Documet of The World Baik FM OMCAL USE ONl Repu No. 12408-T MULTILATERAL FMND FOR THE IMPLFJIENTUION OF THE MlOTREAL PROTOCOL MEMORANDUM AND REIIICOIEATION OF THE DIRECTOR FOR COUNITR DEPARTHENT I OF T INERNATIONAL BMAN FOR RECNSTRUCION MD DEVELPENT TO THE REGIONAL VICE PRESIDENT, EAST ASIA AND PACIFIC REGION ON A PROPOSED OZONE PROJECTS TRUST FOND GRANT IN THE AMDUNT EQUIVALENT TO US$40.0 MILION TO THE KINGDOM OF TEHILAND FOR A MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT MULTI-COMPONENT PROJECT SEPTEMBER 16. 1994 Industry and Energy Operations Divison Country Department I East Asia and Pacific Region MICROGRAPHICS Ths document has a restricted distrbution a their official dutes Its contens may not ot Report No: 12408 TH Type: MOD CURRENCY EOUIVALENTS (Average rate for 1993) Currency Unit Baht (B) US$0.039 1 B US$1.00 25.32 B ABBREVIATIONS AND ACRONYMS DIW Department of Industrial Works FA Financial Agent GEF Global Environment Facility IFCT Industrial Finance Corporation of Thailand MF M:ultilateral Fund of the Montreal Protocol MIT! Ministry of Inte-national Trade and Industry MOF Ministry of Finance MP Montreal Protocol MT Metric Tons MFEC Multilateral Fund Executive Committee ODS Ozone Depleting Substances, or Controlled Substances as defined by the Montreal Protocol OPG Operational Policy Guidelines ODP Ozone Depleting Potential (CFC 11 - 1.0) OTF Ozone Project Trust Fund of the Bank for the Substances as defined by the Montreal Protocol SIDA Swedish International Development Agency UNDP United Nations Development Programme USEPA United States Environmental Protection Agency FISCAL YEAR (THAILAND) October 1 - September 30 FOR OFFICLAL USE ONLY THE KINGDOM OF THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT MULTICOMPONENT PROJECT Project and Grant Summary Project Descrintion This project would assist Thailand to implement an accelerated ODS phaseout program by: (1) providing financing for priority subprojects, and (2) establishing an efficient mechanism for executing ODS phaseout projects through local institutions. Executing Agencies Department of Industrial Works (DIW) at the Ministry of Industry, and the Industrial Finance Corporation of Thailand (IFCT). Beneficieries Local Enterprises introducing ODS reducing technologies; DIW and IFCT as executing agencies. Grant Amount US$ 40.0 million Terms Grant Re -lending Terms Grant Financinp Plan USS Million Proposed OTF Grant: Subproject with MF Funding Pre-appraised subprojects 10.67 Subprojects under preparation 1.00 Subprojects ProRosed for Future ApRroval (estimated costs) Identified subprojects 8.21 Future subprojects 20.12 Total Proposed Grant 40.0 Equity/Commercial Loan 11.0 Total Project Cost 51.0 Economic Rate of Return N/A TIVs documet has a stictd disboutn and may be used by recipiets only in the pefomance oftheir ofMcil duties. Its contents mat ot hewise be disclosed without Wotu1 rank aEtozation. MENORANDUM AND RECOMMENDATION OF THE DIRECTOR COUNTRY DEPARTMENT 1 TO THE REGIONAL VICE PRESIDENT EAST ASIA AND PACIFIC REGION 1. I submit for your approval the following memorandum and recommendation on a proposed OZONE PROJECTS TRUST FUND grant to the Kingdom of Thailand for the equivalent of US$40.0 million to help finance a project to reduce Ozone Depleting Substances (ODS) consumption through the introduction of alternative technologies. This project will support ODS phaseout by establishing an efficient implementation mechanism at local institutions, and by funding an initial group of subprojects. Background 2. Thailand has experienced a period of sustained economic growth since the 1970s which has also been accompanied by environmental degradation. The Government of Thailand has become increasingly aware of the local and global consequences of these environmental problems and has been committed to address them. That commitment led Thailand to ratify the Montreal Protocol (MP) on Substances that Deplet.3 the Ozone Layer (ODS) in July 1989 and, thereby, to become eligible for funding from the Multilateral Fund for the Implementation of the Montreal Protocol to finance ODS phase out programs. The Fund is managed by the Multilateral Fund Executive Committee (MFEC) and implemented by the Bank, UNDP, UNEP and UNIDO. Funds for Bank implemented projects are channelled through the Bank administered Ozone Projects Trust Fund (OTF). 3. In 1991, Thailand consumed 15,600 tons of ODS, equivalent to an Ozone Depleting Potential (ODP) of 10,040 tons or 0.16 kg ODP per capita. All ODS are imported. ODS were used in: (i) electronic/metal cleaning solvents, (43% as ODP), (ii) refrigeration/air conditioning (33X), (iii) foam (151), (iv) fire-prevention (6%), and (v) aerosols (3%). ODS consumption increased by 231 p.a. between 1986 and 1990 due to fast economic growth. Electronics, refrigeration and air conditioning accounted for 80X of the increase in ODS consumption. Growth slowed down to 91 p.a. in 1991. By comparison, in 1990 the Philippines consumed a total of 2650 tons ODP and Malaysia 4780 tons ODP. 4. The Government is committed to establish a cost effective program for phasing out ODS. To coordinate its MP activities, an Ozone Layer Protection Unit has been established in the Department of Industrial Works (DIW), Ministry of Industry, which also serves as secretariat to an ODS Phase Out inter-agency Policy Committee. The Ministry of Science, Technology and Environment is responsible for national environmental policies and enforcement. Both institutions have experience in the environmental field, but are under-staffed and lack specific skills and strategies to phase out the use of ODSs. The Industrial Finance Corporation of Thailand (IFCT) was assigned by the Government to act as financial agent to channel funds from the OTF to beneficiaries in Thailand. IPCT has a long track record as a development bank with extensive experience in financial and technical project appraisal. 5. Thailand,s Country Program on ODS phaseout was completed in September 1993 and was approved by the MFEC in November 1993. The Thailand Country Program, which was prepared with Bank assistance, includes a national cost- effective action plan, incremental costs, and phaseout strategies and policies required to comply with MP obligations and to achieve early ODS phaseout. It spells out the need for regulatory measures to control imports of ODS and fiscal measures to encourage the use of ODS substitutes and of non-ODS technologies, such as the compulsory registration of imports and the withholding of investment - 2 - incentives for ODS-using enterprises. UNDP is implementing an Institutional Strengthening Project which assists the setting up of an Ozone Desk in DIV which will be responsible for the implementation of the Country Program. A joint UNEP/SIDA project provides technical assistance on ODS phase out through regional coordination and a global information network. 6. The Bank has assisted Thailand in the preparation of ODS investment projects, initially through two Enaineering Studies. The first study produced a draft proposal for a CFC Recycling Project for Mobile Air Conditioning (MAC) which has still to be finalized. The second study generated 14 subproject proposals for the electronic, domestic refrigeration and chiller sector. In addition, USEPA developed an ODS Solvent Phase Out Project at Thai Airways, and the Global Refrigeration Project together with DIW prepared another five proposals for compressor conversion and auto air-conditioning. Under a recently approved Proiect Preparation Grant the Bank will assist in the preparation of an additional 25-35 subprojects that will target commercial refrigeration, mobile air conditioning, foams, and small and medium size firms that use CFC and 1,1,1- trichloroethane as solvents. All of the above subprojects will be financed under this proposed ODS Phase Out Multicomponent Project. 7. The Multilateral Fund Executive Committee (MFEC) so far has approved funding for the MAC recycling project and the Thai Airways project (total of US$ 1 million) in its July 1992 meeting, and for an additional twelve subprojects (total of US$ 10.67 million) in its June 1993 meeting, including five solvent, 4 household refrigeration, two compressor, and one insulating foam. The MFEC gave "permission to proceed" with another 12 subprojects which have been identified but require further preparation and will have to be submitted to the MFEC for final approval. Proiect Obiectives 8. The project objective is to support the Government program to phase out ODS by (a) establishing an efficient mechanism for executing ODS phaseout projects through local institutions, and (b) implementing an initial group of cost effective priority subprojects. 9. The project would use one financial umbrella agreement between the Government and the Bank to channel MP funds from the Bank's OTF through a financial agent to approved subprojects. The Ministry of Finance (MOF) will sign the grant agreement on behalf of the Government. MOF and DIW will enter into a memorandum of agreement with IFCT which has been selected as financial agent for the project. IFCT will be responsible for subproject appraisal, grant disbursement, and supervision of subproject implementation (Annexes III and IV). The proposed grant amount of the umbrella agreement should be sufficient to cover already approved subprojects and future subprojects which are expected to be developed over the next two years. The Bank has recently agreed to use this approach in order to facilitate project processing in countries with a large number of subprojects. Funding of subprojects under the umbrella agreement will be subject to prior approval of each subproject by MFEC and transfer of approved funds to the Bank's OTF. Proiect Description and Costs 10. The project will support a total of 45-55 subprojects in solvents, refrigeration, air conditioning, foams, and recvoling. Each subproject includes technical assistance to support participating enterprises with technology transfer, design, training and implementation. So far, about 20 subprojects have been identified, out of which 12 subprojects have been pre-sppraised, representing about 30% of the total project investment cost and about 30% of total grant amount (see list of proposed subprojects in Annex I). Another 25 to 35 proposals will be developed during the next 2 years. 11. Estimated total investment costs for the 45 to 55 subprojects are US$ 51.0 million, of which about US$ 40.0 million of incremental costs would be eligible for OTF grant funding, including approximately US$1.2 million for financial intermediation fees (3% of grant amount) and US$3.21 million for contingencies (based on 15X contingency fee for approved subprojects and a 30% contingency fee for identified subprojects1, see Annex I). Firms with mixed local and foreign (developed country) ownership are eligible for OTF funding in proportion to their share of local ownership. A break-down of project costs and the financing plan are shown in Schedule A. Procurement arrangements at.d a disbursement schedule are presented in Schedule B. A timetable of key project processing events is given in Schedule C. Project Financing 12. The eligible incremental costs of approved subprojects (up to a maximum of US$40 million) would be financed by an OTF Grant to the Government which will pass it on as a grant to the subprojects. Incremental costs are defined within the MFEC guidelines and comprise the net present value (discounted at 10%) of additional costs that an enterprise or agency incurs in taking the act.on to phase out ODS. It is derived by taking the difference between the actual cost of the phaseout activity and the baseline cost. The baseline cost is the cost that otherwise would have been incurred to provide the same level of service to the country using ODS. Reimbursement for recurring costs are limited to 4 years. The balance of total project costs not covered by the grant (up to approximately US$11 million) will have to be financed by the enterprise from commercial or internal sources. As additional subprojects are being approved by MPEC, additional funding will be made available under the umbrella agreement. The financing plan is shown in Schedule A. Project Imnlementation 13. DIW will have overall responsibility for supervising the implementation of this ODS phase-out investment project. Specifically, DIW will ensure that ODS projects are consistent with the Country Program for ODS phaseout. DIW will review each subproject prior to appraisal to ensure that cost-effective technologies will be applied and that the subproject conforms to CP priorities. DIW will also ensure that mechanisms are in place to ensure that phased-out ODS equipment is not being re-used. IFCT will be responsible for implementation of the investment component, including subproject appraisal, disbursement of OTF funds to the enterprises, and supervision of subproject implementation. Funds would flow from the Bank's OTF directly to a Special Account to be established under this project and from there to the subprojects. IFCT will be responsible for keeping the records of this Special Account and for submitting the applications for withdrawal and replenishment. For its services, IFCT will receive a fee of about 3% of the appraised grant amount, one-third (equivalent to 1% of appraised grant amount excluding contingencies) following the approval of the subproject appraisal report by the Bank, and two-thirds (equivalent of 2% of actually disbursed amounts) upon disbursement of the grants to the subprojects. IFCT would be guided by subproject eligibility, appraisal and financing criteria for Montreal Protocol projects (see Annex I) and which 'Contingency for identified (not yet approved) subprojects has been set at 30% to allow for adjustments in the technical design at the pre-appraisal and appraisal stages in accordance with rapidly evolving international ODS phaseout technologies. IFCT wvuld summarize in Operating Policy Guidelines (OPGs) acceptable to the Bank. The Bank will review each subproject appraisal report prepared by IFGT to ensure-compliance with MFEC guidelines prior to approving disbursemex.t of the grant to MFEC approved subprojects (i.e. there is no free limit as required under the OTF agreement with the MFEC). Each particiRating enterRrise (subproject proponent) will be responsible for the implementation of the relevant subproject. Its obligations will be spelled out in a sub-grant agreement to be signed between the enterprise and IFCT. A model sub-grant agreement, acceptable to the Bank, would be prepared by IFCT as part of the OPGs. 14. Reporting and Monitoring.. DIW will be responsible for monitoring the overall project implementation ana the phaseout of ODS. DIW and IFCT will prepare semi-annual progress reports. IFCT will also submit an annual audit report acceptable to the Bank. The Bark's supervision will include reviewing progress and audit reports, and approving all subproject appraisal reports. Einviromental Considerations 15. The project is designed to protect the environment by reducing the em;iion of ODS. However, the change to non-ODS technologies or substitution of ODS with other chemicals may involve other environmental risks, such as atmospheric releases of substitute chemicals, in particular hydrocarbons, and water pollution, particularly from use of aqueous base solvents. Enterprises will prepare Environmental Assessments (EAs) according to local regulations. Together with the appraisal report, IFCT will submit a certification that the subproject has complied with the EA regulations, which will be reviewed by the Bank as part of the subproject appraisal report approval. Proiect Sustainability 16. The project will assist the Government in establishing an efficient mechanism for developing and funding subprojects under the ODS phase out program. In order to achieve a sustainable and cost-effective phase out of ODS with a broad coverage of the various ODS consuming sectors, it will be essential - in addition to the enterprise specific support - to implement under the country program a policy framework that discourages the consumption of ODS and at the same time encourages the use of ODS substitutes and non-ODS technologies. To this end, the Government of Thailand has introduced fiscal and non-fiscal measures. On the fiscal side, it has already reduced import tariffs for CFC recycling equipment to 101 and a Ministerial Decree from the MOF is to lift the import duty on alternative chemicals. On the non-fiscal side, the Government has put in place a regulatory framework to control the import of ODS through registration and licensing. Furthermore, the same regulation permits the Government to limit or ban ODS imports if it becomes necessary to meet the phase- out targets. These measures are expressed in Thailand ODS country program. 17. Apart from policy interventions, market forces, in particular rising market prices for ODS, are expected to be the major incentive for an accelerated ODS phase out. ODS prices are expected to increase as the world's major ODS suppliers are committed to stop their ODS production. Simultaneously, these suppliers are developing or are already actively marketing ODS substitutes. Falling prices for these substitutes are expected to encourage the use of non-ODS technology. Lessons from Previous Bank Experience 18. OTF projects are being developed simultaneously in Mexico, Venezuela, China, Malaysia, Philippines, Turkey, and other countries. None of these projects has been completed so far. However, first experiences indicate serious delays where the country decided to implement investment projects through a government department or ministry. Therefore, under the proposed project, a dedicated implementation agency, IFCT, will be responsible for the day to day project management, while the Government will act as supervisory agency. Other experiences point to the need for flexibility in project design, including the provision for contingencies; thorough project preparation, and institutional strengthening, including training and technical assistance. The project has made provisions 'or these kinds of activities. 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 help the Government implement an accelerated ODS phaseout program by prov5.ding financing for priority subprojects. The project, once fully implemented, is expected to reduce ODS consumption directly by about 3000-4000 MT ODP by 1997, or about 30-40% of current consumption. In addition, the project will enable export oriented firms to maintain their export markets by making timely adjustment to non-ODS production technologies which are frequently requested by importers from industrialized countries. Proiect Risks 21. Institutional weakness of implementing agencies could slow down project execution and is being addressed under the Institutional Strengthening Project approved by the MFEC in March 1993 and implemented by UNDP. Technical and commercial risks related to the introduction of technologies, which are new to Thailand, will be minimized by providing TA to participating enterprises, by the use of technologies which have been internationally tested and commercialized, and by requiring, in selected cases, technical cooperation agreements between the enterprise and the international technology supplier. Actions Agreed 22. During negotiations, agreement has been reached on the following issues: (a) the Government would open a Special Account on terms and conditions acceptable to the Bank; (b) separate project accounts shall be maintained and audited annually by an independent auditor acceptable to the Bank; (c) IFCT would enter into a subgrant agreement with subproject proponents of which a draft would be submitted to the Bank togethex with the subproject appraisal report, for approval; (d) prior to disburfement, each proposal has to be approved by the Bank for sub-projects with a cost below $500,000 and by the MEEC for subprojects with a cost of $500,000 and above; -6- (e) payments could be made for expenditures incurred prior to the date of signing of the Grant Agreement, but after June 1, 1993 2 and only up to an aggregate amount not to exceed the equivalent of 10% of the grant amount for subprojects approved by the Bank or the MFEC, as the case may be; and (f) following the guidelines for the implemenration of OTF Grants the Government has approved public access to this project document (Memorandum of Director). 23. The following actions are conditions of grant effectiveness: (a) a memorandum of agreement to be entered into between MOF, DIW and IFCT, acceptable to the Bank, defining the terms and conditions of IFCT's operations as financial agent (paras 4 and 13); and (b) IFCT to have issued operating guidelines including a model subgrant agreement acceptable to the Bank, and approved by the Government (para 13). Recommendation 24. I am satisfied that the proposed grant would comply with the relevant provisions of the Ozone Projects Trust Fund in Resolution 9-15 of the Executive Directors and I recommend that the Regional Vice President approve it. Callisto E. Madavo Director Country Department 1 East Asia and Pacific Region Washington, D.C. September 16, 1994 Attachments 2 The Montreal Protocol allows retroactive financing once the country has ratified the protocol. All categories of expenditures are eligible for retroactive refinancing. The June 1, 1993, date is, however, an agreed upon date between the Bank and the grant recipient. -7- Schetule A MONTEAL PROTOCOL OZONE DEPIXrING SUISrANCS PHASE OUT MUICOOENT R Sdbedule A PROJECT cOar AND ENANCING PLAN InvestmntLe Thai Eli Pro Costs Costs Ownership I 4 Yrsvere) Co Subprojects with MF Funding Pre-arpgrased suboelecta: -Solvents 5.14 -.34 8Z$ 3.77 4.45 -Household Refrigerator (4 sub) 6.22 5P% 3.7 4.36 -Compressors (2 sub) 2.12 68% 1.43 1.68 -Insulating Foam (I sub) .03 .12 100% .15 .18 .Su-total P oreanase 13.51 9.05 10.67 Protects under Prenareptio: Thai Airways and MAC CFC Recyling Subprojects 1.0 1.0 Subtotal under P-rearstio 1.0 1.0 TOTAL APROVED MF FUDING 14.51 9.05 11.67 Proiaets Proposed for Future Aunroval J4eubnroIects: -Household Refrigerator (6 sub) 8.84 57% 4.99 6.64 -Solvents (1 sub) .23 .01 100% .24 .32 -Mobile Air Conditioning (2 sub) .63 .05 78% .41 .55 -Chillers (3 sub) .32 .2 100% .52 .7 Subtotal Idetfed 10.02 6.16 8.21 Futhe Suburolects (to be Idented) 26.47 nla 20.12 TOtal Proogsed for Future Aporoval 36.49 nta 28.33 TOTAL PROJECT 51.00 4010 a-7Dicounted at 10%. Negative numbers indicate opeating savings. b/ Eligible incremental cost = incretl cost x share of local ownership. c/ Inludes eligible incremental cost. 15% condngency for pre-appraised and 30% contingency for identified projects, and 3% fee for financial agent. dt Recurring costs over 15 year project economic life. -8- Schedule A Page 2 of 2 THAILMND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT MULTICOMPONENT PROJECT Schedule A PROJECT COST AND FINANCING PLAN Financing Plan OTF Grant Commercial Loans/or Total Enterprise Own Funds MF APPROVED SUBEPROJECTS 11.67 2.84 14.51 SUBPROJECTS PROPOSED FOR FUTURE APPROVAL 28.33 8.16 36.49 TOTAL 40.00 11.00 51.00 -9- Schedule B Page 1 of 2 THAILAN NONTREAL PROT0COL OZONE DEPLETING SUBSTANCES PHASE OUT MULTICOMPONENT PROJECT Schedule B Summary of Proposed Procurement Arrangements The Industrial Finance Corporation of Thailand, IFCT, will be responsible for ensuring that participating enterprises follow the agreed procurement guidelines. Total procurement will amount to US$ 40.0 Million for about 45-55 subprojects whose procurement will be administered following international corvpetitive bidding (ICB) or the procurement practices of private industry in Thailand which the Bank has examined and found acceptable, consisting at a minimum of the following: Goods and Works Mi) contracts over US$ 2 million equivalent (excluding proprietary packages) would be procured under ICB procedures; (ii) contracts between US$200,000 and US$2 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; and (iii) contracts below US$200,000 equivalent would be procured on the basis of comparison of price quotations solicited from at least three qualified suppliers. Prior Review Prior review is required for the following contracts and bid packages: (i) over US$ 2 million equivalent; and (ii) for proprietary technology and iquipment. - 13) - Schedule B Page 2 of 2 THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT MULTICOMPONENT PROJECT Schedule B Disbursement Table Withdrawal of the Proceeds 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 Category and the percentage of expenditures for items to be financed in each Category: Amount of the OTF Grant Allocated % of (Expressed in Expenditures Category Dollar Eguivalent to be Financed (1) Subgrants US $38.8 Million 100% of amounts disbursed (2) IFCT agency fee US $1.2 Million 100% TOTAL US $40.0 Million Disbursement Schedule (US$ Million) CALENDAR YEAR 1994 1995 1996 1997 Annual 5.6 19.2 9.2 6.0 Cumulative 5.6 24.8 34.0 40.0 Cumulative 1'4 62 96 100 (% of total) - 11 - Schedule C Page 1 of 1 THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT MULTICOMPONENT PROJECT Schedule C Timetable of Key Project Processing Events Event Date Other a) Preparation (Time 12 Months Taken) b) Prepared by Konrad von Ritter, Donald Brown, Jessica Poppele, Nadereh Chamlou c) First 1/93 Presentation to the Bank d) Departure of Bank 11/93 Mission e) Date for 7/94 Negotiations f) Planned Date of 10/94 Effectiveness I g) List of Relevant n/a PCR's and PPAR's This h not the approaal date for the subprojects. Subprjects are eacb individuaUy appraised and approved by the MPEC on an onging basis. Tbe November 1993 date is basically the date when the Bank and the Ti Government agreed on the struture of the umbrdla agreement and the doice of the IntermedIary. TECHNICAL ANNEXES - 14 - THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT MULTICOMPONENT PROJECT Table of Contents of Technical Annexes Annex I List of Subprojects --Summary of Costs --Summary of ODS Reduction Annex II Description of Subprojects Annex III Processing Steps for Subproject Proposals Annex IV Procurement and Disbursement Arrangements Annex V Guidelines for Subproject Eligibility, Grant Funding, and Preparation of Appraisal Reports -15 - ANNEX I Page I of 4 THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OuT MMTCOMPONENT PROJW ANNEX 1: LIST OF SUBPROJECTS ODS CONSUMPTION SUMMARY Company End Use 1ODS Consmptien | 01)8 Used | ODS Reducdon | Cost Eff_ctvene in 1991 (NMl) "Poe End of M95 (&f)[ kg ODP /ye prrapprea . I Saha unin Solven 34.2 CFC-113 34 16.71 2 Hana Solvent 19 CPC.113 19 13.29 Seniconductor 16 TCA 16 3 GU Arry solvent 21 CFC-113 21 4.80 4 Cl Group Solvet 127 TCA 127 .67 5 Thai Hat Solvent III TCA 111 .90 Exchange _ _ _~_ _ 6 Thai Toshiba Refrigerator 42 CFC-1I NA N1A Phase I Project 12 CFC-12 7 Sanyo Univesal Refrigeror 350 CFC-II NA NA (2 faorics) - 136 CFC-12 Phase I _ 8 Kang Yong Refrigerator 101 CFC-II NA NA Mtsubishi 19 CFC-12 Phasc Pat_ea _ 9 Hitachi Refrigeratr 308 CFC-1I NA NA Phasc I Ptojea 36 CFC-12 10 Sanyo Universal Comptessor NA CFC-12 NA NA t1 KuWtorn Kirby Compressor NA CFC-12 NA NA 12 Tedeuic Foam mudatng so CFCl11 NA 2.83 Foam SubtotaIPre- 651 CFC-tl NA NA AppraIsed 203 CFC-12 74.2 CFC-113 254 TCA Fr4eets Under 13 Thai Airwas Solven 46 CFC-l13 46 NA 56 TCA 56 14 MACRecycing MAC NA NA NA NA Subtotl 651 CFC.11 NA rrcapp Walsedf 203 CFC.12 NA Under 120.2 CFC-113 120 PrePwaraton - 316 TCA 310 - 16- ANNEX I Page 2 of 4 End Use ODS Consumption | ODS Used ODS Reduction Cost Efftctiveness In 1991 OMl) O type) K) OD yea Identified is AP Natiot)l- Refrietr 45 CFC-11 NA Matsshita 7 CFGC12 Phase I Project 16 AP National. Refrigeraor 45 CFC- I 1 45 Masushita I CFC-12 7 Phase II Project _ _ 17 Thai Toshih Refrtigator 42 CFC-Il 42 Phal 11 Project 12.3 CPC-12 12.3 IS Sanyo Univesal Refrigeator 350 CFC- I 350 Phase It Project 136 CPC-12 19 Kang Yng- Refrigeaor 101 cVc- 1 lot MiLsubishi 19 CrPCt2 19 Phase 11 Pnoect 20 Hirachi Refrigerator 108 crc. 11Ills Phase 11 Project 36 CFC-12 22 TcamTronks Solvent 29 CPC-113 I _ 2.65 22 Karnawat Rctrofit Auto 6 CFC-ll 9.5 AC 2i cPC.12 0.8 TCA 23 NipOndeso Auto AC 125 CrC-12 NA 24 Bangkok Post Chlkr NA CrC-12 6 10.12 25 Kian Gwan Chiler NA crc.II 2 22.27 25 Imperial Queen Chiller NA CVC-ll 3 15.27 Subta 697 CFC-l1 tdeudfted 354.s CrC.12 29 cI'c-.13 .8 TCA m~~~~~~~~~~. __ GRAND TOTAL 771.2 CFC-lt " J. S57.8 CFC-12 44.3 .___ ____ ____ _[149.2 CFC-113 IS5 310J_ TCA 31_ =_- - 17 - ANNEX I Page 3 of 4 TAn AND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHhSE OUT NIULTICOMPONENT PROJECT ANNEX 1: LIST OF SUBPROJECTS PROPOSED COSTS Company End Use Subprojet Thliion US$ 'Mai Eligible Proposed Cost Ournerhip Inctnmtal QTrF _ % ~~~~~~ ~ ~~~~~~Costs Grant I Investment Net Recurring Total (USSO_J _ =:== ~~~~Cost Costs (4 Yrs)' Inemnental __ Preappraised _ _ _ _ I Saha Union Solvent 2.62 0.10 2.72 gO 2.18 2.57 2 Hata Semiconductor Solvent 0.86 0.23 1.09 78 .85 1.0 3 OSS Array Solvent 0.57 (0.05) .52 51 .27 0.32 4 Cl Group Solvent 0.54 (0.30) .24 100 .24 0.28 S Thai Heam Exehange Solvent 0.55 (0.320) .23 100 .23 0.27 6 Thai Toshiba - Phase I Refrigerator 1.28 0.0 1.28 54.5 .7 0.83 7 Sanyo Universal-2 sites Refrigerator 2.42 0.0 .42 65 1.6 1.89 PhaseI 8 Kang Yong - Mitsubishi Refrigerator 1.60 0.0 1.60 60 .93 1.1 Phase I 9 Hitachi - Phusc I Refrigerator 0.92 0.0 .92 51 .47 0.55 10 Sanyo Univcrsal Compressors 1.29 0.0 1.29 65 .S5 1.0 II Kulthorn Kirby Comprcssors 0.83 0.0 .83 70 .58 0.68 12 Technic Foatm Insulating 0.03 0.12 .15 100 .15 0.18 Foanm Subtotal 13.51 NA 13.29 NA 9.05 10.67 Projects under . reparation: 13 Thai Airways Solvents NA NA NA NA NA .1 14 MAC Rccycling Mobile A/C NA NA NA NA .9 Subtotal Preapprsisedt 13.51 13.29 9.05 11 67 Under Preation 2 Eligible Incremental Cost equaL incremental costs tmultiplied by percent Thai ownership. 3 Grant amount equals incremental costs mtultiplied by percent Thai ownership. Includes contingencies (152 for preappraised projects; 30X for identified projects) and 3X financial agent fee. 4 Net present value (NPV) of first four years of operating costs/savings discounted at OX. Negative numbers include operating savings. - 18 - ANNEX I Page 4 of 4 Company End Use Invatmrt Net Rearming Total _ai TOtal Elie ON Costs Costs Ownaersb1p Ina l USw Grant t ~ ~ ~ _ _ _ .._ _ _ __ _ _ _ _ _ otCS. MmUfled _ _~~~~~~~~~~~~~~~~~~~~~~~~ o (S Is AP Naumi- Mautwb lefe o 1.77 .o 1.77 5S .97 1.2 Pth. I _I 16 AP Nadanal- MaUUlgdA- Refriges 1.44 0.0 1.44 55 .79 1.05 It lbai Toshiba .Ptaw N frigcrtzr 1.34 0.0 1.34 54.5 .73 0.7 IS Syo Universal Refd*geMwr I.t6 0.0 1.76 65 1. 146 tjha5 11 19 Ken YO1 Mitabi Refrat 1.24 0.0 1.24 60 .74 0.99 Ph=s II 20 Hlac. - Phaew 11 cfr-A 1.29 0.0 1.9 St .66 0.8 21 TeamTroni Sohent 0.23 0.01 .24 OD .24 0.32 22 Kantava Reofit Auto 0.01 0.05 .06 100 .06 0.08 AC _ 23 Nlwood Auto AC 0.62 0.0 .62 56 .35 0.47 24 Bangkok Post ChI, 0.18 0.01 .19 t00 .19 0.25 25 Kiln Gwan 0.08 0.10 .18 ICO .18 0.24 25 kmpalQu China 0.06 0.09 .15 tOo .15 0.21 Subtal ldentIed 10.02 10.28 6i1 8.1 - - - m- m9 GRAND TOTAL [ I 35 23 | I tSI_ _ _ 19JS8 -19 - ANNEX I Page 1 of 8 KINGDOM OF THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT INVESTMENT PROJECT ANNEX II: SUBPROJECT LDSCRIPTION A. PRE-APPRAISED AND APPROVED SUBPROJECTS MFEC has given final approval to the funding of the following pre-appraised subprojects: SOLVENT CLEANING 1. Conversion to High-Purity Hot Water Cleaning at Saha Union Corp.. Ltd. This subproject will eliminate the use of CFC-113 in the cleaning of hard disk drives and affiliated components at Saha Union's Sriracha facility. The CFC-113 in- line cleaning process will be directly replaced with an Ultrapure Deionized (UDI) water process specified and supported by IBM. The subproject also provides support for water recycling, high-purity air production, waste water treatment, process development, installation of the new equipment. The conversion of Saha from CFC-113 cleaning processes to UDI cleaning will result in an annual reduction of 34 MT of ozone depleting substances. 2. Conversion to Wet Media Blasting and Agueous Cleaning Solvents at Hana Samiconductor (BKK) Co.. Ltd. This subproject will eliminate the use of CFC-113/methanol blend and TCA in the.cleaning of semiconductors and circuit card assemblies at Hana (BKK) Co., Ltd. (Hana). The phaseout will be accomplished by replacing the current cleaning solvents with two different types of aqueous based processes. Hana PCB division will remove flux residues from soldered circuit cards, using an aqueous cleaning process which will utilize pure water. Hana Semiconductor Division will replace the cleaning operation with the use of a water-based plastic media blasting (wet-media blasting). The subproject also provides for equipment installation, wastewater t-reatment, engineering support and training, and ventilation improvements. The conversion to non-ozone depleting technology will eliminate annual consumption of 19 MT of CFC-113/alcohol mixture and 16 MT of TCA. 3. Conversion to High-Purity Water Cleaning at GSS Array Technology. Inc. This subproject will eliminate the use of CFC-113/methanol blended solvent in the cleaning of circuit card assemblies at GSS Array (GSS). The phaseout will be accomplished by replacing the current CFC-113/methanol in-line cleaner and a recently retired vapor degreaser with three high-capacity, in-line aqueous cleaners, two of which are included in the funding proposal. The aqueous cleaners will be used to remove flux residues and light ionic contamination from the circuit cards. The subproject also includes the purchase and installation of a water recycling system, utilizing two reverse-osmosis systems. The conversion to non-ozone depleting technology will eliminate annual consumption of 21 MT of CFC-113/Methanol Blend. GSS is 51 percent Thai owned, which was taken into account when calculating the proposed OTF financing. - 20 - AN=e Xr Pa8e 2 of 8 4. Conversion to Aqueous Cleaning at C.I. Group Company. Ltd. (CIG) This subproject will eliminate the use of 1,1,1 trichloroethane (TCA) in the cleaning of small and medium size heat exchangers manufactured for automobiles, trucks, and refrigeration units at C.I. Group Company, Ltd (CIG). The phaseout will be accomplished by installing an aqueous-based cleaning process and water recycling equipment. Drying equipment is required to remove moisture after the aqueous cleaning process. The conversion to non-ozone depleting technology will eliminate annual consumption of 127 MT of TCA. GIG is 100 percent Thai owned. 5. Conversion to Aqueous Cleaning at the Thai Heat Exchange Co.. Ltd, This subproject will eliminate the use of 1,1,1 trichloroethane (TCA) in the cleaning of small and medium size heat exchangers manufactured for automobiles, trucks, room air conditioners and refrigeration units at Thai Heat Exchange Co. Ltd. (THECO). The phaseout will be accomplished by replacing the current vapor degreasing cleaning process with an aqueous-based cleaning process, complete with the necessary overhead hoist system, and the addition of drying equipment. The conversion to non-ozone depleting technology will eliminate annual consumption of 111 MT of TCA. THECO is 100 percent Thai owned. HOUSEHOLD REFRIGERATION 6. Elimination of ODS Used in the Production of Household Refrigerators at Thai Toshiba Electric Industries Co.. Ltd. (TTEI): Phase I SubRroject This subproject, in conjunction with the phase II subproject, will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Thai Toshiba Electric Industries Co., Ltd. (TTEI) by converting its production facilities to the production of refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent, respectively. This phase I subproject will assist in the product development and testing of the new refrigerators and will help identifying all equipment and process changes needed for a full conversion of the production facilities. Thai Toshiba Electric Industries will acquire engineering assistance and training from its parent company, Toshiba Corporation of Japan. In the separate phase II subproject, TTEI will purchase and install the new equipment necessary for mass production of CFC-free refrigerators. The phase I and phase II subprojects will result in the elimination of 12 MT/year of CFC-12 (refrigerant) and 42 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 7. Elimination of ODS Used in the Production of Household Refrigerators at Sanyo Universal Electric Co.. Ltd. (SUE): Phase I SubRroJect This subproject, in conjunction with the phase II subproject, will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Sanyo Universal Electric Co., Ltd. (SUE), the largest refrigerator manufacturer in Thailand, by converting two of its production facilities to the production of refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent, respectively. This phase I subproject will assist in the product development and testing of the new refrigerators and will help identifying all equipment and process changes needed for a full conversion of the production facilities. Sanyo Universal Electric will obtain engineering assistance and training from its parent company, Sanyo Electric in Japan. Under the separate phase II subproject, SUE will fully eliminate the use of CFC-12 and CFC-ll by installing the new equipment necessary for mass production of CFC-free refrigerators. The phase I and phase II subprojects will result in the elimination of 136 MT/year of CFC-12 (refrigerant) and 350 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. - 21 - Page 3 of 8 8. Elimination of ODS Used in the Production of Household Refrigerators at Kang Yong Electric Co.. Ltd. (KYE): Phase I Subproject This subproject, in conjunction with the phase II subproject, will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Kang Yong Electric Co., Ltd. (KYE) by converting its production facilities to the production of refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent, respectively. This phase I subproject will assist in the product development and testing of the new refrigerators and will help identifying all equipment and process changes needed for a full conversion of the production facilities. KYE will obtain engineering assistance and training from its parent company, Mitsubishi Electric Corporation of Japan. Under the separate phase II subproject, SUE will fully eliminate the use of CFC-12 and CFC-ll by installing the new equipment necessary for mass production of CFC-free refrigerators. The phase I and phase II subprojects will result in the elimination of 19 MT/year of CFC-12 (refrigerant) and 101 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 9. Elimination of 1DS Used in the Production of Household Refrierators at Hitachi Consumer Products Co.. Ltd.: Phase I Subgroiect This subproject, in conjunction with the phase II subproject, will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Hitachi Consumer Products Co., Ltd. by converting its production facilities to the production of refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent, respectively. This phase I subproject will assist in the product development and testing of the new refrigerators and will help identifying all equipment and process changes needed for a full conversion of the production facilities. Hitachi will obtain engineering assistance and training from its parent company, Hitachi Ltd. of Japan. Under the separate phase II subproject, SUE will fully eliminate the use of CFC-12 and CFC-11 by installing the new equipment necessary for mass production of CFC-free refrigerators. The phase I and phase II subprojects will result in the elimination of 36 MT/year of CFC-12 (refrigerant) and 108 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 10. Conversion of Compressor Manufacture from CFC-12 to HFC-134a Designs at Sanyo Universal Electric Co.. Ltd. (SUE). Under this subproject Sanyo Universal Electric Co. Ltd. (SUE) will start the conversion of its existing CFC-12 compressor manufacturing facility to the production of (non-ozone depleting) HFC-134a compressors for domestic refrigerators. Under this subproject, 1300 compressors will be produced for test purposes. Technology for HFC-134a compressors will be transferred from the parent company, Sanyo Electric of Japan to SUE under the terms of a newly approved technical assistance agreement. in a subsequent subproject, SUE will fully convert to the production of HFC-134a compressor and become a major indigenous source of HFC-134a compressors for use in the production of non-CFC domestic refrigerators in Thailand. This subproject is one of a series of similar subprojects under the Global Refrigeration Subproject as approved by the Executive Committee of the Multilateral Fund in September 1992. A1At4 U - 22 - Pae 4 of 8 11. Conversiona of Gompressor Manufacture from CFC-12 to HFC-134a Designs at Kulthorn Kirby Co., Ltd. Under this subproject Kulthorn Kirby Co. Ltd. (KKC) will start the conversion of its existing CFC-12 compressor manufacturing facility to the production of (non- ozone depleting) HFC-134a compressors for domestic refrigerators. Under this subproject;- 1600 compressors will be produced for test purposes. Technology for HFC-134a compressors will be transferred from Tecumseh and the motor technology from Kirby under the terms of an existing license agreement. In a subsequent st.jproject, KKC will fully convert to the production of HFC-134a compressor and become a major indigenous source of HFC-134a compressors for use in tnie production of non-CFC domestic refrigerators in Thailand. This subproject is one of a series of similar subprojects under the Global Refrigeration Subproject as approved by the Executive Committee of the Multilateral Fund in September 1992. FOAM BLOWING 12. Replacement of CFC-ll with HCFC-141b as a Foam Blowing Agent at Technic Foam. Ltd. This subproject will eliminate the use of CFC-ll for producing rigid polyurethane insulating foam at Technic Foam, Ltd. The phaseout will be accomplished by replacing CFC-ll with HCFC-141b as the foam blowing agent. This will require modifying existing equipment and chemical formulations, and providing technical assistance to Technic Foam's managers and workers. The subproject will eliminate an estimated 50 MT of CFC-ll per year. Technic Foam, Ltd. is the largest of three firms that apply PU spray insulation in Thailand, and has an estimated 60 to 65 percent of this particular market. Technic is 100 percent Thai owned. SUBPROJECTS UNDER PREPARATION: SOLVENT CLEANING 13. Thai Airways Conversion to Non-ODS Metal Cleaning Under this subproject, Thai Airways will eliminate the use of ODS (CFC-113 and 1,1,1 trichloroethane) by converting to new, non-ODS technologies. The subproject vill be implemented with the assistance of DIW and the Aviation Board. A manual to be prepared as part of the subproject will make this subproject a prototype for other airlines. MOBILE AIR CONDITIONING 14. Automobile Air Conditioning (MAC) CFC Recycling This subproject will reduce CFC-12 consumption through improved maintenance and refilling of mobile automobile air-conditioning (MAC) units, thereby eliminating CFC emissions from venting and flushing of compressors and cooling systems during MAC maintenance and repair work. -23- -N13t I B. IDENTIFIED SUBPROJECTS - WITH PERMISSION TO PROCEED IDENTIFIED - HOUSEHOLD REFRIGERATORS 15. Elimination of QpS Used in the Production of Household Refrigerators at A.P. National Co.. Ltd.: Phase I Subproject This subproject; in conjunction with the phase II subproject, will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at A.P. National Co., Ltd. by converting its production facilities to the production of refrigerators usinig HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent, respectively. This phase I subproject will assist in the product development and testing of the new refrigerators and will help identifying all equipment and process changes needed for a full conversion of the production facilities. A.P. National will obtain engineering assistance and training from its parent company, Matsushita Refrigeration Co. of Japan. Un.ier the separate phase II subproject, A.P. National will fully eliminate the use of CFC-12 and CFC-ll by installing the new equipment necessary for mass production of CFC-free refrigerators. The phase I and phase II subprojects will re3ult in the elimination of 7 MT/year of CFC-12 (refrigerant) and 45 MT/year of CFC-l1 (foam blowing agent) after the conversion is completed. 16. Elimination of ODS Used in the Production of Household Refrieerators at A.P. National Co.. Ltd.: Phase II Subproject In conjunction with the Plase I subproject, this subproject will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at A.P. National Co., Ltd. in Thailand. The subprojects will convert the production line to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent respectively. The first subproject phase will provide for product development and identify needed equipment and process changes. In this phase II subproject, A.P. National will purchase and install the new equipment necessary for mass production of CFC-free refrigerators. Phases I and II of the subproject will result in the elimination of 7 MT/year of CFC-12 (refrigerant) and 45 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 17. Elimination of ODS Used in the Production of Household Refrigerators at Thai Toshiba Electric Industries Co.. Ltd, (TTEI): Phase II Subproiect In conjunction with the Phase I subproject, this subproject will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Thai Toshiba Electric Industries Co., Ltd. (TTEI). The subprojects will convert the production line to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent respectively. The first subproject phase will provide for product development and identify needed equipment and process changes. In this phase II subproject, TTEI will purchase and install the new equipment necessary for mass production of CFC-free refrigerators. Phaaes I and II of the subproject will result in the elimiration of 12 MT/year of CFC-12 (refrigerant) and 42 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 18. Elimination of ODS Used in the Production of Household Refrigerators at Sanyo Universal Electric Co.. Ltd. (SUE): Phase II Subproiect In conjunction with the Phase I subproject, this subproject will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Sanyo Universal Electric Co., Ltd. (SUE). The subprojects will convert the production line to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent respectively. The first subproject phase will provide for product AN= 11 - 24 Pase 6 of 8 development and identify needed equipment and process changes. In this phase II subproject, SUE will purchase and install the new equipment necessary for mass production of CFC-free refrigerators. Phases I and II of the subproject will result in the elimination of 136 MT/year of CFC-12 (refrigerant) and 350 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 19. Elimination of ODS Used in the Production of Household Refrigerators at Kang Yong Electric Co., Ltd. (KYE): Phase II Subproject In conjunction with Phase I subproject, this subproject will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Kang Yong Electric Co., Ltd. (KYE) in Thailand. The subprojects will convert the production line to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent respectively. The Phase I subproject will provide for product development and identify needed equipment and process changes. During this phase II subproject, KYE will purchase and install new equipment necessary for mass production of CFC-free refrigerators. The Phase I and Phase II subprojects will result in the elimination of 19 MT/year of CFC-12 (refrigerant) and 101 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. 20. Elimination of ODS Used in the Production of Household Refrigerators at Hitachi Consumer Products Co.. Ltd.: Phase 1I Suboroject In conjunction with the Phase I subproject, this subproject will phase out chlorofluorocarbons (CFCs) used in household refrigerators manufactured at Hitachi Consumer Products Co., Ltd. in Thailand. The subproject will convert the production line to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowing agent respectively. The Phase I subproject will provide for product development and identify needed equipment and process changes. Iv this phase II subproject, Hitachi will purchase all the new equipment necessary for mass production of CFC-free refrigerators. The Phase I and Phase II subprojects will result in the elimination of 36 MT/year of CFC-12 (refrigerant) and 108 MT/year of CFC-ll (foam blowing agent) after the conversion is completed. SOLVENT CLEANING 21. Conversion of Electronic Cleaning Process from CFC-113 to High-Purity Water Cleaning at TeamTronics Co.. Ltd. This subproject will eliminate the use of CFC-113 solvent in the cleaning of flexible circuit card assemblies at TeamTronics. TeamTronics is a contract manufacturing facility producing high technology circuit assemblies for use in electronic equipment such as computers. At TeamTronics, the phaseout of ozone depleting substances (ODS) will be accomplished by replacing the current CFC-113 batch cleaner with one in-line aqueous cleaner. The aqueous cleaners will be used to remove flux residues and light ionic contamination from the circuit cards. The subproject also includes the purchase and installation of a water recycling system. The subproject will result in the elimination of 15 MT per year of CFC-113 after the conversion is completed. TeamTronic3 is 100 percent Thai owned. - 25 - ANNEX II Poge 7 of 8 C. IDENTIFIED MOBILE AIR-CONDITIONING (MAC) 22. Demonstration of Low Cost HFC-134a Retrofit of Existing CFC-12 MAC's at Karnawat This subproject will demonstrate how mobile air conditioners (MACs) using CFC- 12 can be retrofitted for using HFC-134a as refrigerant. Some 2.3 million vehicles in Thailand have air conditioning units installed, all of which use CFC-12 as refrigerant. To charge, service and repair these MACs 1,640 MT of CFC-12 are consumed annually in service stations spread out across the country. To phase out the use of CFC-12 in the MAC sector, two concurrent efforts must be carried out. One is to eliminate the current production of CFC-12 MACs; another is to minimize the demand of CFC-12 in the MACs' service sector. A cost-effective way to minimize such demand in the service sector is to retrofit existing MACs for HFC-134a. Retrofitting will ensure the continued utility of installed equipment with many years of remaining serviceable life. The subproject will comprise three phases. The first phase will involve the selection and acquisition of retrofit components. The second phase will involve the retrofitting of 50 mobile air-conditioning units, 25 of which will be installed in private cars and 25 in taxis. The third phase will involve close and regular monitoring of the conditions of the retrofitted MACs. Karnawat is lOOX Thai owned. 23. Phaseout of CFC-12 in Mobile Air Conditioners at Nippondenso Thailand Sales This subproject will convert Nippondenso's network of 150 mobile air- conditioning service shops from CFC-12 to shops for servicing new HFC-134a mobile air conditioners which will be installed in new cars in 1993. Under this subproject, Nippondenso will set up a demonstration center which will be used to train technicians from its own service network as well as technicians from other interested service shops. Tools and equipment required for servicing HFC-134a MACs will then be distributed free of charge to Nippondenso-authorized service shops. This subproject is a necessary complement to the automobile manufacturer's conversion to air conditioning units using HFC-134a. The auto maker's decision to install HFC-134a units will result in annual CFC savings of 625 MT. BUILDING AIR CONDITIONING 24. Demonstration of Chiller Conversion of CFC-12 Chillers to HFC-134a and Refrigerant Recovery Technologies at The Post Publishing Company This subproject will convert three 400-kg CFC-12 centrifugal McQuay chillers at the Bangkok Post Building to using HFC-134a as the refrigerant. In addition to eliminating the use of ODSs at the facility, the subproject would serve as an demonstration project for other building owners who use McQuay chillers. Pido International, the representative of McQuay Air Conditioning in Thailand, would perform the conversion with help of engineering consultants from McQuay. AN= Ir - 26 - Page 8 of 8 The subproject would include the purchase of a recovery machine that would be used to remove the CFC-12 refrigerant and purify it for reuse in existing chillers elsewhere, reducing Thai consumption and imports of CFC-12. The recycling technology would be used by the chiller service companies at other sites to reduce ODS servicing related emissions. Training is also included in the subproject to ensure that each service firm has the skills to perform the retrofit and operate the recovery/recycling equipment. Finally, the subproject would reimburse the chiller owner for increased energy and refrigerant costs that they would incur as a result of the conversions. This subproject is expected to eliminate the consumption of 6 MT of CFC-12. 25. Demonstration of Chiller Conversion of CFC-l1 Chillers to HCFC-123 and Refrigerant Recovery Technologies at Kian Gwan Co. Building and The ImDerial Oueen Hotel This subproject will develop the ability of Thai engineers and technicians to convert low pressure CFC-ll chillers to HCFC-123, and to recover and recycle CFC-ll refrigerant during service operations. The subproject would involve two of the largest refrigeration service companies in Thailand: York Air Conditioning and Refrigeration (Thailand) and Jardine Trane Air Conditioning. York would convert two 500-kg CFC-ll centrifugal chillers at the Kian Gwan Company's main office complex, and Trane would convert one 1,215 kg CFC-ll centrifugal chiller at the Imperial Family of Hotels's Queen's Park Hotel. Both York and Trane would undertake the conversions with the help of engineers from their parent companies. Recovery/recycling equipment would be purchased for the subproject to remove the CFC-ll refrigerant and purify it for reuse in other chillers, reducing Thai consumption and imports of CFC-ll (there is currently no such equipment in Thailand). York and Trane would assume ownership of the recycling machines after the completion of the subproject so that they could use them at other sites to reduce ODS servicing related emissions. Training is also included in the subproject to ensure that each service firm has the skills to perform the retrofit and operate the recovery/recycling equipment. Finally, the subproject would reimburse the chiller owners (Kian Gwan and the Imperial Family of Hotels) for increased energy and refrigerant costs that they would incur as a result of the conversions. Both buildings are assumed to be 100% Thai owned, which has been taken into account in calculating the proposed OTF financing. It is expected that this subproject will eliminate the consumption of 5 MT of CFC-ll. - 27 - ANNEX III Page 1 of 2 KINGDOM OF THAILAND NONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT INVESTMENT PROJECT ANNEX III: PROCESSING STEPS FOR SUBPROJECT PROPOSALS The following is a summary of key processing steps for subprojects requesting OTF funding which IFCT will elaborate in Operating Policy Guidelines acceptable to the Bank. a. SubRroiect Preparation: Enterprises will be responsible for preparing pre-investment studies. They may request assistance from DIW and Unisearch which will strengthen the technical aspects of the project. DIW will inform and involve IFCT as soon as possible and IFCT has the right to participate in the project identification from the onset. b. Local Endorsement: DIW will endorse each subproject to ensure that the subproject proposal conforms to priorities established under the Country program. IFCT will carry out a preliminary screening of the enterprises viability and determine its financial prequalification to undertake the project. c. Technical Review and World Bank endorsement: The World Bank will oversee technical reviews of subproject proposals and endorse each subproject to ensure that it is consistent with guidelines for the HFMP. d. Fund Executive Committee atproval: For larger subprojects (over US$500,000) approval has to be obtained for each subproject from the MPEC. MPEC's approval of individual subproject is not required for subprojects of less than US$500,000. Such subprojects are being included into the world Bank's Work Program which is submitted as whole to the MPEC for approval. If convenient, the World Bank may decide to present a batch of subprojects under one umbrella Project for approval from the fund. e. SubRroject avRraisal: IFCT will appraise subprojects based on criteria. IFCT will prepare appraisal reports in accordance with the Subproject Appraisal Report Format. This format will follow IFCT's existing reporting requirements and will be agreed upon between the Bank and IFCT after the submission of the first set of subprojects. Reporting requirements will differ for project below and above the US$500,000 level. DIW will officially submit them to the World Bank. f. World Bank Review and Grant AMIroval: The world Bank will review each appraibal report and ensure compliance with the Fund's goals and its eligibility criteria. Subgrants can only be awarded to subprojects for which the World Bank has approved appraisal reports (there is no free limit in accordance with guidelines for the fund). g. Subarant Agreements: After appraisal reports are approved by the World Bank, IFCT will prepare subgrant agreements to commit the subproject sponsor to undertake necessary activities agreed upon in the subproject proposal in order to achieve the intended ODS reduction or phase out. h. Disbursement of Subgrant: Upon OTF grant effectiveness, the Bank will disburse to the Special Account. IFCT would then disburse from the - 28 - ANNEX III Page 2 of 2 Special Account to the subproject in accordance with agreed disbursement and procurement procedures (see Annex IV). Under certain circumstances IFCT may opt for Disbursement in Tranches. typically for large subprojects (over US$0.5 million) with a large share (proposed minimum threshold: over 50%) of subgrant funding for incremental operating costs (as opposed to investment costs), or for subprojects where for technical reasons investments take place in two or more phases. For such subprojects, IFCT propose a disbursement plan. Disbursement under each tranche would be based on receipt of progress reports satisfactory to IFCT (see below). i. Procuremegat: IFCT will also be responsible for ensuring that beneficiary enterprises follow the agreed procurement guidelines. (see Annex IV). j. Subproject Implementation: Each enterprise will be responsible for subproject implementation. For that purpose, it will sign a sub-grant agreement with IFCT upon receipt of the subgrant. The agreement will spell out the responsibilities of the enterprise and its commitment to undertake the necessary activities agreed upon in the subproject proposal in order to achieve the intended ODS reduction. k. Progress reports: Enterprises will be responsible for preparing progress reports and submitting them to IFCT (with copy to DIW). As a minimum, the enterprise would submit one subproject progress report at the time when the proposed investment activities have been implemented and the new installations are operating. In cases where multiple disbursement tranches have been agreed, the enterprise would submit one progress report prior to each tranche. The final enterprise progress reports have to be acceptable to DIW and the Bank. 1. SubDroiect Supervision: IFCT will have prime responsibility for supervising implementation of subprojects while disbursing the subgrant to the subprojects. Even r the subgrant has been fully disbursed, IFCT will review and approv, he progress reports submitted by the enterprises and verify them. IFCT's responsibility for subproject supervision ends after full disbursement and the approval of the final enterprise progress report acceptable to DIW and the Bank. m. Subproiect Monitoring: DIW has the right to monitor the progress of MP funded subprojects in fulfillment of its overall responsibility for the implementation of the MP ODS phase out Country Program. n. Auditing and Reporting: IFCT will submit semi-annual reports on the status of the grant disbursements and the progress of the subprojects, acceptable to the Bank. Copies of these reports will be submitted to DIW. IFCT will also submit an annual audit report on the subproject account prepared by an independent auditor acceptable to the Bank. - 29- ANNEX IV Page 1 of 2 KINGDOM OF THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASE OUT INVESTMENT PROJECT ANNEX IV: PROCUREMENT AND DISBURSEMENT PROCEDURES A. Procurement 1. Procurement of goods, works, and services will be in accordance with relevant Bank Guidelines. IFCT will be responsible to ensure that procurement under the project follows agreed guidelines. It will help enterprises arrange procurement (international and local); where necessary, procurement should be handled by qualified procurement agencies authorized by the Government and acceptable to the Bank. For International Competitive Bidding (ICB), documents will be prepared following the Bank Standard Bidding Documents, and domestic preference of 15% for goods manufactured in Thailand will apply according to the procurement guidelines of the Bank. 2. IFCT will satisfy itself that the goods, works, and services to be procured are for the subprojects and are reasonably priced, by ensuring that the grant recipient has followed efficient and economic procurement practices in accordance with those of the minimum thresholds agreed (see following list): (a) Procurement of Goods and Services For procurement of goods and works the following procedures would apply: (i) contracts over US$ 2 million equivalent (excluding proprietary packages) would be procured under ICB procedures; For contracts below the ICB threshold, procurement would follow the procurement practices of private industry in Thailand, which the Bank has examined and found acceptable, consisting at a minimum of the following: (ii) contracts between US$200,000 and US$2 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; and (iii) contracts below US$200,000 equivalent would be procured on the basis of comparison of price quotations solicited from at least three qualified suppliers. (b) Prior Review Prior review is required for the following contracts and bid packages: (i) over US$ 2 million equivalent; and (ii) for proprietary technology and equipment. - 30 - ANNEX IV Page 2 of 2 B. Disbursement 3. Project funds are expected to be disbuxrsed according to the following standard disbursement schedule: 14% in 1994, 48X in 1995, 34% in 1996, and 4% in 1997. Closing date for the project is December 31, 1997. A Special Account would be established to facilitate disbursement of OTF grants. The following disbursement guidelines have been agreed upon: (i) Between Bank and IFCT: Disbursement will follow the procedures given in the Disbursement Handbook published by the Bank in 1992, and in the Disbursement Letter which will be issued after the Grant has been signed. Once the Grant Agreement has been approved and is effective, and after receipt of a withdrawal application from IFCT, the Bank will make an initial deposits of up to US$ 1.0 million into a Sgecial Account. IFCT will be responsible for submitting the applications for withdrawal and replenishment to the Bank. Replenishment of this Special Account and all other disbursements would be made against full documentation, except for expenditures under contracts valued below US$200,000 equivalent for which the Bank will accept Statements of ExDenditures (SOE). Supporting documents for SOEs including contracts, procurement documentation, and evidence of payment should be kept in a central location for examination by independent auditors and Bank staff during supervision missions. (ii) Between IFCT and SubRroiect: Up to US$ 2 million equivalent per contract, IFGT will disburse to the subproject proponent for eligible expenses without prior review by the Bank (see procurement guidelines). Disbursement in Tranches: For large projects (over US$0.5 million) with a large share (proposed minimum threshold: over 50%) of grant funding for operating costs (as opposed to investment costs), IFCT should submit a disbursement plan in two or more tranches together with the appraisal report. Disbursement under the tranches would be based on receipt of progress reports satisfactory to IFCT. (iii) Interest earnings on Special Account: IFCT would retain the interest income earned on the outstanding balance of the Special Account and use it for purposes to be agreed with the Bank, such as Montreal Protocol related training and participation in international conferences to update IFCT's technical know how. - 31 - ANNEX V Page 1 of 4 KINGDOM OF THAILAND MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES PHASR OUT INVESTMENT PROJECT ANNEX V: GUIDELINES FOR SUBPROJECT ELIGIBILITY. GRANT FUNDING. AND PREPARATION OF APPRASAL REPORTS The following is a summary of guidelines for subproject eligibility, grant funding and appraisal reports of subprojects requesting funding from the Ozone Trust Fund; these guidelines are derived from Guidelines issued by the Multilateral Fund Executive Committee and by the Bank. A. Subproject Eligibility 1. Subprojects should be on priority list included in the Country Program or should be identified by DIW as essential to achieve the objectives of ODS phase-out in Thailand. Subprojects should have direct and demonstrable results in reducing ODS consumption in the country. They should be cost effective and be based on environmentally sound technologies to substitute for or recycle ODS. 2. Successful implemcntation of subprojects may sometimes depend directly on appropriate policies and regulations. In these cases, these policies should be addressed in the appraisal report for consideration by the MFEC. In general, however, overall economic and industrial policy reforms are not to be addressed in the context of subprojects but in the ODS Country Program as approved by the MFEC. B. Guidelines for Subgrant Fundina 3. OTF funding is provided as a grant to the subproject proponent implementing the subproject. The grant is calculated in economic terms for the "incremental costs", as elaborated below, based on the guidelines defined by MFEC and the Bank's interpretation of incremental costs. 4. Determination of Incremental Costs: (a) Definition. Incremental costs are defined as the net present value of incremental economic subproject costs (investment capital plus operatir,g costs net of operating benefits) discounted at the economic cost of capital in the country (102 will be used in Thailand) in constant economic prices over the economic life of the subproject. When appropriate, risks associated with technology, market and financing of undertaking the subproject should be taken into consideration. (b) Co-financing. In cases where the subproject proponent has to put up its own capital (or commercial loans) to co-finance part of the subproject costs, the necessity for providing sufficient financial incentive to undertake the subproject should be considered, i.e. enterprise should obtain an acceptable return on its own capital. The Grant amount could then be determined in such a way that the Economic Rate or Return on the risk capital is 10X (real terms). For comparison, also a financial rate of return for the subproject should be calculated. If the financial rate of return differs substantially from the ERR (e.g. because of major distortions of market prices) and would be unacceptably low for the enterprise, the grant amount may be determined based on a minimum FRR. Such situation should be raised as an issue in the appraisal report. The minimum FRR should be determined based on an objective assessment of the country's local financial sector and should correspond to the best judgement of a reasonable return on capital within the country's industrial sector. In many cases subproject proponents will view ODS phaseout investments as necessary -32 - ANNEX V Page 2 of 4 business costs and may not require financial incentives in addition to a grant for incremental costs. (c) Ownership. An enterprise (subproject proponent) is eligible for funding in direct proportion co the percentage of local ownership of the enterprise. (d) Exports. A subproject is eligible for funding provided unless it is located in a "free zone" and its products are destinated for export only. (e) Operating Costs and Savings. Under MFEC guidelines, incremental recurring costs net of operational savings are eligible for grant funding only for the first 4 years of project operation. Reimbursements for longer periods have to be approved on a case by case basis. (f) Duties and Taxes. Import duties and other direct taxes are not eligible for grant funding. The recipient Government should agree to exempt imports under this project from import duties. (Important issues related to the exemption of taxes and duties should be addressed in the subproject appraisal report). IFCT would need to state whether the Subproject is exempted of duties and taxes in accordance with the Country Program and relevant legislation. C. SubDroject Priority and Unit Abatement Costs 5. Subprojects with the most cost effective technology and with the lowest unit abatement cost of ODS which achieve ODS phase out in the shortest period of time receive priority. Relative cost effectiveness is measured as "unit abatement cost", a comparative index defined as follows: A - C(F) + (OC-OS) Where: A - Unit abatement cost, $/kg ODP saved/year (at full operation) C = Incremental capital cost, including all initial one time costs such as technology, training F - Capital recovery factor; the annualized capital cost charges, discounted at a standard discount rate of 10% per year, over the economic life of the project. OC - Annual Operating Costs at full operation OS - Annual Operating benefits at full operation W - Quantity of ODS saved annually expressed as ODP units 6. The purpose of unit abatement cost calculation is to give a relative ranking of projects across countries and within same sector. Lower unit abatement costs correspond to higher priority in cost effectiveness. The unit abatement cost is calculated at standard discount rates to facilitate cross country comparisons. D. Elements of the Subproject ADnraisal IFCT would prepare appraisal reports along the following guidelines in a format acceptable to the Bank, including as a minimum the following elements: 7. Subnroiect scone - including a full description of the proposed technology and the source of technology supply. In selected cases, description should refer to technical cooperation agreements between the enterprise and an international technology supplier. Where necessary, the description should distinguish between components relating to ODS phase out directly and other components, such as expansion of output or product upgrading which are not eligible for OTF grant funding. - 33 - ANNEX V Page 3 of 4 8. Schedule and quantity of ODS reductio' - (expressed as ODS and ODP), which will be phased out as a direct result of the subproject, on annual and total basis. 9. SubXroiect costs - divided into (a) components relating to ODS phase out and (b) other components. Costs should be broken down into investment and operating costs, costs eligible for OTF funding, foreign exchange and local costs, and expenditures already incurred for which retroactive financing will be requested. 10. Review of technical feasibility of the subgroject - to determine the soundness of the technical proposal, based on local and international experience. 11. Economic and financial analysis of the suboroiect - should be undertaken according to IFCT and Bank methodology. Economic analysis would be limited to a calculation of economic project cost by excluding transfer costs, in particular import duties, from financial cost calculation. The economic analysis would not include shadow pricing. Any significant difference between financial and economic rates of return should be explained. 12. Financing arrangements - description of sources, terms and conditions, divided into (a) incremental costs related to ODS phase out to be financed as an OTF grant, (b) amount to be provided by enterprise from its own resources; and (c) local and/or foreign loans to be financed through commercial loans from local and/or foreign institutions (at commercial interest rates). The financing plan should be confirmed at the time of appraisal. 13. Financial analysis of enterprise - to determine the soundness of the subproject proponent by using a set of minimum financial indicators which reflect the enterprise's financial viability and its ability to implement the subproject. The indicators should be determined based on local conditions and should be consistent with commercial practice in the country. 14. Disbursement Plan - the amount and schedule of disbursements, including, where applicable, the conditions for disbursement under multiple tranches, e.g. completion of certain measures and submission of satisfactory progress reports. 15. Subproject implementation - each enterprise will be responsible for subproject implementation in accordance with the subgrant agreement. Subproject sponsors will be responsible for preparing progress reports and submitted them to IFCT (with copy to DIW) according to practices applied by IFCT in similar projects. As a minimum, the subproject sponsor would submit one project progress report at the time when the proposed investment activities have been implemented and the new installations are operating. In cases where multiple disbursement tranches have been agreed, the sponsor would Jubmit one progress report prior to each tranche release. 16. Environmental aspects - description of environmental'y critical aspects of the subproject and measures to address the environmental risks. Furthermore, a certification that the subproject proponent has complied with local environmental regulations has to be attached to the appraisal report. 17. Renorting requirements - description of the scope, the number and the timing of progress reports and other information which the subproject proponent has to submit to IFCT (with copy to DIW), according to the practice applied by IFCT in similar subprojects. As a minimum, the enterprise would submit one subproject progress report at the time when the proposed investment activities have been implemented and the new installations are operating. In cases where multiple disbursement tranches have been agreed upon, the enterprise would submit one progress report prior to each tranche. 18. Suburant Agreement - attached to the appraisal report, IFCT would submit a draft contract between IFCT and the subproject proponent, based on a model contract approved by the Bank prior to effectiveness of the OTF Grant Agreement. The subgrant - 34 - ANNEX V Page 4 of 4 agreement spells out the responsibilities of the subproject proponent and sanctions in case of non-compliance. 19. SubRroiect supervision - IFCT will have prime responsibility for supervising implementation of subprojects while it is still disbursing to the subprojects. Even after the grant has been fully disbursed, IFCT will review and approve the progress reports submitted by the enterprises and, if necessary, verify them.- IFCT's responsibility for subproject supervision ends after full disbursement and approval of the final enterprise progress report. DIW has the right to monitor the progress of OTF funded subprojects in fulfillment of its overall responsibility for the implementation of the ODS phaseout Country program.