Documfit of The World Bank FOR OmCIL USE ONLY Repast No. 13091-IN MULTILATERAL FUND FOR THE IMPLEMATION OF THE MONTREAL PROTOCOL MEMORANDUM AND RECOMMENATION OF THE DIRECTOR OF COUNTRY DEPARTMENT II, SOUTH ASIlA REGION OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE REGIONAL VICE PRESIDENT, SOUTH ASIA REGION 011 A PROPOSED OZONE PROJECTS TRUST FUND GRANT IN AN AMOUNT EQUIVALENT TO US$50 MILLION TO INDUSTRIAL DEVELOPMENT BANK OF INDIA FOR A SECOND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE-OUT PROJECT FEBRUARY 11, 1995 Country Operations, Industry & Finance Division Country Departmeut II South Asia Region This document has a restricted distribution and may be usd by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization- CURRENCY EOUIVALENTS Currency Unit = Indian Rupee (Rs.) US$1.00 = Rs. 31.3 (Exchange rate as of October 1994) UNITS AND MEASURES metric ton Ton (T) = 1000 kg ACRONYMS CFC Chlorofluorocarbons CTC Carbon Tetrachloride GOI Government of India IDBI Industrial Development Bank of India MAC Mobile Air Conditioning MF Multilateral Fund for the Implernentation of the Montreal Protocol MOEF Ministry of Environment and Forests MP Montreal Protocol on Substances that Deplete the Ozone Layer MFEC Executive Committee of the Multilateral Fund ODS Ozone Depleting Substance ODP Ozone Depleting Potential OORG Ozone Operations Resource Group OTF Ozone Projects Trust Fund SA Special Account UNDP United Nations Development Program UNEP United Nations Environment Program UNIDO United Nations Industrial Development Organization FISCAL YEAR Government of India = April 1 - March 31 IDBI = April I - March 31 FOR OFFICIAL USE ONLY INDIA SECOND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE-OUT PROJECT Project and Grant Summary Project Description: This project would assist India in implementing an accelerated ODS phase- out program by providing financing for subprojects through an Umbrella Grant Agreement- Executing Agencies: Ministry of Environment and Forests (MOEF) and Industrial Development Bank of India (IDBI). Recipient: IDBI Beneficiaries: Local industrial enterprises introducing ODS reducing technologies implementing subprojects approved by the Multilateral Fund Executive Conmittee (MFEC) or the Bank acting under its delegated authority (for subgrants below US$500,000). Grant Amount: US$50 million equivalent. Terms: Grant Re-lendinR Terms: Grant Financing plan: US$ Million Approved Subprojects 4.8 Future subprojects 43.7 Financial Agent Fee 1.5 TOTAL Proposed OTF Grant 50.0 Estimated Equity/Commercial Loan 16.5 Total Project Cost 66.5 Economic Rate of Retum: Not applicable Staff Appraisal Report: Not applicable This document has a restricted distnbution and may be used by recpients only in the pedformance of their icial dudes. Its cwntents mmy not othrwise be disclosed without World Bank authorization. MEMORANDUM AND RECOMMENDATION OF THE DIRECTOR OF COUNTRY DEPARTMENT II, SOUTH ASIA REGION TO THE REGIONAL VICE PRESIDENT, SOUTH ASIA REGION ON A PROPOSED OZONE PROJECTS TRUST FUND GRANT IN AN AMOUNT EQUIVALENT TO US$50 MILLION TO INDUSTRIAL DEVELOPMENT BANK OF INDIA FOR THE SECOND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE-OUT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed Ozone Projects Trust Fund (OTF) grant to Industrial Development Bank of India (IDBI) for the equivalent of US$50 million to help finance subprojects to reduce ozone depleting substances (ODS) consumption and production in India. Background 2. India ratified the Montreal Protocol (MP) on Substances that Deplete the Ozone Layer in June 1992, and is eligible for grants assistance from the Multilateral Fund for the Implementation of the Montreal Protocol (MF), which was established to provide support to eligible developing countries to meet their MP obligations. The Fund is managed by an Executive Committee. The Bank is one of four Implementing Agencies, along with the United Nations Development Program (UNDP), United Nations Environment Program (UNEP) and the United Nations Industrial Development Organization (UNIDO). Bank projects are channelled through its OTF agreement with the Executive Committee for the Implementation of the Multilateral Fund (MFEC). 3. In 1991, India produced and consumed about 10,400 tons of ODS. Per capita consumption is about 10 grams against 300 grams allowed under the MP for countries to qualify for financing from the Multilateral Fund. Most ODS consumption is in foams, refrigeration, aerosols and solvents. India is self sufficient in production of FCF-11, CFC-12 and halon 1201- The capacity for production of chemicals, although currently under utilized, was set up to meet the expanding future demand. Country Program Priorities 4. The Government of India (GOD) has entrusted the ODS phase-out and implementation of the MP to the Ministry of Environment anid Forests (MOEF). Within the MOEF, the Ozone Cell is coordinating MP activities. Policy issues are addressed by the respective Ministries of the GOI with the MOEF having a nodal and coordinating role. MOEF has established a Steering Committee which is responsible for approving projects and supervising the implementation of the MP. The policy framework to phase out ODS is included in India's Country Program on ODS Phase-out, which was provisionally approved by MFEC in November, 1993. Approval was subject to India preparing a revised document that would incorporate: (a) the information included in the presentation made by India at the Eleventh Meeting of the MFEC, (b) adjustments based on MFEC Secretariat's conmnents; and (c) the results of a survey of the small and informal sector. The revision is underway and will be discussed between the Bank and MOEF from time to time. 5. India has a mature and growing industrial sector. Environmental issues are receiving increased attention in India, with the MOEF taking the lead. The Bank has supported industrial development, providing financial and technical assistance to small and medium-scale enterprises and supporting policy changes aimed at increased competitiveness of industrial enterprises. 6. The Bank has assisted India in preparation of ODS investment projects, and the initial two subprojects in refrigeration formed the first ODS Grant (TF#021939, dated August 29, 1994). A larger group of subprojects in different sectors have also been preappraised by the Bank, and are being processed for submission to MFEC for funding approval. Out of this group, MFEC has so far approved funding for about US$4.8 million (at November 1993, March and July 1994 meetings of MFEC) for eight subprojects, including one mobile air conditioning (MAC), three foams, two refrigeration, one solvent, and one for using of hydrocarbon propellants which will be covered under the proposed Second ODS Phase-out Project. In 1993, India evolved internal procedures headed by a Steering Committee and supported by Technology and Finance Standing Committees, who would be directly involved in approving subprojects that will be proposed for funding under MP. In order to fulfill its obligations under the MP quickly and in a cost-effective manner, MOEF has placed reliance on decentralized mechanisms including use of local institutions and experts. The Bank supports the approach, and to enable the local agencies to move forward, prepared a Proiect Preparation Advance (PPA) (TF#021998, dated June 3, 1994) for an amount of US$345,000 funded by MF. The GOI asked IDBI to manage the PPA, and that has been agreed. The PPA will be utilized to prepare subprojects that will be covered by this Project. Project Objectives and Approach 7. The Project objectives are to: (a) establish an effective, flexible mechanism to prepare, appraise, finance and implement a large group of subprojects through local institutions; (b) support India's total ODS phase-out program; (c) implement cost effective subprojects; and (d) provide the basis for an ODS phase-out schedule at or ahead of current target. 8. The approach is to use an Umbrella Grant Agreement between the Bank and the local financial intermediary, IDBI, to channel MF resources from the Bank's OTF to beneficiary enterprises. The amount of the Umbrella Grant Agreement would be sufficient to cover already approved subprojects and future subprojects expected to be approved over the next two to three years (paras. 11-12). Following MOEF approval, subprojects will be processed for approval by MEEC according to Bank procedures (OP 10.21, November 1993, Investment Operations Financed by the Multilateral Fund for the Implementation of the Montreal Protocol) with regard to the Bank's trustee obligations to MFEC. Financing for subprojects under the Umbrella Grant Agreement will be subject to prior approval by MFEC and transfer of funds to the Bank's OTF (except below US$500,000 which will be approved by the Bank pursuant to para. 7 of OP 10.21). Project Description and Costs 9. The Project will have two parts: (a) support about 40 subprojects in all ODS user and production industries including refrigeration/air conditioning, foam, aerosols, solvents and halons, and (b) support non-ODS production/ODS closure projects; to assist participating enterprises in switching from use of ODS to non-ODS technology. Each subproject will support participating enterprises in technology transfer, design, training and implementation. Subprojects are being selected on the basis of ODS reduction impact in a cost effective manner. In addition, UNDP is preparing foam projects that complement the proposed Bank Project. List and description of the approved subprojects and indicative list of future subprojects are in ANNEX 1. Subproject summary reports as well as appraisal reports, as approved, will be in the Project File. 10. Estimated total investment costs for the Project are US$66.5 million, of which up to US$50.0 million incremental costs would be eligible for OTF grant funding, including about US$1.5 - 3 - nmillion for financial intermediary fees (3% of grant amount), and US$48.5 million for subprojects (including contingencies). It is estimated that the grant amount can be committed within three years of project effectiveness (by March 31, 1998). Incremental costs are defined as per Bank and MFEC guidelines (Annex 2). Project costs and financing plan are given in Schedule A. Procurement arrangements and estimated disbursement schedule are in Schedule B. A timetable of key project processing events is given in Schedule C. Project Financing 11. Incremental costs of approved subprojects (up to US$48.5 million) would be financed by an OTF Grant to IDBI. GOI has agreed that the Bank can provide the OTF grant directly to IDBI as financial intermediary. IDBI will pass on funds as grants to eligible beneficiary enterprises. Balance of total project costs not covered by the grants (estimated about US$16.5 million) will be financed by the respective enterprises from commercial or internal sources. Funding for the eight approved subprojects will be the initial subgrants under the proposed Agreement. As other subprojects are approved by MFEC or the Bank additional grant funds will be disbursed to IDBI under the Umbrella Grant Agreement subject to receipt of MF funding by the Bank. 12. OTF funding excludes taxes, and GOI recently issued a notification exempting ODS activities from customs and excise duties on capital goods for an initial period of two years. IDBI as part of its financial appraisal of subprojects will examine the financing plan for subprojects that are not eligible for 100% OTF grant funding, and subgrants wi!' not be signed between IDBI and the enterprises until each enterprise demonstrates a reasonable financial viability and a satisfactory financing plan for its subprojewt. However, it will not be IDRI's responsibility to meet any financing gap. IDBI will apply its standard financial indicators to determine the financial viability. Since each wholly Indian-owned enterprise will receive 100% of eligible incremental costs as a grant, and competition will require them to switch to non-ODS technology, most enterprises should be able to undertake their projects satisfactorily. Project Implementation 13. The cycle for subproject preparation, approval within India, approval by Bank and MFEC; appraisal; implementation, and supervision is described in Annex 2. MOEF is responsible for overall Proiect coordination and subproiect approval on behalf of GOI. Institutional strengthening to support the Ozone Cell is being implemented by UNDP. MOEF's Steering Commnittee on ODS phase-out is responsible that subprojects are cost effective and conform to Country Prog -m. In parallel, subprojects will also be submitted to the Bank for its review including Ozone Operations Resource Group (OORG) endorsement, and subsequent submission to MFEC for funding approval. Once approval is obtained. IDBI will be responsible for administration of grant funds, subproject appraisal, procurement, and disbursement of OTF funds to the enterprises. IDBI would enter into a subgrant agreement with each participating enterprises based on a model subgrant agreement acceptable to the Bank. Key conditions for the subgrant agreement would include: (i) the beneficiary to carry out and operate the sub-project to achieve the ODS phase-out objective and in accordance with sound technical, financial, managerial, and environmental standards; (ii) procurement of goods, works and consultants' services to be financed out of the proceeds of OTh grant would be used for the agreed subproject and procured in accordance with the Bank procurement guidelines; (iii) the beneficiaries shall maintain records and accounts of expenditures in accordance with sound accounting practices; and (iv) the beneficiaries shall take out and maintain risk and hazards insurance consistent with sound business practices. IDBI will follow - 4 - subproject, appraisal and financing criteria for OTF projects. Confirmation of satisfactory subproject financing plan will be part of subproject approval. For all suborojects, IDBI aDpraisal reports will be approved by the Bank before IDBI enters into a subgrant agreement with each participating enterprises. This arrangement was requested by IDBI. Contingency allowance will be included in each Subgrant Agreement and allocated, as needed, by IDBI, to cover any justified subproject cost increases. IDBI will be paid a fee of 3% of actual disbursed subgrant amount as follows: (i) one percent of the subgrant amount after IDBI has signed the Subgrant Agreement with the concerned enterprise; and (ii) the remaining balance of 2 % to be paid prorated on subgrant disbursements to cover costs of its services. Procurement and Disbursements 14. Procurement of goods, and services will be in accordance with Bank Guidelines for lending through financial institutions (Schedule B). Disbursements would be handled through a Special Account (SA) of US$3.5 million equivalent (about four months of estimated expenditures) to be established with IDBI after the Umbrella Grant Agreement becomes effective. Withdrawals from the Special Account would be against full documentation except for expenditures under contracts valued below US$3,000,000 for goods; and under contracts valued below US$100,000 for consulting firm and below US$50,000 for individual consultants for which the Bank will accept Statement of Expenditures (SOEs). The expected disbursement schedule is: 7% in FY95, 20% in FY96 and 20% in FY97, 18% in FY98, 15% in FY99, 10% in FY 2000, and 10% in FY 2001. Retroactive financing of up to 20% of the grant amount (US$10.0 million) is proposed for expenditures incurred after September 17, 1992, the date that India signed the Protocol. Under MP guidelines, retroactive financing is allowed from the date that Article 5 countries sign the protocol. The Project is expected to be completed by March 31, 2000, and the closing date shall be September 30, 2000. Reporting and Monitoring 15. IDBI will prepare semi-annual progress reports, annual financial audit reports acceptable to the Bank and final subproject completion reports. The Bank will supervise the overall implementation ef the Project, including approving each subproject appraisal report, and providing technical assistance to IDBI/MOEF to facilitate future subproject approvals by MFEC. Environmental Considerations 16. The Project is designed to protect the enviromnent by reducing emissions of ODS. However, the change to non-ODS technologies may involve other environmental concerns, in particular hydrocarbons, in aerosols and foams. Satisfactory safety features are being designed into each of these subprojects to minimize fire risks to acceptable levels, and IDBI will arrange for the safety audits of those subprojects. The flmding for safety audits will be included in the OTF grant. IDBI will also ensure that the enterprises have complied with all environmental regulations, before the approved grant is disbursed. Project Sustainabilitv 17. The Project will establish an efficient mechanism for developing and implementing cost effective subprojects to complete the ODS phase-out program. The Country Program will focus on strategies, policies, and action plan to ensure compliance with ODS phase-out targets. Grant funding will facilitate India's compliance with the control measures of the MP by meeting agreed incremental costs of ODS phase-out projects. . 5 - Lessons from Previous Bank ExDerience 18. OTF Projects are being developed simultaneously in about 20 countries. One project has been completed in Venezuela. Early review indicates the need for flexibility in Project design, well prepared and documented components, attention to institutional strengthening and technical assistance. The Umbrella Grant Agreement was developed from work on these other OTF projects to give that flexibility. Subprojects are being prepared based on examples from other countries. The role of MOEF's Ozone Cell as a nodal agency for coordination of ODS phase-out is based on the experience from two Industrial Pollution Projects (Industrial Pollution Control Project, Loan/Credit 3334-IN12252-IN) and (Industrial Pollution Prevention Project, Loans and Credit 3779-IN & 3780-IN and 2645-IN). The role and responsibilities assigned to IDBI is based on the experience from about a dozen Bank projects, including assistance in procurement, disbursement and project management. Rationale for Use of Ozone Trust Fund 19. The Project is consistent with MFEC's and the Bank's Implementation Guidelines and Criteria for the use of OTF funds. Project Benefits 20. The Project will support the ODS phase-out program as dejscribed in the Country Program and help India meet or exceed that target. UNDP's institutional strengthening for the Ozone Cell will help improve coordination of the ODS phase-out program including implementing this Project. Enterprises will benefit from timely adjustment to non-ODS technologies. The amount of ODS reduction for the Project can not be determined since most subprojects have not yet been prepared. Proiect Risks 21. Institutional weakness of local agencies and unfamiliarity with the MP ODS phase-out objectives and procedures could slow project execution and is expected to be addressed under UNDP's institutional strengthening project with the Ozone Cell. The Project will minimize technical and conmnercial risks by providing technical support to enterprises and by providing grant funding for incremental costs of subprojects. The grant is expected to be fully conunitted within two to three years of grant effectiveness, however, the pace of subproject preparation needs to be accelerated to achieve this target. - 6 - Agreements Reached and Reconmnendation: 22. During negotiations, agreements were reached that IDBI would: (i) Be paid a fee of 3 % of actual sub-grants amount disbursed, from the proceeds of the grant (Para. 13); (ii) Enter into a subgrant agreement with each beneficiary, with terms and conditions satisfactory to the Bank, including a confirmed financing plan (para. 13); and (iii) Prepare: (i) appraisal reports for each subproject; (ii) semi-annual progress reports and annual audit reports; and (iii) upon completion of each subproject a subproject completion report (paras. 13 and 15). Recommendation 23. 1 am satisfied that the proposed Ozone Projects Trust Fund grant would comply with the Exective Directors' Resolution No. 91/5, establishing the Global Environment Facility, and I recommend that the Regional Vice President approve it. Heinz Vergin Director, Country Department II South Asia Region Attachments Washington, D.C. February 11, 1995 - 7- Schedule A Page 1 of 1 INDIA SECOND MONTREAL PROTOCOL ODS PHASE-OUT PROJECT Indicative Project Costs and Financing Project Costs (US$ millions) Proposed OTF Grant Total Project Net Total Cost CoStS a> Investment Recurring Costs Costs b) Approved Subprojects 4.8 4.3 0.5 4.8 Future Subprojects 60.2 39.7 4.0 43.7 Subtotal 65.2 44.1 4.5 48.5 Financial Agent Fee 1.5 0.0 0.0 1.5 Total Project 66.5 44.1 4.5 50.0 a) Including 10-15% contingency. b) Not Disoounted; for up to 4 ycars recurr incrcmental costs. Indicative Financing Plan Source i US$ million equivalent OTF Grant 50.0 Commercial loans or enterprise funds 16.5 Total 66.5 -8- Schedule B Page I of 2 INDIA SECOND MONTREAL PROTOCOL ODS PHASE-OUT PROJECT Summary of PronDosed Procurement Arrannements IDBI will be responsible for ensuring that eligible beneficiary enterprises follow the agreed procurement guidelines. Total procurement for subprojects will amount to $48.5 million for about 40 subprojects whose procurement will be administered following international competitive bidding (ICB) using Bank Standard Documents, or the procurement practices of financial institutions in India which the Bank has examined and found acceptable, consisting at a minimum of the following: Goods and Works (i) contracts over $3 million equivalent (excluding proprietary packages) would be procured under ICB procedures, under which preference for eligible domestic bidders should be allowed in the evaluation of works (7.5%) and goods (15%); fii) contracts between $200,000 and $3 million equivalent would be procured on the basis of comparison of price quotations solicited from at least three qualified suppliers from at least two countries; (iii) contracts below $200,000 equivalent would be procured on the basis of comparison of price quotations solicited from at least three qualified suppliers; (iv) contracts below $50,000, including licenses, would be procured in accordance with established comnercial practices acceptable to the Bank; and (v) direct contracting will be used for proprietary packages. Consultants (i) Consultants shall be engaged on the basis of "Guidelines for the Use of Consultants by World Bank Borrowers and the World Bank as Executing Agency" dated August 1981. Prior Review Prior review is required on the following contracts and bid packages: (i) over $3 million equivalent for goods and works; (ii) for consultants' contracts, over $100,000 equivalent for firm and $50,000 for individuals; (iii) for proprietary technology and equipment for contracts over $50,000. Post Review Post review of contracts will be carried out on a sample basis by the Bank supervision team. - 9- Schedule B Page 2 of 2 Disbursement Table Withdrawal of the Procecds of the OTF Grant 1. The table below sets forth the Categories of items to be financed out of the proceeds of the OTF Grant, the allocation of the amounts of the OTF Grant to each CaLegory and the percentage of expenditures for items to be financed in each Category: Amount of the OTF Grant Allocated % of (Expressed in millon of Expenditures Category US Dollar Equivalent) to be Financed (1) Subgrants 48.5 100 (2) IDBI fee 1.5 100 TOTAL 50.0 Estimated Disbursement Schedule BANK FY 1995 | 1996 1997 1998 1999 2000 2001 ___ __ _ _-------(US$ million)- -- -_-_- Annual 3.5 10.0 10.0 9.00 7.5 J 5.0 5.0 Cumulative 3.5 13.5 23.5 32.5 40.0 j 45.0 50.0 l_____________ ________ - -----------------( % of total)- -- Armual 7 20 20 18 15 10 10 Cumulative 1 7 27 47 65 80 90 100 - 10- Schedule C Page 1 of 1 INDIA SECOND MONTREAL PROTOCOL ODS PHASE-OUT PROJECT Timetable of Key Project Processing Events Preparation (time taken) 11 months Prepared by Bank, IDBI and MOEF First Presentation to the Bank September, 1993 Departure of Bank Preappraisal Mission May, 1994 Date of Negotiations February 9-11, 1995 Planned Date of Signing March, 1995 Planned Date for Effectiveness March, 1995 Planned Completion Date March 31, 2000 - 11 - ANNEX 1 Page 1 of 7 INDIA: LIST OF APPROVED SUBPROJECTS TOTAL OTF CAPITAL GRANT SECTOR NAME ODS REDUCIION w COST b/ ef (MT ODS) (000 US$) (000 US$) Approved REFG & AC Subros 84 2,010.0 1,710.0 Kirlosluar Indirect 1,183.0 547.9 Freezeking 185 (by 1999) 233.0 240.5 FOAM MIni Idirect 729.0 700.0 UB Petroproducts Indirect 597.0 585.9 Excpanded Indirect 565.0 502.1 SOLVENT Hindustan Syringe Sterilization 54/anum 466.0 48L0 AEROSOL Aero Pharna 82.5 62.5 , SUBTOTAL d_1 5,865.5 4,829.9 a) Measured at fidl operation of faciities. b) The foam and aerosol HAP subprojects amble olber user industries to phase-out ODS. C) Somc of thc subprojects arc phasc I of 2 phase operation. dt) Includes I1-5% comingewis and 3% rmci agent fec - 12 - ANNEX I Page 2 of 7 INDICATIVE LIST OF FUTURE SUBPROJECTS Company ! Project Title - Est. ODS Used MT (1992) Refrigeration l l l Kelvinator of India Convert domestic refrigerators and compressors to HFC134a 80 (57% Whirlpool) Conversion of Foam blowing agent to non-CFC 250 Godiei-GE Appliances Ltd. Convert domestic refrigerators and compressors 65 manufacture to HFC134a 49% GE ownership Conversion of blowing agent for Foam Insulation to 200 non-CFC Voltas Ltd. Conversion of AC to HCFC22. 9 Voltas Ltd. Conversion of water cooler to HCFC22. 3 Voltas Ltd. Conversion of refrigerator compressor to HCFC22 12 Freezeking Industries Pvt. Redesign for HCFC22 use in open type CFC12 30 Ltd. compressors. Sanden Vikas Ltd. Conversion of mobile AC systems to HFC-134a. 10 49% Sanden-Japan owner- ship. __l BPL-Sanyo a) Conversion of domestic refrigerators to HFC-134a 25 Conversion of Foam blowing agent to non-CFC substitutes 125 Videocon Conversion of domestic refrigerators to HFC-134a 15 Conversion of Foam blowing agent to non-CFC substitutes 80 Maharajah a) Conversion of domestic refrigerators to HFC-134a 50 b) Conversion of Foam blowing agent to non-CFC substitutes - 13 - ANNEX 1 Page 3 of 7 Allwyn Convert domestic refrigerators and compressors 50 manufacture to HFC134a Conversion of Foam blowing agent to non-CFC substitutes Blue Star Non-CFC blowing agent for refrigerator/water cooler 10 insulation Total Refrigeration 1,014 Aerosol 17 Established Aerosol Modifications to use HAP 350 Fillers Small Aerosol Fillers Modifications to use HAP 135 Total Aerosols 485 Solvents Albert David Ltd. Eliminate CFC-l 13 use in manufacture of syringes 10(113) Hindustan Syringes Eliminate CFC solvents used in syringe manufacture 3(113) 7(12) Excel Eliminate use of CTC in manufacture of Endosulfan 309i (CTC) Bharat Eliminate use of CTC in manufacture of Endosulfan 300 (CTC) Rishiroop Eliniinate use of CTC in manufacntre of chlorinated 3750 (CTC) rubber. (Phase l)-Engineering development Harbano Eliminate use of CFC1 13 in manufacture of blades 70 (113) Semiconductor Ltd. Solvent cleaning of Wafers 50 (113) Sekbsaria Eliminate use of CTC in manufacture of Ibuprofen 110 (CTC) Total Solvent 4,600 Hilon Shriram Fibers Ltd. Manufacmre of ABC powder to replace H1211 for Fire 560 (1211) Extinguisher Real Value Conversion of H1211 extinguisher production facility 140 (1211) to ABC powder - 14 - ANNEX 1 Page 4 of 7 Defence Fire Research Technology transfer for modification of H1301 200 (1301) Institute systems. Total Halon 900 (4100 ODP) Production 4 CFC Closures 2 Halon Closure 2 non-ODS Alternative Plants I Halon Alternative Plant TOTAL PRODUCTION GRAND TOTAL _ J - 15 - ANNEX 1 Page 5 of 7 PROJECT DESCRIPTION OF APPROVED SUBPROJECTS SUBROS LTD (Approved OTF grant $1.710,000) Modification of CFC-12 Mobile Air Conditioning Manufacturing for HFC-134a This Project will phase-out chlorofluorocarbons (CFC-12) used in Automotive Air conditioning Systems. In Phase I of this project, Subros will modify its production capability enough to supply its export market with HFC-134a compressors. This Phase will therefore require changes in production equipment as well as compressor design modifications. The incremental capital costs for these items are the subject of this proposal. Phase II will be devoted to phase-out of CFC-12 from all compressors for the domestic market. The schedule has been planned to accommodate the phase-out envisaged in the India Country Program. Many of the costs involved in the Phase I proposal will also provide for some of the Phase II activities. A separate proposal will be submitted for Phase II. KIRLOSKAR COPELAND LTD (Approved OTF grant $547,900) Conversion of Compressor Design for Refrigerators and Appliances from CFC-12 to HFC-134a This OTF request is for the first phase of a two phase project which will facilitate the phase-out of CFC-12 by converting the hermetic compressoi production at Kirloskar Copeland Ltd. (KCL), India from CFC-12 to HFC-134a designs. In Phase I, engineering development, prototype manufacturing and testing of compressors for HFC-134a will be conducted on the basis of technology purchased from Copeland U-S.A. Phase I will also establish the project requirements for retooling, training, and other activities needed to complete the conversion to HFC-134a designs in Phase II. KCL manufactures compressors to partiallv supply the needs of appliance manufacturers in India. In 1991-92, KCL sold 56,800 compressors comprising 15 different models. KCL also repaired 24,125 compressors. Full implementation of the project will lead to a ODS reduction of 80 MT per year. FREEZEKING INDUSflhIES PVT. LTD. (Approved OTF grant $240,500) Redesign and Development of CFC-12 opentvpe Comnressors for use with HCFC-22 Refrigerant This project will phase-out CFC-12 consumption by developing HCFC-22 open-type refrigeration compressors at Freezelcing Industries Pvt. Ltd. Freezeking, with the assistance of Frick India Ltd. a reputable manufacturer of HCFC-22 reciprocating compressors in India will redesign Freezeking make CFC-12 based compressors for use with HCFC-22. After HCFC-22 compressor designs are finalized and tested, the company will convert its existing CFC-12 compressor production line to the production of HCFC-22 compressors. This project will result in complete phase-out of CFC-12 compressor production at Freezeldng Industries in a period of three years. MANALI PETROCHEMICAL LTD. (Approved OTF grant $700,000) Application Development for Conversion of CFC-1 1fPolyol System to low/non-ODS Formulations This project will facilitate replacement of CFC-i1 as the foam blowing agent in polyurethane (PU) chemical systems manufactured at Manali Petrochemicals plant near Madras. These systerns have end-uses in rigid insulation and flexible molded foam manufactured products. This project will source commercially proven technology for PU chemical systems containing low-ODP foam blowing agents. The technology will be adapted - 16 - ANNEX 1 Page 6 of 7 to suit Indian customer needs & specific end-use requirements witll modifications to Manali Petrochemical's existing manufacturing infrastructure. The technology for the PU chemical systems will be obtained from ARCO (US) and Mitsui (Japan) under the terms of technology transfer agreements currently being negotiated. This project will provide a local source of essential materials which can result in reduction of CFC- II usage in India by about 1200 MT per year by 1996. UB PETROPRODUCTS (Private Sector-90% Indian Ownership. approved OTF grant $585,864) Avylication Develooment for Conversion of CFC- I /Polvol System to low/non-ODS Formulations This project aims at replacing CFC-1 1 as the blowing agent in polyurethane rigid insulation and flexible molded foams with lowlzero ODS alternatives. UB Petroproducts manufacture polyurethane chemical systems for these foam applications. The project will be implemented in two phases. Phase I will involve: a) sourcing of appropriate technology, b) establishment of test facilities which include 'high pressure' foaming equipment, arnd c) evaluation of non-CFC alternates for each end-use. Phase II will include: a) customer trials/testing/training of non-CFC systems, and b) conunercial production of formulated polyols. Technology will be obtained from Enichem (Italy) for systems based on low-ODP CFC-alternates. This technology will then be adapted to suit Indian customer needs & specific end-use requirements. The project will permit phasing-out 705 MT of CFC-1 I in manufacturing polyurethane foams during the period 1994-96. EXPANDED INCORPORATED (Private Sector-100% Indian Ownership, approved OTF grant $502,130) APPlication Development for Conversion of CFC-l 1/Polvol System to low/non-ODS Formulations The project will install laboratory & testing equipment and establish demonstration facilities for applications development in close cooperation with Indian Foam processors, primarily in the rigid foam sector. The enterprise will use its own in-house technology to develop new polyols & systems for the production of ODS- free rigid Polyurethane (PU) foams under Indian conditions. This project will enhance the early phase-out of CFC-1 1 consumption in rigid PU Foams used in household refrigeration insulation, thermowares, sandwich panels and general insulation rigid PU foams manufactured by various companies using polyols supplied by Expanded Incorporation. After the application technology is established, the enterprise would modify present polyols suitable for CFC-free rigid foams using alternative blowing agents and also modify and relocate the blending plant to manufacture CFC-free blended polyols. Expanded Incorporation would then phase out CFC-1 1 consumption by manufacturing the new blended polyol formulations for use with new alternative blowing agents. This project would provide a local source of essential materials and technology with which industry would reduce CFC-l 1 usage in India by about 456 MT per year by 1998. Project scope and cost were revised taking into account MFEC's conunents in November 1993. The project is part of GOI strategy in the foam sector to support competitive roles of three or more existing private sector polyollfoam systems suppliers to the many diverse foam industries throughout India. The project would also provide foam formulations at cost effective prices and would lower overall incremental costs in the foam sector. HNDUSTAN SYRINGES (Private Sector-100% Indian Ownership, approved OTF grant for sterilization only $481,000) Conversion of syringe manufacture to non-ODS technolog This project will phase out CFC-12 currently used in co-mbination with Ethylene Oxide for sterilization of syringes, needles and other disposable medical devices manufactured by Hindustan Syringes. It is proposed to replace the 12/88 EO/CFC-12 sterilization gas mixture with a 10/90 EO/C% gas mixtue and to - 17 - ANNEX 1 Page 7 of 7 replace silicon CFC-1 13 sprayers with pure silicon sprayers. To accomplish these objectives. new higher pressure sterilization chambers will be installed to assure satisfactory sterilization with EO/CO2 and special silicon spray nozzles will be installed to eliminate the need for CFC-1 13 as a silicon carrier. This proposal was submitted to MFEC for an OTF grant of $790,000, however, only sterilization component was approved. The solvent component will be further developed and proposed for funding. AERO PHARMA Pvt. Ltd. (Small, private sector operators, 100% Indian Ownership, proposed OTF grant $62,520) Aerosol Can Filling With HAP to Substitute ODS This project will accomplish the conversion of current CFC-11/12 to hydrocarbon (HC) propellants at Aero Pharma Pvt. Ltd. Their existing facility is completely enclosed, with little unoccupied space, which can not be made safe for filling HCs. The enterprise requires larger space as well as provision for safe handling of the flaninable hydrocarbon propellants. Management recognizes that 'open air filling room" should be used. Major requirement include installing permanent storage tanks and increase fire protection to improve overall operational safety. The local FDA regulations requires that aerosol concentrate be prepared on the premises and finished product also be packed there. -18 - ANNEX 2 Page 1 of 3 INDIA - SECOND MONTREAL PROTOCOL ODS PHASE-OUT PROJECT SUBPROJECT ELIGIBILITY AND OPERATIONAL GUIDELINES A. Project Coordination and Management 1. Overall Responsibilities. The Ministry of Environment and Forests (MOEF) has responsibility for implementing the ODS phase-out Country Program. It is responsible also to MFEC to ensure that subprojects are consistent with the Country Program- IDBI will: (i) appraise subprojects; (ii) channel finds from the Ozone Trust Fund to the subprojects under a subgrant agreement; (iii) manage procurement, and disbursement of OTF grants to subprojects; (iv) supervise subproject implementation and completion; anti (v) submit the required reports. B. Subproject Eligibility and Appraisal Criteria 2. Subproiect Eligibility. Subprojects must be confirmed by MOEF as essential to Country Program objectives and must be approved by MFEC or the Bank. They must also be confirmed by MOEF, MFEC or the Bank as: (i) directly/indirectly reducing ODS consumption/production; (ii) being in compliance with environmentally sound technologies for ODS phase-out; and (iii) following environmentally sound method of the disposal of ODS equipment and material being replaced under the grant. Furthermore, they should be: (i) cost effective, duly taking into account national industrial policy; (ii) in compliance with applicable national environmental laws and regulations of India; (iii) adopt substitutes (or recycling) for substances controlled by the Montreal Protocol; and (iv) comply with criteria for financial viability acceptable to the Bank. OTF funding is based on grants to enterprises or agencies implementing subprojects 3. Unit Abatement Costs. Cost effectiveness is measured by "unit abatement cost", a comparative index defined by the following: A = C(F) + (OC-OS) w WHERE: A Unit abatement cost, $/kg ODP saved/year (at full operation) C = Incremental capital cost, including all initial one time costs (technology, equipment, materials and training) F = Capital recovery factor; the annualized capital cost charges, discoumted at a standard discount rate of 10% per year, over the economic life of the project OC = Annual Operation Costs at full operation OS = Annual Operating benefits at full opertion W = Quantity of ODS saved annually expressed as ODP units Unit abatement cost gives a relative ranking of projects across countries and within same sector. It takes economies of scale and other factors into consideration. Lower unit abatement costs corresponds to higher priority in terms of cost effectiveness. - 19 - ANNEX 2 Page 2 of 3 4. Financing is based on incremental proiect costs calculated at the enterprise level. Incremental costs should be consistent with eligibility as defined by MFEC. 5. Policy Considerations. Overall economic/industrial policy is excluded from consideration by MFEC guidelines and policies required to develop and implement the country's ODS phase-out program are to be addressed in the ODS Country Program. Policies that directly affect successful implementation of subproject should be addressed before subproject is submitted to MFEC. 6. Ownership. A subproject is eligible for funding in direct proportion to local ownership of percentage of the enterprise, including ownership from other eligible Article 5 countries. 7. Exports. Subprojects in a "free zone" and producing for export only are not eligible for the incremental costs of ODS phase-out. 8. Taxes. Taxes (import, excise, etc.) are not eligible for reimbursement. C. Operational Guideines 9. Subproiect preparation: The respective enterprise is responsible for preparing its ODS phase-out subproject including feasibility study and Project Summary, showing total project costs and eligible portion for OTF financing. However, some assistance is being provided to these enterprises for project preparation by the Bank with funding support from MFEC. 10- Review within Country: MOEF coordinates all subproject review and approval within India and coordination with Implementing Agencies. It also ensures consistency with the ODS Country Program, consistency with eligibUity guidelines for OTF financing, and consistency with other Government guidelines. The Bank ensures that the Ozone Operations Resource Group's (OORG) comments are provided to MOEF before the final approval of each subproject. 11. Review within the Bank: Bank review and approval of subprojects, including Ozone Operation Resource Group (OORG) proceeds in parallel with MOEF review. 12. Review by MFEC: MFEC review and approval of subprojects, is based on the Indicative List of categories of incremental costs and MFEC's guidelines for project funding. 13. Subproject appraisal: Subproject Summary should be appraised by IDBI taking into consideration tat approval, and funding has already been completed by the Bank, MOEF and MFEC with respect of subproject costs and technical aspects. Review of technical feasibility will in almost all cases have already been completed by OORG review process. Appraisal work should include: (i) Project scope as approved by MFEC; (ii) Schedule and quantity of ODS phased out attributed to subproject; (iii) Project costs; - 20 - ANNEX 2 Page 3 of 3 (iv) Financial analysis of enterprise. Financial indicators to ensure enterprise viability and its ability to implement subproject successfully should be determined based on local conditions and consistent with commercial financial practice in the country; and agreed with the Bank; (v) Financing plan should include: (a) incremental costs related to ODS phase-out to be financed as OTF grant; (b) amount to be provided by enterprise from its own resources; and (c) commercial loans. Items (b) and (c) need to be confirmed; (vi) Project implementation arrangements including management, engineering and technology acquisition, procurement, installation, operation, and implementation schedule should be provided. Procurement and consultant selection procedures should be consistent with Bank Guidelines. Disbursement schedule should also be given; (vii) Environmental aspects of the subproject should be documented and be in compliance with local environmental regulations. 14. Subgrant Agreement: Subgrant agreement between IDBI and each enterprise will follow model subgrant agreement including enterprise obligation regarding ODS phase-out. 15 Disbursement: Disbursements would be according to Bank disbursement procedures. 16. Procurement: IDBI will be responsible that procurement under each subprojecrt is in accordance with the Bank procurement Guidelines. 17. Subproject Implementation: Each enterprise will be responsible for subproject implementation. To this effect it will sign a subgrant agreement with IDBI that spells out responsibilities of enterprise and its comnuitment to undertake the necessary activities agreed upon in the subproject proposal to achieve the intended ODS reduction or phase-out. 18. Subproject Supervision: IDBI will supervise implementation of the subprojects. IDBI responsibility for subproject supervision ends after full disbursement and approval of fial enterprise progress report. MOEF has responsibility to monitor overall progress of subprojects in fulfillment of its overall role for the implementation of ODS Country Program. 19. Reporting Requirements: Subproject proponent would include semi-annual progress reports to IDBI according to practice applied by IDBI in similar projects. Each enterprise would submit one project progress report when the prop,.ed investment activities have been implemented and new installations are operating. 20. Audits: IDBI will prepare an annual audit report by an independent auditor acceptable to the Bank, as well as semi-annual reports on the status of the grant disbursements and the progress of the subprojects, acceptable to the Bank. I