Revised

Extension in Proposals submission deadline

Green Investment Diagnostic for Pakistan’s Shipping and Ship Breaking Sectors

Scope of Work (SOW)

Introduction

The Pakistan Regional Economic Integration Activity (PREIA) works to increase Pakistan’s access to regional and international markets and is a key economic growth project that stands to benefit numerous Pakistani businesses. This project has two components: Component 1 aims to improve Pakistan’s business enabling environment so that policies, laws, and regulations are adaptable and more reflective of on-the-ground needs; and Component 2 is geared towards improving Pakistan’s capacity to access regional markets by identifying bottlenecks and practical solutions for increasing export efficiency and lowering trade costs.

To help Pakistan achieve improved capacity to access regional markets, Component 2 addresses constraints at Pakistan’s borders that adversely affect trade and transit traffic with neighbouring countries. PREIA’s technical assistance under this component is two-pronged: 1) improving customs facilitation; and 2) promoting regional integration. Towards that end, PREIA engages with key Government of Pakistan stakeholders, such as the Ministry of Commerce, the Federal Board of Revenue, and the Pakistan Single Window Company (PSWC).

PREIA’s efforts so far have helped the GoP increase automation within Pakistan Customs and other government agencies (OGAs), to increase efficiencies and transparency; and has helped both the GoP and the private sector involved in trade leverage international best practices and technology to increase trade and transit competitiveness. In Year 9, the project will leverage the momentum of reforms developed in the previous years to support aligning trade policy and investment with climate change risk mitigation and adaptation.

The landscape for global trade is continuously evolving with innovations in trade technology, digitalization, however emerging vulnerabilities arising from climate change are challenging existing trade frameworks, policies, and patterns. There is a growing realization that implementation of environmental standards in international trade is now an important matter and organizations are more cognizant of their impact on climate change. As the world ramps up its response to the threats posed by climate change, it is possible that in future harmonization with climate related standards may become a serious competitiveness issue for the country’s organizations.

Background

“Green shipping”, in general, refers to use of resources and energy to transport people and goods by sea in a manner that preserves the global environment from Greenhouse Gas (GHG) emissions and other environmental pollutants generated by ships. The Green Shipping Challenge is an initiative launched by the United States and Norway at COP27 in 2022. The goal of the challenge is to encourage countries, ports, and companies to make commitments to reduce greenhouse gas emissions from shipping. The Green Shipping Challenge^[1] focuses on various aspects of the shipping sector, including vessel operations, fuel choices, technological advancements, and supply chain management. It encourages the implementation of energy-efficient measures, the use of clean fuels, and the development of renewable energy sources for powering ships. The Green Shipping Challenge encourages countries, ports, companies, and other actors in the shipping value chain to come forward with concrete announcements that will help put the shipping sector on a pathway this decade to align with the goal to limit global temperature rise to 1.5 degrees Celsius. Since the launch of the challenge, more than 40 countries, ports, and companies have made commitments to reduce emissions from shipping. These commitments include investing in new technologies, developing green shipping corridors, and adopting new policies. The Green Shipping Challenge is a significant step forward in the fight against climate change.

From the operational point of view, green shipping must comply with the environment-related operating conditions regulated by the International Maritime Organization (IMO). These conditions are described by conventions such as MARPOL 73/78, the Convention on Oil Pollution Preparedness, Response, and Co-operation regarding Hazardous and Noxious Substances (OPRC-HNS), the Anti fouling Systems (AFS) Convention, the Ballast Water Management (BWM) Convention, and the Ship Recycling Convention. Each country also has / may have its own set of domestic regulations and management standards that aim to manage and monitor all harmful substances (marine pollutants and air pollutants) emitted.

On average shipping accounts for 2.5% of global GHG emissions according to the Fourth IMO Greenhouse Gas Study based on 2012-2018 data. The International Maritime Organization (IMO) announced in 2018 its goal of reducing GHG emissions by 50% from 2008 to 2050, though this target still falls short of contributing enough towards keeping the global temperature rise below 1.5%. Since the demand for shipping operations is likely to outpace the adoption of transition to low carbon or zero emission shipping operations, various coalitions of key industry stakeholders including carriers, freight forwarders, and shippers, are vying for more ambitious targets.  For example, the Getting to Zero Coalition aims for commercially viable deep sea zero emission operations by 2030, and for complete decarbonization by 2050.

Within the transportation sector, shipping claims the third position in terms of carbon dioxide emissions, comprising 11% of the global total, trailing closely behind passenger vehicles at 39% and medium to heavy trucks at 23%. Due to the increase in global trade and the demand for maritime carriage of goods, the sector’s carbon footprint, primarily because of CO2, is poised to potentially surge by 50% to 250% by the year 2050 if proactive measures are not taken. Ships require energy to operate. While cleaner fuels are gradually gaining traction, shipping companies continue to depend on fossil fuels like marine gas oil and heavy fuel oil. The combustion of Heavy Fuel Oil (HFO) results in the release of harmful gases, including carbon dioxide (CO2), methane (CH₄), and nitrous oxide (N₂O), all of which contribute to the problem of climate change. In addition, ships produce sulfur oxide (SOx) emissions, which, although not directly affecting the climate, pose significant environmental and health risks.

IMO is actively working on implementing a global sulfur cap on marine fuels as part of its efforts to reduce emissions stemming from the shipping sector. For example, the organization has established the Mediterranean Sea Emission Control Area (ECA)[2] to regulate sulfur oxides and particulate matter emissions. This decision was made in December 2022, with the Mediterranean supporting 20% of seaborne trade with several busy maritime routes. Besides, the European Parliament has endorsed changes to the EU ETS[3], extending its coverage to include all maritime emissions. This expansion applies to ships exceeding 5,000 gross tonnages operating within the European Economic Area (EEA)[4]. As a result, every company with vessels engaged in EEA trade must submit emission allowances equivalent to a portion of their greenhouse gas (GHG) emissions during a given calendar year. The Clean Cargo Working Group[5] (CCWG) also developed a standard methodology for emissions accounting and benchmarking in the ocean shipping sector.

Pakistan is an important coastal state, with a 990KM coastline, with its three ports directly across from one of the worlds most important energy corridors in the form of the Persian Gulf and the Gulf of Oman. Shipping industry plays a crucial role in Pakistan's economy, constituting 90% of Pakistan’s trade and contributing significantly to GDP. Despite its own modest fleet of 57 ships, Pakistan spends around $5 billion/year on international freight, with some 3-4,000 ocean liners visiting Pakistani ports each year – one of the largest potential growth sectors for the country. Further, as Pakistan becomes more integrated with Central Asian economies, these states are hoping for efficient and reliable access via Pakistan’s ports. Uzbek companies, for example, are already utilizing Uzbekistan-Pakistan bilateral transit trade arrangements to bring in cargo via the Karachi port.

“Ship breaking” refers to the practice of dismantling ships that have reached the end of their useful lives and breaking up its constituents into steel and other recyclable materials. Because nearly every component of a ship can be recycled into some form of scrap metal for reuse, the practice of ship breaking is considered an ecologically and environmentally friendly method for discarding outdated sea vessels. Despite the advantages, the main issue with the industry remains that a vast majority of global ship breaking activities have shifted to undeveloped and developing countries that provide cheap labor and, therefore, have weak enforcement structures for safety and environmental regulations. This means that the discarded ships piling up at ship breaking yards of these countries start to pose serious negative consequences for both the people and the environment of that region due to the hazardous waste materials and pollutants (asbestos, polychlorinated biphenyls, ozone-depleting substances, heavy metals etc.) released from the scrapped vessels.

The ship breaking industry in South Asia in general has been under pressure in recent years because of the alleged abuse of the environment and the adverse effects that the operation of ship breaking yards have on the ecosystem surrounding them. On the one hand, the industry plays an important role in commercial and economic activity of the region, creates employment opportunities, and serves to supply raw material to core industries since most of the countries involved in the ship breaking process have a large appetite for scrap steel. Pakistan and Bangladesh, for example, use the steel from recycled ships in local mills where the steel is rerolled and used directly in associated industries, such as construction. On the other hand, the hazardous waste materials released into the environment and associated occupational health risks arising from ship breaking operations pose a significant national and global concern. The key is to help all stakeholders strike a balance between economic and environmental goals by enabling the uptake of environmentally sustainable ship breaking and recycling operations.

For Pakistan, 2023/2024 are critical years for the revival of the ship breaking industry, as shipowners around the world renew and upgrade their fleets to comply with new International Maritime Organization (IMO) Greenhouse gas (GHG) emission regulations. The massive influx of new constructs expected in the coming years means that a large number of containerships are likely to be recycled, and Pakistan must act in urgency to gain a larger share of the demand for shipbreaking and recycling services.

The Government of Pakistan in its Updated Nationally Determined Contributions Submittal (2021) set a cumulative ambitious conditional target of overall 50% reduction of its projected emissions by 2030, with 15% from the country’s own resources and 35% subject to provision of international grant finance. Pakistan will now include Pots and Shipping in this ambitious target. This action will interlink with Pakistan’s pledge to join the Zero Emission Shipping Mission and Green Fund allocation by international organizations. In addition, this will provide an opportunity to collaborate and explore how Pakistan can support Green Shipping Corridors of the future.

Pakistan recognizes that green methanol is planned for testing in the region by one shipping operator (Maersk) and will study the issue of green methanol production from biogas to determine if this shipping fuel of the future can be generated in Pakistan. The Ministry of Climate Change is also promoting the application process for port and shipping stakeholders so they can submit project proposals for GCF, GEF and other green funding. Pakistan can pursue in multilateral green funds to enhance port improvement projects to provide shore side power, renewable energy, and clean fuels, though a coherent strategy to pursue this at a national level is not yet in place.

Pakistan will need to explore a range of green investment opportunities to propel the shift towards a low-carbon shipping industry. The Green Climate Fund (GCF),[6] which recently announced the $90M Acumen Climate Action Pakistan Fund,” is a potential resource. The Global Environment Facility (GEF) also provides grants and concessional financing for initiatives centered on biodiversity conservation, climate change mitigation, and international waters management. The potential for private sector investments is substantial, contingent upon demonstrating clear environmental benefits, financial viability, and alignment with national climate goals. Other DFIs and multilateral financing agencies, such as the World Bank, ADB, IFC, and DFC are also expanding their green lending and investment portfolios to Pakistan. To identify these opportunities/windows and evaluate their usefulness in facilitating a green transition in Pakistan’s shipping sector, a green investment diagnostic is required.

Objectives and Scope

USAID PREIA has led the national conversation on a green shipping transition. PREIA organized extensive stakeholders’ workshops in FY 2023 which were aligned with the main categories covered in the UN Green Shipping Challenge. Led by U.S. Deputy Chief of Mission Andrew Schofer, the United States reaffirmed its commitment to partnering with Pakistan in promoting sustainable shipping.[7]

All relevant shipping stakeholders participated in these workshops including senior officials from federal and provincial governments, port and terminal operators, shipping lines, logistics companies, electricity utility provider, donor funded organizations and other relevant private sector associations and organizations. Additionally, the Pakistan Single Window (PSW), a successful flagship initiative conceived and launched by PREIA, is underway and is now planning to launch a “Port Community System,” in Q2 2024, (for which some of the feasibility work has been through TA support from PREIA), which will be an automated system to simplify and digitize processes related to port logistics, reducing ship waiting times, and leading to GHG reduction.

The workshops resulted in the forming of recommendations focus on one or more of the categories of the UN Green Shipping Challenge. The participants of the workshops outlined specific areas in which actions by both public sector and private sector can move the green shipping agenda forward in Pakistan:

1. Pursuit of a Green Shipping and Ports National Action Plan
2. Incorporation of Shipping and Ports in Ambitious GHG Emission Reduction Targets
3. Pledge to Collaborate on Zero Emission Shipping
4. Port Efficiency Overhaul to Reduce Emissions
5. Development of Port Transformation Plans and Green Fund Allocation
6. Drive Towards Emission Reduction by Nurturing Terminal Operator’s Green Initiatives
7. Exploration of Biogas-Based Methanol Production Near Ports
8. Commitment to Mangrove Forest Preservation in Sindh for a Sustainable Future (creating carbon offsets)

To achieve substantive progress in the above recommended areas, PREIA believes that a foundational Green Investment Diagnostic is required for Pakistan’s Shipping Sector. This is the focus of these Terms of Reference, which require the service provider (s) to:

1. Identify sources of climate financing available to Pakistan to facilitate the transition towards sustainability in its shipping and ship-breaking industry.
2. Identify and develop a tentative pipeline of green investment projects aimed at enhancing the private sectors in green shipping and ship breaking in Pakistan. This involves outlining specific projects that will attract and channel investment into the shipping and ship breaking industry, addressing key areas of improvement. Develop high-level investment profiles for high potential investment projects or opportunity spaces, in activities such as waste recycling, ship recycling, port water treatment, port electrification, alternate (clean) fuel technology, and others.
3. Outline a strategy for attracting investment in building hazardous waste disposal centers within ship breaking yards in Pakistan. This involves outlining the potential projects, their environmental impact, and the benefits of investing in sustainable waste management practices.
4. Conduct an investor identification process to pinpoint private financiers, financial institutions, and international financing firms interested in blended finance opportunities within the shipping and ship breaking industry of Pakistan. This step aims to create a network of potential investors to support sustainable projects in the sector.
5. Evaluate and propose green investment models for upgrading and expanding existing infrastructure and technology within the shipping industry. Align these models with international innovative integration and operating systems. Assess fiscal and regulatory policy frameworks and financial instruments that support sustainable investment. Compare these frameworks with regional markets and recommend enabling policies and incentives for the shipping and ship breaking sector. This should also encompass carbon pricing and carbon markets mechanisms.
6. Identify projects that could access concessionary funding from multilateral climate funds, such as the Global Environment Facility (GEF) and Green Climate Fund (GCF). Provide guidance to public and private sector counterparts on accessing and leveraging these funds effectively to support green initiatives within the shipping and ship breaking industry in Pakistan.

Tasks (Performance Requirements)

1. Conduct a thorough industry-level assessment to identify key areas of green improvement in the shipping and ship-breaking sector (e.g., energy efficiency, renewable energy, electrification, switching away from fossil fuels in transport, waste management, water efficiency, etc.), and identify existing infrastructure and technology industry-level opportunities within the shipping industry that may generate financial, social, and environmental returns. The assessment should include opportunities in the building and management of hazardous waste disposal centers within ship-breaking yards.
2. Build on the industry-level opportunities, to identify a tentative pipeline of specific green investment projects, including drafting high-level investment profiles (e.g., ~2 pagers) . The assessment of both industry-level opportunities and specific green investment projects will include high-level estimates of the potential financial, social, and environmental returns, including reductions in GHG emissions.
3. In parallel to the two tasks above, conduct an investor mapping process to identify sources of public and private funding (at concessionary and market rates) including (but not limited to) private financiers and impact funds, national and international financial institutions, development financial institutions, multilateral climate funds, national public funders, and international donors interested in supporting blended finance opportunities. The investor map will include investors and as well de-risking partners and categorize them based on their potential financing role in Pakistan’s green shipping and ship-breaking industry.
4. Suggest blended finance structures that may support the financing of identified a) industry-level opportunities; and b) specific green investment projects. The blended finance structures will tentatively include the investors identified above, and their potential investment terms within those blended finance structures. Where possible, the blended finance structures will highlight potential roles for multilateral climate funds such as the Global Environment Facility (GEF) and Green Climate Fund (GCF).
5. Draft a comprehensive Green Investment Diagnostic Report, including next steps and potential timeline, for the public sector and key donors to mobilize climate finance to the industry-level opportunities and specific green investment projects above, highlighting high priority investors and de-risking partners, and low-hanging fruit investment opportunities and projects.

Required Deliverables and Payment Schedule

The company/firm will be responsible for delivering the following:

1. Workplan of the project, including timeline for the execution of the tasks and deliverables above, by the end of July 2024 and agreed with PREIA. (10% Payment).
2. Identification and high-level analysis of industry-level opportunities and specific green investment projects (targeting minimum of 7 projects). The analysis should include opportunities (and ideally specific projects) in the building and management of hazardous waste disposal centers within ship-breaking yards. The analysis should also include high-level estimates of the potential financial, social, and environmental returns, including reductions in GHG emissions both high-level opportunities and specific green investment projects. The investment projects should be summarized within a high-level investment profile that can be shared with prospective investors and donors (20% payment)
3. Map of potential public and private funders (at concessionary and market rates), including de-risking partners, that may be interested in financing the industry-level opportunities and specific green projects identified above. The map will categorize investors based on the potential financing role in Pakistan’s green shipping and ship-breaking efforts (15% payment).
4. Design blended finance structures that may support the financing of identified a) industry-level opportunities; and b) specific green investment projects, and tentatively including the investors identified above and their potential investment terms within those blended finance structures. (15% payment)
5. Develop a comprehensive Green Investment Diagnostic Report to mobilize climate finance towards greening Pakistan’s shipping and ship-breaking and to the industry-level opportunities and specific green investment projects above, highlighting high priority investors and de-risking partners to be engaged, and low-hanging fruit investment opportunities and projects. (30% Payment)
6. Extend technically facilitation of the execution of a one-day event (estimated to take place during the last week of July 2024, in Karachi/Pakistan) to be organized by PREIA, to present the findings of this analysis to key stakeholders and seek their feedback, and the networking between key investors and representatives of the identified industry-level opportunities and investment projects. Finalize the Green Investment Diagnostic Report based on additional insights and opportunities gathered in this event. (10% Payment)

Qualifications and Competencies

Eligible firms should have the following qualifications and experience:

1. Demonstrated experience of 5-7 years in identifying and developing international green investment projects, particularly in the shipping and ship-breaking sectors.
2. Track record in conducting investor identification processes and establishing networks with private financiers, financial institutions, and international financing firms.
3. Technical expertise in evaluating existing infrastructure and technology within the shipping industry.
4. Specialized knowledge in waste management practices, particularly in developing comprehensive strategies for attracting investment in building hazardous waste disposal centers within ship-breaking yards.
5. According to the approved geographic code for its contract, DAI is permitted to obtain goods and services solely from the United States, the cooperating country, and "Developing Countries," with the exception of "Advanced Developing Countries" and prohibited nations. The list of "Developing Countries" and "Advanced Developing Countries" can be accessed at the following links:
   • For "Developing Countries": https://www.usaid.gov/ads/policy/300/310maa
   • For "Advanced Developing Countries": https://2012-2017.usaid.gov/ads/policy/300/310mab

Base of operations

Can be international or Pakistan, although in-person/physical participation is encouraged. International companies/firms are encouraged to form consortiums with local partners. Will require substantive in-country work/consultation sessions with sector professionals in Karachi and Islamabad. The selected firm/company will be responsible for covering all travel-related expenses incurred during the activity.

Reporting

The company/firm will report to the Regional Trade Promotion Advisor, USAID PREIA. 

Payment Schedule

Please refer 11.1.3 above for details.

(Please use attachment 11.2 template)

Estimated Completion Time

The assignment is to be completed over a period of 2 months by 31^st, July 2024.