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PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5277 Project Name Region Sector Project ID Borrower(s) Implementing Agency Environment Category Date PID Prepared Estimated Date of Appraisal Authorization Estimated Date of Board Approval MA-Energy Development Fund MIDDLE EAST AND NORTH AFRICA Renewable energy (40%); Power (30%);District heating and energy efficiency services (15%);General transportation sector (15%) P120166 KINGDOM OF MOROCCO The Ministry of Energy, Mines, Water and the Environment [ ] A [ ] B [ ] C [ ] FI [X] TBD (to be determined) December 28, 2009 Late April, 2010 July 29, 2010 1. Key development issues and rationale for Bank involvement Morocco is facing a number of challenges in its energy sector. GDP growth and increasing population are driving rapid increases in investment needs. Morocco also relies heavily on imports for 95 percent of its energy needs. This import dependency is growing as modest domestic resources are depleted, placing a significant fiscal burden on the government to maintain retail price stability in the face of high and volatile international prices. High reliance on oil makes Morocco very vulnerable to oil price shocks. Furthermore, Morocco’s overall CO2 emissions have increased 35 percent during 2000-06 and are continuing to rise rapidly. There is therefore a need to foster considerable extra investment in the Moroccan energy sector going forward. Increased energy efficiency, especially with regards to industry and increased domestically resourced (renewable) energy would be required to reduce import dependency. Curbing energy use for transport (through greater efficiency and modal shifts) would play an important role in reducing dependency on imports. There is also a need to diversify to less carbon intensive forms of generation, use energy more efficiently or switch to less carbon intensive fuels in end-use sectors and promote modal shifts to less carbon intensive transport modes. The [draft] Country Partnership Strategy (CPS) identifies activities to support a well functioning energy sector, which will act as an engine of sustainable growth and of competitiveness for the economy. To that end, the CPS will support actions in a number of areas including the following: Energy efficiency and renewable energy ( “maitrise de l’énergie”) Technology promotion for local use and therefore local environmental sustainability, but also for exports, and global climate change mitigation and increased performance of the national economy Governance of the energy sector, to enable the necessary institutional and sector reforms to improve sector performance. The ongoing CPS discussions have also highlighted the importance of improving urban transport services. Government officials at various levels in the Ministries of Finance, Economic Affairs, and Interior have expressed their keen interest in having Bank support. Accordingly, there is also an Urban Transport DPL under preparation and the urban transport projects financed under this project will complement the work of the DPL. One of the three pillars of the CPS specifically addresses sustainable development in a changing climate. It identifies the need to target financing mechanisms for low carbon infrastructure projects especially through low carbon power generation capacity. The CPS also points to the need for urban transport policy to address transport related growing greenhouse gas emissions – especially in Casablanca. The proposed project addresses nearly all these actions. It will support the institutional development of the Fond de Développement de l’énergie (“FDE”) which will in turn support improved governance in the sector. The financing packages offered by the FDE supported by the proposed IBRD project and Clean Technology Fund (CTF) will ensure more projects achieve financial closure thereby promoting investment in technologies that lead to energy efficiency (in all end-use sectors—industry, buildings and transport) and increased renewable energy. Energy conservation through modal shifts to urban transport also contributes to improving sustainable development and mitigating GHG emissions and reducing transport time and costs, leading to improved competitiveness. 2. Proposed objective(s) The project development objective is the establishment of the Energy Development Fund (or FDE) as an institution capable of providing long-term financing in a manner that maximizes private sector financing with the intention of transforming the energy sector and the most energy intensive end-use sectors. Key performance indicators would be: increase in investments in renewable energy/energy efficiency (i.e. amount of funding leveraged); increase in share of renewable energy making up Morocco’s generation capacity; energy savings resulting from FDE investment activities; increased modal shift to public transport. 3. Preliminary description The proposed project will have, as a key component, institution building to support the development of the FDE. The FDE will need to be designed to fully complement the significant private sector interest in projects in Morocco and the need to crowd in private sector finance wherever possible. The project will offer technical assistance for building up the FDE’s institutional/governance capabilities and will offer linkages to wider Bank energy and transport Development Policy Loans (DPLs) and other Bank operations in those sectors and the sector reforms covered by such operations. As well as supporting the institutional set up of the FDE, the proposed project, through a combination of IBRD lines of credit ($100m) and CTF loans ($150m), will expand the FDE’s capability to offer long-term debt financing to public and private sector projects. It will (i) allow the FDE to provide long-term debt financing support to sub projects through direct lending by FDE to infrastructure projects (possibly by joining a consortium of banks) and (ii) deliver Clean Technology Funds to the FDE for disbursement to sub-projects that meet CTF criteria. Overall, the project will complement funding already available to the FDE – but which has mainly been earmarked for use as equity financing. Broadening the mix of sources of funds available to the FDE (i.e. IBRD and CTF) will allow the FDE to better tailor financing packages to the particular needs of less financially viable sub-projects to allow them to reach financial closure. 4. Safeguard policies that might apply During project preparation, an indicative pipeline of likely projects will be developed which will provide a better picture of the safeguards that may be required in each of the priority sectors. Environment and social risks exist in different ways for all three priority sectors. Renewable energy may face environment risk in installation of generating stations, as well as environment and social risk in the installation of transmission lines connecting supply with load. Energy efficiency may face environmental risk in some of the options for demand reduction, for example, mercury content of CFLs and proper disposal procedures. Urban transport may face social risks in the disturbance of local peoples in the construction work related to the urban transport projects. None of these risks represent new challenges and all have been addressed in numerous contexts around the world (as well as in Morocco). The World Bank (and African Development Bank) will provide Technical Assistance and other support as needed to help the GoM to properly manage and mitigate these risks. 5. Tentative financing Source: Borrower International Bank for Reconstruction and Development Climate Investment Funds Total 6. Contact point Contact: Mustafa Zakir Hussain Title: Senior Infrastructure Finance Specialist Tel: (202) 458-9510 Fax: Email: [email protected] ($m.) 1000 100 150 1250