Morocco, Tunisia to face bloated energy costs over 2023-2024

• Energy prices will drive economic and political outcomes in the Maghreb, potentially over the coming two-to-three years. High energy costs are eating into government budgets, especially in Tunisia and Morocco, reducing public investment capacity and rising external financing needs. They also disrupt populations and employment prospects, by reducing household incomes and pushing up the cost of doing business for foreign and domestic firms.
• Algeria, a net energy exporter, has been spared the pressures faced by neighboring Morocco and Tunisia. In fact, the rise in energy prices is expected to take Algeria’s hydrocarbons export revenues to $50bn by end-2022, relative to $35.4bn in 2021. High energy prices secure the ruling regime by increasing social spending.
• Although it exports natural gas, oil, and small amounts of refined petroleum products, Tunisia still imports large volumes of petroleum products, natural gas, and even electricity. Over the first ten months of 2022, Tunisia saw its energy trade deficit widen by 92%. Over Jan-Oct 2022, its energy trade registered a TD8.2 billion ($2.6 billion) deficit compared to TD4.3 billion ($1.3 billion) over the same period in 2021.
• The worsening trade deficit was caused, to a large extent, by the rise of import costs for petroleum products such as gasoline, diesel and jet fuel. After spending TD4.1 billion ($1.3 billion) importing petroleum products over Jan-Oct 2021, Tunisia paid TD7.4 billion ($2.3 billion) for petroleum products during the same period of 2022.
• Morocco has also been affected by higher energy prices. The kingdom depends on imported hydrocarbons for over 90% of its energy needs. According to figures by the Office des Changes, which handles trade statistics, over the first ten months of the year, Morocco’s energy import costs more than doubled to Dh128.3bn ($12.2bn), compared to Dh59.3bn ($5.6bn) in 2021.
• Besides energy prices, Tunisia is also dealing with a weaker currency, due to the country’s economic and political crisis. Between October of 2021 and September of 2022, the value of the Tunisian Dinar fell 11% against the US dollar. Over the same period, the price of a barrel of Brent oil rose by 50%, from $69.3 to $104.1.

Fuel prices hit populations

• Tunisia’s worsening energy deficit is having a heavy impact on the country. Since October, nationwide fuel scarcity has seen drivers repeatedly queue for hours to secure petrol and diesel. The state’s inability to pay for imports of subsidized goods such as petrol on time led to shortages and fuelled protests. In November Libya donated 30.000 tons of fuel to Tunisia to help stem the shortage.
• Fuel prices have continually gone up in Tunisia and Morocco over 2022. While Morocco eliminated fuel subsidies in 2015, they remain in place in Tunisia. Tunisians fear a gradual removal of fuel subsidies, as the country implements reforms in a bid to secure a $1.9bn loan agreement with the International Monetary Fund (IMF).
• Morocco’s import costs for petroleum products – which rose by Dh35.3bn ($3.3bn) to reach Dh63.6bn ($6bn) over the first ten months of 2022 - accounted for the large proportion of the increase in energy imports. In early December, thousands of Moroccans protested in the capital, Rabat, against high prices.

Costlier electricity generation

• Higher energy costs are worsening the financial situation of state-owned electricity providers. In mid-April, the Office national de L’électricité et de L’eau potable (ONEE), Morocco’s utility, announced it expected losses of Dh24.1bn ($2.3bn) in 2022 on the back of higher energy costs. ONEE planned to spend Dh47.7bn ($4.5bn) on acquiring  fuels to run its power plants over 2022, up from Dh21bn ($1.9bn) in 2021.
• In Morocco, thermal generation based on imported oil, coal and natural gas accounts for 6901 MW of installed electricity production capacity, out of a total 10.968 MW. This means that nearly two-thirds of electricity production will remain anchored to energy price volatility over 2023-2024.
• As much as 98% of electricity generation in Tunisia depends on natural gas. Besides domestic production and transit fees paid by Algeria, Tunisia buys the remaining gas it needs from Algeria. With its own domestic production falling, the amount of natural gas the country had to buy over the first ten months of 2022 increased to 48% of total consumption, up from 45% in Jan-October 2021. This means that nearly half of what the country needs to generate electricity is exposed to global energy prices. Over the past year, the  average price at which Tunisia buys its natural gas rose by 91% in dinar terms.