CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS

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1 page 1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS A. General description of 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 project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring plan

2 page 2 SECTION A. General description of project activity A.1. Title of the project activity: Biomass based Cogeneration project for Madina Enterprise Limited (MEL). Version: 1.0 Date: 10/09/2011 A.2. Description of the project activity: Madina Enterprise Limited (MEL) is a renowned industrial group of Pakistan with interests in Sugar, Textile and Edible Oil sectors, and is operating in different parts of Pakistan. Biomass based cogeneration project ( the project ) is first of its kind in Pakistan utilizing biomass residues for the generation of power thus substituting the equivalent amount of electricity, which would otherwise be generated in the grid. The project activity is implemented by Madina Enterprise Limited, which is the owner of power plant division and steel mill division where the electricity is consumed under the project. The project activity is the retrofit of existing boilers and installation of high pressure turbines in an existing sugar mill. Project Activity will provide surplus power to steel mill which would otherwise be imported from grid. As the project is the first of its kind in Pakistan, therefore the project entity aims to implement high pressure boiler technology and turbines to power furnaces in different stages, gradually increasing the efficiency of turbines to improve the specific steam consumption. Pakistan is an agriculture based economy and one of the largest rice and sugarcane producers in the region. Therefore utilizing biomass residues (e.g. rice husk, bagasse) is an important step towards the achievement of sustainable energy strategy. For project proponents renewable biomass residues based cogeneration is an alternative to postpone the dispatch of electricity produced by fossil-fuelled based utilities in the grid. The sale of the CERs generated by the project will boost the financial attractiveness of the project compensating the uncertain and rising biomass prices and other barriers, helping to increase the production of renewable energy and decrease the dependency on fossil fuel. Purpose of the Project Activity The main purpose of the project activity is to utilize biomass residue i.e. bagasse available in sugar mill thus substituting grid based electricity in the baseline. The project proponent will cogenerate enough steam and power for captive requirements in sugar mill and supplying surplus 20 MW to the steel mill, which would otherwise be imported from the grid. The project will generate renewable energy thus displacing grid based energy generation in the baseline scenario. How the proposed project activity reduces greenhouse gas emissions from Baseline The project activity will reduce the emissions of greenhouse gases by utilizing biomass residues in high pressure boilers and turbines to generate clean electricity thus displacing the use of grid electricity. The project therefore will reduce 28,684 tco2e per annum for the first crediting period.

3 page 3 Project Contribution to Sustainable Development The contributions of project activity towards sustainable development are explained with indicators like socio-economic, environmental and technological as follows: Socio-economic well being: The project has created an employment and business opportunity during construction phase for local stakeholders such as suppliers, contractors, and labor etc. contributing to economic well-being of local people, which would enhance their social status. The project will also create permanent jobs for maintaining the operations of steel mill. Environmental well being: The project activity displaces the fossil based grid electricity in the baseline by renewable biomass residues (rice husk and bagasse) and by this means resulting in reduction of greenhouse gas (GHG) emissions. Technological well being: The project activity utilizes biomass residue as fuel to generate steam. The project activity represents the environmentally safe technology for the application in steel mill, which is first of its kind in Pakistan. The refurbishment of high pressure boilers is done locally by engineers at sugar mill and other staff thus developing technological skills to efficiently operate and maintain in the future. The project will also help in Introducing modern high pressure turbine technology in sugar industry of the country. Improve technical knowledge of local population through technology transfer of the system by the supplier A.3. Project participants: The table below illustrates the participants involved in the project activity. Contact information is provided in Annex 1 Name of Party involved * ((host) indicates a host Party) Islamic Republic of Pakistan (host) Table A.3.1 : Project Participants 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) Madina Enterprises Ltd. (Private Entity) No Australia Climate Ventures Pty Ltd. (Private Entity) No Switzerland Vitol S.A. (private Entity) 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 of requesting registration, the approval by the Party(ies) involved is required.

4 page 4 A.4. Technical description of the project activity: A.4.1. Location of the project activity: A Host Party(ies): Islamic Republic of Pakistan A Faisalabad Road, Chiniot Region/State/Province etc.: A City/Town/Community etc.: The project will be implemented in Chiniot district, Punjab province. A Details of physical location, including information allowing the unique identification of this project activity (maximum one page): The project is located at Madina Sugar Mill situated at 10 KM, Faisalabad road, Chiniot. The geographic coordinates of the project are Lat: 31 o N and Long: 73 o 0 58 E. Fig A : Location of the Project Site 1 A.4.2. Category(ies) of project activity: As per the sectoral scope of the project activities, the project activity falls under; 1 Source:

5 page 5 Sectoral Scope 1 Energy industries (renewable / non-renewable sources) A.4.3. Technology to be employed by the project activity: The project activity is the rehabilitation of existing sugar mill power plant to generate renewable power. Started in 2008, the project activity involves the refurbishment of existing two low pressure boilers of 60 TPH capacities each from 24 bar to 60 bar and with the addition of one high pressure boiler of 100 TPH at 70 bar. One existing low pressure boiler will be kept as back-up. On the power side, old low pressure turbines were replaced by three high efficient back pressure turbines of 17, 12 and 9 MW with one condensing-extraction turbine of 15 MW operating at high pressure, whereas 6 MW existing turbine along with 12 MW newly installed turbine under the project activity will be kept as stand-by, to meet the power requirement of 42 MW thus gives the best system efficiency with respect to fuel consumption and electricity generation requirements for steel and sugar mills. The specification of the project plant is given in the following table; Boilers Equipment Capacity (TPH) Date of manufacturing Start of Operations Pressure (bar) Temp (ºC) Lifetime Turbines Existing Boiler (Back-up) Boiler Boiler Boiler Equipment Manufacturer Model Start of Operations Existing Turbine (Stand-By) Installed capacity (MW) Lifetime NG DME-450E Turbine 1 AEG KANIS G Turbine 2 ALLAN GEC (Stand-By) Turbine 3 SKODA-JINMA C 15-64/0.78/0.245// Turbine 4 AEG DKBL1006/04+DEA According to the specifications, the plant will utilize indigenous bagasse to fulfill the captive requirement of 42 MW. The project activity will utilize steam rankine cycle for efficient generation of electricity. The cycle consists of direct combustion of biomass in a boiler to generate steam, which is then expanded through a turbine. The installation of high pressure boilers will optimally utilize biomass and comparing this boiler

6 page 6 to the conventional boilers, the steam rate required for the turbine is much less at similar amounts of bagasse consumption. In other words, it can be said that approx. 6 to 8 kg steam is required to produce 1 kwh of electricity whereas in the conventional turbines 11 to 15 kg of steam generates 1 kwh. Bagasse Boiler 1 (60 TPH, 60 Bar) Boiler 2 (60 TPH, 24 Bar) Boiler 3 (60 TPH, 60 Bar) Boiler 4 (100 TPH, 70 Bar) Mill House Header Power House 6 MW Back-Pressure (Back-up) 12 MW Back-Pressure (Back-up) 9MW Back-Pressure 17 MW Back Pressure 15 MW Condensing Extraction Sugar Mill Captive Steel Mill Fig. A.4.3 Schematic Diagram for Project Activity A.4.4. Estimated amount of emission reductions over the chosen crediting period: Years Annual estimation of emission reductions in tonnes of CO2e , , , , , , , ,342 Total estimated reductions (tonnes of 28,684 CO2e) Total number of crediting 7 years Annual average over the crediting period of 28,684 estimated reductions (tonnes of CO2e)

7 page 7 A.4.5. Public funding of the project activity: No public funding is involved in this project activity.

8 page 8 SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: ACM0006 Version 11.1: Consolidated methodology for electricity generation from biomass residues ; Latest Tool to calculate the Emission Factor for an Electricity System B.2. Justification of the choice of the methodology and why it is applicable to the project activity: The project activity is the refurbishment of the existing power plant to power the newly established steel mill allowing the plant to operate more efficiently and with enhanced capacity, providing electricity to steel mill thus displacing fossil based grid electricity, which would otherwise be imported from grid. Therefore project activity is eligible under the approved baseline and monitoring methodology ACM0006 version The project activity is the combination of energy efficiency improvement and capacity expansion projects. The project activity is based on the operation of a cogeneration plant located in an agro-industrial plant (sugar mill) generating the biomass residues (bagasse). The methodology is applicable under the following conditions; Sr. Applicability Condition Project Activity Remarks 1 No biomass types other than biomass residues are used in the project plant; 2 2 Fossil fuels may be co-fired in the project plant. However, the amount of fossil fuels co-fired does not exceed 50% of the total fuel fired on an energy basis; 3 For projects that use biomass residues from a production process (e.g. production of sugar or wood panel boards), the implementation of the project does not result in an increase of the processing capacity of raw input (e.g. sugar, rice, logs, etc.) or in other substantial changes (e.g. product change) in this process The project activity is the utilization of bagasse (biomass residues) which comes under the definition of the methodology. No Fossil fuels are co-fired in the project activity. The project activity will utilize the sugar cane waste i.e. bagasse more efficiently without resulting in the increase of production capacity of the mill or in other substantial product change. Applicable Applicable Applicable 2 Refuse Derived Fuel (RDF) may be used in the project plant but all carbon in the fuel, including carbon from biogenic sources, shall be considered as fossil fuel.

9 page 9 4 The biomass residues used by the project facility are not stored for more than one year 5 The biomass residues used by the project facility are not obtained from chemically processed biomass (e.g. through esterification, fermentation, hydrolysis, pyrolysis, bio- or chemical- degradation, etc.) prior to combustion. Moreover, the preparation of biomass-derived fuel do not involve significant energy quantities, except from transportation or mechanical treatment so as not to cause significant GHG emissions 6 7 In the case of fuel switch project activities, the use of biomass residues or the increase in the use of biomass residues as compared to the baseline scenario is technically not possible at the project site without a capital investment in: The retrofit or replacement of existing heat generators/boilers; or The installation of new heat generators/boilers; or A new dedicated biomass residues supply chain established for the purpose of the project (e.g. collecting and cleaning contaminated new sources of biomass residues that could otherwise not be used for energy purposes); or Equipment for preparation and feeding of biomass residues. In the case that biogas is used in power and/or heat generation, this methodology is applicable under the following conditions: The biogas is generated by anaerobic digestion of The bagasse produced by the sugar mill will be fully utilized in the season thus will not be stored more than 6 months. Bagasse is agricultural residue of sugarcane and do not require any chemical processing before utilizing for energy. Similarly no significant energy is required to prepare bagasse for combustion purposes. The project activity is the rehabilitation and capacity expansion of existing biomass residue based cogeneration plant, therefore does not called as fuel switch project. The project activity does not utilize biogas for cogeneration. Applicable Applicable Not Applicable Not Applicable

10 page 10 wastewaster (to be) registered as a CDM project activity and the details of the registered CDM project activity must be included in the PDD. Any CERs from biogas energy generation should be claimed under the proposed project activity registered under this methodology; The biogas is generated by anaerobic digestion of wastewater that is not (and will not) be registered as a CDM project activity. The amount of biogas does not exceed 50% of the total fuel fired on an energy basis. Finally, the methodology is only applicable if the most plausible baseline scenario, as identified per the Selection of the baseline scenario and demonstration of additionality section hereunder, is: For power generation: Scenarios P2: to P7:, or a combination of any of those scenarios; For heat generation: Scenarios H2: to H7:, or a combination of any of those scenarios; For biomass residue use: Scenarios B1: to B8:, or any combination of those scenarios. For scenarios B5: to B8:, leakage emissions should be accounted for as per the procedures of the methodology. The scenarios for power, heat and biomass applicability is discussed in section B.4. B.3. Description of the sources and gases included in the project boundary: The project participants have included in the project boundary, GHG emission sources from the project activity and emission sources in the baseline, as prescribed by the methodology ACM0006 Version The project boundary includes the following emission sources: Bagasse Steel Mill National Grid Bagasse/Rice Husk Transported Project Cogeneration Plant Sugar Mill Captive Use Sugar Mill power house

11 page 11 Table 1: Emissions sources included or excluded from the project boundary Source Gas Justification / Explanation Baseline Project Activity Electricity and heat generation Uncontrolled burning or decay of surplus biomass residues On-site fossil fuel consumption Off-site transportation of biomass residues Combustion of biomass residues for electricity and heat Storage of biomass residues Wastewater from the treatment of biomass residues CO 2 Included Main emission source CH 4 Excluded Excluded for simplification. This is conservative N 2 O Excluded Excluded for simplification. This is conservative CO 2 Excluded It is assumed that CO 2 emissions from surplus biomass residues do not lead to changes of carbon pools in the LULUCF sector CH 4 Excluded Project participants may decide to include this emission source, where case B1, B2 or B3 has been identified as the most likely baseline scenario N 2 O Excluded Excluded for simplification. This is conservative. Note also that emissions from natural decay of biomass are not included in GHG inventories as anthropogenic sources CO 2 Included May be an important emission source CH 4 Excluded Excluded for simplification. This emission source is assumed to be very small N 2 O Excluded Excluded for simplification. This emission source is assumed to be very small CO 2 Included May be an important emission source CH 4 Excluded Excluded for simplification. This emission source is assumed to be very small N 2 O Excluded Excluded for simplification. This emission source is assumed to be very small CO 2 Excluded It is assumed that CO 2 emissions from surplus biomass do not lead to changes of carbon pools in the LULUCF sector CH 4 Excluded This emission source must be included if CH 4 emissions from uncontrolled burning or decay of biomass residues in the baseline scenario are included N 2 O Excluded Excluded for simplification. This emission source is assumed to be small CO 2 Excluded It is assumed that CO 2 emissions from surplus biomass residues do not lead to changes of carbon pools in the LULUCF sector CH 4 Excluded Excluded for simplification. Since biomass residues are stored for not longer than one year, this emission source is assumed to be small N 2 O Excluded Excluded for simplification. This emissions source is assumed to be very small CO 2 Excluded It is assumed that CO 2 emissions from surplus biomass residues do not lead to changes of carbon pools in the LULUCF sector CH 4 Included This emission source shall be included in cases where the waste water is treated (partly) under anaerobic conditions N 2 O Excluded Excluded for simplification. This emission source is assumed to be small

12 page 12 B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: According to methodology ACM0006 version 11.1, the selection of the baseline scenario should be conducted by applying the following steps in conjunction with latest version of the tool to identify the baseline scenario and demonstrate additionality: Step 1: Identification of alternative scenarios This step serves to identify alternative scenarios to the proposed CDM project activity(s) that can be the baseline scenario through the following sub-steps: Step 1a: Define alternative scenarios to the proposed CDM project activity Identify realistic alternative scenarios that are available to the project participants and that provide outputs or services with comparable quality, properties and application areas as the proposed CDM project activity. The alternative scenarios should specify: How electric power would be generated in the absence of the CDM project activity; and How heat would be generated in the absence of the CDM project activity; and What would happen to the biomass residues in the absence of the project activity Power Baseline As indicated in the approved methodology following alternatives for power generation in the baseline shall be considered; P1: The proposed project activity not undertaken as a CDM project activity; P1 is a credible baseline scenario. Identified Baseline Option P2: If applicable, 3 the continuation of power P2 is not considered as plausible generation in existing power plants at the alternative as the project activity in project site. The existing plants would operate the baseline would not be operated at the same conditions (e.g. installed under same conditions. Also there is capacities, average load factors, or average no three years operational history energy efficiencies, fuel mixes, and equipment before the start of implementation of configuration) as those observed in the most the project. recent three years prior to the starting date of the project activity; Excluded 3 This alternative is only applicable if there are existing plants operating at the project site.

13 page 13 P3: If applicable 3, the continuation of power generation in existing power plants at the project site. The existing plants would operate with different conditions from those observed in the most recent three years prior to the starting date of the project activity; P4: If applicable 3, the retrofitting of existing power plants at the project site. The retrofitting may or may not include a change in fuel mix; P5: The installation of new power plants at the project site different from those installed under the project activity; P3 cannot be considered as a credible alternative for sugar mill power expansion as there is a reference plant to be constructed in the baseline. Also there is no three years operational history for sugar mill existing plant before starting of the project. P4 can be considered as probable alternative for project activity power plant as the current capacity and configuration doesn t satisfy the captive electricity requirements in the sugar mill due to increased power demand from converting steam based system to electric motors and in the absence of the project activity a retrofitting of existing plant would result into the lower capacity reference plant to only suffice the sugar mill. The amount of electricity produced from steam saving is also included in reference plant to exclude its impact in project activity. In the absence of the project activity project entity would utilize grid electricity and hence P5 cannot be considered as plausible alternative. Excluded Identified Baseline Option Excluded P6: The generation of power in specific off-site plants, excluding the power grid; There is no specific off-site plant for the proposed project activity. Therefore P6 cannot be considered as plausible alternative. Excluded P7: The generation of power in the grid; P7 can be considered as plausible alternative as common practice for steel mills (similar industry) is to operate on grid power. Also this will not require significant investment as compared to project activity. Identified Baseline Option The plausible power baseline scenarios for the project activity are P1, P4 and P7.

14 page 14 Heat Baseline The alternative scenarios for heat should include, but not be limited to, inter alia: H1: The proposed project activity not undertaken as a CDM project activity; H1 can be considered as plausible alternative Identified Baseline Option H2 If applicable 3, the continuation of heat generation in existing plants at the project site. The existing plants would operate at the same conditions (e.g. installed capacities, average load factors, or average energy efficiencies, fuel mixes, and equipment configuration) as those observed in the most recent three years prior to the project activity; H2 is not considered as plausible alternative as the project activity in the baseline would not be operated under same conditions. Also there is no three years operational history before the start of the project. Excluded H3 If applicable 3, the continuation of heat generation in existing plants at the project site. The existing plants would operate with different conditions from those observed in the most recent three years prior to the project activity; H3 cannot be considered as a credible alternative as there is a reference plant to be constructed in the baseline. Also there is no three years operational history for sugar mill existing plant before starting of the project. Excluded H4 If applicable 3, the retrofitting of existing plants at the project site. The retrofitting may or may not include a change in fuel mix; H4 can be considered as a plausible alternative as in the absence of the project existing boilers have to be rehabilitated under a reference plant scenario. Identified Baseline Option H5 The installation of new plants at the project site different from those installed under the project activity; In the absence of the project, the project entity would utilize grid electricity and hence P5 cannot be considered as plausible alternative. Excluded H6 The generation of heat in specific off-site plants; H6 is not a plausible alternative as sugar mills are self sufficient in energy generation from bagasse. Excluded H7 The production of heat from district heating. H7 is also not applicable as district heating option is not available and is not a common Excluded

15 page 15 practice in Pakistan. The most plausible scenarios for heat generation are H1 and H4. Biomass Baseline For the use of biomass residues, the realistic and credible alternative(s) may include, inter alia: B1: The biomass residues are dumped or left to decay mainly under aerobic conditions. This applies, for example, to dumping and decay of biomass residues on fields; B2: The biomass residues are dumped or left to decay under clearly anaerobic conditions. This applies, for example, to landfills which are deeper than 5 meters. This does not apply to biomass residues that are stockpiled or left to decay on fields; B3: The biomass residues are burnt in an uncontrolled manner without utilizing it for energy purposes; In the absence of CDM project activity the existing bagasse would be utilized for power and heat generation at sugar mill. However the extra amount of bagasse and rice husk required would be purchased from other sugar mills. As country produces huge amount of rice husk and large number of sugar and rice mills have surplus bagasse and husks which would otherwise left to decay, therefore this option can be considered as plausible baseline. Also during rainy season most of the rice husk get damage and there is no mechanism for its storage. B2 is not applicable, as deep landfills are not the case in Pakistan for dumping agricultural residues. The project proponent will utilize self generated bagasse from sugar mill, previously used in sugar mill. Therefore B3 is not applicable baseline scenario. Identified Baseline Option Excluded Excluded B4: The biomass residues are used for power or heat generation at the project site in new and/or existing plants; B4 can be considered as plausible alternative as biomass residues produced in the sugar mill (bagasse) will be used in the project plant. Identified Baseline Option

16 page 16 B5: The biomass residues are used for power or heat generation at other sites in new and/or existing plants; Project proponents were already using bagasse prior to the implementation of project activity therefore B5 cannot be considered as plausible alternative. Excluded B6: The biomass residues are used for other energy purposes, such as the generation of biofuels; B6 is not applicable as there is no bio-fuel production facility generating bio-fuels from rice husk in Pakistan. Excluded B7: The biomass residues are used for non-energy purposes, e.g. as fertilizer or as feedstock in processes (e.g. in the pulp and paper industry); B8: Biomass residues are purchased from a market, or biomass residues retailers, or the primary source of the biomass residues and/or their fate in the absence of the project activity cannot be clearly identified. B7 is not applicable as in Pakistan the biomass residues are not used as feedstock for fertilizer as the market is dominated by chemical fertilizers. Project proponent intended to utilize existing bagasse in the sugar mill in reference baseline plant, therefore B8 cannot be considered as plausible alternative Excluded Excluded So the plausible alternatives for biomass residues are B1 and B4. As per the guidance of ACM0006 v11.1 following table should be explained with respect to the project activity.

17 CDM Executive Board page 17 Biomass residues category (k) Biomass residues type Biomass residues source Biomass residues fate in the absence of the project activity Biomass residues use in project scenario Biomass residues quantity (tonnes) 1 Bagasse On-site production Electricity generation on-site (B4:) Electricity generation on-site (biomass-only boiler) 176,750 2 Bagasse Off-site from an identified Sugar mill Dumped (B1:) Electricity generation on-site (biomass-only boiler) 40,881 3 Rice husks Off-site from an identified rice mill Dumped (B1:) Electricity generation on-site (biomass-only boiler) 51,292 Outcome of Step 1a: Scenario Power Baseline Options Heat Biomass residues Description of Situation 1 P1 H1 B1, B4 The Project activity without being considered as CDM activity. 2 P4 and P7 H4, B1, B4 Reference plant installed capacity of 23 MW and importing 20 MW of electricity for steel mill from grid. Sub-step 1b: Consistency with mandatory applicable laws and regulations All of the alternative scenarios identified in sub-step 1a are in compliance with all mandatory applicable laws and regulations; therefore they are all available to the project owner. The proposed project activity without considering as a CDM project activity is not the only alternative among them.

18 page 18 Outcome of Step 1b: As all the alternatives are in compliance with national laws and regulations therefore all the above scenarios can be considered for further analysis in step 2. Scenario Power Baseline Options Heat Biomass residues Description of Situation 1 P1, H1 B4 and B8 The Project activity without being considered as CDM activity. 2 P4 and P7 H4, B4 Reference plant installed capacity of 23 MW and importing 20 MW of electricity for steel mill from grid. It is worth mentioning here that latest version of ACM0006 ver prefer the use of biomass if it is already being used prior to the project activity. Unless there is additional steam demand for process in the baseline the benefit of biomass utilization is treated as uncertain. As in sugar mills the process heat demand remain the same and there is no need to install high pressure boilers and turbines and power generation under the project activity, therefore to remain conservative as biomass is already being used in sugar mill and is preferred as baseline biomass consumption. B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality): As per the methodology ACM0006 Ver the demonstration of additionality is determined using the steps; STEP 1: Identification of alternative scenarios; STEP 2: Barrier Analysis; STEP 3: Investment Analysis (if applicable); STEP 4: Common practice Analysis. Step 1: Identification of alternative scenarios; This step has already been carried out in section B.4. in the determination of baseline options against the project activity. Step 2: Barrier analysis This step serves to identify barriers and to assess which alternatives are prevented by these barriers. Apply the following sub-steps:

19 page 19 Sub-step 2a. Identify barriers that would prevent the implementation of alternative scenarios: Alternative Scenario 1: (Project Activity without CDM consideration) i) Investment Barrier The project activity requires a massive capital investment as compared to power import from grid. Therefore there is an investment barrier for project proponents without considering any CDM benefits. ii) Technological Barriers: The generation of power for steel mills in Pakistan is dominated through direct import from grid. However the steel mill under the project activity is - the first of its kind in Pakistan that will get electricity from renewable source in high pressure boilers, which lead to technological challenges. The project activity has significant technological risks which make it impossible to raise conventional equity without the support of CDM revenues. The conventional boilers in sugar mills generate electricity at 24 bar pressure and therefore going upto 70 Bar pressure is the first of its kind specifically for captive requirements, which would otherwise be imported from grid. iii) Barriers due to prevailing practice: The project activity is the first of its kind in Pakistan. It is not known to the project participants that any power plant previously in such dimensions (42 Mwe) for captive power requirements exists. The only existing projects Almoiz 4 bagasse based cogeneration and Shakarganj 5 biogas based energy generation have already made possible through CDM registration. However those above mention projects are grid connected exporting excess power to grid whereas the project activity is the first of its kind supplying electricity to steel mill, which would otherwise be imported from the grid. As the baseline for steel mills is the import of power for their induction furnaces from grid 6. Alternative Scenario 2: (Grid Imports) i) Investment Barrier In the baseline situation the steel mill would have been importing electricity from the grid for which there is no investment barrier. ii) Technological Barriers For alternative scenario 2, the power required for steel mill would be imported from the grid with no technical barrier and is an industry norm

20 page 20 iii) Prevailing Practice barriers Importing power from the grid for steel furnaces 6 is the normal practice as mentioned above and therefore there is no prevailing practice barrier in this scenario. Sub-step 2b: Eliminate alternative scenarios which are prevented by the identified barriers: Following table indicates results of barrier analysis; Barriers Alternative 1 (Project without CDM) Alternative 2 (Grid Imports) Investment Yes No Technological Yes No Lack of Prevailing Practice Yes No Outcome of Step 2: The baseline option faces no barrier and import of grid power is also an industrial norm for steel furnaces, therefore can be considered as baseline scenario, which is also a common practice in Pakistan 6. STEP 3: Investment Analysis It indicates that the implementation of the project activity not undertaken as a CDM project face barriers and the baseline identified faces no barriers as compared to CDM project activity. Therefore the barrier analysis alone is sufficient to prove the additionality of this first of its kind project in Pakistan. STEP 4: Common Practice Analysis The Project activity is the first of its kind in Pakistan. It is the first steel mill known so far in Pakistan to utilize renewable energy to fulfill its captive requirement. As mentioned above that existing biomass based projects are already being implemented through CDM and this situation stresses that the project activity shall not be considered as common practice. Therefore, the project activity shall be considered additional. CDM consideration and real and continual effort in securing the CDM status: For project activities starting dates before and on 2 nd August, 2008 the guidelines on demonstration and assessment of prior consideration of the CDM (EB 48, Annex 61) for which the starting date is prior to the date of publication of the PDD for global stakeholder consultation is demonstrated through following table;

21 page 21 Sr. Activity Date No. 1. Board of Directors Meeting deciding to install steel mill with 1 st September, 2007 captive power in sugar mill 2. Contract Agreement with CDMPAK (CDM Consultant) 20 th June, Project Activity starting date (Start of Rehabilitation of Sugar 30 th January, 2008 Mill existing power plant (Invoiced date) 4. Addition of new 15 MW turbine (Invoiced Date) 14 th October, Initial Environmental Examination (IEE) and stake holders 19 th February, 2010 consultation Report submitted to Punjab, EPA Department 6. NOC from Punjab Environmental Protection Department 10 th May, Correspondence with DOE for providing Quotation for 29 th October, 2010 validation services (quotation received) 8. Submission for Host Country Approval 19 th May, Grant of Host Country Approval 30 th June, Revised Quotation received for Validation 7 th July, 2011 From above table of chronological events it is clearly demonstrated that CDM has been considered seriously and real and continuing actions have been taken to achieve the CDM status for the said project. B.6. Emission reductions: B.6.1. Explanation of methodological choices: Project emissions, baseline emissions, leakage emissions and emission reductions are calculated according to procedures and formulas defined as per the methodology ACM0006 v11.1; Emission reductions are calculated as follows: ER = BE PE LE y y y y (1) Where: ER y = Emissions reductions in year y (tco 2 ) BE y = Baseline emissions in year y (tco 2 ) PE y = Project emissions in year y (tco 2 ) LE y = Leakage emissions in year y (tco 2 ) Baseline Emissions Baseline emissions are calculated based on the most plausible baseline scenario identified in the section Selection of the baseline scenario and demonstration of additionality, B.4. above according to the methodology ACM0006, taking into account how power and heat would be generated, and how the biomass residues would be used, in the absence of the project activity.

22 page 22 As explained in the methodology that in many cases, power and heat would be generated in the baseline by a combination of following three ways; i) Use of biomass residues at the project site ii) Use of fossil fuels at the project site. iii) Power generation in the electricity grid. and it may be difficult to clearly determine the precise mix of power generation in the grid and power or heat generation with biomass residues or fossil fuels that would have occurred in the absence of the project activity. If power can be generated in an on-site fossil fuel power plant or can be purchased from the grid, it is particularly challenging to determine how electricity would be generated in the baseline. For example, to what extent an existing coal power plant is dispatched and to what extent electricity is purchased from the grid can depend on the prices for electricity and coal which change over time. For this reason, this methodology adopts a conservative approach and assumes that biomass residues, if available, would be used in the baseline as a priority for the generation of power and heat. Furthermore, it is assumed that the heat provided by heat generators is used first in heat engines which operate in cogeneration mode, then in thermal applications to satisfy the heat demand, and after that in heat engines which operate for the generation of power only. Therefore taking into account above considerations, baseline emissions as calculated below would be lowest emission factor from import of grid power (more than 20% of the current steel industry usage) according to the methodology step 2 outcome options. Based on these assumptions, baseline emissions are calculated as follows: BE FF EF + EL min(ef,ef ) + BE y = ELBL,GR,y EFEG,GR,y + f BL,HG,y,f FF,y,f Where: BE y = Baseline emissions in year y (tco 2 ) BL,FF / GR,y EG,GR,y EG,FF,y EL BL,GR,y = Baseline minimum electricity generation in the grid in year y (MWh) EF EG,GR,y = Grid emission factor in year y (tco 2 /MWh) FF BL,HG,y,f = Baseline fossil fuel demand for process heat in year y (GJ) EF FF,y,f = CO 2 emission factor for fossil fuel type f in year y (tco 2 /GJ) EL BL,FF/GR,y = Baseline uncertain electricity generation in the grid or on-site in year y (MWh) EF EG,FF,y = CO 2 emission factor for electricity generation with fossil fuels at the project site in the baseline in year y (tco 2 /MWh) BE BR,y = Baseline emissions due to disposal of biomass residues in year y (tco2e) y = Year of the crediting period f = Fossil fuel type BR,y (2)

23 page 23 The algorithm used to determine the data above can be summarized as follows: Step 1: Determine biomass availability, generation and capacity constraints, efficiencies and power emission factors; Step 2: Determine the minimum baseline electricity generation in the grid; Step 3: Determine the baseline biomass-based heat and power generation; Step 4: Determine the baseline demand for fossil fuels to meet the balance of process heat and the corresponding electricity generation; Step 5: Determine the baseline emissions due to uncontrolled burning or decay of biomass residues; Step 6: Calculate baseline emissions. A flow chart is presented in following figure for ease of reference.

24 page 24 Step 1.1: Baseline process heat generation Step 1.2: Baseline electricity generation Step 1.3: Baseline capacity of elect. generation Step 1.4 Baseline availability of biomass residues Step 1.5 Determine efficiencies Step 1.6 Det. onsite elect. emission factor Step 1.7 Det. the grid emission factor EF EG,FF,y EF EG,GR,y Step 3.1 Baseline biomass heat generation Step 2 Minimum grid electricity generation EL BL,GR,y Step 3.2 Baseline biomass cogeneration Case 1 Case 2 Case 3 Case 4 Step 3.2 (ctd.) Process heat extraction Case 4.1 Case 4.2 Case 4.3 Step 3.3 Electricity in power-only mode Step 4.1 Baseline fossil fuels for process heat Step 4.2 Cogen. of electricity with fossil fuels FF BL,HG,y,f EL BL,FF/GR,y FF BL,HG,y,f FF BL,HG,y,f EL BL,FF/GR,y EL BL,FF/GR,y Step 5 Determine biomass emissions BE BR,y Step 6 Calculate baseline emissions BE y Flow chart for the calculation of baseline emissions

25 page 25 Step 1: Determine biomass availability, generation and capacity constraints, efficiencies and power emission factors in the baseline Step 1.1: Determine total baseline process heat generation The amount of process heat that would be generated in the baseline in year y (HC BL,y ) is determined as the difference of the enthalpy of the process heat (steam or hot water) supplied to process heat loads in the project activity minus the enthalpy of the feed-water, the boiler blow-down and any condensate return to the heat generators. The respective enthalpies should be determined based on the mass (or volume) flows, the temperatures and, in case of superheated steam, the pressure. Steam tables or appropriate thermodynamic equations may be used to calculate the enthalpy as a function of temperature and pressure. 7 The process heat should be calculated net of any parasitic heat used for drying of biomass. This methodology assumes for the sake of simplicity that the proposed CDM project activity consumes steam from the same quality as in baseline process transported through one steam header. Project activities in which the baseline includes multiple steam headers with different enthalpies may apply this procedure as if their process included only one steam header as this leads to a conservative outcome of the baseline emission estimation. However, there may be cases where the baseline situations involve steam headers with different steam enthalpies and applying the algorithm as if there is one steam header may be difficult or may result in a very different baseline emission situation. For example, a baseline scenario could consist of biomass boilers generating low enthalpy steam for direct use as process heat while fossil fuel boilers would generate steam with a higher enthalpy for use in a backpressure turbine. In such cases the project participant may consider the existence of multiple steam headers as a technical constraint in the application of the algorithm (as specified in Steps 3 and 4). Step 1.2: Determine total baseline electricity generation The amount of electricity that would be generated in the baseline in year y is calculated as follows: EL = EL + EL EL BL, y PJ,gross,y PJ,imp,y PJ,aux,y (3) Where: EL BL,y = Baseline electricity generation in year y (MWh) EL PJ,gross,y = Gross quantity of electricity generated in all power plants which are located at the project site and included in the project boundary in year y (MWh) EL PJ,imp,y = Project electricity imports from the grid in year y (MWh) EL PJ,aux,y = Total auxiliary electricity consumption required for the operation of the power plants at the project site in year y (MWh) y = Year of the crediting period 7 Heat supplied during the project activity to a district heating system shall count as process heat and be included in the process heat.

26 page 26 EL PJ,aux,y shall include all electricity required for the operation of equipment related to the preparation, storage and transport of biomass residues (e.g. for mechanical treatment of the biomass, conveyor belts, driers, etc.) and electricity required for the operation of all power or heat generating plants which are located at the project site and included in the project boundary (e.g. for pumps, fans, cooling towers, instrumentation and control, etc.). For this methodology, it is assumed that transmission and distribution losses in the electricity grid are not influenced significantly by the project activity and are therefore not accounted for. Step 1.3: Determine baseline capacity of electricity generation The total capacity of electricity generation available in the baseline should be calculated using the equation below. The heat engines i and j should be obtained from the baseline scenario identified using the Selection of the baseline scenario and demonstration of additionality and the load factors should take into account seasonal operational constraints as well as other technical constraints in the system (e.g. availability of heat to drive heat engines). CAP EG,total,y = LOCy (4) i j ( CAPEG,CG,i LFCEG,CG,i ) + ( CAPEG,PO,j LFCEG,PO,j) Where: CAP EG,total,y = Baseline electricity generation capacity in year y (MWh) CAP EG,CG,i = Baseline electricity generation capacity of heat engine i (MW) CAP EG,PO,j = Baseline electricity generation capacity of heat engine j (MW) LFC EG,CG,i = Baseline load factor of heat engine i (ratio) LFC EG,PO,j = Baseline load factor of heat engine j (ratio) LOC y = Length of the operational campaign in year y (hour) i = Cogeneration-type heat engine in the baseline scenario j = Power-only-type heat engine in the baseline scenario y = Year of the crediting period Step 1.4: Determine the baseline availability of biomass residues Where the baseline scenario includes the use of biomass residues for the generation of power and/or heat, the amount of biomass residues of category n that would be available in the baseline in year y (BR B4,n,y ) has to be determined. The determination of this parameter shall be based on the monitored amounts of biomass residues used for power and/or heat generation in the project boundary for which B4: or BG3 has been identified as the most plausible baseline scenario in the CDM-PDD. The biomass residues quantities used should be monitored separately for (a) each type of biomass residue (e.g. sugarcane bagasse, rice husks, empty fruit bunches, etc.) and each source (e.g. produced on-site, obtained from biomass residues suppliers, obtained from a biomass residues market, obtained from an identified biomass residues producer, etc.).

27 page 27 Where the whole amount of biomass residues of one particular type and from one particular source would be used in the baseline in clearly identifiable baseline heat generators, the monitored quantities of biomass residues used in the project can be directly allocated to those heat generators in the baseline scenario. However, the following situations require particular attention: One biomass residue type from one particular source could be used in the baseline in two or more heat generators. In this case, the use of this biomass residue type from this source has to be allocated to the different heat generators should they have different efficiencies; One biomass residue type from one particular source could have two different fates in the baseline scenario. The biomass categories 1 and 2 in Table 2 on page Error! Bookmark not defined. illustrate this situation: the rice husks are obtained from one source but would in the baseline partly be dumped (B1:) and partly be used for power generation (B4:). This can apply, for example, if parts of one biomass residue type were already collected prior to the implementation of the project activity while another part was not needed and thus dumped, left to decay or burnt. In this case, it is necessary to allocate the biomass residue quantity used under the project to the following fates in the baseline scenario: (a) (b) (c) Power or heat generation (B4:), or Dumping, leaving to decay or burning (B1:, B2: and/or B3:), or Scenarios required for the purpose of calculating leakage effects: other fates (B5: - B8:). Where one of these situations arises, the project participants should specify and justify in the CDM-PDD in a transparent manner how the relevant allocations should be made. The approaches used should be consistent with the identified baseline scenario and reflect the particular situation of the underlying project activity. In doing so, the following allocation rules should be adhered to: The sum of biomass residues used in the baseline for power or heat generation in all heat generators shall be equal to the total amount of biomass residues which are used under the project activity and for which the baseline scenario is B4; The allocation of biomass residues should be undertaken in a conservative manner. This means that in case of uncertainty an allocation rule should be applied that tends to result in lower emission reductions. In the case a biomass residues type from one particular source has been used prior to the implementation of the project activity partly in heat generators operated at the project site (scenario B4:) and partly has been dumped, left to decay or burnt (scenarios B1:, B2:, B3:) and if this situation would continue in the baseline scenario, then use, as a conservative approach to address the uncertainty associated with such an allocation, the maximum value among the following two approaches for the quantity of biomass residue of category n allocated to scenario B4: (a) The quantity of biomass residue of category n is the highest annual historical use of that biomass residue type from that source for power and/or heat generation at the project site observed in the most recent three calendar years prior the date of submission of the PDD for validation of the project activity for which data is already available; and