WORLD TRADE WT/CTE/W/60
8September 1997
ORGANIZATION(97-3585)
Original: English Committee onTrade andEnvironment
NATURE AND EXTENT OFPROJECTS SUPPORTED BY
THE MULTILATERAL FUND
Communication from theMultilateral Fund for
theImplementation oftheMontreal Protocol
I. ESTABLISHMENT OFTHE FUND
1. TheParties totheMontreal Protocol established attheirsecond meeting (June 1990) anInterim
Financial Mechanism forthreeyears (1991-1993) which included aMultilateral Fund. Contributions
totheInterim Fund wereinitially assessed atUS$160million for1991-1993 andwerelaterincreased
toUS$240 million during thesame period. TheFund became permanent inJanuary 1993 andwas
replenished intheamount ofUS$455 million foranadditional three-year period (1994-1996). The
thirdreplenishment wasapproved bytheParties intheamount ofUS$466million inNovember 1996
tocover theperiod 1997-1999.
2. Under theMontreal Protocol, countries areclassified intotwocategories which roughly
correspond todeveloped anddeveloping countries. Thelattergroup ismoreprecisely defined inArticle
5(1)oftheProtocol asthose developing country Parties whose annual percapita consumption of
controlled substances islessthan0.3kilograms. These countries arereferred toasArticle 5countries
andaretheonesthatareeligible forassistance through theFund. Non-Article 5countries areresponsible
forfinancing theFund, based ontheUnited Nations 'scale ofassessment.
II. STRUCTURE OFTHE FUND
3. Thepolicies andfunding levels oftheMultilateral Fund aredetermined bytheConferences
oftheParties totheMontreal Protocol. Responsibility foroverseeing theoperation oftheFund rests
withanExecutive Committee which isassisted bytheFund Secretariat. Implementation oftheFund
iseffected through fourimplementing agencies.
A. TheExecutive Committee
4. TheExecutive Committee iscomprised of7members eachfromArticle 5andnon-Article 5
countries, whoareselected bytheParties totheMontreal Protocol foraoneyearterm. TheChair
andVice-Chair areselected fromamong the14members, withoneposition fromeachgroup ofcountries
andtheChair alternating between thetwogroups. Thefunctions oftheCommittee include the
developmentandmonitoringofoperationalpolicies,guidelinesandadministrativearrangements,budgets,
theallocation anddisbursement ofresources, determination ofcriteria forproject eligibility andthe
review ofperformance reports. TheCommittee meets three tofourtimes ayear.WT/CTE/W/60
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B. TheFund Secretariat
5. TheSecretariat assists theExecutive Committee inthedischarge ofitsfunctions. Itsactivities
include developing thethree-year rolling business plan; providing asystem forfunddisbursement;
monitoring theexpenditures andactivities ofimplementing agencies; assessing investment projects,
agency business plans, country programmes, andwork programmes; operational policy development;
andacting asaliaison between theCommittee, governments andtheimplementing agencies.
C. TheImplementing Agencies
6. Fourinternational agencies havecontractual agreements withtheExecutive Committee. These
agreements establish theresponsibilities oftheagencies inregard toassisting Article 5countries to
prepare country programmes, feasibility studies andproject proposals andtheprovision oftechnical
assistance forproject development andimplementation. Theagencies aretheUnited Nations
Development Programme (UNDP), theUnited Nations Environment Programme (UNEP), the
United Nations Industrial Development Programme (UNIDO) andtheWorld Bank. UNEP implements
non-investment activities andprovides theclearinghouse functions while theother agencies focus
primarily oninvestment projects andtechnology transfer toenterprises inArticle 5countries.
III. MAIN FEATURES OFTHE FUND
7. Thepurpose oftheMultilateral Fund istoenable Article 5countries tomeettheircommitments
under the1987 Montreal Protocol anditssubsequent amendments.
8. TheMultilateral Fund isanenvironment fundrather thanadevelopment Fund. TheFund
onlypaystheagreed incremental costs tobeincurred byArticle 5countries forthephase-out oftheir
ODS consumption. TheParties totheMontreal Protocol adopted anindicative listofcategories of
incrementalcostwhichformsthebasisfordeterminingtheeligibilityofcosts.TheExecutiveCommittee
ischarged withmaking thefinaldetermination ofeligible incremental costsandtheapproval ofprojects
under theMultilateral Fund.
9. Thecategories ofeligible incremental costsinclude: thesupply ofsubstitutes (e.g., conversion
ofODS producing plant), useinmanufacturing asanintermediate good (e.g., conversion of
manufacturing facilities andassociated training), andcertain endusecategories (e.g., recovery and
recycling ofODS, reduction oftheirunintentional emissions andtheireventual destruction). The
Multilateral Funddefrays thecostofeligible newequipment, retrofits, royalties, licensing fees,patents,
technology transfer fees,andoperating costs.
A. Technology Transfer
10. Although theFund ensures technology transfer, theFund isnotabout technology transfer as
technology transfer under theFund isameans toanendandnotanendinandofitself. Technology
transfer agreements havebeenfunded inproject proposals approved bytheExecutive Committee for
several projects inthetobacco, foam, andrefrigeration andairconditioning sectors.
11. Forcosts tobeconsidered incremental, thetechnology should bethemostcost-effective and
efficient option, environmentally viable, should notrepresent double-counting (i.e., costs addressed
through other funded activities), andshould contribute toanArticle 5country ’sefforts foranearly
phase-out. Insome cases, technology transfer under theMultilateral Fund hasbeenveryrapid; the
Fund hassupported thetransfer oftheozone-friendly technologies toArticle 5countries and,insome
cases, atthesame timetheywere being implemented indeveloped countries.WT/CTE/W/60
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B. Operational Modality
12. Would-be beneficiary countries prepare country programmes withtheassistance ofoneofthe
fourimplementing agencies.
13. Inthebeginning ofFund operations, theimplementing agencies performed themaincatalytic
roleinenabling Article 5countries toaccess theFund. There wasarealization atanearly stage that
Article 5countries didnothavesufficient institutional capacities either toidentify ortoimplement
eligible projects. TheExecutive Committee decided tofundthesetting upofcapacities (ozone offices)
inArticle 5countries, although suchactivities were notincluded inthelistofcategories ofeligible
incremental costs. Likecountry programmes, theestablishment ofozone offices inArticle 5countries
hasbecome apermanent feature oftheFund.
14. Countryprogrammesidentifyacountry’slevelofODSconsumptionandproductionbyindustrial
sector. During thisprocess, ODS users arealsoidentified. Thisfacilitates project identification and
preparation. When acountry isready, implementing agencies invite allODSusersectors toparticipate
inworkshops onhowtoreceive support fromtheFund. Atsuchworkshops, implementing agencies,
Fund Secretariat andinternational ODS sector experts provide information onODS substitutes and
related technologies; andtheoperational policies oftheFundincluding procedures forobtaining project
funding.
C. Project Proposals
15. TheFundthrough itsExecutive Committee paysforthepreparation ofprojects incertain sectors
byrespondingpositivelytorequestsforprojectpreparationfunding.Projectproposalsarethendeveloped
bytheimplementing agencies which inturnsubmit themtotheExecutive Committee onbehalf ofthe
Article-5 country concerned.
16. Project proposals contain information about thebackground ofthesector andtheenterprise(s)
concerned, theODS-using technology in-place, theproposed alternative technology anditscosts, and
thetimeframe forimplementation. TheFund Secretariat reviews these proposals toensure thatthe
technology isozone friendly andthecostsareinfactincremental. Based onthisreview, theSecretariat
makes arecommendation totheExecutive Committee foraction.
D. Profile offunded projects
17. Funded projects aregrouped intwobroad categories; namely, non-investment andinvestment
projects. Under thefirst,allthecapacity building activities, surveys, technical assistance andtraining
aregrouped. Investment projects focus mainly onconversion ofindustrial plants. In
large-volume-ODS-consuming Article 5countries, demonstration projects areimplemented toensure
adoption andadaptation ofthenewtechnology before itswider replication inagiven industrial sector.
Demonstration projects arealsomounted inlow-volume-consuming Article 5countries fortherecovery
andrecycling ofODS.
18. TodatetheFund hasprovided grant financing forthefollowing categories ofprojects insome
106Article 5countries:
- US$7million forcountry programme preparation;
- US$17million forsetting upofozone offices;
- US$30million forpreparation ofprojects;
- US$47million fortechnical assistance;
- US$11million fortraining;
- US$6million fordemonstration projects; and
- US$500 million forinvestment projects.WT/CTE/W/60
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19. Funded projects cover important industrial sectors; suchas,aerosol, foam, refrigeration and
airconditioning, metal andelectronic cleaning, expansion oftobacco, fireextinguishing andfoodand
agriculture (methyl bromide).
IV. ACHIEVEMENTS AND CHALLENGES
20. TheMultilateralFundhasbeenwellsubsidized,87percentof1991-1996assessedcontributions
havebeenpaidaswellasabout 30percentof1997 contributions. (Often contributions arereceived
inthelastfewmonths oftheyear).
21. Funded activities amount toUS$618 million asofJune1997, which willleadtothetotal
elimination ofabout 80,000 tonnes ofODSor40percentofthecurrent reported consumption ofArticle
5countries.
22. Guidelines forthephase-out ofCFC production arebeing elaborated byanExpert Group
consisting ofindustry experts from bothArticle 5andnon-Article 5countries asaprecursor tothe
commencement ofproject preparation intheSector.
23. Thedevelopment ofstrategies tophase outentire sectors inlarge volume ODS consuming
countries havebeenfunded andthefirstsuchstrategy (halon sector inChina) willbeconsidered by
theCommittee inNovember 1997.
24. NovelapproachestoeliminatetheuseofODSinthesmallandmedium-sizedenterprises(SMEs)
havebeenadopted bytheExecutive Committee. They include approval ofanyconversion project
inacountry whose ODSconsumption is360tonnes orlesswithout dueregard toitscost-effectiveness.
25. Maintaining thecurrent momentum willbecrucial during the1997-1999 triennium sinceevery
Article 5country must freeze itsODS consumption andproduction in1999 atits1995-1997 level.
Although itislikely thatthemajority ofArticle 5countries havealready metthisfirstcontrol measure,
some important ODS consumers stilllagbehind.
26. Transfer oftechnology under fairandmostfavourable conditions, although achieved toalarge
degree intheODSconsumption sector, isstillasubject ofdebate intheProduction Sector. AnInformal
Group setupbytheeighth meeting oftheParties (November 1996) istrying toaddress thisissue.