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GLOBALENVIRONMENT

FACILITY

13 qW MoI

MoroccoRepowering of Power Plant

Project DocumentJuly 1994

THE WORLD BANK

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GEF Documentation

The Global Environment Facility (GEF) assists developing countries to protectthe global environment in four areas: global warming, pollution of international waters.destruction of biodiversity, and depletion of the ozone layer. The GEF is jointly implementedbythe United Nations Development Programme. the United Nations Environment Programme,and the World Bank.

GEF Project Documents - identified by a green band - provide extended project-specific information. The implementing agency responsible for each project is identified byits logo on the cover of the document.

Global EnvironmentCoordination Division

Environment DepartmentWorld Bank1818 H Street. NWWashington. DC 20433Telephone: (202) 473-1816Fax: (202) 522-3256

CURRENCY EOUIVALENTS(As of May 1994)

Currency Unit - Moroccan Dirham (DH)US$ 1.00 - DH 9.50DH 1.00 - US$ 0.105

UNITS AND MEASURES

cal. calorie - 4.187 Jouleskcal. kilo-calorie - 1,000 calories

- 4,187 Joules- 3.9683 BTU

BTU British Thermal Unit - 0.252 kilocaloriestoe tonne of oil equivalent - 40.5 million BTU (10.2

million kcal.)V voltkV kilovolt - 1,000 voltsKW kilowattMW megawatt - 1,000 kilowattskWh kilowatt-hourGWh gigawatt-hour - 1 million kWh

ABBREVIATIONS AND ACRONYMS

ESMAP - Energy Sector Management Assistance ProgramGEF - Global Environmental FundGET - Global Environment TrustGHG - Greenhouse GasesGT - Gas TurbineHRSG - Heat Recovery- Steam GeneratorHV - High VoltageICB - International Competitive BiddingIS - International ShoppingLV - Low VoltageMEA - Ministry of Economic AffairsMEM - Ministry of Energy and MinesMF - Ministry of FinanceMI - Ministry of InteriorOECF - Overseas Economic Cooperation Fund (Japan)ONE - Office National de l'Electricite

FISCAL YEAR

January 1 - December 31

MOROCCO

REPOWERING OF POWER PLANT PROJECT

GRANT AND PROJECT SUMMARY

Grantee: The Kingdom of Morocco

Beneficiary: Office National de l'Electricite - ONE

Amount: SDR 4.2 million equivalent (US$ 6.0 million)

Terms: Grant

Associated Bank Project: Free-standing project

Objectives: To finance the attachment of a new gas/ lightdistillate fired gas turbine to an existing steam-based power generating unit at Kenitra in order to:(i) reduce GHG emissions at the existing plant;(ii) increase power generating efficiency; and(iii) promote replicability of modern repoweringtechnology.

Project Cost: US$ 45.7 million

Financing Plan:

------ US$ million ------Local Foreign Total _X

GET 0.6 5.4 6.0 13OECF 0.5 31.4 31.9 70ONE 7.8 0.0 7.8 17

TOTAL 8.9 36.8 45.7 100

Economic Rate Not applicableof Return:

MOROCCO


MEMORANDUM OF THE DIRECTOR

TABLE OF CONTENTS

page

Sector Background . ........................................... 1Power Sector Issues ........................................... 1Power Sector Reforms .......................................... 2Project Framework ........................................... 2Project Objectives ........................................... 3Project Optimization and Description ........... ...................... 3Project Cost and Financing Plan . .................................... 3Project Implementation .......................................... 4Project Monitoring and Evaluation . .................................. 4Rationale for GEF Funding . ...................................... 4Sustainability ............................................ 5Project Benefits ........................................... 5Environmental Benefits . .......................................... 6Project Risks ............................................ 6Agreements reached at Negotiations . .................................. 6

ATTACHMENTS

Cost Estimate and Financing Plan ................................ 8Summary of Proposed Procurement Arrangements ................... 10Disbursements .......................................... 11Timetable of Key Project Processing Events ....................... 12Bank Staff Inputs for Project Supervision through 1997 ................ 13

MOROCCO


Sector Background

1. Morocco's GDP growth during 1985-1992 has averaged about 4.2 % peryear. In order to sustain a robust economic expansion, the Government ofMorocco will need to provide its economy with adequate and efficient energy(particularly electricity) supply by selectively allocating financialresources and adopting modern technologies. Morocco existing energy reserves(including oil, natural gas, oil shale, coal, and hydroelectric power) areeither constrained or have high production costs, and their development hasbeen limited. During the above period, energy imports (mainly petroleum)represented more than 80% of Morocco's commercial energy demand. Commercialenergy consumption grew during the period 1985-1992 at an average of 4.5 e peryear.

2. Electricity requirements within the interconnected system hasincreased rapidly, from 6,525 Gwh. in 1985 to 10,588 Gwh. in 1993, i.e. at anaverage annual rate of about 6.2 %; while power plant capacity has increasedduring the same period from 1,970 MW. to 2,220 MW. About 1,530 MW., or 69 %,are thermal-based power plants, which during 1993 consumed about 1,597 kTons.and 1,236 kTons. of liquid fuels and coal respectively. Maximum peak demandduring 1993 was estimated at 1,850 MW. (para. 4). The increased use ofelectricity by industrial and residential consumers in Morocco as well as theimplementation of a comprehensive rural electrification program (expected toincrease the rate of electrification of the rural areas from 25 to 45%) wouldinvolve a significant expansion of electric generating facilities throughoutthe country. To ensure reliable electricity supply to its consumers and toreplace aged thermal- based power plants, about 1,340 MW. generating capacity(of which 480 MW. hydro) will be installed during 1994 -1996 and an additional1,900 MW. during 1997-2000.

Power Sector Issues

3. The power sector confronts serious power supply shortages. Sinceearly 1992, average available system capacity amounting to about 1,550 MW.,has not been sufficient to meet peak demand. Programmed load shedding (up to17% of peak demand) has been imposed mainly on industrial customers, causing aproduction loss of up to 1 of GDP. This was mainly due to the delays in theconstruction of hydro generating plants; the lack of water for powergeneration from multipurpose hydro schemes; and the poor availability ofthermal plants.

4. The power sector faces also organizational, financial and powersupply problems as a result of the dispersion of responsibilities amongvarious ministries, central and local government agencies and inter-ministerial committees. Regulation, organization, decision making, policyimplementation and administration of the electricity sector are not wellcoordinated. The main organizational problems are related to: (i) thesector's monopolistic structure and the lack of autonomy for settingelectricity prices; (ii) the complexity of the sector organization and theexcessive number of institutions associated to its administration and(iii) centralized controls at ministerial levels. The main financial problemsaffecting the sector are mainly due to: (i) the lack of regular adjustment ofelectricity tariffs; (ii) the magnitude of the arrears owed by both the localpower distributing utilities (R6gies) and the public sector to ONE; (iii) thehigher fuel consumption by thermal plants due to the low availability of the

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hydroelectric schemes; (iv) the high level of taxes imposed on the heavy fuelused for power generation; and (v) ONE's debt service obligations mostly tothe State which the Government partially has had to subsidize through capitalcontributions. The Regies' profit margins on electricity sales have been usedto subsidize their water operations. Furthermore, they have accumulated largearrears with ONE.

Power Sector Reforms

5. In view of the above problems and to meet the challenge ofexpanding the interconnected system generating capacity, the Moroccanauthorities have decided to overhaul the existing legail and regulatoryframeworks and practices through the issuance and implementation of new sectorregulating arrangements. The Government has established a sound strategy forthe power sector which calls for the: (i) reform of the existing sectorlegislation and regulation to permit the operation of independent powerproducers (IPP's) and the investment of private capitals; (ii) rehabilitationof the sector's financial situation; (iii) reduction of current reliance onoil imports to meet energy needs in a cost effective manner while mitigatingthe adverse effects on the atmosphere by the use of energy combustibles; (iv)adoption of improved technologies such as combinedcycle and repowering powergenerating schemes; (v) promotion of energy conservation measures; and (vi)addition of power generating capacity to meet the country's demand.

6. The Bank is assisting the Government of Morocco in all of theabove strategic areas through: (i) the ESMAP/ WB Energy Sector Institutionalstudy, now completed in collaboration with a GOM's task force, which proposesdetailed options to address the sector reforms; (ii) advice and financialassistance to prepare the new electricity code, establish a Sector RegulatingAgency, prepare the bidding documents and power purchase agreements forcontracting Independent Power Producers and update and implement thelong- run marginal cost tariff study; (iii) the proposed GEF project; and(iv) the components in existing Bank operations (loans 2910-MOR and 3262-MOR).Furthermore, the proposed sector reforms will be supported by a new Bank loan,Power Sector Reform Project, currently under preparation and expected to beapproved during FY96.

Project Framework

7. As a result of the expansion of power generating facilities inMorocco, there is a need to introduce innovative technologies which wouldimprove the efficiency of energy usage and reduce the greenhouse gasesemissions significantly. Among them, the repowering technology applied toexisting plants using topping cycle (combined cycle) is an attractivealternative. Most of the developing countries have been reluctant to adoptcombined cycle technologies due sometimes to lack of familiarization withthese schemes and/ or misleading perception that these innovative technologiesare not fully proven.

8. The Government of Morocco requested GET assistance to implementthe proposed repowering project. In response, GET granted a ProjectPreparation Advance to prepare a feasibility study for the introduction of therepowering technology in Morocco. This study has determined the optimal siteand size of the scheme, the economic and environmental assessments and thedetailed cost estimates. This proposal was prepared based on the results,conclusions and recommendations of this study. This Memorandum summarizes theobjectives, main features, implementation arrangements, benefits and risks ofthe proposed project. A Technical Annex is attached which includes allnecessary details supporting and justifying this operation.

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Project Objectives

9. The main objectives of the proposed project are to: (i) reduceGreenhouse Gases (GHG) emissions at Kenitra power generating plant;(ii) increase the production efficiency at Kenitra # 4 generating unit byreducing specific fuel consumption; and (iii) encourage the development andadoption of modern repowering technology both in Morocco and in otherdeveloping countries, which until now have been reluctant to adopt it. Theabove is to be implemented in the context of the introduction in Morocco ofcleaner fuels such as natural gas to be soon imported from Algeria. The mainGEF objective in supporting financially the proposed project is to demonstratewithin a short time frame and on a broader scale the potential for fuelsavings in power generation, thus avoiding additional greenhouse gas emissionsto the atmosphere as well as to demonstrate to power utilities in otherdeveloping countries the considerable benefits associated with the repoweringtechnology.

Project Optimization and Description

10. The proposed project was formulated and defined with theassistance of a GET Project Preparation Advance (PPA) which financed afeasibility study to determine the optimum site, size and operatingcharacteristics of the scheme. These parameters were determined in order tocombine the least cost scheme with the highest power output and reduction ofthe volumes of C02, NOx and S02 emissions.

11. The project consists in attaching a 60 MW. new gas turbine (GT),capable of operating with both natural gas and light distillates, to theNo. 4- 75 MW. steam- based power generating unit at Kenitra plant. The gasturbine will exhaust directly into a new heat recovery- steam generator (HRSG)and then the high pressure steam produced in the HRSG will be fully utilizedby the existing steam turbine. The final arrangement of the gas turbine hasbeen set in order that the degree of power plant operational flexibility,plant availability, and economies are optimum. The repowering of the existingplant has been also designed so the new gas turbine and existing steam plantare able to operate independently from each other, if so desired. The projectalso provides for a training program addressed to the operators of the newfacility.

Project Cost and Financing Plan

12. The total estimated cost of the project amounts to US$ 45.7million, of which US$ 36.8 represent the foreign exchange component. Thisestimate includes physical contingencies, which were estimated at 10 % of thebase cost, price contingencies which were calculated based on Bank's estimatesfor domestic and international price variations during the period of projectimplementation as well as local taxes and duties. The GET grant will financeconsultants's services for preparation of technical design/ bidding documentsand supervision of the construction, the supply and installation of the powersubstation and the control/ protection/ communication equipment. The remainingcost of the project, which includes the supply and installation of the gasturbine and associated equipment, will be financed by: (i) a concessional loan(20 years amortization period plus 10 years grace and 3 % a.p.r.) of about US$32 million requested by the GOM and to be negotiated with the OverseasEconomic Cooperation Fund (OECF) of Japan on a parallel financing basis tofund the purchase of the new GT, HRSG and ancillary equipment; and (ii) ONE'scounterpart funding amounting to US$ 7.8 million to cover the expenses relatedto project management and taxes/ duties.

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Project Implementation

13. The proposed project will be implemented by ONE in accordance toan agreed project implementation schedule. During negotiations agreement wasreached with ONE that they will engage ENEL (Italy), under terms of referenceacceptable to the Bank, in order to prepare the detailed design and biddingdocuments for the supply of the new gas turbine and ancillary equipment aswell as for the supervision of the installation and commissioning of therepowering project. ENEL are the consultants who prepared the feasibilitystudy. This is in line with Bank's Guidelines for Use of Consultants becausethey have deep knowledge of Kenitra plant, of the repowering technology andthey successfully completed the feasibility study. ONE will engage thisconsultants before October 31, 1994. The contract for the supply andinstallation of the repowering scheme will be awarded on the basis of a turn-key contract to be procured through international competitive bidding inaccordance to Bank's Guidelines for Procurement. This process is justifiedgiven the innovative nature of the project which requires an overallperformance guarantee of the scheme. The project management will be underONE's department of equipment, which is properly organized and staffed, asdemonstrated through the successful completion in the past of larger andcomplex power generation schemes. Details of the project implementationarrangements and staffing; including those of ONE, the consultants and theturn- key contractor; will be submitted for Bank review before December 31,1995 (by this date the turn- key contract will be in place). Detailed designis expected to start by October 1994, the bidding process by May 1995 andfield construction by July 1996. Completion and commissioning of the projectis expected to take place by December 1997. The Bank has assessed in detailthe above arrangements and it has concluded that they are adequate.

Project Monitoring and Evaluation

14. Project implementation monitoring standards will be established byONE and their consultants and reviewed by the Bank, in order to achieveefficient physical implementation of the proposed project. Overall projectexecution will be monitored through target dates as indicated in theimplementation schedule. Furthermore, a systematic monitoring and evaluationprogram developed specifically for the repowering project will be establishedby ONE, ENEL and the contractors. This program will be also reviewed by theBank. Data on the repowering system will be collected during the constructionand operation of the facilities. This include technical (efficiencyperformance, emissions' reduction and environmental benefits) as well asfinancial information which will permit to assess properly the costs andbenefits of the scheme as well as its performance. This data bank will beutilized to promote repowering technology to other ONE's plants and developingcountries. This program will be evaluated on a regular basis and a mid- termreport will be issued to discuss the operation and viability of the project.During negotiations agreement was reached with ONE that the above programs,which are to be prepared with the assistance of both ONE's consultants and theturn- key contractor, will be submitted for Bank review before December 31,1995.

Rationale for GEF Funding

15. Carbon dioxide exhaust from fossil fuel power plants is asignificant source of greenhouse emissions. Furthermore, advanced technologiesin electricity generation which greatly improve plant efficiency are currentlyavailable in developed countries. The implementation of the proposed projectwill promote the adoption of advanced technologies in countries which untilnow have been reluctant to adopt the proposed scheme. The benefits derived bysupporting this project through partial GEF funding include:(i) abatement ofcarbon dioxide, nitrogen oxides and sulphur dioxide emissions as compared to a

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stand alone gas/ steam turbine generators of the same capacity; (ii)substantial reduction on specific consumption of combustibles; and(iii) promotion of the repowering technology to other ONE's plants anddeveloping countries.

16. Adoption of repowering technology by developing countries has beenhampered by a number of perceptions on the part of national power planners andengineers. First is a general preference for installation of new equipment tomeet electricity demands, rather than the refurbishment or upgrading ofexisting installations. Secondly, combustion turbines have historically beenintroduced in developing countries for short duration peaking service, oftenfueled by petroleum distillates with resulting high maintenance requirements.The long-term durability and lower maintenance costs of gas-fired combustionturbines remains to be demonstrated in the majority of developing countrypower systems. Lastly, repowering involves retrofit and disturbance toexisting generation plant required to meet a Moroccan electricity demand thatis already in excess of available capacity. The risk to system operationsassociated with the repowering installation is thus viewed as beingsignificantly higher than new stand-alone additions to the generation mix. Asuccessful repowering demonstration is therefore seen as the most effectivemeans of promoting acceptance of the technique, and is designed to overcomeremaining implementation and performance concerns.

Sustainability

17. The repowering technology using a current design combustionturbine is an innovative technology that has been commercially used indeveloped countries during the past years. Second generation high efficiencyadvanced combustion turbines are available for commercial orders. Most majorturbine manufacturers offer advanced gas turbines and major engineering firmshave developed various modification schemes to retrofit existing steamturbines with existing steam generation boilers. The repowered combined-cycleplant has a significant advantage of having lower net plant heat rate ascompared with a conventional steam plant of equivalent output. The gas turbinealone will have a higher efficiency, if proper credit is given to the energyderived from its exhaust to the steam-based power plant.

18. The proposed project is based on the effective use of conventionalsources of energy (light distillates/ natural gas) to improve electricitygeneration efficiency and to reduce the carbon dioxide and other airemissions. The financial and environmental benefits derived from thistechnology, i.e. lower unit electricity generation costs and reduced gasemissions, will ensure the sustainability of the project.

Project Benefits

19. The main benefits of the proposed project are: (i) reducing thegreenhouse gas emissions in a cost- effective manner, as the net savingscorresponding to avoided emissions resulting from the operation of therepowering scheme at Kenitra amount to about US$ 59 million during the projectlife span of 20 years; (ii) increasing the operational efficiency of the powerplant by reducing the specific fuel consumption from 2544 kcal/kWh to2166 kcal/kWh (about 31,000 tons/ year), equivalent to US$ 2.2 million/ year;and (iii) demonstrating its environmental and commercial viability for itsapplicability in other power plants in Morocco and other developing countries,through the detailed monitoring program established under the project, wherebydetailed actual information (technical/ financial) would be available todemonstrate and prove the soundness and benefits of the repowering/ combinedcycle power generation technology.

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Environmental Benefits

20. The proposed project would have a substantial positive impact onthe environment. It will reduce significantly carbon dioxide emissions to theatmosphere resulting from the combustion of fossil fuels at thermal powergenerating plants. Furthermore, water pollution will be reduced (on the basisof incremental capacity added to ONE's system) since the GT unit is a directcombustion turbine and no hot/processed water (as compared with the steam-based plant) would be released. With the proposed scheme, carbon dioxideemissions will be reduced by at least 117,000 tons per year. As a result, thenet savings over a period of 20 years will be about 2.3 million tons of carbondioxide (about US$ 19 million). This represents about US$ 2.6/ ton of carbondioxide saved, based on the proposed GEF contribution of about US$ 6 million.The proposed scheme is a highly cost-effective alternative to reduce carbondioxide emissions as compared with other methods.

21. There would be also a reduction in NOx emissions amounting toabout 15,860 tons, equivalent to US$ 10.3 million during the life of theproject as well as in S02 emissions which are estimated at 58,630 tons, orUS$ 29 million, also during the life of the project.

Project Risks

22. No particular physical risks are associated with the proposedproject. The feasibility report, on which this proposal is based, hasconcluded that an adequate match exists between the proposed gas turbinegenerator, heat recovery steam generator and the existing steam boiler of unitNo. 4 at Kenitra. A comprehensive engineering design study, which will includethe preparation of technical specifications and bidding documents, is beingprovided under the loan to deepen and finalize the analysis. The contractor'sfinal design of the repowering scheme as well as the supervision of theproject implementation, will be reviewed and monitored by an experiencedconsulting firm to be engaged by ONE as agreed with the Bank. Furthermore, ONEhas agreed to prepare and to implement an adequate construction and operationmonitoring program for the project. Project cost and proposed implementationschedule are based on prevailing market prices and normal construction periodsrespectively.

AAgreements reached at negotiations

23. The following agreements were reached at negotiations with ONE:(i) ONE will engage before October 31, 1994, consultants's services for thepreparation of technical design/specifications/ bidding documents and projectsupervision under terms of reference acceptable to the Bank; (ii) ONE willsubmit for Bank's review before December 31, 1995, details of the arrangementsand of staff assignments for ONE, for the consultants to be retained forproject supervision and for the contractor to be engaged for the constructionof the project; (iii) ONE will implement the proposed project in accordance toan agreed implementation schedule; (iv) ONE will submit for Bank review beforeDecember 31, 1995, the monitoring and evaluation programs which will beprepared with the assistance of their consultants as well as of thecontractors for the construction of the repowering project in accordance withGEF standards. Furthermore, ONE will submit to the Bank quarterly progressreports on the project, and before April 31, 1997 a mid-term review report ofsuch scope and detail as the Bank shall reasonably request; (v) ONE willsubmit for Bank review before December 31, 1995, a comprehensive trainingprogram which will be prepared with the assistance of the contractors for theconstruction of the repowering project; and (vi) ONE's will provide thenecessary counterpart funding to finance some of the domestic costs. The legaldocuments duly reflect the above mentioned agreements. Furthermore, the GrantAgreement with ONE includes remedies (suspension/cancellation/termination) incase the beneficiary fails to perform its obligations related to the

implementation of the project or to make available the necessary funds for theproject.

24. Condition of effectiveness of the proposed grant is that both theLetter of Agreement between the Kingdom of Morocco and the Bank and the GrantAgreement between ONE and the Bank are duly signed. Furthermore, proceeds ofthe GET grant amounting to about US$ 1.1 million to finance the services ofthe consultants for the preparation of the project detailed design, biddingdocuments and supervision of project implementation, will be available aftermeeting the above mentioned condition of effectiveness. Release of the balanceof the grant, about US$ 4.9 million, will be made only after the conditions ofeffectiveness of the OECF (Japan) loan are fulfilled (condition ofdisbursement).

AttachmentsWashington, D.C.September 2, 1994

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Schedule APage 1 of 2

MOROCCO


Cost Estimate and Financing Plan(US$ thousand)

Cost Estimate:LOCAL FOREIGN TOTAL

- Design/Tech.Spec./Supervision 1,000 1,000

- Civil Works 363 363

- GT/HRSG/Pumps 19,388 19,388

- Other Mechanical Equipment 1,094 1,094

- Generator 2,875 2,875

- Power Substation 525 1,241 1,766

- Incinerator 80 80

- Control/Protection/Communication 2,484 2,484

- Automation 375 375

- Conception & Construction 2,906 2,906

- Management ONE 2,000 2,000

- Start-up 281 281

- Training 100 300 400

Base Cost 1/ 2,988 32,024 35,012

- Physical Contingencies 2/ 299 3,202 3,501

- Price Contingencies 3/ 145 1,550 1,695

- Duties 4/ 5,507 5,507

Total Cost 8,939 36,776 45,715

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Schedule APage 2 of 2

MOROCCO


Cost Estimate and Financing Plan(US$ thousand)

Financing Plan:

LOCAL FOREIGN TOTAL

- GET Grant 603 5,397 6,000

- OECF loan 532 31,379 31,911

- ONE 7,804 7,804

Total Cost 8,939 36,776 45,715

1/ Excludes taxes and duties.2/ 10X of base cost.3/ 4 X per year 1996-1997.4/ 20 X of imported goods.

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Schedule_BPage 1 of 2

MOROCCO


Summary of Proposed Procurement Arrangements(US$ thousand)

ICB IS Other Total

- Design/Tech.Spec./Supervision 1,148 1,148(1,148) (1,148)

- Turn- key contract Repowering 36,671 36,671(4,760) (4,760)

- Incinerator 92 92(92) (92)

- ONE's Management 2,297 2,297

Total 36,671 92 3,445 40,208(4,760) (92) (1,148) (6,000)

- Figures in parenthesis to be financed by the GET grant.- All amounts include physical and price contingencies but excludetaxes and duties.

- ICB: International Competitive Bidding- IS: International Shopping- Other: Procurement of consultants and ONE's management (force account)

Schedule BPage 2 of 2

MOROCCO


Disbursements(US$ million)

Category GET % of Expen-Grant ditures to be

financed

- Design/Tech.Spec./Supervision 1,148 100

- Turn- key contract Repowering 4,760 100

- Incinerator 92 100

Total 6,000 100

Disbursement Schedule (GET Grant)

Bank FY 1995 1996 1997

Annual 1,000 2,000 3,000

Cumulative 1,000 3,000 6,000

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Schedule CPage 1 of 2

MOROCCO


Timetable of Key Project Processing Events

a) Time taken to prepare the project: 24 months

b) Prepared by: MNIIE

c) First Bank mission: July 1991

d) Appraisal mission departure: June 27, 1994

c) Negotiations: July 7, 1994

d) Grant Approval: September 7, 1994

e) Expected date of effectiveness: September 30, 1994

g) Relevant PCR's: N/A

This report is based on the findings of an appraisal mission which visitedMorocco during June 27-July 12, 1994. The mission comprised Jorge A. Larrieu(Task Manager), Jean Fran,ois Dupuy (LEGMN), Viren Shirohi (EMTEN) and NicholaCiss6 (MNlIE). Peer reviewers were H. Garcia (IENPD) and R. Anderson (SA2CI).The project was cleared by Daniel Ritchie, Director MN1DR and Francois Ettori,division Chief MN1IE.

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Schedule CPage 2 of 2

MOROCCO


Bank Staff Inputs for Project Supervision through 1997

Date Activity Skill InputRequirements S/W

10/94 Supervision Mission IReview o.f staffing arrangements Engineer 2Review TOR for Consultants ENV Expert 2Review TOR for TrainingReview monitoring/ evaluationReview Procurement

04/95 Supervision Mission IIReview of Project Implementation Engineer 2Review Progress Consultants Work ENV Expert 2Review Progress TrainingReview monitoring/ evaluationReview Progress Procurement

08/95 Supervision Mission III Engineer 2ENV Expert 2

04/96 Supervision Mission IV Engineer 2ENV Expert 2

04/97 Mid-term Review MissionReview of Project Implementation Engineer 3Review Project Impact ENV Expert 3Review of TrainingReview Consultants performanceReview Monitoring/ EvaluationConduct Independent Evaluation

Total S/W 22

MOROCCO


TECHNICAL ANNEX

MOROCCO


TECIHNICAL ANNEX

TABLE OF CONTENTS

page

I. MOROCCO'S ENERGY AND POWER SECTORS .......................... 1

A. Energy Sector ........................................ 1Energy Resources ....................................... 1Past Energy Consumption and Supply .......................... 1Sector Organization ...................................... 1

B. Power Sector ........................................ 2Electricity Supply ....................................... 2Electricity Suppliers ..................................... 2Existing Facilities ....................................... 2Characteristics and Conditions of Power Supply .................... 3Power Generation Requirements ........... ................... 3

C. Power Sector Issues ...................................... 4D. Power Sector Reform ..................................... 5

1I. SCOPE OF THE PROJECT ......................................... 5

A. Project Background ...................................... 5B. Project Description ....................................... 6C. Project Optimization ...................................... 7D. Project Costs and Financing Plan .7............... .. ... ... ... . . 7

III. IMPLEMENTATION AND MONITORING ARRANGEMENTS .8.. ...... .8

A. Organization and Staffing .. 8B. Project Supervision . 8C. Project Implementation Schedule .. 8D. Procurement and Disbursements ... 9E. Project Monitoring and Evaluation . 10F. Training Plan for Operators . 11G. Rationale for GEF Funding . 11H. Project Replicability . 11I. Project Sustainability . 12

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page

IV. ENVIRONMENTAL ASPECTS ............................... 12

A. Environmental Analysis ............................... 12B. Greenhouse Gas (GHG) Emissions .......................... . 13

V. PROJECT RISKS.. . .......................... 13

A. Project Risks .............. .............. 13

VI. AGREEMENTS REACHED .............................. 14

VII. TABLES

Table 1 ONE's Power MarketTable 2 Existing Power PlantsTable 3 Power Capacity BalancesTable 4 Power Energy BalancesTable 5 1992 ONE's Power Plant EfficiencyTable 6 Power Capacity Addition (1994-1998)Table 7 ONE's Investment ProgramTable 8 Project OptimizationTable 9 Project CostsTable 10 Project Implementation ScheduleTable 11 ProcurementTable 12 DisbursementsTable 13 Environmental Benefits

VIII. ATTACHMENTS

Attachment I Environmental Analysis of Existing Facilities

MOROCCO


TECHNICAL ANNEX

I. MOROCCO's ENERGY AND POWER SECTORS

A. Energy Sector

1. Energy Resources: Morocco has a wide variety of energy resourcesincluding: oil, natural gas, oil shale, coal, hydro, uranium, biomass, windand solar energy. However, the currently known reserves are either small orhave high per unit costs of production, with the result that there has beenonly limited domestic commercial energy development. Over the past ten years,hydrocarbon imports supplied more than 80% of Morocco's commercial energydemand. Limited reserves of oil and natural gas have been discovered andproduction is less than 70,000 tons oil equivalent (toe) per year. Morocco'soil shale reserves are estimated to be over 100 billion tons, containing morethan six billion tons of oil, however uneconomically exploitable. In addition,Morocco has proven recoverable coal reserves of about 12 million tons in theJerada Coal basin. The country's hydropower potential is estimated at 4,600GWh per year (1.1 million toe) under average hydrological conditions. Of thispotential, 1,800 GWh has already been tapped and new hydro projects with anannual production of 750 GWh are under construction. Fuelwood consumption,estimated at about 3.4 million toe in 1984, is sufficiently high to causedeforestation at a rate of about 20,000 hectares per year. Some 7 to 10million tons (60-80 billion toe) of uranium are contained in Morocco's 50billion tons of phosphate reserves. Extraction, however, is costly withpresent technology. Solar and wind resources are abundant, but neither islikely to contribute significantly to the country's energy supplies before the21st century.

2. Past Energy Consumption and Supply: Commercial energy consumptiongrew at an average of 4.2 X per year during the period 1985 - 1992. Most ofMorocco's commercial energy consumption consists of petroleum and itsderivatives, the bulk of which is imported. During the above period, energyimports (mainly petroleum) represented more than 80% of Morocco's commercialenergy demand. Petroleum consumption grew at an annual rate of 3.2 Z from4,296,000 toe in 1985 to 5,462,000 toe in 1992, and coal consumptionincreased at a rate of 3.1 Z p.a. from 662,000 toe in 1985 to 1,123,000 in1992. Domestic commercial energy production consists mainly ofhydroelectricity and coal. Hydroelectricity production, which has beencharacterized by its erratic patterns because of the production regime(influenced by release of water from the reservoirs for irrigation needs) andby severe drought periods), has been as low as 126,000 toe in 1985 and as highas 329,000 toe in 1991, while local coal production has remained virtuallyunchanged during this period.

3. Sector Organization: The Ministry of Energy and Mines (MEM) isresponsible for the overall planning and development of the energy sector. Ithas tutelage over a number of energy-related public enterprises including:

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(i) the "Office National de Recherches et d'Exploitation Petroliere" (ONAREP);(ii) the "Societe Anonyme Marocaine de l'Industrie du Raffinage" (SAMIR);(iii) the Societe Cherifienne des Petroles (SCP), which is 75% owned by ONAREPand the Treasury, with the rest being held by local and foreign privateshareholders; (iv) the "Soci6td Nationale des Produits P6troliers" (SNPP),which use to hold before the privatization 50% of the Government shares in themajor petroleum distribution companies; (v) "Charbonnages du Maroc", operatorof the Jerada coal mine; and (vi) the Office National de l'Electricie" (ONE).The Ministry of the Interior (MI) has a role in the energy sector through itstutelage over 15 publicly-owned distribution utilities (R6gies), of which 10distribute electricity in the main urban areas. The 15 Regies are alsoresponsible for water distribution, and the Regie of Casablanca (RAD) isresponsible for sewage disposal as well. Other ministries with involvement inthe sector include the Ministry of Public Works which constructs dams forhydroelectricity, and the Ministry of Agriculture and Agrarian Reform (MARA)through its responsibility for forest protection and management, the Ministryof Finance (MF), and the Ministry of Economic Affairs (MEA).

B. Power Sector

4. Electricity SuRply: Electricity requirements within the NationalInterconnected System has increased rapidly, from 6525 GWh. in 1985 to 10,588CWh. in 1993, i.e. at an average annual rate of about 6.2 %. Overallelectricity losses and unaccounted for amounted during 1993 to about 1,626GWh. or 15.3 Z. During the same period, maximum demand increased from 1,140MW. in 1985 to 1,850 MW. in 1993. The number of ONE's consumers increased atan annual rate of 7 % per year from 538,210 in 1985 to 912,320 in 1993. ONE'sforecast, which is prepared based partly on surveys of large industrialcustomers and partly on estimates made from a correlation between historicalGDP growth and electricity consumption growth by other consumers, estimatesthat electricity requirements by 1998 will reach 14,850 GWh., an averageannual increase of about 7 % p.a. from 1993, while maximum demand will amountto 2,525 MW. and ONE's number of consumers will amount to 1,109,00 by 1997.Table 1 includes details on electricity supply patterns.

5. Electricity Suppliers: Electricity consumers in Morocco areserved by: (i) ONE, responsible for nearly all public power generation (about84 % of Morocco's total generation), transmission and distribution to allhigh- voltage customers and to medium and low-voltage customers in some citiesand rural areas (its own distribution sales represent 41 % of the total);(ii) ten municipal distribution Regies each responsible for distribution atmedium and low voltage in the area of concession (representing 43 % of totalsales); (iii) small isolated systems operated by Ministry of Interior(negligible); and (iv) captive plants operated by industries whichoccasionally sell electricity to or buy it from ONE (representing 16 % of thetotal). In addition, since June 1988, Morocco imports electricity from Algeriathrough a 220 kV. transmission link. In 1993 these imports amounted to about1,000 GWh. or 9.5 X of the total consumption.

6. Existing Facilities: ONE's total nominal installed generatingcapacity in 1993 amounted to 2,220 MW. Total installed capacity increased atan average annual rate of 9.8% between 1978 and 1985 (when it was 1,930 MW.),

but has remained virtually constant since then. The major generating stationsand load centers are interconnected through a 225-kV national grid extending3,864 km. There are also 864 km. of 150 kV. transmission lines, 8,165 km. of60 kV. subtransmission lines, and about 30,000 km. of distribution lines.Table 2 includes details on power facilities.

7. Characteristics and Conditions of Power Supply: Of the 2,220 MW.of nominal capacity installed, 687 MW. or 31 X is hydroelectric and 1,533 MW.is thermal (1,185 MW. or 53 % steam; 334 MW. or 15 X gas turbines; and 14 MW.or less than 1 X diesel). However effective capacity amounted only to2,144 MW. (hydro: 657 MW.; steam: 1,175 MW.; GT's: 301 MW.; and diesel: 11MW.). Because of the delays in the construction of hydro plants; the lack ofwater for power generation from multipurpose schemes; and the pooravailability of thermal plants due to forced outages (overdue maintenance ofthe steam and gas turbines and ancillary equipment), average system peakingavailable capacity since early 1992 has amounted only to about 1,550 KW.,which was not sufficient to meet peak demand in 1993, which was estimated at1,850 MW. As a result, programmed load shedding (up to 17 X of peak demand)has been imposed mainly on industrial consumers, causing considerable lossesto the productive sector. Table 3 includes details on power capacity balancesand Table 4 on electric energy balances.

8. During 1992 ONE's thermal- based power plants consumed about1,128 kTons of heavy fuel and 1,116 kTons of coal to generate about7,585 GWh., of which 2,687 GWh were based on heavy fuel and 3,485 GWh. basedon coal (2,513 GWh. with imported coal). The total fuel expenses amounted toUS$ 193 million. ONE's overall thermal plant efficiency was equivalent to2,495 kcal/ kWh., the most efficient plant being Mohammedia with an efficiencyof 2,219 kcal/kWh. and the least Jerada plant with 3,386 kcal/ kWh. Theaverage specific fuel cost of ONE's power generation in 1992 amounted to 4.77cents US$/ kWh, while the lowest corresponded to Mohammedia plant at 3.86cents US$/ kWh. and the highest to Casablanca plant at 5.36 cents US$/ kWh.Table 5 includes details on power plant efficiencies and specific fuelconsumptions.

9. Power Generation Requirements: To meet the power supplyrequirements as well as to replace the aged thermal- based power plants, thesector has to implement a large expansion program through year 2000. Thisplan, which it is expected to overcome the existing power shortages, isdivided in two stages. The first stage consists of the works which arecurrently under construction and should be completed during the period 1994-1996. This short- term program consists in adding about 1,340 MW. ofgenerating plants and includes the commissioning by July 1994 of the first 330MW. steam- based unit at Jorf Lasfar and by the end of 1994 of twohydroelectric schemes (2x240 MW.), 2 x 100 MW. gas turbines (at Tit Mellil andTetouan respectively); and by early 1995 the second 330 MW. steam- based unitat Jorf Lasfar. In the medium- term (1997-2000), ONE intends to commissionseveral hydroelectric schemes with an aggregate capacity of 540 MW.Additionally, by the end of 1995 ONE intends to request proposals throughinternational competitive bidding among recognized private operators for the:(i) installation and operation of two thermal- based power schemes of about350 MW. each (combined cycle) at Kenitra and Mohammedia respectively; and

(ii) sale of the 2 x 330 MW. new units (I and II) at Jorf Lasfar as well asthe construction and operation of the plant expansion (units III and IV of330 MW. capacity each). Table 6 includes details on ONE's expansion programand Table 7 on the sector investment requirements.

C. Power Sector Issues

10. The Moroccan power sector faces today organizational, financialand power supply problems as a result of the dispersion of responsibilitiesamong various ministries, central and local government agencies and inter-ministerial committees. The regulation, organization, decision making, policyimplementation and administration of the electricity sector are not wellcoordinated. The Moroccan authorities are currently addressing these problemsin a firm and orderly fashion.

11. The sector confronts serious power supply shortages. As mentionedabove, average available system peaking capacity has not been sufficient tomeet peak demand and programmed load shedding has been imposed mainly onindustrial customers, causing a production loss of up to 1% of GDP.This was mainly due to: (i) delays in the construction of hydroelectricgenerating plants; (ii) lack of water for power generation from themultipurpose hydro schemes; and (iii) poor availability of thermal plants dueto frequent forced outages as a result of overdue maintenance of the steam andgas turbines.

12. The sector organizational problems are related to: (i) thesector's monopolistic structure and the lack of autonomy for settingelectricity prices. ONE, the state owned utility, has the legal monopoly forpower generation, transmission and power imports. Electricity prices areapproved by the Permanent Inter-Ministerial Committee of Public Enterprises -CIPEP; (ii) the complexity of the sector organization and the excessive numberof institutions associated to its administration (ONE operates under themandate of the Ministries of Energy and Mines and Finances, ten R6gies ownedby their municipalities which distribute both electricity and water are underthe authority of the Ministry of Interior, and several auto-producers makeuneconomic investments because ONE and the Regies provide unreliable supply);and (iii) excessive centralized controls at ministerial levels (the Ministryof Finance controls ONE's expansion plans while the Ministry of Interiorcontrols the Regies, and the CIPEP controls tariffs).

13. The main financial problems affecting the sector are mainly dueto: (i) the lack of regular adjustment of electricity tariffs; (ii) themagnitude of the arrears owed by both the Regies and the public sector to ONE;(iii) the higher fuel consumption by thermal plants due to the lowavailability of hydroelectric schemes; (iv) the high level of taxes imposed onthe heavy fuel used for power generation; and (v) ONE's debt serviceobligations mostly to the State which the Government partially has had tosubsidize through capital contributions. The Regies' profit margins onelectricity sales have been used to subsidize their water operations.Furthermore, they have accumulated large arrears with ONE.

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D. Power Sector Reform

14. In view of the above problems, the Moroccan authorities havedecided to overhaul the existing legal and regulatory frameworks and practicesthrough the issuance and implementation of new sector regulating arrangements.These reforms aim to: (i) reform the existing sector legislation andregulation to permit the operation of independent power producers - IPP'sthrough competitive bidding among recognized/reliable undertakings and theinvestment of private capitals; (ii) establish the Electricity Code as well asan independent Regulatory Agency to monitor the power utilities and the IPPsas well as set-up electricity prices to consumers based on sound financial andeconomic criteria; (iii) reduce the current reliance on oil imports to meetenergy needs in a cost effective manner while mitigating the adverse effectson the atmosphere by the use of energy combustibles; (iv) adopt improvedtechnologies such as combinedcycle and repowering of power plants;(v) promote energy conservation measures; (vi) rehabilitate the sectorfinancial situation; and (vii) add power generating capacity to meet thecountry's demand.

15. The ESMAP/ World Bank Energy Sector Institutional study, alreadycompleted in collaboration with a GOM's task force, proposes detailed optionsto address these important issues. Based on the main recommendations of thisstudy, the sector authorities have decided to prepare all the documentationrequired to implement the reforms of the power sector and they have requestedBank's advice and financial assistance to carry-out these tasks. At theirrequest, the Bank has agreed that the experts needed to prepare the newelectricity code, establish the Regulating Agency, complete the biddingdocuments and power purchase agreements for IPPs, and update and implement thelong- run marginal cost tariff study, will be financed with available funds ofexisting Bank loans. Once the above tasks are completed, these reforms will beimplemented at the earliest because of the urgency to meet the pressing powergeneration needs and the sector's lack of financial resources to supportneeded investments. The authorities have demonstrated their ownership andstrong commitment to implement orderly these reforms by: (i) requesting Bankfinancing for the activities mentioned above; and (ii) suspending previousdirect negotiations with two potential IPPs (after the Bank recommended toestablish first the sector regulatory framework and then call for IPPsproposals through competitive bidding).

II. SCOPE OF THE PROJECT

A. Project Background

16. In order to serve the expected increase of electricity consumptionin Morocco and to meet the challenge of more than doubling ONE'sinterconnected system generating capacity from 2,200 MW. to 5,440 MW. in sevenyears, there is a need to introduce innovative technologies which wouldimprove the cost- efficiency of energy usage as well as benefit theenvironment by reducing greenhouse gas emissions significantly. Among thesetechnologies, the repowering technology applied to existing plants using

topping cycle (combined cycle through the attachment of a new gas turbine toan existing steam- based scheme) is an attractive alternative. Most of thedeveloping countries have been reluctant to adopt combined cycle schemes(including repowering plus incremental steam generation through gas turbines)due sometimes to lack of familiarization with these schemes and/ or misleadingperception that these innovative and modern schemes are not fully proven.

17. Repowering schemes, including incremental steam generation, aretypically implemented in existing steam- based power plants, aging from 10 to20 years. The new gas/oil turbine is properly matched with the existing systemin order to maintain the plant operation within design parameters. In general,the power plant generating output is increased up to 75%, while the reductionof specific fuel consumption may be as much as 40 X. Furthermore, because ofthe higher plant efficiency after repowering, the amount of carbon dioxideemitted to the atmosphere per additional kWh. produced may be reduced by asmuch as 35 X. Substantial reduction of nitrogen oxides and of sulphur dioxideare also achieved through the repowering schemes.

18. Given these background, and once the power sector authorities werepersuaded and convinced of the potential benefits associated with repoweringschemes, the Government requested GET assistance to implement the proposedproject. In response, GET granted a Project Preparation Advance of US$ 500,000to prepare a feasibility study and economic/ environmental evaluation for theintroduction of the repowering technology in Morocco. This study has providedthe optimal site and size of the scheme, the economic and environmentalassessments and the detailed cost estimates. The proposed repowering projecthas been prepared based on the results, conclusions and recommendations ofthis study.

B. Proiect Description

19. The project consists in attaching a 60 MW. new gas turbine,capable of operating with natural gas and light distillates, to the existing75 MW. steam- based power generating unit No. 4 at Kenitra power plant. Thehigh temperature gas from the new gas turbine will exhaust into a forcedcirculation Heat Recovery Steam Generator (HRSG). The high temperature- highpressure steam from the HRSG is then directly channeled to the existingboiler, where once mixed with the boiler steam, feed the existing steam- basedturbine. The final arrangement of the gas turbine has been set in order thatthe degree of power plant operational flexibility, plant availability, andeconomies are optimum. The repowering of the existing plant has been alsodesigned so the new gas turbine and existing steam plant are able to operateindependently from each other. In addition to the installation of the new 60MW. GT and the HRSG, the following main mechanical/electrical equipment andcomponents are required: feed pumps, steam and gas ducts, power generator,main transformer, control and metering panels, automation system and otherauxiliary equipment.

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C. Project ORtimization

20. The aim of the feasibility study carried- out by ONE consultants,ENEL (Italy), was to determine the optimum site, size and operatingcharacteristics of the repowering scheme as well as its technical and economicviability. These parameters were determined in order to combine a least costscheme with the highest power generating output capacity and the highestvolume of C02, S02 and NOx emissions' reduction. Three possible candidatesites to implement the proposed project were considered: Casablanca (2x60 MW),Kenitra (4x75 MW) and Mohammedia (4x150 MW). In addition, three different CT'ssizes were analyzed: 120 MW., 60 MW., and 35 MW., all attached to the abovepower plants under two repowering schemes: fully fired and with the HRSG forsteam production. Due consideration was given to the limitation factors of theexisting facilities, such as maximum allowable gas flow rate through theexisting steam generators, new GT's back- pressure exhaust, site conditionsand the new GT's adaptability to operate with natural gas, light distillate,heavy fuels and combinations among them.

21. The results of the optimization analyses have concluded that theoptimal scheme is to install a 60 MW gas turbine at Kenitra power plantwith a HRSG for steam recovery/ production capable to operate using naturalgas or light distillates. The alternative of repowering Casablanca wasdisregarded as it was demonstrated that its technical and economic viabilitywere inadequate. Repowering of the 120 MW. steam based unit No. 1 atMohammedia- operating during the first two years using heavy fuel (for which afuel treatment facility will be needed), and natural gas thereafter- wascompared with the above mentioned scheme at Kenitra.

22. The main results are summarized as follows: (i) the proposedrepowering scheme at Kenitra would increase annual energy output of unit No. 4by about 76%, from 463 GWh per year to 818 GWh per year; while the one atMohammedia unit No. 1 would increase by about 69%, from 933 GWh per year to1580 GWh per year; (ii) the efficiency gains at Kenitra would be larger asplant efficiency will be improved by about 17.5% from 33.8% to 39.7%, while atMohammedia efficiency will increase only by 14%, from 38.6% to 44.0%;(iii) specific fuel consumption at Kenitra will be reduced by about 14.9% from2544 kCal./ kWh. to 2166 kCal./ kWh. This represents savings of about 31,000tons/ year or US$ 2.2 million/ year. At Mohammedia the corresponding reductionwould amount to 12.4%, from 2228 kCal./ kWh. to 1952 kCal./ kWh.; and (iv)production cost (based on a discount rate of 12% and fuel/ gas price increasesof 3%/ year) at Kenitra would be 34 mills US$, while at Mohammedia it would be35.2 mills US$. Details of project optimization are included in Table 8.

D. Proiect Costs and Financing Plan

23. The total estimated cost of the project amounts to US$ 45.7million, of which US$ 36.8 represent the foreign exchange component. Thisestimate includes physical contingencies, which were estimated at 10 % of thebase cost, price contingencies which were calculated based on Bank's estimatesfor domestic and international price variations during the period of projectimplementation as well as local taxes and duties. The GET grant will financeconsultants's services for preparation of technical design/ specifications and

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project supervision as well as the purchase and installation of the powersubstation and the control/ protection/ communication equipment. The remainingcost of the project, which includes the gas turbine and associated equipmentand associated expenses, will be financed by ONE's counterpart fundingamounting to US$ 7.8 million to cover the expenses related to projectmanagement and taxes/ duties; and the balance of US$ 32 million by aconcessional loan (20 years amortization period plus 10 years grace and 3 Xa.p.r.) requested by the Government of Morocco and to be negotiated with theOverseas Economic Cooperation Fund (OECF) of Japan on a parallel financingbasis to fund the purchase of the new GT, HRSG and ancillary equipment. Table9 includes details of project cost and financing.

III. IMPLEMENTATION AND MONITORING ARRANGEMENTS

A. ONE's Organization and Staffing

24. The proposed project will be implemented by ONE in accordance toan agreed project implementation schedule. The overall project managementwill be under ONE's power plants' construction and generation department,which is properly organized and staffed, as demonstrated through thesuccessful completion in the past of larger and complex power generationschemes. Previous Bank's experience with ONE's technical staff has beensatisfactory and their performance has been adequate. During negotiations ithas been agreed with ONE that they will submit for Bank's review beforeDecember 31, 1995 (date by which the turn- key contract will be in place),details of the arrangements and of staff assignments for ONE, for theconsultants to be retained for project supervision and for the contractor tobe engaged for the construction of the project.

B. Prolect Supervision

25. Although ONE is the project's implementing agency, therefore fullyresponsible for its adequate implementation, experienced consultants will beretained to assist ONE to supervise the turn- key contract. This consultantswill assist ONE to evaluate proposals for the turn- key contract, to reviewthe contractors' final design of the repowering scheme, to verify quality andperformance of the different equipment to be supplied by the contractor, tosupervise the installation of the scheme, and to verify performanceguarantees. During negotiations it has been agreed with ONE that they willengage before October 31, 1994, consultants's services for the preparation oftechnical design/ specifications/ bidding documents and project supervisionunder terms of reference acceptable to the Bank.

C. Project Implementation Schedule

26. Detailed design/ specifications/ bidding documents is expected tobe completed by May 1995; the bidding process, including signature of theturn-key contract, by December 1995; field construction (civil works) isexpected to start by July 1996; and the installation of the main equipment byFebruary 1997. Completion and commissioning of the project is expected to take

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place by December 1997. The Bank has assessed in detail the above arrangementsand has concluded that they are adequate. During negotiations ONE agreed toimplement the proposed project in accordance to the above schedule. Table 10includes details on project implementation schedule.

D. Procurement and Disbursements

27. The following table summarizes the procurement arrangements forthe project:

USS Thousand

ICB Is Other Total


- Turn- key contract Repowering 36,671 36,671(4,760) (4,760)

- Incinerator 92 92

(92) (92)

- ONE's Management 2,297 2,297

Total 36,671 92 3,445 40,208(4,760) (92) (1,148) (6,000)

- Figures in parenthesis to be financed by the GET grant.- All amounts include physical and price contingencies but excludetaxes and duties.

- ICB: International Competitive Bidding- IS: International Shopping- Other: Procurement of consultants and ONE's management (force account)

28. ONE will engage the consultants ENEL (Italy), ona sole sourcebasis to prepare the detailed design and bidding documents for the supply ofthe new gas turbine and ancillary equipment as well as for the supervision ofthe installation and commissioning of the repowering project. ENEL are theconsultants who prepared the feasibility study. This is in accordance withBank's Guidelines for Use of Consultants because they have in- depth knowledge

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of the Kenitra plant, of the repowering technology and they have successfullycompleted the feasibility study. The contract for the supply and installationof the repowering scheme will be awarded on the basis of a turn-key contractto be procured through international competitive bidding in accordance toBank's Guidelines for Procurement. This process is justified given theinnovative nature of the project which requires an overall performanceguarantee for the repowered scheme. The small contract (US$ 92,000) for thesupply of the incinerator to dispose fuel/oil refuse at Kenitra will beawarded on the basis of International Shopping as prescribed by Bankprocedures. All contracts will be subject to prior review by the Bank, exceptconsultant contracts for less than US$ 100,000 (for these contracts the termsof reference, single source selection and individual assignements will bereviewed by the Bank). Table 11 includes details of the procurementarrangements.

29. The GET grant is expected to be fully disbursed during a periodof 36 months. The proposed pattern does not reflect applicable Bank standarddisbursement profiles because the project is sui- generis by nature, theinstallation of the scheme will be awarded through a turn- key contract, andthe extent of the works is limited to adding equipment to an existing powerplant, where major civil works will be not undertaken. The proposed projectcompletion schedule is very conservative. Proceeds of the proposed GET grantwould be applied to the payment of: (i) 100 % of the foreign expenditures forimported goods; (ii) 100 Z of the foreign and/ or local expenditures forassociated installation and construction costs; and (iii) 100 % of theexpenditures for consultants. All requests for disbursements of funds from theGET grant will be fully documented. The closing date for the GET grant isDecember 31, 1998. Table 12 includes details of the GET grant disbursements'schedule.

E. Pro1ect Monitoring and Evaluation

30. Project implementation monitoring standards will be establishedto achieve efficient physical implementation of the proposed project. Overallproject execution will be monitored through target dates as indicated in theimplementation schedule. Furthermore, the project will be evaluated through asystematic and comprehensive evaluation program, to be developed by ONE, itsconsultants and the project contractor (once the turn- key contract is inplace), specifically for the repowering project. Data on the repowering systemwill be collected during the construction and operation of the facilities.This will include technical (efficiency performance, emissions' reduction andenvironmental benefits) as well as financial information which will permit toassess properly the costs and benefits of the scheme as well as itsperformance. This data bank will be utilized to promote repowering technologyto other ONE's plants and developing countries. The monitoring and evaluationprograms will be reviewed on a regular basis and reports will be issued todiscuss the operation and viability of the project. During negotiationsagreement was reached with ONE that they will submit for Bank review beforeDecember 31, 1995, the monitoring and evaluation programs in accordance withGEF standards. Furthermore, ONE will submit to the Bank quarterly progressreports on the project, and before April 31, 1997 a mid- term review report ofsuch scope and detail as the Bank shall reasonably request.

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F. Training Plan for ORerators

31. Provisions have been set to properly prepare and train thepower plant personnel so they become receptive and familiar with the operationof the proposed installation. Although the construction would be somewhatintrusive and new to the power plant staff, it is expected that power plantstaff acceptance and familiarization with the new facility will be quick andsmooth because: (i) the compact nature of the additional equipment; (ii) thework which will be limited to attaching the gas turbine and the heat recovery-steam generator to only one of the steam boilers; (iii) the implementation ofthe proposed training plan; and (iv) the short installation period. Duringnegotiations agreement was reached with ONE that they will submit for Bankreview before December 31, 1995, a comprehensive training program which willbe prepared with the assistance of the contractors for the construction of therepowering project.

C. Rationale for GEF Funding

32. Carbon dioxide exhaust from fossil fuel power plants is asignificant source of greenhouse emissions. Furthermore, advanced technologiesin electricity generation which greatly improve plant efficiency are currentlyavailable in developed countries. The implementation of the proposed projectwill promote the adoption of advanced technologies in countries which untilnow have been reluctant to adopt the proposed scheme. The benefits derived bysupporting this project through partial GEF funding include: (i) abatement ofcarbon dioxide, nitrogen oxides and sulphur dioxide emissions as compared to astand alone gas/ steam turbine generators of the same capacity;(ii) substantial reduction on specific consumption of combustibles; and(iii) promotion of the repowering technology to other ONE's plants anddeveloping countries.

H. Prolect Replicability

33. Several developing countries are exhausting rapidly theirfossil energy sources. Furthermore, the negative impact on the atmospherederived from the emission of C02 and other pollutant gases by the combustionof fossil fuels is reaching alarming levels. It is increasingly important thatdeveloping countries, where the cost of energy is expensive as a result of theshort supply and/or where the levels of gas emissions is substantial, take theinitiative of reviewing their planning policies and adopt new technologies toaddress the above problems. The proposed project is considered as one thatfits and addresses the above issues. Through the detailed monitoring andevaluation programs established under the project, detailed actual information(technical/ environmental/ financial) will be available to demonstrate andprove the soundness and benefits of the repowering technology. The proposedproject will provide unequivocal data which is expected to be disseminatedthrough the developing countries in order that their power utilities take theinitiative to repower their existing power plants utilizing the proposedtechnology.

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I. Proiect Sustainability

34. The repowering technology using a current design combustionturbine is an innovative technology that has been commercially used indeveloped countries during the past years. Second generation high efficiencyadvanced combustion turbines are available for commercial orders. Most majorturbine manufacturers offer advanced gas turbines and major engineering firmshave developed various modification schemes to retrofit existing steamturbines with existing steam generation boilers. The repowered combined-cycleplant has a significant advantage of having approximate savings of up to 40 Xbased on net plant heat rate as compared with a conventional steam plant ofequivalent output. The gas turbine alone will have a higher efficiency, ifproper credit is given to the energy derived from its exhaust to the steam-based power plant. The proposed project is based on the effective use ofconventional sources of energy (natural gas/ light distillates) to improveelectricity generation efficiency and to reduce the carbon dioxide and otherair emissions. The financial and environmental benefits derived from thistechnology, lower unit electricity generation costs and reduced gas emissions,which will be supported through comprehensive data base collected duringconstruction/ operation of the project, will ensure the sustainability of theproject.

IV. ENVIRONMENTAL ASPECTS

A. Environmental Analysis of Existing Facilities

35. An environmental analysis has been carried- out at the proposedproject site of Kenitra, where the existing facilities - 4x75 MW steam basedpower generating units - operate using heavy fuel. The Bank's appraisalmission found some operational practices which have a detrimental impact onthe environment. Details of the existing problems and the agreed actions to beundertaken by ONE are included in Attachment 1. The main aspects aresummarized as follows: (i) fuel/ waste water disposed from the plant's filtersfuel feeding system and oil/ waste water from the plant's equipment isfrequently spilled into the nearby river because inadequate operation of thewater/fuel/oil gravity separator. ONE has agreed to address the problem byinstalling an incinerator facility to burn all the waste fuel/oil which isdisposed from the plant. The proposed project provides the correspondingfunding; (ii) a few plant service transformers still contain polychlorinatedbiphenyl (PCB) insulating oil instead of mineral oil. ONE has agreed to follownormal worldwide practices on the subject, and it will replace the PCBinsulating oil in these specific service transformers with mineral-basedinsulating oil whenever a leakage occurs; and (iii) fuel spills occur aroundthe fuel storage tanks because proper practices are not followed during thedraining of the steam condensate, a periodic maintenance activity. ONE hasagreed to control the fuel spills by strictly enforcing its establishedoperational practices.

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B. Greenhouse Gas (GHG) Emissions

36. The proposed project would have a substantial positive impacton the environment. It will reduce significantly carbon dioxide emissions tothe atmosphere resulting from the combustion of fossil fuels at thermal powergenerating plants. This will be achieved through the operation of the proposed60 MW. high energy efficiency gas/light distillate fired turbine. Furthermore,water pollution will be reduced (on the basis of incremental capacity added toONE's system) since the gas turbine is a direct combustion turbine and nohot/processed water (as compared with the steam-based plant) will be released.

37. Heavy fuels typically contain over 85 X carbon by weight. Foreach pound of carbon fully burned 3.67 pounds of carbon dioxide is produced.The proposed scheme is a highly cost-effective alternative to reduce carbondioxide emissions as compared with other methods. Specific emissions of C02will be reduced annually by 15.4%, from 608 tons/ GWh. under the currentperformance of unit No.4, to 514 tons/ GWh. under the repowered scheme(existing unit No. 4 of 75 MW. plus the new 60 MW. GT). Furthermore, theexisting unit No. 4 (75 MW.) at Kenitra exhausts under normal operatingconditions about 59 tons/hr. of C02. With the proposed repowering scheme, thesame unit will exhaust only 41 tons/hr. of C02. As a result, the net savingsover a period of 20 years will be about 2.3 million tons of carbon dioxide,equivalent to a net savings of 19 million US$. This represents an investmentof about US$ 2.6/ ton of carbon dioxide saved, based on the proposed GEFcontribution of about US$ 6 million.

38. There would also be a reduction in NOx emissions. Since theexhaust heat from the gas turbine is fed to heat recovery steam generator(HRSG) and then to the existing steam boiler, less fuel would be burned in theexisting boiler; and the boiler flame temperature would necessarily be less tocompensate for the externally supplied heat. Specific emissions of NOx will bereduced annually by 62%, from 2.7 tons/ GWh. under the current performance ofunit No.4, to 1 ton/ GWh. under the repowered scheme (existing unit No. 4 of75 MW. plus the new 60 MW. GT). Furthermore, the existing unit No. 4 (75 MW.)at Kenitra exhausts under normal operating conditions about 0.24 tons/hr. ofNOx. With the proposed repowering scheme, the same unit will exhaust only 0.15tons/hr. of NOx. The net savings over a period of 20 years will be about15,860 tons of NOx, equivalent to a net savings of 10.3 million US$.

39. Under the same assumptions also, specific emissions of S02 willbe reduced annually by 27%, from 29.6 kg/ GWh. to 21.5 kg/ GWh . Furthermore,S02 emissions will be reduced from 1.5 tons/hr. to 1.05 tons./hr., or a netsavings over a period of 20 years of about 58,600 of sulfur dioxide,representing savings equivalent to 29 million US$ during the life of theproject. Table 13 includes details of the environmental emissions andbenefits.

- 14 -

V. PROJECT RISKS

A. Project Risks

40. No particular physical risks are associated to the proposedproject. Performance of the repowering project is highly dependent on properdesign of the gas turbine and its associated equipment and its matching withexisting components of steam- based power plant. The feasibility report, onwhich this proposal is based, has concluded that an adequate match existbetween the proposed gas turbine generator, heat recovery steam generator andthe existing steam boiler of unit No. 4 at Kenitra. A comprehensiveengineering design study, which will include the preparation of technicalspecifications and bidding documents, is being provided under the loan todeepen the analysis. The contractor's final design of the repowering scheme aswell as the supervision of the project implementation, will be reviewed andmonitored by an experienced consulting firm to be engaged by ONE as agreedwith the Bank. Furthermore, ONE has agreed to prepare and to implement anadequate construction and operation monitoring program for the project.Project cost and proposed implementation schedule are based on prevailingmarket prices and normal construction periods respectively.

VI. AGREEMENTS REACHED

41. During negotiations the following agreements were reached withthe Government and ONE as applicable:

(i) ONE will engage before October 31, 1994, consultants's services forthe preparation of technical design/ specifications/ biddingdocuments and project supervision under terms of referenceacceptable to the Bank (para. 25);

(ii) ONE will submit for Bank's review before December 31, 1995, detailsof the arrangements and of staff assignments for ONE, for theconsultants to be retained for project supervision and for thecontractor to be engaged for the construction of the project(para. 24);

(iii) ONE will implement the proposed project in accordance to theimplementation schedule detailed in para. 26 above and Table 10(para. 26);

(iv) ONE will submit for Bank review before December 31, 1995, themonitoring and evaluation programs which will be prepared with theassistance of their consultants as well as of the contractors forthe construction of the repowering project in accordance with GEFstandards. Furthermore, ONE will submit to the Bank quarterlyprogress reports on the project, and before April 31, 1997 a mid-

- 15 -

term review report of such scope and detail as the Bank shallreasonably request. (para. 30);

(v) ONE will submit for Bank review before December 31, 1995, acomprehensive training program which will be prepared with theassistance of the contractors for the construction of the repoweringproject (para. 31); and

(vi) ONE's will provide the necessary counterpart funding to finance someof the domestic costs.

42. Furthermore, the Grant Agreement with ONE includes standardremedies (suspension/cancellation/termination) in case the beneficiary failsto perform its obligations related to the implementation of the project or tomake available the necessary funds for the project.

43. Condition of effectiveness of the proposed grant is that boththe Letter of Agreement between the Kingdom of Morocco and the Bank and theGrant Agreement between ONE and the Bank are duly signed. Furthermore,proceeds of the GET grant amounting to about US$ 1.1 million to finance theservices of the consultants for the preparation of the project detaileddesign, bidding documents and supervision of project implementation, will beavailable after meeting the above mentioned condition of effectiveness.Release of the balance of the grant, about US$ 4.9 million, will be made onlyafter the conditions of effectiveness of the OECF (Japan) loan are fulfilled(condition of disbursement).

MOROCCO TABLE ¶

REPOWERING OF POWER PLANT PROJECT -------

ONE's POWER MARKET (GWh)

ANNUAL

ACTUAL FORECAST GROWTH X

1990 1991 1992 1993 1994 1995 1996 1997 1998 1990-93 1994-98

A. S A L E S

- ONE's Distribution 737 791 928 897 1063 1137 1216 1302 1393 6.77 6.99

- Mediua Voltage 973 1051 1237 1191 1416 1515 1620 1734 1855 6.97 6.98

- Regies 4090 4424 4677 4828 5420 5799 6205 6639 7104 5.69 7.00

- Industrial 1705 1731 1753 1904 2120 2268 2427 2597 2779 3.75 7.00- Others 148 105 132 142 129 138 148 158 169 -1.37 6.99

TOTAL 7653 8102 8727 8962 10148 10857 11616 12430 13300 5.40 7.00=33= 333= =3== =3- 33=33 r=3=3 ===3r =3=33 3_ 33333 w==3=

B. Trans. & Distr. Losses 1211 1297 1328 1626 1181 1265 1355 1449 1550 10.32 8.69

C. Gross Generation 8761 8758 9123 9588 11179 11972 12671 13579 14550 3.05 6.81

D. Purases 103 641 932 1000 150 150 300 300 300 113.33 18.92

E. Total Requirewnts 8864 9399 10055 10588 11329 12122 12971 13879 14850 6.10 7.00

F. Dn nd (MM) 1611 1734 1834 1850 1925 2060 2205 2360 2525 3.75 7.02

G. SysteM Ftor (X) 64 63 63 66 59 60 60 60 61 1.03 0.84

N. Los Index (X} 13.7 13.8 13.2 15.3 11.5 12.1 12.1 12.2 12.3 3.75 1.70

1. OE's Custemsrs(1000) 769 628 898 912 958 1006 1056 1109 1166 5.85 S.03

M O R O C C O TABLE 2


EXISTING POWER PLANTS

Nominal Effectiv.

Year Number Capacity Capacity

STEAN PLANTS InstaLL, of Units MY. NW.

- Casablanca 1961-75 4 120 110

- Jerada 1961-72 3 165 165

- Kenitra 1978-79 4 300 290

- Mohammedia 1981-86 4 600 600

Sub Total 15 1185 1175

HYDRO

- 24 Plants 1925-91 50 687 657

GAS TURBINES

- Sldl Kac.m 1967 1 16 13

- Agadir 1975-77 2 40 30

- Tanger 1975-77 2 40 30

- Tetouan 1975-77 2 40 30

- Nohammedia 1991-92 3 99 99

-Ton Tan 1992 3 99 99

Sub Total 13 334 301

DIESEL

3 PLants 1929-58 5 14 11

TOTAL 83 2220 2144

.333.33.. 33.3.33.3 =33333=33

M O R O C C O TABLE 3REPOWERING OF POWER PLANT PROJECT

POWER CAPACITY BALANCES - NW.(Based on firm capacity)

1993 1994 1995 1996 1997 1998 1999 2000

A. Peak Demand 1850 1925 2060 2205 2360 2525 2700 2890

B. Existing Hydro (687 NW) 50 50 50 50 50 50 50 50C. Plamned Hydro- Matmats (240 NW) 160 160 160 160 160 160 160- Alwahda (248 NW) 80 80 80 80- N'Dez (52 NW) 35 35

- El Nenzel (148 NW) 73

- D.E.O. (92 NW) 65

D. Total Firm Hydro Capacity 50 210 210 210 290 290 325 463

E. Existing Thermal (1533 NW) 1520 1605 1605 1605 1650 1470 1470 1470F. Plamned Thermal

- Gas Turbines (200 NW) 200 200 200 200 200 200 200- J. Lasfar I (330 NW) 330 330 330 330 330 330 330- J. Lasfar II (330 NW) 330 330 330 330 330 330- IPP Comb.Cycle (350 NW) 125 350 350- IPP Heavy Fuel (350 NW) 350 350 350- J. Lasfar [it (330 NU) 330 330- J. Lasfar IV (330 NW) 330 330G. Total Thermal Capacity 1520 2135 2465 2465 2510 2805 3690 3690M. Less Thernal Plant Outages 360 523 682 682 684 699 743 743

1. Total Firm Theruel Capacity 1160 1612 1783 1783 1826 2106 2947 2947

J. Imports from Algeria 150 150 150 300 300 300 0 0

K. Capacity Balance -490 47 83 88 56 171 572 520

L. X Rserve -26 2 4 4 2 7 21 1l



POWER ENERGY BALANCES - GWh.

1993 1994 1995 1996 1997 1998 1999 2000

A. Energy Demand 10588 11329 12122 12971 13879 14850 15890 17002

B. Existing Hydro (450 GWh) 450 450 450 450 450 450 450 450

C. Planned Hydro

- Matmata (210 GWh) 45 150 150 150 150 150 150

- Alwahda (120 GWh) 80 115 120 120

- M'Dez (26 GWh) 5 26

- EL MenzeL (248 GWh) 50

- D.E.O. (143 GWh) 15

D. TotaL Firm Hydro Capacity 450 495 600 600 680 715 725 811

E. Existing Thermal (9340 GWh) 9340 9640 9640 9640 9690 8935 8935 8935

F. Planned ThermaL

- Gas Turbines (1200 GWh) 600 800 800 800 800 800 800

- J. Lasfar I (1980 GWh) 510 1980 1980 1980 1980 1980 1980

- J. Lasfar 11 (1980 GWh) 1010 1980 1980 1980 1980 1980

- IPP Comb.CycLe (2925 GWh) 80 900 2275

- IPP Heavy Fuel (3500 GWh) 900 2275 2275

- J. Lasfar III (1980 GWh) 900 1980

- ONE's Comb.CycLe (2925 GWh)

- J. Lasfar IV (1980 GWh) 300 1980

G. Total ThermaL Energy 9340 10750 13430 14400 14450 14675 18070 22205

H. Imports from ALgeria 1000 1000 150 1800 2415 2440 0 0

I. Energy BaLance 202 916 2058 3829 3666 2980 2905 6014

L. % Reserve 2 8 17 30 26 20 18 35



1992 ONE's POWER PLANT EFFICIENCY

PLANT EFFICIENCY BASED ON TYPE OF FUEL

POWER PLANT Local Coal Imported Coal Heavy Fuel TOTAL

Gwh. kTons Gwh. kTons GWh. kTons GWh. kcal/kWh

Casablanca 0 0 0 0 479 131 479 2638

Jerada 972 529 61 31 0 0 1033 3386

Kenitra 0 0 0 0 1901 497 1901 2537

Mohamiedia 1/ 0 0 2452 556 1412 500 3864 2219

PLANT EFFICIENCY BASED ON PRODUCTION COSTS

Specific

POWER PLANT Efficienc. Generation Fuel Fuel Cost

----------- kcal/kWh GWh. Consumpt. Cost USS cents

kTons USS '000 per kWh

Casablanca 2638 479 131 25660 5.36

Jerada 3386 1033 1003 51770 5.01

Kenitra 2537 1901 497 99220 5.22

Mohammedia 2219 1/ 4172 2/ 1056 1/ 16110 2/ 3.86 2/

TOTAL 2495 7585 2/ 2687 1/ 192760 2/ 4.77 2/

1/ Includes only steam- based plant.

2/ Includes steam- based plant and gas turbines.

M O R O C C O TABLE 6REPOWERING OF POWER PLANT PROJECT -------

POWER CAPACITY ADDITION

(1994-1998)

InstaLL. Number CapacityA. PLANNED HYDRO PLANTS Year of Units MW.

- Matmata 1994 3 240

- Allal EL Fassi 1994 3 240- ALwahda 1997 3 248

- M'Dez 1999 1 52

- EL NenzeL 2000 2 148

- D.E.O. 2000 1 92

Total New Hydro Capacity 13 1020

B. PLANNED STEAM PLANTS

- J. Lasfar I 1994 1 330- J. Lasfar 11 1995 1 330

- IPP Comb.Cycle 1998 3 350

- IPP Heavy FueL 1998 2 350

- J. Lasfar III 1999 1 330

- J. Lasfar IV 1999 1 330

TotaL New Steam Capacity 9 2020

C. PLANNED GT's PLANTS

- Tit Meliii 1994 3 100- Tetouan 1994 3 100

Total New GT's Capacity 6 200

TOTAL 28 3240

M O R O C C O TABLE 7REPOWERING OF POWER PLANT PROJECT -------

ONE's INVESTMENT PROGRAM (US$ millions)

Total Total

Investment Project

1994 1995 1996 1997 1998 1994-1998 Cost

A. GENERATION

Hydroelectric

- Matmata 34 34 215

- Alwahda 11 44 72 21 148 152- M'Dez 12 17 21 49 76- EL Menzel 35 58 56 149 317-D. el Oued 13 19 32 76

-Others 1 7 11 6 12 36 280-Studies 2 2 2 2 2 9 27

Sub-Total Hydro 47 53 130 117 109 456 1142

Thermal

- New Gas Turbines 194 25 219 536- J. Lasfar I & II 117 33 4 154 760- IPP Comb. Cycle 0 632- J. Lasfar III 0 358

- Kenitra Repowering 8 31 7 3 50 50- J. Lasfar IV 0 358

- Conversion Gas 8 8 16 16

-Dieset 1 6 2 1 9 9-Studies 2 2 2 3 3 11 32

Sub-Total Thermal 314 74 47 19 6 459 2750

B. TRANSMISSION 158 211 182 176 165 893 1210

C. DISTRIBUTION 33 39 62 60 47 240 288

D. GENERAL 47 60 62 71 82 322 577

T 0 T A L 599 438 483 443 409 2371 5967

M O R O C C O Table 8

REPOWERING OF POWER PLANT PROJECT -----------

ECONOMIC ANALYSIS OF ALTERNATIVES Page 1 of 3

STEAM GENERATION (HRSG): SPECIFIC CONSUMPTION, EFFICIENCY AND PRODUCTION COSTS

ASSUMPTIONS

Startup date of repowering: 1997

Discount rate: 10X 12X

Amortization period: 15 years

Maintenance costs: - For new installations, 1.5% of base investment cost / year

- For existing unit, S1.5 m / year

Natural gas: - Price: 8.75 cents US I cu. m.

- Heat rate: 8800 kCal. cu. m.

Cost of replacement energy: - Imported energy: 4.95 cents US / kWh- Marg. energy prod. by fuel units w/ avg. efficiency 33%: 2.01 cents US / kWh

KAIN RESULTS

ALTERNATIVE: MOHANMEDIA ALTERNATIVE: KENITRA

HRSG Scheme 1/ HRSG Scheme 1/

REPOWERING USING NATURAL GAS Existing (GT 120 NW) Existing (GT 60 NW)

OUTPUT

Total Output HW. 143.53 243.12 71.30 125.80

Gain In Output NW. 99.59 54.50Total Energy Output GWh. 2/ 932.95 1580.28 463.45 817.70Gain in Output GWh. 647.33 354.25

EFFICIENCY

Net Efficiency X 38.60 44.05 33.80 39.70Gain In Efficiency (percentage points) 5.45 5.90

FUEL CONSUMPTION

Total Specific Consumption (kCal/kWh) 2228.00 1952.30 2544.40 2166.20Specific Consumption Savings (kCal/kWh) 275.70 378.20

Specific Consumption Savings X 12.37 14.86

PRODUCTION COST UNDER BOTH ALTERNATIVES

DIsc. rate 10X, fuel price up 2%: cS/kWh 3.28 3.21Disc, rate 10%, fuel price up 3%: cS/kWh 3.49 3.41Disc, rate 12%, fuel price up 2%: cS/kWh 3.32 3.21Disc, rate 12%, fuel price up 3%: cS/kWh 3.52 3.40

1/ Corresponds to the combined repowered unit (steam- based unit & GT).

2/ Based on 6,500 hours/ year operation.

M O R O C C O Table 8

REPOWERING OF POUER PLANT PROJECT ...........


FULLY FIRED (FF): SPECIFIC CONSLIPTION AND EFFICIENCY

(High Output Gains)

ASSUMPTIONS


Discount rate: 10X, 12X


Maintenance costs: - For new installations, 1.5X of base investment cost / year

- For existing unit, $1.5 m / year

Natural gas: - Price: 8.75 cents US c cu. m.

- Heat rate: 8800 kCal. / cu. m.

Cost of replacement energy: - Imported energy: 4.95 cents US / kWh

- Marg. energy prod. by fuel units w/ avg. *ffIciency 33X: 2.01 cents US / kWh

ANALYSIS OF ALTERNATIVE SCHEMES

ALTERNATIVE: MOHAMMEDIA ALTERNATIVE: KENITRA

FF Scheme 1/ FF Schaem 1/

REPOWERING USING NATURAL GAS Existing (GT 37 MW) Existing COT 25 NW)

OUTPUT

TotaL Output MW. 143.53 169.33 71.32 92.39

Gain in Output MW. 25.80 21.07

Total Energy Output GWh. 2/ 932.95 1100.65 463.58 600.50

Gain in Output GWh. 167.70 136.92

EFFICIENCY

Net Efficiency 2 38.60 40.90 33.80 35.00

Gain in Efficiency (percentage points) 2.30 1.20

FUEL CONSUMPTION

FueL Consumption (kCal/kWh) 2228.00 1632.66 2544.00 2096.05

Fuel Consumption Savings (kCal/kWh) 0.00 595.34 0.00 447.95

Fuel Consumption Savings (2) 26.72 17.61


2/ Based on 6,500 hours / year operation.

M O R O C C O Table 8REPOWERING OF POWER PLANT PROJECTO


FULLY FIRED (FF): SPECIFIC CONSUMPTION AND EFFICIENCY

(Low Output Gains)

ASSUMPTIONS


Discount rate: 10%, 12%


Maintenance costs: - For new instaLlations, 1.5% of base investment cost / year

- For existing unit, $1.5 m J year

Natural gas: - Price: 8.75 cents US c cu. m.

- Heat rate: 8800 kCal. / cu. m.

Cost of replacement energy: - Imported energy: 4.95 cents US / kWh

- Marg. energy prod. by fuel units w/ avg. efficiency 33%: 2.01 cents US / kWh

ANALYSIS OF ALTERNATIVE SCHEMES

ALTERNATIVE: MOHAMMEDIA ALTERNATIVE: KENITRA

FF Scheme 1/ FF Scheme 1/

REPOWERING USING NATURAL GAS Existing (GT 37 MW) Existing (GT 25 MW)

OUTPUT

TotaL Output MW. 143.53 149.94 71.32 78.22

Gain in Output MW. 6.41 6.90

Total Energy Output Gwh. 2/ 932.95 974.61 463.58 508.43

Gain in Output GWh. 41.66 44.85

EFFICIENCY

Net Efficiency % 38.60 42.30 33.80 38.60

Gain in Efficiency (percentage points) 3.70 4.80

FUEL CONSUMPTION

Fuel Consumption (kCaL/kWh) 2228.00 1416.00 2544.00 1617.00

Fuel Consumption Savings (kCaL/kwh) 0.00 812.00 0.00 927.00

Fuel Consumption Savings (X) 36.45 36.44





PROJECT COST ESTIMATE

(US S thousands)

LocaL Foreign Total

- Detailed Design/Tech. Spec./ 1000 1000

Tech. Assist. Construction

- Civil Works 363 363

- GT/HRSG/Pumps 19388 19388

- Other Mechanical Equipment 1094 1094

- Generator 2875 2875

- Power Substation 525 1241 1766

- Incinerator 80 80

- Control/Profection/ 2484 2484

Communication

- Automation 375 375

- Conception & Supervision 2906 2906

- Project Management ONE 2000 2000

- Start-Up 281 281

- Training 100 300 400

Base Cost 1/ 2988 32024 35012

- Physical Contingencies 2/ 299 3202 3501

- Price Contingencies 3/ 145 1550 1695

- Duties 4/ 5507 5507

TOTAL COST 8939 36776 45715

1/ Does not include taxes & duties.

2/ 10X of base cost.

3/ 4X per year 1996-1998

4/ 20% of cost of imported goods.



PROJECT IMPLEMENTATION SCHEDULE

Interval

Date (months)

- Contract Signature 10/1994

with Consultants 1/ 6

- Completion of Basic Design 04/1995

and Bidding Documents 1

- Issuance of Bidding Documents 05/1995

4

- Submission of Offers 09/1995

3

- Signature of Turn-Key Contract 12/1995

14

- Beginning Installation of 02/1997

GT/HRSG/S.S. 6

- Coptetion of Installation of 08/1997

GT/HRSG/S.S. 0

- Start of Comissioning 08/1997

3

- Commercial Operation 11/1997

1/ Assumes existing contract with ENEL extended.

TABLE 11

MOROCCO


PROCUREMENT ARRANGEMENTS

(US$ Thousand)

ICB IS Others Total


- Turn- key contract Repowering 36,671 36,671(4,760) (4,760)[31,911] [31,911]

- Incinerator 92 92

(92) (92)

- Project Management ONE * 2,297 * 2,297

Total 36,671 92 3,445 40,208(4,760) (92) (1,148) (6,000)[31,911] [31,911]

* 2,297 * 2,297

- Figures in parenthesis to be financed by the GET grant.- Figures in brackets to be financed by OECF loan.- Figures with asterisk to be financed by ONE.- All amounts include physical and price contingencies but excludetaxes and duties.

- ICB: International Competitive Bidding- IS: International Shopping

- Others: Procurement of consultants (sole source) and ONE'sadministration (force account)

MOROCCO TABLE 12

REPOWERING OF POWER PLANT PROJECT --------

DISBURSEMENTS

(USS milLion)

IBRD Fiscal Year Disbursements CumuLating Disbursements

and Semester during Semester at End of Semester

1995

Dec.31,1994 0.1 0.1

Jun.30,1995 0.9 1.0

1996

Dec.31,1995 0.4 1.4

Jun.30,1996 1.6 3.0

1997

Dec.31,1996 1.2 4.2

Jun.30,1997 1.6 5.8

1998

Dec.31,1997 0.2 6.0

NOTE: GET grant closing date: December 31, 1998.

M O R O C C O TabLe 13

REPOWERING OF POWER PLANT PROJECTC

ENVIRONMENTAL ANALYSIS OF ALTERNATIVES Page 1 of 3STEAM GENERATION (HRSG): EMISSIONS REDUCTION

ALTERNATIVE: NOKANIEDIA ALTERNATIVE: KENITRA


REPOWERING USING NATURAL GAS 1/ Existing (GT 120 NW) Existing (GT 60 MW)----- ----- ----- ----- ----- ---- ... .. ......... .............. ------ - ----- -------

OUTPUT

Total Output MW. 143.5 243.1 71.3 125.8

TotaL Energy Output GWh. 3/ 932.9 1580.3 463.5 817.7

EMISSIONS

S02

- Votume (kg/GWh/year) 17849.9 5717.3 29.6 21.5

- Gas Reduction (kg/GWh/year) 12132.6 8.1

- Percentage Gas Reduction ( X ) 68.0 27.2

NOx

- VoLume (kg/GWh/year) 2856.5 2081.3 2664.8 1001.6



C02

- VoLume (kg/GWh/year) 686407.0 528998.0 607573.6 514308.4



1/ A simuLation was performed to estimate the emisslons under the hypothesis that the steam unit was to

function on heavy fuel rather than natural gas. The corresponding emissions values are given In

Table 13, page 2 of 3.



M O R O C C O Tabte 13

REPOWERING OF POUER PLANT PROJECT -----------

ENVIRONMENTAL ANALYSIS OF ALTERNATIVES Page 2 of 3

STEAM GENERATION (HRSG): EMISSIONS REDUCTION

ALTERNATIVE: MOHAMIEDIA ALTERNATIVE: KENITRA


REPOWERING USING HEAVY FUEL Existing (GT 120 MW) Existing (GT 60 Mw)

OUTPUT

Total Output NW. 143.5 230.9 71.3 125.8

Total Energy Output GWh. 2/ 932.9 1500.9 463.5 817.7

EMISSIONS

-02

- VoLume (kg/GUh/year) 17849.9 16414.0 21094.0 8378.4



NOx

-VoLume (kg/GWh/year) 2856.5 4374.2 3366.1 1200.3

- Gas Reduction (kg/GWh/year) -1517.6 2165.7

- Percentage Gas Reduction ( X ) -53.1 64.3

C02

- Volume (kg/GWh/year) 686407.0 653941.1 827489.5 596184.4

- Gas Reduction (kg/GUh/year) 32465.9 231305.1

- Percentage Gas Reduction C X ) 4.7 28.0



R O R O C C O Table 13REPOWERING OF POWER PLANT PROJECT ...........

ENVIRONMENTAL ANALYSIS OF ALTERNATIVES Page 3 of 3STEAM GENERATION (HRSG): NET SAVINGS FROM EMISSIONS REDUCTION

Kenitra #4 Kenitra #4

ALONE ALONEBefore Repowering After Repowering

C02

Emissions (tons/hour) 59.0 41.0

Reduction (tons/hour) 18.0

Reduction (%) 30.5

Reduction (tons/year) 1/ 117,000.0

Reduction Over Life of Project 2/ 2,340,000.0

Net Savings (USS) 3/ 18,720,000.0

NOx

Emissions (tons/hour) 0.2 0.1

Reduction (tons/hour) 0.1

Reduction (X) 50.8

Reduction (tons/year) 1/ 793.0Reduction Over Life of Project 2/ 15,860.0Net Savings (USS) 4/ 10,309,000.0

S02

Emissions (tons/hour) 1.5 1.1Reduction (tons/hour) 0.5

Reduction (X) 30.0

Reduction (tons/year) 1/ 2,931.5

Reduction Over Life of Project 2/ 58,630.0

Net Savings (USS) 5/ 29,315,000.0

TOTAL NET SAVINGS (USS) 58,344,000.0


2/ Based on project Life span of 20 years.

3/ Based on abatement cost of S8 / ton.

4/ Based on abatement cost of $650 / ton.

5/ Based on abatement cost of $500 / ton.

ATTACHMENT 1

MOROCCO

GEF REPOWERING PROJECT

ENVIRONMENTAL ANALYSIS

BACKGROUND: The Kenitra power plant is located about 150kilometers from Casablanca and 45 kilometers east of Rabat. Thispower plant was built in 1979 and its installed power generatingcapacity is 300 MW. The existing plant is located about threekilometers away from Kenitra and the repowering project will belocated adjacent to the power plant.

Policy. Legal and Administrative Framework: Under the currentstructure, a private company or a government agency willing todevelop an industrial facility such as a power plant shouldobtain approval from the Ministry of the Interior (which in turnwill consult with the Ministry of Public Works and other agenciesas applicable) for the construction and operation of thefacility. The approval is based on a detailed project designsubmitted by the developer. The Ministry of the Interior takesinto consideration whether the proposed project development wouldhave any major adverse environmental impact or cause any majordetrimental impact to existing and planned residential,commercial and industrial developments.

Land Use: The area surrounding the existing Kenitra plant ispartially developed. There is undeveloped land on the north andwest sides of the plant. Several industries are located on thesouth and east sides of the plant. The nearest residentialdevelopment is three kilometers away, in the town of Kenitra.ONE has already cleared the area adjacent to unit No. 4 at theexisting power plant for the construction of the proposedrepowering project. Additional land is being cleared where theexisting soccer fields, tennis courts, and company club arelocated. This area will be used for both the repowering projectand future plant additions such as the proposed 300 MW combinedcycle.

Air Ouality: ONE has not conducted any air quality monitoringand dispersion modelling of C02, NOx and S02 emissions, nor havemeasurements been taken at the plant site. ENEL, consultants forthe feasibility study of the repowering project, have estimatedcurrent gas emissions at the plant as follows: (i) C02 at 824g/kWh (about 1.5 million tons/year); (ii) NOx at 3.4 g/kWh (about6,300 tons/year); and (iii) S02 at 21.1 g/kWh (about 39,000tons/year). ENEL has also estimated maximum dispersion levelsfor NOx at about 100 Mg/m3 near to the town of Kenitra and yearlyaverages of about 5 to 10 gg/m 3. The Kenitra plant is locatedabout six kilometers away from the ocean, with a moderate to high

wind velocity that will contribute to adequate dispersion ofnitrogen oxides throughout the surrounding areas.

Water Resources: The Kenitra plant is located at the bank ofthe Sebou river, which supplies about 57,000 cubic meters ofwater per hour for the use of the plant. Due to the absence of acooling tower, a large amount of water is used in the condensersfor cooling purposes. There is no raw water treatment facilityexcept for the demineralization unit which is used to treat theboiler feed water. The annual precipitation in the area ofKenitra varies from 365mm to 985mm per year and the averageprecipitation is about 640mm per year. A few small townsdownstream utilize the Sebou river for their water supply needs.Waste water mixed with oil from the plant's equipment goes to asmall fuel/oil/water separating facility adjacent to the river.The fuel /water resulting from cleaning the fuel filters of theplant's fuel feeding system also goes to the fuel/oil/waterseparator facility. The fuel/oil is separated from the waterthrough a gravity separation process, where fuel/oil floats abovethe water and it is skimmed off the top and collected in drumsfor disposal. However, the disposal stage of the process appearsnot to be followed properly and the fuel/oil is spilled into theriver. During the rainy season this problem becomes more seriousas it is difficult to collect the fuel/oil from the separatingfacility and as a result, larger volumes of fuel/oil refuse arespilled into the river. The proposed GEF Repowering Projectprovides for the purchase and installation of an incineratorfacility to burn all the waste fuel/oil which is disposed fromthe plant.

Toxic and Hazardous Substances Management: The insulating oilof the power plant transformers has been replaced fromPolychlorinated Biphenyl (PCB) to mineral oil, except for one ortwo auxiliary/ plant service transformers. Worldwide, normalprocedure requires PCB-based insulating oil to be replacedwhenever a leak occurs in the transformer because of itscarcinogen content. The plant personnel have experience inreplacing the PCB with mineral oil. Following this practice, ONEhas agreed to replace the PCB insulating oil in these specificservice transformers for mineral-based insulating oil whenever aleakage occurs.

There are four fuel tanks (one for each boiler) at the site.These fuel tanks have a steam coil to heat the fuel.Periodically, the steam condensate is drained. During thedraining, fuel is mixed with the steam condensate, which isdisposed at an adjacent disposal facility and then it is pumpedback into the fuel tank. Fuel spills around the tanks arenoticeable within the diked area. ONE has agreed to control thefuel spills by strictly enforcing their established operationalpractices in order to avoid these spills during the draining ofthe steam condensate.

Cleaning of Puel Tanks: The fuel tanks are not cleanedregularly. The fuel stored in these tanks contains heavy metalsand other solids which settle at the bottom of the tanks. Theheavy metals and other solids damage the burners and clog thefuel filters. Cleaning the tanks once a year will reduce thefrequency of clogging of the filters. ONE has agreed to inspectand to clean the fuel tanks, as established by their operationaland maintenance practices, in order to avoid fuel leaks andcorrosion of the tanks.

Noise Pollution: The proposed repowering project will bedesigned to meet international regulations for ambient noiselevels (70 dB for general activity in an industrial area).Currently, noise levels in the vicinity of the existing steamturbines, generators and blowers are slightly above internationalstandards. ONE provides the plant operators with adequate earprotection equipment, but the workers generally do not wear it.ONE has agreed to strictly enforce utilization of ear protectiongear in the power plant.

Natural Resources Protection: The project area is cleared ofall vegetation. Endangered plant species neither germinatenor are cultivated near the project site. Furthermore, no animalspecies migrate through the plant site. The proposed repoweringproject will not have any detrimental impact on the flora/faunaof the surrounding areas to the project site.

Socioeconomic Setting: The repowering scheme is not expectedto increase the number of employees in the area. There are about300 operators and other workers at the plant. During the designand construction of the repowering project, a small number ofskilled and unskilled workers will be added at the plant site.ONE has closed a soccer field, some tennis courts, and the clubto clear the land for future power plant additions withoutproviding any replacement for these facilities. In the measurethat ONE's financial capability permits, these facilities will bereplaced.

Public Safety: Heavy construction activities couldpotentially cause accidents at the site. ONE has agreed toinstitute site construction safety measures in consultation withthe contractor to ensure adequate protection to construction andoperational workers. ONE has a guarded gate and the generalpublic would not be admitted at the construction site. Theconsultant will design the project structures based on acceptedearthquake loading standards while taking into considerationappropriate local seismic data. ONE has established proceduresfor remedial actions to address emergency situations arising fromplant fires, storage tank fires and railroad oil spills.

Monitoring. Management and Training:

Environmental Monitoring: Currently, there is noenvironmental monitoring program established to measure groundlevels of NOx and S02 concentrations at the plant water intakeand discharge as well as of the noise levels in the plant area.Furthermore, monitoring of ground levels of NOx concentrationsnear to the town of Kenitra is nonexistent. It is recommendedthat samples and analysis of the plant water supply be undertakenon a weekly basis. The sampling locations should includerepresentative raw water supply and discharge, boiler feed waterafter treatment and demineralized water effluent. The plantpersonnel is currently measuring the pH, conductivity andtemperature. However, there is a need to measure total dissolvedsolids, nitrates, chlorides, phosphates, sulfates and otherparameters that may be of concern to plant operating personnel toensure that pollutant levels are no higher than discharge limitsor those found in raw water, whichever is greater. ONE hasagreed to prepare and submit to the Bank a comprehensivemonitoring/ evaluation program.

Proiect Training Needs: The repowering project will includea well-defined technical and operational training program for theinstallation, operation and maintenance of the projectfacilities. This program will be established with the assistanceof the general contractor as part of the equipment supplycontract. The Bank mission has recommended also that a shorttraining program be instituted for the environmental monitoringto emphasize the need for monitoring, the value of the data to becollected and the interpretation and use of the data to addresspotential issues or complaints arising from plant operation. ONEwill prepare and submit for Bank review the above mentionedtraining programs.

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