DISCLAIMER

The purpose and scope of this Pre Feasibility Study is to introduce the Project and
provide a general idea and information on the said Project including its marketing,
technical, locational and financial aspects. All the information included in this Pre-
Feasibility is based on data/information gathered from various secondary and primary
sources and is based on certain assumptions. Although, due care and diligence have been
taken in compiling this document, the contained information may vary due to any change
in the environment.

The Planning & Development Division, Government of Pakistan, Mascon Associates
(Pvt.) Ltd who have prepared this Pre-feasibility study, or National Management
Consultants (Pvt.) Limited who have quality assured this document do not assume any
liability for any financial or other loss resulting from this Study.

The prospective user of this document is encouraged to carry out his/ her own due
diligence and gather any information he/she considers necessary for making an informed
decision

i
TABLE OF CONTENTS

ACRONYMS .................................................................................................................. iii
EXECUTIVE SUMMARY ...........................................................................................iv

CHAPTER 1 INTRODUCTION................................................................................... 1
1.1 OBJ ECTIVE AND SCOPE OF THE STUDY ..........................................................................3
1.2 METHODOLOGY ......................................................................................................................3
1.3 STUDY TEAM...........................................................................................................................4

CHAPTER 2 MARKET/ NEEDS ASSESSSMENT ................................................... 5
2.1 PROFILE OF PAKISTANS DAIRY SECTOR.......................................................................5
2.2 MODERN MILK PROCESSING IN PAKISTAN.......................................................................7
2.3 PRODUCT PROFILE & MARKET SHARES OF THE PROCESSING SECTOR....................8
2.4 SEASONAL FLUCTUATIONS IN MILK PRODUCTION AND CONSUMPTION............9
2.5 SUPPLY - DEMAND GAP AND PROJ ECTIONS FOR UHT PROCESSED MILK ...............10
2.6 MARKETING OF MILK AND DAIRY PRODUCTS..........................................................13
2.7 MARKETING OF PROCESSED LIQUID MILK..................................................................17
2.8 MARKETING OF DAIRY PRODUCTS................................................................................18

CHAPTER 3 TECHNICAL EVALUTION................................................................ 21
3.1 LOCATION PREFERENCE ....................................................................................................21
3.2 SPECIALIZED MANPOWER.................................................................................................23
3.3 REGULATORY FRAMEWORK.............................................................................................24
3.4 IN-HOUSE QUALITY ASSURANCE....................................................................................25
3.5 RATIONALE FOR SETTING UP A UHT MILK PROCESSING PLANT .......................25
3.6 PROPOSED UHT PROCESSING UNIT................................................................................26
3.7 THE UHT PROCESS FLOW..................................................................................................31
3.8 TECHNICAL REQUIREMENTS & THEIR AVAILABILITY.............................................33

CHAPTER 4 GOVERNANCE AND MANAGEMENT STRUCTURE................. 35
4.1 GOVERNANCE STRUCTURE...............................................................................................35
4.2 MANAGEMENT STRUCTURE ..............................................................................................37
4.3 RAW MILK PROCURMENT & TRANSPORTATION......................................................39
4.4 PLANT OPERATIONS AND QUALITY ASSURANCE.......................................................39
4.5 MARKETING AND SALES....................................................................................................39
4.6 FINANCE DEPARTMENT .....................................................................................................40
4.7 HUMAN RESOURCE DEPARTMENT.................................................................................41

CHAPTER 5 FINANCIAL EVALUATION............................................................. 42
5.1 CAPITAL COST OF THE PROJ ECT...................................................................................42
5.2 PROJ ECTED PROFIT & LOSS ACCOUNTS.....................................................................44
5.3 PROJ ECTED CASH FLOW...................................................................................................45
5.4 PROJ ECTED BALANCE SHEETS.........................................................................................46
5.5 INTERNAL FINANCIAL RATE OF RETURN .................................................................47
5.6 RATES OF RETURN..............................................................................................................47
5.7 PAYBACK PERIOD................................................................................................................48
5.8 FUNDING OF THE PROJ ECT................................................................................................48

CHAPTER 6 CONCLUSION .................................................................................... 49


ii
LIST OF TABLES
TABLE 1 MILK PRODUCTION IN SELECTED COUNTRIES................................................................5
TABLE 2 MILK PRODUCTION (REGION WISE) ...................................................................................6
TABLE 3 PROCESSOR CAPACITY..........................................................................................................8
TABLE 4 MARKET SHARE AND SELLING PRICE OF MILK PROCESSED IN
THE FORMAL SECTOR...........................................................................................................9
TABLE 5 PROJ ECTION OF FRESH MILK PRODUCTION AND
CONSUMPTION TO 2010.......................................................................................................10
TABLE 6 MILK PRODUCTION (REGION WISE)..................................................................................22
TABLE 7 MILK PRODUCTION IN PUNJ AB .........................................................................................22
TABLE 8 INTERNATIONAL MILK PRODUCTION COST BENCHMARKS......................................23
TABLE 9 UHT MILK PROCESSING PLANT PROJ ECTED CAPITAL COST......................................42
TABLE 10PROJ ECTED PROFIT & LOSS ACCOUNTS..........................................................................45
TABLE 11PROJ ECTED CASH FLOW.....................................................................................................45
TABLE 12PROJ ECTED BALANCE SHEET............................................................................................46
TABLE 13PROJ ECTED IFRR...................................................................................................................47
TABLE 14RATES OF RETURN................................................................................................................47
TABLE 15PAYBACK PERIOD.................................................................................................................48

ANNEXURE- 1 PAKISTAN A PROFILE

iii
ACRONYMS


ADB Asian Development Bank
ASEAN Association of South East Asian Nations
BOO Build Operate Own
BOT Build Operate Transfer
CAA Civil Aviation Authority
CAR Central Asian Republics
CMER Center for Management and Economic Research (of LUMS)
CNG Compressed Natural Gas
ECO Economic Cooperation Organisation
EIZ Eastern Industrial Zone
FAOSTAT Food & Agricultural Organization of UN Statistics
FDI Foreign Direct Investment
FM Filling Machine
GCC Gulf Cooperation Council
GDP Gross Domestic Product
GNP Gross National Product
GoP Government of Pakistan
HDIP Hydrocarbon Development Institute of Pakistan
IFC International Finance Corporation
IFCN International Farm Comparison Network
km Kilometre
KPT Karachi Port Trust
LUMS Lahore University of Management Sciences
MINFAL Ministry of Food, Agriculture and Livestock
NHA National Highway Authority
OEM Original Equipment Manufacturer
PIA Pakistan International Airlines
PISDAC Pakistan Initiative for Strategic Development And Competitiveness
PNSC Pakistan National Shipping Corporation
PTA Pakistan Telecommunication Authority
PTCL Pakistan Telecommunication Limited
Rs Pak. Rupees
SAARC South Asian Association for Regional Cooperation
SBP State Bank of Pakistan
SMEDA Small and Medium Enterprise Development Authority
SPS Sanitary and Phyto Sanitary
SWOG Strategic Working Group
UAE United Arab Emirate
UHT Ultra High Temperature
UNICEF United Nations International Childrens Emergency Fund
WTO World Trade Organization


iv
EXECUTIVE SUMMARY

Pakistan is regarded as the fifth largest producer of milk in the world. In 2004 it produced
more than 28 million tonnes of milk, based on current projections it is expected to
produce more than 33 million tonnes in 2006.

In addition, Pakistan is a milk surplus country in a milk deficient region, despite this,
it had to import US$ 12 million worth of milk powder to even out seasonal supply
imbalance. This Pre-feasibility Study explores the possibility of setting up a 100,000
litres per day UHT milk processing unit near Lahore in the Punjab province of Pakistan.
The rationale for setting up the plant is:

The market for processed milk is estimated at 200 million litres per annum while
supply is 139 million litres per annum; in addition the market is growing at around
20% per annum.
The consumers have developed a taste for UHT milk and also for its variants like
flavoured milk, etc.
The location of the plant is proposed near Lahore, as the surrounding areas of Lahore
produce 70% of the total milk produced in Pakistan
The Government of Pakistan has launched a program to increase milk yield per
animal from the current 6 litres per day to 13 by 2012, in addition the GoP is
launching a mass consumer awareness program aimed at highlighting the dangers of
consuming raw unprocessed milk.
The technology and the skills required for setting up a modern UHT plant and its milk
collection infrastructure exists in the region. The first UHT plant which was set up in
1977 is still operating and has seen continuous capacity increase over the years.
The aseptic packaging which increases the shelf life of the UHT processed milk is
ideally suited for the local climate in Pakistan which is characterized by high summer
temperatures.
The total cost of the project is estimated at Rs.670 million with a pay back period of
approximately 4 years.
1
CHAPTER 1
INTRODUCTION

Agriculture is the largest sector of Pakistans economy, contributing nearly 22%
of the total output (GDP) and employing around 45% of the total labor force.
Livestock contributes nearly 50 percent to the value addition in the agricultural
sector, and almost 11 percent to Pakistans GDP. Livestock is the main supplier
of basic raw material to the Pakistani food processing industry, with milk being
the most important sub-sector; the value of milk produced is higher than the value
of two major crops, i.e. wheat and cotton.

Pakistan is regarded as the fifth largest producer of milk in the world with a total
production of about 28 million metric tons in 2004, despite such a huge volume
the country is a net importer of milk and milk products. The major reason for this
is that 12 15% of the milk produced is lost during transportation and storage
due to lack of proper processing facilities.

The Government of Pakistan (GoP) in cooperation with various multilateral donor
agencies, apart from utilizing its own in-house capabilities, has prepared a
comprehensive strategy for bringing about a White Revolution in Pakistan. The
main objective of the GoP is poverty alleviation in the rural areas by helping the
subsistence farmer, who provides the bulk of the milk, to increase the yield of
milk. Currently, animal productivity is well behind other major dairy producers.
Pakistan has three times the animals that Germany has, but milkyield per animal
is one fifth of Germany and one third of New Zealand representing a significant
loss in economic potential.

The strategy developed by the GoP will focus on raising productivity and to do
so, the dairy industry will:

2
Establish model commercial dairy farms across full range of farm sizes to
increase overall farm productivity by demonstrating new technologies and
better practices;
Upgrade rural and urban supply chains by facilitating investment in chilling
tanks for purchase and collection of milk which will give farmers a guaranteed
sale for quality milk;
Investigate modern technologies, systems, and underlying seasonal economics
of dairy production to improve quality of investment decisions and to correct
market distortions;
Expand supply pockets to increase the milk supply and create new income
earning opportunities; and
Improve the quality of animal feed to ensure better quality of milk.

As per the GoP strategy in order to improve the business and regulatory
environment, workforce, and industry organization the milk processing industry
will be duly supported to:

Rseolve the health and safety problems associated with poor quality milk;
Improve and enforce existing food safety standards in line with international
standards;
Promote policies which will support the development of an expanding export
industry;
Provide practical training to farmers on modern farming practices;
Raise capacity of training institutions to provide required training and
qualifications;
Establish a permanent industry organization, Dairy Pakistan, representing
farmers, processors, and government stakeholders with responsibility to carry
out the Dairy Industry Strategic Plan.

This Strategy for increasing productivity and quality of milk, is expected to
deliver value to both the producers and consumers. Conservative estimates show
3
an additional Rs.11million per day of income generated for farmers, with more
optimistic scenarios showing over Rs.30million. The average farm income per
year stands to increase by a factor of four by 2015, significantly reducing rural
poverty. In addition, the Strategy aims at increasing average yield per animal from
the current 6 liters per day to 13 liters by 2015. As a first step, the Government of
Pakistan has established Dairy Pakistan to ensure that the targets set forth by
the Strategy are achieved.

The expected increased availability of milk will help Pakistan enter the export
market, as it is located in a dairy deficient area where most of its neighbors to
the west are net importers.

1.1 OBJECTIVE AND SCOPE OF THE STUDY
The purpose of this Pre-Feasibility Study is to establish the need for setting up of
a milk processing plant to avail more than 20 percent growth per annum in the
Sector. Pakistan has got large quantities of raw milk which in 2004 was estimated
at close to 28 million tonnes per annum with only 2 3% actually being
processed by the dairy industry.

The scope of the study is to undertake, inter alia, need assessment, technical
evaluation, assessment of governance and management structure and financial
evaluation of the project, on the basis of which recommendations are to be
developed for setting up the said project.

1.2 METHODOLOGY
The methodology employed for this study consists of review of published data as
well as exhaustive interviews of the stakeholders including farmers, dairy experts,
dairy marketing companies, multilateral agencies and Government of Pakistan
officials as well as those belonging to MINFAL and the Government of Punjab.
Lastly, we would like to bring on record the cooperation extended by those
individuals and companies who though no longer associated with the Industry,
4
were willing to share their opinions and experiences to facilitate new entrants
coming into the industry.

The data collected has been analyzed using quantitative and qualitative
techniques, where required necessary assumptions have been made which have
been mentioned in the report.

1.3 STUDY TEAM
The study team comprised of experts in the fields of dairy and animal husbandry,
economics, engineering, food processing, marketing and finance.
5
CHAPTER 2
MARKET/ NEED ASSESSSMENT

2.1 PROFILE OF PAKISTANS DAIRY SECTOR
As stated earlier, agriculture is the largest sector of Pakistans economy,
contributing nearly 22% of the total output (GDP) and employing around 45% of
the total labor force. Livestock contributes nearly 50 percent to the value addition
in the agricultural sector, and almost 11 percent to Pakistans GDP. Livestock is
the main supplier of basic raw material to the Pakistani food processing industry,
with milk being the most important sub-sector; the value of milk produced is
higher than the value of two major crops, i.e., wheat and cotton. Pakistan is
regarded as the fifth largest producer of milk in the world with a total production
of about 28 million metric tons in 2004.

TABLE - 1
MILK PRODUCTION IN SELECTED COUNTRIES
(1,000 Metric Tonnes)
Total Production
Sr.
No.
Country
1999 2000 2001 2002 2003 2004
1. India 78,100 81,000 84,800 89,500 91,200 90,420
2. U.S.A 73,804 76,023 75,068 77,139 77,252 77,565
3. Russia 32,300 32,276 32,905 33,503 33,300 31,140
4. Germany 28,356 28,353 28,213 27,899 28,380 28,028
5. Pakistan 24,281 24,949 25,646 26,372 27,140 27,934
6. France 25,388 25,484 25,415 25,733 25,160 24,750
7. Brazil 19,802 20,527 21,284 22,453 23,453 23,458
8. UK 15,014 14,488 14,707 14,869 15,056 14,600
9. Ukraine 13,344 12,640 13,411 14,108 13,633 13,993
10. Poland 12,284 11,889 11,884 11,873 11,892 12,400
11. World 561,175 571,077 580,608 593,723 605,516 605,263
Source: FAOSTAT

The average per capita production of milk in Pakistan at about 230 liters/year is
the highest of all South Asian countries. Punjab has by far the lion's share in both
6
milk production and number of dairy animals. It produces over twenty million
metric tons of milk or about 70% of the countrys total.

The production of milk in different provinces of Pakistan is given below:

TABLE -2
MILK PRODUCTION (REGION WISE)
(mllion Tonnes)
Milk Production Milk Production by Regions
Year
Buffalo Others Punjab Sindh Others
1996 18.0 9.0 19.0 7.0 3.0
1997 20.0 9.0 21.0 5.5 4.0
1998 20.0 9.0 21.0 5.5 4.0
1999 21.0 9.5 21.5 6.0 5.0
2000 21.7 10.0 22.0 5.0 5.0
2001 21.8 9.5 22.5 4.5 5.0
2002 23.0 10.0 23.0 6.0 5.6
Source: International Farm Comparison Network (IFCN), 2003

Dairy product mostly distributed and sold in Pakistan is still fresh milk.
However, as per study conducted by Unilever Pakistan Ltd., processed milk
consumption is growing at above 20% per year. Of the different types of
processed liquid milk, pasteurized milk and UHT milk in Tetrapacks are by far
the most popular products. Yogurt, butter, cheese and ice cream represent a small
proportion of the processed dairy products. The informal sector produces Lassi (a
drink from boiled and/or raw milk), which is very popular in the summer months.
Other common indigenous milk products are boiled milk and sweet-meats
produced by condensing liquid milk, which is called Khoyia (condensed milk
with or without sugar).

Only 3-4% of total milk production is processed and marketed through formal
channels. For the other 97%, an extensive, multilayered distribution system of
middlemen has evolved to supply milk produced for immediate consumption.
Katcha Dodhies collect their milk from villages and either sell to the local
7
market or to Pacca Dodhies. Pacca Dodhies then supply milk to distributors
and retailers in urban areas, Gawallas and dairy processors. The Gawalla
supplies milk directly to urban and rural households. The current value chain is
illustrated below:











A long tradition of dairy consumption, a sizeable domestic market, high per capita
rates, and yet underdeveloped processing and value-added products present
significant potential to increase both the economic and social value of the
industry.

2.2 MODERN MILK PROCESSING IN PAKISTAN
Modern milk processing in Pakistan started in the early 1960s when the first
modern milk sterilization plant was set up. By the mid-1970s 23 milk
pasteurization and sterilization plants had been set up. However, due to the
logistic difficulties in setting up an efficient milk collection system, short shelf-
life of the product and lack of skilled labor, all but one of these plants shut down.
The first UHT plant was set up in 1977 and proved quite successful. With the
exception of army and Idara-e-Kisan dairy plants, the production of liquid
pasteurized milk has ceased since the first units producing UHT long-life milk
went into operation. Table 3 presents basic information on the UHT milk-
CHART -1
DAIRY VALUE CHAIN IN PAKISTAN
Farmer
(Rs. 10)
Middleman
(Rs. 11)
Contractor
(Rs. 13)
Processors
(Rs. 15)
Milk-man
(Rs. 15)
Processed,
Unpackaged
Milk (Rs. 23)
Loose Milk
(Rs. 20-28)
Packaged
Milk (Rs. 29)
Source: SWOG Estimates
Bacterial count>5 mio./ ml
8
processing plants that are operating currently. The data in the table referring to
installed daily capacity are based on shifts including preparation and cleaning.

TABLE 3
PROCESSING CAPACITY
Capacity
i i i
Sr.
No.
Processors
Daily Capacity
(million liters)
Flush Lean
Average Daily
(million liters)
1. Nestle 1.30 1.30 0.780 1.0400
2. HFL 0.90 0.90 0.540 0.7200
3. Millac 0.30 0.30 0.180 0.2400
4. Vita 0.05 0.03 0.018 0.0240
5. Halla 0.15 0.15 0.090 0.1200
6. Prime 0.10 0.10 0.060 0.0800
7. Nurpur 0.15 0.15 0.090 0.1200
8. Nirala 1.00 0.10 0.060 0.0800
9. DairyCrest 0.15 0.15 0.090 0.1200
10. Engro Foods 0.20 0.60 - 0.6000
11. K&K 0.40 - - -
12. Butt Dairies 0.06 0.06 0.036 0.0480
13. Munno Dairies 0.02 0.02 0.012 0.0160
14. Karachi Dairies 0.10 - - -
15. Military Dairy Farms 0.18 0.18 0.108 0.1440
Total 5.30 3.44 2.064 2.7520
Source: SWOG Estimates

2.3 PRODUCT PROFILE & MARKET SHARES OF THE
PROCESSING SECTOR
The main products of Pakistans dairy industry are Ultra Heat Treated (UHT) and
pasteurized milk, dry milk powder and condensed milk. Other products of less
importance include butter, yogurt, ice cream, cheese, cream, and butter oil (ghee).
Roughly 50% of the milk that is made available to the processing industry (not
counting gawallas) is processed into UHT, 40% into powdered milk, and the
remaining 10% into other by-products. The majority of the dairy processing
facilities are located near Lahore, which serves as the hub for the industry. The
total volume of industrially processed milk sold is about 139,000 metric tons a
9
year, roughly equal to about 0.5% of total (raw) milk produced. However, the
domestic market for packaged milk is estimated at about 200,000 metric tons a
year, or a bit more than US$100 million at prevailing price levels of Rs32/liter
(refer to Table 4 for details on market share of different types of milk in the formal
sector).
1


TABLE 4
MARKET SHARE AND SELLING PRICE OF
MILK PROCESSED IN THE FORMAL SECTOR
Types of Milk Market Share in Volume Sale Price Rs/Liter
Open Gawalla
(Milkmen) Milk
90.00% 12-14
UHT Tetra Pack 4.98% 32
Open Pasteurized Milk 3.76% 14-15
Open Milk Sold at Milk
Shops
0.98% 18
Pasteurized Pouch 0.24% 20
UHT Poly Pack 0.02% 22
Direct to Home 0.02% 15-18
Source: SMEDA. (Small & Medium Enterprise Development Authority)

2.4 SEASONAL FLUCTUATIONS IN MILK PRODUCTION AND
CONSUMPTION
The production (supply) and consumption (demand) for milk and milk products in
Pakistan is characterized by conflicting seasonal fluctuations. Milk production is
at its maximum during the period between January and April and at its minimum
during May August when fodder is limited. Milk consumption is at its peak in
summer. At this time, because of the warmer ambient temperatures, people
increase their milk intake and consume a greater range of dairy products including
ice cream and yogurt.


1
The market share of industrially processed (sold) milk estimated by SMEDA at around 5% of milk
processed in the formal sector should not be confused with that share of 0.5% of milk produced in the
country.
10
Milk supply from rural animal holders decreases by half in mid-summer. In
contrast, the peri-urban producers (13% of all producers) have better control over
their contribution to supply, which fluctuates less through the months. It is
assumed that the overall supply reaches a low point in mid-June; at this point,
supply is only 55% of what is supplied during the peak period in mid-February.
Based on preliminary results from several small surveys, the overall demand
varies from its highest point in June to an estimated low of 60% in December.

2.5 SUPPLY - DEMAND GAP AND PROJECTIONS FOR UHT
PROCESSED MILK
Although Pakistan is the 5
th
largest producer of milk in the world, it faces a
shortage of milk primarily because not all of its production actually makes it to
the market. It is estimated that only 45% of the milk produced is actually
available for sale. Of the milk that is sold by farmers, an additional 15-19% is
wasted enroute-to-market due to spoilage from lack of proper cooling, storage,
and transport systems. In total, 55-60% of current milk production is lost from
potential income generation and value addition. A study done by the Lahore
University of Management Sciences shows Demand and Supply for milk as
follows:

TABLE 5
PROJECTION OF FRESH MILK PRODUCTION AND
CONSUMPTION TO 2010)
(million Liters)
Years
Average
Production
Average
Consumption
Annual
Deficit
Average 1971-2004 15,498.15 15,601.53 (103.38)
2004-2005 29,882.92 31,194.59 (1,311.67)
2005-2006 31,211.81 32,532.09 (1,320.28)
2006-2007 32,504.91 33,785.13 (1,280.22)
2007-2008 33,805.10 34,929.54 (1,124.43)
2008-2009 35,495.25 36,361.25 (866.00)
2009-2010 37,669.75 38,188.92 (519.17)
Average 2005-2010 33,428.29 34,498.70 (1,170.41)
Source: Lahore University of Management Sciences, 2005
11
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Avg.
1971-
2004
2004-
2005
2005-
2006
2006-
2007
2007-
2008
2008-
2009
2009-
2010
Avg.
2005-
2010
Average
Production
Average
Consumption
Annual Deficit



Currently this gap is being filled by the import of powdered milk. About 6,000 to
8,000 tons or between US$10 million and US$12 million worth of powdered milk
is imported on an annual basis to fill the mismatch between an ever increasing
demand and local supply. Powdered milk is imported in the form of Dry Whole
Milk, Dry Skim Milk and to a lesser degree, Dry Whey. Imports of Dry Skim
Milk vary between 15% and 25% of the total powdered milk imports. However,
the trend reversed in 2003 with Dry Skim Milk imports comprising about 70% of
total powder milk imports.

Another factor that is contributing to this gap is the concentration of milk
production in the Punjab where nearly 70% of the milk is produced and because
of its very perishable nature it cannot be transported over long distances unless it
is processed using UHT. This has seen UHT milk being marketed in the remotest
areas of Pakistan including Gilgit, Gawadar, Punjgur etc.

With increased urbanization in the country and the movement of Dairy animals
out of the city limits, farms which are in the peri-urban areas of large cities like
Karachi and Lahore are unable to cater to the demands of the rapidly increasing
population. This leads to frequent price increases and chronic shortages. It is
PROJECTION OF FRESH MILK PRODUCTION AND
CONSUMPTION, TO 2010 (MILLION LITERS)
12
therefore no wonder that the main centers for UHT milk consumption are the
urban areas like Karachi, Lahore, Islamabad etc.

As stated earlier, there is greater awareness of the current milk handling processes
in the traditional system by the urban consumer and he is extremely reluctant to
consume fresh milk that has been handled in the traditional manner. Traditional
milk is collected in an unhygienic manner and there is no enforcement of
standards, resulting in poor quality product. In order to keep milk temporarily
fresh, middlemen commonly add ice to the milk, which results in dilution of milk
solids by up to 30% and often micro contamination takes place due to poor quality
water in the ice.

Although consumers have a greater preference for fresh milk, it needs to be boiled
before consumption. Working women in the cities have realized the convenience
of using UHT milk as it can be consumed directly from the packaging as it has a
greater storage life.

Fresh milk has high fat content, with greater health consciousness among the
population, consumers are shifting to the use of UHT milk that has got lower fat
content.

According to a report prepared by Unilever Pakistan Limited, titled: Modern
Dairy Technology and Prospects for Growth, The packaged milk market is
estimated at 200 million liters per annum, valued at over Rs.6 billion, with a
yearly growth rate of close to 20 percent over the last few years.

With the large investments that the Government of Pakistan is making in the milk
production side of the supply chain, both the quantity as well as the quality of the
milk available for processing is going to improve. In addition, a comprehensive
strategy is being prepared to increase consumer awareness about the current state
of the quality of milk that is being sold as well as strengthening implementation of
13
food laws to international levels. These steps are expected to see a surge in the
demand for UHT processed milk in Pakistan; also exportable surpluses are
expected to be generated because of the increased supply of milk.

2.6 MARKETING OF MILK AND DAIRY PRODUCTS

2.6.1 MARKETING OF RAW LIQUID MILK
Because of the various systems of milk production in Pakistan and the task of
supplying fresh milk regularly to consumers and manufacturers in both rural and
urban areas, different marketing systems have been developed that often involve
several intermediaries who form the marketing chain. Intermediaries are rural
milk traders (katcha dodhis), highway collectors (pacca dodhis), rural vendors /
processors, commission agents, urban wholesalers, shopkeepers/processors and
street and door-to-door vendors. The flow chart is shown below in chart 2.

CHART - 2
SIMPLIFIED DIAGRAM OF FLOW CHANNELS FOR
MILK IN PAKISTAN












Source: Strategy Development in Milk Production and Distribution (SMEDA Report, 2000)
Dairy Farmer
Milk Collection Agency
Milk Processing Plant
Distributor/ Retailer
Consumer
Gawalla (milk man)
Formal
Sector 2-3%
Share
Milk Collector
Informal
Sector 98%
Share
Retailer
14
2.6.2 MARKETING THROUGH RURAL MILK TRADERS
Traditionally, the most important middlemen are the numerous rural milk traders,
commonly called katcha dodhis. Equipped with a bicycle or horse cart, or in some
cases now with a motorcycle and two to four milk cans, they make daily visits to
1520 small milk producers, collecting some 7590 litres of raw milk. This may
take three hours and the distance cycled can easily be 20 km. Most of the katcha
dodhis are independent. Larger highway collectors, however employ a few of
these katcha dodhis. Under the traditional system, women sell the milk to the
middlemen.

Where competition is strong, usually in production areas with good access, the
katcha dodhis often have contracts with the producers to secure milk supply for a
certain period. Then the purchasing price may be fixed, interest free advances
may be given or both mechanisms may be used. The value of advances usually
corresponds to the value of milk supplied within two to four weeks. As most
katcha dodhis do not have sufficient resources to finance their suppliers, they in
turn get advances from the larger collectors and sometimes from rural
shopkeepers. If no advances are granted, payment is normally effected within one
week after milk collection.

With a few exceptions, milk is collected only in the morning, the evening milk
being used mainly for home consumption. Milk is always collected by volume,
never by weight, using measures of varying types and sizes. Milk producers
normally supply pure, unadulterated milk; however, to prevent deterioration of the
milk during their collecting tour, especially in the hot season, the katcha dodhis
add certain quantities of ice to prevent the milk from turning sour.

2.6.3 MARKETING THROUGH RURAL & HIGHWAY MILK COLLECTORS
The highway milk collectors, or pacca dodhis, obtain their supply of milk almost
exclusively from the katcha dodhis. The daily volume collected by a pacca dodhi
often exceeds 2000 litres, especially in the Punjab. The number of katcha dodhis
15
supplying a single pacca dodhi ranges from 8 to 500, with a maximum of about
70 per collection point.

At their collection points along or near the main roads, most pacca dodhis check
the milk visually, test fat and solids-not-fat (SNF) contents and measure the
volume by pouring the milk into their own cans. If the quality meets
requirements, the agreed price will be paid. Collectors supplying to dairy plants
all use fat testing equipment.

The pacca dodhis do not own chilling facilities, but most of them have one or
more motor vehicles. Only the smaller collectors send milk to town by public
transport or join other collectors who own or hire a small pick-up truck. One
pacca dodhi may supply between 1 and 40 clients, depending on the milk volume
marketed and the demand of the individual contractor, milk shop or manufacturer.
Advances from shopkeepers seem to be rare. The rural collector has cash
expenses of about Rs. 1/litre for ice and octroi (communal merchandise tax), the
highway collector pays a similar amount and eventually Rs. 1/litre for hired
transport. The vendor increases his margin through the sale of sweetened milk and
the manufacture of dahi or sweetmeats.

2.6.4 MILK COLLECTORS SUPPLYING DAIRY PROCESSORS
Since the establishment of milk processing plants, highway milk collectors have
been their most important and effective suppliers. Despite rigid quality testing and
payment according to butterfat content, plants procure the major part of their raw
milk through private milk collectors. This leads to difficulties during the lean
production season when the supply gap results in price increase, which the
manufacturers are not generally willing or able to pay.

2.6.5 MILK SALE TO COLLECTION CENTRES OF DAIRY PROCESSORS
Neither factory linked livestock farms nor dairy co-operatives have managed to
become major suppliers to dairy processing plants. Size and production of the
16
commercial farms have limited their contribution. Of the milk marketed by the
functioning co-operatives and Village Livestock Associations, created in some
districts of Punjab to supply the Lahore Milk Plant (their designated long-term
marketing partner), only a small proportion is channeled to the dairy plants.

To improve the handling of raw milk and achieve a better quality for processing at
the plant site, some dairy plants have started to equip milk collection centres with
chilling units and to use insulated road tankers for bulk transport from the centres
to the plant. This enables them to buy milk directly from the katcha dodhis. Some
plants already collect 80% of their procurement themselves. Large-scale
collectors supply the balance milk.

Milk collection is undertaken by dodhis or co-operative organizations, but the
milk producers may also deliver to the centres themselves and receive a higher
price. The farm-gate price in winter is Rs. 810 and in summer Rs. 1012 per litre
(6% fat basis). Some processing plants pay a bonus of Rs. 1.00/litre, if the milk is
put into chilling tanks provided by the plants but operated by the producers.

2.6.6 DIRECT MARKETING & CONTRACT SALE
Some producers manage to market their milk without the help of dodhis.
They produce quantities large enough to contract regular supplies with urban
wholesalers/retailers or they sell straight to consumers (at the farm, in their own
urban retail outlets or at the consumers door).

The peri-urban milk producers, especially in Sindh, sell most of their milk on a
contract basis (one year, fixed price) to urban distributors, milk shops and
institutional consumers (hotels and restaurants). Milk in excess of the contracted
quantities is sold through commission agents in the free wholesale market
(auction sale). If a milk producer cannot supply the agreed quantity in full, he is
obliged to make up the deficit from outside purchases (e.g. in the wholesale
market). Some of the milk producers at Landhi Cattle Colony near Karachi have
17
established an association. Most peri-urban and rural commercial milk producers
who market milk themselves do not maintain additional or better facilities than
the pacca dodhis. Milk, with ice added, is transported in their own cans and
usually their own vehicles to the customers or the wholesale markets. In general,
milk is distributed in cans with volumes of 4050 litres.

Milk producers who own transport facilities usually deliver milk to their urban
contractors receiving about Rs. 14/litre of undiluted milk. Contractors are often
milk shops converting part of the milk into customary products. In summer, the
margins of intermediaries are much higher as more ice is added to cool the milk.

2.6.7 MILK RETAILERS
The final middlemen in raw milk marketing are the milk shops, which in urban
centres often exercise distribution functions (supply to the small retailers) and/or
transform milk into local yogurt (dahi), yogurt drinks and a simmered, sweetened
concentrate (khoa) for sweet meats or ice cream. They often separate cream from
part of the milk purchased.

The major part of the raw milk reaching the milk shops is sold untreated within
one to two hours after arrival. Some shops, particularly those operated by
commercial milk producers keep the milk in cooling tanks (5001000 litres
contents) or fill a certain proportion into plastic sachets, which after sealing are
kept in a refrigerator. Milk, which is not sold immediately, is boiled for sale later
or converted into dahi, khoa etc. Nevertheless, the consumers boil all liquid milk
bought before consumption.

2.7 MARKETING OF PROCESSED MILK
The only type of processed liquid milk that is found in markets all over the
country is sterilised long-life (ultra heat treated; UHT) milk. Standardised UHT
milk is marketed in 250, 500, 1,000 and 1,500 ml packages, mostly as tetra briks.
18
The 500-ml packages account for about 60% of the total quantity sold, 250ml
packages for 2025% and the 1,000 ml tetra briks for 1520%.

The marketing chain is short; from the factories, the milk is transported by truck
to regional distributors/wholesalers who in turn supply it to general stores and
supermarkets in the big cities. Regional distribution of sales demonstrates that the
majority of milk is consumed within a limited area around the Regional
Distributors.

Ex-factory prices vary according to the destination of sales and freight costs
involved. The distributorwholesaler receives commission of between Rs. 1.00
and 2.00/litre, depending on brand and package size. Most manufacturers refund
or replace damaged and expired packages.

Compared with the margins in the retail marketing of raw liquid milk (especially
the extra margins resulting from dilution), the margins on processed milk are
much smaller and cannot be increased by adulteration. However, retailers do not
deal exclusively in UHT milk, it is just one of many items sold; this applies to
most wholesalers as well.

2.8 MARKETING OF DAIRY PRODUCTS
Traditional dairy products like dahi and khoa are manufactured and sold by most
milk shops across Pakistan. On average, these shops convert about 20% of the raw
milk purchased into dahi and/or khoa. During Ramadan and in summer, dahi
consumption increases considerably.

Milk Farmers mainly produce butter or desi ghee in areas that are not penetrated
by milk collectors. The major part of ghee is home consumed but an estimated
annual volume of 34% is marketed through wholesalers, vendors and
shopkeepers, both in rural and urban areas. Because of its relatively high price
(consumers have to pay between Rs. 160 and 180/kg), it cannot compete with
19
vegetable ghee or oil, which costs only a third of the price and is used
increasingly as a substitute.

In contrast, desi butter seems to have a stable market, especially during the winter
months. The quantity marketed may reach 60 thousand tonnes/year. The larger
dairy shops in the cities and special creameries are the principal manufacturers of
local butter. They usually buy cream from wholesalers or pacca dodhis and
produce only what can be sold the same day.

Some milk processing plants have introduced a number of new dairy products into
the market like:

Yogurt (natural and flavoured)
Drinking yogurt (lassi)
Sweetened, flavoured milk
UHT and pasteurised cream
Butter
Ghee
Cheese and
Ice cream mix.
The quantities sold, however, are very modest for most items; only yogurt and
butter sales have reached significant volumes. Three major yogurt manufacturers
sell about 4000 tonnes annually. Consumer prices of Rs. 1721 per 450 ml cup
(3.5% fat) assure a good margin despite high packaging costs. The modern butter
manufacturers produce about 800 tonnes per year. It is mainly packed and sold in
portions of 200 g with ex-factory prices from Rs. 3035/pack and consumer prices
from Rs. 3540/pack.

The ice cream industry, producing 910 thousand tonnes of ice cream/annum,
uses mainly dairy ingredients, especially fresh cream. Fresh milk is mostly
substituted by imported milk powder.
20

As discussed above, in view of the growing acceptance by the consumers of UHT
milk and the expected white revolution which should see milk production more
than double in the medium term, it is proposed to set up a UHT milk processing
plant of 100,000 liters per day capacity. This is an economically viable sized
plant, although the market demand justifies a larger capacity, it is suggested that
the sponsors work with a smaller capacity till such time that they are able to
organize the milk collection system to provide larger raw milk inputs. Raw milk
input for a 100,000 liters per day plant located in central Punjab should not be a
problem with the existing milk supply chain.
21
Mi l k Producti on by Regi on
0
5
10
15
20
25
30
35
40
1996 1997 1998 1999 2000 2001 2002
Lit er s (bn)
Others
Sindh
Punjab
CHAPTER 3
TECHNICAL EVALUATION

In view of the growing acceptance by the consumers of UHT milk and the
expected white revolution which should see milk production and consumption
of processed milk more than double in the medium term, it is proposed to set up a
UHT milk processing plant of 100,000 liters per day capacity. This is an
economically viable sized plant, although the market demand justifies a larger
capacity, it is suggested that the sponsors work with a smaller capacity till such
time that they are able to organize the milk collection system to provide larger
raw milk inputs. Raw milk input for 100,000 liters per day plant located in
central Punjab should not be a problem with the existing milk supply chain.

The technical assessment of the viability for setting up a 100,000 litres per day
UHT milk processing plant depends on several major factors. These are discussed
below:

3.1 LOCATION PREFERENCE
The vicinity of the city of Lahore has been chosen for setting up the plant, the
major reason being the availability of fresh milk in the region. Punjab, of which
Lahore is the capital, produces 70% of Pakistans milk;

PAKISTAN MILK PRODUCTION STATISTICS










Source: International Farm Comparison Network (IFCN) 2003.
22
TABLE -6
MILK PRODUCTION (REGION WISE)
(million Tonnes)
Milk Production Milk Production by Regions
Year
Buffalo Others Punjab Sindh Others
1996 18.0 9.0 19.0 7.0 3.0
1997 20.0 9.0 21.0 5.5 4.0
1998 20.0 9.0 21.0 5.5 4.0
1999 21.0 9.5 21.5 6.0 5.0
2000 21.7 10.0 22.0 5.0 5.0
2001 21.8 9.5 22.5 4.5 5.0
2002 23.0 10.0 23.0 6.0 5.6
Source: IFCN, 2003


TABLE 7
MILK PRODUCTION IN PUNJAB
(million Tonnes)
Milk Production by Regions
in Punjab (MillionTons)
Composition of
the Dairy Herd
Punjab Milk
Production
Years
Center Souther Potohar Buffal Others Buffalo Others
1996 16.0 2.0 1.0 7.5 3.5 13.5 6.0
1997 16.5 3.0 1.5 7.8 4.1 14.0 7.0
1998 16.4 3.3 2.0 8.0 3.5 14.0 6.7
1999 17.0 3.0 1.5 8.2 4.0 14.2 7.0
2000 17.2 3.6 2.0 8.3 4 15.0 8.0
2001 17.5 3.9 1.0 8.5 4.6 15.0 7.5
2002 18.0 4.0 2.0 8.7 5.5 15.1 8.5
Source: IFCN, 2003

As can be seen from the above Table, out of the approximately 24 million tonnes
of milk produced annually in the Punjab, 18 million tones or about 75% is
produced in the Central Region of Punjab. This region will be the milk catchment
area for the proposed Plant. In addition a supply chain has already been developed
in the area which ensures that milk from the smaller farmers who have among the
lowest production costs in the world is made available to the milk processing
plants:
23
TABLE 8
INTERNATIONAL MILK PRODUCTION COST BENCHMARKS
Country US$/100kg milk
Argentina 7-11
Pakistan 9-12
Australia 10-14
India 10-11
Austria 57
Switzerland 79
Source: IFCN, 2003

The setting up of the first UHT plant in 1977 in the area has ensured that the skill
levels of the workers have developed to the required level, in addition local
engineering expertise, transportation network, marketing channels and support
services for the plant as well as marketing have developed.

Karachi, the main city of Pakistan and the largest market for UHT, is not
considered as a location for the plant because of the higher cost of raw milk. Raw
milk prices in Karachi, because of the shortage of green fodder and greater
emphasis on higher priced concentrates as diet for the milch animals means that
prices of raw milk are approximately 30% higher in Karachi as compared to
Lahore.

3.2 SPECIALIZED MANPOWER
The plant will require technically qualified and experienced professionals in the
areas of production management, operations and marketing. These will include
dairy processing experts; food chemists; cold storage technologists; laboratory
technicians; milk collection experts; marketing, human resource, accounting and
finance experts; etc. The presence of a large number of milk and food processors
including Nestle, Unilever, Cadbury, Shezan, Mitchells, and Haleeb etc. ensures
the availability of a constant supply of trained and experienced professionals.
As stated earlier, the Government of Pakistan has also accorded a high priority
to the Dairy Industry and has set up a company known as Dairy Pakistan on the
24
lines of Dairy Australia; among the areas in which Dairy Pakistan is
concentrating includes human skill development of the professionals
required for the Dairy industry.

3.3 REGULATORY FRAMEWORK
The legislative framework that guides food markets in Pakistan is governed by the
Pure Food Rules (PFR) of 1965(and Cantonment Pure Food Rules of 1967 for
military areas), and the Pure Food Ordinance of 1960. The most important
aspects of regulation that guides milk industry are to be found in PFR, and include
the following:

Section 18: Containers for milk sales, distribution or storage must be labeled.
Metallic containers (typically used by gawallas in the delivery of milk) must
have a clear and distinct label attached.
Section 19: Imperfect enameling and tinning of containers is illegal.
Section 20: Milk from diseased animals is illegal.
Section 21: Persons with contagious diseases are disallowed from milking
animals, working at dairy farms, handling milk or any container meant to be
used for storage or transportation of milk.
Section 22: Pasteurization and sterilization parameters are laid down.
Section 23: Equipment and processes needed for gaining approval by the
government to operate milk processing plant have been specified

Sections 272 and 273 of the Pakistan Penal Code deal with the issues of penalties
for adulteration of food and drinks. The prescribed penalty for food adulteration
is six months in prison, and/or one thousand rupees fine. PFR gives authority to
provincial governments to appoint public analysts for investigation of quality and
safety of food. There is no federal structure of a food safety program in Pakistan.
Enforcement is done through health service delivery channels of provincial
governments. The District Health Officer and Deputy Health Officer function as
food inspectors for sampling and inspection. On the other hand, the concerned
25
Municipality Corporation may also appoint food inspectors and sanitary
inspectors for sampling purposes. Any other public servant can also be appointed
as inspector and can execute the power of food inspector. The Sanitary and Phyto
Sanitary (SPS) Agreement lays down certain requirements that aim to ensure
transparency in the implementation of SPS measures in member countries.
Members are required to establish specific contact points to facilitate
communication regarding SPS measures. This involves firstly, a single national
enquiry point, which is responsible for responding to queries from a single
national notification authority, which is responsible for all procedures
associated with notification of new or amended SPS measures. These
notifications and measures serve as guidelines for customs and health authorities
in importing countries in assessing risk failure to notify and convince importing
countries that SPS measures are up to date and implemented results most of the
time in time-consuming inspections and quarantine measures which effectively
hurts exporters by creating trade barriers.

3.4 IN-HOUSE QUALITY ASSURANCE
Physical dispersal of gawallas and small dairy farms makes enforcement of
quality standards difficult, but crucial. One factor would be the tracking of milk
that is largely collected through informal channels, from hundreds and thousands
of farmers and gawallas to the processing unit. Other issues where control is
expected to yield positive results include adequate testing/laboratory facilities and
close monitoring of staff to ensure that necessary quality checks are made and
standards enforced.

3.5 RATIONALE FOR SETTING UP A UHT MILK PROCESSING
PLANT
The rationale for setting up the proposed UHT milk processing plant of 100,000
litres per day capacity includes:

26
Current availability of more than 33.0 million tonnes per day (projected figure
2006) of raw milk, out of which only 2 3% is actually being processed.
A current market size of more than 200 million litres per annum of processed
milk, market for processed milk growing at more than 20% per annum for the
past 3 years and projected to continue growing at the same rate for the next
5years.
The Government of Pakistans Strategic initiative for the milk processing
industry which includes; increasing milk yield per animal, stronger
enforcement of laws relating to adulteration and hygiene, a media program
aimed at informing consumers about the dangers of consuming raw milk, a
concentrated program by the dairy industry promoting the use of UHT treated
milk.
Availability of requisite technology for setting up a UHT processing plant and
trained manpower for running the same.
Huge export potential for UHT treated milk in the Region, with Pakistan
being the only milk surplus country in the Region.

In view of the above it is suggested to establish a UHT milk processing unit of
100,000 litres per day capacity with provision of expansion in the future.

3.6 PROPOSED UHT PROCESSING UNIT
As already stated in Chapter 2, the demand for UHT milk is currently estimated at
200 million litres per annum which is increasing at an annual rate of 20%. With
only 2 3% of the more than 33.0 million tonnes of milk produced annually,
(projected figure for 2006) being processed and the abundant availability of milk,
especially in central Punjab the case for setting up of a UHT milk processing plant
very strong.

3.6.1 THE UHT PROCESS
Although pasteurization effectively eliminates potential pathogenic
micro-organisms, it is not sufficient to inactivate the thermo resistant spores in
27
milk. The term sterilization refers to the complete elimination of all micro
organisms. The food industry uses the more realistic term "commercial
sterilization"; a product is not necessarily free of all micro organisms, but those
that survive the sterilization process are unlikely to grow during storage causing
product spoilage.

Milk can be made commercially sterile by subjecting it to temperatures in excess
of 100 C, and packaging it in air-tight containers. The milk may be packaged
either before or after sterilization. The basis of UHT, or ultra-high temperature, is
the sterilization of food before packaging, then filling into pre-sterilized
containers in a sterile atmosphere. Milk that is processed in this way using
temperatures exceeding 135 C, permits a decrease in the necessary holding time
(to 2-5 s) enabling a continuous flow operation.

3.6.2 ADVANTAGES OF UHT

High quality:
The reduction in process time due to higher temperature (UHTST) and the
minimal come-up and cool-down time leads to a high quality product.

Long shelf life:
Shelf-life greater than 6 months, without refrigeration, can be expected.

Packaging size:
Processing conditions are independent of container size, thus allowing for the
filling of large containers for food-service or sale to food manufacturers.

Cheaper packaging:
Cost of package and storage; transportation costs; laminated packaging allows for
use of extensive graphics.

28
3.6.3 DIFFICULTIES WITH UHT

Sterility:
High performance equipment and plant are needed to maintain sterile atmosphere
between processing and packaging (packaging materials, pipe works, tanks,
pumps); sterility must be maintained through aseptic packaging; this would
require higher skilled operators.

Keeping Quality:
Heat stable lipases or proteases can lead to flavor deterioration, age gelation of the
milk over time - nothing lasts forever! There is also a more pronounced cooked
flavor to UHT milk.

3.6.4 UHT METHODS
There are two principal methods of UHT treatment:
Direct Heating
Indirect Heating

Direct heating systems:
The product is heated by direct contact with steam of potable or culinary quality.
The main advantage of direct heating is that the product is held at the elevated
temperature for a shorter period of time. For a heat-sensitive product such as milk,
this means less damage.

There are two methods of direct heating:
1. injection
2. infusion

Injection: High pressure steam is injected into pre-heated liquid by a steam
injector leading to a rapid rise in temperature. After holding, the product is flash-
cooled in a vacuum to remove water equivalent to amount of condensed steam
29
used. This method allows fast heating and cooling, and volatile removal, but is
only suitable for some products. It is energy intensive and because the product
comes in contact with hot equipment, there is potential for flavour damage.

Infusion: The milk product stream is pumped through a distributing nozzle into
a chamber of high pressure steam. This system is characterized by a large steam
volume and a small product volume, distributed in a large surface area of product.
Product temperature is accurately controlled via pressure. Additional holding time
may be accomplished through the use of plate or tubular heat exchangers,
followed by flash cooling in vacuum chamber. This method has several
advantages:
instantaneous heating and rapid cooling
no localized overheating or burn-on
suitable for low and higher viscosity products
Indirect heating systems
The heating medium and product are not in direct contact, but separated by
equipment contact surfaces. Several types of heat exchangers are applicable:

plate
tubular
scraped surface

Plate Heat Exchangers: Similar to that used in HTST but operating pressures are
limited by gaskets. Liquid velocities are low which could lead to uneven heating
and burn-on. This method is economical in floor space, easily inspected, and
allows for potential regeneration.



30
Tubular Heat Exchangers: There are several types:
shell and tube
shell and coil
double tube
triple tube

All of these tubular heat exchangers have fewer seals involved than with plates.
This allows for higher pressures, thus higher flow rates and higher temperatures.
The heating is more uniform but difficult to inspect.

Scraped Surface Heat Exchangers: The product flows through a jacketed tube,
which contains the heating medium, and is scraped from the sides with a rotating
knife. This method is suitable for viscous products and particulates (< 1 cm) such
as fruit sauces, and can be adjusted for different products by changing
configuration of rotor. There is a problem with larger particulates; the long
process time for particulates would mean long holding sections which is
impractical. This may lead to damaged solids and over processing of some
liquids.

3.6.5 PACKAGING OF UHT PROCESSED MILK
The most important point to remember is that packaging must be sterile! All
handling of post-process product must be within a sterile environment.

There are 5 basic types of aseptic packaging lines which can be used for
packaging UHT processed milk:

1. Fill and seal: preformed containers made of thermoformed plastic, glass or
metal are sterilized, filled in aseptic environment, and sealed.
2. Form, fill and seal: roll of material is sterilized, formed in sterile
environment, filled and sealed e.g. tetrapak.
31
3. Erect, fill and seal: using knocked-down blanks, erected, sterilized, filled,
sealed. e.g. gable-top cartons, cambri-blocs.
4. Thermoform, fill, sealed roll stock sterilized, thermoformed, filled, sealed
aseptically. e.g. creamers, plastic soup cans.
5. Blow mold, fill, seal:

There are several different package forms that are used in aseptic UHT
processing:

cans
paperboard/plastic/foil/plastic laminates
flexible pouches
thermoformed plastic containers
flow molded containers
bag-in-box
bulk totes

It is also worth mentioning that many products that are UHT heat treated are not
aseptically packaged. This gives them the advantage of a longer shelf life at
refrigeration temperatures compared to pasteurization, but it does not produce a
shelf-stable product at ambient temperatures, due to the possibility of
recontamination post-processing.

3.7 THE UHT PROCESS FLOW
The UHT Milk Production Flow Chart is shown in Figure 5 below, the basic
functions performed are as follows:





32
CHART - 3
UHT PROCESSING AND PACKAGING PLANT
BASIC BLOCK DIAGRAM











Receipt and filtration of the raw milk: In this stage, raw milk which is received
from the farms is tested for quality and filtered before being stored at a
temperature of 4
o
C. This temperature reduces the formation of micro-organisms.

Pasteurisation of Milk: This mild form of heat treatment kills pathogenic
bacteria that may be present without affecting the nutritional value or flavour. It
also extends the shelf life by reducing the spoilage bacteria. Pasteurised milk can
be kept for up to five days. The process involves heating milk to 71
o
C for at least
15 seconds and then cooling it rapidly to less than 6
o
C. The device used for
heating and cooling is called a heat exchanger or pasteurizer.

Homogenisation of Milk: Homogenization is a process that involves forcing
milk through a tiny hole under considerable pressure. This breaks up the fat
globules making them smaller and of a uniform size. If large gat globules are left
in the milk, these will rise to the surface and form a layer of cream, but in
homogenized milk, the fat stays evenly distributed throughout the bottle or
carton.
Raw milk reception Raw milk storage
Milk pasteurisation,
deaeration
homogenisation &
standardisation
Raw milk cooling
Past. Milk storage
Distribution & Warehousing
UHT treatment
Utilities:
-Electricity
- Steam
- Cooling water
- Compressed air
Automation
CIP
33
Standardization of Milk: UHT Milk is toned to a butter fat content of 3.5%
and solid-not-fat content of 8.9% (standardized milk). Assuming the supply of
pure milk (either from buffalo or cows), the only adjustment needed before
processing should be a reduction of the butter fat content, this is usually done by
either removing cream or adding 800 litres of water to every 1,000 litres of raw
milk, this reduces fat to 3,5% but also reduces the SNF content to less than that
allowed under the law, to make up for this we add 83Kgs of Skim Powder Milk to
the 1,800 litres of milk.

UHT: This form of heat treatment kills all bacteria in milk and it practically
becomes sterile. The UHT process involves sterilising homogenised milk by
a continuous process using direct or indirect heating. With direct heating the
temperature reaches 140 150
o
C either by injecting steam directly into the milk
or by forcing milk through a fine nozzle into a tank filled with steam. The milk
is then cooled in a sterile vacuum chamber, where added steam or excess water is
evaporated.

3.8 TECHNICAL REQUIREMENTS & THEIR AVAILABILITY

3.8.1 LAND:
A plot of land having an area of around 10 acres near Lahore has been proposed.
The present value of land near Lahore is estimated at Rs.0.45 million per acre.

3.8.2 BUILDING & CONSTRUCTION:
The total constructed area has been envisaged at 7,000 square meters to house the
main production facility and storage of the packaged milk, UHT milk needs to
stay in the factory warehouse for a minimum of 3 days to allow for stabilization
before it can be transported. The total cost of the building and civil works has
been estimated at Rs.70.0 million.


34
3.8.3 MACHINERY AND EQUIPMENT:
A modern UHT plant of 100,000 liters per day needs to be purchased from a
supplier of UHT processing machinery. There are a number of suppliers or their
agents in Pakistan. It is estimated that a plant of the capacity specified above
would cost Rs.400.0 million including storage tanks, processing machinery,
packaging machinery, quality control laboratories, installation, startup etc.

3.8.4 OTHER MISCELLANEOUS ITEMS:
This would include fixed assets like office equipment, workshop equipment,
tools, furniture and fixtures, vehicles etc amounting to Rs.20.0 million.

3.8.5 WORKING CAPITAL:
Milk is a business in which cash flow is very high and companies in the industry
tend to generate cash surplus on a regular basis, most of the milk is purchased on
a 1-week credit basis and the finished product is sold on cash. Some advance is
paid especially in the summer months when raw milk production goes down.
Working capital is mostly required for paying for packing material, finished
goods in warehouse that needs to be stabilized before release into the market, for
paying of utility bills, wages, petrol for vehicles and for spares. The Working
Capital requirements have been estimated at Rs.70 million.

3.8.6 CONTINGENCIES:
Contingencies for the first year of operation have been estimated at 20.0 million.
35
CHAPTER 4
GOVERNANCE AND MANAGEMENT STRUCTURE

4.1 GOVERNANCE STRUCTURE
It is proposed that a special purpose company be set-up to establish and operate
the proposed dairy unit. The Companies Ordinance 1984 with amendments
thereof, and Code of Corporate Governance issued by the Security and
Exchange Commission of Pakistan (SECP) regulate establishment and
governance of a limited company (public or private) in Pakistan.

Corporate Governance is a set of institutional and market-based mechanisms that
encourage controllers of a company to maximize the value of a company for its
owners. The conduct of the corporation is a three-way process involving the board
of directors, top management and the employees. At the core of corporate
governance is empowerment at all levels shareholders, the board, and top
management. The law applicable to a company is the law of the country.

Principles and rules on corporate governance need to be laid down in the Articles
& Memorandum of Association (Incorporation) and the Regulations of Board of
Directors. The proposed governance structure is illustrated on the following page.

The business of the company is to be managed under the directions of the Board
of Directors. The Board is responsible for establishing broad corporate policies
and for the overall performance of the company. The core responsibility of the
directors is to exercise their business judgment and to act in what they reasonably
believe to be in the best interests of the company.

The Boards Corporate Governance Committee is required to review the
principles and rules regularly in the light of prevailing best practices and it is
required to forward suggestions for improvement to the Board for approval.

36
The Boards Corporate Governance Committee is also responsible for considering
matters of corporate social responsibility and matters of significance in areas
related to corporate public affairs and the companys employees and shareholders.

The Boards job should be to create and maintain a structure that will ensure
harmony and cooperation between management and the employees in pursuing
the goals and objectives of the organization rather than simply rubber-stamping
the actions of management.

The Boards Audit Committee will have two fundamental responsibilities;
internally it will oversee the annual external audit to ensure the accuracy and
integrity of the financial statements as required by legislation. It will also ensure
that there are no breakdowns in corporate governance rules and procedures,
including the rules of ethical conduct and internal control. The Audit Committee
would also be the practical monitor collecting information regarding corporate
misconduct and encouraging those with such information to come forward.

CHART 4
PROPOSED GOVERNANCE STRUCTURE













The Company Share-Holders

Board of Directors
Chairman

Chief Executive
Officer
Corporate
Governance
Committee
Corporate Audit
Committee
Manager
Procurement
Manager
Marketing
Manager
Finance
Internal Auditor
& Quality
Assurance
Manager
HR &
Admin.
Plant
Manager
37
4.2 MANAGEMENT STRUCTURE
The paramount duty of the Board of Directors is to select a Chief Executive
Officer (CEO) and to oversee the CEO and the other senior management staff in
the proper and ethical operation of the company.

The Board would identify, and periodically update the qualities and
characteristics necessary for an effective CEO of the company. With these
principles in mind, the Board should periodically monitor and review the
development and progression of potential internal candidates against these
standards.

The CEO will be in-charge of the day-to-day management of operations and is
responsible for ensuring that the company and management functions are
organized, run and developed in accordance with the law, Articles of Association
and decisions taken by the Board, and the Annual General Meeting of the
Shareholders.

The management structure, presented in Figure 7 comprises of various
departments including milk procurement, plant operation, quality assurance,
human resource, finance, marketing & sales, internal audit and field staff.

The structure is characterized by clear assignment of responsibilities as well as a
reduced number of interfaces.

The selected CEO will be responsible for delivering policy and performance for
customers, society, staff, suppliers and the business. The core activities are briefly
described as under:



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- - - 1 1 - 1 1 1 8 1 - 6 4 10 6 - - - - - 2 2 1 - 45

- - 1 - - - - - - - - - - - - - - - - - - - - - - 1
- - - 1 - - - - 2 10 - - 5 2 6 6 2 2 6 4 12 - - - - 58
1 6 - - - - - - - - - - - - - - - - - - - - - - - 7
- - - 1 - - - - 4 - - - - 10 10 - - - - - - - - - - 25
- - - 1 - 1 - - 1 - - - - 4 10 - - 3 2 - - - - - 3 25
- - - - - - - - 1 - - - - 4 6 - - - - - - - - - -
1 6 1 4 1 1 1 1 9 18 1 0 11 24 42 12 2 5 8 4 12 2 2 1 3 161
CHART - 5
C

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T
HUMAN RESOURCE DEPLOYMENT
Plant Manager
Secretary
Board
- Chairman
- Directors (6)
Milk Collection
Marketing
Finance
Total
The Company
Corporate Audit
Committee
HR &
Admin
CEO
39
4.3 RAW MILK PROCURMENT & TRANSPORTATION
This department will be responsible for purchasing milk from the pucca dhodis
the success of the plant will hinge on this crucial function, as the plant will only
be successful in the long run if it is able to have a secure raw milk supply. To
ensure that milk quality is maintained, chillers will be provided to the pucca
dhodis who will be paid for the maintenance of these chillers. In addition to
maintaining the quality of the milk at the collection points, the department will
also be responsible for transporting the raw milk to the plant. As milk will be
collected from a number of collection points, the department will be responsible
for ensuring that inferior milk from one supplier does not mix with the milk
collected from another supplier. Also the department will be responsible for
measuring the fat and the solid not fat content of the milk.

4.4 PLANT OPERATIONS AND QUALITY ASSURANCE
A Plant Engineer with a degree in food processing will be appointed to run the
processing plant, he will be assisted by qualified and experienced quality
assurance staff headed by a food technologist. Very high quality standards need to
be maintained, as one of the reasons for urban consumers switching to UHT milk
is the hygiene aspect of the process. The plant maintenance staff will be
responsible for daily washing and sterilization of the plant. Plant is normally run
for 16 hours followed by a mandatory 8 hour shutdown period to allow for
cleaning of the plant and its peripheral machinery.

4.5 MARKETING & SALES
A General Manager will head the marketing and sales function; he should have
vast experience in the field of FMCG marketing. Area Managers who will have
Sales Representatives working under them will assist the GM Marketing and
Sales. Distributors who will be appointed in all the major towns of Pakistan will
provide the selling function. The existing milk processing units currently employ
the suggested distribution network. In addition an institutional sales force will be
developed which will sell directly to large customers like the Canteen Stores
40
Department (CSD), the Utility Stores Corporation (USC), major hospitals, hotels,
large restaurants, food caterers etc.

CHART - 6
PROPOSED MANAGEMENT STRUCTURE
















4.6 FINANCE DEPARTMENT
The finance department will handle all financial matters in terms of billing,
settlement of invoices, negotiating and finalizing deals, effectively managing the
huge amount of cash that a business like this generates, managing administrative
expenses etc. Payment recovery and preparation of accounts in terms of quarterly,
half yearly and annual reports in line with audit requirements will be some of the
other responsibilities of the Finance Department. The personnel required will
include a Senior Finance Manager assisted by Accountants and Assistant
Accountants.

Plant
Manager
Works
Manager
Technicians
Chemists Technical -
Supervisors
Electrician
CEO
Manager Milk
Procurement
HR
Manager
Marketing
Manager
Field
Manager
Field
Supervisor
Institutional
Marketing Manager
Chemists
Cold Storage
Technical
Logistic
In charge
Veterinary
Doctor
Finance
Manager
Accounts
Staff
Finance
Staff
41
4.7 HUMAN RESOURCE DEPARTMENT
The Human Resource department will focus on developing the human capital of
the company, keeping in mind the underlying importance of human capital in
modern business. The department will take a strategic approach to human
resources management for attainment of organizations strategic objectives. A
professional approach based on maximizing returns on investment through
development of farsighted policies to attract, train and retain human capital.
Additionally the department will determine compensations and grievance
handling procedures, set objectives, develop standards, appraise performance and
review results in order to meet the challenges of the present age.
42
CHAPTER 5
FINANCIAL EVALUATION

5.1 CAPITAL COST OF THE PROJECT
The estimated capital cost of the project would be around Rs.670.0 million, this
would include cost of land, building, machinery, other capital assets, working
capital etc.

TABLE 9
UHT MILK PROCESSING PLANT PROJECTED CAPITAL COST
(Rs in 000s)
S. # DESCRIPTION AMOUNT
1. Cost of Land (10 acres @ Rs. 0.45 million/ per acre) 45,000
2. Cost of construction of Plant Building (7,000 Sq.
meter @ Rs.10,000/ per m2) 70,000
3. Machinery & Equipment 400,000
4.
Collection Chillers / Refrigerated Milk Collection
Trucks
30,000
5. Other Vehicles 10,000
6. Other Plant and Machinery 20,000
7. Furniture & Fixtures 5,000
8. Working Capital 70,000
9. Contingencies 20,000

TOTAL 670,000

Funds have been provided for the purchase of raw milk, installation of chillers at
collection points, chiller trucks, a modern 100,000-liter per day UHT milk
processing plant with packaging facilities etc. The production process is a
continuous process and capacity has been calculated at 16 hours per day, the plant
must be compulsorily shut down for cleaning on a daily basis and the cleaning
and sterilization time is 8 hours. It is expected that the plant will run for 350 days
a year and in the first year capacity utilization will, on an average, be 50%, this
43
conservative figure has been taken keeping in mind the difficulties in setting up a
milk collection network.

Land:
The plot of land having an area of around 10 acres near Lahore has been
proposed, justification for location of plant has been established in the Technical
Evaluation of the Pre-feasibility. The present value of land near Lahore is
estimated at Rs.0.45 million per acre.

Building & Construction:
The total constructed area has been envisaged as 7,000 square meters to house the
main production facility and storage of the packaged milk, UHT milk needs to
stay in the factory warehouse for a minimum of 3 days to allow for stabilization
before it can be transported. The total cost of the building and civil works has
been estimated at Rs.70.0 million.

Machinery and Equipment:
A modern UHT plant of 100,000 liters per day needs to be purchased from a
supplier of UHT processing machinery. There are a number of suppliers or their
agents in Pakistan. It is estimated that a plant of the capacity specified above
would cost Rs.400.0 million including storage tanks, processing machinery,
packaging machinery, quality control laboratories, installation, startup etc.

On Farm Chillers, Refrigerated Trucks Etc.
As part of the collection chain, the Company will need to provide Chillers for
collection of raw milk as well as infrastructure like generators etc to run these
chillers, in addition refrigerated trucks would be required to bring the raw milk
from collection points to the factory, it is estimated that this will cost Rs.30.0
million.


44
Other Vehicles:
This will include other support vehicles like service vans for in-field chillers, for
transporting of workers, vehicles for short haul deliveries to the regional
distributors as well as cars for executives. It is estimated that these will cost
Rs.10.0 million.

Other Plant and Machinery:
This will include stand by generators, water treatment facilities, tube wells etc.,
the cost is estimated at Rs.20.0 million.

Furniture & Fixtures:
This will include office furniture and fixtures as well as office equipment like
computers, operational software etc. The total cost is estimated at Rs.5.0 million.

Working Capital:
Milk is a business in which cash flow is very high and companies in the industry
tend to generate cash surpluses on a regular basis, most of the milk is purchased
on a 1-week credit basis and the finished product is sold on cash. Some advances
are paid especially in the summer months when raw milk production goes down.
Working capital is mostly required for paying for packing material, finished
goods in warehouse that has to be stabilized before release into the market, for
paying of utility bills, wages, petrol for vehicles and for spares. The Working
Capital requirements have been estimated at Rs.70 million.

Contingencies:
Contingencies for the first year of operation have been estimated at 15.0 million.

5.2 PROJECTED PROFIT & LOSS ACCOUNTS
The projected income statements for the UHT milk processing plant for 5 years
are given in Table 10:

45
TABLE 10
PROJECTED PROFIT & LOSS ACCOUNTS
(Rs in 000)
Description Year 1 Year 2 Year 3 Year 4 Year 5
Sales 560,000 616,000 672,000 728,000 784,000
Cost of Good Sold 287,875 316,663 345,450 374,238 403,025
Gross Profit 272,125 299,338 326,550 353,763 380,975
Admin & Related
Expenses 70,550 76,265 82,047 87,899 93,826
Operating Profit 201,575 223,073 244,503 265,863 287,149
Depreciation 54,500 54,500 54,500 54,500 54,500
Net Profit Before Tax 147,075 168,573 190,003 211,363 232,649
Income Taxes (35%) 51,476 59,000 66,501 73,977 81,427
Net Profit after Income
Tax 95,599 109,572 123,502 137,386 151,222

5.3 PROJECTED CASH FLOW
The projected cash flow of the Project for 5 years is shown as under:

TABLE 11
PROJECTED CASH FLOW
(Rs in 000)
Expected Cash Inflow Year 0 Year - 1 Year - 2 Year - 3 Year - 4 Year - 5
Equity Contribution 670,000 - - - - -
Operating Profit - 201,575 223,073 244,503 265,863 287,149
TOTAL 670,000 201,575 223,073 244,503 265,863 287,149
EXPECTED CASH OUTFLOW
Capital Investment 670,000 - - - - -
Payment of Taxes - - 51,476 59,000 66,501 73,977
Total 670,000 - 51,476 59,000 66,501 73,977
SUMMARY
Expected Cash Inflow
670,000 201,575 223,073 244,503 265,863 287,149
Expected Cash
Outflow 670,000 - 51,476 59,000 66,501 73,977
Net Cash flow - 201,575 171,596 185,503 199,362 213,172
Cumulative Cash
Flow - 201,575 373,171 558,674 758,036 971,208

46
5.4 PROJECTED BALANCE SHEETS
The projected Balance Sheet for the first 5 years is given below:

TABLE 12
PROJECTED BALANCE SHEET
(Rs in 000)
Description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
CAPITAL
Equity Contribution 670,000 670,000 670,000 670,000 670,000 670,000
Accumulated Profit
& Loss - 95,599 205,171 328,673 466,059 617,281
Total Capital 670,000 765,599 875,171 998,673 1,136,059 1,287,281
LIABILITY

Long Term
Liability
- - - - - -
Tax Payable - 51,476 59,000 66,501 73,977 81,427
Total Liabilities - 51,476 59,000 66,501 73,977 81,427
TOTAL EQUITY
& LIABILITY 670,000 817,075 934,171 1,065,174 1,210,036 1,368,708
ASSETS

Capital Investment 670,000 615,500 561,000 506,500 452,000 397,500
Cash & Cash
Equivalent - 201,575 373,171 558,674 758,036 971,208
Total Assets 670,000 817,075 934,171 1,065,174 1,210,036 1,368,708
TOTAL ASSETS 670,000 817,075 934,171 1,065,174 1,210,036 1,368,708

47
5.5 INTERNAL FINANCIAL RATE OF RETURN
The IFRR of the project is nearly 24.0% and calculations are shown in Table 13:

TABLE 13
PROJECTED IFRR
Year
Capital
Outlay
Net Income Depreciation Net Cash Inflow
0. 670,000

(670,000)
1.

95,599 54,500 150,099
2.

109,572 54,500 164,072
3.

123,502 54,500 178,002
4.

137,386 54,500 191,886
5.

151,222 54,500 205,722
6.

151,222 54,500 205,722
7.

151,222 54,500 205,722
8.

151,222 54,500 205,722
9.

151,222 54,500 205,722
10.

151,222 54,500 205,722
Rate :
I.F.R.R.: 23.78 %

5.6 RATES OF RETURN
On the basis of the projected income statement and related projections, rates of
return for the project are calculated and shown in Table 14:

TABLE 14
RATES OF RETURN
Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit% on Equity
(RoE) 14.27 16.35 18.43 20.51 22.57
Net Profit % to Sales 17.07 17.79 18.38 18.87 19.29
Operating profit % to
Sales 36.00 36.21 36.38 36.52 36.63
Gross Profit % to Sales 48.59 48.59 48.59 48.59 48.59
48
5.7 PAYBACK PERIOD
The payback period for the project is approximately 4 years, calculations are
shown in Table 15:

TABLE 15
PAYBACK PERIOD
(Amount in Percentage)
Description
Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit

95,599

109,572

123,502

137,386

151,222
Add:
Depreciation

54,500

54,500

54,500

54,500

54,500
Total 150,099 164,072 178,002 191,886 205,722

Total Investment 670,000
Pay back period 4 yrs approx.

5.8 FUNDING OF THE PROJECT
It is proposed that the amount of Rs.670 million (UD$11.5 million) be funded
from equity, if, however, the sponsors desire then these can incorporate debt in
the required proportion. In Pakistan Debt to Equity ratio of 60:40 is quite
acceptable to Banks, DFIs, etc. Some of the assets can also be leased.
49
CHAPTER 6
CONCLUSION

Pakistan is a milk rich country in a milk deficient region. With a projected
production of 33 billion litres of milk in 2006, the country is the fifth largest milk
producer in the world. However despite such impressive production volumes, the
country remains a net importer of milk products, this is primarily due to the fact
that only 2 3% of the milk is UHT processed. The market for UHT processed
milk is growing at the rate of 20% per annum and is currently estimated at 200
million litres per annum.

It is expected that both the supply of raw milk and the demand for UHT treated
milk will increase with the implementation of the Dairy & Livestock Strategy by
the Government of Pakistan. It is projected that by 2012 the milk yield per animal
will be doubled to 13 litres per day while at the same time chillers will be
provided at farms to help prevent deterioration of the raw milk. In addition, the
Government in conjunction with the dairy industry is planning to launch a high
profile public awareness drive aimed at informing the consumers about the
dangers of using milk collected and distributed through the traditional milk
marketing channels.

In addition to the marketing aspects, the financials of the project show a payback
period of about 3 years and an IRR of about 36%. Financing is available from
local banks and development financial institutions which can further reduce the
payback period.

For the setting up of the UHT milk processing plant, it is suggested that the
potential investor do a detailed feasibility study of the project with special
emphasis on the milk collection chain as well as doing a detailed study of the
competitors marketing strategies.
i
ANNEXURE 1
PAKISTAN - A PROFILE

INTRODUCTION







Pakistan is located in South Asia. It borders Iran to the southwest, Afghanistan to the
northwest, China to the northeast and India to the east. The Arabian Sea marks Pakistans
southern boundary.




ii













The total area of Pakistan is 796,095 square kilometers and the country is divided
administratively into four provinces Balochistan, North-West Frontier Province, Punjab
and Sindh and numerous federally administrated areas. The disputed territory of Azad
J ammu & Kashmir lies to the north of Punjab.
iii
Pakistan has a diverse array of landscapes spread among nine major ecological zones
from north to south. It is home to some of the worlds highest peaks including K-2 which
at 8,611 meters above sea level is the worlds second highest peak. Intermountain valleys
make up much of the North-West Frontier Province, while the province of Balochistan in
the west is covered mostly by rugged plateaus. In the east, irrigated plains along the Indus
River cover much of Punjab and Sindh. In addition, both Punjab and Sindh have deserts,
Thal, Cholistan and Thar deserts respectively.

Most of Pakistan has a generally dry climate and receives less than 250 mm of rain per
year. The average annual temperature is around 27
o
C, but temperatures vary with
elevation from -30
o
C to -10
o
C during cold months in the mountainous and northern areas
of Pakistan to 50
o
C in the warmest months in parts of Punjab, Sindh and the Balochistan
Plateau. Mid-November to February is dry and cool; March and April bring sunny spring,
May to J uly is hot, with 25 to 50% relative humidity; Monsoons start in J uly and continue
till September; October- November is the dry and colourful autumn season.

Pakistan had an estimated population in 2005 of 160 million, 40% of this population was
less than 15 years of age. The major cities of Pakistan and their estimated populations
are; Karachi (16.0 million), Lahore (8.0 million), Faisalabad (6.0 million), Rawalpindi
(5.0 million), Multan (4.5 million), Hyderabad (3.0 million), Gujranwalla (1.8 million)
Peshawar (1.6) and Quetta (0.85). Islamabad, the Capital of the country, has a population
of around 750,000.

According to the 1973 Constitution, Pakistan is governed under a federal parliamentary
system with the President as head of state and a Prime Minister as head of government.
The legislature, or parliament, consists of the Lower House (National Assembly) and the
Upper House or Senate. Members of the National Assembly are directly elected for five-
year terms.

Executive power lies with the President and the Prime Minister. The Prime Minister is an
elected member of the National Assembly and is the leader of the majority party in the
iv
National Assembly. An electoral college consisting of members of the national and
provincial legislatures elects the president for a five-year term.

After the events of 9/11, Pakistan has become a key US ally in the war against terror.
This alignment is totally in-line with the views of the majority of Pakistanis who practice
and preach a moderate version of Islam. The Government of Pakistan fully realizes the
need for promoting Islam as a modern progressive religion. The Government has chosen
the difficult option of fighting the war against terror by clamping down on Taliban and
Al-Qaeda remnants along the border with Afghanistan. The people of Pakistan fully
support the Government in its efforts to promote the true face of Islam.

The US Government fully backs and supports Pakistan in this war against terror. US Aid
which was stopped after the 1998 Nuclear Test has been restored and Pakistan will
receive US$ 3.0 billion over the next 5 years, divided equally between economic and
military aid.

Pakistan follows a very active policy of regional alliances for trade and economic
development. It is an active member of the South Asian Association for Regional
Cooperation (SAARC) which groups Pakistan, India, Bangladesh, Sri Lanka, Nepal,
Bhutan and the Maldives. It is also an active member of the Economic Cooperation
Organization (ECO) comprising of Turkey, Iran, Pakistan, Afghanistan, and the six
Central Asian Republics. Pakistan has an observer status at the Gulf Cooperation Council
(GCC) as well as ASEAN and Shanghai Cooperation Organization. Being a member of
WTO it conforms to most of the international trade regimes.

ECONOMY
Pakistans economy has made significant progress in the last six years. This has been
possible because of the Governments policy of initiating growth through domestic and
foreign direct investment. The GDP growth rate has increased from 1.8% per annum in
2001 to 8.4% per annum in 2005. Despite the devastating earthquake in October 2005,
the economy is expected to grow at over 6.6% in 2006. Pakistans GDP in 2005 was
v
estimated at US$ 385.2 billion and its per capita GDP was US$ 2,400. The Countrys
credit rating has been upgraded by Moodys from Caa1 in 2002 to Ba3 i.e. stable in
2006.

Pakistan has over 3.5 million laborers working in various countries of the Middle East. In
addition, Pakistani technical and professional manpower is engaged in lucrative pursuits
in USA, UK, Canada, Malaysia, etc. These non-resident Pakistanis annually send over
US$ 4.0 billion in foreign remittances.

The Government of Pakistans policy of encouraging Foreign Direct Investment (FDI)
has seen it grow from a mere US$ 376.0 million in 1999 to more than US$ 1.5 billion in
2005 which is expected to grow to over US$ 3.0 billion in 2006.

In addition to Foreign Direct Investment, low domestic interest rates have meant that
there has been an upsurge in domestic investment; the weighted average rate of lending
has fallen from 16% in 1999 to approximately 8% in 2005.

The Governments economic policy has seen foreign currency deposits rise from US$ 1.7
Billion in 1999 to now US$ 13.0 billion in 2006; this has led to both low rates of inflation
and to a stable exchange rate.

With the Government of Pakistan targeting annual growth in the economy at 7.5% per
annum in the next 5 years, Pakistan is the country of choice for foreign and domestic
investors.

INFRASTRUCTURE
The National Highway Authority (NHA) has the responsibility for 17 of Pakistans major
inter provincial links called the National Highway including the Motorways, which are
access controlled and tolled highways. Total length of roads, under NHA, currently
stands at 8845 Kms.

vi
These roads account for only 3.5% of Pakistans entire road network but cater for 80% of
the commercial road traffic in the country. Improvement and extension of the existing
network is, therefore, essential to develop remote areas and provide better connection
between the economic centers of Pakistan. In addition a first class road network is
essential if Pakistan is going to connect its all-weather Arabian Seaports with the
landlocked Central Asian Republics and Western China. The Government has initiated
work on the North-South Trade Corridor with planned investment of over US$ 60 billion.

In order to further speed up the development of the road network, the Government is
actively seeking the participation of the private sector to implement road projects on a
Build-Operate-Transfer (BOT) basis. A number of projects are currently being
implemented under the BOT concept and others are in the identification stage. These
BOT projects cover the construction of new roads as well as the upgrading of existing
roads.

Pakistan has about 1062 km of coastline on the Arabian Sea running from the Indian
border to the Persian Gulf. The Karachi Port is the premier port of Pakistan and is
managed by the Karachi Port Trust (KPT). Karachi port handles about 75% of the entire
national cargo. It is a deep natural port with a 11 km long approach channel to provide
safe navigation up to 75,000 DWT tankers, modern container vessels, bulk carriers and
general cargo ships. The Karachi Port has 30 dry cargo berths including two Container
Terminals and 3 liquid cargo-handling berths. KPT intends to cater for 12-meter draught
ships, which are the most widely used container vessels. In order to facilitate
accommodate and fast turnaround time of mother vessels, the KPT is offering to the
private sector the opportunity to develop a terminal on BOT basis. In addition KPT has
plans to develop a Cargo Village on 100 acres. This Cargo Village shall serve as a
satellite to the port, integrating container, bulk and general cargo handling as well as
providing processing plants for perishable exports. With direct connection to the National
Highway Network, as well as National Railways Network the cargo village shall also
alleviate the problem of upcountry trade with cost effective storage/handling services in
the vicinity of the port. A master plan is under preparation and all the units within the
vii
village shall be allocated to the private sector on BOT and Build-Operate-Own (BOO)
basis within the next year.

Pakistans second Sea Port, Port Qasim is located 50 kilometers to the South East of
Karachi. It is the Countrys first industrial and multi-purpose deep-sea-port. Currently it
is handling 23% of Pakistans sea trade. Port Qasim has attractions and advantages for
investment both in port facilities and port-based industrial development. Port Qasim
Authority from the very beginning has actively sought the help of the private sector in the
development of its port structure. Some of the projects which have been completed with
private sector involvement include; dedicated oil terminal developed in private sector on
BOO basis at a cost of US$ 87 million to cater for oil imports with a handling capacity of
9 million tons per annum, a container terminal developed by P&G Group, Australia, at a
cost of US$ 35 million on BOO basis, for chemicals imports a facility in collaboration
with Vopak of Netherlands on BOT basis at a cost of US$ 67 million. Some of the
projects which the Port plans to develop with the private sector on the basis of BOT
include; establishment of a second oil jetty, establishment of a dedicated coal and
clinker/cement terminal and the establishment of a marine workshop and dry dock
facilities.

To encourage industrial development the Port Qasim Authority has reserved 300 acres of
land on a prime location in the Eastern Industrial Zone (EIZ) for allotment of plots to
Overseas Pakistanis to induce and encourage foreign investment and provide them an
opportunity to establish small size industries in Pakistan. Each plot is measuring 100
square yards at a very low cost on attractive terms and conditions. This is in addition to
existing 1,200 acres of industrial zone which houses a number of auto assemblers such as
Toyota, Suzuki, Chevrolet and the Textile City spread over 1,250 acres.

The Pakistan Merchant Marine Policy 2001, has deregulated the shipping sector and aims
to attract investment; both local and foreign, public and private, by offering a range of
incentives. The new policy in addition to offering duty-free import of ships, offers many
new incentives to local and foreign investors including Income Tax exemption till 2020.
viii
Pakistan's annual seaborne trade is about 45 million tons, just 5 per cent of which is
carried by the national carrier Pakistan National Shipping Corporation (PNSC), the
country's annual freight bill surpasses staggering $ 1.5 billion which is causing a colossal
drain on foreign exchange resources, the marine policy aims to reverse this situation to
some extent.

The Shipping Policy aims to revive and augment national ship-building/capacity to meet
20 per cent ship construction requirements of the country merchant marine and entire
requirements of support and ancillary crafts. The policy also aims to rejuvenate and
expand the ship repair potential to undertake the entire range of repairs and maintenance
of 50 per cent of Pakistani Flag ocean-going vessels and all ancillary sectors. The new
Shipping Policy offers many financial incentives for potential investors. It offers tax
exemptions and concessional tax measures backed by assurances. It also aims at
simplifying the rules by deregulating the sector.

To begin with, ships and floating crafts tugs, dredgers, survey vessels, and specialized
crafts purchased or bareboat chartered by a Pakistani entity flying the Pakistani flag
will be exempt from all import duties and surcharges till 2020. The policy accords shop-
building and ship-repair the status of an industry under the investment policy which is
entitled to all incentives contained therein.

To attract foreign investment, all port and harbor authorities in Pakistan will allow all
ships and floating crafts 10 per cent reduced berthing rates when the same are berthed for
purposes of repair and maintenance. Under the Policy, ships and all floating crafts are
considered bonafide collateral against which financing can be obtained from Banks and
Financial Institutions subject to policy of the financial institution.

There are 42 airports in the country managed by the Civil Aviation Authority (CAA). Out
of these, five airports; Lahore, Karachi, Islamabad, Peshawar and Quetta are international
airports. The CAA is planning to develop a new international airport at Islamabad for
ix
which land has been acquired and it is planed to fund the US$ 250-300 million on BOT
basis.

The Pakistan International Airlines (PIA) is the national flag carrier flying to 46
international and 36 local destinations. Other Pakistani airlines in the private sector
include, Aero Asia, Air Blue, Shaheen Air International and Pearl Air. In addition to
direct flights from most parts of the world, Pakistan can also be accessed through the
regional hubs of most international airlines, which operate through airports in the Gulf
countries.

The Pakistan Railways provides an important nation-wide mode of transportation in the
public sector. It contributes to the countrys economic development by catering to the
needs of large-scale movement of freight as well as passenger traffic. Pakistan railway
provides transport facility to over 70 million people and handles freight above 6 million
tons annually.

The Pakistan Railways Network was based on a total of 11,515 track kilometers
(including track on double line, yard & sidings) at the end of 2001-2002. This network
consists of 10,960 kilometers of broad-gauge and 555 kilometers of meter gauge.

Pakistan Railways has launched modernization activity with rehabilitation and
improvement plan both for its infrastructure and rolling stock including prime mover.
The ongoing schemes worth over US$ 500 million are progressing satisfactorily and have
brought a radical improvement in service. The railways is gearing up to the challenge of
providing improved connectivity to Iran, India, and link the upcoming Gwadar Port to
Afghanistan and onward to Turkmenistan.

Pakistan Telecommunication Limited (PTCL) dominated Pakistans telecommunications
market for the fixed-line services. Today the Pakistan Telecommunication Authority
(PTA) has the role of a regulatory body and is responsible for implementing the telecom
deregulation policy. For a long time, Pakistan lagged behind in the region as far as
x
telecom access is concerned. With cellular mobile revolution taking place, Pakistan's
tele-density currently stands at 10.37%, with gross subscribers base of fixed (5.05
million) as well as mobile subscribers (10.54 million) touching 15.59 million for a
population of 160.0 million.

The Telecomm Sector has attracted the largest FDI in Pakistan with approximately
US$ 1.5 billion having been invested in 2005.

At the moment there are six companies providing mobile phone services in Pakistan, with
the largest of them, Mobilink (owned by Orascom Telecom) with nearly 50% of the
market share, other foreign players include MCE, Telenor and Warid.

In addition Wateen Telecom, a subsidiary of UAE-based Al Warid Telecom, has
launched a US$ 75.0 million project to lay an optic fiber optic backbone across the
Country. The first segment of the project of 800 kms would stretch from Karachi to
Rahimyar Khan and would be further linked with the rest of the country up to Peshawar
through 63 cities. When completed the backbone would be 5,000 kilometers, long
spanning the length and the breadth of Pakistan and would facilitate both the corporate
and residential segments, providing voice and high-speed data services on a converged
wireless network.

Pakistan in 2005 had 70 operational providers of internet services across 1,900 cities and
towns of the Country catering to about 2 million subscribers. In addition the Government
has reduced bandwidth rates for high speed board band internet connections and the
number of subscribers in this category is expected to grow to 200,000 by end of 2006.

AGRICULTURE
Agriculture accounts for nearly 23 percent of Pakistans national income and employs 42
percent of its workforce. Nearly 68 percent of the population lives in rural areas and is
directly or indirectly dependent on agriculture for their livelihood. Livestock is the single
largest contributor 47 percent share in the national income. The major crops; cotton,
xi
wheat, sugarcane and rice contribute 37 percent to agriculture while the minor crops like
oilseed, spices, onion and pulses contribute another 12 percent.

Pakistan is the fifth largest producer of milk in the world. The per capita availability of
milk at present is 185 liters, which is the highest among the South Asian countries. Milk
production in Pakistan has seen a constant increase during the last two decades. The
production has increased from 8.92 million metric tons in 1981 to 28 million metric tons
in 2005. There is a large and untapped potential in the dairy industry. With a population
of 160 million, a significant demand for dairy products exists in Pakistan. There is a need
for establishing modern milk processing and packaging facilities based on advanced
technology to convert abundantly available raw milk into high value added dairy
products. In addition, with improved conditions for milk pasteurization, availability of
chilled distribution facilities and consumer preference for the low cost pasteurized milk,
the sector provides unique opportunity for investment in establishing pasteurized milk
production plants.

There is also great scope for establishing related industries in the form of an efficient
milk collection system and refrigeration & transportation facilities. The sector offers
opportunity to foreign investors for establishing a joint venture for the production of
dairy products, particularly dried milk and infant formula milk for which great demand
exists in the neighboring countries like Afghanistan, Iran, UAE and Saudi Arabia.

Out of the 28 million tons of milk produced per annum in Pakistan, only 2.5 to 3 per cent
reaches the dairy plants for processing into variety of dairy products. Pakistans dairy
industry produces Ultra Heat Treated (UHT) Milk, Pasteurized Milk, Dry Milk Powder,
and Condensed milk. Other major milk products produced by the dairy industry include
butter, yogurt, ice cream, cheese, cream and some butter oil. Approximately half of the
0.3 million tons of milk available to the industry is processed into UHT milk, 40 percent
into powdered milk, and the remaining 10 percent into pasteurized milk, yogurt, cheese
and butter etc. Major players in the sector include Nestle, Haleeb and Engro Foods.

xii
Pakistan produced 1.1 million tons of beef, 740,000 kgs of mutton and 410,000 kgs of
chicken meat in 2005; in addition it also produced approximately 5 billion eggs in 2005.
Processed meat is exported to Saudi Arabia, UAE, Oman, Bahrain, Qatar and Kuwait in
the Middle East and Malaysia in the Far East. Pakistan exports around 40,000 live
animals and 2.83 million kg of meat to the Gulf.

Cotton is an important non-food crop and a significant source of foreign exchange
earning. It accounted for 10.5 percent of the value added in agriculture and about 2.4
percent of the GDP in 2005. Pakistan in 2005 produced about 14.5 million bales of
cotton.

Rice is a high value added cash crop and is also a major export item, it accounts for 5.7
percent of the total value added in agriculture and 1.3 percent of the GDP. Production of
rice in 2005 was about 5 million tones. In 2005 rice became the second largest export
from Pakistan when the country exported rice worth US$ 934 million. In addition to high
value Basmati rice, Pakistan also exports IRRI 6 parboiled rice and IRRI rice to Africa.

Sugarcane is an intensive cash crop and serves as the major raw material for production
of white sugar and gur. Its share in the value added in agriculture is 3.6 percent and 0.8
percent in the GDP. The total sugarcane crop in 2005 was estimated at 45 million tones.

Wheat is the leading food grain of Pakistan, and being the staple diet of the people, it
occupies a central position in agricultural policy. It contributes 13.8 percent to the value
added in agriculture and 3.2 percent of the GDP. The size of the wheat crop in 2005 was
estimated at 21.0 million tons.

In addition to the above, Pakistan also produces bajra, jowar, tobacco, barley, oilseed,
pulses, potato, onion, chillies etc.

xiii
The Government of Pakistan has launched a plan to promote Corporate Agriculture
Farming and has offered a number of incentives to develop the sector including the
provision of land and other facilities.

MANUFACTURING
In the post quota regime, total exports of textile increased from $ 6.5 billion in 2004 to
$ 7.4 billion in 2005. Pakistan textiles are poised to achieve $ 10 billion exports by J une
2006. This growth is largely driven by the continuity of government policies, positive
macroeconomic indicators, tariff rationalization, removal of sales tax on textile
chain, deregulation, lower interest rates, increased market access, public-private
partnership programs and the creation of a hassle free environment by the government.

The Government of Pakistan continues to take steps to further develop the textile sector
focusing on bridging the skills gap promoting research and development activities,
facilitating an increase in the number of women employees, outsourcing of specialized
work and simplification of procedures. To facilitate value addition in the textile
sector, world class departments in various disciplines related to textile industry are being
set up in three universities. These departments will have linkages with corresponding
foreign departments of high repute.

In the past 5 years, approximately US$ 5.5 billion have been invested in the textile sector
with the major investments being in spinning ($ 2.6 billion), weaving ($ 1.5 billion), and
textile processing ($ 600 million). A Rs.10 billion, Pakistan Textile City facility located
on 1,250 acres of land near Karachi is in the process of being set-up. This will have its
own desalination plant, effluent treatment plant, a self-power generation plant and all the
other modern facilities required for industrial production. It is expected that the Textile
City will lead to an increase in exports of US$ 400 million and provide jobs to 60,000
workers

Pakistans leather exports in 2005 were US$ 883 million which is the second largest
export sector after textiles. It is expected that exports will cross the US$ 1 billion mark in
xiv
2006. Major exports include finished leather; both for garments and footwear, finished
leather garments, leather work gloves, and other leather products. The major centers for
the manufacture of leather and leather products are; Karachi, Lahore, Sialkot and Kasur,
it is estimated that there are more than 700 tanneries operating in Pakistan employing
more than 100,000 persons, in addition another 150,000 workers are employed in the
value addition sectors. In order to promote the industry, the Government has zero-rated
the sales tax on the leather sector and is working to ensure that the industry conforms to
international waste management standards.

Pakistans light engineering sector consists of twenty-eight sub-sectors including
consumer durables and other industrial products. The surgical instrument manufacturing
sector which forms part of light engineering sector is clustered around Sialkot and
exports 95% of its production. There are about 2,500 large, medium and small sized units
with the industry employing about 50,000 skilled and semi-skilled workers. The surgical
goods sector produces both disposable and reusable instruments. The product range
consists of more than 10,000 different items.

The cutlery industry which in 2005 exported goods worth approximately US$ 31 million
is mainly concentrated in the locality of Wazirababd, Nazimabad and Allahbad in
Gujranwalla district. There are approximately 300 units and 25,000 people are directly or
indirectly employed by the industry. The industry has great export potential and requires
better marketing strategies.

The auto parts sector consists of more than 1,200 vendors who are supplying to about 84
Original Equipment Manufactures (OEM) massive capacity increase in Pakistan. The
total investment in the vendor industry exceeds Rs.10 billion and employs more than
40,000 skilled and semi-skilled workers and also brings in more than US$ 160 million in
the form of export earnings.

With the local auto assemblers planning to increase production to 500,000 units by 2008
from the 2006 production figure of 170,000 units, the vendor industry is gearing up for.
xv
Although the industry has made considerable progress on its own, the need is for joint
collaboration with foreign companies which will not only bring production techniques
but also help in marketing the production of the local vendor industry.

There are a total of 42 assemblers of motorcycles in Pakistan who between them
manufacture 600,000 motorcycles a year, it is expected that the production will increase
to 1 million units a year in the next two years. The main manufacturers of motorcycles in
Pakistan are; Honda, Yamaha and Suzuki who between them command more than 80%
of the domestic market

There are 11 Fertilizer units operating in Pakistan with an installed capacity of 6 million
tones out of which nitrogenous fertilizer has a capacity of 4.9 million tons and phosphatic
fertilizer has a capacity of 1 million tons. Wheat being the most important crop 45% of
the total fertilizer consumption is in this Sector. Cotton consumes 21%, rice 10%,
sugarcane 8% while the remaining 16% is consumed by other crops.

Out of a total of 24 cement plants, currently 22 units are operative, 17 companies being
listed on the Karachi Stock Exchange. The country, at present, has an installed capacity
of producing 17.55 million tons of cement per annum, mainly Portland cement. It is
envisaged to increase installed capacity (also by expansion) to 28.21 million tons per
annum by 2008. New projects as well as capacity increases in existing units should boost
production capacity to about 7 million by 2007.

The demand for cement is expected to be robust, as the Government of Pakistan has
initiated a massive reconstruction drive in the earthquake hit regions of Northern Pakistan
and Azad Kashmir. In addition large quantities of cement will be required for the mega
construction projects initiated by the Government of Pakistan including the construction
of large dams and road projects. Also the industry has good prospects for exporting
cement to Afghanistan where reconstruction work is on-going on in that Country.

xvi
Pakistan is the twelfth largest producer of sugar in the World; it ranks fourth in sugarcane
production and holds seventh position in yield, which is about 50 tons per hectare.

The sugar industry has 76 units installed mostly in Punjab and Sindh. The total capacity
of the industry is estimated at 5 million tones per annum. In order to provide incentives to
the growers, the Government determines a support price keeping in mind the production
costs and profits of other crops. The Government and the Industry are trying to increase
cane yield to ensure an increase in the total production of sugar.

The demand for Steel has undergone a dramatic increase in 2005; the total consumption
of steel in 2005 is estimated at 5 million tons as against a domestic production of only 3.2
million tones. The biggest producer of domestic steel is the Pakistan Steel Mills with a
capacity of 1.1 million tones per annum. In addition to the Pakistan Steel Mills there are
approximately 350 steel re-rolling mills in the country, which mainly cater to the needs of
the construction industry.

The demand for steel is expected to further surpass production because of increased
demand due to economic activity and construction of large dams and infrastructure
projects in the Country. The Government is encouraging the private sector to come
forward and invest in mini steel mills and in the mining sector. The Government in an
effort to increase production, is in the process of privatizing major light and heavy
engineering concerns.

OIL, GAS & ENERGY SECTOR
The Pakistani economy is expected to grow at a rate of 7 to 8 percent over the next five
years. In order to sustain the growth momentum a rise in levels of income and increased
availability of goods and services, the country is following a policy to increase the supply
of and the conservation of energy.

In 2005 the consumption of petroleum products in household and agriculture exhibited
sharp decline to the tune of 16.8 and 16.2 percent, respectively. The decline in the use of
xvii
petroleum products was mainly on account of the availability of alternative and relatively
cheaper fuels in the form of natural gas and LPG

Historically, the country is dependent on oil imports. The crude oil import for 2005 was
about 8.3 million tons, equivalent of US$ 2,606 million. The import of petroleum
products import was 5.7 million tons, an equivalent of US$ 1,998 million. The total
annual import bill for the year 2005 was US$ 4,604 million. Due to increase in
international prices of crude oil, the import bill in 2006 is expected to be US$ 5,500
million. Pakistan has five refineries, namely, National Refinery, Pakistan Refinery,
Bosicor, Pak Arab Refinery and Attock Refinery; annual oil refining capacity is 12.82
million tons. In the downstream oil marketing business, the main players are; Pakistan
State Oil (100% owned by the Government of Pakistan), Caltex, Shell and Total.

Pakistan has an interesting Geo-dynamic history of large and prospective basin (onshore
and offshore) with sedimentary area of 827,268 sq. km. So far about 844 million barrels
crude oil reserves have been discovered of which 535 million barrels have already been
produced. A Prognostic potential of total endowment of hydrocarbons has been estimated
as 27 billion barrels of oil. To date various national and international exploration and
production companies, resulting in over 177 oil and gas discoveries, have drilled more
than 620 exploratory wells. Indigenous production of crude oil during the year 2005 was
66,079 barrels per day. The main companies in the upstream chain include; BHP
Petroleum, Lasmo Oil, Shell, OMV Pakistan etc.

Pakistan is among the most gas dependent economies of the world. Natural gas was first
discovered in 1952 at Sui in Balochistan province that proved a most significant and the
largest gas reservoir. After successful exploration and extraction, it was brought to
service in 1955. This major discovery at Sui followed a number of medium and small size
gas fields in other parts of the country.

So far about 52 TCF of gas reserves have been discovered of which 19 TCF have already
been produced. Natural gas production during 2005 was about 3.7 billion cubic feet per
xviii
day. Pakistan has well developed and integrated infrastructure of transporting,
distributing and utilizing natural gas with 9,063 km transmission and 67,942 km of
distribution and service lines network, developed progressively over the last 50 years.

Natural gas sectoral consumption during 2005 was: power (43.7%), fertilizer (16.4%),
cement industry (1.2%), general industry (19.5%), domestic (14.8%), commercial (2.3%)
and Transport (CNG; 2.1%).

Gas importation projects envisage about 1500 to 2000 km long pipelines connecting
regional gas supply sources such as Turkmenistan, Iran and Qatar to the domestic
pipeline network bringing in more than 1.5 billion cubic feet gas per day. With further
extension, the imported gas can also reach the Indian market.

Pakistan started using Compressed Natural Gas (CNG) as transport fuel through
establishment of research and demonstration CNG refueling stations by the Hydrocarbon
Development Institute of Pakistan (HDIP) at Karachi in 1982 and at Islamabad 1989.
CNG is now fast emerging as an acceptable vehicular fuel in place of oil. Pakistan is third
largest user of CNG in the world after Argentina and Brazil. As many as 835 CNG
stations have been set up in the country by December 2006 and 200 stations were under
construction. With 850,000 CNG vehicles on the road, the CNG sector has attracted
Rs.20 billion investment while another Rs.2 billion is in the pipeline, providing 16,000
jobs.

Large diesel vehicles (buses and trucks) being the major consumer of HSD are now the
next target for substitution by CNG for economic and environmental reasons. Meanwhile
a private company has imported some CNG diesel dual-fuel buses for Karachi and plans
are also underway for local manufacturing of these buses.

The total power generation capacity of Pakistan is 19,540-mw. In order to sustain a
higher GDP growth rate of 78 percent, the Government is planning to increase its power
generation capacity by 143,000-mw in the next 25 years, to 162,590-mw.
xix
The 25-year Energy Security Plan (ESP 2005-2030) approved recently by the
Government envisages increase in nuclear power generation by 8,400-mw to 8,800-mw
by the year 2030 from current nuclear power of 400-mw. The ESP envisages the share of
nuclear power to increase to 4.2 per cent of country's total energy mix from the current
rate of 0.8 per cent. The current energy mix has (highest) 50 percent share of gas, 30
percent oil, 12.7 per cent hydel, 5.5 per cent coal, 0.8 per cent nuclear and zero percent
renewable energy.

The additional 143,053-mw would include 8,400-mw of nuclear power, 26,200-mw
hydel-power, 19,753-mw coal based energy, 9,520 mw renewable energy, 1,360-mw oil
based and 77,820-mw gas based power production.

By the year 2010, the country would have an additional power of 7,880-mw and hence
total capacity would reach 27,420-mw. This additional power would not include any new
plant in the nuclear sector, but hydel generation would increase by 1,260-mw, coal based
increase of 900-mw and renewable energy increase of 700-mw. A minor increase of 160-
mw would take place in the oil-based generation while gas based power production
would increase by 4,860 mw.



xx
IMPORTANT CONTACTS

Deputy Chairman,
Planning and Development Division,
Ministry of Planning & Development,
Govt. of Pakistan,
Block P, Pakistan Secretariat,
Islamabad.
Office Tel: 92 (51) 9211147, 9202783
www.mopd.gov.pk

Secretary,
Planning and Development Division,
Ministry of Planning & Development,
Govt. of Pakistan,
Block P, Pakistan Secretariat,
Islamabad.
Office Tel:92 (51) 9211147, 9202783
www.mopd.gov.pk

Secretary,
Ministry of Finance,
Govt. of Pakistan,
Block Q, Pak. Secretariat,
Islamabad.
Office Tel: 92 (51) 9201962
Fax No: 92(51) 9213705
www.finance.gov.pk

Secretary,
Ministry of Industries, Production &
Special Initiatives,
Govt. of Pakistan,
Block A, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9210192, 9211709
E-mail:secretary@moip.gov.pk
http://www.moip.gov.pk

Secretary,
Ministry of Communication,
Govt. of Pakistan,
Block D, Pak. Secretariat,
Islamabad.
Office Tel: 92 (51) 9201252

Secretary,
Ministry of Commerce,
Govt. of Pakistan,
Block A, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9208692,
www.commerce.gov.pk

Secretary,
Ministry of Health,
Govt. of Pakistan,
Block C , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9211622
Fax No: 92(51) 9205481

Secretary,
Ministry of Food, Agriculture and
Livestock,
Govt. of Pakistan,
Block B, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9203307,9210351
Fax No: 92(51) 9210616

Secretary,
Ministry of Ports & Shipping,
Govt. of Pakistan,
Block D , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9215354
Fax No: 92(51) 9215349

Secretary,
Ministry of Tourism,
Govt. of Pakistan,
Block D , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9213642
Fax No: 92(51) 9215912
Email:secretary@tourism.gov.pk



xxi
Governor,
State Bank of Pakistan,
I.I. Chundrigar Road,
Karachi. Pakistan.
Phone: 111-727-111 Fax: (+92-21)
9212433-9212436
www.sbp.org.pk

Chairman,
Board of Investment,
Govt. of Pakistan,
Attaturk Avenue,
Sector G-5/1,
Islamabad.
Tel: 92(51) 9207531, 9206161
www.pakboi.gov.pk

Chairman,
Pakistan Telecommunication
Authority,
Head Quarter Sector F-5/1,
Islamabad.
Tel: 92-51-2878143,9225326,
Fax: 92-51-2878155
E-mail: chairman@pta.gov.pk
www.pta.gov.pk

Chairman,
Oil & Gas Regulatory Authority,
Tariq Chambers, Civic Center,
Melody Market, Sector G-6,
Islamabad.
Tel: 92-51-9221705
Fax: 92-51-9221714
Email: chairman@ogra.org.pk
www.ogra.org.pk

Chairman,
Pakistan Electronic Media Regulatory
Authority,
Green Trust Tower,
6th Floor, J innah Avenue, Blue Area,
Islamabad
Phone#:0092-051-9222320/26/32/40/42
E-Mail: ctv@pemra.gov.pk
www.pemra.gov.pk
Chairman,
Securities and Exchange Commission
of Pakistan,
National Insurance Corporation
Building,
J innah Avenue,
Islamabad-44000,
Telephone: 92-51-9207091 (3 lines)
Fax: 92-51-9204915
Email: enquiries@secp.gov.pk
www.secp.gov.pk

Chairman,
Export Promotion Bureau,
Govt. of Pakistan,
5th Floor, Block A
Finance & Trade Centre,
Shahrah-e-Faisal.
Karachi.
Tel: 92-21-9206462-70
Fax: 92-21-9206461
www.epb.gov.pk

Chairman,
Engineering Development Board,
Govt. of Pakistan,
5-A, Constitution Avenue, SEDC
Building (STP), Sector F-5/1,
Islamabad,
Tel: 92-51-9205595-98
Fax:92-51-9205595-98
Email: edb@edb.gov.pk
www.engineeringpakistan.com

Chairman,
Alternative Energy Development
Board,
Govt. of Pakistan,
344-B,Prime Minister's Secretariat,
Constitution Avenue,
Islamabad.
Phone No: 92-51-9223427, 9008504
Fax No: 92-51-9205790
E-mail: support@aedb.org
www.aedb.org
Chairman,
xxii
Small & Medium Enterprise
Development Authority,
6th Floor, LDA Plaza, Egerton Road,
Lahore.
Tel: 92-42-111-111-456
Fax: 92-42-6304926
E-mail helpdesk@smeda.org.pk
www.smeda.org.pk

Managing Director,
Private Power and Infrastructure
Board,
50 Nazimuddin Road, F7/4,
Islamabad, Pakistan.
Tel: 92-51 9205421,9205422
Fax: 92-51 9215723,9217735
Email: ppib@ppib.gov.pk
www.ppib.gov.pk

CEO,
Competitiveness Support Fund,
House No. 53,
Street 1, F-6/3,
Islamabad.
Cell: 92-300 856 5277
Email: arthur.bayhan@telefonica.net
www.competitiveness.org.pk

Chairman,
Pakistan Software Export Board,
2nd Floor Evacuee Trust Complex
F-5, Aga Khan Road
Islamabad - 44000
Tel: 92-51-9204074
Fax: 92-51-9204075
www.pseb.org.pk

Managing Director,
Karachi Stock Exchange (Guarantee)
Limited,
Stock Exchange Building, Karachi.
Tel: 92-21-111-001122
Fax : 92-21-241 0825
Email: info@kse.com.pk
www.kse.com.pk
Chairman,
Karachi Cotton Association,
The Cotton Exchange,
I.I Chundrigar Road,
Karachi, Pakisan.
Tel : 92-21-242-5007, 241-2570,
Fax : 92-21-2413035
Email: contact@kcapak.org
www.kcapk.org

President,
Federation of Pakistan Chambers of
Commerce and Industry,
Federation House,
Sharea Firdousi, Main Clifton,
Karachi.
Tel: 92-21-5873691,93-94
Fax : 92-21-5874332
Email : fpcci@cyber.net.pk
info@fpcci.com.pk
www.fpcci.com.pk

President,
Karachi Chamber of Commerce
Industry,
Aiwan-e-Tijarat Road,
Off Shahrah-e-Liaquat,
Karachi.
Tel: 92-21- 241 6091-94
Fax : 92-21- 241 0587
Email: info@ karachichamber.com
www.karachichamber.com

President,
Lahore Chamber of Commerce
Industry,
11, Shahrah Aiwan i Tijarat,
Lahore. Pakistan.
Tel: 92-42 -111-222-499
Fax : 92-42 -636-8854
www.lcci.com.pk






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President,
Rawalpindi Chamber of Commerce
and Industries,
Chamber House, 39 - Mayo Road
(Civil Lines),
Rawalpindi.
Tel: 92-51-5111051-54
Fax: 92-51-5111055
E-mail : rcci@isd.wol.net.pk
www.rcci.com.pk




































Secretary,
Overseas Chamber of Commerce and
Industries,
Chamber of Commerce Building,
Talpur Road, P.O. BOX 4833,
Karachi.
Tel: 92-21-2410814-15
Fax: 92-21-2427315
E-mail: info@oicci.org































Study Commissioned by:
EMPLOYMENT & RESEARCH SECTION,
PLANNING & DEVELOPMENT DIVISION, GOVERNMENT OF PAKISTAN,
PAKISTAN SECRETARIAT, P- BLOCK, ISLAMABAD
Tel: (92-51) 921 2831, Fax: (92-51) 920 6444