Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: -ID

PROJECT APPRAISAL DOCUMENT

FOR A

PROPOSED GRANT FROM THE OZONE PROJECTS TRUST FUND

FOR THE

HYDROCHLOROFLUOROCARBON (HCFC) PHASE-OUT IN THE POLYURETHANE FOAM SECTOR PROJECT

IN THE AMOUNT OF US$ 2.71 MILLION

TO THE

REPUBLIC OF INDONESIA

July 2, 2013

Indonesia Sustainable Development UnitSustainable Development DepartmentEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

94207

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CURRENCY EQUIVALENTS(Exchange Rate Effective April 30, 2013)

Currency Unit = Indonesia RupiahRp 9723 = US$1

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

Acronyms

CFC ChlorofluorocarbonsCO2 Carbon dioxideCO2e Carbon dioxide equivalentCPS Country Partnership StrategyDA Designated AccountExCom Executive Committee of the MLFEMF Environmental Management

FrameworkEMP Environmental Management PlanFM Financial ManagementFTRA Foam Technology Replacement

AgreementFTRP Foam Technology Replacement

ProposalGA Grant Agreement (between Indonesia

and the World Bank)GHG Greenhouse GasGOI Government of IndonesiaGWP Global Warming PotentialHC HydrocarbonHCFC HyrdochlorofluorocarbonsHFC HydrofluorocarbonHPMP HCFC Phase-out Management PlanIA Implementing AgencyMDI Methylene Diphenyl IsocyanateMLF Multilateral Fund for the

Implementation of the Montreal Protocol

MOE Ministry of EnvironmentMOF Ministry of FinanceMP Montreal Protocol on Substances that

Deplete the Ozone LayerMT Metric Tons (of ODS)NOU National Ozone UnitNPV Net Present ValueODP Ozone Depleting PotentialODP tons ODS measured in ODP equivalent tonsODS Ozone Depleting SubstanceORAF Operational Risk Assessment

FrameworkOP/BP Operational / Business PolicyORAF Operational Risk Assessment

FrameworkPAD Project Appraisal DocumentPDO Project Development ObjectivePMA Project Management AssistantPMU Project Management UnitPOM Project Operations ManualPU PolyurethaneTA Technical AssistanceTOR Terms of ReferenceUNDP United Nations Development ProgramUNIDO United Nations Industrial Development

Organization

Regional Vice President: Axel von Trotsenburg, EAPVPCountry Director: Stefan G. Koeberle, EACIF

Sector Director: John A. Roome, EASSDSector Managers: George Soraya (acting) (EASIS)

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Task Team Leader: Johannes Heister, EASER

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INDONESIAHCFC Phase-out in the PU Foam Sector Project

TABLE OF CONTENTS

Page

I. INTRODUCTION AND STRATEGIC CONTEXT...........................................................7A. Country Context.............................................................................................................7B. Sector and Institutional Context..................................................................................10C. Higher Level Objectives to which the Project Contributes.........................................14

II. PROJECT DEVELOPMENT OBJECTIVES...................................................................14A. Project Development Objective (PDO).......................................................................14B. Project Beneficiaries....................................................................................................15C. PDO Level Results Indicators.....................................................................................15

III. PROJECT DESCRIPTION................................................................................................15A. Project Components.....................................................................................................15B. Project Financing.........................................................................................................17

IV. IMPLEMENTATION........................................................................................................17A. Institutional and Implementation Arrangements.........................................................17B. Results Monitoring and Reporting...............................................................................18C. Sustainability...............................................................................................................19

V. Key Risks and Mitigation Measures..................................................................................20A. Risk Ratings Summary Table......................................................................................20B. Overall Risk Rating Explanation.................................................................................20

VI. APPRAISAL SUMMARY................................................................................................20A. Economic and Financial Analyses...............................................................................20B. Technical Analysis.......................................................................................................22C. Financial Management.................................................................................................23D. Procurement.................................................................................................................24E. Social (including safeguards)......................................................................................24F. Environment (including safeguards)............................................................................25

Annex 1: Results Framework and Monitoring...............................................................................26Annex 2: Detailed Project Description..........................................................................................27Annex 3: Implementation Arrangements.......................................................................................34Annex 4: Operational Risk Assessment Framework (ORAF).......................................................41Annex 5: Implementation Support Plan.........................................................................................47

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PAD DATA SHEETINDONESIA

HCFC Phase-Out in the PU Foam Sector Project

PROJECT APPRAISAL DOCUMENT.

EAST ASIA AND PACIFIC

EASIS.

Basic InformationDate: July 2, 2013 Sectors: Other industry (90%); Central government administration (10%)

Country Director: Stefan G. Koeberle Themes: Pollution management and environmental health (50%); Environment policies and institutions (50%)

Sector Manager/Director: George Soraya (acting) (EASIS) EA Category: B

Project ID: P115763

Lending Instrument: Specific Investment Loan (SIL)

Team Leader(s): Johannes Heister

Does the project include any CDD component? No

Joint IFC: No.

Borrower: Republic of Indonesia

Responsible Agency: Ministry of Environment

Contact: Ms. Ir. Emma Rachmawaty MSc Title: Assistant Deputy Minister for Mitigation and Atmospheric Function Preservation, Ministry of Environment

Telephone No.: 62-21-8517164 Email:.

Project Implementation Period: Start Date: June 1, 2013 End Date: December 31, 2015

Expected Effectiveness Date: July 15, 2013

Expected Closing Date: June 30, 2016.

Project Financing Data(US$M)[ ] Loan [ X ] Grant [ ] Other

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost : US$ 3.63 million Total Bank Financing: US$ 2.71 million (MLF grant)

Total Co-financing: US$ 0.92 million Financing Gap :.

Financing Source Amount(US$M)BORROWER / BENEFICIARIES 0.92

IBRD 0.00

IDA: New 0.00

IDA: Recommitted 0.00

Others: Montreal Protocol Investment Fund 2.71

Financing Gap

Total 3.63.

Expected Disbursements (in USD Million)

5

World Bank Fiscal Year FY 13 FY14 FY15

Annual 1.38 1.00 0.33

Cumulative 1.38 2.38 2.71.1

Project Development Objective(s)The Project Development Objective is to reduce the consumption of HCFC-141b in the foam sector in Indonesia in order to contribute to the government’s effort to comply with Indonesia’s HCFC phase-out obligations under the Montreal Protocol..

ComponentsComponent Name Cost (USD Millions)

Component 1: Investment in HCFC-141b Consumption Reductions in the PU Foam Sector

Component 2: Technical Assistance and Policy Support

Component 3: Project Management

3.37

0.13

0.13

3.63.

CompliancePolicyDoes the project depart from the CAS in content or in other significant respects? Yes [ ] No [X].

Does the project require any exceptions from Bank policies? Yes [ ] No [X]

Have these been approved by Bank management? Yes [ ] No [X]

Is approval for any policy exception sought from the Board? Yes [ ] No [X]

Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ].

Safeguard Policies Triggered by the Project Yes NoEnvironmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waters OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X.

Legal CovenantsName Recurrent Due Date Frequency

(1) Technical consultant no 4 months after date of grant agreement

once

Description of Covenant: The grant Recipient shall appoint a technical consultant with qualifications, experience, and terms of reference satisfactory to the Recipient and the World Bank.

(2) Project Implementation Plan no Dec. 31, 2014 once

Description of Covenant: The Recipient shall prepare a Project implementation plan for year 2015 and 2016 and obtain World Bank approval. (Note: the plan for the period until Dec. 31, 2014 was prepared and approved during project preparation.)

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Team CompositionBank Staff

Name Title Specialization Unit UPI

Benardita Ledesma Operations Analyst Operations Analyst EASER 18902

Erik Pedersen Consultant Consultant EASER 71706

Viraj Vithoontien Sr. Environmental Specialist Team Member EASER 86438

Isono Sadoko Consultant Social Safeguard Specialist EASID 91783

Ahsan Ali Lead Procurement Specialist Lead Procurement Specialist EASR1 150763

Daniel Sebayang Consultant Consultant EASIS 158540

Johannes Heister Sr. Environmental Specialist Task Team Leader EASER 86438

Retno Anna Widiana Team Assistant Team Assistant EASIF 193418

Seble Berhanu Legal Analyst Legal Analyst LEGES 202916

Ina Pranoto Sr. Environmental Specialist Co-TTL (Jakarta) EASIS 238172

Fnu Hanny Program Assistant Program Assistant EASER 282386

Marjorie Mpundu Senior Counsel Senior Counsel LEGES 289323

Enggar Prasetyaningsih Procurement Analyst Procurement Analyst EASR1 357939

I Gusti Ngurah Wijaya Kusuma Financial Management Analyst Financial Management Analyst EASFM 346649

Kian Siong E T Consultant Env. Safeguard Specialist EASIS 349095

Name Title Office Phone City.

Locations

Country First Administrative Division

Location Planned Actual Comments

Indonesia National Ozone Unit of Ministry of Environment

Jakarta X X A tentative list of foam companies that are eligible for financing have been identified in the project document.

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I. INTRODUCTION AND STRATEGIC CONTEXT

1. Hydrochlorofluorocarbons (HCFCs) are Ozone Depleting Substances (ODS), subject to consumption and production control measures of the Montreal Protocol on Substances that Deplete the Ozone Layer (MP). The MP requires gradual phase-out of HCFCs starting from 2013 and leading to a complete phase-out of HCFC consumption and production by 2030 for developing countries known as “Article 5” countries. The HCFC Phase-out Project for the Foam Sector (the Project) will contribute to Indonesia’s effort to meet its 2013 and 2015 MP obligations by addressing HCFC-141b consumption in the PU foam sector.

2. HCFCs were introduced as transitional substances to replace the wide use of chlorofluorocarbons (CFCs) that were phased out globally as of January 1, 2010 as required by the MP. HCFCs are used primarily as refrigerants in refrigeration and air-conditioning equipment and as blowing agents for producing PU foam.

3. In 2007, the Parties to the Protocol adopted Decision XIX/6, accelerating the HCFC consumption and production phase-out schedule for both developed and developing countries, with the latter being subject to a freeze on HCFC consumption and production as early as 2013 and complete phase-out by 2030. A major driver for the adjustment to the Protocol is that HCFCs are not only ODS with an ozone depleting potential (ODP), but also greenhouse gases (GHG) with a global warming potential (GWP) ranging from several hundred to several thousand times that of carbon dioxide (CO2). As per Decision XIX/6 of the Parties to the MP, Parties are encouraged to promote the selection of alternatives to HCFCs that minimize environmental impact, in particular impact on climate, as well as meeting other safety, health standards and economical consideration.

Table 1: ODP and GWP of CFCs and HCFCsHCFC ODP*) GWP**) Atmospheric life

HCFC-141b 0.11 725 9.3 yearHCFC-22 0.055 1,810 12 yearHCFC-123 0.02 77 1.3 yearHCFC-124 0.02 609 5.8 yearHCFC-142b 0.065 2,310 17.9 yearAlternativesHFC-245fa 0 950 7.2 yearHFC-365mfc 0 890 9.9 yearCyclo-pentane 0 25 days*) ODP values from the 2006 MP Handbook**) GWP values from IPCC’s Fourth Assessment Report: Climate Change 2007

A. Country Context

4. Indonesia is the largest economy in Southeast Asia and is one of the emerging market economies of the world. The country is also a member of the G-20. Indonesia has a market economy, but the government plays a significant role, owning more than 164 enterprises and regulating prices on several basic goods, including fuel, rice, and electricity. In the aftermath of the financial and economic crisis that began in mid-1997, the government took drastic actions,

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restructuring its economy and banking system. The national economy has since recovered and Indonesia has experienced rapid economic growth at a rate of 6.5 per cent of GDP in 2011 and 6.2 per cent in 2012 (World Bank data).

5. The Government of Indonesia (GOI) is committed to protecting and preserving both the local and the global environment. In keeping with its commitments, Indonesia is a Party to the MP and operates under MP Article 5. As such, GOI is eligible for financial and technical assistance (TA) from the Multilateral Fund for the Implementation of the MP (MLF) for meeting its MP obligations. Since 1993, the government has undertaken a number of ODS Phase-out projects under the MP, including the sector plans for the phase-out of CFC-11 in the PU foam sector and CFC-12 in the mobile air conditioning sector. By 1 January 2008, Indonesia had completed its phase-out of CFC-11 consumption in the foam sector, two years ahead of its MP obligations, and phase-out of CFC-12 consumption in the mobile air conditioning sector was completed by January 2010.

6. Indonesia is also a Party to the United Nations Framework Convention on Climate Change and the Kyoto Protocol and has agreed to limit the impact of climate change, save energy, promote green growth and move towards a low-carbon economy. In line with this initiative, Indonesia has set a voluntary target to reduce CO2 emission by 26% in 2020.1 Replacing the use GHGs with a high GWP such as HCFCs with lower GWP alternatives provides an excellent opportunity for synergies between the MP and climate related initiatives as per Decision XIX/6 of the MP Parties.

7. GOI is now poised to embark on the first stage of its HCFC phase-out. As per the Decision of the Parties to the MP, the MLF will finance the cost of phasing out HCFCs in Article 5 countries. And the Executive Committee of the MLF (ExCom) requested Article 5 countries to prepare an overall HCFC Phase-out Management Plan (HPMP) to be submitted with the first request for funding for HCFC phase-out. The proposed Project is part of GOI’s efforts to implement the HPMP.

8. ExCom also decided to adopt a staged approach to the HCFC phase-out. Stage 1 (2013-2015) will assist countries in reducing their consumption to the baseline freeze level in 2013 and further reduce their consumption to 90% of the baseline in 2015. Subsequent funding for Stage 2 of the HPMP will assist countries in meeting the reduction target of 65% of the baseline in 2020. Stage 2 will address the remaining consumption of HCFC-141b in the foam sector. It is expected that HCFC used for manufacturing of products will be phased out completely by 2020. The residual HCFC consumption after 2020 is expected to be for servicing of refrigeration equipment only.

9. As per MLF guidelines, Indonesia can request financial assistance as early as 2014 for meeting its 2020 reduction target, and GOI plans to submit this request to ExCom in 2014. When Stage 2 is approved, the MLF funding presently scheduled for release in 2018 (final tranche of Stage 1) will be rolled into a revised Agreement with ExCom and requested in 2015 instead. The

1 Presidential Regulation of the Republic of Indonesia Number 61 Year 2011 on the National Action Plan for Greenhouse Gas Emissions Reduction.

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proposed Project is currently limited to Stage 1, but is expected to be extended through “additional financing” to include funding for Stage 2 as early as 2015.

10. An overall HPMP to meet the consumption freeze and reduction to 90% of baseline consumption was developed with support from UNDP and the World Bank. UNDP was the Lead Implementing Agency (IA) for the HPMP Stage 1 preparation, while the World Bank, in close collaboration with GOI, developed the HCFC Phase-out in the Foam Sector Plan.

11. ODS consumption is defined by the MP as ODS production plus ODS import minus ODS export. As Indonesia does not produce any of the ODS substances, its HCFC consumption is calculated on the basis of the net import of HCFCs. Using 2007 to 2010 import data, which is based on information from different sources (Customs Office; Central Bureau of Statistics; mandatory reporting by registered importers to the Ministry of Trade; data from Ministry of Environment), the national HCFC consumption was established. The HCFC consumption data reported to the Ozone Secretariat of the MP (Article 7 data) is shown in Table 2 below. From 2007 to 2010, the overall growth in HCFC consumption in ODP terms was 14.73%, a significant growth mainly due to the overall economic growth.

Table 2: HCFC Consumption (Article 7 data) by type of HCFC

HCFCs 2007 2008 2009 2010MT*) ODP tons*) MT ODP tons MT ODP tons MT ODP tons

HCFC-22 3,094.0 170.2 3,668.4 201.8 4327.0 237.9 5396.8 296.8HCFC-141b

1007.5 110.8 874.2 127.7 1186.0 130.5 1225.2 134.8

HCFC-123 288.4 5.8 91.5 1.8 318.0 6.4 66.4 1.3HCFC-124 0.1 0 0 0 0.1 0 0.1 0HCFC-225 0.5 0 1.4 0 0.6 0 0 0Total (MT) 4,390.43 286.78 4635.45 331.3 5,831.73 374.82 6689.21 433.00*) MT indicates metric tons of ODS, ODP tons measures ODS in ODP equivalent tons.

12. The baseline level of HCFC consumption for Indonesia, based on the average of the reported HCFC import in 2009 and 2010 Article 7 data, is 403.91 ODP tons. As seen from Table 2, the consumption and control targets are the aggregate consumption for all HCFCs combined. Table 3 shows the HCFC phase-out schedule for Indonesia and the phase-out plan for Stage 1 of the HPMP.

Table 3: HCFC Phase-out Schedule for Indonesia (ODP tons)Year of

reductionAllowed level of HCFC

consumptionMP HCFC

consumption limit*)Allowed HCFC consumption as per ExCom agreement*)

Reported baseline (2009 and 2010 average) 403.912013 Freeze at baseline level 403.91 402.22015 90% of the baseline 363.52 362.02018 321.82020 65% of the baseline 262.54 Not decided2025 32.5 % of the baseline 131.27 Not decided2030 2.5% of the baseline 10.10 Not decided2040 No consumption of HCFCs 0 0

*) Note that the phase-out schedule agreed with ExCom was based on preliminary consumption data for 2010. This resulted in a difference between the MP HCFC consumption limits (column 3) and the allowed ODP consumption as per ExCom Agreement (column 4).

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13. Indonesia submitted its HPMP together with a request for funding for Stage 1 in 2011. Stage 1 of the HPMP will phase-out 134.97 ODP tons by 2015 in order to reduce HCFC consumption to 362.0 ODP tons (based on estimated HCFC consumption in 2012 of 496.97 ODP tons, see footnote in Table 7). During Stage 1, the majority of the planned reduction, namely 131.3 tons, will come from the manufacturing sub-sectors and only 3.67 tons from servicing sub-sectors.

B. Sector and Institutional Context

14. Indonesia’s continued economic growth and improved living standards has resulted in an increased demand for products containing HCFCs, such as refrigerators, air-conditioning and PU foam for insulation, at a time when the country sets out to reduce its consumption of HCFCs. Hence, the phase-out of HCFCs will be a challenge and will require introduction of alternatives to HCFCs and a strict control of imports of HCFCs.

15. The consumption of CFCs in Indonesia peaked in 1996 at the level of 9,012 ODP tons. The CFCs used in Indonesia were mainly CFC-11 and CFC-12. Both of these chemicals were widely used as refrigerants in refrigeration equipment and as blowing agents in the PU foam sectors. GOI completed its phase-out of CFC consumption by January 1, 2008.

16. The World Bank, as IA, assisted GOI in phasing out 6,892 ODP tons of CFCs in six ODS consuming sectors. The PU foam sector was the largest CFCs consuming sector, followed by the refrigeration sector and the fire protection sector (halons). Table 4 shows the number of participating enterprises and ODS consumption phased out with World Bank assistance as IA.2

Table 4: CFC and Halon Phased-out by Sectors

No. Sector No. of sub-project

No. of participating enterprises

Planned phase-out

(MT)%

Actuallyphased-out

(MT)%

1 Foam 28 180 3,591.70 50% 3,087.60 45%2 Refrigeration 14 920 1,527.67 21% 1,527.67 22%3 Halon 2 4 1,437 20% 1,654 24%4 Solvent 4 4 24 0.33% 22 0.32%5 Aerosol & MDI 4 34 546 8% 546 8%6 Tobacco 1 2 90 1% 54 1%7 TA 2 2 - -

TOTAL 55 1,146 7,217 100% 6,892 100%

17. The sectorial distribution of HCFC consumption is shown in Table 5. The Table gives a breakdown of consumption used for manufacturing and servicing of refrigeration equipment in sectors, i.e. refrigeration equipment manufacturing and servicing and PU foam production. The growth in the PU foam sector over the past years has been around 7%. The projected baseline for the HCFC consumption sectors are shown in Table 6.

2 The Technical Completion Report for Ozone Depleting Substance Phase-out (Trust Fund 021928)-IND, 20 December 2010, Ministry of Environment Indonesia.

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Table 5: Distribution by Sector of HCFCs Used in 2009 (MT and ODP tons)

HCFC using sector HCFC-22 HCFC-141b HCFC-123 HCFC-124 HFC-225 Total (ODP)

MANUFACTURINGAir conditioning 587.27 32.30

Refrigeration sector 165.09 413.00 54.51Foam sector 773.00 85.03Fire fighting 152.00 0.14 3.04

Solvent 0.58 0.01SERVICING

Refrigeration 3574.72 166.00 0 0 199.93Total (MT) 4,327.01 1,186.00 318.00 0.14 0.58 5,831.73

Total (ODP tons) 237.99 130.46 6.36 0 0.01 374.82

Table 6: Projected Baseline per Sector (ODP tons)Sector HCFC consumption Projected baseline

2009 2010 Manufacturing Servicing TotalAir-conditioning 168.96 196.16 34.90 147.66 182.56Refrigeration 114.46 137.18 55.61 70.21 125.82Firefighting 3.04 3.26 2.15 1.00 3.15Foams 85.03 96.19 90.61 0 90.61Solvent 0.03 0.01 0.02 0 0.02Total 371.52 432.80 183.29 218.87 402.16

18. Reduction for Stage 1 compliance: Baseline consumption data has been calculated for each sector based on 2009 and 2010 HCFC consumption data. Taking consumption growth into account, the HCFC consumption in 2012 is estimated to be 496.97 ODP tons. Table 7 shows the reduction target for each of the HCFC consuming sectors.

19. HCFC-141b is used in the PU foam manufacturing sector for insulation in refrigerators, thermo wares, buildings etc. and in integral skin and as insulation in the commercial refrigeration sector. As per the Article 7 data, the baseline consumption of HCFC-141b is 132.6 ODP tons (1205.6 MT) with 90.61 ODP tons (823.73 MT) used in the PU foam sector and 42.42 ODP tons (385.64 MT) used in the commercial refrigeration sector. The phase-out of HCFC-141b consumption for commercial refrigeration will be addressed through the Commercial Refrigeration Sector Plan.

20. As per ExCom agreement, Indonesia will reduce its HCFC-141b consumption in the PU foam sector to 90.61 ODP tons (823.73 MT) in 2013 and to 81.55 ODP tons (741.36 MT) from in 2015. Table 8 shows a comparison between the estimated baseline consumption until 2016 without any reduction efforts and the agreed phase-out targets.

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Table 7: Agreed ODP Consumption Reduction by 2015 as per HPMP (ODP tons)

Component IA

Sector baseline

consumption

Estimated consumption

in 2012

HCFC consumption reduction targets in 2015 per sector*)

HCFC-22

HCFC-141b Total

MANUFACTURINGAir conditioning sector UNDP 34.90 34.87 32.27 0 32.27

Refrigeration sector UNDP 54.51 54.51 9.08 45.43 54.51

Foam sector World Bank 80.21

101.520 34.12 34.12

Group project for four foam companies UNIDO 10.4 0 10.4 10.4

Fire Protection (HCFC-123) UNDP 3.15 3.15 0 0 0

Solvent (HCFC-225) UNDP 0.02 0.02 0 0 0Subtotal Manufacturing 183.29 194.07 41.35 89.95 131.3

SERVICINGServicing air

conditioners sector**)UNDP 147.66 172.08 0 0 0

Servicing commercial refrigeration sector**)

70.21 82.55 0 0 0

Fire protection 1.0TA for refrigerant

management Australia na na 3.67 0 3.67

Total 402.16 448.7***) 45.02 89.95 134.97*) The columns under “consumption reduction targets” show the 2015 targets agreed with ExCom.**) HCFC-22 service demand in the air conditioning and refrigeration sector is estimated to grow by 5% p.a. in 2011 and 2012.***) The total estimated HCFC consumption in 2012 is 496.97 ODP tons. The respective number reported in Table 7 (448.7) is based on an error in the HPMP related to the air conditioning and refrigeration sectors, but this does not affect the Project.

Table 8: Consumption of HCFC-141b in the PU Foam Sector: Baseline and Phase-out Targets (ODP tons)

PU foam sector Baseline 2012 2013 2014 2015 2016

HCFC-141b consumption*) 90.61 102 112 123 135 149With the proposed HCFC-141b phase-out plan 90.61 102 90.61 90.61 81.55 81.55

*) Calculated at an estimated business-as-usual growth rate of 10%.

21. Foam manufacturing companies in Indonesia using HCFC-141b can be divided into two main groups: rigid PU foam and integral skin foam. In 2009, 55 foam companies were producing rigid PU foam, 18 companies integral skin foam and three companies both rigid PU foam and integral skin foam. The majority of the PU foam companies are small to medium-size, with only 15 companies considered as larger HCFC-141b users. The sector can be divided into eight sub-sectors based on the use of the foam:

PU foam for insulation in appliances (domestic refrigerators and freezers), thermo wares, water heaters, sandwich panels, PU foam for insulation in refrigerated trucks, spray foam, block foam for insulation, and

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integral skin foams for the automotive and furniture industry.

22. Collection of HCFC consumption data for the foam sector was undertaken by the Technical Working Group mandated by the Ministry of Environment (MOE) and supported by review and analysis of data by a foam technical expert contracted by the World Bank on behalf of MOE. 23. Based on a review of over 100 foam companies identified, it was concluded that the most effective and sustainable way forward is to phase-out HCFC-141b by sub-sectors, selecting sub-sectors first where alternatives are known and available in Indonesia. The sub-sectors selected are insulation foam for refrigeration appliances (domestic refrigerators and freezers), insulation foam refrigerated trucks and integral skin foam.

24. As shown in Table 9, there are about 26 companies in these three sub-sectors eligible for MLF funding with a total consumption of 304.8 MT of HCFC-141b in 2009 (or 33.53 ODP tons)3 and an estimated consumption of 360 MT in 2012.

Table 9: Number of Foam Companies and Consumption by Sub-sectors (2008-12)

Sub-sectors Number of companies

2008 consumption

2009 consumption

Estimated consumption

in 2012Domestic refrigerators and freezers 5 168.7 164.5 194.3Refrigerated trucks 3 5.9 6.7 7.9Integral skin foam 18 83.6 133.6 157.8

Sum 26 258.2 304.8 360.0

25. Due to the limited funding available from the MLF and the fact that the conversion at most companies will only be partially funded, the MLF guidelines for funding of capital cost only were used to determine the funding level for participating companies as shown in Table 10.

Table 10: Proposed Funding for PU Foam Companies Based on their HCFC-141b Consumption

Annual HCFC-141b consumption

Number of companies

Aggregate HCFC-141b consumption

(MT)

Proposed technology

Maximum funding per

company

Total MLF funding

Average cost effectiveness

(US$/kg)Rigid foam

Integral skin

0-5 MT 5 10 29.206 HFC-245fa 35,000*) 525,000 17.985.01-10 MT 5 36.785 HFC-245fa 70,000*) 350,000 9.5110.01-20 MT 3 52.364 HFC-245fa 70,000*) 210,000 4.0120.01-50 MT 2 43.51 HC TBD 500,000 11.49>50.01 MT 1 115.055 HC TBD 700,000 6.08

*) Additional funding of US$10,000 to seven companies with 2 foaming units.

26. Rationale for Bank Involvement. Since 2004, World Bank support for Indonesia has moved towards supporting a country-led and owned policy agenda, consistent with Indonesia’s emerging status as a middle-income country. As per the 2009 to 2012 Country Partnership Strategy (CPS) for Indonesia, World Bank assistance is focused on five core areas: (i) private sector development, (ii) infrastructure, (iii) community development and social protection, (iv)

3 One MT of HCFC-141b is equivalent to 0.11 ODP tons.

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education, and (v) environmental sustainability and disaster mitigation. The CPS for 2013-2014 was discussed in December 2012, confirming the Bank Group’s role in sharing development solutions for an emerging Indonesia with a focus on private sector and sustainable development. The proposed Project falls within the area of private sector development and environmental sustainability; it also supports sustainable development through the strengthening of institutions and their technical and management capacity.

27. The Bank has been engaged in ODS phase-out activities in Indonesia since the early 1990s. The Bank served as Indonesia’s partner in the implementation of the earlier ODS program, eliminating an annual use of 6,892 ODS tons of CFCs and halons (Table 4). As both CFCs and halons are high GWP gases (Table 1), the use of alternatives with lower GWP resulted in an annual reduction equivalent to 43 million tons of CO2. For Indonesia, in particular the Bank’s assistance was strategically important and effective in bringing down the demand of CFC during the period 1995 to 2004 and to achieve a complete phase-out of ODS consumption by 2008, two years ahead of the MP requirements. The proposed Project is a continuation of the successful partnership with Indonesia on ozone protection.

C. Higher Level Objectives to which the Project Contributes

28. The Project will assist Indonesia to meets its obligations as a Party to the MP. In addition, the Project will benefit the global climate as the replacement of HCFCs by chemicals with lower GWP will lead to a permanent reduction in CO2 equivalent (CO2e) emissions of at least 290,267 tons by the end of 2015, if the Project is implemented as planned. The Project is consistent with the CPS by making non-ODS and low carbon technologies available to the PU foam industry through technology transfer. The Project will therefore improve the competitiveness of the foam industry and benefit it in both the domestic and export markets. The Project will contribute to institutional capacity building and enhance the management capacity of the institutions engaged in implementing the MP in Indonesia. The Project is consistent with Indonesia’s national policy as it focuses on industrialization and modernization to meet the overall objective of continued economic growth and sustainable development. II. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objective (PDO)

29. The Project Development Objective is to reduce the consumption of HCFC-141b in the foam sector in Indonesia in order to contribute to the government’s effort to comply with Indonesia’s HCFC phase-out obligations under the Montreal Protocol.

30. Indonesia’s MP obligation within the Project period is: (i) to return the consumption of HCFC to the average consumption level of 2009 and 2010 (baseline) in 2013 and (ii) to further reduce HCFC consumption to 90% of the baseline in 2015. These obligations are to be achieved through the reduction of consumption from all sub-sectors covered by the HPMP (i.e. not only the foam sector covered by the Project). The HCFC-141b reductions supported by this Project will be carried out in a manner that maximizes the climate co-benefits through the introduction of low GWP alternatives where possible.

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B. Project Beneficiaries

31. The Project will benefit Project participants and other stakeholders in the following ways:

- About 26 PU foam companies (direct beneficiaries) – through a financial incentive for the replacement of their HCFC-141b production technology.

- Polyol system houses and foam equipment suppliers – through introduction of zero ODP and lower carbon technologies.

- New foam companies entering the foam market – through availability of new foam production technologies in Indonesia.

- The Government of Indonesia – through financial and technical assistance to meet its obligation under the MP.

- The local community – through public awareness and information about the MP and the HCFC phase-out program.

- The global community – through preservation of the ozone layer and reduced emissions of GHGs.

C. PDO Level Results Indicators

32. The following results indicators have been established, which are further detailed in the Results Framework in Annex 1:

- Limit HCFC-141b imports for the PU foam sector to 90.61 ODP tons in 2013 and 2014. - Limit HCFC-141b imports for the PU foam sector to 81.55 ODP tons in 2015 and 2016.

III. PROJECT DESCRIPTION

33. Reduction of HCFC-141b consumption in the PU foam sector is part of Stage 1 of the Indonesian HPMP. The Project proposes a combination of policies, TA activities and financial incentives to the PU foam industry. The Project will lead to global environmental benefits while permitting the country to meet its development objectives of sustained economic growth and industrial modernization.

A. Project Components

Component 1: Investment in HCFC-141b Consumption Reductions in the PU Foam Sector (US$ 2,453,000)

34. The Project will provide investment support in the form of financial incentives to about 26 foam producing companies in the refrigeration appliances, refrigerated trucks and integral skin foam sub-sectors, to phase out at least 360 MT of HCFC-141b and introduce alternative, non-HCFC consuming production technologies. The investment support is planned to reduce demand for HCFC-141b sufficiently to support the government’s import quota policy and meet the Project’s phase-down results indicators in 2013 and 2015.

35. The three sub-sectors were selected by the HPMP to ensure Indonesia’s compliance with its MP obligations, while facilitating implementation and sustainability of phase-out and using the

16

MLF grant effectively and efficiently. The eligibility of these companies for MLF financial support was confirmed through a survey and will be reconfirmed before Foam Technology Replacement Agreements (FTRA) can be signed with them.

36. A financial incentive will be provided to each company based on their HCFC-141b consumption in 2009 and 2010 and the costs of the technical alternative selected. The funding can be used to modify existing or procure new foaming equipment and accessories including storage facilities and safety equipment, chemicals, training and technology fees. Three larger companies in the refrigeration appliance sub-sector plan to convert their foaming process to cyclo-pentane – a flammable hydrocarbon (HC) – and the remaining 23 companies plan to use a reduced HFC-245fa formulation as alternative foam blowing agent. It was confirmed that the main foam system houses in Indonesia can supply the new chemicals.

Component 2: Technical Assistance and Policy Support (US$ 133,200)

37. The Project will provide TA to help GOI develop and implement (i) policies preventing establishment of new and expansion of existing PU foam manufacturing facilities using HCFC-141b to ensure that HCFC consumption levels for each HCFC stay below the agreed consumption limits, and (ii) guidelines, policies and regulations to support the introduction of new technologies that replace the use of HCFC-141b, for instance safety standards for HC use in foam production, transport and storage of HC as a hazardous substance, and disposal of redundant equipment.

38. The Project will provide TA, including training and workshops for the benefit of selected foam producing companies, (i) to inform them about the objective of the Project and the implementation arrangements, including, inter alia, Project cycle steps, application criteria for financial incentives, Project supervision, commissioning and reporting requirements, and procurement, financial management and environmental and social safeguards provisions, as necessary; and (ii) to assist them with the preparation of conversion plans and proposals, equipment specifications, Project implementation and preparation of completion reports.

39. The Project will provide TA to support the Project Management Unit (PMU) in (i) evaluating alternative technologies, sub-project designs, review, supervision, verification and other technical activities and overall Project management, and (ii) in delivering awareness campaigns to target groups on the need to phase out HCFCs and on current and future regulatory measures, including training for government authorities to allow them to become more effective in controlling HCFC imports and in assisting foam companies with required safety audits and permitting procedures.

Component 3: Project Management (US$ 127,987)

40. The Project will support the establishment of a PMU, which will be fully responsible for the implementation of the Project, including Project management and monitoring and evaluation, and verification of implementation of the sub-projects under Component 1. The PMU will be responsible for the implementation of the HPMP in all sectors under Stage 1 regardless of the supporting IA. To maintain expertise, project management capacity and continuity, staff and experts who served the PMU for CFC phase-out will be assigned to this new unit.

17

41. The main tasks of the PMU with regard to the Project will be to:

- Promote awareness of the HCFC-141b phase-out policy and projects,- Review Foam Technology Replacement Proposals (FTRP) and funding requests,- Prepare FTRAs to be signed by MOE and each beneficiary,- Review requests for payment from beneficiaries and arrange disbursements,- Prepare Project implementation plans and progress reports,- Monitor sub-project implementation and results at company level,- Prepare reports on sub-project activities, and- Collect information on annual imports of HCFC-141b.

B. Project Financing

42. Lending Instrument. The Project will be supported through an MLF grant, for which a total of US$ 2,714,187 was approved by ExCom in April 2011 for Stage 1 of the HPMP.

43. Project Cost and Financing. Table 11 shows the Project costs by components. The total funding will be released by the MLF to the Bank in four tranches as per the Agreement between GOI and ExCom. The first tranche of US$1,500,000 was released to the World Bank upon approval by ExCom in 2011. In addition, participating foam enterprises will provide counterpart funding for expenditures exceeding the funding provided by the MLF. This counterpart funding is estimated at US$0.92 million.

Table 11: Total Project Cost (US$)

Project component Total Project cost

Counterparty funding Grant funding Grant funding

(%)

1 Investment in HCFC-141b consumption reduction 3,373,000 920,000 2,453,000 72.7

2 TA and policy support 133,200 0 133,200 1003 Project management 127,987 0 127,987 100

Total 3,634,187 920,000 2,714,187

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

44. The implementation of the proposed Project is inherently embedded in the organization and implementation of the overall HPMP. At the 64th ExCom Meeting in July 2011, GOI entered into an agreement with ExCom on the reduction in consumption of HCFCs with the structure shown in Figure 1. Accordingly, GOI has the overall responsibility for the management and implementation of the Agreement – and of the HPMP and all activities undertaken by it or on its behalf to fulfill its obligations, while UNDP functions as the Lead IA and UNIDO, the World Bank and the Government of Australia as Cooperating IAs.

45. UNDP as Lead IA is responsible for annual verification of HCFC consumption and co-ordination with the Cooperating IAs to ensure appropriate timing and sequencing of activities

18

and reporting to the MLF. The Cooperating IAs will assist GOI in the implementation and assessment of the activities funded by each Cooperating IA and report to the MLF through the Lead IA.

46. MOE will establish the PMU under the National Ozone Unit (NOU). The PMU will be tasked with the day-to-day management and implementation of the overall HPMP, including the Foam Sector Plan. The PMU will be similar to the one set up for the earlier CFC phase-out project. MOE will hire a Project Manager to lead the PMU. The Project will contribute the following staff to the PMU: (i) a Project Management Assistant, (ii) a Financial Management and Administrative Assistant, (iii) a foam sector Technical Consultant. Further details on the organization of the PMU are included in Annex 3, in the Project Implementation Plan and in the Project Operations Manual (POM).

Figure 1 – Organizational Structure of the HPMP for Indonesia

47. MOE will, through the PMU and the NOU, collaborate and coordinate with the Ministry of Industry, Ministry of Trade and Customs Bureau to implement the import quota system for HCFCs, review annual HCFC import license applications to ensure that licenses are provided only to registered importers, and establish and publish the annual import quotas for the period 2013 through 2015.

B. Results Monitoring and Reporting

48. Monitoring and reporting will be carried out on three levels: (i) compliance with the MP and ExCom agreement, (ii) implementation of the Foam Sector Plan, and (iii) results of sub-project activities. The World Bank will monitor the success of the Project using the Results Framework in Annex 1. More details on monitoring and reporting requirements are contained in the POM.

UNIDO, WB, Gov’t of Australia

(Cooperating Agencies)

Agreement

UNDP(Lead

Implementing Agency)

Tech Assistance

Foam

Foam

Refrigeration

A/C

Aust. Gov’t

UNDP

Government of Indonesiarepresented by

Ministry of EnvironmentExCom of the

Mulilateral Fund

UNIDO

WB

19

49. MOE, assisted by the PMU, will monitor and report on Indonesia’s compliance with the MP and the Agreement with ExCom. In particular the consumption of HCFC will be monitored, verified and reported to the Bank annually. The PMU will monitor Project implementation and prepare the following reports for submission to the World Bank:

- Tranche Implementation Reports and Plans provide an overview of all Project activities carried out in the reporting period and include the subsequent tranche implementation plan. These reports and plans will be aggregated for all HPMP sub-sectors and submitted by UNDP as Lead IA to ExCom.

- Financial Reports. Interim financial reports will be prepared semi-annually. The Project’s annual financial statements will be prepared and independently audited and submitted to the Bank along with an audit report.

- Sub-Project Verification Reports will record that the PMU has verified implemen-tation and completion of each sub-project in compliance with the FTRA signed by each participating foam company.

- Progress Reports will be prepared semi-annually to track the implementation of the Project and the achievement of Project results milestones.

- A Project Completion Report will be prepared to account for the use of the MLF grant and draw lessons from the Project’s implementation.

50. Project beneficiaries will monitor the implementation of their sub-projects and (i) document and report to the PMU on achieved milestones as a prerequisite for the release of incentive payments, and (ii) prepare a Sub-project Completion Report in the format required by MLF for project completion reports to confirm the successful execution of each sub-project.

C. Sustainability

51. The Government of Indonesia is obligated, as a Party to the MP, to meet HCFC phase-out obligations starting in 2013. This and the following design features of the HPMP and the chosen sector phase-out strategy will ensure that any resurgence of HCFC use in the foam sector after completion of the Project will be highly unlikely.

(i) Through policies and regulations GOI will establish an import quota and licensing system for HCFC – similar to the one established for the phase-out of CFCs – to ensure that imports of HCFC-141b will stay within the limits given by the MP and agreed with ExCom. In addition, Indonesia will, through its environmental regulatory system, prevent the use of HCFC in new companies entering the market.

(ii) The sectoral phase-out strategy allows GOI to address all enterprises in the targeted sub-sectors at the same time, thereby preventing unfair competition between companies serving the same market segment. This will avoid competitive pressures that could otherwise build up, undermine the phase-out effort, and lead to a resurgence of HCFC use and (illegal) HCFC imports.

52. The sectoral approach will also (i) facilitate carrying out TA activities for beneficiaries, government agencies and other stakeholders at the sector level, (ii) help establish verifiable

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HCFC phase-out performance indicators and targets, (iii) provide opportunities to promote and introduce zero-ODP and a low-GWP alternative technologies in a large number of companies, and (iv) allow to introduce an Environmental Management Framework (EMF) with occupational health and safety requirements for the entire sub-sector requiring certain companies (that switching to HC) to prepare an Environmental Management Plan (EMP) that will avoid or minimizes any potential environmental and health/safety risks.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Table 12: Risk SummaryRisk Description Risk Rating

Stakeholder Risks ModerateImplementing Agency Risks

Capacity Moderate Governance Low

Project Risks Design Moderate Social and Environment Moderate Program and Donor Low Delivery Monitoring and Sustainability Moderate

Overall Implementation Risks Moderate

B. Overall Risk Rating Explanation

53. As indicated in Table 12 and detailed in the Operational Risk Assessment Framework (ORAF) in Annex 4, the overall implementation risk of the Project is rated “Moderate”. Contributing to this rating is the relative safety of HC and HFC-245fa technology in foam blowing applications and the experience of the NOU with the earlier CFC phase-out project, which this Project emulates and which are further mitigated by Project design and implementation arrangements. But residual risks nevertheless remain related to the technical handling of flammable HCs and the availability of low-cost alternative blowing agents in Indonesia, which could lead to slow Project implementation.

54. The earlier identified risk related to the financial capacity of small foam producing companies in Indonesia to co-finance the Project has been addressed through a higher cost effectiveness for funding of the conversion measures for small companies and the above mentioned regulatory measures. And foam system houses and polyol suppliers have indicated that they will be able to deliver the needed chemicals; however, the PMU will follow the availability of alternatives closely and, if needed, will support chemical suppliers with TA.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analyses

55. An economic analysis captures the Project’s impact on the entire economy, which, in this case, would include, besides the foam sector, other sectors, consumers, and the government. The Indonesian and global society as a whole will benefit from reduced health risks due to lower

21

ozone layer depletion and use of chemicals with lower climate impact. In the absence of data on ozone depletion and climate change impacts on direct health and other aspects of life in Indonesia, it is impossible to carry out a quantitative analysis of these aspects; however, it is expected that these impacts will be positive.

56. A financial analysis was carried out to assess the financial impact of the proposed Project on the Indonesian PU foam industry. The financial analysis estimated the net incremental costs in terms of investments in foaming equipment based on the selected foaming technologies. The analysis also estimated the additional cost of raw materials for foam production, especially the higher cost of HFCs compared to HCFC-141b. The analysis was carried out by comparing the cost with and without the Project over a 20 year time frame.

57. Cyclo-pentane, HFC-245fa and water-based foaming technologies are well established and investment and operating costs associated with these technologies are well known from a large number of projects. The experience from the earlier CFC phase-out suggests that prices of alternative technologies will go down over time. This is especially the case for HFCs that are relatively new to developing countries and presently more costly than HCFC-141b as HFC producers are recovering their investments. Since HFC patents are expiring, new HFC producers are likely to enter the market, resulting in lower prices. As example, when HCFC-141b was introduced in Article 5 countries, prices initially ranged from US$5 to US$8, but dropped to US$2.5 to US$4 in the following year. It is expected that HFC-245fa prices will drop in a similar way with the phase-out of HCFC-141b.

58. The Net Present Value (NPV) of the net incremental cost is about US$4.39 million higher with the Project compared to a scenario without the Project, taking into account the financial support provided by the MLF. This result is driven mainly by investments in plant modifications needed for storage and use of cyclo-pentane, storage for HFC-245fa and the higher cost of HFC-245fa supply over the analysis period of 20 years. The net impact will be smaller if the cost of HFC-245fa decreases as a result of increased global supply of HFC-245fa and decreasing supply of HCFC-141b. A drop of 33% in the price of HFCs over the coming years would reduce the net incremental costs of the Project to close to zero. In addition, foam producers can be expected to pass their net incremental costs on to their customers through increased prices for foam products. The net incremental cost can be regarded as the co-financing that Indonesia provides for achieving benefits associated with HCFC phase-out.

Table 13: Incremental Investment Cost by Cost Item

Cost items Blowing agent Estimated Cost*) (US$/kg HCFC-141b)

HFC-245fa storage and retrofitting of foaming equipment

HFC-245fa 10

HC storage, premix and foaming equipment HC 8HC safety cost HC 4

*) The HFC-245fa cost effectiveness is based on average consumption by companies of 2,500 kg/year. The HC cost effectiveness is based on average consumption by companies of 25,000 kg/year.

59. Table 13 shows the incremental cost for conversion to HFC-245fa and HC technologies. The costs for HFC-245fa use include: storage room, retrofitting of foaming units, technology

22

transfer and training. For HC use, the additional costs include: replacement of foaming equipment and safety measures. The Table also lists the associated cost effectiveness indicator defined as the incremental cost per kg of consumption of blowing agent (US$/kg). It should be noted that the introduction of HC technology requires substantial initial investments, but that the per unit cost decreases quickly with increasing production volumes, making this technology attractive for the larger producers compared to HFC-245fa, which is preferred by small volume foam producers despite the significantly higher cost of the blowing agent.

60. Table 14 summarizes the financial impact of the Project based on a net present value analysis for the 26 foam enterprises over a 20-year time horizon. The main impact is associated with the higher annual foam production cost with HFC-245fa compared to HCFC-141b and the upfront investments for companies converting to cyclo-pentane. In contrast, the US$0.92 million co-financing by the beneficiaries only takes into account the investment needed for conversion measures and one year of incremental operating costs for foam production, while the financial impact takes into account the investments and the foam production cost over 20 year.

Table 14: Financial Impact of the Project

Scenario NPV (US$)NPV without HCFC Phase-out 11,906,263NPV with HCFC phase-out 19,008,003Impact of Project without MP support, NPV 7,101,740MLF support 2,714,187Impact of Project with MP support, NPV 4,387,553

B. Technical Analysis

61. The technical options for HCFC replacement in foam production were reviewed and have been confirmed by the reports of the Foams Technical Options Committee at UNEP. The main HCFC replacements cited are HCs, HFCs, and CO2 (water-blown). The use of HCFC-141b in foam production has been phased out completely in non-Article 5 countries (developed countries). Below are the technical options:

(i) Cyclo-pentane. The main alternative foam-blowing agent for PU rigid foams are HCs, principally cyclo-pentanes. Technologies have been well established to accommodate the flammability of cyclo-pentanes and to allow their safe use. However, this results in a significant cost burden for enterprises, which must incorporate a series of safety measures in their production facilities.

(ii) HFC-245fa and HFC-365mfc (HFC-365mfc mixed with HFC-227ea to eliminate flammability of HFC-365mfc) have been developed to replace HCFC-141b in PU rigid insulating foams. The requirement was to develop a non-flammable “liquid” blowing agent. These HFCs are being used and the technology around them is being optimized. There is comparatively little use of HFC-134a in PU insulating foams, but it is widely used in XPS foams. However, all these alternatives have a relatively high GWP.

(iii) CO2 (water) has often been cited as an alternative to HCFCs (and CFCs in the past), but the foams based on this option have significantly reduced insulating properties. For

23

applications where insulation properties are not critical, the use of CO2 (water) as a co-blowing agent with fluorocarbons is a viable route to reduce cost and improve flow, as well as for reducing the GWP impact.

62. For integral skin-based components, the end-product manufacturers (automobile and furniture producers) normally set the requirements for the foams in their products. Some of these requirements specify the use of zero-ODS and low-GWP technologies such as CO2 (water). In addition, HFC-134a is also used for some applications due to specific requirements. For both of these technologies, an in-mold coating is often used to improved skin properties. For large production volumes and particularly for parts for heavy-duty applications such as trucks, HC technology is used to give a more robust skin. HFC-245fa is available but not widely used among foam manufacturers, and the price is still much higher than HCFC-141b. HFC-245fa is considered favorable compared to HFC-134a as it has lower GWP, lower cost, and a higher boiling point. The higher boiling point makes it also easier to blend HFC-245fa with polyol.

63. Several new blowing agents (Methyl Formate, Methylal, HFO-1234ze, HBA-2, FEA-1100, AFA-LI) are emerging and their evaluation is in progress. These evaluations include foaming and flammability characteristics, foam properties, toxicological properties (in some cases) and commercial costs and availability. Their ultimate use can only be recommended following satisfactory results in these evaluations.

64. In conclusion, the Project anticipates that larger HCFC-141b consuming enterprises will adopt the HC technology, except in the manufacturing of integral skin, where water blown (CO2) systems are the most cost-effective conversion method, which also yield maximum climate benefits. Smaller foam producers are expected to switch to HFC245fa as alternative technology, which has cost advantages for lower production volumes due to much lower conversion costs. The availability of HC and HFC technologies in the Indonesian market has been confirmed through meetings with the main polyol system houses in Indonesia.

C. Financial Management

65. A Financial Management (FM) Assessment has been carried out to determine whether the FM system of MOE has the capacity to produce timely, relevant and reliable financial information on Project activities and whether the accounting systems for Project expenditures and underlying internal controls are adequate to meet fiduciary requirements and allow the Bank to monitor compliance with agreed implementation procedures and progress towards Project objectives. Overall, the Project’s FM risk is assessed as being “Moderate”. The assessment noted that MOE is experienced in managing World Bank-funded projects. Project management is centralized in the NOU, which will simplify the day-to-day management of the Project.

(i) The main FM risk noted by the assessment is related to technical verification prior to payments to Project beneficiaries. Several measures will be taken to minimize this risk. A POM has been developed providing guidance on the technical verification to be carried out prior to the disbursement of the incentive payment to beneficiaries. The POM must be approved by the Bank before disbursement of any incentive payments.

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(ii) Interim Financial Reports will be requested on a semi-annual basis to facilitate monitoring. The Project’s financial report will be subject to a financial audit by an auditor accepted by the Bank.

(iii) A Designated Account (DA) in US dollars will be opened in the Bank of Indonesia (central bank) under the name of Ministry of Finance (MOF) with a ceiling specified in the World Bank grant disbursement letter. The DA will be solely used to finance eligible Project expenditures. Payment processing from the DA will follow the government system.

D. Procurement

66. Procurement under the Project will be carried out in accordance with the Bank’s Procurement Guidelines and Consultant Guidelines, January 2011.

67. Under Project Component 1, any procurement for the HCFC conversion investments will be carried out by the participating foam companies in accordance with established private sector methods or commercial practices as per paragraph 3.13 of the Bank’s Procurement Guidelines. The procurement risk inherent in this arrangement is considered minimal, because only a part of the total investment cost will be reimbursed from the grant proceeds while the remaining cost will be borne by the private foam companies, a fixed amount based on HCFC consumption rates will be pre-established and included in the FTRA with recipient companies, and payments will only be made after verification of compliance with pre-established performance targets and other contractual requirements. This financing arrangement inherently takes into account the need of the private foam companies to give due attention to economy and efficiency in their procurement processes while following established private sector methods or commercial practices.

68. Procurement under Project Component 2 and 3 will comprise small value office equipment and consultant services for which individual consultants will be hired. This procurement will be carried out by the PMU following simple procurement methods such as Shopping and comparison of CVs of at least three qualified candidates. The procurement risks associated with the administration of the grant funds is consider low, since the Project is not procurement intensive, and the PMU will draw on the experience with World Bank procurement procedures that already exists in the NOU.

E. Social (including safeguards)

69. The Project will have positive social benefits as it will reduce the negative health impacts associated with the destruction of the ozone layer and climate change. During Project preparation it was confirmed that none of the targeted foam enterprises will have to close down and relocate their production facilities as a consequence of or concomitant with the implementation of the Project. The Project does therefore not involve any resettlement or land-use issues and the related safeguard policies are not triggered. Consequently, the inclusion in the Project of any company that plans to relocate its foam production to a new site requires special approval by the World Bank. Of the identified 26 companies, the three converting to cyclo-pentane are situated in industrial areas and can implement their technology conversion projects at their current

25

locations. For the remaining companies, there is no health or safety issue associated with the conversion from HCFC-141b to the use of HFC-245fa as foam blowing agent.

F. Environment (including safeguards)

70. The Project will have a positive impact on the global environment by reducing the use of HCFC-141b, which is both an ODS with an ODP of 0.11 and a GHG with a global warming potential of 780. HFC-245fa, too, has an impact on the global environment due to its GWP, but it has no adverse local impacts as these chemicals are stable and not considered toxic or otherwise dangerous for people’s health and the environment.

71. The Project will have multiple sub-projects; and the details of the situation and plans of each company for their conversion to alternative foam blowing technologies are not known at the time of appraisal. An EMF was therefore prepared by MOE and locally disclosed on 27 March 2013. The EMF provides guidance for both beneficiary enterprises and for MOE and the PMU on the environmental management process to be followed in evaluating individual sub-projects applying for funding. The EMF defines content, procedures and institutional responsibilities for environmental management of the technology conversion sub-projects in each participating company and ensures compliance with Indonesian Environmental and Safety Laws and Regulations as well as with the World Bank’s Environmental Assessment policies and guidelines as specified in OP/BP 4.01.

72. The EMF requires of each participating foam enterprise converting to HC technology to prepare an EMP, which addresses site-specific impacts, flammability and explosion risks as well as occupational health and safety risks related to the use of HCs as foam blowing agents. The companies converting to HFCs will not need to prepare EMPs, because there is no environmental or safety issue related to the use of HFC-245fa instead of HCFC-141b. But these companies will have to update their Standard Operating Procedures, which will be verified by the PMU.

73. Project participants converting to HC must submit the EMP as part of their sub-project proposal. The PMU will assess conformance of the EMP with the EMF’s requirements and ensure that the EMP is acceptable to the Bank; after approval by the Bank, the EMP becomes a part of the sub-grant agreement, compliance with which will be verified by the PMU.

74. The EMP must introduce appropriate OHS measures as well as emergency preparedness and response measures for: (i) spill prevention, control, and countermeasures, (ii) prevention of direct contact with and inhalation of MDI vapors (which can cause irritation), and (iii) fire protection and countermeasures. In addition, the EMP must contain provisions for: (i) training of enterprises’ managers and operational staff on environmental, health and safety requirements during the conversion process and in the handling of HC (cyclo-pentane) in the foam production process, and (ii) require at least one safety inspection and audit before the start-up of normal foam production using cyclo-pentane.

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ANNEX 1: RESULTS FRAMEWORK AND MONITORING

The Project Development Objective is to reduce the consumption of HCFC-141b in the foam sector in Indonesia in order to contribute to the government’s effort to comply with Indonesia’s HCFC phase-out obligations under the Montreal Protocol.

PDO Level Results Indicators* C

ore Unit of

Measure Baseline

Cumulative Target Values** Reporting

FrequencyData Source/Methodology

Responsibility for Data

Collection

Description (indicator definition etc.)YR 1

(2013)YR 2(2014)

YR 3(2015)

2013 and 2015 targets for imports of HCFC-141b met

ODP tons 90.61 90.61 90.61 81.55 Annual

Customs records of HCFC-141b imports

PMU

The indicator measures HCFC-141b consumption (defined as imports) in ODP tons. The baseline is the historic average of 2009-2010.

Avoided CO2e emissions as a result of the conversion to low GWP technology for the PU foam sector

tCO2e 0 290,000 OnceProduction records of participating enterprises

PMU

The indicator measures net avoided CO2-equivalent emissions based on the quantity of alternative foam blowing agents used in lieu of HCFC-141b due to the Project and their respective global warming potential (GWP).

INTERMEDIATE RESULTS

Component 1: HCFC-141b phase-outAgreements with beneficiaries signed # 0 12 23 26 Annual PMU progress

reports PMU Number of signed agreements

Component 2: Policies/regulations and TAIssuance of annual import quota Yes/No No Yes Yes Yes Annual PMU progress

reports PMU Quota issued (yes) or not issued (no)

TA activities # 0 4 10 15 Annual PMU progress reports PMU Number of technical workshops,

training events and awareness activities

Component 3: Project management

Compliance with reporting requirements % 0 100 100 100 Annual PMU progress

reports PMUCompliance measured as number of delivered reports over number of required reports times 100

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ANNEX 2: DETAILED PROJECT DESCRIPTION

1. The objective of the Project is to assist GOI with the implementation of the HPMP in the foam sector, thereby contributing to the government’s endeavor to comply with Indonesia’s MP obligations. The Project plans to achieve this through an MLF grant. The grant will finance part of the cost of converting the production technology in about 26 foam producing companies, which will replace HCFC-141b in foam blowing with cyclo-pentane or HFC245fa as blowing agent (Component 1). In addition, the Project will assist GOI with formulation and implementation of supporting policies and regulations and provide TA to foam blowing enterprises, government agencies and other stakeholders (Component 2). The Project will also finance Project management costs (Component 3).

2. The HPMP in the foam sector will be implemented in two stages. For Stage 1 (2013-15) ExCom has made available US$2.71 million in MLF funding. Funding for Stage 2 (2016-20) is expected to be decided in 2014/15 and would be used to support the technology conversion of additional companies in the foam sector. The proposed Project is currently limited to Stage 1 but is expected to be extended through “additional financing” to include funding for Stage 2 as early as 2015. Consequently, the Project design, its components and implementation arrangements have been set up in a manner suitable for seamless continuation after 2015, which is the current end date for the proposed Project.

Component 1: Investment in HCFC-141b Consumption Reductions in the PU Foam Sector (US$ 2,453,000)

Phase-out Strategy

3. The HCFC Foam Sector Plan that was prepared for MLF approval identified around 73 PU foam companies using HCFC-141b in Indonesia with a total consumption of 874 MT in 2010. HCFC-141b is imported in bulk by some of the larger foam producing companies and by polyol suppliers. The polyol suppliers have in-house capacity for polyol formulations with HCFC-141b and most of the foam companies in Indonesia are buying pre-blended polyols.

4. Of these 73 companies, 26 were identified as potential participants in Stage 1. All 26 were established before September 2007, are 100% Indonesian owned and sell their products mainly in the domestic market. 18 of the 26 companies received assistance from the MLF for CFC-11 phase-out and converted to HCFC-141b. Eight of these companies with a combined 2009 consumption of 157.8 MT produce rigid foam for domestic refrigerators, freezers and refrigerated transportation and 18 companies with a combined 2009 consumption of 100 MT produce integral skin for furniture and the automotive sectors. Of the 257.8 MT, 149.6 MT of HCFC-141b will be replaced by HC and 108.2 MT by HFC-245fa / water formulations.

5. The methodology for the survey of HCFC-141b consumption in the foam sector applied a top-down and a bottom-up approach. The data collected through the bottom-up approach was eventually used as the primary source of information.

(i) The top-down survey collected HCFC-141b import data from the Customs Office, the Ministry of Trade, the National Statistics Report, and from polyol suppliers importing

28

HCFC-141b. The data was collected from 2006-08 and was verified against the reported Article 7 Data.

(ii) The bottom-up survey was conducted by obtaining HCFC-141b data directly from PU foam manufacturers. A survey list of 100 companies in rigid and integral skin foam production was prepared and resulted in the collection of production data and production baseline information from 70 foam companies. The information was collected through workshops with PU foam enterprises and through a survey questionnaire. The collected data was then corroborated through on-site visits.

6. The survey revealed that there was no substantial increase in the number of PU foam producing companies in the last decade and up to the completion of the CFC phase-out in early 2009. The majority of the foam manufacturing companies are located in DKI Jaya, West Java and East Java. Table 15 shows the location of the 26 companies and their HCFC-141b consumption in 2006-08.

Table 15: HCFC-141b Consumption Trends in PU Foam Companies by Province

Province Number of companies

HCFC 141B consumption record Average 2006-08 2006 2007 2008

DKI Jaya 13 78,360 72,892 88,685 6,822Banten 6 38,579 52,923 62,470 10,412West Java 24 202,817 339,023 317,378 13,224Central Java 7 25,188 30,271 26,394 3,771East Java 19 59,965 77,785 94,983 4,999Sumatra 2 4,354 5,159 5,301 1,325

Other provinces 2 Not available

Not available

Not available

Not available

TOTAL 73 409,263 578,053 595,211 40,553

Incremental Cost and Grant Funding

7. MLF approved funding of US$2,453,000 will be made available to eligible foam enterprises in the three sub-sectors to partially finance their conversion investments. The foam sub-sectors and the participating enterprises have been identified to ensure that HCFC phase-out in their production facilities will meet the 2015 reduction target for the foam sector. The Stage 1 strategy for the foam sector is planned to reduce HCFC-141b consumption by 360 MT annually with an average cost effectiveness of US$ 6.99/kg. The Project will aim to first convert those companies that consume larger amounts of HCFC-141b: at least six foam enterprises with annual consumption exceeding 10 MT HCFC-141b and using 60% of the sector-wide consumption will be offered to sign phase-out agreements in 2013; the remaining companies are expected to sign agreements in 2014.

8. MLF funding was approved to support the adoption of HC (cyclo-pentane) technology in three large companies, which produce rigid foam (manufacturing refrigeration appliances). The remaining 23 companies with annual HCFC-141b consumption of less than 20 MT plan to convert to a reduced HFC-245fa formulation technology. Experience gained during the earlier

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CFC phase-out in the foam sector suggests that it will take 24 to 36 months to complete HC conversion projects and 12 month for HFC-245fa conversion projects. Therefore, grant funds will be committed to all conversion projects in 2013 and 2014 in order to ensure physical completion of all conversions by 2015.

9. The selection of alternative technologies takes into account production capacity and – for HC technology – physical location to satisfy the safety requirements. It also takes into account the availability of blowing agents in the Indonesian market at a reasonable cost and the potential climate impact of the alternatives. The two alternatives considered – cyclo-pentane and HFC-245fa – are mature and well proven technologies, which are available in Indonesia at a price that makes the PU foam production cost equal to that of HCFC-141b-blown foam.

10. While the investment cost of converting production lines to HFC-245fa technology is low, the higher cost of HFC-245fa will result in higher operating and foam production costs compared to HCFC-141b. The calculation of the incremental cost of conversion is based on those two technologies. The proposed funding level as shown in Table 10 is based on estimated capital cost, level of HCFC-141b consumption and available MLF funds. Table 16 shows the incremental cost of conversion to HC technology, which has been calculated consistent with the incremental cost guidelines of the MLF.

Table 16: HC Conversion Cost (in 1000 US$)Consumption (MT HCFC-141b, annual): > 50 MT ≥ 25-49 MT ≥ 15-24 MT

Cost items HC with storage tank

HC supplied in drums

HC pre-blended in drums

HC storage facility, pumps, piping to transfer HC from storage to pre-mixing unit 70 – 90 5

(storage room)5

(storage room)HC pre-mixing unit 100 – 120 80 – 100 0Room for pre-mixer and storage of HC drums 0 15 15Replacement / retrofitting of foaming equipment, conveyors, jigs etc.

50/units(2 or more)

50/unit(1-2 units)

50/unit(1-2 units)

Firefighting equipment, HC detection, grounding of production equipment, electrical installations meeting explosion area classification, ventilation

100 – 120 60 – 90 60 – 90

Technical transfer assistance and fees, trial production, staff training, safety certification 40 – 50 30 20

Safety audit 10 10 5Total ≥ 420 250 - 350 155 - 235

US$ / MT*) 9.8 11.6 9.7*) The average cost (US$/MT) is derived from the minimum conversion cost.

11. Table 17 shows the incremental costs of converting to HFC-245fa, the handling of which is in principle similar to HCFC-141b except for its lower boiling point, which requires cold storage at 20-25oC. In addition, low pressure foaming equipment may have to be replaced depending on the products produced, product quality and performance requirements. Only minor adjustments and retrofits may be needed for high pressure equipment. It should be noted that most companies converting to HCF-245fa operate only one foaming unit.

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Table 17: HFC-245fa Conversion Cost (in 1000 US$)

Cost items Low pressure equipment

High pressure equipment

Storage tank for HFC-245fa pre-blended with polyols, pre-mixer, cooling equipment, transfer pumps 15 – 25 20 – 25

Retrofitting of foaming equipment (no hand mixing possible)*) 10 – 15/unit 10 – 20/unitTechnology transfer and fee, trial production, training 10 – 25 15 – 30

Total 35 – 65 45 – 75*) The cost for new foaming equipment is in the order of $60-120k depending on the type of the foaming unit and its capacity.

12. The funding provided to each company will be based on their HCFC-141b consumption, foaming equipment currently in use in the company and the technical alternative selected. The funding can be used by beneficiary companies to cover the cost of modifying existing foaming equipment and/or procuring new foaming equipment and related accessories, retrofit molds and fixtures, safety equipment, chemicals for trial production, training and technology transfer fees.

Project Cycle Steps

13. The project cycle for foam enterprises consists of the following steps:

(i) Proposal: Foam companies seeking support must submit a FTRP and funding request to MOE. Companies converting to cyclo-pentane must submit an EMP for approval. Companies converting to HFC245fa do no need an EMP.

(ii) Approval: The foam sector Project Management Assistant (PMA), with assistance from the Technical Consultant, will appraise the FTRPs, may request revisions and/or inform the applicant of the final approval.

(iii) Contract: The PMU will prepare a FTRA, which is a performance contract that will include the approved FTRP and the EMP (if needed) and stipulate other obligations of the beneficiary company. The FTRA will set the pre-determined funding level for each foam company and provide details on payment conditions and schedules.

(iv) Implementation: Each foam company will proceed with the technology conversion sub-project promptly after the FTRA is signed and in compliance with approved plans and schedules. Companies will report on implementation progress, which will also be monitored and supervised by the PMU.

(v) Verification: The PMU will verify the completion of each sub-project, which will comprise: (i) commissioning of new foam production lines, (ii) environmental and safety measures and permits, (iii) production start-up using the HCFC-free technology, and (iv) disposal of obsolete foaming equipment. The foam company must produce for inspection all required documents and permits and their Standard Operating Procedures for the new foaming technology.

(vi) Payments: Companies receiving US$100,000 or less may submit a payment request after start of production with the non-HCFC technology. The PMU will review the request and verify that, consistent with the FTRA: (i) the new non-HCFC-based foam production equipment has been installed and commissioned, and (ii) the old redundant

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equipment has been disposed of as required. Companies receiving US$100,000 or more may request a portion of the payment after milestones defined in the POM and the FTRA with each company have been reached. In both cases, the final payment will only be made after verification that the production has been converted to non-HCFC use. All payments will be made as stipulated in the FTRA.

Component 2: Technical Assistance and Policy Support (US$ 133,200)

Policy Support

14. Especially smaller foam companies face challenges that may limit their willingness to phase out HCFC-141b despite the financial support. The reasons are: lack of low-cost alternative technologies, limited capital resources, and the higher production cost after conversion. Even though they will receive financial assistance, many enterprises may still be reluctant to phase out HCFC-141b, because they prefer the existing technology and are averse to the uncertainties and perceived disadvantages of converting their production to another blowing agent and process with potentially higher operating costs, lower product quality, safety and health concerns.

15. To overcome company reluctance and inertia, GOI will establish a policy structure that will bolster the effectiveness of MLF funding and ensure timely phase-out of HCFCs. The key policy entry point is the supply side (control and monitoring of imports of HCFCs); but to be effective, a reduced supply must be matched by policies that discourage demand for HCFC. In addition, the policy must be balanced with Indonesia’s development priorities (of fostering growth and pre-empting economic disruptions). Therefore, the phase-out policy must: (1) ensure that the consumption of HCFCs is reduced as scheduled, (2) provide incentives for enterprises to adopt alternative technologies, (3) encourage the propagation of low cost, technically suitable alternatives to HCFCs, and (4) ensure that growth and competitiveness are not unduly affected by meeting the phase-out targets.

16. To this end, MOE, in collaboration with the Ministry of Industry, the Ministry of Trade and the Custom Bureau, will operate a Licensing and Quota System to regulate the import of HCFC-141b and ban its use in new production facilities. Under the regulation, an annual HCFC quota will be issued from 2013 to 2019, which will allow Indonesia to respect the 2013 and 2015 limits. Table 18 summarizes the policies and regulations that will be issued.

Table 18: Policies and Regulations to be issued from 2011 to 2015

Type Policy Year of issuance

Estimated date of effectiveness

Import control

Issue quotas for annual imports of HCFC-141b based on the share of the average imports during the past three years.

2013 and onwards 1 January 2013

Consumption control

Ban on new foam production facilities using HCFC-141b and premixed HCFC-141b polyol. 2013 1 June 2013

17. The Project will support the government’s policy and regulatory activities through analysis, coordination, data collection, facilitation of decision making and capacity building for central and local government entities. In particular, the PMU will facilitate decision making on the

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annual import quota of HCFC-141b and related enforcement measures and inform central government officers, local officials and safety authorities on the issues arising from the use of cyclo-pentane in foam production facilities.

Technical Assistance

18. The Project will provide TA to foam companies and other stakeholders as needed through workshops, technical training, information material, site visits and direct consultations where necessary.4 For this purpose, the Project will hire a foam sector Technical Consultant, who will contribute to the following activities.

(i) Workshops and training events will inform foam enterprises of the objectives of the HPMP and the implementation arrangements for Stage 1 of the foam sector plan. Participants will be briefed on the Project cycle steps, application formalities, implementation arrangements and schedules, Project supervision, commissioning and reporting requirements. The training may also cover procurement, FM and environ-mental safeguard provision, where and if needed.

(ii) Technical consultant services will be provided to foam companies to assist them with preparation of conversion plans and proposals, help with equipment specifications, provide technical support throughout the Project implementation period, and help companies prepare completion reports. In addition, the Technical Consultant will support the PMU in evaluating alternative technologies and Project designs and assist with Project review, supervision, verification and other technical activities.

19. Since the availability in Indonesia of cyclo-pentane and HFC-245fa at acceptable cost is critical for the success of the conversion process, it was confirmed during Project preparation that the international polyol system houses present in Indonesia will be able to supply the necessary chemicals. If needed, local system houses can be supported through Component 2, but there is no need to provide funding to them.

20. The Project will provide information to national and local government officials in order to ensure effective control of the import of HCFCs and products containing HCFCs. Training may be conducted to allow local authorities to become more effective in assisting foam companies with required safety audits and permitting procedures.

21. The PMU will commission the development of guidelines on the safe handling of cyclo-pentane in foam production with the aim to (i) help stakeholders and government agencies to better understand the safety issues and required safety measures and (ii) work towards the development of standardized safety procedures for foam production.

22. The Project plans to support the transfer of knowledge and practical experience with cylo-pentane use in the foam producing industries. For this purpose, an international study tour will be organized, which will allow MOE and PMU staff, foam producers, representatives of

4 It should be noted that many foam companies are already well prepared to phase out their HCFC-141b consumption, since many were involved in the earlier CFC phase-out project and because discussions with them on HCFC phase-out have been ongoing through the Foam Sector Technical Working Group and through the surveys conducted as part of Project preparation.

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relevant government agencies and national technical experts to learn about new foam production technologies (in particular cyclo-pentane) that are being developed or employed in other countries. In addition, the study tour will allow Indonesia to share experience from its phase-out activities and achievements with other developing countries.

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ANNEX 3: IMPLEMENTATION ARRANGEMENTS

1. The proposed Project will be financed by a MLF grant. The terms and conditions for the use of the grant along with specific performance targets, i.e. reductions of HCFC-141b consumption in the PU foam sector, are contained in the agreement between ExCom and Indonesia.

Institutional Arrangements

2. MOF is the designated focal point for World Bank projects in Indonesia. All grant agreements between Indonesia and the World Bank are signed by MOF on behalf of Indonesia.

3. MOE is the executing agency for the implementation of the MP. It is also in charge of development and implementation of national environmental policies and regulations. The Assistant Deputy Minister for Mitigation and Atmospheric Function Preservation within MOE is responsible for the overall management and coordination of Indonesia’s ODS phase-out program, including all phase-out activities and measures controlling HCFCs (Annex C, Group I substances).

4. The NOU is established under the office of the Assistant Deputy Minister for Mitigation and Atmospheric Function Preservation. The NOU’s work program includes annual reporting of Article 7 data to the Ozone Secretariat, awareness raising and other activities related to the promotion of ozone layer protection in Indonesia.

5. MOE will collaborate with the Ministry of Trade, the Ministry of Industry, and the Customs Bureau to implement the HCFC import quota system, establish the annual import quota and review annual applications for HCFC import licenses, which will only be available to companies that imported HCFC-141b during 2009 and 2010.

6. Indonesia has appointed UNDP as Lead IA for the HPMP, and UNDP will be responsible for the overall reporting to the MLF on behalf of Indonesia. The Bank will coordinate with UNDP and report to UNDP on the results of the foam sector Project.

Project Management

7. A PMU has been established by MOE for the implementation of the HPMP. The PMU is responsible for the implementation of all activities in all sub-sectors addressed by the HPMP. The PMU will be shared with UNDP and UNIDO. The foam sector Project contributes three staff to the PMU with the following responsibilities:

(i) A Project Management Assistant (PMA) will be hired to facilitate implementation of the HPMP in the foam sector. The PMA will work in close coordination with, and under guidance of, the Project Manager to carry out sector activities under supervision of the NOU. The PMA’s overall responsibilities are to ensure that: (i) planning and implementation of all Project activities are carried out in a timely manner and in line with the Grant Agreement (GA) for the Project, the POM, Project implementation

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plans, and other guidance documents, and (ii) all processes and activities are carried out with efficiency and effectiveness and according to Project schedules.

(ii) A Financial Management and Administrative Specialist will be hired to manage and control the Project’s financial and administration matters. The overall responsibilities of the FM Specialist are to ensure that: (i) Project accounts and financial statements accurately reflect the financial position and transactions relating to Project expendi-tures, (ii) financial reports and audits are prepared in a timely manner and in line with applicable reporting requirements, and (iii) payments to Project beneficiaries and other recipients are accurate and made in a timely manner.

(iii) A Technical Consultant will be employed to assist Project beneficiaries and stake-holders with the conversion process and to provide advice to the NOU and the PMA on technical matters. The Consultant’s overall responsibility is to ensure that: (i) Project participants and stakeholders get accurate technical information and assistance to convert their production facilities, and (ii) decisions by the NOU, MOE and the PMU are based on correct and best available technical inputs and assessments.

8. The following implementation documents have been prepared by MOE with assistance from the Banks Project team. These documents and any amendments thereof, which may be introduced during the Project implementation period, require prior approval by the World Bank.

(i) The POM includes chapters on Project implementation arrangements, the project cycle, FM, procurement, grievances, implementation schedule and monitoring and reporting. In addition, the POM contains FTRP and FTRA templates, the Project’s EMF, a list of foam companies and other materials.

(ii) A first Project Implementation Plan has been prepared for the period 2013 through 2014 and includes in its Annexes a procurement plan, consultant Terms of Reference (TOR) and the Project budget. A second implementation plan will be prepared for the period 2015 and 2016. The implementation plan presents all activities and related responsibilities and resources needed for a successful execution of the Project in the planned period.

Project Costs and Financing

9. Project costs are of two types: (i) financial incentive payments to foam companies and (ii) the costs of TA and Project management. Both are funded by an MLF grant of US$2.71 million. In addition, foam companies will provide an estimated US$0.92 in co-financing. Table 19 shows the costs of the three Project components to be funded by the MLF. The budget allocations are estimates and can be readjusted within the MLF grant envelop and with World Bank approval. The contingency shown in Table 19 under Component 1 has been set aside in consideration of the 4th allocation for Stage 1, which is scheduled for 2018. However, if the Stage 2 funding request is submitted in a timely manner (see paragraph 9 in Section A.I.), the contingency may also be used to finance additional phase-out efforts or to cover additional financial needs including for technical assistance and policy support, should this become necessary.

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Table 19: Project Cost by Component (US$ estimates)Project Components 2013 2014 2015 Total

Component 1 – Investment for Conversion toCyclo-pentane: 3 companies – appliance sub-sector 240,400 721,200 240,400 1,202,000HFC-245fa: 2 companies – appliance sub-sector 35,000 35,000 70,000HFC-245fa: 3 companies – transport sub-sector 70,000 35,000 105,000HFC-245fa: 18 companies – integral skin sub-sector 335,000 500,000 105,000 940,000Contingency 136,000 136,000

Sub-total 610,400 1,291,200 551,400 2,453,000Component 2 – TA and Policy Support 39,100 58,500 35,600 133,200Component 3 – Project Management 42,665 42,748 42,574 127,987

GRANT TOTAL 692,165 1,392,448 629,574 2,714,187

Financial Management

10. MOE is responsible for implementation, management and coordination of the Project’s FM system. The Bank conducted an FM capacity assessment, which found that the overall FM risk is “Moderate”. The assessment concluded that the proposed FM arrangements will – with the implementation of the action plan below – satisfy the Bank’s minimum requirements under OP/BP10.02 and are adequate to provide, with reasonable assurance, accurate and timely information on the status of the grant as required by the Bank. The following actions to strengthen the FM capacity were agreed:

(i) And interim financial report will be requested semi-annually to facilitate monitoring.

(ii) The Project’s financial report will be subject to financial audits by an auditor under TORs accepted by the World Bank. A copy of the Project’s audited financial statements and the auditor’s management letters will be submitted to the Bank not later than 6 months after the end of the fiscal year. The audit reports and audited financial statements will be made available to the public.

(iii) A Designated Account (in US dollars) will be opened in the Bank of Indonesia (central bank) by MOF to finance eligible Project expenditures. Payments from the DA will follow the government system.

(iv) Supervision of the Project’s FM by a World Bank FM specialist will be conducted once a year to review the Project’s FM system, accounting, reporting and internal control.

Disbursement

11. Disbursement of the grant to Indonesia will follow standard World Bank and government practice. MOF will open a US$-denominated DA for the MLF funds in the Bank of Indonesia (central bank) with a ceiling set in the disbursement letter. The methods applied by the Bank for disbursements into the DA will be Advance and Reimbursement. After singing and effectiveness of the GA between the World Bank and Indonesia, the World Bank will provide an initial Advance to the DA of an amount authorized in the GA and disbursement letter. Table 20 shows the planned disbursements to GOI for each calendar year and expenditure category.

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Table 20: Projected Disbursements by Category and Calendar Year (US$)Disbursement category 2013 2014 2015 Total

Financial incentive 610,400 1,291,200 551,400 2,453,000Consulting services 32,416 26,698 29,570 88,683Workshops and training 25,000 51,400 27,000 103,400Management & operating costs 24,350 23,150 21,604 69,104

SUM 692,166 1,392,448 629,574 2,714,187

12. Applications for replenishment of the DA may be submitted monthly, together with a report on the use of the DA funds, supported by the usual documentation of the expenditures. MOF will manage the funds following the government system as part of the national budget process and has mandated the disbursement of the funds by MOE within applicable budget lines and disbursement procedures. Details of the disbursement arrangements, required documentation of expenditures etc. are described in the POM and GA.

13. Funds from the DA will be disbursed to foam companies consistent with the FTRA signed with each company. Disbursements to foam companies will following standard government procedures. The PMU will document all payments, keep records and report to MOE and the World Bank on these disbursements using the established reporting procedures. Measures to mitigate the risk of wrongful disbursement to foam companies include the following: (i) the exact payment amount to each foam company will be fixed in the FTRA and (ii) payments to foam companies will be made after verification by the PMU of achieved milestones. Companies converting to HFC-245fa will be paid after completion of the conversion process, companies converting to cyclo-pentane with a total incentive payment in excess of US$100,000 will be reimbursed by the PMU in installments following an established schedule, with the final installment payable after completion of conversion. Figure 2 depicts the payment process.

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Figure 2 – Disbursement of Grant Funds

(1) GOI represented by MOE and ExCom signed HPMP agreement for reduction of HCFCs.(2) MLF transfers the grant funds for Indonesia through World Bank.(3) MOF representing GOI signs the Grant Agreement (GA) with the World Bank as IA.(4) The GA will be forwarded to MOE as the Executing Agency.(5) Upon request by MOE, MOF opens DA and prepares the disbursement procedures.(6) MOE requests MOF to apply for advance payment from World Bank (7) MOF requests World Bank to transfer advance payment to the DA.(8) World Bank transfers advance payment from the grant fund to the DA.(9) Foam enterprise submits payment request and supporting documents to the PMU.(10) PMU (through MOE) requests payment for self-managed activities or activities contracted to

third parties (Foam Enterprise). (11) MOE (assisted by PMU) submits required documents for grant disbursement to MOF Treasury

Office Jakarta (KPPN).(12) The Treasury Office disburses the grant funds to MOE work unit treasurer (PMU) or to the

third party account (Foam Enterprise).

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(9)Foam Enterprise

(12)

(11)(10)

(8)

(6)(5) Directorate of Cash Management (MOF)

PMUDesignated Account at

Bank of Indonesia

Treasury Office Jakarta (MOF) MOE

(7)(4)

(3)

(2)(1)

Grant Agreement

Directorate General of Debt Management (MOF) World Bank

MLF AgreementMLFGOI (MOE)

Procurement

14. Procurement will be carried out in accordance with the Bank’s Procurement Guidelines and Consultant Guidelines, January 2011. Equipment and services under Project Component 1 will be directly procured by the participating foam companies in accordance with established private sector methods or commercial practices as per paragraph 3.13 of the Bank’s Procurement Guidelines. The procurement risk is small since foam companies will be reimbursed for only a part of their total conversion costs in the form of a pre-established amount, which will be fixed in the FTRA. This procurement arrangement builds on the need of private companies to give due attention to economy and efficiency in their procurement processes.

15. Goods to be procured under Components 2 and 3 will be small value office equipment, for which the PMU will follow the Shopping method; no Works will be procured by the PMU. Individual consultants will be hired as detailed in the Procurement Plan and following the selection method for individual consultants (i.e. comparison of curriculum vitae (CVs) of at least three qualified candidates). Consultants may also be hired on a single-source selection basis subject to the conditions set out in the Consultant Guidelines and with the Bank’s prior approval. Although not expected under the Project, hiring of a consulting firm would require a Selection Based on Consultants’ Qualifications.

16. A Procurement Plan has been prepared and may be updated to better reflect the Project’s implementation needs. The Procurement Plan and any amendments thereof are subject to the Bank’s prior approval and publication on the World Bank’s and the government’s public procurement website. A procurement assessment of the NOU was carried out by the Bank in 2012 and found no major issues. Procurement for this Project is considered low-risk mainly because the Project is not procurement intensive and the procurement methods to be used are not complex. Contracts signed by MOE in execution of the Project are subject to World Bank post review on a sample basis of initially at least 20 percent; this rate may be adjusted based on performance of the PMU.

Environmental and Social (including Safeguards)

17. The Project will have a positive impact on the global environment by reducing the use of HCFC-141b and the release of ODS and GHGs to the atmosphere. The Project will include investment activities by an estimated 26 foam producers, but these do not trigger any relocation of production facilities, nor are such relocations planned by the companies that have been identified as potential Project beneficiaries. The resettlement safeguard policy is therefore not triggered. In addition, since all participating foam companies will continue business as usual after their conversion, the Project will have no negative social impacts.

18. Cyclo-pentane has been selected as the blowing agent to replace the use of HCFC-141b in three companies. Cyclo-pentane is a flammable gas with a GWP of 25 and is classified as a volatile organic compound. But the use of cyclo-pentane as foam blowing agent will result in very low levels of emission (about 2-3% of the blowing agent) and will therefore not have a significant environmental impact.

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19. HFC-245fa has been selected as suitable alternative for foam companies with smaller production volumes. HFC-245fa is not flammable and has no recorded health and environmental impacts aside from its GWP of 1040. With the reduced polyol formulation as proposed for this Project, the amount of HFC-245fa used would be 50% to 60% compared with HCFC-141b. Hence, HFC-245fa can be used to achieve a net reduction in GHG emissions.

20. Other chemicals involved in foam production are MDI (isocyanates), amine catalysts and fire retardants. Foam enterprises purchase pre-formulated polyol (blended with or without HCFC-141b) and polymeric MDI for their rigid foam production. The probability that a spill of polymeric MDI – a liquid at room temperature – contaminates the soil and water is very low, because foam production areas typically have a cement floor. And if MDI leaks into the soil, it will react with moisture or water, which will results in CO2 and insoluble polyurea compounds, which are not biodegradable and chemically inert.

21. A due diligence review of the production locations of the participating foam enterprises will not be necessary, since all have confirmed that their sites are free from past environmental liabilities. Some minor spills of chemicals during foam production and/or foaming machine maintenance operations were discovered, but none of the enterprises is stated to have had any large scale spillage that could cause environmental contamination.

22. MOE has developed an EMF for this Project, which will be followed by all participating foam enterprises. The three companies converting to cyclo-pentane will need to develop an EMP – to be approved by the Bank – and take the measures required for the safe use of cyclo-pentane as blowing agent in foam production. Companies converting to HFC-245fa will not need an EMP, but the PMU will verify the adequacy of their Standard Operating Procedures.

23. In accordance with World Bank policies on environmental assessment (OP 4.01), the Project was assigned “Category B” and the Integrated Safeguard Data Sheet (appraisal stage) was prepared and publicly disclosed.

Monitoring and Evaluation

24. Monitoring and evaluation for the Project will follow MLF and ExCom guidelines as well as World Bank requirements. The PMU will collect Project data from Project beneficiaries and stakeholders (e.g. foam system houses) and import statistics for HCFC-141b imports. The PMU will monitor the technology conversion process in participating enterprises and carry out site inspections. The PMU will evaluate the collected data along with information on the conversion progress in foam enterprises.

25. The PMU will prepare the reports required by the agreement between Indonesia and ExCom and by the Project GA between the World Bank and Indonesia. Based on these and other reports, the World Bank’s Project team, in consultation with MOE, will evaluate interim results and advise on or take corrective actions as may be necessary to achieve the Project’s objectives. The PMU may receive training on monitoring, verification, evaluation and reporting if necessary. Monitoring and evaluation costs are included in the Project management budget and are covered by the MLF grant.

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ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

Indonesia: ID-HCFC Phase-out Project in the Foam Sector (P115763)Stage: Appraisal

.

1. Project Stakeholder Risks

1.1 Stakeholder Risk Rating Moderate

Description: Risk Management:

The majority of Project beneficiaries have a small production volume and will likely use HFC245fa as alternative foam blowing agent, which is a greenhouse gas and could evoke criticism by some climate-concerned NGOs and governments. Zero and low-GWP alternatives (e.g. HFO-1234ze) are under development as drop-in solutions, but are not yet available in the market.

Under Component 2, the Project will inform participating enterprises of technical alternatives and their environmental impacts and promote technologies that will allow new drop-in foam blowing agents.

Resp: Client Stage: Implementation

Recurrent: Due Date:

Frequency: Yearly Status: Not Yet Due

2. Operating Environment Risks

2.1 Country Rating Moderate

Description: Risk Management:

Implementing the Country Partnership Strategy with focus on mainstreaming the governance agenda across all aspects of the Bank program, with special attention to strengthening country institutions and greater use of country systems, where existing programs are found to have robust implementation and monitoring.

Resp: Bank Stage: Both Recurrent: Due Date:

Frequency: Yearly Status: In Progress

Risk Management:

Improving the quality of local administration and core services delivery; making decentralization more effective.

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Delays and inefficiency due to weaknesses in public procurement, especially in selection of consulting services and applicability of Bank Guidelines on public procurement due to issuance of the new Presidential Decree on public procurement, weak internal control in public FM, and inefficient planning and execution of the budget.

Resp: Client Stage: Implementation

Recurrent: Due Date:

Frequency: Yearly Status: In Progress

Risk Management:

Improving public FM, public procurement, tax administration, and anti-corruption initiatives

Resp: Client Stage: Implementation

Recurrent: Due Date:

Frequency: Yearly Status: In Progress

2.2 Sector and Multi-Sector Rating Moderate

Description:

Coordination among different agencies at the local and national levels and with enterprises may not be effective.

Risk Management:

A monitoring and enforcement system will be established following the example and experience of the previous ODS project.

Resp: Bank Stage: Implementation

Recurrent: Due Date:

31-Dec-2013 Frequency: Status: Not Yet Due

Risk Management:

MOE has already established an integrated PMU for all sub-sectors in Stage 1 of the HPMP. The PMU has adequate authority and resources to coordinate with different agencies. Experience in coordinating the phase-out effort exists in MOE and the NOU from the earlier ODS phase-out project.

Resp: Client Stage: Both Recurrent: Due Date:

01-Jan-2013 Frequency: Status: Completed

Risk Management:

The NOU/PMU has prepared a Project Operations Manual (POM), which has been approved by the Bank and which outlines the responsibilities of the PMU and other agencies involved in Project implementation. The obligations of participating companies will be laid down in the agreement to be signed by each Project beneficiary.

Resp: Both Stage: Preparation

Recurrent: Due Date:

11-Feb-2013 Frequency: Status: Completed

3. Implementing Agency (IA) Risks (including Fiduciary Risks)

3.1 Capacity Rating Moderate

Description: Risk Management:

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The NOU is experience in managing Bank-funded projects. But some weaknesses in filing of supporting documents were previously noted.New administrative staff joining the PMU may be inexperienced in Bank requirements on procurement, FM, monitoring and reporting, which may slow down Project implementation.Procurement under Project component 1 will follow the commercial practice of participating foam companies. Procurement under component 2 and 3 will involve relatively small contracts.

The Project will hire a qualified FM specialist, who will be responsible for fulfilling Bank FM requirements. The task team will review the TORs for the FM consultant.

Resp: Both Stage: Implementation

Recurrent: Due Date:

31-May-2013 Frequency: Status: Not Yet Due

Risk Management:

Training on World Bank FM and procurement will be provided to PMU staff.

Resp: Bank Stage: Implementation

Recurrent: Due Date:

30-Jun-2013 Frequency: Status: Not Yet Due

3.2 Governance Rating Low

Description: Risk Management:

The internal governance structure of MOE and relevant Divisions could constrain Project implementation, but that has not been the case in the implementation of the ODS project. Internal control put in place by MOE in response to the 2006 GPCL report improved progress in the implementation of the earlier ODS project.

Resp: Stage: Recurrent: Due Date:

Frequency: Status:

Fraud and Corruption Rating Low

Description:

Non-eligible enterprises may be awarded a financial incentive by MOE; and financial incentives may not be used for the intended purposes. There has been no incidence of fraud and corruption under the earlier ODS project; regular audits by the MOE inspectorate general were conducted and appear to have been effective in preventing fraud and corruption.

Risk Management:

Potential beneficiaries for Stage 1 were pre-identified during Project preparation and will be confirmed by the PMU during Project implementation based on their funding proposal and applicable criteria.

Resp: Both Stage: Implementation

Recurrent: Due Date:

31-Dec-2014 Frequency: Status: Not Yet Due

Risk Management:

Transparency through a website and other means will be implemented and a complaint handling system will be established.

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Resp: Client Stage: Implementation

Recurrent: Due Date:

Frequency: Status:

4. Project Risks

4.1 Design Rating Moderate

Description:

Enterprises in the foam sector may face several operating challenges that may limit their willingness to phase out HCFC on a voluntary basis:(i) The small size of many enterprises may impede their ability to provide counter-part funding for HCFC conversion.(ii) Competitive pressure and high conversion cost may make companies reluctant to participate and/or return to HCFC consumption after conversion.(iii) The technical and financial capacity in small companies may be insufficient for effective conversion, in particular to HCs.(iv) Alternatives to HCFC may not be readily availability in Indonesia.

Risk Management:

The Project design includes TA to beneficiaries on substitute technologies, training and opportunities to discuss market readiness and supply of substitutes.

Resp: Client Stage: Both Recurrent: Due Date:

Frequency: Status: In Progress

Risk Management:

Smaller enterprises that – due to high upfront investment costs – cannot safely manage the flammability and safety risks associated with HC technology may choose HFC-245fa.

Resp: Client Stage: Both Recurrent: Due Date:

Frequency: Status: In Progress

Risk Management:

The financial capacity of small foam producing companies to co-finance the Project has been improved through a higher cost effectiveness for funding of the conversion measures.

Resp: Client Stage: Preparation

Recurrent: Due Date:

Frequency: Status: Completed

Risk Management:

The government has established policies to ensure that phase-out is sustainable: (i) a quota system for imports of HCFC (ii) a ban on establishment of new production facilities using HCFC.

Resp: Client Stage: Preparation

Recurrent: Due Date:

Frequency: Status: Completed

Risk Management:

An international foam sector expert will advise the government on technologies and phase-out approaches.

Resp: Client Stage: Both Recurrent: Due Date:

Frequency: Status: In Progress

4.2 Social and Environmental Rating Moderate

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Description: Risk Management:

Since the Project involves only conversion activities at existing facilities, it will not involve any resettlement.Lack of safety equipment and improper handling of HC technology could result in explosions and risk to the workshop and worker safety.

The Project’s EMF contains instructions on the proper design and construction of the foaming area and proper chemical storage, which Project beneficiaries must incorporate in their EMPs.

Resp: Client Stage: Implementation

Recurrent: Due Date:

Frequency: Status: Not Yet Due

4.3 Program and Donor Rating Low

Description: Risk Management:

The funding for the Project has already been approved by ExCom.

Resp: Stage: Recurrent: Due Date:

Frequency: Status:

4.4 Delivery Monitoring and Sustainability Rating Moderate

Description:

Lack of accurate monitoring and verification of HCFC import data could result in non-payment of MLF funding.There could be reverse retrofit to HCFC after conversion is completed.

Risk Management:

The government’s quota system and eventual ban of HCFC imports will make reverse retrofit unattractive and/or impossible.

Resp: Stage: Implementation

Recurrent: Due Date:

Frequency: Yearly Status: In Progress

Risk Management:

The Project will employ the robust monitoring system along with independent verification requirements used successfully in the earlier ODS project.

Resp: Client Stage: Implementation

Recurrent: Due Date:

30-Jun-2013 Frequency: Status: Not Yet Due

Risk Management:

The agreement between the MLF and Indonesia includes provisions for deductions from future funding in case consumption exceeds the agreed targets or data is not reported for any given year.

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Resp: Client Stage: Implementation

Recurrent: Due Date:

Frequency: Yearly Status: In Progress

4.5 Other (Optional) Rating

Description: Risk Management:

Resp: Stage: Recurrent: Due Date:

Frequency: Status:

4.6 Other (Optional) Rating

Description: Risk Management:

Resp: Stage: Recurrent: Due Date:

Frequency: Status:

5. Overall RiskPreparation Risk Rating: Low Implementation Risk Rating: Moderate

Description: Description:

Project preparation could be affected by inability or reluctance of small foam sector enterprises to finance HCFC conversion and the government's weaknesses in project administration (procurement, FM, budget planning and management), ineffective coordination among agencies and internal governance issues. However, these risks were successfully managed in the previous ODS project, on which this Project builds. Since implementation of the HCFC Phase-out Management Plan has begun and Project preparation is well advanced, the preparation risk has dropped to Low.

The implementation risk is rated Moderate because of the safety of HC and HFC-245fa technology in foam blowing applications and the experience of the NOU with the earlier ODS phase-out project, which this Project emulates and which are further mitigated by Project design and implementation arrangements. But residual risks related to the technical handling of flammable HCs and the availability of low-cost alternative blowing agents in Indonesia could lead to slow Project implementation.

Nondisclosable Information for Management Attention (Optional)Comments:

In its review of the PCN package, EASOS agreed with the overall risk rating of Moderate for both preparation and implementation and with Track 1 processing. This ORAF has been updated as was recommended by EASOS at the PCN stage.

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ANNEX 5: IMPLEMENTATION SUPPORT PLAN

1. The implementation support plan has been developed in consideration of the nature and risk profile of the Project and to ensure that the Project achieves its objectives and follows agreed procedures and fiduciary and safeguard requirements. The plan recognizes the complexity for the PMU of managing the implementation of the HPMP in several sub-sectors and with involvement of several implementing agencies. Bank implementation support will therefore focus on: (i) efficient execution of the PMU functions in relation to the foam sector plan, (ii) coordination with UNDP as Lead IA, and (iii) monitoring, reporting and evaluation.

2. PMU Capacity. The NOU retains significant knowledge and experience from the earlier CFC phase-out project and will support the PMU. Nevertheless, MOE will need to hire new staff for the PMU. Bank implementation support will make sure that qualified individuals are hired to support the implementation of the Bank’s foam sector plan and provide guidance documents and training on procurement and FM as may be needed. The Bank team will review tranche implementation plans and budgets, amendments to the POM and procurement plan, and TORs for consultants. The Bank team will supervise the preparation and implementation of TA activities under Project Component 2 and project management under Component 3. In particular, the Bank team will approve EMPs and carry out an ex post review, on a sample basis, of the PMU’s appraisal of beneficiary applications and signed FTRAs.

3. Institutional Cooperation. The World Bank will closely coordinate with UNDP as the Lead IA for the HPMP in Indonesia and contribute to the preparation of reports by UNDP to ExCom and other entities. The Bank team will cooperate with UNDP to ensure that the HPMP is implemented with a minimum of intra and inter-sectoral friction, applications for funding of subsequent phases of the HPMP are submitted to ExCom in a timely manner, and regular inter-agency communication is maintained.

4. Monitoring and Reporting. The Bank team will regularly monitor Project performance, in particular that agreed regulations are issued in a timely manner, that FTRAs are signed and implemented, and that HCFC imports are verified annually. The Bank will carry out two implementation supervision missions each year (one of which by local Bank staff), which will include field visits to foam enterprises, ex post reviews, on a sample basis, of procurement and FM actions and compliance with other agreed provisions. The Bank team will ensure timely reporting, conduct an evaluation of overall Project progress, and discuss lessons learned and possible Project improvements with PMU and NOU management.

5. Project Support Team: In order to assist the NOU and the PMU expeditiously and maintain regular inter-agency communication, the Bank’s implementation support team will consist of a mix of local and international staff as shown in Table 21.

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Table 21: World Bank Project Support TeamFocus Time Skills Needed

Team leadership, inter-agency cooperation International, country office TTL, co-TTLMLF and ExCom issues International MLF specialistLegal issues, agreements with beneficiaries

International Legal Counsel

FM supervision and training Country office FM specialistProcurement supervision and training Country office Procurement specialistEnvironmental safeguards Country office Safeguard specialistVerification, reporting and evaluation Country office Co-TTLTechnology, foam sector issue, policy and regulatory issues

International HCFC / foam sector specialist

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