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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
2
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
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Input Parameter, Value Source
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
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Input Parameter, Value Source
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
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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.
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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
13 http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm04.xls
14 http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm04.xls
15 Bloomberg snapshots (average of 4 companies) as submitted to Validating DOE
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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.
16 http://www.stern.nyu.edu/~adamodar/pc/archives/emergcompfirm05.xls
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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%.”
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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.
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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
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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)
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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
generation in the project in year y (GWh)
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
generation in the project in year y (GWh)
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.
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EFl = Emission factor of energy form l (tCO2/MWh)
ECk,elec,y = Monitored consumption of energy form k used for electricity
generation in the project in year y (GWh)
ECl,steam,y = Monitored consumption of energy form l used for process steam
generation in the project in year y (GWh)
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).
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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
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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
Justification of the
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.
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Data / Parameter: EGhistorical
Data unit: GWh
Description: Historical annual net electricity generation
Source of data used: Project developer
Value applied: 71.9 (see Table 9)
Justification of the
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 EGy are used (see section B.7.1)
Any comment:
Data / Parameter: SGhistorical
Data unit: GWh
Description: Historical annual steam electricity generation
Source of data used: Project developer
Value applied: 126.9 (see Table 9)
Justification of the
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 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
Source of data used: Project developer
Value applied: 2030
Justification of the
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
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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:
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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
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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.
Note: the consumption of lubricant oil is not counted.
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)
Value of data applied
for the purpose of
calculating expected
emission reductions in
section B.6.3
See Table 10
Description of
measurement methods
and procedures to be
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:
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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.
Note: the consumption of lubricant oil is not counted.
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.
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used:
Value of data applied
for the purpose of
calculating expected
emission reductions in
section B.6.3
See Table 10
Description of
measurement methods
and procedures to be
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
Source of data to be
used:
Project developer, steam tables
Value of data applied
for the purpose of
calculating expected
emission reductions in
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
and procedures to be
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).
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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
Source of data to be
used:
Project developer
+ IPCC 2006 for calorific values
Value of data applied
for the purpose of
calculating expected
emission reductions in
section B.6.3
310.6 (see Table 11)
Description of
measurement methods
and procedures to be
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
Source of data to be
used:
Project developer
Value of data applied
for the purpose of
calculating expected
emission reductions in
section B.6.3
85.7 (see Table 11)
Description of
measurement methods
and procedures to be
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
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Any comment:
Data / Parameter: SGCCGT,y
Data unit: GWh
Description: Monitored net steam generation by the CCGT system in year y
Source of data to be
used:
Project developer
Value of data applied
for the purpose of
calculating expected
emission reductions in
section B.6.3
148.3 (see Table 11)
Description of
measurement methods
and procedures to be
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.
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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.
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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: arnaud@ecosecurities.com, +44 (0)1865 202 635
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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
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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”.
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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.
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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.
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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: gulahmed@gulahmed.com
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: riazat@gulahmed.com
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: info@ecosecurities.com
URL: www.ecosecurities.com
Represented by:
Title: Company Secretary
Salutation: Mr.
Last Name: Browne
Middle Name: James
First Name: Patrick
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Mobile:
Direct FAX: +353 1672 4716
Direct tel.: +353 1613 9814
Personal E-Mail: cdm@ecosecurities.com
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Annex 2
INFORMATION REGARDING PUBLIC FUNDING
The Project will not receive any public funding from Parties included in Annex I of the UNFCCC.
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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
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Figure 5: Maintenance and overhaul schedule for Wartsila oil engines
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Figure 6: Service report for last overhaul on Wartsila engine #2 (October 2004)
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Figure 7: Example of yearly inspection report for boilers (May 2006)
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Figure 8: Manufacturer indication of lifetime for Solar gas turbines (May 2008)
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Figure 9: Manufacturer indication of lifetime for Wartsila engines (May 2008)
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Figure 10: Picture of boiler dating from 1966 at Gul Ahmed (May 2008)
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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.
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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.
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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
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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)
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Figure 13: Update of the internal benchmark IRR to 18% (April 2005)
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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.
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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.
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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
__________________ _________________
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Riazat Husain Sattar Qazi
Director Projects Project Manager
Copy of the last page signed in June 2005:
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Figure 16: ERPA signed between Gul Ahmed and EcoSecurities – Signed cover page (March 2007)
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5. Decision to proceed with the Project
Figure 17: Project approval (July 2005)
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Figure 18: APTMA letter, Ref. no.: PO/Chair/13/00767 dated 27th July 2009
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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
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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.
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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.
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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
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Annex 5
ENVIRONMENTAL PROTECTION AGENCY APPROVAL
EPA Government of Sindh, Karachi IEE Approval (2/2 pages)
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