ENERGY SUBSIDY REFORM ONLINE COMMUNITY (ESROC) PRACTITIONER EXCHANGE SERIES A phased approach to energy subsidy reform: the Morocco experience By Hassan Bousselmame, Director of Pricing, Competition and Investment, Ministry of General Affairs and Governance, Morocco • Pressure for reform in Morocco intensified when subsidies reached over 6% of GDP • Government launched the first phase of a three-year reform process in 2012, an incremental approach to reform that ensured a smooth transition • Integrated communication strategies and incremental price increases helped maintain public acceptance Morocco has a long history of energy and other subsidies A THREE-YEAR PHASED PRICING dating back to the 1930s. Their original purpose was to pro- tect vulnerable population groups and to promote domestic REFORM industries. By 2007-2008 however, the negative effects of Launched in June 2012, a phased reform was introduced the subsidies system were becoming apparent. The rising over three years until full price liberalization: a preparation fiscal pressure was out of the government’s control. Food phase, partial fuel price indexation, and price liberalization. and energy subsidies reached 6.5% of GDP by 2012, with The preparation phase included identifying population the bulk (70%) going to energy products. groups who would be affected, surveying households and It was clear that the subsidy system was no longer achiev- businesses, and designing impact mitigation strategies. A ing its intended objectives. The poor were benefiting less large communication campaign was also launched to start and some economic sectors were becoming inefficient. As building public acceptance. much as 75% of energy subsidies were going to the richest In 2013, the government introduced a partial fuel price index- 20% of the population. Arrears in government subsidies ation mechanism for diesel, gasoline, and industrial fuel oil. payments to refined oil importers and suppliers ballooned Indexation was based on a moving average of the previous to US$ 2 billion, threatening to constrain the supply of fuel two months’ prices and entailed automatic adjustment of and gas to the country. domestic prices when the difference between the market reference price and the domestic retail price exceeded 2.5%. ENERGY SUBSIDY REFORM ONLINE COMMUNITY (ESROC) PRACTITIONER EXCHANGE SERIES This was followed by a removal of subsidies for gasoline and ground for the government’s reform. One report showed industrial fuel oil, then the fuel subsidy for power generation. that high-income groups were benefitting most from LPG The government also introduced quarterly price increases subsidies and recommended finding an alternative way of to reduce the unit-subsidy for diesel and eliminated diesel securing social protection for lowest income groups. Another subsidies by the end of 2014. In December 2014, the govern- report identified possible areas in the oil products markets ment signed an agreement with petroleum product suppliers. where competition could be improved, with the aim of This paved the way for a transitional period in 2015, during impacting cost of supply. A third project helped to define which prices would be announced by the government twice a key steps to implement a new energy efficiency agency. month. The government implemented the policy as agreed, and deregulated prices at the end of 2015. MEASURING SUCCESS PUBLIC ACCEPTANCE AND SOCIAL The 2013 and 2014 reforms have been very effective in PROTECTION reducing the budget deficit while protecting the most vulnerable parts of the population. Subsidies were elimi- Public opinion can often make or break an energy subsidy nated first on those products that were more pro-rich and reform process. An incremental approach to increasing affected poverty the least like gasoline, while the reform prices helped ensure a smoother transition and better of products that would hurt the poor the most, like LPG, level of acceptance. Teams working on technical aspects of has been delayed. reform did not work in isolation, but in close cooperation Morocco has also proven to be a good example of how with government teams ensuring suitable communication. frequent and gradual price adjustments help gain accep- The government took parallel measures to expand existing tance of consumers, who progressively grow accustomed targeted social protection programs. This included support to internal prices fluctuating with world fuel prices and to school-age children and medical assistance for the poor. exchange rates. The country’s experience also shows that It also introduced new social protection programs in support clear communication regarding these price changes can of low-income widows and the physically disabled. Support help to ensure that the pricing reform is sustained. was also provided for public transport to compensate for the cost of higher fuel prices and to limit fare increases. Mr. Hassan Bousselmame presented the process of energy subsidy reform in Morocco for an audience of Egyptian government officials at the webinar “Morocco: Fuel and electricity price indexation—oper- ationalizing and building public acceptance”. Held in June 2017, this WORLD BANK SUPPORT knowledge-exchange event was organized within the framework of the World Bank’s Energy Subsidy Reform Online Community (ESROC). The World Bank supported the reform process through ESROC is a members-only virtual community aiming to share knowl- its expertise and international experiences. Study tours in edge among key stakeholders to facilitate energy subsidy reforms worldwide. It brings together government officials from around the Indonesia and several Latin American countries helped key world and experts from the World Bank Group interested in reforming officials to study cash transfer systems for example. energy subsidies. The community is a safe space for frank discussion (Chatham House rule applies), networking among peers, and exchang- ESMAP-funded reports and projects in 2007-2008 helped ing knowledge and experiences to overcome the challenges of energy subsidy reform. ESROC is run by the Energy Sector Management to analyse the picture of energy subsidies and prepare the Assistance Program (ESMAP). ABOUT ESMAP The Energy Sector Management Assistance Program (ESMAP) is a global knowledge and technical assistance program administered by the World Bank. It provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, the European Commission, Finland, France, Germany, Iceland, Japan, Lithuania, Luxembourg, the Netherlands, Norway, the Rockefeller Foundation, Sweden, Switzerland, and the United Kingdom, as well as the World Bank. ESMAP | 1818 H Street, NW | Washington DC 20433 | 202.522.3018 | www.esmap.org