Documet of

The World Baik

FM OMCAL USE ONl

Repu No. 12408-T

MULTILATERAL FMND FOR THE IMPLFJIENTUION OF THE MlOTREAL PROTOCOL

MEMORANDUM AND REIIICOIEATION

OF THE DIRECTOR

FOR COUNITR DEPARTHENT I

OF T

INERNATIONAL BMAN FOR RECNSTRUCION MD DEVELPENT

TO THE

REGIONAL VICE PRESIDENT, EAST ASIA AND PACIFIC REGION

ON A

PROPOSED OZONE PROJECTS TRUST FOND GRANT

IN THE AMDUNT EQUIVALENT TO US$40.0 MILION

TO

THE KINGDOM OF TEHILAND

FOR A

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCES

PHASE OUT MULTI-COMPONENT PROJECT

SEPTEMBER 16. 1994

Industry and Energy Operations DivisonCountry Department IEast Asia and Pacific Region MICROGRAPHICS

Ths document has a restricted distrbution atheir official dutes Its contens may not ot Report No: 12408 TH

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CURRENCY EOUIVALENTS(Average rate for 1993)

Currency Unit Baht (B)

US$0.039 1 BUS$1.00 25.32 B

ABBREVIATIONS AND ACRONYMS

DIW Department of Industrial WorksFA Financial AgentGEF Global Environment FacilityIFCT Industrial Finance Corporation of ThailandMF M:ultilateral Fund of the Montreal ProtocolMIT! Ministry of Inte-national Trade and

IndustryMOF Ministry of FinanceMP Montreal ProtocolMT Metric TonsMFEC Multilateral Fund Executive CommitteeODS Ozone Depleting Substances, or Controlled

Substances as defined by the MontrealProtocol

OPG Operational Policy GuidelinesODP Ozone Depleting Potential (CFC 11 - 1.0)OTF Ozone Project Trust Fund of the Bank for

the Substances as defined by the MontrealProtocol

SIDA Swedish International Development AgencyUNDP United Nations Development ProgrammeUSEPA United States Environmental Protection

Agency

FISCAL YEAR (THAILAND)

October 1 - September 30

FOR OFFICLAL USE ONLYTHE KINGDOM OF THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT MULTICOMPONENT PROJECT

Project and Grant Summary

Project Descrintion This project would assist Thailandto implement an accelerated ODSphaseout program by: (1) providingfinancing for priority subprojects,and (2) establishing an efficientmechanism for executing ODSphaseout projects through localinstitutions.

Executing Agencies Department of Industrial Works(DIW) at the Ministry of Industry,and the Industrial FinanceCorporation of Thailand (IFCT).

Beneficieries Local Enterprises introducing ODSreducing technologies;DIW and IFCT as executing agencies.

Grant Amount US$ 40.0 million

Terms Grant

Re -lending Terms Grant

Financinp Plan USS MillionProposed OTF Grant:

Subproject with MF FundingPre-appraised subprojects 10.67Subprojects under preparation 1.00

Subprojects ProRosed for FutureApRroval(estimated costs)Identified subprojects 8.21Future subprojects 20.12

Total Proposed Grant 40.0

Equity/Commercial Loan 11.0

Total Project Cost 51.0

Economic Rate of Return N/A

TIVs documet has a stictd disboutn and may be used by recipiets only in the pefomance oftheirofMcil duties. Its contents mat ot hewise be disclosed without Wotu1 rank aEtozation.

MENORANDUM AND RECOMMENDATION OF THE DIRECTORCOUNTRY DEPARTMENT 1

TO THE REGIONAL VICE PRESIDENTEAST ASIA AND PACIFIC REGION

1. I submit for your approval the following memorandum and recommendationon a proposed OZONE PROJECTS TRUST FUND grant to the Kingdom of Thailand for theequivalent of US$40.0 million to help finance a project to reduce Ozone DepletingSubstances (ODS) consumption through the introduction of alternativetechnologies. This project will support ODS phaseout by establishing anefficient implementation mechanism at local institutions, and by funding aninitial group of subprojects.

Background

2. Thailand has experienced a period of sustained economic growth sincethe 1970s which has also been accompanied by environmental degradation. TheGovernment of Thailand has become increasingly aware of the local and globalconsequences of these environmental problems and has been committed to addressthem. That commitment led Thailand to ratify the Montreal Protocol (MP) onSubstances that Deplet.3 the Ozone Layer (ODS) in July 1989 and, thereby, tobecome eligible for funding from the Multilateral Fund for the Implementation ofthe Montreal Protocol to finance ODS phase out programs. The Fund is managed bythe Multilateral Fund Executive Committee (MFEC) and implemented by the Bank,UNDP, UNEP and UNIDO. Funds for Bank implemented projects are channelled throughthe Bank administered Ozone Projects Trust Fund (OTF).

3. In 1991, Thailand consumed 15,600 tons of ODS, equivalent to an OzoneDepleting Potential (ODP) of 10,040 tons or 0.16 kg ODP per capita. All ODS areimported. ODS were used in: (i) electronic/metal cleaning solvents, (43% asODP), (ii) refrigeration/air conditioning (33X), (iii) foam (151), (iv)fire-prevention (6%), and (v) aerosols (3%). ODS consumption increased by 231p.a. between 1986 and 1990 due to fast economic growth. Electronics,refrigeration and air conditioning accounted for 80X of the increase in ODSconsumption. Growth slowed down to 91 p.a. in 1991. By comparison, in 1990 thePhilippines consumed a total of 2650 tons ODP and Malaysia 4780 tons ODP.

4. The Government is committed to establish a cost effective program forphasing out ODS. To coordinate its MP activities, an Ozone Layer Protection Unithas been established in the Department of Industrial Works (DIW), Ministry ofIndustry, which also serves as secretariat to an ODS Phase Out inter-agencyPolicy Committee. The Ministry of Science, Technology and Environment isresponsible for national environmental policies and enforcement. Bothinstitutions have experience in the environmental field, but are under-staffedand lack specific skills and strategies to phase out the use of ODSs. TheIndustrial Finance Corporation of Thailand (IFCT) was assigned by the Governmentto act as financial agent to channel funds from the OTF to beneficiaries inThailand. IPCT has a long track record as a development bank with extensiveexperience in financial and technical project appraisal.

5. Thailand,s Country Program on ODS phaseout was completed in September1993 and was approved by the MFEC in November 1993. The Thailand CountryProgram, which was prepared with Bank assistance, includes a national cost-effective action plan, incremental costs, and phaseout strategies and policiesrequired to comply with MP obligations and to achieve early ODS phaseout. Itspells out the need for regulatory measures to control imports of ODS and fiscalmeasures to encourage the use of ODS substitutes and of non-ODS technologies,such as the compulsory registration of imports and the withholding of investment

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incentives for ODS-using enterprises. UNDP is implementing an InstitutionalStrengthening Project which assists the setting up of an Ozone Desk in DIV whichwill be responsible for the implementation of the Country Program. A jointUNEP/SIDA project provides technical assistance on ODS phase out through regionalcoordination and a global information network.

6. The Bank has assisted Thailand in the preparation of ODS investmentprojects, initially through two Enaineering Studies. The first study produceda draft proposal for a CFC Recycling Project for Mobile Air Conditioning (MAC)which has still to be finalized. The second study generated 14 subprojectproposals for the electronic, domestic refrigeration and chiller sector. Inaddition, USEPA developed an ODS Solvent Phase Out Project at Thai Airways, andthe Global Refrigeration Project together with DIW prepared another fiveproposals for compressor conversion and auto air-conditioning. Under a recentlyapproved Proiect Preparation Grant the Bank will assist in the preparation of anadditional 25-35 subprojects that will target commercial refrigeration, mobileair conditioning, foams, and small and medium size firms that use CFC and 1,1,1-trichloroethane as solvents. All of the above subprojects will be financed underthis proposed ODS Phase Out Multicomponent Project.

7. The Multilateral Fund Executive Committee (MFEC) so far has approvedfunding for the MAC recycling project and the Thai Airways project (total of US$1 million) in its July 1992 meeting, and for an additional twelve subprojects(total of US$ 10.67 million) in its June 1993 meeting, including five solvent,4 household refrigeration, two compressor, and one insulating foam. The MFECgave "permission to proceed" with another 12 subprojects which have beenidentified but require further preparation and will have to be submitted to theMFEC for final approval.

Proiect Obiectives

8. The project objective is to support the Government program to phaseout ODS by (a) establishing an efficient mechanism for executing ODS phaseoutprojects through local institutions, and (b) implementing an initial group ofcost effective priority subprojects.

9. The project would use one financial umbrella agreement between theGovernment and the Bank to channel MP funds from the Bank's OTF through afinancial agent to approved subprojects. The Ministry of Finance (MOF) will signthe grant agreement on behalf of the Government. MOF and DIW will enter into amemorandum of agreement with IFCT which has been selected as financial agent forthe project. IFCT will be responsible for subproject appraisal, grantdisbursement, and supervision of subproject implementation (Annexes III and IV).The proposed grant amount of the umbrella agreement should be sufficient to coveralready approved subprojects and future subprojects which are expected to bedeveloped over the next two years. The Bank has recently agreed to use thisapproach in order to facilitate project processing in countries with a largenumber of subprojects. Funding of subprojects under the umbrella agreement willbe subject to prior approval of each subproject by MFEC and transfer of approvedfunds to the Bank's OTF.

Proiect Description and Costs

10. The project will support a total of 45-55 subprojects in solvents,refrigeration, air conditioning, foams, and recvoling. Each subproject includestechnical assistance to support participating enterprises with technologytransfer, design, training and implementation. So far, about 20 subprojects havebeen identified, out of which 12 subprojects have been pre-sppraised,representing about 30% of the total project investment cost and about 30% of

total grant amount (see list of proposed subprojects in Annex I). Another 25 to35 proposals will be developed during the next 2 years.

11. Estimated total investment costs for the 45 to 55 subprojects are US$51.0 million, of which about US$ 40.0 million of incremental costs would beeligible for OTF grant funding, including approximately US$1.2 million forfinancial intermediation fees (3% of grant amount) and US$3.21 million forcontingencies (based on 15X contingency fee for approved subprojects and a 30%contingency fee for identified subprojects1, see Annex I). Firms with mixedlocal and foreign (developed country) ownership are eligible for OTF funding inproportion to their share of local ownership. A break-down of project costs andthe financing plan are shown in Schedule A. Procurement arrangements at.d adisbursement schedule are presented in Schedule B. A timetable of key projectprocessing events is given in Schedule C.

Project Financing

12. The eligible incremental costs of approved subprojects (up to amaximum of US$40 million) would be financed by an OTF Grant to the Governmentwhich will pass it on as a grant to the subprojects. Incremental costs aredefined within the MFEC guidelines and comprise the net present value (discountedat 10%) of additional costs that an enterprise or agency incurs in taking theact.on to phase out ODS. It is derived by taking the difference between theactual cost of the phaseout activity and the baseline cost. The baseline costis the cost that otherwise would have been incurred to provide the same level ofservice to the country using ODS. Reimbursement for recurring costs are limitedto 4 years. The balance of total project costs not covered by the grant (up toapproximately US$11 million) will have to be financed by the enterprise fromcommercial or internal sources. As additional subprojects are being approved byMPEC, additional funding will be made available under the umbrella agreement.The financing plan is shown in Schedule A.

Project Imnlementation

13. DIW will have overall responsibility for supervising theimplementation of this ODS phase-out investment project. Specifically, DIW willensure that ODS projects are consistent with the Country Program for ODSphaseout. DIW will review each subproject prior to appraisal to ensure thatcost-effective technologies will be applied and that the subproject conforms toCP priorities. DIW will also ensure that mechanisms are in place to ensure thatphased-out ODS equipment is not being re-used. IFCT will be responsible forimplementation of the investment component, including subproject appraisal,disbursement of OTF funds to the enterprises, and supervision of subprojectimplementation. Funds would flow from the Bank's OTF directly to a SpecialAccount to be established under this project and from there to the subprojects.IFCT will be responsible for keeping the records of this Special Account and forsubmitting the applications for withdrawal and replenishment. For its services,IFCT will receive a fee of about 3% of the appraised grant amount, one-third(equivalent to 1% of appraised grant amount excluding contingencies) followingthe approval of the subproject appraisal report by the Bank, and two-thirds(equivalent of 2% of actually disbursed amounts) upon disbursement of the grantsto the subprojects. IFCT would be guided by subproject eligibility, appraisaland financing criteria for Montreal Protocol projects (see Annex I) and which

'Contingency for identified (not yet approved) subprojects has been set at30% to allow for adjustments in the technical design at the pre-appraisal andappraisal stages in accordance with rapidly evolving international ODS phaseouttechnologies.

IFCT wvuld summarize in Operating Policy Guidelines (OPGs) acceptable to theBank. The Bank will review each subproject appraisal report prepared by IFGT toensure-compliance with MFEC guidelines prior to approving disbursemex.t of thegrant to MFEC approved subprojects (i.e. there is no free limit as required underthe OTF agreement with the MFEC). Each particiRating enterRrise (subprojectproponent) will be responsible for the implementation of the relevant subproject.Its obligations will be spelled out in a sub-grant agreement to be signed betweenthe enterprise and IFCT. A model sub-grant agreement, acceptable to the Bank,would be prepared by IFCT as part of the OPGs.

14. Reporting and Monitoring.. DIW will be responsible for monitoring theoverall project implementation ana the phaseout of ODS. DIW and IFCT willprepare semi-annual progress reports. IFCT will also submit an annual auditreport acceptable to the Bank. The Bark's supervision will include reviewingprogress and audit reports, and approving all subproject appraisal reports.

Einviromental Considerations

15. The project is designed to protect the environment by reducing theem;iion of ODS. However, the change to non-ODS technologies or substitution ofODS with other chemicals may involve other environmental risks, such asatmospheric releases of substitute chemicals, in particular hydrocarbons, andwater pollution, particularly from use of aqueous base solvents. Enterpriseswill prepare Environmental Assessments (EAs) according to local regulations.Together with the appraisal report, IFCT will submit a certification that thesubproject has complied with the EA regulations, which will be reviewed by theBank as part of the subproject appraisal report approval.

Proiect Sustainability

16. The project will assist the Government in establishing an efficientmechanism for developing and funding subprojects under the ODS phase out program.In order to achieve a sustainable and cost-effective phase out of ODS with abroad coverage of the various ODS consuming sectors, it will be essential - inaddition to the enterprise specific support - to implement under the countryprogram a policy framework that discourages the consumption of ODS and at thesame time encourages the use of ODS substitutes and non-ODS technologies. Tothis end, the Government of Thailand has introduced fiscal and non-fiscalmeasures. On the fiscal side, it has already reduced import tariffs for CFCrecycling equipment to 101 and a Ministerial Decree from the MOF is to lift theimport duty on alternative chemicals. On the non-fiscal side, the Government hasput in place a regulatory framework to control the import of ODS throughregistration and licensing. Furthermore, the same regulation permits theGovernment to limit or ban ODS imports if it becomes necessary to meet the phase-out targets. These measures are expressed in Thailand ODS country program.

17. Apart from policy interventions, market forces, in particular risingmarket prices for ODS, are expected to be the major incentive for an acceleratedODS phase out. ODS prices are expected to increase as the world's major ODSsuppliers are committed to stop their ODS production. Simultaneously, thesesuppliers are developing or are already actively marketing ODS substitutes.Falling prices for these substitutes are expected to encourage the use of non-ODStechnology.

Lessons from Previous Bank Experience

18. OTF projects are being developed simultaneously in Mexico, Venezuela,China, Malaysia, Philippines, Turkey, and other countries. None of theseprojects has been completed so far. However, first experiences indicate serious

delays where the country decided to implement investment projects through agovernment department or ministry. Therefore, under the proposed project, adedicated implementation agency, IFCT, will be responsible for the day to dayproject management, while the Government will act as supervisory agency. Otherexperiences point to the need for flexibility in project design, including theprovision for contingencies; thorough project preparation, and institutionalstrengthening, including training and technical assistance. The project has madeprovisions 'or these kinds of activities.

Rationale for Use of Ozone Trust Fund

19. The project is consistent with MFEC's and the Bank's ImplementationGuidelines and Criteria for the use of OTF funds.

Project Benefits

20. The project will help the Government implement an accelerated ODSphaseout program by prov5.ding financing for priority subprojects. The project,once fully implemented, is expected to reduce ODS consumption directly by about3000-4000 MT ODP by 1997, or about 30-40% of current consumption. In addition,the project will enable export oriented firms to maintain their export marketsby making timely adjustment to non-ODS production technologies which arefrequently requested by importers from industrialized countries.

Proiect Risks

21. Institutional weakness of implementing agencies could slow downproject execution and is being addressed under the Institutional StrengtheningProject approved by the MFEC in March 1993 and implemented by UNDP. Technicaland commercial risks related to the introduction of technologies, which are newto Thailand, will be minimized by providing TA to participating enterprises, bythe use of technologies which have been internationally tested andcommercialized, and by requiring, in selected cases, technical cooperationagreements between the enterprise and the international technology supplier.

Actions Agreed

22. During negotiations, agreement has been reached on the followingissues:

(a) the Government would open a Special Account on terms and conditionsacceptable to the Bank;

(b) separate project accounts shall be maintained and audited annually byan independent auditor acceptable to the Bank;

(c) IFCT would enter into a subgrant agreement with subproject proponentsof which a draft would be submitted to the Bank togethex with thesubproject appraisal report, for approval;

(d) prior to disburfement, each proposal has to be approved by the Bankfor sub-projects with a cost below $500,000 and by the MEEC forsubprojects with a cost of $500,000 and above;

-6-

(e) payments could be made for expenditures incurred prior to the date ofsigning of the Grant Agreement, but after June 1, 1993 2 and only upto an aggregate amount not to exceed the equivalent of 10% of thegrant amount for subprojects approved by the Bank or the MFEC, as thecase may be; and

(f) following the guidelines for the implemenration of OTF Grants theGovernment has approved public access to this project document(Memorandum of Director).

23. The following actions are conditions of grant effectiveness:

(a) a memorandum of agreement to be entered into between MOF, DIW andIFCT, acceptable to the Bank, defining the terms and conditions ofIFCT's operations as financial agent (paras 4 and 13); and

(b) IFCT to have issued operating guidelines including a model subgrantagreement acceptable to the Bank, and approved by the Government (para13).

Recommendation

24. I am satisfied that the proposed grant would comply with the relevantprovisions of the Ozone Projects Trust Fund in Resolution 9-15 of the ExecutiveDirectors and I recommend that the Regional Vice President approve it.

Callisto E. MadavoDirector

Country Department 1East Asia and Pacific Region

Washington, D.C.September 16, 1994Attachments

2 The Montreal Protocol allows retroactive financing once the country hasratified the protocol. All categories of expenditures are eligible forretroactive refinancing. The June 1, 1993, date is, however, an agreed upon datebetween the Bank and the grant recipient.

-7-

Schetule A

MONTEAL PROTOCOL OZONE DEPIXrING SUISrANCSPHASE OUT MUICOOENT R

Sdbedule APROJECT cOar AND ENANCING PLAN

InvestmntLe Thai Eli ProCosts Costs Ownership I

4 Yrsvere) Co

Subprojects with MF Funding

Pre-arpgrased suboelecta:

-Solvents 5.14 -.34 8Z$ 3.77 4.45

-Household Refrigerator (4 sub) 6.22 5P% 3.7 4.36

-Compressors (2 sub) 2.12 68% 1.43 1.68

-Insulating Foam (I sub) .03 .12 100% .15 .18

.Su-total P oreanase 13.51 9.05 10.67

Protects under Prenareptio:

Thai Airways and MAC CFC Recyling Subprojects 1.0 1.0

Subtotal under P-rearstio 1.0 1.0

TOTAL APROVED MF FUDING 14.51 9.05 11.67

Proiaets Proposed for Future Aunroval

J4eubnroIects:

-Household Refrigerator (6 sub) 8.84 57% 4.99 6.64

-Solvents (1 sub) .23 .01 100% .24 .32

-Mobile Air Conditioning (2 sub) .63 .05 78% .41 .55

-Chillers (3 sub) .32 .2 100% .52 .7

Subtotal Idetfed 10.02 6.16 8.21

Futhe Suburolects (to be Idented) 26.47 nla 20.12

TOtal Proogsed for Future Aporoval 36.49 nta 28.33

TOTAL PROJECT 51.00 4010

a-7Dicounted at 10%. Negative numbers indicate opeating savings.b/ Eligible incremental cost = incretl cost x share of local ownership.c/ Inludes eligible incremental cost. 15% condngency for pre-appraised and 30% contingency for identified projects, and 3% fee for financial agent.dt Recurring costs over 15 year project economic life.

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Schedule APage 2 of 2

THAILMND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT MULTICOMPONENT PROJECT

Schedule A

PROJECT COST AND FINANCING PLAN

Financing Plan

OTF Grant Commercial Loans/or TotalEnterprise Own Funds

MF APPROVED SUBEPROJECTS 11.67 2.84 14.51

SUBPROJECTS PROPOSED FORFUTURE APPROVAL 28.33 8.16 36.49

TOTAL 40.00 11.00 51.00

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Schedule BPage 1 of 2

THAILANNONTREAL PROT0COL OZONE DEPLETING SUBSTANCES

PHASE OUT MULTICOMPONENT PROJECT

Schedule B

Summary of Proposed Procurement Arrangements

The Industrial Finance Corporation of Thailand, IFCT, will be responsiblefor ensuring that participating enterprises follow the agreed procurementguidelines. Total procurement will amount to US$ 40.0 Million for about 45-55subprojects whose procurement will be administered following internationalcorvpetitive bidding (ICB) or the procurement practices of private industry inThailand which the Bank has examined and found acceptable, consisting at aminimum of the following:

Goods and Works

Mi) contracts over US$ 2 million equivalent (excluding proprietarypackages) would be procured under ICB procedures;

(ii) contracts between US$200,000 and US$2 million equivalent would beprocured on the basis of comparison of price quotations solicitedfrom at least three qualified suppliers from at least twocountries; and

(iii) contracts below US$200,000 equivalent would be procured on thebasis of comparison of price quotations solicited from at leastthree qualified suppliers.

Prior Review

Prior review is required for the following contracts and bid packages:

(i) over US$ 2 million equivalent; and

(ii) for proprietary technology and iquipment.

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Schedule BPage 2 of 2

THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT MULTICOMPONENT PROJECT

Schedule B

Disbursement Table

Withdrawal of the Proceeds of the OTF Grant

1. The table below sets forth the Categories of items to be financed out ofthe proceeds of the OTF Grant, the allocation of the amounts of the OTF Grantto each Category and the percentage of expenditures for items to be financedin each Category:

Amount of theOTF Grant Allocated % of

(Expressed in ExpendituresCategory Dollar Eguivalent to be Financed

(1) Subgrants US $38.8 Million 100% of amountsdisbursed

(2) IFCT agency fee US $1.2 Million 100%

TOTAL US $40.0 Million

Disbursement Schedule(US$ Million)

CALENDAR YEAR 1994 1995 1996 1997

Annual 5.6 19.2 9.2 6.0

Cumulative 5.6 24.8 34.0 40.0

Cumulative 1'4 62 96 100(% of total)

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Schedule CPage 1 of 1

THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT MULTICOMPONENT PROJECT

Schedule C

Timetable of Key Project Processing Events

Event Date Other

a) Preparation (Time 12 MonthsTaken)

b) Prepared by Konrad von Ritter, Donald Brown,Jessica Poppele, Nadereh Chamlou

c) First 1/93Presentation tothe Bank

d) Departure of Bank 11/93Mission

e) Date for 7/94Negotiations

f) Planned Date of 10/94Effectiveness I

g) List of Relevant n/aPCR's and PPAR's

This h not the approaal date for the subprojects. Subprjects are eacb individuaUy appraised and approved by the MPEC on an onging basis. Tbe November 1993date is basically the date when the Bank and the Ti Government agreed on the struture of the umbrdla agreement and the doice of the IntermedIary.

TECHNICAL ANNEXES

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THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT MULTICOMPONENT PROJECT

Table of Contents of Technical Annexes

Annex I List of Subprojects --Summary of Costs

--Summary of ODS Reduction

Annex II Description of Subprojects

Annex III Processing Steps for SubprojectProposals

Annex IV Procurement and DisbursementArrangements

Annex V Guidelines for SubprojectEligibility, Grant Funding, andPreparation of Appraisal Reports

-15 - ANNEX IPage I of 4

THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OuT MMTCOMPONENT PROJW

ANNEX 1: LIST OF SUBPROJECTSODS CONSUMPTION SUMMARY

Company End Use 1ODS Consmptien | 01)8 Used | ODS Reducdon | Cost Eff_ctvenein 1991 (NMl) "Poe End of M95 (&f)[ kg ODP /ye

prrapprea .

I Saha unin Solven 34.2 CFC-113 34 16.71

2 Hana Solvent 19 CPC.113 19 13.29Seniconductor 16 TCA 16

3 GU Arry solvent 21 CFC-113 21 4.80

4 Cl Group Solvet 127 TCA 127 .67

5 Thai Hat Solvent III TCA 111 .90

Exchange _ _ _~_ _

6 Thai Toshiba Refrigerator 42 CFC-1I NA N1APhase I Project 12 CFC-12

7 Sanyo Univesal Refrigeror 350 CFC-II NA NA(2 faorics) - 136 CFC-12Phase I _

8 Kang Yong Refrigerator 101 CFC-II NA NAMtsubishi 19 CFC-12

Phasc Pat_ea _

9 Hitachi Refrigeratr 308 CFC-1I NA NAPhasc I Ptojea 36 CFC-12

10 Sanyo Universal Comptessor NA CFC-12 NA NA

t1 KuWtorn Kirby Compressor NA CFC-12 NA NA

12 Tedeuic Foam mudatng so CFCl11 NA 2.83Foam

SubtotaIPre- 651 CFC-tl NA NAAppraIsed 203 CFC-12

74.2 CFC-113254 TCA

Fr4eets Under

13 Thai Airwas Solven 46 CFC-l13 46 NA56 TCA 56

14 MACRecycing MAC NA NA NA NA

Subtotl 651 CFC.11 NArrcapp Walsedf 203 CFC.12 NAUnder 120.2 CFC-113 120PrePwaraton - 316 TCA 310

- 16- ANNEX IPage 2 of 4

End Use ODS Consumption | ODS Used ODS Reduction Cost EfftctivenessIn 1991 OMl) O type) K) OD yea

Identified

is AP Natiot)l- Refrietr 45 CFC-11 NAMatsshita 7 CFGC12Phase I Project

16 AP National. Refrigeraor 45 CFC- I 1 45Masushita I CFC-12 7Phase II Project _ _

17 Thai Toshih Refrtigator 42 CFC-Il 42Phal 11 Project 12.3 CPC-12 12.3

IS Sanyo Univesal Refrigeator 350 CFC- I 350Phase It Project 136 CPC-12

19 Kang Yng- Refrigeaor 101 cVc- 1 lotMiLsubishi 19 CrPCt2 19Phase 11 Pnoect

20 Hirachi Refrigerator 108 crc. 11Ills

Phase 11 Project 36 CFC-12

22 TcamTronks Solvent 29 CPC-113 I _ 2.65

22 Karnawat Rctrofit Auto 6 CFC-ll 9.5AC 2i cPC.12

0.8 TCA

23 NipOndeso Auto AC 125 CrC-12 NA

24 Bangkok Post Chlkr NA CrC-12 6 10.12

25 Kian Gwan Chiler NA crc.II 2 22.27

25 Imperial Queen Chiller NA CVC-ll 3 15.27

Subta 697 CFC-l1tdeudfted 354.s CrC.12

29 cI'c-.13.8 TCA

m~~~~~~~~~~. __

GRAND TOTAL 771.2 CFC-lt " J.S57.8 CFC-12 44.3

.___ ____ ____ _[149.2 CFC-113 IS5310J_ TCA 31_ =_-

- 17 - ANNEX IPage 3 of 4

TAn AND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHhSE OUT NIULTICOMPONENT PROJECT

ANNEX 1: LIST OF SUBPROJECTSPROPOSED COSTS

Company End Use Subprojet Thliion US$ 'Mai Eligible ProposedCost Ournerhip Inctnmtal QTrF

_ % ~~~~~~ ~ ~~~~~~Costs Grant I

Investment Net Recurring Total (USSO_J

_ =:== ~~~~Cost Costs (4 Yrs)' Inemnental

__ Preappraised _ _ _ _

I Saha Union Solvent 2.62 0.10 2.72 gO 2.18 2.57

2 Hata Semiconductor Solvent 0.86 0.23 1.09 78 .85 1.0

3 OSS Array Solvent 0.57 (0.05) .52 51 .27 0.32

4 Cl Group Solvent 0.54 (0.30) .24 100 .24 0.28

S Thai Heam Exehange Solvent 0.55 (0.320) .23 100 .23 0.27

6 Thai Toshiba - Phase I Refrigerator 1.28 0.0 1.28 54.5 .7 0.83

7 Sanyo Universal-2 sites Refrigerator 2.42 0.0 .42 65 1.6 1.89PhaseI

8 Kang Yong - Mitsubishi Refrigerator 1.60 0.0 1.60 60 .93 1.1Phase I

9 Hitachi - Phusc I Refrigerator 0.92 0.0 .92 51 .47 0.55

10 Sanyo Univcrsal Compressors 1.29 0.0 1.29 65 .S5 1.0

II Kulthorn Kirby Comprcssors 0.83 0.0 .83 70 .58 0.68

12 Technic Foatm Insulating 0.03 0.12 .15 100 .15 0.18Foanm

Subtotal 13.51 NA 13.29 NA 9.05 10.67

Projects under. reparation:

13 Thai Airways Solvents NA NA NA NA NA .1

14 MAC Rccycling Mobile A/C NA NA NA NA .9

Subtotal Preapprsisedt 13.51 13.29 9.05 11 67Under Preation

2 Eligible Incremental Cost equaL incremental costs tmultiplied by percent Thai ownership.

3 Grant amount equals incremental costs mtultiplied by percent Thai ownership. Includes contingencies (152 for

preappraised projects; 30X for identified projects) and 3X financial agent fee.

4 Net present value (NPV) of first four years of operating costs/savings discounted at OX. Negative numbers include

operating savings.

- 18 - ANNEX IPage 4 of 4

Company End Use Invatmrt Net Rearming Total _ai TOtal Elie ONCosts Costs Ownaersb1p Ina l USw Grant

t ~ ~ ~ _ _ _ .._ _ _ __ _ _ _ _ _ otCS.MmUfled _ _~~~~~~~~~~~~~~~~~~~~~~~~ o (S

Is AP Naumi- Mautwb lefe o 1.77 .o 1.77 5S .97 1.2Pth. I _I

16 AP Nadanal- MaUUlgdA- Refriges 1.44 0.0 1.44 55 .79 1.05

It lbai Toshiba .Ptaw N frigcrtzr 1.34 0.0 1.34 54.5 .73 0.7

IS Syo Universal Refd*geMwr I.t6 0.0 1.76 65 1. 146tjha5 11

19 Ken YO1 Mitabi Refrat 1.24 0.0 1.24 60 .74 0.99Ph=s II

20 Hlac. - Phaew 11 cfr-A 1.29 0.0 1.9 St .66 0.8

21 TeamTroni Sohent 0.23 0.01 .24 OD .24 0.32

22 Kantava Reofit Auto 0.01 0.05 .06 100 .06 0.08AC _

23 Nlwood Auto AC 0.62 0.0 .62 56 .35 0.47

24 Bangkok Post ChI, 0.18 0.01 .19 t00 .19 0.25

25 Kiln Gwan 0.08 0.10 .18 ICO .18 0.24

25 kmpalQu China 0.06 0.09 .15 tOo .15 0.21

Subtal ldentIed 10.02 10.28 6i1 8.1- - - m- m9

GRAND TOTAL [ I 35 23 | I tSI_ _ _ 19JS8

-19 - ANNEX IPage 1 of 8

KINGDOM OF THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT INVESTMENT PROJECT

ANNEX II: SUBPROJECT LDSCRIPTION

A. PRE-APPRAISED AND APPROVED SUBPROJECTS

MFEC has given final approval to the funding of the following pre-appraisedsubprojects:

SOLVENT CLEANING

1. Conversion to High-Purity Hot Water Cleaning at Saha Union Corp.. Ltd.

This subproject will eliminate the use of CFC-113 in the cleaning of hard diskdrives and affiliated components at Saha Union's Sriracha facility. The CFC-113 in-line cleaning process will be directly replaced with an Ultrapure Deionized (UDI)water process specified and supported by IBM. The subproject also provides supportfor water recycling, high-purity air production, waste water treatment, processdevelopment, installation of the new equipment. The conversion of Saha from CFC-113cleaning processes to UDI cleaning will result in an annual reduction of 34 MT ofozone depleting substances.

2. Conversion to Wet Media Blasting and Agueous Cleaning Solvents at HanaSamiconductor (BKK) Co.. Ltd.

This subproject will eliminate the use of CFC-113/methanol blend and TCA inthe.cleaning of semiconductors and circuit card assemblies at Hana (BKK) Co., Ltd.(Hana). The phaseout will be accomplished by replacing the current cleaningsolvents with two different types of aqueous based processes. Hana PCB divisionwill remove flux residues from soldered circuit cards, using an aqueous cleaningprocess which will utilize pure water. Hana Semiconductor Division will replace thecleaning operation with the use of a water-based plastic media blasting (wet-mediablasting). The subproject also provides for equipment installation, wastewatert-reatment, engineering support and training, and ventilation improvements. Theconversion to non-ozone depleting technology will eliminate annual consumption of 19MT of CFC-113/alcohol mixture and 16 MT of TCA.

3. Conversion to High-Purity Water Cleaning at GSS Array Technology. Inc.

This subproject will eliminate the use of CFC-113/methanol blended solvent inthe cleaning of circuit card assemblies at GSS Array (GSS). The phaseout will beaccomplished by replacing the current CFC-113/methanol in-line cleaner and arecently retired vapor degreaser with three high-capacity, in-line aqueous cleaners,two of which are included in the funding proposal. The aqueous cleaners will beused to remove flux residues and light ionic contamination from the circuit cards.The subproject also includes the purchase and installation of a water recyclingsystem, utilizing two reverse-osmosis systems. The conversion to non-ozonedepleting technology will eliminate annual consumption of 21 MT of CFC-113/MethanolBlend. GSS is 51 percent Thai owned, which was taken into account when calculatingthe proposed OTF financing.

- 20 - AN=e XrPa8 e 2 of 8

4. Conversion to Aqueous Cleaning at C.I. Group Company. Ltd. (CIG)

This subproject will eliminate the use of 1,1,1 trichloroethane (TCA) in thecleaning of small and medium size heat exchangers manufactured for automobiles,trucks, and refrigeration units at C.I. Group Company, Ltd (CIG). The phaseout willbe accomplished by installing an aqueous-based cleaning process and water recyclingequipment. Drying equipment is required to remove moisture after the aqueouscleaning process. The conversion to non-ozone depleting technology will eliminateannual consumption of 127 MT of TCA. GIG is 100 percent Thai owned.

5. Conversion to Aqueous Cleaning at the Thai Heat Exchange Co.. Ltd,

This subproject will eliminate the use of 1,1,1 trichloroethane (TCA) in thecleaning of small and medium size heat exchangers manufactured for automobiles,trucks, room air conditioners and refrigeration units at Thai Heat Exchange Co. Ltd.(THECO). The phaseout will be accomplished by replacing the current vapordegreasing cleaning process with an aqueous-based cleaning process, complete withthe necessary overhead hoist system, and the addition of drying equipment. Theconversion to non-ozone depleting technology will eliminate annual consumption of111 MT of TCA. THECO is 100 percent Thai owned.

HOUSEHOLD REFRIGERATION

6. Elimination of ODS Used in the Production of Household Refrigerators atThai Toshiba Electric Industries Co.. Ltd. (TTEI): Phase I SubRroject

This subproject, in conjunction with the phase II subproject, will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at ThaiToshiba Electric Industries Co., Ltd. (TTEI) by converting its production facilitiesto the production of refrigerators using HFC-134a and HCFC-141b as the newrefrigerant and foam blowing agent, respectively. This phase I subproject willassist in the product development and testing of the new refrigerators and will helpidentifying all equipment and process changes needed for a full conversion of theproduction facilities. Thai Toshiba Electric Industries will acquire engineeringassistance and training from its parent company, Toshiba Corporation of Japan. Inthe separate phase II subproject, TTEI will purchase and install the new equipmentnecessary for mass production of CFC-free refrigerators. The phase I and phase IIsubprojects will result in the elimination of 12 MT/year of CFC-12 (refrigerant) and42 MT/year of CFC-ll (foam blowing agent) after the conversion is completed.

7. Elimination of ODS Used in the Production of Household Refrigerators atSanyo Universal Electric Co.. Ltd. (SUE): Phase I SubRroJect

This subproject, in conjunction with the phase II subproject, will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at SanyoUniversal Electric Co., Ltd. (SUE), the largest refrigerator manufacturer inThailand, by converting two of its production facilities to the production ofrefrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowingagent, respectively. This phase I subproject will assist in the product developmentand testing of the new refrigerators and will help identifying all equipment andprocess changes needed for a full conversion of the production facilities. SanyoUniversal Electric will obtain engineering assistance and training from its parentcompany, Sanyo Electric in Japan. Under the separate phase II subproject, SUE willfully eliminate the use of CFC-12 and CFC-ll by installing the new equipmentnecessary for mass production of CFC-free refrigerators. The phase I and phase IIsubprojects will result in the elimination of 136 MT/year of CFC-12 (refrigerant)and 350 MT/year of CFC-ll (foam blowing agent) after the conversion is completed.

- 21 - Page 3 of 8

8. Elimination of ODS Used in the Production of Household Refrigerators atKang Yong Electric Co.. Ltd. (KYE): Phase I Subproject

This subproject, in conjunction with the phase II subproject, will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at Kang YongElectric Co., Ltd. (KYE) by converting its production facilities to the productionof refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foamblowing agent, respectively. This phase I subproject will assist in the productdevelopment and testing of the new refrigerators and will help identifying allequipment and process changes needed for a full conversion of the productionfacilities. KYE will obtain engineering assistance and training from its parentcompany, Mitsubishi Electric Corporation of Japan. Under the separate phase IIsubproject, SUE will fully eliminate the use of CFC-12 and CFC-ll by installing thenew equipment necessary for mass production of CFC-free refrigerators. The phase Iand phase II subprojects will result in the elimination of 19 MT/year of CFC-12(refrigerant) and 101 MT/year of CFC-ll (foam blowing agent) after the conversion iscompleted.

9. Elimination of 1DS Used in the Production of Household Refrierators atHitachi Consumer Products Co.. Ltd.: Phase I Subgroiect

This subproject, in conjunction with the phase II subproject, will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at HitachiConsumer Products Co., Ltd. by converting its production facilities to theproduction of refrigerators using HFC-134a and HCFC-141b as the new refrigerant andfoam blowing agent, respectively. This phase I subproject will assist in theproduct development and testing of the new refrigerators and will help identifyingall equipment and process changes needed for a full conversion of the productionfacilities. Hitachi will obtain engineering assistance and training from its parentcompany, Hitachi Ltd. of Japan. Under the separate phase II subproject, SUE willfully eliminate the use of CFC-12 and CFC-11 by installing the new equipmentnecessary for mass production of CFC-free refrigerators. The phase I and phase IIsubprojects will result in the elimination of 36 MT/year of CFC-12 (refrigerant) and108 MT/year of CFC-ll (foam blowing agent) after the conversion is completed.

10. Conversion of Compressor Manufacture from CFC-12 to HFC-134a Designs atSanyo Universal Electric Co.. Ltd. (SUE).

Under this subproject Sanyo Universal Electric Co. Ltd. (SUE) will start theconversion of its existing CFC-12 compressor manufacturing facility to theproduction of (non-ozone depleting) HFC-134a compressors for domestic refrigerators.Under this subproject, 1300 compressors will be produced for test purposes.Technology for HFC-134a compressors will be transferred from the parent company,Sanyo Electric of Japan to SUE under the terms of a newly approved technicalassistance agreement. in a subsequent subproject, SUE will fully convert to theproduction of HFC-134a compressor and become a major indigenous source of HFC-134acompressors for use in the production of non-CFC domestic refrigerators in Thailand.This subproject is one of a series of similar subprojects under the GlobalRefrigeration Subproject as approved by the Executive Committee of the MultilateralFund in September 1992.

A1At4 U

- 22 - Pae 4 of 8

11. Conversiona of Gompressor Manufacture from CFC-12 to HFC-134a Designs atKulthorn Kirby Co., Ltd.

Under this subproject Kulthorn Kirby Co. Ltd. (KKC) will start the conversionof its existing CFC-12 compressor manufacturing facility to the production of (non-ozone depleting) HFC-134a compressors for domestic refrigerators. Under thissubproject;- 1600 compressors will be produced for test purposes. Technology forHFC-134a compressors will be transferred from Tecumseh and the motor technology fromKirby under the terms of an existing license agreement. In a subsequent st.jproject,KKC will fully convert to the production of HFC-134a compressor and become a majorindigenous source of HFC-134a compressors for use in tnie production of non-CFCdomestic refrigerators in Thailand. This subproject is one of a series of similarsubprojects under the Global Refrigeration Subproject as approved by the ExecutiveCommittee of the Multilateral Fund in September 1992.

FOAM BLOWING

12. Replacement of CFC-ll with HCFC-141b as a Foam Blowing Agent at TechnicFoam. Ltd.

This subproject will eliminate the use of CFC-ll for producing rigidpolyurethane insulating foam at Technic Foam, Ltd. The phaseout will beaccomplished by replacing CFC-ll with HCFC-141b as the foam blowing agent. Thiswill require modifying existing equipment and chemical formulations, and providingtechnical assistance to Technic Foam's managers and workers. The subproject willeliminate an estimated 50 MT of CFC-ll per year. Technic Foam, Ltd. is the largestof three firms that apply PU spray insulation in Thailand, and has an estimated 60to 65 percent of this particular market. Technic is 100 percent Thai owned.

SUBPROJECTS UNDER PREPARATION:

SOLVENT CLEANING

13. Thai Airways Conversion to Non-ODS Metal Cleaning

Under this subproject, Thai Airways will eliminate the use of ODS (CFC-113 and1,1,1 trichloroethane) by converting to new, non-ODS technologies. The subprojectvill be implemented with the assistance of DIW and the Aviation Board. A manual tobe prepared as part of the subproject will make this subproject a prototype forother airlines.

MOBILE AIR CONDITIONING

14. Automobile Air Conditioning (MAC) CFC Recycling

This subproject will reduce CFC-12 consumption through improved maintenanceand refilling of mobile automobile air-conditioning (MAC) units, thereby eliminatingCFC emissions from venting and flushing of compressors and cooling systems duringMAC maintenance and repair work.

-23- -N13t I

B. IDENTIFIED SUBPROJECTS - WITH PERMISSION TO PROCEED

IDENTIFIED - HOUSEHOLD REFRIGERATORS

15. Elimination of QpS Used in the Production of Household Refrigerators atA.P. National Co.. Ltd.: Phase I Subproject

This subproject; in conjunction with the phase II subproject, will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at A.P.National Co., Ltd. by converting its production facilities to the production ofrefrigerators usinig HFC-134a and HCFC-141b as the new refrigerant and foam blowingagent, respectively. This phase I subproject will assist in the product developmentand testing of the new refrigerators and will help identifying all equipment andprocess changes needed for a full conversion of the production facilities. A.P.National will obtain engineering assistance and training from its parent company,Matsushita Refrigeration Co. of Japan. Un.ier the separate phase II subproject, A.P.National will fully eliminate the use of CFC-12 and CFC-ll by installing the newequipment necessary for mass production of CFC-free refrigerators. The phase I andphase II subprojects will re3ult in the elimination of 7 MT/year of CFC-12(refrigerant) and 45 MT/year of CFC-l1 (foam blowing agent) after the conversion iscompleted.

16. Elimination of ODS Used in the Production of Household Refrieerators atA.P. National Co.. Ltd.: Phase II Subproject

In conjunction with the Plase I subproject, this subproject will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at A.P.National Co., Ltd. in Thailand. The subprojects will convert the production line torefrigerators using HFC-134a and HCFC-141b as the new refrigerant and foam blowingagent respectively. The first subproject phase will provide for product developmentand identify needed equipment and process changes. In this phase II subproject,A.P. National will purchase and install the new equipment necessary for massproduction of CFC-free refrigerators. Phases I and II of the subproject willresult in the elimination of 7 MT/year of CFC-12 (refrigerant) and 45 MT/year ofCFC-ll (foam blowing agent) after the conversion is completed.

17. Elimination of ODS Used in the Production of Household Refrigerators atThai Toshiba Electric Industries Co.. Ltd, (TTEI): Phase II Subproiect

In conjunction with the Phase I subproject, this subproject will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at ThaiToshiba Electric Industries Co., Ltd. (TTEI). The subprojects will convert theproduction line to refrigerators using HFC-134a and HCFC-141b as the new refrigerantand foam blowing agent respectively. The first subproject phase will provide forproduct development and identify needed equipment and process changes. In thisphase II subproject, TTEI will purchase and install the new equipment necessary formass production of CFC-free refrigerators. Phaaes I and II of the subproject willresult in the elimiration of 12 MT/year of CFC-12 (refrigerant) and 42 MT/year ofCFC-ll (foam blowing agent) after the conversion is completed.

18. Elimination of ODS Used in the Production of Household Refrigerators atSanyo Universal Electric Co.. Ltd. (SUE): Phase II Subproiect

In conjunction with the Phase I subproject, this subproject will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at SanyoUniversal Electric Co., Ltd. (SUE). The subprojects will convert the productionline to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foamblowing agent respectively. The first subproject phase will provide for product

AN= 11- 24 Pase 6 of 8

development and identify needed equipment and process changes. In this phase IIsubproject, SUE will purchase and install the new equipment necessary for massproduction of CFC-free refrigerators. Phases I and II of the subproject willresult in the elimination of 136 MT/year of CFC-12 (refrigerant) and 350 MT/year ofCFC-ll (foam blowing agent) after the conversion is completed.

19. Elimination of ODS Used in the Production of Household Refrigerators atKang Yong Electric Co., Ltd. (KYE): Phase II Subproject

In conjunction with Phase I subproject, this subproject will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at Kang YongElectric Co., Ltd. (KYE) in Thailand. The subprojects will convert the productionline to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foamblowing agent respectively. The Phase I subproject will provide for productdevelopment and identify needed equipment and process changes. During this phase IIsubproject, KYE will purchase and install new equipment necessary for massproduction of CFC-free refrigerators. The Phase I and Phase II subprojects willresult in the elimination of 19 MT/year of CFC-12 (refrigerant) and 101 MT/year ofCFC-ll (foam blowing agent) after the conversion is completed.

20. Elimination of ODS Used in the Production of Household Refrigerators atHitachi Consumer Products Co.. Ltd.: Phase 1I Suboroject

In conjunction with the Phase I subproject, this subproject will phase outchlorofluorocarbons (CFCs) used in household refrigerators manufactured at HitachiConsumer Products Co., Ltd. in Thailand. The subproject will convert the productionline to refrigerators using HFC-134a and HCFC-141b as the new refrigerant and foamblowing agent respectively. The Phase I subproject will provide for productdevelopment and identify needed equipment and process changes. Iv this phase IIsubproject, Hitachi will purchase all the new equipment necessary for massproduction of CFC-free refrigerators. The Phase I and Phase II subprojects willresult in the elimination of 36 MT/year of CFC-12 (refrigerant) and 108 MT/year ofCFC-ll (foam blowing agent) after the conversion is completed.

SOLVENT CLEANING

21. Conversion of Electronic Cleaning Process from CFC-113 to High-PurityWater Cleaning at TeamTronics Co.. Ltd.

This subproject will eliminate the use of CFC-113 solvent in the cleaning offlexible circuit card assemblies at TeamTronics. TeamTronics is a contractmanufacturing facility producing high technology circuit assemblies for use inelectronic equipment such as computers. At TeamTronics, the phaseout of ozonedepleting substances (ODS) will be accomplished by replacing the current CFC-113batch cleaner with one in-line aqueous cleaner. The aqueous cleaners will be usedto remove flux residues and light ionic contamination from the circuit cards. Thesubproject also includes the purchase and installation of a water recycling system.The subproject will result in the elimination of 15 MT per year of CFC-113 after theconversion is completed. TeamTronic3 is 100 percent Thai owned.

- 25 - ANNEX IIPoge 7 of 8

C. IDENTIFIED

MOBILE AIR-CONDITIONING (MAC)

22. Demonstration of Low Cost HFC-134a Retrofit of Existing CFC-12 MAC's atKarnawat

This subproject will demonstrate how mobile air conditioners (MACs) using CFC-12 can be retrofitted for using HFC-134a as refrigerant. Some 2.3 million vehiclesin Thailand have air conditioning units installed, all of which use CFC-12 asrefrigerant. To charge, service and repair these MACs 1,640 MT of CFC-12 areconsumed annually in service stations spread out across the country. To phase outthe use of CFC-12 in the MAC sector, two concurrent efforts must be carried out.One is to eliminate the current production of CFC-12 MACs; another is to minimizethe demand of CFC-12 in the MACs' service sector. A cost-effective way to minimizesuch demand in the service sector is to retrofit existing MACs for HFC-134a.Retrofitting will ensure the continued utility of installed equipment with manyyears of remaining serviceable life. The subproject will comprise three phases.The first phase will involve the selection and acquisition of retrofit components.The second phase will involve the retrofitting of 50 mobile air-conditioning units,25 of which will be installed in private cars and 25 in taxis. The third phase willinvolve close and regular monitoring of the conditions of the retrofitted MACs.Karnawat is lOOX Thai owned.

23. Phaseout of CFC-12 in Mobile Air Conditioners at Nippondenso ThailandSales

This subproject will convert Nippondenso's network of 150 mobile air-conditioning service shops from CFC-12 to shops for servicing new HFC-134a mobileair conditioners which will be installed in new cars in 1993. Under thissubproject, Nippondenso will set up a demonstration center which will be used totrain technicians from its own service network as well as technicians from otherinterested service shops. Tools and equipment required for servicing HFC-134a MACswill then be distributed free of charge to Nippondenso-authorized service shops.This subproject is a necessary complement to the automobile manufacturer'sconversion to air conditioning units using HFC-134a. The auto maker's decision toinstall HFC-134a units will result in annual CFC savings of 625 MT.

BUILDING AIR CONDITIONING

24. Demonstration of Chiller Conversion of CFC-12 Chillers to HFC-134a andRefrigerant Recovery Technologies at The Post Publishing Company

This subproject will convert three 400-kg CFC-12 centrifugal McQuay chillersat the Bangkok Post Building to using HFC-134a as the refrigerant. In addition toeliminating the use of ODSs at the facility, the subproject would serve as andemonstration project for other building owners who use McQuay chillers. PidoInternational, the representative of McQuay Air Conditioning in Thailand, wouldperform the conversion with help of engineering consultants from McQuay.

AN= Ir

- 26 - Page 8 of 8

The subproject would include the purchase of a recovery machine that would beused to remove the CFC-12 refrigerant and purify it for reuse in existing chillerselsewhere, reducing Thai consumption and imports of CFC-12. The recyclingtechnology would be used by the chiller service companies at other sites to reduceODS servicing related emissions. Training is also included in the subproject toensure that each service firm has the skills to perform the retrofit and operate therecovery/recycling equipment. Finally, the subproject would reimburse the chillerowner for increased energy and refrigerant costs that they would incur as a resultof the conversions. This subproject is expected to eliminate the consumption of 6MT of CFC-12.

25. Demonstration of Chiller Conversion of CFC-l1 Chillers to HCFC-123 andRefrigerant Recovery Technologies at Kian Gwan Co. Building andThe ImDerial Oueen Hotel

This subproject will develop the ability of Thai engineers and technicians toconvert low pressure CFC-ll chillers to HCFC-123, and to recover and recycle CFC-llrefrigerant during service operations. The subproject would involve two of thelargest refrigeration service companies in Thailand: York Air Conditioning andRefrigeration (Thailand) and Jardine Trane Air Conditioning. York would convert two500-kg CFC-ll centrifugal chillers at the Kian Gwan Company's main office complex,and Trane would convert one 1,215 kg CFC-ll centrifugal chiller at the ImperialFamily of Hotels's Queen's Park Hotel. Both York and Trane would undertake theconversions with the help of engineers from their parent companies.

Recovery/recycling equipment would be purchased for the subproject to removethe CFC-ll refrigerant and purify it for reuse in other chillers, reducing Thaiconsumption and imports of CFC-ll (there is currently no such equipment inThailand). York and Trane would assume ownership of the recycling machines afterthe completion of the subproject so that they could use them at other sites toreduce ODS servicing related emissions. Training is also included in the subprojectto ensure that each service firm has the skills to perform the retrofit and operatethe recovery/recycling equipment. Finally, the subproject would reimburse thechiller owners (Kian Gwan and the Imperial Family of Hotels) for increased energyand refrigerant costs that they would incur as a result of the conversions. Bothbuildings are assumed to be 100% Thai owned, which has been taken into account incalculating the proposed OTF financing. It is expected that this subproject willeliminate the consumption of 5 MT of CFC-ll.

- 27 - ANNEX IIIPage 1 of 2

KINGDOM OF THAILAND

NONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT INVESTMENT PROJECT

ANNEX III: PROCESSING STEPS FOR SUBPROJECT PROPOSALS

The following is a summary of key processing steps for subprojects requesting OTF fundingwhich IFCT will elaborate in Operating Policy Guidelines acceptable to the Bank.

a. SubRroiect Preparation: Enterprises will be responsible for preparingpre-investment studies. They may request assistance from DIW andUnisearch which will strengthen the technical aspects of the project.DIW will inform and involve IFCT as soon as possible and IFCT has theright to participate in the project identification from the onset.

b. Local Endorsement: DIW will endorse each subproject to ensure that thesubproject proposal conforms to priorities established under theCountry program. IFCT will carry out a preliminary screening of theenterprises viability and determine its financial prequalification toundertake the project.

c. Technical Review and World Bank endorsement: The World Bank willoversee technical reviews of subproject proposals and endorse eachsubproject to ensure that it is consistent with guidelines for theHFMP.

d. Fund Executive Committee atproval: For larger subprojects (overUS$500,000) approval has to be obtained for each subproject from theMPEC. MPEC's approval of individual subproject is not required forsubprojects of less than US$500,000. Such subprojects are beingincluded into the world Bank's Work Program which is submitted as wholeto the MPEC for approval. If convenient, the World Bank may decide topresent a batch of subprojects under one umbrella Project for approvalfrom the fund.

e. SubRroject avRraisal: IFCT will appraise subprojects based oncriteria. IFCT will prepare appraisal reports in accordance with theSubproject Appraisal Report Format. This format will follow IFCT'sexisting reporting requirements and will be agreed upon between theBank and IFCT after the submission of the first set of subprojects.Reporting requirements will differ for project below and above theUS$500,000 level. DIW will officially submit them to the World Bank.

f. World Bank Review and Grant AMIroval: The world Bank will review eachappraibal report and ensure compliance with the Fund's goals and itseligibility criteria. Subgrants can only be awarded to subprojects forwhich the World Bank has approved appraisal reports (there is no freelimit in accordance with guidelines for the fund).

g. Subarant Agreements: After appraisal reports are approved by the WorldBank, IFCT will prepare subgrant agreements to commit the subprojectsponsor to undertake necessary activities agreed upon in the subprojectproposal in order to achieve the intended ODS reduction or phase out.

h. Disbursement of Subgrant: Upon OTF grant effectiveness, the Bank willdisburse to the Special Account. IFCT would then disburse from the

- 28 - ANNEX IIIPage 2 of 2

Special Account to the subproject in accordance with agreeddisbursement and procurement procedures (see Annex IV).

Under certain circumstances IFCT may opt for Disbursement in Tranches.typically for large subprojects (over US$0.5 million) with a largeshare (proposed minimum threshold: over 50%) of subgrant funding forincremental operating costs (as opposed to investment costs), or forsubprojects where for technical reasons investments take place in twoor more phases. For such subprojects, IFCT propose a disbursementplan. Disbursement under each tranche would be based on receipt ofprogress reports satisfactory to IFCT (see below).

i. Procuremegat: IFCT will also be responsible for ensuring thatbeneficiary enterprises follow the agreed procurement guidelines. (seeAnnex IV).

j. Subproject Implementation: Each enterprise will be responsible forsubproject implementation. For that purpose, it will sign a sub-grantagreement with IFCT upon receipt of the subgrant. The agreement willspell out the responsibilities of the enterprise and its commitment toundertake the necessary activities agreed upon in the subprojectproposal in order to achieve the intended ODS reduction.

k. Progress reports: Enterprises will be responsible for preparingprogress reports and submitting them to IFCT (with copy to DIW). As aminimum, the enterprise would submit one subproject progress report atthe time when the proposed investment activities have been implementedand the new installations are operating. In cases where multipledisbursement tranches have been agreed, the enterprise would submit oneprogress report prior to each tranche. The final enterprise progressreports have to be acceptable to DIW and the Bank.

1. SubDroiect Supervision: IFCT will have prime responsibility forsupervising implementation of subprojects while disbursing the subgrantto the subprojects. Even r the subgrant has been fully disbursed,IFCT will review and approv, he progress reports submitted by theenterprises and verify them. IFCT's responsibility for subprojectsupervision ends after full disbursement and the approval of the finalenterprise progress report acceptable to DIW and the Bank.

m. Subproiect Monitoring: DIW has the right to monitor the progress of MPfunded subprojects in fulfillment of its overall responsibility for theimplementation of the MP ODS phase out Country Program.

n. Auditing and Reporting: IFCT will submit semi-annual reports on thestatus of the grant disbursements and the progress of the subprojects,acceptable to the Bank. Copies of these reports will be submitted toDIW. IFCT will also submit an annual audit report on the subprojectaccount prepared by an independent auditor acceptable to the Bank.

- 29- ANNEX IVPage 1 of 2

KINGDOM OF THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASE OUT INVESTMENT PROJECT

ANNEX IV: PROCUREMENT AND DISBURSEMENT PROCEDURES

A. Procurement

1. Procurement of goods, works, and services will be in accordance with relevantBank Guidelines. IFCT will be responsible to ensure that procurement under the projectfollows agreed guidelines. It will help enterprises arrange procurement (internationaland local); where necessary, procurement should be handled by qualified procurementagencies authorized by the Government and acceptable to the Bank. For InternationalCompetitive Bidding (ICB), documents will be prepared following the Bank Standard BiddingDocuments, and domestic preference of 15% for goods manufactured in Thailand will applyaccording to the procurement guidelines of the Bank.2. IFCT will satisfy itself that the goods, works, and services to be procured arefor the subprojects and are reasonably priced, by ensuring that the grant recipient hasfollowed efficient and economic procurement practices in accordance with those of theminimum thresholds agreed (see following list):

(a) Procurement of Goods and Services

For procurement of goods and works the following procedures would apply:

(i) contracts over US$ 2 million equivalent (excluding proprietarypackages) would be procured under ICB procedures;

For contracts below the ICB threshold, procurement would follow theprocurement practices of private industry in Thailand, which the Bankhas examined and found acceptable, consisting at a minimum of thefollowing:

(ii) contracts between US$200,000 and US$2 million equivalent would beprocured on the basis of comparison of price quotations solicitedfrom at least three qualified suppliers from at least two countries;and

(iii) contracts below US$200,000 equivalent would be procured on the basisof comparison of price quotations solicited from at least threequalified suppliers.

(b) Prior Review

Prior review is required for the following contracts and bid packages:

(i) over US$ 2 million equivalent; and

(ii) for proprietary technology and equipment.

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B. Disbursement

3. Project funds are expected to be disbuxrsed according to the following standarddisbursement schedule: 14% in 1994, 48X in 1995, 34% in 1996, and 4% in 1997. Closingdate for the project is December 31, 1997. A Special Account would be established tofacilitate disbursement of OTF grants. The following disbursement guidelines have beenagreed upon:

(i) Between Bank and IFCT:

Disbursement will follow the procedures given in the Disbursement Handbookpublished by the Bank in 1992, and in the Disbursement Letter which will beissued after the Grant has been signed. Once the Grant Agreement has beenapproved and is effective, and after receipt of a withdrawal applicationfrom IFCT, the Bank will make an initial deposits of up to US$ 1.0 millioninto a Sgecial Account. IFCT will be responsible for submitting theapplications for withdrawal and replenishment to the Bank. Replenishmentof this Special Account and all other disbursements would be made againstfull documentation, except for expenditures under contracts valued belowUS$200,000 equivalent for which the Bank will accept Statements ofExDenditures (SOE). Supporting documents for SOEs including contracts,procurement documentation, and evidence of payment should be kept in acentral location for examination by independent auditors and Bank staffduring supervision missions.

(ii) Between IFCT and SubRroiect:

Up to US$ 2 million equivalent per contract, IFGT will disburse to thesubproject proponent for eligible expenses without prior review by the Bank(see procurement guidelines).

Disbursement in Tranches: For large projects (over US$0.5 million) with alarge share (proposed minimum threshold: over 50%) of grant funding foroperating costs (as opposed to investment costs), IFCT should submit adisbursement plan in two or more tranches together with the appraisalreport. Disbursement under the tranches would be based on receipt ofprogress reports satisfactory to IFCT.

(iii) Interest earnings on Special Account:

IFCT would retain the interest income earned on the outstanding balance ofthe Special Account and use it for purposes to be agreed with the Bank,such as Montreal Protocol related training and participation ininternational conferences to update IFCT's technical know how.

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KINGDOM OF THAILAND

MONTREAL PROTOCOL OZONE DEPLETING SUBSTANCESPHASR OUT INVESTMENT PROJECT

ANNEX V: GUIDELINES FOR SUBPROJECT ELIGIBILITY. GRANT FUNDING. AND PREPARATION OFAPPRASAL REPORTS

The following is a summary of guidelines for subproject eligibility, grant funding andappraisal reports of subprojects requesting funding from the Ozone Trust Fund; theseguidelines are derived from Guidelines issued by the Multilateral Fund Executive Committeeand by the Bank.

A. Subproject Eligibility

1. Subprojects should be on priority list included in the Country Program orshould be identified by DIW as essential to achieve the objectives of ODS phase-out inThailand. Subprojects should have direct and demonstrable results in reducing ODSconsumption in the country. They should be cost effective and be based on environmentallysound technologies to substitute for or recycle ODS.

2. Successful implemcntation of subprojects may sometimes depend directly onappropriate policies and regulations. In these cases, these policies should be addressedin the appraisal report for consideration by the MFEC. In general, however, overalleconomic and industrial policy reforms are not to be addressed in the context ofsubprojects but in the ODS Country Program as approved by the MFEC.

B. Guidelines for Subgrant Fundina

3. OTF funding is provided as a grant to the subproject proponent implementing thesubproject. The grant is calculated in economic terms for the "incremental costs", aselaborated below, based on the guidelines defined by MFEC and the Bank's interpretation ofincremental costs.

4. Determination of Incremental Costs:

(a) Definition. Incremental costs are defined as the net present value ofincremental economic subproject costs (investment capital plus operatir,g costsnet of operating benefits) discounted at the economic cost of capital in thecountry (102 will be used in Thailand) in constant economic prices over theeconomic life of the subproject. When appropriate, risks associated withtechnology, market and financing of undertaking the subproject should be takeninto consideration.

(b) Co-financing. In cases where the subproject proponent has to put up its owncapital (or commercial loans) to co-finance part of the subproject costs, thenecessity for providing sufficient financial incentive to undertake thesubproject should be considered, i.e. enterprise should obtain an acceptablereturn on its own capital. The Grant amount could then be determined in such away that the Economic Rate or Return on the risk capital is 10X (real terms).For comparison, also a financial rate of return for the subproject should becalculated. If the financial rate of return differs substantially from the ERR(e.g. because of major distortions of market prices) and would be unacceptablylow for the enterprise, the grant amount may be determined based on a minimumFRR. Such situation should be raised as an issue in the appraisal report. Theminimum FRR should be determined based on an objective assessment of thecountry's local financial sector and should correspond to the best judgement ofa reasonable return on capital within the country's industrial sector. In manycases subproject proponents will view ODS phaseout investments as necessary

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business costs and may not require financial incentives in addition to a grantfor incremental costs.

(c) Ownership. An enterprise (subproject proponent) is eligible for funding indirect proportion co the percentage of local ownership of the enterprise.

(d) Exports. A subproject is eligible for funding provided unless it is located ina "free zone" and its products are destinated for export only.

(e) Operating Costs and Savings. Under MFEC guidelines, incremental recurringcosts net of operational savings are eligible for grant funding only for thefirst 4 years of project operation. Reimbursements for longer periods have tobe approved on a case by case basis.

(f) Duties and Taxes. Import duties and other direct taxes are not eligible forgrant funding. The recipient Government should agree to exempt imports underthis project from import duties. (Important issues related to the exemption oftaxes and duties should be addressed in the subproject appraisal report). IFCTwould need to state whether the Subproject is exempted of duties and taxes inaccordance with the Country Program and relevant legislation.

C. SubDroject Priority and Unit Abatement Costs

5. Subprojects with the most cost effective technology and with the lowest unitabatement cost of ODS which achieve ODS phase out in the shortest period of time receivepriority. Relative cost effectiveness is measured as "unit abatement cost", a comparativeindex defined as follows:

A - C(F) + (OC-OS)

Where:A - Unit abatement cost, $/kg ODP saved/year (at full operation)C = Incremental capital cost, including all initial one time costs such as

technology, trainingF - Capital recovery factor; the annualized capital cost charges, discounted at a

standard discount rate of 10% per year, over the economic life of theproject.

OC - Annual Operating Costs at full operationOS - Annual Operating benefits at full operationW - Quantity of ODS saved annually expressed as ODP units

6. The purpose of unit abatement cost calculation is to give a relative ranking ofprojects across countries and within same sector. Lower unit abatement costs correspondto higher priority in cost effectiveness. The unit abatement cost is calculated atstandard discount rates to facilitate cross country comparisons.

D. Elements of the Subproject ADnraisal

IFCT would prepare appraisal reports along the following guidelines in a format acceptableto the Bank, including as a minimum the following elements:

7. Subnroiect scone - including a full description of the proposed technology andthe source of technology supply. In selected cases, description should refer to technicalcooperation agreements between the enterprise and an international technology supplier.Where necessary, the description should distinguish between components relating to ODSphase out directly and other components, such as expansion of output or product upgradingwhich are not eligible for OTF grant funding.

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8. Schedule and quantity of ODS reductio' - (expressed as ODS and ODP), which willbe phased out as a direct result of the subproject, on annual and total basis.

9. SubXroiect costs - divided into (a) components relating to ODS phase out and(b) other components. Costs should be broken down into investment and operating costs,costs eligible for OTF funding, foreign exchange and local costs, and expenditures alreadyincurred for which retroactive financing will be requested.

10. Review of technical feasibility of the subgroject - to determine the soundnessof the technical proposal, based on local and international experience.

11. Economic and financial analysis of the suboroiect - should be undertakenaccording to IFCT and Bank methodology. Economic analysis would be limited to acalculation of economic project cost by excluding transfer costs, in particular importduties, from financial cost calculation. The economic analysis would not include shadowpricing. Any significant difference between financial and economic rates of return shouldbe explained.

12. Financing arrangements - description of sources, terms and conditions, dividedinto (a) incremental costs related to ODS phase out to be financed as an OTF grant, (b)amount to be provided by enterprise from its own resources; and (c) local and/or foreignloans to be financed through commercial loans from local and/or foreign institutions (atcommercial interest rates). The financing plan should be confirmed at the time ofappraisal.

13. Financial analysis of enterprise - to determine the soundness of the subprojectproponent by using a set of minimum financial indicators which reflect the enterprise'sfinancial viability and its ability to implement the subproject. The indicators should bedetermined based on local conditions and should be consistent with commercial practice inthe country.

14. Disbursement Plan - the amount and schedule of disbursements, including, whereapplicable, the conditions for disbursement under multiple tranches, e.g. completion ofcertain measures and submission of satisfactory progress reports.

15. Subproject implementation - each enterprise will be responsible for subprojectimplementation in accordance with the subgrant agreement. Subproject sponsors will beresponsible for preparing progress reports and submitted them to IFCT (with copy to DIW)according to practices applied by IFCT in similar projects. As a minimum, the subprojectsponsor would submit one project progress report at the time when the proposed investmentactivities have been implemented and the new installations are operating. In cases wheremultiple disbursement tranches have been agreed, the sponsor would Jubmit one progressreport prior to each tranche release.

16. Environmental aspects - description of environmental'y critical aspects of thesubproject and measures to address the environmental risks. Furthermore, a certificationthat the subproject proponent has complied with local environmental regulations has to beattached to the appraisal report.

17. Renorting requirements - description of the scope, the number and the timing ofprogress reports and other information which the subproject proponent has to submit toIFCT (with copy to DIW), according to the practice applied by IFCT in similar subprojects.As a minimum, the enterprise would submit one subproject progress report at the time whenthe proposed investment activities have been implemented and the new installations areoperating. In cases where multiple disbursement tranches have been agreed upon, theenterprise would submit one progress report prior to each tranche.

18. Suburant Agreement - attached to the appraisal report, IFCT would submit adraft contract between IFCT and the subproject proponent, based on a model contractapproved by the Bank prior to effectiveness of the OTF Grant Agreement. The subgrant

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agreement spells out the responsibilities of the subproject proponent and sanctions incase of non-compliance.

19. SubRroiect supervision - IFCT will have prime responsibility for supervisingimplementation of subprojects while it is still disbursing to the subprojects. Even afterthe grant has been fully disbursed, IFCT will review and approve the progress reportssubmitted by the enterprises and, if necessary, verify them.- IFCT's responsibility forsubproject supervision ends after full disbursement and approval of the final enterpriseprogress report. DIW has the right to monitor the progress of OTF funded subprojects infulfillment of its overall responsibility for the implementation of the ODS phaseoutCountry program.