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Pre-Feasibility Study Integrated Industrial Waste Management Services in Faisalabad – Package 1

May 2010 Executive Summary prepared by GHK Consulting Limited

Cities Development Initiative for Asia P a g e | 2

A. District Vision and Mission 1. The City District Government of Faisalabad (CDGF) has a Vision and Mission Statement and is striving hard to achieve these. The Vision of the District is: “Pre-empting Poverty, Promoting Prosperity” Its Mission Statement is: “We will provide high quality services which compare with the best in the country. We will work with everyone who wants a better future for our District. We will establish an efficient, effective and accountable District Local Government, which is committed to respecting and upholding women, men and children’s basic human rights, responsive towards people’s needs, committed to poverty reduction and capable of meeting the challenges of the 21st Century. Our actions will be driven by the concerns of local people”. 2. The District Government has been taking steps to underpin its vision and mission and a healthy environment plays a central role in reducing the impacts of poverty upon the citizens. The sub-projects that have been identified as part of this pre-feasibility study are in line with the District’s Vision and would support towards poverty reduction through addressing the issues of some of the worst excesses of industrial waste in the City. B. Background and Introduction of this Assignment 3. Upon the request from the City District Government Faisalabad, Cities Development Initiative for Asia (CDIA) has been engaging the CDGF since July 2008 about how it may support its urban development strategy. CDIA agreed to provide technical assistance to the CDGF on projects in integrated urban environmental infrastructure covering urban transport and industrial waste management. CDIA agreed to provide technical assistance to the CDGF on developing a Pre-Feasibility Study (PFS). The objectives of this PFS are:

3.1. To prepare coordinated PFS for infrastructure investment projects in the areas of urban transport and industrial waste management for the city of Faisalabad;

3.2. To pursue potential infrastructure financing through domestic, international or private sector lending institutions for investment projects; and

3.3. Examine potential for overall impact on improving the urban environment as well as ontributing to poverty reduction.

4. Project steering and working committees were established and notified by the Local Government and Community Development Department, Government of the Punjab and the District Coordination Officer (DCO) respectively. 5. This package presents details of the PFS for one package of Industrial Waste Component. An Inception Report that includes evidence based situation analysis was developed and submitted in July 2009. The Inception Report summarised preliminary findings from initial data gathering, research and the meetings held with district administration and line agencies. Also in the Inception Report is included an assessment of a variety of existing reports. An updated version of the table has also been included as Annex ES1-1 within this report. An Interim Report was also developed and submitted in October 2009 that was primarily focussing on various data gathering exercises giving some indication of the projects to be identified. It is strongly recommended that both these reports are read to ensure that this investment report can be contextualised correctly. This is the final output of this PFS and is the complete Infrastructure Investment Proposal (IIP) that


identifies five sub-projects to be implemented for proper industrial waste management in the City. C. Introduction of Faisalabad and Expansion of Industries in Faisalabad 6. Faisalabad was founded in 1890s as a market centre for the newly irrigated lands that surround it. It is the third largest City of Pakistan. The City is second largest in the province with fast growing population. The population Census 1998 recorded its population as 2.01 million with growth rate at 3.58%. Its population is expected to touch 3.0 million in 2015 and will be doubled by 2030. 7. Faisalabad City has made rapid strides in the field of industry after independence. It is now often called the "Manchester of Asia" for its extensive development of textile industry. Faisalabad plays a very important role in the economy of the country. Its growth has been driven by the development of the city’s textile industry, which is second only to that in Karachi within Pakistan and in many ways defines the town. Major portion of the total exports of Pakistan emanates from Faisalabad. 8. The contribution of Faisalabad towards GDP had been estimated in a study carried out by the firm, PricewaterhouseCoopers in 2007, at US$10 billion (Pak. Rs.810 billion) which is 17.4% of national GDP. The GDP of the City is expected to grow at a fast rate of 6.0% per annum, and by 2020 it is expected to be more than double. Before independence, there were only five industrial units in Faisalabad City. Now, there are 1,057 large industrial units out of which 416 are Textile units. A number of data gathering exercises carried out indicate that the majority of the industry is relating directly to textile production or its service industries which form the backbone of the industrial economy of Faisalabad. Other industries include hosiery, readymade garments, power looms, oil mills, flour mills, sugar mills, engineering units, pharmaceuticals, chemical, soap, etc. 9. Evidence indicates that industry is scattered throughout Faisalabad reflecting its historic development without clear planning policies for the City. The industries closest to the City centre are mixed with domestic housing and commercial activity whilst more recently, industry has congregated some distance from the centre as is being augmented by purpose built estates. D. Integrating Urban Planning and Industrial Waste Investments 10. The city of Faisalabad underwent a rapid transformation from being an agricultural market and administration town to Pakistan’s third largest industrial city, primarily by capitalizing on its agricultural hinterland. Most of that transformation was based on the individual interventions by a few large investors, and was followed, during the second and subsequent phases, by a process of divestment and the emergence of a large number of small investors – setting up small-scale “cottage” or home-based units that fed into the larger industrial units. 11. These industrial units created the base for the economic development of Faisalabad that fuelled the extension and expansion of the city well beyond its original boundaries. The speed, scale and nature of these interventions were such that they far outstripped any provision for land development or urban infrastructure provision. The larger units attracted residential and associated developments around them, while the smaller units developed within the residential areas with little or no concern for their impact on the environment or the lives and living conditions of their neighbourhoods and the surrounding areas. Though attempts were made to develop and land-use and development controls, these Master Plans


usually lagged behind and were ineffective in ensuring the orderly and environmentally sustainable development of Faisalabad. 12. Industrial wastes, in particular, are poorly and very inadequately managed. For the most part, these are deposited untreated and uncontrolled into the already overburdened drainage system. The liquid waste management system of the city, is rudimentary at best, and relies on the effluent being utilized as inputs for agriculture. The incorporation of sewage, as fertilizer has been a long established practice, but its continuation as the proportion, strength and composition of industrial chemical wastes and by products has increased has become hazardous to health, both by its handling by the farmers, and further down-stream, through its assimilation into the food-chain. 13. The lack of urban land-use planning and ineffective policing and enforcement of waste disposal controls has created an unhealthy and untenable urban environment. The atomized nature and “spontaneous” emergence of industrial units, has fostered the development of operating habits that pay scant attention to the external and social costs imposed by the industrialists and manufacturers. Not having to consider the social and environmental costs of pollution, many industrialists are willing to pay fines if necessary, rather than voluntarily control or curb pollution or incorporate mitigation measures. 14. The recent efforts by the CDGF and Government of Punjab to relocate both the larger and the small-scale industrial units to tailor-made, planned locations in the form of industrial estates are steps in the right direction. Similarly improvement in the provision of infrastructure, utilities and waste disposal services as envisaged in the two packages is fundamental to the enhancement of the quality of life of the City and the people who live and work in Faisalabad E. Existing Situation of Industrial Waste in Faisalabad 15. In Faisalabad, the industrial sector produces very little solid industrial waste, the majority of which is reused or recycled. However, it produces a considerable quantity of liquid effluent which is discharged to the drains and then to the river untreated. 16. The liquid waste produced by the industries is carried by the domestic sewage system and drains operated by WASA in its operational area and by the drains operated by the provincial Irrigation Department. There is virtually no treatment of the effluent; the few treatment plants installed by the factories rarely work because of financial or technical constraints. There is only one sewage treatment plant in the northern part of Faisalabad designed for the treatment of domestic sewage but it treats both domestic and industrial sewage. It treats less than 10% of the combined industrial and domestic sewage of the City. 17. Resultantly the vast majority of industrial effluent is discharged "raw" without any treatment into two main drains that are Paharang drain to the North West and Madhuana drain to the south-East. Paharang drain eventually discharges to the Chenab River and Madhuana Drain to the Ravi River. Both drains come under the control of the Irrigation Department. 18. The receiving drains are severely depleted of oxygen, devoid of aquatic life and heavily polluted with a range of pollutants including heavy metals. Analysis of the available data and surveys undertaken as part of this pre-feasibility study show that in both drains, samples of waste water exceed the permissible levels set in National Environmental Quality Standard (NEQS).


19. Without intervention, the existing industrial waste management situation in Faisalabad is likely to deteriorate especially with the introduction of additional and more diversified industries. 20. The regulatory environment does not encourage resolution of the problems because at least two authorities Water and Sanitation Agency and the Provincial Irrigation Department appear to share responsibilities over differing geographic areas. The Municipal Services Department of the CDGF and its sub-department i.e. Environment Department also share some responsibilities. That is also linked with the provincial Environment Protection Agency (EPA). The regularity framework is such as to, at best, not encourage in-factory treatment and the few attempts of enforcement are often thwarted. None of the departments seems to take responsibility for the quality of waste disposed to the drains. Proper records for the quality and quantity of industrial effluent are not maintained by any of the departments and agencies. Industrial waste has resulted in a large number of social, environmental and health related issues for the citizens of Faisalabad. There is evidence to indicate that pollutants have entered the ground water and are entering the public water supply either through the public pipe work or directly through private tube wells. For a range of samples, there is a significant concentration of faecal coliforms that also indicated the leakage of WASA system and drains. The quality of ground water was less polluted near the canal. This waste water is used downstream for irrigation and for fish farming. Bio-accumulation of certain contaminants has been identified in certain crops and in fish. 21. The water is widely regarded as unfit and those that can afford buy bottled water, boil it themselves or buy privately supplied filtered water. Such options are only available to those that can afford it; the remainder have to use what water they can find /purchase and suffer the resulting ill health. Inevitably, it is the poor who are the most affected by ill health having little economic resilience to the resulting loss in wages. People living near the drains are of particularly adversely impacted because they have neither water for drinking nor for irrigation. 22. The field investigation has revealed that the consumers are willing to pay for the clean drinking and for irrigation purposes, the demand for waste management services is very different. Both households and industries would like to have wastes conveyed away from their houses/factories, but the willingness to pay for this service, is much lower than for water supply. 23. The situation has deteriorated to the point that capital works alone are insufficient to rectify this fully within the physical and financial limitations. However, the sub-projects identified and included in this package would help in addressing some of the worst excesses of industrial waste. There is also a need for a general consensus from all levels and sectors of society that industry should take responsibility for its waste and not take advantage of an apparently “free” service which is actually at the cost to the residents of Faisalabad and to the environment. The "polluter pays" principle should be widely promoted throughout Faisalabad society. 24. On the other hand, clinical waste is hazardous and should be segregated and treated separately. Whilst some attempts have been made in this direction in Faisalabad, they are insufficient and unevenly applied and hospital sweepers, municipal sweepers and the general public are exposed to unnecessary risk. The hospitals are not treating the hospital waste properly. The capacity of the hospitals to incinerate the waste is insufficient. Hospitals rarely implement the Hospital Waste Management Rules 2005. 25. There is potential for improving the situation through a range of capital projects, given the right regulatory framework, appropriate legislative support, institutional development and


with government and industry good will at all levels. There is potential to generate sufficient income to potentially cover operational costs. F. Package Brief

26. To address the above mentioned issues, projects have been proposed through a comprehensive approach to the industrial waste management in Faisalabad. The projects have been identified through detailed assessment of the existing situation, review of other existing reports and consultations with departmental officials. Options that have been identified are pro-poor and have positive impacts upon all citizens especially the poor. The various options / projects were assessed using the following ADB criteria:

Necessity

Public Desirability

Environmental Impact

Socio-Economic Impacts

Risk

Feasibility This Package includes the following projects which have been discussed and agreed with the CDGF:

(i) Enhancement of public awareness and training (ii) Strengthening of hospital waste management; (iii) Extension of the existing Chokera sewage treatment plant; (iv) Establishment of an industrial waste management cell; and (v) Construction of a combined sewage treatment plant near Madhuana drain

27. The Project of enhancement of public awareness and training involve establishing a centre for environmental management and would train the textile engineers in cleaner design and production. The centre would run trainings for staffs of all relevant departments. An element of mass awareness campaign would also be introduced in the project. 28. The project of hospital waste management would treat the clinical risk waste in seven of the major hospitals of the City. The staff of these hospitals would be imparted training to handle the clinical waste properly. 29. It is proposed that the capacity of the existing Chokera treatment plant which is near Paharang drain is in the northern part of the City would be doubled. The other plant would be established in the southern part of the City near Madhuana drain. One of the areas where no treatment plant has been proposed needs to be reviewed at the feasibility study because of large industrial units claimed that they have waste water treatment facilities and some may shift to outside the study area Through these treatment plants, it is estimated that 95mgd of liquid waste would be treated out of 183mgd. A further 20mgd will be treated through the treatment plant proposed in Package 2. 30. An attempt has been made to include the institutional strengthening that would help to improve law enforcement and would emphasise the “polluter pay “principle. A project of establishing an industrial waste cell has been proposed that would ensure the implementation of regulation for treatment of the waste being produced by industries. 31. The sub-projects have been prioritized in order so that the first 2 to 3 years contain projects that are relatively simple to commence and do not involve too many technical


difficulties. Each project has then been subdivided into two tranches according to their ease of implementation: Tranche 1 Project for implementation in the next 2 years and to be implemented

through existing line agencies. This would not require the prior establishment of new institutional structures

Tranche 2 Projects for implementation in 5 years time which may have the potential for PPP arrangements

Table ES-1 gives an overall summary of this package; detailed information is given in Table 2-1 and Figure 1-3. Table ES-1: Package Summary Project Number Suggested Tranche No. Title of Sub-project

PIW1-001 1 Enhancement of Public Awareness and Training

PIW1-002 1 Strengthening of Hospital Waste Management

PIW1-003 1 Extension of Chokera Sewage Treatment Plant

PIW1-004 1 Industrial Waste Cell

PIW1-005 2 Combined Treatment Plant near Madhuana drain

32. This package of five sub-components for investment is pro-poor. It is envisaged that the outcomes from these projects would bring improvement in the issues the poor are disproportionately disturbed from. The projects of industrial waste cell and awareness raising are of particular importance in this regard. These projects would help in raising awareness of the citizens of the adverse health impacts and would also built a positive pressure upon the industrialists to resolve the issues, citizens are facing from the disposal of un-treated waste water. Further, water of treatment plants to be used for irrigation would help in making availability of clean vegetables for all in the City. G. Technical Description and Aspects 33. The sub-projects that have been identified are directly linked to the results of the surveys and data gathering assignment carried out as part of the pre-feasibility study, review of already developed reports by different organisations and discussions with the CDGF. A brief technical description of the sub-projects of this package is given below: Enhancement of Public Awareness and Training (Project Number PIW1 001) 34. The sub-projects of educational training have been included in the package to change the perceptions and long established ways of thinking and working. However, its impact is not likely to come in the short term. In the current situation, without such programmes, the advantages gained from the capital investment will only be of short term benefit and are likely to revert to existing practices. The capital works will deteriorate over the time as facilities are unlikely to keep pace with the projected increases in population and industrial activity. 35. The Project would involve establishment of a Centre of Environmental Management at the National Textile University, Faisalabad. This centre will train the next generation of the textile engineers in cleaner design and production. Discussions with the University need to take place at the feasibility study level. 36. Through this component, trainings for the professionals from the related departments e.g. WASA, Municipal Services, EPA, Irrigation and Health would also be arranged. Training programmes would be developed for the primary and secondary school teachers, lecturers


and students using the curriculum developed by the centre. NGOs can also be used for mass awareness campaigns. 37. The motivation and increased awareness levels of the citizens would help in bringing change throughout the society, motivating the civil society, regulators operators and politicians to cooperate together to improve the environmental conditions that impact, to some extent, all the residents of Faisalabad. Strengthening of Hospital Waste Management (Project Number PIW1 002) 38. Hospital waste poses particular health hazards, the majority of which are within the control of government. The review and analysis of existing situation has shown that most of the big hospitals are not in compliance with the EPA hospital waste management rules of 2005. If they were in compliance, they were not working properly. There is therefore an opportunity not only to safeguard public health but to effectively demonstrate responsible waste management. This requires proper segregation, collections and disposal of all waste generated by hospitals. 39. To deal with this situation, seven major public and private hospitals in Faisalabad city have been identified to install incinerators and to train staff of the hospitals on proper ways of disposing hospital waste. Secure sanitary storage facilities would be constructed in hospitals and at final disposal sites and special-purpose transfer vehicles would be provided. Following the “polluter pays” principle, hospitals would be required to pay for the service and fines would be levied on non-conformers. Regulation and implementation oversight would be by the CDGF Solid Waste Department, which is presently responsible for all solid wastes in the city. It is recommended that one of the major hospital is identified as a lead hospital to promote good practice amongst the other tab to provide centralised facilities whilst no detracting from the responsibilities of the individual hospitals. 40. Liquid hospital waste is currently disposed of to the domestic sewer system. No information is available as to the quality or volume of such waste. It has been concluded that all liquid waste is screened and lagooning takes place for pre treatment of all liquid waste on site before discharging to sewer although it will produce a sludge that contains high concentrations of helminths and other pathogens. Other options would be considered in the long run. Collection and disposal of hospital non risk waste will be undertaken by CDGF for a fee and would be disposed of to the landfill site properly and separately. It is envisaged that the project would be sufficient to treat the present quantities of hospital solid and liquid waste. 41. This sub-project would help bringing improvements to the situation of hospital waste in Faisalabad, both for general public and for the hospital workers. Extension of Chokera Sewage Treatment Plant and Combined Treatment Plant near Madhuana drain (Project Number PIW1 003 and Project Number PIW1 005) 42. To address the issues in the existing situation of industrial waste, it has been concluded that the treatment facilities should be improved to treat the industrial waste that is being used for irrigation. This has led to the identification of the projects of upgrading existing sewage treatment plant and establishing a new treatment plant to try to remediate some of the worst excesses of industrial pollution. However, the extent of the pollution is so widespread that capital works by themselves are insufficient to comprehensively remediate the current situation and will be insufficient to mitigate historic and future pollution. Instead, they should be regarded as a practical demonstration of the lessons learnt from the institutional strengthening that should provide a foundation for future controls. The capital


works are proposed to be located close to the industrialised areas that they will serve and to take advantage of the existing sewerage system. 43. These capital works of the treatment plants have been designed to treat the waste from areas with a particularly strong industrial sector. In doing so, they will also treat domestic sewage, it being impractical to separate industrial liquid waste from sewage. 44. Under the proposed projects, the capacity of Chokera Plant will be doubled. Thus 40mgd waste water at this plant will be treated. The project of treatment plant on the Madhuana drain involves the construction of new sewage treatment facilities to treat domestic and industrial sewage before discharge to Madhuana Drain. 45. Both these sub-projects would provide for construction facilities to treat heavily polluted waste water and used it for irrigation purpose and to put surplus treated water into Paharang and Madhuana drain An interconnection could be arranged with the existing Chokera Treatment Plant to optimize both treatment processes. 46. The industries which will be served through the treatment plant would be charged with fee. The levying of fee for industrial charges would allow an element of cross subsidy therefore increasing the sustainability of the system. 47. A number of options have also been considered for adopting the appropriate technology for the treatment plants. The selected technology and the conceptual design of the treatment plants is consistent with the locally applied and tested technology of oxidation ponds, however other treatment technologies may be required for individual pollutants depending on their presence. Other technologies are not only expensive but also WASA is incapacitated to implement those and so the options cannot be sustainable. The design will be capable of treating the principal industrial pollutants as cost effectively as possible.

48. After treatment, BOD and COD of the waste water are expected to be reduced to permissible limit i.e. 80mg/l and 150mg/l respectively. It is proposed that the water after treatment is sold to the farmers for irrigation purposes. The treatment plants would help reduce contamination of waste water that is disposed off to the river and is being used for irrigation purposes. The reduced contamination would also help in reducing the extent of pollution to the environment as well. Industrial Waste Cell (Project Number PIW1 004) 49. Institutional strengthening through establishment of industrial waste cell is required to improve a very confusing situation where a number of agencies share the responsibilities, but no agency is responsible for the quality of waste water being discharged. 50. It is proposed that the Industrial Waste Cell is established within the Strategic Policy Unit of CDGF comprising representatives of various responsible departments and agencies. The cell would help in improving accountability of the industries and would ensure the polluter pays principle. The sub-project is likely to put pressure upon the industrialists for treating the waste they are producing and to reduce the worst impacts of waste they are producing. The centre would develop and maintain a central database to be used for decision making. In the long run, the centre is also envisaged to develop mass awareness programmes with the help of the Centre of Environmental Management.


H. Urban Planning

51. The projects of industrial waste cell and enhancement of public awareness and training would help Faisalabad to be able to achieve its mission of “pre-empting poverty, promoting prosperity”. These will considerably improve and enhance living and working conditions in the City. 52. The projects of treatment plants will allow the City to expand its capacity to treat domestic and industrial wastes. Similarly, by treating industrial wastes, especially from the many small industrial units that are located within and in close proximity to residential areas, the safety and wellbeing of these areas will be enhanced. The project of hospital waste management would also help in improving conditions within hospitals and improving the situation of health hazards that it poses for the general public. 53. The projects are envisaged to have not huge resettlement component and the land is required only for the treatment plant of Madhuana drain which is mainly agriculture cultivated land. For the extension of Chokera treatment plant, land is already available. However, if resettlement would occur, the affectees will be compensated. 54. The proposed package of projects provides an essential input to that end, but to be properly effective, further measures (beyond the scope of this assignment) will be needed to both compliment the proposed projects and to extend their impact to the growing city. Integrated Industrial Waste Management Concept Plan 55. Whilst recognising the problem of industrial waste, there have been few concrete proposals for dealing with it. There is no clear, comprehensive national or local policy for the management of industrial waste although the Environmental Protection Act clearly indicates the government’s desire to control the adverse impacts of waste. 56. The sub-projects that have been selected and designed and included in this package adopt a comprehensive and integrated approach and are part of strategic industrial waste concept plan that has been developed as an integral part of overall strategy. The strategic concept plan for industrial waste has the following objectives:

56.1. To minimise the prosecution of waste 56.2. To encourage wherever practically possible the reuse, recovery or recycling

of all waste 56.3. To ensure the safe storage transport and disposal of all wastes 56.4. To ensure that any hazardous waste is segregated soon after generation and

collection, transportation, that it is treated and disposed of separately appropriate to its biochemical characteristics and separate from other wastes streams.

56.5. To minimise adverse environmental and climatic impacts. 56.6. To ensure that women and the weakest in society are not adversely affected.

57. The investment options included in this package comply with these objectives. However, these objectives of the overall strategic concept plan would be attained in the long run. Investments in this package would lead to the implementation of components of this concept plan in the long run. I. Economic and Financial Analysis of the Projects 58. Physical investments not accompanied by institutional, economic and financial reforms only feed the “vicious cycle” of inadequate service provision. In order that the proposed physical investments lead to improved service delivery, recommendations are


made for institutional, economic and financial reforms in order to create an enabling environment for efficient service provision, create accountability for service delivery, and ensure sustainability of the services provided. 59. The total capital cost of this Package is estimated at Pak. Rs. 6,244 million, or about US$58.7 million. Civil works are the largest component of this package, followed by land acquisition (for Madhuana sewage treatment plant only) and consulting services. The foreign exchange cost of the Package is estimated at Pak. Rs. 1,874 million (US$ 17.6 million) or about 30 percent of the total. Since this work is done at the pre-feasibility stage, without preliminary designs for most projects, physical contingencies are included at 15% which may be reduced as the project moves ahead through the various stages of design. Provision is also made for inflation and the cost of funding by International Financing Institutions (like the ADB, World Bank, KfW etc.). The summary of component wise capital cost estimates are shown in Figure ES-1. 60. The economic analysis revealed that all the projects generate benefits in excess of costs even when both are discounted to present value. The EIRR for the entire package is very good with a positive NPV and BCR. Sensitivity tests were done on each individual project and the aggregate of all projects, and these show that all the projects continue to have positive economic indicators even under assumptions of 20% cost overrun, 20% benefits shortfall and 20% cost overrun combined with 20% revenue shortfall. Figure ES-1: Summary of component wise capital cost estimates

Source: GHK Analysis

61. The Hospital Waste Management and Sewage Treatment projects have revenue earning potential. Following the “polluter pays” principle, and taking into account present legislation and funding practices, it is the view of the consultants that the hospitals and clinics to be served under the hospital waste management project should bear most of the cost of the service provided. The participating hospitals could fund, operate and maintain the facilities to be placed on their premises, and either fund, operate and maintain or pay for collection and disposal services. The full cost recovery tariff of Pak. Rs. 15 per person per day (US$0.14) generates an FIRR of 12.6%, whereas the low tariff of Pak. Rs. 10, per person per day (US$0.09) leads to an FIRR of only 1.00%. It is recommended that discussions be held with hospitals concerning the amounts they would be required to pay,


and if at all possible that the high tariff be adopted. If this were done, it would be possible to contract out all or most of the service to the private sector. 62. Although Faisalabad has in the past made very substantial investments in its sewerage systems, there is at present only one functioning sewage treatment plant, at Chokera, with a capacity of 20mgd. Under the industrial waste management program recommended by this package, it is proposed that STP capacity be enhanced by 75mgd through the construction of two STPs i.e. (i) an extension of the existing Chokera STP and (ii) a new plant at Madhuana. Appropriate technologies have been identified for these, and it is suggested that the Chokera and Madhuana treatment plants follow the technology of the present Chokera plant. 63. Because they essentially form a long term capital investment plan, a financial analysis was done for the two treatment plants of this Package together, as well as for each plant individually. The capital costs were taken as the sum of the costs of the two plants, and operations costs were estimated as Pak. Rs. 2 (US$0.018) per cubic meter and maintenance costs were estimated as 2% of the cost of physical works including consulting services. High, medium and low effective tariff levels were examined to determine the extent to which they would enable cost recovery, and to assess their affordability. Under the high tariff, the effective tariff rate would be increased from about Pak. Rs. 2.68 (US$0.025) per cubic meter at present to Pak. Rs. 16 (US$ 0.15) per cubic meter by 2022. While this is a very substantial increase, the first part of it can be made through more effective collections. The high tariff option, with WACC of 4.39% an FIRR of 4.79%, provides full recovery of funding costs. The moderate tariff option, with an FIRR of 3.86%, would suggest that funding be provided as a soft loan while the low tariff option would require at least part grant financing. 64. Although the high and moderate tariffs would help industries avoid the costs of onsite treatment, and not exceed financial cost levels, they would nevertheless almost surely be resisted by consumers. To avoid such resistance, early action would be necessary to (i) raise awareness of the need for the tariff increases, (ii) enforce regulations already on the books which are intended to control sewage discharges; and (iii) levy penalties on industries which fail to comply. 65. As the first part of the long term sewage treatment program, and because it builds upon an existing facility, without the need for new land acquisition, the extension of the Chokera Sewage Treatment Plant offers the possibility of excellent financial performance. In the event the high tariff described above is adopted, the FIRR of the Chokera STP would be a very high 31.15% while even the low tariff yields a moderate FIRR of 14.16%. 66. The above financial performance is based on 2012 prices and if the same is carried out based on current prices then with a tariff of Pak. Rs. 16 per cubic meter with the weighted average cost of capital (WACC) of 1.98 % the FIRR is 38.89% and with a reduced tariff of Pak. Rs. 12 per cubic meter, the FIRR is almost 25.82%. If the tariff is reduced still further, to Pak. Rs.8 per cubic meter, an FIRR of 20.84% is generated, sufficient to recover capital and operating costs. 67. The Sewage Treatment Plant near Madhuana drain would, at 55mgd capacity, be substantially large than Chokera STP, and operate at about the same cost levels. However, it would be necessary to acquire land for the plant, which reduces the FIRR. The FIRR for the Madhuana STP with the WACC of 4.82% ranges from 6.6% for the high tariff option to 0.08% for the low tariff option.


68. Similarly the above financial performance is based on 2012 prices and if the same is carried out based on current prices then with a tariff of Pak. Rs. 16 per cubic meter with the weighted average cost of capital (WACC) of 4.82 % the FIRR is 11.25% and with a reduced tariff of Pak. Rs. 12 per cubic meter, the FIRR is almost 7.93%. If the tariff is reduced still further, to Pak. Rs. 8 per cubic meter, an FIRR of 4.75% is generated, sufficient to recover capital and operating costs. 69. Both treatment plants Chokera treatment plant and treatment plant near Madhuana drain would in theory be possible subjects for a PPP initiative. However, because the projects involve only improvement of the STPs, steps would have to be taken to either divest collection facilities to a private operator or collect revenues on behalf of a private operator. Neither course of action appears likely at this point. 70. The Projects of Strengthening of Hospital Waste Management and Industrial Waste Cell, could if undertaken by CDGF impose additional operating costs upon the local government. However, the costs of hospital waste management services should be more or less fully recovered through user charges and, if it is possible for the services to be provided by a private contractor, the city would be protected from cost impacts. If the city were to charge a fee for final disposal, it could perhaps break even on the project. In the case of the industrial waste cell, there might be a modest financial burden for the local government as one of the three key supporters of the cell. None of the other projects should impose a burden on the local government. 71. The Chokera treatment plant and treatment plant near Madhuana drain would impose a substantial burden on the WASA, which would in all likelihood be forced to pay both the costs of O&M and the costs of debt service. If one or both of them were implemented by a private contractor, that burden could be removed from WASA. However, a very substantial effort would have to be made by WASA to improve its financial operations as necessary to attract a private investor. 72. Under a Public Sector Financing Option, the project would be financed primarily by the International Financing Institutions (like the ADB, World Bank, KfW etc.) (Pak. Rs. 3,573million, or $33.6 million) and the Provincial Government of Punjab (Pak. Rs. 2,537 million, or US$23.8 million) with WASA also contributing a small amount. The financing plan and the proposed Sponsors’ contribution under public sector option are explained in Figure ES-2. 73. The funding percentage by International Financing Institutions (like the ADB, World Bank, KfW etc.), at 53%, is likely to be below their “standard” financing level for Pakistan (normally at 80 percent) for two principal reasons: first, the project contains a very substantial land purchase component, principally for the combined treatment plant near Madhuana Drain STP; and second, even where land is not a cost item, International Financing Institutions (like the ADB, World Bank, KfW etc.) encourage local funding wherever possible. These both factors result in the funding proportion from International Financing Institutions (like the ADB, World Bank, KfW etc.) at 53%. Under this scenario, it is likely that a gap of about Pak Rs. 1,331 million (US$12.50 million) would exist, at both the provincial and the local level. 74. If the private sector picks up the investment in hospital waste project and the two STPs, the gap can be reduced to zero. However, it is noted that the land cost for combined treatment plant near Madhuana drain, which amounts to Pak. Rs. 2,333.1 million (US$21.9 million), will probably not funded by the International Financing Institutions (like the ADB, World Bank, KfW etc.) and also the cost might not be picked up by the private sector. Since the size of the total loan will now be less from International Financing Institutions (like the


ADB, World Bank, KfW etc.), much more of the total resources will need to be raised from domestic sources as highlighted in Figure ES-3. Figure ES-2: Proposed Sponsors’ Contribution under Public Sector Financing Option


75. The proposed industrial waste management package has a strong justification in terms of laying the basis for the environmental cleanup of the city. However, the treatment plants in particular can only be made economically and financially feasible if regulation of discharges is improved and the “polluter pays” principle adopted through, among others, more effective collection of sewage charges and, in the mid-term future, an increase in the sewage tariff. If such steps are taken, the city may be able to find funding from the two projects. J. Sources of Financing 76. In this Infrastructure Investment Proposal, a variety of cost recovery mechanisms are described, which include charging fees for hospital waste management, increasing sewerage revenues by improving collections and changing industrial waste management charges based upon quality as well as quantity. A number of potential sources of financing are identified, including own source revenues, grants and loans from higher levels of government, international grants and loans, private loans and private and community equity. 77. CDGF could have a role in financing several components, including the industrial waste management cell and the hospital waste management project. CDGF has recently put in place a new financial management system, which would form a strong basis for moving forward. In the event, that CDGF is able in the future to generate a stronger financial position, it could possibly fund at least part of these two projects. 78. WASA should have a stronger role in financing, particularly the two treatment plants projects. At present, WASA is unable to generate a financial surplus, and therefore should not be counted on for this purpose. If, however, it were to improve its revenue collections, and adopt a pricing policy designed to cover a greater portion of costs, it could put itself in a position either to fund these projects or to facilitate public-private partnerships. The National Textile University can be engaged for the enhancement of public awareness and training, and could partially recover costs through tuition fees.


Figure ES-3: Financing Option under Private Sector


79. A variety of opportunities exist for private sector investment in the industrial waste management sector, which can well benefit from both their expertise and their funds. These include in hospital waste management, in the operations of the public awareness unit, and, possibly, in the operations of the industrial waste management facilities. In approaching these, it is important to keep in mind that private investors will expect (i) an assured source of “inputs”- hospital wastes and industrial sewage - which they will be paid to collect and treat; (ii) to be able to charge for their services, be paid these reliably, and enforce service delivery contracts where payments are slow; and (iii) operate in a clearly defined and supportive institutional framework. 80. It is, therefore, proposed that PPP options which include Build Own and Operate (BOO), Built, Operate, Transfer (BOT) or afterimage and, possibly, joint venture arrangements, be considered particularly in the case of the Chokera Sewage Treatment Plant, Combined Sewage Treatment Plant near Madhuana and hospital waste management projects. The undiscounted cumulative net cost recovery options of revenue generated projects of this package are explained in Figure ES-4. 81. The development of effective industrial waste management will depend upon the awareness of both the general public and specific user groups - industrialists, farmers, communities seriously affected by pollution - of the benefits of improved industrial waste management. 82. For this reason, community involvement and participation must be cultivated, and developed during the course of the Project. Turning from the broad community, there would be the possibility of developing an industrial community group, who could become advocates and even potential investors in the various proposed industrial waste management projects. The linking of user interest and investor interest has strong potential that should be explored during further project discussions.


Figure ES-4: Undiscounted Cumulative Net Recovery Options of Revenue Generated Projects


83. There exist several sources of funds, which could be tapped for the Project, including private sector funds and special purpose funds of the Government which focus on environmental management. In order for substantial funding to materialize, however, it will be necessary to carry out substantial institutional strengthening in both WASA and CDGF. K. Package Benefits 84. SWOT and PLEST analysis of the sub-projects has been undertaken in close coordination of the WASA and Environment department to assess the suitability of these projects to the local conditions. The analysis has indicated that the projects are best suited to the local conditions of Faisalabad. It is apparent from the analysis that institutions have insufficient operational and maintenance capacity and require strengthening to implement the identified projects. Political interference would also need to be limited if the full benefits of the projects are to be derived. But the disregard of legal requirements by both individuals and organisations might affect implementation of all sub-projects. Only the sub-projects of hospital waste and treatment plants can have a prospective of private involvement in the long term. The subprojects of public awareness and training are considered of substantial importance for the successful implementation of the Package without which it is considered that the capital works will be unsustainable and unsuccessful. 85. All sub-projects are envisaged to contribute positively to the poverty reduction. It is likely that these will provide less polluted water to the downstream users for irrigation and the citizens would have access to the clean vegetables. It is estimated that Chokera treatment plant, would provide treatment to 28% of the city area which has 1.1 million population. Estimated number of people who are expected to use water for irrigation are 0.2 million in the downstream. The treatment facility to be established near the Madhuana drain will treat waste water of 35 percent of the city area which has a population of 1.2 million. 0.15 to 0.2 million populations in the downstream is estimated to get benefit from the use of treated water for irrigation purposes.


86. These numbers have been estimated based on the available data, however, exact number of beneficiaries would be known at the feasibility stage. L. Due Diligence Analysis

87. Due diligence of the sub-projects included in this package has been undertaken from a social development perspective. The objective of the due diligence analysis was to assess the impacts of these projects upon the citizens especially the poor. The analysis has been undertaken through desk study, field visits and through consultations with different stakeholders and ultimate beneficiaries of the projects i.e. citizens. 88. For undertaking stakeholder consultations, primary and secondary stakeholders of the subprojects have been identified and Stakeholder Analysis was developed. Based upon the stakeholder analysis, consultations were undertaken with various groups both male and females to identity their needs, issues and priorities and to gauge their perceptions against each sub-project. Consideration has been given to consult the poorest living in katchi abadis and slums. NGOs and student groups have been reached. 89. Findings of these consultations show a large number of issues the citizens are facing from the untreated liquid waste. The situation on ground depicts lack of planning for properly managing the waste produced from a large number of industries in the city. Disposal of untreated waste has badly affected the health and environment of the City. Ground water and public water supply has been polluted as the sewage water is mixing with this water. Through the use of this water, there is a very rapid increase in the patients of Hepatitis, and diseases of lungs. The villages around drains of waste water have lost the opportunity to use ground water for irrigation purposes. The water has been polluted to the point where if it is used for irrigation makes the land barren. The poor are more prone to these issues. Clean environment and safe drinking water and water for irrigation were the highest priorities for the people. They also demanded the removal of drains from their areas. 90. The analysis of the sub-projects included in this package shows that these projects would help in addressing some of the issues raised by the citizens. All projects will have positive impacts upon the wellbeing and lives of the citizens. The projects will improve the availability of treated water for irrigation. The disposal of treated water into drains would also result in less pollution for those residing around those. These factors would ultimately help in reducing poverty. The projects do not have major negative impacts socially. M. Project Institutional and Implementation Arrangements

91. As described earlier, the current institutional framework for the control and regulation of industrial waste in Faisalabad shifts responsibility to a number of agencies. The roles and responsibilities are not clearly defined. These overleaping and sometime conflicting functions create confusion and result in poor service delivery. There is no coordination between involved departments and no one is taking full responsibility of proper industrial waste disposal and treatment. To address these issues, an improved institutional structure is required to fulfil the basic organizational requirements for good waste management. It can be done through recognition of major functions, assigning clear responsibility for each function, establishing clear coordination mechanism, providing adequate human and financial resources. The short term solution to address this issue is to establish an independent industrial waste cell outside of WASA and the Irrigation department. The objective of this cell will be to coordinate the existing regulatory and enforcement powers to establish a coordinated strategy by combining existing databases for increasing regulation monitoring and enforcement, decreasing pollution and increasing fees gathering efficiency. The cell would work to bring efficiency, openness, accountability and responsiveness i.e. all


pillars of governance, in the operations of waste management. It is envisaged, that it will bring improvement in the service delivery related to waste management in the long run. 92. The long term and permanent solution is establishing Waste Management Department under District Government. This will require restructuring of current setup of Municipal Services Department and creation of Waste Management Department that will be more flexible and can respond more readily and efficiently to the consumer and service demands. 93. However, to avoid unnecessary delay and successful start of proposed sub-projects it is recommended that initially existing agencies start implementing these sub-projects. For that purpose sub-projects have been prioritized in order so that the first 2-3 years contain projects that are relatively simple to commence by existing institutions and do not require restructuring of current institutional setup or creation of new department for implementation or operation. N. Risks 94. Other than the envisaged benefits from the report, these also carry some risks that can limit the chances of success of these projects. A number of assumptions have been made for successful implementation of these sub-projects. For all sub-projects, there is a need for various facilitation measures to enable the effective enforcement, effective levying and collection of fees and effective monitoring and resultant action. It is assumed that a detailed feasibility study will be undertaken before implementation. It has also been assumed that the funding from International Financing Institutions is made available. 95. The projects require a strong buy-in and commitment from all the political, senior personnel and operational staff of all organisations to achieve the successes outlined in these subprojects. The departments also need institutional capacity, resources and skills to carry on the projects without which, these cannot achieve their full potential. Unwillingness to respond to result of monitoring and resistance from stakeholders are also important risks including the resistance of industrialist to install their own factory based treatment and to the enforcement of regulations. It is envisaged that the projects would help in reducing the environmental issues through improving the provision of treatment facilities for sewage water, thus would contribute to the poverty reduction. O. Continuation of Technical Assistance from CDIA 96. Between the end of the pre-feasibility study and start of the feasibility study, it is important that technical assistance is provided to the CDGF to assist it in the dialogue with the Federal and Provincial Governments, other key departments and the private sector (national and international). 97. This request was officially made by Mr. Rana Sanaullah (Minister: Law, Parliamentary Affairs & Public Prosecution) and Mr. Rana Afzal (Member Provincial Assembly) at the ADB CDIA workshop in Faisalabad on 3rd March, 2010. The request was also made by the DCO Faisalabad Mr. Saeed Iqbal Wahlah, at the Steering Committee meeting held on 5th March, 2010 in the presence of ADB CDIA officials. If further information is required in this regard, CDIA can contact CDGF. P. Report Structure 98. The report has been structured and colour coded in such a way that the executive summary draws information from the main document and the main document refers to a


number of annexes included in the report. The annexes contain, mainly, data collected from physical surveys undertaken over the last 4 months. The Annexes also make reference to previously developed reports like the Inception Report and the Interim Report. 99. Details of sub-projects included in this package, their technical description, their economic and financial analysis are also described and an early attempt has also been made to identify the impacts of these sub-projects upon the citizens of Faisalabad.

100. It is assumed that a greater in-depth analysis and viability of the sub-projects will be undertaken at the Feasibility Stage. 101. During the development of the Pr-feasibility study, work was undertaken in close coordination with the offices of the City District Government, Faisalabad Development Authority (FDA) and Water and Sanitation Authority (WASA). Meetings have also taken place at the Provincial level with Secretary Irrigation and Power, Secretary Finance, Secretary Environment Protection, Punjab Urban Unit in Lahore, and Environment and Protection Agency (EPA) Punjab. Representation of the Private Sector and non-government organization were also consulted. During this period steering committee meeting and regular working group meetings were also conducted. Brief notes on the meetings are in Annex A1-2 of the midterm report. The contents of this report have been discusses and agreed with all relevant agencies and departments of the CDGF.

Pre-Feasibility Study Environmental Management through Waste Water Treatment – Package 2

May 2010 Executive Summary prepared by GHK Consulting Limited


A. District Vision and Mission . 1. The City District Government of Faisalabad (CDGF) has a Vision and Mission Statement and is striving hard to achieve these. The Vision of the District is: “Pre-empting Poverty, Promoting Prosperity” Its Mission Statement is: “We will provide high quality services which compare with the best in the country. We will work with everyone who wants a better future for our District. We will establish an efficient, effective and accountable District Local Government, which is committed to respecting and upholding women, men and children’s basic human rights, responsive towards people’s needs, committed to poverty reduction and capable of meeting the challenges of the 21st Century. Our actions will be driven by the concerns of local people”. 2. The District Government has been taking steps to underpin its vision and mission and a healthy environment plays a central role in reducing the impacts of poverty upon the citizens. The sub-projects that have been identified as part of this pre-feasibility study are in line with the District’s Vision and would support towards poverty reduction through addressing the issues of some of the worst excesses of industrial waste in the City. B. Background and Introduction of this Assignment

3. Upon the request from the City District Government Faisalabad, Cities Development Initiative for Asia (CDIA) has been engaging the CDGF since July 2008 about how it may support its urban development strategy. CDIA agreed to provide technical assistance to the CDGF on projects in integrated urban environmental infrastructure covering urban transport and industrial waste management. CDIA agreed to provide technical assistance to the CDGF on developing a Pre-Feasibility Study (PFS). The objectives of this PFS are:

3.1. To prepare coordinated PFS for infrastructure investment projects in the areas of urban transport and industrial waste management for the city of Faisalabad;

3.2. To pursue potential infrastructure financing through domestic, international or private sector lending institutions for investment projects; and

3.3. Examine potential for overall impact on improving the urban environment as well as contributing to poverty reduction

4. Project steering and working committees were established and notified by the Local Government and Community Development Department, Government of the Punjab and the District Coordination Officer (DCO) respectively. 5. This package presents details of the PFS for one package of Industrial Waste Component. An Inception Report that includes evidence based situation analysis was developed and submitted in July 2009. The Inception Report summarised preliminary findings from initial data gathering, research and the meetings held with district administration and line agencies. Also in the Inception Report is included an assessment of a variety of existing reports. An updated version of the table has also been included as Annex ES1-1 within this report. An Interim Report was also developed and submitted in October 2009 that was primarily focussing on various data gathering exercises giving some indication of the projects to be identified. It is strongly recommended that both these reports are read to ensure that this investment report can be contextualised correctly. This is the final output of this PFS and is the complete Infrastructure Investment Proposal (IIP) that identifies five sub-projects to be implemented for proper industrial waste management in the City.


C. Introduction of Faisalabad and Expansion of Industries in Faisalabad 6. Faisalabad was founded in 1890s as a market centre for the newly irrigated lands that surround it. It is the third largest City of Pakistan. The City is second largest in the province with fast growing population. The population Census 1998 recorded its population as 2.01 million with growth rate at 3.58%. Its population is expected to touch 3.0 million in 2015 and will be doubled by 2030. 7. Faisalabad City has made rapid strides in the field of industry after independence. It is called the "Manchester of Pakistan" for its extensive development of textile industry. Faisalabad plays a very important role in the economy of the country. Its growth has been driven by the development of the city’s textile industry, which is second only to that in Karachi within Pakistan and in many ways defines the town. Major portion of the total exports of Pakistan emanates from Faisalabad. 8. The contribution of Faisalabad towards GDP had been estimated in a study carried out by the firm, Pricewaterhousecoopers in 2007, at US$10 billion (Pak. Rs.810 billion) which is 17.4% of national GDP. The GDP of the City is expected to grow at a fast rate of 6.0% per annum and by 2020 it is expected to be more than double. Before independence, there were only five industrial units in Faisalabad City. Now, there are 1,057 large industrial units out of which 416 are Textile units. A number of data gathering exercises carried out indicate that the majority of the industry is relating directly to textile production or its service industries which form the backbone of the industrial economy of Faisalabad. Other industries include hosiery, readymade garments, power looms, oil mills, flour mills, sugar mills, engineering units, pharmaceuticals, chemical, soap, etc. 9. Evidence indicates that industry is scattered throughout Faisalabad reflecting its historic development without clear planning policies for the City. The industries closest to the City centre are mixed with domestic housing and commercial activity whilst more recently, industry has congregated some distance from the centre as is being augmented by purpose built estates. D. Existing Situation of Industrial Waste in Faisalabad 10. In Faisalabad, the industrial sector produces very little solid industrial waste, the majority of which is reused or recycled. However, it produces a considerable quantity of liquid effluent which is discharged to the drains and then to the river untreated. 11. The liquid waste produced by the industries is carried by the domestic sewage system and drains operated by WASA in its operational area and by the drains operated by the provincial Irrigation Department. There is virtually no treatment of the effluent; the few treatment plants installed by the factories rarely work because of financial or technical constraints. There is only one sewage treatment plant in the northern part of Faisalabad designed for the treatment of domestic sewage but it treats both domestic and industrial sewage. It treats less than 10% of the combined industrial and domestic sewage of the City. Resultantly the vast majority of industrial effluent is discharged "raw" without any treatment into two main drains that are Paharang drain to the North West and Madhuana drain to the South-East. Paharang drain eventually discharges to the Chenab River and Madhuana Drain to the Ravi River. Both drains come under the control of the Irrigation Department. 12. The receiving drains are severely depleted of oxygen, devoid of aquatic life and heavily polluted with a range of pollutants including heavy metals. Analysis of the available data and surveys undertaken as part of this pre-feasibility study show that in both drains,


samples of waste water exceed the permissible levels set in National Environmental Quality Standard (NEQS). 13. Without intervention, the existing industrial waste management situation in Faisalabad is likely to deteriorate especially with the introduction of additional and more diversified industries. 14. The regulatory environment does not encourage resolution of the problems because at least two authorities Water and Sanitation Agency and the Provincial Irrigation Department appear to share responsibilities over differing geographic areas. The Municipal Services Department of the CDGF and its sub-department i.e. Environment Department also share some responsibilities. That is also linked with the provincial Environment Protection Agency (EPA). The regularity framework is such as to, at best, not encourage in-factory treatment and the few attempts of enforcement are often thwarted. None of the departments seems to take responsibility for the quality of waste disposed to the drains. Proper records for the quality and quantity of industrial effluent are not maintained by any of the departments and agencies. 15. Industrial waste has resulted in a large number of social, environmental and health related issues for the citizens of Faisalabad. There is evidence to indicate that pollutants have entered the ground water and are entering the public water supply either through the public pipe work or directly through private tube wells. For a range of samples, there is a significant concentration of faecal coliforms that also indicated the leakage of WASA system and drains. The quality of ground water was less polluted near the canal. This waste water is used downstream for irrigation and for fish farming. Bio-accumulation of certain contaminants has been identified in certain crops and in fish. 16. The water is widely regarded as unfit and those that can afford buy bottled water, boil it themselves or buy privately supplied filtered water. Such options are only available to those that can afford it; the remainder have to use what water they can find /purchase and suffer from the resulting ill health. Inevitably, it is the poor who are the most affected by ill health having little economic resilience to the resulting loss in wages. People living near the drains are of particularly adversely impacted because they have neither water for drinking nor for irrigation. 17. The field investigation has revealed that the consumers are willing to pay for the clean drinking and for irrigation purposes, the demand for waste management services is very different. Both households and industries would like to have wastes conveyed away from their houses/factories, but the willingness to pay for this service, is much lower than for water supply. 18. The situation has deteriorated to the point that capital works alone are insufficient to rectify this fully within the physical and financial limitations. However, the sub-projects identified and included in this package would help in addressing some of the worst excesses industrial waste. There is also a need for a general consensus from all levels and sectors of society that industry should take responsibility for its waste and not take advantage of an apparently “free” service which is actually at the cost to the residents of Faisalabad and to the environment. The "polluter pays" principle should be widely promoted throughout Faisalabad society. 19. There is potential for improving the situation through a range of capital projects, given the right regulatory framework, appropriate legislative support, institutional development and income to potentially cover operational costs.


E. Package Brief 20. To address the above mentioned issues, projects have been proposed through a comprehensive approach to the industrial waste management in Faisalabad. The projects have been identified through detailed assessment of the existing situation, review of other exiting reports and consultations with departmental officials. These projects have been discussed with the CDGF. 21. The various options / projects were assessed using the following ADB criteria:

21.1. Necessity 21.2. Public Desirability 21.3. Environmental Impact 21.4. Socio-Economic Impacts 21.5. Risk 21.6. Feasibility

22. This package consists of two sub-projects which are aimed primarily at reducing the impacts of the inappropriate disposal of liquid industrial waste on receiving drains in Faisalabad. Subprojects have been identified after detailed analysis of the existing situation to address the most important prevailing issues related to industrial waste. The options that have been identified are pro-poor and have positive impacts upon the poor especially. The investment options of this package will improve waste water quality to possibly reduce impacts on people’s life and natural environment by:

22.1. Construction of Treatment Plant for Maqbool Road and Summundari Road in southern part of the Faisalabad and

22.2. Construction of Aeration Weirs on both waste water drains 23. The sub-projects are envisaged to impact positively on the existing situation of the uncontrolled industrial waste in Faisalabad. Details of the projects are as under:

24. This package of two sub-projects is pro-poor and it is envisaged that the outcomes from these projects would bring improvement in the issues from which the poor are disproportionately disturbed from. F. Technical Description and Aspects 25. The sub-projects that have been identified are directly linked to the results of the surveys and data gathering assignment carried out as part of the pre-feasibility study, review of already developed reports by different organisations and discussions with the CDGF. A brief technical description of the sub-projects of this package is given below: Aeration Weirs 26. This sub project involves the construction of Aeration weirs with rough spillways in both Paharang and Madhuana Drains with canalised upstream section. These drains are under the jurisdiction of Irrigation department. This will increase aeration and reduce deoxygenating of the waste water for downstream users. A number of options were


assessed for increasing the oxidation of drains. The option that has been adopted is most cost effective that would enable the progressive treatment along the drain using mechanical treatment with a low maintenance and nil energy requirements. The project does not involve land acquisition. Treatment Plant for Maqbool Road and Summundari Road 27. A number of options have been assessed to treat the industrial effluent. It has been concluded that sewage treatment facilities should be improved through levying fees on the industries. The levying of fees for industrial charges would allow an element of cross subsidy therefore increasing the sustainability of the system. The project of establishing new treatment plant has been included in this package to try to remediate some of the worst excesses of industrial pollution. 28. The treatment plant would be constructed near WASA pumping station 31 at Maqbool road to treat sewage before discharge into Madhuana Drain. This would involve construction of new treatment facilities to treat industrial sewage from pumping stations PS 31to avoid untreated discharge to sludge drain to Satiana Road. This will isolate the industrial area by connecting through realignment of the future based proposed sewer. This arrangement will segregate the domestic sewage by diverting to the Pumping Station 31. The objective is to segregate industrial waste water from domestic sewage and improve the quality of the industrial waste water before discharge. The sub-project would be implemented by WASA, either through its own actions or through a DBO contractor. Given that there is revenue potential, it has been proposed that the industrial waste treatment plant could be funded and operated by a private operator. This, however, means that either the operator would have to be given the right to collect fees from upstream users, both industrial and domestic, which seems unlikely, or he would have to be paid by WASA. The financial operations of WASA would have to be taken to a considerably higher level, however, for the latter to occur. 29. A number of options have been assessed for treatment of industrial waste. However, the conceptual design of the treatment plant is consistent with the locally applied and tested technology of oxidation ponds. Other technologies are not only expensive but also WASA is incapacitated to implement that technology and so the options cannot be sustainable.The design will be capable of treating the principal industrial pollutants as cost effectively as possible. Oxidation ponds have been identified as the selected treatment option however other treatment technologies may be required for individual pollutants depending on their presence. G. Urban Planning 30. The project of treatment plant would affect the environment and perception of the surrounding areas. If these locations are not selected carefully, and the treatment and disposal of waste at the site is not handled effectively, it could become environmental hazard. 31. The suggested location of the project is in line with the current land use policies of the city. Furthermore, due attention will be paid to the planning and layout details of the facilities, ensuring that any adverse impact on those living or working in and around the facility are incorporated and, where necessary compensated. The project of aeration weirs does not require land. ES.7.1 Integrated Industrial Waste Management Concept Plan


32. Whilst recognising the problem of industrial waste, there have been few concrete proposals for dealing with it. There is no clear, comprehensive national or local policy for the management of industrial waste although the Environmental Protection Act clearly indicates the government’s desire to control the adverse impacts of waste. 33. The sub-projects that have been selected and designed and included in this package adopt a comprehensive and integrated approach and are part of strategic industrial waste concept plan that has been developed as an integral part of overall strategy. The strategic concept plan for industrial waste has the following objectives:

33.1. To minimise the prosecution of waste 33.2. To encourage wherever practically possible the reuse, recovery or recycling

of all waste 33.3. To ensure the safe storage transport and disposal of all wastes 33.4. To ensure that any hazardous waste is segregated soon after generation and

collection, transportation, that it is treated and disposed of separately appropriate to its biochemical characteristics and separate from other wastes streams.

33.5. To minimise adverse environmental and climatic impacts. 33.6. To ensure that women and the weakest in society are not adversely affected.

34. The investment options included in this package comply with these objectives. However, these objectives of the overall strategic concept plan would be attained in the long run. Investments in this package would lead to the implementation of components of this concept plan in the long run. H. Economic and Financial Analysis

35. A sustained and comprehensive effort is proposed to improve industrial wastewater planning, regulation of polluters, and industrial wastewater treatment. Under Package 2, industrial waste treatment and disposal would be further improved, through two projects:

35.1. Construction of Aeration Weirs on Paharang and Madhuana Drains; and 35.2. Construction of a new treatment plant for Maqbool and Sanmundri Road

areas. 36. Investing in physical infrastructure will not bring about the desired service improvements. Physical investments not accompanied by institutional, economic and financial reforms only feed the “vicious cycle” of inadequate service provision. In order that the proposed physical investments lead to improved service delivery, recommendations are made for institutional, economic and financial reforms in order to create an enabling environment for efficient service provision, create accountability for service delivery, and ensure sustainability of the services provided. 37. The total cost of this Package is estimated at Pak. Rs. 8,857.3 million, or about US$ 83.25 million. The Treatment plant for Maqbool Road and Summundari Road accounts for virtually all the cost of the package. Civil works are the largest cost item, followed by land, consulting services and interest and other charges on the loan by International Financing Institutions (like the ADB, World Bank, KfW etc.). The foreign exchange cost of the Package is estimated at Pak. Rs. 2,432.4 million (US$ 22.86 million), or about 27 percent of the total. Since this work is done at the pre-feasibility stage, without preliminary designs for most projects, physical contingencies are included at 15% which may be reduced as the project moves ahead through the various stages of design. Provision is also made for inflation and the capitalized cost of funding by International Financing Institutions (like the ADB, World Bank, KfW etc.). The project and head of expenditure wise costing of the total capital cost estimates of Industrial waste Package 2 is explained in Figure ES-1.


Figure ES-1: Summary of the Capital Cost Estimates of Industrial Waste Package 2

38. Pak. Rs. 355 million, or about US$ 3.1 million. The sewage treatment plant, using a very low cost technology, is expected to generate only modest operating costs. Nevertheless, the cost of operating a sewerage and sewage treatment system are substantial, and will impose a considerable burden on the agency responsible, as described in Figure ES-2 and Section 4. Figure ES-2: Operating Costs of Project Groups

39. Aeration Weirs are proposed to be constructed on the seriously polluted Paharang Drain and Madhuana Drain, upstream of the proposed STPs. These weirs, which create turbulence in the water and thereby support oxygenation, are expected to convert the drains into elongated waste treatment ponds, thus greatly reducing the health risks to downstream users. The benefits of these weirs are expected to include a reduced health bill for nearby downstream urban and rural residents coming into contact with the water, a savings in work days lost due to illness, and an individually smaller but in aggregate significant savings in


both these variables for persons more distant. Although the Aeration Weirs would each create a small benefit as compared to the STPs, their costs are very low. It is estimated that they would yield an EIRR of 53.5%. The economic justification for these is therefore very high and they should be investigated further. 40. The proposed Treatment Plant for Maqbool Road and Summundari Road will, by creating sewage collection and treatment plant capacity (20 million gallons per day after the project) at a location where industries are concentrated and additional treatment capacity is badly needed, create benefits in the form of costs avoided by industries who would without the project have to install onsite waste treatment systems, reduced health bills, reduced loss of work days, and improved quality of canal water. Of these, the reduced costs to industry account for about 85%. Although this STP will due to its location have a higher capital and operating cost, it can be expected to generate an EIRR of almost 15% and therefore promises to be economically feasible. 41. High, medium and low effective tariff levels were examined to determine the extent to which they would enable cost recovery, and to assess their affordability. Regardless of the tariff levels proposed, a very strong effort would be needed on part of WASA to improve collection efficiency and eliminate unauthorized connections. As these efforts proceed, the tariff would need to be raised, with the following being possible scenarios over time: 42. High Tariff: very rapid increases in effective rates through 2022, by which time the effective tariff would be Pak. Rs. 30 (US$0.28) per cubic meter in 2031; 43. Moderate Tariff: rapid increases in effective rates, until they reach Pak. Rs. 24(US$ 0.23) per cubic meter by 2031; 44. Low Tariff: substantial increases in effective rates, which would reach Pak. Rs. 20 (US$ 0.19) per cubic meter (6 times the present rates) by 2031. 45. The AIFC for the program proposed, which excludes the cost of land for the Treatment Plant for Maqbool Road and Summundari Road and some of the capital costs of collection, is Pak. Rs. 24 (US$ 0.22) per cubic meter of wastes collected and treated, The low tariff will be sufficient to generate an FIRR of 0-5.5%, and therefore to provide for recovery of replacement costs. The high tariff option, with FIRR of 5.0%-10.6% provides full recovery of funding costs, and so is a viable candidate for private sector funding. The moderate tariff option, with an FIRR of 2.7-8% may be viable in the event funding is provided as a soft loan. The WACC in current prices is 7.45%. 46. Although the high and moderate tariffs would help industries avoid the costs of onsite treatment, and not exceed financial cost levels, they would nevertheless almost surely be resisted by consumers. To avoid such resistance, early action would be necessary to (i) raise awareness of the need for the tariff increases, (ii) enforce regulations already on the books which are intended to control sewage discharges; and (iii) levy penalties on industries which fail to comply. 47. Project 1, Aeration Weirs, is a very low cost project which would be undertaken by the Department of Irrigation and Power, and therefore has no operational cost implications for the local government. Project 2, treatment plant for Maqbool Road and Summundari Road, is a substantial project which however would be undertaken by either WASA or a private contractor. It therefore has no operational cost implications for the local government. 48. Project of treatment plant for Maqbool Road and Summundari Road, could be undertaken either by WASA or by a private contractor. If it were undertaken by WASA, the


operational cost burden would be substantial. A very substantial institutional development program would be necessary to be undertaken by WASA if it were to operate and maintain this STP. If this responsibility were to delegated to a private investor the exposure of WASA would be substantially reduced. However, arrangements would have to be made for either the private investor to collect tariffs directly, or WASA to collect tariffs and pay the private investor. In either case, means would have to be identified to obtain payments from non-payers. 49. Two options were developed for project funding. Under the first, the Public Sector Option, the project, with a total cost of Pak. Rs. 8,857.3 million, or about US$ 83.25 million, would be financed primarily by International Financing Institutions (like the ADB, World Bank, KfW etc.) and the Provincial Government of Punjab. The funding percentage by International Financing Institutions, at 55.4%, is likely to be below their “standard” financing level (normally at 80 percent) for reason that the land cost is substantial in this project. A gap of about Pak. Rs. 2,000 million (US$ 18.77 million) has been identified at this stage, for the same reason. 50. In the event that private sector funding is mobilized for the treatment plant for Maqbool Road and Summundari Road, the funding from International Financing Institutions (like the ADB, World Bank, KfW etc.) would drop to almost nil. It is, of course, unlikely that they would provide funding for such a small (in the context of its program for Pakistan) project. In this case, if private sector financing is mobilized for both land and works, there would be no gap. If, however, land acquisition is required to be done by either WASA or the Provincial Government, it is likely that the gap of about Pak. Rs. 2,000 million (US$ 18.77 million) would continue. I. Sources of Financing 51. The proposed industrial waste management package has a strong justification in terms of the environmental cleanup of the city, surrounding and downstream areas. However, the STP in particular can only be made economically and financially feasible if regulation of discharges is improved, the “polluter pays” principle adopted through, among others, an increase in the sewage charge, and the ability to collect sewage charges improved. If such steps are taken, the city may be able to find funding from the two projects. If not, the STP project should be temporarily put on hold and only the aerated weir project processed at this time. 52. The Provincial Government of Punjab provides the bulk of the funding of agencies responsible for the proposed projects, namely the Department of Irrigation and Power (Aeration Weirs) and WASA (Treatment Plant for Maqbool Road and Summundari Road). In the case of the Aeration Weirs, either the Provincial Government, or its Department of Irrigation and Power, it could easily provide the required funds. In the case of Treatment Plant for Maqbool Road and Summundari Road, it is likely that the Provincial Government would have to provide any local funds, since WASA is unlikely to be in a position to do so. 53. CDGF would have no role in funding this project. 54. WASA should have a stronger role in financing the treatment plant project. This, however, would require that it improve its financial position from the present position, under which it is only able to cover establishment costs, and is not able to service present debt. The project presents an opportunity to seek private sector financing, for the Treatment Plant for Maqbool Road and Summundari Road. Because the project would include construction of the collection system as well as the treatment plant itself, a private contractor could be given responsibility for all aspects of service delivery, including the user interface and revenue


collection. If this were done, and if the unit costs of the project were reduced, it might be possible to attract a private investor. 55. At bottom, the development of effective industrial waste management will depend upon the awareness of both the general public and specific user groups—industrialists, farmers, communities seriously affected by pollution of the benefits of improved industrial waste management. For this reason, community involvement and participation must be cultivated, and developed during the course of the Project. Turning from the broad community, there would be the possibility of developing an industrial community group, who could become advocates and even potential investors in various proposed industrial waste management projects. The linking of user interest and investor interest has strong potential that should be explored during further project discussions. 56. There exist several sources of funds which could be tapped for the Project, including International Financing Institutions (like the ADB, World Bank, KfW etc.), the national and provincial governments and the private sector. Private sector funding would greatly ease the burden on government. However, it must be considered problematic at this stage due to the need for stronger regulation and enforcement mechanisms. In the event the Treatment Plant for Maqbool road and Summundari road is to be funded by the public sector, WASA would be expected to contribute to its cost, but WASA would have to be strengthened substantially before this could occur. J. Package Benefits

57. SWOT and PLEST analysis of the sub-projects has been also undertaken in close coordination with WASA and environment department to assess the suitability of these projects to the local conditions. The project of aeration weirs does not have any legal issues. There is no moving parts so not susceptible to mechanical and power failure. The project has low maintenance cost limited to clearance of debris and dredging of upstream channel. It will also provide less contaminated water for downstream users. The construction of Aeration may face the internal resistance and with opposition from vested interest. Also may not able to full support as the project will be mostly benefited downstream area that is in District Faisalabad but not completely in urban jurisdiction. The constriction of aeration weirs offer the opportunity to minimise the contamination with less cost and human input and has potential for replication in other drains. 58. For the Treatment Plant for Maqbool road and Summandri road there is no political disagreement for the construction of the treatment plant. The treatment facility would collect segregate and treat one of the most polluted parts of the combined sewage system and will significantly improve the discharges to the Madhuana drain. The project will also help to enforce the polluter pays principle. The treatment plant would require the purchase of land but the land will be mostly agricultural. The option selected for treating the waste is that which has already been experienced by WASA at Chokera. Whilst more complex technical solutions would require less land there is little practical evidence that more complex solutions are within the capacity of WASA to manage and would therefore not be sustainable. 59. An estimated population of about 275,000 people will be benefitted from aeration weirs while from the treatment plant, an estimated population of 36,500 people will benefit. These numbers have been estimated based on the available data, however, exact number of beneficiaries would be known at the feasibility stage. Both projects are envisaged to contribute positively to the poverty reduction.


K. Due Diligence Analysis 60. Due diligence of the sub-projects included in this package has been undertaken from a social development perspective. The objective of the due diligence analysis was to assess the impacts of these projects upon the citizens especially the poor. The analysis has been undertaken through desk study, field visits and through consultations with different stakeholders and ultimate beneficiaries of the projects i.e. citizens. 61. For undertaking stakeholder consultations, primary and secondary stakeholders of the subprojects have been identified and Stakeholder Analysis was developed. Based upon the stakeholder analysis, consultations were undertaken with various groups both male and females to identity their needs, issues and priorities and to gauge their perceptions against each sub-project. Consideration has been given to consult the poorest living in katchi abadis and slums. NGOs and student groups have been reached. 62. Findings of these consultations show a large number of issues the citizens are facing from the untreated liquid waste. The situation on ground depicts lack of planning for properly managing the waste produced from a large number of industries in the city. Disposal of untreated waste has badly affected the health and environment of the City. Ground water and public water supply has been polluted as the sewage water is mixing with this water. Through the use of this water, there is a very rapid increase in the patients of Hepatitis, and diseases of lungs. The villages around drains of waste water have lost the opportunity to use ground water for irrigation purposes. The water has been polluted to the point where if it is used for irrigation makes the land barren. The poor are more prone to these issues. Clean environment and safe drinking water and water for irrigation were the highest priorities for the people. They also demanded the removal of drains from their areas. 63. The analysis of the sub-projects included in this package shows that these projects would help in addressing some of the issues raised by the citizens. Both projects will have positive impacts upon the wellbeing and lives of the citizens. The project of aeration weirs will improve availability of treated water for irrigation. The disposal of treated water into Madhuana drain from the treatment plant of Maqbool Road and Summundari Road would also result in less pollution for those residing around drain. These factors would ultimately help in reducing poverty. The projects do not have major negative impacts socially. L. Project Institutional and Implementation Arrangements 64. The current institutional framework for the control and regulation of industrial waste in Faisalabad shifts responsibility to number of agencies. The roles and responsibilities are not clearly defined. These overleaping and sometime conflicting functions create confusion and result in poor service delivery. There is no coordination between involved departments and no one is taking full responsibility of proper industrial waste disposal and treatment. To address these issues an improved institutional structure is required to fulfil the basic organizational requirements for good waste management. It can be done through recognition of major functions, assigning clear responsibility for each function, establishing clear coordination mechanism and providing an adequate human and financial resource. 65. The short term solution to address this issue is to establish an independent Industrial Waste Cell outside of WASA and the Irrigation department with the representation of WASA, EPA, Irrigation department and Industry department. The establishment of an Industrial Waste Cell is a separate sub project and is discussed in detail in Infrastructure Investment proposal Package 1. The objective of this cell would be to coordinates the existing regulatory and enforcement powers to establish a coordinated strategy by combining existing data bases for increasing regulation monitoring and enforcement, decreasing pollution and


increasing fees gathering efficiency. The cell would work to bring efficiency, openness, accountability and responsiveness i.e. all pillars of governance, in the operations of waste management. It is envisaged, that it will bring improvement in the service delivery related to waste management in the long run. 66. The long term and permanent solution is establishing Waste Management Department under District Government. This will require restructuring of current setup of Municipal Services Department and creation of Waste Management Department that will be more flexible and can respond more readily and efficiently to the consumer and service demands. 67. However the establishment of Industrial Waste Cell and Waste Management Department will not be a straight forward task and our previous experience tells us that it will require considerable time and efforts, especially for Waste Management Department. The subprojects have been designed in the way that it will not require new institutional setup at initial stage and the sub-projects will be implemented through existing agencies. M. Risks 68. Other than the envisaged benefits from the report, these also carry some risks that can limit the chances of success of these projects. A number of assumptions have been made for successful implementation of these sub-projects. For all sub-projects, there is a need for various facilitation measures to enable the effective enforcement, effective levying and collection of fees and effective monitoring and resultant action. It is assumed that a detailed feasibility study will be undertaken before implementation. It has also been assumed that the funding from International Financing Institutions is made available. 69. The projects require a strong buy-in and commitment from all the political, senior personnel and operational staff of all organisations to achieve the successes outlined in these subprojects. The departments also need institutional capacity, resources and skills to carry on the projects without which, these cannot achieve their full potential. Unwillingness to respond to result of monitoring and resistance from stakeholders are also important risks including the resistance of industrialist to install their own factory based treatment and to the enforcement of regulations. It is envisaged that the projects would help in reducing the environmental issues through improving the provision of treatment facilities for sewage water, thus would contribute to the poverty reduction. N. Continuation of Technical Assistance from CDIA 70. Between the end of the pre-feasibility study and start of the feasibility study, it is important that technical assistance is provided to the CDGF to assist it in the dialogue with the Federal and Provincial Governments, other key departments and the private sector (national and international). 71. This request was officially made by Mr. Rana Sanaullah (Minister: Law, Parliamentary Affairs & Public Prosecution) and Mr. Rana Afzal (Member Provincial Assembly) at the ADB CDIA workshop in Faisalabad on 3rd March, 2010. The request was also made by the DCO Faisalabad Mr. Saeed Iqbal Wahlah, at the Steering Committee meeting held on 5th March, 2010 in the presence of ADB CDIA officials. If further information is required in this regard, CDIA can contact CDGF. O. Report Structure


72. The report has been structured and colour coded in such a way that the executive summary draws information from the main document and the main document refers to a number of annexes included in the report. The annexes contain, mainly, data collected from physical surveys undertaken over the last 4 months. The Annexes also make reference to previously developed reports like the Inception Report and the Interim Report. 73. Details of sub-projects included in this package, their technical description, their economic and financial analysis are also described and an early attempt has also been made to identify the impacts of these sub-projects upon the citizens of Faisalabad. 74. It is assumed that a greater in-depth analysis and viability of the sub-projects will be undertaken at the Feasibility Stage. 75. During the development of the Pre-feasibility study, work was undertaken in close coordination with the offices of the City District Government, Faisalabad Development Authority (FDA) and Water and Sanitation Authority (WASA). Meetings have also taken place at the Provincial level with Secretary Irrigation and Power, Secretary Finance, Secretary Environment Protection, Punjab Urban Unit in Lahore, and Environment and Protection Agency (EPA) Punjab. Representation of the Private Sector and non-government organization were also consulted. During this period steering committee meeting and regular working group meetings were also conducted. Brief notes on the meetings are in Annex A1-2 of the midterm report. The contents of this report have been discusses and agreed with all relevant agencies and departments of the CDGF.

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