Bong Escape Hydropower Project

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.
CDM Executive Board CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28/07/2006 CONTENTS A. B. C. D. E. General description of project activity Application of a baseline and monitoring methodology Duration of the project activity / Crediting period Environmental impacts Stakeholders comments Annexes Annex 1: Contact information on participants in the project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring information Annex 5: Assumptions and Financial Analysis for Year 2001 Annex 6: Assumptions and Financial Analysis for Year 2007
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This template shall not be altered. It shall be completed without modifying/adding headings or logo, format or font.
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SECTION A. General description of project activity A.1. Title of the project activity: >> The 84 MW New Bong Escape Hydropower Project, Azad Jammu and Kashmir (AJK), Pakistan Version 08 04/06/2008
A.2.
Description of the project activity: >> The 84 MW New Bong Escape Hydropower Project, Azad Jammu and Kashmir (AJK), Pakistan (the Project) is a run-of-the river hydropower scheme without any dam, new storage, displacement/resettlement of human habitation, change in the hydrological regime or any other adverse environmental impact. The Project is a low head hydropower scheme and is strictly run-of-the-river without any storage or new reservoir. The Mangla reservoir, dam and 1000 MW power house, constructed in the early sixties feeds the Project downstream of the Mangla powerhouse, through its tailrace channel.
The main purpose of the project activity is to generate electricity for supply to the national grid using clean, renewable and sustainable natural resources and tapping the significant hydropower potential in the country. The project activity represents development of the first hydropower independent power producer in Pakistan and is expected to act as a catalyst for hydropower development in the country and open the way for private investment in this vital sector. The power generated will be sold, through a 25 year power purchase agreement, to the Government owned National Transmission and Despatch Company Limited (NTDC). Despite the large hydropower potential, Pakistans grid is predominantly hydrocarbon intensive. Due to looming power shortages and increasing demand/supply gap expected from 2007 and onwards at a rate of some 1,000 MW per annum planners are forced turn once again to quick fix thermal generation to mitigate the significant power shortages expected. The Project will contribute clean and renewable hydroelectricity to the deficient national power resources and contribute to GHG emission reduction by displacing the electricity production requirement of fossil fuel-fired power plants to the extent of its generation. The interconnection is close to the load centre and it is expected that new plant will result in reduction of some 4.572 million tons of CO2e emissions over the crediting period of 21 years. The project has and will contribute to the local and national economy in the following manner: Sustainable Development: Enhance local employment opportunities during construction (500-700 persons) and during operations (100-120 persons); Spin off benefits and stimulation of local economy through creation of business opportunities and different stages of project implementation to provide goods and services for the project both during construction and operations; Improving the skill set for local inhabitants through training and capacity building for employment in the project contributing to growing technical advancement;
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Reduction of poverty in a economically depressed region with very little industry and high unemployment;
Environment: reduce carbon emissions in the national grid and replace carbon intensive thermal generation; Replacing oil fired and future coal based thermal generation and thus mitigating environmental pollution with positive spin off for community health; The project not only reduces or replaces equivalent thermal generation with all the associated environmental benefits but it also promotes an overall environmental well being since the project will help to avoid all associated pollution caused through extraction, processing, storage and transportation of conventional fuels required for thermal generation and substituted (reduced) to the extent of the project generation; The Project will assist in improving social infrastructure and public amenities in the area through construction of a new medical clinic and improvement of existing schools.
Development of hydropower potential Stimulate private investment to develop some 20,000 MW of neglected hydel potential especially small to medium run-of-the river projects with low environmental impact ; National Economy, saving foreign exchange and balance of payments: Create space in national balance of payments through saving of foreign exchange required to import oil to service an equivalent thermal generating plant; Reduce cost of electricity in the national grid through improved thermal/hydel mix in the system and enhancement of competitive advantage for industry and commerce;
Capacity Building Assist the Designated National Authority for development of CDM projects in the country as the pioneer private hydropower project eligible for CERs; Assist in development of a legal, financial and conceptual framework for private hydropower and facilitate removal of obstacles and bottlenecks for private hydropower development thus providing a template which will be used by forthcoming projects;
The project stakeholders include the project sponsors, Government of Azad Jammu & Kashmir (GOAJK), inhabitants close to the project area, the power purchaser and the Government of Pakistan and a brief introduction to each is provided below: The project sponsors represent a dedicated group of local and foreign investors whose determination is reflected by their untiring efforts battling against dysfunctional policy, bias against hydropower and other obstacles for over a decade and achieving significant progress; The Azad Jammu & Kashmir (AJ&K) is a relatively backward and undeveloped region and hydropower is the only significant natural resource. The Project will bring in significant investment and economic activity in a region which is economically depressed, has very little industry and high level unemployment. The GOAJK is fully committed to the project recognizing
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its importance to the local economy, income from water use charges and as landmark for future hydropower development; the GOAJK has been extended the Letter of Support some 13 times to facilitate and support the Project; The power purchaser, ex- WAPDA (Pakistan Water & Power Development Authority), in the state sector, is the only developer and owner of hydropower projects in the country and has been unwilling to support private hydropower sector by refusing to accept a commercially reasonable tariff; this has caused many years of delay in the take off of private hydropower in general and the project in particular. Notwithstanding this long standing institutional bottleneck over tariff, dysfunctional policy is highlighted by inclusion of the Project in the national power planning and scheduling. The intervention of the Government and the Ministry of Water & Power enabled restoration of the 1995 Hydel Policy tariff which has formed a basis for the project to move ahead; The Government of Pakistan represented by the Ministry of Water & Power and the Private Power Infrastructure Board supports implementation of the project; The local inhabitants in the project fully support implementation of the project as confirmed through public consultations and meetings (refer to Section E Stakeholders Comments).
A.3. Project participants: >> Name of Party involved (*) ((host) indicates a host Party)
Private and/or public entity(ies) project participants (*) (as applicable)
Kindly indicate if the Party involved wishes to be considered as project participant (Yes/No) No
Islamic Republic of Pakistan (host)
Laraib Energy Limited
A.4.
Technical description of the project activity:
A.4.1. Location of the project activity: >> The Project is located 7.5 km downstream of Mangla Dam some 120 km southeast of Islamabad, capital city of Pakistan. The Mangla dam and reservoir were constructed some 40 years ago, with support of the World Bank under the Indus Basin Treaty to impound and store the water of the River Jhelum for irrigation use and incidental power generation. The Project site is easily accessible from the main highway by good metalled roads requirement for new infrastructure is minimal. The project location is shown below:
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A.4.1.1. Host Party(ies): >> Islamic Republic of Pakistan (host)
A.4.1.2. Region/State/Province etc.: >> The Azad Jammu & Kashmir
A.4.1.3. City/Town/Community etc: >> Village Lehri and Ferozabad, about 7.5 km from Mangla dam/ powerhouse. A.4.1.4. Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): >> The Project is located about 7.5 km from the Mangla Dam at the tail end of the Bong Canal and the new powerhouse is being constructed between the New and the Old Bong Escape structures. The Old Bong Escape, constructed in early 20th century, was designed as a cross flow regulating structure to reduce flow of silt into the Upper Jhelum Canal (UJC). The New Bong Escape was constructed as part of Mangla Dam in 1967 to pass releases from the Mangla Power House back to the River Jhelum. The Project is a low head hydropower scheme and is strictly run-of-the-river without any storage or new reservoir. The key components of the Project include intake, headrace channel, powerhouse complex, tailrace channel, switchyard, interconnection facility, road-bridge and subsidiary outfall structure and are shown in the figure below.
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The Project headrace inlet is taken from the Bong Pond (tail end of the Bong Canal).The concrete lined headrace of some 2,000 feet leads into the intake and powerhouse; discharges from the powerhouse are conveyed into the tailrace which feeds back into the River Jhelum. The physical location of the Project o o is 73 4243.14 E (Longitude) and 33 0521.02 N (Latitutde).
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A.4.2. Category(ies) of project activity: >> Scope Number 1 Sectorial Scope Energy Industries(renewable and non-renewable sources) Approved Consolidated Methodology ACM0002 Version Number 6
A.4.3. Technology to be employed by the project activity: >> The Projects hydropower potential is derived from the water flow from the Mangla reservoir drawn through Mangla Powerhouse into the Bong Canal (tailrace of Mangla powerhouse) and a natural fall at the New Bong Escape some 7.5 km downstream of the Mangla Powerhouse. Discharge of River
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Jhelum, one of the five major rivers flowing through Kashmir into Pakistans Punjab (land of the 5 rivers) has been measured since 1922 and shows a stable average annual river flow of about 23 MAF. The Project feasibility was carried out by leading local engineering consultants Pakistan Engineering Services with due diligence and updates by Harza International Inc and Montgomery Watson Harza, USA. The site is easily accessible through metalled roads and does not require development of any additional infrastructure. Both pit-type horizontal Kaplan units and horizontal bulb turbines are suitable for low head run-of-river hydropower projects and are more economical than vertical Kaplan configuration. Bulb units have high efficiency, low maintenance and are suitable for such sites with low head, large and variable water flow. Low head bulb turbines represent mature and robust technology and have a higher efficiency, quicker erection time, lower civil work costs and easier accessibility for maintenance. Accordingly, the power potential will be harnessed through installation of four low speed bulb-turbine units and synchronous direct drive generators within the bulb housing which, together with transformers and balance of electrical/powerhouse plant will provide basis of the generating equipment. The selected bulb turbine/generators will operate at about 100 rpm and are expected to have a long operating life. The low-maintenance units are considered environmentally safe and reliable. The technology and know how for manufacture of hydro turbine-generators is not available in Pakistan and accordingly it is proposed to procure the bulb units governing/excitation systems, protection, automation and control systems from Alstom Power Hydro or other leading supplier. The selected plant is backed by well proven and mature technology. The balance of electrical plant including transformers will be procured from ABB, Siemens or one of the other leading international suppliers. The direct-drive generator placed within the turbine housing will have a rated capacity of about 23 MVA and generators will be insulated with a class F temperature rating to handle the overload condition without undue stress. The unit transformers with 10 percent higher than the generator capacity are recommended to accommodate the anticipated overloads. The stop start capability of the plant will exceed 500 per annum to match with Mangla Power House. The obligations regarding training, personnel and maintenance efforts are covered in several of the project documents and comprise a robust set of contractual obligations of the Company and/ or its Contractors. The project O&M Contract will be entered into with O&M Energy, Spain, a wholly owned subsidiary of Union Fenosa, 3rd largest utility of Spain. A comprehensive and detailed O&M contract has been negotiated which covers manpower requirements. As Pakistan has significant public sector hydropower projects there is a large local resource of trained manpower. The strategy adopted by the O&M Operator would be to base the O&M team upon local resources with backup support from Spain expatriates posted at the plant. The provisions for manpower, training, health, safety, environment and emergencies is adequately covered in the contract both during construction phase and operations phase. The EPC Contract contains provisions regarding training for operations and maintenance and the EPC Contractor will be responsible for creating the interface between the equipment supplier and the O&M operator and training activities. The Project Management Plan structure, details and organization of the project owners administration, including, staff training, health, safety and environment. The Power Purchase Agreement covers obligation of the Company to employ qualified personnel and to comply with prudent utility practices. Representations and Warrantees creates covenants for the company to operate and maintain the complex in accordance with sound engineering practices and prudent utility practices; finally the companys failure to operate, maintain, modify or repair the complex in accordance with the prudent utility practices would be considered a company event of default leading to termination of the PPA.
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Concept Design The key components of the Project include intake, headrace channel, powerhouse complex, tailrace channel, switchyard, interconnection facility, road-bridge and subsidiary outfall structure. The switchyard will provide connectivity with the double circuit in-out arrangement with the two existing 132 kV Mangla-Kharian transmission lines pass over the Project Site and connected to the grid system. For location of the transmission line please refer to figure provided in Section A 4.1.4. All the power generated by the Project will be sold to the National Transmission and Despatch Company (NTDC) under a long term power purchase agreement with a 25 year term. A.4.4. Estimated amount of emission reductions over the chosen crediting period:
Years
For the period/year ended June 30th
Annual estimation of emission reductions In tonnes of CO2e 164,241 218,988 218,988 218,988 218,988 218,988 218,988 54,747 1,532,916 7 218,988
2010-2011 (01/10/2010 to 30/06/2011) 9 months 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 (01/07/2017 to 30/09/2017) 3 months end of 1st crediting period Total estimated reductions for first crediting period (tonnes of CO2e) Total number of crediting years Annual average over the first crediting period of Estimated reductions (tonnes of CO2e)
Note: Split-years are computed on a pro-rata basis with annual CERs. A.4.5. Public funding of the project activity: >> The project activity does not involve any public funding from Annex 1 countries SECTION B. Application of a baseline and monitoring methodology: B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: >> Title: Consolidated baseline methodology for grid connected electricity generation from renewable sources; Tool for demonstration and assessment of additionality agreed by the CDM Executive Board; Approved consolidated monitoring methodology ACM0002 (Version 6) consolidated monitoring methodology for zero emissions grid connected electricity generation from renewable sources
B.2. Justification of the choice of the methodology and why it is applicable to the project activity:
CDM Executive Board >> The approved methodology ACM0002 covers: a)
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Consolidated baseline methodology for grid connected electricity generation from renewable sources; and Consolidated monitoring methodology for zero emissions grid connected electricity generation from renewable sources
b)
The approved methodology is applicable to grid connected renewable power generation activities and is applicable to the proposed project because it meets all the applicability criteria stated in the methodology and the project activity meets all the conditions stated in the methodology; which are: The project activity is a run-of-river hydropower plant without any impoundment or storage; The project activity displaces fossil fuel based electricity generation in the national grid; It is not a project activity which involves switching from fossil fuels to renewable energy at the project site; and The geographic and system boundaries for the relevant electricity grid can be clearly identified and information and characteristics of the grid is available. Accordingly the project activity is in accordance with and falls under applicability of methodology ACM0002 (Version 6). B.3. Description of how the sources and gases included in the project boundary: >> ACM0002 Methodology provides that for the baseline determination project participants shall only account CO2 emissions from electricity generation in fossil fuel fired power that is displaced due to project activity. Therefore, only CO2 from combustion in fossil fuel fired units connected to the national grid is considered in the baseline. Source Emissions from fossil fired power generation supplied to the national grid (gas, oil, diesel & coal) Run- of- the river emission free hydropower project Gas CO2 CH4 Included/ Not included Included Not Included Justification / Explanation Carbon emissions from grid electricity generation through use of hydrocarbons Not relevant/ Not identified in baseline methodology Not relevant/ Not identified in baseline methodology Zero emissions from project activity Zero emissions from project activity
Baseline
N2O Not Included CO2 CH4 Not Included Not Included
Project Activity
N2O Not Included
Zero emissions from project activity
The spatial extent of the project boundary includes the project site and all power plants connected
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physically to the electricity system that the Project is connected to i.e. national grid. Pakistan comprises two distinct grids (a) the national grid; and (b) the Karachi Electricity Supply Company (KESC) grid. Each grid has its own independent despatch centre, generation and distribution system. Though interconnected for occasional supply from the national grid to KESC which ranges from 400-600 MW, there are no material interdependencies between the two grids. The generating plants for each grid are clearly identifiable and data for each grid is available. By separating KESC generation (100% thermal) the emission factors for the national grid (thermal + hydro) are broadly reduced, providing a correct and conservative estimate of the impact of the new plant on emissions. At present, no imports or exports occur in the project system because national grid is not linked to any other foreign electricity system. Power projects that feed into the national grid can be built almost anywhere in the country and can be dispatched without significant transmission constraints provided that transmission facilities are available. B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: >> The approved consolidated baseline methodology ACM0002 Consolidated baseline methodology for grid-connected electricity generation from renewable sources recommends an analytical approach whereby the following options should be considered: (a) Existing, actual or historical emissions as applicable; or (b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment. The approved consolidated methodology further prescribes that the baseline scenario for project activities that do not modify or retrofit an existing electricity generation facility is: Electricity delivered to the grid by the project would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources The Project activity is generation of electricity from renewable energy sources. The electricity generated from the run-of-the new river hydropower plant has zero emissions, there is no material leakage and the Project generation will be fed into the fossil intensive national grid through the interconnection facility at the site. The grid in Pakistan is predominantly thermal and over 70% comprises gas and oil based generation. Heavily subsidized gas has virtually run out and is not available for power generation forcing all forthcoming projects to be set up based on oil (with coal being designated as the fuel of choice in the longer term). It would be appropriate to state that the Project activity would directly replace oil based thermal generation i.e. reciprocating engines/steam turbines operating on furnace oil and would thus result in saving such emissions to the extent of its generation, however, in order to ensure the conservative approach it was decided to use the approved ACM0002 methodology which considers that the Project activity would replace the weighted average of the ratio of emissions in the system represented (a) the Operating Margin (OM) which is the ratio of emissions from generation of all power generating projects in the defined system over the latest three (3) year period excluding least cost/must run projects; and (b) the Build Margin (BM) which is the ratio of emissions attributable to the higher of (i) generation (MWh) from five (5) most recent power projects built or (ii) generation (MWh) of the most recently built power plants equating to 20% of the most current annual system generation.
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Both the OM and BM are the ratio of generation (MWh) with emissions (tCO2) and are weighted using specific or default weightage factor of OM=0.5 and BM=0.5. The baseline emission factor is calculated as a combined margin (CM), consisting of the operating margin (OM) and build margin (BM) emission factors. The CM based weighted average CEF of 0.46593 is computed using the OM of 0.62790 and the BM of 0.30397 computed, herein. This results in average saving of some 218,988 tCO2 per annum as applied to the projected annual power generation of 470,000 MWh over the term. Accordingly, it is proposed to present in this PDD the measurement of emissions observed when comparing the business as usual case (without the project activity) with emissions under the project (the project scenario case). The baseline emission factor (EF, y) represents a conservative estimate of emissions per kWh of grid generation and the emissions saved per kWh of the project generation. All computations are based on official data available in the public domain and published annually in the Pakistan Energy Yearbook published by the Hydrocarbon Development Institute of Pakistan, Ministry of Petroleum & Natural Resources, Government of Pakistan.
B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality): >> A step wise approach has been adopted to demonstrate and assess additionality according to the Tool for the demonstration and assessment of additionality Version 4. These steps include: Step 1-Identification of alternatives to the project activity Step 2-Investment analysis to determine that the proposed project activity is not the most economically or financially attractive; Step 3-Barrier analysis; and Step 4-Common practice analysis STEP 1 Identification of alternatives to the project activity consistent with current laws and regulations Define realistic and credible alternatives to the project activity that can be part of the baseline scenario through the following sub-steps: Sub-step 1a. Define alternatives to the Project activity:
Realistic and credible alternatives available to the project participants or similar project developers that provide outputs or services comparable with the proposed CDM activity could be: The proposed Project activity is implemented without the CDM The Project is not implemented and other alternatives are considered; Continuation of current situation (no project activity or alternatives are considered) Scenario 1 The proposed project activity is not undertaken as a CDM activity:
CDM Executive Board Without CDM assistance the following disadvantages would accrue:
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a) Project Failure: The Project would not come on stream as it would be unable to achieve the financial returns necessary to attract equity investment and secure investor interest especially keeping in view the longer construction period and greater geological risk for hydropower projects; b) Inability to achieve financial closing: Lenders already exposed to greater risks, long loan tenures, would hesitate to finance the Project owing to poor financial returns/depth in the project revenues resulting in increased lenders risk in the proposed non-recourse project finance environment; c) Failed public Listing: The intended public flotation and stock exchange listing would not achieve a satisfactory price level due to low financial returns and it would affect all subsequent public investment sentiment for private hydropower; d) Setback to development of Private Hydropower: As a precursor of private hydropower development in Pakistan, failure of the Project would effect the private hydropower sector, and impact equity investment in and debt financing of future private hydropower projects; due to the Governments reluctance to assure hydropower with an economic return compared with thermal projects, further investment in the sector will be encouraged through successful implementation of the Project and through financial viability achieved through carbon financing. Scenario 2 Other plausible and credible alternatives to the project activity that delivers outputs and on services i.e. electricity with comparable quality, properties and application are described below: Presently the Country is in a critical power shortage crisis which is evidenced by recent blackouts, burnouts and load shedding. With the high growth of the economy at above 7%, there is consequential rapid growth of power demand of approx 6-7% per annum It is anticipated that there will be a shortage of some 1,000 MW per annum from 2007 onwards. Based on this fact, the Project Participants selected the proposed project activity as against the other alternatives available which are briefly described as follows: Real and credible alternatives to the project activity are considered and discussed below: (a) Rented oil/gas based power plants Crisis management is forcing the Government to seek expensive rental contracts and Power Purchaser has awarded 3-year rental contracts for GE and Alstom plants. These are based on open-cycle, fuel inefficient and high carbon emitting technologies. Once the capacity shortfall is filled through such means, hydropower projects continue to suffer from institutional neglect (b) Implementation of CCGT gas or DG set oil based generation projects in the public sector This may be a quick short term fix as it flies in the face of de-bundling of the power sector, proposed and funded by the WB and ADB and causes dysfunctional policy. (c) Implementation of CCGT gas or DG set oil based generation projects in the private sector This appears to be the most preferred alternative as thermal independent power producers (IPPs) are being invited to set up fossil intensive gas/oil based projects but will once again cause increased emissions. (d) Implementation of similar small/medium hydropower schemes Some hydel IPPs are under development but the gestation period would be very long to be a practical alternative to mitigate the current and increasing power shortages;
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(e) Implementation of large mega hydropower schemes in the public sector Some mega hydropower projects like Bhasha and Kalabagh are under consideration in the public sector but they also suffer from timing issues; already delayed by some 20 years they would take at least 15-20 years to implement at great financial and social cost due to large reservoirs and massive displacement of human habitation. (f) Other renewables like wind, solar are developed. There are a number of wind projects under development but they suffer from (a) located in the south of the country far from the load centre in mid country; lack of transmission infrastructure and intermittent nature of supply and consequent low capacity value of such projects; there is hardly any significant solar power development in the Country. Scenario 3 If applicable, continuation of the current situation (no project activity or other alternatives undertaken): This option appears highly unlikely if not impossible. The country faces daunting power shortages with a capacity shortfall of some 1,000 MW per year from 2007 onwards. As the Project is budgeted as part of the generation plan non-implementation of the Project will make it imperative for the Government to plan and implement an alternative fossil fuel intensive thermal project (which is the baseline scenario). In this situation the national grid will be deprived of ecologically friendly and non polluting hydropower. Outcome of Step 1a: Realistic and credible alternatives to the Project activity are Ser 1, 2 and 3 of the above table under Scenario 2. Sub-step 1b. Enforcement with applicable laws and regulations: All the alternatives are in compliance with all mandatory applicable legal and regulatory requirements. Outcome of Step 1b: The alternatives to the Project activity are in compliance with applicable legal and regulatory requirements. Tools for demonstration and assessment of additionality provide that Project participants can use either investment analysis or barrier analysis step. They may, if they so wish, use both investment and barrier analysis step. For the purposes of this Project participants have decided to use both investment and barrier analysis steps. Based on this understanding we can now proceed to Step 2 (Investment analysis) and Step 3 (Barrier analysis): STEP 2 Investment analysis Sub-step 2a Determine appropriate analysis method After studying the options that are available to analyze additionality i.e. simple cost analysis, investment comparison analysis and benchmark analysis, it has been concluded that benchmark analysis is the most appropriate methodology for Project because the evaluation criterion that was used by the Project Parties in their decision was benchmark analysis. The simple cost is not appropriate since the project activity produces economic benefits in the form of revenues from the sale of electricity in addition to CDM related income.
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In order to determine whether the proposed Project is economically and financially attractive without the revenue from the sale of CERs, Option III Apply benchmark analysis, is completed below. Sub-step 2b Option III Apply benchmark analysis Equity Internal Rate of Return (IRR) is considered the most suitable financial indicator for the Project. As suggested in the tool for the demonstration and assessment of additionality, the Project IRR will be used to analyse the financial situation of the Project. Further, the equity IRR will also be analysed to evaluate and justify investor interest. Considering the bank interest rates of above 10% and risk free rate on Government securities and bond above 10%, the cost of money in Pakistan is high. The Government has fixed IRR returns for thermal private power projects as 15% and keeping in view that hydel projects have greater construction risks and longer construction period and PPA under Section 4.2(b) of Schedule 6 allows a return of 16% indexed to protect for inflation and exchange rate fluctuations, the hurdle Equity IRR baseline is also considered as minimum16%. It may also be noted here that Policy Framework and Package of Incentives for Private Sector Power Generation Projects in Pakistan of 1994 provides that For hydro projects exceeding 20 MW, the tariff will be decided on project to project basis on a 25% return on equity (Ref: Para C-1) It may be further added that, due to dysfunctional policy and institutional bias against private hydropower, despite strong representations, the project currently continues to be deprived of (a) EPC cost adjustment in tariff at financial close; (b) indexation from date of establishment/announcement of tariff (1995); and pass through for certain critical costs (e.g. insurance); such concessions are freely available to thermal projects. The Project is commercially unviable without CDM revenue and the returns and financial indicators will render the Project un-fundable and it would be close to impossible to attract equity investment into an enterprise with high country and project risk while returns are low; implementation is thus dependent on CDM registration. The Project Company is negotiating for advance payment against forward sale of CERs generated by the project (up to 31/12/2012) with the leading international carbon fund to partly finance Project construction cost. Sub-step 2c- Calculation and comparison of financial indicators Calculate the suitable financial indicators for the proposed CDM Project activity It may be noted that due to delays in project development (please see Step 3(a) part (ii) for details) there has been continuous changes in project fundamentals and dynamics including but not limited to project cost, generating capacity and tariff ever since 2001 when Company accepted the tariff of US cents 3.336 at then prevailing assumptions and costs. To ensure transparency and consistency project financial analysis is carried out based on the cost and assumption prevailing in 2001 and in 2007 (Project Start Date). The financial details for the Project are listed in the table below: (i) On the assumptions of Year 2001 Item Financial Details Total Project Cost Tariff agreed with Power Purchaser (levelized) Plant Capacity US$ 97.42 million US 3.3360 / kWh 79MW
Value
CDM Executive Board Annual Generation Project Life (term) Financial Results Actual IRR without CDM revenue 11.70 % IRR with CDM revenue 17.78% Assumptions and Financial Analysis are attached as Annex 5. 426 GWh 25 Years
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Hurdle Rate 16.00 % 16.00 %
(ii) On the assumptions of Year 2007 (based on the current offered tariff of US cents 4.70) Item Financial Details Total Project Cost Tariff agreed with Power Purchaser (levelized) Annual Generation (36 years historic hydrology) Project Life (term) Financial Results Actual IRR without CDM revenue 13.95 % IRR with CDM revenue 16.87% Assumptions and Financial Analysis are attached as Annex - 6 Sub-step 2d Sensitivity Analysis (based on the current proposed tariff of US cents 4.7) IRR Ser Possibility
Without CDM
Value US$ 152.74 million US 4.70 / kWh 470 GWh 25 Years Hurdle Rate 16 % 16 %
With CDM
Hurdle Rate
1 2 3 4 5. 6 7. 8.
Base Case 10% increase in O&M 10% decrease in O&M 10% Project cost overrun 10% decrease in Project Cost 10% increase in O&M and 10% construction cost overrun 10% increase in Annual Generation 10% decrease in Annual Generation
13.95 % 13.62 % 14.27 % 12.25 % 15.52 % 11.88 % 14.18 % 13.95 %
16.87 % 16.63% 17.10% 15.52% 18.39% 15.25% 17.04% 16.87 %
16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00%
The analysis demonstrates that without CDM income the financial results significantly lag behind acceptable IRR on the cost and assumptions prevailing both in 2001 and 2007 and availability of CDM income takes the Project financial results above the hurdle IRR rate. Sensitivity analysis have been carried out for current costs and assumptions which shows that in case of increase in O&M costs by 10% (ser 2 above) or increase in project cost by 10% (ser 4 above), in the presence of CER income the
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acceptable IRR is maintained. In case where both increase in O&M cost and project cost occurs (ser 6 above) it is seen that, in the presence of CER income, the return falls marginally below the hurdle rate of 16%, however, without such income the project becomes unviable. Decrease in project cost and/or decrease in O&M Cost is unlikely as for typical project financing such costs are based on fixed price contracts, however, in the later paragraph sensitivity analysis has been provided to achieve benchmark without CDM income based on the assumptions of substantial reduction in project and O&M cost. Increase in the project cost is unlikely due to the following reasons: (a) the project construction arrangements are based on a tightly structured EPC contract approved by non-recourse lenders and based on a special FIDIC licensed version of EPC contract which requires fixed price and time certain completion; and (b) In the unlikely event of any variation orders, the project cost includes sufficient contingency to provide for up to about 5% project cost increase. The decreased generation by 10% (ser 8 above) has no impact on IRR because of assured minimum monthly amount every month; however the increased generation may increase the IRR for the Project as the amended and restated Power Purchase Agreement provides nominal tariff i.e. 10% of Minimum Energy Purchase Price for any excess energy above Average Energy of 470 GWh. The increased generation by 10% (ser 7 above) has therefore increased the IRR by (0.23%.) which is very nominal. Furthermore, Benchmark of 16% can be achieved if there is 100% increase in energy generation i.e. 940 GWh, which is not a practical scenario. Benchmark of 16% (without CDM income) can be achieved if the project cost is reduced to US$ 132.62 million from projected cost of US$ 152.74 million. A reduction of US$ 20.12 million is highly unlikely to occur due to exploding cost of construction materials, labour and fuel as it is a struggle just to maintain costs. Similarly, by reducing the O&M expenses to US$ 0.88 million from US$ 3 million annually will give the required benchmark of 16%, a 70% reduction in O&M expenses is practically impossible. Full details and spreadsheets of the financial workings are available upon request Supporting arguments for additionality In addition to well imbedded institutional barriers, country risk, preference for nominally cheaper thermal power capacity and weak commercial viability without CER income, as a hydropower project with a high civil works cost component, the Project is also subject to the following risk factors: Construction completion risk; Geological surprises, especially dewatering in the river bed; Technology, design and performance risk Though the Project is attractive due to low environmental and social impact and the beneficial environmental impact upon completion, the low IRR (without CER income), high-perceived country risk and project location in the AJ&K, nominally considered as disputed territory is such that implementation is only possible with CDM assistance. STEP 3- Barrier analysis
CDM Executive Board If this is used, determine whether the proposed project activity faces barriers that: (a) Prevent the implementation of this type of proposed project activity; and (b) Do not prevent the implementation of at least one of the alternatives.
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Sub-step: 3a- Identify barriers that would prevent the implementation of the proposed Project activity. 1. Establish that there are realistic and credible barriers that would prevent the implementation of the proposed project activity from being carried out if the project activity was not registered as a CDM activity. Such realistic and credible barriers may include, among others: Investment barriers, other than the economic/financial barriers in Step 2 above, inter alia: o For alternatives undertaken and operated by private entities: Similar activities have only been implemented with grants or other non-commercial finance terms. Similar activities are defined as activities that rely on a broadly similar technology or practices, are of a similar scale, take place in a comparable environment with respect to regulatory framework. No private capital is available from domestic or international capital markets due to real or perceived risks associated with investment in the country where the proposed CDM project activity is to be implemented, as demonstrated by the credit rating of the country or other country investments reports of reputed origin.
There are currently 14 hydropower plants despatching electricity to the national grid. All these projects are owned by public sector. There is no private hydropower project supplying electricity to the grid. The Project is first ever-private hydropower Project of the country. In Pakistan availability of project financing and access to international capital markets is greatly affected by the investment barriers. The investment barriers not only make non-recourse financing in Pakistan more difficult to secure but also make the terms and conditions of the debt more onerous. In the context of the above following barriers are considered relevant for the Project: (i) high upfront capital cost; scarcity of debt with sufficiently long tenure to support longer hydropower construction period and mitigate impact on tariff of high capital cost, completion risk, country risk, location risk and implementation risk; (ii) institutional barriers including discouragement of private sector competition with public sector and refusal to give a commercially reasonable tariff to hydropower projects (a tariff set in 1995 was withdrawn from 1997 to 2006 and re-instated when such 12-year old tariff had become irrelevant); (iii) Geological/Civil Risks; (iv) Scheduling Risk; and (v) Non Recourse Risk. i. High Costs of Capital High costs of capital are the result of scarcity of financial resources for activities such as hydro power Project development, originated by the perception of Pakistan as a risky country by foreign investors. Low head hydropower projects based on bulb turbines are relatively expensive due to large size of plant. Development and implementation of such projects by the public sector in Pakistan at cost US$ 2.4 million per MW (e.g. 184 MW Chashma low head project) and equivalent tariff of US 6 per kWh. These points will be elaborated in this section; i.a Country risk This may be measured by the sovereign ratings of International Credit Rating Agencies. The table below is reproduced from the data taken by The Political Risk Survey (PRS) Group ratings. (http://www.prsgroup.com/icrg/sampletable.html) this data shows the relative risk of country with
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respect to other Asian countries. The countries with in range of 51-100 are declared as less risky and from 0-49 as high-risk countries by PRS. COUNTRY RISK RATINGS CURRENT RATINGS COUNTRY Political Risk
March 2005
COMPOSITE RATINGS Year Ago

April 2004
Financial Risk
March 2005
Economic Risk
March 2005
Year Current
March 2005
China, Peoples' Rep. India Indonesia Japan Korea, Republic Malaysia Pakistan Philippines Singapore Taiwan Thailand i.b
69.0 63.0 52.0 83.0 77.0 76.0 43.5 65.0 84.5 77.5 68.0
45.5 44.5 38.0 47.0 42.5 41.5 37.5 36.0 45.0 46.0 41.5
38.5 36.0 37.0 39.0 43.5 40.5 34.5 36.5 47.0 42.5 38.0
77.0 72.0 61.5 86.3 79.8 80.0 64.0 69.0 87.8 81.8 76.5
76.5 71.8 63.5 84.5 81.5 79.0 57.8 68.8 88.3 83.0 73.8
Scarce Foreign Direct Investment.
Pakistan actively seeks foreign investment and government investment liberalization initiatives begun in 1992 and have progressively opened Pakistan to foreign investment, offering broad arrays of incentives to attract new capital inflows. Notwithstanding this pro-investment stance, foreign direct investment (FDI) activity remains relatively modest due to significant security threats to foreign interests in Pakistan; concerns about political instability; inadequate infrastructure; delays in the privatization of state-owned enterprises; past protracted disputes between foreign investors and the government; piracy of intellectual property, arbitrary and non-transparent application of government regulations; and resistance to the adoption of new policies by some elements of federal and provincial bureaucracies who have not yet fully adjusted to the new, more open economic environment. All of these factors created perceptions of Pakistan as a high risk country, resulting in low levels of foreign investment, particularly in the capital intensive electric, gas and water Projects, as can be appreciated in the Tables below.
ASIA: FOREIGN DIRECT INVESTMENT 1999-00 82.2 38.6 2001-02 64.5 46.8 US$ Billion 2002-03 79.2 52.7 2003-04 80.4 51.0 2004-05 90.0 54.9 % Of GDP 1.0 3.4
Asia Total China
CDM Executive Board Korea Japan Singapore India Malaysia Taiwan Thailand Pakistan Indonesia Philippines 9.3 11.9 10.2 2.9 3.8 9.3 4.8 0.46 -3.6 0.4 3.0 7.5 -2.9 5.5 1.9 2.8 2.4 0.48 -2.9 0.4 0.2 9.2 1.7 3.6 1.2 1.4 0.8 0.7 0.1 1.0 5.9 6.5 5.5 5.0 3.5 1.2 1.5 0.94 0.2 0.1 8.2 7.4 5.4 5.3 5.6 1.9 1.1 0.89 1.0 0.1
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1.2 0.2 5.0 0.8 3.9 0.6 0.7 0.8 0.4 0.1
Source: JPMorgan
i.c
Low levels of foreign investment translate into scarcity of capital and high interest rates
The reference rate for credit operations has been nominated by the Central Bank, State Bank of Pakistan as KIBOR (Karachi Inter bank Offered Rate). KIBOR which reflects the market liquidity and other factors such as core inflation is currently quoted above 10%. The operations of domestic banks are not directed towards infrastructure development and have more of an emphasis on consumer finance. Such banks are mainly engaged in short to mid-term financing and, therefore the offered interest rates, are not compatible with the requirements of capital-intensive hydroelectric projects, which present significant up-front investments and long payback periods. Capital-intensive projects with long payback period, such as hydroelectric projects require long-term credits for their development. However, the Pakistani government has not been able to attract those investments due to its high Country risk classification. Also, no long-term finance has been provided by international creditors to the Pakistani government, forcing the Country to rollover its external debts at very short terms. Governments are major provider of log-term money to the local banks within developing countries. The lack of credit of the Pakistani government is directly reflected in the scarcity of long-term loans available for private companies in Pakistan. i.d Local savings
Pakistan suffers from a low rate of domestic savings and the saving rate per capita in Pakistan is very low as compared to other countries in Asia. ii. Institutional Barriers
Private hydropower in Pakistan has had a very mixed past. Hydropower development has been the sole prerogative of the public sector that has focused more on mega dam/storage projects and in its time Pakistan has constructed some of the largest dams in the world e.g. Mangla, Tarbela and Warsak which total approx 4,700 MW represented over 70% of the total developed hydropower capacity in Pakistan. Private power developers were invited to participate in power project development under the 1994 Power Policy; however, the policy attracted interest only from thermal power developers. Fourteen projects totaling over 3,000 MW came on ground but not a single application was received for hydropower.
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In 1995 in an attempt to attract interest from hydropower developers the Government brought out the Policy Framework and Package of Incentives for Private Sector Hydel Power Generation Projects in Pakistan; dated May 1995. Letters of support were issued for some 29 hydropower projects totaling 1,684 MW allowing sponsors to complete feasibility studies, design, finance and construct the projects; however, in the past 11 years not a single hydropower project could come on stream. The major reason for this failure was the refusal of the power purchaser to offer a commercially reasonable tariff; in fact the upfront tariff of 4.7 US cents offered in the 1995 Hydel Policy and forming basis of agreement with developers under the Letters of Support remained withdrawn from 1997 to 2006 effectively causing default of the agreements. Developers negotiating financial close got stalled and the banks that had based the financial model on a tariff of 4.7 cents refused to finance the projects. The upfront policy tariff had provided a predictable environment which dispensed with the need for protracted tariff negotiations; reversal of the policy meant that developers were once again at the mercy of the power purchaser and long protracted negotiations led nowhere. From 1998 to 2001 the companies were stuck in endless negotiations and the power purchaser was not ready to offer more than 2.5 cents per kWh, wrongly claiming that that was the cost of hydel generation in the public sector. Finally in 2001 the power purchaser offered a levelized tariff of US 3.1 (excluding water use charges) which Laraib was constrained to accept vide MOU dated 21/12/2001 placing a heavy reliance on potential CDM revenue to bolster the commercial viability of the project. Most hydropower developers abandoned the projects and left the field leaving a few determined and obstinate developers to face the challenges. The power purchaser continued to retard hydropower development through failure to recognize real capital cost of hydropower projects and inappropriate financial assumptions. In 2002, Iqbal Power Limited, developer of the 132 MW Rajdhani hydropower project, with totally different project fundamentals, followed suit and succumbed to same tariff of US 3.1 per kWh, entering into MOU with WAPDA once again heavily relying on CDM revenue to secure its commercial viability. Despite the clear commitment in the 1995 Hydel Policy and in contrast with thermal projects, investors were not provided a standard set of concession documents for hydropower and it fell upon Laraib to initiate preparation of custom designed hydropower concession documents namely the PPA, IA, WUA etc for its own use and by default for forthcoming hydropower projects too. It took some three years for this process while the power purchaser continued in its refusal to consider any revision of the tariff of US 3.1 per kWh to reflect significant cost increases over this period. Finally on 16/04/2004 the company decided to sign the concession documents at the same tariff US 3.1 per kWh with ever slipping commercial viability despite the potential CDM income. However, this move was necessary to secure the companys interests and move on with other project development activities. The absolute need for CDM income was recognized and included in the concession documents to ensure that the company would be able to secure such income. Without the expectation of such income at that time the project would be abandoned as the tariff of US 3.1 per kWh would render the project financially and commercially unviable. In the two years after signing the concession documents the company made notable progress and attracted the interest of international banks ADB and IDB who lent strong support to the project to meet the challenge with governmental entities. These developmental banks found the
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project to be viable, subject to revenue sufficiency (tariff and CER revenue); they appreciated the determination of the sponsors to battle on for so many years; and also saw an opportunity to help in correcting dysfunctional government policy. In August 2005, the Company applied to the Government for a tariff revision justified on basis of massive cost increases in building materials, steel, copper and plant costs. A tariff proposal based on 2005 price level and assumptions was submitted requesting a tariff of US 4.81 per kWh (excluding water use charges) or US 5.03 per kWh (including water use charges) based on project cost of US$148 million was submitted to the Ministry of Water & Power on 07/09/2005. Thereafter, the Company embarked on a long process of interaction, presentations and petitions with the PPIB, Ministry of Water & Power and the power purchaser who still opposed any form of tariff revision; however by this time the Company managed to solicit Government support who decided that they were unable to accede to the Companys proposal but agreed to restore the Policy tariff US 4.7 per kWh (fixed over a decade ago), without any adjustment or indexation for the significant cost increases in this period. Once again project commercial viability relied to a great degree on the restored tariff supplemented by CDM revenue. iii. Geological/Civil Risk
Though high head hydropower projects are exposed to substantial civil works risk, however, unlike such hydropower projects the Project is exposed to considerable civil works risk on account of the excavation and dewatering of 30 meter for powerhouse foundations where there is a potential risk of failure of dewatering due to underground geological conditions and possibility of flooding before completion of the powerhouse construction. Further, the 7 KM tailrace channel has similar dewatering and side slope stability risks attached to it. iv. Scheduling/Project Completion Risk
The development and construction schedule of New Bong Escape Hydropower Project faces barriers not encountered by alternative thermal generation projects in Pakistan. The construction period of the Project is significantly greater than the alternative thermal projects. An extended construction period creates increased exposure to the adverse conditions, increased exposure to construction risks and increase in development and financing costs. Unlike alternatives and other hydropower projects in public sector the Project is under obligation under the terms of the PPA to achieve COD within 39 months of the construction start which keeping in view the geological/civil risk is very challenging to achieve and extended delays in COD may cause termination of the PPA thus failure of the Project. v. Non Recourse Risk
In developing countries, it is common for project lenders to establish a security interest in the Projects assets. Typically the security interest gives the lenders the ability to foreclose on the security and remove project assets in the event of a default on the project loan. This is a viable option for lenders in situations where capacity increments are satisfied by thermal generation units combustion turbines or reciprocating engines are relatively easy to relocate. In the case of the Project, this obviously was not an option - the Project assets are specifically made for the Project and are immovable, therefore the assets have very little salvage value. In the event of a default, lender recourse is limited to either operate or not operate the Project, or sell it as a distressed asset.
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The above investment barriers have directly impacted the ability of the Company to negotiate and finalize favourable terms and condition in the financing documents. Projects lenders, being aware of the country risks and project specific risks, nonetheless showed real interest in the Project. Following are the examples of some financing terms offered and agreed by the Company which reveals the greater risk perception about the Project by the lenders: The requirement of the lenders to provide cost overrun support of US$ 11 million by the shareholders which if needed by the Project will seriously damage the returns of the shareholders. This term is indicative of the high degree of Project completion risk. Interest rate spread especially from local banks was considered higher compared with the market. The higher pricing indicates that the lenders considered the Project to be risky and wanted to be compensated for accepting additional risks. A date certain for the commencement of principal repayments which limits the lenders exposure to delay in project completion. Inability of the Company to distribute dividends if there is any change in insurance plan which shows that lenders are heavily relying on insurance arrangements to cover the risks of the Project. Very high upfront fee charged by local lenders compared with alternative projects in Pakistan due to higher risk and longest tenure ever provided. The risks identified above, in the absence of CDM registration, will seriously impact the financial viability of the Project. The above barriers to investment were considered by the shareholders but the benefits of CDM participation helped to counter these concerns. Technological barriers, inter alia: o Skilled and/or properly trained labour to operate and maintain the technology is not easily available. Though Pakistan has significant public sector hydropower projects there is a large local resource of trained manpower, however, it is very difficult to relocate experienced people from Government jobs.
Barriers due to prevailing practice, inter alia: o The Project activity is the first of its kind. The project activities of this type are currently operational in public sector only which is altogether a different regime as far as risk perception is concerned.
Scarcity of loans as shown in item i.c, coupled with low local savings rates (i.e. lack of equity) as per item i.d, result in lack of capital for private investments, non-availability of commercially viable tariff as per item ii, geological/civil risks, scheduling risks and lesser security interests for lenders due to difficult relocation and heavy civil works. The above-mentioned factors explain the absence of private hydroelectric plants in Pakistan. Sub-step: 3b Show that the identified barriers would not prevent the implementation of at least one of the alternatives (except the proposed project activity) 2. If the identified barriers also affect other alternatives, explain how they are affected less strongly than they affect the proposed project activity. In other words, explain how the identified
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barriers are not preventing the implementation of at least one of the alternatives. Any alternative that would be prevented by the barriers identified in Sub-step 3a is not a viable alternative, and shall be eliminated from consideration. At least one viable alternative shall be identified. In this section we will demonstrate that while some of the same barriers generally exist for alternative projects, however their influence on those projects is greatly reduced and in most cases non-existent. i. High Cost of Capital While it is acknowledged that all infrastructure projects in Pakistan are affected by the country risk, scarce foreign direct investment and local savings, the degree of risk varies from project to project. Projects that are less capital intensive and have shorter development and construction period are less prone to effects of such risks. Alternative projects in Pakistan are less capital intensive on per kilowatt basis (thermal projects can be set up at half the cost), and can be put into operation much more quickly than run-of-river hydropower project, thereby, lowering their exposure to country risk. ii. Institutional Barriers
Unlike hydropower for which tariff was non-existent/suspend for a decade, alternative thermal projects in Pakistan had a well established tariff framework during this period. From 1994 to 2002, tariff under Power Policy 1994 was available to such thermal projects and some 15 IPPs were commissioned in Pakistan during this period. From 2002 onward the Power Policy 2002 provided tariff guidelines and the regulator, NEPRA announced upfront as well as cost-plus tariffs of around 11 alternative thermal projects during this period. Two of these thermal projects based on combined cycle gas technology have already achieved financial close, with others are expected shortly. Furthermore tariff determinations by NEPRA assured the IRR of 15% for all alternative thermal projects opting for cost plus tariff. iii. Geological/Civil Risk
The Project is a run-of-the-river low head hydropower project constructed in the river bed with a 7-km tailrace under the round water level. Underground flood control, diversion of existing river, de-watering and side slop stability of tailrace is a major risk.
On the other hand, thermal projects are not exposed to any civil/geological risks and have a relatively low content of civil woks. Such projects not only enjoy easy site access but typically present few challenges with regard to site topography and conformation. Civil works are largely a matter of clearing and grading. iv. Scheduling/Project Completion Risk
The time period to develop and construct an alternative thermal project is significantly less than that required to develop and construct a hydropower project. A typical simple cycle thermal project can be developed in 3-4 years including construction, whereas a hydropower project could take 8-10 years. Consequently risk associated with time is significantly reduced. Similarly hydropower projects under public sector are not under obligation to complete the project in given timeframe as required for this project under the terms of PPA. v. Non Recourse Risk
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Alternative Thermal projects, especially the simple cycle projects provide lenders with tangible assets that can be pledged as security and seized and relocated in the event of default. The combustion turbine/power island represents the majority of project assets. The class of turbines typically used to provide incremental capacity in Pakistan is relatively easy to relocate. This provides lenders with a recourse option unavailable to those who would fund a hydro project, and lowers the overall project risk profile accordingly. As the risk analysis amply demonstrates, the various risk-related barriers identified for hydropower including the New Bong Escape Hydropower Project have much less impact on the alternative thermal plants in every case. To our knowledge, no alternative project in Pakistan has been nor should be prevented from implementation due to the barriers identified in this review. On the other hand, all the identified risks not only have the potential to significantly impact hydropower development but have actually and practically affected the New Bong Escape Hydropower and other hydropower Projects. 3. In applying sub-steps 3a and 3b, provide transparent and documented evidence, and offer conservative interpretations of this documented evidence, as to how it demonstrates the existence and significance of the identified barriers and whether alternatives are prevented by these barriers. Anecdotal evidence can be included, but alone is not sufficient proof of barriers. The type of evidence to be provided should include at least one of the following: (a) Relevant legislation, regulatory information or industry norms; (b) Relevant (sectoral) studies or surveys (e.g. market surveys, technology studies, etc) undertaken by universities, research institutions, industry associations, companies, bilateral/multilateral institutions, etc; (c) Relevant statistical data from national or international statistics; (d) Documentation of relevant market data (e.g. market prices, tariffs, rules); (e) Written documentation from the company or institution developing or implementing the CDM project activity or the CDM project developer, such as minutes from Board meetings; (f) correspondence, feasibility studies, financial or budgetary information, etc; (g) Documents prepared by the project developer, contractors or project partners in the context of the proposed project activity or similar previous project implementations; (h) Written documentation of independent expert judgments from industry, educational institutions (e.g. universities, technical schools and training centres), industry associations and others. Documentary Evidences: (a) Cost of Chashma Hydropower Project is at US$ 2.4 million per MW (Source: WAPDA Annual Report 2000-2001) (b) Suspension of tariff for hydel power projects mentioned in 1995 Policy and restoration of Tariff in 2006. i) Cabinet Committee on Investment decision dated 27/12/1997 ii) Correspondence with WAPDA for tariff and their refusal to accept tariff iii) Memorandum of Understand between Laraib and WAPDA
CDM Executive Board iv) ECC Decision for restoration of tariff (c) NEPRA Determinations for thermal power projects providing 15% IRR (d) Extract of PPA to demonstrate allowed Equity IRR of 16.00%
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(e) Concession Documents for thermal based Projects are available on PPIB Website while for Hydel Projects these are not yet finalized. (Please refer http://www.ppib.gov.pk) The results of conducting the Step 3, Barrier Analysis and the conclusion drawn clearly demonstrate that the New Bong Escape Hydropower Project has been and continues to be subject to barriers that have had a material influence in the financing and overall development, construction and operation of the Project. We further believe that the alternative Thermal Projects are not affected by the same barriers, and that the barriers have not caused an inability for them to be implemented.
If both Sub-steps 3a 3b are satisfied, proceed to Step 4 (Common practice analysis) If one of the Sub-steps 3a 3b is not satisfied, the project activity is not additional.
STEP 4 Common practice analysis Sub-step 4a. Analyse other activities similar to the proposed project activity:
There are currently 14 hydropower plants despatching electricity to the national grid. All these projects are owned by public sector. There is no private hydropower project supplying to the grid announced by the Government for private sector development see www.ppib.gov.pk The Project is first ever-private hydropower Project of the country. Successful implementation of the Project has a major bearing on successful completion of the private hydropower projects following closely behind: Sub-step 4b Discuss any similar options that are occurring
In the absence of private hydropower and despite some major hydropower potential in the country, all activity in private power is focussed around thermal power and a selection of projects with PPAs for supply to the national grid in the next three years are shown below: Ser 1 2 3 4 5 6 7 8 9 10 12 Name Orient power Saphire Electric Saif Power Halmore Attock Power Star Thermal Fauji Mari Uch II Gujranwala Power Atlas Power Nishat Chunian TOTAL MW 225 225 225 225 150 133 150 450 225 225 200 2,433 Type CCGT CCGT CCGT CCGT CCGT CCGT CCGT CCGT Engines Engines Engines Fuel Gas /diesel Gas /diesel Gas /diesel Gas /diesel Gas /diesel Gas /diesel Gas /diesel Low BTU gas Heavy oil Heavy oil Heavy oil Completion COD Oct 2008 COD Dec 2008 COD Oct 2008 COD Dec 2008 COD Mar 2008 COD Apr 2009 COD Sep 2009 COD Nov 2009 COD Oct 2008 COD Oct 2008 COD Oct 2008
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Recent initiatives have also addressed development of hydropower projects in the private sector, however, many of the projects are plagued with local land, resettlement, environmental and tariff issues and are not expected to start supply to the national grid before 2011, except the New Bong Escape Hydropower Project. A summary of key projects is provided below: Ser 1 2 3 Name New Bong Escape Kotli Munda Dam TOTAL MW 84 96 660 840 Policy 1995 2002 2002 Status Under implementation Tariff under process Feasibility study under review Completion COD Oct 2011 COD Jun 2012 COD Jan 2014
Note: 1. The restoration of Hydel Policy tariff and other concessions initiated and successfully achieved by Laraib Energy Limited may benefit ser-1 above. 2. Ser-2 above is not feasible at the restored policy tariff
In addition, Projects announced and under development total some 4,700 MW and are in various stages of implementation, however most of these projects are still in very early stages of development and will take 6-8 years to come on stream if the complex issues relating to tariff, resettlement and a generally negative perspective towards private hydropower are resolved. Sub-steps 4a and 4b are satisfied. The New Bong Escape Hydropower Project activity does not represent common practice. Since all of the above necessary steps are satisfied, it is demonstrated that the proposed CDM activity is not part of the baseline scenario and, therefore, additional. B.6.
Emission reductions:
B.6.1. Explanation of methodology choices: >> The project activities do not modify or retrofit an existing electricity generation facility. The baseline scenario is the following: Electricity delivered to the grid by the project would have otherwise have been generated by the operation of grid-connected power plants and by the addition of new generation sources, as reflected in the combined margin (CM) calculations described below. The baseline scenario is the continuing operation of the existing thermal intensive grid and future expansion mainly through increase in capacity of the system by the addition of new fossil fuel based generation sources. In the project scenario, the same electricity demand is met with the incremental contribution of the Project electricity generation. Because the Project uses renewable sources to produce electricity, there are no additional emissions from the Project activity and emissions attributable to an equivalent thermal plant are saved. Following the Methodology, the baseline emission factor is calculated as a combined margin (CM), consisting of the simple average of the operating margin emission factor (OM) and build margin emission factor (BM) by utilizing an ex-ante 3 years data period. EFy= wOM * EFOM,y + wBM * EFBM,y
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The default weight of the wOM and wBM are 50% (i.e. wOM = wBM =50%) and EFOM,y and EFBM,y All margins are expressed in tCO2/MWh. The results show that the OM is 0.62790 The baseline emission factor is calculated using the following four steps: STEP 1 Calculate the Operating Margin Emission Factor (EFOM, y) There are 4 options for calculating OM: (a) Simple OM; or (b) Simple adjusted OM; or (c) Dispatch Data Analysis; or (d) Average OM. The methodology of choice should be Dispatch Data Analysis, however, as prescribed and allowed in the methodology the Simple OM has been selected for the following reasons: 1. The National Transmission & Dispatch Company (NTDC) of Pakistan operates the national dispatch centre but detailed hourly dispatch data is not available in the public domain. 2. Low cost must run resources constitute less than 50% of the total grid generation in average of the five most recent years. The Simple OM emission factor (EFOM,simple,y) is calculated as the generation-weighted average emissions per electricity unit (tCO2/MWh) of all generating sources serving the system, not including low-operating cost and must-run power plants:
Where: Fi,j, y is the amount of fuel i (in a mass or volume unit) consumed by relevant power sources j in year(s) y; j refers to the power sources delivering electricity to the grid, not including low-operating cost and must-run power plants, and including imports to the grid;
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COEFi,j y is the CO2 emission coefficient of fuel i (tCO2 / mass or volume unit of the fuel), taking into account the carbon content of the fuels used by relevant power sources j and the percent oxidation of the fuel in year(s) y; and GENj,y is the electricity (MWh) delivered to the grid by source j. The CO2 emission coefficient COEFi is obtained as And where:
NCVi is the net calorific value (energy content) per mass or volume unit of a fuel i, OXIDi is the oxidation factor of the fuel, EFCO2,i is the CO2 emission factor per unit of energy of the fuel i. The information has been utilized as follows: The consolidated grid system generation and energy statistics (Pakistan Energy Yearbook) have been available in Pakistan for several years and such reliable official data is available to compute the required factors. Pakistan comprises two distinct grids (a) the national grid; and (b) the Karachi Electricity Supply Company (KESC) grid. Each grid has its own independent despatch centre, generation and distribution system. Though interconnected for occasional supply from the national grid to KESC which ranges from 400-600 MW, there are no material interdependencies between the two grids. The generating plants for each grid are clearly identifiable and data for each grid is available. By separating KESC generation the emission factors for the national grid are broadly reduced, providing a correct and conservative estimate of the impact of the new plant on emissions. (a) Grid system statistics have been analyzed for five years to provide evidence for under 50% of the system being must run-least cost generation and justify use of the Simple OM method; (b) Grid system statistics have been analyzed for the most recent three years to compute the following: (i) (ii) (iii) (iv) Total generation and analysis by type by fuel used; Calorific values of the fuel based on official data duly adjusted to give LHV; Total heat value of fuel; Emissions and oxidation factors and computation of CEF
Based on these the analysis and official information available for the Pakistan Power System for 2003, 2004 and 2005, the value for the Operating Margin Emissions Factor (OM) is 0.62790. STEP 2 Calculate the Build Margin Emission Factor (EFBM, y) The BM is the generation-weighted average emission factor (tCO2/MWh) of a sample of power plants m as follows:
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The Methodology prescribes that one of two options following options may be selected with the proviso that once selected the Methodology cannot be changed during the crediting period: (a) Option 1: EF BM, y ex ante based on the most recent information of plants already built; or (b) Option 2: EF
emissions
BM, y updated annually in the first crediting period for actual project and associated emissions reductions and ex-ante thereafter.
Option 1, EF BM, y ex ante, has been selected. The sample group m consists of the higher in terms of generation of: (i) (ii) The five power plants that have been built most recently; or The power plant capacity additions in the electricity system that comprise 20% of the system generation (MWh) and that have been built most recently.
To determine sample group m the five most recent additions to the system were compared with the additions to the electricity system that comprise 20% of the system generation and that have been built most recently. It was found that the power plant capacity additions in the electricity system that comprise 20% of the system generation and that have been built most recently provided the larger annual generation and were therefore selected as the prescribed method as stipulated in the Methodology. In determining 20% of the capacity in terms of generation (MWh) of the most recent plants built the query submission by DNV and recommendation of the Meth Panel dated 11/01/2006- 03/02/2006 has been considered and used as follows If 20% falls on part capacity of a plant, that plant is fully included in the calculation The methodology results are as follows: (a) The five power plants that have been built most recently contribute 12,231,000 MWh to the grid; (b) The most recent published total electricity generation in 2005 was 74,413,000 MWh and 20% of system generation comes to 14,883,000 MWh. Thus (b) above would be selected and the Build Margin emission factor would be computed based on the sample of the power plants capacity additions in the electricity system that comprises 20% of the system generation (in MWh) and that have been built most recently. The calculations show that the BM is 0.30397 It may be noted that the BM is effected by a large hydropower project, which took over 10 years to complete but came on stream during the Methodology computation period. STEP 3 Calculate the Baseline Emission Factor (EFy) The Baseline Emission Factor is the weighted average of the OM emission factor (EFOM, y) and the BM Emission Factor (EFBM, y). EFy= wOM * EFOM,y + wBM * EFBM,y
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The default weight of the wOM and wBM are 50% (i.e. wOM = wBM =50%) and EFOM,y and EFBM,y calculated in Steps 1 and 2 above and are expressed in tCO2/MWh.
are
It is proposed to use the default weights as there appears little justification to use alternative weights after a study of the (i) timing of project output; (b) predictability of project output; or (c) suppressed demand. Thus the default weights will be used will be wOM = 0.50 and wBM = 0.50 The baseline emissions factor EFy= wOM * EFOM,y + wBM * EFBM,y c is determined as follows: = (0.5 * 0.62790) + (0.5 * 0.30397) = 0.46593 tCO2/ MWh.
B.6.2. Data and parameters that are available at validation: >>

Data / Parameter: Data unit: Description: Source of data used: Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: Data / Parameter: Data unit: Description: Source of data used: Value applied:
Fi,j,y Metric tons for oil; mmcft for gas Amount of fuel Pakistan Energy Yearbook, Ministry of Minerals & Natural Resources Values used for 2005,2004 & 2003 (See Annex 3) The Methodology requires use of published/official data; the required data has been extracted and collated from such official sources;.
None NCVi GJ Net calorific value of the fuel; per ton/per mmcft Pakistan Energy Yearbook, Ministry of Minerals & Natural Resources Gas: 930.51 (gross 1033.9 90%) Furnace Oil: 40.85 (gross 43.0 95%) Diesel: 44.18 (gross 46.5 95%) Coal: 27.75 (gross 29.1 95%)
Source: Pakistan Energy Yearbook
Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: Data / Parameter: Data unit: Description:
The Methodology requires use of published/official data; the required data has been extracted and collated from such official sources;.
None GENj,y MWh Electricity generated
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Source of data used: Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: Data / Parameter: Data unit: Description: Source of data used: Value applied:
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Pakistan Energy Yearbook, Ministry of Minerals & Natural Resources Values used for 2005,2004 & 2003 (See Annex 3) The Methodology requires use of published/official data; the required data has been extracted and collated from such official sources;.
None COEFi,j y tCO2 Carbon Emission coefficient for each type of fuel IPCC default values Gas: 15.3 Furnace Oil: 21.1 Diesel: 20.2 Coal: 25.8 IPCC default values have been used as no reliable national values are available
Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: Data / Parameter: Data unit: Description: Source of data used: Value applied:
None OXIDi Constant Oxidation factor of the fuel IPCC default values Gas: 0.995 Oil: 0.99 Diesel: 0.99 Coal: 0.98 IPCC default values have been used as no reliable national values are available
Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment:
None
B.6.3. Ex-ante calculation of emission reductions: >> The project activity reduces carbon dioxide through substitution of grid electricity, based on fossil fired power plants, with renewable electricity. The emission reduction ERy by the project activity during a given year y is the difference between the baseline emissions (BE y), project emissions (PE y) and emissions due to leakage (L y) as follows: ERy = BE y - PE y - L y For the project activity PE y and L y = 0 and ERy the emissions reduction is equal to BE y in tCO2
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As computed in the preceding section the combined margin EFy= wOM * EFOM,y + wBM * EFBM,y is EFy= (0.5 * 0.62790) +( 0.5 * 0.30397)=0.46593 CO2/ MWh. The electricity supplied by the project activity to the grid EG y in MWh and the emissions reductions can be measured as ERy (tCO2) = EFy * EG y . Thus ERy = 0.46593 * 470,000 = 218,988 tCO2
B.6.4. Summary of the ex-ante estimation of emission reductions: >> Year Estimation of project activity emissions (tonnes of CO2e) 0 0 0 0 0 0 0 0 Estimation of baseline emissions (tonnes of CO2e) Estimation of leakage (tonnes of CO2e) Estimation of overall emission reductions (tonnes of CO2e)
(Period/Year ended June 30)
2010-2011
(01/10/2010 to 30/06/2011) 9 months
164,241 218,988 218,988 218,988 218,988 218,988 218,988 54,747
0 0 0 0 0 0 0 0
164,241 218,988 218,988 218,988 218,988 218,988 218,988 54,747
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

(01/07/2017 to 30/09/2017) 3 months
(1st crediting period)
0 1,532,916 Total (tonnes of CO2e) Note: Split-years are computed on a pro-rata basis with annual CERs.
1,532,916
B.7. >>
Application of the monitoring methodology and description of the monitoring plan:
B.7.1. Data and parameters monitored: >> A)

Monitoring of project activity
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Generation: Data / Parameter: Data unit: Description:
EG y GWh Electricity delivered by the project activity to the national grid under the power purchase agreement (PPA). Source of data to be used: (a) Measured by the metering system in accordance with a transparent and strict procedure as agreed in the PPA; (b) confirmed by officially published generation data provided in the Pakistan Energy Yearbook; and (c) direct confirmation form the power purchaser. Value of data applied for the The annual generation of the hydropower complex of 470,000 MWh is purpose of calculating expected the basis for computation of emissions through application of the emission reductions in Combined Margin. The given generation is based on average historic Section B.5 hydrology agreed with the power purchaser; the estimate of hydrology and generation may be subject to year to year variation but is expected to equal the historic average hydrology/generation over the term. Description of measurement All requirements for metering will be in accordance with the PPA and methods and procedures to be a summary extracted from the PPA is as follows: applied: 1) There will be installed a metering system and a back-up metering system; in addition there will be magnetic media and a sequential event recorder; 2) Testing of the metering system will be part of the complex commissioning procedures; 3) Inaccuracy of the metering system to be not greater than 0.2%; 4) Joint sealing of metering system after any inspection/examination; 5) Reading and recording thereof at the beginning of each day; 6) Joint reading with power purchasers representative on the last business day of each month.
QA/QC procedures to be applied:
In accordance with QA/QC procedures: 1) The metering system and the back-up metering system will be under continuous surveillance and in the event of greater than specified inaccuracy recalibration is specified; 2) Seals will be checked regularly 3) Cross checking between the different metering system. Meter tampering is a company event of default and may lead to termination by the power purchaser
Any comment:
B)
Monitoring of Baseline Emissions and supporting data/computations
The baseline methodology once selected cannot be changed during the crediting period accordingly there is no requirement to further compute or monitor any of the baseline data or computations. C) Monitoring of Sustainable Development Indicators
The CDM directorate as narrated in Serial B.7.2 below will function to monitor the sustainable development benefits as indicated in this document for the project. Standard procedures developed and designed to carry out the monitoring of sustainable development and its verification by the DNA are as follows:
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The CDM directorate will compare the projects actual sustainable development performance as measured by the indicators in the Table C.1 with the set target values and determine whether the targets have been achieved. As long as the monitoring process shows that the projects performance meets these targets, the project is considered to be in compliance with sustainable development objectives. Table C.1: Monitoring Requirements for Sustainable Development Indicators Performance Indicators/Criteria Job Creation Objective Incremental number of jobs at the project Acceptable Monitoring Procedure (Reports) Monitoring of monthly employment records of the project. Comparison of unemployment ratio of the project area after and before the construction of project - Regular monitoring of average monthly wages of the project workers compared with alternatives. - Follow up record for average annual employment (days/year) - Monitoring of procurement records of the project. - Feed-back meetings with the local suppliers and traders. - Number of conferences, symposium and events. - Number of participants to make maximum use of such conferences, symposiums and events. Monthly review of human resource data. - Monitoring of monthly visit record of patients and patient months. - Feed-back meetings with the local inhabitants - Monthly review of performance.
Income Generation
Incremental wage increase compared to alternative opportunities available
Business Opportunities
Incremental income for the local small traders providing goods and services around the project site area Participation in conference, symposium, events to present the best available technology for run-of-the-river hydropower projects construction and operation Incremental jobs for local inhabitants Better health facilities for the local inhabitants
Technical know-how for the new technology
Improvement of Skills for local Inhabitants Medical Clinic
Improvement of existing local School Facility
Better Schooling in the locality
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- Frequent seminars on importance of education. - Feed-back meetings with the local inhabitants and parents
B.7.2.
Description of the monitoring plan:
>> The generation and delivery of electricity to the power purchaser under the terms of the PPA is a well structured activity. The critical areas which are relevant under the approved methodology ACM0002 are to ensure that the estimation of emissions reductions under the methodology is a reasonable estimate of the actual emission reductions during the crediting period. To achieve this objective the measurements of emissions shall be carried out throughout the crediting period through a well organized and well managed organizational structure and an adequate monitoring plan. The ex ante estimate of the emissions is derived from ERy (tCO2) = EFy * EG y and the critical functions are (a) the project generation and (b) baseline emission factor established ex ante. The monitoring would focus on these aspects with greatest attention on the project energy generation and any leakages as the other element i.e. baseline is a function of computational work performed on office published data publicly available and given that the methodology once selected and applied cannot be changed.. A CDM directorate will be established with a three- member team and other clerical support staff with the following broad structure:
BoD
Director CDM
Managercoordination
ManagerFinance
The CDM directorate will function as environmental auditors for the project and related CDM activities. Standard procedures, forms and tests will be developed and designed to carry out the audit work and achieve the required objectives and output. At the end of each year of the crediting period, the gross annual generation of the Project and electricity delivered to the national grid will be certified by the Company. Such certification shall be verified and authenticated through the Power Purchaser, the Companys Annual Accounts and any other authentic published or unpublished sources and/or Government or statutory bodies.
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Such information shall be used to compute the Avoided emissions of CO2 by the Project, using the Combined Margin and Projects actual generation for the year, applying the formulae and methodology as described in section B.2.1 of this PDD. The project is a run-of-the-river hydropower project with well defined project boundaries, without any significant leakage and with a good quality of official published data relating to generation and fuel consumption covering all projects in the national grid. The baseline will be subject to revalidation for each crediting period based on such reliable data. The only critical task is the independent and reliable verification of project metering and generation and for hydropower projects this is a relatively simple task. It is considered that no special training for such monitoring would be required; professionals either with a finance or management background are considered to be of sufficient calibre to undertake this basic task which would be dealt with as normal procedures and operations within the project management plans. Procedures and preparedness for dealing with emergencies which could cause unintended emissions are most relevant and significant for CDM projects dealing with thermal/combustion technologies e.g. condensate flare gas generation, agricultural waste based generation, methane recovery and combustion, landfill gas based generation etc. The hydropower project is a run-of-the river low head scheme. The horizontal Kaplan turbines operate at a lazy speed of 100 rpm compared with gas turbines working at a speed in several thousand rpm. Other than minor accidental fire in an office environment which may result in insignificant unintended emissions it is not envisaged that any of the emergencies envisaged for a hydropower project of this type would entail emergencies that would or could result in emissions. The emergencies that effect hydropower projects (but without any associated emission) are adequately covered in the PPA under Emergency Set-up and Curtailment Plans which specifies that the Company shall cooperate with the power purchaser in developing emergency procedures for the complex including without limitation recovery from local or widespread electrical blackout and voltage reduction in order to effect load curtailment. In addition responsibility has been allocated to the O&M operator to develop emergency procedures under Section 4.7 and 4.10 of the O&M contract. The data monitored and required for verification and issuance will be archived and maintained for two years after the end of the crediting period or the last issuance of CERs for this project activity, whichever occurs later. The CDM directorate will also function to monitor the sustainable development benefits as indicated in this document for the project. B.8. Date of completion of the application of the baseline study and monitoring methodology and the name of the responsible person(s)/entity(ies) >> Date of completion of the application of the methodology to the project activity study: Name of responsible person: Organization Environmental Solutions (Pvt.) Limited Street/P.O.Box: G8-Markaz Building: 12-B/1 City: Islamabad State/Region: Islamabad 31/10/2006
CDM Executive Board Postfix/ZIP: Country: Telephone: FAX: E-Mail: URL: Represented by Title: Salutation: Last Name: Middle Name: First Name: Department: Mobile: Direct FAX: Direct tel: Personal E-Mail: 44000 Pakistan 0092-03005001633 0092 2854795 envisolutions@yahoo.com N/A Mr. Sultan Ahmad Senior Consultant N/A Ahmad N/A Sultan CDM 0092 3005001633 0092 512854795 0092 512251932 sultanahmad23@hotmail.com
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The person(s)/entity(ies) responsible for the application of the baseline and monitoring methodology to the project activity is not a project participant
CDM Executive Board SECTION C. Duration of the project activity / Crediting period C.1 Duration of the project activity:
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C.1.1. Starting date of the project activity: >> 30/06/2007 (Execution of Finance Documents) C.1.2. Expected operational lifetime of the project activity: >> The term of 25 years as agreed and incorporated in the power purchase agreement., C.2 >> Choice of the crediting period and related information:
C.2.1. Renewable crediting period >> C.2.1.1. >> 01/10/2010 C.2.1.2. >> Seven (7) years Starting date of the first crediting period:
Length of the first crediting period:
C.2.2. Fixed crediting period: >> Not applicable C.2.2.1. >> Not applicable C.2.2.2. >> Not applicable Length: Starting date:
SECTION D. Environmental impacts D.1. Documentation on the analysis of the environmental impacts, including transboundary impacts: >> Key extracts from Summary Initial Environmental Assessment (IEE) approved by the ADB are as follows: I. Introduction
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The Project is classified as category B. There are no people residing in the Project site and there are no indigenous peoples in the surrounding area. Therefore, relocation and indigenous people development are not issues. An IEE was carried out by the Project Sponsor during October-November 2004 to update and reconfirm the previous findings on the environmental and social soundness of the Project and a summary IEE was prepared as a stand-alone document for public disclosure. II. 2.1 Description of the Environment Natural Environment
The Project site is vacant land with shrubs and few trees and no archaeological sites, graveyards or mosques. The Project area is a part of the Jhelum valley and is in an active seismic area. Consequently, the earthquake return period of 1,000 years will be adopted in the design of the powerhouse and major Project facilities. The Jhelum River is the principal water resource in the Project area with a mean annual flow of about 28,371 million cubic meters. Its flow is perennial and is characterized by a great fluctuation in its discharge, with large flows during monsoons. The Jhelum River drains into the Mangla Dam Reservoir. The water in the reservoir is used to generate electricity in the Mangla Power House with a total generation capacity of 1,000 MW. The water from the Mangla Dam Power House is discharged into a tailrace channel, a man-made canal named Bong Canal. Part of the flows of the Bong Canal are fed into the Upper Jhelum Canal to meet irrigation requirements and the remaining flow is discharged into the Jhelum River through a man-made structure named the New Bong Escape. During low flows, the Jhelum River downstream of the Mangla Dam meanders in several channels through a very broad flood plain, several kilometers wide in some locations. The Jhelum River floodplain adjacent to the Project site is more than 1,800 m in width. One of the channels of the Jhelum River, adjacent to the Project site, called the Hari Channel, will be used as tailrace channel. This channel represents only a very small portion of the entire broad floodplain. As the Project area is not densely populated and has no major industries, ambient air quality and water quality in the Jhelum River are still high. The Project area has no ecological or biologically sensitive areas as it has been subjected to human interventions for decades. Because of the degraded habitat conditions of the Project site and its surroundings do not support any flora and faunal resources of ecological or economic significance. 2.2 Socioeconomic Environment
There are 21 communities within a 5 km radius of the Project site. Only two communities, Lehri and Ferozabad, adjacent to the Project site could be impacted by the Project. Some families in these two villages use parts of the Project site without authorization from GOAJK, for fodder cultivation and animal grazing. The Project will need to discontinue their use of the Project site. Lehri village has about 150 households, of which around a dozen households are involved in unauthorized use of parts of the Project site. An overwhelming majority of the households are financially supported by relatives living in foreign countries, especially the United Kingdom. Local trade and government and private employment is their secondary source of income. Agriculture and livestock are fringe economic activities, practiced at a level that is less than even self-subsistence.
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Ferozabad village has only about 12 houses occupied by one extended local family and some small families which have come to the area after being displaced due to conflict in their native northeastern AJK. The primary source of livelihood for these families is employment in the government and private sectors. Agriculture is a secondary economic activity. Young men from a couple of families are working abroad and remit money from there. The social infrastructure and public amenities in the two villages are poor as evidenced by unpaved roads and no schools or clinics. The Project intends to assist in improving social infrastructure and public amenities in these two villages. III. Forecasting Environmental Impacts and Mitigation Measures
Impacts during Construction The construction of Project facilities will invariably create environmental disturbances and impacts. But these environmental disturbances and impacts will be transient and will have no adverse ecological consequences as the Project site is small and has no flora or fauna species of ecological importance. Mitigation measures including physical measures and good environmental management practices will be included in the EPC contract to ensure that the design and construction will minimize such environmental problems as disposal of excavated materials, soil erosion and degradation, fugitive dust, noise, safety and public health hazards, waste disposal, water turbidity of the Jhelum River during the excavation of the Hari Channel, and blocked access to houses and communal facilities. In addition, the Project Sponsors will pay compensation to those families who have to discontinue their unauthorized use of land in the Project site. The Project will not induce population influx since there is a general trend of out-migration in the area to larger towns and cities. During the detailed design, the Project Sponsors will consult with the local administration for advanced planning to ensure minimum adverse impacts from any population influx. Although the Project will not have significant adverse social impacts, the Project Sponsors intend to help in building social facilities in collaboration with the local agencies concerned. Impacts during Operation The Project will have no adverse environmental and social impacts during the operation phase as it will not affect water availability in the Upper Jhelum Canal, and will not reduce the flows in the Jhelum River downstream of the New and Old Bong Escapes. However, after Project completion the New Bong Escape channel will receive water only in case of the shutdown of the Project powerhouse. This 1,200 m man-made channel has no ecological significance, and is not used by the local communities. Therefore, its drying up will not have any significant environmental or social impacts. To ensure harmony of the Project with the environment the Project Sponsor will implement sound environmental management practices to effectively handle the basic environmental issues, including: Waste management of residential complex and offices, particularly sewage treatment to the required standard and reuse of the treated effluents for gardening. Waste management of warehouse, workshops and motor pools Landscaping and plantation
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Environmentally responsible conduct of personnel, such as hunting and tree cutting Noise and other public nuisance abatement. The above practices and conducts will be institutionalized in the environmental management system of the Company. IV. Institutional Requirements and Environmental Management Plan
Environmental Management Plan A Project environmental management plan (EMP) was formulated and it clearly defines organizational structure, roles and responsibilities of the various entities concerned, an impact mitigation plan, an environmental monitoring plan, communication and documentation, and environmental training. The EMP was prepared for both the construction phase and the operational phase. As the mitigation measures are part of the construction, their costs are included in the contract cost and represent a small part of the Project cost. The cost of sewage treatment facilities for 50 operating personnel is also low compared to the cost of houses. The Project Sponsors will assume the overall responsibility for compliance with environmental and social management requirements of the provincial government and the lenders. The EPC contractor will assume the overall responsibility for environmental performance of all the subcontractors, i.e. to ensure that the subcontractors will effectively implement all environmental management measures stipulated in the EMP and in the contracts. The Project Manager, representing the Project Sponsors, will discharge the Project companys environmental and social responsibility as part of the Project implementation management. Director CDM will assist the Project Manager and provide policy support on all environmentally and socially-related matters. The Company will coordinate with relevant government departments and other stakeholders through its ESI. The EPC contractor will appoint an environmental and social supervisor (ESS) to assist its Project Manager in overseeing and monitoring environmental performance of all the subcontractors. Each subcontractor will appoint an environmental and social officer (ESO) to assist its resident engineer in implementing EMP specific to its contract. The mitigation plan for the construction phase is prepared and presented in the IEE. It contains: A comprehensive listing of mitigation measures (actions) The person(s) responsible for ensuring the full implementation of the action The persons responsible for monitoring the action A timescale for the implementation of the action to ensure that the objectives of mitigation are fully met.
The identified mitigation measures will be translated into environmental requirements and specifications for the detailed design and construction, with legal binding effect. Environmental and social management tasks during the operational phase will be minimal and become routine activities as part of the overall management of the powerhouse. Management of wastes from residential quarters and offices will be the only main task.
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During the construction phase, environmental performance of all subcontractors will be closely monitored by the EPC contractor under the oversight of the Project Sponsor. The monitoring will cover both compliance monitoring and effects monitoring in line with the requirements in the mitigation plan focusing on soil erosion, water quality, air quality, noise, and socioeconomic aspects. A detailed monitoring plan will be developed during the detailed design phase of the Project, when specific information on field activities will be known. The monitoring schedule will be linked to the construction schedule. An effective mechanism for storing and communicating environmental information will be established. The data and information will be systematically filed and stored in a central location. Periodic meetings will be held involving all parties concerned, to review the results of implementation of the EMP and monitoring results, and resolve any identified problems. The EPC contractor will produce periodic monitoring and evaluation reports. At the end of the construction phase, the EPC contractor will prepare a final monitoring and evaluation report to be a part of a Project completion report. In addition, the EPC contractor will establish at the Project site a social complaint register to document all complaints received from local communities. The register will also record the measures taken to mitigate these concerns. All community complaints received will be sent to the Companys Director CDM and Project Manager for their information and further action. The EPC contractor will provide training to the Project Sponsor staff, the sub contractors, and other staff engaged for the Project. The training will cover the requirements of the IEE and the EMP, with special emphasis on sensitizing the Project staff to the environmental and social aspects of the Project. A training program will be prepared before the commencement of the Project during the detailed design phase. V. Findings, Conclusions and Recommendations
The IEE findings confirm that the Project, being a run-of the river hydropower project, is unlikely to cause any significant, lasting environmental and social impacts. Environmental disturbances normally associated with construction activities will be minimized through implementation of the EMP and close monitoring of the EMP implementation. Sound environmental management practices and effective mitigation measures will be prescribed as part of the EPC contract for detailed design and construction. It is concluded that the IEE is adequate to justify environmental and social clearance of the Project. It is recommended that the IEE is considered adequate for environmental and social assessment of the Project. D.2. If environmental impacts are considered significant by the project participants or the host Party, please provide conclusions and all references to support documentation of an environmental impact assessment undertaken in accordance with the procedures as required by the host Party: >> As mentioned above the IEE found that the project, being a run of the river hydropower project, is unlikely to cause any significant, lasting environmental and social impacts. The conclusion of the IEE was It is concluded that the IEE is adequate to justify environmental and social clearance of the project. There is no need for further analysis and the environmental and social justification for the project is complete
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The environmental NOC has however requires that (a) proper disposal arrangements should be made for sewerage disposal from the housing colony; (b) all design changes should be intimated; and (c) while the IEE requires (i) the development of an environment management plan; (ii) development of a compensation plan for villagers; (iii) environmental policy; and (iv) environmental stipulations for the EPC Contractor
SECTION E. Stakeholders comments >> E.1. Brief description how comments by local stakeholders have been invited and compiled: >> Extracts from the Initial Environmental Examination: VI A Public Consultation and Information Disclosure
Consultations with representatives of Government Agencies Concerned
A consultation was held on 30/10/2004 with representatives of government agencies, including WAPDA, the Irrigation Department of the Government of Punjab, and the revenue department of the Government of AJ&K. All the representatives expressed their support for the project and their willingness to cooperate. B Consultations with Villagers of the Two Communities
Two rounds of public consultation were held with villagers in the two adjacent communities.
E.2. Summary of the comments received: >> A summary of the comments extracted from the IEE is shown below: 1. Ferozabad
In Ferozabad, house to house visits were carried out. On 01/11/ 2004, the public consultation team visited seven houses whose residents had been using the project site. The team explained the project layout, scope and requirements as well as the impacts, particularly on the unauthorized grazing and occasional cultivation on the project site practiced by some families. The villagers reactions were sought in a semi-structured discussion and they showed no concerns about environmental disturbances. It was noted that villagers had had similar experiences with much larger projects in the past. The affected households expressed their willingness to discontinue their unauthorized use of the project land, but they said that they would expect some compensation. 2 Lehri
A group consultation was held on 02/11/ 2004 with representatives of the houses situated in the upper reaches of the western bank of the New Bong Escape. About 16 household representatives participated. The results were similar to those of Ferozabad.
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Following consultation it was concluded that the project would have no significant social impacts. The extent of unauthorized cultivation and grazing did not significantly contribute to the income of the residents of the Lehri and Ferozabad villages. The grazing activity could be conveniently moved to adjacent areas. Details of the IEE were posted on the ADB web site, in October 2005 over a year ago, and have not invited any negative comments.
E.3. >>
Report on how due account was taken of any comments received:
No negative comments were received; however, the company has committed the following: to modernize/expand the local school and clinic; to build a new recreational facility and park; to compensate any effected persons who were traditional users of government land; to compensate any persons for any standing crops; to arrange the construction activities to minimize and mitigate negative impact.
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CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY Organization: Street/P.O.Box: Building: City: State/Region: Postfix/ZIP: Country: Telephone: FAX: E-Mail: URL: Represented by: Title: Salutation: Last Name: Middle Name: First Name: Department: Mobile: Direct FAX: Direct tel: Personal E-Mail: Laraib Energy Limited G8 Markaz B/1 Islamabad Federal capital city Islamabad Pakistan 00 92 51 2255431/2 00 92 51 2251485 mail@laraibenergy.com www.laraibenergy.com Khalid Faizi Chief executive officer Faizi Khalid 00923005001633 0092 2251463 faizilel@yahoo.com
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ANNEX 2 INFORMATION REGARDING PUBLIC FUNDING >> There is no public funding involved in financing of the Project; and no Official Development Assistance funding is involved.
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BASELINE INFORMATION >> The Baseline Methodology stipulates that baseline emission be calculated using the formulae contained in the Consolidated baseline methodology for grid-connected electricity generation from renewable sources (ACM0002). The baseline emission factor is calculated as the combined margin (CM) of the grid to which the Project is connected and despatched. The CM is defined as the weighted average of the OM and the BM. Baseline emissions are calculated for the Project as outlined below: STEP 1 - Calculate the OM emission factor STEP 2 Calculate the BM emission factor STEP 3 Calculate the baseline emission factor STEP 4 Calculate baseline emission reductions STEP 1 Calculate the OM emission factor As stated in B.2 the Simple OM method (method a) from ACM0002 is selected to calculate the OM for the Project. The Simple OM is defined as the generation-weighted average emissions per electricity unit (tCO2/MWh) of all generating sources serving the system, not including low-operating cost/ must-run power plants. There is no freely traded market for electricity in Pakistan and hourly despatch data is not available in the public domain. Although ACM0002 states that it is preferable to obtain plant emission factors directly from despatch centres or power producers (for each plant), this data is not publicly available in Pakistan. Both the state run electricity authority (WAPDA) and a number of IPPs supply electricity to NTDC. This makes accurate data collection difficult. However, actual data0 is available for the last three years on the aggregate fuel consumption / electricity generation for each generation type. There are no local values for carbon emission factors are available yet and accordingly IPCC default values were used in the PDD, accordingly in compliance with ACM0002, default IPCC figures can be used for calorific values and carbon emission factors, for the different fuel types. Thus, the data supplied by WAPDA is used along with IPCC figures to calculate the OM. The least cost/must run plants represent hydropower and nuclear; as such generation is less than 50% over the latest 5 year period this can be excluded from the computation of emissions for the OM factor. Table 3.1 OM Factor -2005 A Electricity Generated (MWh) 25,671,000 2,795,000 B Fuel Used C Grid Emission (tCO2) D CEF CA (MWh) -
Type of Fuel Hydroelectric Nuclear
CDM Executive Board Total Least cost / must run Natural Gas (MMCFT) Furnace Oil (t) Diesel Oil (t) Coal (t) Total thermal Grand Total Table 3.2 OM Factor-2004 Type of Fuel Hydroelectric Nuclear Least cost / must run Natural Gas (MMCFT) Furnace Oil (t) Diesel Oil (t) Coal (t) Total thermal Grand Total Table 3.3 OM Factor-2003 Type of Fuel Hydroelectric Nuclear Least cost / must run Natural Gas (MMCFT) Furnace Oil (t) Diesel Oil (t) Coal (t) Total thermal Grand Total Electricity Generated (MWh) 22,351,000 1,740,000 24,091,000 22,893,100 17,571,170 304,310 231,150 40,999,730 65,090,730 Fuel Used 255,962 4,343,622 84,514 203,623 Grid Emission (tCO2) 13,296,004 13,591,665 273,781 521,915 27,683,365 27,683,365 Electricity Generated (MWh) 26,944,000 1,760,000 28,704,000 31,312,240 9,069,970 66,000 197,600 40,645,810 69,349,810 Fuel Used 341,930 1,850,231 18,185 184,992 Grid Emission (tCO2) 17,761,674 5,789,574 58,908 474,161 24,084,318 24,084,318 28,466,000 36,385,020 9,588,240 121,300 174,900 46,269,460 74,735,460 387,876 2,503,166 33,171 179,887 20,148,326 7,832,678 107,456 461,077 28,549,537 28,549,537
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0.55375 0.81690 0.88587 2.63623 0.61703
CEF (MWh) 0.56724 0.63832 0.89255 2.39960 0.59254
CEF (MWh) 0.58079 0.77352 0.89968 2.25791 0.67521
Source: Pakistan Energy Yearbook 2005, 2004 & 2003
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Table 3.4 OM Summary Year 2005 2004 2003 Grand Total Electricity Generated (MWh) 46,269,460 40,645,810 40,999,730 127,915,000 Grid Emission (tCO2) 28,549,537 24,084,318 27,683,365 80,317,220 CEF (MWh) 0.61703 0.59254 0.67521 0.62790
STEP 2 Calculate the BM emission factor According to the Methodology, the Build Margin is defined as the generation-weighted average emission factor of either five most recent or the most recent 20% of power plants built (in terms of generation), whichever groups annual generation is greater. Both lists of plants exclude CDM-status plants. Table 3.5 Total system generation and least cost / must operate plants (GWh Year Hydroelectric Nuclear Total least cost / must run % Gas Oil Coal Total Thermal % Total System %
Pakistan Grid System statistics 2001-2005
2005 25,671 2,795 28,466 33.24% 43,472 13,516 175 57,163 66.76% 85,629 100%
2004 26,944 1,760 28,704 35.51% 39,213 12,711 198 52,122 64.49% 80,826 100%
2003 22,351 1,740 24,091 31.83% 27,006 24,353 231 51,590 68.17% 75,681 100%
2002 18,941 2,291 21,232 29.32% 24,855 26,034 285 51,174 70.68% 72,406 100%
2001 17,194 1,997 19,191 28.17% 21,780 26,904 241 48,925 71.83% 68,116 100%
The methodology to compute the BM requires that the greater of the following be selected: (c) The generation in MWh of the five most recent generating plants built; and
(d) 20% of the total of most recent generating plants built in the system (average of three most recent years) provided, however, that the average of the least cost/must run plants for the five most recent years has been less than 50% of the total system generation in MWh. The required parameters were examined and computations made which showed:
CDM Executive Board
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The five power plants that have been built most recently contribute 12,231,000 MWh to the grid;
The most recent published total electricity generation in 2005 was 74,413,000 MWh and 20% of system generation comes to 14,883,000 MWh; and less than 50% of total system generation comprised least cost/must run plants in the five years from 2001 to 2005. As 20% of the most recent published generation in the system (2005) is greater than the generation of the five most recent plants built and the condition of least cost/must run over the past five years is satisfied, this was selected and it was decided to consider the BM based on the most recent 20% of power plants built. Table-3.7 Build Margin Project Total system 20% of system Ghazi Liberty Altern Uch Japan Saba Rousch 20% of most recent plants Build Margin
Note: a) b) If 20% falls on part capacity of a plant, that plant is fully included in the calculation The BM is effected by a large hydropower project commissioned recently which takes up more than 40% of the most recent generation; the restated BM excluding the hydropower generation would be 0.51
Commissioned In at 30/06/ 2005
Fuel
Technology
2005 Generation MWh 74,413,260 14,882,652
Emission CO2 t
Apr-04 Sep-01 Jun-01 Oct-00 Mar-00 Dec-99 Dec-99
Hydro Gas Gas Gas FO FO FO/Gas
Hydro turbine CCGT Engines CCGT Engines ST CCGT
6,337,980 1,293,600 9,600 4,193,370 396,060 595,170 2,880,000 15,705,780 590,792 5,077 2,106,655 287,361 468,839 1,315,316 4,774,043 0.30397
STEP 3 Calculate the baseline emission factor The Baseline Emission Factor was calculated as combined margin (CM), consisting of simple average of both the resulting OM and the resulting BM. All margins expressed in tCO2/ MWh. The baseline emissions factor EFy= wOM * EFOM,y + wBM * EFBM,y = (0.5 * 0.62790) + (0.5 * 0.30397) = 0.46593 tCO2/ MWh.
STEP 4 Calculate baseline emission reductions
CDM Executive Board
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The electricity supplied by the project activity to the grid EG y in MWh will be 470,000 MWh and the emissions reductions can be measured as ERy (tCO2) = EFy * EG y . Thus ERy = 0.46593 * 470,000 = 218,988 tCO2 The computation of 218,988 tCO2 represents the most conservative estimate of the emissions reductions that would arise from the project activity and would be the applicable emissions reductions for the crediting period TABLE 3.8 Combined Margin Segment OM BM CM GENERATION CERs Major Risks to Baseline and mitigation thereof: The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases (GHG) that would occur in the absence of the proposed project activity; it represents the level from which the reduction is occurring. The additionality in terms of emission reductions arises from the difference between Baseline Scenario emissions and Project Scenario emissions and accordingly the proper and accurate determination of the Baseline emissions is very important to reduce the risk of overstatement of CERs. The risks to Baseline Emissions may arise due to the following: (a) Risk of misstatement of emissions in the baseline scenario; (b) Changes in environmental policy result in baseline becoming irrelevant and requiring to be updated and CERs issued based on reduced baseline; (c) Change in validity of Baseline at beginning of a new crediting period For the project these risks have been mitigated and marginalized through the following factors: 1. There is a high and reliable quality of data used, data source and assumptions; 2. The project activity is a hydropower project with a well defined boundary and negligible leakage; 3. The baseline study has been rigorous, based on authentic and reliable data with stress on accuracy and conservative assumptions/estimates 4. The technology being used is robust, mature and tested with a long life and developed local operating know-how 5. The project activity is highly beneficial for the local environment and economic well being and sustainable development and now enjoys support of key stakeholders and is supported by the Margin 0.62790 0.30397 Weightage 0.5 0.5 Combined Margin 0.31395 0.15198 0.46593 470,000 MWh 218,988 MT
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local community as it provides employment and economic benefits in a backward and underdeveloped area; 6. the government is supporting hydropower to enable energy security and a low cost sustainable energy based on local resources and substituting expensive imported oil and reducing the cost of electricity in the grid 7. The monitoring plan constitutes the basis of future verification and should provide the confidence that the emissions reductions and other project objectives are being achieved and should be able to monitor risks inherent to the baseline and project emissions. Monitoring plan is required for verification and issuance of CERs and should be planned by project participants and provides for: collection and archiving data necessary for calculating emissions within project boundary collection and archiving data necessary for determining baseline Collection, documentation and archiving of all steps involved in calculations of emission reductions and leakages during lifetime of project collection and archiving data necessary for calculating leakages reasonably attributable to the project activity during the crediting period collection and archiving data and information relevant to assess environmental impacts of the project QA/QC for the Monitoring process Procedures for periodic calculation of reduction of emissions by sources by the project , and leakages
8. The monitoring plan will provide detailed information related to collection and archiving all relevant data necessary to: Fuel consumption Activity levels Emission factors Heat produced and replaced Electricity produced and replaced Grid losses Fuel prices/subsides/taxes Estimate of emissions occurring within project boundaries Determination baseline emissions Determination leakage
9. The risk when selecting a 7 year period is that the original baseline is not valid after the end of the crediting period 7-year period. The project has selected a renewable credit period which requires that at time of each renewal determination will done of whether the original project baseline methodology is still valid or not for the next crediting period; if it is considered that the original methodology is not valid, only the data used in setting the baseline shall be updated to establish a revised baseline, since the baseline methodology cannot be changed.
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ANNEX 4 MONITORING INFORMATION >> The directorate established by the Company will prepare and submit monthly reports and institute procedures to monitor: (a) daily electricity readings of the metering system, the back up metering system, the magnetic media and the sequential event recorder; (b) attendance and monitoring of the monthly meter reading on the last business day of the month; (c) maintaining a log showing comparison of the data readings from each source and investigating discrepancies, if any (d) maintaining a log of meter efficiencies and calibrations; (e) receiving, tabulating and comparing billing data for energy generation and comparing with meter data; (f) extracting data from official published sources and comparing with cumulative meter reading data; (g) extracting data from audited accounts and comparing with meter reading data; (h) extracting and maintaining log of water meter readings and computing energy for overall reasonability estimates; receiving and collating official published system data to compute and prepare analysis of baseline emission factors; (i) computing emissions in tCO2 on a monthly basis from all data and estimates collected and compare with ex ante estimates which for the basis for CERs during the crediting period. (j) Development of a reporting structure with monthly, quarterly and annual reports; (k) Benefits of sustainable development including; i) improvement of local economy, (ii) improvement of skills for local inhabitants (capacity building), (iii) reduction of poverty, and (iv) social infrastructure by medical clinic and improving existing school.
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Assumptions and Financial Analysis for Year 2001
CDM Executive Board NEW BONG ESCAPE HYDROPOWER PROJECT - TARIFF

Levelized Tariff Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Variable O&M
US cents/KWh
page 56
Fixed O&M 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260
ROE 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858
Total Esc 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268
Non Escal 3.257 3.110 2.964 2.817 2.671 2.525 2.378 2.232 2.086 1.939 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Total 4.524 4.378 4.231 4.085 3.939 3.792 3.646 3.500 3.353 3.207 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268
US cents/KWh US cents/KWh US cents/KWh US cents/KWh US cents/KWh
0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Indexed Tariff (With CPI Indexation) Variable O&M Fixed O&M ROE Total Esc Non Escal 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.150 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.260 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 0.858 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 3.257 3.110 2.964 2.817 2.671 2.525 2.378 2.232 2.086 1.939 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Total 4.524 4.378 4.231 4.085 3.939 3.792 3.646 3.500 3.353 3.207 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268 1.268
US cents/KWh US cents/KWh US cents/KWh US cents/KWh US cents/KWh US cents/KWh
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NEW BONG ESCAPE HYDROPOWER PROJECT CASH FLOW (WITHOUT CDM REVENUE)
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Gross Revenue Carbon Elec. Revenue Credits
US$ mln US$ mln
Expenses Variable Debt Total O&M Exp O&M Exp Servicing

US$ mln US$ mln US$ mln US$ mln
Total
US$ mln
Net Revenue
US$ mln
NEW
19.273 18.650 18.026 17.403 16.779 16.156 15.532 14.909 14.285 13.661 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400
0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
19.273 18.650 18.026 17.403 16.779 16.156 15.532 14.909 14.285 13.661 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400
0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639
1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108
13.87 13.25 12.63 12.00 11.38 10.76 10.13 9.51 8.88 8.26 -
15.620 14.996 14.373 13.749 13.126 12.502 11.879 11.255 10.632 10.008 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747
3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653 3.653
BONG ESCAPE HYDROPOWER PROJECT CASH FLOW (WITH CDM REVENUE)

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Gross Revenue Carbon Elec. Revenue Credits
US$ mln US$ mln
Expenses Variable Debt Total O&M Exp O&M Exp Servicing

Total
US$ mln
N et Revenue
US$ mln
19.273 18.650 18.026 17.403 16.779 16.156 15.532 14.909 14.285 13.661 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400 5.400
2.662 2.742 2.824 2.909 2.996 3.086 3.178 3.274 3.372 3.473 3.577 3.684 3.795 3.909 4.026 4.147 4.271 4.399 4.531 4.667 4.807 4.952 5.100 5.253 5.411
21.935 21.391 20.850 20.311 19.775 19.241 18.710 18.182 17.657 17.134 8.977 9.084 9.195 9.309 9.426 9.547 9.671 9.799 9.931 10.067 10.207 10.352 10.500 10.653 10.811
0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639 0.639
1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108 1.108
13.87 13.25 12.63 12.00 11.38 10.76 10.13 9.51 8.88 8.26 -
15.620 14.996 14.373 13.749 13.126 12.502 11.879 11.255 10.632 10.008 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747 1.747
6.315 6.395 6.477 6.562 6.649 6.739 6.832 6.927 7.025 7.126 7.231 7.338 7.448 7.562 7.680 7.800 7.925 8.053 8.185 8.321 8.461 8.605 8.754 8.907 9.064
CDM Executive Board ANNEX 6 Assumptions and Financial Analysis for Year 2007
NEW BONG ESCAPE HYDROPOWER PROJECT ASSUMPTIONS
No. Plant Parameters 1 2 3 Plant Capacity (MW) Plant Factor NEO (GWh)/Annum 84 63.91% 470.00
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No. Capital Structure 4 Debt:Equity Financeirs 5 Financing Percentage w.r.t. total debt 6 Financing Amount (US $ M) 7 Financing Percentage w.r.t. total cost 8 Reference KIBOR rate 9 Reference LIBOR rate 10 Spread 11 Interest Rate Post COD 12 Grace Period (Half Year) 13 Repayment Period (Half Years) No. 14 15 16 17 18 Project Cost Total Project Cost (US $ M) IDC (US $ M) Base Project Cost (US $ M) Debt Component (US $ M) Equity Component (US $ M)
ADB 32.56% 37.30 24.42% 1.23% 3.00% 4.23% 7 23
75% IDB 32.56% 37.30 24.42% 1.23% 3.00% 4.23% 7 23
25% Local 34.88% 39.95 26.16% 2.81% 3.25% 6.06% 7 18
152.74 10.16 142.58 114.55 (38.18)
19. Reference Exchange Rate Exchange Rate US$/PKR 20. US CPI Indexation Indexation Rate 21. CER Indexation Indexation Rate 22. Income on Short Term Investment Rate of Interest 23. Fixed and Variable O&M Indexation Indexation Rate 24. Levelized Tariff Levelized Tariff without WUC (US Cents/KWh) Levelized Tariff with WUC (US Cents/KWh) 25. Standard Tariff Components Variable O&M Component (per KWh) Fixed O&M Component (per KWh) Water Use Charges(per KWh)
Yes
60.00 1 2.50% 1 3.00% 1 4.00% 1 2.50%
Yes
Yes
Yes
4.4670 4.7000
0.0930 0.6400 0.2330
CDM Executive Board NEW BONG ESCAPE HYDROPOWER PROJECT - TARIFF

Reference Tariff Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Variable O&M 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 0.093 Fixed O&M 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 0.640 ROE 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 1.627 Total Esc 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 Non Escal
US cents/KWh
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Total
US cents/KWh
US cents/KWh US cents/KWh
US cents/KWh US cents/KWh
3.482 3.366 3.251 3.135 3.019 2.904 2.788 2.673 2.557 1.511 1.453 0.705 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
5.84187 5.726 5.611 5.495 5.380 5.264 5.149 5.033 4.917 3.872 3.813 3.065 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360 2.360
Indexed Tariff (With CPI Indexation) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Variable O&M 0.103 0.105 0.108 0.111 0.113 0.116 0.119 0.122 0.125 0.128 0.131 0.135 0.138 0.142 0.145 0.149 0.152 0.156 0.160 0.164 0.168 0.172 0.177 0.181 0.186 Fixed O&M ROE 0.706 0.724 0.742 0.761 0.780 0.799 0.819 0.840 0.861 0.882 0.904 0.927 0.950 0.974 0.998 1.023 1.049 1.075 1.102 1.129 1.158 1.187 1.216 1.247 1.278 1.796 1.841 1.887 1.934 1.983 2.032 2.083 2.135 2.188 2.243 2.299 2.357 2.416 2.476 2.538 2.601 2.666 2.733 2.801 2.871 2.943 3.017 3.092 3.170 3.249 Total Esc 2.605 2.670 2.737 2.806 2.876 2.948 3.021 3.097 3.174 3.254 3.335 3.418 3.504 3.591 3.681 3.773 3.868 3.964 4.063 4.165 4.269 4.376 4.485 4.597 4.712 Non Escal 3.482 3.366 3.251 3.135 3.019 2.904 2.788 2.673 2.557 1.511 1.453 0.705 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Total 6.087 6.036 5.988 5.941 5.895 5.851 5.810 5.770 5.731 4.765 4.788 4.123 3.504 3.591 3.681 3.773 3.868 3.964 4.063 4.165 4.269 4.376 4.485 4.597 4.712
US cents/KWh US cents/KWh US cents/KWh US cents/KWh US cents/KWh US cents/KWh
NEW BONG ESCAPE HYDROPOWER PROJECT CASH FLOW (WITHOUT CDM REVENUE)
CDM Executive Board

Elec. Revenue
US$ mln
page 60
Expenses Variable Debt O&M Exp O&M Exp Servicing Total
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Gross Revenue Income Carbon on STI Credits

US$ mln US$ mln
Total
US$ mln
Revenue Net Withhold Post Tax forEquity Revenue Tax Revenue IRR
28.608 28.371 28.142 27.921 27.707 27.502 27.305 27.117 26.938 22.396 22.504 19.378 16.468 16.880 17.302 17.734 18.177 18.632 19.098 19.575 20.064 20.566 21.080 21.607 22.147
0.218 0.218 0.218 0.218 0.219 0.219 0.220 0.221 0.222 0.198 0.201 0.186 0.172 0.176 0.180 0.185 0.189 0.194 0.199 0.204 0.209 0.214 0.220 0.225 0.231
0.000 28.82593 0.000 28.589 0.000 28.360 0.000 28.139 0.000 27.926 0.000 27.721 0.000 27.525 0.000 27.338 0.000 27.159 0.000 22.594 0.000 22.705 0.000 19.564 0.000 16.639 0.000 17.055 0.000 17.482 0.000 17.919 0.000 18.367 0.000 18.826 0.000 19.297 0.000 19.779 0.000 20.274 0.000 20.780 0.000 21.300 0.000 21.832 0.000 22.378
0.482 0.495 0.507 0.520 0.533 0.546 0.560 0.574 0.588 0.603 0.618 0.633 0.649 0.665 0.682 0.699 0.716 0.734 0.752 0.771 0.791 0.810 0.831 0.851 0.873
3.311 3.394 3.479 3.566 3.655 3.747 3.840 3.936 4.035 4.136 4.239 4.345 4.454 4.565 4.679 4.796 4.916 5.039 5.165 5.294 5.426 5.562 5.701 5.843 5.989
16.36 15.82 15.28 14.73 14.19 13.65 13.11 12.56 12.02 7.10 6.83 3.31 -
20.158 19.709 19.263 18.820 18.379 17.941 17.505 17.072 16.641 11.842 11.686 8.290 5.102 5.230 5.361 5.495 5.632 5.773 5.917 6.065 6.217 6.372 6.531 6.695 6.862
8.668 8.880 9.097 9.319 9.547 9.781 10.020 10.266 10.518 10.752 11.019 11.274 11.537 11.826 12.121 12.424 12.735 13.053 13.379 13.714 14.057 14.408 14.768 15.138 15.516
0.5660 0.5798 0.5940 0.6085 0.6234 0.6386 0.6543 0.6703 0.6868 0.7021 0.7195 0.7361 0.7533 0.7722 0.7915 0.8112 0.8315 0.8523 0.8736 0.8955 0.9178 0.9408 0.9643 0.9884 1.013
8.1024 8.3000 8.5027 8.7105 8.9236 9.1421 9.3661 9.5958 9.8313 10.0503 10.2992 10.5378 10.7838 11.0534 11.3297 11.6129 11.9033 12.2008 12.5059 12.8185 13.1390 13.4674 13.8041 14.1492 14.5030
8.102 8.300 8.503 8.711 8.924 9.142 9.366 9.596 9.831 10.050 10.299 10.538 10.784 11.053 11.330 11.613 11.903 12.201 12.506 12.819 13.139 13.467 13.804 14.149 14.503
NEW BONG ESCAPE HYDROPOWER PROJECT CASH FLOW (WITH CDM REVENUE)
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Elec. Revenue
US$ mln
Gross Revenue Income Carbon on STI Credits

US$ mln US$ mln
Total
US$ mln
Expenses Variable Debt O&M Exp O&M Exp Servicing Total

Revenue Net Withhold Post Tax forEquity Revenue Tax Revenue IRR
28.608 28.371 28.142 27.921 27.707 27.502 27.305 27.117 26.938 22.396 22.504 19.378 16.468 16.880 17.302 17.734 18.177 18.632 19.098 19.575 20.064 20.566 21.080 21.607 22.147
0.266 0.267 0.269 0.271 0.273 0.275 0.278 0.280 0.283 0.261 0.266 0.253 0.241 0.247 0.253 0.260 0.267 0.274 0.281 0.289 0.296 0.304 0.312 0.321 0.329
3.383 32.25738 3.485 32.124 3.589 32.001 3.697 31.889 3.808 31.788 3.922 31.699 4.040 31.623 4.161 31.558 4.286 31.506 4.414 27.071 4.547 27.316 4.683 24.314 4.824 21.532 4.968 22.095 5.117 22.672 5.271 23.265 5.429 23.873 5.592 24.498 5.760 25.139 5.932 25.796 6.110 26.471 6.294 27.164 6.482 27.875 6.677 28.605 6.877 29.354
0.482 0.495 0.507 0.520 0.533 0.546 0.560 0.574 0.588 0.603 0.618 0.633 0.649 0.665 0.682 0.699 0.716 0.734 0.752 0.771 0.791 0.810 0.831 0.851 0.873
3.311 3.394 3.479 3.566 3.655 3.747 3.840 3.936 4.035 4.136 4.239 4.345 4.454 4.565 4.679 4.796 4.916 5.039 5.165 5.294 5.426 5.562 5.701 5.843 5.989
16.36 15.82 15.28 14.73 14.19 13.65 13.11 12.56 12.02 7.10 6.83 3.31 -
20.158 19.709 19.263 18.820 18.379 17.941 17.505 17.072 16.641 11.842 11.686 8.290 5.102 5.230 5.361 5.495 5.632 5.773 5.917 6.065 6.217 6.372 6.531 6.695 6.862
12.100 12.414 12.737 13.069 13.409 13.759 14.118 14.486 14.865 15.230 15.630 16.024 16.430 16.865 17.312 17.770 18.241 18.725 19.221 19.731 20.254 20.792 21.343 21.910 22.492
0.8253 0.8468 0.8688 0.8914 0.9146 0.9385 0.9630 0.9881 1.0139 1.0388 1.0661 1.0930 1.1207 1.1503 1.1808 1.2121 1.2442 1.2772 1.3111 1.3459 1.3816 1.4182 1.4558 1.4945 1.534
11.2745 11.5675 11.8683 12.1772 12.4945 12.8202 13.1547 13.4982 13.8510 14.1908 14.5641 14.9308 15.3088 15.7144 16.1307 16.5581 16.9970 17.4476 17.9102 18.3852 18.8728 19.3735 19.8876 20.4154 20.9574
11.274 11.567 11.868 12.177 12.494 12.820 13.155 13.498 13.851 14.191 14.564 14.931 15.309 15.714 16.131 16.558 16.997 17.448 17.910 18.385 18.873 19.374 19.888 20.415 20.957
-----

Bong Escape Hydropower Project

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PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

Private and/or public entity(ies) project participants (*) (as applicable)

Islamic Republic of Pakistan (host)

Laraib Energy Limited

Technical description of the project activity:

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

A.4.1.1. Host Party(ies): >> Islamic Republic of Pakistan (host)

A.4.1.2. Region/State/Province etc.: >> The Azad Jammu & Kashmir

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board >> The approved methodology ACM0002 covers: a)

N2O Not Included CO2 CH4 Not Included Not Included

N2O Not Included

Zero emissions from project activity

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

Hurdle Rate 16.00 % 16.00 %

13.95 % 13.62 % 14.27 % 12.25 % 15.52 % 11.88 % 14.18 % 13.95 %

16.87 % 16.63% 17.10% 15.52% 18.39% 15.25% 17.04% 16.87 %

16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00%

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

COMPOSITE RATINGS Year Ago

Scarce Foreign Direct Investment.

Asia Total China

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.

CDM Executive Board