(clean development mechanism project design document...

PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) - Version 03

CDM – Executive Board

1

(CLEAN DEVELOPMENT MECHANISM

PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD)

Version 03 - in effect as of: 22 December 2006

CONTENTS

A. General description of the small scale project activity

B. Application of a baseline and monitoring methodology

C. Duration of the project activity / crediting period

D. Environmental impacts

E. Stakeholders‟ comments

Annexes

Annex 1: Contact information on participants in the proposed small scale project activity

Annex 2: Information regarding public funding

Annex 3: Baseline information

Annex 4: Monitoring Information

Annex 5: Environmental Protection Agency Approval

Attachments

Attachment A: IRR calculation

This attachment is in two versions: an excel version for use by DOE and UNFCCC/UNFCCC-

appointed bodies (e.g. Executive Board, Secretariat, registration assessors) only, and a pdf

version for publication).

Attachment B: Evidence of assumptions used for the IRR calculation

Attachment C: Stakeholder comments

Attachment D: Letter from Gul Ahmed and EcoSecurities requesting TUV SUD to withdraw the

project

Attachment E: Internal benchmark IRR

Attachment F: Extracts from Gas turbine acceptance test (Dec06) and Boiler contract (Apr06)



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Attachment G: Extract of contract for the gas turbine (Jul05)

Attachment H: CDM screening report by EcoSecurities (Jul06)

Attachment I: Revised carbon credit offer made by EcoSecurities to Gul Ahmed (expiring in

Dec06)

Attachment J: Carbon credit offer made by EcoSecurities to Gul Ahmed (Sep06)

Attachment K: Log sheet of first firing of WHR Boiler (May07)

Attachment L: External benchmark IRR

Attachment M: CER calculations



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SECTION A. General description of small-scale project activity

A.1 Title of the small-scale project activity:

Gul Ahmed Combined Cycle Gas Turbine Project

PDD Version Number 14

24/10/2010

A.2. Description of the small-scale project activity:

The Gul Ahmed Combined Cycle Gas Turbine (CCGT) Project (hereafter, the “Project”) developed by

Gul Ahmed Textiles Mills Limited (hereafter referred to as “Gul Ahmed” or the “Project Developer”) is

a 10 MW CCGT project in Karachi, Sindh province, Pakistan (hereafter referred to as the “Host

Country”).

Gul Ahmed is one of the leading textile mills in Pakistan. The group began trading in textiles in the early

1900s. It then entered the field of manufacturing and Gul Ahmed Textile Mills Ltd. was incorporated as a

private limited company in 1953. In 1972, it was subsequently listed on the Karachi Stock Exchange.

Since then, the company has been making rapid progress and is one of the best composite textile houses

in the world. Activities in the textile field start from the spinning of cotton as well as man-made fibres

and extend to weaving, processing and finishing of all types of cotton and blended fabrics, bed linen,

home furnishings, garment manufacturing, etc.

The Project is located in unit 1 of Gul Ahmed Textiles Mills Limited, which provides steam and

electricity to units 1, 2 and 3, consisting of textile manufacturing, covering, spinning and wet processing

of fabric. The process requires a significant amount of electricity and steam. Steam is currently supplied

by three boilers running on natural gas, and electricity is supplied by a mix of gas-fired and oil-fired

engines. This system will be replaced by a combined cycle gas turbine (CCGT) system. A 10 MW gas

turbine1 will be installed; its exhaust gases will be fed into a waste heat recovery boiler to generate steam

for the process, and for a steam turbine that will generate additional electricity (therefore bringing total

electrical capacity above 10 MW). Steam for the process will also be extracted from the steam turbine.

The Project is developed in 3 phases:

1. Installation of the gas turbine, whose operation started in December 2006

2. Installation of the waste heat recovery boiler (WHRB), whose operation started in June 2007

3. Installation of the steam turbine, whose operation is expected to start in 2010 or 2011, if this

phase goes ahead.

In the first two phases of the project, some engines will be running in parallel to the gas turbine in order

to fulfil the energy requirements of the plant. Once the full CCGT system is operational, it should meet

all the energy requirements of the plant. However, engines and boilers will still be used until the full

CCGT system is operational as well as afterwards for backup (e.g. during CCGT maintenance periods).

The new system will reduce CO2 emissions by:

1 The turbine has the capacity to generate up to 10.6MW, depending on the operating conditions (in particular the

ambient air temperature). This excludes the additional capacity that will be added when the steam turbine becomes

operational.



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increasing the efficiency compared to the old system (due to the higher efficiency of

cogeneration compared to separate electricity and heat generation), and

using exclusively natural gas, which is less carbon intensive than heavy fuel oil (HFO).

It is expected to save approximately 147 GWh/yr of fuel input once the full system is in place, and this

corresponds to annual savings of 35,351 tCO2/yr, on average (see section B.6.4). This state of the art

CCGT system is the first installed in textile mills in Pakistan, and is an important investment (6.5M€)

which, despite the revenues from fuel savings, becomes attractive only once CDM revenues are included.

In the absence of CDM, the plant would continue running with existing engines and boilers (and to

purchase new (similar) engines, if required).

The project is helping the Host Country to fulfil its goals of promoting sustainable development.

Specifically, the project:

Reduces the use of fossil fuels (natural gas and heavy fuel oil)

Reduces the use of water (used in the boilers)

Consolidates Pakistan‟s captive electricity production capacity, therefore contributing to the

diversification of electricity production

Acts as a clean technology demonstration project, encouraging development of modern and efficient

captive energy generation equipment throughout the Host Country

Increases skilled labour opportunities at the project plant

Stimulates economic activity and investment in the project area

A.3. Project participants:

Table 1: 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)

Pakistan (host) Gul Ahmed Textiles Mills Limited No

United Kingdom of Great Britain

and Northern Ireland

EcoSecurities International Limited No

(*) In accordance with the CDM modalities and procedures, at the time of making the CDM-PDD public

at the stage of validation, a Party involved may or may not have provided its approval. At the time

requesting registration, the approval by the Party(ies) involved is required.

A.4. Technical description of the small-scale project activity:

A.4.1. Location of the small-scale project activity:

A.4.1.1. Host Party(ies):

Pakistan



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A.4.1.2. Region/State/Province etc.:

Sindh province

A.4.1.3. City/Town/Community etc:

Landhi Industrial Area - Karachi 75120

A.4.1.4. Details of physical location, including information allowing the

unique identification of this small-scale project activity :

The geographic coordinates of the site are 24º 50‟ 18.52” N and 67º 13‟ 18.66” E. The site is situated on

the north-east edge of the Gul Ahmed Chowrangi roundabout, and 8.5 kms south-east of Karachi

International Airport, at an elevation of 33 metres above sea level.

A.4.2. Type and category(ies) and technology/measure of the small-scale project activity:

The category for the project activity according to the UNFCCC‟s published simplified procedures for

small-scale activities is Type II.D (AMS-II.D) – “Energy efficiency and fuel switching measures for

industrial facilities” (v11, approved at EB35). The project conforms to the project category since the

aggregate energy savings are not expected to exceed the equivalent of 180 GWhth per year of fuel input

(see last calculation of section B.6.3 – expected 129 GWh/yr).

The technologies used in the Project are described below:

Installation of a new Solar Mars M100 10.3 MW gas turbine (GT). Nominal electrical

efficiency of the turbine is 30.4% at 35°C ambient air temperature, which is the base case

temperature for the Project. As the efficiency of the turbine increases at lower temperature,

chillers may also be installed in order to cool air inlet. Air compressors will run on gas and no

electricity is used by turbine auxiliaries. The turbine is of dual firing type, which also allows use

of diesel instead of gas when/if needed.

The turbine is manufactured by US-based company Solar Turbines Inc. (a world leading

producer of mid-range industrial gas turbines) and distributed by Swiss-based Turbomach SA.

Both companies are wholly owned subsidiaries of Caterpillar Inc.

Construction started in June 2006, first trials were made in December 2006 and commercial

operation started in July 2007.

Installation of a new 30 tph waste heat recovery boiler (WHRB), using exhaust heat from the

gas turbine (production capacity from exhaust heat is approximately 20 tph) and, if demand goes

above 20tph, natural gas from duct firing circuit. The steam produced by the WHRB is currently

fed to the process at approximately 10 bars and 184o Celsius. In the future (once the steam

turbine is running), steam will be produced at higher pressure to feed the steam turbine (see point

3 below)

The boiler is provided by local civil work providers, with support from engineering company

Descon Engineering.

Construction started in December 2006, first trials were made in June 2007 and commercial

operation started in July 2007.



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Process Steam

Raw Water

RO Plant

Boiler Feed

Water Tank

Process

Hot water

tank

Absorption Chiller

Cooling Tower

Air Chiller

Waste Heat

BoilerGas

Turbine

Air

Compressor

AIR

Chilled

Air

Combustion

Chamber

Exhaust

Exhaust to

Atmosphere

Dump

Condensor

GATML - Schematic Layout of Turbine Power Plant & Heat Recovery Unit

Steam

Turbine

Condensate

Hot water

To RO

Plant

Water From

exhaust heat

recovery Boiler

& Eng JW

Exhaust

To

Process

Gas

com

pres

sor

Installation of new steam turbine (ST) with approximate capacity 1 to 4 MW (depending on the

design chosen), using steam produced by the WHRB to produce electricity. Exhaust steam will

be extracted and supplied to the process.

The order for the steam turbine should be placed at the end of 2009 for a start of operation in

2010 or 2011, although this phase is still uncertain.

Piece of equipment in the project Construction start Commercial operation start

Gas turbine June 2006 July 2007

Waste heat recovery boiler December 2006 July 2007

Steam turbine Expected in 2009 Expected in 2010-2011

Table 2: Project schedule

All components use state-of-the-art technologies from the leading providers and were selected by Gul

Ahmed after an extensive research and comprehensive bidding process to select the best technology for

the requirements of the plant. The equipment installed will be able to run for at least 25 years.

The setup of this new energy generation system is illustrated below on Figure 1. Once the full CCGT

system is in place, it will replace the current system, which comprises of:

Ten 0.625 MWe Waukesha engines running on natural gas

Two 4.0 MWe Wartsila engines running on furnace oil (i.e. Heavy Fuel Oil HFO)

Two 15 tph and one 8tph gas-fired boilers, providing steam for the process (approximately 8

bars, 175o Celsius).

However, most engines will be kept as backup in the project boundary, and it is expected that they will

run a few days per year (in which case emissions will be accounted for as project emissions, in

accordance with equation 4).

Total capacity in the baseline and project case is similar (around 12-14MW in both baseline and project

for the electricity; 38tph in baseline and 30tph in project for the steam). Actual output is lower than

theoretical capacity as it is limited to the requirements of the plant, which are 10MW and 22tph in both

baseline and project scenarios. These figures have been used in this PDD for emission reduction

estimates and for IRR calculations, and they are the ones that were used already in the investment

analysis made by the project developer in 2005 when they decided to invest in the project.



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Figure 1: Block diagram of the new energy generation system

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A.4.3 Estimated amount of emission reductions over the chosen crediting period:

The new system will reduce CO2 emissions both by increasing the efficiency compared to the old system

and by using exclusively natural gas, which is less carbon intensive than HFO. The table below provides

estimates of emission reductions that are expected (see details of calculations in section B.6.3).

Years Annual estimation of emission reductions

in tonnes of CO2e

2010 (February - December) 30,365

2011 36,038

2012 36,038

2013 36,038

2014 36,038

2015 36,038

2016 36,038

2017 (January) 3,003

Total estimated reductions (tCO2e) 249,595

Total number of crediting years 7

Annual average over the crediting period of

estimated reductions (tCO2e) 35,656

A.4.4. Public funding of the small-scale project activity:

The Project will not receive any public funding from Parties included in Annex I of the UNFCCC.

A.4.5. Confirmation that the small-scale project activity is not a debundled component of a

large scale project activity:

2 There may not be any dump condenser in the final system, depending on which type and set-up of steam

turbine is selected and installed (operation of the steam turbine is expected around the end of 2009).



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According to the criteria set out in Appendix C of the Simplified Modalities and Procedures for Small-

Scale CDM project activities, the Project is not a debundled component of a larger project activity since

the project participants have not registered another CDM project in the region surrounding the project

boundary in the last 2 years.



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SECTION B. Application of a baseline and monitoring methodology

B.1. Title and reference of the approved baseline and monitoring methodology applied to the

small-scale project activity:

The Project uses methodology AMS-II.D (v11, approved at EB35) – “Energy efficiency and fuel

switching measures for industrial facilities”, as outlined in Annex B of the simplified modalities and

procedures for CDM small-scale project activities.

B.2 Justification of the choice of the project category:

The Project applies to Category AMS II.D since all applicability conditions outlined in this Methodology

are met:

The Project comprises energy efficiency and fuel switching measures implemented at a single

industrial facility.

It aims primarily at energy efficiency (rather than fuel switching) as 79% of current energy input

already comprises of gas, and only 21% of oil3 – therefore, only a maximum of about 6% of CO2

emissions can be saved through fuel switching4, while efficiency is expected to increase by

approximately 36%5. This higher efficiency comes from the recovery of the waste heat from the

gas turbine to produce steam (cogeneration) and, once the steam turbine is installed, additional

electricity (CCGT). By comparison, no waste heat was recovered from the engines for steam or

electricity in the baseline.

The measures replace existing facilities.

The aggregate energy savings do not exceed 180 GWhth per year in fuel input6.

B.3. Description of the project boundary:

The geographical boundary of the Project is the energy generation equipment located in unit 1 of Gul

Ahmed Textile Mill Limited, which provides steam and electricity to units 1, 2 and 3. This generation

equipment comprises of existing (baseline) equipment: Waukesha gas engines, Wartsila oil engines, gas-

fired boilers, as well as the new (project) gas-fired CCGT system. The new powerhouse (for the CCGT

system) is indicated on the aerial photograph below (Figure 2).

3 See calculation in the note at the end of paragraph 1 of section B.6.3.

4 The difference in emission factors between natural gas (0.2020 tCO2/MWh of fuel) and heavy fuel oil (0.2786

tCO2/MWh) is approximately 27% - and as only a maximum of 21% of fuel can be switched, this gives a maximum

emission reduction potential of 27% * 21% = 6% due to fuel switching.

5 See calculation in paragraph 6 of section B.6.3.

6 See calculation in paragraph 6 of section B.6.3 - approximately 129 GWhth of annual savings are expected.



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Figure 2: Location of the new powerhouse in relation to the other units. Each uu

nit is designated by a number, e.g. GTM 2 stands for Gul Ahmed Textile Mill unit 2.

The plant is currently not connected to the grid7. Only CO2 emissions are included in the project

boundary.

7 The electricity consumption of the plant in the baseline (ECbaseline) is capped at historical level (EChistorical) for

calculations. Therefore, should there be a grid connection in the future for additional exports/imports (this is not

currently expected, but the electricity supply situation is evolving rapidly in Pakistan and might affect Gul Ahmed),

it would not affect the emission reduction calculations (provided the electricity produced on-site is at least equal to

EChistorical). Thus the plants connected to the grid will stay outside the project boundary in any case.



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Table 3: Sources and gases included in the project boundary

Source Gas Included? Justification / Explanation

Pro

ject

Act

ivit

y

On-site fuel

combustion

due to project

activity

CO2 Yes Major source of emissions

CH4 No Minor source

N2O No Minor source

B.4. Description of baseline and its development:

As specified in AMS II.D, in the absence of the CDM project activity the existing facility would continue

to consume energy (ECbaseline, in GWh of electricity consumed per year and SCbaseline in GWh of steam

consumed per year) at historical levels (EChistorical and SCbaseline in GWh/year)8, until the time at which the

energy generation equipment at Gul Ahmed would be likely to be replaced, modified or retrofitted in the

absence of the CDM project activity (DATEBaselineRetrofit). This energy baseline is then multiplied by the

emission factor of the fuel used to obtain the baseline emissions. This is done for both fuels used in the

baseline and project (natural gas and heavy fuel oil).

Determination of the point in time when the equipment would need to be replaced in the absence of the

project activity:

The point in time when the existing equipment would need to be replaced in the absence of the project

activity is determined according to AMS II.D, using mostly approach (b): common practice at Gul

Ahmed, which has an active and innovative energy department which makes it a very responsible

industry regarding maintenance, overhaul and replacement schedules – as illustrated in Table 4 below,

and documented in the first section of Annex 3 (Figure 4 to Figure 7). All energy generation equipment is

currently in excellent working condition.

Remaining lifetime of baseline equipment

The lifetime of the project equipment is 25 years. This was communicated by the manufacturer

Turbomach to the project participant in an e-mail dated 27/5/2008 (please refer to Figure 8 in Annex 3).

Within the same e-mail it has been further declared that two gas turbines being used at Sui Northern Gas

pipelines have completed 42 and 39 years of operations and are still in use. Two gas turbines used by

another textile mill (Al Karam Textile) have completed 25 years of service. Waukesha gas engines were

installed at Gul Ahmed in 1989. In the letter from Masco to Gul Ahmed dated 22/05/2008 (please refer to

Figure 4 in Annex 3) it was stated that the Waukesha gas engines require overhaul every 72,000 hours

(i.e. 10 years), and four overhauls is considered routine. General overhaul of Wartsila Engines had been

8 Such consumption is capped at the consumption that occurs in the Project in case energy generation is lower in the

Project than historically (see section B.6.1).

Ba

seli

ne

On-site fuel

combustion

for steam and

electricity

generation in

baseline

CO2 Yes Major source of emissions

CH4 No Minor source

N2O No Minor source



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performed after 64,000 hours, and in the e-mail from Wartsila to Gul Ahmed, dated 30/5/2008, (please

refer to Figure 9 in Annex 3), the manufacturer comments that engine life cannot be established, but

similar engines have been operating for 30 years. The same applies to boilers, where the life expectancy

cannot be established. The lifetime of baseline equipment as indicated in technical literature is dependent

on timely preventive maintenance based on the maintenance schedules provided by manufacturers.

The timeline of overhaul of all the baseline equipment is as follows:

Wartsila

Engines

Running

[hrs]

Recommended

major overhaul

[hrs]

Major

overhaul

cost [~PKR]

Remarks Status

13,423,575

per engine

Each Wartsila engine has

undergone one overhaul,

and as such the next

overhaul will not be due

till 2020 and 2023 (if it

continues operation at

4,300 hrs/yr which is in

line with past operational

practice). At the end of

this period another major

overhaul will extend the

engine life by a further

64,000 hrs taking it

beyond 2030 (the baseline

lifetime in the PDD). This

is as per Waukesha who

state that an additional 3

overhauls can be

performed.

stand by

No. 1 73,295 64,000

No. 2 80,812 64,000

Waukesha

Engines

Running

[hrs]

Recommended

major overhaul

[hrs]

Major

overhaul

cost [~US $]

Remarks Status

No. 1 109,593 72,000

60,000 per

engine

Waukesha engines

have undergone

Major overhauls at

various times

between 60 to 80

thousand hours of

operation.

Additionally, three

overhauls may be

undertaken as per

Waukesha.

Engines 1, 3, 4,

and 5 are on

standby, and

engines 2, 7, 8,

and 9 are in

operation

subject to power

requirements.

No. 2 120,091 72,000

No. 3 117,733 72,000

No. 4 115,696 72,000

No. 5 123,064 72,000

No. 7 83,281 72,000

No. 8 88,526 72,000

No. 9 73,253 72,000



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Gas Fired

Boilers Recommended Major Overhaul

Major overhaul cost

[~PKR] Status

No. 1 Yearly

50,000 per boiler stand by No. 2 Yearly

No. 3 Yearly

Table 4: Commissioning dates and overhaul periods for existing energy generation equipment

Given the above, it is conservative to take 2030 as the end of the lifetime of the equipment, so we have

DATEBaselineRetrofit = 2030.

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 small-scale CDM project activity:

According to Attachment A to Appendix B of the Simplified modalities and procedures for small-scale

projects, an analysis of the barriers that would prevent the Project in absence of CDM revenues is used to

demonstrate the Project‟s additionality.

Barrier due to prevailing practice

As per Attachment A to Appendix B of the “Simplified modalities and procedures for small-scale CDM

project activities”, it needs to be shown in barrier due to prevailing practice that prevailing practice or

existing regulatory/policy requirements would have led to implementation of a technology with higher

emissions.

There are 400-500 textile mills in the host country9. The All Pakistan Textile Mills Association

(“APTMA”) is the largest association of textile spinning, weaving, and composite mills in Pakistan. The

prevailing practice in these mills is to use gas engines (a few use diesel/heavy fuel oil engines) for

electricity generation. A survey was conducted by APTMA, the results of which confirm that none of

their members, except the project proponent have (as of 27/07/2009) installed a combined cycle power

generating plant. Thus it is confirmed that the proposed CDM project activity of Gul Ahmed Textile

Mills Ltd. is the first and only such installation among APTMA members, as of 27th July 2009 (please

refer to Figure 18 in Annex 3). It is therefore reasonable to conclude that even at the time of decision

making, the project participant‟s proposed CDM project activity was the first installation of a combined

cycle power generating plant amongst APTMA members.

The above facts are further corroborated via data from two of Pakistan‟s leading gas engine distributors,

who sold more than 1,200 engines (more than 1,400 MW of total gas engine capacity) to textile mills in

Pakistan between 2001 and 2006. Data from leading distributors of gas turbines (representing more than

80% of the market), indicates that approximately 15 gas turbines (ca. 75 MW of total gas turbine

capacity), were commissioned between 2001 and 2006 in textiles mills in Pakistan (and this includes the

Project's 10 MW turbine).

9 http://www.aptma.org.pk/Pak_Textile_Statistics/Gctipw.asp



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Quantity sold

2001 -2006

Capacity sold [MW]

2001 - 2006

Gas engines > 1,200 > 1,400

Gas turbines < 15 < 75

Table 5: Number and capacity of gas turbines and gas engines sold in Pakistan in the textile

sector between 2001 and 2006

Sources of information:

• Gas engines: Data from two leading manufacturers yielding a minimum figure for total sales in

Pakistan.

• Gas turbines: Data from distributors representing more than 80% of market share. Their sales

figures were multiplied by a conservative (i.e. high) factor of 1.5 to estimate an upper value of

total sales in Pakistan.

Table 5 was compiled based on data received from Orient Power (e-mail of Mr. Anwar ul Hasan, dated

13/08/2007, distributors for Jenbacher Gas Engines), Allied Engineering Services Ltd. (e-mail of Mr.

Ghazanfar Abbas, dated 16/08/2007, distributors for Caterpillar), and Turbomach Gas Turbines. The data

was validated by the DOE during the site visit.

Table 5 indicates that 15 gas turbines were sold to the textile sector. Gas turbines are one component of

the combined cycle project which also requires a waste heat recovery boiler and steam turbine (Figure 1

in Section A.4.2). Stand alone gas turbines can also be used for electricity generation.

The above explanation clearly establishes that combined cycle gas turbine (“CCGT”) based power

generation is not a prevailing practice in the textile industry in Pakistan.

Investment barrier

The main other barrier faced by the Project is the fact that is not financially attractive to be undertaken

without additional revenues from CDM. As documented in Attachment A to this PDD, the internal rate

of return (IRR) of the Project without carbon revenues is 14%, which is low for Gul Ahmed. Other

investment alternatives were considered too, but their IRR was even lower (see table included at the end

of Figure 15).

The assumptions that were used to calculate this 14% IRR are compiled and substantiated in Table 6

below. These assumptions were used for making the decision to proceed with the project in 2005 and

hence have not been altered in the PDD. The detailed IRR calculation, based on those assumptions, is

displayed in Attachment A to the PDD.

Input values used in the IRR calculations were applicable at the time of decision making. This is in line

with paragraph 6 of the “Guidelines on the Assessment of Investment Analysis” (EB 51, Annex 58).

Input values used in the IRR calculations including cost of equipment have are as per Table 6 below.

Input Parameter, Value Source

Power Requirement, 10,000 KWh Plant Log Sheets & Operating Reports



15


Steam Requirement, 22 TPH Plant Log Sheets & Operating Reports

Hot Water Requirement, 800 m3/day Plant Log Sheets & Operating Reports

Annual Hours, 8,500 Plant Log Sheets & Operating Reports

Furnace Oil Consumption 238g/KWh Previous HFO Purchase Orders & Plant Log Sheets

Lube Oil Consumption, 0.0012 Kg/ KWh Previous Lube Oil Purchase Orders & Maintenance

Records

Gas Consumption for Gas Generator, 0.39 m3/ KWh Plant Log Sheets & SSGC Monthly Gas Bills

Gas Consumption for Gas Turbine, 0.41 m3/ KWh Manufacturer data from supplier

Gas Consumption for Old Steam Boiler, 93.95 m3/

KWh Plant Log Sheets & SSGC Monthly Gas Bills

Gas Consumption for Waste Heat Recovery Boiler,

74.68 m3/KWh

Manufacturer data from supplier

Gas Price, PKR 6.65/m3 SSGC Monthly Gas Bills

Lube Oil Price, PKR 115.40/Kg Lube Oil Manufacturer Quotations & Previous

Purchase Orders (prior to decision making)

Furnace Oil Price, PKR 16,400/Ton Lube Oil Supplier Quotations & Previous Purchase

Orders (prior to decision making)

Cost of Energy per Unit from Gas Turbine, PKR 3.73 Project Feasibility Report

Cost of energy per unit from Waste Heat Boiler, PKR

698 Project Feasibility Report

Cost of energy per unit from Furnace Oil Generator,

PKR 4.28 Project Feasibility Report

Cost of energy per unit from Gas Generator, PKR

2.81 Project Feasibility Report

Cost of energy per unit from Old Steam Boiler, PKR

628 Project Feasibility Report

Cost of Gas Turbine, PKR 230,000,000 Project Feasibility Report & Request for approval

of Project

Cost of Compressor, PKR 37,000,000 Project Feasibility Report & request for approval of

Project

Cost of Boiler, PKR 75,000,000 Project Feasibility Report & request for approval of

Project

Cost of Chiller, PKR 18,000,000 Project Feasibility Report & request for approval of

Project

Cost of Water Treatment Plant, PKR 10,000,000 Project Feasibility Report & request for approval of

Project

Cost of auxiliaries, PKR 15,000,000 Project Feasibility Report & request for approval of

Project

Cost of civil work, PKR 16,000,000 Project Feasibility Report & request for approval of

Project

Erection & installation Cost, PKR 17,000,000 Project Feasibility Report & request for approval of

Project

Cost of electrical works, PKR 29,000,000 Project Feasibility Report & request for approval of

Project

Insurance cost, PKR 8,000,000 Project Feasibility Report & request for approval of

Project

Duties & taxes, PKR 23,000,000 Project Feasibility Report & request for approval of

Project

Contingency cost, PKR 22,000,000 Project Feasibility Report & request for approval of

Project



16


Interest on loan, 10% Project Feasibility Report

Depreciation cost, 10% Project Feasibility Report

Salaries - varies for different installations As per costing worksheet

Maintenance - as expensed for engines. For Gas

turbine cost as per maintenance contract with the

manufacturer was used.

As per costing worksheet

Turbine Operating Load, 95% Manufacturer‟s warranty and actual witness of these

loads operating in Italy and Spain.

Gas Engine Operating

Load, between 78% and 100%

Manufacturer‟s warranty, and check from plant

logbooks

HFO Engine Operating Load, 92%

Engines normally running at 80% and 88% load.

The figure of 3,700 kW or 92% load appears as

simplification of data covering running of two

engines to meet occasional demand.

Cost of Project, RS.500 million See breakdown of the project cost.

Loan repayment period, 5 years Typical repayment period June 2005.

Depreciation Period, 10 years Applied in all projects in Gul Ahmed as standard

practice.

Life of project for financial analysis, 15 years This is the maximum taken in the company for

project financials.

Euro-Rupee Conversion Rate, RS.77 per 1 € Rate in June 2005.

Trading Price per ton of Carbon, 10 € Market values and expected trend.

Carbon Emission Reduction, 30,000 Tonnes per Year Estimate based on change of fuel from HFO to Gas

and cogeneration operation.

Table 6: Assumptions for the IRR calculation

Invoices and information from equipment suppliers further substantiate that the cost of equipment was

reasonable. The Turbomach price schedule (dated 18/02/2005) is included in Attachment B – Evidence

of assumptions used for the IRR calculation.

In order to conclude on the additionality of the project, this IRR can be compared to two different

benchmarks:

1. Internal benchmark

This is the method used by Gul Ahmed to approve major investments (>100,000,000 PKR i.e. around

3.5M USD). The project IRR has to be calculated in a feasibility analysis for all major investments and a

company policy was introduced in September 2004, stating that the internal hurdle rate to approve

investments would be twice the State Bank of Pakistan discount rate (see Figure 12). When the decision

to go ahead with the project was made (July 2005), this discount rate was 9% and hence the internal

benchmark IRR was 18%. This was announced officially and transparently by the company to all

divisions on April 18th 2005 (see Figure 13).

The use of this internal benchmark is in accordance with paragraph 13 of the Guidance on the assessment

of investment analysis:

Gul Ahmed is the only project developer, as the project is to generate steam, which cannot be

transported from elsewhere, and electricity, which cannot be imported from the grid (as the plant

is not grid connected), for the textile production process



17

The benchmark has been consistently used in the past, as evidenced in Attachment E which

contains all updates of the internal benchmark between 2004 and 2009, signed and dated by Gul

Ahmed management and sent to all departments of the company.

The list of all major projects approved by Gul Ahmed since the introduction of the benchmark rule is also

given in Figure 3 and clearly shows that all projects meet the benchmark, which gives further evidence of

the application of the internal benchmark by Gul Ahmed. However, there are only 4 of these projects

(because only investments of >100,000,000 PKR have to follow the internal benchmark rule) and they

are not power projects (because Gul Ahmed is a textile mill). Therefore an external benchmark has also

been calculated to double-check that the project IRR is not attractive for a Pakistani investor like Gul

Ahmed.

Figure 3: List of projects approved by Gul Ahmed Textiles Limited management committee between

September 2004 (when the internal benchmark policy was adopted) and December 2008.

For each of the 4 projects, the feasibility study (containing the investment cost, IRR and payback calculation) has

been shown to the DOE. The benchmark applicable at the time is taken from Attachment E. Note that the IRR with carbon revenues was still just below the benchmark (17.1% against 18%), but for such a

small difference the management committee made an exception given the additional environmental benefits of the

project, as catered for in the management committee decision dated from September 2004 (see page 1 of Attachment

E).

2. External benchmark

The way the IRR is calculated by Gul Ahmed as per their internal procedure used to approve projects

corresponds neither to a project IRR nor an equity IRR as per CDM definitions in the Guidance on the

assessment of investment analysis. Therefore, it is unclear whether the external benchmark should be an

expected return on equity (for comparison with equity IRR) or an expected return on the overall project

capital (for comparison with project IRR). For conservativeness, both benchmarks have been calculated.

The IRR of the project activity is kept at 14.0% in both cases as this is the official return calculated by

Gul Ahmed as part of their formal project approval procedure (14.0% - see Figure 15). Note that this is a

pre-tax IRR.

The two external benchmarks are as follows:

Expected return on equity has been calculated with the Capital Asset Pricing Model, resulting in

a benchmark of 28.0%.

Weighted average cost of capital (WACC) is derived from the Expected return on equity, Cost of

debt and company debt ratio, resulting in a WACC of 15.6%.

See Annex 3 (section 7) and Attachment L for detailed assumptions, sources and calculations of each

benchmark.



18

The IRR calculated is a “project IRR”, and as per paragraph 12 of the “Guidelines on the Assessment of

Investment Analysis” (EB 51, Annex 58), local commercial lending rates or a weighted average cost of

capital (“WACC”) are appropriate benchmarks for a project IRR. Accordingly, external WACC has been

chosen as the benchmark, and this is appropriate for a project IRR, and is in line with paragraphs 111 of

VVM ver 1.1, and 12 of EB 51 Annex 58. The benchmark has been calculated using publicly available

data in line with paragraph 13 of EB 51, Annex 58.

The WACC is calculated as the weighted average cost of equity and cost of debt. The expected cost of

equity in the project type is calculated based on the Capital Asset Pricing Model (“CAPM”) using

publicly available financial data. The required rate of return on equity is calculated as the risk free rate

plus beta, multiplied by the risk premium (where beta represents the risk involved in the project type).

This method is in accordance with the additionality tool since the benchmark is based on official publicly

available financial data (based on parameters that are standard in the market). Each of the parameters

used in the calculation of the WACC is listed below.

Risk free rate (rf = 11.0%): This was taken from the average coupon of Pakistan government 10-year

bond rates between 2001 and 200410

. The risk free rate is taken from publicly available State Bank of

Pakistan data, which is the Central Bank and therefore reliable. It was applicable at the time of decision

making and is therefore appropriate.

Beta: Various beta values were examined by project participant as detailed below. It may be noted that

beta values for the power generation sector in emerging economies, textile products sector in emerging

economies, and textile products sector listed on the Karachi Stock Exchange were taken from an analysis

by Professor Damodaran of New York University‟s Stern School of Business11

. This analysis is based on

data that was available in January 2005 and is therefore applicable at the time of decision making. New

York University‟s Stern School of Business is among the most highly regarded worldwide. This source

does not include data on any companies in the power generation sector in Pakistan, so as an additional

cross check, Bloomberg snapshots were also considered for four power generating companies in

Pakistan. Bloomberg is a privately held financial software, news, and data company, and internationally

respected as an authority.

Beta value of power generation for emerging economies is 0.9712

Beta value of textile products for emerging economies is 0.9513

Beta value for textile products from Karachi Stock Exchange is 1.0614

Beta value for power generation from Karachi Stock Exchange is 0.9215

10 http://www.paksearch.com/Government/SBP/SBP_Annual/2002-03/Money%20 and%20Credit.htm and

http://www.sbp.org.pk/reports/annual/arfy06/Chp-5.pdf

11 http://pages.stern.nyu.edu/~adamodar/

12 http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm04.xls



15 Bloomberg snapshots (average of 4 companies) as submitted to Validating DOE

http://www.paksearch.com/Government/SBP/SBP_Annual/2002-03/Money

http://www.sbp.org.pk/reports/annual/arfy06/Chp-5.pdf



19

The Beta value of 0.92 was the most conservative of the above four values, and was derived from power

generating companies and sourced from Bloomberg, and is therefore appropriate.

Risk premium: Calculated as the difference between the market return and the risk free rate. The market

return is derived from publicly available data of average returns of the Karachi Stock Exchange for the

15-year period 1990-2005 (Karachi Stock Exchange data is available on Bloomberg Finance (Bloomberg

Finance L.P.). Since the market return is calculated based on publicly available Karachi Stock Exchange

data, and represents an average market return for 15 years (a long and representative period). This value

accurately represents the risk premium in the host country and is applicable at the time of decision

making, and is therefore appropriate.

Debt equity ratio: Debt equity ratio was taken from the publicly available Gul Ahmed balance sheet

(http://www.gulahmed.com/PDF/annual/Annual%20Report%202006.pdf). There is no standard publicly

available debt equity ratio for companies in the textile sector in the host country, so the project

participant also examined debt equity ratio for companies in the textile sector in emerging countries

which was 68:3216

. The Gul Ahmed debt equity ratio of 74:26 was more conservative, and is therefore

appropriate.

Cost of debt: Cost of debt was taken from project participant loan terms from different banks (United

Bank Ltd. interest rate of 11.5%; National Bank of Pakistan Loan 1 interest rate of 11.25%; National

Bank of Pakistan Loan 2 interest rate of 11.5% etc.) as detailed in Excel file „external benchmark.xls‟,

and is appropriate.

Interest rates payable by project participant were 1.25 to 1.5% above the Karachi Interbank Offered

Rates (KIBOR) interest rates, so an interest rate of 11.25% was used as cost of debt. The external

benchmark should be based on parameters that are standard in the market, so it was deemed appropriate

that interest rates considering various loans would be more representative of cost of debt rather than

considering only one interest rate. Hence the value of 11.25% is therefore appropriate to be cost of debt

for calculation of WACC.

It may be noted that interest rates of the above banks are either based on the State Bank of Pakistan

interest rate or Karachi Interbank Offered Rates (KIBOR). The State Bank of Pakistan interest rate was

9%, while Karachi Interbank Offered Rates (KIBOR) was State Bank of Pakistan interest rate + 1% (i.e.

10%). State Bank of Pakistan is the central monetary bank of Pakistan which has the function of

regulating banking and hence interest rate of KIBOR (which is interest rate of State bank of Pakistan +

1%) was considered appropriate for the IRR analysis. Thus, the interest rate in the IRR calculations

presented in the Feasibility Report was taken as 10%. Using 10% rather than 11.25% in the IRR

calculation gives a higher IRR, therefore the interest rate of 10% is more conservative, and is therefore

appropriate.

The data used for the WACC calculation are publicly available, correct, and authentic. This is in line

with the guidelines for benchmark selection, as stipulated in the “Guidance on the Assessment of

Investment Analysis”, from EB 51 Annex 58. Hence the benchmark is appropriate.




20

In conclusion, the IRR of the project activity is lower than both the internal benchmark, expected return

on equity and company weighted average of capital. Therefore, the project is not financially attractive in

absence of CDM, which proves the additionality of the project.

Sensitivity Analysis

Sensitivity analysis was undertaken in the investment analysis. The calculations for the sensitivity can be

found in the confidential Excel spreadsheet „Att A - Gul Ahmed IRR calculation NOT FOR

PUBLICATION‟ (submitted separately for Project registration). As illustrated in the Excel spreadsheet,

and in line with paragraph 17 of the “Guidelines on the Assessment of Investment Analysis” (EB 51,

Annex 58), two variables were included in the sensitivity analysis: Annual savings as a result of the

project were increased by 10%, resulting in an increased IRR of 15.4%; and Total investment cost was

decreased by 10%, resulting in an increased IRR of 15.5%. These variables cover all costs and revenues

(in the form of cost savings) of the project activity and indicate that a variation of these parameters of

more than 10% is unlikely. This demonstrates that even with a significant variation of the key variables,

the project IRR remains less than the benchmark of 15.6% (as per the “External benchmark” section

below). This demonstrates the robustness of the financial analysis, and further supports the conclusion

that the project is additional.

CDM consideration

Since 07 July 2005 (i.e. date when Management committee approved project with carbon revenues) is

earlier than 22 December 2007 (i.e. date of publication of PDD for global stakeholder consultation),

following is an explanation of how CDM benefits were seriously considered prior to the project start

date (as per section C.1.1).

Given that the Project IRR without carbon revenues was below the internal benchmark, the Project could

not be accepted by Gul Ahmed Management, which supported instead the continuation of the current

situation (using existing small engines and purchasing new ones of the same type to meet shortfall in the

event of demand increases). It had been stated at a Management meeting in September 200417

that

“environmental considerations should be part of all new projects” - however, this could not be converted

into financial benefits. This changed at the beginning of 2005, when Gul Ahmed learned about CDM via

one of their consultants, who informed them about the opportunities offered by the carbon market to

finance energy efficiency projects (see Figure 14).

Gul Ahmed fully incorporated this additional revenue in the feasibility analysis of the Project, and

carbon credits became a determining factor in the project economics18

. CER revenues were a key element

17 Minutes of the meeting will be made available for review by the DOE.

18 The IRR with carbon credits goes from 14.0% to 17.1% (this was calculated by Gul Ahmed in 2005 using a

conservative 10€/CER price as well as 30,000 CERs/yr) – see Figure 11 for the IRR calculation. The request for

approval of the project (Figure 15) also clearly shows the importance of carbon credits:

“GTM learnt that under Kyoto Protocol Carbon emissions saved from emission could be traded in the newly created Carbon market which could bring additional revenues to the project. A quick review of the market in carbon trading was undertaken and the possibility of GTM entering such an arrangement was examined. It appeared 25,000 to 30,000 tons of Carbon emission could be saved. An assessment of the revenue based on the market pricing obtaining at the time was made and added to the total cash flow of the project. This enhanced the IRR from about 14% to above 17.1%.”



21

in the final request for project approval, which was formally submitted on 05/07/2005 (see Figure 15)

and approved by the management committee on 07/07/2005 (see Figure 17). The contract for the supply

of the gas turbine was signed and a letter of credit from the bank was opened at the end of August 200519

.

The contract for the WHR boiler was signed in April 2006, and the order for the steam turbine should be

placed in 2009 or 2010.

Date Project-related milestone CDM-related milestone Supporting document

2004

Gul Ahmed studies technical

options related to captive power

generation

07 Sep 2004

Management meeting stating

that “environmental

considerations should be part

of all new projects”

Management

meeting

minutes

Shown to

DOE

15 Feb 2005

Process System Associates

informs Gul Ahmed about

CDM opportunities

Email from

Process

System

Associates to

Gul Ahmed

See Figure 14

05 Jul 2005 Gul Ahmed power house request

approval of the gas turbine project

IRR with carbon credits is

the indicator used to approve

the project

Request for

approval See Figure 15

07 Jul 2005

Management committee approves

the project

Project

approval See Figure 17

27 Jul 2005

(project start

date)

Contract for the gas turbine

(starting date of the CDM project

activity)

1

st page of

contract

See

Attachment G

Aug 2005 Letter of credit from the bank for

gas turbine

Letter of credit

Apr 2006 Contract for the waste heat

recovery boiler

Steam boiler

contract

See

Attachment F

Q1 2006

Discussions between

Turbomach and Gul Ahmed

to develop the CDM

component of the project

31 Jul 2006

CDM screening report by

EcoSecurities, following

several months of discussion

and data gathering

Screening

report

See

Attachment H

27 Sep 2006

1st carbon credit offer made

by EcoSecurities to Gul

Ahmed

Email EcoSec

to Gul Ahmed

See

Attachment J

09 Dec 2006

Expiry date of revised

carbon credit offer by

EcoSecurities

Revised offer See

Attachment I

Dec 2006 Acceptance tests for gas turbine Acceptance

test report

See

Attachment F

15 Mar

2007

Signature of ERPA between

Gul Ahmed and

ERPA cover

page

See

Figure 16

19 Letter of credit from the bank will be available for review by the DOE.



22

EcoSecurities

30 May

2007 Boiler first firing Log sheet

See

Attachment K

22 Dec 2007

Submission of project to

validation (start of comment

period) by TUV SUD

UNFCCC

website See

20

04 Apr 2008

Re-submission of project for

comment period by Bureau

Veritas Certification21

UNFCCC

website See

22

Table 7: Timeline of the project and CDM consideration milestones

The following documents are provided in Annex 3:

Figure 11: Financial analysis of the Project (as used for the request for approval of the project in June

2005) ........................................................................................................................................................... 52 Figure 12: New company policy setting the internal benchmark IRR at twice the prevailing State Bank of

Pakistan discount rate, i.e. 15% (September 2004) .................................................................................... 57 Figure 13: Update of the internal benchmark IRR to 18% (April 2005) .................................................... 58 Figure 14: E-mail communication between Process Systems Associates and Gul Ahmed (February 2005)

..................................................................................................................................................................... 59 Figure 15: Request for approval of the project (June 2005) ....................................................................... 60 Figure 16: ERPA signed between Gul Ahmed and EcoSecurities – Signed cover page (March 2007) ..... 63 Figure 17: Project approval (July 2005) ..................................................................................................... 64

In conclusion of section B.5, the project is additional and the baseline is the continuation of use of the

exsiting facility (i.e. combination of gas engines, gas boilers and oil engines) up until 2030.

B.6. Emission reductions:

B.6.1. Explanation of methodological choices:

Baseline emissions

According to AMS II.D, baseline emissions are calculated as the product of the consumption (in GWh of

fossil fuel input) and of the emission factor (in tCO2/GWh) of each energy form used in the baseline. The

energy consumption is broken down between energy used for electricity generation and energy used for

process steam generation:

20 http://cdm.unfccc.int/Projects/Validation/DB/UKKXS22XWILPEHO4XGBNPU86QF3J7K/view.html

21 TUV SUD could not pursue with the validation of the project due to the political instability in Pakistan. A letter

was addressed by Gul Ahmed and EcoSecurities to request TUV SUD to withdraw the project (see attachment D to

this PDD), however the UNFCCC secretariat indicated that the project could not be formally withdrawn for

transparency reasons, but that another validation could be started. The second validation was started with Bureau

Veritas Certification.

22 http://cdm.unfccc.int/Projects/Validation/DB/LR9479FT7I3L6APTAUULTZI589P5OD/view.html

http://cdm.unfccc.int/Projects/Validation/DB/UKKXS22XWILPEHO4XGBNPU86QF3J7K/view.html

http://cdm.unfccc.int/Projects/Validation/DB/LR9479FT7I3L6APTAUULTZI589P5OD/view.html



23

1000*** ,,,,,,

j

jybaselinesteamj

i

iybaselineeleciy EFECEFECBE (1)

where:

BEy = Baseline emissions in year y (tCO2/yr)

ECi,elec,baseline,y = Consumption of energy form i used for electricity generation in the

baseline in year y (GWh)

ECj,steam,baseline,y = Consumption of energy form j used for process steam generation in

the baseline in year y (GWh)

EFi = Emission factor of energy form i (tCO2/MWh)

EFj = Emission factor of energy form j (tCO2/MWh)

i = Energy forms used for electricity generation in the baseline

j = Energy forms used for process steam generation in the baseline

According to AMS II.D, in the absence of the CDM project activity, the existing facility would continue

to consume each energy form i for electricity production (ECi,elec,baseline,y) at historical average levels

(ECi,elec,historical), until DATEBaselineRetrofit. Such consumption is capped at the consumption that occurs in the

Project by multiplying it by the ratio EGy/EGhistoric in case electricity generation is lower in the Project

than historically (equivalent adjustment is made for project emissions – see equation (4)) – this

guarantees that no additional CERs are claimed for emission reductions that would occur as a result of a

decrease in electricity or steam requirements from the process.

From DATEBaselineRetrofit onwards, baseline energy consumption is assumed to be equal to project energy

consumption (ECi,elec,project,y). The same applies to the consumption of energy for steam generation:

retrofitbaseline,,,,

retrofitbaseline,

historical

yhistorical

,,

,,,

DATE on/after

DATE EG

EG,EGmin*

yprojecteleci

historicaleleci

ybaselineeleci

EC

untilECEC (2)

retrofitbaseline,,,,

retrofitbaseline,

historical

yhistorical

,,

,,,

DATE on/after

DATE SG

SG,SGmin*

yprojectsteamj

historicalsteamj

ybaselinesteamj

EC

untilECEC (3)

where:

ECi,elec,baseline,y = Consumption of energy form i used for electricity generation in the

baseline in year y (GWh)

ECi,elec,historical = Historical annual consumption of energy form i used for electricity

generation (GWh)

ECi,elec,project,y = Adjusted consumption of energy form i used for electricity

generation in the project in year y (GWh)

ECj,steam,baseline,y = Consumption of energy form j used for process steam generation in

the baseline in year y (GWh)



24

ECj,steam,historical = Historical annual consumption of energy form j used for process

steam generation (GWh)

ECj,steam,project,y = Adjusted consumption of energy form j used for process steam


i = Energy forms used for electricity generation in the baseline and

project

j = Energy forms used for process steam generation in the baseline and

project

DATEBaselineRetrofit = Date at which the energy generation equipment would need to be

replaced

The historical annual energy consumptions (ECi,elec,historical and ECj,steam,historical) are determined ex-ante as

the average generation over the 3 years preceding the start of the project activity. The adjusted energy

consumptions in the Project (ECi,elec,project,y and ECi,steam,project,y) are determined as per the project emission

section (see below). The date (DATEBaselineRetrofit) at which the energy generation equipment at Gul Ahmed

would need to be replaced/modified has been fixed at 2030 (see section B.4).

Project emissions

According to AMS II.D, the energy used in the Project needs to be metered. This will be done for each

energy type used in the Project, both for process steam and electricity generation. Project emissions are

calculated as the product of the monitored energy consumption of each energy form, adjusted for any

difference in energy output compared to the baseline23

and of the emission factor of each energy form:

y

yhistorical

ysteamlyprojectsteaml

y

yhistorical

yeleckyprojecteleck

l

lyprojectsteaml

k

kyprojectelecky

SG

SGSGECEC

EG

EGEGECEC

with

EFECEFECPE

,min*

,min*

1000***

,,,,,

,,,,,

,,,,,,

(4)

where:

PEy = Project emissions in year y (tCO2/yr)

ECk,elec,project,y = Adjusted consumption of energy form k used for electricity generation

in the project in year y (GWh)

ECl,steam,project,y = Adjusted consumption of energy form l used for process steam


EFk = Emission factor of energy form k (tCO2/MWh)

23 The adjustment is made by multiplying project energy consumption for electricity (or steam) production by

EGhistoric/EGy (or SGhistoric/SGy) in case electricity (or steam) generation is higher in the Project than historically. It is

symmetrical to the adjustment made to baseline emissions, which guarantees that no additional CERs are claimed for

emission reductions that would occur as a result of an increase in electricity (or steam) requirements from the

process.



25

EFl = Emission factor of energy form l (tCO2/MWh)

ECk,elec,y = Monitored consumption of energy form k used for electricity


ECl,steam,y = Monitored consumption of energy form l used for process steam


EGhistorical = Historical annual net electricity generation (GWh)

SGhistorical = Historical annual net process steam generation (GWh)

EGy = Monitored net electricity generation in year y (GWh)

SGy = Monitored net process steam generation in year y (GWh)

k = Energy forms used for electricity generation in the project

l = Energy forms used for process steam generation in the project

The historical annual electricity and process steam generation levels (EGhistorical and SGhistorical) are

determined ex-ante as the average generation over the 3 years preceding the start of the project activity.

The project levels of electricity and process steam generation (EGy and SGy) are monitored ex post.

Note: The combined cycle gas turbine (CCGT) system uses fossil fuel (natural gas) to generate both

electricity (in the gas turbine and steam turbine) and process steam (in the waste heat recovery boiler and

in the extraction system of the steam turbine). In order to allocate the fuel use to each energy form

generated, the following equation will be used:

yCCGTyCCGT

yCCGT

yCCGTeyCCGTsteame

yCCGTyCCGT

yCCGT

yCCGTeyCCGTelece

SGEG

SGECEC

SGEG

EGECEC

,,

,

,,,,,

,,

,

,,,,,

*3*

*3

*3*

(5)

where:

ECe,elec,CCGT,y = Consumption of energy form e used for electricity generation by the

CCGT system in the project in year y (GWh)

ECe,steam,CCGT,y = Consumption of energy form e used for process steam generation by

the CCGT system in the project in year y (GWh)

ECe,CCGT,y = Monitored consumption of energy form e used by the CCGT system

in the project in year y (GWh)

EGCCGT,y = Monitored net electricity generation by the CCGT system in year y

(GWh)

SGCCGT,y = Monitored net process steam generation by the CCGT system in year

y (GWh)

e = Energy forms used for energy generation in the CCGT system

The factor of 3 in equation (5) reflects the fact that approximately 3 times more energy is needed to

generate 1GWh of electricity compared to 1GWh of process steam. This factor of 3 is used in all small

scale CDM methodologies of category II (including AMS II.D), to determine the equivalence between

the threshold, in terms of electricity savings (60 GWhe per year), and in terms of thermal energy savings

(180 GWhth).



26

Leakage

According to AMS II.D, leakage is to be considered in two instances:

If the energy efficiency technology (CCGT) is transferred from another activity

This is not the case, since only new equipment is used in the CCGT system

If the existing equipment is transferred to another activity

According to the latest guidance from EB44, this source of leakage does not need to be

considered24

Emission reductions

Emission reductions in a given year y (BEy), are calculated simply as baseline emissions (BEy) less

project emissions (PEy) and leakage (LET,y) for that year:

yETyyy LPEBEER , (9)

B.6.2. Data and parameters that are available at validation:

24

See paragraph 50 of EB44 meeting report: “The Board noted that the emission impact of continued use of

displaced equipment outside the project boundary is subject to uncertainty and difficult to quantify. It therefore

clarified that leakage from equipment transfer from within to outside the project boundary may be excluded from

consideration in SSC methodologies.”

The Small Scale Working Group at its 19th

meeting also clarified that leakage from transferred equipment could

indeed be ignored for the project. See response to query SSC_CLA_281, available at

http://cdm.unfccc.int/UserManagement/FileStorage/AM_CLAR_YU7DRUFFZTWE59U6288Q5DJO2RYAVV

http://cdm.unfccc.int/UserManagement/FileStorage/AM_CLAR_YU7DRUFFZTWE59U6288Q5DJO2RYAVV



27

Data / Parameter: EFi / EFj

Data unit: tCO2/MWh

Description: Emission factor of energy form i/j

i = energy forms used for electricity generation in the baseline

j = energy forms used for steam generation in the baseline

Source of data used: IPCC 2006

Value applied: EFNG = 0.0561 tCO2/GJ = 0.2020 tCO2/MWh

EFHFO = 0.0774 tCO2/GJ = 0.2786 tCO2/MWh

Justification of the

choice of data or

description of

measurement methods

and procedures

actually applied :

IPCC default average values (AMS II.D specifies that “IPCC default values for

emission coefficients may be used”)

Any comment: In the baseline:

Two energy forms are used to generate electricity:

o Natural gas (NG) in the Waukesha gas engines

o Heavy fuel oil (HFO) in the Warstila oil engines

One energy form is used to generate steam:

o Natural gas in the gas-fired boilers

Data / Parameter: ECi,elec,historical / ECi,steam,historical

Data unit: GWh

Description: Historical annual consumption of energy form i/j used for electricity/steam

generation

i = energy forms used for electricity generation in the baseline

j = energy forms used for steam generation in the baseline

Source of data used: Project developer

Value applied:

Table 8: Historical energy consumptions


choice of data or

description of

measurement methods

and procedures

actually applied :

Three years of data are used (2004-05-06), and an average is taken.

The same methods as for ECk,elec,y and ECl,steam,y are used (see section B.7.1)

Any comment: In the baseline:

Two energy forms are used to generate electricity:

o Natural gas in the Waukesha gas engines

o Heavy fuel oil in the Warstila oil engines

One energy form is used to generate steam:

o Natural gas in the gas-fired boilers

Note: the consumption of lubricant oil is not counted.



28

Data / Parameter: EGhistorical

Data unit: GWh

Description: Historical annual net electricity generation


Value applied: 71.9 (see Table 9)


choice of data or

description of

measurement methods

and procedures

actually applied :


The same methods as for EGy are used (see section B.7.1)

Any comment:

Data / Parameter: SGhistorical

Data unit: GWh

Description: Historical annual steam electricity generation


Value applied: 126.9 (see Table 9)


choice of data or

description of

measurement methods

and procedures

actually applied :


The same methods as for SGy are used (see section B.7.1)

Any comment:

Data / Parameter: DATEBaseline,Retrofit

Data unit: yyyy

Description: Date at which the energy generation equipment would need to be replaced


Value applied: 2030


choice of data or

description of

measurement methods

and procedures

actually applied :

See section B.4.

Any comment:

Table 9: Historical electricity and steam generation



29

Table 13 in Annex 3 gives the detailed historical data that was used to determine the parameters listed

above.

B.6.3 Ex-ante calculation of emission reductions:

1. Baseline energy consumptions

DATEBaseline,Retrofit = 2030 and it is assumed that EGy >= EGhistorical, therefore according to equation (2):

ECi,elec,baseline,y = ECi,elec,historical

Likewise, it is assumed that SGy >= SGhistorical, therefore according to equation (3):

ECi,steam,baseline,y = ECi,steam,historical.

If we use the values indicated in Table 8we obtain the energy consumptions in the baseline:

Note: From the figures above, we can calculate that baseline fuel input therefore comprises of 84.6 /

(84.6+147.0+178.9) = 21% of heavy fuel oil and 79% of natural gas.

2. Baseline emissions:

Using the results above and the emission factors for natural gas (0.2020 tCO2/MWh) and heavy fuel oil

(0.2786 tCO2/MWh), equation (1) yields:

BEy = [ (84.6 * 0.2786 + 147.0 * 0.2020) + (0 * 0.2786 + 178.9 * 0.2020) ] * 1000 = 89,388 tCO2/yr

3. Project energy consumptions:

According to equation (4) and the forecast values of Table 10:

Note: ECNG,elec,project,y and ECNG,steam,project,y include, among others, the natural gas consumption of the

CCGT system. These consumptions have been calculated using equation (5) and the data presented in

Table 11.

4. Project emissions:

Using the results above and the emission factors of natural gas (0.2020 tCO2/MWh) and heavy fuel oil

(0.2786 tCO2/MWh), equation (4) yields:



30

PEy = [ (2.3 * 0.2786 + 163.7 * 0.2020) + (0 * 0.2786 + 97.2 * 0.2020) ] * 1000 = 53,350 tCO2/yr

5. Emission reductions:

According to equation (6):

ERy = BEy – PEy = 89,388 – 53,350 = 36,038 tCO2/yr

6. Energy savings:

The energy savings of the Project can be easily calculated based on the above data:

Baseline energy consumption: 84.6 + 147.0 + 178.9 = 410 GWh/yr

Project energy consumption: 2.3 + 163.7 + 97.2 = 263 GWh/yr

Energy savings: 410 – 263 = 147 GWh/yr, which is below the small scale threshold of 180 GWh/yr of

fuel input savings. This corresponds to 147 / 410 = 36% of fuel savings.

B.6.4 Summary of the ex-ante estimation of emission reductions:

The table below summarises the emission reductions per year. Emission reductions are lower at the

beginning because it has been assumed that the steam turbine would become operational in July 2010.

B.7 Application of a monitoring methodology and description of the monitoring plan:

B.7.1 Data and parameters monitored:

Data / Parameter: EFk / EFl

Data unit: tCO2/MWh

Description: Emission factor of energy form k/l

k = energy forms used for electricity generation in the project

l = energy forms used for steam generation in the project

Source of data to be IPCC 2006



31

used:

Value of data applied

for the purpose of

calculating expected

emission reductions in

section B.6.3

EFNG = 0.2020 tCO2/MWh

EFHFO = 0.2786 tCO2/MWh

Description of

measurement methods

and procedures to be

applied:

IPCC default average values will be used (AMS II.D specifies that “IPCC default

values for emission coefficients may be used”)

QA/QC procedures to

be applied:

N/A

Any comment: In the Project:

Mostly natural gas should be used in the CCGT system (i.e. in the gas

turbine + some for duct firing in waste heat recovery boiler) – although it

can also accept diesel.

Some natural gas may still be used in Waukesha gas engines.

Some heavy fuel oil may still be used in the Wartsila oil engines.


Data / Parameter: ECk,elec,y / ECl,steam,y

Data unit: GWh

Description: Monitored consumption of energy form k/l used for electricity/steam generation

in the project in year y

Source of data to be

used:

Project developer

+ IPCC 2006 for some calorific values (see below)


for the purpose of



section B.6.3

See Table 10

Description of

measurement methods


applied:

For the consumptions of natural gas:

The volume (m3) of natural gas consumed in all equipment (gas turbine,

WHRB, gas engines, gas boilers) is measured with a flow meter and

recorded monthly. Note that there may sometimes be only one meter for

several pieces of similar equipment (e.g. one overall gas meter for all gas

engines or for all gas boilers).

It is then multiplied by the Net Calorific Value (MWh/m3) of the gas in

order to get the gas consumption in energy terms (MWh). The calorific

value will be based on invoices from the gas supplier25

whenever

available – or otherwise taken from IPCC average values.

25 The gas supplier invoice may give only the Gross Calorific Value. In order to convert it to the Net Calorific Value,

a fixed conversion factor of 0.905 will be used (i.e. NCV = 0.905 * GCV). This figure is based on the last 3 gas

analyses done by Gul Ahmed (available to the DOE upon request), where this conversion factor was consistently

between 0.9048 and 0.9055, even when actual NCV and GCV values changed:



32

For the consumption of heavy fuel oil in the oil-fired engines:

The mass (t) of heavy fuel oil consumed will be measured with

appropriate instruments26

. If the instrument gives a volume measurement,

it will be converted to mass by multiplying by the density of the heavy

fuel oil, which is set at 0.936 t/m3 for the whole project duration27

.

It is then multiplied by the Net Calorific Value (MWh/t) of the heavy

fuel oil in order to get the oil consumption in energy terms (MWh). The

calorific value will be taken from IPCC 2006 default average values (i.e.

40.4 GJ/t or 11.2 MWh/t).

For the consumption of diesel in the gas turbine:

The volume (litres) of diesel consumed will be measured with a flow

meter and recorded monthly

It is then multiplied by the Density (t/l) and the Net Calorific Value

(MWh/t) of diesel in order to get the diesel consumption in energy terms

(MWh). The density is set at 0.824 t/m3 for the whole project duration28

.

The calorific value will be taken from IPCC 2006 default average values

(i.e. 43.0 GJ/t or 11.9 MWh/t)

No other fuel than the above listed is expected to be used. However, should a

new fuel be used, the procedure used to monitor the consumption would likely be

similar to that for natural gas (for gaseous fuel) or heavy fuel oil or diesel (for

liquid fuel).

QA/QC procedures to

be applied:

Any comment: The combined cycle gas turbine (CCGT) system uses fossil fuel (natural gas) to

generate both electricity (in the gas turbine and steam turbine) and process steam

(in the waste heat recovery boiler and in the extraction system of the steam

turbine). In order to allocate the fuel use to each energy form generated, equation

(5) will be used.


Data / Parameter: EGy

Data unit: GWh

Description: Monitored net electricity generation in year y

Source of data to be Project developer

Test Report # Date of TestGCV (BTU/m

3

dry gas)

NCV (BTU/m3 dry

gas)NCV / GCV

1132/2003-2004 18/05/2004 975.29 883.15 0.9055

1024/2004-2005 24/03/2005 952.56 861.91 0.9048

126/2007-2008 26/07/2007 965.51 873.82 0.9050

26 For oil engines, until December 2007, this has been done with sounding tapes: a tape is inserted into the tank from

the top, yielding a depth reading in centimetres; and this reading is converted to volume via the calibration chart. 27

Average of 3 values provided by the heavy fuel oil supplier in invoices - see Table 14 in Annex 4 for details. 28

Average of 3 values provided by the diesel supplier in invoices - see Table 14 in Annex 4 for details.



33

used:


for the purpose of



section B.6.3

See Table 10

Description of

measurement methods


applied:

Net electricity generation is monitored with calibrated electricity meters and

recorded monthly. Each piece of equipment (gas turbine, future steam turbine,

gas engines, oil engines) is equipped with an electricity meter. Most electricity

meters are of trivector type, with an accuracy which is generally +/-3% or better.

For the gas turbine, electricity meter accuracy will be +/-1% or better

QA/QC procedures to

be applied:

Any comment: If only the gross output is measured, then the net output will be calculated by

deducting the internal consumption (this internal consumption being either

monitored or calculated based on conservative (high) fixed loads for the

auxiliary equipment).

Data / Parameter: SGy

Data unit: GWh

Description: Monitored net process steam generation in year y


used:

Project developer, steam tables


for the purpose of



section B.6.3

See Table 10.

The table indicates the amount of steam generated (in tonnes) and converts it

from tonnes of steam to GWh by using an enthalpy of 0.77 MWh/t (which

corresponds approximately to the expected properties of the steam generated).

Description of

measurement methods


applied:

Net steam generation (in tonnes) from the waste heat recovery boiler is

monitored with calibrated steam flow meters and recorded monthly. Net steam

generation from the gas boilers is either calculated based on boiler efficiency (as

may be documented in boiler manual, boiler inspection reports, efficiency tests,

etc.) or measured with steam flow meters. Most steam meters are of differential

pressure type, with an accuracy which is generally +/-3% or better

These generation figures (in tonnes) are then converted to energy units (GWh)

by multiplying by the enthalpy of the steam (MWh/t). This enthalpy is

determined with steam tables based on the pressure of the steam generated

(which can be taken from boiler or process specifications).

QA/QC procedures to

be applied:

Any comment: If only the gross output is measured, then the net output will be calculated by

deducting the internal consumption (this internal consumption being either

monitored or calculated based on conservative (high) fixed loads).



34

Table 10: Energy consumption, electricity and steam generations in the project – Estimated values

Parameters that need to be monitored in order to allocate the fuel consumption of the CCGT system to

each energy form generated (steam and electricity), in accordance with equation (5):

Data / Parameter: ECe,CCGT,y

Data unit: GWh

Description: Monitored consumption of energy form e used by the CCGT system in the

project in year y


used:

Project developer

+ IPCC 2006 for calorific values


for the purpose of



section B.6.3

310.6 (see Table 11)

Description of

measurement methods


applied:

The same methods as for ECk,elec,y / ECl,steam,y will be used.

QA/QC procedures to

be applied:

See monitoring table for ECk,elec,y / ECl,steam,y.

Any comment:

Data / Parameter: EGCCGT,y

Data unit: GWh

Description: Monitored net electricity generation by the CCGT system in year y


used:

Project developer


for the purpose of



section B.6.3

85.7 (see Table 11)

Description of

measurement methods


applied:

The same methods as for EGy will be used, but the meters will be those that

measure specifically the amount of electricity produced by the gas turbine and

the steam turbine (which are the two electricity generation components of the

CCGT system).

QA/QC procedures to

be applied:

See monitoring table for EGy



35

Any comment:

Data / Parameter: SGCCGT,y

Data unit: GWh

Description: Monitored net steam generation by the CCGT system in year y


used:

Project developer


for the purpose of



section B.6.3

148.3 (see Table 11)

Description of

measurement methods


applied:

The same methods as for SGy will be used, but the meters will be those that

measure specifically the amount of steam produced by the waste heat recovery

boiler and the extraction system of the steam turbine (which are the two steam

generation components of the CCGT system).

QA/QC procedures to

be applied:

See monitoring table for SGy

Any comment:

Table 11: Data used to allocate fuel use to each energy form

(steam + electricity) produced by the CCGT system

B.7.2 Description of the monitoring plan:

The monitoring plan gives the actions necessary to record all the variables and factors required by

methodology AMS II.D, version 11.

The plan is based on the detailed information contained in section B.7.1 above. Most of the monitoring

requirements of the methodology are in line with the information already routinely collected by Gul

Ahmed, which will ease the implementation of the CDM-specific monitoring plan.

Operational and management structure:

Data will be collected from each of the main powerhouses within the project boundary:

Main powerhouse in unit 1, where the Waukesha gas engines, boilers and CCGT system are

located

Powerhouse of unit 3, where the Wartsila oil engines are located

All operational data will be compiled in a monthly monitoring report by Gul Ahmed CDM project

coordinator and fed into the emission reduction workbook.



36

Apart from their technical training, Gul Ahmed monitoring staff also receives CDM-specific training. A

training session was given by EcoSecurities on 26 February 2008 to introduce key staff (around a dozen)

to CDM monitoring requirements and assist in the establishment of the CDM monitoring plan

(attendance sheet available to the DOE upon request).

Data Quality Control and Quality Assurance

Internal checks on the CDM parameters will be made during data collection and processing at Gul

Ahmed, e.g. if meter readings are consistent with previous values, if there is any mistake in copying data

from daily reports to monthly reports, etc.

All data will be kept for the full crediting period, plus two years after the end of the crediting period or

the last issuance of CERs for this project activity (whichever occurs later).

Equipment calibration and maintenance

Frequency of calibration will be determined by the Quality department of Gul Ahmed based on one or

several of the following references where available:

Manufacturer‟s recommendation as stated in the instrument‟s Operation manual or Owner‟s

instruction manual

Manufacturer‟s recommendation as stated in other means of communication with Gul Ahmed,

such as memorandums, e-mails or documented phone conversations

Other engineering/scientific standards specifically referring to a particular type of

instrumentation

Gul Ahmed‟s determination of calibration needs based on experience with the equipment or

recommendations by other sources

Depending on the instrument, calibration will be either done in-house or by external

vendors/suppliers/manufacturers, in which case it will lead to the delivery of a calibration certificate.

During calibration by offsite vendors, meters will receive routine maintenance (e.g. replacement of parts,

disassembly, cleaning, lubrication, and adjustments to meet manufacturers‟ specifications). If meters fail

to calibrate within specifications, or fail to operate within typical parameters, they will receive special

maintenance or repair by Gul Ahmed or an external supplier.

Equipment will also be repaired or maintained outside of a calibration period if a meter shows signs of

damage or abuse.

To determine the flows during the period when the meter is out of order, readings will be taken from

back-up meter if/where there is one, otherwise the following procedure will be followed:

1. Count the number of days for which data (e.g. gas flow) is missing/questionable due to the meter

being out of order

2. Calculate the average of the flow over this number of days prior to the malfunction of the meter

3. Apply this average flow for all the days the meter has been out of order.



37

For instance, if the meter has been out of order for 3 days, then 3 day average of the meter reading prior

to its malfunction will be taken and applied to the 3 days over which the meter was out of order. Note

that in some cases the procedure above may be adapted to be relative to the output of the equipment. If it

is a gas meter that failed during 3 days, and that during those 3 days the electrical output was twice that

of the previous 3 day period, then it could be assumed that twice the amount of gas has been used

compared to the previous 3 day period. In other words, the data taken from the previous 3 day period may

be specific gas consumption factor rather than absolute gas consumption.

In case equipment is functioning but data has been lost, then a procedure similar to the one above will

apply. This should not happen because most data is automatically logged centrally and then regularly

backed up in soft and/or hard format.

B.8 Date of completion of the application of the baseline and monitoring methodology and the

name of the responsible person(s)/entity(ies)

Application of the baseline study and the monitoring methodology was concluded on 12/12/2007 by

Arnaud Viel, EcoSecurities International Limited (listed as project participant - see Annex 1 for details).

Contact details: [email protected], +44 (0)1865 202 635

mailto:[email protected]



38

SECTION C. Duration of the project activity / crediting period

C.1 Duration of the project activity:

C.1.1. Starting date of the project activity:

27/07/2005 (contract for the gas turbine) – see Attachment G.

C.1.2. Expected operational lifetime of the project activity:

25 years.

This is common knowledge and has been confirmed by the manufacturer to Gul Ahmed on 27/05/2008:

“well maintained Gas Turbines can run over 25 years. Solar Gas Turbines installed in Sui Northern Gas

Pipelines in 1966 and 1969 are still operating” (see Figure 9 in Annex 3).

Note that 25+ years is the lifetime of the project CCGT system, but the baseline system would fully

operate only until DATEBaseline,Retrofit=2030 (see section B.4).

C.2 Choice of the crediting period and related information:

C.2.1. Renewable crediting period

C.2.1.1. Starting date of the first crediting period:

01/02/2010 or date of registration, whichever occurs later.

C.2.1.2. Length of the first crediting period:

7 years (renewable twice)

C.2.2. Fixed crediting period:

C.2.2.1. Starting date:

N/A

C.2.2.2. Length:

N/A



39

SECTION D. Environmental impacts

D.1. If required by the host Party, documentation on the analysis of the environmental impacts

of the project activity:

The Project is not subject to requirements for an Environmental Impact Assessment (EIA) by Pakistani

authorities29

, but an Initial Environmental Examination (IEE) was completed in 2007. This IEE will be

made available to the DOE. Furthermore, the Environmental Protection Agency (EPA) of the

Government of Sindh, Karachi, has approved the project (on 02/05/2008) as per IEE guidelines. This

approval document is provided in its entirety in Annex 5.

The project is expected to have the following positive impacts:

Reduction of emissions of local air pollutants (NOx, SOx, etc.) and greenhouse gases (CO2) from

fossil fuel combustion, by:

o Improving the efficiency of the energy generation system, thus reducing fuel use

o Switching away from heavy fuel oil towards natural gas, which is a cleaner fuel

Reduction in the use of water (used in the boilers), and of chemicals used to treat that water.

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:

See above (D.1.) and Annex 5

29 See “Pakistani Environmental Protection Agency Review of Initial Environmental Examination and Environmental

Impact Assessment Regulations, 2000”.



40

SECTION E. Stakeholders’ comments

E.1. Brief description how comments by local stakeholders have been invited and compiled:

A press release was made on 15/04/2007 and a reproduction from the 20/04/2007 „Business Recorder‟30

made it available to the general public.

Given the potential number of stakeholders, it was decided to avoid the logistical impracticalities of

holding a stakeholder meeting. In lieu of this an announcement was made in a widely circulated

newspaper (as above), and all key stakeholders were informed via a formal and descriptive letter (sent on

either August 7th or 15

th, 2007

– the mailings were sent on one of these 2 days) detailing all aspects of the

project (including technical, CDM, and environmental issues). Key stakeholders were identified as: The

Environmental Protection Agency for the Korangi Industrial Area; the Landhi Association of Trade and

Industry; the Landhi Town Municipal Administration; and the Gul Ahmed Employee Union. As is

evidenced in the stakeholders‟ response letters (in Attachment C to the PDD), these entities were

enthusiastic and receptive towards the project, and there were even requests to witness the improvements

firsthand (which will be accommodated).

See Attachment C for copies of the press release, letters sent, and comments received.

E.2. Summary of the comments received:

Comments received in response to letters sent

1. Environmental Protection Agency, Government of Sindh - Letter dated 08/08/2007 had

comments indicating an appreciation of Gul Ahmed‟s efforts in helping to mitigate climate

change via emission reductions. The letter stated that this kind of project will encourage other

industries in the area to seek similar opportunities, and also to meet the requirements of NEQS

(National Environmental Quality Standards) of the Government of Pakistan.

2. Landhi Association of Trade and Industry - Letter dated 15/08/2007 reiterates that with the

installation of the Project, not only will electricity be efficiently produced, but that the Project

will also reduce carbon emissions. None of the members have any objection to the Project. Some

members requested Gul Ahmed to allow them to visit the plant firsthand, to see how this type of

opportunity could be replicated elsewhere (with support from Gul Ahmed).

3. Office of the Town of Nazim, Town Municipal Administration, Landhi - Letter dated

08/08/2007 acknowledges Gul Ahmed‟s efforts to develop such a Project which consumes less

energy in producing electricity and reducing carbon emissions. They said that these types of

projects contribute very positively in the fight against climate change. In the larger interests of

the city and general public, they have no objection to the Project, provided the relevant permits

are obtained from all the concerned government departments.

30 This is one of the most widely read and respected English Daily newspapers in Pakistan.



41

4. Gul Ahmed Textile Mills Ltd Workers Union - Letter dated 13/08/2007 states that they have

visited the site and that they see the Project as an opportunity for additional employment.

Reducing carbon emission is a new concept to them, and they are ready to support any activity

with such an objective. They congratulate Gul Ahmed on being the first textile mill in Pakistan to

take a step in this direction.

5. After the press release was made on 15/04/2007 in various newspapers, a number of phone

calls were received from various people enquiring about carbons credit and its mechanism of

operation. No adverse comments concerning the project activity were received. Notable among

the calls received were those of Mr. Yunus Bengali, a prominent businessman, who wanted

further Project details and ways in which other industries could benefit from carbon finance, and

the call from Mr. Taufiq Bilwani, from Gatron Industries Ltd., who was also interested in Project

details, and had a particular interest in the application of CDM for his own company.

Conclusions

In view of the above comments related to the Project itself and its carbon emission reduction component,

no party objected to the CDM project, and a majority expressed satisfaction regarding the Project,

showing a deep interest to have more projects of this kind in Pakistan, so that energy efficiency as

well as environment protection could be improved.

E.3. Report on how due account was taken of any comments received:

All questions were answered satisfactorily; see below how due account was taken:

By calls:

After the press release, a number of calls were received from the general public, asking generic questions

on CDM, and specific about the Project, how CDM will work and to understand the procedure of

registration with UN as well as the technical aspects of Project. Among the calls from the public, two

prominent calls from Mssrs. Yunus Bengali and Taufiq Bilwani were addressed in detail as they are

interested and considering potential CDM projects in their respective companies.

By letters:

Environmental Protection Agency, Government of Sindh - We provided the requested

information accordingly.

Landhi Association of Trade and Industry – We informed them that a visit could be arranged

for whenever they want to visit. All requested information about the project will be provided.

Office of the Town of Nazim, Town Municipal Administration, Landhi - We informed them

that all permits from the requisite government departments were secured, and that every phase of

the Project is carried out in accordance with relevant documentation and necessary licences.

Gul Ahmed Textile Mills Ltd. Workers Union - We provided the requested information

accordingly, and assured the Union that workers‟ interests will be respected as per common

practice of the company.



42

Annex 1

CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY

Organization: Gul Ahmed Textiles Mills Limited

Street/P.O.Box: Landhi Industrial Area

Building: HT / 4

City: Karachi

State/Region: Sindh province

Postfix/ZIP: 75120

Country: Pakistan

Telephone: +9221 111 485 485 and +9211 111 486 486

FAX: + 9221 508 2625 and +9221 501 7565

E-Mail: [email protected]

URL: www.gulahmed.com

Represented by:

Title:

Salutation: Mr.

Last Name: Riazat

Middle Name: -

First Name: Husain

Department: Projects Director

Mobile: +9221 345 82 790 87

Direct FAX: None

Direct tel.: +92 (0) 21 111 485 485

Personal E-Mail: [email protected]

Project Annex 1 participant:

Organization: EcoSecurities International Limited

Street/P.O.Box: 40 Dawson Street

Building:

City: Dublin

State/Region:

Postfix/ZIP: 02

Country: Ireland

Telephone: +353 1613 9814

FAX: +353 1672 4716

E-Mail: [email protected]

URL: www.ecosecurities.com

Represented by:

Title: Company Secretary

Salutation: Mr.

Last Name: Browne

Middle Name: James

First Name: Patrick


http://www.gulahmed.com/



http://www.ecosecurities.com/



43

Mobile:

Direct FAX: +353 1672 4716

Direct tel.: +353 1613 9814

Personal E-Mail: [email protected]



44

Annex 2

INFORMATION REGARDING PUBLIC FUNDING

The Project will not receive any public funding from Parties included in Annex I of the UNFCCC.



45

Annex 3

BASELINE INFORMATION

1. Lifetime of the equipment

Figure 4: Confirmation of major overhaul period for Waukesha gas engines

Individual overhaul reports are available for each engine



46

Figure 5: Maintenance and overhaul schedule for Wartsila oil engines



47

Figure 6: Service report for last overhaul on Wartsila engine #2 (October 2004)



48

Figure 7: Example of yearly inspection report for boilers (May 2006)



49

Figure 8: Manufacturer indication of lifetime for Solar gas turbines (May 2008)



50

Figure 9: Manufacturer indication of lifetime for Wartsila engines (May 2008)



51

Figure 10: Picture of boiler dating from 1966 at Gul Ahmed (May 2008)



52

2. Financial analysis of the project

Figure 11: Financial analysis of the Project (as used for the request for approval of the project in June 2005)

All figures are in Pakistani Rupees (PKR). At the time of analysis, 1 € = 77 PKR.

Notes:

The table in is included in Attachment A to the PDD in two versions: an excel version for use by

DOE and UNFCCC/UNFCCC-appointed bodies (e.g. Executive Board, Secretariat, registration

assessors) only, and a pdf version for publication).

Justification of all assumptions in the table are in Table 6 of the PDD, and the supporting

evidence is presented in Attachment B to the PDD.

The financial analysis for the alternatives mentioned in the request for approval will be made

available to the DOE upon request.



53



54



55

Assessment of the analysis against the Guidance on the Assessment of Investment Analysis

(Annex 45 of EB41):

Project have been asked by the DOE to show how the project investment analysis is

conducted as per the requirements of the above-mentioned guidance (the “Guidance”)

It is essential to point out that the investment analysis presented in the PDD has not been

made specifically for the PDD. This analysis was made in 2005 and was the one used by the

Project Developer to decide to go ahead with the project, as evidenced by:

o The Request for approval dated 05 June 2005 and signed by Riazat Husain (Director

projects) and Sattar Qazi (Project Manager), which mentions the results of the

investment analysis (IRR 14%, payback 6.07years) [see signature in Figure 15].

o The Approval of the project by the management committee, dated 07 July 2005 and

signed by Abdul Aziz Yousuf (Director), in response to the Request for approval

[see Figure 17].

Considering the above, it does not seem appropriate to retroactively change this analysis in

order to comply with the Guidance. This is even specified in point 6 of the Guidance: “input

values used in all investment analysis should be valid and applicable at the time of the

investment decision taken by the project participant”.

However, for the sake of transparency, project participants have undertaken a comparison of

the Project Investment analysis with the Guidance. The conclusions on each of the 15 points

of the Guidance are given in Table 12 below.

Table 12: Assessment of the project analysis against the Guidance on the assessment of investment analysis

General issue specified in the

Guidance (EB41 Annex45) Assessment of Project Investment analysis against the Guidance

3 Assessment period Project uses 15years without including fair value.

4 Determination of fair value

Fair value should include the book value, which is zero (depreciation

is made over 10years), and the market value, which should be

slightly positive. As explained above, the project analysis uses zero

fair value.

For information, if a fair value of 100,000,000Rs (i.e. 20% of total

investment cost) was assumed as positive cash flow in year 15, the

IRR would increase to 14.5%31

.

5 Adding back depreciation OK depreciation is added back in the Project analysis

6 Input values at time of

decision making

OK all input values are those of 2005, based on which the

investment decision was taken

7 Project activity which re-

start Not applicable because project had only one start

8 Investment analysis

spreadsheet

OK the spreadsheet is included in Attachment A to the PDD in 2

versions: an excel version for DOE and UNFCCC, and a pdf version

for publication

9 Exclude financing cost in The Project analysis uses a mixed financial indicator which is

31 This easily reproducible calculation has been made by the project participants based on Attachment A to the PDD

and sent to the DOE.



56

Project IRR calculation between a Project IRR (because the full expenditure is taken in net

outflow) and Equity IRR (because interests (but not principal)

payments are included). 10

Exclude loan from net cash

outflow in Equity IRR

calculation

11 Benchmark selection

OK the internal benchmark is a required/expected return on capital,

as specified by Gul Ahmed management (see point 13 below).

For the external benchmark, both equity return and WACC have

been calculated because the IRR used by Gul Ahmed for investment

decision is a mixed indicator between project IRR and equity IRR.

12 Benchmark if project can be

developed by another entity

Not applicable because project can only internally be developed by

Gul Ahmed

13

Internal benchmark should

be documented and have

been used in the past

OK – See section B.5 (Investment barrier):

There is only one possible project developer

The benchmark has been used consistently for similar

projects

14 Risk premium should reflect

risk profile OK – Beta of the power sector in Pakistan has been used.

15 Use of investment

comparison

Not applicable because the project participant is not forced to make

significant investments (see section B.4 of the PDD – existing

situation can run until 2030).

16 Selection of variables in

sensitivity analysis 10% decrease in investment cost increases the IRR to 15.5%, and

10% increase in savings (revenues) increases the IRR to 15.4%31

. 17

Variation of variables in

sensitivity analysis



57

3. Internal benchmark IRR used by Gul Ahmed (see Attachment E for further evidence)

Figure 12: New company policy setting the internal benchmark IRR at twice the prevailing State Bank of

Pakistan discount rate, i.e. 15% (September 2004)



58

Figure 13: Update of the internal benchmark IRR to 18% (April 2005)



59

4. CDM consideration

Figure 14: E-mail communication between Process Systems Associates and Gul Ahmed (February 2005)

Process Systems Associates is a reputable Environmental and Process consultancy based in Lahore,

Pakistan.



60

Figure 15: Request for approval of the project (June 2005)

The document below is the request that was sent in June 2005 to Gul Ahmed Management for approval

of the investment decision. Important paragraphs from the CDM point of view have been highlighted.

Notes: The original signed copy of the full document is available at Gul Ahmed Textile Mill and

will be available for review by the DOE. The signed last page is provided below.

The spreadsheet detailing the calculations for the 3 other power generation options will be

available for review by the DOE. The one used for the project option has been given in Figure

11.

GUL AHMED TEXTILE MILLS LIMITED

POWER PLANT

REQUEST FOR APPROVAL

June 5, 2005

SUMMARY

Approval is requested for the installation of a combined cycle plant with a total capacity of 15 Megawatts

employing a Gas Turbine of 10 megawatts, a waste heat recovery boiler followed by a 5 megawatts

steam turbine with all necessary auxiliaries and support systems at an estimated cost of Rupees five

hundred million.

(…)

The existing installations are as follows:

Two Wartsila Heavy Fuel Engines of 4 megawatt capacity each

Ten Waukesha engines with various capacities of 635 Kw and 625 Kw

Four directly fired boilers of various capacities.

In view of the forth coming requirements and improving the reliability of supply four option were

considered:

Enhance the reliability and performance of the existing Power house and meet the shortfalls

through purchase of similar engines so as to work within the existing Power network and

common spares inventory.

Convert the existing Wartsila HFO engines to Gas based on an offer made by Wartsila

Purchase new Engines of the more efficient variety available in the market.

To install a turbine or turbines

Install a combination of new engines and turbines to operate together with the existing Power

house.

(…)

In the final phase of Analysis a financial model was prepared to see the Internal Rate of Return of the

Turbine chosen, together with the operational conditions under which it would be run. It appeared during

the analysis that the IRR was not meeting the company‟s guidelines for new investment for a minimum of

eighteen percent.



61

While the technical and financial factors were under review GTM learnt that under Kyoto Protocol

Carbon emissions saved from emission could be traded in the newly created Carbon market which could

bring additional revenues to the project. A quick review of the market in carbon trading was undertaken

and the possibility of GTM entering such an arrangement was examined. It appeared 25,000 to 30,000

tons of Carbon emission could be saved. An assessment of the revenue based on the market pricing

obtaining at the time was made and added to the total cash flow of the project. This enhanced the IRR

from about 14% to above 17.1%.

Computerized models permitted sensitivity analysis of IRR to be calculated under various changing

scenarios with such variables as loan versus equity, interest on loans, changes in demand for Power,

steam and hot water, plant outages, influence of ambient conditions, changes in Project Cost during

procurement and construction, changes in the carbon credit volume and price and other factors provided

in the attachment. The IRR under from most favorable to least favorable conditions varied from 20% to

13%. The consolidated rate of 17.1% was arrived at by selecting the most likely scenario which included

the impact of Carbon Credit. Though this falls short of the required IRR of 18% under company‟s

guidelines but only by 0.9%, we hope special considerations will be given to the long term benefit of the

Project and particularly the favorable impact it will be having on the environment.

The table below summarizes the rate of return and other and other figures for review, detailed calculation

for are attached

.

Power Generation Options

Conversion of existing

HFO engines to

Gas & WHRB

Purchase of New gas

engines with Gas compressor

and all auxiliaries &

WHRB

Purchase of a new Gas

engine and one Gas

Turbine & WHRB

Purchase of a 10 Mw Gas turbine &

WHRB in combined cycle

operational mode

without Carbon Credit

Purchase of a 10 Mw Gas turbine &

WHRB in combined cycle

operational mode

with Carbon Credit

Investment Rs

221,948,000 Rs 812,637,812 Rs

503,510,000 Rs 500,000,000 Rs 500,000,000

IRR 5.3% 12.0% 9.5% 14.0% 17.1%

Paback period 8.67 Years 6.57 Years 7.27 Years 6.07 Years 5.18 Years

The Project is now being forwarded for approval. Presentation on the Project and the Computerized

Models will be made to the committee whenever such a date for the review has been fixed

We believe we have selected a suitable Power and Steam Generating configuration and have met the

company‟s IRR for project approval

__________________ _________________



62

Riazat Husain Sattar Qazi

Director Projects Project Manager

Copy of the last page signed in June 2005:



63

Figure 16: ERPA signed between Gul Ahmed and EcoSecurities – Signed cover page (March 2007)



64

5. Decision to proceed with the Project

Figure 17: Project approval (July 2005)



65

Figure 18: APTMA letter, Ref. no.: PO/Chair/13/00767 dated 27th July 2009



66

6. Historical data

Table 13: Detailed historical data used in the calculation of parameters not to be monitored (section B.6.2).

Gas

properties

Oil consumption Electricity

production

Natural gas

consumption

Electricity

production

Natural gas

consumption Steam production

Gross Calorific

Value

tonnes KWh m3 KWh m3 tonnes BTU/SCF

Jan 643.5 2,719,520 926,325 2,442,980 1,427,629 15,681 957

Feb 583.1 2,443,720 827,812 2,178,455 1,100,922 12,165 957

Mar 625.6 2,640,600 995,070 2,618,605 1,517,312 14,846 957

Apr 611.9 2,543,940 1,113,435 2,858,284 1,449,669 14,545 957

May 653.4 2,725,200 1,195,830 3,007,563 1,266,096 11,669 957

Jun 645.5 2,656,320 1,158,067 2,893,467 1,167,670 11,324 957

Jul 670.8 2,777,500 1,234,688 3,133,705 1,077,509 11,377 960

Aug 735.8 3,050,660 1,350,300 3,553,421 1,143,736 11,877 954

Sep 723.0 3,000,160 1,251,264 3,292,801 1,249,466 12,748 960

Oct 633.9 2,708,420 1,319,084 3,495,104 1,351,708 13,545 955

Nov 601.8 2,553,200 1,313,318 3,509,854 1,567,088 13,447 953

Dec 645.2 2,745,580 1,288,820 3,531,014 1,697,884 16,495 958

Jan 601.2 2,586,080 1,301,578 3,517,778 1,594,045 13,856 967

Feb 559.0 2,429,580 1,174,807 3,218,650 1,502,452 13,870 957

Mar 631.3 2,798,560 1,405,805 3,820,122 1,764,235 18,099 955

Apr 616.0 2,741,460 1,417,229 3,882,818 1,431,634 15,068 954

May 634.0 2,798,800 1,421,054 3,840,688 1,474,378 12,041 955

Jun 612.2 2,662,380 1,404,133 3,695,089 1,247,230 11,953 952

Jul 638.4 2,806,880 1,419,819 3,736,367 1,251,720 12,063 948

Aug 624.5 2,739,400 1,270,766 3,434,504 1,370,924 11,009 947

Sep 621.5 2,716,160 1,315,789 3,556,188 1,301,466 11,655 945

Oct 603.7 2,636,620 1,394,654 3,769,334 1,519,724 13,518 947

Nov 578.9 2,527,200 1,396,672 3,495,328 1,366,560 13,894 939

Dec 615.1 2,641,000 1,397,497 3,602,460 1,562,861 15,619 924

Jan 601.7 2,559,200 1,431,976 3,768,359 1,844,862 13,866 921

Feb 565.5 2,430,200 1,154,966 3,039,385 1,622,111 12,068 926

Mar 603.9 2,636,400 1,479,300 3,892,894 2,150,974 18,488 926

Apr 592.4 2,541,020 1,345,595 3,541,039 1,859,257 16,891 926

May 645.7 2,748,040 1,378,003 3,626,325 1,807,496 14,352 923

Jun 837.7 3,568,040 999,114 2,629,246 1,780,997 13,590 921

Jul 665.1 2,812,140 1,375,646 3,620,123 1,891,500 15,950 924

Aug 668.1 2,851,080 1,180,469 3,089,459 1,607,412 12,341 921

Sep 567.3 2,413,620 1,231,715 3,284,574 1,588,688 13,085 922

Oct 550.0 2,336,000 1,159,808 3,092,822 1,809,751 12,078 923

Nov 581.9 2,472,860 1,300,964 3,152,411 1,737,674 14,149 924

Dec 630.5 2,680,080 848,063 2,292,061 1,992,970 15,580 921

2006

Oil Engines Gas engines Boiler #1 to 4

2004

2005



67

7. External benchmark

Note that both benchmarks are calculated as of time of decision making (2005).

a) Expected return on equity

The expected return on equity is calculated with the widely used Capital Asset Pricing Model:

R = rf + β * ( re - rf )

where:

R = Expected Equity return

re = Standard (average) Equity return

rf = Risk free rate

β = Beta

( re - rf ) = Equity risk premium

The following sources of data have been used:.

Risk free rate (rf = 11.0%): this is taken as the average coupon of Pakistan government 10year

bond rates between 2001 and 200432

Standard (average) equity return (re = 29.6%): this is taken from the average returns of Karachi

stock exchange for the 15year period 1990-2005. Note that the average premiums over a 10year

(36.0%) and 5year (46.2%) periods are even higher, but the lower one has been chosen for

conservativeness.

Beta (β = 0.92): this is the lower between the following three values:

o 1.30, which is the average beta of companies in emerging markets in the textile sector in

200533

.

o 1.39, which is the average beta of companies in emerging markets in the electricity

generation sector in 200534

.

o 0.92, which is the average beta of power in Pakistan in the electricity generation sector35

.

The calculation gives R = 11% + 0.92 * (29.6% - 11%) = 28.0%

See Attachment L for the full raw data and calculation.

b) Weighed average cost of capital (WACC)

32 Source: State Bank of Pakistan. See for instance Table 5.12 page 89 of

http://www.paksearch.com/Government/SBP/SBP_Annual/2002-03/Money%20and%20Credit.htm

33 Source: http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm05.xls. The database contains 113

companies in the textile sector and 67 in the electricity generation sector. There is no „cogeneration‟ sector.

34 Source: http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm05.xls. The database contains 113

companies in the textile sector and 67 in the electricity generation sector. There is no „cogeneration‟ sector.

35 Source: Bloomberg professional service. This is based on the average of 4 Pakistani power sector companies. See

detail in Attachment L.

http://www.paksearch.com/Government/SBP/SBP_Annual/2002-03/Money%20and%20Credit.htm

http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm05.xls

http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm05.xls



68

The weighted average cost of capital is calculated as

WACC = %d *Cd + %e * Ce36

where:

WACC = Weighed Average Cost of Capital

%d = Proportion of debt financing

%e = Proportion of equity financing

Cd = Cost of debt

Ce = Cost of equity

The following sources of data have been used:

Proportion of debt and equity financing (%d = 74% and %e = 26%): these are taken from Gul

Ahmed balance sheet as of June 30th 2005

37.

Cost of debt (Cd = 11.25%): this is taken is based on the actual terms of the company long term

loans (as per the company accounts as of June 30th 2005), which refer to the State Bank discount

rate and Karachi interbank offer rate (KIBOR)

Cost of equity (Ce = 28.0%): this has been calculated above as the return on equity.

See Attachment L for the full raw data and calculation.

36 The effect of tax is not accounted for because the project IRR has been calculated pre-tax, ignoring any tax effect.

37 See Gul Ahmed annual report 2006.



69

Annex 4

MONITORING INFORMATION

All pertinent information is included in section B.7.

Table 14: Densities of Heavy Fuel Oil and Diesel according to suppliers’ invoices



70

Annex 5

ENVIRONMENTAL PROTECTION AGENCY APPROVAL

EPA Government of Sindh, Karachi IEE Approval (2/2 pages)



71

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