document of the world...

Document of The World Bank

Report No: ICR0000687

IMPLEMENTATION COMPLETION AND RESULTS REPORT (WBTF-21916)

ON A

GRANT

IN THE AMOUNT OF US$ 6.46 MILLION

TO

CHILE

FOR

Montreal Protocol Implementation Program

December 10, 2007

LCR ENVIRONMENT SECTOR CHILE, ARGENTINA, URUGUAY AND PARAGUAY LATIN AMERICA AND CARIBBEAN REGIONAL OFFICE

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CURRENCY EQUIVALENTS

(Exchange Rate Effective: November 9 2007)

Currency Unit = CLP 1.00 = US$0.00198

US$1.00 = 504.25 CLP

FISCAL YEAR July 1–June 30

ABBREVIATIONS AND ACRONYMS

CE Cost effectiveness CFC Chlorofluorocarbons CP Country Program CONAMA Comisión Nacional del Medio Ambiente (Nacional Commission for

the Environment) CTC Carbon Tetrachloride EIA Environmental Impact Assessment ExCom Executive Committee of the Montreal Protocol Multilateral Fund HAFC Hydrochlorofluorocarbons GOC Government of Chile IS Institutional Strengthening MeBr Methyl Bromide MLF Montreal Protocol Multilateral Fund MP Montreal Protocol MT Metric Ton ODP Ozone Depleting Potential ODS Ozone Depleting Substance OTF Ozone Trust Fund OT Ozone Team PAD Project Appraisal Document PCR Project Completion Report SME Small and Medium Enterprises TCA Methyl Chloroform TECFIN Technology Conversion Financing Program UNDP United Nations Development Program UNEP United Nations Environmental Program

Vice President: Pamela Cox Country Director: Pedro Alba Sector Manager: Laura Tlaiye

Project Team Leader: Horacio Terraza ICR Team Leader Horacio Terraza

CHILE

Ozone Depleting Substances Phase-out Project (Montreal Protocol)

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISR H. Restructuring I. Disbursement Graph

1. Project Context, Global Environment Objectives and Design....................................... 1

2. Key Factors Affecting Implementation and Outcomes ................................................ 27

3. Assessment of Outcomes .............................................................................................. 32

4. Assessment of Risk to Development Outcome............................................................. 37

5. Assessment of Bank and Borrower Performance ......................................................... 38

6. Lessons Learned............................................................................................................ 40

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 42

Annex 1. Project Costs and Financing.............................................................................. 44

Annex 2. Outputs by Component...................................................................................... 45

Annex 3. Economic and Financial Analysis ..................................................................... 46

Annex 4. Bank Lending and Implementation Support/Supervision Processes................. 47

Annex 5. Beneficiary Survey Results ............................................................................... 49

Annex 6. Stakeholder Workshop Report and Results....................................................... 50

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 51

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders.......................... 53

Annex 9. List of Supporting Documents .......................................................................... 54

MAP

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A. Basic Information Country: Chile Project Name:

Reduction of Ozone Project (Montreal Protocol)

Project ID: P006576 L/C/TF Number(s): WBTF-21916 ICR Date: 12/17/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOVERNMENT Original Total Commitment:

USD 6.5M Disbursed Amount: USD 4.5M

Environmental Category: C Global Focal Area: O Implementing Agencies: CONAMA Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 06/15/1990 Effectiveness: 11/09/1993 11/09/1993 Appraisal: 06/29/1992 Restructuring(s): 07/25/1996 Approval: 05/21/1993 Mid-term Review: Closing: 04/30/1997 06/30/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Global Environment Outcome Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Not Applicable

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project No Quality at Entry None

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at any time (Yes/No): (QEA): Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

GEO rating before Closing/Inactive status

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central government administration 22 22 Other industry 78 78

Theme Code (Primary/Secondary) Environmental policies and institutions Secondary Secondary Pollution management and environmental health Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Pamela Cox Shahid Husain Country Director: Pedro Alba Ping-Cheung Loh Sector Manager: Laura E. Tlaiye Asif Faiz Project Team Leader: Horacio Cristian Terraza Laura E. Tlaiye ICR Team Leader: Horacio Cristian Terraza ICR Primary Author: Juan Lopez-Silva

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F. Results Framework Analysis Global Environment Objectives (GEO) and Key Indicators(as approved) The Chilean Montreal Protocol project has II phases. The overall objective of the Phase I was to achieve a 63% reduction in the consumption of ODS through a combination of means including public awareness raising, financial subsidies (TECFIN), creation of an ozone team and specific training. The objectives to Phase II were: To assist Chile in the phaseout of the use of substances that deplete the ozone layer (at least 400 MT); to develop the regulatory framework for an ODS phaseout by 2006; and to consolidate the institutional capacity gained by CONAMA in the execution of Chile's Montreal Protocol program. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications (a) GEO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Phase I REDUCTION OF ODS CONSUMPTION

Value (quantitative or Qualitative)

In 1989 , 907 MT CFC were imported

Reduction of 729 MT of CFC imported and consumed



Date achieved 12/31/1989 06/01/1993 06/01/1995 02/03/1997

Comments (incl. % achievement)

Values were revised due to the general lack of experience regarding realistic ODP phase-out potential for every type of project in order to reflect only direct reductions. This operation was one of the first projects approved by the Montreal Protocol MLF

Indicator 2 : Develop an institutional framework for the implementation of the Montreal Protocol in Chile


National Commission for the Environment was established in 1993

Establishment of an ozone team

Establishment of an Ozone Program within CONAMA with a group of professionals fully devoted to work on the implementation of activites to reduce ODS and ensure the implememtation of the Ozone Law

Date achieved 12/01/1993 12/31/1996 12/31/1996

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Indicator 3 : Phase II REDUCTION OF ODS CONSUMPTION


In 1995 , 934 MT CFC were imported



Date achieved 12/31/1995 12/31/2006 12/01/2004 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : To develop a regulatory framework to comply with maximum consumption targets.


There is no import caps for controlled substances

Ensure that ODS imports do not exceed controlled values.

An Ozone Law prohibiting the consumption of ODS in all manufacturing and consuming sectors, in accordance to MP’s phaseout schedules, was approved by Presidential decree on March 2006. Specific decrees are fully in place since September 2007


Indicator 2 : To established labels on "ozone friendly" products and services


No mechanism to certified that products do not contain or use ODS existed at the time of the project was approved

Establishment of Ozone Seal Establishment of

Ozone Seal

Date achieved 05/21/1993 12/31/1996 12/31/1996 Comments

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(incl. % achievement) Indicator 3 : Raise awareness of the ozone layer problem


Fairly small knowledge of the Ozone Depletion problem

Launching of a public awareness campaign

A public campaign was launched during 1995 and 1996


Indicator 4 : To provide technical guidance to entrepreneurs in specific industries on mechanisms to shift to non-ozone depleting technologies.


Lack of information regarding alternatives non-ODS technologies

Implementation of a Sector Specific Training Program

Implementation of a single comprehensive seminar on refrigeration and foams was undertaken, instead of various small sector courses and a technical advice seminar

Date achieved 05/20/1993 12/31/1997 03/14/1997


Although the training program was differently than originally planned, the seminar was broadly welcomed by the firms involved and participants expressed their satisfaction about the event’s organization, quality of speakers, and relevance of the topics

G. Ratings of Project Performance in ISRs

No. Date ISR Archived GEO IP

Actual Disbursements (USD millions)

1 06/12/1995 Satisfactory Unsatisfactory 0.18 2 01/29/1996 Satisfactory Satisfactory 0.34 3 12/17/1996 Satisfactory Satisfactory 0.68 4 06/23/1999 Satisfactory Satisfactory 1.77 5 12/15/1999 Satisfactory Satisfactory 2.25 6 06/27/2000 Satisfactory Satisfactory 2.55 7 09/12/2000 Satisfactory Satisfactory 2.55 8 10/30/2000 Satisfactory Satisfactory 2.55 9 05/25/2001 Satisfactory Satisfactory 3.71

10 12/19/2001 Satisfactory Satisfactory 4.02 11 06/13/2002 Satisfactory Satisfactory 4.02

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12 11/28/2002 Satisfactory Satisfactory 4.15 13 06/16/2003 Satisfactory Satisfactory 4.24 14 12/10/2003 Satisfactory Satisfactory 4.24 15 06/18/2004 Satisfactory Satisfactory 4.35 16 12/09/2004 Satisfactory Satisfactory 4.35 17 04/19/2005 Satisfactory Satisfactory 4.55 18 05/30/2006 Satisfactory Satisfactory 4.64 19 11/20/2006 Satisfactory Satisfactory 4.64 20 06/13/2007 Satisfactory Satisfactory 4.67

H. Restructuring (if any)

ISR Ratings at RestructuringRestructuring

Date(s)

Board Approved

GEO Change GEO IP

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

N S 0.59

In Chile, the Bank project was structured as an umbrella program, under which Montreal Protocol projects were subsequently approved and implemented. The OTF Grant Agreement in Chile was signed for US$1,206,000, and later updated in1996 to US$6,456,000 to provide the space for the implementation of phase II projects approved by the Executive Committee of the Montreal Protocol

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I. Disbursement Profile

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1. Project Context, Global Environment Objectives and Design Chile’s Ozone Depleting Substances Phase-out Project assisted the country in phasing out ozone depleting substances (ODS) and complying with Chile’s Montreal Protocol (MP) Commitments. The project included two phases that were approved in June 1992 (ODS Phase I) and June 1996 (ODS Phase II). The activities ranged from institutional strengthening (IS) to a subsidies program that sought to promote technological conversion. The sub-sections below describe the country context at appraisal and the objectives, components, and main outcomes of this operation.

1.1 Context at Appraisal The Montreal Protocol on Substances that Deplete the Ozone Layer was adopted in 1987 as an international treaty to eliminate the production and consumption of ozone depleting chemicals, including chlorofluorocarbons (CFC), halons, carbon tetrachloride (CTC), methyl chloroform (TCA), and methyl bromide (MeBr). Scientific theory and evidence suggest that these compounds, once emitted to the atmosphere, can significantly deplete the stratospheric ozone layer that shields the planet from damaging UV-B radiation. Under this treaty, developed countries had to phase out CFC by the year 2000 (2005 for TCA and MeBr). Developing countries, also known as Article 5 countries in the context of the Protocol, benefit from a 10-year grace period. Because of its geographic location in the southern latitudes, where thinning of the ozone layer has greater impact, Chile was one of the first countries to ratify the Montreal Protocol, on March 26, 1990. Under the Protocol, the Government of Chile (GOC) committed to (a) freezing 1999 CFC consumption at average 1995–1997 consumption levels, (b) reducing CFC consumption by 50 percent by 2005, (c) reducing CFC consumption by an additional 35 percent by 2007, and (d) phasing out CFC consumption by 2010. The country’s remaining commitments under the MP are summarized in table 1, which shows the phase-out schedule for Article 5 countries.

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Table 1. Phase-out schedule for Article 5 countries

Ozone depleting substance (Annex and Group)

Date Annex A Group I

Chlorofluo-rocarbons

(CFC)

Annex A Group II Halons

Annex B Group II Carbon

Tetrachlo-ride (CTC)

Annex B Group III

Methyl Chloroform

(TCA)

Annex E

Methyl Bromide (MeBr)

Annex C Group I Hydro-

chlorofluo-rocarbons (HCFC)*

Jul. 1999 Freeze consumption

Jan. 2002 Freeze consumption Freeze

consumption

Jan. 2003 Freeze consumption

Jan. 2005 Reduce by 50%

Reduce by 50%

Reduce by 85%

Reduce by 30%

Reduce by 20%



Reduce by 100%

Reduce by 100%

Reduce by 70%

Jan 2013 Freeze consumption


Reduce by 100%

Reduce by 5%

Jan 2020 Reduce by 35%

Jan. 2025 Reduce by 67.5%

Jan. 2030 Reduce by 97.5%


Source: World Bank, based on Montreal Protocol *Baseline for HCFC is calculated based on the average consumption and production in 2009 and 2010 (updated values at the 19th Meeting of the Parties to the Montreal Protocol, September 2007).

1.1.1 Brief Overview of the Implementation of the MP Program in Chile In June 1992 the Executive Committee of the Multilateral Fund (ExCom) approved the Country Program (CP) prepared by the GOC. The CP described the trends of ODS consumption, identified the major consuming sectors in the country, and outlined the country’s strategy for their phase out. In 1992, at its seventh meeting, the Montreal Protocol Multilateral Fund (MLF) approved Phase I of Chile’s ODS Phase-out Project as

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the first MP project to implement Chile’s Country Program. Phase I targeted the reduction of 63 percent of total ODS consumption in the country. At the time of the Bank’s involvement in Chile in 1993 (a Grant Agreement between Chile and the World Bank as implementing agency was signed on July 7, 1993), the country was a net consumer of ODS, and no production had historically taken place. Most consumption (CFC-11 and CFC-12) was in the refrigeration sector (56 percent) and foams sector (16 percent), which played a key role in processing natural products such as fish, livestock, and agricultural produce. Most CFC were imported from Mexico, while smaller quantities were brought in from Venezuela and Argentina. The remaining 28 percent of consumption of other ODS (mainly TCA and CTC) were used in the solvents, halons, and agricultural sectors. Although Chile had a large number of CFC consumers, about 50 percent of national consumption was concentrated in four large companies. Two of these consumed more than 40 percent of the ODS used in the refrigeration sector, while two foaming enterprises consumed more than 55 percent of the foam sector’s consumption. The project included a set of measures to strengthen the institutional capacity of Chile to implement and promote the Montreal Protocol. These included the creation of an ozone seal, a massive communications strategy, and the establishment of an Ozone Team (OT) in the Comisión Nacional del Medio Ambiente (CONAMA, or National Commission for the Environment). Also, to complement and test the involvement of the private sector, the MLF funded a Technology Conversion Financing Program (TECFIN) of subsidies to co-finance conversion to non-ODS alternatives. This was one of a kind approach to competitively allocate MLF grants to ODS phaseout projects. Essentially, interested companies would bid on a grant cost-effectiveness basis; those companies offering to implement their eligible ODS phaseout projects and showing the better cost-effectiveness ratios would obtain the grant resources first. The approach would also work on a reimbursement basis, substantially reducing the transaction costs and increasing the efficiency of MLF’s grant resource allocation. The project got a special recognition at the Montreal Protocol’s 20th Anniversary Celebration. In 1996, as part of the definition and structuring of Chile’s ODS Phase II, the Ozone Depleting Substances Phase-out Project focused on establishing a competitive structure for TECFIN and promoting the reduction of Chile’s MeBr consumption. According to the MP compliance schedule, consumption of MeBr must be reduced by 20 percent by 2005 and phased out by 2015. 1.1.2 ODS Phase-out Project Background and Institutional Structure

CONAMA was formally established in 1994 as a national entity to promote sustainable environmental development and coordinate policy-driven environmental actions and strategies defined by the GOC. CONAMA’s responsibilities included the implementation of international environmental agreements, conventions, and treaties signed and ratified by Chile. Within this institutional framework, CONAMA became the national entity in

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charge of coordinating activities to promote phase out of ODS as mandated in the Montreal Protocol. Financial support was approved in the amount of US$213,0001 to create the country’s Ozone Team as part of Phase I of the ODS phase-out project. The OT begun its activities in 1993, with the responsibility of implementing and monitoring Phase I of the ODS project and later for structuring Phase II. Through the World Bank, the MLF provided assistance for the establishment and operation of the OT and later for its continuous operation through six IS projects (IS-I, IS-II, IS-III, IS-IV, IS-V, IS-VI, for a total of US$986,600 beginning in 1992). Through the OT, CONAMA was given broad policy, regulatory, and monitoring mandates and also acted as the financial agent for establishing contracts with recipient companies. CONAMA channeled the financing for industrial conversion projects and disbursed the corresponding funds or grants. The OT was also responsible for supervising sub-project identification, preparation, and implementation for the Bank’s ODS phase-out operations in Chile. CONAMA also coordinated Chile’s ODS phase-out activities with other ministries and institutions and served as counterpart to the Montreal Protocol implementing agencies, mainly the United Nations Development Program (UNDP), United Nations Environmental Program (UNEP), United Nations Industrial Development Organization (UNIDO), and World Bank. Other important bilateral projects, including those of Environmental Canada and the U.S. Environmental Protection Agency (USEPA), were also channeled through the OT and CONAMA. World Bank MP financed activities in Chile have two main components: 1) industrial and technological conversion and 2) institutional strengthening. Projects sought to enable the elimination or reduction of ODS, mainly in private but also in some public entities. The MLF financed the incremental costs associated with those conversions, which are defined in terms of both capital and operating costs. Depending on the sector, the MLF financed incremental costs under pre-agreed cost-effectiveness thresholds. Potential enterprise beneficiaries developed their projects together with government agencies and with MP implementing agencies, and these proposals were then submitted to the MLF Executive Committee for approval. In Chile the Bank project was structured as an umbrella program, under which MP projects were approved and implemented. The Bank operation served as a legal framework, offering a financial ceiling for channeling resources approved by the MLF. This was a novel approach at the World Bank, and the umbrella agreement with Chile was one of the first operations of this type. The rationale behind the new design was to minimize transaction costs for both the Bank and Chile, as all approved operations under the Montreal Protocol would become subprojects of the umbrella agreement. This legal design would allow the project to perform as an envelope for all eligible operations approved and financed by MLF. Extensions of the agreement were a consequence of the

1 The original grant agreement estimated US$191,000 for institutional strengthening (IS), but the ExCom first approved a larger amount, $US213,000.

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legal approach, and the Grant Agreement was extended four times to allow implementation of the last eligible operations that could be included under the Bank operation.

The Ozone Trust Fund (OTF) Grant Agreement in Chile was signed for US$1,206,000 for Phase I and updated in 1996 for US$6,456,000 for Phase II. The updated grant agreement for Phase II redistributed resources across categories affecting the original category ceilings of funds for Phase I. The updated grant agreement was followed by three resource reallocations across categories to update the category ceiling to reflect the funds approved by the ExCom for new projects. Table 2 summarizes the grant agreement structure for Phase I and the end of Phase II.

Table 2. Chile’s Ozone Trust Fund grant agreement structure

Activity Phase I (US$) Phase II (US$)

Grant Phase I (TECFIN) 448,000 448,000

Sub-grant Phase II (TECFIN II, Methyl Bromide, Halon Bank)

4,432,399

Establishment of the Ozone Team and Institutional Strengthening

191,000 986,600

Training 105,000 105,000

Public Awareness 351,000 373,000

Ozone Seal 7,000 7,376

Unallocated 104,000 103,705

TOTAL 1,206,000 6,456,000

1.1.2.1 ODS Phase-out Project Components Below is a detailed summary of the ODS Phase-out Project.

A. Phase I (1992–1996). The main goal was to achieve a 63 percent reduction in the consumption of ODS through a combination of strategies including public awareness raising, an ozone seal, financial subsidies for technological re-conversion (TECFIN), creation of a local ozone team, and targeted training. The specific sub-projects approved within Phase I are listed below. a. Part A. Implementation of a Technological Conversion Financing Program, or

TECFIN (US$448,000). This sub-project competitively allocated subsidies to private companies for alternative production technologies by financing incremental costs of conversion to non-ODS systems. Companies bid for

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grants, offering their lowest cost effectiveness possible (i.e., lowest cost to achieve the most ODS phase out).

b. Part B. Implementation of an Ozone Seal Program (US$7,000). This sub- project sought to introduce a label on “ozone-friendly” products and services to educate consumers and create incentives among producers for converting to ODS-free technologies.

c. Part C. Public Awareness Program (US$351,000). The objectives of this sub-project were to raise public awareness about health-related effects of ozone depletion and promote the adoption of adequate protection measures. Public information was provided through mass media.

d. Part D. Implementation of a Sector-Specific Training Program (US$105,000). This sub-project’s objective was to provide technical guidance to technicians and entrepreneurs in specific industries on mechanisms to shift to non-ODS.

e. Part E. Creation of an Ozone Team based at CONAMA ($191,000). The OT was to coordinate and monitor project activities and develop an action plan for Phase II of the ODS phase-out project.

B. ODS Phase II (1997–2007). The main goal was to assist Chile in phasing out the

use of at least 400 metric tons (MT) of substances that deplete the ozone layer through a continuation of TECFIN. As in Phase I, open bidding calls used for resource allocation sought to maximize the cost effectiveness of MLF funding. Subsidies were allocated to companies that offered the lowest cost per MT of ODS to be phased out on a limited number of bidding calls based on proposed conversion cost effectiveness, at costs at least 10 percent below the thresholds approved by the MLF for conversion to non-ODS technologies in all sectors. The methodology would achieve ODS reductions at lower costs per converted enterprise and at lower administrative costs (as projects came on a demand-driven process with counterpart funding already committed). In addition, the MLF subsequently approved additional phases of the IS operations, plus two more sub-projects for Chile through the World Bank as implementing agency. These included 1) a demonstration sub-project to phase out MeBr and 2) a halon bank sub-project. The total amount assigned for IS in the grant agreement reflected the total amount approved by the ExCom over time, i.e., the funds approved for the establishment of the OT during Phase I (U$213,000) and the IS project and its following extensions (U$773,600) approved in Phase II.2 The total amount assigned for investment sub-projects in the grant agreement in Phase II represented the ceiling set by the Bank, which was higher that the total amount of funds approved by the ExCom for investment sub-projects over time.3

2 The Executive Committee of the Montreal Protocol Multilateral Fund (ExCom) approved the institutional strengthening sub-project for US$113,500 and authorized its extension five more times, for a total amount of US$773,600. 3 The ExCom approved US$3.8 million for TECFIN II, US$348,130 for a methyl bromide demonstration sub-project, and US$60,000 for a halon bank sub-project.

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1.1.2.2 ODS Consumption and Production Because Chile has never produced ODS, all consumption has historically been imported. More than 60 percent of the roughly 923 ozone depleting potential (ODP) tons in 1992 were consumed by the refrigeration and air conditioning sub-sectors. In 1997, when assessment of Phase II took place, approximately 857 ODP tons were consumed in Chile, with almost 78 percent of this amount concentrated in the same sub-sectors. The second largest level of consumption was in the MeBr sector, which represented 20 percent of total consumption in 1992 and 16 percent in 1997. MeBr consumption rose sharply (more than 45 percent) between 1997 and 1998 because of the growing use of the fumigant by new strawberry plantations producing for both local and export markets. Table 3 shows Chile’s yearly consumption4 of ODS at the time of preparation of Phase I and Phase II by type of chemical.

4 Consumption, as defined by Article 1 of the Montreal Protocol, means production plus imports minus exports of controlled substances.

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Table 3. Annual consumption of ozone depleting substances in Chile, 1989–2002, in metric tons

Ozone depleting substance

(Annex and Group) Year Annex A

Group I CFC


Annex B Group II

CTC

Annex B Group III

TCA

Annex E MeBr

1989 906.5 223.9 20.1 21.7 108.71990 662.3 95.2 8.0 29.6 201.51991 674.6 156.2 11.3 25.5 153.81992 572.7 84.6 14.3 34.5 191.71993 892.2 132.0 6.5 43.6 169.91994 852.6 47.4 14.6 46.7 119.41995 933.5 9.8 5.7 9.8 176.81996 878.2 15.8 2.4 10.6 236.21997 674.5 0 1.5 2.3 139.01998 737.9 0 0.7 7.1 298.11999 657.5 0 0.9 8.7 107.12000 576.0 0 0.2 3.5 242.52001 470.2 0.9 1.3 5.2 239.02002 370.2 0 0.4 3.5 165.2

Baseline years 1995–1997 1995–1997 1998–2000 1998–2000 2002

Baseline consumption1 828.7 8.5 0.6 6.4 212.5

1 Baseline consumption is estimated as the average consumption for the baseline years. Source: Official reports from Chile to the Ozone Secretariat (www.ozone.unep.org).

1.2 Original Global Environment Objectives (GEO) and Key Indicators (as Approved)

The objectives of Chile’s Ozone Depleting Substances Phase-out Project, as originally approved, are listed below.

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1. Phase I: Reduce ODS consumption by 63 percent through:

a. Public awareness raising b. Financial subsidies (TECFIN) c. Creation of an ozone team d. Creation of an ozone seal e. Specific training

2. Phase II: Strengthen institutional capacity and reduce ODP by at least 400 MT through:

a. Competitive allocation of subsidies for technological conversion (TECFIN II) b. Development of the regulatory framework for an ODS phase out c. Consolidation of institutional capacity gained by CONAMA in the execution

of Chile’s Montreal Protocol Program The original project indicators used by the Bank to monitor performance were 1) metric tons of ODS reduced, 2) development of an institutional framework for the implementation of the MP in Chile, 3) establishment of labels on “ozone-friendly” products and services, 4) increased awareness of the ozone layer problem, 5) provision of technical guidance to entrepreneurs in specific industries on mechanisms to shift to ozone-free technologies, 6) enterprise compliance with equipment disposal agreements, and 7) the Ozone Team’s effectiveness in identifying, facilitating the preparation of, and monitoring implementation of ExCom-approved projects. Information on these indicators is included in the Project Completion Reports prepared by the Bank and the GOC and submitted to the MLF Secretariat after each sub-project was completed.

1.3 Revised GEO (as Approved by the Original Approving Authority) and Key Indicators, with Reasons/Justification

The original project objectives and indicators were slightly adjusted. The overall objective of achieving a substantial ODS reduction was kept, although updated with the second phase restructuring, from the original 63% of total ODS consumption to 400 MT ODP. Indicators were kept at measuring the impact of the Ozone Team in promoting and coordinating the ODS phaseout programs in Chile, and the reductions in ODS consumption.

1.4 Main Beneficiaries

The main beneficiaries of the Montreal Protocol Implementation Program grant were Chilean enterprises converting to the new alternative technologies to eliminate or reduce ODS emissions, as well as the general Chilean population, who benefited from increased awareness of the effects of ozone depletion. At the industry and capacity building levels, the project did not focus on a particular sector but rather established a broad target of beneficiaries. These beneficiaries included industries that used ODS in their production operations, especially rigid polyurethane foam producers who used CFC-11 as a foaming agent and domestic and commercial refrigeration equipment producers, and service organizations that used CFC-12 as refrigerant. A MeBr demonstration project was also undertaken as part of Phase II.

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Global benefits also resulted from the elimination of ODS, as depletion of stratospheric ozone could lead to significant increases in UV radiation reaching the Earth’s surface. Increased UV radiation could in turn lead to adverse human and animal health effects, as well as ecosystem impacts. The ozone layer protects the biosphere from this type of radiation.

1.5 Original Components (as Approved)

As approved by the ExCom, the project had five components under Phase I and four components under Phase II (table 4).

Table 4. Original components of both phases of the Ozone Depleting Substances Phase-out Project as approved by the ExCom

Components Amount of OTF grant allocated

(US$)* 1. Phase I

a. TECFIN I b. Ozone Seal c. Public Awareness d. Training e. Institutional Strengthening I f. Unallocated

448,000 7,376

373,000 105,000 213,000 103,705

2. Phase II a. TECFIN II (Investment Project) b. Methyl Bromide Demonstration Project (Investment Project) c Bank of Halons (Investment Project) d. Institutional Strengthening (III and IV)

3,800,000 348,130

60,000 773,600

Total approvals US$6,231,811

* These values reflect the maximum amount of resources that could have been disbursed by the project even though the ceiling of the grant agreement was higher.

As explained in section 1.1 above, the Bank project was structured as an umbrella program under which MP projects were subsequently approved and implemented. The Bank operation served as a legal framework, offering a financial ceiling for channeling the MLF’s approved resources. The ceiling amount was calculated by multiplying the number of MT of ODP (as assessed by the Country Program) by the threshold grant allocation per sector (US$/MT of ODP) determined by the MLF. As stated above, the OTF Grant Agreement in Chile was signed for US$1,206,000 and updated in 1996 to US$6,456,000. Because the Bank operation served as a legal framework offering a financial ceiling for channeling the MLF’s approved resources, the total approved amount was lower than the grant agreement ceiling of US$6,456,000. The difference is basically explained by the MLF’s decision not to finance any more final users at supermarkets, which has been pre-identified as one of the sector with priority for the Bank, thus

11

curtailing the allocation of new resources to sub-projects oriented to replacing refrigeration units at supermarket chain stores. 1.5.1. Phase I This section describes the components of Phase I of the Chile Ozone Depleting Substances Phase-out Project in detail. 1.5.1.1 TECFIN I In 1992 the MLF approved US$448,000 to implement the Technology Conversion Financing Program (TECFIN). The program was structured as a market mechanism that offered subsidies to companies willing to undergo industrial conversion. Grants were allocated competitively based on proposed conversion cost effectiveness, at costs at least 10 percent below the thresholds approved by the MLF for conversion to non-ODS technologies in all sectors. Subsidies granted by CONAMA accounted for 30–60 percent of total investment. As designed and approved by ExCom, the program consisted of the following steps and conditions:

1. ODS-consuming firms were invited to bid for grants in return for reductions in kg of ODS (calls for bid).

2. Bids, expressed as US$/kg reduced, were screened by CONAMA and the World Bank to ensure MF eligibility and verify accuracy of the reduction reported.

3. Bids were ranked in ascending order of bid value (i.e., grant requested per kg of ODS eliminated).

4. Bids were made within a cost-effectiveness cap established by CONAMA for each bidding call, based on expectations about the sectors participating in each bid.

5. Bids were awarded the corresponding grant in ascending bid order until the funds for each specific bidding call were depleted.

6. As an additional safeguard, each bidding call had to have a minimum cost-effectiveness equal to 90 percent of the MLF-established threshold for the sectors participating in that bid (weighted by their respective shares of ODS reduction in accepted bids).

Setting up the competitive and regulatory framework took two years, so that TECFIN was able to start allocating grants in 1995. The foam and refrigeration sectors were first selected, based on their sector participation in national ODS consumption (the aerosol sector, for example, practically had been converted by Chilean companies long before). Rules and conditions for the competitive bidding calls were duly advertised in national newspapers. Participant companies had to show (a) financial solvency, (b) purchases of ODS in the past three years backed by corresponding invoices and receipts, and (c) records of annual production for the past five years and projections.

TECFIN I funded 11 projects in the sectors of domestic refrigeration (1), commercial refrigeration (5), and rigid foams (5). Three of the firms initially approved, Himmer & Himmer, SAAM S.A., and Supermercado Gran Avenida, requested cancellation before

12

signing sub-grant agreements because they lacked financial solvency to fund the investments not covered by the grant. In the end, 118.82 MT of ODP (CFC and HCFC) were phased out, with a grant component of nearly US$424,000. TECFIN I had an overall cost-effectiveness of US$3.56/kg of ODP eliminated, well below the standard cost-effectiveness thresholds set by the MLF of over US$7/kg of ODP for foam projects and over US$14/kg of ODP for commercial refrigeration projects. TECFIN I reduced 65.9 MT of ODP in the rigid foam sector (19.1 percent of the 1989 ODP consumption level) and phased out 52.91 MT of ODP from the refrigeration sector (nearly 22 percent of the 1989 ODP consumption level). Table 5 summarizes TECFIN I’s overall results.

Table 5: Indicators of sub-projects implemented under World Bank TECFIN I

No.

Sub-

proj

ect

Am

ount

di

sbur

sed

(US$

)

Cou

nter

part

fu

nds

US$

)

Tot

al p

roje

ct

cost

(US$

)

OD

S

OD

S ph

ased

ou

t (O

DP

MT

)

CE

(U

S$/K

g)

Dat

e co

mpl

eted

1 Frigocar $15,784 $4,351 $20,135 CFC 11 0.1 $26 10/31/96

2 Instapanel (IPAC) $131,607 $233,854 $365,461 CFC 11 64.2 $2 12/16/96

3 Kifafi $20,000 $18,737 $38,737 CFC 11 0.9 $22 02/28/97

4 Metalcargo $2,074 $14,256 $18,996 CFC 11 0.2 $30 01/31/97

5 Mimet $93,672 $90,098 $183,770 CFC11–12 47.8 $2 12/23/96

6 Polimin $9,120 $9,876 $18,996 CFC 11 0.3 $30 02/28/97

7 CST $120,000 $68,162 $188,162 CFC 12 4.0 $30 02/28/97

8 Frigorent $20,166 $16,344 $36,510 R 502 0.1 $150 10/31/96

9 SM Vicuña McKenna $5,558 $81,625 $87,183 R 502 0.2 $30 03/1/97

10 SM Macul $2,505 $40,883 $43,388 R 502 0.1 $30 03/1/97

11 SM Plaza Egana $3,300 $181,163 $184,463 R 502 0.1 $30 03/1/97

TOTAL $424,416 $759,349 $1,185,801 118.4 $3.56

Source: Chile and World Bank Ozone Team reports The original target of 729 MT of ODP established during project appraisal for the larger umbrella project was later adjusted to reflect a realistic ODS phase-out potential of 120 MT of ODP. Each of the sub–projects implemented under TECFIN I is described below.

1. Frigocar. This company, which produces steel vehicle bodies for transportation,

replaced CFC-11 as a foam blowing agent in the manufacture of insulation panels with HCFC-141b. Because the new technology required more accurate control

13

systems (e.g., temperature, mixture), the company acquired a high-pressure Gusmer FF-1600 1600psi dispenser machine).

2. Instapanel (IPAC). IPAC manufactures insulation panels for construction. Panel

production in 1995 reached 128,502 m3. The company replaced CFC-11 with HCFC-22 with a US$131,607 grant from the MLF. New equipment purchased included 1) a Foam Enterprises LLC spray dispenser machine with four distribution cylinders and an operating pressure of 1,000lb/inch2, 2) two stabilization pools for R-22, 3) an isocyanate storing pool, and 4) a thermally isolated shed 2,000m2 X 6m high to keep a homogeneous 25ºC temperature on the production line.

3. Kifafi. This mid-size enterprise produced 39,370m3 of insulation panels for

refrigeration in 1995. With a US$20,000 grant from the MLF, the company replaced the use of 0.9 MT of CFC-11 with HCFC-141b in its manufacture of insulation panels. The project included the purchase of a high-pressure Gusmer H-2000 spray dispenser machine with a variable ratio of 2000psi as proposed. The old equipment was to be adapted for flexible foam application using water as a blowing agent.

4. Metalcargo. This company replaced CFC-11 with HCFC-141b as a blowing

agent in the manufacture of thermal insulation panels. Because the new technology required more accurate control systems (e.g., temperature, mixture), Metalcargo acquired a high-pressure Gusmer FF-1600 1600psi dispenser machine.

5. MIMET. This company, which manufactures commercial refrigerators,

consumed approximately 60 tons of CFC in 1994. It converted its production line from CFC-12 to HFC-134a and from CFC-11 to HCFC 141b, with a US$93,672 grant from the MLF. MIMET’s total project cost was US$183,770 (the MLF financing was less than 50 percent, bringing the project’s cost effectiveness to US$2/kg ODP). As part of technology conversion, MIMET purchased chargers, invested in specific refrigeration equipment (chargers and vacuum pumps), and modified its foam system. Because the company’s original vacuum pumps were modified, final equipment disposal did not take place.

6. Polimin. This brokerage and services enterprise had incorporated the production

of periodic unit cell (PUC) foams beginning in 1994. In 1995 its panel production reached 515m3. The company received a US$9,120 grant from the MLF to fund the replacement of CFC-11 with HCFC-141b and acquired a high-pressure Gusmer FF-1600 1600psi dispenser machine.

7. CST (Central de Servicios Técnicos). This company provides post-sales and

maintenance services for products of Compania Tecnológico Industrial S.A. (CTI), the largest refrigerator producer in Chile. With approximately 60 certified service stations throughout the country, CST consumed more than 4 tons of CFC-12 in 1995. The company identifies and selects its service providers independently,

14

evaluates them periodically, supplies them with its equipment, and frequently trains them. CST not only proved highly effective in terms of ODS reduction from the point of view of replacement technologies, but also increased awareness among its service providers and their clients, who showed substantial interest in the new technologies and requested further training. As part of the project, CST purchased Robinair recovery and recycling equipment and provided training, reducing annual ODS consumption by 300kg.

8. Frigorent. In 1995 this company, a national leader in the manufacture of

industrial refrigerators, used R-502 in its manufacturing process. With a US$20,166 subsidy from TECFIN, it phased out the use of 0.1 MT of ODS annually and replaced this with HFC-404a.

9. Supermercado (SM) Vicuña Mackenna. Part of the Ekono-Almac supermarket

chain, in 1994 this company was accountable to the distributing firm Distribución y Servicios (D&S), Chile’s largest supermarket chain. Vicuña Mackenna used R-502 (48.8 percent HCFC-22 and 51.2 percent CFC-115) and CFC-12 in its refrigerating equipment and appliances. Annual sales were estimated at US$14 million in 1994. The project eliminated the use of R-502 and R-12 in 19 refrigeration units, replaced condenser units with parallel systems working with R-22, and renewed refrigeration connections. The new installations handled low and mid temperatures, and one of the parallel units had computerized controls. Old and obsolete equipment was eliminated.

10. SM Macul. Also part of Ekono-Almac and accountable to D&S, SM Macul used

R-502 (48.8 percent HCFC-22 and 51.2 percent CFC-115) in its refrigeration equipment and appliances. Annual sales were estimated at US$11.6 million in 1994. The project replaced R-502 with R-404a in its refrigeration equipment and replaced the old central with two mid- and low-temperature centrals operating with R-404a. One was adapted and the other was purchased. Changes were also made in the refrigerating connections and furniture.

11. SM Plaza Egaña. Also part of Ekono-Almac and accountable to D&S, SM Plaza

Egaña used R-502 (48.8 percent HCFC-22 and 51.2 percent CFC-115), and CFC-12 in its refrigeration equipment and appliances. Annual sales were estimated at US$4.8 million in 1994. The project eliminated the use of R-502 and R-12 in 10 refrigeration units, purchased new Protocol equipment operating with HCFC-22, and dismantled obsolete equipment.

1.5.1.2 Ozone Seal The ozone seal sub-project sought to introduce a label on “ozone-friendly” products and services to educate consumers and create incentives among producers to convert to ODS-free technologies. During the first semester of 1994, the Ozone Team launched a public contest for the design of the Ozone Seal logotype. SGS Chile Limitada was selected out of three applicants to develop the logotype, which was given to Johnson & Johnson for its

15

STERRAD-100 product. This medical sterilizing unit uses hydrogen peroxide instead of the typical mixture of CFC-12 and ethylene oxide. 1.5.1.3 Public Awareness This sub-project’s main objectives were to raise public awareness of the health-related hazards resulting from ozone depletion and promote the adoption of adequate protection measures. These objectives were to be achieved through mass media public information campaigns on the ozone depletion problem. The massive launch of Chile’s first public awareness program through radio, television, newspapers, and other print and audio-visual media included a training program for young leaders, radio programs, press conferences, and distribution of articles, leaflets, and brochures among ODS-consuming firms. 1.5.1.4 Training Program The objective of this sub-project was to provide technical guidance to technicians and entrepreneurs in specific industries on mechanisms that would enable them to shift to non-ODS. The training program was implemented differently than originally planned to more effectively address Chile’s capacity building demand. A single comprehensive seminar on refrigeration and foams replaced the planned small sector courses and technical advice seminar. The solvents sector was not covered. Nonetheless, the seminar was broadly welcomed by the firms involved, and participants expressed their satisfaction with the event’s organization, quality of speakers, and relevance.

The “First Refrigeration and Plastic Foam Workshop,” organized by the Ozone Team and CONAMA, took place in Santiago from March 11 to 14, 1997. The workshop’s objectives were to (a) provide information about new technologies in the refrigeration and foam production sectors, (b) raise awareness among firm managers, (c) provide information about the eventual negative economic effects of exporting goods that use ODS in their production, (d) stimulate prompt technological conversion, and (e) promote the TECFIN grant program for technological conversion. At a cost of approximately US$70,000, including international speaker fees, auditorium leasing, and charges from the event organizing firm SERSE, the event attracted around 140 technical and managerial staff out of 400 invited. This lengthy workshop was a success for CONAMA. The topics on the agenda included (a) the ozone depletion problem: causes and facts, (b) the Montreal Protocol and ODS phase out schedules, (c) Chile’s Country Program to Protect the Ozone Layer, (d) measures of major international economic blocs to control imports of products using ODS, (e) the main characteristics of substitute substances, (f) international technological conversion case studies, and (g) case studies of industrial conversion in Chile. 1.5.1.5 Institutional Strengthening This sub-project envisioned the creation of an Ozone Technical Unit to coordinate and monitor the activities implemented by the project and to develop an action plan for Phase

16

II of the ODS Phase-out Project (1996–2000). In November 1993 CONAMA established the Ozone Team, appointing two people to coordinate and manage all matters pertaining to the implementation of the Montreal Protocol in Chile. By the time Phase I concluded in 1996, the OT included a program coordinator (an economist), a technical advisor (a chemical engineer), an administrative secretary, an administrative assistant, and an external legal adviser. The last two provided services on a part-time basis. Although the Ozone Program was established under CONAMA’s International Unit, the program coordinator enjoyed full autonomy to manage and implement the project, including planning and budget-related matters. Administrative dependency was flexible, and the program coordinator had direct access to the CONAMA executive direction, units, and department. With relation to budget execution, the program coordinator directly arranged the levels of monthly and annual expenses with CONAMA’s Financial and Administrative Department and authorized actual payments. In addition, the Accounting Department appointed a specific officer to manage the project’s financial operation. The OT was not only in charge of promoting and coordinating the Chilean County Program for Protecting the Ozone Layer, but also became a key actor in all Montreal Protocol-related issues. As such, the team acted as technical advisor to the Ministry of Foreign Affairs in international meetings and negotiations associated with the Montreal Protocol. Table 6 summarizes approved and actual indicators for the five sub-projects implemented by the World Bank under Phase I.

17

Table 6. Indicators for MP sub-projects implemented by the World Bank in Chile (Phase I)

Sub-

proj

ect

Ori

gina

l am

ount

ap

prov

ed

(US$

)

Am

ount

di

sbur

sed

(US$

)

Bal

ance

al

loca

ted

to

Phas

e II

(US$

)

Cou

nter

part

fu

nds

US$

)

App

rove

d im

pact

(MT

O

DP)

Act

ual i

mpa

ct

(MT

OD

P)

Dat

e ap

prov

ed

Dat

e co

mpl

eted

TECFIN I 448,000 424,416.04 23,583.96 $759,349 7291 118 06/1992 Scheduled06/96 Actual 02/97

Ozone seal 7,000 7,375.9 -375.9 – – – 06/1992

Scheduled06/96 Actual 02/97

Public awareness 351,000 372,067.8 -21,067.8 _ _ _ 06/1992

Scheduled 06/96 Actual 03/97

Training 105,000 96,966.61 8,033.39 _ _ _ 06/1992


Ozone Team 191,000 210,906.86 19,906.86 _ _ _ 06/1992


Unallocated 104,000 104,000

TOTAL 1,206,000 1,111,733.21 94,266.79 $759,349 7291 118

1 Adjusted to 120 MT

1.5.1.6 Actual vs. Projected Achievements This section describes the achievements and outcomes of Phase I of Chile’s Ozone Depleting Substances Phase-out Project compared with the planned targets.

Projects implemented vs. projects pre-identified in the Project Appraisal Document (PAD) TECFIN I funded 11 of 14 firms that submitted proposals, with projects in the sectors of domestic refrigeration (1), commercial refrigeration (5), and rigid foams (5). Three of the firms initially approved, Himmer & Himmer, SAAM S.A., and SM Gran Avenida, requested cancellation before signing the sub-grant agreements because they lacked financial solvency to fund the investments not covered by the grant. The firms phased out 118.82 MT of ODP (CFC and HCFC), with a grant component of nearly US$425,000. TECFIN had an overall cost-effectiveness of US$3.59/kg of ODP eliminated, much better than the MLF’s envisioned cost-effectiveness of over US$7 for rigid foam and over $11 for

18

refrigeration. At the sectoral level, the project reduced 65.9 MT of ODP (19.1 percent of 1989 ODP) in the rigid foam sector and phased out 52.91 MT of ODP from the refrigeration sector (nearly 22 percent of 1989 ODP consumption).

Amount Approved vs. Amount Disbursed

The difference between approved and disbursed resources for TECFIN I of US$23,583.96 was rolled over for TECFIN’s second phase.

Counterpart Funds All investment sub-projects implemented required a certain amount of counterpart financing, which covered the costs of expenditures (i.e., non-incremental expenditures) that were not eligible for financing under the MLF. A total of US$759,349 was leveraged in counterpart financing. Considering the size of some of the beneficiary companies and the economic conditions of the industrial sector at the time of project implementation, the ability to leverage these funds was an added benefit of the project.

Approved vs. Actual Impact The main reason for the difference between approved and actual impact in the Phase I sub-projects was a lack of experience regarding realistic ODP phase-out potential for each type of project/sector. This operation was one of the first projects approved by the MLF, and a much larger effect on consumption was initially appraised, especially with respect to non-investment activities in the umbrella project. Estimated MT of ODS to be eliminated were from both direct and indirect effects. Revised expected impact was about 120 MT of ODP from the investment component only (TECFIN) against the 729 MT of ODP estimated at appraisal.5 The revision was made after CONAMA carried out ODS consumption assessments and surveys and was based on the cost-effectiveness thresholds for grant allocations established by the MLF. Although consumption of ODS did not decrease as consistently over Phase I, there was a higher impact on ODS consumption once more realistic measures were assessed and more stringent policies adopted at both the international and country levels. As shown in section 3 further below (assessment of outcomes), the overall program allowed reductions well over the 50 percent reductions target set out by the Montreal Protocol Commitment for 2005.This phase achieved an ODP reduction of 118 MT of ODP.

Project Duration The umbrella project was prepared based on an implementation schedule of four years. All institutional strengthening, training, ozone seal, and public awareness programs were completed within that time frame. Technological conversion sub-

5 The new target was justified and accepted by the ExCom by the means of the annual progress reports and project completion reports.

19

projects were implemented in an average two-year frame. Given the number of sub-projects to be implemented, the project was extended to a second phase to continue achieving results as those from the first phase.

20

1.5.2. Phase II This section describes the components of Phase II of the Chile Ozone Depleting Substances Phase-out Project in detail. 1.5.2.1 TECFIN II The Bank approved Phase II of the project in 1996. TECFIN II was approved by the Excom in two tranches, one for US$1 million and a later one for US$2.8 million. As for Phase I, TECFIN II envisioned a bidding system to allocate grant funds competitively based on proposed conversion cost-effectiveness, at costs at least 10 percent below the thresholds approved by the MLF for conversion to non-ODS technologies in all sectors. As part of the mechanism, more than 20 enterprises were invited to bid on cost-effective conversion projects in order to receive co-financing. Each bidding call was structured to last approximately four months, and companies were expected to submit their proposals bidding on cost-effectiveness thresholds announced before each auction by CONAMA, which administered the program. At the close of each auction, project proposals were evaluated for funding eligibility in terms of MLF eligibility criteria, technical feasibility, and the company’s financial solvency. Next, grants were allocated to the selected enterprises, starting with the most cost-effective bid, until funds were depleted or all selected projects were funded in each bidding call. Eight auctions were held under TECFIN II, with the participation of more than 20 enterprises. The resulting projects in reduced approximately 410 MT of ODP CFC at a cost for the MLF of approximately US$2.3 million. The cost-effectiveness of TECFIN II was US$5.58/MT of ODP, higher than the US$3.59/MT of ODP of TECFIN I (under which participating enterprises were aggressive in offering higher counterpart funding to get the subsidies), but still much lower than the thresholds established by the MLF for the sectors included in the project (i.e., mostly rigid foam and domestic refrigeration).6 Table 7 summarizes indicators for the 20 sub-projects implemented by the World Bank under Phase II.

6 The MLF established US$7.83/kg of ozone depleting potential (ODP) for rigid polyurethane projects and US$13.76/kg ODP for domestic refrigeration.

21

Table 7. TECFIN II sub-projects and indicators

Source: Chile and World Bank Ozone Team reports. *Authorized by the ExCom within the approval of TECFIN II. Each of the sub–projects implemented under TECFIN I is described below.

1. Himmer & Himmer. This company used CFC-11 in spray foaming processes

and replaced it with HCFC-141b. A total of 7.17 MT of ODP were eliminated as a result of the project, which received US$49,467 from the MLF in 1998.

2. Formas Fibra (Nielsen). Formas Fibra, which manufactures foam panels,

received US$17,300 financing from the MLF in December 1998 to replace CFC-11 as a foaming agent with HCFC-141b and eliminated consumption of 4.62 MT of ODP.

No. Sub-project Amount disbursed (US$)

ODS phased out (ODP MT) US$/kg Bidding

call

1 Himmer & Himmer 49,467 7.17 6.90 Auction 1 2 Formas Fibra 17,300 4.62 3.74 Auction 2 4 FORMAC 145,353 23.88 6.09 Auction 2 5 Simac 45,630 5.01 9.11 Auction 2 6 Aisell 83,424 9.53 8.75 Auction 2 7 Aislaciones Térmicas 30,571 7.91 3.86 Auction 2 8 Inema S.A. 59,727 5.52 10.82 Auction 3 9 Química Anglo Chilena 185,096 70.09 2.64 Auction 3 10 Campomar S.A. 17,203 1.67 10.31 Auction 3 11 CTI 1,157,072 155.85 7.42 Auction 3 12 Multipanel 110,549 18.68 5.92 Auction 3 13 Souyet 26,577 5.14 5.17 Auction 314 Térmica Haschke 12,046 9.04 1.33 Auction 415 Asiterm 25,764 7.95 3.24 Auction 414 Superfrigo 19,914 4.74 4.21 Auction 415 Adiquim 47,924 32.90 1.46 Auction 617 Chileplast 14,690 3.68 3.99 Auction 618 Inmopol 68,226 9.54 7.15 Auction 619 Sindelen R-11 49,565 9.02 5.50 Auction 620 Rosen 91,277 17.70 5.15 Auction 8

Institutional strengthening* 30,000

TOTAL 2,287,376 409.00 5.58

22

3. Formac. This company received US$145,353 from the MLF in 1999 for technological conversion of equipment needed to manufacture foam panels, displacing 23.88 MT of ODP (CFC-11).

4. Simac Ingeniería Ltda. In 1999 the MLF disbursed US$45,630 for Simac to

purchase the necessary equipment for the industrial conversion of the manufacture of spray foam. The project replaced the use of CFC-11 with HCFC-141b and reduced 5 MT of ODS consumption at Simac’s manufacturing facility.

5. Aisell Limitada. In 1999 Aisell used CFC-11 as a spray foaming agent in its

manufacturing process. With a US$83,424 grant from the MLF, the company financed the conversion of its equipment and ended consumption of almost 10 tons MT of ODP a year.

6. Aislaciones Térmicas. This company received US$30,571 from the MLF in

December 1998 to finance the technological conversion of its foam panel manufacturing facility. The grant helped eliminate 7.91 tons MT of ODP (CFC-11) that was used as foaming agent.

7. Inema S.A. A metal-mechanics company, Inema is part of the MIMET

Commercial Group, the first sub-project funded by TECFIN I, and accounts for most of Chile’s production of metallic furniture, commercial refrigerators, and sandwich panels for thermal insulation. At the time of project implementation, Inema produced approximately 200 commercial refrigerators a year. The company submitted a project proposal in 1998 as part of TECFIN II to purchase a high-pressure Henneke machine to produce foam with HCFC-141b. The project cost US$350,389, received US$59,727 financing from the MLF, replaced 5.5 MT of ODP (CFC-11), and was concluded in 2000.

8. Química Anglochilena (currently Orica Chemicals). This company first

introduced HCFC-141b to replace CFC-11 in its production of formulated poliol. Once in the market, the product sold at US$2.40/kg, compared with US$2.90/kg for CFC-11-based poliol. Anglochilena initially consumed approximately 70 MT of CFC-11 a year. During project implementation, consumption changed to 150 MT of HCFC-141b a year, and all imports of CFC-11 ended. In 2002 the company decided to replace HCFC-141b with HFC-245. The new chemical did not involve any new investments or equipment changes for final users. During implementation in 1999 Sindelin S.A., a client of Anglochilena, faced technical difficulties with 900 refrigerators that switched to HCFC-141b. Some of the ABS plastic components proved deficient in contact with HCFC-141b. As a result, Sindelen reverted to production with CFC-11. According to the legal agreement between the two companies, Anglochilena was responsible for problems associated with the technological change. While assuming all the financial costs of the defective refrigerators, Anglochilena continued providing Sindelen with CFC-11-based poliol in 2000. The Bank and CONAMA discussed alternatives with both companies and in 2001 agreed to proceed with legal action against

23

Anglochilena. As a result, Anglochilena had to end the sale of CFC-11 in 2002, and Sindelen began CFC-free production of domestic refrigerators in 2003. During project implementation Química Anglochilena eliminated consumption of more than 70 MT of ODP with a US$185,096 grant from the MLF.

9. Camponar S.A. This company received US$17,203 from the MLF in 1999 to

replace its existing CFC-11-based equipment and use HCFC-141b as a substitute in the manufacture of spray foam. The project reduced 1.67 MT of ODP.

10. CTI. This domestic refrigeration company consumed 170 MT of CFC-11 and

CFC-12 annually. CTI replaced ODS consumption with HFC-134a and cyclopentane. MLF funding was used to purchase Pentamatic Henneke safety equipment for cyclopentane management, storage tanks, furnaces, water heating, and HFC-134a chargers and to cover testing and training activities. The project was completed in May 2000 and displaced 155.85 MT of ODS with US$1,157,072 financing from the MLF.

11. Multipanel. The MLF provided US$110,549 to Multipanel in July 1999 to

finance the technological conversion of its manufacture of isolation panels. The project reduced 18.68 MT of CFC-11, which were used as a blowing agent, replacing it with HCFC-141b.

12. Souyet. This manufacturer of foam panels received a US$26,577 grant in 1999 to

finance the technological conversion of its equipment. It was able to replace the use of 5.14 MT of CFC-11.

13. Térmica Haschke. This company, which used CFC-11 in its spray foam

manufacturing process, received US$12,046 from the MLF to replace 9.04 tons of ODP (CFC-11-based equipment). The sub-project agreement was signed with CONAMA in October 1999 and disbursed in August 2000.

14. Asiterm S.A.. This company signed an agreement to receive MLF funding in

November 1999 and envisioned replacing two low-pressure CFC-11 injection machines with high-pressure HCFC-141b-based equipment with larger capacity. To ensure adequate equipment performance, Asiterm also installed a specific electric system. The new systems began operating in 2001. The sub-project helped eliminate 7.95 MT of ODP consumption with US$25,764 from the MLF.

15. Superfrigo. Superfrigo used spray foam in its manufacturing process. Approved

in October 1999, the sub-project received US$19,914 from the MLF and replaced 4.74 MT of ODS (CFC-11).

16. Adiquim S.A. This company, which produced poliol using CFC-11 as an agent,

concluded its technological conversion to HCFC-141b in May 2001 and received MLF funding in July the same year. The sub-project was partially financed with a US$47,924 grant from the MLF and helped reduce 32.90 MT of ODP.

24

17. Chileplast S.A. In 2001 this sub-project replaced the use of 3.68 MT of ODP

(CFC-11) in its foaming process with an April 2001 grant of US$14,690 from the MLF.

18. Inmopol. This sub-project, partially financed with a US$68,226 grant from the

MLF, helped reduce 9.54 MT of ODP by displacing the use of CFC-11 in the manufacture of synthetic products. The sub-project was implemented in 2001 and received MLF funding shortly afterwards.

19. Sindelen R-11. This company, which also submitted a proposal to replace the use

of its CFC-12-based refrigerant in domestic refrigerators, initially proposed to modify a low-pressure foaming machine to operate with HCFC-141b. Later Sindelen decided to invest in high-pressure equipment and proceeded to destroy the equipment replaced. The foaming project involved an investment component that replaced equipment based on CFC-11 with HCFC-22 and CFC-141b. After a number of technical difficulties (explained in further detail under the section on Química Anglochilena above), Sindelen hired a full-time manager dedicated exclusively to implementing the ozone conversion projects in the company. With technical assistance from the World Bank, Sindelen’s personnel visited facilities in the United States (Greenville and Huntsman) and Brazil (Tecunseh) to strengthen its technological capacity and knowledge. The project received US$49,565 from the MLF and reduced 9.02 MT of ODP.

20. Rosen. The largest flexible foam producer in Chile, Rosen was the last to

participate in the auction system. The company produced two types of foam in a single production line using Maxfoam high-pressure foaming equipment, which was replaced under the sub-project.

1.5.2.2 Methyl Bromide Alternatives Demonstration Project This demonstration project was designed to test MeBr alternatives in soil treatment applications for soil sterilization in the production of tomatoes and peppers. Approved in 1998 with a budget of US$348,130, the project tested a combination of chemical and non-chemical alternatives such as (a) solarization, (b) steam pasteurization, (c) integrated pest management, (d) substitution of agrochemicals, and (e) various seedbed substrates.

The project was implemented by the Instituto de Investigaciones Agropecuarias (INIA, the National Institute of Agriculture Technology), a semi-private, well-recognized research entity in Chile. Tests were undertaken in the Santiago Metropolitan Area (INIA’s research center) and in Quillota and Colchagua, where mainly small agriculture production units were involved. As part of project implementation, surveys were undertaken under the supervision of the Ministry of Agriculture to update MeBr consumption and usage practices. The results of the demonstration project were to contribute to the design of an investment project to phase out the use of the chemical in Chile. Although alternative technologies were found feasible, the GOC decided not to

25

move forward with an approved MLF MeBr phase-out project. Nonetheless, the demonstration project has had an impact in the regions where the tests were conducted and has strengthened INIA, the institution in charge of training and technical assistance for agricultural producers in Chile, especially small and medium-size growers. 1.5.2.3 Halon Bank

This US$60,000 sub-project envisioned creating a facility to help recover, reclaim, and recycle the remaining halons in Chile but was designed to rely on the enactment of Chile’s ozone law, which would establish specific control over imports of ODS. Because the law was not passed until March 2006, no funds could be disbursed. As a result, when the World Bank prepared the closing of its MP operations in Chile, the project was transferred to UNDP for implementation. Table 8 summarizes indicators for the four sub-projects implemented by the World Bank under Phase II. Table 8. Phase II sub-projects and indicators

Sub-

proj

ect

Ori

gina

l am

ount

ap

prov

ed

(US$

)

Am

ount

di

sbur

sed

(US$

)

Bal

ance

al

loca

ted

to

Phas

e II

(US$

)

Cou

nter

part

fu

nds

US$

)

App

rove

d im

pact

(MT

of

OD

P)

Act

ual i

mpa

ct

(MT

of O

DP)

TECFIN II 3,800,000 2,287,376 1,512,624 972,264 400 409

Methyl bromide demonstration

348,130 348,056.45 73.55 121,334 N/A N/A

Halon bank 60,000 0 60,000 - N/A N/A

Institutional strengthening 773,600 775,660.58 -2,060.58 - N/A N/A

TOTAL 4,981,730 3,411,093.03 1,570,636.97 1,093,598 400 409 1.5.2.6 Actual vs. Projected Achievements This section describes the achievements and outcomes of Phase II of Chile’s Ozone Depleting Substances Phase-out Project compared with the planned targets.

Projects implemented vs. projects pre-identified in the PAD The division of TECFIN II into two tranches, one for US$1,000,000 and the other for US$2,800,000, was approved. The objective of splitting the project into two phases was to prove the auction mechanism before advancing to the second, larger, phase. However, demand for technological conversion grants was much lower than expected with the second tranche, and only 57 percent of the funds were allocated. The main reasons for this lack of demand were (a) conversions

26

undertaken by the potential companies on their own, (b) environmental management seen as a means to achieve competitiveness in the national and international markets in Chile, an exporting country, (c) the rising price of CFC, which made conversions economical, (d) changes in projects eligibility criteria, which is the case for supermarkets and end-users in general, (e) the fact that most remaining consumption was from small companies that had difficulty financing the conversion projects in advance, and (f) the possibility of finding MP financing at higher levels than the auctioning through other UN implementing agencies; this was true for SINDELEN, whose project to convert its refrigeration production line to HFC-134a was initially submitted to the Bank, then withdrawn, and later implemented through UNDP; the Bank returned US$1,512,624 to the MLF at the end of the project.

The halon bank funding was not disbursed as anticipated. As explained above, this was the result of delays in the approval of the enabling legislation. It was then agreed with CONAMA that the project would be transferred to UNDP to perform as an implementing agency for UNDP management.

Amount approved vs. actual disbursement TECFIN II was structured on the assumption that a local law accelerating CFC phase out would be enacted to provide a strong incentive framework for the grants auction. When enactment of such a law took longer than expected, it was necessary to promote the advantages of the MLF grants program using funds from the institutional strengthening component. As explained above, the entire project allocation was not used (US$1,512,624 was not allocated and had to be returned to the MLF). However, the ODP impact was higher than expected: 409 MT of ODP vs. the 400 MT estimated.

Counterpart funds All participants in the TECFIN sub-projects had to submit a project proposal, committing to invest counterpart funds. The higher the counterpart funding, the better the chance of obtaining the grant. TECFIN counterpart funding accounted for 63 percent of total project costs. TECFIN I and II project costs were estimated at a minimum of US$5.1 million. For the MeBr sub-project, counterpart funding amounted to 26 percent. The level of counterpart funding for the investment projects financed with the competitively allocated grants under the TECFIN program was relatively high compared with the average 20–35 percent contribution of project beneficiaries in other MP programs, as reported by the MLF in its project database. This is because companies obtained the grants by offering the lowest possible cost-effectiveness (CE) ratio, which at the end translated into lower grant ratios per project.

27

Approved vs. actual impact The project set an unrealistically high ODP target for Phase I because it was one of the first MLF projects approved and there was no reference to the effect that soft measures could have on the market. In the end, MLF rules were clearly set, so that no ODP impact was to be counted as a direct result of non-investment projects. The target of 729 MT of ODP to be phased out under Phase I was revised to 120 MT, which was met through TECFIN I. The project also met the target of 444 MT of ODP set by TECFIN II, as the project’s actual impact in Phase II was 409 MT of ODP. Project Duration TECFIN II was structured as an umbrella operation. Therefore, the entire group of sub-projects had to wait for the last bidding call and completion of the last selected projects before TECFIN II could be declared finalized. As a result, TECFIN II lasted for seven years, to allow for eight bidding calls and implementation of 20 conversion projects. Phase I lasted three years, and the MeBr Demonstration Project lasted four. On average, TECFIN sub-projects took two years to implement.

1.6 Revised Components Component design was not changed.

1.7 Other Significant Changes Not applicable

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry The OTF Grant Agreement in Chile was prepared to assist the country in meeting its MP commitments. The Grant was approved in May 1993 for a total of US$1.2 million and later restructured in July 1996 for a total of US$6.5 million. This amount corresponded to an indicative ceiling determined on the basis of the ODS consumption trends outlined in the 1992 CP prepared by the GOC and the expected impact of the Bank’s potential projects. In general, the ceiling was determined by assuming (a) the average MLF cost-effectiveness level (US$/kg ODP) of the projects to be financed, per sector and (b) the ODS consumption per sector identified in the CP. This methodology allowed flexibility in the implementation of an uncertain number of sub-projects in undetermined sectors and therefore a significant range of cost-effectiveness ratios. The Bank used similar procedures to establish overall program ceilings up to 2001 in the development and sizing of all of its MP operations, as did the other implementing agencies when estimating the potential size of their portfolios.

28

The following lessons were learned from the design of Chile’s Ozone Depleting Substances Phase-out Project:

1. Although the project had good coverage of industries from the different ODS- consuming sectors, the following factors prevented a more positive outcome of sub-projects and investment operations:

a. The phase-out schedule implemented by the GOC was more accelerated than

that of the Montreal Protocol, which caused industries in the halon and aerosol sectors to implement the projects on their own.

b. MP policies changed regarding supermarkets as an industrial sector eligible for financing. The ExCom decision not to finance conversion of supermarkets had a significant impact on the potential size of the Bank’s project. In fact, the PAD had pre-identified this sector as one of the priorities for the Bank, as ODS consumption by the sector had been estimated at roughly at 500 MT.

c. A strong economic recession in 1999 drastically reduced industrial output and ODS consumption. The levels of ODS consumption on which the Bank’s project was designed and which were included in the 1994 CP fell drastically during the 1999 recession7 and never recovered.

d. The development of new, more cost-effective technologies reduced the overall costs of conversion projects.

e. MLF-funded conversions cannot take place for small and medium enterprises (SME) within the pre-established cost-effectiveness thresholds.

2. Overall, the competitive approach used in TECFIN proved effective in reducing

project preparation costs and avoiding bureaucratic delays, as sub-projects were developed by the beneficiaries to be selected by CONAMA based on a pre-determined set of clear rules. The system was unique at global level and helped achieve a very cost-effective conversion to non-ODS technologies.

3. The umbrella project showed that overall cost effectiveness, consistent with

Multilateral Fund Executive Committee (MFEC) thresholds, can be achieved while allowing for low cost-effectiveness thresholds for individual sub-projects. In so doing, this approach allows greater participation by SME in technological conversion programs within the MP framework.

7 At the end of the 1990s, Chile, like most of Latin America, faced a one-year downturn. Its domestic economy underwent a minor recession, and its growth faltered briefly. In early 1999, Chile’s private sector experienced a crisis of expectations triggered by the negative impact of the Asian crisis on its terms of trade and export volumes, sharp fluctuations in domestic interest rates, exchange rate pressures, and a serious drought (attributable to the weather phenomenon La Niña (Aninat, Eduardo. 2000. “Chile in the 1990s: Embracing Development Opportunities.” Finance and Development 37 (1), March. Washington: International Monetary Fund).

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4. The project ultimately phased out 527 MT of ODP, compared with the expected 520. It is more indicative of the project’s impacts and successful outcomes that 100 percent of the approved phase out was realized with only 70 percent of the resources approved by the ExCom, considering the large counterpart share of all approved sub-projects.

5. The creation of the Ozone Team, a generalized practice in all MP operations, has

proven to be a key element for the success of the project. In general, MP operations are somewhat different from operations performed by the institutions hosting the ozone teams (i.e., environmental and industrial executive agencies at national level). The institutional strengthening resources provided by the MLF helped consolidate the MP institution in Chile, including the establishment of legal frameworks and enforcement mechanisms. The creation of an institution responsible for implementing activities and projects to reduce and phase out ODS ensured the fulfillment of the obligations under the Montreal Protocol.

2.2 Implementation To enter into the Second Phase, the project was restructured, new resources were added, the objectives were changed, and the components as well. In general, implementation was carried out as outlined in the corresponding MOD, by financing conversion subprojects in the various ODS consuming sectors. In spite of some implementation delays associated for the most part to procedural difficulties involving individual beneficiaries, the project advanced in a satisfactory manner. The project’s performance was consistently satisfactory. After the second phase design and approval, no mid-term review was conducted and the project was never considered to be “at risk”.

In 2003 a National Phase-out Plan for Refrigerants was approved for Chile, implemented by Environment Canada and UNEP with funds managed by UNDP, to reduce all ODS consumption in the refrigeration sector. This program was directed to most of the industries with remaining ODS consumption. As no additional ODS would be phased out by the Bank project, internal discussions took place to consider whether it would be prudent to amend the Grant Agreement to reflect the change in the project’s indicative ceiling. At the time, it was decided not to amend the Agreement, primarily for the following reasons:

1. The Grant Agreement ceiling had no impact on the country’s or Bank’s performance, as it did not portray any legal obligation to the parties. As explained in section 1.1 above, the Montreal Protocol Umbrella Projects set funding ceilings to create a legal framework for sub-projects approved on a continuous basis by the MLF.

2. Amending the Grant Agreement would have added unnecessary costs to the

project, as well as unwarranted processing both for CONAMA and the Ministry of Finance.

30

3. All Bank MP trust funds were set up following the same model, and none were amended to reflect their actual impact.

2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization Close monitoring and evaluation of the progress of each individual sub-project financed under the MP are intrinsic to the operations of the MLF and its Secretariat. After approval of each sub-project, implementing agencies are required to report quarterly to the Secretariat on the progress of each individual activity. The country prepares detailed progress reports including the number of beneficiaries, status of signing of agreements, disbursement levels, phase-out levels, and many other data every three months. These are compiled by the Bank and submitted to the MLF Secretariat for scrutiny. All of this information is publicly available on the MLF Secretariat’s database. If projects are non-performing or targets are not being met, the Secretariat (on behalf of the Excom) sends official letters to the countries to inquire about progress and demand mitigating action plans. In addition to the reporting, implementing agencies are required to conduct periodic supervision missions, to meet with the government to discuss issues involving regulatory controls of ODS consumption and production, and to inspect delivery of equipment and actual phase out at beneficiary enterprises. Given these requirements, it was absolutely essential for the team working on this project to keep in close contact with the OT at CONAMA and to be informed at all times of the progress of each sub-project. Supervision missions were carried out twice a year at first and then at least once a year. The Bank team also met periodically with other implementing agencies and bilateral organizations involved in programs in Chile (either during missions in Chile or during Excom meetings). The Montreal Protocol institutions include the regional Ozone Networks organized by UNEP, which consist of regional meetings of the ozone teams and the multilateral implementing agencies. In addition, the Bank holds annual meetings of the governmental agencies at global level. These forums, in addition to the MLF meetings, helped the Bank develop good communication with the UN agencies (UNDP and UNIDO) and other governmental agencies (e.g., Environment Canada) engaged in developing the Montreal Protocol in Chile. The project development objective was to protect the stratospheric ozone layer by providing financial incentives for industrial conversion from ODS to non-ODS technologies and promote measures to reduce or eliminate emissions of ODS. Performance indicators to measure progress toward achieving the development objective included (a) reduction of ODS consumption (Phase I and II), (b) development of an institutional framework for the implementation of the MP, (c) development of a regulatory framework to comply with maximum consumption targets, (d) establishment of labels on “ozone-friendly” products and services, (e) raising awareness of ozone depletion and (f) technical guidance to entrepreneurs on mechanisms to shift to ODS-free technologies.

31

Because individual sub-projects were not known at the time of project preparation and Grant Agreement signing, performance indicators were linked to the outcome of sub-projects approved by the MLF. Information on these indicators was included in quarterly progress reports and Project Completion Reports (PCR) prepared by the Bank and the GOC and submitted to the MLF Secretariat after each sub-project was completed. The PCR are particularly detailed documents that report all expenses and clearly outline all the outcomes of the project and must be approved by the MLF Secretariat. Any funds that remain unspent after project implementation is completed must be indicated in these reports and returned to the MLF.

2.4 Safeguard and Fiduciary Compliance The project was rated as category C because no potential negative environmental impacts were identified. Rather, the project offered positive environmental impacts at both global and local levels. According to the Environmental Data Sheet for this project, participating enterprises were responsible for meeting emission standards, preparing environmental impact assessments where needed, and obtaining environmental licenses required by Chilean law and World Bank environmental guidelines. Because of the nature of these sub-projects, the impact was so negligible that only environmental data sheets, but no environmental impact assessment, were required. Grant funding under the project was approved for sub-projects designed to phase out ODS in all sectors for which the ExCom approved sector guidelines. These guidelines resulted from the input of the UN Technical and Economic Assessment Panel (TEAP)8 and World Bank Ozone Operations Resource Group (OORG)9 and from interaction with technical staff at the Ozone Secretariat, MLF, country representatives at the ExCom, Open-Ended Working Group, and Meeting of the Parties. Under these guidelines, the ExCom evaluates and approves sub-projects. The project dealt with existing enterprises and relatively small quantities of ODS. Safety issues associated with some of the substitute chemicals or other issues were addressed project by project. Fiduciary compliance was ensured by training staff working on the project on both Bank regulations and the specific requirements associated with MP projects (eligibility and fiduciary issues). For example, OT staff were invited to Washington once a year to participate in annual Financial Intermediary workshops conducted by World Bank’s Global Environment Division (ENVGC). In these two-day workshops, staff from every country where MP operations are carried out discuss procedural and project issues, as well as the latest Excom requirements. Periodic procurement and financial management reviews were also conducted.

8 This is an international group of experts appointed by the United Nations System through the Ozone Secretariat, which evaluates technologies and associated economic effects of ODS phase-out implementation options. 9 This is a group of international experts appointed by the World Bank to provide technical advice, help review potential MLF sub-projects, and update the Bank and other agencies on the state of the art of phase-out technologies.

32

2.5 Post-completion Operation/Next Phase Sustainability of the project as a whole was guaranteed by establishing a national legal framework. A law prohibiting the consumption of ODS in all manufacturing and consuming sectors, in accordance with the MP phase-out schedules, was drafted by CONAMA, reviewed by all relevant government agencies, and approved by Presidential decree in March 2006. The law has been implemented for some of the ODS-consuming sectors, and specific decrees have been fully in place since 2007. Decree 37 of the Secretary General Ministry to the President, which entered into force in September 2007, provided the input for the creation of a control import system under the responsibility of the Customs Service by establishing the regulation applicable to the import of ODS, maximum import volumes, and criteria for distribution of ODS import volumes. Companies were given incentives to phase out ODS. Now that ODS sectors are clear of ODS consumption, the law prohibits recurrent ODS activities in the specific sectors. In addition, the MLF financing mechanism enhances the sustainability of sub-projects because it provides incremental operational and capital costs during the transition to the new technologies. All equipment purchased under the project was fully paid for each company (in some cases, firms had to contribute their own resources). Finally, the project built the necessary institutional capacity at CONAMA through the creation and funding of the Ozone Team, which had strong ownership of the country program to eliminate CFC. The fact that Chile has been in compliance with the Montreal Protocol is a good indicator of proper capacity attained at CONAMA. CONAMA continues to be the executing agency for Chile’s national phase-out program, will continue to be the national focal point until MP commitments are over, and is the institution responsible for the implementation of the Ozone Law by coordinating a group of multi-sectoral public entities including the Ministry of Agriculture, Ministry of Health, Ministry of Finance, and Ministry of Economy, among others.

3. Assessment of Outcomes Chile and its Montreal Protocol Obligations The Montreal Protocol phase-out commitment established three main reduction targets: (a) the 1999 ODS consumption freeze (national average consumption 1995–1997), (b) a 50 percent reduction in ODS consumption from a 1999 freeze level by 2005, and (c) a complete phase out by 2010. Data on ODS consumption in Chile have been very encouraging since 1994, as shown in table 9, to a great extent as a result of the government’s commitment to comply with the MP. Although consumption of ODS did not decrease as consistently over Phase I, as seen in the table and figure below, there was a higher impact on ODS consumption once more realistic measures were assessed and more stringent policies adopted both at international and country levels. The Montreal Protocol called for consumption of CFC in Chile not to exceed 414 MT in 2005. In that year CFC consumption in Chile was 221 MT of ODP,

33

roughly 50 percent below the required level. Chile has therefore been very well positioned to meet its 85 percent consumption reduction target, which became effective in January 2007. The projects in which the World Bank was involved have been successful in contributing to the country’s ODS phase-out targets. While market forces and government intervention have also influenced this trend, the projects implemented by the World Bank have helped ensure that the conversion to non-ODS technologies is sustainable and have prevented a recurrence of ODS use over the long term. In this case, the Bank helped the country eliminate over 50 percent of the baseline ODP consumption. In many of the implemented projects, this was done through innovative solutions specifically tailored to the Chilean context. The TECFIN auction process, for example, was innovative in its approach to eliminating some of the barriers to SME participation (e.g., insurance deals, tax exemptions) and ultimately extremely effective in eliminating a significant fraction of the sector’s consumption. Under TECFIN, enterprises competed for the MLF grants by bidding on cost-effectiveness to eliminate their ODS consumption. The lower the ODS phase out for MLF, the greater the chance of obtaining the grants. In this way the project allowed competitive and cost-efficient allocation of the grant resources from the MLF.

3.1 Relevance of Objectives, Design and Implementation Chile’s ODS Phase-out Project objectives have been in line with the Country Assistance Strategy (CAS) objectives. Most important, the project was developed at a critical time for Chile to meet its commitments to the Montreal Protocol. Under the MP, developing countries were expected to reduce their consumption of CFC by 50 percent by 2005 and 85 percent by 2007. The project helped Chile meet the 2005 quota by contributing to eliminate ODS consumption through projects in two key sectors (foams and refrigeration). Chile is presently on track to meeting the 2007 target, as described in the following section.

3.2 Achievement of Global Environmental Objectives Project success is deemed satisfactory, as measured by three main indicators. First, the fundamental objective of the project was to ensure that Chile could meet its Montreal Protocol targets to phase out ODS according to the protocol schedule. Chile’s CFC consumption decreased from a baseline of almost 900 MT of CFC in 1993 to roughly 181 MT by 2006, in compliance with its MP commitments (table 9 and figure 1). Second, the results of the individual sub-projects targeted by the World Bank were satisfactory (527 MT vs. 520 MT of direct impact from 1993 to 2007). Third, the project built institutional and technical capacity to bring long-term benefits to Chile, guaranteeing sustainability.

34

Table 9. Annual consumption of ODS in Chile, 1986–2006 (MT of ODP)

Year Annex A Group I

CFC


Annex B Group II

CTC

Annex B Group III

TCA

Annex C Group I HCFC

Annex E Group I MeBr

1986 28.1 35.3 1989 906.5 223.9 20.1 21.7 17.4 108.71990 662.3 95.2 8.0 29.6 18.9 201.51991 674.6 156.2 11.3 25.5 28.4 153.81992 572.7 84.6 14.3 34.5 25.1 191.71993 892.2 132.0 6.5 43.6 19.9 169.61994 852.6 47.4 14.6 46.7 31.6 119.41995 933.5 9.8 5.7 9.8 28.8 176.81996 878.2 15.8 2.4 10.6 24.2 236.21997 674.5 0 1.5 2.3 39.5 139.01998 737.9 0 0.7 7.1 45.6 298.11999 657.5 0 0.9 8.7 41.6 107.12000 576.0 0 0.2 3.5 58.7 242.52001 470.2 0 1.3 5.2 52.5 239.02002 370.2 0 0.4 3.5 52.6 165.22003 424.5 0 0.8 7.0 37.9 274.32004 230.8 0 5.0 3.6 70.2 262.82005 221.5 1.2 -0.1 5.2 73.7 167.72006 181.8 0 -0.1 4.5 79.6 169.3

Note: Other fully halogenated CFC (Annex B, Group I) not included as only consumption amounted to 1.2 MT in 2001. HBFC (Annex C, Group II) and bromochloromethane (Annex C, Group III) are not included, as no consumption was registered.

Figure 1. Evolution of ODS consumption in Chile

CFC Consumption (Annual ODP tons)

0100200300400500600700800900

1000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Years

ODP

tons

35

Success of sub-projects. The Ozone Projects Trust Fund Grant was successful in contributing to the elimination of ODS use in Chile. Sub-projects in which the Bank participated achieved the expected levels of ODS phase out. Table 10 shows the combined impact of the Bank’s intervention in the five sectors.

Table 10. ODP phase out by sub-project (MT of ODP)

Sub-project Approved ODP phase out

Actual ODP phase out

TECFIN I 1201 118

Ozone Seal N/A N/A

Training N/A N/A

Public Awareness N/A N/A

Institutional Strengthening N/A N/A

TECFIN II 400 409

Methyl Bromide Demonstration N/A N/A

Halon Bank2 N/A N/A

Total 520 527

1 Adjusted to 120 MT of ODP. This value was for the entire umbrella project. 2 The sub-project was approved but transferred to UNDP (figures not counted in overall cost effectiveness of the project).

3.3 Efficiency Montreal Protocol projects do not require a net present value (NPV) or economic rate of return (ERR) calculation. The main criterion that determines the level of eligible funding for these projects is cost effectiveness. Project cost effectiveness must fall within pre-established CE thresholds for the different sectors to be eligible. These thresholds were established by the MLF based on the assessment of experts from the Bank’s Ozone Operations Resource Group and experience from previously executed projects, as the MLF Secretariat registers and keeps records on phase-out costs. This means that all approved MP projects are expected to comply with that pre-set indicator of efficiency. Table 11 shows the final cost effectiveness achieved per sector.

36

Table 11. Cost effectiveness of investment sub-projects

Sub-project Funds

disbursed (US$)

ODS phased out

(MT of ODP)

Indicative sector cost

effectiveness threshold1

(US$/kg ODP)

Actual cost effectiveness

(US$/kg ODP)

TECFIN I 424,416.04 118.8 10.62 3.56

TECFIN II 2,287,376 409 10.62 5.59

TOTAL 2,711,792.04 527 10.62 5.15 1 As per the March 2007 Policies, Procedures, Guidelines and Criteria of the Multilateral Fund for the Implementation of the Montreal Protocol. This cost-effectiveness should correspond to 90 percent of the MLF cost effectiveness thresholds, according to the sectors.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory By the time this project was approved, there was no requirement for monitoring indicators. Therefore, the assessment of outcomes presented in this section is based on the indicators that were later included in the Implementation Status and Results Report (ISR) and listed below.

1. To develop a regulatory framework to comply with maximum consumption targets in order to ensure that ODS imports do not exceed controlled values

2. To establish labels on “ozone-friendly” products and services 3. To raise awareness of the ozone layer problem 4. To provide technical guidance to entrepreneurs in specific industries on

mechanisms to shift to non-ozone-depleting technologies However, the overall performance of the project is rated satisfactory because the country has been meeting its consumption reduction commitments under the Montreal Protocol. Based on the following progress indicators, the project achieved its goals:

1. An Ozone Law that includes caps on consumption was put into effect by presidential decree in March 2006, following passage by Congress in October 2005. The regulation of this Law entered into force in September 2007, and it is being implemented by the Customs Service that controls the maximum import volume system (license system).

2. In 1996 the Ozone Seal Program was established and developed standard labels for products and services that avoid emissions of control substances.

3. In 1995–1996 a public awareness campaigned promoted demand of non-ODS products, informing the public on how to prevent UV radiation and promoting industrial conversion.

4. In March 1997 the Ozone Team held an international workshop on alternative technologies in the refrigeration and foam sectors.

37

5. Most important, Chile’s CFC consumption decreased from a baseline of almost 900 MT of CFC in 1993 to roughly 181 MT by 2006, in compliance with its MP commitments.

According to all of the performance indicators above, the project satisfactorily met its targets. The indicative funding and phase-out ceilings outlined in the Memorandum of the Director (MOD) were reached in terms of both the project contribution and the voluntary phase-out process.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

Not applicable

(b) Institutional Change/Strengthening Covered in discussions above. (c) Other Unintended Outcomes and Impacts

Not applicable

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

Not applicable

4. Assessment of Risk to Development Outcome Rating: Low or negligible The risk to the global environmental outcome would arise from Chile’s non-compliance with its obligations under the Montreal Protocol. This risk is considered minimal, and long-term project sustainability is rated likely. As shown below, the GOC has shown strong commitment to adhering to its Montreal Protocol obligations.

1. Parallel to the projects, the GOC enacted regulation that controls imports of ODS in accordance with the reduction targets imposed by the MP. This has been an effective way to control internal consumption. Regulation also controls the use of ODS in manufacturing sectors in which ODS consumption has been phased out. Finally, the GOC has been actively involved in regional efforts to control illegal trade of ODS substances, which has not proven as critical in Latin America as in other regions of the world.

2. With assistance from the Bank, Chile has successfully implemented Phase I and Phase II projects that have phased out more than 50 percent of the country’s baseline ODS consumption in key industrial sectors over the past 15 years. With assistance from UNDP, the country is currently phasing out consumption of halons, the final significant consuming sector. UNDP has also established a fund for technical and financial assistance for remaining projects in the foam and

38

refrigeration sectors that specifically targets small industries. The country is well on its way to meeting its 2010 total reduction commitment.

3. The companies that received assistance from the MLF were granted new equipment and training to ensure that they would be successful in their transition from ODS to alternative substances. Moreover, old ODS-based equipment was destroyed in all applicable cases, as per the requirements of the MP. It is therefore unlikely that any of the companies that benefited from Bank or UNDP projects will return to using ODS.

4. The IS project continues and will be financed by the MLF at least until 2010 and possibly beyond. This will ensure that the capacity created at CONAMA at central and regional levels will remain in place until full phase out of ODS. Public awareness events (e.g., International Ozone Day, radio and newspaper campaigns, the Ozone Seal, recycling program for old refrigerators) successfully conducted across the country by the OT over the past 15 years will continue until 2010.

5. Global production of ODS, except for those needed to satisfy critical uses that have been granted exemptions, will be phased out by 2010. This residual consumption will be limited to a few sectors (e.g., laboratory and analytical uses, metered-dose inhalers for asthma patients) and heavily controlled. The global supply of ODS, which has been dropping over the past 20 years, will be reduced to virtually zero by 2010. The unavailability of ODS in the world market will contribute to supporting the efforts that all developing countries have been making to eliminate their consumption of ODS and to further reducing any risks that the GOC does not meet its obligations under the MP.

5. Assessment of Bank and Borrower Performance 5.1 Bank

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

As noted in earlier sections, throughout the life of the project, Bank staff worked closely with CONAMA to ensure proper identification, preparation, and implementation of conversion sub-projects. In particular, Bank staff involved local OT and other CONAMA staff in sub-project preparation and implementation. The Bank hired highly specialized consultants to support the GOC in key areas such as the design of technically challenging projects, the analysis of market studies to assess the best strategy for phase out, including the Ozone Seal, and training activities. The OT was involved in all aspects of implementation of Bank projects, including equipment selection and procurement (following Bank guidelines). The Bank also provided valuable support to the GOC in the strategic policy design (e.g., specific aspects of the ODS control regulation) and during its negotiations at the ExCom meetings.

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(b) Quality of Supervision Rating: Satisfactory Supervision was adequate, as Bank staff worked closely with the OT and CONAMA to ensure the adequate progress of the project. The Bank maintained close contact with both agencies to prepare the quarterly reports required for submission to the MLF Secretariat (e.g., Business Plans, Progress Reports, and Project Completion Reports). Supervision missions were conducted at least twice a year during most of the project life and once a year during the final year of implementation. During these missions, the Bank (accompanied by the OT) visited the companies with projects under implementation and provided guidance and technical support (see Annex 6). At the same time, CONAMA supervised and assisted the companies throughout implementation. To mainstream MP operations, Project Supervision Reports (PSR) were introduced in FY00. Moreover, aides mémoire were elaborated after preparation and supervision missions starting in 1998, even though they were not formally required until 2000. Procurement post-reviews, as well as financial audits, proved satisfactory. With regard to safeguard policies, because project documents were typically prepared in collaboration between the OT and the Bank, they had to comply with Chilean laws and Bank environmental guidelines before being sent to the MLF. The project was reviewed by QAG in February 2000 and its supervision was considered satisfactory. (c) Justification of Rating for Overall Bank Performance

Rating: Satisfactory The project assisted the GOC in meeting its ODS reduction targets under the Montreal Protocol. In particular, Bank-implemented projects contributed to the phase out of ODS consumption in the refrigeration (commercial and industrial) and rigid foam sectors. The Bank’s proactive involvement in helping the GOC start implementation was important in surmounting the initial delays and advancing implementation. The Bank’s involving the OT in all aspects of project implementation helped build capacity at CONAMA (e.g., for project identification, design, and preparation, procurement, and financial management) and promoted government ownership of all of the Bank-implemented conversion projects.

5.2 Borrower CONAMA (through the OT) was the agency designated by the GOC to execute the Grant. All technical, regulatory, and policy and financial issues were handled by the OT. (a) Government Performance

Rating: Satisfactory

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The GOC was responsible for identifying the sub-projects and industrial sectors that would request funding from the MLF. With the support of the Bank, the government established a clear strategy to create awareness of ozone depletion and to prepare sub-projects in different industrial sectors. The GOC’s leadership and vision ensured that the program developed was appropriate to adhere to the ODS phase-out schedule of the Montreal Protocol. Its commitment to ensure compliance to MP commitments guaranteed that the pertinent regulation to control imports of ODS was enacted and enforced at the national level. Its oversight of day-to-day operations and its attention detail, crucial for the successful implementation of the type of investment sub-projects financed by the MLF, warranted the impact that the overall MP program has had over the past 15 years. Its performance is therefore assessed as satisfactory. (b) Implementing Agency or Agencies Performance

Rating: Satisfactory CONAMA’s role as implementing agency was satisfactory, as all project documents and activities were prepared on time and of high quality. In addition, supervision reports for ongoing projects were of high quality and always submitted on time to the Bank. The team at CONAMA worked closely with the Bank during the entire project and prepared logistics for Bank missions ahead of time, making supervision easier. (c) Justification of Rating for Overall Borrower Performance

Rating: Satisfactory The overall performance of the GOC during the project is assessed as satisfactory for the reasons mentioned above. The objectives of the grant were met, and Chile is well on its way to phasing out ODS completely by 2010.

6. Lessons Learned Lessons learned from Chile’s Ozone Depleting Substances Phase-out Project are listed below by category.

6.1 National and sectoral approaches to phase out ODS

The main lesson to be drawn from this and other MP operations implemented by the Bank is the importance of considering the overall national picture when tackling issues as broad as the phase out of a major raw material such as ODS. One of the main lessons learned at the level of the Excom is that a project-by-project approach would never have resulted in the overwhelming success that national phase-out plans have achieved. The responsibility and flexibility given to governments by these types of performance-based agreements allow them to adapt operations to the specific context of their countries, as well as to combine policy-level actions and specific investments in the various industrial sectors. 6.2 Auction mechanism (calls for bidding) An auction system can reduce project costs and administrative expenses. Because the program in Chile only disbursed after implementation, less administrative work was

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required during the projects (only in cases of technical or financial difficulties). A drawback of a post-project reimbursement mechanism is that companies have to bear the financial risk, causing some projects to stall. CE values must be attractive to SME for increased participation. Under the “cap” for each auction, SME could participate at lower cost-effectiveness than larger companies. This approach can be applied to some extent in sector and umbrella projects. Unless project preparation support is provided to SME with low or no technical capacity, they are unable to participate. In the Chilean case, an independent and neutral consultant helps promote the program and assists companies put together the required documentation. 6.3 Regulatory support The phase out achieved through investment sub-projects would not have been sustainable if the GOC had not put in place regulation to control and phase out ODS imports and manufacturing using ODS. ODS are still available in much smaller volumes around the world, and limited supply will continue until 2010. If the GOC had not introduced regulation and enforced its control on ODS supply, market forces would have encouraged Chilean enterprises to continue the use of these substances. The strong commitment of the GOC to comply with its MP obligations and its continuous oversight of the regulatory situation were absolutely critical to the success and the sustainability of the project. Moreover, in 2006 GOC enacted a law to advance controls for CFC according to the achievements in the country to ensure that the achieved reductions could be sustained. 6.4 Institutional strengthening The Chile MP operation is indicative of the importance of the Bank being the implementation agency that provides institutional support to a government. Through this project, the Bank effectively contributed to the institutional strengthening of CONAMA. While the OT gained considerable experience in negotiation techniques at the international level and a better understanding of the mechanisms of several agencies of the United Nations, it also gained extensive capacity in project management and knowledge of the Bank’s procurement and financial management procedures. 6.5 Bank implementation of Montreal Protocol operations The Chilean MP project is one of the first MP operations implemented by the Bank, out of approximately 20 country-based programs. These programs are atypical by Bank standards but very successful according to both Bank and MLF criteria. A few of the noteworthy aspects of this project, which has offered insight into efficient ways of carrying out these operations, are listed below:

1. The timeframe for these projects is typically longer than normal Bank operations, and progress (as reflected by disbursements) takes place in batches rather than on a continuous basis. This is due to the nature of the beneficiaries of the sub-projects and the difficulties in implementing each individual operation. It is important to stress that the time period needed to implement each of these sub-projects is dictated not only by Bank requirements but more precisely by MLF standards. Documentation and reporting requirements under the MLF were

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extremely strenuous, particularly when applied to the typical beneficiaries of the projects and during Phase I. For group projects, these requirements multiply and can slow progress considerably. In the Chilean project, streamlining and simplifying these requirements as much as possible under the MLF standards greatly improved the response of small enterprises and made it possible to complete some of the projects.

2. Indicative ceilings for disbursements under Grant Agreements have been used for

all MP operations implemented by the Bank. This has allowed the team’s flexibility in developing sub-project concepts and national strategies, without the constraints of amending legal documents. Although in some cases, such as the Chilean project, these ceilings are not fully met, this is not a poor reflection on the project performance but rather an indication of the context of each individual country. Ceilings are estimated on a sound technical basis and with the full endorsement of the countries, and they may or may not be met depending on the will of the governments.

3. Close supervision, but more important, government ownership of these projects

was critical in ensuring their successful completion. Relatively small problems could delay implementation for months, and it was the government’s oversight that helped minimize these potential delays.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

CONAMA (Technical Ozone Unit) (Former Executive Director of CONAMA, Ms. Ana Lya Uriarte, who left office in March 2007). The support of the MLF has been essential for the implementation of the Montreal Protocol in Chile. It has helped the conversion of companies to ODS-free production and has also provided resources for capacity building. It has proven essential in the increase awareness of people on this subject, promoting a behavioral change of individuals towards a shared responsibility on the protection of the environment. By ratifying the Protocol and all its Amendments, as well as the entering into force of the Ozone Law that regulated the consumption of ODS, Chile maintains its pledge with the goals of ODS reduction and the fulfillment of its commitments under the Protocol. Our current and future challenge is to keep this commitment, for which the support of the MLF and of all implementing agencies, as the World Bank has been, is and will continue to be essential for the country.

(b) Cofinanciers

Besides the direct project beneficiaries, which had to finance most of the conversion costs, there were no other institutional co-financiers. In general, companies that participated in the investment projects (auction system) had very positive comments, mainly for two reasons: (a) the financing mechanism offered by

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the Montreal Protocol helped them during the transition of technologies by providing incremental capital and operational costs, and (b) the technical assistance provided by the project proved essential for the implementation of the conversion process (e.g., for Sindelen and Química Anglo Chilena). Because of the high costs involved in the process of changing technologies, TECFIN allowed companies to implement their conversion process earlier than they could have using only their own means. This technological financing program allowed some companies (e.g., CTI and Rosen) to access more environmentally demanding national and international markets. (c) Other partners and stakeholders Not applicable.

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Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent)

Components Appraisal estimate (US$ million)

Actual/latest estimate

(US$ million)

Percentage of appraisal (*)

Ozone Team 0.19 0.21

Ozone Seal (.008) 0.01 0.01

Training 0.11 0.10

TECFIN (Investment) 0.45 0.42

Phase II 4.08 2.28

Institutional Strengthening 0.79 0.77

Public Awareness 0.37 0.37

MeBr Demonstration Project 0.35 0.34

Unallocated 0.10 0.10

Total Baseline Cost

Physical Contingencies 0.00 Price Contingencies 0.00

Total Project Costs Project Preparation Facility (PPF) 0.00 Front-end fee IBRD 0.00

Total Financing Required 6.50 4.50 69%

* As indicated in sections 6 and 7, the appraisal level DOES NOT correspond to actual IBRD financing. It is a grant agreement allowance, as actual funds come approved by the MLF based on specific projects that are prepared and approved over the life of the Bank’s operation. (b) Financing

Source of Funds Type of cofinancing

Appraisal estimate

(US$ million)

Actual/latest estimate

(US$ million)

Percentage of appraisal

Borrower 0.00 0.00 .00

Montreal Protocol Investment Fund 6.50 4.5 .69

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Annex 2. Outputs by Component

Funding and ODP phase out by sub-project

Sub-sector Funds disbursed

(US$)

Approved ODP

phased out (ODP tons)

Cost effectiveness(US$/kg)

TECFIN I 424,416.04 118 3.56

Ozone Seal 7,375.9 N/A N/A

Public Awareness 372,067.8 N/A N/A

Training 96,966.61 N/A N/A

Institutional Strengthening 986,567.44 N/A N/A

TECFIN II 2.287,376 409 5.59

Methyl Bromide Demonstration 348,056.45 N/A N/A

Halon Bank 0 N/A N/A

TOTAL 4,522,826 527 5.15

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Annex 3. Economic and Financial Analysis

The Chile Ozone Depleting Substances Phase out (Montreal Protocol) Project does not have a specific economic and financial analysis. Grant operations within the framework of the Montreal Protocol use pre-established cost-effectiveness criteria for all investment projects. Cost effectiveness is the ratio that indicates the specific cost for phasing out a kilogram of ozone depleting substances (ODS). The project was designed to improve the average Montreal Protocol Multilateral Fund cost effectiveness by means of a market-based grant allocation mechanism. The result has shown that the project is highly effective from a cost-effectiveness standpoint. Considering that the regular costs (to the MLF) for conversions are over US$12/kg for the refrigeration sector and over US$7/kg for the rigid foam sector, the operation in Chile has achieved ODS reductions at much lower costs. Because most of the Chilean ODS consumption at the beginning of the project was in the sectors mentioned above, achieving an average cost effectiveness of US$5.15/kg is highly satisfactory.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Name Title Unit Responsibility/ specialty

Lending

Supervision/ICR Horacio Terraza TTL LCSEN

Carla della Maggiora Consultant LCSEN Supervision/ICR Horacio Terraza TTL LCSEN Carla della Maggiora Environmental Consultant LCSEN Supervision missions Date

Team members

October 2–6, 2007 Horacio Terraza Carla Della Maggiora

April 24–26, 2006 Juan Andrés López Roger Gorham

May 14, 20–21, 2004 Roberto Aiello March 13–18, 2003 Juan Andrés López

José Ramón Gómez October 10–14, 2002 José Ramón Gómez March 20–22, 2002 Juan Andrés López

José Ramón Gómez September 27–October 2, 2001

Juan Andrés López Juan Mata Sandoval

March 19–29, 2001 Juan Andrés López Ellen Tynan Juan Mata Sandoval

August 18–23, 2000 Juan Andrés López December 16–17 1999 Juan Andrés López

June 28–30, 1999 Juan Andrés López

October 19–23, 1998 Laura Tlaiye Juan Andrés López Horacio Terraza

April 16, 1998 Laura Taiye Juan Andrés López

December 1–5, 1997 Laura Taiye Juan Andrés López

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(b) Staff Time and Cost

Staff time and cost (Bank budget only) Stage of project cycle

No. of staff weeks US$ thousands (including travel and consultant costs)

Lending FY93 39.03 FY94 4.34 FY95 3.22 FY96 1.97 FY97 0.00 FY98 0.00 FY99 0.00 FY00 0.00 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

TOTAL 48.56 Supervision/ICR

FY93 15.46 FY94 35.04 FY95 24.57 FY96 13.23 FY97 33.05 FY98 69.46 FY99 58.71 FY00 2.38 FY01 57.41 FY02 60.15 FY03 72.79 FY04 63.54 FY05 51.32 FY06 68.33 FY07 47.98 FY08 4.41

TOTAL 677.83

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Annex 5. Beneficiary Survey Results Not Applicable

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Annex 6. Stakeholder Workshop Report and Results Not Applicable

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR The Comisión Nacional del Medio Ambiente (CONAMA) provided overall positive comments on the implementation and execution of the Chile Ozone Depleting Substances Phase out (Montreal Protocol) Project. These comments are reproduced below. We fully agree with what has been described in the ICR. It reflects the coordinate work in implementing projects and activities for the fulfillment of the obligations of Chile under the Montreal Protocol, between the Ozone Unit in CONAMA as the representative of the Chilean government and the World Bank. It also accurately describes the financial and technical support provided by the Bank for the launching of the Ozone Unit, as the agency responsible for ensuring the completion of all activities to reduce ODS. The work with the World Bank has been very effective in creating capacity within the country. The Bank has provided technical assistance to elaborate and evaluate projects and for the planning of future activities. Supervision missions have been very helpful, providing an opportunity to work on issues that required more detailed attention and on those that were more complex to deal with. In particular we are very grateful for the support of the Bank for the analysis and evaluation of projects. From a specific project perspective, TECFIN I and II were an essential tool for the fulfillment of the obligations of Chile under the Protocol. Both projects focused on providing cost-effective financial support for those companies that used CFC and HCFC, ensuring long-term and environmentally friendly results. Providing support with government funds for conversion would have otherwise been very complex. These projects allowed the country to fulfill the ODS reduction targets for 2005 (50 percent) and 2007 (85 percent) with a good margin. Nevertheless, the fulfillment of the remaining 15 percent reduction required the elaboration and implementation of the Ozone Law. Even more, Chile was very pleased to receive, as part of the celebration of the 20th anniversary of the Protocol, “Recognition as the Exemplary Project of the Montreal Protocol” for the Financing and Technological Reconversion Program (TECFIN). The missions of the Bank offered great support in reference (sic) to raise awareness among authorities of the importance of the implementation of an Ozone Law, which would control the imports of ODS, and of the importance of the implementation of an imports and exports licensing system. In May 2004, after the Bank’s mission, the Executive Director restructured the Ozone Unit and since then it has been given greater consideration in the institutional decision making and planning processes, directly in coordination with the Pollution Control Department and the Executive Directors Department. The support of the Bank on Institutional Strengthening has also been an essential element that has ensured the completion of activities to reduce and eliminate the consumption of ODS in the country. These resources have permitted the existence of a group of professionals completely devoted to this task. The experienced gained in all these years has been transferred to other departments within CONAMA, as well as other areas that

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also deal with multilateral environmental agreements. For CONAMA, it is essential to rely on the support of the Ozone Unit in order to comply with the obligations under the Montreal Protocol. In general, CONAMA and the country value the fact that all planned activities and set objectives under the Montreal protocol have been completed and achieved.

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Annex 8. Comments of Co-financiers and Other Partners/Stakeholders In general, companies that participated in the Technology Conversion Financing Program (TECFIN) investment projects (auction system) had very positive comments, mainly for two reasons. First, the financing mechanism offered by the Montreal Protocol helped them during the transition of technologies by providing incremental capital and operational costs. Second, the technical assistance provided by the project proved essential for the implementation of the conversion process. This was true, for example, for Sindelen and Química Anglo Chilena). Because of the high costs involved in changing technologies, TECFIN allowed companies to undertake their conversion processes earlier than they could have using their own means. It is important to emphasize that this technological financing program allowed some companies (e.g., CTI and Rosen) to access more environmentally demanding national and international markets.

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Annex 9. List of Supporting Documents

1. Aides-mémoire and project status reports (10/19/98–10/23/98, 10/2/06–10/6/06) 2. Audit reports 3. Business plans prepared by the Ozone Team (OT) (CONAMA) and the World

Bank Regional Team 4. Comments from beneficiary enterprises 5. Financial and procurement information from the OT (CONAMA) 6. Grant agreement, Chile’s Ozone Depleting Substances Phase I and II, World

Bank 7. Sub-grant agreements, CONAMA and beneficiary companies 8. Project documents prepared by the OT, beneficiary companies, and World Bank

Montreal Protocol Regional Team 9. Project completion reports of each sub-project prepared by the OT 10. Progress reports prepared by the OT