GLOBAL ENVIRONMENT FACILTIY

PROPOSAL FOR REVIEW

PROJECT TITLE : LATVIA - PHASEOUT OF OZONE DEPLETING SUBSTANCES

GEF FOCAL AREA : Ozone Depletion

COUNTRY ELIGIBILITY : Ratified the Montreal Protocol in 1995. GEF Eligibility on the basis of being a UNDP program country.

TOTAL PROJECT COST : US$ 2,011,130

GEF FINANCING : US$ 1,351,812

GEF IMPLEMENTING AGENCY : UNDP/UNEP

EXECUTING AGENCY : UNDP/UNEP

LOCAL COUNTERPART AGENCY : Ministry of Environmental Protection and Regional Development

ESTIMATED STARTING DATE : July 1997

PROJECT DURATION : 3 years (being the maximum duration of a sub-project)

GEF PREPARATION COSTS : PDF-B Grant of US$ 116,000 was approved for implementation by UNEP/UNDP.

REPUBLIC OF LATVIA

PHASE-OUT OF OZONE DEPLETING SUBSTANCES

BACKGROUND INFORMATION ON LATVIA

1. The recognition of the phenomenon of depletion of the stratospheric ozone layer, has led to a substantial international effort to phase out Ozone Depleting Substances (ODS). The emission of ODS into the earth’s atmosphere causes damage to the stratospheric ozone layer which acts as a barrier to ultra-violet radiation from the Sun. Increased radiation has been traced as contributing to a higher incidence of skin cancer, eye diseases and immunological disorders while adversely affecting ecological food chains and bio-diversity. In the mid-1980s it was found that ozone depleting substances such as chloro-fluoro-carbons (CFCs), used extensively in refrigeration and airconditioning (as refrigerants), in foams (as blowing agents), in aerosols (as propellants), and also as solvents and cleaning agents, and Halons (used in fire-extinguishers) and Methyl Bromide (used as a fumigant) are responsible for the destruction of the ozone layer.

2. The basis of phasing out of the ozone depleting substances including CFCs, Halons, several halogenated solvents, agricultural fumigants such as Methyl Bromide and a class of transitional chemicals known as Hydrochlorofluorocarbons (HCFCs), is the Montreal Protocol (1987) ratified by all developed countries and most developing countries. Further recognition that ozone depletion is in fact occurring more rapidly than anticipated, has led to two amendments to the Montreal Protocol which added controlled substances and accelerated phase-out schedules. The first amendment in June 1990 (London Amendment) added methyl chloroform (MCF) and carbon tetrachloride (CTC) and tightened the phase-out schedule. The second amendment in November 1992 (Copenhagen Amendment), added HCFCs and methyl bromide as controlled substances and further accelerated phase-out schedules. For developed countries, the phase-out dates are :

Halons : January 1994

CFCs, MCF and CTC : January 1996

Methyl Bromide : Year 2010 (except critical agricultural uses)

HCFCs : Year 2030

3. Latvia became an independent country in August 1991. The Ministry of Environmental Protection and Regional Development was organized in 1994. In April 1995, the National Environment Policy Plan was adopted. The initiation of the national ODS phase-out procedure was approved by the decision of the Cabinet of Ministers in August 1995. Latvia ratified the Montreal Protocol in 1995. The Latvian Ministry of Environmental Protection and Regional Development approved the preliminary Country Programme in 1995, formulated with the assistance of UNEP/IE. The National Environmental Policy Plan of Latvia will support all ODS phase-out measures taken by the Ministry of Environmental Protection and Regional Development, at the highest policy and administrative levels. In addition to the Country Programme and the National Environmental Policy Plan, measures such as introduction of the Law on Natural Resources (enabling taxation of ODS), negotiations with large users of ODS for voluntary agreements on phase-out and introduction of general regulations on handling of ODS, are being initiated. Currently (June 97) the Regulation on the Protection of the Ozone Layer is being submitted to the Cabinet of Ministers of the Republic of Latvia, and it is hoped that it will be adopted by June/July 1997.

Latvia has not yet ratified the London amendment to the Montreal Protocol. The government is committed to do its best to comply with its obligations as a Party to the Montreal Protocol and its amendments. The Ministry of Environmental Protection and Regional Development decided to submit the ratification documents to the Cabinet of Ministers of the Republic of Latvia in September 1997.

The endorsement of this project would be sought once the following conditions are met:

- the Ratification of the London Amendment will have been deposited at the United Nations Headquarters.

- the details of the commitment of the Latvian Government has been outlined in the Country Programme document that has been prepared with the assistance of the UNEP-IE, and which has been communicated to the Parties of the Montreal Protocol through the Ozone Secretariat in Nairobi.

- the Implementation Committee of the Parties to the Montreal Protocol will indicate its support for the project.

4. The strategic goals of the Latvian government for phase-out of ODS are :

a) Phase-out of the CFCs and Halons by the year 2000 (excluding minor amounts of CFCs as refrigerants for maintenance purposes, which will be phased out by the year 2005).

b) To comply with the phase-out schedules for non-Article 5 countries for HCFCs and Methyl Bromide.

c) To accelerate the phase-out wherever possible, in line with EU schedules, in view of Latvia’s intention to be a member of EU in the near future.

d) To support Latvian industry to adopt ODS-free technologies with assistance from GEF and other international agencies.

ODS SECTOR BACKGROUND

5. There is no capacity in Latvia to produce ODS. The bulk of the ODS are imported from the Russian Federation. Minor quantities are imported from elsewhere or indirectly as blends from Western Europe. There are a few importers of ODS serving the users in the main sectors. The ODS producers in the Russian Federation are scheduled to discontinue production by the year 2000. The proposed GEF assistance to ODS consuming enterprises in Latvia would enable them to make the transition to non-ODS materials in a planned and gradual manner, thereby avoiding a crisis, when the supplies from the Russian Federation are discontinued. Early reduction in ODS consumption will also reduce demand for ODS from unauthorized sources.

In 1995, users in Latvia consumed a total of 726.9 MT (metric tonnes) of ODS (corresponding to 770.1 ODP tonnes). The dominant sectors of ODS use are Refrigeration (28.5 %) and Aerosols (61%). In other sectors, the ODS consumption is characterized by a large number of small users. Foams (2.3 %), Halons (4.1 %), Methyl Bromide (1.6 %) and Carbon tetrachloride (1.5 %) constitute the balance ODS consumption in other sectors.

The Latvian Customs Department is applying the Harmonized System of classification for imports, but the exact figures are not yet directly available from the Customs statistics. The above figures are based on data received from importers and users.

PROJECT OBJECTIVES

6. The main objective of this project is to assist Latvia in the rapid phase-out of ODS consistent with international efforts in this direction. Assistance to enterprises representing the bulk of the consumption of ODS, would enable them to make the transition to non-ODS materials before legal supplies of ODS are discontinued. The project will also enable Latvia to meet its phase-out obligations under the Montreal Protocol within a realistic time frame, and also ensure availability of technical assistance and to expedite the Country Programme implementation.

PROJECT DESCRIPTION

7. The project targets priority ODS phase-out activities in the refrigeration, aerosols and foams sectors. It also provides modest technical assistance at the institutional and enterprise levels to facilitate the implementation of the Country Programme and two demonstration projects one for training of custom officials in monitoring & control of ODS and one for eliminating use of Methyl Bromide. The project is formulated as a framework project comprising of one enterprise-specific technology conversion sub-project in Foams, one complete sectoral phase-out sub-project in Aerosols, one recovery and recycling sub-project for Refrigerants and two technical assistance and training components.

The project has been designed in full conformity with relevant GEF policies, particularly those on cost-effectiveness, exports, ownership, retroactive financing, operational costs and financial viability as included in Chapter 5 of the GEF Operational Strategy.

The summary of the overall project and the sub-projects is provided in Annexure 1. Each sub-project has been briefly summarized in Annexure 2. Resources provided through a PDF-B grant have been utilized in preparation of the project to a level acceptable for GEF review. The preparation includes detailed technology conversion and related cost analyses. Each project was examined by a STAP reviewer, whose comments were either incorporated or taken into account; the STAP reviews recommended approval of all subprojects. Both the sub-project documents and the STAP reviews are available at the UNDP’s Montreal Protocol Unit in New York.


TECHNOLOGY CONVERSION INVESTMENT SUB-PROJECTS

8. The technology conversion component comprises of one sub-project each in the Foams, Aerosols and Refrigeration sectors. The brief description of each of these projects is as under :

a) Foams (US$ 106,000) : Under this sub-project, Ritols, a 100% Latvian-owned enterprise will eliminate the use of about 12.5 MT (metric tonnes) of CFC-11 annually in its production of rigid polyurethane spray foam. The enterprise accounts for 80% of the consumption in the foam sector.

b) Refrigeration (US$ 123,412) : Under this sub-project, it is proposed to initiate training and infrastructure investments to recover and recycle refrigerants from the domestic, commercial, industrial, transport and agricultural refrigeration service, in the implementation of a comprehensive national plan for recovery and recycling of refrigerants. The sub-project will eliminate the use of about 10 MT of ODS in refrigerant servicing annually.

c) Aerosols (US$ 954,400) : Under this sub-project, two 100% Latvian enterprises, Aerosols-1 and Lars-M, will eliminate the use of about 202 MT of CFCs annually, by converting operations to hydrocarbon propellants. This represents about 50% of the total sectoral consumption of ODS.

TECHNICAL ASSISTANCE AND TRAINING

9. The technical assistance and training components comprise three sub-components: (a) assistance for development of institutional framework within Latvia for implementing the country programme, (b) training in monitoring and control of ODS for customs officials and (c) a technology demonstration for conversion in the Methyl Bromide sector. The brief descriptions for the technical assistance and training components are as follows :

a) Assistance for Co-ordinating the Implementation of the Country Programme (US$ 168,000): This sub-component will provide resources to the Ministry of Environmental Protection and Regional Development for operation of the ozone unit established in this Ministry, for a period of three years. The National Ozone Unit will be established in the Ministry to administer the project and co-ordinate the implementation of the Country Programme. This support would include computing and communications equipment, operating costs including telecommunications and office supplies, staff support for a national project co-ordinator, funding for essential public awareness and project support services. This component will be implemented by UNEP in co-operation with the UNDP country office.

The following two sub-projects (b and c) will form a part of two mid-sized regional activities for all Baltic States in order to achieve synergy and cost savings. No funds are therefore being requested for these activities under this project:

b) Training in Monitoring and Control of ODS : This sub-component will provide training to customs officials for identifying of ODS in various products and equipment imported into the country. In addition, a database on import of ODS will be created to facilitate monitoring and control of ODS. This future activity will be formulated and implemented by UNEP.

c) Demonstration of technology alternatives for Methyl Bromide : This sub-component will provide pilot-scale demonstrations of technology alternatives for substituting Methyl Bromide as a fumigant for grains, wood and cotton fibre. This would include the cost of carrying out the demonstrations, providing technical advisory services and and support services. This future activity will be formulated and implemented by UNDP.

RATIONALE FOR FUNDING UNDER THE GLOBAL ENVIRONMENTAL FACILITY

10. Latvia lacks the financial capacity to undertake a comprehensive phase-out of ODS in accordance with its obligations under the Montreal Protocol. As a non-Article 5 country signatory to the Montreal Protocol, it is not eligible to receive funding from the Multilateral Fund of the Montreal Protocol, but is eligible for GEF funding as defined in the GEF Operational Strategy. The proposed project is consistent with the GEF Guidelines for ODS phase-out, which have been carefully developed to reflect Montreal Protocol policies and procedures, thus ensuring consistency of approach between GEF and Multilateral Fund projects. These guidelines endorse working with a range of enterprise-specific sub-projects that offer substantive ODS Phase-out and for which the beneficiary enterprises are not in a position to obtain adequate funding from commercial sources. Within these sub-projects, grant funding is limited to eligible incremental investment costs, while the enterprises will be responsible for financing the balance from their own resources.

SUSTAINABILITY AND PARTICIPATION

Project Sustainability

11. The project will help the Government of Latvia in fulfilling its commitment for phasing out ODS through compensation to enterprises for the incremental costs incurred during the process of technology conversion. This will allow the beneficiary enterprises to be competitive both in the domestic and export markets. Sustainability of specific sub-projects has been assured through the evaluation of proposed technologies and their cost-effectiveness in relation to other alternatives ensuring the project preparation work and its review by STAP. Assistance under the project for the ozone office will enable the Government to provide a sound institutional and policy framework for the ODS phase-out programme. The Government will aim at meeting its ODS phase-out commitments by ensuring that the enterprises will eliminate their ODS consumption through smooth and effective project implementation.

Participation

12. As a part of the Country Programme development, the Ministry of Environmental Protection and Regional Development undertook consultations with a broad spectrum of enterprises and interested parties such as other ministries, NGOs, industry associations, etc. The enterprises were provided adequate opportunities to participate in the project and to provide data necessary for the project staff to evaluate the financial viability, technological capability and eligibility.