United Nations Environment Programme

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1 UNITED NATIONS United Nations Environment Programme Distr. GENERAL UNEP/OzL.Pro/ExCom/66/28 23 March 2012 EP ORIGINAL: ENGLISH EXECUTIVE COMMITTEE OF THE MULTILATERAL FUND FOR THE IMPLEMENTATION OF THE MONTREAL PROTOCOL Sixty-sixth Meeting Montreal, April 2012 PROJECT PROPOSAL: ARGENTINA This document consists of the comments and recommendation of the Fund Secretariat on the following project proposal: Phase-out HCFC phase-out management plan (stage I, first tranche) Italy/UNIDO/World Bank Pre-session documents of the Executive Committee of the Multilateral Fund for the Implementation of the Montreal Protocol are without prejudice to any decision that the Executive Committee might take following issuance of the document.

2 PROJECT EVALUATION SHEET MULTI-YEAR PROJECTS Argentina (I) PROJECT TITLE HCFC phase out plan (Stage I) AGENCY Italy/World Bank/UNIDO (lead) (II) LATEST ARTICLE 7 DATA (Annex C Group l) Year: (ODP tonnes) (III) LATEST COUNTRY PROGRAMME SECTORAL DATA (ODP tonnes) Year: 2010 Chemical Aerosol Foam Fire fighting Refrigeration Solvent Process agent Manufacturing Servicing Lab Use Total sector consumption HCFC HCFC HCFC-141b HCFC-141b in imported preblended polyol HCFC-142b HCFC (IV) CONSUMPTION DATA (ODP tonnes) baseline: Starting point for sustained aggregate reductions: CONSUMPTION ELIGIBLE FOR FUNDING (ODP tonnes) Already approved: Remaining: (V) BUSINESS PLAN Total UNIDO ODS phase-out (ODP tonnes) Funding (US $) 430, , , ,000 1,559,000 IBRD ODS phase-out (ODP tonnes) Funding (US $) 2,738, ,738,000 (VI) PROJECT DATA Total Montreal Protocol consumption limits n/a n/a n/a n/a Maximum allowable consumption (ODP tonnes) n/a n/a n/a n/a UNIDO Project costs 8,435, , , ,000 9,560,542 Support costs 632, , ,500 9, ,041 Agreed Funding World Bank Project costs , , , ,612 (US$) Support costs , ,500 8,596 68,596 Italy Project costs 300, ,000 Support costs 39, ,000 Total project costs requested in principle (US $) 8,735, ,600, , ,612 10,775,154 Total support costs requested in principle (US $) 671, , ,000 17, ,637 Total funds requested in principle (US $) 9,407,208* 0 1,720, , ,583 11,599,791 *Approved at the 61 st meeting (VII) Request for funding for the first tranche (2012) Agency Funds requested (US $) Support costs (US $) UNIDO 900,000 67,500 World Bank 700,000 52,500 Funding request: Secretariat's recommendation: Approval of funding for the first tranche (2012) as indicated above Individual consideration 2

3 PROJECT DESCRIPTION 1. On behalf of the Government of Argentina UNIDO, as the lead implementing agency, has submitted to the 66 th meeting of the Executive Committee stage I of the HCFC phase-out management plan (HPMP) at a total cost of US $15,467,449, consisting of US $11,366,019 plus agency support costs of US $852,451 for UNIDO, US $2,706,957 plus agency support costs of US $203,022 for the World Bank, and US $300,000 plus agency support cost of US $39,000 for the Government of Italy, as originally submitted. These amounts include the funding of US $9,407,207, comprising US $8,435,542 plus support cost of US $632,666 for UNIDO, and US $300,000 plus support cost of US $39,000 for the Government of Italy for an investment project for the phase-out of ODP tonnes of HCFC-22 in the room and unitary air-conditioning equipment manufacturing sector, approved at the 61 st meeting of the Executive Committee (decision 61/34). The implementation of stage I of the HPMP will phase out ODP tonnes of HCFCs and assist Argentina in meeting the Montreal Protocol s compliance target of the 10 per cent reduction by The first tranche for stage I of the HPMP being requested at this meeting amounts to US $4,262,687, consisting of US $1,512,500, plus agency support costs of US $113,438 for UNIDO, and US $2,452,957, plus agency support costs of US $183,972 for the World Bank, as originally submitted (these amounts exclude the level of funding for the investment project previously approved for UNIDO and the Government of Italy). Background 3. Argentina, with a total population of million inhabitants, has ratified all the amendments to the Montreal Protocol. ODS policy and regulatory framework 4. The Secretariat of Environment and Sustainable Development has been designated as the Government authority to implement the Montreal Protocol through the national ozone unit (OPROZ). OPROZ is in charge, among others, of implementing the ozone country programme, managing the operation of the licensing system, collecting and reporting ozone depleting substances (ODS) data and coordinating project implementation with other institutions. A programme for the phase-out of ozone depleting substances (PRESAO) was also created within the National Industrial Directorate of the Ministry of Industry to oversee the implementation of industrial conversion projects where the World Bank is the implementing agency. 5. In 2004, a regulation that, inter alia, controls the import, export and trade of ODS including HCFCs was issued and a national registry of ODS imports/exports was established by a decree. A web based licensing system where importers/exporters are registered and quotas are issued is operational. Import/export quotas for HCFCs will be issued starting 1 January No HCFC-22 import quota will be issued for HCFC-22 consumed by enterprises manufacturing domestic air-conditioning equipment as this consumption will be phased out by 2013 with the assistance of the Multilateral Fund. Additionally, the Government will issue a ban on the manufacturing and import of HCFC-based domestic air-conditioning equipment starting 1 July HCFC consumption, production and sector distribution 6. Argentina not only imports HCFCs but also produces HCFC-22 and exports HCFCs to other countries. The main HCFCs consumed in Argentina include HCFC-22, HCFC-141b, HCFC-142b, HCFC-123 and HCFC-124. HCFC-141b contained in imported pre-blended polyols has been historically 3

4 reported under Article 7 of the Montreal Protocol. The HCFC data gathered by the survey is consistent with that reported under Article 7. The HCFC baseline for compliance is ODP tonnes. The level of HCFC consumption in Argentina is shown in Table 1. Table 1. HCFC consumption in Argentina HCFC HPMP(*) Metric tonnes HCFC-22 3, , , , , , , HCFC-141b , , HCFC-142b HCFC HCFC HCFC Total mt 3, , , , , , , ODP tonnes HCFC HCFC-141b HCFC-142b HCFC HCFC HCFC Total ODP tonnes (*) HCFC-141b content of exported pre-blended polyols has been deducted. 7. HCFC consumption has been increasing since 2004 with an exceptionally low consumption in 2009 due to the global economic and financial crisis of 2008/2009. In 2010, consumption returned to the historical trend. 8. HCFC-22 is the only HCFC produced in Argentina both for the local market (36 per cent in 2010) and for export. FIASA is the only producer of ODS, and has exclusively produced HCFC-22 since 2008 when it ceased CFC production. The level of production of HCFC-22, and import and export of HCFCs is shown in Table 2. Table 2. HCFC-22 production in Argentina vs. HCFC imports and exports Activity (*) Metric tonnes Production HCFC , , , Import HCFC 3, , , , , , Export HCFC , , Consumption HCFC 3, , , , , , ODP tonnes Production HCFC Import HCFC Export HCFC Consumption HCFC (*)Source for 2008 data: Country Programme implementation report 4

5 9. HCFCs are mainly used for servicing refrigeration and air-conditioning (RAC) equipment (54.0 per cent in ODP tonnes), followed by the foam (22.4 per cent) and RAC manufacturing (19.2 per cent) sectors. Small amounts of HCFCs are used in the aerosol, fire-fighting and solvent sectors (4.4 per cent). The HCFC sector distribution in 2010 is shown in Table 3. Table 3. HCFC consumption distribution by sector (2010) HCFC Refrigeration Manufacture Servicing Foam Aerosol Fire fighting Solvent Total % of total Metric tonnes HCFC-22 1, , , HCFC141b , HCFC-142b HCFC HCFC Total (mt) 1, , , Total (%) ODP tonnes HCFC HCFC141b HCFC-142b HCFC HCFC Total (ODP tonnes) Total (%) The forecast HCFC consumption in Argentina based on a five per cent annual growth is presented in Table 4. Table 4: HCFC consumption forecast for Argentina Scenario Year Unconstrained HCFC mt 7, , , , , consumption ODP t HCFC consumption with Montreal Protocol control mt 7, , , , , measures ODP t The current prices of HCFC and non-hcfc alternatives per kilogram (kg) are as follows: US $7.85 for HCFC-22, US $4.90 for HCFC-141b, US $3.25 for HCFC-141b in imported pre-blended polyols, US $6.60 for HCFC-142b, US $15.00 for HCFC-123, US $22.85 for HCFC-124, US $8.52 for R-406A, US $15.31 for isobutane, US $4.00 for cyclopentane, US $19.70 for R-404A, US $17.00 for R-407A, US $20.00 for R-410A, US $16.10 for R-507a and US $18.85 for HFC-134a. Refrigeration and air-conditioning manufacturing sector 12. Argentina manufactures domestic air-conditioners with an associated consumption of 1, mt (68.48 ODP tonnes) of HCFC-22 in Major products include window and split units with different cooling/heating capacities ranging from 2.48 kw to 18.5 kw, which are manufactured by eleven companies (four of them are partially or totally owned by non-article 5 countries capital). All enterprises assemble pre-manufactured kits, charging, testing and packaging. A project for the conversion of these enterprises was approved at the 61 st meeting. 5

6 13. Commercial and industrial refrigeration equipment is also manufactured in Argentina by two large enterprises and more than 90 small enterprises, with an associated consumption of mt (21.95 ODP tonnes) in Some of the equipment manufactured by these enterprises is charged with HCFC-22 by third parties or by servicing technicians in the field. This consumption, estimated at around to mt (4.40 to 5.50 ODP tonnes) is accounted for under the servicing sector. Refrigeration and air-conditioning servicing sector 14. The RAC servicing sector consumed 4, mt ( ODP tonnes) of HCFCs in Both pure HCFC-22 (representing 86.4 per cent of the total HCFC consumption in the servicing sector) and refrigerant blends containing HCFC-142b, HCFC-123 and HCFC-124 (8.0 per cent), are used for servicing existing equipment. HCFC-141b is also used for flushing refrigeration circuits (5.62 per cent). 15. There are an estimated 10 million domestic air-conditioning units and an unestimated large number of commercial and industrial systems in operation, which are serviced by approximately 10,800 technicians in 6,500 service workshops. About 68 per cent of the technicians have received some formal training. An estimation of HCFC consumption per subsector in the refrigeration and air-conditioning servicing sectors is presented in Table 5 below. Table 5. Estimated HCFC consumption by subsector in the refrigeration and air-conditioning servicing sectors Equipment HCFC consumption (ODP tonne) Domestic air conditioning Commercial air conditioning Industrial air conditioning Commercial refrigeration Industrial refrigeration Total *Total value does not match with actual consumption as it is an estimation for informative purposes. Foam sector 16. In 2010, approximately mt ( ODP tonnes) of HCFCs were used in the foam sector, namely, HCFC-141b used as a blowing agent for the production of various types of polyurethane (PU) foam, and HCFC-22 and HCFC-142b used for the production of extruded polystyrene (XPS) foam as shown in Table 6. In 2010, mt (5.03 ODP tonnes) of HCFC-141b contained in pre-blended polyols were exported to Bolivia, Chile, Paraguay and Uruguay. 6

7 Table 6. HCFC consumption in foam sector by substances and applications (ODP tonnes) Application HCFC-141b HCFC-22 HCFC-142b Total HCFCs PU foam Domestic Appliances Commercial refrigeration Sandwich panels Spray and pour-in-place Box foaming Door insulation Integral skin Other XPS foam Insulation boards Total There are five systems houses that consumed 681 mt (74.91 ODP tonnes) of HCFC-141b and supplied pre-blended polyols to nearly 500 downstream users. Three of the systems houses, with a total consumption of mt (48.51 ODP tonnes) of HCFC-141b, are foreign owned. There are also three enterprises blending HCFC-141b with polyols in house, and additional enterprises using HCFC-141b in imported pre-blended polyols reported under Article 7. From an initial estimate, only 12 from an approximate total of 600 foam enterprises have consumption above 20 mt (2.20 ODP tonnes). Seven of these companies are not eligible, and although the remaining five would be eligible in principle at this point only data from Mabe and Celpack has been verified. Since the foam sector plan is still under preparation, other foam enterprises and the consumption distribution in the sector cannot be clearly described at present. The HPMP includes investment projects for two foam enterprises, Mabe and Celpack in stage I of the HPMP. Other consumption sectors 18. The aerosol sector consumes approximately mt (18.22 ODP tonnes) of HCFCs, accounting for 4 per cent (ODP tonnes) of national consumption in The HCFCs used in the sector include HCFC-22 (67.3 per cent), HCFC-141b (31.4 per cent) and HCFC-142b (1.3 per cent), used as a propellant in party snow aerosol, contact cleaner, lubricants, insulators, blowers and cold pain relief products. Among the 10 enterprises identified in the sector, two enterprises (Aerolom S.A. and Electroquimica Delta S.A.) consumed mt (i.e. 53 per cent of the sector consumption). HCFC consumption in the solvent (excluding flushing in the refrigeration servicing sector) and fire fighting sectors account for less than one per cent of national consumption of HCFCs. HCFC phase-out strategy 19. The Government of Argentina has developed a staged approach to comply with the adjusted HCFC targets. Well-coordinated production and consumption phase-out is critical to Argentina s compliance with Montreal Protocol phase-out obligations. For phasing out the HCFC-22 production, the Government will submit a sector phase-out strategy once the funding criteria for the production sector phase-out have been decided by the Executive Committee. 20. The main activities to be implemented during stage I of the HPMP are: policy and regulatory actions; conversion of the domestic air-conditioner manufacturing sector approved at the 61 st meeting and conversion of two foam enterprises to non-hcfc-based technologies; activities in the refrigeration and air-conditioning servicing sector; monitoring and reporting of HCFC-22 production; and support for the 7

8 project implementation and monitoring unit. The Government will also apply HCFC import quotas and ban imports of HCFC-based domestic air-conditioning equipment to ensure sustainability of the phase-out. Regulatory actions 21. Non-investment activities are planned to control the supply and demand of HCFCs in stage I to ensure the sustainability of the phase-out in the domestic air-conditioner manufacturing sector and control HCFC consumption growth in servicing and other manufacturing sectors, for which activities are planned in stage II of the HPMP. The total cost for regulatory actions amounts to US $376,750. These include: (a) (b) (c) (d) Improving and enforcing the quota and licensing system to address the import, export and trade of all HCFCs, including the re-sale and re-export of recovered and reclaimed HCFCs; Organizing two training workshops for customs officers to prevent illegal trade in HCFCs, providing 20 refrigerant identifiers; Assisting the development of legislation to ban imports of HCFC-22-based equipment and the establishment of new HCFC-22 manufacturing capacity in the domestic air-conditioning sector; and Implementing public awareness activities. Refrigeration and air-conditioning manufacturing sector 22. An investment project for the conversion of the entire domestic air-conditioner manufacturing sector was approved at a total cost of US $8,735,542 at the 61 st meeting. Implementation of the project will result in the phase-out of mt (53.46 ODP tonnes) of HCFC-22 used by eleven manufacturing enterprises by The technology selected is HFC-410A. It is being implemented with assistance from UNIDO and the Government of Italy. It is complemented by the non issuance of HCFC-22 quotas to enterprises for manufacturing domestic air-conditioning equipment as of 1 January 2013 and the ban on manufacturing and importation of HCFC-22-based domestic air-conditioning equipment as of 30 June Foam sector plan 23. Stage I of the HPMP includes a foam sector plan to phase out mt (17.05 ODP tonnes) of HCFC-141b used as a blowing agent at an estimated cost of US $1,200,000. Given that the preparation of the phase-out plan has not been completed as funding was only approved at the 65 th meeting, it will be submitted to the 67 th meeting. Stage I also includes the conversion of two specific enterprises, Mabe Argentina using HCFC-141b in the manufacture of rigid insulation foam for domestic refrigerators, and Celpak, the only manufacturer of XPS in Argentina. Conversion of HCFC-141b in the manufacture of PU rigid insulation foam for domestic refrigerators at Mabe Argentina 24. Mabe Argentina is a domestic refrigeration manufacturing company with 51.6 per cent local ownership and a total production of 250,457 units in All its products are sold locally or exported to Article 5 countries. The two production lines in the company were established using CFCs and converted to HFC-134a (refrigerant) and HCFC-141b (insulation foam) with the company s own resources in

9 The company blends the foam components of HCFC-141b, polyol and polymeric MDI within the plant. The equipment in the baseline includes a pre-mixer and two high pressure foam dispensers, one for cabinets with eight fixed mixing heads, and one for the doors with one mobile mixing head. 25. The project for Mabe aims to replace mt (18.46 ODP tonnes) of HCFC-141b with cyclopentane, a mature and proven technology with low global-warming potential (GWP). The conversion will involve installation of one cyclopentane storage tank, one pre-mixing tank, two new foam dispensers, retrofitting of fixtures/moulds, additional pipeline and safety-related equipment and systems, training, trials and technical assistance at a total cost of US $1,950,443. Incremental operating cost has been calculated on the price difference in blowing agents before and after the conversion, and an additional 4 per cent in raw materials for compensation of insulation property, resulting in US $30,106. The total cost for Mabe is US $1,980,548, of which US $1,021,963 is eligible for funding (after deducting the foreign ownership) with a cost effectiveness of US $6.09/kg. Phase-out of HCFC-22 and HCFC-142b in XPS product manufacturing at Celpack 26. Celpack is a locally owned enterprise producing XPS insulation board for building insulation. The production line was established in April 1994 using CFC-12/HCFC-22 (ratio 75/25) as blowing agents. At the 13 th meeting (July 1994), US $503,094 was approved for UNIDO for the conversion of another extruded and thermoformed polystyrene food packaging production line from CFCs to n-butane at Celpack. In 2006, the enterprise received an additional US $30,000 as technical assistance for trials to change its formulation from CFC-12/HCFC-22 to HCFC-142b/HCFC-22 of the insulation board line established in The project proposes to replace mt (3.11 ODP tonnes) of HCFCs (i.e., mt (2.43 ODP tonnes) of HCFC-142b and mt (0.68 ODP tonnes of HCFC-22) with n-butane, based on its low GWP value and the enterprise s experience using butane in another production line. The incremental capital cost includes replacement of the extruder to accommodate the pressure increase in the foaming process, safety related equipment and systems to address the flammability of butane, training, trial and safety audit. The incremental operating cost is calculated based on the comparative prices of the blowing agents, which results in a net incremental operating savings of US $124,389. The total cost for the conversion amounts to US $1,298,241, of which US $408,994 is requested from the Multilateral Fund, with a cost effectiveness of US $8.22/kg (or US $131.51/ODP kg). Activities in the servicing sector 28. Stage I of the HPMP aims to reduce 400 mt (22 ODP tonnes) of HCFC-22 used in the servicing sector through training of 500 technicians in good servicing practices, and distribution of 300 refrigerant recovery, and re-use kits. Implementation of these activities will reduce the direct emissions of HCFCs into the atmosphere; maintain the infrastructure established during the CFC phase-out period, and maintain momentum in the training programme for technicians. The total cost of activities in the servicing sector is US $2,153,727. Monitoring and reporting on HCFC-22 production 29. Being an HCFC exporting country, Argentina needs to monitor the end-of-year stockpiles to confirm that they will be exported in the following years and meet the reporting requirements set in decisions XVIII/17 and XXII/20 of the Meeting of the Parties. Accordingly, stage I includes a request for establishing a monitoring system to address the annual production quota for HCFC-22 for the 2013 to 2015 period and annual quotas for imported HCFCs, as well as a record-keeping system for tracking stockpiles of locally produced HCFCs, at a total cost for this component of US $76,000. 9

10 Monitoring and coordination 30. This component will ensure close monitoring and coordination between stakeholders of all activities to be implemented in stage I. Meetings with relevant authorities, industry stakeholders, and HCFC and HFC importers will be organized regularly in order to enact the necessary agreements and measures to carry out the investment and non-investment activities in a coordinated manner. The total cost of this component is US $400,000. Total cost of stage I of the HPMP 31. The total cost of the activities proposed in stage I of the HPMP to be funded through the Multilateral Fund amounts to US $14,372,976 (excluding agency support costs). These activities will result in the phase-out of ODP tonnes of HCFCs with an overall cost-effectiveness of US $8.25/kg. Detailed activities and cost breakdown are shown in Table 7. Table 7. Overall cost of stage I of the HPMP for Argentina Description of component Total HCFC mt ODP Cost (US $) UNIDO Policy and regulatory actions sub-total , ,750 Agency World Bank Updating quota and licensing system 38,750 38,750 Customs training 180, ,000 Legislation on reduction and ban of imports of HCFC-22 based equipment 63,000 63,000 Public awareness campaign 95,000 95,000 Servicing sector activities sub-total ,153,727 2,153,727 Provision of equipment for technicians ,787,727 1,787,727 Training in good practices, flushing and handling alternatives 366, ,000 Activities in foam sector sub-total ,630,957 2,630,957 Conversion Mabe Argentina ,021,963 1,021,963 Conversion Celpack , ,994 Foam Sector Plan (*) ,200,000 1,200,000 HPMP monitoring and coordination 400, ,000 Monitoring and reporting on HCFC-22 production 76,000 76,000 Total new activities ,637,434 2,930,477 2,706,957 Phase-out of HCFC-22 in the room and unitary air-conditioning equipment ,735,542 8,435, ,000 manufacturing sector (**) Total for stagei of the HPMP 1, ,372,976 11,366,019 2,706, ,000 (*) To be submitted at the 67 th meeting. (**) Approved at the 61 st meeting. Italy COMMENTS SECRETARIAT S COMMENTS AND RECOMMENDATION 32. The Secretariat reviewed the HPMP for Argentina in the context of the guidelines for the preparation of HPMPs (decision 54/39), the criteria for funding HCFC phase-out in the consumption 10

11 sector agreed at the 60 th meeting (decision 60/44), subsequent decisions on HPMPs and the business plan of the Multilateral Fund. Starting point for aggregate reduction in HCFC consumption 33. At the 61 st meeting of the Executive Committee, in approving the investment project for the phase-out of HCFC-22 in the room and unitary air-conditioning equipment manufacturing sector, the Executive Committee noted that the Government of Argentina had agreed to establish as its starting point for aggregate reduction the HCFC consumption level reported under Article 7 for 2008 (356.9 ODP tonnes) (decision 61/34 (a)). 34. In its HPMP, Argentina is requesting to change the established starting point of ODP tonnes based on the HCFC consumption in 2008 to ODP tonnes based on the established baseline for compliance of ODP tonnes minus 2.51 ODP tonnes representing the average amount of HCFC-141b contained in pre-blended polyols that were exported in 2009 and The reason for this request, as explained by UNIDO, is that at the time when the investment project was submitted to the Executive Committee, the estimated level of HCFC consumption for 2009 was not realistic and the consumption data for 2010 was not yet available. Therefore, the Government considered that it had no other choice but to select the reported consumption for 2008 as its starting point. The difference between the established starting point and the proposed starting point is ODP tonnes, which amounts to 10 per cent of the established baseline; not acknowledging its eligibility could force Argentina into non-compliance. 35. The Secretariat reviewed the request in light of decision 60/44 (c), (d) and (e) on the starting point for aggregate reduction. It advised UNIDO that, if the HCFC baseline forecast was selected as the starting point, it should be adjusted in cases where it is different from the assessed HCFC baseline based on reported Article 7 data; however, this was not the case for Argentina, where the latest consumption reported under Article 7 was selected. As decision 60/44 neither established a provision nor allowed an interchange between options (i.e., latest reported consumption or baseline) after they had already been selected, the Secretariat is presenting the request from the Government of Argentina to the Executive Committee for its consideration. HCFC consumption in the servicing sector 36. In providing the reasons for the sharp increase of HCFC consumption in the servicing sector from 2009 (3, mt) to 2010 (4, mt), UNIDO explained that in 2010 there was greater production of air-conditioning and commercial refrigeration equipment requiring first charge, repair and top-up during installation. It was estimated that 160 mt were required for these purposes. In addition, some sectors like fisheries converted from CFC to HCFC in 2010, and there were also some imports of HCFCs to replenish stockpiles used in UNIDO provided the data on stock at the FIASA HCFC production facility, which showed that in 2010 FIASA did not fully replenish its stockpile to historical levels after a major reduction in At the end of 2010, the stockpiles were still less than 50 per cent of the normal level (average of ). UNIDO also stated that there are stockpiles in the hands of merchants and end users, but given the large number of stakeholders and the fact that said stocks can change based on the situation in the market, their size cannot be determined or even estimated. Submission of the foam sector plan 37. The Secretariat raised concerns regarding the proposal of submitting the foam sector plan to the 67 th meeting as it could change the whole nature of stage I of the HPMP, and requested UNIDO (as the 11

12 lead implementing agency of the HPMP) and the World Bank (as the agency responsible for phase-out activities in the foam sector) to consider the following two options: (a) Withdrawing the HPMP and re-submitting it to the 67 th meeting along with all its components including the foam sector plan, noting that the approved project in the domestic air-conditioning manufacturing sector is already covering reductions to allow for at least the 2013 compliance target to be met and noting that the delay in its approval by three months may not have a critical impact on additional reductions; or (b) Deferring the foam sector plan to stage II of the HPMP, noting that stage I of the HPMP has included several phase-out activities, which are sufficient to assist the country in achieving compliance targets in 2013 and In responding, the World Bank explained that the foam sector plan was included in stage I of the HPMP as the reductions in HCFC consumption from the air conditioner manufacturing sector and the two foam projects (i.e., Mabe Argentina and Celpack) were not sufficient to effectively meet the 2013 and 2015 compliance targets. However, after analysing and consulting with the Government, the World Bank agreed to defer the submission of the foam sector plan to stage II of the HPMP. Phase-out of HCFCs in Celpack 39. Given the small amount of HCFCs to be phased out from the conversion of Celpack (i.e ODP tonnes representing less than 0.8 per cent of the HCFC baseline) and considering that the other phase-out activities included in stage I will assist the country in meeting the compliance targets in 2013 and 2015, the Secretariat proposed to the World Bank deferral of the conversion of Celpack to stage II of the HPMP. After further discussions and consulting with the Government, the World Bank agreed to defer the conversion of Celpack to stage II of the HPMP. Technical and cost-related issues with the conversion at Mabe Argentina 40. The Secretariat reviewed the project for the conversion of Mabe Argentina from HCFC-141b to cyclopentane and sought clarification from the World Bank on several cost elements based on experience with similar foam projects that have already been approved, including the costs of storage tanks, pre-mixers, high pressure dispensers and mixing heads, and safety related equipment. After several discussions it was agreed to adjust the costs of the above items, and to reduce the number of exhaust systems and sensors requested, resulting in a total cost of US $1,625,217 (from US $1,980,548 as originally submitted). After deducting the foreign ownership, the level of funding agreed amounts to US $838,612 with a cost-effectiveness of US $5.00/kg. Phase-out in RAC servicing sector 41. The Secretariat reviewed the activities of the HPMP in light of the results so far achieved under the CFC national phase out plan (NPP) in Argentina. It was noted that over 7,600 technicians had been trained in good practices, refrigerant recovery and recycling, and retrofitting to alternatives; nearly 10,000 pieces of basic equipment and tool kits had been distributed to technicians and the phase-out of CFCs completed in As of February 2012, a balance of US $1,954,228 was still available (in addition to US $500,000 for the chiller component currently implemented by the World Bank). 42. While appreciating that the legislative actions and activities in the servicing sector will assist in a smooth and sustained phase-out of HCFC consumptions in all sectors, the Secretariat raised concerns on how these activities proposed for the servicing sector would reduce its growth rate and contribute to 12

13 meeting the reduction steps in 2013 and 2015 as per decision 62/12 (b). The Secretariat also noted that the funding request for these activities, amounting to US $2,530,477, was high. In addressing these concerns, UNIDO provided the following explanations: (a) (b) (c) (d) (e) HCFC consumption in the servicing sector is continuously growing in Argentina. In 2010, HCFC consumption in servicing represented 53.9 per cent of the total HCFC consumption; The main consumers of HCFCs in Argentina are 10,800 service technicians that need training in proper HCFC-22 handling; covering this population will require many years and delaying this activity would jeopardize the meeting of future compliance targets; Non-HCFC-based equipment is gradually entering the market especially through the implementation of the RAC sector conversion project by Accordingly, technicians should be equipped with knowledge and techniques to work with these new refrigerants, be able to install and service them properly and avoiding reversion to HCFC-installed capacity; If these activities are implemented in stage I, OPROZ could reactivate some of the training institutions and human resources used for the implementation of the NPP and take advantage of the existing infrastructure; and Other manufacturing sectors such as aerosol could not be converted at this stage as the available alternative is HFC-134a, which is two to three times more expensive than HCFCs and has a high GWP. 43. Based on the consumption forecast it is expected that the proposed activities in the refrigeration and air-conditioning manufacturing and servicing sectors together with the regulatory actions would reduce the future demand for HCFC-22 by 1,684 ODP tonnes during the period of 2013 to UNIDO also stated that nearly US $1.1 million of the remaining balance of the NPP was already committed to ongoing activities with end-users (4 public chillers not covered under the World Bank s chiller activities) and several non-investment activities including seminars, awareness raising and monitoring. However, the Government agreed to utilize US $800,000 for activities that will assist the phase-out of HCFCs on the understanding that the amount associated with this funding will not be discounted from the starting point. Furthermore, the request for funding for regulatory actions was left as part of the monitoring activities (i.e. the US $376,650 requested for this activity was removed), and the cost for training of technicians in good servicing practices, reduction of HCFC-141b in flushing, and distribution of refrigerant recovery, re-use servicing kits was reduced to US $725,000 (from the US $2,153,727 originally proposed). Total cost of the HPMP 45. Taking into account the adjustment of activities and their associated costs in the servicing sector, monitoring and reporting for the HCFC-22 production facility at FIASA, the project at Mabe and the overall monitoring and coordination of implementation, the detailed activities and costs agreed for stage I of the HPMP are provided in Table 8. These activities will result in the phase-out of ODP tonnes of HCFCs at a total cost of US $10,775,154 with an overall cost-effectiveness of US $8.12/kg. 13

14 Table 8: Detailed activities and costs agreed in stage I of the HPMP Description of component Total HCFC (mt) Total HCFC (ODP t) Cost (US $) Implementing agency World UNIDO Italy Bank Conversion from HCFC-141b in the manufacture of polyurethane rigid insulation foam for domestic , ,612 refrigerators at Mabe Argentina Subtotal investment activities , ,612 Technical assistance to reduce the use of HCFC-141b in flushing during , ,000 servicing Provision of equipment kits for refrigeration technicians and training of technicians on good practice, , ,000 servicing and retrofit to alternatives Subtotal non-investment activities , ,000 Monitoring of HCFC-22 production at FIASA ,000 76,000 HPMP monitoring and coordination , ,000 Subtotal monitoring activities , ,000 76,000 Total new funding for stage I of the HPMP ,039,612 1,125, ,612 Phase-out of HCFC-22 in room and unitary air-conditioning equipment manufacturing sector approved at 61 st meeting ,735,542 8,435, ,000 Total funding for stage I of the HPMP 1, ,775,154 9,560, , ,000 Commitment for compliance beyond 2015 targets 46. The Secretariat noted that Argentina is proposing to phase out per cent of its baseline consumption in stage I of the HPMP. In reference to the practices of the Executive Committee in recent approvals where countries address more than 10 per cent of the baseline consumption in stage I, requiring an additional commitment towards meeting the 35 per cent targets, the Secretariat inquired whether Argentina could make a commitment for compliance beyond After consulting the Government of Argentina, UNIDO informed that the environmental regulations in Argentina strictly follow the country's international obligations. The licenses and quotas can be determined only in accordance with the actual commitments of the country. Thus, acceleration of commitments would not be possible. Impact on the climate 47. The implementation of the conversion of HCFC-141b to cyclopentane at Mabe would avoid the emission into the atmosphere of some 119,573 tonnes of CO 2 -equivalent as shown in Table 9. 14

15 Table 9. Impact on the climate of the conversion project at Mabe Scenario Substance GWP Consumption CO 2 -eq (mt/year) Climate impact CO2-eq (mt/year) Before conversion HCFC-141b ,659 After conversion Cyclo-pentane ,086 Net impact (119,573) 48. The climate impact of the conversion project for the domestic air-conditioning manufacturing sector was evaluated at the 61 st meeting as an increased emission of 307,538 tonnes of CO 2 -equivalent for products manufactured in one year over their life time (UNEP/OzL.Pro/ExCom/61/28). The proposed technical assistance activities in the servicing sector, which include the introduction of better containment of refrigerants and leakage control, and the enforcement of HCFC import quotas, will result in a reduction in emission by approximately 56,355 tonnes of CO 2 -equivalent. Based on the activities approved and those recommended for approval, the net climate impact of stage I of the HPMP is estimated as an increased emission of 131,610 CO 2 -equivalent tonnes. The climate impact figure in the business plan is an emission reduction of 283,011 tonnes of CO 2 -equivalent. This is because the negative impact on the climate from the conversion project for domestic air-conditioning equipment manufacturing sector approved at the 61 st meeting was not taken into account in the business plan. In addition, the climate impact in the business plan was calculated based on the activities proposed in the original submission of the HPMP and these have been adjusted during the project review. Co-financing 49. In response to decision 54/39(h) on potential financial incentives and opportunities for additional resources to maximize the environmental benefits from HPMPs pursuant to paragraph 11(b) of decision XIX/6 of the Nineteenth Meeting of the Parties, OPROZ is keen to explore sources for co-financing phase-out activities to contribute to the timely and successful implementation of the HCFC phase-out programme. However, during the preparation of the HPMP no funding source had been identified because the objective and funding mechanisms of the various programmes are different from that of the Montreal Protocol, and the time frame for accessing other funds was not compatible with the tight schedule of the HPMP. At this time, the only co-funding available is the counterpart contribution of US $786,605 from the beneficiary enterprise Mabe for its conversion programme draft business plan of the Multilateral Fund 50. Table 10 shows the level of funding and amounts of HCFCs to be phased out according to the business plan of the Multilateral Fund. The level of funding requested for the implementation of stage I of the HPMP of US $2,192,583 (including support costs and excluding costs for the approved project), is lower than that in the business plan (US $4,296,419), since it is associated with a reduced amount of HCFCs to be phased-out during implementation of stage I of the HPMP. 15

16 Table business plan of the Multilateral Fund Agency Total Funding (US $) UNIDO 430, , , ,250 1,558,750 World Bank 2,737, ,737,669 Total 3,167, , , ,250 4,296,419 Phase-out (ODP tonnes) UNIDO World Bank Total Draft agreement 51. A draft Agreement between the Government of Argentina and the Executive Committee for HCFC phase-out is contained in Annex I of the present document. RECOMMENDATION 52. In light of the information provided and the Secretariat s comments in paragraphs and 46, the Executive Committee may wish to consider: (a) (b) (c) (d) (e) Approving, in principle, stage I of the HCFC phase-out management plan (HPMP) for Argentina for the period 2010 to 2015 to reduce HCFC consumption by 10 per cent of the baseline, at the amount of US $2,192,583, consisting of US $1,125,000 plus agency support costs of US $84,375 for UNIDO, US $914,612 plus agency support costs of US $68,596 for World Bank, and noting that the project to phase out ODP tonnes of HCFC-22 in the room and unitary air-conditioning equipment manufacturing sector at the amount of US $8,435,542 plus agency support costs of US $632,666 for UNIDO and US $300,000 plus agency support cost of US $39,000 for the Government of Italy, had already been approved at the 61 st meeting of the Executive Committee and had been included in stage I of the HPMP; Noting that with the amounts referred to in paragraph (a) above, the total funding for stage I of the HPMP for Argentina amounts to US $10,775,154, plus agency support costs of US $824,637; Whether or not to revise the starting point for sustained aggregate reduction in HCFC consumption for Argentina from ODP tonnes (based on the reported consumption in 2008) to ODP tonnes (based on the established baseline minus exports of HCFC-141b in pre-blended polyols); [Noting that the Government of Argentina had agreed to establish as its starting point for sustained aggregate reduction in HCFC consumption the consumption level agreed between the Executive Committee and the Government of Argentina;] Noting the deduction of ODP tonnes of HCFCs from the starting point for sustained aggregate reduction in HCFC consumption for the project approved at the 61 st meeting and deducting a further ODP tonnes of HCFCs for the implementation of stage I of the HPMP; 16

17 (f) (g) (h) Approving the Agreement between the Government of Argentina and the Executive Committee for the reduction in consumption of HCFCs, as contained in Annex I to the present document; Approving the first tranche of stage I of the HPMP for Argentina, and the corresponding implementation plan, at the amount of US $1,720,000, consisting of US $900,000 plus agency support costs of US $67,500 for UNIDO, and US $700,000 plus agency support costs of US $52,500 for the World Bank; and Approving the reallocation of funding remaining from the CFC national phase-out plan of US $800,000, plus agency support costs for UNIDO as agreed by the Government of Argentina in line with the implementation plan provided

18 Annex I Annex I DRAFT AGREEMENT BETWEEN THE GOVERNMENT OF ARGENTINA AND THE EXECUTIVE COMMITTEE OF THE MULTILATERAL FUND FOR THE REDUCTION IN CONSUMPTION OF HYDROCHLOROFLUOROCARBONS 1. This Agreement represents the understanding of the Government of Argentina (the Country ) and the Executive Committee with respect to the reduction of controlled use of the ozone-depleting substances (ODS) set out in Appendix 1-A ( The Substances ) to a sustained level of ODP tonnes by 1 January 2015 in compliance with Montreal Protocol schedules. 2. The Country agrees to meet the annual consumption limits of the Substances as set out in row 1.2 of Appendix 2-A ( The Targets, and Funding ) in this Agreement as well as in the Montreal Protocol reduction schedule for all Substances mentioned in Appendix 1-A. The Country accepts that, by its acceptance of this Agreement and performance by the Executive Committee of its funding obligations described in paragraph 3, it is precluded from applying for or receiving further funding from the Multilateral Fund in respect to any consumption of the Substances that exceeds the level defined in row 1.2 of Appendix 2-A as the final reduction step under this Agreement for all of the Substances specified in Appendix 1-A, and in respect to any consumption of each of the Substances that exceeds the level defined in rows 4.1.3, 4.2.3, 4.3.3, and (remaining eligible consumption). 3. Subject to compliance by the Country with its obligations set out in this Agreement, the Executive Committee agrees, in principle, to provide the funding set out in row 3.1 of Appendix 2-A to the Country. The Executive Committee will, in principle, provide this funding at the Executive Committee meetings specified in Appendix 3-A ( Funding Approval Schedule ). 4. The Country agrees to implement this Agreement in accordance with the HCFC phase-out sector plans submitted. In accordance with sub-paragraph 5(b) of this Agreement, the Country will accept independent verification of the achievement of the annual consumption limits of the Substances as set out in row 1.2 of Appendix 2-A of this Agreement. The aforementioned verification will be commissioned by the relevant bilateral or implementing agency. 5. The Executive Committee will not provide the Funding in accordance with the Funding Approval Schedule unless the Country satisfies the following conditions at least eight weeks in advance of the applicable Executive Committee meeting set out in the Funding Approval Schedule: (a) (b) (c) (d) That the Country had met the Targets set out in row 1.2 of Appendix 2-A for all relevant years. Relevant years are all years since the year in which this Agreement was approved. Years for which no obligation for reporting of country programme data exists at the date of the Executive Committee meeting at which the funding request is being presented are exempted; That the meeting of these Targets has been independently verified, unless the Executive Committee decided that such verification would not be required; That the Country had submitted annual implementation reports in the form of Appendix 4-A ( Format of Implementation Reports and Plans ) covering each previous calendar year; that it had achieved a significant level of implementation of activities initiated with previously approved tranches; and that the rate of disbursement of funding available from the previously approved tranche was more than 20 per cent; That the Country has submitted an annual implementation plan in the form of Appendix 4-A covering each calendar year until and including the year for which the 1

19 Annex I funding schedule foresees the submission of the next tranche or, in case of the final tranche, until completion of all activities foreseen; and (e) That, for all submissions from the 68 th meeting onwards, confirmation has been received from the Government that an enforceable national system of licensing and quotas for HCFC imports and, where applicable, production and exports is in place and that the system is capable of ensuring the Country's compliance with the Montreal Protocol HCFC phase-out schedule for the duration of this Agreement. 6. The Country will ensure that it conducts accurate monitoring of its activities under this Agreement. The institutions set out in Appendix 5-A ( Monitoring Institutions and Roles ) will monitor and report on implementation of the activities in the previous annual implementation plans in accordance with their roles and responsibilities set out in Appendix 5-A. This monitoring will also be subject to independent verification as described in paragraph 4 above. 7. The Executive Committee agrees that the Country may have the flexibility to reallocate the approved funds, or part of the funds, according to the evolving circumstances to achieve the smoothest reduction of consumption and phase-out of the Substances specified in Appendix 1-A: (a) Reallocations categorized as major changes must be documented in advance either in an annual implementation plan submitted as foreseen in sub-paragraph 5(d) above, or as a revision to an existing annual implementation plan to be submitted eight weeks prior to any meeting of the Executive Committee, for its approval. Major changes would relate to: (i) (ii) (iii) (iv) Issues potentially concerning the rules and policies of the Multilateral Fund; Changes which would modify any clause of this Agreement; Changes in the annual levels of funding allocated to individual bilateral or implementing agencies for the different tranches; and Provision of funding for programmes or activities not included in the current endorsed annual implementation plan, or removal of an activity in the annual implementation plan, with a cost greater than 30 per cent of the total cost of the last approved tranche; (b) (c) (d) Reallocations not categorized as major changes may be incorporated in the approved annual implementation plan, under implementation at the time, and reported to the Executive Committee in the subsequent annual implementation report; Should the Country decide during implementation of the agreement to introduce an alternative technology other than that proposed in the approved HPMP, this would require approval by the Executive Committee as part of an Annual Implementation Plan or the revision of the approved plan. Any submission of such a request for change in technology would identify the associated incremental costs, the potential impact to the climate, and any differences in ODP tonnes to be phased out if applicable. The Country agrees that potential savings in incremental costs related to the change of technology would decrease the overall funding level under this Agreement accordingly; and Any remaining funds will be returned to the Multilateral Fund upon completion of the last tranche foreseen under this Agreement. 2