Document of The World Bank FOR OFFTCIAL USE ONLY Report No. 13811-VE MEMORANDUM AND RECOMMENDATION OF THE DIRECTOR OF LAC COUNTRY DEPARTMENT II OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE REGIONAL VICE PRESIDENT, LATIN AMERICA AND THE CARIBBEAN REGION ON A PROPOSED OZONE PROJECTS TRUST FUND GRANT IN AN AMOUNT EQUIVALENT TO US$4.422 MILLION TO VENEZUELAN PRIVATE ENTERPRISE AIRE ACONDICIONADO INTEGRAL, S.A. FOR A MOBILE AIR CONDITIONER FACTORY CONVERSION PROJECT JUNE 27, 1995 Environemtn and Urban Development Division Country Department II Latin America and the Caribbbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Venezuelan Bolivar (BS) US$1.00 = 169.6 Bs (Exchange rate as of June 27, 1995) UNITS AND MEASURES metric ton - Ton (T) = 1,000 kg. ACRONYMS AAC : Automobile Air Conditioning AC : Air Conditioning CCI4 Carbon Tetrachloride, a controlled ODS CFCs Chlorofluorocarbons FONDOIN : Foundation to Implement the Montreal Protocol in Venezuela GOV : Government of Venezuela HFC Hydrofluorocarbon MAC : Mobile Air Conditioner MCF Methyl choroform, a controlled ODS MFEC : Multilateral Fund Executive Committee MFMP : Multilateral Fund for the Implementation of the Montreal Protocol ODS Ozone Depleting Substances OORG : Ozone Operations Resource Group OTF Ozone Projects Trust Fund USEPA : United States Environmental Protection Agency FISCAL YEAR January I - December 31 FOR OFFICIAL USE ONLY VENEZUELA MOBELE AIR CONDITIONER FACTORY CONVERSION PROJECT Project and Grant Summary Financial Agent None. Direct disbursement from the Bank to the Beneficiary. Guarantor None. Guarantor not required Executing Agencies The Beneficiary under the supervision of the World Bank and Fondo Venezolano de Reconversion Industrial y Tecnologica (FONDOIN) Beneficiaries Aire Acondicionado Integral, S.A. (AAISA) Poverty N/A Amount US$4.422 Million (Incremental Cost) Terms Grant Estimated ODS 100 tons annually (Basis: 40,000 Consumption Eliminated compressors and 35,000 heat exchangers production per year) Financial Plan See Schedule A Cost Effectiveness Unit Abatement Cost: US$6.49/kg/year (Basis: Incremental costs only) Economic Rate of Return N/A Staff Appraisal Report N/A dThis ocument has a restricted distribution and may be used by recipients only in the performance of their official dutes. Its contents may not otherwise be disclosed wiLhout World Bank authorization. l I MEMORANDUM AND RECOMMENDATION OF THE DIRECTOR OF LAC COUNTRY DEPARTMENT II TO THE REGIONAL VICE PRESIDENT LATIN AMERICA AND CARIBBEAN REGION OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ON A PROPOSED OZONE PROJECTS TRUST FUND GRANT FACTORY CONVERSION PROJECT FOR A MOBILE AIR CONDITIONER FACTORY CONVERSION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed Ozone Projects Trust Fund (OTF) grant in an amount equivalent to US$4.422 million which will be disbursed to Aire Acondicionado Integral (AAISA), an auto air conditioner (MAC) fabricator, to finance the incremental costs associated with the retooling of a heat exchanger fabrication and compressor assembly line, and related training and technical assistance costs. An OTF grant of US$620,000 has already been approved for conversion of a compressor assembly line at AAISA/COROVEN, a wholly-owned AAISA affiliate, This proposal for approval consolidates both MP operations, AAISA's heat exchanger fabrication line (US$3.802 million) and the compressor assembly line (US$620,000), in one free standing project (see Annex I, Explanatory Notes on Project Costs After Consolidation of January, 1995). This project will be the fourth Bank executed Montreal Protocol (MP) grant to Venezuela and will fund a key activity to reduce Venezuela's consumption of ozone depleting substances (ODS). Another MAC fabricator, FAACA, has already received MFEC approval for its own evaporator/condenser line conversion project. An OTF grant agreement will be entered into directly between the Bank as OTF trustee and AAISA as the Recipient. Estimated ODS eliminated by the project is 100,000 kg. annually. 2. Venezuela Ozone Depleting Substance (ODS) Sector Background. Venezuela signed the Montreal Protocol on September 16, 1987, and ratified it on February 6, 1989. As an Article 5 signatory (annual per capita ODS consumption of less than 300 grams), Venezuela is eligible for OTF support. ODSs are produced in six developing nations, Argentina, Brazil, China, India, Mexico, and Venezuela. Total production of CFCs and MCF in these nations in 1989 was approximately 70,000 tons, of which Venezuela's share was 4,150 tons, or 6%. MCF consumption in 1991 was 130 tons, down from 570 tons in 1990. All CC14 (1,350 tons in 1991) is used as a chemical intermediate feed stock. CFC/Halon consumption in Venezuela in 1990 was 3,420 tons, but rose to 3,820 tons in 1991, still a decrease of 12% since 1986. Distribution of ODSs by end use in 1991 was MACs 25%; other AC/refrigeration 52%; foaming agent 16%; aerosols 4%; Halon fire extinguisher 1%; and solvents 2%. Of the AC/refrigeration share, an estimated 80% was for aftermarket use for servicing and leak replacement. The 1992 consumption in the automobile and truck air conditioner (MAC) sector was estimated at 80 tons for newly assembled cars, and 900 tons for aftermarket use. Per capita annual consumption of CFCs decreased from 270 grams in 1986 to 170 grams in 1990. A breakdown of estimated CFC- 12 consumption for 1992 in the AC/refrigeration subsectors and more detailed national data are available in the Project File. -2- 3. ODS Phase-Out Strategy for the Mobile Air Conditioner (MAC) Subsector. With more than 75% of Venezuela's CFC consumption currently used in AC/refrigerator applications, these subsectors are the principal focus of the national ODS phase-out strategy. The MAC subsector alone accounts for 25% of national CFC consumption. Venezuela's eight auto assemblers produced 86,000 units in 1992, and imported another 20,000 units already assembled for local sale. An additional 44,000 assembly units, including trucks were imported directly, for total 1992 sales of 150,000 new units of all types. The total national automobile inventory of registered vehicles is approximately 1,200,000. An estimated 60% of new autos and an unknown percentage of the current national inventory have installed MAC systems. Each currently installed unit has an average charge of 1.1 kg. of CFC-12. Two domestic MAC fabricators (FAACA and AAISA) produce a total of approximately 60-75,000 MAC units annually1, assembling compressors and fabricating evaporators and condensers, selling to both assemblers and aftermarket distributors. AAISA's market share is estimated to be about one-half of the total. AAISA produces both complete MACs, including compressors, and heat exchangers, and also sells components which are marketed separately to auto assemblers and aftermarket installers. 1992 CFC-12 consumption in the MAC subsector was estimated at 80 metric tons for testing and charging of systems for newly assembled vehicles, and some 900 tons for aftermarket servicing of all types. Current plans of the auto assemblers for conversion from CFC-12 to HFC-134a refrigerant units call for a transition which will begin as early as August 1993 for one company with the others beginning during 1994. The total transition for new units to HFC-134a is expected to be complete by end 1995. Aftermarket servicing for CFC-12 units will be required for some time afterward. Nevertheless, almost complete phase-out of CFC-12 consumption in the MAC subsector is attainable by 2000. The AAISA factory evaporator/condenser fabrication and compressor assembly line conversion project, for which OTF funding is requested, is an integral part of the phase-out strategy. The eight auto assemblers, six of which are 100% foreign owned subsidiaries, will finance their own assembly line conversions, and training of their dealerships for servicing of HFC-134a MAC units. The second MAC fabricator, FAACA, as already mentioned, has already received MFEC approval for its own evaporator/condenser line conversion project. 4. AAISA Background. AAISA is a diversified company employing 325 people in the fabrication of MACs as well as domestic AC/refrigeration products. The client base for its MAC line of components consists of the major auto assemblers and aftermarket clients. AAISA's evaporator/condenser lines are operated by AAISA itself, while the MAC compressor assembly line is owned and operated by COROVEN, one of the companies in the AAISA group. The last decade has been a period of steady growth for the firm, which is expected to continue due to the recently announced establishment of a common automotive policy between Colombia, Ecuador and Venezuela. The firm's annual compressor production is approximately 40,000 units. AAISA reported earnings of US$301,400 and US$329,000 on sales of US$8.7 and US$8.4 million l This statistic is difficult to verify because different numbers of compressors, evaporators and condensers are manufactured, and an equal number of each does not reflect a like number of integrated MAC units. - 3 - respectively in 1991 and 1992. Net income declined to US$111,000 in 1993, followed by an increase of US$460,000 in 1994 and projected to reach US$630,000 in 1995. Current and anticipated production levels indicate that AAISA is a viable concern. 5. Project Objectives. The primary objective of the project is to enable AAISA to substitute production of HFC-134a MACs for its current product line of CFC-12 MACs. The conversion to BHFC- 134a of the heat exchange line will complement AAISA's already approved project to convert its MAC compressor assembly line for production of HFC-134a MAC compressors, and to provide both in-house and dealer training for servicing of HFC-134a MACs. 6. Project Description. The proposed project consists of the retooling of a heat exchanger fabrication and assembly line and related training and technical assistance costs. The project will have five separate components, including the previously approved compressor assembly line (See Annex II and III, Technical and Cost Assessment, for complete project description): Component 1: Refitting of the evaporator/condenser assembly line; Component 2: Customer qualification testing; Component 3: Service training; Component 4: Engineering services; Component 5: Compressor assembly line 7. Project Cost and Financing. Total project cost estimates were US$4.8 million for the heat exchanger line and US$0.6 million (already approved) for the compressor assembly line, including contingencies. Incremental costs for the heat exchanger fabricator line project were US$4.230 million when first presented to the MFEC in the Bank's Initial Project Summary (IEPS) dated June 7, 1994. At the 14th Meeting of the MFEC in September 1994, a reduced amount of US$3 .802 million was approved due to technological advances in the evaporator line which were considered ineligible for funding as incremental capital costs. Total project cost estimate is summarized in Table 1. AAISA, itself, will finance the approximately US$1.0 million in non- incremental costs. -4 - Table 1: AAISA Project Cost Estimate (US$ 000's~ Component 1 - Evaporator/Condenser Investment: Equipment 2,216 Tooling 592 Freight 132 T/A Agreement 110 Civil Works/Utilities 83 Sub-total (Component 1) 3,133 Component 2 - Customer Qualification Testing 82 Component 3 - Training Program 103 Component 4 - Engineering Services 140 Component 5 - Compressor Assembly Line 563 Incremental Project Costs (excl. 10% contingency) 4,021 Incremental Project Costs (incl. 10% contingency) 4,422 Non-incremental Investment by AAISA 1,020 Total 5.442 8. Incremental Costs. All plant rearrangements, tooling/equipment, technology license, training and engineering services are incremental, as they are required to effect the changeover to production of HFC-134a compatible evaporators and condensers. Component 5 has only one non-incremental cost item for reclaim/recycle/recharge of CFC emissions. This investment, US$27,000 generates savings in terms of CFC-12 recovered and recycled of US$7,800 annually, which for 5 years of operation generates a 14% internal rate of return (IRR). This cost item will therefore be financed by AAISA. The heat exchanger line non-incremental investment by AAISA of US$990,000 consists primarily of conversion costs due to technological advances which do not meet eligibility criteria, as well as customer qualification testing and a small share of the training program. Total incremental cost estimate is therefore US$4.021 million exclusive of contingency. 9. Project Implementation. In tandem with the implementation of the already approved conversion to HFC-134a of the Compressor Assembly Line (Component 5), all major project components will be implemented during the next 24 months. Project implementation is directly tied to AAISA's customer requirements and introduction of HFC-134a MACs into the - 5 - marketplace, which in Venezuela is planned for the 1995 model year (see Annex III, Table IX, Implementation Schedule for Serpentine Condenser/Evaporator and Table XIV, Schedule of AAISA Customer HFC-134a Quarterly Model Change Over). Component 1 - Evaporator and Condenser Fabrication Line will have a lead time from purchase order to start-up of 15 months. Components 2 and 3 will be scheduled with Component 1 start-up. Component 4 will take place concurrently with the beginning of Component 1. AAISA, itself, will manage the project installation with the assistance of an external industry consultant. Outside contracts will be required for specific equipment relocation and hook-up tasks during installation. FONDOIN will assist with administrative liaison as required. Technical and procurement oversight during installation and start up will be provided by a Bank contracted technical specialist. Procurement and disbursement arrangements will be as indicated in Schedule B. 10. Project Sustainability. The primary purpose of the OTF is to provide a financial incentive to facilitate ODS phase-out by compensating beneficiaries for incremental costs incurred as a result of converting to non- ODS technologies. An equally important benefit of the Fund is to permit beneficiary nations to implement phase-out strategies without incurring a process of deindustrialization. ODS phase-out in the MAC subsector in Venezuela will take place with or without the projects. Development of local HFC-134a MAC production capacity is essential to retention of MAC production capacity in Venezuela. The grants to AAISA and FAACA will not only permit factory conversion without financial prejudice to the firms, but will, at the same time, ensure continued production of auto MAC components in Venezuela, and facilitate aftermarket servicing of HFC-134a units. 11. Rationale for Montreal Protocol Financing. With or without the project, and that of FAACA, auto assemblers will only assemble cars with HFC-134a compressors after 1996. It is estimated that the transition of assembly and aftermarket to HFC-134a units will be virtually complete by 2000. The integrated program of assembler-financed transition, supplemented by OTF subsidies to the two MAC fabricators, will thus result in the elimination of over 25% of current national CFC consumption, while, at the same time, permitting the retention of domestic MAC production capacity and employment generation. Given the decision of the auto industry to undertake worldwide conversion, failure to convert one or both Venezuelan MAC fabricators would result in a loss of market share to imports, and eventual disappearance of the non- converted enterprise(s). Protection against deindustrialization associated with the transition to non-ODS technologies is an approved use of OTF resources. 12. Issues and Actions. There are no major technical issues associated with project implementation. Disbursement will take place via a Grant Agreement between the Bank and AAISA. Procurement may involve numerous small contracts. Procurement and disbursement arrangements will be developed with a view towards minimizing direct Bank involvement in the processing of transactions, while maintaining adequate oversight. Approval by the Bank of a financial plan to fund non-incremental project costs will be a condition of negotiation. 13. Environmental Aspects. The elimination of CFC-12 consumption is the basic environmental objective of both the heat exchanger and compressor line conversions. - 6 - Implementation of the Compressor Line conversion project will reduce direct in plant CFC- 12 consumption now used for compressor testing, product development and service shops from 11,365 kg/year to 320 kg/year. In addition, each installed MAC system uses an estimated 2.5 kg of CFC- 12 over its useful life. Indirect consumption eliminated in installed MAC units is estimated at 100,000 kg/year for both conversion projects together. There are no major environmental issues associated with the installation or operation of the converted assembly lines themselves, other than routine workplace safety measures. The project is classified as Category B for environmental assessment purposes. 14. Project Benefits. The major environmental benefit of the project is the enabling of AAISA to now produce both MAC heat exchangers and compressors for use with non-ODS HFC-134a as the refrigerant in place of CFC-12. Elimination of CFC-12 used and emitted into the atmosphere in compressor testing is a secondary benefit associated with the already approved project. The direct economic benefit is the retention in Venezuela of production capacity to supply both assemblers and aftermarket users with HFC-134a units, the associated net savings in foreign exchange, and the employment level retained by avoiding the demise of the local MAC industry. The consolidated unit abatement cost associated with the project, including both compressor and heat exchanger lines, is US$6.49/kg/year based on an annual production level of 40,000 compressors and 35,000 heat exchangers. The calculations are presented in Annex IV, Calculation of Unit Abatement Costs. 15. Project Risks. There are no significant technical project risks, the technologies to be employed having already been proven through application in parent countries of assemblers. There is a potential commercial risk of AAISA/COROVEN being able to compete with imported MAC units and with FAACA for both original equipment and aftermarket shares. The same risks also apply to FAACA. Nevertheless, AAISA/COROVEN is a financially viable concern of proven technical competence. The fact that both enterprises have sizable export markets (approximately 20% of production), including, occasionally, the USA would indicate that both probably have reasonably competitive cost structures. Two additional factors expected to mitigate risk are: i) the new Andean Common Market agreement which will provide opportunities to export MACs to the member countries, none of which has a MAC fabrication capability; and ii) the recently passed Venezuelan Local Content Resolution which aims for approximately 45% of automobile components to be of Venezuelan origin. 16. Technical Evaluation. The Bank's technical assessment consisted of a detailed review of the technical/financial proposals with AAISA, field inspection of existing units, proposed replacement installations, and verification of appropriateness with market demands for assemblers and, in the case of the compressor line conversion project (see Annex II), aftermarket dealers. Annex III, Technical and Cost Assessment provides a complete description of the heat exchanger project and associated costs, and incremental cost determination. Annex V (A & B) presents the technical opinion of the Bank's Ozone Operations Resource Group (OORG) technical expert for mobile air conditioning (MAC) systems projects, approving the project. -7 - 17. On the basis of the assessment, the Bank considers both the compressor assembly line and condenser/evaporator fabrication proposals to be of sound technical design, and qualified for OTF grant financing of eligible incremental costs. AAISA and its compressor affiliate, COROVEN, are judged to be technically and organizationally capable of implementing both projects. A copy of the letter from FONDOIN to the MP Secretariat officially requesting the project is included in Annex VI. 18. Recommendation. I am satisfied that the proposed OTF grant would comply with relevant provisions of the ozone projects trust fund in the Executive Director's resolution No. 91/5, establishing the Global Environment Facility, and I recommend that the Regional Vice President of the LAC region approve the proposed Grant. Kenneth Lay Director (Understudy) Country Department II Latin America and the Caribbean Region Washington D.C. June 27, 1995 Attachments -8 - Schedule A VENEZUELA AAISA Automobile Air conditioner Factory Conversion Project Estimated Project Cost Local Foreign Total ------------(US$ thousand)---- Equipment (Including 70.6 2,810.9 2,881.5 Freight) Tooling (Including Freight) 14.9 726.0 740.9 Other Incremental 83.0 526.6 609.6 Other Non-Incremental 676.0 41.0 717.0 Contingency (10%) 82.0 411.0 493.0 Total Project Cost 926.5 4,515.5 5,442.0 Financial Plan (US$ thousand) OTF Beneficiary Total Equipment (Including 2760.5 121.0 2,881.5 Freight) Tooling (Including Freight) 650.9 90.0 740.9 Other Incremental 609.6 ---- 609.6 Other Non-Incremental --- 717.0 717.0 Contingency (10%) 401.0 92.0 493.0 TOTAL 4,422.0 1,020.0 5,442.0 -9 - Schedule B Page 1 of 2 Procurement and Disbursement Procurement. Procurement of equipment, tools and dies to produce the evaporators/condensers and compressors will be characterized by a large number (35-40 estimated) of relatively small value purchase contracts. Maximum individual contract value is estimated at US$400,000. AAISA will carry out the vendor selection, subject to verification by the Bank. Standard commercial practices would be followed in the procurement of project financed equipment requiring comparison of no less that two proposals (except in cases covered under para. 3.7 of the Bank guidelines). The company's normal practice is to procure through competitive shopping. AAISA has already demonstrated, particularly with its reduced project cost reestimate, that it is capable of competently executing competitive shopping procurement procedures. Regarding the Technical Assistance (T/A) component, three specialized firms in the design to fabricate serpentine type evaporators/ condensers were short listed: Thermal Components Inc., Calsonic International Inc., and Emerson & Renwick Ltd (E&R). The latter was selected as offering the best terms and conditions for US$120,000 non-exclusive licensing agreement. All OTF financed contracts will be subject to ex-post review by the Bank in order to verify compliance with Bank procurement guidelines. Procurement Methods (US$ 000's) Category ICB LCB Other Total Equipment (Inc. Freight) 2,760.5 2,760.5 Tooling (Inc. Freight) 650.9 650.9 Technical Assistance 110.0 110.0 Training 153.9 153.9 Unallocated 746.7 746.7 10- Schedule B Page 2 of 2 Disbursement. The grant is expected to be disbursed within a period of 24 calendar months and the closing date will be June 30, 1997. The Bank will disburse against 100% of eligible foreign expenditure and 100% of eligible local expenditures for eligible incremental costs, net of direct import, saies and value added taxes, for grant financed goods contracts. In accordance with decision of the MFEC, retroactive financing will be permitted for eligible expenditures incurred after the date of Venezuela's adhesion to the Montreal Protocol (February 6, 1989) under contracts signed prior to grant signature which are eligible incremental costs. Retroactive financing will amount to an estimated US$755,000 including technical assistance fees and selected equipment and tooling. Disbursements will be made against Statements of Expenditure (SOE), except for requests for direct payments to suppliers/contractors. These direct payment requests should be for amounts above US$30,000 equivalent, and be fully documented. Requests for disbursement will be transmitted by AAISA to the Bank. Payments for eligible retroactive expenditures will be made directly to AAISA. To facilitate project implementation, a Special Account in US dollars for US$300,000 will be opened and maintained in a commercial bank acceptable to the Bank. Estimated Disbursement (US$ 000's) FY95 FY96 Annual 4,200 222 Cumulative 4,200 4,422 Schedule C VENEZUELA AAISA - CFC-12 to HFC-134 Conversion Project Timetable of Key Project Processing Events (a) Time taken to prepare: 12 months (b) Prepared by: Beneficiary in conjunction with Bank technical consultant (c) First Bank mission: February 1993 (d) MFEC Approval: November 1993 (compressor assembly line) September 1994 (heat exchanger fabrication line) (e) Pre Appraisal: June 1993 (f) Appraisal: May 1994 (h) RVP Approval: May 1995 (i) Planned Signing: June 1995 (j) Planned Effectiveness: June 1995 (k) Planned Completion: December 1996 i Annex 1 AIR ACONDICIONADO MTEGRAL S.A. (AAISA) Explanation of Project Costs After ConsoIldatIon of Heat Exchanger Fabrication im and Compremor Assembly LUne Projects (See Original Projects Technical Annex 2 ad 3 of September 1993 and May 1994, respectivey) and Impact of Montreal Protocol Excutio Comittee Deetlon Reprding Eligibilty of Forty-eight Percent of Evaporator Uime Coam January 1995 AnnexI. Page lof 8 AIRE ACONDICIONADO INTEGRAL, S.A. (AAISA) The original project cost of the AAISA/COROVEN compressor assembly line project wu $650,000, of which $620,000 was approved as incremental costs eligible for Multilateral Fund Executive Committee (MFEC) financing. The subsequent heat exchanger fabrication line project, approved for financing by MFEC in the amount of US$3.8 million in September 1994 at the 14th MFEC meeting in Nairobi, has a total project cost of US$4.8 million. The technical annexes submitted with the original project documents for both projects are included in Annexes II and III without modifications. Both projects in their original form included categories for non-incremental costs reflecting the investment required of AAISA itself AAISA's original proposal for MFEC funding of the heat exchanger line was discussed at length by the MFEC and FONDOIN, the Venezuelan agency mandated with MP implementation in Venezuela. The conclusion of the discussions resulted in an ad hoc compromise that reduced the eligible portion of the evaporator part of the heat exchanger line by 48%. In the compromise, specific reductions on an equipment- or tooling-specific basis for the evaporator line were not imposed by the MEEC. The revised project document summary table (Table n), to which this annex is attached, reflects the combined costs of the compressor assembly line project and the heat exchanger fine project, including the 48% reduction applied to the evaporator part of the heat exchanger fabrication line. The cost adjustments resulting from the MFEC's decision to reduce funding for the evaporator line are reflected in "Components 1 through 3" of Table H in this annex (Annex L Table II). In order to faciliate the procurement process and final project processing within the Bank, the Bank operational division processing the project requested AAISA to provide estimates of equipment- and tooling-specific reductions that would reflect the 48% adjustment reached by compromise with the MFEC. The following "Annex Tables" summarize (Annex L Table I) and detail (Annex I, Table II) the company's response to which the Bank had no objection. Annex I Page 2 of 8 Table I: Summary Table of Revised Project Costs (US$ thousand) NON - INCREMENTAL INCREMENTAL COMPONENT 1 - Evaporator/Condenser Fabrication Line: Equipment 2216 121 Tooling 592 90 Transport 132 0 - T/AAgreement 110 -0- Civil Works/Utilities 83 318 Sub Total (Component) 3133 529 COMPONENT 2 - Customer Qualification 82 Testing: 81 COMPONENT 3 - Training Program 103 18 COMPONENT 4 - Engineering Services 140 -0 - COMPONENT 5 - Compressors 563 27 Project Costs (Excl. Contingency) 4021 655 10% Contingency 401 65 Import taxes 300 Total Incremental Costs 4422 AAISA Funded Non-Incremental Costs 1020 Total Project Cost 5,442 Total Incremental Cost (MFEC) 4422 AAISA Funded Non-Incremental 1020 Annex I Page 3 of 8 Table 11: Detailed Breakdown of Revised Costs OTHER CONDENSER COMMON EVAPORATOR INVESTMENTS TOTAL COMPONENT 1 -Equipment 1950 266 2216 - Tooling 393 199 592 - Transport 132 132 - T/A Agreement 110 110 - Civil Works/Utilities 83 -0 - -0 83 Sub Total (Component 1) 2426 242 465 3133 COMPONENT 2- - Customer Qualification 82 82 Testing COMPONENT3 - Training Program 103 103 COMPONENT 4 - Engineering Services 140 140 COMPONENT 5 - Compressors -0- __ cremeutal Project (.xcl. Canmngency) 2611 382 465 563 4021 COKS 10Ye Contingency 260 38 46 57 401 TOTAL 2RJ1 4 20 din INCREMENTAL COSTS NON-INCREMENTAL INVESTMENTS BY AAMSA (Equipment 251 440 29 720 Sernices) IORT TAXES 300 AAISA COUNTERPART FUNDING 1020 TOTAL PROJECT COST AnnesIl Page 4 of 3 The following tables (Annex I, Table III and Annex I, Table IV) supercede the original heat exchanger "Equipment Cost" tables included in the original technical Annex (Annex II, Table I of September 1993, and Annex m, Tables I and II of May 1994). The new tables reflect the equipment and tooling requirements of the compressor assembl line, and the 48% reduction in eligible incremental costs in terms of specific tooling and equipment adjustmens to the evaporator line. Table III: EuiDIment Cost Breakdown EQUIPMENT IMPORT EQUIPMENT TOOLS TOTAL DELIVERY IMPORT TOTAL OR COST COST TO POE DUTY 10% US .______________ LOCAL DOLLARS Tube Uncoil /Straightcn Cut I 15,000 105,000 120,000 12,000 13,7000 Systemn _ _ Serpentie Tube Bender I 244,400 17,600 262,000 26,200 289,900 Serpaein Evaporator 1 88,500 16,500 105,000 10,500 117,200 Quwifier _ Se _enin Candser _ 96,900 12,100 109,00 10,900 121,660 Qualifier Extuded Tube Saw I 31,000 - 31,000 17,000 3,100 35,800 Hom Die Prcss/Ext End 1 98,950 11,550 110,500 11,050 123,250 Qualifier . Serp. Condensr ANy. I 68,000 11,000 79,000 7,900 88,600 Table and Banders . Serp. Evaporator Assy. 1 65,700 8,800 74,500 7,450 83,650 Table and Banders _ _ . Condier Fin Machine I 245,250 79,750 325,000 32,500_ _3_ 359,200 Evaporator Fin Machine I 225,450 99,550 325,000 32,500 359,200 Side Plate Cutting 1 31,000 - 31,000 2,000 36,100 Parts Washer 1 45,45,600 5,000 4,560 55,160 Batch Dry Oven I 33,775 33,775 6,850 3,378 44,003 D _geae I 52,610 52,610 4,000 5,261 61,871 DiWater 1 15,787 - 15,737 595 1,579 17,961 Continuous Fluxer I 97,800 - 97,800 - 9_780 _ _116,863 *'§ '_ TabklIl: E dkn; Cost Breakdron EQUIPMENT IMPORT EQUIPMENT TOOLS TOTAL DELIVERY IMPORT TOTAL OR COST COST TO POE DUTY 10%/. US ___ LOCAL _ DOLLARS Cotinu sDry Oven I 66,500 . 66,500 27,850 6,650 82,433 Nocolok Brar Fuuace 1 382,425 382,425 429952 Leak Tes (Air Under I 5,000 . 5,000 0 5,000 Surfee Tre_d Wash b 152,888 _ 152,888 20,553 15,289 88,730 Pait and Bnus Oven I 71,816 71,816 8,000 7,182 86,998 Sys.an __ _ __ _ . _ _ _ __ _ _ __ _ __ _ _ . _ _ _ _ _ ._ _ _ _ _ _ _ _ Leak Tat (Mans 1 31,862 31,862 2,000 3,186 37,048 Bkodc C3mdb (Al bsnxs) L 25,400 - 25,400 - 0 25,400 Rqper Stoin (romh L 25,200 25,200 0 25,200 P___ _ Burst Test _L 20,000 20.000 - 0 20,000 Inductio Buzc Pipe. I 100,000 100,000 4,000 10,000 114,000 Sjp (600 Set Bnuc Pates I 300,000 300,000 5,000 30,000 335,000 2 CouleueB Bdi tDies L _20,000_ 20,000 - 0 20,000 Leak Teat (Mms Spec) I 31,862 - 31.862 2 2000 _ 3,186 37,048 Madiue Wash L 70,440 3,949 (L) 748380 7,04 87,384 74,390~~~~~~~~~~~o 7,4 Table III: EaiDment Cost Breakdown EQUIPMENT IMPORT EQUIPMENT TOOLS TOTAL DELIVERY IMPORT TOTAL OR COST COST TO POE DUTY 10%/e US LOCAL DOLLARS Shaft Key Press for 16,910 12,280 29,190 2,132 33,661 Machine 78,870(L) 4,410 (1) Charge Machine IA 28,170 5,500 33,670 3,289 39,657 4,720 (1) 780 (L) Leak Check Equipment 1 14,080 390 14,470 1,447 17,076 Performance Test Machine 1 129,300 - 129,300 - 12,930 152,592 Oil Charging LI - 5,500 5,500 35,000 472 6,413 4,720 (1) 780 (L) Assembly Torque Check L/ - 3,120 3,120 - 150 3,520 1,570 (L) L,550 (I) Charging Machine I 34,470 34,470 - 3,447 40,679 Perorrmance Test 1 21,130 21,130 - 2,113 24,936 Stand/Table _ MoisturelForeign Material 1 35,220 35,220 - 3,522 41,564 Check Inst. _ Tlennomexer for Opaque I 28,170 - 28,170 - 2,817 33,244 Attachment I - 28170 28,170 - 2817 33,244 Total 2,714,703 740,750 3,455,453 137,848 334,488 3,927,799 Incrementa 2,593,703 650,750 3,2,453 137,848 - 3,382,301 Non-Incremental 121,000 90,000 211,000 334,488 545,488 NOTE: Delivery to Puerto Cabello, Venezuela costs have been averaged over the pieces of equipment involved in determining the total cost for each piece. This has been done for the first 10 items, as illustrated by the arrow in the appropriate column. These are all being purchased from one supplier (McKennica) and shipped together. The same is true for the Nocolok Braze System comprising three pieces of equipment. -4n Annex I Page 8 of 8 Table IV: AAISA Proiect Cost Estimates INCREMENTAL NON-INCREMENTAL * Equipment: 2,593,703 121,000 * Tooling: 650,750 90,000 * Shipping Cost to Port of Entry (POE) Venezuela 166,700 * Technical Assistance Agreement with Calsonic Intemational Inc. (CII) 110,000 * Customer Qualification Testing 82,000 81,000 * Engineeiing Services 140,000 * Training 180,994 18,000 * Civil Works/Utiies 83,000 318,000 Other Incremental 13,506 * tOther non-incremental 26,343 INCREMENTAL 4,020,653 NON-INCREMENTAL $654,343 TOTAL US$4.674.996 10% Coringency: 401,000 653,434 import Tax: 300,000 TOTAL COST (Including Contingency): US$5.441.430 TOTAL INCREMENTAL: 4,421,653 TOTAL NON-INCREMENTAL: (Including import taxes): 1,019,777 I Annex [I AME ACONDICIONADO ITGRAL, S.A. (AAISA) Automobile Air Conditioner (AAC) Factory Conversion for Production of HFC-134a Refrigerant MobUe Air Conditioner (MAC) Compressors Technical and Cost Assesment By F. Peter Turner September 1993 Anne xI Page 1 of 3 A. SUMMARY AND RECOMMENDATIONS Pro;ect Description: The proposed project is to convert AAISA's Mobile Air Conditioner (MAC) compressor assembly line for production of HFC-134a MAC compressors, and to provide both in house and dealer training for servicing of HFC-134a MACs. In addition, a program to reuse and recycle both HFC-134a and CFC-12 MAC systems/components will be established. Princioal ComDonents: The project involves 4 major components: Each component is described in detail in Appendixes I to IV respectively. Component I - Coroven Compressor Assembly Line Component 2 - Technical Training Program for AAISA Personnel Component 3 - Service Training for Selected Venezuela Dealerships and Service Shops. Component 4 - Reclaim/Recycle/Recharge CFC-12 automotive AC systems/components. Cost Estimates (US dollar): Total Cost Estimate for Major Project Components is US$588,010. Component 1 - Coroven Compressor Assembly Line: Equipment/Tooling Costs (Table I, Appendix I) $436,790 Other Incremental Costs (Table II, Appendix I) S 91,883 Project Implementation Schedule (Table m, Appendix I) Schedule of Payments (Table IV, Appendix I) Total Investment $528.673 Component 2 - Technical Training Program for AAISA Personnel: (See General Information in Appendix 11) S 5.900 Component 3 - Service Training for Selected Venezuelan Dealers: (Table V, Appendix III; Item 1, Table VII, Appendix IV) S 27.094 Component 4 - Reclaim/Recycle and Recharge (CFC-12): (Tables VI and VII; Appendix IV) S 26.343 Total Investment (ess contingency) SS8.010 Page 2 of 3 Incremental Costs: Components 1, 2, and 3 are eligible incremental costs. Component 4 is not, due to its favorable financial rate of return. Its installation is, however, essential to in plant reduction of CFC-12 consumption. Plant rearrangements, tooling/equipment, training and product evaluation tests are required to effect the changeover to use of HFC-134a. Proposed Proiect Inmlementation: All major project components will be implemented during the next 18 months. Due to the late notice of HFC-134a implementation by AAISA and COROVEN customers, and the necessary investigation into Nippondenso's technical and license requirements, most projects will not commence until Dec. 1993 time frame, or as soon as possible after MFEC approval. Components 3 and 4 (Service Trainine for Selected Venezuelan Dealers and Reclaim/Recvcle and Recharie (CFC-121. will commence as soon as AAISAICOROVEN have new assembly line installation under way and their customer's vehicles, utilizing BFC-134a AC systems, are manufactured and released to Venezuelan markets. Components 3 and 4 will be considered an ongoing process during the succeeding 24 months. Technical Evaluation: Technical Assessment consisted of a detailed review of the technical and financial proposals with AAISA/COROVEN engineering and administration departments. An in depth review of current manufacturing processes was conducted. In addition, a review of AAISAfCOROVEN market strategy, rationale/justification for required tooling/equipment and an overview of their proposed training programs was made. I consider their project request technically correct, consistent with their customer requirements, and qualified for OTF financing of eligible incremental costs. CFC ConsumDtion Eliminated: Table VI demonstrates that implementing Components I and 4 will result in a potential CFC-12 emissions reduction of 97% of current estimated in house consumption of 25,000 lbs/year, through elimination of 17,600 lbs/year, and recycling of 6,700 lbs/year. COROVENs current compressor assembly process utilizes CFC- 12 as a test media in performance testing resulting in all CFC-12 being vented to the atmosphere following the performance test. AAISA manufacturing, engineering, development area and service shops utilize CFC-12 for AC component/system manufacturing and development testing where all CFC-12 used is vented to the atmosphere. Component 1, COROVEN Compressor Assembly Line, will not use CFC-12 as a test media, but will utilize dry air and HFC-134a to conduct performance tests, thus eininating completely the use of CFC-12. Amex E0 Page 3 of 3 Component 4, Reclaim/RecyclelRecharge, will allow manufacturing, product engineering development shops, and service shops (7,400 lbs/year consumption) to reclaim/recyclelrecharge CFC-12 currently being vented to the atmosphere. Full use of recycling equipment should reduce and allowing a 10% loss of CFC-12 due to processing errors/leaks etc. should reduce CFC- 12 loss by 90% (Table VI), assuming a 10% loss of CFC- 12 due to processing errorsleaks etc. As HFC-134a refrigerant is introduced into the AAISA manufacturing/ineern ing/service areas, reclamation and reuse of HFC-134a will be possible. Additional reductions in CFC-12 consumption are possible only when COROVEN/AAISA customers convert their automotive and commercial AC systems to HFC- 134a refrigerant designs. Recommendations: Following a review of all proposals with COROVEN/AAISA personnel appropriate modifications have been made. I find all components technically correct and consistent with COROVEN/AAISA customer requirements, however, only Components I through 3 are qualified for OTF financing. ADDendix I Page 1 of 9 B. DETAILED PROJECT DESCRIPTION PROJ[ECT COMPONENT NUMBER I - COROVEN COMPRESSOR ASSEM3LY Proiect Comnonent 1 - COROVEN ComDressor Assembly: A new compressor assembly line for processing Nippondenso designed compressors is required due to the incompatibility of P.A.G. oil used in HFC-134a systems and mineral oils used for lubricating AC systems utilizing CFC-12. In addition, the following Nippondenso parts have been redesigned for compressors using FC-134a refrigerants. These parts have been assigned new/exclusive part numbers which cannot be mixed with similar parts designed for CFC-12 refrigerant compressors. * Shaft Seals * Cylinder Block * Compressor Heads * Relief Valve • 0-rings * Clutch Rotor Bearing * Gasket * Clutch Rotor Ring * Thrust Bearings * Shield * Swash Plate * P.A.G. Oil * Valve Plate The new assembly line will be built using available space in the assembly room of the current compressor building. Tooling and equipment layouts have maximized existing CFC-12 assembly space allowing for both CFC-12 and HFC-134a compressors to be assembled separately and then share a common assembly line when differences in partstprocess allow commnon operations (See Figure 1). Annendix I Page 2 of 9 Fizure 1: Assembly Line Layouts CURRENT ASSEMBLY ROOM 61 IIII>1 CFC-12 Pedrfmance I Clutch and Check Assembly Test - 1 | CFC-1 2 Compressor Assembly 4 3 PROPOSED LAYOUT FOR NEW UNE HFC-34a__ Performance Final Process CFC-1 2 A HFC-1 34a Compressor 6 1 r CFC-1 2 Compressor Assembly 5 2 HFC-1 34a Compressor Assembly | Tool and EaniDment Pronosals: Tool and equipment proposals were reviewed and found to be technically correct and necessary for HEC-134a compressor assembly (See Table The Performance Test Stand (Table I), for testing HFC-134a compressors comprises approximately 30% of total tooling and equipment costs. Infbrmation supplied by Nippondenso indicates present test stands, which only meare pump capacity and electrical clutch engagement, will not meet 1994 customer contract requirements. Rebuilding them to meet customer requirements appears to be cost prohibitive. ApDondix I Page 3 of 9 Table I: Toolin! and Eauigment Ite.n No. Process Equipment Tooling Estimated Costs Description ..................................................................... Equipmcnt Tooling 1 Parts Wash Machine Wash Wash Basket USS70,440 US$3,940 2 Parts Assembly Shaft Keypress for Assembly Fixtures, Driver Machine Torque Wrench & Assembly $16,910 $12,280 Table 3 Oil Charge I Charge Machine Digital Scale & Assembly Table $28,170 $5,500 4 Leak Check Leak Check Air Driver $14,080 $390 Equipment 5 Performance Test Performance Test Air Driver S 129,300 Machine 6 _ Oil Charge 11 Digital Scale & Assembly Table S5,S00 7 Assembly Torque Assembly Table, Jig, & Torque I. Check Wrench $3,120 8 Refrigerant Charging Machine $34,470 Charge 9 Quality Assurance Perfonnance Test Test Starnable $21,130 Moisture/Foreign Material Check $35,220 Instniments _ _ Thermometer for 28,170 _ ._ Opaque ss_ J_Attachment j Assmbly ligs & Shutes $28,170_1 Subtotals US$377,890 US$58,900 TOTAL US$436,790 I,V ADDendix I Page 4 of 9 The new Performance Test Stand is designed to perform the following checks: * Vacuum Leak Check * Clutch Speed (RPM) Verification * Pressure Leak Check * "Pump Up" Cooling Capacity Check * Noise/Vibration Test Most significant of all is that the new performance test stand will not use CFC-12. The test stand is designed to function using dry air and HFC- 1 34a. Production capacity of the new test stand is approximately 50 units/hour as compared to 5 units/hour of the current test stand. New HFC-134a assembly line is designed for 69,000 units/year which is the same design capacity for the CFC-12 line utilizing 6 performance test stands. Design capacity is consistent with AAISA's production schedule forecast for the foreseeable future. Other incremental costs (total USS92,000) include shipping (US$3 5,000), relocation of current CFC-12 line and installation of the HFC-1 34a line (US$12,000), and technical assistance and training expenses for operation of the new test stand (USS45,000). Table EI: Other Incremental Costs IIEM ,russ 000's) -Transportation of Tools and Equipment 34,693 -Plant Rearrangement: * Relocated Part of Current CFC-12 Line 3,100 * InstaUlation of New Line 9,300 -Technical Assistance from Nippondenso: 1 Man - Wages, Hotel, Meals & Lodging, and Transportation for I Month. 18,430 -Design and Process Validation Test: (Samples sent to Japan for Tests). 26.360 TOTAL 91,883 ADmendix I Page 5 of 9 Proiect Implementation Timine: The implementation schedule consists of 6 main steps and requires 15 months as follows. Table m: Proiect Implementation Schedule NO. | STEP PROCEDURE(S) TIME I i Order (COROVEN) 2 An-angement Verify Machine (Nippondenso Specifications 2 Months Japan - NDJ) - I. -i. Machine Fabrication S Months * Inspection and Functionability of ________ Machines 1 Month 3 Transportation and * Packing and Installation Dispatch 1/2 Month (NDJ and COROVEN) * Shipping by Sea 2 Months * Installation at COROVEN I Month 4 Process Capability I Check (COROVEN) 1/4 Month 5 Quality Check * Sending of 10 Samples of Each Pilot to Japan 3/4 Month * Check of Functionability, Durablility and Specifications 2 Months 6 Production * Start of Mass Production on Models Approved ApDendix I Page 6 of 9 Table IV: Schedule of Payments (USS) Investment Item Month 1 Month 8 Month 10 Month 12 Tools & Equipment USS436,790 Transportation USS34,693 Relocation of Current CFC-12 Line US$3,100 Installation of HFC-134a Assembly Line $9,300 Technical Assistance and Training $18,430 Design and Process Validation US$26,360 Total byMonth US$436,790 US$3,100 USS62,423 US$26,360 Total Project Cost I US$528,673 General Marketine Information Backaround: Data provided by AAISA fbr the years 1992 and 1993 show total compressor production in Venezuela as fbolows: 1992 - 92,179 unit? 1993 - Beginning in 1993, both AAISA and FAACA predict a 10% increase per year. According to AAISA supplied information for the 1992 year, AAISA's 42.4% share of the market exceeds the market share of imports by over 8% in a market producing more than 92,000 units Market Shares AAISA 42.37% 39,056 Units FAACA 23.5% 21,662 Units MPORTED 34.13% 31.461 Units 92,179 Units a Figures are from "EAVENDA" Venezuela Parts Manufactunng Association Publication. ADRendix I Page 7 of 9 AAISA Market Stratenv: AAISAKs market strategy in the compressor business is based on its ability to completely develop FC-134a technology by December 1994. Using the HFC- I 34a technology in its production, AAISA's objectives are to: Maintain and improve current local compressor markets. * Actively pursue "Port of Entry" (POE) business. Port of Entry (POE) business develops when customers of imported automobiles not equipped with air conditioning systems decide to have them installed. POE vehicles are imports which may or may not have an air conditioning system. Following is a list of vehicles imported during 1992. 1992 POE VEHICLES - VENEZUELAb MODE UNITS/MONTH VW "GOL" 170 VW "GOLF" 120 DACIA 200 SKODA 250 LADA 650 TOTAL IMPORTS THROUGH DECEMBER 1992 = 63,000 Most manufacturers that have assembly lines in Venezuela will import vehicles without the A/C system and retrofit the A/C system with parts produced from their assembly plants in Venezuela. Most orders by distributors and individuals will be imported with AIC system installed. Approximately 30% of the vehicles imported in 1992 (19,000 units) were imported from manufacturers without MAC units, thus creating the best POE potential for Venezuela built AC component systems (See Figure 2). b Januazy 1993 'CAVENEZ' Venezuela Association of Assembly Lines. AwDendix I Page 8 of 9 FieLure 2: 1992 Total Vehicles 4 0.000 / . .. . .. ...... ............. . . . . . . . . . . . ... . . . . . . . . . ...... /.. . . ..-.-- -..--. Imports A \ 0 Importt A: Distribulofs- .. . . . . . . . . . -.- .-......I ::::. .. . 2000 Ur:::: °r Imporls -:Mnatrr ....... ... -.-.-.- - .. x without Assemb4 Lines in ::::::::::::::: :\ Imports BVenezuel ............... . ,_ j:::::::::::::::: \ f ;:0VeicIes AssonMedl in :::::::::: : 401900 Vene00Uea 91 ... J...... . ........ ... ........ Implementing strategic business plans is very difficult at this time due to lack of information relating to choice of refrigerant to be used by AAISA's customers. Following is a chart of AAISA's customers utilizing CFC-12 refrigerant anld new customers expected by December 1994 utilizing HFC-134a. Appendix I Page 9 of 9 Refrigerant Utilization of AAISA Customers Current and December 1994 HFC-134a; Dec. CFC-12 MODEL Units/ 194 Carryoverd Month New Business' __ _ Cherokee 350 X _ _ __ Wrangler 50 X Spirit 240 X F150-Ford Bronco 370 X R11 Renault 60 X R221 Renault 40 x Fiat 250 X Toyota 1,050 X Mitsubishi Montero 150 x Mitsubishi Van 80 X Mini Cooper 200 X TOTAL 2,840 _ VW"GOL" 150 X NV "GOLF" 85 X DACIA 150 X SKODA 250 X LADA 150 X TOTAL 785 2775 850 The statistics shown in the chart indicate that by December 1994, AAISA expects to build monthly: * 2,775 new BFC-134a units * 850 CFC-12 carry over units On that basis, AAISA will have a monthly compressor business potential of 3625 units a New Business - Not supplied at this time but expected by December 1994. d Carryover - CFC-12 business with no HFC-134a information from customer. ADDendix II Page 1 of 1 PROJECT COMPONENT 2 - TECHNICAL TRAINING PROGRAM FOR AAISA Proiect Component Number 2 - Technical Traininu Program for AAISA Personnel: AAISA has developed a 40 hour training program which will be given to 86 employees. Attendees will be selected from the following departments: * Engineering * Sales * Quality Assurance * Aftermarket Sales * Manufacturing * Service Shop The program will consist of the following subject areas and hours of training: HOURS DESCRIPTION 5 Philosophy of changes in today's world. 5 Theory of changes from CFC-12 to HFC-134a. 10 Practical elements of changes in design of products to utilize HFC-134a. 16 Practical use of reclaim/recycle/recharge equipment. Diagnostic steps to use on vehicles utilizing HFC-134a. 4 Review/question/answer session. The cost of the whole program is estimated at US$5,900. With the confusing and often conflicting conceptions surrounding the conversion of AC Systems from CFC-12 to BFC-134a, a course of this nature is fundamental. I strongly endorse and recommend its consideration. ADpendix HI Page 1 of 2 PROJECT COMPONENT 3 - SERVICE TRAINING Project Component Number 3 - Service Training: AAISA will develop a Training Program for Selected Venezuela Dealerships and Service Shops. The following are its objectives: * Develop understanding of the ozone layer and Montreal Protocol requirements. * Upgrade service personnel on new AC system products and service techniques. * Recovery and recycling principles relating to refrigerant when servicing automotive AC systems utilizing CFC-12 and HFC-134a refrigerants. * Training in the use of CFC-12 and HFC-134a recovery and recycling equipment. AAISA will arrange for procurement and training of instructors which will consist of an engineer and automotive technician. In addition, AAISA will supply a truck to transport the instructors, equipment and training materials to the training sites. The truck will have an HFC- 134a system installed which will be used for demonstration purposes and for "hands on" training Duration of the training program will be 8 hours: 5 hours theory and 3 hours "hands on" practice with equipment. Maximum trainee attendance is recommended at 12 persons per session. The training program will utilize training materials developed by: i) Chrysler Corporation; ii) Nippondenso; Hii) ASE (Automotive Service Excellence - Washington, D.C.); and iv) IMACA (International Mobile Air Conditioning Association - Grande Prairie, Texas). AAISA, in conjunction with its customers, has identified the list of cities in Table V where training will be conducted. The costs associated with each city include: * Hotel and Meals for Instructors * Transportation * Training Materials (Manuals) Costs: Total costs of Component 3, Service Training (US$27,094), include US$15,000 for "Recovery/Evacuation & Recycling/Charging" equipment and tooling required for CFC-12 demonstrations as detailed in Item I of "Service Tools" in Table VIL Tooling and EauiDment Reauired for HFC-134a, and US$12,094 in training expenses. ApDendix m Page 2 of 2 Table V: Service TraininL CITY NEW ESTIMATED COSTS (USS) Acarigua 1,076 Barquisimeto 763 Caracas 763 Maracaibo 1,282 Maracay 600 Maturin 1,410 Porlamar 1,550 Puerto LaCruz 1,410 Puerto Ordaz 1,410 San Cristobal 1,300 Valencia 530 12,094 I have reviewed program materials from ASE and DMACA and find the programs consistant and technically sound with respect to servicing automotive AC systems using CFC- 12 and HFC-134a. AAISA does not hesitate to point out that the cost of Reclaim/Recycle/Recharge equipment is prohibitive for 99% of Venezuela's AC service shops. Dealerships with direct financial support from parent companies may have the equipment by 1994. The initial cost of certified reclaim/recycle equipment and the fact that Venezuela will not mandate the use of HFC-134a until the year 2006 leaves little doubt that the amount of CFC-12 used by the Venezuelan automotive service industry will not be dramatically reduced until CFC-12 is not available. The reality of the service situation should not preclude the implementation of the training program. There is a definite need for training when BFC-134a is introduced mid-year 1994. AnDendix IV Page 1 of 3 PROJECT COMPONENT 4 - RECLAMI/RECYCLE/RECRARGE SERVICE Proiect Component Number 4 - Reclaim/Recvcle/Recharre Service Toolinf: Total cost of Componetit 4 is US$26,343. Service tools descnbed in table VII are the minimum tools required to reclain/recycle/recharge either CFC-12 or HFC-134a componentstsystems and must be considered essential to reduce CFC- 12 consumption. Average annual consumption of CFC-12 for testing purposes is now 25,000 lbs./year (11,365 kg.), of which 17,600 lbs. is consumed in the CFC-12 compressor assembly line for testing, and the remainder (7,400 lbs.) in the service shop and other areas of the factory. All of this is now vented to the atmosphere. The CFC- 12 consumption used in the compressor assembly line will be eliminated by the switchover to HFC-134a compressors, which use a mixture of air and BFC-134a as the testing medium. It is estimated that 90% of the remaining consumption or approxinmately 6,700 lbs. (3050 kg./year) can be captured and resold as a result of the installation of the recycling apparatus. Total annual CFC-12 emissions wilH therefore be reduced from 11,365 kg. to 320 kg. Even using the current low price (US$2.57/kg.) for CFC-12 in Venezuela, and assuming no change in price, the return on the investment in recycling equipment is US$7,800/year. Over an assumed five years of operation, the internal rate of return on the investment is 14%, indicating that it is a worthwhile financial investment, and, therefore not eligible to be included as an incremental cost. Though not recommended for OTF financing, Component 4 is an integral part of the in plant CFC-12 elimination strategy, and should, therefore, be retained within the project scope. Table VI: AAISA Current CFC-12 Consumption and Potential Reduction COROVEN - AAISA AVERAGE POTENTIAL CFC- 12 CURRENT CFC-12 CONSUMPTION REDUCTION FACILITY LBS/Month US$/Lb. COST/Mo. Total Use Lbs./Year US$ Year Percent Lbs./Year Reduction A B (A*B) C D (D*B) E (A * 12) (A*E* 12) Coroven 1,452 I.17 1,699 17,424 13,417 15,698 .77; AAISA 219 1.17 256 2,628 2,364 2,766 .90 Service Shop Service Sho396 1.17 463 4,752 4,272 4,998 .90_ Total 2,067 1.17 2,418 24,804 20,053 23,462 .81 _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ __I_ _ (D /C ) a Jan '94 Production (Est.) 2775 Units/Month HFC-134a 850 Units/Month CFC-12 3625 divided by 2775 = 77% b Assuming '93 and '94 production levels are the same 100% use of reclaim/recycle/recharge equipment With 10% loss of CFC-12 due to process errorsileaks, etc. iia Table VII: Tooli4f and EAminment Rn-ired for HFC-134a - ENGINEERING SERVICE PRODUCFION TOTAL ESTTED TOTAL DEPARTMENT SHOP REQUIRED REQUIRED COST COST BRAND MODEL REQUIRED REQUIRED USS USS SERVICE TOOL * I. Reooy/Evacuataa& I 1 3 5,000 15,000 26,343. ROBINAIR 17,734 Recycfingri HFC-134a 2. Recovry/Evawution & I I 1 3 5,000 15,000 ROBINAIR 17,701 CFC-12 3. Couplerus (Lw Sidcand 50 540 0 90 50 4,500 ROBINAIR 18,190/1 fih Side) 4. OiJ lnjection 2 2 0 4 80 320 ROBINAIR 34,065 5. Filr-Drier 7100oo 4 4 0 8 50 400 ROBINAIR 34,430 6. Enviro-Guard Hose 9 9 0 18 18 324 ROBINAIR 60,072 7. Scalk I 1 1 3 800 2,400 TIF VA105 8. Electronic Leak Dector I 1 1 3 500 1,500 TIF 6,501 9. Gauge Set 3 4 2 9 211 1,899 TIF 9,575 * For Charng of Refrigezatr Products N.A. = Not Available * hanl to be used for Poject C(mpont No. 4. o Anmex M A ACONDICIONADO INqTGRAL, SLA (AA) Automoble Air Co Factory Convesion for Production of EFC-134a ReFrigIant MobIe A Conditioner (MAC) Coudemni and Evaporatorn Tehical and Cost Aue_ By F. Peter Turner May 1994 Page 1 of 23 L SUMMARY OF RECOMMENNDATIONS 1. Proiect Description: The proposed project consists of the insa on of a new heit exchanger manu&cturing process. This new manucturing process wnll permt production of mobile air conditioning (MAC) components which sbstitute BFC-134a for CFC-12 as the refigerant agent. The project is necessary to permit AAISA to produce HFC-134a MACs for installation in Venezuelan assembled vehicles, and for export to Colombia, Ecuador, Pem, Bolivia and Chile (common market agreements). Auto assemblers are plaming to caffy out their transition during the 1994 and 1995 model years (Annex IEI Table XIV). 2. Cost Estimates: Total cost estimate for project implemenation, inchides capital cos, technical assistance, training, import duties, and contingency is US$4.8 million. The prqoect cost estimate is sumnaized in Annex 1, Table 1. This cost is USSl.1 milion more than FAACA's revised estimated project cost of USS3.7 milon to install an equivale heat exchanger line. The major component of the icreased cost is installaion of the aluninn brazing capacity which FAACA alrady possessed and wthout which the HFC-134a serpentine heat exchangers cannot be fibricated. 3. Incremental Costs: All tools/equipment, shipping/delivery, techrical exchanges, engineering consultng, and some of the civil works/ties oosts are required to effect the change over to production of HFC-134a compatible evaporators and condensers. Resale value ofthe esting CFC-12 line is negligible, in spite of most equipment having further expected usefl life of 5 yers or more. The alternative to implementig he project would be diect importin at higher costs of already fabricated HFC-134a evaporators/condensers, by assemblers, and the disappearance of AAISA local client base. 4. Proposed Proiect Implementation: All phases of this project will be implemented during a 24 month period following project approval by the Bank (Anmex I, Table D:). Project implementation is directly tied to AAISA!s customrs requments (Annmex m, Table X, Xl). All of AAISA's customers approve of the use of serpente design evaporatorscondensems AAISA is currently contacting Calsonic International Inc. (CII) and Modine to inport condensers/evaporators to maintain the AAISA customer base until the heat exchanger conversion project is fully implemented. Both CII and Modine manufacture sepentine design condensers/evaporators and have verbally committed to supply necessary product requird by AAISA. AAISA staff contends that the Venezuelan govenment will allow product import untl the project is fuiuly implemented; thereafter, recently anmotmced local content rquremts in the 45% range wil come into effect Am=M Page 2 of 23 5. Reduction of ODS CFC-12: Direct CFC-12 use in AAISAs current heat exchangw manuat g processes for testing and clanng purposes is non-exstnt. Therefore, project mplemation wi not directly reduce CFC-12 conmption m the heat exanger line, but the HFC-134a compressor assembly coversion will reduce direct use for testing purposes there by approximately 11,000 kg/yr. Indirect consumption of CFC-12 foregone trough production of the HFC-134a MACs is approximted by the estimated average lifetm consumption of 2.5 kg CFC-12 per installed MAC unit. 6. Environmental lsue: There are considered to be no adverse envirormental issues associated with this projec All washes and cleaners are enrtally compatible. 7: Recommenduatins: Following a review of this project with AAISA persomel and their consuting engineer, appropriate modifications have been made in the design and configurtion of the relevant production areas of the facility. The project is fountd to be technically correct and consistent with AAISA's customer requirements. The project will replace the cunrent fabrication line for CFC-12 MACs with a substitute line for HFC-134a MACs. Nefther the existing CFC-12 line, now, nor the new HFC-134a line, wil in the near future operate anywhere near close to full capacity, one shift operation being the standard suidcient to meet urrent market rImplemetation of the project will therefore adow AAISA to maintain its curret project customer base, but based on the serpentine design concept This project will allow AAISA to potentially expand its acstomer base in the futre due to ireased capacity utianon (double or tnple shftmg). Annmc m, Table XI indicates AAISA's projected fuiure product volume for HFC-134a products to be apromaey 98,000 unitstyr. Similar quantities of CFC-12 units could also be produced by greater capacity utilization of the exdsting line, if market conditions warranted. The customer base descnbed in Amnex m, Table U further ilustrates the proposed serpentine designed product is acceptable for the Venezuelan conunon market for several years. Annex-m Page 3 of 23 EL PROJECT DESCRIPION 8. The Pronosed Proiec: Is the result of new AC component design needs to meet new Thermo Dynaic uirements that arise in the convesion from CFC-12 to HFC-134a refrigerant. AAISA plans to use the following design to meet the needs of its customers when HFC-134a MACs are introduced in the Venezuelan market. 9. Evaporator: SPT (Serpentine type): produced with one staight extruded muti-port tube. fomecd several times to dimenson, with comigated fins between every two tubes and brazed together utilizing a non-corrosive flux process. 10. AAISA designs call for 2 different tube widths, 85MM and 105MM, utilizing two centers for each tube width of 9MM and 22MM. 11 Condensen: SPT (Serpentine type): Similar to SPT evaporator but produced with sevral fonned tubes to divide the core in several internal ciruits to decrease pressure drop. 12. AAISA designs call for 2 different tube widths, 22MM and 28MM utilizing center height of 16MM for each tube width 13. Annex m. Table X dernonstrates the SPT designs and their application to AAISA customer base. 14. AAISA currently produces tube and fin design evaporators/condenser for OEM MAC, after market products, drinking fountain coolers, and window air conditioners. 15. All OEM and after market products will be replaced as AAISA!s customers change to HFC- 134a refrigerant. 16. Water cooler designs and window AC units will utilize tubelfin designs untd project is implemented. At this time, design changes utiizing SPT type instead of tubefin type units can be designed and implemented. 17. Design Basis for Equipment and Tools Requirements: An analysis of AAISA's customer requremens indicated tree types of design applications for which equiprent and tools specific to conversion to EHC-134a evaporator/conenser producdon will be requied. (a) Carry over models with complete AC component design changes required for HFC- 134a. Annex m Page 4 of 23 (b) Current requests for new model quotafions, utilizing SPT designs for HFC-134a designs. (c) Potential business utlizing SPT designs for HFC-1 34a use. 18. Annex mI, Table XI ummarizes AAISA's customers, vehicle models reason for design change and anticipated vohlmes when production ofHFC-134a MAC urits begins. 19. To develop cost estimates based on equipment and tooling specifications, customer design change requests were validated, and then equipment and tooling requirements to manufacture the new designs were reviewed in detail. 20. Criteria used to review and justify equipment/tools ists included the following: * Were requests consistent with actual design changes? Was there duplication of eisting tooling and equipment? * Could current tooling be modified to accommodate new tooling requirements. 21. Ane IIL Table XII was developed to establish refrence numbers for tooling/equipment. 22. Annex H Table Xm was developed to show the relationship between the tooling/equipment lis (Annex m, Table XID and AAISA!s customer rements 23. Annex Il, Table XV was developed to demonstrate the assmbly line process flow integating both condenses and evaporators into a single assembly line process flow. 24. This manufacturing layout offers the optimum in assembly scheduling fleibility. 25. The project has been designed to produce a minimnum of 25 units/hr. An expected mwdmum output of 52 units/hrs can be achieved with additional manpower added to the manufactuin process. 26.. Estimated Costs: Total project costs excluding contingency are estimated at USS4,401,499 divided as follows: (a) Equipment/Tooling costs are contained in Axmex a, Table H. (US$3,018,663) Table II shows not only cost of toolseq lpment, but origin of mnufacture (I-imported, L- Local made), shipping charges to port of enfty, Venezuela (POE) and import taxes and required for imported equipment. Page 5 of 23 (b) Shipping cost to POE in Venezuela are US$ 102,848 - Anex EI, Table EI. (c) License Agreement with Calsonic Intemational Inc. (CII) cost is USSI 10,000. (d) As of this writing no fornal agreement between CII and AAISA has been signed. Annex I, Table m outlines general license items discussed between CII and AAISA The Banks technical consulant has reviewed correspondence to date which indicates AAISA is headed in the correct technical direction. AAISA has been told by the Bankes consultant that the lack of a signed technical agreement may jeopardize the final project agreement with the bank for OTF financing. (e) Product Testing US$162,660. Annex a, Table IV shows the breakdown of services and costs provided by CII. This incremental cost is required to show the heat tansfer characteristics of each SPT design to ensure designs meet custome requirements. (f) Consulting Engineering Services: AAISA hired a consulting engineer at total cost of USS140,000, in order to develop SPT designs and Nocolock braze technology. Annex III, Table V describes the ducies and responsibilities required of the engineer, who is personaUly known to the Bank's technical consultant and is well qualfied to WSt AAISA with this project. The consultant has had 36 years expeience with Hanison Division, GMC. He has administered mang ering groups and has been specificaly responsible for development and procurement of manufacturing Nocolock brazing process and manufacturing equipment used to manufacture SPT design AC conponerts. (g) Trairnng: Training of key AAISA personnel is estimated to cost US$120,525. The tairing program is paramount to the business success of this project. Table VL describes taining and related costs i.e.: Training of AAISA engineering at CII Manufacturers equipment/tooling engineers to train AAISA personnel on equipment/tooling operation at AAISA. Additional ongoing training which is not covered in the training program wi be provided to AAISA by the same technical consultant. Annex m Page 6 of 23 (h) Plant Rearrangement: Annex IIL Table VII shows anticipated dosts related to plant rearrangement for the new SPT process totalling USS400,000. Eligible incrlenta costs are US$1 56,996. (i) Shipping/Handling of Equipment: Rental of large material-handling equipmiet is estimated at USS29,495 from POE to the location inside the plant. AAISA does not have large material handling equipment at the plant. All transport and instalation of equipment will be done by outside contractors. The above costs are for estimate purposes only. Annex m Page 7 of 23 Table I: AALSA Proiect Cost Estimates INCREIMNITAL NON-INCRETAL * Equipment: S2,336,813 * Tooling: 681,850 * Shipping Cost to Port of Entry (POE) Venezuela: 102,848 * License Agreement with Calsonic Intemtional Inc. (CIa) 110,000 * Product Testing (Component 2): 162,660 * Engineering Services (Component 4): 140,000 * Trainung (Component 3): 120,525 * Mawfcturing Trial Run: 35,000 - Civil Works/Utilities: 156,996 243,004 Import Tax: 292,308 - ShippingHandling of Equipment/Tools from POE to in place at AAISA: 29.495 INCRENENTAL $3,841,187 NON-INCREMENTAL $570,312 TOTAL USS4.411.499 10% Contingency: 384,119 57,031 TOTAL COST (Induding Contingency): 4.852,699 TOTAL INCREMENTAL: 4,225,306 TOTAL NON-INCREMENTAL: (Including import taxces): 627,343 Table Th Eauinmeut and Cost Breakdown EQUIPMENT IMPORT EQUIPMENT TOOLS TOTAL DELIVERY IMPORT TOTAL OR COST COST TO POE DUlY 10% US LOCAL . DOLLARS Tube Uncoil /Stri*cn Cut 1 15,000 105,000 120,000 12,000 13,7000 Spenctin Tube Beder 244,400 17 600 262,000 2 0 289,900 Serpenine Evaporator 1 88,500 16,500 105,000 10,500 117,200 Quaifier Sarpctint Cmknser 1 96,900 12,100 109,00 10,900 121,660 Qualifier Extmded Tube Saw_I 31,000 - 31,000 17,000 3,100 35,800 Horn Die PrnslExL End I 98,950 11,550 110,500 11,050 123,250 Sorp. Condenser Assy. 1 68,000 11,000 79,000 7,900 88,600 Table oBand erks_ Serp. Evaporator Assy. 1 65,700 8,800 74,500 7,450 83,650 Table and Banders Condenser Fin Machine I 245,250 79,750 325,000 3 359,200 Evapoator Fin Mdhine I 225,450 99,SSO 325,000 _ 32,.50 359,200 Side Plate Cuting 31,000 - 31,000 2,000 3,100 36,100 Parts Washer I _45600 _45600 5,000 4,560 55,160 BatchD DrY Oen I 336775 33;775 6.850 337 4003 Degrea_ I 52,610 52,610 4,000 5,261 61,871 DiWater _________ _ 15,787 _1I5S,737 595 1,579 17,961 continuousFluer 1 97,800 - 97,800 9 9,780 116,863 Continus DY Oven I 66,500 66,500 27,850 6,650 82,433 Nocolok BraZe Furnace I 382,425 382,425 38,243 1 429,952 O I. Leak Test (Air Under 1 5,000 5,000 0 5,000 W ater) ._ _ _ __ _ _ _ _ _ _ _ Surfuce Treatnent Wash I 152,888 . 152,888 20,553 15,289 88,730 Pain and Brae Oven I 71,816 _ 71,816 8,000 7,182 86,998 Lcak Testo Ms 1 31,862- 31,862 2,000 3,186 37,048 SpctrnEtc) .____ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Block amdier (Alnment) L 25,400 . 25,400 - 0 25,400 Rqexar Station (Torch L 25,200 25,200 0 25,200 Braze) _ . _ Pressue Burst Test L 20,000 ' 20,000 . 0 20,000 Iniuctio Braze Pipes I 100,000 . 100,000 4,000 10,000 114,000 Sip (600 Sets Braze Plates I - 300,000 300,000 5,000 30,000 335,000 at 500/se I I I _ 2 Coondeser Braket Dies L - 20,000 20,000 O _ _ _ 20,000 Leak Tat (s Spec) 31.862 - 31,862 2,000 3 186 37048 TOTALS 2,336,813 681,8S0 3,018,663 102,848 292,308 3,413,819 NOTE: Ddivay to Puefto Cabello, Venezuela costs have been averaged over the pieces of equipmcnt involved in determining the total cost for each piece. This has been dwoe for the first 10 items, as illustrated by the arrow in the appropriate column. These are all being purchased from one supplier (McKennica) and shipped toetr. The same is true for the Nocolok Braze System coamprsng three pieces of equpment. p ooi;.: Annex Ill Page 10 of 23 Table m: Proposed License Aroement with Casonic Intenational Inc. (CM Technology Trans ussi 10,000 Agreement wil cover Comnmitment to sell CII produced serpentine design evaporators/condenser to AAISA Cost outline for: * Heat Exchanger Design - * Cycle Testing - * Vibration Test - * Calorimeter Tests - * Corrosion Tests - Training of AAISA Personnel at CII CII Engeering and Technical support of(3) Engineers for 15 days at AAISA to assist in start-up of process. Pip 11 of 23 A BREAKDOWN OF THE VARIOUS COSTS INCLUDE: HEAT EXCHANGER DESIGN AND DETAIL 6 DESIGNS @ $4,410 EACH JSM4460 VIBRATION TEST 6 DESIGNS @ S12O00 EACH 72,000 CORROSION lEST 6 DESIGNS @ S6,500 EACH 39,000 CYCL TEST 6 DESIGNS AT S3,200 EACH 19,200 CALORDMETER TESTING 6 DESIGNS AT $3,000 EACH (alowed S1,000 per tat) TOTAL US$162 Page 12 of 23 Table V CONSULTING ENGINEERING SERVICES USS140,000 PROJECT WORK WAS INITIATED OCTOBER 1, 1993. FEE PAYS FOR SERVICES RENDERED FOR 24 MONTHS WORK PLUS EXPENSES FOR THE FOLLOWING ACTIVITIES: DEVELOPMENT OF EQUIPMENT AND TOOLING SPECIFICATIONS EQUIPMENT AND TOOLING PROCUREMENT PROCESS WICH INCLUDES ESTABLISH[NG SUPPLIER NETWORK, CONTACT FOR QUOTATION, SELECTION AND FOLLOW UP THROUGH FABRICATION, TESTING AND SHIPMENT. START UP ASSISTANCE AT AAISA. TRAUINNG OF AAISA PERSONNEL ON EQUIPMENT LE. WASHES, DEGREASER, SAFE HANDLING OF CHEMICALS, ETC. TROUBLESHOOTING EQUIPMENT AND MANUFACTJRING PROCESS. GENERATING OPERATING INSTRUCTIONS FOR PROPER USE OF EQUIPMENT. ESTABLISHING MATERIAL SAFETY DATA SHEETS FOR PLANT EMPLOYEE PROTECTION. Page 13 of 23 Table VI: Traininz Costs Training of three (3) AAISA Engineers at CH for one week S4,200.00 Total costs include: Air Fare, Hote, meals and ground transport. Transportation, Food and Lodging for three (3) Engineers for 15 days at AAISA. S6,400.00 In addition to equipment costs AAISA has conritnents from major equipment suppfiers to train AAISA personel in equipment operation as follows: Equipment supplied Erection and Training Monies tube uncoil/straighten/cut system 5,000 serpentine tube bender 5,000 serpentine evaporator qualifier 5,000 serpentine condenser qualifier 5,000 extruded tube saw 5,000 hoom die press/ext. end qualifier 5,000 serp. condenser assy. table and banders 5,000 serp. evaporator assy. table and banders 5,000 condenser fin machine 5,000 evaporator fin machine 5,000 side plate cutting parts washer batch dry oven 3,000 degreaser d.i. water continuous fluxer 5,242 continuous dry oven 5,242 nocolock braze finnace 5,242 leak test (air under water) surfkce treatment wash 5,000 paint and bake oven system 26,000 leak test (mass spectrometer) 5,000 block checker (alignment) repair station (torch braze) pressure burst test induction braze pipes 5,000 jigs (braze fixtures) condenser bracket dies Sub - Total 109,925 Total Traning USS120,525 Table VII: Civi Worbs and Utitis . ioon for HFC Condener and Ev oamtor Lin SERVICE INCREMENTAL NON-ICREMENTAL TOTAL COST (S) COST (S) COST (S) Ekcuical vices ( _afbrs, 79,552 45,448 125,(00 cabkes brArs complet finidsed Gm _p_md _ and waCa sciicC 10,417 24,583 35,000 Uility sevice (velho hlab, restroomns, lunh a 0 56,000 56,000 Buiig mdificatious and seices (floor prepaation ic pits to 31,250 30,750 62,000 collct liquids f ationd s, sewer ls exhaust stacking to roof o and rpai. dc.) New boir to p de stam hat for washes 36,348 69,000 LAY-out 3,125 49,875 53,000 TOTAL 1$ 243,004 j4O00,00 Own doe afl Mm un d*A down, duwa wui be a bUS epocky ofMYA, dub &dde to duewi Wal dud wgimg awmmed by AAISA will rais coa to S45.443. TOW aPl caraiyfdie now law Vaill be 1000 KYA. dubeich isermial coda to fiames IN0 KYA me eagi. at S79,3s2. Swvimeo(vmudiem -uro lab, dewill befimcd by AA13A. BDUIDING MODmCATIor4S AND FACIITIES AMESA vuil awm docoaindio of eAtmaa dackingsuo roofo Ad allmddficiuom an roo=ad walke cosamWieg due fWouadaio for equilmmad mgu pits to cale liqala d auuic.mmical du wAiag dimi be baned by die Moob dselPocoL AMBA Am aiave anymavic to provi ldeeona fte h iradul tidim,butktis comidrinhgputddtue cakrisaown IAY OUT I AAISAIS E0anueuhg Depadmed will aw.n Al do cods in duip mad Mabor tnw lay aut It is only haB do cma of fl..i d&aw dafthul said PSUilL t _ -S ^$ !~~~~~~~~~~~~~~~~~~~~~~~~~~~' NOD~~~~~~~~~~~~~~E Annex III Page 15 of 23 Table Vm: EauiDment. Tools and Manufacturine PoCEss Tuial Run Non-Incremental Metal To Try Out Tube and Fin Forming Equipment at McKennica 2 BOXES OF CUT TUBES - EVAPORATOR AT $175/BOX 350 2 COILS (1200/LBS) TUBING - CONDENSER AT $2,75ALB 6,600 1 COIL TUBING FOR PIPES AT 1000/LBS at $3.00 3,000 4 COILS FIN STOCK AT 1,000/LBS EACH AT S2,00/LB 8.000 17,950 TRANSPORTATION AND PACKAGING COST TO SHIP PRODUCT AND UNUSED METAL TO AAISA -5,000 SIDE PLATE STOCK 1 COIL AT 1,000/LBS at $3,00/LB. -3,000 CHEMCALS TO CHARGE EQUEPMENT PARTS WASHER - ALKALiNE CLEANER - 1 DRUM -1,500 DEGREASER - 4 DRS TRICBLOROETHYLENE AT $7.50/GAL -1,500 SURFACE TREATMENT - 650 GAL LIQUQIDTANK ACID - 2 DRUTMS at $500/DR -1,500 CONVERSION COATING AND ACCELERATOR - 3 DRS AT $500/DR -1,500 NOCOLOCK FLUX - 1 DRU M at $20/GAL -1,500 BRAZE RINGS - 500 PAINT AND SOLVENT - 2 DRS AT $500/DR -1,000 8 HRS LABOR AT 25 PCS\IR FOR 200 PC RUN FOR APPROXIMATELY 20 PEOPLE -1.05 35,000 NOTE: When purchasing materials, small quantities are not available for purchase, therefbre, costs are based onbuying somewhat larger than needed quantities for tafl rn. Products m ed during process trial run will be scrapped. A1MI Page 16 of 23 Table IX: Implementation Schedule For Serentine Condesr and Evanorator NUMBER PEHASE TE1 STEP 1 Initiate Technology -Technology Exchange at TCI with AAISA 1/8 Month Personnel -Train AAISA Personnel on Serpenine Manufacturing /S Mmonth Process - TCI 2 Product Design and Test -Design to meet Customers Spec's 2 Month -Build Prototypes and Qualify Performance at TCI 3 Month Functionability, Durability and Spec) 3 Order Equipment -Purchase Orders to Various Suppliers 1/2 Month -Build to Specifications 12 Mouth 4 Arrangement -Site Preparation 1 Month -Certification and Functional Check of Equipment 1/2 Month 5 Transportation -Packing and Dispatch 1/2 Month -Overseas to Puerto Cabello, Venezuela I Month -Transport to AAISA 112 Month 6 Installation -Complete Equipment Installation 1 Month -Complete Site Preparation I Month 7 Process Capability Check -Train AAISA Pesonnel on Prper Equipment 2 Month Operation-Equipment Manufactures Peronnel/Con- sulting Engineer 1 Month -Trial Run and Debug Problems a Production -Start of Full Production TCI Personnel/Consulting 24 Month Engineer on hand to Assist ITE: 1-Some phases can be done at the same time as othen are ongoing. 2-Due to having seal sources of equipment supply, longest lead time equipment fibrication will be used for timing. Other equipment with shorter lead times vill be completed and be installed when longest lead time items come in. Annex III Page 17 of 23 TABLE X: SERPENTINE TYPE DESIGNS SUITSaLE FOR HFC-13a (ACb AIR CONDITIONING SYSTEM AND THEIR APPLICATION FOR AAISA'S CUSTOMERS DESIGN CHARACTERISTICS AC Component Tube Width Center Height HFC 134A .__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ A p p l icatio Condenser 22 MM 16MM A 28MM 16MM B Evaporator 85 MM 9 MM C 22MM D 105 M 9MM E 22MM F DESIGN APPLICATION CUSTOMER VEHICLE EVAPORATOR CONDENSER MODEL ChryslerXJ F B Yi F B Spirit D A ZJ C A GM Chevette F B Swift C A CK Truck D B Blazer D B Ford Festiva D A Fiat Uno D A Premio D A Selecta D A Honda Accord F A aasA Renaiilt D B Facorca Mini-car C B Mhfitsubidii Lanzer D A Toyota Corolla E A Renault Cleo F B Twingo D A Mazda 323 F B 626 F B Page 18 of 23 Table XI: AAISA CUSTOMER DESIGN CHANGES BY VEHICLE MODEL AND DESIGN CHANGE TYPE | CUSTOMER |MODEL(s) CHANGE ESTIMATED YEARLY [Tl ¶ER . | 1TYPE VOLUME I nn CONDENSER EVAPORATOR .~ _ Chrysler XI X 4,400 4,400 YJ X 600 600 Spirit X 2,900 2,900 GM Chevette X 2,700 2,700 Fiat Uno X 31,200 31,200 Premio X 1,560 1,560 Selecta X 2,640 2,640 Mazda 323 X 2,040 2,040 625 X 600 600 Facorca Mini-Car X 550 550 TOTAL X 49,190 49,190 Chrysler z7 X 1,920 1,920 GM Swift X 6,100 CK1500 X 8,500 Blazer X 5,500 Ford Fesfiva X 4,200 4,200 Honda Accord X 1,400 1,400 ClasA Renault X 15,600 15,600 TOTAL X 43,220 23,120 Mitsubishi Lancer X 3,840 3,840 Toyota Corolla X 14,400 14,400 Renault Civic X 2,400 2,400 Cleo X 1,800 1,800 TOTAL X 22,440 22,440 lie appLhcation of serpentine evaporator and condenser to AAISA customer base has been dofined as follows: Type I Carry over models with complete AC component design changes required for HFC-134a use. Type II Current requests for new model quotations for serpentine design condenser and evaporators for HFC-134a Type IlI Potentia business utilizing serpentine design evaporators and condensers for HFC-134a. Annex IU Page 19 of 23 Table XI: Tool and Eauinment List EQUIPMENT/rOOLS REFERENCE NUMBER Tube Uncoil/Straighten/Cut System I Serpenine Tube Bender 2 Serpenfine Evaporator Qualifier 3 Serpentine Condenser Qualifier 4 Extruded Tube Saw 5 Hom Die Press/Ext. End Qualifier 6 Serp. Condenser Assy. Table and Banders 7 Serp. Evaporator Assy. Table and Banders 8 Condenser Fin Machine 9 Evaporator Fin Machine 10 Side Plate Cutting 11 Parts Washer 12 Batch Dry Oven 13 Degreaser 14 Diwater 15 ContinuowuPsuxe 16 Condinuous Dy Oven 17 Nocolocc Braze Furnace I8 Leak Test (Air Under Water) 19 Surface Treatment Wash 20 Paint and Bake Oven System 21 Leak Test Q(Iass Spectrometer) 22 Block Checker (Aligrnment) 23 Repair Station (Torch Braze) 24 Pressure Burst Test 25 Inducdon Braze - Pipes 26 jigs 27 Condelser Bracket Dies 28 Pmage 20 of 2 n _ x x x _x _ xl x x. x * .. _X X X _ I XIx _XxK- a ~~ _ x _ X X _x K A _XXX_X_ X X _ X X _ X |~~~~~ x X x X X_X_XX__XX_K .~~~ x ___X_X_ Xx KK_XK.X 2 ___ x x x _ x _ x x _x _ =_ X _X _X X _ X Xx _ XI t.4 $ _ K K K_X_ K KX_ K K _ K .0 x XI - m-I : _ _ ~K XX_K _ K X K K _K K E_ = K K __ K K K X K K K K X K K K K K KX - | u = - X K K _ X X - K K KK K KX K K K S ^ _ K K _ K _ K X X _ K X K ~~K KK K K K K ___ X_K # K * K _K K___ X K _X __. - - - - - - - - - - - .2 K K K K K I K K * -…xx xxx xx - - he XI - -X - XI -x -- x KKT K xXI KK K "IQ2,T TOOLS iE1RX NMS CUSTOM 1I1 3 456 7 3 91.f11! IZ 13114 is1" 1711s19 Jz. 21 2 32 1 "16 I7 28 ACTO ChlRYSLEt SWI1 X X X X X X X X X XXxX x X I X XXX XXX 24 SWIFT XX XX X_ ..X_XX X I X X X( X X X X X X X X X 24 ~K15I~ - - ----- - - ----- - - - -… _ _ ___ Xj X X x I X x x x X X I XXIX 24 GRAND X X X X X X X X X X X X X X X X X X X X 24 x 24 BLAZER -- -- -- - --- -- -- --- FORD -- - --- FESTVA I X X X X X I X X XX X I XX I I I x I x 28 CWsTobm 1 2 3 4 5 6 7 8 9 le 11 113 14 is 16 17 1s 19 20 21 21 23 24 25 26 27 23 APPIUCATIONS TOTAL HONDA--- ACCORD XX X X XI XI XI X X X X X I XX IX I x XX I XXx X 25 ROOT11 {x x X lx x x lx … x- x- x x - 23 PO-ENIUL - law _____2 11031t= X.~~~~~~~~~~~~~~~~~~~~~~~'L. Annex M Page 22 of 23 Table XIV: Schedule of AAISA Customer HFC-134a Ouarteriv Model Chante Over 1994 1995 1996 Customer Model -I- m - I 11 m _ - --- -v Chrysler xi X YI x Spirit X ____ zJ - - - _ - GM Chevette X CK-1500 x Grand Blazer X Swift X Fiat Uno X Premio X Selecta X Mazda 323 x 626 X Facorca Mwcord X Ford Festiva X Honda Accord X Ciasa Renault - |Mitsubishi |Lancer . X Toyota CoroUa X Renault Clco X I_________ ITwingo I I I1III A&nnexm Page 23 of 23 Table XV: Process Flow Chart - Condenser and EvaDorator A Condenser Extruded Tubing (Coiled Stock) Evaporator Extruded (Cut to Size) A > ____________Extrusion Straightening and Cutting System _ ____________Serpentine Bending Reformiag\Stretcher Machine r ______________ Sizing Ends _ Evaporator Fin Stoclk Side Plate Condenser FinS ~~~Cuttin ~ ~ ~ ~ ~ ) i Fnnn 4c tCutting - Condenser Core Assembly - C and E Accumulator Cap Brazmg Rig Material £ Half Union _ ~~~~~~~~r LA Accumulator Manifold Parts Saw Pipe to Size Washing Pierce Slot in Pipe C andE E ) Attach Manifold -¢ Part Assembly to Core - C and E o Degreaser Assembly - C and E Flux Application - C and E o Nocolok Furnae Braze - C and E Repair Station Leak Test - C and E Surface Treatment Wash - C and E Dry Oven- C and E Induction Braze Pipes Shipping Plugs OveraU Dimensions Check or Evaporator Spray Painting Cure System oenser 4 Test Fitting 4 Tapping Sc e Bracket AssemblN-Conenser Next Process * Block Checking for Alignment-Condensers \ Leak Test - Condensers Remove Test Plug and Assy. Ship Plug Packing NOTE: Pressure Burst Test Excluded * Next Process from this Process Chart Annex IV Page 1 of 2 CALCULATION OF UNIT ABATEMENT COSTS A. DEFINITION Capital costs are annualized and expressed as a ratio of the average annual amount of ODS reduction, weighted according to its ozone depleting potential. The unit abatement cost is defined as follows: = CC.CRF + (OC - OS) M.ODP where: c 2 unit abatement cost CC = incremental capital costs (including all one-time costs such as training, installation, freight, etc., but excluding contingency). CRF - capital recovery factor OC = incremental annual operating costs OS = incremental annual operating savings M - annual average mass of ODS not released as a result of the phaseout action ODP = ozone depleting potential of the ODS B. CALCULA1IONS 1. Unit abatenent costs were calculated to include both direct and indirect reduction of CFC consumption attributable to implementation of both projects, the already approved Compressor Assembly Line project and the Heat Exchanger Fabrication Line project. Direct reduction relates only to CFC consumption within the factory itself for cleaning and testing of MACs and equipment. Elimnation of CFC-12 as a testing medium in the compressor line, and recycling of an estimated 90% of the remaining consumption in service areas reduces annual emissions from 11,365 kg. to 320 kg. 2. Indirect consumption relates to the CFC-12 which would be consumed in the MACs installed in vehicles over their useful expected life, if the project were not implemented. Annex TV Page 2 of 2 Based upon an estimated production level of 3 5,000 units annually, an average CFC consumnption of 2.5 kg. CFC/MAC over useful life', annual indirect consumption eliminated is 35,000 (2.5) (.1) or 90,000 kg./year. Due to the competitive nature of the MAC market, operating margins after conversion should be similar to current margins, so that (OC - OS) = 0. 3. Calculations: cc S4,021,000 (incremental capital costss of compressor and heat exchanger lines, excluding contingency) CRF = CRF/10 years/ll% = .163 (OC - OS) = 0; no significant difference in operating margins between HFC-134a and CFC-12 MACs. M Direct = 11,045 kg. (in plant) M Indirect = 90,000 kg. (in MAC units) ODP I 1 c (4-.394.0Q0n(.163) = $6.49/kg./year 101,045 kg.iyear(l) (for current capacity udlization) 4. Interpretation: The abatement cost is a measure of the cost effectiveness of replacing CFC-12 MAC production capacity with HFC-134a MAC capacity. Without investment in the production capacity, regardless of where the MAC producers are located, the transition is not possible. The calculated c of $6.49/kg.1year is based upon production levels of 40,000 compressors and 35,000 heat exchanger units, far below full capacity utilization of approximately 70,000 units. An increase in production levels would lead to a corresponding decrease in c. For purposes of estimation, it has been assumed that each CFC-12 MAC would have an average initial charge of 2.5 kg. of CFC-12 including the initial charge, over the useful life of the MAC. Such figures are available in the U.S.A. No reliable data on replacement leveils for Venezuela are available. I Such figures are t*pical in the U.S.A. No reliable data on average lifetime consumption of CFCIMAC units we available for Venezuela Annea V (A) Page I of I lenezuela : Montreal Protocol /AA2SA MACS Compressor Assembly :onvers ion Project OORG Technical Opinion It; Recomendation : The proposal appears to be sound and :onsistent with the objectives of the Kontreal Protocol ozone rrust Fund . The personnel training must emphasize the recovey. and salvage of not only X12 but of R134a also . This program ,along with the F&ACA program should provide a sound domestic dompetitiv* prograu with maximum potential for success ., 2. Relevance and Adequacy of Information Provided : The inforation supplied appears adequate '. TeEhncaV Soundness : AZSA and COROEZ are names respseted Ln the industry . There appears to be adequate knowledge of and intent to rely on supporting services and facilities such as MACS and Nippondenso 1. Lessons from Uxperience : I believe the implementation of this program will help expedite the use of R134a by providing :ompetition to the O.E.M. manufactures . It will also provide :ompetltion in the service arena through a competitive source )f training i Environmental Issu*s : it is recommendd that the .mplementation of this program , especially the training of n.h. field personnel be monitored for techniques applicable to ubsequent programs Safety Issus a I am not aware of any unique safety practices equired for handling R134a and R134a products T here. are owever # safety practices associated with the interchangeability f parts for aechanical and functional.reliability that service arsounel must be avare of . The:r are also safety practices ssociated with the recovery and reuse of refrigerants that ust be taught to the technicians as well as the consequences f mixing the refrigeants and their unique lubricants Cost Effectiveness s The proposal-appears to be reasonabLy * ost effctive, vith the grant recipient providing Sl cant - nput to assure adequate motivation for succ s Annex V (BI Page I of 1 PROJECT NAME: AAISA (Aires Acondicionados Integral, Sociedad Anonima). Automobile Air Conditioner (MACS) Factory Conversion for Fabrication of HFC-134a Heat Exchangers. SUBJECT: VeneZuela: Montreal Protocol / AAISA Heat Exchanger Fabrication Line Conversion Project for OORG Technical Opinion. 1. RECOMMENDATION: The proposal appears to be sound and consistent with the objectives of the Montreal Protocol Ozone Projects Trust Pund. Approval is recommended, without informed consideration by the writer of item seven below. 2. RELEVANCE AND ADEQUACY OF INFORMATION PROVIDED: The Information, along with the proposal "Montreal Protocol/AAISA MACS Compressor Assembly Project OORG Technical Opinion" appears to define the project and the anticipated expenses adequately. 3. TECHNICAL SOUNDNESS: This proposal identifies the technical support sources and their anticipated costs. The sources identified are believed to be competent. 4. LESSONS FROM EXPERIENCE: It is believed that this program will enhance the program already approved at FAACA by providing both technical and economic competition. 3. ENVIRONMBNTAL ISSUES: The proposal appears to cover all environmental issues and provides for local control of regulated issues. Although it was not referred to in the proposal it is strongly recommended that the component identification and interchangeability considerations be identified clearly for the product user to avoid cross.contamination of the MACS systems (as S.A.E. has done for the U.S. market). 6. SAPETY ISSUES: The extensive training budget should cover all unique safety considerations. 7. COST EFFECTIVENESS: The cost of S7.09/ kg. /yr. seems expensive, however the total economic impact is beyond the scope of this review in,the time available. It should be considered by those having more undexstanding of the consequences and alternatives with consideration for the comments in item above. 41 Annex VI Page I of2 F*ND~ IN FONDO VENEZOLANO DE RECONVERSION INDUSTRIAL Y IECNOD.LOGICA Caracas, 31 de mayo de 1994 Apreclado Dr. EJ-Arini: Tongo .oJ agrado de dirigirme a usted en la oportunidad de remitirlo el proye.to denominado Converel6n de una plant& de aires acondicionados automotores para la fabricsci6n de intercambisdores de calor compatibles con IFC-134a, a los fines de su revisi6n por la Secret-aria a su cargo I su consideraci6n por el Comit6 E.jecut1vo del Fondo Multilateral pora la Aplicacl.6n do). Protocolo de Montroal (FMAPM). 7.e i.nformo, Igualmente, quo el Banco Mundial, agencla ejecutora designada por rONDOIN pars este proyecto, ha conclu1.do la ovaluaci6n del misnio, la cual sera consignada en breve. FONDOIN, por au porte, revis6 el proyecto desde el punto de vista de su elegibilldad y do los costos adicionales, encontrando que calific.arla pare un subsidio del FMAPM. En consecuencla, la Junta Direct-Iva de FONDOIN me autoriz6 pars que presentase ofi.cialmentc c proyecto para la consJderac6in del Comit& EJetutjvo del FMAI'M en su pr6xima reunihn, a cfectuarse entre el 25 y 27 de julio de 1994. Mucho le agradeceria, en consecuencla. disponge lo conducente para que le presente comunicaci6n oficial, asi como el docuniento del proyecto, el sutmarlo, sus anexos y recomendaciones a ser consJgnados por el Banco Mundial, lo miem rONDOsN: UNA FUNDAC1QN r'ARA LA P)HOTECCI ON DE LA ChPA fl)? OZONO Y CL AHDICNTz Tolefono y Telefax: (5A-2) 51968.J Annes VI ' Page 2 of 2 que las recomendaciones de. esa Secretaria soan prosentados al Conuitb Ejecut±vo del FK1APM en J.A oportunidad seialada. Aprovecho, Dr.' El-Arini., p8ra reiterarle las seguridades de mi major consideraci6n. Atenteamente, Dr, Eduardo L6pez PresidenLe de FONDOIN Representante de Venezuela en ol Comit6 Ejecutivo del FMAPM Al. Senor Doctor Omar El-Arini Director de la Secretaria del Fondo Multilateral para la Aplicacl.6n del Protocolo do Montreal Montreal, Canad6 .I :- :. - .: - ... . . ; : .. ' % .: -: %i!::81::