Czech Republic - Technical Support and Investment Project for the Phaseout of Ozone Depleting Substances

GLOBAL ENVIRONMENT FACILITY Czech Republic Technical Support and Investment Project for the Phaseout of Ozone Depleting Substances Project Document August 1994 WLD THE WORLD BANK  GEF Documentation The Global Environment Facility (GEF) assists developing countries to protect -the global environment in four areas: globat warming. pollution ot international waters, destruction of biodiversity, and depletion of the ozone layer. The GEF is jointly implemented bythe United Nations Development Programme, the United Nations Environment Programme, and the World Bank. GEF Project Documents - identified by a green band - provide extended project- specitic information. The implementing agency responsible for each project is identified by its logo on the cover of the document. Global Environment Coordination Division Environment Department World Bank 1818 H Street, NW Washington, DC 20433 Telephone: (202) 473-1816 Fax: (202) 522-3256  Report No. 1 3484-CZ Czech Republic Technical Support and Investment Project for the Phaseout of Ozone Depleting Substances Project Document August 1994  l  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES CURRENCY EQUIVALENT Czech Koruna 28.50 = US$1.00 WEIGHTS AND MEASURES The metric system is used throughout this report. GLOSSARY OF ABBREVIATIONS BHL = Bratri Horakove, s.r.o. (Ltd.) CEE = Central and Eastern Europe CFC Chlorofluorocarbon CKD-C = CKD Compressors CK = Czech Koruna CR = Czech Republic CSFR = Czech and Slovak Federal Republic CTC Carbon tetrachioride, a regulated substance DOU = Document of Understandiig GEF = Global Environment Facility GET = Global Environment Trust Fl = Financial Intermediary FSU = Former Soviet Union HCFC = Hydrochliorofluorocarbon HFC = Hydrofluorocarbon ICB = Interinational Competitive Bidding IPB = nvesticni a Postovni Banka IS = Interinationial Shopping Procedures LCB = Local Competitive Biddiig LS = Local Shoppinig Procedures MFMP = Multilateral Fund for the Implementation of the Montreal Protocol MOE = Czech Ministry of Environimenit MP = Montreal Protocol on Substanices that Deplete the Ozone Layer MW = Megawatt NBF Not Bank-Finianlced ODP = Ozone depleting potential ODS = Ozone Depleting Substances PAA = Project Administrationl Agreement PCE = Perchloroetilylene PIM = Project Implementationi Manual PMU = Project Managemenit Unit PU = Polyurethane SOE Statemilenit of Expenditures STAP = Scientific and Technilcal Advisory Panel TAG = Techilical Advisory Group UNEP = United Nations Environment Program 3R = Recovery, Reclamation and Recycling FISCAL YEAR (FY) January 1 to December 31  I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES GRANT AND PROJECT SUMMARY Grantee: Global Environment Trust Country: Czech Republic Project Name: Technical Support and Investment Project for the Phaseout of Ozone Depleting Substances Grant Amount: US$2.3 million Terms: Grant Onlending: Not applicable Beneficiary: Czech Ministry of Environment and sub-project beneficiaries through a financial intermediary Associated Bank Project: None. Stand-alone project Financing Plan: Local Foreign Total Source (US$ Million) GET Grant 1.466 0.844 2.3 TOTAL 2.3 Economic Rate of Return: Not calculated, though substantial economic and environmental benefits Bank Technical Advisor: Ken King (ENVGE) Outside Technical Reviewers: Mr. Robert Watson (STAP) and Mr. Art Fitzgerald (Northern Telecom and Ozone Operations Resource Group).  I  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES PROJECT BACKGROUND 1. The Vienna Convenltion for the Protection of the Ozone Layer (1985) and the Montreal Protocol on Substances that Deplete the Ozone Layer (1987) (MP) are international environmental agreements whicih call for the phaseout of substances that deplete the stratospheric ozone layer (hereafter "regulated substances"). More than 100 countries representing over 95 percent of world consumption of these regulated substances have ratified the Montreal Protocol and Vienna Convention. The Montreal Protocol with its amendments and adjustments nlow mandates the complete phaseout of production and consumption of a number of ozone depleting substances (ODS) in developed countries by January 1, 1996. All industrialized countries in the world have undertaken comprehensive national programs to develop cost-effective strategies to phase out the use of these substances in the various end- user sectors. The largest family of ODS is chlorofluorocarbons (CFCs) and which are widely used in various industrial applications includinig: domestic, commercial and industrial refrigeration and air conditioninig, flexible and rigid insulation foam, and in numerous applications such as aerosol propellants, and solvents, among others. 2. The Czech Republic (CR), presently the largest producer and an important consumer of the regulated substances in Central and Eastern Europe (CEE), has been actively planning its ODS phaseout strategy since 1991. A comprehensive Country Program for the Phaseout of Ozone Depleting Substances in the former Czech and Slovak Federal Republic (CSFR) was undertaken, with Bank support, in April 1992 and completed in November 1992 as part of an important regional study on environmental issues in Central and Eastern Europe (CEE). This study served as the basis for establishinig the priorities for the Czech Government and for identifying key policy and regulatory measures which would be required to support a cost effective phaseout, which would also minimize disruptions to the industrial sectors which utilize ODS. The activities proposed for funding under this Project are amonig those priority activities identified in the Country Program. 3. In 1991, the former CSFR's consumption of regulated ODS was 3935 metric tons (t) (equivalent to 3759 ozone depleting potential [ODP] weighted tons), which amounts to a per-capita consumption of 0.22 kg. The Czech Republic accounted for 60 percent of the total consumption in the former CSFR. The distribution of ODS consumption in the former CSFR was aerosols -- 1600 metric tons (40.7%); refrigeration -- 1057 metric tons (26.9%); solvents -- 989 metric tons (25.1%); and foams -- 289 metric toins (7.3%). 4. Since 1991, the ODS consumption profile has changed due to the effects of market forces, industrial restructuring, the regulatory environment, and general technological trends. Usage in the aerosol and flexible foam sectors has been eliminated through the adoption of regulatory measures supported by local market forces. Although precise 1993 data is unavailable, ODS consumption in that year is estimated at about 1,430 tons, concentrated mainly in refrigeration (48.0% including a large usage in servicing of used equipment), solvents (41.5%), and rigid foam production (10.5%). Thus the Project will provide for the funding of key investment activities supporting ODS phaseout in refrigeration and rigid foams, since the use of solvents is dispersed among a wide number of different applications with no single large user as in the other sectors. In addition, existing regulations governing the phaseout of CFCs in solvents will require an earlier phaseout than is feasible to be covered under the project.  5. Spolek Cheinical Works accounts for 100% of CFC production in the Czech Republic. Until recently, production was approximately equal to Spolek's production capacity for CFCs which is about 2000 tons per year (t/y), mainly CFC-12 and smaller amounts of CFC-I 1, and CFC-I 13. Also, a substantial amoul1t of carbon tetrachloride (CTC) (also a regulated substance) is generated as a by- product of epichlorohydrine productioni at the counitry's only CFC production facility. A portion of the CTC is used as one of two raw materials in the production of CFC. 6. The Czech Republic is fully committed to the complete phaseout of the production and consuL11ptioln of regulated substances by 1996 as mandated by the Montreal Protocol and its amendmenits. The formner CSFR was a signatory of the Montreal Protocol and Vienna Convention and the Czech Republic has succeeded to the forner CSFR's ratification of the Montreal Protocol. Altlhoughi the Czech Republic was designated a developed country under the Montreal Protocol, and is therefore not eligible for finanlcial assistance from the Multilateral Fund for the Implementation of the Montreal Protocol (MFMP), the fundinig mechanlism of the Montreal Protocol, it is nevertheless eligible for Global Environlmenit Facility (GEF) fundinig under the Reduction of Ozone Layer Depletion component. RATIONALE FOR GEF INVOLVEMENT AND PROJECT ELIGIBILITY 7. With the exception of Romaniia and the former Yugoslavia, countries from CEE and the former Soviet Unioln (FSU) are not eligible for assistance from the MFMP. Nevertheless, the total production and consumiiptioni of ODS in CEE and FSU is equal to that of all the developing countries (including Chinia, lndia, Brazil and Thailand) whichi are eligible for MFMP assistance, and therefore represent an opportuniity to achieve significanit global environment benefits through the adoption of cost effective techniological intervenitionis. 8. T'lhis Project has been developed and structured based on specific ODS phaseout requirements in the Czech Republic (as outlined in the Country Program) and the general project eligibility criteria guidelines of the GEF Scientific and Technical Advisory Panel (STAP). Funding for this stratospheric ozone layer protection project has been obtained from the GEF on the basis that the Czech Republic: (a) is eligible for GEF assistance; (b) is not classified as a developing country and is not eligible for funding from the Multilateral Fund for the Implementation of the Montreal Protocol; (c) lhas completed the preparation of a Country Program; and (d) has unidertakenl to succeed to the former CSFR's ratification of the Vienna Convention and Montreal Protocol. 9. Thle Project, which consists of five sub-projects, is consistent with international efforts in the field of ODS phaseout. The sub-projects are deemed to be effective and are essential interventions in order to quickly and successfully phase out the use of the regulated substances. This project will be the first comprehenisive and planned ODS phaseout program to be implemented in Eastern Europe. GEF PROJECT OBJECTIVES 10. The principal objective of the Project is to assist the Czech Republic in the phaseout of ODS production and consumption in a cost effective manner by the year 1996, as mandated by the Montreal  -3- Protocol and its amendmeints and adjustments. Specifically this Project will assist the Czech Republic to: (a) initiate the phaseout of the production of CFCs; (b) phase-in the operation of a national network for refrigerant recovery/reclamation/recycling (CFC- II and CFC- 12); and (c) support applied engineering efforts to use ODS substitutes in manufactured goods (mainly refrigeration and commercial/industrial cooling applications), thereby reducing both the immediate and future needs for regulated substances. GEF support will provide an incentive for the early adoption of ODS phaseout activities and capture additional environmenital and economic benefits which would otherwise either be lost or delayed. PROJECT ELIGIBILITY AND DETERMINATION OF SUB-PROJECT INCREMENTAL COSTS 11. This Project is the first and only ozone-related project to be funded during the pilot phase of the GEF and there are therefore no precedents on matters of eligibility of the various sub-projects. On this basis, it was decided to adopt the specific eligibility criteria developed for projects to be funded by the MFMP. TIhe GEF Participants. whichi approved the funding of this Project, are also Parties to the Montreal Protocol and most of them are contributors to the MFMP. The application of the project eligibility criteria assured a fair and consistenit assessment of the nature of activities which could be funded and of the level of findinig (defined as incremental costs) which could be allocated. Incremental costs, as defined by the Parties to the Montreal Protocol, are the costs incurred by the participatiig enterprise whichi would otherwise not have incurred in the absence of the Montreal Protocol. The sub- projects proposed in this Project meet the project eligibility criteria established by the Parties to the Montreal Protocol. 12. The sub-projects were selected by the Czech Ministry of Environment from the list of potential sub-projects whicih had been identified during the preparation of the Country Program. The sub-projects were selected on the basis of their impact on ODS consumption, their potential for minimizing the impact of ODS phaseout on the economy and their replicability in the Czech Republic and Central and Eastern Europe. The participating enterprises were selected on the basis of their capacity to undertake the sub-projects (such as for Ekotez and Kovosluzba), their technological leadership positions (such as for Thermo-King-Frigera and Bratfi Horakove, s.r.o. (Ltd.)(BHL)) or their special situation within the context of ODS production (such as Spolek, the only ODS producer in the Czech Republic) within the country. The finanicial situation of the enterprises was verified during the course of project preparation, and all participating enterprises anticipate improved cash flows and profitability over the life of the project. 13. The level of fundinig for each sub-project was determined on the basis of the incremental costs at the sub-project level. Incremental cost may or may not be equal to the project cost, as this will depend on whethier savings will accrue to the participating enterprises and which must be considered in the determinationi of the final incremental cost. Other factors which must be considered in determining the sub-project incremental cost include, but are not limited to level of technology upgrade achieved by the project, impact on production capacity and cost of substitute materials. For all the sub- projects proposed as part of this Project, counterpart contributions have been made by the Participating Enterprises in terns of time for the preparation of the project documents and, in most cases, in the  - 4 - implementation of the sub-project, either through management time or through direct investment. This will be reflected in the sub-grant agreement. 14. Additional counterpart contributions are expected during the implementation phase of the Project, and these are estimated at $300,000 and $1.55 million for Sub-projects 2 and 4, respectively. The proposed level of funding represents a conservative but fair estimate of the incremental costs which will be incurred by the Participating Enterprises. The assessment of incremental cost for the national recycling scheme (Sub-project 2) is slightly different as it establishes a new business venture, which does not presently exist. In this specific case, the incremental cost was determined on the basis of the analysis of cash flows of all participants and GEF funding determined on the basis of ensuring an adequate return on the investmenit for all those participating. 15. It is therefore proposed that the Project cost of US$2.3 million be funded by the GEF under its Reduction of Ozone Layer Depletion componient. Funds would be provided as a grant from the GEF to the Czech Republic and chaninelled to the Participating Enterprises through a local financial agent. The estimated costs are to be considered incremenital costs net of any potential savings. Overall Project cost has been reduced by usling a reclamation process which makes use of the existing CFC production equipment at Spolek Chemical Works. Proceeds of the granit will not be utilized for transfer payments, such as taxes and duties. PROJECT DESCRIPTION AND COSTS 16. The Project consists of five sub-projects. Comprehensive sub-project descriptions are provided in the Techniical Aninlex. The sub-projects will consist of the following activities: (a) Under sub-project I (Engineering Assistaiice for ODS Production Phaseout) the Czech Republic will develop a strategy to shutdown CFC production by January 1, 1996 while inininilzing the enviroiinmenital impact of excess amounts of carbon tetrachloride (CTC) produced at Spolek Chemilical Works. Spolek produces up to 2000 t/y of CFC-12, with smaller amounits of CFC-I I andl CFC-1 13 as by-products by Using CTC (also a regulated substanice) as a raw material. The shutdowin of the CFC productioni operation will create an imbalanlce in the productioni facility's plant material balance. Presently, the only alterniative available to the enterprise is to incinerate the excess CTC. This sub-project will fuLid a study that will evaluate available methods of convertinig CTC to other marketable materials, identify available methods of developing a raw material for producilig HFC- I 34a. and make recomimlenidationis on whethier CTC can be used as raw materials in the productioni of other hydiofluorocarbolns (HFCs) and hydrocliloroflluorocarbonis (HCFCs). FuLnding for this sub-project aimouLIts to US$80,000 to cover the cost of an enginieerinig study. (b) Sub-project 2 (Desigin and Operationi of CFC Refrigeranit Reclamation Facilities and Establishmenlt of Refrigeranit Recovery Capacity in the National Network of Servicing Companies) will establish a nationlal refrigerationi recovery/reclamation/recycling (3R) programi in the Czech Republic. It will be developed in two phases, with the first phase focusinig on the development of a comprellenlsive plan and program for recovery, the establishmenit of the first reclamation facility at the Spolek Chemical Works and the establishmenit of the training center with the participation of Union of Workers and Organizationis in Refrigeration and Air Conditioning. The second phase consists of setting up the nationiwide recovery network, with the participation of Ekotez and Kovosluzba. Fundilig for this sub-project amounlts to US$1.04 million to cover the cost of reclamation  equipment, to provide an incentive for the cost of recovery equipment and to provide training to the service technicians. Phase I of this sub-project will consist of the following: Establishment of the first reclamation plant (for CFC-1 I and CFC-12) at Spolek Chemical Works including reclamation equipment (tank, pumps, boiling tank, etc...), laboratory equipment (gas chromatograph, scales and testers) and cylinder handling equipment for a total cost of US$253,000; Establishmenit of the training center (recovery units, testing kits, etc...), research visits to two European recycling centers, the establishment of a training program for the refrigeration technicians and a public information campaign for a total cost of US$ 138,000; Phase 2 of this sub-project will consist of the following: Establishmenit of a collection site (for all recovered materials) and reclamation unlit (mainly for HCFC-22) close to the Prague metropolitan area including testing equipment (gas chromatograph, pumps, testing equipment) at a cost of about US$169,000; Purchase of 2000 empty gas cylinders (including color coding system) for use in the 3R network at a cost of US$140,000; Retrofitting of 4 vehicles for establishment of extraction and collection of recovered material at a cost of US$90,000; Finiancial incentive of about US$400 for the purchase of 500 recovery units (average cost of unit about US$1,000) by the servicing companies for a total of US$200,000. The counterpart financing to be provided by the servicing companies will amount to over US$300,000; Provision of a reserve of US$50,000 to cover potential operating losses (due to start up of the 3R network) of the reclamation center at Spolek Chemical Works. The reserve was determined on the basis of a cash flow analysis and represents an amount which would cover part of the operational losses should very small amount of CFCs be recovered. The logistics of the 3R network have been analyzed by the participating enterprises (Spolek Chemical Works, Ekotez, Kovosluzba and Union of Refrigeration Technician). The proposed flow of materials and of funds have been fully outlined in a Document of Understanding signed by all the participants. (c) Sub-2roiect 3 (Introduction of Non-ODS Refrigerants in the Commercial. Industrial and Refrigerated Transport Sectors) will phase out CFCs used in commercial, industrial and transport refrigeration systems. The project involves two participants, Thermo-King- Frigera and CKD Compressors (CKD-C). Thermo-King-Frigera, a manufacturer of commercial and industrial refrigeration systems, will: convert its existing models of transport cooling systems from CFC-12 to HFC-134a; develop retrofit techniques for existing commercial cooling systems it has manufactured and prepare a retrofit manual. CKD-C will, with the technical assistance of Thermo-King-Frigera, participate in a pilot program and will retrofit a centrifugal chiller and screw compressor used as part of a  - 6 - municipal heat pump installation. The project will result in the prototype production of HFC-134a transport refrigeration units, and establish retrofit techniques for existing commercial and industrial refrigeration equipment now operating on CFC-12. Funding for this sub-project amounts to US$464,000 to cover the incremental costs of conversion which include engineering and design work, manufacture of prototypes, purchase of leak and other testing equipment, recycling machines and costs of test retrofits; (d) Sub-Proiect 4 (Introduction of Non-ODS Insulation Technologies in Cold Room Panel Manufacturing) will introduce low-ODS and non-ODS foaming technologies to companies in the Czech Republic, through the demonstration of available technologies and the training of manufacturers through technical seminars. The project includes the development of demonstration technology for the production of selected products using CFC-free foam at the BHL company. The first step will replace 50 percent of the CFC-1 I with water in the foam products which have not been converted. This step also includes the set-up of a small testing facility where different reduced CFC-foam formulations can be studied. The second and third steps will move from low-pressure (LP) blowing to high-pressure (HP) blowing equipment (or modification of the HP equipment). Finally, technical seminars will be organized, and documentation and consultant services will be provided for other producers. Funding for this sub-project is US$363,000 to cover the incremental costs of equipment, laboratory construction and will also support the training component. The availability of the testing facilities for other companies to use will be ascertained through the Sub-grant Agreement which is to be signed between BHL and the Financial Intermediary. BHL has spent close to US$2 million to upgrade its level of foam blowing technology over the last three years; and (e) Sub-proiect 5 (Set-up of a Project Management Unit (PMU) will set up an ODS Phaseout Proiect Management unit (PMU) to be supported by a Technical Advisor' Group (TAG). The PMU will coordinate the implementation of the Project, oversee procurement and disbursement for sub-projects 1, 2, 3, and 4 in compliance witlh World Bank guidelines, and in close cooperation with the lnvesticni a Postovni Banka (IPB), supervise project activities according to the requirements of the World Bank and MOE. As necessary, the PMU will arrange for technical assistance and consultants to assist in project implementation, and provide support to facilitate cooperation among government institutions and the producers and consumers of ODS. Finally, the PMU will be responsible for calling meetings of the TAG, which will be responsible for providing technical support to ODS consumers and producers in the implementation of investment sub-projects aimed at ODS Phaseout. Funding for this sub-project amounts to US$300,000 to cover salaries, office equipment and the cost of hiring international consultants for supervision and review during implementation of the sub-projects. 17. The incremental cost of the five sub-projects has been determined to be US$2.3 million, which represents only a small fraction of the national incremental costs which will be assumed by the Czech Republic economy in phasing out ODS. PROJECT IMPLEMENTATION ARRANGEMENTS 18. The Ministry of Environment (MOE), through the Project Management Unit (PMU), will act as general program coordinator for the Project. The MOE will liaise with other ministries on policies and industrial strategy issues. The PMU will be established by the MOE approximately two months before the Grant becomes effective. Moreover, since the PMU is a government entity, the Investicni  a Postovni Banka (IPB) will not be responsible for on-lending to the PMU under sub-project 5. Instead, disbursement for this sub-project will be made directly to the PMU. 19. The Investicni a Postovni Banka (IPB), which has worked successfully with MOE in the past, has been selected as a financial intermediary (FI) to assist the MOE with the implementation of the Project. IPB will assume the day-to-day responsibilities of Project execution including supervision of procurement, disbursement, and supervision of sub-project implementation for sub-projects 1, 2, 3, and 4. IPB has undergone basic training on World Bank procurement and disbursement procedures and will be further assisted by the Bank to successfully launch the Project. A Project Administration Agreement (subject to Bank review and clearance) will be signed by IPB and MOE. The Project Administration Agreement (PAA) confirms the responsibility of the MOE and IPB with respect to the implementation of the four sub-projects. IPB will also undertake to establish separate sub-grant agreements with each of the participating enterprises. Each sub-project proponent has prepared a Sub-project Document whicih will form the basis of a Sub-Grant Agreement between IPB and the participating enterprise. The Sub- grant Agreement will include reporting provisions. IPB will review the progress of the sub-projects and make recommendations on disbursements to suppliers and consultants. The standard Bank disbursement procedures will be followed, with established limits on initial deposit and replenishment levels, statements of expenditures and Bank review levels. For its services, IPB will be paid a fee of 2.72 percent on sub-projects 1, 2, 3, and 4. The fee will be paid as follows: 1 percent upon signature of Sub- grant Agreement with the participating enterprises, I percent pro-rata to disbursements and the final 0.72 percent upon reception by the Bank, through the PMU, of the final report upon project completion. 20. A Proiect Implementation Manual (PIM) has been prepared to provide the relevant Bank guidelines on procurement, disbursements, use of consultants, financial reporting, sample bidding documents and other project-specific documents. Furthermore, because the 3R scheme involves operationial and logistical challenges, the Bank initiated the preparation of a Document of Understanding (DOU) outlining the responsibility of each party in the scheme, the incentive structure, and the materials and funds flow mechanisms. All parties involved in the 3R sub-project have signed this DOU. PROJECT BENEFITS 21. The project's major benefit will be to assist the Czech Republic to achieve its objective of completely phasing out the use of ODS as early as is technically feasible. It is expected that the project will contribute to the national objective to reduce ODS consumption by over 1000 tons per year by the end of the secoiid year of project implementation. In addition, implementing the 3R sub-project and the refrigeration-sector sub-project will reduce ODS emissions which originate during servicing of refrigeration and air conditioning systems by as much as an additional 400 tons per year (t/y), and will extend the useful life of equipment utilizing ODS which otherwise would be discarded for lack of ODS for maintenanice purposes. It is expected that the production of ODS can be successfully phased out within the same time frame, and that the phaseout of ODS production will result in a reduction of 2000 tons per year (t/y) of ODS production. 22. The Project consists of several sub-projects which will contribute to maximizing the useful life of equipment which rely on the availability of CFC for their continued use. This will contribute to reducing the country's economic cost of phasing out the use of the regulated substances. 23. Another significant benefit is the replicability of project preparation and implementation mechanisms based on the processing and implementation of this first ozone-related project to be presented under the GEF. The ultimate benefit of this project will include accelerated phaseout of ODS in many CEE countries which may initiate and implement similar policies and projects.  -8 - PROJECT RISKS AND MITIGATION MEASURES 24. The risk associated with insufficient institutional capacity should be adequately offset by the establishment of the PMU and TAG to assist in the development of industry projects and programs for ODS phaseout. The work of the PMU and TAG will be essential to help industry make the transition to ODS substitutes instead of to importation of ODS following the cessation of domestic CFC production at Spolek. 25. Management structures and ownerships of several of the companies which would be assisted under this project have recently changed. The participating enterprises have survived the recent changes and are preparing for future business developments. One of the firms has established a joint-venture with a foreign company while another is discussing this possibility. Nevertheless, there will be a residual risk associated with the potential of declining financial health of some of the participating enterprises. The participating enterprises were selected on the basis of criteria described earlier. The participating enterprises have good prospects for increased profitability based on their position within their respective industrial sectors. This will be ascertained prior to negotiations by the Fl through the review of financial statements (actual and projections) to ensure adequate cash flows to cover operating costs and the greater of depreciation or debt service requirements. The level of technological development made these enterprises the most suitable participants in the project. 26. The sii-nultaneous implementation of a phaseout of ODS production and the use of the 3R program is necessary to ensure that there is a minimal shortfall of CFCs for servicing existing equipment. A shortfall could lead to increased production and/or stockpiling of new CFC-12, and/or the early retirement of equipment at significant economic cost. Experience in national 3R programs is limited to only a few countries, althoughi many are now under development. Initially, the amounts of CFC recovered will be small, but the most important aspect of the program is to provide adequate incentive to the organizations providing servicing of existing equipment. Measures have also been proposed to closely monitor the 3R scheme. This will be monitored closely in order to react to market conditions (price and availability of CFC) which will influence the profitability (at all levels) of the 3R program. Project risk is being mitigated by placing the financial risk with Spolek Chemical Works which is capable of assuming the risk (very small in the context of the enterprise's overall activities), and by ensurinig that the incentive to the servicing sector is sufficient to encourage widespread recovery of CFC through maintenance activities. To further minimize the risks to Spolek, the Project makes provisions to cover potential revenue shortfalls at Spolek for the first two years of operation of the 3R program. The potential shortfall was conservatively calculated on the basis of a very low amount of ODS recovered and of very poor quality. 27. Anothier initial concerin was that the financial intermediary has not worked with the Bank in the past. They have recently undergone a training program designed to provide them with an introduction to Bank procedures. The Bank will provide additional training as necessary to ensure smooth project implementation, specially during the start-up phase. REGULATORY FRAMEWORK 2X. Stratospheric Ozone Layer protection has been accorded high priority by the Government of the Czech Republic as an important global environmental issue. A law on the control of ODS was approved by Parliament in 1993. The legislation includes a tax of 100 Czech Korunas (approximately US$3.5) on each kilogram of regulated substance produced or imported, and a prohibition of all imports of ODS or products containing ODS to take effect on January 1, 1994. The law adopts the ODS phaseout schedule of the Montreal Protocol and its amendments and adjustments and is fully consistent with the provisions of the Montreal Protocol on limitations on trade in the regulated substances.  9- ENVIRONMENTAL ASSESSMENT 29. Sub-projects 1, 2, 3, and 4 will be subject to local environmental regulations and Bank project environmental review procedure. The sub-projects consist of light industrial projects which have been classified as category B on the basis of the Bank's project environmental classification system (OD 4.01) and based on previous classification of similar projects. 30. The MOE has been requested to provide its environmental clearance of all the proposed activities to be implemented by the Project by negotiations. The Project provides for resources to retain the services of international consultants for supervision of project implementation, including health and safety considerations. ACTIONS TO BE AGREED 31. The conditions of effectiveness are that the Project Administration Agreement between the lnvesticni a Postovni Banka and MOE be signed, and that satisfactory staff be appointed to the PMU and TAG as conditions of effectiveness of the grant. Attachments Washington D.C. August 1994 I  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTM:ENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES SCHEDULE A PROJECT COSTS AND FINANCING PLAN (US$ Million) Sub-Project Title FINANCED LOCAL FOREIGN PROPOSED TOTAL and Description BY CZECH (BY (BY GEF) GEF COSTS GEF) GRANT_ __ Sub-project I: 0.000 0.000 0.080 0.080 0.080 Engineering Assistance for ODS Production Phaseout Sub-project II: Design 0.300 0.740 0.300 1.040 1.340 and Operation of a CFC Refrigerant Reclamation Facilities and Establishment of Refrigerant Recovery Capacity in the National Network of Servicing Companies Sub-project III: 0.000 0.300 0.164 0.464 0.464 Introduction of Non-ODS Refrigerants in the Commercial, Industrial and Refrigerated Transport Sectors Sub-project IV: 1.548 0.063 0.300 0.363 1.911 Introduction of non-ODS Insulation Technologies in Cold Room Panel Manufacturing Sub-project V: Project 0.000 0.300 0.000 0.300 0.300 Management Unit Financial Intermediary 0.000 0.053 0.000 0.053 0.053 Fee (2.72% on Sub- projects 1-4) TOTAL COSTS 1.848 1.456 0.844 2.300 4.148  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES SCHEDULE B PROCUREMENT AND DISBURSEMENT ARRANGEMENTS A. Procurement 1. Procurement of goods, works, and services will be in accordance with relevant Bank Guidelines. Investicni a Postovnf Banka, the selected local Financial Intermediary (FI), will be responsible that procurement under the project follows Bank guidelines. It will help enterprises arrange procurement (international and local); where necessary, procurement should be handled by qualified procurement agencies authorized by the Government and acceptable to the Bank. For International Competitive Bidding (ICB) (although none is anticipated in this project at this juncture), documents would be prepared following the Bank Standard Bidding Documents, and domestic preference for goods manufactured in the Czech Republic would apply according to procurement guidelines of the Bank. 2. The local Fl will satisfy itself that the goods, works, and services to be purchased are for the investment sub-projects and are reasonably priced, by ensuring that the grant recipient has followed efficient and competitive procurement practices in accordaace with those of the minimum thresholds agreed (see following list): Goods and Works (a) contracts over US$300,000 equivalent would be subject to international competitive bidding (ICB) procedures; (b) contracts between US$50,000 and US$300,000 would be awarded on the basis of the Bank's international shopping procedures (IS) where price quotations would be obtained from at least three qualified suppliers from at least three countries; (c) contracts below US$50,000 would be awarded on the basis of local shopping procedures (LS) where quotations would be obtained from at least three qualified suppliers; and (d) for civil works, contracts would be awarded on the basis of local shopping procedures. (e) for proprietary packages, contracts would be awarded on the basis of negotiations with the technology supplier. Consultants Consultants retained under the project would be recruited in accordance with the "Guidelines for the Use of Consultants by World Bank" published by the World Bank in August 1981. It is estimated that approximately 20 consultant contracts with an average cost of US$20,000 will be processed over the life of the project'. The Following contracts and bid packages will be subject to prior review: (a) ICB packages2; 1/ The type of consulEancy work required for this Project consists of hiring highiv specialized consultants on an as- needed basis for specific consultations and project supervision assignments. These types of assignments are best carried out through small individual contracts. The provision for ICB is included in the procurement arrangements solely on a routine basis. No ICB procurement is expected in the project.  - 2 - (b) all contracts estimated to cost US$100,000 or more; and (c) for selection of individual consultants, where the Bank will review the short list and terms of reference, generic letter of invitation, and award decisions. All contracts below US$100,000 equivalent financed through this grant will be subject to ex-post review by the Bank in order to verify compliance with Bank procurement guidelines. Summary of Proposed Procurement Arrangements (US$ Million Equivalent) Procurementr Uelwd Total Proje Elementr IC8 LC8 Other NMF Cost 1. Works 1.1 Minor building and facility services retrofits - - 0.050a - 0.050 2. Good b 2.1 Equipment (including installation costs) - - 1.250 - 0.250 2.2 IncenBtive for purchase of recovery unit - - 0.200 - 0.200 2.3 Matcrials (for testing purposes) - - 0.050b - 0.050 3. Consslrancses 3.1 Engineering Studies - - 0.080C - 0.080 3.2 Technical Assistance (including consulunts hired by - - 0.317C - 0.317 Project Management Unit and Technical Advisory Group) 4. Miscellaneous d 4.1 Financial Intermediary Fee - - 0.053 - 0.053 4.2 Engineenng/designworkundertakenbyparticipating - - 0. 150 - 0.150 enterprises 4.3 Budget of the Project Management Unit - - 0.100l - 0.100 4.4 Provision for 3R Scheme (reserve) - - 0.050g - 0.050 Total - - 2.300 - 2.300 NBF: Not Bank-Financed a. Funds will cover the costs of minor civil works required to retrofit existing facilities. b. Consists of the following: Inteniational Shopping: US$0.500 million: and Local Shopping: USS1000 million. c. Services to be procured in accordance with World Bank guidelines: 'Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency Washington. D.C.. August, 1981'. d. Fee for services provided by the financial intermediary (2.72 percent of value of sub-projects 1. 2. 3. and 4) will be paid in accordance with agreed schedule: I percent upon Sub-Grant Agreement signaturc, I percent pro-rata to disbursements and 0.72 percent upon project completion. e. Funds to cover costs which will be incurred directly be the participating enterprises including in-house engineering and design work. Payments to be made directly to participating enterprises in accordance with sub-project cost estimates. f. Funds will cover the costs of office equipment. salaries and other operational expenses of the Project Management Unit (PMU) for a period of three years. Disbursemcnts will be made on the basis of an agreed budget between the PMU and Financial Intermediary. g. Funds held as reserve to support operations of recovery/reclamation/recycling scheme. Disbursemcnts to be made on the basis of a yearly review of the funding mechanism. h. Additional funding of about USS0.3 million will be provided by the servicing enterprises who will participate in the recycling scheme. i. All items are financed by the Bank.  - 3 - 3. The table below sets forth the categories of items to be financed out of the proceeds of the GET Grant, the allocation of the amounts of the GET Grant to each category, and the percentage of expenditures for items so to be financed in each category: Category Amount of the GET Grant Percentage of Expenditures Allocated (Expressed in SDR to be Financed Equivalent) Goods, Works and Services 60,000 100 percent of foreign for Part A. 1 of the Project expenditures and 100% of local expenditures (ex-factory cost) Goods, Works and Services 780,000 100 percent of foreign for Part A.2 of the Project expenditures and 100% of local expenditures (ex-factory __________ __________ __________co st) Goods, Works and Services 350,000 100 percent of foreign for Part A.3 of the Project expenditures and 100% of local expenditures (ex-factory cost) Goods, Works and Services 280,000 100 percent of foreign for Part A.4 of the Project expenditures and 100% of local expenditures (ex-factory ________________________________ co st) Goods, Works and Services 230,000 100 percent of foreign for Part A.5 of the Project expenditures and 100% of local expenditures (ex-factory cost) Total | 1,700,000  -4- B. Disbursement 4. The Project is expected to be disbursed within a period of two calendar years. The Trustee will disburse against 100 percent of eligible foreign expenditures and 100 percent of eligible local expenditures (excluding taxes and duties) for grant financed goods and services contra'ts. Disbursement procedures have been established as follows: (a) Between the World Bank. the Ministry of Environment, and the Investicni a Postovni Banka: The Trustee will deposit an initial amount up to US$300,000 to a Special Account which the MOE will open in Investicni a Postovni Banka. The minimum amount for replenishment of the Special Account will be US$50,000. Requests for reimbursement will be based on Statement of Expenditures (SOEs) for contracts with a value of up to US$50,000. The World Bank will accept requests for direct payment to the supplier of goods or services (not through a special account) only above a minimum of US$25,000. Terms, conditions and schedule for disbursement for sub-projects 1, 2, 3, and 4 must be included in the sub-grant agreement between the Jnvesticni a Postovni Banka and the enterprise; and (b) Between lnvesticni a Postovni Banka and the Sub-grant ReciDient: Up to US$100,000 per contract, Investicni a Postovni Banka will disburse to the sub-grant recipient for eligible expenses without prior review by the World Bank. Disbursement will follow the guidelines established in the Disbursement Handbook published by the World Bank in 1992. Details of the disbursement procedures will be included in the initial Disbursement Letter to be issued by the World Bank. Expenses incurred for activities of the Fl will be covered through the Special Account. ESTIMATED DISBURSEMENT FY94 FY95 FY96 -(US$ thousand)- Annual 200 1500 600 Cumulative 200 1700 2300  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES SCHEDULE C TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time Taken to Prepare: 7 months (b) Prepared By: Bilal Rahill, ENVGC Mark Kosmo, EC2EE (c) First Presentation to the Bank: August 10, 1992 (d) Appraisal Mission Departure: August 1993 (e) Negotiations: July 1994 (f) Planned Date of Effectiveness: October 1994 (g) Expected Date of Completion: June 1996  CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES SCHEDULE D PROJECT IMPLEMENTATION SCHEDULE Planned Date of Signature: August 1994 Planned Date of Effectiveness: October 1994 Sub-project 1 for Engineering Assistance for ODS Phaseout: By December 1994 Sub-project 2 for Design and Operation of a CFC Refrigerant Reclamation Facility and Establishment of Refrigerant Recovery Capabilities in the National Network of Servicing Companies: Phase I -- Establishment of Reclamation Plant at Spolek, and Training Center By December 1994 Phase 11 -- Pilot program for Collection, and Evaluation By June 1995 Phase Il -- Collection and Recycling of Refrigerants 1994-1996, and Thereafter Sub-project 3 for Introduction of non-ODS Refrigeration Technologies in the Commercial Industrial and Refrigerated Transport Sectors: Sub-component A -- Redesign of Open Drive Compressors December 1994 Sub-component B -- Retrofit of Industrial Cooling System June 1995 Sub-component C -- Conversion of Test-Facilities to Non-ODS Technology December 1995 Sub-component D -- Preparation of Technical Manual December 1995 Sub-project 4 for Introduction of Non-ODS Insulation Technologies in Cold Room Panel Manufacturing: October 1995 Sub-project 5 for Assistance to the Project Management Unit: 1994-1996 Expected Date of Completion: June 1996  Technical Annex Page I CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES TABLE OF CONTENTS OF TECHNICAL ANNEX AND ATrACHMENTS Technical Annex: 1. Summnary Table of Sub-project Components 2. Description of Sub-projects Attachments: A. Document of Understanding  Technical Annex l Page 2 CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES TECHNICAL ANNEX 1. SUMMARY TABLE Sub-project Title Participating Ownership Sub-project Type of ODS Sub- Proposed and Description Enterprises Impact Used/Produced project GEF Costs Grant' l ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(US$ (US$) l ~~~~~~~~~~~~~~~~~~~~~Millon) 1. Engineering Assistance Spolek State Phased CFC-1 1 0.080 0.080 for ODS Production shutdown of CFC-12 Phaseout ODS Production CFC-1 13 (2000 tlyr) CTC 2. Design and Operation of Spolek, Ekotez, State and Recycling of up CFC-I 1.340 1.040 a CFC Refrigerant Kovosluzba, and Private to 200 tlyr of CFC-12 Reclamation Facility and Association of CFC-1 1 and Establishment of Refrigeration CFC-12 Refrigerant Recovery Technicians refrigerants Capabilities in the National Network of Servicing Companies 3. Introduction of non-ODS Thermo-King- Private Phaseout of 110 CFC-12 0.464 0.464 Refrigeration Technologies Frigera tlyr of CFC-12 in the Commercial Industrial and Refrigerated Transport Sectors 4. Introduction of non-ODS BHL, s.r.o. Private Phaseout of CFC-I 1 1.911 0.363 Insulation Technologies in over 80 t/yr of Cold Room Panel CFC-II Manufacturing 5. Project Management Project 0.300 0.300 Unit Management l _________________ Unit, M OE Others: Financial 0.053 0.053 Intermediary Fee (2.72 percent on Sub- projects 1-4) TOTAL | 4.148 2.300 1/ Includes Contingency  Technical Annex Page 3 CZECH REPUBLIC TECHNICAL SUPPORT AND INVESTMENT PROJECT FOR THE PHASEOUT OF OZONE DEPLETING SUBSTANCES TECHNICAL ANNEX 2. PROJECT DESCRIPTION 1. This Project consists of an investment and a technical assistance component. This technical annex provides: (a) a sunmnary table of sub-projects; and (b) a detailed description of sub-project components. The Document of Understanding that has been signed for the refrigeration/recycling/ reclamation scheme (Sub-project) is presented in Attachment A. Additional reference documentation on the organizational aspects of the Project and on general World Bank guidelines have been included in a Project Implementation Manual which has been provided to the Project Management Unit and local financial agent. 2. The design and proposed implementation scheme of this Project have evolved from the findings and recommendations which emerged from the Country Program for the Phaseout of Ozone Depleting Substances. There are two (2) underlying strategies which have guided the elaboration of this Project. The first is that technical and financial assistance is most needed, and will have the most long-term impact on cost minimization to the Czech Republic's economy, in sectors where significant early retirement of goods and equipment could occur due to non compatibility with alternative substances. This is particularly applicable to the refrigeration/air conditioning industry, from which stems the significant importance of the 3R (recovery, reclaim and recycle) sub-project. Such a sub-project carries a higher level of risk in the short term but bears the most benefits in the medium and long term. The introduction of a national 3R network is also a strategic step in phasing out the production of ODS. The establishment of a Technical Advisory Group will also foster early adoption of non-ODS technologies in sectors where significant ODS can be phased out but which cannot be reached by direct investment through this project, because they do not meet the general project eligibility criteria. This consists in the second strategy. This approach will maximize both the global (through rapid phaseout of ODS) and national (through the facilitation of technological upgrade) benefits. Investment Component Sub-project 1: EnFineering Assistance for ODS Production Phaseout Background 3. Spolek Chemical Works is the oldest chemical company in the Czech Republic. Its product line consists of basic inorganic and organic chemical agents (including CFC-11, CFC-12, CFC-113 and carbon tetrachloride), synthetic resins, organic dyes and intermediates, and surfactants (industrial auxiliary agents, and household and cosmetic products including aerosol sprays). Annual sales are approximately US$100 million. Production of CFCs accounts for only a small portion of the revenues (less than I %) and of the chemicals produced by Spolek. Nonetheless, CFC production has been important to the company. Spolek can produce up to 2000 t/y of CFC-12 (from a carbon tetrachloride [CTC] feedstock produced at the plant), with small amounts of CFC- I and CFC-1 13 as by-products. Spolek is able to produce the above-mentioned products at less than half the price of West European producers, primarily due to lower labor costs, low capital depreciation costs (given the age of the equipment) and a relatively low overhead mark-up. The production break-even point has been estimated at 600-700 tons per year.  Technical Annex Page 4 Sub-project Objective 4. The objective of this project is to phase out the production of CFC-I 1 and CFC- 12 (2,000 tons per annum) and carbon tetrachloride (5,000 tons per annum) at Spolek Chemical Works and develop a comprehensive strategy for CTC use or disposal. Sub-Project Description 5. The shutdown of CFC production in accordance with the Montreal Protocol and its amendments will create an imbalance in the production facility's plant material balance. CTC, which is produced as a by-product of epichlorohydrine production and used as raw material, will be produced in excess quantities. Presently, the only alternative available to the enterprise is to incinerate the excess CTC. This sub-project will fund a study which is to provide a comprehensive strategy for alternative uses of the CTC, or discussion of proper disposal methods. 6. Recently, the Czech government enacted a CFC production and import tax of 100 Czech Korunas (CK) (equivalent to US$3.5) per kilogram of ODS. Spolek's 1994 production was scheduled to drop to 680 MT of CFCs and to 640 MT in 1995, but with the added tax, there is increased incentive to enact a recycling campaign to speed the production phaseout, as the recycled materials are not subject to the tax. 7. This sub-project will assist Spolek Chemical Works in determining the most suitable modification of the production process at Usti-nad-Labem. In accordance with the restrictions on the manufacture of ODS mandated by the Montreal Protocol, and at the request of the Czech government, Spolek must determine the optimal method of compliance without seriously impacting its other operations. Spolek currently uses carbon tetrachloride and hydrofluoric acid from a propylene chlorination process. This sub-project involves a feasibility study by international experts into the most cost-effective modification of this production, possibly involving the production of the ozone-friendly refrigerants, which require hydrofluoric acid as a feedstock. The project includes a small market survey, and will address the problem of carbon tetrachloride disposal or use. This sub-project, therefore, consists of the following tasks: Task 1: Market Survey of Projected European CFC Substitute Production/Consumption Patterns; * Task 2: Identify Alternative ODS Production Phaseout Strategies; * Task 3: Evaluate Potential for Production of Other Hydrofluorocarbons (HFCs) and HCFCs Using Propylene, CTC, or Perchloroethylene (PCE) as Raw Materials; and * Task 4: Development of Feasible CFC- 1, CFC-12 and CTC Phaseout Strategy at Spolek. 8. In the next five years, Spolek plans to spend about CK1.8 billion on necessary environmentally- related projects (e.g., sewage treatment plant, refuse destructing plant, and stockyard). Funding for this sub-project will assist in the development of future company-wide environmental responsibility programs. Estimated Sub-project Costs 9. The total cost of this sub-project is US$80,000, listed below by task as necessary for the production of the feasibility report.  Technical Annex Page 5 COSTS OF CONSULTANTS Task No. of Man-days Costs (US)_ Task 1 20 20,000 Task 2 15 15,000 Task 3 30 30,000 Task 4 15 15,000 TOTAL 80 80,000 Project Implementation 10. This project will be implemented by Spolek Chemical Works over a three month period. Sub-project 2: Design and Oeration of CFC Refriierant Reclamation Facilities and Establishlnent of Refrigerant Recovery Capacity in the National Network of Servicin! Companies Background 11. In the Czech Republic the most significant CFC use sector is refrigeration and air-conditioning. For 1993, it is estimated that the refrigeration and air-conditioning sector consumed 687 Metric Tons, or 48 percent of total national ODS consumption.2 It has been estimated that 3.0 million domestic refrigerators and 0.5 million home freezers are presently in use in the Czech Republic. Servicing and repair on existing systems requires approximately 700 t/y of CFCs. 12. The servicing of domestic refrigerators and freezers is performed by a network of servicing companies which are supplied by Kovosluzba, the former state-owned distributor of refrigeration supplies and gas, and Ekotez. The national servicing network has now been privatized and most servicing centers are now owner-operated. However, Kovosluzba has maintained its role as the dominant wholesale organization for refrigerants, equipment, spare parts and as a training organization for service technicians (in association with the Union of Refrigeration Servicing Technicians of the Czech Republic) and Ekotez has established itself as a key player in this sector. 13. The Czech Republic will establish a comprehensive national recovery/reclamation/recycling program for CFC refrigerants to meet short-term needs for CFCs after the production ban takes effect on January 1, 1996. The design and implementation of this program to provide service to these units will 2/ A rough estimate of 1,430 tons of CFC consumption for the Czech Republic in 1993 is derived as follows from the 1991 figures in paragraph 4 of the main report: (i) Subtract consumption of CFCs in the aerosol subsector (1600 metric tons) and flexible foam subsector (39 tons) since consumption in these sectors has been eliminated; (ii) Subtract 370 tons of CFCs in refrigeration to reflect the Slovak share based on data provided by refrigeration enterprises in Slovakia, but assume no net reduction in the Czech Republic's CFC use in refrigeration since 1991; and (iii) Subtract 40% of CFC use in rigid foams and solvents to reflect Slovak share, but assume no net reduction in the Czech Republic's CFC use in these two subsectors since 1991. This yields a distribution of aerosols -- 0 tons (0.0%); refrigeration -- 687 tons (48.0%); solvents -- 593 tons (41.5%); and rigid foams -- 150 tons (10.5%).  Technical Annex Page 6 coordinate the phaseout activities of three groups responsible for chemical production, distribution and servicing. Kovosluzba and Ekotez are responsible for wholesale refrigerant sales, equipment, spare parts and training of service technicians. The actual servicing is performed by a network of servicing companies whose technicians are members of the Union of Refrigeration Technicians, who are responsible for the recovery aspects of servicing. Spolek Chemical Works and Ekotez will handle chemical reclamation and recycling. Sub-project Objectives 14. The objective of this sub-project is to establish a national CFC refrigerant gas recovery network, and to train refrigeration and air-conditioning service personnel. Training will focus on the use of ODS recovery equipment to eliminate ODS emissions during servicing of refrigeration and air conditioning systems. Sub-project Description 15. This sub-project establishes a CFC refrigerant gas recovery and reclamation unit at Spolek Chemical Works whose CFC manufacturing operations are well suited for conversion to CFC reclamation. In this sub-project, Spolek will continue to use part of the CFC production facility to recycle CFCs, and then as production is terminated, new equipment will be purchased to expand recycling. The other participant in the project, Ekotez, is a private Czech company that distributes refrigeration system components. Ekotez will be responsible for the organization and operation of a second refrigerant recovery center near Prague and servicing routes that will utilize existing distribution routes and equipment in order to minimize expenditures. 16. Phase I will focus on all preparatory arrangements necessary to ensure the proper functioning of the entire project including compiling experiences of other countries, cooperating in the preparation of legislative regulations (if required) and implementation of the incentive system to encourage recycling (as per Document of Understanding). The first reclamation facility will be established as Spolek chemical Works, the training center will also be established with the participation of the Union of Workers and Organizations in Refrigeration and Air Conditioning. The anticipated input of used refrigerant is estimated at 150-200 t/year, in the third year of implementation. Phase I of this sub-project will consist in the following: