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22772CFC-1 2 to HCFC-22 Plant Conversion:OORG Production Sector Case Study

OORGPRODUCTION SECTOR WORKING GROUP

OZONE OPERATIONS RESOURCE GROUPREPORT NUMBER 6

FEBRUARY 1994

THE WORLD BANK

GLOBAL ENVIRONMENT COORDINATION DIVISIONENVIRONMENT DEPARTMENT

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CFC-1 2 to HCFC-22 Plant Conversion:OORG Production Sector Case Study

OORGPRODUCTION SECTOR WORKING GROUP

OZONE OPERATIONS RESOURCE GROUPREPORT NUMBER 6

FEBRUARY 1994

i

PREFACE

As sector-specific problems and issues arise and are identified as needingadditional or special attention, OORG Working Groups are established under thecoordination of the relevant OORG Sector Advisor and are comprised of technical expertsfrom companies, laboratories and applied research institutions on the leading edge oftechnological developments in industry around the world. Working Group expertparticipants to date have included individuals from a growing number of developingcountries, among them, Brazil, China, and India. OORG Working Groups prepare andperiodically update sectoral overview papers and recommendations as guidance to Banktask managers and client developing countries in preparing investment projects forfinancing through the Montreal Protocol and the Global Environment Facility.

By 1994, four OORG working groups had been assembled and met at least onceto prepare sector-specific overview papers' and associated definitive recommendations andguidance to the Bank and its clients, namely: (1) the OORG Refrigeration Working Group,(2) the OORG Refrigeration/Freezer Insulating Foam Working Group, (3) the OORGFoam Pre-insulated Pipes Working Group, and (4) the OORG Production AlternativesWorking Group.2

This particular report, OORG Report No. 6, was authored by Dr. Michael Harris, of ICI Klea, Runcorn, U.K.. Dr. Harris is theOORG Production Sector Advisor to the World Bank and Chairman of the OORG Production Working Group. Dr. Harris presented a surmnaryof the report during the OORG's Fifth Meeting, on February 17, 1994, World Bank Headquarters, in Washington, D.C..

See present list of OORG publications, Appendix 11.

Ozone Operations Resource Group(OORG)

CFC-12 TO HCFC-22 PLANT CONVERSION:OORG PRODUCTION SECTOR CASE STUDY

1 Back2round

The Ozone Operations Resource Group (OORG) was assembled by the W'orld Bank to providespecialized sector-based technical advice and assistance to the Bank in fulfilling its role as one of the fourprincipal implementing agencies (with llNDP, UNEP and lNIDO) of the Multilateral Fund under theMontreal Protocol (MFMP). Within the context of the Bank's assistance to the developing countries toprepare Country Programs and investment projects for the phase-out of ozone depleting substances (ODS),the OORG keeps the Bank apprised of applicable sector-specific technological advances, commerciallyavailable ODS substitutes, the cost-effectiveness of the various sectoral options, and related developments.

During the course of the OORG's Fifth regular meeting, on February 17, 1994, at World BankHeadquarters in Washington, Dr. Michael Harris, OORG Production Sector Advisor and Chairman of theOORG Production Working Group3, up-dated participants on the status of ozone depleting substance(ODS) production around the world. Of particular interest, he noted that halon production in India isexpanding while three new CFC production plants are presently coming on stream in China. Meanwhile,Russia, a major non-Article 5 country, is making additional expansions in its CFC production capacity aswell. As a partial consequence, Montreal Protocol guidelines are still required on how to evaluate non-ODS alternatives production projects in countries still subject to planned increased production of ODSchemicals.

Also, Dr. Ham's pointed out that due to the dynamics of shifting market developments, we couldface spot shortages in major non-ODS alternatives such as HFC-134a.

Production plant by-product emission reduction is, in general, the most cost-effective interventionin production plant technology by far. The unit abatement costs (UAC) in such cases are often negative.Furthermore, Dr. Harris emphasized, HCFC-22 conversions of CFC-1 1/12 plants have relatively low unitabatement costs (UACs). Nonetheless, substantial heterogeneity in project contexts will make a case bycase analysis necessary. This is especially true due to the critical role played by the specific character ofplant construction materials and their impact upon both performance and cost of plants. The chemicalsinvolved are notoriously reactive and the risks to reactor dissolution may become acute unless expensivehigh-grade steel and other materials are employed.

3 Members of the OORG Production Working Group include: Dr. Michael Harris, Chairman (ICI Klea, UK), Mr. F. A. Vogelsberg(El DuPont de Nemours & Co., US), Dr. A-V. Rama Rao (Indian Institute of Chemical Technology, India), Prof Feng Yun-Gong (ShanghaiInstitute for Organofluorine Materials, China), and Mr. Hiroyuki Wada (Daikin US Corporation, US).

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Finally, the surrounding plant infrastructure is so important to project design characteristics that itvirtually overwhelms the possibility of arriving at an acceptable generalized hierarchy of cost-effectivenesstradeoffs in the production sector.

2. Maior Findin2s

Dr. Harris' generic overview paper on CFC-11/12 Production Plant Conversion to HCFC-22,which was in rough draft and not distributed during the meeting, was shared with the OORG ProductionWorking Group for final peer review and is now complete. See Appendix I. In his discussion of the paper,Dr. Harris noted that a specific project of this type was already under review by the Bank (and him asOORG reviewer) and that the exercise thus far has helped to elucidate the general case substantially andhas assisted in arriving at some of the following observations:

1. First, there are no general technical grounds for opposing production project proposals ofthis sort. Provided they are linked to the direct replacement of CFC production theyclearly contribute to ODS phase-out and typically have very low UACs.

2. Nonetheless, certain fundamentals of any such projects inject substantial uncertainty intothe estimation of costing standards. Major cost variables include: (1) decontaminationexpenditures, (2) custom design considerations, (3) HF recovery and recycling expense,and (4) the possibility of anywhere from 100 to 200 additional process equipment itemswhich might be considered as a part of such a project.

3. Taking all of the above into account, the basic minimum conversion kit would probablyhave a UAC in the neighborhood of from $130 to $210 +/- 50 percent or more.

4. Major policy issues which will require resolution include the following:

- The handling of intellectual property fees, especially in trans-nationalcorporation joint venture situations

- The need for ensuring that "soft" safety, health and environmental (SHE)standards are maintained

- The appropriate operating cost period - first year of full operation orproject lifetime basis?

- What is the appropriate pricing basis for determining the value of salesforegone and new products?

5. General policy issues requiring resolution include the following:

- Production projects will be non-standard, one of a kind and capital costswill be sensitive to specific site details and technology provider

Project cost and choice are also sensitive to country strategy

Problem of double-counting at the producer and consumer level

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Incremental costs associated with establishment of "equivalent"production capacity

Problem of "subsequent" conversions

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APPENDIX I

CFC-12 TO HCFC-22 PLANT CONVERSION:

OORG PRODUCTION WORKING GROUP CASE STUDY

by

Mchael R. Harris

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INTRODUCTION

This report is in response to the request for a "case study of a CFC-12 production plant conversion toHCFC-22", as communicated by T W Waltz (World Bank, ENVGC) on 20 December 1993. The Termsof Reference (TOR) are appended. They have been interpreted somewhat in order to produce a meaningfulanalysis in terms of the realities of the chemical manufacturing industry although every attempt has beenmade to stay as close as possible to the spirit, if not the letter, of the original TOR.

A key conclusion of the study is, as was anticipated from the outset, that there is no such thing as a"typical" CFC 12 plant, nor a "typical" HCFC 22 plant, nor - by extension a "typical" conversion.No case study can produce meaningful financial findings in absolute terms. The variability betweenindividual plants, arising primarily from differences in local and market infrastructure, can and doeslead to variations in capital and operating costs for a conversion of greater than 100% of anyreasonable estimate of the mean.

Comparison of the major differences - and their cost implications - can only sensibly be made on generaltechnological grounds. The ability to re-use vs. need to purchase for specific items of equipment - and theassociated costs in either case - will only emerge at the detailed Process Flowsheet stage when equipment issized for the actual duty.

The approach adopted has therefore been to compare each of the major the process systems for the originalCFC-12 plant and the proposed HCFC-22 plant, highlighting the areas which are likely or unlikely to needchanging. Where possible, indications are given as to the circumstances under which specific changes arelikely to be necessary and the considerations governing the magnitude of any changes.

This is followed by a listing of the major equipment items, and the major components of the fixed andvariable operating costs. It has not been possible to place financial values against these items at this levelof generality as these will depend critically on detailed process and mechanical design considerations whichwill be quite specific for each individual plant.

The analysis is based on the hypothetical case of conversion from a 7,000 te/yr CFC-12 unit to a 5,000te/yr HCFC-22 plant. It is noted, however, that the concept of a "CFC-12" plant is itself hypothetical.Most if not all plants in Article 5.1 countries producing CFC-12 will be liquid-phase units which co-produce CFC-1 1 and CFC-12. The nature of the liquid-phase technology is such that it is very unlikelythat the ratio of products can be driven much beyond 60% CFC-12: 40% CFC-11 without expensive anduneconomic recycle of CFC- Il for further fluorination. Even modem vapor-phase technology cannoteconomically drive the co-product ratio all that much further.

It is also noted that OORG is currently involved in preparing a preliminary Technical Review on a specificCFC-12/HCFC-22 conversion. Some of the cost-related factors are examined in more detail in that review- although it must be recognized that no general conclusions should be drawn from this specific case. Eachconversion is very much a "one-off' project requiring assessment on its own merits in the context of theplant location and infrastructure and the markets for its production of CFC- 11, CFC- 12, HCFC-22 andHCI.

The final portion of this report lists some of the technical policy issues which should be brought to theattention of the Executive Committee of the Montreal Protocol Multilateral Fund (ECMF).

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1. GENERAL CONSIDERATIONS

The cost of conversion of a 7,000 te/yr CFC-12 plant to a 5,000 te/yr HCFC-22 plant should be brokendown into a number of elements and each identified as a specific cost area:

a) Loss of CFC-12 (and possibly CFC-l 1) production during the plant conversion period (a part ofthe overall project period) and, to the extent appropriate under the procedures of the ECMF, duringwhat would have been the natural life time of the original plant.

b) Design of converted plant including any licensing fees and contractor charges. These may besubsumed into the financing of a Joint Venture company, e.g. with a Trans-National Corporation(TNC). This can lead to a nominal zero charge for the intellectual property as the owner of suchproperty may choose to recoup his investment via the Joint Venture itself.

c) Capital cost for the purchase of, and/or major modifications to, main plant items andinstrumentation and/or control systems

d) Decontamination of old plant.

e) Construction of the converted plant.

f) Comnmissioning of the converted plant.

The subsequent variable and perhaps fixed production costs of the converted plant will be different fromthe original, and heavily dependent on the site infrastructure within which the plant operates.

All the cost elements (a) to (f) will be dominated by the magnitude of the change from the existing CFC-12technology to the chosen HCFC-22 technology as well as local commercial conditions and thus will behighly case specific.

Comparison of the major differences between the two plants can only sensibly be made on generaltechnological grounds. The ability to re-use/need for purchase of specific items such as pumps, heatexchangers etc. will only be known at the detailed Process Flow Sheeting Stage when equipment is sized forthe actual duty.

2. COMPARISON OF PROCESS SYSTEMS

In the following sections each process system is considered in turn and major differences highlighted. Forcomparison purposes both plants are based on the common liquid phase reaction with an antimonypentachloride catalyst.

2.1 Chloroform Feed System

The system must be converted from a carbon tetrachloride (CTC ) feed to a chloroform (CFM) feed. Atypical system in both cases will consist of the following:

* Tanker unloading facilities or direct pipeline transfer to the main organic storage area.

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* Pumping tank and associated pumps with cooled vent to minimize vapor losses.* Feed preheater (dependent on reactor heat balance requirements).* Packed bed drier (dependent on moisture levels in the organic feed).

Chloroform feed rates will be about 80% of the CTC feed rate and since the main material of constructionin both instances is carbon steel (CS); most equipment should be re-useable.

2.2 Chlorine Feed System

Due to the small quantities needed to maintain the catalyst condition, liquid feed from chlorinecylinders/drums using an inert padding system (e.g. nitrogen) would in essence be the same for both plants.Vaporization of the chlorine is not required.

2.3 Anhydrous Hydrogen Fluoride Feed System

A typical system in both cases would consist of the following:

* Bulk Anhydrous Hydrogen Fluoride (AHF) storage.* Local pumping tank and associated pumps.* Recycled hydrogen fluoride (HF) from the recovery section.

2.4 Heavies Recycle System

This will comprise a pumping tank and associated pumps. A similar arrangement may possibly exist onthe CFC-1 2 plant for recycling heavies from the bottoms of the CFC- 11 distillation system.

2.5 Fresh/Spent Catalyst System

Antimony pentachloride catalyst is used in both processes. The usage rate is usually greater in the HCFC-22 process due to the build up in the reactor of heavy (i.e. low volatility) components from the CFM feed.This necessitates periodical replacement of the catalyst. Facilities to either purchase antimonypentachloride, or manufacture on site, will be the sarne for both processes.

Manufacture of antimony pentachloride will involve a jacketed reactor and a vaporized chlorine feedsupply together with a storage system. Transfer of catalyst between vessels is usually achieved by inert gaspadding. Disposal of waste catalyst will be as for the CFC-12 plant. Reclamation of the antimony contentfrom the waste catalyst is not cost effective at these usages.

2.6 Reaction System

For both plants this consists of a jacketed reactor, primary separation column and partial condenser. Dueto the potential corrosion problems the reactor and stripping column usually need to be fabricated fromspecial alloy steel. Greater corrosion will be experienced in the HCFC-22 plant and the CFC-12 equipmentmay not be suitable from a materials viewpoint. In both cases it is likely that the partial condenseroperation will need to switch from cooling water to refrigeration duty for HCFC-22 manufacture. Thisdepends on the reactor operating pressures. In the production of HCFC-22, the manner in which the feedmaterials are introduced into the reactor is of greater importance in minimizing corrosion and ensuringstability of the antimony pentachloride catalyst.

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2.7 Hydrogen Chloride Separation System

This consists of a distillation column, partial condenser and reboiler. The equipment should be transferablebetween the processes. The requirement for partial condensation of the feed stream is dependent on thedetailed distillation column design.

2.8 Hydrogen Chloride Absorption System

The equipment required to absorb anhydrous hydrogen chloride (HCI) in water to produce 31% w/w acid isidentical for both processes. The amount of acid produced in the HCFC-22 process is about 70-75% ofthat in the equivalent CFC-12 process and thus equipment sizing should not be an issue. The standardtechnology is a two-stage absorption process with a water-cooled co-current graphite tube absorber,followed by a packed polypropylene vent absorber. Ideally the equipment layout should allow for gravityflow between the two absorbers avoiding the need for intermediate storage tank/pumps. According to thesales specification of the aqueous hydrochloric acid, fluoride removal in packed bed adsorbers may berequired. These operate in parallel, with the spent absorbent periodically degassed and discharged to wastevia washing tanks to remove residual acidity. The final acid is pumped to storage.Neutralization facilities are usually required during plant start-up conditions whilst the acid is beingbrought up to strength.

2.9 Vent Treatment System

A vent treatment system, usually consisting of a water absorption section (spray and packed absorber)followed by a caustic scrubber is required. Each tower will require recirculation tanks and pumps with allequipment being constructed from polypropylene/plastic lined carbon steel. This system is designed toabsorb plant emergency reliefs as well as treating the vent from the HCl absorption system. The latterduty is the more likely, due to poor HCI/water ratio control or water failure. Such equipment should - butmay not - exist for both the HCFC-22 and CFC-12 processes.

The final plant vent will contain any inerts and lights (low-boiling components) purged from the process inparticular HFC-23. Treatment facilities, e.g. thermal oxidation should be considered since HFC-23 is apersistent greenhouse gas with a Global Warming Potential excess of 12 (relative to CFC- 1) and anatmospheric lifetime of over 300 years. This is a significant difference in emissions profile from the CFC-12 process which does not produce any significant amount of HFC-23. Therefore organic vent treatmentequipment is very unlikely to exist already.

2.10 Hydrogen Fluoride Recovery System

Due to the formation of an azeotrope (constant-boiling mixture) between HF and HCFC-22, a significantquantity of HF leaves the reaction system unreacted. A crude recovery can be achieved, as in the CFC-12process, by phase separation at low temperature. On HCFC-22 plants of 5,000 te/yr capacity, further HFrecovery beyond phase separation is unlikely to be cost effective, although there are a number of possibleoptions. Consideration should be given to further HF recovery in larger HCFC-22 plants. This equipmentmay not have been installed on the CFC-12 process due to poor cost/benefit on low capacity CFC-12plants. The recovered HF is simply recycled to join the anhydrous HF feed to the reactor. Carbon steelvessels and heat exchangers can be used throughout.

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2.11 Crude Product Scrubbing and Drying

With good reaction system design and control, distillation to remove unreacted heavies for recycle to thereactor should be unnecessary prior to a scrubbing train designed to remove any remaining traces ofHClI/HF/chlorine from the crude organic stream. The scrubbing train design commonly employed is verysimilar for both processes, consisting of water scrubbers, caustic scrubbers and sulphuric acid dryingtowers in series; all operating close to atmospheric pressure. Each scrubbing system will itself comprisepacked towers with recirculating tanks, coolers and associated pumps. Due to the low chlorine absorptionrequirement a single caustic scrubbing stage is sufficient. Achievement of the required moisturespecification can be achieved in a single sulphuric acid drying column with the appropriate detailed design.

The dilute acidic and caustic wastes require neutralization but the waste sulphuric acid may find externaluses. However, for the 5,000 te/yr HCFC-22 plant the recovery and sale of about 200 te/yr of typically85-90% w/w acid, this option may not be cost effective.

2.12 Crude Product Compression

To enable the crude product distillation system to use cooling water (rather than refrigeration) for thecondenser duty, the crude products are compressed before entering the distillation system. This is alsodone in the CFC-12 process. With good control of the reaction system, in order to minimize the quantitiesof HCFC-21 and HFC-23 produced, the required HCFC-22 product quality can usually be met without theneed for either pre-condensation or a lights removal column upstream of the main distillation unit This is,however, often needed in the CFC-12 process.

Final polishing of the pure product, to remove any last traces of moisture or acidity, is often achieved in apacked bed drier before transfer to final pure product storage. The ability to re-use much of the pureproduct equipment will depend critically on detailed process/mechanical design considerations.

2.13 Services

The existing refrigeration set is unlikely to be suitable due to the different heat loads and temperature levelsneeded in the two processes. HCFC-22 has a much lower boiling point (410C) than CFC-12 (-30°C).Depending on the detailed design conditions, a chilled water cooling system may also be required inaddition to a conventional cooling tower system.

2.14 Instrumentation and Control Systems

The nature of the process requires sophisticated instrument control and shutdown systems, particularlyaround the high pressure toxic sections of the plant. These are necessary for both product quality controland operational safety.

3. OUTLIE EQUIPMENT LIST

For the purposes of this report, equipment is divided into two categories:

Equipment required for any location and representing the basic minimum for operation of the plantitself. This equipment is listed in Table 1.

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Equipment specific to the particular location.

This includes equipment for the storage of raw materials, for the storage and packing of pure product, andfor the treatment of effluents. These items will be highly site-specific, as will be the question of possiblere-use of any appropriate existing equipment and facilities. It also includes possible additional pumps,heat exchangers and vessels required as a result of site-specific equipment layout, energy conservation,safety and/or operability requirements. These items can only be identified and specified in the course ofdetailed design and/or HAZOP studies.

The costs given in the final column of Table 1 are net capital costs. The one exception to this is theOrganics Vent Thermal Oxidizer (needed to reduce HFC 23 emissions in line with the UN ClimateConvention) which would need to be a proprietary package, and is therefore costed in at an all-up cost.

It has been assumed that the equipment sizes are appropriate to the 5,000 tpa capacity with no scalingrequired. All new equipment costs include allowances for erection, piping, instrumentation, electricalengineering, structural engineering, civil engineering, insulation and painting. They exclude any allowancefor design charges, construction supervision, spares, commissioning, and any contingency reserve. Whereequipment is considered reusable, the cost given excludes the main plant item cost but includes anallowance of 20% of the factored-in costs which a new plant item would have attracted to coverrefurbishment costs.

Based on these assumptions, and the data in Table 1, the following Total Project Costs are obtained (US

Net capital cost (excl thermal oxidizer) 3,795,000Design charges @40% 1,518,000Construction supervision @ 18% 683,100Spares and commissioning @ 13% 493,350

Sub-total 6,489,450Add for Organics Vent Thermal Oxidizer (all-up) 1,125,000

Sub-total 7,614,450Add for project manager's reserves c 20% 1,522,890

TOTAL PROJECT COST 9,137,340

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TABLE 1. MAIN PROCESS EQUIPMENT ITEMS

PROCESS SYSTEM EQUIPMENT ITEM MATL No. Reuse Est Cost (S)

2.1 Chloroform Feed Chloroform Feed Tank CS I Yes 15,000

Chloroforrn Feed Tank Vent condenser CS 1 No 61,000

Chloroform Feed Pumps Cl 2 Yes 3,500

Chloroform Driers CS 2 Note 1 44,000

Feed Preheater Alloy 13 Note 2 61,000

2.2 Chlorine Feed Liquid Chlorine Drums CS - Yes 1,000

2.3 Anhydrous HF Anhydrous HF Feed Tanks CS 2 Yes 27,000

Anhydrous HF Feed Pumps PTFE/A Iloy 2 Yes 5,500

2.4 heavies Recycle Heavies Recycle Feed Tank CS 1 Maybe 79,500

Heavies Recycle Feed Pumps Alloy 2 Maybe 32,500

2.5 Fresh/Spent Antimony pentachloride Jacketed Reactor CS 1 Yes 17,500Catalyst _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _

Antimony pentachloride Storage Tank CS I Yes 9,000

Spent Catalyst Stroage Tank CS 1 Yes 12,500

2.6 Reaction Systerm Jacketed Reactor Alloy 1 Maybe 397,000

Reactor stripping Column Alloy 1 No 187,000

Reactor column Reflux Condenser CS 1 No 79,000

2.7 HCI Sepaaration HCI Distillation Colurnn LTS 1 Yes 32,500

HC1 Condenser LTS 1 Yes 22,000

HCI Column Reboiler LTS 1 Yes 13,000

2.8 HCI Absorption Purification Absorbers CS 2 Yes 49,000

Absorber preheater LTS 1 Yes 12,000

HCI Co-current Absorber Graph 1 Yes 28,000

HCI Vent Absorber PP I Yes 25,000

31% ap HC1 Pumping Tank CS/lined 1 Yes 18,000

31% ap HCI Transfer Pumps HDPE 2 Yes 9,000

2.9 Vent Treatment Acidic Vent Scrubber PP or 1 Maybe 170,00CS/lined

Water head Tank CS 1 Maye 21,000

Water Circulation Tank CS 1 Maybe 35,000

Caustic Scrubber CS 1 Maybe 97,000

Reciculation Pumps CIl/ined 3 Maybe 121,000

Organics Vent Thermal Oxidiser I Note 3 1,125,000

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PROCESS SYSTEM EQUIPMENT ITEM MATL No. Reuse Est Cost(S)

2.10 HF Recovery Phase Separator Pre-cooler LTS 1 Maybe 58,000

HF/Organics Phase Separator LTS I Maybe 66,000

2.11 Crude Proudct Water Scrubber PP or I Maybe 155,00Scrubbing and CS/linedDrying _ _ _ _ _ _ _ _ _

Dilute Acidic Circulation Tank PP or 1 Yes 15,000CS/lined

Dilute Acidic Recirculation Pumps PP 2 Yes 5,000

Caustic Scrubbers PP or 2 Yes 39,000CS/lines

Caustic Recirculation Coolers CS 2 Yes 5,000

Caustic Recirculation Pumps SS 2 Yes 7,000

Caustic Recirculation Tanks PP 2 Yes 8,000

Caustic Dilution Tank CS I Maybe 55,000

Caustic Dilution Tank Transfer Pump SS 1 Maybe 28,000

Sulphurict Acid Drying Column Alloy 1 Maybe 174,000

Sulphuric Acid Recirculation cooler Alloy I Maybe 40,000

98% Su.puric Acid Feed Tank CS 1 Maybe 80,000

98% Sulphuric Acid Recirculation Tank CS I Maybe 47,000

90% Sulphuric Acid Recirculation Tank CS I Maybe 47,000

90% Sulphuric Acid Recirculation Pump HDPE 1 Maybe 27,000

2.12 Crude Product Crude Product Compressors CS 2 Maybe 549,000Compression

Pure Product Distilliation Colum CS 1 Yes 21,000

Distillation Column Condenser CS 1 Yes 25,000

Distilation Column Reboiler CS 1 Yes 5,000

Product Hold Tank CS 1 Yes 14,000

Product Transfer Pumps CS 2 Yes 7,000

Product Drier CS 1 Yes 7,000

|2.13 Services Low Temperature Refrigeration Set I No 630,000

Notes to Table:

Materials of Construction: Alloy = High-nckel special alloy; Cl = Carbon Steet; Graph = graphiet; HDPE - high density polyethylene; LTS = LowTemperature Steel; PP = polypropylene; PTFE = polytetrafluorethylene; SS = stainless steel.

Costs: all costs in fmal column, except for the organics vent thermal oxidiser, are net epital costs- see above.

Note 1. Depends on local supply specification for chloroform moisture levels and subsequent hanadling arrangements.Note 2. Depends on reactor heat balance requirements.Note 3. Proprietary package to meet IUN Climate Convention requirements,; all-up cost including design, etc.

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4. OPERATING FIXED COSTS

The individual unit operations found in the CFC-12 and HCFC-22 processes are similar in both numberand complexity. As such the maintenance and operating personnel requirements should not varysignificantly. The HCFC-22 plant will contain many new items of equipment, pipework andinstrumentation. Therefore, after the plant has settled down from its initial commissioning period, for thefirst few years of operation maintenance costs due to equipment failure should be significantly lower. Asplant down-timne will also be decreased, the economics of the HCFC-22 plant will show a double benefitfrom the conversion. This is hard to quantify, but certainly the operating fixed costs of the converted plantwill be less than that for the original CFC-12 plant.

5. COMPARISON OF BASIC PRoDUcTIoN DATA

This section of the report considers materials usage from both a theoretical (stoichiometric) and practicalstandpoint in order to determine likely operating efficiencies for the converted plant in comparison with theoriginal CFC-12 plant.

It is assumed that the original so-called 7,000 te/yr CFC-12 plant actually had a total capacity of 7,000te/yr for CFC-l and CFC-12 combined at a co-product ratio of 40:60 CFC-l1 /CFC-12 (approximatelythe maximum CFC-12 selectivity possible for a conventional CFC-l l/CFC-12 liquid phase plant). It isassumed that the converted plant has a nameplate capacity of 5,000 te/yr HCFC-22.

5.1 Stoichiometric Quantities - Major Materials

TABLE 2

MAJOR CFC-11/CFC-12 PLANT HCFC-22 PLANTMATERIALS/PRODUCTS l

Product te/te of te/yr te/te if te/yrproduct HCFC-22

HF Feed CFC-1 1 0.0456 1797 0.4627 2314

CFC 12 0.3309

CFC or CFM Feed CFC 11 1.1198 8479 1.3806 6903

CFC 12 1.2722

CFC12 or Product - 7000 5000HCFC 22 @ 60%

CFC 12

Anydr HCI By-product CFC-1 1 0.2654 3276 0.8433 4216

CFC 12 0.6031

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Actual usages per ton of product on the HCFC-22 plant will depend upon several factors which reflect thedetails of the technologies employed, the extent of production control over the HFC-23/HCFC-22 ventlosses, and fugitive emissions during packing and maintenance operations.A CFM efficiency for this type of plant of 94% and an HF efficiency of 91% should be taken as reasonabletargets.

Of the Anhydrous HCI produced only about 98% will be usefully converted into saleable 31% acid due toplant start-ups/absorption losses etc.

Higher efficiencies of 97% and 95% for CTC and HF should have been achievable in the CFC-12 process.

In summary, typical efficiencies would be expected to be:

CFC Plant HCFC-22 Plant

Based on CTC/CFM 97% 94%Based on HF 95% 91%

Based on these efficiencies the actual usages are:

TABLE 3

MAJOR MATERIALS/ CFC-11/CFC-12 PLANT HCFC-22 PLANTPRODUCTS

Product te/te of te/yr te/te of te/yrproduct HCFC-22

HF Feed CFC 11 0.1533 1892 0.5085 2543

CFC 12 0.3483

CTC or CFM Feed CFC 11 1.1544 8741 1.4687 7344

CFC 12 1.3115

CFC 12 OR Product 7000 5000HCFC 22 6F0%

CFC 12

Anydr HCI By- CFC 11 0.2681 3309 0.8792 4395product l

CFC 12 0.6093

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5.3 Actual Usages - Minor Materials and Services

The CFC-12 and HCFC-22 processes both have the same scrubbing trains. The HF absorptionrequirement, chlorine usage and volumetric flow through the scrubbing train are effectively unchanged.Therefore the usages of water, sodium hydroxide (caustic) and 98% sulphuric acid will not be significantlydifferent.

Steam usage is dominated by the reaction system requirement and the number of distillation units. Powerusage is dominated by the refrigeration and gas compression requirements. Since both steam and powerrequirements in the two processes are broadly similar, and when combined account for only a few per centof the total production costs, any differences can be ignored

6. UNIT ODS ABATEMENT CosTs

The choice of method of calculation of Unit ODS Abatement Cost (UAC) for a major plant project such asthe present case of a CFC-12 to HCFC-22 plant conversion is non-trivial. A number of policy questionsare raised in a later section of this report. In order to provide some quantification, however, two verysirnple approaches are adopted here. It may be argued that the use of more sophisticated economic analysisis not justifiable at this project stage as the validity of the calculations can be no greater than that allowedby the reliability and accuracy of the input data. Certainly there is no value at all in presentingcalculations, let alone comparisons of UACs, to several decimal places when the input data accuracy is+ 50% at best.

A sophisticated approach to UAC calculation would require a full discounted cash flow (DCF) analysis ofcash in- and out-flows to the project over the entire project lifetime, and a reduction to a net present value(NPV) before dividing by the ODS units saved. This process implies a need to make decisions as to theprevailing discount rate(s) to be used, currency exchange rates, the differential value of hard and softcurrency cash flows, the rate of build of occupacity of the converted plant, the size of the future market forHCFC-22 and the (hypothetical) future unperturbed market for CFC-12, and the future market prices ofCFC-12 and HCFC-22. Decisions would also need to be made as to the value of present vs. future ODSabatement. Should these too be discounted and, if so, at what rate? If a differential DCF approach istaken, what assumption should be made in the CFC plant base case about replacement of the CFC plant atthe end of its (hypothetical) useful service life in a (hypothetical) unperturbed market?

In the absence of satisfactory answers to the questions raised in the previous paragraph, and in the beliefthat the quality of the input data does not merit a more sophisticated treatment, a very simple approach isadopted here. The UAC is calculated for the first year of full operation of the plant. On this basis a simplerepresentation of the UAC is:

A +(C - C0)- (PS-PoSoPo-nP

A = annualized incremental capital cost (including any licensing fees, decommissioning costs for CFC-12 plant, etc.); C =annual operating cost in first year of full production of HCFC-22 plant; CO = annual operating cost in last full year ofproduction of CFC-12 plant; S = mean gross invoice value per ton of HCFC-22 in first year of full operation; So = mean grossinvoice value of CFC-1l and CFC-12 in last full year of operation, P = production capacity of HCFC-22 plant (te/yr); POcombined production capacity for CFCs 11 and 12 of CFC-12 plant (te/yr); n = ozone depletion potential of HCFC -22.

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The currently accepted value for the ozone depletion potential of HCFC-22 is 0.055. Using the totalproject cost from this study, together with approximate values for the other parameters drawn from a recentoutline proposal for CFC-12 to HCFC-22 plant conversion in China on a scale similar to that of the presentstudy, and assuming a 10 year plant life:

A = $0.914 MP = 5,000 te/yr Po = 7,000 te/yrC = $8.8505 M C0 = $8.288 MS = $2017.5/te S0 = $1347.4/te

Therefore,

UAC = $122 per tonIt could be argued that the annualized cost (A), taken above simply as one-tenth of the total capital sum,should be increased to reflect the value of money over the entire project life. This may, however, beunreasonable as the value of money (interest) is in one sense canceled out by any discounting of cash flows- and in this very simple treatment, both are ignored. Somewhat more reasonably it might be pointed outthat the capital sum has to be spent largely in Year 1 of the project, and the above treatment calculates theUAC on the basis of the first year of full operation of the plant. This could be said to ignore theapproximately five-year lag between the capital spend and the year of the UAC calculation. If we accountfor this by inserting an interest rate of, say, 10% then the sum A is increased from $914,000 to (914,000 xI. 15), i.e. $1.472M. The recalculated UAC thus becomes,

UAC = $205 per ton

Perhaps the most important point to note is not the detail of the calculations, or even the very uncertaininput data, but the simple fact that the sensitivity of the UAC to the assumptions made about

* the economic life time of the newly-converted plant.* the interest rate assumed, if any attempt is made to account for the value of money in the interim

period between investment and the first year of full operation.

are at least as important as any of the chemical engineering and costing inputs.

7. TECHNICAL POLICY ISSUES

This case study has exemplified a number of the policy issues described in the "DefinitiveRecommendations" of the OORG Production Working Group (October 1993) and raised a number ofothers. These include the following:

* General Policy Issues

Production Working Group projects are all likely to be "one-off". It is unlikely that meaningfulquantitative conclusions can be drawn other than at a very general level.

* Projects including substantial technology transfer from a developed country partner will almostcertainly have to be approved either

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* on the basis of a very general proposal (not susceptible to detailed cost analysis), or

* on the basis of a more detailed proposal which is likely to be so specific to the individualtechnology and the individual technology transfer arrangements that no change or choice of partnerwill be possible post-approval.

* Capital cost items will be highly dependent on detailed sizing of process units - which can only bedone at a relatively advanced stage of project development.

* Project choice and project costs will depend critically on the national industrial strategy of the LDCpartner, not only as regards the substance to be produced but also as regards feedstocks and by-products.

* The issue of "double-counting" inherent in the choice between funding the incremental cost ofproducing ODS alternatives and using the alternatives remains unresolved.

* The concept of allowing incremental costs associated with the establishment of new productionfacilities for substitutes equivalent to capacity lost when plants are converted or scrapped requirescareful interpretation. In most cases the market for the alternative will be smaller than for thesubstance it replaces. This arises partly from the fragmentation of the market as usually no singlesubstance will be technically capable of replacing a single ODS in all its applications, and partlybecause it is desirable that stringent measures are taken to reduce emissions of ODS substancesand their substitutes as part of the good environmental stewardship inherent in the Protocol.

* There needs to be a clearer resolution as to whether the costs of subsequent conversions need to beincluded when assessing projects. Thus, in the present case, should the cost of replacing orconverting the HCFC-22 plant be added to the cost of converting the CFC-12 plant to the HCFC-22 plant - given that the Protocol already mandates HCFC phase-out (at least in the developedworld)?4

* Detailed issues surrounding the assessment of Unit Abatement Costs

* It is appropriate to include fees for intellectual property (e.g. license fees and/or royalties) in theUAC calculation. However, these may be obscured in the case of a project involving a JointVenture (JV) with the licensor as the overall financial arrangements around the JV may create anartificial value for the licence per se.

* Guidance is needed as to the Safety, Health and Environmental Standards (SHE) to be required inprojects for approval. Small compromises in terms of safety, health and environmental risks cancreate major cost savings where chemical production processes are concemed. Caution is advised.

For example, Decision V/8 of the Fifth Meeting of the Parties states that "Each Party isrequested, as far as possible and as appropriate, to give consideration in selecting alternativesand substitutes, bearing in mind inter alia, Article 2F ... regarding hydrochlorofluorocarbons, to... economic aspects, including cost comparisons among different technology options taking intoaccount ... all interim steps leadinag to final ODS elimination... " [emphasis added]

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* The calculation basis for the UAC needs standardizing as far as possible on a rational andtransparent basis satisfactory to all parties. For example,

* Should the UAC be based on the first year of full operation, or on the project lifetime (perhapsdiscounted in some way)?

* What assumptions should be made about the sales value of new products and of foregoneproducts? Should these be attempts at estimates of market prices? If so, should the price of theforegone product be assumed to be a hypothetical unperturbed market, or should it reflect the priceincreases inherent in a market in which the goods are being phased out yet demand remains?Altematively a cost plus basis could be used - bearing in mind that the altematives will usually beconsiderably more expensive to make - at least at first - but will descend individual Boston learningcurves. Such learning curves will be a function of cumulative global capacity. Can this beestimated with useful accuracy?

8. CONCLUDING REMARKs

The analysis in this study gives a Total Project Cost of approximately $9.2 million for the conversion of anexisting 7,000 te/yr CFC-1 1/12 plant to produce instead 5,000 te/yr of HCFC-22. Had the HCFC-22 plantbeen built from new (on a 'brown-field' site, i.e. one provided with roads and services etc.) the total projectcost would have been on the order of $13.0 million. The conversion project cost is thus about 70% of thecost of a new plant.

Generalized case histories of this type are capable of highlighting general principles, and may in thisrespect have some value. However, they are unlikely ever to be able to provide, in any meaningful way, auseful guide as to whether any particular project submission is reasonable as to the incremental costssubmitted. Nor are they a tool which will provide any legitimate basis for the ranking of projects in termsof their relative Unit ODS Abatement Costs.

UAC cost ranking approach may have value, and be appropriate, in the case of projects relating to thecontrol of ODS emissions, or alternatives to the use of ODSs. The approach is, however, inappropriate forprojects falling within the purlieu of the OORG Production Working Group.

Fortunately such projects are likely to be small in number. This will allow individual appraisal, as isappropriate for these more costly claims upon the resources of the Multilateral Fund.

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APPENDIX II

OORG OORG PublicationsReportNo.:

1. First OORG Refrigeration Working Group, 'Reducing ODS Use by DevelopingCountries in Refrigeration", World Bank, Washington, D.C., October 1992.

2. First OORG Foams Working Group, 'Reducing ODS Use in Foam-Blown Pre-Insulated Pipes (with particular reference to Poland) ", World Bank, Washington,D.C., December 1992.

3. First OORG Refrigeration/Freezer Insulating Foams Working Group, "ReducingOzone Depleting Substance Use in Developing Countries in DomesticRefrigerator/Freezer Insulating Foams", World Bank, Washington, D.C., October1993.

4. First OORG Production Working Group, "Technical Considerations forChlorofluorocarbon Alternatives Production in Developing Countries". World Bank,Washington, D.C., October 1993.

5. Fourth OORG Meeting "The Status of Hydrocarbon and Other FlammableAlternatives Use in Domestic Refrigeration", World Bank Washington, D.C.,October, 1993.

6. OORG Production Sector, "CFC-12 to HCFC-22 Plant Conversion: OORGProduction Sector Case Study", World Bank, Washington, D.C., February 1994.

7. Second OORG Refrigeration Working Group, "Domestic Refrigeration RefrigerantAlternatives", World Bank, Washington, D.C., May 1994.

8. Second OORG Foam Pre-Insulated Pipe Working Group, "Zero ODS Foam Pre-Insulated Pipe Alternatives", World Bank, Washington, D.C., May 1994.

9. Second OORG Refrigerator/Freezer Foam Working Group, "Transitional and ZeroODS Domestic Refrigerator/Freezer Insulating Foam Alternatives", World Bank,Washington, D.C., May 1994.

Montreal Protocol