GEF FOCAL AREA: Phaseout of Ozone Depleting Substances (ODS)

GEF ELIGIBILITY: Poland ratified the Montreal Protocol in July 1990; GEF eligibility on basis of IBRD eligibility

TOTAL PROJECT COST: US$ 19.72 million

GEF FINANCING: US$ 6.21 million


ASSOCIATED BANK PROJECT: Stand-alone project



LOCAL COUNTERPART AGENCY: Polish Ministry of Industry and Trade



GEF PREPARATION COSTS: No PRIF or PPA resources were used



1. The Vienna Convention for the Protection of the Ozone Layer (1985) and the Montreal Protocol on Substances that Deplete the Ozone Layer (1987) are international agreements which call for the phaseout of substances that deplete the stratospheric ozone layer. Poland ratified the Montreal Protocol on July 13, 1990, and became a party to the Protocol on October 11, 1990. Procedures to ratify the Copenhagen and London Amendments to the Protocol are now underway, and ratification is expected prior to GEF Council discussion of this project.

2. Poland has been classified as an Article II country under the Montreal Protocol, and must therefore have eliminated controlled ozone-depleting substances (ODS) by January 1, 1996, except CFCs for medicinal aerosol use, for which the Government of Poland requested and was granted a one-year waiver. Having been designated an Article II country, Poland is not eligible for financial assistance from the Multilateral Fund for the Implementation of the Montreal Protocol. It is however eligible for Global Environment Facility (GEF) financing and the Government of Poland has requested the support of the IBRD, as one of the implementing agencies of GEF, in preparing and implementing a project for the phaseout of ODS. GEF would finance eligible incremental costs and eligible expenditures consistent with Multilateral Fund criteria and procedures and superseded by the GEF operational strategy for ODS.

ODS Sector Background

3. The use of chlorofluorocarbons (CFCs) has been wide spread in Polish industry (as refrigerating fluids and foaming agents in the refrigeration industry, propellants in aerosols, insulating foaming agents, solvents and metal cleaners in the chemical industry).

4. The Government of Poland has developed a Country Program to phase out the use of substances controlled by the Montreal Protocol. Significant measures have been taken and investments made to comply with the Montreal Protocol requirements, including taxing the emissions of ODS, restricting and controlling their imports, limiting pollutant emissions, strengthening the institutions implementing the ODS phaseout.

5. As a result of these actions, the total consumption of CFCs in 1994 fell to 1,916 ODS weighted metric tons, down from 6,710 in 1986, and 2,615 in 1993. All controlled substances consumed in Poland, except for carbon tetrachloride, are imported, mainly from the European Union and Russia. Since 1994, a large part of Polish ODS using industry has switched to alternative technologies. It is thought that almost no CFCs are presently exported in finished products. Based on estimates provided by the Ozone Layer Protection Unit (OLPU), in 1994 47.7% of ODS was used for refrigeration, 32.4% for aerosols, 10.8% for foams, 1.9% for solvent cleaning, 7.2% for other. It is also estimated that a stock of approximately 200 MT of Halon 1301 (fixed systems) and 200 MT of Halon 1211 (portable extinguishers) is present in Poland.


6. The objective of the project is to assist Poland in carrying out its Country Program for ODS phase out as required by the Montreal Protocol and its amendments. As a result of the project, it is expected that 905 ODS weighted metric tons (47 %) of 1994 annual ODP consumption will be directly phased out. Another estimated 140 ODS weighted MT annual consumption will be reduced through recycling and servicing, while a compressor factory conversion to non-ODS technology will facilitate indirect phase out of an additional 150 tons ODP annually. The project will contribute to global efforts to protect the ozone layer and benefit human health and the environment. In addition, the project will enable export-oriented firms to maintain their export markets by adjusting in a timely manner to non-ODS products as requested by importers from industrialized countries.

7. The overall cost effectiveness of GEF grants is very good, US$ 5.95/kg/yr. ODP eliminated, when based upon the total grant amount, due to the preponderance of CFC-11 foaming agent and a CFC-11/12 medicinal aerosol conversion to non-ODS technologies. For GEF grants exclusively for the investment projects which directly eliminate ODP, the cost effectiveness figure is even more noteworthy, falling to US$ 2.89/kg/yr. ODP.

8. The basis for determination of the proposed GEF Grant amounts is consistent with the GEF Operational Strategy for ODS Phase Out Operations approved by the GEF Council at its October 1995 meeting, including adjustments for retroactive financing, for export production and foreign ownership. Since several sub-projects were pre-appraised prior to the approval of the GEF Operational Strategy, the choice of technologies will be subject to reconsideration in line with relevant provisions of this Strategy, particularly those regarding synergism, at the time of appraisal. Incremental operating costs are not included in any of the subproject grant amounts.

9. Each sub-project is a component of Poland's Country Program which outlines Poland's plan to phaseout ODS as per the Montreal Protocol. Each sub-project has been already approved, or reviewed by the World Bank's Ozone Operations Resource Group (OORG) for technical soundness and eligibility of incremental costs. For the three subprojects for which OORG approval is forthcoming pending supplementary information or redesign, the requisite issues will be addressed prior to and during appraisal. These sub-projects will then be revised in a manner consistent with the GEF ODS Operational Strategy.


10. The project targets priority consumption phaseout activities in the refrigeration, foam and aerosol sectors. It also provides technical assistance at both the institutional and enterprise levels to facilitate the implementation of the ODS Country Program. The project consists of three components: (i) a technology conversion investment component; (ii) a recovery, reclamation and recycling (3R) component; and (iii) an institutional strengthening and training component. Annex 1 summarizes key phaseout and cost data for all project components.

11. A brief outline description of each sub-project follows. Project cover sheets are attached in Annex 2. Comprehensive sub-project descriptions are provided in the Technical Reports available in the Project File.

12. The technology conversion investment component consists of six sub-projects in the refrigeration, foam and aerosol sub-sectors:

13. Sub-project 1. Conversion from CFC-11/12 to Cyclopentane/134a at Polar's Refrigerator Factory and Establishment of CFC-12 Recycle Network. ZZSD Polar produces refrigerators and washing machines (450,000 refrigerators and 300,000 washing machines in 1994). The sub-project consists of three parts: (i) substitution of CFC-12 refrigerant with HFC-134a in two domestic refrigerators production lines; (ii) substitution of CFC-11 foaming agent with cyclopentane in the production of cabinets and doors for domestic refrigerating equipment; and (iii) development of a CFC-12 freon recycling network within Polar's 190 service shops. Total project cost was US$ 4.012 million. The total incremental cost of the project was US$ 2.9 million. After deduction of 35% of incremental costs from (i) and (ii) (35% of production exported to Western Europe), and adjusting all components for retroactive expenditures (implementation during 1994/95) the proposed GEF grant amount is US$ 408,000. The implementation of the project will result in the elimination of 50 tons of ODP weighted consumption of CFC-12 and 150 tons of CFC-11.

14. Sub-project 2. Conversion from CFC-11 to Cyclopentane Foaming Line for Household Freezers at Zamex. Zamex manufactures domestic, commercial and medical supply storage freezers. The object of the project is to convert the production of the polyurethane rigid insulating foam from CFC-11 to cyclopentane. The use of cyclopentane is well established in this sub-sector; the project aims at replacing the current three injection machines with two injection machines which are suitable for use with cyclopentane. Implementation, which commenced in November 1995, is now on going. The total incremental cost of this project, US$ 792,000, is eligible for GEF financing. The project will eliminate annual consumption of 75 tons of CFC-11. CFC-12 refrigerant phase out, previously implemented, is outside the scope of the project.

15. Sub-project 3. Elimination of CFC-11 in the Manufacturing of Rigid Polyurethane Insulation Pipes at Inzynieria. The enterprise manufactures a range of rigid polyurethane foam items, including insulated pipes. The objective of the project is to convert from CFC-11 to water/CO2 technology, by installing a new high-pressure foam blowing machine and modifying molds. The total incremental cost is US$ 514,000. The project will phase out 10 tons/yr. of CFC-11. Until project implementation is complete, the firm will be foaming with CFC-11 stockpiled prior to Poland's consumption phase out deadline. The GEF grant request, based on a cost effectiveness threshold of US$ 7.83/kg/yr. for rigid polyurethane applications, is US$ 78,000.

16. Sub-project 4. Phase-out of CFC-11 Blowing Agent in the Production of Panels at Metalplast. The enterprise manufactures steel faced sandwich panels on two continuous laminator plants. Three hundred tons of CFC-11 were used in the production of 1,300 tones of foam in 1994. The project objective is to replace CFC-11 with n-pentane. The project includes the replacement of foaming Line 1 and retrofitting of Line 2, including safety equipment to permit foaming with flammable n-pentane. The total cost of the phase out project is US$ 7.02 million; the eligible incremental cost, at 38% Polish ownership, is US$ 2.666 million. After adjustment for retroactive expenditures, the requested GEF grant amount is US$ 533,000. The result of the project will be the annual phaseout of 300 tons of ODP-weighted consumption of CFC-11.

17. Sub-project 5. Conversion from CFC-11 and CFC-12 to Non-ODS Pharmaceutical Propellant at Polfa S.A. In 1994 about 224 tons of CFC-11 and 96 tons of CFC-12 were used by Polfa as a propellant in the manufacture of dermatologic antibiotic drugs in aerosol form. Poland has been granted a one year phase out extension to 31 December 1996 for CFC phase out in medicinal aerosols, after which the importation of CFCs for this purpose will be prohibited. The project objective is to phaseout annual consumption of 320 tons ODP by refitting the pharmaceutical plant producing topical antibiotics to permit use of a non-ODS propellant mix. The initial capital expenditure estimate of US$ 1 million, which would be fully incremental, was based upon use of HFC-134a as the substitute propellant. GEF financing has been recommended for 80% of the total, or US$ 800,000. In light of the OORG review, which did not approve HFC-134a for this application due to its high cost and serious GWP and TEWI implications, Polfa will be evaluating hydrocarbon substitute propellants, which will also have total and incremental cost implications. These will be reassessed during project appraisal, and only those eligible incremental costs as per the GEF ODS Operational Strategy will be considered for GEF funding.

18. Sub-project 6. Substitution of CFC-12 with HFC-134a as Refrigerant in the Production of Compressors at EDA S.A EDA S.A. in Poniatowa is a manufacturer of hermetic compressors for domestic refrigerators, freezers and milk coolers (about 500,000 units annually). About 210 tons of CFC-12 was consumed by producers of household refrigerators and freezers in 1994. The objective of the project is to replace the production of compressors using CFC-12 with compressors using HFC-134a, by replacing or modernizing the production facilities. The project will convert a production line for 500,000 units annually, with an indirect reduction of 150 tons of CFC-12 per year. The decision to produce HFC-134a compressors rather than other non-ODS substitutes was dictated by the requirements of its principal customer, Polar, which had previously opted for HFC-134a refrigerant technology. The estimated eligible incremental cost of the project of US$ 1.8 million, of which it is proposed that GEF finance 80%, or US$ 1.5 million, reflects deductions from the total estimated cost of US$ 2.84 million of 15% for included import taxes, and an estimated US$ 600,000 which might be attributable to plant modernization. These figures will be reassessed during project appraisal.

19. The recovery, reclamation and recycling component includes one sub-project:

20. Sub-project 7. Establishment and Operation of a Nationwide CFC-12 Recovery, Recycle and Reclamation Network. Prozon is a non-profit foundation for the protection of the ozone layer which has been established by the two largest refrigerant gas distribution companies, Termo Products Ltd. and Liquid Carbonic. Prozon will be responsible for implementing this sub-project which consists of creating and operating a nationwide system for collection and processing of used refrigerants, primarily CFC-12. It is proposed to eventually equip 1600 shops with recovery equipment, which would be 30% self financed, and 70% grant financed. A central CFC reclaim center, and 17 collection/distribution depots would be established. A subcomponent, budgeted at US$250,000, to train refrigeration servicemen in CFC-12 conservation and HFC-134a services procedures will be carried out by the Refrigeration Center of Cracow (COCH). It is an essential element for implementation and operation of the 3R system. The total estimated project cost is US$ 2.42 million; the total incremental cost, which would be fully financed by the GEF grant, is US$ 982,000. The estimated annual potential recovery is 140 tons of ODS, primarily R-12.

21. The institutional strengthening and training component includes two sub-projects:

22. Sub-project 8. Training Program for the Use of Non-Halon Alternatives for Fire Protection. The objective of the sub-project is to organize two 3-day training courses to train designers of fire protection systems, specialists in engineering supervision and fire fighting engineers on alternatives to halon systems. A group of potential instructors for future training courses will be selected from the 60 participants. The sub-project will be implemented by the State Fire Service Headquarters (SFSH) in collaboration with the Science and Research Center for Fire Protection (SRCFP). The total cost of the sub-project is US$ 120,400; a GEF grant of US$ 110,000 is requested to finance incremental costs to support the program.

23. Sub-project 9. Institutional Strengthening. The objective of this sub-project is to set up an ODS Phaseout Project Implementation Unit (PIU) under the responsibility of the Ministry of Industry and Trade (MIT). The PIU will coordinate the implementation of the Project, oversee procurement and disbursement for the investment Sub-Projects' compliance with World Bank guidelines, and supervise project activities according to the requirements of the World Bank and MIT. As necessary, the PIU will arrange for technical assistance and consultants to assist in project implementation, and provide support to facilitate cooperation among government institutions and the consumers of ODS. GEF funding for this Sub-Project will likely be on the order of US$ 165,000 to cover salaries, office equipment, ODS monitoring, and the cost of hiring international consultants for supervision and review during implementation of the investment Sub-Projects.


24. The Project meets one of the four major objectives of the GEF: protection of the ozone layer. The Government of Poland has signed the Montreal Protocol and has shown its commitment to ODS phaseout through the preparation of a Country Program. However, Poland is unable to receive financing from the Montreal Protocol, as it is defined as an Article II country and, local enterprises have had difficulty borrowing the necessary amounts to access ODS phaseout technology.

25. The Project is part of the Poland ODS phaseout program, some parts of which might not be undertaken without GEF involvement. The proposed Project is consistent with the Implementation Guidelines and Criteria established by the Executive Committee of the Montreal Protocol for which the Bank is an implementing agency. The Project will be developed and structured on the basis of specific ODS phaseout requirements in Poland and the project eligibility criteria guidelines set forth by the Multilateral Fund as adopted by the GEF in its Operational Strategy. The cost effectiveness based on a grant of US$ 6.21 million is US$ 5.95/kg/yr. ODP, which is within the expected range for these types of phaseout projects.


26. The Government of Poland is committed to phase out ODS and the project will help achieve this goal. The project will focus on priority sectors and cost-effective measures which are defined in the Country Program for the phaseout of ODS, and will be complemented by changes in policies and regulations to ensure compliance with ODS phaseout targets (e.g., penalties for violation of regulations, obligatory reporting and monitoring requirements). Through the strengthening of the Ozone Layer Protection Unit, continued monitoring will be achieved. Sustainability will be promoted through the careful selection of enterprises which are viable in the short, medium and long term. Furthermore, a careful review of the financial mechanism supporting the recovery-reclamation-recycling scheme will be undertaken to ensure sub-project sustainability. It is essential, for long-term sustainability of this sub-project, that the incentives to the service sector (through payments for recovered ODSs) be strong enough for them to undertake the recovery process.

27. As part of the development of the Country Program the Ministry of Industry and Trade undertook consultations with a broad spectrum of enterprises and interested parties, including other ministries - industry, economics, finance - NGOs, industry associations and others. Enterprises were given the opportunity to participate in the project as long as they could provide the necessary data for project staff to evaluate their financial viability, technological capabilities and eligibility for financial assistance. Consultations with enterprises and other interested parties continued through a series of country workshops held under the aegis of the Montreal Protocol on project preparation and implementation, as well as during project preparation.


28. ODS Phaseout Projects are currently being prepared or implemented with the Bank as Trustee in about 15 countries including, for example, China, Turkey, Tunisia, Jordan, Brazil, India, Thailand and Venezuela. GEF ODS projects have been prepared or are under preparation in the Czech Republic, Hungary, Slovakia, Slovenia, Bulgaria, Russia, and other countries. Experience indicates the need for flexibility and simplicity in the project design and financing mechanisms, well prepared sub-projects and implementation plans, and most importantly, the need to strengthen local capacity during the preparation and implementation of project activities.

29. The project was reviewed by outside specialists selected from a roaster prepared and cleared by the GEF's Scientific and Technical Advisory Panel (STAP). These specialists are also approved reviewers under the parallel Ozone Operations Research Group (OORG) review system established by the World Bank to provide technical advice on technology selection under the Multilateral Fund. Sub-projects 1 through 8 have been reviewed by STAP/OORG. Five sub-projects have been approved while three are being revised to take the technical reviewers' comments into account.


30. The total project cost is estimated at US$ 19.72 million, of which US$ 10.94 million is incremental. The total requested GEF Grant is US$ 6.21 million. Retroactive financing for two subprojects is limited to 20% of the eligible incremental costs for these two subprojects, consistent with policy guidance provided by the GEF ODS operational strategy.

31. The total grant would consist of US$ 5.369 million for sub-projects, US$ 181,000 as the 3% financial intermediary fee, and US$ 664,000 as a 15% contingency of the non-retroactive grants. The difference in costs between the GEF grant (a share of the incremental costs) and the project cost will be borne by the enterprises through a combination of equity and loans, with some contributions from the Polish EcoFund and the National Fund for Environmental Protection and Water Management.


32. Although the financial viability of each participating enterprises is considered to be relatively healthy, the situation could change in the future. The financial status of each company will be reassessed during project appraisal to ensure project sustainability.

33. Given the limited time framework of the project, a quick and effective project implementation will be of paramount importance for project success. The Project Implementation Unit (PIU) will need to be staffed with 2-3 persons with technical, administrative and procurement skills by the time the project is approved.

34. The 3R network requires an adequate legal framework and a set of incentives in the service sector to stimulate maximum recovery of CFC-12. A financial incentive scheme will be closely detailed during the appraisal mission.


35. The environmental risks of the project are primarily associated with the handling and

use of cyclopentane, which is flammable, in the foam sector. For each sub-project, an annex on environmental and safety procedures is attached to the sub-project document which was reviewed by the technical reviewers. Each sub-project will have to comply with local environmental regulations and will be subject to Bank environmental review procedure. In addition, the MIT will ensure that information on international safety standards and procedure