94207
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No:
-ID
PROJECT APPRAISAL DOCUMENT
FOR A
PROPOSED GRANT FROM THE OZONE PROJECTS TRUST FUND
FOR THE
HYDROCHLOROFLUOROCARBON (HCFC) PHASE-OUT
IN THE POLYURETHANE FOAM SECTOR PROJECT
IN THE AMOUNT OF US$ 2.71 MILLION
TO THE
REPUBLIC OF INDONESIA
July 2, 2013
Indonesia Sustainable Development Unit
Sustainable Development Department
East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance of their
official duties. Its contents may not otherwise be disclosed without World Bank authorization.
1
CURRENCY EQUIVALENTS
(Exchange Rate Effective April 30, 2013)
Currency Unit = Indonesia Rupiah
Rp 9723 = US$1
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
Acronyms
CFC
CO2
CO2e
CPS
DA
ExCom
EMF
EMP
FM
FTRA
FTRP
GA
GHG
GOI
GWP
HC
HCFC
HFC
HPMP
IA
MDI
MLF
Chlorofluorocarbons
Carbon dioxide
Carbon dioxide equivalent
Country Partnership Strategy
Designated Account
Executive Committee of the MLF
Environmental Management
Framework
Environmental Management Plan
Financial Management
Foam Technology Replacement
Agreement
Foam Technology Replacement
Proposal
Grant Agreement (between Indonesia
and the World Bank)
Greenhouse Gas
Government of Indonesia
Global Warming Potential
Hydrocarbon
Hyrdochlorofluorocarbons
Hydrofluorocarbon
HCFC Phase-out Management Plan
Implementing Agency
Methylene Diphenyl Isocyanate
Multilateral Fund for the
Implementation of the Montreal
Protocol
MOE
MOF
MP
MT
NOU
NPV
ODP
ODP tons
ODS
ORAF
OP/BP
ORAF
PAD
PDO
PMA
PMU
POM
PU
TA
TOR
UNDP
UNIDO
Regional Vice President:
Country Director:
Sector Director:
Sector Managers:
Task Team Leader:
Ministry of Environment
Ministry of Finance
Montreal Protocol on Substances that
Deplete the Ozone Layer
Metric Tons (of ODS)
National Ozone Unit
Net Present Value
Ozone Depleting Potential
ODS measured in ODP equivalent tons
Ozone Depleting Substance
Operational Risk Assessment
Framework
Operational / Business Policy
Operational Risk Assessment
Framework
Project Appraisal Document
Project Development Objective
Project Management Assistant
Project Management Unit
Project Operations Manual
Polyurethane
Technical Assistance
Terms of Reference
United Nations Development Program
United Nations Industrial Development
Organization
Axel von Trotsenburg, EAPVP
Stefan G. Koeberle, EACIF
John A. Roome, EASSD
George Soraya (acting) (EASIS)
Johannes Heister, EASER
2
INDONESIA
HCFC Phase-out in the PU Foam Sector Project
TABLE OF CONTENTS
Page
I.
INTRODUCTION AND STRATEGIC CONTEXT ...........................................................7
A. Country Context ............................................................................................................ 7
B. Sector and Institutional Context.................................................................................. 10
C. Higher Level Objectives to which the Project Contributes ........................................ 14
II.
PROJECT DEVELOPMENT OBJECTIVES....................................................................14
A. Project Development Objective (PDO) ...................................................................... 14
B. Project Beneficiaries ................................................................................................... 15
C. PDO Level Results Indicators ..................................................................................... 15
III.
PROJECT DESCRIPTION ................................................................................................15
A. Project Components .................................................................................................... 15
B. Project Financing ........................................................................................................ 17
IV.
IMPLEMENTATION ........................................................................................................17
A. Institutional and Implementation Arrangements ........................................................ 17
B. Results Monitoring and Reporting .............................................................................. 18
C. Sustainability............................................................................................................... 19
V.
Key Risks and Mitigation Measures ..................................................................................20
A. Risk Ratings Summary Table ..................................................................................... 20
B. Overall Risk Rating Explanation ................................................................................ 20
VI.
APPRAISAL SUMMARY ................................................................................................20
A. Economic and Financial Analyses .............................................................................. 20
B. Technical Analysis ...................................................................................................... 22
C. Financial Management ................................................................................................ 23
D. Procurement ................................................................................................................ 24
E. Social (including safeguards) ...................................................................................... 24
F. Environment (including safeguards) ........................................................................... 25
Annex 1: Results Framework and Monitoring...............................................................................26
Annex 2: Detailed Project Description ..........................................................................................27
Annex 3: Implementation Arrangements .......................................................................................34
Annex 4: Operational Risk Assessment Framework (ORAF) .......................................................41
Annex 5: Implementation Support Plan.........................................................................................47
3
PAD DATA SHEET
INDONESIA
HCFC Phase-Out in the PU Foam Sector Project
PROJECT APPRAISAL DOCUMENT
.
EAST ASIA AND PACIFIC
EASIS
.
Basic Information
Date:
July 2, 2013
Sectors:
Other industry (90%); Central government administration (10%)
Country Director:
Stefan G. Koeberle
Themes:
Pollution management and environmental health (50%);
Environment policies and institutions (50%)
Sector Manager/Director:
George Soraya (acting) (EASIS)
EA Category:
B
Project ID:
P115763
Lending Instrument:
Specific Investment Loan (SIL)
Team Leader(s):
Johannes Heister
Does the project include any CDD component? No
Joint IFC: No
.
Borrower: Republic of Indonesia
Responsible Agency: Ministry of Environment
Contact:
Ms. Ir. Emma Rachmawaty MSc
Title:
Telephone No.:
62-21-8517164
Email:
Assistant Deputy Minister for Mitigation and Atmospheric
Function Preservation, Ministry of Environment
.
Project Implementation Period:
Start Date: June 1, 2013
Expected Effectiveness Date:
July 15, 2013
Expected Closing Date:
June 30, 2016
End Date: December 31, 2015
.
Project Financing Data(US$M)
[ ]
Loan
[X ]
Grant
[ ]
Credit
[ ]
Guarantee
[ ] Other
For Loans/Credits/Others
Total Project Cost :
US$ 3.63 million
Total Bank Financing:
Total Co-financing:
US$ 0.92 million
Financing Gap :
US$ 2.71 million (MLF grant)
.
Financing Source
Amount(US$M)
BORROWER / BENEFICIARIES
0.92
IBRD
0.00
IDA: New
0.00
IDA: Recommitted
0.00
Others: Montreal Protocol Investment Fund
2.71
Financing Gap
Total
3.63
.
4
Expected Disbursements (in USD Million)
World Bank
Fiscal Year
FY 13
FY14
FY15
Annual
1.38
1.00
0.33
Cumulative
1.38
2.38
2.71
.1
Project Development Objective(s)
The Project Development Objective is to reduce the consumption of HCFC-141b in the foam sector in Indonesia in order to contribute to the government’s
effort to comply with Indonesia’s HCFC phase-out obligations under the Montreal Protocol.
.
Components
Component Name
Cost (USD Millions)
Component 1: Investment in HCFC-141b Consumption Reductions in the PU Foam Sector
3.37
Component 2: Technical Assistance and Policy Support
0.13
Component 3: Project Management
0.13
3.63
.
Compliance
Policy
Does the project depart from the CAS in content or in other significant respects?
Yes [ ]
No [X]
Does the project require any exceptions from Bank policies?
Yes [ ]
No [X]
Have these been approved by Bank management?
Yes [ ]
No [X]
Is approval for any policy exception sought from the Board?
Yes [ ]
No [X]
Does the project meet the Regional criteria for readiness for implementation?
Yes [X]
No [ ]
.
.
Safeguard Policies Triggered by the Project
Yes
Environmental Assessment OP/BP 4.01
No
X
Natural Habitats OP/BP 4.04
X
Forests OP/BP 4.36
X
Pest Management OP 4.09
X
Physical Cultural Resources OP/BP 4.11
X
Indigenous Peoples OP/BP 4.10
X
Involuntary Resettlement OP/BP 4.12
X
Safety of Dams OP/BP 4.37
X
Projects on International Waters OP/BP 7.50
X
Projects in Disputed Areas OP/BP 7.60
X
.
Legal Covenants
Name
(1)
Technical consultant
Recurrent
Due Date
Frequency
no
4 months after date of grant
agreement
once
Description of Covenant: The grant Recipient shall appoint a technical consultant with qualifications, experience, and terms of reference satisfactory to the
Recipient and the World Bank.
(2)
Project Implementation Plan
no
Dec. 31, 2014
once
Description of Covenant: The Recipient shall prepare a Project implementation plan for year 2015 and 2016 and obtain World Bank approval. (Note: the
5
plan for the period until Dec. 31, 2014 was prepared and approved during project preparation.)
Team Composition
Bank Staff
Name
Title
Specialization
Unit
UPI
Benardita Ledesma
Operations Analyst
Operations Analyst
EASER
18902
Erik Pedersen
Consultant
Consultant
EASER
71706
Viraj Vithoontien
Sr. Environmental Specialist
Team Member
EASER
86438
Isono Sadoko
Consultant
Social Safeguard Specialist
EASID
91783
Ahsan Ali
Lead Procurement Specialist
Lead Procurement Specialist
EASR1
150763
Daniel Sebayang
Consultant
Consultant
EASIS
158540
Johannes Heister
Sr. Environmental Specialist
Task Team Leader
EASER
86438
Retno Anna Widiana
Team Assistant
Team Assistant
EASIF
193418
Seble Berhanu
Legal Analyst
Legal Analyst
LEGES
202916
Ina Pranoto
Sr. Environmental Specialist
Co-TTL (Jakarta)
EASIS
238172
Fnu Hanny
Program Assistant
Program Assistant
EASER
282386
Marjorie Mpundu
Senior Counsel
Senior Counsel
LEGES
289323
Enggar Prasetyaningsih
Procurement Analyst
Procurement Analyst
EASR1
357939
I Gusti Ngurah Wijaya Kusuma
Financial Management Analyst
Financial Management Analyst
EASFM
346649
Kian Siong
E T Consultant
Env. Safeguard Specialist
EASIS
349095
Name
Title
Office Phone
City
.
Locations
Country
First Administrative
Division
Location
Indonesia
National Ozone Unit of
Ministry of Environment
Jakarta
Planned Actual
X
6
X
Comments
A tentative list of foam
companies that are eligible for
financing have been identified
in the project document.
I.
INTRODUCTION AND STRATEGIC CONTEXT
1.
Hydrochlorofluorocarbons (HCFCs) are Ozone Depleting Substances (ODS), subject to
consumption and production control measures of the Montreal Protocol on Substances that
Deplete the Ozone Layer (MP). The MP requires gradual phase-out of HCFCs starting from
2013 and leading to a complete phase-out of HCFC consumption and production by 2030 for
developing countries known as “Article 5” countries. The HCFC Phase-out Project for the Foam
Sector (the Project) will contribute to Indonesia’s effort to meet its 2013 and 2015 MP
obligations by addressing HCFC-141b consumption in the PU foam sector.
2.
HCFCs were introduced as transitional substances to replace the wide use of
chlorofluorocarbons (CFCs) that were phased out globally as of January 1, 2010 as required by
the MP. HCFCs are used primarily as refrigerants in refrigeration and air-conditioning
equipment and as blowing agents for producing PU foam.
3.
In 2007, the Parties to the Protocol adopted Decision XIX/6, accelerating the HCFC
consumption and production phase-out schedule for both developed and developing countries,
with the latter being subject to a freeze on HCFC consumption and production as early as 2013
and complete phase-out by 2030. A major driver for the adjustment to the Protocol is that
HCFCs are not only ODS with an ozone depleting potential (ODP), but also greenhouse gases
(GHG) with a global warming potential (GWP) ranging from several hundred to several
thousand times that of carbon dioxide (CO2). As per Decision XIX/6 of the Parties to the MP,
Parties are encouraged to promote the selection of alternatives to HCFCs that minimize
environmental impact, in particular impact on climate, as well as meeting other safety, health
standards and economical consideration.
Table 1: ODP and GWP of CFCs and HCFCs
HCFC
ODP*)
GWP**)
Atmospheric life
HCFC-141b
0.11
725
9.3 year
HCFC-22
0.055
1,810
12 year
HCFC-123
0.02
77
1.3 year
HCFC-124
0.02
609
5.8 year
HCFC-142b
0.065
2,310
17.9 year
Alternatives
HFC-245fa
0
950
7.2 year
HFC-365mfc
0
890
9.9 year
Cyclo-pentane
0
25
days
*) ODP values from the 2006 MP Handbook
**) GWP values from IPCC’s Fourth Assessment Report: Climate Change 2007
A.
Country Context
4.
Indonesia is the largest economy in Southeast Asia and is one of the emerging market
economies of the world. The country is also a member of the G-20. Indonesia has a market
economy, but the government plays a significant role, owning more than 164 enterprises and
regulating prices on several basic goods, including fuel, rice, and electricity. In the aftermath of
the financial and economic crisis that began in mid-1997, the government took drastic actions,
restructuring its economy and banking system. The national economy has since recovered and
7
Indonesia has experienced rapid economic growth at a rate of 6.5 per cent of GDP in 2011 and
6.2 per cent in 2012 (World Bank data).
5.
The Government of Indonesia (GOI) is committed to protecting and preserving both the
local and the global environment. In keeping with its commitments, Indonesia is a Party to the
MP and operates under MP Article 5. As such, GOI is eligible for financial and technical
assistance (TA) from the Multilateral Fund for the Implementation of the MP (MLF) for meeting
its MP obligations. Since 1993, the government has undertaken a number of ODS Phase-out
projects under the MP, including the sector plans for the phase-out of CFC-11 in the PU foam
sector and CFC-12 in the mobile air conditioning sector. By 1 January 2008, Indonesia had
completed its phase-out of CFC-11 consumption in the foam sector, two years ahead of its MP
obligations, and phase-out of CFC-12 consumption in the mobile air conditioning sector was
completed by January 2010.
6.
Indonesia is also a Party to the United Nations Framework Convention on Climate Change
and the Kyoto Protocol and has agreed to limit the impact of climate change, save energy,
promote green growth and move towards a low-carbon economy. In line with this initiative,
Indonesia has set a voluntary target to reduce CO2 emission by 26% in 2020.1 Replacing the use
GHGs with a high GWP such as HCFCs with lower GWP alternatives provides an excellent
opportunity for synergies between the MP and climate related initiatives as per Decision XIX/6
of the MP Parties.
7.
GOI is now poised to embark on the first stage of its HCFC phase-out. As per the Decision
of the Parties to the MP, the MLF will finance the cost of phasing out HCFCs in Article 5
countries. And the Executive Committee of the MLF (ExCom) requested Article 5 countries to
prepare an overall HCFC Phase-out Management Plan (HPMP) to be submitted with the first
request for funding for HCFC phase-out. The proposed Project is part of GOI’s efforts to
implement the HPMP.
8.
ExCom also decided to adopt a staged approach to the HCFC phase-out. Stage 1 (20132015) will assist countries in reducing their consumption to the baseline freeze level in 2013 and
further reduce their consumption to 90% of the baseline in 2015. Subsequent funding for Stage 2
of the HPMP will assist countries in meeting the reduction target of 65% of the baseline in 2020.
Stage 2 will address the remaining consumption of HCFC-141b in the foam sector. It is expected
that HCFC used for manufacturing of products will be phased out completely by 2020. The
residual HCFC consumption after 2020 is expected to be for servicing of refrigeration equipment
only.
9.
As per MLF guidelines, Indonesia can request financial assistance as early as 2014 for
meeting its 2020 reduction target, and GOI plans to submit this request to ExCom in 2014. When
Stage 2 is approved, the MLF funding presently scheduled for release in 2018 (final tranche of
Stage 1) will be rolled into a revised Agreement with ExCom and requested in 2015 instead. The
proposed Project is currently limited to Stage 1, but is expected to be extended through
“additional financing” to include funding for Stage 2 as early as 2015.
1
Presidential Regulation of the Republic of Indonesia Number 61 Year 2011 on the National Action Plan for Greenhouse Gas
Emissions Reduction.
8
10. An overall HPMP to meet the consumption freeze and reduction to 90% of baseline
consumption was developed with support from UNDP and the World Bank. UNDP was the Lead
Implementing Agency (IA) for the HPMP Stage 1 preparation, while the World Bank, in close
collaboration with GOI, developed the HCFC Phase-out in the Foam Sector Plan.
11. ODS consumption is defined by the MP as ODS production plus ODS import minus ODS
export. As Indonesia does not produce any of the ODS substances, its HCFC consumption is
calculated on the basis of the net import of HCFCs. Using 2007 to 2010 import data, which is
based on information from different sources (Customs Office; Central Bureau of Statistics;
mandatory reporting by registered importers to the Ministry of Trade; data from Ministry of
Environment), the national HCFC consumption was established. The HCFC consumption data
reported to the Ozone Secretariat of the MP (Article 7 data) is shown in Table 2 below. From
2007 to 2010, the overall growth in HCFC consumption in ODP terms was 14.73%, a significant
growth mainly due to the overall economic growth.
Table 2: HCFC Consumption (Article 7 data) by type of HCFC
HCFCs
2007
2008
2009
MT*)
ODP tons*)
MT
ODP tons
MT
ODP tons
3,094.0
170.2
3,668.4
201.8
4327.0
237.9
HCFC-22
1007.5
110.8
874.2
127.7
1186.0
130.5
HCFC-141b
288.4
5.8
91.5
1.8
318.0
6.4
HCFC-123
0.1
0
0
0
0.1
0
HCFC-124
0.5
0
1.4
0
0.6
0
HCFC-225
4,390.43
286.78
4635.45
331.3
5,831.73
374.82
Total (MT)
*) MT indicates metric tons of ODS, ODP tons measures ODS in ODP equivalent tons.
MT
5396.8
1225.2
66.4
0.1
0
6689.21
2010
ODP tons
296.8
134.8
1.3
0
0
433.00
12.
The baseline level of HCFC consumption for Indonesia, based on the average of the
reported HCFC import in 2009 and 2010 Article 7 data, is 403.91 ODP tons. As seen from Table
2, the consumption and control targets are the aggregate consumption for all HCFCs combined.
Table 3 shows the HCFC phase-out schedule for Indonesia and the phase-out plan for Stage 1 of
the HPMP.
Table 3: HCFC Phase-out Schedule for Indonesia (ODP tons)
Year of
Allowed level of HCFC
MP HCFC
Allowed HCFC consumption as
reduction
consumption
consumption limit*)
per ExCom agreement*)
403.91
Reported baseline (2009 and 2010 average)
Freeze at baseline level
403.91
402.2
2013
90% of the baseline
363.52
362.0
2015
321.8
2018
65% of the baseline
262.54
Not decided
2020
32.5 % of the baseline
131.27
Not decided
2025
2.5% of the baseline
10.10
Not decided
2030
No consumption of HCFCs
0
0
2040
*) Note that the phase-out schedule agreed with ExCom was based on preliminary consumption data for 2010. This resulted in
a difference between the MP HCFC consumption limits (column 3) and the allowed ODP consumption as per ExCom
Agreement (column 4).
9
13. Indonesia submitted its HPMP together with a request for funding for Stage 1 in 2011.
Stage 1 of the HPMP will phase-out 134.97 ODP tons by 2015 in order to reduce HCFC
consumption to 362.0 ODP tons (based on estimated HCFC consumption in 2012 of 496.97 ODP
tons, see footnote in Table 7). During Stage 1, the majority of the planned reduction, namely
131.3 tons, will come from the manufacturing sub-sectors and only 3.67 tons from servicing subsectors.
B.
Sector and Institutional Context
14. Indonesia’s continued economic growth and improved living standards has resulted in an
increased demand for products containing HCFCs, such as refrigerators, air-conditioning and PU
foam for insulation, at a time when the country sets out to reduce its consumption of HCFCs.
Hence, the phase-out of HCFCs will be a challenge and will require introduction of alternatives
to HCFCs and a strict control of imports of HCFCs.
15. The consumption of CFCs in Indonesia peaked in 1996 at the level of 9,012 ODP tons. The
CFCs used in Indonesia were mainly CFC-11 and CFC-12. Both of these chemicals were widely
used as refrigerants in refrigeration equipment and as blowing agents in the PU foam sectors.
GOI completed its phase-out of CFC consumption by January 1, 2008.
16. The World Bank, as IA, assisted GOI in phasing out 6,892 ODP tons of CFCs in six ODS
consuming sectors. The PU foam sector was the largest CFCs consuming sector, followed by the
refrigeration sector and the fire protection sector (halons). Table 4 shows the number of
participating enterprises and ODS consumption phased out with World Bank assistance as IA.2
Table 4: CFC and Halon Phased-out by Sectors
No.
Sector
No. of subproject
1
2
3
4
5
6
7
Foam
Refrigeration
Halon
Solvent
Aerosol & MDI
Tobacco
TA
TOTAL
28
14
2
4
4
1
2
55
No. of
participating
enterprises
180
920
4
4
34
2
2
1,146
Planned
phase-out
(MT)
%
3,591.70
1,527.67
1,437
24
546
90
50%
21%
20%
0.33%
8%
1%
7,217
100%
Actually
phased-out
(MT)
3,087.60
1,527.67
1,654
22
546
54
6,892
%
45%
22%
24%
0.32%
8%
1%
100%
17. The sectorial distribution of HCFC consumption is shown in Table 5. The Table gives a
breakdown of consumption used for manufacturing and servicing of refrigeration equipment in
sectors, i.e. refrigeration equipment manufacturing and servicing and PU foam production. The
growth in the PU foam sector over the past years has been around 7%. The projected baseline for
the HCFC consumption sectors are shown in Table 6.
2
The Technical Completion Report for Ozone Depleting Substance Phase-out (Trust Fund 021928)-IND, 20 December 2010,
Ministry of Environment Indonesia.
10
Table 5: Distribution by Sector of HCFCs Used in 2009 (MT and ODP tons)
HCFC using sector
HCFC-22 HCFC-141b HCFC-123 HCFC-124 HFC-225
MANUFACTURING
Air conditioning
Refrigeration sector
Foam sector
Fire fighting
Solvent
SERVICING
Refrigeration
Total (MT)
Total (ODP tons)
Sector
Air-conditioning
Refrigeration
Firefighting
Foams
Solvent
Total
587.27
165.09
3574.72
4,327.01
237.99
0.58
32.30
54.51
85.03
3.04
0.01
0
0.58
0.01
199.93
5,831.73
374.82
413.00
773.00
152.00
1,186.00
130.46
166.00
318.00
6.36
0.14
0
0.14
0
Total (ODP)
Table 6: Projected Baseline per Sector (ODP tons)
HCFC consumption
Projected baseline
2009
2010
Manufacturing
Servicing
168.96
196.16
34.90
147.66
114.46
137.18
55.61
70.21
3.04
3.26
2.15
1.00
85.03
96.19
90.61
0
0.03
0.01
0.02
0
371.52
432.80
183.29
218.87
Total
182.56
125.82
3.15
90.61
0.02
402.16
18. Reduction for Stage 1 compliance: Baseline consumption data has been calculated for
each sector based on 2009 and 2010 HCFC consumption data. Taking consumption growth into
account, the HCFC consumption in 2012 is estimated to be 496.97 ODP tons. Table 7 shows the
reduction target for each of the HCFC consuming sectors.
19. HCFC-141b is used in the PU foam manufacturing sector for insulation in refrigerators,
thermo wares, buildings etc. and in integral skin and as insulation in the commercial refrigeration
sector. As per the Article 7 data, the baseline consumption of HCFC-141b is 132.6 ODP tons
(1205.6 MT) with 90.61 ODP tons (823.73 MT) used in the PU foam sector and 42.42 ODP tons
(385.64 MT) used in the commercial refrigeration sector. The phase-out of HCFC-141b
consumption for commercial refrigeration will be addressed through the Commercial
Refrigeration Sector Plan.
20. As per ExCom agreement, Indonesia will reduce its HCFC-141b consumption in the PU
foam sector to 90.61 ODP tons (823.73 MT) in 2013 and to 81.55 ODP tons (741.36 MT) from
in 2015. Table 8 shows a comparison between the estimated baseline consumption until 2016
without any reduction efforts and the agreed phase-out targets.
11
Table 7: Agreed ODP Consumption Reduction by 2015 as per HPMP (ODP tons)
HCFC consumption reduction
Sector
Estimated
targets in 2015 per sector*)
Component
IA
baseline
consumption
consumption
in 2012
HCFC-22 HCFC-141b
Total
MANUFACTURING
Air conditioning sector
Refrigeration sector
Foam sector
Group project for four
foam companies
Fire Protection
(HCFC-123)
Solvent (HCFC-225)
Subtotal Manufacturing
UNDP
UNDP
World
Bank
34.90
54.51
UNIDO
10.4
UNDP
3.15
UNDP
UNDP
34.87
54.51
32.27
9.08
0
45.43
32.27
54.51
0
34.12
34.12
0
10.4
10.4
3.15
0
0
0
0.02
183.29
0.02
194.07
0
41.35
0
89.95
0
131.3
147.66
172.08
0
0
0
70.21
82.55
0
0
0
na
na
3.67
0
3.67
402.16
448.7***)
45.02
89.95
134.97
80.21
101.52
SERVICING
Servicing air
conditioners sector**)
Servicing commercial
refrigeration sector**)
Fire protection
TA for refrigerant
management
Total
1.0
Australia
*) The columns under “consumption reduction targets” show the 2015 targets agreed with ExCom.
**) HCFC-22 service demand in the air conditioning and refrigeration sector is estimated to grow by 5% p.a. in 2011 and 2012.
***) The total estimated HCFC consumption in 2012 is 496.97 ODP tons. The respective number reported in Table 7 (448.7) is
based on an error in the HPMP related to the air conditioning and refrigeration sectors, but this does not affect the Project.
Table 8: Consumption of HCFC-141b in the PU Foam Sector: Baseline and Phase-out Targets (ODP tons)
PU foam sector
Baseline
2012
2013
2014
2015
2016
HCFC-141b consumption*)
90.61
102
112
123
135
149
With the proposed HCFC-141b phase-out plan
90.61
102
90.61
90.61 81.55 81.55
*) Calculated at an estimated business-as-usual growth rate of 10%.
21. Foam manufacturing companies in Indonesia using HCFC-141b can be divided into two
main groups: rigid PU foam and integral skin foam. In 2009, 55 foam companies were producing
rigid PU foam, 18 companies integral skin foam and three companies both rigid PU foam and
integral skin foam. The majority of the PU foam companies are small to medium-size, with only
15 companies considered as larger HCFC-141b users. The sector can be divided into eight subsectors based on the use of the foam:








PU foam for insulation in appliances (domestic refrigerators and freezers),
thermo wares,
water heaters,
sandwich panels,
PU foam for insulation in refrigerated trucks,
spray foam,
block foam for insulation, and
integral skin foams for the automotive and furniture industry.
12
22. Collection of HCFC consumption data for the foam sector was undertaken by the
Technical Working Group mandated by the Ministry of Environment (MOE) and supported by
review and analysis of data by a foam technical expert contracted by the World Bank on behalf
of MOE.
23. Based on a review of over 100 foam companies identified, it was concluded that the most
effective and sustainable way forward is to phase-out HCFC-141b by sub-sectors, selecting subsectors first where alternatives are known and available in Indonesia. The sub-sectors selected
are insulation foam for refrigeration appliances (domestic refrigerators and freezers), insulation
foam refrigerated trucks and integral skin foam.
24. As shown in Table 9, there are about 26 companies in these three sub-sectors eligible for
MLF funding with a total consumption of 304.8 MT of HCFC-141b in 2009 (or 33.53 ODP
tons)3 and an estimated consumption of 360 MT in 2012.
Table 9: Number of Foam Companies and Consumption by Sub-sectors (2008-12)
Sub-sectors
Number of
companies
2008
consumption
2009
consumption
Domestic refrigerators and freezers
Refrigerated trucks
Integral skin foam
Sum
5
3
18
26
168.7
5.9
83.6
258.2
164.5
6.7
133.6
304.8
Estimated
consumption
in 2012
194.3
7.9
157.8
360.0
25. Due to the limited funding available from the MLF and the fact that the conversion at most
companies will only be partially funded, the MLF guidelines for funding of capital cost only
were used to determine the funding level for participating companies as shown in Table 10.
Table 10: Proposed Funding for PU Foam Companies Based on their HCFC-141b Consumption
Number of
Aggregate
Annual
Maximum
Average cost
companies
HCFC-141b
Proposed
Total MLF
HCFC-141b
funding per
effectiveness
funding
Rigid
Integral consumption technology
consumption
company
(US$/kg)
(MT)
foam
skin
5
10
29.206
HFC-245fa
35,000*)
525,000
17.98
0-5 MT
5
36.785
HFC-245fa
70,000*)
350,000
9.51
5.01-10 MT
3
52.364
HFC-245fa
70,000*)
210,000
4.01
10.01-20 MT
2
43.51
HC
TBD
500,000
11.49
20.01-50 MT
1
115.055
HC
TBD
700,000
6.08
>50.01 MT
*) Additional funding of US$10,000 to seven companies with 2 foaming units.
26. Rationale for Bank Involvement. Since 2004, World Bank support for Indonesia has
moved towards supporting a country-led and owned policy agenda, consistent with Indonesia’s
emerging status as a middle-income country. As per the 2009 to 2012 Country Partnership
Strategy (CPS) for Indonesia, World Bank assistance is focused on five core areas: (i) private
sector development, (ii) infrastructure, (iii) community development and social protection, (iv)
education, and (v) environmental sustainability and disaster mitigation. The CPS for 2013-2014
was discussed in December 2012, confirming the Bank Group’s role in sharing development
3
One MT of HCFC-141b is equivalent to 0.11 ODP tons.
13
solutions for an emerging Indonesia with a focus on private sector and sustainable development.
The proposed Project falls within the area of private sector development and environmental
sustainability; it also supports sustainable development through the strengthening of institutions
and their technical and management capacity.
27. The Bank has been engaged in ODS phase-out activities in Indonesia since the early 1990s.
The Bank served as Indonesia’s partner in the implementation of the earlier ODS program,
eliminating an annual use of 6,892 ODS tons of CFCs and halons (Table 4). As both CFCs and
halons are high GWP gases (Table 1), the use of alternatives with lower GWP resulted in an
annual reduction equivalent to 43 million tons of CO2. For Indonesia, in particular the Bank’s
assistance was strategically important and effective in bringing down the demand of CFC during
the period 1995 to 2004 and to achieve a complete phase-out of ODS consumption by 2008, two
years ahead of the MP requirements. The proposed Project is a continuation of the successful
partnership with Indonesia on ozone protection.
C.
Higher Level Objectives to which the Project Contributes
28. The Project will assist Indonesia to meets its obligations as a Party to the MP. In addition,
the Project will benefit the global climate as the replacement of HCFCs by chemicals with lower
GWP will lead to a permanent reduction in CO2 equivalent (CO2e) emissions of at least 290,267
tons by the end of 2015, if the Project is implemented as planned. The Project is consistent with
the CPS by making non-ODS and low carbon technologies available to the PU foam industry
through technology transfer. The Project will therefore improve the competitiveness of the foam
industry and benefit it in both the domestic and export markets. The Project will contribute to
institutional capacity building and enhance the management capacity of the institutions engaged
in implementing the MP in Indonesia. The Project is consistent with Indonesia’s national policy
as it focuses on industrialization and modernization to meet the overall objective of continued
economic growth and sustainable development.
II.
PROJECT DEVELOPMENT OBJECTIVES
A.
Project Development Objective (PDO)
29. The Project Development Objective is to reduce the consumption of HCFC-141b in the
foam sector in Indonesia in order to contribute to the government’s effort to comply with
Indonesia’s HCFC phase-out obligations under the Montreal Protocol.
30. Indonesia’s MP obligation within the Project period is: (i) to return the consumption of
HCFC to the average consumption level of 2009 and 2010 (baseline) in 2013 and (ii) to further
reduce HCFC consumption to 90% of the baseline in 2015. These obligations are to be achieved
through the reduction of consumption from all sub-sectors covered by the HPMP (i.e. not only
the foam sector covered by the Project). The HCFC-141b reductions supported by this Project
will be carried out in a manner that maximizes the climate co-benefits through the introduction
of low GWP alternatives where possible.
14
B.
31.
Project Beneficiaries
The Project will benefit Project participants and other stakeholders in the following ways:
- About 26 PU foam companies (direct beneficiaries) – through a financial incentive for
the replacement of their HCFC-141b production technology.
- Polyol system houses and foam equipment suppliers – through introduction of zero ODP
and lower carbon technologies.
- New foam companies entering the foam market – through availability of new foam
production technologies in Indonesia.
- The Government of Indonesia – through financial and technical assistance to meet its
obligation under the MP.
- The local community – through public awareness and information about the MP and the
HCFC phase-out program.
- The global community – through preservation of the ozone layer and reduced emissions
of GHGs.
C.
PDO Level Results Indicators
32. The following results indicators have been established, which are further detailed in the
Results Framework in Annex 1:
- Limit HCFC-141b imports for the PU foam sector to 90.61 ODP tons in 2013 and 2014.
- Limit HCFC-141b imports for the PU foam sector to 81.55 ODP tons in 2015 and 2016.
III.
PROJECT DESCRIPTION
33. Reduction of HCFC-141b consumption in the PU foam sector is part of Stage 1 of the
Indonesian HPMP. The Project proposes a combination of policies, TA activities and financial
incentives to the PU foam industry. The Project will lead to global environmental benefits while
permitting the country to meet its development objectives of sustained economic growth and
industrial modernization.
A.
Project Components
Component 1: Investment in HCFC-141b Consumption Reductions in the PU Foam Sector
(US$ 2,453,000)
34. The Project will provide investment support in the form of financial incentives to about 26
foam producing companies in the refrigeration appliances, refrigerated trucks and integral skin
foam sub-sectors, to phase out at least 360 MT of HCFC-141b and introduce alternative, nonHCFC consuming production technologies. The investment support is planned to reduce demand
for HCFC-141b sufficiently to support the government’s import quota policy and meet the
Project’s phase-down results indicators in 2013 and 2015.
35. The three sub-sectors were selected by the HPMP to ensure Indonesia’s compliance with its
MP obligations, while facilitating implementation and sustainability of phase-out and using the
15
MLF grant effectively and efficiently. The eligibility of these companies for MLF financial
support was confirmed through a survey and will be reconfirmed before Foam Technology
Replacement Agreements (FTRA) can be signed with them.
36. A financial incentive will be provided to each company based on their HCFC-141b
consumption in 2009 and 2010 and the costs of the technical alternative selected. The funding
can be used to modify existing or procure new foaming equipment and accessories including
storage facilities and safety equipment, chemicals, training and technology fees. Three larger
companies in the refrigeration appliance sub-sector plan to convert their foaming process to
cyclo-pentane – a flammable hydrocarbon (HC) – and the remaining 23 companies plan to use a
reduced HFC-245fa formulation as alternative foam blowing agent. It was confirmed that the
main foam system houses in Indonesia can supply the new chemicals.
Component 2: Technical Assistance and Policy Support (US$ 133,200)
37. The Project will provide TA to help GOI develop and implement (i) policies preventing
establishment of new and expansion of existing PU foam manufacturing facilities using HCFC141b to ensure that HCFC consumption levels for each HCFC stay below the agreed
consumption limits, and (ii) guidelines, policies and regulations to support the introduction of
new technologies that replace the use of HCFC-141b, for instance safety standards for HC use in
foam production, transport and storage of HC as a hazardous substance, and disposal of
redundant equipment.
38. The Project will provide TA, including training and workshops for the benefit of selected
foam producing companies, (i) to inform them about the objective of the Project and the
implementation arrangements, including, inter alia, Project cycle steps, application criteria for
financial incentives, Project supervision, commissioning and reporting requirements, and
procurement, financial management and environmental and social safeguards provisions, as
necessary; and (ii) to assist them with the preparation of conversion plans and proposals,
equipment specifications, Project implementation and preparation of completion reports.
39. The Project will provide TA to support the Project Management Unit (PMU) in (i)
evaluating alternative technologies, sub-project designs, review, supervision, verification and
other technical activities and overall Project management, and (ii) in delivering awareness
campaigns to target groups on the need to phase out HCFCs and on current and future regulatory
measures, including training for government authorities to allow them to become more effective
in controlling HCFC imports and in assisting foam companies with required safety audits and
permitting procedures.
Component 3: Project Management (US$ 127,987)
40. The Project will support the establishment of a PMU, which will be fully responsible for
the implementation of the Project, including Project management and monitoring and evaluation,
and verification of implementation of the sub-projects under Component 1. The PMU will be
responsible for the implementation of the HPMP in all sectors under Stage 1 regardless of the
supporting IA. To maintain expertise, project management capacity and continuity, staff and
experts who served the PMU for CFC phase-out will be assigned to this new unit.
16
41.
The main tasks of the PMU with regard to the Project will be to:
-
B.
Promote awareness of the HCFC-141b phase-out policy and projects,
Review Foam Technology Replacement Proposals (FTRP) and funding requests,
Prepare FTRAs to be signed by MOE and each beneficiary,
Review requests for payment from beneficiaries and arrange disbursements,
Prepare Project implementation plans and progress reports,
Monitor sub-project implementation and results at company level,
Prepare reports on sub-project activities, and
Collect information on annual imports of HCFC-141b.
Project Financing
42. Lending Instrument. The Project will be supported through an MLF grant, for which a
total of US$ 2,714,187 was approved by ExCom in April 2011 for Stage 1 of the HPMP.
43. Project Cost and Financing. Table 11 shows the Project costs by components. The total
funding will be released by the MLF to the Bank in four tranches as per the Agreement between
GOI and ExCom. The first tranche of US$1,500,000 was released to the World Bank upon
approval by ExCom in 2011. In addition, participating foam enterprises will provide counterpart
funding for expenditures exceeding the funding provided by the MLF. This counterpart funding
is estimated at US$0.92 million.
Project component
2
Investment in HCFC-141b
consumption reduction
TA and policy support
3
Project management
1
Table 11: Total Project Cost (US$)
Total Project
Counterparty
Grant funding
cost
funding
Total
Grant funding
(%)
3,373,000
920,000
2,453,000
72.7
133,200
0
133,200
100
127,987
0
127,987
100
3,634,187
920,000
2,714,187
IV.
IMPLEMENTATION
A.
Institutional and Implementation Arrangements
44. The implementation of the proposed Project is inherently embedded in the organization and
implementation of the overall HPMP. At the 64th ExCom Meeting in July 2011, GOI entered into
an agreement with ExCom on the reduction in consumption of HCFCs with the structure shown
in Figure 1. Accordingly, GOI has the overall responsibility for the management and
implementation of the Agreement – and of the HPMP and all activities undertaken by it or on its
behalf to fulfill its obligations, while UNDP functions as the Lead IA and UNIDO, the World
Bank and the Government of Australia as Cooperating IAs.
45. UNDP as Lead IA is responsible for annual verification of HCFC consumption and coordination with the Cooperating IAs to ensure appropriate timing and sequencing of activities
17
and reporting to the MLF. The Cooperating IAs will assist GOI in the implementation and
assessment of the activities funded by each Cooperating IA and report to the MLF through the
Lead IA.
46. MOE will establish the PMU under the National Ozone Unit (NOU). The PMU will be
tasked with the day-to-day management and implementation of the overall HPMP, including the
Foam Sector Plan. The PMU will be similar to the one set up for the earlier CFC phase-out
project. MOE will hire a Project Manager to lead the PMU. The Project will contribute the
following staff to the PMU: (i) a Project Management Assistant, (ii) a Financial Management
and Administrative Assistant, (iii) a foam sector Technical Consultant. Further details on the
organization of the PMU are included in Annex 3, in the Project Implementation Plan and in the
Project Operations Manual (POM).
Figure 1 – Organizational Structure of the HPMP for Indonesia
Government of Indonesia
Agreement
represented by
Ministry of Environment
ExCom of the
Mulilateral Fund
A/C
UNDP
UNIDO
UNDP
(Lead
Implementing
Agency)
Refrigeration
Foam
WB
Foam
Aust. Gov’t
Tech Assistance
UNIDO, WB,
Gov’t of
Australia
(Cooperating
Agencies)
47. MOE will, through the PMU and the NOU, collaborate and coordinate with the Ministry of
Industry, Ministry of Trade and Customs Bureau to implement the import quota system for
HCFCs, review annual HCFC import license applications to ensure that licenses are provided
only to registered importers, and establish and publish the annual import quotas for the period
2013 through 2015.
B.
Results Monitoring and Reporting
48. Monitoring and reporting will be carried out on three levels: (i) compliance with the MP
and ExCom agreement, (ii) implementation of the Foam Sector Plan, and (iii) results of subproject activities. The World Bank will monitor the success of the Project using the Results
Framework in Annex 1. More details on monitoring and reporting requirements are contained in
the POM.
18
49. MOE, assisted by the PMU, will monitor and report on Indonesia’s compliance with the
MP and the Agreement with ExCom. In particular the consumption of HCFC will be monitored,
verified and reported to the Bank annually. The PMU will monitor Project implementation and
prepare the following reports for submission to the World Bank:
- Tranche Implementation Reports and Plans provide an overview of all Project
activities carried out in the reporting period and include the subsequent tranche
implementation plan. These reports and plans will be aggregated for all HPMP subsectors and submitted by UNDP as Lead IA to ExCom.
- Financial Reports. Interim financial reports will be prepared semi-annually. The
Project’s annual financial statements will be prepared and independently audited and
submitted to the Bank along with an audit report.
- Sub-Project Verification Reports will record that the PMU has verified implementation and completion of each sub-project in compliance with the FTRA signed by each
participating foam company.
- Progress Reports will be prepared semi-annually to track the implementation of the
Project and the achievement of Project results milestones.
- A Project Completion Report will be prepared to account for the use of the MLF grant
and draw lessons from the Project’s implementation.
50. Project beneficiaries will monitor the implementation of their sub-projects and (i)
document and report to the PMU on achieved milestones as a prerequisite for the release of
incentive payments, and (ii) prepare a Sub-project Completion Report in the format required
by MLF for project completion reports to confirm the successful execution of each sub-project.
C.
Sustainability
51. The Government of Indonesia is obligated, as a Party to the MP, to meet HCFC phase-out
obligations starting in 2013. This and the following design features of the HPMP and the chosen
sector phase-out strategy will ensure that any resurgence of HCFC use in the foam sector after
completion of the Project will be highly unlikely.
(i) Through policies and regulations GOI will establish an import quota and licensing
system for HCFC – similar to the one established for the phase-out of CFCs – to ensure
that imports of HCFC-141b will stay within the limits given by the MP and agreed with
ExCom. In addition, Indonesia will, through its environmental regulatory system, prevent
the use of HCFC in new companies entering the market.
(ii) The sectoral phase-out strategy allows GOI to address all enterprises in the targeted
sub-sectors at the same time, thereby preventing unfair competition between companies
serving the same market segment. This will avoid competitive pressures that could
otherwise build up, undermine the phase-out effort, and lead to a resurgence of HCFC use
and (illegal) HCFC imports.
52. The sectoral approach will also (i) facilitate carrying out TA activities for beneficiaries,
government agencies and other stakeholders at the sector level, (ii) help establish verifiable
19
HCFC phase-out performance indicators and targets, (iii) provide opportunities to promote and
introduce zero-ODP and a low-GWP alternative technologies in a large number of companies,
and (iv) allow to introduce an Environmental Management Framework (EMF) with occupational
health and safety requirements for the entire sub-sector requiring certain companies (that
switching to HC) to prepare an Environmental Management Plan (EMP) that will avoid or
minimizes any potential environmental and health/safety risks.
V.
KEY RISKS AND MITIGATION MEASURES
A.
Risk Ratings Summary Table
Table 12: Risk Summary
Risk Description
Stakeholder Risks
Implementing Agency Risks
 Capacity
 Governance
Project Risks
 Design
 Social and Environment
 Program and Donor
 Delivery Monitoring and Sustainability
Overall Implementation Risks
B.
Risk Rating
Moderate
Moderate
Low
Moderate
Moderate
Low
Moderate
Moderate
Overall Risk Rating Explanation
53. As indicated in Table 12 and detailed in the Operational Risk Assessment Framework
(ORAF) in Annex 4, the overall implementation risk of the Project is rated “Moderate”.
Contributing to this rating is the relative safety of HC and HFC-245fa technology in foam
blowing applications and the experience of the NOU with the earlier CFC phase-out project,
which this Project emulates and which are further mitigated by Project design and
implementation arrangements. But residual risks nevertheless remain related to the technical
handling of flammable HCs and the availability of low-cost alternative blowing agents in
Indonesia, which could lead to slow Project implementation.
54. The earlier identified risk related to the financial capacity of small foam producing
companies in Indonesia to co-finance the Project has been addressed through a higher cost
effectiveness for funding of the conversion measures for small companies and the above
mentioned regulatory measures. And foam system houses and polyol suppliers have indicated
that they will be able to deliver the needed chemicals; however, the PMU will follow the
availability of alternatives closely and, if needed, will support chemical suppliers with TA.
VI.
APPRAISAL SUMMARY
A.
Economic and Financial Analyses
55. An economic analysis captures the Project’s impact on the entire economy, which, in this
case, would include, besides the foam sector, other sectors, consumers, and the government. The
20
Indonesian and global society as a whole will benefit from reduced health risks due to lower
ozone layer depletion and use of chemicals with lower climate impact. In the absence of data on
ozone depletion and climate change impacts on direct health and other aspects of life in
Indonesia, it is impossible to carry out a quantitative analysis of these aspects; however, it is
expected that these impacts will be positive.
56. A financial analysis was carried out to assess the financial impact of the proposed Project
on the Indonesian PU foam industry. The financial analysis estimated the net incremental costs
in terms of investments in foaming equipment based on the selected foaming technologies. The
analysis also estimated the additional cost of raw materials for foam production, especially the
higher cost of HFCs compared to HCFC-141b. The analysis was carried out by comparing the
cost with and without the Project over a 20 year time frame.
57. Cyclo-pentane, HFC-245fa and water-based foaming technologies are well established and
investment and operating costs associated with these technologies are well known from a large
number of projects. The experience from the earlier CFC phase-out suggests that prices of
alternative technologies will go down over time. This is especially the case for HFCs that are
relatively new to developing countries and presently more costly than HCFC-141b as HFC
producers are recovering their investments. Since HFC patents are expiring, new HFC producers
are likely to enter the market, resulting in lower prices. As example, when HCFC-141b was
introduced in Article 5 countries, prices initially ranged from US$5 to US$8, but dropped to
US$2.5 to US$4 in the following year. It is expected that HFC-245fa prices will drop in a similar
way with the phase-out of HCFC-141b.
58. The Net Present Value (NPV) of the net incremental cost is about US$4.39 million higher
with the Project compared to a scenario without the Project, taking into account the financial
support provided by the MLF. This result is driven mainly by investments in plant modifications
needed for storage and use of cyclo-pentane, storage for HFC-245fa and the higher cost of HFC245fa supply over the analysis period of 20 years. The net impact will be smaller if the cost of
HFC-245fa decreases as a result of increased global supply of HFC-245fa and decreasing supply
of HCFC-141b. A drop of 33% in the price of HFCs over the coming years would reduce the net
incremental costs of the Project to close to zero. In addition, foam producers can be expected to
pass their net incremental costs on to their customers through increased prices for foam products.
The net incremental cost can be regarded as the co-financing that Indonesia provides for
achieving benefits associated with HCFC phase-out.
Table 13: Incremental Investment Cost by Cost Item
Cost items
Blowing agent
HFC-245fa storage and retrofitting of foaming equipment
HC storage, premix and foaming equipment
HC safety cost
HFC-245fa
HC
HC
Estimated Cost*)
(US$/kg HCFC-141b)
10
8
4
*) The HFC-245fa cost effectiveness is based on average consumption by companies of 2,500 kg/year. The HC cost effectiveness
is based on average consumption by companies of 25,000 kg/year.
59. Table 13 shows the incremental cost for conversion to HFC-245fa and HC technologies.
The costs for HFC-245fa use include: storage room, retrofitting of foaming units, technology
21
transfer and training. For HC use, the additional costs include: replacement of foaming
equipment and safety measures. The Table also lists the associated cost effectiveness indicator
defined as the incremental cost per kg of consumption of blowing agent (US$/kg). It should be
noted that the introduction of HC technology requires substantial initial investments, but that the
per unit cost decreases quickly with increasing production volumes, making this technology
attractive for the larger producers compared to HFC-245fa, which is preferred by small volume
foam producers despite the significantly higher cost of the blowing agent.
60. Table 14 summarizes the financial impact of the Project based on a net present value
analysis for the 26 foam enterprises over a 20-year time horizon. The main impact is associated
with the higher annual foam production cost with HFC-245fa compared to HCFC-141b and the
upfront investments for companies converting to cyclo-pentane. In contrast, the US$0.92 million
co-financing by the beneficiaries only takes into account the investment needed for conversion
measures and one year of incremental operating costs for foam production, while the financial
impact takes into account the investments and the foam production cost over 20 year.
Table 14: Financial Impact of the Project
Scenario
NPV without HCFC Phase-out
NPV with HCFC phase-out
Impact of Project without MP support, NPV
MLF support
Impact of Project with MP support, NPV
B.
NPV (US$)
11,906,263
19,008,003
7,101,740
2,714,187
4,387,553
Technical Analysis
61. The technical options for HCFC replacement in foam production were reviewed and have
been confirmed by the reports of the Foams Technical Options Committee at UNEP. The main
HCFC replacements cited are HCs, HFCs, and CO2 (water-blown). The use of HCFC-141b in
foam production has been phased out completely in non-Article 5 countries (developed
countries). Below are the technical options:
(i)
Cyclo-pentane. The main alternative foam-blowing agent for PU rigid foams are HCs,
principally cyclo-pentanes. Technologies have been well established to accommodate
the flammability of cyclo-pentanes and to allow their safe use. However, this results in
a significant cost burden for enterprises, which must incorporate a series of safety
measures in their production facilities.
(ii)
HFC-245fa and HFC-365mfc (HFC-365mfc mixed with HFC-227ea to eliminate
flammability of HFC-365mfc) have been developed to replace HCFC-141b in PU rigid
insulating foams. The requirement was to develop a non-flammable “liquid” blowing
agent. These HFCs are being used and the technology around them is being optimized.
There is comparatively little use of HFC-134a in PU insulating foams, but it is widely
used in XPS foams. However, all these alternatives have a relatively high GWP.
22
(iii) CO2 (water) has often been cited as an alternative to HCFCs (and CFCs in the past),
but the foams based on this option have significantly reduced insulating properties. For
applications where insulation properties are not critical, the use of CO2 (water) as a coblowing agent with fluorocarbons is a viable route to reduce cost and improve flow, as
well as for reducing the GWP impact.
62. For integral skin-based components, the end-product manufacturers (automobile and
furniture producers) normally set the requirements for the foams in their products. Some of these
requirements specify the use of zero-ODS and low-GWP technologies such as CO2 (water). In
addition, HFC-134a is also used for some applications due to specific requirements. For both of
these technologies, an in-mold coating is often used to improved skin properties. For large
production volumes and particularly for parts for heavy-duty applications such as trucks, HC
technology is used to give a more robust skin. HFC-245fa is available but not widely used
among foam manufacturers, and the price is still much higher than HCFC-141b. HFC-245fa is
considered favorable compared to HFC-134a as it has lower GWP, lower cost, and a higher
boiling point. The higher boiling point makes it also easier to blend HFC-245fa with polyol.
63. Several new blowing agents (Methyl Formate, Methylal, HFO-1234ze, HBA-2, FEA-1100,
AFA-LI) are emerging and their evaluation is in progress. These evaluations include foaming
and flammability characteristics, foam properties, toxicological properties (in some cases) and
commercial costs and availability. Their ultimate use can only be recommended following
satisfactory results in these evaluations.
64. In conclusion, the Project anticipates that larger HCFC-141b consuming enterprises will
adopt the HC technology, except in the manufacturing of integral skin, where water blown (CO2)
systems are the most cost-effective conversion method, which also yield maximum climate
benefits. Smaller foam producers are expected to switch to HFC245fa as alternative technology,
which has cost advantages for lower production volumes due to much lower conversion costs.
The availability of HC and HFC technologies in the Indonesian market has been confirmed
through meetings with the main polyol system houses in Indonesia.
C.
Financial Management
65. A Financial Management (FM) Assessment has been carried out to determine whether
the FM system of MOE has the capacity to produce timely, relevant and reliable financial
information on Project activities and whether the accounting systems for Project expenditures
and underlying internal controls are adequate to meet fiduciary requirements and allow the Bank
to monitor compliance with agreed implementation procedures and progress towards Project
objectives. Overall, the Project’s FM risk is assessed as being “Moderate”. The assessment noted
that MOE is experienced in managing World Bank-funded projects. Project management is
centralized in the NOU, which will simplify the day-to-day management of the Project.
(i)
The main FM risk noted by the assessment is related to technical verification prior to
payments to Project beneficiaries. Several measures will be taken to minimize this risk.
A POM has been developed providing guidance on the technical verification to be
carried out prior to the disbursement of the incentive payment to beneficiaries. The
POM must be approved by the Bank before disbursement of any incentive payments.
23
(ii)
Interim Financial Reports will be requested on a semi-annual basis to facilitate
monitoring. The Project’s financial report will be subject to a financial audit by an
auditor accepted by the Bank.
(iii) A Designated Account (DA) in US dollars will be opened in the Bank of Indonesia
(central bank) under the name of Ministry of Finance (MOF) with a ceiling specified in
the World Bank grant disbursement letter. The DA will be solely used to finance
eligible Project expenditures. Payment processing from the DA will follow the
government system.
D.
Procurement
66. Procurement under the Project will be carried out in accordance with the Bank’s
Procurement Guidelines and Consultant Guidelines, January 2011.
67. Under Project Component 1, any procurement for the HCFC conversion investments will
be carried out by the participating foam companies in accordance with established private sector
methods or commercial practices as per paragraph 3.13 of the Bank’s Procurement Guidelines.
The procurement risk inherent in this arrangement is considered minimal, because only a part of
the total investment cost will be reimbursed from the grant proceeds while the remaining cost
will be borne by the private foam companies, a fixed amount based on HCFC consumption rates
will be pre-established and included in the FTRA with recipient companies, and payments will
only be made after verification of compliance with pre-established performance targets and other
contractual requirements. This financing arrangement inherently takes into account the need of
the private foam companies to give due attention to economy and efficiency in their procurement
processes while following established private sector methods or commercial practices.
68. Procurement under Project Component 2 and 3 will comprise small value office equipment
and consultant services for which individual consultants will be hired. This procurement will be
carried out by the PMU following simple procurement methods such as Shopping and
comparison of CVs of at least three qualified candidates. The procurement risks associated with
the administration of the grant funds is consider low, since the Project is not procurement
intensive, and the PMU will draw on the experience with World Bank procurement procedures
that already exists in the NOU.
E.
Social (including safeguards)
69. The Project will have positive social benefits as it will reduce the negative health impacts
associated with the destruction of the ozone layer and climate change. During Project preparation
it was confirmed that none of the targeted foam enterprises will have to close down and relocate
their production facilities as a consequence of or concomitant with the implementation of the
Project. The Project does therefore not involve any resettlement or land-use issues and the
related safeguard policies are not triggered. Consequently, the inclusion in the Project of any
company that plans to relocate its foam production to a new site requires special approval by the
World Bank. Of the identified 26 companies, the three converting to cyclo-pentane are situated
in industrial areas and can implement their technology conversion projects at their current
24
locations. For the remaining companies, there is no health or safety issue associated with the
conversion from HCFC-141b to the use of HFC-245fa as foam blowing agent.
F.
Environment (including safeguards)
70. The Project will have a positive impact on the global environment by reducing the use of
HCFC-141b, which is both an ODS with an ODP of 0.11 and a GHG with a global warming
potential of 780. HFC-245fa, too, has an impact on the global environment due to its GWP, but it
has no adverse local impacts as these chemicals are stable and not considered toxic or otherwise
dangerous for people’s health and the environment.
71. The Project will have multiple sub-projects; and the details of the situation and plans of
each company for their conversion to alternative foam blowing technologies are not known at the
time of appraisal. An EMF was therefore prepared by MOE and locally disclosed on 27 March
2013. The EMF provides guidance for both beneficiary enterprises and for MOE and the PMU
on the environmental management process to be followed in evaluating individual sub-projects
applying for funding. The EMF defines content, procedures and institutional responsibilities for
environmental management of the technology conversion sub-projects in each participating
company and ensures compliance with Indonesian Environmental and Safety Laws and
Regulations as well as with the World Bank’s Environmental Assessment policies and guidelines
as specified in OP/BP 4.01.
72. The EMF requires of each participating foam enterprise converting to HC technology to
prepare an EMP, which addresses site-specific impacts, flammability and explosion risks as well
as occupational health and safety risks related to the use of HCs as foam blowing agents. The
companies converting to HFCs will not need to prepare EMPs, because there is no environmental
or safety issue related to the use of HFC-245fa instead of HCFC-141b. But these companies will
have to update their Standard Operating Procedures, which will be verified by the PMU.
73. Project participants converting to HC must submit the EMP as part of their sub-project
proposal. The PMU will assess conformance of the EMP with the EMF’s requirements and
ensure that the EMP is acceptable to the Bank; after approval by the Bank, the EMP becomes a
part of the sub-grant agreement, compliance with which will be verified by the PMU.
74. The EMP must introduce appropriate OHS measures as well as emergency preparedness
and response measures for: (i) spill prevention, control, and countermeasures, (ii) prevention of
direct contact with and inhalation of MDI vapors (which can cause irritation), and (iii) fire
protection and countermeasures. In addition, the EMP must contain provisions for: (i) training of
enterprises’ managers and operational staff on environmental, health and safety requirements
during the conversion process and in the handling of HC (cyclo-pentane) in the foam production
process, and (ii) require at least one safety inspection and audit before the start-up of normal
foam production using cyclo-pentane.
25
ANNEX 1: RESULTS FRAMEWORK AND MONITORING
PDO Level Results
Indicators*
Core
The Project Development Objective is to reduce the consumption of HCFC-141b in the foam sector in Indonesia in order to contribute to the government’s effort to comply with Indonesia’s HCFC
phase-out obligations under the Montreal Protocol.
2013 and 2015 targets
for imports of HCFC141b met
Avoided CO2e
emissions as a result of
the conversion to low
GWP technology for the
PU foam sector
Unit of
Baseline
Measure
ODP
tons
90.61
tCO2e
0
Cumulative Target
Values**
YR 1
YR 2
YR 3
(2013) (2014) (2015)
90.61
90.61
Reporting
Frequency
Data Source/
Methodology
Responsibility
for Data
Collection
81.55
Annual
Customs records of
HCFC-141b
imports
PMU
290,000
Once
Production records
of participating
enterprises
PMU
PMU progress
reports
PMU
Number of signed agreements
PMU
Quota issued (yes) or not issued (no)
PMU
Number of technical workshops,
training events and awareness activities
PMU
Compliance measured as number of
delivered reports over number of
required reports times 100
Description
(indicator definition etc.)
The indicator measures HCFC-141b
consumption (defined as imports) in
ODP tons. The baseline is the historic
average of 2009-2010.
The indicator measures net avoided
CO2-equivalent emissions based on the
quantity of alternative foam blowing
agents used in lieu of HCFC-141b due
to the Project and their respective global
warming potential (GWP).
INTERMEDIATE RESULTS
Component 1: HCFC-141b phase-out
Agreements with
#
beneficiaries signed
0
12
23
26
Annual
Yes
Yes
Yes
Annual
0
4
10
15
Annual
0
100
100
100
Annual
Component 2: Policies/regulations and TA
Issuance of annual
Yes/No
No
import quota
TA activities
#
PMU progress
reports
PMU progress
reports
Component 3: Project management
Compliance with
reporting requirements
%
26
PMU progress
reports
ANNEX 2: DETAILED PROJECT DESCRIPTION
1.
The objective of the Project is to assist GOI with the implementation of the HPMP in the
foam sector, thereby contributing to the government’s endeavor to comply with Indonesia’s MP
obligations. The Project plans to achieve this through an MLF grant. The grant will finance part
of the cost of converting the production technology in about 26 foam producing companies,
which will replace HCFC-141b in foam blowing with cyclo-pentane or HFC245fa as blowing
agent (Component 1). In addition, the Project will assist GOI with formulation and
implementation of supporting policies and regulations and provide TA to foam blowing
enterprises, government agencies and other stakeholders (Component 2). The Project will also
finance Project management costs (Component 3).
2.
The HPMP in the foam sector will be implemented in two stages. For Stage 1 (2013-15)
ExCom has made available US$2.71 million in MLF funding. Funding for Stage 2 (2016-20) is
expected to be decided in 2014/15 and would be used to support the technology conversion of
additional companies in the foam sector. The proposed Project is currently limited to Stage 1 but
is expected to be extended through “additional financing” to include funding for Stage 2 as early
as 2015. Consequently, the Project design, its components and implementation arrangements
have been set up in a manner suitable for seamless continuation after 2015, which is the current
end date for the proposed Project.
Component 1: Investment in HCFC-141b Consumption Reductions in the PU Foam Sector
(US$ 2,453,000)
Phase-out Strategy
3.
The HCFC Foam Sector Plan that was prepared for MLF approval identified around 73 PU
foam companies using HCFC-141b in Indonesia with a total consumption of 874 MT in 2010.
HCFC-141b is imported in bulk by some of the larger foam producing companies and by polyol
suppliers. The polyol suppliers have in-house capacity for polyol formulations with HCFC-141b
and most of the foam companies in Indonesia are buying pre-blended polyols.
4.
Of these 73 companies, 26 were identified as potential participants in Stage 1. All 26 were
established before September 2007, are 100% Indonesian owned and sell their products mainly
in the domestic market. 18 of the 26 companies received assistance from the MLF for CFC-11
phase-out and converted to HCFC-141b. Eight of these companies with a combined 2009
consumption of 157.8 MT produce rigid foam for domestic refrigerators, freezers and
refrigerated transportation and 18 companies with a combined 2009 consumption of 100 MT
produce integral skin for furniture and the automotive sectors. Of the 257.8 MT, 149.6 MT of
HCFC-141b will be replaced by HC and 108.2 MT by HFC-245fa / water formulations.
5.
The methodology for the survey of HCFC-141b consumption in the foam sector applied a
top-down and a bottom-up approach. The data collected through the bottom-up approach was
eventually used as the primary source of information.
(i)
The top-down survey collected HCFC-141b import data from the Customs Office, the
Ministry of Trade, the National Statistics Report, and from polyol suppliers importing
27
HCFC-141b. The data was collected from 2006-08 and was verified against the
reported Article 7 Data.
(ii)
The bottom-up survey was conducted by obtaining HCFC-141b data directly from PU
foam manufacturers. A survey list of 100 companies in rigid and integral skin foam
production was prepared and resulted in the collection of production data and
production baseline information from 70 foam companies. The information was
collected through workshops with PU foam enterprises and through a survey
questionnaire. The collected data was then corroborated through on-site visits.
6.
The survey revealed that there was no substantial increase in the number of PU foam
producing companies in the last decade and up to the completion of the CFC phase-out in early
2009. The majority of the foam manufacturing companies are located in DKI Jaya, West Java
and East Java. Table 15 shows the location of the 26 companies and their HCFC-141b
consumption in 2006-08.
Table 15: HCFC-141b Consumption Trends in PU Foam Companies by Province
Province
DKI Jaya
Banten
West Java
Central Java
East Java
Sumatra
Other provinces
TOTAL
Number of
companies
13
6
24
7
19
2
2
73
HCFC 141B consumption record
Average
2006-08
2006
2007
2008
78,360
72,892
88,685
6,822
38,579
52,923
62,470
10,412
202,817
339,023
317,378
13,224
25,188
30,271
26,394
3,771
59,965
77,785
94,983
4,999
4,354
5,159
5,301
1,325
Not available Not available Not available Not available
409,263
578,053
595,211
40,553
Incremental Cost and Grant Funding
7.
MLF approved funding of US$2,453,000 will be made available to eligible foam
enterprises in the three sub-sectors to partially finance their conversion investments. The foam
sub-sectors and the participating enterprises have been identified to ensure that HCFC phase-out
in their production facilities will meet the 2015 reduction target for the foam sector. The Stage 1
strategy for the foam sector is planned to reduce HCFC-141b consumption by 360 MT annually
with an average cost effectiveness of US$ 6.99/kg. The Project will aim to first convert those
companies that consume larger amounts of HCFC-141b: at least six foam enterprises with annual
consumption exceeding 10 MT HCFC-141b and using 60% of the sector-wide consumption will
be offered to sign phase-out agreements in 2013; the remaining companies are expected to sign
agreements in 2014.
8.
MLF funding was approved to support the adoption of HC (cyclo-pentane) technology in
three large companies, which produce rigid foam (manufacturing refrigeration appliances). The
remaining 23 companies with annual HCFC-141b consumption of less than 20 MT plan to
convert to a reduced HFC-245fa formulation technology. Experience gained during the earlier
28
CFC phase-out in the foam sector suggests that it will take 24 to 36 months to complete HC
conversion projects and 12 month for HFC-245fa conversion projects. Therefore, grant funds
will be committed to all conversion projects in 2013 and 2014 in order to ensure physical
completion of all conversions by 2015.
9.
The selection of alternative technologies takes into account production capacity and – for
HC technology – physical location to satisfy the safety requirements. It also takes into account
the availability of blowing agents in the Indonesian market at a reasonable cost and the potential
climate impact of the alternatives. The two alternatives considered – cyclo-pentane and HFC245fa – are mature and well proven technologies, which are available in Indonesia at a price that
makes the PU foam production cost equal to that of HCFC-141b-blown foam.
10. While the investment cost of converting production lines to HFC-245fa technology is low,
the higher cost of HFC-245fa will result in higher operating and foam production costs compared
to HCFC-141b. The calculation of the incremental cost of conversion is based on those two
technologies. The proposed funding level as shown in Table 10 is based on estimated capital
cost, level of HCFC-141b consumption and available MLF funds. Table 16 shows the
incremental cost of conversion to HC technology, which has been calculated consistent with the
incremental cost guidelines of the MLF.
Table 16: HC Conversion Cost (in 1000 US$)
Consumption (MT HCFC-141b, annual):
> 50 MT
≥ 25-49 MT
≥ 15-24 MT
Cost items
HC with
storage tank
100 – 120
0
50/units
(2 or more)
HC supplied
in drums
5
(storage room)
80 – 100
15
50/unit
(1-2 units)
HC pre-blended
in drums
5
(storage room)
0
15
50/unit
(1-2 units)
100 – 120
60 – 90
60 – 90
40 – 50
30
20
10
≥ 420
9.8
10
250 - 350
11.6
5
155 - 235
9.7
HC storage facility, pumps, piping to transfer
HC from storage to pre-mixing unit
HC pre-mixing unit
Room for pre-mixer and storage of HC drums
Replacement / retrofitting of foaming
equipment, conveyors, jigs etc.
Firefighting equipment, HC detection,
grounding of production equipment, electrical
installations meeting explosion area
classification, ventilation
Technical transfer assistance and fees, trial
production, staff training, safety certification
Safety audit
Total
US$ / MT*)
70 – 90
*) The average cost (US$/MT) is derived from the minimum conversion cost.
11. Table 17 shows the incremental costs of converting to HFC-245fa, the handling of which is
in principle similar to HCFC-141b except for its lower boiling point, which requires cold storage
at 20-25oC. In addition, low pressure foaming equipment may have to be replaced depending on
the products produced, product quality and performance requirements. Only minor adjustments
and retrofits may be needed for high pressure equipment. It should be noted that most companies
converting to HCF-245fa operate only one foaming unit.
29
Table 17: HFC-245fa Conversion Cost (in 1000 US$)
Cost items
Storage tank for HFC-245fa pre-blended with polyols, premixer, cooling equipment, transfer pumps
Retrofitting of foaming equipment (no hand mixing possible)*)
Technology transfer and fee, trial production, training
Total
Low pressure
equipment
High pressure
equipment
15 – 25
20 – 25
10 – 15/unit
10 – 25
35 – 65
10 – 20/unit
15 – 30
45 – 75
*) The cost for new foaming equipment is in the order of $60-120k depending on the type of the foaming unit and its capacity.
12. The funding provided to each company will be based on their HCFC-141b consumption,
foaming equipment currently in use in the company and the technical alternative selected. The
funding can be used by beneficiary companies to cover the cost of modifying existing foaming
equipment and/or procuring new foaming equipment and related accessories, retrofit molds and
fixtures, safety equipment, chemicals for trial production, training and technology transfer fees.
Project Cycle Steps
13.
The project cycle for foam enterprises consists of the following steps:
(i)
Proposal: Foam companies seeking support must submit a FTRP and funding request
to MOE. Companies converting to cyclo-pentane must submit an EMP for approval.
Companies converting to HFC245fa do no need an EMP.
(ii)
Approval: The foam sector Project Management Assistant (PMA), with assistance
from the Technical Consultant, will appraise the FTRPs, may request revisions and/or
inform the applicant of the final approval.
(iii) Contract: The PMU will prepare a FTRA, which is a performance contract that will
include the approved FTRP and the EMP (if needed) and stipulate other obligations of
the beneficiary company. The FTRA will set the pre-determined funding level for each
foam company and provide details on payment conditions and schedules.
(iv) Implementation: Each foam company will proceed with the technology conversion
sub-project promptly after the FTRA is signed and in compliance with approved plans
and schedules. Companies will report on implementation progress, which will also be
monitored and supervised by the PMU.
(v)
Verification: The PMU will verify the completion of each sub-project, which will
comprise: (i) commissioning of new foam production lines, (ii) environmental and
safety measures and permits, (iii) production start-up using the HCFC-free technology,
and (iv) disposal of obsolete foaming equipment. The foam company must produce for
inspection all required documents and permits and their Standard Operating Procedures
for the new foaming technology.
(vi) Payments: Companies receiving US$100,000 or less may submit a payment request
after start of production with the non-HCFC technology. The PMU will review the
request and verify that, consistent with the FTRA: (i) the new non-HCFC-based foam
production equipment has been installed and commissioned, and (ii) the old redundant
30
equipment has been disposed of as required. Companies receiving US$100,000 or more
may request a portion of the payment after milestones defined in the POM and the
FTRA with each company have been reached. In both cases, the final payment will
only be made after verification that the production has been converted to non-HCFC
use. All payments will be made as stipulated in the FTRA.
Component 2: Technical Assistance and Policy Support (US$ 133,200)
Policy Support
14. Especially smaller foam companies face challenges that may limit their willingness to
phase out HCFC-141b despite the financial support. The reasons are: lack of low-cost alternative
technologies, limited capital resources, and the higher production cost after conversion. Even
though they will receive financial assistance, many enterprises may still be reluctant to phase out
HCFC-141b, because they prefer the existing technology and are averse to the uncertainties and
perceived disadvantages of converting their production to another blowing agent and process
with potentially higher operating costs, lower product quality, safety and health concerns.
15. To overcome company reluctance and inertia, GOI will establish a policy structure that will
bolster the effectiveness of MLF funding and ensure timely phase-out of HCFCs. The key policy
entry point is the supply side (control and monitoring of imports of HCFCs); but to be effective,
a reduced supply must be matched by policies that discourage demand for HCFC. In addition,
the policy must be balanced with Indonesia’s development priorities (of fostering growth and
pre-empting economic disruptions). Therefore, the phase-out policy must: (1) ensure that the
consumption of HCFCs is reduced as scheduled, (2) provide incentives for enterprises to adopt
alternative technologies, (3) encourage the propagation of low cost, technically suitable
alternatives to HCFCs, and (4) ensure that growth and competitiveness are not unduly affected
by meeting the phase-out targets.
16. To this end, MOE, in collaboration with the Ministry of Industry, the Ministry of Trade and
the Custom Bureau, will operate a Licensing and Quota System to regulate the import of HCFC141b and ban its use in new production facilities. Under the regulation, an annual HCFC quota
will be issued from 2013 to 2019, which will allow Indonesia to respect the 2013 and 2015
limits. Table 18 summarizes the policies and regulations that will be issued.
Table 18: Policies and Regulations to be issued from 2011 to 2015
Type
Policy
Issue quotas for annual imports of HCFC-141b based
on the share of the average imports during the past
three years.
Consumption Ban on new foam production facilities using HCFCcontrol
141b and premixed HCFC-141b polyol.
Import
control
Year of
issuance
Estimated date
of effectiveness
2013 and
onwards
1 January 2013
2013
1 June 2013
17. The Project will support the government’s policy and regulatory activities through analysis,
coordination, data collection, facilitation of decision making and capacity building for central
and local government entities. In particular, the PMU will facilitate decision making on the
31
annual import quota of HCFC-141b and related enforcement measures and inform central
government officers, local officials and safety authorities on the issues arising from the use of
cyclo-pentane in foam production facilities.
Technical Assistance
18. The Project will provide TA to foam companies and other stakeholders as needed through
workshops, technical training, information material, site visits and direct consultations where
necessary.4 For this purpose, the Project will hire a foam sector Technical Consultant, who will
contribute to the following activities.
(i)
Workshops and training events will inform foam enterprises of the objectives of the
HPMP and the implementation arrangements for Stage 1 of the foam sector plan.
Participants will be briefed on the Project cycle steps, application formalities,
implementation arrangements and schedules, Project supervision, commissioning and
reporting requirements. The training may also cover procurement, FM and environmental safeguard provision, where and if needed.
(ii)
Technical consultant services will be provided to foam companies to assist them with
preparation of conversion plans and proposals, help with equipment specifications,
provide technical support throughout the Project implementation period, and help
companies prepare completion reports. In addition, the Technical Consultant will
support the PMU in evaluating alternative technologies and Project designs and assist
with Project review, supervision, verification and other technical activities.
19. Since the availability in Indonesia of cyclo-pentane and HFC-245fa at acceptable cost is
critical for the success of the conversion process, it was confirmed during Project preparation
that the international polyol system houses present in Indonesia will be able to supply the
necessary chemicals. If needed, local system houses can be supported through Component 2, but
there is no need to provide funding to them.
20. The Project will provide information to national and local government officials in order to
ensure effective control of the import of HCFCs and products containing HCFCs. Training may
be conducted to allow local authorities to become more effective in assisting foam companies
with required safety audits and permitting procedures.
21. The PMU will commission the development of guidelines on the safe handling of cyclopentane in foam production with the aim to (i) help stakeholders and government agencies to
better understand the safety issues and required safety measures and (ii) work towards the
development of standardized safety procedures for foam production.
22. The Project plans to support the transfer of knowledge and practical experience with cylopentane use in the foam producing industries. For this purpose, an international study tour will
4
It should be noted that many foam companies are already well prepared to phase out their HCFC-141b consumption, since
many were involved in the earlier CFC phase-out project and because discussions with them on HCFC phase-out have been
ongoing through the Foam Sector Technical Working Group and through the surveys conducted as part of Project preparation.
32
be organized, which will allow MOE and PMU staff, foam producers, representatives of
relevant government agencies and national technical experts to learn about new foam production
technologies (in particular cyclo-pentane) that are being developed or employed in other
countries. In addition, the study tour will allow Indonesia to share experience from its phase-out
activities and achievements with other developing countries.
33
ANNEX 3: IMPLEMENTATION ARRANGEMENTS
1.
The proposed Project will be financed by a MLF grant. The terms and conditions for the
use of the grant along with specific performance targets, i.e. reductions of HCFC-141b
consumption in the PU foam sector, are contained in the agreement between ExCom and
Indonesia.
Institutional Arrangements
2.
MOF is the designated focal point for World Bank projects in Indonesia. All grant
agreements between Indonesia and the World Bank are signed by MOF on behalf of Indonesia.
3.
MOE is the executing agency for the implementation of the MP. It is also in charge of
development and implementation of national environmental policies and regulations. The
Assistant Deputy Minister for Mitigation and Atmospheric Function Preservation within MOE is
responsible for the overall management and coordination of Indonesia’s ODS phase-out
program, including all phase-out activities and measures controlling HCFCs (Annex C, Group I
substances).
4.
The NOU is established under the office of the Assistant Deputy Minister for Mitigation
and Atmospheric Function Preservation. The NOU’s work program includes annual reporting of
Article 7 data to the Ozone Secretariat, awareness raising and other activities related to the
promotion of ozone layer protection in Indonesia.
5.
MOE will collaborate with the Ministry of Trade, the Ministry of Industry, and the
Customs Bureau to implement the HCFC import quota system, establish the annual import
quota and review annual applications for HCFC import licenses, which will only be available to
companies that imported HCFC-141b during 2009 and 2010.
6.
Indonesia has appointed UNDP as Lead IA for the HPMP, and UNDP will be responsible
for the overall reporting to the MLF on behalf of Indonesia. The Bank will coordinate with
UNDP and report to UNDP on the results of the foam sector Project.
Project Management
7.
A PMU has been established by MOE for the implementation of the HPMP. The PMU is
responsible for the implementation of all activities in all sub-sectors addressed by the HPMP.
The PMU will be shared with UNDP and UNIDO. The foam sector Project contributes three
staff to the PMU with the following responsibilities:
(i)
A Project Management Assistant (PMA) will be hired to facilitate implementation of
the HPMP in the foam sector. The PMA will work in close coordination with, and
under guidance of, the Project Manager to carry out sector activities under supervision
of the NOU. The PMA’s overall responsibilities are to ensure that: (i) planning and
implementation of all Project activities are carried out in a timely manner and in line
with the Grant Agreement (GA) for the Project, the POM, Project implementation
34
plans, and other guidance documents, and (ii) all processes and activities are carried out
with efficiency and effectiveness and according to Project schedules.
(ii)
A Financial Management and Administrative Specialist will be hired to manage and
control the Project’s financial and administration matters. The overall responsibilities
of the FM Specialist are to ensure that: (i) Project accounts and financial statements
accurately reflect the financial position and transactions relating to Project expenditures, (ii) financial reports and audits are prepared in a timely manner and in line with
applicable reporting requirements, and (iii) payments to Project beneficiaries and other
recipients are accurate and made in a timely manner.
(iii) A Technical Consultant will be employed to assist Project beneficiaries and stakeholders with the conversion process and to provide advice to the NOU and the PMA on
technical matters. The Consultant’s overall responsibility is to ensure that: (i) Project
participants and stakeholders get accurate technical information and assistance to
convert their production facilities, and (ii) decisions by the NOU, MOE and the PMU
are based on correct and best available technical inputs and assessments.
8.
The following implementation documents have been prepared by MOE with assistance
from the Banks Project team. These documents and any amendments thereof, which may be
introduced during the Project implementation period, require prior approval by the World Bank.
(i)
The POM includes chapters on Project implementation arrangements, the project cycle,
FM, procurement, grievances, implementation schedule and monitoring and reporting.
In addition, the POM contains FTRP and FTRA templates, the Project’s EMF, a list of
foam companies and other materials.
(ii)
A first Project Implementation Plan has been prepared for the period 2013 through
2014 and includes in its Annexes a procurement plan, consultant Terms of Reference
(TOR) and the Project budget. A second implementation plan will be prepared for the
period 2015 and 2016. The implementation plan presents all activities and related
responsibilities and resources needed for a successful execution of the Project in the
planned period.
Project Costs and Financing
9.
Project costs are of two types: (i) financial incentive payments to foam companies and (ii)
the costs of TA and Project management. Both are funded by an MLF grant of US$2.71 million.
In addition, foam companies will provide an estimated US$0.92 in co-financing. Table 19 shows
the costs of the three Project components to be funded by the MLF. The budget allocations are
estimates and can be readjusted within the MLF grant envelop and with World Bank approval.
The contingency shown in Table 19 under Component 1 has been set aside in consideration of
the 4th allocation for Stage 1, which is scheduled for 2018. However, if the Stage 2 funding
request is submitted in a timely manner (see paragraph 9 in Section A.I.), the contingency may
also be used to finance additional phase-out efforts or to cover additional financial needs
including for technical assistance and policy support, should this become necessary.
35
Table 19: Project Cost by Component (US$ estimates)
Project Components
2013
2014
Component 1 – Investment for Conversion to
Cyclo-pentane: 3 companies – appliance sub-sector
240,400
721,200
HFC-245fa: 2 companies – appliance sub-sector
35,000
HFC-245fa: 3 companies – transport sub-sector
70,000
HFC-245fa: 18 companies – integral skin sub-sector
335,000
500,000
Contingency
Sub-total
610,400
1,291,200
Component 2 – TA and Policy Support
39,100
58,500
Component 3 – Project Management
42,665
42,748
GRANT TOTAL
692,165
1,392,448
2015
240,400
35,000
35,000
105,000
136,000
551,400
35,600
42,574
629,574
Total
1,202,000
70,000
105,000
940,000
136,000
2,453,000
133,200
127,987
2,714,187
Financial Management
10. MOE is responsible for implementation, management and coordination of the Project’s FM
system. The Bank conducted an FM capacity assessment, which found that the overall FM risk is
“Moderate”. The assessment concluded that the proposed FM arrangements will – with the
implementation of the action plan below – satisfy the Bank’s minimum requirements under
OP/BP10.02 and are adequate to provide, with reasonable assurance, accurate and timely
information on the status of the grant as required by the Bank. The following actions to
strengthen the FM capacity were agreed:
(i)
And interim financial report will be requested semi-annually to facilitate monitoring.
(ii)
The Project’s financial report will be subject to financial audits by an auditor under
TORs accepted by the World Bank. A copy of the Project’s audited financial statements
and the auditor’s management letters will be submitted to the Bank not later than 6
months after the end of the fiscal year. The audit reports and audited financial
statements will be made available to the public.
(iii) A Designated Account (in US dollars) will be opened in the Bank of Indonesia (central
bank) by MOF to finance eligible Project expenditures. Payments from the DA will
follow the government system.
(iv) Supervision of the Project’s FM by a World Bank FM specialist will be conducted
once a year to review the Project’s FM system, accounting, reporting and internal
control.
Disbursement
11. Disbursement of the grant to Indonesia will follow standard World Bank and government
practice. MOF will open a US$-denominated DA for the MLF funds in the Bank of Indonesia
(central bank) with a ceiling set in the disbursement letter. The methods applied by the Bank for
disbursements into the DA will be Advance and Reimbursement. After singing and effectiveness
of the GA between the World Bank and Indonesia, the World Bank will provide an initial
Advance to the DA of an amount authorized in the GA and disbursement letter. Table 20 shows
the planned disbursements to GOI for each calendar year and expenditure category.
36
Table 20: Projected Disbursements by Category and Calendar Year (US$)
Disbursement category
2013
2014
2015
Financial incentive
610,400
1,291,200
551,400
Consulting services
32,416
26,698
29,570
Workshops and training
25,000
51,400
27,000
Management & operating costs
24,350
23,150
21,604
SUM
692,166
1,392,448
629,574
Total
2,453,000
88,683
103,400
69,104
2,714,187
12. Applications for replenishment of the DA may be submitted monthly, together with a
report on the use of the DA funds, supported by the usual documentation of the expenditures.
MOF will manage the funds following the government system as part of the national budget
process and has mandated the disbursement of the funds by MOE within applicable budget lines
and disbursement procedures. Details of the disbursement arrangements, required documentation
of expenditures etc. are described in the POM and GA.
13. Funds from the DA will be disbursed to foam companies consistent with the FTRA signed
with each company. Disbursements to foam companies will following standard government
procedures. The PMU will document all payments, keep records and report to MOE and the
World Bank on these disbursements using the established reporting procedures. Measures to
mitigate the risk of wrongful disbursement to foam companies include the following: (i) the
exact payment amount to each foam company will be fixed in the FTRA and (ii) payments to
foam companies will be made after verification by the PMU of achieved milestones. Companies
converting to HFC-245fa will be paid after completion of the conversion process, companies
converting to cyclo-pentane with a total incentive payment in excess of US$100,000 will be
reimbursed by the PMU in installments following an established schedule, with the final
installment payable after completion of conversion. Figure 2 depicts the payment process.
37
Figure 2 – Disbursement of Grant Funds
MLF Agreement
GOI (MOE)
MLF
(1)
Directorate General of
Debt Management (MOF)
(2)
(3)
World Bank
Grant Agreement
(4)
Treasury Office
Jakarta (MOF)
Designated
Account at
Bank of
Indonesia
(6)
(5)
(11)
(7)
MOE
(8)
Directorate of Cash
Management (MOF)
(10)
PMU
(9)
Foam Enterprise
(12)
(1) GOI represented by MOE and ExCom signed HPMP agreement for reduction of HCFCs.
(2) MLF transfers the grant funds for Indonesia through World Bank.
(3) MOF representing GOI signs the Grant Agreement (GA) with the World Bank as IA.
(4) The GA will be forwarded to MOE as the Executing Agency.
(5) Upon request by MOE, MOF opens DA and prepares the disbursement procedures.
(6) MOE requests MOF to apply for advance payment from World Bank
(7) MOF requests World Bank to transfer advance payment to the DA.
(8) World Bank transfers advance payment from the grant fund to the DA.
(9) Foam enterprise submits payment request and supporting documents to the PMU.
(10) PMU (through MOE) requests payment for self-managed activities or activities contracted to
third parties (Foam Enterprise).
(11) MOE (assisted by PMU) submits required documents for grant disbursement to MOF Treasury
Office Jakarta (KPPN).
(12) The Treasury Office disburses the grant funds to MOE work unit treasurer (PMU) or to the
third party account (Foam Enterprise).
38
Procurement
14. Procurement will be carried out in accordance with the Bank’s Procurement Guidelines and
Consultant Guidelines, January 2011. Equipment and services under Project Component 1 will
be directly procured by the participating foam companies in accordance with established private
sector methods or commercial practices as per paragraph 3.13 of the Bank’s Procurement
Guidelines. The procurement risk is small since foam companies will be reimbursed for only a
part of their total conversion costs in the form of a pre-established amount, which will be fixed in
the FTRA. This procurement arrangement builds on the need of private companies to give due
attention to economy and efficiency in their procurement processes.
15. Goods to be procured under Components 2 and 3 will be small value office equipment, for
which the PMU will follow the Shopping method; no Works will be procured by the PMU.
Individual consultants will be hired as detailed in the Procurement Plan and following the
selection method for individual consultants (i.e. comparison of curriculum vitae (CVs) of at
least three qualified candidates). Consultants may also be hired on a single-source selection basis
subject to the conditions set out in the Consultant Guidelines and with the Bank’s prior approval.
Although not expected under the Project, hiring of a consulting firm would require a Selection
Based on Consultants’ Qualifications.
16. A Procurement Plan has been prepared and may be updated to better reflect the Project’s
implementation needs. The Procurement Plan and any amendments thereof are subject to the
Bank’s prior approval and publication on the World Bank’s and the government’s public
procurement website. A procurement assessment of the NOU was carried out by the Bank in
2012 and found no major issues. Procurement for this Project is considered low-risk mainly
because the Project is not procurement intensive and the procurement methods to be used are not
complex. Contracts signed by MOE in execution of the Project are subject to World Bank post
review on a sample basis of initially at least 20 percent; this rate may be adjusted based on
performance of the PMU.
Environmental and Social (including Safeguards)
17. The Project will have a positive impact on the global environment by reducing the use of
HCFC-141b and the release of ODS and GHGs to the atmosphere. The Project will include
investment activities by an estimated 26 foam producers, but these do not trigger any relocation
of production facilities, nor are such relocations planned by the companies that have been
identified as potential Project beneficiaries. The resettlement safeguard policy is therefore not
triggered. In addition, since all participating foam companies will continue business as usual
after their conversion, the Project will have no negative social impacts.
18. Cyclo-pentane has been selected as the blowing agent to replace the use of HCFC-141b in
three companies. Cyclo-pentane is a flammable gas with a GWP of 25 and is classified as a
volatile organic compound. But the use of cyclo-pentane as foam blowing agent will result in
very low levels of emission (about 2-3% of the blowing agent) and will therefore not have a
significant environmental impact.
39
19. HFC-245fa has been selected as suitable alternative for foam companies with smaller
production volumes. HFC-245fa is not flammable and has no recorded health and environmental
impacts aside from its GWP of 1040. With the reduced polyol formulation as proposed for this
Project, the amount of HFC-245fa used would be 50% to 60% compared with HCFC-141b.
Hence, HFC-245fa can be used to achieve a net reduction in GHG emissions.
20. Other chemicals involved in foam production are MDI (isocyanates), amine catalysts and
fire retardants. Foam enterprises purchase pre-formulated polyol (blended with or without
HCFC-141b) and polymeric MDI for their rigid foam production. The probability that a spill of
polymeric MDI – a liquid at room temperature – contaminates the soil and water is very low,
because foam production areas typically have a cement floor. And if MDI leaks into the soil, it
will react with moisture or water, which will results in CO2 and insoluble polyurea compounds,
which are not biodegradable and chemically inert.
21. A due diligence review of the production locations of the participating foam enterprises
will not be necessary, since all have confirmed that their sites are free from past environmental
liabilities. Some minor spills of chemicals during foam production and/or foaming machine
maintenance operations were discovered, but none of the enterprises is stated to have had any
large scale spillage that could cause environmental contamination.
22. MOE has developed an EMF for this Project, which will be followed by all participating
foam enterprises. The three companies converting to cyclo-pentane will need to develop an EMP
– to be approved by the Bank – and take the measures required for the safe use of cyclo-pentane
as blowing agent in foam production. Companies converting to HFC-245fa will not need an
EMP, but the PMU will verify the adequacy of their Standard Operating Procedures.
23. In accordance with World Bank policies on environmental assessment (OP 4.01), the
Project was assigned “Category B” and the Integrated Safeguard Data Sheet (appraisal stage)
was prepared and publicly disclosed.
Monitoring and Evaluation
24. Monitoring and evaluation for the Project will follow MLF and ExCom guidelines as well
as World Bank requirements. The PMU will collect Project data from Project beneficiaries and
stakeholders (e.g. foam system houses) and import statistics for HCFC-141b imports. The PMU
will monitor the technology conversion process in participating enterprises and carry out site
inspections. The PMU will evaluate the collected data along with information on the conversion
progress in foam enterprises.
25. The PMU will prepare the reports required by the agreement between Indonesia and
ExCom and by the Project GA between the World Bank and Indonesia. Based on these and other
reports, the World Bank’s Project team, in consultation with MOE, will evaluate interim results
and advise on or take corrective actions as may be necessary to achieve the Project’s objectives.
The PMU may receive training on monitoring, verification, evaluation and reporting if
necessary. Monitoring and evaluation costs are included in the Project management budget and
are covered by the MLF grant.
40
ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)
Indonesia: ID-HCFC Phase-out Project in the Foam Sector (P115763)
Stage: Appraisal
.
1. Project Stakeholder Risks
1.1 Stakeholder Risk
Rating
Description:
Risk Management:
Moderate
The majority of Project beneficiaries have a
Under Component 2, the Project will inform participating enterprises of technical alternatives and their
small production volume and will likely use
environmental impacts and promote technologies that will allow new drop-in foam blowing agents.
HFC245fa as alternative foam blowing agent,
Resp: Client Stage: Imple Recurrent:
Due
Frequency: Yearly Status:
which is a greenhouse gas and could evoke
mentat
Date:
criticism by some climate-concerned NGOs and
ion
governments. Zero and low-GWP alternatives
(e.g. HFO-1234ze) are under development as
drop-in solutions, but are not yet available in
the market.
Not Yet
Due
2. Operating Environment Risks
2.1 Country
Rating
Description:
Risk Management:
Delays and inefficiency due to weaknesses in
public procurement, especially in selection of
consulting services and applicability of Bank
Guidelines on public procurement due to
issuance of the new Presidential Decree on
public procurement, weak internal control in
public FM, and inefficient planning and
execution of the budget.
Moderate
Implementing the Country Partnership Strategy with focus on mainstreaming the governance agenda across all
aspects of the Bank program, with special attention to strengthening country institutions and greater use of
country systems, where existing programs are found to have robust implementation and monitoring.
Resp:
Bank
Stage: Both
Recurrent:
Due
Date:
Frequency:
Yearly Status:
In
Progress
Risk Management:
Improving the quality of local administration and core services delivery; making decentralization more effective.
Resp:
Client Stage: Imple Recurrent:
mentat
ion
41
Due
Date:
Frequency:
Yearly Status:
In
Progress
Risk Management:
Improving public FM, public procurement, tax administration, and anti-corruption initiatives
Resp:
Client Stage: Imple Recurrent:
mentat
ion
2.2 Sector and Multi-Sector
Rating
Description:
Risk Management:
Coordination among different agencies at the
local and national levels and with enterprises
may not be effective.
Due
Date:
Frequency:
Yearly Status:
In
Progress
Moderate
A monitoring and enforcement system will be established following the example and experience of the previous
ODS project.
Resp:
Bank
Stage: Imple Recurrent:
mentat
ion
Due
Date:
31-Dec-2013
Frequency:
Status:
Not Yet
Due
Risk Management:
MOE has already established an integrated PMU for all sub-sectors in Stage 1 of the HPMP. The PMU has
adequate authority and resources to coordinate with different agencies. Experience in coordinating the phase-out
effort exists in MOE and the NOU from the earlier ODS phase-out project.
Resp:
Client Stage: Both
Recurrent:
Due
Date:
01-Jan-2013
Frequency:
Status: Completed
Risk Management:
The NOU/PMU has prepared a Project Operations Manual (POM), which has been approved by the Bank and
which outlines the responsibilities of the PMU and other agencies involved in Project implementation. The
obligations of participating companies will be laid down in the agreement to be signed by each Project
beneficiary.
Resp:
Both
Stage: Prepar Recurrent:
ation
Due
Date:
11-Feb-2013
Frequency:
Status: Completed
3. Implementing Agency (IA) Risks (including Fiduciary Risks)
3.1 Capacity
Rating
Description:
Risk Management:
The NOU is experience in managing Bank-
The Project will hire a qualified FM specialist, who will be responsible for fulfilling Bank FM requirements. The
task team will review the TORs for the FM consultant.
Moderate
42
funded projects. But some weaknesses in filing
of supporting documents were previously noted.
New administrative staff joining the PMU may
be inexperienced in Bank requirements on
procurement, FM, monitoring and reporting,
which may slow down Project implementation.
Procurement under Project component 1 will
follow the commercial practice of participating
foam companies. Procurement under
component 2 and 3 will involve relatively small
contracts.
Resp:
3.2 Governance
Rating
Description:
Risk Management:
The internal governance structure of MOE and
relevant Divisions could constrain Project
implementation, but that has not been the case
in the implementation of the ODS project.
Internal control put in place by MOE in
response to the 2006 GPCL report improved
progress in the implementation of the earlier
ODS project.
Both
Stage: Imple Recurrent:
mentat
ion
31-May-2013
Frequency:
Status:
Not Yet
Due
Frequency:
Status:
Not Yet
Due
Frequency:
Status:
Risk Management:
Training on World Bank FM and procurement will be provided to PMU staff.
Resp:
Bank
Stage: Imple Recurrent:
mentat
ion
Due
Date:
30-Jun-2013
Low
Resp:
Stage:
Fraud and Corruption
Rating
Description:
Risk Management:
Non-eligible enterprises may be awarded a
financial incentive by MOE; and financial
incentives may not be used for the intended
purposes. There has been no incidence of fraud
and corruption under the earlier ODS project;
regular audits by the MOE inspectorate general
were conducted and appear to have been
effective in preventing fraud and corruption.
Due
Date:
Recurrent:
Due
Date:
Low
Potential beneficiaries for Stage 1 were pre-identified during Project preparation and will be confirmed by the
PMU during Project implementation based on their funding proposal and applicable criteria.
Resp:
Both
Stage: Imple Recurrent:
mentat
ion
Due
Date:
31-Dec-2014
Frequency:
Status:
Not Yet
Due
Risk Management:
Transparency through a website and other means will be implemented and a complaint handling system will be
established.
Resp:
Client Stage: Imple Recurrent:
mentat
ion
43
Due
Date:
Frequency:
Status:
4. Project Risks
4.1 Design
Rating
Description:
Risk Management:
Enterprises in the foam sector may face several
operating challenges that may limit their
willingness to phase out HCFC on a voluntary
basis:
(i) The small size of many enterprises may
impede their ability to provide counter-part
funding for HCFC conversion.
(ii) Competitive pressure and high conversion
cost may make companies reluctant to
participate and/or return to HCFC consumption
after conversion.
(iii) The technical and financial capacity in
small companies may be insufficient for
effective conversion, in particular to HCs.
(iv) Alternatives to HCFC may not be readily
availability in Indonesia.
Moderate
The Project design includes TA to beneficiaries on substitute technologies, training and opportunities to discuss
market readiness and supply of substitutes.
Resp:
Client Stage: Both
Recurrent:
Due
Date:
Frequency:
Status:
In
Progress
Risk Management:
Smaller enterprises that – due to high upfront investment costs – cannot safely manage the flammability and
safety risks associated with HC technology may choose HFC-245fa.
Resp:
Client Stage: Both
Recurrent:
Due
Date:
Frequency:
Status:
In
Progress
Risk Management:
The financial capacity of small foam producing companies to co-finance the Project has been improved through a
higher cost effectiveness for funding of the conversion measures.
Resp:
Client Stage: Prepar Recurrent:
ation
Due
Date:
Frequency:
Status: Completed
Risk Management:
The government has established policies to ensure that phase-out is sustainable: (i) a quota system for imports of
HCFC (ii) a ban on establishment of new production facilities using HCFC.
Resp:
Client Stage: Prepar Recurrent:
ation
Due
Date:
Frequency:
Status: Completed
Risk Management:
An international foam sector expert will advise the government on technologies and phase-out approaches.
Resp:
Client Stage: Both
4.2 Social and Environmental
Rating
Description:
Risk Management:
Recurrent:
Due
Date:
Frequency:
Status:
In
Progress
Moderate
Since the Project involves only conversion
The Project’s EMF contains instructions on the proper design and construction of the foaming area and proper
activities at existing facilities, it will not involve chemical storage, which Project beneficiaries must incorporate in their EMPs.
44
any resettlement.
Resp:
Lack of safety equipment and improper
handling of HC technology could result in
explosions and risk to the workshop and worker
safety.
Client Stage: Imple Recurrent:
mentat
ion
4.3 Program and Donor
Rating
Description:
Risk Management:
The funding for the Project has already been
approved by ExCom.
Resp:
Due
Date:
Frequency:
Status:
Due
Date:
Frequency:
Status:
Not Yet
Due
Low
Stage:
4.4 Delivery Monitoring and
Sustainability
Rating
Description:
Risk Management:
Recurrent:
Moderate
The government’s quota system and eventual ban of HCFC imports will make reverse retrofit unattractive and/or
Lack of accurate monitoring and verification of
impossible.
HCFC import data could result in non-payment
Resp:
Stage: Imple Recurrent:
Due
Frequency: Yearly Status: In
of MLF funding.
mentat
Date:
Progress
There could be reverse retrofit to HCFC after
ion
conversion is completed.
Risk Management:
The Project will employ the robust monitoring system along with independent verification requirements used
successfully in the earlier ODS project.
Resp:
Client Stage: Imple Recurrent:
mentat
ion
Due
Date:
30-Jun-2013
Frequency:
Status:
Not Yet
Due
Risk Management:
The agreement between the MLF and Indonesia includes provisions for deductions from future funding in case
consumption exceeds the agreed targets or data is not reported for any given year.
Resp:
Client Stage: Imple Recurrent:
mentat
ion
4.5 Other (Optional)
Rating
Description:
Risk Management:
45
Due
Date:
Frequency: Yearly Status:
In
Progress
Resp:
Stage:
4.6 Other (Optional)
Rating
Description:
Risk Management:
Resp:
Stage:
Recurrent:
Due
Date:
Frequency:
Status:
Recurrent:
Due
Date:
Frequency:
Status:
5. Overall Risk
Preparation Risk Rating:
Low
Implementation Risk Rating: Moderate
Description:
Description:
Project preparation could be affected by inability or reluctance of small foam
sector enterprises to finance HCFC conversion and the government's weaknesses
in project administration (procurement, FM, budget planning and management),
ineffective coordination among agencies and internal governance issues.
However, these risks were successfully managed in the previous ODS project, on
which this Project builds. Since implementation of the HCFC Phase-out
Management Plan has begun and Project preparation is well advanced, the
preparation risk has dropped to Low.
The implementation risk is rated Moderate because of the safety of HC and
HFC-245fa technology in foam blowing applications and the experience of the
NOU with the earlier ODS phase-out project, which this Project emulates and
which are further mitigated by Project design and implementation arrangements.
But residual risks related to the technical handling of flammable HCs and the
availability of low-cost alternative blowing agents in Indonesia could lead to
slow Project implementation.
Nondisclosable Information for Management Attention (Optional)
Comments:
In its review of the PCN package, EASOS agreed with the overall risk rating of Moderate for both preparation and implementation and with Track 1 processing.
This ORAF has been updated as was recommended by EASOS at the PCN stage.
46
ANNEX 5: IMPLEMENTATION SUPPORT PLAN
1.
The implementation support plan has been developed in consideration of the nature and risk
profile of the Project and to ensure that the Project achieves its objectives and follows agreed
procedures and fiduciary and safeguard requirements. The plan recognizes the complexity for the
PMU of managing the implementation of the HPMP in several sub-sectors and with involvement of
several implementing agencies. Bank implementation support will therefore focus on: (i) efficient
execution of the PMU functions in relation to the foam sector plan, (ii) coordination with UNDP as
Lead IA, and (iii) monitoring, reporting and evaluation.
2.
PMU Capacity. The NOU retains significant knowledge and experience from the earlier
CFC phase-out project and will support the PMU. Nevertheless, MOE will need to hire new staff for
the PMU. Bank implementation support will make sure that qualified individuals are hired to support
the implementation of the Bank’s foam sector plan and provide guidance documents and training on
procurement and FM as may be needed. The Bank team will review tranche implementation plans
and budgets, amendments to the POM and procurement plan, and TORs for consultants. The Bank
team will supervise the preparation and implementation of TA activities under Project Component 2
and project management under Component 3. In particular, the Bank team will approve EMPs and
carry out an ex post review, on a sample basis, of the PMU’s appraisal of beneficiary applications
and signed FTRAs.
3.
Institutional Cooperation. The World Bank will closely coordinate with UNDP as the Lead
IA for the HPMP in Indonesia and contribute to the preparation of reports by UNDP to ExCom and
other entities. The Bank team will cooperate with UNDP to ensure that the HPMP is implemented
with a minimum of intra and inter-sectoral friction, applications for funding of subsequent phases of
the HPMP are submitted to ExCom in a timely manner, and regular inter-agency communication is
maintained.
4.
Monitoring and Reporting. The Bank team will regularly monitor Project performance, in
particular that agreed regulations are issued in a timely manner, that FTRAs are signed and
implemented, and that HCFC imports are verified annually. The Bank will carry out two
implementation supervision missions each year (one of which by local Bank staff), which will
include field visits to foam enterprises, ex post reviews, on a sample basis, of procurement and FM
actions and compliance with other agreed provisions. The Bank team will ensure timely reporting,
conduct an evaluation of overall Project progress, and discuss lessons learned and possible Project
improvements with PMU and NOU management.
5.
Project Support Team: In order to assist the NOU and the PMU expeditiously and maintain
regular inter-agency communication, the Bank’s implementation support team will consist of a mix
of local and international staff as shown in Table 21.
47
Table 21: World Bank Project Support Team
Focus
Team leadership, inter-agency cooperation
MLF and ExCom issues
Legal issues, agreements with beneficiaries
FM supervision and training
Procurement supervision and training
Environmental safeguards
Verification, reporting and evaluation
Technology, foam sector issue, policy and
regulatory issues
Time
International, country office
International
International
Country office
Country office
Country office
Country office
International
48
Skills Needed
TTL, co-TTL
MLF specialist
Legal Counsel
FM specialist
Procurement specialist
Safeguard specialist
Co-TTL
HCFC / foam sector
specialist