UNITED

NATIONS EP
United Nations Distr.
GENERAL
Environment
Programme
UNEP/OzL.Pro/ExCom/80/45
19 October 2017

ORIGINAL: ENGLISH

EXECUTIVE COMMITTEE OF
THE MULTILATERAL FUND FOR THE
IMPLEMENTATION OF THE MONTREAL PROTOCOL
Eightieth Meeting
Montreal, 13-17 November 2017

PROJECT PROPOSAL: MEXICO

This document consists of the comments and recommendation of the Secretariat on the following
project proposal:

Refrigeration

• Conversion of domestic refrigeration manufacturing facility from UNDP

HFC-134a to isobutane (R-600a) as a refrigerant and conversion of
compressor manufacturing facility from HFC-134a-based
compressors to isobutane-based compressors at Mabe Mexico S.A.
de C.V. (Mabe-Mexico)

Pre-session documents of the Executive Committee of the Multilateral Fund for the Implementation of the Montreal Protocol are
without prejudice to any decision that the Executive Committee might take following issuance of the document.
UNEP/OzL.Pro/ExCom/80/45

PROJECT EVALUATION SHEET – NON-MULTI-YEAR PROJECT

MEXICO

PROJECT TITLE(S) BILATERAL/IMPLEMENTING AGENCY

(a) Conversion from HFC-134a to isobutane in the manufacture of domestic UNDP
refrigerators at Mabe Mexico
(b) Conversion of compressor manufacturing facility from HFC-134a-based UNDP
compressors to isobutane-based compressors at Mabe-Mexico

NATIONAL CO-ORDINATING AGENCY National Ozone Unit/SEMARNAT

LATEST REPORTED CONSUMPTION DATA FOR ODS ADDRESSED IN PROJECT

A: ARTICLE-7 DATA (ODP TONNES, [INSERT YEAR], AS OF [INSERT MONTH AND YEAR])
HFCs *
B: COUNTRY PROGRAMME SECTORAL DATA (ODP TONNES, [INSERT YEAR], AS OF [INSERT
MONTH AND YEAR])
HFCs *

HFC consumption remaining eligible for funding (ODP tonnes) n/a

CURRENT YEAR BUSINESS PLAN Funding US $ Phase-out ODP

ALLOCATIONS tonnes
(a) 0 0

PROJECT TITLE: Mabe-Mexico

Project component Domestic Compressor
refrigerator component
component
HFC-134a used at enterprise (mt): 170.19 n/a

HFC-134a to be phased out (mt): 170.19 n/a

HFC-134a to be phased in (mt CO2 equivalent): 22,320 n/a

Project duration (months): 24 24

Initial amount requested (US $): 4,500,000

Final project costs (US $):
Incremental capital cost: 1,159,988 1,366,167
Contingency (10 %): 108,499 133,617
Incremental operating cost: 1,401,931 n/a
Total project cost: 2,775,940 1,499,784
Local ownership (%): 100 100
Export component (%): 69.35 0
Requested grant (US $): 1,851,824 1,499,784
Cost-effectiveness (US $/kg): 10.88 n/a
Implementing agency support cost (US $): 129,628 104,985
Total cost of project to Multilateral Fund (US $): 1,981,452 1,604,769
Status of counterpart funding (Y/N): Y Y
Project monitoring milestones included (Y/N): Y Y

SECRETARIAT’S RECOMMENDATION For individual consideration

*A total of 17,286.66 mt of HFC (including 8,164.20 mt of HFC-134a) was estimated in 2015 (source: ODS survey).

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PROJECT DESCRIPTION

1. On behalf of the Government of Mexico, UNDP has submitted a project proposal to convert the
manufacturing of domestic refrigerators and compressors at Mabe Mexico, S.A. de C.V. (Mabe-Mexico),
from HFC-134a to isobutane (R-600a), at a total cost of US $17,094,016, as originally submitted and
associated funding request from the Multilateral Fund of US $4,500,000, plus agency support costs of
US $315,000.

Project objective

2. The project will eliminate the annual consumption of 170.19 mt (243,371 CO2 tonnes) of HFC-134a
at six lines manufacturing domestic refrigerators at Mabe-Mexico; and will convert production of
compressors that work with HFC-134a as refrigerant to R-600a. The energy efficiency of the domestic
refrigerators is estimated to improve by about 16 per cent through modifications of the components and in
line with requirements under National Official Standards (NOM-15).

HFC consumption and sector background

3. In 2015, 17,286.66 mt of HFCs were consumed in the refrigeration and air-conditioning (RAC)
sector in Mexico. Table 1 presents the sector distribution of consumption of HFCs.

Table 1. HFC consumption in the RAC sector in 2015 (mt)*

Sectors HFC-134a R-404A R-407C R-410A R-413A Others Total
Refrigeration
Manufacturing 1,310.29 413.14 469.26 90.75 2,283.44
Servicing 1,480.34 316.10 175.99 92.25 2,064.68
Air-conditioning
AC manufacturing 327.78 69.29 6,667.02 7,064.10
Mobile AC 4,589.25 4,589.25
AC servicing 166.09 82.62 316.92 5.61 571.23
Chiller 265.00 349.73 614.73
Manufacturing
Chiller servicing 25.45 4.70 69.08 99.23
Total 8,164.20 729.24 156.61 7,402.76 645.25 188.60 17,286.66
% consumption in 47.2 4.2 0.9 42.8 3.7 1.1 100.0
mt
% consumption in 25.3 8.9 0.9 47.9 4.1 13.0 100.0
CO2-equivalent
*As reported in the survey of ODS alternatives.

Domestic refrigerator market

4. There are three domestic refrigerator manufacturing enterprises that cater to about 63 per cent of
the market in Mexico. The capacity of the equipment ranges from 210 litres to 520 litres. Table 2 provides
total domestic market refrigerator production and sales in Mexico.

Table 2. Market of domestic refrigerators in Mexico (in units)

Particulars 2010 2011 2012 2013 2014 2015 2016
Production 7,009,900 7,220,197 7,436,803 7,659,907 7,889,704 8,126,395 8,410,819
Import 597,376 615,297 633,756 652,769 672,352 692,523 716,761
Export 5,976,733 6,156,035 6,340,716 6,530,938 6,726,866 6,928,672 7,171,176
Total domestic 1,630,543 1,679,460 1,729,843 1,781,738 1,835,190 1,890,246 1,956,404
sales
R-600a based units

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Particulars 2010 2011 2012 2013 2014 2015 2016

Production 293,833 302,648 615,166 499,000 513,960
Import
Export 293,833 302,648 499,000 499,000 513,960

5. In 2016, about 8.41 million domestic refrigerators were manufactured in Mexico; 85.2 per cent of
this production were exported and 716,761 refrigerators were imported. Of the total production for
domestic sales, approximately 79.2 per cent are HFC-134a-based and 20.8 per cent are R-600a-based.
Details of number of manufacturers producing R-600a based domestic refrigerators is not available.

Enterprise background

6. Mabe-Mexico is one of the largest producers of domestic refrigerators1 and has Mexican and
Chinese ownership.

7. At the 15th meeting, Mabe-Mexico received funding to convert its two domestic refrigerator
manufacturing lines (i.e., from CFC-12 to HFC-134a and from CFC-11 to HCFC-141b). At the same
meeting, Mabe-Mexico received funding for conversion of their domestic refrigerator CFC-12 compressor
manufacturing facility to manufacture HFC-134a-based compressors. These projects were completed in
September 1997.

8. At the 59th meeting, Mabe-Mexico received additonal assistance to convert its manufacturing
capacity from HCFC-141b used in insulation foam to cyclopentane. The project has completed resulting
in the phase-out of 354 mt (38.94 ODP tonnes) of HCFC-141b and 306 mt (16.83 ODP tonnes) of
HCFC-22.

HFC consumption by the enterprise

9. Mabe-Mexico produces six models of domestic refrigerators using HFC-134a at its six production
lines which are located in the same facility and have similar layout and installed capacity. Of the six
production lines, two lines have capacity to produce R-600a-based domestic refrigerators. The compressor
manufacturing facility is also located in the same location.

10. Table 3 presents the 2014-2016 production of HFC-134a-based domestic refrigerators at Mabe
Mexico.

Table 3. Capacity and sales of Mabe-Mexico refrigerators

Production (units)
Year
HCFC-134a (mt) Total Export to non-Article 5 countries
2014 133.96 1,189,892 391,772
2015 158.07 1,405,817 435,792
2016 170.19 1,507,453 462,097
Average consumption 154.07
Average consumption 220,320
(CO2 tonnes)

Selection of alternative technology

11. R-600a was selected as the alternative technology as it has an energy efficiency advantage over
HFC-134a, and has zero ODP and very low-global warming potential (GWP). Further, this technology is

1
The enterprise has production and commercial operations in Argentina, Brazil, Canada, Central America, Chile,
Colombia, Costa Rica, Ecuador, Mexico, Peru, and Venezuela (Bolivarian Republic of).
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currently in use in Mexico with adequate supply of refrigerant gas and components. The markets in Latin
American are moving towards R-600a domestic refrigerators.

Project description

Domestic refrigerator manufacturing

12. Given the flammability of R-600a, changes are required in the production process mainly at the
four out of six manufacturing lines, in the end-products, and modifications in material flow operations to
work with HC-based refrigerants. The project contains three components for which funds are requested:

(a) Modifications to the storage and supply of refrigerant, including explosion proof pumping
and pipeline system to download, store and distribute the refrigerant at the plant; a storage
tank; a safety system (i.e., leak detectors, fire-fighting equipment, shut-off valves and flux
and pressure sensors, water sprinkler, smoke detectors); equipment installation and civil
works (i.e., construction of pump and transfer rooms); and relevant certifications
(US $592,923);

(b) Production line modifications including introduction of helium leak detection equipment;
four refrigerant charging stations suitable for R-600a and retrofitting of one existing
charging station; three ultrasonic sealing of the refrigeration system; five post-charge leak
detectors; safety system and certification based on local standards in the manufacturing
process and repair zone; civil works; costs of modification of tools, and material handling
facilities (US $1,471,396); and

(c) Modifications to the laboratory for development and testing; modifications to the electrical
controls of the HC-based fridges to ensure safe operation; installation and start-up of all
the new equipment modifications and engineering component changes; and electronic
components of manufacturing facilities including electronic cards and harness
(US $897,566).

Project costs and co-financing

13. The incremental capital costs (ICC), as originally submitted and including contingencies, were at
US $3,258,074 as shown in Table 4.

Table 4: Costs for the conversion of domestic refrigerators to R-600a in Mabe-Mexico

Description Cost (US$) %
Supply system R-600a (tank + facilities + pump room) 370,783 11.4
Safety systems R-600a (tank + facilities) 222,140 6.8
Charging equipment, tube sealed and leakage detection in process areas 480,282 14.7
Safety systems and charging and leakage area facilities 311,461 9.6
Helium leakage detection systems for evaporator and high side 399,460 12.3
Charging area room (flame-free and electrical components) 90,962 2.8
Working station enabling (assembly and cabinet) 189,231 5.8
Modification of liners die cutters and foam moulds 34,570 1.1
Secondary facilities (air, nitrogen and electricity) node network 139,972 4.3
Material flow (containers and backup cars) 178,011 5.5
Die cutters for back recess and lid (back up electronic card) 260,000 8.0
Electronic cards (equipment and devices) 186,000 5.7
Harness (routing board) 99,013 3.0
Sub-total 2,961,885 90.9
Contingencies (10 %) 296,189 9.1
Total 3,258,074 100.0

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14. As the baseline equipment varied for each line, the requested funding for some of the lines were
lower than the other lines; for example, one line had refrigerant charging equipment, HC leak detection
equipment and helium leak detector and as a result funding was not required for these equipment items.
Further, some of the equipment items appear to relate to material flow modifications and engineering tools
that may be not be incremental for the conversion project.

15. Incremental operating costs (IOC) which includes costs related to change in refrigerant and energy
efficiency improvement was estimated at US $3.82 per unit on an average excluding compressors for
conversion of refrigerant to R-600a, and US $2.54 per unit on an average for energy efficiency component.
Funding requested for total IOC for one year is US $7,744,980, as shown in Table 5.

Table 5. IOC for domestic refrigerator manufacturing in Mabe-Mexico

Models R-600a (US $) Energy efficiency Total (US $)
(US $)
One door (A210) 46,428 30,952 77,380
No Frost (230 L to 300 L) 1,973,400 1,315,600 3,289,000
No Frost 360 L 777,240 518,160 1,295,400
No Frost (400 L to 520 L) 853,440 568,960 1,422,400
BF Pangea 435,960 290,640 726,600
SXS 560,520 373,680 934,200
Total 4,646,988 3,097,992 7,744,980

Compressor manufacturing

16. Mabe-Mexico also has compressor manufacturing facilities with a total capacity of 1.5 million
compressors per annum producing two different categories of compressors namely CQ (30 to 100 watts)
and CB (90 to 140 watts).

17. The conversion of compressor manufacturing involves retrofitting manufacturing lines,

quality-testing equipment, tooling for new parts, product development and modification in testing facilities
including calorimeter, at a total estimated cost of the product is US $6,090,962 as shown in Table 6.

Table 6: Costs for conversion to R-600a compressors at Mabe-Mexico

Description Cost (US $) %
Retrofit of existing manufacturing lines 3,552,844 58.3
Monoblock line 628,672
Crankshaft line 864,369
Connecting rod line 237,125
Valve plate line 415,394
Piston line 270,935
Assembly line 479,183
Rotor line 33,131
Stator line 624,035
Quality test equipment 460,576 7.6
New parts tooling 445,684 7.3
Prototypes and tools 77,482 1.3
Product development 567,884 9.3
Calorimeters 432,768 7.1
Subtotal 5,537,238 90.9
Contingencies (10%) 553,724 9.1
Total 6,090,962 100.0

18. The project also includes co-financing. UNDP has indicated that they have assured grants under
Kigali Cooling Efficiency Program (KCEP) amounting to US $400,000, which is available once the project

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is prepared with completely assured funding. Additional co-financing amounting to US $8,564,008 would
be provided by Mabe-Mexico.

19. The summary of the total project funding including adjustments for exports to non-Article 5
countries and co-financing, is given Table 7.

Table 7. Total project funding request for Mabe-Mexico (as submitted)

Component Costs in US $
Incremental cost for refrigerator manufacturing 11,003,054
Incremental cost for compressor manufacturing 6,090,962
Total 17,094,016
Adjustment for export to non-Article 5 countries for
refrigerator manufacturing (33 per cent) (3,631,008)
Adjusted incremental costs 13,463,008
Co-financing from KCEP (400,000)
Co-financing from enterprise and other sources (8,563,008)
Requested funding 4,500,000

20. The cost-effectiveness of the project for the conversion of the refrigerator manufacturing lines
(excluding the compressor lines) is US $64.65/kg. The project will be implemented over a period of 24
months.

SECRETARIAT’S COMMENTS AND RECOMMENDATION

COMMENTS

Eligibility

21. The Secretariat reviewed the project proposal based on the current policies and decisions of the
Multilateral Fund, similar approved conversion projects for CFC phase-out (i.e., conversion of refrigerant
component from CFC-12 to R-600a involving product and manufacturing process redesign, conversion of
compressor manufacturing plants from ODS to flammable alternatives) and approved projects to phase-out
ODS with flammable alternatives.

22. The project for Mabe-Mexico has been submitted in line with decisions 78/3(g) and 79/45. It
included an official letter from the Government with the commitment required in decision 78/3(g). In line
with decision 79/45, the endorsement letter from the Government of Mexico indicates it would make every
effort to ratify the Kigali Amendment, as soon as possible, confirmed that it is aware that no further funding
would be available until the instrument of ratification of the Kigali Amendment had been received by the
depositary at the United Nations Headquarters in New York, if this project would be approved by the
Executive Committee; and acknowledged that in case this project is approved, any HFC reduced would be
deducted from its starting point (which may be agreed in the future). The Secretariat also notes with
appreciation that this proposal was submitted without preparation funding.

23. UNDP explained that Mabe-Mexico and the Government are strongly committed to implement this
project; this is reflected in the significant levels of co-financing that the enterprise proposes to invest for
implementing this project; the enterprise also intends to use this conversion project for achieving energy
efficiency standards in the country. The results of the project are expected to encourage adoption of energy
efficient R-600a-based equipment in the markets in Mexico and in the region.

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Regulatory framework

24. The Secretariat requested clarifications on how sustainability of production of R-600a-based

refrigerators would be achieved noting that R-600a-based refrigerators are just being introduced in the
market and have a share of 6.2 per cent in the total production in the country. UNDP explained that the
Government has implemented nine standards that relate to energy efficiency and safety for production and
sales of R-600a-based domestic refrigerators; further, Mabe-Mexico has decided to adopt R-600a
technology to comply with the national energy efficiency regulations which would require refrigerators to
increase their energy efficiency on average of 16 per cent; this will also help the enterprise sell in other
markets which are implementing higher energy efficiency standards for refrigerators. The Secretariat also
noted that the R-600a-based refrigerator production has increased since 2012.

Proposed costs

25. The Secretariat requested clarification on the need and costs for charging equipment, helium leak
detectors, ultrasonic welding machine, HC leak detector, HC recovery machine, and other equipment that
were for distribution of components, quality control and information technology support, noting that some
of these costs do not appear to be incremental for the proposed conversion project. The Secretariat also
asked clarifications on what components of the project would be co-financed by the enterprise.

26. UNDP explained that the requested modifications were necessary to implement the conversion
project noting that the enterprise has already undertaken initial steps such as product design modifications
and conversion of some of the refrigerator assembly lines. UNDP agreed to adjust costs required for
refrigerant charging equipment, ultrasonic welding machines in the production lines, helium leak detection
equipment, some of the costs relating to storage and gas supply systems, and costs relating to safety
equipment. Additional costs for technical assistance and safety audit and training amounting to US $75,000
were included in the incremental capital costs. UNDP also explained that the enterprise has not specifically
identified individual components that would be co-financed but would be providing additional finance
beyond the agreed costs for implementing the conversion project.

27. The Secretariat also requested clarification on the methodology followed for calculating the IOC
(i.e., how the energy efficiency component and refrigerant conversion components were separately
identified) and noted that IOC was higher than the costs of similar projects submitted to the 80th meeting.
UNDP provided details of IOC calculations for individual models and explained that a proportion of the
total incremental costs was applied to refrigerant conversion (60 per cent) and energy efficiency component
(40 per cent). Based on discussions and inputs on comparable projects with similar refrigerator conversion
requirements from the region, UNDP agreed to rationalise the IOC from US $6.36 to US $0.93 per unit on
an average. Incremental costs for compressor was also removed as the project includes conversion of
compressor manufacturing facility in the enterprise.

28. The agreed costs of the conversion of the domestic refrigerator manufacturing lines are shown in
Table 8.

Table 8. Agreed costs for conversion of domestic refrigerator manufacturing at Mabe-Mexico

Particulars Proposed cost Agreed cost
(US $) (US $)
Refrigerator manufacturing
Product design, testing and certification - -
Refrigerant charging and supply system 370,783 260,000
Assembly line modifications 1,966,539 562,988
Safety systems 624,563 262,000
Subtotal 2,961,885 1,084,988
Contingency (10%) 296,189 108,499
Technical assistance and safety audit 0 60,000

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Particulars Proposed cost Agreed cost

(US $) (US $)
Training 0 15,000
Total capital cost 3,258,074 1,268,487
Incremental operating costs 7,744,980 1,401,931
Total cost before adjustment for exports to non-Article 5 countries 11,003,054 2,670,418
Adjustment for exports to non-Article 5 countries* (3,631,008) (818,594)
Total incremental costs 7,372,046 1,851,824
HFC-134a consumption (mt) 170.19 170.19
CE (US $/kg) 43.32 10.88
*Exports to non-Article 5 countries amount is 30.65 per cent of total production.

Conversion project for compressors

29. The Secretariat has limited experience in projects related to the conversion of compressor
manufacturing from HFC-134a to isobutane for domestic refrigerators; however, it reviewed this project in
light of the demonstration projects approved for compressor conversion to HC refrigerant in
air-conditioning and discussions relating to compressor conversion project for Bangladesh submitted to the
80th meeting2, noting similarities between these projects.

30. The proposed conversion is for producing fixed-speed isobutane-based compressors. UNDP
explained that the choice of fixed-speed compressor model was to provide a cost advantage. The conversion
of the compressor to variable speed design would be undertaken based on market demand for such
equipment at a future date.

31. The Secretariat requested clarification on the costs associated with changes in the manufacturing
facility, and the costs associated with product redesign noting that the enterprise has already developed
product designs, testing facilities and technical assistance costs.

32. Further to discussion with UNDP, it was agreed to adjust the costs for plant equipment modification
from US $3,998,528 to US $1,086,167; costs of testing from US $893,344 to US $250,000, and allocate
US $30,000 for technical assistance. The agreed costs for conversion of the compressor manufacturing
facility are shown in Table 9.

Table 9. Agreed costs for conversion of compressor manufacturing at Mabe-Mexico

Particulars Proposed cost Agreed cost
(US $) (US $)
Costs of plant equipment modification 3,998,528 1,086,167*
Product redesign and prototype development 645,366 -
Product testing and quality control 893,344 250,000
Subtotal 5,537,238 1,336,167
Contingency (10%) 553,724 133,617
Technical assistance 30,000
Total 6,090,962 1,499,784
*Including delivery and installation costs.

Agreed level of funding

33. Based on the above review, the proposed incremental costs for conversion for the refrigerator
manufacturing component of Mabe-Mexico amounts to US $3,351,607 to phase out 170.19 mt (308,044
CO2-tonnes) of HFC-134a as shown in Table 10. UNDP informed that additional funding required for
conversion will be co-financed by the enterprise and/or obtained from other funding sources.

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Table 10. Agreed incremental costs for conversion of refrigerator and compressor manufacturing at
Mabe-Mexico
Particulars HFC-134a phase-out Cost (US $) Cost–effectiveness
(mt) (US $/kg)
Refrigerator manufacturing 170.19 1,851,824 10.88
Compressor manufacturing - 1,499,784 n/a
Total 170.19 3,351,608 n/a

34. The Secretariat notes that the purpose of implementing projects under decision 78/3(g) is to gain
experience in the ICCs and IOCs that might be associated with phasing down HFCs. Based on available
information at the time of review, the Secretariat considers that the agreed costs are its best estimates of the
overall incremental costs of conversion; these estimates might change as more information becomes
available, and according to the specific characteristics of the enterprises. The Secretariat, therefore,
considers that the agreed costs above would not constitute a precedent.

35. The enterprise has committed that it will stop using HFC-134a in producing domestic refrigerators
upon project completion by December 2019.

2017-2019 Business plan

36. This project does not fall under the regular business plans submitted to the Secretariat and presented
to the Executive Committee as it falls under the purview of decision 78/3(g).

RECOMMENDATION

37. The Executive Committee may wish to consider the project for conversion of domestic refrigeration
manufacturing facility from HFC-134a to isobutane (R-600a) as a refrigerant and conversion of compressor
manufacturing facility from HFC-134a-based compressors to isobutane-based compressors at Mabe
Mexico S.A. de C.V. in the context of its discussion of the proposals for HFC-related projects described in
the document on Overview of issues identified during project review (UNEP/OzL.Pro/ExCom/80/22).

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