Factors to be considered in calculating the incremental operational costs (IOC).
Relative prices of methylene chloride and CFC-11. The prices should be determined locally using the ratio MC/CFC-11 of 0.9/1.0. All pricing should also be guided by Executive Committee decision regarding pricing of commodities, namely that national pricing be used except where it was higher than 20% of the regional border price (UNEP/OzL.Pro/ExCom/12/37, para. 62). For 1995 the prices of urethane grade and non-urethane grade MC may not exceed US $1.00 and US $0.80 respectively. Where available, the price of urethane grade MC should be used.
Catalysts:
Amine: A 10% increase in amine catalyst corresponds to 10 pphp* MC. The need for additional or different catalyst should be justified. (Current price of catalyst is US $7.50/kg).
Tin: A 25% increase in tin octoate, corresponding to 10 pphp MC should be allowed (current price is US $6-8/kg).
Polyol: If the need for a better or different stabilized polyol as well as its local availability are established price increase of up to US $0.10/kg should be allowed.
Toluene diisocyanate (TDI): When forced cooling or softening technologies are used both the increased use of TDI and decreased use of MC should be taken into account in the IOC calculation. Replacement of ten parts of MC by 10 parts of TDI and one part of water should be considered.
Softener: The cost of softener may be taken into account only when detailed formulations are developed. The calculation should also take account of adjustments in MC use.
Yield loss: Initial incremental yield loss of 3% declining by 1% each year should be allowed.
Incremental energy costs: Incremental energy costs will be eligible only in the event that the substitute technology results in increased energy consumption. However, if this increase results in expansion in production capacity of the foam (whether intentional or inadvertent) it should not be considered in the calculation of IOC. Calculation of incremental energy cost should be based on kw multiplied by run hours/year and local unit price.
Incremental maintenance costs: Maintenance costs should be based on additional eligible equipment installed. The incremental maintenance costs should be calculated based on 5% of the eligible incremental equipment investment costs.
Factors not to be considered in calculating the incremental operational costs
Cost of water: Cost of water is usually minimal. Generally, de-ionized water is used in foam formulations. This is particularly critical if MC is used, since iron content could trigger scorching. Therefore where not already installed, a water softener or de-ionizer would usually be included in the investment costs.
Equipment type: Does not have any incremental effect on operational costs.
Equipment Condition: This should be the liability of the enterprise concerned.
Proficiency (expertise): Since differences in proficiency or expertise at the plant level is usually taken into account when assessing technology transfer and/or training costs, proficiency or expertise should not be considered in IOC calculation.
Recurrent training: Only staff time is involved and cannot be considered as incremental.
Safety: MC does not cause any safety concerns beyond those that have been dealt with under investment and chemical use. Hence, health and safety issues other than those considered already should not be taken into account, e.g. incremental operational cost of occupational health or safety monitoring programmes, etc.
Sample incremental operational cost calculation
Assumptions
|
Item |
Price (US$/t) |
Consumption (t/y) |
Information Source |
||
|
|
|
Before |
After |
|
|
|
CFC-11 Amines Tin Energy (/KWh). Production |
2,000 800 7,500 8,000 0.10 2,000 |
18 - 3 4 900 |
- 16.2 3.1 4.25 45,000 900 |
Navin Fluorine U-Foam Standard Standard Power Cy. Recipient |
|
Investment in equipment: US $150,000
Yield loss: 3/2/1/0%/y on 25% of production
(Only 25% of the production uses MC).
Maintenance: 5% of equipment investment
Calculation
|
Cost Item |
1995 US $ X 1,000 |
1996 US $ X 1,000 |
1997 US $ X 1,000 |
1998 US $ X 1,000 |
Total |
|
BASELINE |
|
|
|
|
|
|
CFC-11 |
36 |
36 |
36 |
36 |
|
|
Amines |
22.5 |
22.5 |
22.5 |
22.5 |
|
|
Tin |
32 |
32 |
32 |
32 |
|
|
Total |
90.5 |
90.5 |
90.5 |
90.5 |
|
|
POST-PROJECT |
|
|
|
|
|
|
13 |
13 |
13 |
13 |
|
|
|
Amines |
23.3 |
23.3 |
23.3 |
23.3 |
|
|
Tin |
34 |
34 |
34 |
34 |
|
|
Incremental Yield Loss |
13.5 |
9 |
4.5 |
0 |
|
|
Incremental Energy |
4.5 |
4.5 |
4.5 |
4.5 |
|
|
Incremental Maintenance |
7.5 |
7.5 |
7.5 |
7.5 |
|
|
Total |
95.8 |
91.3 |
86.8 |
82.3 |
|
|
5.3 |
0.8 |
(3.7) |
(7.2) |
|
|
|
Discount Factor |
0.91 |
0.83 |
0.75 |
0.68 |
|
|
NPV |
4.8 |
0.7 |
(2.8) |
(4.9) |
(2.2) |
Costs determined as follows:
Baseline Costs: Baseline costs of chemicals calculated by multiplying the price of the chemical by annual use. No sales increases allowed.
Post Project Costs:
(a) MC: 90% of CFC-11 use multiplied by MC price. No sales increases included.
(b) Amine: Increase by 10% on MC foam alone.
(c) Tin: Increase by 25% on MC foam alone.
(d) Yield loss: Calculated on MC foam alone.
Incremental Operational Cost (IOC):
(a) IOC: Difference between baseline cost and post project cost.
(b) Discount factor: Based on 10% interest rate.
(c) Net Present Value (NPV): IOC X Discount factor.
(UNEP/OzL.Pro/ExCom/16/20, para. 85b and Annex IV).
(Supporting document: UNEP/OzL.Pro/ExCom/16/17).