Morocco in Refinery Limbo as Buyers Sought

An appeals court in Morocco on 1 June upheld a decision to put the country’s sole oil refinery—Société Anonyme Marocaine de l’Industrie et du Raffinage, or “Samir”—into liquidation. The refinery, beset by financial difficulties, has been closed since August 2015. Buyers are being sought.

Despite the difficulties, reading the Moroccan press one could be forgiven for assuming that it’s just a matter of time before the refinery re-opens. Barely a week passed without newspaper reports  quoting “inside sources” saying that a buyer for the doomed plant may yet be found.

The decision on whether the plant will be re-opened with state support appears to rest on reconciling the desire to secure domestic energy independence with the simple truths told by the numbers. With only tiny proven reserves of hydrocarbons, Morocco is heavily dependent on imports for its domestic fuel needs, which are about 209,000 barrels per day, according to the US Energy Information Administration. Samir, which has been fed with crude bought on the open market mainly from Gulf producers and Russia, has a refining capacity of about 150,000 barrels per day; many in Morocco therefore feel that it plays an important role in providing for the country’s needs.

Contrary to the experience of other countries such as Nigeria, the closure of the refinery in August 2015 did not lead to fuel shortages or prices spikes. Although the country was forced to turn to importation of refined products from the world market, the low world oil price over the last 18 months actually helped to reduce the government’s current account deficit. Steps to support imports, including the new hydrocarbons terminal at the successful Tanger Med port, have also helped to make them a more attractive option. This impact on prices even continued when Morocco finally ended all fuel price subsidies in December 2015. There were no riots on the streets—only contented motorists as the petrol pump price fell.

All this must surely play into the decision on the future viability of Samir. With total debts estimated at MAD 44 billion ($4.5 billion) and around MAD 350 million ($35.8 million) needed just to re-start the mothballed plant, any buyer would need to feel confident that it can produce refined products at a price which can compete with cheap imports. But for those in Morocco pushing for Samir’s rescue, it is more about the role the refinery can play in securing supply in the event of a spike in the world oil price (particularly if the government remains steadfast in its refusal to reinstate subsidies)—and also the protection of some 1,200 jobs. However, the costs of operating Samir will also rise if the oil price increases, and the aging plant may struggle to compete with new refining capacity in the Gulf.

Morocco’s experience is useful for other countries engaged in debates about the role of refineries. For example, Uganda has clashed with potential developers of its oil deposits because the government wants to promote refining capacity for the local market ahead of the development of exportation capability.

In my book Africa’s New Oil, I trace similar experiences in Chad and Niger. Both countries agreed with the Chinese National Petroleum Company (CNPC) to prioritize development of a refinery for local production ahead of exports. In Chad, disputes between the government and CNPC over the price at which refined fuel was being sold at the pump – with the Chinese saying that they were unable to supply it at the artificially low price that President Idriss Deby Itno wanted—led the government to deport the Chinese director of the Djermaya refinery, and to close the refinery twice. Although the fuel price did initially fall, just a few months later it had rebounded almost back to its original level. Chad banned imports in order to support the domestic industry, but this led to a rampant smuggling racket bringing in cheaper fuel from neighboring Nigeria.

In Niger, the monopoly of the state fuel distributing company SONIDEP has made it difficult for the jointly owned Chinese-Nigerien Soraz refinery to market its own products, leading to closures, disruption in supply and high prices at the pump. Niger has struggled to pay back debts owed to China for the construction of the refinery, and again a black market in cheap fuel smuggled from Nigeria has opened up—even right outside the gates of the refinery in Zinder.

A lesson from Morocco is that refineries can often turn into fiscal black holes. In trying to attract a buyer and get the refinery up and running again, how far will the government and banks have to go in difficult economic times to write off unpaid debts? Will Samir have to be sold for less than its real value, or will the government have to offer tax breaks and financial incentives? Furthermore, although the arguments for “ownership” of a country’s natural resources through the promotion of refineries are powerful, Chad and Niger’s experiences have shown that they do not necessarily guarantee fuel for local consumers at the lowest possible price.

Celeste Hicks is a Morocco-based freelance journalist and author of Africa’s New Oil: Power, Pipelines and Future Fortunes. The views she expresses here are her own and not those of NRGI.