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: Composting of Organic Content of Municipal Solid Waste in Lahore, Pakistan May 20, 2008 A.2. Description of the project activity: Rapid increase in population, high rate of migration to cities and introduction of disposable items, such as plastic bags, bottles etc. have created serious environmental problems including inadequate solid and liquid waste management, lack of safe water and minimal pollution control. Similar to other big cities of Pakistan, Lahore is witnessing a rapid growth in its population due to rural urban migration from surrounding areas and other parts of the country. The increase in population has exerted immense pressure on the social and physical infrastructure of the city leading to various socio-economic and environmental problems. Inadequate solid waste management has been one of the most visible and pressing problems in the city leading towards unattractive environment, poor sanitation conditions, pollution of water bodies, and general environmental degradation. The Solid Waste Management Department (SWMD) of City District Government Lahore (CDGL) is the sole authority responsible for the management of Solid Waste generated in the city. The responsibility of the SWMD consists of the whole process of collection of waste to its satisfactory disposal. However, due to high population growth and the lack of resources, the waste management has become a challenge for CDGL. Accordingly, SWMD prioritized the need to address this issue including the possibility of private sector participation through which waste can be managed and used in an economically beneficial manner. This arrangement would address the need to dispose off solid waste in economically beneficial ways without putting extra burden on the Lahore SWMD. Lahore Compost Private Ltd. (LCL) has received the concession from the City District Government, Lahore (CDGL) to process up to a 1,000 ton per day (TPD) of municipal solid waste (MSW). Currently LCL is operating at 300 TPD and intends to expand the processing to 1000 TPD. Carbon credits are being sought to accommodate the required expenditures to increase the processing by 700 TPD of MSW. Available statistics suggest that around 1,900 tonnes of solid waste per days is generated in Aziz Bhatti Town, Ravi Town and Shalimar Town every working day; out of which around 1,600 tonnes is collected and dumped at the Mahmood Booti Landfill Site. All of this solid waste is available for processing and composting. Various studies conducted in the past on the quality and composition of the solid waste suggests that the waste delivered to the project company includes over 55% organic materials. Composting, in scientifically designed plants, would improve the local environment by reducing health hazards created by the present practice of dumping of waste in open dump sites and also sequester the emission of methane generated in the process of anaerobic decomposition of bio-degradable matter. The Project will also result in the production of compost, which will be used as a soil conditioner/ fertilizer for improving the quality of soil in and around Lahore.

3 page 3 Due to a number of reasons, it is very difficult to make waste management projects commercially viable in Pakistan. As in many other countries, available resources from the Government of Pakistan and revenue accrual in terms of municipal taxation are not adequate. In Pakistan, there is little experience with the use of compost on a large scale and it is challenging to make commercially viable a composting project such as the likes of Lahore Compost. The concept of commercial soil conditioner is still not widely known amongst the farmers, the largest client/ user group. This coupled with the low levels of certain plant nutrients on a per tonnage basis in comparison to the chemical fertilizers leads to a relatively low market price of compost. CDM revenues could make a very positive impact in making such projects sustainable and would also open up possibilities for private sector participation. There are various forms of composting, e.g., aerobic windrow type, anaerobic trench type, in-vessel high rate composting, vermi-composting etc. LCL has been operating and plans to extend capacity of an aerobic windrow type composting technology. The capital investment in this composting plant is primarily for the civil structures and equipment for material handling, turning and screening the composting material at different stages. The composting technology is relatively simple but in absolute terms the capital investment is still high. Additionally, the operation and maintenance cost including the cost of debt servicing is fairly high compared to the low market price of compost. Therefore, additional support is necessary to make the urban waste based compost plant viable and sustainable. Compost is dark brown, free-flowing, rich in humus and has a faint musty odour. The humus content makes it a healthy soil conditioner. Additionally, compost contains a small percentage of plant nutrients macro (nitrogen, phosphorus and potash) as well as micro. Finished compost is classified as a 100% organic fertilizer containing primary nutrients as well as trace minerals, humus and humic acids, in a slow release form. Compost improves soil porosity, drainage and aeration and moisture holding capacity and reduces compaction. Compost can retain up to ten times it's weight in water. In addition, compost helps buffer soils against extreme chemical imbalances; aids in unlocking soil minerals; releases nutrients over a wide time window; acts as a buffer against the absorption of chemicals and heavy metals; promotes the development of healthy root zones; suppresses diseases associated with certain fungi; and helps plants tolerate drought conditions. The LCL project is first of its kind under Public Private Partnership and is contributing towards sustainable development of the municipality. The following are the environmental, economic and social benefits of implementing the project in the area: 1. Environmental Benefit: The project would prevent uncontrolled GHG generation and emission from waste that would have been disposed off at the landfill. Additionally it would reduce the amount of waste going into the landfill thus increasing the lifespan of the waste landfill. 2. Economical Benefits: Production of soil improver (compost) to battle soil degradation, boost the farm crop production, thus promoting farmers income and contributing to economic sustainable development of the region. 3. Social Benefits: Creation of around 80 jobs for locals and staff training to improve skills of the local residents. The project would also promote sustainable development of Lahore Municipality by improving the environment quality and demonstrate the commercialized practice of composting that could assist Pakistan s central and southern regions and other countries in meeting the objectives

4 page 4 regarding re-use of waste. A.3. Project participants: Name of the Party Involved ((host) indicates a host party) Government of Islamic Republic of Pakistan Private and/or public entity(ies) project participants Lahore Compost (Private) Limited (LCL) Saif Holdings Limited (SHL) Kindly indicate if the Party involved wishes to be considered as project participant Yes Yes LCL, a group company of Saif Group, is a private limited company under the laws of Pakistan especially set up to operate composting facilities in Pakistan. The company started developing the composting project back in The company has set up its first composting plant at Mahmood Booti under an agreement with the City District Government Lahore (CDGL). The project has been setup on Build- Operate-Transfer basis, whereby the project will be transferred to CDGL after a period of 25 years. This is the first public-private project in Pakistan on such a large scale in the area of Municipal Solid Waste (MSW) recycling. SHL defines and reviews business and investment activities of the Saif Group and provides consultancy and other related services to associated companies in addition to provide local support and other representative services to leading transnational corporations. SHL is also the primary implementation authority of the Saif Group for programs in Human Resource Development and Administrative Support. SHL is tasked with: Building networks with project partners and achieving shared objectives through the utilization of synergies. Managing network and alliance development. Nurturing an enterprise culture throughout the organization. Establishing the benchmark for recruitment and human resource development.

5 page 5 Project Implementation LCL is responsible for the overall implementation of the composting project in Lahore. The chart below summarizes the implementation arrangement: Sponsors (SHL) Funding Land Allocated by the CDGL to LCL LCL Bank Financing Equipment Supplier Composting Facility Construction Work Compost Fertilizer Compost Users A.4. Technical description of the project activity: A.4.1. Location of the project activity: Mahmood Booti, Bund Road, Lahore, Pakistan A Host Party(ies): Islamic Republic of Pakistan A Region/State/Province etc.: Lahore City District, Punjab

6 page 6 A City/Town/Community etc: Lahore City A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): The composting plant is located within the boundaries of Lahore city. The site is adjacent to Mahmood Booti MSW dumping site. The map below describes the exact location of the site: Project location A.4.2. Category(ies) of project activity: Project Activity: 13 Waste Handling and Disposal

7 page 7 A.4.3. Technology to be employed by the project activity: Aerobic windrow type composting is considered to be the most suitable technology. The project involves the production of compost from the organic solid waste using state-of-the-art Menart Technology. In the aerobic windrow type composting, the incoming garbage is weighed, inspected and then subjected to preliminary sorting of large non-compostable items followed by crushing to harmonize the input for composting. Next is stacking in windrows ( m long piles with a base width of about 4m and height of 2m). These windrows are turned mechanically at consistent intervals. At the end of about 6 weeks of windrowing, the material is fairly stabilized and is ready for screening through a train of rotary sieves having increasingly smaller openings. Additional equipment is also applied for removing small stone and grit. Smaller pieces of plastics, glass, rags etc. are removed during this process. At each stage, some rejects are screened out, which are either picked up by recyclers or more commonly, sent to a landfill. Process flow diagram below further clarifies the processes involved and technology employed. Collection & transportation of Solid Waste by CDGL to project site at weigh bridge Sorting & crushing of organic waste for composting Residue removed from the screening plant, re-use material Organic Waste for composting Temp, Moisture & CO2 Monitoring Composting Aerators Turning Integrated Quality Control Compost & Post Compost Processing / Packing The Figure below shows the waste landfill site along with the existing composting facility and proposed

8 page 8 expansion of windrow pad. Screening & Bagging Waste Sorting Project Boundaries Proposed Expansion Area Existing Composting Pad Weigh Bridge A.4.4 Estimated amount of emission reductions over the chosen crediting period: Years Annual Estimation of Overall Emission Reductions in tco 2 e , , , , , , ,770

9 page 9 Years Annual Estimation of Overall Emission Reductions in tco 2 e Total 548,407 Total Number of Crediting Years (First Crediting Period) Annual Average Over the Crediting Period of Estimated Reductions 7 years 78,344 A.4.5. Public funding of the project activity: The project has no recourse to public funds.

10 page 10 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: Approved baseline and monitoring methodology AM0025 version 9 titled Avoided emissions from organic waste through alternative waste treatment processes has been applied. B.2 Justification of the choice of the methodology and why it is applicable to the project activity: The methodology AM0025 titled Avoided emissions from organic waste through alternative waste treatment processes is applicable in this project. The project meets applicability criteria set out in the methodology. The main reasons have been listed below: The project activity involves composting process in aerobic conditions for the fresh waste that would be otherwise disposed of in a solid waste disposal site. The produced compost soil is used as a soil conditioner. The proportions and characteristics of different types of organic waste proposed in the project activity can be determined, in order to apply a multiphase landfill gas generation model to estimate the quantity of landfill gas that would have been generated in the absence of the project activity. There is no regulatory requirement regarding waste disposal in Pakistan. The baseline scenario would remain would remain unchanged with the waste being disposed off in the solid waste dumping site. As a result landfill gas generated would be released in the atmosphere. B.3. Description of the sources and gases included in the project boundary The project boundary is the composting site where the waste is brought in and treated. The greenhouse gases included and/or excluded from the project boundary are given in the Table 2 below Table 2 Greenhouse Gases Sequestration in Project Baseline Source Gas Included/ Excluded Emissions from decomposition of waste at the landfill site Justification/Explanation CO 2 Excluded CO 2 emissions from the decomposition of organic waste are not accounted. CH 4 Included The major source of emissions in the baseline. N 2 O Excluded N 2 O emissions are small compared to CH 4 emissions. Exclusion of this gas is

11 page 11 Project Activity Emissions from the electricity consumption Emissions from thermal energy generation Onsite fossil fuel consumption on due to the project activity Emissions from onsite electricity use Direct emissions from waste treatment processes Emissions from waste water treatment conservative. CO 2 Excluded No electricity consumption in baseline. CH 4 Excluded Excluded for simplification. This is conservative. N 2 O Excluded Excluded for simplification. This is conservative. CO 2 Excluded No thermal energy generation in the baseline. CH 4 Excluded Excluded for simplification. This is conservative. N 2 O Excluded Excluded for simplification. This is conservative. CO 2 Included Fuel used by on-site vehicles 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 An 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 Not included by methodology CO 2 emissions from the decomposition of organic waste are not accounted. CH 4 Included The composting process may not be complete and result in anaerobic conditions. N 2 O Included An emission source of composting activity CO 2 Excluded Not included by methodology CO 2 emissions from the decomposition of organic waste are not accounted. CH 4 Included Waste water is treated anaerobically and/or released untreated N 2 O Excluded Excluded for simplification. This emission source is assumed to be very small.

12 page 12 B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: According to the approved methodology AM0025, the proposed project uses step 1, step 2 and step 3 of the version 02 of "Tool for the demonstration and assessment of additionality" approved by EB to identify and describe the baseline scenario. Step 1: Identification of alternatives to the project activity consistent with current laws and regulations Sub-step 1a Define alternatives to the project activity: With the same purpose of waste treatment, there would be 4 alternatives to the proposed project. Alternative 1: Organic waste composting identical to the proposed project but not undertaken as a CDM project activity: Methane production would be avoided by breaking down organic matter through aerobic processes. Composting activity includes processes of municipal waste classification, composting and automation monitoring which requires high technology. It demands high initial capital investment and operational & maintenance costs. The sales of generated compost faces marketing risks and the ROI (return on investment) cannot reach the minimum expectations. The steps 2 and 3 of the section will show that the IRR without CDM revenue is only 13.18%. Considering the financial barriers and market risks composting without CDM support is not feasible. Alternative 2: Waste incineration: Waste incineration is suitable for low humidity and high caloric value wastes. A study was carried out on the municipal solid waste of Lahore metropolitan to ascertain whether the waste of Lahore municipality is suitable for incineration or not. The study reviled the installation of incinerator at any landfill site in Lahore due to higher moisture content varying from 50% to 70%, high ash content ranging between 15% to 25% and volatile combustible content of only 15% tp 20% in the Lahore MSW (Source: LUDP / Solid Waste Disposal Plan 1991 and Environment Impact Assessment of Mahmood Booti Municipal Solid Waste Dumping Site, Lahore by NESPAK in March 2004). This NESPAK study was conducted under the orders of the Honourable Lahore high Court where the project was challenged by the residents. Moreover installation of incinerators at landfill site would be an expensive option, technically more challenging to operate and environmentally undesirable. Thus, incineration at present is not a viable option for waste disposal in Lahore. Alternative 3: Disposal of the waste on a landfill with electricity generation using the landfill gas captured from the landfill site: Sanitary landfill or the controlled tipping involves the disposal of the waste in the prepared trenches or cells. It is a biological process in which number of micro-organism generates different products. Vents are kept for the escape of gasses like Carbon Dioxide and Methane. An extensive investment is required for landfill gas collection system for possible generation of electricity. High investment, technical challenges and lack of capacity in the local market renders this option unfeasible at present.

13 page 13 Alternative 4: Continuation of the current situation, where organic matter is broker down through uncontrolled anaerobic processes, releasing all produced methane into the atmosphere. There are no technical and investment barriers to this option. It is a feasible option but with severe environmental consequences. Stated alternatives 2 and 3are not acceptable to the investors owing to the technological and financial reasons, therefore, the following steps were applied to analyze the Alternatives 1 and 4 in order to identify the baseline scenario. Sub-step 1b Enforcement of applicable laws and regulations: The most relevant parts of the legal framework for disposal of waste in Pakistan include: The Pakistan Environmental Protection Ordinance, 1983 National Conservation Strategy (NCS), 1992; National Environmental Quality Standards (NEQS), 1993; and Pakistan Environmental Protection Act, 1997 (PEPA, 1997) Punjab Solid Waste Management Guidelines, 2007 The Ministry of Environment deals with environment and wildlife issues at the federal level. Two organizations, the Pakistan Environmental Protection Council (PEPC) and the Pak- EPA, are primarily responsible for administering the provisions of the PEPA The provincial environmental protection agencies (EPAs) are the provincial arms of the federal EPA, which is authorized to delegate powers to its provincial counterparts. There is no article enforcing landfill gas extraction, organic waste composting or what-so-ever in Environmental Protection Law of the Islamic Republic of Pakistan. While the governing laws do not regulate waste disposal practices, there is no prohibition against composting either. The SOPs of LCL are in full compliance with the guidelines of Punjab Solid Waste Management Guidelines, 2007 and to the best international practices of composting across the board. Step 2: Investment Analysis Sub-step 2a Determine appropriate analysis method: According to the version 3 of Tool for the Demonstration and Assessment of Additionality, the Project Proponent has to select one of the three alternative financial analyses given below for this step: Simple Cost Analysis; Investment Comparison Analysis; and Benchmark Analysis. If the project does not generate any financial or economic benefit other than CDM-related, than Option I should be used. Option 1 is not applicable to this project because it does generate compost-sales revenue (see Investment Analysis). Option II is based on the comparison of the returns of the project investment with the investment required for an alternative to the project. In this case, the alternative to the CDM project activity does not involve

14 page 14 investments of comparable scale. Consequently, Option II is not applicable to this project. Therefore, Option III has been used, where the returns of the investment in the project activity are compared to the benchmark returns that are available to any investor in the country. Sub-step 2b Option III - Application of benchmark analysis: The likelihood of development of the Project, as opposed to the continuation of current activities was determined by comparing its IRR with the benchmark available to local investors. In Pakistan, there is no generally acceptable benchmark rate of IRR for this type of project. The benchmark rate of return on construction or similar risks is commonly set at 20% to 25%. The average returns from the stock market and private equity funds are higher, ranging between 15% and 30%. Given the current economic climate and cost of borrowing prevailing in the country, we have taken 20% as a benchmark rate of return for this Project, which is conservative. Sub-step 2c Calculation and comparison of financial indicators: The Tables below show the financial analysis for the project activity. As shown, the project IRR (without carbon) is 13.18%, lower than the benchmark rate 18%. Clearly, without carbon revenue, the project will be financially unattractive. This is even more evident if we compare these returns with the returns from stock market and private equity funds in Pakistan (see above). Table B.4-1: Financial results of the Project with without carbon finance (Alternative 1) Values Total Investment (US$) 5,524,275 Operational Lifetime (Year) 25 Annual Average Price of Compost (PKR/ton Compost) Running costs (US$/Year) 2,272,071 Income Tax 35% Organic Waste Quantity of Composting Process (t/day) 1,000 Benchmark Rate of IRR of Saif Group 20% Project IRR (without Carbon Finance) 13.18% Project IRR (with Carbon Finance) 18.38% Assumed price (US$ 11 per ton of CO2e, 7X3) Sub-step 2d Sensitivity analysis: A sensitivity analysis was conducted by altering the following parameters: Total investment Composting sales revenue

15 page 15 Running costs (Operational and Maintenance costs) Those parameters were selected based on the likelihood to fluctuate most over time. Financial analyses were performed by altering each of these parameters by 5% interval from -10% to +10%, and assessing the impact on the project IRR. Table B.4-3 summarizes these findings: Table B.4-3: Sensitivity analysis of project IRR (without carbon finance) -10% -5% 0% 5% 10% Total Investment 14.26% 13.70% 13.18% 12.72% 12.30% Composting Sales Revenue 9.25% 11.25% 13.18% 15.07% Running Costs 15.74% 14.47% 13.18% 11.91% 10.64% In conclusion, the project IRR remains low even in the case where these parameters change in the favour of the Project, and are still too low for a risky enterprise such as the construction and operation of a composting plant. Consequently, the Alternative 1 cannot be considered as financially attractive. Step 3: Barrier Analysis Sub-step 3a Identify barriers that would prevent the implementation of type of the Proposed Project activity: Hereafter the relevant key factors are discussed. Each of the factors described below indicates how it influences the baseline development for the composting project and the GHG emissions at project activity level. Key factor 1 -Technical barriers

16 page 16 Although the project is using the simplest form of commercial composting technology, the entire technology of the aerobic composting process implemented in this project is European and considered reliable. The project is the first commercial attempt for using such technology and equipment in Pakistan and there is no prior operational example in Pakistan on which the management of LCL can rely for ensuring smooth operations of the facility. As a result it faces a number of technical barriers, such as the lack of technical know-how and lack of availability of just-in-time after sales support on the equipment. To some extant these barriers are expected to be overcome as the market for compost develops. Already LCL is working with local representatives of Menart, the equipment suppliers, for locally developing the vendor network. It would not only reduce lead time in getting after sales service but would result in savings to the company. Key factor 2 - Market & financial barriers The market barriers to the project include the difficulty in the promotion and sale of compost and financial barriers comprise high initial capital investment and substantial operation and maintenance cost for the equipment. The Proposed Project is the first commercial composting project for organic waste in the Punjab province. In addition to the risk of the investment and high operational & maintenance costs there is also the risk of low market demand for the compost in the local market. Without CDM revenue, the project proponent would face cash flow problems because of difficulties to secure working capital at competitive rates from the local commercial banks as they are reluctant to fund such risky Greenfield projects. A comprehensive Marketing Plan has been adopted to take the compost to the market. LC has committed 10% of the sale revenue to implement its marketing plan. The marketing plan has placed emphasis on the extensive sales promotions to give real understanding of the benefits of using compost for agricultural activities. Such promotion has been in the form of demonstration farms in key districts, strengthening of dealer network as well as direct marketing to the farmers. Sub-step 3b Show that the identified barriers would not prevent the implementation of at least one of the alternatives (except the Proposed Project activity): The above identified barriers do not affect Alternative 4 (Continuation of the current situation). It faces no barriers in the respect of technology, market and finances. As mentioned above, the waste treatment in Pakistan is generally operated by the local governments who have limited funds. For the investors, the Alternatives 2 and 3 are not acceptable because of the technical as well as commercial reasons. The Alternative 1 cannot be used as the baseline scenario without the CDM revenue. In comparison, alternative 4 continuing the current disposal of waste and allowing the emission of landfill gas would sustain as a viable alternative in the absence of the project and has been chosen as the baseline scenario. 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):

17 page 17 Step 0: Preliminary Screening based upon the starting date of the project As it is demonstrated in the following steps, CDM revenue has been considered from the early stages of project development and is an integral part of the financial package. It can be proved by the following documents. (Details and proofs can be made available to the operational Entity validating the project): Feasibility Study Minutes of the Board meeting dated XXXXX Step 1: Identification of Alternatives to the Project Activity Consistent with Current Laws and Regulations Sub-Step 1 Define Alternatives to Project Activity: With the same purpose of waste treatment there would be four alternatives if the proposed CDM project is not accepted. Alternative 1: Organic waste composting identical to the proposed project but not undertaken as a CDM project activity; Alternative 2: Waste incineration; Alternative 3: Disposal of the waste on a landfill with electricity generation using the landfill gas captured from the landfill site; and Alternative 4: Continuation of the current situation, where organic matter is broker down through uncontrolled anaerobic processes, releasing all produced methane into the atmosphere. Stated alternatives 2 and 3are not acceptable to the investors owing to the technological and financial reasons, therefore, the following steps were applied to analyze the Alternatives 1 and 4 in order to identify the baseline scenario. Sub-step 1b Enforcement of applicable laws and regulations: The most relevant parts of the legal framework for disposal of waste in Pakistan include: The Pakistan Environmental Protection Ordinance, 1983 National Conservation Strategy (NCS), 1992; National Environmental Quality Standards (NEQS), 1993; and Pakistan Environmental Protection Act, 1997 (PEPA, 1997) Punjab Solid Waste Management Guidelines, 2007 As seen in section B.4, Alternatives 1 and 4 comply with the local laws and regulatory requirements for the project location. According to the above laws, there is no legislation enforcing organic waste composting. Step 2: Investment Analysis Using option III to make investment analysis, the project IRR remains below the benchmark of 20-25%. Therefore, Alternative 1 is not be considered as financially attractive and viable option.

18 page 18 For complete details please refer to step 2 under section B.4. Step 3: Barrier Analysis Without CDM revenue, the project proponent faces a number of technical barriers such as lack of technical know-how, lack of availability of just-in-time after sales support on the equipment, compost sales, etc. The above identified barriers as mentioned in section B.4 don t affect alternative 4. For complete details please refer to step 2 under section B.4. In conclusion, according to the Tool for the demonstration and assessment of additionality, the baseline and the proposed project are discussed in details in the section B.4. Among the four alternatives, Alternative 1 through 3 without CDM support can t be used as the baseline scenario. In comparison, Alternative 4 of continuing the current practice of waste disposal and allowing the emissions of landfill gas is the baseline scenario. Step 4: Common Practice Analysis Sub-step 4a Analyze Other Activities Similar to the Proposed Activity: We are not aware of any project carrying out composting activity on a large commercial scale in the country. At present composting practices in the country are restricted to low cost static composting process (anaerobic process). Aerobic composting is capital intensive project with high running costs. As the market is not developed for the market, promoting compost is not easy. At present the sales of compost throughout the country is not recorded and so it difficult to estimate the market potential of compost. Sub-step 4b Discuss Other Similar Options that are Occurring To the best of knowledge there is no similar activity occurring in the country. Step 5: Impact of CDM Registration As indicated in Step 2, the project is not expected to be commercial viable with CDM revenues. The project proponents are expected to sell emission reduction credits at US$ 11 to generate additional revenue which would take IRR from 13.18% to 18.38%. Although the project IRR remains below the benchmark of 20%, it is sufficient make project financially viable. Table B.5-4 summarizes this tabular format. Table B.5-4 CDM Revenue Impact Ratios Benchmark Rates Without CDM With CDM IRR (%) 20% 13.18% ROE The impact of CDM revenue includes:

19 page 19 CDM revenue would improve financial viability of the project by improving liquidity position of the company; Provide assistance in overcoming investment and technological barriers resulting in smooth operations of the plant; and Successful operations acting as an incentive for others to explore similar opportunities. Without CDM revenue the project sponsors would not expand their operations from existing 300 TPD to 1,000 TPD. In fact, as even the existing operations are not commercially viable, the present management may even close down the existing operations. Thus possible reductions GHG emissions would not take place. As mentioned under section B.4 Sub-step 1b and above in this section, there are no legislation enforcing composting of organic waste, the approach is to continue dumping municipal solid waste at waste dumping sites. As a result landfill gas emitted from these dumping sites will be released directly into the atmosphere, thereby increase GHG emissions. Hence the current situation is the baseline. No commercial composting project has been launched in the country. The initial barriers to entry into this market are enough to stop entrepreneurs from venturing into this sector. Compost market in Pakistan is not a lucrative business and incentives are not enough to overcome risks mentioned above such as lack of developed market, technical barriers hindering smooth operations, etc. As a result project is not expected to be viable without additional cash inflow in form of CDM revenue. Hence, the proposed expansion is additional in emission reductions that would not occur in the absence of proposed CDM activity. The proposed expansion project would divert waste from being disposed off at Mahmood Booti Solid Waste Disposal Site to Lahore Compost plant site. This results in aerobic conversion of organic waste into compost resulting in methane emission reductions. This prevented methane emission from landfill which otherwise would have occurred is being claimed as emission reductions (ERs). B.6. Emission reductions: B.6.1. Explanation of methodological choices: The emission reduction caused by the proposed project are calculated according to the approved methodology AM0025 version 9 Avoided Emissions from Organic Waste through Alternative Waste Treatment Processes and Annex 14 of EB26 Tool to determine Methane Emissions Avoided from Dumping Waste at a Solid Waste Disposal Site. The emissions have been calculated according the followings steps: 1. Project Emissions PE y The proposed project uses composting process to treat organic waste. Therefore, the project emissions in year y are calculated using the following formula: PE y = PE elec,y + PE fuel,on-site,y + PE c,y + PE a,y + PE g,y + PE r,y + PE i,y + PE w,y

20 page 20 Where: PE y is the project emissions during the year y (tco 2 e) PE elec,y is the emissions from electricity consumption on-site in year y (tco 2 e) PE fuel,on-site,y is the emissions on-site due to fuel consumption on-site in year y (tco 2 e) PE c,y is the emissions during the composting process in year y (tco 2 e) PE a,y is the emissions during the anaerobic digestion process in year y (tco 2 e). The project does not include the anaerobic digestion process, so PE a,y = 0 PE g,y is the emissions during the gasification process in year y (tco 2 e). The project does not include the gasification process, so PE g,y = 0 PE r,y is the emissions during the combustion of RDF/stabilized biomass in year y (tco 2 e). The project does not include the combustion of RDF/stabilized biomass, so PE r,y = 0 PE i,y is the emissions from waste incineration in year y (tco 2 e). The project does not include waste incineration, so PE i,y = 0 PE w,y is the emissions from waste water treatment in year y (tco 2 e) So the calculation equation of PE y is: PE y = PE elec,y + PE fuel,on-site,y + PE c,y + PE w,y (1) (i) Emissions from electricity use (PE elec,y ) PE elec,y = EG PJ,FF,y * CEF elec (2) Where: EG PJ,FF,y CEF elec is the amount of electricity generated in an on-site fossil fuel fired power plant or consumed from the grid as a result of the project activity, measured using an electricity meter (MWh). is the carbon emissions factor for electricity generation in the project activity (tco 2 /MWh). Estimated values are used to ex-ante calculate the emission reduction. The actual emission reduction will be replaced by the ex-post measured values. Furthermore, the methodology states that in cases where the electricity is purchased from the grid, the emission factor is to be calculated according to the methodology ACM 002. However as the data to calculate grid emission factor is being gathered and would take sometime to calculate, the default emission factor for a diesel generator with a capacity of more than 200 kw for small-scale project activities (0.8 tco2/mwh, see AMS-I.D, Table I.D.1 in the simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories) has been used here (ii) Emissions from fuel use on-site (PE fuel,on-site,y ) The project uses fuel on-site for vehicles. Therefore, emissions from fuel use on-site are relevant.

21 page 21 PE fuel,on-site,y = F cons,y * NCV fuel * EF fuel (3) Where: PE fuel,on-site,y is the CO 2 emissions due to onsite fuel combustion in year y (tco 2 e) F cons,y is the fuel consumption on site in year y (litres). Estimated values are used to ex-ante calculate the emission reduction. The actual emission reduction will be replaced by the ex-post measured values. NCV fuel EF fuel is the net calorific value of the fuel (MJ/Kg). Net calorific value of MJ/Kg has been used. Calorific Value as per PCSIR report is being used here. is the CO 2 emission factor of the fuel (tco 2 e). IPCC default value of 74,100 Kg/TJ has been used. (iii) Emissions from composting (PE c,y ) PE c,y = PE c,n2o,y + PE c,ch4,y (4) Where: PE c,n2o,y is the N 2 O emissions during the composting process in year y (tco 2 e) PE c,ch4,y is the emissions during the composting process due to methane production through anaerobic conditions in year y (tco 2 e) N 2 O emissions (PE c,n2o,y ) PE c,n2o,y = M compost, y * EF c,n2o * GWP N2O (5) Where PE c,n2o,y is the N 2 O emissions during the composting process in year y (tco 2 e) M compost, y is the total quantity of compost produced in year y (tonnes/a). Estimated values are used to ex-ante calculate the emission reduction. The actual emission reduction will be replaced by the ex-post measured values. EF c,n2o is the emission factor for N 2 O emissions from the composting process (tn 2 O/t Compost). Approved value of tn 2 O/t compost has been used. GWP N2O is the Global Warming Potential of nitrous oxide (tco 2 /tn 2 O). Approved value of Global Warming Potential (310 tco 2 /tn 2 O) for N 2 O has been used. CH 4 emissions (PE c,ch4,y ) PE c,ch4,y = M compost, y * GWP CH4 * S a,y (6) Where PE c,ch4,y is the project methane emissions due to anaerobic conditions in the composting process in

22 page 22 M compost, y GWP CH4 S a,y year y (tco 2 e). is the total quantity of compost produced in the solid waste dumping site in the absence of the composing activity in year y (tch 4 ). According to AM0025 version 09 and Annex 14 of EB 26 th meeting report Tools to Determine Methane Emissions Avoided from Dumping Waste at a Solid Waste Disposal Site MB compost, y is calculated by multiplying Baseline Emissions is the Global Warming Potential of methane (tco 2 /tch 4 ). Approved Global warming Potential of methane (21 tco 2 /tch 4 ) has been used. is the number of samples per year with oxygen deficiency (S OD,y )divided by total number of samples (S total,y ) taken per year. It primarily indicates waste that degrades under anaerobic conditions in the composting plant during the crediting period. Currently statistically significant data is not available. Ex ante a S a of 2% has been applied in this PDD. Ex post this figure will be replaced by the results of actual on-site measurements. (iv) Emissions from waste water treatment (PE w,y ) PE w,y ( or PE CH4,w,y )= Q COD,y * P COD,y * B O * MCF p * GWP CH4 (7) Where: PE CH4,w,y Q COD,y is the project methane emissions from waste water treatment in year y (tch 4 /y). is the quantity (amount) of waste water treated anaerobically or released untreated from the project activity in year y (m 3 /yr). Currently data is not available as flow meter was not installed; but in fact all the leachate is reused for irrigating the windrows apart form the period of heaviest rains in monsoon. Ex ante a Q COD,y of 3 m 3 /yr has been applied in this PDD. Ex post this figure will be replaced with by the results of actual on-site measurements. P COD,y is the Chemical Oxygen Demand (COD) of the waste water measured in tcod/m 3. Currently only two months data is available which have been used in this PDD. Ex post this figure will be replaced by the results of actual on-site measurements. B O MCF p GWP CH4 is the maximum methane producing capacity (tch 4 /t COD). Approved value of kg tch 4 / kg COD has been applied in this PDD. is the methane correction factor (fraction). Approved IPCC default value of 0.8 has been used. This is the value of anaerobic deep lagoon. is the Global Warming Potential of methane (tco 2 /tch 4 ). Approved Global warming Potential of methane (21 tco 2 /tch 4 ) has been used. 2. Baseline emissions As per AM0025 baseline emissions are calculated using the following equation: BE y = (MB y MD reg,,y ) + BE EN,y (8) Where BE y is the baseline emissions in year y (tco 2 ) MB y is the methane produced in the landfill (in this case it is solid waste dumping site) in the

23 page 23 MD reg,,y BE EN,y absence of the project in the year y is the methane that would be destroyed in the absence of project activity in year y. In this case no methane is being destroyed, this would be 0. is the baseline emissions from generation of energy displaced by project activity in year y (tco 2 ). No energy generation is taking place, so this value is 0. In cases where regulatory or contractual requirements do not specify MD reg,,y, an Adjustment Factor (AF) has to be used to account for other relevant regulations and contractual obligations or to address safety or odour concerns. However, as there are no other relevant regulations or contractual obligations especially related to safety or odour concerns, AF will be 0. Rate of Compliance There are no regulations that mandate the use of one of the treatment options. Therefore, this is not applicable. Methane Calculations from the landfill in the absence of the Project Activity (MB y ) Methodology stipulates that the project participants should amount of methane calculated according to the latest version of the approved Tool to determine methane emissions avoided from dumping waste at a solid waste disposal site. Consequently methane emissions have been calculated according to EB 26 meeting report Annex 14 the methodological tool Tool to determine methane emissions avoided from dumping waste at a solid waste disposal site. Therefore, the equation provided in the mentioned has been used instead of the equation mentioned in the methodology AM0025. This calculation is based upon first order decay (FOD) model. BE CH4, SWDS,y =φ*(1-f )*GWP CH4 *(1 OX)*16/12* F*DOC f *MCF* W j,x *DOC j *e -kj*(y-x) *(1-e -kj ) (9) Where BE CH4, SWDS,y is the methane emissions avoided during the year y from preventing waste disposal at solid waste disposal site (SWDS) during the period from the start of the project activity to the end of the year y (tco 2 ) φ is the model correction factor to account for the uncertainties. Default value of 0.9 has been used here f is the fraction of the methane captured at SWDS and flared, combusted or used in another manner. In the baseline scenario, waste is dumped without capture, destruction or reuse of landfill gas. Therefore, f is 0. GWP CH4 is the Global Warming Potential of methane (tco 2 /tch 4 ). Approved Global warming Potential of methane (21 tco 2 /tch 4 ) has been used. OX is the oxidation factor (reflecting the amount of SWDS that is oxidized in the soil or other material covering the waste.) Since the SWDS in the baseline scenario is solid waste dumping site without any cover, OX in this case is 0. F is the fraction of methane in SWDS gas (volume fraction). Approved default value of 0.5 has been used. DOC f is the fraction of the degradable organic carbon. This value has been calculated using from IPCC Guidelines for National Greenhouse Gas Inventories Reference Manual Chapter 6 Equation 2. The value is 0.77

24 page 24 MCF is the methane correction factor. In this case we are using the approved value of 0.8 for unmanaged solid waste disposal site (> 5 M deep) DOC j is the fraction of the degradable organic carbon. Approved IPCC default values as per Volume 5, Table 2.4 have been used W j,x is the amount of organic waste type j prevented from disposal in SWDS in each year x in tons. K j is the decay rates for the waste type j. Approved IPCC default values as per Volume 5, Table 3.3 has been used. 3. Leakage The project uses composting process to treat organic waste and is subject to certain types of leakages. According to the methodology leakage emissions are estimated using the following equation: L y = L t,y + L r,y + L s,y Where: L y is the leakage emissions in year y (tco 2 ) L t,y is the leakage emissions from increased transport in year y (tco 2 e) L r,y is the leakage emissions from the residual waste from anaerobic digester, the gasifier, the processing/combustion of RDF/stabilised biomass or the compost in case it is disposed of in the landfill in year y (tco 2 e). As there is no anaerobic digester, gasifier or RDF process installed at the project site. Similarly compost is not disposed off in the landfill site. Therefore, the value is 0. L s,y is the leakage emissions from end use of stabilized biomass. Again, as there is no stabilized biomass, this value is 0 So the equation for L y is L y = L t,y (10) Emissions from Transportation (L t,y ) The emissions from the transportation (L t,y ) is calculated using the following equation: L t,y = NO vehicles,i,y * DT i,y * VF cons,i * NCV fuel,y * D fuel * EF fuel (11) Where: NO vehicles,i,y DT i,y VF cons,i NCV fuel,y D fuel EF fuel is the number of vehicles for transport with similar loading capacity is the average additional distance travelled by vehicle type i compare to baseline in year y in km is the vehicle fuel consumption in letters per kilometre for vehicle type i (l/km) is the calorific value of the fuel (MJ/kg or other unit) is the fuel density (kg/l) is the emission factor for the fuel (tco 2 e/mj)

25 page 25 The land used for producing compost is adjacent to the solid waste dumping site; in fact project has been constructed taking a small portion of land from Mahmood Booti waste dumping site. Hence there are no additional transportation emissions from the collection area to the treatment facility. The nearest end user for the compost produced is farms located about 6 km away from the project site. 4. Emission Reductions Emission reductions are calculated using the following equation: ER y = BE y PE y L y (12) Where: ER y is the emission reductions in year y (tco 2 e) BE y is the emissions in the baseline scenario in year y (tco 2 e) PE y is the emissions in the project scenario in year y (tco 2 e) L y is the leakage emissions in year y (tco 2 e) B.6.2. Data and parameters that are available at validation: Data / Parameter: Data unit: Description: Source of data used: Value applied: 0.8 Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: CEF elec tco 2 /MWh Carbon emission factor for the production of electricity in the project activity Official utility documents AMS-I.D, Table I.D.1 Data / Parameter: Data unit: Description: Source of data used: NCV fuel MJ/kg the net calorific value of the fuel (MJ/Kg) Fuel Supplier Value applied: Justification of the Net Calorific Value as per PCSIR report. The report has been reproduced with

26 page 26 choice of data or description of measurement methods and procedures actually applied : Any comment: this report. Data / Parameter: Data unit: Description: Source of data used: EF fuel tco 2 e Value applied: 74,100 Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: is the CO 2 emission factor of the fuel 2006 IPCC Guidelines for National Greenhouse Gas Inventories Emission factor can either be calculated or in cases where values are not available, IPCC default values can be used. As local value for the CO 2 emission factor is not available, IPCC default value has been used. The value has been taken from 2006 IPCC guidelines Volume 2, Table Data / Parameter: Data unit: Description: Source of data used: EF c,n2o tn 2 O/t Compost Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: is the emission factor for N 2 O emissions from the composting process Methodology approved value Methodology approved value Data / Parameter: Data unit: Description: Source of data used: GWP N2O tco2/tn2o is the Global Warming Potential of nitrous oxide 2006 IPCC Guidelines for National Greenhouse Gas Inventories