Powering economic expansion has always been a tricky balancing act for Morocco, which unlike neighbouring Algeria and Libya does not have extensive deposits of oil and gas from which to draw upon. As a rapidly growing country with only modest energy resources, Morocco’s dependence on external energy sources continued to increase over 2012, with the value of energy imports jumping 11.9% year-on-year (y-o-y) from January to July 2012. Imports over that period cost more than Dh57bn (€5.07bn) during the first half of 2012, and represented 26% of total imports, up from 24.7% during January-July 2011. With 96% of energy needs met by fossil fuel imports, especially oil and coal, the country is in a precarious fiscal position as government budgets grapple with elevated oil prices ranging from $110-120 per barrel. Mohammed Raihani, the president director-general for Vivo Energy, the licensee group for Shell, told OBG, “Given the need to continue financing fuel imports, changes in the Caisse de Compensation are needed, but will be very difficult to achieve. It is not clear to what extent fuel prices could be increased in this regard in the coming years.”

THE REALITY: The fiscal difficulties are compounded by the state’s subsidisation of petroleum products, which are estimated to have cost the country between Dh50bn (€4.45bn) and Dh52.3bn (€4.65bn) in 2012, according to the Ministry of Economy and Finance, up from €2.21bn in 2010. Financial stress from burgeoning energy costs proved to be a major factor in Morocco’s decision to take out a €4.56bn precautionary credit line from the IMF in October 2012. Given that Morocco is characterised by a low electricity consumption per capita (744 KWh in 2010), as well as high urbanisation and consumption-intensive industries, the kingdom’s energy demands are expected to see accelerated growth in the medium term, particularly for electricity, predicted to rise by 5-7% over the coming 10 years.

GOVERNMENT PLAN: The government implemented a new national energy programme called the National Renewable Energy and Efficiency Plan in 2008 in order to buffer the country from commodity volatility and help underwrite a sustainable base for increased energy consumption in the years to come. The initiative prioritises the diversification of the country’s energy sources, with particular emphasis on the development of renewable energies, improved energy efficiency, and the provision of energy at competitive prices. The plan also looks to expand cross-border transmission and regional energy integration with neighbouring African and Mediterranean markets. “We live in a time of expensive energy costs and renewable energies have declining prices,” Said Mouline, the director-general of the National Agency for the Development of Renewable Energies and Energy Efficiency (Agence Nationale pour le Développement des Energies Renouvelables et de l’Efficacité Energétique, ADEREE), told OBG. Despite their higher costs in the medium term, renewables hold enough promise to justify such initiatives. “Though these technologies are still developing and are not yet as economically competitive as their alternatives, Morocco is making these investments because we are coming to a crossing that we must prepare ourselves for – by using energy efficiently and developing renewable energies like solar power, we can ensure our national security while also reducing our costs,” Mouline told OBG.

RENEWABLE ENERGIES: The government has created a programme to expand its electricity generation capabilities from 6350 MW in 2010 to 14,500 MW by 2020. An integral component of this plan is to harness potential to utilise renewable energies through the deployment of two national programmes to develop solar and wind power, which aim to produce a total of 2000 MW each of solar and wind power by 2020 (see analysis). Combined with an expected 2000 MW contribution from hydroelectric, the goal is to produce 42% of electricity needs from renewables by 2020, with 14% each from solar, wind and hydroelectric.

NEW AGENCIES: To further these objectives, two new agencies, ADEREE and the Moroccan Agency for Solar Energy (Agence Marocaine de l’Energie Solaire, MASEN) were created to oversee the renewable programmes. While ADEREE is largely responsible for overseeing the implementation of wind projects and energy efficiency projects, MASEN’s mandate gives it specific control over the sphere of solar projects implemented under the national energy programme and manages and concludes power purchase agreements(PPAs) with companies participating in solar projects. If its development proceeds according to plan, the programme is expected to create an estimated 55,000 new jobs and facilitate the emergence of two major new industries in solar and wind power production. The programme is also envisioned to produce enough excess energy to establish Morocco as a key renewable energy exporter to Europe in the medium to long term through initiatives such as the $400bn Desertec industrial initiative, which aims to develop the ability of Morocco and other North African countries to harness solar power that can be exported to Europe. By 2050, the project aims to supply 15-20 per cent of the latter’s energy needs, saving around €30 per MWh on Europe’s energy costs and providing an annual export volume of over €60bn for the Middle East and North Africa (MENA) region.

Implemented in 2010, the Renewable Energy Law (Law No. 13-09) liberalised electricity production intended for consumers connected to the high-voltage and extra-high-voltage grids, permitting private electricity producers using renewable energies to sell directly to customers, rather than selling electricity solely to the National Office of Electricity and Water Supply (Office National de l’Électricité et de l’Eau Potable, ONEE). Law 13-09 also allows for the export of surplus energy produced from renewable resources, enabling future exportation of energy to Europe through programmes like Desertec, which aims to develop the MENA region as a significant producer of solar power. The basis for the Renewable Energy Law was inspired by the construction of a wind park at a cement factory owned by Lafarge in the north.

ENERGY EFFICIENCY: As per the government’s energy overhaul, efficiency measures have been introduced nationwide as an inexpensive method of reducing Morocco’s energy costs. There are a number of ways in which the country is looking to reduce consumption: for example, at a cost of approximately Dh45bn50bn (€4bn-4.45bn) annually, limiting expenditures on public lighting through the replacement of old street light technologies with new energy-efficient technologies such as photovoltaic lights. Plans are also in the works to introduce tariff-based incentives to encourage lower energy consumption levels, install solarpowered pumps for agriculture, and establish 400,000 sq metres of panels for solar-powered water heaters, with the objective of some 1.7m sq metres by 2020.

Energy efficiency measures will focus on homes and industries, with nine farms and three export packaging plants targeted for energy audits following the launch of a pilot programme by the ONEE and the European Investment Bank. ONEE is the result of a 2012 merger between the National Office of Electricity and the National Office of Water Supply. Industry participation at the national and regional level in energy efficiency programmes is promoted by the General Confederation of Moroccan Enterprises and ADEREE through initiatives like Jiha Tinou, which attempts to integrate the energy economy into the projects of local industries, so that each region is able to produce its own renewables. “While it is important that companies still remain competitive, we must ensure that industrialists comply with new environmental regulations just like everyone else – we no longer have the right to waste, even if we have plentiful fossil fuel reserves, because we must take care for the future generations,” Mouline told OBG.

ELECTRICITY: Electricity demand continues to grow in the kingdom, rising 8.4% from 2010 to 2011 from 26,530.6 GWh to approximately 29,000 GWh in 2011. According to the ONEE, 25,634 GWh of energy was sold in 2011, with total production of electricity reaching 24,363.6 GWh. Of this, 21,315.6 GWh were produced by thermal energy, 2005.3 GWh were supplied by hydroelectric energy, and 692.2 GWh was produced by wind power. ONEE’s clientele base has also increased in the past several years, up 5.4% in 2011 from 2010 to almost 4.5m clients in 2011, respectively.

The National Office of Electricity was once the single largest provider of electricity until the sector was liberalised in 1994, permitting private entities to build and operate power plants. Though there are currently only three independent power producers (IPPs), 54.1% of the kingdom’s total electricity production came from private sector producers in 2010, and both the quantity of private contributions to electricity production and the number of IPPs is highly likely to increase as the sector is liberalised. Nevertheless, private producers are still obliged to sell their electricity exclusively to ONEE through PPAs, therefore ensuring the continuation of a single-buyer role and a monopoly in transmission for ONEE.

The public entity provides electricity to about 55% of consumers while also maintaining its regulatory and supervisory role over the electricity sector. However, the creation of a new law is currently being discussed which will restructure the sector, separating electricity generation, transmission and distribution services while also introducing an independent regulatory body. According to the ONEE, annual growth for electricity consumption over 2012 has surpassed that of 2011 to 9%, following a trend of increasing growth figures and presenting an important challenge to the country’s public electricity producer and provider.

Rising demand for electricity has contributed to a near doubling of annual consumption of petroleum products between 2002 and 2012 from about 6m tonnes to around 11m tonnes.

RURAL ELECTRIFICATION: In 1996 Morocco launched an ambitious programme to bring electricity to rural regions of the country, where the rate of electrification was often as low as 16-18%. Less than two decades later, the Global Rural Electrification Programme ( Programme d’Electrification Rurale Global, PERG) increased rural electrification rates to almost 97%, aided by the incorporation of private generation through a concession system with ONEE. By 2010, some 33,150 villages and 1.9m homes were connected to the grid, with another 51,559 houses utilising electricity from photovoltaic kits. In 2011, another 920 villages were electrified throughout the course of the year.

Work will begin shortly on the next phase of the rural electrification that aims to connect 1500 isolated villages to the national electricity network through the construction of low- and medium-voltage distribution lines and the instalment of smart metering to facilitate the deployment of decentralised renewable energy generation, such as photovoltaic units. To finance the second phase of the programme, the European Bank for Reconstruction and Development (EBRD) is considering the provision of a loan up to €60m to ONEE, while the latter organisation will cover the rest of the costs, estimated at around €17m.

The EBRD is particularly interested in funding the programme in order to establish Morocco as an example to other developing countries in the region and further afield, for the best rural electrification techniques. Indeed, the success of the programme has led to the development of ONEE’s participation in various rural electrification projects in sub-Saharan Africa as an advisor or as a partner in joint ventures.

OIL & GAS EXPLORATION: Morocco constitutes one of the most under-explored countries in the world in terms of oil reserves, where since 1968 only 34 offshore wells have so far been drilled, with 29 wells drilled in shallow waters to test Jurassic carbonate objectives. Speaking to local media in September 2012, the National Office of Hydrocarbons and Mines (Office National des Hydrocarbures et des Mines, ONHYM), the agency responsible for supervising licence blocks, stated that, “the entire Atlantic margin of Morocco is under-explored in terms of drilling.” Efforts have been made in the past several years to encourage exploration and unearth the nation’s hydrocarbons potential.

Though deep offshore drilling in the tertiary, upper and lower cretaceous layers conducted between 2003 and 2009 have not found deposits of hydrocarbons in commercial quantities, oil and gas have been found during these initiatives, and the government remains optimistic that active petroleum systems exist offshore, particularly as technology improves and high oil prices improve the cost-expense ratio for deep-shore production of marginal fields.

Positive indicators include the outcome of the MO-2 well in the Tarfaya offshore region in the south of the country, which tested some 2377 barrels per day (bpd) with an API gravity of between 10 to 12 degrees from the upper Jurassic layer. The MO-8 well drilled nearby also unearthed 38 degree API light oil in the middle Jurassic carbonates, while oil and gas was discovered in the tertiary and cretaceous layers.

STATE ENCOURAGEMENT: In order to encourage foreign participation in exploration efforts, the state had introduced a number of incentives for international firms. While the government receives 25% of any project, gas and oil royalties remain low at 5% and 10%, respectively, with a 10-year corporate tax break for new discoveries, thus ensuring that state benefits never exceed 35%. Amendments were also made to the Oil Code in 2000 to reduce the state’s participation in exploration permits and operating licences from at least 50% to a maximum of 25%.

According to British-based firm Longreach Oil & Gas, fiscal and regulatory incentives offered in Morocco provide a unique opportunity for high revenues, where profit value for the production of one barrel in Morocco is equivalent to the production of 13 barrels in Algeria and seven barrels in Nigeria.

NEW LICENCES, NEW DRILLING: Several new licences were issued in 2012, with British oil company Cairn Energy purchasing a 50% stake in the Foum Draa Block in return for a commitment of €44.1m towards the drilling of an exploration well and a payment of a share of past costs totalling €1.1m. Other stakeholders include ONHYM with 25%, San Leon Energy with 14.2%, Serica Energy with 8.3% and Longreach Oil & Gas with 2.5%. The offshore Foum Draa Block is located in southern Morocco and reaches depths of up to 2000 metres over roughly 3138 sq km. Drilling for the first exploration well is expected to begin in the fourth quarter of 2013, pending regulatory approval.

Cairn Energy is also the operator of the Cap Juby Maritime licence, holding a 37.5% share in the block with ONHYM and Barrus Petroleum at 25% and 27.5%, respectively. Plans to conduct a 3D seismic survey were intended for the end of 2012 to find deeper light oil targets, though information had yet to be released at the time of publication regarding the results.

London-listed firm Genel Energy also acquired a 60% stake in the offshore Sidi Moussa Block from San Leon and its partners Longreach and Serica, after pledging up to around €36.8m towards the costs of an exploration well, and a payment of €956,000 for past costs accumulated by the selling firms. Drilling on the well is due for some point during 2014, San Leon executive chairman Oisin Fanning announced to local media in September 2012.

Another major actor in Morocco’s offshore explorations and operator of three major offshore blocks in the Agadir Basin (Essaouira, Foum Assaka, and Tar-hazoute), US-based Kosmos Energy, recently concluded a wide-area 3D seismic acquisition and intends to begin drilling in the second half of 2013. Additional drilling is expected to take place in late 2013 in another area held by Kosmos, the Cap Boujdour Block in the Aaiun Basin, following a thorough examination of existing 3D seismic data. In October 2012 Kosmos also engaged in a farm-out deal with Pathfinder Hydrocarbon Ventures to exploit the Foum Assaka area with Fast-net Oil & Gas, gaining a 56.25% working interest for a payment to Pathfinder of €736,000 and a pledge to cover Pathfinder’s costs up to €11.9m for the initial exploration process. Kosmos will be the majority stakeholder in this venture compared to Fastnet’s 18.75% interest and ONHYM’s 25%.

October 2012 also saw the announcement of Chariot Oil & Gas’s acquisition of stakes in two Moroccan offshore exploration blocks, taking a 75% ownership and operatorship in partnership with ONHYM for the licences of Loukos and Casablanca/Safi. The shares were purchased from Maghreb Petroleum Exploration in exchange for work commitments and funding obligations in the exploration phase of each licence.

RESOURCE ESTIMATES: New discoveries for the offshore Mazagan permit have stimulated optimism for the kingdom’s potential oil and gas reserves. At the end of September 2012, independent group DeGoyler & MacNaughton announced a total mean potential of 7bn barrels for the area, securing 5.3bn barrels for Pura Vida Energy for its 75% stake in the venture. This figure is more than double previous net estimates of 2.4bn barrels, while the chance of tapping commercially viable deposits has grown from 19% to 34%.

Estimates vary considerably, but other promising areas include Tarfaya Block, which Australian and UK operators Tangiers Petroleum value at between 156m and 5bn barrels of oil. The area of Timahdit is also believed to hold around 20bn tonnes of shale oil with an oil content of 73 litres per tonne.

A NEW PIPELINE: In January 2012 Irish exploration firm Circle Oil announced the completion of a pipeline in the kingdom to transport gas in the Rharb Basin to local industries. The gas wells were discovered during the company’s drilling campaigns during 2008-09 and 2010-11, and seven of the 10 potential producing wells were initially connected to the 55-km pipeline that extended from Sebou to Kenitra with a capacity of 23.5m standard cu feet per day. The pipeline brought up to 3.18 MM cf/d in March and increasing total deliveries through both the old and the new pipeline up to around 5.3 MM cf/d, respectively.

REFINERIES: Partly due to its limited refining capabilities, Morocco imports a substantial amount of petroleum products. Imports of crude oil and diesel fuel rose 3.1% and 3.8%, respectively, from January to July 2011 to the same period in 2012. Though imports of petroleum gas and other hydrocarbons products declined by 3.7% over the same period, prices jumped significantly across the board, with crude oil increasing in price by 8.8% from Dh17.1bn (€1.52bn) to Dh18.6bn (€1.65bn); diesel fuel prices went up by 15.4% from roughly Dh18bn (€1.6bn) to Dh20.8bn (€1.85bn); and the price of petroleum gas and other hydrocarbons products moved up by 16.1% from about Dh9.4bn (€8.36bn) to Dh10.9bn (€9.69bn).

To satisfy a portion of its domestic refining needs, Morocco has one operational refinery in Mohamme-dia that is owned by a subsidiary of the Saudi firm Coral Holding, the Société Anonyme Marocaine de l’ Indus-trie de Raffinage (SAMIR). The Mohammedia refinery has a capacity of 6.5m tonnes per annum (tpa) and underwent a €750m upgrade in 2008, which included the installation of a new hydrocracker for sale locally. Aided by these improvements, the total production for refined products increased 13.8% y-o-y for the period from January to July 2012 up to around 3.97m tonnes from about 3.49m tonnes. Additionally, SAMIR initiated the commercial use of a new crude distillation unit in August 2012, with a processing capacity of approximately 80,000 bpd. The addition of this distillation unit, which has a 4m tpa capacity in addition to a 600,000 tpa unit, will expand SAMIR’s total processing capacity to 200,000 bpd. The Mohammedia refinery was until recently one of two Moroccan refineries, while the other plant was located at Sidi-Kacem in the north of the country, and possessed an annual capacity of 1.5m tpa. However, a decision was taken in 2009 to close the refinery in order to focus SAMIR’s energies into improving the competitiveness of the Mohammedia refinery. Plans also exist to construct another refinery at Jorf Lasfar at an estimated cost of €3.75bn, with a capacity of 10m tpa. The refinery is expected to be in service before 2020. However, Youssef Aherdan, the secretary-general of the Moroccan Petroleum Firms Group (Groupement des Pétroliers Maro-cains, GPM), an industrial lobbying body, emphasises that the majority of the estimated 200,000 bpd processed by the new refinery will not be for domestic needs, rather 75% of expected production is intended for export. “The Moroccan market remains small at 7m tonnes per year; therefore, in my opinion, the discussion of the construction of a second refinery is not justified to alleviate domestic demand,” Aherdan told OBG. Still, refineries’ export potential remains key to such plans. “Considering the problems that exist with the refineries in Europe, Morocco could develop itself as an exporter of refined petroleum goods to meet European demand,” Aherdan said.

DISTRIBUTION & PRICES: Domestic and international companies undertake the distribution of refined petroleum products, with GPM’s 13 members controlling around 80% of the market. Competition is free and open amongst major distributors like the French firms Vitogaz and Total, and Moroccan firms Afriquia, Afriquia Gaz and CMH, and GPM members enjoyed a 1.2% increase in the sale of refined petroleum products between January-July 2011 and January-July 2012 from roughly 4.9m tonnes to about 4.96m tonnes. However, the prices of all refined products aside from lubricants and propane are fixed by the state. Though distributors have pushed for free market reforms, price liberalisation is a subject that remains contentious in light of Morocco’s fuel subsidy programme and the potential for social unrest in the event of the removal of the subsidy scheme. Though there has been discussion of subsidy reform, no concrete measures have been taken thus far. Distributors have also cited the need for amendments to the regulatory text overseeing the sector, as many of the texts date back to the 1950s and therefore need to be updated. Additional challenges include the need to address the problem of contraband fuel, which is particularly prominent in eastern areas; petrol stations currently sell around 125,000 litres per month in this region, whereas the figure is around 250,000 in other areas.

THERMAL ENERGY: At the moment, Morocco remains heavily reliant on thermal production for its electricity needs, and out of the 24,363.6 GWh produced during 2011, 21,315.6 GWh were the product of thermal energy. In light of the increasing demand, two major projects to boost the capacity of thermal energy production have been initiated. Signed in 2011, the first project aims to expand production capabilities at the Jorf Lasfar thermal plant through the construction of two coal-fired 350-MW units, increasing the total capacity of the plant from 1320 MW to 2056 MW, constituting the largest independent power facility of its kind in MENA. South Korea’s Daewoo Engineering & Construction Company and Japan’s Mitsu & Co. were awarded the construction contracts in late 2010. The first 350 MW units are expected to be in service towards the end of 2013, while the second 350 MW units will be completed by the April 28, 2014. The expansion of Jorf Lasfar prompted its owner, Abu Dhabi National Energy Company (Taqa), to take out a multi-currency project finance loan of €1.03bn to fund the initiative.

The second project is at Safi, where two units of 640 MW each are due to be completed by the end of 2016 and during 2017, respectively. Through the initiatives at Safi and Jorf Lasfar, ONEE expects to mobilise an additional 2000 MW of electricity production capacity by 2017, permitting the electricity sector to reconstitute its production capacity in line with national demand. Though Morocco is currently undertaking significant efforts to diversify its energy sources, coal is expected to continue supplying a segment of Morocco’s energy needs by the year 2020, as 27% of the energy mix.

WIND: At an estimated cost of €2.76bn, Morocco’s wind programme seeks to produce 2000 MW by 2020 that will generate 6600 GWh and save approximately 1.5m tonnes of oil, reducing CO emissions by 5.6m tonnes. “There is big potential in developing wind energy in Morocco,” Slim Kchouk, the CEO of Siemens, told OBG. “Regionally, Morocco does not have many countries that can follow in its footsteps given its advantageous location and cost-competitiveness. For instance, in Spain investments have been halted in the wake of the economic crisis. Another advantage is the speed with which projects are being undertaken in the kingdom.” At the moment, 280 MW of wind capacity has been installed, representing 2.9% of total electricity production in 2010, establishing Morocco as the most advanced country in terms of wind power in the region. Another 300 MW plant will be realised at Tarfaya by the end of 2013 or beginning of 2014 by a Moroccan-English consortium of Nareva and International Power. The development of another 400 MW project by private operators will likely be ready in 2014 and is currently awaiting authorisations from the state. “We are within the projected timeline needed to accomplish our goals by 2020,” said Ahmed Baroudi, the general manager at the Energy Investment Society.

Meanwhile, the pre-qualification bid tendering process for the second phase was launched and remained open until April 2012. Results for the pre-qualification bids were announced in November 2012, with six consortiums and enterprises selected to submit tenders to participate in the construction of the 850-MW projects, including the US firm General Electric, Morocco’s Nareva, Mitsui & Co. of Japan, France’s Alstom, and the UAE’s Taqa. Tenders were also launched in April 2012 for the wind park at Koudia Al Baida, a project set to proceed in two phases with the expansion of its current 50 MW capacity to 300 MW. “With a wide diversity of projects on the table, the targeted capacity of Morocco’s wind power industry offers a lot of opportunities for foreign investors,” Taoufik Laabi, director of strategy and planning at ONEE, told OBG.

GREEN FUNDING: The creation of the Energy Investments Company (SIE) has provided national energy projects with much-needed financing, having received Dh1bn from the country’s energy development fund and $1bn from grants emanating from the United Arab Emirates, the Kingdom of Saudi Arabia, and the Has-san II Fund. Utilising its capital, the SIE advises and funds many Moroccan energy projects while also aiding to attract additional funding for its renewables programme from various international sources.

In addition to the EBRD’s pledge to provide a €60m loan, the African Development Bank (AfDB) has also articulated its support through the provision of loans up to €558.5m to encourage private investment in the renewables programme. In June 2012 the AfDB approved a loan of €359m from its own resources and €92m from the Clean Technology Fund, a Climate Investment Funds programme for Morocco’s PERG and the Integrated Wind/Hydro Programme, a project expected to cost €1.59bn until its anticipated completion in 2017 to maximise wind energy production and utilise excess wind energy to store water for the production of hydroelectricity. The kingdom also received funds totalling €103m from the French government in July 2011, while the US has offered a €464,000 technical assistance grant.

NUCLEAR: The development of nuclear power plants is another strategy the government is considering. In January 2010 the state announced plans to construct two 1000-MW nuclear reactors to be in service after 2020, with tenders launched by 2014. Plans also exist to construct a nuclear plant at Sidi Boulbra on the central Atlantic coast in 2016-17 with the assistance of Russian firm Atomstroyexport for feasibility studies. Efforts are under way to establish the infrastructure to give support to a nuclear power programme, including the creation of a safety authority and a radiation protection authority. ONHYM has encouraged exploration efforts for uranium in the areas of Haute Moulouya, Sirwa and Wafagga as an extension of earlier efforts made by geologists before 1982.

OUTLOOK: Given its heavy dependence on imported hydrocarbon products for most of its energy consumption – with all the fiscal burdens that implies – Morocco has worked hard to raise capacity and better buffer its consumers from price volatility, though issues remain regarding the timeline of several projects. “A concerning issue is that many infrastructural projects depend on public financing,” noted Jean-Charles Vanier, the director-general of Schneider Electric. “Public funds take more time to be allocated, which leads to undue delays.” However, overall progress appears to be strong An onus on renewable energies and energy efficiency is being complemented by major investments in thermal energy and offshore drilling, which – in addition to creating myriad opportunities for local and foreign investors – also looks set to reduce costly imports and ensure that supply keeps pace with demand. In short, Morocco’s diversification of energy sources has created a number of promising prospects for growth.