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, Ali Consultants who
have prepared this Pre-Feasibility or National Management Consultants (Pvt.) Ltd. 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 OVERVIEW................................................................................................................................1
1.2 OBJ ECTIVE ..............................................................................................................................2
1.3 SCOPE OF STUDY ...................................................................................................................2
1.4 METHODOLOGY AND APPROACH.....................................................................................3
1.5 STUDY TEAM...........................................................................................................................3

CHAPTER 2 MARKET / NEED ASSESSMENT....................................................... 4
2.1 THE WORLD TRADE IN GEMSTONES.................................................................................4
2.2 MAJ OR WORLD PRODUCERS................................................................................................4
2.3 MAJ OR GLOBAL MARKETS................................................................................................... 6
2.4 GEMSTONE POTENTIAL OF PAKISTAN ............................................................................. 8
2.5 LOCAL GEMS & J EWELLERY MARKET............................................................................ 12
2.6 PROPOSED MARKETING STRATEGY ............................................................................... 13
2.7 PROPOSED PRODUCT MIX ................................................................................................. 14

CHAPTER 3 TECHNICAL EVALUATION........................................................... 15
3.1 LOCATIONAL ANALYSIS....................................................................................................15
3.2 GEMSTONE CUTTING & POLISHING................................................................................16
3.3 GEMSTONE FORMS..............................................................................................................19
3.4 PROCESS FLOW CHART .....................................................................................................22
3.5 PHYSICAL FACILITIES..........................................................................................................23
3.6 MACHINERY & EQUIPMENT..............................................................................................24
3.7 ACQUISITON OF TECHNOLOGY.......................................................................................24

CHAPTER 4 GOVERNANCE & MANAGEMENT STRUCTURE ...................... 25
4.1 GOVERNANCE .......................................................................................................................25
4.2 MANAGEMENT STRUCTURE .............................................................................................26
4.3 MANPOWER............................................................................................................................28

CHAPTER 5 FINANCIAL EVALUATION............................................................. 29
5.1 CAPITAL COST ......................................................................................................................29
5.2 OPERATING RESULTS..........................................................................................................30
5.3 PROJ ECTED CASH FLOWS...................................................................................................31
5.4 PROJ ECTED BALANCE SHEET..........................................................................................32
5.5 PAYBACK PERIOD................................................................................................................32

CHAPTER 6 CONCLUSION .................................................................................... 33

LIST OF TABLES
TABLE 1 SUMMARY OF MACHINERY AND EQUIPMENT ........................................................24
TABLE 2 HUMAN RESOURCE REQUIREMENT .............................................................................28
TABLE 3 TOTAL PROJ ECT COST......................................................................................................29
TABLE 4 PROJ ECTED PROFIT & LOSS ACCOUNT FOR 5 YEARS............................................30
TABLE 5 YEARLY SALES PROJ ECTIONS IN CARATS...............................................................30
TABLE 6 YEARLY SALES PROJ ECTION IN RUPEES...................................................................31
ii
TABLE 7 PROJ ECTED CASH FLOW..................................................................................................31
TABLE 8 PROJ ECTED BALANCE SHEET ........................................................................................32
TABLE 9 PAYBACK PERIOD..............................................................................................................32

ANNEXURE - 1 PAKISTAN - A PROFILE

ANNEXURE 2 MAJOR WORLD GEMSTONE PRODUCERS


iii
ACRONYMS


AJ K Azad J ammu and Kashmir
ASEAN Association of South East Asian Nations
BOO Build Operate Own
BOT Build Operate Transfer
CAA Civil Aviation Authority
CEO Chief Executive Officer
CSO Central Selling Organisation
ECO Economic Cooperation Organisation
EIZ Eastern Industrial Zone
EPB Export Promotion Bureau
EU European Union
FBS Federal Bureau of Statistics
GCC Gulf Cooperation Council
GJ EPC Gems and J ewellery Export Promotion Council of India
GoP Government of Pakistan
IRR Internal Rate of Return
KPT Karachi Port Trust
NMC National Management Consultants (Pvt.) Ltd.
NWFP North West Frontier Province
P&DD Planning and Development Division
P&L Profit and Loss
PNSC Pakistan National Shipping Corporation
PTA Pakistan Telecommunication Authority
PTCL Pakistan Telecommunication Ltd.
RoE Return on Equity
RoI Return on Investment
SAARC South Asian Association for Regional Cooperation
SPC Special Purpose Company
WTO World Trade Organization
iv


iv
EXECUTIVE SUMMARY

The international trade in gemstones excluding diamonds is estimated at more than
US$18.0 billion per annum. Pakistans share in this trade is less than US$ 50.0 million
per year even though it has got the 5
th
or perhaps the 6
th
largest reserves of precious and
semi precious gems in the world.

Pakistan has reserves of emeralds, ruby, topaz, tourmaline, aquamarine, sapphire etc. It
is, however, not able to benefit from this resource as it lacks skills in lapidary (the art of
cutting, shaping and polishing stones), because of which, most of the exports are in the
form of uncut or raw gemstones.

The value addition due to lapidary can be as much as 1:100 over the uncut form. In order
to avail the opportunity that Pakistans gemstones reserves offer, it is proposed to set up a
Gemstone Lapidary Centre in Gemstone Market in Saddar, Karachi, Pakistan.

The 50,000 carat per annum capacity unit will have state of the art Lapidary Machinery
and will cut and polish locally procured raw material. In the initial stage, it is proposed to
work at 60% capacity and cut and polish emeralds, rubies and tourmaline and this
product mix can be changed depending on international demand.

The total cost of the project is estimated at Rs.187.0 million and has a payback period of
less than 1 year. In order to make the Project successful, it is proposed that technology for
setting up and operations of the unit be obtained and an international joint venture
agreement be signed to obtain technology for marketing of the product in the world
markets. International experts need to be hired to train the local workers. Provision has
been made for international marketing and training of the workers.
1
CHAPTER 1
INTRODUCTION

1.1 OVERVIEW
Gemstones are minerals, which when cut and polished become precious and can
be used for jewellery. Diamonds, emeralds, rubies, sapphires, topaz, zircon,
aquamarine, amethyst, peridots etc. are some of the most rare and valuable
gemstones. The four Cs that determine the value of a gem are color, clarity, carat
(weight) and cut.

Other than diamonds, the world trade in gemstone in 2006 is estimated to be in
excess of US$18.0 billion per annum. Gems are a unique type of resource because
a very small amount can have extremely high value.

Currently most of the gemstone mines found in Pakistan are located in a) the
northern mountainous regions, b) the northern areas of the NWFP and c) in Azad
Kashmir. The major exports of gemstones from Pakistan are in uncut, unpolished
forms The price difference between uncut and cut and polished gemstones which
used to be 1:30 about 5 years back has increased up to 1:100 in some cases. This
is because of improvement in cutting and polishing techniques as well as because
of artificial enhancement of colors. Pakistan has not been able to benefit from this
value addition as lapidary (the art of cutting, shaping and polishing stones)
techniques used in Pakistan are outdated and need to be modernized.

With the liquidation of the Gemstone Corporation of Pakistan (GEMCP), except
for two significant deposits in Azad Kashmir, all identified precious and semi
precious stone deposits of the country have been leased out to the private sector
for commercial exploration. The Government of NWFP has auctioned almost all
its identified precious and semi precious stone deposits. After scientific evaluation
of Kashmir Ruby and Green Tourmaline deposits by the public sector, efforts are
2
underway by the Government of AJ K to secure private investment for commercial
exploitation.

As most of the mines are now in the private sector and it is difficult to access and
exploit these mines, it is proposed that in the first stage a project for Gemstone
Lapidary be set up. In the second stage mines which produce the highest qualities
of gemstones be identified for joint ventures or outright purchase.

The main market for gemstones in Pakistan is in Saddar, Karachi. Most of the
owners of the mines and individual miners travel with the raw uncut gems to
Karachi to sell them to dealers. In addition, the main export market for gemstones
is also located in Karachi from where buyers from Europe, the Middle East and
Far East pick and choose the best gems.

It is proposed that the Gemstone Lapidary Project be set up in the gemstone
market in Saddar, Karachi, where unlike the other local dealers who purchase on
credit, gemstones are purchased with cash; this will result in both better quality
and lower prices.

It is also proposed that the Lapidary Unit may have a joint marketing venture with
some international dealer of gemstones while for Lapidary techniques another
joint venture or technical collaboration be done with some company in the Far
East which maybe willing to transfer technology.

1.2 OBJECTIVE
The objective of the study is to determine the feasibility of setting up a gemstone
Production, Processing and Marketing project in Pakistan.

1.3 SCOPE OF STUDY
The scope of the study is to undertake, inter alia, need assessment, technical
evaluation, assessment of governance and management structure and financial
3
evaluation of the project, on the basis of which recommendations are to be
developed for setting up the said project.

1.4 METHODOLOGY AND APPROACH
The methodology used in conducting this study is given as under:

Secondary data was collected from government publications, FBS, journals
and magazines, internet and other sources.
The primary data was collected from visit to gem markets, discussions with the
experts on gems and gemology, officials of EPB and concerned trade
associations.
Prices of machinery and technical know-how cost were obtained from
international suppliers of machinery for Lapidary work and reputed technology
suppliers.

1.5 STUDY TEAM
The study team consisted of market analyst, HRD & technical experts and
financial analyst who contributed their inputs in coordination with the Team
Leader. The Support Staff consisted of field Surveyors, data tabulators and word
processors.




4
CHAPTER 2
MARKET / NEED ASSESSMENT

2.1 THE WORLD TRADE IN GEMSTONES
The world trade in gemstones excluding diamonds is estimated at US$18.0 billion
per annum as stated earlier. The total exports of gemstones from Pakistan is
estimated at US$50.0 million per annum. The gems industry has undergone a
major qualitative change during the last two decades. These changes relate mainly
to new techniques in cutting and polishing including using laser beams; artificial
enhancement of color and production of synthetic gems and stimulants.

In more than 30 percent of cases, particularly in Europe, North America and
J apan the color of gemstones is enhanced artificially. This is accomplished by one
of the three methods; a) heating under controlled conditions; b) exposure to X-ray
or radium; or c) the application of pigment as colored foil to pavilion (base) facet.

Gemstones like other mineral deposits are the product of complex, geological
processes that have operated on and inside the earth for millions of years in an
uneven style. Resultantly, the present occurrence and distribution of gemstones
shows a remarkable diversity. In Pakistan the occurrence of gemstones is also
confined to a few discernible geographical zones in the northern mountainous
belts of the country.

2.2 MAJOR WORLD PRODUCERS
Coloured precious and semi-precious gemstones are found in many countries of
the world. Most of the producing countries have their own mining and production
methods which makes it very difficult to determine the quality and value of their
production.

5
Thailand is the worlds largest producer of gemstones having an annual export of
around US 2.5 billion. On one hand it produces/ mines a large variety of gem
stones on the other hand it imports raw and uncut stones for processing and
conversion into jewellery.

USA is the second largest producer of gemstones and the largest market/
consumer in the world. The US market exceeded US $ 9 billion in 1999 and it is
well over US $ 12 billion presently.

Sri Lanka is the worlds third largest producer. It produces a large variety of
coloured gemstones some of which are unique in the world. Besides production of
raw/un-cut stones, Sri Lanka has a thriving industry for cutting, polishing and
exporting finished stones and jewellery.

Brazil is perhaps the fourth largest producer of coloured gem stones Because of
vast unexplored areas in Brazil, the industry experts believe that in case of Brazil
only the surface has been scratched. New mines are constantly being developed
and old ones upgraded.

Australia is regarded as the fifth largest producer. It is most famous for its opal. In
addition, sapiens, pearls, and diamonds from Australia are also well known.

Tanzania and Zambia in Africa also have large deposits of a variety of coloured
gemstones and their mines have now become productive.

India is another major success story in development. India produces both raw/un-
cut stones as well as it cuts, polishes and converts them into high quality
J ewellery. Its exports are around US $ 250 million.

6
Pakistan has a small share of this sector at around US$ 50 million / year.
However, aggressive measures are being taken to develop this sector from export
of raw/un-cut stones to export of cut, polished stones and jewellery.

Annexure 2 contains a brief write-up on the major world producers of coloured,
precious and semi precious gem stones.

2.3 MAJOR GLOBAL MARKETS
The three largest markets for loose colored gemstones are undoubtedly the United
States, J apan and Europe. The United States is the world leader bringing in more
than US$609 million in1998. Europe trailed a close second that year with US$573
million in imports, while J apan standing third at more than US$ 159 million.

Based on world gemstone import data from the United Nations' International
Trade Centre (ITC), all other countries accounted for approximately $487 million
in loose gems. That makes the global total for 1998 $1.83 billion. In 1999, there
was more buying in all three of the major markets: the United States imported
more than $661 million, Europe brought in approximately $587 million, and
J apan improved but was still trailing at $209 million. However, countries outside
the United States, J apan and Europe accounted for 27% of the world total in 1998.
Assuming the same ratio in 1999, they would have imported approximately
US$538 million, for a global total of US$2 billion.

Although Thailand has lost ground in the gem trade since its golden years in the
mid-1990s, it is still the world's biggest colored stone trading center by a
comfortable margin. Overall gemstone exports in 1999 were an estimated US$367
million, with US$286 million of that going to the United States, the European
Union, and J apan.

At present, the total Indian gems and jewellery market including exports is
estimated at US$18 billion. The increase in the value of India's colored stone
7
exports may be due to the diversification of the country's cutting industry.
Traditionally, India has been known for cutting diamond and emerald, but after
controversy over emerald treatments erupted in late 1997, Indian cutters began
working with other gems, particularly tanzanite.

Hong Kong is the world's second largest exporter of jewellery and, as surging
export figures show, is growing in strength. Last year, Hong Kong exported
US$2.4 billion worth of jewellery products, 17% more than the same period year
on year. It is a major player, especially given its links to China's inexpensive and
increasingly skilled labor pool.

Another major trading center is Switzerland, which exported more than US$150
million in colored gemstones in 1999. Switzerland has an active trading
community and one very large player, the Golay Group, which contributes a
sizable percentage to the total. Switzerland is also the site of several high-end gem
and jewelry auctions, which affect the total figures. Together, these four countries
supply 46 percent of the world gem market. Other leading trading centers are
Germany, with a gem cutting tradition that stretches back 500 years, and Israel, a
major cutting center with close trading ties to gem-rich Africa.

In contrast, Africa, which many industry observers consider to be the most
prolific source of gemstones in the world right now, exported just under US$27
million to the United States, the European Union, and J apan in 1999. The nature
of doing business in Africa makes it less likely for dealers to go there: It is
difficult and expensive to get to the mines, and the prices there can be the same as
a dealer would pay elsewhere. Also, dealers from trading centers like Thailand
and India have carefully built up and maintained a presence in gem-rich African
countries and they purchase much of the rough gems.

Although some countries have better import and export records than others,
overall the world gem trade remains difficult to track. While that can be
8
frustrating for financiers looking for hard numbers, for many in the industry that
is part of the charm: The freewheeling nature of colored stone trading adds to the
overall romance.

The numbers that are available indicate that more and more consumers around the
world are getting into colored gemstones, especially gems other than ruby,
emerald, and sapphire. As awareness of color increases, there is a huge potential
for growth, especially in developing markets. The coming decades promise to be
an interesting time for the colored stone industry.

2.4 GEMSTONE POTENTIAL OF PAKISTAN
As stated earlier, Pakistan is considered to have the 5
th
or 6
th
largest deposits of
gemstones in the World. These deposits are located in three district area; a)
NWFP; b) Northern Areas; and c) Azad Kashmir.

The following paragraphs contain a brief description of major deposits in these
three areas.

2.4.1 GEMSTONE DEPOSITS OF NWFP

EMERALD
The emerald deposits occur in a 70- kilometre long belt in District Swat. The
main mines are located at Shamozai, Mingora and Gujjar Killi. Two other small
deposits at Kakhad and Charbagh are also located in the same belt. The
emeralds found in this belt are famous for their brilliant medium to deep green
color and unique transparency comparable to the finest Colombian emeralds. The
potential of Mingora, Shamozai and Gujjar Killi is roughly estimated at 70.0
million carats per annum which can fetch US$210 million in uncut form per year
in the international markets. In addition, significant deposits of emeralds are also
found in Mohmand and Bajaur Agencies but the potential of these deposits has
not yet been fully evaluated.
9

TOPAZ
Topaz Pink and pale beige color topaz deposits occur near Katlang and
Shamozai villages about 70 kilometres from Mardan The colors of these
deposits range from colorless to pale beige to light brown and from pale to deep
pink or deep red. The pink topaz of Katlang is a unique stone which is found
only in Pakistan, if properly promoted its price can be greatly enhanced in
the world market. The geological resource potential is likely to be around 9
million carats or US$180 million per annum in uncut form.

AQUAMARINE
Deeper color aquamarine is reported from District Chitral. The area merits
exploration from the viewpoint that good quality aquamarine, tourmaline and
kunzite bearing pegmatites are found in Afghanistan just across the border.

GARNET
Gem quality almandine (red) garnet is found in Chitral District, beautiful honey
yellow, euthedral crystals of hessonite garnet are found in Bajaur Agency. Green
garnet or tsavolite is found in Jambil area of Swat, Malakand District and in
Bajaur Agency, the potential has however not been fully exploited.

TOURMALINE, QUARTZ & PERIDOT
Blue tourmaline is found near Garam Chasma in District Chitral which needs
further evaluation. Clear and well formed crystals of quartz occur near Garam
Chashma in District Chitral. Peridot in transparent to translucent and pale to dark
yellowish green or rarely greenish yellow in color has been found in Hazara
Kohistan, deposit potential has not been fully estimated.




10
2.4.2 GEMSTONE DEPOSITS OF NORTHERN AREAS

RUBY
The ruby deposits occur in the 100-kilometer dolomitized marble belt
extending between Hunza valley and Ishkoman valley. Currently mining is
being done in the Hunza valley. The rubies are transparent to translucent and
brownish pink to pinkish red or deep red. After Burma, Vietnam and Cambodia,
Pakistan is the only region in the world that is producing blood red rubies. Violet
or indigo color sapphire also occur with rubies in this area.

Experimental mining operations have established a reserve potential of 1.8
million carats of ruby, spinal and sapphire in Hunza ruby belt alone. The value of
these reserves is estimated at US$3.6 million per annum. The ruby belt is fairly
large and is being worked sporadically at present. The blood red rubies are in
great demand and fetch a very high price in the international markets.

AQUAMARINE
Light blue, transparent and clear euhedral crystals of aquamarine occur in
abundance in the gem bearing pegmatites of Gilgit, Skardu and Hunza areas.
Morganite, the pinkish red variety of beryl, is also associated with aquamarine in
the gem bearing pegamatites of Shigar (Hunza) area. The important deposits of
aquamarine are located in Shengus, Dusso, Heramosh, Iskere, Tistung and
Shigar areas. Exploratory mining operations by the defunct Gemstone
Corporation of Pakistan in the seventies in Shengus and Dusso areas established
swarms of pegamatites yielding an average annual production of about 32,000
carats. It is estimated that a production target of 200,000 carats of aquamarine can
be conveniently achieved.

TOURMALINE
Gem quality tourmaline of pink, blue and green colors is found in the Harmosh
Range, District Gilgit. The best known deposit is in Stak Nallah producing bi
11
and tri color tourmaline crystals and mineral specimens. The crystals are dark
green or black at the base with grass green, blue or pink terminations. Green, red
and black tourmaline is found in Shengus and Bulche areas of District Gilgit.
An average production of about 100,000 carats annually is considered feasible.

SPINAL, PARGASITE, TOPAZ, MOON STONE, GARNET Etc.
Spinals with a variety of colors ranging from brown, red, plum red, violet to blue
are closely associated with Hunza ruby deposits. These occur as euhedral
crystals and are far more attractive than the spinals associated with the ruby
deposits elsewhere in the world.

Pargasite locally also known as Hunza emerald is found in the Hunza valley
and crystals are translucent to opaque with exquisite deep pistachio green color
and produce fascinating cabochon grade material.

Topaz is largely found in Bulche and Shengus areas of District Gilgit and in
Dusso in Skardu District. The topaz crystals are colorless to yellowish brown to
deep cherry color.

Moonstone is mostly found in Shengus and Bulche areas, color ranges from soft
gray to silvery white. The deposits are of good quality, fairly large and can ensure
steady production.

Garnet is found in Gilgit and Skardu and has a deep red color. Clear and well
formed crystals of quartz are found in Hunza, Gilgit and Skardu Districts. Smokey
quartz is also found in Hunza and Gilgit while rose quartz is in abundance near
Dusso in Skardu.




12
2.4.3 GEMSTONE DEPOSITS OF AZAD KASHMIR

RUBY
Rubies have been discovered in Nangimali, Chitta Katha, Khundigali and Naril
in Shontar Valley and Kalejandar areas in Neelum Valley. The Nangimali
deposits have been explored in detail and have been found to have a recovery
ratio of 55 carats per cubic meter of limestone. A reserve potential of 125 million
carats of ruby have been estimated for the deposit.

The color of ruby crystals varies from pinkish red to deep red and improves in
depth to almost pigeon blood red. The color and grade of Kashmir rubies is much
better than the Hunza rubies.

TOURMALINE
Tourmaline has been found in Dunga Nar area of Upper Neelum Valley. Green,
red and bi-color tourmaline has been discovered. The depth of the material is
about 40 meters. The deposit has produced good quality carving materials and
some excellent quality mineral specimens.

PINK BERYL, TOPAZ & QUARTZ
Some Pink Beryl crystals have been found associated with tourmaline in the
pegmatites of Dunga Nar area. Topaz has been found in Dunga Nar area, while
smoky and clear quartz are found associated with other gem minerals in the
Dunga Nar area.

2.5 LOCAL GEMS & JEWELLERY MARKET
Gems and jewellery are an essential component of the formal as well as informal
attire of Pakistani women and men throughout the year of all income classes.
Gems and diamond studded jewellery is given as dowry to girls at the time of
marriage by their parents, relatives and friends. Men often wear rings with
different varieties of gemstones. There are thriving gold and jewellery centers in
13
all the major cities of the country including Karachi, Lahore, Rawalpindi,
Faisalabad, Hyderabad, Multan, Gujrat, Peshawar, Quetta, etc.. Pakistans gold
markets are closely linked to the international bullion markets.

The Pakistani goldsmiths have had a long tradition of mastering their arts.
Gemstone cutters have also had a long tradition of over 200 years. However, both
these trades have not kept pace with changing technology and as a result the
equipment used and their techniques have become outdated and they do not give
the quality required by the international markets.

According to industry experts the local market for cut and polished gemstones in
the country is estimated to be around US$50 million presently. This can increase
significantly with easy availability of better quality products.

2.6 PROPOSED MARKETING STRATEGY
Since majority of the local consumers who belong to middle and lower income
groups in Pakistan do not display a preference for high quality gemstones, the
Project will have to find international buyers for its products. The options which
are available to the Project include:

A joint venture with a leading dealer in Europe for selling the product
Setting up a gemstone sales centre in Europe
Selling the product in international gemstone exhibitions.
Using middle men to sell the production.
Using the web to sell directly to the final consumer.

Of all the possibilities which are available, the option of a joint venture should be
pursued most vigorously as it will enable the Project to produce the product which
is in demand internationally and will lead to reduced risks for the project.


14
2.7 PROPOSED PRODUCT MIX
As stated above, although Pakistan is fortunate to have a wide variety of
gemstones, based on current international trends in the gemstone industry, it is
proposed that initially the project should concentrate on the following gemstones:

Emeralds;
Rubies; and
Tourmalines.

The above product mix is being suggested keeping in mind availability of the raw
material and demand for finished product in the market. It is proposed to
concentrate on the high value addition product such as emeralds and rubies as
they fetch a high price in the international markets.

The product mix can be changed keeping in mind international trends and
availability of local raw material, however in the future, import of raw material
from other countries in the region may also be an option.









15
CHAPTER 3
TECHNICAL EVALUATION

The international trade in gems excluding diamonds is estimated at US$18.0
billion per annum. The value addition of the uncut gems maybe as high as 1:100
in certain cases. Pakistan has got significant deposits of emeralds, rubies,
sapphires, topaz, zircon, aquamarine, garnet, tourmaline, quartz, peridot etc.
Although Pakistan has the 5
th
or 6
th
largest deposits of gemstones, their
contribution to the exports of the country is negligible.

As most of the known deposits have already been transferred to the private sector,
and also keeping in mind that access to these mines is difficult, it is proposed to
establish the gemstone buying Lapidary Unit in Karachi which is the hub of
Pakistans gemstone trade.

3.1 LOCATIONAL ANALYSIS
The Gemstone Market in Saddar, Karachi is proposed for setting up the Gemstone
Lapidary unit for the following reasons:

A market for the sale and purchase of raw and uncut gems already exists in
Karachi.
Foreign buyers frequent the market to buy raw and polished gemstones
Mine owners and individual miners bring their gems to sell in this market.
Infrastructure for export like international airport already exists.
Karachi is Pakistans largest and most metropolitan city which makes it easier
for foreigners to work and stay in Karachi.
Karachi is well connected to different parts of the country.
Trained and experienced management is readily available in Karachi.
Lapidary labor is already available in Karachi, although the skill levels are
currently not very high about can be upgraded.
Because of higher levels of education workforce can be more easily trained.
16
Based on the above consideration, the proposed 50,000 carat per annum lapidary
unit is proposed to be located at the Gemstone Market in Saddar, Karachi.

3.2 GEMSTONE CUTTING AND POLISHING
The process of cutting and polishing gems is called gemcutting or lapidary,
while a person who cuts and polishes gems is called a gemcutter.

Gemstone material that has not been extensively cut and polished is referred to
generally as rough. Rough material that has been lightly hammered to knock off
brittle, fractured material is said to have been cobbed.

All gems are cut and polished by progressive abrasion using finer and finer grits
of harder substances. Diamond, the hardest naturally occurring substance, has a
Mohs hardness of 10 and is used as an abrasive to cut and polish a wide variety of
materials, including diamond itself. Silicon-carbide, a manmade compound of
silicon and carbon with a Mohs hardness of 9.5, is also widely used for cutting
softer gemstones. Other compounds, such as cerium oxide, tin oxide, chromium
oxide, and aluminum oxide, are frequently used in polishing gemstones.

Gemstone cutting and polishing is a highly sophisticated and precise activity
requiring not only high quality machinery, testing equipment but also worker skill
and dedication.

Following is a brief description of the major processes and equipment used for
cutting and polishing gemstones.

3.2.1 SAWING
In most gem sawing, a thin circular blade usually
composed of steel, copper, or a phosphor bronze alloy
impregnated along the outer edge with diamond grit and
rotating at several thousand surface feet per minute
17
literally scratches its way through a gemstone. A liquid such as oil or water is
used to wash away cutting debris and keep the stone and the saw blade from
overheating, which could cause damage to both the stone and the sawblade.
Several sizes of circular rock saws are frequently used by most gemcutters.
A slab saw, typically 16 to 24 inches in diameter, is used to cut stones of
several inches thickness into relatively thin slabs (often 1/8 to 3/8 inch thick).
A trim saw, typically 6 to 10 inches in diameter, is used to cut smaller stones
into thin slabs or to cut small sections out of slabs.
A faceter's trim saw, typically 4 inches in diameter, is used with a very thin
blade, to saw small pieces of expensive rough.

There are also jigsaws that employ either a reciprocating wire or a continuous thin
metal band. These are useful for cutting curved lines that are impossible with
circular saws. They are also useful in minimizing waste on extremely valuable
rough material.

3.2.2 GRINDING
Grinding, usually with silicon carbide wheels or
diamond-impregnated wheels, is used to shape gemstones
to a desired rough form, called a preform. As with
sawing, a coolant/lubricant (water or oil) is used to
remove debris and prevent overheating. Very coarse
diamond or silicon carbide, such as 60 grit, or mesh, (400 micron particles) or 100
grit (150 micron particles) is used for rapid removal of stone, and finer abrasive
(600 grit - 30 micron, or 1200 grit - 15 micron) is used for final shaping and
sanding.

3.2.3 SANDING
Sanding is similar to grinding but uses finer abrasives. Its purpose is to remove
deep scratches left by coarser abrasives during grinding. Since it removes material
18
less rapidly, it also allows more delicate control over final shaping of the stone
prior to polishing. For stones with rounded surfaces, a flexible surface such as a
belt sander is often used to avoid creating flat areas and promote smooth curves.

3.2.4 LAPPING
Lapping is very similar to grinding and sanding, except
that it is performed on one side of a rotating or
vibrating flat disk known as a lap, and it is used
especially to create flat surfaces on a stone (as in
faceting). Laps are often made of cast iron, steel, or a
copper-bronze alloy, but other materials can also be used.

3.2.5 POLISHING
After a gemstone is sawed and ground to the desired
shape and sanded to remove rough marks left by
coarser grits, it is usually polished to a mirror-like
finish to aid light reflection from the surface of the
stone (or refraction through the stone, in the case of
transparent materials). Very fine grades of diamond
(50,000 to 100,000 mesh) can be used to polish a wide
variety of materials, but other polishing agents work well in many instances.
Usually, these polishing agents are metal oxides such as aluminum oxide
(alumina), cerium oxide, tin oxide, chromium oxide, ferric oxide (jeweler's
rouge), or silicon dioxide (tripoli). Different stones are often very inconsistent in
their ease of polishing, particularly in the case of faceted stones, so gemcutters are
often very inventive in trying new combinations of polishing agents and polishing
surfaces -- often tin, tin-lead, lead, leather, felt, pellon, wood, or lucite laps for flat
surfaces such as facets. Rounded surfaces, such as on cabochons, are often
polished on felt, leather, cork, cloth, or wood. Polishing removes small quantities
of stone and can be used, especially when faceting small stones, to do ultrafine
shaping of the stone.
19
3.2.6 DRILLING
When a gemcutter desires a hole in or through a gemstone
(e.g., a bead), a small rotating rod or tube with a diamond
tip, or slurry of silicon carbide and coolant, is used to drill
through the stone. Ultrasonic, or vibrating, drills are also
very effective, but they tend to be costly and thus reserved
for high-volume commercial drilling.

3.2.7 TUMBLING
Large quantities of roughly shaped stones are often
tumbled, i.e., turned at a slow speed in a rotating barrel
with abrasives and water for extended periods (days or
weeks). By tumbling with progressively finer grades of
abrasive (usually silicon carbide) and washing carefully
between grades, the stones are gradually smoothed and
polished to serendipitous but often very attractive shapes. Tumbling barrels are
often hexagonal in outline in order to enhance the stirring action of barrel rotation.
An alternative to rotatory tumblers is a vibratory machine, often called a vibratory
tumbler, in which the containing barrel vibrates rather than rotates. The more
stationary arrangement of vibratory machines makes it much easier to examine
the progress of the stones inside, whereas standard tumblers must be halted in
order to check progress. In addition to polishing gemstones, tumbling is often
used to polish large quantities of metal jewelry.

3.3 GEMSTONE FORMS
Using the techniques given above, gemstones are fashioned into one of the
following forms:

CABOCHONS
One of the simplest lapidary forms is the cabochon, a stone that is smoothly
rounded and polished on top, relatively flattish, and either flat or slightly rounded
20
on the bottom (which may be either polished or sanded). This form of cutting is
often used for opaque or translucent stones, but is also frequently used for
transparent materials that contain too many inclusions to yield a good faceted
stone. Coloration and patterning provide the major interest in such stones.
Cabochon cutting, or cabbing, is often performed by simply holding the stone in
the fingers, but it is more commonly done by dopping (attaching with adhesive
wax or glue) the stone to a wooden or metal dopstick. This facilitates twirling the
stone to form smooth curves and avoid flat areas during grinding, sanding, and
polishing. A typical cabbing machine holds several wheels representing a
progressive series of diamond or silicon carbide grit, turned by a common arbor
and motor, and a water supply that provides a coolant/lubricant to wash away
debris and keep the stone from overheating as it is ground and sanded on
progressively finer wheels.

FACETATED STONES
Faceting is most often done on transparent stones. Flat facets are cut and polished
over the entire surface of the stone, usually in a highly symmetrical pattern. The
stone is dopped (usually with adhesive wax, epoxy, or cyanoacrylate glue) on a
metal dopstick, which is then inserted in a handpiece that allows precise control of
positioning. The cutting angle is adjusted vertically via a protractor and
rotationally via an index gear. The facets are then ground, sanded, and polished
on a rotating lap, while water or another liquid acts as a coolant and lubricant.
When one side (top or bottom) of the stone is finished, a jig is used to transfer the
stone to a dopstick on the opposing side.

A faceting machine usually employs a motor that turns a lap, a water supply, an
adjustable handpiece with index gears and a protractor, and an adjustable mast or
platform to hold the handpiece assembly. Most commercially available
gemcutting machines employ a mast, but a few employ a platform.

In recent years, innovative faceters have employed techniques such as concave
21
facets, grooves, and combinations of faceting and cabbing to produce new forms
in faceted stones.

BEADS & SPHERES
Spheres are initially sawed into cubes or dodecahedrons and then ground to shape
between two pipes or rotating concave cutters, allowing the stone to rotate freely
in any direction to form a perfect spherical shape. As with other lapidary
processes, gradually finer grades of abrasive are used to grind, sand, and polish
the stone. While beads may be faceted, they are more commonly cut and polished
as small spheres and then drilled to allow stringing. Bead mills are used to grind
and sand large quantities of beads simultaneously. They typically employ a
grooved lap and a flat lap between which the beads are rolled and worn to shape.
After shaping and sanding, beads are usually polished by tumbling.

INLAYS
In an inlay, a gemstone is cut to fit and glued into a hollow recess in another
material (metal, wood, or other stones) and then the top ground and polished flush
with the surrounding material. Stones most commonly used for inlay are strongly
colored, opaque stones such as black onyx, lapis lazuli, turquoise, tigereye, etc.

INTARSIAS AND MOSAICS
In both intarsia and mosaic work, small bits of different colored stones are fit
together and the top cut and polished to present a picture or other interesting
pattern. Strictly speaking, a mosaic is constructed on top of a flat base of another
material (usually stone), while an intarsia (also known as Florentine mosaic, or
pietre dure) is set flush into the surface of the base material. The finest intarsias
and mosaics were traditionally of Italian origin, but intarsia has enjoyed
something of a renaissance in recent years.

CAMEOS AND INTAGLIOS
Cameos and intaglios are similar in that both usually are carved portraits in stone
22
Purchase of
Raw Stones
Grading
Delivery to
Exports
Customers
Sale in Local
Market
Cutting
Polishing
or seashells. They differ in that cameos are raised portraits, while intaglios are
carved down into the surface of the material. Both typically take advantage of
different colored layers of material. The finest cameos and intaglios have
traditionally come from Italy (usually shell) or Germany (usually agate).

SCULPTURES
Gemstones can be carved, like other materials, into almost any form, limited only
by the talents of the sculptor. Carving is accomplished with a variety of diamond-
impregnated steel bits, saws, and grindstones.

3.4 PROCESS FLOW CHART
The process flow chart is shown below, raw uncut gemstones will be locally
purchased and sold after grading, cutting, finishing etc.

CHART - 1
PROCESS FLOW CHART FOR LAPIDARY UNIT






PURCHASE OF RAW STONES
Trained purchasers will be employed for purchasing the raw stones, every effort
will be made to ensure that the purchasing is done in a transparent manner and the
entire process will be watched over CCTV.


23
GRADING OF STONES
In this process the raw unfinished stones will be graded keeping in mind the final
product that is required. Grading reports will be circulated within the organization
so that purchasers can improve their buying skills.

CUTTING OF STONES
The stones will be cut using the modern machines like sawing, faceting etc. Every
effort will be made to control wastage as reduced wastage will lead to increased
profitability.

POLISHING OF STONES
State of the art buffing and polishing machines will be used to enhance the value
of the final product.

EXPORT AND LOCAL SALE OF FINAL PRODUCT
Internationally acceptable quality will be exported, while the leftovers and lower
quality gemstones will be sold in the local market.

3.5 PHYSICAL FACITLITIES
The Gemstone Lapidary unit will be located in the Gemstone Market in Saddar,
Karachi. The unit will require over 5,000 square feet of space and will include a
display centre, conference room, secure area for buying of raw gems, a strong
room, workshops for grinding, cutting and polishing of the gemstones. In addition
support facilities for the workers and office staff will also be provided. The whole
unit will have state-of-the art security and surveillance system

The Lapidary Unit will also have its own 100 KVA generator to provide 100
percent power back up.



24
3.6 MACHINERY & EQUIPMENT
The proposed lapidary unit to handle the proposed product mix given above will
require following machinery and equipment.

TABLE - 1
SUMMARY OF MACHINERY AND EQUIPMENT
S. No. Description of Machinery
1. Sawing Machinery
2. Machines for Faceted Stones
3. Calibrating Machines with Wheels
4. Polishing Machines
5. Machines for Processing of Cabochons
6. Buffing, Sanding & Polishing Sets
7. Generator
8. Security Equipment
9. CAD, CAM Machines with Software
10. Furniture & Fixture
11. Misc. Equipment
12. Workshop Equipment

3.7 ACQUISITON OF TECHNOLOGY
Lapidary is a highly sophisticated area which has experienced a lot of
technological advances during the recent years. It is strongly recommended that
technical collaboration may be made for the establishment and operations of the
unit.

Technology could be obtained from various machinery suppliers of the World.
The lapidary equipment manufacturers exist in USA, UK and in many countries
of EU such as Italy, Germany, France, Holland, Sweden, etc.. Before the lapidary
unit goes into operation, it will be necessary to get the staff trained on all the
selected machines. Adequate provision of funds has been made in the capital cost
of the Project for training of staff and workers.


25
CHAPTER 4
GOVERNANCE AND MANAGEMENT STRUCTURE

4.1 GOVERNANCE
The gemstone lapidary and marketing unit may be run by a special purpose
company (SPC) governed by a Board of Directors with a Chairman and Directors
and a Chief Executive Officer.

The business of the company is to be managed under the directions of the Board
of Directors. The Board will be 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 act in what they
reasonably believe to be the best interests of the company.

Proposed corporate governance structure is presented in Chart -2.

CHART - 2
PROPOSED GOVERNANCE STRUCTURE
The Company
Share-Holders

Board of Directors
Chairman

Chief Executive
Officer
Corporate
Governance
Committee
Corporate Audit
Committee
General
Manager
Operation
Manager
Procurement
Manager
Marketing
Manager
Finance &
Admin.
Internal Auditor
& Quality
Assurance
26
The Boards Corporate Governance Committee reviews the principles and rules
regularly in the light of prevailing best practices and forwards suggestions for
improvement to the full Board for approval.

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

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 a practical monitor for collecting information regarding corporate
misconduct and encouraging those with such information to come forward.

4.2 MANAGEMENT STRUCTURE
The paramount duty of the Board of Directors is to select a Chief Executive
Officer and to oversee the CEO and the other senior management for the
competent and ethical operation of the company.

The Board should 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.
27
The Chief Executive Officer (CEO) is 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 adopted by the Board, and the Annual General Meeting
of the Shareholders.

The management structure, presented in Chart-3, comprises of Operational
Division located at the Plant and Audit, Administration & Procurement, Finance
and Marketing Departments at Corporate Office.

CHART - 3
PROPOSED MANAGEMENT STRUCTURE














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

The selected chief executive is responsible for delivering policy and performance
for customers, society, staff and the business.
Chief Executive
Officer
General Manager
Operation
Maintenance
Manager
Production
Supervisors
Manager
Quality Assurance
Manager
Finance &
Admin.
Internal Auditor
& Quality
Assurance
Manager
Marketing
Manager
Procurement
28
4.3 MANPOWER
The total manpower requirement for the Lapidary Unit is 105 as shown in the
table:

TABLE -2
HUMAN RESOURCE REQUIREMENT
Sr. # Designation No. of Posts
1. Chief Executive Officer 01
2. General Manger 01
3. Managers 06
4. Technical Supervisors 08
5. Support Staff 05
6. Skilled Workers 24
7. Semi- Skilled Workers 36
8. Security Staff 24
Total Staff 105

The skilled workers of the project will be specialists in various process of
Lapidary e.g:

Slab Saw mill operators. Operators for processing cabochons.
Multiple and gemstone Saw mills
operators.
Operators for making round beads.
Polishers.
Grinding machine operators.
Operators for facetting.
29
CHAPTER 5
FINANCIAL EVALUATION

5.1 CAPITAL COST
Total Capital Cost of the Project will be Rs.187.0 million including a provision of
Rs.10.0 million for Raw Material Inventory and Rs.9.0 million for Contingencies.
The break up of the Capital Cost is shown in the table below:

TABLE -3
TOTAL PROJECT COST
(Rs. in million)
Description Amount
Land & Civil Works 100.0
Cost of Machinery & Equipment 42.5
Utilities 2.0
Erection and Installation 1.5
Training 6.0
Prospecting & Identification of Supply Sources 1.5
International Marketing Expenses 2.5
Pre-production and Start-Up Costs 4.0
Vehicles, Furniture & Fixtures 5.0
Working Capital 2.5
Raw Material 10.0
Contingencies 9.0
Total Project Cost 186.5

It is proposed that the above capital cost may be financed through a debt equity
structure of 40:60. As such funds may be obtained as follows:

Long Term Loans 40% Rs. 75.0 million
Shareholders Equity 60% Rs.112.0 million
Total Rs.187.0 million
30
5.2 OPERATING RESULTS
The operating results of the Project are given in the table below:

TABLE -4
PROJECTED PROFIT & LOSS ACCOUNT FOR 5 YEARS
(Rs in thousand)
Description Year 1 Year 2 Year 3 Year 4 Year 5
Net Sales 1,595,000 1,675,000 1,754,000 1,857,000 1,939,000
Cost of Goods Sold 957,000 1,005,000 1,052,400 1,114,200 1,163,400
Gross Profit 638,000 670,000 701,600 742,800 775,600
Admin & Salary
Expenses 49,638 53,609 57,897 62,529 67,532
Operating Profit 588,362 616,391 643,703 680,271 708,068
Depreciation 8,500 8,500 8,500 8,500 8,500
Net Profit before Tax 579,862 607,891 635,203 671,771 699,568
Corporate Tax at 40% 231,945 243,156 254,081 268,708 279,827
Net Profit 347,917 364,735 381,122 403,062 419,741

The above operating results are based on the product mix described in Chapter 2
and as per following sales forecast.

Following a conservative accounting practice, the following are the Sales
Projections for the first five years:

TABLE - 5
YEARLY SALES PROJECTIONS IN CARATS
(in Carat)
Description Year 1 Year 2 Year 3 Year 4 Year 5
Emeralds 15,000 15,750 16,500 17,500 18,250
Rubies 5,000 5,250 5,500 5,775 6,100
Tourmaline 10,000 10,500 11,000 11,600 12,000
Total 30,000 31,500 33,000 34,875 36,350

31
TABLE - 6
YEARLY SALES PROJECTION IN RUPEES
(Rs in million)
Description Year 1 Year 2 Year 3 Year 4 Year 5
Emeralds 1,125 1,181 1,237 1,312 1,368
Rubies 350 368 385 405 427
Tourmaline 120 126 132 140 144
Total 1,595 1,675 1,754 1,857 1,939


Assumptions:

1. Average price taken for calculation purposes is 75% of the prevailing prices in the
local market, although gemstones produced will be far superior to what is
currently available for export.
2. Current prices are taken as being constant over the next five years.
3. Prices for calculation purposes are:
Emeralds Rs.75, 000 per carat
Rubies Rs.70, 000 per carat
Tourmaline Rs.12, 000 per carat

5.3 PROJECTED CASH FLOW
The projected cash flow of the project for five years is given as under:

TABLE 7
PROJECTED CASH FLOW
(Rs. in thousand)
DESCRIPTION YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Operating Profit 588,362 616,391 643,703 680,270 708,068
Less: Cash outflows
Income Tax - 231,945 243,156 254,081 268,708
Total Cash Outflow - 231,945 243,156 254,081 268,708
Net cash 588,362 384,446 400,546 426,190 439,360
Cumulative Cash Flow 588,362 972,809 1,373,355 1,799,544 2,238,904

32
5.4 PROJECTED BALANCE SHEET
Five Years projected Balance Sheet for the project is given as under:

TABLE -8
PROJECTED BALANCE SHEET
(Rs. in thousand)
DESCRIPTION YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
CAPITAL
Equity Contribution 186,500 186,500 186,500 186,500 186,500
Accumulated Profit
& Loss

347,917

712,652

1,093,774

1,496,836

1,916,577
534,417 899,152 1,280,274 1,683,336 2,103,077
LIABILITY
Long Term Liability - - - - -
Tax Payable 231,945 243,156 254,081 268,708 279,827
TOTAL
EQUITY &
LIABILITIES

766,362

1,142,308

1,534,355

1,952,044

2,382,904
ASSETS
Capital Investment 178,000 169,500 161,000 152,500 144,000
Cash & Cash
Equivalent

588,362

972,809

1,373,355

1,799,544

2,238,904
TOTAL ASSETS 766,362 1,142,309 1,534,355 1,952,044 2,382,904

5.5 PAYBACK PERIOD
The payback period of the Project is 6 months.

TABLE -9
PAYBACK PERIOD
(Rs. in thousand)
DESCRIPTION Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit 347,917 364,735 381,122 403,062 419,741
Add
Depreciation
8,500 8,500 8,500 8,500 8,500
Total 356,417 373,235 389,622 411,562 428,241

Total Investment 186.5 million

Pay back period 6 months

33
CHAPTER 6
CONCLUSION

On the basis of the above study and analysis it maybe concluded that a Lapidary Unit
maybe established in Saddar, Karachi. The proposed Unit having capacity to cut, polish
and finish 50,000 carats of locally available emeralds, rubies and tourmaline will be able
to have a payback of less than one year with a return on investment of over 300% per
year.

The total capital investment required is Rs.187 million. This includes adequate provisions
for training of workers and staff in latest skills of Lapidary and for international
marketing.

As this will be the first unit of its type in the country, it is proposed to acquire technology
from an international source. For marketing of finished products in the world markets it
has been proposed to enter into joint venture with an international marketing
organisation.

There are large deposits of gemstones in the country which need to be fully utilized and
marketed internationally. Through Lapidary, countrys present gemstone exports of
US$50 million can be increased 100 times.
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






xxiii
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


Page 1 of 7
ANNEXURE 2
MAJOR WORLD GEMSTONE PRODUCERS

According to international sources every major gemstone producing country has
its unique mining processes and production rates. Because of these factors
production of gemstones cannot be readily quantified or valued. The major
producers of gemstones in the world are listed below:

Thailand
USA
Canada
India
Brazil
Sri Lanka
Tanzania
Australia
Zambia
Pakistan

Unlike diamonds, colored gems and semi precious stores arent a single
commodity there are dozens of different types of gems, with different sources
and different values. A brief profile of the above listed gemstone producing
countries is given below:

THAILAND
In 1982, Thailands exports were less than US$200 million in gems and jewellery.
Last year, exports totaled US$2.5 billion, nearly thirteen times the value of 15
years ago. Thailand undoubtedly remains the largest exporter in the world.

Thailands ruby exports have been steady at some US$200 million annually for
the past five years. The Sapphire market is quite different from that of rubies.
More than 50% of Thailands supplies come from abroad especially from Sri
Lanka, Australia and many parts of Africa. Emeralds are relatively new to the
Thai market. The consumers and manufacturers of gemstone products are being
educated about emeralds, but cutters dont yet handle emeralds as well as rubies
and sapphires.
Page 2 of 7
Thailand has cut and processed stones such as tanzanite, amethyst, aquamarine,
peridot, topaz, tourmaline and tsavorite. Currently, Thailand accounts for 12% of
total world trade in colored stones.

UNITED STATES OF AMERICA
Total U.S. gemstone output has decreased in recent years owing to a decline in
foreign demand for freshwater shell, a major component of the domestic industry.
Domestic gemstone production includes amber, agate, beryl, coral, garnet, jade,
jasper, pearl, opal, topaz, quartz, sapphire, turquoise and many other gem
materials. Output of natural gemstones was primarily from Tennessee, Arizona,
North Carolina, Arkansas, California and Utah, in decreasing order. There was
notable production of freshwater pearl in Tennessee, turquoise in Arizona and
beryl in North Carolina and Utah.

In 1999, the US gemstone market exceeded an estimated US$9 billion, accounting
for at least one-third of world production. The United States is expected to
dominate global gemstone consumption for the next 10 years. China being a
major threat may emerge as a major new gem market in the following decade.

SRI LANKA
Sri Lanka produces some of the finest quality gemstones in the world, including
blue sapphires, star rubies, chrysoberyl cats eyes, padparadschas, zircons,
amethysts, moonstones, garnets, spinels and many more. With the demand for
colored gemstones increasing by leaps and bounds, production has increased and
the industry in Sri Lanka has been very buoyant.

Recently a few mining areas were discovered. According to the National Gem &
J ewellery Authority, one is within Colombo city limits, the other is 20 miles
outside Colombo in a place called Gampaha. At these two mines, a characteristic
alluvial mixture of many kinds of colored gemstones has been found. Material
Page 3 of 7
from the new mines includes many colors of sapphire, chrysoberyl, garnet and
zircon.

BRAZIL
Brazil is a rich source of gemstones which makes it the fifth largest producer of
gemstones in the world. It is believed that it has only been scratched on the
surface when it comes to gemstone mining. Brazil currently is the worlds largest
emerald producer. Nova Era is currently the largest producing mine with many
neighboring areas currently being prospected. Bahia is the second major supplier
with the reactivation of the Carna Iba Mine.

Production of green tourmaline from various mines in Governador Valadares is
low, but future prospects are reasonable.

There is reasonable production of precious topaz from the Capao, Vermelhao and
Dom Bosco mines. Production of amethyst at Maraba in the state of Para is about
200kgs per month of hammered material. There is also a large supply of amethyst
and ametrine from Santa Cruz in Bolivia which is marketed through Brazil.

Brazil's gemstone reserves are almost impossible to quantify. Brazil, however, has
great potential as the country has 600 million cubic meters of sedimentary rocks
that contain diamonds that grade between 0.01 and 0.1 carat per cubic meter, or
15 million carats; this represents about 1.2% of the world's diamond reserve base.

TANZANIA
Presently Tanzania is among the countries which hosts one of the most vibrant
exploration and mining scene in Africa. It is the fastest growing sector in
Tanzania in terms of its contribution to GDP and its share of exports. The value of
mineral exports increased from US$ 54.10 million in 1996 to US$ 185 million in
2000. It is projected that exports will exceed US$ 300 m at the end of 2001.
Page 4 of 7
Tanzania is set to become the continents third largest gold producer after South
Africa and Ghana.

There has been an important new alluvial gemstone deposit discovered in
Tanzania in Tunduru, which is a remote area in the South east. Now it is well
known for the production of about eleven different types of gemstones which
include chrysoberyl, sapphire, tourmaline, alexandrite, spinel and other important
minerals including diamond.

This is the second major new mining area recently found in Tanzania, following
the discovery of sapphires and other gemstones at Songea, in southern Tanzania.
Most of ruby and sapphire mines in Tanzania are owned by big companies.

AUSTRALIA
Australia is most famous for opals, but is also heavily involved in the production
of other gemstones, including sapphires, pearls and diamonds.

Currently, Australia produces around 95% of the worlds opal used in the
jewellery industry. The major export markets for opal are the USA, J apan,
Germany, Hong Kong and New Zealand. White or milky opal, is found in South
Australia, Black opal is found in Lightning Ridge, New South Wales and Boulder
opal is found in Queensland.

Australia is a major producer of gem-quality sapphires which have been mined
commercially in Australia since the late 19
th
century. The commercial blue stone
is mainly exported in bulk under contract from Thailand for processing (including
heat treatment and cutting). The best quality sapphires and fancy stones are
supplied mainly to niche markets in EU and the USA.

Australia is the world largest producer of white South Sea pearls, cultured pearls
of more than 10mm diameter grown in the gold or silver-lip pearl oyster Pinctada
Page 5 of 7
maxima. The industry also produces half pearls of 25mm, termed Keshi pealrs in
the trade, suitable for jewellery and clothing.

The Argyle diamond mine in Western Australia has a large proportion of the
worlds economic diamond resources 5% are of gem quality, 40% neargem
quality and 55% industrial quality. Argyle sells all products direct to the world
market. The best diamonds include the renowned pink diamonds. About 70% of
the world market for rough diamonds is controlled by the London based Central
Selling Organization (CSO).

ZAMBIA
Mining in Zambia is not a recent development, it is being carried on since
decades. There are a large variety of gemstones which are being mined here,
namely Amethyst, Aquamarine, Beryl, Emeralds, Tourmaline, Garnets, Topaz,
Opal and Agate. Many industry observers consider Africa to be the most prolific
source of gemstones in the world right now exported just under US$27 million
to the United States, the European Union and J apan in 1999. The nature of doing
business in Africa makes it less likely for dealers to go there. It is difficult and
expensive to get to the mines and the prices can be the same as a dealer would pay
elsewhere. Also, dealers from trading centers like Thailand and India have
carefully built up and maintained a presence in gem-rich African countries, and
they buy up much of the rough.

PAKISTAN
Detailed information about Pakistan has been given in Chapter 2 of this report.

According to many experts Pakistan has the potential to become the next
alternative source for the colored gemstone trade - a source of a wide variety of
rough stones - but it has a long way to go to achieve that status.


Page 6 of 7
INDIA
Placed against targets to achieve 60 percent of the international market by 2005
and 65 percent by 2010, Indias gem and jewellery industry has registered an
impressive 21.33 percent growth in exports in fiscal year 2002-03. According to
provisional estimates of Gems & J ewellery Export Promotion Council (GJ EPC),
gem and jewellery exports during 2002-03 stood at US$ 9.10 billion against
US$ 7.55 bn in fiscal 2001-02. In rupee terms, the growth was 22.89 percent --
from Rs 35.7 billion in 2001-02 to Rs 43.9 billion in 2002-03. With country's
total merchandise exports during fiscal 2002-03 being estimated at US$ 50
billion, gem and jewellery exports accounted for over 18 percent.
As stated above in fiscal 2002-03 gem and jewellery exports stood at US$ 9.1
billion signifying an increase of 21.33 percent from previous year's comparable
figure of US$ 7.55 billion. Of this, cut and polished diamond exports were over
US$ 7.11 billion - up 19.1 percent from US$ 5.97 billion in the previous year.
Coloured gemstone sector witnessed 11.48 percent increase to US$ 203.67 mn
from previous comparable period's US$ 182.69 mn.
CANADA
Canadas primary gem export is nephrite jade, found in the Dease lake area of
northern British Colombia. An estimated 200 tons are exported each year,
mostly to Asian Countries.
The countrys other major gem exports are ammonite and labradorite, which
was originally in the province of Labrador. Canada remains a major source of
labradorite, especially in fine qualities, although precise figures are not
available. Ammonite is retrieved from the Milk River in Alberta and remains
relatively rare.
Other gem deposits have been discovered throughout the country. Commercial
interests are mining sapphire and iolite in British Colombia, emerald and blue
beryl in the Yukon and sapphire on Baffin Island; currently all are in the
Page 7 of 7
exploration stage. Fee-dig operations are mining opal in British Colombia and
amethyst in Ontario and various other sites are open to collectors, but none of
them produce gems in commercial quantity.





























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