Document of The World Bank Report No: PAD436 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE MULTILATERAL FUND FOR THE IMPLEMENTATION OF THE MONTREAL PROTOCOL IN THE AMOUNT OF 1.9 US$ MILLION TO THE ARGENTINE REPUBLIC FOR PHASE I OF Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project (P129397) July 24, 2013 Sustainable Development Department Argentina, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region OFFICIAL USE ONLY. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective July, 8, 2013) US$ 1 = ARS 5.40 ARS 1 = US$ 0.19 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AGN Argentine Supreme Audit Institution (Auditoria General de la Nación) CDM Clean Development Mechanism CFC Chlorofluorocarbon CO2e Carbon dioxide equivalent DA Designated Account EE Energy efficiency EMP Environmental Management Plan ESMF Environmental and Social Management Framework ExCom Multilateral Fund Executive Committee FIASA Frio Industrias Argentinas S. A. FM Financial Management FSP Foam Sector Plan FTOC UNEP Foams Technical Options Committee GA Grant Agreement GHG Greenhouse gas GoA Government of Argentina GWP Global warming potential HC Hydrocarbon HCFC Hydrochlorofluorocarbon HFC Hydrofluorocarbon HPMP HCFC Phase-out Management Plan IA Implementing Agency IAU Internal Audit Unit IBRD International Bank for Reconstruction and Development IDA International Development Association IFRs Semi-annual unaudited financial statements IOC Incremental operating cost MDI Methylene Diphenyl Isocyanate MoE Ministry of Environment MI Ministry of Industry MIS Monitoring Information System MLF Multilateral Fund for the Implementation of the Montreal Protocol MP Montreal Protocol MT Metric tons ODP Ozone depleting potential ODS Ozone depleting substance OHS Occupational health and safety OM Operational Manual OPROZ National Ozone Unit ORAF Operational Risk Assessment Framework PCU Project coordination unit PU Polyurethane SAyDS Secretariat of Environment and Sustainable Development SEPA Procurement Plans Execution System (Sistema de Ejecución de Planes de Adquisición) SIGEN General Syndicate of the Nation TA Technical assistance UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization Regional Vice President: Hasan A. Tuluy Country Director: Penelope J. Brook Sector Director: Ede Jorge Ijjasz-Vasquez Acting Sector Manager: Emilia Battaglini Task Team Leader: Tuuli Johanna Bernardini ARGENTINA MONTREAL PROTOCOL HYDROCHLOROFLUOROCARBONS (HCFC) PHASE- OUT PROJECT (P129397) TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context................................................................................. 1 C. Higher Level Objectives to which the Project Contributes .......................................... 5 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................6 A. PDO............................................................................................................................... 6 Project Beneficiaries ........................................................................................................... 6 PDO Level Results Indicators ............................................................................................. 6 III. PROJECT DESCRIPTION ..............................................................................................6 A. Project Components ...................................................................................................... 6 B. Project Financing .......................................................................................................... 8 Funding Instrument .......................................................................................................................8 IV. IMPLEMENTATION .......................................................................................................9 B. Results Monitoring and Evaluation ............................................................................ 10 C. Sustainability............................................................................................................... 10 D. KEY RISKS AND MITIGATION MEASURES ..........................................................11 a. Risk Ratings Summary Table ..................................................................................... 11 b. Overall Risk Rating Explanation ................................................................................ 11 E. APPRAISAL SUMMARY ..............................................................................................11 a. Economic and Financial Analyses .............................................................................. 11 b. Technical ..................................................................................................................... 13 c. Financial Management ................................................................................................ 14 d. Procurement ................................................................................................................ 14 e. Social (including Safeguards) ..................................................................................... 15 f. Environment (including Safeguards) .......................................................................... 15 Annex 1: Results Framework and Monitoring .........................................................................16 Annex 2: Detailed Project Description .......................................................................................19 Annex 3: Implementation Arrangements ..................................................................................25 Annex 4: Operational Risk Assessment Framework (ORAF) .................................................35 Annex 5: Implementation Support Plan ....................................................................................39 Annex 6: Argentina’s ODS Legal and Regulatory Framework and the HPMP ....................42 . PAD DATA SHEET Argentina Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project (P129397), Phase I PROJECT APPRAISAL DOCUMENT . LATIN AMERICA AND CARIBBEAN LCSEN Report No.: PAD436 . Basic Information Project ID Lending Instrument EA Category Team Leader P129397 Investment Project B - Partial Assessment Tuuli Johanna Financing Bernardini Project Implementation Start Date Project Implementation End Date 2-Dec-2013 30-Oct-2020 Expected Effectiveness Date Expected Closing Date 2-Dec-2013 30-Apr-2021 Joint IFC No Sector Manager (Acting) Sector Director Country Director Regional Vice President Emilia Battaglini Ede Jorge Ijjasz-Vasquez Penelope J. Brook Hasan A. Tuluy . Recipient: The Argentine Republic Responsible Agency: Ministry of Industry Contact: Alfredo Junco Title: Executive Coordinator Telephone 5411-5032-9070 Email: ajunco@prodis.gob.ar . Project Financing Data(in USD Million) [ ] Loan [ ] Grant [X] Other [ ] Credit [ ] Guarantee Total Project Cost: 2.93 Total Bank Financing: 1.91 Total Cofinancing: 1.02 Financing Gap: 0.00 . Financing Source Amount Recipient (in-kind for Phase I and II) 1.02 Ozone Projects Trust Fund 1.91 Total 2.93 . Expected Disbursements (in USD Million) Fiscal 2013 2014 2015 2016 2017 2018 2019 2020 2021 Year Annual 0.00 1.01 0.40 0.25 0.18 0.07 0.00 0.00 0.00 Cumulati 0.00 1.01 1.41 1.66 1.84 1.91 1.91 1.91 1.91 ve . Proposed Development Objective(s) The project development objective is to support Argentina in phasing out controlled ozone-depleting substances in accordance with the country's obligations under the Montreal Protocol. . Components Component Name Cost (USD Millions) Component 1: HCFC Phase-out at Mabe Argentina S.A. 0.84 Component 2: CFC Replacement in Chillers 0.95 Component 3: Technical Assistance 0.07 Component 4: Project Management (Phase I from the Grant) 0.05 Component 5: Foam Sector Plan for HCFC Phase-out (Phase II) 0.00 . Institutional Data Sector Board Environment . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Industry and trade General industry and 95 95 trade sector Public Administration, Law, and Central government 5 5 Justice administration Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Environment and natural resources Pollution management and 100 management environmental health Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ X ] 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 Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Institutional Arrangements X Para 1 (a), Section IA, Schedule 2 Description of Covenant The Recipient shall maintain at all times during the implementation of the Project, a unit within MI (“the PCU�) responsible for the management, supervision, monitoring and evaluation of the Project, with composition, powers, functions, staffing, and resources appropriate to fulfill its responsibilities related to the Project, including qualified staff such as, inter alia, a Project coordinator, a financial management specialist, a procurement specialist, a technical specialist, an environmental specialist and a legal specialist, as well as other personnel in number and with qualifications and experience acceptable to the Bank. Name Recurrent Due Date Frequency Institutional Arrangements X Para 1 (b), Section IA, Schedule 2 Description of Covenant The Recipient shall through the PCU carry out day-to-day coordination, management, and supervision of the Project, and ensure that the Grant funds provided by this Agreement are used for financing activities under the Project, and cause that each Beneficiary Enterprise carries out the Project activities with due diligence and efficiency and in accordance with sound technical, economic, financial, management, and social and environmental standards and practices as described in the Operational Manual and acceptable to the World Bank. Name Recurrent Due Date Frequency Anti-Corruption X Section IB, Schedule 2 Description of Covenant The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Anti- Corruption Guidelines. Name Recurrent Due Date Frequency Project Monitoring, Reporting and X Evaluation Para 1 (a), Section IIA, Schedule 2 Description of Covenant The Recipient, through the PCU, shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of the indicators set forth in the Operational Manual as acceptable to the World Bank. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the World Bank not later than forty five (45) days after the end of each period covered by such report. Name Recurrent Due Date Frequency Project Monitoring, Reporting and X Evaluation Para 1 (b), Section IIA, Schedule 2 Description of Covenant The Recipient, through the PCU, shall work with the World Bank to ensure timely submission of documents which are required for reporting purposes to be submitted to the Multilateral Fund Executive Committee, based on a reporting schedule described in the Project Operational Manual, and subject to adjustments as required by the Executive Committee. Name Recurrent Due Date Frequency Project Monitoring, Reporting and 04-May-2021 Evaluation Para 2, Section IIA, Schedule 2 Description of Covenant The Recipient, through the PCU, shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than three months after the Closing Date. In order to assist the Recipient in preparing the Completion Report, the Recipient shall employ consultants whose qualifications, experience and terms of reference are acceptable to the World Bank. Name Recurrent Due Date Frequency Financial Management; Financial X Reports; Audits Para 1, Section IIB, Schedule 2 Description of Covenant The Recipient shall, through the PCU, ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. Name Recurrent Due Date Frequency Financial Management; Financial X Reports; Audits Para 2, Section IIB, Schedule 2 Description of Covenant The Recipient shall, through the PCU, ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank as part of the Project Report not later than forty five (45) days after the end of each calendar semester, covering the semester, in form and substance satisfactory to the World Bank. Name Recurrent Due Date Frequency Financial Management; Financial X Yearly Reports; Audits Para 3, Section IIB, Schedule 2 Description of Covenant The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. Name Recurrent Due Date Frequency Sub-grants X Para 1, Section IIC, Schedule 2 Description of Covenant For the purpose of carrying out Components 1 and 2.1 of the Project, the Recipient shall, through the PCU, make available a portion of the proceeds of the Grant made available by the World Bank and allocated from time to time under Categories (1) and (2) set forth in the table in paragraph A.2 of Section IV of Schedule 2 to this Agreement to Beneficiary Enterprises as Sub-grants under Sub-grant Agreements with the respective Beneficiary Enterprises. Such Sub-grants shall be made in accordance with procedures and on terms and conditions satisfactory to the World Bank, which shall be included in the Operational Manual. The Recipient, through the PCU, shall exercise its rights under each Sub-grant Agreement in such manner as to protect its interests and the interests of the World Bank and to accomplish the purposes of each Sub-grant Agreement. Except as the World Bank shall otherwise agree in writing, the Recipient, through the PCU, shall not assign, amend, abrogate, repeal, waive or fail to enforce any Sub-grant Agreement or any of its provisions. Name Recurrent Due Date Frequency Safeguards X Para 1, Section IID, Schedule 2 Description of Covenant In carrying out the Project, the Recipient, through the PCU, shall ensure that (a) each relevant Beneficiary Enterprise carries out for its respective Sub-project an environmental and social screening and, based on the results of said screening and with the support and supervision of the PIU, approve an Environmental and Social Management Plan with site-specific mitigation measures as needed, in a manner satisfactory to the World Bank and all in accordance with the provisions of the Environmental and Social Management Framework; and (b) a Beneficiary Enterprise shall not amend, abrogate, repeal, waive or fail to enforce its ESMP or any of its provisions without the prior written approval of the World Bank. Name Recurrent Due Date Frequency Implementation Arrangements X Para 1, Section IIE, Schedule 2 Description of Covenant The Recipient, through the PCU, shall carry out the Project in accordance with; inter alia, the provisions of the Operational Manual. Name Recurrent Due Date Frequency Implementation Arrangements X Para 2, Section IIE, Schedule 2 Description of Covenant The Recipient, through the PCU, shall monitor on a semiannual basis, in the framework of the overall Project Reports, the environmental performance of all Sub-projects financed by Sub-grants in accordance with applicable regulatory requirements and in accordance with the Operational Manual and ESMF, satisfactory to the World Bank, and shall report its findings to the World Bank not later than forty five (45) days after the end of each semester. Name Recurrent Due Date Frequency Procurement and Consultant X Guidelines Para 1, Section IIIA, Schedule 2 Description of Covenant All goods, works, non-consulting-services, and consultants’ services required for the Project and to be financed out of the proceeds of the Grant shall be procured in accordance with the requirements set forth or referred to in: (a) Section I of the Procurement Guidelines in the case of goods, works and non-consulting services and Sections I and IV of the Consultant Guidelines in the case of consultants’ services; and (b) the provisions of this Section III, as the same shall be elaborated in the Procurement Plan prepared and updated from time to time by the Recipient for the Project in accordance with paragraph 1.18 of the Procurement Guidelines and paragraph 1.25 of the Consultant Guidelines. . Conditions Name Type Art. V-5.01 of the Grant Agreement on effectiveness Effectiveness Description of Condition The Grant Agreement shall not become effective until evidence satisfactory to the World Bank has been furnished to the World Bank showing that the execution and delivery of the Grant Agreement on behalf of the Recipient have been duly authorized or ratified by all necessary governmental action. Name Type Schedule 2, Section IV B 1 of the Grant Agreement on retroactive financing Disbursement Description of Condition No withdrawal shall be made for payments made prior to the Signature Date, except that withdrawals up to an aggregate amount not to exceed $382,922 equivalent may be made in respect of Eligible Expenditures under Category (1) for payments made prior to the Signature Date but on or after June 6, 2013 (but in no case more than a year prior to the Signature Date). Name Type Schedule 2, Section IV B 1 of the Grant Agreement on Sub-grant Agreements Disbursement Description of Condition No withdrawal shall be made under Categories (1) and (2), unless a Sub-grant Agreement has been entered into by the PIU with the pertinent Beneficiary Enterprise providing a Sub-grant under terms and conditions satisfactory to the World Bank, including those set forth in the Operational Manual. Team Composition Bank Staff Name Title Specialization Unit Emilia Battaglini Senior Environmental Senior Environmental LCSEN Specialist Specialist Ana B. Iraheta Language Program Language Program LCSEN Assistant Assistant Viraj Vithoontien Senior Environmental Senior Environmental EASER Specialist Specialist Thanavat Junchaya Senior Environmental Senior Environmental CPFIA Engineer Engineer Victor Manuel Ordonez Senior Finance Officer Senior Finance Officer CTRLN Conde Jose Vicente Zevallos Senior Social Senior Social LCSSO Development Specialist Development Specialist Claudia Nin Team Assistant Team Assistant LCC7C Ana Maria Grofsmacht Procurement Specialist Procurement Specialist LCSPT Daniel Chalupowicz Financial Management Financial Management LCSFM Specialist Specialist Marcelo Hector Acerbi Senior Environmental Senior Environmental LCSEN Specialist Specialist Yuan Tao Counsel Counsel LEGEN Julius Martin Thaler Counsel Counsel LEGEN Tuuli Johanna Environmental Specialist Team Lead LCSEN Bernardini Dominique Isabelle Operations Officer Operations Officer CPFIA Kayser Maria Pia Cravero Junior Counsel Junior Counsel LCC7C Juan Pedro Cano Junior Professional Junior Professional LCSEN Associate Associate Non Bank Staff Name Title Office Phone City Maciej Miksztowicz Consultant Buenos Aires . Locations Country First Location Planned Actual Comments Administrative Division Argentina National I. STRATEGIC CONTEXT A. Country Context 1. The Montreal Protocol on Substances that Deplete the Ozone Layer (MP) is a multilateral environmental agreement adopted in 1987 based on international recognition of the need for firm measures to protect the earth's ozone layer. The Protocol established time-bound targets to phase-out the production and consumption1 of ozone depleting substances (ODS). 2. In keeping with its commitments to global environmental protection, Argentina has ratified the MP and all its amendments, and is a Party to the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol. During the XIXth Meeting of the MP Parties in 2007, Argentina was a proponent for the accelerated phase-out of hydrochlorofluorocarbons (HCFC), transitional substances introduced to replace the use of chlorofluorocarbons (CFC) in certain applications. Phasing out HCFCs can present an excellent opportunity for synergies between ozone and climate protection as per Decision XIX/6 of the MP Parties, which asks that climate impacts be taken into account when phasing out HCFCs. 3. Argentina is mid-level ODS consuming Article 5 Party2 to the MP and is eligible to receive assistance from the Multilateral Fund for the Implementation of the Montreal Protocol (MLF). The country has undertaken a number of MLF-supported initiatives over the past 20 years. In total, the MLF has approved more than 148 ODS phase-out grants in Argentina valued at USD 84+ M. A number of them have been supported by the World Bank (Bank) under a record-long, overall successful umbrella operation that has been effective since March 19973. 4. Argentina has enacted a comprehensive legal and institutional framework in support of ozone layer protection that allocates responsibilities and obligations for the implementation of measures to phase-out ODS, including conversion of industrial sectors that produce, handle and use ODS (see further details in Annex 6). The country is now embarking on the first phase of HCFC phase-out, beginning with a freeze in consumption of baseline consumption4 during the year 2013, and a 10% reduction of the freeze level during the year 2015. In April 2012, the MLF Executive Committee (ExCom) approved phase 1 of the HCFC Phase-out Management Plan (HPMP) of Argentina. B. Sectoral and Institutional Context 5. In accordance with its obligations under the MP, Argentina successfully eliminated its virgin CFC consumption by 2010. A number of older chillers that have lifetimes of up to 30 years and have not reached yet their economic end of life continue to use recycled CFCs as refrigerant. The potential environmental impacts are three-fold: (i) the possible release of CFCs used as 1 Montreal Protocol defines consumption as import minus export plus production. 2 Developing countries with country programs approved by the MLF ExCom with the obligation to report data on the progress of implementation of their country programs or their updates to the Fund Secretariat. 3 Reduction of Ozone Project (Montreal Protocol), P005920 4 The baseline is the average consumption of 2009 and 2010. In Argentina, this is 400.7 t of ODP. The first freeze and 10% reduction levels are measured against the yearly consumption in 2013 and 2015, respectively. 1 refrigerant due to leakage, servicing, and/or decommissioning can harm the ozone layer; (ii) CFCs have high GWP, so once emitted they contribute to global climate change; and (iii) chillers are often the most significant user of energy in large commercial buildings. The refrigerant emissions pose direct impacts on ozone depletion and/or global warming. The climate change impact of energy use is generally referred to as an indirect warming effect. 6. HCFCs are chemical substances used primarily as refrigerants in refrigeration and air- conditioning equipment and as blowing agents for producing insulation foam. HCFCs were introduced as transitional substances to replace the wide use of CFCs that were phased out globally as of 1 January 2010 by the MP. Although significantly less potent than CFCs, HCFCs are also ozone-depleting substances (ODS) and are consequently controlled by the MP and subject to eventual elimination by all Parties. In 2007, the Parties to the Protocol accelerated the HCFC consumption and production phase-out schedule for both developed and developing countries. A major driver for the adjustment to the Protocol is that HCFCs are not only ODS, but greenhouse gases with a global warming potential (GWP) ranging from several hundred to several thousand times that of carbon dioxide (CO2). Moreover, HCFC alternative technologies can be more energy efficient, resulting in further reduced CO2 emissions. Table 1 below provides a snapshot of the ODP and GWP of CFCs and HCFCs. Table 1: ODP and GWP of CFCs and HCFCs CFC ODP* GWP** HCFC ODP* GWP** CFC-11 1.0 4,680 HCFC-123 0.02 120 CFC-12 1.0 10,600 HCFC-141b 0.11 700 CFC-113 0.8 6,000 HCFC-142b 0.065 2,400 CFC-114 1.0 9,800 HCFC-22 0.055 1,700 CFC-115 0.6 7,200 * Ozone Depleting Potential (ODP) values from the 2006 Montreal Protocol Handbook ** Global Warming Potential (GWP) values of all chemicals are from IPCC Third Assessment Report: Climate Change 2001 7. Argentina meets its HCFC demand through internal production and imports, as the HCFC demand exceeds internal production and will continue to do so in the coming years. The steady growth in HCFC consumption, with the exception of the decrease brought on by the global economic and financial crisis in 2008-2009, is evident in the consumption data reported by the Government to the MP, as outlined in Table 2. Table 2: Historical HCFC consumption as reported under Article 7 of the MP (MT) Substance 2002 2003 2004 2005 2006 2007 2008 2009 2010 HCFC-22 1,625.4 2,968.8 2,463.8 3,258.7 3,557.0 3,852.0 2,359.5 3,265.8 4,282.6 HCFC-141b 72.6 160.5 368.1 299.8 543.6 909.9 715.2 928.6 1,157.2 HCFC-142b 0.9 5.8 57.9 62.6 191.7 172.9 189.5 346.8 HCFC-123 7.6 12.0 16.0 35.6 39.5 52.8 89.5 72.5 81.2 HCFC-124 2.6 22.9 17.6 20.5 28.4 41.6 55.8 Total HCFC consumption 1,705.6 3,142.2 2,856.2 3,674.9 4,220.3 5,027.0 3,365.0 4,498.0 5,923.6 Percentage increase/yr 84.2% -9.1% 28.7% 14.8% 19.1% -33.1% 33.7% 31.7% 8. The National Ozone Unit OPROZ provides the institutional set up for MP operations in Argentina. It is integrated by four agencies: the Secretariat of Environment and Sustainable 2 Development (SAyDS) that is the focal point and coordinating body at the national level; the Ministry of Industry where the Project Coordination Unit (PCU) is located; the Ministry of Foreign Affairs that leads any related work outside of the country; and the Ministry of Agriculture for issues related to methyl bromide. 9. Currently, the Government of Argentina (GoA) is working to achieve a freeze in its HCFC baseline consumption by the end of 2013, a 10% reduction during 2015, and a further 25% reduction by the end of 2020. Within the context of the implementation of the Government's HPMP, supported by UNIDO and the Bank, the GoA has included the phase-out of HCFC-141b, a high-ODP substance used in foam manufacturing, within the mix of its various national and sector priorities. In order to meet the first MP target cited above, Argentina has initiated with conversion of its refrigeration and air-conditioning servicing sector which consumes HCFC-22 (implemented by UNIDO). In tandem, to meet the two later obligations, Argentina targets its HCFC-141b consuming foam manufacturing industry. Figure 1: Historical HCFC Consumption as reported under Article 7 of the MP (ODP T) and the required phase-out targets 600 ODP Tons 400 200 0 2005 2010 2015 2020 2025 2030 2035 2040 Official Data Control Level 10. The GoA operates a very thorough and comprehensive ODS data collection system that covers all substances controlled under the MP, be they in pure or blended format. The system captures ODS import data generated by Customs, as well as direct import information collected from suppliers of systems and blends. In addition, a database is in use that cross-references data collected from Customs and suppliers through sector-based surveys including intermediate and downstream users. While the latter does not provide the same precision as the centralized data collection carried out routinely by the OPROZ in concert with Customs and suppliers, this data provides detailed sector and application specific information required for the preparation and execution of sector-specific HCFC phase-out projects and plans. 11. Historically, HCFC-22, used principally in refrigeration and air-conditioning manufacturing and servicing, and HCFC-141b, used in foam applications, are the most important HCFCs consumed in Argentina. 12. Residual CFC Consumption: Chiller cooling systems are the predominant method used to cool large buildings. Chillers have a long life, and older models that rely on CFCs to cool are not 3 very energy efficient. More recently chiller energy efficiency levels have improved significantly, but chiller efficiency levels in Article 5 countries such as Argentina remain lower than average. 13. Due to restrictions on use of CFCs under the MP, CFC chillers are no longer manufactured or imported, though many chillers using CFCs remain in use around the world and in Argentina. Elimination of the residual use of CFCs in chiller applications in Argentina can serve to improve EE and reduce GHG emissions in the building sector and, reduce consumption of CFCs. 14. Based on a Bank-financed Survey of Chillers Using CFCs, in 2005 there were 307 chillers in Argentina relying on CFC for their operation. Currently, most of these chillers are supposed to remain in use, yet the market offer for their CFC servicing is getting scarcer and scarcer. About 65% of them are housed in buildings (public, office, shopping centers, hotels, hospitals, etc.), while 35% are being used in various industries. Approximately 80% of the chillers rely on CFC- 11, and the remaining 20% use CFC-12 as refrigerant. The chillers installed in buildings are lightly used for comfort cooling, while those installed in industry are more heavily used as part of the manufacturing process. For this reason, the Project will focus on chillers being used in the industry to create more incentive from energy efficiency and thus shorter payback period. 15. HCFC Production Overview: Frio Industrias Argentinas S. A. (FIASA) is the only ODS producer in Argentina. Until 2007, the enterprise produced both CFCs and HCFC-22. CFC production has ceased, but the production of HCFC-22 continues. No other HCFCs are produced in Argentina. Historical HCFC production data are as follows: Table 4: Historical HCFC Production in Argentina (MT) HCFC-22 2004 2005 2006 2007 2008 2009 2010 2011 Production 564 347 204 818 2,857 3,914 4,251 4,018 16. According to the accelerated HCFC phase-out schedule adopted by the Parties at its 2007 meeting, Argentina must limit its HCFC production not to exceed the baseline level of 4,082.78 MT of HCFC-22 starting January 1, 2013, and gradually reduce to zero by 1 January 2030 with an exception of a small production quantity for servicing purposes allowed from 2030 to 2040. Figure 2: Historical HCFC-22 Production as reported under Article 7 of the MP (MT) and the required phase-out targets 5,000 4,000 Metric Tons 3,000 2,000 1,000 0 Official Data Control Level 2005 2010 2015 2020 2025 2030 2035 2040 4 17. The production facility at FIASA began manufacturing HCFC-22 in 2004, and since 2008, following complete closure of CFC production, has produced only HCFC-22. Production of HCFC-22 generates high GWP HFC-23 by-products. FIASA has a registered Clean Development Mechanism (CDM) project for destruction of HFC-23. 18. Foam Sector: HCFCs in the foam sector are used as a blowing agent and insulation gas. Argentina’s CFC-phase-out policy has promoted the use of non-ODS technologies, where feasible, and as a result, all the larger foam manufacturers converted away from CFC use to liquid CO2 or hydrocarbons. Smaller foam manufacturers who were unable to afford the higher conversion costs of non-ODS alternatives, or effectively manage the technical challenges they present, converted to HCFCs. Table 5 presents the results of a national HCFC survey conducted in 2010 on HCFC consumption in the foam sector by application in MT. Table 5: Consumption of HCFC by foam application (MT), 2010 Category Application HCFC-141b HCFC-22 HCFC-142b Total HCFCs % Polyurethane Domestic Appliances 240 - - 240 24% (PU) Insulation Commercial refrigeration 54 - - 54 5% Foams Sandwich panels 282 - - 282 29% Spray and pour in place 250 - - 250 25% Box foaming 54 - - 54 5% Doors insulation 30 - - 30 3% PU Integral skin 7 - - 7 1% Other Foams Other 9 - - 9 1% XPS Insulation boards - 16 41 57 6% Total 926 16 41 983 100% 19. Another way of examining use by application is to look at HCFC foam sector use by transitional and end users. Transitional users are system houses that blend formulation components into systems that may include HCFCs. Their products are then sold as either polyol blend systems or isocynate blend systems to downstream users. This categorization is useful in the collection of HCFC data as it allows for identification of even the smallest users. There are five system houses in Argentina that supply more than 500 customers, three of which also blend in-house. C. Higher Level Objectives to which the Project Contributes 20. The higher level objectives of the HCFC phase-out Project are to enable the GoA to meet its international MP obligations on protecting the ozone layer, a global public good, from man-made depletion through use of harmful substances. Further, the Project will improve competitiveness of Argentine industry through transfer of the most current, zero-ODP and, where possible, low- GWP alternative technologies. This is in line with GoA’s target on continued and competitive economic growth and the need to strengthen environmental and natural resource management. 5 II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 21. The project development objective is to support Argentina in phasing out controlled ozone- depleting substances in accordance with the country’s obligations under the Montreal Protocol. 22. The phase-out efforts will be undertaken with the view of maximizing direct greenhouse gas emission reductions and indirect co-benefits related with enhanced energy efficiency. The Project will also contribute to eliminating the residual CFC consumption in the servicing of chillers. Project Beneficiaries 23. Ozone layer protection and climate change mitigation are global public goods; as such the whole of society stands to benefit from the Project. At country level, the main direct Project beneficiaries are private enterprises ranging from big international manufacturing companies, such as Mabe S.A., to small foam companies that will be supported through a Foam Sector Plan (FSP) for HCFC phase-out. Indirect beneficiaries include a number of producers, importers/distributors, blenders/system houses, manufacturers, and service providers, as well as their controlling bodies. PDO Level Results Indicators 24. Initial foam sector HCFC consumption reduction. Phase I foam sector conversion to be achieved at Mabe S.A. will result in elimination of HCFC-141b consumption of 167.8 MT. 25. CO2e emissions. The total CO2e emission reduction from component 1 and 2 is estimated to reach 216,655 t per year by 2017. III. PROJECT DESCRIPTION A. Project Components 26. The proposed operation supports HCFC phase-out in the industrial sector. It is designed to support GoA in its overall efforts to comply with its MP obligations with a two-phase approach to reach: 1) a 10% reduction in HCFC consumption over the period 2013-20155 and 2) a further reduction of 25% by 2020. The first phase components have been approved by the ExCom and are ready to begin implementation. Approval of component 5 on the Foam Sector Plan has been deferred until phase II of the Argentine HPMP, for which preparation is likely to commence towards the end of 2013/early 2014. 5 The January 1, 2013 level measured as a freeze level at the baseline consumption, which is the average consumption of 2009 and 2010. In Argentina, the baseline consumption is 400.7 t of ODP. The 10% reduction of the baseline level needs to be achieved by January 1, 2015. 6 27. The Project is composed of five components with an estimated total value of USD 5.1 M to be mostly invested in sub-projects. Since only USD 1.9 M was approved by the donor at the time of appraisal, the Project documents, including the Grant Agreement (GA), have been designed to include phase II and allow for additional financing with a minimal need for Project restructuring after the FSP has been prepared in detail. Preparation of the additional financing and related restructuring will be parallel to submitting the FSP to ExCom approval. 28. As part of the Project preparation, a phase-out model has been developed that takes into account HCFC consumption in the foam sector, the number of HCFC consuming enterprises and their phase-out capacity, the state of specific alternative technologies, their overall short-term impact on both the ozone layer and the global climate, measured by ODP and GWP respectively, and the degree to which their technological transformation would fit into overall sector development strategies of the country. 29. In line with the MP Parties’ Meeting Decision XIX/6, which requests that HCFC phase-out be done in a manner that takes into account climate and energy efficiency, the GoA is targeting adoption of low GWP alternatives which will lead to both a net reduction in HCFCs and a lowering in energy demand and avoided CO2 emissions. This is in accordance with a number of national programs and projects aimed at promoting EE. 30. The Project entails a combination of investments and technical assistance (TA) activities to foam enterprises and financial incentives to owners of CFC-using chillers. The components are outlined below according to their status as per respective MLF approvals (see Annex 2 for further details). They will be supported by policies, regulations and TA activities that will be implemented in tandem with the HPMP being implemented with the lead of the United Nations Industrial Development Organization (UNIDO). 31. The Project has been designed to allow for additional financing that would be incorporated as a new component on HCFC-22 production phase-out. This will depend on the pending decision by the MP on eligibility for funding of the so called swing plants that are able to change their production from one substance to another and have already received MLF funding for conversion away from CFC production. This is the case of Frio Industrias Argentinas S. A. (FIASA), the only HCFC producer in Argentina. In addition, FIASA would need to apply for an independent technical audit of its plant in order to initiate sub-project preparation. Phase I: Approved Project Components Component 1: HCFC Phase-out at Mabe Argentina S.A. (MLF USD 838,612) 32. Provision of financing to phase-out 167.8 metric tons (18.5 ODP tons) of consumption of HCFC-141b in the polyurethane rigid insulation foam production of domestic refrigerators at the Mabe Argentina S.A. enterprise, including, inter alia: the installation of hydrocarbon storage and blending equipment; replacement and/or retrofitting of foaming equipment; installation of a safety control and gas monitoring system; polyurethane system development and qualification, including the corresponding trials, training and refrigerators testing, and a comprehensive safety audit. 7 Component 2: CFC Replacement in Chillers (MLF USD 950,000) 33. Provision of support for the replacement of at least 20 CFC chillers in private enterprises. 34. Provision of technical assistance in diffusion, monitoring, and reporting on the replacement program of CFC chillers and energy efficiency gains. Component 3: Technical Assistance: Monitoring and Compliance Reporting on HCFC-22 Production Phase-out (MLF USD 76,000) 35. Establishment of a monitoring system to address annual HCFC-22 production, import quotas, and stockpiles, and the upgrade of the Monitoring Information System housed with SAyDS. Component 4: Project Management (MLF USD 50,000 for Phase I) 36. Provision of financing to the PCU to coordinate and manage the Project implementation. HPMP/Project Phase II Component 4: Project Management 37. Provision of financing to the PCU to coordinate and manage the Project implementation. Component 5: Foam Sector Plan for HCFC Phase-out 38. Provision of financing for the implementation of the Foam Sector Plan aimed at completing HCFC consumption phase-out. B. Project Financing Funding Instrument 39. The Project will be supported through specific investment grants from the Multilateral Fund for the Implementation of the Montreal Protocol. Project Cost and Financing 40. The table below indicates the Project cost by component. The Project is designed to be implemented in two phases. Funding was approved by the ExCom for components 1-4 as outlined above. Retroactive financing of 20% of the Grant total can be provided for component 1 for payments made after the Project negotiations and up to a year prior to the Grant Agreement signature date in order to allow as prompt as possible implementation of the Mabe sub-project. Funding for component 5 will most probably be governed by a performance-based disbursement schedule based on a negotiated agreement between the GoA and the ExCom, through which funding tranches will be released based on phase-out achieved. 8 41. In addition to MLF funding, the GoA will cover the major part of the Project’s management costs. Beneficiary companies will also provide co-financing on a case-by-case basis as needed. For example, because of foreign ownership by non-eligible developed countries, the Mabe sub- project will entail a 48.4% counterpart obligation. Under component 2, the Project will provide 20% subsidies to cover the cost of new chiller equipment. National and beneficiaries’ co- financing will be monitored by the PCU. Project components GoA Financing MLF Grant Phase I (approved) 1. HCFC Phase-out at Mabe Argentina S.A. 838,612 2. CFC Replacement in Chillers 950,000 - Diffusion, monitoring, and reporting on the replacement program of CFC chillers and energy efficiency gains 3. Technical Assistance: Monitoring and Compliance 76,000 Reporting on HCFC-22 Production Phase-out 4. Project Management - Phase I 50,000 - Phase I and II (in-kind) 1,018,000 1,914,612 Total Phase I Costs from MLF IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 42. The Ministry of Industry (MI) will serve as the Implementing Agency for the Project through an existing Project Coordination Unit (PCU) under the Secretariat of Industry. The PCU has more than 10 years of experience in World Bank-financed operations through implementation of an on-going CFC phase-out project (P005920, TF GEF 22013-AR). The PCU will be responsible for: i) overall Project coordination and management; ii) TA and supervision, including socio- environmental management; iii) procurement activities at the central level, as needed; iv) supervision of procurement activities to be carried out by the private beneficiaries in the implementation of the sub-projects; v) financial management (FM) activities associated with the Project; and vi) overall Project monitoring and reporting. The existing administrative structure meets the requirements to carry out these tasks. 43. At the sub-project level, goods and services required for the installation and start-up of new equipment and processes will be procured by the private beneficiaries in accordance with the rules set forth in Annex 3 and further detailed in the Operational Manual (OM). The PCU will supervise sub-project implementation and ensure that procurement will be in accordance with Bank guidelines and Project procedures. Each year the PCU will prepare an annual procurement plan, outlining the investments to be made under the Project, and submit it for Bank approval. 44. The PCU will work in collaboration with the national MP focal point office OPROZ at the SAyDS to report results of Project impact as detailed in the OM, on the monitoring of HCFC 9 production, and on an as-needed basis. In relation to the HPMP, UNIDO is the HPMP lead agency in Argentina. However, the Project implementation will not require direct coordination with UNIDO (see Annex 6 for more details on the Argentine HPMP). B. Results Monitoring and Evaluation 45. The Project M&E system includes: (a) a consolidated Project progress report every six months provided by the PCU to the Bank; (b) regular progress reports provided by the foam enterprises to the PCU as requested by the MLF upon approval of component 5; (c) on-site inspection and verification visits by PCU staff; (d) semi-annual unaudited Interim Financial Reports (IFRs) on use of funds provided by the PCU to the Bank; (e) sub-project completion reports; (f) progress reporting to the Secretariat of the MLF by the Bank along with final project completion reports on each component through Project implementation; and (g) annual financial audits of the Project account. C. Sustainability 46. The GoA is obligated, as a Party to the MP, to meet HCFC phase-down obligations starting in 2013. The degree to which the country meets its obligations by reducing consumption of HCFC-141b (components 1 and 5) will be verified annually through an independent audit. Sustainability will be ensured through the following features in the Project design: a. Sectoral phase-out approach. Foam enterprises that use bulk HCFC-141b will be addressed at once, in order to avoid unfair competitive advantage to enterprises that choose not to convert. However, potential closures of small-user enterprises will be avoided if, for technical or economic reasons, it is not possible to convert them to alternative technologies, taken that small amounts of HCFC consumption will remain feasible until 2030. b. The country’s quota system will be redesigned to address production of HCFC-22 and imports of HCFCs in order to align the system with the MP reduction targets (under the auspices of the UNIDO supported HPMP). This will enable the establishment of verifiable sectoral HCFC phase-out performance indicators and targets. c. Bringing together ozone and climate benefits. HCFC phase-out in the sector will provide an opportunity to introduce non-HCFC alternatives that are also climate-friendly. This dual impact can be a marketing tool for the beneficiaries that will provide added assurance that sustainable conversion has taken place, plus it can serve as an example for the GoA for future HCFC phase-out with co-benefits after 2015. d. Socio-Environment Management Plans for sub-projects. Each sub-project will be screened for potential socio-environmental impacts and prevention and mitigation measures incorporated as needed, including occupational health and safety requirements, to minimize related risks and increase the Project’s socio-environmental value-added. 10 D. KEY RISKS AND MITIGATION MEASURES a. Risk Ratings Summary Table Risk Description Rating Stakeholder Risk Moderate Implementing Agency Risk - Capacity Moderate - Governance Moderate Project Risk - Design Moderate - Social and Environmental Low - Program and Donor Low - Delivery Monitoring and Sustainability Moderate Overall Implementation Risk Moderate b. Overall Risk Rating Explanation 47. As indicated in the table above and in Annex 4 on the Operational Risk Assessment Framework (ORAF), the overall Project risk is rated as Moderate. The individual risk categories are rated either moderate or low. E. APPRAISAL SUMMARY a. Economic and Financial Analyses 48. An economic analysis that captures the overall Project impact on the country’s economy would need to include, in addition to the foam and building chiller sectors, other productive sectors, consumers, and the Government. In the absence of direct data on the impacts that ozone depletion and climate change have on the health of the Argentine population and other socio- economic aspects of Argentine life, it is not possible to carry out a Project-level quantitative analysis of these aspects. 49. Nevertheless, global-level analyses conducted by UNEP [‘The Montreal Protocol and the Green Economy’ (2012)] credits the MP with having created enabling conditions that stimulated a transition to a Green Economy, resulting in improved human well-being and social equity, as well as reduced environmental risks. Specifically, technological advances and design innovations promoted under the PM have reduced costs, produced cleaner and more reliable products and created better working environments. The report asserts that the transfer of knowledge and technology in support of ozone protection has helped many developing countries better compete in international markets. From a social perspective, the transition to non-ODS technologies, products and services has resulted, on balance, in a shift in jobs, supported by higher levels of training, versus jobs lost. In terms of human health, the MP is estimated to have generated 11 significant benefits, namely reductions in cancers and cataracts, that have been valued at more than 11 times the direct investment costs of phasing-out ODS. It is therefore expected that the Project impacts will be positive and that the cumulative impacts of the reduced use of ODS in tandem with the increased use of chemicals with lower climate impact will be positive for both the Argentine and global societies. 50. Foam Sector Plan: The unique nature of this component design, guided by the MP’s HCFC phase-out targets and aligned with the HCFC Phase-out Management Guidelines of the MLF, dictates adoption of a phased approach. As a result, the phase-out plan for Argentine foam sector will be prepared at a later date, as part of Phase II of the Argentina HPMP. This has precluded the possibility of carrying out a comprehensive financial impact assessment of the cost of HCFC- 141b phase-out to the Argentine foam industry at appraisal, given that the detailed reliable baseline information analysis required from the enterprises that make up the foam sector remains as yet incomplete. Comprehensive sector-level financial analysis, including MABE, will be conducted for phase II of this Project, as outlined below. 51. The financial analysis that will be conducted at the time of preparation of the FSP as phase II of the Project will estimate net incremental costs in terms of investments in foaming equipment based on selected foaming technologies and the number of foam enterprises eligible to receive funding from the MLF. This analysis will also estimate the additional costs of raw materials for foam production; in particular the higher costs of alternatives (HFCs, HCs) compared to HCFC- 141b, and compare these costs with and without the Project over a 20 year time frame. 52. The analysis will also assess the investment and operating costs associated with the use of various well-established alternative technologies in the foam sector, including cyclo-pentane, HFC-245fa (a reduced formulation of HCF-245), and water-based foaming technologies. Experience gained during the earlier global CFC phase-out suggests that the prices of alternative technologies will decrease over time. This is considered especially relevant with respect to HFCs, which are a relatively new use in developing countries and more costly than HCFC-141b at present given that HFC producers are recovering their investments. Currently, HFC-245 cost is $12/kg compared with $5/kg for HCFC-141b. It is expected that the gap will narrow once HCFC-141b production is restricted; it is expected that HFC-245fa will become available and thus significantly reduce the incremental cost. As HFC patents expire, new HFC producers are likely to enter the market, which will drive down their cost. Precedent exists: when HCFC-141b was introduced in Article 5 countries, prices initially ranged from US$ 5-8, but by the following year had dropped to US$ 2.5-4. It is expected that HFC-245fa prices will drop in a similar manner during the phase-out of HCFC-141b. 53. The Net Present Value (NPV) will be higher with the Project compared to a scenario without the Project, taking into account the financial support provided by the MLF. This is due principally to investments in plant modifications required for storage and use of alternatives such as cyclo-pentane, storage for HFC-245fa, and the higher cost of HFC-245fa supply over the period in question. The net impact will be lower if the cost of HFC-245fa decreases as a result of increased global supply of the substance and a decreasing supply of HCFC-141b as production in countries such as China diminishes. Eventually, a drop in the price of HCFCs over the coming years would reduce the Project’s net incremental costs to close to zero. Foam producers can be 12 expected to pass their net incremental costs on to their customers through increased prices for foam products. The net incremental cost can be regarded as the co-financing that Argentines provide for achieving benefits associated with HCFC phase-out, including reduced health risks due to ozone depletion and reduced risks associated with climate change. 54. The incremental cost for conversion to HFC-245fa use will include: storage room, retrofitting of foaming units, technology transfer and training. These costs will also be relevant with regard to conversion to HC use, along with additional costs on replacement of foaming equipment and safety measures. It should be noted that the introduction of HC technology requires substantial initial investments, but that the per unit cost decreases quickly with increasing production volumes, making this technology attractive for the larger producers compared to HFC-245fa, which is preferred by small volume foam producers despite the significantly higher cost of the blowing agent. The financial analysis will assess the financial impact of the Project based on a net present value analysis for all eligible foam enterprises over a fixed time horizon with specific focus on the potential for higher annual foam production cost using HFC-245fa compared to HCFC-141b, as well as the upfront investments required for converting to cyclo-pentane. 55. Chiller Replacement Program: This component will have a net positive impact on the environment, both locally and globally, by reducing the emission of ODS and GHG. It will share with chiller owners 20% of the cost of new, more efficient chillers, valued at a normative price of USD 500/TR, where the rated cooling capacity of the baseline unit stands at 350 TR. In an environment of competing resource constraints, chiller replacement projects in general receive less priority in the face of other competing investment priorities. In other words, mission-critical projects are, in general, given priority over mission-marginal projects such as chiller replacements for EE reasons. The mission marginality of the investment, coupled with higher up- front cost, constitute a barrier to more widespread adoption of energy efficient chillers. 56. Although the very low costs of electricity in Argentina serve as a disincentive to the uptake of more energy-efficient building cooling technology, the potential for some EE gains nevertheless exists and, should energy prices rise, would result in the accrual of further savings which would hasten the payback period on investment. Chiller owners understand that the most compelling driver, in the short-term, is the fact that the global availability of CFCs required for the operation of existing CFC-chillers is very limited and will only continue to decline. This component can defer some of the initial upfront investment costs associated with conversion to non-CFC-using, more efficient chillers. b. Technical 57. The technological options for HCFC replacement have been reviewed and their development chronicled in successive UNEP Foams Technical Options Committee (FTOC) reports, as well as through their annual summary updates. The main HCFC-replacements cited are hydrocarbons (HC), hydrofluorocarbons (HFCs), and CO2 (water-blown). HCFCs in foam have been almost completely replaced in non-Article 5 countries (developed countries) and this experience gives guidance to the HCFC phase-out being faced in Article 5 countries (developing countries). a. The main alternative foam-blowing agent for PU rigid foams are HCs, principally cyclo-pentanes. While technologies have been well established to accommodate the flammability 13 of cyclo-pentanes and to allow their safe use, their use does result in increased cost burden for enterprises due to necessary safety measures. b. HFC-245fa and HFC-365mfc (in blends with HFC-227ea) have been developed to replace HCFC-141b in PU rigid insulating foams. The requirement was to develop a non- flammable “liquid� blowing agent. These HFCs are being used and technology around them is being optimized, but they have high GWP. There is comparatively little use of HFC-134a in PU insulating foams but it is widely used in XPS foams. c. CO2 (water) has often been cited as an alternative to HCFCs (and CFCs in the past) but the foams based on this option have significantly reduced insulating properties. However, its use as a co-blowing agent with fluorocarbons is a viable route to reduce cost and improve flow, as well to reduce the GWP impact somewhat. 58. For integral skin-based components, the end-product (shoes, automobiles, and furniture) manufacturers often set the requirements for the foams. Some of these specify CO2 (water) and HFC-134a is also used. For both of these technologies, an in-mold coating is often used to give improved skin properties. For large production volumes and particularly for parts for heavy-duty applications, such as trucks, HC technology is used to give a robust skin. 59. Several new blowing agents (Methyl Formate, Methylal, HFO-1234ze, HBA-2, FEA-1100, AFA-LI) are emerging and their evaluation is in progress. These evaluations include foaming and flammability characteristics, foam properties, toxicological properties (in some cases) and commercial costs and availability. Their ultimate use can only be recommended following satisfactory results in these evaluations. The Project will adopt HC technology for the enterprise addressed in component 1 and will, in accordance with the guidance provided by the MP; seek to identify the most effective and climate-friendly conversion methods under component 5. c. Financial Management 60. A Financial Management (FM) Assessment of the arrangements for the proposed Project was carried out by the Bank in accordance with OP/BP 10.02 and in line with specific Bank guidelines6. The assessment’s conclusion, presented in Annex 3, indicates that the proposed FM arrangements are overall adequate and meet the minimum Bank requirements. The implementing agency will be the MI, acting through a PCU with relevant experience in fiduciary aspects for similar Bank-financed operations, since it has been successfully implementing the MP Program with the Bank for more than 10 years. From a FM perspective, the Project is considered a moderate risk operation. d. Procurement 61. The existing PCU will be responsible for procurement activities at the central level and supervision of procurement activities to be carried out by the private beneficiaries in the 6 Financial Management Manual for World Bank-Financed Investment Operations; document issued by Operations Policy and Country Services OPCFM on March 1, 2010. 14 implementation of the sub-projects, including works, goods, non-consultant services, and consultant firms and individuals, and in accordance with the valid Bank Guidelines. 62. A procurement assessment of PCU and Mabe S.A. (beneficiary of component 1) was carried out in March 2013 by the Bank. For component 2, a capacity assessment is not needed because small amounts of funds for beneficiaries will be granted through a competitive procedure. For component 5, the need of capacity assessments will be determined and the assessments conducted on a case-by-case basis as needed for the bigger sub-projects during the preparation of the FSP. The overall Project risk for procurement is moderate. e. Social (including Safeguards) 63. The Project does not trigger any of the Bank’s social safeguards. No land acquisition will be needed as sub-project investments and physical works will be limited to equipment replacement in existing assembly lines and/or within the boundaries of existing industrial plants or commercial building throughout the country. To ensure adequate worker health and safety, foam enterprises expecting to benefit of the Project will be visited by the PCU based on enterprises socio-environmental auto-evaluation before a sub-grant agreement will be prepared and signed. f. Environment (including Safeguards) 64. The Project triggers the OP/BP 4.01 on Environmental Assessment. The Project will mainly have positive impacts on the global environment by reducing the use of HCFCs that are ozone- depleting substances and GHG with a GWP ranging from several hundred to several thousand times that of CO2. There are no large-scale, significant and/or irreversible negative impacts on environment caused by the Project activities or ODS-free foam production. An Environmental and Social Management Framework (ESMF) has been prepared for the Project and disclosed within the country on May 21 and in the World Bank InfoShop on May 24, 2013. See further details in Annex 3. 15 Annex 1: Results Framework and Monitoring . Argentina Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project (P129397), Phase I . Results Framework . Global Environmental Objectives . PDO Statement The project development objective is to support Argentina in phasing out controlled ozone-depleting substances in accordance with the country's obligations under the Montreal Protocol. These results are at Project Level . Global Environmental Objective Indicators Cumulative Target Values per Year Responsibi 2014–2020 Data Source/ lity for Unit of End Methodology Data Indicator Name Core Baseline 1 2 3 4 5 6 Frequency Measure target Collection Initial foam By completion Component 1 sector HCFC Metric ton 0.00 167.8 167.8 of component completion PCU consumption 1 report reduction Project 145, 192, 216, 216, 216, 216, implementation 169, CO2e emissions Ton/year 0.00 405 905 655 655 655 655 Yearly reports and PCU 155 completion report . 16 Intermediate Results Indicators Cumulative Target Values per Year Responsibi 2014–2020 Data Source/ lity for Unit of End Methodology Data Indicator Name Core Baseline 1 2 3 4 5 6 Frequency Measure Target Collection HCFC-141b consumption By Component 1 phase-out at Metric ton 0.00 167.8 167.8 completion of completion PCU Mabe Argentina component 1 report S.A. Replaced and Project Every 6 destroyed CFC- Number 0 5 10 15 20 20 months implementation PCU chillers reports Compliance with the Project monitoring and Every 6 Yes/No No Yes Yes Yes Yes Yes Yes Yes implementation PCU control protocol months reports on HCFC-22 production . . Global Environmental Objective Indicators Indicator Name Description (indicator definition etc.) Initial foam sector HCFC consumption reduction The Project applies a two-phased approach to complete phase-out of HCFCs used in foam sector manufacturing by 2020. Phase I conversion to be achieved at Mabe S.A. will result in elimination of HCFC-141b consumption of 167.8 MT. Phase II investment activities will address remaining HCFC consumption in the foam sector (HCFC-141b, HCFC-22 and HCFC-142b), expected to result in an additional phase-out of app. 758 MT; thus a total of 925.8 MT. The indicator will be adjusted once the FSP has been approved by the ExCom. 17 CO2e emissions The associated direct climate benefit from conversion at Mabe S.A. will represent 121,655 t CO2e per year upon completion. With respect to residual CFC consumption used as refrigerant in the servicing of older chillers, the Project will subsidize the conversion of an estimated 20 chillers to CFC-free, more energy-efficient models, resulting in an associated reduction of app. 20 t of CFC-11. This will represent 95,000 t CO2e per year upon completion, based only on GWP of the refrigerant; without calculating associated EE gains. The total climate benefit of component 1 and 2 is estimated to reach 216,655 t CO2e per year by 2017. Phase II will add an estimated 591,000 t CO2e per year emission reduction upon completion of the FSP. By 2020, the total climate benefit of the foam sector phase-out is expected to increase to 807,655 t CO2e of emission reductions. Intermediate Results Indicators Indicator Name Description (indicator definition etc.) HCFC-141b consumption phase-out at Mabe Argentina HPMP Phase I foam sector phase-out. S.A. Replaced and destroyed CFC-chillers A 20% conversion subsidy will be offered to retire existing CFC chillers. With normative price of a new chiller at USD 500/TR, it is expected that at least 20 CFC chillers can be replaced with the available funding. The CFC will be adequately collected and stored and the replaced chillers will be verifiably destroyed to make sure they are removed from the market. Compliance with the monitoring and control protocol on To complement the management information system administered by the SAyDS, the HCFC-22 production MI will establish a supplemental information management system/monitoring and control protocol to monitor production, domestic sales, and movement of stockpiles of HCFC-22 at FIASA, the only HCFC-producing company in Argentina. 18 Annex 2: Detailed Project Description ARGENTINA: Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project (P129397) Description 1. The proposed operation focuses on HCFC phase-out in the industrial sector. It is designed to support GoA in its overall efforts to comply with its MP obligations with a two-phased approach to reach: 1) a 10% reduction in HCFC consumption over the period 2013-20157 and 2) a further reduction of 25% by 2020. The first phase components have been approved by the Multilateral Fund Executive Committee (ExCom) and are ready to begin implementation, while component 5 on the Foam Sector Plan has been deferred until preparation is authorized to begin by the ExCom, in line with initiation of phase 2 of the HPMP, likely towards the end of 2013. 2. The Project is composed of five components with most funding invested in sub-projects. Since only USD 1.9 M was approved by the donor at the time of appraisal, the Project documents, including the Grant Agreement (GA), have been designed to include phase II and allow for additional financing with a minimal need for Project restructuring after the FSP has been prepared in detail. Preparation of the additional financing and related restructuring will be parallel to submitting the FSP to ExCom approval. 3. As part of the Project preparation, a phase-out model has been developed that takes into account HCFC consumption in the foam sector, the number of HCFC consuming enterprises and their phase-out capacity, the state of specific alternative technologies, their overall short-term impact on both the ozone layer and the global climate, measured by ODP and GWP respectively, and the degree to which their technological transformation would fit into overall sector development strategies of the country. 4. In line with the MP Parties’ Meeting Decision XIX/6, which requests that HCFC phase-out be done in a manner that takes into account climate and energy efficiency, the GoA is targeting adoption of low GWP alternatives which will lead to both a net reduction in HCFCs and a lowering in energy demand and avoided CO2 emissions. This is in accordance with a number of national programs and projects aimed at promoting EE. 5. The Project entails a combination of investments and technical assistance (TA) activities to foam enterprises and financial incentives to owners of CFC-using chillers. The components are outlined below according to their status as per respective MLF approvals. They will be supported by policies, regulations and TA activities that will be implemented in tandem with the HPMP being implemented with the lead of the United Nations Industrial Development Organization (UNIDO). 7 The baseline is the average consumption of 2009 and 2010. In Argentina, this is 400.7 t of ODP. The first freeze and 10% reduction levels are measured against the yearly consumption in 2013 and 2015, respectively. 19 6. The Project has been prepared leaving the door open to a potential additional financing that could be incorporated as a further component on HCFC-22 production phase-out. This will depend first on a positive decision on eligibility for funding of the so called swing plants that are able to change their production from one substance to another and have already received MLF funding for conversion away from CFC production. This is the case of Frio Industrias Argentinas S. A. (FIASA), the only HCFC producer in Argentina. Second, FIASA would need to apply for an independent technical audit of its plant in order to initiate sub-project preparation. Phase 1: Approved Project Components Component 1: HCFC Phase-out at Mabe Argentina S.A. (MLF USD 838,612) 7. Provision of financing to phase-out 167.8 metric tons (18.5 ODP tones) of consumption of HCFC-141b in the polyurethane rigid insulation foam production of domestic refrigerators at the Mabe Argentina S.A. enterprise, including, inter alia: the installation of hydrocarbon storage and blending equipment; replacement and/or retrofitting of foaming equipment; installation of a safety control and gas monitoring system; polyurethane system development and qualification, including the corresponding trials, training and refrigerators testing, and a comprehensive safety audit. 8. In the support of the goals of Phase 1 of the HPMP, this initial foam sector investment sub- project targets the largest refrigeration appliance manufacturer in the country with a slight majority of domestic ownership. The conversion of this enterprise can be easily implemented and achieved as well-known conversion technologies that can ensure reliable, timely, climate- friendly and cost-effective phase-out are readily available. The conversion technology selected by the enterprise is pentane, consistent with the company's policy to use non-ODP/low GWP alternatives. Hydrocarbons (HC, cyclopentane or cyclopentane/isopentane blend) have been selected as the HCFC replacement given that HCs are a widely used, proven technology and that the factory size allows for a competitive investment. The conversion will cause a minor increment of the company’s operating costs of USD 30,105 for one-year of operation. As a result of foreign ownership, there is a minimum of 48.4 % counterpart obligation. The conversion project from HCFC to HC at Mabe will involve changes in the foaming process. Component 2: CFC Replacement in Chillers (MLF USD 950,000) 9. Provision of support for the replacement of at least 20 CFC chillers in private enterprises: A total of USD 1 M from the MLF-funded Global Chiller Replacement Program has been approved by the MLF for implementation in Argentina. USD 900,000 will be used for providing 20% subsidies for purchase of new equipment, USD 50,000 for related TA, and USD 50,000 for overall Project management during Phase I. 10. The component will continue an on-going replacement pilot. By replacing CFC chillers with ODS-free and more energy efficient systems, future CFC emissions at participating chiller sites will be prevented and future GHG emissions can be reduced. HCFC-123 and HFC-134a are the primary, well-proven current choices for new centrifugal compressor chillers. While the selection of chiller technology will be decided by the chiller owners, the Project will discourage 20 the replacement of chillers with HCFC-based equipment. Taking into account the high GWP of HFC-134a refrigerant, new chillers using low or zero GWP refrigerants would also be explored in industry where hazardous materials are routinely used and staff is highly trained in safety measures and emergency response. The replaced chillers will be verifiably destroyed to make sure they are removed from the market. 11. The OM provides technical criteria for determining eligibility and potential prioritization of chiller replacements and sets specific operational rules for implementing the component. For example, eligible chillers must be in active use and the owner will be responsible, supported by the PCU, for recovering and subsequently securing an adequate handling of the CFC contained by the chiller to be replaced. The commitments and mutual obligations are formalized by a Sub- grant Agreement between the PCU and the beneficiary enterprise. 12. Provision of technical assistance in diffusion, monitoring, and reporting on the replacement program of CFC chillers and energy efficiency gains: 5% of the component 2 funding will be allocated for small technical consultant and dissemination activities aimed at facilitating implementation and potential scale-up of CFC chiller replacements. Component 3: Technical Assistance: Monitoring and Compliance Reporting on HCFC-22 Production Phase-out (MLF USD 76,000) 13. Establishment of a monitoring system to address annual HCFC-22 production, import quotas, and stockpiles, and the upgrade of the Monitoring Information System (MIS) housed with the Secretariat of Environment and Sustainable Development. To ensure reduction of the HCFC consumption, the GoA will regulate FIASA’s HCFC-22 production. Part of it is for export. This export component increased significantly during 2009 and 2010, a trend that is expected to continue. Because of this large percentage of export of locally produced HCFC-22, stockpiles are likely to be significant at the end of year. The stockpiles need to be monitored to confirm that they will be exported in the following years. 14. Given the inter-relationship between production and consumption of HCFCs and the implications that this has for Argentina's MP compliance, a monitoring system will be established to address annual production and import quotas and track stockpiles. Funding will be used to upgrade the MIS housed with the SAyDS by developing a dedicated window within the system, housed with the MI, to monitoring data related to HCFC production. This funding will also allow the MI to conduct regular verification visits at FIASA’s production facility. 15. The OM includes a technical and operational plan for implementing the component. Component 4: Project Management (MLF USD 50,000 for Phase I) 16. Provision of financing to the PCU to coordinate and manage the Project implementation. The PCU within the MI and under the Secretariat of Industry will coordinate and manage implementation of the Project components and their sub-projects in accordance with national regulations, sector specific policies, and as stipulated in the Operational Manual (OM). Based on the MLF guidance, the Project is able to support the PCU operating costs with a 5% from 21 component 2. The PCU team will be primarily funded by the MI. HPMP/Project Phase II Component 4: Project Management 17. See above. Based on the MLF guidance, the Project is able to support the PCU operating costs with a 5% from component 5. The PCU team will be primarily funded by the MI. Component 5: Foam Sector Plan for HCFC Phase-out 18. Provision of financing for the implementation of the Foam Sector Plan aimed at completing HCFC consumption phase-out. To meet further HCFC phase-out targets in 2020 and beyond, Argentina will need to address remaining consumption in the foam sector. The Bank has received USD 120,000 of approved preparation funds to develop the Foam Sector Plan (FSP), and an initial foam sector survey was carried out in early 2012 to define its scope. As decided during the HPMP Phase I negotiations, it was agreed that the development of the FSP will be initiated towards the end of 2013 and be submitted for ExCom approval as part of HPMP Phase II activities in 2014, with implementation to commence in 2015. The PSF will include a TA component that will cover off the work to be done with the smaller enterprises for which no direct investment funding is available. 19. The FSP aims to completely phase-out consumption of HCFCs in various foam applications, including domestic appliances, commercial refrigeration, sandwich panels, spray and pour in place, box foaming, door insulation, integral skin, insulation boards, and others. Based on the 2010 national HCFC survey, the Plan will address about 758 MT remaining in the foam sector, after taking into account the 168 MT that will have been phased out by the Mabe project. 20. The FSP will employ a series of investment and policy measures to address the phase-out in both eligible and non-eligible enterprises. Technical assistance activities will be provided to the national stakeholders on HCFC alternatives, including production trials and appropriate use. The Plan will promote introduction of low GWP blowing agents in the applications where they are feasible and commercially available (see part b of Appraisal Summary). For PU foam, in particular, hydrocarbons have been successfully adopted by many enterprises that are capable of adequately addressing the required safety measures. 21. While the currently available low GWP alternative blowing agents might not be applicable for all small and medium scale PU foam enterprises, in particular for the spray foam application, other suitable alternatives may emerge in the coming years. For example, a local company is working on the development of a 100% vegetable-based polyol formulation for spray foam. During the preparation of the FSP, the Bank will explore the feasibility of adoption of such an alternative. 22. The FSP will cover some 560 companies producing foam in Argentina. About 27 companies have consumption of more than 5 MT of HCFCs per year, while the majority has consumption less than 0.5 MT. Most of these small companies are engaged in spray foam and ‘pour in place’ 22 applications. The FSP will address the enterprises with large consumption of HCFCs through individual investment projects. 23. The foam sector survey identified the following 14 major enterprises producing PU foam that were and are expected to remain eligible for individual projects: Enterprise Domestic Commercial Sandwich Box Foaming Appliance Refrigeration Panel Lacar Frío X Refrimet X Argenpur X Mondino X X Frider X X Briket X Lauge X Famesa X X Friolatina X Stefanelli X X Friostar X Térmica San Miguel X Poliuretanos Mendoza X X Bercomar X 24. The FSP will also address enterprises producing XPS insulation board. This will eliminate HCFC-142b and HCFC-22 in the manufacture of XPS insulation board. Information will be collected to identify eligible foam enterprises during the sub-project preparation. 25. With respect to the smaller enterprises, the GoA will work through existing system houses to assist and deliver the technical and financial assistance needed. There are five fully formulated system houses in Argentina that supply a total of more than 500 customers. It is envisioned that the system houses will assist in the FSP preparation and implementation by providing: • User identification • Collection of baseline data • Provision of technology transfer • Conduction of trials • Assistance in project design and equipment specifications (if necessary) • Collection of implementation documentation 26. Any conversion that for technical or economic reasons would imply closure of an enterprise will be avoided, taken that small amounts of HCFC consumption will remain feasible until 2030. 27. To implement the FSP, a 5% Project management fee will be added to the component costs to be applied from the MLF, as per MLF guidance. The PIU will provide: • Project supervision • Procurement (as required) 23 • Compliance verification • Technology transfer to the system house (“train the trainer�) 28. The FSP will be designed and implemented to provide a level playing field for competing companies to phase-out their use of HCFCs. Preparation of the component will include close consultations with the involved enterprises aiming the FSP to benefit different size enterprises in an appropriate manner. The FSP will include TA that together with Bank support will allow the GoA to establish a supporting policy structure that will: (i) ensure that HCFC phase-out is permanent and sustainable, (ii) promote the transfer and dissemination of suitable substitute technologies, (iii) provide opportunities (e.g. workshops) for stakeholders to discuss policies on market readiness and supply of chemicals for substitute technologies, and (iv) organize training for beneficiary enterprises/workers. 24 Annex 3: Implementation Arrangements ARGENTINA: Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project Project Institutional and Implementation Arrangements Project administration mechanisms 1. The PCU at the Ministry of Industry, established under previous ODS phase-out investment activities, will continue to be financed under the Project and mainly supported by Government resources to implement and coordinate the MI share of the HPMP work program, and to assist OPROZ to put into place both overarching regulations and sector specific policies. The PCU will handle the Project’s FM and disbursement functions, including keeping files and records of Project documentation, and retain auditors acceptable to the Bank to audit the Project accounts. The current PCU composition provides the necessary administrative and technical capacity. The Project’s Operational Manual (OM) describes the applicable rules to sub-project implementation and other operational aspects in detail. Financial Management, Disbursements and Procurement Financial Management 2. A Financial Management (FM) Assessment of the arrangements for the proposed Project was concluded in accordance with OP.BP 10.00 and in line with Bank specific guidelines8. The assessment conclusion indicates that the proposed FM arrangements meet minimum Bank requirements. The Ministry of Industry, through the PCU will be responsible for undertaking the FM functions of the Project and has significant experience in fiduciary aspects for similar Bank- financed operations, which has been taken into account for the FM assessment. 3. Budgeting Arrangements. Budget execution in Argentina is recorded in the Federal Government integrated budget and accounting system (SIDIF-SLU, Sistema Integrado de Información Financiera) and subject to control over the budgetary execution process. SIDIF integrates budget accounting and treasury functions and is also linked to the debt management (SIGADE). Secretariat of Finance manages SIDIF and controls and consolidates budget execution, which is decentralized to spending units. MI is included in the SIDIF and will create and maintain a separate budgetary line in its annual budget during Project implementation in order to allow tracking of budget resources from different sources and Project expenditures. 4. Accounting and Financial Reporting. The UEPEX system will be used to maintain the Project accounting records. It is an in-house information tool developed by the Federal Government and of mandatory use for multilaterally financed operations at federal level. The UEPEX is considered adequate for accounting purposes. The Project chart of accounts will 8 Financial Management Manual for World Bank-Financed Investment Operations; document issued by Operations Policy and Country Services OPCFM on March 1, 2010 and OP.BP 10.00 from April 1, 2013. 25 reflect disbursement categories, sub-projects, and sources of financing. The cash basis of accounting will be used for recording the Project transactions. Annual financial statements for the Project will be prepared by MI-PCU, following the Public Sector Accounting Standards of Argentina that are comprehensive and consistent with international public standards. MI-PCU will also be in charge of the preparation of semi-annual unaudited Interim Financial Reports (IFRs) in a format satisfactory to the Bank, as follows: Sources and uses of funds: for each calendar semester and cumulative (uses by category), uses of funds by sub-project and beginning and ending cash balances; along with a reconciliation of the Designated Account (DA) accompanied by a copy of the bank statement. 5. Internal Control and Internal Auditing. The MI is subject to internal audit of the General Syndicate of the Nation (SIGEN), which is the Federal Government’s internal audit agency under the jurisdiction of the executive branch. SIGEN supervises and coordinates the actions of the Internal Audit Units (IAUs) in all agencies, including the MI, approves their audit plans, conducts research and independent audits, systematizes the information from its own reports and those produced by the IAUs. Annual plans of the Project’s IAU will include the review of Project activities as one of the measures in strengthening control over Project operations. The internal audit reports on the Project performance will be reviewed during Project supervision. 6. General flow of funds. The general arrangements are described in the following chart. Figure A3-1 Flow of Funds* * UEPRO = the PCU 7. External Auditing. The Project annual financial statements will be audited under Terms of Reference prepared in line with Bank Guidelines to be performed by independent auditor and following auditing standards acceptable to the Bank. The audit report would be furnished to the Bank, as soon as available, but in any case not later than six months after the end of each audited year/period. It is expected that the audit be conducted by the Argentine Supreme Audit Institution (Auditoria General de la Nación, AGN). The audit opinions that will be required to be submitted are presented below: 26 Table A3-2 Audit Requirements Audit Report Due Date 1) Project Specific Financial Statements June 30 2) Special Opinions SOE – Designated Account June 30 The initial supervision plan is presented in the table below. The FM supervision scope will be adjusted by the assigned FMS according to fiduciary performance and updated risk. Table A3-3 Financial Management Supervision Plan Type Timing Mechanism Objective On-site Visit Once a year Integrating Review implementation of mitigating measures supervision missions Review internal control framework Review Designated Account reconciliation Update assigned risk Follow up on External Audit findings Transactions review as needed IFRs Review Every six months Over the IFR Review IFRs information consistency Financial Audit Once a year Over the Audit Raise issues disclosed in Audit Report Review Report received 8. Action Plan. Action Responsible Entity Completion Date Elaborate a FM manual which will Ministry of Complied with include: chart of accounts, administrative Industry- PCU and internal control procedures, format of annual financial statements and semi- annual unaudited financial reports (IFRs) Request a specific budgetary line in the Ministry of To be included in 2014 annual budget Ministry of Industry annual budget to Industry- PCU follow Project execution 9. The disbursement arrangements are described in the following table: Table A3-1 Disbursements Arrangements Retroactive Financing Eligible payments Are paid up to 12 months before the date of Grant singing; Do not exceed 20 percent of the Grant amount; May be made in respect of Eligible Expenditures under Category (1) For items procured in accordance with applicable Bank procurement procedures. Reimbursement of eligible expenditures Reimbursement of eligible expenditures into a bank account 27 and pre financed by the GoA after the controlled by the Ministry of Industry. The minimum application size date of Grant signing for reimbursement requests will be US$ 80,000. Other Disbursement Methods Direct payments to suppliers. The minimum application size for direct payment requests will be US$ 80,000. Advance to a segregated designated account in US$ managed by MI-PCU, in BNA, with a ceiling of US$ 385,000 million for outstanding advances. Supporting documentation 9 Statement of Expenditures (SOE) ; and Records (supplier contracts, invoices and receipts). 10. Grant proceeds will be disbursed against the following expenditure categories: Category Amount of the Percentage of Expenditures to be Financed Grant Allocated (inclusive of Taxes) (expressed in USD) (1) Goods, works, 838,612 100% consultants’ services and non-consulting services under Component 1 (2) Goods under 900,000 100%10 Component 2 (3) Consultants’ services 50,000 100% and non-consulting services under Component 2 (4) Goods, consultants’ 76,000 100% services and non-consulting services under Component 3 (3) Operating Costs and 50,000 100% consultants’ services under Component 4 TOTAL AMOUNT 1,914,612 9 The Receiver through the Ministry of Industry-PCU shall retain all records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures under the Project until at least the later of: (i) one year after the Bank has received the audited Financial Statements covering the period during which the last withdrawal from the Grant Account was made; and (ii) two years after the closing date. The Receiver and the Ministry of Industry- PCU shall enable the Bank’s representatives to examine such records. 10 For purposes of operational flexibility, Category (2) will be financed at 100%. However, in practice it will be financed at 20% (as per the planned 20% chiller subsidy), unless/until the Recipient and the Bank agree a new percentage. The Operational Manual will state the applicable percentage and will not be modified unilaterally. 28 Procurement 11. Procurement for the proposed Project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits� dated January 2011, “Guidelines: Selection and Employment of Consultants by World Bank Borrowers� dated January 2011. 12. Works. It is expected that the MI will not directly procure any civil works under the proposed Project. 13. Goods and non-consulting services. It is expected that the MI will not directly procure any goods and non-consultant services. However, if some equipment or other items are needed the goods will be procured through ICB procedures using Bank Standard Documents when the total amount of the contract is US$500,000 or more. While contracts for procurement of goods and non-consultant services, with an estimated cost less than US$500,000 but more than US$100,000 per contract, will be procured using NCB procedures and Project standard documents to be agreed with the Bank. Contracts for goods and non-consultant services of US$100,000 or less will be procured through shopping procedures and the provisions of paragraph 3.5 of the Bank Guidelines. 14. Selection of Consultants. Consultant services under this Project will be hired through the PCU (MI) and will mainly include technical assistance for upgrade the Monitoring Information System. All contracts will be procured using the World Bank’s guidelines for the hiring of consultants. Short lists of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Specialized advisory services will be provided by individual consultants selected by comparison of qualifications of at least three candidates and hired in accordance with the provisions of paragraphs 5.1 to 5.3 of the Consultant Guidelines. 15. Grants for sub-projects. Grantee of component 1 will decide what investments to make in accordance with the selected proposal and prepare a procurement plan including a list of the works, goods and services to be procured and their estimated cost and timetable. Procurement of works, goods and services will be carried out following commercial practices in accordance with the procedures set forth in this annex and the OM. Grants under component 2 will be publicly announced and awarded through open competitions on the basis of objective award criteria to be defined in the call for applications. The OM will describe such procedures in detail. 16. Operating Costs: The Project will finance operational costs, which include transportation costs, travel expenses and per diems related to supervision activities, and sundry recurrent expenses directly related to the performance of Project activities. The procurement will be done 29 using the implementing agency's administrative procedures that were reviewed and found acceptable to the Bank. 17. Procurement Plan. The PCU developed a procurement plan for Project implementation for all components, including component 1 which will be executed by Mabe. The PCU will (a) feed the Bank publicly accessible Procurement Plans Execution System (SEPA) within 30 days of Grant Effectiveness with the information contained in the initial Procurement Plan, and (b) update the Procurement Plan at least twice a year or as required to reflect the actual Project implementation needs and progress and feed the SEPA with the information contained in the updated Procurement Plan immediately thereafter. 18. Assessment of the agency’s capacity to implement procurement A procurement assessment of PCU (MI) and Mabe S.A. (beneficiary of component 1) was carried out in March 2013 by the Procurement Specialist assigned to the Project. 19. The MI has project implementation experience with IDB and World Bank operations, and the PCU staff is experienced in administrative and financial matters and in project implementation under Bank procedures. Nevertheless, the PCU currently lacks an experienced procurement specialist. The key issues and risks concerning procurement are: a. Most of the procurement actions will be implemented through sub-project beneficiaries; b. Even when the PCU's staff is experienced in administrative matters, it lacks a procurement specialist experienced in handling procurement under World Bank procedures; c. There is no suitable procurement information system to properly manage the sub- project portfolio handled by the PCU; and d. Internal audits apparently do not comprise the review of the procurement or the selection process of sub-project beneficiaries. 20. Mabe S.A. has adequate capacity to implement the procurement activities under component 1. 21. The following actions are recommended to alleviate risk and facilitate Project implementation: a. The implementation of each sub-project will be supervised in detail by a Technical Supervisor (TS) to be hired by the PCU; the procurement carried out at sub-project level will be also supervised by the TS on the basis of the OM of the Project. The procurement section of the OM will clearly define the supervision scheme, and the roles, responsibilities, rules and reporting requirements for procurement, as well as the criteria for selecting beneficiaries for components 2 and 5; 30 b. The PCU will hire a procurement specialist experienced in conducting procurement under World Bank procedures; c. Within six months of Project effectiveness, the PCU will upgrade the Monitoring Information System to manage the sub-project portfolio; this system will complement the use of the World Bank's mandatory Procurement Plan Execution System (Sistema de Ejecución de Planes de Adquisiciones, SEPA) system for procurement planning; d. A consulting firm will be hired to carry out the annual audit, which will comprise the review of the procurement, including the calls for proposals, the application of criteria for selecting sub-project beneficiaries and procurement through sub- projects; and e. Special procurement provisions, as described above, were agreed and will be included in the Grant Agreement. 22. The overall Project risk for procurement is Moderate. Environmental and Social (including safeguards) 23. The Project triggers the OP/BP 4.01 on Environmental Assessment. However, the Project will mainly have positive impacts on the global environment by reducing the use of HCFCs, which are ozone-depleting substances and greenhouse gases with a global warming potential (GWP) ranging from several hundred to several thousand times that of CO2. There are no large- scale, significant and/or irreversible negative impacts on environment caused by the Project activities or ODS-free foam production. 24. The Project does not trigger any of the Bank’s social safeguards. No land acquisition or taking will be needed as sub-project investments and physical works will be limited to equipment replacement in existing assembly lines and/or within the boundaries of existing industrial plants or commercial building in different parts of the country. The social management of the Project will imply the PCU to (i) ensure that adequate worker health and safety measures are in place for the management of phased-out materials and introduction of alternative technologies; (ii) prevent/mitigate potential loss of jobs/incomes within the small foam companies, and (iii) ensure that adequate outreach, consultation and participation mechanisms are in place for industry stakeholders to ensure their ownership, awareness and buy-in to conversion processes, as well as for adjacent communities, as applicable. 25. Under component 1, hydrocarbon (HC) technology has been selected as a blowing agent to replace HCFC-141b that is generally used in the foam sector. HCFC-141b has a GWP of 2,400, whereas that of HC (cyclo-pentane) is less than 25. HC is classified as a Volatile Organic 31 Compound (VOC), but its use results in very low levels of emission, about 2-3% of the blowing agent. There is no significant environmental impact from the use of HC. 26. Other chemicals involved in foam production are Methylene Diphenyl Isocyanate (MDI), amine catalysts, and fire retardants. Foam enterprises purchase pre-formulated polyol (blended with or without HCFC-141b) and polymeric MDI for their rigid foam production. The probability that a spill of polymeric MDI – a liquid at room temperature – would contaminate soil or water is very low, because floors of foam production areas are cement coated with an anti- leakage low permeability/chemical layer such as epoxy. In case MDI leaks into the soil, it will react with moisture and the reaction result in CO2 and insoluble polyurea compounds, which are not biodegradable but chemically inert. Fire retardant and a very limited amount of amine catalysts are mixed/pre-formulated in the polyol at the system houses from which the foam enterprises purchase pre-blended polyol and MDI; most of the foam enterprises will not handle these toxic chemicals directly, yet Mabe S.A. is an exception to this rule. Fire retardant and amine catalysts will remain in the final foam products and are not likely to be emitted to the environment during foam production or later. As such, no legacy environmental contamination issues are anticipated in association with foam production. 27. The principal safeguards concern of the Project is flammability of HC and subsequent safety requirements that may present operational challenges for smaller foam enterprises. Finally, foam production process as well as chiller replacement imply generation of non-hazardous solid waste that will need to be adequately disposed of. 28. An Environmental and Social Management Framework (ESMF) has been prepared for the Project and disclosed within the country on May 21 and in the World Bank InfoShop on May 24, 2013. The ESMF provides simple guidelines and tools to be applied in all beneficiary enterprises related to environmental management and occupational health and safety (OHS) measures. The latter include such as prevention of inhalation of MDI vapors which may cause skin irritation; spill prevention, control, and countermeasures; fire/explosion protection measures; and appropriate emergency preparedness and response measures. 29. To ensure application of adequate environmental management and OHS measures by the Project’s beneficiary enterprises, the same will need to fill out an initial questionnaire on their socio-environmental management in light of complying with the related national regulation. Depending on the PCU’s review and consequent results of the initial questionnaire, a beneficiary enterprise will need to fill out a more detailed auto-evaluation (or parts of it) on its management system/measures, as well as submit the PCU any supporting documentation. An environmental consultant hired by the PCU will be responsible for reviewing this information and, as deemed necessary, contact the company for additional information and/or agree on a site visit to verify the situation. 32 30. As necessary based on the initial socio-environmental screening, the beneficiary enterprises will prepare site-specific Environmental and Social Management Plans (ESMPs) with technical guidance from the UCP as an integral part of their sub-project proposal in order to participate in the Project and have access to funding. The ESMP, as applicable, will be included as a contractual responsibility in each sub-grant agreement to be signed by the PCU and a Project beneficiary. 31. Enterprise managers and operational staff will be trained on environmental and OHS requirements during the foam conversions as necessary. Safety audits will be carried out before the start of normal foam production using hydrocarbons. The UCP will provide the Bank regular reporting on the Project’s socio-environmental management within the regular Project progress reports. Further, the Bank’s implementation support missions will review and discuss implementation of the ESMF. Monitoring & Evaluation 32. Results M&E will be done at different levels. At the national HPMP level in 2013-2015, the lead agency UNIDO is responsible for annual independent verification of maximum allowable HCFC consumption. The Bank will coordinate with and provide UNIDO Project related information. The verification audit is crucial to the release of future tranche funding under the agreement between Argentina and the ExCom and will provide confirmation whether intermediate targets and eventually the PDO have been attained. 33. At the Project level, the PCU will be responsible for monitoring overall progress of the Project. Component 5 funding will support the PCU in carrying out M&E as stipulated in the OM. This entails random site visits, surveys, and stakeholder workshops as deemed necessary. 34. The Project M&E system includes: (a) a consolidated Project progress report every six months provided by the PCU to the Bank; (b) regular progress reports provided by the foam enterprises to the PCU; annual tranche implementation reports and work plans requested by the MLF upon approval of the foam sector activities; (c) on-site inspection and verification visits by PCU staff; (d) semi-annual unaudited Interim Financial Reports (IFRs) on use of funds provided by the PCU to the Bank; (e) project completion reports for the sub-project activities; (f) progress reporting to the Secretariat of the MLF by the Bank along with final project completion reports on each component, with submissions running from 2015 through to 2020, depending on date of individual sub-project activity completion; and (g) annual financial audits of the Project account. 33 Role of Partners 35. By signing an Agreement between the GoA and the ExCom for the Reduction in Consumption of HCFCs (Agreement), Argentina has agreed to assume overall responsibility for the management and implementation of it and of all activities undertaken by it or on its behalf to fulfill the obligations under the Agreement. UNIDO has agreed to be the lead implementing agency and the Bank has agreed to be the cooperating implementing agency under the lead of UNIDO in respect of Argentina’s activities under the Agreement. Argentina has agreed to evaluations, which might be carried out under the M&E work programs of the MLF or under the evaluation program of any UNIDO or the Bank. 36. According to the Agreement, UNIDO is responsible for carrying out the activities of the overall plan with the changes approved as part of the subsequent submissions, including but not limited to independent verification. This responsibility includes the need to co-ordinate with the Bank to ensure appropriate timing and sequence of activities in the implementation. The Bank will support UNIDO by implementing its assigned activities. 34 Annex 4: Operational Risk Assessment Framework (ORAF) ARGENTINA: Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project, Phase I 1. Project Stakeholder Risks Rating: Moderate Description: Risk Management: A. An institutional and stakeholder risk concerns the intra- A. The Bank and the counterpart team support coordination between the SAyDS and MI, and will institutional coordination and cooperation between the three continue to do so along Project implementation as part of supervision missions, as well as through Government Agencies involved in the national Ozone Program Bank-GoA dialogue during MP and MLF ExCom meetings. (OPROZ): the SAyDS; the Ministry of Foreign Affairs; and the MI. B. The HPMP Phase II will address a complete phase-out of HCFCs in all sub-sectors, and there will be a level playing field for competing companies to phase-out their use of HCFCs. Preparation B. Enterprises in the foam sector face several operating of the FSP will include close consultations with the involved enterprises aiming the Plan to benefit challenges that can limit their willingness to phase out HCFCs different size enterprises in an appropriate manner. The Bank will support the GoA to establish a on a voluntary basis, as many of them have just finished their supporting policy structure that will: (i) ensure that HCFC phase-out is permanent and sustainable, conversion from CFC-11 to HCFC-141b. In particular, the small (ii) promote the transfer and dissemination of suitable substitute technologies, (iii) provide economic size of many enterprises may limit their ability to opportunities (e.g. workshops) for stakeholders to discuss policies on market readiness and supply provide counter-part funding for HCFC conversion. of chemicals for substitute technologies, and (iv) organize training for beneficiary enterprises/workers. Resp: A. Both Status: Due Date: A&B B. Both Stage: A&B Prep/Imp A. In progress Not yet due B. Forth-coming 35 2. Implementing Agency Risks (including fiduciary) 2.1 Capacity Rating: Moderate Description: Risk Management: Lack of sufficient capacity and resources especially in A. The PCU for the record-long Reduction of Ozone-Depleting Substances project, including the procurement, but also in FM, Project management and Executive Coordinator and technical and administrative personnel, will serve as the PCU of the supervision, as well as environmental and social safeguards Project, drawing on their previous experience on Bank and MP operations as well as industrial and would generate delays in Project implementation and jeopardize commercial conversions to non-ODS technologies. achievement of the PDO. B. Since most of the procurement actions will be implemented through sub-project beneficiaries, an Operational Manual has been prepared to provide the necessary guidance and training will be offered to the PCU. The OM clearly defines the supervision scheme and the roles, responsibilities, rules and reporting requirements for procurement. An experienced procurement specialist will be contracted by the PCU to work on as needed basis. A consulting firm will be hired to carry out the annual audit, which will comprise a procurement review, including the calls for proposals, the application of criteria for selecting sub-project beneficiaries, and procurement through sub- projects. Status: A. In Resp: A. Client Stage: A. Both Due Date: A. In prog. progress B. Client B. Imp B. Not yet due B. Not yet due 2.2 Governance Rating: Moderate Description: Risk Management: Any change of sector authorities might place people without Hiring and renewing contracts of the PCU personnel will require approval by the Bank. related experience to take charge of the Project preparation/implementation. Status: Fort- Resp: Client/Bank Stage: Imp Due Date: Not yet due coming 3 Project Risks 3.1 Design Rating: Moderate Description: Risk Management: Possible technical and economic constraints may surface for The final design of component 5 will take these constraints into consideration in order to prevent certain enterprises in accessing hydrocarbon technology under company closures. the Foam Sector Plan. Status: Forth- Resp: Both Stage: Imp Due Date: Not yet due coming 36 3.2 Social & Environmental Rating: Low Description: Risk Management: Due to flammability of hydrocarbon, lack of sufficient safety Proper design of necessary accommodation of manufacturing workshops and storage facilities for measures and its improper handling could result in risks to HC and other chemical substances will be addressed by using experienced consultants. Safety workshop and worker safety, even an explosion. audits and strengthening of infrastructure management will be conducted once a conversion has been undertaken. The PCU has prepared a simple but complete ESMF to minimize risks and Destruction of baseline equipment may not be done in a safe provide value-added. All sub-components will be assessed for socio-environmental adequateness and environmentally sound manner. before signing of the sub-project agreement that will include provisions to secure adequate implementation of environmental due diligence and careful supervision of environmental and worker safety aspects. Status: Not yet Resp: Client Stage: Prep / Imp Due Date: Not yet due due 3.3 Program & Donor Rating: Low Description: Risk Management: Despite the fact that the MLF has been replenished as planned The Bank will ensure that the MLF ExCom is kept fully up to date with progress of Argentina’s for the last 20 years, there might be insufficient funding from HCFC phase-out and its financing needs throughout the Project preparation and implementation. the MLF to support the Project due to the global financial crisis. The Bank will communicate experience on the ground in terms of actual equipment and services costs to allow the ExCom to make informed decisions on the level of the pending grant for the FSP. Status: In Resp: Bank Stage: Prep / Imp Due Date: Not yet due progress 3.4 Delivery Monitoring & Sustainability Rating: Moderate Description: Risk Management: Enterprises that have received funding for conversion could The existing license system on the use of the controlled substances at the national level is designed continue the use of pre-blended HCFC-141b. Lack of accurate to mitigate this risk. monitoring and verification of actual HCFC phase-out could also hinder sustainable Project results. Status: Forth- Resp: Client Stage: Imp Due Date: Not yet due coming 3.5 Other Rating: Description: Risk Management: Resp: Stage: Due Date : Status: 37 5. Project Team Proposed Rating Before Review 5.1. Preparation Risk Rating: Moderate 5.2 Implementation Risk Rating: Moderate Comments: Due to external factors, uncertainties remain in the Project design Comments: The PCU can prove vulnerable to staff turn-over, taken the specific particularly related with component 5 that can only be prepared at a later stage and technical and administrative know-how needed to manage a project funded by its funding is thus to be approved. the MLF. Respect to component 5, targeting a large number of small enterprises may prove challenging and/or slow down implementation. 6. Overall Risk Following Review 6.1. Preparation Risk Rating: Moderate 7.2 Implementation Risk Rating: Moderate Comments: Due to external factors, uncertainties remain in the Project design Comments: The PCU can prove vulnerable to staff turn-over, taken the specific particularly related with component 5 that can only be prepared at a later stage and technical and administrative know-how needed to manage a project funded by its funding is thus to be approved. MLF. Further, the PCU will be mainly funded by Government funds that will need to be approved at a yearly basis. Among the key technical risks are possible constraints that may surface for certain enterprises in accessing hydrocarbon technology under the Foam Sector Plan (component 5). HCFCs and HFCs are stable chemicals not considered toxic or dangerous for human health or the environment. However, they require careful handling. Lack of safety equipment and improper handling of hydrocarbon technology could result in explosions and risk to workshop and worker safety. A further risk with component 5 is that it targets a large number of small enterprises. A compliance/impact risk relates with the potential continuation of use of pre- blended HCFC-141b by foam enterprises that have received funding for conversion. Lack of accurate monitoring and verification of actual HCFC phase- out could hinder sustainable program results. 38 Annex 5: Implementation Support Plan ARGENTINA: Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project Strategy and Approach for Implementation Support 1. The objective of the implementation support plan is to ensure that: (a) the objectives of the Project are satisfactorily achieved by the Project end; and (b) implementation of all Project activities follows agreed procedures and complies with all fiduciary and safeguards requirements. The plan takes into consideration the nature of the Project, and the identified Project risks (as discussed in Annex 4 on the ORAF). The overall implementation risk is rated moderate and individual risk categories either low or moderate. Implementation Support Plan 2. PCU Capacity. The PCU for the on-going ODS project has gained a wealth of experience from CFC phase-out during the past 10 years. PCU staff is expected to continue in the PCU for the HCFC Project. During Project implementation, the Bank will continue to provide capacity building support to the PCU, focusing on Project management, fiduciary control, and monitoring and inspection of HCFC phase-out. The Bank will also carefully review and supervise the preparation and implementation of TA activities included in the Project. 3. Capacity of Beneficiary Foam Companies. Taken that the majority of the foam enterprises are located either in Buenos Aires or Rosario (Santa Fe), one consultation and awareness raising workshop will be organized for the foam companies during actual preparation of component 5 in both cities. Based on the consultation results, a set of TA and capacity building activities will be included in the component design and final funding application to be sent to the MLF ExCom. During implementation of component 5, the Bank will assist the PCU in making annual training plans, and preparing and delivering each training or capacity building activity at high quality. 4. Institutional Cooperation. During Project preparation the task and the counterpart team have promoted coordination and dialogue between the different OPROZ agencies with a special focus on the ozone focal point at the SAyDS in order to increase effective collaboration. Follow-up on this coordination will continue after Project has reached effectiveness, taken that component will be prepared during Project implementation. Bank supervision will try to ensure regular coordination with OPROZ and the HPMP lead agency UNIDO as deemed useful and/or necessary. 5. Project Delivery Quality and Sustainability. Ensuring sustainability will be a crucial element of preparation of component 5. The HCFC quota system regulation has been put in place starting January 1, 2013, and a ban on new facilities consuming HCFCs is expected to be issued during 2013. The Project will support a further ban on use of HCFC in foam applications to be issued by 2017. Bank supervision will ensure that TA activities are designed and delivered timely and key policies are issued in a timely manner. 6. Monitoring and Evaluation. In addition to reviewing and verifying Project progress reports provided by the PCU, the Bank will carry out field visits to foam and other beneficiary enterprises 39 during implementation support missions, conduct annual evaluation of Project progress and intermediate results, and maintain an internal reporting system. 7. Procurement. In addition to the prior reviews to be carried out from the Argentina country office, Bank procurement implementation support missions will visit the field to carry out procurement post-reviews every 12 months. The rate of post review will be initially 20 percent. This rate will be adjusted periodically during Project implementation based on performance of the PCU and the beneficiary enterprises. 8. Financial Management. The implementation support strategy for this Project is based on its FM risk rating, which will be evaluated on a regular basis by the FM Specialist who will use periodic site visits, desk reviews, and correspondence with the PCU to provide technical support and work closely with the PCU to resolve problems as they arise. The FM Specialist will monitor the continuing adequacy of the FM arrangements, including accounting, auditing, budgeting, financial reporting, internal control and funds flow. FM staff will also follow up on action plans agreed during Project appraisal and negotiations, as well as on observations derived from reviews of audit reports, management letters and IFRs. 9. Environmental and Social Management. Bank implementation support will regularly review the proper implementation of the ESMF. Additional training may be provided if necessary, and the task team counts with support of a Senior Social Specialist who’ll provide advice on any social concern that might rise during Project implementation. Particular focus will be put on securing implementation of adequate OHS measures and careful monitoring and prevention of potential job losses in small foam enterprises. 10. Tables below summarize the implementation support and respective resources needed during the different stages of the Project. Time Focus Skills Needed First twelve • Sub-project grant agreements under component 1 and 2 Technical skills months • Initiation of control measures on HCFC-22 production by Technical skills FIASA • FM and procurement Bank policies and technical skills • Environmental safeguard/management Bank policies and technical skills • Project progress reporting • Design of TA activities Technical skills • Follow up with the MLF ExCom decision on eligibility of the Technical skills Technical skills swing plants such as FIASA 12-84 months • FM and procurement Bank policies and technical skills • Environmental and social due diligence Bank policies and technical skills • HCFC phase-out Technical skills • Verification of HCFC consumption and production Technical skills 40 Skills Mix Required (late 2013 – end 2020) Skills Needed Number of Number of Comment Staff Weeks International Trips MLF guidelines and decisions 15 4 Various ENVIA staff Foam production 18 - Local consultant Foam production 4 2 International consultant Environmental and Social Management 8 2 A Senior Social Specialist will participate on an as- needed basis; Environmental support from the country office and by the TTL Bank FM Policy 8 - Local staff Bank Procurement Policy 8 - Local staff Coordination and Management at HQ 14 14 Most of the missions will be combined with other missions Assistance help 6 - Both HQ and country office 41 Annex 6: Argentina’s ODS Legal and Regulatory Framework and the HPMP ARGENTINA: Montreal Protocol Hydrochlorofluorocarbons (HCFC) Phase-out Project Legal and Regulatory Framework 1. The legislative structure governing ODS in Argentina is well defined. Since 1994, a specific article in the National Constitution has been devoted to the protection of the environment (Art. No 41; or “the Environmental Clause�). Another article, also incorporated in 1994 (Article 75, paragraph 22), established that international treaties have higher hierarchy than national laws and other lower rules, though they require a law passed by the National Congress in order to be enforced. 1. Argentina ratified the Vienna Convention for the Protection of the Ozone Layer and the Montreal Protocol related to Substances that Deplete the Ozone Layer on 18 January and 18 September 1990, respectively. The country has since enacted a comprehensive legal and institutional framework for the implementation of the MP through national laws No. 23724/89 and No. 23778/90, and subsequent amendments to the Protocol, governing restrictions to ODS consumption, production and trade, have also been captured in national laws. Article 4 of Decree No.177/92 (24 January 1992) assigned the Secretariat of Environment and Sustainable Development (SAyDS) as the enforcement authority of the National Chemical Compounds Law No 24,040, in force since 26 December 1991, which regulates the application of restrictions to the consumption of ODS contained Annex A of the MP. The Law stipulates that restrictions of production, use, trade, import and export of these substances will be applied in line with the PM. Regarding the illicit use of CFCs, the Law establishes criminal consequences such as public warnings, fines, trade banning and shut down of establishment. Resolution SAyDS No. 296/03 on chemical compounds added additional controlled substances to those initially included in Law 24,040 (substances include in Annexes B, C and D). 2. A national register of ODS importers and exporters (RIESAO; Registro de Importadores y Exportadores de Sustancias que Agotan la Capa de Ozono) was created by Decree 1609, passed by the National Congress on November 17, 2004. Companies wishing to import and/or export the “controlled� substances the decree addresses must be registered. Registration implies presenting basic corporate information to the Ozone Programme Office (OPROZ) of SAyDS which, once cleared, entitles the company to request an import/export license (permit). The same Decree also established a Licensing System for the import and export of ODS, covering substances included in Annexes A, B, C and E of the MP. SAyDS Resolution Nº 953 (10 December 2004), established the Licensing System as the administrative procedure for issuing licenses and quotas for each controlled ODS, as well as monitoring their phase-out schedule. The Licensing System is web-based, and companies wishing to be incorporated in the registry, or apply for import/export licenses, may do so through the OPROZ website (http://www.ambiente.gob.ar/ozono). The possession of a license is mandatory to obtain the necessary customs documentation required for the import/export operation of any controlled substance. 42 3. To ensure compliance with the MP obligations, it is necessary to set a cap (maximum quantity) on the approval of import rights during each calendar year for all substances affected by a phase-out schedule. The amounts for each importer are determined taking into consideration imports of previous years and the quantities allowed per year for each controlled substance. In practice, Argentina uses a system of quota allocation, wherein 90% of quotas for each ODS are allocated on a historical imports basis; 1% is retained for extraordinary cases; 4% for other companies (principally small users that consume very small quantities); and a 5% “holdback� for cases of eventual shipments with weights slightly higher than set out in the license. The Licenses System operated by OPROZ has five modules, as outlined below: HCFC Policy and Institutional Measures Outlined within the HPMP 4. Based on Argentina’s existing legal and regulatory framework, in order to achieve compliance with the HCFC control measures required under the MP, the HPMP strategy proposes a series of policy interventions, as follows: a) The quota system will be redesigned to address production of HCFC-22 and the imports of other HCFCs; b) The quota system will be updated to reflect the Protocol’s HCFC reduction targets; c) The installation of new HCFC production capacities will be banned; d) The import of HCFC-based domestic air-conditioning equipment will be banned once the conversion of the manufacturing sector has been completed; e) Non-A5 producers of domestic air-conditioning equipment based in Argentina will be forced, through the quota system, to phase out HCFC consumption in parallel with national companies; 43 f) The production of HCFC-22 at FIASA will be monitored (through the World Bank supported project approved at ExCom 66); g) All stakeholders will be updated on the progress and requirements of the legislation; h) Regular public awareness activities will be designed and implemented; and i) The human resources and physical infrastructure required for the management of the HPMP will be maintained. HPMP Phase I Activities Approved – Phase-out Targets and Agency Funding Support 5. The activities under Phase I of the HPMP’s implementation have been approved in accordance with the Agreement between the GoA and the Executive Committee for the period 2010 to 2017 (UNEP/OzL.Pro/ExCom/66/54, Annex XXIV), and will reduce HCFC consumption by 17.5 per cent of the baseline. UNIDO has been approved as the lead implementing agency (IA), with the World Bank and the Government of Italy acting as cooperating implementing agencies. The lead IA is responsible for ensuring coordinated planning, implementation and reporting of all activities under the approved Agreement. The Agreement approved for Phase I does not preclude Argentina from submitting, prior to 2015, a proposal to achieve phase-out of HCFCs beyond that addressed in Phase I of the HPMP. The phase-out targets and funding breakdown by Agency, as approved in the Agreement, are outlined below: Particulars 2010 2011 2012 2013 2014 2015 2016 2017 Total Montreal Protocol n/a n/a n/a 400.70 400.70 360.63 360.63 360.63 n/a reduction schedule of Annex C, Group I substances (ODP tonnes) Maximum allowable n/a n/a n/a 400.70 400.70 360.63 360.63 330.58 n/a total consumption of Annex C, Group I substances (ODP tonnes) Lead IA (UNIDO) 8.43 1 0 .685 2 0 .314 0 0 .125 9.56 agreed funding (US $, 000s) 3 Cooperating IA 0 0 .914 0 0 0 0 0 .914 (WB) agreed funding (US $, 000s) Cooperating IA .3 0 0 0 0 0 0 0 .3 (Italy) agreed funding (US $, 000s) Total agreed funding 8.7 0 1.6 0 .314 0 0 .125 10.78 (US $, 000s) 1 Argentina and UNIDO received approval at the 61st ExCom to implement an investment project, “Phasing out of HCFC in the Room and Unitary air conditioning equipment manufacturing sector�, that will phase-out 53.46 ODP tons of HCFC-22. 2 Argentina and UNIDO received approval at the 66th ExCom to implement the HCFC phase-out management plan (phase I, first tranche) in the refrigeration servicing sector, that will phase-out 7.1 ODP T of HCFC-22. 3 Argentina and the World Bank received approval at the 66th ExCom to implement, within the context of the HCFC phase-out management plan (phase I, first tranche), the phase-out of HCFC-141b in the production of polyurethane rigid insulation foam for domestic refrigerators at Mabe (18.5 ODP T impact), as well as the monitoring and reporting of HCFC-22 production. 44