IAC)NTREAL 19389 COLOMBIA OZONE PROJECTS TRUST FUND GRANT PHASEOUT OF OZONE DEPLETING SUBSTANCES (ODS PHASEOUT I) PROJECT DOCUMENT JULY 1999 THE WORLD BANK GLOBAL ENVIRONMENT COORDINATION DIVISION ENVIRONMENT DEPARTMENT Report No: 19389 - CO COLOMBIA OZONE PROJECTS TRUST FUND GRANT PHASEOUT OF OZONE DEPLETING SUBSTANCES (ODS PHASEOUT I) PROJECT DOCUMENT JULY 1999 CURRENCY EQUIVALENTS (Exchange Rate Effective 7/14/99) Currency Unit = Peso US$1.00 = 1,885 FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CFC Chlorofluorocarbons Fl Financial Intermediary ACCI Colombian Agency for International Cooperation GOC Government of Colombia IBRD International Bank for Reconstruction and Development MFEC Multilateral Fund Executive Committee MinAmbiente Ministry of Environment MP Montreal Protocol MPMF Montreal Protocol Multilateral Fund MPOTF Montreal Protocol Ozone Trust Fund MT Metric Tons OORG Ozone Operations Resource Group ODS Ozone Depleting Substances OTF Ozone Trust Fund PIP Project Implementation Plan SOE Statement of Expense TORs Terms of Reference UNDP United Nations Development Program UTO Technical Unit for Industrial Reconversion (Ozone Unit) VAT Value Added Tax COLOMBIA Ozone Depleting Substances Phase Out CONTENTS A. Project Development Objective 1. Project development objective and key performance indicators 1 B. Strategic Context 1. Sector-related CAS goal supported by the project 1 2. Main sector issues and Government strategy 1 3. Sector issues to be addressed by the project and strategic choices 3 C. Project Description Summary 1. Project components 3 2. Key policy and institutional reforms supported by the project 4 3. Benefits and target population 4 4. Institutional and implementation arrangements 4 D. Project Rationale 1. Project alternatives considered and reasons for rejection 7 2. Major related projects financed by the Bank and/or other development agencies7 3. Lessons learned and reflected in proposed project design 7 4. Indications of borrower commitment and ownership 8 5. Value added of Bank support in this project 8 E. Summary Project Analyses 1. Economic 8 2. Financial 8 3. Technical 8 4. Institutional 9 5. Social 9 6. Environmental assessment 9 7. Participatory approach 10 F. Sustainability and Risks 1. Sustainability 10 2. Critical risks 10 3. Possible controversial aspects 11 G. Main Loan Conditions 1. Effectiveness conditions 11 2. Other 11 H. Readiness for Implementation 11 I. Compliance with Bank Policies 11 Annexes Annex 1. Project Design Summary Annex 2. Detailed Project Description Annex 3. Estimated Project Costs Annex 4. Procurement and Disbursement Arrangements Table A. Project Costs by Procurement Arrangements Table B. Thresholds for Procurement Methods and Prior Review Table C. Allocation of Loan Proceeds Annex 5. Project Processing Budget and Schedule Annex 6. Subproject Pipeline Annex 7. Subproject Preparation and Implementation Guidelines Annex 8. Guidelines for Preparation of Project Documents, Appraisal Reports and Completion Reports Annex 9. Eligibility Criteria, Incremental Costs, and Sectoral Cost Effectiveness Annex 10. Documents in Project File Annex 11. Environmental Data Sheet Annex 12. Country at a Glance Page 1 COLOMBIA Ozone Depleting Substances Phase Out A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The project development objective of this Montreal Protocol Project (MP) is to protect the stratospheric ozone layer by providing financial incentives for industrial conversion from ODS to non-ODS technologies and promote measures which reduce/eliminate emissions of Ozone Depleting Substances (ODS). Performance indicators measuring progress towards achieving the development objective would include: (a) number of subprojects adopting alternative technologies; (b) metric Tons of ODSs phased out during project implementation; (c) enterprise compliance with equipment disposal agreements; and (d) (UTO) in identifying, facilitating the preparation of, and monitoring implementation of MP ExCom approved projects. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): Reduced levels of air and water pollution, specifically reduction or elimination of consumption of ODS. CAS document number: 17107 CO Date of latest CAS discussion: October 15,1997 2. Main sector issues and Government strategy: The principal strategic issue to be addressed in the project is the requirement that nations phase out the use of CFC's and other ODS, as mandated by the Montreal Protocol, to which Colombia is a party since 1992. The Country Program was presented and approved during the 12th meeting of the Executive Committee (ExCom) of the MF in March 1994. Although the strategy presented at that time was oriented to accelerate the ODS phaseout starting in 1996, the GOC has since revised its position to follow the MP phaseout chronogram (see Table I). Seventeen projects with a cumulative grant value of US$ 9.5 million and a projected phase out potential of 980 MT ODP have been approved by the MP Ex Comm since then. All of them have been implemented. The UNDP has been the implementing agency for 16 of the projects, and the USEPA for the other one. The implementation strategy of the GOC is to assist Colombian enterprises in converting manufacturing processes to non-ODS technology by facilitating access to MP Grant Funds, and through dissemination of conversion technology information and techniques. Page 2 Table 1 - Montreal Protocol Controls a plicable to Colombia Substance 1999 2002 2003 2005 2007 2010 2015 2016 2040 Annex A- Freeze at 50% 85% 100% Group I 1995- reduction reduction reduction CFC- II CFC- 1997 12 CFC-113 avg. NCFC- 1 14 level CFC- 1 15 Annex A- Freeze 50% 100% Group II at 1995- reduction reduction Halons 1997 avg. level , Annex B- 20% 85% 100% Group I reductio reduction reduction CFC-13 CFC- n at 111 1998- CFC-112 2000 CFC-211 average CFC-212 level CFC-213 CFC-2 14 CFC-215 CFC-216 CFC-217 Annex B- 85% 100% Group II reduction reduction Carbon at 1998- Tetrachloride 2000 average ___________ ~~~level _ _ _ _ _ Annex B- 30% 70% 100% Group III reduct reduction reduction 1,1,1- ion at trichloro- 1998- ethane (methyl 2000 chloroform) avera ge level Annex C- Freeze at 100% Group I 2015 reductio HCFCs Freeze level n Annex E Freeze 100% Methyl at 1995- reduction Bromide 1998 average _ _ _ _ _ _ _ _ _ lev el _ _ _ _ __ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Page 3 3. Sector issues to be addressed by the project and strategic choices: The sectoral breakdown for the approved projects includes six domestic refrigerator factory conversions completed (243 MT ODP), which have eliminated ODS in new refrigerators. The remainder of the approved implemented projects include two polystyrene foam producers (320 MT ODP); eight projects in the commercial refrigeration fabrication and service sectors, and a mobile air conditioning (MAC) service project. A Bank implemented MP operation will present potential beneficiaries with a fundamental choice of implementation strategies. In Bank supported MP operations enterprise beneficiaries develop their own engineering solutions, which are then presented to counterpart executing agencies and the Bank's technical quality control monitor, the Ozone Operations Resource Group (OORG) for endorsement before transmittal to the MFEC for funding approval. Enterprises are then responsible for procurement and installation of the conversion technology. Technical assistance is available upon request during preparation and implementation. The UNDP uses a more centralized approach, with much of the engineering and equipment specification being carried out directly by UNDP technical consultants, with equipment being procured centrally through UNDP Operations. Availability of the Bank operation will now provide beneficiary enterprises with a choice of implementation strategy which has not been previously available. UNIDO is not active in Colombia. C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): Component Category Indicative % of Bank- % of Bank- Costs Total financing financing (US$M (UJS$M) 1. Investrnent in Subprojects Goods, Works (including 9.7 97 8.4 87 consultant services) 2. Technical Assistance Consultants' services .2 .2 100 3. Administration and Supervision Operational costs .1 .1 100 Total Total 10 100 8.7 87 Project Component 1 .-Investment in Subprojects: The objective of this subcomponent is to finance about 25 subprojects with Colombian enterprises which are currently using ODS in their production processes. It is expected that in the short run priority sectors will be rigid polyurethane, foam thermal panel producers, mobile air conditioner and commercial refrigeration (see Annex 6). Project Component 2.- Technical Assistance: The objective of this subcomponent is to provide financing for technical support in the areas of subproject preparation and evaluation Project Component 3. - Administration and Supervision : The objective of this subcomponent is to provide financing for the administration and supervision of Investment Subprojects, and for the financial management of the Project (including audits thereof) Page 4 2 Key policy and institutional reforms to be sought: The operation's purpose is to use the Bank as an impleMenting agency for channeling MPOTF funds to eligible beneficiaries in Colombia. As negotiated in the London Amendment to the Montreal Protocol. which established the Montreal Protocol Multilateral Fund, implementing agencies are specifically precluded from establishing policy conditionalities or institutional reforms as conditions of disbursement. 3. Benefits and target population: The target population of beneficiaries for this project are the industries which use ODS in their production operations, especially rigid polyurethane foam producers who use R-1 1 as a foaming agent, and commercial refrigeration equipment producers and service organizations. The operation will seek to identify and implement technology conversions in as many ODS consuming operations as possible where phase out can be implemented within the cost effectiveness thresholds established by tht MP Ex Comm (see Annex 9). 4. Institutional and implementation arrangements: The MinAmbiente, acting through the Unit mentioned below, will be the designated GOC executing agency for the operation. The Colombian Agency for International Cooperation (ACCI) will act as the financial agent. The ACCI was created by Law 318, of 1996. It is a public agency ascribed to the National Planning Department with its own juridical personae, patrimony and administrative autonomy. Within MinAmbiente, the Ozone Technical Unit (UTO), established in 1995, will be directly responsible for project execution. The UTO will: (i) assist with the promotion of subproject identification and coordinate subproject preparation; and (ii) in conjunction with ACCI, supervise subproject implementation, including monitoring of equipment disposal agreements. UTO operation is supported by MP institutional strengthening funding for which the UNDP is the implementing agency. ACCI started its activities in December 1997 as the Colombian institution responsible of channeling all projects and programs that the country presents to the cooperating sources. The Agency's main objectives are the coordination, management and promotion of non-reimbursable technical and financial cooperation that the country receives. ACCI under the proposed MP operation will: i) administer OTF funds for subprojects endorsed by the UTO, and approved by the Bank's OORG and the MP Exec Comm; ii) disburse grants to subproject beneficiaries; iii) maintain project and subproject accounts, and arrange audits; iv) supervise subproject implementation in conjunction with UTO; and v) ensure that procurement and disbursement will be in accordance with Bank guidelines and project procedures; and vi) evaluate the financial viability of enterprises based on eligibility criteria agreed with the Bank. ACCI will support travel and other expenses for subproject preparation and supervision, by UTO, outside of Bogota. The grant proceeds will be disbursed through an OTF Umbrella Grant Agreement between the Bank, ACCI (the Recipient) and the Republic of Colombia, acting through MinAmbiente. That agreement will designate UTO as the project executing agency. MinAmbiente and ACCI will agree, from time to time, which portion of the technical assistance component shall be made available to UTO to defray its expenditures connected with the Project such as expenditures for travel, per diem, and monitoring and evaluation. As such, ACCI's responsibilities shall be that of a general administrator of grant disbursements. A Project Operations Manual, to be approved by the Bank as a condition of effectiveness, will detail the respective responsibilities of each of the parties with regard to project operations. Subgrant agreements, based upon a model to be approved by the Bank, will be entered into between ACCI and subproject beneficiaries, following approval of grant proceed to defray subproject incremental costs by the MFEC and subproject appraisal reports by the Bank. Retroactive reimbursement of eligible expenditures incurred after Page 5 1995 up to a cumulative value of US$lmillion of the OTF Grant will be permitted, in accordance with MFEC's applicable policies. Subproject Identification, Preparation and Implementation Procedures. For subproject identification, preparation and implementation, MinAmbiente (through the UTO) and the beneficiary enterprises will be guided by the Subproject Preparation and Implementation Guidelines (Annex 7). These guidelines along with guidelines for document preparation, eligibility criteria, incremental cost and cost effectiveness thresholds will be fully detailed in the Project Operational Manual which will be prepared by UTO/ACCI and is a condition of OTF Grant Agreement Effectiveness. Subproject identification will be a cooperative effort among enterprises, UTO, industry associations and technical consultants. When a potential eligible subproject has been identified, MinAmbiente will transmit a concise project summary to the Bank. Through mutual consultation, the Bank and UTO will decide if the proposed subproject meets MP eligibility standards (Annex 9. B). MinAmbiente will also assess any potential environmental impact. If the review is positive, a staff member from UTO and a technical consultant will meet with the beneficiary enterprise and decide on a preparation schedule and the level of external assistance. The beneficiary enterprise will also be instructed on the measures to take to prepare the project for approval by MinAmbiente and transmittal to the Bank for OORG review. The Montreal Protocol list of eligible activities, indicative list of categories of incremental costs, and MFEC decisions, all of which are consolidated in the MF "Policies, Procedures, Guidelines and Criteria" of February 1997, will guide the eligibility selection process. The principal criteria for subproject approval will be: i) suitability of the replacement technology proposed; ii) cost effectiveness and compliance with sectoral cost effectiveness thresholds (Annex 4); iii) enterprise financial health; iv) implementability; and v) consistency with national ODP phase out strategy. Once identified, a three step process (Annex 7) will be employed to prepare subprojects for submission to the Bank and the MFEC, and eventual disbursement: i) screening for OTF eligibility; ii) GOC endorsement, OORG review, and MFEC approval, based upon a Project Document (Annex 7) prepared by UTO in conjunction with the enterprise: and iii) execution of a subgrant agreement between ACCI and the enterprise, based upon Project Document (Annex 8). MinAmbiente will provide the official endorsement of the GOC on a no objection basis for subprojects that are to be presented to the Bank for OORG review and subsequently to the MFEC for funding consideration. Investment proposals and subgrant agreements may be submitted to the Bank up to October 31, 2003. Beneficiary enterprises will be responsible for preparation and implementation of their subprojects, including engineering and procurement, for compliance with all relevant environmental regulations, and for acquisition of necessary permits. Procurement and Disbursement Procurement of goods, works, and services will be in accordance with Bank Procurement Guidelines (January 1995, as revised in January, August 1996 and September 1997 and January 1999), as further specified in Annex 4. Consultants will be selected in accordance with the Bank's Guidelines for the Use of Consultants, as further specified in Annex 4. Disbursement Procedures will be as specified in Annex 4. A Special Account (SA) of US$550,000 (equivalent to about four months of estimated expenditures) will be established in Acacia's name at an institution acceptable to the Bank. Page 6 Supervision and Reporting The UTO will be responsible for overall project and individual subprojects' supervision. ACCI, with the assistance of UTO, will: (I) prepare semi-annual progress reports for the Bank (ii) submit an annual project audit report prepared by an independent auditor acceptable the Bank; (iii) monitor enterprise compliance with environmental and safety standards and equipment disposal agreements; (iv) prepare subproject completion reports in collaboration with the enterprises upon final implementation of each subproject; (v) notify the Bank of any significant delays and problems with subproject implementation. Enterprises will agree not to transfer old ODS-using equipment to another location nor to another enterprise, nor to revert to ODS consuming technologies. The Bank's supervision will include field visits to current and prospective beneficiaries, discussion with the UTO and ACCI on project implementation; review of progress/audit, and subproject appraisal reports. The Bank will also review with the UTO Colombia's overall progress in implementing national ODS phase out, and the activities of other MF implementing agencies (UNDP, UNIDO, UNEP) in order to avoid duplication of effort in relation to the Bank MP project in Colombia. Supervision mission factory visits will monitor subproject implementation, compliance with environmental and safety standards and training, and evaluation of project performance according to ENVGC project monitoring criteria. Bank supervision mission teams will consist of the Project Task Manager, and technical consultants as required. Project Benefits and Risks Benefits: The project will assist Colombian ODS users to implement an accelerated ODS phaseout program by providing grant financing for cost effective subprojects. The target objective, assuming an overall cost effectiveness ratio of US$ 14.7/kg/yr, will be to phase out 596 MT of ODS or approximately 30% of Colombia's ODP consumption (2,000 tons per imports of 1997). Risk Mitigation: The possibility of not being able to develop a sufficient pipeline will be mitigated through an aggressive campaign of project promotion and subproject identification by the UTO. Such a possibility will be completely eliminated if the MFEC will approve policy guidelines for financing of commercial refrigeration user conversion subprojects (at least 500 MT of ODS in Colombia) which are now being developed by the Bank for the consideration of the MFEC. The already identified pipeline of 18 subprojects with a grant potential of US$ 4.97 million is given in Annex 6. Table 2 below presents the sectoral breakdown of these subprojects. Table 2 Sector ODP MT Threshold Incremental Cost (US$/kg) (US$ M) Commercial Ref 15 15.41 .231 Rigid Foam 114 7.83 .92 Flexible Foam MAC (Indirect) 112 None established 2.59 Supermarkets 45 22 .99 Medical Instruments 12 19.70 .235 Total 298 16.66 4.966 Outstanding Issues Page 7 Progress has been made on the preparation of the Project Operations Manual, including the model subgrant agreement, which should be finalized before Grant effectiveness. Also, a time-bound action plan to strengthen ACCI's accounting and financial management system will be agreed upon, prior to negotiation. D: Project Rationale Rationale for Funding from the MF. Colombia is a nation with a large number of ODS consuming domestic industries; and with many commercial/industrial refrigeration, and central air conditioning installations. Its phase out schedule is being driven to a certain extent by the phase out schedule in non-Article 5 (developed) countries, and by impending CFC scarcities and price increases in Colombia's traditional ODS supplier countries. The rationale for funding will continue to be that which it has been -a means of providing a financial incentive to those users who will phase out sooner than mandated by the 10 year grace period granted to Article 5 nations, or sooner than warranted by current domestic market conditions, or financial compensation to those who face threat of loss of competitiveness in the absence of conversion to zero or low ODP technology. 1. Project alternatives considered and reasons for rejection: The Bank has already implemented MP operations in more than 20 nations in which most project beneficiaries have been private sector industrial and commercial enterprises. The basic model for project implementation of using a government technical implementing agency and a financial intermediary capable of disbursing directly to the private sector, coupled with access to international technical consultants through Bank project preparation funds to assist enterprises with project preparation, has proven to be the most successful project implementation structure, once adapted for local conditions. Given this background, it was unnecessary to consider other project implementation alternatives. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): Sector issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed Ozone Projects Trust Fund Grant Argentina Phase out of ODS S S Mexico ODS Phase out I Completed S Mexico ODS Phase out II Completed S Venezuela (Ind. Molanca) Completed S Venezuela (FAACA) Completed S Venezuela (AAISA) Completed S Mexico ODS Phase out III In Implementation Other development agencies UNDP/IJNIDO/UNEP IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The most applicable lessons which are being incorporated in this proposed operation are those which were learned during implementation of MP operations in other Latin American nations. These are: i) devising a flexible mechanism for contracting appropriate extemal and domestic consultants - ACCI and UTO will agree what portion of the 3% FA fee, as needed, will be earmarked specifically for local technical consultants tor Page 8 subproject supervision; international consultants for project preparation and supervision will be contracted by the Bank outside the scope of the Grant Agreement, and financed through the Bank's project preparation budget; ii) designing project implementation arrangements to minimize duplication of review and approval of subprojects by delegating subproject processing responsibility to a financial agent for international grants, ACCI, leaving the UTO free to focus on interagency coordination; iii) subgrant agreements will be entered into by ACCI and the subproject beneficiary; iv) securing support at the appropriate level of government to ensure that executing agencies, through a combination of MPMF and counterpart support, will have the human and financial means to implement the operation successfully; v) ensuring that beneficiary tax obligations related to receipt of OTF Grants are equivalent regardless of choice of international executing agency. 4. Indications of borrower commitment and ownership: The GoC is a signatory to the Montreal Protocol and has previously submitted 18 subprojects to thze MPEC for approval, which when fully implemented, will phase out over 900 MT ODP. While the UNDP has been the most active implementing agency in Colombia to date, the GOC specifically requested the Bank to establish an operation to provide the enterprise strategic alternatives. Indicative of the GOC's commitment is the approval by Congress of the Grant tax relief legislation. 5. Value added of Bank support in this project. The Bank, as one of the implementing agencies of the Montreal Protocol Multilateral Fund (MPMF), has designed and financed phase out projects in over twenty countries throughout the world including, in Latin America, countries such as: Argentina, Brazil, Mexico, Ecuador, Chile and Venezuela. E: Summary Project Analysis 1. Economic: MP operations are narrowly defined, single purpose projects to facilitate elimination of a potentially adverse environmental hazard rather than to achieve a conventionally defined economic development objective. The economic efficiency indicator used to judge resource allocation, the ODP Phase Out Cost Effectiveness ratio, can only be applied to specific subproject funding proposals. 2. Financial. The financial analysis of MP investment subprojects is limited to that which is necessary to assess whether the enterprise can utilize the OTF Grant productively. This latter is commonly defined as whether or not the enterprise will continue in operation at its existing level of operations for five years or more. Fiscal impact: None 3. Technical: In all MP projects, the project beneficiaries develop their own engineering solutions which are then presented to counterpart executing agencies for endorsement and then on to MFEC for funding approval. MinAmbiente's Ozone Unit (UTO) will review subprojects for funding eligibility, technical soundness, and compliance with the objectives of MPMF. The Bank will assist the companies in defining their technical options and project design. Since 1993, UTO has played a key role in the implementation of MP activities supported by UNDP. By the end of 1998, this program had eliminated approximately 980 tons of ODS consumption at a cost of US$10 million. During project preparation UTO will collect data detailing consumption of ODS by sector. During project preparation UTO consultants carried out a survey and interview program detailing consumption of ODS by sector. This information will serve as input into subproject identification. The results indicate that 1997 annual import totals for controlled ODS's as recorded by the National Directorate for importers and distributors only were CFC-11, 725MT; CFC-12, 1077 MT; CFC-113, 105 MT; TCA, 57 MT; and carbon Page 9 tetrachloride, 20 MT. The recorded combined total (disaggregated figures not available) of uncontrolled R- 22, and ODS substitutes HCFC-141b and HCFC-134a was 560 MT. Additional information supplied by major direct users showed that in addition to the total recorded R- 12 consumption of 1077 MT, approximately 500 MT was imported directly by foam producers for use as a foaming agent for expanded polystyrene production in plants where financing of conversion under UNDP executed projects has already been approved by the MPEC. The figures thus indicate that most of the 1077 MT imported by distributors is used primarily for commercial and domestic refrigeration and MAC servicing. Of the 725 MT recorded R- 11 imports, approximately 500 MT was used in polyurethane production in plants whose reconversion financing for projects executed by the UNDP has already been approved. Much of the remainder is thought to be used in smaller polyurethane foam operations, and in servicing of R-1 1 using central air conditioning units. More precise data on the structure of consumption will be available upon completion of the still ongoing work. 4. Institutional: a. Executing agencies: The executing agency for this project would be MinAmbiente, through its Ozone Unit, UTO, that has the responsibility to coordinate activities to promote the MP mandated ODS phase out. In addition, UTO, has broad policy, regulatory and monitoring mandates along with subproject identification, preparation, implementation and supervision. UTO will work closely with A(CCI who will act as the project's financial agent. The responsibilities of ACCI are detailed below. b. Project management: Day to day project management will be in the hands of UTO. UTO will: i) assist with the identification of subprojects; ii) supervise subproject implementation; and iii) prepare a completion report. ACCI will: a) administer funds allocated by the Bank through the OTF to subproject endorsed by UTO and approved by the MFEC; b) evaluate (due diligence) the financial viability of enterprises; c) disburse grants on behalf of subproject beneficiaries; d) maintain project accounts and arrange project account audits. a. Social: N/A 6. Environmental assessment: Environmental Category []A [X] B []C The overall project objective is protection of the stratospheric ozone layer through financing of measures which will eliminate or reduce emissions of ODS. The transition to non-ODS technologies or substitution of ODS with other chemicals may involve other environmental risks and safety risks such as use of flammable substitutes or, in the case of solvent subprojects, increased waste water discharges. Sponsoring enterprises will be responsible for meeting emissions standards, preparing impact statements, and obtaining environmental clearances as required by Colombian law, and consistent with World Bank environmental guidelines. The MinAmbiente will ensure that subprojects have complied with the above environmental requirements before officially submitting subprojects to the Bank for OORG review. The overall ODS Phase Out Project is classified as a Category B (OD 4.01). The environmental data sheet is shown in Annex 11. Page 1 0 7. Participatory approach [key stakeholders, how involved, and what they have influenced; ifparticipatory approach not used, describe why not applicable]: N/A F: Sustainability and Risks 1. Sustainability: A subproject will be considered sustainable if it has resulted in a substitution of a zero or low ODP for an ODS. Given the technical changes which are taking place and the lack of future CFC availability it is unlikely that a reconversion back to use of ODS would take place. Institutional sustainability for the ACCIJUTO project management team will be assured by the sharing of the technical assistance component and earmarked budget for expenses. The technical assistance assures sustainability for project supervision and evaluation. Assurances will have to be obtained from MinAmbiente that resources to support sustained operation of the UTO during the life of the project will be forthcoming. 2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1): The greatest risk follows from the substantial phase out activity which has already taken place in Colombia, i.e. difficulty in developing a sufficient pipeline of cost effective eligible projects to fully commit the proposed US$8.7 million grant line. All large domestic and some commercial refrigerator manufacturing factory conversions have already been financed, as have the main polystyrene producers. Yet, annual consumption ODS consumption is still close to 2,000 MT. Remaining ODS consumers are small and medium size entrepreneurs somewhat dispersed in the main cities of the countries. As noted in Annex 6, however, a potential pipeline of US$ 4.97 (57% of total grant amount) has already been identified. RRisk sk Rating Risk Minimization Measure Annex 1, cell "from Outputs to Objective" Active participation by private sector in the development S UTO will carry out aggressive of a sufficient pipeline of cost effective eligible projects promotional campaign activities to identify eligible projects Well defined Subproject selection process established M UTO will adhere to policy and implemented guidelines approved by the MFEC (Multilateral Fund Executive Committee) Active development and enforcement by GOC of the M MinAmbiente attends MP meetings regulatory measures for controlling ODS consumption of the parties in which signatories inform the Executive Committee on the progress in achieving ODS phase out targets, and if not in compliance, then corrective measures to be undertaken by them Page 11 Annex 1, cell "from Components to Outputs". Commitment on the part of the enterprises to provide the M Beneficiary enterprises will sign a counterpart funding subgrant agreement with financial agent pledging counterpart funds GOC adopts legislation to exempt MP projects from the N Legislation has been approved "grant tax" Compliance with Bank Procurement, disbursement and N ACCI has attended auditing guidelines workshop/seminar to learn of Bank disbursement and auditing guidelines. Financial agent is familiar with commercial shopping procedures Sufficient national level resources to support N UNDP provides the operating MinAmbiente's Ozone Programs budget crUTO. Financial agent will use nart of the technical assistanc. budget to fund supervising/evaluation tasks Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects: None G: Main Grant Conditions i. Effectiveness Condition: (1) Completion and Submission to the Bank of an acceptable Project Operational Manual. 2. Other. Covenants on Project Execution, on procedures for and terms and conditions of grant and on retroactive financing H. Readiness for Implementation [ ] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ X] Not applicable. [ The procurement documents for the first year's activities are complete and ready for the start of project implementation. [X] Not applicable [] The Project Operational Manual has been appraised and found to be realistic and of satisfactory quality. [ The following items are lacking and are discussed under loan conditions Page 12 I. Compliance with Bank Policies I[ This project complies with all applicable Bank policies. [ ] [The following exceptions to Bank policies are recommended for approval: The project complies with all other applicable Bank policies.] Page 13 ANNEX 1 Colombia: Ozone Depleting Substances Phase Out Project Design Summary Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical Assumptions Sector Related CAS Goal 1. Colombia meets phase out 1. Evolution of CAS (Goal to Bank Mission) 1. Reduced levels of requirements as specified in Dialogue between Bank and la. Successful introduction and controlled substances Montreal Protocol GoC. adaptation of phase out technolo- consumption and emissions Agreement. gies in Colombia. I b. GoC continues to regulate and control the import and use of ODS substances and products using ODS substances 1c. MP Multilateral Fund resources are mobilized in Colombia to provide financial incentive for conversion. ld. Key private and public sector environmental staff receive professional upgrading in conversion technologies. Project Development (Objective to Goal) Objective: la. # of eligible subprojects 1. Provide financial incentive approved by MP Ex.Com 1. Supervision Missions and la. Sufficient pipeline of eligible for industrial conversion from Progress Reports. Monitoring subprojects. ODS to non-ODS lb. # of approved subprojects of Project Grant Agreement technologies and promote successfully implemented. lb. Competent government measures which implementation unit. reduce/eliminate emissions of lc Tons of ODS consumption lc. Competent financial agent. ODS eliminated Id. Workable institutional arrangements for subproject preparation and review. le. Adequate diffusion of conversion technologies to industry users. Project Outputs: (Outputs to Objective) 1. Effective MPOTF Grant 1. All conditions of 1. Date of Effectiveness la. Resolution of issues of Agreement effectiveness satisfied. signatory to Grant Agreement and Trust Agreement between signatory and Financial Agent (FA). Page 14 2. Identified, prepared, MP 2. # of subprojects approved 2. Implementation 2a Colombian Enterprises operations. Exec Comm and implemented. Performance Review commitment approved, and satisfactorily Supervision Reports; Project to fund all non-eligible costs implemented subprojects. Semi-Annual Reviews; Mid- associated with subprojects under term Project Review; MP policies and guidelines 3. Reduction in the levels of 3a. Metric Tons of ODS 3. Implementation 2b. Active participation by private ODS Consumption phased out during project Performance Review sector in the development of a implementation; Supervision Reports; Project sufficient pipeline of cost effective Semi-Annual Reviews; Mid- eligible projects 4. Effective UTO in Ministry 3b. Enterprise compliance Term Project Review; of Environment, and effective with equipment disposal 2c. Compliance of with terns and Financial Agent. agreements conditions of subgrant agreement 4. Same as 3. 4.Commitment of the Got .o support the functions of the Ozone Unit and FA. Project Components/Sub- Inputs 1. Project Implementation (Components to Outputs) components: Unit records; Subproject 1. Quantitative targets for 1) OTF Grants for financing 1. US$ 8.4 million. monitoring reports; Project subproject implementation as eligible incremental costs of Semi-Annual Reviews; Mid- identified in annual business plan subprojects and Technical Term Project Review (Budget $ ) Assistance. 2. US$ 212,000 lb.Commitment on the part of the 2) Technical Assistance 3. US$ 40,000 enterprises to provide the counterpart funding. 3) Administration and Supervision 3. Counterpart Funding lc. GoC adopts legislation to (US$1.3 million) exempt MP projects from the 4). Iniplementation of "grant tax". subprojects approved by MPMF 2. Compliance with Bank Procurement, disbursement and auditing guidelines 3. Sufficient national level\UNDP resources to support MinAmbiente's Ozone Unit Page 15 ANNEX 2 Ozone Depleting Substances Phase Out Project Description Project Component 1 - Investment in Subprojects US$9.7 million The objective of this component is to support about 25 subprojects which will assist Colombian enterprises in their efforts to phase out the use of ODS and convert existing production processes to non- ODS technologies. Active subproject pipeline development for the proposed operation began during May 1998 project preparation mission, and has continued hereafter. Eighteen enterprises have been identified as having potential eligibilily for conversion subprojects. These companies along with others participated in surveys of ODS consumption which were designed and executed under the guidance of UITO. The eighteen enterprises already identified have a potential eligible grant amount of US$ 4.97 million. included are four subprojects which have already been approved by the MPEC for US$ 387,570. Subprojects will be identified, prepared and implemented in accordance with subproject guidelines detailed in the MPMF's Report of February 1997 which consolidates all policies, procedures guidelines and criteria for financing of ODS phase out activities. Subproject identification will be a cooperative effort among enterprises, UTO, industry association3, and technical consultants. When a potentially eligible subproject has been identified, the enterprise and UTO will prepare a brief project summary for transmittal to the Bank. UTO will review the subproject summary to determine its eligibility and cost-effectiveness. Through mutual consultation, the Bank and UTO will decide if the proposed project meets MP eligibility standards. Project Component 2 - Technical Assistance - US$212,000 A technical assistance component has been included to support ACCI/UTO in carrying out preparation, and supervision of subprojects. Project Component 3.- Administration and Supervision - US$40,000 An operational costs category has been included to support ACCI/UTO in carrying out administrative tasks Page 16 ANNEX 3 Ozone Depleting Substances Phase Out Estimated Project Costs Project Component Local Foreign Total -----------------------US $ million-------------------- (1) Investment in # Subprojects 1.3 8.4 9.7 (2) Technical assistance 0.0 .2 .2 (3) Administration and Supervision .1 .1 Total 1.3 8.7 10.00 Total Baseline Cost Physical Contingencies N/A N/A N/A Price Contingencies N/A N/A N/A Total Project Cost 1.3 8.7 10 Page 17 ANNEX 4 Ozone Depleting Substances Phase Out Procurement, Disbursement and Financial Management Arrangements Procurement Procurement of goods, works and services will be done in accordance with the provisions of the World Bank Guidelines for Selection and Employment of Consultants by World Bank Borrowers published in January 1995 and revised in August, 1996, January and September 1997 and January 1999 and the Guidelines for Procurenment under IBRD Loans and IDA Credits, published in January 1995, January and August 1996 and revised in September 1997 and January 1999. The procurement arrangements for the project components are described below and summarized in Tables A and B. The following procurement procedures will apply for this Project: Goods and Works (I) Contracts of US$2 million or more equivalent (excluding proprietary packages) will be procured by the Grant beneficiary, with the supervision of ACCI, under International Competitive Bidding (ICB) procedures. (ii) Contracts for procurement of goods and works (consisting of installation and commissioning of equipment) costing less than US$2 million may be procured by grant beneficiaries in accordance with commercial practices acceptable to the Bank; (i.e., shopping) consisting of competitive selection based on at least three quotations from eligible and qualified contractors and suppliers. Direct contracting may be used for procurement of proprietary items in accordance with Clause 3.7 of the procurement Guidelines. Consultants (I) Consultants (Firms or individuals) selected by ACCI will be hired on the basis of the consultants qualification, in accordance with the Guidelines. (ii) Consultants selected by prospective beneficiaries will follow competitive commercial practices acceptable to the Bank. Prior Review Prior review of proposed awards and final contracts of good and works will be as follows (see Table B): (I) All contracts under investment projects will be reviewed by ACCI, on a prior review basis. Procurement procedures and documentation for all contracts costing over US$ 2 million and all direct contracting for proprietary equipment will be subject to prior review by the Bank (ii) Terms of Reference for all consultants contracted by ACCI, or by prospective project beneficiaries will be subject to the Bank's prior review. In addition, full Bank prior review Page 1 8 shall apply in the case of contracts costing US$100,000 or more equivalent (in the case of consulting firms) and US$50,000 equivalent or more (in the case of individual consultants). All contracts of any type financed through this grant will be subject to ex-post review by the Bank. Disbursement The proposed MP would be disbursed over 5 years with project effectiveness expected to start next July. The closing date would be July 31, 2004. Disbursement will follow the procedures detailed in the disbursement handbook published by the Bank in 1992 and revised in July 1998 and in the Disbursement Letter, which will be issued after the Grant Agreement is signed. For eligible expenditures above the prior review threshold, fully documented disbursement requests will be sent by the beneficiary to ACCI who, approving the contract or after receiving the Bank's no objection (when required), will issue payment directly to the supplier on behalf of the beneficiary. For eligible expenditure below the prior review Sows, will be used. For projects with grant funding of incremental operating costs as well as investment costs, ACCI will indicate in the subproject appraisal report, the disbursement plan for operating cost grants. After one year of operation following disbursement of investment costs, an enterprise with funding of incremental operating costs will provide ACCI with documentation verifying the realized level of annual incremental operating cost, which will then be compared with the estimate upon which the subgrant approval was based. If deemed satisfactory, ACCI will approve disbursement of the lesser of the realized level, or the subgrant amount originally allocated for incremental operating costs. The allocation of grant proceeds is detailed below in Table C of this annex. Special Account: A Special Account in US dollars will be established at ACCI. The Bank will make an initial deposit of up to US$550,000 into the Special Account opened by ACCI at an institution acceptable to the Bank. This amount is equivalent to the average expected expenditures during the first 4 months of project execution. This "Authorized Allocation" shall be limited to an amount equivalent to US$200,000 until the aggregate amount of withdrawals from the OTF Grant amount plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of US$1,500,000. The account will be replenished in receipt of full documentation except for expenditures under contracts valued below US$2,000,000 equivalent for goods and works or for consulting contracts valued below US$100,000 for a consulting firm, or below US$50,000 for individuals for which the Bank will accept Statements of Expenditure (Sows). Supporting documentation for Sows including contracts, procurement documentation, and evidence of payment should be kept in a central location for examination by independent auditors and bank staff during supervision missions. Financial Management Within MinAmbiente, the Ozone Technical Unit (UTO) in conjunction with the Colombian Agency for International Cooperation (ACCI) will supervise subproject implementation, including monitoring of equipment disposal agreements. ACCI will act as the financial agent. Acacia's activities are administered by Page 19 a group of experienced professionals, including a qualified accountant. Prior to effectiveness, ACCI will have completed, in terms acceptable to the Bank, the Project Operational Manual. A LAC FMS performed the required financial management assessment in accordance with OP/BP 10.02. The FMS concluded that ACCI has appropriate project financial management capabilities and will prepare Project Management Reports (PMR) from the start of operations. Nevertheless, it was agreed with project management that initial disbursements would be processed under the Bank's standard disbursement procedure until sufficient experience is acquired in the preparation and use of Parse. An action plan has been agreed with project management to reach full command in the use of Parse in project management. ACCI has agreed to engage a private auditing firm shortly after effectiveness, to perform the required yearly audit of the project, following terms of reference acceptable to the Bank. Annex 4, Table B: Thresholds for Procurement Methods and Prior Review' Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review / Estimated Total Value Subject to Prior Review US $ thousands US $ millions 1. Goods and Works >2,000 ICB All <2,000 Commercial Practices None 2. Consulting Services (a) Consulting >100 CQ All Firms (b) Individuals >50 CQ All Total value of contracts subject to prior review: I Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. Page 20 Annex 4, Table C: Allocation of Grant Proceeds Expenditure Category Amount in US$million Financing Percentage Subgrants 8.40 100 Consultants' Services .2 100 Operational Costs .1 100 Total 8.7 100 Page 21 ANNEX 5 Ozone Depleting Substances Phase Out Project Processing Budget and Schedule A. Project Budget (US$000) Planned Actual (At final stage) $100,000 100,000 B. Project Schedule Planned Actual (At final stage) Time taken to prepare the project (months) 14 months 19 months First Bank mission (identification) 10/26/1997 10/26/1997 Appraisal mission departure 12/10/1998 2/21/99 Negotiations 12/10/1998 7/30/99 Planned Date of Effectiveness 2/1511999 8/15/99 Prepared by: The Bank/MinAmbiente Preparation assistance: [PPF, trust funds, cofinanciers, etc.] MP Preparation Budget Page 22 ANNEX 6 Ozone Depleting Substances Phase Out Subproject Pipeline 1. Active pipeline development for the proposed operation commenced during the May, 1998 preparation mission and will be ongoing during implementation of the umbrella grant. In the short term, the priority sectors selected for subproject identification are rigid polyurethane foam thermal panel producers, mobile air conditioner component fabricators and unit assemblers, and commercial refrigeration equipment fabricators. Other projects in the foam sector will be considered in the next two years of implementation. Also, projects in the medical industry and solvents will be considered. Table 3 shows a summary of projects already identified by the Bank. The potentially eligible OTF Grant Amounts for these subprojects, based upon estimated ODP impacts and cost estimates supplied by the firms is US$ 4.97 million. The UTO is continuing an ongoing process of subproject identification. Table 3 - Projects already Identified Sector Projects Estimated Impact Eligible Grant (ODP tons) (estimated) US$ Rigid Foam Master Cooler 10 * 70,862 Friotermica 10 67,338 DJF 25 * 173,822 lndufrio 10 * 75,548 Rojas Hermanos 25 196,000 Colser 4 31,000 GMP (Group Project) 30 235,000 Polares 9 70,000 Comm. Refrigeration Polares 4 61,000 Supernordico 11 170,000 Mobile Air Conditioned Thermocoil 70 2,000,000 MAC (estimated ODP Autoaires 4 20,000 impact is indirect-1 12 MT Mitchel 4 50,000 ODP for one year's Calaires 4 20,000 production.) Paramo 20 500,000 Supermarkets (pending Confenalco 30 660,000 approval of comm. ref. Cafam 15 330,000 retrofit guidelines) Solvents Rymco 12 235,000 TOTAL 298 4,965,570 * Amount already approved by MPEC 2. The following projects have already been approved by the Executive Committee and are ready for initiating implementation: a) FRIOTERMICA. This enterprise located in Bogota consumes 13 MT CFC-1 1 per year, to manufacture sandwich rigid foam panels for construction and cold storage modular rooms. The Page 23 company also manufactures commercial refrigeration equipment but its use of CFC-12 has been already eliminated, charging HCFC-22, R-404a and R-407. It has a low pressure foaming machine (60 kg/min.). FRIOTERMICA will convert to HCFC- 141b as this seems to be the most simple and less expensive alternative to CFC-I l. To undertake its conversion, a high pressure machine would be required by the project. b) DANIEL J FERNANDEZ. This enterprise located in Barranquilla consumes approximately 25 MT CFC- 11 per year, to produce sandwich rigid foam panels for construction, cold storage modular rooms, roofs, and piping insulation. It has a low pressure foaming machine (60 kg/min.). DANIEL J. FERNANDEZ has opted for HCFC-141b as this seems to be the most simple and less expensive alternative to CFC-1 1. To carry out its conversion, the company will require a high pressure machine. c) AIASTER COOLER. This enterprise located in Bogota consumes -).3 MT CFC- 11 per year, to manufacture sandwich rigid foam panels for building insulation and cold storage modular rooms. It has a high pressure foaming machine (100 kg/min.) and 4 electi-cally heated molds. MASTER COOLER has made some research on its own about its technical options, and has opted for HCFC-22 that will later be replaced by HFC- 134a (definitive option). With an adequate in- house technical capacity this enterprise is developing a pre-mixer equipment for feeding the gab into the blowing machine. d) INDUFRIO. This enterprise located in Medellin, consumes 11 MT CFC- 1 1 per year, to manufacture sandwich rigid foam panels for building insulation and cold storage modular roon s. To carry out its conversion, the company will require a high pressure machine. 3. Other projects that have been already pre-appraised are: a) POLARES. The company produces small ice cream freezers and other glass display units for convenience stores and supermarkets. POLARES also produces sandwich panels. It has two low pressure injection machines. They consume approximately 11 tons of CFC- 11 and 3 MT CFC- 12 per year. A project is expected to be ready for submission to the ExCom in 1999. b) INDUSTRIAS SUPER NORDICO. The company manufactures commercial refrigeration cases for use in display and conservation of food products. The range of products includes vertical coolers with multiple doors, reach-in cabinets, and freezers. In addition the company manufactures panels for its own products. The company's consumption data for CFC-I I and CFC-12 is 5 MT and 3 MT, respectively. A project is expected to be ready for submission to the ExCom in 1999. c) COLSER. A 30 year old company, it manufactures cold storage facilities for the Flower Industry in particular but also for refrigerated transport. It also manufactures commercial display cases in small quantities. The company consumes approximately 4 tons of CFC-1 1. The company has a low pressure machine and has identified a Brazilian manufactured injection machine that may be adequate for its requirements. A project is expected to be ready for submission to the ExCom in 1999. d) ROJASHERMANOSLTDA. This enterprise located in Bogota consumes about 20 MT CFC-1 1 per year, to manufacture sandwich rigid foam panels for building insulation and cold storage modular rooms. It has a high pressure foaming machine, that will be funded retroactively. A project is expected to be ready for submission to the ExCom in 1999. Page 24 e) CALAIRES. This MAC company provided very interesting information about how the MAC Industry is organized in COLOMBIA. Heat exchangers are manufactured for the sector by a network of Colombian companies which ultimately feed heat exchanger to CALAIRES. CALAIRES in turn accounts for about 75 % of the MAC systems installed in Colombia through its network which covers the major cities, where it has a strong position in the market owing to its installation and maintenance network. The company provides complete kits for about 25-30 different models in the market. Most of the installations (80%) are done at CALAIRES' network of installation and maintenance shops or at the car dealerships where CALAIRE is contracted. CALAIRE has purchased equipment to enable the company to produce fittings and hoses compatible with HFC-134a system installs. The company works in a tightly integrated market and the complete system is packaged and installed at CALAIRES for the largk majority of the MAC installs in the Colombia. A comprehensive project for the MAC sector is planned for submission in 1999 or early 2000. 2 AUTOAIRES and AUTOFRIO assemble complete MAC units with components supplied by others. When aluminum parallel flow condensers are specified (as is increasingly the case), they are imported. Both companies have already made minor investments in tooling required to assemble MACs for R- 134a. Any eligible amounts would be small and retroactive. A comprehensive project for the MAC sector is planned for submission in 1999 or early 2000. g) MITCHEL fabricates small quantities (3.500/yr) of fin and tube condensers and evaporators and assembles complete MAC units for both R-12 and R-134a systems. When larger size fin and tube condensers are not suitable for R-134a applications, Mitchel imports aluminum parallel flow condensers. The company is undecided as to future strategy vis a vis investing in a fabrication line for aluminum parallel flow heat exchangers or phasing out fabrication of fin and tube equipment and becoming, exclusively an importer of components. A comprehensive project for the MAC sector is planned for submission in 1999 or early 2000. h) PARAMO fabricates heat exchangers for MAC, commercial refrigeration, and 3 HP and 5 HP package air conditioner applications. The firm is aware that it will have to install fabrication capacity for R- 1 34a heat exchangers at some point, or cease fabrication and become exclusively a components importer. PARAMO has begun to investigate alternatives but has still not decided what to do, influenced also by the currently unstable market. It is possible that the firm might be eligible for partial financing of converted production facilities as a fabricator of both MAC and commercial refrigeration equipment components. A comprehensive project for the MAC sector is planned for submission in 1999 or early 2000. i) THERMOCOIL is the new company name for the former THERMOTAL. The firm's MAC condenser production (25,000) would appear to be sufficient to justify OTF financing of an aluminum parallel flow condenser fabrication line. A comprehensive project for the MAC sector is planned for submission in 1999 or early 2000. j) RYMCO: This company uses about 12 MT CFC-1 13 per year as silicon diluent in the production of syringes. The firm still must engineer a project to permit closed circuit condensation, recovery and reuse of CFC-1 13, or a process to substitute for it. Either solution will be eligible for OTF financing up to the threshold limit (US$ 235,000). A project is expected to be submitted to the ExCom in 1999. Page 25 ANNEX 7 Ozone Depleting Substances Phase Out Subproject Preparation And Implementation Guidelines Subprojects will be identified, prepared and implemented in accordance with the following subproject guidelines, and consistent with the MPMF's Report of February 1997, which consolidates all policies, procedures, guidelines and criteria for financing of ODS phase out activities. These indicative guidelines, which will be the basis for UTO's Project Operational Manual, may be modified by mutual agreement between the Bank and UTO. Subproject Identification Subproject identification will be a cooperative effort among enterprises, UTO, industry associations, and technical consultants. When a potentially eligible subproject has been identified, the enterprise and UTO will prepare a brief project summary for transmittal to the Bank. UTO will revikw the subproject summary to evaluate the proposed subproject's conformity with eligibility and cost-effective threshold guidelines (Annex 9). Through mutual consultation, the Bank and UTO will decide if the proposed project meets MP eligibility standards. If positive, UTO and a technical consultant will meet with the enterprise to establish a project preparation schedule, identify external preparation assistance requirements, if any, and to inform the enterprise concerning project preparation requirements. UTO/ACCI will oversee ability of the enterprise to use an OTF Grant productively Subproject Preparation Project Document (PD). UTO will help subproject beneficiaries (enterprises) in preparing the pre- investment studies, a draft Project Document per Annex 8 of the guidelines, and an executive project summary (EPS). Technical consultants will assist by informing enterprises about: (i) alternative technologies; (ii) Montreal Protocol (MP) Fund eligibility and financing criteria; and (iii) the MP Fund application process. Technical consultants, also, will assist enterprises to prepare subproject proposals, if required. OORG Technical Review. Subprojects under preparation should be reviewed on an informal basis by the appropriate technical expert in the World Bank's Ozone Operations Resource Group (OORG). OORG comments will be provided to UTO and to the concerned enterprises, and project design and/or cost estimates revised accordingly. A formal OORG approval will be required for all subprojects before being submitted by the Bank to the MFEC. GOC and World Bank Endorsement. After final OORG technical review, and official GoC endorsement, eligible incremental costs will be verified. Following an agreement by the Bank and UTO as to the requested OTF Grant amount, subprojects will be submitted to MFEC funding approval. MFEC Approval Review and approval of funding for subprojects will be based upon the Project Document, to which will be appended the final OORG Review and any other relevant technical reports. Page 26 Subgrant Agreement/Approval for Disbursement Funding approval by the MFEC signifies only that a Grant under the OTF Grant Agreement in the amount approved will be made available to the Bank to finance project implementation, based upon the subproject's technical design and compliance with MFEC eligibility and cost effectiveness criteria. Disbursement of funds for implementation will require: i) approval by the Bank of the subproject's detailed implementation arrangements; ii) demonstration by the enterprise that it possesses the requisite financial ability to use the grant productively; and iii) execution of a subgrant agreement between FES and the beneficiary enterprise. The basis for the Bank's final approval will be a review and approval of the Project Documents and the draft Subgrant Agreement. The Bank and UTO will appraise subprojects to ensure that all technical, cost and implementation issues raised before, during, or after OORG review and MFEC approval have been addressed Subgrant Agreement. After the Subproject Appraisal Report has been approved by the Bank, ACCI will finalize the Subgrant Agreement. The final draft Subgrant Agreement between ACCI and the beneficiary enterprise will follow a standard model approved by the Bank. Disbursement may proceed after Subgrant Agreement signature. Subproject Implementation. Enterprises will: i) be responsible for executing the subproject in accordance with the agreed subproject implementation plan; ii) prepare and submit periodic progress reports, consistent with Bank Project Monitoring Guidelines and including details of the procurement of goods and services. ACCI will ensure that the beneficiary enterprises follow specified procurement procedures prior to authorizing disbursements and UTO will monitor enterprise compliance with environmental and safety standards including any equipment disposal agreements. UTO will notify the Bank of any significant delays and problems with subproject implementation. As required, UTO will receive technical support for subproject supervision from the Bank and consultants. Subproject Completion. In conjunction with enterprises, UTO, will prepare a Subproject Completion Report after implementation and start up of each subproject. A technical audit will be conducted by an independent consultant to verify that the enterprise has successfully implemented the subproject, and achieved the desired ODP phase out objective. Page 27 ANNEX 8 Ozone Depleting Substances Phase Out Guidelines For Preparation Of Project Documents And Completion Reports A. Project Documents (PD) The Project Document, which will be the basis for review for funding approval of subprojects by UTO, the World Bank, including OORG, and the MFEC, will be prepared according to the following guidelines for Project Document content and format: 1. Standard Cover Sheet. Brief project summary per standard cover sheet format. The summary must specify aim of project, ODS phased out, substitute technology, and implementation time frame. 2. Project Objectives. Brief description of project ODS/ODP phase out objectives. Specify if the project is new or has already been implemented. Indicate quantity of ODS (expressed as ODS and ODP) phased out, directly attributable to the subproject, on an annual and total basis. 3. Sector Background. i) Consumption of ODS in the sector: Include recent growth trends and latest available official information on the sector - ensure that the ODS used in the Sector reflects latest informaaon endorsed by the govemment, as the ODS use in the Country Program might not be up to date; ii)Description of all major manufacturers/users in the sector, iii) Impact of project on ODS consumption for achieving 1999 freeze - Table on ODS consumption and impact of approved projects to be provided by the country; and iv) Current status of regulatory action, policy changes, etc. Include restrictions on ODS use, or tariff or revenue measures recently announced. 4. Enterprise Background. i) Brief history of the enterprise including financial performance; ii) Percentage of domestic ownership; iii) Production profile and brief process or production description; iv) Include table of last three years annual production; v) Export profile, if any. 5. Project Description. Existing equipment briefly described. Full description of project scope, technology, and source of supply, divided into: i) components relating to ODS phase out and ii) other components, such as expansion of output or product upgrading. Baseline information per PD Annex 5. 6. Justification for Selection of Alternative Technology. Review of technical feasibility of subproject should describe the before implementation and projected post implementation situations. A complete equipment list including one line specifications and cost quotations/estimates will be shown in PD Annex 5. If relevant, the issue of conversion to transitional substitutes such as HCFCs should be addressed here; wordiig could be as follows : "the enterprise has been informed of the interim nature of technology, and will not seek additional funding from MPMF at a later date to convert to zero-ODP technologies". 7. Project Costs. Total estimated subproject costs, including non incremental costs, desegregated into: (i) one-time capital and training costs; (ii) annual estimates of net operating costs or savings, if any, for the first four years of operation; (iii) retroactive expenditures eligible for reimbursement, if any. A 10% price contingency will be added to arrive at the total cost estimate. 8. Calculation of Incremental Operating Costs (ioc). Calculation is shown in PD Annex 2. Production level must be based on the most recent full year or the average of the last three years of production, and using Page 28 current and projected production costs. Incremental costs should be calculated for the full period of eligibility allowed by the ExCom for the given sector, even if the resulting total exceeds the sectoral threshold value. 9. Cost Effectiveness (ce). Calculated CE in terms of US$/kg ODP/yr. to be presented here and on cover page and compared with sectoral CE threshold (calculation shown in PD Annex 3). 10. Proposed Multilateral Fund Grant. Grant amount will be based on eligible incremental costs, adjusted for non-national ownership and exports to non-Article 5 countries. Neither capacity expansion nor technological upgrades can be financed by the MPMF. If either or both is incidental to conversion to non-ODS technologies, deductions from total cost to arrive at eligible incremental cost will be made on a case by case basis. The baseline information in PD Annex 5 should be sufficient to evaluate and justify the proposed grant amount. The Financial Agent's Fee is not to be included in calculating the proposed grant. 11. Project Implementation. The implementation schedule should include realistic lead times for MPEC approval, appraisal and Sub Grant Agreement signing before date of first disbursement. Indicate any non- conventional procurement arrangements (e.g. sole source procurement) if already known. 12. Environmental Assessment Indicate nature of environmental impact, required mitigation, and type of clearances likely to be required. 13. OORG Technical Review. Attach final OORG approval. Project Document (PD) Annexes Annex 1 Summary of Capital Investment Costs Annex 2 Calculation of Incremental Operating Costs Annex 3 Calculation of Cost Effectiveness (a) ODS Savings (b) Cost Effectiveness Calculation Annex 4 Environmental Assessment Annex 5 Baseline Information: (a) List of equipment addressed in the proposal; (b) Equipment specification, e.g. capacity performance, etc.; (c) Age of equipment; (d) Future use of the equipment; disposal plan, if replaced. Other Annexes as may be necessary, e.g. Annex 6 Technology Transfer Agreement Annex 7 Engineering Supplement: Quotations from suppliers, etc. Annex 8 Procurement Schedule Annex 9 Disbursement Schedule Annex 10 Financial Plan Annex 11 Reporting Requirements Annex 12 Financial Assessment (limited to the essntial necessary in ACCI judgement to determnine that the enterprise is sufficiently viable to use the grant productively) B. Subproject Completion Reports The Subproject Completion Report which will be completed for each subproject subsequent to implementation will report the realized (as compared with the original amounts) for the following: i) ODS and ODP phase out impact; ii) capital costs; iii) incremental operating costs; iv) technology choice; v) equipment disposal; vi) project impact; and lessons learned. Particular attention will be given to any significant differences between projected and realized values and costs. Page 29 ANNEX 9 Ozone Depleting Substances Phase Out Eligibility Criteria, Incremental Costs, And Sectoral Cost Effectiveness Thresholds The following are the general eligibility and cost effectiveness criteria which subprojects must meet in order to be eligible for financing from the Ozone Projects Trust Fund (OTF). These guidelines are indicative in nature, and subject to interpretation depending upon the circumstances of ind.vidual subprojects, and specific decisions of the MFEC. A. General Subproject Eligibility Criteria Selection of subprojects will be consistent with eligibility criteria, and sectoral cost effectiveness thresholds established by the MFEC. To be eligible for funding consideration, projects must result ir a direct and demonstrable reduction or elimination of ODS consumption in Mexico; should be cost effective; and based on environmentally sound, commercially available definitive zero ODP o.r transitional low ODP substitute technologies for the substances controlled by the Montreal Protocol. B. Definition of Eligible Incremental Costs OTF Grant amounts are based on the evaluated incremental capital and operating costs of an ODS reduction or elimination phase out proposal. Incremental capital costs are defined as the difference between the total costs of installing replacement non-ODS technology of similar capacity and sophistication as the existing ODS technology, less the normal replacement investment costs which would have been incurred to maintain the existing technology at its current operating level. Incremental operating costs are defined as the net operating costs for the non-ODS technology less the net operating costs of the ODS technology. In cases where there are no significant incremental operating costs, the OTF grant amount will be based on the incremental capital costs. The total incremental costs will equal the net present value of incremental capital costs plus the net discounted incremental operating cost. To determine OTF grant amounts, incremental costs will be adjusted to reflect the local share of ownership, exports, and sectoral cost effectiveness thresholds. Duties and Taxes. Import duties and other direct taxes are not considered as incremental costs and ; re not eligible for OTF grant funding. The detailed indicative list of categories of eligible incremental costs is given in Annex I of the London Amendment to the Montreal Protocol, and is reproduced in Annex VIII.3 of "Policies, Procedures, Guidelines and Criteria of the MF for the Implementation of the Montreal Protocol" of February 1997. Page 30 C. Cost Effectiveness The cost effectiveness (or efficiency) of the financial mnechanism is a measure of how efficient it has been in utilizing funds put at its disposal to meet its objectives. The most simple method used to calculate cost-effectiveness of subprojects calculates total incremental costs of a subproject, excluding cost of safety where applicable, divided by the amount of its Ozone Depleting Potential (ODP) to oe phased out. Cost effectiveness is defined by the following formula: C= IC+IO_ M [ODP] where: C = Cost-effectiveness IC Incremental capital costs (covered by the Fund) IO = Net incremental operating costs (covered by the Fund) M [ODP] Amount of ODS to be phased out annually (weighted kg ODP) D. Cost Effectiveness Thresholds The following sector and subsector cost-effectiveness threshold values will be applied to determine maximum eligible OTF Grant amounts for subprojects submitted to the MFEC. No threshold amount for commercial refrigeration user conversion subprojects has as yet been defined. Sector US$/kg ODP Aerosol Hydrocarbon 4.40 Foam General 9.53 Flexible polyurethane 6.23 Integral skin 16.86 Polystyrene/polyethylene 8.22 Rigid polyurethane 7.83 Halon General 1.48 Refrigeration (factory conversions) Commercial 15.21 Domestic 13.76 Solvent CFC-113 19.73 TCA 38.50 Page 31 ANNEX 10 Ozone Depleting Substances Phase Out Documents in the Project File* A. Project Operational Manual Under Preparation B. Bank Staff Assessments Country Assistance Strategy, October 15, 1997, Report No.17107 CO Letter from Mr. Ernesto Guhl Nannetti, Ministry of Environment, requesting the project BTO: Identification Mission, November 17, 1997 BTO: Preparation Mission, February 11, 1998 BTO: Preparation Mission, May 1998 BTO: Preparation mission, October 1998 BTO Preparation Mission, February 1999 C. Other Colombia Country MP Program, 1993 Monitoring And Evaluation Guidelines for ODS Phase out Investment Projects, 1995 Potential MP Project Pipeline, 1999 *Including electronic files. Page 32 ANNEX 11 Ozone Depleting Substances Phase Out Environmental Data Sheet Country: Colombia Project ID No 54125 Project: Montreal Protocol Ozone Depleting Substances Phaseout Project Appraisal Date: 2/99 Total Project Cost ($m): 12 VP Approval Date: (tentatively) 7/99 Managing Division: LCC4C Sector: Environment Lending Instrument: Grant from Ozone Trust Fund Status :FY/99Grant Date for receipt of EA by Bank: Not Applicable EA Category: B Date Assigned: 9/92 Date Data Sheet Prepared/Updated: July 14, 1999 Major Project Components: Under the project, grant funding will be extended to subprojects for the Phaseout of ozone depleting substances (ODS) in all sectors for which sectoral guidelines have been approved by the MFEC. Major Environmental Issues: (Identified or suspected in project) The project deals with existing enterprises and relatively small quantities of ozone depleting substances. There are potential safety issues associated with substitute chemicals. Also, other environmental impacts may include the atmospheric release of substitute chemicals, in particular hydrocarbons. Other Environmental Issues: (of lesser scope associated with project) There may be some environmental issues depending on the alternative chosen to replace the ozone depleting substance. An example would be the use of aqueous-based substitutes in solvent subprojects, thereby increasing wastewater discharge. Proposed Actions: (to mitigate issues described above) Sponsoring enterprises will be responsible for meeting emissions standards, preparing impact statements and obtaining environmental clearances as required by Colombian law, and consistent with World Bank environmental guidelines. Ministry of Environment will assure that subprojects have complied with the above environmental requirements before subprojects are officially submitted to the Bank for OORG approval. Also, extensive safety reviews and training will be provided by international experts and incorporated in the subprojects, as the case may require. Page 33 Justification/Rationale for Environmental Category: The overall project objective is protection of the stratospheric ozone layer through financing of measures which will eliminate or reduce emissions of ODS. No major environmental impacts are anticipated. No resettlement is anticipated. Reporting Schedule: Category A Environmental Assessment: Start-up date, date for first draft, and current status. Category B: Is there a separate environmental analysis? If yes, when is it due? Not applicable. Remarks: None Page 34 Colombi PRICES and GOVERNMENT FINANCE 1976 1986 1996 1997 Inflation (%) Domestic prices (% change) 30; Consumer prices 20.2 18.9 21.6 17.7 20 Implicit GDP deflator 25.4 29.2 18.6 19.3 Government finance 10 (% of GDP, includes current grants) °| Current revenue .. 24.5 32.5 31.4 92 93 94 95 96 97 Current budget balance 7.4 8.4 7.3 j-GDP deflator -CPI Overall surplus/deficit .. -0.3 -2.6 -4.3 TRADE 1976 1986 1996 1997 Export and import levels (US$ millions) (US$ millions) Total exports (fob) 2,202 5,332 10,651 11,681 2000 Coffee 967 2,742 1,577 2,259 Petroleum 84 619 2,892 2,707 a5,000 Manufactures 1,127 1,363 4,896 5,293 Total imports (cif) 1,654 3,409 13,684 15,411 10,000 Food . .. 1,440 1,728 5,ooo Fuel andenergy 40 130 229 239 i| Capital goods 661 1,245 5,122 5,561 91 92 93 94 90 96 97 Export price index (1995=100) 3 28 106 126 Import price index (1995=100) 3 21 115 123 MExports *Imports Terms of trade (1995=100) 125 134 93 102 l BALANCE of PAYMENTS (US$ millions) 1976 1986 1996 1997 j Current account balance to GDP ratio (%) Exports of goods and services 2,761 6,542 14,589 15,887 T Imports of goods and services 2,293 5,326 16,732 18,756 6. Resource balance 468 1,217 -2,143 -2,869 4 1 m Net income -356 -1,371 -3,206 -3,426 2 Net current transfers 54 784 532 612 0lfll -191 92 5 1 Current account balance 166 630 -4,817 -5,683 9 Financing items (net) -216 872 6,299 5,653 -6-i Changes in net reserves 50 -1,502 -1,482 30 -sa Memo: Reserves including gold (US$ millions) 4,100 3,565 9,691 9,611 Conversion rate (DEC, local/lUS$) 34.7 194.3 1,036.7 1,143.1 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1996 1997 (US$ millions) Composition of total debt, 1996 (USS millions Total debt outstanding and disbursed 3,944 15,362 28,859 31,777 IBRD 672 3,261 2,177 1,723 A 2,177 IDA 22 17 10 10 I G. 5,e84 Total debt service 374 2,268 6,442 6,968 2 , 2578 IBRD 86 489 520 573 < l. IDA 0 11 1E ,3 Composition of net resource flows Official grants 17 26 80 45 Official creditors 62 668 -111 -456 Private creditors 88 967 1,554 1,456 Foreign direct investment 25 674 3,322 - Portfolio equity 0 0 290 F 16,472 World Bank program Commitments 80 640 334 75 A- IBRD E- Bilateral Disbursements 76 529 152 189 B - IDA D- Other multilateral F - Private Principal repayments 38 253 351 437 ic - IMF G - Short-tern Netflows 38 276 -199 -248 Interest payments 48 237 170 137 Net transfers -11 39 -369 -385