World Bank - GEF
Ukraine - Methyl Bromide Production Phase Out Project
Draft Concept Note
Introduction
This concept note describes the status of current work being undertaken by the World
Bank with counterparts in Ukraine related the phase out of residual methyl bromide
production and consumption. More specifically, it describes a potential investment
project involving the closure of methyl bromide (MBr) production in Ukraine which is
under preparation for potential GEF funding. In addition, parallel initiatives related to
MBr consumption phase out in the Russian Federation and Belarus are noted as is the
potential for similar operations in other CIS countries. This work is being undertaken
within the institutional and implementation framework developed in the course of the
successful GEF financed ODS consumption phase out projects completed or completing
in these three countries as well as the World Bank Special Initiative for ODS Production
Phase out in the Russian Federation that included an element of GEF funding through the
parallel consumption phase out project.
The use of methyl bromide as controlled under the Montreal Protocol in these three
countries has historically been relatively modest. Since 1997 and through to 2001, neither
the Russian Federation or Ukraine have reported any MBr consumption subject to
controls under the Montreal Protocol and such consumption ended in Belarus in 1998.
Russia has reported imports and effective consumption of exempted quarantine and preshipment (QPS) applications, in declining amounts with 2001 amounts reported as 117
MT ODS. Ukraine is the only known regional producer of MBR from a single facility
located in Crimea. In 2001, reported consumption was 385.4 MT ODS all of which was
reported exported to QPS applications in the Russian Federation, Moldova, Uzbekistan,
Kyrgyzstan, and Great Britain. It is also noted that neither Russia nor Belarus have
ratified the Copenhagen or subsequent amendments to the Montreal Protocol and have
therefore not assumed specific phase out obligations for MBr phase out under the
Montreal Protocol. Ukraine has ratified the Copenhagen Amendment but on the basis of
current reporting is in compliance with its obligations and the 2004 MBr phase out
requirement applicable to non-Article 5 countries.
During the course of implementing the primary ODS consumption phase out projects in
these countries since 1997, the Bank and the respective Ministries responsible for
environmental protection and specifically for ozone protection issues, have maintained a
dialogue on residual ODS uses for exempted applications including MBr as well as future
transitional substance phase out. In Belarus this is being undertaken in the context of
potential identification and preparation of a new GEF investment project requested by the
government which would be directed at residual ODS elimination in the refrigeration
servicing and fire protection sectors, and for phase out of transitional substance
applications. In Russia and Ukraine, the current GEF ODS consumption projects have
been expanded to cover residual ODS phase out investments and the governments
currently propose to use of residual resources available to address preparation of future
phase out investment opportunities as well as facilitating ratification of latter convention
amendments is under discussion.
Notwithstanding the current compliance status of all three countries respecting MBr, this
dialogue has identified one major investment project opportunity in this area in Ukraine
which will also be of regional and global significance in reducing availability of MBR.
This concept note is intended to provide the status of work to date on this project and
outline the next steps that the Bank and the country are undertaking. It should also be
noted that this is also being coordinated with work in the Russian Federation, Belarus and
potentially Moldova, Uzbekistan and Kyrgyzstan that could address any current
exempted uses of MBR which are dependant on supplies from Ukraine.
Background on ODS Production in Ukraine
The only known producer of Methyl Bromide in the Soviet Union was an enterprise
known as Saki Chemical Plant located in south western Crimea on the Black Sea. The
facility is reported to have a nominal or design production capacity of approximately
4,000 MT/year but has never achieved these kinds of production levels given a relatively
small CIS market that it has traditionally served. Reported product has varied over the
past five years as follows; 1997 – 315 MT ODS, 1998 – 315 MT ODS, 1999 – 409 MT
ODS, 2000 – 25 MT ODs and 2001 – 385 MT ODS.
As a result of the ongoing dialogue with the Bank, the enterprise and the government
have recognized that, while production at this facility does not affect the country’s
current convention compliance status, the long term future for sustaining this operation is
limited and a positive contribution might be made with its closure. At the same time, they
recognize that the enterprise is important to the local economy. On this basis, the
government has formally requested the Bank and GEF (Attachment 1) to consider
development of a GEF funded project that would eliminate this production while
assisting in the plant’s conversion to other production. The GEF has indicated a positive
interest in expanding the ozone focal area for Countries with Economies in Transition
and in its FY04-FY06 Business Plan has prioritized assistance respecting MBr phase out
to CEITs previously participating in Annex A and B phase out projects.
Project Concept
The project concept being discussed with counterparts involves a monitored closure of
current MBr production capacity at Saki Chemical Plant. The model to be applied would
be performance based whereby compensation for closure would be disbursed in at least
two parts based on completion of distinct monitorable deliverables. The successful
closure of the seven Annex A and B ODS production facilities in the Russian Federation
will serve as a template for project design. Utilizing this approach, the first and smaller
part of the compensation payment would be paid upon the enterprise agreeing to a
detailed Closure Plan inclusive of post closure monitoring as a legally binding part of the
applicable legal documents covering the project. The second and more substantive
compensation payment would be paid upon completion of the physical closure
requirements, its documentation and its verification by the Bank and recognized
international experts. The project would provide for long term monitoring as appropriate
by both the government and Bank.
The amount of compensation appropriate to a closure operation of this time has yet to be
determined and would be subject to detailed discussion with the government and
enterprise. For purposes of initial discussion, the value of compensation might be based
on precedents established set for ODS production operations undertaken in the Russian
Federation or major Article 5 producing countries through the Montreal Protocol MultiLateral Fund. On this basis, compensation payment of up to US$2.0 million might be
anticipated. Alternatively, compensation payments could be based on estimates of future
sales of MBr provided these can realistically be projected and creditably validated.
The project would also be envisioned to have a technical assistance component likely
consisting of three parts. The first would be directed to providing the enterprise with
assistance related to utilization of compensation for development of other commercially
viable and environmentally sound production at its facilities and in the improvement of
operational environmental performance. The second part would be directed to
identification of any latent MBr uses in Ukraine, particularly potential QPS applications
and the implementation of alternative technologies and techniques. The third part would
involve provision of enhanced enforcement and monitoring capacity within the Ministry
of Environmental Protection and Natural Resources respecting ensuring compliance with
convention obligations.
Subject to more detailed preparation work scheduled in the immediate future, the project
costs are estimated to be approximately US$3.0 million
Next Steps
The Bank project team will be undertaking detailed project preparation discussion with
counterparts during its June 2003 supervision mission for the present GEF ODS Phase
out Project (TF 20426) including a visit to the enterprise and the technical assessment of
the production facility. Counterparts have indicated a desire to use some of the available
technical assistance resources within the present project to support local experts in this
initial preparation work. Based on the results of this mission and associated preparation
work, the Bank team will develop a formal project proposal for processing within the
Bank’s GEF pipeline and submission to the GEF council. Depending on the technical
complexity of the closure operation, this may include an interim step for a modest PDF-B
grant for development of the detailed Closure Plan. In terms of schedule, this work will
be completed during July 2003 and it is anticipated that submission documentation for
processing within the Bank and submission to the GEF will be completed by October
2003.
Methyl Bromide Phase Out Initiatives in other Countries in the Region
In parallel with the initiative in Ukraine, the Bank will undertake the investigation of
MBR consumption phase out in the other countries in the region where it has undertaken
investment operations for Annex A and B ODS. This has been initiated in Belarus and
the Russian Federation. In Belarus, this will be incorporated into a potential project to
address residual ODS consumption and preparation for transitional substance phase out.
A similar operation may also be appropriate in Moldova. In the Russian Federation it will
focus on the phase out of current MBR consumption in QPS applications and any other
latent consumption potential. Counterparts have indicated an interest in utilizing available
technical assistance from the current ODS projects to support this preparation work at
least initially. In association with the subject MBR production closure project in Ukraine
the QPS applications in other CIS countries in Central Asia that utilize MBR currently
produced in Ukraine will be identified and where appropriate, investment operations may
also be developed. In undertaking operations in any of these countries it is recognized
that ratification of the Copenhagen Amendment would be a fundamental eligibility
criteria and to this end the Bank will be encouraging action by the respective
governments.