Feasibility Study for Promotion of International Infrastructure Projects in FY2011 STUDY ON THE EXPANSION OF RAIL TRANSPORT CAPACITY FOR ROCK PHOSPHATE, THE KINGDOM OF MOROCCO FINAL REPORT SUMMARY November 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: PACIFIC CONSULTANTS CO., LTD. HITACHI, LTD. TOSHIBA CORPORATION
1. Background and Necessity of the Project In the output of phosphorus (phosphate rock), which is one of the three major ingredients of fertilizers, Morocco is world number 3 (26.6 million tons) after China and the United States. As the United States and China have a large population and therefore have export restriction, Morocco leaves the two countries far behind international distribution. OCP (royal Moroccan phosphates company), a monopolistic firm in the phosphate rock industry, has approved a mid and long term plan to increase its phosphate rock production capacity from the current 28 million tons to 5.5 million tons, anticipating the rise in the international market. Currently, OCP depends on ONCF for almost 100% of the transportation from three mines, out of the four developed by OCP, to the ports of embarkation. ONCF has allocated 39 electric locomotives to the phosphate rock transportation and secured around 30 million tons of annual transportation capacity. However, it is required to establish a plan to increase its transportation capacity to respond to OCP s plan to increase its production to 5.5 million tons. Out of the total of 39 electric locomotives for phosphate rock transportation, 30 locomotives were produced and delivered jointly by Hitachi and Toshiba through a yen loan. Although it has been over 30 years since the delivery, they are still highly reliable and the quality is highly valued. The purpose of the project is to propose the best portfolio of locomotives owned by ONCF (optimal assets of locomotives with a combination of new electric locomotives and existing Japanese ones with repair and life-prolonging measures through examination of proposals for repair and life-prolonging measures of the existing cars and procurement of new ones both from technical and cost points of view, after investigating the details of OCP s phosphate rock production and ore transportation plans for the increase of ONCF s phosphate rock transportation capacity. 2. Basic Policy to determine the Project Scope of Work To determine the contents of the project, the study is conducted with following basic policies. Analyze future outlook of phosphate rock production in Morocco. Sort out requirements for railway freight transportation based on the result of the transportation demand forecast. Examine measures to increase transportation capacity of electric locomotives of Japanese make. Selection of the best portfolio with a combination of new electric locomotives and existing Japanese ones with repair and life-prolonging measures.
3. Project Overview 3.1 Actual Conditions and Future Prospects of Railway Transportation of Phosphate Rock 3.1.1 Vehicle Ownership Out of the 89 electric locomotives owned by ONCF, 39 locomotives are operated mainly for the transportation of phosphate rock. 30 of them were made in Japan and delivered between 1977 and 1987. While the Japanese locomotives take an important role in the transportation of phosphate rock, one of the most important export items for Morocco, the average age of the locomotives is about to reach 30 years old, which is generally considered as the end of the life. Therefore, there have recently been cases where the service of these locomotives is suspended due to breakdown and measures are required. Model Table 3-1 List of Electric Locomotives Owned by ONCF (delivered in 1977 and later) Year of delivery No. of cars Power Max speed Use Manufacturer E1100 1977 22 2,850 kw 100 km/h Phosphate rock E1200 1982 8 2,850 kw 100 km/h Phosphate rock E1250 1987 12 3,900 kw 160 km/h Passengers Hitachi E1300 1991 18 4,000 kw 160 km/h Passengers Alstom E1350 2000 9 4,500 kw 120 km/h Phosphate rock Alstom Hitachi Toshiba (truck etc.) Hitachi Toshiba (truck etc.) Passengers and E1400 2010 20 5,500 kw 160 km/h Alstom containers Note) Rows with thick frames: Locomotives for phosphate rock transportation
3.1.2 Actual Situation of Phosphate Rock Transportation According to the interview with the person in charge of freight operation management at ONCF Casablanca Engine Depot, the actual situation of phosphate rock transportation is as below. 23 trains on average, 25 at maximum, are in operation every day for phosphate rock transportation. The breakdown of the phosphate rock trains are 15-16 trains between Khouribga and Casablanca Port/Jorf Lasfar Port and 8-9 trains between Ben Guerir and Safi Port. The weight of a train is 4,800t. The empty weight of a 60-car train is 960t and the phosphate rock load capacity per train is 3,840t. A locomotive is operated for 1.5 cycles (1 cycle = from start point, Youssoufia, to end point). The schedule of phosphate rock transportation is 6-7 days for a locomotive to pull freight cars, 1 day for the push-pull operation from around Khouribga Station to the branch lines to the mines and another extra day for rescue etc. According to the interviews with the Freight Transportation General Manager of the Freight and Logistics Bureau of ONCF and the Ben Guerir Office of OCP, the load capacity of phosphate rock freight on the South Axis (Ben Guerir/ Youssoufia to Safi) is 3,600t/train. Therefore, we will use this number for the following calculations.
Figure 3-1 Routes for Railway Transportation of Phosphate Rock ONCF has a plan to increase the operation to 19 round trips on North Axis and 10 round trips on South Axis. If the plan presented by the general manager in charge of phosphate rock transportation is achieved, the transportation volume (mining volume) is estimated as below. Table 3-2 Estimated Volume When Transportation Capacity Is Increased as Stated by General Manager Route in Charge of Phosphate Rock Transportation in the Interview No. of Trains/d Transportation volume per train No. of operating days Estimated transportation volume (Estimated mining volume) 26.353M t/y Khouribga 19 3,800t 365 Ben Guerir 10 3,600t 13.14M t/y Total 29 - - 39.493M t/y
3.2 Outline of the Project In this project, regarding the procurement of the required number of locomotives to increase railway transportation capacity to meet the plan of future increase of phosphate rock production, we will set the following three cases, and, through comparison, consider the most appropriate option (best portfolio) for the procurement of locomotives for phosphate rock transportation. (Scenarios for consideration) Combination of rehabilitated locomotives and newly-built locomotives (Case 1) :Procure rehabilitated locomotives of existing operable locomotives and make up for the gap with new locomotives to secure the number of locomotives required by the beginning of 2020. Use of new locomotives (Case 2): Procure as many new locomotives as possible by the beginning of 2020 and make up for the gap with rehabilitation of existing operable locomotives to secure the number of locomotives required by the beginning of 2015. Combination of newly-built locomotives and rehabilitation (Case 3): Secure about half of the locomotives required by the beginning of 2020 through rehabilitation and procure new locomotives for the remaining half.
3.3 Project Costs Overview The project costs of this project at 2011 are shown in Table 3-3 - Table 3-5. Table 3-3 Project Cost (Case 1) Initial Construction Cost 2014~2019 216 million US$ Additional Construction Cost 2030~2034 245 million US$ 2046 35 million US$ 2059~2061 93 million US$ 2064 105 million US$ 2075~2079 245 million US$ Table 3-4 Project Cost (Case 2) Initial Construction Cost 2014~2018 321 million US$ Additional Construction Cost 2048 139 million US$ 2059~2063 321 million US$ Table 3-5 Project Cost (Case 3) Initial Construction Cost 2014~2018 253 million US$ Additional Construction Cost 2030~2033 163 million US$ 2047 72 million US$ 2059~2062 175 million US$ 2063 67 million US$ 2075~2078 163 million US$ 3.4 Preliminary Economic and Financial Analysis 3.4.1 Economic analysis A comparative analysis of the costs and benefits both in the case of executing the project ("With project") and not executing the project ("Without project") is carried out from the viewpoint of the national economy. Costs of "With project" consist of investment costs (including additional iii investment costs) and operation and maintenance (O&M) costs. The quantified benefits of Vehicle Operating Cost (VOC) savings are estimated in the analysis. The results of preliminary economic analysis are summarized in Table 3-6.
The EIRR obtained from the analysis is Case-1 40.4%, Case-2 34.4%, Case-3 36.3%. Compared with the social discount rate of 5.2%, the project is deemed to be economically feasible. Table 3-6 Results of Economic Analysis (Social discount rate = 5.2%) Case Economic Internal Rate Benefit and Cost Ratio Economic Net Present of Return (EIRR) (B/C Ratio) Value (ENPV) 1 40.4% 9.3 24,010 million Yen 2 34.4% 9.0 23,830 million Yen 3 36.3% 8.9 23,820 million Yen 3.4.2 Financial analysis Financial Internal Rate of Return (FIRR) on Project (Project FIRR) from the viewpoint of efficiency of investment is estimated as evaluation index. The Project FIRR is evaluated in comparison to the Financial Opportunity Cost of Capital (FOCC). In the analysis, the Weighted Average Cost of Capital (WACC) serves as a proxy for the FOCC combined with the financial sources. Table 3-7 shows the results of financial analysis. As a result, the Project FIRR is found to be Case-1 37.3%, Case-2 36.4%, Case-3 38.8% and is considered financially viable compared with 1.6% of WACC. Table 3-7 Results of Financial Analysis Case Financial Internal Rate Weighted Average Cost Financial Net Present Value of Return (FIRR) of Capital (WACC) (FNPV) 1 37.3% 1.6% 822,250 million Yen 2 36.4% 1.6% 825,650 million Yen 3 38.8% 1.6% 821,820 million Yen
3.5 Evaluation of Environmental and Social Impacts 3.5.1 Features of the Project The Project is to rehabilitate and extend life of electric locomotives that are currently used for mineral phosphate transportation and to introduce new electric locomotives to accommodate production increase plan of the mineral resources in the future. The motors used for the existing electric locomotives after the rehabilitation work for life extension and those that are planned to be newly introduced are superior to DC motors that are currently used for the existing locomotives in terms of power consumption and maintenance. The project implementation shall have the following advantages: Reduction of power consumption, which also results in reduction of greenhouse gas emissions Reduction of failures of electric locomotives (improvement of operation rate) Promotion of employment for rehabilitation and extension of life of existing locomotives and supply of new locomotives Increase in employment and GDP growth as a result of mineral phosphate production increase planned by OCP 3.5.2 Project Effects of Environmental Improvement (1) Study Reduction of CO 2 emissions of electric locomotives as a result of the Project implementation are estimated. Estimation of CO 2 emissions when all the railway transportation with the current electric locomotives is replaced with truck transportation shows that the current railway transportation imposes less environmental burden. The case study is shown as follows: Case 1) Measurement of environmental advantage of current railway transportation Truck Transportation Railway transportation Assumption of 100% truck transportation Assumption of 100% railway transportation Assumption that all electric locomotives have DC motor Case 2) Measurement of environmental improvement effects of project implementation Project is not implemented Project is implemented Assumption that all electric locomotives are not rehabilitated (DC motor) Assumption that increased operations are replaced with truck transportation Assumption of 100% railway transportation Assumption that both rehabilitated and new locomotives have AC motor
(2) Measurement of Project Effects of Environmental Improvement Estimated CO 2 emission by implementing of this project is about 76,000t-CO 2 /y. However, recently, transaction price has been tumbling down. For example, as of July 2012, transaction price in Nikkei-JBIC Carbon Quotation Index is 252 yen/t-co 2. This value is one fifth of transaction price as of July 2011. It will be difficult to apply this project to CDM from the aspect of yield. Table 3-8 Measurement Results of Project Effects of Environmental Improvement CO 2 Emission (t-co 2 /y) Present a. Transportation by Truck 490,055 (2012) b. Transportation by Railway 68,672 c. Environmental Contribution (=a-b) 421,383 Future d. NOT Implementing the project (Without Case) 140,580 (2020) e. Implementing the project (With Case) 64,239 f. Environmental Improvement (=d-e) 76,340
4. Planned Project Schedule Figure 4-1 shows the planned project schedule. Figure 4-1 Planned Project Schedule 12 12 Dec. 13 14 15 16 17 18 19 20 enforcement Appraisal (Sept.) Exchange of Note, Loan Agreement (Oct.) Tender preparation Tender (Jan.) Contract (Feb.) Design/Manufacture/Transport/Outfitting/Test run E1100 After certification, sequentially E1200 E1250 Design/Manufacture/ Transport/Outfitting/ Test run 9 month for manufacture, 1.5 month for transport per 4 locomotive 3 month for 4 loco Manufacturing/Outfitting/Transportation 3 month for 4 loco 3 month for 4 loco Item Application of yen loan Preparatory Survey Tender Design and manufacturing of equipment for E1100 prototype, and design for outfitting Design of equipment for E1200, E1250, and design for outfitting Equipment manufacturing and transport to the Morocco Rehabilitation Outfitting at local Design Manufacturing for prototype loco Equipment manufacturing for mass products Outfitting for mass products and transport to the Morocco New Manufacture Note: This table is shown the project schedule for 52 quantities of the locomotives for both rehabilitation and new manufacturing.
5. Technical Advantages of Japanese Companies Japanese manufacturers that are considering participation in the Project has supplied a total of 42 electric locomotives to ONCF in three deliveries; 22 E1100 locomotives in 1977, 8 E1200 locomotives in 1982 and 12 E1250 locomotives in 1987. Currently, out of the 89 electric locomotives owned by ONCF, 42, nearly half, are Japanese-made. There are 22 E1100 electric locomotives, which is the biggest force among the 6 types of electric locomotives owned by ONCF. (The second biggest force is 20 E1400 locomotives made in France.) The two Japanese electric locomotive manufacturers who are considering participation in the Project have ensured high reliability and safety of the railway vehicles delivered to customers inside and outside Japan. Based on the knowhow accumulated in Japan about the development and production of railway vehicles, they develop and produce train vehicles for export. They can also deal with projects that require compliance with international standards such as UIC (International Union of Railways) standards and EN (European Standard), and specifications and safety performance required by the country of delivery and the route of use. Considering their past deliveries to ONCF from 1977 and recent order receipts from and deliveries to other foreign countries, it is deemed that the companies have advantage in the supplier selection for rehabilitation of existing Japanese electric locomotives and manufacturing of new ones for Morocco.
6. Project Location Map Figure 6-1 Project Location Map Main rock phosphate mines Khouribga, Benguerir, Youssoufia Jorf Lasfer Safi Casablanca Youssoufia Benguerir Khouribga Main ports of shipment Casablanca, Jorf Lasfer, Safi Coastal fertilizer plant Jorf Lasfer, Safi Railway lines for transportation of rock phosphate Khouribga Casablanca Khouribga Jorf Lasfer Benguerir Youssoufia Safi Source: Illustrated by Study Team based on OCP (Office Chérifien des Phosphates; The national Moroccan phosphates company) publications, ONCF publications.