AFRICAN DEVELOPMENT BANK

OUARZAZATE SOLAR COMPLEX PROJECT - PHASE II (NOORo II AND

NOORo III POWER PLANTS)

COUNTRY : MOROCCO

PROJECT APPRAISAL REPORT

ONEC

November 2014

Translated Document

Table of contents

Currency Equivalents ............................................................................................................................... i

Acronyms and Abbreviations .................................................................................................................. ii

1. STRATEGIC THRUST AND RATIONALE ............................................................................. 1

1.1 Project Linkages to Country Strategy and Objectives .................................................................... 1

1.2 Rationale for Bank Involvement ..................................................................................................... 2

1.3 Aid Coordination ............................................................................................................................ 2

2. PROJECT DESCRIPTION ......................................................................................................... 3

2.1 Project Description and Components .............................................................................................. 3

2.2 Technical Solution Adopted and Alternative Solutions Explored .................................................. 3

2.3 Project Type .................................................................................................................................... 4

2.4 Project Cost and Financing Arrangements...................................................................................... 4

2.5 Project Area and Beneficiaries........................................................................................................ 6

2.6 Participatory Approach for Project Identification, Design and Implementation ............................ 6

2.7 Bank Group Experience and Lessons Reflected in Project Design ................................................ 7

2.8 Key Performance Indicators ........................................................................................................... 7

3. PROJECT FEASIBILITY ........................................................................................................... 7

3.1 Economic and Financial Performance ............................................................................................ 7

3.2 Environmental and Social Impact ................................................................................................... 8

4. PROJECT IMPLEMENTATION ............................................................................................. 11

4.1 Implementation Arrangements ..................................................................................................... 11

4.2 Monitoring .................................................................................................................................... 15

4.3 Governance ................................................................................................................................... 16

4.4 Sustainability ................................................................................................................................ 16

4.5 Risk Management ......................................................................................................................... 16

4.6 Knowledge Building ..................................................................................................................... 17

5. LEGAL FRAMEWORK ............................................................................................................ 17

5.1 Legal Instrument .......................................................................................................................... 17

5.2 Conditions Associated with Bank Involvement ............................................................................ 18

5.3 Compliance with Bank Policies .................................................................................................... 19

6. RECOMMENDATION .............................................................................................................. 19

Annex I. Comparative Socio-economic Indicators of Morocco

Annex II. Table of AfDB Portfolio in the Country (May 2014)_Toc402972212

Annex III. Major Related Ongoing Projects Financed by the Bank and Other Development Partners of Morocco

Annex IV. Map of the Project Area

Annex V. Note on the Moroccan Solar Programme and on the Implementation of Phase I

i

Currency Equivalents May 2014

UA 1 = 12.56643 MAD UA 1 = 1.11891 EUR UA 1 = 1.54969 USD EUR 1 = 11.23096 MAD USD 1 = 8.10900 MAD EUR 1 = 1.38500 USD

Fiscal Year 1st January – 31st December

Weights and Measures

1 kilometre (km) = 1,000 m 1 km² = 1,000,000 m² 1 hectare (ha) = 10,000 m² 1 ton = 1,000 kg 1 kilojoule (kJ) = 1,000 Joule (J) 1 kilovolt (kV) = 1,000 Volt (V) 1 kilovolt-Ampere (kVA) = 1,000 Volt – Ampere (VA) 1 kilowatt (kW) = 1,000 Watt 1 megawatt (MW) = 1,000,000 W = 1,000 kW 1 Gigawatt (GW) = 1,000,000 kW = 1,000 MW 1 kilowatt-hour (kWh) = 1,000 Watt-hour = 3,600,000 Joules (J) 1 megawatt-hour (MWh) = 1,000,000 Wh = 1,000 kWh 1 gigawatt-hour (GWh) = 1,000,000 kWh = 1,000 MWh 1 ton of oil equivalent (TOE) = 41,868 Joules = 11,630 kWh 1 million ton of oil equivalent (MTOE) = 1,000,000 TOE

ii

Acronyms and Abbreviations

AFD French Development Agency AfDB African Development Bank AFESD Arab Fund for Economic and Social Development BD Bidding documents CSP Country Strategy Paper CTF Clean Technologies Fund EBRD European Bank for Reconstruction and Development EDF Energy Development Fund EIB European Investment Bank ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan EU European Union HV High Voltage ICB International Competitive Bidding IGF General Inspectorate of Finance JBIC Japan Bank for International Cooperation KFW KreditanstaltfürWiederaufbau KSI Key Sector Indicators LV Low Voltage MAD Moroccan Dirham MASEN Moroccan Agency for Solar Energy MEF Ministry of the Economy and Finance MENA Middle East and NorthAfrica MIC TAF Middle-Income Country Technical Assistance Fund MMEE Ministry of Energy, Mines, Water Resources and the Environment NIF Neighbourhood Investment Facility (of the European Union) OFID OPEC Fund for International Development ONEC Department of Energy, Environment and Climate Change ONEE National Electricity and Water Authority (Morocco) OPsCOM Operations Committee (of the Bank) PPP Public-Private Partnership SIE Energy Investments Corporation SME Small and Medium-sized Enterprises TFP Technical and Financial Partners TOE Ton of Oil Equivalent UA Unit of Account USD United States Dollar WB World Bank

iii

Project Information Sheet

Borrower: Kingdom of Morocco

Executing Organ: Moroccan Agency for Solar Energy (MASEN)

Avenue Al Araar, Immeuble Extension CMR,

3rd Floor, Hay Riad; 10000 Rabat- Morocco

Fax: +212 537 57 14 75; http://www.masen.org.ma/

Financing Plan Sources Amount (EUR

million)

Amount (in UA

million)

Instrument

AfDB 100 89.37 Loan

CTF-ADB 85.92 76.79 Loan

CTF-World Bank 85.92 76.79 Loan

World Bank 216.60 193.58 Loan

EIB 350 312.80 Loan

AFD 50 44.69 Loan

KFW 654 584.50 Loan

NIF/EU 90 80.44 Grant

MASEN and Private Partners 264 235.94 Equity capital

Total 1 896.44 1 694.90

Comprising project costs (including

infrastructure and contingencies)

1 752.04 1 565.85

and operational support1 144.40 129.05

Key Financial Information of the AfDB

AfDB Loan CTF Loan

Loan currency Euro (EUR) United States dollar (USD)

Interest Type Floating base rate with a free fixing

option

Not applicable

Base rate (floating) 6-month EURIBOR Not applicable

Contractual margin 0.60% (60 base points (bp)) Not applicable

Funding margin

The Bank’s cost of borrowing relative

to six-month EURIBOR. This margin

is reviewed every 1st January and 1st

July

Not applicable

Service commission Not applicable 0.25% per year of the disbursed loan

amount not yet reimbursed

Administrative costs Not applicable 0.1% of the undisbursed amount taking

effect 120 days after signature date,

payable every six months

Other Fees None None

Maturity 20 years 40 years

Grace period 5 years 10 years

Timeframe – Main Milestones (expected)

Activities Date

Approval of concept note April 2014

Negotiation of loan agreements October 2014

Board presentation December 2014

Effectiveness December 2014

Last disbursement 31 December 2019

Project completion June 2018

Last reimbursement (AfDB loan) December 2034

Last reimbursement of CTF loan December 2054

1 This amount is the World Bank's financing support contribution to the operation of the NOORo II and III power plants.

iv

Project Summary

General Overview of Project: This project is Phase II of the Ouarzazate Solar Complex,

scheduled to be fully commissioned in 2017 to satisfy national needs. Phase I is underway and

comprises the construction of all common infrastructure and the first 160 MW solar power plant

(NOORo I) that will be operational at the end of 2015. The objective in Phase II is to achieve a

capacity of approximately 500 MW by developing two power plants (NOORo II and NOORo

III) under a public-private partnership (PPP), as was done for NOORo I. Thanks to the project,

the emission of approximately 522,000 tons of CO2 will be avoided, thus helping to mitigate

the effects of climate change. The Ouarzazate Complex is part of the Moroccan Solar

Programme to develop a capacity of 2000 MW by 2020. The project will help to ensure regular

energy supply for the population (over 98% of which have access to electricity) and productive

sectors. It will be implemented by MASEN and its estimated total cost is EUR 1,752 million.

Apart from the Bank and CTF, the other partners are AFD, World Bank, EIB, KFW and EU.

Needs Assessment: Morocco has limited fossil fuel resources and depends heavily on external

markets (95%) to satisfy its energy needs. The priority of the new 2010-2030 energy strategy

is to achieve regular energy supply within the country. This strategy seeks to diversify energy

sources by developing renewable energies with a view to raising their share in the electricity

mix to 42% in 2020 (13% in 2013). Over the 2002-2012 period, electricity needs grew by an

average of 7.2% annually, driven by economic growth, population growth as well as a rise in

living standards and the Global Rural Electrification Programme (PERG). In 2013, electricity

demand reached 32,000 GWh and was satisfied with energy generated from fossil fuels (70%),

hydro power (9%), wind energy (4%) and imports (17%). Demand for primary energy is

projected to triple and electricity demand to quadruple between 2010 and 2030 when it is

expected to reach 96,000 GWh, thus requiring a production capacity of 12,000 MW compared

to 6,892 MW in 2013.

Bank’s Value-added: The Bank supported Morocco by raising concessional climate resources

for the project under the CTF Investment Plan for concentrated solar thermal power technology

in the MENA region. The workshop to update this plan, held in April 2014 in Morocco, was

co-organized with the Bank. The Bank also helped to prepare the documents which enabled the

CTF Trust Fund Committee in June 2014 to: (i) approve the revised CTF Investment Plan for

the MENA region; and (ii) grant USD 238 million for this project. The project will strengthen

the Bank's role within Morocco's energy sector and especially in renewable energies, thereby

contributing to the green growth of the Moroccan economy.

Knowledge Management: The project is one of the Bank's innovative operations in the energy

sector, given the focus area, the technology used (high-capacity concentrated solar thermal

power plants with a capacity to store thermal energy for more than five hours) and the financial

arrangements made (electrical power generation through a PPP supported by several donors).

The knowledge to be capitalized through the project2 will enable Morocco and the other

Regional Member Countries of the Bank to better design and leverage opportunities for

replication. Data from the solar plants and the statistical reports that will be generated through

plant operation will provide specialized institutes and centres with reliable data for research and

development. Mission supervision, project progress, financial audit and completion reports will

provide information on the project.

2 The project introduces thermodynamic solar power technology and mechanisms that can store energy for over 5 (five) hours.

v

Results-based Logical Framework

Country and project name: Kingdom of Morocco – Ouarzazate Solar Complex – Phase II (NOORo II & III power plants) Project objective: Reduce Morocco's energy dependence on external markets by developing renewable energies.

RESULTS CHAIN PERFORMANCE INDICATORS

Means of

Verification RISKS AND MITIGATIVE MEASURES

Indicator (including ISCs)

Baseline

Situation Targets

IMP

AC

T

Energy dependence reduced

Increased share of renewable energies

in electricity generation

- volume of fuel imports avoided thanks to the

Moroccan Solar Programme

- % of renewable energies in total electricity supply

-

13% (2013)

2.5 million TOE

from 2020

42%(2020)

Reports: MMEE

MASEN

ONEE

OU

TC

OM

ES

Green house gas emissions avoided

More electricity generated from renewable energy sources

Effective industrial development in the solar energy sector

Jobs created

- Volume of green house gas emissions avoided

annually - Share of national electricity generated from

renewable sources - Industrial integration rate of the project - Jobs created during operation of the power plants

- Jobs created during construction of the power plants

-

4 345 GWh

(2013)

-

-

-

522 T/CO2

(2018)

5 501 GWh

(2019)

35%(2018)

200

1600

Reports:

MMEE

MEF MASEN

ONEE

Financial risk related to the difficulties that MASEN could have in financing

the gap between the purchase price per kWh from solar power station project

companies and the selling price to ONEE.

Risk Mitigation: The professed and constantly renewed commitment of the State to support the solar programme, including through sector reforms,

subsidies and the participation of certain donors in financing the gap. In this

regard, a specific agreement between the State and MASEN was signed for each power plant in order to ensure the financial balance of the project.

OU

TP

UT

S

Increased national capacity to

generate electricity from solar sources

Concentrated solar thermal electricity

power plants constructed

Specific agreements signed

Project companies created

- Total installed capacity of solar power stations

- 200 MW solar power plant with reflectors (NOORo

II)

- 150 MW tower solar power plant (NOORo III)

- Specific agreement between the State and MASEN -

NOORoII) - Specific agreement between the State and MASEN -

NOORoIII)

- Project company - for NOORo II solar power plant

- Project company - for NOORo III solar power plant

22 MW

(2013)

- - - - - -

372 MW (2018)

01 (2018)

01 (2018)

01 (2015)

01 (2015)

01 (2015)

01 (2015)

Reports:

Appraisal report Progress report

Status report Supervision report Completion

report

Risk that MASEN may be unable to successfully monitor the power plants

given the relatively high number of plants it will have to supervise between 2015 and 2016. Mitigation: The quality of MASEN staff which has been

enhanced and support from its technical advisers. Risk that private developers may not be able to honour their commitments

during construction and operation of the power stations. Mitigation: Selection of developers through international competitive bidding which takes experience

and financial capacity into account.

KE

Y A

CT

IVIT

IES

Components Resources (EUR 1,896.44 million) Expenditure (EUR 1,896.44 million)

1. Energy Infrastructure: NOORo II solar power plants (parabolic trough) and NOORo III (tower), including site development, solar farms and towers, electric power plants, evacuation of electricity, thermal energy storage facilities, heat energy transfer systems,

cooling systems, environmental and social measures, technical assistance, engineering and development, works control and

supervision, project administration and management, audit of project financial statements, monitoring and evaluation. 2. Operational Support: Coverage of the differential between the production cost of 1 kWh of solar energy and its selling price

to ONEE.

AFD loan

AfDB loan

EIB loan

WB loan

CTF Loan KFW loan

NIF/EU grant

MASEN and

private concerns

EUR 50 million EUR 100 million EUR 350 million

EUR 216.60 million

EUR 171.84 million

EUR 654 million

EUR 90 million

EUR 264 million

Infrastructure: EUR 1,752.04 million Operational Support: EUR 144.40 million

vi

Project Implementation Schedule

1

REPORT AND RECOMMENDATIONS OF BANK GROUP MANAGEMENT TO THE

BOARD OF DIRECTORS CONCERNING A PROPOSAL TO AWARD AN AfDB LOAN

AND A CTF LOAN TO MASEN (MOROCCO) TO FINANCE THE OUARZAZATE

SOLAR COMPLEX PROJECT - PHASE II (NOORo II AND NOORo III)

Management submits this report and recommendations on proposals to award (i) an AfDB loan

of EUR 100 million; and (ii) a CTF loan of USD 119 million to MASEN, to finance the

Ouarzazate Solar Complex Project (NOOR Ouarzazate) -Phase II (NOORo II and NOORo III

power plants).

1. STRATEGIC THRUST AND RATIONALE

1.1. Project Linkages to Country Strategy and Objectives

1.1.1. For several years now, Morocco has embarked on a vast reform programme to lay the

foundation for rapid and balanced growth that can revive economic activity and reduce

unemployment. The Economic and Social Development Programme (2012-2016) is based on

broad strategic reforms and sector policies pertaining to major infrastructure projects. It seeks

to address the competitiveness challenge and preserve Morocco's macroeconomic viability in

order to generate sustained and inclusive growth that can sustainably improve the living

conditions of the people. Programme guidelines in the electricity sub-sector are essentially

geared towards diversifying production sources and ensuring respect of the environment.

1.1.2. Morocco has a limited fossil fuel resources and depends heavily on external markets

(over 95%) to satisfy its energy needs. Energy supply is a priority of the new national energy

strategy adopted in March 2009. To achieve this goal, there is need to diversify production

sources by the renewable energy potential so as to raise its share in electricity production to

42% in 2020. The scheduled actions include the development of 4,000 MW through two

integrated solar energy (2,000 MW) and wind energy (2,000 MW) programmes which were

officially launched in November 2009 in Ouarzazate and in June 2010 in Tangier, respectively.

In implementing these two programmes, the Government also expects positive externalities

such as the creation of a new job-creating industrial sector for the manufacture of solar

equipment. This accounts for its commitment and the subsidies granted. To promote the

development of new renewable energies, a new legislative framework was defined by Law No.

13-09 promulgated in February 2010, which recognizes the right of private developers to

generate electricity from renewable sources for a consumer or group of consumers connected

to the electricity power grid. Besides, Morocco intends to promote regional energy integration

by exporting renewable energy to Europe in the long term.

1.1.3. The first power plant (NOORo I) of the NOOR solar programme is under construction

on the Ouarzazate site and should be operational at the end of 2015. The project is Phase II of

development of the Ouarzazate complex which is also part of the national plan for the

procurement of electrical power generation equipment (2013-2017) that will help to satisfy

national electricity demand which grew by an annual average of 7.2% over the 2002-2012

decade. Demand for primary energy is projected to triple while demand for electricity should

quadruple by 2030. The project is central to the Bank's CSP (2012-2016) for Morocco whose

Pillar II focuses on supporting the development of green infrastructure. The project will also

help to attain the targets of CSP Pillar I which focuses on social inclusion. Indeed,

implementation of the project will increase electricity supply to all Moroccan households,

including those in rural areas where 98% of households have access to electricity. Lastly, the

project is expected to generate a new job-creating industrial sector for the manufacture of solar

power plant equipment. During construction and the 25 years of operation of the project's power

plants, several hundreds of jobs will be created.

2

1.2. Rationale for Bank Involvement

1.2.1. Several reasons justify the Bank's involvement in this operation, the first one being the

project's alignment with the Bank's CSP (2012-2016) priorities for Morocco. The project will

make possible the construction of two solar electricity power plants which will generate 1,100

GWh/year on average, or close to 4% of Morocco's electricity consumption in 2013. Thanks to

the project, the emission of 522,000 tons of CO2 per year (compared to fossil fuel-fired electrical

power plants) will be avoided. The second reason is the project's consistency with the Bank's

2013-2022 Ten-Year Strategy. The project is aligned with the operational pillar of the Ten-year

Strategy focused on developing sustainable infrastructure capable of improving energy security.

The third reason is the project's consistency with the Bank's Energy Sector Policy which seeks

to support Regional Member Countries in their efforts to offer modern and eco-friendly energy

services to their citizens and productive sectors.

1.2.2. The Bank's intervention is also justified by the fact that the project is Phase II of the

Ouarzazate solar complex whose first phase is being implemented with the financial support of

the Bank and other donors, and it is these same financial partners who have been solicited once

again. The Bank's involvement will strengthen its position as one of the leading development

partners in Morocco which is, in turn, the Bank's leading client in terms of portfolio volume.

Furthermore, the Bank, jointly with the World Bank, has already mobilized concessional

resources amounting to USD 238 million from the CTF for this project. Consequently, it has

the responsibility, as the executing organ of the CTF, to ensure the effective mobilization of

50%3 of this allocation which was approved on 27 June 2014 by the CTF Trust Fund

Committee; this will further enhance the Bank's already dominant role in the global fight against

the effects of climate change. Besides, there is complementarity between the project and certain

ongoing Bank-financed operations in Morocco's energy sector. A clear case is the electricity

transmission and distribution network development project under which are being constructed

two of the three electric lines which would evacuate and transmit all the electricity generated

by the Ouarzazate solar complex.

1.3. Aid Coordination

1.3.1. The technical and financial partners (TFPs) in Morocco consult each other regularly

through thematic meetings and sector work groups on water and sanitation, energy,

environment, education, health and migration. Regular consultations among TFPs help to

guarantee the synergy and complementarity of the various operations. Since it was opened in

2006, the AfDB country office in Morocco has played a key role in consolidating dialogue with

the Government and other development partners. Under the current project, 5 (five) TFP

consultative meetings were organized between December 2012 and May 2014, which enabled

the TFPs to coordinate and harmonize their actions.

1.3.2. In an attempt to enhance aid coordination among TFPs, the Government established

the Geographical Information System (GIS) used to monitor various operations by region,

sector and amount in real time. The GIS is managed by a steering committee composed of the

Ministry of the Economy and Finance and TFP focal points. Morocco's five leading financial

partners, apart from the Bank, are France, World Bank, European Union and the European

Investment Bank (EIB) with respective commitment levels ranging from EUR 1.9 to 2.2 billion.

Total TFP commitments are almost MAD 140 billion, or over EUR 12 billion, of which

approximately 10% is allocated to electricity projects.

3 The Bank and the World Bank will each mobilize USD 119 million from the CTF to finance the project.

3

2. PROJECT DESCRIPTION

2.1. Project Description and Components

2.1.1. The project seeks to boost Morocco's economic and social development, by using eco-

friendly approaches to build national capacity to generate electricity from clean sources. It

focuses on constructing two concentrated solar thermal power stations with a total capacity of

approximately 350 MW and a cumulative average output of over 1,100 GWh/year. These are a

200 MW parabolic trough power plant (NOORo II) and a 150 MW solar tower power plant

(NOORo III). Each power plant will have a thermal energy storage mechanism that can function

at full capacity for at least 5 (five) hours so as to enhance injection of the output into the

electricity mix especially at peak hours which in Morocco range from 5 p.m. to 10 p.m. in

winter and from 6 p.m. to 11 p.m. in summer.

2.1.2. The NOOR Ouarzazate site is one of the first sites identified for the Moroccan Solar

Programme with a minimum of 2000 MW (NOOR) which is integrated into the CTF Investment

Plan for the MENA region. This plan is aimed at developing concentrated solar thermal power

plants with a total cumulative capacity of 1 gigawatt. Given its solar radiation level of over

2,400 kWh/m2/year (6.6 kWh/m2/day), the Ouarzazate site is ideal for concentrated solar

thermal power plants. The first phase of the complex is under construction and comprises

construction of a the first 160 MW concentrated parabolic trough solar thermal power plant

(NOORoI) and common infrastructure (access roads, water and electricity supply,

telecommunications, security). The current phase comprises a main energy infrastructure

component (NOORo II and NOORo III power plants) as detailed in the table below:

Table 2.1 : Project Components

No. Name of

Component

Cost (in EUR million) Description of Components

NOORo

II

NOORo

III

Total

A Energy

Infrastructure

1 009 743.04 1 752.04

NOORo II parabolic trough power

plant with a capacity of approximately 200 MW,

a five-hour thermal storage mechanism and an

output of 600 GWh/year.

NOORo III tower power plant with a

capacity of approximately 150 MW, a five-hour

thermal storage mechanism and an output of 500

GWh/year.

Works control and supervision. Total 1 009 743.04 1 752.04

2.1.3. Furthermore, as was the case in Phase I, the current phase comprises an "Operational

Support" component, in addition to energy infrastructure construction. This component was

designed in order to raise resources from financial partners to cover part of the gap between the

price per kWh generated and the selling price to ONEE, during operation of the NOORo II and

NOORo III power plants.

2.2. Technical Solution Adopted and Alternative Solutions Explored

2.2.1. Given the level of mastery of the two variants of concentrated solar thermal power

plants currently developed worldwide (parabolic trough variant and solar tower variant),

MASEN opted to build the NOORo III power plant using solar tower technology to supplement

the NOORo I and NOORo II power plants which will use parabolic trough technology.

However, MASEN conducted comparative studies on these two variants with regard to the

cooling systems that can be used: dry cooling (air) or wet cooling (water). After conclusion of

these studies, it was decided that dry cooling will be used for two of the project's power plants

(NOORo II and NOORo III), rather than wet cooling used for NOORo I. The dry cooling system

4

will make it possible to save 3.6 million m3 of water annually, which is a substantial quantity

in an arid region like Ouarzazate.

2.2.2. The alternative technological option considered by MASEN for the NOORo II and

NOORo III power plants is photovoltaic technology which was not adopted at this stage mainly

because of its inability to satisfy demand at peak hours.

2.3. Project Type

The project is an autonomous investment operation executed under an electricity

production PPP that will be supported by the Bank, CTF and other donors (AFD, EIB, World

Bank, KFW and EU/NIF). The financing instruments proposed comprise an AfDB loan and a

CTF-AfDB loan to be awarded to MASEN and guaranteed by the State of Morocco. MASEN

is a State-owned limited liability company established in March 2010 to manage the Moroccan

Solar Programme (NOOR Programme). Its equity capital is shared equally between the State,

the Hassan II Fund for Economic and Social Development, ONEE and SIE. Its social goal, as

defined in Law No. 57-09 of 11 February 2009 to establish the company, is to develop a

Programme of integrated projects for the generation of electricity from solar energy, with the

aim of achieving a total capacity of at least 2000 MW by 2020. To cover part of the investment

expenditure for the project's power plants, the funds to be loaned to MASEN by financial

partners will be retroceded to two project companies that will be created: one for NOORo II

and the other for NOORo III. Each project company will be owned by a private consortium to

be selected through a bidding process (75%) and by MASEN (25%). MASEN will be the sole

purchaser of the electricity generated by the power plants. It will sign electricity purchase and

supply contracts with each of the project companies and two resale contracts with ONEE.

2.4. Project Cost and Financing Arrangements

2.4.1. The total project cost net of taxes and customs duties is estimated at EUR 1,752.04

million, comprising EUR 1,138.83 million in foreign exchange (65%) and EUR 613.21 million

in local currency (35%)4. Its distribution per power plant is EUR 1,009 million for NOORo II

and EUR 743.04 million for NOORo III. This cost includes an overall provision of about 9%

(of which 4.5% for operational contingencies and 4.5% for price escalation). The detailed costs

are presented in the tables below. The conversion rates used are indicated on page (i).

Table 2.3: Cost Estimates by Component (in EUR million)

Component Cost in F.E

Costs in local

currency

Total cost % foreign

exchange

Energy Infrastructure 1 030.90 555.10 1 586.00 65%

Total baseline cost 1 030.0 555.10 1 586.00 65%

Provision for physical

contingencies

53.96 29.06 83.02 65%

Provision for price escalation 53.96 29.06 83.02 65%

Total project cost 1 138.82 613.22 1 752.04 65%

2.4.2. Apart from the Bank and CTF, the project will be co-financed by 5 (five) other donors,

private developers and MASEN.CTF resources will be mobilized by the Bank and the World

Bank. Bank financing will comprise an AfDB loan of EUR 100 million and a CTF loan of USD

119 million.

4 This distribution is done based on Bank estimates, taking into consideration the industrial integration target.

5

Table 2.4: Project Financing Sources (in EUR million)

Financing Sources F.E. Local Currency Total % total

AfDB loan 65.00 35.00 100.00 5%

ADB-CTF 55.85 30.07 85.92 5%

Bank Group Sub-Total 120.85 65.07 185.92 10%

AFD 32.50 17.50 50.00 3%

EIB 227.50 122.50 350 .00 18%

World Bank-Loan5 46.93 169.67 216.60 11%

World Bank-CTF 55.85 30.07 85.92 5%

KFW 425.10 228.90 654.00 34%

EU-NIF6 58.50 31.50 90.00 5%

MASEN and private developers 171.60 92.40 264.00 14%

Sub-total for other co-financiers 1 017.98 692.54 1 710.52 90%

Total financing 1 138.82 757.62 1 896.44 100%

Comprising project cost (energy

infrastructure: NOORo II and

NOORo III)

1 138.82 613.22 1 752.04 65%

And operational Support - 144.40 144.40 -

2.4.3 Borrowings from the various donors will be in foreign exchange. The foreign

exchange/local currency distribution is indicative based on a rate of 35% to reflect the fact that

part of the project costs will executed in local currency. All donor and CTF financing will be

allocated to energy infrastructure (NOORo II and NOORo III power plants), except part of

World Bank financing (EUR 114.4 million) that will be used to cover part of the g between the

production cost per kWh and the selling price (operational support). 2.4.4. Project cost by expenditure category is presented as follows:

Table 2.5: Cost by Expenditure Category

Expenditure

Categories

In EUR million

Cost in F.E Costs in local currency Total cost % Foreign

exchange

Works 1 138.82 613.22 1 752.04 65%

Total project cost 1 138.82 613.22 1 752.04 65%

2.4.5. The provisional project expenditure schedule by component is as follows: Table 2.6: Expenditure Schedule by Component (in EUR million) Component 2015 2016 2017 2018 2019 Total Energy Infrastructure 350 525 525 177 175.04 1,752.04

Total Project Cost 350 525 525 177 175.04 1,752.04

2.4.6. Bank financing will be allocated to investment spending on NOORo I and III. The

breakdown below is indicative and will be final once the investment budgets have been

determined at the end of the developer selection process.

Table 2.7: Bank Group Financing (in EUR million)

Financing Expenditure

category

Power

plants

F.E. Local

currency

Total % Foreign

exchange

AfDB Works NOORo II 46.80 25.20 72.00 65%

NOORo III 18.20 9.80 28.00 65%

AfDB Total - - 65.00 35.00 100.00 65%

CTF-AfDB

Works NOORo II 32.50 17.50 50.00 65%

NOORo III 23.35 12.57 35.92 65%

Total CTF/AfDB - - 55.85 30.07 85.92 65%

5 World Bank loan intended for operational support (price differential of kWh) 6 Subsidy (Grant) from the Neighbourhood Investment Facility (NIF) of the European Union.

6

2.5. Project Area and Beneficiaries

2.5.1. The project will be implemented on the Ouarzazate solar complex (3000 ha) whose

land, selected on the TamzaghtenIzerki site belongs to the Ait Ougrour Tondout ethnic

community (Ghessate rural council area). This site is situated 10 km from Ouarzazate town

along National Highway No. 10 which leads to Errachidia. The project beneficiaries will be the

Moroccan population, Moroccan businesses and all productive sectors (industries, transport,

agriculture, etc...) which benefit not only from better electricity supply but also from cleaner

electricity. Locally, the project will generate socio-economic fallouts for Ouarzazate province

which has a population of approximately 583,000 inhabitants and a poverty rate of almost 23%.7

The region's human development index is one of the lowest in the country (0.371) and more

than two-thirds of the unemployed are youths (particularly graduates) under the age of 35

years.8 Problems of inclusion have a significant gender aspect. In the project area (rural), there

is still a gender deficit in formal education, access to employment, land tenure and decision-

making. At the national level, the project is expected to trigger the development of an industrial

sub-sector devoted to the manufacture of solar power plant equipment. To that end, future

developers of the NOORo II and NOORo III power plants are encouraged to include proposed

measures for local industrial integration in their bids. 2.5.2. It is projected that 1,600 direct jobs will be created on average per year during

construction works on the NOORo II and NOORo III power plants. Unskilled labour will

essentially be recruited locally. Besides, it is stated in the bidding documents that future

developers should strive to promote local employment as was done for the NOORo I power

plant which, in twelve months of construction works, generated over 500 jobs on average per

month, of which 45% went to locals from Ouarzazate region. During their 25 years of operation,

the NOORo II and NOORoIII power stations will create over 200 direct jobs and several

hundreds of indirect jobs. A special effort will be made to enhance women's integration into the

socio-economic life of the region and thus generate jobs for them.

2.6. Participatory Approach for Project Identification, Design and Implementation

All stakeholders of the Ouarzazate solar complex (community representatives,

associations, socio-economic stakeholders, administrative authorities, elected officials) were

consulted during the environmental and social impact assessment conducted in July 2011 and

updated in June 2014 and during the socio-economic impact assessment conducted in

September 2011. Several public consultations were organized with these stakeholders to: (i)

inform them of the project impact; (ii) answer their questions; and (iii) record their views,

objections, worries and concerns which include employment for local labour, training for local

youth, local development actions and the need for regular communication between MASEN

and local stakeholders. These concerns were taken into account and provision was made for

mitigating and even preventive measures. A social action plan was prepared in May 2013 and

is partly the result of these assessments and public consultations. With the commencement of

Phase I, the local population became aware of the usefulness and positive economic fallout of

the project in Ouarzazate region.

7 This rate is exceeds the national average of 14% and means that over 20% of the population in Ouarzazate lives on less than MAD 10 per

day. In Ghessat municipality, where the power plant will be located, the poverty rate reported exceeds 36% (2007 figures). 8 Union Régionale de la CGEM Souss Massa Draa, Monographie De La Région Du Souss Massa Draa, 2010.

7

2.7. Bank Group Experience and Lessons Reflected in Project Design

2.7.1. The last review of the Bank's portfolio in Morocco conducted in June 2014 revealed

satisfactory performance with a score of 2.56 on 3. This performance has remained stable since

2012. The portfolio is new with an average age of 3 years and contains no at-risk project.

However, the main challenges noted in the implementation of investment projects in Morocco

relate to: (i) protracted procurement timeframes; (ii) poor quality at entry of certain operations;

(iii) late commencement of certain operations; and (iv) late submission of audit reports. 2.7.2. The main lessons learnt from the implementation of similar projects in Morocco or

other countries were taken into account. All (technical, financial, environmental and social)

studies needed for the project have been conducted and are available. Considering that the use

of Advanced Procurement Action (APA) led to the rapid commencement of Phase I works

(NOORo I power plant), the same arrangement was adopted for the current phase. Besides, the

constraint encountered in Phase I, pertaining to a ceiling of USD 40 million for each withdrawal

when disbursing CTF funds, was lifted to give priority to the disbursement of such funds. The

priority disbursement of CTF funds (more concessional) will enable the project to have the best

financial impact possible. As regards financial audit, the Bank’s terms of reference (TORs),

which were harmonized with those of other donors in Phase I, will be used in the current phase.

Besides, community opposition to land procurement, which usually causes delays or a change

of site for the construction of project infrastructure will not be encountered. Indeed, project

infrastructure (NOORo II and NOORo III power plants) will be constructed on the 3000 ha site

procured by MASEN between 2010 and 2011. Lastly, difficulties encountered during

commencement of the disbursement of Bank resources to the Integrated Wind Energy, Hydro

Power and Rural Electrification Programme (approved in 2012), related to the initial structuring

of this operation, were taken into account. Hence, it has been planned that the two sub-

components of the project, namely the NOORo II and NOORo III power stations will each

receive an AfDB loan and a CTF loan to ensure their autonomous implementation. 2.8. Key Performance Indicators

The output indicators of the project are: (i) the two project companies that will be

created; (ii) the two solar power plants of 200 MW (NOORo II) and 150 MW (NOORo III) to

be constructed; and (iii) the national installed capacity to generate electricity from solar energy

which will be increased. The impact indicators are: (i) the number of jobs created during the

construction phase and operation of the power plants (including the proportion of jobs created

for women); (ii) the increased share of national electricity generated from solar sources; (iii)

the rate of local industrial integration achieved in the development of solar power plants; and

(iii) the prevention of green house gas emissions thanks to the project. The data on these

indicators will be provided in the monthly progress reports of the power stations which will be

prepared by the project companies and/or Technical Adviser(s) or LTA (Lender Technical

Advisor) to be recruited by MASEN for works supervision and control and in the half-yearly

project reports that MASEN will submit to donors including the Bank. 3. PROJECT FEASIBILITY

3.1. Economic and Financial Performance

3.1.1. The economic and financial model of the NOORo II and NOORo III power plants is

based on the one used for NOORo I (Phase I). State commitment to ensure the financial balance

of the Moroccan Solar Programme, which includes the current project, is crucial to the financial

viability of the operation. This commitment which took concrete form in 2010 with the

signature of a trapartite agreement between the State, MASEN and ONEE led to the launching

8

of works on the NOORo I power plant. Under that agreement, the State undertook to finance

the gap between the kWh cost price paid by MASEN to the project companies and the selling

price which MASEN charges to ONEE. A special agreement on State financing of the gap to

be generated by NOORo I was signed on 13 July 2012 between the State and MASEN.

Furthermore, 2 (two) special agreements (one per plant) are scheduled to be signed between the

State and MASEN to cover the gaps to be generated by the NOORo II and NOORo III power

plants whose technologies, despite the concessional financing, are relatively expensive

compared to electricity generation from fossil fuels or hydro power. 3.1.2. Financial Performance: The project's financial rate of return (FRR) was calculated

taking into account the investment costs net of customs duties and taxes, as well as the

operational and maintenance costs (see details in Technical Annex B.7). Project income will

come from the sale of energy by MASEN to ONEE, being on average USD 0.12/kWh (HV-

VHV electricity rate). Indeed, the project will generate returns on investment based on a kWh

rate that guarantees minimum profit for the equity capital of the project companies. The details

of this analysis are presented in Technical Annex B7. 3.1.3. Economic Performance: Morocco is the biggest importer of primary fossil fuels in

the MENA region. Over 95% of its primary energy used for electricity generation is imported.

In addition to the effects of Phase I (NOORo I), the project will help to enhance the positive

impact of solar energy on Morocco's trade balance. Hence, the country will be able to generate

foreign exchange earnings through the expected reduction of fossil fuel imports (coal, fuel oil

and gas). The other externalities of the project are: (i) benefits from the reduction of greenhouse

gas emissions; (ii) more regular electricity supply to productive sectors which will boost the

competitiveness of national businesses; and (iii) promotion of a new industrial sub-sector

devoted to the manufacture of solar equipment and job creation. 3.1.4. Sensitivity: The sensitivity of the project is based on that of CUME whose sensitivity

was analysed in terms of investment cost variation and an increase in operational and

maintenance costs (for a given level of financing cost). It shows that CUME is highly sensitive

to investment cost variations and less sensitive to operational and maintenance cost variations.

By varying the financing cost, the analysis reveals high additionality stemming from

concessional financing provided by donors and climate funds (CTF). The sensitivity test results

are presented in Technical Annex B7. 3.2. Environmental and Social Impact 3.2.1. Environment: The project is classified under Category I in accordance with the Bank's

environmental and social procedures. An environmental and social impact assessment of the

Ouarzazate complex (in its entirety) was conducted in July 2011. A first summary of this

assessment was posted on the Bank's website on 28 October 2011 for the project that

corresponds to Phase I of the complex. The study was updated in June 2014 to include specific

data on the NOORo II and NOORo III power plants in this project. A new public consultation

of the communities and of local and regional stakeholders was organized on 9 June 2014 in

Ouarzazate to inform them of Phase II and record their expectations and concerns. The

summary of the updated assessment was published on the Bank's website on 5 August 2014.

The complete updated study was published by MASEN on its website on 26 June 2014. 3.2.2. As was the case for the NOORo I power plant, once the project companies for the

NOORo II and NOORo III have been established and the detailed design of each plant is known,

a specific detailed environmental and social impact assessment will be conducted for each plant

by its project company. An environmental and social management plan (ESMP) will be

prepared and implemented by each project company. The company has to organize a public

9

consultation on the environmental and social impacts of its power plant. The specific

assessments of the power stations will be conducted in accordance with the demands of

international financial institutions and with Moroccan regulations and will be transmitted to the

Bank for opinion. MASEN will have to ensure that the measures recommended in the various

ESMPs are effectively implemented. Monitoring will be conducted within MASEN by

Environmental and Social Management Teams of the projects which comprise four officers

respectively in charge of the sustainable development of energy projects; local development;

quality, hygiene, health and safety (QHHS) and site-based local development. The officer in

charge of the sustainable development of energy projects will coordinate ESMP monitoring and

relations with donors. If need be, the team could be reinforced with an external structure

specialized in the domain. 3.2.3. The project is likely to have an impact on soil sealing, surface water, and the natural

environment. The potential risk of fire will remain because of the use of products such as

eutectic salts and synthetic oils. With the dry cooling system that will be used for Phase II,

water consumption at the NOORo II and NOORo III power plants will have a very low impact

on water resources in the area, especially on the Mansour Eddahbi retaining reservoir (situated

about ten kilometres away) from which the Ouarzazate solar complex will be supplied with raw

water. The annual water consumption of the two project plants is estimated at 355 000 m3

(comprising 230,000 m3 for NOORo II and 125,000 m3 for NOORo III), or 0.1% of the annual

regular volume of the retaining reservoir (250 million m3). The solar tower at the NOORo III

power plant will have a great impact on the landscape because it will be visible from Ouarzazate

town. It could also have a negative impact on the birds of the area as they search for food, on

account of the stifling heat it will generate and the blinding light from the heliostatic mirrors.

Other negative impacts related to noise pollution during the works should be expected. Soil

compaction and rehabilitation of the site at the end of plant operation will have a moderate

impact. The specific ESIAs and ESMPs to be conducted at the plants will further take into

account their particularities and help to mitigate possible negative impacts identified at

appraisal. 3.2.4. With regard to land tenure, the Ouarzazate solar complex will be constructed on 3000

ha of community land which belonged to the Ait Ougrour Toundout ethnic group. It ensues

from the initial procurement of 2500 ha of land in 2010 and a second procurement of three 500-

hectare plots in 2011. The NOORo II and NOORo III plants will have respective right-of-ways

of 680 ha and 750 ha compared to 450 ha for NOORo I which is under construction. Purchase

arrangements were conducted according to national procedures and are described in the Land

Procurement Plans (PAT) prepared by MASEN. The Ait Ougrour Toundout community and its

supervisory council were consulted and they gave their approval for the transfer of the two

parcels of land in accordance with the applicable statutory instruments governing land transfer

and at prices determined by expert commissions. The consultative procedures used to inform

local communities about the project and the land transfer procedure are described in the PAT.

The project does not require any destruction of habitat or economic activities. The site has very

little pastoral activity (penning), is unsuitable for farming and is of little tourism interest. 3.2.5. Climate Change: The project will help to mitigate the effects of climate change since

its execution will generate carbon-free electricity. It will help to reduce greenhouse gas

emissions in the Moroccan electricity sub-sector. This sub-sector is highly dominated by fossil

fuel-fired power plants which accounted for 70% of the total installed capacity in 2013. Within

the same year, net national demand for electricity was slightly over 32,000 GWh and was

satisfied with electricity generated respectively from coal (38%), fuel oil (14%), natural gas

(18%), hydro power (9%), wind (4%) and imports (17%). Hence, the share of renewable energy

in meeting electricity demand is only 13% of the electricity mix. When compared to power

plants that run on fuel oil, the NOORo II and NOORo III power plants will prevent the emission

10

of green house gases estimated at 522,000 tons of CO2 per year (comprising 300,000 tons of

CO2 for NOORo II and 222,000 tons of CO2 for NOORo III). Over 13 million tons of CO2

emissions will be avoided during the 25 years of operation of both power stations. Ultimately,

the Moroccan Solar Programme (NOOR) will generate fuel savings amounting to one million

tons of oil equivalent and prevent the emission of 3.7 million tons of CO2. 3.2.6. Gender: The project will strive to reduce gender disparities in the project area

(Ouarzazate) where women and girls are disproportionately under-employed and constitute the

largest group of unemployed persons in the region. The project seeks to reduce these disparities

by promoting the integration of women into the socio-economic fabric of the Ouarzazate region,

mainly through indirect jobs that will be generated by the NOORo II and II power plants. The

projects seeks to apply the same approach by using various planned training programmes to

achieve a greater female presence and thus improve the job market access, social and economic

empowerment and employability of local women. The planned actions include partnership with

Faculté Poly-disciplinaire d’Ouarzazate (section on renewable energies), training of female

entrepreneurs from Ouarzazate region, training of project area women in agricultural activities

(gardening, stockbreeding and tree farming) and providing them with farming kits,

apprenticeship programmes (handicraft), etc. Emphasis will be laid on women's participation

in decision-making under the project by including them (and women's organizations from

Ouarzazate region that have a gender-related agenda) in decision-making bodies, where

necessary. Besides, the project's Environmental and Social Management Team within MASEN,

could be reinforced, if need be, with gender experts to monitor social and local development

actions, including those aimed at empowering local women and ensuring their involvement in

economic and social development. The regional branch of the Moroccan Agency for Social

Development expressed its willingness to strengthen gender expertise during project

implementation. Actions and recommendations to increase project impact on gender are

presented in Technical Annex B.8.5. 3.2.7. Social: The project will generate major socio-economic fallouts for Ouarzazate region.

It will create approximately 1,600 direct jobs during the three years of construction of the

NOORo II and NOORo III power stations. Unskilled labour will essentially be recruited locally.

Approximately 200 direct jobs will be created during the 25 years of operation of the two power

plants to ensure their operation and maintenance. Hundreds of indirect jobs will also be created

through various sub-contracting arrangements. The project is also expected to trigger the

emergence of a new industrial sub-sector to be accompanied by the establishment of a solar

research and development platform that will generate several jobs. A study conducted in 2011

on the potential for local manufacturing of equipment for concentrated solar thermal power

plants in North Africa,9 indicates that the Moroccan Solar Power Programme as a whole could

generate 11,000 jobs. 3.2.8. As already initiated in Phase I (NOORo I), the project will play a catalytic role in local

development especially in the Ghessate rural council area which has a population of

approximately 9,000 inhabitants. Several infrastructure and social projects will be implemented

with proceeds from the sale of 3,000 ha of land for the Ouarzazate solar complex. This amount

is MAD 30.5 million deposited in a Fund at the Ministry of Interior to finance an economic and

social development plan for the local community. These projects are coordinated by the

Directorate for Rural Affairs (DAR) at the Ministry of Interior. Several social or local

development activities have been conducted or are ongoing, namely: irrigation, agricultural

water management, village water supply, socio-cultural projects including the students' centre

(Dar Taliba of Ghessate), crop area protection, construction of village highways and feeder

9 Ernst & Young et Associés, Fraunhofer Institute for Solar Energy Systems ISE, and Fraunhofer Institute for Systems and Innovation

Research ISI, Middle East and North Africa Region: Assessment of the Local Manufacturing Potential for Concentrated Solar Power

(CSP) Projects,The World Bank and the Energy Sector Management Assistance Program, January 2011.

11

roads, and the construction of health and school infrastructure. In addition to the above actions,

there are also volontary actions conducted by MASEN for the local population (dental and

ophtalmological caravans, school equipment, canteens and health centres, promotion of local

products prepared by women's associations, organization of summer camps for children from

the Ghessate community, etc.). 3.2.9. Forced Resettlement: The Ouarzazate solar complex as a whole will not lead to

displacement of the local population and does not require the destruction of habitats or

economic activities. The project is located on community land with no specific economic

activity and which is not intended to be used as a residential area for the local population. It has

very little pastoral activity (penning), is unsuitable for farming and of little tourism interest. The

Ait Oukrour Toundout community, which owned the land, and its supervisory council approved

the sale which was conducted in accordance with statutory terms of transfer and for the price

set by appraisal committees. 4. PROJECT IMPLEMENTATION

4.1. Implementation Arrangements

4.1.1. Project Implementation: The project will be implemented by MASEN which is also

the Contracting Authority. Its staff strength has been steadily increased since 2012 and it

currently has 64 employees. MASEN also receives technical assistance in various areas

(technical, fiscal, legal, procurement, PPP, etc.) from experts and specialized high-level firms.

Several teams from its energy Energy Projects Pool are involved in the project. For instance,

the Technical Design Department and the Structuring Department coordinate technical design,

financial arrangements and the private developer selection process. The Directorate for

Implementation will implement the project, once developers have been recruited, project

companies established and all financing available. The Strategic Steering Unit (directly attached

to Management) will ensure the implementation of all projects. MASEN will recruit a Technical

Adviser (firm) or two (one per plant) to monitor the quality and quantity of construction works

at the power plants. 4.1.2. Institutional Arrangements: The institutional arrangements adopted are the same

ones used in Phase I (NOORo I). After the selection of private developers through a PPP, two

project companies will be established (one per plant). It has been planned that each project

company will be owned by a selected private consortium (75%) and MASEN (25%). The

project companies will be responsible for building the two solar plants and operating them for

25 years. The projected financial structure of each project company will comprise 20% equity

and 80% borrowed capital. All the borrowed capital will be provided by MASEN through a

mechanism that entails retroceding the concessional loans obtained from donors as a single

concessional loan to each project company under conditions equivalent to those of the entire

loan mix. Hence, a credit agreement will be signed between MASEN and each project company,

setting out the terms and conditions. MASEN will be the sole purchaser of the electricity

generated by each power plant. For each plant, MASEN will sign (i) an electricity supply and

purchase contract with the project company; and (ii) an electricity supply and purchase contract

with ONEE. 4.1.3. Procurement Arrangements 4.1.3.1. Procurements under this project entail the recruitment of one or two private developers

with a mandate to establish the two project companies that will ensure the design, partial

financing, construction, operation and maintenance of the NOORo II and NOORo III power

plants. These mandates will be defined through a set of legal instruments determining the terms

12

of both Public-Private Partnership Contrats (PPPCs). The two developers will be selected on a

competitive basis through the same International Competitive Bidding (ICB) process. As was

the case in Phase I (NOORo I), the scope of the project, the amount of resources needed to

prepare such bids and the need to give each potential bidder the opportunity to make innovative

and profitable proposals, require that this ICB be conducted in 2 (two) stages, preceded by

pre-qualification under the terms set out in Technical Annex B.5. 4.1.3.2. Considering the need to co-finance the project and the fungible nature of pooled

resources, the partners (AfDB, World Bank, KFW, EIB, AFD, NIF/EU) agreed to use the

procurement rules and procedures of one of them. Hence, the majority agreed to use World

Bank procurement rules and procedures as the reference for the bidding process to select

private developers for the NOORo II and NOORo III power plants. In accordance with the

provisions of Article 1.17 (b) of the Bank’s rules and procedures governing the procurement of

goods and works (R&P), such a decision (use of other procurement rules for Bank

resources) must absolutely be ratified by the Board of Directors to become effective and

enable the pooling of Bank resources and those of other financial partners for use in this

project. Indeed, Article 1.17 (b) of the R&P provides that: "where the Bank finances on a joint

basis with financiers, other than the Borrower, it will require as condition for its financing that

its own Rules of Procedure apply, unless the Board of Directors authorizes a waiver". 4.1.3.3. Procurements planned under this project will benefit from the enriching and successful

experience of Phase I (NOORo I). Hence, the pre-qualification documents and BDs to be used

will be those acceptable to the Bank, prepared for that purpose based on similar documents used

for the NOORo I power plant and will be improved based on the experience garnered from

Phase I. Furthermore, the private developers to be selected will operate within the project

company to procure the goods, works and services (downstream contract) needed to achieve

the targets set under the PPPC. To that end and pursuant to Article 3.13.(a) of the Bank rules

and Article 3.14.(a) (similar provisions) of World Bank rules, the private developers recruited

on a competitive basis will have the latitude (through the project companies) to sign agreements

downstream with any eligible service provider of their choice (according to World Bank

procurement rules), following their own procedures. 4.1.3.4. Procurements shall be the responsibility of the Directorate for Structuring (in charge

of power plant development procurements) within MASEN. An assessment of this Directorate's

procurement capacity was conducted to ensure that it would be able to successfully carry out

its responsibilities. It followed from this assessment, detailed in Technical Annex B5, that

there was only a moderate procurement risk. This level of risk includes certain shortcomings

identified and described in Technical Annex B5 as well as favourable aspects such as: (a) the

structuring and reinforcement of MASEN; (b) leveraging of Phase I experience and the high

level of procurement expertise developed by MASEN within a short time for operations similar

to the scheduled project operations; and (c) guidance from a pool of international expert

consultants. To mitigate the identified risks, a series of measures was proposed as detailed in

Technical Annex B5 of the project appraisal report.

4.1.3.5. Special Procurement Provisions: The timeframe for implementing the NOOR Solar

Programme led MASEN to request and obtain an agreement in principle from the Bank, for the

implementation of an Advanced Procurement Action (APA) for the procurement of services

from the private developer(s) pursuant to Article 1.9 of the R&Ps which state that: "The

Borrower may wish to proceed with procurement before the related Financing Agreement is signed.

In such cases, the procurement procedures, including advertising, shall be in accordance with

these Rules in order for the eventual contracts to be eligible for Bank Financing, and the Bank

shall review the process used by the Borrower. A Borrower undertakes such advance

contracting at its own risk, and any concurrence by the Bank with the procedures,

13

documentation, or proposal for award does not commit the Bank to provide financing for the

project in question". The Bank's agreement in principle for an APA is accompanied by the

requirement that there should be a two-stage international competitive bidding process (adapted

for similar procurements) preceded by pre-qualification and subject to the Bank's ex ante

review. However, the late reception of an official request for Bank involvement in the project

did not make it possible of the Bank to conduct a timely ex ante review of the initial stages

(from pre-qualification to the BDs of the second phase) of the process. Hence, it was agreed

that, for practical reasons, the stages from pre-qualification to issuance of the BDs in the second

stage of the bidding process will rather be subject to an ex post review of the Bank while the

remaining stages will be subject to its prior review.

4.1.4. Financial Management and Audit Arrangements

4.1.4.1. MASEN will be accountable to donors, as regards project implementation and

management of financial resources. Nevertheless, the effective construction of the NOORo II

and NOORo III power plants will be directly ensured by the two Moroccan private project

companies to be created and whose projected shareholding structure will comprise private

developers (75%) and MASEN (25%). They will be accountable for the use of funds transferred

to them by MASEN. The financial management assessment conducted in accordance with Bank

guidelines and based on the successful experience of the current financial management system

established by MASEN and the project company ACWA Power Ouarzazate (APO) in Phase I

(NOORo I power plant), came to the conclusion that the project has a high initial fiduciary risk

(see the table of risks in Technical Annex B4) which could rapidly become moderate and

acceptable. Indeed, this risk, which stems mainly from the complexity and difficulties of

creating the project companies and establishing the financial arrangements of the project can

be mitigated by capitalizing on Phase I experience to fulfil the mitigating conditions and

through AfDB and CTF loan conditions (set out in detail in 4.1.4.7 below) and the agreed action

plan (see Technical Annex B4).

4.1.4.2. Financial Management Arrangements: The project's financial management is based

on harmonization of mechanisms with other donors (use of the same management structures,

methods and disbursement conditions, namely: recruitment of a Technical Adviser to approve

the progress reports that accompany disbursement requests, project audit in accordance with

the ToRs proposed by the Bank and accepted by the other donors) and will focus on systems

already established to the Bank's satisfaction by MASEN in Phase I, namely the accounting,

cash-flow, control, reporting and audit processes, as well as the financial management systems

to be put in place by the two project companies that will be created in the current phase. Hence,

apart from audits that the State may request in its capacity as MASEN shareholder, the national

public finance management system will not be used during project implementation. Compliance

with the scheduled arrangements will guarantee transparency, traceability and adequate

financial information on invested funds. The two project companies will implement their

respective annual programmes of activity, verified and transmitted by MASEN to the Bank at

the beginning of each fiscal year. The project companies will have to recruit qualified and

experienced financial and accounting staff and perform their general and budget accounting

with the appropriate software. Accounting principles will be described in the project's financial

management and accounting handbook. MASEN and each of the two project companies will

implement the appropriate documented internal control procedures, as was done in Phase I,

mainly for financial transactions, purchases and expenditure justification, accounting

registration and the protection of financial data and project assets. Internal audits will be

conducted for each entity by an internal auditor authorized by the audit committee attached to

the supervision committee.

4.1.4.3. Furthermore, the Technical Adviser, also known as LTA (Lender Technical Adviser)

shall ensure the technical and financial monitoring of the project. Moreover, given the

14

government stake in its shareholding, MASEN is subject to several State financial controls

(State controller, control service of the Ministry of the Economy and Finance) with the

possibility of ex poste controls by the IGF and the Court of Auditors. The project’s progress

reports and interim financial reports will be prepared every six months using a template

acceptable to all partners. The financial reports (see indicative content in Technical Annex B4)

will be prepared by each project company and will be verified and amended, as appropriate,

by MASEN and approved by the Technical Adviser, before transmission to donors within 30

days following the end of the six-month period or any other deadline set in the procedures

manual. Furthermore, the annual financial statements of the project (together with those of

MASEN and the project company) will be prepared according to Moroccan accounting norms

(see indicative content of financial statements in Technical Annex B4). Lastly, the project will

be subject to on-site and off-site financial management supervision missions from the Bank that

will target both MASEN and the two project companies. The Bank will ensure better

coordination with the other partners by organizing joint supervision missions. (See Technical

Annex B4).

4.1.4.4. External Audit Arrangements: The financial statements of MASEN and the two

project companies will be audited annually by their respective auditors. The audits will be

conducted in accordance with the international auditing norms of the International Federation

of Accountants and the harmonized TORs for auditing of the project, copies of which would

have been transmitted to the auditors. The audit reports of the project (that is, of the two project

companies) and of MASEN, accompanied by letters to the internal control directorates of each

entity, will be forwarded to the Bank within 6 (six) months after closure of the fiscal year

concerned. The first project audit report will cover the period from project commencement to

31 December 2015.

4.1.4.5. Common Disbursement Mechanisms: The project’s institutional and financial

arrangements provide that the funds lent by donors to MASEN be retroceded to the two project

companies as a debt under credit facility agreements that set the applicable terms and

conditions. Hence, for financial transactions during the construction phase, MASEN will open,

for each power plant (NOORo II or III), in a commercial bank acceptable to the Bank: (i) one

(1) Designated Transitional Account (CDT) for each loan; and (ii) three (3) Designated

Common Accounts (CDC1) (EUR-USD-MAD) to pool all funds from the CDTs to the project

company which will in turn open, three (3) Designated Common Accounts (CDC2) (EUR-

USD-MAD) to receive only funds transferred by MASEN (excluding equity funds). The

transfer agreements between MASEN and the project companies will specify the disbursement

mechanisms in accordance with principles acceptable to each donor, as well as the distribution

formula and payment conditions adopted. Payment requests will be presented to each donor

based on interim half-yearly financial reports approved by the Lender Technical Adviser (LTA)

and in accordance with the procedures of each donor. Funds disbursed into the CDTs will

immediately be transferred to the CDCs by MASEN and, within the shortest time possible, to

the project companies in which the investment expenditure scheduled under the financing

agreements will be initiated. It is understood that partners' contribution to the share capital of

the project companies will be deposited into different bank accounts. To ensure that the project

has the greatest financial impact possible, it was agreed that: (i) priority be given to the

disbursement of more concessional CTF funds; and (ii) a pari passu system be established

among all the donors (excluding the CTF) through which determination of each donor's share

will be prorated on its contribution to the external financing of the investment expenditure of

the power plants.

4.1.4.6. Special Disbursement Arrangements: Although there is agreement on a common

mechanism, payment requests on the AfDB and CTF loans have to be presented in accordance

with the procedures as described and applicable in the Bank's Disbursements Handbook. Each

15

of the project's power plants (NOORo II and NOORo III) will be subject to an AfDB loan

agreement and a CTF/AfDB loan agreement. The disbursement method adopted by donors will

be exclusively that of the special account. As regards conditions precedent to first

disbursement, the Bank must obtain proof of the opening by MASEN, in a commercial bank

acceptable to the AfDB, of: (i) 4 (four) CDTs (comprising 2 CDTs per power plant, one in EUR

(AfDB loan) and the other in USD (CTF loan); and (ii) 6 (six) CDCs, comprising 3 CDCs

(EUR-USD-MAD) per plant to pool the funds intended for the project company. Initial advance

requests will be presented using request form A1 and the form indicating the investment budgets

of the project companies for 6 months of activities with application of the quota for Bank

financing (A3). As was the case in Phase I, applications for reprovisioning should, in addition

to the above documents, be accompanied by a summary expenditure statement (A2)

highlighting the share of investments implemented and attributable to the Bank, along with an

interim financial report (IFR) for the preceding six-month period, audited and approved by the

Technical Adviser as well as the bank statements and reconciliations of the transitional and

common accounts. A disbursement letter will be reviewed by both parties during negotiation

of the loan agreements, and forwarded to MASEN, the Borrower, as soon as the Bank approves

the project.

4.1.4.7. Fiduciary Risk: The project’s initial fiduciary is estimated to be high mainly due to

the complex financial and legal arrangements of the operation and potential difficulties resulting

from the creation and establishment of the two project companies. Indeed, although MASEN,

the Borrower, has the advantage of being a structure whose organization and financial

management system have been established, the two project companies that will implement the

project have not yet been set up. Consequently, their capacity to ensure the sound financial

management of the project cannot be ascertained at this stage. Fulfilment of the conditions set

out in paragraph 5.2 below, will help to reduce the residual risk down to a moderate and

acceptable level. Apart from the effective creation of the two project companies and the

fiduciary responsibility clauses of the agreements to be signed between MASEN and the

companies which will have to be approved by the Bank, it will be necessary for the Bank and

the other donors to ensure or obtain proof of creation by these entities (project companies), each

in its own sphere, of an adequate financial management mechanism.

4.2. Monitoring

Bank activities scheduled under project monitoring are summed up in the table below.

These activities will be conducted following the project implementation schedule presented in

page (v). The schedule takes into account the use of the advanced procurement action (APA)

procedure. The project should be completed at the end of 2017. Half-yearly progress reports on

the project's physical and financial status will be prepared by MASEN and forwarded to all

donors. At least two joint project supervision missions by donors will be conducted per year.

At completion, MASEN will prepare and submit a completion report to donors. The Bank, in

turn, will prepare its own completion report that will be followed by a project performance

appraisal report.

Period Stages Monitoring Activities/Feedback Loop

December 2014 Signature and effectiveness of

loan and guarantee agreements

Forwarding of invitation letters to the Borrower

and the Guarantor (Bank)

December 2014 -

March 2015

Recruitment of developers Signature of PPP contracts (MASEN)

June 2015 - December

2017

Solar plant construction works Works execution (project companies)

Control and supervision (MASEN)

Project supervision (donors)

January 2010 -

December 2017

Project supervision by the Bank Administration of Bank loans

Project supervision by the Office

16

Joint field supervision of the project with other

donors (twice a year)

December 2017 MASEN project completion

report

Preparation of the Borrowers completion report

(MASEN, donors)

March 2018 Bank's project completion

report

Project completion mission (Bank, MASEN,

donors)

Preparation of the programme completion report

(Bank)

4.3. Governance

4.3.1. Morocco continues to implement reforms to modernize public administration and the

financial sectors with a view to boosting the performance of its economy and increasing its

competitiveness in a rapidly changing regional and international context. In the energy sector,

the signing of a programme contract for 2014-2017 on 26 May 2014, between the State and

ONEE, falls within the framework of these reforms to improve governance within the sector.

Provision was made for several measures including: (i) the adjustment of electricity rates; (ii)

recovery of the outstanding electricity bills from government services and establishments; (iii)

energy saving plans; and (iv) the improvement of technical performance. A bill is also being

prepared to establish a regulatory body for the sector. 4.3.2. The governance risk within the specific framework of the project remains very low

and could reside in the private developer selection process. However, this risk is mitigated by

the experience acquired during Phase I whose lessons have informed the design of the current

project. Furthermore, donors ensure the smooth implementation of their applicable rules and

regulations. Regular project supervision missions and the annual audit reports on the project's

financial statements will enable the Bank to monitor compliance with the terms of reference,

the progress status of the power plants and compliance in the use of the project's financial

resources. Moreover, it is also worth noting that the full involvement of Morocco's highest

authorities in the project will guarantee good governance. Besides, MASEN has a Board of

Directors and a Surveillance Board that exercises control over its activities.

4.4. Sustainability

4.4.1. Project sustainability hinges essentially on the capacity of the private developers, who

will be recruited within the framework of PPP with MASEN, to design, finance, construct,

operate and maintain the NOORo II and NOORo III power stations. They will be selected

through a two-stage international competitive bidding process preceded by a prequalification

phase making it possible to use the initial bid submission stage to initiate serious technical

discussions with bidders and to better understand their technical proposals which will then be

improved for the second stage of bidding.

4.4.2. The provisions of the electricity purchase contracts between MASEN and the project

companies and of resale contracts between MASEN and ONEE as well as the terms for

operating and maintaining the power stations will be similar to those adopted for the NOORo I

power plant. These provisions will be used to determine the responsibilities of the project

companies as regards operation and maintenance of the power plants. The sustainability of

project impact also depends on State support to ensure financial equilibrium through subsidies

that will cover the gap between the kWh purchase price paid by MASEN to the project

companies and the sales price to ONEE.

4.5. Risk Management

4.5.1. The project risks are: (i) the possibility that private developers may not be able to

honour their commitments during construction and operation of the power plants; (ii) the risk

that MASEN may not be able to efficiently monitor power plant construction activities given

17

the relatively high number of power plants it has to supervise from 2015 to 2016 (NOORo I, II

and III); and (iii) a financial risk resulting from the difficulties that MASEN could encounter in

financing the gap between the kWh purchase price paid to project companies and the selling

price charged to ONEE.

4.5.2. These risks are respectively mitigated by: (i) the selection of developers through

international competitive bidding based on experience and financial viability; (iii) the enhanced

quality of MASEN staff and support from experienced high-level advisers in various domains

(technical, fiscal, legal, procurements); and (iii) strong State commitment to support the

Moroccan Solar Programme (including through ongoing sector reforms and subsidies) and the

participation of certain donors in financing the gap.

4.6. Knowledge Building

4.6.1. The project is an opportunity for the various donors and the Moroccan Government to

disseminate new knowledge. This is the Bank's second operation in Morocco under the

combined Moroccan Solar Programme NOOR (2000 MW) and the CTF Investment Plan for

the MENA region. The project will help to strengthen the Bank's experience in the development

of PPPs for renewable energy projects. More specifically, the project will enhance the Bank's

knowledge on the development of solar tower power plants that will supplement the parabolic

trough solar power plants already financed by the Bank (Ain Beni Mathar solar power plant

and Phase I of the Ouarzazate solar complex) as well as large-scale thermal energy storage

facilities that enable the solar power plants to operate at full capacity for over 5 (five) hours

after sunset.

4.6.2. The two variants of concentrated solar thermal power plants (parabolic trough and

solar tower) that will be developed by the project, will provide universities as well as institutes

and centres specialized in solar energy with reliable statistical data for research and

development on the use of solar energy to generate electricity on a large scale. The solar energy

knowledge and skills developed in Morocco under the project could be shared with other

countries of the MENA region and Africa, within the framework of South-South cooperation.

In this regard, MASEN intends to create a research and development platform on the site of the

Ouarzazate complex. This platform could benefit from the support of the CTF technical

assistance programme in the MENA region that will be jointly implemented by the Bank and

the World Bank in coordination with the national structures involved in the development of

concentrated solar thermal power plants and the promotion of industrial units for the

manufacture of solar equipment.

4.6.3. The project's half-yearly financial reports, interim financial reports, and annual

external audit reports will provide information on the project and serve as a basis for Bank

supervision missions from which lessons will be learnt. The publication of project completion

and performance evaluation reports will facilitate knowledge dissemination to Bank staff and

the public. The lessons learnt will enhance the design of similar future Bank operations.

5. LEGAL FRAMEWORK

5.1. Legal Instrument

To finance this project, the Bank will use: (i) an AfDB loan of EUR 100 million

awarded to MASEN; and (ii) a CTF loan of USD 119 million awarded to MASEN by the Bank

in its capacity as the executing agency of the CTF Trust Fund. Both loans are guaranteed by the

State.

18

5.2. Conditions Associated with Bank Involvement

A) Conditions Precedent to AfDB and CTF Loan Effectiveness

5.2.1. The AfDB and CTF loan agreements will become effective on their date of signature.

The AfDB and CTF loan guarantee agreements will become effective on the date the guarantor

fulfils the conditions provided under Section 12.01 of the General Conditions, to the satisfaction

of the Bank.

B) Conditions Precedent to First Disbursement of the AfDB and CTF Loans

5.2.2. Apart from the effectiveness of the Loan Agreements, the first disbursement of each

loan shall be subject to fulfilment by the Borrower of the following conditions, to the

satisfaction of the Bank:

(i) Fulfil the conditions set out in Section 12.02, paragraph (a), sub-paragraphs (i)

and (ii) of the General Conditions;

(ii) Provide the Bank with evidence of finalization of project financing, by

presenting proof that the other donors have approved their financing (paragraph

2.4.2);

(iii) Provide the Bank with a copy of the specific Convention through which the State

of Morocco undertakes to finance the gap between the purchase price of

electricity by MASEN from the project companies and its selling price to the

National Electricity and Drinking Water Authority (ONEE) or any other

company that replaces ONEE, pursuant to the framework agreement signed

between the State and MASEN on 26 October 2010 (paragraphs 3.1.1 and 4.5.2);

(iv) Provide the Bank with the original or certified true copy of an attestation

confirming the opening of special accounts by the Borrower in a commercial

bank acceptable to the Bank, through which loan resources will be channelled,

and containing the full bank details of the account (Paragraph 4.1.4.6);

(v) Provide the Bank, under conditions acceptable to the Bank, with a certified true

copy of: (a) signed and registered articles of incorporation of the project

company; (b) the attestation of registration of the project company; (c) the

electricity purchase contract between the Borrower and the project company; (b)

the electricity purchase contract between the Borrower and ONEE; and (e) the

agreement for transfer of all or part of the loan resources by the Borrower to the

project company, indicating that: (i) financial and accounting information will

be submitted by the project company to the Borrower every six months; and (2)

the annual financial statements of the project company will be audited by its

auditor, according to the norms applicable in Morocco and the Bank’s terms of

reference (Paragraph 4.1.4.1); and

(vi) Provide the Bank with proof of recruitment by the Borrower of a Lender

Technical Adviser (LTA) to monitor the works (Paragraphs 4.1.4.2 and 4.1.4.6).

19

C) Other AfDB and CTF Loan Conditions

5.2.3. Furthermore, the Borrower should fulfil the following conditions, to the satisfaction of

the Bank:

(i) Provide proof, within 3 (three months) after first disbursement, that each project

company has established a satisfactory accounting and financial management

mechanism by essentially: (a) appointing a qualified and experienced financial

officer; (b) establishing an accounting system capable of providing accounts that

meet the applicable standards and ensuring analytical and budget monitoring;

and (c) preparing a financial management handbook deemed satisfactory by the

Bank (Paragraph 4.1.4.2) ; and

(ii) Provide the Bank, prior to commencement of works on each power plant, with

the following documents prepared in accordance with the requirements of

international financial institutions and Moroccan regulations: (a) the detailed

Environmental and Social Impact Assessment (ESIA) prepared by the project

company; (b) the Environmental and Social Management Plan (ESMP); and (c)

where applicable, proof of the environmental acceptability of the detailed study

on the power plant (Paragraph 3.2.2).

D) Commitments

5.2.4. The Borrower undertakes to:

(i) Provide the Bank with any document that is reasonably necessary for monitoring

project implementation; and

(ii) Ensure that the project companies implement the ESMP in accordance with the

applicable Bank rules and procedures (Paragraph 3.1.5).

5.3. Compliance with Bank Policies

The Ouarzazate Solar Complex Project - Phase II (NOORo II and NOORo III power

plants) is in conformity with all applicable policies of the Bank.

6. RECOMMENDATION

Management recommends that the Board of Directors should: (i) exceptionally waive

the application of Bank rules and procedures in preference to the World Bank's rules and

procedures for the procurement of goods, works and services; and (ii) approve: (a) an AfDB

loan of EUR 100 million to MASEN; and (ii) a CTF loan of USD 119 million to MASEN

awarded by the Bank in its capacity as the executing agency of the CTF Trust Fund. Both loans

are guaranteed by the Kingdom of Morocco to finance the Ouarzazate Solar Complex Project -

Phase II (NOORo II and NOORo III) in accordance with the terms and conditions set out in

this report.

I

Annex I. Comparative Socio-economic Indicators of Morocco

Year Morocco Africa

Develo-

ping

Countries

Develo-

ped

Countries

Basic Indicators

Area ( '000 Km²) 2011 447 30 323 98 458 35 811Total Population (millions) 2013 33,0 1 109,0 5 909,3 1 252,8Urban Population (% of Total) 2013 57,8 40,2 47,7 78,3Population Density (per Km²) 2013 72,3 46,9 70,7 23,5GNI per Capita (US $) 2012 2 960 1 719 3 815 38 412Labor Force Participation - Total (%) 2012-2013 34,9 37,4 67,9 72,1Labor Force Participation - Female (%) 2012-2013 27,2 42,5 38,6 44,6Gender -Related Dev elopment Index Value 2007-2011 0,625 0,502 0,694 0,911Human Dev elop. Index (Rank among 187 countries) 2012 130 ... ... ...Popul. Liv ing Below $ 1.25 a Day (% of Population)2007-2011 2,5 40,0 20,6 ...

Demographic Indicators

Population Grow th Rate - Total (%) 2013 1,5 2,5 1,3 0,3Population Grow th Rate - Urban (%) 2013 2,1 3,4 2,5 0,6Population < 15 y ears (%) 2013 27,9 40,9 28,3 16,4Population >= 65 y ears (%) 2013 5,0 3,5 6,1 16,8Dependency Ratio (%) 2013 48,7 77,9 52,4 49,9Sex Ratio (per 100 female) 2013 97,5 100,0 103,3 94,4Female Population 15-49 y ears (% of total population) 2013 27,9 24,0 53,1 45,2Life Ex pectancy at Birth - Total (y ears) 2013 70,9 59,2 68,4 77,8Life Ex pectancy at Birth - Female (y ears) 2013 72,7 60,3 70,3 81,2Crude Birth Rate (per 1,000) 2013 22,7 34,8 21,2 11,2Crude Death Rate (per 1,000) 2013 6,3 10,4 7,6 10,4Infant Mortality Rate (per 1,000) 2013 25,8 61,9 39,8 5,5Child Mortality Rate (per 1,000) 2013 31,4 97,4 56,3 6,6Total Fertility Rate (per w oman) 2013 2,7 4,6 2,6 1,7Maternal Mortality Rate (per 100,000) 2010 100,0 415,3 240,0 16,0Women Using Contraception (%) 2013 66,7 34,9 62,6 71,3

Health & Nutrition Indicators

Phy sicians (per 100,000 people) 2004-2011 62,0 47,1 117,8 297,8Nurses (per 100,000 people)* 2004-2011 89,0 132,6 202,7 842,7Births attended by Trained Health Personnel (%) 2006-2011 73,6 52,6 66,3 ...Access to Safe Water (% of Population) 2012 83,6 68,8 87,2 99,2Access to Health Serv ices (% of Population) 2000 70,0 65,2 80,0 100,0Access to Sanitation (% of Population) 2012 75,4 39,4 56,9 96,2Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2012 0,1 3,9 1,2 ...Incidence of Tuberculosis (per 100,000) 2012 103,0 223,6 144,0 23,0Child Immunization Against Tuberculosis (%) 2012 99,0 83,0 81,5 96,1Child Immunization Against Measles (%) 2012 99,0 74,0 83,0 94,3Underw eight Children (% of children under 5 y ears) 2005-2012 3,1 19,7 17,0 1,4Daily Calorie Supply per Capita 2009 3 264 2 481 2 675 3 285Public Ex penditure on Health (as % of GDP) 2011-2012 2,1 2,9 3,0 7,5

Education Indicators

Gross Enrolment Ratio (%)

Primary School - Total 2012-2013 116,9 101,9 109,4 100,9 Primary School - Female 2012-2013 114,1 97,9 107,6 100,6 Secondary School - Total 2012 68,9 47,4 69,1 100,2 Secondary School - Female 2012 63,4 44,0 67,8 99,7Primary School Female Teaching Staff (% of Total) 2012-2013 54,0 46,6 58,0 84,3Adult literacy Rate - Total (%) 2011-2012 67,1 62,0 80,3 99,2Adult literacy Rate - Male (%) 2011-2012 76,1 70,7 85,9 99,3Adult literacy Rate - Female (%) 2011-2012 57,6 53,7 74,9 99,0Percentage of GDP Spent on Education 2009-2012 5,4 5,3 4,3 5,5

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2011 17,8 7,6 10,7 10,8Annual Rate of Deforestation (%) 2000-2009 0,0 0,6 0,4 -0,2Forest (As % of Land Area) 2011 11,5 23,0 28,2 35,0Per Capita CO2 Emissions (metric tons) 2010 1,4 1,2 3,0 11,6

Sources: AfDB Statistics Department Databases; last update :

United Nations Population Division, World Population Prospects: The 2012 Revision;

World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports.

For any given interval, the value refers to the most recent year available during the period

Note : n.a. : Not Applicable ; … : Data Not Available.

COMPARATIVE SOCIO-ECONOMIC INDICATORS

Morocco

mai 2014

0102030405060708090

2005

2006

2007

2008

2009

2010

2011

2012

2013

Infant Mortality Rate( Per 1000 )

Morocco Africa

0

500

1000

1500

2000

2500

3000

3500

2004

2005

2006

2007

2008

2009

2010

2011

2012

GNI Per Capita US $

Morocco Africa

0,0

0,5

1,0

1,5

2,0

2,5

3,0

2005

2006

2007

2008

2009

2010

2011

2012

2013

Population Growth Rate (%)

Morocco Africa

111213141516171

2005

2006

2007

2008

2009

2010

2011

2012

2013

Life Expectancy at Birth (years)

Morocco Africa

II

Annex II. Table of AfDB Portfolio in the Country (May 2014)

SECTEUR AGRICOLE 3,0 0,9 3,6 133 211 436 159 791 692 117 697 009 42 013 274 73,7% 88,3% 7,3%

1 Projet d'ap. tech. prom. jeunes entrepreneurs - DON PRI 12-janv.-12 4-May-12 4-May-12 31-oct.-14 2,4 0,8 3,8 UC 497 200 569 244 157 874 339 326 31,8% 100,0%

2 Projet d'ap. au Prog. nat. d' eco. d'eau d'Irrig. (PAPNEI) 14-déc.-09 01-mai-14 2-Jul-10 31-Dec-15 4,5 0,7 6,7 EUR 44 679 184 53 590 000 12 339 128 41 250 872 23,0% 65,0%

3 Appui tech. dév. Infrastr. d’irrigation - DON PRI 21-févr.-11 17-mars-11 17-mars-11 30-juin-14 3,3 1,0 0,8 UC 494 200 494 200 158 834 335 366 32,1% 100,0%

4 Programme d' appui au Plan Maroc Vert (PAPMV) 18-juil.-12 7-sept.-12 24-oct.-12 31-juil.-14 1,9 0,9 3,3 EUR 87 540 852 105 000 000 105 000 000 0 100,0% 100,0%

SECTEUR TRANSPORTS 5,1 0,7 6,3 487 727 606 585 000 000 145 278 588 112 436 639 334 131 243 30,7% 31,1% 21,6%

5 2è phase Progr. Nation. de routes rurales (PNRR 2) 5-sept.-07 23-nov.-07 8-mars-08 31-déc.-14 6,8 0,9 6,2 EUR 37 517 508 45 000 000 45 000 000 0 100,0% 100,0%

6 3ème Projet aéroportuaire 16-avr.-09 8-mai-09 22-oct.-09 31-déc.-15 5,2 0,7 6,3 EUR 200 093 377 240 000 000 30 175 447 112 436 639 97 387 914 23,7% 32,0%

7 Projet d'augm. de capa. Ferrov. Tanger-Marrakech 17-déc.-10 17-mars-11 30-Jun-11 31-déc.-16 3,5 0,5 6,5 EUR 250 116 721 300 000 000 70 103 141 229 896 858 23,4% 20,0%

SECTEUR ENERGIE 2,5 0,5 6,0 678 220 003 810 070 000 175 266 885 68 000 000 566 803 115 23,6% 33,6% 34,0%

8 Progr. déve. réseau transp. et réparti. élect. 02-déc.-09 11-déc.-09 29-Apr-10 31-déc.-14 4,5 0,9 4,9 EUR 91 559 394 109 820 000 45 713 198 64 106 801 41,6% 35,0%

Projet de la centrale solaire de Ouarzazate 16-mai-12 19-nov.-12 19-nov.-12 31-déc.-16 2,1 0,4 6,2 EUR 140 065 364 168 000 000 25 250 000 68 000 000 74 750 000 25,3% 56,0%

Projet de la centrale solaire de Ouarzazate (CTF) 16-mai-12 19-nov.-12 19-nov.-12 31-déc.-16 2,1 0,4 6,2 USD 65 461 734 100 000 000 40 000 000 60 000 000 40,0% 100,0%

Programme intégré éolien et PERG 13-juin-12 19-déc.-12 19-déc.-12 31-déc.-16 2,0 0,4 6,3 EUR 299 306 343 359 000 000 64 303 687 294 696 313 17,9% 16,7%

Programme intégré éolien et PERG (CTF) 13-juin-12 19-déc.-12 19-déc.-12 31-déc.-16 2,0 0,4 6,3 USD 81 827 168 125 000 000 125 000 000 0,0% 6,1%

SECTEUR SOCIAL 1,2 0,7 1,8 205 850 832 232 850 544 140 544 942 92 386 480 60,4% 99,4% 10,7%

11 Appui strat. dével. enseig. Privés - DON PRI 11-mars-11 17-mars-11 09-juin-11 31-déc.-13 3,3 1,2 3,0 UC 470 406 470 406 470 406 0 100,0% 100,0%

12 Système Information Carte Sanitaire Don PRI 30-juil.-13 30-dec-13 30-dec-13 31-dec-16 0,9 UC 380 800 380 800 380 800

13 Université numérique UIR 10-oct.-13 27-fev-14 31-dec-16 0,7 UC 774 600 774 600 774 600 0,0%

14 Appui à l'adéquation format°-emploi (PAAFE) 22-juil.-13 26-juil.-13 02-oct.-13 31-déc.-15 0,9 0,3 2,4 EUR 101 903 666 116 000 000 70 000 000 46 000 000 60,3% 100,0%

15 Appui Couverture Médicale PARCOUM III 18-déc.-13 18-déc.-13 19-déc.-13 31-déc.-14 0,5 0,5 0,0 EUR 102 321 360 115 000 000 70 000 000 45 000 000 60,9% 100,0%

SECTEUR EAU ET ASSAINISSEMENT 3,4 0,7 5,7 359 924 034 423 977 643 74 549 577 50 064 000 299 364 066 19,9% 33,3% 17,1%

Dixième Projet d'AEP 19-nov.-08 26-déc.-08 17-juil.-09 31-déc.-14 5,6 0,9 8,0 EUR 28 213 166 33 840 000 23 436 489 10 403 510 69,4% 80,0%

Dixième Projet d'AEP 19-nov.-08 26-déc.-08 17-juil.-09 31-déc.-14 5,6 0,9 8,0 USD 34 917 289 53 340 000 35 105 440 18 234 560 65,8% 80,0%

Onzième Projet d'AEPA Rabat-Casa 12-mai-10 19-août-10 13-janv.-11 31-déc.-14 4,1 0,9 8,2 EUR 135 321 483 162 310 000 18 278 235 40 000 000 104 031 764 14,9% 40,0%

Onzième Projet d'AEPA Rabat-Casa 12-mai-10 19-août-10 13-janv.-11 31-déc.-14 4,1 0,9 8,2 USD 36 043 231 55 060 000 8 952 952 13 600 000 32 507 047 21,6% 40,0%

Douzième projet d'AEP de Marrakech 7-nov.-12 19-déc.-12 19-déc.-12 31-déc.-18 1,6 0,2 1,4 EUR 101 206 800 120 000 000 120 000 000 0,0% 3,0%

Douzième projet d'AEP de Marrakech 7-nov.-12 19-déc.-12 19-déc.-12 31-déc.-18 1,6 0,2 1,4 USD 24 017 070 37 000 000 37 000 000 0,0% 3,0%

19 Etude schéma directeur AEP MOULOUYA- DON PRI 10-janv.-13 22-mai-13 22-mai-13 31-déc.-14 1,4 0,7 4,4 UC 204 994 204 994 204 994 0 100,0% 100,0%

SECTEUR MULTISECTEUR 2,4 0,7 2,7 2 558 772 2 891 412 1 150 599 1 740 814 39,8% 77,7% 0,1%

20 Projet d'améliorat. du syst. de garantie - DON PRI 19-janv.-11 17-mars-11 17-mars-11 31-déc.-15 3,4 0,7 1,9 UC 464 988 464 988 312 188 152 800 67,1% 100,0%

21 Projet de renf. du contr. marché. fin. - DON PRI 13-déc.-10 17-mars-11 17-mars-11 31-déc.-14 3,5 0,9 3,1 UC 480 350 480 350 480 350 0 100,0% 100,0%

22Appui à la modernisation du cadre organisationnel de gestion

de la dette - DON PRI27-févr.-13 31-mai-13 31-mai-13 31-déc.-14 1,3 0,7 3,1 UC 536 976 536 976 79 705 457 271 14,8% 30,0%

23 Etude sur la croissance et l' emploi au Maroc - DON PRI 27-juin-12 7-sept.-12 7-sept.-12 31-déc.-14 2,0 0,8 2,4 UC 587 200 587 200 587 200 0,0% 100,0%

24Projet d'Appui à l'élaboration du code monétaire et financier

marocain - DON PRI20-sept.-12 19-déc.-12 19-déc.-12 31-déc.-15 1,7 0,5 3,0 UC 489 258 489 258 145 986 343 272 29,8% 60,0%

SECTEUR PRIVE 3,6 0,6 7,8 177 133 336 198 877 124 186 858 124 12 019 000 94,0% 94,5% 9.1%

25 Fond Argan pour le développement des infrast. 17-févr.-10 21-juil.-10 21-juil.-10 31-déc.-18 4,3 0,5 5,1 EUR 13 479 000 15 000 000 2 981 000 12 019 000 19,9% 19,9%

26 Prêt à l'Office Chérifien des Phosphates 29-juin-11 10-mai-12 10-mai-12 10-mai-15 3,0 0,7 10,5 USD 163 654 336 250 000 000 250 000 000 0 100,0% 100,0%

Récapitulatif: Répartition sectorielle des opérations Approbations (millions EUR) Situation des décaissements

Montant du portefeuille Total %

En Unités de compte 1 784 160 297 100,0%

Prêts (15 projets) 1 778 779 325 99,7%

Dons (11 projets) 5 380 972 0,3%

En Euros 2 182 957 776

Actuel Proj. 2014

Montant Total des décaissements en Euros 841 345 723 1 179 197 606

Prêts 838 996 229 Dons 2 349 495

Taux de décaissement global 38,54% 54,0%

Prêts 38,55% Dons 37,36%Montant moyen par prêt (en UC) 111 173 708

Delai moyen de mise en vigeur (mois) 4,9 Prêts 5,1 Dons 2,1Age relatif du portefeuille (an) *** 0,7

Age moyen du portefeuille (an) 3,1 Prêts 3,0 Dons 1,9

Note: Les zones gisée correspondent à des opérations non encore en vigueur ( ψ): Projet non encore en vigueur et par conséquent non inclus dans la détermination du taux de décaissement global du portefeuille.

* PRI: Pays à revenu intermédiaire ** FAE : Facilité africaine de l'eau *** Age relatif (ratio < ou = à 1): Age du projet depuis sa mise en vigueur rapporté à la période entre la date de mise en vigueur et la date de clôture telle que prévue à l'évaluation du projet.

Nbre Nom du ProjetDate

d'approbation

Date de

signature

Date de

mise en

vigueur

Date de

clôture

Age

moyen

projet

(an)

Age

relatif

du

projet

(an)

delai

mise en

vigeur

(mois)

Part

dans le

portefe

uille

Monnaie

du prêten Unités de

compte

en monnaie du

prêt (total par

sect. en EUR)

ActuelProject.

2014

Montant approuvé Décaissement

cumulé en

monnaie du

prêt par projet /

en euro par

secteur

Taux décaissements

cumulés (en %)Annulation en

monnaie du

prêt

Montant non

décaissé en

monnaie du prêt

par projet /en

EUR par secteur

9

10

16

17

18

158

643 634

476

1091

2008 2009 2010 2011 2012

Agric; 6,6%

Transp.; 24,3%

Energ.; 33,7%

Eau/ass.; 21,3%

Multisect.; 5,2%

Sect. privé; 8,8%

88%

31%34%

99%

45%

81%

95%

56%

74%

29%20%

60%

30%

43%

94%

38%

Tx déc. prév. fin 2014 Tx de décais. 28 Février 2014

158

643 634

476

1091

231

2008 2009 2010 2011 2012 2013

Agric; 7%

Transp. 22%

Energ.; 34%

Social 11%

Eau/ass. 17%

Multisect.; 0,1%

Sect. privé 9%

III

Annex III. Major Related Ongoing Projects Financed by the Bank and Other Development Partners of Morocco

Donors Amount F.E. Projects Progress Status

AFD

AfDB

EIB

WB

CTF

KFW

EU/NIF

1 042 000 000 EUR Ouarzazate Solar Power Station Project - Phase I (NOORo I) Ongoing

AfDB 109 820 000 EUR Electricity Transmission and Distribution Network Development Project Ongoing 359 000 000 EUR Integrated Wind Energy, Hydro Power and Rural Electrification Programme Commencing

CTF/AfDB 125 000 000 USD Integrated Wind Energy, Hydro Power and Rural Electrification Programme Commencing WB 122 100 000 EUR Support to the National Electricity and Drinking Water Authority (Electricity Branch) Ongoing EIB 152 000 000 EUR Electrical Power Grids II Ongoing EIB 180 000 000 EUR Electrical Power Grids III Ongoing EIB 150 000 000 EUR Hydroelectricity II (Abdelmoumen Energy Transfer Pumping Station) Commencing EIB 200 000 000 EUR 850 MW Integrated Wind Energy Programme Commencing AFD 57 000 000 EUR Programme to Reinforce the High Voltage and Medium-Voltage Electrical Power Grid in

Morocco Ongoing

AFD 50 000 000 EUR Development of the Transmission Network Ongoing KFW 100 000 000 EUR Programme to Reinforce the High-Voltage and Medium-Voltage Electrical Power Grid in

Morocco Ongoing

KFW 26 000 000 EUR Distance Management and Rehabilitation of Hydroelectricity power stations Ongoing KFW 20 000 000 EUR Low-Consumption Loans Ongoing IsDB 40 000 000 EUR Rural Electrification Programme (PERG) - Last tranche Ongoing IsDB 99 850 000 EUR Extension of the Quay at the Jorf Lasfar Power Plant Ongoing IsDB 200 000 000 USD M’Dez El Menzel Hydroelectricity Complex Commencing EBRD 60 000 000 EUR Rural Electrification Programme (PERG) - Last tranche Ongoing OFID 60 000 000 USD Rural Electrification Programme (PERG) - Last tranche Ongoing KFAED 20 000 000 KWD Development of the Southern Network Ongoing

IV

Annex IV. Map of the Project Area

The staff of the African Development Bank Group (AfDB) have provided this map for the exclusive use of

readers of this report to which it is appended. The appellations and the demarcations on this map do not imply

any judgment on the part of the ADB Group and its members concerning either the legal status of a territory or

the approval or acceptance of its boundaries.

V

Annex V. Note on the Moroccan Solar Programme and on the Implementation of Phase I

The Moroccan Solar Programme was officially launched on 2 November 2009 in Ouarzazate by His Majesty

King Mohamed VI. The Solar Programme is aimed at developing the capacity to generate at least 2,000 MW

of electricity from solar energy by 2020. This production capacity will represent 14% of the projected

electricity output in 2020. The programme's total investment cost is estimated at USD 9 billion. The first solar

power plant is scheduled to be commissioned in 2015. This programme, which is international in scope, will

help to generate an annual output of 4500 GWh, or 14% of Morocco’s projected energy demand in 2020.

Annually, it will generate 1 million ton of oil equivalent (TOE) in fuel savings and avoid the emission of 3.7

million tons of CO2.

Some initial 5 (five) sites with a total surface area of 10,000 ha were identified for the development of the solar

programme which falls within the framework of Morocco's new energy strategy aimed at raising the share of

renewable energies to 42% of the electricity mix in 2020, in accordance with the High Directives of the

Sovereign. The solar programme will be developed through integrated projects. Apart from electricity

generation, the solar programme includes training, technical expertise, research and development, the

promotion of an integrated solar industry and potentially the desalination of sea water. Implementation of the

solar programme was entrusted to the Moroccan Agency for Solar Energy (MASEN), a State-owned limited

liability company established in March 2010. It is jointly-owned, with equal shareholding, by the Moroccan

State, the Hassan II Fund for Economic and Social Development, the National Electricity and Drinking Water

Authority (ONEE) and the Energy Investments Corporation (SIE).

Ouarzazate is the first implementation site of the solar programme. The Ouarzazate solar complex, with a

capacity of approximately 500 MW is scheduled to be developed in two main phases: (i) Phase I comprises

the construction of all common infrastructure (access roads, water supply, electrical power grids for energy

evacuation, telecommunications, safety, etc.) and construction of the first 160 MW solar plant called NOORo

I, under a PPP, which will be equipped with thermal energy storage facilities capable of running for three hours

at full capacity, thus enabling the plant to increase its electricity output during peak periods which are from 5

p.m. to 10 p.m. The electrical power output of the NOORo I power plant is estimated at 370 GWh per year.

Compared to an electricity power plant that runs on heavy fuel oil, the NOORo I power plant will help to avoid

the emission of greenhouse gases equivalent to 240,000 tons of CO2 per year.

Common Infrastructure: The construction of common infrastructure financed with counterpart funds

(MASEN, ONEE) is at a very advanced stage. The access road to the site, which is 4 km long from National

Highway No. 10 (Ouarzazate - Errachidia) has been completed and has been operational since the end of 2013.

Electricity supply, telecommunications and safety infrastructure has also be constructed. The remaining

common infrastructure is being constructed and is at an advanced stage. These are: (i) construction of the

reservoir and water treatment plant; (ii) laying of the raw water supply pipe between the complex and the

Mansour Ed Dahbi dam situated 25 km away; (iii) the 225 kV electricity post for evacuating the entire

electricity output of the complex; and (iv) 225 kV lines for evacuating energy to Ouarzazate, Errachidia and

Tazarte. The 225 kV lines leading to Ouarzazate and Errachidia are being completed and are financed by the

Bank under the electricity transmission and distribution network development project. According to the

timeframe in the works contract, all common infrastructure will be constructed by the beginning of 2015,

except the 225 kV line leading to Tazarte scheduled for end-2016.

Construction of the NOORo I Power Plant: The developer for NOORo I was selected under a PPP, through

a two-stage international competitive bidding process, preceded by pre-qualification. The pre-qualification

process was launched on 29 July 2010. As of 4 October 2010, the deadline for submission of documents, 19

application files had been received. After an assessment of these files, 6 (six) consortiums were pre-qualified.

The first stage in the bidding exercise was launched on 18 May 2011. As of the deadline for submission of

bids for the first stage, 4 (four) pre-qualified consortiums had submitted their technical bids. At the end of the

second stage of the bidding exercise (revised technical bids and commercial bids), the consortium led by

International Company for Water and Power (Saudi Arabia), whose operational members are Aries

Ingenieria y Sistemas and TSK Electronica y Electricidad, was selected because it proposed a more

VI

economical rate per kWh (peak rate of MAD 1.6187/kWh net of VAT). The Bank approved the final result of

the selection in October 2012.

A project company named ACWA Power Ouarzazate (APO) was created on 8 November 2012 to construct,

operate and maintain NOORo I for 25 years. APO is owned by ACWA Power International (majority stake of

75%) and MASEN (25%) through its subsidiary, MASEN Capital. APO entrusted the construction work to a

Spanish group composed of Acciona, Sener and TSI, under an Engineering Procurement Construction (EPC)

contract. The NOORo I power plant, with a capacity of 160 MW, will use concentrated solar thermal

technology with parabolic trough reflectors and 3 hours of thermal storage at full capacity.

Works on the power station were officially launched on 10 May 2013 and His Majesty King Mohamed VI

effectively presided over the occasion. NOORo I is scheduled to be completed at the end of 2015 after a

construction period of 22 months followed by a maximum test period of 6 months. It will be the largest

parabolic trough solar thermal power plant in the world. The first parabolic trough reflectors were installed in

March 2014. The overall construction rate of the power plant was over 30% in May 2014 when the Phase II

appraisal mission visited the project. Furthermore and in accordance with its contract, APO will have to build

the NOORo I power plant with a total industrial integration rate of at least 30%. APO considers that this rate

will be attained and even exceeded. In May 2014, the total industrial integration rate achieved by APO was

evaluated at approximately 6%. Within the same period, the total number of persons working on the site of the

complex was 1,400, of whom 42% came from the project area (Ouarzazate/Ghessate).

The total cost of the NOORo I power plant is approximately MAD 7 billion. MASEN raised the necessary

resources from donors to cover 80% of the eligible investment expenditure, amounting to a total debt of MAD

6.07 billion. The remaining 20% will be borne by APO shareholders. The following amounts were raised from

donors: AFD (EUR 100 million loan); AfDB (EUR 100 million loan); EIB (EUR 100 million loan); KFW

(EUR 100 million loan); CTF (USD 200 million loan, 50% from the AfDB and 50% from the World Bank)

and NIF/EU (EUR 30 million grant). On 26 April 2013, MASEN and APO signed a credit facility agreement

for retrocession of the loans.

On 19 November 2012, the electricity supply and purchase contract between MASEN and APO was signed.

On the same day, MASEN and ONEE signed a contract for the supply and purchase of the electricity generated

from NOORo I. As regards the State's financial support to the NOORo I project, a specific convention was

signed on 13 July 2012 between MASEN and the Moroccan State which has undertaken to ensure the financial

equilibrium of the project by financing the gap between the purchase price of a kWh by MASEN from APO

and its selling price to ONEE. In November 2011, the World Bank also approved the award of a loan of USD

200 million to the State of Morocco to support the financial equilibrium of NOORo I.