Project Appraisal Document



Document ofThe World BankReport No: 80957-THINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENTON APROPOSED GrANTFROM THE OZONE PROJECT TRUST FUND OF THE MULTILATERAL FUND FOR THE IMPLEMENTATION OF THE MONTREAL PROTOCOLIN THE AMOUNT OF US$23,918,707TO THE IF DOCPROPERTY Borrower \* MERGEFORMAT Borrower <> "" DOCPROPERTY Borrower \* MERGEFORMAT Borrower {borrower} \* MERGEFORMAT kINGDOM OF THAILANDFOR ATHAILAND – HCFC PHASEOUT PROJECTApril 2, 2014This document is being made publicly available after RVP consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.CURRENCY EQUIVALENTSExchange Rate Effective September 30, 2013Currency Unit=Thai Baht (THB)THB31.30=US$1FISCAL YEARJanuary 1–December 31ABBREVIATIONS AND ACRONYMSACAir ConditioningBAUBusiness as UsualBMABangkok Metropolitan AuthorityCDP-E Country Development Partnership-EnvironmentCFCChlorofluourocarbonCO2Carbon DioxideDEDEDepartment of Alternative energy Development and EfficiencyDIWDepartment of Industrial WorksDSDDepartment of Skill DevelopmentEHSWorld Bank Environment, Health and Safety GuidelinesEMFEnvironment Management FrameworkEMPEnvironment Management PlanFMFinancial ManagementFTI Federation of Thai IndustriesGEFGlobal Environment FacilityGSBGovernment Savings BankGWPGlobal Warming PotentialHCHydrocarbonHCFCHydrochlorofluorocarbonHFCHydrofluorocarbonHFOHydrofluoroolefinHPMPHCFC Phaseout Management PlanHSCBHazardous Substances Control BureauICCIncremental Capital CostsICRImplementation Completion ReportIOCIncremental Operating CostsIPIndigenous PeopleMETIMinistry of Economy, Trade and Industry (Japan)MLFMultilateral Fund for the Implementation of the Montreal ProtocolMOFMinistry of FinanceMOIMinistry of IndustryMPMontreal ProtocolMTMetric TonnesNESDPNational Economic and Social Development PlanODPOzone Depleting PotentialODSOzone Depleting SubstancesOORGOzone Operation Resources GroupOTFOzone Projects Trust FundOVECOffice of Vocational Education CommissionPDOProject Development ObjectivePIMProject Implementation ManualPMUProject Management UnitPUPolyurethaneRACRefrigeration and Air ConditioningSMESmall and Medium EnterprisesSOPSeries of ProjectsTISB Treaties and International Strategies BureauTISIThailand Industrial Standards InstituteTORTerms of ReferenceUNEPUnited Nations Environment ProgrammeRegional Vice President:Axel van TrotsenburgCountry Director:Ulrich ZachauSector Director:John RoomeSector Manager:Julia Fraser Task Team Leader:Viraj VithoontienTHAILANDHCFC Phase-out ProjectTABLE OF ContentsPage TOC \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1" I.STRATEGIC CONTEXT PAGEREF _Toc377121869 \h 1A.Country Context PAGEREF _Toc377121870 \h 1B.Sectoral and Institutional Context PAGEREF _Toc377121871 \h 2C.Higher Level Objectives to which the Project Contributes PAGEREF _Toc377121872 \h 4II.PROJECT DEVELOPMENT OBJECTIVES PAGEREF _Toc377121873 \h 5A.PDO PAGEREF _Toc377121874 \h 5B.Project Beneficiaries PAGEREF _Toc377121875 \h 5C.PDO Level Results Indicators PAGEREF _Toc377121876 \h 5III.PROJECT DESCRIPTION PAGEREF _Toc377121877 \h 6A.Project Components PAGEREF _Toc377121878 \h 6B.Project Financing PAGEREF _Toc377121879 \h 7C.Series of Projects (SOP) PAGEREF _Toc377121880 \h 8IV.IMPLEMENTATION PAGEREF _Toc377121881 \h 10A.Institutional and Implementation Arrangements PAGEREF _Toc377121882 \h 10B.Results Monitoring and Evaluation PAGEREF _Toc377121883 \h 11C.Sustainability PAGEREF _Toc377121884 \h 13V.KEY RISKS AND MITIGATION MEASURES PAGEREF _Toc377121885 \h 13A.Risk Ratings Summary Table PAGEREF _Toc377121886 \h 13B.Overall Risk Rating Explanation PAGEREF _Toc377121887 \h 13VI.APPRAISAL SUMMARY PAGEREF _Toc377121888 \h 14A.Economic and Financial Analyses PAGEREF _Toc377121889 \h 14B.Technical PAGEREF _Toc377121890 \h 15C.Financial Management PAGEREF _Toc377121891 \h 16D.Procurement PAGEREF _Toc377121892 \h 16E.Social (including Safeguards) PAGEREF _Toc377121893 \h 17F.Environment (including Safeguards) PAGEREF _Toc377121894 \h 17Annex 1: Results Framework and Monitoring PAGEREF _Toc377121896 \h 19Annex 2: Detailed Project Description PAGEREF _Toc377121897 \h 22Annex 3: Implementation Arrangements PAGEREF _Toc377121898 \h 34Annex 4: Operational Risk Assessment Framework (ORAF) PAGEREF _Toc377121899 \h 58Annex 5: Implementation Support Plan PAGEREF _Toc377121900 \h 62Annex 6: Agreement Between Thailand and the Executive Committee 64for the HCFC Phase-out Management Plan ProjectAnnex 7: Carbon Emission Benefits PAGEREF _Toc377121901 \h 74PAD DATA SHEETTHAILANDTH-HCFC PHASEOUT PROJECTPROJECT APPRAISAL DOCUMENT.East Asia and Pacific RegionEASTS.Basic Information Date: April 2, 2014Sectors:Other Industry (90%); Central Government Administration (10%)Country Director:Ulrich ZachauThemes:Pollution Management and Environmental Health (50%); Environmental Policies and Institutions (50%)Sector Manager/Director:Julia M Fraser/John RoomeEA Category:BProject ID:P115761Lending Instrument:IPF (OTF Grant)Team Leader(s):Viraj VithoontienJoint IFC: .Borrower: Ministry of FinanceResponsible Agency: Department of Industrial Works Contact:Mr. Nattapon Nattasomboon Title:Director General Telephone No.:(662) 202-4101 Email:.Project Implementation Period:Start Date:5/1/2014End Date: 12/31/2018Expected Effectiveness Date:05/1/2014Expected Closing Date:12/31/2018.Project Financing Data(US$M)[ ]Loan[X ]Grant[ ]Other[ ]Credit[ ]GuaranteeFor Loans/Credits/OthersTotal Project Cost :33,824,192Total Bank Financing :23,918,707Total Cofinancing :9,905,485Financing Gap :.Financing SourceAmount(US$M)BORROWER/RECIPIENT9,905,485Others Ozone Projects Trust Fund of the Multilateral Fund23,918,707Financing GapTotal33,824,192.Expected Disbursements (in USD Million)Fiscal Year20142015201620172018Annual2.007.627.832.583.89Cumulative2.009.6217.4520.0323.92.Project Development Objective(s)The project development objective is to reduce HCFC consumption in the air-conditioning and foam sectors in order to contribute to Thailand’s efforts to meet its HCFC consumption phase-out obligations under the first phase of the program (2014-2018).The development objective of the Series of Projects (SOP) is to contribute to Thailand’s efforts to reduce its HCFC consumption in accordance with the Montreal Protocol phase-out schedule leading to a complete phaseout by 2040..ComponentsComponent NameCost (USD Millions)Investment in HCFC Consumption Reduction30.95Technical Assistance.63Project Management1.38Strengthening of the National Ozone Unit.pliance PolicyDoes the project depart from the CAS in content or in other significant respects?Yes[ ]No[ X ].Does the project require any waivers of Bank policies?Yes[ ]No[ X ]Have these been approved by Bank management?Yes[ ]No[ ]Is approval for any policy waiver sought from the Board?Yes[ ]No[ X ]Does the project meet the Regional criteria for readiness for implementation?Yes[ X ]No[ ].Safeguard Policies Triggered by the ProjectYesNoEnvironmental Assessment OP/BP 4.01XNatural Habitats OP/BP 4.04XForests OP/BP 4.36XPest Management OP 4.09XPhysical Cultural Resources OP/BP 4.11XIndigenous Peoples OP/BP 4.10XInvoluntary Resettlement OP/BP 4.12XSafety of Dams OP/BP 4.37XProjects on International Waterways OP/BP 7.50XProjects in Disputed Areas OP/BP 7.60X.Legal CovenantsNameRecurrentDue DateFrequencyOther Undertakings Sch 2, Sect V, para. 1.X6 months after effective dateDescription of CovenantThe Recipient, through DIW, shall, and shall cause GSB to, no later than 6 months after the Effective Date, appoint independent auditors, with terms of reference acceptable to the World Bank.Name RecurrentDue DateFrequencyWithdrawal Conditions Sch 2, Sect IV, para. 1 (b).XPrior to DisbursementDescription of CovenantNotwithstanding the provisions of Part A of this Section no withdrawal shall be made:. for expenditures under category 2, until DIW has appointed a financial management specialist, with terms of reference acceptable to the World BankName RecurrentDue DateFrequencyWithdrawal Conditions Sch 2, Sect IV, para. 1 (c).XPrior to DisbursementDescription of CovenantNotwithstanding the provisions of Part A of this Section no withdrawal shall be made:. for expenditures under categories 1 and 3, until GSB has appointed a financial management specialist, with terms of reference acceptable to the World BankNameRecurrentDue DateFrequencyOther Undertakings Sch 2, Sect V, para. 1.X3 months after effective dateDescription of CovenantThe Recipient, through DIW, shall, and shall cause GSB to, no later than 3 months after the Effective Date, put in place an accounting software system, with terms of reference acceptable to the World Bank..Team CompositionBank StaffNameTitleSpecializationUnitUPIViraj VithoontienSr. Environmental SpecialistTask Team LeaderEASER86438Waraporn HirunwatsiriEnvironmental SpecialistCo-Task Team Leader, Environmental SafeguardsEASCS274260Thanavat JunchayaSr. Environmental EngineerMontreal Protocol Technical LeaderCPFIA148909Mary Ellen FoleySr. Environmental SpecialistMontreal Protocol ExpertCPFIA176912Bernardita LedesmaOperations AnalystOperationsEASER18902Songling YaoSr. Social Development SpecialistSocial SafeguardsEASCS152086Sofia De Abreu FerreiraCounselLegalLEGEN399864Sirirat SirjaratwongProcurement SpecialistProcurementEASR221155Kanitta KaikittipoomTrust Fund CoordinatorOperationsEACTF100457Malarak SouksavatFinancial Management AnalystFinancial ManagementEASFN157956Isao EndoEnvironmental SpecialistClimate ChangeEASER273891Fnu HannyProgram AssistantAdministrationEASER282386Chutima LowattanakarnTeam AssistantAdministrationEASTF341000Non Bank StaffNameTitleOffice PhoneCityErik PedersenTechnical Specialist202 473-5877Washington, DCPipat PoopeerasupongTechnical Specialist6681 848-3459BangkokWasittee UdchachoneEnvironmental Specialist6681 855-0152Bangkok.LocationsCountryFirst Administrative DivisionLocationPlannedActualCommentsThailandDepartment of Industrial WorksRama VI Road, RatchathewiBangkok 10400, ThailandXXThailandGovernment Savings Bank470 Phaholyothin Road, PhayathaiBangkok 10400, ThailandXX.STRATEGIC CONTEXTHydrochlorofluorocarbons (HCFCs) are ozone-depleting substances (ODS) subject to consumption and production control measures of the Montreal Protocol on substances that deplete the ozone layer. The Montreal Protocol requires developing countries (known as “Article 5” countries) like Thailand to commence the gradual phaseout of HCFC consumption and production from 2013 leading to a complete phase-out by 2040. The proposed project is the first phase in Thailand’s phaseout strategy. The project will contribute to the country’s efforts to meet its consumption reduction target of 15% from its baseline consumption level by 2018 by addressing HCFC reduction mainly in the foam and air-conditioning manufacturing sectors. The baseline consumption level defined by the Montreal Protocol is the average consumption level between 2009 and 2010. Under the HPMP Phase I, Thailand has committed to reduce its HCFC consumption to the baseline level by 2013; 10% from the baseline by 2015 and 15 % from the baseline by 2018. The baseline HCFC consumption of Thailand is 927.6 ODP (ozone depleting potential) tonsHCFCs are not only ozone depleting substances, but they are also high global warming gases whose global warming potential (GWP) ranges from several hundred to several thousand times that of carbon dioxide. Moreover, the conversion of various HCFC-based manufacturers to alternative, advanced technologies usually leads to improved energy efficiency, particularly in the refrigeration and air-conditioning sectors. Thus, phasing out HCFCs provides two types of potential benefits to the climate. Synergies with the climate agenda were duly recognized by the parties to the Montreal Protocol when they decided to adopt a faster HCFC phase-out schedule in 2007.Table 1. ODP and 100-yr GWP of CFCs and HCFCsCFCODP*GWP**HCFCODP*GWP**CFC-111.04,750HCFC-1230.0277CFC-121.010,900HCFC-141b0.11780CFC-1130.86,130HCFC-142b0.0652,310CFC-1141.010,000HCFC-220.0551,810CFC-1150.67,370HCFC-1240.02609* Ozone Depleting Potential (ODP) values from the 2006 Montreal Protocol Handbook ** Global Warming Potential (GWP) values of all chemicals are from IPCC’s Fourth Assessment Report: Climate Change 2007Country ContextThailand is a large importer of HCFCs, with a total of 16,890 metric tonnes of HCFCs imported in 2010. Over the last five years, six different types of HCFCs were imported for use in the foam, air-conditioning and refrigeration, servicing and solvents sectors. However, as is the case in most Article 5 countries, the two HCFCs most predominantly in use are HCFC-22 and HCFC-141b (more than 90% of the total HCFCs imported). Thailand has no production capacity for any HCFCs controlled by the Montreal Protocol.The impact of the phase-out on Thailand’s economy has the potential to be significant; particularly since HCFC consumption is closely linked to the country’s important export-oriented, manufacturing base of electronics, air-conditioners, and refrigeration. Thailand is one of the largest manufacturers and exporters of residential air-conditioners (more than 10 million units a year) and this sector alone consumed more than 12,000 metric tonnes of HCFCs in 2010. Because Thailand has an export-oriented economy and is sensitive to external market forces, it has, in fact, already phased out HCFC141b on its own in domestic refrigeration and eliminated a large part of HCFC-22 in cold storage. However, for other sectors, technological, economic and financial barriers have kept Thailand, particularly the local small-and-medium scale industries, from transitioning to the latest technologies, where available. This is a significant challenge to the Government of Thailand’s ability to comply with the 2013, 2015 and 2018 Montreal Protocol obligations.Sectoral and Institutional ContextThailand received funding from the Multilateral Fund for the Implementation of the Montreal Protocol (MLF) to prepare an HCFC Phase-out Management Plan (HPMP), which provides a detailed picture of HCFC consumption and uses by substance and product. The HPMP also presents patterns of growth and identifies priority sectors to receive MLF funding in order for Thailand to achieve its reduction targets for Stage 1 (2013, 2015, and 2018). Table 2: Montreal Protocol (MP) Obligations for ThailandConsumption Reduction TargetsConsumption Limit (ODP tons)MP RequirementsAs per Agreement between Thailand and ExCom (HPMP Phase I)2013Freeze at baseline level (2009-2010 average)927.6927.62015Reduction to 90% of the baseline834.8834.842018Interim reduction step as per the agreement between Thailand and Executive Committee834.8788.462020Reduction to 65% of the baseline602.92025Reduction to 32.5% of the baseline301.52030Reduction to 2.5% of baseline23.22040Complete phase-out of HCFCs0The HPMP reveals that Thailand’s sector distribution of HCFC use is concentrated in manufacturing foam products and air-conditioning and refrigeration equipment, and for servicing installed equipment. Consumption of HCFC-141b and HCFC-225 as solvents exists at a much smaller scale, as does HCFC-123 for installation and for servicing of large commercial air-conditioning systems. There was sporadic, low-level consumption of HCFC-224 and HCFC-142b across the last five years. Table 3: HCFC Consumption in Thailand: 2006-2012**200620072008200920102011*2012BaselineConsumption (ODP tonnes)869.6873.0900.5826.61028.5811.31154.6927.6Note: Baseline consumption level is the average consumption from 2009 -2010.*Consumption for 2011 is significantly lower due to slow down in production due to the flood.To meet the Phase I reduction targets in Table 2, Thailand is required to reduce its HCFC consumption from 1,155 ODP tonnes in 2012 to 788.46 ODP tonnes (85% of the baseline consumption) by 2018. This represents a reduction of 366 ODP tonnes. To achieve these targets, Thailand will employ a strategy to control the supply of HCFCs via: (i) its import quota system; (ii) reduce the demand for HCFCs through project financed technical assistance and investments for beneficiary enterprises to convert to non-HCFC; and (iii) implementing policy and regulatory measures to restrict the use of HCFCs in the key HCFC consuming sectors. The annual import quota consistent with the targets shown in Table 2 has already been implemented since January 2013.The two key HCFC consuming sectors to be addressed under this Project are the foam and air conditioning sectors. The foam sector, which uses HCFC-141b – the HCFC with the highest ODP, provides the greatest phase-out coverage needed and has less technological hurdles in comparison to other sectors, with the exception of spray foam where alternatives are limited. The air-conditioning sector provides the greatest opportunity not only for reducing HCFC consumption, but also for avoiding CO2 emissions because of the large potential gains in energy efficiency when converting from HCFC-22. On the policy side, by 2015, the Government of Thailand will ban the use of HCFC-141b in all foam applications, except spray foam where alternatives are not available. Moreover, the Government of Thailand has decided to impose a ban on manufacturing HCFC-22 based air-conditioners for the domestic market in 2017 in order to reduce the HCFC demand and to catalyze change to more energy-efficient technologies while meeting MP targets. A dominant alternative technology, in fact, exists, R-410A; however, due to the high GWP of R-410A this chemical could be subject to international control in the near future. Most Thai-owned air-conditioner manufacturers decided to adopt HFC-32 which has lower GWP and this technology is being deployed in Japan, China, India and Indonesia. The decision of the Thai-owned air-conditioner manufacturers has led to subsequent decisions of the multinational companies to also introduce HFC-32 air-conditioners, to replace their HCFC-22 and HFC-410A products, in the Thai market.While the investment interventions in the foam and air-conditioning manufacturing sectors financed by this Project will contribute to the direct phase-out of 209 ODP tonnes, an additional phase-out of 157.22 ODP tonnes will be attributed to reduced demand for HCFCs in the servicing sector due to early introduction of new non-HCFC products, and HCFC phase-out from multinational companies whose phase-out is not eligible for financing from the Multilateral Fund.Higher Level Objectives to which the Project ContributesThe development objectives of the HCFC phase-out project and the Series of Projects (SOP) are specifically linked to “Cluster III – Infrastructure and Climate Change” under the Second Prong – “Improving Competitiveness, and Inclusive and Sustainable Development” of the Interim Strategy Note (October 30, 2010). The second prong of the strategy targets the medium term challenges that Thailand faces with regard to strengthening the country’s competitiveness and promoting private investment. The project will provide the opportunity to enhance the competitiveness of Thailand’s own industry with leading edge technologies as well as improve energy performance. This will contribute substantially not only to ozone layer protection but also to climate change mitigation through energy efficiency and low carbon growth which form a central pillar of the National Plan. This new project represents a continuation of the ODS phase-out cooperation that was included in the 2002 Country Partnership Strategy and was delivered through the Country Development Partnership – Environment (CDP-E).The Bank serves as one of the implementing agencies of the MLF and the Global Environment Facility (GEF). Under the MLF, the Bank has assisted client countries to phase out over 300,000 metric tons (MT) since 1992. This represents nearly 70% of the total ODP phased out under the MLF.The Bank has been engaged in ODS phase-out activities in Thailand since the early 1990s, and was an important partner in assisting it to phase out CFC consumption by the end of 2009. More than 10,000 metric tonnes of CFCs were phased out under Thailand ODS Project I which was closed at the end of 2013. As CFCs are very high GWP gases, eliminating their consumption has also resulted in significant climate benefits. Half of the quantity phased out under ODS I is CFC-12 which has a GWP nearly 11,000 times of CO2. Phasing out of CFCs, therefore, contributed to avoided emissions of more than 70 million tCO2 equivalent per year (or 14.6 million cars off the road).The new HCFC phase-out project will also contribute to the Bank’s overall goals of shared prosperity and poverty reduction. The project’s contributions to these goals may not be immediately apparent but will trickle down from project investments and technical assistance activities. These investments will facilitate the transfer of technology and increase competitiveness of the Thai small-and-medium scale (SME) industries both in the foam and AC sectors and allow the country to maintain its rank as the world’s second largest air conditioner manufacturer. Consumers will benefit from the improved energy efficiency of the new products with monthly savings on their utility bills. Factory and service workers will be trained with the new technology increasing their marketability and job security. The Project aims to introduce alternative technologies that not only protect the ozone layer but also have low and lower global warming potential and would help the Government of Thailand to mitigate the impact of climate change. Since the poor are more vulnerable to climate change, the Project would therefore contribute indirectly to poverty reduction.PROJECT DEVELOPMENT OBJECTIVESPDOThe Project Development Objective (PDO) is to reduce HCFC consumption in the air-conditioning and foam sectors in order to contribute to Thailand’s efforts to meet its HCFC consumption phase-out obligations under the first phase of the program (2014-2018).The Project will be the first in a Series of Projects (SOP) whose overarching objective is to contribute to Thailand’s efforts to reduce its HCFC consumption in accordance with the Montreal Protocol phase-out schedule leading to a complete phaseout by 2040.Project BeneficiariesThe main project beneficiaries are: (a) foam enterprises in the rigid polyurethanbe foam, flexible polyurethane foam and integral skin foam which use HCFC-141b as blowing agent. There are about 132 medium and small sized enterprises currently using HCFC-141b; (b) system houses which will conduct in-house tests of new non-HCFC 141b foam formulations and market alternatives; (c) twelve air conditioning manufacturing enterprises with Thai majority ownership; and (d) Kulthorn Kirby, the only Thai-owned compressor company eligible for funding under the project based on the criteria established by the MP. Kulthorn Kirby will develop and test non-ozone depleting substances compressors for refrigeration and air-conditioning equipment. Other beneficiaries include the AC service sector and the agencies which will benefit from technical assistance and capacity building activities under the project. The general public will also benefit from the project with the availability of more environmentally friendly and energy efficient air conditioners and foam products and a cleaner/healthier environment.PDO Level Results IndicatorsThe project’s outcome indicator will be the reduction from the baseline level of HCFC consumption in the foam and air conditioning sectors. For the first phase, the project will contribute to Thailand’s compliance with the consumption phase-down targets, and indicators as agreed with the ExCom of the MLF as follows: (i) a freeze of HCFC consumption at the baseline level (average consumption between 2009 and 2010) by 2013; (ii) 10% reduction from the baseline level by 2015; and (iii) 15% reduction from the baseline level by 2018 as per the Montreal Protocol and the agreement between Thailand and the Executive Committee of the Multilateral Fund . In addition, the avoidance of CO2 emissions (through the use of lower GWP alternatives) will be captured through the intermediate results indicators. These results will contribute to the results indicator for the SOP which is the overall reduction of HCFC consumption in Thailand to meet all the obligations of the Montreal Protocol including the complete phase-out by 2040.PROJECT DESCRIPTIONProject ComponentsComponent 1: Investment in HCFC Consumption Reductions (US$30.95 Million; OTF $21.05 million; beneficiaries $9.91 million)Provision of Sub-grants to Beneficiary Enterprises in the foam sector to carry out HCFC consumption reduction subprojects;Carry out demonstration subprojects to perform in-house testing of new non-HCFC-141b foam systems;Provision of Sub-grants to 12 Beneficiary Enterprises in the air-conditioning sector to carry out HCFC consumption reduction subprojects; andProvision of Sub-grants to Beneficiary Enterprises for the development of non-ozone depleting substances compressors for refrigeration and air-conditioning equipment.Financial support will be provided to foam and air-conditioning enterprises consuming HCFC-141b and HCFC-22 in their production processes. The financial support will be used to cover the cost of modification or acquiring new production equipment and related accessories, installation and related site preparation (i.e., small civil works), trial production, raw materials, utilities, product development, and technology transfer. In addition, the project will finance demonstration sub-projects with foam system houses to conduct in-house testing of new non-HCFC-141b foam formulation. These costs include raw materials for developing new formulation (i.e. blowing agent, polyol and isocynate), foam testing and testing equipment (laboratory test, cup test, foam property test), performance test of foam produced with new formulations, engagement of national and international foam experts to assist system houses to develop new formulations, field trips to visit system houses in other countries.Funding will also be provided to develop non-ODS compressors for the refrigeration and air-conditioning equipment in order for the industry to be competitive and not reliant only on compressors from other ponent 2: Technical Assistance (US$0.63 million)Provision of technical assistance to support HCFC-22 phase-out in the air-conditioning sector through, inter alia, technical workshops on climate friendly refrigerants for large and small AC systems;Development and provision of train-the-trainer programs on good servicing practice for HFC-32 air-conditioning units and inclusion of said programs in the curricular of training institutes in the territory of the Recipient;Carry out of public awareness programs to promote energy efficiency and low global warming potential technology in the air-conditioning and foam sectors; Provision of technical assistance to 12 air-conditioning manufacturers to convert their production facilities to HFC-32 technology and to develop proper installation and servicing procedures; andProvision of technical assistance to support HCFC-141b phase-out in the foam sector through, inter alia, marketing of non-HCFC-141b formulation by foam system houses and introduction of the use of non-HCFC-141b formulations by micro enterprises;Component 3: Project Management (US$1.38 million)Provision of technical assistance to the DIW-PMU for managing, supervising, monitoring and reporting on the implementation of activities under Component 2 (a) – (c) of the Project;Provision of technical assistance to the DIW-PMU for the development of sector-specific regulations and policy, such as, inter alia, rules governing HCFC imports and exports and a ban on the use of HCFC in the air-conditioning and foam manufacturing sectors; andProvision of technical assistance to the GSB-PMU for managing, supervising, monitoring and reporting on the implementation of Components 1 and 2 (d) and (e) of the ponent 4: Strengthening of the National Ozone Unit (US$0.87 million)Provision of technical assistance to strengthen the capacity of the NOU to fulfill the obligations of the Recipient under the Montreal Protocol.While the DIW-PMU will focus on day-to-day implementation of the project, the National Ozone Unit will be responsible for national obligations under the Montreal Protocol and the Multilateral Fund including monitoring import and export of ODS and complying with Article 7 data reporting requirement and submission of Progress Report on the Implementation of the Country Programme. Project FinancingLending InstrumentThe project will be supported by an investment project financing (IPF) grant from the Ozone Projects Trust Fund (OTF) of the MLF with co-financing of $9.91 million from beneficiaries, and will be the first in a series of projects (SOP).Project Cost and FinancingAt present, the MLF Executive Committee has approved, in principle, a total grant fund of US$23.05 million to support HCFC consumption reduction under the Thailand Phase I HPMP to finance the implementation of HCFC phase-out related activities under Components 1, 2 and 3 of the Project. The Project will also finance a fee of 2% of sub-grant agreement amount under Component 1 and 2% of contract amount signed under Components 2(d) and 2(e) to cover the management cost of GSB, which is included in Component 3 of the Project. Project beneficiaries will contribute about US$9.91 million in counterpart funds under Component 1 for the conversion to non-HCFC based technology. These funds will cover the expenses incurred in the conversion to non-HCFC based technology which are not eligible for financing under the Montreal Protocol.Since the inception of the MLF program and as part of its commitment to increase capacity in Article 5 countries, funding has been set aside for institutional strengthening of each country’s National Ozone Unit. Thailand has received funding for institutional strengthening under the previous ODS project and will continue to receive funding for this purpose under this project. Funding for institutional strengthening is renewed and approved by the ExCom on a biennial basis. It is expected that under this project, about $0.87 million will be approved for this purpose. These funds will be under Component 4 of the Project. Table 4: Project Cost and Financing (US$ million)Project ComponentsProject CostMLF Grant Funding% Grant FinancingInvestment in HCFC Consumption Reductions30.9521.0568Technical Assistance0.630.63100Project Management1.381.38100Strengthening of the National Ozone Unit0.870.87100Total (US$ million)33.8223.9271 Series of Projects (SOP)The project is the first in a series of projects (SOP) whose overarching objective is to assist the Government of Thailand to reduce its HCFC consumption in accordance with the Montreal Protocol phase-out schedule leading to a complete phase-out by 2040. In order to meet this objective, phased interventions with specific targets and periods of implementation will be funded by the OTF subject to the approval of the ExCom. The SOP will have four phases and will cost about $83.0 million and may span 26 years. Although the implementation period for this SOP is much longer than the standard SOP, it is typical for projects under the Montreal Protocol which require phased and gradual interventions over an extended period of time to phase out the substances. The previous ODS project in Thailand and other countries had an implementation period of almost 20 years and covered multiple sectors. Like the previous ODS project, the SOP approach will build on the Government’s long-term commitment as a party of the Montreal Protocol, to phase out HCFCs. However, rather than have a single project with an extended implementation period, the SOP will have several phases/projects with clear reduction targets and focus on priority sectors. It will allow for building on the lessons learned from early phases of the program and facilitate the implementation of succeeding phases with the program framework already in place. It will also allow for sustained strengthening of capacity in the relevant agencies involved in the phaseout and for smoother implementation. The interventions in the first phase are targeted on the air conditioning (AC) and polyurethane (PU) foam sectors which have the highest HCFC consumption in Thailand and aims to assist the country to meet the freeze and consumption reduction targets from the baseline of 10% by 2015 and 15% by 2018. An HCFC import quota will be imposed on the PU foam and AC sectors to meet the initial target of a freeze to the baseline level. Based on verified consumption levels, the quota will be adjusted to meet the succeeding targets. The quota together with a verification system will be in place during the life of the SOP to ensure the sustainability of the phaseout. A review of the first phase will be conducted in 2016 and a proposal for the second phase will be prepared and submitted for approval by the ExCom based on outcomes and lessons learned from the first phase. The succeeding phases may target other sectors depending on country priorities and the market at the time of preparation. This policy decision of the MLF to finance HCFC phase-out on a phased basis is influenced primarily by the resources of the MLF. Moreover, the decision of the MLF not to finance a complete phase-out much earlier than 2040 is due mainly to the abundant supply of HCFCs in the international market. An aggressive HCFC phase-out strategy of HCFC consuming countries could be easily derailed if the supply of these chemicals is not reduced at the same pace. It is expected that the MLF may support accelerated HCFC phase-out plan in the future when there is evidence that key HCFC producing countries decide to curb their HCFC production faster than what is required by the Montreal Protocol. Under the current situations, Thailand, like other medium- and large-HCFC consuming countries, is subject to the financial constraints of the MLF. Hence, Thailand opts to employ a phase-by-phase HCFC reduction approach as shown below which is consistent with its Montreal Protocol obligations. Thailand HCFC Phase-out Project (Phase I) is the first project in the series.Options to accelerate the phase-out of HCFCs were considered. However, given the current policy of major HCFC producers in the international market to reduce their production only at the pace required by the Montreal Protocol, Thailand could put itself at risk of being non-compliant with the Montreal Protocol if an overly aggressive phase-out policy is taken. There is a need to strike a balance between eliminating residual demand and the speed of the production phase out in HCFC producing countries.Experience from the previous ODS project in phasing out CFCs shows that while there was still abundant supply of CFCs in the international market, CFC consuming countries were constantly at risk of having cheap CFCs smuggled into their countries. Several countries had to step up their efforts on border control. In the case of the ODS project, a large quantity of illegal imports of CFC was confiscated and retained by customs authorities. This stock of illegal imported CFCs had to be retained by customs authorities as the release of any of these CFCs to the market could encourage previous users of CFCs to revert back to the use of the banned chemical which could reverse the demand trend and subject countries to non-compliance with their obligations under the Montreal Protocol. Currently, developing countries have no financial resources and technical facilities to manage proper disposal of CFCs. Based on this experience and in order to avoid a similar scenario for HCFCs, a more conservative and phased approach will be taken in the phaseout. The table below shows the estimated timeframe for the SOP which is in line with the targets set out by the Montreal Protocol.Table 5: Project Implementation Timeframe for Addressing Complete Phase-outPhaseHCFC Reduction TargetsImplementation TimeframeIndicative Cost (US$ million)IFreeze, 10% and 15% reduction2014 – 201823.9II35% reduction2018 – 202010.3III67.5% reduction2020 – 202524.4IV100% reduction2025 – 204024.4Total83.0Thailand will, however, review its phase-out strategy throughout the control period of the Montreal Protocol. An accelerated phase-out plan, combining multiple phases into one, may have merits in the future when HCFC production phase-out becomes more aggressive in HCFC producing countries. IMPLEMENTATIONInstitutional and Implementation ArrangementsThe Government of Thailand appointed the Ministry of Industry as the responsible agency for the implementation of the Montreal Protocol and its amendments. The Department of Industrial Works (DIW), under the Ministry of Industry was, in turn, designated as the national focal point and implementing agency for this project. DIW will oversee project implementation and coordination particularly among government agencies and the industry. DIW will be responsible for providing technical input for engagement of consultants for some technical assistance activities including the PMU. Qualified consultants will be hired to support DIW with overall coordination of the project. The PMU will be housed in DIW and will undertake all day-to-day functions of the Project. DIW-PMU will serve as implementing agency and will manage grant funds for Components 2 (a) – (c), 3 (a), 3 (b) and 4 of the Project.In addition, DIW houses the National Ozone Unit whose main responsibility is to ensure the country’s compliance with its obligations under the Montreal Protocol. The Treaties and International Strategies Bureau (TISB) is responsible for determining the overall import quotas for HCFCs. The Hazardous Substances Control Bureau (HSCB) is responsible for allocating the overall annual import quotas issued by TISB to each importer. HSCB is also responsible for monitoring actual imports/exports made by importers/exporters and reporting back to TISB as part of its facilitation role for reporting under Article 7 data and the consumption verification to be conducted by the Project. The import/export of HCFC is also enforced by the Customs Bureau to ensure that only HCFC shipment with license issued by HSCB is allowed for import/export. These agencies will provide a system of check and balance to ensure effective control of the imports/exports of HCFC.GSB will be responsible for activities under Components 1, 2 (d), 2 (e), and 3 (c) of the Project. GSB is currently the financial agent for the previous ODS Phaseout Project. The same unit of GSB managing the ODS Phaseout Project, the Environment Conservation and Protection Unit, will be strengthened in order to effectively support the implementation of the new project DIW and GSB will be responsible for submission of financial reports and for appointing an external auditor as required by the Bank.The Ministry of Finance (MOF) will enter into a US$23.92 million grant agreement with the World Bank. The implementation of Thailand Phase I HPMP will start in early 2014 to ensure full compliance with phase-out obligations and desired project impacts attributed to interventions from the project. Upon receipt of grant proceeds, MOF, DIW and GSB will enter into subsidiary agreements, which describe their roles and responsibilities under the project. Enterprises will submit their subproject proposals to request grant funds for the conversion to GSB with a copy to DIW-PMU. DIW-PMU will determine the eligibility of the enterprises based on their establishment date and compliance with MLF criteria. Once eligibility is confirmed, GSB-PMU will review the subproject proposals and supporting documents, verify HCFC consumption, appraise and confirm the technical and financial feasibility of the proposals and recommend the appropriate level of funding. GSB will enter into sub-grant agreements with the beneficiary enterprises and will be responsible for monitoring and reporting implementation progress of sub-grant activities. A Project Implementation Manual (PIM) has been prepared to provide guidance on day to day operations. The guidance covers funding and eligibility criteria, procedures and arrangements for implementing the Project, including procurement, financial management, reporting, sub-grant processing, verification and payment mechanisms, and monitoring and evaluation.Technical assistance activities will be undertaken under the oversight of DIW-PMU or GSB-PMU which may partner with various government agencies such as the Thailand Industrial Standards Institute (TISI), Department of Skills Development (DSD), Office of Vocational Education Commission (OVEC); Bangkok Metropolitan Administration (BMA), Department of Public Works and Town and Country Planning and the Department of Alternative Energy Development and Efficiency (DEDE), and etc. The Federation of Thai Industries will provide technical information on the technology options to the relevant industry, enterprises and DIW. It will also provide coordination functions to assist its members to conduct HCFC phase-out under the Project.Results Monitoring and EvaluationMonitoring and Evaluation. The key to the success of the project lies mainly in an effective monitoring system that will ensure full compliance of all beneficiaries with agreed project milestones. DIW will closely monitor HCFC imports and exports, if any, against the allowable quotas within the calendar year.Reporting Framework. The reporting framework for the project will be at three levels:Overall Program Reporting Level – The Bank will be responsible for submitting overall program reports on behalf of Thailand as defined in the agreement between Thailand and the MLF Executive Committee. With the assistance of DIW, the Bank will submit the consumption verification reports to the ExCom on behalf of Thailand to confirm its compliance with the agreed targets for 2013 – 2017 on an annual basis. The consumption verification will be conducted by independent technical auditors engaged by DIW. Project Reporting Level – Two sets of project level reporting will carried out under the project: (i) Financial reports which include semi-annual interim unaudited financial reports (IFRs) to be submitted to the Bank by February 15 and August 15 of each calendar year; and annual audited financial reports of the project designated accounts prepared by independent qualified financial auditors and submitted to the Bank by June 30 on a calendar year basis; and(ii) Implementation reports which include: (a) annual work programs to be submitted to the ExCom, which detail achievements of the previous year, a complete overview of activities of all project components to be carried out within the following calendar year and the disbursement progress; (b) budget and procurement plans which lay out the budget, proposed fund allocation for each activity and the expected procurement activities and methods to be employed in the coming year; (c) semi-annual progress reports prepared based on the format agreed to by the Bank, which should be available to the Bank by February 15 and August 15 of each calendar year; (d) the HPMP project completion report for the Project describing expenditures incurred by the Project, major experience and lessons learned, overall achievement of the Project, implementation of disposal plans, beneficiaries’ satisfaction, performance of DIW, GSB, and the Bank, six months after the closing date of the grant agreement and other reports as required by the ExCom.DIW and GSB will each prepare their respective financial reports and semi-annual progress reports. The annual work program and HPMP project completion reports will be prepared by DIW with input from GSB. Subproject Reporting Level – Subproject appraisal reports and completion reports will be prepared by GSB in close cooperation with beneficiaries. In addition, DIW will prepare institutional strengthening, renewal and terminal reports in accordance with the ExCom’s requirements.SustainabilityTo ensure sustainability of project outcomes, DIW, through its Hazardous Substances Act will impose HCFC import quotas on foam and air conditioning sectors. Adherence to these quotas will be monitored closely, the level of phase out verified periodically and quotas adjusted accordingly in order to comply with its HCFC phaseout targets. . DIW will liaise and coordinate with the Customs Department in monitoring consumption. This is similar to the system employed under the CFC phase-out project. KEY RISKS AND MITIGATION MEASURESRisk Ratings Summary TableRisk DescriptionRatingStakeholder RiskLowImplementing Agency RiskCapacityModerateGovernanceLowProject RiskDesignModerateSocial and EnvironmentalModerateProgram and DonorLowDelivery Monitoring and SustainabilityLowOther (Optional)Other (Optional)Overall Implementation RiskModerateOverall Risk Rating ExplanationThis Project can be considered as a repeater project of the previous Thailand ODS Project and will follow the same implementation modality employed by the previous project. Both the Implementing Agency (DIW) and Financial Agent (GSB) are familiar with the Montreal Protocol program and understand the Bank’s fiduciary requirements. Preparation risk is rated as Moderate mainly because air-conditioning enterprises are new to Bank project requirements and the project will start after the first control measure of the Montreal Protocol enters into force.The import license and quota system employed by DIW to monitor and limit the quantity of CFCs imported to Thailand during the past fifteen years has proven to be robust. DIW has already extended this existing system to control imports of HCFCs. Given that enterprises had been informed by DIW of the need to stockpile HCFCs in 2012 and/or switch temporarily to imported HCFC-141b pre-blended polyol (in the case of the foam sector) before conversion is completed, the financial impact to the Thai industry is minimized.Overall implementation risk is rated as Moderate. The project will be introducing the use of new technology which has its accompanying risks. In the case of the conversion of the twelve AC enterprises, HFC-32 technology is relatively new. HFC-32 is similar to the dominant alternative technology of R-410A. However, HFC-32 implies a risk of flammability that, although low, might be used to downplay the technology’s full potential by multinational competitors and affect its uptake. However recent developments have indicated growing acceptance of the new technology with the launch of HFC-32 air conditioners in Japan and other Asian countries. In Europe, standards have been revised to accommodate the introduction of this technology. Due to safety concerns, the Director General of DIW requested a study be conducted by the independent technical consultant on the flammability and safety of air conditioner using HFC-32 as refrigerant. The study concluded that HFC-32 can be safely used as refrigerant in the air-conditioner. Moreover, the Council of Engineer stated its opinion that HFC-32 is not classified as highly flammable refrigerant; hence there are no regulatory barriers that will prevent the introduction of this technology in Thailand. To further mitigate the risks, EMPs for each of the 12 AC enterprises have been prepared and safety measures recommended. These safety measures will need to be in place prior to operation of the newly converted line and will be inspected and certified by DIW. In foam sector, foam enterprises which will convert to hydrocarbon, another flammable substance will be required to prepare an EMP and adopt safety measures. Hydrocarbon is a mature technology and the required safety precautions are well known. In addition, foam enterprises need to meet certain criteria (that would indicate their capability to use this technology) before its proposal to convert to hydrocarbon is approved. For foam enterprises converting to other technologies, a small portion of consumption phaseout will be covered by technologies that must be formulated and tested by polyol suppliers. The economic impact of the technology on the beneficiaries (micro- enterprises which use less than 100 kg of HCFC per year), as well as the capacity to use the technology effectively, is not known at preparation. However, technical assistance activities will specifically work on mitigating this risk.Based on the risks identified above and in the ORAF, an implementation support plan has been developed in order to monitor project implementation closely, and proactively address issues before they arise. Close monitoring and collaboration with the PMUs will be key in ensuring that the project remains on track.. APPRAISAL SUMMARYEconomic and Financial AnalysesAn economic analysis that captures the Project’s impact on the entire economy would have to include, besides the foam and air-conditioning manufacturers, consumers, the Government, and other aspects of risks and benefits to the Thailand society. In the absence of data on the impacts of other productive sectors and of ozone depletion and climate change on health and other aspects of life in Thailand, it is not possible to carry out a quantitative analysis of these aspects. However, it is expected that the cumulative impacts will be positive and therefore reduce the conversion cost to society.A financial analysis was carried out to assess the financial cost of phasing out HCFC-141b at 132 foam enterprises and the cost of phasing out of HCFC-22 at 12 air-conditioner manufacturers under the “with Project” scenario in comparison with “the Without-Project” scenario or “business as usual”. The analysis provides an estimated incremental cost to these enterprises in term of investments in new equipment based on the type of alternative technologies to be selected by these enterprises. The analysis also takes into account the additional cost of new raw materials (new blowing agent, new refrigerant, new parts and components) over a 20 year period and the financial support provided by the Multilateral Fund.The analysis finds that under the “with Project” scenario, the net incremental cost is approximately US$136 million over a 20 year period. This result is mainly driven by the incremental operating cost beyond the first year of conversion that would be incurred by the converting enterprises and consumers throughout the analysis period of 20 years. The net impact will be smaller if the incremental operating costs or costs of new chemical, parts and components decrease faster as a result of increased global supply of substitutes and decreasing supply of HCFC-141b and HCFC-22 in the medium term.The net incremental cost will most likely be partially passed on to consumers. This net incremental cost may be regarded as co-financing that Thai enterprises and consumers provide for achieving benefits associated with ODS phase-out, including reduced health risks due to ozone depletion and reduced risks associated with climate change. In addition, the “with Project” scenario ensures that the Thai AC industry (estimated at about US$1 billion) remains competitive especially given the recent development in the launching of HFC-32 air-conditioners in the world market. The demand for more environmentally friendly and energy efficient alternatives, not only in the AC but in the foam sector as well, makes “with project” imperative if the enterprises are to remain viable. TechnicalFor the PU foam sector, hydrocarbon (HC) technology has been selected by Thailand as the main replacement option of HCFC-141b. HC technology is commercially available in Thailand and has been employed by several large foam enterprises around the world, including Thailand, for more than 10 years.In some specific cases where HC technology is not financially and technically viable due to lack of resources for capital investment and lack of capacity to sustain safe implementation environment demanded by HC technology, non-flammable technologies such as HFCs, HFOs, and water-blown technologies would be considered. HFC technologies are commercially available in developed countries, and they are being introduced in the Thai market. Water-blown technologies are commercially available and have already been implemented successfully in Thailand. HFOs are emerging technologies with some market penetration only in developed countries.For the AC sector, HFC-32 technology has been selected by Thailand as the main replacement option of HCFC-22. Japan AC manufacturers consider HFC-32 as a viable alternative refrigerant to replace HCFC-22 as well as R-410A, and major manufacturers have already introduced HFC-32 air conditioners in the Japanese market since 2012. The technology is gaining acceptance in other countries in Asia and in Europe where they are reviewing and updating regulations in preparation for the introduction of HFC-32 air conditioners. Daikin, holder of HFC-32 proprietary technology, will transfer HFC-32 technology and allow the twelve AC manufacturers to use its patent free of charge. In addition, major Japanese air-conditioning manufacturers operating in Thailand will launch similar HFC-32 products in Thailand in early 2014. This assures the Thai air-conditioning manufacturers an access to this new low GWP technology and a market for the new products. When comparing thermodynamic properties of HCFC-22 and HFC-32, HFC-32 refrigeration capacity is 1.6 times of HCFC-22, and has a better heat transfer property than HCFC-22. While these parameters are the key indication of superior energy efficiency of the refrigerant, it is, however, not possible to provide any estimate of energy efficiency gain per unit at this point. As the energy efficiency of the air conditioning unit depends on the whole system design including compressor, evaporator, heat exchanger and blower. The HFC-32 technology has just been introduced for an inverter model in the Japanese market while units sold in Thailand are of the single speed kind. Therefore no direct comparison could be made. However, because of its superior thermodynamic property, it is expected that the new HFC-32 single speed air conditioner would have better energy performance than HCFC-22 single speed unit. Only when detailed design and optimization process, which are part of the project, are carried out can the actual energy efficiency gain be determined. At this point, it is estimated that the energy efficiency gain will be around 10%. Financial ManagementAt preparation, the financial management risk is substantial. DIW and GSB will be responsible for project implementation, management, coordination and project financial management related matters. A financial management (FM) capacity assessment has been conducted by the Bank and actions to strengthen the project’s financial management capacity have been agreed with DIW and GSB. The FM assessment has concluded that with the implementation of these actions, the financial management arrangements will satisfy the Bank’s minimum requirements under Operational Policy/Bank Procedure (OP/BP) 10.02. The financial management risk is considered as Moderate after mitigation measures are put in place. Annex 3 provides additional information on financial management.ProcurementDIW will be the Implementing Agency and will be responsible for some procurement activities under Components 2 (a) – (c), 3 (a), 3 (b) and 4 of the Project. A PMU in DIW will facilitate all day-to-day functions as required by the project. GSB, through its PMU, will be responsible for procurement activities under Components 2 (d) – (e), and 3 (c) of the Project. Procurement activities under Component 1 will be done by the sub-project beneficiaries with guidance from GSB.The proposed project is a repeater project following the ODS Phaseout Project, and DIW and GSB will essentially keep the same institutional arrangement. In the previous project, there have been many staff turnovers. As a result, adequate record keeping and hand-over arrangements were not maintained and implemented. Measures were agreed between DIW/GSB and the World Bank to enhance the capacity of DIW and GSB, including the beneficiary enterprises on procurement, and to mitigate potential procurement risks during project implementation (see details in Annex 3). Consultants will be hired to develop a central filing system to improve the retention of files. In addition, the grant agreement will include a clause stipulating the requirement to maintain key project personnel functions during project implementation. Procurement activities of DIW and GSB for the initial 18 months of the project have been prepared and documented in a procurement plan, which has been agreed with the Bank during appraisal.Social (including Safeguards)The project will cover enterprises manufacturing air-conditioners and those manufacturing foam products including rigid polyurethane foam, flexible polyurethane foam and integral skin foam. All project activities will be developed within existing enterprises or on their own land, so there is no IP group to be affected or land acquisition related impact. Therefore, the project will not trigger OP 4.12 or OP 4.10. The project focuses on the HCFC phase out process by modifying the existing production equipment so it can use alternative chemicals. Intervention proposed by this project is to ensure that the targeted enterprises would be able to adapt to new technologies and new product requirements of the market. The outcome of the phaseout is gender neutral. Two gender issues were reviewed during project preparation/appraisal: first, whether the conversion to the new technology would have any impact on the hiring composition of staff especially on female workers, and second, whether the benefits from training and knowledge of the new technology will be provided to all existing employees, both males and females. The project has no influence on the hiring practice of the beneficiary enterprises but it is anticipated that there will be no significant impact on the hiring composition of staff in the industry. Opportunities for training will be offered equally to male and female workers.Environment (including Safeguards)The project will not adversely affect sites with archeological, paleontological, historical, religious, or unique natural values. The activities under the Project may have minor to moderate adverse environmental impacts that are specific to each site, including potential risks on occupational health and safety and fire hazards due to flammability of hydrocarbon and HFC-32. In order to identify and mitigate such impacts, an Environmental Management Plan (EMP) has been prepared and publicly disclosed for each of the twelve participating manufacturers in the air-conditioning sector. For the foam sector, since not all the foam beneficiaries have been identified at the time of project appraisal, an Environmental Management Framework (EMF) has been prepared by DIW to provide guidance to all stakeholders including the DIW-PMU and beneficiary enterprises to effectively identify and address environmental safeguard issues that may arise from the proposed sub-project investment. Each participating foam enterprise that will convert to hydrocarbon technology will prepare a specific EMP and obtain, through GSB, an approval from the Bank prior to the approval of its sub-project proposal. The EMF and EMPs have been prepared and publicly disclosed in line with the World Bank’s Operational Policy (OP)/Bank Procedure (BP) 4.01 - Environmental Assessment (EA) and in accordance with Thai National Laws and Regulations. To the extent relevant, the applicable World Bank Group Environmental Health and Safety Guidelines have been taken into consideration in preparing the EMF and EMPs. Public Consultations and Information Disclosure: As of February 7, 2014, the EMPs for the 12 beneficiary enterprises for the air conditioning sector have been disclosed by the respective air-conditioning manufacturers in their websites and at the World Bank’s InfoShop following Bank guidelines (see table below for disclosure dates of EMPs). For the foam sector, the EMF was disclosed in country on DIW’s website on January 8, 2014 and at the World Bank’s InfoShop on February 2, 2014. Consultations were held, on September 6, 2013, with the key stakeholders; i.e. foam and air-conditioning manufacturing enterprises, a non-profit organization and relevant national authorities in particular DIW which manages legal requirements on storage of flammable materials and hydrocarbons at factories and the use of hydrocarbon in the production of foam.Disclosure of EMPs for 12 Beneficiary Enterprises in the AC SectorNoEMP BeneficiaryDocument DateDisclosure date1Bitwise (Thailand) Co., LtdJan 1, 2014February 3, 20142United Technology Development Co., Ltd (Uniaire Corporation Co., Ltd)Jan 1, 2014February 3, 20143Saijo Denki International Co., LtdJan 1, 2014February 3, 20144Subsuksiri Co., LtdJan 1, 2014February 3, 20145Thrub Thong Hou Co.,Jan 1, 2014February 3, 20146Eminentair (Thailand) Co., LtdJan 1, 2014February 3, 20147Supreme CNB Corporation Co., LtdJan 1, 2014February 3, 20148Unico Consumer Products Co., Ltd.Jan 1, 2014February 3, 20149Better Living Co., Ltd Jan 1, 2014February 6, 201410B. Grimm Airconditioning Co., Ltd.Jan 1, 2014February 6, 201411Pan-Tycoon Co., LtdJan 1, 2014February 3, 201412PPJ Engineering Co., LtdJan 1, 2014February 7, 2014Annex 1: Results Framework and MonitoringTH - HCFC Phaseout ProjectSOP Development Objective: The Program Development Objective is to contribute to Thailand’s efforts to reduce its HCFC consumption in accordance with the Montreal Protocol phase-out schedule leading to a complete phaseout by 2040.Program Level Results IndicatorsCoreUnit of MeasureBaselineTarget ValuesFrequencyData Source/MethodologyResponsibility for Data CollectionDescription (indicator definition etc.)Phase 1Phase 2Phase 3Phase 4Indicator One: Overall Reduction in HCFC consumption under the Program FORMCHECKBOX % of Baseline015%35%67.5%100% At the end of each phaseCustoms Dpt and DIW’s import quotas/Cross verification of the two sources of data by independent auditor.Customs and DIW.% reduction from the baseline (average of 2009 and 2010 consumption).Project Development Objective (PDO): The Project Development Objective (PDO) is to reduce HCFC consumption in the air-conditioning and foam sectors in order to contribute to Thailand’s efforts to meet its HCFC consumption phase-out obligations under the first phase of the program (2014-2018).PDO Level Results IndicatorsCoreUnit of MeasureBaselineTarget ValuesFrequencyData Source/MethodologyResponsibility for Data CollectionDescription (indicator definition etc.)YR 1YR 2YR3YR 4YR5Indicator One: Reduction in HCFC consumption from foam and air conditioning sectors FORMCHECKBOX ODP ton0076175209209AnnuallyCustoms Dpt and DIW’s import quotas/Cross verification of the two sources of data by independent auditor.Customs and DIW.ODP multiplied by total import minus export in MT.INTERMEDIATE RESULTSIntermediate Result (Component One): Investment in HCFC Consumption Reductions (US$21.05Million)Intermediate Result indicator One: HCFC-141b consumption reduction in the foam sector FORMCHECKBOX ODP ton0070152152152AnnuallyProgress reports prepared by PMU in collaboration with Polyurethane Industry of FTI.PMUBaseline HCFC-141b consumption of foam enterprises that have already phased out their HCFC-141b usage.Intermediate Result indicator Two: GHG emission reduction from replacement of baseline foam blowing agent with low/lower GWP alternative in the foam sector FORMCHECKBOX tCO2 eq./year00341,020740,499740,499740,499AnnuallyProgress reports prepared by PMU in collaboration with Polyurethane Industry of FTI.PMUReduction of GHG emission from replacement with low/lower GWP alternative.Intermediate Result indicator Three: HCFC-22 consumption reduction in the air-conditioning sector FORMCHECKBOX ODP ton006235757AnnuallyProgress reports prepared by PMU in collaboration with Air-conditioning and Refrigeration Club of FTI.PMUBaseline HCFC-22 consumption of air-conditioner enterprises that have already phased out their HCFC-22 usage.Intermediate Result indicator Four: GHG emission reduction from replacement of baseline refrigerant with low/lower GWP alternative in the air-conditioning sector FORMCHECKBOX tCO2 eq./year00129,741497,3391,232,5351,232,535AnnuallyProgress reports prepared by PMU in collaboration with Air-conditioning and Refrigeration Club of FTI.PMUReduction of GHG emission from replacement with low/lower GWP alternative.Intermediate Result (Component Two): Technical Assistance (US$0.63 million)Intermediate Result indicator One Successful conversion of all 12 beneficiaries in A/C sector FORMCHECKBOX Number of Enterprises00001212AnnuallyProgress reports and signed technology transfer agreement PMU/Beneficiaries .Intermediate Result indicator Two: Number of System houses offering Lower-GWP pre-blended polyol formulations technology FORMCHECKBOX Number of System House0444AnnuallyProgress reports PMU Intermediate Result (Component Three): Project Management (US$1.38 million)Intermediate Result indicator One: Regulations and standards supporting HCFC phase-out FORMCHECKBOX N/AN/ABan use of HCFC-141b in the foam sector, except spray foamCompletion of revised standards and regulations for the a/c sectorEffective dates of the policy and regulatory instruments.Intermediate Result indicator Two: Annual Work Programs for Submission to the ExCom FORMCHECKBOX Number of Work Program011111AnnuallyExCom’s approvalPMUIntermediate Result indicator Three: Verification Reports on Annual HCFC Consumption FORMCHECKBOX Number of Reports011111AnnuallyExCom’s approvalPMUIntermediate Result (Component Four): Strengthening of the National Ozone Unit (US$0.87 million)Intermediate Result indicator One: Timely Issuance and enforcement of annual HCFC import quotas FORMCHECKBOX N/AN/A11111AnnuallyProgress Reports/Verification Report from Independent AuditorNOUCompliance with MP obligationsIntermediate Result indicator Two: Timely Article 7 data submission FORMCHECKBOX N/AN/A11111AnnuallyProgress Reports/Meeting of the Parties ReportsNOUAnnex 2: Detailed Project DescriptionTHAILAND: HCFC Phaseout ProjectThe development objective of the proposed TH-HCFC Phaseout Project is to reduce HCFC consumption in the air-conditioning and foam sectors in order to contribute to Thailand’s efforts to meet its HCFC consumption phase-out obligations under the first phase of the program (2014-2018). The proposed project is the first in a series of projects (SOP) whose overarching objective is to assist the Government of Thailand to reduce its HCFC consumption in accordance with the Montreal Protocol phase-out schedule leading to complete phase-out by 2040. The phase-out schedule includes multiple interim consumption reduction targets as summarized in Table A2-1. Table A2-1: Thailand HCFC Phase-out Obligations under the Montreal Protocol* and Agreement with the ExComConsumption Reduction TargetsAllowable Consumption (ODP tons)MP RequirementsAs per Agreement between Thailand and ExCom (HPMP Phase I)2013Freeze at baseline level(Baseline defined is average of 2009 and 2010 consumption)927.6927.62015Reduction to 90% of the baseline834.8834.842018Interim reduction step as per the agreement between Thailand and ExCom834.8788.462020Reduction to 65% of the baseline602.92025Reduction to 32.5% of the baseline301.52030Reduction to 2.5% of baseline23.22040Complete phase-out of HCFCs0*Per the MP, the annual consumption averaged over the ten years from 2030 to 2040 should not exceed 2.5% of the baseline and this quantity is allowed only for the purpose of servicing the remaining fleet of HCFC-dependent equipment.Thailand has no production capacity for any ozone depleting substances. Supply of HCFCs for the domestic use in Thailand is met through import from other countries mainly China and India. Thailand is a large importer and consumer of HCFCs, importing more than 18,000 metric tonnes of HCFCs in 2012. HCFCs are used in the manufacturing of air-conditioners, commercial refrigerators, large commercial and industrial refrigeration system, fire protection equipment, aerosol and foam products. HCFCs are also used in large part for servicing air-conditioning and refrigeration equipment and for cleaning and testing of optical and electronic pliance with the Montreal Protocol is based on the overall consumption in ODP tonnes. To achieve a quick reduction of HCFC consumption, as part of the Phase I of its HPMP, Thailand decided to address the phase-out of HCFC-141b, which has the highest ODP value among all HCFCs used in Thailand. Moreover, to avoid a build-up of a larger pool of HCFC air-conditioners in Thailand which could lead to a higher demand of HCFC for servicing in the future, it is critical for Thailand to prevent new installations of these outdated HCFC-22 air-conditioners as soon as possible. The MLF, which is the only grant funding mechanism of the Montreal Protocol, is subject to replenishment every three years. To ensure sufficient funds could be provided to all Article 5 parties it was decided that at least during the initial HCFC control period, the MLF will finance phase-out activities on a phased approach tied to specific interim reduction targets as shown in Table A2-2.Table A2-2: Project Implementation Timeframe for Addressing Complete Phase-outPhaseHCFC Reduction TargetsImplementation TimeframeIndicative Cost (US$ million)IFreeze, 10% and 15% reduction2014 – 201823.9II35% reduction2018 – 202010.3III67.5% reduction2020 – 202524.4IV100% reduction2025 – 204024.4Total83.0Phase I aims to assist Article 5 Parties to meet the freeze and 10% consumption reduction targets by 2015. Under special circumstances, the funding request for Phase I covers reduction targets of more than 10%. For example, funding provided for Thailand’s HCFC Phase-out Plan (Phase I) covers HCFC consumption reduction up to 15% from the baseline by 2018. Only Article 5 Parties with very small HCFC consumption were allowed to submit one-integrated project covering the period from 2013 – 2040 whereby grant funds from the MLF cover the same period.This policy decision of the MLF to finance HCFC phase-out on a phased basis is influenced mainly by the resources of the MLF. Moreover, the decision of the MLF not to finance a complete phase-out much earlier than 2040 is due mainly to the abundant supply of HCFCs in the international market. An aggressive HCFC phase-out strategy of HCFC consuming countries could be easily derailed if the supply of these chemicals is not reduced at the same pace. It is expected that the MLF may support accelerated HCFC phase-out plan in the future when there is evidence that key HCFC producing countries decide to curb their HCFC production faster than what is required by the Montreal Protocol. Under the current situations, Thailand, like other medium- and large-HCFC consuming countries, is subject to the financial constraints of the MLF. Hence, Thailand opts to employ a phase-by-phase HCFC reduction approach as shown above which is consistent with its Montreal Protocol obligations. Thailand HCFC Phase-out Project (Phase I) is the first project in the series.Options to accelerate the phase-out of HCFCs were considered. However, given the current policy of major HCFC producers in the international market to reduce their production only at the pace required by the Montreal Protocol, Thailand could put itself at risk of being non-compliant with the Montreal Protocol if an overly aggressive phase-out policy is taken. Experience from phasing out CFCs shows that while there was still abundant supply of CFCs in the international market, CFC consuming countries were constantly at risk of having these cheap CFCs smuggled into their countries. Illegal import of CFCs undermined the investment in CFC phase-out activities undertaken by the countries. Several enterprises reverted to the use of CFC products which resulted in reversing the trend in the demand of CFCs in the countries and put them at risk for non-compliance with the Montreal Protocol. Thailand will, however, review its phase-out strategy throughout the control period of the Montreal Protocol. An accelerated phase-out plan, combining multiple phases into one, may have merits in the future when HCFC production phase-out becomes more aggressive in HCFC producing countries. The project consists of the following components:Component 1: Investment in HCFC Consumption Reductions – (US$30.95 Million; OTF $21.05 million; beneficiaries $9.91 million)Provision of Sub-grants to Beneficiary Enterprises in the foam sector to carry out HCFC consumption reduction subprojects;Carry out demonstration sub-projects to perform in-house testing of new non-HCFC-141b foam systems;Provision of Sub-grants to 12 Beneficiary Enterprises in the air-conditioning sector to carry out HCFC consumption reduction subprojects;Provision of Sub-grants to Beneficiary Enterprises for the development of non-ozone depleting substances compressors for refrigeration and air-conditioning equipment.Funding will be provided to enterprises that meet the MLF eligibility criteria and were established prior to September 2007. The level of grant support will depend on the documented level of HCFC consumption of each individual enterprise and the percentage of the developing country ownership of the enterprise. Participating enterprises will bear any conversion costs exceeding the level of the grant fund provided by the Project and those not eligible for MLF funding. The grant funds for eligible enterprises and activities is determined, on the basis of agreed incremental costs consistent with the established Executive Committee guidelines and is documented in the Project Implementation Manual (PIM).Component 1 (a): will finance conversion of foam production processes to HCFC-free technologies at about 132 foam enterprises while Component 1 (b) will finance demonstration projects at system houses to develop and manufacture non-HCFC based pre-blended polyol which will cater to smaller foam enterprises.There are more than 200 foam enterprises consuming HCFC-141b for the production of rigid polyurethane foam and a few enterprises using HCFC-141b for the production of flexible polyurethane and integral skin foam. HCFC consumption in the foam sector grew from less than 1,600 MT in 2007 to more than 1,800 MT in 2010. HCFC consumption by foam product is shown in Table A2-3. Table A2-3: Foam sub-sectors, number of companies and HCFC-141b consumptionSector/ApplicationNo. of EnterprisesHCFC-141b Consumption (MT)20072008 20092010Rigid Polyurethane????Box Foam444.761.470.260.1Commercial Refrigeration**14110.4136.6132.8147.5Steel/Fiberglass door 629.032.632.528.5Ice Box44592.3604.4634.1602.8Pipe Section/Pipe-in-pipe Insulation641.339.350.462.7Pipe Section and Sandwich Panel***332.838.340.638.4Refrigerated Truck, Reefer, Fishery vessel1343.259.359.770.3Sandwich Panel25242.7275.4246.9332.2Spray Foam30295.9330.1298.6349.1Thermoware746.654.547.945.7Wood Imitation627.632.239.249.0Others4441.858.466.248.0Sub-total Rigid Polyurethane Foam2021,548.21,722.61,719.11,834.4Flexible Polyurethane521.625.027.925.1Integral Skin819.328.024.324.1Total Foam Sector2151,589.11,775.61,771.31,883.6Given that alternative technology for spray foam applications is not technically and financially viable, HPMP Phase I will cover foam enterprises in all applications indicated in Table A2-3 except 30 enterprises engaged in the spray foam application. As a result, the project will cover HCFC phaseout at 185 foam enterprises that use HCFC-141b as a blowing agent, of which, 132 enterprises are small-and-medium scale enterprises. Component 1 (a) will address the conversion of up to 132 small-and-medium scale enterprises. The phaseout of HCFC-141b for the remaining 53 micro enterprises whose consumption is less than 100 kg a year will be addressed by technical assistance activities described in the subsequent section. The project will provide beneficiaries in the foam sector with foaming units, cooling units and pre-mixing units, raw material storage, site preparation (i.e., small civil works), production line modification, safety devices, ventilation systems and other necessary safety costs, technical assistance and technology transfer, trials, training and incremental operating cost as defined by the Multilateral Fund.Enterprises will select alternatives for replacing HCFCs in their foam production process. Depending on the foam application, HCFC-141b baseline consumption, and conditions of the existing production facilities, enterprises will select the most appropriate alternatives for their circumstances. Commercially available alternatives include hydrocarbon (HC), HFC-based solution (such as a reduced HFC formulation to minimize the amount of high-GWP substances used) and water-blown (CO2) technology. Selection of alternative technologies will take into account the capacity and, for hydrocarbon technology, their physical location to satisfy the safety requirements. It also takes into account availability and cost of blowing agents in the Thai market and the climate impact of the alternatives. The three alternatives being considered – hydrocarbon, HFC-245fa and water based technologies– are mature and well proven technologies. Investment cost of conversion to hydrocarbon technology is the highest among alternative technologies proposed under the project due to the need for safety devices, ventilation systems other necessary safety equipment to ensure safe use of hydrocarbon, and safety training. Table A2-4 shows incremental cost of converting to hydrocarbon technology for different sizes of enterprises. Table A2-4: Hydrocarbon Conversion Cost (kUS$)Consumption (MT HCFC-141b per year)>50 MT25MT-49 MT15-24 MTCost itemsHC with storage tankHC supplied in drumsHC pre-blended in drumsHC storage facility, pumps, piping to transfer HC from storage to premixing unit70-905(storage room)5(storage room)HC premixing unit100-12080-1000Room for pre-mixer and storage of HC drums01515Replacement / retrofitting of foaming equipment, conveyors, jigs etc.50/units(2 or more)50/unit(1 - 2 units)50/unit(1 - 2 units)Firefighting equipment, HC detection, grounding of production equipment, electrical installations meeting explosion zoning classification, ventilation100 – 12060 - 9060 – 90Technical transfer assistance, trial production, staff training, safety certification40 – 503020Safety audit10105Total420 – 490250 - 350155 – 235Table A2-5 shows the incremental costs of converting to HFC-245fa, the handling of which is, in principle, similar to HCFC-141b except for the lower boiling point of HFC-245fa. Hence, HFC-245fa and polyol pre-blended with HFC-245fa must be stored in low temperature (20o – 25o C) facilities. Existing low pressure foaming equipment may not need to be replaced depending on the types of products made by the enterprises. Minor adjustments or retrofitting of the baseline equipment may be required. However, for products whose thermal insulation is a desired and critical property of the final products, the baseline low pressure foaming equipment may not be adequate. Replacing the existing low pressure foaming equipment to high pressure foaming equipment is required. Table A2-5: HFC-245fa Conversion Cost (kUS$)Cost itemsLow pressure equipmentHigh pressure equipmentStorage tank for HFC-245fa pre-blended with polyols, pre-mixer, cooling equipment, transfer pumps15-2520-25Retrofitting of foaming equipment (no hand mixing possible)*10-15/unit10-20/unitTechnology transfer and fee, trial production, training10-2515-30Total35-6545-75* The cost for new foaming equipment is in the order of $60-120k depending on the type of the foaming unit and its capacity.While the investment cost of converting production lines to HFC-245fa and water blown foam technology is low, the higher cost of HFC-245fa and increasing density of water blown foam will result in higher operating costs compared to HCFC-141b. Cost of alternatives and HCFC-141b is shown in the table A2-6 below.Table A2-6: Impact of Cost of Alternative Blowing AgentsRigid FoamFlexible FoamIntegral Skin foamHCFC-141bHC-CPHFC-245faWater (CO2)HCFC-141bWater (CO2)HCFC-141bHFC-245faWater (CO2)Cost of blowing agent ($US)2.332.508*n/a2.33n/a2.338*n/aCost of polyol($US)2.502.952.952.952.552.802.502.952.80% in foam formulation11.1%5.6%5.8%n/a9.1%n/a4.1%2.8%n/aCost impact per kg of foam($US)0.190.520.170.080.470.18* Based on international priceComponent 1 (b): Smaller foam companies normally produce foam from polyol pre-blended with a blowing agent. This pre-blended polyol is supplied by system houses. However, the existing system houses can only supply HCFC-based pre-blended polyol to the Thai market. None of them have experience in pre-blending hydrocarbon and HFC-245fa. The latter presents major challenges to the system houses because of its low boiling point. To date, pre-blending polyol with hydrocarbon has not been done in Thailand as there are serious safety issues that have to be overcome from the pre-blending process to transport of pre-blended polyol including concerns on the safe use at the foam enterprises which are mostly small enterprises and have low capacity in managing fire hazards. Component 1 (b) will finance demonstration projects for system houses to: (i) develop new formulations; (ii) test performance of foam produced with new formulations; (iii) develop safety procedures for the production of pre-blended polyol, transport of pre-blended polyol in case HC is used as a blowing agent, and safety procedures; and (iv) disseminate results and findings from the demonstration projects to small foam enterprises. To support this demonstration project, the Project will finance associated costs incurred from development and testing of new formulations of pre-blended polyol as follows: raw materials for developing new formulations (i.e. blowing agent, polyol and isocynate), foam testing and testing equipment (laboratory test, cup test, foam property test), engagement of national and international foam experts to assist system houses to develop new formulations and conduct the performance test of foam produced with new formulations (training and technology transfer), field trips to visit system houses in other countries. Component 1 (c): will finance conversion of HCFC-based air-conditioning manufacturing process at twelve air-conditioning manufacturers to HFC-32 technology. Beneficiary enterprises will receive funding for design, research, development, testing and certification of HFC-32 air-conditioning units. In addition, the project will finance conversion of the production line including replacement of charging equipment, transfer pumps and piping, vacuum pumps, leak detectors, storage of HFC-32, production line modification, safety devices, and ventilation systems and other necessary safety costs, small civil works related to site preparation for new equipment and storage facilities, technical assistance and technology transfer, trial production, and incremental operating cost as defined by the Multilateral Fund. The project will facilitate the transfer of technology to beneficiary manufacturers and service technicians. The main changes associated with HFC-32 are the higher pressure of HFC-32 compared to HCFC-22 and its flammability. The change of refrigerant requires redesign and testing of the new air conditioners but provides an opportunity to introduce more energy efficient air conditioners with limited additional costs. The main cost components associated with the conversion are redesign and testing of the new HFC-32 air conditioners, modification of refrigerant charging lines, i.e. replacement of charging equipment, vacuum pumps, leak testing equipment and safety measures due to the flammability of HFC-32. In addition, new storage area for HFC-32 with HFC-32 transfer pump and piping from the HFC-32 storage to the charging equipment will also be required. Limited funding will be provided to companies with in-house production of heat exchangers for the necessary changes and adjustment in the manufacturing of heat exchangers.Production level, HCFC-22 consumption, in-house production of heat exchangers and level of funding for each participating local air-conditioning manufacturer are shown in table A2-7 below.Table A2-7: Participating AC Manufacturers, Production Level, HCFC-22 Consumption and In-house Production of Heat ExchangersCompanyIn-house Production of Heat ExchangerArt. 5 Ownership2010 ProductionFunding Approved by ExCom ($US)UnitsR-22 MTCharging Line and Servicing TeamHeat ExchangerUnico Consumer (Amena)Yes100%Better Living (Air-temp)-100%Bitwise (Tasaki)Yes100%C.N.E (Supreme) -100%Eminent AirYes100%Link (B. Grimm Air-conditioning)-80%Pan Tycoon (Central Air)Yes100%Saijo DenkiYes100%PPJ Engineering (Star-Aire)Yes100%Subsuksiri (Miki)-100%Sup-Thong-Hor (Focus)-100%United Technology (Uni-Aire)Yes100%TOTAL377,3219438,247,098518,621The patents for HFC-32 technology are presently owned by Daikin. Daikin signed a Non-Assertion agreement with each of the beneficiary air-conditioner manufacturers, wherein Daikin authorizes the free use of its patents for HFC-32 technology. Availability of HFC-32 compressors and HFC-32 refrigerant has been confirmed during the preparation of the Project. HFC-32 compressors are very similar to R-410A compressors presently produced in Thailand. The main difference might be the use of motors designed for use with flammable refrigerants. The HFC-32 compressors are expected to be twice the cost of HCFC-22 compressors, but the same cost as R410A compressors. The Project will finance part of this cost for one year consistent with the ExCom decision. HFC-32 is produced by a number of chemical producers globally. It is expected that the sales price of HFC-32 will be around 15% to 25% higher than that of HCFC-22. However, the amount of HFC-32 required by air-conditioning equipment is around 65% of the amount used in a HCFC-22 air-conditioning equipment of the same size. Therefore, the cost impact for servicing HFC-32 air-conditioning equipment will be limited. From the manufacturing point of view, the lower charge size of HFC-32 would enable the manufacturers to redesign smaller sized HFC-32 products when compared to HCFC-22 air-conditioner resulting in less consumption of raw materials. Table A2-8: Cost Impact of Alternative RefrigerantsHCFC-22HFC-32R410ACost of refrigerant (Baht/kg)120150500-600Charge size compared to HCFC-22 (% of HCFC-22)100%64%80%Compressor cost compared to HCFC-22 (% of HCFC-22)100%200%200%Component 1 (d): will finance development and testing of new HFC-32 based compressors at Kulthorn Kirby, the only Thai-owned compressor manufacturer that meets the eligibility criteria of the MP. The grant funds will be used to establish a facility for the development and testing of HFC-32 compressors comprising of test equipment (calorimeter room, slug-test rig, reliability test rigs) and development of prototype (tools for making prototype). Improving HFC-32 compressor supply is crucial in establishing a local supply of climate-friendly air-conditioner compressors and for market penetration of this technology under the project. This activity will avoid dependency of the air-conditioning manufacturers on only international suppliers of HFC-32 compressors and assure the air-conditioning sector in Thailand of an adequate supply of key HFC-32 parts at competitive prices. HCFC-22 is still used as refrigerant in stand-alone commercial refrigerators, beverage display cabinet, food display cases, and refrigeration in supermarket applications, which require smaller refrigerant charge than air-conditioners. Therefore, the objective of the investment activity in the commercial refrigeration sector is to establish a local supply of natural refrigerant based compressors in Thailand. These include new compressor models for CO2 and R-290 (propane). With a local production facility of natural refrigerant-based compressors, it is expected that the supply of major parts and components for CO2 and R-290 technologies for commercial refrigeration market will become more widely available and affordable during the implementation of HCFC phase-out in the commercial refrigeration sector in the Phase II HPMP by introducing natural refrigerants, rather than high-GWP refrigerants such as HFC-134a or R-410A. The project will assist Kulthorn Kirby to develop and test natural refrigerant compressors by providing calorimeter rooms, vending machines for testing, start-test rigs, reliability test rigs, development of prototypes (tooling for making prototypes) and other research and development expenditures. This will allow the Thai industry to gain first-hand experience in managing any risks associated with these natural ponent 2: Technical Assistance (US$0.63 million)Provision of technical assistance to support HCFC-22 phase-out in the air-conditioning sector through, inter alia, technical workshops on climate friendly refrigerants for large and small AC systems.Development and provision of train-the-trainer programs on good servicing practice for HFC-32 air-conditioning units and inclusion of said programs in the curricula of training institutes in the country.Carry out public awareness programs to promote energy efficiency and low global warming potential technology in air-conditioning equipment.Provision of technical assistance to 12 air-conditioning manufacturers to convert their production facilities to HFC-32 technology and to develop proper installation and servicing proceduresProvision of technical assistance to support HCFC-141b phase-out in the foam sector through, inter alia, marketing of non-HCFC-141b formulation by foam system houses and introduction of the use of non-HCFC-141b formulations at micro ponent 2 (a) will support HCFC-22 phase-out in the air-conditioning sector. The project will conduct technical workshops and promote the use of climate friendly (low GWP and non-ODS) refrigerants for large and small AC systems. DIW, in close consultation with concerned stakeholders, will implement related activities, which include without limitation, conducting feasibility studies for major types of buildings on replacing existing air-conditioning equipment with higher energy performance, non-ODS air-conditioners. Component 2 (b): Technical institutes will be informed of the objectives and initiatives being undertaken under the Project particularly the introduction of new technology in the AC sector. As a result of the new technology, there will be a need for new technical skills to properly operate, maintain and service new non-HCFC air-conditioners, particularly HFC-32 air-conditioners. Train-the-trainer programs for technical institutes on good servicing practices for HFC-32 air-conditioning units will be financed by the Project. This will enable the training institutes to include the good servicing practices into their curricular. DIW, in close consultation with the technical institutes, will organize training workshops for trainers. Training equipment will be procured and used during the training of the trainers. Component 2 (c): The project will finance technical assistance activities to review and revise energy efficiency, safety and performance standards and regulations in order to promote the adoption of low-GWP energy efficient equipment and contribute to the country’s ‘greening’ initiatives. These activities could include studies on incentive options to promote the use of low-GWP energy efficient equipment vs. high-GWP energy efficient equipment. The activities will be carried out in close consultation with relevant government agencies and the Green Building Program in Thailand. This project component will also finance development of safety and performance standards and regulations for the introduction of non-ODS alternative technologies. Activities could include consultancy services, meetings and workshops to be implemented by DIW. Component 2 (d): To facilitate the introduction of HFC-32 air-conditioning technology into the Thai market, the project will finance the cost of developing safety procedures from manufacturing to installation and servicing based on the lessons learned and the experience of the 12 AC beneficiary enterprises and global best practice. Consultants will be engaged by GSB to provide technical advice to the 12 local air-conditioner manufacturing enterprises for the conversion to HFC-32 technology including design of the conversion plan and plant layout, production process modifications and safety plans, and to develop training modules for proper installation and service of HFC-32 air-conditioners. Component 2 (e): To enable micro enterprises, that are not covered by Component 1, to access the available information pertaining to HCFC-141b phase-out in various applications, a consulting firm will be engaged by GSB to provide these micro enterprises with information on economic and safe alternative blowing agents. In addition, technical advice specific to foam applications will be provided to individual micro enterprises to enable them to phase out their use of HCFC-141b. The project will also undertake activities to promote climate friendly blowing agents for the foam sector. This component also includes activity to support the marketing of non-HCFC-141b formulation by foam system ponent 3: Project Management (US$1.38 million)Provision of technical assistance to the DIW-PMU for managing, supervising, monitoring and reporting on the implementation of Component 2 (a) – (c) of the Project.Provision of technical assistance to the DIW-PMU for the development of sector-specific regulations and policy, such as, inter alia, rules governing HCFC imports and exports and a ban on the use of HCFC in the air-conditioning and foam manufacturing sectors.Provision of technical assistance to the GSB-PMU for managing, supervising, monitoring and reporting on the implementation of Components 1 and 2 (d) and (e) of the ponent 3 (a): A project management team within the Department of Industrial Works (DIW-PMU) will be appointed to manage and coordinate the implementation of the Thailand HPMP. Its main function is to prepare and submit the annual work programs to the MLF, liaise and assist with HCFC consuming enterprises to participate in the Project and to identify appropriate partner agencies and/or institutions to undertake technical assistance activities to promote the use of energy efficient non-HCFC and low-GWP alternative technology, and facilitate preparation of annual HCFC consumption verification reports to be carried out by independent ponent 3 (b): The project will provide technical support to DIW-PMU to strengthen the regulatory framework that would help ensure and sustain the HCFC phaseout. Through the project, the project management team will review, draft, revise and/or update and recommend sector specific policies and regulations. The project team will consult with other agencies who are key drivers in the implementation of the proposed sector specific policies and regulations. Funding level of US$ 0.75 million will be provided for DIW to support project management costs during the project period. The DIW-PMU will be staffed by a senior technical officer, two technical officers and one administration officer to be responsible for implementation of technical assistance activities under Component 2 (a) – (c) in close coordination with relevant agencies and Component 3 (a) and 3 (b). In addition, the DIW-PMU will work closely with the Government Savings Bank (GSB) to undertake implementation of Component 1. Component 3 (c): A PMU will also be established within GSB (GSB-PMU) and will be responsible, in close coordination with DIW, for day-to-day implementation of Components 1, 2 (d) and (e) of the Project. Under Component 1, GSB-PMU will be responsible for reviewing, appraising and approving sub-project proposals; the preparation of related technical and financial appraisal reports on the subprojects and overseeing subproject implementation ensuring compliance with subgrant agreement and Bank guidelines. GSB-PMU will be staffed with required technical capacity to conduct the review, appraisal and monitoring of the subprojects. Funding level of US$ 0.20 million will be provided for GSB for operation of the GSB-PMU during the project period. The expenditures related to the above activities include consultants, office equipment, training, workshops, non-consulting service, public awareness and incremental operating costs. Incremental operating costs means reasonable expenditure incurred by DIW and GSB in managing and coordinating the implementation of the Project (and includes only expenditure that would not have been incurred in the absence of the Project). Incremental operating costs include rental of vehicles and equipment, fuel, office supplies and other consumables, equipment insurance, office rent, internet connection and communications costs, support for information systems, translation costs, bank charges, advertising expenses, utilities and travel, transportation, per diem and accommodation costs (other than for Training), and other reasonable expenditures directly associated with the implementation of Project activities (excluding salaries, bonuses, fees, honoraria or equivalent payments to members of the Recipient’s civil service). The project will also finance an agency fee to GSB. GSB earns a fee of two percent (2%) for each sub-grant agreement signed under Componet1 and of each contract signed under Components 2.D and 2.E of the Project. GSB Agency Fee is estimated to be about US$.043 ponent 4: Strengthening of the National Ozone Unit (US$0.87 million)Component 4 will provide technical assistance to strengthen the capacity of the National Ozone Unit (NOU) to fulfill the obligations of the Recipient under the Montreal Protocol.The NOU was established in 1992 within DIW. Its main functions are to monitor import and export of ODS and to report to the UNEP Ozone Secretariat in accordance with Article 7 of the Montreal Protocol. In this regard, the NOU is responsible for establishing import/export quotas of ODS for all importers/exporters and liaising with other government agencies including the Customs Department to ensure the effective control of the borders to preempt any illegal shipments of ODS in and out of the country. In addition, the NOU is required by the Executive Committee of the Multilateral Fund to provide progress reports in the implementation of the country program, national ODS phase-out program, on an annual basis.The NOU is also tasked to carry out public awareness activities, information exchange with stakeholders in the country, including both public and private sectors, and stakeholders in other Article 5 countries within the region. The NOU is also required to participate in all international meetings related to the Montreal Protocol, including meetings of the Parties, UNEP networks of ozone officers, and other meetings organized by all implementing agencies of the Multilateral Fund.The expenditures to be covered by the project under this component include consultants, office equipment, training, workshops, non-consulting service, public awareness and incremental operating costs. Incremental operating costs means reasonable expenditure incurred by DIW and GSB in managing and coordinating the implementation of the Project (and includes only expenditure that would not have been incurred in the absence of the Project). Incremental operating costs include rental of vehicles and equipment, fuel, office supplies and other consumables, equipment insurance, office rent, internet connection and communications costs, support for information systems, translation costs, bank charges, advertising expenses, utilities and travel, transportation, per diem and accommodation costs (other than for Training), and other reasonable expenditures directly associated with the implementation of Project activities (excluding salaries, bonuses, fees, honoraria or equivalent payments to members of the Recipient’s civil service). Annex 3: Implementation ArrangementsTHAILAND: HCFC Phaseout ProjectThis project is financed by grant funds from the Ozone Projects Trust Fund (OTF) of the Multilateral Fund for the Implementation of the Montreal Protocol. The terms and conditions of the use of the grant funds and reduction target of HCFC consumption are specified in the agreement between the Executive Committee of the Multilateral Fund and Thailand as shown in Annex 6.I. Project Institutional and Implementation ArrangementsThe Project aims to reduce the import and use of HCFCs which are classified as Class 3 hazardous substances under the Hazardous Substances Act (1992). Since the use of HCFCs are mainly in the industrial sectors such as refrigeration and air-conditioning industries, polyurethane foam industry, fire protection industry, electronic industry and others, the Project design is, therefore, taking into account roles and responsibilities of government agencies and industrial associations relevant to these industries.Interventions of this Project are focusing on transfer of technology and financial assistance to affected industries. Therefore, it is important that the Ministry of Finance and financial agent must be involved in order to effectively and transparently channel the grant funds to those eligible beneficiaries in order to finance eligible costs of conversions. Brief background of agencies relevant to this Project is summarized as follow:Ministry of Finance (MOF). MOF is the designated focal point for World Bank projects in Thailand. All grant agreements between Thailand and the World Bank are signed by MOF on behalf of Thailand. Moreover, the Customs Department under the MOF has a vital role in monitoring imports and exports of HCFC. The Customs Department has worked with the Department of Industrial Works for more than a decade in controlling imports and exports of CFCs. It has recently extended its cooperation with the Department of Industrial Works to cover imports and exports of HCFCs.Ministry of Industry (MOI). MOI is the designated agency for the implementation of the Montreal Protocol. It is also in charge of the development and implementation of national industrial policies and regulations including the Hazardous Substances Act and the Factory Act. These framework laws are employed for controlling import, transport, storage, use, and final disposal of ODS.Department of Industrial Works (DIW). MOI has appointed DIW to serve as the national focal point for the implementation of the Montreal Protocol. DIW is tasked with enforcement of the Hazardous Substances and Factory Acts. DIW houses the key units including NOU and the PMU which are responsible for the implementation of MLF funded activities including this project.Treaties and International Strategies Bureau (TISB). TISB is a bureau under DIW with a mandate for developing industrial strategies in relation to global environment treaties. Its responsibilities under the project include: determining overall annual import quotas of HCFCs, verifying annual HCFC consumption, reconciling import data from the Customs Department and data recorded by the Hazardous Substances Control Bureau (HSCB) and other activities required by the Montreal Protocol. TISB will be supported by the National Ozone Unit, which has been funded by the MLF for the last 21 years, and DIW-PMU. Hazardous Substances Control Bureau (HSCB). HSCB is a bureau under DIW, which has the legal mandate to issue import permits for all hazardous substances. For HCFC control, HSCB is responsible for allocating the overall annual import quotas as determined by TISB to each importer and for issuing import/export permits to eligible importers/exporters. HSCB will also be in charge of monitoring actual imports/exports made by importers/exporters and recording the actual import/export quantities reported by all importers/exporters. The data collected by HSCB and import records maintained by Customs Department will be used by TISB to conduct independent verification of annual consumption as required by the agreement between the Executive Committee of the Multilateral Fund.National Ozone Unit (NOU). The NOU was established in 1992 within DIW. Its main responsibility is to ensure Thailand’s compliance with its obligations under the Montreal Protocol especially monitoring import/export of ODSs, implementing import quota system of ODSs and liaising with other government agencies including the Customs Department to ensure the effective control of the borders to preempt any illegal shipments of ODS in and out of the country. Moreover, the NOU is also tasked to comply with Article 7 data reporting requirements and submit Progress Reports on the Implementation of the Country Program on an annual basis, carry out public awareness activities, information exchange with stakeholders in the country, including both public and private sectors, and stakeholders in other Article 5 countries within the region and participate in all international meetings related to the Montreal Protocol.DIW Project Management Unit (DIW-PMU). The DIW-PMU will be responsible for day to day operations of the project including overseeing the implementation of technical assistance activities under Component 2 (a)-(c) and Component 3 (b). DIW-PMU will work and coordinate closely with the Government Savings Bank, the financial agent for the project in the implementation of Component 1. DIW-PMU will review and determine the eligibility of the enterprise for sub-project financing following criteria established by the MLF and agreed to by the Bank and provide advice to beneficiary enterprises in preparing their subproject proposals. In addition, DIW-PMU will assist DIW in putting into place both overarching regulations and sector specific regulations and policies and engaging with the Foam Association and Air-Conditioning and Refrigeration Industry Club of the Federation of Thai Industries to ensure full cooperation of the industry in reducing its consumption of HCFCs and inform the industry of financial and technical assistance available from the Project. DIW-PMU will also be responsible for reporting requirements as detailed in the Project Implementation Manual. .Government Savings Bank (GSB). GSB will be engaged as the financial agent to provide support in executing the HPMP particularly for financial management and financial and technical appraisal of the beneficiaries. External technical expertise will be secured by GSB for technical appraisals and guidance to the industry in both the foam sector and for locally-owned air-conditioning manufacturing group. In addition, GSB will work with DIW and the World Bank to explore ways to cover the co-financing requirements of the enterprises, particularly small foam enterprises that choose to convert to cyclopentane technology.GSB Project Management Unit (GSB-PMU). A Project Management Unit will be established within GSB to undertake the day to day operations for activities under Component 1 and activities under Components 2 (d), 2 (e) and 3 (c). GSB-PMU’s responsibilities include: (i) reviewing and appraising subproject proposals of beneficiaries deemed eligible by DIW to determine the technical merits and financial feasibility of their proposal; (ii) approving subproject proposals based on the results of the appraisal; (iii) signing subgrant agreements with beneficiary enterprises; (iv) overseeing and monitoring implementation of subproject ensuring timely completion and compliance with provisions of sub-grant agreement; and (vi) reporting and audit requirements as required by the Project.Federation of Thai Industries (FTI). FTI through its Air-conditioning and Refrigeration Industry Club and Polyurethane Industry Club has played a vital role in coordinating with beneficiaries and providing advice during the formulation of the HPMP. DIW will continue to work closely with the Air-conditioning and Refrigeration Industry Club and Polyurethane Industry Club to design and implement investment activities, technical assistance activities, regulatory measures and public outreach activities to ensure effective and timely outcomes of the project.Thailand Industrial Standards Institute (TISI). TISI is an institute under the Ministry of Industry. Its mandate is to develop national standards for industrial products. At present, there are a few national standards for residential air-conditioning units and compressors. To facilitate introduction of air-conditioning units with new refrigerant which is mildly flammable, slight modifications of these standards are required.Department of Skills Development (DSD). DSD is a department under the Ministry of Labor in charge of developing occupational skills for untrained workforce and improving technical skills of skilled labor in order to undertake more complex and changing technologies. In the past, DIW, in close collaboration with DSD, provided technical training for service technicians in the mobile air-conditioning and domestic refrigerator sectors. Under this Project, DIW will work with DSD to develop a good practice manual for installation and service of air-conditioning equipment and to conduct train-the-trainer workshops for DSD trainers.Office of Vocational Education Commission (OVEC). OVEC is a unit under the Ministry of Education. It has more than 300 technical colleges that have a division dedicated to training vocational students who will work in the air-conditioning and refrigeration installation and servicing field. OVEC will work with DIW and DSD to develop and implement a program to train its trainers on good servicing practices for HFC-32 AC. Committee for Facilitating the Introduction of Refrigerant HFC-32 in Split-Type Air-Conditioning Equipment. Since revision of national standards of residential air-conditioning equipment is one of the major policy and regulation related activities of this Project, DIW decided to establish an inter-departmental committee to review and amend, if necessary, regulations and standards, and to work with the Electricity Generating Authority of Thailand to revise its current energy efficiency labeling scheme. The Committee was established by the Director General of DIW in February 2013. The Committee is chaired by the Director General of DIW and comprised of representatives from the following agencies:Department of Industrial Works, Ministry of IndustryInternational Treaties and Strategy Bureau;National Ozone Unit;Hazardous Substances Control Bureau;Legal Bureau;Department of Public Works and Town & Country Planning, Ministry of Interior;Bangkok Metropolitan Administration Department of Environment;Department of Public Works;Thailand Industrial Standards Institute, Ministry of Industry;Electrical and Electronics Institute, Ministry of Industry;Department of Land Transport, Ministry of Transport;Department of Skill Development, Ministry of Labor;Electricity Generating Authority of Thailand; andAir-Conditioning and Refrigeration Industry Club, Federation of Thai IndustriesCouncil of Engineers. The Council of Engineers was established under the Engineering Act (1999) with the objective to ensure timely development of engineering occupation with emerging technology. The Council of Engineers operates as juristic person and has the mandate to accredit issue, withhold and revoke professional licenses of engineers working in controlled engineering fields. The Council of Engineers also serves as the independent body to provide its opinion for any engineering-related dispute. Under this project, the Council of Engineers plays a vital role in providing its opinion on whether HFC-32 is categorized as easily flammable under the existing Building Control Act. The Committee for Facilitating the Introduction of Refrigerant HFC-32 in Split-Type Air-Conditioning Equipment will use opinion from the Council of Engineers to initiate discussion/dialogue with other concerned departments and identify necessary actions to facilitate the introduction of HFC-32 in split-type air-conditioners. Bangkok Metropolitan Administration (BMA). The BMA is a local government agency in charge of providing public services ranging from health, education, safety, utilities, infrastructure, and others in the Bangkok Metropolitan Area. BMA also has responsibility for safety of high-rise buildings as well as promoting energy efficiency in buildings. Recently, BMA has adopted a low carbon footprint policy. Since the Project covers conversion of air-conditioning equipment to an alternative that are mildly flammable, it is imperative that BMA should be involved in the Project in order to facilitate the transition of HCFC-22 air-conditioning units to new alternative technology.Department of Public Works and Town & Country Planning. The Department of Public Works and Town & Country Planning is part of the central government administration in charge of enforcing regulations pertaining to public safety from building codes to storage of flammable materials. The current Ministerial Decree under the Building Control Act prohibits the use of highly flammable materials as refrigerant in air-conditioning systems in high-rise buildings. The Department of Public Works and Town & Country Planning is working closely with the Department of Industrial Works to confirm that HFC-32 is not covered by the current Ministerial Decree.Department of Alternative Energy Development and Efficiency (DEDE). DEDE is a unit under the Ministry of Energy. It is responsible for regulation, supervision, promotion, and assistance provision to the designated factories and buildings to comply with laws and regulations for efficient use of energy and savings including conducting public awareness and promotion. The project will tap into the on-going program administered by DEDE and allow DIW to work with DEDE to explore the integrated approach in prohibiting the installation of HCFC equipment and promoting energy efficient and low GWP technology as part of its program. Figure 1: Institution and Implementation Arrangement for Thailand HCFC Phaseout ProjectDIW, GSB and industry stakeholders agreed that the project implementation arrangement including the legal framework, funds flow, and reporting requirements similar to those employed by the previous ODS phase-out program should be extended to this newly proposed operation.Legal Framework: To channel grant funds from the Ozone Projects Trust Fund of the Multilateral Fund to beneficiaries of the project, a grant agreement will be signed between the World Bank and the Ministry of Finance. The Department of Industrial Works (DIW) is the implementing agency and the Government Savings Bank (GSB) will be the financial agent of this Project. A Subsidiary Agreement delineating roles and responsibilities of DIW and GSB will be signed between the MOF, DIW, and GSB. The Treaties and International Strategies Bureau (TISB) of DIW will be supported by the two operating units: The Project Management Unit of DIW (DIW-PMU) will implement and administer Components 2 (a) – (c), 3 (a) and 3 (b); and the National Ozone Unit will implement Component 4 of the Project. The Environmental Conservation and Protection Unit under the Community Loan Department of GSB will serve as a Project Management Unit of GSB (GSB-PMU) to implement Component 1, 2 (d), 2 (e) and 3 (c) of the Project. A schematic legal structure of this arrangement is shown in Figure 2.Figure 2: Legal Framework under Thailand HCFC Phaseout ProjectProject Beneficiaries. The main beneficiaries of the project are: Foam enterprises in the rigid polyurethane foam, flexible polyurethane foam and integral skin foam which use HCFC-141b as blowing agent. There are about132 medium and small sized enterprises currently using HCFC-141b; System houses which will conduct in-house tests of new non-HCFC-141b foam formulations and market alternatives;Twelve air conditioning manufacturing enterprises with Thai majority ownership; andKulthorn Kirby, the only Thai-owned compressor company eligible for funding under the project based on the criteria established by the MP. Kulthorn Kirby will develop and test non-ozone depleting substances compressors for refrigeration and air-conditioning equipment.Other beneficiaries include the AC service sector and agencies which will benefit from technical assistance and capacity building activities under the project. The general public will also benefit from the project with availability of more environmentally friendly and energy efficient AC and foam products and a cleaner environment.Financial Management, Disbursements and ProcurementSummary of the Financial Management Assessment A financial management capacity assessment was conducted to determine the adequacy of FM arrangements for the HCFC Phase-Out Project. The assessment was carried out in January 2013, and further updated during the recent appraisal mission conducted in October 2013 with the aim of ensuring that financial management capacity and systems are acceptable to take on the project financial management as required by the World Bank. The assessment was substantially based on the previous FM assessment, findings of existing internal and external reviews, the earlier supervision reports of the ODS Grant capacity and performance and discussions with the Finance and Accounting sections of DIW and the Environment Conservation Protection Unit, Community Loan Department unit of the Government Saving Bank (GSB). The Project Management Unit of DIW will implement and administer activities under Components 2 (a) - (c), 3 (a), and 3 (b) while the National Ozone Unit (NOU) of DIW will implement Component 4 of the Project. The Environmental Conservation and Protection Unit under the Community Loan Department of GSB will serve as a Project Management Unit of GSB (GSB-PMU) to implement Components 1, 2 (d), 2 (e) and 3 (c) of the Project. The FM risk is considered to be substantial before mitigating measures/actions are implemented and moderate after the measures. To ensure compliance and to enhance the financial management capacity, an action plan has been developed to strengthen the capacity and financial management systems of the Project including having in place (i) a Financial Management Manual and Sub-grants Manual (as part of the PIM); (ii) having FM consultants appointed as a condition for disbursement for both DIW and GSB to work on project financial management and appraisal of subprojects; (iii) Installation of acceptable accounting software; (iv) appointment of an external auditor acceptable to the Bank; and (v) training of Project staff on the Bank’s financial management requirements and disbursement arrangements and on the Project’s financial management processes and procedures. The financial management arrangements will meet the minimum requirements of OP/BP10.00 once these actions proposed have been implemented. StaffingDIW: a national financial management consultant will be recruited and based in DIW to oversee and provide advice on all financial management matters related to DIW components. GSB: due to the large scale of the proposed project, it has been agreed that GSB will assign/recruit a dedicated qualified Financial Management Staff member with an accounting qualification and related work experience who will be responsible for all financial management matters of components managed by GSB. To ensure smooth start-up of the project, it is necessary to have the FM consultants appointed both at DIW and GSB with Terms of Reference (TOR) acceptable to the World Bank prior to disbursement. The appointment of the FM consultants is considered a condition for disbursement. The project will also appoint junior government staff members (finance and accounting) who will be trained and work on project FM. Accounting Policies and ProceduresDIW and GSB accounting policies and procedures follow the Government systems and regulations. The project accounting and control procedures will follow the current system. As the World Bank requires any Bank funded project to provide a financial report for the project, both DIW and GSB will establish a supplemental system within the current system to separately record the transactions of the project. Such system should be capable of maintaining separate accounting records and documentation, to produce periodic financial reports, and have systematic control procedures to ensure that project expenditures are properly verified and duly authorized before payments are made. The accounting policies and procedures, including those related to the sub-grants management and disbursement are documented in the Financial Management section of the Project Implementation Manual (PIM) which was submitted to the Bank prior to negotiations. The financial reports will be prepared in accordance with the Thailand accounting standards, which are compatible with International Accounting System. The project will use the cash basis of accounting. DIW and GSB will procure an accounting software system for recording payment transactions and financial management reporting. The project FM consultant will assist in updating the accounting policies, procedures and oversee the selection (including preparation of the user specification requirements) and implementation of accounting software. The ToR for the accounting software shall be acceptable to the World Bank. The purchase and installation of the accounting software should take place within three months of project effectiveness. Supporting documentation will be maintained at DIW and GSB and be available for subsequent review and audit. Internal controls The systems of internal control should be clearly described in the FM Section of the PIM to provide guidance to the project management and finance staff. The manual will outline the controls put in place to ensure that expenditures are properly monitored for eligibility, the financial information is accurate and that there is a system of checks and balances wherein no single person initiates, verifies and authorizes payment for a transaction. The job descriptions and responsibilities of the FM consultants both at DIW and GSB will be reviewed by the Bank to ensure that the segregation of duties is adequately built in. A project fixed assets register should be prepared for all fixed assets and a physical inventory will be regularly conducted (at least once a year) to ensure the existence and condition. Management and control of project assets shall also be detailed in the FM section of the PIM.An advance control book should be prepared and maintained to monitor outstanding advances including those of the sub grants. Liquidation of advances should be done in a timely manner. Any outstanding advances should be followed up and the advance control book should be reconciled to the general ledger on a monthly basis. New advances will be made available only if the previous advances have been properly accounted for. Month-end procedures, such as bank reconciliations, cash counts etc. will be performed by responsible persons and reviewed by management. The FM policies and procedures including those for disbursement of the sub-grants should be revised from time to time and any revisions are subject to the Bank’s approval. The effectiveness of internal controls is to be reviewed annually and will be evaluated as part of the external audit process. Funds flowFunds flow arrangements will be as follows and a full description should be included in the Financial Management Section of the PIM. Designated Account (DA): Funds will flow from the World Bank to two separate DA accounts. DAs will be located at commercial banks acceptable to the World Bank. Each DA will be managed separately by DIW and GSB. DAs will be maintained in USD. The ceiling of the DAs will be US$ 500,000 and US$2,000,000 for DIW and GSB respectively which is equivalent to the estimated quarterly expenditures based on the total funding allocation of the Project. Under Component 1 of the Project, GSB will disburse grant funds to each eligible beneficiary through the signed sub-grant agreements.Operating Account (OA): Conversion/Operating accounts will be opened as needed to facilitate efficient flow of funds and activity implementation. Operating accounts will be opened and maintained in local currency. The DA should be replenished on a monthly or quarterly basis (irrespective of the amount involved) to assure liquidity of funds. All replenishment applications will be accompanied by reconciled bank statements from the depository bank showing all transaction through the DA. The accounting for transactions and reporting on the use of funds will be done by each implementing agency. The authorized and procedures for withdrawals from all bank accounts shall be elaborated in the Financial Management Section of the PIM. A chart depicting the flow of project funds is shown below.Figure 3. Flow of Project FundsUnder Component 1, grant funds can be used to finance costs of conversion of the production facilities, design, research and development, technical transfers, trial production, testing, certifications, safety, site preparation, and incremental operation costs as defined by MLF (increase in the cost of parts, utilities, and raw materials due to the conversion to alternative technologies). In addition, grant funds can be utilized by both DIW and GSB under Components 3 and 4 to finance costs of goods, consultants, training, workshops, public awareness, and incremental costs including office supplies, communications, utilities, equipment maintenance, report preparation and production, translation, international and domestic travel, accommodation, vehicle rental, per diem and incidentals. For GSB, grant funds will finance the costs of project administration and management in form of fees of 2% of the amount of fund disbursed. DIW will work in close collaboration with relevant agencies to conduct technical assistance activities under Component 2 (a) – (c). GSB will implement technical assistance activities under Component 2 (d) and 2 (e). Expenditures under Component 2 include goods, consultancy services, training, workshops, translation, report preparation and production, public awareness, travel, accommodation, per diem and incidentals.Disbursement ArrangementsDisbursements from the grant account shall be based on traditional method i.e. made against the Statement of Expenditures (SOE) or based on full documentation depending on procurement review thresholds. To receive the advance from the Grant, two separate designated accounts will be open in US Dollar currency at a local commercial bank acceptable to the Bank with a ceiling of US$ 500,000 for DIW and US$ 2,000,000 for GSB. The DA will be used exclusively for project eligible expenditures. Documentation and replenishment will be on a quarterly basis. The ceiling for direct payments and reimbursements shall be at least 20% of the DA balance. Disbursement methods shall include (i) advance, (ii) reimbursement, and (iii) direct payment. The Disbursement grace period will be needed and shall be equivalent to 4 months after the project closing date.The proceeds of the proposed Grant will be disbursed against the following disbursement categories:Table 3.1: Category of expenditures and proposed allocations?Disbursement CategoryAmount of the OTF Grant (US$)Financing Percentage (inclusive of taxes)(1)Sub-grants21,045,614100%(2)Consultant's Service, Goods, Non-Consulting Services, Training, Workshops and Incremental Operating Costs under Components 2.(a) to (c), 3 (a) and (b) of the Project 932,666100%(3)Consultant's Service, Goods, Non-Consulting Services, Training, Workshops, Incremental Operating Costs under Components, 2 (d), 2 (e), 3 (c) of the Project and GSB Agency Fee1,073,757100%(4)Consultant's Service, Goods, Non-Consulting Services, Training, Workshops and Incremental Operating Costs under Component 4 of the Project866,670100%?TOTAL23,918,707100%It is estimated that the beneficiary enterprises will provide counterpart funding of up to US$ 9,905,485 to cover conversion costs not eligible for financing under the Montreal Protocol. Sub grants disbursement: Under component 1 "Investment in HCFC consumption reduction (US$ 21.05 million), the project will address HCFC phaseout of private sector enterprises in the foam (about 131 small and medium enterprises and foam system houses) and air-conditioning (12 companies) sectors to non HCFC technology. In addition, the project will finance the development and testing of non-ODS compressors for refrigeration and air-conditioning equipment. The investment activities to be financed are the conversion of enterprises that are currently using directly or indirectly HCFC-141b as a blowing agent or HCFC-22 as a refrigerant. DIW will be responsible in reviewing and confirming the eligibility of the enterprises for financing. GSB will act as a financial agent and will be responsible for the review of the technical proposals and the financial information from the enterprises. Sub Grant Agreements (SGAs) will be signed between GSB and the successful beneficiary companies that are selected. The disbursement procedures of the sub grants will be fully documented in the FM section of the PIM. The documentation supporting the SOE disbursements will be retained at DIW and GSB during the life of the project. Incremental Operating Costs means reasonable expenditure incurred by the recipient in managing and coordinating the implementation of the Project (and include only expenditure that would not have been incurred in the absence of the Project). Incremental Operating Costs include rental of vehicles and equipment, fuel, office supplies and other consumables, equipment insurance, office rent, internet connection and communications costs, support for information systems, translation costs, bank charges, advertising expenses, utilities and travel, transportation, per diem and accommodation costs (other than for Training), and other reasonable expenditures directly associated with the implementation of Project activities.Retroactive FinancingRetroactive financing of about $4.0 million will be applied in this project for eligible expenditures as of October 1, 2013. Activities for retroactive financing are identified in the procurement plan. Retroactive financing will facilitate the expeditious conversion of facilities and allow the implementing agencies to conduct critical technical assistance and institutional strengthening activities. These activities will contribute to meeting Thailand’s obligations under the Montreal Protocol to sustain the freeze and reduce their HCFC consumption by 10% of the baseline level by January 1, 2015.Financial ReportingIn order for the Bank and the project management team to monitor project progress, an Unaudited Interim Financial Report (IFR) is to be prepared by each implementing agency and submitted to the World Bank no later than 45 days after each semester end. The IFR format was agreed during negotiations. The IFR shall include the following: (i) Narrative description of the project progress in each component, procurement activities and financial summary; (ii) Statement of the Sources and Uses of Funds by expenditures category, component/activities; and (iii) Variance analysis on the uses of fund by project category, component/activities against work plan and budget. The period for the purpose of financial reporting is from January 1 to December 31.Any other financial reporting requirements by project management/and or Ministry of Finance shall also be included in the Financial Management Section of the PIM. Audit arrangements and audit disclosure proceduresThe audit of the project will be conducted annually by an independent auditor acceptable to the Bank and the audit will be carried out in accordance with ToRs acceptable to the Bank. Since each implementing agency is currently subject to annual audit by the Office of the Auditor General, both DIW and GSB should consider the possibility of appointing the Office of the Auditor General to be the external auditor of this project. In the event that the proposed arrangement is not possible, DIW and GSB will need to appoint an external audit firm, acceptable to the Bank, within six months of project effectiveness in accordance with the Bank’s procurement process. The auditor is required to provide audit opinions on the annual financial statements and management letters addressing any deficiencies and weaknesses found during the course of the audits. The audited financial statements together with the management letter are required to be submitted annually within 6 months after the fiscal year end or by June 30 of each year. The audited financial statements, including the audit reports, shall be made available to the public in accordance with the World Bank’s Policy on Access to Information. The mechanism for public disclosure was agreed with DIW and GSB during negotiations. Disclosure requirements shall be detailed in the Financial Management section of the PIM. Implementation Support and Supervision PlanIn addition to the design and implementation risk defined in Annexes 4 and 5, implementation support for fiduciary requirements is intended to be integrated with procurement where possible and it is to be conducted twice a year to update the project implementation, inform the Bank management about the project status, and take decisions about adjustment if needed. The Financial Management Assessment and FM arrangements were finalized at appraisal stage. The Financial Management arrangements were designed to meet the minimum requirement of OP/BP 10.00 once mitigation measures proposed are put in place. Based on the above findings, the following mitigation measures were agreed to be put in place: Table 3.2. Agreed Financial Management Mitigation MeasuresActionsResponsible partyCompletion1Recruitment of a national financial management consultant with terms of reference acceptable to the World BankDIWPrior to Disbursement2GSB to assign/recruit one FM dedicated staff to work full time on project financial management with terms of reference acceptable to the World BankGSBPrior to Disbursement 3Have in place financial management manual including the sub grants disbursement processes, part of the PIM to document the processes and procedures for budgeting, funds flow, approvals, accounting, financial reporting, audit and internal controls acceptable to the World Bank. DIW/GSBCompleted before negotiations4Have in place accounting software with terms of reference (of consultancy services) acceptable to the World BankDIW and GSBWithin 3 months of project effectiveness5Appoint auditors, with Terms of Reference acceptable to the World Bank DIW and GSBWithin 6 months of project effectiveness. 6Agree on the format of IFRDIW/GSB and World BankAgreed during negotiations7Agree on mechanism for disclosure of project audit report to the publicDIW/GSB and World BankAgreed during negotiations8Training in World Bank financial management and disbursement proceduresWorld BankBy project launchProcurementAssessment of the agency’s capacity to implement procurement. The project is a repeater project following the institutional arrangements under the ongoing ODS Phaseout Project. DIW will be the implementing agency and GSB will act as the financial agent. An assessment of the capacity of the Implementing Agencies identified several key issues and risks concerning procurement that could arise when implementing the project, as well as measures necessary for mitigation. They are as follows:Limited capacity and experience of the implementing agencies: Despite maintaining the same institutional arrangements as the ongoing project, an issue about the DIW’s capacity was raised due to high staff turnover. The record keeping was not maintained and hand-over arrangements of the project’s experience were not put in good order. To mitigate the risk, the PMU will recruit a number of individual consultants who have experience in working with World Bank projects to assist DIW to implement the proposed project. In addition, a consultant will be hired to develop a central filing system and provide training to PMU staff to improve record retention. The Bank will also continue providing the training and advice to the DIW/GSB staff and the new staff who would be engaged in the preparation and implementation of this project to ensure enough capacity to implement the larger scale of proposed HCFC Sub-grants. In addition, the Grant Agreement will include a clause regarding maintaining adequate and qualified staff at the PMUs during implementation.The beneficiary enterprises’ unfamiliarity with the Bank’s procurement procedures may cause non-compliance in carrying out procurement. Workshops on the Project Cycle and WB’s financial management and procurement procedures are included in Component 3 of the Project. The project includes provisions for DIW to engage GSB as a financial agent for the Project. While GSB is familiar with the Bank’s requirements, this new project entails a larger number of enterprises and various types of technologies. The project also includes resources for hiring qualified technical experts to assist GSB. Project Implementation Manual (PIM) shall be prepared by DIW and GSB, and reviewed and accepted by the Bank prior to launch the Sub-Grant activities. Unclear Responsibilities. . Experience with the previous ODS project shows that delays may occur due to internal conflicts arising from the unclear assignment of the DIW divisions to handle the project. To address this risk, the World Bank team has discussed with the DIW Management to clarify which division will take the full responsibility for the project implementation. Clear roles and responsibilities of the different stakeholders are documented in the Project Implementation Manual. Based on the above analysis, the initial risk assessment for project procurement is “Moderate” and remains “Moderate” with the agreed mitigations.Applicable Guidelines. The procurement for the proposed project will be carried out in accordance with the World Bank’s “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits” dated January 2011, and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated January 2011; and the provisions stipulated in the Legal Agreements. Procurement Plan. At project appraisal, DIW and GSB finalized their Procurement Plan for the first 18 months of project implementation and the Bank provided its no objection on November 25, 2013. The procurement plan provides the basis for the procurement methods and review requirements by the World Bank. This plan has been agreed between DIW/GSB and the Word Bank, and is available in the project’s files. Once the project is approved, it will be made available at DIW and the World Bank’s external website. The Procurement Plan will be updated in agreement with the World Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity within DIW/GSB.Goods and Works and Non-Consulting Services.Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement: DIWProcurement MethodPrior ThresholdUS$Prior Review Condition1.NCB (Goods)Below US$ 500,000First contract2.Shopping (Goods)Below US$ 100,000-3.Direct Contracting AllAllGSBProcurement MethodPrior Review ThresholdUS$Prior Review Condition1.Shopping (Goods)Below US$ 100,000First mercial Practice (Sub-projects)-First Three Contracts-3.Direct Contracting AllAllProposed Procedures for Sub-Project Components (as per paragraph. 3.13 of the Guidelines): Using the commercial practice with detailed procedures referred in the relevant Project Implementation Manual. Reference to Project Implementation Manual: To be prepared by DIW and GSB and reviewed and approved by the Bank.Any Other Special Procurement Arrangements: Advance procurement and retroactive financing.Summary of the Procurement Packages Planned during the First 18 months1234567Ref. No.DescriptionEstimatedCostUS$PackagesDomestic Preference(yes/no)Reviewby Bank(Prior / Post)CommentsDIW1Summary of the NCB (Goods) packages--NoPostFirst contract for Prior Review2Summary of the of the Shopping (Goods) packages90,3007NoPostGSB1.Summary of the of the Shopping (Goods) packages4,1002NoPostFirst contract for Prior ReviewSelection of ConsultantsPrior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants:Selection MethodPrior Review petitive Method (Firms)Above US$ 100,0002.Single Source (Firms/Individual)All3.Individual-Except long term and fiduciary positionsConsultancy Assignments with Selection Methods123456Ref. No.Description of AssignmentEstimatedCostUS$PackagesReviewby Bank(Prior / Post)CommentsDIW1.Summary of number of contracts that will be let under QCBS00-2.Summary of number of contracts that will be let under other methods (for firms)195,0005Post>USD100,000 contract3.Summary of number of contracts that will be let under Individual Consultant900,00010PostGSB1.Summary of number of contracts that will be let under QCBS302,0001Prior2.Summary of number of contracts that will be let under other methods (for firms)80,0001PostCQS3.Summary of number of contracts that will be let under Individual Consultant150,0003PostFrequency of Procurement Support. The procurement capacity assessment indicated the need for bi-annual implementation support missions to assist in project implementation during the first year of operation. The frequency of procurement supervision will be further defined depending on the progress and capacity of the implementation agencies.Environmental and Social (including safeguards)EnvironmentThe project includes components on investment in HCFC consumption reduction for the foam and air-conditioning sectors. The investment in the foam sector supports the conversion from HCFC-141b to low-GWP alternative blowing agents including hydrocarbon (HC), HFC-based solution (such as a reduced formulation to minimize the amount of high-GWP substances used) and water-blown (CO2) where feasible. For the air-conditioning sector, the investment will finance conversion from HCFC-22 to HFC-32 refrigerant. The investment will provide financing for design, research, development, testing and certification of HFC-32 air-conditioning units. Phasing out HCFCs usually provides two benefits to the climate: (i) a reduction of global warming gases consumption; and (ii) improved energy efficiency. These types of activities generally have minor to moderate adverse environmental impacts that are specific to each site. Potential impacts and risks include occupational health and safety and fire hazards due to flammability of hydrocarbon and HFC-32. In order to identify and mitigate such impacts, an Environmental Management Plan (EMP) has been prepared and publicly disclosed for each of the twelve participating manufacturers in the air-conditioning sector. The EMPs consist of company baseline information; a due diligence review on occupational health and safety measures, fire and exposure risk; mitigation measures introduced at the company related to storage and use of HFC-32 in the manufacturing, transport and shipping of air conditioners; emergency response plan, monitoring plan and training needed; estimated budget for the mitigation measures and monitoring; responsibility, time and schedule etc. For the foam sector, since not all the foam beneficiaries have been identified at the time of project appraisal, an Environmental Management Framework (EMF) has been prepared by DIW to provide guidance to all stakeholders including the DIW-PMU and beneficiary enterprises to effectively identify and address environmental safeguard issues that may arise from the proposed sub-project investment. This document outlines a summary of the applicable national regulations regarding transport, use and storage of hydrocarbons and HFC-245fa, MDIs and polyols in the foam production and the World Bank Safeguard Policies. It also describes typical baseline information for PU foam companies in the various PU foam sub-sectors and lay-out of their foam manufacturing process, assessment of potential risk and mitigation measures associated with each of the chemical to be used, evaluation of the need for EMPs for companies converting to hydrocarbons, HFC-245fa and water based technologies, role and responsibilities regarding preparation and submission of EMPs for individual foam company, role and responsibilities regarding review and approval of EMPs, certifications and documentation from relevant authorities, and simple EMP template. Each participating foam enterprise that will convert to hydrocarbon technology will prepare a site-specific EMP and obtain, through GSB, an approval from the Bank prior to the sub-project approval.The EMF and EMPs have been prepared and publicly disclosed, in line with the World Bank’s Operational Policy (OP)/Bank Procedure (BP) 4.01 - Environmental Assessment (EA) and in accordance with Thai National Laws and Regulations. To the extent relevant, the applicable World Bank Group Environmental Health and Safety Guidelines have been considered in preparing the EMF and EMPs. The implementation of the EMF and EMPs will be monitored by the DIW-PMU. The Bank team will periodically conduct a supervision mission and provide guidance to the DIW-PMU on the Bank Safeguards requirements. SocialAll project activities will be developed within existing enterprises or on their own land, so there is no IP group to be affected or land acquisition related impact. Therefore, the project will not trigger OP 4.12 or OP 4.10. The project will not adversely affect sites with archeological, paleontological, historical, religious, or unique natural values. Health and safety issues related to the project enterprises are handled in the EMP and EMF prepared according to the World Bank Group Environment, Health and Safety (EHS) Guidelines.Project results/outcomes are gender neutral. Since this project focuses more on modifying the existing production, gender related issues are expected to be limited. Two gender issues were reviewed during project preparation/appraisal: First, whether the change of technology would have any impact on the hiring composition of staff especially on female workers, and second, whether the benefits from training and knowledge of the new technology are provided to existing employees, both males and females. With regard to the knowledge training on the new technology for the staff, it was agreed that the project will ensure that all the participating enterprises provide equal opportunities for both male and female staff. The project will have no influence on the hiring practice of the beneficiary enterprises but it is anticipated that there is no significant impact on the hiring composition of staff in the industry.Public Consultation/Disclosure. Consultations were held with the key stakeholders; i.e. foam and AC manufacturing enterprises, a non-profit organization and relevant national authorities in particular DIW which manages legal requirements regarding storage of flammable materials and hydrocarbons at factories and the use of hydrocarbon in the production of foam. The Project Stakeholder Consultation for the Environmental Management Framework (EMF) for the Foam Sector was held at DIW on September 6, 2013. There were 48 participants of which, 10 were polyol suppliers/system houses and 9 were foam enterprises that will be converting to cyclopentane technology. There were representatives from the Polyurethane Group of the Federation of Thai Industries (FTI), Treaties and International Strategies Bureau of DIW, Industrial Cluster 3 Bureau of DIW, Industrial Cluster 4 Bureau of DIW, Central Office for Machinery Registration of DIW, Bangkok Fire and Rescue Department of Bangkok Metropolitan and Administration (BMA), Department of Labor Protection and Welfare and the Department of Public Works and Town & Country Planning, participating in this consultation workshop.The main objective of this consultation workshop was to present outcomes of EMF preparation comprising of: (i) general risk assessment for the foam sector; (ii) applicable local regulations for the foam enterprises regardless of selected alternatives; (iii) specific local regulations for enterprises planning to convert to cyclopentane technology; (iv) characteristic of raw materials used for the production of foam; and (v) proposed mitigation measures for the conversion to alternatives to HCFC-141b in the foam sector. Feedback and recommendations from the consultation workshop were documented in the minutes of the consultation and taken into account in the preparation of the EMF and project appraisal document.The Project Stakeholder Consultation for the Environmental Management Plan (EMP) for the Air-conditioning (AC) Sector was held at the Department of Industrial Works (DIW) on September 6, 2013. There were 33 participants representing project stakeholders that attended the consultation workshop: (i) 12 air-conditioner manufacturing enterprises that will be converting to HFC-32 technology; (ii)Air conditioning and Refrigeration Industry Club of the Federation of Thai Industries (FTI); (iii) manufacturer of compressor; (iv) Daikin Industries (Thailand); (v) Treaties and International Strategies Bureau of DIW; (vi) Industrial Cluster 4 Bureau of DIW and (vii) the Department of Public Works and Town & Country Planning.The main objective of this consultation workshop was to present the outcomes of the EMPs for 12 air-conditioner manufacturers to concerned agencies regarding: (i) the general risk assessment for the air-conditioning sector; (ii) local regulations applicable for the air-conditioning enterprises; (iii) local regulations specific for HFC-32 refrigerant; and (iv) proposed mitigation measures for the conversion from HCFC-22 to HFC-32 refrigerant. Feedback received from the workshop was incorporated into the final EMPs and project appraisal document including the request from the air-conditioning enterprises for DIW to conduct training on the safe handling of HFC-32. Following the Bank’s information disclosure policy, the EMPs for the 12 beneficiary enterprises for the air conditioning sector were disclosed by the respective air-conditioner manufacturers in their websites (date) and at the World Bank’s InfoShop by February 7, 2014. The table below shows the disclosure dates for each of the EMPs. For the foam sector, the EMF was disclosed in country on DIW’s website on January 8, 2014 and at the World Bank’s InfoShop on February 2, 2014. Disclosure of EMPs for 12 Beneficiary Enterprises in the AC SectorNoEMP BeneficiaryDocument DateDisclosure date1Bitwise (Thailand) Co., LtdJan 1, 2014February 3, 20142United Technology Development Co., Ltd (Uniaire Corporation Co., Ltd)Jan 1, 2014February 3, 20143Saijo Denki International Co., LtdJan 1, 2014February 3, 20144Subsuksiri Co., LtdJan 1, 2014February 3, 20145Thrub Thong Hou Co.,Jan 1, 2014February 3, 20146Eminentair (Thailand) Co., LtdJan 1, 2014February 3, 20147Supreme CNB Corporation Co., LtdJan 1, 2014February 3, 20148Unico Consumer Products Co., Ltd.Jan 1, 2014February 3, 20149Better Living Co., Ltd Jan 1, 2014February 6, 201410B. Grimm Airconditioning Co., Ltd.Jan 1, 2014February 6, 201411Pan-Tycoon Co., LtdJan 1, 2014February 3, 201412PPJ Engineering Co., LtdJan 1, 2014February 7, 2014Monitoring & Evaluation Reporting requirements. The reporting requirement for this project can be categorized into three levels: (a) overall program reporting level; (b) overall project reporting level; and (c) sub-project reporting level. The chart depicted the reporting requirements is shown in Figure 4.Figure 4: Reporting RequirementsOverall Program Reporting. The Bank will be responsible for submitting overall program reporting on behalf of Thailand as defined in the agreement between Thailand and the MLF ExCom (Annex 6). With the assistance of DIW, the Bank will submit the consumption verification reports to the ExCom on behalf of Thailand to confirm its compliance with agreed targets for 2013 – 2017.Consumption verification. DIW will conduct and submit, through the World Bank, annual independent verification reports to the ExCom in order to confirm that the annual HCFC consumption limits or targets have been met. The verification report will confirm HCFC importation by individual importers according to import quotas set under the licensing and import quota system. Sources of information include annual import quotas, import permits issued by DIW for each shipment, and import/export records maintained by the Customs Department.The verification reports will be submitted to the ExCom at its last meeting of the following year along with the annual work programs.Overall Project Reporting. There are two sets of project level reporting prepared under the project: Financial ReportsSemi-annual interim unaudited financial reports (IFRs). The semi-annual IFRs will be submitted to the Bank by February 15 and August 15 of each calendar year. DIW and GSB will separately submit its IFR to the World Bank by the dates mentioned above. The reports will be prepared in accordance with the format agreed to by the Bank.Annual audited financial reports of the project accounts. The annual audited financial reports of the project designated accounts and financial statements should be prepared by independent qualified financial auditors on a calendar year basis. The reports should be made available to the Bank by June 30 of each calendar year. GSB and DIW will submit their annual audited financial reports directly to the Bank.Implementation ReportsAnnual work programs. DIW will prepare the annual work programs, which provide a complete overview of activities of all project components to be carried out within the following calendar year. They should include an estimated budget and expected disbursement for the related calendar year. The work programs will also provide an update of achievements and lessons learned from the previous year, including the amount of ODP reduction captured by new sub-grant agreements, the actual ODP reduction from completed sub-projects, and the disbursement made in the previous year. GSB is required to submit relevant information to DIW. DIW will consolidate information and submit the consolidated reports to the World Bank. The annual work programs will be prepared in accordance with the format agreed by the ExCom.Budget plan. The annual budget plan will provide a brief description of activities, and expected implementation time for training, workshop, public awareness, travel plan and incremental operating costs to be undertaken in the next calendar year. . The budget plan includes the agency’s annual procurement plan and provides a brief description, estimated budget, procurement/selection method, type of World Bank review and expected implementation time for consultant's service and goods to be undertaken by DIW and GSB within the following calendar year. The procurement plan should be submitted along with a budget plan delineating brief description, estimated budget, procurement/selection method. The annual procurement and budget plans will provide an expected implementation timeframe for training, workshop, public awareness, travel plan and incremental operating costs to be undertaken in the next calendar year. GSB and DIW will submit their respective annual procurement and budget plans directly to the World Bank. Semi-annual progress reports. Semi-annual progress reports should be prepared based on the format agreed to by the Bank. The reports should be available to the Bank by February 15 and August 15 of each calendar year. GSB and DIW should separately submit their semi-annual progress reports to the Bank.HPMP Project completion report. The HPMP project completion report for the Project should be jointly prepared by DIW and GSB within six months after the closing date of the grant agreement. The report should capture expenditures incurred by Thailand and grant funds provided by the Project, major experience and lessons learned, overall achievement of the Project, implementation of disposal plans, beneficiaries’ satisfaction, and performance of DIW, GSB, and the Bank.Other reports as required by the ExCom.Sub-project Reporting. GSB and DIW will be responsible to provide the following reports to the Bank:Sub-project appraisal reports. Prior to signing any sub-grant agreements, sub-project appraisal reports should be prepared by GSB to confirm funding eligibility of each enterprise. The reports should provide an assessment of the financial status of the enterprises and availability of counterpart funding, if it is needed. The first five reports will be subject to prior review by the Bank. For others, the reports are subject to post review by the Bank. The format of sub-project appraisal reports is included in the PIM.Sub-project completion reports. GSB will prepare sub-project completion reports with support from beneficiaries. The sub-project completion reports should be prepared in accordance with the format included in the PIM. Submission of satisfactory sub-project completion reports will be used as a condition for disbursing final disbursement to the beneficiaries. GSB will submit the first five sub-project completion reports for Bank’s prior review. Others will be subject to post review by the Bank.Institutional Strengthening Renewal and Terminal Report. DIW will submit institutional strengthening renewal and terminal reports satisfactory to the Bank when it is required by the Bank or the MLF Secretariat (normally once every two years).Others as may be required by the ExCom.Annex 4: Operational Risk Assessment Framework (ORAF)Thailand: HCFC Phaseout ProjectProject Stakeholder RiskStakeholder Risks RatingLowDescription?: The main stakeholders of the proposed project are enterprises and government agencies, including foam and air-conditioning enterprises; polyol system houses; vocational training centers and industry and trade associations such as the Federation of Thai Industries and its AirCon Club; and, and other agencies in the area of energy efficiency. Foam enterprises, polyol system houses, the Federation of Thai Industries and DIW, have been involved in the ongoing ODS Investment Project. Air-conditioning enterprises have been closely consulted during the preparation of the project. The twelve enterprises that will participate in Phase I are aware of the HCFC phase-out obligations of the Government and show strong interest in the project. Risk Management: Main project stakeholders have been consulted during project preparation and have confirmed their support for the project.Resp: DIW Stage: PreparationDue Date?: n/aStatus: CompletedImplementing Agency Risks (including fiduciary)CapacityRating:ModerateDescription?: DIW and enterprises are unfamiliar with non-HCFC technologies which may affect project quality and also delay sub-project preparation and implementation. During project preparation key officials from DIW and GSB as well as stakeholders in the air-conditioning sector undertook two study tours to the new HFC-32 air-conditioner manufacturing facilities in Japan to gain first-hand experience of this new technologyRisk Management?:The Project will conduct workshops for staff of DIW, PMU and other stakeholders to raise awareness on the latest developments in ozone-and-climate friendly technologies. Resp: DIW Stage: ImplementationDue Date: N/AStatus: Not yet dueDIW staff has gained experience on Bank Financial Management and procurement from the ODS Investment Project. However, there are risks of high staff turnover or rotation and lack of adequate record keeping. While GSB is familiar with the Bank’s requirements, this new project entails a larger number of enterprises and various types of technologies. . Procurement: (i) procurement capacity of DIW and participating enterprises may cause implementation delay and less than effective use of the limited grant funds provided by the Project; (ii) beneficiary enterprises’ unfamiliarity with the Bank’s procurement procedures may cause non-compliance in carrying out procurement.Risk Management?:Workshops on the Project Cycle and WB’s financial management and procurement procedures are included in the activities under Component 2 of the Project. The project includes provisions for DIW to engage GSB as the financial agent for the Project. In addition a consultant will be hired to develop and implement a central filing system in both PMUs and provide training to PMU staff in order to improve record retention. The GA stipulates that key PMU staff be retained throughout project implementation. The project also includes resources for hiring qualified technical experts to assist GSB. Both DIW and GSB will hire FM consultants to help support the implementation of HCFC Phase out project and build capacity of DIW and GSB staffs. Junior staff will be appointed to work on FM matters under both PMUs. Similarly DIW and GSB will each assign one staff to handle the project procurement and receive the procurement training provided by the Bank team. Resp: DIW/FA Stage: ImplementationDue Date: N/AStatus: Not yet dueRisk Management?:Financial management and contract management trainings will be provided to DIW/FA staff; Procurement training will be provided to DIW/FA staff and enterprises.Resp: Bank Stage: Preparation/ ImplementationDue Date: N/AStatus: Not yet dueGovernanceRating:LowDescription?: DIW has a clear mandate from the Government of Thailand to implement the Montreal Protocol and the responsibility to enforce Hazardous Substances Act which controls the import and export of HCFCs through the issuance of import/export permits and quotas. Imports of HCFCs without permits and quotas are considered violation of the Hazardous Substances Act and subject to fine and/or imprisonment.DIW’s performance on import quota management, monitoring of imports, and verification of ODS imports for the CFC phase-out is very good.Internal structures of DIW, particularly between Hazardous Substances Bureau and Treaties and International Strategies Bureau, where PMU will be located, have already been clarified. .Risk Management?:Project Implementation Manual will be prepared by DIW and agreed with the Bank. PIM will delineate roles and responsibilities of the two bureaus in order to ascertain: (i) effective issuance of import quotas; (ii) monitoring of HCFC imports; and (iii) annual verification of HCFC imports. Clear definition of roles and responsibilities of the different agencies and stakeholders involved in the project are defined in the PIM. Resp: DIW Stage: PreparationDue Date: CompletedStatus: CompletedProject RisksDesignRating:ModerateDescription?: The choice of alternative technology for the air-conditioning sector is recommended by the donors. While the technology endorsed by the donors is more climate friendly, this technology involves mildly flammable materials and the global market of this new technology is expanding in Japan, India, China, Indonesia, Malaysia and Europe. Japan is the only country that has launched this new lower-GWP air-conditioning technology. Agreements to allow the use of this technology free of charge have been reached with all the air-conditioning sector beneficiaries.Air-conditioning industry is forced to phase out of the use of HCFC-22 as the import quota will be reduced by DIW. To be eligible for funding from the Project, air-conditioning manufacturers would have to convert to HFC-32. If they decide to convert to other technology, the enterprise will have to finance the cost of conversion by themselves.Risk Management?:A review of the Council of Engineers determined that HFC-32 should not be classified as an easily flammable refrigerant and is to be categorized under a different safety group. Hence, there are no regulatory barriers to prevent introduction of this technology.DIW has implemented the import quota system to provide incentives for manufacturers’ to convert and at the same time will have to step up its effort to monitor and prevent any illegal imports of HCFCs. Compliance with the quota is reviewed regularly.Technical assistance will be provided to the A/C sector during the conversion process. Technical experts will be hired to provide advice in preparing for and during the conversion. This will ensure that the products produced using the new technology will be of high quality.Recent development in the AC sector indicate a growing acceptance of HFC-32 technology with major AC manufacturing companies launching their HFC-32 ACs in the market and other countries in Asia following suit. In Europe, the standards have been revised for the introduction of this technology in their market. In addition, efforts will be made to open up the market of new lower-GWP technology in the other neighboring countries and in developed countries. Resp: DIW Stage: Preparation/ ImplementationResp: DIW Social & EnvironmentalRating:ModerateDescription?:While it is expected that the project will provide benefits to the climate and improve energy efficiency, conversions to hydrocarbon and HFC-32 may lead to minor to moderate adverse environmental impacts that are specific to each site, including potential risks on occupational health and safety and fire hazards due to flammability of hydrocarbon and HFC-32. However, hydrocarbon technology had been widely used in the foam sector during the conversion of CFC in the previous project but the previous project does not require formal safeguard measures. For air conditioning sector, which will involve conversion of HCFC-22 (Non-flammable refrigerant) to HFC-32 (Mildly flammable refrigerant), storage and handling of HFC-32 will be similar to those flammable substances used in the beneficiary’s facilities.. Risk Management?:An Environment Management Framework (EMF) for the foam sector and Environment Management Plans (EMP) for each of the 12 AC beneficiary enterprises have been prepared to provide guidance to all stakeholders including the DIW-PMU and beneficiary enterprises to effectively identify and address environmental safeguard issues that may arise from the proposed sub-project investment. The twelve EMPs for the AC sector and the EMF for the foam sector have been submitted to and approved by the Bank team and publicly disclosed in country and at the Bank’s Infoshop. The EMPs/EMF identified safety issues and mitigation measures to ensure safe use and handling of the new alternatives. As part of the safety measures, the project will finance installation of safety devices, ventilation systems and other necessary safety costs including training and development of manuals on the proper use and handling of the new alternatives.Each participating foam enterprise opting to convert to hydrocarbon will prepare a site-specific EMP and obtain an approval from the Bank prior to the sub-project approval. Recent developments indicate growing acceptance for HFC-32 technology with major AC manufacturers in Japan launching their products in the market with other countries in Asia following suit (China, Indonesia, India, etc). In addition, standards in Europe have been revised for the introduction of the technology.Resp: DIW Stage: Preparation/ImplementationResp: DIW Program & DonorRating:LowDescription?: Funding from the donor (Multilateral Fund) has already been secured. It will be released by tranches upon achievement of consumption reduction as agreed by Thailand and the Multilateral Fund.Risk Management?:None.Resp: Stage: Resp: Delivery Monitoring & SustainabilityRating:LowDescription?: DIW and FA have implemented the CFC phase-out project for more than 10 years. The monitoring and reporting system has been put in place and operational over a decade. Its monitoring and reporting performance of the CFC project is satisfactory. Based on this experience, they should be able to carry out this function satisfactorily.However, due to the departure of experienced staff, new staff or consultants would have to be engaged. Risk Management?:The Bank will provide training on the design and implementation of effective monitoring and evaluation system during project preparation. The project includes financial provisions for DIW and FA to engage qualified consultants/staff to assist them on monitoring and evaluationThe PIM will provide detailed instruction/procedures which staff will use in day to day operations. Training will also be provided to new staff on the WB project cycle including FM/procurement/safeguards guidelines and procedures. These will help facilitate the new staff to come up to speed on how the project is implemented. In addition, the Grant Agreement will stipulate that the PMU will ensure that it is adequately staffed to undertake its responsibilities. Resp: DIW/FA Stage: PreparationResp: DIW/FA Reverse retrofit to HCFC after conversion completed as HCFCs are still available in Thailand could undermine the PDO of the Project.Risk Management?:DIW considers imposing a ban on the use of HCFCs in all applications addressed by this Project. The Foam Association represented by raw material suppliers in Thailand will work closely with DIW to monitor the use of HCFCs in all foam sub-sectors. The Project proposes to develop a new product standard for residential air-conditioners. The new product standard could include non-HCFC refrigerant as one of the criteria. Similar efforts will be made to modify criteria of energy efficiency programs administered by DEDE and BMA.. If any manufacturers fail to comply with the new standard, their market share will be taken over by the competitors in Thailand or by imported products.Resp: DIW Stage: ImplementationDue Date: N/AStatus: Not yet dueOverall RiskImplementation Risk Rating: ModerateRisk Description: Risk is rated as moderate mainly due to the introduction of new technology and that the beneficiary enterprises are unfamiliar with Bank guidelines and procedures. Risk will be mitigated by the provision of technical assistance and training to the beneficiary enterprises and the PMU staff during project implementation. In addition, training will be provided to beneficiary enterprises and PMU staff on financial management, procurement and safeguards to ensure compliance with applicable Bank guidelines.Annex 5: Implementation Support PlanTHAILAND: HCFC Phaseout ProjectThe implementation support plan (ISP) has been designed taking into account the project’s technical and complex nature, its risk profile, and the lack of experience with Bank projects of the participating beneficiary enterprises. Through the ISP, the task team will provide support/guidance to the client in addressing the key risks identified in the ORAF (Annex 4). The principal risks are (a) design related to the safety issue of alternatives to HCFCs; (b) implementation due to the reluctance of the enterprises to convert to new alternative technologies that could be more expensive and/or have safety issues and (c) capacity due to the lack of experience of the beneficiaries, especially the enterprises, on Bank procurement and financial management requirements.Strategy and Approach for Implementation SupportThe ISP will focus on:Technical Design Support. The project team will, in addition to the regular project implementation review missions, support beneficiary enterprises to convert to alternatives by providing technical advice and expertise and up-to-date technical knowledge, and relevant international good practices to ensure safe and sustainable conversions. To assist the A/C beneficiary enterprises during the conversion to non-HCFC based technology, technical assistance will be provided by industry experts. The experts will provide guidance in the design of the production lines using the new alternative technology and will ensure safety measures are in place, as needed. The objective of the TA is to ensure that the beneficiary enterprises will be able to produce products that are of high quality to compete in the international market. For Component 2, the Bank team will share similar experiences on hydrocarbon pre-blended polyol alternatives in China with Polyurethane Industry Club of the Federation of Thai Industries (FTI). The assistance will be provided to support local compressor manufacturers to develop compressors operating with natural refrigerant for commercial refrigeration applications. The Bank team would organize a technical workshop on an annual basis where the World Bank’s Ozone Operation Resources Group (OORG) experts in the air-conditioning and foam sector will provide the most up to date information to the targeted beneficiaries of the projectPolicy and Regulatory Support. The Bank team will provide intensive support, particularly during the first 24 months of project implementation, regarding regional experiences on import and export of HCFCs. In the meantime, the Bank team will share international experiences on industry standards promoting the use of lower GWP alternatives. This information could then be utilized by DIW to inform the targeted industry of the potential market of lower GWP products and barriers of the international market on HCFC-based products. Compliance. The task team will monitor compliance with the provisions of the legal agreements and ensure that both PMUs are adequately staffed with qualified personnel to undertake the day to day activities and at the same time respond to fiduciary and reporting requirements of the project. Training will be provided to PMU staff at DIW and GSB to increase capacity for financial management (FM) and procurement and contract management. Training will also be provided on the technical aspects of the new technology so that PMU staff will be conversant on the risks and appropriate mitigation measures for each type of chemical. Training will also be provided to the enterprises on the Bank’s guidelines and procedures for procurement, FM/disbursement and environment and social safeguards. Additionally, the task team will provide assistance to DIW in developing and implementing the Sub-grant Agreements with the enterprises.Implementation Support PlanKey bank staff (co-TTL, procurement, FM/disbursement, and safeguards specialists) are based in Bangkok and will be able to provide timely support to the client’s day to day operations. The Bank team will conduct semi-annual field visits to review implementation status, address potential issues, and monitor progress on pending matters.Table A5-1: Main focus in terms of support to implementationTimeFocusSkills NeededResource EstimatePartner RoleFirst 24 monthsFiduciary and safeguard: Technical support; policy and regulatory supportProcurement; Financial management; Disbursement; Technical experts; and Montreal Protocol expert.$250,000Provide technology transfer for the A/C sector.After 24 monthsFiduciary and safeguard: Technical support;Procurement; Financial management; Disbursement; and Technical experts;$150,000Provide technical support on service technician training on installation and service of new a/c equipmentTable A5-2: Skills Mix RequiredSkills neededNumber of staff weeksper yearNo. of tripsCommentsTechnical Support: Foam Production73Combination of HQ staffs, local staffs, OORG expertsTechnical Support: AC Production73Combination of HQ staffs, local staffs, OORG expertsPolicy and regulation63HQ staffsMLF guidelines and decisions3-HQ staffsSafeguard Specialist85Local staffsFM Specialist33Local staffsProcurement Specialist44Local staffsAnnex 6: Agreement between Thailand and the Executive Committee for the HCFC Phase-out Management Plan ProjectThis Agreement represents the understanding of the Government of Thailand (the “Country”) and the Executive Committee with respect to the reduction of controlled use of the ozonedepleting substances (ODS) set out in Appendix?1-A (“The Substances”) to a sustained level of 788.46?ODP tonnes by 1?January 2018 in compliance with Montreal Protocol schedules.The Country agrees to meet the annual consumption limits of the Substances as set out in row?1.2 of Appendix?2-A (“The Targets, and Funding”) in this Agreement as well as in the Montreal Protocol reduction schedule for all Substances mentioned in Appendix?1-A. The Country accepts that, by its acceptance of this Agreement and performance by the Executive Committee of its funding obligations described in paragraph?3, it is precluded from applying for or receiving further funding from the Multilateral Fund in respect to any consumption of the Substances that exceeds the level defined in row?1.2 of Appendix?2-A as the final reduction step under this Agreement for all of the Substances specified in Appendix?1-A, and in respect to any consumption of each of the Substances that exceeds the level defined in rows ?4.1.3, 4.2.3, 4.3.3, 4.4.3, 4.5.3, 4.6.3 and 4.7.3 (remaining eligible consumption).Subject to compliance by the Country with its obligations set out in this Agreement, the Executive Committee agrees, in principle, to provide the funding set out in row?3.1 of Appendix?2-A to the Country. The Executive Committee will, in principle, provide this funding at the Executive Committee meetings specified in Appendix?3-A (“Funding Approval Schedule”). The Country agrees to implement this Agreement in accordance with the HCFC phase-out sector plans submitted. In accordance with sub-paragraph?5(b) of this Agreement, the Country will accept independent verification of the achievement of the annual consumption limits of the Substances as set out in row?1.2 of Appendix?2-A of this Agreement. The aforementioned verification will be commissioned by the lead implementing agency.The Executive Committee will not provide the Funding in accordance with the Funding Approval Schedule unless the Country satisfies the following conditions at least eight weeks in advance of the applicable Executive Committee meeting set out in the Funding Approval Schedule:That the Country had met the Targets set out in row?1.2 of Appendix?2-A for all relevant years. Relevant years are all years since the year in which this Agreement was approved. Years for which no obligation for reporting of country programme data exists at the date of the Executive Committee meeting at which the funding request is being presented are exempted; That the meeting of these Targets has been independently verified, unless the Executive Committee decided that such verification would not be required;That the Country had submitted annual implementation reports in the form of Appendix?4-A (“Format of Implementation Reports and Plans”) covering each previous calendar year; that it had achieved a significant level of implementation of activities initiated with previously approved tranches; and that the rate of disbursement of funding available from the previously approved tranche was more than 20?per cent; andThat the Country has submitted an annual implementation plan in the form of Appendix?4A covering each calendar year until and including the year for which the funding schedule foresees the submission of the next tranche or, in case of the final tranche, until completion of all activities foreseen; andThat, for all submissions from the 68th?meeting onwards, confirmation has been received from the Government that an enforceable national system of licensing and quotas for HCFC imports and, where applicable, production and exports is in place and that the system is capable of ensuring the Country's compliance with the Montreal Protocol HCFC phase-out schedule for the duration of this Agreement.The Country will ensure that it conducts accurate monitoring of its activities under this Agreement. The institutions set out in Appendix?5-A (“Monitoring Institutions and Roles”) will monitor and report on implementation of the activities in the previous annual implementation plans in accordance with their roles and responsibilities set out in Appendix?5-A. This monitoring will also be subject to independent verification as described in paragraph?4 above.The Executive Committee agrees that the Country may have the flexibility to reallocate the approved funds, or part of the funds, according to the evolving circumstances to achieve the smoothest reduction of consumption and phase-out of the Substances specified in Appendix?1-A:Reallocations categorized as major changes must be documented in advance either in an annual implementation plan submitted as foreseen in subparagraph?5(d) above, or as a revision to an existing annual implementation plan to be submitted eight weeks prior to any meeting of the Executive Committee, for its approval. Major changes would relate to:Issues potentially concerning the rules and policies of the Multilateral Fund; Changes which would modify any clause of this Agreement; Changes in the annual levels of funding allocated to individual bilateral or implementing agencies for the different tranches; andProvision of funding for programmes or activities not included in the current endorsed annual implementation plan, or removal of an activity in the annual implementation plan, with a cost greater than 30 per cent of the total cost of the last approved tranche;Reallocations not categorized as major changes may be incorporated in the approved annual implementation plan, under implementation at the time, and reported to the Executive Committee in the subsequent annual implementation report; andShould the Country decide during implementation of the agreement to introduce an alternative technology other than that proposed in the approved HPMP, this would require approval by the Executive Committee as part of an Annual Implementation Plan or the revision of the approved plan. Any submission of such a request for change in technology would identify the associated incremental costs, the potential impact to the climate, and any differences in ODP tonnes to be phased out if applicable. The Country agrees that potential savings in incremental costs related to the change of technology would decrease the overall funding level under this Agreement accordingly; Any enterprise to be converted to non-HCFC technology included in the approved HPMP and that would be found to be ineligible under the guidelines of the Multilateral Fund (i.e., due to foreign ownership or establishment post the 21 September 2007 cut-off date), will not receive assistance. This information would be reported to the Executive Committee as part of the Annual Implementation Plan;The Country agrees, in cases where HFC technologies have been chosen as an alternative to HCFC, and taking into account national circumstances related to health and safety: to monitor the availability of substitutes and alternatives that further minimize impacts on the climate; to consider, in the review of regulations and/or standards, inclusion of adequate incentive provisions that encourage introduction of lower GWP alternatives; and to consider the potential for adoption of cost-effective alternatives that minimize the climate impact in the implementation of the HPMP, as appropriate, and inform the Executive Committee on the progress accordingly; andAny remaining funds will be returned to the Multilateral Fund upon completion of the last tranche foreseen under this Agreement. Specific attention will be paid to the execution of the activities in the refrigeration servicing subsector, in particular:The Country would use the flexibility available under this Agreement to address specific needs that might arise during project implementation; andThe Country and the bilateral and implementing agencies will take full account of the requirements of decisions?41/100 and 49/6 during the implementation of the plan.The Country agrees to assume overall responsibility for the management and implementation of this Agreement and of all activities undertaken by it or on its behalf to fulfill the obligations under this Agreement. The World Bank has agreed to be the lead implementing agency (the “Lead IA”) and Japan has agreed to be the cooperating implementing agency (the “Cooperating IA”) under the lead of the Lead IA in respect of the Country’s activities under this Agreement. The Country agrees to evaluations, which might be carried out under the monitoring and evaluation work programmes of the Multilateral Fund or under the evaluation programme of any of the agencies taking part in this Agreement.The Lead IA will be responsible for ensuring coordinated planning, implementation and reporting of all activities under this Agreement, including but not limited to independent verification as per sub-paragraph?5(b). This responsibility includes the necessity to co-ordinate with the Cooperating IA to ensure appropriate timing and sequence of activities in the implementation. The Cooperating IA will support the Lead IA by implementing the activities listed in Appendix?6-B under the overall co-ordination of the Lead IA. The Lead IA and Cooperating IAs have reached consensus on the arrangements regarding inter-agency planning, reporting and responsibilities under this Agreement to facilitate a coordinated implementation of the Plan, including regular co-ordination meetings. The Executive Committee agrees, in principle, to provide the Lead IA and the Cooperating IAs with the fees set out in rows?2.2 and 2.4 of Appendix?2-A.Should the Country, for any reason, not meet the Targets for the elimination of the Substances set out in row?1.2 of Appendix?2-A or otherwise does not comply with this Agreement, then the Country agrees that it will not be entitled to the Funding in accordance with the Funding Approval Schedule. At the discretion of the Executive Committee, funding will be reinstated according to a revised Funding Approval Schedule determined by the Executive Committee after the Country has demonstrated that it has satisfied all of its obligations that were due to be met prior to receipt of the next tranche of funding under the Funding Approval Schedule. The Country acknowledges that the Executive Committee may reduce the amount of the Funding by the amount set out in Appendix?7-A (“Reductions in Funding for Failure to Comply”) in respect of each ODP kg of reductions in consumption not achieved in any one year. The Executive Committee will discuss each specific case in which the Country did not comply with this Agreement, and take related decisions. Once these decisions are taken, this specific case will not be an impediment for future tranches as per paragraph?5 above.The Funding of this Agreement will not be modified on the basis of any future Executive Committee decision that may affect the funding of any other consumption sector projects or any other related activities in the Country.The Country will comply with any reasonable request of the Executive Committee, the Lead IA and the Cooperating IAs to facilitate implementation of this Agreement. In particular, it will provide the Lead IA and the Cooperating IAs with access to the information necessary to verify compliance with this Agreement.The completion of Phase I of the HPMP and the associated Agreement will take place at the end of the year following the last year for which a maximum allowable total consumption level has been specified in Appendix?2-A. Should there at that time still be activities that are outstanding, and which were foreseen in the Plan and its subsequent revisions as per sub-paragraph?5(d) and paragraph?7, the completion will be delayed until the end of the year following the implementation of the remaining activities. The reporting requirements as per sub-paragraphs?1(a), 1(b), 1(d), and 1(e) of Appendix?4-A will continue until the time of the completion unless otherwise specified by the Executive Committee.All of the conditions set out in this Agreement are undertaken solely within the context of the Montreal Protocol and as specified in this Agreement. All terms used in this Agreement have the meaning ascribed to them in the Montreal Protocol unless otherwise defined herein. APPENDICES APPENDIX 1-A: THE SUBSTANCESSubstanceAnnexGroupStarting point for aggregate reductions in consumption (ODP tonnes)HCFC-22CI 716.57HCFC-123 C I 3.20HCFC-124 C I 0.08HCFC-141b C I 205.25HCFC-142b C I 0.12HCFC-225, 225ca and 225cb C I 2.30Sub-total927.52HCFC-141b in imported pre-blcnded polyolCI15.68Total943.20APPENDIX?2-A: THE TARGETS, AND FUNDINGRowParticulars2012201320142015201620172018Total1.1Montreal Protocol reduction schedule of Annex?C, Group?I substances (ODP?tonnes)n/a927.5927.5834.84834.84834.84834.84n/a1.2Maximum allowable total consumption of Annex?C, Group?I substances (ODP?tonnes)n/a927.5927.5834.84834.84834.84788.46n/a2.1Lead IA (World Bank) agreed funding (US?$)4,817,1669,706,1541,000,0003,063,5421,000,000753,6302,408,58022,749,0722.2Support costs for Lead IA (US?$)337,202679,43170,000214,44870,00052,754168,6011,592,4352.3Cooperating IA (Japan) agreed funding (US $)302,965302,9652.4Support costs for Cooperating IA (Japan) (US $)39,38539,3853.1Total agreed funding (US?$)5,120,1319,706,1541,000,0003,063,5421,000,000753,3602,408,58023,052,0373.2Total support costs (US?$)376,587679,43170,000214,44870,00052,754168,6011,631,8203.3Total agreed costs (US?$)5,496,71810,385,5851,070,0003,277,9901,070,000806,3842,577,18124,683,8574.1.1Total phase-out of HCFC-22 agreed to be achieved under this agreement (ODP tonnes)67.86 4.1.2Phase-out of HCFC-22 to be achieved in previously approved projects (ODP tonnes)0.004.1.3Remaining eligible consumption for HCFC-22 (ODP tonnes)648.744.2.1Total phase-out of HCFC-123 agreed to be achieved under this agreement (ODP tonnes)0.004.2.2Phase-out of HCFC-123 to be achieved in previously approved projects (ODP tonnes)0.004.2.3Remaining eligible consumption for HCFC-123 (ODP tonnes)3.204.3.1Total phase-out of HCFC-124 agreed to be achieved under this agreement (ODP tonnes)0.004.3.2Phase-out of HCFC-124 to be achieved in previously approved projects (ODP tonnes)0.004.3.3Remaining eligible consumption for HCFC-124 (ODP tonnes)0.084.4.1Total phase-out of HCFC-141b agreed to be achieved under this agreement (ODP tonnes)151.684.4.2Phase-out of HCFC-141b to be achieved in previously approved projects (ODP tonnes)0.004.4.3Remaining eligible consumption for HCFC-141b (ODP tonnes)53.574.5.1Total phase-out of HCFC-142b agreed to be achieved under this agreement (ODP tonnes)0.004.5.2Phase-out of HCFC-142b to be achieved in previously approved projects (ODP tonnes)0.004.5.3Remaining eligible consumption for HCFC-142b (ODP tonnes)0.124.6.1Total phase-out of HCFC-225, 225ca and 225cb agreed to be achieved under this agreement (ODP tonnes)0.004.6.2Phase-out of HCFC-225, 225ca and 225cb to be achieved in previously approved projects (ODP tonnes)0.004.6.3Remaining eligible consumption for HCFC-225, 225ca and 225cb (ODP tonnes)2.304.7.1Total phase-out of HCFC-141b contained in imported pre-blended polyol agreed to be achieved under this agreement (ODP tonnes)15.194.7.2Phase-out of HCFC-141b contained in imported pre-blended polyol to be achieved in previously approved projects (ODP tonnes)0.004.7.3Remaining eligible consumption for HCFC-141b contained in imported pre-blended polyol (ODP tonnes)0.49APPENDIX 3-A: FUNDING APPROVAL SCHEDULEFunding for the future tranches will be considered for approval not earlier than the second meeting of the year specified in Appendix?2-A.APPENDIX 4-A: FORMAT OF IMPLEMENTATION REPORTS AND PLANSThe submission of the Implementation Report and Plan for each tranche request will consist of five parts:A narrative report, with data provided by calendar year, regarding the progress since the year prior to the previous report, reflecting the situation of the Country in regard to phase out of the Substances, how the different activities contribute to it, and how they relate to each other. The report should include ODS phase-out as a direct result from the implementation of activities, by substance, and the alternative technology used and the related phase-in of alternatives, to allow the Secretariat to provide to the Executive Committee information about the resulting change in climate relevant emissions. The report should further highlight successes, experiences, and challenges related to the different activities included in the Plan, reflecting any changes in the circumstances in the Country, and providing other relevant information. The report should also include information on and justification for any changes vis-à-vis the previously submitted Annual Implementation Plan(s), such as delays, uses of the flexibility for reallocation of funds during implementation of a tranche, as provided for in paragraph?7 of this Agreement, or other changes. The narrative report will cover all relevant years specified in sub-paragraph?5(a) of the Agreement and can in addition also include information on activities in the current year; A verification report of the HPMP results and the consumption of the Substances mentioned in Appendix?1-A, as per sub-paragraph?5(b) of the Agreement. If not decided otherwise by the Executive Committee, such a verification has to be provided together with each tranche request and will have to provide verification of the consumption for all relevant years as specified in sub-paragraph?5(a) of the Agreement for which a verification report has not yet been acknowledged by the Committee;A written description of the activities to be undertaken until and including the year of the planned submission of the next tranche request, highlighting the interdependence of the activities, and taking into account experiences made and progress achieved in the implementation of earlier tranches; the data in the plan will be provided by calendar year. The description should also include a reference to the overall plan and progress achieved, as well as any possible changes to the overall plan that are foreseen. The description should cover the years specified in sub-paragraph?5(d) of the Agreement. The description should also specify and explain in detail such changes to the overall plan. This description of future activities can be submitted as a part of the same document as the narrative report under sub-paragraph?(b) above; A set of quantitative information for all annual implementation reports and annual implementation plans, submitted through an online database. This quantitative information, to be submitted by calendar year with each tranche request, will be amending the narratives and description for the report (see sub-paragraph?1(a) above) and the plan (see sub-paragraph?1(c) above), the annual implementation plan and any changes to the overall plan, and will cover the same time periods and activities; andAn Executive Summary of about five paragraphs, summarizing the information of the above sub-paragraphs 1(a) to 1(d). APPENDIX 5-A: MONITORING INSTITUTIONS AND ROLES The National Ozone Unit (NOU) of the Department of Industrial Works (DIW) is responsible for managing and coordinating Thailand’s overall ODS phase-out programme, including all phase-out activities and measures controlling Annex C, Group I substances (HCFCs). The management and implementation of this Agreement will be undertaken by the HPMP Project Management Unit (PMU).The HPMP PMU and the NOU will collaborate and co-ordinate with the Hazardous Substances Control Bureau and the Customs Department to institute and implement the import/control system for HCFCs; review annual HCFC import/export license applications to ensure that the list of end-users are provided by importers/exporters; and establish and publish the annual import quotas for HCFCs for the period 2012 through 2016.In order to monitor and evaluate the progress of implementation, the PMU will assist the NOU to:Develop a management information system that captures and tracks all relevant and required data on the import of Annex C, Group I substances (HCFCs) on an annual basis;Update the data on the actual amount of imported HCFCs in cooperation with the Hazardous Substances Control Bureau and the Customs Department on a quarterly basis;Monitor and report any incidents of illegal import of HCFCs;Monitor progress of HCFC phase-out on the demand side by direct oversight of subproject implementation;Compile periodic progress reports of HPMP implementation and HCFC phase-out achievements for sharing with the DIW, the Customs Department, and the Ministry of Industry and its local bureaus; andPrepare Tranche Implementation Reports and Plans according to the schedule set forth in Appendix 2-A.The DIW will be responsible for reviewing PMU reports and data and instituting control and policy measures which facilitate HCFC control and reductions according to the Agreement.APPENDIX 6-A: ROLE OF THE LEAD IMPLEMENTING AGENCY The Lead IA will be responsible for a range of activities, including at least the following:Ensuring performance and financial verification in accordance with this Agreement and with its specific internal procedures and requirements as set out in the Country’s HPMP;Assisting the Country in preparation of the Implementation Plans and subsequent reports as per Appendix?4-A;Providing independent verification to the Executive Committee that the Targets have been met and associated annual activities have been completed as indicated in the Implementation Plan consistent with Appendix?4-A; Ensuring that the experiences and progress is reflected in updates of the overall plan and in future annual implementation plans consistent with sub-paragraphs?1(c) and 1(d) of Appendix?4-A;Fulfilling the reporting requirements for the annual implementation reports, annual implementation plans and the overall plan as specified in Appendix?4-A for submission to the Executive Committee. The reporting requirements include the reporting about activities undertaken by the Cooperating IA;Ensuring that appropriate independent technical experts carry out the technical reviews;Carrying out required supervision missions;Ensuring the presence of an operating mechanism to allow effective, transparent implementation of the Implementation Plan and accurate data reporting;Coordinating the activities of the Cooperating IA, and ensuring appropriate sequence of activities;In case of reductions in funding for failure to comply in accordance with paragraph 11 of the Agreement, to determine, in consultation with the Country and the Cooperating IA, the allocation of the reductions to the different budget items and to the funding of each implementing or bilateral agency involved; Ensuring that disbursements made to the Country are based on the use of the indicators; andProviding assistance with policy, management and technical support when required.After consultation with the Country and taking into account any views expressed, the Lead IA will select and mandate an independent entity to carry out the verification of the HPMP results and the consumption of the Substances mentioned in Appendix?1-A, as per sub-paragraph?5(b) of the Agreement and sub-paragraph?1(b) of Appendix?4-A.APPENDIX 6-B: ROLE OF THE COOPERATING IMPLEMENTING AGENCIESThe Cooperating IA (Japan) will be responsible for a range of activities. These activities are specified in the overall plan, including at least the following: Providing assistance for policy development when required; Assisting the Country in the implementation and assessment of the activities funded by the Cooperating IA, and refer to the Lead IA to ensure a coordinated sequence in the activities; andProviding reports to the Lead IA on these activities, for inclusion in the consolidated reports as per Appendix?4-A.APPENDIX 7-A: REDUCTIONS IN FUNDING FOR FAILURE TO COMPLYIn accordance with paragraph 11 of the Agreement, the amount of funding provided may be reduced by US?$196 per ODP kg of consumption beyond the level defined in row?1.2 of Appendix?2-A for each year in which the target specified in row?1.2 of Appendix?2-A has not been met. _ _ _ _Annex 7. Carbon Emission BenefitsFor the foam sector, three non-ODS alternative blowing agents are introduced. The criteria for selection of alternatives include financial viability, safety, and desired thermal insulation property of the final products. According to the HPMP Phase I, a total quantity of HCFC-141b used in bulk, in domestically pre-blended and imported pre-blended polyol, of 1,517 MT will be phased out. Of which, 639.6 MT of HCFC-141b will be replaced by cyclo-pentane and 844.6 MT of HCFC-141b will be replaced by a 50% reduced formulation with HFC-245fa as a blowing agent. The balance will be phased out by water blown technology. With this choice of technologies, the total climate benefits from the foam activities under the HPMP Stage I amount to 740,499 tCO2 equivalent per year.Table Annex A7.1 Climate Benefits from HCFC-141b Phase-out in the PU Foam SectorSectorHCFC-141b Baseline Consumption (MT)Tonnes to be Replaced by Alternatives (MT)HCFC-141b in Bulk (Pure Polyol and Locally-made Pre-blended)Imported Pre-blendedHCHFC-245faWater-BlownRigid Polyurethane1,328.62134.76639.61823.770.00Flexible Polyurethane24.800.250.000.0025.05Integral Skin24.140.000.0016.507.65TA Micro Enterprises1.303.000.004.360.04Total Foam Sector1,378.9138.0639.6844.632.7GWP7807802010300Consumption of Alternative (MT)??383.8422.3n/aClimate Impact (tCO2 per year)1,075,512107,6457,675434,9820Total Climate Impact from HCFC-141b (tCO2 per year)1,183,157???Total Climate Impact from Alternatives (tCO2 per year)??442,657Climate Benefits from Foam Sector (tCO2 per year)740,499For the air-conditioning sector, the domestic residential air-conditioner manufacturers will adopt the HFC-32 technology. Conversion to HFC-32 in air-conditioning sector can minimize both direct and indirect emission of CO2. When compared to HCFC-22 and R-410A, HFC-32 has not only lower GWP on a kg basis, but also smaller charge size (about 70% of HCFC-22 charge size) for the same cooling capacity. These two characteristics would contribute to the reduction of direct emission of CO2. Moreover, the potentiality of saving electricity consumption from energy efficiency performance of HFC-32 would contribute to reduction of indirect emission. The analysis of direct climate benefits from converting HCFC-22 to HFC-32 technology by each cooling capacity manufactured by domestic air-conditioner manufacturers is shown in Table AnnexV.2. The total direct climate benefits of converting the current production of 337,321 HCFC-22 units to HFC-32 technology with the same production level is 1,232,535 tCO2 equivalent per year.In addition, phasing out of HCFC-22 in this group of domestic air-conditioning equipment provides incentives for them to take the same opportunity to improve energy efficiency of their Mark 5 models from EER of 11 to 11.6 for all models with cooling capacity of less than 24,000 Btu. Given the baseline market conditions where 30% of air-conditioners manufactured for the export market have an EER of 9.6 and the remaining 70% of the production for the domestic market has an EER of 11, the weighted average EER of the air-conditioners manufactured in Thailand is 10.58. After conversion, it is expected that the EER of units manufactured for the export market will remain unchanged while the EER of units for the domestic market will increase to 11.6. Therefore, the weighted average EER of air-conditioners manufactured in Thailand after conversion is completed will improve to 11. For those units with cooling capacity between 24,000 Btu and 40,000 Btu, the energy performance standard for Mark 5 remains at 11. Therefore, the weighted average of air-conditioners after conversion remains the same as the baseline level of 10.58. For units with capacity over 40,000 Btu, the lowest EER of 9.6 is employed for both the export and domestic market as the EGAT Mark 5 program does not apply to units with capacity over 40,000 Btu. Moreover, these larger units are normally made to certain specifications and energy performance demanded by each individual customer. While larger units sold in Thailand have an EER higher 9.6 due to the public awareness on energy conservation, the EER of 9.6 is used for this analysis in order to be conservative in projecting indirect climate benefits of the conversion.Based on the above conditions, it is expected that indirect climate benefits after conversion would be about 17,000 tCO2 equivalent per year. This calculation is made on an average operating time of 8 hours a day and the carbon intensity factor of 570 tCO2 per 1GWh. While the indirect climate benefits from conversions of HCFC-22 air-conditioners to HFC-32 are limited, these however would allow these companies to further develop their air-conditioners in the next few years when EGAT will change its standard to SEER, instead of EER. It is expected that with inverter technology energy efficiency will improve by another 30%. The total climate benefits from the HPMP Phase I are 1.25 million tCO2 equivalent per year after completion of all activities under the HPMP Phase I. These climate benefits are attributed to: (i) lower GWP blowing agent; (ii) improved volumetric refrigeration capacity of HFC-32and (iii) improved energy efficiency of new HFC-32 air-conditioning units. Table AnnexA7.2 Climate Benefits from Improved Volumetric Refrigeration Capacity of HFC-32 and from Improved Energy Efficiency of the HFC-32 A/C ................
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