Mexico - Ozone Protection Pilot Recycling and Training Project

Document of The World Bank FOR OmCIAL USE ONLY MICROFICHE COPY Report No. 10487-ME Type: (GRT' ReportNo. 10487-ME PHUNG, C. / X39037 / I-8163/ LA2C1 INTERIM MULTILATERAL FUND FOR THE IMPLEMENTATION OF THE MONTREAL PROTOCOL MEMORANDUM AND RECOMMENDATION OF THE DIRECTOR OF THE COUNTRY DEPARTMENT II TO THE REGIONAL VICE PRESIDENT, LAC REGION ON A PROPOSED OZONE TRUST FUND GRANT IN THE AMOUNT EQUIVALENT TO US$180,000 TO NACIONAL FINANCIERA, S.N.C. WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR THE OZONE PROTECTION PILOT RECYCLING AND TRAINING PROJECT MARCH 9, 1992 Country Operations Division I Country Department II Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipieuts only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Latin America and the Caribbear. Region CURRENCY EQUIVALENTS Currency unit - Mexican Peso (Me4- US$1.00 - Mex$ 3,085.0( (Exchange rate as of March 9, 1992). UNITS AND MEASURES metric ton - Ton (T) - 1000 kg ACRONYMS CANACINTRA s Camara Nacional de la Industria de Transformaci6n (Chamber of manufacturing industries) CFCs Chlorofluorocarbons MACS Mobile air conditioning systems MPIMF H4ontreal Protocol Interim Multilateral Fund NAPIN Nacional Financiera, S.N.C. (Government's National Industrial Development Bank) ODS : Ozone Depleting Substances OPTC : Ozone Protection Technology Center SECOFI s Secretaria de Comercio y Fomento Industrial (Ministry of Commerce and Industrial Development) SEDUE s Secretaria de Deso:r"ollo Urbano y Ecologia (Ministry of Urban Development and Ecology) SHCP Secretaria de Hacienda y Credito Publico (Ministry of Finance and Public Credit) UNDP s United Nations Development Programme UNEP United Nations Environment Programme USEPA United States Environment Protection Agency FISCAL Y  FOR OFFICIAL USE ONLY January 1 - December 31 MEXICO OZONE PROTECTION PILOT RECYCLING AND TRAINING PROJECT Prolect and Grant Summarv Financial Agent Nacional Financiera, S.N.C. (NAPIN). Guarantor United Mexican States Executing Aaency Secretaria de Desarrollo Urbano y Ecologia (SEDUE) Beneficiaries Mobile Air Conditioning service firms and aerosol manufacturing firms participating in project. Amount $180,000 equivalent Terms Grant Re-lendina Terms Grant Project Cost Summary Com-,onent USS Thousand CFC-12 Recycling from MACS 75.7 Pilot Recycling 45.5 Training and Public Outreach 25.4 Contingency 4.8 Aer -1 Propellants Safety Proaram 104.3 Workshop 7.2 Plant Safety Review 36.6 In-Plant Training 43.2 Administration 11.0 Contingency 6.3 TOTAL 180.0 Economic Rate of Return N/A Staff Appraisal Regort N/A This document has a restricted distrkbution 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.  MEMORANDUM AND RECOMMENDATION OF THE DIRECTOR OF THE COUNTRY DEPARTMENT II TO THE REGIONAL VICE PRESIDENT, LAC REGION ON A PROPOSED OZONE TRUST FUND GRANT TO NACIONAL FINANCIERA, S.N.C. (NAFIN) WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR THE OZONE PROTECTION PILOT RECYCLING AND TRAINING PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed Ozone Projects Trust Fund (OPTF) grant to Nacional Financiera, S.N.C. (NAFIN) with the guarantee of the United Mexican States for the equivalent of US$180,000 to help finance the ozone %rotection pilot recycling ard training project. The proposed operation would be the first for Mexico under the Liontreal Protocol Interim Multilateral Fund (MPIMF), which is administered by the Bank and jointly implemented with UNDP (Unitad Nations Development Programme) and UNEP (United Nations Environment Programme). The Secretaria de Desarrollo Urbano y Ecologia (SEDUE) will be implementing the project. 2. Background on Ozone Denletine Substances (ODS). In September 1987, 24 nations, including Mexico, negotiated and signed the Montreal Protocol on Substances that Deplete the Ozone Layer (The Protocol). Mexico was the first country to ratify the Protocol on March 31, 1988. The Protocol limits the production and consumption of three groups of ozone-depleting substances, as shown in Table 1 of Annex I. In 1989, Mexico consumed approximately 8,130 metric tons of Group I Substances (primarily CFC-11 and CFC-12). Mexico also consumed 260 metric tons of Group II Substances (namely, Halon-1211 and Halon- 1302), and about 9,000 metric tons of methyl chloroform. All carbon tetrachloride produced in or imported into Mexico is consumed to manufacture CFC-11 and CFC-12. The Montreal Protocol requires the phasing out of ODS by the year 2000, but allows developing countries a 10 year grace period, i.e., until 2010. However, Mexico publicly announced in July 1991 its intentions to complete the phase out as fast as industrialized countries, that is by the year 2000. 3. The Secretaria de Desarollo Urbano y Ecologia (SEDUE), as the lead environmental agency in Mexico, is currently engaged in a number of activities to enco%gage protection of the ozone layer. SEDUE has negotiated and signed several voluntary agreements with producers and users of ozone depleting compounds to encourage reductions in unnecessary emissions. SEDUE is in the process of negotiating additional voluntary agreements and it is identifying ozone protection projects which could assist specific firms or industry sectors in reducing their consumption of the controlled substances. To meet the growing demands of its ozone protection program, SEDUE has created a specialized Ozone Protection Technology Center (OPTC) to help industry prepare ODS phase out projects, represent Mexico in international conferences, and assist other LAC countries implement the Montreal Protocol. 4. Backeround on Mobile Air Conditionine Systems (MACS) and Aerosols. In Mexico, approximately 780 metric tons of CFC-12 are consumed by MACS every year. Over 702 of this consumption is emitted during the repair of MACS. - When a car is brought to a service center for MACS servicing, the current practice is to disassemble the system for inspection and to vent the refrigerant (CFC-12) into the atmosphere, which contributes to ozone depletion. If this practice were to continue, Mexico would emit approximately 1,000 metric tons through the year 2010 (or about 110 mtly). The uArket for  -2- servicing of MACS comprises two segmentas new car dealers and indnpendent service shops. The independent service segment is larger both in terms of number of locations and in terms of number of cars serviced. The recycling demonstration supported by the project is intended to target this larger SegmeQut a 5. Approximately 88% of all aerosols manufactured in Mexico do not contain CFCs, and the remaining 12% account for 76 metric tons of CFC-12 and CFC-11. Most of the non-ODS aerosols use hydrocarbons as subst-tutes for CFCs. In contrast with CFCs, which are non-flammable, hydrocarbons are flammable. and require proper safety features for handling. Although the use of hydrocarbon propellants for aerosols is a well-established technology in Merico and adequate regulations are in place, some of these plants are operating below accepted industry safety standards. Firms currently using CFCs perceive the use of hydrocarbon as risky, despite their much lower raw material costs as compared with CFCs. In addition to flammability risks, a switch from CFCs to hydrocarbons requires significant efforts to reformulate the products to preserve their effectiveness. 6. Project Background. Since Japtuary 1991, the Bank and the Mexican Government have been engaged in a dialogue on the policy and approach to complement SEDUE's current efforts and achieve the ODS phase out as mandated by the Montreal Protocol in the most efficient and least-cost way. In this dialogue, the emphasis has been on (i) establishing an adequate policy framework to encourage efficient substitution and adoption of non-controlled substances and technologies by industry; and (ii) strengthening Mexico's technical and institutional capabilities to prepare, appraise, and monitor the implementation of ozone protection projects. Indeed, such an approach is best suited to implement the Montreal Protocol measures in Mexico because most ozone protection projects identified so far in the country tend to be small (less than $150,000 total cost) and mainly require funds for recycling, training, demonstration, and workshops. Since it would not be feasible for the Bank to review and authorize grant financing of a large number of small ODS control projects, we have initiated discussions on establishing a mechanism in Mexico for preparing, appraising, and financing these projects, with the Bank only making an ex-post review of project proposals to ensure full compliance with MPIMF's eligibility criteria prior to approving them and authorizing disbursement. There would not be any "free limit" (i.e., delegation of approval authority to the financial intermediary for subprojects below acsertain limit), however, as this would run contrary to the Bank's fiduciary duties as trustee of the OPTF. This wholesale approach to ozone protection financling could be adopted in future MPIMF projects Bank-wide. With regard to the policy framework, there is a need to complement SEDUE's approach of voluntary agreements signed by individual companies and industry associations with incentive measures to ensure that the Montreal Protocol .mplementation can be easily monitored and be at the least possible cost to industry. 7. Prior to these discussions, SEDUE had primarily put the accent on project development and, with the assistance of the United States Environmental Protection Agency (U.S. EPA) and Camara Nacional de la Industria de Transformacion (CANACINTRA), prepared and submitted to the Bank in June 1991 the proposed project for financing under the MPIMF. However, during a Bank mission to Mexico in July 1991, SEDUE (as well as SHCP - Secretaria de Hacienda y Credito Publico - and SECOFI - Secretaria de Comercio y Fomento Industrial) agreed to study the possibility to rely more on market-based incentives in phasing out ODS use in Mexico. In particular, they are considering using the tradeable permits system to encourage economically  -3- rational ODS emissions reductions. They also agreed that a mechanism should be established in Mexico to prepare and process individual ozone protection subprojects and that not all funds channeled to industry should be in the form of grants. Investment by industry to convert to non-ODS technologies and other profit-oriented projects would be Liven loans on the same conditions as those existing in Mexico for other environmental projects. These policies are consistent with the strategy outlined in the Country Program recently submitted by SEDUE to the MPIMF's Executive Committee. Implementation of this Program is expected to be supported by a MPfL4-funded follow up operaticn which is under preparation by the Bank and which would emphasize policy measures. 8. While that follow-up operation is being prepared, the Bank agreed to process the proposed project for financing on an exceptional basis. This is because of the imporcance of moving quickly and with flexibility so that funds for sound ozone protection projects can be rapidly committed, consistent with the Montreal Protocol guidelines. 9. The 1PIMF's Executive Committee has endorsed the Bank's work r3gram on ozone protection activities for Mexico and expects an accelerated implementation of the proposed project. A Country Program outlining the strategy and action plan aired at eliminating the use of ODS, which is required by the Executive Committee for ee:h developing country requesting assistance from the MPIMF, has been completde by SEDUE and has been approved by the Executive Committee its February 1992 r'eeting in Montreal. The proposed project is consistent with both Me,'4 's Country Program and with MPLMF's eligibility criteria (Annex 2). 10. Proiect Obiectives. The purpose of the project is twofold: (i) to demonstrate on a pilot basis the feasibility of recycling technology for CPC- 12 used in MACS and encourage it^ wideup,_ad diffusion; and (ii) to support the ongoing process of elimination of CFC propellant& in aerosol manufacturing in Mexico with a training program. 11. Prolect Description. The project consists of two components: (i) a MACS Recycling component ($76,000); and (ii) an Aerosols Training component ($104,000). The MACS Recycling component involves the installation of pilot recycling equipment, supplemented with training and public outreach. For this demonstration, it will be necessary to enlist the cooperation of a firm with an established position in the independent sector of MACS servicing so that multiple sites can be covered, a sufficient number of cars will be available, and service technicians can be provided for the training and recycling demonstration. The MACS service firm must meet SEDUE's technical and managerial requirements, and SEDUE will check the operation cf the selected firm to ensure that it is environmentally sound. The Aerosols Training -omponent will utilize a workshop, plant safety reviews, and in-plant training to enhance safety in the manufacture of aerosols. More details on the two components are given in the Technical Annex. 12. Pro1ect Imnlementation. SEDUE will be the primary implementing agency for the project. It will be assisted by an independent MACS servicing firm for the pilot demonstration part of the program. The budgets for both components are included in Tables 1 and 2 of Schedule A of the Technical Annex. All the grant funds will be used by SEDUE, except for $42,000 required for the pilot recycling, which will be allocated to the MACS servicing firm participating in the project for the purchase of the recycling equipment. Entities helping SEDUE by providing in-kind technical assistance for project set-up are expected to include institutions such as USEPA and the Mexican  -4- ..utomobile Manufacturers Association, CANACINTRA, and the following U.S. organizations: the Society of Automotive Engineers, the Mobile Air Conditioning Society, and Underwriters Laboratory. Selection of consultants for specific project implementation tasks will be made follwing the Bank's guidelines for selecting consultants. NAFIN will be responsible for chanelling the grant funds to the pioject implementing agencies and beneficiaries and for keeping the project accounts, includin- arranging for their auditing by independent auditors and for sending the audits to the Bank. 13. Proiect Sustainability. The project is designed to encourage adoption of technologies which will reduce and safely eliminate the use of ODS. The project's strong emphasis on hands-on training is believed to facilitate technology replication by eliminating perceived risks associated with unfamiliar technology. A Project Completion Report (PCR) will be p' pared o' completion of the project to assess results and draw lessons for futur- operations. 14. Rationale for Montreal Protocol Financing. As per the Implementation Guidelines and Criteria for Project Selection established by the Executive Committee of the Montreal Protocol Interim Multilateral Fund during its third meeting in April (UNEP/Ozl.Pro/ExCom/3/18, April 18, 1991), all technical assistance, pre-investment and investment activities which lead to reductions in CFC emissions are eligible for MPIMF financing. Annex 2 summarizes the Montreal Protocol implementation and selection criteria. The proposed project is consistent with these guidelines and criteria and with the Country Program prepared by SEDUE. It is primarily intended to serve as promoter of technological change which may not otherwise occur in the MACS and aerosol sectors. Because the grant amount is below $500,000, specific approval by the Executive Committee is not required. 15. Agreed Actions. The following actions have been agreed with the Government: (i) project administration, including procurement, disbursement of funds, record keeping, audit, and reporting requirements; and (ii) content of the agreement between NAFIN, the financial agent, and the participating MACS firm, specifying the rights and obligations of the latter in the project, including the ownership and use of equipment financed by the grant beyond the initial demonstration period. Signing of a satisfactory agreement with the selected MACS firm is a condition of disbursement of the MACS recycling component. A condition of effectiveness of the Grant Agreement would be the execution of a satisfactory agreement between NAEIN and the Government for transfer to the Government by NAFIN of grant proceeds other than the US$42,000 equivalent allocated to the MACS firm. 16. Project Benefits. If the MACS recycling technology demonstrated by the project is adopted widely in Mexico as expected, approximately 1,000 tons of cumulative emission of ODS would have been prevented during the period 1991-2010. Also, the project would support a virtual elimination of ODS still in use in aerosol manufacturing in Mexico by 1995. In 1989, thcse controlled substances (CFC-11 and CFC-12) amounted to over 76 tons. Furthermore, the aerosols component provides an opportunity to the Government to detect and address potential industrial safety shortcomings, which may provide a useful feedback for existing regulations in this area. 17. Risks. The major risk of the project is the potential failure to attract sufficient participation from the MACS servicing and aerosols industries. The inclusion in the project design of promotional activities, together with the support of industry associations and enforcement actions by SEDUE, if necessary, should minimize this risk.  - 5. 18. Recomuendation. I am satisfied that the proposed Ozone Projects Trust Fund grant would comply with the Executive Directors' Resolution No. 91/5, establishing the Global Environment racility, axnd I recommend that the Regional Vic President, LAC, approve the proposed grant. Rainer B. Steckhan Director Country Department II Latin America and the Carribean Region Attachments Washington, D.C. March 9, 1991  MEXICO OZONE PROTECTION PILOT RiCYCLIZIG AN~P TRINING PROJECT ANNEX I: T-ECHNIlCAL ANNEX TABLE 1 SUBSTANCES CONTROLLED BY THE MONTREAL PROTOCOL AND PHASE OUT TIMETABLE FOR INDUSTRIALIZED COUNTRIES Group Substance Control Measures CFC1 e CFC-11 202 reduction by 1993; 502 Cn2Ct2 CFC-12 reduction by 19951 CSZICl U CFC-113 852 reduction by 1997; C8F4C12 CFC-114 1002 reduction by 2000 C2F'Cl CFC-115 GrouD IT CF2BrCl Halon-1211 502 reduction by 1995; 1002 CF3Br Halon-1301 reduction by 2000 (with C214BR2 Halon-2402 exemption for essential uses) CC14 Carbon Tetra- 852 reduction by 1995; 1002 chloride reduction by 2000 Groso III C3H,Cl Hathyl Chloforo- Freeze by 1993; 302 reduction form (1,1C1-Tr- by 1995; 702 reduction by chloroethane) 2000; 1002 reduction by 2005 Ten additional fully haloSenated chlorofluorocarbons were included in Group l as part of the June 1990 Amendments to the Protocol. These substances have limited applications in industrialized countries and are not currently usied in Mexico. Source: UNEP. London, 27-29 June 1990. Draft Amendments to the Montreal Protocol on Substances that Deplete the Ozone Layer.  ANNEX I (CONTDJ. PROJECT DESCRIPTION MACS Recycl&nr Component 1. The demonstration program consists of two primary elements: (i) installation of pilot recycling squipment; and (ii) a recycling technology training and public cutreach program. Procurement of the equipment will be overseen by NAPIN in consultation with SEDUE, following World Bank guidelines. The selected participating firm (the firm) will be responsible for installation, training the service technicians, and operating the recycling equipment. The firm will own the equipment after completion of the demonstration project, and will commit to hosting future MAC recycling demonstrations for a period of two years. A MAC service firm har alr=ady volunteered six sites for the installation of pilot recycling equipment. This firm will cooperate with NAFIN and SEDUE to oversee the procurement, installation, training of service technicians, and operation of the recycling equipment. The goal of the recycling technology training component is to have other firms currently conducting MACS repair witness a demonstration of the recycling equipment at the pilot sites and to learn from their experience. The public outreach program will increase public awareness of correct MAC operating and maintenance procedures. This includes the dissemination of public education documents on the importance of preserving the ozone layer, how CFC-12 emissions from MACS contribute to ozone depletion, and the importance of correct operating and maintenance procedures for MACs. Aerosols Training Component 2. The manufacturing safety training program consists of four main elements: (i) a technology workshop; (ii) plant safety review; (iii) in-plant training; and (iv) transfer of program experience to other Latin American countries. The workshop on CFC alternatives for aerosols, to be held no later than January 15, 1992, will present information on the technologies that can ensure the safe elimination of CFCs in at least 96 percent of all aerosol units produced in Mexico*. A consultant will conduct a review of existing safety equipment and operating practices in 48 aerosol plants in Mexico. The consultaht will, later than Ap I 30, 1992, prepare a report with recommendations ways to enhance safety measures. The report will also include estime -f the costs and the benefits (e.g., prevention of accidents) ass :..-ted with the recommended changes in equipment/facilities and an explanation of the risks likely to be eliminated with such changes. Companies now filling aerosol products with hydrocarbons and those companies 'involved in converting to hydrocarbons will be invited to participate in a training program. The training program will be conducted in each plant to address the special circumstances of each company and follow the recommendations of the safety review. Finally, educational materials, and products from the technology workshop and training program will be transferred from 15exico to other Latin American countries. * A maximum of 4X of all aerosols produced in Mexico are estimated to be specialized products which may require the use of CFCs in the short-run as no proven alternatives exist for such products.  -8- Procurement 3. The goods end services to be financed under the project, as summarized in Schedule B, would be procured in accordance to procedures satisfactory to the Bank. The US$42,900 equipment would be procured through international shopping by requesting at least two quotations from suppliers from two different countries. Consultants for technical assistance and training services would be selected in accordance with Bsnk guidelines and under terms of reference satisfactory to the Bank. Disbursement 4. A special account would be opened in IAFIN to facilitate disbursement. Expenditures would be disbursed against- "euents of expenses (SOEs), for which detailed documentation evidencing expead ures would be retained by SEDUE and NAFIN and made available for the vequired audit and also for supervision by the Bank. Accounts and Audit. Separate accounts would be kept for all expenditures made under the project. SEDUE and NAFIN would maintain records and accouuts for all projects activities. The accounts and SOEs would be audited at completion of the project by auditors acceptable to the Bank in accordance with the Bank's Auditing Guidelines, and the audit report would be submitted to the Bank no later than six months after the close of the project's accounts.  SCIEDULE A: ESTIHATED PROJECT CQSIS A. TABLE It BUDGET YOR MACS RECYCLING PROGRAM COMPONENT ESTIMATED BUDGET |Pilot Reeovlina Prolect: | * 6 Recycling Machines: $42,000 * One-time Traiiingt $ 1,000 g * Evaluation: $ 2,500 | * Contingency: $ 3,125 Subtotal: $48,625 Training and Public Outreach Proaram: l * Translation of technical standards and manuals: $9,400 I e Preparation of public education brochure: $4,800 | * Workshop and materials: $8,000 | * Live demonstration: $3,200 | * Contingencyt $1,675 Subtotal: $27, 075 TOTAL BUDGET | $75,700  - 10 _ SCHEDULE A: ESTIMATED PROJECT COSTS (CONT'D) TABLE 2: BUDGET FOR AEROSOLS PROGRAM COMPONENT ESTIMATED BUDGET l * Workshop $7,150 * Plant Safety Review $36,615 * In-Plant Training $43,235 * Project Administration Coats $11,000 * Contingency $6,300 TOTAL BUDGET $104,300  - 11 - SCHEDULE B PROCUREMENT ARRANGEMENTS* (US$000) Procurement Method ICB LCB Other La N.A Total M&Cs Aerosols -_____ Recycling . l 1. Consultant __ __ 28.9 98.0 __ 126.9 Services 2. Equipment __ __ 42.0 zb -- __ 42.0 3. Contingency __ _ 4.8 6.3 __ 11.1 Total 0 Q 75.7 104.3 0 180.0 * All Figures Correspond to Multilateral Fund Financing. Aa Contracting of Consultants in accordance with Bank guidelines. Lb Local or international shopping.  - 12 - DISBURSEMENTS (USSOOO) Category Amount Percentage Financing MACs Recycling Aerosols 1. Consultant 28.9 98.0 100 percent Services 2. Equipment 42.0 -- 100 percent 3. Contingency 4.8 6.3 100 percent 4. Overall -- -- Contingency . Total 75.7 104.3 ESTIMATED DISBURSEMENTS MACS Recyclinz Component (USSOOO) .________ 2nd quarter 92 3rd Quarter 92 4th Quarter 92 Quarterly 48.2 14.7 12.8 Cumulative 48.2 62.9 75.7 Aerosols Component ,;11 2nd Quarter 3rd Quarter 4th Quarter Irt Quarter I _____________92 92 92 93 QUARTERLY 27.2 27.0 23.0 27.1 CUMULATIVE 27.2 54.2 77.2 104.3  - 13 _ SCHEDULE C TIMETABLE OF KEY PROCESSING EVENTS Event Date Time taken to prepare 3 months Prepared by SEDUE with US EPA assistance First Preseitation to the Bank June 13, 1991 Departure of Bank Mission July 8, 1991 Negotiations October, 1991 Planned date of effectiveness March, 1992 List of relevant PCRs and PPARs Not applicable Planned completion date November 31, 1992  - 14 _ ANNEX 2: SUMMARY IMPLEMElITATION GUIDELINES AND CRITERIA FOR MPIMF FINANCING The following is a summary of the implementation guidelines and criteria for project selection drafted by the Executive Committee of the MPIMF. I. Roles and Responsibilities of Executive Committee and Imnlemerutini Afencies A. The Executive Committee develops and monitors the implementation of policies, guidelines, and arrangements, including disbursement of resources. B. The Fund Secretariat assists the Executive Committee in discharging its functions. C. The United Nations Environment Programme (UNEP) operates as treasurer of the Fund. It also assists in political promotion, research, data-gathering, and clearing-house functions. D. The United Nations Development Programme (UTNDP) assists in feasibility and pre-investment studies, and in other technical assistance measures. E. The World Bank assists in administering and managing the financing of agreed incremental costs of developing countries in complying with the Protocol. F. Other agencies may be invited by the Executive Committee to assist. II. Framework for Activities SuiRorted by the Fund A. Country Programs 1. The Executive Committee invites each developing country to develop a country programme. 2. The country programme describes existing use of controlled substances, the policy and institutional framework as it relates to the Protocol, and government and industry responses to the Protocol. It also delineates a strategy, action plan, budget, and timetable for implementing the Protocol. In developing its country programme will qualify for funding, a country may request assistance from the implementing agencies. 3. The developing country submits its country programme to the Executive Committee for consideration and approval. It then serves as a basis for project preparation and further assistance from the implementing agencies. Howevers projects prepared prior to completion of the country programme are eligible for financing if consistent with the project eligibility criteria described in section III below. B. The implementing agencies will each develop a work programme with recipient countries.  15 _ C. Projects exceeding $500,000 will be approved by the Executive Committee. Project proposals under $500,000 will be approved by the implementing agencies within the context of an approved work programme and after confirmation by the Fund Secretariat on the availability of funds and contributions in-kind. III. Prolect Eligibilitv Criteria A. Assistance is available only to developing nations in compliance vith the Protocol, and only for incremental costs of implementing articles 2A to 2E of the Protocol. B. All projects must receive approval of the developing country's government. A project may be any activity qualifying for assistance, and could include, among other things, training, technical assistance, pre-investment studies, country programme preparation, technology development or capital investments. C. Assistance for capital investment projects is available only for incremental costs incurred in supply of substitutes, use of substitutes in manufacturing as an intermediate goal, and in the end use of substitutes, unless approved by the Executive Committee. D. Projects for assistance other than capital investment will also qualify. E. Assistance will also be available for projects that are cost- effective and based on environmentally sound alternative technologies or substitutes to the substances restricted by the Protocol, taking into account the industrial strategy of the country. IV. Guidelines for Setting Priorities A. Projects with potential for most cost-effective and efficient reduction in emissions of controlled substances. B. Projects involving broad geographical balance. P C. Projects with ease of replication and technology transfer to othez developing countries. D. Projects with the fastest reduction of controlled substances. V. Grants. Loans. and In-Kind SuDDort A. All technical assistance and pre-investment activities shall be provided in the form of grants or, in certain circumstances, in- kind support. B. At the request of developing countries, in-kind support can be provided in the form of expert personnel, technology, technicai documentation, and training. C. Assistance shall generally be in the form of grants. Where an investment has a short payback period, a highly concessional loan may be considered.  - 16 - VI. Requirements for ReDorting to the Executive Conmmittee The Secretariat, the UNDP, the UNEP, the World Bank, and other Implementing Agencies are each required to provide regular reports on their respective activities, progress, budget, and plans related to the Protocol activities.