Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR0000687 IMPLEMENTATION COMPLETION AND RESULTS REPORT (WBTF-21916) ON A GRANT IN THE AMOUNT OF US$ 6.46 MILLION TO CHILE FOR Montreal Protocol Implementation Program December 10, 2007 LCR ENVIRONMENT SECTOR CHILE, ARGENTINA, URUGUAY AND PARAGUAY LATIN AMERICA AND CARIBBEAN REGIONAL OFFICE
ABBREVIATIONS AND ACRONYMS CURRENCY EQUIVALENTS (Exchange Rate Effective: November 9 2007) Currency Unit = CLP 1.00 = US$0.00198 US$1.00 = 504.25 CLP FISCAL YEAR July 1 June 30 CE CFC CP CONAMA CTC EIA ExCom HAFC GOC IS MeBr MLF MP MT ODP ODS OTF OT PAD PCR SME TCA TECFIN UNDP UNEP Cost effectiveness Chlorofluorocarbons Country Program Comisión Nacional del Medio Ambiente (Nacional Commission for the Environment) Carbon Tetrachloride Environmental Impact Assessment Executive Committee of the Montreal Protocol Multilateral Fund Hydrochlorofluorocarbons Government of Chile Institutional Strengthening Methyl Bromide Montreal Protocol Multilateral Fund Montreal Protocol Metric Ton Ozone Depleting Potential Ozone Depleting Substance Ozone Trust Fund Ozone Team Project Appraisal Document Project Completion Report Small and Medium Enterprises Methyl Chloroform Technology Conversion Financing Program United Nations Development Program United Nations Environmental Program
Vice President: Pamela Cox Country Director: Pedro Alba Sector Manager: Laura Tlaiye Project Team Leader: Horacio Terraza ICR Team Leader Horacio Terraza
CHILE Ozone Depleting Substances Phase-out Project (Montreal Protocol) CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISR H. Restructuring I. Disbursement Graph 1. Project Context, Global Environment Objectives and Design... 1 2. Key Factors Affecting Implementation and Outcomes... 27 3. Assessment of Outcomes... 32 4. Assessment of Risk to Development Outcome... 37 5. Assessment of Bank and Borrower Performance... 38 6. Lessons Learned... 40 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners... 42 Annex 1. Project Costs and Financing... 44 Annex 2. Outputs by Component... 45 Annex 3. Economic and Financial Analysis... 46 Annex 4. Bank Lending and Implementation Support/Supervision Processes... 47 Annex 5. Beneficiary Survey Results... 49 Annex 6. Stakeholder Workshop Report and Results... 50 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR... 51 Annex 8. Comments of Co-financiers and Other Partners/Stakeholders... 53 Annex 9. List of Supporting Documents... 54 MAP
A. Basic Information Country: Chile Project Name: Reduction of Ozone Project (Montreal Protocol) Project ID: P006576 L/C/TF Number(s): WBTF-21916 ICR Date: 12/17/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOVERNMENT Original Total Commitment: USD 6.5M Disbursed Amount: USD 4.5M Environmental Category: C Implementing Agencies: CONAMA Cofinanciers and Other External Partners: B. Key Dates Global Focal Area: O Process Date Process Original Date Revised / Actual Date(s) Concept Review: 06/15/1990 Effectiveness: 11/09/1993 11/09/1993 Appraisal: 06/29/1992 Restructuring(s): 07/25/1996 Approval: 05/21/1993 Mid-term Review: Closing: 04/30/1997 06/30/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Global Environment Outcome Bank Performance: Borrower Performance: Satisfactory Low or Negligible Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Not Applicable Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No Quality at Entry None Rating i
at any time (Yes/No): Problem Project at any time (Yes/No): GEO rating before Closing/Inactive status No Satisfactory (QEA): Quality of Supervision (QSA): None D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 22 22 Other industry 78 78 Theme Code (Primary/Secondary) Environmental policies and institutions Secondary Secondary Pollution management and environmental health Primary Primary E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Shahid Husain Country Director: Pedro Alba Ping-Cheung Loh Sector Manager: Laura E. Tlaiye Asif Faiz Project Team Leader: Horacio Cristian Terraza Laura E. Tlaiye ICR Team Leader: ICR Primary Author: Horacio Cristian Terraza Juan Lopez-Silva ii
F. Results Framework Analysis Global Environment Objectives (GEO) and Key Indicators(as approved) The Chilean Montreal Protocol project has II phases. The overall objective of the Phase I was to achieve a 63% reduction in the consumption of ODS through a combination of means including public awareness raising, financial subsidies (TECFIN), creation of an ozone team and specific training. The objectives to Phase II were: To assist Chile in the phaseout of the use of substances that deplete the ozone layer (at least 400 MT); to develop the regulatory framework for an ODS phaseout by 2006; and to consolidate the institutional capacity gained by CONAMA in the execution of Chile's Montreal Protocol program. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications (a) GEO Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Phase I REDUCTION OF ODS CONSUMPTION Reduction of 729 In 1989, 907 MT CFC MT of CFC were imported imported and consumed Formally Revised Target Values Reduction of 120 MT of CFC imported and consumed Actual Value Achieved at Completion or Target Years Reduction of 118 MT of CFC imported and consumed Date achieved 12/31/1989 06/01/1993 06/01/1995 02/03/1997 Values were revised due to the general lack of experience regarding realistic Comments ODP phase-out potential for every type of project in order to reflect only direct (incl. % reductions. This operation was one of the first projects approved by the Montreal achievement) Protocol MLF Develop an institutional framework for the implementation of the Montreal Indicator 2 : Protocol in Chile Value (quantitative or Qualitative) National Commission for the Environment was established in 1993 Establishment of an ozone team Establishment of an Ozone Program within CONAMA with a group of professionals fully devoted to work on the implementation of activites to reduce ODS and ensure the implememtation of the Ozone Law Date achieved 12/01/1993 12/31/1996 12/31/1996 iii
Comments (incl. % achievement) Indicator 3 : Value (quantitative or Qualitative) Phase II REDUCTION OF ODS CONSUMPTION Reduction of 400 In 1995, 934 MT CFC MT of CFC were imported imported and consumed Reduction of 409 MT of CFC imported and consumed Date achieved 12/31/1995 12/31/2006 12/01/2004 Comments (incl. % achievement) (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years To develop a regulatory framework to comply with maximum consumption targets. There is no import caps for controlled substances Ensure that ODS imports do not exceed controlled values. An Ozone Law prohibiting the consumption of ODS in all manufacturing and consuming sectors, in accordance to MP s phaseout schedules, was approved by Presidential decree on March 2006. Specific decrees are fully in place since September 2007 Date achieved 12/31/1992 01/01/2007 03/01/2006 Comments (incl. % achievement) Indicator 2 : To established labels on "ozone friendly" products and services Value (quantitative or Qualitative) No mechanism to certified that products do not contain or use ODS existed at the time of the project was approved Establishment of Ozone Seal Establishment of Ozone Seal Date achieved 05/21/1993 12/31/1996 12/31/1996 Comments iv
(incl. % achievement) Indicator 3 : Value (quantitative or Qualitative) Raise awareness of the ozone layer problem Fairly small knowledge of the Ozone Depletion problem Launching of a public awareness campaign A public campaign was launched during 1995 and 1996 Date achieved 12/31/1993 05/05/1995 12/31/1996 Comments (incl. % achievement) Indicator 4 : To provide technical guidance to entrepreneurs in specific industries on mechanisms to shift to non-ozone depleting technologies. Value (quantitative or Qualitative) Lack of information regarding alternatives non-ods technologies Implementation of a Sector Specific Training Program Implementation of a single comprehensive seminar on refrigeration and foams was undertaken, instead of various small sector courses and a technical advice seminar Date achieved 05/20/1993 12/31/1997 03/14/1997 Although the training program was differently than originally planned, the Comments seminar was broadly welcomed by the firms involved and participants expressed (incl. % their satisfaction about the event s organization, quality of speakers, and achievement) relevance of the topics G. Ratings of Project Performance in ISRs No. Date ISR Archived GEO IP Actual Disbursements (USD millions) 1 06/12/1995 Satisfactory Unsatisfactory 0.18 2 01/29/1996 Satisfactory Satisfactory 0.34 3 12/17/1996 Satisfactory Satisfactory 0.68 4 06/23/1999 Satisfactory Satisfactory 1.77 5 12/15/1999 Satisfactory Satisfactory 2.25 6 06/27/2000 Satisfactory Satisfactory 2.55 7 09/12/2000 Satisfactory Satisfactory 2.55 8 10/30/2000 Satisfactory Satisfactory 2.55 9 05/25/2001 Satisfactory Satisfactory 3.71 10 12/19/2001 Satisfactory Satisfactory 4.02 11 06/13/2002 Satisfactory Satisfactory 4.02 v
12 11/28/2002 Satisfactory Satisfactory 4.15 13 06/16/2003 Satisfactory Satisfactory 4.24 14 12/10/2003 Satisfactory Satisfactory 4.24 15 06/18/2004 Satisfactory Satisfactory 4.35 16 12/09/2004 Satisfactory Satisfactory 4.35 17 04/19/2005 Satisfactory Satisfactory 4.55 18 05/30/2006 Satisfactory Satisfactory 4.64 19 11/20/2006 Satisfactory Satisfactory 4.64 20 06/13/2007 Satisfactory Satisfactory 4.67 H. Restructuring (if any) Restructuring Date(s) Board Approved GEO Change GEO ISR Ratings at Restructuring IP Amount Disbursed at Restructuring in USD millions N S 0.59 Reason for Restructuring & Key Changes Made In Chile, the Bank project was structured as an umbrella program, under which Montreal Protocol projects were subsequently approved and implemented. The OTF Grant Agreement in Chile was signed for US$1,206,000, and later updated in1996 to US$6,456,000 to provide the space for the implementation of phase II projects approved by the Executive Committee of the Montreal Protocol vi
I. Disbursement Profile vii
1. Project Context, Global Environment Objectives and Design Chile s Ozone Depleting Substances Phase-out Project assisted the country in phasing out ozone depleting substances (ODS) and complying with Chile s Montreal Protocol (MP) Commitments. The project included two phases that were approved in June 1992 (ODS Phase I) and June 1996 (ODS Phase II). The activities ranged from institutional strengthening (IS) to a subsidies program that sought to promote technological conversion. The sub-sections below describe the country context at appraisal and the objectives, components, and main outcomes of this operation. 1.1 Context at Appraisal The Montreal Protocol on Substances that Deplete the Ozone Layer was adopted in 1987 as an international treaty to eliminate the production and consumption of ozone depleting chemicals, including chlorofluorocarbons (CFC), halons, carbon tetrachloride (CTC), methyl chloroform (TCA), and methyl bromide (MeBr). Scientific theory and evidence suggest that these compounds, once emitted to the atmosphere, can significantly deplete the stratospheric ozone layer that shields the planet from damaging UV-B radiation. Under this treaty, developed countries had to phase out CFC by the year 2000 (2005 for TCA and MeBr). Developing countries, also known as Article 5 countries in the context of the Protocol, benefit from a 10-year grace period. Because of its geographic location in the southern latitudes, where thinning of the ozone layer has greater impact, Chile was one of the first countries to ratify the Montreal Protocol, on March 26, 1990. Under the Protocol, the Government of Chile (GOC) committed to (a) freezing 1999 CFC consumption at average 1995 1997 consumption levels, (b) reducing CFC consumption by 50 percent by 2005, (c) reducing CFC consumption by an additional 35 percent by 2007, and (d) phasing out CFC consumption by 2010. The country s remaining commitments under the MP are summarized in table 1, which shows the phase-out schedule for Article 5 countries. 1
Table 1. Phase-out schedule for Article 5 countries Date Jul. 1999 Jan. 2002 Jan. 2003 Jan. 2005 Jan. 2007 Jan. 2010 Jan 2013 Jan. 2015 Jan 2020 Jan. 2025 Jan. 2030 Jan. 2040 Annex A Group I Chlorofluorocarbons (CFC) Freeze consumption Reduce by 50% Reduce by 85% Reduce by 100% Annex A Group II Halons Freeze consumption Reduce by 50% Reduce by 100% Ozone depleting substance (Annex and Group) Annex B Group II Carbon Tetrachloride (CTC) Reduce by 85% Reduce by 100% Annex B Group III Methyl Chloroform (TCA) Freeze consumption Reduce by 30% Reduce by 70% Reduce by 100% Annex E Methyl Bromide (MeBr) Freeze consumption Reduce by 20% Reduce by 100% Annex C Group I Hydrochlorofluorocarbons (HCFC)* Freeze consumption Reduce by 5% Reduce by 35% Reduce by 67.5% Reduce by 97.5% Reduce by 100% Source: World Bank, based on Montreal Protocol *Baseline for HCFC is calculated based on the average consumption and production in 2009 and 2010 (updated values at the 19 th Meeting of the Parties to the Montreal Protocol, September 2007). 1.1.1 Brief Overview of the Implementation of the MP Program in Chile In June 1992 the Executive Committee of the Multilateral Fund (ExCom) approved the Country Program (CP) prepared by the GOC. The CP described the trends of ODS consumption, identified the major consuming sectors in the country, and outlined the country s strategy for their phase out. In 1992, at its seventh meeting, the Montreal Protocol Multilateral Fund (MLF) approved Phase I of Chile s ODS Phase-out Project as 2
the first MP project to implement Chile s Country Program. Phase I targeted the reduction of 63 percent of total ODS consumption in the country. At the time of the Bank s involvement in Chile in 1993 (a Grant Agreement between Chile and the World Bank as implementing agency was signed on July 7, 1993), the country was a net consumer of ODS, and no production had historically taken place. Most consumption (CFC-11 and CFC-12) was in the refrigeration sector (56 percent) and foams sector (16 percent), which played a key role in processing natural products such as fish, livestock, and agricultural produce. Most CFC were imported from Mexico, while smaller quantities were brought in from Venezuela and Argentina. The remaining 28 percent of consumption of other ODS (mainly TCA and CTC) were used in the solvents, halons, and agricultural sectors. Although Chile had a large number of CFC consumers, about 50 percent of national consumption was concentrated in four large companies. Two of these consumed more than 40 percent of the ODS used in the refrigeration sector, while two foaming enterprises consumed more than 55 percent of the foam sector s consumption. The project included a set of measures to strengthen the institutional capacity of Chile to implement and promote the Montreal Protocol. These included the creation of an ozone seal, a massive communications strategy, and the establishment of an Ozone Team (OT) in the Comisión Nacional del Medio Ambiente (CONAMA, or National Commission for the Environment). Also, to complement and test the involvement of the private sector, the MLF funded a Technology Conversion Financing Program (TECFIN) of subsidies to co-finance conversion to non-ods alternatives. This was one of a kind approach to competitively allocate MLF grants to ODS phaseout projects. Essentially, interested companies would bid on a grant cost-effectiveness basis; those companies offering to implement their eligible ODS phaseout projects and showing the better cost-effectiveness ratios would obtain the grant resources first. The approach would also work on a reimbursement basis, substantially reducing the transaction costs and increasing the efficiency of MLF s grant resource allocation. The project got a special recognition at the Montreal Protocol s 20 th Anniversary Celebration. In 1996, as part of the definition and structuring of Chile s ODS Phase II, the Ozone Depleting Substances Phase-out Project focused on establishing a competitive structure for TECFIN and promoting the reduction of Chile s MeBr consumption. According to the MP compliance schedule, consumption of MeBr must be reduced by 20 percent by 2005 and phased out by 2015. 1.1.2 ODS Phase-out Project Background and Institutional Structure CONAMA was formally established in 1994 as a national entity to promote sustainable environmental development and coordinate policy-driven environmental actions and strategies defined by the GOC. CONAMA s responsibilities included the implementation of international environmental agreements, conventions, and treaties signed and ratified by Chile. Within this institutional framework, CONAMA became the national entity in 3
charge of coordinating activities to promote phase out of ODS as mandated in the Montreal Protocol. Financial support was approved in the amount of US$213,000 1 to create the country s Ozone Team as part of Phase I of the ODS phase-out project. The OT begun its activities in 1993, with the responsibility of implementing and monitoring Phase I of the ODS project and later for structuring Phase II. Through the World Bank, the MLF provided assistance for the establishment and operation of the OT and later for its continuous operation through six IS projects (IS-I, IS-II, IS-III, IS-IV, IS-V, IS-VI, for a total of US$986,600 beginning in 1992). Through the OT, CONAMA was given broad policy, regulatory, and monitoring mandates and also acted as the financial agent for establishing contracts with recipient companies. CONAMA channeled the financing for industrial conversion projects and disbursed the corresponding funds or grants. The OT was also responsible for supervising sub-project identification, preparation, and implementation for the Bank s ODS phase-out operations in Chile. CONAMA also coordinated Chile s ODS phase-out activities with other ministries and institutions and served as counterpart to the Montreal Protocol implementing agencies, mainly the United Nations Development Program (UNDP), United Nations Environmental Program (UNEP), United Nations Industrial Development Organization (UNIDO), and World Bank. Other important bilateral projects, including those of Environmental Canada and the U.S. Environmental Protection Agency (USEPA), were also channeled through the OT and CONAMA. World Bank MP financed activities in Chile have two main components: 1) industrial and technological conversion and 2) institutional strengthening. Projects sought to enable the elimination or reduction of ODS, mainly in private but also in some public entities. The MLF financed the incremental costs associated with those conversions, which are defined in terms of both capital and operating costs. Depending on the sector, the MLF financed incremental costs under pre-agreed cost-effectiveness thresholds. Potential enterprise beneficiaries developed their projects together with government agencies and with MP implementing agencies, and these proposals were then submitted to the MLF Executive Committee for approval. In Chile the Bank project was structured as an umbrella program, under which MP projects were approved and implemented. The Bank operation served as a legal framework, offering a financial ceiling for channeling resources approved by the MLF. This was a novel approach at the World Bank, and the umbrella agreement with Chile was one of the first operations of this type. The rationale behind the new design was to minimize transaction costs for both the Bank and Chile, as all approved operations under the Montreal Protocol would become subprojects of the umbrella agreement. This legal design would allow the project to perform as an envelope for all eligible operations approved and financed by MLF. Extensions of the agreement were a consequence of the 1 The original grant agreement estimated US$191,000 for institutional strengthening (IS), but the ExCom first approved a larger amount, $US213,000. 4
legal approach, and the Grant Agreement was extended four times to allow implementation of the last eligible operations that could be included under the Bank operation. The Ozone Trust Fund (OTF) Grant Agreement in Chile was signed for US$1,206,000 for Phase I and updated in 1996 for US$6,456,000 for Phase II. The updated grant agreement for Phase II redistributed resources across categories affecting the original category ceilings of funds for Phase I. The updated grant agreement was followed by three resource reallocations across categories to update the category ceiling to reflect the funds approved by the ExCom for new projects. Table 2 summarizes the grant agreement structure for Phase I and the end of Phase II. Table 2. Chile s Ozone Trust Fund grant agreement structure Activity Phase I (US$) Phase II (US$) Grant Phase I (TECFIN) 448,000 448,000 Sub-grant Phase II (TECFIN II, Methyl Bromide, Halon Bank) Establishment of the Ozone Team and Institutional Strengthening 4,432,399 191,000 986,600 Training 105,000 105,000 Public Awareness 351,000 373,000 Ozone Seal 7,000 7,376 Unallocated 104,000 103,705 1.1.2.1 ODS Phase-out Project Components TOTAL 1,206,000 6,456,000 Below is a detailed summary of the ODS Phase-out Project. A. Phase I (1992 1996). The main goal was to achieve a 63 percent reduction in the consumption of ODS through a combination of strategies including public awareness raising, an ozone seal, financial subsidies for technological reconversion (TECFIN), creation of a local ozone team, and targeted training. The specific sub-projects approved within Phase I are listed below. a. Part A. Implementation of a Technological Conversion Financing Program, or TECFIN (US$448,000). This sub-project competitively allocated subsidies to private companies for alternative production technologies by financing incremental costs of conversion to non-ods systems. Companies bid for 5
grants, offering their lowest cost effectiveness possible (i.e., lowest cost to achieve the most ODS phase out). b. Part B. Implementation of an Ozone Seal Program (US$7,000). This subproject sought to introduce a label on ozone-friendly products and services to educate consumers and create incentives among producers for converting to ODS-free technologies. c. Part C. Public Awareness Program (US$351,000). The objectives of this subproject were to raise public awareness about health-related effects of ozone depletion and promote the adoption of adequate protection measures. Public information was provided through mass media. d. Part D. Implementation of a Sector-Specific Training Program (US$105,000). This sub-project s objective was to provide technical guidance to technicians and entrepreneurs in specific industries on mechanisms to shift to non-ods. e. Part E. Creation of an Ozone Team based at CONAMA ($191,000). The OT was to coordinate and monitor project activities and develop an action plan for Phase II of the ODS phase-out project. B. ODS Phase II (1997 2007). The main goal was to assist Chile in phasing out the use of at least 400 metric tons (MT) of substances that deplete the ozone layer through a continuation of TECFIN. As in Phase I, open bidding calls used for resource allocation sought to maximize the cost effectiveness of MLF funding. Subsidies were allocated to companies that offered the lowest cost per MT of ODS to be phased out on a limited number of bidding calls based on proposed conversion cost effectiveness, at costs at least 10 percent below the thresholds approved by the MLF for conversion to non-ods technologies in all sectors. The methodology would achieve ODS reductions at lower costs per converted enterprise and at lower administrative costs (as projects came on a demand-driven process with counterpart funding already committed). In addition, the MLF subsequently approved additional phases of the IS operations, plus two more sub-projects for Chile through the World Bank as implementing agency. These included 1) a demonstration sub-project to phase out MeBr and 2) a halon bank sub-project. The total amount assigned for IS in the grant agreement reflected the total amount approved by the ExCom over time, i.e., the funds approved for the establishment of the OT during Phase I (U$213,000) and the IS project and its following extensions (U$773,600) approved in Phase II. 2 The total amount assigned for investment sub-projects in the grant agreement in Phase II represented the ceiling set by the Bank, which was higher that the total amount of funds approved by the ExCom for investment sub-projects over time. 3 2 The Executive Committee of the Montreal Protocol Multilateral Fund (ExCom) approved the institutional strengthening sub-project for US$113,500 and authorized its extension five more times, for a total amount of US$773,600. 3 The ExCom approved US$3.8 million for TECFIN II, US$348,130 for a methyl bromide demonstration sub-project, and US$60,000 for a halon bank sub-project. 6
1.1.2.2 ODS Consumption and Production Because Chile has never produced ODS, all consumption has historically been imported. More than 60 percent of the roughly 923 ozone depleting potential (ODP) tons in 1992 were consumed by the refrigeration and air conditioning sub-sectors. In 1997, when assessment of Phase II took place, approximately 857 ODP tons were consumed in Chile, with almost 78 percent of this amount concentrated in the same sub-sectors. The second largest level of consumption was in the MeBr sector, which represented 20 percent of total consumption in 1992 and 16 percent in 1997. MeBr consumption rose sharply (more than 45 percent) between 1997 and 1998 because of the growing use of the fumigant by new strawberry plantations producing for both local and export markets. Table 3 shows Chile s yearly consumption 4 of ODS at the time of preparation of Phase I and Phase II by type of chemical. 4 Consumption, as defined by Article 1 of the Montreal Protocol, means production plus imports minus exports of controlled substances. 7
Table 3. Annual consumption of ozone depleting substances in Chile, 1989 2002, in metric tons Year Annex A Group I CFC Annex A Group II Halons Ozone depleting substance (Annex and Group) Annex B Group II CTC Annex B Group III TCA Annex E MeBr 1989 906.5 223.9 20.1 21.7 108.7 1990 662.3 95.2 8.0 29.6 201.5 1991 674.6 156.2 11.3 25.5 153.8 1992 572.7 84.6 14.3 34.5 191.7 1993 892.2 132.0 6.5 43.6 169.9 1994 852.6 47.4 14.6 46.7 119.4 1995 933.5 9.8 5.7 9.8 176.8 1996 878.2 15.8 2.4 10.6 236.2 1997 674.5 0 1.5 2.3 139.0 1998 737.9 0 0.7 7.1 298.1 1999 657.5 0 0.9 8.7 107.1 2000 576.0 0 0.2 3.5 242.5 2001 470.2 0.9 1.3 5.2 239.0 2002 370.2 0 0.4 3.5 165.2 Baseline years 1995 1997 1995 1997 1998 2000 1998 2000 2002 Baseline consumption 1 828.7 8.5 0.6 6.4 212.5 1 Baseline consumption is estimated as the average consumption for the baseline years. Source: Official reports from Chile to the Ozone Secretariat (www.ozone.unep.org). 1.2 Original Global Environment Objectives (GEO) and Key Indicators (as Approved) The objectives of Chile s Ozone Depleting Substances Phase-out Project, as originally approved, are listed below. 8
1. Phase I: Reduce ODS consumption by 63 percent through: a. Public awareness raising b. Financial subsidies (TECFIN) c. Creation of an ozone team d. Creation of an ozone seal e. Specific training 2. Phase II: Strengthen institutional capacity and reduce ODP by at least 400 MT through: a. Competitive allocation of subsidies for technological conversion (TECFIN II) b. Development of the regulatory framework for an ODS phase out c. Consolidation of institutional capacity gained by CONAMA in the execution of Chile s Montreal Protocol Program The original project indicators used by the Bank to monitor performance were 1) metric tons of ODS reduced, 2) development of an institutional framework for the implementation of the MP in Chile, 3) establishment of labels on ozone-friendly products and services, 4) increased awareness of the ozone layer problem, 5) provision of technical guidance to entrepreneurs in specific industries on mechanisms to shift to ozone-free technologies, 6) enterprise compliance with equipment disposal agreements, and 7) the Ozone Team s effectiveness in identifying, facilitating the preparation of, and monitoring implementation of ExCom-approved projects. Information on these indicators is included in the Project Completion Reports prepared by the Bank and the GOC and submitted to the MLF Secretariat after each sub-project was completed. 1.3 Revised GEO (as Approved by the Original Approving Authority) and Key Indicators, with Reasons/Justification The original project objectives and indicators were slightly adjusted. The overall objective of achieving a substantial ODS reduction was kept, although updated with the second phase restructuring, from the original 63% of total ODS consumption to 400 MT ODP. Indicators were kept at measuring the impact of the Ozone Team in promoting and coordinating the ODS phaseout programs in Chile, and the reductions in ODS consumption. 1.4 Main Beneficiaries The main beneficiaries of the Montreal Protocol Implementation Program grant were Chilean enterprises converting to the new alternative technologies to eliminate or reduce ODS emissions, as well as the general Chilean population, who benefited from increased awareness of the effects of ozone depletion. At the industry and capacity building levels, the project did not focus on a particular sector but rather established a broad target of beneficiaries. These beneficiaries included industries that used ODS in their production operations, especially rigid polyurethane foam producers who used CFC-11 as a foaming agent and domestic and commercial refrigeration equipment producers, and service organizations that used CFC-12 as refrigerant. A MeBr demonstration project was also undertaken as part of Phase II. 9
Global benefits also resulted from the elimination of ODS, as depletion of stratospheric ozone could lead to significant increases in UV radiation reaching the Earth s surface. Increased UV radiation could in turn lead to adverse human and animal health effects, as well as ecosystem impacts. The ozone layer protects the biosphere from this type of radiation. 1.5 Original Components (as Approved) As approved by the ExCom, the project had five components under Phase I and four components under Phase II (table 4). Table 4. Original components of both phases of the Ozone Depleting Substances Phase-out Project as approved by the ExCom Components 1. Phase I a. TECFIN I b. Ozone Seal c. Public Awareness d. Training e. Institutional Strengthening I f. Unallocated 2. Phase II a. TECFIN II (Investment Project) b. Methyl Bromide Demonstration Project (Investment Project) c Bank of Halons (Investment Project) d. Institutional Strengthening (III and IV) Total approvals Amount of OTF grant allocated (US$)* 448,000 7,376 373,000 105,000 213,000 103,705 3,800,000 348,130 60,000 773,600 US$6,231,811 * These values reflect the maximum amount of resources that could have been disbursed by the project even though the ceiling of the grant agreement was higher. As explained in section 1.1 above, the Bank project was structured as an umbrella program under which MP projects were subsequently approved and implemented. The Bank operation served as a legal framework, offering a financial ceiling for channeling the MLF s approved resources. The ceiling amount was calculated by multiplying the number of MT of ODP (as assessed by the Country Program) by the threshold grant allocation per sector (US$/MT of ODP) determined by the MLF. As stated above, the OTF Grant Agreement in Chile was signed for US$1,206,000 and updated in 1996 to US$6,456,000. Because the Bank operation served as a legal framework offering a financial ceiling for channeling the MLF s approved resources, the total approved amount was lower than the grant agreement ceiling of US$6,456,000. The difference is basically explained by the MLF s decision not to finance any more final users at supermarkets, which has been pre-identified as one of the sector with priority for the Bank, thus 10
curtailing the allocation of new resources to sub-projects oriented to replacing refrigeration units at supermarket chain stores. 1.5.1. Phase I This section describes the components of Phase I of the Chile Ozone Depleting Substances Phase-out Project in detail. 1.5.1.1 TECFIN I In 1992 the MLF approved US$448,000 to implement the Technology Conversion Financing Program (TECFIN). The program was structured as a market mechanism that offered subsidies to companies willing to undergo industrial conversion. Grants were allocated competitively based on proposed conversion cost effectiveness, at costs at least 10 percent below the thresholds approved by the MLF for conversion to non-ods technologies in all sectors. Subsidies granted by CONAMA accounted for 30 60 percent of total investment. As designed and approved by ExCom, the program consisted of the following steps and conditions: 1. ODS-consuming firms were invited to bid for grants in return for reductions in kg of ODS (calls for bid). 2. Bids, expressed as US$/kg reduced, were screened by CONAMA and the World Bank to ensure MF eligibility and verify accuracy of the reduction reported. 3. Bids were ranked in ascending order of bid value (i.e., grant requested per kg of ODS eliminated). 4. Bids were made within a cost-effectiveness cap established by CONAMA for each bidding call, based on expectations about the sectors participating in each bid. 5. Bids were awarded the corresponding grant in ascending bid order until the funds for each specific bidding call were depleted. 6. As an additional safeguard, each bidding call had to have a minimum costeffectiveness equal to 90 percent of the MLF-established threshold for the sectors participating in that bid (weighted by their respective shares of ODS reduction in accepted bids). Setting up the competitive and regulatory framework took two years, so that TECFIN was able to start allocating grants in 1995. The foam and refrigeration sectors were first selected, based on their sector participation in national ODS consumption (the aerosol sector, for example, practically had been converted by Chilean companies long before). Rules and conditions for the competitive bidding calls were duly advertised in national newspapers. Participant companies had to show (a) financial solvency, (b) purchases of ODS in the past three years backed by corresponding invoices and receipts, and (c) records of annual production for the past five years and projections. TECFIN I funded 11 projects in the sectors of domestic refrigeration (1), commercial refrigeration (5), and rigid foams (5). Three of the firms initially approved, Himmer & Himmer, SAAM S.A., and Supermercado Gran Avenida, requested cancellation before 11
signing sub-grant agreements because they lacked financial solvency to fund the investments not covered by the grant. In the end, 118.82 MT of ODP (CFC and HCFC) were phased out, with a grant component of nearly US$424,000. TECFIN I had an overall cost-effectiveness of US$3.56/kg of ODP eliminated, well below the standard cost-effectiveness thresholds set by the MLF of over US$7/kg of ODP for foam projects and over US$14/kg of ODP for commercial refrigeration projects. TECFIN I reduced 65.9 MT of ODP in the rigid foam sector (19.1 percent of the 1989 ODP consumption level) and phased out 52.91 MT of ODP from the refrigeration sector (nearly 22 percent of the 1989 ODP consumption level). Table 5 summarizes TECFIN I s overall results. Table 5: Indicators of sub-projects implemented under World Bank TECFIN I No. Sub-project Amount disbursed (US$) Counterpart funds US$) Total project cost (US$) ODS ODS phased out (ODP MT) CE (US$/Kg) Date completed 1 Frigocar $15,784 $4,351 $20,135 CFC 11 0.1 $26 10/31/96 2 Instapanel (IPAC) $131,607 $233,854 $365,461 CFC 11 64.2 $2 12/16/96 3 Kifafi $20,000 $18,737 $38,737 CFC 11 0.9 $22 02/28/97 4 Metalcargo $2,074 $14,256 $18,996 CFC 11 0.2 $30 01/31/97 5 Mimet $93,672 $90,098 $183,770 CFC11 12 47.8 $2 12/23/96 6 Polimin $9,120 $9,876 $18,996 CFC 11 0.3 $30 02/28/97 7 CST $120,000 $68,162 $188,162 CFC 12 4.0 $30 02/28/97 8 Frigorent $20,166 $16,344 $36,510 R 502 0.1 $150 10/31/96 9 SM Vicuña McKenna $5,558 $81,625 $87,183 R 502 0.2 $30 03/1/97 10 SM Macul $2,505 $40,883 $43,388 R 502 0.1 $30 03/1/97 11 SM Plaza Egana $3,300 $181,163 $184,463 R 502 0.1 $30 03/1/97 TOTAL $424,416 $759,349 $1,185,801 118.4 $3.56 Source: Chile and World Bank Ozone Team reports The original target of 729 MT of ODP established during project appraisal for the larger umbrella project was later adjusted to reflect a realistic ODS phase-out potential of 120 MT of ODP. Each of the sub projects implemented under TECFIN I is described below. 1. Frigocar. This company, which produces steel vehicle bodies for transportation, replaced CFC-11 as a foam blowing agent in the manufacture of insulation panels with HCFC-141b. Because the new technology required more accurate control 12
systems (e.g., temperature, mixture), the company acquired a high-pressure Gusmer FF-1600 1600psi dispenser machine). 2. Instapanel (IPAC). IPAC manufactures insulation panels for construction. Panel production in 1995 reached 128,502 m 3. The company replaced CFC-11 with HCFC-22 with a US$131,607 grant from the MLF. New equipment purchased included 1) a Foam Enterprises LLC spray dispenser machine with four distribution cylinders and an operating pressure of 1,000lb/inch 2, 2) two stabilization pools for R-22, 3) an isocyanate storing pool, and 4) a thermally isolated shed 2,000m 2 X 6m high to keep a homogeneous 25ºC temperature on the production line. 3. Kifafi. This mid-size enterprise produced 39,370m 3 of insulation panels for refrigeration in 1995. With a US$20,000 grant from the MLF, the company replaced the use of 0.9 MT of CFC-11 with HCFC-141b in its manufacture of insulation panels. The project included the purchase of a high-pressure Gusmer H- 2000 spray dispenser machine with a variable ratio of 2000psi as proposed. The old equipment was to be adapted for flexible foam application using water as a blowing agent. 4. Metalcargo. This company replaced CFC-11 with HCFC-141b as a blowing agent in the manufacture of thermal insulation panels. Because the new technology required more accurate control systems (e.g., temperature, mixture), Metalcargo acquired a high-pressure Gusmer FF-1600 1600psi dispenser machine. 5. MIMET. This company, which manufactures commercial refrigerators, consumed approximately 60 tons of CFC in 1994. It converted its production line from CFC-12 to HFC-134a and from CFC-11 to HCFC 141b, with a US$93,672 grant from the MLF. MIMET s total project cost was US$183,770 (the MLF financing was less than 50 percent, bringing the project s cost effectiveness to US$2/kg ODP). As part of technology conversion, MIMET purchased chargers, invested in specific refrigeration equipment (chargers and vacuum pumps), and modified its foam system. Because the company s original vacuum pumps were modified, final equipment disposal did not take place. 6. Polimin. This brokerage and services enterprise had incorporated the production of periodic unit cell (PUC) foams beginning in 1994. In 1995 its panel production reached 515m 3. The company received a US$9,120 grant from the MLF to fund the replacement of CFC-11 with HCFC-141b and acquired a high-pressure Gusmer FF-1600 1600psi dispenser machine. 7. CST (Central de Servicios Técnicos). This company provides post-sales and maintenance services for products of Compania Tecnológico Industrial S.A. (CTI), the largest refrigerator producer in Chile. With approximately 60 certified service stations throughout the country, CST consumed more than 4 tons of CFC-12 in 1995. The company identifies and selects its service providers independently, 13
evaluates them periodically, supplies them with its equipment, and frequently trains them. CST not only proved highly effective in terms of ODS reduction from the point of view of replacement technologies, but also increased awareness among its service providers and their clients, who showed substantial interest in the new technologies and requested further training. As part of the project, CST purchased Robinair recovery and recycling equipment and provided training, reducing annual ODS consumption by 300kg. 8. Frigorent. In 1995 this company, a national leader in the manufacture of industrial refrigerators, used R-502 in its manufacturing process. With a US$20,166 subsidy from TECFIN, it phased out the use of 0.1 MT of ODS annually and replaced this with HFC-404a. 9. Supermercado (SM) Vicuña Mackenna. Part of the Ekono-Almac supermarket chain, in 1994 this company was accountable to the distributing firm Distribución y Servicios (D&S), Chile s largest supermarket chain. Vicuña Mackenna used R- 502 (48.8 percent HCFC-22 and 51.2 percent CFC-115) and CFC-12 in its refrigerating equipment and appliances. Annual sales were estimated at US$14 million in 1994. The project eliminated the use of R-502 and R-12 in 19 refrigeration units, replaced condenser units with parallel systems working with R-22, and renewed refrigeration connections. The new installations handled low and mid temperatures, and one of the parallel units had computerized controls. Old and obsolete equipment was eliminated. 10. SM Macul. Also part of Ekono-Almac and accountable to D&S, SM Macul used R-502 (48.8 percent HCFC-22 and 51.2 percent CFC-115) in its refrigeration equipment and appliances. Annual sales were estimated at US$11.6 million in 1994. The project replaced R-502 with R-404a in its refrigeration equipment and replaced the old central with two mid- and low-temperature centrals operating with R-404a. One was adapted and the other was purchased. Changes were also made in the refrigerating connections and furniture. 11. SM Plaza Egaña. Also part of Ekono-Almac and accountable to D&S, SM Plaza Egaña used R-502 (48.8 percent HCFC-22 and 51.2 percent CFC-115), and CFC- 12 in its refrigeration equipment and appliances. Annual sales were estimated at US$4.8 million in 1994. The project eliminated the use of R-502 and R-12 in 10 refrigeration units, purchased new Protocol equipment operating with HCFC-22, and dismantled obsolete equipment. 1.5.1.2 Ozone Seal The ozone seal sub-project sought to introduce a label on ozone-friendly products and services to educate consumers and create incentives among producers to convert to ODSfree technologies. During the first semester of 1994, the Ozone Team launched a public contest for the design of the Ozone Seal logotype. SGS Chile Limitada was selected out of three applicants to develop the logotype, which was given to Johnson & Johnson for its 14
STERRAD-100 product. This medical sterilizing unit uses hydrogen peroxide instead of the typical mixture of CFC-12 and ethylene oxide. 1.5.1.3 Public Awareness This sub-project s main objectives were to raise public awareness of the health-related hazards resulting from ozone depletion and promote the adoption of adequate protection measures. These objectives were to be achieved through mass media public information campaigns on the ozone depletion problem. The massive launch of Chile s first public awareness program through radio, television, newspapers, and other print and audiovisual media included a training program for young leaders, radio programs, press conferences, and distribution of articles, leaflets, and brochures among ODS-consuming firms. 1.5.1.4 Training Program The objective of this sub-project was to provide technical guidance to technicians and entrepreneurs in specific industries on mechanisms that would enable them to shift to non-ods. The training program was implemented differently than originally planned to more effectively address Chile s capacity building demand. A single comprehensive seminar on refrigeration and foams replaced the planned small sector courses and technical advice seminar. The solvents sector was not covered. Nonetheless, the seminar was broadly welcomed by the firms involved, and participants expressed their satisfaction with the event s organization, quality of speakers, and relevance. The First Refrigeration and Plastic Foam Workshop, organized by the Ozone Team and CONAMA, took place in Santiago from March 11 to 14, 1997. The workshop s objectives were to (a) provide information about new technologies in the refrigeration and foam production sectors, (b) raise awareness among firm managers, (c) provide information about the eventual negative economic effects of exporting goods that use ODS in their production, (d) stimulate prompt technological conversion, and (e) promote the TECFIN grant program for technological conversion. At a cost of approximately US$70,000, including international speaker fees, auditorium leasing, and charges from the event organizing firm SERSE, the event attracted around 140 technical and managerial staff out of 400 invited. This lengthy workshop was a success for CONAMA. The topics on the agenda included (a) the ozone depletion problem: causes and facts, (b) the Montreal Protocol and ODS phase out schedules, (c) Chile s Country Program to Protect the Ozone Layer, (d) measures of major international economic blocs to control imports of products using ODS, (e) the main characteristics of substitute substances, (f) international technological conversion case studies, and (g) case studies of industrial conversion in Chile. 1.5.1.5 Institutional Strengthening This sub-project envisioned the creation of an Ozone Technical Unit to coordinate and monitor the activities implemented by the project and to develop an action plan for Phase 15
II of the ODS Phase-out Project (1996 2000). In November 1993 CONAMA established the Ozone Team, appointing two people to coordinate and manage all matters pertaining to the implementation of the Montreal Protocol in Chile. By the time Phase I concluded in 1996, the OT included a program coordinator (an economist), a technical advisor (a chemical engineer), an administrative secretary, an administrative assistant, and an external legal adviser. The last two provided services on a part-time basis. Although the Ozone Program was established under CONAMA s International Unit, the program coordinator enjoyed full autonomy to manage and implement the project, including planning and budget-related matters. Administrative dependency was flexible, and the program coordinator had direct access to the CONAMA executive direction, units, and department. With relation to budget execution, the program coordinator directly arranged the levels of monthly and annual expenses with CONAMA s Financial and Administrative Department and authorized actual payments. In addition, the Accounting Department appointed a specific officer to manage the project s financial operation. The OT was not only in charge of promoting and coordinating the Chilean County Program for Protecting the Ozone Layer, but also became a key actor in all Montreal Protocolrelated issues. As such, the team acted as technical advisor to the Ministry of Foreign Affairs in international meetings and negotiations associated with the Montreal Protocol. Table 6 summarizes approved and actual indicators for the five sub-projects implemented by the World Bank under Phase I. 16
Table 6. Indicators for MP sub-projects implemented by the World Bank in Chile (Phase I) Sub-project Original amount approved (US$) Amount disbursed (US$) Balance allocated to Phase II (US$) Counterpart funds US$) Approved impact (MT ODP) Actual impact (MT ODP) Date approved Date completed TECFIN I 448,000 424,416.04 23,583.96 $759,349 729 1 118 06/1992 Ozone seal 7,000 7,375.9-375.9 06/1992 Public awareness 351,000 372,067.8-21,067.8 _ 06/1992 Training 105,000 96,966.61 8,033.39 _ 06/1992 Ozone Team 191,000 210,906.86 19,906.86 _ 06/1992 Unallocated 104,000 104,000 TOTAL 1,206,000 1,111,733.21 94,266.79 $759,349 729 1 118 Scheduled 06/96 Actual 02/97 Scheduled 06/96 Actual 02/97 Scheduled 06/96 Actual 03/97 Scheduled 06/96 Actual 02/97 Scheduled 06/96 Actual 02/97 1 Adjusted to 120 MT 1.5.1.6 Actual vs. Projected Achievements This section describes the achievements and outcomes of Phase I of Chile s Ozone Depleting Substances Phase-out Project compared with the planned targets. Projects implemented vs. projects pre-identified in the Project Appraisal Document (PAD) TECFIN I funded 11 of 14 firms that submitted proposals, with projects in the sectors of domestic refrigeration (1), commercial refrigeration (5), and rigid foams (5). Three of the firms initially approved, Himmer & Himmer, SAAM S.A., and SM Gran Avenida, requested cancellation before signing the sub-grant agreements because they lacked financial solvency to fund the investments not covered by the grant. The firms phased out 118.82 MT of ODP (CFC and HCFC), with a grant component of nearly US$425,000. TECFIN had an overall costeffectiveness of US$3.59/kg of ODP eliminated, much better than the MLF s envisioned cost-effectiveness of over US$7 for rigid foam and over $11 for 17