INTERNATIONAL FINANACE CORPORATION (IFC)

A Study on:

PRODUCTIVE USES OF HYDROPWERIn Gilgit-Baltistan, and Chitral District of Pakistan

By:Alasdair Miller

Izhar Hunzai

Islamabad – February 2013

TABLE OF CONTENTS

PART ONE: INTRODUCTION AND CONTEXT..............................................................11. BACKGROUND AND PURPOSE OF STUDY....................................................................22. CONTEXTUAL ANALYSIS................................................................................................... 2

PART TWO: ANALYSIS OF POTENTIAL SECTORS.....................................................71. OVERVIEW............................................................................................................................. 82. RENEWABLE ENERGY.........................................................................................................83. MINERAL RESOURCES..................................................................................................... 134. HIGH VALUE AGRICULTURE..........................................................................................165. TOURISM.............................................................................................................................. 25

PART 3: INVESTMENT PROPOSAL.............................................................................281. INTRODUCTION................................................................................................................. 292. GOAL AND STRATEGY......................................................................................................293. INVESTMENT PROJECTS.................................................................................................294. HYDROPOWER FOR PRODUCTIVE USES...................................................................305. BORDER-ECONOMY CLUSTER AT GOJAL, HUNZA...................................................326. ESTABLISHING A MODEL MARBLE QUARRY............................................................357. MEAT PROCESSING...........................................................................................................428. HORTICULTURE SECTOR................................................................................................459. GREEN ECONOMY CLUSTER, CENTRAL HUNZA.......................................................4510. TOURISM AND NATURAL STONE CLUSTER, SHIGAR, BALTISTAN.................4711. OTHER PURE ACTIVITIES............................................................................................4912. GEMS AND JEWELRY CLUSTER, GARAM CHASMA, CHITRAL............................4913. FEED-IN TO MINI GRID IN CHITRAL TOWN...........................................................5114. CONCLUSION.................................................................................................................... 51

REFERENCES............................................................................................................................... 52

ANNEXES...................................................................................................................................... 53

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LIST OF TABLES

Table 1: GBC Population............................................................................................................3

Table 2: Literacy Levels in GBC (2008)....................................................................................4

Table 3: Selected Health Indicators............................................................................................5

Table 4: Trade and Industry Sector in Gilgit-Baltistan..............................................................5

Table 5: Location of off-farm workforce: 2005 (%)..................................................................6

Table 6: Installed capacity and Demand (MW) GB and Chitral 2012.......................................9

Table 7: Tentative Cost of Power Units...................................................................................10

Table 8: Mineral resources of GBC..........................................................................................14

Table 9: Seed Potato produced through Tissue Culture lab, in GB..........................................17

Table 10: Total Value of Fruits Produce in GB (000 PKRs)....................................................19

Table 11: Average Household Forest Tree Holding in 2008 - By Species..............................19

Table 12: Wholesale Supply of Dry Fruit (PKR million).........................................................21

Table 13: Recommendations and Action Points.......................................................................27

Table 14: Summary of Business Clusters.................................................................................30

Table 15: SWOT Analysis........................................................................................................30

Table 16: Profile of Five MHP Projects...................................................................................31

Table 17: SWOT Analysis........................................................................................................33

Table 18: Inventory of Resources in Gojal...............................................................................34

Table 19: Comparison of Energy Consumption for Marble Extraction and Processing..........37

Table 20: Comparison of Energy Cost for Marble Extraction and Processing........................37

Table 21: Misgar Hydropower Plant........................................................................................37

Table 22: Energy Production, Demand and Pricing Structure (in '000 kWh)..........................38

Table 23: Marble Quarry and Processing Unit - Input Variables.....................................39

Table 24: Marble Production and Processing - Capital Expenditure...............................40

Table 25: Marble Quarry and Processing Unit - Profit & Loss (Income Statement)...............41

Table 26: Meat Processing - Input Variables...........................................................................43

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Table 27: Meet Processing Unit - CAPEX...............................................................................44

Table 28: Meat Processing - Profit & Loss (Income Statement)..............................................45

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LIST OF FIGURES

Figure 2: Per Capita Income.......................................................................................................4

Figure 3: Vegetable supplies to local markets..........................................................................22

Figure 4: Export of fresh fruit to national market.....................................................................22

Figure 5: Annual Export of Potato from GB to Down Country...............................................22

Figure 6: Down Country Exports from GB..............................................................................23

Figure 7: Trends in Pakistan's Exports and Imports Through Sost Customs...........................24

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Acronyms

ADB Asian Development BankAEDB Alternative Energy Development BoardAJK Azad Jammu and KashmirAKCSP Aga Khan Culture Services PakistanAKDN Aga Khan Development NetworkAKFED Aga Khan Foundation Economic DevelopmentAKRSP Aga Khan Rural Support ProgrammeCDM Clean Development MechanismCEP Clean Energy ProgramCSOs Civil Society OrganisationsDFP Dried Fruit ProjectEC European CommissionELC Electric Load ControllerFATA Federally Administered Tribal AreasFATA Federally Administered Tribal AreasFLO Fair Labeling OrganisationGAP Green Alternate EnergyGB Gilgit-BaltistanGBC Gilgit-Baltistan and ChitralGBGMA Gilgit-Baltistan Gemstone and Mineral AssociationGBLA Gilgit-Baltistan Legislative AssemblyGEF Global Environment FacilityGNP Gross National ProductGoP Government of PakistanGTZ/GIZ German International CooperationGW/h Giga Watt per hourHF Hashoo FoundationICIMOD International Centre for Integrated Mountain DevelopmentIFC International Finance CorporationInWent German International Capacity Building AgencyIPPs Independent Power ProducersIPS Industrial Promotion ServicesIUCN International Union for Conservation of NatureJ&K Jammu and KashmirJICA Japan International Cooperation AgencyKADO Karakoram Area Development OrganisationKfW German Development BankKKH Karakoram HighwayKNR Karakoram Natural Resources Pvt. Ltd.KPK Khyber PakhtoonkhwaKVO Khunjerab Village OrganisationLSO(s) Local Support Organisation(s)MAG Marble Association of GojalMFL Mountain Fruit (Pvt.) LimitedMHP Micro Hydel ProjectMOU Memorandum of UnderstandingMW Mega WattNAGMA Northern Areas Gemstone and Mineral AssociationNASSD Northern Areas Strategy for Sustainable DevelopmentNGO Non-Governmental OrganisationNSTC North-South trade Corridor

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PASDEC Pakistan Stone Development CorporationPKR Pakistani RupeesPPAF Pakistan Poverty Alleviation FundPPI Productive Physical InfrastructurePPP Public Private PartnershipPURE Productive Uses of Renewable EnergyR&D Research & DemonstrationRETs Renewable Energy TechnologiesRF Rupani FoundationSBA Sustainable Business AdvisorySDC Swiss agency for Development CooperationSDP Seed Development ProjectSHYDO Sarhad Hydel Development OrganisationSRSP Sarhad Rural Support ProgrammeTAP Trade Authority of PakistanUAE United Arab EmiratesUNDP United Nations Development ProgrammeUSD United State DollarsUSDA United States Department of AgricultureUSGS United States Geological SurveyW&PDD Water and Power Development DepartmentWAPDA Water and Power Development AuthorityWSE Women’s Social EnterpriseXAAS Xinjiang Academy of Agricultural Sciences

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PART ONE: INTRODUCTION AND CONTEXT

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1. BACKGROUND AND PURPOSE OF STUDY

This study, conducted for the International Finance Corporation (IFC), a member of the World Bank Group, investigates potential economic impact of hydropower development on a range of productive activities in Gilgit-Baltistan and Chitral (GBC)1, a remote and under developed mountain region of Pakistan. The study is intended to contribute to the design of an investment project for IFC’s Clean Energy Program (CEP), managed under its Sustainable Business Advisory (SBA).

A key partner in this project would be Aga Khan Rural Support Programme (AKRSP), a flagship program of the Aga Khan Development Network (AKDN). AKRSP is working with rural communities in GBC since 1983, and has a track record in promoting rural infrastructure and natural resources management. Under this program, AKRSP has been developing community-based micro and mini hydropower projects since 1991 mainly to meet basic energy needs at the household level and limited productive uses. It is also implementing a Clean Development Mechanism (CDM) project in the small hydropower category.2

The purpose of this study is to identify productive sectors, which can be developed through sufficient energy input, technology and skill up gradation and market linkages, as a new strategy for growth and poverty reduction in these underdeveloped areas. The basic concept is to exploit existing potential for hydropower development in GBC, which is well known, as a means to developing other promising resources and value chains, such as horticulture, minerals, tourism and other productive uses of renewable energy (PURE).

As an entry point, the study identifies specific sites for developing five mini hydropower projects (MHPs), and a range of potential enterprises and market-based opportunities for promoting PURE at these locations. It is an innovative approach and builds on previous energy development and PURE initiatives of AKRSP, where the main focus was on meeting basic energy needs only. Under this approach, energy becomes a key input to a targeted investment strategy intended to catalyze market-led growth through productive value chains.

2. CONTEXTUAL ANALYSIS

2.1 Ecology and human settings

The context is geographically remote, ecologically fragile and socioeconomically marginalized mountain valleys of GBC in northern Pakistan.

The insufficient provision of energy, despite high potential for clean hydropower, forces people to cut alpine trees and other vegetation to meet their basic energy needs. The use of diesel and other fossil fuels has also increased both by small businesses and power utilities.

The GBC region stretches over a difficult mountain area of 74,400 sq. km hemmed between Afghanistan, Western China,

1 GBC is not a formal name, and used here as a convenient geographical description of two separate administrative units: Gilgit-Baltistan (GB) and Chitral District of Khyber Pakhtoonkhwa (KPK) 2 http://cdm.unfccc.int/Projects/DB/DNV-CUK1204739473.81/view

Figure 1: Map of GBC

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Pakistan, and both parts of disputed Jammu and Kashmir (J&K). Historically, the region was ruled as a collection of independent states by feudal chieftains, known as Mirs, Mehtars and Rajas. European explorers came to this area in the early 19th Century. Gilgit Agency was established under British rule in 1878, and Chitral was briefly occupied towards the end of that Century. However, local rulers retained their autonomy well after British rule. Hunza, the last of these states was formally abolished in 1974.

In 1947, the outgoing British Administration handed Gilgit Agency over to the Maharaja of Kashmir, who joined India, while the Mehtar of Chitral opted for Pakistan. Shortly after partition, the Gilgit Scouts revolted against the Maharaja with the intention to join Pakistan. However, owing to wider political considerations, Pakistan did not formally annex Gilgit-Baltistan (GB) and continues to view it as part of the larger disputed region of Kashmir with India. GB has since been ruled by Islamabad as a special administrative entity.

Recently, GB has received greater political and administrative autonomy from the Centre, and reconstituted as a devolved administrative unit with the status of a de facto province, but still without full constitutional rights. The unsettled political status has

served as a key barrier on large-scale investments in GB. For instance, the Asian Development Bank (ADB) has recently pulled out of an earlier understanding to finance the Diamer-Basha Dam, under pressure from India.

The adjoining Chitral district is part of Khyber-Pakhtoonkhwa (KPK) province, formally part of Pakistan, but shares many cultural affinities with GB. The region has a fragile mountain ecology, with difficulties of access, extreme climatic conditions, and marginalization. Due to its difficult topography and poor infrastructure, access to the area is problematic.

GBC has an estimated population of 1.6 million. The population is growing at a rate of 2.47% and almost 60% of the population is below the age of 30. Despite rapid growth of urban areas, the population remains largely rural, with significant but undetermined seasonal and more permanent outmigration trends.

2.2 Economy

Roughly, 80% of the rural population is engaged in subsistence agriculture and meets about 50% of the food needs in the area. Landholding is small, averaging only about 0.75 ha per family. The land-use is dominated by cultivation of food crops, fruit growing, livestock rearing and agro-forestry.

Only about 2% of the total land area is cultivable and roughly 1% is already in use. Approximately 4% of the GBC area is under natural forests and 52% under rangeland. Agro-forestry and horticulture (6%) are other important uses of land. The rest of the land area is rock and under glaciers and permafrost.

Agricultural diversification is slow, owing to small landholdings, limited capacity of local markets and high costs and risks involved in accessing distant markets. However, some headway has been made in developing certain value chains in agriculture, such as

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Table 1: GBC Population

District Population

GB 1,181,670

Gilgit 197,935

Hunza-Nagar 131,994

Ghizer 162,156

Astore 96,325

Diamer 180,581

Skardu 293,088

Ghanche 119,591

Chitral 431,273

TOTAL 1,612,943

Source: Extrapolated from 1998 census for 2010

potato seed, dried apricots, almonds and walnuts, apples, and cherries, based on the natural comparative advantage of the area.

There is a small but growing service sector particularly in transportation, tourism, and trade. Although the GBC’s mineral, hydropower and horticulture resources are significant, this potential remains largely untapped.

Figure 2: Per Capita Income

Source: “GBER: Broadening the Transformation” Report no. 55998-PK (Washington, DC: World Bank, 2010).

Economically, the area has been developing at a slower pace due to physical constraints of communication and shortages of energy and investment capital. Per capita income is low at less than half the national average; poverty rate is high, particularly at higher, single cropping valleys.

Roughly speaking, more than half of the household income comes from the non-farm sector, including a growing portion from remittances. In aggregate terms, more than 34% of the population is believed to be living below the official poverty line of less than US$ 2 a day, though there is considerable variation across the region.

Socially, there are significant disparities across different parts of GBC as well as within gender and social groups. The social development indicators are relatively better in valleys traditionally served by AKDN.

Literacy rate is high relative to other comparable remote areas of Pakistan at about 76% among males and 61% among females; tap water supply facilities cover only 45% of the population (70% in urban and 30% in rural), and basic electricity access is available to about 60% of the population, but with significant gaps in supply.

The social and economic status of women remains a major issue in these traditional societies. Women’s literacy in increasing, but

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Table 2: Literacy Levels in GBC (2008)

Districts Male Female Overall

National Average*

69 44 56

GB 76 45 61

Skardu 71 34 53

Ghanche 74 35 55

Gilgit 83 61 72

Ghizer 75 47 62

Astore 71 47 59

Diamer** 44 15 30

Chitral 76 45 62

Sources: SESGBC 2008, AKRSP;*Pakistan Economic Survey 2009-10;**Hudur Valley Baseline Survey 2007

they are largely excluded from higher educational and employment opportunities in a large number of valleys, and they are almost entirely excluded from the formal economy and business sector. Unemployment among literate women is emerging as new social problem.

GBC has a history of communal conflict, experienced a long period of political vacuum, but now slowly emerging from its isolation.

Private sector is weak, but there is good scope for major industries in key sectors, particularly in hydropower, mining, gemstones, horticulture, forestry, trade and tourism, but this potential has not been exploited to an optimum level. The small and medium industries that exist in GBC are limited to small flourmills; saw mills, furniture and wood workshops, hydropower stations, and hotels. These industries are operating at a scale to meet only the consumption needs of the local

population. Table 4: Trade and Industry Sector in Gilgit-Baltistan

Private Sector Business Assets(In million of Rupees)

% of Total Assets in the Private Sector

Transport 316.06 33.69%

General Trade 144.00 15.35%

Agriculture 123.20 13.13%

Infrastructure 101.30 10.80%

Tourism 75.20 8.02%

Banking 40.00 4.26%

Oil & Gas 34.62 3.69%

Mining 28.86 3.08%

Forests 22.00 2.34%

Industry 20.00 2.13%

Livestock 13.24 1.41%

Technology 12.80 1.36%

Power Generation 3.60 0.38%

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Table 3: Selected Health Indicators

Indicator Pakistan GB

Growth Rate (%) 1.8 2.47

Infant Mortality Rate/1,000 Live Births 73 79

Maternal Mortality Rate/100,000

90 450

Crude Birth Rate/1,000 Pop 25.0 36.4

Crude Death Rate/1,000 Pop 7.70 9.4

Source: Government Health Department RecordsSource. Pakistan Economic Survey 2008-2009 (pg 170)

Cottage Industry 2.12 0.23%

Const. Materials 1.20 0.13%

Total 938.20 100.00%

Source: NASSD Background paper, IUCN

Although, precise figures on unemployment are not available, it is estimated to be in excess of 20%. High unemployment, particularly among the more vocal educated youth, remains a major contributing factor to the poor law and order situation in the area.

Given the current high population growth rate, an estimated 600,000 people are expected to join the work force over the next decade. Outside agriculture, public sector, particularly the army, is the largest source of employment for people.

Assuming relatively static employment levels in the public sector and little expansion of employment options in traditional agriculture, much of this growth in employment will need to come from agribusinesses and non-farm enterprises. It is estimated that employment opportunities in the private sector will need to treble over the next ten years or out-migration will increase even further.

GB depends on the federal government for almost all of its fiscal needs. Public funding for GB has been increasing over the years, but development needs are still greater. Chitral is the tail-end district of KPK, itself a poor and conflict-ridden province. Public sector funding for Chitral, based on its population (5% of KPK’s population but 20% of its land area) is inadequate. Until the construction of the Lowari Tunnel project, which is nearing completion, Chitral remained cut off from the rest of the country for road communication for up to four month of the year during winters. GB and Chitral are connected by road, except during the winter months when Shandur pass is closed due to heavy snow.

Chitral and Gilgit towns are connected to Peshawar and Islamabad by air, but air travel is weather-dependent and unreliable. The Karakorum Highway (KKH) connects GB to Islamabad and Western

China. However, frequent landslides and recent terrorist attacks on this single access road have made overland travel difficult and insecure. Public sector’s capacity to deliver services to this remote area is not only hampered by fiscal constraints, but also by poor policy and governance. Pakistan’s policy to keep GB in a political limbo has given it zero leverage in foreign policy objectives and resulted in poor economic policy and planning, and has hurt the country.

Being a remote area there are many constraints on private sector development, and they include a continuing policy vacuum3, and poor planning, such as lack of grid connection with mainland Pakistan and within GBC. Difficult terrain and unreliable communication

3 After the 18th Amendment to Pakistan’s Constitution in 2010, many subjects have been devolved to the provinces, including hydropower development for up to 100 MW, agriculture and education. However, small provinces such as GB and KPK are not fully prepared to take advantage of the delegated powers.

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Table 5: Location of off-farm workforce: 2005 (%)

Location of Work GBC

Within village 33

Out village but in tehsil 16

Out tehsil but in District 15

Out district but in GBC 10

Out GBC but in Pakistan 24

Abroad 3

Source: AKRSP Case study, 2005

systems, particularly snow-bound passes and frequent blockage of access roads due to landslides; travel insecurity and uncertainty, and lack of energy act as other serious bottlenecks on attracting investment capital to the area. The World Bank in its first report on GB summed up the dilemma in the following words:“… it bears recognizing that in many ways development in GB is against the odds, due its tough geography and special administrative arrangements (including sharp fiscal constraints), as well as the difficult wider Pakistan context (security problems and macroeconomic / fiscal challenges). The region is geographically isolated, the population is small and dispersed, the distances are felt more acutely due to the harsh terrain and variable weather conditions, and the longstanding divisions–both internal and external–impair the movement of people, goods and ideas. Governance arrangements are complicated by the unresolved constitutional status of GB, the limited institutional capacity of the GB administration (GBA), and the complete fiscal dependence on the GoP. While GB has enjoyed better security conditions than much of the rest of Pakistan, the deteriorating situation in neighbouring provinces harms its development prospects. A confluence of circumstances has also placed sharp strains on the rest of Pakistan, including the coffers of the GoP, and GB’s allocation looks certain to be constrained in the near future. What these shifting factors mean on the ground is that development has been very uneven, with many people in remote areas subsisting largely the same way as have previous generations”.

PART TWO: ANALYSIS OF POTENTIAL SECTORS

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1. OVERVIEW

Despite many constraints, there are opportunities for promoting broad-based growth in GBC. The area holds good potential for developing natural resources, i.e., water for irrigation and hydropower; mineral resources, particularly good quality dimensional stone, gemstones; specialty foods, tourism and trade. The area is emerging from its physical and political isolation and witnessing improved access to education, markets, information and new technology. There can also be a demographic dividend from its young and increasingly literate workforce, and improved gender relations and social status of women. Proximity with China offers potentially huge benefits, not just in terms of trade and commerce, but also for investment capital and technology transfer. However, given the current fiscal constraints, public sector investment alone may not be sufficient to develop these resources.

The growth strategy of the government is to expand and accelerate the role of the private sector in developing GBCs strategic resources, and to engage with the civil society organizations to ensure equity in access to social and economic opportunities. There is good scope for a partnership approach among public, private and community sector stakeholders.

The investment strategy must target relevant growth sectors, or strategic resources of GBC, initially focusing on small and low risk opportunities, and incrementally building clusters of productive activities. However, these opportunities can only be realized through access to reliable energy and a well-trained workforce, not only in technical occupations, but also in entrepreneurial, managerial and organizational skills.

Following are the strategic advantages of GBC:

Untapped natural resources, such as water for hydropower development and irrigation, and mountain landscape and scenic areas for tourism

Comparative advantage of geography and climate for nature and cultural tourism and growing high value temperate crops and marketing with a mountain specific value (natural, organic, fair trade)

Relatively educated and young workforce, and increasingly high quality human capital

Emerging opportunities for trade and commence with China and Central Asia and uptrends in the flow of remittances to the area

Emergence of information technology sector for overcoming the physical isolation and access

Political autonomy and self-governance for context-specific policy research, planning and development.

2. RENEWABLE ENERGY

GBC offers tremendous potential to generate renewable energy primarily from hydro and secondarily from solar sources. Its unique ecology, part of a larger mountain landscape known as the Water Towers of the World, serves as a vital source of water to the River Indus, on which the majority of Pakistan’s irrigation and hydroelectricity depends. Enriched with permafrost outside the Polar systems, perennial flow of water meets with significant slope gradient, giving the area unmatched advantage to generate low-cost hydroelectricity. However, the answer may be smart, rather than mega development.

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The hydropower potential of GBC is well established for large projects, such as the Diamer-Basha Dam and Bunji and other projects in 100s or 1000s of MW capacity, totalling an estimated 40,000 MW4. But these are complex and long-term projects, requiring large sums of investment money and time to develop. However, there are hundreds of other sites for building technically sound, economically viable and ecologically smart projects.

A study conducted by WAPDA and GTZ (now GIZ) consultants on the potential of hydroelectricity generation in GBC shows that from 24 sites that are accessible, a total of 667 MW can be generated, while from a total of 122 potential sites surveyed so far another 771 MW of electricity can be generated5.

These mini and small sized projects are attractive from a host of strategic perspectives. For one thing, they fall under the provincial authority, which makes them immune to national and international politics, thus making them more feasible from a commercial point of view. They also contribute to fiscal independence and better local governance.

In addition, there are many areas in GBC that receive a large amount of direct sunlight, because of the relatively clean environment compared to the rest of country. Solar radiation can be better utilized by undertaking solar power projects on a pilot scale, especially in remote areas with small pockets of population, where extending transmission lines are likely to be expensive.

2.1 Baseline situation

Although the region has seen many improvements over the last two decades, there is still a serious shortage of electricity to meet the existing conservative demand. Table 6 shows existing and projected situation of demand and supply of the electricity in GBC.

Only Chitral town is connected with national grid, while GB is not. Within the GBC area, urban pockets are connected with mini grids, while AKRSP and other NGOs have built community-based MHPs in off-grid locations. Overall, about 60% the population has access to hydroelectricity, but supply is erratic. Table 6: Installed capacity and Demand (MW) GB and Chitral 2012

Provider On-grid

Mini-grid

Isolated off-grid

Diesel generate

d

Total Suppl

y

Current Demand

Demand Gap

ChitralWAPDA (National grid) 3 3WAPDA (Local generation) 0.800 0.800

SHYDO 1.8 4.2 6SRSP/Community 0.6 0.6AKRSP/Community 8 8Private sector 0.6 0.6

Total 4.8 14.2 19 31 12*Gilgit-BaltistanGB W&PDD 0 15 80 5 100 225 125AKRSP/community 0 0 2 0.1 2.1

Total 15 82 5.1 102.1 225 122.8

* The current energy demand of district Chitral is 31 Mega Watt (MW) and available power is 19 MW, while intermediate demand is 56 MW. The projected demand including heating and cooking for 2016 is 131 MW, therefore total projected demand is 187 MW.

4 www.adb.org/printpdf/projects/34339-043/main5 http://www.ppib.gov.pk/HYDRO.pdf

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Presently, per capita power consumption in GBC is only 0.05 kW, which is the lowest in Pakistan. With the existing plans of expansion of the capacity of power supply through the public sector, it will not be possible to meet the projected additional demand and the energy crisis will exacerbate more. According to the plans of GB Water and Power Development Department (GB-W&PDD) a total capacity of around 160 MW will be added to the current supply by the end of around 2016, which will take the overall power generation to around 205 MW in GBs, which would mean that the electricity produced will meet only the very basic needs and still there would be massive shortages.Table 7: Tentative Cost of Power Units

The public investment plans in Chitral follow a similar trend, thus that area too is expected to continue to face serious shortages. Moreover, this capacity does not allow for any industrial activity to take place in the area, which means that no private

investment for sustainable economic growth can be attracted to the region.

2.2 Barriers on energy development

2.2.1 Policy and regulatory:

Policy vacuum and poor planning are major problems. Pakistan has consistently lacked a realistic energy outlook, and slid into an unfavourable energy mix status, reducing its share of low cost hydropower to 25% from 55% in the last ten years. Its energy policy is highly politicized, resulting in failing to implement key shovel-ready projects, such as Kala-Bagh Dam and many other mega projects upstream of Terbela Dam. Political economy of Pakistan has opted for rental projects, lost opportunity to tap into vast hydropower resources in the north, wasted its natural gas reserves for short-term gains, and eventually led to 22 hour energy blackouts in rural areas, and decimation of industry in the cities.

Alternative Energy Development Board (AEDB) is the principle national regulator for promoting small-scale renewable energy technologies (RETs). In its new national alternative energy strategy, AEDB has recommended special concessions for community owned MHPs under 5 MW. However, it has failed to include RETs in the IPP framework, and has managed to deliver just one project in the last ten years.

The policy vacuum continues. After the 18th Amendment to the Constitution, provinces have the authority to develop their own energy policy, and can develop up to 100 MW of hydropower projects through provincial guarantees. However, this delegation of power has happened without much homework, and it has created many grey areas in the development, distribution and pricing of hydroelectricity. The provinces are struggling to develop their new policies, and small provinces such as KPK and GB, lack technical and institutional capacity for good policy-making6. In GB, the power to legislate over key resources, such as hydropower, mineral and tourism are vested in the Gilgit-Baltistan Council (GBC), the equivalent of an Upper House, headed by the Prime

6 The GB Government has recently signed an MOU with GIZ for technical assistance to develop a long-term hydropower policy, brokered by AKRSP.

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Site/ location Unit Size

Capital cost(USD m)Chinese

technology

Capital cost(USD m)

European technology

Chitral Town 0.5 MW 1 1.5Garaum Chashma 01 MW 1.8 2.2Ahmadabad II 0.5 MW 0.8 1.3Shigar Ph III 01 MW 1.8 2.3Misgar 2 MW 1.8 2.3

Minster of Pakistan, rather than the Gilgit-Baltistan Legislative Assembly (GBLA), the Lower House, which has created rifts within the provincial government.

Informally, communities and in the case of Chitral, at least one local investor, are managing informal ‘IPPs’ through MHPs in off-grid areas, with technical assistance from AKRSP and Sarhad Rural Support Program (SRSP). Local authorities in both areas are supportive of these initiatives and have actively provided technical support and distribution services (on government-owned mini-grids). But there is no policy or precedence for a government authority purchasing power generated by a private operator in both GB and Chitral. An electricity Board is now being formed in GB, and tasked to develop an energy investment policy. In Chitral, a government-owned company, called Sarhad Hydropower Development Organization (SHYDO) is engaged in generation and distribution of hydroelectricity. Tariff rates are relatively low, though rising, but poor collection and theft are common problems. 2.2.2 Technology:

Micro and mini hydropower technologies are well established. Nevertheless at the community level, construction and maintenance of a power project is a complex undertaking that requires technical and managerial skills that are not readily available at local level.

AKRSP has experience with designing some 270 micro and mini hydropower projects and in organizing communities to construct them. So far, only locally manufactured technology has been used for such MHPs. The turbines used fall in the categories of (a) Cross-flow, (b) Pelton wheel, (c) Francis, and (d) Kaplan types. Pelton turbines are used for high head applications. Francis and cross-flow turbines cover medium head sites. Kaplan turbines are used for exceptional low head sites in less steep locations. AKRSP has previously employed only the former two in the region, as the latter two were not previously manufactured in Pakistan. Future projects are likely to continue to utilize Cross-flow and Pelton turbines because of their robustness and ease of local fabrication. It is likely that imported technology will be used for plants of capacity above 500 kW.

In many cases, quality issues appear to have been overlooked in favour of low cost local technology, leading to frequent breakdowns and low performance and extra maintenance burden on poor communities. Civil construction also needs to be carried out to high standards if the projects are to operate optimally over their full economic life.

AKRSP has supported turbine manufacturers and service providers in both design and construction supervision to ensure this. In Chitral a small company called Green Alternative Power (GAP) has been supported by AKRSP, to provide technical services to community-owned MHPs, and in GB, Mountain Infrastructure and Engineering Services (MIES) is working.

AKRSP and GIZ have also supported Turbine manufacturers through overseas training and licensing facilitation. Hydro-Link, a private company set-up by former AKRSP employees has invested in a manufacturing facility near Islamabad, and supplying turbines to a larger market in Pakistan and Afghanistan.

Any future program to scale up the MHP sector in Pakistan will need to focus on upgrading technology and technical services. The lack of a domestic manufacturing industry means that equipment must be imported, which drives the costs of renewable energy projects up even further (Khattak, 2006).

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2.2.3 Market and financial:

Financial factors constitute a key barrier hampering the diffusion and promotion of RETs in Pakistan in general and in GBC in particular. The capital cost of RETs is high compared with conventional energy. Part of the problem is a general lack of awareness of RETs benefits and high risk in investing in isolated areas. Off-grid RET-based energy supply is typically not linked with income generation and finance, creating a problem with sustainability of off-grid projects.

Previous experience by AKRSP and other support agencies shows that access to energy alone does not improve production or productivity, but goes hand-in-hand with business improvement and marketization of rural economies. Weak access of ‘value-added’ products to markets and high transportation costs involved in accessing distant markets is a key barrier on investment. However, this situation may be changing with rising costs and chronic shortages of energy in the mainland Pakistan. Many energy-intensive industries in Pakistan may be persuaded by enabling policies in GBC to shift investments nearer to low cost sources of energy and raw materials, such as iron ore, marble and wood processing, which are found in GBC.

AKRSP has made some headway in devising an appropriate investment model for developing RETs in GBC, leveraging public funding to raise community equity, and accessing patience venture capital from Acumen Fund and carbon financing. Under this arrangement, it is in the process of establishing four community-based power utilities in GBC, ranging in capacity from 500 kW to 800 kW. The investment has come from donors (50%), community equity (20%), and loan financing from Acumen Fund (30%), which will be repaid using carbon revenue and tariff. One of these sites (Shoghore in Chitral) has also secured a US$ 500,000 grant from Pak-Italian Debt Swap Fund, to establish a stone craft industry, and plans to sell surplus electricity to nearby antimony mine operated by a Chinese company.

This decentralized approach to energy generation through MHPs has already influenced public sector and donor policy. The European Commission (EC) and German Development Bank (KfW) have provided Euro 35 m and Euro 32 m worth of grants to SRSP and PPAF, respectively, to scale up and extend this approach in the remote valleys of KPK province, including off-grid villages of Swat and Dir. The Swiss agency for Development Cooperation (SDC) is already supporting AKRSP in two large MHPs in Chitral and is looking to scale up this approach in Federally Administrated Tribal Areas (FATA) and in the larger Hindukush region, particularly in border villages between Afghanistan and Pakistan.

The State Bank of Pakistan has announced a new policy to guarantee loans for up to 100% financing for hydel projects between 1MW and 10 MW built by the private sector.

A UNDP/GEF funded project implemented by AEDB is focusing on PURE activities at eight AKRSP built MHP sites in Chitral, but the results are not very encouraging so far7.

2.2.4 Capacity & knowledge:

Weakness in linking energy supply, productive uses, and market management, contribute to a continuation of the cycle of lack of structured support for PURE in GBC. Weak links between RETs development and natural resources management (land, water, mining) at community and local planning are key impediments. Absence of market and

7 http://undp.org.pk/productive-use-of-renewable-energy-pure.html

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technical services and lack of interdisciplinary expertise to work simultaneously on both rural energy and productive uses and lack of expertise at community level in small business management, are key issues.2.2.5 Social-institutional:

The GBC region has a long tradition of cooperative management of common resources, which has been further developed by AKRSP by mobilizing rural communities into Village and Women’s Organizations (V/WOs), which have formed higher Local Support Organizations (LSOs). These broad-based village institutions were supported with small grants and technical assistance to undertake productive physical infrastructure (PPI) projects, such as irrigation and feeder road networks, bridges and flood protection devices, based on local needs and priorities.

In 1991, micro hydroelectric power units were included into the PPI portfolio8. Today, more than 4,000 V/WOs have completed nearly 6,000 PPI projects, including 270 MHPs, which they own and manage through locally devised cost and benefit sharing mechanisms (AKRSP, Annual Review 2009). So, there is a good deal of social capital in place in the GBC region that requires further support.

However, problems still persist, such as inadequate cost-benefit sharing arrangements among community members, and a general aversion to private investors from outside the area. Cultural gaps also exist between local communities and market-based service providers. Local communities that own MHPs tend to keep their tariff rates much below the market rates and go for low cost technology and maintenance options. Another major problem is that these communities have become used to subsidies provided by donors, even though they do have sizeable community savings, which can be invested in up-scaling their existing plants and building new ones.

3. MINERAL RESOURCES

GBC has large deposits of rich minerals, including marble, granite, copper, iron ore, gold and gemstones, among others. The area’s rugged topography and inaccessibility make mineral exploration a labour and resource-intensive task. As a result, GBC’s mineral reserves have not been systematically mapped or explored. Since mining activities can cause environmental damage, only small-scale and artisanal mining must be examined. Known deposits based on fragmentary surveys are shown in Table 8.

Pakistan is believed to have the fifth largest gemstone deposits in the world, and the northern mountain areas account for 70% of Pakistan’s known gemstone deposits, together with Azad Jammu and Kashmir (AJK), and KPK. GBC has reserves of emeralds, ruby, topaz, tourmaline, aquamarine, sapphire, amethyst and spinal. It is, however, not able to benefit from this resource as it lacks skills in lapidary (the art of cutting, shaping and polishing stones), because of which, most of the exports are in the form of uncut or raw gemstones. The value addition due to lapidary can be as much as 1:100 over the uncut form.

In addition to gemstones, the region also has rich soft stone resources, including marble, granite, onyx and slate. Moreover, other industrial minerals, such as iron ore, copper, antimony and gold deposits are also available.

8 In recognition of its work with rural communities in the area of renewable energy, AKRSP received the prestigious Ashden Awards, also known as the ‘Green Oscars’. The Award, which included USD 60,000, was bestowed upon AKRSP by HRH Prince Charles in London in June 2004. In addition, AKRSP received the Japan Government sponsored Global Development Network Award for Most Innovative Project in 2005.

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Table 8: Mineral resources of GBC

Location Mineral Deposits

CHITRAL*

Awiret Gol Fine grained lead-antimony sulphide ore, also containing gold, silver, tin and vanadium (estimated at 290 tonnes)

Krinj, Partsan Antimony ore mined on a small scale (estimated at 8,617 tonnes)

Damel Nisar Good quality magnetite ore (estimated at 7.3 million tonnes)

Reshun Marble and dolomite, inter-bedded with limestone and shale

Gahiret, Kalash valleys, Shoghore

Large quantities of fine quality marble

Gahiret, Koghuzi Large quantities of granite

Lonkuh, Mirghash Arsenic minerals such as orpiment and realgar occur in large deposits some 4,000 m above sea level in Terich valley

Kaldam Gol (Drosh)

Galena, pyrite and copper minerals such as chalcopyrite reported

Pakhtori (Oveer) Quartz veins containing lead-zinc ore and copper

Melp Gol (Rayeen)

Antimony

Kushum Antimony in large quantity

Koghuzi, Reshun, Shoghore

Granite, marble and dolomite

Golain Soapstone

Shishikuh, Munoorgol (Garum Chashma)

Talc, gemstones such as aquamarine and topaz

Madashil Dolomite, galena and pyrite

GILGIT-BALTISTAN**

Hunza, Nagar and Haramosh

White marble, ruby, aquamarine, sapphire, quartz, topaz, emerald, pollucite, rutile quartz, morganite, apatite, spinel, and pargasite

Shigar Aquamarine, sapphire, topaz, apatite, zoisite, rutile quartz, epidote, emerald-coloured tourmaline and morganite

Ghizer Onnix and marble

Chilas Alluvial diopside, zircon, rutile quartz, aquamarine, and tourmaline

Source: *Geological Survey of Pakistan, 2000; Aslam and Khan, 2002

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** http://en.wikipedia.org/wiki/Gemstones_of_Pakistan#Gilgit_Baltistan

This situation offers a bright spot for GBC, providing it an untapped resource base that could contribute to economic prosperity through export led business creation and employment generation. The GB Economic Report prepared by the World Bank has recommended gems and jewellery sector to be a potential source of income and employment opportunity for the people of GB, through value addition and market development for rapid economic development9.

3.1 Baseline situation

The international trade in gemstones, excluding diamonds, is estimated at more than US$18 billion per annum. Pakistan’s share in this trade is less than US$ 50 m. The Gilgit-Baltistan Gemstone and Mineral Association (GBGMA) estimates that GB alone accounts for around US$5 million of this total export from Pakistan, almost all in raw, uncut form.10

Currently there are more than 18,000 people engaged in artisanal mining in the area. Most of these people are unskilled persons practicing basic and primitive methods of prospecting and mining. Most of the miners are local villagers who assemble in small groups to go to the mountains, mostly above 10,000 feet to explore products in the area for 2 to three months. Due to lake of basic prospecting and mining skills these miners at the end of their season, return with damaged products and some even return empty handed.

At processing level small scale training in cutting and polishing has been recently started by AKRSP with the support of private sector. Government has established a gems cutting and polishing training centre in GB recently. Rupani Foundation (RF) and Karakoram Area Development Organization (KADO) are other key players in this sector. However, these initiatives cater for only basic training in gems cutting and polishing and cover a limited number of people. Jewellery making is almost absent in the area, with no institution to host and foster, the few family based basic traditional jewellery makers who have either switched to other professions or lost markets now captured by synthetic and modern jewellery supplies in the market.

3.2 Non-energy barriers

3.2.1 Policy and research:

As noted earlier, GB has no policy in place for mineral development, and the government is not issuing any prospecting or exploration licenses for industrial minerals until a policy is formulated. There is very little geological knowledge available on GBC and detailed district-wise information for exploration of minerals does not exist. The United States Geological Survey (USGS) carried out a reconnaissance geological survey of upper Chitral in 1975, followed by a detailed survey in 198111. Since then, not much has happened, hence the exact data on industrial minerals and gems deposits are not known and most of the information are based on estimates. Pakistan’s Year Book on national energy and minerals statistics GB is not even mentioned12. Basic research and physical surveys in GB are hampered by the unsettled political status and military restrictions on research in border areas.

9 Gilgit-Baltistan Economic Report; Broadening and Transformation, 2010, WB, ADB and GoP10 Presentation by NAGMA, Investment conference, 2011, Lahore.11 http://137.227.231.179/publication/ofr75556 and http://pubs.usgs.gov/pp/0716g/report.pdf12www.pbs.gov.pk/sites/default/files/other/yearbook2011/ENERGY%20%20&%20MINING/7-3.pdf

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In Chitral, where relatively more information exists, mining activities are increasing, and many national and Chinese companies are engaged in industrial mining activities.

3.2.2 Skills and technology:

In Pakistan in general and in GBC in particular there is a dearth of skilled people at all level of the gems and jewellery sector. There is no institution to provide certified training in artisanal mining and lapidary in these mountain areas, well known for gemstones. Local groups are engaged in small-scale informal artisanal mining of gemstones and marble. The mining practices are primitive, involving crude blasting of rocks for mining precious and semi-precious stones. Foxholes are dug across the sheer faces of the mountains, which in most cases yield very small material, and cause death and injury to miners.

Because of non-availability of scientific mining practices and skills most of the raw gems are damaged as well as the mining areas, thus reducing the value of the raw product at source. The quality of marble is excellent and can be seen at the Marriot Hotel, Lahore. However, unscientific quarrying methods used results in much wastage, and damage to the quarry.

3.2.3 Infrastructure:

The difficult geography is a major constraint. Most mining areas are located in isolated and dissolute areas with little or no infrastructure. High transportation costs, especially for dimension stone/ marble is a problem.

3.2.4 Value addition and marketing:

There is little or no value added at the primary level. Until 2005, stone cutting technology and skills did not even exist in GBC, which is surprising because this is a major source of semi-precious stones. As a result, the bulk of stones were and are still traded in raw form, primarily because the cutting technology and skills are still at an early stage of development. Getting the primary production processes right, including at the mine level and cutting and polishing stages is critical to producing a high value end product for discriminating markets.

Markets are not transparent. Local traders do not have valuation skills and adequate information on market opportunities. They are entirely at the mercy of savvy traders from down country, who buy raw gems at throw away prices and then export to China, Dubai and European markets for much higher prices. Even in the urban centres of Pakistan, jewellery makers are slow to adapt to changing market trends and unable to capture higher value for their products.

3.2.5 Locational issues:

As minerals are mostly located in communal lands, it becomes almost impossible for a Lessee to start mining without the permission of local tribes or clans that own these lands. Disputes also exist over the ownership of communal lands, both among neighbouring tribes and with the government, when a Lease is issued without the knowledge of the local community.

4. HIGH VALUE AGRICULTURE

4.1 Overview and baseline

The natural environment of GBC (isolation, elevation, high solar radiation during day time and cool nights, and fresh water for irrigation) and seasonal difference with the rest

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of the country provides it with a distinct comparative advantage for producing a number of high value crops. However, to get to a level of sophistication where specialty products can be competitively produced and traded, requires good planning, investment, technology transfer and market and brand development. This is where policy autonomy and strategic orientation and context-specific research and investment friendly decisions by local government will be necessary to unlock the inherent potential of this area13. Following are some of the areas in which GBC can develop its comparative advantage and specialization in the long-term.

4.2 Production, processing and marketing of nuts:

The villages in GBC are ideal for producing high quality nuts, such as almonds, walnuts, apricot kernels, and some specialty products, such as chalghoza. Much of the produce is currently sold unprocessed, to local shopkeepers, who in turn, sell them to down-country dealers, without adding much value at the local level. This important sub-sector can be organized and streamlined with a view to adding value at the village level with very little investment and can become an important business activity, especially for local women during the slake winter period. Another advantage of this sub-sector is that nuts are usually produced at higher elevation, single cropping villages, where poverty levels are high. Nuts have a long shelf life and can be easily stored and transported, so there is no particular risk in postharvest handling.

A breakthrough in developing this value chain has already been made. With technical support from AKRSP, a local company, called Mountain Fruit Pvt., has established a processing unit in Ghizer Valley, near Gilgit Town, and secured a large order from Ben & Jerry, the well-known Ice cream company in the United States, for supplying almonds and walnuts under fair trade label. The company buys small quantities from the surrounding villages and processes the product at a newly built processing facility, and employs some 80 workers, mostly women, on part-time basis. This is an important value chain in the making, requiring technical support from research and extension agencies, mostly in the supply of certified plant material and propagation of commercial varieties through nurseries at different elevations.

4.3 Production of high-quality seeds:

13 Much of agricultural research conducted in mainland Pakistan is focused on export commodities, such as rice, cotton, sugar cane and wheat, not relevant to the mountain environment of GBC.

Case study 1: Mountain Fruit (Pvt.) Limited

Apricot is a widely grown fruit in GBC and it is also one of the well-developed value chains, although only 2% of the total production is properly marketed after drying, so far, so it still holds tremendous potential. In the 1980s, when Karakoram Highway was just built, very small quantities of apricot were sold in the local markets, with an average selling price of PKR 6 per kg for dried apricots. Today the selling price of good quality dried apricots is PKR 180/ kg. Under a focused approach, AKRSP consolidated its technical and marketing activities in this sub sector, under a separate cost center in year 2000, called Dried Fruit Project (DFP). By 2003, an autonomous business entity was created, called Mountain Fruit (Pvt.) Limited (MFL), with formal business and financial management procedures, including full compliance with SEC regulations. These changes led to tangible improvements, including better management practices, a diversified product portfolio (walnuts, dried apples and tomatoes) improved margins and profitability, and new innovations, such as passing the certification test prescribed by the Fair Labeling Organization (FLO), and qualification for the associated premiums for the product. By the end of 2005, the enterprise had a net value of PKR 9.155 million, including distributable profits of PKR 2.655 million to AKRSP. In 2006, MFL was sold to the management of the company, who paid about PKR 10 million for the enterprise. MFL is now a growing business and it exports walnut, almonds and dried apricots to UK and USA under fair-trade label.

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The GBC climate and its isolated valleys are ideally suited for producing high quality and disease free potato, vegetable and flower seeds. The seed technology is already tested in GBC and commercial vegetable seed produced in the area has already been introduced in the country on a limited scale.

The market demand in the country is high, as much of the vegetable seeds are imported from Holland, India and China.

The need is to simply scale up this proven activity through further in-situ research, certification and business development services.

4.4 Production and marketing of fresh fruit and vegetables:

Seed potatoes, Apple, cherry and green peas are lead products that are already being produced and marketed with reasonable returns to farmers. This has happened only in the last ten years though. The main advantage is seasonal difference with the rest of the country, as the harvesting of most vegetable crops takes place in winters in the plains of Punjab and Sind, while the growing season for these crops is summer in GBC.

The fresh fruit and vegetable value chains are dominated by the savvy traders from KPK province, who control everything from crop purchasing before harvest, to post harvest handling, transportation and distribution in major urban markets in Pakistan. Local entrepreneurs are beginning to learn the tricks of the trade.

There is room for further improvement in the supply chain, including delivery of real-time market information to producers using mobile phone platforms, varietal development, especially supply and monitoring of certified plant material, post-harvest handling and local packaging and branding. Recently, a private initiative has established a cold chain system near Gilgit town and exported fresh cherries to Dubai for the first time.

4.5 Livestock products:

With average landholding less than one ha, pastoralism is a key part of livelihoods for the majority of farmers. Rangelands account for 54% of the total area. Much of this rangeland consists of summer pastures of varying quality, and a significant number of animals must be culled at the on-set of winters because of severe winter feed shortages. Thus, when the animals are brought down from high pastures towards the end of October, there is an oversupply in the local market and prices are depressed. The major problem is over supply of livestock during this short, 4-6 week period in early winters and under supply of local meat during the rest of the year. Resource poor pastoralists have very little bargaining power in towns where authorities and buyers mistreat them. This has trapped them in a vicious cycle of poverty, in spite of year-round hard labour and drudgery of pastoral families, including children. There is little or no value-added in the local meat sector. Butchers sell fresh meat as a mix bag of bones, intestines, organs

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Table 9: Seed Potato produced through Tissue Culture lab, in GB

Year In vitro plants #

Sprout cuttings #

Stem cuttings #

Micro tubers #

Pre basic seed (t)

2000 15,000 8,000 25,000 100,000 13.7002001 17,600 24,000 28,600 103,000 36.4002002 20,200 37,000 46,600 110,000 28.8002003 21,700 --- 87,300 207,000 36.5002004 22,000 9,600 95,000 250,000 55.0002005 16,000 4,400 32,000 60,000 --2006 10,000 1000 2000 45,932 2.3002007 12065 1000 1203 155,000 15.000

Source: GB Government Presentation, 2011

and boneless meat (a piece of fat is thrown in for good measure) with little product differentiation. In almost all municipalities in Pakistan, the price of fresh meat is government controlled, but this rule does not apply to frozen meat.

It translates into under-developed markets for live animals and meat, with primary producers, the pastoralists, benefiting the least. Through training, technology transfer, and supply management methods, local meat can be made available to urban consumers throughout the year. Key activities that can help develop the sector may include establishing private or community-based cold storage facilities at high altitude valleys, establishment of auction or weighing systems and promoting value chains for high quality meat.

A related intervention can be feed improvement, especially during winters, using formulations that use locally available ingredients. The wool value chain is another significant development in the higher valleys of Chitral, with a focus on making markets work for poor women. See case study 3.

4.6 Production and marketing of honey:

Honey production is a fairly new activity in GBC. The quality of locally produced honey is very good because of the special flora found at high altitudes and the pristine environment. However, there are specific constraints in processing and packaging, branding and marketing. Branding and certification seem to be missing elements, as despite good demand for local honey, there is no way to differentiate local honey from other types of honey available in the market. Table 10: Total Value of Fruits Produce in GB (000 PKRs)

AKRSP and the International Centre for Integrated Mountain Development (ICIMOD), and Hashoo Foundation (whose Chairperson owns five star hotel chains in Pakistan) have collaborated in developing the honey value chain, and this initiative was the winner of BBC’s Global Challenge Award in 2010.

4.7 Farm forestry:

Agro-forestry is a well-established farming practice in GBC. Forest trees are grown on irrigated lands for a variety of purposes, such as for fuel-wood, fodder, timber for construction, wind breaking, soil stabilizations and more importantly, as store of natural capital, to be

enchased when required. In the first two decades of AKRSP, communities asked for irrigation projects to bring new land under cultivation. As most of the land, which came

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Fruit Production (t) Average Sale PricePKRs@ Farm gate

ValuePKR

Apricot 108588 5.34 579,860

Apple 19054 21.20 403,945

Grapes 6413 30.21 193,737

Pears 2579 24.45 63,057

Peaches 3308 14.58 48,231

Pomegranate

4287 59.52 255,162

Cherry 2256 94.30 212,741

Walnut 5992 90.00 539,280

Almond 1700 120.00 204,000

Source: Agriculture statistics 2007 and RMA2,500,012

under irrigation, was hilly and marginal, it was ideally suited for agro-forestry. AKRSP’s social forestry program, aimed at creating a buffer between human settlements and natural forest, was a huge success and it led to the plantation of an estimated 50 million trees over two decades. Today, GBC’s agro-forests cover roughly 6.3% of the land area, compared to just 3% of the natural forest. With investment in energy, processing technologies and good marketing, the agro-forestry wealth of GBC potentially offers a huge opportunity for producing green and certified wood products, worth millions of dollars, and can also reduce the pressure on natural forest.

Table 11: Average Household Forest Tree Holding in 2008 - By Species

Tree Species Program Skardu Ghanche Gilgit Ghizer Astore

Poplar 79 121 83 90 59 7

Willow 67 68 92 60 80 4

Russian Olive 16 28 14 21 9 0

Rubinia 12 5 1 40 8 1

Ailanthus 5 0 0 19 5 1

Mulberry 5 14 2 6 3 1

Chilly 0 0 0 1 0 1

Others 6 0 0 27 0 2

Total 191 236 192 265 164 17

Source: An assessment of Socio-Economic trends (2005-2008) by AKRSP

4.8 Trout fish:

The GBC area has extensive fresh water resources, with a good opportunity for the development of inland fisheries and aquaculture. There are 9 rivers and more than 250 streams that drain water in the great Indus and Kabul rivers, besides numerous fresh water lakes over an area of 570 hectares. Private sector is not effectively involved in trout farming. The availability of technical support and seeds from some 18 Trout Hatcheries and breeding farms under public sector are currently not disseminating knowledge and services in an effective way.

Case Study 2: North-South Seed (NSS)

Between 1997 and 2000, AKRSP implemented a project to promote commercial production of vegetable seed, mainly, turnip and onions. The results were good as the natural environment for seed production provided ideal conditions, such as isolated valleys, high solar radiation, cool nights, high altitude, and good quality water for irrigation. In 2001, the project was converted into a formal seed company, owned by AKRSP, called North-South Seed or NSS. By 2003, NSS had developed as a well-known brand, and had captured 5% of the market share in the two seed segments: onions and turnips. AKRSP, faced with funding issues decided to break this project into parts and handed them over to project staff, as two private companies, one in Gilgit and one in Chitral. The main issue in this business was expensive sales outlets previously maintained by AKRSP in major towns of Pakistan; these were closed down and the new companies were encouraged to focus only on producing high quality vegetable seed, while relying on major wholesalers in Pakistan for marketing. These two companies were turning a small profit as of 2005, while benefiting 210 specialized seed-producing farmers. Both these companies are currently struggling because of working capital and looking for strategic investors. The scope for growth is high, which can be realized by further investment in this sector.

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4.9 Other niche products:

Sea-buck throne (hippophae rhamnoides), is a widely available resource in GBC, which is emerging as a high value product in the area. A local entrepreneur from Skardu, with technical and funding support from ICIMOD and local NGOs, has been able to turn this resource into a viable business. He buys small quantities of sea-buck throne seeds from poorest families and processing and exporting oil and dried berries to Europe and North America, as well as making consumer products, such as juices and jams for local market. Still, much work needs to be done in terms of selection and propagation of more productive varieties, harvesting and processing techniques and branding for scaling this sub-sector for the benefit of local people. Buckwheat is another specialty crop in GBC with potential commercial value.

4.10 Market Access

GBC is emerging from its isolation and slowly integrating with markets and sources of knowledge and technology. However, to get to a competitive position, it has to focus on long-term specialization and private sector-led growth.

Demand is growing for farm products and general services in emerging urban centres. A number of products produced in the area are also reaching national and even export markets. China, which is next door, and potentially a great opportunity, is still unexplored.

Local markets:

Demand for local horticultural products is comparatively low, primarily because the larger population has access to home grown supplies. However, consumer behaviour is changing and specialization trends are observed. Among fresh fruits, apples are in demand in local markets, followed by grapes and apricots. Globalization effects are also being felt in local markets as dumping of low cost Chinese grapes are outcompeting local grapes in these weak markets. Interestingly, fresh fruit market in GBC works like a futures’ market.

Produce is open for sale at pre-harvest stage, at a lump sum price, usually favourable to the buyer, who takes care of the harvest and controls the entire value chain. However, Market dynamics are changing. Local youngsters, who work for these savvy entrepreneurs from the south, are educated and able to learn market dynamics. Some small local marketing groups are actually investing and acting as suppliers to down country traders.

Case 3: Mough Public Limited

In the 1990s, AKRSP intervened in the wool sub sector in Chitral, with funding support from the Ministry of Women’s Development and Swiss Agency for Development and Cooperation (SDC). The project focused on improving the quality of wool and wool fabric, called pattu under the brand name Shubinak. After the funding for this project ended in 2006, a public limited company was formed, with majority shares initially retained by AKRSP, but with the intention to transfers all the shares to women associated with the wool value chain. This enterprise purchases woolen fabric from the producers and designs and produces value-added garments for the high-end market in Pakistan and for export. The business model is based on the need to streamline and improve the value chain by achieving economies of scale in the production and supply of traditional Chitrali woolen fabric, which supports, more than 5,000 people, mostly women, in various activities associated with this sector. About 20% of the shares of this company have so far been distributed to women producers, suppliers and staff, and the remaining shares are to be transferred in the next two years. Mough limited has expanded its product line and now also supplies embroidery products to two companies, Poly and I, an Australian company, and Charisma, a Pakistani handicrafts company. Mough has two sales outlets, one in Chitral Town, and another in Lahore, and it is a profitable company.

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Table 12 explains volumes of locally produced fruits reaching local and national level markets. Table 12: Wholesale Supply of Dry Fruit (PKR million)

Fruits GB Gilgit Hunza/Nagar Ghizer Astore Diamer Skardu Ghanche

Almond Kagazi 304.47 142.94 17.28 26.59 59.60 8.93 40.64 8.50

Almond Katha 132.48 57.86 18.56 28.89 3.28 6.13 13.47 4.29

Apricot-A 136.45 50.97 12.29 25.33 2.30 6.88 24.12 14.56

Apricot-B 78.78 14.75 7.92 26.60 9.94 4.51 9.12 5.93

Apricot-Normal 25.59 5.90 0.25 9.11 1.13 0.00 6.02 3.19

Kernel Bitter 19.43 8.51 1.97 2.67 0.00 0.00 3.62 2.65

Kernel Sweet 37.93 8.53 3.61 9.37 0.00 6.98 5.89 3.56

Mulberry A 49.48 16.56 19.04 8.44 0.00 1.33 3.97 0.14

Mulberry B 14.32 2.62 10.22 1.49 0.00 0.00 0.00 0.00

Walnut 106.39 37.84 11.10 19.85 1.94 5.81 23.34 6.50

Total 905.32 346.48 102.24 158.33 78.19 40.56 130.20 49.32

Source: AKRSP RMA 2010

National markets:

Accessing national markets pose many risks for local traders. However, GBC has benefitted from exposure to larger market systems and ‘down-country’ entrepreneurs have helped to integrate this area with national markets, especially for off-season and specialty products. Figure 3 shows the value of fresh fruit marketed in down country in 2009. Seed potatoes, cherries and apples are lead products that are being marketed in major urban markets of Pakistan. Many problems still remain but access to larger markets is good news for GBC.

Figure 3: Vegetable supplies to local markets

Beans

Cabbag

e

Capsic

umGar

lik

Caulif

lower

Chines

e Cab

...

Cucum

berOkra

OnionPea

s

Potato

Radish

Tomato

Turnip

0369

121518

Supply of Fresh Vegetable from Local Producers through Retailers

Products

Val

ue

in P

erce

nt

Source: Basari Check post DOA, GB 2009, quoted in AKRSP-JICA Report

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Figure 4: Export of fresh fruit to national market

Cherry Apple0

5001,0001,5002,000

421

1,895

Export of Fresh Fruit to National Market

Qua

ntity

Met

ric

Tonn

es

Source: Basari Check post DOA, GB 2009, quoted in AKRSP-JICA Report.

In terms volume, potato (both seed and table-potatoes) is the single largest vegetable produce from GB, which has a consistent demand in the national markets. Figure 5 shows the export of seed and table potatoes to the national markets in 2007, which was around 85,000 ton. There is a latent demand for 400,000 ton of potato seeds in the national markets and GB has the potential to cater for this demand (AKRSP/JICA, Basic Horticulture Study, 2010). However, after a landslide that blocked the Hunza River and cut off a key potato producing area in 2010, potato trade has been reduced dramatically.

Apart from potato, green peas and bell pepper have also made their way into the national markets, due to their off-season advantage. According to rough estimates, more than 300 tonnes of green peas from Chitral are sold annually in the national markets. There is huge demand for off-season vegetables in the national markets, and the current supply is not enough to even cater Rawalpindi/ Islamabad markets for a few weeks, according to a trader.

After the opening of the Lowari tunnel, marketing of off-season fruits and vegetables is picking up in Chitral, especially green peas, wool products, and apples. Lack of packaging and non-availability of wholesale markets are the most important issues of marketing of horticultural crops in GBC, followed by low volume of production to compete in the national market.

Figure 5: Annual Export of Potato from GB to Down Country

23

1999 2000 2001 2002 2003 2004 2005 2006 200760,00065,00070,00075,00080,00085,00090,000

73314

68510

76541 78621

7156268562

7545276191

84904

Quantity Exported Potatoes (Ton)

YEAR

Source: Departmental Check posts at Basari, DOA, quoted in AKRSP-JICA Report, 2009

Figure 6: Down Country Exports from GB

Table Potato Seed Potato Bell Pepper Peas0

20,000

40,000

60,000

80,000

100,00076992

350 317 3141

Down Country Exports from GB

Quantity (Tonnes)

Source: Departmental Check posts at Basari, DOA, quoted in AKRSP-JICA Report, 2009.

International Markets:

As the northern tip of the North-South Trade Corridor (NSTC), linking China and Central Asia with South Asia, GBC can also be a hub for trade, transit and travel (border economy). GBC’s major advantage is its proximity to China. China is the nearest international market for the produces of GBC. However, the horticulture products of this area have not made inroads into this market due to several reasons primarily certification and quality issues and stiff completion.

Presently, the volume of trade through the Khunjerab pass is very limited, and it is almost one-sided. During 2007-08, only 4% (Rs 3.1 billion) of Chinese imports to Pakistan came through the GB corridor. In terms of Pakistan’s exports to China, shipments through GB constituted only 1.5 % of all exports, while 83% of exported goods left from Karachi, according to the World Bank. However, China is assisting Pakistan to upgrade KKH and has created a free-trade zone across the border, and is likely to encourage border trade.

Despite trade agreements, agricultural produce, the goods from GB most likely to find markets in China face tariff and non-tariff barrier, such as the prohibitive quarantine requirements on fresh agricultural products. On the fiscal side, the authorities need to mobilize more revenue from trade and reinvest it to improve local facilities. Finally, the role of CSOs and other stakeholder groups needs to be strengthened from their current marginal role14.

14 World Bank. 2010. Pakistan - Gilgit-Baltistan Economic Report: Broadening the Transformation. © World Bank

24

Expanding trade opportunities through the GB corridor and enhancing greater retention of economic value in the local economy will require following through on the ongoing upgrade of the KKH and communication infrastructure, as well as other investments. Items that should be high on the policy agenda include: (i) improving the infrastructure and performance of the SDP, (ii) removing policy impediments on cross-border transport and logistics, (iii) exploring opportunities for value addition and exporting local products (such as fruits) by lowering trade barriers, and (iv) strengthening import fed retailing through the removal of undue taxes on local imports and the possible establishment of a border market (World Bank. 2010. GBER).

Figure 7: Trends in Pakistan's Exports and Imports Through Sost Customs15

For the last five years, the Mountain Fruit (Pvt.) Ltd (MFL), the only export company from GBC, has been exporting an average of 100 t of dried apricot and similar quantity of almonds and walnuts to UK and USA markets. According to an estimate, Pakistan is the sixth largest apricot producer in the World (Mountain Fruit Annual Report 2008), but its share in international market is almost none.

The MF products have been well received in the whole-food market in UK due to its taste and quality, coupled with fair-trade certification. This indicates that high quality natural and ethnic products have potential for export. Test marketing of fresh cherry in UAE was also a new step in 2012 by Karakoram Natural Resources (KNR) Pvt. Ltd.

4.10 Barriers to marketization of agriculture

Small and fragmented landholdings:

The average cultivable land owned by households is less than 1 ha, and diminishing through division and sub-division through generations. Urban development is also putting pressure on cultivated land. Given natural limitations, further development of land is difficult, thus the focus needs to be on increasing productivity and value-added in agriculture.

Poor access to inputs and technology:

The main issues are non-availability of improved seed, fertilizers and pesticides and farm machinery due to absence of mainstream national and multinational seed and

15 Ibid

25

fertilizer trading companies. Major advances in agriculture around the globe have been made through technological advances in agriculture. GB with its limited land resources is in need of such technologies.

However, the area is critically lacking even the simplest production technologies, which have been successfully adopted elsewhere in the world. Key issues include lack of area-specific R&D to produce suitable hybrid and synthetic varieties, capacity issues, absence of quality seed testing and diseases diagnostic facilities with trained technicians; poor technical information base and lack of linkages with the national and international knowledge sources.

Poor crop management:

Poor access to quality inputs and improved technology has limited farmers’ capacity for standard crop management practices, which are critical to obtaining a good harvest, resulting in low productivity and significant losses in post-harvest handling. Limited market access and non-availability of commercial varieties, has also hampered specialization in agriculture and horticultural.

Poor Infrastructure:

Major agricultural infrastructure in GBC includes water channels, farm to market roads and the storage facilities. But most of this infrastructure constructed by the communities without the use of modern engineering techniques, are prone to natural disasters, such as flooding, landslides, earthquakes, creating serious maintenance issues. The generation of farmers who maintained these community infrastructure services are aging, while the younger generation is slowly turning away from traditional agriculture. In addition, key infrastructure services area missing, such as cold/storage facilities.

Knowledge gap:

The farmers in GBC lack the knowledge regarding the possibilities of processing various fruits and vegetables produced in the region.

Small volumes and low quality:

At the current scale, fruit and vegetable processing is a household activity and it is likely to remain at household level unless the private sector steps in and modern production, processing, and marketing strategies adopted. The fruit and vegetable processing techniques are not standardized and hence critical volumes of a single product, necessary for trade are not available.

Absence of quarantine standards

A major barrier on export of horticultural products to China through Khunjerab border is absence of quarantine and certification services.

5. TOURISM

5.1 Overview and baseline:

Tourism is yet another distinct advantage of GBC, and can be a key driver for growth if managed sustainable, especially in the long-term. The unique mountain landscape and cultural diversity of GBC makes it an attractive destination, especially for international adventure tourism. Tourism started in GBC in the 1970s with better air and road access, particularly after the construction of KKH. It became a thriving sector during 1990s, but it has now almost completely collapsed due to worsening law and order situation and negative image of the country outside. The reversal started when Pakistan exploded a

26

nuclear device in 1998, responding to a similar act earlier by India. Then came the attack on USA in 9/11, Afghan war, and the rise of militancy and cycles of violence in Pakistan. Tables show peak years in tourism in GBC and the continuing decline.

GBC still attracts mountaineers and nature lovers and small numbers of climbing and trekking expeditions come to the area, never minding the difficulties of securing a visa and travelling on broken and increasingly unsafe Karakorum Highway. They hire hundreds of porters, cooks and sardars on their expeditions, and indirectly contribute to transportation, hospitality and other jobs.

Despite poor promotion of GBCs for domestic and international tourism, a number of national

and international agencies, including IUCN, UNDP-GEF, AKRSP and K2-CNR have worked with local government agencies and communities and promoted integrative initiatives in tourism, conservation and sustainable development. These include community involvement in the management of Khunjerab Park by Khunjerab Village Organization (KVO), a PPP program for trophy hunting in which the government, community and private outfitting companies are

partners, and community-based conservation regimes, operating in different parts of GBC, and the annual Polo festival at Shandur.

5.2 Main barriers

Other than security concerns, access to GBC by air and road are the biggest barriers on tourism industry. Upgrading Skardu airport, the gateway to K-2 and other high peaks in the Baltoro area, as an international airport and allowing chartered flights from the main tourism originating countries may be a quick solution. Another possibility is to develop GBC a tourism destination from the Chinese side may be another good area. This will be a specially useful idea, as thousands of tourists come to the Khunjerab border from the mainland and Hong Kong, and upper Hunza, which has been cut off from the rest of Hunza by the newly form Atta Abad lake can be an ideal tourism destination around the lake, turning a disaster into an opportunity.

In 2008, InWent, the German international capacity building agency (now part of GIZ), AKRSP and Xinjiang Academy of Agricultural Sciences (XAAS) with support from the provincial administrations and in collaboration with the local tourism departments in GB and Xinjiang China organized a regional workshop on integrated tourism concepts to contribute to sustainable development in mountain regions in Gilgit and Kashgar. The workshop came up with the following recommendations.

Notwithstanding the occasional shocks, tourism sector is relatively under-developed in GBC. Therefore, a well thought-out enabling policy in this sector is needed to realise this significant potential in the long-term, providing opportunities to diversify the income streams available to local communities as well as to serve as an effective instrument for a wider economic development strategy for the region. Tourists and the tourism industry represent an additional source of livelihoods for poor, isolated and marginalised communities.

Figure 8: Foreign tourist inflow in GB - 2008

Jan

Feb

Mar

Apr

May Ju

n Jul

Aug Sep

Oct

Nov Dec

0200400600800

10001200140016001800

Foreign tourist inflow in Gilgit-Baltistan 2008

Monthly arrival of tourists

Per

sons

Source: Tourism Department, Gilgit

27

Table 13: Recommendations and Action Points

S# Recommendations Actor/ Action

1 Establish (pilot) free economic zones to promote cross-border tourism industry between Kashgar and Gilgit/Skardu.

Government of China/Xinjiang Prefecture and Government of Pakistan/Northern Areas Administration

2 Establish joint working groups to promote smooth facilitation of tourists (ensure security and improved police cooperation), collaboration between tour operators/private sector and enhance people to people contacts and cultural exchanges

Governments

Private sector

International organizations

Cultural organizations

3 Promote academic and research collaboration between Xinjiang University Urumqi and the Karakoram International University Gilgit for tourism, environment, culture and development related topics

Xinjiang University

Karakoram University

4 Strictly enforce/implement environmental laws and conduct EIA/SEA for tourism and infrastructure related projects in fragile mountain ecosystems in the border regions;

Road and Highway Authorities

National Parks and Nature Reserves

5 Undertake and promote personnel exchange and training and share best practices and learning across the border concerning natural and cultural heritage;

Natural Reserves

Park authorities

Tourism

Conservation agencies/Projects

Department

Civil Society

6. Develop unique products (branding ecology, unique mountain cultures and old silk route) to promote both Xinjiang and Northern areas (Hunza-Nagar, Gilgit, Baltistan);

Tourism Departments

Tour Operators

7. Jointly organize campaigns, like ‘month of wildlife/biodiversity protection’ each year in the month of may involving schools to create environmental awareness;

Wildlife and Parks departments

International conservation agencies

Education and Tourism Departments

Local communities

Source: Workshop Report, 2008.

28

PART 3: INVESTMENT PROPOSAL

29

1. INTRODUCTION

Based on the analysis of resource development potential and assessment of market and coordination failures in the preceding parts of this report, the following sections outline an initial investment plan for removing energy and investment barriers on locally identified growth sectors at five pilot locations in GBC. It is intended to identify investment opportunities and business development strategies, taking local factors and emerging market opportunities into account.

The investment plan provides estimates on likely costs and returns on various investment clusters, designed to capture best value-added from a range of geo-economic, human and social capital, and natural and advantages of GBC in the long term. However, the assumptions made are best estimates based on available data, experience and ideas collected from experts and local stakeholders.

Detailed feasibility studies may be necessary to make final investment decisions by prospective investors.

2. GOAL AND STRATEGY

The development goal is to promote private sector led, but inclusive growth and customizing and indigenizing smart development options to GBC context. The unique ecology, resource potential, community organization, a young and literate work force and location of GBC give it a distinct advantage to integrate with national and regional markets—with a natural-ethical production brand premium. This potential can be realized through good policy and planning, putting private sector in the lead, and making government and civil society actors as their allies and co-beneficiaries.

The purpose is to create private sector jobs and sources of income, by removing key barriers on energy and PURE development. This will be achieved through investing in hydropower and associated demand-based PURE activities that add value to local resources, such as processing and marketing of dimensional stone, speciality food, and certified green wood products, and provision of electricity to existing hospitality, telecommunication and other allied services that presently don’t have access to reliable hydroelectricity.

3. INVESTMENT PROJECTS

The focus of this investment project is on hydropower generation and productive uses. The investment project envisages creation of five PURE clusters in as many locations around core energy projects, mostly MHPs. Each PURE cluster is designed to capture value from proven resources and key advantages of that cluster (Table 14).

The idea of microeconomic clusters is to nudge these areas towards specialization. Clusters are geographic concentrations of inter-related businesses and business services. Cluster development initiatives are an important new direction in economic policy, and this approach may be relevant to AKRSP for building on its earlier efforts in rural marketization.

Carbon development linked to MHPs can also be a PURE activity, but requires a separate PoA, or linked to the existing CDM project by AKRSP, or another project currently under development by the government of GB. This report does not cover carbon development potential of GBC.

30

Promoting enabling policies, upgrading technology and skills, increasing market access, and improving financial services will be integral to the project. Another key result of the project will be creating an investment model suited to GBC that is profit-oriented but also takes into account social and environmental externalities.

Table 14: Summary of Business Clusters# Location Households MHP Targeted PURE Businesses1 Border economy

cluster, Gojal, Hunza1500 Misgar, 1

MW* Marble mining and processing Storage and quarantine facility for

fresh fruit export to China Yak meat cold chain, as a speciality

health food product Vodka/beer production from local

potatoes and barley2 Green economy

cluster, Ahmadabad, Hunza

500 Ahmedabad Phase II, 0.5 MW

Marble mining and processing Certified greenwood products Supply to existing hotels and

telephone towers at Karimabad3 Tourism and stone

craft cluster, Shigar, Baltistan

1500 Yasaro, Shigar Phase 1 MW

Marble and serpentine mining and processing

Buckwheat processing as a health /speciality food product

Supply to existing Shigar Palace Residence (tourism)

4 Wool /meat processing cluster, Mastuj, Chitral

1500 Garam Chasma, 0.5 MW

Wool processing Food processing

5 Feed-in to mini grid in Chitral Town

1000 Chitral, 0.800 MW

IPP, feed-in to mini-grid to support existing enterprise

*In addition, a shovel-ready 2 MW project is already included in government plans, but delayed due to shortage of public funds. An option is to fast track this as a PPP project.

4. HYDROPOWER FOR PRODUCTIVE USES

4.1 Situation Analysis:

As described in the background sections of this report, the hydropower potential of GBC is well known, but generation is far below the current demand even for basic services. Lack of grid connection and industrial uses act as the main barriers on investment. The main findings are summarized in Table 15.

Under the proposed investment project, about 5.3 MW of hydropower will be generated from five MHPs, to support as many PURE clusters. These mini-grid connected project sites are identified by AKRSP through stakeholder consultation, and for their proximity to specific resource and market opportunities across the border in China. Other important factors, such as access and infrastructure, future growth potential, community capacity and

goodwill, and support from local government have also been taken into account.

31

Table 15: SWOT Analysis

Strengths:

- High potential for hydropower generation

- Considerable experience in community-based MHPs

Opportunities:

- Use of high-end technology

- Potential for energy- intensive productive uses

Weaknesses:

- Low-end technology- Off-grid/ low commercial

uses

Threats (under current scenario):

- Unemployment- Energy inflation

About 40% of net energy production, based on 50% plant load factor, will be used for the associated PURE activities. The remaining energy will be available for domestic uses, home based and other income generation activities, and for social uses, such as education. The energy produced in Lower Chitral will be fed to the mini grid for Chitral Town.

4.2 Business model/strategy:

AKRSP has previously employed two business models. In the first model MHPs were built in isolated off-grid villages with donor grants and sweat equity of user communities. Project committees set up by community organizations maintained and collected a flat tariff from member users.

The second model focused on higher capacity MHPs above 500 kW. These were financed through a combination of donor grants (50%), community equity in cash (20%), and debt financing secured against carbon revenue and AKRSP guarantees. These MHPs were managed as community-based utilities in mini-grid connected areas.

Under this proposal the business model has been further refined, in which AKRSP, or a special instrument created by it, may proactively seek investment and partnership opportunities with other institutional partners, in the private, community and government sectors. A key part of this strategy is technology, skills and business development.

4.3 Cost/Benefit analysis

Assuming 40% plant load factor, the total annual energy production is estimated at 13.3 m kWh. The total capital investment is PKR 730 m, while total O&M cost is PKR 440. The mean energy use per year for targeted and other PURE activities is estimated to be 7.3 m GW/h and consumption for domestic uses is 7 m GW/h valued at PKR 95.7 m at an average tariff rate of PKR 7.2 per kW/h in the initial years. The average IRR is 11.84% over 20 years.

The following Table summarises cost/benefit ratios and return of investment over a 20 year

Table 16: Profile of Five MHP ProjectsMHP Features Misgar A.Abad Shigar Chitral

TownGaram

Chashma

# of Households 1250 500 1000 2000 500

Installed capacity (kW) 1000 500 1000 800 500

Average plant load factor (%) 60 60 60 60 60

Demand structure (GW/h) 105 53 105 84 53

Productive uses and commercial (GW/h) Private households and services (GW/h) Average tariff rate (PKR/kWh)

54517.2

28257.2

5451

7.2

44407.2

2825

7.2

Technical data on MHPs16

Total investment cost (PKR m) 192 96 192 154 96

Total O&M over 20 years (PKR million) 118 56 118 90 5916 To be worked out after detailed surveys

32

Estimated total revenue (PKR million) 785 373 785 598 393

Total energy production cost (PKR million) 310 152 310 244 155

IRR (20 year) Energy production cost (PKR/kW/h)

11.712.95

11.942.87

11.712.95

12.232.90

11.712.92

GHG emission reduction (tCO2) 21 yrs17

4.4 Strategic steps:

The main results to be achieved are construction of 5 MHPs as sub projects and building support infrastructure, including distribution lines and link roads, where necessary, and to arrange financing.

Key steps are:

Developing detailed feasibility studies and financial plans for the proposed subprojects, linked with social and productive uses

Appraisal of technology options, both locally manufactured and imported, and final selection keeping in view downstream benefits of using robust technology suited to local conditions

Working with private sector manufactures and suppliers of technology, such as turbines and electric-load controllers (ELCs), and linking them with certified sources of new technology

Exploring investment options, including the feasibility to attract local investors, and developing crowd-financing options for members of community and Local Support Organizations (LSOs)

Coordination with relevant public sector departments and local policy-makers and developing feasible PPP models, suited to GBC and promoting awareness among communities for productive and social uses of renewable energy.

5. BORDER-ECONOMY CLUSTER AT GOJAL, HUNZA

5.1 Significance

Gojal or Upper Hunza forms Pakistan’s northern most borders with Afghanistan and China in the northeast. Until Attabad disaster18, Gojal had been developing at a rapid pace and was recognized as a role model community for its social and economic progress and environmental awareness. The local economy was driven by the Dry Port at Sost, border trade with China, international trophy hunting, community share in the entrance fees to Khunjarab National Park, and tourism and transportation services on KKH. People in Gojal, with the highest education rates in the area, were also the early adopters of new agricultural technologies and the largest suppliers of high quality seed potatoes in Pakistan.

17 Project additionality18 On January 4, 2010, a landslide destroyed several villages, blocked the Hunza River and formed a 22-km Lake, submerging many more villages and sections of KKH, this cutting off Gojal from the rest of Hunza. The disaster remains unmitigated despite many attempts and many hundred millions of rupees to unblock the river and drain the lake. It will take several years and billions of rupees to realign the KKH.

33

Gojal had seen remarkable transformation from its historical isolation and subsistence pastoral economy within a few decades. According to recent AKRSP research, households in Gojal ranked among the highest in educational attainment and consumers of social services, such as education, from pre-school, all the way to university level without gender discrimination, and child and maternal health. The Gojali community, which includes two ethnic groups, Burusho and Wakhi, are also regarded as a model of tribal coexistence, most educated, resilient, egalitarian and forward-looking people in GBC.

The economic basis of this best community development practice has suddenly failed, due to a single natural occurrence, the Attabad landslide and the formation of the Lake. The new costs and risks associated with trans-shipping and handling of bulky goods like potatoes and heavy consignments of consumer goods imported from China over the lake, have reduced incentives for border and local trade. As a result, all economic activities have come to standstill. According to a recent survey conducted by AKRSP, many people are leaving the area, and the remaining reverting back to their traditional pastoral way of life. Access to Gojal is difficult from the downstream of the lake, especially during winters when sub zero temperatures meet notoriously chilly winds, and the lake freezes in different degrees and densities, making travel and trade even more costly and risky.

The Chinese government is providing food and fuel aid to the entire population of 25,000 for the last three years at the request of GoP. The Chinese government is more likely to invest in the area and ease trade restrictions, rather than continue these subsidies. The Chinese Government has offered to realign the KKH above the lake water level, estimated to cost around PKR 3 billion. Under a previous agreement between the two governments, the Chinese are upgrading the KKH from the Khunjarab border to Raikot Bridge, near Chilas in the first phase of a full KKH up-gradation plan.

The Chinese Government is taking active steps to develop its remote western border areas. It has established a free trade zone at Taxghorghan, near the Khunjarab border and has opened a new trade route with Tajikistan close to Pakistan border.

Table 17: SWOT Analysis

Strengths:

- Proximity with large market in China

- Availability of good quality marble and water for hydropower

Opportunities:

- Literate workforce and social capital

- Potential for energy- intensive productive uses

- Accessing hi-end technology and export markets

Weaknesses:

- Lack of energy, skills and technology

- Lack of investment capital

Threats (under current scenario):

- Unemployment- Outmigration

In the long-term, these border areas of Pakistan, China and Tajikistan are expected to be important staging and transiting posts for trade and commerce at the cross roads of Asia along the ancient Silk Route, needing services in trade, travel and commerce. The

34

Chinese government is investing heavily in developing infrastructure on its side of the border region. However, Pakistani government is slow to develop the potential of its border areas, despite having good potential and support from the Chinese side.

As reported in the background sections of this report, trade with China through the Khunjarab border was a tiny fraction of the total trade between Pakistan and China, and almost one-sided even before the Attabad Lake.

However, despite many complexities involved in exporting anything to China, there are some good opportunities. For instance, marble, onyx and granite are potential value added export products for middle class consumers in China. Horticulture, particularly mangos and citrus (from the mainland Pakistan) and cherries (from GBC) are also potential export products, provided that the legitimate quarantine and food safety standards are ensured.

Chinese companies are aggressively investing in mineral resources in KPK, including Chitral, and they are also likely to be involved in mineral exploration and mining activities in GB once a mining policy is in place. The GB government, after the 18th Amendment to the Constitution is empowered to develop its own investment policies to attract private sector capital, both foreign and domestic.

The improvement and up-gradation of KKH is an indication that overland trade with China will increase in future. Energy is a key input in mining and primary processing of minerals at source to reduce transportation costs, as well as for establishing cold chains and export processing facilities for trading agricultural products.

5.2 Objective

The border economy cluster in this area is intended to capture best value from the geo-economic value of Gojal, due to its proximity with China, the emerging economic super power, and its significant natural and human resources.

A recent survey conducted by AKRSP in Gojal has identified the following inventory of resources that can be developed through a combination of community engagement, technology transfer, and public and private sector investments.Table 18: Inventory of Resources in GojalResource Location Area/

CapcityInstitutional arrangement

Potential investors/partners

Soft stone:Marble, (white, black, grey)

Passu, Khyber and Murkhun.

400 sq km

Establishing of mining association of soft stone cluster

AKFED/IPSChinese/ national investorsJoint ventures

Soft Stone: Granite and soap stone

Gulmit, Hussaini, Ghulkin

200 sq km

Establishment of miner association of soft stone cluster

AKFED/IPsChinese investorsLocal partnership with

Gold zone Shimshal 1000 sq km

Establishment of artisanal Gold miners association

AKRSPLocal investors as partners

Rare earth materials

Chiporsan 800 sq km

Establishment of miners association in

Chinese investor in collaboration with national investor

Hydropower Murkhun Ghalpan,

250 kva Power Utility company

AKRSP, community

35

Khyber)

Misgar source(Misgar, Chiporsan, khudabad)

2 MW

1 MW

Government utility company

Available for private investment

Government

Community, AKRSP, private sector

Passu Hussaini, Ghulkin, gulmit

10 MW Corporate Utility company with public private partnership

Community, government and private sector

Shishkat Source: Shishkat, sarat,

300 KVA

Community Utility company

AKRSP. Community

Business parks/Growth pools

Murkhun Business park

200 kanal land

Community utility company

Private sectors,Soft stone processing, warehouses, storage, transportation, greenwood, etc

Passu Business parks

300 kanal land

Community utility company

Fruit processing, soft stone; granite marble, storage and warehouses, mineral and glacial water bottling, etc

Source: AKRSP Survey, 2012

6. ESTABLISHING A MODEL MARBLE QUARRY

6.1 Situation analysis

Around the world the natural stone industry is growing rapidly. Since the beginning of the 1990s, production has risen annually by an average 7.3% and international trade has even increased by an average 8.7%. Worldwide natural stone extraction is meanwhile estimated at 150 million tons gross per year. Annual production after deduction of waste and cutting losses amounts to about 820 million square-meters. The total production value is estimated at USD 40 billion.

The majority of world consumption comes from material that is quarried in different countries than those where it is eventually installed. The leading producers—China, India, Italy, Spain and Portugal account for 53% of world quarrying production.

Dimensional stone is one of the key raw resources of Pakistan. According to national estimates Pakistan has over 297 billion tons of marble and granite reserves and more than 100 types of colors and verities of marble and granite are available. However, rising cost of energy, low quality of skills and technology are key barriers on development. As a result, this sector contributes less than half a percent to Pakistan’s GNP.

Marble industry in Pakistan is seeing a renaissance in recent years, thanks to a number of donor-funded projects aimed at technology transfer and skill development. Marble exports reached a record level in 2011 with an export value of USD 60.620 million. The annual average exports of marble and granite mostly in the form of blocks and boulders

36

was around USD 22 million during 2005-06 to 2007-08. Since 2008-09, square blocks have constituted the bulk of exports, resulting in an increase of USD 35 million. The continuing improvement in export value has been the result of investments in new technology by many small companies, facilitated by Pakistan Stone Development Corporation (PASDEC), a state and donor supported company specialized in technology and skill development.

Although detailed surveys are not available, a significant part of marble and granite deposits are believed to be located in the mountain areas of northern Pakistan, including, FATA, KPK and GB. Estimates of deposits in these areas include 87% marble, 1% Granite and 12% slate. There are wide varieties of dimensional stone with huge reserves.

While little formal research exists on the quantum, quality and value of this resource in GBC, private Pakistani and Chinese companies, already scouring the area for mineral resources, have reportedly found some high quality deposits at various locations in GBC. Private sector estimates have indicated the availability of 414 million ton of marketable granite reserves in GB alone19. Actual deposits of marble, onyx and granite with multiple shades can be manifold. GB’s marble has been used in the refurbishing of Lahore Marriott, and experts have rated its quality to be high.

In lower Chitral, which is closer to main markets in Pakistan, marble quarrying is an established industry. However, the low-tech operations result in high quarry wastage ranging from 60-80% in addition to poor quality, mainly due to unwieldy blasting techniques, and production of lumps rather than blocks. For instance, raw marble supplied from Chitral fetches USD 40/t, while finished marble slabs exported by processing industry to USA get USD 466/t. Value is also lost by non-transparent practices, such as black marketing of lease permits, which are then sold to genuine investors for higher prices.

In GB, small quarrying operations have sprouted in recent years and some already failed. This is consistent with global and national experience, which suggests that dimensional stone as a commodity faces tough competition, especially because of high transportation costs over long distances. Raw material is available in huge quantities in most countries. The winners are those who employ new technology and go for value added production.

6.2 Opportunity rationale

The basic rationale is availability, variety and good quality of deposits, and potential availability of low cost renewable energy in GBC, especially in the long-term. However, these reasons alone may not be enough to justify investment. Other attributes must be added to make a value proposition. Value addition will be the key, and GBC can further refine its business model by specializing in fair and environmentally sensitive production and trade practices, and branding.

Proximity to China gives potential access to a large and growing market. China has a soft corner for GBC for historical and strategic reasons, and is likely to provide market access for semi-processed goods, such as marble and granite. Pakistan already has a captive market in China and it is currently negotiating with the Chinese government to

19 2nd Segmite International Conference Report. 1994 pp35-43

37

include semi-processed marble and granite in the zero tariff list of their bilateral trade agreement.

The neighbouring Xinjiang Region of China is developing rapidly with rising demand for good quality marble. Overland transportation to China is also cheap, as containers bringing goods to Sost Dry Port, mostly go back empty20. The overland distance between Sost and Kashghar is just 450 km, and KKH is upgraded on both side of the border, while the sea route between Karachi and Chinese ports is 10,000 nautical miles. The energy advantage of GBC is further boosted by chronic shortages and rising cost of energy in the mainland Pakistan.

6.3 Business description and marketing strategy

The proposal is to create a model quarry for marble at a suitable and accessible location in Gojal, The product mix includes marble cubes and slabs in the initial phase, with more refine products being included after detailed market research. Waste material and coloured stones abundantly available in the area, will be used to make attractive mosaic products as a home-based cottage industry for women.

Wastage is the main efficiency factor in marble industry. Blasting results in 50% of the waste at source and another 30% during subsequent processing. Blasting also kills the entire quarry after a few years, by causing micro fractures. The business will follow best industry practices and employ high-end technology imported from China, and skilled workers also from China, who will train educated local youth, both men and women. PASDEC would be approached for technical support, training and certification. A professional firm would be hired for brand development.

The marketing strategy is to establish an auction market at Sost, near the Dry Port, which is frequented by Chinese business people. An open bidding method for both the product and transportation will keep the market fair and transparent. Other suppliers from different parts of GBC will also use the auction market, thus contributing to the bottom-line. Eventually, the auction market can also include other commodities, such as iron ore, copper, antimony, etc, in upgraded form.

Local communities, represented by their LSOs will be included as equity partners. However, the business would be professionally managed as a private company, not as a cooperative. The bank of China, which is seeking investment opportunities in Pakistan and has opened an office at Islamabad, can be a potential source of investment capital. Other potential investors may include AKRSP itself and Aga Khan Fund for Economic Development (AKFED), and the Government of GB.

6.4 Cost-benefit analysis

Cost of energy input

Developing hydropower in isolated and off-grid areas is challenging on at least two accounts. Firstly, the upfront investment cost is high and the level of utilization or Plant Load Factor is substantially lower in an off-grid environment. Still, the cost of hydropower for productive uses is much cheaper, compared to diesel, which is the other option, and provides the overall justification for investment.

Tables 19 and 20 provide comparison of energy input and cost of hydroelectricity and diesel for marble quarrying and processing.

20 Currently, there are grey areas with regard to haulage

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Table 19: Comparison of Energy Consumption for Marble Extraction and Processing

Energy Type Quarrying (per ton) Processing (per ton)

Diesel 2.8 liters 10 liters

Electricity 5.71 kWh 100 kWh

Source: http://www.historic-scotland.gov.uk/embodied-carbon-in-natural-building-stone-in-scotland-2.pdf

Table 20: Comparison of Energy Cost for Marble Extraction and Processing

Energy Type Quarrying (PKR/ ton) Processing (PKR/ ton)

Diesel @110/ltr 308 1,100

Electricity @ 7.2 kWh 41 720

Source: Ibid. Cost of diesel and hydroelectricity changed to local prices from the original model.

Energy production and use

The capital cost of building a 1 MW plant in the Gojal cluster is PKR 192 m. With a plant load factor of 40%, the total energy available will be an estimated 3.5 GWh per year. Energy consumption for targeted marble extraction and processing will be 280,000 kWh or about 8% in year one, and stabilize at 945,000 kWh, or 27% from year five. Other commercial uses are expected to account for an average of 50% over the plant life, and the leftover will be used for domestic purposes. Tariff rates are assumed as PKR 7.2 per kWh for commercial users and PKR 3.5 for domestic consumption, respectively, with a 5% annual inflation from year two (see Table 22).

Table 22: Energy Production, Demand and Pricing Structure (in '000 kWh)Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Production 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500

Targeted Commercial uses 280 560 665 805 945 945 945 945 945 945

Other Commercial uses 2,170 1,890 2,075 1,960 1,820 1,855 1,841 1,858 1,872 1,890

All commercial uses 2,450 2,450 2,740 2,765 2,765 2,800 2,786 2,803 2,817 2,835

Domestic uses 1,050 1,050 760 735 735 700 714 697 683 665

Commercial tariff (PKR/kWh)* 7.2 7.2 7.6 7.9 8.3 8.8 9.2 9.6 10.1 10.6

Domestic tariff (PKR/kWh)* 3.50 3.50 3.68 3.86 4.05 4.25 4.47 4.69 4.92 5.17

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Table 21: Misgar Hydropower Plant

Start Year 2013

Capacity (MW) 1.00

Max Annual Energy (GWh) 8.76

Actual Annual Energy (GWh) 3.50

Plant Life (years) 30

Plant Load Factor 40%

*Tariff rate increased at an annual rate of 5% from year 2016

Marble production and processing unit

The main productive use renewable energy investment proposal is creating a model quarry and processing unit in Gojal area, close to the border, targeting production at export market in China. The quarry will employ state of the art technology, and produce 5,000 ton of blocks in year one, double this capacity in year two, and increase production by 20% every year until year five.

Fifty per cent of the blocks will be directly sold in the proposed auction market at Sost, the border town, while the other 50% will be further processed into slabs. The price for one ton of block is assumed at PKR 7,680 (US$80), while the price per meter square of 3 cm slab is taken as PKR 2,400 (US$ 25), with 7% increase per annum. Depreciation is taken as 10% per annual.

The project is to be financed by 60% equity and 40% debt. The equity to be raised involving institutional, including AKRSP, GoGB, PASDEC, 4 LSOs, and Khujarab Village Organization (KVO), which already raises revenue from community-based trophy hunting and receipt of entry fees to Khunjarab National Park, which it co-manages with the Depart of Forestry and Wildlife.

The debt will be raised at 10% per annum and repaid in ten years. The required rate of return on equity is assumed at 15%, and corporate income tax is taken as 20%. These and other input variables, including labour and transportation costs, royalty and repair and maintenance, are summarized for five years in Table 23, while Annex 3.1 provides these projections for ten years.

Technical support in establishing the model quarry, including selection of technology for extraction and processing, will have to be arranged from PASDEC, either as an equity partner, or as public sector support, which is part of its mandate.

Table 23: Marble Quarry and Processing Unit - Input VariablesCOSTS – QUARRY UoM $ PKR Year 1 Year 2 Year 3 Year 4 Year 5

Labor Per ton 10 960 960 1,008 1,058 1,111 1,166Royalty Per ton 8 768.0

0 768 806.40 846.72 889.06 933.51

Energy Cost Per ton 0.43 41.11 41 43.17 45.33 47.59 49.97Spare parts & maintenance Per ton 6 576 576 605 635 667 700

Depreciation Capital Cost 10%Transportation Per ton 4 384 384 384 384 384 384Taxes EBT 20%Inflation per annum 5%

COSTS – PROCESSINGLabor Per sq.

meter 0.96 92 92 97 102 107 112

RoyaltyEnergy Cost Per sq.

meter 0.61 59 59 62 65 68 71

Spare parts & maintenance

Per sq. meter 0.53 51 51 53 56 59 62

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Depreciation Capital Cost 10%Transportation Per sq.

meter 6.53 623 627 658 691 726 762

Abrasives (for polishing)

Per sq. meter 0.30 29 29 30 32 33 35

Packaging Per sq. meter 0.20 19 19 20 21 22 23

Taxes EBT 20%Inflation per year 5%QuantitiesBlocks Ton 5000 10,000 12,000 14,400 17,280Increase per annum 20% 20% 20% 20% 0%

Block Sale 50% 2,500 5,000 6,000 7,200 8,640Transferred to Slab Processing 50% 2,500 5,000 6,000.0

0 7,200 8,640

Price 80 7,680 7,680 8,218 8,793 9,408 10,067Increase per annum 7%

Slab (Sq. meter) Calculation Per ton 12.25 30,625 61,250 73,500 88,200 105,840

Processing Loss 20% 20% 20% 0.20 20% 20%Net Output 24,500 49,000 58,800 70,560 84,672Price / sq. meter 25 2,400 2,400 2,568 2,748 2,940 3,146Increase per annum 7%

Exchange Rate 96ENERGY REQUIREMENTSQuarry kWh 28,550 57,100 68,520 82,224 98,669Processing kWh 250,00

0500,00

0 600,000 720,000 864,000

Total Energy Requirement (kWh)

kWh 278,550

557,100 668,520 802,224 962,669

Capital Expenditure

The total capital investment required for quarry and processing unit is PKR 193 m, or slightly above USD 2 m, as detailed in Table 24.

Table 24: Marble Production and Processing - Capital ExpenditureDescription Unit/# USD PKR

Electric Air compressor 750cfm @135psi 1 23,000 2,208,000

Drilling and cutting set 2 320,000 30,720,000

6" high pressure water pump 2 32,000 3,072,000

3" high pressure water pump 2 15,000 1,440,000

50000 liter steel water tank 1 9,000 864,000

6" steel pipes with fittings 2500 meters 79,680 7,649,280

3" steel pipes with fittings 1500 meters 31,500 3,024,000

60 ton crawler crane w/ 60' boom 1 160,000 15,360,000

Cat 977 pay loader 1 98,000 9,408,000

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Flood lights 6 2,000 192,000

Total equipment cost – Quarry 770,180 73,937,280

Land (m2) 5000 5000 10000 960,000

Building (m2) 750 750 100,000 9,600,000

Carts for stone 10 10 10000 960,000

Tracks (meters) 100 100 10,000 960,000

Wheeled crane 40 tons 1 1 40,000 3,840,000

Total Infrastructure cost - Slab Processing Plant 170,000 16,320,000

Gang saw (70-80 blades) 1 1 300,000 28,800,000

Slab Polishing line 1 1 150,000 14,400,000

Multiblade disc cutter 1 1 40,000 3,840,000

Mono blade block cutting machine 1 1 40,000 3,840,000

250 KVA generator 1 1 50,000 4,800,000

Equipment installation (10% of cost) 58,000 5,568,000

Total equipment cost – Processing 638,000 61,248,000

Road improvements – Quarry 35,000 3,360,000

Working Capital- Quarry 200,000 19,200,000

Working Capital- Processing 200,000 19,200,000

Working Capital 400,000 38,400,000

Total cost 2,013,180 193,265,280

Source: Pakistan Stone Development Company (PASDEC).

Profit and loss (income statement)

Gross revenue from the sale of blocks is PKR 19.2 m, and slabs PKR 58.8 m, or a total of PKR 78 m, in year one. Gross revenue reaches PKR 353.35 m, by year five, and PKR 496 m in year ten. Operating expenses for both products amount to PKR 29.52 in year one and PKR 75.2 m in year five. Earning before interest and taxes (EBIT) is PKR 31.2 m and PKR 206.7, for year 1 and five, respectively. Net income is PKR 17.2 in year one, and PKR 159.69 in year five. Profit margin is 22% in year one and 45% in year five. Details on income and expenses for five years are detailed in Table 25. Profit margin is expected to reach 50% and taper off from year 10. Internal rate of return (IRR) is 6% in year 3, and reaches 70% in year ten. Calculations on profit and loss and IRR for the full ten-year life of the investment are provided in Annexes 3.2-3. Cash flow statement and debt schedule details are provided in Annexes 3.4 and 3.5

Table 25: Marble Quarry and Processing Unit - Profit & Loss (Income Statement)Quantities UoM Unit Cost

/PriceYear 1 Year 2 Year 3 Year 4 Year 5

Blocks Ton 2,500 5,000 6,000 7,200 8,640

Slabs Sq. meter 24,500 49,000 58,800 70,560 84,672

Revenues

Blocks Ton 7,680.00 19,200,000 41,088,000 52,756,992 67,739,978 86,978,131

Slabs Sq. meter 2,400.00 58,800,000 125,832,000 161,568,288 207,453,682 266,370,527

Gross Revenues 78,000,000 166,920,000 214,325,280 275,193,660 353,348,659

Costs – Quarry

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Labour Per ton 960.00 2,400,000 5,040,000 6,350,400 8,001,504 10,081,895

Royalty Per ton 768.00 3,840,000 8,064,000 10,160,640 12,802,406 16,131,032

Energy Cost Per ton 41.11 205,560 431,676 543,912 685,329 863,514

Spare parts & maintenance

Per ton 576.00 1,440,000 3,024,000 3,810,240 4,800,902 6,049,137

Depreciation Capital Cost

10% 7,393,728 7,393,728 7,393,728 7,393,728 7,393,728

Costs - Slab Processing

Labour Per sq. meter

92.16 2,257,920 4,741,632 5,974,456 7,527,815 9,485,047

Energy Cost Per sq. meter

58.78 1,800,000 3,780,000 4,762,800 6,001,128 7,561,421

Maintenance & Spares

Per sq. meter

50.88 1,246,560 2,617,776 3,298,398 4,155,981 5,236,536

Abrasives (for polishing)

Per sq. meter

28.80 705,600 1,481,760 1,867,018 2,352,442 2,964,077

Packaging Per sq. meter

19.20 470,400 987,840 1,244,678 1,568,295 1,976,051

Depreciation Capital Cost

10% 7,756,800 7,756,800 7,756,800 7,756,800 7,756,800

Operating Expenses

29,516,568 45,319,212 53,163,070 63,046,331 75,499,239

Transportation – Quarry

Per ton 384.00 1,920,000 3,840,000 4,608,000 5,529,600 6,635,520

Transportation - Slab Processing

Per sq. meter

626.94 15,360,000 32,256,000 40,642,560 51,209,626 64,524,128

EBIT 31,203,432 85,504,788 115,911,650 155,408,103 206,689,771

Interest Expense – Quarry

4,824,864 4,556,496 4,254,583 3,914,930 3,532,821

Interest Expense - Slab Processing

4,838,400 4,569,280 4,266,519 3,925,914 3,542,732

EBT 21,540,168 76,379,012 107,390,548 147,567,259 199,614,218

Taxes (20% 20% 4,308,034 15,275,802 21,478,110 29,513,452 39,922,844

Net Income 17,232,134 61,103,210 85,912,438 118,053,807 159,691,374

Profit Margin 22% 37% 40% 43% 45%

Prices are taken from prevailing market rates.

6.5 Next steps

Undertake detailed survey of identified sites, estimate reserves, test quality and variety, and send samples to potential buyers

Apply and secure leases in the name of local LSOs

Select model quarry location, and design appropriate infrastructure, office and processing facilities

Undertake an Environmental and Social Assessment study, prepare a green and ethical strategy, and develop guidelines and protocols for operations

Develop a business plan, explore financing options, find customers, partner with Trade Authority of Pakistan (TAP), join them on trade missions and participate in international exhibitions

Invest in knowledge, technical and operational and marketing skills; include marble mining and processing as a priority area in existing scholarship programs, both within the country and outside

Form a partnership with PASDEC, and send interns to model marble quarries in the country and processing industries for work experience

Hire consultants to appraise technology options and for brand development

Find experienced and credible Chinese partners for joint ventures

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Form of a Marble Association of Gojal (MAG), and provide community leaders exposure to industry good practices

Prepare an investment prospectus and share it with potential investors

Form and incorporate a local company with shares coming from LSOs

Start a joint venture and sign a long-term agreement with the local power utility for guaranteed energy supply

Identify a site near Dry Port for establishing an auction market

Commence business

7. MEAT PROCESSING

7.1 Situation analysis:

With low landholdings but vast rangelands, stretching from Afghan-Wakhan to Pakistan’s GBC, pastoralism is a key part of livelihoods for the majority of rural communities. Much of this rangeland consists of summer pastures, with plentiful grazing during summer, but severe animal feed shortages during long winters.

Therefore, a significant number of animals must be culled at the on-set of winters. Thus, when the animals are brought down from the high summer pastures towards the end of October, there is an oversupply in local markets and prices are depressed.

The business proposal is to develop meat value chains with cold storage facilities closer to major areas of livestock concentration to regulate supply, as well as to establish transparent marketing systems for live animals, processed meat and by-products, such as wool and hides.

7.2 Opportunity rationale:

Gojal and many other high-altitude areas in GBC can be suitable places for developing a premium livestock industry, and in time the most marginalized pastoral communities in the neighbouring Afghan-Wakhan, can also be integrated with markets on this side of the border, as there are already informal trade links. Livestock is a key resource in Wakhan and GBC and both can benefit more from regional trade rather than accessing their distant national markets.

Currently, there is little or no value-added in the local meat sector. In almost all municipalities in Pakistan, the price of fresh meat is government controlled, but this rule does not apply to frozen meat. It all translates into under-developed markets for live animals and meat, with primary producers, the pastoralists, benefiting the least.

Developing value chains for high quality organic can benefit marginalised pastoral communities. By regulating supply and making markets more efficient and transparent, the producers, consumers and everyone in the value chain can benefit.

A related idea is to market yak meat as a niche product in the high-end markets of Pakistan. Yak meat is low cholesterol red meat. AKRSP has previously studied this value chain in China, where yak meat produced in Tibet is sold in up-market stores in Beijing and other major cities. The local people in GBC consider yak meat as a premium product.

7.3 Business description and marketing strategy

Building a prototype of a rural based frozen meat facility utilizing hydropower energy and latest technologies, focused on seasonally available livestock grazed at summer

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pastures that can be sustainably produced.

The business strategy is directly supply to city markets during the lean period, from February to July, when local meat is not available, and eventually target premium markets, such as five start hotels in the main cities of Pakistan.

7.4 Cost-benefit analysis

Input variables

For cost-benefit calculations, standard values have been taken for weight shrinkage for large and small animals by their average live weight. For instance a goat with live weight of 20 kg yields a net hot carcass weight of 11 kg, which shrinks by another 4% in weight when frozen.

The meat-processing unit will start its operations with 200 small animals (shoat, meaning sheep or goat), 50 conventional cattle and 30 Yak.

The cost for live animals is taken as PKR 250 per kg for shoat, PKR 120 per kg for cattle and PKR 142 per kg for Yak. Annual inflation is assumed as 5% for subsequent years.

The sale price for processed frozen meat is taken as PKR 650/kg for mutton, PKR 450/kg for beef and PKR 500/kg for Yak meat. Prices for by-products are taken from prevailing market rates, and annual inflation is assumed as 10% year on year from second year.

Table 26 summarises the input variable used in the calculations.Table 26: Meat Processing - Input Variables

A: Weight Calculations

Qty.Average Live Wt.

(Kg)

Live Animal

Wt. (Kg)

Hot Carcass Wt. (Kg)

Shrinkage Loss

Net Cold Wt. (Kg)

Animal

Shoat* 200 30 6,000 3,300 4% 3,168

Beef 50 200 10,000 4,700 4% 4,512

Yak 30 350 10,500 4,620 4% 4,435

B: Cost Input Values

Animal

Live Animal Cost (PKR)

Slaughtering &

Processing / Kg

Packaging / Kg

Increment per annum

Shoat 250 15 5 5%

Beef 120 15 5 5%

Yak 142 15 5 5%

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C: Sales Input Values

Animal

Meat Price / Kg (PKR)

Hide Price / Animal (PKR)

Organs Price /

Animal Increment per annum

Shoat 650 600 250 10%

Beef 450 2,000 450 10%

Yak 500 2,500 1,600 10%

D: Financing Req RoR

Repayment (Years)

Debt 40% 12.50% 10

Equity 60% 15%

* Sheep/goat

Capital expenditure

The initial capital investment is estimated at PKR 2.8 m. The project is to be financed with 60% equity, with a required rate of return of 15%, and 40% of commercial debt, with an interest rate of 13%, to be repaid in 10 years. Table 27 summarized the initial capital layout.

Table 27: Meet Processing Unit - CAPEX

CAPEX UOM Unit Unit Cost (PKR)

Cost (PKR)

Land Kanal 2 100,000 200,000

Building Sft 2,500 500 1,250,000

Plant & Machinery Lump sum 1 1,000,000 1,000,000

Contingency Lump sum 15% 367,500

Initial Cash Outlay 2,817,500

Source: prices estimated from prevailing market trends.

Profit and loss (income & loss)

The meat processing business is expected to turn up a net profit of PKR 291,000 in year one, which increase to PKR 2.8 m in year seven, and nearly PKR 5 m in year ten. IRR turns positive in year four (13%) and reaches 55% in year ten.

Calculations for up to seven years is summarised in Table 28, while full ten-year profit and loss and IRR calculations are provided in Annexes 3.6-7. Details of sales are given in Annex 3.8 and details of indirect costs (OPEX) provided in Annex 3.9.

Table 28: Meat Processing - Profit & Loss (Income Statement)

Description Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

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Sales Revenue

6,722,700

7,394,970

8,134,467

8,947,914

9,842,705

10,826,976

11,909,673

Direct Cost 5,049,076

5,301,530

5,566,606

5,844,937

6,137,183

6,444,043 6,766,245

Depreciation 100,000 100,000 100,000 100,000 100,000 100,000 100,000

Gross Profit 1,573,624

1,993,440

2,467,861

3,002,977

3,605,522

4,282,933 5,043,428

Indirect Cost

1,069,000

1,122,450

1,178,573

1,237,501

1,299,376

1,364,345 1,432,562

EBIT 504,624 870,990 1,289,288

1,765,476

2,306,145

2,918,588 3,610,866

Interest 140,875 133,039 124,224 114,307 103,150 90,599 76,479

EBT 363,749 737,951 1,165,064

1,651,169

2,202,995

2,827,989 3,534,387

Tax @ 20% 72,750 147,590 233,013 330,234 440,599 565,598 706,877

Net Profit 290,999 590,361 932,051 1,320,935

1,762,396

2,262,391 2,827,510

Source: Prices taken from local markets

8. HORTICULTURE SECTOR

The Chinese government has tough food safety and phytosanitary regulations, in addition to tariff barriers, which makes it almost impossible to export local (cherries in particular) and national (citrus and mangos) fruit and vegetable products via Khunjarab border. On the other hand, Chinese fruit and vegetables, especially grapes, pears and garlic were flooding local and national markets in Pakistan before the trade was disrupted by the Attabad lake. Pakistan in general and GBC in particular do not have the necessary institutional infrastructure to meet international standards for pest and disease free certification; hence this option is not feasible for the foreseeable future. Apples and apricots are major products of Gojal and other parts of GBC. However, there are too many varieties, and the actual marketable varieties are few and cannot compete with supply from large growers nearer to urban markets, due to high cost of collection and transportation and quality and volume issues. The answer may be specialization and focusing on a few niche products.

Possible value addition ideas include semi processing of apples and apricots as pulp and selling it to food industries in Pakistan, to make niche products with a ‘natural’ or ‘organic’ premium. Other products may include dried fruit and nuts under fair-trade certification for whole food and ingredients export premium markets. Nestle may be willing to work on a premium product sourced from GBC, where it has growing consumer base.

9. GREEN ECONOMY CLUSTER, CENTRAL HUNZA

9.1 Significance

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Central Hunza, with a population of about 30,000 consists of several large villages and urban centres, including Karimabad, Altit, Ganish, Ahmedabad, Hyderabad and Aliabad. Karimabad—the former state capital—Altit and Ganish are historical settlements and major tourist attractions with several heritage sites, hotels and trekking routes, such as Baltit and Altit Forts, oldest human settlements and mosques in Hunza, which have now been restored and renovated by the Aga Khan Cultural Service (AKCSP), and received multiple UNESCO Awards. Some of the oldest inscriptions and religious symbols carved in on rock faces by travellers and pilgrims on the ancient Silt Route are also located in this area.

Karimabad, located at a vintage point overlooking Hunza-Nagar Valleys, also has at least five mobile telephone towers and about 50 small and medium-sized hotels. Aliabad, located on the KKH, has in recent years emerged as the main business centre for Hunza-Nagar, which have recently been reconstituted as a district in GB. Central Hunza and many of its side valleys, used as summer pastures, as well as the Nagar Valley across the Hunza River, are known for good quality gemstones, such as ruby, aquamarine, topaz and tourmaline, and garnets. In addition, these valleys produce apricots, apples, cherries, table potatoes and agroforestry products, which are sold in local and national markets.

Central Hunza was one of the first villages in GB to be electrified in 1962. However, today, a government utility generates less than 800 kV of power, resulting in chronic shortages of energy. Ahmedabad, located at the northern edge of Central Hunza has good quality white marble, ruby and perennial water for hydropower generation. The Ahmedabad community was assisted by AKRSP to build a micro hydro project, some 20 years ago, with a capacity of 150 kV, which was upgraded to 300 kV in 2008. The outflow of water from this site can be used to build another MHP, with a capacity of 500 kV, which is one of the sites proposed in this investment project

9.2 Certified greenwood processing business

Contextual analysis:

As reported in the background sections, agro-forestry is a major resource, covering more than 6% of the land area of GBC, while natural forests have been declining and currently cover only about 3%. Since 1983, AKRSP has assisted local communities to develop land and water resources through small irrigation projects. As much of the new land developed consists of hilly and marginal land, it has been devoted to planting multi-purpose forest trees, such as poplar, willows and Russian olive. During the first two decades of its operations, AKRSP implemented a major social forestry program. According to AKRSP estimates, communities have planted more than 40 million forest trees. These trees are currently being sustainably harvested and processed as timber products for local use. However, with the current low levels of technology and skills, and poor design, a large part of the potential value is lost during processing.

Opportunity rationale:

During restoration of the Baltit and Altit forts projects and revalorization of the adjoining old settlements, AKCSP has trained a significant number of young people, including women in conservation, stone masonry and wood works. As a spin off project, AKCSP has supported a Women’s Social Enterprise (WSE) at Altit village, which is owned by about 50 trained women. The WSE offers high quality services in the fields of physical surveys, conservation, carpentry, electrical wiring and masonry (Kreutzmann, 2010).

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The business is currently winning small contracts for conducting surveys, furniture making for schools and home building and refurbishing tasks from customers in the public and private sector clients. They have also found work outside GBC and Pakistan, such as the city park project in Khorog, Tajikistan, and in Multan city of Pakistan, where they mapped a number of religious buildings.

These craftswomen trained in specialized tasks in conservation techniques are also ideally placed to provide regularly demanded commercial services in carpentry, commercial timber products and construction.

Business description and strategy:

The business idea is to wean off WSE from project support, which is still continuing in one form or another, and develop it as an independent commercial venture, specialized in certified green wood products, such as wood flooring, ceiling panels and standard window frames and panels, school furniture and home construction.

The business can use large agro-forest resources available in Central Hunza, and use the additional hydropower from the proposed second phase MHP at Ahmedabad, which is nearby and connected to a government built mini-grid.

Cost-benefit analysis:

This is a running business, managed by AKCSP as a cost centre. Details of investment cost, balance sheet and other details were incomplete at the time of this study. However, the business has a healthy order book, and the main constraint on expansion appears to be reliable supply of low energy.

9.3 Provision of electricity to small businesses at Karimabad and Altit

As stated above Karimabad and Altit are tourist destination with many hotels, including Baltit Inn and Kha Basi, both owned by Serena Chain of hotels; Darbar Hotel, Hill Top Hotel, Hunza Embassy hotel and many others.

KArimabad also has a sizeable market area, with over 100 gift shops; at least five mobile phone towers, and a gems and jewellery centre operated by Karakoram Area Development Organization (KADO). At present, many of these businesses use diesel generators to meet their energy needs, and reliable and dedicated supply of hydroelectricity will not only contribute to reducing their energy costs and increase profitability, but also reduce noise and carbon emissions.

Ahmedabad also has white marble deposits nearby, which can be used for small-scale quarrying and processing, using the extra energy.

10. TOURISM AND NATURAL STONE CLUSTER, SHIGAR, BALTISTAN

10.1 Significance

Shigar is a beautiful valley in Baltistan on the main trekking and expedition route to K-2 base camp, Baltoro glacier and Concordia, the confluence of high mountains, including four of the higher than 8,000 m peaks in the world. The valley has an extremely picturesque landscape, and abounds in fruit, such as grapes, peaches, pears, walnuts and apricots. The valley is also well known for its mineral wealth, such as marble and granite, gold and gemstones21. The mineral potential of this Valley has recently caused a mineral rush, which if not managed carefully, can damage the fragile ecology of Shigar. Shigar was once a small kingdom and the Shigar fort served as the palace of the local

21http://nceg.upesh.edu.pk/GeologicalBulletin/Vol-44(2)-2011/Vol-44(2)-2011-Paper1.pdf

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ruler. The 400-year Shigar Fort/ Palace has recently been restored for reuse as Shigar Palace Residence, and it is very popular with high-end national and international tourists.

Shigar valley has several tributaries draining into the Indus River, and offers significant potential for hydropower generation. Given its unique ecology, natural resources, and its place in adventure tourism, a carefully tailored economic model is suggested for Shigar Valley, based on its intrinsic value, which include natural stones and adventure tourism.

A one MW site has been identified in consultation with GB Water and Energy Development Department, at a location where good quality granite is found.

10.2 Granite and marble processing

Contextual analysis:

A detailed study is available on the geological features of Shigar, as described in the following description reproduced from that study.“Both meta-igneous and meta-sedimentary rocks of the Asian plate and Kohistan-Ladakh island arc, are exposed in the Shigar valley. The Main Karakoram Thrust is passing through the centre of this valley, separating the meta-sediments of the Asian plate from the meta-igneous and meta-sediments of Kohistan-Ladakh island arc Multiphase metamorphism and deformation has occurred in this area, therefore, the meta-sediments to the north of the Northern Suture are collectively known as the "Karakoram Metamorphic Complex". The grade of metamorphism varies from greenschist to amphibolite grade facies. Besides, the multi phase metamorphism and deformation, igneous intrusions of both the pre-and post-collisions are also exposed in the valley. The last phase of post-collisional igneous intrusion is present in the form of leucogranites and gem-bearing pegmatites”22.

In plain English, the huge marble and granite deposits and their variety and quality, as well as high quality aquamarine and other gemstone resources have already attracted many local and national companies to Shigar valley. However, shortages of energy and access roads are the key barriers. As a result, newly started quarrying operations are mainly focused on extracting as much raw material as possible through blasting, for value added processing elsewhere in the country.

Opportunity rationale:

Provision of hydropower can be an important incentive for existing quarrying operations to shift the focus on sustainable and value added quarrying and processing. As recommended for Gojal area, the focus should be on employing new technology and extracting cubes or blocks, using chain saws, instead of blasting and damaging the mines and the broader environment. in addition to the availability of good quality raw material and potential of energy, workforce availability is another advantage, especially during off-season, as trekking and expedition activities are concentrated in 2-3 months during summer.

Business description and strategy:

As the leases for marble and granite mining in accessible areas have already been taken, the business strategy proposed is to focus on value added processing, such as making slabs, and using energy as an incentive to encourage sustainable quarrying in existing operations. Another option would be to get into a joint venture with an existing leaseholder, and to establish a model quarry on modern lines. For marketing, export market in China is recommended.

22 http://eprints.hec.gov.pk/2596/1/2375.htm

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Cost-benefit analysis

Calculations will be similar as provided in Section 3.5.2, with a small increase in the transportation cost.

11. OTHER PURE ACTIVITIES

11.1 Buckwheat processing as a health food product

Buckwheat was traditionally considered as a “poor person’s food”, grown between the double and single cropping zones of GBC, to get an extra crop, because of its short duration maturity (5-6 weeks). It may now be considered as a ‘rich person’s food”, because of its health value. Research by USDA indicates that the grain has an amino acid composition nutritionally superior to all cereals, including oats. Buckwheat protein is particularly rich (6%) and useful in limiting amino acid lysine.

It has other agro-ecological advantages, particularly in an organic farming environment. It is one of the most dependable and highest yielding honey plants; it improves cross pollination in fruit crops; requires little fertilizer, especially nitrogen; it is a ‘smoother crop’ and helps in the natural control of weeds; it is a ‘green-manure’ crop.

In more accessible areas, such as Hunza, the cultivation of buckwheat has declined in the last 10-15 years, because this cropping niche has been taken over by the large-scale production of potatoes and other commercial crops. However, in Baltistan, it is still a widely grown crop, particularly in Shigar. Total production in GBC is estimated at 150 ton, which can be doubled with new germplasm introduced.

China, Russia and Ukrain are the top producers of buckwheat and account for more than 50% of world trade. In Japan, China and Korea, buckwheat noodles are popular. AKRSP has already done some work on buckwheat and considered commercial production and processing (mainly as noodles and buckwheat tea from grains, and orthopedic pillows from husk) for local tourist and national health food market. DAWN Bread, a leading food company in Pakistan has shown an interest in sourcing buckwheat flour from GBC.

11.2 Provision of electricity to local hotels and campsites

For hundreds of tourists passing through Shigar every year, a hot shower is perhaps the most caveated leisure after a long trek or expedition. Provision of electricity to roadside guesthouses campsites and Shigar Palace Residence, owned by Serena Hotel, are other PURE uses.

12. GEMS AND JEWELRY CLUSTER, GARAM CHASMA, CHITRAL

12.1 Significance

Garam Chashma (hot spring) is a beautiful valley located in the northwest of Chitral bordering on Afghanistan. It is an important trading route for lapis lazuli and deep blue aquamarine, beside itself being a gemstone-bearing area. Garam Chashma is also a touristic hotspot for local, national and international tourism, because of its scenic beauty and hot springs.

Currently, a 100 kV MHP, built by SHYDO is being leased out to Green Alternate Energy (GAP), an AKRSP supported local energy company. The proposal is to upgrade this site to 500 kV.

12.2 Establishing a Lapidary and Jewellery Business

Contextual analysis:

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Gems and Jewellery (G&J) is recognized as a high-potential sector in Pakistan in terms of its scope for future growth, value added trade, export diversification, job-creation and private sector development. The country is endowed with abundant resources of several precious and semi-precious gemstones, at present mostly found in GB and KPK and parts of Pakistan-administered Kashmir. Most important of gemstones are emeralds of Mingora (Swat), pink and golden topaz of Katlang (Mardan) and ruby and aquamarine of Chitral, Hunza-Nagar, Baltistan and Neelam Valleys.

Global trade in Gems and Jewellery, excluding diamonds, is estimated to be USD 18.5 billion annually, while official estimates of Pakistan’s exports were reported to be as little as USD 23 million in 2002-03 period, which according to industry officials have reached USD 40 million in 2010-2011 period. In sum, Pakistan has not been able to exploit the full potential of this sector, despite ranking fifth or sixth in raw gemstone production. At present, the bulk of precious and semi-precious stones mined by local people are sold to traders in raw form and taken to Peshawar or Karachi for some level of value addition. Informal channel checks reveal that some of these stones also end up in India via Dubai, where they are cut and polished and exported as part of high quality jewellery.

Opportunity rationale:

As reported in the background sections, the industry remains under-developed owing to a number of issues, starting with primitive methods of mining, lack of imaginative product design, branding and marketing, as well as poor choice of technology, skills and market orientation. Located at an important route for Lapis lazuli from Afghanistan, and having significant gemstone resources of its own, Garam Chashma can be a key location for valued added processing of gemstones, including lapis products and beads.

Business description and strategy

Rupani Foundation (RF), established by the World Gold and Diamond Inc., a Euston-based company owned by a Pakistani-American Industrialist, is a key player and working in collaboration with AKRSP to develop this sector in GBC, Afghanistan and Tajikistan. Recently, RF has received a grant of USD 250,000 to establish two Lapidary centres in GBC, one of them is located at Garam Chashma.

The business strategy is to use the new Lapidary centre as a training cum production facility, and eventually spin it off as a lead enterprise, with local entrepreneurs as shareholders. The trainees will be assisted to establish themselves as home-based service provides for lapidary. The lead business, with back linkages with trained miners and home based cutting and faceting units, will specialize in ethical production, processing and marketing of gems and jewellery products. For marketing, RF has an on-going supply agreement with Hasuna Pvt Ltd., a Japanese company that imports ethically produced gems23.

The upgraded MHP will supply hydroelectricity to this centre/ business and many home based suppliers, thereby establishing an integrated vale chain in clean energy and ethical jewellery.

Cost-benefit analysis

This is a grant-funded project, with an initial focus on training, research and

23 http://www.hasuna.com/

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development, with the goal to spin off the project as a market-based business at the end of the project support. Detailed cost/benefit of this future business were not available.

13. FEED-IN TO MINI GRID IN CHITRAL TOWN

Chitral town, while connected to the national grid, is subject to severe shortages of hydroelectricity, and endures up to 18 hours of blackouts, especially during winters. The grid line over the Lowari Pass, is subjected to sever breakdowns due to heavy snow and snow storms.

There is close by site for generating 800 kV of hydroelectricity, which is proposed for investment in partnership with GAP, the local energy company in Chitral. GAP will negotiate with WAPDA, either to purchase electricity as a mini IPP project, or supplying to the main bazaar area in Chitral town, as a local utility.

14. CONCLUSION

GB and the Chitral district of KPK is a remote mountainous region. The local economy is characterized by small landholdings and subsistence oriented farming, absence of an industrial base, under-developed local markets, and high costs of transportation to distant market.

Its advantages include huge potential for hydropower generation and mineral resources, such as marble, onyx, granite and slate, and proximity to readily available export markets in China for these commodities. This potential could not be realized so far, because energy remains a binding constraint. Lack of connectivity to the National Grid has thus far discouraged investment in hydropower generation.

Captive power generation linked to productive uses appears to be a viable option in the short to medium term, until the National Grid is extended to the area. The down side of this option is that the upfront cost of hydropower generation is high in an off-grid environment. An average of 40% of PLF, and prevailing low rates of tariff serve as a disincentive for private sector investment.

However, in a bundled approach, incorporating marble production and processing and other productive uses, the investment appears to have a high return, as evident from the economic and financial analysis shown in this report.

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REFERENCES

1. “Gilgit-Baltistan Economic Report: Broadening the Transformation” Report no. 55998-PK (Washington, DC: World Bank, 2010).

2. “Socioeconomic Survey of Gilgit-Baltistan and Chitral” (Gilgit: AKRSP, 2007).3. “Pakistan Economic Survey: 2009-2010” (Islamabad, Planning Commission of

Pakistan, 2010). Available at: http://www.finance.gov.pk/survey_0910.html4. “Northern Areas Strategy for Sustainable Development Sustainable (NASSD)”

(Islamabad: IUCN, 2003). Available at: http://iucn.org/about/union/secretariat/offices/asia/asia_where_work/pakistan/publications/pubs_2003/pubs_nassd_bg_papers.cfm

5. http://www.ppib.gov.pk/HYDRO.pdf

6. www.adb.org/printpdf/projects/34339-043/main

7. http://undp.org.pk/productive-use-of-renewable-energy-pure.html 8. “Marble Cluster strategy for Afghanistan” (Washington, DC: USAID, 2006)

9. Geological Survey of Pakistan, 2000; Aslam and Khan, 2002

10. http://en.wikipedia.org/wiki/Gemstones_of_Pakistan#Gilgit_Baltistan 11. http://137.227.231.179/publication/ofr75556 and

http://pubs.usgs.gov/pp/0716g/report.pdf12. www.pbs.gov.pk/sites/default/files/other/yearbook2011/ENERGY

%20%20&%20MINING/7-3.pdf

13. http://www.historic-scotland.gov.uk/embodied-carbon-in-natural-building- stone-in-scotland-2.pdf

14. “An assessment of Socio-Economic trends” (Gilgit: AKRSP, 2008).15. “Comprehensive planning of Hydropower Resources on Tributaries of Indus

River in NAs: Report on 13 Regions” (Lahore: Pak-German Technical Corporation, HEPO, WAPDA-GTZ, 1995).

16. “Feasibility Report on Establishment of Regional Grid Gilgit-Baltistan” (Gilgit: Water & Power Department, GB, 2010)

17. “Hydropower Resources of Pakistan” (Islamabad: Private Power and Infrastructure Board [PPIB], 2011).

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ANNEXES

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