Terms of Reference for the Multilateral Fund

[Source: Annex IX of the report of the Fourth Meeting of the Parties]

A. Establishment

1. A Multilateral Fund is established.

B. Roles of the implementing agencies
2. Under the overall guidance and supervision of the Executive Committee in the discharge of its policy-making functions:

(a) Implementing agencies shall be requested by the Executive Committee, in the context of country programmes developed to facilitate compliance with the Protocol, to cooperate with and assist the Parties within their respective areas of expertise; and

(b) Implementing agencies shall be invited by the Executive Committee to develop an inter-agency agreement and specific agreements with the Executive Committee acting on behalf of the Parties.

3. Implementing agencies shall apply only those considerations relevant to effective and economically efficient programmes and projects which are consistent with any criteria adopted by the Parties.

4. Specifically:
(a) The United Nations Environment Programme shall be invited by the Executive Committee to cooperate and assist in political promotion of the objectives of the Protocol, as well as in research, data gathering and the clearing-house functions;

(b) The United Nations Development Programme and such other agencies which, within their areas of expertise, may be able to assist shall be invited by the Executive Committee to cooperate and assist in feasibility and pre-investment studies and in other technical assistance measures;

(c) The World Bank shall be invited by the Executive Committee to cooperate and assist in administering and managing the programme to finance the agreed incremental costs;

(d) Other agencies, in particular regional development banks, shall also be invited by the Executive Committee to cooperate with and assist it in carrying out its functions.

5. The Executive Committee shall draw up reporting criteria and shall invite the implementing agencies to report regularly to it in accordance with those criteria.

6. The Executive Committee shall invite the implementing agencies, in fulfilling their responsibilities in respect of the Multilateral Fund, to consult each other regularly. It shall also invite the heads of the agencies or their representatives to meet at least once a year to report on their activities and consult on cooperative arrangements.

7. The implementing agencies shall be entitled to receive support costs for the activities they undertake, having reached specific agreements with the Executive Committee.

C. Budget and contributions
8. The Multilateral Fund shall be financed in accordance with Paragraph 6 of Article 10 of the amended Protocol. In addition, contributions may be made by countries not Party to the Protocol, and by other governmental, intergovernmental, non-governmental and other sources.

9. The contributions referred to in paragraph 6 of Article 10 of the amended Protocol are to be based on the scale of contributions decided by the annual Meeting of the Parties. Bilateral and, in particular cases, regional cooperation by a country not operating under paragraph 1 of Article 5 may, according to criteria adopted by the Parties, be considered as a contribution to the Multilateral Fund up to a total of twenty per cent of the total contribution by that Party as decided by the annual Meetings of the Parties.

10. All contributions other than the value of bilateral and agreed regional cooperation referred to in paragraph 9 above shall be in convertible currency or, in certain circumstances, in kind and/or in national currency.

11. Contributions from States that become Parties not operating under paragraph 1 of Article 5 after the beginning of the financial period of the mechanism shall be calculated on a pro rata basis for the balance of the financial period.

12. Contributions not immediately required for the purposes of the Multilateral Fund shall be invested under the authority of the Executive Committee and any interest so earned shall be credited to the Multilateral Fund.

13. Budget estimates, setting out the income and expenditure of the Multilateral Fund prepared in United States dollars, shall be drawn up by the Executive Committee and submitted to the regular meetings of the Parties to the Protocol.

14. The proposed budget estimates shall be dispatched by the Fund Secretariat to all Parties to the Protocol at least sixty days before the date fixed for the opening of the regular meeting of the Parties to the Protocol at which they are to be considered.

15. Resources remaining in the Interim Multilateral Fund shall be transferred to the Multilateral Fund established under the financial mechanism.

D. Administration
16. The World Bank shall be invited by the Executive Committee to cooperate with and assist it in administering and managing the programme to finance the agreed incremental costs of Parties operating under paragraph 1 of Article 5. Should the World Bank accept this invitation, in the context of an agreement with the Executive Committee, the President of the World Bank shall be the Administrator of this programme, which shall operate under the authority of the Executive Committee.

17. The Executive Committee shall encourage the involvement of other agencies, in particular the regional development banks, in carrying out its functions effectively in relation to the programme to finance the agreed incremental costs.

18. The Fund Secretariat operating under the Chief Officer, co-located with the United Nations Environment Programme (UNEP) at Montreal, Canada, shall assist the Executive Committee in the discharge of its functions. The Multilateral Fund shall cover Secretariat costs, based on regular budgets to be submitted for decision by the Executive Committee.

19. In the event that the Chief Officer of the Fund Secretariat anticipates that there may be a shortfall in resources over the financial period as whole, he shall have discretion to adjust the budget approved by the Parties so that expenditures are at all times fully covered by contributions received.

20. No commitments shall be made in advance of the receipt of contributions, but income not spent in a budget year and unimplemented activities may be carried forward from one year to the next within the financial period.

21. At the end of each calendar year, the Chief Officer of the Fund Secretariat shall submit to the Parties accounts for the year. The Chief Officer shall also, as soon as practicable, submit the audited accounts for each period so as to coincide with the accounting procedures of the implementing agencies.

22. The Fund Secretariat and the implementing agencies shall cooperate with the Parties to provide information on funding available for relevant projects, to secure the necessary contacts and to coordinate, when requested by the interested Party, projects financed from other sources with activities financed under the Protocol.

23. The financing of activities or other costs, including resources channelled to third party beneficiaries, shall require the concurrence of the recipient Governments concerned. Recipient Governments shall, where appropriate, be associated with the planning of projects and programmes.

24. Nothing shall preclude a beneficiary Party operating under paragraph 1 of Article 5 from applying for its requirements for agreed incremental costs solely from the resources available to the Multilateral Fund.

Indicative list of categories of incremental costs
[Source: Annex VIII of the report of the Fourth Meeting of the Parties]

The evaluation of requests for financing incremental costs of a given project shall take into account the following general principles:

(a) The most cost-effective and efficient option should be chosen, taking into account the national industrial strategy of the recipient Party. It should be considered carefully to what extent the infrastructure at present used for production of the controlled substances could be put to alternative uses, thus resulting in decreased capital abandonment, and how to avoid deindustrialization and loss of export revenues;

(b) Consideration of project proposals for funding should involve the careful scrutiny of cost items listed in an effort to ensure that there is no double-counting;

(c) Savings or benefits that will be gained at both the strategic and project levels during the transition process should be taken into account on a case-by-case basis, according to criteria decided by the Parties and as elaborated in the guidelines of the Executive Committee;

(d) The funding of incremental costs is intended as an incentive for early adoption of ozone protecting technologies. In this respect the Executive Committee shall agree which time scales for payment of incremental costs are appropriate in each sector.

Incremental costs that once agreed are to be met by the financial mechanism include those listed below. If incremental costs other than those mentioned below are identified and quantified, a decision as to whether they are to be met by the financial mechanism shall be taken by the Executive Committee consistent with any criteria decided by the Parties and elaborated in the guidelines of the Executive Committee. The incremental recurring costs apply only for a transition period to be defined. The following list is indicated:

(a) Supply of substitutes

(i) Cost of conversion of existing production facilities:
cost of patents and designs and incremental cost of royalties;
capital cost of conversion;

cost of retraining of personnel, as well as the cost of research to adapt technology to local circumstances;

(ii) Costs arising from premature retirement or enforced idleness, taking into account any guidance of the Executive Committee on appropriate cut-off dates:
of productive capacity previously used to produce substances controlled by existing and/or amended or adjusted Protocol provisions; and
where such capacity is not replaced by converted or new capacity to produce alternatives;

(iii) Cost of establishing new production facilities for substitutes of capacity equivalent to capacity lost when plants are converted or scrapped, including:
cost of patents and designs and incremental cost of royalties;
capital cost;
cost of training, as well as the cost of research to adapt technology to local circumstances;

(iv) Net operational cost, including the cost of raw materials;

(v) Cost of import of substitutes;

(b) Use in manufacturing as an intermediate good
(i) Cost of conversion of existing equipment and product manufacturing facilities;
(ii) Cost of patents and designs and incremental cost of royalties;
(iii) Capital cost;
(iv) Cost of retraining;
(v) Cost of research and development;
(vi) Operational cost, including the cost of raw materials except where otherwise provided for;

(c) End use
(i) Cost of premature modification or replacement of user equipment;
(ii) Cost of collection, management, recycling, and, if cost effective, destruction of ozone-depleting substances;
(iii) Cost of providing technical assistance to reduce consumption and unintended emission of ozone-depleting substances.