International Environment: Operations of the Montreal Protocol
Multilateral Fund (Testimony, 07/30/97, GAO/T-RCED-97-218).
GAO discussed its work on the Montreal Protocol Multilateral Fund,
focusing on: (1) principal contributors to the Fund; (2) principal
recipients of disbursements made from the Fund; (3) the purposes for
which disbursements were made; (4) what has been accomplished with these
disbursements; and (5) the controls and accountability mechanisms in
place to ensure proper use of money disbursed from the Fund.
GAO noted that: (1) the United States is the largest contributor to the
Multilateral Fund, accounting for about 25 percent of the contributions;
(2) for 1997 through 1999, the United States is expected to contribute
about $39 million per year; (3) GAO estimates that the United States
could avoid interest expenses of between $2 million and $3 million
associated with its annual contributions by using an alternative payment
method; (4) from its establishment in 1991 through May 1997, the
Multilateral Fund has allocated about $570 million for projects in more
than 100 Article 5 countries; (5) China has been the largest recipient,
accounting for almost $150 million or 26 percent of the total; (6) there
are seven broad purposes for which projects have been funded, but over
80 percent of the funds have been for investment projects, which help
businesses to convert their operations from the use of ozone-depleting
substances and to cease the production of goods containing them; (7)
projects approved to date are projected to phase out the annual use of
about 84,000 ozone-depleting potential-weighted metric tons of
ozone-depleting substances, or about 40 percent of the estimated
consumption of ozone-depleting substances, in Article 5 countries; (8)
the Multilateral Fund has a number of mechanisms in place that are
designed to ensure that funds are properly accounted for and that the
amounts of funds allocated to specific projects are reviewed and
verified; (9) the Multilateral Fund currently pays a 13-percent
administrative fee to the implementing agencies for their costs
associated with project implementation; and (10) however, efforts are
under way to evaluate the appropriateness of the fees, with the goal of
reducing the support costs to about 10 percent over the next 3 years.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-RCED-97-218
TITLE: International Environment: Operations of the Montreal
Protocol Multilateral Fund
DATE: 07/30/97
SUBJECT: Environmental monitoring
International relations
Hazardous substances
Developing countries
International agreements
Foreign aid programs
Funds management
Foreign governments
Treaties
IDENTIFIER: Multilateral Fund for the Montreal Protocol
China
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Cover
================================================================ COVER
Before the Subcommittee on Health and Environment,
Committee on Commerce,
House of Representatives
For Release
on Delivery
Expected at
10:00 a.m. EDT
Wednesday
July 30, 1997
INTERNATIONAL ENVIRONMENT -
OPERATIONS OF THE MONTREAL
PROTOCOL MULTILATERAL FUND
Statement by Lawrence Dyckman, Associate Director,
Environmental Protection Issues,
Resources, Community, and Economic
Development Division
GAO/T-RCED-97-218
GAO/RCED-97-218T
(160372)
Abbreviations
=============================================================== ABBREV
UNDP -
UNIDO -
UNEP -
ODP -
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss our work on the Montreal
Protocol Multilateral Fund. The Montreal Protocol is an
international environmental agreement, concluded almost 10 years ago,
with the objective of eliminating the use of substances that deplete
the thin layer of ozone in the stratosphere. Such substances include
chloroflurocarbons--referred to as CFCs--which have long been used in
refrigeration and air-conditioning and as propellants in aerosol
containers; halons, which have been used extensively in firefighting;
and compounds such as carbon tetrachloride, which find wide
application as solvents in a variety of industries. The ozone layer
is critical because it protects the Earth's plant and animal life
from the harmful effects of excessive levels of ultraviolet light.
In the first years after the Protocol was signed in 1987, most of the
developed nations of the world made commitments to reduce and
eventually eliminate their use of ozone-depleting substances, but
relatively few of the developing countries (referred to as Article 5
countries)\1 made a similar commitment. By 1990, it became clear
that unless the developing nations also signed the Protocol, the use
of ozone-depleting substances could not be eliminated.
Amendments to the Protocol made at the 1990 Meeting of the Parties in
London addressed this concern by providing for the establishment of
the Multilateral Fund to which the developed countries would
contribute funds to assist the developing countries in their efforts
to reduce and ultimately eliminate the use of ozone-depleting
substances. Generally, all developed countries are assessed for
contributions to the Fund as are the few developing countries that
consume more than 0.3 kilograms of ozone-depleting substances per
capita per year. The contributions are based on the United Nations'
scale of assessments. Countries that consume less than 0.3 kg per
capita per year are eligible to receive assistance from the Fund.
After the establishment of the Multilateral Fund, many developing
countries agreed to the Protocol, and as of May 1997, 110 developing
countries had committed to implementing the Protocol. The
Multilateral Fund relies on four international organizations to
implement the bulk of the projects it approves. These implementing
agencies are the World Bank, the United Nations Development Programme
(UNDP), the United Nations Environment Programme (UNEP), and the
United Nations Industrial Development Organization (UNIDO). In
addition, a relatively small percentage of projects is implemented by
a few contributing countries, including the United States, through
bilateral assistance.
You asked us to develop information on the functioning of the
Multilateral Fund. Specifically, you asked us to identify (1)
principal contributors to the Fund; (2) identify the principal
recipients of disbursements made from the Fund; (3) the purposes for
which disbursements were made; (4) what has been accomplished with
these expenditures; and to (5) describe and generally assess the
controls and accountability mechanisms in place to ensure proper use
of money disbursed from the Fund. As agreed with the Subcommittee,
we also obtained information on the level of administrative costs
associated with project implementation. Our testimony today will
discuss the results of our work on each of these questions. In
summary, we found the following:
-- The United States is the largest contributor to the Multilateral
Fund, accounting for about 25 percent of the contributions. For
1997 through 1999, the United States is expected to contribute
about $39 million per year. We estimate that the United States
could avoid interest expenses of between $2 million and $3
million associated with its annual contributions by using an
alternative payment method.
-- From its establishment in 1991 through May 1997, the
Multilateral Fund has allocated about $570 million for projects
in more than 100 Article 5 countries. China has been the
largest recipient, accounting for almost $150 million or 26
percent of the total.
-- There are seven broad purposes for which projects have been
funded, but over 80 percent of the funds have been for
investment projects, which help businesses to convert their
operations from the use of ozone-depleting substances and to
cease the production of goods containing them.
-- Projects approved to date are projected to phase out the annual
use of about 84,000 ODP-weighted metric tons of ozone-depleting
substances, or about 40 percent of the estimated consumption of
ozone-depleting substances in Article 5 countries.\2
-- The Multilateral Fund has a number of mechanisms in place that
are designed to ensure that funds are properly accounted for and
that the amounts of funds allocated to specific projects are
reviewed and verified.
-- The Multilateral Fund currently pays a 13-percent administrative
fee to the implementing agencies for their costs associated with
project implementation. However, efforts are under way to
evaluate the appropriateness of the fees, with the goal of
reducing the support costs to about 10 percent over the next 3
years.
--------------------
\1 Article 5 of the Montreal Protocol allows developing countries
with less than a 0.3 kg per capita consumption of ozone-depleting
substances a grace period before they must comply with the treaty's
control provisions.
\2 The ozone-depleting potential (ODP) value is the ratio of a given
compound's ability to deplete ozone compared with the ability of a
similar mass of CFC-11.
CONTRIBUTIONS TO THE
MULTILATERAL FUND
---------------------------------------------------------- Chapter 0:1
For the period 1991 through 1996, 49 countries were assessed about
$688 million. The United States' share was about $174 million, or
about 25 percent of the total. Appendix I shows the assessments,
payments, and outstanding balances for all 49 countries as of January
31, 1997. For the 3-year period 1997 through 1999, the Parties to
the Protocol approved $466 million in new assessments. The United
States' share of the new assessment is about $39 million for each of
these 3 years. For 1997, the list of contributors has been reduced
to 34 countries primarily because countries that had not ratified the
1990 amendments (which established the Fund) were deleted from the
list of contributors.
There is substantial variability among the countries in paying their
assessments. As of January 31, 1997, 22 countries had fully paid
their assessments for 1991 through 1996, 13 countries (including the
United States) had paid most of their assessments, 3 had paid less
than half, and 11 had not paid anything.\3 The countries that had not
paid any part of their assessments were primarily those of the former
Soviet Union. These countries, because of their economic position,
are referred to as "economies in transition." While not eligible for
funding support from the Multilateral Fund, they are eligible to
receive assistance for their efforts to phase out ozone-depleting
substances from the Global Environment Facility.\4 Cumulatively, as
of January 31, 1997, of the $688 million assessed for the period 1991
through 1996, about $550 million, or about 80 percent, had been paid.
Countries can pay their assessed contributions with cash or
promissory notes, or by providing bilateral assistance to recipient
countries.\5 In 1993, the Parties to the Montreal Protocol agreed
that promissory notes would be acceptable as payment of a country's
contribution to the Fund. Since that time, five countries have used
promissory notes to pay at least part of their assessments, deferring
the actual outlay of cash. In essence, these contributors benefit
from the time value of money between the date a note is provided to
the Fund and the date it is cashed. While the Fund can cash
promissory notes at any time to meet its needs, the general practice
is to cash the notes in six equal payments over a 3-year period.
We estimate that based on current U.S. Treasury borrowing rates and
the Fund's general practice for cashing the notes over time, the U.S.
government could save between $2 million and $3 million on each of
its annual contributions to the Multilateral Fund by using the
promissory notes.\6 Although the U.S. government makes its payments
to the Fund in cash, the Department of the Treasury currently
administers over 10 international accounts using letters of credit,
which also defer payments, similar to promissory notes.
--------------------
\3 According to the international advisor for the Environmental
Protection Agency's Stratospheric Protection Division, the United
States paid the remainder of its assessments for 1991 through 1996 in
May 1997. We did not update the contribution status for other
countries past January 31, 1997.
\4 The Global Environment Facility is an international financial
institution established in 1991 to provide developing countries with
grants and low-interest loans for projects that protect the global
environment. Funding is available to assist countries that do not
meet the eligibility criteria for assistance from the Multilateral
Fund but need assistance in their efforts to comply with the
provisions of the Montreal Protocol.
\5 Bilateral assistance is limited to 20 percent of a country's
assessed contribution.
\6 The United States' contribution is jointly paid by the
Environmental Protection Agency and the Department of State.
MULTILATERAL FUND RECIPIENTS
---------------------------------------------------------- Chapter 0:2
Since the establishment of the Multilateral Fund in 1991 through May
1997, the Fund's Executive Committee has approved a total of 1,810
projects in more than 100 countries and allocated about $570 million
to fund these projects. The geographical distribution of projects
supported by the Multilateral Fund shows that the Asia and Pacific
region has both the largest number of approved projects, 826, and the
greatest share of approved funding--over $330 million or almost 60
percent of the total funding approved. China has been the Fund's
largest recipient with almost $150 million, or 26 percent, of all
approved funding. The dominant share of projects and approved
funding represented by the Asia and Pacific region is explained by
the region's rapidly expanding economies and population and by its
current consumption and enormous potential for the use of
ozone-depleting substances. Six of the 10 top recipients of aid from
the Multilateral Fund are countries in the Asia and Pacific region,
which together have been allocated nearly 50 percent of the total
approved funding.
The Latin American and Caribbean region ranks next with 473 projects
having total approved funding of almost $130 million or nearly 23
percent of all funding approved to date, followed by the Africa
region with 320 projects and approved funding of about $67 million.
Europe has the smallest number of projects--56--with approved funding
of about $21 million. This reflects the fact that relatively few
European countries are eligible for assistance. The Fund also
supports a category of projects, known as global projects, that
transcend regional boundaries. As of May 31, 1997, the Fund had
approved 135 global projects with a total allocation of almost $22
million. The table below shows funding for the top 10 recipient
countries; appendix II provides a breakdown of approved funding by
regions and by types of projects.
Table 1
Top 10 Recipients of Approved Project
Funding (as of May 1997)
Percentage of all
Country Amount approved funds
------------------------------ ------------------ ------------------
China $148,525,560 26.0
India 39,799,560 7.0
Argentina 32,406,150 5.7
Egypt 28,982,860 5.1
Malaysia 27,389,820 4.8
Thailand 27,025,660 4.7
Brazil 26,865,340 4.7
Philippines 20,107,380 3.5
Mexico 19,941,390 3.6
Indonesia 19,568,120 3.4
======================================================================
Total $390,611,830 68.4
----------------------------------------------------------------------
PURPOSES FOR WHICH THE
MULTILATERAL FUND HAS BEEN USED
---------------------------------------------------------- Chapter 0:3
There are seven broad purposes or categories for which the projects
have been funded: (1) country program preparation, (2) institutional
strengthening, (3) technical assistance, (4) training, (5)
demonstration projects, (6) project preparation, and (7) investment
projects.
Preparation of a country program is generally the starting point for
a country that is seeking the Fund's assistance in converting to
non-ozone-depleting technologies. A country program sets out a
country's strategy for phasing out ozone-depleting substances. It
provides basic information on the use of ozone-depleting substances,
the institutional framework for controlling them, relevant industry
and government involvement, an action plan with time frames and
budgets, and a list of specific projects requiring financial support
from the Multilateral Fund. To date more than $7 million has been
approved for the preparation of 108 country programs.
Institutional strengthening projects build a country's capacity to
phase out ozone-depleting substances. The establishment of a
national ozone unit within the country's national government is
frequently a key element of this activity with the goal of satisfying
the basic need for institutional, legal, and regulatory capacity to
support the implementation of national phaseout plans. As of the
most recent meeting of the Fund's Executive Committee (May 1997), a
total of 97 institutional strengthening projects had been approved in
81 recipient countries with a total approved funding of slightly more
than $15 million.
Technical assistance, training, and demonstration projects constitute
vehicles for transferring state-of-the-art technologies to recipient
countries to help them meet their phaseout obligations under the
Montreal Protocol. As of May 31, 1997, 394 demonstration, technical
assistance, and training projects had been approved by the Fund's
Executive Committee, with a combined approved funding level of over
$60 million.
Project preparation, which involves developing projects for
conversion from ozone-depleting to ozone-benign technologies, is an
important prerequisite for investment projects. As of May 31, 1997,
the Multilateral Fund had approved a total of 383 project preparation
activities with a total approved funding level of over $30 million.
Project preparation activities typically result in the development of
a group of investment project proposals. Investment projects are the
largest category of projects and the most important from the
standpoint of protecting the stratospheric ozone layer. These
projects, which account for slightly over 80 percent of total
approved funding, assist business entities in recipient countries in
converting domestic and commercial refrigeration, manufacturing,
firefighting, and other economic sectors from processes that use
ozone-depleting substances to technologies and products that are not
ozone-depleting or are at least significantly less so. A typical
investment project in the refrigeration sector, for example, may
involve eliminating CFCs in the manufacture of domestic refrigerators
and freezers. It may also include conversion to CFC-free technology
in the manufacture (or "blowing") of the polyurethane foam used in
insulating the refrigerators and freezers. To date, 813 investment
projects, with funding allocations of about $458 million, have been
approved in 55 countries in all major regions of the world.
ACCOMPLISHMENTS IN PHASING OUT
OZONE-DEPLETING SUBSTANCES
---------------------------------------------------------- Chapter 0:4
When fully implemented, projects approved to date are expected to
phase out the annual use of almost 84,000 metric tons of
ozone-depleting potential. This is about 40 percent of the estimated
ODP-weighted consumption of ozone-depleting substances in Article 5
countries. Appendix IV provides a breakdown of ODP metric tons to be
phased out by type of project and by implementing agency as of May
31, 1997. As of December 31, 1996, however, only 20,487 ODP metric
tons had actually been phased out. This difference is attributable
to two factors. First, because of time lags between project
approvals and the start of project implementation, the number of
projects actually in progress or completed at a particular point in
time is significantly smaller than the total number of projects
approved by the Multilateral Fund's Executive Committee. Second,
projects that are under way, particularly investment projects, often
take longer to complete than originally projected. As of December
31, 1996, only 688, or 45 percent of the 1,537 projects approved
since 1991 had been completed. Of the approved funding of $485
million for these projects, only $197 million (41 percent) had been
disbursed, leaving an undisbursed balance of about $288 million for
completion of those projects. Planned spending commitments by the
four implementing agencies in 1997 total about $128 million, meaning
that less than half of the undisbursed funds approved for projects
through 1996 is expected to be disbursed by the end of 1997.
Some of the reasons cited for delays in project implementation and
completion include the following:
-- Recipients attempted to renegotiate projects after Executive
Committee approval.
-- The business entity needed more time to secure financing from
counterparts.\7
-- The grant recipients decided to change project specifications.
-- The business entity chose to delay conversion until competitors'
projects were approved by the Executive Committee.
-- The business entity wanted government regulations passed before
allowing implementation to proceed.
-- The bidding process resulted in higher costs than budgeted for
the project.
Delays in the start of projects and slower than anticipated progress
once they have begun have concerned the Multilateral Fund's Executive
Committee. In May 1997, the Executive Committee required the
implementing agencies to submit reports, by the next meeting of the
Executive Committee, for projects (1) where no disbursement has
occurred for 18 months after project approval and (2) that remained
uncompleted 12 months after the prescribed completion date.
Information from these reports will be used to develop guidelines to
ensure that the project preparation process includes measures to
prevent delays in implementation or completion in the future. The
Executive Committee also decided projects that have had their funding
requests significantly reduced during the review process could not
proceed until the intended recipients confirm that they have
additional funding available to allow for prompt project
implementation.
Summary data on project type, approved funding, and project status
are detailed in appendix III.
--------------------
\7 As provided for in the Montreal Protocol, the Multilateral Fund
covers only the agreed incremental costs of converting existing
enterprises from ozone-depleting to non-ozone-depleting technologies.
In practical terms, this means that the Fund will defray all
additional costs above and beyond those costs Article 5 countries
would have expected to incur as they developed their infrastructure
and consumer markets in the absence of the Protocol. Furthermore,
the Fund will cover incremental costs only up to the proportion of
local (or other Article 5 country) ownership of the enterprise.
Thus, if a business entity has 60-percent local ownership and
40-percent ownership by a multinational corporation, the Fund will
cover only 60 percent of the agreed incremental costs of a project
approved for that enterprise.
MECHANISMS TO ENSURE THE PROPER
USE OF FUNDS
---------------------------------------------------------- Chapter 0:5
The Multilateral Fund has a number of mechanisms in place that are
designed to ensure that funds are properly accounted for and that the
amount of funds allocated to specific projects is reviewed and
verified. When it was established in 1991, the Fund accepted the
accounting and auditing mechanisms of the implementing agencies and
relied primarily on the implementing agencies' long-established
institutional procedures. According to a 1995 report by
COWIconsult,\8 an international consultant, the implementing agencies
have elaborate procedures, long experience in accounting for
financial resources used in developing countries, and
well-established auditing mechanisms. The report stated that the
study team found no evidence that the agencies' procedures were less
elaborate, implementation less careful, or auditing less thorough for
activities financed by the Multilateral Fund.
UNEP serves as the Fund's treasurer. As a part of its agreement with
the Executive Committee, UNEP is responsible for obtaining and
distributing contributions, entering into agreements with the
implementing agencies, and submitting the Fund's accounts to the
Executive Committee for each calendar year. UNEP receives certified
and/or audited reports from the implementing agencies, which provide
aggregate expenditure or disbursement figures. These figures are
reported annually to the Executive Committee. Because the
Multilateral Fund is considered to be an integral part of UNEP's and
the United Nations' accounts, its audits are the sole responsibility
of the Internal and External Audit of the United Nations. The report
of the United Nations Board of Auditors for the 2-year period ending
December 31, 1995,\9 reported findings and made recommendations
related to UNEP's program and financial management, procurement, and
other areas, but the overall results revealed no material weaknesses
or errors considered material to the accuracy, completeness, or
validity of the financial statements as a whole. The auditors
rendered an opinion that the financial statements presented fairly
UNEP's financial position and the results of its operations for that
financial period; the statements were prepared in accordance with the
stated accounting policies; and transactions were in accordance with
the financial regulations and legislative authority.
In addition, the implementing agencies are required to provide the
Fund's Executive Committee with an annual progress report on the
implementation of approved work programs and activities related to
country programs and projects. These reports include information on
project approvals and disbursements; updates on project completions;
global and regional project highlights; performance indicators;
status of agreements and project preparation, by country; and
administrative issues (operational, policy, financial, and others).
Finally, each recipient country is required to report annually to the
Executive Committee on the progress of the implementation of its
country program.
With regard to individual projects, the Multilateral Fund has
developed a multilevel review process:
-- The implementing agencies review project proposals to ensure
that they meet eligibility criteria and arrange for external
technical and cost reviews of investment projects before
submitting them to the Fund Secretariat.
-- The Secretariat determines whether the proposals meet
eligibility and policy requirements and checks the proposed
costs against data on past costs and suppliers' estimates. It
may also consult with outside experts on technical and cost
issues before making a recommendation to the Executive
Committee.
-- The Executive Committee's Project Review Subcommittee examines
the recommended proposals and reports to the full committee.
-- The Executive Committee's individual members consider the
Subcommittee's report and may also assess the projects
independently, sometimes requesting a fresh round of external
technical and cost reviews before the Committee makes its final
funding decisions.
The project review process frequently results in significant
alterations to projects, cost reductions, and in outright rejection
of some projects. These alterations may be agreed to by the
Secretariat and the implementing agency before a proposal is
submitted to the Executive Committee, or they may occur during the
meetings of the Project Review Subcommittee or the Executive
Committee itself. Most often, the dialogue on these issues occurs
mainly between the implementing agencies and the Fund Secretariat.
The 1995 COWIconsult report concluded that the project review process
introduces a strong element of discipline into the project
development and approval procedure. COWIconsult reviewed a sample of
23 projects submitted to the Fund Secretariat and found that the
Secretariat's views appeared to carry great weight with the Executive
Committee in that the review process resulted in cost reductions in
13 of the 23 projects, with an overall average reduction of 20
percent. Moreover, in 6 of the 23 projects reviewed there was a very
significant difference in the amount of support originally requested
and the final request reviewed by the Secretariat and the Executive
Committee. Overall, the study concluded that the review process
results in significant but not excessive reductions in the approved
costs of projects supported by the Fund.
We also reviewed a sample of projects to determine the current effect
of the review process on the cost of projects, and as a result, on
the cost-effectiveness of the Fund's expenditures for them. We
selected a sample of 10 projects approved by the Executive Committee
in 1996 that comprised 7 investment projects, 2 technical assistance
projects, and 1 institutional strengthening project. Each of the
four implementing agencies was represented by two projects in the
sample, which also included two bilateral projects.
For seven of the projects, we found reductions ranging from 9 to
almost 70 percent resulting from the review by the Secretariat staff,
whose recommendations were generally endorsed by the Executive
Committee. The overall average reduction for these seven projects
amounted to 48 percent. However, this average is heavily influenced
by major reductions on two very large investment projects made
between the original submissions and the final approvals. Even the
one bilateral investment project we reviewed had experienced a
23-percent reduction as a result of the review process. The three
remaining projects were approved by the Executive Committee as
originally submitted.
An important consequence of the reduction in approved funding for
these projects was that their cost-effectiveness, expressed in terms
of dollar cost per kilogram of ozone-depleting substances eliminated,
improved significantly. In the cases of the two projects with the
largest percentage reductions in cost, the cost-effectiveness ratios
went from $8.91/kg to $2.80/kg and from $6.95/kg to $4.12/kg,
respectively. A third project had a similarly impressive improvement
in cost-effectiveness, going from $6.42/kg to $3.97/kg.
In addition to the control and review mechanisms and practices
already in place, the Executive Committee has realized that it could
strengthen its oversight by requiring project completion reports and
developing a project monitoring and evaluation system. The
Multilateral Fund is currently developing a uniform format for
project completion reports that is expected to be submitted to the
Executive Committee for its review before the end of 1997. In
addition, a Subcommittee on Monitoring, Evaluation, and Finance was
recently established to address the need for a monitoring and
evaluation system. The Subcommittee developed a monitoring and
evaluation program to be implemented over the next year. When fully
implemented, the system may help the Executive Committee enhance the
Fund's effectiveness by drawing on lessons learned from completed
projects.
--------------------
\8 At their fourth meeting, held in November 1992, the Parties to the
Montreal Protocol directed that a study be undertaken to review and
evaluate the effectiveness of the financial mechanism established in
the Protocol. UNEP retained COWIconsult of Copenhagen, Denmark, in
association with Goss Gilroy Inc., to perform this study. The study,
entitled Study on the Financial Mechanism of the Montreal Protocol,
was issued in March 1995.
\9 UNEP's accounts are maintained on a biennial, or 2-year, basis.
ADMINISTRATIVE SUPPORT COSTS
PAID TO THE IMPLEMENTING
AGENCIES
---------------------------------------------------------- Chapter 0:6
In addition to funds allocated for projects of various types, the
Multilateral Fund pays the implementing agencies for administrative
support costs associated with project implementation. These costs
include, among other things, staff, office space, office equipment,
and supplies; accounting, audit, and procurement services; management
backup; and travel needed to properly oversee project implementation.
In the case of UNDP, UNEP, and UNIDO, payment for administrative
support has, by agreement with the Fund, been fixed at a flat
13-percent of the amount approved by the Executive Committee for
projects' implementation. In the case of the World Bank, up until
mid-1995, reimbursement for administrative support was based on
actual expenditures reported by the Bank. But, from that time
forward, the Bank also has been compensated for administrative
support on the 13-percent flat fee basis. This level of
administrative support costs is generally consistent with prevailing
administrative cost allowances within the United Nations system.
Nevertheless, in 1994 some members of the Executive Committee began
to question the continued appropriateness of a uniform 13-percent fee
paid to the implementing agencies. They expressed the view that with
the initial start-up phase of operations completed and with
experience gained in implementing a wide assortment of projects and
activities, the continued payment of administrative support at this
level could result in unnecessarily high costs to the Multilateral
Fund. At its March 1994 meeting, the Executive Committee requested
that the Secretariat perform an analysis of each implementing
agency's administrative costs. The Secretariat contracted with a
consultant to perform this study, who reported in September 1994 that
the administrative cost levels were not excessive. In fact, the
consultant's report concluded that the flat 13-percent administrative
support fee had been insufficient to cover all of the costs that the
implementing agencies might legitimately have charged the Fund and,
as a result, the agencies were, in effect, subsidizing part of the
cost of projects. However, the report recognized that over time the
Fund's administrative costs could be expected to decline as a
percentage of overall project costs as a result of getting past the
high cost of start-up, greater experience and resulting increased
efficiency, economies of scale, and other factors. In November 1996,
the Parties to the Montreal Protocol directed the Executive Committee
to work toward the goal, over the next 3 years, of reducing agency
support costs to an average of below 10 percent to make more funds
available for other activities.
In February 1997, the Executive Committee decided that an independent
consultant should be recruited to work with the Secretariat and
implementing agencies to identify options and approaches for reducing
the overall level of administrative costs, focusing on revising the
current uniform, fee-based system. The Chief Officer of the Fund's
Secretariat informed us that a consultant has recently been selected
to carry out this work and is expected to submit a report in
September 1997. He said the Secretariat and the Executive Committee
will be working over the next 3 years, in consultation with the
implementing agencies, to reduce administrative support costs to an
overall average of less than 10 percent.
RECOMMENDATION
---------------------------------------------------------- Chapter 0:7
Because of the potential for considerable interest savings, we
recommend that the Administrator of the Environmental Protection
Agency and the Secretary of State implement an alternative payment
method such as promissory notes or letters of credit for the U.S.
contribution to the Multilateral Fund and seek the assistance of the
Department of the Treasury in implementing this recommendation. In
commenting on a draft of this testimony, the Environmental Protection
Agency and the Department of State agreed in concept to our
recommendation and are exploring options for using an alterative
payment method.
-------------------------------------------------------- Chapter 0:7.1
Mr. Chairman, this concludes my prepared remarks. At this point, I
would be glad to respond to any questions you or Members of the
Subcommittee may have.
SUMMARY OF CONTRIBUTIONS TO THE
MULTILATERAL FUND FOR 1991-96 AS
OF JANUARY 31, 1997
=========================================================== Appendix I
Agreed Outstanding
contribution Cash Bilateral Promissory contribution
Party s payments assistance notes s
------------------- ------------ ------------ ------------ ------------ ------------
Australia $12,169,842 $11,422,914 $746,928 $0 $0
Austria 6,212,240 6,080,450 116,628 0 15,162
Azerbaijan 63,182 0 0 0 63,182
Belarus 3,309,593 0 0 0 3,309,593
Belgium 8,588,289 8,588,289 0 0 0
Brunei Darussalam 34,833 0 0 0 34,833
Bulgaria 897,207 753,523 0 0 143,684
Canada 24,948,120 17,570,667 2,186,483 0 5,190,970
Cyprus 148,670 148,670 0 0 0
Czech Republic 2,849,573 2,849,573 0 0 0
Denmark 5,399,598 5,194,598 205,000 0 0
Finland 4,574,634 4,359,543 103,440 0 111,651
France 48,598,094 5,921,449 1,571,603 41,105,042 0
Georgia 90,020 0 0 0 90,020
Germany 72,415,467 39,905,823 1,355,296 31,154,348 0
Greece 2,938,344 2,938,344 0 0 0
Hungary 1,420,925 1,420,925 0 0 0
Iceland 241,067 241,067 0 0 0
Ireland 1,498,654 1,446,898 0 0 51,756
Israel 1,574,736 1,574,736 0 0 0
Italy 34,042,507 28,644,156 0 0 5,398,351
Japan 98,501,042 76,783,706 0 0 21,717,336
Kuwait 286,549 0 0 0 286,549
Latvia 143,684 0 0 0 143,684
Liechtenstein 80,356 80,356 0 0 0
Lithuania 148,038 0 0 0 148,038
Luxemburg 499,552 499,552 0 0 0
Malta 28,052 28,052 0 0 0
Monaco 59,787 59,787 0 0 0
Netherlands 12,426,686 9,661,853 0 2,764,833 0
New Zealand 1,928,536 1,928,536 0 0 0
Norway 4,436,982 4,436,982 0 0 0
Panama 16,915 16,915 0 0 0
Poland 3,327,029 473,318 0 0 2,853,711
Portugal 1,708,280 1,229,333 0 0 478,947
Russian Federation 54,813,611 0 0 0 54,813,611
Singapore 531,221 459,245 71,976 0 0
Slovakia 956,372 583,249 0 0 373,123
Slovenia 61,290 0 0 0 61,290
South Africa 3,201,108 2,859,433 30,000 0 311,675
Spain 16,532,425 16,532,425 0 0 0
Sweden 9,271,415 8,682,563 0 0 588,852
Switzerland 9,116,083 8,869,839 242,600 0 3,644
Turkmenistan 56,603 0 0 0 56,603
Ukraine 12,841,967 785,600 0 0 12,056,367
United Arab 1,623,182 559,639 0 0 1,063,543
Emirates
United Kingdom 40,096,675 19,664,354 0 20,432,321 0
=========================================================================================
United States 173,751,570 144,189,080 10,296,412 0 19,266,078
Uzbekistan 1,362,934 0 0 0 1,362,934
=========================================================================================
Subtotal $679,823,539 $437,445,442 $16,926,366 $95,456,544 $129,995,187
Disputed 8,098,267 0 0 0 8,098,267
contributions
=========================================================================================
Total $687,921,806 $437,445,442 $16,926,366 $95,456,544 $138,093,454
-----------------------------------------------------------------------------------------
Note: The testimony uses the term "assessments" to refer to the
agreed contributions shown on this table.
Source: Report of the 21st Meeting of the Executive Committee of the
Multilateral Fund for the Implementation of the Montreal Protocol,
UNEP/OzL.Pro/ExCom/21/96 (Feb. 20, 1997).
APPROVED FUNDING BY MAJOR
GEOGRAPHIC REGIONS AND TYPES OF
PROJECTS
========================================================== Appendix II
Ty
pe
of
pr Latin
oj Asia and America
ec the and Percenta
t Africa Pacific Europe Caribbean Global Total ge
-- ---------- ---------- ---------- ---------- ---------- ---------- --------
Co $2,111,660 $2,423,230 $623,520 $1,734,030 $200,000 $7,092,440 1.24
u
n
t
r
y
p
r
o
g
r
a
m
p
r
e
p
a
r
a
t
i
o
n
In 4,225,730 4,919,170 722,500 5,209,010 -- 15,076,460 2.64
s
t
i
t
u
t
i
o
n
a
l
s
t
r
e
n
g
t
h
e
n
i
n
g
Te 4,135,660 12,518,630 465,000 10,781,010 16,353,320 44,253,630 7.75
c
h
n
i
c
a
l
a
s
s
i
s
t
a
n
c
e
Tr 1,526,380 3,124,970 116,630 3,131,820 2,602,880 10,502,680 1.84
a
i
n
i
n
g
De 720,130 2,453,390 -- 2,358,120 250,000 5,781,640 1.01
m
o
n
s
t
r
a
t
i
o
n
p
r
o
j
e
c
t
s
Pr 2,853,070 16,476,480 1,589,090 8,344,870 1,653,430 30,916,940 5.41
o
j
e
c
t
p
r
e
p
a
r
a
t
i
o
n
In 51,766,470 289,777,48 17,555,250 98,089,370 500,000 457,688,57 80.11
v 0 0
e
s
t
m
e
n
t
p
r
o
j
e
c
t
s
====================================================================================
To $67,339,10 $331,693,3 $21,072,02 $129,648,2 $21,559,63 $571,312,3 100.00
t 0 50 0 50 0 50
a
l
Pe 11.79 58.06 3.69 22.69 3.77 100.00
r
c
e
n
t
a
g
e
------------------------------------------------------------------------------------
Source: Montreal Protocol Multilateral Fund, Inventory of Approved
Projects.
SUMMARY DATA BY PROJECT TYPE AND
STATUS AS OF DECEMBER 31, 1996
========================================================= Appendix III
Number Percenta Approved Planned
of Number ge funding Funds Percentage commitme
approval complete complete as disburse of funds nts in
Type s d d adjusted d disbursed Balance 1997
------- -------- -------- -------- -------- -------- ---------- -------- --------
112 91 81 $5,089,8 $4,456,4 88 $633,408 $434,000
Country 72 64
progra
m
prepar
ation
Institu 85 12 NA 13,936,7 5,693,83 41 8,242,92 3,546,21
tional 59 0 9 9
streng
thenin
g
Technic 208 123 59 32,324,1 19,483,3 60 12,840,7 5,648,95
al 37 85 52 0
assist
ance
Trainin 107 69 64 9,121,87 7,213,03 79 1,908,83 1,371,27
g 0 4 6 0
Demonst 35 16 46 6,257,87 3,723,97 60 2,533,90 1,614,96
ration 5 3 2 7
projec
ts
303 245 81 21,603,9 20,056,2 93 1,547,67 676,000
Project 66 92 4
prepar
ation
Investm 687 132 19 396,642, 136,677, 34 259,964, 114,619,
ent 263 671 592 694
projec
ts
=========================================================================================
Total 1,537 688 45 $484,976 $197,304 41 $287,672 $127,911
,742 ,649 ,093 ,101
-----------------------------------------------------------------------------------------
Source: Montreal Protocol Multilateral Fund, Consolidated Progress
Report.
ODP METRIC TONS TO BE PHASED OUT
AS OF MAY 31, 1997
========================================================== Appendix IV
Project type World Bank UNDP UNEP UNIDO Bilateral Total
----------------- ---------- ---------- ---------- ---------- ---------- ----------
Country program -- -- -- -- -- --
preparation\a
Institutional -- -- -- -- -- --
strengthening\a
Technical 1,380.00 627.06 27.20 61.00 52.50 2,147.76
assistance
Training 0.00 0.00 310.90 0.00 15.40 326.30
Demonstration 135.00 38.16 0.00 0.00 354.50 527.66
projects
Project -- -- NA\b -- -- --
preparation\a
Investment 44,440.72 19,797.04 NA\b 15,743.72 619.47 80,600.95
projects
=========================================================================================
Total 45,955.72 20,462.26 338.10 15,804.72 1,041.87 83,602.67
Percentage 54.97 24.48 0.40 18.90 1.25 100.00
-----------------------------------------------------------------------------------------
Note: The ozone-depleting potential (ODP) value is the ratio of a
given compound's ability to deplete ozone compared with the ability
of a similar mass of CFC-11.
\a Country program preparation, institutional strengthening, and
project preparation projects do not directly contribute to the
phaseout of ozone-depleting substances.
\b NA indicates not applicable. UNEP is prevented by its charter
from implementing investment projects and, unlike the other three
Multilateral Fund implementing agencies, does not undertake project
preparation activities.
Source: Montreal Protocol Multilateral Fund, Inventory of Approved
Projects.
*** End of document. ***