 9.5 1.21969 9.2 11.5 (2.3)1970 10.6 12.8 (1.8)1971 101.3 - 101.31972 71.0 - 71.01973 39.6 - 39.61974 - 5 (5)1975 207.0 - 207.01976 740.0 - 740.0

Source: 1964-73 Lafarge Sector Study, 1974-1975 Ministry of Industry1976 Estimate based on ten months data extrapolated,Ministry of Industry

Following a substantial and long-awaited increase in domestic production withthe commissioning of new equipment in several plants by 1972/74, importswere stopped temporarily in 1974. In 1975, however, shortages did reappearas expected and imports were resumed. In 1976 demand has substantiallyoutstripped domestic production, and the quantities of cement already importedplus those arranged for end of the year were expected to total about 750,000tons.

14. Cement is imported as a good type "B", "Products under importauthorization" of the import clasification implying restricted importssubject to licenses granted by the state export trade company (OCE). Theselicenses are granted according to the instructions of the Ministry of Indus-try after tentative estimation of the supply/demand balance for the comingyear in consultation with the cement producers. This rather long procedure,the high prices quoted by the foreign suppliers compared to limited amountsof foreign exchange available, the difficulty of estimating demand and toooptimistic assumptions of the startup of additional domestic productioncapacity, have often been factors which eventually restricted imports below

1/ OCE: Office de Commercialisation et d'Exportation.

ANNEX 3-1

Page 6

levels required to fully satisfy the demand. Until 1975 all imports and thedistributions were carried out by the Moroccan cement producers themselves.Starting in 1976, imports are now centralized and handled by SORESM1A 1/,a new public sector corporation especially created for this purpose. The costof imported cement has steadily increased from 90-100 DR/ton in 1971/72 toabout 220 DH/ton CIF of bagged cement in 1975. The cost increase was espe-cially sharp in 1973/74 after the energy price increase. The cost of theimports has been and still is higher than the ex-factory price of Moroccanproduced cement and requires the subsidies from the "Caisse de compensation"(applying to a variety of goods in Mlorocco) to bring them in line with thedomestic prices. By the middle of 1976, the landed cost at the port ofCasablanca of these imports has reached 210 DH/ton excluding duties and taxes,as detailed in Annex 3-2, para. 22.

Projected Cement Supply.

15. By the end of 1975 Morocco was faced with a domestic productioncapacity of which 75% were old facilities in plants established twenty ormore years ago and 25% recent expansions of these plants. About 75% of thetotal existing capacity was using the wet process which is more energy con-suming than the dry process. The maximum kiln size was 1,000 ton per day(TPD), and the average size for the whole industry was about 400 TPD, whileeconomical kiln sizes nowadays are in the 1,500-3,000 TPD range. The existingfacilities have been or are in the process of being fully utilized by succes-sive streamlining of production lines and technical adjustment. Cement supplyis overstretched by a massive utilization of inert additives causing produc-tion of large quantities of low quality cement. Cement demand has substan-tially developed in regions located beyond the generally accepted 200 km limitradius around existing plants. The construction of new plants differentlocations thereby become critical.

16. The following table present the production projections for theexisting and new cement plants in Morocco. The projections indicate anincrease of cement production from about 2.0 million tons in 1975 to about4.9 million tons in 1982 and 5.8 million tons in 1985.

1/ SORESMA: Societe pour la Promotion des Echanges Commerciaux.

ANNEX 3-1Page 7

PROJECTED DOMESTIC CEMENT PRODUCTION (1975-85)(000 tpy)

PLANT 1975 11 1976 1978 1980 1982 1985

1. Existing Plants

Casablanca 904 900 900 900 900 900Meknes 609 600 600 600 600 600Agadir 289 300 366 390 800 800Tetouan 152 152 203 240 240 240Tangier 68 68 110 225 225 225ASMIAR - 140 425 450 450 450

Subtotal 2,022 2,160 2,604 2,795 3,215 3,215

2. New Plants

CItIA - - 195 938 1,173 1,173

ASMENT - - - 480 540 540SNGIC - - - - 250 900

Subtotal - - 195 1,418 1,963 2,613

TOTAL 2,022 2,160 2,799 4,213 5,178 5,838

/1 Actual production

Source: Ministry of Industry

The table above is based on: (i) for existing production facilities, reason-able production levels that carL be maintained over the long run, based ontheir past operating record; and (ii) for new plants, production at 50%, 80%and 90% of rated capacity respectively for the first, second, third and sub-sequent years of operation. Projected capacity till 1980 includes installa-tions under construction or firmly planned. Projections beyond 1980 arebased on the most likely prospects of implementation of additional facilitiesfor which studies are being prepared but no firm decisions have yet beentaken. Actual implementation of these facilities will depend on the outcomeof geological investigation for these projects, the success in puttingtogether the necessary financing, and mostly the developments of cementdemand over the next four years. Paras. 17-18 comment on the prospects ofdevelopment and future output of the individual plants.

17. Existing Plants

Casablanca: With the rapid growth of the town of Casablanca, thisold plant is now located in the middle of the suburbs

A4NEX 3-1

Page 8

and is a major source of pollution. It also lacksspace and sufficient raw material reserves to beexpanded further. Despite improvements of theequipment, essentially in the grinding departments,it is unlikely that this plant could achieve an averageproduction above 900,000 tpy. Because of the plant'slimitation and pollution problems, it is envisaged toclose it down in the eighties.

Meknes: With recent improvements of the installations thiswet-process plant can now produce an average of about600,000 tpy. This plant has stretched its productionto the maximum by producing only cement qualities withhigh proportions of additives (masonry cement andpozzolanic cement). Any substantial addition of capa-city to this plant would, in the present energy contextin Morocco, consist of the construction of dry processfacilities. These would be based on other raw materialthan those presently exploited and practically amountto a separate new plant. Such solution has beenstudies but will not go ahead in the near future,since it would result in a greater regional oversupplyin Northeastern Morocco after completion of the CIORproject.

Agadir: With the addition of a new cement mill and rehabili-tation of one kiln this plant will reach a nominalcapacity of 420,000 tpy in early 1977. Adequate rawmaterial reserves have been identified for a furtherexpansion. It is envisaged to builcd later on anadditional production line which could increase totalproduction to about 800,000 tpy around 1980.

Tangier: An expansion is planned with engineering works andfinancial participation of the Societe des CimentsFrancais. A second production line will be installedwith a second-hand semi-dry process kiln purchasedfrom Europe. The old existing kiln will stop produc-tion but could possibly be refurbished. The nominalcapacity would reach 250,000 tpy with startup of thenew line scheduled for mid-1978.

Tetouan: A modernization of the existing installations is underway, including refurbishing of one kiln and installa-tion of another raw mill. With both kilns in opera-tion total production is then estimated to increaseto about 240,000 tpy.

ASlHAR: This new plant located near Marrakech started operat-ing in mid-1976. Its shareholders are SNI, LafargeMaroc, BNDE, CADEM, SNCE 1/ and IFC. Engineering and

1/ Societe Nouvelle des Conduites d'Eau.

ANNEX 3-1

Page 9

technical assistance are provided by Lafarge. Theplant has one production line with a 1,300 tpd dry-pro-cess kiln. By producing essentially masonry and poz-zolanic cement, the production capacity could reachabout 500,000 tpy. The raw materials deposits,however, are difficult to exploit and limited to 40years' production, leaving little hope for laterexpansion.

i8. New Plants

CIOR: Several proposals for new plants in the Orientalregion had been made in the past, including smallplants (CIMOR and YASMINA) in Nador and in Taza.Finally only the proposal for a plant in Oujda mate-rialized. Initially proposed with a capacity of350,000 ton of cement per year to supply the Orientalby 1975, the Oujda project was delayed and evolved intoa much bigger plant "CIMA" with a total capacity of1.0 million tpy of clinker to supply Algeria and theOriental region, Morocco. Following the withdrawal ofthe Algerian partner from the joint venture, the halfof the plant's production previously allocated toAlgeria will now be available to Morocco. The fullproduction of the plant or about 1,170,000 tpy (assum-ing production exclusively of high quality CPA 250/315with only 5% gypsum) has therefore been taken intoconsideration in the supply projections. There isalso a strong possibility of increasing CIOR's produc-tion by about 200,000 tpy by producing some blastfurnace cement. Such production will use with theclinker, substantial amounts (30 to 70%) of blastfurnace slag from the SONASID steel project in Nadorwhich will start production in the early eighties.This production could be introduced easily, bringingthe slag by rail and without significant investmentsin additional installations as CIOR's material handlingand grinding facilities have enough spare capacity foradditional cement production. The timing of the intro-duction of blast furnace cement will essentially dependon national and regional market developments and trans-port considerations. This extra production is nottherefore included in the supply projection limited tothe 1985 horizon.

ASINENT: This project was initiated as CIIAGHARB by the CIII 1/as a half million tpy plant to supply the Kenitra-Gharb region. Difficulties in finding adequate raw

1/ Credit Immobilier et Hotelier.

ANNEX 3-1

Page 10

materials resulted in delays and a change of thelocation to Temara close to Rabat. Engineering iscarried out by Lafarge and SNC from Canada. Thecontract for the supply of mechanical equipment wassigned in mid-1976 with the US equipement manufacturerFuller. This plant will have a nominal capacity of600,000 tpy and startup is anticipated for mid-1979.

SNMC: A new Moroccan state enterprise, the Societe Nationaledes Materiaux de Construction, has been created in1976 by the Ministry of Industry with the main objec-tives of: (i) studying, creating and operating cementplants, quarries and other units producing buildingmaterials, and (ii) import, export and trade of allbuilding materials. In the first stage SNIIC willundertake the construction of a new 1 million tpycement plant near Casablanca and the installation ofa cement market monitoring system with continuousanalysis of actual consumption and projection offuture demand. For this purpose SNMIC has signed acomprehensive consulting contract with the BritishConsultants APCM and Harold Whitehead and Partners.Potential raw material deposits for the new Casablancaplant have just been identified near Nouasseur, south-west of Casablanca. This plant is estimated to startproduction in 1981-1982.

B. THE DEIAND OF CEMENT IN MOROCCO

Historic Consumption Pattern and Domestic Demand

19. Following a temporary slowdown after independence, domestic cementconsumption developed at a fast pace. As illustrated in the table below,apparent domestic consumption attained an average annual growth rate of 11%during the 1960-1976 period.

ANiNEX 3-1Page 11

MOROCCO: Historic Cement Supply and Apparent Consumption(000 tons)

YEAR PRODUCTION CONSUIMPTION NET IMPORTS NET EXPORTS

1950 322 566 244 -

1955 701 762 61 -

1960 580 542 - 321961 637 618 - 191962 700 685 - 141963 761 747 - 141964 828 805 - 23

1965 790 751 - 361966 854 835 - 191967 868 858 - 101968 1005 1006 1 -1969 1169 1167 - 2

1970 1404 1402 - 21971 1481 1582 101 -1972 1544 1615 71 -1973 1624 1664 40 -1974 1914 1909 - 5

1975 2022 2229 207 -1976 2160 2900 740 -

Source: 1960-1973 Lafarge Sector Study, 1974-1975 Ministry of Industry,1976, M4inistry of Industry Estimate extrapolating actual data ofthe first 10 months.

Growth rates were mrodest from 1960 to 1967 averaging 6.8% per year butincreased substantially from 1967 to 1971 averaging 16.5%. This disparitybetween growth rates was due to Morocco's better economic performance; theaverage annual growth rates GDP (in real terms) increased from 3.2% during the1960-67 period to 5.8% over the period 1967-71. Till 1968 domestic productioncapacity was sufficient to satisfy demand and even allow modest exports. From1969 demand caught up and outstripped domestic production as existing pro-ducers expanded their facilities too slowly. In 1971, 1972, and 1973, Moroccohad to resort to substantial imports. The shortage situation was lessened in1972-1973 as the pressure of demand softened; government investment andinvestment of state enterprises increased more slowly; private investors tooka wait-and-see attitude in the face of the political uncertainty and theannounced review of invesrment incentives.

20. Since 1973, however, cement demand has surged dramatically as thecountry's economic overall performance has improved steadily and construction

ANNEX 3-1

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of housing expanded vigorously spurred by a severe housing shortage. Withdomestic production of cement expanding much too slowly, significant importshave become necessary reaching about 25% of total cement consumption in 1976.The average growth of cement consumption reached about 20% per year for1973-76 while growth of GDP (in real terms) averaged about 6.3% per year.Despite the substantial improvement in supply achieved through increasingimports, cement demand appears to have been unsatisfied at various times overthe 1973-76 period as illustrated by the reappearance of a black market.prices paid by individual consumers on the black market reportedly reachedlevels 30 to 60% over the official price. Only by the end of 1976 doessupply appear to have caught up with demand following imports of about 740,000tons for the whole year. By the end of 1976, total cement consumption hasreached a level more than triple that of 1967, which represents an averagegrowth of 14.4% per year.

Sectoral and Regional Consumption

21. Little reliable data are available to indicate the sectoral andregional use of cement in Morocco. The main cement producers Lafarge andCADEMI have carried out sectorial analyses in 1969 and 1973 based on thestatistics of their agents. The results were as follows:

Sectorial Consumption

Lafarge (1969) CADEM (1973)/1%of % of

000 tons Total 000 tons TotalPublic:

M4ajor Civil Works 82 7.0 11 2.0Urban Works 102 8.7 45 9.0Rural Works /2 89 7.6 60 11.5Others /3 79 6.7 18 3.5

352 30.0 135 26.2

Private:

Industry & Commerce 199 17.0 85 16.4Housing 534 45.5 256 49.6Cement Products 88 7.5 40 7.8

821 70.0 381 73.8

TOTAL 1173 100.0 516 100.0

/1 Sales from Meknes plant only./2 Including irrigation./3 Power, waterworks, railways.

ANNEX 3-1

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Thie Lafarge survey which covered all of Mforocco and the CADEM study confinedto sales from Meknes, show good agreement and suggest that the sectorialbreakdown is relatively uniform throughout the country. Data of sales fromLafarge over the period 1960-73 further suggest that breakdown changed littleduring this time. The survey highlights the importance of housing. Thesurprisingly low cement consumption by the public sector, especially the majorcivi:L works is the result of some unusual construction practices in Moroccosuch as the almost exclusive use of asphalt instead of cement in road con-struction. No other survey of sectorial consumption has been carried outsince 1973. It is however estimated that the share of housing in totalconsumption has further increased as indicated by the surge in constructionover the last two years. Construction of housing has increased not only inthe major urban areas 1/ where the shortage of accommodations is increasinglyfelt as a consequence of a steady urban migration, but also in small townsand rural areas as a consequence Df the improvement of the economic situationin these areas.

22. Statistics of regional consumption are based on the producer'ssales to agents. Detailed consumption data per region are given in the tablebelow. It indicates that the regional consumption pattern has graduallyimproved during the past decade with Casablanca accounting for 47% of domes-tic cement consumption in 1960 and merely 30% in 1974. The fastest regionalgrowth during the 1960-74 period occurred in Agadir whereas cement consump-tion in the Casablanca region increased little during the 1970-74 period.

1/ Some indication is given by the number of authorizations of construc-tion delivered by the large municipalities which, however, does neitherindicate actual construction after receipt of the authorization nor thelarge construction executed without authorization nor construction insome suburbs and small towns. The official number of authorizationsis increasing at 10 to 15% per annum.

ANNEX 3-1Page 14

Historic Cement Consumption per Region(000 tons)

AnnualGrowthRate1960-74

REGION 1960 1965 1970 1971 1972 1973 1974 % p.a.

Casablanca 252 345 413 518 478 489 569 5.6Kenitra-Rabat 63 71 165 205 239 252 253 9.7Mieknes-Fes 65 84 233 260 267 262 300 10.7Agadir 34 82 121 160 160 174 223 13.7Tangier-Tetouan 38 47 97 124 134 150 159 10.0Marrakech 45 59 94 161 171 160 199 10.4Oriental 43 64 155 154 166 178 206 11.0

Total 540 752 1_,378 1582 1,615 1,665 1,909 8.75

Source: 1960-73 data - Lafarge Sector Study, 1974 - Ministry oL Indlustry

estimate.

23. The consumption pattern per region at the final consumer level isprobably slightly different than indicated by these sales figures at thewholesalers level. Because of the shortage situation , some wholesalers andtransporters from remote regions reportedly fetch cement from wholesalers inother regions located near a cement plant. Some cement used in the Orientalregion for instance is directly bought from wholesales in Fez aid Meknes.Such transfers occur for all regions which do not have their own cementplant. They disrupt the tentative allocation of cement prcduction attemptedby the authorities and the cement producers, and lead to profiteering byvarious intermediaries on the black market. They compound the frequentsituations of shortage already much felt without these trarnsfers. TheGovernors of several provinces such as Fez and Marrakech have thereforeordered wholesalers of cement to allocate their sales under the control ofthe provincial authorities. As a result of the interregional transfer, theabove data on regional consumption do include some distortions. For a morerealistic assessment the official figures of regional consumption shouldprobably be increased for some provinces of the interior and deflated forcoastal provinces.

24. Although cement consumption increased more slowly over the pastdecade in the Casablanca area than in other Moroccan regions, the 1973 percapita consumption was still the highest in the country. The CasablancaRegion consumed 130 kg per capita in 1976 compared to 114 kg per capitaaverage consumption in Morrocco as shown below.

ANNEX 3-1Page 15

Regional Cement Consumption & Population: 1974

Cement Consumption Population Consumption

000 tons % Number % kg/per capita

Casablanca 569 29.8 4,388 26.1 130

Kenitra-Rabat 253 13.2 2,182 13.0 116

Meknes-Fes 300 15.7 2,508 14.9 120

Agadir 223 11.7 1,283 7.6 174

Tangier-Tetouan 159 8.3 1,378 8.2 115

Marrakech 199 10.4 3,222 19.2 62

Oriental 206 10.8 1,838 10.9 112

Total 1,909 100 16,800 100 114

The above table also illustrates that per capita consumption is below the

national average in those regions in which no cement plant is located

or close by, e.g., Marrakech, and the Oriental Region. This suggests the

possibility of a repressed demand in these regions.

Projected Domestic Demand

1. IIethodology

25. Cement consumption is determined by the construction activity in

a country. As an isolated long-range estimate of domestic construction is

hardly possible, a number of forecasting techniques have been used which

approximate the cement consumption-construction activity relationships.

These techniques include (i) correlation with macro-economic indicators,

(ii) international comparison of per capital consumption, (iii) extrapolation

and (iv) sectorial analyses.

26. Correlation with macro-economic indicators: Since construction

activity is closely related to the overall economic activity of a country,

correlation and regression analyses of cement consumption and various macro-

economic indicators, produce statistically significant results. The tradi-

tionally used indicators are:

a) GCIP or GDP

From a worldwide cross section analysis it results that

in an early development stage cement shows a rather high

consumption elasticity; in other words: in developing

countries growth rates of cement consumption usually

exceed growth rates of GNP considerably. As economic

development continues, the gap between growth rates of

cement consumption and GNP narrows and at a certain point

becomes zero. In highly industrialized countries cement

consumption tends to increase less than proportionally

ANNEX 3-1Page 16

in relation to GNP; the saturation level depends in theindividual case on a number of different circumstances.Graphically speaking the typical development of cementconsumption can be characterized by an asymtotic growthcurve; its gradient is usually steep after take off ofeconomic development and tends to flatten out continuouslytoward saturation. On a worldwide basis the followingstreamlined elasticity factors between GNP (determiningvariable) and cement consumption (dependent variable) havebeen estimated:

Elasticity of cementGNP per capital consumption per capita

(1973 US$) (in relation to GNP growth)

50 4.0100 3.2200 2.5400 1.9800 1.4

1,600 1.03,200 0.7

The relationship between cement consumption and GDP/GNPis close to an exponential relationship. For simplicityreasons, however, many forecasts assume a linear regres-sion equation. Such an approximation is valid only forshort- and medium-term consumption forecasts and/or forcountries with constant growth patterns.

b) Gross Fixed Capital Formation

Correlation between cement consumption and gross fixedcapital formation generally show exponential relationships.The elasticity of cement consumption has been found tovary in relation to the growth of gross fixed capitalformation in the range 2.5 - 0.8.

27. International Comparison of Cement Consumption per Capita. Withcountries with similar construction practices cement consumption per capitalevolves closely with the levels of development reached by the countries.This can be illustrated by comparing the evolution of cement consumption percapita and GNP per capital for comparable countries over long periods oftime. This comparison has been used also to establish the elasticity ofcement demand to economic growth (see para. 26 a, above).

28. Extrapolation of Past Consumption is a rather simplistic approachwhich cannot give more than an order of magnitude for short- and medium-termforecasts. It can lead to satisfactory results if (i) applied to stable

ANNEX 3-1

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economies with constant growth rates and insignificant shifts between sectoractivities or (ii) based on a representative reference period and growthrates, for short-term or average period projections.

29. Sectorial Analysis. This method attempts to forecast future demandby sector on the basis of cement consumption/investment ratios establishedfor each sector. Particular care is required in establishing these ratiossince they vary from country to country with local construction practices,price and availability of substitute materials such as bricks, structualsteel, etc. The sectorial analysis has definite advantages in those econo-mies where (i) insufficient or unreliable statistical data exist to estab-lish a meaningful relationship between cement consumption and macroeconomicindicators or (ii) government programs foresee a substantial shift ofinvestment between sectors which implies changing patterns of cement utili-zation.

2. Demand Projections

30. The following paragraphs detail the projections of demand inMIorocco derived by the Bank as well as in the different market studies oncement in Morocco. The most significant projections are illustrated onChart 1 and summarized in para. 39 of this Annex.

Correlation with GDP

31. Using linear regression analysis on data over the period 1960-1975,the following relationship has been found between total cement consumption(TCC) and GDP (expressed in constant 1960 DH):

2log TCC = 2.1744 log GDP - 13.4898 R = 0.988

This relation between logarithms gives a better correlation than a straightlinear relation. It also indicates an elasticity of about 2.2 between totalcement consumption and GDP; this is in line with the elasticity factors of2.5 - 1.9 between consumption and GNIP observed worldwide for countries withGNP per capital between $200 and $400 (see para. 22), such as MIorocco. Duringthe 1968-72 and 1973-76 periods the GDP of Morocco increased respectively by5.3% and 6.3% per annum while the target of annual growth rate was set at 7.5%in the Third Development Plan 1973-1977. Targets for the Fourth DevelopmentPlan 1978-82 have not yet been specified. Two estimates of future GDP growthhave therefore been assumed to forecast future cement demand based on theabove regression equation.

ANNEX 3-1Page 18

Projection I

Average Growth of GDP Cement Demand(000 ton)

Case 1975-1980 1978 1980 1982 1985

High 7% per annum 3,400 4,560 5,720 7,460

Low 5.5% per annum 3,030 3,820 4,660 5,920

It is unrealistic to assume that both GDP and cement demand will growexponentially in the long term. Therefore for the above projections, thecorrelation with GDP has only been applied till 1980, beyond which demand isassumed to increase linearly at the 1979-80 rate of increase.

32. This correlation used above being limited to 1960-75 data does nottake into account the jump of 30% of demand in 1976. Its data base alsoincludes the 1960-1967 period during which the average growth of consumptionwas substantially lower than during the 1967-76 period. This correlation maytherefore lead to an underestimation of short-term demand. A similar regres-sion analysis has therefore been carried out between cement consumption andGDP on the basis of 1967-76 data including a preliminary estimate of Morocco'sGDP for 1976. The following correlation has been found:

2log TCC = 2.4725 log GDP - 16.3536 R = 0.914

With this latest correlation, the latest Bank estimate of GDP growth ofMorocco, i.e., 6.4% per annum, has been used to project demand for 1977-80.Beyond 1980 a linear increase has been assumed at the 1979-80 rate of in-crease. This results in demand projections expectedly larger than Projec-tion I:

Projection II

Average Growth of GDP Cement Demand(000 ton)

1975-80 1978 1980 1982 1985

6.4% per annum 3,600 4,960 6,120 8,110

Projection II appears more likely than projection I for the short term asit takes better into account the recent fast developments which are expected

ANNEX 3-1Page 19

to continue for a few more years. Beyond 1979-80 on the other hand it isdoubtful that a continuous increase of about 600,000 tpy can be sustainedas indicated by the international comparison (see para. 34).

Correlation with Gross Fixed Capital Formation (GFCF)

33. Various attempts have been made to correlate cement consumptionwith either total GFCF or GFCF of major sectors of the economy. Some rela-tionship was found between consumption and total GFCF with 1960-73 data butwith a correlation inferior to the one found with GDP. Regression analysistaking into account in addition 1974-76 GFCF data is even less successful,as can be expected with the drastic evolution of GFCF during these years(increase of 130% between 1973 and 1975). Furthermore, official data of GFCFcannot be considered as a very reliable basis for projections: they do forexample, include purchases of military equipment and they are partly derivedby using some specific ratios, which can be questioned as the spectrum ofinvestments is changing and private construction in the rural areas (which isbooming) is not adequately covered in construction statistics. Furthermore,adequate medium-term projections of growth of GFCF are essentially related toprojections of GDP growth and little is therefore added to the reliability ofthe projections by taking GFCF instead of GDP as determining factor for theprojections. No projections based on GFCF data have therefore been retainedfor the purpose of this market study.

International Comparison of Cement Consumption per Capita

34. A historical comparison of cement consumption per capita and GNPper capita of countries with high per capita cement consumption and with fastgrowing cement consumption in the Mediterranean, Middle East and East Asianregion over the 1955-75 period is given in Table 1 of this Annex. As indicatedby this comparison the elasticity between cement consmption and GNP rangesbetween 1.9 and 2.5 with a GNP per capita between $200 and $400 (expressed in1973 terms) to decline to 1.4 - 1.9 with a GNP per capita between $400 and$1100. This is illustrated below with examples of selected countries:

Comparative Data on Growth of Per Capita Consumption and GNP

GNP/Cap. Cement Cons./Cap Growth ofEnd of Period End of Period Cement Cons. GNP

Country Period (1973 US$) (kg) % p.a. % p.a.

Morocco 1967-1975 355 129 12.7 5.5Korea 1965-1973 400 218 21.7 11.0Yugoslavia 1955-1963 410 169 11.2 6.0Turkey 1963-1973 600 218 11.6 6.5Taiwan 1963-1973 660 359 15.4 10.7Greece 1955-1963 940 270 12.4 5.7

ANNEX 3-1

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Considering the complete sample of countries at different stages of devel-opment the evolution of consumption per capita in relation to GNP/capita,it appears that the historic growth curves of cement consumption vis-a-visGNP/capita generally have remained within the following maxima:

Cement Consumption/Capita GNP/Capita(kg) (1973 US$).

200 60300 135400 210500 265600 325800 390

1,000 445

This indicates that growth of cement consumption with GNP is the fastest forGNP/capita between $100 and $600. Beyond $500-600, the growth graduallydiminishes and consumption levels off in the $2000-4000 bracket. A country inthe $100-600 bracket has reached a stage of development where it can affordmaximum investment inI simple but solid housing for most of the population andbasic infrastructure with major civil work components. Bevond the $500-600GNP/capita stage, the proportion of savings in the family budgets allocated tohousing decreases, and more generally the proportion of the country's in-creasing wealth allocated to heavy cement-consuming investment decreasesas more investments are increasingly equipment-oriented, such as in industry.

35. The above worldwide observed maxima have been added to the short-medium projections of cement demand in Morocco by extrapolating past evolutionof consumption/capita vis-a-vis GNP/capita until reaching and followingthereafter the maximum growth curve. A "high" and a "low" projection have sobeen derived: (i) high: extrapolation of 1973-76 the trend up to the maximumgrowth curve and assuming population growth at 2.9% p.a. and GNP growth of 7%and 6% p.a. respectively for 1976-80 and 1980-85; (ii) low: extrapolation of1967-75 trend and assuming of GNP growth of 5.5% for 1975-85. These forecastsare as follows:

Projection III

GNP Growth Projected DemandCase % p.a. (000 tpy)

1976-1980 1980-1985 1978 1980 1982 1985

higr 7 6 3,570 4,480 5,160 6,440

Low 5.5 5.5 3,100 3,880 4,750 5,520

ANNEX 3-1

Page 21

With the low forecast Morocco's cement consumption per capita would reach in1980 and 1985 respectively 190 kg (with a GNP/capita of $406) and 240 kg(GNP/capita of $460). With the high forecast cement consumption per capitawould be 225 kg (GNP/capita of $430) and 280 kg (GNP/capita of $524) respec-tively in 1980 and 1985.

Extrapolation of Past Consumption

36. Between 1967 and 1976 the total cement consumption in Moroccoincreased at an average rate of 14.5% per annum, with a significant accelera-tion over 1973-76 during which growth reached a peak of 20% per annum. Bycontrast the average growth over the longer period 1960-76 was only 11%.Similarly the slowdown over 1971-73 as consumption virtually stagnated,contrasts sharply with the drastic increases over 1973-76. For the last 6years it is difficult to distinguish clearly the influence of the generaleconomic slowdown over 1971-73 and of the postpoing of construction decisionsdue to the political uncertainty from the effects of an insufficient supplyof cement. In particular, it is difficult to assess the extent of the re-pressed demand over these years and the exact influence of this possiblerepressed demand on the sharp jump over the subsequent years. Extrapolationsof past tendencies cannot therefore indicate anything more than a rough rangewithin which growth projections for the short term could not be unrealistic,i.e., between 11% and 15% p.a.

Sectorial Demand

37. At the beginning of the Third Plan period 1973-77 the Ministry ofIndustry carried out a sectorial demand projection on the basis of the in-vestment targets for the various cement consuming sectors, specified in thePlan. This projection, however, did not extend beyond the time span of theThird Plan. This forecast corresponded approximately to an exponentialgrowth at the average rate of 15% per year starting with the depressed levelof consumption in 1973. Actual consumption for the first four years of thePlan has systematically exceeded demand forecast by this projection by anaverage of 7X. This projection which is detailed in Table 2 of this Annex,can only be used as an illustration of the methodology. The various invest-ment targets by sector for the next Development Plan 1978-82, and specificratios of cement consumption to investment derived from 1973-76 data will haveto be known before an adequate sectorial demand projection can be prepared.This work is included in the consulting agreement of the APCM and Whiteheadwith StUMC and should provide its first results in the course of 1977.

Other Forecasts

38. Other forecasts using various methodologies are included in thedifferent market studies and feasibility studies listed in para. 1. Theforecasts using correlations with GDP (total or for some specific sectors)or GFCF (total or for some specific investments) and prepared before 1975 areall, based on observations prior to 1973 or 1974; by excluding the surge in

ANNEX 3-1

Page 22

cement consumption in 1974-76 they generally lead to an underestimation offuture demand. More recent forecasts consist essentially of simple extrapo-lations of the recent developments and tend on the contrary to be undulyoptimistic: they assume exponential growth of demand at rates between 14%7 and17% over 1975-85. They basically consider that the high growth rates experi-enced during the 1974-76 period closely indicate future natural growth ratesof the market in Morocco, assuming that the 1971-73 slowdown was entirely dueto a shortage of supply. Although demand was probably suppressed during thatperiod, it is unrealistic to attribute slowdown exclusively to inadequatesupply. Moreover, the future consumption per capita corresponding to theseprojections, would, even assuming the most optimistic economic development ofMorocco, steadily exceed the record levels experienced worldwide by allcountries at comparable levels of development. These various projectionswhich are detailed in Table 3 only for illustrative purposes.

Conclusions

39. Projections I to III detailed in paras. 31 to 35 are compared below:

Average GrowthProjected Demand Rate of Demand

(000 tons) (% p.a.)

1980 1985 1975-80 1980-85

Projection I: Correlation with GDP 1960-75:

- High 4,560 7,460 14.9 10.8- Low 3,820 5,920 11.4 9.2

Projection II: Correlation with GDP 1967-76: 4,960 8,110 17.5 10.3

Projection III: International Comparison:

- High 4,480 6,440 15.0 7.5- Low 3,790 5,520 11.3 7.8

Projections I "high" and II forecast in the 80's a demand higher than theforecast of Projection III "high", based on international comparison. Theseaverage growth rates corresponding to the two projections are at the upperend of the range of growth rates indicated by the extrapolation of pastconsumption (para. 36). Projection II in particular appears unlikely whileProjection I "high" appears very optimistic, but not impossible. Morocco'scement consumption per capita has remained for the last 15 years well belowand would still remain till 1980 below the maximum values experienced by theinternational comparison for GNP/capita and cement demand (para. 35); thisrepresents an accumulated consumption over 20 years well below the pos-sible maximum, and it could be compensated in the early 1980's by consumptionslightly above the maximum experience value or Projection II "high".

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Page 23

40. Projection I "low" on the other hand, can be considered as aminimum forecast. It assumes a conservative growth of GNP; it projects growthrates of consumption of 9 to 11.5% p.a. which were exceeded in the past; andthe projected consumptions per capita do not reach the international maximabefore 1984-85. Finally, between projections I "high" and III "low", Projec-tion III "high" which forecasts demand about 10% above Projection I "low"appears the mostly likely; it forecasts a fast growth till 1980 in line withthe trend of recent years and short-term economic expectation and beyond1980 it levels off, assuming a moderate growth of GNP and increase of consump-ticin per capita in line with the international maximum values. In summary,Projections "low", II "high" and I "high" can be considered respectivelyas the minimum, most likely and maximum cases for future supply and demandcomparison.

3. Regional Demand

41. The best method presently available to estimate the breakdown offuture demand by region is to examine the evolution of apparent sales byregion over the recent past and estimate on that basis the prospective shareof each region in the total national consumption taking into account theprospects of differential development between regions. The estimated break-down by region in 1980 is given below in percentage and volume for the mostlikely projection of total demand:

Regional Cement Demand - 1980

Region (000 tons) %

Casablanca 1,320 39.5Kenitra-Rabat 560 12.5Meknes-Fez 780 17.4Agadir 490 11.0Tangier-Tetouan 400 9.0HIarrakech 450 10.0Oriental 460 10.5

TOTAL 4,480 100

42. It is currently difficult to assess the possible differences in theevolution of consumption between regions beyond 1980. This would require agood statistical knowledge of historic regional development (not yet availablein Morocco), a breakdown of development targets by region for the 1978-82Plan (not yet publicized) and a data base on past consumption better thanthat provided by apparent sales of the wholesalers. The extent of unrecordedtransfers of cement from regions with their own cement plant to other regionsis not well known. Similarly, the volume of housing construction in ruralareas which expanded recently and is expected to develop significantly in thefuture is not recorded. The cement market monitoring system and the detailedprojection of future demand based inter alia on the next development Plan andincluding a sectorial approach, will be provided for SNMC; these should leadto a more realistic projection of future consumption by region.

ANNEX 3-1

Page 24

43. In the meantime only a qualitative assessment of the growth ofregional consumption is possible. After a growth of consumption lower thanthe national average, the Casablanca region can now be expected to keep atleast the same share in total national consumption as industrial developmentis excessively concentrated around Casablanca, and most of the rural urbanmigration takes place towards Casablanca. Rabat, Meknes, Fez and Marrakechare major towns with growing economic activities which should sustain thegrowth of cement consumption in their respective regions. Expansion ofconstruction in the Agadir region is expected to continue f-urther with thesustained development of tourism around Agadir.

44. Between 1960 and 1974 (see para. 32) cement consumption in theOriental increased at a faster pace than the total consumption of the countrydespite the fact that the population of the Oriental increased at 2.3% peryear i.e. more slowly than the total Moroccan population (because of a moreimportant emigration of workers to Europe and internal migration to theregions of Casablanca and Rabat). This increase in cement consumption percapita can be explained by strong construction activities in housing espe-cially around Nador where a substantial growth of urban population occurredtogether with the economic development of the area. In the future, a furtherslow growth of population resulting from possible further emigration will beoffset by the economic development of the region. Several factors do guaran-tee this development as detailed in Annex 7-3: (i) an ambitious investmentplan by the Government including a port and a 1 million tpy steel plant(SuNASID) 1/ costing an estimated US$1,500 million in Nador, plus the relatedinfrastructure including a 120 km railway line; (ii) steady development ofagriculture with the equipment of up to 70,000 ha of irrigated land in thelower Moulouya; (iii) an existing industrial nucleus composed of mines andagro-industries, and (iv) an active house construction financed by steadyremittances from expatriated workers. It is therefore safe to assume that theregion's share in the national cement consumption would not: drop in thefuture. Applying the Oriental's estimated share of 10.5% in the nationalmarket to the forecasts of paras. 39, the following demand forecasts have beenderived:

Projection Projected Demand in the Oriental(000 tons)

1980 1985

Minimum 400 620M4ost Likely 460 680M4aximum 480 780

1/ SONASID: Societe Nationale de Siderurgie.

ANNEX 3-1

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C. DEMAND/SUPPLY BALANJCE

Supply and Demand at the National Level

45. As indicated in the former sections, three cases can be envisaged

for demand and one for supply, leading to three comparisons of supply and

demand, illustrated in the following table:

Projected Domestic Production/Demand Situation (1978 - 1985)(000 tons)

1978 1980 1982 1985

Supply 2,799 4,210 5,180 5,840

Demand: Low 3,030 3,820 4,660 5,920Likely 3,570 4,480 5,160 6,440High 3,400 4,560 5,720 7,460

Supply/Demand Surplus(deficit)

Low (231) 390 520 (80)Likely (771) (270) 20 (600)High (601) (350) (540) (1,620)

These indicate that Morocco will continue to import at least until 1979.Under the most pessimistic, i.e., the lc0- case of demand growth, supply wouldbe close to demand with some temporary surpluses but which would not exceed10% of potential supply. Under the most likely case the continuous deficitof supply would become significant enough by 1984 as to require additionalproduction capacity. The theoretical deficit in the 80's would expectedlybe higher under the "high" case but without requiring any major additionalcapacity in operating before 1982. Undue haste in constructing new facil-ities should be therefore avoided, but instead a continuous updating ofdetailed market forecasts be encouraged. Practically, a situation as shownfor 1982-85 in the high case is unlikely to materialize as under the pressure

of growing demand additional facilities could be installed in a relativelyshort time: an immediate expansion of supply by 200,000 tpy would be possibleby producing also blast furnace cement at CIOR, and not more than 2-3 yearslead time would be necessary to expand the existing 1ieknes plant. Finallywhether the existing Casablanca plant is kept in operation (as assumed in the

supply project here above) or is closed down, will also significantly affectany decision on building additional facilities. Eventually the decision on

closing the Casablanca plant for environmental considerations should bedetermined by a comprehensive economic analysis.

ANNEX 3-1Page 26

Supply and Demand at the Regional Level

46. A forecast of the regional supply/demand balance for all regionsof Miorocco for 1978-85 with the most likely demand projection is detailed inTable 4 of this Annex. A summary is given below for 4 main Northern Regionswithin marketing range from CIOR:

Projected Regional Supply/Demand Balance for Northern Regions(000 tons)

Casablanca Kenitra-Rabat Fez-Meknes Oriental

1980 1,320 560 780 460

Demand 1,320 560 780 460Supply 900 480 600 938

Surplus (deficit) (420) (80) (180) 478

1985

Demand 1,900 800 1,130 680Supply 1,800 540 600 1,173

Surplus (deficit) (100) (260) (530) 507

47. The combined deficit of the Casablanca and Fez4Ieknes regions wouldthereby vary between 500,000 and 700,000 tpy. The balance in the Oriental onthe contrary indicates that under the original CIMA joint venture arrangementswhereby CINA (CIOR's predecessor) was designed to supply its production inequal shares to Morocco and Algeria, CIMA would have had an adequate marketin the Oriental Region itself starting in 1980. Following the withdrawal ofAlgeria from the CIMA joint venture, the full production of the plant hasbecome available for Morocco. This production would be substantially inexcess of the demand of the Oriental, CIOR's immediate market, till the late1980's as detailed below:

Projected Supply/Demand Balance in the Oriental : 1978-1990(000 tons)

1978 1980 1982 1985 1990

Demand 380 460 540 680 900Supply 195 938 1,173 1,173 1,173Surplus (185) 478 627 493 273

ANNEX 3-1Page 27

On the other hand without the extra half of CIOR's production (includedin the new supply projections), Morocco would be faced with a prospectivedeficit by 400-600,000 tpy larger than that indicated in para. 45 above.Furthermore at the time of the dissolution of the CIMA joint venture, cons-truction at the plant site and manufacture of the equipment were alreadyquite advanced; this would have resulted in substantial sunk costs and heavypenalties to be paid to equipment suppliers if it had been decided to reducethe project to half its original size. The other solution, of using halfof CIMA's equipment for another plant in another part of the country wouldhave implied additional delays in the expansion of the domestic cement pro-duction, without real economic advantages, as detailed in Annex 7-1. Con-sidering the long lead time for preparing and construction of new cementplants, and the prospective cement deficit in the other Northern regions, theMoroccan authorities have decided to continue the CIMA-CIOR project accordingto its original design. During the 1980-90 period CIOR is then expected tosend the production not absorbed in the Oriental to the Casablanca and Fezareas to which it is well connected by the Oujda-Casablanca railway line.Under this scheme CIOR's sales outside the Oriental would peak in the early1980's to decrease gradually as the cement market expands in the Oriental.The transport and distribution aspects outside and within the Oriental regionare detailed in Annexes 3-2 and 3-3.

Industrial Projects DeparmentDecember 1976

ANNEX 3-1Page 28

MOROCCO - CIOR CEMENT PROJECT

TABLE 1

CEMENT CONSUMPTION VERSUS GNPFOR SELECTED COUNTRIES WITH FAST-GROWING CEMENT CONSUMPTION

Cement GNP/Cap. Av. Increase Av. IncreaseCon/cap. Cost US$ Tot. GNP Tot. Cement

Countries Years kg 1973 % p.a. Cons. % p.a.

Morocco 1967 61 2701975 129 344 5.5 12.7

Algeria 1967 54 4141975 197 593 8.0 21.6

Iran 1955 11 2561964 43 449 9.3 201974 158 967 11.4 17.7

Syria 1963 139 3231972 199 414 6.2 7.5

Turkey 1955 59 3121963 94 410 6.3 8.81973 218 600 6.5 11.6

Korea(s) 1965 52 2021973 218 400 11. 21.7

Taiwan 1955 75 2411963 113 315 7.0 8.91973 359 660 10.7 15.4

Yugoslavia 1955 72 3121963 169 410 6.0 11.21973 343 600 4.7 8.4

Greece 1955 113 6451963 270 940 5.7 12.41973 681 1870 7.8 14.5

Spain 1955 128 6841964 306 1041 5.8 11.21974 630 1774 6.5 9.5

Lebanon 1950 179 5751963 361 657 3.6 8.21973 428 940 6.4 4.4

Portugal 1955 77 4591963 139 672 4.9 8.31973 368 1410 7.4 9.7

Cyprus 1955 210 6971963 312 818 3.4 6.51969 458 1200 7.8 9.8

Industrial Projects DepartmentDecember 1976

ANNEX 3-1Page 29

MOROCCO - CIOR CEMENT PROJECT

TABLE 2

SECTORIAL PROJECTION OF CEMENT DEMAND - THIRD PLAN (1973-77)

The Third Development Plan has specified certain investment targetsfor the various cement consuming sectors. On the basis of these targets,the CIH derived the following cement demand projection by sector for thePlan period 1973-1977:

(a) Housing: The Third Plan foresees the building of some 389,000dwelTlings. Assuming a percentage of realization of 90% (350,000dwellings) with an average of 9 ton of cement per dwelling, thedemand would be about 3,150,000 tons.

(b) Industry: The Third Plan has foreseen investments of 6,826million DHV creating some 120,000 more jobs. With a cementconsumption in corresponding civil works of 12 to 13 ton ofcement per job, total deniand would be some 1,500,000 tons.

(c) Dams: The completion of one dam under construction, thebuilding of 4 more dams and major repairs on existingworks would require some 200,000 tons.

(d) Other Public Works: Some 800 million DHi/were foreseen forequipment and buildings _n tourism. With a share of 11.2%for cement in the total cost, the cement demand would reach900,000 tons.

(e) Education: The investmeut in buildings for education hasbeen set at 1040 million DHI/. Through a similar derivationas in tourism, the demena demand is estimated at 1,150,000tons.

(f) Health: Buildings planned for 158 million DH.iin the healthsector would require some 180,000 tons of cement.

(g) Other Public Buildings: Some 620 million DH would be investedin miscellaneous buildings (Justice, uulture, Sports, Radio-Television, and Special Education) requiring about 650,000tons of cement.

(h) Other Sectors: Cement consumption in investment in Transport,Trade, Xilitary installations has been estimated at 5% of thetotal consumption i.e. 604,000 tons.

(i) Maintenance of Existing Work: Cement requirements for maintenance,repairs and improvement of all existing works have been astimatedat 20% of the grand total, i.e., 2,410,000 tons.

Total Demand would amount to 12,080,000 tons. Assuming a 90% realization of thetargets, the estimated consumption would be 10,872,000 tons, spread as follows(in 1,000 tons):

1973 19/4 1975 1976 1977

Annual Consumption 1,624 1,867 2,147 2,469 2,840

On an exponential basis the growth rate would be 15% per year. From 1973to 1976 consumption actually exceeded these forecasts.

1/ In 1973 terms.

Industrial Projects DepartmentJanuary 1977

MOROCCO - CIOR CEMENT PROJECT

TABLE 3

MISCELLANEOUS CEMENT DEMAND PROJECTIONS

FORECAST AND EtrHOD BASIC DEMAND PROJECTED DEMAD

('000 ton)

1974 197? 1980

1. LaFarge - Sector Correlation (1979)

Total Consumption = Consumption of Building and Public Works Sector (CCC) + Consumption of Rural Construction (CCD) GDPB Growth: 11%. p.a. - 2,259 2,970

CDPA Growth: 3.8h p.a.

with: CCC = -184,931 + 12,555 X GDPB r2

_ 0.935 (1959-73 time series)

and CCD = -595,643 + 3,425 x GDPA r2

= 0.896

where GDPB and GDPA are respectively the part of Building and Public Works and Agriculture in the GDP (1960 terms)

2. LaFarge - Multicorrelation with Macro-Economic Indicators (1973)

Total Consumption - 1,042, 237 - 7,575 x P - 0,644a + 76,066b + 2,033 x PIB Coefficient of multiple cond: 0.983 PIB Growth: 6.57, _ 2,529 3,357

GDPA Growth: 3.87. p.a.

with PIB = Production Interieure Brute = GDP - Government wages (1960 terms) (1959-73 time series) GDPB Growth: 11% p.a.Populel:on Growth: 2.9X p.a.

P - Population

a and b are respectively the % of Agriculture and Buildings and Public Works in PIB

3. Withehead - Multicorrelation with Cross Fixed Capital Formation (CFCP) (1936)

Total Consumption = 17.23 x GCFB + 6.3 x GCFE - 341 (1964-72 time series) Low Case: GCFB Growth: 9.5% 1,993 2,718 3,660

GCPE Growth: 10.0%

with .CFB - GFCF in Bsilding (1972 DO) Medium Case: GCPB Growth: 13% 2,123 3,147 4,602

GCPE Growth: 14.5%

GCFE - GFCF in Equipment (1972 DU)

4. LaFarge - Extrapolation of historic ReRional Consumption (1973)

Total National Consumption = Sum of Projected Regional Consumptions 1,930 2,740 3,570

Projected Regional Consumption Derived by Exponential Extrapolation

5. CIB - Secterial Demeand (1934)90% Implementation of Plan Targets 1,867 2,840

Based on Breakdown of Demand by Sector and Investment Targets by Sector Specified in Third Development Plan (1973-77):

Detailed in Table 3 of this Annex.

0

Industrial Projects DepartmentJanuary 1977

ANNEX 3-1Page 31

MOROCCO - CIOR CEMENT PROJECT

TABLE 4

PROJECTED REGIONAL DEMAND/SUPPLY COMPARISON 1978-1985('000 tons)

1978 1980 1982 1985

1. Casablanca RegionDemand 1,060 1,320 1,520 1,900Supply 900 900 1,lj0 1,800

Surplus (Deficit) (160) (420) (370) (100)

2. Ke-nitra-Rabat RegionDemand 440 560 650 800Supply 480 540 540

Surplus (Deficit) (440) (80) (100) (250)

3. Fez-Meknes Region'Demand 620 780 900 1,130Supply 600 600 600 600

Surplus (Deficit) (20) (180) (300) (530)

4. orientalDemand 380 460 540 680Supply 195 938 1,173 1,173

Surplus (Deficit) (185) 478 633 493

5. Northern RegionDemand 320 410 460 580Supply 313 465 465 465

Surplus (Deficit) (7) 55 5 (115)

6. MarrakeshDemand 360 450 520 640Supply 425 450 450 450

Surplus (Deficit) 65 - (70) (90)

7. AgadirDemand 390 500 570 710Supply 366 380 800 800

Surplus (Deficit) (24) (120) 230 90

TOTAL MOROCCODemnand 3,570 4,480 5,160 6,440Sulpply 4 2213 5,178

Surplus (Deficit) (771) (267) 18 (612)

Industrial Projects DepartmentJanuary 1977

ANNEX 3-1Page 32

Chart I

MOROCCO - CIOR CEMENT PRIOJECTHISTORICAL CEMENT CONSUMPTION 1967-76 AND PROJECTED DEMAND 1976-85

7

Projected Demana ICorreiation with GDP-Hiah /

Projected Demand I /Correla.ion with GDP-Low /

P ojected Demand I IInternational Comparison-dign r /

4~~~~~~~~~~~

Projected Demand IIIInternation Comparison -Low

Actua, Consumption

| t I I l 9 I t t l L I LI I IlI1967 68 69 70 7 72 73 74 75 76 77 78 79 s0 81 82 33 84 85

Year

Industrsai Pro'ec:; DepartnientCecernber I 976

World Ban.- '6784

AINEX 3-2Page 1

MOROCCO - CIOR CEMENT PROJECT

CEiAENT DISTRIBUTION AND PRICING IN MOROCCO

A. CEMENT DISTRIBUTION IN M1OROCCO

Introduction

1. The MIoroccan cement market is characterized by two basic factors:(i) an oligopolistic situation with a large number of small individual con-sumers supplied Dv few producers and; (ii) since 1971, demand exceedingsupply. In this environment the cement producers tend to consider themselvesprimarily as production companies and leave the marketing function to out-siders. A cement producer typically sells all his production to independentwholesalers who, in turn, sell to retailers and sometimes directly to largeusers. With this trading pattern the cement companies have no influence onprices at the consumer level, no credit facilities, neither means of trans-portation nor distribution outlets of their own, and as a result littlemarket transparency. The different steps in the cement trading are describedlereafter.

Wholesalers

2. While wholesalers called "agents" are independent outfits notbound to the cement producers by any legal ties, each cement producer has,in fact, selected his own agents according to specific conditions of finan-cial standing, experience and importance in construction materials trading.Cement is regularly not the only and often not the most important commoditythe wholesaler is dealing with. The sale of cement usually complements arange of many diversified activities not necessarily restricted to buildingmaterials. The classes of wholesalers can be distinguished:

(i) the "comptoirs", privileged agents, with the largestturnover and which distribute about 55% of all cementconsumed in Morocco. The Casablanca and Tangier plantfor instance had in 1974 respectively 8 and 5 of thesecomptoirs, those of Lafarge selling an average of60,000 tons of cement per year against 5,000 tons bythose of Tangier. Having a solid financial standing,these agents can grant credit facilities (one-monthcredit for large contractors and even more for theadministration) and thereby handle all the big business.

(ii) the other agents with a small turnover, selling to arelatively large number of heterogeneous and mostlyprivate customers. The Casablanca and the Tangierplants had in 1974 respectively 25 and 19 of theseagents.

ANNEX 3-2Page 2

3. Wholesalers seldom carry stocks or transport cement by their ownmeans; often they just issue a voucher with which the customer goes toi pickup cement directly at the plant. Most plants request advance or cash paymentfrom the wholesaler. The latter hardly carries out any sales promotion orother marketing activities. The annual turnover varies by agent between 1,000and 60,000 tons.

Retailers

4. The commercial activities of retailers are generally diversified;the sale of cement often complements trading or other commodities. Theirturnover varies much with the retailers, reaching sometimes 3,000 tons permonth. Retailers are very flexible for their source of supply as they dealwith different agents, sometimes remotely located. They carry little stocks.Some do have their own means of transportation as they try to realize addi-tional gains on transport. Because of their usually weak financial standings,which do not allow them to grant credit facilities, the retailer can seldomdeal with the administration: their trade is generally limited to customersfrom the private sector.

Transport and Physical Distribution

5. Transport is done essentially by road and rail with only minorquantities shipped by coastal vessels along the Mediterranean coast. Railshipments which in 1973 accounted for about 17% of total ex-factory shipmentare limited to the main Casablanca-Meknes-Fez-Oujda and Casablanca-Mlarrakechaxis. I4ainly the Oriental region which is presently supplied by the Meknesplant about 400 km away receives larger quantities of cement by rail: about80%/ of the recorded ex-factory shipments to this region are done by rail.The tariffs of the state-owned railway company ONCF for cement transportamounted, end of 1976, to a base charge of 3.48 DH/ton plus a charge of0.073 DH/tkm. No discounts are granted on ONCF tariffs for regular shipmentsor transport in unit trains.

6. Road transport in Morocco is closely regulated between: (i) theofficial transport organization ONT 2/; (ii) private carriers; and (iii) pri-vate vehicles belonging to companies or individuals whose official business isother than transport. ONT does not run a fleet of its owrn but functions as anintermediary for private carriers organized in cooperatives: ONT controls thelicenses and assigns cargoes determining freight rates, arid issues and collectsthe bills for the services rendered by these carriers. Theoretically, ONT hasa quasi-monopoly for general long distance bulk transport as all trucks with acapacity exceeding 5.5 tons are required to operate under ONT except if theyare used by non-transport companies to carry their own goods.

1/ ONCF: Office National des Chemins de Fer

2/ ONT: Office National des Transports.

ANNEX 3-2

Page 3

7. The major part of the private transport sector consists of privatecarriers (companies or even individuals) which own trucks of less than 5.5tons capacity and which are therefore not subject to ONT regulations. Theother part consists of enterprises engaged in other activities than in trans-port, which own trucks of a capacity above 5.5 tons and are not subjectto ONT control provided they use their trucks only for their own transportneeds. Practically, however, "illegal" transportation of all sorts of commodi-ties for third parties in the large trucks or in the small trucks of theprofessional transporters, overloaded beyond the 5.5 limit, is reportedlymore important than the "legal" movement of goods.

8. in 1973, about 76% of all ex-factory shipments of cement weretransported by private vehicles, versus 7% only by ONT. The latter hasa crude non-competitive tariff structure sometimes up to 40% higher thantransport prices of the private sector. On back hauls, private companiesoffer prices as low as 0.06 DH/tkm, and are thereby competitive with therailways. The following table compares cement freight charges between ONT andONCF on the basis of the normal 1975 tariffs.

Morocco-Cement Freight Charges

Distance ONCF Tariff ONT Tariff(km) (DH/ton) (DH/ton)

20 4.94 4.1450 7.13 7.76100 10.78 14.02150 14.43 20.14200 18.08 26.07300 25.38 37.34

Quantity discounts of some 30% on these normal ONT tariffs could be nego-tiated for customers with big transportation volumes.

9. The major demand being for bagged cement, most shipments are donein 50 kg bags. Deliveries of cement in bulk amounts to about 8% of the totaland are generally confined to shipments from the Casablanca plant to bigconstruction sites and ready mix concrete installations.

10. Within the shipment pattern described here above some variationscan be found. Some private truck operators do not only act as transportersbut also as traders: they purchase cement from the plant through agentsand resell to retailers or directly to contractors. The cement producersthemselves do not own trucks except the Tetovan plant which ships about 10,000tpy in its own vehicles. Some agents do have their own trucks with which theyfetch the cement at the plant or at the railway station and deliver to their

AiNEX 3-2Page 4

customers. Similarly, some retailers use their own vehicles to get thecement from the agent and dispatch it to the consumers. In the completetransport process from the plant down to the final user, all kinds of com-bination rail and truck, ONT or private carriers, trucks belonging to carriersor to the cement traders themselves, can be found. However, the private meansgenerally dominate the transport activities.

Imports

11. Till 1975 cement imports were handled by the cement producersthemselves who then disposed of the imported cement through the normal dis-tribution channels. The Ministry of Industry and Commerce did exercise somecontrol, through consultations with the producers and authorization of imports,but the whole import process was far from satisfactory, namely with regard totiming, quantities imported compared to actual needs, and costs. With themajor increase of imports in 1976, the authorities decided to streamline theimport procedures by creating a special state agency SOREStA 1/ as the solecement importer.

12. SORESMA was initially set up by another state agency OCE 2/ but isnow an autonomous agency directly controlled by the Ministry of Industry andComnerce. It operates by calling international bids for the supply of largequantities of cement (100,000 tons or more), enters contracts with suppliersgenerally for C&F deliveries, controls all unloading operations, customsclearance and storage at port, and sells from the port warehouses to theprivate distribution channels. Imports are presently handled, mostly throughthe port of Casablanca and to a lesser extent, through the secondary ports ofKenitra, Safi, Tangier, Mellila and Al Hoceima. As a further improvementSORESMA is planning to import cement in bulk, which is cheaper than baggedcement, because of lower transport and handling costs, and subsequent savingsin cost of bags (6-ply bags are required for overseas shipments while 3-plybags are adequate for domestic distribution). To this effect SORESMA isplanning to construct in 1977 a special terminal at the port of Casablancaequipped with bagging and dispatch facilities, capable of handling 250,000 tpyof bulk cement.

B. CEhENT PRICING

The Past

13. When Morocco became independent the cement pricing system was notchanged. Under this system no control existed on retail and wholesale prices.The authorities only regulated the ex-factory prices by fixing an individualprice-ceiling for each producer and for each quality of cement.

1/ SORESM4A: Societe pour la Promotion des Echanges Commerciaux.

2/ OCE: Office de Commercialisation et d'Exportation.

ANNEX 3-2Page 5

14. Ex-factory prices were virtually frozen from 1958 until 1975except for small increases of the costs of bags and of the tax "Taxe surproduits et services" (TPS), which increased from 12 to 15% in 1970. Thefollowing table details the ex-factory price ("gate" prices) including taxesfor bagged cement in 1974.

M4orocco: Ex-Factory Price of Bagged Cement - 1974(DH/ton)

Plant Quality 250/315 /1 Quality 20/25 /2

Casablanca 97.72 90.17MIeknes 103.36 96.31Agadir 122.57 115.63Tetouan 110.42 104.08Tangier 110.40 94.30

/1 Ordinary Portland Cement, normal quality/2 Low quality cement including 25% limestone additives.

These prices, averaging US$24/ton excluding taxes for bagged cement, were sub-stantially lower than the corresponding prices in Europe which at that time,ranged between US$27 and US$34 per ton. With this regulated price set as aceiling, some plants have sold according to a schedule of regionalized prices,i.e. decreasing with the distance of shipments: the Tetouan plant for instancesold the 250/315 cement at the official price of 110.42 DH/ton in Tetouan butat 92 DH/ton for some customers in Nador. The Casablanca and Meknes plantshave sometimes granted rebates of about 3 DH/ton to some of their agents.Major differences in regionalized prices or large rebates to agents did how-ever not prevail. In most cases the final consumers located in remote regionshad to pay much higher prices than those located near a plant because of thelarge transport costs, which add up to the ex-factory costs and distributionmargins of wholesalers and retailers.

15. In the early sixties, the cement plants were quite profitable andhigh profits were realized by the owners. In 1967/1968, net profit after taxesfor the Agadir and Casablanca plants ranged respectively from 10.9% and 7.2%of turnover or 11% and 10% of equity which represents adequate margins for thecement industry. In the seventies, the cement producers became increasinglydissatisfied with prices which covered actual production costs, but did notearn an adequate return on investment. In order to maintain profits theproducers maximized volumes by expanding their production of the low 20/25quality obtained by adding up to 25% inert additives to the clinkers. As themarket did accept this quality rather reluctantly, the producers pressuredtheir agents by requiring quotas of 20/25 ton deliveries of normal 250/315cement. The lIeknes plant, for instance, reportedly imposed the low qualitycement for 50% of its shipments to its agents.

ANNEX 3-2Page 6

16. The freezing of ex-factory prices which had become among the lowestin the world did not benefit the final consumer. For the last ten years,wholesale and retail prices which were not controlled increased with thetransport costs and the margin of the intermediaries became quite substantialunder the shortage situation. Agents and retailers generally had fullyliberty to set their sale price according to their transport and storagecosts, market conditions and a profit margin as high as the market would bear.While at the national level a shortage occurred because of insufficientproduction capacity and of imports, situation of artificial shortage at thelocal level also resulted from an inadequate distribution.

17. As a result, local authorities in the provinces of Casablancaand Fez started in 1974/75 to control the profit margins of the agents.The following table details the structure of sales prices of some retailersin the Oriental as established by a market survey carried out by ODI/MaghrebConsult at the end of 1974:

Morocco: Structure of Cement Sales Prices - 1974

Prices Including TaxesMargin of

Location of Source of Approximate Ex-factory Transport Agent and RetailRetailers Supply Distance Price Cost /a Retailer Price

(km) (DH/ton) (DH/ton) (DH/ton) (DH/ton)

Midar Tetouan 220 104 46 /b 25 175Nador Meknes 400 103 40.5 26.5 170Berkane Meknes 480 106.5 39.3 17.2 163Taourir Meknes 300 105 17.0 8.0 140Guercif Meknes 250 105 23.5 11.5 140Oujda Meknes 420 105.2 33.8 11.7 150.7

/a Includes all handling cost./b Includes transport by sea between Tetouan and Al Hoceima.

In the above, the combined margin of the retailer and the agent varies between6% and 14% of the retail prices, but is reported to reach sometimes 20%.The share of the agent in this margin is generally much higher than the shareof the retailer. In addition, some agents increase their profits by carryingout themselves transport functions on which they can achieve substantial andsometimes exaggerated profits. Transport costs in the above table varymuch according to type and ownership of the transportation means, and thenumber of handling operations.

2. Recent Developments

18. Recently, Cement producers approached the Government and asked foran increase of about 50% over the existing ex-factory prices. The sponsors

ANNEX 3-2

Page 7

of the new ASMAR plant, which started production by mid-1976, were also re-

questing for their plant ex-factory prices higher than the existing ones.Rising costs of cement imports have made the authorities aware that changes in

the price levels may be required. The cost of bagged cement imported fromSpain reached at the end of 1975 the level of US$40.0 per ton C&F. The result-ing "shadow" price ex-port Casablanca including insurance and all port charges

but excluding import duties amounted to 223 DH/ton of bagged cement of the

250/315 quality, compared with the 90 DH/ton ex-factory price before taxes ofthe Casablanca plant. As done previously with many other products, a price

differential of 133 DH/ton was paid to the cement importer by the "Caisse de

compensation" to equalize the price of imported cement with the one of domesticcement. The "Caisse de compensation" is an equalization scheme managed by the

Ministry of Economic Affairs and used to compensate price differentials of

various essential goods of which import prices differ substantially from

domestic production prices, i.e.. petrochemicals, sugar, and other foodstuff.

This compensation scheme had in the past some revenues when some imports were

cheaper than domestic production, but has become completely dependent on

inflow of funds from the budget.

19. In May 1975, the authorities decided to bring the ex-factory priceof the two largest and oldest producers, Casablanca and Meknes, in line withthe other ex-factory prices by increasing them respectively by 10 and 8DH/ton. These increments were not additional benefits to the producers but

are levied as a revenue for the "caisse de compensation." Simultaneously,the margins of the wholesalers and retailers were set respectively at 6and 10 DH/ton of bagged cement. The margin for the bulk cement, which is

traded directly by wholesalers, was set at 6 DH/ton. The transport costswhich are not included in these margins, are added separately to the total

ex-factory price plus margins to determine the retail prices. These transportcosts have to be justified to the authorities on the basis of the cheapesttariffs. The following table details the resulting ex-factory prices and whole-

sale and retail prices before transport costs:

ANNEX 3-2Page 8

Morocco: 1975 Cement Prices(DH/ton)

Ex-Factory Ex-FactoryPrice Price Wholesale Price Retail Price

Plant Type of Cement Before Tax incl.15% Tax excl. Transport Excl. Transport

Agadir 250/315 bagged 110 126.50 132.50 142.5020/25 bagged 105 120.75 126.75 136.75250/315 bulk 100 115.00 121.00

Casa-blanca 250/315 bagged 100 115.00 221.00 131.00

20/25 bagged 93 106.95 112.95 122.95250/315 bulk 87 100.05 106.95

lieknes 250/315 bagged 100 115.00 131.00 131.0020/25 bagged 93 106.95 112.95 122.95250/315 bulk 87 100.05 106.95

Tangier 250/315 bagged 100 115.00 131.00 131.0020/25 bagged 97 111.55 117.55 127.55

Tetouan 250/315 bagged 100 115.00 131.00 131.0020/25 bagged 95 109.25 115.25 125.25

20. In the framework of the investment convention signed with AS}AR, theauthorities fixed the plant's average ex-factory price for bagged cement at108 DH/ton (before tax) during the first three years of the plants' operation(1976-1978), and 112 DH/ton thereafter. In addition, the authorities promisedto pay to the company cash subsidies of DR 10 million during each of the firsttwo years of operation and DH 5 million during the third year.

21. The following further increases of world cement prices and rapidcement consumption growth which necessitated additional imports (see Annex3.1), in May 1976 additional price increases with the following resultingprices were decided:

ANNEX 3-2

Page 9

MIorocco: 1976 Cement Prices(DH/ton)

Ex-Factory Ex-FactoryPrice Price Wholesale Price Retail Price

Plant Type of Cement Before Tax incl.15% Tax excl. Transport Excl. Transport

Agadir 250/315 bagged 133.00 152.95 158.95 168.9520/25 bagged 123.00 141.45 147.45 157.45250/315 bulk 120.00 138.00 144.00 144.00

Casa-blanca 250/315 bagged 126.10 145.0 151.01 161.01

20/25 bagged 116.10 133.5 139.50 149.50250/315 bulk 114.10 131.21 137.21 137.21400 bulk 117.10 134.66 140.66 140.66

2leknes 250/315 bagged 126.1 145.01 151.0 161.0120/25 bagged 116.1 133.5 139.5 149.5250/315 bulk 114.1 131.2 137.2 137.21400 bulk 117.1 134.66 140.66 140.66

Tangier 250/315 bagged 126.25 145.18 151.18 167.80250/25 bagged 116.25 133.68 139.68 149.68

Asrmar 250/315 bagged 132.0 151.80 157.80 167.80250/25 bagged 122.0 140.30 146.30 156.30

250/315 bulk 119.00 136.85 142.85 142.85

22. The above ex factory price still includes for all plants except thenew Asmar plant an amount of 10-15 DH/ton levied for the compensation scheme,which was extensively used during 1976 with the large cement imports. Afterthe large increases over 1973-75, the cost of imported cement eased off in1976, varying between $32.5 and $39.80/ton C&F for bagged cement from Spain.The corresponding landed cost of imported cement in the second half of 1976,was about DH 210/ton (US$46.7) consisting of:

ANNEX 3-2Page 10

Morocco: 1976 Cost of Cement Imports

DH/ton US$/ton

C&F Price 179.1 39.8Insurance 2.7 0.6Port Charges 24 5.3

205.8 45.7

Custom Duties (38.76%) 79.8 17.7

285.6 63.4

SORESMA Import Fee (1.5%) 4.3 1.0

TOTAL 289.9 64.4

Less - Custom Duties (79.8) (17.7)

TOTAL 210.0 46.7

23. The cost of imported cement is expected to increase by at least 10%in 1977. At the same time the Government intends to remove most of the sub-sidy on fuel oil, which will increase the operating cost of the domesticplants. Simultaneously the share of new facilities in total domestic produc-tion will increase substantially as expansions of existing plants and the newASMAR plant step up their production. To cope with the resulting increase incost of total imported and domestic cement, the authorities are expected toincrease the average ex-factory price from DH 125/ton to about DH 165/ton in

early 1977.

Industrial Projects DepartmentJanuary 1977

ANNEX 3-3Page 1

MOROCCO - CIOR CEMENT PROJECT

DISTRIBUTION AND TRANSPORT OF CIOR PRODUCTION

1. Introduction

1. CIOR has been established primarily as a cement production companybut by its statutes it is also entitled to transport and trade any buildingmaterial. Wfithin this wide scope and in the framework of existing cementdistibution patterns as detailed in Annex 3-2, CIOR's prospective distributionactivities are essentially envisaged only as a necessary complement to theCompany's primary activity of production. CIOR's distribution activitiescan be differentiated regionally and time-wise in two parts: (i) distributionin the Oriental Region, the "natural" market, during the whole life of theplant, and (ii) distribution in other regions of MIorocco of the productionin excess of the consumption of the Oriental Region until demand in thismarket will have grown enough to absorb the plant's entire output.

2. Proposed CIOR Distribution Activities

2. CIOR's being the sole producer in the Oriental Region its marketenvironment and the distribution organization required in that region willnot drastically differ from those of existing cement producers. On thecontrary, with regard to sales outside the Oriental CIOR's position willbe different: for a period of 10 to 12 years the Company will have to sellsubstantial amounts of cement in markets located 300 to 600 km from theplant. Those sales outside the Oriental will vary in time, with a peak ofabout 600,000 tpy in 1982, and declining thereafter as demand expands inthe Oriental Region. As these sales represent in the initial years a largeproportion of CIOR's overall sales, the Company's viability will dependsubstantially on the efficiency of CIOR's system of transport and distributionin these remote regions. Ideally, such system would consist of regularshipments in unit trains from the plant to distribution terminals centrallylocated in the remote markets and equipped with complete dispatching facili-ties, comparable to a plant selling at its gate to the surrounding markets.On the other hand the timespan of CIOR's sales in certain market areas may betoo short to justify investments in fixed installations required by an idealtransport distribution system. Therefore an optimum should be found, recon-ciling the sophistication and investment costs of an ideal system with theexpected life of operation of the installation.

3. The estimated breakdown of CIOR's sales by region is detailedbelow:

ANNEX 3-3Page 2

CIOR's Projected Sales by Region 1980-1990(000 tons)

1980 1982 1985 1990

Oriental Region 460 540 680 900Fez Region 178 303 533 273Casablanca Region 300 330 60 -

Total 938 1,173 1,173 1,173

As indicated, in the early 80's CIOR would sell increasing volumes in theFez area, and 100,000 to 300,000 tpy in the Casablanca area where cementdeficits would be substantial until the new SNMC plant starts productionby around 1982. As this plant would gradually build up its production,CIOR's sales outside the Oriental would decrease around Casablanca and in-stead concentrate in the Fez area. The construction of separate distributionfacilities by CIOR in the Casablanca area therefore does not appear advisable,because of the limited number of years of sales and the existence there of theold Casablanca plant plus the new SNMC plant and the planned SORESMA terminal,each with dispatch facilities from which CIOR could benefit. The Fez area onthe contrary is the only large urban area (the fourth largest in the countrywith about 400,000 urban inhabitants) in Morocco which does not and will nothave in the near future its own cement plant, and where recent cement short-ages have particularly been acute. As CIOR sales in this area would besubstantial for at least 10 years, the installation of a distribution terminalnear Fez appears justified.

4. The above sales projections are preliminary, as they are basedon regional demand projections derived by applying the percentage of apparentconsumption per region in total apparent consumption observed over the recentyears, to the "most likely" projection of national demand. Actual salesmay therefore differ from these projections, for example because of a dif-ferential future evolution of demand by regions. Delays in implementationand change in scope of planned cement production capacity and possible closingof old facilities may also alter the supply pattern from what has been assumedabove. Additional distribution studies planned for setting up CIOR's distri-bution system will therefore take into account the updated market projectionsto be undertaken in the framework of the SNMC market monitoring system, interalia on a sectoral and more specific regional basis. Simultaneously thesestudies will include consultations with existing cement producers and sponsorsof new projects to update regional supply projections, and in particulardiscussions with SNMC and SORESMA on the possibility of having them distributecement from CIOR in the Casablanca area. These studies will help specify thecapacity of the Fez terminal and decide on whether or not to build distribu-tion installations in Casablanca or other areas.

5. The extent of CIOR's activities beyond the gate of the distributiontertminals (substituting for the plant in distant market areas) or of the mainplant near Oujda, could be anywhere between two extremes: at one extremethe very limited "sale at the gate of the plant" activity of all Moroccan

ANNEX 3-3Page 3

producers for the moment; at the other a completely integrated distributiondown to the village retailers. A distribution study was carried out at theend of 1974 by ODI to evaluate the best alternatives between the two extremes.This study included a survey of existing cement distribution channels in theOriental region with their pricing and transport aspects, a proposal ofactivities of CGiAC (the commercial organization envisaged to distribute

CIMA's production in Mlorocco), a financial comparison of alternative transportschemes, and proposals of a marketing and pricing strategy. CGMA carriedfurther the study of transport and pricing aspects , and made preliminaryestimates of CI14AC financing requirements and financial projections. Con-clusions reached by these studies were provisional as they were based on theexisting situation which could well change by the time CIOR starts production.The additional distribution studies mentioned above which will also cover thedistribution function beyond the factory or terminal gate, will finalize therecommendations of these previous ODI-CINA studies before implementation ofCIOR's commercial organization. The conclusions of the previous studies aredetailed below.

6. Despite some shortcomings of the existing agent-retailer distri-bution scheme described in Annex 3-2, it is not advisable for CIOR to rejectcompletely these channels and establish in parallel its own new and competingfully integrated distribution network. In the context of Morocco's economicstructure, the agents/retailers represent a significant group of traderswhich have the merit and the advantage of distributing all sorts of otherconstruction materials - activity which is not foreseen to be carried out byCIOR. Creating its own wholesaler/retailer network could be a risky operationunder severe competition and require a heavy financial and organizationalstructure. At the other extreme the present "laisser faire" attitude of theexisting cement producers is not the solution for CIOR as: (i) better tran-sport, storage and pricing arrangements are required to give the benefit oflow and stable prices to the final consumer; (ii) an aggressive marketingstrategy could help CIOR's turnover and improve its financial situation byincreased production in case the cement demand in the Oriental and prospectivemarket areas would not develop as fast as anticipated.

7. It is therefore proposed that CIOR would use existing distributionchannels but develop in its contacts with these channels a new marketingapproach with better transport and delivery arrangements. CIOR would leaveal'l dealings with retailers to the wholesalers, thereby leaving most of thetransport to these intermediaries and private transporters. CIOR woulddeal with existing and new wholesalers. The status of the wholesalers wouldin principle remain what it is presently, i.e., autonomy of the agent vis-a-visthe plant. However, in the relations of CIOR with the agents, emphasis wouldbe placed on large volumes by giving incentives such as quantity bonuses, andon market transparency by requiring agents to maintain and communicate salesstatistics to the plant. A good geographical dispersion of the agents willbe also required; in the Oriental region for example, some 32 agents dispersedin some 17 different locations appear necessary to distribute adequatelyCIOR's production all over the Region.

ANNEX 3-3Page 4

3. Transport of CIOR's Production Beyond the Oriental Region

8. The Fez and Casablanca areas are well accessible from CIOR's plant

by rail through the main Oujda-Casablanca line to which the plant is con-

nected by a short spur line. Distribution terminals could be established

at or nearby the freight railway stations of Fez and, if necessary Casablanca

(Ain Seba) while SORESMA's planned bulk terminal in the Casablanca port and

the SNMC plant, which may distribute CIOR cement in the Casablanca area, will

also be connected to the rail network. The Casablanca-Oujda line is presently

a single line but it is now being doubled between Casablanca to Fez and can

accommodate trains with a maximum load of 1,200 tons except between Sidi Kacem

and Taza, respectively 120 km West and 120 km East of Fez; on this stretch

grades of up to 1.6% and curves presently limit the train load to 900 tons, on

the basis of only one locomotive per train (ONCF the national railway company,

does not yet have diesel locomotives which can be coupled for traction).

9. Present traffic on the Oujda-Casablanca line is well run by ONCF.

With a maximum number of 32 trains and 14 trains per day respectively for

Casablanca-Rabat and Fez-Oujda, present track occupancy is below 65% of the

practical capacity as determined by the distance between sidings where trains

meet, signalling and train speed. On the most critical stretch between Fez

and Oujda, the addition of 8 trains (4 both ways) per day for CIOR's cement

would increase track occupancy to about 80%, but capacity could be increased

and considerable more traffic could be accommodated by: (i) manning some

intermediate stations or sidings in existence but presently not used, and

where trains could meet, and (ii) operate longer trains with multiple unit

locomotives and lengthen existing sidings. The first way of increasing

capacity would involve limited costs and is expected to be sufficient in the

medium term. Present freight traffic on the Fez-Oujda is about 400,000 tpy

while ONCF estimates that freight traffic of up to 6,700,000 tpy could be

accommodated before major investments will be necessary for doubling the line

or installing a sophisticated centralized signalling system.

10. ONCF has adequate experience in massive transport of bulk commodi-

ties; about 75% of its revenues are generated by transport of rock phosphatewhich reached a maximum of 20 million tons in 1974. Other bulk transport by

ONCF include petroleum products and fertilizers, but little cement which is

mostly transported in bagged form in small 20 ton box cars. ONCF presently

has about 10,000 freight wagons, but is also building new wagons, mostly

hopper wagons for phosphates through its subsidiary SCIF 1/, and is continu-

ously expending its locomotive fleet. Provided the necessary wagons arebought, ONCF should be capable of operating unit trains to transport CIOR's

production.

1/ SCIF: Societe Cherifienne de Material Industriel et Ferroviaire.

ANNEX 3-3Page 5

4. Handling of CIOR's Cement Sold Beyond the Oriental Region

11. Besides the transport itself, the other critical aspect of thedistribution of CIOR's cement outside the Oriental is the handling of cement:loading trains at the cement plant, unloading, storage and dispatch at thedistribution terminals. Considering the quantities involved (up to 2,000 tonper day (tpd) in 1985 of which 1,800 tpd to Fez), double handling at theterminals should be limited and unloading/unloading operations should be asfast and reliable as possible. The plant itself had been initially designedunder the assumption that most of the production earmarked to Algeria would bedispatched in bulk: 2 packing machines and bag-loading facilities had there-fore been foreseen to bag about 65% of CIIMA's total output in 2 shifts. Withnow about 90% of the production expected to be sold in bags in Morocco, CIORwill have to equip itself with additional packing facilities, essentially athird packing machine, at the plant or at the terminals.

12. In late 1976 with the assistance of cement distribution/transportconsultants (Ciments Francais) a preliminary transport and handling study wasundertaken which examined the following major alternatives:

(i) Bulk handling: loading cement at the plant in bulk wagons;transport to a bulk receiving terminalequipped with storage silos, a packing machineand fast dispatching facilities for loadingbags and bulk cement on trucks supplying thelocal wholesalers.

(ii) Pallethandling: installation of the third packing machine and

loading cement bags on pallets at the Oujdaplant in special covered freight cars; at theterminal, unloading, storage in sheds andreloading of the pallets on trucks by fork-lifts.

(iii) Conventionalmanual handling: installation of the third packing machine

at the plant; loading individual bagsby conveyor belts and by hand in normalbox cars; at the terminal, unloading,storing in sheds and reloading individualbags by hand, conveyor belts or individualtrolleys on trucks.

13. A comparison of the 3 alternatives for a distributionterminal located in Fez, capable of handling 540,000 tpy is givenbelow which includes the incremental costs in Oujda if all the packingis carried out at the plant i.e., in alternatives (ii) and (iii):

ANNEX 3-3Page 6

Comparison of Transport/Handling Alternatives

Bulk Pallet ManualHandling Handling Handling

Personal Requirements 42 50 130Operating Costs per year (DH'000) /a 1,240 1,370 2,490Capital Costs of Facilities (DH'000) /a 16,740 14,250 12,150Number of New Wagons /b 56 /c 62 /d (210) /eCapital Cost of New Wagons (DH'000) /a 9,800 8,700 ( -)

/a 1976 terms./b Including spare wagons for maintenance and contingencies.Ic Bulk wagons, of 80-ton gross weight and 59.6 ton capacity./d "EVS" wagons, 80-ton gross weight and 54 ton capacity i.e. 36 pallets./e Box cars of 20 ton capacity already owned by ONCF.

The pallet and bulk alternatives are preferable to the manual alternative, aswell from an economic point of view as shown above (independently of transportconsiderations) as from an operational point of view, since they are morereliable, and faster and thereby increase the time available to the loadingfacilities at the Oudja plant to handle CIOR's cement destined to the OrientalRegion. From a transport point of view, the comparative advantage of onesolution against the other will depend inter alia on: (i) the rotationof the wagons (shorter with the fast loading/unloading operations); (ii) theopportunity value of ordinary ONCF wagons (whether they can be consideredas surplus or on the contrary new ones have to be bought); and (iii) opportuni-ty value of the new special wagons (bulk or EVS) at the end of their operatinglife for CIOR. These depend in turn on ONCF's traffic prospects and thepossibility of a subsequent use of special cement wagons by other cementproducers. A comprehensive comparison of the alternatives should also takeinto account losses (substantial with manual handling of bags), unnecessarybagging (if the final consumer could be supplied in bulk), complementarity ofthe chosen solution with the transport of CIOR's sales in the Oriental, andthe flexibility of the system with respect to major variation in time of thevolume transported. The final distribution studies will take these factorsinto account, for various market scenarios, to recommend on the handlingsystem and type of wagons.

5. Distribution of CIOR Cement in the Oriental

14. Because of the shorter distances (maximum 200 km) involved in thedistribution within the Oriental Region, CIOR's transport pattern in that areawill also include other means of transportation than rail; the final selec-tion of the transport pattern will be determined until CIOR starts productionby variations in the comparative tariffs and prices of the different means.

ANNEX 3-3Page 7

Othter factors which will also determine this choice are: (i) differentialdevelopment of the local cement demand per subregion leading to a consumptionpattern different from the present one; (ii) the construction of a railwaylink between Nador and the main Casablanca-Oujda line thereby connectingthe major market of Nador directly to the plant; (iii) development of theprivate trucking fleet or on the contrary expanision of ONT's activities;(iv) development of sales of cement in bulk requiring special vehicles.

15. Because of CIOR's location on the main railway line it is likelythat at least 25% of CIOR's sales in the Oriental could be dispatched by rail.Between the alternatives for transporting the remaining 75%, dispatch inONT truck versus dispatch in a fleet of trucks owned by by CIOR, the latterappears the most economical with a cost 0.155 DH/tkm (1975 prices) versus0.206 DH/tkm with ONT. A CIOR owned fleet of 40 trucks required to transportsome 300,000 tons would cost some DH 6 million with supporting facilities.Such a large truck fleet which represents a heavy investment and thereforecarries a substantial financial risk, will not be necessary since many whole-salers will still prefer to take care of the transport themselves. It appearsmore realistic to consider for CIOR a basic fleet capable of transportingabout 20% of the plant's production destined for the Oriental. Part if notthe majority of these trucks could be bulk trucks for direct delivery to largecement consumers (such as ready mix concrete plants, prefabricated housing andother construction components) if more enterprises of these types develop inthe Oriental region as anticipated . In such case, CIOR's fleet would includea mixture of about 7 trucks of 20 tori and 10 ton capacity at a total estimatedcost of DH I milion (1976 prices). The precise composition of this fleet willbe one of the main conclusions of the required distribution/transport study.

6. Organization and Financial Status of CIOR's Commercial Department

16. CIOR will set up a commercial department handling sales withinand outside the Oriental, controlling the distribution terminals, and headedby a commercial director who would have equal standing as the plant manager,in view of his crucial role. While support facilities for CIOR's trucks wouldbe located at the plant and the main terminal, the commercial department willbe located at the Company's main office in the town of Oujda with the advan-tage of better business contacts.

17. Under the proposed pricing system, ex-factory costs and transport/distribution costs are treated separately. Costs of transports and total costof distribution (including depreciation and return on assets) up to theterminal's gate in other regions will be borne by the price equalizationscheme. CIOR will therefore maintain a separate accounts for all itsdistribution operations.

Industrial Projects DepartmentJanuary 1977

ANNEX 4-1Page 1

MOROCCO - CIOR CEMENT PROJECT

RAW MATERIAL AVAILABI'LITY AND ANALYSIS

A. Introduction

1. The location of CTOR is about 50 km south of the Mediterranean Coastat the northern edge of the plateau which forms the eastern extension of theAtlas range. The principal geological formations of the region are MarineJurassic sediments and a Quaternary continental cover. In the area of theplant itself the main geological formations are Quaternary/Tertiary (includingcalcrete and clay) and Middle Lower Jurassic. These Jurassic formations aremarine sediments including marl, limestone and dolomite. The calcrete coversthe clay deposits but is only occasionally present over the limestone deposits.

2. Following preliminary work by the "Service d'Etudes de Sites Mineraux'of Morocco, CIMA undertook in 1973 with the help of drilling contractors anda French geological consultant, detailed geological surveys to locate rawmaterials suitable for the manufacture of cement in the Oujda region. Tencalcareous deposits selected were then examined in greater detail and partlyinvestigated by drilling. This survey concluded that the most favorableprimary deposit was the limestone at Naima West, and the most favorable secon-dary material was the clay in the plain of Sidi Bou Houria to the north of theTaourirt-Oujda road.

3. Following these surveys anc: after signature of the Engineeringcontract in January 1974, APCM carried out the detailed geological studies.The drilling program started by CIMA was intensified and extended to coveradequately the limestone deposit and the northern clay deposit, and supplementedby the sinking of pits. A second clay deposit, more doubtful in quality butvery conveniently situated adjoining the proposed works site south of thelimestone deposit, was also investigated in detail as an alternative. Thedeposits were also mapped geologically using aerial photographs. Cores fromthe drilling were analyzed at the laboratories of the "Centre Experimental deRecherches et d'Etude du Batiment et des Travaux Publics" in Paris and theResearch Department of APCM. The following sections describe the procedureand results of these geological studies which appear adequate.

B. Limestone Deposit

4. The limestone deposit is located north close to plant site on theother side of the main Taourirt-Oujda road. Some 47 borings representing atotal length of 2800 m were completed within an area of some three squarekilometers covering the deposit. Samples from 19 bore holes representingone-meter intervals down to depths of 60 to 70 m were analyzed with regardto CaO and MgO content and losses to fire. From 19 bore holes representingsome 1083 m of core, a first batch of grouped samples, each representing fiveconsecutive metres, were prepared from the individual samples and submittedfor analysis for S02, A1203, Fe203, CaO, MgO, K20, Na2O, total S and Cl. Thesame procedure was applied on a second batch representing 538 m of core fromnine other bore holes and a third batch from six more bore holes. Materialfrom five bore holes, the analysis of which corresponds closely to the average

ANNEX 4-1Page 2

of the first batch, was selected, crushed and mixed to provide a bulk sampleof approximately 700 kg used later for manufacturers' tests. The results ofthe analysis of the two first batches of samples and of the bulk sample appearin table 1. Small samples of core were also selected for the determinationof the hardness and moisture content of the limestone.

5. The limestone body is structurally simple with the calcareoussuccession dipping north-east at an average angle of 3° and some minor folds.In some place the limestone is covered by some calcrete; the limestone or thecalcrete are exposed at the surface over much of the area. For practicalpurposes the overburden is not more than 0.5 m of soil as the calcrete couldbe quarried together with the underlying limestone. Minimum proved reservesincluded in a basic area of 390 ha with an average thickness of 59.4 m oflimestone amount to about 600 million tons (dry basis) of limestone. Whendrilling the deposit all water circulation was lost and no rest-water levelswere recorded in the boreholes. Only slight sub-surface inflow during exploit-ation of the limestone, apart possibly from that following heavy rain, istherefore anticipated.

6. The limestone is generally moderate in grade with a CaCO3 rangingbetween 79% and 93%. The southern part of the deposit reveals higher carbo-nate contents averaging 92% of CaCO3. Of the other constituents, the silica,alumina amd iron contents do not exhibit large relative variations; themagnesia content is however significantly variable and is such that the soleuse of certain sections of the limestone would result in the production ofcement with an excessive magnesia content and therefore potentially liableto delayed expansion. Limestone from some of the first boreholes couldyield cement containing from 4 to 7% M4gO while ASTM specifications impose alimit of 5% of MgO. The later boreholes revealed that the southern part ofthe deposit lhas less magnesia than the northern part. Further detailedstudies of the deposit, including histograms revealed that the distributionof the high magnesia beds is generally predictable; the persistence of thehorizons is such that the deposit may be quarried by normal selectivemethods to provide limestone of acceptable quality without the necessity ofsidecasting high magnesia material. The saturated moisture content of thesamples ranged between 0.2% and 5%. grinding tests (such as for the "liardgroveindex") confirmed that material is molerately hard and non-abrasive. Thechemical composition of the limestone is given in table 1 of this Annex.

C. Clay Deposit

7. The initial geological surveys lhad identified two possible claydeposits: the southern deposit adjoiniing the plant site and the nortlherndeposit at about 7 km from the plant beyond the limestone deposit. Althouglthe preliminary results suggested thal: the northern clay deposit wasqualitatively more favorable, its remote situation warranted the detailedinvestigation of the southern clays. Further investigation with bore holes,pits and chemical analysis of samples was therefore undertaken on botih deposits.

ANNEX 4-1Page 3

8. This detailed investigation of the southern clay deposit confirmedthe results of the earlier surveys: clay body variable in composition andof limited depth, variable and high magnesia content (4 to 5% of MgO), some-times combined with a too high silicat content. On this account the southerndeposit compared unfavorably with thc northern deposit and was thereby rejectedas a source of raw material.

9. The detailed investigation of the Northern clay deposit included6 pits and some 41 boreholes. Detailed chemical analyses were carried out onrecovered material representing each meter of the boreholes and bulk samplesfor equipment manufacturers were prepared of boreholes which had penetratedthe full thickness of the clay. Chemical analysis of the material is givenin table 1.

10. The clay deposit consists of 25 metres of visually uniform compactbrown clay with very occasional small, pebbles overlain by a few metres ofcalcrete and about 0.5 metres of soil. The calcrete of the top section hasan average content of CaCO3 slightly above 60%; although chemically thematerial is suitable for cement manufacture, it should be sidecast on accountof its variable physical and chemical nature; additionally, its high CaCO3content would necessitate a larger proportion of secondary material in themix and, in view of the distance of the deposit from the plan site, it isconsidered that the increased transpcrt costs incurred could not be justified.Below the calcrete, the clay has a CaCO3 content below 50% and a faily uniformchemical nature. The magnesia content is fairly high averaging 2.6% but aswith the other constituents the values determined were generally uniform, anddifficulty arising from variations in the magnesia content of the clay arenot envisaged.

11. The deposit could everywhere be exploited to a depth of 30 metres.Assuming that the high-carbonate upper five metres were to be sidecast, thetotal quantity of clay within an area of 250 ha amounts minimum to 116 millionton (dry basis). Taking into account the slopes of the excavation and accessmargins t:he net recoverable reserve is estimated at 100 million ton. Themoisture content of the pit samples averaged 14.5% implying an in-situ densityof 2.15 ton/m3. During the investigations, the pits sunk to 15 meters in thedeposit were dry and the boreholes were completed to 30 metres without encounter-ing appreciable water; no significant difficulty during exploitation frominflowing sub-surface water is anticipated.

D. Gypsutm

12. A gypsum deposit situated at about 50 kilometres from the plant hasbeen investigated and the material found to be suitable. This deposit belongsto the Ministry of Public Works and is presently leased to and exploited byprivate contractors. The gypsum will be purchased from this source and usedas an additive to clinker in a proportion of about 5%. The deposit willthereby be sufficient to supply the works for about 45 years. other gypsumdeposits are known to exist in the region and could be exploited at a laterstage.

ANNEX 4-1Page 4

E. Raw Material Composition

13. Combinability investigation was carried out by APCM using thelimestone and northern clay samples, to establish adequate areas of chemicalcomposition and raw mix particle sizing. The raw materials were proportionedwithin the Lime Saturation Factor range of 90% to 100%. This yielded mixesin which the silica ratio, alumina ratio and magnesia content were virtuallyinvariant at 2.6, 2.1, and 2.0% respectively. The analyses of these mixesare given in Table 2. In view of the relatively high magnesia content betterqualities of cement will be obtained by burning to a free lime content of 1%or less; to achieve this low free lime content it appears preferable toproportion mixes with Lime Saturation Factors in the lower nineties and grindthe meal to a residue of 10% + 90 microns rather than with Lime SaturationFactors approaching 100% which require finer grinding.

14. The earlier investigations of the clay deposits had indicated thatlocal variations in the chloride content could sometimes bring the level ofchloride in the raw meal near the upper end of the range acceptable for aprocess without bleed-off facilities for the kiln gasses. Initial design ofthe equipment had therefore considered an alternative arrangement with abypass for bleed-off which would accomodate chlorides up to 3 to 4 times thehighest levels of chlorides found in the clay. Further detailed investigationof the northern clay deposit then confirmed that selective quarrying of theample reserve would allow to control chloride content sufficiently below thecritical limit so as to eventually require a bleed-off arrangement only inthe later stages of exploitation. In addition, the blending system of theraw material primarily aimed at the control of the magnesia content will alsoreduce variations in the chloride content. Therefore, the equipment finallyselected for the plant does not include the bypass arrangement; it will howeverhave the flexibility through its layout and simple changeable access toaccomodate a bypass if required in the later years of production.

15. In the case of the alkalis and S03 , the balance is such that processperformance and clinker quality are dependent on the sulphur content of thefuel. A fuel oil with a sulphur content in the range 3% to 4% 1/ will beeminently suitable for preheater performance by combining with volatilizedalkalis into soft sulfates depositing in the lower part of the preheater andwhich would be self-removing. The final alkali sulfate level in the clinkerwill be such as to give very good early strength cement properties. Ifhowever, later on sulphur free natural gas is used as the fuel, the excess ofvolatilized alkalis over those required to form sulphates would be such thatrestricting alkali carbonate deposits might occur in the preheater; anincreased excess of alkalis over those as sulphate in the clinker would alsobe expected, with potential adverse effects upon clinker storage properties.This would be readily alleviated by adding approximately 0.5% S03 as calciumsulphate to the raw feed.

1/ Moroccan regulations specify a sulfur content below 3.5% and 4%respectively for heavy fuel oils No. 1 and No. 2.

ANNEX 4-1Page 5

16. Handling characteristics and grindability of the raw material havebeen investigated through various tests. Moisture absorption of samples wereexamined by determining saturation moisture: respectively 4.8% and 26.9%for the limestone and the clay. Assuming in extreme cases a maximum moisturecontent of 30% for the clay, the upper values of the moisture content ofthe combined raw material would range between 7 and 10%. The supplier ofmechanical equipment has therefore guaranteed output of the combined crushersystem for moisture content up to 7%. Laboratory grinding tests (HardgroveIndex, Batch Ball Mill, Bond Rod Mill and the Bond Ball Mill) confirmedearlier conclusions on the behaviors of the raw material during comminution:limestone, fairly hard to grind but typical of limestone used for cement-making; clay, soft, easy to grind but could cause cushioning problems ifnot dried quickly and removed from the mill. Crushing of the clay and lime-stone combined appeared therefore more adequate. The tests also provide anindication of the power requirements of the raw mill: between 18 and 26 kwh/ton to grind to fineness between 15% and 5% + 90 micron.

17. All these investigations by APCM concluded that the clay and lime-stone do not require corrective materials (such as sand, pyrite ash) andmixed in raw meal compositions as given in Table 2, the materials are suit-able for the dry process with four stage suspension preheater. The suitabil-ity of the raw material was also confirmed by the three equipment supplierswho introduced bids for the main equipment of the plants. The investiga-tions carried out by these suppliers on samples of raw materials confirmedthe findings of APCM. These suppliers confirmed the suitability of thematerial by accepting to guarantee the clinker output with the specifiedequipment. Results of one supplier's analysis of the raw materials andlaboratory clinker tests are detailed in Table 3, including the prospectiveclinker composition.

F. Special Cements

18. Although it is envisaged that CIOR will generally produce PortlandCement, the eventual production of special cements has also been studied.The studies indicated that with the process chosen the raw materials aresuitable for the manufacture of both sulphate resisting cement and low heatPortland cement. This would require some additional raw materials in theform of iron oxide and a silica rich component. Analyses of a typicalimpure iron oxide and sand required and examples of the proportions forpossible raw mixes for these cements are given in Table 4. Masonry cementscan be made, using as additives the available limestone plus a suitable airentraining agent. Pozzolanic cements can be manufactured with the additionof fly ash (available at the Jerrada power station near Oujda) or other pozzo-lanic materials. CIOR will also be able to produce blast furnace cement byusing slag from the SONASID steel project when this project starts productionin the early 80's.

G. Conclusions

19. The proved reserves of raw material are at least 600 million tonsof limestone and 100 million tons of clay respectively sufficient for 440 and260 years of production at 100% capacity utilization. The clay and limestoneused in simple mixes without any corrective materials are adequate for theproduction of clinker with the dry process kilns with suspension preheaters.Industrial Projects DepartmentDecember 1976

ANNEX 4-1Page 6

MOROCCO - CIOR CEMCHNT PROJECTTABLE 1

CHEMICAL ANALYSIS OF RAW MATERIAL

Limestone Deposit

Average Analysis Average Analysis Analysis ofof 19 Boreholes of 9 Boreholes 50 kg sub-sample(1083 m of core) (538 m of core) of bulk sample

SiO2 4.45 3.44 4.6A1203 1.45 1.o8 1.5Fe203 0.91 0.61 0.8CaO 49.26 51.55 49.7MgO 1.84 1.01 1.8K20 0.46 0.40 0.55Na2O 0.053 0.03 0.07Total S 0.074 0.02 0.02Cl 0.009 0.004 0.011

Northern Clay Deposit

Average Analysis of Analysis of 20 kg5-30 Metre Interval Sub-sample ofof 15 Boreholes Bulk Sample

T_%

Si02 46.36 47.2A1203 11.60 11.8Fe203 5.05 5-0CaO1 14.1MgO 2.69 2.6K20 1.87 2.0Na2O 0.26 0.34Total S 0.030 0.026Cl 0.030 0.033

Industrial Projects DepartmentDecember 1976

ANNEX 4-1tiage 7

MOROCCO - CIOR C5ENT PROJFCT

TABLE 2

PROPORTIONED MIXES

Mix 1 Mix 2 Mix 3

Mix Proportions 76.99% Limestone 78-40% Limestone 79.70% Limestone23.01% Northern Clay 21.60% Northern Clay 20.30% Northern Clay

Analysis (%)

SiO2 14.40 13.80 13.25A1203 3.87 3.72 3.59Fe203 1.77 1.71 1.65Mn203 0.04 0.04 0.04P205 0.06 0.06 o.o5TiO2 0.21 0.20 0.19CaO 41.51 42.01 42.47MgO 1.98 1.97 1.96S03 0.09 0.09 0.09S 0.02 0.019 0.018.Rquivalent S03 0.14 0-14 0.135Loss of Ignition 35.19 35.53 35.85K20 o.88 o.86 0.84Na2O 0.13 0.13 0.127quivalent Na2O 0.71 0.70 o.67Chloride 0.016 0.016 o.oi5

Lime Saturation Factor % 90.0 95.o 100.0

S/R 2.55 2.54 2.53

A/F 2.19 2.18 2.18

% liquid at 14000C 23.6 22.9 22.2(Lea & Parker)

Molar 303 0.17 0.17 0.17Molar K20 + ½ Molar Na2 0(No S03 from Fuel)

Molar S03Molar K20 + ½ Molar Na2O 0.77 0.78 o.80(No SO, from Fuel 0.5% S03added o raw feed)

Molar S03 0.76 0.78 0.80

Molar K20 + ' Molar Na20(using Fuel* containing3.5% S)

1!,ssuming 3.5 X oil consumption.

Industrial Projects DepartmentDecember 1976

ANNEX 4-1Page 8

MOROCCO - CIOR CEMENT PROJECTTABLE 3

CHK1vy,ICAL COMPOSITION OF SPECIEI CEMENTS

Low Heat Sulphate ResistingMix Proportions Portland Cement Portland Cement

Limestone 74.95 79*93Clay 11.35 7.89Iron Oxide 3.90 3.33Sand 9.80 8.85

Target Clinker Analysis

,iO2 23.8 21.0Al20' 4.5 4 0Fe203 6.4 5.6CaO 61.9 65.9%LSF 81.2 98.0S/R ; .18 2.19A/F 0-70 0.71

Potential CompoundComposition (BogueAssuming Zero Free Lime)

C),LF 19.5 17.0C3 A 1.1 1.1C2 D 44.1 4.4

C3S 31.9 74.0

Typical Analyses of Additives

Iron Oxide Sand

SiO2 8.o 65.5A1203 1.8 3.8Fe203 71.9 1.9CaC 3.4 14.2

Industrial Projects DepartmentDecember 1976

ANNEX 4-1Page 9

MOROCCO - CIOR CEMENT PROJECT

TABLE 4

RAW MIX TESTS AND RESULTING CLINKER QUALITY

Tests on raw mix with 79.3% limestone and 20.7% clay carried out by Polysius:

Raw Mix Clinker

Chemical Compositions(%)

Loss on Ignition 35.85 - -SiO2 13.59 21.18 21-47A1203 3.69 5.75 5.81TiO2 0.20 0.31 0.32Fe2O3 1.58 2.46 2.70

Mn2 3O _ _ _CaO 42.25 65.86 65.61MgO 1.82 2.84 3.14S03 0.11 0.17 -P205 0.02 0.03 0.05

Na2O 0.09 0.14 n.a.K20 0.78 1.22 n.a.Ci 0.02 0.03 n.a.

Total 100.00 99.99 99.10

CaCO3 (+MgCO3) titrated 77.48CaCO3 calculated 75.42MgCO3 calculated 3.81

Potential Mineralogical Composition (according to Bogue) (%)

C3S 64.98 61.01C2S 11.72 15.55C3A 11.07 10.83C4AF 7.48 8.20

Silica Ratio 2.43 2.43Alumina Ratio 2.46 2.27Lime Standard 97.3 95.4% Liquid at 1400°C (Lea) 26.55 27.45

n.a. = non available

Industrial Projects Department

December 1976

ANNEX 4-2Page 1

MOROCCO - CIOR CEMENT PROJECT

DETAILED PROJECT DESCRIPTION

A. Process Choice

1. The choice of the process is primarily determined by characteristicsof the raw materials, availability of water and the need to minimize fuelconsumption. When the materials are suitable to the dry process, this processhas a much better fuel efficiency than the wet process as illustrated by theirrespective energy consumption per kg of clinker: between 750 and 950 kcal/kgwith the dry process and above 1350 kcal/kg with the wet process. The naturalhumldity of the raw material mix in Oujda will generally be below 5% with occa-sionally possible peaks of about 7% during the short wet season. With thishumidity the fuel saving advantage of the dry and semi-dry process over thewet process are determining. In the choice between the dry and semi-dry pro-cess the principal factors are: availability of water, chemical propertiesof the raw material (alkalies, chlorides), and costs. While the semi-dryprocess generally achieves a better removal of chloride/alkalies, the chloride/alkalies contents of CIOR's raw material do not reach such high levels tojustify the higher investment costs and operating costs of the semi-dry processvis-a-vis the dry process. Because of direct use of water in the pellitizationof the raw material, the semi-dry process is fully dependent on steady supplyof substantial quantities of water; in the dry process on the contrary the useof water is largely required by sprayers for gas conditioning against dustpollution and can thus be curtailed during an emergency. This considerationwas important in the selection of the dry process for CIOR since no surfacewater but only sufficient underground water is available in the region.

2. Detailed investigations determined that the raw materials (Annex 4-1)are suitable for the dry process. A four-stage suspension preheater systemwas selected as giving the maximum heat (and fuel) efficiency when using thehot gases from the preheater for final drying of the raw material at thegrinding stage. No operating difficulties resulting from chloride circuits andclogging by alkali chlorides are expected in the preheater svstem as chloridecontents of the raw materials are below critical levels and can in additionbe controlled through selective quarrying and adequate blending. Blendingwill be performed by a pre-blending stockpile system for crushed raw material,which will also ensure adequate control of magnesia to an average level.

B. Plant Capacity and Flow Rates

3. The plant will have two parallel lines of mill and kiln equipment,with one rotary kiln each with nominal production capacity guaranteed undertest conditions at 1800 tons/day and capable of up to 2100 tons/day. To ensurethat the maximum output of the plant is not limited by an item of ancillaryequipment, each line of ancillarv equipment is designed for a maximum outputof 2100 clinker tons per day. Reliability is in addition enhanced by cross-connections between the two lines at various stages in the process. The run-ning time coefficient is conservativelv assumed at 85% corresponding to about

ANNEX 4-2Page 2

310 days per year: annual production will then depend on the capacity utiliza-tion. The capacity utilization will increase gradually along the "learningcurve" of the personnel of CIOR and with the solving of the usual technicaldifficulties of the first production years. It is expected that a 90% capacityutilization would be reached on the fourth year corresponding to about 1 mil-lion ton of clinker per year. At 100% capacity utilization of kiln (which isrealistic because of the conservative running time coefficient and the doubleproduction line) the annual output would reach 1,117,000 tons 1/ of clinker.

4. The final configuration of two lines (units) of production of500,000 tpy (ton per year) of clinker was chosen among several alternativesthe extremes of which being three units of 300,000 tpy and one single unit of1,n00,000 tpy. While capital cost per ton decreases as the size of the unitincreases, other factors determined also the final choice:

(i) Output reliability: Virtually no single 1,000,000 tpy unithas yet reached the same standard of reliability as achievedby smaller units. The reliability consideration is importantsince CIOR will only own one cement plant and in the eventof a breakdown will not be able to partially satisfy itsclients' requirements by diverting cement from other factories.With two 500,000 tpy units it should be possible to keep cus-tomers reasonably satisfied during periods of production diffi-culties as a customer will be inclined to stay with a supplierif his supplies are only reduced and not stopped altogether.On the other end of the size range, it is likely that 500,000tpy units will probably not give quite such good running timesas units of 300,000 tpy. However, the capital saving for500,000 tpy units, compared with 300,000 tpy units, is appre-ciable and offsets the small difference in reliability.

(ii) Transport and Erection: In the case of CIOR the difficulties ofunloading at the ports and land transport to the site practicallylimit the size of the units to 500,000 tpy. With units of thissize, the problems of unloading the larger components at theports and transporting them to site are much more easily solvedthan with larger units, which then also involve carrying outspecialized fabrication work on the site that is normally donein the suppliers' workshops.

Within this last limitation, the final choice of two 500,000 tpyunits was then a sensible compromise between the reliability of small unitsand the low capital cost of very large units.

1/ Based on the kiln guaranteed output; considering that the kilns canproduce up to 2,100 tons/day, the 100% capacity utilization at 1,800tons/day is equivalent to 95-98% of actual capacity of the plant ratedat 1.2 million ton of cement per year.

ANNEX 4-2Page 3

5. Capacitv and operating time of the various plant items and thevarious storage capacities are shown in the following tables:

Operating PeriodsPLANT DEPARTMENT Capacity Hours/Day Days/Week

Oluarrv 8 6Combined raw material crusher 1100 ton/hour 8 6Conveving to mill bunker 400 + 800 ton/hour To suit mill demandRaw mills 2 x 2100 ton equiv.

clinker/day 24 7Preheater 2 x 2100 ton equiv.

clinker/day 24 7Kiln, Coolers 2 x 1800 ton clinker/

day /I 24 7Clinker Conveyor 2 x 250 ton/hour 24 7Clinker (Additive extraction

from silos) 2 x 120 ton/hour To suit mill operatorClinker grinding 2 x 110 ton/hour 24 7Cement Conveying 2 x 300 ton/hour To suit mil operationCement Packing 2 x 110 ton/hour /2 16 6

STORAGE Capacitv

Blended Raw Material Stockpile 2 x 50,000 T 9

Raw Meal Blending Tanks 2 x 3,000 TRaw Meal Storage Tanks 4 x 4,800 TClinker - Silos 2 x 10,000 T

- Outside storage unlimitedPozzolana - Silo 1 x 5,000 T

- Outside unlimitedLimestone - Silo 1 x 5,000 T

- Outside unlimitedCvpsum - Silos 2 x 600 T

- Outside unlimitedCement Silos (Packing) 6 x 4,000 TCement Silos (Bulk Rail & Road) 6 x 2,750 THeavv Fuel Oil 2 x 3,000 TLight Fuel Oil 1 x 300 t

/1 Guaranteed - but could actually produce 2,100 tpd./2 Could be supplemented by a 3rd machine if all bagging is done at the

plant instead of bagging part of the production at the distributionterminals.

/3 Actual stock being 50,000 T as one pile is being reclaimed while theother is being formed.

The capacities of the blended raw material stockpile and of some of theenclosed storage facilities (silos) are not as large as in plants with onesingle line of equipment, the main reason being the better reliability in-sured by the two different lines with cross-connections at the various

ANNEX 4-2Page 4

stages in the process. In addition most enclosed storage facilities (suchas for clinker storage) are supplemented easily with open air storage which

is feasible because of the dry climate of the area. Of the two raw materials,

especially adequate supply of clay is to be arranged because of the longerdistance of the quarry to the crusher and more difficult quarry operation in

case of rain: an emergency clay stockpile will therefore be established near

the crusher. Because of this provision and the provision of sufficient sparequarry loading equipment no larger capacity is required for the blended raw

material stockpile.

C. Summary Description of Project by Procurement Packages

6. Detailed preparation of the project is done by APCM which has

divided it in various procurement packages detailed in the table below.

This table also gives the financing source for the foreign exchange com-ponent of each package.

Financing source of theProcurement Package foreign exchange cost

1. Civil Works (CTRA-ENATRA site pre-paration contract): earthworks,drainage, service directs, sewage,roads, temporary offices CIOR

2. Buildings and Foundations (main civilcontract - Construcoes Technicos). IBRD

3. Infrastructure: water supply, electricity,social facilities, land, rail. CIOR

4. Mechanical Equipment (Polysius contract):- supply, transport IBRD, CIOR- erection, supervision of commissioning,

training, spares IBRD5. Inspection Services of the Equipment (Kennedy

& Donkins contract) IBRD6. Standby Generators: 2 GCGE diesel alternators

500 kVA IBRD7. Electrical Equipment (Brown Boveri contract):

supply and installation of substations anddistribution network IBRD

8. Process control (COMSIP contract) IBRD9. Quarry Equipment for Excavation: 3 loaders

(International), 2 back hoes (Poclain) and 1bulldozer (Komatsu) IBRD

10. Other Quarry vehicles: 6 quarry lump trucks IBRD(Perlini), 6 "on-off" highway-dump trucks (Berliet)

11. Drills and Compressors (Atlas Copco) IBRD12 Workshops: mechanical and electrical workshop

machines and tools, vehicle repair equipment IBRD13. Laboratory Equipment IBRD14. Other vehicles: 2 cranes, service vehicles and

switch locomotive CIOR

ANNEX 4-2Page 5

D. Descriptiono Proje by Department

7. The various departments are illustrated on the Plant Layout (Annex4-3) and on the Process Flow Sheet (Annex 4-4). A detailed description ofeach department is given hereafter.

Quarries

8. The limestone quarry will operate simultaneously on a 2-benchsystem of about 15 m depth each to average the variable magnesia content.The stone drilled by 2 compressed air drills and blast will be recovered bytwo plus one standby loader. No secondary blasting appears necessary. Con-veying to the crusher located near the quarry will be done by 5 (plus 1 stand-by) 35 ton quarry type dump trucks. After 4 to 5 years of operation thequarry face will be high enough to effectively use 2 face shovels which willthen supplement or replace the loaders.

9. Removal of the calcrete overburden of the clay quarry will requireripping and pushing with a heavy duty bulldozer. To avoid operating diffi-culties with occasional surface water the clay will be recovered by 2 backhoe type machines operating on top of the quarry face in dry conditions.Transport to the crusher about 7 km away will be carried out by 5 (plus1 standby) "on-off" highway dump trucks.

Raw Material Crushing

10. A combined crusher rather than two separate crushers, one for clayand one for limestone, has been selected for the raw material crushing. Thereason is that in a separate clay crusher, the stickiness of the clay whichunder extreme rainy conditions (about 20 days a year) could reach a highmoisture (as high as 30%), could result in difficult handling and crushingproblems. In a combined crusher where clay and limestone are mixed in thecorrect proportion, the effects of stickiness are reduced as limestone tendsto keep the crusher free from build-up. This consideration was illustratedby the fact that the three suppliers who submitted bids accepted to quaranteeoutput of the ccombined crusher at 7% moisture as requested, but did notguarantee output under moist conditions for a separate clay crusher proposedunder an alternative solution. The selected combined crusher will be of thedouble rotor hammer mill type fed by two separate feeders with automaticdistribution to combine the clay and the limestone in adequate proportions.The system including screening and recirculating mill will be guaranteed tomeet the requirement of-crushing 1,100 ton of combined raw material per hourdown to a product size of 98% passing 25 mm at a combined moisture contentof 7%.

Raw Material Conveying and Blended Stockpile System

11. The raw material will be transferred from the crusher across theroad to the stockpile near the main plant by a conveyor of about 600 m crossingthe road under a concrete bridge. The conveving system will include transfer

ANNEX 4-2Page 6

towers and a automatic sampling plant which will provide a 2 kg/hour continuousand representative sample of combined material feed. The svstemt will alsoinclude provision for later installation of a totalizer belt weigher.

12. The blended raw material stockpile will consist of 2 x 50,000 tonuncovered heaps. The fully automatic stocking-out and reclaiming system willinclude stocking and reclaiming machines travelling on rails and conveyors upto the raw material bunkers ahead of each raw mill. This type of stockpilesystem provides adequate blending as the stocker continuously travels alongthe piles and deposits thin peel-like layers while the reclaimer changingposition very slowly cuts vertical slices all through the heap of material.The system will operate on the basis that the carbonate content of the rawmaterials in the stockpiles will be just below the kiln feed requirement; thisallows carbonate correction at the raw mill with pure limestone and avoidshandling difficulties as would be the case if carbonate of the stockpile wasabove kiln requirements and correction was achieved with sticky clay. Aseparate conveyor line will therefore transport limestone from the crusherdirectly to bunkers ahead of each raw mill.

Raw Mill

13. From the raw mill bunkers the blended raw material and correctinglimestone will pass through weight control feeders to be fed in the two sep-arate raw mills. The raw mills will be of the closed circuit airswept type.Each mill system will operate in conjunction with a particular preheater/kiln svstem and use waste heat from the kiln gases to drly the raw material.Both systems will be connected to a common auxiliary furnace providing hotair and sufficient for one mill when waste heat is not available from thekiln. Each mill will be guaranteed by the supplier for an output of 140 ton/hour over a continuous 24 hour period (equivalent to a clinker output of 2100tons ner 24 hour) under 7% moisture and when producing 10% residue on a 4900mesh sieve with 1% on the 900 mesh sieve. The supplier also guarantees powerconsumption of the mill motor.

Raw Meal Blending and Storage

14. The raw meal blending/storage installation will inc'lude 2 x 3,000ton blending tanks and 4 x 4,800 storage tanks, the blending tanks sittingabove two of the storage tanks. At the internal floor level within eachblending tank a low and high pressure aeration system is installed anddivided into four quadrants. A system is provided whereby high pressureair can be admitted to each of the quadrants in sequence and at the sametime, low pressure air admitted to the remaining three quadrant sections.At the top of the blending tanks an interconnecting airslide conveyor isprovided. Three methods of blending can be used with this arrangement:continuous blending (the whole operation is carried out in one tank), con-tinuous cascade blending (successive blending in the two tanks) and batchblending (using the tanks alternatively). This choice among the three alternative

ANNEX 4-2Page 7

methods insures continuous operation even when one of the tanks is out oforder. The differential pressure procedure insures adequate blending of theraw meal which is then fed into the storage tanks.

15. The storage tanks are conventional storage silos equipped at theirbase with air slides which extract the blended raw meal. This material isthen elevated and fed, in excess of the require rate, to a weighter system(with return convevors) which controls the correct amount to be conveyed tothe preheater.

Kiln Plant

16. The kiln plant will consist of two lines of equipment each incor-porating a conventional 4-stage preheater, a short length rotary kiln withplanetary coolers at the outlet of which will be a clinker breaker. The kilnswill be guaranteed by the supplier for a clinker output of 1800 ton per 24hours continuous day with the coolers rated for cooling clinker to 1500 Cabove ambient temperature. The heavy duty fans of the preheater and the plan-etary coolers will be designed to allow production up to 21no ton per day.The kiln will have an extra length for pre-cooling prior to the cooler inletports and a system to prevent sDill back of the clinker from the cooler toavoid brasion of the firing pipe. Although it is anticipated that the kilnwill operate at least during the first years with heavy fuel oil, the installa-tion will be designed for firing with fuel oil and/or natural gas with facili-ties provided to enable quick changeover from one fuel to the other. Theequipment supplier has guaranteed a thermic consumption of 830 kcal/kg clinkertising oil having a minimum calorific value of 9600 kcal/kg and 850 kcal/kgof clinker using natural gas having a minimum calorific value of 7on0 kcal/Nm3.

Clinker Handling and Storage

17. ITeavv duty clinker breakers with collecting boxes and vibratingfeeders -7il] distribute clinker on both of the two elevating bucket typeconvevnrs. The two convevors, each with a capacity of 250 tonthour willoperate on the '-asis of one working and one on standby: thev will feed ona reversing shuttle conveyor positioned above and feeding the 2 x 10,000 tonclinker silos or alternativelv feeding a 300 ton hopper from where tippingvehicles or mobile convevors could remove inferior clinker and if necessarvextra clinker for outside storage. Another hopper on the clinker convevingsystem will enable the reintroduction of this clinker stocked in the open.

Transportation and St orage of Additives

18. The gypsum will be brought to the nlant by road transport, depositedin a single hopper and fed bv conveyors in 2 x 6no ton silos. The same systemwould be used for pouzzolana and blast furnace slag which would be stored ina 3,000 ton silo. (ypsum and pouzzolona could also be stored outside and fedinto the same hopper. The crushed limestone required for special types ofcements will be obtained from the main crushing plant in the quarry area andproduced outside the normal crushing period required for feeding to the raw

ANNEX 4-2Page 8

material blended stockpile. From the first transfer tower before the blendedstockpile, this limestone is fed through a separate conveying system to a3,000 ton silo near the cement mills.

Clinker Grinding

19. Clinker grinding will be carried out by two closed circuit cementmills incorporating two elevators per mill. Each mill is independentlysupplied with clinker from one of the clinker silos. Extraction of thispossibly hot clinker is automatically weight controlled in correct proportionwith the gypsum. The manufacture of special cements requiring limestone orother additives will be confined to the mill nearest to these additivesstorage silos (also equipped with extraction equipment controlling weight).

20. Each mill will be guaranteed to an output of 110 ton/hour whengrinding Ordinary Portland cement to 3,000 cm2/gm Blaine. Gases from themill will be treated in electrostatic precipitators before being exhaustedto the atmosphere. The internal water cooling systems provided in the millswill help the treatment of the waste gases in the precipitator by conditioningthe gases and ensure that the quality of the cement product is not inferiorand subject to "air-setting." The mill motors will be located in a separateroom distinct from the general mill area thus ensuring that the motors operatein the cleanest possible working conditions.

Cement Conveying and Storage

21. Conveying of cement to the storage silos will be carried out withbelt conveyors or alternatively by pneumatic handling. Cement to be dispatchedin bulk will be stored in 6 silos of 2,750 tons, each arranged for directloading into rail or road vehicles. Storage of cement for the packing plantwill be provided by 6 silos of 4,000 tons each. Total bulk storage capacityis thereby equivalent to about two and a half weeks of production. The numberof silos for each installations (bulk dispatch and bagging) is sufficient toaccommodate different grades of cement with changes in their relative ratesof production. The storage in silos can also be supplemented by storage inbags in the open.

Cement Bagging

22. The bagging plant will include two 8-spout packers each rated 110ton/hour to pack ordinary and special cements in 50 kg bags. These bagswill be distributed to either road or rail loading systems. The road loadingfacility will consist of four suspended retractable conveyors reducing manualtransport to an absolute minimum and allowing forward driving of the roadvehicles. The rail loading system will include conveyors delivering on bothsides of a large loading platform. Elevators and conveyor are also foreseento receive empty sacks by rail or road.

ANNEX 4-2Page 9

Dust Control Facilities

23. After passing through the preheater (and the raw mills when oper-ating) gases from each kiln will be treated in a gas conditioning tower (withwater sprayers) and electrostatic precipitators before being discharged tothe atmosphere through a common stack. The dust content of the gases afterthe precipitators will be guaranteed by the suppliers not to exceed 150 mg/Nm3at the output of 1800 ton of clinker per day and other specific levels forother rates of production.

24. Gases from the cement mills will be exhausted separately to theatmosphere after treatment by other electrostatic precipitators for which themaximum dust emission will be guaranteed not to exceed 115 mg/Nm3 at the guar-anteed output of the mills. The packing plant system will be equipped withtwo main and separate dust collecting facilities with separate dust collectorsto the conveyors. All through the plant the various belt conveyors will beprovided with enclosed gantries with asbestos roofs and side panels.

Process Control

25. The raw materials of CIOR do not present such variations and do notrequire other corrective materials for the mixes as to require sophisticatedand expensive computer or direct digital controls. In addition to theirhigher costs (about 20% more in equipment cost than normal process controlequipment and higher personnel costs) computer systems require special person-nel which would be difficult to recruit and keep for Oulda. Substantial teeth-ing troubles are experienced with such systems which are better handled incompanies with several plants with such systems and can afford a specializedcomputer unit in their organization. For these reasons, none of such schemeswill be provided to CIOR. The control systems will be designed along conven-tional methods implving more personnel on the controls. Such design will notpreclude the incorporation of computers in the far future when plentv specialcomputer personnel would be available in Morocco.

26. The design oblectives of the process control system will be to pre-sent process data and controls to run the plant at optimum levels of outputand quality and also provide automatic protection of equipment and personnel.In addition to manual controls, automatic controls will be provided whenfeasible to assist in material feed rates, flows, temneratures and pressures;various types of sensors, visual and audible alarms and devices shutting downautomatically sections of the plant in certain circumstances will also beprovided. Process information and control of the majoritv of the plant willbe assembled in a main control center. Local control centers are also plannedfor the quarry, cement grinding, cement storage, cement packing and dispatch.

ANNEX 4-2Page 10

Workshops

27. A main basic mechanical workshop, an electrical and process controlworkshop will be installed on the plant site. In addition, a mobile equipmentrepair and maintenance depot will be located in the limestone quarry area toavoid transporting quarry equipment across the main highway. This facilitywill be supplemented by mobile maintenance trailers to service heavy dutyequipment on the spot in the quarries.

Miscellaneous

28. A laboratory will be provided to undertake physical and chemicaltesting of raw materials and cement products. The equipment will includean "off line" x-ray spectrometer complete with sample preparation equipmentand other miscellaneous items.

29. General service vehicles and mobile equipment will include mobilecranes, medium size tipping vehicles and a switch locomotive.

Services

30. Training and technical assistance are discussed in Annex 4-6.

31. Engineering, planning, procurement and general supervision ofconstruction and start-up are being carried out by APCM. APCM has subcon-tracted detailed design and supervision of civil works to the consultantsOscar Faber and Partners, and studies in Morocco to the consultants MagrebProj ects.

32. Detailed design and supervision of commissioning of some specificpackages will be done by the respective suppliers (mechanical equipment,main detailed contract, process control equipment) or by ONE for the electri-city supply (see Annex 4-4). The other packages consist of off-the-shelfitems to be procured directly.

Industrial Projects DepartmentJanuarv 1977

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ANNEX 4-5Page 1

MOROCCO - CIOR CEMENT PROJECT

UTILITIES AND INFRASTRUCTURE

A. UTILITIES

Fuel

1. The plant is basically designed to use heavy fuel oil of the typeNo. 2 presently produced in the two refineries of the Moroccan CompaniesSAMIR (Societe Marocaine de Raffinage) and SCP (Society Cherifienne desPetroles) located respectively in Mohammedia and Sidi Kacem. Physical andchemical characteristics of the heavy fuel oil No. 2 appear in Table 1. Atfull production, CIOR's total fuel requirement will be about 90,000 tons ofheavy fuel per year or about 5% of the country's estimated heavy fuel demandbv 1980. The supply of this amount to CIOR has been taken into account bythe refining companies whose combined total refining capacities are beingincreased from 3 million ton per year to about 6.5 million ton. In addition,a third refinery of 2 to 3 million ton capacity is planned for the lateseventies. The distribution of oil products is carried out independentlyfrom the refineries by distributing companies. Physically CIOR is however,expected to receive its fuel by rail directly from the Sidi Kacem refinery.For this purpose 2 storage tanks of 3,000 tons each I/ and unloading facilitieswill be provided near the railway sidings. A 300 ton storage tank also isprovided for light fuel oil for the electric standby generators.

2. The plant design takes into account possible later use of naturalgas. The natural gas distribution network in Algeria will shortly becompleted up to the Moroccan border. Plans had previously been made to extendthe distribution to Morocco including to the plant, but have been shelvedwith political difficulties between the two countries.

Electricitv

3. CIOR will be supplied with electricitv by the Office National del'Electricite (ONE) from its new overhead high voltage transmission linepassing to the south 6 km from the plant. The connection will include a225/60 kV substation near the main 225 kV line, two 6n kV overhead lines,a 60/11 kV substation just outside the plant. The large substation and theoverhead lines are paid for by but installed and maintained by ONE. Detailedengineering and procurement of these installations have also been carried outby ONE. Total power requirement of CIOR is estimated at about 122 millionkWh per year with peak demand of about 25,000 kVA.

1/ Equivalent to 3 weeks of CIOR's fuel consumption at full production.

ANNEX 4-5Page 2

4. Distribution at the plant will mainly include the 60/11 kV substationand networks for 3 different voltages (11 kV, 5.5 kV and 380 Volt accordingto the power requirement of the various equipments and installation). Incase of external power cut, two standby diesel alternators of 500 kVA eachwill provide sufficient power for essential operations, i.e., barring of thekiln. water supply, emergency lighting, process control and other criticalservices. Design and procurement of the distribution network has been carriedout by APCM.

Water SupDly___

5. Water will be required mainly for (i) gas conditioning before theprecipitators, (ii) spraying in the cement mills, (iii) cooling of the kilnbearings and (iv) human use on the site. Maximum demand during full productionis estimated at 16 1/sec. Supply will be provided by a deep well located atless than 1 km of the plant near a borehole which was drilled and tested bythe "Direction des Ressources en Eau" of the Ministry of Public Works. Thewell will be equipped with submerged pumps to tap a deep aquifer of lowsalinity, different from the shallow aquifers used for agriculture. Thewater services will include a filtration plant, a circulation system andprovision of drinking water. Foul drainage and sewage treatment facilitieswill also be provided.

B. INFRASTRUCTURE

Transportation

6. A short single railway line has been completed to connect the plantto the main Casablanca-Oujda-Algeria line passing 2 km south of the plant.In the works are several railway sidings that will allow loading wagons withbulk and bagged cement and unloading of fuel. Detailed design has beencarried out by Oscar Faber with the approval of the national railway corpora-tion (ONCF). Earthworks for the connection and the sidings were executed aspart of the site preparation contract. The installation of tracks andsignalling equipment was done by ONCF's usual contractors.

7. The plant is immediately adjacent to the main road from Oujda toFes. Only quarry roads and roads for circulation in the plant need to beconstructed.

Housing and Recreation Facilities

8. It is the general practice in Morocco that mining and industrialenterprises located in remote areas provide accommodation at least for theirstaff and sometimes for their workers. As the major town of Oujda islocated about 45 km from the plant, accommodation for the plant personnelwill be provided closer at the small town of El Aioun 15 km from the plant,where a complex will be built including houses for about 440 families and

ANNEX 4-5Page 3

recreation facilities. This solution is preferable to building the complexnear the plant where no infrastructure and living community presently exist. InEl Aioun on the contrary, CIOR's plant personnel will benefit from theexisting infrastructure and other amenities. Limited accommodation will beprovided in Oujda for CIOR's upper management, while other staff workingthere at the company's main office should be able to find accommodation inthe town itself.

Industrial Projects DepartmentJanuary 1977

ANNEX 4-5Page

MOROCCO: CIOR CWENT PROJECTTABLE 1

AVERAGE ANALYSIS OF FUEL OIL NO. 2 PRODUCED BY SAMIR

Specific Gravity at 15° o,95Specific Heat 0,145 kcal/m3Higher calorific value 10.500 kcal/kgNet calorific value 0 9.710 kcal/kgEngler Viscosity at 99 C 30

at 700C 90at 500C 270at 38°C 610

Flash point 1300Sediments % volume traceWater % volume traceSulfur 2,20Conradson index % weight 7,7Organic Acid -Asphalt % weight 3,5Composition C/H/S/I % 85,7/11,4/2,2/0,7Sodium ppm 300Potassium ppm -Calcium ppm 24Magnesium ppm 24Lead ppm tracesNickel ppm tracesVanadium ppm 100

Industrial Projects DepartmentDecember 1976

ANNEX 4-6Page 1

MOROCCO - CIOR CEMENT PROJECT

iECOLOGY

Introduction

1. Potential ecological problems posed by dry process cement plants areair pollution mainly, and noise pollution. No specific standards regardingpollution control have been established in Morocco but new cement installa-tions are generally designed according to European standards. The CIOR plantis being designed according to such pollution control standards, and inparticular along the British regulations for Cement Works Emissions. Occupa-tional health and safety is taken care of in a similar manner, especiallythrough the training program and the technical assistance. As detailed inthe next paragraphs ecology, occupational health and safety aspects are beingdealt with adequately. In addition, the location of CIOR is qulite suited toa cement plant: semi-desertic area, no town or other population centers inthe vicinity (Oujda is 45 km away, Naima and El Aioun about 15 km away),only few isolated houses and not located close to the plant, no major agri-cultural activities (mainly livestock breeding, scarce and intermittentcultivations). No environmental problems are thereby anticipated.

Air Pollution

2. Special attention is being given in the design and procurement ofthe equipment to the control of dust emission. The main sources of dust andgases i.e., the raw mills, kilns and cement mills, will be provided withspecial gas treatment facilities including precipitors. After their passagethrough the cyclones of the preheater system, and subsequently through theraw mills (when these operate), the gases from each kiln will pass throughconditioning towers with water sprayers before treatment in a set of electro-static precipitators. The treated gases from both lines are then exhaustedto the atmosphere through a common stack. The precipitators will be guaranteedby the supplier for a maximum dust content not to exceed 150 mg/Nm3 at theoutput of 1,800 ton of clinker per day. Similarly, gases from each cementmill will be treated in electrostatic precipitators after conditioning bythe cooling water in the mill. These precipitators will also be guaranteedfor a maximum dust emission not to exceed 115 mg/Nm3 at the guaranteed out-put of the mills. Dust collected in all precipitators will be returned tothe material flow of the production process.

3. Dust control devices will be provided on the potential secondarysources all through the production process. The bagging plant will beequipped with 2 main separate dust collecting facilities. The raw materialcrushing plant and the various silos (raw meal, clinker, additives, cement)will also be equipped with dust filters. The various belt conveyors willbe installed in enclosed gantries. No dust problems are anticipated from

ANNEX 4-6Page 2

wind blowing over the open raw material stockpile as the period of strongwinds coincides with the rainy season during which the blended raw materialwill be humid mainly because of the clay moisture.

4. No pollution problems due to specific elements in the gases suchas chloride, alkalies or sulfur components are anticipated. Chloridecontent in the raw material will remain below the critical levels requiringa bypass arrangement for gas bleed-off and thereby avoids the problem offinding a suitable disposal for dust rich in chloride collected in a bypass.Alkalies volatized in the kiln will combine in the preheater with sulfurfrom the fuel into soft self-removing sulfates which improve the qualityof the clinker.

Noise Pollution

5. The raw mill and cement mills which are major sources of noise willbe installed in enclosed buildings. The process control system designedwith self contained local control centers (quarry, cement grinding) and amain control center will allow the personnel to run the plants from roomsadequately insulated against noise. Intake hoppers (such as at the rawmaterial crusher) will be lined with shock and noise absorbent material.

Liquid Effluents

6. No liquid effluents in substantial quantitites will result from theproduction process: water sprayed is evaporated in the conditioning towerswhich are guaranteed to remain dry at the bottom, cooling water for the kilnbearings is recirculated. Liquid effluents will come mainly from waterdirectly used by the personnel and will be treated in separate foul drainageand sewage facilities.

Occupational Health and Safety Hazards

7. During the course of the training program with APCM and the equip-ment supplier in European plants (see Annex 4-7), CIOR's personnel willbe trained to operate according to technical standards, including pollutioncontrol, safety and health measures as enforced in Western Europe. Technicalassistance will further develop health and safety procedures after startup.Automatic shutting devices provided in the process control equipment, standbygenerators (supplying power to emergency lighting, water supply and othercritical services in case of external power cut) and general safety consider-ations in the design and selection of equipment (against burns, exposure tomoving parts, etc.) will provide adequate protection to the personnel.

Industrial Projects DepartmentDecember 1976

ANNEX 4-7Page 1

MOROCCO - CIOR CEMENT PROJECT

LABOR FORCE, TRAINING AND TECHNICAL ASSISTANCE

A. Labor Force Requirements

1. At full production the total personnel requirement is estimatedat 441 persons excluding the commercial Department with the followingqualifications and breakdown by Department.

CIOR - Estimated Personnel Requirements

Technical Clerical Unskilled SkilledDepartment Management Staff Foremen Staff Workers Workers TOTAL

DirectionGenerale 1 - - 2 - - 3

PlantManagement 1 1 1 6 - - 8

Production 4 8 17 6 29 100 164

Maintenance 3 3 35 1 9 95 146

Procurement 1 2 1 3 - 5 12

Planning 1 2 - - - 1 4

Training Safety 1 5 3 1 - - 5

Administration 1 - - 23 20 23 71

Finance 4 - - - - - 27

Commercial n.a. n.a. Aia. n.a n.a. n.a. n.a.

TOTAL 17 18 54 69 58 224 440

The Personnel requirements for the Commercial Department depend on the type ofdistribution facilities selected for Fejand' Casablanca and will be determinedby the distribution study as outlined in Annex 3-3.

ANNEX 4-7Page 2

2. The personnel is scheduled to build up gradually to reach fulllabor force by the end of 1978 according to following program.

1975 1976 1977 1978

- Mfanagement/Engineers 11 12 17 17- Technical Staff/Foremen 7 14 62 72- Clerical Staff 10 12 36 69- Skilled/Unskilled workers 6 6 94 282

Total 34 44 209 440

This scheduled has been designed in light of the training requirements detail-ed in the next section and planned production start-up.

3. In accordance with this schedule CIOR has recruited engineersand other top technical staff for whom the training program is under way.There is presently in MIorocco a very strong demand for graduates with techni-cal degrees; it is therefore necessary to attract them with high salaries.Recruitment of personnel of all other kinds is easier. Many responses toCIOR's advertising and spontaneous enquiries from lower technical staff andskilled labor have come forward. Direct contacts with the population in theOujda region while workers have been hired for the geological investigationsand for civil works, have also indicated that recruitment for labor in thearea would not present difficulties. With the unemployment in the region thenew work opportunities for labor in the CIOR plant will be beneficial.

B. Training

5. Without cement production facilities of its own already operatingand without substantial help from other existing cement producers who needpersonnel for their own expansions, CIOR has to resort to new personneland train them intensively. An important training program has thereforebeen established with APCM in cooperation with Maghreb Projects, CIOR'straining manager and the equipment suppliers. This trainingprogram which has started well in advance of production plus the technicalassistance during the first years of production (explained in Section C)appear adequate. Training of the accounting staff is discussed in para 6.07.of the main report.

6. Training for the 65-man technical staff and key skilled workersis being carried out by APCM and the mechanical equipment supplier as detailedbelow:

ANNEX 4-7

Page 3

TRAINING PROGRAMNo. of Personnel

APCM Equipment Supplier

Personnel 6 months 12 months 6 months 9 months

Plant Manager - 1 1 -

Laboratory:Chemists 19 1 1 1Production:Production Manager - 1 1 -

Quarry Superintendent 1 - - -

Production Superintendent 8 1 - -

Skilled Operators - - - 8Maintenance:Maintenance Manager 1 1 - -

Mechanical/Electrical Engineer - 4 - -

Superintendents 16 - - -

Skilled Labor 1 - - 10Others:Stores Superintendent 2 - - -

Training Officer - i - -

Administrative Manager 1 - - -

Chief Accountant 1 -

Total 50 10 3 19

7. The training by APCM has been provided in the United Kingdom to allstaff (from Management down to foreman). This program includes instruction atAPCM training facilities and practice through full participation in operationsin several cement plants mainly in the dry process plant at Hope. This programalready under way will be executed over a period of 3 years and comprise 2training sessions of one year for 5 persons each and 5 sessions of 6 months for10 people each. The number of persons recruited and trained will exceed theactual requirement to allow for defections.

8. Training by the supplier Polysius is part of the mechanicalequipment contract. Polysius will be responsible for the organization andimplementation of the training program which has been proposed accordingto the schedule here above. Some 22 key personnel including some trainedalso under the APCM program plus skilled operators of key equipment are beingtrained in European cement plants using similar equipment as CIOR for periodsof 6 or 9 months each. Shorter training periods (1 to 2 months) are alsoprovided, essentially as familiarization sessions in Europe, by the suppliersof electrical and process control equipment.

9. Among the first batch of personnel trained by APCM was a trainingspecialist with a background in technical education who presently manages apermanent training unit in Morocco. Following his return in August 1975he established this recruitment unit. Simultaneously upon return from theirtraining with APCM or Polysius the other personnel collaborate with

ANNEX 4-7

Page 4

APCM on design, procurement, supervision of construction and installation ofthe plant. Some key technical staff and the financial manager will alsoreceive additional training through 1-3 months assignments in existingplants in Mlorocco.

10. Other personnel, mainly unskilled labor, which do not requirean extensive and specific training in cement manufacturing will not be hiredlong in advance of startup. As it is the case on other industrial projectsin Morocco, it is expected that unskilled labor used by the contractorsfor construction and erection, and often recruited locally, will remain aspermanent labor force on the completed plant. Such procedure is quite helpfulby familiarizing operators in advance with this equipment which they installed.

C. Technical Assistance

11. The equipment supplier's will supervise commissioning of the plantby CIOR's personnel. Up to one year after startup the mechanical equipmentsupplier will provide technical assistance with up to 6 specialists if CIOR sorequests.

12. Technical assistance after startup is also foreseen as the lastphase of APCM's services to CIOR. A technical assistance program has there-by been proposed including about 30 man years during the first 5 years ofproduction, and firm arrangements for it will be taken by the end of 1977.

13. CIOR has already hired an independent and experienced cement engi-neer as a technical advisor to the General Manager for the full period tillstartup. This engineer is later expected to remain with CIOR for a few yearsof operation.

Industrial Projects DepartmentDecember 1976

MOROCCO - CIOR CEMENT PLANT

IMPLEMENTATION SCHEDULE

1975 1976 1977 1978

MECHANICAL EQUIPMENT - P J 3 33331333 IlUElEE 33ii33 13113 333 _ _ _

SITE PREPARATION

CIVIL WORKS t z _

ELECTRICAL EQUIPMENT tm r _ 333 ... .... ... .... .3333

PROCFSS CONTROL EQUIPMENT - #Vr 3 3 llil _3

CONNECTION TO ONE POWER NETWORK 1 33_ 11l3 3 111111 333333 3133i11 3133333 1_11 _I3 11_ _ _1

SERVICES & LOOSE PLANT Iir' M m l -- lr 1

HOUSING FACILITIES ! 1W V 4 AW.. OFAV O r r4 -- tf t w r _ _

SUPPLY OF MOBILE PLANT v tr zs move | umum*m 333333 333333 333331 ll33 3 3

QUARRY OPENING

START-UP AND COMMISSIONING

'' '' TENDERING AND """" EQUIPMENT - ' - EQUIPMENT ' TESTS CONSTRUCTION

CONTRACTING MANUFACTURING ERECTION

AND DELIVERY 'Industrial Projects Departnent

DECEMBER 1976 World Bank-9867 OD

ANNEX 5-1Page 1

MOROCCO - CIMA CEMENT PROJECT

DETAILED CAPITAL COSTS AND PROCUREMENT

1. Capital costs estimates are summarized in Table 1, p. 7 of thisAnnex. Base cost estimates are given as of October 1976 except for signedfixed price contracts for equipment and the main civil contract for which theactual price has been used. Detailed estimates are shown in Table 2, page 8.

Civil Works (Item I) 1/

2. This item has been procured in two separate packages accordingto ICB procedures in line with the Bank's procurement guidelines. APCMhas subcontracted detailed design and supervision of construction to OscarFaber, a British engineering firm. The two packages are:

Site Preparation Contract including: earthworks for plant,service ducts, sewage disposal and drainage, roads,earthworks for the railway link and temporary offices.

Buildings and Foundations - (Main civil contract) includes:plant foundations, silos, transfer towers and all otherbuildings.

Bids for the two packages were received respectively in April 1975 andFebruary 1976. The successful bidder for the site preparation contract wasthe joint venture CTRA-ENATRA from Morocco, which completed the work by thesummer of 1976. The main civil works contract was awarded to ConstrucoesTechnicos, a major contractor from Portugal, which started construction inSeptember 1976. On the basis of payments made for the site preparationpackage and prices of the contract signed with Construcoes Technicos thecapital costs of the whole item are estimated as follows:

----------- (DH million)------------Local Foreign Total

Civil works 18.19 0.43 18.62Building, Foundations 76.55 68.86 145.41

Total 94.74 69.29 164.03

Infrastructure (Item 2)

Detailed descriptions of the various components are given in Annex4-3. Cost estimates are the following:

1/ Items refer to Table 1.

ANNEX 5-1

Page 2

…_A_______ (DH million)…----------Local Foreign Total

Water supply 1.89 0.17 2.04

Electricity 10.38 8.67 19.05

Rail 8.02 - 8.02

Quarry Road 1.83 - 1.83Social Facilities 33.84 - 33.84

Land Purchase 1.51 __ 1.51

Total 57.45 8.84 66.29

4. Water Supply to the plant includes drilling and equipping of a

new well. These works are being executed by Moroccan companies, BRPM 1/

and Dolbeau. Cost estimates are based on the actual cost of drilling (al-

ready completed) and contract prices for the equipment.

5. Electrical items designated as infrastructrue package include the

connection to the ONE Network outside of the plant and a 225 kV branch line,

a 225/60 kV substation and 2-60 kV lines. Complete construction including

procurement and installation of the connection is being done by the national

power company ONE 2/ with which a contract was signed in August 1975 for the

connnection and supply of power. Cost estimates for this infrastructure item

are based on this contract. Prices in this contract are subject to escalation.

6. Items included in the railway infrastructure package include the

supply and installation of tracks and signalling equipment of the railway

link and sidings inside the plant which are being installed by ONCF 3/.

Earthworks for the railway are already included in the civil works package

(item 1). Design of the railway link and sidings was carried out by Oscar

Faber in cooperation with ONCF. Execution of the works has been carried out

by regular subconstractors of ONCF under the provision of the ONCF and is

essentially completed. Cost estimates for this package are based on actual

invoices and contract prices.

7. The surfaced road between quarries will be procured among local

contractors, to be constructed during 1977. Cost estimates for this item

are based on prices paid for similar works executed under the site preparation

contract.

8. Social facilities will include 95 houses for staff, 350 houses

for workers and social amenities (school, sport facilities and club) at

1/ BRPM - Bureau de Recherches et de Participations Minieres.

2/ ONE - Office National de l'Electricite.

3/ ONCF - Office National des Chemins de Fer.

ANNEX 5-1Page 3

El Aioun and Oujda. Also included in this package is a new office buildingat Oujda for CIOR's management. Design and supervision of construction ofthe facilities has been contracted with PROMOCONSULT, a Moroccan real estatedesign and promotion company, subsidiary of CIH 1/. Construction will betendered locally and is scheduled to start in the first half of 1977. Costestimates for these facilities have been prepared by PROMOCONSULT on thebasis of their wide experience in Morocco.

9. Part of the land occupied by the plant and the quarries amount-ing to some 550 ha is owned by private individuals and is being purchaseddirectly by CIOR. The rest of the land amounting to some 250 ha will bemade available by the State to whom it belongs.

Equipment and Erection (Item 3)

10. Cost estimates for the equipment, erection and supervision aredetailed below:

-----------(DH million)------------Local Foreign Total

Erection and Supply ofMechanical Equipment

a. Equipment FOB 44.43 183.83 228.26b. Erection 24.35 12.55 36.90c. Spare parts for above - 9.62 9.62d. Commissioning & Training 0.98 2.14 3.12

Subtotal 69.76 208.14 277.90

Inspection of Mechanical Equipment 0.02 0.40 0.42Standby Generators 0.19 0.54 0.73Main Electrical Equipment 13.65 17.64 /1 31.29 /1Process Control Equipment 0.90 5.06 /1 5.96 /1Quarry Equipment 0.59 11.13 11.72Other Mobile Equipment 0.35 2.90 3.25Workshops 0.11 2.30 2.41Laboratory 0.11 2.25 2.36Miscellaneous 0.38 1.06 1.44

Total 86.06 251.42 337.48

/1 Includes clearly identified foreign exchange components.

Procurement for all the above items except the "other" mobile equipment andmiscellaneous equipment followed international competitive bidding accordingto Bank guidelines and including prequalification, and for large and complex

1/ CIH - Credit Immobilier et Hotelier.

ANNEX 5-1

Page 4

packages, two-stage bidding. Detailed specifications for all packageswere prepared by APCM. Procurement and cost estimates for the differentpackages are detailed below.

11. Bidding for the critical contract, supply and installation ofmechanical equipment took place under two-stage bidding procedures inSeptember to December 1974 and was called for in five individual packages.

a. Raw material crusher and blended stockpileb. Raw mills; raw meal blending; kilns and clinker handlingc. Clinker grinding mills, cement conveyingd. Cement bagging and dispatche. Erection, supervision of commissioning.

Each equipment item includes transport, provision for spares and trainingby the equipment supplier. The bid evaluation indicated that for all fivepackages, "Polysius" France, submitted the lowest evaluated bid. Conse-quently in April 1975 the bid was awarded to Polysius and a contract signedin June 1975. The cost estimated above are based on the prices quoted by thesupplier and the subsequently signed contract. The foreign exchange cost forthe equipment and erection are firm prices without revisions according toinflation during project implementation. All other cost items of the Polysiuscontracts are base costs which will be increased according to an agreed uponescalation formula.

12. Bidding for two other critical packages, inspection of equipmentsand supply of standby generators, took place during the first quarter of1976. The inspection contracts and the contract for standby generators wereawarded respectively to Kennedy and Donkins from UK and Technical Equipment- GCGE from France. Prices for the standby generators contract are firm.

13. Following two-stage bidding procedures, the contracts for the elec-trical equipment and process control packages have been awarded respectivelyto Brown-Boveri of Switzerland and COMSIP of France and signed in June andJuly 1976. Both contracts include firm prices without revisions except fortraining and technical assistance.

14. Procurement of quarry equipment, workshop and laboratory equipmentfollowed international bidding procedures also. Contracts for the varioussubpackages were awarded during the fall of 1976 to various reputable sup-pliers from the U.S., Western Europe and Japan. Cost estimates above arebased on signed contracts all with firm prices.

15. Other mobile equipment includes various services vehicles and cranesMiscellaneous equipment includes a switch locomotive and telephone installa-tion. Procurement of the mobile equipment and locomotives will be carried outthrough local competitive bidding. Cost estimates for these items are basedon quotations from possible suppliers.

ANNEX 5-1

Page 5

Freight (Item 4)

16. This cost item includes sea freight, insurance, handling andtransport from the port to the site. Estimates for this item are based on

different signed contracts or quotations from possible suppliers.

Preoperating Expenses (Item 5)

17. These items are estimated as follows:

… -------- …(DH million)------------Local Foreign Total

Geological Study 3.45 - 3.45

Training 0.71 1.69 2.40Commissioning & Quarry Opening 1.05 - 1.05

Salaries (1973-1977) & Admin-istrative Expenses 17.96 - 17.96

Technical Assistance .30 1.00 1.30

Total 23.47 2.69 26.16

18. Training expenses covered under this item include the travel and

accommodation expenses of CIOR personnel trained by APCM and the equipmentsuppliers; training fees as such are covered in the engineering by APCM (item6 hereafter) and in the Polysius contract. Other training expenses includeadministrative and miscellaneous expenses for training in Morocco in otherplants and by CIOR's training team.

19. The "commissioning" expenses cover fuel, power, consumables and

other material used during the commissioning period. Supervision of thecommissioning is included in the cost estimates for the engineering and inthe Polysius contract.

20. Salaries covered in the preoperating expenses item are the salariespaid to all CIOR personnel during the period 1973 to the end of 1977. Thisestimate is based on the gradual buildup of the personnel explained in Annex4-7. Administrative expenses include miscellaneous administrative costs andcompany car expenses. The cost item technical assistance covers the salaries

till 1978 of personnel other than from APCM and hired by CIOR for technicalassistance, and consultant's service to set up cost accounting and the dis-

tribution system.

21. Of the expenses above, by October 1976 the following had alreadybeen disbursed:

a. 3.45 DH million for the geological study;b. 4.84 DH million in salaries and administrative expenses.

ANNEX 5-1Page 6

Engineering (Item 5)

22. This item covers all engineering work on the plant, includingdesign and supervision of the civil works, and the training carried out byAPCM and their subcontractors. These cost estimates include the firm pricesof the APCM contract plus refundable consultants' expenses.

Duties and Taxes (Item 7)

23. Under the investment "convention" to be signed between the MoroccanGovernment and CIOR, substantial investment advantages will be granted toCIOR. Under these tax advantages most taxes and duties on goods and servicesincorporated in CIOR's investment will be exonerated. The remaining dutiesand taxes will thereby be limited to a special tax amounting to 5.1% of the CIFvalue on imported goods, a 7.5% or 10% tax on local services (commissioning,inspection and engineering, and the ONE contract) and a registration duty of1.5% on equity.

Physical Contingencies (Item 8)

24. Physical contingencies have been added to the base cost of allitems (except for the site preparation contract already completed and pre-operating expenses already incurred), to account for minor changes and omis-sions. The contingency allowance applied on the equipment packages andinfrastructure components for which contracts have already been signedhas been reduced to 5%, to take into account the higher degree of certaintyattached to these items. Similarly, a 5% contingency has been applied onthe main civil contract as detailed design has been completed, quantitiesof works are known in detail, and earthmoving and other preparation worksfor foundations and completed under the previous contract. For other pack-ages, the physical contingency has been kept at 10% of base costs.

Price Escalation (Item 9)

25. Costs of all items subject to escalation are given in October 1,1976 prices except for the main civil works contract and the packages of themechanical equipment contract subject to escalation: base costs for thesetwo items are given on the basis of the date of contract signature, respec-tively June 1975 and June 1976. The rates applied for price escalation afterJune 19765 have been estimated on the basis of prices of recent tenders forindustrial equipment, the evolution of prices in general in Morocco as indi-cated by the Price Index in Casablanca, variation of prices in constructionin Morocco as witnessed through recent tenders and the mix equipment/indus-trial civil works specific to this project. The following rates have beenapplied:

1975 14% per year1976 12% per year1977 & 1978 8% per year

ANNEX 5-1Page 7

Incremental Working Capital (Item 10)

26. Details of cost estimates are given in Annex 5-2.

Interest during Construction (Item 11)

27. Calculations of interest during construction are detailed inAnnex 6-2.

Distribution Facilities

28. Preliminary cost estimates for the distribution facilities (con-sidering the alternative with the highest capital cost, i.e., with a bulkterminal in Fez) described in Annex 3-3, are the following:

… ----------- DH million ------------

Local Foreign Total

Base Cost Complete Terminal 8.37 8.37 16.74

Price and PhysicalContingencies (15%) 1.25 1.26 2.51

Total Cost 3.52 9.63 19.25

Industrial Projects DepartmentDecember 1976

MOROCCO - CIOR CEMENT PROJECT

SUMMARt OF CAPITAL COST ESTIMATES - OUJDA CEMENT PLANT

TABLE 1

Million DH Million US$Local Foreign Total Local Foreign Total

1. Building and Civil Works 94.7 69.3 164.0 21.0 15.4 36.4 212. Infrastructure 57.5 8.8 66.3 12.8 2.0 14.8 93. Equipment and Erection!/ 86.1 251.4 337.5 19.1 55.9 75.0 444. Freight 6.3 13.8 20.1 1.4 3.1 4.5 35. Preoperating Expenses 23.5 2.7 26.2 5.2 0.6 5.8 36. Engineering 5.0 11.3 16.3 1.1 2.5 3.6 27. Duties and Taxes 24.8 - 24.8 5.5 - 5.5 3

Total Base Cost 297.9 357.3 655.2 66.2 79.4 145.6 85

8. Physical Contingency 14.5 17.4 31.9 3.2 3.9 7.1 49. Price Escalation 30.4 20.1 50.5 6.8 4.4 11.2 7

Total Fixed Assets 342.8 394.8 737.6 76.2 87.7 163.9 96

10. Initial Working Capital 25.5 6.1 31.6 5.7 1.3 7.0 4

Project Cost 368.3 400.9 769.2 81.9 89.0 170.9 100

11. Interest during Construction 13.2 15.3 28.5 2.9 3-5 6.4

TOTAL FINANCING REQUIRED 381.5 416.2 797.7 83.8 92.5 177.3

1/ Including commissioning and training by suppliers.

Industrial Projects Department CD

January 1977 CD

MOROCCO - CIOR CEMENT PROJECT

TA3LE 2

DETAILED CAPITAL COST ESTIMATE OF OUJDA PLANT

(DH Million)

TotalForeign

Freight Duties Sub- Physical Price Exchange TotalDESCRIPTION Base Costs Charges & Taxes Total Contingencies Escalation Total Cost Local Cost

1. Buildings and Civil Works

- Civil Works (Site Preparation) 18.62 - - 18.62 _ - 18.62 0.43 18.19- Buildings and Foundations 145.41 - - 145.41 7.27 17.45 170.13 80.98 89.15Subtotal 164.03 - - 164.03 7.27 17.45 188.75 81.41 107.34

2. Equipment (Supply and Installation)

- Mechanical Equipment- Supply 228.26 14.08 9.80 252.14 12.61 13.41 278.16 203.81 74.35- Erection 36.90 - - 36.90 1.85 6.83 45.58 13.18 32.40- Spares 9.62 - 0.49 10.11 0.50 2.46 13.07 13.07 -- Commissioning and Training 3.12 - 0.28 3.40 0.17 0.85 4.42 3.03 1.39- Inspection of Equipment 0.42 - 0.03 0.45 0.02 - 0.47 0.44 0.03- Standby Generators 0.73 0.19 0.04 0.96 0.05 - 1.01 0.77 0.24- Electrical Equipment 31.29 4.40 0.74 36.43 1.82 - 38.25 23.14 15.11- Process Control 5.96 0.49 0.19 6.64 0.33 - 6.97 5.83 1.14- Mobile Equipment- Quarry 10.83 0.57 0.48 11.85 0.59 - 12.44 11.32 1.12- Others 3.25 0.09 0.09 3.43 0.34 0.14 3.91 3.53 0.38- Spares 0.92 0.03 0.04 0.99 0.05 - 1.04 0.98 0.06- Workshops 2.41 0.12 0.13 2.66 0.13 - 2.79 2.52 0.27- Laboratory 2.36 0.12 0.12 2.60 0.26 - 2.86 2.64 0.22- Miscellaneous 1.44 0.06 0.06 1.56 0.16 0.05 1.77 1.32 0.45Subtotal 337.48 20.15 12.49 370.12 18.88 23.74 412.74 285.58 127.16

3. Infrastructure

- Water Supply 2.04 _ 0.13 2.17 0.22 0.10 2.49 0.29 2.20- Electricity 19.05 _ 4.29 23.34 1.17 0.55 25.06 8.14 16.92Rail 8.02 - 0.49 8.51 0.43 - 8.94 - 8.94- Quarry Road 1.83 - - 1.83 0.18 0.10 2.11 - 2.11- Offices and Social Facilities 33.84 - 0.10 33.94 1.70 2.85 38.49 38.49- Land Purchase 1.51 - 0.02 1.53 0.15 - 1.68 - 1.68Subtotal 66.29 - 5.03 71.32 3.85 3.60 78.77 8.43 70.34

4. Pre-operating Expenses 26.16 - 5.85 32.01 1.06 1.54 34.61 3.57 31.04

5. Engineering 16.30 1.41 17.71 0.89 4.16 22.76 15.83 6.93

TOTAL: 610.26 20.15 24.78 655.19 31.95 50.49 737.63 394.82 342.81 a

Industrial Projects DepartmentDecember 1976

MOROCCO - CIOR CEMENT PROJECT

PROJECTED WORKING CAPITAL REQUIREMENTS(DH Million - current terms)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

A. CURRENT ASSETS

Cash 1.65 1.76 1.89 2.02 2.16 2.31 2.47 2.65 2.83 3.03 3.24

Accounts Receivable 11.06 17.66 21.54 25.88 26.38 28.21 30.17 32.27 34.51 32.84 35.12

InventoriesSpares & Supplies 7.37 7.88 9.63 11.17 13.41 14.35 15.35 16.43 17.58 18.81 20.12

Fuel 1.81 1.94 2.08 2.22 2.38 2.55 2.72 2.91 3.12 3.34 3.57

Paper Bags 1.28 1.30 1.59 1.92 2.28 2.44 2.61 2.80 2.99 3.20 3.42

Work in Prog. Finish. 13.20 13.65 12.66 11.66 10.51 10.96 11.14 11.53 11.95 12.41 12.96

Goods

Subtotal 23.66 24.78 25.96 27.07 28.58 30.29 31.83 33.66 35.63 37.76 40.07

Total Current Assets 36.37 44.21 49.39 54.97 57.13 60.82 64.48 68.58 72.98 73.62 78.44

B. LESS ACCOUNTS PAYABLE 4.80 5.14 6.28 7.51 8.93 9.56 10.22 10.94 11.71 12.52 13.40

C. WORKING CAPITAL 31.57 39.07 43.11 47.46 48.20 51.26 54.25 57.64 61.28 61.10 65.03

D. CHANGE IN WORKING CAPITAL 31.57 7.49 4.04 4.36 .74 3.06 2.99 3.39 3.64 (.18) 3.93

Assumptions

Cash: 2 months of labor costs.

Accounts Receivables: 1 month of sales.

Spares & Supplies: 6 months' requirements.

Fuel: 6,000 tons (full storage capacity).

Paper Bags: 6 weeks' requirements.

Work in Progress and Finished Goods: 60,000 tons equivalent of cement at full production costs.

Accounts Payable: 1 month for supplies and spares, utilities and bags.

Industrial Projects Department

December 1976

ANNEX 5-3

MOROCCO - CIOR CEMENT PROJECT

BANK FINANCED ITEMS

DH US$Million Million-a

A. EQUIPMENT(foreign exchange cost of supply,

erection and spares)

1. Standby Generators 0.77 0.17

2. Electrical Equipment 23.14 5.14

3. Process Control Equipment 5.83 1.30

4. Excavating Equipment 4.23 0.94

5. Other Quarry Vehicles 5.98 1.33

6. Drills and Compressors 1.72 0.38

7. Workshop Equipment 2.52 0.56

8. Laboratory Equipment 2.64 0.59

9. Spares for Mechanical Equipment 10.12 2.25

10. Equipment for Distribution Terminals 7.76 1.72

11. Mechanical Equipment 22.50 5.00

Subtotal 87.21 19.38

B. SERVICES(foreign exchange cost)

1. Inspection of Equipment 0.43 0.10

2. Erection and Commissioning of Mechanical 14.28 3.17

Equipment3. Training by the Mechanical Equipment 1.25 0.25

Supplier4. Consultant Services for Setting up 1.12 0.25

CIOR's Accounting System5. Consultant Services for CIOR's 0.22 0.05

Distribution System

17.19 3.82

C. CIVIL WORKS(477. of total cost)

Foundations and Buildings 72.00 16.00

D. INTEREST DURING CONSTRUCTION

On IBRD Loan 12.60 2.80

E. UNALLOCATED 13.50 3.00

TOTAL BANK FINANCED ITEMS 202.50 45.00

a/ US$1.00 = DH 4.50.

Industrial Projects DepartmentJanuary 1977

ANNEX 5-4

MOROCCO - CIOR CEMENT PROJECT

SCHEDULE OF DISBLURSEMENT(IBRD Loan of US$45.0 Million)

Year Disbursement Amount Outstanding Amount Undisbursed(US$ Million) (US$ Million) (US$ Million)

1977

III Quarter 15.3 15.3 29.7IV Quarter 13.3 28.6 16.4

1978

I Quarter 6.0 34.6 10.4II Quarter 3.6 38.2 6.8III Quarter 2.2 40.4 4.6IV Quarter 1.4 41.8 3.2

1979

I Quarter 2.0 43.8 2.2II Quarter 1.0 44.8 0.2III Quarter 0.2 45.0

Industrial Projects DepartmentFebruary 1977

ANNEX 6-1Page 1

MOROCCO - CIOR CEMENT PROJECT

PRODUCTION AND OPERATING COST PROJECTIONS

A. Production Build-Up

1. The two kilns will each have a guaranteed capacity of 1,800 tons ofclinker per day. The annual production depends on the running time co-efficient (estimated at 85% corresponding to 310 running days per year)and the capacity utilization (increasing with the skill of the personnel andthe efficiency of the equipment) of the kilns. Installation of the firstproduction line is expected to be completed in May 1978 followed by thecompletion of the second line two months later. After a commissioning andstartup period of three months, the two production lines would thereby beginoperations respectively by June and August 1978. For the financial projec-tions, 4 months production at a kiln capacity utilization of 50% has beenassumed in 1978. During the following 4 years of production capacity utili-zation would gradually increase to reach 100%. This is a realistic hypothesisbecause of the conservative running time coefficient (85%) and the two par-allel production lines. Assuming production of Ordinary Portland cement(O.P.C.) with 5% additives, the projected output increases as follows:

1978 1979 1980 1981 1982-97

Running time coefficient (%) 85 85 85 85 85Utilization of kiln capacity (%) 50 70 80 90 100Clinker (000 ton) 186 782 893 1005 1117Cement (000 ton) 195 821 938 1055 1173Plant utilization ratio (%) 49 68 78 88 98 a/

Production is assumed to be sold 90% in bags and 10% in bulk.

B. Operating Costs

2. Operating costs have been estimated by CIOR in light of operatingdata of existing plants and input prices in Morocco, guarantees of energyconsumption of the equipment suppliers, and APCM's recent experiences withcomparable plants in developing countries and in U.K. Table 1 of this Annexgives the operating costs expressed in October 1976 real terms. The cost perton of cement produced varies from 1978 to 1982 on account of improvement ofefficiency, decreasing technical assistance and changes in taxation. Forthese factors, the following assumptions have been taken:

(a) Labor cost: Although production of cement is increasingbetween 1978 and 1982, it is assumed that the total labor

a/ On the basis of a plant nominal capacity of 1.2 million tpy correspondingto an average kiln output of 1,840 ton per day per day (slightly higherthan guaranteed output) for 310 days of operation; equivalent to 92%utilization for 330 days of operation.

ANNEX 6-1Page 2

force corresponding to full production will have beenhired by the end of 1978 since the personnel will needthe first years of operations for further training andimprovement. Total labor costs are therefore constantstarting in 1978.

(b) Material, Supplies, Spares, Utilities and Bags: A constantconsumption per ton of cement produced has been assumedfrom the beginning of production except for refractories.Consumption of refactories is especially sensitive to theoperational experience of the personnel and is expectedto be higher during first years of production than duringthe later years when the personnel's operating skills willhave improved with experience. Consumption of refractoriesper ton of cement has therefore been assumed 20% higherfor 1978-80 than by 1981 and beyond as explained in para.5 below.

(c) Miscellaneous: Administrative expenses and other costsare assumed constant and independent of production levels.Technical assistance and duties vary as explained inparas. 10 and 11 below.

3. At full production, operating costs expressed in 1976 real termswould be in the order of 73 to 75 DH/ton of cement. This production cost isin line with those of similar new plants in North Africa. Unit operationscost in 1982 (when full production is reached, and taxes are still limited)are composed of the following:

Average Production Costs (1982)(in 1976 real terms)

DH per ton %

- Labor 7.43 10.2- Material, Supplies, Spares 15.46 21.2- Utilities 34.73 47.7- Bags 11.34 15.6- Miscellaneous Expenses 3.83 5.3

Total 72.79 100

The various costs components are detailed below:

Labor

4. Labor cost estimates are based on actual 1976 salaries paid toalready recruited CIOR personnel and on salary scales recommended by thedetailed personnel recruitment and planning study carried out by the con-sultants Maghreb Projets. These salary scales are on the average 60% higher

ANNEX 6-1

Page 3

than the minimum legal Moroccan scale (SMIG 1/ of 1.26 DH per hour) and arealso generally higher than salaries paid in comparable industrial enterpriseslocated in the more developed Western regions of Morocco, to compensate forCIOR's somewhat remote location. Labor cost estimates include about 35%social benefits, housing allowance and bonuses. Salaries of personnel se-conded by APCM under technical assistance are not included in this item butincluded in the cost item "Technical Assistance" under "Miscellaneous Costs".Special training and recruitment of most personnel (detailed in Annex 4-7) arescheduled to be completed before start of operations and are covered in thepreoperating expenses. Labor costs during operations can be split into thefollowing categories:

Number of Employees Labor Cost(million DH)

Direct Labor 164 2720Maintenance and Support 162 3370Administration 114 2630

440 8720

Materials, Supplies, Spares

5. Requirements in refractories, grinding media, explosives, lubricantsand other sundry materials and consumption of spares have been elaborated onthe basis indicated by APCM and costed at prices currently paid in Morocco.Consumption of refractories has been estimated at 1200 g and 1000 g per tonof cement produced, respectively for 1978-1980 and 1981 and beyond. Averageprice of refractories of which about 90% would have to be imported is esti-mated at 2200 DH/ton delivered at the plant. Consumption of grinding mediahas been assumed at 500 g/ton of cement produced. The cost of grinding mediawhich are imported has been assumed at 5500 DH/ton. Consumption of explosivesis estimated at 240 g/ton of limestone. Most items except lubricants willhave to be imported and eventual production of explosives in Morocco is alsobeing studied. Average cost of sundries including essentially explosives,lubricants and fuel for vehicles is estimated at 2 DH/ton of cement. Con-sumption of spares has been assumed at 7 DH/ton of cement. Gypsum will bepurchased from a quarry 45 km from the plant at an estimated cost of 30.0 DHper ton in crushed form and including transport.

Utilities

6. Fuel oil is presently sold in Morocco at a uniform ex-refineryprice of 213 DH/ton (US$47.30) which is still subsidized. With a transportcost of 54 DH/ton the total price of fuel delivered at the plant would amount

1/ SMIG: Salaire Minimum Interprofessionnel Guaranti.

ANNEX 6-1Page 4

to 267 DH/ton. Assuming a specific heat consumption of 830 kcal/kg of clinkeras guaranteed by the equipment supplier and using fuel with a specific heatvalue of 9,700 kcal/kg, the consumption and cost per ton of clinker wouldrespectively amount to 85.5 kg of fuel and 22.82 DH.

7. Consumption of electricity has been assumed at 116 KWh per ton ofcement which is conservative. Taking into account the various components ofpower tariffs (subscribed maximum capacity, average demand, annual consump-tion, consumption during and consumption outside peak hours) and the fastincrease in tariff in January 1976, the average cost would amount to 0.112DH/KWh including a 6.8% tax. The corresponding cost per ton of cement isabout 13 DH.

Paper Bags

8. It is assumed that 90% of CIOR's production would be sold in bagsand 10% in bulk. The present cost of 3-ply bags in Casablanca is 613 DH perthousand corresponding to about 630 DH per thousand delivered at CIOR's plant.

Miscellaneous

9. Administrative expenses include office expenses, insurance, auditfees, car expenses and miscellaneous overhead but not salaries. Theseexpenses have been estimated in detail in light of present expenses of CIORand actual expenses of existing cement producers in Morocco. They areequivalent to 40% of labor cost.

10. Technical assistance provided by a foreign cement producer has beenestimated at 5, 3 and 1-man year respectively for the first, second and thirdyears of production.

11. Miscellaneous taxes and duties on vehicles, buildings, etc.,estimated at about DH1.0 million will have to be paid starting the firstyear of production. In addition, starting the sixth year of production anestate tax "patente" will be paid based on the rental value (10%) and capacityof the plant of about DH 1.4 million. Taxes on some goods and services (TPS)incorporated or destroyed in the production such as refractories are to bepaid but will be recouped directly through the TPS on sales. Taxes on othergoods (spares and grinding media) will have to be fully paid; these taxesincluding TPS, and for imported goods a special tax, import duties and stamptax, range up to a maximum of 35.7%. These taxes on production inputs havebeen included in the corresponding production cost items.

Industrial Projects DepartmentDecember 1976

ANNEX 6-1Page 5

MOAOCCO - CIO. CaENT PROJECT

TABLL I

PROJECTED "PERATING ODSTS(DH million - 1976 Constant Terms)

1978 1979 1980 1981 1982 1983-92PRODUCTION (000 TONS)--- ___

Clinker 186 782 893 1005 1117 1117Ordinary Cement 195 821 938 1055 1173 1173

OPERATING COSTSLaborDirect 0.91 2.72 2.72 2.72 2.72 2.72Maintenance Support 1.12 3.37 3.37 3.37 3.37 3.37Administration 0.88 2.63 2.63 2.63 2.63 2.63

Sub-total 2.91 8.72 8.72 8.72 8.72 8.72

MATERIAL, SUPPLIES, SPARESRefractories 0.51 2.17 2.48 2.32 2.58 2.58Grinding Media N.54 2.26 2.58 2.90 3.23 3.23Sundries 0.39 1.64 1.88 2.11 2.35 2.35Spare Parts 1.37 5.75 6.57 7.39 8.21 8.21Gypsum 0.28 1.17 1.34 1.51 1.67 1.67

Sub-total 3.09 12.99 14.85 16.23 18.04 18.04

UTILITIESFuel 4.24 17.85 20.38 22.93 25.49 25.49Electricity 2.54 10.67 12.19 13.72 15.25 15.25

Sub-total 6.78 28.52 32.57 36.65 40.74 40.74

PAPER BAGS 2.21 9.31 10.64 11.96 13.30 13.30

MISCELLANEOUSAdministration Expenses 1.16 3.49 3.49 3.49 3.49 3.49Technical Assistance 0.70 2.10 1.26 0.42 - -Duties Taxes 0.33 1.00 1.00 1.00 1.00 3.40

Sub-total 2.19 6.59 5.75 4.91 4.49 6.89

TOTAL 17.18 66.13 725 78.47 85.29 87.69

OPERATING COSTS/TON (DH) 88 81 77 74 73 75

90% bagged and 10% bulk cement

Industrial Projects DepartmentDecember 1976

ANNEX 6-2Page 1

MOROCCO - CIOR CEMENT PROJECT

DISTRIBUTION COST PROJECTIONS

1. Since revenues used for the financial projections (Annexes 6-3 to6-6) are derived from sales at the factory gate or distribution terminalgate, the distribution costs to be taken into account are the costs incurredin making the cement available at the gate of the factory or the terminals.Since all sales in the Oriental Region are assumed to be made from the plantgate itself no specific distribution costs should therefore be consideredfor the sales in the Oriental. Only salaries of CIOR's commercial departmentpersonnel should be added while administrative and other expenses relating todistribution are already covered by the "miscellaneous" expenses for CIOR as awhole, included in the operating costs projections of Annex 6-1. Salaries ofdistribution personnel have been taken into account as follows: (i) salariesof the personnel attached to the main office in Oujda (estimated at about 20persons) are considered separately; and (ii) salaries of personnel of thedistribution terminal is included in the operating costs of these. For thesales (outside the Oriental), as detailed in Annex 3-3 CIOR's distributionactivities outside the Oriental would essentially consist of the transport ofup to 500,000 tpy of cement to and operation of a main distribution terminalin Fez, and for a shorter period transport of smaller quantity to the distri-bution facilities of another cement company or railway station in Casablanca.

2. Transport costs have been calculated on the basis of present ONCFtariffs for cement amounting to a base charge of 3.48 DH/ton plus a charge of0.073 DH/tkm.

3. Distribution costs pertaining to the Fez terminal include operatingcosts as well as the capital cost of the terminal, not included in the capitalcosts used for the financial projections. The transport/handling system assumedfor the purpose of these projections is the alternative with transport in bulkto a bulk terminal in Fez, and transport of bags in ordinary box cars and manualhandling of individual bags for the sales in the Casablanca areas.

4. Under the above assumptions, the total distribution costs during theyears of peak sales outside the Oriental would be the following:

ANNEX 6-2Page 2

Distribution Costs(DH million - 1976 real terms)

1982 1985

Production distributed outside the Oriental ('000 tons) 633 493

Salaries Main Commercial Office 0.59 0.59Cost of transport to Casablanca 15.56 2.83Cost of transport to Fez 7.59 10.84Costs of Fez terminal

Incremental Operating Cost /a 0.44 0.58Depreciation 0.96 0.96Financial Charges & Return on investment 1.67 1.67

Subtotal 3.07 3.21

Total 26.81 19.47

/a For bagging and loading in Fez instead of at the Oujda plant.

Industrial Projects DepartmentJanuary 1977

ANNEX 6-3Page 1

MOROCCO - CIOR CEMENT PROJECT

NOTES TO FINANCIAL PROJECTIONS

1. The financial projections are based on the production plan outlinedin Annex 6-1. Production is expected to start in the second half of 1978 andto reach full capacity by 1982. In order to adequately reflect CIOR futurecash position, all financial projections are given in nominal terms or currentprices.

Net Sales

2. The Moroccan authorities have agreed to introduce a new cementpricing system whereby inter alia, ex-factory prices would be set at suchlevels and incentives granted to new producers so as to allow the industry asa whole to earn a return of at least 10% on net fixed assets as periodicallyrevalued. Also, prices would be fixed periodically with intermediate adjust-ment for changes in unit costs of major inputs. Under this system CIOR couldexpect for its first years of operations until 1980 net revenues consistingof official ex-factory sales prices plus incentives equivalent to 180 DH/tonin 1976 real terms. After 1980, incentives may no longer be necessary and netrevenues are assumed to decline to DH 150/ton equivalent. For the purpose offinancial projections and financial rate of return calculations the followingaverage (bagged and bulk) realized prices ex-factory have been assumed

DH/ton DH/tonreal terms nominal terms

1978 180 2041979 180 2181980 180 233

1981 180 2491982 150 2231983 150 2391984 150 2551985 150 272

1986 150 292

3. The new pricing system will cover in a similar manner the distribu-tion terminals by taking into account transport costs to and operating costsof the terminals, and ensuring an adequate return on net fixed assets for thedistribution facilities. On its sales outside the Oriental through distribu-tion facilities in Fez and Casablanca CIOR will thereby earn in addition tothe ex-factory revenues, distribution fees covering the distribution opera-tions. These distribution fees will be covered under separate accounts andhandled by the pricing system separately from the revenues from ex-factory

ANNEX 6-3Page 2

sales. Projections of these fees including transport costs, operating costsand return are given in Annex 6-2. In the financial projections gross salesare given as the sum of ex-factory revenues and distribution fees.

Inflation Rates for Operating Costs

4. Projections of operating costs in constant 1976 prices are shown inAnnex 6-1, Table 1. Based on these costs, inflation has been computed withthe following annual rates: 8% p.a. in 1976, 7% p.a. in 1977 and thereafter.These rates represent average inflation rates and are based on a projecteddomestic inflation of 7% p.a. and average world inflation rates graduallydeclining from 10% in 1976 to 7% in 1977 and thereafter.

Depreciation

5. Depreciation has been calculated according to normal practices inthe Moroccan industry. The depreciation periods are the following:

3 years: engineering and preoperating expenses5 years: interest during construction and mobile equipment15 years: fixed mechanical equipment and electrical equipment20 years: buildings, civil works and infrastructure

Depreciation is calculated on the estimated value of each item, comprisingpurchase price, freight, duties, contingencies and escalation. Depreciation(as well as financial charges) does not include that of the distributionfacilities outside the Oujda plant, which is covered in the distributionfees.

Financial Charges

6. Interest during construction is capitalized, whereas financialcharges after startup of production are charged to the income statementstarting with the last quarter of 1978. They have been calculated on thefollowing assumptions:

IBRD-Loan: The Bank loan of US$45 million equivalent (DH 202.5 million)for the Oujda plant will be lent to CIOR for 14 years includ-ing 3 years of grace, at an interest rate of 8.5 percent perannum plus a guarantee fee of 1.5% p.a. payable to theGovernment. In addition, a commitment fee of 0.75% p.a. willbe charged to CIOR based on the undisbursed amount of theloan. Repayment of the loan is on the basis of equalprincipal payments.

TREASURYADVANCE: Assurances have been received that remaining loan funds

totalling DH 256.5 million will be provided by the Govern-ment. These treasury advances would be for 17 years in-cluding 3 years at grace at 6.5% interest p.a. Loanrepayment in equal principal payments has been assumed.

ANNEX 6-3Page 3

MEDIUM-TERM LOAN: A short/medium-term loan equivalent to the working capital

requirement, i.e., about DH 31.6 million, will be providedby a group of local banks according to standard financingpractices in Morocco. This group of banks would consist ofpossibily half a dozen Moroccan banks including BMCE 1/. Theloan would consist of a combination of renewable overdraftfacilities and loans secured by inventories. Terms andconditions of these loans have not yet been finalized; theinterest rate will depend on the current short-term interestrate prevailing at the time this loan will be made. For thefinancial projections, an interest rate of 9% and repaymentin 2 years have been assumed.

Taxes

7. Duties and indirect taxes are comprised in operating costs (Annex6-1). In Morocco, corporate income tax ranges from 40% to 48% on net profit,the rate of 48% applying on the amounts of net profit exceeding DH 2 million.However under the investment incentives granted to CIOR, this tax will bewaived for the first ten years of operation.

Allocation of Net Profits and Dividends

8. Under the Moroccan commercial law, corporations have to set asideeach year 5% of the net profit after tax for the legal reserve until theacumulated amounts reach 10% of equity. In addition, corporations mustretain each year 8% of the net profit before tax as an Investment Reserveof which 50% is to be used for the purchase of State Investment Bonds carry-ing an interest of 5% p.a. and are reimbursable after 10 years. Further,in accordance with the investment convention granted by the Government,dividend distribution in any one year may not exceed 12% of equity.

Industrial Projects DepartmentMarch 1977

1/ Banque Marocaine du Commerce Exterieur.

AnNEX 6-4

MOROCCO - CIOR CEMENT PROJECT

PROJECTED INCOME STATEMENTS(DR million - current terms)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

CEMENT PRODCTION (000 TONS) 195 821 938 1055 1173 1173 1173 1173 1173 1173

SALESSales (Ex-Factory) 39.81 179.34 219.25 263.86 261.59 279.90 299.49 320.45 342.89 366.89Distribution Fee - 23.48 27.62 34.14 38.52 35.32 30.85 30.06 26.93 26.01

Sub Total 39.81 202.82 346.87 298.00 300.11 315.22 330.34 350.51 369.82 392.90

COSTS OF GOODS SOLDDirect Labor 1.03 3.30 3.53 3.78 4.04 4.33 4.63 4.95 5.30 5.67Supplies & Spares 3.50 15.76 19.27 22.54 26.82 28.70 30.70 32.85 35.15 37.61Utilities 7.69 34.61 42.30 50.92 60.57 64.81 69.34 74.20 79.39 84.95Maintenance Labor 1.27 4.09 4.38 4.68 5.01 5.36 5.74 6.14 6.57 7.03Paper Bags 2.51 11.30 13.81 16.62 19.78 21.16 22.64 24.23 25.92 27.74

Sub Total 16.00 69.06 83.28 98.55 116.22 124.35 133.05 142.37 152.33 163.00

GROSS PROFIT 23.81 133.76 163.59 199.45 183.89 190.87 191.29 208.14 217.49 229.90

OPERATING EXPENSESAdministration 2.31 7.43 7.95 8.50 9.10 9.74 10.42 11.15 11.93 12.76Technical Assist. 0.79 2.55 1.64 0.58 - - - - - -Duties Taxes 0.37 1.21 1.30 1.39 1.49 5.41 5.79 6.19 6.63 7.09Depreciation

- plant 17.10 68.41 68.41 63.63 49.29 48.18 44.87 44.87 44.87 44.87distribution facilities - 0.96 0.96 0.96 0.96 0.96 0.96 0.96 0.96 0.96

Sub Total 20.58 80.56 80.25 75.07 60.84 64.28 62.03 63.17 64.38 65.68

OPERATING PROFIT 3.23 53.20 83.34 124.38 123.05 126.59 135.26 144.97 153.11 164.22

FINANCIAL CHARGES 9.07 40.68 37.78 35.88 31.97 29.04 26,15 23.26 20.35 17.45

DISTRIBUTION EXPENSESTransport

- Fez - 2.54 4.51 6.01 7.59 9.52 11.52 10.84 11.02 9.76- Casablanca - 14.15 14.15 15.80 15.56 9.90 3.77 2.83 - -

Operation of DistributionTerminals - 0.20 0.20 0.40 0.44 0.51 0.60 0.58 0.59 0.54

Sub Total - 16.89 18.86 22.21 23.59 19.93 15.89 14.25 11.61 10.30

NET PROFIT BEFORE TAX (5.84) (4.37 26.70 66.29 67.49 77.62 93.22 107.46 121.15 136.47

Corporate Tax - - - - - . - -

NET PROFIT AFTER TAX (5.84) (4.37) 26.70 66.29 67.49 77.62 93.22 107.46 121.15 136.47

Dividends - - 23.50 39.30 39.30 39.30 39.30 39.30 39.30 39.30

RETAINED EARNINGS (5.84) (4.37) 3.20 26.99 28.19 38.32 53.92 68.10 81.85 97.17

EX-FACTORYS COST/TON (DR/TON) 234 228 211 194 175 183 186 192 199 20)7

Industrial Projects DepartmentMarch 1977

MOROCCO - CIOR CEMENT PROJECT

PROJECTED SOURCES AND APPLICATIONS OF FUNDS(DH Million - current terms)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

SOURCES OF FUNDS

Cash from OperationsDepreciation - - - 17.10 69.37 69.37 64.49 50.25 49.14 45.83 45.83 45.83Net Profit after Taxes

and Dividends - - - (5.84) (4.37) 3.20 26.99 28.19 38.32 53.92 68.10 81.85

Sub Total - - - 11.26 65.00 72.57 91.48 78.44 87.46 99.75 113.93 127.68

Capital 75.00 90.55 162.45 - - - - - - - -

LoansIBRD - - 128.70 70.60 3.20 - - - - - -

Treasury Advances - - 98.70 142.60 13.60 - -

Medium Term Local - - - 31.57 - - - - - -

Sub Total - - 227.40 244.77 16.60 - - - - - -

TOTAL SOURCES 75.00 90.55 389.85 255.03 81.60 72.57 91.48 78.44 87.46 99.75 113.93 127.60

APPLICATION OF FUNDS

Fixed AssetsDistribution Facilities - - - 12.50 6.80 - - - - - -Plant 51.30 114.25 382.85 179.20 10.00 - - - - _ _Replacement - - - - - 16.86 - - -Interest during Construction _ - 7.00 21.50 - - - - - - -

Sub Total 51.30 114.25 389.85 213.20 16.80 - - 16.86 - - -

Change in Working Capital 23.70 (23.70) - 31.57 7.49 4.04 4.36 0.74 3.06 2.99 3.39 3.64

Loan RepaymentsIBRD - - - - - 9.20 18.40 18.40 18.40 18.40 18.40 18.40Treasury Advances - - - - - 18.20 18.20 18.20 18.20 18.20 18.20 18.20Medium Term Local - - _ - 31.57 - - - - - - -

Sub Total - - - - 31.57 27.40 36.60 36.60 36.60 36.60 36.60 36.60

TOTAL APPLICATIONS 75.00 90.55 389.85 256.03 25.74 41.13 50.52 24.24 47.80 60.16 73.54 87.36

Annual Surplus - _ _ 11.26 25.74 41.13 50.52 24.20 47.80 60.16 73.54 87.36Cumulative Surplus - - - 11.26 37.00 78.13 128.65 152.85 200.65 260.80 334.35 4217.71

Industrial Projects DepartmentMarch 1977

MOROCCO - CIOR CEMENT PROJECT

PROJECTED BALANCE SHEET(DH million - current terms)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

ASSETS

Current AssetsSurplus Cash/Banks 11.26 37.00 37.00 37.00 37.00 37.00 37.00 37.00 37.00Cash for Operation 25.10 - - 1.65 1.76 1.89 2.02 2.16 2.31 2.47 2.65 2.83Accounts Receivable - - 11.06 17.66 21.54 25.88 26.38 28.21 30.17 32.27 34.51Inventories - - - 23.66 24.78 25.96 27.07 28.58 30.29 31.83 33.66 35.63

Sub Total 25.10 - - 47.63 81.20 86.39 91.97 94.12 97.81 101.47 105.58 109.87

Fixed AssetsGross Assets 51.30 165.55 555.40 768.60 785.40 785.40 785.40 802.26 802.26 802.26 802.26 802.26Less Accum. Deprec. - _ - 17.10 86.47 155.84 220.03 270.58 319.72 365.55 417.38 457.21

Net Fixed Assets 51.30 165.55 555.40 751.50 698.93 629.56 565.37 531.68 482.54 436.71 390.88 345.05

Other Assets-' - - - - - 41.13 91.65 115.85 163.65 223.81 297.35 384.71

TOTAL ASSETS 76.40 165.55 555.40 799.13 780.13 757.08 748.99 741.65 744.00 761.99 793.81 839.73

LIABILITIES

Current LiabilitiesAccounts Payable 1.40 - - 4.80 5.14 6.28 7.51 8.93 9.56 10.22 10.94 11.71Cur. Port. of Lt Debt - - - 31.57 27.40 36.60 36.60 36.60 36.60 36.60 36.60 36.60

Sub Total 1.40 - - 36.37 32.54 42.88 44.11 45.53 46.16 46.82 47.54 48.31

Long & Medium Term DebtForeign - - 128.70 199.30 202.50 193.30 174.90 156.50 138.10 119.70 101.30 82.90Local _ _ 98.70 241.30 227.90 199.10 182.00 163.45 145.25 127.06 108.46 90.16

Sub Total - _ 227.40 440.60 430.40 393.21 356.90 319.95 283.35 246.76 209.76 173.06

CapitalShare Capital plus Other 75.00 165.55 328.00 328.16 320.00 328.00 328.00 328.00 328.00 328.00 328.00 328.00Initial CapitalRetained Earnings (Loss) - - (5.84) (10.21) (7.01) 19.98 48.17 86.49 140.41 208.51 290.36

Sub Total 76.40 165.55 328.00 322.16 317.79 320.99 347.98 376.17 414.49 468.41 536.51 618.36

TOTAL LIABILITIES 76.40 165.55 555.40 799.13 780.13 757.08 748.99 741.65 744.00 761.99 793.81 839.73

Current Ratio - - - 1.3 2.5 2.0 2.1 2.1 2.1 2.1 2.2 2.3Debt/Equity Ratio 0:100 1:100 41:59 57:43 57:43 55:45 51:49 46:54 41:59 34:66 28:72 22:82Debt Service Coverage - - - 1.35 1.46 1.72 1.74 1.62 1.73 2.00 2.26 2.60

1/ Provision for Revaluation and Replacement.

Industrial Projects DepartmentMarch 1977

ANNEX 6-7Page 1

MOROCCO - CIMA CEMENT PROJECT

FINANCIAL RATE OF RETURN AND SENSITIVITY ANALYSIS

Assumptions

1. The financial rate of return calculations cover only costs andbenefits of the cement plant, i.e., they do not include costs and revenuesfrom the distribution operations which will be treated separately under thenew pricing system and do not directly affect CIOR's financial results (fordetails see Annexes 6-3, para 3). Cost streams are derived from the capitalcost estimates and financial projections. They exclude financial charges anddepreciation but include periodical replacement of equipment. They have beenvalued in 1976 real terms by deflating current values by the average worldinflation rate which is assumed to be 8% in 1976, 7% in 1977 and thereafter.

2. The benefits stream consists of the revenues from sales ex-factory;in line with the cost streams they exclude the fees for distribution ofcement. Revenues are based on real term revenue projections given inAnnex 6-3.

3. Other basic assumptions used in the financial rate of returncalculations are as follows:

Construction period: 4 yearsLife of the project: 20 yearsWorking capital: fully recovered at the end of project lifeScrap value: 20% of the initial value of fixed assets

in 1976 terms.

4. The financial rate of return, thus calculated, is 10.0%. Resultsof the sensitivity analysis are given on page 3 of this Annex.

ANNEX 6-7Page 2

MOROCCO - CIOR CEMENT PROJECT

FINANCIAL RATE OF RETURN

COST AND BENEFIT STREAMS(DH million - 1976 real terms)

Capital OperatingYear Costs Costs Revenues

1975 51.301976 114.251977 361.18 - -1978 192.43 19.18 35.101979 10.34 66.13 147.78

1980 1.01 72.52 168.841981 0.98 78.47 189.901982 12.52 85.29 175.951983 - 87.69 175.951984 - 87.69 175.95

1985 - 87.69 175.951986 - 87.69 175.951987 16.47 87.69 175.951988 - 87.69 175.951989 - 87.69 175.95

1990 - 87.69 175.951991 - 87.69 175.951992 16.47 87.67 175.951993 - 87.69 175.951994 87.69 175.95

1995 - 87.69 175.951996 16.47 87.69 175.951997 - 87.69 175.951998 - 87.69 175.951999 (174.81) 87.69 175.95

Industrial Projects DepartmentFebruary 1977

ANNEX 6-7Page 3

MOROCCO - CIOR CEMENT PROJECT

SENSITIVITY TESTS ON FINANCIAL RATE OF RETURN

15%

s4 1 0. 0%/

0

-20 -10 0 10 20

**--]Jecrease Increase-r

% Variation of Input

Case Capital Operating Revenue Rate ofCost Cost ______CReturn (%)

1 Base Case 100 100 100 10.02 105 100 1009.3 110 100 100 8.8

8 95 ~~~~~~100 100 10.6.5 100 110 100 8.66 100 120 100 7.67 100 90 100 10.68 100 110 110 10.89 100 100 907.10 100 100 110 12.2

Industrial Projects DepartmentMarch 1977

MOROCCO-CIOR CEMENT PROJECT

BREAK-EVEN POINT ANALYSIS

1. The break-even points of the CIOR plant have been calculated on the basis of costs, expressed in currentterms, in the years 1980 and 1982 (when the plant reaches full production and sale price decreases to DH 150/tonin real terms)

2. The following basic data were used to determine the break-even points:

1980 1982

Cement Production (000 tons) 938 1173

Net Sales (DH million) 219.25 261.59

Costs (DH million) Fixed Variable Total Fixed Variable Total

Direct Labor 3.00 0.53 3.53 3.43 o.61 4.04Material, Supplies, Spares 4.82 144.5 19.27 6.70 20.12 26.82Utilities 6.35 36.95 42.30 9.09 51.48 60.57Bags - 13.81 13.81 19.78 19.78Maintenance Labor 3.72 0.66 4.38 4.26 0.75 5.01Administration 9.59 - 9.59 9.10 9.10Taxes 1.04 0.26 1.30 1.20 0.29 1.49Depreciation 68.41 - 68.41 49.29 - 49.29Financial Charge 37.78 - 37.78 31.97 - 31.97

Total 134.71 65.66 200.37 115.04 93.03 208.07 0 Percentage 66.8 33.2 100.0 54.70 45.30 100.0

Debt Repayment (DH million) 27.40 36.60 O

Profit Break-even Point 68.5 67.7(% of capacity) j/

Cash Break-even Point 47.7 59.4(% of capacity) /

j/ On the basis of the nominal capacity of 1.2 million tpy

Industrial Projects DepartmentFebruary 1977

ANNEX 6-8Page 2

MOROCCO - CIOR CEMENT PROJECT

PROFIT BREAK-EVEN POINT YEAR 1982

300.0

267.6

210.*2

200.0-

Fixed Costs 115.n

100.0 95.2

20 40 60 80 100

Percentage of Capacity (%)

Industrial Projects DepartmentFebruary 1977

ANNEX 7-1

Page 1

MOROCCO - CIOR CEMENT PROJECT

ECONOMIC RATE OF RETURN AND SENSITIVITY ANALYSIS

1. The economic cost/benefit streams shown on page 3 of this Annexhave been calculated on the following basis: (a) all costs and revenuesare expressed in real 1976 prices; (b) the benefit stream is based on theopportunity cost of importing cement, since it is expected that without CIOR,Morocco would have to import an equivalent amount of cement; (c) productioncosts are calculated using world market prices for main inputs; (d) transportand distribution costs of CIOR cement sold in regions other than the Orientalhave been added to the cost streams; and (e) all transfer payments are ex-cluded. However, no shadow pricing of the foreign exchange has been employed.

2. Cost and benefit streams for the calculation of the economic rateof return are based on the capital cost estimates and financial projectionswith the following adjustments:

(a) Benefits. Net sales are valued at DH 210 (US$46.7)per ton of bagged cement and DH 187.5 per ton (or US$5 less)for bulk cement. These prices which reflect the actualeconomic cost of cement imports in Morocco in the second halfof 1976, consisting of a C & F cost of US$39.80 Moroccan port anda total of US$6.90 of in insurance, handling and other portcharges. These prices also represent an average betweenlower price in early 1976 and higher prices announced byMediterranean cement exporters for 1977. The C & F cost of

about US$40 ton represent a decrease in real terms from theprices experienced in 1974-75 (also of about US$40 butin current terms) and can be considered as conservative longterm estimate of cement prices in the Mediterranean market.

(b) Capital Costs of the plant have been decreased by DH 31 mil-lion by excluding taxes and duties and shadow pricing labor.To reflect the high rate of unemployment in the Oriental regionunskilled labor has been shadow priced at 75% of the marketprice for civil works, infrastructure and equipment installation.Scrap value has been assumed at 20% of initial cost for the plantand infrastructure, and at 100% for the working capital.

(c) Operating Costs. Fuel and electricity prices in Morrocco areheavily subsidized. Therefore, to reflect real economic costselectricity costs have been increased by 50% above tariffsprevailing in Morocco. In addition, fuel costs have been valued

at December 1976 world market prices (US$12.10/barrel) resultingin a delivered price of US$75/ton which is about 26% above thepresent domestic price. Further the cost of unskilled laborhas been shadow-priced at 75% of its financial cost.

ANNEX 7-1

Page 2

(d) Transport/Distribution Costs have been taken into accountfor the cement sold by CIOR outside the Oriental for about12 years. For the limited sales in Casablanca only costof rail transport has been included under the assumption thatCIOR's cement delivered at the railway station or distribu-tion facilities of other cement producers in Casablanca,would have the same opportunity value as imported cementat the port of Casablanca. For CIOR's sales in the Fez

area cost of rail transport ass well as capital costs andoperating costs of a bulk receiving terminal have beenincluded. Cost of rail transport has been increased by 20%

above ONCF tariffs to about US$0.02/ton-km in line with thecost of transport of bulk commodities in comparable Mediter-ranean countries.

3. Based on these assumptions the economic rate of return of the projectis 13.8%. The cost/benefit streams are given in page 3 of this Annex andsensitivity tests are detailed on page 4.

4. The rate of return has also been calculated under the assumption that

starting in 1985 CIOR would produce blast furnace cement with slag from theSONASID project in Nador and thereby increase its output to 1.4 million tpy.Assuming slag purchased in Nador at US$5.0/ton and an incremental operatingcost of DH 10.5/ton of cement produced, the rate of return of the project wouldincrease to 14.7%.

Industrial Projects DepartmentMarch 1977

ANNEX 7-1Page 3

MOROCCO - CIOR CEMENT

ECONOMIC RATE OF RETURN

COST AND BENEFIT STREAMS(DH million - 1976 real terms)

Capital Cost Transport &Capital Cost Distribution Operating Cost Distribution

Year Plant Facilities Plant Costs Benefits

1975 50.51976 111.21977 345.0 - _ _1978 184.8 14.5 18.3 - 40.51979 8.4 4.2 74.5 14.9 170.6

1980 1.0 - 82.2 19.3 194.51981 1.0 - 89.7 22.0 219.21982 12.5 - 97.9 23.2 243.71983 - - 97.9 19.3 243.71984 - - 97.9 15.9 243.7

1985 - - 97.9 13.5 243.71986 - - 97.9 12.1 243.71987 16.5 - 97.9 10.8 243.71988 - - 97.9 9.8 243.71989 - 97.9 8.7 243.7

1990 - 97.9 7.7 243.71991 - - 97.9 6.2 243.71992 16.5 - 97.9 4.9 243.71993 - - 97.9 3.6 243.71994 - - 97.9 2.3 243.7

1995 - -3.9 97.9 - 243.71996 - - 97.9 - 243.71997 16.5 - 97.9 - 243.71998 - - 97.9 - 243.71999 (133.5) - 97.9 - 243.7

Industrial Projects DepartmentMarch 1977

ANNEX 7-1Page 4

MOROCCO - CIOR CEMENT PROJECT

SENSITIVITY TESTS ON ECONOMIC RATE OF RETURN

20%

(13.8%) til07%

5%/

-20 -10 0 10 20e Decrease Increase-,

% Variation of Input

Capital Cost Capital Cost Operating Transport Rate ofCase of Plant Distribution Facilities Cost Plant Cost Revenue Return (%)

1 100 100 100 100 100 13.82 110 100 100 100 100 12.53 90 100 100 100 100 15.24 100 150 100 100 100 13.65 100 100 110 100 100 12.76 100 100 120 100 100 11.67 100 100 90 100 100 14.88 100 100 100 125 100 13.49 100 100 100 150 100 13.0

10 100 100 100 100 90 11.111 100 100 100 100 80 8.212 100 100 100 100 110 16.2

Industrial Projects DepartmentMarch 1977

MOROCCO - CIOR CEMENT PROJECT

FOREIGN EXCHANGE EFFECTS(DH Million - current terms)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

1. Foreign Exchange Inflow

Foreign Loansl/ - - 128.70 70.60 3.20 - - - - - - - - -

2. Foreign Exchange Outflow

Capital Expenditure2

/ 27.50 46.24 176.80 94.76 12.00 - - 13.45 - - _ _ 27.44Change in Working Capital - - - 6.10 1.45 0.78 0.84 - -Interest during Coantru-tion - - 3.34 12.00 - -

Subtotal 27.50 46.24 180.14 112.86 13.45 0.78 0.84 13.49 - _ _ _ 27.44

Operating Expenses

Material, Supplies, Sparest/ - - - 2.45 11.03 13.49 15.78 18.77 20.09 21.49 23.00 24.60 26.33 28.18utilttiiss

4/ - - 5.61 25.27 30.88 37.17 44.22 47.31 50.62 54.17 57.95 62.01 66.35

Paper bags - - - 0.63 2.83 3.45 4.16 4.95 5.29 5.66 6.06 6.48 6.94 7.42Technical Assistance - - - .79 2.55 1.64 .58 - -

Subtotal - - 9.48 41.68 49.46 57.69 67.94 76.69 77.77 83.23 89.03 95.38 101.95

Transportation & Distribution Casts./ - - - - 9.50 12.11 14.49 16.19 14.55 12.98 11.91 11.47 11.02 10.73

Debt Service

Principal Repaymenti/ - - - - 9.20 18.40 18.40 18.40 18.40 18.40 18.40 18.40 18.40Interestl/ - _ - 4.30 17.20 16.80 15.60 14.10 12.50 10.90 9.40 7.80 6.30 4.70

Subtotal - - _ 4.30 17.20 25.00 34.00 32.50 30.90 29.30 27.80 26.20 24.70 23.10

Total Outflow 27.50 61.24 180.14 126.64 81.83 87.35 107.02 130.12 122.14 120.05 122.94 126.70 158.54 135.78

3. Foreign Exchange Surplus (Deficit) (27.50) (61.24) (51.44) (56.44) (78.63) (87.35) (107.02) (130.12) (122.14) (120.05) (122.94) (126.70) (158.54) (135.78)

4. Less Foreign Exchange Savings- - - 39.74 179.02 218.72 263.28 313.34 335.27 358.74 383.85 410.72 439.47 470.23

5. Foreign Exchange surplus (Deficit) Due to Project (27.50) (61.24) (51.44) (26.70) 100.39 131.37 156.26 183.22 213.13 238.69 260.91 284.02 280.93 334.45

1/ IBRD loan.2/ Including expenditures en distribution facilities.3/ 707, of total material, supplies, and spares.4/ 75% and 25% respectively of fuel and power cost after removal of subsidies.5/ 407. of transport and distribution costs.6/ Valued at the C&F crst of imported cement, inflated at 7% p.a.

Industrial Projects DepartmentMarch 1977

ANNEX 7-3Page 1

MOROCCO - CIOR CEMENT PROJECT

ECONOMIC DEVELOPMENT OF THE ORIENTAL REGION

A. MAJOR CHARACTERISTICS OF THE ORIENTAL REGION

1. The Oriental Region comprises the three provinces of Oujda, Nadorand Figuig and covers an area of about 48,000 km2 (107 of the total area ofMorocco). It is located in the eastern corner of the country, bordered bythe Mediterranean Sea, and Algeria in the northeast. About two third of itssurface consists of semi-desertic highlands and mountains, the rest con-sisting of plains. The poDulation is estimated at 1.2 million (about 77 ofthe total Moroccan population), of which two third live in the rural areas,mainlv in the northern fertile part of the Oriental Region.

2. Particularly when compared to the western part of the country, theOriental region is characterized bv underdevelooment. The agriculturalproduction is limited, except for small livestock production. With 10% ofthe total area of Morocco, the Oriental region contributes onlv to about 5%of the total agricultural production. This is mainly due to the lack of water,the rainfall being under 400 imm per vear in most areas; and although, whencompleted, the irrigation schemes will cover about 80,000 ha (20% of thecultivated areas), the cultivable areas will still account for less than 10%of the total area of the region. However, the semi-desertic highlands aresuitable for small livestock raising, and the region contributes to about 15%of the sheep and goat production of Morocco.

3. Regional output in the industrial sector is also below average withthe exception of the mining sector. This sector emplovs about 6,500 personswhich is equivalent to 20% of total emplovment in mining activities for thewhole country. The main minerals are coal and iron ore. Coal is mined inJerrada by the Charbonnages Nord-Africains which employ 4,300 workers. AnnualDroduction amounts to 56n,000 tons and is mostly used locallv for producingelectricity thus providing about 30% of the electricitv requirements ofMorocco. Iron ore production from the open pit mine at Uixan declined from1.6 million tons in 1060 to 230,000 tons in 1972 due to depletion of high gradeore. However, since then mining operations have been modernized and expanded,a new concentration and pelletization Plant has been installed thus raisingoutput to about 850,000 tons of pellets per year which are mostly exported. Themining and concentrating operations are operated by SEFERIF I/ which employs1,500 persons. Other mines (lead and zinc) are of secondarv importance; they

1/ SEFERIF - Societe d'Exploitation des Mines du Rif.

ANNEX 7-3Page 2

employ about 500 workers, and together with iron ore mines contribute to lessthan 5% of total exports. Other industrial activities are limited; only2 plants are of substantial size; the sugar mill of Zaio which employs200 persons on a permanent basis and which produces annuallv around 25,000tons of crude sugar, and the building materials plant nf Berkane which _

employs 150 persons and produces 70,000 meters of concrete pipes and chan-nels per year. Other companies are small (less than 50 persons) and operatemainly in the fields of food processing, building, and textiles.

4. The region also suffers from its remote position far off the mainindustrial regions of Morocco on the Atlantic coast. Despite its long coastalong the Mediterranean, the region does not have a major trading port. In-dustrial goods have to be transported from the Casablanca-Rabat area 600 kmaway or imported through Algeria which is even more difficult. The mainrailway line. Casablanca-Fes-Algeria, passes by Oujda but has no connection yetto the important areas of Nador and Berkane. The reasonably good road networkin the Oriental between the Atlantic coast is not used efficiently; transport,including on long distances, is mostly carried out by small trucks of upto 5.5 tons capacity, since private carriers are practically restrictedto this size of vehicles because of official regulations on freight rates andlicenses.

5. As a result of underdevelopment, each year 3,000 people leave theOriental region: this figure is equivalent to half of the number of youngpeople who annuallv reach the working age (14-24 age group). In addition,in the Oriental region, the active population accounts for onlv 20% of thetotal Dopulation (vs 25% for the whole country), and the level of unemploy-ment is substantiallv higher than for the rest of the country: according toofficial figures, which tend to be underestimated, the unemployment rate inthe Oriental region is 15% whereas it averages 9% for Morocco as a whole.

6. Although, the Oriental region is underdeveloped, many indicatorsshow that the standard of living of the population are comparable to the restof the country. For instance, the level of housing compares quite favorablywith other regions of Morocco: 23% of houses are below standard in theOriental region vs. 27% as an average for Morocco; 45% of the people owntheir houses, whereas the national average stands at 37%. This situation isalso reflected in the level of education which is equivalent to that of thewhole country. Finally, it appears that savings are substantial but becauseof limited investment opportunities in the Region, through the banking systemthese savings are invested in the western part of Morocco. This contradictionbetween the level of development of the region and the standard of livingof the population is due to the importance of remittances from Moroccan workersliving in Europe. According to estimates, one third of the 600,000 Moroccansliving abroad originate from the Oriental region. As a result, an average ofat least one person per family has emigrated to Europe and sends monthly backto his familv, the equivalent of the minimum salary in Morocco.

ANNEX 7-3Page 3

B. GOVERNMENT POLICY FOR THE ORIENTAL, REGION

7. With the Third Development Plan the Government is putting emrhasison regional development, and in this context, the Oulda-Nador areas have hee,tselected as development poles with special priority. It is hoped that theregion will become Morocco's "door" into the Mediterranean. To achieve thisdevelopment objective, public investments amounting to 2 billion Dirham wereincluded in the Third Plan 1973-1977 (the investment figure was subsequenttlyre-evaluated). These investments for the Oriental region are equivalent to8% of total public investments for Morocco and are much higher than thoseever obtained for this region. It is also expected that the public investmentswill generate private investments of a same amount.

8. The Government's develoDment policv for the Oriental region aimsat providing basic infrastructure and at exploiting and processing localresources. In that respect, most investments have been planned in the miningand agro-industrial sectors. The main project are the Nador iron and steelworks for which a new companv. SONASID (Societe Nationale de Siderurgie), hasbeen created. The cost of project is estimated at US$1,500 million. Usingimported ore and ore extracted near Nador, the Project will produce about1 million tons of steel per year. In conjunction with this project, the portof Nador is being developed (estimated cost 235 million DH) by a RomanianCompanv. The building of a new railway line of about 140 km to connect theNador region with the main railway line Casablanca - Oudja, is under study.It is also planned to double the coal production of the Jerrada mine to beused as fuel to generate electricity. A lead foundry, promoted by BRPM 1/is under construction, and will produce 35,000 tons of lead and 10 tons ofsilver per year. In the agro-industrial sector, the main projects include:a pulp and paper plant promoted by ODI will employ 700 persons on a permanentbasis and 3,000 on a temporary basis and will produce 60,000 tons of paper peryear, mainly for exports (estimated cost, 220 million DH)z a multipurpose foodcanning plant "SICOR" (40 million DH), also promoted by ODI will employ700 persons and transform products of the irrigated areas in the view ofexporting; the extension of the sugar mills of Zaio. Projects of building adairy products plant and a feed mill for livestock are under studv. In othersectors, a textile plant (160 million DH), promoted by ODT will transform14,000 tons of fiber cotton produced in the Nador area; a fabrics plantjointly financed with a Hungarian company is expected to produce 2 milliontrousers per year; a touristic complex is planned on the Mediterranean coast(SAIDIA) and will be mainly promoted by private entrepreneurs.

I/ BRPM - Bureau de Recherches et de Participation Minieres, a Moroccanfirm.

ANNEX 7-3Page 4

9. Therefore, after many years of slow development following thedeparture of expatriates from the Oudja region after Morocco's independencefrom France, the cession of the Rif 1/ from Spain, and the troubled timesof Algeria's independence, the Oriental region is now likely to experiencean upswing in development stimulated by the Government.

C. THE IMPACT OF THE PROJECT ON THE ECONOMIC DEVELOPMENT OF THE REGION

10. The economic and social impact of the project for the Orientalregion is expected to be substantial:

(a) Employment generation is also expected to be signifi-cant. According to mission estimates, 1,200 peoplewill be employed for an average of 2 years duringthe construction of the plant. Actual plant opera-tion will create jobs for 440 people, all of whichwill be Moroccan. Indirect employment effects ofcement plants, however, are far more important thandirect employment creation, particularly in the con-struction industry and the tertiary sector.

(b) The project will improve the level of housing andsustain the Government's effort in this field. Takinginto account that 45% of the cement production will beused in housing and that in Morocco the building of adwelling requires on the average 9 tons of cement, itis expected that the equivalent of 25,000 dwellingswill be built annually, improving the living standardof about 125,000 people.

11. These economic and social effects are an essential secondary bene-fit of the project. Generally, it can be argued, that imported cement gen-erates the same economic effects as locally produced cement supply. How-ever, past experience shows that the Moroccan authorities are reluctant tothe importing of cement due to the stress on the balance of payment and itis generally difficult to match imports in time and quantity with actualdemand. In addition, the Oriental Region faces transport problems whichcompound the advantage of locally produced cement versus imported cement.There is a high probability that the described economic and social impactwill occur on the following grounds:

(a) There is a real market for cement (see Annex 3-1) inthe area. The number of houses under constructionfor instance is exceptionally high: the slow butcontinuous progress of building of many housesillustrates how these activities are fueled by acontinuous accumulation of savings.

1/ Northwestern part of Morocco - formerly Spanish Morocco.

ANNEX 7-3Page 5

(b) The economic growth is going to take place at first

in the building sector as a result of the creation

of building enterprises and companies manufacturingbuilding materials and equipment. The development

of such enterprises relies directly on the resources

of the region, since these enterprises are usuallysmall and require much labor but limited capital and

technological input.

12. Another consideration in evaluating the CIOR project is that there

are few alternative opportunities of investment existing in the Oriental

region for projects of this size. An exception is the steel project in

Nador; however, this plant will also benefit other regions where there is

a demand for steel.

Industrial Projects DepartmentDecember 1976

I BR D 12528

,p, < ;Jerez dplc MALAGA I, 0ECEMIER 197I

CEMENT PRODUCTIONUP A I I; 0 S S >i+Er1 \ . \i31 Z4 / t ; r,,a nb S a 7 Soe a

KINGDOM OF MOROCCO U lIST

CIOR CEMENT PROJECT 6A CtzafmT4 Ora"- zt; 0,

CEMENT~~~~~~~~~~~~~~~~~~~~/ A PROUCIO UIT* EXISTING CEMENT PLANTS L a C IEIEhechRoSN tdREULL n T4md- eI

A EXPANSION TO EXISTING PLANTS dI sre-e,

* NEW PLANTS UNDER CONSTRUCTION / ' - P Md Be\on

NEW PLANTS PLANNED A I n a ; c e U ThEMCE /. os

DISTRtIXUTION CENTERS, PROPOSEDrb

_____MAIN ROADS

________ SECONDARY ROADS a n , Amh.

- TRACES AKNDdoegl

RAILROADS. EXISTING

- RAILROADS, PLANNED HaABA

+ AIRPORTS rn,e

.,L PORTS Aebonm ;ad-ElH

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