COLOMBIA OZONE PROJECTS TRUST FUND...

IAC)NTREAL 19389

COLOMBIA

OZONE PROJECTS TRUST FUND GRANTPHASEOUT OF OZONE DEPLETING SUBSTANCES

(ODS PHASEOUT I)

PROJECT DOCUMENT

JULY 1999

THE WORLD BANK

GLOBAL ENVIRONMENT COORDINATION DIVISIONENVIRONMENT DEPARTMENT

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Report No: 19389 - CO

COLOMBIA

OZONE PROJECTS TRUST FUND GRANTPHASEOUT OF OZONE DEPLETING SUBSTANCES

(ODS PHASEOUT I)

PROJECT DOCUMENT

JULY 1999

CURRENCY EQUIVALENTS

(Exchange Rate Effective 7/14/99)

Currency Unit = PesoUS$1.00 = 1,885

FISCAL YEAR

January 1-December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyCFC ChlorofluorocarbonsFl Financial IntermediaryACCI Colombian Agency for International CooperationGOC Government of ColombiaIBRD International Bank for Reconstruction and DevelopmentMFEC Multilateral Fund Executive CommitteeMinAmbiente Ministry of EnvironmentMP Montreal ProtocolMPMF Montreal Protocol Multilateral FundMPOTF Montreal Protocol Ozone Trust FundMT Metric TonsOORG Ozone Operations Resource GroupODS Ozone Depleting SubstancesOTF Ozone Trust FundPIP Project Implementation PlanSOE Statement of ExpenseTORs Terms of ReferenceUNDP United Nations Development ProgramUTO Technical Unit for Industrial Reconversion (Ozone Unit)VAT Value Added Tax

COLOMBIAOzone Depleting Substances Phase Out

CONTENTS

A. Project Development Objective

1. Project development objective and key performance indicators 1

B. Strategic Context

1. Sector-related CAS goal supported by the project 12. Main sector issues and Government strategy 13. Sector issues to be addressed by the project and strategic choices 3

C. Project Description Summary

1. Project components 32. Key policy and institutional reforms supported by the project 43. Benefits and target population 44. Institutional and implementation arrangements 4

D. Project Rationale

1. Project alternatives considered and reasons for rejection 72. Major related projects financed by the Bank and/or other development agencies73. Lessons learned and reflected in proposed project design 74. Indications of borrower commitment and ownership 85. Value added of Bank support in this project 8

E. Summary Project Analyses

1. Economic 82. Financial 83. Technical 84. Institutional 95. Social 96. Environmental assessment 97. Participatory approach 10

F. Sustainability and Risks

1. Sustainability 102. Critical risks 103. Possible controversial aspects 11

G. Main Loan Conditions

1. Effectiveness conditions 112. Other 11

H. Readiness for Implementation 11

I. Compliance with Bank Policies 11

Annexes

Annex 1. Project Design SummaryAnnex 2. Detailed Project DescriptionAnnex 3. Estimated Project CostsAnnex 4. Procurement and Disbursement Arrangements

Table A. Project Costs by Procurement ArrangementsTable B. Thresholds for Procurement Methods and Prior ReviewTable C. Allocation of Loan Proceeds

Annex 5. Project Processing Budget and ScheduleAnnex 6. Subproject PipelineAnnex 7. Subproject Preparation and Implementation GuidelinesAnnex 8. Guidelines for Preparation of Project Documents, Appraisal Reports and

Completion ReportsAnnex 9. Eligibility Criteria, Incremental Costs, and Sectoral Cost EffectivenessAnnex 10. Documents in Project FileAnnex 11. Environmental Data SheetAnnex 12. Country at a Glance

COLOMBIAOzone Depleting Substances Phase Out

A: Project Development Objective

1. Project development objective and key performance indicators (see Annex 1):

The project development objective of this Montreal Protocol Project (MP) is to protect thestratospheric ozone layer by providing financial incentives for industrial conversion from ODS to non-ODStechnologies and promote measures which reduce/eliminate emissions of Ozone Depleting Substances(ODS).

Performance indicators measuring progress towards achieving the development objective wouldinclude: (a) number of subprojects adopting alternative technologies; (b) metric Tons of ODSs phased outduring project implementation; (c) enterprise compliance with equipment disposal agreements; and (d)(UTO) in identifying, facilitating the preparation of, and monitoring implementation of MP ExCom approvedprojects.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1):

Reduced levels of air and water pollution, specifically reduction or elimination of consumption of ODS.

CAS document number: 17107 CO

Date of latest CAS discussion: October 15,1997

2. Main sector issues and Government strategy:

The principal strategic issue to be addressed in the project is the requirement that nations phase outthe use of CFC's and other ODS, as mandated by the Montreal Protocol, to which Colombia is a party since1992. The Country Program was presented and approved during the 12th meeting of the ExecutiveCommittee (ExCom) of the MF in March 1994. Although the strategy presented at that time was oriented toaccelerate the ODS phaseout starting in 1996, the GOC has since revised its position to follow the MPphaseout chronogram (see Table I). Seventeen projects with a cumulative grant value of US$ 9.5 million anda projected phase out potential of 980 MT ODP have been approved by the MP Ex Comm since then. All ofthem have been implemented. The UNDP has been the implementing agency for 16 of the projects, and theUSEPA for the other one. The implementation strategy of the GOC is to assist Colombian enterprises inconverting manufacturing processes to non-ODS technology by facilitating access to MP Grant Funds, andthrough dissemination of conversion technology information and techniques.

Table 1 - Montreal Protocol Controls a plicable to ColombiaSubstance 1999 2002 2003 2005 2007 2010 2015 2016 2040Annex A- Freeze at 50% 85% 100%Group I 1995- reduction reduction reductionCFC- II CFC- 199712 CFC-113 avg.NCFC- 1 14 levelCFC- 1 15Annex A- Freeze 50% 100%Group II at 1995- reduction reductionHalons 1997

avg.level ,

Annex B- 20% 85% 100%Group I reductio reduction reductionCFC-13 CFC- n at111 1998-CFC-112 2000CFC-211 averageCFC-212 levelCFC-213CFC-2 14CFC-215CFC-216CFC-217Annex B- 85% 100%Group II reduction reductionCarbon at 1998-Tetrachloride 2000

average___________ ~~~level _ _ _ _ _

Annex B- 30% 70% 100%Group III reduct reduction reduction1,1,1- ion attrichloro- 1998-ethane (methyl 2000chloroform) avera

gelevel

Annex C- Freeze at 100%Group I 2015 reductioHCFCs Freeze level nAnnex E Freeze 100%Methyl at 1995- reductionBromide 1998

average_ _ _ _ _ _ _ _ _ lev el _ _ _ _ __ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

3. Sector issues to be addressed by the project and strategic choices:

The sectoral breakdown for the approved projects includes six domestic refrigerator factoryconversions completed (243 MT ODP), which have eliminated ODS in new refrigerators. The remainder ofthe approved implemented projects include two polystyrene foam producers (320 MT ODP); eight projectsin the commercial refrigeration fabrication and service sectors, and a mobile air conditioning (MAC) serviceproject. A Bank implemented MP operation will present potential beneficiaries with a fundamental choice ofimplementation strategies. In Bank supported MP operations enterprise beneficiaries develop their ownengineering solutions, which are then presented to counterpart executing agencies and the Bank's technicalquality control monitor, the Ozone Operations Resource Group (OORG) for endorsement before transmittalto the MFEC for funding approval. Enterprises are then responsible for procurement and installation of theconversion technology. Technical assistance is available upon request during preparation andimplementation. The UNDP uses a more centralized approach, with much of the engineering and equipmentspecification being carried out directly by UNDP technical consultants, with equipment being procuredcentrally through UNDP Operations. Availability of the Bank operation will now provide beneficiaryenterprises with a choice of implementation strategy which has not been previously available. UNIDO is notactive in Colombia.

C: Project Description Summary

1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown):

Component Category Indicative % of Bank- % of Bank-Costs Total financing financing

(US$M (UJS$M)1. Investrnent in Subprojects Goods, Works (including 9.7 97 8.4 87

consultant services)2. Technical Assistance Consultants' services .2 .2 1003. Administration and Supervision Operational costs .1 .1 100Total Total 10 100 8.7 87

Project Component 1 .-Investment in Subprojects: The objective of this subcomponent is to financeabout 25 subprojects with Colombian enterprises which are currently using ODS in their productionprocesses. It is expected that in the short run priority sectors will be rigid polyurethane, foam thermal panelproducers, mobile air conditioner and commercial refrigeration (see Annex 6).

Project Component 2.- Technical Assistance: The objective of this subcomponent is to providefinancing for technical support in the areas of subproject preparation and evaluation

Project Component 3. - Administration and Supervision : The objective of this subcomponent is toprovide financing for the administration and supervision of Investment Subprojects, and for the financialmanagement of the Project (including audits thereof)

2 Key policy and institutional reforms to be sought:

The operation's purpose is to use the Bank as an impleMenting agency for channeling MPOTF fundsto eligible beneficiaries in Colombia. As negotiated in the London Amendment to the Montreal Protocol.which established the Montreal Protocol Multilateral Fund, implementing agencies are specifically precludedfrom establishing policy conditionalities or institutional reforms as conditions of disbursement.

3. Benefits and target population:

The target population of beneficiaries for this project are the industries which use ODS in theirproduction operations, especially rigid polyurethane foam producers who use R-1 1 as a foaming agent, andcommercial refrigeration equipment producers and service organizations. The operation will seek to identifyand implement technology conversions in as many ODS consuming operations as possible where phase outcan be implemented within the cost effectiveness thresholds established by tht MP Ex Comm (see Annex 9).

4. Institutional and implementation arrangements:

The MinAmbiente, acting through the Unit mentioned below, will be the designated GOC executingagency for the operation. The Colombian Agency for International Cooperation (ACCI) will act as thefinancial agent. The ACCI was created by Law 318, of 1996. It is a public agency ascribed to the NationalPlanning Department with its own juridical personae, patrimony and administrative autonomy.

Within MinAmbiente, the Ozone Technical Unit (UTO), established in 1995, will be directlyresponsible for project execution. The UTO will: (i) assist with the promotion of subproject identificationand coordinate subproject preparation; and (ii) in conjunction with ACCI, supervise subprojectimplementation, including monitoring of equipment disposal agreements. UTO operation is supported by MPinstitutional strengthening funding for which the UNDP is the implementing agency.

ACCI started its activities in December 1997 as the Colombian institution responsible of channelingall projects and programs that the country presents to the cooperating sources. The Agency's mainobjectives are the coordination, management and promotion of non-reimbursable technical and financialcooperation that the country receives. ACCI under the proposed MP operation will: i) administer OTF fundsfor subprojects endorsed by the UTO, and approved by the Bank's OORG and the MP Exec Comm; ii)disburse grants to subproject beneficiaries; iii) maintain project and subproject accounts, and arrange audits;iv) supervise subproject implementation in conjunction with UTO; and v) ensure that procurement anddisbursement will be in accordance with Bank guidelines and project procedures; and vi) evaluate thefinancial viability of enterprises based on eligibility criteria agreed with the Bank. ACCI will support traveland other expenses for subproject preparation and supervision, by UTO, outside of Bogota.

The grant proceeds will be disbursed through an OTF Umbrella Grant Agreement between the Bank,ACCI (the Recipient) and the Republic of Colombia, acting through MinAmbiente. That agreement willdesignate UTO as the project executing agency. MinAmbiente and ACCI will agree, from time to time,which portion of the technical assistance component shall be made available to UTO to defray itsexpenditures connected with the Project such as expenditures for travel, per diem, and monitoring andevaluation. As such, ACCI's responsibilities shall be that of a general administrator of grant disbursements.A Project Operations Manual, to be approved by the Bank as a condition of effectiveness, will detail therespective responsibilities of each of the parties with regard to project operations. Subgrant agreements,based upon a model to be approved by the Bank, will be entered into between ACCI and subprojectbeneficiaries, following approval of grant proceed to defray subproject incremental costs by the MFEC andsubproject appraisal reports by the Bank. Retroactive reimbursement of eligible expenditures incurred after

1995 up to a cumulative value of US$lmillion of the OTF Grant will be permitted, in accordance withMFEC's applicable policies.

Subproject Identification, Preparation and Implementation Procedures. For subprojectidentification, preparation and implementation, MinAmbiente (through the UTO) and the beneficiaryenterprises will be guided by the Subproject Preparation and Implementation Guidelines (Annex 7). Theseguidelines along with guidelines for document preparation, eligibility criteria, incremental cost and costeffectiveness thresholds will be fully detailed in the Project Operational Manual which will be prepared byUTO/ACCI and is a condition of OTF Grant Agreement Effectiveness.

Subproject identification will be a cooperative effort among enterprises, UTO, industryassociations and technical consultants. When a potential eligible subproject has been identified,MinAmbiente will transmit a concise project summary to the Bank. Through mutual consultation, the Bankand UTO will decide if the proposed subproject meets MP eligibility standards (Annex 9. B). MinAmbientewill also assess any potential environmental impact. If the review is positive, a staff member from UTO anda technical consultant will meet with the beneficiary enterprise and decide on a preparation schedule and thelevel of external assistance. The beneficiary enterprise will also be instructed on the measures to take toprepare the project for approval by MinAmbiente and transmittal to the Bank for OORG review.

The Montreal Protocol list of eligible activities, indicative list of categories of incremental costs, andMFEC decisions, all of which are consolidated in the MF "Policies, Procedures, Guidelines and Criteria" ofFebruary 1997, will guide the eligibility selection process. The principal criteria for subproject approval willbe: i) suitability of the replacement technology proposed; ii) cost effectiveness and compliance with sectoralcost effectiveness thresholds (Annex 4); iii) enterprise financial health; iv) implementability; and v) consistencywith national ODP phase out strategy.

Once identified, a three step process (Annex 7) will be employed to prepare subprojects for submissionto the Bank and the MFEC, and eventual disbursement: i) screening for OTF eligibility; ii) GOC endorsement,OORG review, and MFEC approval, based upon a Project Document (Annex 7) prepared by UTO inconjunction with the enterprise: and iii) execution of a subgrant agreement between ACCI and the enterprise,based upon Project Document (Annex 8). MinAmbiente will provide the official endorsement of the GOC on ano objection basis for subprojects that are to be presented to the Bank for OORG review and subsequently tothe MFEC for funding consideration. Investment proposals and subgrant agreements may be submitted to theBank up to October 31, 2003.

Beneficiary enterprises will be responsible for preparation and implementation of their subprojects, includingengineering and procurement, for compliance with all relevant environmental regulations, and for acquisition ofnecessary permits.

Procurement and Disbursement

Procurement of goods, works, and services will be in accordance with Bank Procurement Guidelines(January 1995, as revised in January, August 1996 and September 1997 and January 1999), as further specifiedin Annex 4. Consultants will be selected in accordance with the Bank's Guidelines for the Use of Consultants,as further specified in Annex 4.

Disbursement Procedures will be as specified in Annex 4. A Special Account (SA) of US$550,000(equivalent to about four months of estimated expenditures) will be established in Acacia's name at aninstitution acceptable to the Bank.

Supervision and Reporting

The UTO will be responsible for overall project and individual subprojects' supervision. ACCI, withthe assistance of UTO, will: (I) prepare semi-annual progress reports for the Bank (ii) submit an annual projectaudit report prepared by an independent auditor acceptable the Bank; (iii) monitor enterprise compliance withenvironmental and safety standards and equipment disposal agreements; (iv) prepare subproject completionreports in collaboration with the enterprises upon final implementation of each subproject; (v) notify the Bankof any significant delays and problems with subproject implementation. Enterprises will agree not to transferold ODS-using equipment to another location nor to another enterprise, nor to revert to ODS consumingtechnologies.

The Bank's supervision will include field visits to current and prospective beneficiaries, discussion withthe UTO and ACCI on project implementation; review of progress/audit, and subproject appraisal reports. TheBank will also review with the UTO Colombia's overall progress in implementing national ODS phase out, andthe activities of other MF implementing agencies (UNDP, UNIDO, UNEP) in order to avoid duplication ofeffort in relation to the Bank MP project in Colombia. Supervision mission factory visits will monitorsubproject implementation, compliance with environmental and safety standards and training, and evaluation ofproject performance according to ENVGC project monitoring criteria. Bank supervision mission teams willconsist of the Project Task Manager, and technical consultants as required.

Project Benefits and Risks

Benefits: The project will assist Colombian ODS users to implement an accelerated ODS phaseoutprogram by providing grant financing for cost effective subprojects. The target objective, assuming an overallcost effectiveness ratio of US$ 14.7/kg/yr, will be to phase out 596 MT of ODS or approximately 30% ofColombia's ODP consumption (2,000 tons per imports of 1997).

Risk Mitigation: The possibility of not being able to develop a sufficient pipeline will be mitigatedthrough an aggressive campaign of project promotion and subproject identification by the UTO. Such apossibility will be completely eliminated if the MFEC will approve policy guidelines for financing ofcommercial refrigeration user conversion subprojects (at least 500 MT of ODS in Colombia) which are nowbeing developed by the Bank for the consideration of the MFEC. The already identified pipeline of 18subprojects with a grant potential of US$ 4.97 million is given in Annex 6. Table 2 below presents the sectoralbreakdown of these subprojects.

Table 2

Sector ODP MT Threshold Incremental Cost(US$/kg) (US$ M)

Commercial Ref 15 15.41 .231Rigid Foam 114 7.83 .92Flexible FoamMAC (Indirect) 112 None established 2.59Supermarkets 45 22 .99Medical Instruments 12 19.70 .235Total 298 16.66 4.966

Outstanding Issues

Progress has been made on the preparation of the Project Operations Manual, including the modelsubgrant agreement, which should be finalized before Grant effectiveness. Also, a time-bound action plan tostrengthen ACCI's accounting and financial management system will be agreed upon, prior to negotiation.

D: Project Rationale

Rationale for Funding from the MF. Colombia is a nation with a large number of ODS consuming domesticindustries; and with many commercial/industrial refrigeration, and central air conditioning installations. Itsphase out schedule is being driven to a certain extent by the phase out schedule in non-Article 5 (developed)countries, and by impending CFC scarcities and price increases in Colombia's traditional ODS suppliercountries. The rationale for funding will continue to be that which it has been -a means of providing a financialincentive to those users who will phase out sooner than mandated by the 10 year grace period granted to Article5 nations, or sooner than warranted by current domestic market conditions, or financial compensation to thosewho face threat of loss of competitiveness in the absence of conversion to zero or low ODP technology.

1. Project alternatives considered and reasons for rejection:

The Bank has already implemented MP operations in more than 20 nations in which most projectbeneficiaries have been private sector industrial and commercial enterprises. The basic model for projectimplementation of using a government technical implementing agency and a financial intermediary capableof disbursing directly to the private sector, coupled with access to international technical consultants throughBank project preparation funds to assist enterprises with project preparation, has proven to be the mostsuccessful project implementation structure, once adapted for local conditions. Given this background, itwas unnecessary to consider other project implementation alternatives.

2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned):

Sector issue Project Latest Supervision (Form 590)Ratings

(Bank-financed projects only)Implementation DevelopmentProgress (IP) Objective

(DO)Bank-financed

Ozone Projects Trust Fund Grant Argentina Phase out of ODS S SMexico ODS Phase out I Completed SMexico ODS Phase out II Completed SVenezuela (Ind. Molanca) Completed SVenezuela (FAACA) Completed SVenezuela (AAISA) Completed SMexico ODS Phase out III In Implementation

Other development agencies UNDP/IJNIDO/UNEPIP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

The most applicable lessons which are being incorporated in this proposed operation are those whichwere learned during implementation of MP operations in other Latin American nations. These are: i) devising aflexible mechanism for contracting appropriate extemal and domestic consultants - ACCI and UTO will agreewhat portion of the 3% FA fee, as needed, will be earmarked specifically for local technical consultants tor

subproject supervision; international consultants for project preparation and supervision will be contracted bythe Bank outside the scope of the Grant Agreement, and financed through the Bank's project preparationbudget; ii) designing project implementation arrangements to minimize duplication of review and approval ofsubprojects by delegating subproject processing responsibility to a financial agent for international grants,ACCI, leaving the UTO free to focus on interagency coordination; iii) subgrant agreements will be entered intoby ACCI and the subproject beneficiary; iv) securing support at the appropriate level of government to ensurethat executing agencies, through a combination of MPMF and counterpart support, will have the human andfinancial means to implement the operation successfully; v) ensuring that beneficiary tax obligations related toreceipt of OTF Grants are equivalent regardless of choice of international executing agency.

4. Indications of borrower commitment and ownership:

The GoC is a signatory to the Montreal Protocol and has previously submitted 18 subprojects to thzeMPEC for approval, which when fully implemented, will phase out over 900 MT ODP. While the UNDPhas been the most active implementing agency in Colombia to date, the GOC specifically requested the Bankto establish an operation to provide the enterprise strategic alternatives. Indicative of the GOC'scommitment is the approval by Congress of the Grant tax relief legislation.

5. Value added of Bank support in this project.

The Bank, as one of the implementing agencies of the Montreal Protocol Multilateral Fund (MPMF),has designed and financed phase out projects in over twenty countries throughout the world including, inLatin America, countries such as: Argentina, Brazil, Mexico, Ecuador, Chile and Venezuela.

E: Summary Project Analysis

1. Economic: MP operations are narrowly defined, single purpose projects to facilitate elimination of apotentially adverse environmental hazard rather than to achieve a conventionally defined economicdevelopment objective. The economic efficiency indicator used to judge resource allocation, the ODP PhaseOut Cost Effectiveness ratio, can only be applied to specific subproject funding proposals.

2. Financial. The financial analysis of MP investment subprojects is limited to that which is necessary toassess whether the enterprise can utilize the OTF Grant productively. This latter is commonly defined aswhether or not the enterprise will continue in operation at its existing level of operations for five years ormore.

Fiscal impact: None

3. Technical: In all MP projects, the project beneficiaries develop their own engineering solutions which arethen presented to counterpart executing agencies for endorsement and then on to MFEC for fundingapproval. MinAmbiente's Ozone Unit (UTO) will review subprojects for funding eligibility, technicalsoundness, and compliance with the objectives of MPMF. The Bank will assist the companies in definingtheir technical options and project design.

Since 1993, UTO has played a key role in the implementation of MP activities supported by UNDP. By theend of 1998, this program had eliminated approximately 980 tons of ODS consumption at a cost of US$10million. During project preparation UTO will collect data detailing consumption of ODS by sector. Duringproject preparation UTO consultants carried out a survey and interview program detailing consumption ofODS by sector. This information will serve as input into subproject identification. The results indicate that1997 annual import totals for controlled ODS's as recorded by the National Directorate for importers anddistributors only were CFC-11, 725MT; CFC-12, 1077 MT; CFC-113, 105 MT; TCA, 57 MT; and carbon

tetrachloride, 20 MT. The recorded combined total (disaggregated figures not available) of uncontrolled R-22, and ODS substitutes HCFC-141b and HCFC-134a was 560 MT. Additional information supplied bymajor direct users showed that in addition to the total recorded R- 12 consumption of 1077 MT,approximately 500 MT was imported directly by foam producers for use as a foaming agent for expandedpolystyrene production in plants where financing of conversion under UNDP executed projects has alreadybeen approved by the MPEC. The figures thus indicate that most of the 1077 MT imported by distributors isused primarily for commercial and domestic refrigeration and MAC servicing. Of the 725 MT recorded R-11 imports, approximately 500 MT was used in polyurethane production in plants whose reconversionfinancing for projects executed by the UNDP has already been approved. Much of the remainder is thoughtto be used in smaller polyurethane foam operations, and in servicing of R-1 1 using central air conditioningunits. More precise data on the structure of consumption will be available upon completion of the stillongoing work.

4. Institutional:

a. Executing agencies: The executing agency for this project would be MinAmbiente, through its OzoneUnit, UTO, that has the responsibility to coordinate activities to promote the MP mandated ODS phase out.In addition, UTO, has broad policy, regulatory and monitoring mandates along with subproject identification,preparation, implementation and supervision. UTO will work closely with A(CCI who will act as theproject's financial agent. The responsibilities of ACCI are detailed below.

b. Project management: Day to day project management will be in the hands of UTO. UTO will: i) assistwith the identification of subprojects; ii) supervise subproject implementation; and iii) prepare a completionreport. ACCI will: a) administer funds allocated by the Bank through the OTF to subproject endorsed byUTO and approved by the MFEC; b) evaluate (due diligence) the financial viability of enterprises; c)disburse grants on behalf of subproject beneficiaries; d) maintain project accounts and arrange projectaccount audits.

a. Social: N/A

6. Environmental assessment: Environmental Category []A [X] B []C

The overall project objective is protection of the stratospheric ozone layer through financing ofmeasures which will eliminate or reduce emissions of ODS. The transition to non-ODS technologies orsubstitution of ODS with other chemicals may involve other environmental risks and safety risks such as use offlammable substitutes or, in the case of solvent subprojects, increased waste water discharges. Sponsoringenterprises will be responsible for meeting emissions standards, preparing impact statements, and obtainingenvironmental clearances as required by Colombian law, and consistent with World Bank environmentalguidelines. The MinAmbiente will ensure that subprojects have complied with the above environmentalrequirements before officially submitting subprojects to the Bank for OORG review. The overall ODS PhaseOut Project is classified as a Category B (OD 4.01). The environmental data sheet is shown in Annex 11.

0

7. Participatory approach [key stakeholders, how involved, and what they have influenced; ifparticipatoryapproach not used, describe why not applicable]: N/A

F: Sustainability and Risks

1. Sustainability:

A subproject will be considered sustainable if it has resulted in a substitution of a zero or low ODPfor an ODS. Given the technical changes which are taking place and the lack of future CFC availability it isunlikely that a reconversion back to use of ODS would take place. Institutional sustainability for theACCIJUTO project management team will be assured by the sharing of the technical assistance componentand earmarked budget for expenses. The technical assistance assures sustainability for project supervisionand evaluation. Assurances will have to be obtained from MinAmbiente that resources to support sustainedoperation of the UTO during the life of the project will be forthcoming.

2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1):

The greatest risk follows from the substantial phase out activity which has already taken place inColombia, i.e. difficulty in developing a sufficient pipeline of cost effective eligible projects to fully commit theproposed US$8.7 million grant line. All large domestic and some commercial refrigerator manufacturingfactory conversions have already been financed, as have the main polystyrene producers. Yet, annualconsumption ODS consumption is still close to 2,000 MT. Remaining ODS consumers are small and mediumsize entrepreneurs somewhat dispersed in the main cities of the countries. As noted in Annex 6, however, apotential pipeline of US$ 4.97 (57% of total grant amount) has already been identified.

RRisk sk Rating Risk Minimization MeasureAnnex 1, cell "from Outputs to Objective"

Active participation by private sector in the development S UTO will carry out aggressiveof a sufficient pipeline of cost effective eligible projects promotional campaign activities to

identify eligible projects

Well defined Subproject selection process established M UTO will adhere to policyand implemented guidelines approved by the MFEC

(Multilateral Fund ExecutiveCommittee)

Active development and enforcement by GOC of the M MinAmbiente attends MP meetingsregulatory measures for controlling ODS consumption of the parties in which signatories

inform the Executive Committee onthe progress in achieving ODSphase out targets, and if not incompliance, then correctivemeasures to be undertaken by them

Annex 1, cell "from Components to Outputs".

Commitment on the part of the enterprises to provide the M Beneficiary enterprises will sign acounterpart funding subgrant agreement with financial

agent pledging counterpart funds

GOC adopts legislation to exempt MP projects from the N Legislation has been approved"grant tax"Compliance with Bank Procurement, disbursement and N ACCI has attendedauditing guidelines workshop/seminar to learn of Bank

disbursement and auditingguidelines. Financial agent isfamiliar with commercial shoppingprocedures

Sufficient national level resources to support N UNDP provides the operatingMinAmbiente's Ozone Programs budget crUTO. Financial agent

will use nart of the technicalassistanc. budget to fundsupervising/evaluation tasks

Overall Risk Rating M

Risk Rating -H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible Controversial Aspects:

None

G: Main Grant Conditions

i. Effectiveness Condition: (1) Completion and Submission to the Bank of an acceptable Project OperationalManual.

2. Other. Covenants on Project Execution, on procedures for and terms and conditions of grant and onretroactive financing

H. Readiness for Implementation[ ] The engineering design documents for the first year's activities are complete and ready for the start ofproject implementation. [ X] Not applicable.[ The procurement documents for the first year's activities are complete and ready for the start of projectimplementation. [X] Not applicable[] The Project Operational Manual has been appraised and found to be realistic and of satisfactory quality.[ The following items are lacking and are discussed under loan conditions

I. Compliance with Bank PoliciesI[ This project complies with all applicable Bank policies.[ ] [The following exceptions to Bank policies are recommended for approval: The project complies with

all other applicable Bank policies.]

ANNEX 1Colombia: Ozone Depleting Substances Phase Out

Project Design Summary

Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical AssumptionsSector Related CAS Goal 1. Colombia meets phase out 1. Evolution of CAS (Goal to Bank Mission)1. Reduced levels of requirements as specified in Dialogue between Bank and la. Successful introduction andcontrolled substances Montreal Protocol GoC. adaptation of phase out technolo-consumption and emissions Agreement. gies in Colombia.

I b. GoC continues to regulate andcontrol the import and use of ODSsubstances and products usingODS substances

1c. MP Multilateral Fund resourcesare mobilized in Colombia toprovide financial incentive forconversion.

ld. Key private and public sectorenvironmental staff receiveprofessional upgrading inconversion technologies.

Project Development (Objective to Goal)Objective: la. # of eligible subprojects1. Provide financial incentive approved by MP Ex.Com 1. Supervision Missions and la. Sufficient pipeline of eligiblefor industrial conversion from Progress Reports. Monitoring subprojects.ODS to non-ODS lb. # of approved subprojects of Project Grant Agreementtechnologies and promote successfully implemented. lb. Competent governmentmeasures which implementation unit.reduce/eliminate emissions of lc Tons of ODS consumption lc. Competent financial agent.ODS eliminated

Id. Workable institutionalarrangements for subprojectpreparation and review.

le. Adequate diffusion ofconversion technologies toindustry users.

Project Outputs: (Outputs to Objective)1. Effective MPOTF Grant 1. All conditions of 1. Date of Effectiveness la. Resolution of issues ofAgreement effectiveness satisfied. signatory to Grant Agreement and

Trust Agreement betweensignatory and Financial Agent(FA).

2. Identified, prepared, MP 2. # of subprojects approved 2. Implementation 2a Colombian Enterprisesoperations. Exec Comm and implemented. Performance Review commitmentapproved, and satisfactorily Supervision Reports; Project to fund all non-eligible costsimplemented subprojects. Semi-Annual Reviews; Mid- associated with subprojects under

term Project Review; MP policies and guidelines

3. Reduction in the levels of 3a. Metric Tons of ODS 3. Implementation 2b. Active participation by privateODS Consumption phased out during project Performance Review sector in the development of a

implementation; Supervision Reports; Project sufficient pipeline of cost effectiveSemi-Annual Reviews; Mid- eligible projects

4. Effective UTO in Ministry 3b. Enterprise compliance Term Project Review;of Environment, and effective with equipment disposal 2c. Compliance of with terns andFinancial Agent. agreements conditions of subgrant agreement

4. Same as 3.

4.Commitment of the Got .osupport the functions of the OzoneUnit and FA.

Project Components/Sub- Inputs 1. Project Implementation (Components to Outputs)components: Unit records; Subproject 1. Quantitative targets for1) OTF Grants for financing 1. US$ 8.4 million. monitoring reports; Project subproject implementation aseligible incremental costs of Semi-Annual Reviews; Mid- identified in annual business plansubprojects and Technical Term Project Review (Budget $ )Assistance. 2. US$ 212,000

lb.Commitment on the part of the2) Technical Assistance 3. US$ 40,000 enterprises to provide the

counterpart funding.3) Administration andSupervision 3. Counterpart Funding lc. GoC adopts legislation to

(US$1.3 million) exempt MP projects from the4). Iniplementation of "grant tax".subprojects approved byMPMF 2. Compliance with Bank

Procurement, disbursement andauditing guidelines

3. Sufficient national level\UNDPresources to supportMinAmbiente's Ozone Unit

ANNEX 2Ozone Depleting Substances Phase Out

Project Description

Project Component 1 - Investment in Subprojects US$9.7 million

The objective of this component is to support about 25 subprojects which will assist Colombianenterprises in their efforts to phase out the use of ODS and convert existing production processes to non-ODS technologies.

Active subproject pipeline development for the proposed operation began during May 1998 projectpreparation mission, and has continued hereafter. Eighteen enterprises have been identified as havingpotential eligibilily for conversion subprojects. These companies along with others participated in surveys ofODS consumption which were designed and executed under the guidance of UITO. The eighteen enterprisesalready identified have a potential eligible grant amount of US$ 4.97 million. included are four subprojectswhich have already been approved by the MPEC for US$ 387,570.

Subprojects will be identified, prepared and implemented in accordance with subproject guidelinesdetailed in the MPMF's Report of February 1997 which consolidates all policies, procedures guidelines andcriteria for financing of ODS phase out activities.

Subproject identification will be a cooperative effort among enterprises, UTO, industry association3,and technical consultants. When a potentially eligible subproject has been identified, the enterprise and UTOwill prepare a brief project summary for transmittal to the Bank. UTO will review the subproject summary todetermine its eligibility and cost-effectiveness. Through mutual consultation, the Bank and UTO will decideif the proposed project meets MP eligibility standards.

Project Component 2 - Technical Assistance - US$212,000

A technical assistance component has been included to support ACCI/UTO in carrying outpreparation, and supervision of subprojects.

Project Component 3.- Administration and Supervision - US$40,000

An operational costs category has been included to support ACCI/UTO in carrying outadministrative tasks


Estimated Project Costs

Project Component Local Foreign Total-----------------------US $ million--------------------

(1) Investment in # Subprojects 1.3 8.4 9.7(2) Technical assistance 0.0 .2 .2(3) Administration and Supervision .1 .1Total 1.3 8.7 10.00

Total Baseline CostPhysical Contingencies N/A N/A N/APrice Contingencies N/A N/A N/A

Total Project Cost 1.3 8.7 10

ANNEX 4

Ozone Depleting Substances Phase OutProcurement, Disbursement and Financial Management Arrangements

Procurement

Procurement of goods, works and services will be done in accordance with the provisions of theWorld Bank Guidelines for Selection and Employment of Consultants by World Bank Borrowers publishedin January 1995 and revised in August, 1996, January and September 1997 and January 1999 and theGuidelines for Procurenment under IBRD Loans and IDA Credits, published in January 1995, January andAugust 1996 and revised in September 1997 and January 1999. The procurement arrangements for theproject components are described below and summarized in Tables A and B.

The following procurement procedures will apply for this Project:

Goods and Works

(I) Contracts of US$2 million or more equivalent (excluding proprietary packages) will beprocured by the Grant beneficiary, with the supervision of ACCI, under InternationalCompetitive Bidding (ICB) procedures.

(ii) Contracts for procurement of goods and works (consisting of installation and commissioning ofequipment) costing less than US$2 million may be procured by grant beneficiaries inaccordance with commercial practices acceptable to the Bank; (i.e., shopping) consisting ofcompetitive selection based on at least three quotations from eligible and qualified contractorsand suppliers. Direct contracting may be used for procurement of proprietary items inaccordance with Clause 3.7 of the procurement Guidelines.

Consultants

(I) Consultants (Firms or individuals) selected by ACCI will be hired on the basis of theconsultants qualification, in accordance with the Guidelines.

(ii) Consultants selected by prospective beneficiaries will follow competitive commercial practicesacceptable to the Bank.

Prior Review

Prior review of proposed awards and final contracts of good and works will be as follows (see Table B):

(I) All contracts under investment projects will be reviewed by ACCI, on a prior review basis.Procurement procedures and documentation for all contracts costing over US$ 2 million and alldirect contracting for proprietary equipment will be subject to prior review by the Bank

(ii) Terms of Reference for all consultants contracted by ACCI, or by prospective projectbeneficiaries will be subject to the Bank's prior review. In addition, full Bank prior review

8

shall apply in the case of contracts costing US$100,000 or more equivalent (in the case ofconsulting firms) and US$50,000 equivalent or more (in the case of individual consultants).

All contracts of any type financed through this grant will be subject to ex-post review by theBank.

Disbursement

The proposed MP would be disbursed over 5 years with project effectiveness expected to start nextJuly. The closing date would be July 31, 2004. Disbursement will follow the procedures detailed in thedisbursement handbook published by the Bank in 1992 and revised in July 1998 and in the DisbursementLetter, which will be issued after the Grant Agreement is signed.

For eligible expenditures above the prior review threshold, fully documented disbursement requestswill be sent by the beneficiary to ACCI who, approving the contract or after receiving the Bank's noobjection (when required), will issue payment directly to the supplier on behalf of the beneficiary. Foreligible expenditure below the prior review Sows, will be used.

For projects with grant funding of incremental operating costs as well as investment costs, ACCIwill indicate in the subproject appraisal report, the disbursement plan for operating cost grants. After oneyear of operation following disbursement of investment costs, an enterprise with funding of incrementaloperating costs will provide ACCI with documentation verifying the realized level of annual incrementaloperating cost, which will then be compared with the estimate upon which the subgrant approval was based.If deemed satisfactory, ACCI will approve disbursement of the lesser of the realized level, or the subgrantamount originally allocated for incremental operating costs.

The allocation of grant proceeds is detailed below in Table C of this annex.

Special Account:

A Special Account in US dollars will be established at ACCI. The Bank will make an initial depositof up to US$550,000 into the Special Account opened by ACCI at an institution acceptable to the Bank.This amount is equivalent to the average expected expenditures during the first 4 months of projectexecution. This "Authorized Allocation" shall be limited to an amount equivalent to US$200,000 until theaggregate amount of withdrawals from the OTF Grant amount plus the total amount of all outstandingspecial commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall beequal to or exceed the equivalent of US$1,500,000. The account will be replenished in receipt of fulldocumentation except for expenditures under contracts valued below US$2,000,000 equivalent for goodsand works or for consulting contracts valued below US$100,000 for a consulting firm, or below US$50,000for individuals for which the Bank will accept Statements of Expenditure (Sows). Supporting documentationfor Sows including contracts, procurement documentation, and evidence of payment should be kept in acentral location for examination by independent auditors and bank staff during supervision missions.

Financial Management

Within MinAmbiente, the Ozone Technical Unit (UTO) in conjunction with the Colombian Agencyfor International Cooperation (ACCI) will supervise subproject implementation, including monitoring ofequipment disposal agreements. ACCI will act as the financial agent. Acacia's activities are administered by

a group of experienced professionals, including a qualified accountant. Prior to effectiveness, ACCI willhave completed, in terms acceptable to the Bank, the Project Operational Manual. A LAC FMS performedthe required financial management assessment in accordance with OP/BP 10.02. The FMS concluded thatACCI has appropriate project financial management capabilities and will prepare Project ManagementReports (PMR) from the start of operations. Nevertheless, it was agreed with project management that initialdisbursements would be processed under the Bank's standard disbursement procedure until sufficientexperience is acquired in the preparation and use of Parse. An action plan has been agreed with projectmanagement to reach full command in the use of Parse in project management. ACCI has agreed to engagea private auditing firm shortly after effectiveness, to perform the required yearly audit of the project,following terms of reference acceptable to the Bank.

Annex 4, Table B: Thresholds for Procurement Methods and Prior Review'

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review / Estimated

Total Value Subject toPrior Review

US $ thousands US $ millions1. Goods and Works >2,000 ICB All

<2,000 Commercial Practices None

2. Consulting Services(a) Consulting >100 CQ All

Firms

(b) Individuals >50 CQ All

Total value of contracts subject to prior review:

I Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact theRegional Procurement Adviser for guidance.

Annex 4, Table C: Allocation of Grant Proceeds

Expenditure Category Amount in US$million Financing Percentage

Subgrants 8.40 100Consultants' Services .2 100Operational Costs .1 100

Total 8.7 100

ANNEX 5

Ozone Depleting Substances Phase OutProject Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final stage)

$100,000 100,000

B. Project Schedule Planned Actual(At final stage)

Time taken to prepare the project (months) 14 months 19 monthsFirst Bank mission (identification) 10/26/1997 10/26/1997Appraisal mission departure 12/10/1998 2/21/99Negotiations 12/10/1998 7/30/99Planned Date of Effectiveness 2/1511999 8/15/99

Prepared by: The Bank/MinAmbiente

Preparation assistance: [PPF, trust funds, cofinanciers, etc.] MP Preparation Budget

ANNEX 6

Ozone Depleting Substances Phase OutSubproject Pipeline

1. Active pipeline development for the proposed operation commenced during the May, 1998 preparationmission and will be ongoing during implementation of the umbrella grant. In the short term, the priority sectorsselected for subproject identification are rigid polyurethane foam thermal panel producers, mobile air conditionercomponent fabricators and unit assemblers, and commercial refrigeration equipment fabricators. Other projects in thefoam sector will be considered in the next two years of implementation. Also, projects in the medical industry andsolvents will be considered. Table 3 shows a summary of projects already identified by the Bank. The potentiallyeligible OTF Grant Amounts for these subprojects, based upon estimated ODP impacts and cost estimates supplied bythe firms is US$ 4.97 million. The UTO is continuing an ongoing process of subproject identification.

Table 3 - Projects already Identified

Sector Projects Estimated Impact Eligible Grant(ODP tons) (estimated)

US$Rigid Foam Master Cooler 10 * 70,862

Friotermica 10 67,338DJF 25 * 173,822lndufrio 10 * 75,548Rojas Hermanos 25 196,000Colser 4 31,000GMP (Group Project) 30 235,000Polares 9 70,000

Comm. Refrigeration Polares 4 61,000Supernordico 11 170,000

Mobile Air Conditioned Thermocoil 70 2,000,000MAC (estimated ODP Autoaires 4 20,000impact is indirect-1 12 MT Mitchel 4 50,000ODP for one year's Calaires 4 20,000production.) Paramo 20 500,000

Supermarkets (pending Confenalco 30 660,000approval of comm. ref. Cafam 15 330,000retrofit guidelines)Solvents Rymco 12 235,000TOTAL 298 4,965,570

* Amount already approved by MPEC

2. The following projects have already been approved by the Executive Committee and are ready forinitiating implementation:

a) FRIOTERMICA. This enterprise located in Bogota consumes 13 MT CFC-1 1 per year, tomanufacture sandwich rigid foam panels for construction and cold storage modular rooms. The

company also manufactures commercial refrigeration equipment but its use of CFC-12 has beenalready eliminated, charging HCFC-22, R-404a and R-407. It has a low pressure foamingmachine (60 kg/min.). FRIOTERMICA will convert to HCFC- 141b as this seems to be the mostsimple and less expensive alternative to CFC-I l. To undertake its conversion, a high pressuremachine would be required by the project.

b) DANIEL J FERNANDEZ. This enterprise located in Barranquilla consumes approximately 25MT CFC- 11 per year, to produce sandwich rigid foam panels for construction, cold storagemodular rooms, roofs, and piping insulation. It has a low pressure foaming machine (60kg/min.). DANIEL J. FERNANDEZ has opted for HCFC-141b as this seems to be the mostsimple and less expensive alternative to CFC-1 1. To carry out its conversion, the company willrequire a high pressure machine.

c) AIASTER COOLER. This enterprise located in Bogota consumes -).3 MT CFC- 11 per year, tomanufacture sandwich rigid foam panels for building insulation and cold storage modular rooms.It has a high pressure foaming machine (100 kg/min.) and 4 electi-cally heated molds. MASTERCOOLER has made some research on its own about its technical options, and has opted forHCFC-22 that will later be replaced by HFC- 134a (definitive option). With an adequate in-house technical capacity this enterprise is developing a pre-mixer equipment for feeding the gabinto the blowing machine.

d) INDUFRIO. This enterprise located in Medellin, consumes 11 MT CFC- 1 1 per year, tomanufacture sandwich rigid foam panels for building insulation and cold storage modular roon s.To carry out its conversion, the company will require a high pressure machine.

3. Other projects that have been already pre-appraised are:

a) POLARES. The company produces small ice cream freezers and other glass display units forconvenience stores and supermarkets. POLARES also produces sandwich panels. It has two lowpressure injection machines. They consume approximately 11 tons of CFC- 11 and 3 MT CFC- 12 peryear. A project is expected to be ready for submission to the ExCom in 1999.

b) INDUSTRIAS SUPER NORDICO. The company manufactures commercial refrigeration cases for usein display and conservation of food products. The range of products includes vertical coolers withmultiple doors, reach-in cabinets, and freezers. In addition the company manufactures panels for its ownproducts. The company's consumption data for CFC-I I and CFC-12 is 5 MT and 3 MT, respectively. Aproject is expected to be ready for submission to the ExCom in 1999.

c) COLSER. A 30 year old company, it manufactures cold storage facilities for the Flower Industry inparticular but also for refrigerated transport. It also manufactures commercial display cases in smallquantities. The company consumes approximately 4 tons of CFC-1 1. The company has a low pressuremachine and has identified a Brazilian manufactured injection machine that may be adequate for itsrequirements. A project is expected to be ready for submission to the ExCom in 1999.

d) ROJASHERMANOSLTDA. This enterprise located in Bogota consumes about 20 MT CFC-1 1 per year,to manufacture sandwich rigid foam panels for building insulation and cold storage modular rooms. Ithas a high pressure foaming machine, that will be funded retroactively. A project is expected to be readyfor submission to the ExCom in 1999.

e) CALAIRES. This MAC company provided very interesting information about how the MAC Industry isorganized in COLOMBIA. Heat exchangers are manufactured for the sector by a network of Colombiancompanies which ultimately feed heat exchanger to CALAIRES. CALAIRES in turn accounts for about75 % of the MAC systems installed in Colombia through its network which covers the major cities,where it has a strong position in the market owing to its installation and maintenance network. Thecompany provides complete kits for about 25-30 different models in the market. Most of theinstallations (80%) are done at CALAIRES' network of installation and maintenance shops or at the cardealerships where CALAIRE is contracted. CALAIRE has purchased equipment to enable the companyto produce fittings and hoses compatible with HFC-134a system installs. The company works in atightly integrated market and the complete system is packaged and installed at CALAIRES for the largkmajority of the MAC installs in the Colombia. A comprehensive project for the MAC sector is plannedfor submission in 1999 or early 2000.

2 AUTOAIRES and AUTOFRIO assemble complete MAC units with components supplied by others.When aluminum parallel flow condensers are specified (as is increasingly the case), they are imported.Both companies have already made minor investments in tooling required to assemble MACs for R-134a. Any eligible amounts would be small and retroactive. A comprehensive project for the MACsector is planned for submission in 1999 or early 2000.

g) MITCHEL fabricates small quantities (3.500/yr) of fin and tube condensers and evaporators andassembles complete MAC units for both R-12 and R-134a systems. When larger size fin and tubecondensers are not suitable for R-134a applications, Mitchel imports aluminum parallel flow condensers.The company is undecided as to future strategy vis a vis investing in a fabrication line for aluminumparallel flow heat exchangers or phasing out fabrication of fin and tube equipment and becoming,exclusively an importer of components. A comprehensive project for the MAC sector is planned forsubmission in 1999 or early 2000.

h) PARAMO fabricates heat exchangers for MAC, commercial refrigeration, and 3 HP and 5 HP packageair conditioner applications. The firm is aware that it will have to install fabrication capacity for R- 1 34aheat exchangers at some point, or cease fabrication and become exclusively a components importer.PARAMO has begun to investigate alternatives but has still not decided what to do, influenced also bythe currently unstable market. It is possible that the firm might be eligible for partial financing ofconverted production facilities as a fabricator of both MAC and commercial refrigeration equipmentcomponents. A comprehensive project for the MAC sector is planned for submission in 1999 or early2000.

i) THERMOCOIL is the new company name for the former THERMOTAL. The firm's MAC condenserproduction (25,000) would appear to be sufficient to justify OTF financing of an aluminum parallel flowcondenser fabrication line. A comprehensive project for the MAC sector is planned for submission in1999 or early 2000.

j) RYMCO: This company uses about 12 MT CFC-1 13 per year as silicon diluent in the production ofsyringes. The firm still must engineer a project to permit closed circuit condensation, recovery and reuseof CFC-1 13, or a process to substitute for it. Either solution will be eligible for OTF financing up to thethreshold limit (US$ 235,000). A project is expected to be submitted to the ExCom in 1999.

ANNEX 7

Ozone Depleting Substances Phase OutSubproject Preparation And Implementation Guidelines

Subprojects will be identified, prepared and implemented in accordance with the following subprojectguidelines, and consistent with the MPMF's Report of February 1997, which consolidates all policies,procedures, guidelines and criteria for financing of ODS phase out activities. These indicative guidelines,which will be the basis for UTO's Project Operational Manual, may be modified by mutual agreement betweenthe Bank and UTO.

Subproject Identification

Subproject identification will be a cooperative effort among enterprises, UTO, industry associations,and technical consultants. When a potentially eligible subproject has been identified, the enterprise and UTOwill prepare a brief project summary for transmittal to the Bank. UTO will revikw the subproject summary toevaluate the proposed subproject's conformity with eligibility and cost-effective threshold guidelines (Annex 9).

Through mutual consultation, the Bank and UTO will decide if the proposed project meets MPeligibility standards. If positive, UTO and a technical consultant will meet with the enterprise to establish aproject preparation schedule, identify external preparation assistance requirements, if any, and to inform theenterprise concerning project preparation requirements. UTO/ACCI will oversee ability of the enterprise to usean OTF Grant productively

Subproject Preparation

Project Document (PD). UTO will help subproject beneficiaries (enterprises) in preparing the pre-investment studies, a draft Project Document per Annex 8 of the guidelines, and an executive project summary(EPS). Technical consultants will assist by informing enterprises about: (i) alternative technologies; (ii)Montreal Protocol (MP) Fund eligibility and financing criteria; and (iii) the MP Fund application process.Technical consultants, also, will assist enterprises to prepare subproject proposals, if required.

OORG Technical Review. Subprojects under preparation should be reviewed on an informal basis bythe appropriate technical expert in the World Bank's Ozone Operations Resource Group (OORG). OORGcomments will be provided to UTO and to the concerned enterprises, and project design and/or cost estimatesrevised accordingly. A formal OORG approval will be required for all subprojects before being submitted bythe Bank to the MFEC.

GOC and World Bank Endorsement. After final OORG technical review, and official GoCendorsement, eligible incremental costs will be verified. Following an agreement by the Bank and UTO as tothe requested OTF Grant amount, subprojects will be submitted to MFEC funding approval.

MFEC Approval

Review and approval of funding for subprojects will be based upon the Project Document, to whichwill be appended the final OORG Review and any other relevant technical reports.

Subgrant Agreement/Approval for Disbursement

Funding approval by the MFEC signifies only that a Grant under the OTF Grant Agreement in the amountapproved will be made available to the Bank to finance project implementation, based upon the subproject'stechnical design and compliance with MFEC eligibility and cost effectiveness criteria. Disbursement of fundsfor implementation will require: i) approval by the Bank of the subproject's detailed implementationarrangements; ii) demonstration by the enterprise that it possesses the requisite financial ability to use the grantproductively; and iii) execution of a subgrant agreement between FES and the beneficiary enterprise. The basisfor the Bank's final approval will be a review and approval of the Project Documents and the draft SubgrantAgreement. The Bank and UTO will appraise subprojects to ensure that all technical, cost and implementationissues raised before, during, or after OORG review and MFEC approval have been addressed

Subgrant Agreement. After the Subproject Appraisal Report has been approved by the Bank, ACCIwill finalize the Subgrant Agreement. The final draft Subgrant Agreement between ACCI and the beneficiaryenterprise will follow a standard model approved by the Bank. Disbursement may proceed after SubgrantAgreement signature.

Subproject Implementation. Enterprises will: i) be responsible for executing the subproject inaccordance with the agreed subproject implementation plan; ii) prepare and submit periodic progress reports,consistent with Bank Project Monitoring Guidelines and including details of the procurement of goods andservices. ACCI will ensure that the beneficiary enterprises follow specified procurement procedures prior toauthorizing disbursements and UTO will monitor enterprise compliance with environmental and safetystandards including any equipment disposal agreements. UTO will notify the Bank of any significant delaysand problems with subproject implementation. As required, UTO will receive technical support for subprojectsupervision from the Bank and consultants.

Subproject Completion. In conjunction with enterprises, UTO, will prepare a Subproject CompletionReport after implementation and start up of each subproject. A technical audit will be conducted by anindependent consultant to verify that the enterprise has successfully implemented the subproject, and achievedthe desired ODP phase out objective.


Guidelines For Preparation Of Project Documents And Completion Reports

A. Project Documents (PD)

The Project Document, which will be the basis for review for funding approval of subprojects by UTO,the World Bank, including OORG, and the MFEC, will be prepared according to the following guidelines forProject Document content and format:

1. Standard Cover Sheet. Brief project summary per standard cover sheet format. The summary mustspecify aim of project, ODS phased out, substitute technology, and implementation time frame.

2. Project Objectives. Brief description of project ODS/ODP phase out objectives. Specify if the projectis new or has already been implemented. Indicate quantity of ODS (expressed as ODS and ODP) phased out,directly attributable to the subproject, on an annual and total basis.

3. Sector Background. i) Consumption of ODS in the sector: Include recent growth trends and latestavailable official information on the sector - ensure that the ODS used in the Sector reflects latest informaaonendorsed by the govemment, as the ODS use in the Country Program might not be up to date; ii)Description ofall major manufacturers/users in the sector, iii) Impact of project on ODS consumption for achieving 1999freeze - Table on ODS consumption and impact of approved projects to be provided by the country; and iv)Current status of regulatory action, policy changes, etc. Include restrictions on ODS use, or tariff or revenuemeasures recently announced.

4. Enterprise Background. i) Brief history of the enterprise including financial performance; ii)Percentage of domestic ownership; iii) Production profile and brief process or production description; iv)Include table of last three years annual production; v) Export profile, if any.

5. Project Description. Existing equipment briefly described. Full description of project scope,technology, and source of supply, divided into: i) components relating to ODS phase out and ii) othercomponents, such as expansion of output or product upgrading. Baseline information per PD Annex 5.

6. Justification for Selection of Alternative Technology. Review of technical feasibility of subprojectshould describe the before implementation and projected post implementation situations. A completeequipment list including one line specifications and cost quotations/estimates will be shown in PD Annex 5. Ifrelevant, the issue of conversion to transitional substitutes such as HCFCs should be addressed here; wordiigcould be as follows : "the enterprise has been informed of the interim nature of technology, and will not seekadditional funding from MPMF at a later date to convert to zero-ODP technologies".

7. Project Costs. Total estimated subproject costs, including non incremental costs, desegregated into: (i)one-time capital and training costs; (ii) annual estimates of net operating costs or savings, if any, for the firstfour years of operation; (iii) retroactive expenditures eligible for reimbursement, if any. A 10% pricecontingency will be added to arrive at the total cost estimate.

8. Calculation of Incremental Operating Costs (ioc). Calculation is shown in PD Annex 2. Productionlevel must be based on the most recent full year or the average of the last three years of production, and using

current and projected production costs. Incremental costs should be calculated for the full period of eligibilityallowed by the ExCom for the given sector, even if the resulting total exceeds the sectoral threshold value.

9. Cost Effectiveness (ce). Calculated CE in terms of US$/kg ODP/yr. to be presented here and on coverpage and compared with sectoral CE threshold (calculation shown in PD Annex 3).

10. Proposed Multilateral Fund Grant. Grant amount will be based on eligible incremental costs, adjustedfor non-national ownership and exports to non-Article 5 countries. Neither capacity expansion nortechnological upgrades can be financed by the MPMF. If either or both is incidental to conversion to non-ODStechnologies, deductions from total cost to arrive at eligible incremental cost will be made on a case by casebasis. The baseline information in PD Annex 5 should be sufficient to evaluate and justify the proposed grantamount. The Financial Agent's Fee is not to be included in calculating the proposed grant.

11. Project Implementation. The implementation schedule should include realistic lead times for MPECapproval, appraisal and Sub Grant Agreement signing before date of first disbursement. Indicate any non-conventional procurement arrangements (e.g. sole source procurement) if already known.

12. Environmental Assessment Indicate nature of environmental impact, required mitigation, and type ofclearances likely to be required.

13. OORG Technical Review. Attach final OORG approval.

Project Document (PD) AnnexesAnnex 1 Summary of Capital Investment CostsAnnex 2 Calculation of Incremental Operating CostsAnnex 3 Calculation of Cost Effectiveness

(a) ODS Savings(b) Cost Effectiveness Calculation

Annex 4 Environmental AssessmentAnnex 5 Baseline Information: (a) List of equipment addressed in the proposal; (b) Equipment

specification, e.g. capacity performance, etc.; (c) Age of equipment; (d) Future use ofthe equipment; disposal plan, if replaced.

Other Annexes as may be necessary, e.g.Annex 6 Technology Transfer AgreementAnnex 7 Engineering Supplement: Quotations from suppliers, etc.Annex 8 Procurement ScheduleAnnex 9 Disbursement ScheduleAnnex 10 Financial PlanAnnex 11 Reporting RequirementsAnnex 12 Financial Assessment (limited to the essntial necessary in ACCI judgement to

determnine that the enterprise is sufficiently viable to use the grant productively)

B. Subproject Completion Reports

The Subproject Completion Report which will be completed for each subproject subsequent toimplementation will report the realized (as compared with the original amounts) for the following: i) ODSand ODP phase out impact; ii) capital costs; iii) incremental operating costs; iv) technology choice; v)equipment disposal; vi) project impact; and lessons learned. Particular attention will be given to anysignificant differences between projected and realized values and costs.


Eligibility Criteria, Incremental Costs, AndSectoral Cost Effectiveness Thresholds

The following are the general eligibility and cost effectiveness criteria which subprojects must meet inorder to be eligible for financing from the Ozone Projects Trust Fund (OTF). These guidelines are indicative innature, and subject to interpretation depending upon the circumstances of ind.vidual subprojects, and specificdecisions of the MFEC.

A. General Subproject Eligibility Criteria

Selection of subprojects will be consistent with eligibility criteria, and sectoral cost effectivenessthresholds established by the MFEC. To be eligible for funding consideration, projects must result ir adirect and demonstrable reduction or elimination of ODS consumption in Mexico; should be costeffective; and based on environmentally sound, commercially available definitive zero ODP o.rtransitional low ODP substitute technologies for the substances controlled by the Montreal Protocol.

B. Definition of Eligible Incremental Costs

OTF Grant amounts are based on the evaluated incremental capital and operating costs of an ODSreduction or elimination phase out proposal.

Incremental capital costs are defined as the difference between the total costs of installing replacementnon-ODS technology of similar capacity and sophistication as the existing ODS technology, less thenormal replacement investment costs which would have been incurred to maintain the existingtechnology at its current operating level.

Incremental operating costs are defined as the net operating costs for the non-ODS technology less thenet operating costs of the ODS technology. In cases where there are no significant incrementaloperating costs, the OTF grant amount will be based on the incremental capital costs.

The total incremental costs will equal the net present value of incremental capital costs plus the netdiscounted incremental operating cost. To determine OTF grant amounts, incremental costs will beadjusted to reflect the local share of ownership, exports, and sectoral cost effectiveness thresholds.

Duties and Taxes. Import duties and other direct taxes are not considered as incremental costs and ; renot eligible for OTF grant funding.

The detailed indicative list of categories of eligible incremental costs is given in Annex I of the LondonAmendment to the Montreal Protocol, and is reproduced in Annex VIII.3 of "Policies, Procedures, Guidelinesand Criteria of the MF for the Implementation of the Montreal Protocol" of February 1997.

C. Cost Effectiveness

The cost effectiveness (or efficiency) of the financial mnechanism is a measure of how efficient it hasbeen in utilizing funds put at its disposal to meet its objectives. The most simple method used tocalculate cost-effectiveness of subprojects calculates total incremental costs of a subproject, excludingcost of safety where applicable, divided by the amount of its Ozone Depleting Potential (ODP) to oephased out. Cost effectiveness is defined by the following formula:

C= IC+IO_M [ODP]

where:C = Cost-effectivenessIC Incremental capital costs (covered by the Fund)IO = Net incremental operating costs (covered by the Fund)M [ODP] Amount of ODS to be phased out annually (weighted kg ODP)

D. Cost Effectiveness Thresholds

The following sector and subsector cost-effectiveness threshold values will be applied to determine maximumeligible OTF Grant amounts for subprojects submitted to the MFEC. No threshold amount for commercialrefrigeration user conversion subprojects has as yet been defined.

Sector US$/kg ODP

AerosolHydrocarbon 4.40

FoamGeneral 9.53Flexible polyurethane 6.23Integral skin 16.86Polystyrene/polyethylene 8.22Rigid polyurethane 7.83

HalonGeneral 1.48

Refrigeration (factoryconversions)

Commercial 15.21Domestic 13.76

SolventCFC-113 19.73TCA 38.50

ANNEX 10

Ozone Depleting Substances Phase OutDocuments in the Project File*

A. Project Operational Manual

Under Preparation

B. Bank Staff Assessments

Country Assistance Strategy, October 15, 1997, Report No.17107 COLetter from Mr. Ernesto Guhl Nannetti, Ministry of Environment, requesting the projectBTO: Identification Mission, November 17, 1997BTO: Preparation Mission, February 11, 1998BTO: Preparation Mission, May 1998BTO: Preparation mission, October 1998BTO Preparation Mission, February 1999C. OtherColombia Country MP Program, 1993Monitoring And Evaluation Guidelines for ODS Phase out Investment Projects, 1995Potential MP Project Pipeline, 1999*Including electronic files.

ANNEX 11

Ozone Depleting Substances Phase OutEnvironmental Data Sheet

Country: ColombiaProject ID No 54125Project: Montreal Protocol Ozone Depleting Substances Phaseout ProjectAppraisal Date: 2/99Total Project Cost ($m): 12VP Approval Date: (tentatively) 7/99Managing Division: LCC4CSector: EnvironmentLending Instrument: Grant from Ozone Trust FundStatus :FY/99GrantDate for receipt of EA by Bank: Not ApplicableEA Category: BDate Assigned: 9/92

Date Data Sheet Prepared/Updated:July 14, 1999

Major Project Components:Under the project, grant funding will be extended to subprojects for the Phaseout of ozone depleting

substances (ODS) in all sectors for which sectoral guidelines have been approved by the MFEC.

Major Environmental Issues: (Identified or suspected in project)The project deals with existing enterprises and relatively small quantities of ozone depleting

substances. There are potential safety issues associated with substitute chemicals. Also, otherenvironmental impacts may include the atmospheric release of substitute chemicals, in particularhydrocarbons.

Other Environmental Issues: (of lesser scope associated with project)There may be some environmental issues depending on the alternative chosen to replace the ozone

depleting substance. An example would be the use of aqueous-based substitutes in solvent subprojects,thereby increasing wastewater discharge.

Proposed Actions: (to mitigate issues described above)Sponsoring enterprises will be responsible for meeting emissions standards, preparing impact

statements and obtaining environmental clearances as required by Colombian law, and consistent with WorldBank environmental guidelines. Ministry of Environment will assure that subprojects have complied withthe above environmental requirements before subprojects are officially submitted to the Bank for OORGapproval. Also, extensive safety reviews and training will be provided by international experts andincorporated in the subprojects, as the case may require.

Justification/Rationale for Environmental Category:The overall project objective is protection of the stratospheric ozone layer through financing of

measures which will eliminate or reduce emissions of ODS. No major environmental impacts areanticipated. No resettlement is anticipated.

Reporting Schedule:

Category A Environmental Assessment: Start-up date, date for first draft, and current status.Category B: Is there a separate environmental analysis? If yes, when is it due?Not applicable.

Remarks:None

Colombi

PRICES and GOVERNMENT FINANCE1976 1986 1996 1997 Inflation (%)

Domestic prices(% change) 30;Consumer prices 20.2 18.9 21.6 17.7 20

Implicit GDP deflator 25.4 29.2 18.6 19.3

Government finance 10(% of GDP, includes current grants) °|Current revenue .. 24.5 32.5 31.4 92 93 94 95 96 97

Current budget balance 7.4 8.4 7.3 j-GDP deflator -CPIOverall surplus/deficit .. -0.3 -2.6 -4.3

TRADE1976 1986 1996 1997 Export and import levels (US$ millions)

(US$ millions)Total exports (fob) 2,202 5,332 10,651 11,681 2000

Coffee 967 2,742 1,577 2,259Petroleum 84 619 2,892 2,707 a5,000 Manufactures 1,127 1,363 4,896 5,293

Total imports (cif) 1,654 3,409 13,684 15,411 10,000Food . .. 1,440 1,728 5,oooFuel andenergy 40 130 229 239 i|Capital goods 661 1,245 5,122 5,561

91 92 93 94 90 96 97Export price index (1995=100) 3 28 106 126Import price index (1995=100) 3 21 115 123 MExports *Imports

Terms of trade (1995=100) 125 134 93 102 l

BALANCE of PAYMENTS

(US$ millions) 1976 1986 1996 1997 j Current account balance to GDP ratio (%)Exports of goods and services 2,761 6,542 14,589 15,887 TImports of goods and services 2,293 5,326 16,732 18,756 6.Resource balance 468 1,217 -2,143 -2,869 4 1 m

Net income -356 -1,371 -3,206 -3,426 2 Net current transfers 54 784 532 612 0lfll

-191 92 5 1Current account balance 166 630 -4,817 -5,683 9

Financing items (net) -216 872 6,299 5,653 -6-i

Changes in net reserves 50 -1,502 -1,482 30 -sa

Memo:Reserves including gold (US$ millions) 4,100 3,565 9,691 9,611Conversion rate (DEC, local/lUS$) 34.7 194.3 1,036.7 1,143.1

EXTERNAL DEBT and RESOURCE FLOWS1976 1986 1996 1997

(US$ millions) Composition of total debt, 1996 (USS millionsTotal debt outstanding and disbursed 3,944 15,362 28,859 31,777

IBRD 672 3,261 2,177 1,723 A 2,177IDA 22 17 10 10 I G. 5,e84

Total debt service 374 2,268 6,442 6,968 2 , 2578IBRD 86 489 520 573 < l.IDA 0 11 1E ,3

Composition of net resource flowsOfficial grants 17 26 80 45Official creditors 62 668 -111 -456Private creditors 88 967 1,554 1,456Foreign direct investment 25 674 3,322 -Portfolio equity 0 0 290 F 16,472

World Bank programCommitments 80 640 334 75 A- IBRD E- BilateralDisbursements 76 529 152 189 B - IDA D- Other multilateral F - PrivatePrincipal repayments 38 253 351 437 ic - IMF G - Short-tern

Netflows 38 276 -199 -248Interest payments 48 237 170 137Net transfers -11 39 -369 -385

COLOMBIA OZONE PROJECTS TRUST FUND...

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