Public Disclosure Authorized

Report No 71812-PK

Pakistan
Strategic Environmental, Poverty and Social
Assessment of Trade and Transport Sector
Public Disclosure Authorized

Reforms
December 2012

Environment, Climate Change and Water Resources Department South Asia Region
Public Disclosure Authorized
Public Disclosure Authorized

Document of the World Bank

ACRONYMS

AQM Air Quality Management NHA National Highways Authority

CGE Computable General Equilibrium NTC National Trade Corridor
CO2 Carbon Dioxide NTCMU National Trade Corridor Management Unit
DALY Disability Adjusted Life Year PACCS Pakistan Customs Computerized System
ESCAP United Nation’s Economic and Social Pak-EPA Pakistan Environmental Protection Agency
Commission for Asia and the Pacific
ESW Economic and Sector Work PCRWR Pakistan Council of Research in Water
Resources
ET Environmental Tribunal PEPA Pakistan Environmental Protection Act of
1997
EU European Union PEPC Pakistan Environmental Protection Council
FSW Female Sex Workers PIA Pakistan International Airlines
GDI Gender Development Index PQA Port Qasim Authority
GDP Gross Domestic Product PM Particulate Matter
GHG Greenhouse Gases PM10 Particulate Matter less than 10 microns
GoP Government of Pakistan PM2.5 Particulate Matter less than 2.5 microns
HDI Human Development Index PPM Parts per million
IDA International Development Association PR Pakistan Railways
IDP Internally Displaced People PRSP Poverty Reduction Strategy Paper
IDU Injecting Drug Users PS&QCA Pakistan Standards and Quality Control
Authority
JICA Japan International Cooperation Agency PSIA Poverty and Social Impact Analysis
KAIRP Katchi Abadi Improvement and SAM Social Accounting Matrix
Regularization Programme
KICT Karachi International Container Terminal SCEA Strategic Country Environmental
Assessment
KP Karachi Port SEA Strategic Environmental Assessment
KPT Karachi Trust Port SEPSA Strategic Environmental, Poverty and
Social Assessment
KWSB Karachi Water and Sewerage Board STI Sexually Transmitted Infections
LFS Labor Force Survey TEU Twenty-foot Equivalent Unit
MoE Ministry of Environment TFP Total Factor Productivity
MSW Male Sex Workers TOR Terms of Reference
NACP National AIDS Control Program UNDP United Nations Development Programme
NEET Not in Education, Employment of Training UNPF United Nations Population Fund
NEP National Environmental Policy USAID United States Agency for International
Development
NEQS National Environmental Quality Standards USD United States Dollars
NGO Non Governmental Organization WHO World Health Organization

ii
Copyright © 2012
The International Bank for Reconstruction and Development/The World Bank
1818 H Street, N.W.
Washington, D.C. 20433, U.S.A.
All rights reserved

Suggested citation: Ernesto Sanchez-Triana and Javaid Afzal (2012) Pakistan. Strategic Environmental, Poverty and
Social Assessment of Trade and Transport Reforms. CEA Series, South Asia Region. Washington, DC: World Bank.

The findings, interpretations, and conclusions herein are those of the author(s) and do not necessarily
reflect the views of the International Bank for Reconstruction and Development/The World Bank and its
affiliated organizations, or those of the Executive Directors of The World Bank or the governments they
represent.
The World Bank does not guarantee the accuracy of the data included in this work. The boundaries,
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iii
 CURRENCY EQUIVALENTS

Unit of Currency = Pakistani Rupees (PKR)

1 US$ = 94.279700

Fiscal Year
July 1-June 30

Vice President: Isabel Guerrero

Country Director: Rachid Benmessaoud
Sector Director: John Stein iv
Sector Manager: Karin Kemper, Gajanand Pathmanathan, Herbert Acquay
Task Managers: Ernesto Sánchez-Triana and Javaid Afzal
ACKNOWLEDGEMENTS________________________________________________
This report is a result of the fruitful collaboration between the Planning Commission of the Government
of Pakistan and The World Bank.

This report was prepared by a team led by Ernesto Sánchez Triana (SASDI). The core team included:
Javaid Afzal (co-TTL), Santiago Enriquez, Cecilia Belita, Ghazal Dezfuli, Dan Biller, and Sohail Malik.
The extended team included Asif Faiz, Zia Al Jalaly, Amer Zafar Durrani, Hasan Zaidi, Zafar Raja, Jean-
Noel Guillossou, Fernando Loayza, Rahul Kanakia, Paula Posas, Hammad Raza, Bjorn Larsen, Elena
Strukova, Marie Florence Elvie, Aude-Sophie Rodella, Stefanie Sieber, Safiya Aftab, Hina Nazli, Wajiha
Saeed , Sara Rafi, Shehreyar Rashid, Hiba Zaidi, Kulsum Ahmed, and Innovative Development Strategies
(IDS). Valuable guidance was provided by the peer reviewers Sonya Sultan, Fernando Loayza, Catherine
J. Nove-Josserand, Leonard Ortolano (Stanford University), Daniel Slunge (University of Gothenburg),
Jack Ruitenebeek (IUCN), and Rob Verheem (Netherlands EIA Commission). Several colleagues also
provided helpful advice and detailed contributions, particularly Asif Faiz, Shahzad Sharjeel, and Amer
Zafar Durrani. Jeff Lecksell amended the maps to match Bank guidelines.

The Government of Pakistan, mainly through the Planning Commission and the National Trade Corridor
Management Unit, provided key feedback during the preparation of the study and participated actively in
the production of diverse parts of the report. The team is indebted to Dr. Nadeem Ul Haq, Deputy
Chairman Planning Commission and various Secretaries of the Planning and Development Division for
their valuable guidance and patronage of the study. The team also recognizes the important contribution
of the government officials: Dr. Raja Aurangzeb Khan, Chief Environment, Planning Commission, Sysed
Tanweer Hussain Bukhari, Project Director NTCMU and his team, Malik Muhammad Akram and
Ghulam Mohayuddin Marri, Members Infrastructure, Planning Commission.

The team is particularly grateful to the Australian, Netherlands, Norwegian, and Finnish governments for
their support to fund some of the studies that underpin this report.

v
TABLE OF CONTENTS

Acronyms ...................................................................................................ii
Tables ......................................................................................................viii
Figures ...................................................................................................... ix
Executive Summary.................................................................................... 1
Chapter 1. Introduction ........................................................................... 12
1.1. Objective ...................................................................................................... 12
1.2. Methodology ................................................................................................ 14
1.3. Contents of this Report ................................................................................ 18
Chapter 2. Sector Status and Trade and Transport Policy Reforms ........ 19
2.1. Freight Transport Sector ............................................................................. 21
2.1.1. Highways .......................................................................................................................................... 21
2.1.2. Trucking ...........................................................................................................................................24
2.1.3. Railways ........................................................................................................................................... 25
2.1.4. Aviation ............................................................................................................................................29
2.1.5. Ports and Shipping ......................................................................................................................... 30

2.2. Trade Facilitation ........................................................................................32

2.3. Trade and Transport Reforms .....................................................................33
Chapter 3. Priority Issues Associated with Freight Transport Reform .... 35
3.1. Spatial Transformation ............................................................................... 35
3.2. Effects of Productivity Enhancements of the Transport Sector .................. 40
3.2.1. Household-Level Poverty ............................................................................................................... 40
3.2.2. Household Income ..........................................................................................................................42
3.2.3. Sectoral Value-Added .....................................................................................................................44
3.2.4. Economic Indicators .......................................................................................................................46

3.3. Summary .................................................................................................... 47

Chapter 4. Priority Social Issues Associated with Freight Transport ...... 49
4.1. Freight Transportation and Social Conflicts ............................................... 49
4.1.1. Overview of Social Conflict in Pakistan ..........................................................................................49
4.1.2. Potential Impacts in the Ports, Shipping and Trucking Sectors ................................................... 51
4.1.3. Youth and Social Conflicts .............................................................................................................. 53
4.1.4. Poverty, Social Exclusion and Violence in Urban Settings ........................................................... 54
4.1.5. The Case of Karachi ......................................................................................................................... 55

4.2. Connectivity and Migration ......................................................................... 55

4.2.1. Overview of Migration in Pakistan ................................................................................................. 56
4.2.2. Gender and Migration ....................................................................................................................58

vi
 4.2.3. Cross-border Movement between Pakistan and Afghanistan ...................................................... 59

4.3. Spatial Transformation and Urban Sprawl ................................................ 60

4.3.1. Urbanization in Pakistan ............................................................................................................... 60
4.3.2. Urban Sprawl in Pakistan ...............................................................................................................62
4.3.3. Urban Sprawl and Road Infrastructure .........................................................................................64
4.3.4. Example of Urban Sprawl: The Case of Karachi ...........................................................................66
4.3.5. Access to Markets and Facilities ................................................................................................... 68
4.3.6. Impacts on Real Estate Markets ....................................................................................................69

4.4. Impact on HIV/AIDS .................................................................................. 69

4.4.1. Status of the Epidemic in Pakistan .................................................................................................69
4.4.2. HIV and Freight .............................................................................................................................. 71

4.5. Resettlement and Displacement .................................................................. 72

4.6. Summary .................................................................................................... 74
Chapter 5. Priority Environmental Issues Associated with Freight
Transport ................................................................................................. 75
5.1. Air Pollution ................................................................................................ 75
5.2. Noise Pollution........................................................................................... 82
5.3. Road Safety ................................................................................................ 85
5.4. Hazardous Waste Transportation ............................................................... 91
5.5. Climate Change .......................................................................................... 92
5.6. Habitat Fragmentation and Natural Resource Degradation ........................95
Chapter 6. Policy Options for Environmentally and Socially Sustainable
Trade and Transport ................................................................................ 98
6.1. Multimodal Transport System .................................................................... 98
6.2. Railways .................................................................................................... 102
6.3. Modernization of the Trucking and Port Sectors ....................................... 103
6.4. Redefining the Role of Government and the Need for Private Sector
Participation .................................................................................................... 104
6.5. The Way Ahead ......................................................................................... 106
Chapter 7. An Agenda for Environmentally and Socially Sustainable
Trade and Transport Reforms ................................................................. 111
7.1. Addressing Priority Social and Poverty Issues ............................................ 111
7.1.1. Social conflicts .................................................................................................................................112
7.1.2. Spatial Transformation ..................................................................................................................112
7.1.3. Reduced opportunities associated with small trucking businesses .............................................113
7.1.4. Transmission of HIV/AIDs ........................................................................................................... 114
7.1.5. Involuntary Resettlement...............................................................................................................115
vii
 7.2. Addressing Priority Environmental Issues ................................................ 118
7.2.1. Air and Noise Pollution Control ................................................................................................... 118
7.2.2. Road Safety .................................................................................................................................... 119
7.2.3. Transport of Hazardous Materials ............................................................................................... 119
7.2.4. Natural Habitat Fragmentation ................................................................................................... 120
7.2.5. Climate Change Mitigation ............................................................................................................121

7.3. Addressing Institutional Change ............................................................... 122

Annex 1. Glossary ...................................................................................125
Annex 2. Methodology ............................................................................ 131
Annex 3. Key Issues for the Institutional Analysis of the Freight Transport
Sector ..................................................................................................... 162
Annex 4. Pakistan’s Environmental Regulatory Framework.................. 181
References .................................................................................................. 1

TABLES
Table 1.1. Stakeholder Identification ............................................................................................. 17
Table 2.1. Select Trade and Infrastructure Rankings for Asian Countries .................................... 21
Table 2.2. Pakistan Railway Traffic (million units) ...................................................................... 27
Table 2.3. Earnings of Pakistan Railways ..................................................................................... 27
Table 2.4. Arrival Performance for Runs during March from Karachi to Lahore ........................ 28
Table 2.5 Pakistan’s Port Efficiency Relative to Comparable Benchmarks .................................. 32
Table 3.1. Poverty Incidence by Province ..................................................................................... 39
Table 3.2. Distribution of Population and Incidence of Poverty by Household Groups (2007-08)
....................................................................................................................................................... 42
Table 3.3. Impact of 10 Percent Increase in TFP of All Transport Subsectors on Household
Income by Household Groups ...................................................................................................... 43
Table 3.4. Households and Associated Population Being Adversely Affected by Simulated
Improvement in TFP of Transport Subsectors ............................................................................. 44
Table 3.5. Impact of a 10 Percent Increase in TFP of Rail and Road Sectors............................... 45
Table 3.6. Impact of 10 Percent Increase in TFP of All Transport Subsectors on the Value Added
and Price of these Subsectors ....................................................................................................... 45
Table 3.7. Impact of a 10 Percent Increase in TFP of Rail and Road Sectors on Macroeconomic
Indicators ...................................................................................................................................... 46
Table 4.1. International Migration.................................................................................................57
Table 4.2. Inter and Intra Migration in Pakistan (2009) ............................................................. 58
viii
Table 4.3. City Population of Urban Agglomerations 2000 – 2020 (‘000s) ................................ 61
Table 4.4. HIV Prevalence by City and High-Risk-Group (in %) ................................................. 70
Table 5.1. Comparison of Pakistan’s Draft National Air Quality Standards with WHO, EU and
U.S. Air Quality Guidelines ........................................................................................................... 78
Table 5.2. Estimated Health Impacts of Urban Air Pollution from Particulate Matter in Pakistan
....................................................................................................................................................... 79
Table 5.3. Environment and Competitiveness in Pakistan, 2004-2008 ...................................... 80
Table 5.4. Noise Levels in Major Cities in Pakistan ...................................................................... 83
Table 5.5. Road Traffic Deaths, Population and Road Traffic Death Rate in the South Asia
Region ........................................................................................................................................... 85
Table 5.6. Projections of Freight Transport Demand and GHG Emissions ................................. 93
Table 5.7. Potential Environmental and Social Effects on Priority Environmental Issues .......... 97
Table 6.1. Approximate Road Distances in Pakistan .................................................................. 100
Table 7.1 Policy Options to Manage Poverty and Social Priority Issues Associated with Freight
Transportation Sector Reforms ................................................................................................... 116
Table 7.2 Policy Options to Manage Environmental Impacts Associated with Freight
Transportation Sector Reforms ................................................................................................... 121

FIGURES
Figure 2.1. Ranking of Pakistan’s Infrastructure out of 142 Countries ........................................ 20
Figure 2.2. Pakistan Road Map Depicting Proposed Links .................................................................. 23
Figure 2.3. Changes in the Market Share of Road and Rail Freight, 1955-2009 .................................... 26
Figure 2.4. Proposed New Rail Links and Rehabilitation Measures ..................................................... 29
Figure 2.5. Growth Rates in the Aviation Sector, 1995-2005 .............................................................. 30
Figure 2.6. Pakistan’s Five Priority Development Themes .................................................................. 34
Figure 3.1. District-level Employment Shares in Pakistan’s Manufacturing Sector, 2005-06 ................ 36
Figure 3.2. Spatial Disparities in Road Density in Punjab, 2005-06 ..................................................... 37
Figure 3.3. Spatial Disparities in Road Density in Khyber Pakhtunkhwa, 2005-06 .............................. 37
Figure 3.4. Relative Road Density in Punjab, 1992-93 vs. 2005-06 ..................................................... 38
Figure 3.5. Poverty Incidence (%) in Districts Where Road Upgradation Is Planned or Currently
Undertaken ...................................................................................................................................... 41
Figure 3.6. Poverty Incidence (%) in Districts Where Road Construction Is Expected ........................... 41

ix
Figure 4.1. Map of Pakistan’s Security Landscape in 2010 ................................................................. 50
Figure 4.2. Sectarian Violence in Pakistan 1989-2010 ......................................................................... 51
Figure 4.3. Urban Sprawl and Road Freight Transport Development in Pakistan, 1990-2005 ............... 65
Figure 4.4. Karachi Urban Sprawl..................................................................................................... 67
Figure 4.5. Social Groups in Influence Area of Urban Transportation Infrastructure in Karachi............ 68
Figure 5.1. Legally Binding Sulfur Content in Diesel in Selected Countries and Average PM10
Concentrations in Urban Centers, 2006 ............................................................................................. 76
Figure 5.2 Number of Registered Vehicles in Pakistan ........................................................................ 77
Figure 5 .3. Carbon Monoxide Emissions from Vehicle Fleet (MtCO2) ................................................ 77
Figure 5.4. NOx Emissions from Vehicle Fleet .................................................................................. 77
Figure 5.5. Suspended Particulate Matter from Vehicle Fleet ............................................................... 77
Figure 5.6. Particulate Emission Damage in Selected Asian Countries, 2001 and 2007 (% of GNI) .......81
Figure 5.7. Annual Cost of Environmental Health Effects (billion Rs. per year) ................................... 84
Figure 5.8. Estimated Number of Road Traffic Deaths per 100,000 Inhabitants, 2007 .......................... 86
Figure 5.9. Correlation between Total Road Traffic Deaths and Several Explanatory Factors................ 87
Figure 5.10. Number of Road Accidents, Fatalities and Injuries in Pakistan, 1998 to 2008 .................... 88
Figure 5.11. Evolution of Total Accidents, Road Length, Vehicles on Road and Population in Pakistan
(1998=100) ..................................................................................................................................... 89
Figure 5.12. Evolution of Accidents per Inhabitant, Rate of Paved Roads, Traffic Density and Road
Passengers in Pakistan (1998=100) ................................................................................................... 89
Figure 5.13. Number of Accidents and Fatalities per 100,000 Inhabitants in Pakistani Provinces, 2007-08
....................................................................................................................................................... 90
Figure 5.14. Percentage of Fatal Accidents and Number of Deaths per Accident in Pakistani Provinces,
2007-08 .......................................................................................................................................... 90
Figure 5.15. Estimated GHG Emissions (TGC02Eq) by 2025 under Different Policy Options............... 94
Figure 5.16. Estimated Diesel Consumption (Billions of Liters/Year) by 2025 under Different Policy
Options ........................................................................................................................................... 94
Figure 5.17. Average Environmental Costs of Different Transport Modes ........................................... 95
Figure 6.1. Comparison of Economic Cost between Truck and Railway ............................................ 100
Figure 6.2. Comparison of Tariffs between Trucks and Railways ...................................................... 100

x
EXECUTIVE SUMMARY

I. Introduction
The Government of Pakistan’s (GoP’s) 2011 Framework for Economic Growth seeks to place
Pakistan on a sustained high economic growth path of 7% per year through measures to reduce the
cost of doing business, improve the investment climate, and strengthen institutions. 1 Trade and
transport reforms are central to achieve the Framework’s goal. The transport sector constitutes 10 percent
of Pakistan’s GDP and provides 6 percent of the employment in the country. 2 The sector plays an
important role in linking other sectors in the economy, contributes to both domestic and international
trade, and helps facilitate the spatial transformation occurring in Pakistan. However, present patterns in
transport and trade logistics generate inefficiencies that are costing Pakistan’s economy roughly 4-6% of
GDP per year, which is a major constraint to the aspirations set out in the Framework.
This analytical work on Strategic Environmental, Poverty, and Social Assessment (SEPSA) of
Trade and Transport Sector Reforms examines poverty, social and environmental aspects
associated with reforms that would increase the freight transport sector’s productivity to meet the
Framework goals. It focused on the following areas: (i) SEPSA’s methodology and aims; (ii) description
of key challenges in Pakistan’s freight transport sectors, including the road, trucking, railway, port, and
aviation sectors, as well as trade and transport interventions and reforms proposed by the GoP and other
stakeholders; (iii) identification of stakeholders, particularly the most vulnerable groups that could be
affected by reforms aimed at increasing freight transport productivity, and analyzing the priority poverty
issues associated with freight transport in Pakistan; (iv) identification jointly with stakeholders of priority
social and environmental issues associated with freight transport, and analyzing such issues; (iv)
examination of potential freight transportation social and environmental policy options for enhancing
positive effects or reducing adverse effects associated with increases in freight transport productivity; and
(v) identification of options to strengthen governance and the institutional capacity of agencies to manage
the environmental, social and poverty priorities associated with Pakistan’s freight transportation.

II. Methodology

The SEPSA follows the methodologies developed for policy or institutionally-based Strategic
Environmental Assessment (SEA) 3 and Poverty and Social Impact Analysis (PSIA). 4 These

1
GoP, Planning Commission, 2011. “Pakistan: Framework for Economic Growth.” Islamabad, Pakistan.
2
Pakistan Economic Survey 2010-11, p. 13. Available at http://www.finance.gov.pk/survey_1011.html. Accessed on November
15, 2011. In many developed countries, transport contributes between 6 and 12 percent of national GDP. See Jean Paul Rodrigue,
Claude Comtois, and Brian Slack, 2009, The Geography of Transport Systems, In India, the transport sector contributed between
5.7 – 6.4 percent of GPD between 1999 and 2005. See Asian Development Bank, 2007, “Profile of the Indian Transport Sector”.
3
SEPSA’s SEA was based on the Strategic Environmental Assessment in Policy and Sector Reform approach developed by: (i)
OECD DAC (Organization for Economic Co-operation and Development, Development Assistance Committee). 2006. Applying
Strategic Environmental Assessment: Good Practice Guidance for Development Co-operation. Paris: OECD Publishing; (ii)
World Bank. 2005. Integrating Environmental Considerations in Policy Formulation: Lessons from Policy-Based SEA
Experience. Report 32783. Washington, DC: World Bank; and (iii) World Bank, University of Gothenburg, Swedish University
of Agricultural Sciences, Netherlands Commission for Environmental Assessment (2010). Strategic Environmental Assessment in
Policy and Sector Reform: Conceptual Model and Operational Guidance. Washington, DC: World Bank.
4
SEPSA’s PSIA was based on the Poverty and Social Impact Analysis (PSIA) approach developed by the World Bank in 2002
(www.worldbank.org/psia). The general elements of the PSIA approach, as outlined in the User’s Guide, were adjusted and

1
methodologies are not traditional environmental impact assessment methodologies used for projects and
programs. The GoP and the Bank held a series of workshops during 2009 to scope out the studies that
would be completed using the SEA methodology. These stakeholders helped to identify the priority
environmental, poverty and social issues that were assessed in the analytical work. Each of the studies
was prepared in close consultation with relevant stakeholders. Some studies explicitly incorporated
structured and semi-structured interviews and focus groups to obtain feedback from a broader range of
stakeholders, including vulnerable groups.
III. Sector Challenges and Proposed Reforms and Interventions
According to the Logistics Performance Index (LPI),5 Pakistan’s performance on most logistics
indicators, including the quality of trade and transport infrastructure, is worse than that of other
Asian countries. The transport supply chain system is not providing the value-added services that have
become the hallmark of modern logistics, e.g. multimodal systems that combine the strengths of different
transport modes into one integrated system. While the transport sector is functional (Figure 1), it suffers
from low quality, long travelling times and poor reliability (particularly rail transport) which hinder the
country’s economic growth. In addition, increased motorization and poor urban planning has resulted in
significant pollution and traffic congestion in urban areas. Congestion in urban areas reduces the
competitiveness of the country’s exports, increase the cost of doing business, and constrain Pakistan’s
capability to integrate into global supply chains.
Figure 1. Rankings of Selected Developing Countries on Quality of
Transport Infrastructure (out of 142 countries)6

150 China
Egypt
100
India
50 Indonesia
Iran
0 Pakistan
Roads Railroad Port Air
Transport Thailand

Geography endows Pakistan with the potential to reap huge economic gains from becoming a hub
for regional trade that will have spillovers for economic growth. China, India, Central Asia and Iran
are among the dynamic economies that Pakistan could connect. However, the GoP’s decided action will
be crucial to capitalize on this opportunity. For example, the recent granting of “Most Favored Nation”
status to India needs to be followed up with practical steps for an efficient payment system, a sensible
trade policy that avoids excessive (and unfair) injury to Pakistan’s industry, trade facilitating government
services, a sensible visa regime, and transport networks.

tailored to the political, social, cultural, economic, and security situation in Pakistan at present and to the situation in the trade
and transport sector in particular.
5
Arvis et al., 2010. “Connecting to Compete 2010 – Trade Logistics in the Global Economy: The Logistics Performance Index
and Its Indicators.” Available at: http://go.worldbank.org/88X6PU5GV0.
6
World Economic Forum, 2011, “The Global Competitiveness Report 2011-2012”.

2
Different organizations have suggested investments in road and railway construction, rehabilitation
and upgradation, as part of efforts to facilitate trade with Pakistan’s neighbors. However, most of
the proposed investments still have not been justified on technical and economic grounds. Some analysts
have proposed evaluating roads and railways links as private sector investments under long-term
concessions. Other analysts propose giving priority to improving road/rail access to seaports and dry ports
through urban road/highway improvements and removal of trade bottlenecks such as inefficient container
handling, and freight clearance procedures. The former argue that an inefficient urban transport raises
freight transport costs and increases unreliability.
The trucking sector carries 96% of the total freight traffic.7 The trucking sector is characterized by
the presence of a small fleet of owners who generally own less than five vehicles. The bulk of trucking
companies are centered in the port city of Karachi where trucking tends to be concentrated within an
ethnic community.8 According to the GoP, by 2007, inefficiencies of the trucking sector were estimated at
US$2.62 billion/year, consisting mainly of: (i) US$1.04–1.57 billion/year in extra fuel costs and diesel
subsidies; (ii) US$0.52–0.61 billion/year in additional road user costs; and (iii) a US$0.44 billion/year
contribution to the infrastructure deficit.9 Over the past 20 years, revenues per km have decreased in real
terms by 1.4 percent on average per year.10 Many trucks operate long hours and carry excessive loads
while traveling at low speeds, ranging from between 20-25 km per hour compared to 80-90 km per hour
in Europe. Road freight takes an average of 3-4 days between ports and the north of the country (a
distance of 1,400-1,800 km), which is twice what it takes in some other countries of Asia and Europe.11
Railways used to be the predominant mode of transportation in Pakistan. At its peak between 1955-
1960, railways handled 73% of freight traffic, compared to less than 4% by 2011. Between 1990-1991
and 2010-11, total rail track length decreased by 11%, from 8,775 to 7,791 kilometers. Total freight and
passengers carried decreased from 5,709 to 3,925 million tons (31%) and 84.9 to 58.9 million tons (31%),
respectively. During 2005-2010, federal expenditure on railways was Rs. 45.5 billion, compared to Rs.
155 billion for national highways. 12 Currently, it takes 21-28 days for PR to deliver upcountry at a
distance of 1,800 km, which is 4 to 7 times slower than in the United States and China. Pakistan Railways’
(PR’s) main focus is on servicing passenger rather than providing high quality freight services, despite
freight being more profitable.
Port traffic in Pakistan increased 6% annually over the period from 2000-2005, with container
traffic realizing the highest growth at 15% per annum. Karachi Port handles the majority of
Pakistan’s sea-borne trade traffic (38.7 million tons in 2008-2009). The bulk of the remainder of freight
traffic – 25.2 million tons – is handled by the Port Qasim Authority (PQA). The newly constructed
Gwadar port had not been able to attract any significant traffic until 2008, when the government diverted
imports of bulk cargoes of wheat and fertilizers to the port, which handled 1.3 million tons during
January-June 2009. Growth of dry cargo at Pakistan’s ports has been high, averaging 11% per year in the

7
Government of Pakistan, 2010. “Pakistan Economic Survey 2008 – 2009.” Available at:
http://www.finance.gov.pk/finance_survery_chapter.aspx?id=21. Accessed on March 28, 2010.
8
Innovative Development Strategies (IDS), 2011. “SEPSA: Poverty and Social Impact Assessment.” Consultant Report for the
World Bank. Islamabad, Pakistan.
9
Government of Pakistan, 2007a. Exchange rate of US$ 1.00 = Rs. 57.20.
10
World Bank, 2006. “Transport Competitiveness in Pakistan: Analytical Underpinnings for the National Trade Corridor
Improvement Program.” Report No. 36523- PK, p. 67.
11
Ibid., p. 69.
12
GoP, 2010.

3
five years up to 2008-2009. Growth in bulk cargoes, namely coal, fertilizers, wheat, rice, cement, and
clinker, has been even higher. Productivity per ship hour was found to be just slightly below the average
for ports in the region. However, shipping lines handled speeds of 55 to 60 containers per ship hour for
the two ports, which is below the speeds of up to 100 containers per ship hour in the region. Major
impediments include post-customs delays and lack of rail services and logistical facilities to take
containers out of the port. Ship-shore container handlings speeds are up to international levels, but on-
shore container processing times are more than twice as long as at efficient international ports13.

IV. Poverty Issues Associated with Freight Transport

Pakistan’s largest agglomerations are located around the metropolitan cities of Karachi and
Lahore. Localization economies (within-industry externalities) and agglomeration are fundamental to
industrial competitiveness, as they promote: (i) knowledge and information spillovers and innovative
ideas among firms; (ii) labor-market pooling; and, (iii) input-output linkages. Industrial agglomerations
form in districts with good market access, low transportation costs, and a skilled labor force14. The spatial
geography shows that domestic markets are not able to connect with industrial clusters in urban areas
because of high transport costs (which include the costs resulting from inefficient urban transport and
poor maintenance of existing provincial and local roads). Deficient urban transport and congestion
significantly reduce the connectivity between industrial clusters and domestic and international markets.
According to economic analysis using a Computable General Equilibrium (CGE) model, a 10%
increase in Total Factor Productivity (TFP) in transport would increase income of all households.
Rural agricultural laborers and the urban non-poor can realize the largest benefits of such increase, with
their incomes increasing by 1.4% and 1.2%, respectively. However, an increase in the TFP in rail or road
reveals that non-farm households and the urban poor can potentially be made worse-off. Overall, the CGE
estimates that approximately 40,000 households in the rural non-farm non poor sector, 12,500 households
in the rural non-farm poor category, and 42,000 households in the urban poor category could be adversely
impacted by improvements in TFP in transport.
Efficient rail and road sectors can increase both imports and exports, thus playing a critical role in
increasing revenue from indirect taxes. A 10% increase in the TFP of road and rail transport has a
positive impact on economic indicators. In addition, economic simulations reveal that improvements in
the TFP of the transport sector and its respective subsectors (rail, road, air, and ports) have positive
impacts on sectoral value-added and household income.
V. Priority Social Issues Associated with Freight Transport

The scale and the sectors concerned with envisioned reforms in the freight transport sector can be
expected to have an impact on social tensions. In the case of ports and shipping, ethnic tensions have
already arisen from the perception that recent recruitments favored one ethnic group from communities in
and around Karachi at the detriment other groups. In the case of the trucking industry, an ethnic group
from Southern Khyber Pakhtunkhwa owns, manages and works as employees of this industry even in
areas outside the province of Khyber Pakhtunkhwa, making it the main group concerned by the reforms.

13
World Bank, 2006.
14
A description of the econometric analysis can be found in the consultant report prepared by LUMS for the World Bank.

4
In the case of reforms in the port, shipping, and trucking sectors, there is a risk that youth
(particularly from non-farm households and urban poor households) could be directly affected
either through direct retrenchment or indirect loss of job, as well as through the loss of job
prospects they had envisioned and invested in through the ‘Ustad Shagird’ arrangement (Master-
Apprenticeship). The importance of starting off right is particularly important for young people since it is
the initial transition to the labor force that is a significant determinant of the future economic (and social)
well-being of the individual and, if taken collectively, in determining the level of development in Pakistan.
Without the proper foothold to start out in the labor market, young people are less able to make choices
that will improve their own job prospects and those of their future dependants, thus perpetuating the cycle
of insufficient education, low-productivity employment, and poverty, from one generation to the next.
Reforms in the freight transport sector can be expected to influence migration flux, patterns, and
composition at the national, regional and international levels by facilitating connectivity. Evidence
indicates that migration can help to integrate leading and lagging regions within a country; however, it
also has the potential to drive other social impacts, such as social conflict, HIV, or urban sprawl.
While the benefits of urbanization (including intra-industry spillovers) are significant, they can be
offset by a number of externalities, such as congestion and pollution. Pakistan’s urbanization, largely
fueled by migration, has accelerated over the last decades, during which the urban growth rate has been
twice that of population growth. Indeed, the share of Pakistan’s urban population has continued to
increase since 1996, and it is estimated that 35.9% of the country’s population lived in urban settings in
2010. 15 With economic motivations dominating rural to urban migration, it is not surprising to find
Lahore and Karachi, the two most highly concentrated districts in large scale manufacturing employment,
among those facing the most challenges in terms of growth and urban sprawl.
The expected improvements in road infrastructure and freight transport policy reforms and
investments are likely to increase job creation mainly in the manufacturing and service sectors.
Although poor migrants are typically not qualified for the better paid jobs in the manufacturing and
service sectors, the creation of formal and higher-paying jobs in urban centers results in an increased
demand for low-paying jobs for which many of them are qualified. Poor people living in rural areas that
will be lured by these types of lower-paying jobs in the informal economy will likely populate new or
expanded shantytowns located in the outskirts of large urban areas, or slums in the downtown areas where
they would likely find friends and relatives.
Urban sprawl in Pakistan is partially correlated with road transportation. The observed expansion
of slums along the main roads and highways is the result of the concentration of informal economic
activity associated with road transportation. In most cases, local authorities lack the ability to anticipate
population growth, which in turn may constrain their ability to provide land for the urbanizing poor.
Another contributing factor is the issue of land rights and tenure security, which tends to be denied to the
urban poor, driving people to the periphery of towns and further contributing to urban sprawl. Recent
estimates suggest that there was a deficit of 6 million housing units in Pakistan in 2005, a situation likely
to be accentuated by the sustained flux of rural to urban migration. In urban areas, the deficit is met
largely by informal housing units, as available data indicate that there are about 3.5 million housing units

15
UN HABITAT, 2011, “Global Report on Human Settlements 2011: Cities and Climate Change”. Earthscan (p. 208).

5
in informal settlements, housing 24.5 million people.16 Informal settlements, which lack of access to basic
services and infrastructure, do not fall under the realm of responsibility of city administrations and as
such tend to be un-serviced or critically under-serviced.
The status of HIV/AIDS in Pakistan can also be expected to be affected by the greater degree of
connectivity, migration, and urbanization, fostered by trade and transport sector reforms. Pakistan
remains a country with a concentrated epidemic with prevalence levels consistently reported to be greater
than 5 percent among Injecting Drugs Users (IDUs) and cross-dressed sex workers. Long-distance
truckers, assistants, and sex workers constitute a major vector of HIV/AIDS in Pakistan. Truck drivers,
cleaners and assistants remain engaged on long trade routes for several weeks. When they make stopovers
and take breaks during such periods, a high prevalence of sex providers, both male and female, frequent
their stops. Such services mushroom and grow in tandem with the expansion of trade. The young cleaners
who take care of and clean the trucks may also be sexually exploited by the drivers.
Involuntary resettlement could become a priority issue in the construction of new roads or railways
for transportation.17 Resettlement action plans are made and implemented for projects that are supported
by international financing organizations or by donor agencies, as required by those organizations.
However, lack of a unified national policy means that implementing agencies follow a range of different
guidelines when devising resettlement plans for different donor-funded projects, or worse, draw up
inadequate plans or no plans at all when working with public funds.
VI. Environmental Aspects Associated with Transport
Ambient air pollution is one of Pakistan’s most serious public health problems. 18 19 A 2006 World
Bank report found that more than 22,600 deaths per year are directly or indirectly attributable to ambient
air pollution at the national level.20 A more recent analysis concluded that outdoor air pollution in 2009 in
Sindh had a cost equivalent to 0.9 – 2.2% of the province’s GDP and was responsible for more than
10,000 premature deaths, with roughly 80 percent of them happening in Karachi. Analytical work
completed by the World Bank provides solid evidence that particulate matter, especially fine and ultrafine
particulate matter, is the most important ambient air contamination problem to be addressed in Pakistan.
Although trucks represent a minor fraction of Pakistan’s vehicle fleet, they emit pollutants of local
and global concern. Estimates based on limited available information suggest that mobile sources
(including 2-3 wheelers, cars, trucks, and buses) contribute with a significant percentage of emissions of
fine and ultrafine particles. These vehicles run on fuels that have high sulfur content, a main ingredient in
the formation of particulate matter. Most fuel in Pakistan has a sulfur level of 5,000-10,000 parts per
million (ppm), a level much higher than Euro II, Euro III, or Euro IV emission standards, which have
already been adopted in some South Asian countries.21 The GoP has adopted a plan to reduce sulfur
content in fuels; however, it has been delayed due to various reasons.

16
Hasan and Raza, 2008. “Migration and Small Towns in Pakistan.” Human Settlements Working Paper Series Rural-Urban
Interactions and Livelihood Strategies, No. 15. IIED: London.
17
Work on the Faisalabad-Khanewal section of the E-4 motorway is currently ongoing with support from the Asian Development
Bank, but the bulk of the investment component has yet to be undertaken.
18
World Bank, 2006b. “Pakistan Strategic Country Environmental Assessment.” Washington, D.C.
19
World Bank, 2011
20
Ibid.
21
World Bank, 2006.

6
Noise levels in most urban locations are well above the World Health Organization (WHO)
recommended limits. According to Pak-EPA, there is no national monitoring system of environmental
noise levels in cities. Analytical work carried out by the World Bank found that the mean annual cost of
noise pollution in 2008 in Punjab was Rs. 8 billion, while road traffic noise had a cost of Rs. 25.8 billion
in Sindh. About 58% of this cost is associated with morbidity and 42% with premature mortality.
According to estimates by the WHO, in 2007 the total number of road fatalities in Pakistan equaled
41,494. This implies a rate of 25.3 deaths per 100,000 inhabitants. In contrast, the observed rates in
industrialized countries range between 5 and 10 fatalities per 100,000 inhabitants. In the rest of South
Asia, the observed rates range from 12.6 – 18.3. According to official data, the general trend over the last
decade has been rather stable with around 10,000 accidents occurring a year and an average of 5,200
fatalities per year. Since traffic has increased over this period, the accidents per million vehicle-km of
travel and per 1000 vehicles have been decreasing. However, available data is not fully reliable and there
is evidence of significant under-reporting.
In addition to pain and suffering, road accidents generate significant economic costs. A study
conducted under SEPSA estimated that, in 2009 in Sindh, road accidents (associated with all kinds of
vehicles) caused 1,800–2,200 deaths, 5,400–6,600 cases of permanent disabilities, 59,000-105,000 other
serious injuries, and 423,000-474,000 minor injuries. The cost stemming from these accidents is equal to
Rs. 50 billion per year or 1.4% of the province’s GDP. The largest costs are those related to permanent
disability (Rs. 23.4 billion), fatalities (Rs. 9 billion), and serious injuries (Rs. 7.7 billion). The limited
information that is available suggests that a significant share of road accidents and fatalities in Pakistan
involved a truck, even though these vehicles comprise only around 3% of the vehicle fleet.22 The record
for trucks might be better than buses and cars, but it is still extremely poor.
By stimulating trade and economic growth, freight transport reforms will contribute to the
acceleration of the industrialization process in Pakistan and also increase the use of many types of
chemicals and other hazardous products being transported. Many industrial sectors (i.e. leather
processing, pulp and paper, etc.) are heavily dependent on many chemicals during production, and some
of them are very dangerous to public health. Despite the risks associated with transporting hazardous
substances, there is very little reliable data on this subject in Pakistan. Poor management of environmental
waste leads to serious environmental implications. An example of a deadly accident involving transport of
hazardous materials in Pakistan was the leakage of poisonous chlorine gas on January 8, 1997.
Pakistan’s ecosystems already face significant threats and these could be aggravated by the
expansion of transport infrastructure. Pakistan faces the highest annual deforestation rate of Asia, at
2.1%. Deforestation is highest in the Indus Delta mangroves, with an annual rate of 2.3%. Wetlands are
particularly important, as they provide livelihoods to communities and offer protection against floods,
which recurrently affect the country, as evidenced by the severe floods of 2010 and 2011. The potential
effects of the expansion of transport infrastructure on ecosystems include habitat fragmentation, wetland
destruction and induced increases in deforestation as roads facilitate access to these natural resources.
Areas that would be particularly susceptible to increased deforestation include the Indus Watershed and
its tributaries, as well as its effluents’ gallery forests and wetlands. In the past, wetlands have also been
drained and destroyed in order to build dykes. Degradation and destruction of these ecosystems would
have significant implications, including heightening Pakistan’s vulnerability to extreme weather events.

22
World Bank, 2006a.

7
The effective and efficient use of Environmental Impact Assessment (EIA) could inform decision-
making and identify alternatives to reduce or mitigate the negative effects of transport
infrastructure development, including those related to habitat fragmentation or deforestation.
However, despite its use for more than 20 years in Pakistan, EIA still faces a number of shortcomings,
including problems in screening and scoping, insufficient public participation, poor quality of
environmental assessment reports, and weak capacities of environmental authorities to review
environmental reports and monitor compliance with the conditions of the environmental authorization.
Pakistan’s greenhouse gas (GHG) emissions are relatively small, but have been growing and are
anticipated to increase at high rates over the coming years. In 2007-08, the transport sector
contributed to 21 percent of the energy sector’s emissions. Most of the sector emissions originate from
road transportation, which consumed about half of the country’s total petroleum products during 1997-98
to 2006-07. GHG emissions from railways were only 0.17 percent of total transport carbon emissions in
2006-07. Road transport emits an average 0.17 TgCO2eq/billion ton-kms, compared with railway
transport’s emissions of 0.02 TgCO2eq/billion ton-kms. Estimates based on future GDP projections
suggest that transport demand for freight will increase steadily in the coming years and will hence
increase GHG emissions. The results clearly indicate that in future years, the road sector will generate the
lion’s share of emissions. For example, in 2030-31, total TgCo2eq emissions for road transport are
anticipated to be 90.17, compared with 3.05 for rail. An assessment of different scenarios indicates that
shifting towards investments in rail most greatly reduces GHG emissions and diesel consumption.
VII. Sectoral Reforms for Socially and Environmentally Sustainable Trade and Transport

Pakistan’s freight transport system needs to shift towards one based on the integration and
complementarities of rail and trucking to improve efficiency and decrease environmental impacts.
Rail freight generally has a competitive advantage and lower costs over road freight transport via trucks
for longer distances. The adoption of a multimodal freight transport system, in which rail is used for long
hauls and road freight is used for shorter distances, is a strategy for enhancing the sustainability of freight
transport. Given that rail is more environmentally sustainable than road, the case for integrating rail more
significantly into freight logistic itineraries for goods is critical. Failure to integrate a multimodal
transport system would have adverse consequences for Pakistan, including lack of competitiveness and
increased social and environmental costs.
Adopting a multimodal transport system and modernization of the trucking sector will help reduce
negative environmental externalities generated by the trucking sector. Under the multimodal system,
a reduction in the number of long-distance truck drivers, substitution of existing obsolete, poorly
maintained trucks for newer models, and modal shift to railways are anticipated, which would help
decrease road congestion, improve air quality, reduce GHG emissions, decrease the probability of road
accidents and fatalities, and reduce noise pollution and the risk of hazardous material spills.
Also, adopting a multimodal transport system and modernization of the trucking sector will help
mitigate a number of negative social impacts. A modernized trucking system and increases in rail
freight transport would help reduce HIV transmission risks. Long-distance truck drivers (who spend a lot
of time away from home) and sex workers who work along major transport routes are identified as highly
vulnerable groups at the greatest risk for HIV. The modernization of the transport sector and modal shift
to railways could lead to the reduction in the long-distance trips carried out by truck drivers, and thus, to a

8
decrease in the risk of HIV transmission.
To allow for rail to operate on a commercial basis, PR might be split into two different
organizations: one responsible for freight and the other for passenger services, without any sort of
subsidization. 23 This would allow PR to be relieved of costs of operating the large non-commercial
network of lines and services. PR should, over time, separate core and non-core activities with a view of
having the company focus on its core function of providing rail transport rather than on management of
its non-operational land assets, such as factories and workshops. Investment in new rail lines for freight
transport should be made based on public-private partnerships (PPPs) sharing risks and using the highest
economic, financial, social, and environmental standards.
To remedy inefficiencies in the trucking sector (which arguably generates the lion’s share of
environmental and social problems in freight transport), the GoP might accelerate implementing its
2007 National Trucking Policy. The overall objective of modernizing the trucking sector is to encourage
the use of large and modern fleet trucks that meet minimum European emission standards and can meet
Pakistan’s freight transport demand at a lower cost. This reform is particularly important for the transport
of heavier and bulk commodities.
Increasing freight transport productivity requires private sector participation. Due to federal budget
constraints, bringing in private participation (particularly in rail and aviation) is required. To provide a
level playing field, the government might consider developing a regulatory framework for ensuring
market competition in the rail and air transport sectors, including provisions for entry and exit of private
operators. This regulatory framework could facilitate inter-modal connectivity and private sector
participation. The regulatory structure should include responsibilities on cross-cutting issues such as:
environment and social management, project and concession contract development, and monitoring and
evaluation. An apex regulatory organization could take over responsibilities such as regulatory policies
and promotion of private sector participation.
VIII. Social and Environmental Reforms for Socially and Environmentally Sustainable Trade
and Transport

Stakeholders and experts in Pakistan identified the priority potential social issues associated with
reforms in the freight transport sector. The main social issues identified by stakeholders include social
and ethnic conflicts, migration and urbanization, urban sprawl, disease transmission (particularly
HIV/AIDS) and involuntary resettlement and displacement. The following table summarizes the policy
options that the GoP might consider to manage the priority poverty and social issues associated with
reforms in the freight transport sector.

23
The analyses of passenger transport in general and train passenger services in particular are beyond the scope of the SEPSA.

9
 Table 1. Policy Options to Manage Poverty and Social Priority Issues Associated with
Freight Transportation Sector Reforms

Priority Social Issue Description Policy Option

Social conflict in urban Ethnic groups could be particularly Ensure adequate engagement of potentially
centers affected affected groups in the design and
implementation of proposed policies
Urban poor and nonfarm Livelihoods of urban poor and Promotion of structural change to raise the
households affected by nonfarm households might lose contribution of industrial manufacturing to
increase in transport their livelihoods as a result of the economy, boost employment and
productivity reforms in the trade and transport increase fiscal revenues.
sector. Strengthen connectivity between industrial
clusters and domestic and international
markets.
Urban Sprawl Creation of economic opportunities Priority to slums upgrading and service
in urban areas may increase “pull” delivery in urban settings
migration, increasing the demand Capacity building required at least in two
for housing and public services tiers (provincial and district) of government
to better develop and implement urban
development strategies that respond to
Pakistan’s spatial transformations
Small operators in the Truckers largely operate in the Programs directed at assisting them will
trucking sector have a informal sector, and have little or have to reach out to a variety of truckers
probability of losing business no contact with government associations, which cover truck
to new and larger enterprises agencies. manufacturers, drivers, adda owners and
due to trade and transport goods companies.
reforms. Livelihoods of urban poor and Community development organizations,
nonfarm households might lose which typically have experience in advising
their livelihoods as a result of communities on small-scale enterprise
reforms in the trade and transport development, to get involved in design and
sector. implementation.
HIV/AIDs transmission Growth in the road transport sector, Strengthen the National AIDS Control
under a business as usual scenario, Program in freight transportation sector,
is associated with increased spread including information campaigns targeting
of STDs including HIV/AIDS. At vulnerable groups.
the same time, increasing railway’s
participation and modernizing the
trucking sector could significantly
reduce the risk of HIV/AIDS
transmission.
Involuntary Resettlement Potential involuntary resettlement Create and implement a national
due to construction of freight resettlement policy that is effectively and
transport infrastructure uniformly enforced in all provinces and
federal territories, with adequate grievance
redressal mechanisms.
Freight transportation reforms might consider a number of environmental policy options to
enhance the positive effects and mitigate the negative consequences of trade and freight transport
reforms. Table 2 summarizes the policy options that the GoP might consider to manage the priority
environmental issues associated with reforms in the freight transport sector.

10
 Table 2. Policy Options to Manage Environmental Impacts Associated with
Freight Transportation Sector Reforms

Priority Description Policy Option

Environment
al Problem
Air Pollution Pakistan urban centers rank as some of the Stricter standards on sulfur content in diesel
worst in terms of particulate matter air should not be delayed beyond the next target of
pollution. July 2012. Low/ultralow sulfur fuels should be
Burning of high sulfur fuel leads to high purchased to different suppliers as they are
quantities of fine and ultrafine particulate available in international markets.
matter, harming public health. Strengthen Pakistan EPA and Provincial
environmental protection departments and build
their capacity to enforce recently adopted ambient
air quality standards and vehicular emission
standards.
Accelerate implementation of 2007 National
Trucking Policy, particularly substitution of the
obsolete, poorly maintained, highly polluting
trucks for larger and modern trucks.
Noise Excessive noise levels in urban areas cause ear Develop a regulatory framework and enforcement
Pollution damage, sleep disturbance, psychiatric capacity to control environmental noise pollution.
conditions, and cardiovascular disorders.
Road Safety Pakistan ranks as one of the most dangerous Develop a regulatory framework and enforcement
countries in the world in terms of road safety. capacity on road safety
Hazardous With further investment in trade and transport, Design and implement national framework to
Waste and greater commerce, movement of hazardous manage the transportation of hazardous materials,
Transportatio materials and the probability of spills and other based on international best practices.
n emergencies might increase.
Habitat Pakistan faces the highest deforestation rate in Strengthen the EIA system to improve decision
Fragmentation South Asia. This could be exacerbated by making for the development of freight transport
and Natural increases in the road infrastructure. infrastructure
Resource
Degradation
Climate Models showed that some modal shift from road Provide greater emphasis on railroads and on
Change- to rail would significantly reduce GHG using existing railroads
Emissions of emissions.
Greenhouse
Gases
The lack of environmental and social planning capacity at transport agencies should be rectified
with a program of institutional strengthening and capacity building. Environmental and social units
should be established in all those organizations that still lack them. These units should be integrated into
the planning and decision-making process of their organization, so they possess the ability to influence
construction and operation in such a way as to take into account environmental and social considerations
(particularly early on in the planning process when such considerations can be dealt with more efficiently).
As a result of the 18th Amendment to the Constitution, Pakistan’s Ministry of Environment (MOE)
was formally dissolved in June 2011. The recently created Ministry for Disaster Management will be
given a mandate to carry out the functions of the former MOE, which are likely to include developing
national environmental policies, engaging in international environmental negotiations, dealing with trans-
boundary environmental issues, and promoting inter-provincial coordination. The apex environmental
agency should also be given responsibility for coordinating the institutional strengthening and capacity
building of provincial EPAs and environmental units to be created within transport agencies.
11
CHAPTER 1. INTRODUCTION

1.1. Objective

1.1. Pakistan’s development efforts are guided by the Framework for Economic Growth24
which proposes a new strategy to address the country’s volatile economic growth, declining
long-run growth, and stagnation of per capita income levels. The new strategy aims to depart
from the country’s past growth policy based on public sector projects and arbitrary incentives,
subsidy and protection. Instead, the thrust of the new strategy is to focus on the “software” of
economic growth (economic governance, institutions, incentives, etc.) in order to enable an
environment in which the “hardware” of growth (physical infrastructure) can be expanded and
made more productive. A key goal of the new strategy is achieving an annual Gross Domestic
Product (GDP) growth above 7 percent, which is the rate needed to incorporate Pakistan’s
growing youth into the labor market.
1.2. The Framework recognizes that improving connectivity to spur commercial activity is
crucial to achieve its goals. The transport sector plays an important role in linking other sectors
in the economy, contributes to both domestic and international trade, and helps facilitate the
spatial transformation occurring in Pakistan. Transport is essential for industrial growth and the
economy in several ways, for example, in bringing raw materials to industries; moving final
outputs from one industry to another; distributing different commodities to various distributors
and wholesalers; and distributing imported and domestically produced goods to consumers.
However, Pakistan’s transport and trade logistics sector is currently plagued by inefficiencies
that are costing Pakistan’s economy roughly 4-6% of GDP per year,25 which is a major constraint
to the aspirations set out in the Framework for Economic Growth.

1.3. In order to help fulfill Pakistan’s development objectives, the Government of Pakistan
(GoP) has requested the Bank’s assistance to build the capacity of the agencies responsible
for managing Pakistan’s trade and transport programs.26 Key areas to be supported include
reforms that would: (i) lead to modern and streamlined trade and transport logistics practices, to
a modern customs system, and to reduce the costs for port users and enhance port management
accountability; (ii) create a commercial and accountable environment in Pakistan Railways (PR)
and increase private sector participation in the operation of rail services; (iii) modernize the
trucking industry and reduce the cost of externalities for the country; (iv) sustain delivery of an
efficient, safe and reliable National Highways System (NHS); and (v) promote and ensure safe,
secure, economical, and efficient civil aviation operations and boost air trade.

24
GoP, Planning Commission, 2011. “Pakistan: Framework for Economic Growth.” Islamabad, Pakistan.
25
World Bank, 2006. “Transport Competitiveness in Pakistan: Analytical Underpinnings for National Trade
Corridor Improvement Program.” Report No. 36523 – PK.
26
World Bank, 2009. “Second Trade and Transport Facilitation Project” Project Appraisal Document. Washington
D.C. Report No. 48094 – PK.

12
1.4. The Bank’s analytical work on strategic environmental, poverty, and social aspects of
trade and transport sector reforms (SEPSA) supports the Government of Pakistan’s
analysis of alternatives for sustainable freight transportation that takes advantage of
location economies. The Bank’s analytical work aims to identify cost-effective opportunities for
improving the efficiency of the freight transport system in order to meet the goals of enhancing
export competitiveness, promoting spatial transformation for poverty alleviation, and reducing
environmental degradation. This analytical work is different from a traditional environmental
and social impact assessment; it does not aim to conduct an ex-ante evaluation of specific
programs or projects proposed by GoP agencies. Instead, it begins by recognizing that the overall
objective of the GOP’s reform agenda is to enhance the competitiveness of the trade and
transport sector as means of spurring economic growth. It then identifies the main costs and
benefits that would arise from the sector’s increased productivity, as well as how these would be
distributed among different stakeholders. This is followed by an examination of policy proposals
that would not only increase the sector’s competitiveness, but would also reduce its
environmental and social externalities, protect vulnerable groups from adverse effects, and
contribute to Pakistan’s fight against poverty.
1.5. This analytical work focuses on: (i) analyzing the policy and institutional adjustments
required to address environmental, social and poverty aspects of increased transportation
efficiency; (ii) identifying policy options to better serve the the population, to enhance social
cohesion, and to foster equitable benefit sharing with low-income or other vulnerable groups;
(iii) developing a broad participatory process to give a voice to stakeholders who could be
affected by enhancements of freight transport poductivity; and (iv) making robust
recommendations to strengthen governance and the institutional capacity of agencies to manage
the environmental, social and poverty consequences of freight transportation infrastructure.
1.6. Alongside, the GoP has also acknowledged that enhancing the country’s
competitiveness will only be sustainable if environmental and social considerations are
mainstreamed into transport policy reforms and invesment programs. The Bank’s Strategic
Country Environmental Assessment indicated that environmental degradation costs Pakistan at
least 6 percent of GDP, or approximately Rs. 365 billion per year. More recent World Bank’s
estimates indicate that environmental degradation in Sindh represented around 15 percent of the
provincial GDP in 2009, even using conservative estimates. 27 Pakistan’s Framework for
Economic Growth acknowledges the importance of minimizing the negative environmental
effects of development activities and improving the business climate through the adoption and
enforcement of environmental requirements. In this context, the GoP is committed to
strengthening the institutional framework for environmental management as a means of

27
Larsen, Bjorn and John Magne Skjelvik, 2012. “Environmental Health Priorities in the Province of Sindh,
Pakistan." Consultant Report prepared for the World Bank. Washington, D.C.
Strukova, Elena, Oleg Guchgeldyiev, Fateh Marri, and Julie Terell. 2012. "Natural Resource Management Priorities
in the Province of Sindh, Pakistan". Consultant Report prepared for the World Bank. Washington, D.C.

13
increasing productivity, reducing regulatory burdens, orienting agriculture and industrial sectors
toward higher value markets, reducing the pressure of productive sectors on the natural resources
base, and taking advantage of new business opportunities in global markets. The GOP’s policies
also stress the need for engaging a broad range of stakeholders to address inequalities, foster
inclusive growth, and manage competently the country’s economic and political transformations.
1.2. Methodology

1.7. The analytical work incorporated methodologies developed for strategic

environmental assessment (SEA),28 poverty and social impact analysis (PSIA), and analysis
of spatial disparities and industrial cluster development. Specifically, the SEPSA
methodological framework combines the two key elements of PSIA, 29 namely, analysis of
distributional impacts and engagement of stakeholders in policy making, with the key elements of
the SEA approach: analytical work that would provide a foundation for meeting SEPSA’s
objectives; and public discussions to ensure meaningful exchange among relevant stakeholders.
The PSIA, more specifically, is intended to assist policy makers to enhance the positive impacts
of reforms and minimize their adverse impacts through:

• Understanding the impact of policy reforms on poverty and social outcomes

• Analyzing intended and unintended consequences of policy interventions (ex-ante, during
implementation or ex-post)
• Considering trade-offs associated with reforms by assessing opportunities, constraints and
risks
• Designing appropriate mitigation measures and risk management strategies and building
country ownership and capacity for analysis and implementation of policy reforms.
1.8. The analysis included a compilation of trade and transport reforms and interventions
proposed by different stakeholders and governmental organizations. The analysis focuses
primarily on transport reforms because they have stronger linkages with Pakistan’s
environmental, poverty and social priorities. Data collection efforts permitted the mapping of the
different interventions and proposals on railways, roads, ports, and airlines. Based on these

28
SEPSA’s SEA was based on the Strategic Environmental Assessment in Policy and Sector Reform approach developed by:
• OECD DAC (Organization for Economic Co-operation and Development, Development Assistance Committee). 2006.
Applying Strategic Environmental Assessment: Good Practice Guidance for Development Co-operation. Paris: OECD
Publishing.
• World Bank. 2005. Integrating Environmental Considerations in Policy Formulation: Lessons from Policy-Based SEA
Experience. Report 32783. Washington, DC: World Bank.
• World Bank, The University of Gothenburg, Swedish University of Agricultural Sciences, The Netherlands Commission for
Environmental Assessment, 2010, “Strategic Environmental Assessment in Policy and Sector Reform: Conceptual Model
and Operational Guidance”. World Bank, Washington, D.C.
29
SEPSA’s PSIA was based on the Poverty and Social Impact Analysis (PSIA) approach developed by the World Bank in 2002
(www.worldbank.org/psia). The general elements of the PSIA approach, as outlined in the User’s Guide, were adjusted and
tailored to the political, social, cultural, economic, and security situation in Pakistan at present and to the situation in the trade
and transport sector in particular. O

14
efforts, SEPSA collected and organized systematically not only the main reform proposals, but
also the key infrastructure investments planned by various governmental organizations, which
are publicly presented in this document for the first time.

1.2.1. Discussion among Key Stakeholders

1.9. The objectives of the stakeholder consultations are twofold. They not only raise public
awareness and support for reforms in the trade and transport sector, but they also allow
participation and involvement of unorganized or voiceless groups in the planning and
implementation of such reforms. One means to achieve the second objective is to use the
consultations to let stakeholders identify priorities for the sector’s environmental and social
development objectives and interventions.

1.10. In order to ensure meaningful discussion among key stakeholders in the

identification of specific sustainability criteria that would be incorporated into transport
reforms, the GoP and the Bank held a series of workshops during 2009 to scope out the studies
that would be completed using the SEA’s methodology. The opinions and inputs provided by
representatives from Federal and Provincial Governments, as well as by Non Governmental
Organizations, were incorporated to the SEPSA’s concept note. These stakeholders helped to
identify the priority environmental, poverty and social issues that were assessed in the analytical
work. In addition, each of the studies mentioned above was prepared in close consultation with
relevant stakeholders. The methodology of some studies explicitly incorporated tools to obtain
feedback from a broader range of stakeholders. In particular, structured and semi-structured
interviews were carried out as part of the PSIA and the gender analysis to obtain feedback from
vulnerable groups. A major effort to reach additional stakeholders will be carried out in order to
discuss the key findings and policy recommendations of the SEPSA, including a series of
workshops that will take place during the second semester of 2012.

1.2.2. Analytical Work as a Foundation for Meeting the GoP’s Economic Objectives

1.11. To provide the analytical underpinnings for policy reform, SEPSA included a series
of studies that address the environmental, social, and poverty implications of enhanced
freight transport productivity. The environmental management component of SEPSA focused
on the environmental aspects of investments and reforms in the freight transport sector. The
potential environmental consequences of three strategic alternatives were analyzed: (i) business
as usual, in which no sectoral productivity increases are envisioned; (ii) efficiency increases in
the road freight sector; and, (iii) policies that emphasize reforms and investments in the rail
freight sector. Each alternative was evaluated based on the set of priority issues identified jointly
with stakeholders (climate change, air quality, transport of hazardous materials, road and railway
safety, urban sprawl and accessibility, and environmental management systems) to assess their
potential environmental and social implications.

15
1.12. The Poverty and Social Impact Analysis30 was prepared to identify possible ex-ante
social and distributional impacts of transport sector reforms on stakeholder groups. The
analysis focused on answering the following three questions: (i) which groups will be affected,
how, and to what extent over the short and long term; (ii) the distributional impacts on the well-
being of social groups; and (iii) how Pakistan’s freight programs correlate with social cohesion,
and inclusion in Pakistan. The PSIA used a Computable General Equilibrium (CGE) model,
which is a model that uses actual economic data to estimate how an economy might react to
changes in policy or other external factors. In order to estimate how Pakistan’s economy might
react to the reforms proposed by the GoP on the transport sector, the model was run for a 10
percent increase in Total Factor Productivity (TTF), which refers to the portion of output that is
not explained by the amount of inputs used in production, but rather, by the efficiency and
intensity with which such inputs are utilized in production. The model therefore incorporates the
proposed reforms’ aim of removing bottlenecks that would enable a more efficient and intense
use of inputs and would thus help increase economic output. The PSIA identified the main social
consequences of increased total factor productivity, and developed a menu of options to
incorporate social development and poverty alleviation measures into the design of transport
reforms and projects.
1.13. A study prepared by the Lahore University of Management Sciences (LUMS)
assessed existing spatial disparities and industrial cluster development in Pakistan. 31
Economic research has shown that production tends to become spatially concentrated as
countries grow from low to high income. Many countries have been able to institute policies that
facilitate the economic integration of high economic growth regions with domestic and
international markets, and thereby, to promote the convergence of living standards across
space.32 The LUMS study assessed the geographic concentration of economic activity, income,
social infrastructure and other relevant variables in Pakistan and provided insights of the ways in
which Pakistan’s spatial transformation might strengthen the competitiveness of the transport
sector and can also contribute to the economic integration of the country’s lagging and leading
areas.

30
Innovative Development Strategies (Pvt.) Ltd. (2011). “SEPSA: Poverty and Social Impact Assessment.”
Consultant Report for the World Bank. Islamabad, Pakistan. The PSIA was undertaken using the World Bank’s
PSIA sourcebook as a guiding framework. See: World Bank, 2007. Tools for Institutional, Political and Social
Analysis of Policy Reform: A Sourcebook for Development Practitioners.
31
Lahore University of Management Sciences (LUMS) , 2011, “Industrial Policy, Its Spatial Aspects and Cluster
Development in Pakistan.” Consultant report prepared by LUMS for the World Bank. Lahore, Pakistan.
32
The World Bank, 2009, “Reshaping Economic Geography”, World Development Report 2009.

16
1.2.3. Vulnerable Groups and Stakeholder Identification

1.14. As part of the PSIA and stakeholder discussions, efforts were made to identify the
groups that would be (directly, indirectly, positively, negatively) affected by the program,
and assess their interests, concerns, and influence in relation to transport policies. As part
of the PSIA, the first step in this regard was to identify stakeholders within each freight transport
sector (ports, aviation, highways and trucking, and rail). Within each sector, a number of
stakeholder groups were identified as possible sources of information or groups to be contacted
for interviews and discussions (Table 1.1). Substantial information has been generated
throughout the course of the PSIA that identifies the range of stakeholders (both organized and
unorganized groups) that are likely to be affected by reforms.

Table 1.1. Stakeholder Identification

Sectors Stakeholders
Ports Port Authorities at Karachi, Gwadar, and Qasim Ports
Pakistan Customs
International and Local Terminal Operators
Federal Board of Revenue
Karachi Dock Labor Board (working at KP) and other employee’s associations at the ports
Private sector stevedoring companies
Logistics and freight forwarding companies as well as clearing agents
Exporters and importers, in addition to the business community in general
Fishing communities
Highways National Highway Authority
and Owners and employees of trucking companies (many are sole proprietorships)
trucking Owners and employees of auxiliary services
Families and communities where the road transport sector is a major employer
Logistics and freight forwarding companies as well as clearing agents
Dry ports
Trucking manufacturing industry
Standards and Quality Control Authority
Exporters and importers, in addition to the business community in general
Railways Pakistan Railways
Railway Workers Union
Logistics and freight forwarding companies as well as clearing agents
Exporters and importers, in addition to the business community in general
Aviation Civil Aviation Authority
Pakistan International Airlines
Management of at least one private airline
Cross- Communities living along the main trade corridor
cutting Families of those employed in the trade and transport sector (including women and
children)

17
1.3. Contents of this Report

1.15. This report comprises seven chapters. Chapter 1 provides an introduction to SEPSA,
including its methodology and aims. Chapter 2 describes the main challenges in the freight
transport sectors of Pakistan, including the road, trucking, railway, port, and aviation sectors.
Chapter 3 examines the priority poverty issues associated with increased productivity in freight
transport in Pakistan, including linkages with spatial transformation. Chapter 4 discusses the
priority social issues associated with freight transport, including impacts of reforms on spatial
transformation, HIV/AIDS, displacement, and women. Chapter 5 describes the priority
environmental issues associated with transport in Pakistan, including air and noise pollution,
road safety, transport of hazardous materials, and climate change. Chapter 6 presents policy
options that can enhance environmental and social sustainability in the transport sector. Chapter
7 identifies social policies that safeguard the welfare of groups likely to be negatively impacted
by increases in transport freight efficiency, while at the same time enhancing positive social
impacts. It subsequently identifies environmental reforms that can help manage environmental
priority problems associated with transport on air quality, noise pollution, road safety, transport
of hazardous materials, climate change, and urban sprawl. The policy options are then
contextualized in light of Pakistan’s Framework for Economic Growth and its strategic
objectives. Additional detail on the methodology, economic and institutional analyses employed
is included in four annexes.

18
CHAPTER 2. SECTOR STATUS AND TRADE AND TRANSPORT POLICY
REFORMS33

2.1. There is growing recognition within the GoP that the sustainability of economic
growth is strongly linked to the efficiency of the transport system.34 The transport sector
constitutes ten percent of Pakistan’s GDP, and provides six percent of the employment in the
country. 35 However, while the transport sector is functional (Figure 2.1), it suffers from low
quality, long travelling times, and poor reliability (particularly rail transport) which hinder the
country’s economic growth. In addition, increased motorization and poor urban planning has
resulted in significant traffic congestion in urban areas, 36 while provincial roads that connect
much of the traffic flowing into the National Highways Network have received comparatively
little governmental attention. Both congestion in urban areas and poor rural roads constitute
bottlenecks for Pakistan’s road sector. These factors reduce the competitiveness of the country’s
exports and internal trade, increase the cost of doing business, and constrain Pakistan’s capability
to integrate into global supply chains. The inefficient performance of the transport sector costs
Pakistan’s economy 4-6 percent of GDP every year.37

33
This chapter was prepared by Ernesto Sanchez-Triana, Santiago Enriquez, Paula Posas, and Javaid Afzal. This chapter draws
from the consultant reports prepared by Innovative Development Strategies (IDS), 2011 and the Lahore University of
Management Sciences (LUMS), 2011, as well as from the 2006 World Bank, report. “Transport Competitiveness in Pakistan:
Analytical Underpinnings for the National Trade Corridor Improvement Program.” Report No. 36523- PK.
34
For a detailed analysis of the Pakistan transport sector see World Bank, 2011. “Pakistan Transport Sector.” Available at:
http://go.worldbank.org/A0D9IJ5SH0.
35
Pakistan Economic Survey 2010-11, p. 13. Available at http://www.finance.gov.pk/survey_1011.html. Accessed on November
15, 2011.
36
Planning Commission, 2011, “Pakistan Framework for Economic Growth”
37
Pakistan Economic Survey 2010-11, p. 13. Available at http://www.finance.gov.pk/survey_1011.html. Accessed on November
15, 2011. In many developed countries, transport contributes between 6 and 12 percent of national GDP. See Jean Paul Rodrigue,
Claude Comtois, and Brian Slack, 2009, The Geography of Transport Systems, In India, the transport sector contributed between
5.7 – 6.4 percent of GPD between 1999 and 2005. See Asian Development Bank, 2007, “Profile of the Indian Transport Sector”.

19
 Figure 2.1. Ranking of Pakistan’s Infrastructure out of 142 Countries38
100

80

60

40 79 85
72
59
20

0
Roads Railroad Port Air Transport

2.2. The transport supply chain system is not providing the value-added services that have
become the hallmark of modern logistics, e.g. multimodal systems that combine the
strengths of different transport modes into one integrated system. In general, logistic
services provided by freight forwarders are simple, because of the simple structure of the supply
chain which does not always utilize the most efficient mode of transport for the movement of
goods. For example, rail freight generally has a competitive advantage over road freight for
longer distances and for the transport of bulk commodities. Integrated logistics services are
mainly offered by local offices or representatives of large international companies, with the latter
making up half of the logistics market.39According to the Logistics Performance Index (LPI),40
Pakistan’s performance on most logistics indicators, including the quality of trade and transport
infrastructure, is worse than that of other countries from South and East Asia. Pakistan’s
rankings in the LPI worsened in 2009 and 2010. Pakistan fell from an overall global LPI ranking
of 68th to 110th. South Asia’s regional average is low because of the poor performance of various
countries (Bhutan, Nepal, Sri Lank and Afghanistan); yet, Pakistan’s score is below the regional
average for South Asia in all but two categories. The country’s customs are ranked 134th in the
world—even lower than Afghanistan Customs. The World Economic Forum Global
Competitiveness Report identifies inadequate supply of infrastructure as one of the most
problematic factors for doing business in Pakistan.41(Table 2.1)

38
World Economic Forum 20111-12.
39
World Bank, 2011b.
40
Arvis et al., 2010. “Connecting to Compete 2010 – Trade Logistics in the Global Economy: The Logistics Performance Index
and Its Indicators.” Available at: http://go.worldbank.org/88X6PU5GV0.
41
World Economic Forum, 2009.

20
 Table 2.1. Select Trade and Infrastructure Rankings for Asian Countries

Bangladesh

Sri Lanka

Thailand

Malaysia
Pakistan

China
India
Logistics Performance Index (Ranking out of 150 countries)a 110 47 79 137 27 35 29
Customs (Ranking out of 150 countries)a 134 52 89 143 32 39 36
Infrastructure (Ranking out of 150 countries)a 120 47 72 138 27 36 28
International Shipments (Ranking out of 150 countries)a 66 46 61 118 27 30 13
Logistics Competence (Ranking out of 150 countries) 120 40 96 141 29 39 31
Tracking and Tracing (Ranking out of 150 countries)a 93 52 92 142 29 37 41
Timeliness (Ranking out of 150 countries)a 110 56 72 124 36 48 37
Quality of overall infrastructure (Ranking out of 133 countries)b 87 89 125 63 66 41 27
Quality of roads (Ranking out of 133 countries)b 65 89 95 60 50 35 24
Quality of railroad infrastructure (Ranking out of 133 51 20 65 44 27 52 19
countries)b
Quality of port infrastructure (Ranking out of 133 countries)b 73 90 113 43 61 47 19
Quality of air transport infrastructure (Ranking out of 133 76 65 116 64 80 26 27
countries)b
Source: a Arvis et al., 2010; b World Economic Forum, 2009.

2.3. This chapter describes the major inefficiencies in transport and logistics issues in the
following areas: (i) highways and trucking; (ii) rail; (iii) aviation; and (iv) ports and
shipping. This analysis will provide the basis for developing a holistic and integrated approach
that will help increase the efficiency of Pakistan’s trade and transport practices and procedures,
with a view towards removing infrastructure bottlenecks, supporting sustained economic growth,
and improving competitiveness, a subject further discussed in subsequent chapters in this report.

2.1. Freight Transport Sector

2.1.1. Highways

2.4. In Pakistan, road transportation is the most important means for moving goods within
the country and to neighboring countries. Roads handle roughly 96 percent of total freight
traffic.42 The National Highways and Motorways network constitute 4.2 percent of the total road
network and carry more than 90 percent of Pakistan’s total traffic (96 percent of freight and 92
percent of passenger traffic). The majority of traffic moves along the north-south 1,760
kilometers (km) of the N-5 highway, the longest highway running from Karachi to Torkham. The

42
Economic Survey of Pakistan 2009-10.

21
N-5 highway carries 65 percent of inter-city traffic43 and connects the key industrial centers in
Punjab and neighboring Afghanistan with international markets through the southern Karachi
area ports. It serves over 80 percent of Pakistan’s urban population, and contributes to 80 to 85
percent of GDP.44
2.5. Geography endows Pakistan with the potential to reap huge economic gains from
becoming a hub for regional trade that will have spillovers for economic growth. To the
North-east is China, the world’s fastest growing economy with a population of over a billion
increasingly engaged in the development of its Western frontier that lies close to Pakistan. To the
North West and the West lie resource rich economies of Central Asia and Iran, eager to combine
their mineral wealth with skills to generate higher income for their citizens. To the East is India,
growing at 8 percent per annum with large pools of skilled labor and savings looking for gainful
employment and investment avenues. In order to reap economic benefits in this neighborhood of
growing opportunities, Pakistan needs to play its historical role of a connector of markets that lie
in the North (China) and the West (Central Asia, Iran) to markets in the East (India). This
requires liberalizing the highly restricted trade with India that has stunted cross-border legal
trade, encouraged smuggling and prevented investment and technology exchange between the
two countries. The recent announcement granting “Most Favored Nation” status to India is a
welcome development. It needs to be followed up with practical steps for an efficient payment
system, a sensible trade policy that promotes trade but also avoids excessive (and unfair) injury
to Pakistan’s industry, trade facilitating government services, a sensible visa regime, and
transport networks.
2.6. Different organizations have suggested investments in road construction, rehabilitation
and upgradation, as part of efforts to facilitate trade with Pakistan’s neighbors. However,
most of the proposed investments still have not been justified on technical and economic grounds.
Some analysts have proposed evaluating these links as private sector investments under long-
term concessions. Other analysts propose increasing efficiency by giving priority to improving
road/rail access to seaports and dry ports through urban road/highway improvements and
removal of trade bottlenecks such as inefficient container handling, and freight clearance
procedures. The former argue that an inefficient urban transport raises freight transport costs and
increases unreliability. Figure 2.2 includes the different road investments proposed by different
government organizations. Most of these investments lack specific implementation plans and
technical or economic justification.

43
Pakistan Economic Survey 2010-11. Other national highways and motorways include N-55 (Indus Highway), N-25, N-65, N-
40 (RCD Highway) N-45, N-50, N-70, N-35 (Karakoram Highway), M-1 (Islamabad-Peshawar Motorway), M-2 (Islamabad-
Lahore Motorway) and M-3 (Pindi Bhattian-Faisalabad Motorway).
44
Pirzada, 2011. “Role of Connectivity in Growth Strategy of Pakistan.” Available at:
http://www.planningcommission.gov.pk/nda/PDFs/role%20of%20connectivity%20in%20growth%20strategy%20of%20pakistan.
pdf, accessed March 20, 2011.

22
 Figure 2.2. Pakistan Road Map Depicting Proposed Links45

This map was produced by consultant Luis Miglino. The map was amended by Jeff Lecksell of the Map Design Unit to match the World Bank guidelines. The
boundaries, colors, denominations and any other information shown on this map do not imply, on the part of the World Bank Group, any judgment on the legal status
of any territory, or any endorsement or acceptance of such boundaries.

2.7. The quality of the road infrastructure in Pakistan has severe capacity constraints that
obstruct the facilitation and efficient movement of goods to their destination. Poor road
maintenance is due to factors such as insufficient funding and overloading of vehicles. A 2004-
2005 survey of pavement condition on the federal network revealed that 37 percent of the road
network was in poor to very poor condition. The maintenance requirement of these roads is
significant and toll revenues and government expenditures fund roughly half of it. Provincial
roads, which are the primary feeder roads for the National Highway Network, are at the bottom
of the road hierarchy system. As a result, the government gives more priority for National

45 Map drafted by World Bank consultant Luis Miglino based on primary information provided by National Highway Authority,
Islamabad. The map was amended by Jeff Lecksell of the Map Design Unit to match the World Bank guidelines. The boundaries,
colors, denominations and any other information shown on this map do not imply, on the part of the World Bank Group, any
judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

23
Highway investment than provincial road investment.46 The federal budget shows a strong bias
for road development work. From 1996-97 to 2010-11, total road length increased by 13 percent
to a total of 259,463 km out of which 180,866 km were “high type” (paved) roads. Over the past
couple years, most low type roads (unpaved) have been converted to high type roads. The NHA
currently has 89 road development projects with a budget demand of Rs. 39,900.27 million;
however, the budget allocation for projects has historically been insufficient for the timely and
necessary expansion of road capacity while accounting for the deteriorating quality of current
roads.47 In addition, increased motorization and poor urban planning has resulted in significant
pollution and traffic congestion in urban areas. 48 Congestion in urban areas constitutes a
bottleneck for Pakistan’s freight transport.

2.1.2. Trucking

2.8. The trucking sector carries 96 percent of the total freight traffic.49 While there are a
total of 216,119 registered trucks, the GoP estimates that only 200,500 of these (93 percent)
actually operate on roads. Sixty-five to seventy percent of the total truck fleet consists of single
or double-axle trucks. The trucking sector is characterized by the presence of a small fleet of
owners who generally own less than five vehicles. The bulk of trucking companies are centered
in the port city of Karachi where trucking is dominated by one ethnic group. 50 The trucking
sector is highly competitive, characterized by low barriers to entry, many small operators, and
low freight rates.

2.9. To maintain high revenues, trucks are overloaded, which damages road quality and
increases the demand for higher road investment. Lack of enforcement of regulations on safe
operation, crew hours, truck modification, and trailer manufacture increase the risk of accidents.
According to the GoP’s Trucking Policy, by 2007, inefficiencies of the trucking sector were
estimated at US$2.62 billion/year, consisting mainly of: (i) US$1.04 – 1.57 billion/year in extra
fuel costs and diesel subsidies; (ii) US$0.52–0.61 billion/year in additional road user costs; and
(iii) a US$0.44 billion/year contribution to the infrastructure deficit.51
2.10. The trucking fleet is largely out-dated by several decades and run on under-
powered engines. High import tariffs on high capacity multi-axle trucks protect local
manufacturers producing low capacity and low-powered trucks and hence prevent the trucking
sector from improving its fleet. Over the past 20 years, revenues per km accruing to operators

46
Pirzada, 2011
47
Government of Pakistan, 2009.
48
Planning Commission, 2011, “Pakistan Framework for Economic Growth”.
49
Government of Pakistan, 2010. “Pakistan Economic Survey 2008 – 2009.” Available at:
http://www.finance.gov.pk/finance_survery_chapter.aspx?id=21. Accessed on March 28, 2010.
50
Innovative Development Strategies (IDS), 2011. “SEPSA: Poverty and Social Impact Assessment.” Consultant Report for the
World Bank. Islamabad, Pakistan.
51
Government of Pakistan, 2007a. Exchange rate of US$ 1.00 = Rs. 57.20.

24
have decreased in real terms by 1.4 percent on average per year.52 Many trucks operate long
hours and carry excessive loads while traveling at low speeds, ranging between 20-25 km per
hour compared to 80-90 km per hour in Europe. Journeys in Pakistan take three times longer
than in Europe. Road freight takes an average of 3-4 days between ports and the north of the
country (a distance of 1,400-1,800 km), which is twice what it takes in some other countries of
Asia and Europe.53 While it might seem unfair to compare Pakistan with these more developed
countries, it is with them that Pakistan competes on global markets. Transport time is often lost
by trucks needing repairs due to overloading.54
2.11. Road crashes occur frequently as trucks crash with other vehicles (i.e. two-wheelers,
three-wheelers), carts, as well as pedestrians. Pakistan ranks among the most hazardous
countries in the world in terms of road safety. According to estimates by the World Health
Organization (WHO), in 2007 the total number of road fatalities in Pakistan equaled 41,494,
which in relative terms implies a rate of 25.3 deaths per 100,000 inhabitants. In contrast, the
observed rates in industrialized countries ranges between 5 and 10 fatalities per 100,000
inhabitants. Pakistan’s rate is also higher than many other developing and middle income
countries around the world.

2.1.3. Railways

2.12. Railways used to be the predominant mode of transportation in Pakistan some

decades ago (Figure 2.3). Its market share shrunk steadily as government-owned Pakistan
Railways (PR) did little to improve its efficiency while a dynamic road sector emerged,
integrated by a myriad of privately-owned units competeing intensely in a largely unregulated
environment. At its peak between 1955-1960, railways handled 73 percent of freight traffic;
currently it handles less than four percent of the total freight traffic.

52
World Bank, 2006. “Transport Competitiveness in Pakistan: Analytical Underpinnings for the National Trade Corridor
Improvement Program.” Report No. 36523- PK, p. 67.
53
Ibid., p. 69.
54
Japan International Cooperation Agency (JICA), 2006. “Pakistan Transport Plan Study in the Islamic Republic of Pakistan.”
Final Report, p. 2-29.

25
 Figure 2.3. Changes in the Market Share of Road and Rail Freight, 1955-200955
100% 96%
Market share for freight 90%
80% 73%
70%
60%
50%
40% Rail freight
27%
30% Road freight
20%
10% 4%
0%
1955-1960 1998-2009
Year

2.13. Pakistan Railways (PR) faces severe competition from road transport and this
competition has gotten worse because of governmental priority for investment in road over
rail transport, as well as PR’s inability to compete due to its poor governance. Between
1990-1991 and 2010-11, total rail track length decreased by 11 percent from 8,775 to 7,791
kilometers. Total freight and passengers carried decreased from 7.7 to 4.6 million tons (40
percent) and 84.9 to 58.9 million (31 percent), respectively. 56 During 2005-2010, federal
expenditure sanctioned for railways was Rs. 45.5 billion, compared to Rs. 155 billion for
national highways (actual expenditure was significantly below the sanctioned amount). 57
Moreover, only one third of the total rail network is used for core commercial purposes.

2.14. Railway infrastructure, technology, and equipment is obsolete, which leads to

significant transport delays and safety hazards. PR owns a very small fleet of modern train
wagons that can run at high speed; the majority of wagons are obsolete. Signaling and the
telecommunications system are out-dated and create delays as well as safety hazards. Other PR
shortcomings include: (i) running numerous unnecessary lines; (ii) cross-subsidizing passengers
from freight and the non-core network from the core network; (iii) offering supply-driven
services; and (iv) failure to downsize staff, streamline operations, and reduce costs and tariffs.
2.15. PR’s main focus is on servicing passenger rather than providing high quality freight
services, despite freight being more profitable. In 2009-10, PR carried 58.97 million
passengers, and only 4.6 million tons of freight. 58 Giving higher priority to freight services
would make business sense for PR, as average freight revenue is higher than unit passenger
revenue. However, the GoP gives priority to passenger rail services over freight rail, including in

55
World Bank, 2011. “Pakistan Transport Sector.” Available at: http://go.worldbank.org/A0D9IJ5SH0.
56
Pakistan Economic Survey 2010-11, Statistical Annex, Table 13.1.
57
GoP, 2010.
58
Pakistan Economic Survey 2010-11, Statistical Annex, Table 13.1.

26
terms of train paths, more powerful and reliable locomotives, and management. As a result,
freight volumes have declined almost continuously in terms of both tons and ton-km (Table 2.2)
and are unreliable and costly. These practices, coupled with lack of investment in locomotives,
wagons, and improving track capacity and quality, have clearly reduced PR’s capacity to provide
reliable freight services and maintain the business reputation it held decades ago.
Table 2.2. Pakistan Railway Traffic (million units)59
Year Freight (Tons) Tons-km
1980-5 11.2 7,380
1985-0 11.0 7,940
1990-5 7.7 5,890
1995-0 5.9 4,370
2000-5 6.1 4,744
2005-10 6.25 5,285
2.16. Railway earnings are very low and are barely enough to cover the cost of salaries
(Rs. 14 billion per year) and pensions (Rs. 7 billion per year). Between 2008 and 2009,
earnings increased by 16 percent compared to the previous year, but since then earnings have
worsened (Table 2.3)
Table 2.3. Earnings of Pakistan Railways60
Fiscal Year Earnings (Rs. Percent Change
Millions)
1998-99 9,310 N/A
1999-00 9,889 6.2
2000-01 11,938 20.7
2001-02 13,046 9.3
2002-03 14,812 13.5
2003-04 14,636 -1.2
2004-05 18,027 23.2
2005-06 18,184 0.9
2006-07 19,194 5.5
2007-08 19,973 4.1
2008-09 23,160 16.0
2009-10 22,269 -3.8

2.17. Freight sector inefficiencies are costing the economy about Rs. 150 billion per year
and low service quality is impeding Pakistan’s regional competitiveness: the productivity of
PR freight services is roughly 1/8 of Chinese Railways, 1/3 of Indian Railways, and half of

59
Aly et al., 2009. ‘Structural Analysis of Pakistan Railways.” Study Conducted for Pakistan Railways Advisory and
Consultancy Services (PRACS). Final Report, p. 47. Data for 2005-10 estimated from the Pakistan Economic Survey 2010-11.
60
Economic Survey 2009-10.

27
Thai Railways.61 Currently, it takes 21-28 days for PR to deliver upcountry at a distance of
1,800 km, which is 4 to 7 times slower than in the United States and China. Table 2.4 reveals
statistics from the railway runs during March for trains headed up to Lahore. As in the case of
roads, several organizations have proposed new rail links and rehabilitation investments for
Pakistan’s freight transport railways. Figure 2.4 depicts new rail links and rehabilitation
measures proposed under Pakistan’s freight transport programs, most of which lack specific
implementation plans of economic and technical justification.

Table 2.4. Arrival Performance for Runs during March from Karachi to Lahore62

Performance Number of Percent

Trains
Arrived on time or earlier 3 8.57
Were late by 1-5 hours 13 37.14
Were late by 6-10 hours 12 34.28
Were late by 11-15 hours 5 14.28
Were late by 16-22 hours 2 5.71

61
Aly et al., 2009. ‘Structural Analysis of Pakistan Railways.” Study Conducted for Pakistan Railways Advisory and
Consultancy Services (PRACS). Final Report.
62
Source: Aly, 2009, p. 71.

28
 Figure 2.4. Proposed New Rail Links and Rehabilitation Measures63

2.1.4. Aviation

2.18. The growth of air traffic has remained modest in Pakistan. The country has 42
functional airports out of which 10 serve international flights. The Sialkot International Airport
has generated USD$600 million of annual revenues from transport of cargo and passengers. The
new Islamabad International Airport is expected to handle annual traffic of 100,000 metric tons
of cargo. Jinnah International Airport in Karachi is Pakistan’s busiest airport for both passenger
and freight traffic; however, Lahore and Islamabad airports also handle large amounts of
domestic and international traffic.

2.19. Air traffic has not augmented in line with economic growth. Aviation infrastructure is
not on par with international competitors. Cargo handling facilities need major upgrading, and

63
Map drafted by World Bank consultant Luis Miglino based on primary information provided by Pakistan Railways Lahore,
2009.

29
parking and landing facilities are inadequate and limited. No airline in Pakistan is dedicated
solely to the transport of cargo for both exports and imports. Private airlines are not able to
respond to the high demand in freight or passenger transport due to the government’s close
collaboration and protection of Pakistan International Airlines (PIA), which carries almost all
domestic freight traffic.64 Pakistan adopted an Open Skies Aviation Policy in the early 1990s,
which allows private airlines to join the civil aviation industry. However, stiff competition from
PIA generated heavy losses for many of these small airlines, many of which went out of business.
The preference given to PIA is not only a major disincentive for other private airlines to enter the
industry, but also reduces PIA’s incentives to improve its efficiency and quality of services. PIA
also operates as a monopoly on certain routes, such as Haj traffic.

Figure 2.5. Growth Rates in the Aviation Sector, 1995-200565

8% 7.0%
Percent of freight

6%

3.4% 3.8%
4%

2%

0%
Export Freight by Air Import Freight by Air Domestic Freight by Air

2.20. A 2006 Pakistan logistical cost study found that air freight dwell times at airports
are two to three times longer than the actual transport time because of an inadequate
supply of air freight capacity on planes. There was a general delay of 4-7 days. Additionally,
the study found that Indian exporters have access to bigger air freight capacity than Pakistani
exporters. 66 For example, the frequency of freight air transport out of all of Pakistan’s
international airports (which include Karachi, Islamabad, Lahore and Peshawar) to Frankfurt is
10 flights per week. Flights from Mumbai, India to Frankfurt, including a MD-11 full freighter
that flies 3 times per week, can accommodate 300 percent more freight export by air.67

2.1.5. Ports and Shipping

2.21. Port traffic in Pakistan increased 6 percent annually over the period from 2000-
2005, with container traffic realizing the highest growth, at 15 percent per annum. The two
major ports, Karachi Port and Qasim Port, handle 95 percent of all international trade. Port

64
Pakistan International Airlines, 2011
65
For a detailed analysis of the ports and shipping sector see World Bank, 2011. “Pakistan Transport Sector.” Available at:
http://go.worldbank.org/A0D9IJ5SH0.
66
Logistics Consulting Group (2006), p. 78, p. 81.
67
Ibid., p. 81.

30
Gwadar, which was inaugurated in March 2007 and is being operated by the Singapore Port
Authority, is aiming to develop into a central energy port in the region.68 Karachi Port handles
the majority of Pakistan’s sea-borne trade traffic (20.2 million tons in 2010-11). The bulk of the
remainder of freight traffic – 13.1 million tons – is handled by the Port Qasim Authority (PQA),
the second busiest port in Pakistan. The newly constructed Gwadar port had not been able to
attract any significant traffic until 2008, when the government diverted imports of bulk cargoes
of wheat and fertilizers to the port, which handled 7.05 million tons in 2009-10. Growth of dry
cargo at Pakistan’s ports has been high, averaging 11 percent per year in the five years up to
2008-2009. Growth in bulk cargoes, namely coal, fertilizers, wheat, rice, cement, and clinker,
has been even higher. Karachi port’s traffic in these cargoes increased at 18 percent per year in
the five years up to 2008-2009. 69 Positive elements in sea freight include: (i) sea freight rates for
container and bulk cargoes that are in line with regional and international levels; and (ii) sea
transit times that are slightly better to some major markets than for its competitors.
2.22. The Karachi Port and Qasim Port have satisfactory indicators for handling cargo.
Containers handled per crane hour at Karachi and Qasim average 25 and 24, respectively which
is similar with averages in India, Sri Lanka, and Hong Kong. Productivity per ship hour was
found to be just slightly below the average for ports in the region. However, shipping lines
handled speeds of 55 to 60 containers per ship hour for the two ports, which is below the speeds
of up to 100 containers per ship hour in the region. 70 Post-customs delays represent major
impediments. Other delays are attributable to the lack of rail services and logistical facilities to
take containers out of the port. Ship-shore container handlings speeds are up to international
levels, but on-shore container processing times are more than twice as long as at efficient
international ports. At both the KICT and the QICT, the berth occupancies are low while the
stacking areas are full, even with 4 high stacking. The Indian Nhava Sheva International
Container Terminal handles about three times as many containers as the KICT and the QICT,
with a berth of similar length.71
2.23. The performance of port operations is improving, but remains insufficient for the
long term. Port charges have been reduced marginally and are still above international
average levels.72 With the implementation of Pakistan Customs Computerized System (PACCS),
the customs clearance time has decreased from 4-5 days to less than 24 hours in Karachi
International Container Terminal (KICT). PACCS was rolled out to the three other container
terminals at the end of 2006. The free storage period also decreased from 7 days to 4-5 days.
However, container dwell times – 5-6 days on average – were still above the international
standard of 3-5 days, which decreases the capacity of container terminals to less than their

68
For a detailed analysis of the ports and shipping sector see World Bank, 2011. “Pakistan Transport Sector.” Available at:
http://go.worldbank.org/A0D9IJ5SH0.
69
World Bank, 2011 b. “Pakistan Transport Sector.” Available at: http://go.worldbank.org/A0D9IJ5SH0.
70
World Bank, 2011 b. “Pakistan Transport Sector.” Available at: http://go.worldbank.org/A0D9IJ5SH0.
71
World Bank, 2006.
72
Ibid.

31
potential. Since 2007, the automation of Pakistan Customs has stalled and both clearance and
dwell times have gone up significantly. Tariffs for bulk and general cargo were found to be
relatively low (US$4 to 6 per ton) compared to the rates in the region, but tariffs on containerized
cargo were, relatively speaking, on the high side. Total container handling charges in 2006 were
found to be, on average, US$113 and US$105 per TEU at Karachi Port and Qasim Port
respectively, compared to an average of US$80 per TEU for India. 73 In addition, the ports’
limited drafts of 10-12 meters prevent the most efficient ships from calling.74

Table 2.5 Pakistan’s Port Efficiency Relative to Comparable Benchmarks

KPT Sri Lanka Hong India
(SAGT) Kong (Nhava Sheva)
Handling charges per TEU, or ton 110 150 140 80
Ships dues/ship call, 2800 TEU ship $30,000 $5,500 $6,000 $25,000
Container dwell times (days in the 10 5 4 6
terminal)
Containers handled per ship hour 55 70 100 65
Percentage of containers examined 100 <5 <5 High
physically
TEU per meter of quay p.a. 400 1000 1800 2000
TEU per terminal hectare p.a. 18,000 40,000 43,000
TEU or tones per staff member p.a. 900 1200 1600 3000
Water depth (m) 10.5 13 14 12

2.2. Trade Facilitation

2.24. While Pakistan has achieved considerable progress in simplifying its customs tariff
structure and decreasing its tariff levels,75 customs procedures are still an obstacle to trade.
Customs clearances in Pakistan are lengthy, compared to only a few hours in other ports in the
region. Delays are the result of the use of clearance systems characterized by numerous official
signatures and verifications.76 Such long, cumbersome customs procedures increase congestion
at the ports.
2.25. Pakistan’s Customs Computerized System (PACCS) was piloted in the Karachi
International Container Terminal (KICT) and rolled out to the Pakistan International
Container Terminal (PICT) and Qasim International Container Terminal (QICT).

73
Primary information on port tariffs is from websites of both the Karachi Port Trust and the Port Qasim Authority.
74
World Bank, 2011b.
75
The weighted average of applied tariffs is currently 16 percent, compared to 56 percent in 1994.
76
GoP, Planning Commission, 2011.

32
However, the process has stalled and there are no clear prospects of a national rollout. Electronic
customs declaration forms, which are available in Pakistan, can help facilitate trade activities by
consolidating other information onto the form, which is in line with integrated systems in Hong
Kong and France. Its successful implementation in the aforementioned countries helped decrease
congestion and improve the overall transparency and accountability by providing a
comprehensive, user-friendly, and interconnected electronic data interchange system.77
2.3. Trade and Transport Reforms

2.26. As discussed before, Pakistan faces major inefficiencies and challenges in transport
and logistics that increase the cost of doing business and hence reduce export
competitiveness. These inefficiencies and challenges include: (i) poor highway conditions;
underpowered, slow, and obsolete trucks; and the widespread overloading of trucks; (ii) low
priority for freight rail services, despite its potential for being quite profitable relative to
passenger services and relative to long-run freight hauls; (iii) long customs clearance times and
long container dwell times at ports; (iv) long air freight dwell times and poor competition in the
air freight market; and (v) a rudimentary supply chain system that does not combine the strengths
of transport modes into one integrated system. Although the transport sector is functional, its
inefficiencies with long waiting and travelling times, high costs, and poor reliability hinder the
country’s export competitiveness and internal trade. Moreover, these inefficiencies increase the
cost of doing business in Pakistan and limit the country’s ability to integrate into global supply
chains, which require just-in-time delivery.78
2.27. A number of reasons explain Pakistan’s worsening indicators in transport and
logistics. Indications that the GoP may restore public sector regulation of the freight forwarding
industry (after allowing professional self regulation only in 2006/07) has shaken confidence in a
bright and emerging industry, resulting in an inability to focus on self improvement and service
delivery. The lack of progress on financial services available to this formal sector activity has
also thwarted modernization in freight forwarding, trucking and railways services. The loss of
rail infrastructure during the 2007/08 riots and continuing downward spiral in rail freight
services since, as well as the impact of heightened security measures on road infrastructure and
services is also reflected in this large fall in the LPI ranking. In addition, Pakistan Customs has
failed to complete the automation at the three private terminals at the ports and has failed to
undertake the planned nationwide rollout of this automation.
2.28. A number of reforms have been proposed in the last decade. Some of those reforms
have been adopted, such as the National Trucking Policy, the modernization of the ports and
shipping sector, and the Pakistan’s Customs Computerized System. Some of the reforms have
been slowly implemented, such as the trucking policy. Other policies have been adopted but have
not been implemented. On 28 May 2011, the National Economic Council approved the

77
GoP, Planning Commission, 2011.
78
World Bank, 2011b.

33
Framework for Economic Growth. The Framework is a landmark and widely embraced reform,
to get the roles of government and market in balance to develop efficiency within and between
the two. Among its key thrusts is an emphasis on connectivity. It states: “Commercial activity
requires dense well-connected cities and communities. Connectivity is a critical stratagem of the
growth framework.” 79 Connectivity has been identified as key development theme for the
country’s new Framework (Figure 2.6).

Figure 2.6. Pakistan’s Five Priority Development Themes80

Innovation and business Deregulation, Connectivity

oriented cities and Governance

High Growth

Skilled youth and Dynamic domestic

community development commerce

2.29. As part of the implementation of the Framework for Economic Growth, the
Planning Commission initiated the design of a comprehensive transport policy. Meeting the
goals set in the Framework for Economic Growth, including achieving a 7 to 8 percent annual
growth rate, requires implementing reforms to unleash the potential of the freight transport
system to enhance the country’s competitiveness and increase the reliability and quality of
supply chains for the transport of goods to and from industrial clusters. This analytical work,
SEPSA, not only develops a menu of policy options within the Framework target areas, but also
identifies needed mitigation measures and phasing considerations to avoid and minimize
negative social and environmental externalities that could undermine development gains.

79
Ibid, p. 14.
80
GoP, Planning Commission, 2011.

34
CHAPTER 3. PRIORITY ISSUES ASSOCIATED WITH FREIGHT TRANSPORT
REFORM81

3.1. This chapter examines the correlation between transport, poverty and spatial
transformation in Pakistan. The chapter discusses the impact of increases in total factor
productivity on poverty, household income, sectoral value added, industry agglomeration,
exports, imports, and GDP. This chapter is broken down as follows: Section 1 discusses the
correlation between spatial transformation and transport infrastructure in Pakistan, and their
linkages to industrialization. Section 2 analyzes the inter-sectoral and welfare impacts of
increases in productivity in the transport sector and its subsectors on the economy. Following an
analysis of the impact of a 10 percent increase in the productivity of all transport sectors, three
further simulation scenarios were undertaken: (i) impact of a 10 percent increase in the
productivity of road transport; (ii) impact of a 10 percent increase in the productivity of rail
transport; and (iii) a simultaneous increase in the productivity of road and rail transport by 10
percent.

3.1. Spatial Transformation

3.2. A pronounced feature of industrial economic activity in Pakistan is the high

geographic concentration (clustering) of firms around the metropolitan cities of Lahore
and Karachi (Figure 3.1). Even medium-concentrated districts are clustered in proximity to
these two big cities. Statistical results show that 35 percent of the industries in Pakistan are
highly agglomerated, 38 percent are moderately agglomerated, and 27 percent are not
agglomerated.82 The most highly concentrated industry is ship breaking, followed by sports and
athletic goods. The other highly concentrated industries are those sectors for which it is critical to
be in proximity to consumers and suppliers.83 Evidence suggests that firms will locate in areas
where there are “location economies,” that is areas that minimize procurement costs (transport
costs associated with the transportation of raw materials to the firm) and distribution costs
(transport costs associated with distributing the products to customers). These are areas which
have available specialized labor, inter-industry spillovers, local transfers of knowledge, and
access to export markets. However, from 2000-01 to 2005-06, industry concentration decreased
dramatically by about 33 percent.84

81
This chapter was prepared by Ernesto Sanchez-Triana, Paula Posas, and Sohail Malik. This chapter draws from the consultant
reports prepared by Innovative Development Strategies (IDS), 2011, and the Lahore University of Management Sciences
(LUMS), 2011 for the World Bank.
82
A detailed description of the clustering of Pakistan’s industry can be found in the consultant report prepared by LUMS ., 2011
for the World Bank.
83
Ibid.
84
Ibid.

35
 Figure 3.1. District-level Employment Shares in
Pakistan’s Manufacturing Sector, 2005-0685

3.3. Market access is determined by the ease of connectivity to the market, which in turn
depends upon the availability of an adequate transport system. Spatial disparities in road
infrastructure limit market access, distort factor prices, and reduce the supply of goods and
services available. Low density districts (less agglomeration) are characterized by high levels of
poverty, high transport costs, and an overall poor standing in terms of most economic and
infrastructure indicators (such as poor road density). Data from the Punjab Highway Department
presents a sense of spatial disparities in road infrastructure and its links to agglomeration. Road
density varies greatly across districts (Figures 3.2 and 3.3). The districts in Southern Punjab have
less road density than the districts in Northern Punjab. The Sialkot district in north Punjab
(which houses major export-oriented firms, such as sporting and surgical instruments, and is the

85
The methodology used to map District-level Employment Shares in Pakistan’s Manufacturing Sector can be found in the
SEPSA consultant report prepared by LUMS, 2011 for the World Bank.

36
 third largest economic center after Lahore and Faisalabad in Punjab) has relatively better road
density than South Punjab.86

Figure 3.2. Spatial Disparities in Road Density in Figure 3.3. Spatial Disparities in Road
Punjab, 2005-0687 Density in Khyber Pakhtunkhwa, 2005-0688

3.4. In addition, road density has fluctuated over time in Pakistan: some Southern districts,
such as Rajanpur, Bhakkar, Layyah, D.G. Khan, and Rahimyar Khan, which had relative
road density of less than 40 percent of Lahore district’s in 1992-03, maintained their
relative road density in 2005-06. In contrast, districts such as Faisalabad, Rawalpindi, and
Ragodha improved their relative shares of road density from around 70 percent of Lahore to
more than 80 percent, primarily due to the construction of a 400 km motorway and other
ancillary roads (Figure 3.4). 89 Relative road density in the districts of Jhang, Chakwal,
Muzaffargarh, and Mianwali substantially increased during this 13-year period. Sialkot,

86
Ibid.
87
Ibid.
88
Ibid.
89 Figure 3.4 plots road density of 35 districts relative to the road density of Lahore in 1992-93 and in 2005-06. Here, the road

density of each district is divided by the road density of Lahore. The Lahore district was chosen because it had the highest road
density in 1992-93 and in 2005-06. Changes in road density in districts are depicted by departures from the 45-degree line in the
figure. The share of Lahore in road density relative to Lahore is 100%. Districts above the 45-degree line experienced
improvements in road density over time, whereas those below the line experienced decline in their relative shares. A detailed
description of the spatial disparities analysis can be found in the consultant report prepared by LUMS et al., 2011 for the World
Bank.

37
Gujranwala, Sahiwal, Multan, and Gujrat districts are examples of districts that have experienced
a large decline in their relative road density. Sialkot had the second highest road density after
Lahore in 1992-93 with road density equal to 90 percent of Lahore’s. However by 2005-06,
Sialkot’s road density had decreased to below 50 percent of Lahore’s.

Figure 3.4. Relative

Relative roadRoad Density
density in Punjab,1992-93
in Punjab, 1992-93 vs.
vs.2005-0690
2005-06
LHR
1

SRG
FSD
RWP
Relative road density, 2005-06

VHR
OKR
.8

TTS

KHW
JHG KSR
SHP
.6

CHK JHL
GJW

SIA
MNW MZF BHW SHW
MLT
RYK
.4

GJT
KHB
BKR ATK
LYH

DGK
.2

BHP
RJN

.2 .4 .6 .8 1
Relative road density, 1992-93

3.5. An econometric analysis completed by LUMS (2011) finds that there is a strong
negative correlation between road density across districts and poverty incidence. Apart
from physical infrastructure, the analysis found that access to social infrastructure is highly
concentrated in the metropolitan areas. Moreover, the gaps between leading and lagging districts
are increasing over time. Empirical results of the LUMS (2011) analysis suggest that a one
standard deviation increase (i.e., 0.125) in road density of a district is correlated to roughly a 4.4
percent reduction in poverty. These findings suggest that infrastructure investments that support
increasing road density and improvements of transport infrastructure connecting industrial
clusters to markets might be associated to greater gains in poverty reduction.91 Deficient urban
transport and congestion are key bottlenecks that significantly reduce connectivity between
industrial clusters and domestic and international markets.

3.6. Facilitating the spatial transformation of Pakistan hinges on the availability of road
density that can connect industrial clusters to domestic and international markets. Sixty-

90
Ibid.
91
Ibid.

38
seven percent of the population living in rural areas is landless, and agriculture development
generally has a marginal impact on their well being and living standards. The poorest 40 percent
of rural households derive roughly 30 percent of their total income from agriculture due to
unequal distribution of land and access to water. Poverty rates are higher in rural areas than in
urban areas; about two-thirds of the population and roughly 80 percent of the country’s poor
people live in rural areas. Average per capita expenditures of rural households in 2004-2005
were 31 percent lower than those in urban households (Rs. 1,259/month and Rs. 1,818/month,
respectively). The poverty rate in rural areas is roughly at 34 percent, about 15 percentage points
higher than the 19.1 percent poverty rate in urban areas.92

Table 3.1. Poverty Incidence by Province93

Rural Poverty Incidence
Province Provincial Capital Poverty Incidence (%)
(%)
Punjab 24 18
Sindh 38 10
Khyber 27 28
Pakhtunkhwa
Balochistan 51 14

3.7. Transport infrastructure is likely to yield high pay-offs in promoting localization

economies (within-industry externalities) and agglomeration. The benefits of agglomeration
of industries are often associated with reduction of three types of transport costs, e.g., “moving
goods,” “moving people,” and “moving ideas” (knowledge spillovers and sharing).
Agglomeration is fundamental to industrial competitiveness, because it promotes: (i) knowledge
and information spillovers and innovative ideas among firms; (ii) labor-market pooling; and, (iii)
input-output linkages.94 Spatial proximity of firms attracts suppliers and consumers to the region.
Proximity also promotes the exchange of ideas between firms in the clusters. 95 A high
concentration of firms can also attract and sustain a large labor force with the skills demanded by
that industry. Hence, location economies help create competitive advantage by improving a
firm’s access to important resources. The empirical results of the analytical work carried out
under SEPSA suggest that agglomerations increases with market access, lower transportation
costs, and a supply of skilled labor force. 96 This implies that infrastructural investments in the
delivery of infrastructure services are likely to yield relatively higher pay-offs.

92
World Bank data from 2006 quoted in: International Fund for Agricultural Development, 2011. “Islamic Republic of Pakistan
Gwadar Lasbela Livelihoods Support Project.” Design Completion Report, p. 69, available at:
http://www.ifad.org/operations/projects/design/102/pakistan.pdf, accessed April 10, 2011.
93
SPDC, 2004.
94
Marshall, 1890. Principles of Economics. Macmillan: London.
95 Breschi, S. and F. Lissoni (2003) Mobility and Social Networks: Localized Knowledge Spillovers Revisited. CESPRI Working

Papers 142. Milano: CESPRI as cited in http://www.tinbergen.nl/discussionpapers/08033.pdf.

96
LUMS, 2011.

39
3.2. Effects of Productivity Enhancements of the Transport Sector

3.8. This section of the report analyzes the effects of increasing upgradation and
construction of the road network and total factor productivity (TFP) of the transport
sector on micro and macro-level indicators of poverty. TFP is a variable which accounts for
the effect on total output not caused by inputs (labor, capital). In other words, TFP accounts for
the effect on output that is contributed by other variables such as technology, institutional
changes, competitive factor markets, etc. These factors are of interest in the context of freight
transport reforms, as they are related to enhancing private sector participation and institutional
changes to increase the efficiency of the sector. Appendix 1 contains a description of the
methodology used to inform this section.

3.2.1. Household-Level Poverty

3.9. As with many infrastructure investments, upgrading of freight transport

infrastructure, particularly along the main trade corridor – the National Trade Corridor
(NTC)--,97 is expected to yield significant dividends in the long run, by boosting trade and
export growth, and hence increasing GDP. The upgrading of the main trade corridors includes
road construction, road upgradation along the existing North-South Expressway, new rail links,
and rehabilitation of some existing rail tracks.

3.10. Road construction and upgradation works associated with the main trade corridor
start at Karachi, and for the first 800 km, pass through areas of extreme poverty (Dadu,
Larkana, and Shikarpur in Sindh province and Rahimyar Khan and Bahawalpur in
Punjab). Afterwards, the path of the road works goes for another 400 km., through areas where
poverty incidence is less than 30 percent. The bulk of the last 400 to 500 km of the proposed
road works will then run through the relatively prosperous Barani Punjab region. The figures
below show poverty incidence in districts where road construction will take place, or where road
upgradation is planned or currently being undertaken.
3.11. The areas where road upgradation is planned or currently being executed (areas
where the North-South Expressway currently runs) have significantly lower levels of
poverty than areas that constitute the non-NTC districts (Figure 3.5). In 2005-2006, when
the poverty incidence was estimated to be high overall, the difference in the incidence of poverty
between NTC and non-NTC districts was 10 percentage points. In 2007-2008, when significant
changes occurred in northern Punjab and Sindh, the difference was reduced to 6 percentage
points.98 These findings suggest that areas near the NTC have relatively lower levels of poverty
than non-NTC districts. In contrast to road-upgradation, much of the new road construction is

97
The National Trade Corridor (NTC) refers to the ports, roads, and railways along the corridor that stretch from the southern
city of Karachi to the northern Punjabi cities of Lahore and Peshawar. The NTC handles approximately 95 percent of the
country’s external trade and 65 percent of total land freight.
98
Ibid.

40
expected to take place in districts where the poverty incidence is higher than the average for the
country as a whole (Figure 3.6).
Figure 3.5. Poverty Incidence (%) in Districts Where Road Upgradation
Is Planned or Currently Undertaken99

40.0%
35.0%
Poverty Incidence (%)

30.0%
25.0%
2005-06
20.0%
2007-08
15.0%
10.0%
5.0%
0.0%
NTC Districts Non NTC Districts

Figure 3.6. Poverty Incidence (%) in Districts Where Road Construction Is Expected100
40.0%
35.0%
Poverty Incidence (%)

30.0%
25.0%
2005-06
20.0%
2007-08
15.0%
10.0%
5.0%
0.0%
NTC Districts Non NTC Districts

99
IDS, 2011. “SEPSA: Poverty and Social Impact Assessment.” Consultant Report for the World Bank. Islamabad, Pakistan.
100
Ibid.

41
3.2.2. Household Income

3.12. This section analyzes the impact of a 10 percent increase in TFP in all transport
subsectors on household income of the 19 household groups identified, based on a
simulation analysis undertaken using a 2007-2008 Social Accounting Matrix (SAM).101 Out
of these 19 groups, 15 are rural agricultural households, split according to the amount of land
cultivated (large farm, small farm, landless) and region (Sindh, Punjab and other regions in
Pakistan). Non-farm households, both rural and urban, are divided into poor and non-poor
according to their 2007-08 per capita household expenditures, with poor households defined as
those with a per capita expenditure of less than 1140.05 rupees/month per capita. Non-farm rural
households constitute the last household group. The distribution of farm and non-farm
population in rural areas was almost equal (about 34 percent each) in 2007-08. Nearly 19 percent
of the total farming population belongs to the small farm category, 11 percent are nonfarm poor,
and 5 percent of the total population is urban poor. The incidence of poverty is the highest
among rural agricultural labor (57%) followed by tenant farmers (45%) and nonfarm households
(32%) (Table 3.2).

Table 3.2. Distribution of Population and Incidence of Poverty by Household Groups

(2007-08)102
Population (000 Concentration of poor Population below
numbers) (%) poverty line (%)
Household groups Poor Total Poor Total
Large farmer 23 453 0.1 0.3 5.1
Sindh 0 71 0 0 0
Punjab 12 318 0 0.2 3.9
Other Pakistan 11 63 0 0 17.2
Medium farmer 834 4,192 1.8 2.6 19.9
Sindh 198 878 0.4 0.5 22.5
Punjab 340 2,678 0.8 1.6 12.7
Other Pakistan 298 635 0.7 0.4 46.9
Small farmer 9,094 30,724 20.1 18.9 29.6
Sindh 1,928 3,911 4.3 2.4 49.3
Punjab 5,162 19,854 11.4 12.2 26.0
Other Pakistan 1,997 6,960 4.4 4.3 28.7
Landless farmers 4,389 9,710 9.7 6 45.2
Sindh 1,857 3,142 4.1 1.9 59.1
Punjab 1,495 4,423 3.3 2.7 33.8

101 A social accounting matrix (SAM) represents the flow of all economic transactions and transfers between different production

activities, factors of production (land, capital, labor) and institutions (government, enterprises, households) within the economy
and with respect to the rest of the world. For more details on the methodology, see Annex 2.
102
SAM Simulation 2007-08 completed under SEPSA by IDS, 2011.

42
 Other Pakistan 1,038 2,145 2.3 1.3 48.4
Rural agricultural labor 5,322 9,353 11.8 5.8 56.9
Sindh 1,921 3,929 4.2 2.4 48.9
Punjab 3,077 4,771 6.8 2.9 64.5
Other Pakistan 328 653 0.7 0.4 50.2
Rural nonfarm 17,643 54,624 39 33.6 32.3
Non-poor 0 36,974 0 22.8 0
Poor 17,651 17,651 39 10.9 100
Urban households 7,944 53,318 17.5 32.8 14.9
Non-poor 0 45,392 0 28 0
Poor 7,926 7,926 17.5 4.9 100
All households 45,302 162,374 100 100 27.9

3.13. The income of all households can increase with a 10 percent improvement in the
TFP of all subsectors of transport (Table 3.3). In rural Pakistan, the gains for farm households
are larger (1%) than the gains for non-farm households (0.3%). Rural agricultural laborers and
the urban non-poor can realize the largest benefits of an increase in the productivity of the
transport sector, with their incomes increasing by 1.4 and 1.2 percent, respectively.

Table 3.3. Impact of 10 Percent Increase in TFP of All Transport Subsectors on Household
Income by Household Groups103
% change in base-line value if TFP increases by 10 %
Road Rail Air Water Rail and Road All
Sectors
Large farmer 1.4 0.04 -0.2 -0.1 1.4 1.0
Sindh 1.5 0.03 -0.3 -0.2 1.5 1.0
Punjab 1.3 0.02 -0.2 -0.1 1.3 1.0
Other Pakistan 1.4 0.03 -0.2 -0.1 1.4 1.1
Medium farmer 1.1 0.03 -0.1 0.0 1.1 1.0
Sindh 1.4 0.03 -0.2 -0.1 1.4 1.0
Punjab 1.0 0.02 -0.1 0.0 1.0 0.9
Other Pakistan 1.3 0.03 -0.2 -0.1 1.3 1.0
Small farmer 0.9 0.02 0.0 0.0 0.9 1.0
Sindh 1.2 0.02 0.0 0.0 1.2 1.1
Punjab 0.9 0.02 0.0 0.0 0.9 1.0
Other Pakistan 0.8 0.02 0.1 0.1 0.8 1.0
Landless farmers 1.0 0.02 0.0 0.0 1.0 1.0
Sindh 1.3 0.03 -0.1 0.0 1.3 1.2
Punjab 0.8 0.01 0.1 0.0 0.8 0.9
Other Pakistan 0.9 0.02 0.1 0.0 1.0 1.0
Rural agricultural 0.7 0.01 0.2 0.1 0.7 0.9

103
SAM Simulation 2007-08 completed under SEPSA by IDS, 2011.

43
labor
Sindh 0.7 0.01 0.2 0.1 0.7 1.0
Punjab 0.6 0.01 0.2 0.1 0.6 0.9
Other Pakistan 1.1 0.02 0.2 0.1 1.2 1.4
Rural nonfarm -0.3 -0.02 0.4 0.2 -0.3 0.3
Non-poor -0.4 -0.01 0.5 0.2 -0.4 0.3
Poor -0.1 -0.01 0.4 0.2 -0.1 0.5
Urban households 0.5 0.00 0.3 0.1 0.6 1.0
Non-poor 0.7 0.01 0.3 0.1 0.7 1.2
Poor -0.9 -0.02 0.5 0.2 -0.9 -0.1

3.14. However, an increase in the TFP in rail or road reveals that non-farm households
and the urban poor can potentially be made worse-off. A 10 percent improvement in the TFP
of the road sector alone leads to a 0.3 percent overall reduction in the income of the rural non-
farm sector (0.4 percent for the rural non-farm non poor and 0.1 percent for the non-farm poor).
The findings also suggest that the income of urban poor households decline by 0.9 percent. The
highlighted cells in the table above show the potential negative income effect.

3.15. Overall, the CGE estimates adverse impacts at the household level on account of TFP
improvements in transport; under the given model inputs and assumptions, approximately 40,000
households in the rural non-farm non poor sector, 12,500 households in the rural non-farm poor
category, and 42,000 households in the urban poor category could be adversely impacted by
improvements in TFP in transport (Table 3.4). As a result, mitigation strategies would need to be
developed to safeguard the welfare of persons within these groups, as elaborated in Chapter 4.

Table 3.4. Households and Associated Population Being Adversely Affected by Simulated
Improvement in TFP of Transport Subsectors104
Household Group Effect on Income Household Impacted Population Impacted
Rural non-farm non- 0.4% decline in income 41,824 316,390
poor
Rural non-farm poor 0.1% decline in income 12,575 97,070
Urban poor 0.9% decline in income 41,755 379,893

3.2.3. Sectoral Value-Added

3.16. A 10 percent increase in TFP in roads increases manufacturing, mining, energy, and
services sectoral value-added by 0.3, 0.4, 0.1 and 0.5 percent, respectively (Table 3.5).
Improvements in the rail sector can increase the value added of all sectors examined, except
agriculture. This appears to be because gains in the agricultural sector and in rural households
rely much more on capital income (see detailed explanation in Appendix 1). A simultaneous 10

104
SAM Simulation 2007-08 completed under SEPSA by IDS, 2011.

44
percent increase in the rail and road sector increases manufacturing and mining value-added each
by 0.4 percent. A further investigation suggests that an improvement in the TFP of rail and road
sectors can increase the value added of cotton-textile products, leather products, and petroleum
refining at a greater rate than other sectors.

Table 3.5. Impact of a 10 Percent Increase in TFP of Rail and Road Sectors
on Sectoral Value Added105
Sectors Base line value (Rs. billion) Road Rail Both rail and road
Agriculture 2,088 0 0 0
Mining 62 0.4 0.03 0.4
Manufacturing 1,481 0.3 0.01 0.4
Energy 324 0.1 0.01 0.1
Construction 352 0.1 0.02 0.1
Wholesale and retail trade 1,409 0.3 0.01 0.3
Transport 901 3.9 0.02 3.9
Services 2,699 0.5 0.01 0.5
GDP at factor cost 9,316 0.6 0.01 0.6

3.17. A simultaneous 10 percent increase in the TFP of rail, road, water, and air
transport increases the value added of water transport by 14 percent, road by 5.3 percent,
air transport by 12.4 percent and rail by 1 percent (Table 3.6). A 10 percent increase in the
TFP of water transport increases the value added of the water transport subsector by 13.9 percent.
As a result, the value of the transport sector increases by 7.4 percent and GDP increases by 0.9
percent.

Table 3.6. Impact of 10 Percent Increase in TFP of All Transport Subsectors on the Value
Added and Price of these Subsectors106
Road Rail Air Water Rail and Road All sectors
Impact on value added
Road 5.3 0 0 0 5.3 5.3
Rail 0 0.9 0.1 0 0.8 1
Air 0.6 0 12.4 -0.2 0.7 12.9
Water 0.7 0 -0.6 13.9 0.7 14
Other 0.4 0 -0.2 -0.1 0.4 0.2
All 3.9 0.02 2.4 1.1 3.9 7.4
Transport
GDP 0.6 0 0.2 0.1 0.6 0.9
Impact on output price
Road -7.7 0 0.3 0.1 -7.7 -7.3
Rail 0.8 -1.4 0 0 -0.6 -0.6

105
Ibid.
106
SAM Simulation 2007-08 completed under SEPSA by IDS, 2011.

45
 Air 0.8 0 -2.7 -0.2 0.8 -2.1
Water 0.8 0 -0.4 -1.8 0.8 -1.4
Other 0 0 0.2 0.1 0 0.3
All transport -1.1 -0.3 -0.5 -0.4 -1.3 -2.2

3.18. The analysis also reveals a decrease in the output price of the respective transport
mode subsector as a result of an increase in TFP. For example, an improvement in the road
transport sector decreases the price of road transport by 7.7 percent. Similarly, the price of air
transport decreases by 2.7 percent with a 10 percent increase in the TFP of air transport. The fall
in the price of the transport sector may be the result of a reduction in the production cost. Price
reductions greatly benefit consumers (i.e. households), as explained in the previous section’s
discussion on the effects of improvements in the transport sector on household income.

3.2.4. Economic Indicators

3.19. A key finding from the analysis is that efficient rail and road sectors can increase
both imports and exports, thus playing a critical role in increasing revenue from indirect
taxes. A 10 percent increase in the TFP of road and rail transport has a positive impact on
economic indicators. The results indicate that a TFP increase in the road sector has a much
greater impact than one in the railways sector. As a result, the impact from simultaneously
increasing the productivity of both rail and road is mostly driven by the road sector. This may be
due to the fact that the road sector carries a larger share of freight in total freight transport than
rails. As a result, GDP at factor cost will increase by .06 percent.

3.20. Although 10 percent increases in TFP of road and rail have a positive impact on
both exports and imports, there is a larger increase in exports relative to imports (Table
3.7). This suggests that such an increase can help Pakistan reduce its trade deficit. Results
indicate that a 10 percent increase in TFP of the road sector has a larger positive impact in the
export of textiles, rice, and leather products, increasing by 1 percent, 1.9 percent, and 2.5 percent,
respectively. Imports of wheat and sugar were found to decrease by 1.4 and 1 percent,
respectively.107

Table 3.7. Impact of a 10 Percent Increase in TFP of Rail and Road Sectors on
Macroeconomic Indicators108
Percentage change in baseline value if TFP increases by 10 %
Baseline value Road Rail Both rail and road
(Rs billion)
Total domestic absorption 11,211 0.6 0.01 0.6
Fixed investment 2,095 0.1 0.00 0.1
Government consumption 1,279 1.2 0.01 1.2

107
Ibid.
108
SAM Simulation 2007-08 completed under SEPSA by IDS, 2011.

46
 Private consumption 7,837 0.6 0.01 0.6
Exports 1,315 0.8 0.02 0.9
Imports 2,444 0.4 0.01 0.5
GDP at market prices 10,081 0.6 0.01 0.7
Indirect taxes 765 0.9 0.01 0.9
GDP at factor cost 9,316 0.63 0.01 0.64

3.3. Summary

3.21. The analysis finds that infrastructural investments, such as roads, are likely to yield
high pay-offs in promoting localization economies (within-industry externalities) and
agglomeration. Industrial agglomerations form in districts with good market access, low
transportation costs, and a skilled labor force. Low density districts (less agglomeration) are
characterized by high levels of poverty, high transport costs, and an overall poor standing on
most economic and infrastructure indicators (such as poor road density). Agglomeration is
fundamental to industrial competitiveness because it promotes: (i) knowledge and information
spillovers and innovative ideas among firms; (ii) labor-market pooling; and, (iii) input-output
linkages. The largest agglomerations are located around the metropolitan cities of Karachi and
Lahore. The spatial geography shows that domestic and international markets are not able to
connect with these industrial clusters in urban areas because of high transport costs.

3.22. Facilitating the spatial transformation of Pakistan hinges on the availability of road
density that can connect industrial clusters to domestic and international markets. Sixty-
seven percent of the population living in rural areas is landless, and agriculture development
generally has a marginal impact on their well being and living standards. The poorest 40 percent
of rural households derive roughly 30 percent of their total income from agriculture due to
unequal distribution of land and access to water. Poverty rates are higher in rural areas than in
urban areas; about two-thirds of the population and roughly 80 percent of the country’s poor
people live in rural areas. Average per capita expenditures of rural households in 2004-2005
were 31 percent lower than those in urban households (Rs. 1,259/month and Rs. 1,818/month,
respectively). The poverty rate in rural areas is roughly at 34 percent, about 15 percentage points
higher than the 19.1 percent poverty rate in urban areas.109
3.23. Econometric results reveal that there is a strong negative association between road
density across districts and poverty incidence. Empirical results of the LUMS (2011) analysis
suggest that a one standard deviation increase (i.e., 0.125) in road density of a district is
correlated to roughly a 4.4 percent reduction in poverty. These findings might indicate that
infrastructure investments that support increasing road density and improvements of transport

109
World Bank (2006)

47
infrastructure connecting industrial clusters to domestic and international markets might be
associated to greater gains in poverty reduction.110
3.24. Simulations using the SAM model reveal that improvements in the total factor
productivity of the transport sector and its respective subsectors (rail, road, air, and ports)
have positive impacts on sectoral value-added and household income. There is a positive
impact of increasing TFP of the transport sector on both exports and imports; however, there is a
larger increase in exports relative to imports, which suggests that this can help Pakistan reduce
its trade deficit. Improvements in the rail sector can increase the value added of all sectors
examined, except agriculture. A simultaneous 10 percent increase in the TFP of rail, road, water
and air transport increases the value added of water transport by 14 percent, road by 5.3 percent,
air transport by 12.9 percent and rail by 1 percent. As a result, the value of the transport sector
increases by 7.4 percent and GDP increases by 0.9 percent. Rural agricultural laborers and the
urban non-poor can realize the largest benefits of an increase in the productivity of the transport
sector, with the income of the former increasing by 1.4 percent and the income of the latter group
increasing by 1.2 percent. However, an increase in the TFP in rail or road reveals that non-farm
households and the urban poor can potentially be made worse-off. Consequently, as explained in
the next chapter, mitigation strategies would need to be developed to safeguard the welfare of
persons within these two groups.

110
LUMS (2011) consultant report for the World Bank.

48
CHAPTER 4. PRIORITY SOCIAL ISSUES ASSOCIATED WITH FREIGHT
TRANSPORT111

4.1. One of the most striking features of economic activity in Pakistan is the geographic
clustering of the factors of production in a few cities, including unequal spatial distribution
of income, poverty, education, health and physical infrastructure. Spatial transformation,
trade, and city growth are each both vectors and outcomes of economic growth. Spatial
transformation is an integral part of a country’s development and indeed the size and scope of the
freight reforms envisioned in the trade and transport sector can be expected to have a long-term
impact on Pakistan’s development and translate into social changes. While the benefits to be
expected from the increased transport productivity are undeniable, some groups may
nevertheless find themselves adversely impacted by some of the direct and indirect consequences
of freight transport reforms. As explained before, an increase in the total factor productivity in
rail or road reveals that nonfarm households and urban poor can potentially be made worse-off.

4.2. This chapter describes the potential social effects associated with reforms in the freight
transport sector. The issues to be discussed were selected, in stakeholder consultations, due
to their socio-economic salience for Pakistan and their mutually reinforcing impacts. The
first section examines how social conflicts may be affected by reforms in the freight transport
sector in the complex socio-political context of Pakistan. The second section addresses the
impacts on migration, which is also both a vector and an outcome of economic growth. The third
section addresses the impact on urbanization, while the fourth section looks into the issue of
HIV/AIDS transmission by truck drivers. Section five highlights social issues associated with
resettlement and displacement in the context of investments in freight transport infrastructure.
4.1. Freight Transportation and Social Conflicts

4.1.1. Overview of Social Conflict in Pakistan

4.3. Social conflicts in Pakistan might manifest as sectarian or ethnic strife. Given
Pakistan's high sensitivity to ethnic tensions, such issues should be expected to arise in the
context of any major reform such as those envisioned for the freight transport sector.
Pakistan’s ethnic equilibrium may be impacted by freight transport reforms, notably through the
likely increase in migration, as well as through the reforms of the trucking, ports, and shipping
sectors.
4.4. This complexity needs to be understood in the larger context of the long-standing
security situation in Afghanistan, close ties of Pakistan with its troubled neighbor, and the
implications of the country’s geography on its governance. In the past ten years, the conflict

111
This chapter was prepared by Ernesto Sanchez-Triana, Ghazal Dezfuli. Zia Al Jalaly, and Santiago Enriquez. This chapter
draws on consultant reports prepared by IDS and LUMS.

49
in Afghanistan has contributed to the growth of various groups that have been implicated in the
running feuds between sectarian organizations, as well as with drug traffic groups operating in
Afghanistan and Pakistan (see Section 4.2 on Migration).112 Furthermore, Pakistan's geography
also contributes to the challenge, rendering the governing of part of the country extremely
difficult. This combination of challenges can trigger protracted instability if left unaddressed or
when the precarious social status quo is disrupted. Indeed, when regional and spatial divisions
align with political and ethnic pressures, they give rise to political and social instability in the
country (Figure 4.1). 113

Figure 4.1. Map of Pakistan’s Security Landscape in 2010

This map was prepared by Sohail Malik. This map was amended by Jeff Lecksell of the Map Design Unit to match the World Bank guidelines. The boundaries,
colors, denominations and any other information shown on this map do not imply, on the part of the World Bank Group, any judgment on the legal status of any
territory, or any endorsement or acceptance of such boundaries.

112
World Bank, 2011.
113
Mezzera and Aftab, 2009.

50
This map was produced by the Map Design Unit of the World Bank. The boundaries, colors, denominations and any other information shown on this map do not
imply, on the part of the World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

4.5. In 2010, Pakistan witnessed an 11 percent decrease in the number of incidents of

violence and terrorism compared to the previous year. However, over the same period,
violent incidents increased in the provinces of Sindh, Punjab and in Gilgit Baltistan (formerly
known as Northern Areas) while they substantially decreased in Khyber Pakhtunkhwa’s settled
areas. The data illustrate the rise of social conflict in Pakistan and thus the sensitive context in
which freight transport reform will take place (Figure 4.2).

Figure 4.2. Social Conflict Events in Pakistan 1989-2010114

injured

killed

incidents

Source: South Asia Terrorism Portal (SATP)

4.1.2. Potential Impacts in the Ports, Shipping and Trucking Sectors

4.6. The scale and the sectors concerned with envisioned reforms in the freight transport
sector can be expected to have an impact particularly on social tensions in the case of ports
and shipping, as well as in the case of the trucking sector. The majority of low-skilled
workers employed at both Karachi Port and Port Qasim are part of a specific ethnic group, which
also dominates the trucking and road transport sectors. This group is particularly concerned with
the reforms planned for the freight transport sector.

4.7. In the case of ports and shipping, ethnic tensions have already arisen from the
perception that recent recruitments favored one specific ethnic group from communities in

114
South Asia Terrorism Portal (SATP)

51
and around Karachi at the detriment of other groups. Indeed, many dockworkers are migrant
laborers from the northern part of Pakistan, notably Khyber Pakhtunkhwa, who settled in
Karachi slums. Dockers working on a daily wage basis are particularly vulnerable as they would
not be eligible for severance packages and redeployment services.115 As those workers tend to be
younger, there is a heightened risk that in the absence of adequate mitigating measures, such
groups could tap into the pre-existing ethnic tensions to rally support and cause social conflicts.

4.8. In the case of the trucking industry, an ethnic group from Southern Khyber
Pakhtunkhwa owns, manages and works as employees of this industry even in areas
outside the province of Khyber Pakhtunkhwa, making it the main group concerned by the
trucking reforms. The bulk of trucking companies is centered in the port city of Karachi, but
here also trucking is dominated by the same ethnic group, with brokerages and offices being
physically concentrated in the majority Pakhtun enclaves of the city, particularly the area of
Sohrab Goth at the entrance of the National Highway. Given the nature of business linkages in
Pakistan, strongly based on familial or tribal relationships, there is relative ease of entry for
members of the same ethnic group in the trucking sector compared to other ethnicities that are
less represented in the transport business. This broad division has manifested itself in the ethnic
conflicts that have gripped the city of Karachi in particular.

4.9. Security concerns have also mounted in the trucking sector, particularly in Balochistan
where non-local truck drivers have been targeted and incidents of looting and even
kidnapping are on the rise.116 Trucking with Afghanistan has also proven to be a source of
tensions and violence. According to the Transportation Command, half of all war supplies to
Afghanistan pass through Pakistan at a rate of 580 truckloads per day. Since the Pakistan supply
route opened in 2002, militants have killed between 120 and 150 truckers for hauling U.S.
military supplies. To avoid attacks, many drivers now detour hundreds of kilometers, driving
northeast through Punjab province instead. However, militants have also started to target this
route.117 Incidents of dacoity (banditry) and looting are also common in interior Sindh, although
here the issue is not rooted in ethnic or political conflict.

4.10. In the case of communities living along the main freight transport corridors, the
opening up of new transportation links offers much potential for the poorest and most
deprived, notably in under-served provinces like Balochistan, which is particularly
strategic in that respect. For one, it is the only province of Pakistan that shares boundaries with
Afghanistan and Iran. Secondly, besides Punjab, it is also the only province that has direct inland
connection with the four provinces of Pakistan. Thirdly, while it only represents five percent of
the total population, Balochistan constitutes 42 percent of the total land area of Pakistan.

115
This vulnerability would be compounded by the loss of medical and insurance benefits, likely to have a strong impact on
women.
116
See: The case of the Karakoram highway, “Highway Robbery: From Gesham to Gilgit, Truckers Protesting.” The Tribune
Express, May 3, 2011.
117
Shakir, 2010. “Pakistan Pays Price for Trucking in Afghan War Cargo.” BusinessWeek, July 7, 2010.

52
Therefore, given the sensitivities in this province, and the political and ethnic tension that
continues to fuel conflict in the province, opportunities that would accrue from trade facilitation
carry both potential and risk.

4.1.3. Youth and Social Conflicts

4.11. Pakistan is expected to double its already very young labor force by 2025.118 It is
estimated that the economy must grow by 7 percent a year on a sustained basis to absorb the
coming increases in the labor force. Reforms in the freight transport sector can contribute to new
job creation in the manufacturing sector and others made possible by increased connectivity. In
2011, youth engagement and the transformation of cities into engines of economic growth were
identified as key development themes for the country’s new Framework for Economic Growth
that aims to promote sustained high economic growth119. Linking those priorities with freight
transport reforms offers much potential.

4.12. Youth, particularly from non-farm households and urban poor households, are also
at higher risk of being negatively impacted by freight transport sector reforms, as they
tend to have more precarious jobs, as the last entrants to the labor market. Male youth
unemployment rate is almost triple the male adult unemployment rate120. Using the 2006-07 LFS,
Ahmad and Azim121 show that a significant number of youth start their career early, which can
be costly for productivity and earnings later in life. Young people also face a higher
unemployment rate at the start of their career, which gradually decreases as age increases. In
general, the unemployment rate among female youth is much higher than that of male youth in
all regions of the country. An important finding of the study that bears strong implication for
reforms in the freight transport sector is that the youth in Balochistan appears to be more willing
to work but least likely to get employment as compared to youth in other provinces. 122
Furthermore, youth should be regarded as a diverse social group with different characteristics
and attitudes about work in different regions of Pakistan. The heterogeneity of jobless people
must be taken into account in labor employment policies. In the context of freight transport
reforms, this translates into the need to account for youth (particularly from non-farm households

118
The window of opportunity will close around 2045, by which time the society is expected to begin aging rapidly. Therefore,
during this period, protection and promotion of the next generation will have a huge impact on Pakistan’s long term prospects
(DFID, 2009).
119
Government of Pakistan (2011). Framework for Economic Growth. Planning Commission. Islamabad.
120
Government of Pakistan. 2005/2006 Labor Force Survey .Islamabad. Pakistan.
121
Ahmad and Azim, 2010. “Youth Population and the Labour Market of Pakistan: A Micro Level Study.” Pakistan Economic
and Social Review, 48(2), pp. 183-208.
122 Balochistan is the province where the unemployment rate is highest both in urban and rural areas and remains highest

throughout the age of youth (15-24) when compared with other provinces. Results suggest that in that province, youth are 43.7
percentage points less likely to get employment. Results also showed that, contrary to common belief, the unemployment rate in
Sindh is less than that in Punjab. See: Ahmad and Azim, 2010. “Youth Population and the Labour Market of Pakistan: A Micro
Level Study.” Pakistan Economic and Social Review, 48(2), pp. 183-208.

53
and urban poor households) and region-specific impacts to mitigate potential adverse effects and
ensure that they are able to benefit from the positive impacts of trade and transport sector
reforms, including those related to new employment opportunities.

4.13. In the case of reforms in the port, shipping, and trucking sectors, there is a risk that
youth (particularly from non-farm households and urban poor households) could be
directly affected either through direct retrenchment or indirect loss of job, as well as
through the loss of job prospects they had envisioned and invested in through the ‘Ustad
Shagird’ arrangement (Master-Apprenticeship). The importance of starting off right is
particularly important for young people since it is the initial transition to the labor force that is a
significant determinant of the future economic (and social) well-being of the individual and, if
taken collectively, in determining the level of development in Pakistan. Without the proper
foothold to start out in the labor market, young people are less able to make choices that will
improve their own job prospects and those of their future dependants, thus perpetuating the cycle
of insufficient education, low-productivity employment, and poverty, from one generation to the
next. Finding a new job and source of income will be more difficult for youth who entered the
labor market young and have limited education and skills, making the attainment of a stable job
all the more difficult. Furthermore, youth who are ‘Not in Education, Employment or Training’
(NEET), around 36 percent of the total youth population in 2005-06, could also be particularly
affected by other members of their family and community losing their job and source of income,
increasing their chances of being locked-in to this social limbo and more exposed to
discouragement,123 which may result in poor choices and increased social conflict.

4.1.4. Poverty, Social Exclusion and Violence in Urban Settings

4.14. The relationship between poverty, social exclusion and crime/violence is particularly
complex in Pakistan with crime and lack of safety impeding the capabilities and capital of
the poor. Reforms in the freight transport will interact with this fragile equilibrium. This
equation is particularly complex in Karachi (see Section 4.1.5). Violence, crime, and social
exclusion are interrelated in numerous ways. Particularly problematic is the way in which the
lack of safety affects the ability of weaker members of society (e.g. women, children, youth,
minority groups) to participate in economic activities and subsequently reinforces their
marginality. Those who make their living in the informal sector are particularly vulnerable to
crime. Yet, the poor have also less means to protect themselves from crime and increased
insecurity.

123
Although on a declining trend since 1999-2000, the NEET rate in Pakistan is very high in comparison with other regions, both
at the low-end of the income per capita range, such as sub-Saharan Africa (27 percent), and at higher levels of income per capita
such as Central and South America (21 percent). It should be noted that the female NEET rate in Pakistan would be reduced,
because more women would be counted as employed, if the list of probing questions aiming ‘to net-in marginal economic
activities’ in the labor force survey were taken into account. It is important to keep in mind that this measure contains both
unemployed non-student youth and youth who are inactive for reasons other than educational enrollment, including
discouragement (i.e. inactive non-students).

54
4.1.5. The Case of Karachi

4.15. Home to up to 18 million people, Karachi is one of the largest cities in the world. Its
two commercial ports on the Arabian Sea, banks, and stock market constitute the lifeline of
the Pakistani economy. Providing nearly 70 percent of the government's revenue, Karachi
accounts for a quarter of Pakistan's GDP. Social turmoil in Karachi during the 1980s, 1990s and
2000s might have been undermining Pakistan's economic prosperity and political stability.

4.16. Karachi is home to all of the ethnic groups in Pakistan and has large migrant
communities from Afghanistan, Burma, and Bangladesh. The city's politics are also colored
by its diversity. One of Karachi’s defining characteristics is its ‘ethnic mix,’ initiated by the
influx of migrants after the country gained independence between 1947 and 1950, at a time
when the city had about 425,000 inhabitants. Compounding this ethnic mix was the influx in the
1960s of Pakhtuns looking for work, with a second wave initiated in the early 1980s following
the Soviet invasion of Afghanistan. Today, Karachi hosts an estimated 3.5 million ethnic
Pakhtuns, the largest urban concentration of this ethnic group outside its homeland in western
Pakistan and neighboring Afghanistan. In recent years, tens of thousands of Pakhtuns have
joined their extended families in Karachi as insecurity pushed them out of their home regions.

4.17. Incidentally, what happens in Karachi has ripple effects across Pakistan. Given
Karachi’s centrality in Pakistan’s economy, trade and transport, reforms in the freight transport
sector will find in this city a concentration and test of the potential social challenges as well as a
priority for Pakistan’s future. The compounded effects of reforms in the freight transport sector
are likely to crystallize in Karachi where their potential social impacts are also among the
greatest. Establishing adequate dialogue and engagement mechanisms to give a voice to groups
that may be affected by reforms in the trade and transport sector should be a priority.

4.2. Connectivity and Migration

4.18. Freight transport sector reforms are expected to lead to greater connectivity,
migration, and spatial transformation, amplifying historical trends in such increases and
associated impacts. In order not to compound existing problems, positive and negative
influences of these trends need to be understood in advance and proactively managed or
mitigated. This discussions below illustrate the trends, challenges, and need for planning and
readiness for changes the reforms are likely to bring about.

55
4.2.1. Overview of Migration in Pakistan

4.19. Migration will be another important vector of social impact for reforms in the
freight transport sector. These reforms can be expected to influence migration flux,
patterns, and composition at the national, regional and international levels by facilitating
connectivity. Robust evidence indicates that migration can help to integrate leading and lagging
regions within a country. In fact, migration constitutes one of three main market forces (along
with agglomeration and specialization) that can facilitate economic integration, leading to both
the geographic concentration of economic activity and a convergence in living standards. The
potential contributions of migration can be further taken advantage of if they are complemented
with progressive urbanization policies, as well as improved education and health services that
can help potential migrants become more productive and thus, take advantage of employment
opportunities in urban centers. 124 While migration is a market force that can be harnessed to
support economic growth, it also has the potential to drive other social impacts discussed in this
chapter, such as social conflict, HIV, or urban sprawl. The following section looks into the
different levels of impact that can be expected to be influenced by reforms in the freight transport
sector.

4.20. Migration is ingrained in Pakistan’s history, notably with the massive ‘partition
migration’ following the emergence of independent States in South Asia. It remains a
defining feature of the country’s socio-economic dynamics, both internally and
internationally. For one, Pakistan hosts the largest number of refugees in the world, with 1.8
million refugees at the end of 2008, almost all of whom are Afghans.125 Furthermore, at the end
of 2010, there were around two million internally displaced people (IDPs), 1.4 million of them
registered by the government.126 Second, migration is a key factor defining Pakistan’s society
and labor markets. Migration operates at three different levels: internationally, regionally and
internally, all of which have strong socio-economic implication for Pakistan. These migrations
are both vectors and outcomes of Pakistan’s present and future spatial transformation.

4.21. Internationally, migrants from Pakistan represent 2.3 percent of the country’s
population. An increased inter-regional connectivity through improved freight
transportation can also be expected to yield an increase in bi-directional inter-regional
migration. Pakistani migrants are estimated to send back about US$ 8.6 billion in remittances.127
At the regional level, Pakistan hosts 2.8 million intra-regional migrants. In facilitating
connectivity, freight transport sector reforms could also contribute to the international migration
of workers from Pakistan, an option that may particularly appeal to younger migrants. It will also

124
World Bank, 2009, Reshaping Economic Geography, World Development Report 2009, Washington, D.C.
125
At the end of 2008, Pakistan also hosted the largest number of refugees in relation to its economic capacity. The country
hosted 733 refugees per US$ 1 GDP (purchasing power parity) (UNHCR, 2009).
126
OCHA, 2010.
127
Ratha et al., 2009.

56
likely increase the attractiveness of Pakistan’s major cities, and notably Karachi, to migrants
from the region.

Table 4.1. International Migration128

Year Estimated number of international International migrants as a percentage
migrants at mid-year of the population
1990 6,555,782 5.7
1995 4,076,599 3.1
2000 4,242,689 2.9
2005 3,554,009 2.1
2010 4,233,592 2.3

4.22. At the national level, internal migration is particularly strong; in Pakistan the share
of rural to urban migration increased over time (1996-2006), while urban to urban
migration declined, yet remaining highest in internal migration. 129 Such migrations are
likely to be facilitated by reforms in the freight transport sector and have strong socio-
political implication for Pakistan. Indeed, the regional distribution of population also has key
significance for provinces due to its repercussions on their political representation and rights in
the federation, distribution of resources, and employment quotas as provisioned in the
constitution. About 30 percent of total migration as of 2008-09 (or up to 3 million people), has
been from rural to urban areas. Gains in agricultural productivity are also promoting migration
from rural setting to industrial clusters in urban centers. Punjab accounted for the bulk of migrant
labor, both inter and intra-provincial, while the proportion of migrant labor in other provinces
tapered down roughly in consonance with their total population.130 Intra-provincial migration has
been particularly strong in Punjab with 71.7 percent of all those who reported intra-provincial
migration being based in Punjab (Table 4.2). The direction of inter-provincial migration seemed
more towards Sindh, particularly Karachi, Pakistan’s largest city and commercial center, where
41.5 percent of all workers who had migrated across provinces were found to be working. About
15 percent of the total workforce consists of internal migrants and the proportion goes up to
almost 20 percent for wage employment. Given that the total civilian labor force in the country
consists of 53.72 million people, 131 this would mean that from 7 to 10 million people have
migrated to join the labor force outside their place of origin as of 2008-09. These migrants
generally moved towards wage employment (in larger cities) or self-employment in services (in
smaller towns).132 This trend is accentuated by the structure of labor markets in Pakistan where

128
Source: United Nations, Department of Economic and Social Affairs, Population Division (2009). Trends in International
Migrant Stock: The 2008 Revision (United Nations database, POP/DB/MIG/Stock/Rev.2008).
129
Hamid, 2010.
130
Federal Bureau of Statistics (FBS), 2009. Labor Force Survey 2008-09.
131
FBS, 2009.
132
Although about 40 percent of Pakistan’s population is now thought to reside in urban areas, these estimated 65 million persons
are concentrated in a few centers. The census of 1998 showed about 200 towns and cities with more than 25,000 people, but also
revealed that 8 cities with populations of over 1 million accounted for almost 60 percent of the total urban population in Pakistan,

57
almost a third of firms in Pakistan tend to rely on seasonal or temporary labor, thus being able to
add to or shed from the labor force as per trends in market demand.133

Table 4.2. Inter and Intra Migration in Pakistan (2009)134

Provinces Total Inter-provincial Intra-provincial
Total Male Female Total Male Female Total Male Female
Pakistan 100 100 100 100 100 100 100 100 100
Punjab 63.7 56.4 69.0 34.6 31.1 39.3 71.7 66.7 74.8
Sindh 25.1 28.3 22.7 41.5 37.9 46.0 20.6 24.4 18.2
Khyber 10.7 14.7 7.8 23.2 30.4 13.8 7.2 8.3 6.6
Pakhtunkhwa
Balochistan 0.5 0.6 0.5 0.7 0.6 0.9 0.5 0.6 0.4

4.2.2. Gender and Migration

4.23. The composition of migration is also likely to be impacted by reforms in the freight
transport sector, with the share of women continuing to increase, particularly in the case of
long distance and inter-regional migration. Female migrants constituted the larger share of
internal migration (age 10 and above), with marriage playing a major role.135 Furthermore,
the trend of intra and inter provincial migration indicates that in all provinces, long distance
movement of females rose. Not only did the share of female rural to urban migration increase,
but family migration to cities also increased over that period. This seems to be due to changes in
the agrarian structure and rural economy, particularly in landless households, decline in share
cropping, and rise in small land holding.136 Such longer term and long-distance family migration
have strong implications in terms of infrastructure and service delivery in urban settings and are
likely to remain a defining feature of internal migration.

4.24. Female migration excluding that related to marriage reasons also presents stark
differences within provinces. In the context of the freight transport sector reforms, which
can be expected to foster both migration and urbanization, this type of migration also has
strong policy implications in terms of labor markets and service delivery. Over a period of
ten years, the LFS data indicate that women from Sindh represent a much larger share of inter-

while almost a quarter of the urban population was housed in cities ranging in size from 100,000 to 1 million. This distribution is
unlikely to have changed.
133
FBS, 2009.
134
Ibid.
135
More than 50% of female migrants change their place of residence due to marriage (Hamid, 2010).
136 “The major factor in the family migration decision is the non-availability of opportunities in rural areas to earn a sufficient

livelihood. These opportunities for a segment of population, particularly landless households, have increasingly shrunk in rural
Pakistan. Changes in both agrarian structure and rural economy have contributed in limiting these opportunities.” (Arif and
Hamid, 2007) . It should be noted that land is not only a factor of production and a source of livelihood, its ownership also
reflects the socio-economic status within society. Therefore, being landless has a compounding socio-economic effect likely to
make migration all the more attractive.

58
province rural to urban migration, while the share of women from Punjab and Khyber
Pakhtunkhwa is overall more important in intra-province migration. While women’s
unemployment has decreased in recent years, it remains much higher than that of men,
particularly in the case of female youth.137 However, while migration increases the likelihood of
unemployment for both male youth and male adults, it decreases the likelihood of unemployment
for female adults.138 One possible explanation may be that individuals tend to move from rural
areas to urban areas, where there are more opportunities for women to work. Yet, women who
manage to find employment in non-agricultural sectors mainly work in the informal economy
(71.7 per cent in 2008). Further, the majority of employed women are classified as at “risk of
lacking decent work”, since they are working as contributing family or own account workers.
Both status groups are likely to be characterized by insecure employment arrangements, low
earnings and low productivity.139 140 Incidentally, the change brought by reforms in the freight
transport sector may offer some opportunities to increase female participation in labor markets.
However, this requires taking into account regional differences, the specific situation of female
youth, and the risks associated with their work in the informal sector.

4.2.3. Cross-border Movement between Pakistan and Afghanistan

4.25. Trade and transport reforms and the cross-border movement between Pakistan and
Afghanistan will influence migration. More than with any of its other neighbors, Pakistan’s
spatial transformation is also connected to Afghanistan, for both socio-economic and
security reasons. Regarding migration, fluxes have been observed both from and to Pakistan.
While Afghanistan hosts migrants from Pakistan – most of them semi-skilled, given the country's
needs for skilled labor – the flux has been dominated by Afghans migrating to Pakistan. 141
Indeed, Afghans have a long tradition of economic migration to neighboring countries. Conflict-
related involuntary migration have further contributed to the development and reinforcing of
social, economic and cultural ties between those refugees and the host country. However, while
at the end of 2002 Pakistan hosted 2.2 million Afghan refugees, one of the largest refugee
population in the world, today the majority of Afghans traveling to and from Pakistan are
temporary migrants.142 143

4.26. Economic motivations represent the main decision-making factor, with 64.4 percent
of labor migrants citing the lack of work in Afghanistan as the factor leading them to

137 Ahmad and Azim (2010) found that the main reason of low labor force participation among females in Pakistan is the social
attitude of people towards appreciation of working women. In another study they cited, it was found among women working at
home that at every age between 15-24, women work more hours than men, but their work is largely unpaid and hidden.
138
Hou, 2011.
139
ILO and UNDP, 2009.
140
Khan and Khan, 2009.
141
IOM, 2004.
142
Since 2002, UNHCR assisted the repatriation of 3.6 million Afghans from Pakistan (UNHCR, 2009).
143
The Government of Pakistan has instituted a new comprehensive Management and Repatriation Strategy for Afghan Refugees
(UNHCR, 2010).

59
temporarily migrate to Pakistan. Indeed, wages in Pakistan are not favorable enough to justify
permanent resettlement. Instead, the objective of the migration is for the head of household and
main wage earners to meet the needs and expenses of their families, rather than accumulate
wealth or savings with a medium or long term perspective.144 While the cost of migration is low,
so is its long-term benefit. Thus, casual labor has become a livelihood solution for Afghans who
benefit from their network and past experiences in Pakistan and have more readily available
economic opportunities.145 In the context of trade and transport reforms, improved connectivity
could be expected to increase the attractiveness of temporary economic migration from
Afghanistan which would in turn have socio-political implications (as discussed in Section 4.1).

4.3. Spatial Transformation and Urban Sprawl

4.3.1. Urbanization in Pakistan

4.27. Urbanization facilitates intra-industry spillovers and is therefore an important

factor in agglomeration economies, as discussed above. While the benefits of urbanization
are significant, they can be offset by a number of externalities, such as congestion and
pollution. As in the case of Pakistan, urbanization tends to occur during a country’s development
stage characterized by low income and nascent institutions.146 Pakistan’s urbanization, largely
fueled by migration, has accelerated over the last decades, during which the urban growth rate
has been twice that of population growth. While recognizing that urbanization is desirable in
general terms for Pakistan, this report focuses on the potentially mutually-reinforcing social
implications of urbanization and other social priorities associated with trade and transport sector
reforms, particularly those concerning the most vulnerable groups (day laborers, youth, and
women). Indeed, the share of Pakistan’s urban population has continued to increase since 1996
and it is now estimated that 35.9 percent of the country’s population lives in urban settings.147
Pakistan already has eight cities over one million. By 2020, Pakistan is expected to have one
mega-city (over 10 million), Karachi, and nine additional cities over one million (Table 4.3).148
With economic motivations dominating rural to urban migration, it is not surprising to find
Lahore and Karachi, the two most highly concentrated districts in large scale manufacturing
employment, among those facing the most challenges in terms of urban sprawl.

144
UN HABITAT, 2011.
145
Most Afghans refugees who have lived in Pakistan have acquired expectations of what is the necessary level of social services
they need. In its survey, UNHCR (2009) found that 46.7% of all respondents have spent 10 years or more in Pakistan and 82%
have been established and lived in Pakistan. This is a population that has therefore benefited over a sustained period of time of
better infrastructure (access to water, gas, electricity etc.) and social services (health and primary education) notably (UNHCR,
2009).
146
World Bank, 2009.
147
UN HABITAT, 2011, “Global Report on Human Settlements 2011: Cities and Climate Change”. Earthscan (p. 208).
148
.Ibid, pp. 234 and 235).

60
 Table 4.3. City Population of Urban Agglomerations 2000 – 2020 (‘000s)149
2000 2010 2020
Failsalabad 2,140 2,849 3,704
Gujranwala 1,224 1,652 2,165
Hyderabad 1,222 1,590 2,084
Islamabad 595 856 1,132
Karachi 10,021 13,125 16,693
Lahore 5,449 7,132 9,150
Multan 1,263 1,659 2,174
Peshawar 1,066 1,422 1,868
Quetta 614 841 1,113
Rawalpindi 1,520 2,026 2,646

4.28. In Pakistan’s rapidly expanding cities, authorities have faced significant challenges
to increase the provision of basic infrastructure in a manner that is commensurate with
population growth. While the growth rate of urban agglomeration is expected to progressively
slow down,150 the infrastructure deficit remains a key challenge for urbanization in Pakistan and
bears strong social implications. This challenge has notably translated into one of the highest
rates of slum prevalence in South Asia, with 71 percent of the total urban population living in
slums.151 The gap between housing demand and supply in major urban areas is rapidly increasing
and people, particularly those falling in low and middle income classes, are forced to live in
substandard housing. Twenty-five percent of the gap between housing demand and supply is met
through informal settlements (katchi abadis), 60 percent through informal subdivisions of land
and 15 percent through densification of inner cities. Most of the people are unable to afford
decent housing in urban areas because of limited income, and escalating prices of land and
building materials.152 As a result, a major trend in Pakistan’s urbanization has been the growth of
slums and irregular settlements.

4.29. Furthermore, the high geographic concentration of manufacturing industries in

Pakistan reinforces spatial disparities, with investments being prioritized towards leading
districts at the cost of lagging ones. Such dynamics further spur migration towards urban
agglomerations. Indeed, 35 percent of the industries are found to be highly agglomerated
(Ellison and Glaeser concentration index > 0.05) and 38 percent of the industries are moderately
concentrated (EG Index between 0.02 and 0.05).153 While migration presents undeniable benefits

149
Ibid
150
UN HABITAT, 2010.
151
UN HABITAT, 2008.
152
Bajwa, Ahmad, and Khan, 2005.
153
A description of the methodology used to estimate the Ellison and Glaeser concentration index can be found in the consultant
report completed for SEPSA by LUMS et al., 2011.

61
for agglomerated industries, for instance in terms of expanded labor markets located near
demand centers and input suppliers, without the corresponding infrastructure investments and
public service delivery, those migrants – particularly in the case of daily wage workers - may
continue in poverty.

4.3.2. Urban Sprawl in Pakistan

4.30. Recent estimates suggest that there was a deficit of 6 million housing units in
Pakistan in 2005, a situation likely to be accentuated by the sustained flux of rural to urban
migration. In urban areas, the deficit is met largely by informal housing units (i.e. not
sanctioned by city administrations), which increased from 1.9 million in 1981 to 2.7 million in
1995. More recent estimates quoted in the same study indicate that there are about 3.5 million
housing units in informal settlements, housing 24.5 million people.154

4.31. While both contribute to Pakistan’s urban sprawl, a distinction should be made
between katchi abadis and slums. Katchi abadis are informal settlements created through
squatting or informal subdivisions of state or private land.155 In Karachi, the largest city in the
country, an estimated 60 percent of the population lives in katchi abadis.156 Informal settlements
do not fall under the realm of responsibility of city administrations and as such tend to be un-
serviced or critically under-serviced.157 The government of Pakistan initiated the Katchi Abadi
Improvement and Regularization Programme (KAIRP) in 1978 to start the provision of basic
amenities to residents. 158 The process has been painfully slow, with the pace estimated at 1
percent of abadis regularized per year in the 1990s. More recent (2007) data suggests that it has
not speeded up, and net progress is particularly slow as new settlements keep coming up. KAIRP
has been hampered by poor record keeping of land records, which typically leads to prolonged
legal arbitration.159 According to varying estimates, land disputes constitute 60 to 80 percent of
court caseloads in Pakistan.160 Policies that require determination of land ownership are therefore

154
Hasan and Raza, 2008. “Migration and Small Towns in Pakistan.” Human Settlements Working Paper Series Rural-Urban
Interactions and Livelihood Strategies, No. 15. IIED: London.
155
The katchi abadis are of two types: a) settlements established through unorganized invasion of state lands at the time of
partition; most of them were removed and relocated during the 1960s or have been regularized; b) informal subdivisions of state
land (ISD), further divided into: notified katchi abadis, settlements earmarked for regularization through a 99-year lease and local
government infrastructure development; and non-notified katchi abadis: settlements not to be regularized because they are on
valuable land required for development, or on unsafe lands
156
This 60 percent estimate is from the Orangi Pilot Project, an urban development NGO active in the city. The estimate is on
their website (http://www.oppinstitutions.org/) (last accessed May 10, 2011)
157
Hasan and Raza, 2008.
158
Other non-government led initiatives to integrate the urban poor such as the Orangi Pilot Project (OPP) are also worthy of
notice.
159
Hasan and Raza, 2008
160
USAID, 2008.

62
liable to be delayed. Another issue with KAIRP is the government’s alleged failure to “accept
existing NGO/community built infrastructure.”161

4.32. Slums, on the other hand, are settlements of villages absorbed in the urban sprawl
or the informal subdivisions created on community and agricultural land.162 While tenure
security may be greater in slums than in katchi abadi, they are not usually concerned with
programs to improve living conditions. More than 55 million people, or 71.7 percent of the
country’s urban population, lived in slums in 2005. It is estimated that more children live now in
slums in Pakistan than in non-slums.163 While other countries in South Asia have a larger share
of their population living in slum areas, Pakistan has comparatively experienced a particularly
slow declined in this ratio.

4.33. Pakistan’s slums have common characteristics, such as high poverty concentrations
and lack of access to basic services and infrastructure. An analysis completed by UN-
HABITAT shows that the estimated number of people living in slums will continue to grow
rapidly over the coming decade. 164 . While the proportion of slum dweller over total urban
population in Pakistan is expected to gradually decrease from the 71.7 percent observed in 2005
to 61 percent in 2020, systems for solid waste management, sewerage and sanitation and water
supply are either non-existent, rudimentary and overall inadequate to respond to the current and
future needs of country’s urban population. In a country where existing city administrations
recover barely 50 percent of the solid waste generated even in main metropolitan areas, the scale
of service extension needed to cover non-regularized settlements is considerable.165

4.34. Water is of notable concern for Pakistan’s areas of urban sprawl. Most people living
in katchi abadis and slums do not have an access to clean water. Apart from the obvious
health problems, lack of potable water is leading to social, economic and political
difficulties.166 Karachi is facing particularly acute water shortages, in part due to a dilapidated
water supply and sewerage infrastructure,167 but also due to the population pressure faced by the
mega-city. 168 Capitalizing on the current shortage, a tanker/water ‘mafia’ has mushroomed.

161
Hasan and Mohib, 2008. “The Case of Karachi.” Global Reports on Urban Slums. University College London: London.
162 The slums can also be divided into two types: (a) inner-city, traditional pre-independence working-class areas now densified
and with inadequate infrastructure, and (b) goths or old villages now part of the urban sprawl; those within or near the city centre
have become formal – others have developed informally into inadequately serviced high-density working-class areas.
163
UNFP, 2007.
164
UN-HABITAT, Global Urban Observatory, 2010.
165
Haider, 2006. “Urbanization Challenges in Pakistan. Developing Vision 2030.” National Institute of Urban Infrastructure
Planning: Peshawar, Pakistan.
166 A 2011 report by the Pakistan Council of Research in Water Resources (PCRWR) found that 82 percent of water sources

tested in 24 (of the country’s more than 100) districts across all four provinces provided water that is unsafe to drink. The report
estimated that as many as 250,000 children die as a result of unsafe water.
167
Water losses due to poor infrastructure may be in the order of 30 to 35 percent (IRIN, 2010).
168
In Karachi, two ethno-political parties staged a rally against water shortages in June 2010, which turned violent after police
fired at the protestors, killing two and leaving six injured. The protestors set vehicles on fire and ransacked property. The tension
eased when additional water supplies were brought in from the river Indus, the key source of water for Karachi and the rest of the

63
Apart from 5 official hydrants allowed by the Karachi Water and Sewerage Board (KWSB),
dozens of illegal hydrants alongside the Lyari River, which passes through the city, have
emerged. These hydrants are supplying contaminated subsoil water from the river into which the
city's sewage is pumped.169 Such tensions over water can be expected to increase as population
growth adds to the pressures on Pakistan’s water supply. The UN's Economic and Social
Commission for Asia and the Pacific (ESCAP) estimates that water is likely to emerge as one of
the most pressing problem in Pakistan in coming years due to the high demand for irrigation.170

4.3.3. Urban Sprawl and Road Infrastructure

4.35. Urban sprawl in Pakistan is partially correlated with road transportation. The
observed expansion of slums along the main roads and highways is the result of the
concentration of informal economic activity associated with road transportation, used for both
freight and passenger transportation. Not surprisingly, the increase in the total number of people
living in slums has run parallel to the exponential growth of the freight road transport sector
during the last two decades (Figure 4.3). In most cases, local authorities lack the ability to
anticipate population growth, which in turn may constrain their ability to provide land for the
urbanizing poor. Another contributing factor is the issue of land rights and tenure security, which
tends to be denied to the urban poor, driving people to the periphery of towns and further
contributing to urban sprawl in Pakistan.

province. Karachi, with an unofficial population figure of 15 million, needs about 600 million gallons of water per
day, but the city currently receives only about 435 million (IRIN, 2010).
169
IRIN, 2010.
170 Lieven (2011) argues that Pakistan “can be described as a ‘gamble on the Indus.’” In the context of climate

change this gamble becomes increasingly perilous. Lieven notes that, with an average of 240 mm of rainfall per year,
Pakistan is one of the most naturally arid of the world’s most heavily populated states. Without the Indus River
system and the canals flowing from it, most of the country, including Punjab, would be semi-desert and scrub-forest
as it was before irrigation projects were implemented.

64
 Figure 4.3. Urban Sprawl and Road Freight Transport
Development in Pakistan, 1990-2005171
30 140

Goods transported by roads (million to

129.249
25 120
Slum population (millions)
100
20
26.189
80
15 17.62

km)
60
10
40
5 35.211 20

0 0
1990 2005

Urban slum population Goods transported by road

4.36. The expected improvements in road infrastructure and freight transport policy
reforms and investments are likely to increase job creation mainly in the manufacturing
and service sectors. Since most firms in these sectors are located in or near urban areas, the
availability of new and better-paid jobs in the formal economy will result in greater incentives
for low-income people to migrate from poor rural areas to urban centers. Although these poor
migrants are typically not qualified for the better paid jobs in the manufacturing and service
sectors, the creation of formal and higher-paying jobs in urban centers results in an increased
demand for low-paying jobs for which many of them are qualified. Poor people living in rural
areas that will be lured by these types of lower-paying jobs in the informal economy will likely
populate new or expanded shantytowns located in the outskirts of large urban areas, or slums in
the downtown areas where they would likely find friends and relatives.

4.37. Available evidence indicates that Pakistani cities tend to grow along transport
infrastructure, particularly informal settlements. Therefore, a major potential effect of the
planned reforms is that it may further increase the rate of urban sprawl in a country which suffers
from an already high slum population. In Karachi, katchi abadis initially developed along
railways. Currently, they are expanding to the city’s north and west, partly because that is where

171
Data from World Bank, 2006, and UN-Habitat, 2008.

65
road infrastructure is available. 172 In both Lahore and Faisalabad, the city’s more recent
expansions have taken place in areas that are close to main roads and highways.173

4.3.4. Example of Urban Sprawl: The Case of Karachi

4.38. Karachi illustrates how unplanned urbanization as a result of improvements in

freight infrastructure contributes to slum development, and hence has negative impacts on
living standards. Karachi is the commercial hub and gateway of Pakistan. The city handles 95
percent of Pakistan’s foreign trade, contributes with 30 percent of Pakistan’s manufacturing
sector, and retains 40 percent of the total national employment in this sector. Unsurprisingly, the
city also attracts a large number of economic migrants. In Karachi, densification and spatial
expansion have occurred with little or no developmental planning. Since 1949, five development
plans were prepared for Karachi, but never implemented. Due to the absence of development
plans and the subsequent influx of migrants from within and outside the country, the city has
suffered from a chronic shortage of dwelling units, water supply, electricity and public transport,
among other basic services.

4.39. The shortage of dwelling units has been largely responsible for the emergence of
large number of squatter settlements in the city. About 50 percent of the total population
resides in squatter settlements, in which the socio-economic and the environmental
conditions are dismal. Residents who live in the inner city slums are exposed to air, noise and
water pollution. Those living in peripheral slums lack accessibility to jobs and have trouble
satisfying their basic socio-economic needs. Furthermore, they are captive riders of limited and
low level public transport service which also limits their opportunities.174

172
Hasan and Mohib, 2008.
173
Bajwa, Ahmad, and Khan, 2005.
174
Qureshi, Huapu, and Shi, 2008.

66
 Figure 4.4. Karachi Urban Sprawl175

4.40. The creation and expansion of katchi abadis is now taking place almost exclusively
to the west and north of Karachi. According to Hasan and Mohib (2003), the reasons for this
are: (i) Government land and road infrastructure is available; (ii) these areas are closer and better
connected with employment-generating areas; (iii) they are closer to the larger katchi abadis
where informal industrial activities and large populations provide jobs and a demand for
services; and (iv) in other locations land is privately owned or is controlled by cantonments.

4.41. The urban transportation system of Karachi is mainly road-based. The development
of the city’s infrastructure in also highly inequitable and additional demographic pressure
from migration can be expected to reinforce this in the absence of policy aimed at
addressing this divide. Though Karachi has a railway system known as Karachi Circular
Railway System (KCR), its share in mode split is almost negligible. During recent years Karachi
has undertaken important urban transportation projects.176 However, transportation infrastructure
has so far mainly benefited the high to middle classes while bringing little benefit to the city’s
poor (Figure 4.5).

175
City District Government Karachi, 2007.
176
Construction of Lyari Expressway and Northern Bypass cost US$ 88 million whereas and the elevated expressway and rail
based transit system will cost US$ 225 and US$ 569 million, respectively. Moreover for fiscal year 2005– 2006, the city
government approved US$ 100 million for construction of roads, bridges, flyovers, under passes and other infrastructure projects.

67
 Figure 4.5. Social Groups in Influence Area of Urban
Transportation Infrastructure in Karachi177

4.3.5. Access to Markets and Facilities

4.42. Access to markets may also be modified by reforms in the freight transport sector,
whether through increased connectivity, changes in the trucking sector or the extension of
urban sprawl. In large cities like Karachi and across the Punjab province, wholesale markets for
fruits and vegetables are controlled by the provincial Agriculture Departments through market
committees set up at the district level. Outside of those markets, the local mandi (market) for
fruits and vegetables acts as the central link between producers and consumers. Despite variance
in the size of such markets, there is a relatively standardized model of transactions with precisely
defined roles for key players in the supply chain and a largely uniform set of rules. In Pakistan,
most fruit and vegetable markets are privately owned in the smaller towns and many cities.
Mandi owners can be characterized as commission agents who charge a fixed sum from the
growers for usage of their facility and services. Wholesalers buy in lots through an auction
conducted under the supervision of the mandi owner or his designated lieutenant (sometimes
called a munshi). Having auctioned the goods, the mandi owner (also known as the aarti) pays
off the growers after deducting his commission. The wholesaler (beopaari/tajir) then sells to
individual retailers ranging from fruit and vegetable vendors to shopkeepers in retail markets.

177
City District Government Karachi, 2007.

68
4.43. Changes in freight through reforms may bring changes to the organizations of those
markets with the diffusion of socio-economic effects through the different stakeholders.
More vulnerable actors, particularly from non-farm households and urban poor households, may
need more time to adjust to those changes and thus experience a lag in harnessing the potential
benefits resulting from the improvement of freight and connectivity.

4.3.6. Impacts on Real Estate Markets

4.44. The real estate sector is not fully documented, and officially accounts for less than 2
percent of GDP in Pakistan. Real estate markets are highly cyclical and volatile. 178
Traditionally, real estate has lent itself to a lot of speculative activity. Urban development
and supply of plots for housing and commercial use has been inadequate, and property
prices tend to rise sharply in periods of strong economic activity. The cost of construction
remains very high, and poor regulation in the sector, as well as the lack of a computerized system
of land registration, ensures that property rights are not adequately defined. The state does not
guarantee title to property. Instead property records are used for fiscal purposes, in that the
person mentioned as the owner is presumed to be responsible for payment of taxes on the
property. The problem is particularly acute in urban areas, where there is no unified system of
registration and no single public office responsible for keeping a conclusive record of rights.
Instead, each urban development authority and housing society has its own system of record
keeping, including keeping records of transfers.179

4.45. A poorly regulated and volatile market offers many opportunities of malpractice in
the real estate market in Pakistan. 180 Speculation could further arise from the increased
demand for land and housing resulting from the growth dynamic triggered by the reformed
freight transport sector. Prices of both land and built property in urban areas are likely to increase
in tandem with growth in manufacturing and services and in response to trade and transport
growth. Avoiding malpractice and speculative activity in the real estate market will be as much
of a necessity as it will be a challenge.
4.4. Impact on HIV/AIDS

4.4.1. Status of the Epidemic in Pakistan

4.46. The status of HIV/AIDS in Pakistan can also be expected to be affected by the
greater degree of connectivity, migration, and urbanization, fostered by trade and
transport sector reforms. For now, Pakistan remains a country with a concentrated epidemic

178
Real estate here refers to valuations on land and buildings, including structures of houses, apartments, commercial property,
open space for multiple uses, etc.
179
Kardar, 2007.
180
While reference to ‘land mafias’ exists across Pakistan, Karachi appears to be particularly associated with this land grabbing,
likely due to the high value of land resulting from its development and unmet demand.

69
with prevalence levels consistently reported to be greater than 5 percent amongst Injecting Drugs
Users (IDUs) and cross-dressed sex workers. Pakistan had an estimated 97,400 people living
with HIV at the end of 2009, with 2,917 patients registered in 13 treatment and 7 Prevention of
Parent to Child Transmission (PPTCT) centers across the country, of which 1,320 are on
antiretroviral (ARV) drug therapy.181 IDUs constitute the core group driving the epidemic and
exhibit the highest prevalence of 20.8 percent followed by 6.1 percent among cross-dressed sex
workers and 0.9 percent among Male Sex Workers (MSWs). 182 In Pakistan, although HIV
infection rates among Female Sex Workers (FSWs) 183 remain low at 0.91 percent, there is
evidence of sexual networking between FSWs and IDUs (Table 4.4). Considering the overlap
between IDUs and at-risk sexual networks, the rising HIV prevalence among IDUs increases the
risk of spill-over into networks of commercial sex workers and their clients, particularly along
trade routes.184

Table 4.4. HIV Prevalence by City and High-Risk-Group (in %)185

City / Province IDU MSW Cross- FSW
dressed
Karachi – provincial capital Sindh 23 3.1 3.5 2
Hyderabad - Sindh 30 0 0 0
Larkana – Sindh 28 0.5 27 0.61
Lahore- provincial capital Punjab 15 0.1 2.5 0.98
Faisalabad – Punjab 12 -- 2.5 0.75
Sargodha – Punjab 23 -- -- 1.2
Peshawar – provincial capital NWFP 13 -- 1.2 --
DG Khan – Punjab 19 -- -- --
Overall Study Results 20.8 0.9 6.1 0.91
N=2971 N=1205 N=1186 N=2197

4.47. However, the geographic trend of the epidemic is expanding from major urban
cities and provincial capitals to smaller cities and towns. Although national adult HIV
prevalence in the general population remains under 0.1 percent, exceptions were observed such
as in Gujrat, where 88 HIV-positive cases were found out of a sample of 246 from the general
population that included a large number of ex-migrant workers. Among many factors, one
important factor contributing to this development is unsafe injecting practices in formal and

181
ART Center Progress Report, NACP, 2009.
182
HIV/AIDS Surveillance Program, NACP, IBBS Round III report 2008-9.
183
HIV/AIDS Surveillance Program, NACP, IBBS Round for FSW 2009.
184
Although most new infections originate from injecting drug use, sexual transmission poses a serious issue. Almost 17.7% of
IDUs report buying sex from FSWs, and 13.2% report paying MSW/HSWs in exchange for sex. The daily client average for sex
workers is 4 for FSWs, 1.9 for MSWs, and 2.6 for HSWs with 7%, 6.4% and 4.6% respectively reported having sex with an IDU
in the past six months. Condom use in the last sex with a commercial client by FSWs was admitted at 43.3% and with M/HSWs,
it was reported at 33.1% showing an improvement from 22.5% in 2007 (UNGASS, 2010).
185
HIV/AIDS Surveillance Project Integrated Biological and Behavioral Surveillance (IBBS ) round III and IBBS Female Sex
Workers (FSW) round.

70
informal healthcare settings. The feminization issue of HIV infections among women is also
emerging within marriages (through transmissions by partners), and mother to child transmission
is increasingly probable. Pakistan is considered to be transforming from a low prevalence – high-
risk category of nations, to a concentrated epidemic one. In such a situation, monitoring sexual
behavior amongst long-distance transporters is imperative, as is designing mitigation programs.

4.4.2. HIV and Freight

4.48. Long-distance truckers, assistants, and sex workers constitute a major vector of
HIV/AIDS in Pakistan. The spread of HIV/AIDS through truckers is explained by the time
they spend on the road away from homes and families, and thus free from the social
pressures that constrain sexual behavior within their home communities. The sexual
interactions between these high-risk groups have the potential of spreading HIV/AIDS among a
wider population. Truck drivers, cleaners and assistants remain engaged on long trade routes for
several weeks. 186 When they make stopovers and take breaks during such periods, a high
prevalence of sex providers, both male and female, frequent their stops. Such services mushroom
and grow in tandem with the expansion of trade. The young cleaners who take care of and clean
the trucks may also be sexually exploited by the drivers.

4.49. The National AIDS Control Program (NACP) has developed programs to address
the issue of HIV/AIDS prevention in at-risk groups. NACP in collaboration with the NGO
Family Health International implemented a project to reduce behavioral and biological risks of
HIV transmission among Pakistan’s long distance truckers, cleaners, attendants and associated
population from 2006 to 2009.187

4.50. Reforms in the freight transport sector have the potential to significantly reduce the
risk of HIV transmission. Improved connectivity and the transport sector’s modernization
increased by the participation of railways in moving freight over long distances would decrease
the risk of transmission. In addition, information campaigns would be an important tool to
mitigate the risk of HIV transmission. Information campaigns to prevent HIV spread among
truck drivers have been used in India188 and South Africa.189 In these cases, the intention was to

186
Agha (2002) finds that in the case of truckers, being away from home for more than a month is associated with a higher
likelihood of having had sex with a FSW (45%). The percentage of truckers who had sex with a MSW was higher for truckers
who had been away from home for longer than 1 month on the present trip: 19% of men who had been away from home for more
than a month have had sex with a MSW compared to 9% of men who had been away from home for less than a month.
187
The key components of the project included the following: (a) implementation of appropriate strategic behavioral
communication strategies; (b) provision of condom education and distribution; (c) provision of education on sexual health and
sexually transmitted infections (STIs) along with acceptable, accessible, and appropriate STI services; (d) provision of access to
HIV voluntary counseling and testing services; (e) promotion of enabling environment in the project area; and (f) monitoring the
organization and location of the sex work. The project wrapped up in early 2009 after registering over 72,000 truckers as its
beneficiaries, ensuring availability of condoms at key sites, and overseeing the delivery of primary health care, STI, and HIV
counseling services.
188 Cornman, Schmiege, Bryan, Benziger, and Fisher, 2007. “An information-motivation-behavioral skills (IMB) model-based

HIV prevention intervention for truck drivers in India.” Social Science & Medicine, 64(8), pp. 1572-1584.

71
collect background information and implement a program designed to prevent the spread of
HIV/AIDS. Campaigns to increase risk awareness should emphasize the importance of condom
use as an STI/HIV prevention method, rather than simply as contraception. Interpersonal
communication is likely to be important in convincing truckers that sexually transmitted
infections can be prevented.

Box 1: NACP Mapping of HIV Risk Behavior among Truck Drivers in Pakistan190
(Note. Mean age was 33 yrs and majority of drivers were married, 44 percent of the sample lives at the truck stop
alone or with someone else. Monthly income of most averaged between Rs. 2,500-5,000.)
• Awareness about HIV/AIDS is 81.2 percent, that of STIs is 55.5 percent, and knowledge about two correct
ways of HIV transmission is 40 percent.
• 65 percent have heard of condoms mainly for use in contraception, of which 44 percent believe in its efficacy
in the prevention against HIV/STIs. Most believe they are priced at low or very low levels.
• 19 percent express the view that condom users are at high risk of HIV/AIDS.
• 72.4 percent of drivers and cleaners indulge in extramarital/premarital sex; while of those ever having had sex,
42.3 percent had done so before the age of 21.
• Only 5.2 percent of those having heard about HIV/AIDS had heard of someone living with HIV/AIDS or
having died from it.
• Personal risk perception of STIs and HIV/AIDS is 20 percent and 12.6 percent, respectively.
• Approximately 65.8 percent and 64.5 percent report ever having substance abuse and current abuse,
respectively.
• Substance most commonly used is marijuana or cannabis, followed by alcohol.

Recommendations:
• Interventions aimed at providing information about HIV/AIDS should be more specific and less ambiguous
regarding the modes of transmission and the methods of protections. The messages aired on the electronic
media are the most widely heard and should be more open.
• The risk of acquiring HIV infection in truckers must be emphasized in order to improve the risk perception.
• The Program should emphasize the dual benefit of the use of condoms, which would be best done through
generic rather than branded advertising.
• Program interventions may also include components regarding substance abuse, which may, in the long run,
lead to intravenous drug use.

4.5. Resettlement and Displacement

4.51. Resettlement and the concomitant issues emerge as major social development
concerns whenever there is large scale involuntary land acquisition. 191 This may be a

189
Ramjee and Gouws, 2002. “Prevalence of HIV among Truck Drivers Visiting Sex Workers in KwaZulu-Natal, South Africa.”
Sexually Transmitted Diseases, 29(1), pp. 44-49.
190
The NCAP study consisted of: literature review, mapping of truckers and health facilities, and a qualitative and quantitative
survey conducted in three cities of Pakistan (Karachi, Khanewal and Gujranwala). The qualitative component included 146 in-
depth interviews with truckers and gatekeepers (truck agencies, en-route restaurant/hotel owners/staff, mechanics, truck
association staff, etc.). The quantitative component included a representative sample of the total population at the time of the
intercity truck drivers and cleaners in the three cities. Truck drivers aged 21 or more, cleaners aged 15 or more were interviewed.
The total sample was 821, comprising of 683 drivers and 138 cleaners. Greenstar Social Marketing was contracted by the NACP
to conduct the study. Source: NACP (2005).

72
priority issue in the construction of new roads or railways for transportation192. The Land
Acquisition Act 1894 (with amendments) is the instrument used to acquire land for public
purposes but does not encompass issues of resettlement, relocation, and income livelihood
restoration in cases of losses, nor does it protect persons without land titles, or with usufruct
rights. There is also no national Policy to cover these issues. Resettlement action plans are made
and implemented for projects that are supported by international financing organizations or by
donor agencies, as this is normally a requirement of those organizations. The NHA, for example,
designs and implements involuntary resettlement plans for works financed by the Asian
Development Bank or the World Bank.

4.52. In the absence of donor supported projects in this sector there are usually no
mitigation plans and hence the issues tend to remain unaddressed, particularly impacting the
poor and voiceless who are unable to obtain redressal in the absence of a national law/policy
ensuring the guarantee of this right. In the transport sector (and in most infrastructure programs)
the usual practice is to invoke the urgency clause of the Land Acquisition Act, thereby obviating
the right to appeal and where land can be taken over immediately circumventing the process and
procedures laid out in the Act.

4.53. Safeguarding the rights of land owners who do not have the power or voice, as well
as the landless and those without land titles becomes necessary in order to protect the
vulnerable and prevent further deterioration of the poverty levels of some groups,
particularly where there may be large scale land take for new roads or for significant widening.
Two other interrelated issues are where the design and construction activities may split
communities or restrict access to means of income/livelihood, businesses, amenities, sources of
water, etc. and even divide agricultural lands.

4.54. Resettlement tends to be viewed without adequate consideration of gender and the
rights of those who lack formal land titles. Since women are less visible, the social impact of
road construction is not recognized or acknowledged. The rectification of this view becomes
necessary for a society (such as Pakistan’s) where women lack voice, access and are constrained
due to lack of mobility and purdah (segregation) that constrains them from accessing
compensation for land lost. They are also most likely to lack titles or proof of the tile to the land.
In the absence of deliberate efforts to meet their needs they will remain marginalized. The Land
Acquisition Act (1894) also provides for compensation for assets on the land acquired for those
with title. However, for those without title to land, right to assets and infrastructure on the land is
not guaranteed by the Act.

191
Work on the Faisalabad Khanewal section of the E-4 motorway is currently ongoing with support from the Asian
Development Bank, but the bulk of the investments component has yet to be undertaken.
192
The legal framework governing land acquisition and compensation issues in Pakistan currently is the Land Acquisition Act of
1894, which delineates a process for acquiring land for public purposes, a method for determining the cost of land (based on
location, type and quality of land etc.) It is a provincial law, and each province has its own version, interpretation and procedure.

73
4.55. Displacement of communities is of particular concern for fishing communities who
are likely to be affected by the proposed expansion programs of the two seaports,
particularly in the case of the Karachi Port. There have been instances of tensions between
port authorities and the fishermen community in the past. KPT’s major expansion program
centers on the Keamari area, which also houses a large fishing community. In 2005, KPT had
allowed the fishermen of Keamari to berth their boats at an inlet called China Creek, and had
allowed fishing in adjoining channels. This agreement followed earlier tensions, when fishing
had been banned near Oil Platform 3, which falls in Keamari town. In June 2008, the KPT issued
a new order barring fishermen from berthing at China Creek. The issue was finally resolved in
favor of the fishing communities, but this was only after a sustained media campaign by some
NGOs, and the intervention of the province’s Chief Minister. This had impact on their livelihood
and income.

4.6. Summary

4.56. The proposed reforms for the trade and transport sector will take place in a
complex and evolving socio-political context, characterized by ethnic tensions,
demographic growth, and spatial transformation, among other salient features. While the
proposed reforms will have overall positive effects for Pakistan’s population, they may affect
directly or indirectly some social groups. If the effects are in fact, or are perceived to be,
particularly severe for vulnerable groups such as ethnic minorities, women, youth, or non-farm
rural and urban poor households, they may exacerbate existing tensions. Addressing this risk will
require the development of participatory mechanisms, adequate safeguards, and redress
mechanisms that are available particularly for potentially affected groups.

4.57. The social effects of the envisioned reforms are anticipated to be felt particularly in
geographic areas along the main trade corridors and in urban areas. While Pakistan is
already experiencing a spatial transformation, the proposed reforms are likely to accelerate the
process by facilitating agglomeration economies in urban areas, thereby increasing job
opportunities in those places, while also increasing mobility. Urbanization is associated with a
country’s economic development; however, in the case of Pakistan, the transformation is
anticipated to take place within a short timeframe, thereby increasing already severe negative
externalities, including urban sprawl, congestion, and pollution. Key social problems associated
with geographic areas along the main trade corridors also include a potential expansion of
HIV/AIDS and resettlement and displacement of communities.

74
CHAPTER 5. PRIORITY ENVIRONMENTAL ISSUES ASSOCIATED WITH
FREIGHT TRANSPORT193

5.1. Discussion with stakeholders, and structured and semi structured interviews,
conducted under SEPSA, identified the following priority environmental problems
associated with transport in Pakistan: (i) air and noise pollution; (ii) road safety; (iii)
transport of hazardous materials; (iv) climate change; and (v) habitat fragmentation and
natural resource degradation. This chapter examines these priority environmental problems
associated with transport in Pakistan.

5.1. Air Pollution

5.2. Transport contributes to ambient air pollution, one of the most serious public health
problems in Pakistan.194 195 The main source of ambient air pollution is the combustion of fossil
fuels by both stationary and mobile sources. The transportation sector is in general responsible
for a significant share of the ambient air pollution in urban areas. A 2006 World Bank report
found that more than 22,600 deaths per year are directly or indirectly attributable to ambient air
pollution at the national level. 196 A 2011 World Bank analysis concluded that outdoor air
pollution was responsible for more than 10,000 premature deaths in 2009 in the province of
Sindh alone, with roughly 80 percent of them happening in Karachi.
5.3. Ambient air quality problems tend to be most severe in urban areas where both
population and pollution sources, particularly automobiles and industry, are most
concentrated. By 2006, the effects of urban air pollution on human health (excluding pain and
suffering) in Pakistan had an annual cost of Rs. 62 – 65 billion, or around 1 percent of GDP.197
These costs are likely to be even higher as more recent studies have concluded that lung
infections as a result of air pollution exacerbate the risks and effects of malnutrition in children
and consequently hinder their human development. By 2009, in the province of Sindh, the World
Bank estimated that the cost of urban air pollution was equivalent to 0.9 – 2.2% of the province’s
GDP, particularly due to the health effects of high concentration of damaging pollutants in urban
agglomerations such as Karachi. Particulate matter (PM) released into the air, particularly that
with a diameter of less than 2.5 microns (PM2.5), is one of the primary causes of poor health
outcomes in Pakistan.198

193
This chapter was prepared by Ernesto Sanchez-Triana, Javaid Afzal and Santiago Enriquez. This chapter draws from
consultant reports prepared by Elena Strukova (2008), Bjorn Larsen and John Magne Skjelvik (2011) and Abdula (2010).
194
World Bank, 2006b. “Pakistan Strategic Country Environmental Assessment.” Washington, D.C.
195
World Bank, 2011
196
Ibid.
197
Ibid.
198 Particulate matter is the term for airborne particles, including dust, dirt, soot, smoke, and liquid droplets. Particles can be

suspended in the air for long periods. Some particles are directly emitted into the air. They come from a variety of sources such
as vehicle exhaust, factories, construction sites, tilled fields, unpaved roads, stone crushing, and burning of wood. Particles also

75
5.4. Estimates based on limited available information suggest that mobile sources
(including 2-3 wheelers, cars, trucks, and buses) contribute with a significant percentage of
emissions of fine and ultrafine particles.199 The number of vehicles in Pakistan has increased
rapidly, from less than 2 million in 1991-92, to more than 9.5 million in 2008-09. 200 These
vehicles run on fuels that have high sulfur content, a main ingredient in the formation of
particulate matter. Most fuel in Pakistan has a sulfur level of 5,000-10,000 parts per million
(ppm), a level much higher than Euro II, Euro III, or Euro IV emission standards, which have
already been adopted in some South Asian countries.201 The Government of Pakistan has adopted
a plan to reduce sulfur content in fuels. However, the plan has been delayed because of different
reason.202

Figure 5.1. Legally Binding Sulfur Content in Diesel in Selected Countries

and Average PM10 Concentrations in Urban Centers, 2006203

can be created by atmospheric conversion of SO2 and NOx into sulfates and nitrates. Most measurements of particulate matter in
Pakistan are of total suspended particles (TSP). There is strong scientific evidence that elevated concentrations of fine and
ultrafine particulate matter of less than 2.5 microns (PM2.5) and 1.0 microns (PM1.0) pose an even greater health risk than
particulate matter of less than 10 microns (PM10). However, no systematic monitoring information on PM2.5 or PM1.0 is available
at this time in Pakistan.
199
World Bank, 2011
200
GoP, 2010.
201
World Bank, 2006.
202
New stricter standards are scheduled to be phased in mid-2012.
203
World Bank, 2011.

76
5.5. Although trucks represent a minor fraction of Pakistan’s vehicle fleet, they emit
pollutants of local and global concern. As the number of registered vehicles increases in
Pakistan, so does the level of air pollution in urban areas, particularly in densely populated
metropolitan regions such as Karachi, Lahore, Hyderabad, and Islamabad-Rawalpindi. By 2010,
registered trucks represented from 3 to 3.5 percent of registered vehicles.
Figure 5.2 Number of Registered Vehicles in Figure 5 .3. Carbon Monoxide Emissions from
Pakistan204 Vehicle Fleet (MtCO2)

Figure 5.4. NOx Emissions from Figure 5.5. Suspended Particulate Matter from
Vehicle Fleet Vehicle Fleet

5.6. The ambient air concentrations for fine particulate matter were found to be quite high
relative to the appropriate international standards (Table 5.1). Fine particulate matter
(PM2.5) is well documented to have a robust association with several serious public health effects
(e.g., significant increase in cardiovascular and pulmonary diseases that may result in death or
permanent incapacitation). The limited data that is available indicates that concentrations of
PM2.5 in Pakistan’s main cities exceed by several times the limits recommended by the World
Health Organization (WHO). 205 Analytical work based on research findings by Pope and

204
Pakistan Economic Survey 201-11.
205
World Bank, 2011.

77
Dockery (2006) provides evidence that the most important ambient air contamination problem to
be addressed in Pakistan is particulate matter, especially fine and ultrafine particles.206 207

Table 5.1. Comparison of Pakistan’s Draft National Air Quality Standards with WHO, EU
and U.S. Air Quality Guidelines
Pollutants Time- Pakistan Ambient Air Quality WHO Air EU Ambient USA
weighted Standards Quality Air Quality Ambient Air
average Effective 2010 Effective 2013 Guidelines Standards Quality
Standards
Suspended Annual 400µg/m3 360 µg/m3
Particulate matter Averageb
(SPM)
24 hc 550 µg/m3 500 µg/m3
Particulate Matter Annual 200 µg/m3 120 µg/m3 20 µg/m3 40 µg/m3
(PM10)) Averageb
24 hc 250 µg/m3 150 µg/m3 50 µg/m3 50 µg/m3 150 µg/m3
Particulate Matter Annual 25 µg/m3 15 µg/m3 10 µg/m3 25 µg/m3 15 µg/m3
(PM2.5) Averageb
24 hc 40 µg/m3 35 µg/m3 25 µg/m3 35 µg/m3
1h 25 µg/m3 15 µg/m3 1 µg/m3
Lead (Pb) Annual 1.5 µg/m3 1 µg/m3 0.5 µg/m3 0.5 µg/m3
Averageb
24 hc 2 µg/m3 1.5 µg/m3
Sulfur Dioxide Annual 80 µg/m3 80 µg/m3 85.8 µg/m3
(SO2) Averageb
24 hc 120 µg/m3 120 µg/m3 20 µg/m3 125 µg/m3
Nitrogen Dioxide Annual 40 µg/m3 40 µg/m3 40 µg/m3 40 µg/m3 100 µg/m3
(NO2) Averageb
24 hc 80 µg/m3 80 µg/m3 200 µg/m3 188 85.8
µg/m3
Nitric Oxide (NO) Annual 40 µg/m3 40 µg/m3
Averageb
24 hc 40 µg/m3 40 µg/m3
Carbon Monoxide 8 hc 5 mg/m3 5 mg/m3 10 mg/m3 10 mg/m3
1h 10 mg/m3 10 mg/m3 40 µg/m3
a - Guidelines only given if the averaging period is identical
b - Annual arithmetic mean of minimum 104 measurements in a year, taken twice a week every 24-h at uniform intervals
c - Twenty-four-hour/8h values should be met 98 percent of the year. It may be exceeded 2 percent of the time but not on
consecutive days

206 The most significant health effects of urban air pollution can be attributed to fine particulate matter. Several urban air

pollutants affect human health, including ozone (O3), nitrogen dioxide (NO2), and sulfur dioxide (SO2). However, particulate
matter of less than 10 millionths of a meter (PM2.5) tends to have the strongest association with health effects, and in Pakistan
alone, by 2006, was responsible for approximately 22,000 premature deaths, among many other effects. Particulate matter of less
than 1.0 millionths of a meter (PM1.0) is the most dangerous subset of PM2.5.
207
Pope and Dockery, 2006. “Health Effects of Fine Air Pollution: Lines that Connect.” Journal of the Air & Waste Management
Association, 56, pp. 709-742.

78
 Table 5.2. Estimated Health Impacts of Urban Air Pollution
from Particulate Matter in Pakistan208
Health Categories New Cases Total Annual Costs (PRS Bn.)
Premature mortality 21,791 59-62
Chronic bronchitis 7,825 .06
Hospital admissions 81,312 .28
Emergency room visits/outpatient 1,595,080 .80
hospital visits
Restricted activity days 81,541,893 2.06
Lower respiratory illness in 4,924,148 .84
children
Total 62-65

5.7. Data regarding urban air quality in Pakistan are scarce, dispersed, and not fully
reliable. Comparisons between the annual mean concentrations of PM10 in Pakistan’s main cities
and those of other urban centers of the world must be made with caution because of the
complexities and challenges associated with the measurement of these pollutants. In many cases,
cities have a monitoring network in which concentrations vary widely from one station to
another or from one time period to the next, and thus the mean value may not accurately reflect
the severity of air pollution. The latest available data for Pakistan were collected by means of a
recently installed Air Quality Monitoring Network provided by Japan’s International
Cooperation Agency (JICA). Problems, such as the high concentration of dessert dust during
summer time, contribute to the misinterpretation of collected data and their attribution to
different polluting sources. Furthermore, the concentration of PM2.5, one of the most harmful
pollutants for human health, is currently only being infrequently monitored, and needs to be
included in a continuous monitoring regime.
5.8. As of 2011, there is no systematic monitoring of exhaust emissions or ambient air
quality in large urban centers or in industrial clusters. From 2007 to 2010, the Japanese
government supported the government establishing an air quality monitoring network in the main
cities. 209 However, administrative and budget problems have disturbed the functioning of the
monitoring network. By early 2010, restricted budget support had been reported for the JICA-
funded stations, which impacted the availability of trained personal, maintenance parts, and
consumables. There is no quality control or quality assurance or auditing of the monitoring and
evaluation program to verify accuracy of results. Furthermore, the data that is generated has not
been used to identify or prioritize interventions.

208
World Bank, 2006.
209
JICA, 2010.

79
5.9. Environmental regulation in Pakistan is lax compared to most other countries, and
regulations tend to be confusing and enforced erratically. In the 2004-2005 World Economic
Forum rankings, Pakistan was the worst ranked country in terms of clarity and stability of
environmental regulations and second to last worst country in terms of stringency of regulations.
Lack of business considerations to environmental issues has increased pollution levels in key
industries (Table 5.3).210

Table 5.3. Environment and Competitiveness in Pakistan, 2004-2008

2004-05 2005-06 2006-07 2007-08
out of 104 out of 117 out of 125 out of 131
countries countries countries countries
Stringency of environmental regulations 103 93 77 68
Clarity and stability of regulations 104 94 65 -
Extent of government-mandated environmental reporting 75 95 - -
Importance of environment in business planning - 51 - -
Protection of ecosystems by business - 104 95 -
Prevalence of corporate environmental reporting 85 74 - -
Prevalence of environmental management systems 24 - - -
Prevalence of environmental marketing 90 - - -
Importance of environment management for companies 102 - - -
Importance of environment in business planning 84 51 - -
Prioritization of energy efficiency 94 43 - -
Compliance with environmental international agreements 97 - - -
Prevalence of socially-responsible investing 103 - - -

5.10. By mid 2012, the organizations charged with the implementation of the existing
legal and regulatory framework had ambitious mandates but insufficient staff, small
budgets, low political prestige, and high staff turnover rates. As a result, the enforcement of
mandatory regulations is lax, and stricter penalties that are sometimes available in the laws are
almost never imposed due to, among other reasons, a deficient regulatory framework, a poor air
quality monitoring system, and the lack of technical capacity to provide sound evidence of
infractions.211
5.11. The organizational structure of the Ministry of Environment (MoE), which was
dissolved in 2011, did not respond to the magnitude and complexity of air quality issues in
Pakistan. The Pakistan Environmental Protection Agency (Pak-EPA), responsible for
implementing the Pakistan Environmental Protection Act in the national territory, does not have
the necessary resources to carry out its mandates with regard to air quality management. A broad
range of environmental functions, many related to air quality management, was recently
delegated to provincial environmental authorities, as a result of the 18th Constitutional

210 Global Competitiveness Report 2005-2006, pp. 616-617.

211
World Bank, 2011.

80
Amendment. None of the national or provincial authorities has sufficient means in terms of
trained staff and budget for air pollution control.212
5.12. Pakistan lags behind other regional countries in the implementation of air quality
management activities. A review of air quality management interventions in China, India,
Bangladesh and Sri Lanka confirms the gaps and weaknesses in Pakistan’s implementation of air
pollution control interventions. The lag is especially apparent in the essential air quality
measurement pillars—setting, defining and enforcing standards—that form the basis for so many
other targeted interventions, including constituency building. These regional initiatives plus
international good practices might become benchmarks for a Pakistan Clean Air Program.
International experiences confirm that regional (and global) air quality management solutions
exist and have been implemented elsewhere by governments facing challenges and problems
similar to those confronting Pakistan.213

5.13. The economic damages caused by particulate matter emissions are higher in
Pakistan than in the rest of South Asia. In addition, these costs have increased during the last
years, in a period when countries such as India, Sri Lanka, Bhutan, and Nepal have taken steps to
improve urban air quality (Figure 5.6). The contrast is even starker when Pakistan is compared to
other developed and developing countries that have introduced measures to reduce urban air
pollution.
Figure 5.6. Particulate Emission Damage in Selected Asian Countries,
2001 and 2007 (% of GNI)214

212
World Bank, 2011.
213
Ibid.
214
Clean Air Initiative, 2010.

81
5.14. Poor environmental regulation has severe consequences for Pakistan. These are,
among others, poor ambient quality (especially in urban areas), further destruction of valuable
natural resources, and a disproportionate burden of disease on the poor and vulnerable
communities, especially women and children, and an excessive judicialization of the
environmental permitting process.215
5.15. Modernization of the trucking sector as well as a modal shift from the trucking
sector to railways sector (which will be discussed in further detail later on in this report)
will help reduce the number of trucks on the road, thereby contributing to reduced air as
well as noise pollution. The main objective of modernizing the trucking sector is to replace the
polluting and under-powered small trucks with larger more modern feet that are fuel-efficient. A
multimodal freight transport system, in which rail covers distances longer than 500 km and is
complemented by trucking at the origin and destination, will reduce the number of long-distance
trucks on the road. This reduces emission of air pollutants by trucks in urban and rural areas, and
improves ambient air quality with beneficial impacts to public health.

5.2. Noise Pollution216

5.16. The recognition of noise as a potential serious health hazard as opposed to a

nuisance is a recent development. The health effects of excessive and loud noise exposure
are now considered to be an increasingly important public health concern. Besides its
harmful effects in the ears, noise can cause sleep disturbances and interfere with speech.
Excessive noise levels may permanently or temporarily damage ears, and lead to an increase in
aggressive behavior and other psychiatric conditions. Analysis by the World Health Organization
confirms that persistent noise stress increases the risk of cardiovascular disorders, including high
blood pressure and ischemic heart disease. Babisch (2006) provides a meta-analysis that derives
a common risk curve for the relationship between road traffic noise and myocardial infarction
incidence.217

5.17. There are no national standards for determining noise limits for residential,
industrial, and commercial areas, or silence zones in Pakistan. The National Environmental
Quality Standards (NEQS) for Motor Vehicle Exhaust and Noise apply only to noise emanating
from motor vehicles, and there are no standards for noise generated from trains, airplanes,
airports, or industrial/construction activities. Road traffic noise is a major source of noise
pollution in urban areas in Pakistan.

215 World Bank, 2007; World Bank 2011.

216
Environmental noise (also called residential noise or domestic noise), is defined as noise emitted from all sources, except
noise at the industrial workplace. The main sources of environmental noise include: (i) road, rail, and air traffic; (ii) construction
and public works; and (iii) the neighborhoods, (i.e. noise from discos, sporting events, car parking lots, restaurants etc).
217
Strukova, 2008.

82
5.18. Noise levels in most urban locations are well above the WHO recommended
limits.218 According to Pak-EPA, although some random surveys have been carried out in the
last decade, there is no national monitoring system of environmental noise levels in cities. Table
5.4 presents the results of five surveys carried out between 2001 and 2003; the findings of these
tests indicate that the noise levels in most urban locations are well above the WHO
recommended limits.
Table 5.4. Noise Levels in Major Cities in Pakistan219
City Max. recorded noise Min. recorded noise Average
level level
dB(A) dB(A)
Gujranwala1 100.0 41.0 72.5
Faisalabad1 100.0 47.0 72.0
Islamabad2 104.5 47.0 72.5
Rawalpindi3 108.5 48.0 72.5
Karachi4 88.9 62.4 76.5
Peshawar5 78.5 68.2 86.0
Years of the surveys: 1. (2003); 2. (2002); 3. (2002); 4. (2002); 5. (2001)

5.19. By November 2006, in Rawalpindi (five locations) and Islamabad (three locations),
the daily maximum and daily equivalents were higher than the maximum allowed limit of
85 dB (A) of the NEQS for motor vehicle noise at 7.5 meters from the source220. The highest
noise level of 98 dB (A) was found near the Pirwadahi General Bus stand, from where inter-city
and intra-city heavy traffic operate all the time (24 hours). The daily equivalent level for this
location was 97.1 dB (A), well above the NEQS limit. The second highest noise level location,
97 dB (A), was found near Choare Chowk, at Peshawar road, in Rawalpindi. Data from Sindh
indicate that a significant number of urban locations face continuous noise levels well above the
WHO-used threshold of 55 dB(A) above which noise levels cause cardiovascular disease and
cognitive impairment in children, and a threshold of 45 dB(A) above which noise levels cause
sleep disturbance and annoyance.221
5.20. Analytical work carried out by the World Bank in Punjab found that, in 2008, the
mean estimated annual cost of noise pollution in the province was Rs. 8 billion (Fig. 5.7).
Health costs were mostly associated with ischemic heart disease. Total Disability Adjusted Life
Years (DALYs) loss is broken down into two separate losses: (i) mortality and morbidity losses
from ischemic heart disease (80 percent) and, (ii) hearing loss (20 percent). Annual new cases of

218 The WHO Guidelines for environmental noise in outdoor living areas is as follows: serious annoyance, in daytime and
evening: 55 dB (base time = 16 hours) and; moderate annoyance, daytime and evening: 50 dB (base time = 16 hours).
219
Pakistan Environmental Protection Agency, 2005 “Position Paper for Environmental Quality Standards of Noise in Pakistan.”
220
Pakistan Environmental Protection Agency, 2006. “Measurement of Noise Level at Different Locations of Rawalpindi and
Islamabad.” Available at: http://www.environment.gov.pk/PUB-PDF/Noise%20Study%20Isb-Rpindi.pdf.
221
Skjelvik and Larsen, 2011.

83
ischemic heart disease and the mortality associated with it and annual hearing loss in terms of
DALYs from noise pollution was calculated to be 26,619.222

Figure 5.7. Annual Cost of Environmental Health Effects (billion Rs. per year)223
100

90

80

70

60
BillionRs.

50

40

30

20

10

0
Water Supply, Indoor Air Lead Outdoor Air Noise Municipal
Sanitation Wastes
and Hygiene

5.21. The implementation of the new trucking policy that modernizes the trucking sector
and upgrades road infrastructure will reduce noise levels in urban areas. The substitution of
the existing old, poorly maintained, and noisy trucks for newer models that are more fuel-
efficient would reduce the noise emanating from them. Moreover, the upgrading of road
infrastructure and the construction of roads with smooth-surfaced pavements would reduce
noises when truck tires come in contact with pavements.
5.22. Another study carried out by the World Bank found that road traffic noise had a
cost of Rs. 25.8 billion in the province of Sindh. Road traffic noise in cities with a population
of more than 100 thousand in Sindh is the cause of 13-19 percent of ischaemic heart disease
mortality and 16-21 percent of cerebrovascular mortality in these cities. In addition, 31-43% of
children (6-15 years of age) have noise induced cognitive impairment, 10-13 percent of the
population is highly sleep disturbed as a result of noise in these cities. About 58 percent of the
cost of road traffic noise is associated with morbidity, while the remaining 42 percent is caused
by premature mortality.

222
A detailed description of the methodology used to estimate the annual cost of environmental health damages
associated with noise can be found in the consultant report Strukova (2008) commissioned by the World Bank
223
Strukova, 2008.

84
5.3. Road Safety

5.23. According to estimates by the WHO, in 2007 the total number of road fatalities in
Pakistan equaled 41,494. In relative terms, this implies a rate of 25.3 deaths per 100,000
inhabitants. In the rest of South Asian, the observed rates range from 12.6 – 18.3 (Table 5.5). In
contrast, the observed rates in industrialized countries ranges between 5 and 10 fatalities per
100,000 inhabitants (Figure 5.8). Pakistan’s rate is also higher than many other developing and
middle income countries around the world.

Table 5.5. Road Traffic Deaths, Population and Road Traffic Death Rate in the South Asia
Region224
Road Traffic Deaths Population (2007) Road Traffic Death Rate per
100,000 population
Bangladesh 20,038 158,664,959 12.6
Bhutan 95 658,479 14.4
India 196,445 1,169,015,509 16.8
Maldives 56 305,556 18.3
Nepal 4,245 28,195,994 15.1
Pakistan 41,494 163,902,405 25.3
Sri Lanka 2,603 19,299,190 13.5

224
World Health Organization, 2009, Global Status Report on Road Safety: Time for Action. Geneva (Table A2).

85
 225
Figure 5.8. Estimated Number of Road Traffic Deaths per 100,000 Inhabitants, 2007

5.24. Cross country differences in road traffic fatality rates can be associated with a series
of explanatory factors such as traffic density, the quality of roads, and road density (Figure
5.9). A first look at the relationship between traffic density and fatality rates shows that
industrialized countries manage to keep low levels of mortality despite the high number of
vehicles on the road. In contrast, in developing countries like Pakistan, relatively low levels of
vehicle density do not necessarily bring the number of road fatalities down. A plausible
explanation for that might be found in the quality of roads. The share of paved roads shows a
quite significant negative correlation with the level of road fatalities. However, Pakistan suffers
from very high road mortality rates despite ranking among the mid-upper countries in terms of
the share of paved roads. The level of road density, measured as the rate between total road
length and the overall national surface is a highly significant explanatory variable of fatality rates.
However, when examining only the subset of low and middle-income countries the simple
correlation is almost insignificant.

225
WHO, 2010.

86
 Figure 5.9. Correlation between Total Road Traffic Deaths and Several Explanatory
Factors226

5.25. According to official data, the total number of road accidents, fatalities, persons
injured, and severity of accidents seems to have remained steady from 2000 to 2010.227 The
total number of reported accidents was 10,644 in 2008, which implies a cumulative growth rate
of 10.2 percent with respect to 1998. However, the general trend over the last decade has been
rather stable with around 10,000 accidents occurring a year. The same pattern can be observed
for the total number of fatalities, which from 2000 to 2010 has been fluctuating around an
average of 5,200 (5,622 in 2008) (Figure 5.10). Since the traffic growth rate has been increasing
over this period, the accidents per million vehicle-km of travel and per 1000 vehicles have been
decreasing. However, available data is not fully reliable and there is evidence of significant
under-reporting.

226
WHO, 2010; World Bank, 2010, and Ministry of Finance of Pakistan, 2010.
227
Data collected by the provincial police departments only capture the small share of the actual number of road crashes that are
reported to the authorities. However, for the purpose of examining long-term trends, the time series are still valid, assuming that
the reporting capacity has remained constant over time.

87
Figure 5.10. Number of Road Accidents, Fatalities and Injuries in Pakistan, 1998 to 2008228

5.26. The traffic density rate has experienced a dramatic increase from 14.8 vehicles per
km of road in 1998 to 36.4 in 2008. This is due to the fact that the number of vehicles
circulating has grown during recent years (from 3,651,000 in 1998 to 9,413,800 in 2008) while
the overall road length has increased by only 4 percent. This outcome, together with the high
population growth in Pakistan, has lead to a significant increase of the number of road
passengers (70.8 percent cumulative growth rate for the 1998-2008 period).

228
Federal Bureau of Statistics, 2009; Ministry of Finance of Pakistan, 2009.

88
 Figure 5.11. Evolution of Total Accidents, Road Length, Vehicles on Road
and Population in Pakistan (1998=100)229

Figure 5.12. Evolution of Accidents per Inhabitant, Rate of Paved Roads,

Traffic Density and Road Passengers in Pakistan (1998=100)230

5.27. Khyber Pakhtunkhwa shows the highest incidence of accidents and fatalities per
100,000 inhabitants. The regional disparities in the number of accidents per 100,000 inhabitants
are quite significant, ranging from 4.7 in Sindh to 13.6 in Khyber Pakhtunkhwa, respectively (see

229
Ibid.
230
Federal Bureau of Statistics, 2009; Ministry of Finance of Pakistan, 2009.

89
Figure 5.13). However, the relative number of fatalities is rather homogeneous across regions
(4.4 in Khyber Pakhtunkhwa and 3.2 in Sindh as the extreme values). There are also significant
regional disparities in terms of severity of accidents. Sindh is the region with the highest rate of
fatal accidents, as well as in the number of fatalities per accident. Khyber Pakhtunkhwa is the
least hazardous province in Pakistan in terms of accident severity (Figure 5.14).
Figure 5.13. Number of Accidents and Fatalities per 100,000 Inhabitants
in Pakistani Provinces, 2007-08231
16
13.6
14
12
10
8 7 6.4 5.7
6 4.7 4.4
3.7 3.8 3.2 3.6
4
2
0
Accidents per 100 000 inhabitants Fatalities per 100 000 inhabitants

Pakistan Punjab Sindh Khyber-Pakhtunkhwa Balochistan

Figure 5.14. Percentage of Fatal Accidents and Number of Deaths per Accident
in Pakistani Provinces, 2007-08232
80%
70% 64%
58% 60%
60% 54%
49% 48%
50% 44%
40% 33%
30% 26%
20%
10%
0%
Percentage of fatal accidents Killed per accident

Pakistan Punjab Sindh Khyber-Pakhtunkhwa Balochistan

5.28. In addition to pain and suffering, road accidents generate significant economic costs.
In Karachi, pedestrians and motorcyclists represented 43 and 32 percent of accident fatalities,

231 Federal Bureau of Statistics, 2009.

232 Federal Bureau of Statistics, 2009.

90
respectively.233 The limited information that is available suggests that a significant share of road
accidents and fatalities in Pakistan involved a truck, even though these vehicles comprise only
around 3 percent of the vehicle fleet.234 The record for trucks might be better than buses and cars,
but it is still extremely poor. The cost of road accidents in Sindh is estimated to represent around
1.15% of the province’s GDP.235
5.29. The pain, suffering and economic costs caused by road accidents may be
significantly more severe than official estimates suggest. Several studies carried out in
Karachi indicate that the actual number of deaths and injury caused by road accidents may be
two or more times higher than those reported in police recordings. A study conducted under
SEPSA estimated that in 2009, in the province of Sindh, road accidents (associated with all kinds
of vehicles) caused 1,800–2,200 deaths, 5,400–6,600 cases of permanent disabilities, 59,000-
105,000 other serious injuries, and 423,000-474,000 minor injuries. The cost stemming from
these accidents is equal to Rs. 42.6 billion per year. The largest costs are those related to
permanent disability (Rs. 23.4 billion), fatalities (Rs. 9 billion), and serious injuries (Rs. 7.7
billion).236

5.30. Poor road conditions, inadequate driving practices and poor vehicle maintenance
are key variables affecting road safety (Figure 5.15). Pakistan does not have a solid
information base on road safety, including the main causes behind its high accident rate.
However, available reports suggest that key risk factors include poor road quality and lack of
appropriate signage. In addition, the trucking sector is likely to be involved in a
disproportionately high number of accidents because of practices such as overloading, poor
condition of trucks, poor driving skills, and driver exhaustion as a result of driving long hours.237
Until recently, obtaining a driver’s license to drive a freigh truck in Pakistan did not require
formal training or testing of the driver’s skills and health. In fact, the process involved just a few
formalities with the provincial authorities. 238
5.4. Hazardous Waste Transportation

5.31. By stimulating trade and economic growth, freight transport reforms will
contribute to the acceleration of the industrialization process in Pakistan and also increase
the use of many types of chemicals and other hazardous products being transported. Many
industrial sectors (i.e. leather processing, pulp and paper, etc.) are heavily dependent on many
chemicals during production, and some of them are very dangerous to public health. According
to Oggero et al.239 in a study of 1,932 accidents that occurred in the world during the transport of

233
Ahmed, 2007.
234
World Bank, 2006a.
235
Larsen and Strukova, 2011.
236
Skjelvik and Larsen, 2011.
237
Ahmed, 2007; World Bank, 2006a.
238
Government of Pakistan, 2007a.
239 Oggero et al., 2005. “A survey of accidents occurring during the transport of hazardous substances by road and rail.” Journal

of Hazardous Materials, 133(1-3), pp. 1-7.

91
hazardous substances by road and rail from the beginning of the 20th century to July 2004,
roughly 63 percent of accidents occurred on roads.
5.32. Pakistan, like most developing countries, has not yet developed a national
framework to manage the transportation of hazardous materials. Moreover, there is very
little reliable data regarding the transport of hazardous materials in Pakistan. Poor management
of environmental waste leads to serious environmental implications. An example of a deadly
accident involving transport of hazardous materials in Pakistan was the leakage of poisonous
chlorine gas on January 8, 1997. The Hazardous Substances Rules of 2003, which were adopted
in the framework of the Pakistan Environmental Protection Act 1997, regulate the transportation
of hazardous substances. The Rules are very general, and while they do cover aspects such as
packing and labeling of hazardous substances, general safety precautions, and notification of
major accidents, they do not provide specific details on how it should be implemented. Findings
of the analysis of the transport of hazardous material include:

• Overall lack of regulations pertaining to the transport of hazardous materials;

• Absence of standards for vehicles used to transport hazardous materials;
• Outdated information on new chemicals/substances that are transported on Pakistan’s
roads and railways; no information on who should be responsible for periodically
updating the list of substances;
• Legal responsibilities are unclear, and poor institutional capacity to regulate the transport
of hazardous materials;
• Lack of maps of the most travelled routes in Pakistan used in the transport of hazardous
materials, or identification of the most dangerous products transported on them.
• Lack of resources to enforce regulations pertaining to the transport of hazardous
materials; and
• Weak institutional capacity of National Highway and Motorway Police, urban traffic
police agencies, or local fire departments, which do not have the knowledge, training, or
resources required to enforce the necessary regulations regarding the transportation of
hazardous materials.
5.5. Climate Change

5.33. Pakistan’s emissions of greenhouse gases (GHG) are relatively small, but have been
growing and are anticipated to increase at high rates over the coming years. In 2007-08, the
transport sector contributed to 21 percent of the energy sector’s emissions.240 241 Most of the

240
GoP, Planning Commission, 2010.
241
Climate change might negatively affect Pakistan, including its main transport and trade corridors. Extreme
natural events, such as floods, droughts and cyclonic activity in coastal areas, are expected to increase in frequency
and intensity over time. In the country’s main transport arteries (such as highways N-5 and N-55), increased river
flows resulting from glacier melt, coupled with increases in rainfall, are likely to result in flooding of roads in the
medium term, particularly in areas along the Indus River, including National Highways N-5 and N-55.

92
sector emissions originate from road transportation, which consumed about half of the country’s
total petroleum products during 1997-98 to 2006-07. GHG emissions from railways were only
0.17 percent of total transport carbon emissions in 2006-07. Such minor contribution is a result
of both rail’s small percentage in freight and passenger transport, as well the differences in
emissions between road and rail. Road transports emit an average 0.17 TgCO2eq/billion ton-kms,
compared with railway transport’s emissions of 0.02 TgCO2eq/billion ton-kms.
5.34. Estimates based on GDP future trends suggest that transport demand for freight
will increase steadily in the coming years and will hence increase GHG emissions. Table 5.6
below summarizes projections of freight transport demand and expected GHG emissions, under
the assumption that the road sector remains the main mode of freight transport. The projections
are based on emission factors from the US, and therefore, should be considered as a conservative
scenario. The results clearly indicate that in future years, the road sector will generate the lion’s
share of emissions. For example, in 2030-31, total TgCo2eq emissions for road transport are
anticipated to be 90.17, compared with 3.05 for rail.

Table 5.6. Projections of Freight Transport Demand and GHG Emissions

Freight, In Mn ton-km TgCO2eq
Year Total Road Rail Total Road Rail
2010-11 207,881 197,107 10,774 33.7 33.51 0.22
2015-16 293,268 254,086 39,184 43.98 43.19 0.78
2025-26 530,037 412,976 117,061 72.55 70.21 2.34
2030-31 682,787 530,433 152,354 93.22 90.17 3.05

5.35. An assessment of three alternative scenarios on road/rail mode split shows that:
• If the current split mode in inland freight transport remains (96% road and 4% freight)
annual emissions will amount to 48 TgCO2eq by 2025. Diesel consumption (billions
liters/year) would be 5.97 by 2025 (see Figures 5.15 and 5.16).
• If the current split mode in inland freight continues to favor road (86.7% road, 13.3%
rail)242 annual emissions will be reduced to 43.1 TgCO2eq by 2025. Diesel consumption
(billions liters/year) would be 5.5 by 2025.
• If the current split mode for inland freight changes to favor rail freight (70% road, 30%
rail), annual emissions will be reduced to 36.8 43.1 TgCO2eq by year 2025 (23.3 percent
reduction or a reduction of about 11.2 million tons of GHG discharged into the
atmosphere). Diesel consumption (billions liters/year) would be 4.7 by 2025.
5.36. These results indicate that shifting towards investments in rail most greatly reduces
GHG emissions and diesel consumption.

242
This split mode change most closely resembles current freight transport improvement initiatives in Pakistan.

93
 Figure 5.15. Estimated GHG Emissions (TGC02Eq) by 2025
teragrams of carbon dioxide equivalent under Different Policy Options243

60
48
50 43.1
36.8
40
(TGCO2Eq)

30
20
10
0
No Project (96% Road, 45% Rail) Current Freight Transport Policy Emphasizing Improvements
Programs (86.7% Road, 13.3% in Rail Freight (70% Road, 30%
Rail) Rail)
Policies

Figure 5.16. Estimated Diesel Consumption (Billions of Liters/Year)

by 2025 under Different Policy Options
7
5.97
6 5.5
4.79
5

0
N o Pro ject (96% Road, 45% Rail) C urrent F reight T ransport Program sPolicy Emphas izing Im provem ents
(8 6.7% Road, 13.3 % R ail) in Rail Freigh t (70% Road, 30%
Rail)
Po licies

5.37. The above finding is in line with studies244 that indicate that rail has the lowest
environmental impacts, in terms of air pollution, CO2 emissions, safety, capacity and noise,

For a detailed description of the methodologies used to estimate emissions of GHG and diesel fuel consumption see the
consultant report prepared by Miglino, 2011 for the World Bank. See: UIC, 2011. Loubinoux, 2011, “Green Logistics.”

94
relative to other modes of transport (Figure 5.17). Transport accounts for over 50 percent of
world consumption of fossil fuels; within transport, rail accounts for 2 percent of CO2 emissions,
and road accounts for 73 percent. The study finds that relative to road, rail is a lower carbon
transport mode and has fewer environmental impacts. Rail is also considered to be a safer
transport mode and a very resource efficient mass transport system.
Figure 5.17. Average Environmental Costs of Different Transport Modes245

5.6. Habitat Fragmentation and Natural Resource Degradation

5.38. Pakistan’s ecosystems already face significant threats and these could be aggravated
by direct, indirect, induce growth and cumulative impacts associated with the expansion of
transport infrastructure. Forests, wetlands and other ecosystems are home to an important
biodiversity and provide a range of ecosystem services that are crucial for Pakistan’s economy.
Wetlands are particularly important to Pakistan, as they provide livelihoods to communities and
offer protection against floods, which recurrently affect the country, as evidenced by the severe
floods of 2010 and 2011. In total, 220 wetlands are categorized as Significant Wetlands in the
Indus Watershed, including 42 Protected Wetlands (1,479,794 ha) and four additional Ramsar
sites (60,646 ha) that do not have protected status.
5.39. Pakistan faces the highest deforestation rate of Asia, at 2.1 percent. Between 1992
and 2001, the country’s forest land decreased from over 4.24 million hectares to 3.44
million hectares. Induced and cumulative impacts of transport infrastructure development have
been associated with deforestation in Pakistan. Deforestation is highest in the Indus Delta
mangroves, with an annual rate of 2.3 percent, compared with a rate of 1.99 percent for
coniferous forests and 0.23 percent for riverine forests. The main drivers of deforestation during

245
INFRAS/IWW, External Costs of Transport, 2004.

95
the last decades have included: (i) the destruction of, or encroachment on, habitats due to the
expansion of settlement and cultivation fields, decreasing water availability and flood control
protection services; (ii) deforestation of gallery forests; (iii) interference with natural flood
processes and connections between the river and natural lagoons and other wetlands; (iv)
pollution of rivers and streams from untreated sewage discharges and untreated industrial
effluents; and (v) lack of appropriate management plans and skilled personnel. Currently, there is
no clear policy to arrest deforestation, much of which is driven by governmental initiatives.

5.40. The potential effects of the expansion of transport infrastructure on ecosystems

include habitat fragmentation, wetland destruction and induced increases in deforestation
as roads facilitate access to these natural resources. Areas that would be particularly
susceptible to increased deforestation include the Indus Watershed and its tributaries, as well as
its affluents’ gallery forests and wetlands. In the past, wetlands have also been drained and
destroyed in order to build dykes.
5.41. Degradation and destruction of these ecosystems would have significant implications,
including heightening Pakistan’s vulnerability to extreme weather events. The floods that
affected Pakistan in 2010 alone caused damages estimated at US8.74-10.85 billion, 246 while
those of 2011 also resulted in a significant loss of lives, property and assets. While the floods
were initiated by a natural phenomenon, anthropogenic interventions exacerbated their impact,
particularly as destruction and degradation of natural ecosystems reduced the capacity of natural
vegetation to provide flood protection services. In addition, the development of settlements and
croplands in flood plains and riverbeds, along with sole reliance on embankments and other
types of inadequate flood protection measures, created the conditions for the human tragedy.
5.42. The effective and efficient use of Environmental Impact Assessment (EIA) could
inform decision-making and identify alternatives to reduce or mitigate the negative effects
of transport infrastructure development, including those related to habitat fragmentation
or deforestation. EIA was first introduced in Pakistan in 1983 and was later strengthened under
the Pakistan Environmental Protection Act of 1997 and the EIA regulations of 2000. Despite its
use for more than 20 years in Pakistan, EIA still faces a number of shortcomings, including
problems in screening and scoping, insufficient public participation, poor quality of
environmental assessment reports, and weak capacities of environmental authorities to review
environmental reports and monitor compliance with the conditions of the environmental
authorization.247 A 2008 review found that “EIA is used presently as a project justification tool
rather than as a project planning tool to contribute to achieving sustainable development.”248

246
Government of Pakistan, Asian Development Bank, and The World Bank, 2010, “Pakistan Floods 2010: Preliminary Damage
and Needs Assessment”.
247
Nadeem and Hameed, 2008, “Evaluation of environmental impact assessment system in Pakistan”, Environmental Impact
Assessment Review 28 (2008) 562-571.
248
Ibid, p. 562.

96
5.43. To summarize the analysis presented in this chapter, improvements in Pakistan’s freight
transport sector are likely to have both positive and negative impacts on environmental indicators
(see Table 5.7).

Table 5.7. Potential Environmental and Social Effects on Priority Environmental Issues249
Priority Issues Potential Positive and Negative Effects of Freight Transport Programs
Air Quality and • Reduction in the emission of air pollutants by trucks in urban and rural areas;
Noise • Improved ambient air quality and noise levels in urban areas with beneficial
impacts on public health.
Transport of • Improved response capacity to accidents (prevention and management);
Hazardous • Reduced number of accidents and spills (road and railway);
Materials • Reduction in the number of injuries/fatalities and property losses;
• Improved environmental quality near ports, airports, and along transport
corridors.
Road and Railroad • Better road safety conditions;
Safety • Reduction in the rates of road accidents;
• Potential increase in the rate of road accident fatality due to increase in average
speeds;
• Better railway traffic safety, particularly at critical track-crossing points.
Climate Change • Reduction in the emission of air pollutants and greenhouse gases (GHG), due to
the reduction in: (i) number of trucks on the roads; (ii) traffic gridlocks and
accidents; and (iii) use of fossil fuels;
• Increased country adaptation capacity to climate change.
Habitat • Potential habitat fragmentation, wetland destruction and induced deforestation
Fragmentation and • Increased vulnerability to natural disasters
Natural Resource
Degradation

249
Although some of the potential effects can be classified as beneficial or adverse, others can be either one, depending on
specific project characteristics or operational conditions. As an example, better designed and constructed roads might increase
average road speeds, reduce transit time, and decrease the total number of accidents, but increase the fatality rate of accidents due
to the increase in the average speed.

97
CHAPTER 6. POLICY OPTIONS FOR ENVIRONMENTALLY AND SOCIALLY
SUSTAINABLE TRADE AND TRANSPORT250

6.1. The inefficiencies of the transport sector make up increasing costs to Pakistan’s
economy. To realize the targeted 7 to 8 percent annual growth rate, there is a need for
developing a sustainable transport system that will allow Pakistan to gain a competitive edge by
making supply chains more efficient and reliable for the transport of goods to and from industrial
clusters. While within-sector reforms are identified to reduce inefficiencies in individual freight
sectors, the over-arching approach focuses on promoting integration and complementarities of
freight transport modes to improve efficiency, reduce the cost of doing business, and efficiently
link other sectors of the economy with each other without sacrificing major shares of GDP to
environmental externalities. An efficient logistics system serves as a key catalyst for enhancing
industrial growth to allow Pakistan to rapidly evolve into a globally competitive economy.251 In
an era which demands on-time delivery, these induced costs can even affect countries’ potential
to diversify from time-intensive commodities. The challenge herein is creating a transport and
logistics system that combines the competitive advantages of different modes into one integrated
system. In light of rail’s more socially and environmentally sustainable characteristics and its
competitiveness in long distances over road freight, shifts in policy reforms are likely to be
needed for Pakistan to enhance the sustainability of its freight transport system in the long term.
Failure to integrate a multimodal transport system would have adverse consequences for Pakistan,
including lack of competitiveness and the ensuing difficulties in meeting the country’s
development objectives, and increased social and environmental costs.

6.2. This chapter identifies sectoral opportunities for improving the environmental and
social sustainability of the freight transport system. Enhancing positive impacts and reducing
negative impacts requires stronger institutional capacity of sectoral and regulatory agencies and
measures that safeguard the wellbeing of groups that may be potentially harmed during transport
projects.

6.1. Multimodal Transport System

6.3. Pakistan’s freight transport system could adapt to the “era of co-modality,” which is
based on the integration and complementarities of transport modes to improve efficiency
and decrease social and environmental impacts. The transport supply chain system is not
providing the value-added services that have become the hallmark of modern logistics in many
advanced and even some developing economies, e.g. multimodal systems that combine the
strengths of different transport modes into one integrated system. In general, logistic services
provided by freight forwarders (business as usual system) do not always utilize the most efficient

250
This chapter was prepared by Ernesto Sanchez-Triana, and Santiago Enriquez. This chapter draws on consultant reports
prepared for SEPSA.
251
Government of Pakistan, 2010.

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mode of transport for the movement of a good from origin to destination. Each freight transport
mode has characteristics that render them more efficient, and generally less costly, for particular
transport tasks. For example, rail freight generally has a competitive advantage and lower costs
over road freight for longer distances and for the transport of bulk commodities. In urban areas,
the combination of often dispersed origins and destinations, relatively shorter distances, and
lighter shipment amounts means freight is more effectively carried by road than by rail.
Moreover, given that rail is more environmentally sustainable than road, the case for integrating
rail into freight logistic itineraries for goods is critical. A multimodal system recognizes that
different modes, when integrated together under a single contract, can more efficiently and
effectively transport goods to their destinations.
6.4. Under a multimodal system, the rail sector would be in charge of heavy lifting for
long distances, with trucking complementing it at both extremes. An efficiently run rail
freight system is generally not competitive with trucking for short distances (below 300 km);
however, rail is far more competitive than road freight for longer distances (over 500 km) and
possibly competitive at medium distances (250-500 km). Moreover, as fossil fuels become
scarcer and more expensive in the future, rail’s competitive advantage for long distances is likely
to become larger. While rail is more efficient for the long distance segment of the journey, it is
reliant on road freight transport for the pick-up and delivery of freight to and from the rail
terminal. The benefit of road is that it can provide direct door-to-door services more reliably and
faster than rail. As a result, the rail sector would be in charge of heavy lifting for long distances,
with trucking complementing it at both extremes. An efficient multimodal system minimizes
time losses at transshipment points; provides faster delivery of freight goods which reduces the
disadvantage of distance between markets; and helps reduce the cost of exports, decreases the
burden of documentation and formalities, and improves their competitive position in the
international market252.
6.5. The actual modal distribution will be determined by a number of factors, including
cost, reliablity, and quality of service. Road freight rates in Pakistan are among the lowest in
the world, with an average cost of US$ 0.015 – 0.021 per ton km.253 Still, railway costs and
tariffs are lower than for trucks over longer distances, particularly above 500 kms, while the
costs of trucks are lower for shorter distances. It should be noted that distances between
Pakistan’s ports in the south and most of country’s main cities in the north, as well as border
crossings, are above 500 kms (Table 6.1).

252 Sinceonly the multimodal transport operator is generally in charge of all matters relating to the transportation of the good,
dealing with only one agency as opposed to many reduces the cost of doing business.
253 World Bank, 2006.

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 Table 6.1. Approximate Road Distances in Pakistan
From To Distance (km)
Karachi Lahore 1,260
Karachi Rawalpindi 1,540
Karachi Peshawar 1,700
Karachi Khyber Pass (Afghan border) 1,756
Karachi Khungerab Pass (Chinese border) 2,400
Gwadar Port Lahore(*) 1,771
Gwadar Port Rawalpindi(*) 2,051
Gwadar Port Peshawar(*) 2,211
Gwadar Port Khungerab Pass - Chinese 2,900
border(*)
Gwadar Port Karachi 460
(*) The segment Gwadar-Sukkur is going to be built as part of the NTCIP’s Road Investment Program. Source:
National Highway Authority Website, at: http://www.nha.gov.pk/Info/RDistances.asp.

Figure 6.1. Comparison of Economic Cost Figure 6.2. Comparison of Tariffs between
between Truck and Railway254 Trucks and Railways255

6.6. Such modal shifts to railways could begin by focusing on freight that is currently
transported for long distances, in which railways tend to have lower costs, and in areas
where most of the necessary railway infrastructure is already in place. It is proposed to
increase the share of national railway in national freight from the current 4 percent to 22
percent by 2030. National Highway N-5 extends over 1,700 km and connects Karachi with
Peshawar, while N-55 connects Hyderabad with Peshawar, over a distance of 1,265 km. About
60 percent of the total road freight is transported through these highways. Shifting freight from
roads to railways in the areas covered by these roads would result in a significant reduction of
GHG emissions.

254
JICA, 2006.
255
JICA, 2006.

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6.7. The adoption of the multimodal transport freight system will reduce the number of
trucks traveling long-distances, thereby decreasing the amount of GHG emissions
generated by the trucking sector. As the road freight sector is a contributor to air pollution, a
shift towards railway freight will help significantly reduce the inland freight sector’s emissions.
As discussed in Chapter 5, policy shifts favoring rail most reduce environmental impacts. As an
example, if the split mode is changed for inland freight transportation to 30 percent rail and 70
percent road (currently it is 4% rail and 96% road), the annual GHG emissions would be reduced
to 36.8 TgCO2eq (23.3 percent reduction or a reduction of about 11.2 million tons of GHG
discharged into the atmosphere). The same example finds that emphasis on the freight sector
would result in an annual reduction in the consumption of diesel fuels by the inland freight
transportation sector in Pakistan, of about 1.06 million metric tons by the year 2025/26 (when
compared to the current split mode between rail and road freight). These savings in diesel
consumption would imply a yearly reduction of about 6,116 metric tons of sulfur burned in
internal combustion engines in the country.256
6.8. Efficiency gains (environmental and social) are to be realized as a result of less
trucks operating on the road under the proposed multimodal transport system. The
trucking sector is likely to be involved in a disproportionately high number of accidents because
of practices such as overloading, modification and poor conditions of trucks, inadequate driving
skills, and driver exhaustion caused by long hours behind the wheel. 257 As trucks are more
efficient in operating over short distances relative to trains, this will help clear up the excess
amounts of trucks operating on roads, hence decreasing road congestion, improving air quality
and GHG emissions, enhancing road safety, diminishing the probability of road accidents and
fatalities, and reducing noise pollution and hazardous material spills. On the social side,
increased connectivity and the expansion of private sector participation in freight (particularly
railways) could help enhance spatial transformation and decrease the risk of HIV transmission258.
6.9. Finance from carbon markets and other international sources would be needed to
promote a modal shift from roads to rail. GHG mitigation alone is not a sufficient reason to
promote modal shift in a country such as Pakistan, which contributes marginally to global
emissions and faces significant socio-economic challenges. However, if these reduced emissions
are compensated through resources from programmatic operations of the Clean Development
Mechanism or by international assistance for new instruments, such as National Appropriate
Mitigation Actions (NAMAs), they could generate resources that could be invested in other
priority areas. However, the competitivenss of rail freight for long distance strenghtens the
argument for a multimodal system, as rail freight transportation is likely to be a more effective

256
For details on the methodology used to estimate savings in diesel consumption see the consultant report prepared by Miglino,
2011 for SEPSA.
257
Ahmed, 2007; World Bank, 2006a.
258
On the social side, increased connectivity and the expansion of private sector participation in freight (particularly railways)
could help decrease urban sprawl, the risk of HIV transmission.

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means of transporting goods compared to trucks under the heavy precipitation and flooding
events.
6.2. Railways

6.10. To allow for rail to operate on a commercial basis, Pakistan Railways might be split
into two different organizations: one responsible for freight and the other for passenger
services, without any sort of subsidization.259 This will allow PR to be relieved of costs of
operating the large non-commercial network of lines and services. PR should, over time, separate
core and non-core activities with a view of having the company focus on its core function of
providing rail transport rather than on management of its non-operational land assets, factories,
workshops, or any other. Investment in new rail lines for freight transport should be made based
on public private partnerships (PPPs) sharing risks and using the highest economic, financial,
social and environmental standards. Overall, such measures can help revitalize the rail freight
sector, and enhance its reliability and performance, as well as its business reputation.
6.11. Private sector involvement in rail services will open up opportunities for larger
businesses in freight forwarding that will have the chance to explore opportunities in long-
distance freight haulage. End users are likely to benefit in the long run as rail freight is cheaper,
less polluting and more efficient than road haulage, provided it is managed properly and is
instituted after significant investment in rail infrastructure.
6.12. Existing rail networks and the development of new transport infrastructure can
facilitate the transport of underutilized natural resources. Pakistan is a country that is
endowed with extensive natural resources. However, unlike other countries with extensive
geological endowment, it has yet to exploit its natural resources optimally and sustainably to
promote economic growth and reduce poverty. Large amounts of copper and gold are located in
Saindak and Reko Diq in the Balochistan province. Some of the largest deposits of coal are
found in Lakhra, Sonda, Badin, Metting and Thar; the Thar province alone contains one of the
largest single coal deposits in the world. Currently, the mining sector constitutes only 0.4 percent
of GDP. Based on the experiences of countries with similar geological endowments, under
reasonable assumptions, these natural resources can generate up to 3 percent of GDP, stimulate
secondary and tertiary economic activity, and increase employment opportunities. Furthermore,
evidence from around the world demonstrates that if adequate institutional frameworks are put in
place, tapping into these natural resources can stimulate inclusive economic growth while
safeguarding the environment and local communities.
6.13. In addition, railways could also facilitate the transport of minerals, such as cooper
and iron, from Afghanistan to Peshawar and transport of minerals and goods from Persian
Gulf countries and territories to Central and East Asia. For the transport of these natural
resources, it is cost-effective to use rail where the infrastructure already exists. The Reko Diq

259
The analyses of passenger transport in general and train passenger services in particular are beyond the scope of the SEPSA.

102
town in the Chaghai district, located in the northwest corner of Balochistan, is roughly 70
kilometers northwest of Nok-Kudi, which has a rail network. A multimodal system in which rail
and road complement each other is cost-effective for the transport of these commodities260.
6.3. Modernization of the Trucking and Port Sectors

6.14. To remedy inefficiencies in the trucking sector (which arguably generate the lion’s
share of environmental and social problems in freight transport), the GoP might accelerate
the implementation of its 2007 National Trucking Policy. The overall objective of
modernizing the trucking sector is to encourage the use of large and modern fleet trucks (that
meet minimum European emission standards) and can meet the country’s transport demand at a
lower cost. This reform is particularly important for the transport of heavier and bulk
commodities. The 2 and 3 axle obsolete trucks which dominate the trucking sector are often
assembled in back-street operations, with no consideration to environmental quality standards.
To adapt the truck fleet to the demand of faster and reliable transport of large quantities, the
following measures need to be implemented:

• To encourage private sector participation, all participants should operate within the
same level playing field (regulatory environment) without privileges granted to
public operators. Formal recognition of the trucking sector would improve financing
possibilities by facilitating access to insurance and foreign investment.
• Regulations to control vehicle overloading, including measures for trucks to adhere
to established optimum axle load weights, as determined by vehicle types.261 This
measure will help reduce the incidence of breakdowns, reduce damage caused to roads,
and decrease road maintenance costs.
• Regular truck inspection and maintenance testing. This is to ensure truck safety, strict
enforcement of environmental regulations, and testing of truck drivers for knowledge of
traffic rules and physical and mental fitness. Routine truck technical inspections and
maintenance help identify and fix polluting trucks that do fail emissions standards.
Inspection stations for trucks would be particularly desirable in larger cities (Islamabad,
Rawalpindi, Lahore, Karachi, Quetta, Faisalabad and Peshawar), where emissions from
trucks contribute to overall emissions. Systems of vehicle registration, truck technical

260
A multimodal system might include transport of fuels, such as the proposed Iran-Pakistan Gas Pipeline and the Turkmenistan-
Afghanistan-Pakistan (TAP) Natural Gas Pipeline. The Iran-Pakistan project, signed in 2009, is expected to deliver gas from
Iran’s South Pars gas field through Pakistan’s Balochistan and Sindh provinces. The TAP project consists of a gas pipeline of
roughly 1,700 kilometers that can transport up to roughly 20 billion cubic meters of natural gas per year from southeast
Turkmenistan to Afghanistan, Pakistan, and India. The projects will not only link energy-deficit economies such as Pakistan to
the relatively richer hydrocarbon Central Asian economies, but will also provide Pakistan with cheaper and cleaner energy
sources and will help meet current and future energy demands, and help overcome shortages in electricity. However, problems
pertaining to political, security, technical, and funding challenges have stalled the TAP project from being implemented and
solutions for dealing with these issues have yet to be defined. Construction work on the Iran-Pakistan gas pipeline is currently in
progress.
261
Pakistan National Transport Policy, 2007.

103
 inspection, and driver tests can help improve the quality standards of the industry and
sustain its long-term development.
• Import tariffs on new trucks should be relaxed, so as to encourage the use of multi-
axle heavy duty trucks on long distance hauls. This will help reduce the light duty
polluting trucks on the roads, thereby reducing GHG emissions.
6.15. The strategic location of the newly constructed Gwadar Port might be taken
advantage of to facilitate regional and international trade. The city of Gwadar (located in the
Balochistan province) is strategically located east of Iran and south of Afghanistan, and has a sea
port that is located at the entrance of the Persian Gulf. For Pakistan, the economic returns from
Gwadar port stems from its location near the Strait of Hormuz, a major conduit for global oil
supplies in the region. Gwadar is of strategic importance to East and Central Asia (particularly
Afghanistan and China) providing landlocked countries with access to the sea. However,
Gwadar’s strategic location for facilitating regional trade and alleviating poverty has yet to be
fully capitalized to its greatest potential. The development and usage of the port has stalled as a
consequence of a variety of issues ranging from a lack of infrastructural investment by the
government, high costs of transport, and absence of any significant industry in Balochistan.
Moreover, Gwadar serves as an important node for any Iran-Pakistan-India gas pipeline that
could be developed, which could cross from Iran’s Balochistan’s province to Pakistan’s.
Importation of natural gas from Iran would address to some extent Pakistan’s energy concerns,
given that currently, natural gas demand in Pakistan has exceeded the available supply. There is
a need to create a business climate prone to private sector investment, including the identification
of financing and risk management mechanisms to increase infrastructural investment and reduce
high port entry charges, among others. The Government needs to have a long term vision of the
development of this relatively new port sector which occupies a critical location in the trade
market.

6.4. Redefining the Role of Government and the Need for Private Sector Participation

6.16. Promoting a multimodal transport system, which entails significant investments in

the rail freight sector, might be supported with private sector participation. Due to federal
budget constraints, bringing in private participation to revamp PR, particularly its freight
business, is advantageous given rail’s competitive advantage for long distances over the road
freight transport. Private sector participation in freight transportation in railways would be
helpful in improving track utilization, which currently is only 42 percent. Pakistan Railways
might increase private sector participation in freight transportation, for example, outsourcing
stations management, letting suburban trains be run by separate companies, and allowing private
companies to run their own container trains and rolling stock. Private sector participation should

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be encouraged via opening of track access in which private operators are allowed to run freight
services on selected routes, for which the legal and regulatory framework will be in place. 262 263
6.17. A number of reasons support promoting the private sector in freight transport.
Examples of public projects and policies that have generated significant inefficiencies include
subsidies granted to passenger rail at the expense of freight rail, government protection of PIA,
government preference of road over rail, and high tariffs in ports. Even though, the major share
of trucking in Pakistan is private, the National Logistic Cell (NLC) is by far the largest trucking
enterprise in Pakistan. The NLC, established in 1978 to transport public imports of wheat and
fertilizer, operates some 1,400 trucks and employs more than 7,000 workers. The NLC
subcontracts owner-operated trucks at very low rates, which hampers fleet modernization. The
case for facilitating private sector participation in the development of freight transport
infrastructure is not only supported by the high costs and distortions generated by excessive
governmental interference, but are also advocated by the 2011 Framework for Economic Growth.

6.18. To provide a level playing field, the government might consider developing a
regulatory framework for ensuring free market competition in the rail and air transport
sectors, including provisions for entry and exit of private operators. This regulatory
framework could facilitate inter-modal connectivity and private sector participation. The
regulatory structure should include responsibilities on cross-cutting issues such as: environment
and social management, project and concession contract development, and monitoring and
evaluation. A regulatory organization could take over responsibilities such as regulatory policies
and promotion of private sector participation.

6.19. Currently, the responsibility for the construction, operation, and maintenance of
Pakistan’s transport infrastructure and policy-setting for its freight transport sector is split
across four governmental organizations (Defence, Communications, Railways, and Ports
and Shipping). None of these organizations have incentives to develop a modern, private sector-
driven, multi-modal cargo transport industry. The recommendation here is for the GoP to
consider a Freight Transport Policy aimed at regulating and facilitating private sector
participation to develop transport infrastructure, strengthen inter-modal connectivity and
contribute to Pakistan’s spatial transformation. The regulatory framework would address the key
obstacles for private participation in infrastructure development, while also ensuring that
infrastructure projects are socially and environmentally sustainable and meet high quality
standards. Annex 3 contains more information on this recommendation, the background and
rationale for it, and a discussion of relevant political economy issues in the freight transport
sector.
6.20. The regulatory framework proposed would enable an environment for private
sector participation in the transport sector, which requires strong political leadership.

262
GoP, Planning Commission, 2011.
263
GoP, 2007 National Trucking Policy

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Excessive public interference in the transport sector has led to significant distortions that
discourage productivity in the sector and has contributed to the poor performance of key freight
sectors. Government privileges and subsidies such as those granted to passenger rail and ports
have increased the cost of doing business and decreased export competitiveness. Private sector
participation, with adequate governmental regulation, not only helps free up the scarce public
resources dedicated to infrastructural projects but helps provide the much needed capital
investment, increases management expertise, helps enhance accountability and transparency,
improves resource allocation, and increases the quality and reliability of delivery.
6.21. The proposed regulatory framework might give priority to promoting private sector
involvement in the freight transport sector, with the aim of helping Pakistan to adapt to the
era of co-modality, and to ensuring the social and environmental sustainability of transport
infrastructure projects. In addition, the regulatory framework could include mechanisms for
evaluating the use of best applicable technologies; overseeing that freight transportation
investment projects and operations meet high quality standards; and developing the institutional
capacity to carry out streamlined and effective auditing, verification, and monitoring processes.
A new organization could be created with a mandate to attract private sector investment,
including through the development of Public-Private Partnerships (PPP) and development of
concession contracts under schemes including “Build, Operate, Transfer” (BOT) and “Build,
Own, Operate” (BOO), among others. The institutional framework should sustain the momentum
for change by taking a holistic and integrated approach to identify and analyze the elements that
significantly impact competitiveness and hamper private sector participation in infrastructure
development.
6.22. The design and implementation of the regulatory framework should include
provisions to ring fence regulatory agencies from regulatory capture. Regulatory capture can
come about through corrupt means, but it can also come about through sympathy: regulators
spend so much time working with the industry that they come to adopt the industry’s viewpoint.
In a regulatory organization, each freight sector actor will have comparatively less influence than
it does currently; however, there will be a number of competing interests, including those of
private sector groups, attempting to capture it.

6.5. The Way Ahead

6.23. The two transformations currently taking place in Pakistan—one structural and one
spatial—can be facilitated by investments to improve Pakistan’s spatial connectivity, which
include freight transport reforms in rails and road infrastructure to help: (i) serve as an impetus
for enhancing industrial growth, and allow millions of rural residents seeking better lives in
urban areas to be absorbed into the labor force and; (ii) efficiently link sectors in the economy,
contribute to both domestic and international trade, and help facilitate the overall spatial
transformation occurring in Pakistan. Indeed, in order to effectively expand, the manufacturing
sector will require improvements in the way sector inputs and outputs are transported in Pakistan,
and improvements in urban-rural linkages through transport development. However, Pakistan’s
ability to enjoy the economic benefits by avoiding the external costs of increased urbanization
and industrialization will be seriously hampered unless the GoP takes steps to manage social and
environmental externalities. Industrial expansion and urbanization without attention to

106
environment will lead to increased GDP figures that are inflated by high costs of environmental
externalities.
6.24. Spatial transformation may prove to be a trend that helps Pakistan improve its
GDP, and, at the same time, lift many out of poverty. Urban populations show better social
indicators than their counterparts residing in rural regions. A growing population in urban areas
has the potential to become a significant asset to economic growth, if adequate institutional,
environmental, and transport policies are in place to facilitate industrial development. Pakistan
suffers from significant problems linked to poor spatial connectivity which serves to hinder the
spatial transformation of Pakistan, and hence urbanization, industrial development, and overall
economic growth. In order to enhance the positive effects and reduce the negative effects of the
spatial transformations facilitated by reforms and investments in the freight transport sector, the
GoP might consider the following policy options:

• Promote a development of freight transport that connects industrial clusters and

facilitates the structural transformations taking place in Pakistan. Agglomeration
economies play a crucial role in supporting firm’s competitiveness. In Pakistan, as in
many other developing countries, within-industry externalities are much more important
than inter-industry spillovers. Reforms and investments in the freight transport sector
should therefore be developed in coordination with efforts to establish or strengthen
industrial clusters in Pakistan. The synergies between the freight transport sector and an
industrial policy that support the development of clusters would facilitate the structural
and spatial transformations that Pakistan is undergoing and which could contribute
significantly to the country’s economic growth and poverty reduction goals.

• Anticipate the potential effects of reforms in the trade and transport sector on urban
centers. Pakistan is rapidly urbanizing; reforms in the trade and transport sector are
anticipated to contribute to this trend, particularly as investments and new employment
opportunities will most likely materialize in urban areas. Evidence from around the world
indicates that urbanization offers a number of benefits, but that these can be offset by
externalities such as congestion and pollution. Governmental policies should aim to
harness urbanization, rather than contain it. The GoP should prioritize investments to
improve slums, including aspects such as providing adequate water, sanitation and waste
management infrastructure, as well as establishing property rights. Appropriate actions
for governments should take the following general forms:264

• In areas of incipient urbanization, the objective should be to facilitate a natural rural-

urban transformation. The core policy instruments are spatially blind institutions that
facilitate density in some locations. These instruments include secure land tenure and

264
Material below is from World Bank, 2009 World Development Report, Reshaping Economic Geography, op. cit, p. 229.
Italics are not in original.

107
 property rights, basic and social services, and policies that do not favor one productive
activity (large industry) over another (small agriculture). Policy makers should aim for
neutrality between rural and urban areas.

• In areas of intermediate urbanization, the rapid growth of some cities is associated with
congestion and negative externalities. In addition to spatially blind policies to facilitate
density, connective policies to tackle congestion and economic distance become
necessary. They include investments in transport infrastructure (to enhance connectivity
both within and between cities) and encouragement of socially efficient location
decisions by firms.

• In areas with advanced urbanization, divisions within cities caused by formal settlements
and slums and by crime add to the challenges of density and distance. In addition to
spatially blind and spatially connective policies, spatially focused policies for addressing
intra-city divisions are necessary to target the difficulties of slums, crime, and the
environment—and to improve livability.

• Strengthen the institutional capacity of freight transport sector agencies and

environmental agencies for environmental management. Organizations in Pakistan’s
freight transport sector have limited capacity to address the environmental and social
issues that arise during the construction and operation of transport infrastructure. As
elaborated in the next chapter, strengthening their institutional capacity to incorporate
environmental and social consideration at the earliest planning stages and address issues
as they arise would generate significant benefits to Pakistan’s population. In addition,
given that reforms in the freight transport sector will have country-wide effects, they will
put a burden on Pakistan’s environmental management framework. Strengthening the
institutional capacity of environmental agencies (particularly after the devolution of
environmental responsibilities to the provincial governments as a result of the Eighteenth
Constitutional Amendment) and the Ministry of Climate Change should be an utmost
priority, particularly as evidence indicates that the environmental externalities of the
freight transport sector are already significant (see Annex 4 for more details).

• Carry out a comprehensive package of reforms to unleash the potential of Pakistan’s

freight transport sector. Pakistan’s freight transport sector compares poorly with those of
other competing economies and its inefficiencies represent 4 – 6 percent of GDP.
Reforms to modernize the sector should prioritize: (i) promoting the integration of
different modes of transportation, giving preference to railways over long distances,
where it is more efficient and sustainable than road transport; (ii) redefining the
government’s role to focus on regulating and attracting private sector investments in the
sector and gradually eliminate current biases that distort the market; and (iii) foster the
adoption of new technologies and procedures that add value to the services provided by
the trade and transport sector, including those that would help to move from the current
focus of bulk cargo to containerized cargo.

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6.25. Reforms, including some mentioned in this report, have been proposed or attempted
before. In some cases, those proposals have been built upon, such as the recommendation to
implement with high priority several elements of the 2007 National Trucking Policy. However,
among a host of other challenges, Pakistan’s “growth policy has been based on public sector
investments, incentives–subsidies and protection. The incentive structure has blunted the
efficiency of infrastructure development while the system of incentives has not allowed the
development of a competitive marketplace.”265
6.26. Under the post-18th Amendment milieu,266 the Planning system will exercise control
over the development process through:

• Consultation, setting medium-term and annual development objectives for the

government and for relevant ministries;
• Identification of key economic reforms that are required for these objectives,
development of quantitative indicators (which can be monitored) for these reforms and
monitoring and reporting on them to government and the people;
• Specifying government- and ministry-level reporting requirements for development
results and their costs, to ensure accountability and track progress;
• Strengthening the capacity of ministries and, by interaction and evaluation, ensuring that
their strategies and services support national development priorities; and
• Developing the capacity of the planning system to act as an institution that develops and
oversees the government’s reforms agenda.

6.27. The Pakistan Planning Commission’s Framework for Economic Growth was
approved by the National Economic Council on 28 May 2011. The growth strategy advised
in the Framework is “a new approach to accelerating economic growth and sustaining it.” It
aims to “improve the investment climate [and] reduce the cost of doing business, increasing the
profitability of enterprises and encouraging them to expand.” The Framework also “suggests
deep and sustained reforms–in areas such as public sector management, developing competitive
markets, urban management and connecting people and places—as a way forward for
accelerating growth to above 7 per cent.” 267 Among its key thrusts is an emphasis on
connectivity. It states: “Commercial activity requires dense well-connected cities and
communities. Connectivity is a critical stratagem of the growth framework.”268
6.28. The Framework also highlights that: “The new vision for economic growth will
require periodic identification of emerging constraints to economic growth through
research and dialogue with all sectors and stakeholders.” This report does just that, informing
decision makers within the Framework target areas, and identifying a menu of options to avoid

265
GoP, Planning Commission, May 2011. Pakistan: Framework for Economic Growth, p. 10.
266
See Annex 4 for further details regarding the 18th Amendment and devolutions of responsibility.
267
Ibid, pp. 10-11.
268
Ibid, p. 14.

109
and minimize negative social and environmental externalities that could undermine spatial
transformation and transport development gains.

110
CHAPTER 7. AN AGENDA FOR ENVIRONMENTALLY AND SOCIALLY
SUSTAINABLE TRADE AND TRANSPORT REFORMS269

7.1. Pakistan is currently undergoing two transformations: (i) a structural change in its
economy, where the contribution of the primary sector to the country’s economy is
declining as that of industrial manufacturing increases; and (ii) a spatial transformation,
with an increasing share of its population living in more densely populated urban centers.
These two transformations are linked and are also closely associated with reforms in the trade
and transport sector. The proposed reforms would contribute to agglomeration economies in
urban areas, thereby increasing job opportunities in those places, while also increasing mobility.
Spatial transformation is associated with a country’s economic development; however, in the
case of Pakistan, the transformation is anticipated to take place within a short timeframe, thereby
increasing already severe problems, such as urban sprawl and negative social and environmental
externalities. Thus, social and environmental policies addressing negative externalities and
upgrading and improving public service delivery in urban settings should be given priority.

7.2. Reforms in the freight transportation sector are fundamental to enhance Pakistan’s
competitiveness and support inclusive and sustained economic growth. While the previous
chapter discusses the proposed overall approach to such reforms, particularly in terms of
integrating different modes of transportation and strengthening their linkages with other sectors
of the economy, this chapter discusses social and environmental policy options to that could be
adopted to enhance the positive effects of reforms and reduce the potential negative
consequences of increases in productivity in the freight transport sector. The chapter provides
recommendations to strengthen Pakistan’s institutional framework, including through the
development of legal, regulatory and management instruments that are inadequate or currently
missing. The chapter also identifies opportunities to build the capacities of existing organization
to better identify, manage, and monitor and evaluate the consequences of trade and transport
sector reforms on environmental, poverty and social priorities.

7.1. Addressing Priority Social and Poverty Issues

7.3. While the benefits to be expected from increases in total factor productivity of
freight transport are undeniable, some groups may nevertheless find themselves adversely
impacted. Increases in transport productivity might affect rural non-farm and urban poor
households and might be correlated with social negative impacts such as social conflict, urban
sprawl, transmission of HIV/AIDs, and involuntary resettlement.

269
This chapter was prepared by Ernesto Sanchez, Ghazal Dezfuli , Zia Al Jalaly, and Santiago Enriquez. This chapter draws
from the analytical work prepared by IDS (2011), LUMS (2011), Hammad Raza and Rahul Kanakia.

111
7.1.1. Social conflicts

7.4. Social conflicts in Pakistan are heightened by the country’s demographic growth
and manifest themselves as sectarian or ethnic strife. Given Pakistan's high sensitivity to
ethnic tensions, such issues should be expected to arise in the context of any major freight
transportation reform. Reforms in the freight transportation sector, for example, can be expected
to disproportionately affect one specific ethnic group. Such a situation presents a potential for
social unrest. In the case of the trucking sector, a mitigation strategy for potentially affected
ethnic groups and owners of small and obsolete trucks likely to be negatively affected by the
enforcement of the trucking policy needs to be concerned with two aspects: how to provide a
business climate that keeps such businesses profitable or finds alternative means of employment
and how to promote social inclusion. Access to vocational training and/or micro-loans to those
workers should be considered as measures to facilitate the adjustment and limit the risk of social
tensions. In addition, facilitating access to information about employment opportunities can ease
the match between workers and new or growing private firms operating in the sector.

7.5. As discussed in Chapter 3, increases in transport productivity might have negative

impacts on rural non-farm and urban poor households. Reforms in the trade and
transport sector constitute a chance to address Pakistan’s inequality of opportunities for
these groups. Pro-active measures are needed to counter structural inequalities that lead to
inequality of opportunity for these groups. Structural inequalities are correlated with
geographical and historical patterns of deprivation, market segmentation, and unequal access to
public services. There are four key dimensions of structural inequality in Pakistan: (a) gender;
(b) region; (c) economic class; and (d) social identity. 270 While these forms of inequality
contribute to poverty and socio-economic inequality, the perceptions of those stark inequalities
can also constitute a powerful tool for social unrest and militancy. Including inequality and
redistribution concerns in the design of the trade and transport sector reforms and the modalities
of their implementation could yield much benefit in sustaining growth, as well as in reducing
poverty and social tensions.

7.1.2. Spatial Transformation

7.6. An econometric analysis completed by LUMS finds that infrastructural investments

are likely to yield high pay-offs in promoting localization economies and agglomeration.
Industrial agglomerations form in districts with good market access, low transportation costs and
a skilled labor force. Agglomeration is fundamental to industrial competitiveness because it
promotes: (i) knowledge and information spillovers and innovate ideas among firms; (ii) labor-
market pooling; and, (iii) input-output linkages. Industrial economic activity in Pakistan is highly
concentrated around the metropolitan cities and urban centers with industrial clusters. Such
concentration reflects the benefits that firms obtain from agglomeration economies, including

270
Gazdar, 2009.

112
both inter and intra-industry spillovers. Econometric results reveal that there is a strong
association between connectivity between industrial clusters and markets and poverty reduction.

7.7. Upgrading slums and improving service delivery in urban settings should be
considered a priority to manage and take advantage of Pakistan’s spatial transformation.
As mentioned before, the envisioned reforms are likely to increase existing incentives for rural to
urban migration. Under current circumstances, migrants will add to the urban population that
already faces problems finding adequate housing and meeting their needs for municipal services,
including water supply, sanitation, and waste management. Clearly designed programs to
improve slums and service delivery, with adequate resources and political support, would not
only improve the quality of life of most urban residents, but would also reduce the social risks
identified in this report, including those related to social tensions and conflict.

7.8. Capacity building is required at least in two tiers of government (provincial and
district) to better develop and implement urban development strategies that respond to
Pakistan’s spatial transformations. Pakistani cities have inadequate infrastructure to meet
current needs, let alone an ability to respond to growing demand. In addition, cities are
characterized by inefficient spatial structures (low density ribbon development), restrictive land
use regulations, rent control, and limited supplies of land for commercial, industrial and
residential development. As a result, land is relatively expensive and people and businesses tend
to locate in further locations and/or informal areas. This unplanned growth, coupled with high
motorization rates, has resulted in significant congestion in urban areas. Within large cities,
responsibilities for service delivery are fragmented, both spatially and institutionally, and fiscal
capacity is limited. Addressing these challenges will be crucial to respond to the current urban
population’s needs, as well as to prepare for continued urbanization.

7.1.3. Reduced opportunities associated with small trucking businesses

7.9. Small operators in the trucking sector have a low probability of losing business to
new and larger enterprises due to implementation of the 2007 Trucking Policy and other
freight transportation reforms. Ensuring that these businesses have access to credit and
insurance, and are allowed to operate under a level playing field that allows their services
throughout the country (including major routes) would help reduce the risks they might face.
Business linked to the current trucking sector, particularly rural non-farm and urban poor
households, as well as women and youth, might benefit from the implementation of the trucking
policy and the modernization of the railways and ports sectors. Modernization will create new
opportunities for smaller trucking firms provided they have access to credit and are not forced to
quit operating on major inter-city routes.
7.10. To attain poverty reduction goals, increases in transport productivity need to be
accompanied by reforms aimed at ensuring that vulnerable groups, particularly women
and youth from non-farm households and urban poor households, take advantage of
employment opportunities. Reforms in the trade and transport sector represent an opportunity
to include a pro-active gender focus in a major sector, as well as in manufacturing activities.
In spite of the constraints faced by Pakistani women, there are encouraging trends in the
private and public sectors. Examples include the Pakistan International Freight Forwarders
113
Association (PIFFA), in which women form approximately 15 percent of the workforce. They
work at all levels of the freight forwarding industry, including management. The pharmaceutical
industry reports that 50 percent of its employees are women; the shipping industry has
approximately 25 percent women in all jobs except the heavy physical labor; customs has 15 to
25 percent women (mostly all in the career level cadre and as secretaries, not many as junior
officers); and women are active in the air freight industry. Women contribute significantly to
Pakistan’s main export engine, the textile and clothing sector. Apart from cotton-picking, women
form about one half of the workforce in the garment subsector. Furthermore, improving women’s
economic participation will also depend on progress made in service delivery in health and
education, particularly for rural non-farm households and poor groups in slums and areas of
urban sprawl.
7.11. In the context of Pakistan’s complex social context, youth, particularly from urban
poor and non-farm households, constitute a particularly vulnerable group that should
receive special attention. Youth are a diverse social group with different characteristics and
attitudes about work in different regions of Pakistan. The transition for both highly skilled and
unskilled youth into the labor market is difficult. In the case of the highly skilled young people,
the transition often ends in them taking a job beneath their skills level or expectations, or ending
up inactive because they have given up hope of finding what they are looking for. A large share
of the unskilled youth ends up working as contributing family workers or in the informal sector.
In both cases, the unsuccessful transition process leads to a waste of potential and increased risk
of social unrest. To improve employability of the young labor force an improvement in ‘human
capital’ through the reform of educational and vocational systems is needed.271

7.1.4. Transmission of HIV/AIDs

7.12. Modernization of the trucking sector and adaptation of a multimodal transport

system will help curb the spread of HIV originating from the trucking sector. The
introduction of newer and more modern trucks would decrease the probability of truck
breakdowns and stopovers, which are places that sex workers frequent. Truck fitness testing
stations undertaken to test the safety of trucks can help identify and repair trucks, thereby
reducing the possibility that trucks break down unexpectedly. Moreover, the adoption of the
multimodal transport freight system will reduce the number of truck drivers traveling long
distances, thereby decreasing the frequency of risky behaviors engaged in. Efforts to control
urban sprawl also can reduce the amount of truck traffic and travel time, thereby further
decreasing risky sexual behavior. Improved connectivity could decrease the risk of HIV
transmission, particularly if modernization of the trucking sector or increased participation of the
railways sector takes place.

271
It should be noted that in Pakistan, stark differences in educational attainment exist between regions and across ethnic groups.
More than 50 percent of young people speaking Baluchi or Saraiki have less than four years of education, in contrast to roughly
10 percent of Urdu-speaking youth (UNESCO, 2009).

114
7.13. Public health initiatives to control the spread of HIV by changing behavioral risks
of truck drivers are recommended. Important components would include the provision of
services in geographically defined areas at greatest risk for HIV transmission (such as major
trucking stopover locations). Experiences from other countries demonstrate that communication
and condom distribution campaigns targeting vulnerable groups, including truckers, can be
effective in changing risky behavior and reducing the risk of contagion. The services include
information campaigns272 and behavior change communication aimed at improving vulnerable
group’s knowledge, attitudes and behaviors regarding HIV; voluntary counseling and HIV
testing; and proper management of STIs. Such a component has been found cost-effective in
Pakistan if contracted with NGOs.273 Another important component would be the development
of linkages with local public and private institutions and other relevant stakeholders such as
community healthcare workers, police, and community leaders. This would help to create an
environment that facilitates dialogue with relevant stakeholders to introduce changes in the social
and policy environment to encourage the community to engage in safe sexual behavior.
Interpersonal communication is likely to be important in convincing truckers that sexually
transmitted infections can be prevented.

7.1.5. Involuntary Resettlement

7.14. Since freight transport reforms and associated works are likely to require some
resettlements, reforms need to address issues such as the resettlement and restoration of
livelihoods of low-income people and the rights to proper compensation of tenants,
squatters, and those with usufruct rights. The creation and implementation of a national
resettlement policy that is effectively and uniformly enforced in all provinces and federal
territories would help ensure that the rights of persons directly affected by transport programs are
safeguarded. Resettlement plans also need to consider the fact that new roads can split
communities and prevent access to social services, sources of water, and even divide agricultural
lands. Chapter 4 has described the potential social effects associated with reforms in the freight
transport sector focusing on issues of high socio-economic salience for Pakistan and associated
with mutually reinforcing impacts.

7.15. Prior to construction, effective safeguard measures and implementation

mechanisms need to be put in place to ensure that people are promptly compensated in
relation to resettlement and provided support for livelihood development along with
appropriate and effective grievance redress mechanisms at the local level. While
resettlement is unlikely to be an issue in the first phase of the envisioned reforms, which are
concerned with policy design and implementation, resettlement issues are likely to arise when
work on the investment component for both road and rail gains momentum. Such resettlements

272
Cornman et al., 2007. “An information-motivation-behavioral skills (IMB) model-based HIV prevention intervention for truck
drivers in India.” Social Science & Medicine, 64(8), pp. 1572-1584.
273
World Bank, 2003. Project Appraisal Document of a Proposed Credit in the Amount of SDR 20.2 Million and Grant in the
Amount of SDR 6.7 Million to the Government of Pakistan for the HIV/AIDS Prevention Project. Report No: 25109-PAK, p. 11.

115
may also take place in areas already disrupted by the 2010 floods and could thus increase the
vulnerability of some affected households. Decisions should be based on considered,
consultative, and inclusive planning. Regional and international policies and law precedents are
available. In addition to measures for prompt compensation and support for livelihood
development along with appropriate and effective grievance redress mechanisms at the local
level, transparent mechanisms for determining compensation, supported by effective and
extensive public information campaigns, are critical.
7.16. Reforming the Land Registration Act to ensure security of land titles and mandate
the complete computerization of all land records in the provinces with mechanisms for
transparency and third party validation built in is crucial. The establishment of secure land
and property rights and preventing mal-practice in the real estate markets is not only vital for
protection of existing land holders, but will provide incentives for new businesses and asset
owners to invest in new lands. Such investment is an element of the increasing amount and
geographical spread of market activity that trade and transport reforms are expected to stimulate.

7.17. Strengthening Pakistan’s Environmental Impact Analysis (EIA) as a tool to open

governmental decisions to public scrutiny would support the adequate consideration of,
and response to, the potential social effects of investments in the freight transport sector.
While Pakistan’ EIA system recognizes the importance of public participation, potentially
affected groups are rarely consulted at an early stage of project development. The effectiveness
of the EIA system should be bolstered by a reform that, among other things, opens up effective
public participation mechanisms to (i) provide adequate opportunities to stakeholders to raise
their concerns and influence decision making at early stages of a project;(ii) obtain local and
traditional knowledge; (iii) reduce conflicts among stakeholders; (iv) make informed decisions
by considering possible adverse impacts and mitigation measures in the EIA report and final
decision; (v) educate and increase stakeholders’ awareness about the project and its potential
environmental impacts; (vi) enhance transparency and accountability in decision making; and
(vii) build trust in the proponents and government institutions. Public participation should be the
basis of scoping efforts and should be mandatory for reviewing EIAs. Information of baseline
environmental conditions, environmental impacts, analysis of alternatives, and environmental
management plans must be disclosed publicly.

Table 7.1 Policy Options to Manage Poverty and Social Priority Issues Associated with
Freight Transportation Sector Reforms

Priority Social Issue Description Policy Option

Social conflict in urban centers Ethnic groups could be Ensure adequate engagement of
particularly affected. potentially affected groups in the design
and implementation of proposed
policies.
Urban poor and nonfarm Urban poor and nonfarm Promotion of structural change to raise
households affected by increase households might lose the contribution of industrial
in transport productivity their livelihoods as a manufacturing to the economy, boost
result of reforms in the employment and increase fiscal
trade and transport sector. revenues.
Strengthen connectivity between
116
 industrial clusters and domestic and
international markets.
Urban Sprawl Creation of economic Priority to slums upgrading and service
opportunities in urban delivery in urban settings.
areas may increase “pull” Capacity building required at least in
migration, increasing the two tiers (provincial and district) of
demand for housing and government to better develop and
public services. implement urban development strategies
that respond to Pakistan’s spatial
transformations.
Small operators in the trucking Urban poor and nonfarm Community development organizations,
sector have a probability of losing households might lose which typically have experience in
business to new and larger their livelihoods as a advising communities on small-scale
enterprises due to trade and result of reforms in the enterprise development, to get involved
transport reforms. Truckers trade and transport sector. in design and implementation.
largely operate in the informal
sector, and have little or no Community development organizations,
contact with government might advise communities on small-
agencies. Programs directed at scale enterprise development.
assisting them will have to reach
out to a variety of truckers
associations, which cover truck
manufacturers, drivers, adda
owners and goods companies.
HIV/AIDs transmission Growth in the road Strengthen the National AIDS Control
transport sector, under a Program in freight transportation sector,
business as usual including information campaigns
scenario, is associated targeting vulnerable groups.
with increased spread of
STDs including
HIV/AIDS. At the same
time, increasing railway’s
participation and
modernizing the trucking
sector could significantly
reduce the risk of
HIV/AIDS transmission.
Involuntary Resettlement Potential involuntary Create and implement a national
resettlement due to resettlement policy that is effectively
construction of freight and uniformly enforced in all provinces
transport infrastructure. and federal territories, with adequate
grievance redressal mechanisms.

117
7.2. Addressing Priority Environmental Issues

7.18. As discussed in Chapter 5, SEPSA identified a number priority environmental

problems associated with transport in Pakistan including: (i) air and noise pollution; (ii) road
safety; (iii) solid and hazardous wastes; (iv) habitat fragmentation and natural resource
degradation; and (v) climate change. Freight transportation reforms might consider a number of
environmental policy options to enhance the positive effects of increases in transport
productivity and to mitigate negative consequences of trade and freight transport reforms.

7.2.1. Air and Noise Pollution Control

7.19. Adopting a multimodal transport system and accelerating the implementation of the
2007 Trucking Policy would lead to the substitution of the obsolete, poorly maintained, and
highly polluting trucks for larger and modern trucks. These newer trucks, besides being
technologically more efficient, cost effective, and less polluting, would reduce the number of
trips required to move a given amount of cargo.

7.20. The maximum allowed content of sulfur for all fuels used in Pakistan originally was
scheduled to drop from 10,000 to 500 ppm by 2008, but the stricter standard was
postponed until 2010, and then again until July 1, 2012. The main reason for the
postponements was that companies needed more time to retrofit refineries. However, Pakistan
can take advantage of ultralow sulfur fuels as they become increasingly available in international
markets. Pakistan currently imports about 3.5 Mt. of diesel a year from Kuwait, whose content in
sulfur is 2,000 ppm. Importing diesel from Oman, Qatar, Bahrain or the United Arab Emirates
could reduce sulfur contents of diesel used in urban centers to 500 ppm.
7.21. Systematic air quality monitoring in urban centers (especially of PM2.5 and PM1.0)
helps track progress of the enforcement of vehicle emission standards. Air quality
monitoring is essential to identify the changes in air quality over time, and to determine if
vehicle standards are being properly enforced. Ambient air pollution in medium and large urban
centers in Pakistan is very serious, and very little has been done to address the problem. The high
levels of dangerous pollutants, such as fine particulate matter and sulfur dioxide, cause
significant health risks to urban populations. The GoP needs to revise its strategy regarding
ambient air quality management by regularly monitoring the most important pollutants, including
PM2.5, which according to available evidence plays the largest role in damaging human health.
7.22. Ambient air quality standards and vehicular emission standards have been recently
adopted but need to be enforced. The enforcement of the recently approved National
Environmental Quality Standards for Ambient Air (2010) and the National Environmental
Quality Standards for Motor Vehicle Exhaust and Noise (2009) is necessary to help decrease the
enormous mortality and morbidity costs associated with poor ambient air quality, particularly in
urban areas such as Karachi, Lahore, Hyderabad, and Peshawar. These two standards provide the
legal and foundational framework for federal, provincial, and local government programs to
manage and mitigate ambient air quality in Pakistan.

7.23. Pakistan does need comprehensive legislation to control environmental noise

pollution. The National Environmental Quality Standards for Motor Vehicle Exhaust and Noise
118
only apply to noise generated from motor vehicles. There are no national standards for noise
regulating noise limits for residential, industrial, and commercial areas. Road traffic noise is
another major source of noise pollution in urban areas. Aircraft noise is a significant source of
pollution primarily in the major airports that are located inside or very close to densely populated
urban areas. Given that excessive noise is a health risk, there is a need to design, implement and
enforce a comprehensive regulation on noise pollution control that includes standards for
controlling noise generated from sources such as airplanes and locomotives, as well as noise
standards for residential, industrial, and commercial areas.

7.2.2. Road Safety

7.24. Pakistan’s transport sector is associated with a significant accident rate that results
in deaths, permanent and temporary disabilities, and other economic costs. Road conditions
and human behavior are the most relevant variables affecting road safety. Available information
indicates that risk factors include poor road quality and lack of appropriate signage. The trucking
sector is likely to be involved in a higher proportion of accidents because of practices such as
overloading, modification and poor conditions of trucks, inadequate driving skills, and driver
exhaustion caused by long hours behind the wheel. Until recently, obtainig a driver’s license in
Pakistan was relatively easy, as it did not require formal training and the process involved a few
formalities with provincial authorities. The 2007 Trucking Policy should be implemented, as it
contemplates measures to provide training to drivers and establish a new system enabling penalty
points to be cumulatively counted, resulting in suspension or cancellation of driver’s licenses.
Additional measures that the GoP might consider include allocating a dedicated budget for road
safety and building the capacity of police officers to enforce existing laws.

7.2.3. Transport of Hazardous Materials

7.25. Pakistan needs a national framework to manage the transport of hazardous

materials. Different materials present hazards during shipment including toxic substances,
explosives, compressed gases, flammable liquids and solids, oxidizers and organic peroxides,
radioactive and corrosive substances. The goal is to create and implement a regulatory
framework that covers all aspects of hazardous material transport. Key measures that the GoP
could adopt include: (i) designing standards for the construction of vehicles used to transport
hazardous materials; (ii) updating information on new chemicals/substances that are transported
on Pakistan’s roads and railways; (iii) enhancing institutional capacity and clarifying legal
responsibilities for relevant agencies; (iv) mapping of transportation routes and vulnerable
points; and (v) providing resources to help the police and local fire departments to properly
enforce regulations pertaining to the transport of hazardous materials.
7.26. Enhancing institutional capacity and clarifying legal responsibilities for relevant
agencies is needed. Currently, the Pakistan Standards and Quality Control Authority (PS&QCA)
acts on a demand-driven basis, only after receiving a specific request from a government agency
regarding hazardous materials spills. PS&QCA recognizes the seriousness of the problems
related to a weak regulatory framework. As a result, the following measures can help enhance
the institutional capability for relevant agencies: (i) designing training courses pertaining to the
transport of hazardous material for personnel from the freight transport sector and government;
119
(ii) training “master trainers” to instruct personnel from trucking companies, Pakistan Railways,
law enforcement, and emergency response agencies; and (iii) training government officials in
risk analysis and in developing contingency plans to deal with potential spills.
7.27. The GoP should consider international best practices in developing its national
framework for hazardous materials management. Key examples include the technical
guidelines for sound environmental management of various types of wasted developed by the
Basel Convention (to which Pakistan acceded in 1994),274 the International Maritime Dangerous
Goods (IMDG) Code. 275 ,and the Model Regulations on the Transport of Dangerous Goods
prepared by the United Nations, 276 Part 7 of these regulations contains specific provisions
concerning transport operations, including the conditions on classification, packing, marking,
and issuance of a transport document on labeling, description and certification that must be met
before any dangerous good may be transported, as well as the general, marking, labeling, and
placarding conditions that transport units must comply with.

7.2.4. Natural Habitat Fragmentation

7.28. The GoP should consider developing a new regulatory framework to avoid the
fragmentation of natural habitats and protect biodiversity from the direct, indirect and
cumulative impacts of investments in freight transport infrastructure. As discussed in
Chapter 5, Pakistan faces the highest deforestation rate in the region and there is currently no
policy in place to arrest deforestation, much of which is driven by governmental initiatives. The
destruction of natural habitats not only affects biodiversity, but also reduces the capacity of
ecosystems to provide critical services, such as protection against the floods that recurrently
affect Pakistan.
7.29. To avoid or mitigate biodiversity loss and natural habitat fragmentation due to
construction of new freight transportation infrastructure, Pakistan’s EIA system could be
reformed. While Pakistan’s legal framework for EIA and the Guidelines for Preparation and
Review of Environmental Reports have been in place for a number of years, a number of actions
are needed to ensure its effective and effective use as a planning tool. An important first step
would be requiring all public and private projects that require an EIA to comply with the existing
guidelines.
7.30. Pakistan’s EIA system faces a number of weaknesses that need to be addressed to
reduce the potential negative effects of the expansion of transport infrastructure on natural
habitats and ecosystems. Emphasis should be placed on:

274
See Basel Convention Technical Guidelines at:
http://www.basel.int/TheConvention/Publications/TechnicalGuidelines/tabid/2362/Default.aspx. Accessed on December 9, 2011.
275
International Maritime Dangerous Goods (IMDG) Code. See. http://www.imo.org/blast/mainframe.asp?topic_id=158#1.
Accessed on December 9, 2011.
276
See UN Recommendations on the Transport of Dangerous Goods - Model Regulations
http://www.unece.org/trans/danger/publi/unrec/rev14/14files_e.html. Accessed on December 9, 2011.

120
 • Improving the screening process to determine whether an EIA is needed based on the
project’s potential significant effects, instead of using criteria such as the project’s cost or
capacity;
• Enhancing the scoping of the EIA by involving stakeholders in the process;
• Bolstering the analysis of alternatives, including the “no project alternative”, so that it is
not simply a discussion to justify decisions already made;
• Strengthening horizontal and vertical coordination including among sectoral agencies,
different levels of government, and financial institutions, among others; and
• Allocating sufficient resources to ensure that authorities have the capacities needed to
assess the EIA and monitor the implementation of the Environmental Management Plan.

7.2.5. Climate Change Mitigation

7.31. A modernized trucking sector and the use of railways for long hauling would help
reduce greenhouse gas emissions. If the split mode is changed for inland freight transportation
to 30 percent rail and 70 percent road (currently it is 4% rail and 96% road), the annual GHG
emissions would be reduced to 36.8 TgCO2eq (23.3 percent reduction or a reduction of about
11.2 million tons of GHG discharged into the atmosphere). Emphasis on the freight sector would
result in an annual reduction in the consumption of diesel fuels by the inland freight
transportation sector in Pakistan, of about 1.06 million metric tons by the year 2025/26. These
savings in diesel consumption would imply a yearly reduction of about 6,116 metric tons of
sulfur burned in internal combustion engines in the country.

Table 7.2 Policy Options to Manage Environmental Impacts Associated with Freight
Transportation Sector Reforms

Priority Description Policy Option

Environmental
Problem
Air Pollution Pakistan urban centers rank Stricter standards on sulfur content in diesel should
as some of the worst in not be delayed beyond the next target of July 2012.
terms of particulate matter Low/ultralow sulfur fuels should be purchased to
air pollution. different suppliers as they are available in
Burning of high sulfur fuel international markets.
leads to high quantities of Strengthen Pakistan EPA and Provincial
fine and ultrafine environmental protection departments and build their
particulate matter, harming capacity to enforce recently adopted ambient air
public health. quality standards and vehicular emission standards.
Accelerate implementation of 2007 National Trucking
Policy, particularly substitution of the obsolete, poorly
maintained, highly polluting trucks for larger and
modern trucks.
Noise Pollution Excessive noise levels in Develop a regulatory framework and enforcement
urban areas cause ear capacity to control environmental noise pollution.
damage, sleep disturbance,
psychiatric conditions, and
cardiovascular disorders.
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Road Safety Pakistan ranks as one of the Develop a regulatory framework and enforcement
most dangerous countries in capacity on road safety.
the world in terms of road
safety.
Hazardous Waste With further investment in Design and implement national framework to manage
Transportation trade and transport, and the transportation of hazardous materials, based on
greater commerce, international best practices.
movement of hazardous
materials and the
probability of spills and
other emergencies might
increase.
Habitat Pakistan faces the highest Strengthen the EIA system to improve decision
Fragmentation and deforestation rate in South making for the development of freight transport
Natural Resource Asia. This could be infrastructure.
Degradation exacerbated by increases in
the road infrastructure.
Climate Change- Models showed that some Provide greater emphasis on railroads and on using
Emissions of modal shift from road to existing railroads.
Greenhouse Gases rail would significantly
reduce GHG emissions.

7.3. Addressing Institutional Change

7.32. The institutional capacity of the organizations directly involved in trade and
transport sector and responsible for natural resources protection, environmental
management, and management of social aspects in Pakistan is, at best, deficient. The
existence of a formal unit responsible for these areas, as well as the level of resources and
expertise devoted to address environmental and social priorities varies notably from one
organization to another (Annex 3 provides a description of environmental and social
management structures in each key organization). However, even in those organizations that
have devoted specific resources to create and staff a dedicated unit, such as the NHA, there is a
lack of both technical capacity and ability to affect decisions within the agency. While the
specific reforms advocated by SEPSA will do much to mitigate the impact of trade and transport
reforms, they should be coupled with additional efforts to develop management systems to
recognize, assess, and mitigate environmental and social issues as they arise.

7.33. The lack of environmental and social planning capacity at transport agencies should
be rectified with a program of institutional strengthening and capacity building.
Environmental and social units should be established in all those organizations that still lack
them. These units should be integrated into the planning and decision-making process of their
organization, so they possess the ability to influence construction and operation in such a way as
to take into account environmental and social considerations (particularly early on in the
planning process when such considerations can be dealt with more efficiently). The eventual aim
of these environmental and social units should be to achieve certification as environmental
management systems that meet international standards.

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7.34. Establishment of dedicated environment and social units within Pakistan Railways,
Civil Aviation Authority, and Gwadar Port Authority, and institutional strengthening for
existing environment units might enhance environmental management of freight transport.
Priority should be given to the creation of capabilities of environmental units to: (i) integrate
environment and social aspects into early stages of planning / decision-making process within all
organizations (ii) conduct analytical work on environmental priority-setting for each transport
organization; (iii) align environmental expenditure with priorities; (iv) monitor results of
environmental interventions; (iv) develop systems to monitor baseline environmental quality
(and changes over time) as a result of freight transport reforms; and (v) achieve international
certifications such as: ISO 9001:2000 (Quality Management System), ISO 14001:2004
(Environmental Management System), and OHSAS 18001:2007 (Occupational Health and
Safety Management System).
7.35. All environmental protection interventions should be accompanied by capacity
building efforts, which will help key environmental agencies in developing and enforcing
environmental regulations. The stringency of the environmental regulatory framework and its
effective enforcement are needed to improve environmental quality. Recent changes in
Pakistan’s Constitution have devolved major responsibilities for environmental management to
sub-national governments, which will have significant implications for environmental
management. Capacity building efforts are needed to train those involved in local governments
for their new roles in enforcing environmental regulations. Since the adoption of the 18th
Constitutional Amendment, provincial governments have devolved environmental management
responsibilities in an ad hoc manner. In Punjab, for example, District Environment Officers have
been appointed in most districts; however, in other provinces, the environment departments have
set up regional offices. While decentralization of environmental management responsibilities
offers a number of benefits, including the ability to respond more effectively to local
environmental problems, differences in the capacity of environmental agencies or poor
enforcement of environmental standards could lead to more severe environmental degradation in
different parts of the country.
7.36. Enhancement of inter-agency and inter-sectoral coordination can also contribute
government effectiveness in environmental management. The role of other agencies involved
in environmental management should be coordinated by means of institutionalized mechanisms,
whereas it is highly recommended that the newly created Ministry of Climate Change be
strengthened to take a leading role in institutional coordination for the implementation of
environmental protection interventions across different administrative levels through
systematized agreements and coordinated actions.

7.37. Decentralization efforts may fail if they do not have a reasonable level of supervision
and monitoring by central governments and a good level of coordination between
environmental agencies. Even when local capacity to effectively address environmental issues
such as urban air pollution is strong, the transfer of responsibilities may make the coordination of
national environmental policies difficult, particularly in federative systems. Coordination is
required both between economic and sector ministries, as well as across different tiers of
government.

123
7.38. As a result of the 18th Amendment to the Constitution, Pakistan’s Ministry of
Environment (MOE) was formally dissolved in June 2011. The recently created Ministry for
Climate Change has be given a mandate to carry out the functions of the former MOE, including
developing national environmental policies, engaging in international environmental negotiations,
dealing with trans-boundary environmental issues, and promoting inter-provincial coordination.
The apex environmental agency should also be given responsibility for coordinating the
institutional strengthening and capacity building of provincial EPAs and environmental units to
be created within transport agencies.

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ANNEX 1. GLOSSARY277

Civil Aviation Authority (CAA). Created on December 7, 1982 under the Pakistan Civil
Aviation Authority Ordinance Act of 1982, the CAA was established to regulate the aviation
sector in Pakistan. The Authority develops, maintains and manages all Civil Aerodromes
throughout the country. It is controlled by the Government of Pakistan through the Ministry of
Defence. In order to achieve its strategic objectives, CAA has undergone a major restructuring
and now separates its three main functions: regulatory, airport services, and air navigation
services.
Computable General Equilibrium (CGE). CGE models are a class of economic models that
use actual economic data to estimate how an economy might react to changes in policy,
technology or other external factors. A CGE model consists of equations describing model
variables and a detailed database consistent with the model equations. The values of almost all
variables and parameters in the CGE model are drawn from a social accounting matrix (SAM),
which is an economy-wide representation of a country’s economic structure. It captures all
income and expenditure flows between producers, consumers, the government and the rest of the
world during a particular year.
Disability-Adjusted Life Year (DALY). A measure of the overall disease burden, which is
expressed as the number of years lost due to disability, illnesses, or premature death.
Economic and Social Commission for Asia and the Pacific (ESCAP). The regional
development arm of the United Nations for the Asia-Pacific Region. With a membership of 62
Governments, 58 of which are in the region, and a geographical scope that stretches from Turkey
in the west to the Pacific island nation of Kiribati in the east, and from Russia in the north to
New Zealand in the south, ESCAP is the most comprehensive of the United Nations five regional
commissions. It is the largest United Nations body serving the Asia-Pacific region with over 600
staff. For more information, see http://www.unescap.org/about/index.asp
Elasticity of Poverty. The percentage change in poverty rates associated with a percentage
change in the opposite direction in mean (per capita) income. Standard estimates of elasticity of
poverty for developing countries range from 1.5 to 5, with an average estimate of around 3. This
implies that a 1% increase in per capita income is associated with a 3% decrease in the poverty
rate (proportion of people living on less than US$1 per day). This implies that economic growth
is crucial for decreasing poverty rates, especially in low-income countries.
Gwadar Port. Formally inaugurated in December 2008, the Gwadar Port currently has the
capacity to handle vessels of up to 50,000 deadweight tonnage. It is managed by the Gwadar Port

277
This glossary was prepared by Ghazal Dezfuli. The findings, interpretations, and conclusions expressed in this annex do not
necessarily reflect the views of the staff or Executive Directors of The World Bank or the governments represented by the
Executive Directors.

125
Authority. The key objectives for developing the Gwadar Port are to: (i) capitalize on
opportunities for trade with landlocked Central Asian States and Afghanistan; (ii) promote trade
and transport with Gulf States; (iii) provide trans-shipments of essentially containerized cargo;
(iv) increase the socio-economic development of Gwadar, the province of Balochistan, and the
country; (v) reduce congestion and dependency on the country's existing Ports; and, (vi) serve as
a Regional Hub for major trade and commercial activities. See
http://www.gwadarport.gov.pk/PortProfile.aspx
Karachi Port. Located in Pakistan’s largest city and commercial center (Karachi), Karachi Port
is one of the two primary entry and exit points for imports and exports. The port, which accounts
for about 60 percent of the nation’s sea trade, handles about 1.4 million Twenty Foot Equivalent
Unit (TEU) of cargo per year. The Port has two wharves (East and West Wharf, with a capacity
of 17 and 13 vessel berths, respectively) and handles all forms of cargo. The Port can
accommodate vessels of up to 75,000 deadweight tonnage (DWT). See http://www.kpt.gov.pk.
Karachi Port Trust (KPT). It is administered by a Board of Trustees, comprising a Chairperson
and 10 Trustees. The Chairperson is appointed by the Federal Government and is also the Chief
Executive of KPT. The remaining 10 Trustees are equally distributed between the public and the
private sector. The five public sector Trustees are nominated by the Federal Government. The
seats for private sector Trustees are filled by elected representatives of various private sector
organizations. See http://www.kpt.gov.pk/
Katchi Abadis. Informal settlements created through squatting or informal subdivisions of state
or private land. The katchi abadis are of two types: (i) settlements established through
unorganized invasion of state lands at the time of partition; most of them were removed and
relocated during the 1960s or have been regularized; and, (ii) informal subdivisions of state land
(ISD), further divided into: notified katchi abadis, settlements earmarked for regularization
through a 99-year lease and local government infrastructure development; and non-notified
katchi abadis: settlements not to be regularized because they are on valuable land required for
development, or on unsafe lands. Informal settlements do not fall under the realm of
responsibility of city administrations and as such tend to be un-serviced or critically under-
serviced.
Katchi Abadi Improvement and Regularization Program (KAIRP). Introduced in 1978,
KAIRP aims to provide basic amenities to residents living in katchi abadis. The process has been
painfully slow, with the pace estimated at 1 percent of abadis regularized per year in the 1990s.
More recent (2007) data suggests that it has not speeded up, and net progress is particularly slow
as new settlements keep coming up. KAIRP has been hampered by poor record keeping of land
records, which typically leads to land disputes and prolonged legal arbitration.
Ministry of Ports and Shipping. Created on September 2, 2004, the Ministry functions as a
central policymaking and administrative authority on the Ports and Shipping Sector in Pakistan.
It consists of one division, Ports and Shipping Division, which takes care of all the ports in
existence in the country. The main responsibility of the Ministry is to provide policy guidelines
to all ports of the country i.e. Karachi Port Trust, Port Qasim Authority, and Gwadar Port
Authority. The Ministry aims to rationalize port tariffs/freight rates including terminal handling
charges, promotion of private investments and public engagement in port and shipping sector.
126
Mohajir. Refugees who arrived in Pakistan in the aftermath of Partition. It derives its origin from
the term Hijr, the flight of the Islamic prophet Muhammad from Mecca to Medina, a journey that
was undertaken to escape persecution due to religious beliefs.
National AIDS Control Program (NACP). Established in 1990 with a focus on diagnosis of
cases in hospitals, NACP progressively began to shift toward a community-wide focus. Its
objectives are the prevention of HIV transmission, promotion of safe blood transfusions,
reduction of STD transmission, establishment of surveillance, training of health staff, research
and behavioral studies, and development of program management. The NACP has conducted
studies on HIV transmission and the trucker community and had also devised a program for the
control of HIV/AIDS, but such initiatives have not been sustained. See Source:
http://www.hivpolicy.org/biogs/HPE0328b.htm.
National Trade Corridor (NTC). The ports, roads, and railways along the corridor that
stretches from the southern city of Karachi to the northern Punjabi cities of Lahore and Peshawar.
The NTC handles approximately 95 percent of the country’s external trade and 65 percent of
total land freight.
National Trade and Corridor Improvement Program (NTCIP). The Program, included in the
Medium Term Development Framework (MTDF) period – 2005-2010, comprised policies
intended to: lead to modern and streamlined trade and transport logistics practices; improve port
efficiency, reduce the costs for port users and enhance port management accountability; create a
commercial and accountable environment in Pakistan Railways and increase private sector
participation in operation of rail services ; modernize the trucking industry and reduce the cost of
externalities for the country; sustain delivery of an efficient, safe and reliable National Highways
system; and promote and ensure safe, secure, economical and efficient civil aviation operations
and boost air trade.
Not in Education, Employment or Training (NEET). Government acronym for people
currently not in education, employment, or training.
Pakistan Environmental Protection Act (PEPA). Enacted on December 6, 1997, PEPA is the
cornerstone of environmental legislation in Pakistan. The Act provides a comprehensive
framework for regulating environmental protection, including air pollution. PEPA established the
general conditions, prohibitions, penalties, and enforcement to prevent and control pollution and
to promote sustainable development. The Act delineated the responsibilities of the Pakistan
Environmental Protection Council (PEPC), Pakistan Environmental Protection Agency (Pak
EPA), and provincial Environmental Protection Agencies.
Pakistan Environmental Protection Agency (Pak EPA). Established under section 5 of PEPA,
the Pak EPA is an executive agency managed by the Ministry of Climate Change. Its basic
functions include preparing, revising and establishing the National Environmental Quality
Standards (NEQS) with approval of the Pakistan Environmental Protection Council; for more
information, see http://www.environment.gov.pk/aboutus/Brief-Pak-EPA.pdf
Pakistan Environmental Protection Council (PEPC). The apex decision-making body on
environmental issues in the country. PEPC was established under the Pakistan Environmental

127
Protection Ordinance (1983), and it was later reconstituted based on section 3 of PEPA, 1997.
The Council is headed by the Prime Minister of Pakistan, and the Federal Minister of
Environment serves as the Vice-Chairman. Membership of the Council is comprised of multiple
stakeholders: Chief Ministers of four provinces, Provincial Environmental Ministers, 35 ex-
officio representatives (industry, technical, professional, trade unions, NGOs), and the Secretary
of the Ministry of Climate Change (MOCC). The MOCC serves as the Council’s secretariat.
Major functions of the PEPC are to: supervise implementation of PEPA 1997, coordinate and
supervise enforcement of PEPA, approve comprehensive national environmental policies,
approve National Environmental Quality Standards (NEQS), provide guidelines for the
protection and conservation of natural resources and habitats, integrate sustainable development
into national development plans and policies, instruct relevant institutions to prevent and control
pollution, undertake research activities, and execute sustainable development and research
projects. The PEPC has the powers to establish issue-specific committees and invite any
technical expert, government representative or NGO to assist in supporting the implementation
of its functions.
Pakistan International Airlines (PIA). The government-owned, national airline of Pakistan.
PIA operates scheduled and charter services to more than 65 destinations throughout Asia,
Europe, and North America. PIA was created in 1955, with the merger of the privately owned
Orient Airways with the proposed Pakistan government sponsored airline. Currently the airline
has its main hubs in Karachi, Lahore and Islamabad. See: http://www.piac.com.pk/pia_about/pia-
about_history.asp
Pakistan Railways (PR). The government-owned rail transport service of Pakistan, head-
quartered in Lahore and administered by the federal government under the Ministry of Railways.
PR’s main focus is on improving passenger rather than freight services, despite freight being
more profitable. In 2005, PR carried 78 million passengers, and only 6.5 million tons of freight.
Pakistan’s Customs Computerized System (PACCS). Under the Customs Administration
Reforms Program (CARE) introduced in 2002, PACCS allows for electronic documentation and
clearance of imports and exports. It was introduced in April 2005 on a pilot basis at the Karachi
International Container Terminal, as a result of which customs clearance time has decreased
from 4-5 days to less than 24 hours. PACCS is being progressively expanded to the rest of
Karachi Port and elsewhere. For more information, see:
http://www.unescap.org/tid/projects/da6_symposium_s5khan.pdf
Port Qasim Authority (PQA). Established through an act of parliament on June 29, 1973, PQA
is under the administrative control of the Ministry of Ports and Shipping, Government of
Pakistan. A Chairman is the chief executive of the port. All policy decisions are vested in the
PQA Board, comprising seven members headed by the Chairman. The Board is a blend of public
and private sector participation. PQA is primarily a service-oriented organization. The port
provides shore-based facilities and services to international shipping lines and other concerned
agencies in the form of adequate water depth in the channel, berths/terminals, cargo handling
equipment, godowns, storage areas, as well as facilities for safe day and night transit of vessels.
Port Qasim. Located in Pakistan’s largest city and commercial center (Karachi), Port Qasim acts
as one of the two primary entry and exit points for imports and exports. It handles about a third
128
of Pakistan’s total sea trade and can accommodate vessels of up to 75,000 Dead Weight Tonnage
(DWT).
Poverty and Social Impact Assessment (PSIA). An ex-ante analysis of impacts ("predicting"
impacts before the policy actually takes effect) that analyzes the distributional impacts of public
policies, with particular emphasis on poor and vulnerable groups. The PSIA is one among
several World Bank tools to generate evidence that can inform dialogue, debate and decisions on
policy decisions.
Slums. Settlements of villages absorbed in the urban sprawl or the informal subdivisions created
on community and agricultural land. In Pakistan, slums can also be divided into two types: (a)
inner-city, traditional pre-independence working-class areas now densified and with inadequate
infrastructure, and (b) goths or old villages now part of the urban sprawl; those within or near the
city centre have become formal – others have developed informally into inadequately serviced
high-density working-class areas. While tenure security may be greater in slums than in katchi
abadi, they are not usually concerned with programs to improve living conditions. More than 55
million people, or 71.7 percent of Pakistan’s urban population, lived in slums in 2005.
Social Accounting Matrix (SAM). It represents the flow of all economic transactions and
transfers between different production activities, factors of production (land, labor, capital), and
institutions (households, enterprises, and government) within the economy and with respect to
the rest of the world. The basic structure of the SAM used for the SEPSA can be explained as
follows: production requires intermediate goods and the primary factors of production (e.g.,
labor and capital), which are contributed by institutions (e.g., firms, households, and
government). These institutions, in return, receive factor payment (value-added) and income
from other sources, such as transfers (e.g., remittances, social assistance, etc.) and the rest of the
world (ROW). The income is spent as consumption expenditure on goods and services and for
payment of taxes, and purchase of investment goods. The total supply in the economy is matched
by the demand made by the institutions and the purchase of investment goods. All the
transactions in the economy are presented in the form of a square matrix in a SAM, where
columns represent buyers (expenditures) and rows represent sellers (receipts). The SAM is read
from column to row, i.e., each entry in the matrix comes from its column heading, going to the
row heading. The sum of each column equals to the sum of each corresponding row. The
columns and rows of SAM indicate that all institutional agents (e.g., firms, households,
government, and Rest of the World) are both buyers and sellers.
Strategic Environmental Assessment (SEA). A tool used to incorporate environmental and
sustainability considerations at an early stage of policy making. The three key elements of the
SEA approach are: (i) analytic work to facilitate the influence of SEA on policy design and
implementation, including the identification of environmental priorities, technical analyses, and
institutional analyses; (ii) participatory approaches, including public discussion to ensure
meaningful exchange among relevant stakeholders, including weak and vulnerable groups; and,
(iii) enhancement of social learning processes in order to periodically reevaluate policy direction
and implementation to improve the quality of life for people.
Total Factor Productivity (TFP). The portion of output not explained by the amount of inputs
used in the production process. If all inputs are accounted for, then total factor productivity
129
(TFP) is the measure of an economy’s long-term technological change or technological
dynamism.

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ANNEX 2. METHODOLOGY278

Abstract

The Bank’s Economic and Sector Work “Strategic Environmental, Poverty, and Social
Assessment of Trade and Transport Sector Reforms” integrated a Strategic Environmental
Assessment (SEA), a Poverty and Social Impact Analysis (PSIA), and stakeholder consultations
to assess the potential impacts of freight transport reforms and investments on a variety of
environmental, social, and poverty priorities for Pakistan. Complementary studies relied on
secondary information and data to assess institutional capacities related to trade logistics and
freight transport policy, spatial disparities in transport, and determinants of industrial
agglomeration. The overall findings were synthesized into an overarching strategy for improving
the efficiency of the freight transport system in order to meet the goals of enhancing export
competitiveness, decreasing spatial inequality and poverty, and reducing environmental
degradation. Ex- ante analysis of the potential impacts and the likely consequences of proposed
policy reforms, especially on the poor and vulnerable groups, are intended to inform dialogue
and policy decisions.

Introduction

Present patterns in transport and trade logistics in Pakistan generate inefficiencies that are
costing Pakistan’s economy roughly 4-6% of GDP per year. The transport sector generates high
economic losses as a result of the mismatch between the demand and supply for transport
services and its support infrastructure. This substantially decreases the competitiveness of export
industries. For example, lack of adequate roads, poor highway conditions, old and slow-running
trucks, long customs clearance times at ports, and rudimentary supply chain systems reduce the
speed and reliability of freight delivery; as a result, exporters and importers of goods have to
develop costly arrangements for transferring goods between locations while operating under time
constraints. These setbacks in transport and logistics have a significant impact on the
competitiveness of export products and hence export performance.
The Bank’s Economic and Sector Work (ESW) “Pakistan Strategic Environmental, Poverty, and
Social Assessment of Trade and Transport Sector Reforms” focuses on: (i) analyzing the policy
and institutional adjustments required to address environmental, social and income effects of
alternative trade and transport reforms; (ii) developing recommendations to better serve the
environment and the population, to enhance social cohesion, inclusion and accountability, and to

278
This annex was prepared by Ernesto Sanchez-Triana and Santiago Enriquez and draws heavily on consultant reports prepared
by IDS (2011) and The findings, interpretations, and conclusions expressed in this annex do not necessarily reflect the views of
the staff or Executive Directors of The World Bank or the governments represented by the Executive Directors.

131
foster equitable benefit sharing with low-income or other vulnerable groups; (iii) developing a
broad participatory process to give a voice to stakeholders who could be affected by freight
transport programs; and (iv) identifying policy options to strengthen governance and the
institutional capacity of agencies to manage the environmental, social and poverty effects of
trade, infrastructure, and transportation.
This annex discusses the methodologies that were used as part of SEPSA to identify cost-
effective opportunities for improving the efficiency of the freight transport system in order to
meet the goals of alleviating poverty, mitigating social impacts and reducing environmental
degradation.

Methodology

The methodology for this Strategic Environmental, Poverty, and Social Assessment (SEPSA)
incorporated a Strategic Environmental Assessment (SEA), 279 a Poverty and Social Impact
Analysis (PSIA), and stakeholder consultations. Specifically, the SEPSA methodological
framework combines the two key elements of PSIA,280 namely, analysis of distributional impacts
and engagement of stakeholders in policy making, with the three key elements of the SEA281
approach: (i) analytical work that would provide a foundation for meeting SEPSA’s objectives;
(ii) public discussion to ensure meaningful exchange among relevant stakeholders, including
vulnerable groups, and (iii) learning processes for strengthening the ability of institutions to
adapt to changing conditions. The PSIA, more specifically, is intended to assist policy makers to
enhance the positive impacts of reforms and minimize their adverse impacts through:
• Understanding the impact of policy reforms on poverty and social outcomes
• Analyzing intended and unintended consequences of policy interventions (ex-ante, during
implementation or ex-post)
• Considering trade-offs between costs and benefits of reform by assessing opportunities,
constraints and risks
• Designing appropriate mitigation measures and risk management strategies for the reform
program, when adverse impacts and risks are unavoidable, and building country
ownership and capacity for analysis and implementation of policy reforms.
Discussion among Key Stakeholders

The objectives of the stakeholder consultations are twofold. They not only raise public awareness
and support for reforms in the trade and transport sector, but they also allow participation and

279
The SEA is a tool used to incorporate environmental and sustainability considerations at an early stage of policy making.
280
SEPSA’s PSIA was based on the Poverty and Social Impact Analysis (PSIA) approach developed by the World Bank in 2002
(www.worldbank.org/psia). The general elements of the PSIA approach, as outlined in the User’s Guide, were adjusted and
tailored to the political, social, cultural, economic, and security situation in Pakistan at present and to the situation in the trade
and transport sector in particular.
281
Ahmed et al. 2008. Strategic Environmental Assessment for Polices. World Bank, Washington, D.C.

132
involvement of unorganized or voiceless groups in the planning and implementation of such
reforms. One means to achieve the second objective is to use the consultations to let stakeholders
identify priorities for the sector’s environmental and social development objectives and
interventions.
In order to ensure meaningful discussion among key stakeholders in the identification of specific
sustainability criteria that would be incorporated into transport reforms, the GoP and the Bank
held a series of workshops during 2009 to scope out the studies that would be completed using
the SEA’s methodology. The opinions and inputs provided by representatives from Federal and
Provincial Governments, as well as by Non Governmental Organizations, were incorporated to
the SEPSA’s concept note. These stakeholders helped to identify the priority environmental,
poverty and social issues that were assessed in the analytical work. In addition, each of the
studies mentioned above was prepared in close consultation with relevant stakeholders. The
methodology of some studies explicitly incorporated tools to obtain feedback from a broader
range of stakeholders. In particular, structured and semi-structured interviews were carried out as
part of the PSIA and the gender analysis to obtain feedback from vulnerable groups.
The Planning Commission and the NTCMU have undertaken a series of workshops to
disseminate the findings of SEPSA. A major effort to reach additional stakeholders will be
carried out in order to discuss the key findings and policy recommendations of the SEPSA,
including a series of workshops that will take place in Islamabad, Peshawar, Lahore, and Karachi
during the second semester of 2012.

Analytical Work as a Foundation for Meeting the GoP’s Economic Objectives

To provide the analytical underpinnings for policy reform, consultants were engaged to conduct
analytical studies. Studies were carried out that addressed the environmental, social, and poverty
implications of freight transport programs. The SEA282 283 focused on the environmental aspects
associated with trade and transport reforms. The potential environmental effects of three strategic
alternatives were analyzed: (i) “no project” alternative in which no policy reforms are
implemented; (ii) policies that emphasize reforms and investments in the road freight sector; and,
(iii) policies that emphasize reforms and investments in the rail freight sector. Each alternative
was evaluated based on a set of priority issues (climate change, air quality, transport of
hazardous materials, road and railway safety, urban sprawl and accessibility, and environmental
management systems) to assess their potential environmental and social impacts.
A major component of the Lahore University School of Management (LUMS) 2011 study was to
examine the impacts of infrastructure provision (schooling, health, and manufacturing) on
poverty, inequality, population growth, and industrial cluster formation, as well as the impact of
spatial inequality of road infrastructure on poverty. The objective of this component of the

282
Miglino, 2011. “SEPSA: Environmental Management Component.” Consultant Report for the World Bank. Washington, D.C.
283
Larsen et al. (2011)

133
LUMS report was to determine the push and pull factors that influence demographic composition
of districts, especially population growth and industrialization.
Impacts were evaluated using scatter plots relating district level population with the following:
district-level education, health, and manufacturing production. Secondary data came from ten
educational indicators from the Provincial Development Statistics, published by the Bureaus of
Statistics of the four provincial governments and from the Census of Manufacturing Industries
(CMI), 2005-06.284 District- level road density data of the districts of Punjab from the Punjab
Highway Department for the period 1992 to 2006 was used to determine the impact of road
density on poverty and firm location. Regression analysis was used to determine the causes of
agglomeration based on CMI data for 1995-96, 2000-01 and 2005-06.285
The Innovative Development Strategies (Pvt.) Ltd. 2011 study supporting SEPSA conducted a
PSIA286 to identify possible ex-ante social and distributional impacts of stakeholder groups. The
PSIA proceeded first by identifying –based on a literature review—the stakeholders in key
sectors likely to be affected by freight transport sector reforms and their possible interests and
influences in policy reforms in the freight sector.
Policy reforms under freight transport programs were divided by sector as follows: (i) trade
facilitation; (ii) ports and customs; (iii) highways and trucking; (iv) railways; and, (v) aviation.
Based on the initial analysis, stakeholder groups within each sector were identified as
constituting key groups likely to be impacted by the proposed policy reforms, including from
impacts resulting from upgrading the National Trade Corridor (NTC). A series of interviews and
focus group discussions were arranged with identified stakeholders.

Vulnerable Groups and Stakeholder Identification

As part of the PSIA and stakeholder discussions, efforts were made to identify the groups that
would be (directly, indirectly, positively, negatively) affected by the program, and assess their
interests, concerns, and influence in relation to transport policies. As part of the PSIA, the first
step in this regard was to identify stakeholders within each freight transport sector (ports,
aviation, highways and trucking, and rail). Within each sector, a number of stakeholder groups
were identified as possible sources of information or groups to be contacted for interviews and
discussions (Table 2.1.). Substantial information has been generated throughout the course of the
PSIA that identifies the range of stakeholders (both organized and unorganized groups) that are
likely to be affected by reforms.

284
56 districts in the 1990-91 district classification were retained and district level data was accordingly adjusted on value of
production obtained from CMI. Source: LUMS 2011.
285
LUMS 2011.
286
Innovative Development Strategies (Pvt.) Ltd. (2010). “Policy Reform under the National Trade Corridor Improvement
Program (NTCIP)/ Preliminary Discussion Draft. the PSIA used the World Bank’s PSIA sourcebook as a guiding framework.
See: World Bank. 2007. Tools for Institutional, Political and Social Analysis of Policy Reform: A Sourcebook for Development
Practitioners.

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 Table 2.1. Stakeholder Identification
Sectors Stakeholders
Ports Port Authorities at Karachi, Gwadar, and Qasim Ports
Pakistan Customs
International and Local Terminal Operators
Federal Board of Revenue
Karachi Dock Labor Board (working at KP) and other employee’s associations at
the ports
Private sector stevedoring companies
Logistics and freight forwarding companies as well as clearing agents
Exporters and importers, in addition to the business community in general
Fisher-folk communities
Highways and National Highway Authority
trucking Owners and employees of trucking companies (many are sole proprietorships)
Owners and employees of auxiliary services
Families and communities where the road transport sector is a major employer
Logistics and freight forwarding companies as well as clearing agents
Dry Ports
Trucking manufacturing industry
Standards and Quality Control Authority
Exporters and importers, in addition to the business community in general
Railways Pakistan Railways
Railway Workers Union
Logistics and freight forwarding companies as well as clearing agents
Exporters and importers, in addition to the business community in general
Aviation Civil Aviation Authority
Pakistan International Airlines
Management of at least one private airline
Cross-cutting Communities living along the main trade corridor
Families of those employed in the trade and transport sector (including women
and children)

Participatory Processes: Stakeholder Consultations

Participatory approaches for identifying the impacts of freight policies on social and poverty
indicators included a set of preliminary discussions held in Islamabad with the key members of
the National Trade Corridor Task Force (NTCTF) in May 2010.287 Field visits to the cities of
Karachi, Lahore, Peshawar, Quetta, and Gilgit carried out interviews and conducted focus group

287 Meetings were held with the World Bank on May 24 and then on June 2 2010. Meetings were also held on: May 28, 2010 with the Trade and Transport Facilitation Unit of the Ministry of
Commerce; June 10 with the Planning Commission’s NTCMU; and, June 11, 2010 with the Federal Board of Revenue’s Member for Customs Revenue. Source: IDS, 2011.

135
discussions (FGDs) with the stakeholders identified in each sector.288 In addition, teams were
dispatched to hold grassroots level discussions with communities likely to be directly impacted
in the future by the up-gradation or new construction of road and rail links.289 Ten separate
central towns/hubs were chosen along the routes of the proposed rail and road links respectively,
and field teams branched out from the hubs to hold FGDs in rural and/or semi-urban
communities within a day’s journey of each hub location. The list of communities visited is
given Table 2.2, while the list of persons and institutions interviewed is given in Table 2.3. A set
of FGD questions was prepared for each of the stakeholder meetings, while a detailed
questionnaire was prepared for use in the communities.
Table 2.2. List of Communities Visited
Province District Tehsil Mauza Name of
Settlement
Khyber- Haripur Haripur Saraisala Mohalla Haji Imam
Pakhtunkhwa Pir
Haripur Haripur Panian Mohalla Monwala
Peshawar Jamrud Soor Kamar Soor Kamar Baguri
Punjab Toba Tek Singh Gojra Kathor 304 JB Kathor
Toba Tek Singh Toba Tek Singh Bhlair Chak No. 327 JB
Khanewal Mian Chunnu 128/15 128/15
Gujranwala Wazirabad Ladhe Wala Ladhe Wala
Chema Chema
Sindh Sukkur Sukkur Deha Deha
Dadu Dadu Khudabad Khudabad
Gilgit-Baltistan Gilgit Gilgit Danyore Danyore
Gilgit Gilgit Jutal Jutal

Table 2.3. List of Persons Met

City Name Organization
Islamabad Mr. Himayatullah Khan Senior Joint Secretary, Ministry of Commerce
Mr. Maqbool Elahi Project Director, NTCMU, Planning Commission
Mr. Irtiqa Zaidi Project Director, Trade and Transport Facilitation, Ministry
of Commerce
Mr. Mumtaz Haider Rizvi Member, Federal Board of Revenue
Mr. Zahid Ali Baig Secretary, Customs Reform and Automation, Federal Board
of Revenue
Brig. Laiq Ali Khan General Manager (Improvement), National Highway

288 Field teams were to be sent to Gwadar, Khuzdar, Dalbandin and Panjgur to conduct interviews with Port authorities and FDGs with communities on proposed rail and road links, but the
murder of a prominent Baloch political leader in mid July 2010 instigated a series of strikes and disturbances in the province; as a result of the security concern, field work had to be cancelled.
Source: IDS, 2011
289 While the PSIA was concerned with policy reforms, the community outreach exercise was still conducted to get a better understanding of the possible localized effects of transport and
logistics facilitation. Source: IDS, 2011

136
City Name Organization
Authority
Dr. Hasan Raza Former Program Manager, NACP
Dr. Qudsia NACP
Dr. Imran NACP
Dr. Faran Emmanuel NACP
Dr. Khurram Shahzad Family Health International
Dr. Sajra Abbas UNICEF
Ms. Bushra Rani Consultant to UNICEF
Dr. Irfan Plan Pakistan
Mr. Mohsin Khalid Managing Director, ITC Logistics
Karachi Mr. Hasan Zaidi Director General, Ports and Shipping Directorate
Mrs. Nasreen Haque Chairperson, Karachi Port Trust
Mr. Miran Mohiuddin Secretary, Port Qasim Authority
Capt. Zafar Iqbal Awan CEO, Pakistan International Container Terminal
Mr. Changez Niazi CEO, Qasim International Container Terminal
Mr. Anjum Sajjad CEO, Karachi International Container Terminal
Brigadier Syed Jamshed Zaidi General Manager P&D, Karachi Port Trust
Mr. Alqera Atiq Director SQMS Civil Aviation Authority (CAA)
Mr. Khawaja Tanveer Ahmed Commissioner Inland Revenue, Federal Board of Revenue
Mr. S.M. Tariq Huda Additional Collector PACCS, Federal Board of Revenue
Mr. Tariq M. Chaudhry Chairman Pakistan International Freight Forwarders
Association (PIFFA)
Mr. M. Nadeem Khan CEO, Raaziq Group
Mr. Mansoor Alam Deputy General Manager, Hinopak Motors Limited
Mr. Jahanzeb Khan Deputy General Manager, Master Motor Corp. Ltd
Mr. Aqil Maniar Managing Director, Nashrah Shipping & Logistics Pvt. Ltd
Mr. Saeed Baloch General Secretary, Pakistan Fisherfolk Forum
Ms. Tahira Social Organizer, Pakistan Fisherfolk Forum
Mr. Noor Muhammad President, Port Workers Federation Pakistan
Mr. Tariq M. Chaudhry CEO, Dynamic Shipping Agencies Pvt. Ltd
Mr. Abdul Majeed President, Karachi Chambers of Commerce & Industry
(KCCI)
Mr. Javed Ahmed Vohra Vice President Karachi Chambers of Commerce & Industry
(KCCI)
Haji Noor Mohammad Port Workers Federation of Pakistan

Mr. M. Safdar Secretary, Karachi Dock Labor Board (KDLB)

Mr. Muhammad Khaqan Secretary Pakistan Stevedores’ Conference
Khan
Mr. Haji Gul Muhammad President, Karachi Harbors & Dock Workers Union
Afridi
Lahore Mr. Irfan Jehangir Wattoo Director General Audit, Pakistan Railways
Lahore Chamber of Commerce
Quetta Mr. Maqbool Ahmed Magsi Divisional Superintendant, Railways
Mr. Niaz M. Khan Former President, Quetta Chamber of Commerce
Mr. Kamran Ajmal Vice President, Quetta Chamber of Commerce
Mr. Sahibzada M. Khan Member, Executive Committee, Quetta Chamber of
137
City Name Organization
Commerce
Haji Noor M. Shahwani President, Balochistan Truck Driver’s Association
Mr. Noor ul Amin Mengal AFS Budget, Finance Department

In all cases, the focus of the exercise was to identify the potential direct and indirect social and
distributional impacts—including impacts on income, employment, assets, power relations,
social cohesion—that the proposed freight transport reforms, through its influence on trade and
the logistics sector, would have on stakeholder groups, classified by gender, socio-economic
status, age, ethnicity, and religious conviction.
The findings of the social assessment were presented as elements in a social analytical
framework, which includes a vulnerability analysis, an analysis of sustainable livelihoods, and an
assessment of empowerment. The key issues that each of these tools seek to address are
described in Table 1.4. The social impact assessment uses the analytical framework embodied in
the three tools specified to see how freight transport reforms can impact the lives of different
stakeholder groups, with particular emphasis on the possible impacts on vulnerable groups as
defined earlier. The channels through which impacts can manifest themselves are also defined in
the table.
Table 2.4. Key Features of Social Analytical Tools
Tool Issues Addressed Possible Transmission Channels
for Impacts
Vulnerability To find out: Access to employment and services.
Analysis What shocks people may face and their Cost of doing business
capacity to respond. Inflationary pressures.
Whether a policy has decreased or Changes in asset values
increased existing shocks, or introduced Possibility of social conflict or
new ones, or whether it has changed increases in conflict.
people’s capacity to respond. Possibility of
resettlement/rehabilitation.
Sustainable To assess: Employment opportunities or potential
Livelihoods Analysis How people are likely to adjust their for job loss.
livelihood strategies in response to shocks. Cost of doing business.
Whether people have assets or other Access to markets.
resources (human, financial) that they can Potential for asset/land acquisition or
draw down on if faced with adverse transfer.
circumstances.
Empowerment To assess: Institutional reforms that may or may
Analysis The extent to which policy change will not allow space for stakeholder groups
increase or decrease a stakeholder group’s to voice their needs.
capacity to make effective choices.
Source: Adapted from World Bank, 2007 (see References).

Methodology for the Poverty Impact Assessment

The Poverty Impact Assessment was conducted by analyzing data from the Federal Bureau of
Statistics Household Income and Expenditure Surveys of 2005-06 and 2007-08 (the last two
years for which these data are publically available). Poverty incidence was computed for the

138
NTC and non NTC agro climatic zones (See Tables A.3 and A.5-A.6 in Appendix 2 below) to
highlight the disparity between the regions through which the NTC runs and those that are
further away.
A Social Accounting Matrix (SAM) (2007-08) was developed for the purpose of examining the
effects of productivity enhancement of the transport sector and its sub sectors on different
subsectors and household categories. A simulation analysis was undertaken, and three simulation
scenarios were conducted: (1) impact of 10 percent increase in the productivity of road transport;
(2) impact of 10 percent increase in the productivity of rail transport; and, (3) a simultaneous
increase in the productivity of road and rail sector by 10 percent. A Computable General
Equilibrium (CGE) model was used to estimate how the economy might react to changes in
policy, technology, or other external factors.
This section describes the Social Accounting Matrix (SAM) and Computable General
Equilibrium (CGE) Model used as part SEPSA’s analytical work to assess the poverty and
distributional impacts of potential reforms in Pakistan’s trade and transport sector. The annex
draws heavily from the analytical work conducted by Innovative Development Strategies (IDS,
2011), including economic analysis prepared jointly with Paul Dorosh, Dario Debowiz and
Sherman Robinson of the International Food Policy Research Institute (IFPRI).
SAM Definition

A SAM represents the flow of all economic transactions and transfers between different
production activities, factors of production (land, labor, capital), and institutions (households,
enterprises, and government) within the economy and with respect to the rest of the world. The
basic structure of this SAM can be explained as follows: production requires intermediate goods
and the primary factors of production (e.g., labor and capital) which are contributed by
institutions (e.g., firms, households, and government). These institutions, in return, receive factor
payment (value-added) and income from other sources, such as transfers (e.g., remittances, social
assistance, etc.) and the rest of the world (ROW). The income is spent as consumption
expenditure on goods and services and for payment of taxes, and purchase of investment goods.
The total supply in the economy is matched by the demand made by the institutions and the
purchase of investment goods. All the transactions in the economy are presented in the form of a
square matrix in a SAM, where columns represent buyers (expenditures) and rows represent
sellers (receipts). The SAM is read from column to row, i.e., each entry in the matrix comes from
its column heading, going to the row heading. The sum of each column equals to the sum of each
corresponding row. The columns and rows of SAM indicate that all institutional agents (e.g.,
firms, households, government, and Rest of the World) are both buyers and sellers (See Table
A.1 in the Appendix for a general structure of a SAM).
Economic Impact of Increase in Total Factor Productivity: Conceptual Framework
A supply-demand framework can be used to show the economic benefits of increase in total
factor productivity (TFP) of a commodity in a partial equilibrium framework. A simple static
model with the assumptions of linear demand D and supply S is presented in Figure 2.1.
Assuming a closed economy and parallel supply shift, an increase in TFP reduces the cost of
production and shifts the supply curve from S to S′. Output increases from Q0 to Q1 and price
declines from P0 to P1. Consumers can benefit from a decline in price and producers can gain
139
from selling greater quantities. The change in total economic surplus is measured by the cost
saving on the original quantity (
 
1 ), and the economic gains (abc) due to increment to
consumption ( 1 ) minus the total cost of the increment to production ( 1 ). Therefore,
the change in total economic surplus is ∆
=
 
1 . The change in consumer surplus is
∆
=   1 , and the change in producer surplus is ∆
= 1 
1 − 0 


Figure 2.1:Effect of increase in total factor productivity on economic surplus

Price S

S′

a
P0
P1 b

I0 c
D
I1

Q0 Q1 Quantity

The sections below summarize the work that has been done to build an updated SAM for
Pakistan, explain how households are classified into representative household groups in the SAM,
and show the incidence of poverty among them and their income composition. Also briefly
described is the CGE used to inform the SEPSA.
Building an Updated Social Accounting Matrix for Pakistan

The SAM used in SEPSA’s analytical work was developed by updating and disaggregating the
Pakistan SAM 2001-02 developed by Dorosh, Niazi and Nazli,290 which utilized the available

290
Dorosh, Paul A., Muhammad Khan Niazi and Hina Nazli. 2006. A Social Accounting Matrix for Pakistan, 2001-02:
Methodology and Results. PIDE Working Paper 2006:5. Islamabad: Pakistan Institute of Development Economics. See also
Dorosh, Paul A., Muhammad Khan Niazi and Hina Nazli. 2003. “Distributional Impacts of Agricultural Growth in Pakistan: A
Multiplier Analysis.” The Pakistan Development Review, 42(3): 249-275.

140
input-output table for 1990-91, and distinguished four accounts in 34 activities: (a) activities, (b)
commodities, (c) factors of production, and (d) institutions (households, government and the
Rest of World), including an aggregate institutional savings-investment account. The SAM
2007-08, which provided the basis for SEPSA’s economic analysis, uses 2007-08 as base year
since the last nationally representative household survey was conducted in that year.
In addition, the new SAM expanded the SAM 2001-02 from 34 to 49 activities and included 48
commodities, 27 factors and 19 representative household groups. In terms of activities, wheat
was split between irrigated and non-irrigated; rice was split between IRRI and basmati. In view
of the importance of the cotton-textile sector, the two activities (cotton lint/yarn, and cotton
textile) given in SAM 2001-02 were further disaggregated into six activities (cotton ginning,
cotton yarn, cotton clothing, knitwear, garment, and other textiles). In services, commerce is
disaggregated into wholesale trade, retail trade, and other trade. Five categories of transport were
introduced (rail, road, water, air, and other transport). Private services were divided into five
categories (business, education, health, personal, and other services). The number of service
activities increase from 6 in SAM 2001-02 to 17 in SAM 2007-08, while activities related to
agriculture, and all other accounts (factors of production and institutions) remained the same as
in SAM 2001-02. Factors of production and households were disaggregated by regions.
After disaggregating the SAM, the share of labor in the value added of each activity was
imposed. The SAM was balanced using the cross-entropy software developed by Prof. Sherman
Robinson, controlling for the 2008 values of GDP, private consumption, final investment,
government expenditure, exports and imports, all at market prices. In this process, a variety of
data sources were used, including data on public expenditure, macro-economic accounts and
household surveys.
Once the SAM was disaggregated and updated, the IFPRI Standard Model was used to: check
that the SAM was exactly replicated by the model in the base simulation; run a set of simulations
to test the model workings; and check that the model provided sensible results for a set of supply
shocks affecting the different transport activities in Pakistan.
Household Classification, Income Sources, and Incidence of Poverty

Households were split into 19 groups, as follows. Large farms are those owning more than 50
acres, medium ones those owning more than 12.5 but not more than 50 acres, and small ones the
rest of those owning land. Landless farmers are farmers who do not own but cultivate land. Rural
landless are those hired in agricultural activities. The rest of the households are divided into rural
and urban and, among them, into poor and non-poor with a poverty line of Rs 1,140.05 of per
capita per month expenditure. Tables 2.5 and 2.6 provide a snapshot of the poverty rates in the
different household groups – both at household and individual level – as well as the composition
of their incomes.
Table 2.5 shows that 27.9% of Pakistan’s population is below the poverty line and the incidence
of poverty is especially high for landless farmers and rural agricultural workers. The
classification of incomes suggests that the bulk of household income comes from factor income,
that the rural households rely much more on capital income than their urban counterparts, and

141
that labor income is concentrated in agricultural workers, the rural non-farm and urban
households.

142
 Table 2.5: Population, poverty rates and monthly expenditures by household groups
Househo Househo
Number of households (000) Household size Population (000) ld ld
Population Househol expendit expendit
below ds below ure ure per
Non Non poverty poverty (million person
Household groups Poor Non poor Total Poor poor Total Poor poor Total line line Rs) (Rs)
Large farm Sindh - 6 6 9.5 9.5 0 57 57 0.0 0.0 115 2,026
Large farm Punjab 1 32 33 8.0 7.7 7.7 10 246 256 3.9 3.7 1,615 6,308
Large farm other
Pakistan 1 5 6 9.3 8.4 8.6 9 42 51 17.2 15.8 110 2,150
Medium farm Sindh 13 66 79 11.9 8.3 8.9 159 548 706 22.5 16.7 1,127 1,596
Medium farm Punjab 25 262 287 10.9 7.2 7.5 274 1,880 2,154 12.7 8.7 5,230 2,428
Medium farm other
Pakistan 21 29 50 11.3 9.3 10.2 239 271 511 46.9 42.0 744 1,458
Small farm Sindh 158 225 383 9.8 7.1 8.2 1,551 1,594 3,145 49.3 41.3 3,883 1,235
Small farm Punjab 478 1,844 2,321 8.7 6.4 6.9 4,156 11,811 15,967 26.0 20.6 27,576 1,727
Small farm other
Pakistan 147 526 673 10.9 7.6 8.3 1,609 3,988 5,597 28.7 21.8 8,794 1,571
Landless farmers Sindh 160 173 333 9.3 5.9 7.6 1,494 1,033 2,527 59.1 48.1 2,887 1,142
Landless farmers Punjab 155 353 507 7.8 6.7 7.0 1,203 2,353 3,557 33.8 30.5 4,925 1,385
Landless farmers other
Pakistan 78 112 190 10.7 7.9 9.1 835 890 1,725 48.4 40.9 2,312 1,340
Rural agri laborer Sindh 182 311 494 8.5 5.2 6.4 1,547 1,614 3,160 48.9 36.9 3,851 1,219
Rural agri laborer Punjab 341 278 619 7.3 4.9 6.2 2,473 1,364 3,837 64.5 55.1 4,133 1,077
Rual agri laborer other
Pakistan 29 44 72 9.2 6.0 7.3 263 261 525 50.2 39.7 638 1,215
Rural non-farm non-poor - 5,190 5,190 5.7 5.7 0 29,735 29,735 0.0 0.0 58,038 1,952
Rural non-farm poor 1,801 - 1,801 7.9 7.9 14,195 0 14,195 100.0 100.0 12,960 913
Urban non-poor - 6,081 6,081 6.0 6.0 0 36,505 36,505 0.0 0.0 96,759 2,651
Urban poor 714 - 714 8.9 8.9 6,374 0 6,374 100.0 100.0 6,059 951
Total 4,304 15,536 19,840 8.5 6.1 6.9 36,391 94,191 130,583 27.9 21.7 241,754 1,851
Source: own calculation based on HIES 2007-08.

143
 Table 2.6: Composition of the total income by SAM household group (%)
Enterprise Governme Foreign
Labour Land Water Capital s nt sector Total
Large farm Sindh 13.6 38.4 12.3 30.2 5.4 100
Large farm Punjab 9.7 34.4 8.7 41.8 0.1 5.4 100
Large farm other Pakistan 10.4 33.8 50.1 0.1 5.6 100
Medium farm Sindh 18.4 38.1 38.0 0.0 5.4 100
Medium farm Punjab 16.0 28.0 50.5 0.1 5.4 100
Medium farm other Pakistan 18.6 38.2 37.6 0.2 5.4 100
Small farm Sindh 16.9 22.1 55.0 0.6 5.5 100
Small farm Punjab 22.8 21.0 50.4 0.6 5.2 100
Small farm other Pakistan 18.5 13.7 61.3 1.0 5.4 100
Landless farmers Sindh 31.6 16.6 45.8 0.4 5.5 100
Landless farmers Punjab 30.0 16.6 47.4 0.5 5.5 100
Landless farmers other
Pakistan 25.7 15.6 52.7 0.4 5.6 100
Rural agri laborer Sindh 50.4 43.1 0.9 5.6 100
Rural agri laborer Punjab 49.8 44.5 0.2 5.5 100
Rual agri laborer other
Pakistan 19.9 74.4 0.1 5.7 100
Rural non-farm non-poor 42.5 50.4 1.9 5.1 100
Rural non-farm poor 30.3 62.6 1.7 5.5 100
Urban non-poor 48.2 11.7 35.7 0.8 3.6 100
Urban poor 74.9 19.1 0.5 5.5 100
Source: Social Accounting Matrix Pakistan 2008

144
SAM Relationship to the CGE Model

Computable General Equilibrium (CGE) models are a class of economic models that use actual
economic data to estimate how an economy might react to changes in policy, technology or other
external factors. A CGE model consists of equations describing model variables and a detailed
database consistent with the model equations. The values of almost all variables and parameters
in the CGE model are drawn from a social accounting matrix (SAM).291 The SAM contains a
number of “accounts” representing different agents in the model, including sectors (producers)
and households (consumers). The rows and columns of the SAM represent incomes and
payments, respectively, from one account to another. As with double-entry accounting, the SAM
is a consistent economy wide database because row and column totals must be equal. In other
words, a payment from one account always becomes an income for another. The SAM therefore
provides the base-year equilibrium state for the CGE model.
The International Food Policy Research Institute’s (IFPRI) CGE model292
This description of the CGE model closely follows Chapter 2 of Xinshen Diao, James Thurlow,
Samuel Benin and Shenggen Fan (2011)293.

Consumer behavior

Following general equilibrium theory, representative consumers (i.e., households) and producers
in IFPRI’s model are treated as individual economic agents. Representative consumers maximize
their welfare or utility subject to a budget constraint. IFPRI employs a Stone-Geary utility
function in which the consumer problem can be represented mathematically as follows:

Max 
=  
 − 
 )


 

subject to    ∙ 
 ) = 1 − 
− 
)


Each representative household h in the model has its own utility function, in which C is the level
of consumption of good i, γ is a minimum subsistence level of consumption of good i, and β is
the households’ marginal budget share (i.e., share of the next “dollar” of income spent on each
type of good). Consumption-based utility is maximized subject to a budget constraint, in which P
is the market price of each good, Y is total household income, and s and ty are marginal savings
and direct income tax rates, respectively. Maximizing the above utility function generates the
following set of demand functions:

291
For detailed discussions on SAMs see, for example, Pyatt and Round (1985) and Reinert and Roland-Holst (1997).
292
The model assumes that all factors are mobile in the simulations, except for physical capital, which is fixed at the sector level.
The macro closures are those in the IFPRI Standard model as described in the Word document. Source: IDS 2011.
293
Xinshen Diao, James Thurlow, Samuel Benin and Shenggen Fan (2011), “Agricultural Strategies in Africa: Evidence from
Economywide Simulation Models”, revised book manuscript, 25 January 2011, IFPRI.

145
 
 = 
 1 − 
− 
)

(1)
−   ′ ∙ 
′ )  1 !
"#" $′ ≈ $
′
This is the well-known Linear Expenditure System (LES) of demand.

Producer behavior
Producers are defined at the sector level. Each representative producer maximizes profits subject
to a given set of input and output prices. Following neoclassical theory, IFPRI assumes constant
returns to scale. Accordingly, a constant elasticity of substitution (CES) function is used to
determine production:
1⁄+
+
& = Λ ' () ∙ *) , (2)
)
where X is the output quantity of sector i, Λ is a shift parameter reflecting total factor
productivity (TFP), V is the quantity demanded of each factor f (i.e., land, labor and capital),
and α is a share parameter of factor f employed in the production of good i.294 The elasticity of
substitution between factors σ is a transformation of ρ (i.e., σi=1/(1+ρi ). Profits π in each sector i
are defined as the difference between revenues and total factor payments:
. = * ∙ & −  /0) ∙ *) 1
)
where PV is the value-added component of the producer price, and W is factor prices (e.g., labor
wages and land rents). Maximizing sectoral profits subject to Equation 2 and rearranging the
resulting first order condition provides the system of factor demand equations used in the model:
+ 1⁄12+ )
*
*) = Λ ∙ & '() ∙ ,
12+ (3)
0)
Intermediate inputs are also used in the production process. IFPRI’s model assumes Leontief
technology when determining intermediate demand of individual goods and when combining
aggregate factor and intermediate inputs. Thus, demand for intermediates is based on fixed input-
output coefficients ioi,j defining the quantity of good j used in the production of one unit of good
i. Thus, the complete producer price PP is

 = * +  ′ $4′ (4)
′

294
Given the existence of by-products (e.g., multiple goods from a single sector) and the fact that the same good can be produced
in different sectors, the model distinguishes between sectors (activities) and goods (commodities). However, the exposition is
simplified by using the two interchangeably. Source: IDS 2011.

146
Behavioral functions governing international trade

Given observed two-way trade between countries for similar goods, IFPRI assumes imperfect
substitution between domestic goods and goods supplied to and from foreign markets. An
Armington specification (i.e., CES function) (Armington, 1969) is used to define the relationship
between domestically-produced and imported goods:
1⁄8
8 8
 = Ω 56 ∙ 7 + 1 + 6 )9 : (5)

1 −  )  ∙  = 7 ∙ 7 + 9 ∙ 9 (6)

9 = 1 + ; )<!;

where tc is an indirect sales tax, Q is the composite good consumed domestically, D and M are
domestically supplied and imported quantities, and PD is the price of domestic good D. Import
price PM is determined exogenously by world imports prices pwm and import tariff rates tm
under the small country assumption.

A constant elasticity of transformation (CET) function determines the relationship between the
quantity of goods produced for domestic and foreign export markets:
? ? 1⁄?
& = Γ => ∙ 7  + 1 + > )@  A (7)

∙ & = 7 ∙ 7 + @ ∙ @ (8)

@ = 1 − " )<!"

where E is the quantity of good i that is exported, te is the export tax rate, and pwe is the
exogenous world export price.

Maximizing   − 7 7 − 9 9 subject to Equation 5 and rearranging the resulting first

order condition gives the following equation defining the ratio of D and M:
7 6 9 1⁄12? )
=B ∙ C
9 1 − 6 7
(9)

Similarly, minimizing  & − 7 7 − @ @ subject to Equation 7 gives the ratio of D and E:

7 > 7 1⁄? 1)
=B ∙ C (10)
@ 1 − > @
Equilibrium conditions

With full employment and factor mobility across sectors, the following factor market equilibrium
conditions holds:

147
  *) = *
) (11)

where VS is fixed total factor supply. Assuming all factors are owned by households 295 ,
household income Y is determined by

=  D
) /1 − E) 10) ∙ *) (12)
)
where δ is a coefficient matrix determining the distribution of factor earnings to individual
households, and tf is the direct tax on factor earnings (e.g., corporate taxes imposed on capital
profits).

Finally, commodity market equilibrium requires that the composite supply of each good Q equals
total demand, as shown below:

 =  
+ F + G +  $4′ ∙ & ) (13)

′
where N is investment demand and G is government recurrent consumption spending.
The relationship between savings and investment demand N, and taxes and government spending
G, will be specified below. However, in the absence of taxes or savings (i.e., when ty, tf, s, N and
G are all zero), the above 13 equations simultaneously solve for the values of the 13 endogenous
variables (i.e., Y, C, X, V, Q, D, M, E, P, PV, PP, PD and W). The general equilibrium solution
defined by the equations only holds if there are no foreign transfers – implicitly a zero trade
balance. This assumption is often made in simple theoretical general equilibrium models, but it is
rarely used in CGE models, which need to be calibrated to observed data for a country. Foreign
transfers and current account imbalances are introduced later. Before doing this, however,
government G and investment demand N are defined.
Government and investment demand

The government is treated as a separate agent with income and expenditures, but without any
behavioral functions. Total domestic revenues R is the summation of all individual taxes:
H =   ∙  ∙  + ; ∙ <!; ∙ 9 + " ∙ <!" ∙ @ )

(14)
+  
∙ 
) +  /E) ∙ 0) ∙ *) 1

)
Tax rates are typically exogenous in a CGE model so that they can be used to simulate policy
changes. The government may also receive income from abroad, such as via foreign

295
In reality, part of factor incomes (i.e., the return to capital), can be owned by the government or foreign institutions. While this
is allowed in the model implemented in each case study, non-household factor ownership is ignored in order to simplify the
discussion. Source: IDS 2011.

148
grants/borrowing and from holding assets. These additional income sources will be discussed
below when the macroeconomic closure is introduced.
The government uses its revenues to purchase goods and services (i.e., recurrent consumption
spending) and to save (i.e., finance public capital investment), as shown below

H =    ∙ G ) + IJ (15)

where G is consumption spending from Equation 13 and FB is the recurrent fiscal surplus (or
deficit if negative). IFPRI assumes that G is determined exogenously, implying that an increase
in government revenues causes the fiscal surplus to expand (or deficit to contract). In reality, the
government also makes transfers to (and receives incomes from) households and firms (e.g.,
social grants and contributions). These may be fixed values or in proportion to household
populations or incomes. While the final CGE model includes such transfers, they are excluded
here in order to simplify the equations.
There is also no behavioral function determining the level of investment demand for goods and
services (i.e., N from Equation 13). The total value of all investment spending must equal the
total amount of investible funds I in the economy. The model therefore assumes that the value of
N for each good i is in fixed proportion to the total value of investment, as seen below

∙ K =  ∙ F (16)

where ε is the value share for each good i, and P is the market price determined by the
equilibrium condition in Equation 13. Macroeconomic closure must be defined to determine the
value of I.
Current account and macroeconomic closure

A CGE model is an empirical tool based on neoclassical general equilibrium theory in which
there is no room for current account imbalances. However, CGE models are often calibrated to
observed data for a country. Hence, Walras Law no longer holds unless real financial flows are
introduced into the model, such as incomes from holding foreign assets or the government’s
foreign borrowing. Current account imbalances must be accounted for since they affect the real
side of the economy via the relationship between exports and imports, and between savings and
investment. The model starts from the well-known identity linking a country’s current account
balance CA to national savings S and investment I:

L = @ − 9 − FI
=
−
= ∆FIL (17)

where @ =  <!" ∙ @ ) and 9


=  <!; ∙ 9 )

The left-hand-side of the identity states that a country’s current account balance is equal to its
trade balance (TE – TM) less net foreign incomes NFI. A country is therefore running a current
account surplus whenever the sum of its trade balance and NFI is positive, in which case national
savings exceed national investment and there is an accumulation of net foreign assets NFA. Total
149
savings in the economy is the sum of all household savings and the government’s recurrent fiscal
balance, as shown below

=  
∙ 
) + IJ (18)


Macroeconomic balance in a CGE model is determined exogenously by a series of “closure
rules”. The most important of these is the current account balance. While this is a substantive
research topic within macroeconomics, it is treated as an exogenous variable within this single-
country open economy CGE model. For example, one area of macroeconomics focuses on the
dynamics of exports and imports, and explains how growth in total exports is the result of
export-led growth strategies and undervalued exchange rates. In the same vein, it is possible to
introduce a nominal exchange rate into a CGE model to act as a numeraire to convert
international prices measured in foreign currency (e.g., dollars) into domestic currency units.
However, the nominal exchange rate is unlikely to be chosen as a policy instrument to determine
trade patterns. Instead, as discussed above, the behavioral function determining trade flows in the
CGE model is at the sector-level (see Equations 5-8), and the focus of the model is on the
structure of exports and imports, rather than their totals.
Before discussing the adopted closure rules, two of the previous equations are expanded to
include the foreign incomes received by households and the government. Accordingly, Equations
12 and 15 can be rewritten as

=  /D
) /1 − E) 10) ∙ *) 1 +
!
(12′)
)

H + #! =    ∙ G ) + IJ (15′)

where hw are foreign transfers received by households (e.g., remittances from members working
abroad), and rw are incomes earned by the government through its holding of foreign assets. If
transfers are negative they would denote net foreign payments. Given the new Equations 12′ and
15′, the value of NFI in Equation 17 can therefore be defined as

FI
= 
!
+ #!


Since the model is for a single country, hw and rw cannot be modeled endogenously using
behavioral functions. These two variables (and hence NFI) are exogenous in the model, either as
fixed values or in proportion to endogenous variables, such as household or government incomes.
CA may not be equal to NFI if there is a trade surplus/deficit observed in the country’s data.
When CA is greater (less) than NFI, the country runs a trade surplus (deficit) and total exports
are greater (less) than total imports plus NFI. For the external account, the closure rule is to treat
CA as an exogenous variable, thus controlling its effect on the macroeconomic behavior of the
model.
In practice, when NFI is not zero, then instead of fixing CA the trade surplus (deficit) FS can be
fixed such that FS = CA – NFI. The size of FS determines the difference between total exports
and imports, but it does not determine their individual levels. At a given FS, the level of total
exports and imports can change, but they have to change simultaneously. For example, CGE

150
models are frequently used to simulate trade liberalization by reducing import tariffs. This affects
relative prices for different sectors/commodities, which in turn affects imports and exports at
sectoral- and national-levels. In this case, total imports usually increase at a given FS, which in
turn affects relative prices and exports at the sector level. At the national level, total exports
would have to increase to maintain FS.
The choice of current account closure influences how we select our second closure rule, which is
the identity on the right-hand-side of Equation 17. By fixing CA, the model also fixes the value
of ∆NFA, which means that either total savings S or total investment I (but not both) should be
determined exogenously. This choice is called the “savings-investment” closure, which is a term
borrowed from macroeconomics. If the CGE model is “savings-driven” then I is automatically
determined by the level of total available savings (i.e., I = S – ∆NFA). Consistent with Equation
1 in which s is a fixed parameter, the model specification is savings-driven. Were an
“investment-driven” closure to be chosen, then total investment I would have been exogenously
set at a fixed value or in proportion to a macroeconomic indicator (e.g., GDP), and total savings
would be made endogenous by allowing marginal savings rates s to adjust proportionally for all
households.
Finally, the treatment of the government balance in Equation 15′ is in fact the third closure rule
in the model. IFPRI chose to make recurrent consumption spending G exogenous and allow the
fiscal balance FB to adjust to changes in revenues R. An alternative would have been to allow
recurrent spending to adjust to changes in revenues, while holding FB constant. In this case,
government spending on individual commodities G would be in proportion to total spending (i.e.,
analogous to investment demand in Equation 16).
Through the introduction of the government, investment demand and macroeconomic closures,
IFPRI included five new equations into the model (Equations 14-18) and five new endogenous
variables (R, FB, N, I and S).296 Together, the 18 equations and variables describe a static single-
country model. The current account closure fixes the national trade balance. The government
closure implies that changes in revenues alter the fiscal balance (and hence public investment)
rather than recurrent spending. Finally, in the savings-driven closure, total investment adjusts to
the level of total savings.
Model Calibration

One of the main advantages of CGE models over (more complex) theoretical models is their
calibration to detailed empirical data. “Calibration” refers to the process of assigning values to
the model’s parameters and variables, typically using observed country data. Some of the
assumptions that were made when specifying the CGE model were done to ease its calibration,
since in many cases the data needed for more complex functional forms is unavailable in
developing countries. For example, the LES function that was used to determine consumer

296
Note that the third closure rule in the model made G exogenous in Equation 15.

151
demand assumes that income elasticities remain constant. More elaborate functions often drop
this assumption, such as in the “Almost Ideal Demand System”. However, this model retains the
LES function because it requires data that can readily be obtained from household surveys (i.e.,
expenditure shares and income elasticities). Calibrating the behavior of more complicated
functional forms often just involves making more assumptions where data is unavailable. In this
section, the data sources and estimation procedures used to calibrate the CGE models are
described.
Social accounting matrices

The values of almost all variables and parameters in the CGE model are drawn from a social
accounting matrix (SAM).297 Constructing a SAM is therefore a fundamental part of developing
a CGE model. A SAM is constructed in two stages. During the first stage, data from different
sources are entered into each of the SAM’s cells. As with the CGE model, the SAM allows for
multiple sectors and households. Thus, the “sector”, “product” and “household” rows and
columns actually contain many sub-accounts. The three main data sources for constructing a
SAM are national accounts, input-output tables (or supply-use tables) and nationally-
representative household budget surveys. As shown in the table, national accounts provide
information on the composition of GDP at factor cost (i.e., sectoral value-added) and by broad
expenditure groups at market prices (e.g., C + I + G + E - M). The technical coefficients in the
input-output table are used to estimate intermediate demand based on sectors’ level of GDP or
gross output. It also disaggregates government and investment demand across products. The
household survey is used to segment labor markets (i.e., disaggregate labor income into different
groups, such as by education). The survey also defines households’ expenditure patterns and the
distribution of factor incomes to representative household groups. The survey data is therefore
the main determinant of differential income and distributional effects across household groups in
the CGE model.
Other databases are used to complete specific cells within the SAM. Government budgets
provide information on tax rates, revenues and expenditures. Although not shown in the table,
government budgets (and household surveys) also determine the level and distribution of social
transfers. Customs and revenue authorities provide data on imports and exports and their
associated tariffs and subsidies. The Balance of Payments, usually compiled by a country’s
central bank, is used to populate the external or “rest of the world” account, including
information on transfer receipts and payments and the current account balance. Finally, sectors in
our SAMs are usually disaggregated across sub-national regions using information on regional
production and technologies from agricultural and industrial surveys. Trade margins, which are
not shown in the table, are estimated using information on producer and consumer prices. Trade
margins may also be drawn from input-output or supply-use tables.

297
For detailed discussions on SAMs see, for example, Pyatt and Round (1985) and Reinert and Roland-Holst (1997).

152
There are inevitably inconsistencies between data from different sources, which lead to unequal
row and column totals in SAMs. The second stage of constructing a SAM is therefore to
“balance” these totals. This reconciliation of data from disparate sources is similar to a “rebasing”
of national accounts. Cross-entropy econometric techniques were used to estimate a balanced
SAM (see Robinson et al., 2001). This is a Bayesian approach that uses a cross-entropy distance
measure to minimize the deviation in the balanced SAM from the unbalanced prior SAM
containing the original data. Constraints are imposed during the estimation procedure to reflect
narrower confidence intervals around better-known control totals (e.g., total GDP). Table 1
shows which cell entries in the balanced SAM are used to calibrate the model’s variables and
parameters. From this, it is clear that the SAM and its underlying data sources provide almost all
of the information needed to calibrate the CGE model. Only the behavioral elasticities remain
(i.e., β, ρ, θ and φ).
Behavioral elasticities and other external data

Behavioral elasticities are needed for the consumption, production and trade functions. The LES
demand function requires information on income elasticities and the Frisch parameter (see Frisch,
1959). Income elasticities were econometrically estimated using the same household survey data
on which the SAM is built, and following the approach described in King and Byerlee (1978).
Marginal budget shares (i.e., β in Equation 1) are derived by combining the estimated income
elasticities with the average budget shares drawn directly from the SAM.
Trade elasticities determine how responsive producers and consumers are to changes in relative
prices when deciding to supply goods to or purchase goods from foreign markets. Higher
elasticities are expected when substituting between more homogenous products, such as maize
and copper. Lower elasticities are expected for more differentiated product categories, such as
chemicals and machinery. In most developing countries the data needed to econometrically
estimate country-specific elasticities do not exist – at least in an appropriate form (see Arndt et
al., 2002). Therefore, the values for the two trade elasticities (θ and φ in Equations 5 and 7) were
assigned using global estimates from Dimaranan (2006).
The elasticities governing factor substitution in the production functions (i.e., ρ in Equation 2)
rarely exist for developing countries. In the absence of reliable country-specific estimates, elastic
factor substitution is assumed for most activities (i.e., σ > 1: σ is a transformation of ρ). This is
consistent with recent meta-analyses of econometrically estimated elasticities (see, for example,
Boys and Florax, 2008) and cross-country econometric analysis (see Behar, 2009).
Finally, the SAM provides information on values but not quantities. Therefore, external data
sources were used to calibrate the model’s production output X and factor quantities V. For
example, crops’ land use and gross output are calibrated to match agricultural data on harvested
area (in hectares) and production quantities (in tons). Observed labor employment numbers are
also used to determine sector-specific wages (i.e., Z in Equation 3'). In such cases, factor and
product prices in the model are not normalized to one, but rather reflect observed prices.

153
Baseline dynamics

The model is calibrated to the base year reflected in the SAM. It is then run forward over time to
create a baseline growth path – normally a series of years. The baseline scenario is therefore
determined by annual growth in factor supplies and productivity. With the exception of capital,
factor and productivity, growth rates are calibrated to observed historical trends. For example,
changes in labor supply are usually based on population projections for rural and urban areas,
and on labor force participation rates for workers with different education levels. Similarly,
agricultural land either expands alongside rural population or is calibrated to long-term trends in
total harvested land area from historical data (e.g., FAO, 2010). The annual growth capital stocks
are targeted so that it grows at a relatively smooth rate in relation to GDP. This is done either by
assigning base-year capital-output ratios or adjusting the price of capital PK.
After a suitable baseline scenario has been calibrated, it is possible to conduct counterfactual
simulations. Alternative growth paths are evaluated by changing exogenous variables in the
model from baseline levels. The model is re-solved and deviations from the baseline are
attributed to the simulated change in policies or external factors. The model is therefore an ideal
tool for ex ante evaluation of development options in countries where historical evidence is
lacking and ex post analysis is impossible. While the model’s general equilibrium specification is
based on economic theory, its detailed calibration to observed data provides a “quasi-empirical”
laboratory for conducting complex experiments within a consistent modeling framework.

154
Appendix A.1

Table A.1: General structure of a social accounting matrix

Govern-
Sectors Products Factors Households Investment Rest of world Total
ment
Marketed
Export demand
Sectors supply
(PE, E)‡
(PD, D)
Intermediate Private Public Investment
Total
Products demand consumption consumption demand
demand
(io)** (C)*,# (G)*,**,§ (N, ε)*,**

Value-added Factor
Factors
(V, W, Z)*,# income

Income
Transfers Household income
Households distribution
(hw)†,# (Y)
(δ)#

Indirect tax Indirect tax Factor tax Income tax Transfers Total revenues
Government
(te)§,‡ (tc, tm)§,‡ (tf)§ (ty)§,# (rw)†,§ (R)

Private Public
Foreign savings Total savings
Savings savings savings
(FS)† (S)
(s)*,# (FB)*,§
Import
Total foreign
Rest of world supply
payments
(PM, M)‡
Total Total
Gross output supply Factor Recurrent Total investment Total foreign
Total household
(PP, X) (P, Q) payments spending (I) receipts
spending
Note: Main data sources used to populate the SAM: (*) national accounts, regional production data; (**)
input-output tables and industrial surveys; (#) household and labor force surveys; (§) government budgets;
(†) balance of payments; and (‡) customs data and tax revenue authorities.
 Table A.2: Social Accounting Matrix accounts
A-WHTI Wheat irrigated C-PADB Unmilled Rice basmati (irr) LA-SF2 Labor - agric (own)-sm Punjab
A-WHTN Wheat non-irrigated C-COTT Cotton (irr) LA-SF3 Labor - agric (own)-sm OPak
A-PADI Rice IRRI (irr) C-CANE Sugar cane (irr) LA-AGW Labor - agric (wage)
A-PADB Rice basmati (irr) C-OCRP Other field crops LA-SKU Labor - non-ag (unsk)
A-COTT Cotton (irr) C-HORT Fruits/vegetables LA-SK Labor - non-ag (skilled)
A-CANE Sugar cane (irr) C-CATT Livestock (cattle, milk) LN-LG1 Land - large- Sindh
A-OCRP Other field crops C-POUL Livestock (poultry) LN-LG2 Land - large- Punjab
A-HORT Fruits/vegetables C-FOR Forestry LN-LG3 Land - large - OthPak
A-CATT Livestock (cattle, milk) C-FISH Fishing LN-MD1 Land - irrigated - med Sindh
A-POUL Livestock (poultry) C-MINE Mining LN-MD2 Land - irrigated - med Punjab
A-FOR Forestry C-VEGO Veg Oils LN-MD3 Land - irrigated - med OthPak
A-FISH Fishing C-WHTF Wheat Milling LN-SM1 Land - irrigated - sm Sindh
A-MINE Mining C-RICI Milled IRRI Rice LN-SM2 Land - irrigated - sm Punjab
A-VEGO Veg Oils C-RICB Milled Basmati Rice LN-SM3 Land - irrigated - sm OthPak
A-WHTF Wheat Milling C-SUG Sugar LN-DR1 Land non-irrig - sm/m Sindh
A-RICI Rice Milling (Irri) C-OTHF Other food LN-DR2 Land non-irrig - sm/m Punjab
A-RICB Rice Milling (Bas) C-LINT Cotton Lint LN-DR3 Land non-irrig - sm/m OthPak
A-SUG Sugar C-YARN Cotton yarn WATER Water
A-OTHF Other food C-CLTH Cotton Cloth K-LVST Capital livestock
A-LINT Cotton gin (lint) C-KNIT Knitware K-AGR Capital other agric
A-YARN Cotton spin (yarn) C-GARM Garments KFORM Capital formal
A-CLTH Cotton weave (cloth) C-OTXT Other Textiles KINF Capital informal
A-KNIT Knitwear C-LEAT Leather H-LF1 Large farm Sindh
A-GARM Garments C-WOOD Wood H-LF2 Large farm Punjab
A-OTXT Oth Textiles C-CHEM Chemicals H-LF3 Large farm Other
A-LEAT Leather C-CEM Cement, bricks H-MF1 Med farm Sindh
A-WOOD Wood C-PETR Petroleum H-MF2 Med farm Punjab
A-CHEM Chemicals C-MANF Other Manufacturing H-MF3 Med farm OthPak
A-CEM Cement, bricks C-ENRG Energy H-SF1 Small farm Sindh
A-PETR Petroleum refining C-CONS Construction H-SF2 Small farm Punjab
A-MANF Other Manufacturing C-TRADW Wholesale Trade H-SF3 Small farm OthPak
A-ENRG Energy C-TRADR Retail Trade H-0F1 Landless Farmer Sindh
A-CONS Construction C-TRADO Other Trade H-0F2 Landless Farmer Punjab
A-TRADW Trade-wholesale C-RAIL Rail H-0F3 Landless Farmer OthPak
A-TRADR Trade-retail C-ROAD Road Transport H-AGW1 Rural landless Sindh
A-TRADO Trade-other C-TRWAT Water Transport H-AGW2 Rural landless Punjab
A-RAIL Transport-Rail C-TRAIR Air Transport H-AGW3 Rural landless OthPak
A-ROAD Transport-Road C-TROTH Other Transport H-NFNP Rural non-farm non-poor
A-TRWAT Transport-Water C-HSNG Rented Housing H-NFP Rural non-farm poor
A-TRAIR Transport-Air C-OWNH Own Housing H-URNP Urban non-poor
A-TROTH Transport-Other C-BSERV Business Services H-URPR Urban poor
A-HSNG Housing C-ESERV Education ENT Enterprises
A-OWNH Imputed Rent C-HSERV Health care GOV Government
A-BSERV Business Services C-PERSV Personal Services TINDDOM Domestic Taxes
A-ESERV Education C-OSERV Other Private Services IMPTAX Import Tariffs
A-HSERV Health care C-PUBS Public Services TDIR Direct Taxes
A-PERSV Personal Services LA-AGL Labor - agric (own)-large EXPTAX Exports tax (inexistent)
A-OSERV Other Priv Services LA-MF1 Labor - agric (own)-med Sindh ROW Rest of World
A-PUBS Public Services LA-MF2 Labor - agric (own)-med Punjab S-I Capital
C-WHT Wheat LA-MF3 Labor - agric (own)-med OPak DSTK Changes in stocks
C-PADI Unmilled Rice IRRI (irr) LA-SF1 Labor - agric (own)-sm Sindh TOTAL Total

156
 Table A.3: Poverty by Agro-Climatic Zone (2005-06)
Poverty Status (No.) Poverty Status (%)
Total
Region Agro-climatic zone Non poor Poor Non poor Poor
Urban 1 Rice-Wheat Punjab 6,084,177 781,867 6,866,044 88.61 11.39
2 Mixed Punjab 2,232,386 141,797 2,374,183 94.03 5.97
3 Cotton-Wheat Punjab 1,175,836 180,926 1,356,762 86.66 13.34
4 Low Intensity Punjab 724,310 145,332 869,642 83.29 16.71
5 Barani Punjab 1,927,382 30,221 1,957,603 98.46 1.54
6 Cotton-Wheat Sindh 1,526,536 198,189 1,724,725 88.51 11.49
7 Rice-Other Sindh 8,658,930 446,688 9,105,618 95.09 4.91
8 Khyber Pakhtunkhwa 2,319,416 682,712 3,002,128 77.26 22.74
9 Balochistan 1,033,920 495,893 1,529,813 67.58 32.42
10 Other Punjab-urban 8,536,381 1,608,291 10,144,672 84.15 15.85
11 Other Sindh-urban 4,209,294 1,078,170 5,287,464 79.61 20.39
Total 38,428,568 5,790,086 44,218,654 86.91 13.09

Rural 1 Rice Wheat Punjab 9,582,581 2,742,282 12,324,863 77.75 22.25

2 Mixed Punjab 8,320,141 2,430,110 10,750,251 77.39 22.61
3 Cotton Wheat Punjab 12,005,016 3,501,104 15,506,120 77.42 22.58
4 Low Intensity Punjab 4,978,829 1,756,413 6,735,242 73.92 26.08
5 Barani Punjab 4,108,739 320,372 4,429,111 92.77 7.23
6 Cotton-Wheat Sindh 5,998,411 2,519,103 8,517,514 70.42 29.58
7 Rice-Other Sindh 5,169,807 2,796,199 7,966,006 64.90 35.10
8 Khyber-Pakhtunkhwa 11,374,557 4,696,544 16,071,101 70.78 29.22
9 Balochistan 2,137,327 2,789,009 4,926,336 43.39 56.61
Total 63,675,408 23,551,136 87,226,544 73.00 27.00

Pakistan 1 Rice-Wheat Punjab 15,666,759 3,524,149 19,190,908 81.64 18.36

2 Mixed Punjab 10,552,527 2,571,907 13,124,434 80.40 19.60
3 Cotton-Wheat Punjab 13,180,853 3,682,030 16,862,883 78.16 21.84
4 Low Intensity Punjab 5,703,139 1,901,745 7,604,884 74.99 25.01
5 Barani Punjab 6,036,121 350,593 6,386,714 94.51 5.49
6 Cotton-Wheat Sindh 7,524,947 2,717,292 10,242,239 73.47 26.53
7 Rice-Other Sindh 13,828,737 3,242,887 17,071,624 81.00 19.00
8 Khyber Pakhtunkhwa 13,693,973 5,379,256 19,073,229 71.80 28.20
9 Balochistan 3,171,247 3,284,903 6,456,150 49.12 50.88
10 Other Punjab-urban 8,536,381 1,608,291 10,144,672 84.15 15.85
11 Other Sindh-urban 4,209,294 1,078,170 5,287,464 79.61 20.39
Total 102,103,978 29,341,223 131,445,201 77.68 22.32

157
 Table A.4: NTC Districts
Road Road Up- New Railway Rehabilitation of Doubling of
Construction gradation Track Track Track
Faisalabad Rawalpindi Bhakkar Bhakkar Rawalpindi
Toba Tek Singh Jhelum Jhelum Peshawar Jhelum
Khanewal Gujranwala Karachi Khyber Agency Gujranwala
Dera Ghazi Khan Gujrat Peshawar Dera Ismail Khan Gujrat
Sukkur Khanewal Khyber Agency Quetta Lahore
Shikarpur Lodhran Kohat Mastung Shaikhupura
Larkana Bahalwalpur Karak Zhob Karachi
Dadu Rahimyar Khan Dera Ismail Khan Qila Saifullah Peshawar
Karachi Sukkur Abbotabad Naseerabad Batagram
Peshawar Ghotki Mansehra Pishin Charsadda
Khyber Agency Mansehra Haripur Khuzdar Mardan
Khuzdar Abbotabad Lakki Marwat Kalat Swabi
Turbat Haripur Mastung
Gwadar Gilgit Khuzdar
Kech Batagram Awaran
Panjgur Kohistan Turbat
Kharan Shangla Gwadar
Kalat Kech
Kalat
Gilgit
Batagram
Kohistan
Shangla

158
 Table A.5: Districts Falling in Agro-Climatic Zones
Zone Districts
Rice-wheat Punjab Gujranwala Mandi Bahauddin Sialkot
Lahore Hafizabad Sheikhupura
Narowal Kasur Gujrat
Mixed Punjab Sargodha Khushab Faisalabad
Jhang Toba Tek Singh Okara
Cotton-wheat Punjab Vehari Multan Pakpattan
Bahawalpur Rahimyar Khan Sahiwal
Khanewal Lodhran Bahawalnagar
Low-intensity Punjab Mianwali Dera Ghazi Khan Muzaffargarh
Bhakkar Rajanpur Dera Ismail Khan
Barani Punjab Islamabad Rawalpindi Chakwal
Attock Jehlum
Cotton-wheat Sindh Khairpur Nawabshah Ghotki
Tharparkar Mirpurkhas Sukkur
Naushero Feroz Hyderabad Sanghar
Tando Mohammad
Khan
Rice-other Sindh Jacobabad Dadu Thatta
Karachi-South West Karachi Larkana
Karachi East Central Karachi Shikarpur
Badin Malir
Khyber Lower Dir Buner Nowshera
Pakhtunkhwa Kohat Hangu Mansehra
Haripur Kohistan Swabi
Lakki Marwat Malakand Chitral
Charsadda Peshawar Karak
Tank Abbotabad Batagram
Mardan Bannu Upper Dir
Balochistan Quetta Sibi Makran
Nasirabad Qila Abdullah Khuzdar
Mastung Turbat Kalat
Zhob Pishin Ziarat
Lasbela Punjgur Kharan

159
 Table A.6: Poverty Bands by Agro-Climatic Zone
Occupation Household Head
Service
Workers
And
Legislators, Shop Craft Plant And
Senior Technicians And Skilled And Machine
Officials And Market Agricultural Related Operators
And Associate Sales And Fishery Trades And Elementary
Managers Professionals Professionals Clerk Workers Workers Workers Assemblers Occupations Total
Rice-wheat
Punjab 2.6% 4.9% 4.6% 2.1% 20.7% 21.7% 16.2% 7.2% 19.9% 100.0%
Mixed
Punjab 1.3% 3.7% 2.5% 3.1% 20.8% 31.7% 7.0% 5.5% 24.3% 100.0%
Cotton-
wheat
Punjab .7% 3.1% 3.4% 1.6% 19.6% 30.7% 9.6% 4.1% 27.2% 100.0%
Low
intensity
Punjab .6% 2.1% 2.2% 1.5% 12.0% 44.2% 8.3% 4.7% 24.5% 100.0%
Barani
Punjab 4.5% 5.1% 7.4% 6.8% 9.3% 22.8% 7.8% 8.5% 27.9% 100.0%
Cotton-
wheat
Sindh 1.7% 4.4% 4.8% 4.4% 13.0% 21.1% 10.0% 4.7% 35.8% 100.0%
Rice-other
Sindh .2% 2.5% 3.8% 1.6% 9.3% 44.5% 10.4% 4.1% 23.6% 100.0%
Khyber
Pakhtunkwa .7% 7.8% 4.7% 3.0% 18.6% 28.1% 10.2% 7.7% 19.2% 100.0%
Balochistan 1.0% 3.3% 8.2% 4.0% 12.2% 27.2% 3.5% 7.8% 32.8% 100.0%
Total 1.4% 4.3% 4.7% 3.1% 15.6% 28.8% 9.4% 6.0% 26.7% 100.0%
Source: Calculated.

160
 Table A.7: Basic Facts – Pakistan’s Transport sector
Investment in transport
sector (at constant factor
cost) (millions Rs)
Share of
GDP Value transport Investm
(consta added Share Share of Total sector ent in
nt of of transport Total investme investme transport
factor transpor transpor sector in investme nt (all nt in sector as
cost) t sector t sector Annual total nt in sectors) total percent
million (million in GDP growth employm transport (million investme of GDP
Rs Rs) (%) rate (%) ent (%) Public Private sector Rs) nt (%) (%)
1999- 3,562,0 45,70
00 18 326,052 9.2 4.1 9 19,408 65,116 607,410 10.7 1.8
2000- 3,632,0 57,27
01 91 343,300 9.5 5.3 4.1 1 24,874 82,145 634,422 12.9 2.3
2001- 3,745,1 41,64
02 18 347,448 9.3 1.2 4.8 2 23,882 65,524 632,133 10.4 1.7
2002- 3,922,1 22,90
03 04 362,292 9.2 4.3 4.8 8 37,387 60,295 658,070 9.2 1.5
2003- 4,534,1 35,72
04 49 375,078 8.3 3.5 4.7 3 50,347 86,071 617,731 13.9 1.9
2004- 4,881,7 34,57
05 96 388,003 7.9 3.4 4.7 6 74,345 108,921 701,392 15.5 2.2
2005- 5,183,3 33,51 130,76
06 71 403,373 7.8 4.0 4.7 3 6 164,279 840,976 19.5 3.2
2006- 5,477,9 28,76 131,56
07 48 422,411 7.7 4.7 4.4 3 7 160,330 955,141 16.8 2.9
2007- 5,565,3 30,25 133,18 1,024,69
08 75 438,520 7.9 3.8 4.4 0 9 163,439 6 16.0 2.9
2008- 5,767,5 19,55 106,48
09 36 450,568 7.8 2.7 4.2 0 5 126,035 908,856 13.9 2.2
2009- 6,018,8 18,52
10 65 470,776 7.8 4.5 4.2 7 89,777 108,304 890,301 12.2 1.8
Averag 4,753,6 33,49
e 70 393,438 8.4 3.7 4.5 4 74,730 108,224 770,103 13.7 2.2
Source: Pakistan Economic Survey 2009-10 Note: Transport and Communication appear as one category in the
reported National Accounts. Transport has been separated above using ratios from FBS (2004) the 1999-2000 rebasing
exercise.

161
ANNEX 3. KEY ISSUES FOR THE INSTITUTIONAL ANALYSIS OF THE FREIGHT
TRANSPORT SECTOR298

Abstract

This annex describes the key characteristics of governmental agencies with responsibilities for
the development of freight transport policies and infrastructure in Pakistan. It includes a
summary of the resources that each of them has to address environmental and social issues. The
annex proposes the creation of a new regulatory framework to develop freight transport
infrastructure in the road, railway, port, airport, pluvial and maritime modes, by structuring,
adjudicating and managing concession contracts with the private sector. The annex provides the
rationale for creating this new framework, which would ensure free market competition,
including provisions for entry and exit of private operators, and would facilitate inter-modal
connectivity and private sector participation. The annex concludes by providing
recommendations to strengthen the capacity of freight transport organizations to address
environmental and social priorities effectively and efficiently.

Introduction

In the context of the Strategic Environmental, Poverty and Social Assessment (SEPSA), the
Institutional Analysis of the freight transport sector in Pakistan gives particular emphasis to
environmental and social aspects in order to promote the adoption of a pragmatic approach for
achieving an efficient, sustainable, and economical freight transport sector. The Institutional
Analysis covers the four freight transport sectors in Pakistan, i.e. road (mainly consisting of
highways and trucking), rail (mainly consisting of Pakistan Railways), air (aviation related
services/industry), and water (mainly ports and shipping). It notes the limited institutionalization
of environmental and social aspects in the transport sector and how it can be strengthened going
forward.
This paper reviews the organizational framework in place to address environmental and social
priority issues associated with trade and transport reforms in Pakistan. It highlights gaps and
inefficiencies in this framework and recommends proposals for remedying these gaps.
Since trade and transport sector reform is a large, national-level undertaking, the responsibility
for mitigating its negative environmental and social impacts does not rest solely with transport-
related departments and agencies. It is expected that freight transport reform will also place a
burden on the environmental management agencies tasked with ensuring that trade and transport
projects meet environmental standards. The scope of the institutional analysis presented in this

298
This annex was prepared by Ernesto Sanchez-Triana, Rahul Kanakia and Hammad Raza. The findings, interpretations, and
conclusions expressed in this annex do not necessarily reflect the views of the staff or Executive Directors of The World Bank or
the governments represented by the Executive Directors.

162
annex does not include Pakistan’s environmental management framework and regulatory
apparatus, which are discussed in Annex 4.
This annex has four sections. Section two describes freight transport institutions in Pakistan.
Section three presents proposals for restructuring transport-related agencies and creating a new
regulatory framework in order to better facilitate cross-sectoral planning and for raising the
environmental management systems of transport agencies up to international standards. Section
four summarizes this annex’s conclusions and recommendations.

Institutional Arrangements for Trade and Environmental Management

Road Transport Sector

The total road network in Pakistan is approximately 259,758 km long, of which approximately
10,000 km are national highways or federal motorways that are under the responsibility of the
federal government’s National Highway Authority (NHA).299 As of March 2010, there were an
estimated 216,119 trucks, which mostly plied approximately 180,000 km of comparatively
higher-quality roads300. The road freight industry has achieved remarkable growth since the mid-
1970s and now dominates the domestic freight sector, with 96 percent of the market.301
The Ministry of Communications functions as a central policy making and administrative
authority on the roads sector in Pakistan. The Ministry is headed by a Federal Secretary. It has
been organized into two wings i.e. (i) Administration Wing and (ii) Roads & Road Transport
Wing. There are a number of autonomous and attached / subordinate departments under the
Ministry, namely: (i) the National Transport Research Centre, (ii) the National Highway &
Motorway Police, (iii) the National Highway Authority, and (iv) the Construction Machinery
Training Institute.
Despite Pakistan’s heavy reliance on the road sector for freight transportation, a massive
financing gap in maintenance has caused the condition of major highways to deteriorate steadily.
Poor funding for repairs and reconstruction has caused road users to complain about the poor
state of the highway network. A survey in 2004-2005 found that the pavement condition on 37
percent of the federal network was in “poor to very poor condition”.302 In recent years the budget
allocation by NHA for road development and upgrade has shrunk. This will result in further road
deterioration, which will eventually necessitate increased maintenance funding.303

299
Government of Pakistan, 2007. "Road Safety in Pakistan" Ministry of Communication, National Road Safety Secretariat,
Islamabad.
300
Government of Pakistan, 2010. “Economic Survey of Pakistan, 2009-2010”, Economic Adviser’s Wing, Finance Division,
Islamabad. Government of Pakistan, 2010
301
Government of Pakistan, 2007. “Trucking Policy” Ministry of Industry, Production & Special Initiatives, Islamabad.
302
World Bank, 2009. “Second Trade and Transport facilitation Project - Project Appraisal Document” Sustainable Development
Unit, Pakistan Country Management Unit.
303
World Bank, 2009

163
Monitoring of Environmental and Social Issues in Road Projects

In general, road construction and rehabilitation projects in Pakistan are required by

national/provincial environmental regulations to prepare and submit an Environmental Impact
Assessment (EIA), to be reviewed and approved by the federal or provincial Environmental
Protection Agencies (EPAs). In some cases, the preparation of the EIA is carried out when the
design work is well advanced and the main decisions regarding project alternatives (particularly
alignment) have been determined based on their technical and economic merits. NHA has been
working in the past few years to mainstream environmental considerations in its road projects
(with certain environmental regulations to be followed). It has in its structure an Environmental
Division (EALS) comprising four areas: (i) Environment; (ii) Afforestation; (iii) Land; and (iv)
Social. The Division is headed by a General Manager, and has one Director of Environment, a
Deputy Director of Environment, and two Assistant Directors. In addition, it has one Specialist
in Environment, another in Afforestation, and one Environmental Inspector. The source of
funding for the EALS Division is the so called “Establishment Charges”, which consists of a
charge of 1 percent of the total costs of all NHA projects. Although substantial advances have
been made in the last five years at NHA, additional actions need to be taken to ensure proper
consideration of environmental/social aspects.
While the NHA has traditionally only been responsible for highway construction and
maintenance, it has of late expanded its functions to assess the environmental and social effects
of highway development, a function that is handled by the EALS Division, instituted in 2008.
An analysis, completed under SEPSA, based on interviews and case studies, reflected on the
lagging environmental management aspects of the NHA, which has not yet defined who is
responsible for ensuring that road projects’ design, construction, and operations are
environmentally sound and comply with applicable environmental laws and regulations. 304
Currently, this responsibility rests almost exclusively with the staff of the EALS Division.
Moreover, the experts from the Environment Division are not usually required to participate in
the early phases of project planning (inception, pre-feasibility, pre-design, etc.), although they
might be invited to do so on a case-by-case basis. Nor do these environmental specialists
generally participate in: (i) preparation of bidding documents for hiring consultants to carry out
designs or construction supervision activities; (ii) preparation of bids for civil works’ contractors;
(iii) evaluation of the submitted technical proposals; and (iv) supervision of the work to be
carried out by consultants and contractors.
Lack of road safety is caused mainly by: (i) weak enforcement of traffic rules; (ii) problems with
road design, construction and maintenance; and (iii) the lack of training of drivers, who typically
learn on the job and have not passed tests to obtain licenses. The National Road Safety
Secretariat (NRSS) was created in 2006, under the Ministry of Communications. However, its

304
Miglino, 2011. “SEPSA: Environmental Management Component.” Consultant Report for the World Bank. Washington, D.C.

164
recommendations have not been implemented due to a lack of resources. Average speeds for
trucks on highways in Pakistan are about half the average speed for Europe. While road freight
costs in Pakistan are among the lowest in the world, the trucking industry provides a low level of
service, which is becoming a liability for export industries that need reliability to stay
competitive.305 Due to the plethora of small operators in the sector, relative ease of entry and
poor regulation of the sector, in order to maximize the profits, the operators/owners
systematically overload their vehicles, which results in accelerated deterioration of roads.306 Due
to the lack of trained staff and funds, the NHA has not been effectively monitoring these issues.
Rail Transport Sector

The rail sector in Pakistan is operated by Pakistan Railways (PR), which is one of the largest
organizations in Pakistan. It employed 86,669 workers in 2007-2008.307 It has a network of 7,791
route-km. In 2009-10, the Railways carried 4.6 million tons of freight, which was estimated at
less than 5 percent of the total freight carried in the country.308 Over the last decade, both freight
and passenger traffic increased for PR, with the former registering an average annual increase of
4 percent and the latter of 3.2 percent.309 However, business began to dwindle in 2008, as the
economy slowed down and internal security issues intensified.
PR is a state-owned rail transport service. It has its headquarters in Lahore, but its management is
overseen by the federal Ministry of Railways in Islamabad. The Railway Division of this
ministry is responsible for overall control of PR, as well as for guiding its overall policy. There
are four Directorates in this Division: (i) the Administrative Directorate; (ii) the Technical
Directorate; (iii) the Planning Directorate; and (iv) the Finance Directorate. In addition, the
General Manager (Operations); the General Manager (Manufacture and Services); and the
Federal Government Inspector of Railways also report directly to the Secretary of the Ministry of
Railways.
The Railway Board is the highest body for technical matters in the railways. The general
supervision and management of affairs of Pakistan Railways is vested in the Railway Board,
which has been reconstituted. The new Railway Board consists of the Chairman and five
Members, out of which three are from the private sector. The Secretary to the Ministry of
Railways is the ex-officio Chairman of Railway Board and the General Manager of Railways is
the Chief Executive Officer310.
Presently, there is no railway regulatory framework in existence in Pakistan. However, because
the GoP is considering limited privatization in the sector, a regulatory framework is under

305
World Bank, 2009
306
World Bank, 2009
307
Government of Pakistan, (2008), “Pakistan Railways: Yearbook 2007-08”, Pakistan Railways, Lahore.
308
GoP, 2008
309
GoP, 2010: 205
310
Ministry of Railways, Available at http://www.railways.gov.pk/, Accessed June 21, 2011.

165
consideration. As per the Privatization Commission of Pakistan,311 the broad objectives of the
proposed Regulatory Policy are to: (i) regulate the establishment, working, and provision of
railway services in Pakistan; (ii) promote and protect the interests of users of railway services;
(iii) promote competition in the provision of railway services; (iv) encourage investment in
railway infrastructure and rolling stock by the private sector; (v) promote efficiency and
economy in the provision of railway services; and (vi) resolve disputes arising in the industry.
Moreover, the Regulator is expected to have three major functions: (i) overseeing the rules and
conditions establishing access to infrastructure and approving access contracts; (ii) licensing
private train operations and resolving disputes of regulatory nature; and (iii) managing public
service obligations for the military and other passenger traffic.

Monitoring of Environmental and Social Impacts in the Rail Sector

The railway sector has made very little progress in considering the social and environmental
aspects of rail projects. There is no formal structure within PR (properly staffed, with the
necessary resources) that is tasked with addressing the environmental and social problems in the
railways sector. The aforementioned analysis completed under SEPSA reported the low
awareness of PR top management officials of potential environmental problems in Pakistan’s rail
sector. 312 They considered these environmental issues to be meager and considerably smaller
than those faced by sectors such as roads, ports, industry, energy, etc. In addition, they cited a
lack of resources as a reason for not adopting sound environmental standards. With the exception
of some projects of track rehabilitation and doubling, executed mainly in existing right-of-way,
PR has not been involved in any major projects of expansion (new track construction) in the past
few decades.313
Although it is understandable that the environment is not a top priority in an organization with
enormous administrative, managerial, financial, political, and operational problems like PR, the
organization needs to prepare itself to implement the institutional reforms and large investments
required to become a major player in the freight transport sector in Pakistan, as it used to be in
the past.

Aviation Sector
The Pakistan International Airline Corporation (PIA) was established in 1955 and was for a long
time the only airline in the country. It is a statutory body that comes under the administrative
control of the Ministry of Defence. Pakistan adopted an Open Skies Aviation Policy in the early

311
Privatization Commission of Pakistan, Available at http://www.privatisation.gov.pk/Transport/Pakistan%20Railways.htm.
Accessed June 20, 2011.
312
Miglino, 2011
313 Aly, et al., 2009. Aly, J. H. et al. (2009), ‘Structural Analysis of Pakistan Railways” Study Conducted for Pakistan Railways

Advisory and Consultancy Services (PRACS) Final Report. Available from http://www.scribd.com/doc/27964121/Project-
Warehouse-Design-Logistics-Sector-Report, Accessed June 20, 2010.

166
1990s. Private airlines joined the civil aviation industry in Pakistan as a consequence of the
policy.
Pakistan has 42 functional airports out of which 10 serve international flights. Two more
international airports are being constructed in Islamabad and Gwadar with the involvement of the
private sector, under the policy of liberalizing the aviation industry in Pakistan. The Pakistan Civil
Aviation Authority (CAA) was established to regulate the aviation sector in Pakistan and
develops, maintains and manages all civil aerodromes throughout the country. It is controlled by
the Government of Pakistan through the Ministry of Defence. In order to achieve its strategic
objectives, the CAA has undergone a major restructuring process; the new organization now
separates the three main functions i.e. Regulatory, Airport Services and Air Navigation Services.
The CAA Board is the highest body for technical matters in the airways. The general supervision
and management of affairs of CAA is vested in the CAA Board. The CAA Board consists of a
Chairman and ten Members, out of which four are from the private sector. The Secretary of the
Ministry of Defence is the ex-officio Chairman of Railway Board and the Chief Financial Officer
of the CAA is the Secretary to the CAA Board. Its other members include the Vice Chief of the
Air Staff, the Secretary of the Planning and Development Division, the Additional Secretary of
the Ministry of Defence, the Additional Secretary of the Ministry of Finance, the Director
General of the CAA, and the Managing Director of the PIA314.
Management of Environmental and Social Impacts in the Aviation Sector

The aviation sector has made very little progress in considering the social and environmental
aspects of its daily operations and new projects. There is no formal structure in the CAA which is
tasked with addressing the environmental and social problems of the air transport sector.
According to the CAA, their largest environmental initiative is “Bird Menace Control” - i.e.
controlling the populations of birds on the airport and in the vicinity that can be a potential
hazard to aircrafts. The CAA considers its only environmental issue to be unwanted birds
activity around airports, due to bird attraction sites (such as butcheries, slaughterhouses, poultry
farms, etc). It has adopted measures to reduce bird activity in, or in the vicinity of, airports by
discouraging development of garbage dumps and other sites or activities that can attract birds.

However, as of the recent restructuring, the CAA is now more focused on new initiatives, such
as introduction of Enterprise Resource Planning (ERP), Health, Security, Safety, and
Environment (HSSE), Corporate Social Responsibility (CSR), Ethics Management Program, a
customer feedback mechanism at the airports, Employees Performance Management System,
benchmarking, outsourcing of non-core and wasteful activities, etc. The CAA is now also
committed to acquiring international standards for Integrated Management Systems (IMS) such

314
Civil Aviation Authority. Available at http://www.caapakistan.com.pk/CAABoardView.aspx, Accessed June 22, 2011.

167
as the ISO 9001:2000 standards (Quality Management System), ISO 14001:2004 (Environmental
Management System), and OHSAS 18001:2007 (Occupational Health and Safety Management
System) 315 . Achieving these standards would require substantial investments, reforms and
institutional strengthening, including those needed to address the environmental and social issues
arising from its activities.
Recently, PIA launched the Health, Safety & Environment (HSE) initiative. The objective of this
program is to mature the airline’s HSE systems to a level which will eventually lead to OHSAS-
18001 and ISO-14001 certification. As part of this program, PIA plans to conduct organization-
wide HSE trainings, development of HSE objectives, implementation of HSE system procedures
and management reviews to assess the continual effectiveness of the HSE system316.

Ports and Shipping Sector

In Pakistan, freight transported over water is almost always sea-based, since in-land water
channels do not have the infrastructure--and, in many cases, the capacity--for freight transport.
Pakistan has two main seaports through which much of the country’s cargo moves. The Karachi
Port and Port Qasim, both located in Pakistan’s largest city and commercial center (Karachi), act
as primary entry and exit points for imports and exports317. Karachi Port, which accounts for
about 60 percent of the nation’s sea trade, handles about 1.4 million Twenty Foot Equivalent
Units (TEUs) of cargo per annum.318 The Port has two wharves (East and West Wharf with
capacity of 17 and 13 vessel berths respectively) and handles all forms of cargo. The Port can
accommodate vessels of up to 75,000 DWT319. Port Qasim, which handles about a third of total
sea trade, can accommodate vessels of up to 75,000 DWT. The Gwadar Port, which was
formally inaugurated in December 2008, currently has the capacity to handle vessels of up to
50,000 DWT320.
The Ministry of Ports & Shipping functions as the central policy making and administrative
authority for the country’s shipping sector. The Ministry of Ports & Shipping consists of one
division, the Ports & Shipping Division, which takes care of all the ports in the country. The

315
Civil Aviation Authority, Available at http://www.caapakistan.com.pk/about_us.aspx, Accessed June 22, 2011.
316
Pakistan International Airlines, Available at http://www.piac.com.pk/PIA_About/pia-about_HSEQP.asp, Accessed July 22,
2011.
317 Phase I of the deep sea port at Gwadar in Balochistan province was inaugurated in March 2007, but port traffic has been
relatively slow at Gwadar given available capacity at Karachi, and the fact that Gwadar does not as yet have transport linkages
up-country.
318
World Bank, 2006. “Transport Competitiveness in Pakistan - Analytical Underpinning for National Trade Corridor
Improvement Program” Energy and Infrastructure Operations Unit, Washington D. C.
319 Karachi Port Trust, Available at http://www.kpt.gov.pk, Accessed June 23, 2011. The Karachi International Container
Terminal (KICT) opened the West Wharf in 1996 for specialized handling of container cargo. It has the capacity to handle
525,000 TEU of cargo per annum. Similarly, the Pakistan International Container Terminal (PICT), which opened at East Wharf
in 2002, can handle up to 450,000 TEU of cargo per annum, with plans to expand capacity to 700,000 TEU per annum.
320 Gwadar Port Authority, Available at http://www.gwadarport.gov.pk/PortProfile.aspx, Accessed June 23, 2011. Currently it
has three multipurpose berths, and a 4.5 km long approach channel which has been dredged up to 14 meters. The second phase of
port development is currently ongoing.

168
main responsibility of the ministry is to provide policy guidelines to the country’s ports i.e. the
Karachi Port Trust, Port Qasim Authority and Gwadar Port Authority.
The Karachi Port is administered by a Board of Trustees, comprising a Chairperson and 10
Trustees. The Chairperson is appointed by the Federal Government and is also the Chief
Executive of the Karachi Port Trust (KPT). The remaining 10 Trustees are equally distributed
between the public and the private sector. The five public sector Trustees are nominated by the
Federal Government. The seats for private sector Trustees are filled by elected representatives of
various private sector organizations. This way all port users find representation on the Board of
Trustees321.
The Port Qasim Authority (PQA) was established through an act of parliament on June 29, 1973.
Like the other ports, it is under the administrative control of the Ministry of Ports & Shipping.
The chairman of the PQA Board is the chief executive of the port. All policy decisions are vested
in the PQA Board, which is comprised of seven members. The Board is a blend of public and
private sector participation322. The PQA is primarily a service-oriented organization. The port
provides shore-based facilities and services to international shipping lines and other concerned
agencies in the form of adequate water depth in the channel, berths/terminals, cargo handling
equipment, godowns, storage areas and providing facilities for safe day and night transit of
vessels.
Gwadar Port, located in the western part of the country in the province of Balochistan, is
managed by the Gwadar Port Authority. The Gwadar Port was developed to: (i) capitalize on
opportunities for trade with landlocked Central Asian States and Afghanistan; (ii) promote trade
and transport with Gulf States; (iii) trans-shipment essentially of containerized cargo; (iv)
increase the socio-economic development of Gwadar, the province of Balochistan, and the
country; (v) reduce congestion and dependency on the country's existing ports; and (vi) serve as
a regional hub for major trade and commercial activities323.
Management of Environmental and Social Impacts in the Ports and Shipping Sector

Environmental management at the KPT is the responsibility of the Marine Pollution Control
Department (MPCD), which is headed by a Marine Chief Engineer. KPT has also a Port
Operation Center (KPOC), which among other tasks, is responsible for: (i) monitoring and
controlling port operations; (ii) monitoring and controlling marine pollution in the harbor; and
(iii) activating emergency response to handle crises. An analysis completed under SEPSA by a
World Bank consultant identified that the knowledge of the officials is tacit rather than
organizational. This can result in a significant loss of expertise at the KPT since there is no such
succession planning or institutionalized approach. The Karachi Port suffers adverse effects from

321
Karachi Port Trust, Available at http://www.kpt.gov.pk/, Accessed June 23, 2011.
322
Port Qasim Authority, Available at http://www.pqa.gov.pk/, accessed June 23, 2011.
323
Gwadar Port Authority, available at http://www.gwadarport.gov.pk/Home.aspx. Accessed June 23, 2011.

169
land-based pollution (domestic and industrial) in the harbor area. Due to its location, in the
mouth of the Lyari River, and proximity to Karachi’s downtown area, the port area receives the
untreated wastes from millions of residents and thousands of industries. Port authorities have
spent years trying to convince city, provincial, and federal authorities to address the wastewater
pollution problem, but without any success, due to the large investment and operation costs
involved in the proposed solution (a large wastewater treatment plant). However, KPT’s
technical capacity to prepare and/or evaluate cost-benefit analyses of large wastewater treatment
facilities is very weak.
At PQA, the Environmental Department is responsible for all environmental management issues
at the port. There are two Deputy Managers, one for Environment and Safety, and the other for
Marine Pollution Control. PQA is presently working on two priority areas: wastewater treatment
and solid waste disposal.
Port authorities have included environment on their agenda and have also allocated some human
resources in order to meet their environmental objectives. But these efforts are not sufficient to
meet the ever increasing demands of better environmental and social conditions. The analysis
completed under SEPSA found that these environmental units do not have the capacity to deal
with complicated situations. Moreover, the knowledge is individual specific rather than
organizational. More needs to be done, particularly in the establishment of environmental &
social standards, which are not currently the priority of any of the port authorities.

Other Government Organizations with Trade and Transport Responsibilities

Overall responsibility for providing a comprehensive national plan for development rests with
the Planning Commission of Pakistan. This ten member organization, which is chaired by the
Prime Minister, is responsible for preparing Pakistan’s Five Year Plans, whose aim is to provide
strategic coherence to the disparate activities undertaken by the Government of Pakistan. For
several years, trade and transport sector reform has been an interest of the Planning Commission.
Several reform activities were developed and bundled together as the National Trade Corridor
Improvement Program (NTCIP). To design and implement this program, the Planning
Commission created the National Trade Corridor Management Unit (NTCMU), to act as a
coordinating body for collecting information from, and disseminating information to, the various
trade and transport-related organizations. The NTCMU also includes technical advisory services:
designing and administering studies to examine options for trade and transport reform and to
assist sectoral agencies in managing environmental and social issues in their sectors.324
Trade and transport infrastructure is generally a federal responsibility; however, the provinces do
play a role in several areas. Firstly, more than ninety percent of Pakistan’s roads are owned and
maintained by sub-national governments, and the majority of Pakistan’s road freight does pass,

324
National Trade Corridor Management Unit. Available at
http://ntcip.gov.pk/index.php?option=com_content&view=article&id=80&Itemid=69. Accessed on October 9, 2011

170
for at least some portion of its journey, over non-federal roads. The condition of these roads
plays a role in affecting road safety and the condition of Pakistan’s trucking fleet. In order for
integrated multi-modal planning to become a reality, there must be linkages between provincial
and federal road and highway authorities. Secondly, with the recent devolution of environmental
management responsibilities onto local authorities, it will now be the provincial Environmental
Protection Agencies (EPAs) who have the ultimate responsibility for designing and
implementing the environmental requirements that transport-related projects will have to abide
by. Provincial authorities will be setting environmental assessment requirements for projects,
reviewing those assessments, and then monitoring the adequacy and implementation of
mitigations. Given the number of infrastructural projects that are likely to be undertaken as a
result of trade and transport sector reform, it might be useful to have linkages between transport
organizations’ environment cells and the provincial environmental protection agencies, but no
organizational liaisons of this nature currently exist.
Conclusions

The transport sector in Pakistan is characterized by multiple agencies that fall under the purview
of various ministries, with some agencies responsible for infrastructure, others for operations,
and others for both. The Ministry of Communications is responsible for the National Highway,
the Ministry of Ports and Shipping is responsible for Shipping and Ports, the Ministry of
Railways for the railway subsector, the Ministry of Defence for the civil aviation subsector, and
the provincial and district governments for the provincial and rural road subsectors. Enforcement
of traffic regulations at the provincial level is the responsibility of the provincial police
department and the Ministry of the Interior. For national highways, the National Highway and
Motorway Police, under the Ministry of Communications, is responsible for enforcing highway
regulations. The Railway Police performs this function in the railway subsector. This diversity of
agencies promotes an environment in which coordination, intermodal planning, and enforcement
are compromised. In addition, government organizations charged with responsibilities on the
trade and transport sector have very little experience in managing adequately the environmental
and social aspects of their activities.
In spite of all the directives contained in the regulations stressing the importance of coordination
among concerned agencies, at present no formal mechanisms exist for agencies involved in trade
and transportation and environmental management to participate in a consultative process with
other government agencies for priority-setting, development of long-term action plans, and
assessment of performance/impacts of specific initiatives. Inter-sectoral coordination for the
oversight of crosscutting issues is also non-existent. Some attempts have been made in past to
establish Focal Points within other ministries but interactions among these Focal Points have not
yet been institutionalized. It is clear that one of the primary organizational problems facing both
transport and environment agencies is a lack of formal mechanisms to promote and enforce
coordination.

171
Redefining the Role of Government in the Development of Freight Transport
Infrastructure

The institutional capacity of the organizations directly involved in trade and transport sector and
responsible for natural resources protection and environmental management in Pakistan is, at
best, deficient. In addition, the GoP’s traditional approach to financing the development of
transport infrastructure and favoring public-owned transport enterprises has generated significant
distortions that reduce competitiveness, while also allocating scarce public resources to activities
that could be funded by other sources. Examples of public projects and policies that have
generated significant inefficiencies include subsidies granted to passenger rail at the expense of
freight rail, government protection of PIA, government preference of road over rail, and high
tariffs in ports. The case for facilitating private sector participation in the development of freight
transport infrastructure is not only supported by the high costs and distortions generated by
excessive governmental interference, but is also advocated by the 2011 Framework for
Economic Growth.
In this regard, the analysis conducted under SEPSA recommends the establishment of a new
regulatory framework for developing freight transport infrastructure in the road, railway, port,
airport, pluvial and maritime modes, by structuring, adjudicating and managing concession
contracts with the private sector. The regulatory framework should also provide clear
dispositions regarding the adoption of best environmental and social practices by private sector
contractors, as well as for ensuring that services provided by the private sector meet high quality
standards and are aligned with the overarching goal of contributing to economic growth by
integrating different modes of freight transport to strengthen connectivity and the country’s
competitiveness. The proposed regulatory framework will confer several benefits, including
improving the allocation of public resources and facilitating private sector participation to
develop freight transport infrastructure more efficiently.
Rationale for Redefining the Government’s Role

As section two of this annex described, the responsibility for the construction, operation, and
maintenance of Pakistan’s transport infrastructure and policy-setting for its freight transport
sector is currently split across four ministries (Defence, Communications, Railways, Ports and
Shipping). Each ministry has an incentive to seek rents by maximizing the power and influence
of its portion of the freight transport sector. None of these ministries can acquiesce to the trade-
offs involved in developing a modern, multi-modal cargo transport industry without potentially
losing resources and control. In particular, there is evidence that freight sector reform in Pakistan
might result in increases in expenditure for rail transport and corresponding decreases in
expenditure for road transport infrastructure. Unless there is a new regulatory framework that
addresses Pakistan’s overall needs in a dispassionate way, then these tradeoffs will have to be
imposed on the ministries politically, by Parliament, since the ministries will be unwilling to see
solutions that have the potential to negatively affect their resources. This kind of sub-sectoral
focus should be avoided in the new framework, which should cover the entire transport sector.
Further, one of the recommendations of SEPSA is the development of a multi-modal transport
infrastructure that more closely links rail, road, and sea as transport modalities. The development

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of this structure will necessarily result in more intimate linkages between the three
infrastructures. Given the structure of the Government of Pakistan, it is unlikely that separate
ministries will be able to successfully and efficiently coordinate their efforts in a manner that
would efficiently enable this multi-modal structure, unless a new regulatory framework that
changes the current incentive structure is put in place. In its absence, the danger is that ministries
will develop competing, parallel structures, or that ministries will seek to actively hamper
cooperation because of a perceived danger that, for instance, linking national highways to rail
hubs would eventually decrease the necessity for long-range interprovincial highways and end,
in the long run, with decreasing funds for road construction. To the extent that the ministries see
themselves as competitors for government funds, they will be unwilling to cooperate. And, even
when they are willing to cooperate, it is likely that the lack of direct authority over each others’
operations will result in planning difficulties and priority-setting issues. It is difficult for any
kind of organization to allow a substantial portion of its core mission to be dictated by external
parties. Even if the ministries are required, by legislation, to mesh their operations, the
differences in command structure are likely to make this cooperation somewhat inefficient and
tenuous in practice.
Finally, the new regulatory framework should aim to minimize the risk of regulatory capture,
which is the tendency of regulators to eventually come under the control of the industries that
they are supposed to be regulating and, as a result, to create regulations that are designed to aid
the industry, rather than the public. Regulatory capture can come about through corrupt means,
but it can also come about through sympathy: regulators spend so much time working with the
industry that they come to adopt the industry’s viewpoint. Under the new framework, each
freight sector actor will have comparatively less influence than it does currently, since it will
cover all modes of transportation. For instance, right now, there is a danger that the Ministry of
Ports and Shipping could be captured by the Port Authorities, since these are the only major
actors in the ports and shipping sector. But under the proposed new framework, the ports would
have to compete for influence with actors in air, rail, and road transport. This fear of regulatory
capture is particularly relevant now, when Pakistan is considering partial privatization, as
improperly conducted privatization can lead to giveaways for industry and a loss of possible
gains for the government.
Nature of Consolidation

A key recommendation is for the GoP to integrate transport planning and programming under a
Modern National Transport Policy and to establish a new regulatory framework for developing
multi-modal freight transport infrastructure through closely supervised concession contracts to
private firms. A major weakness in the transport sector is that there is a lack of coordination
among transport agencies, which prevents the consistent application of national priorities. The
proposed framework, which approaches the development of freight transport infrastructure
considering the country’s (and not the sectors’) needs, would need to create incentives to
facilitate Pakistan’s transit to the era of co-modality.
The new regulatory framework should enable an environment for private sector participation in
the transport sector, which requires strong political leadership. Excessive public interference in
the transport sector has led to significant distortions that discourage productivity in the sector and

173
has contributed to the poor performance of key freight sectors, as discussed above. Privatization,
with adequate governmental regulation and oversight, not only helps free up the scarce public
resources dedicated to infrastructural projects but helps provide the much needed capital
investment, increases management expertise, helps enhance accountability and transparency,
leads to an optimal allocation of resources, and increases quality and reliability of delivery. The
2011 Framework for Economic Growth acknowledges that competition is a starting point
towards increasing efficient and sustaining economic growth. 325
The proposed regulatory framework could also establish coordination mechanisms to leverage
carbon finance funds for the investment required to shift modalities from road to rail.
Greenhouse gas (GHG) mitigation alone is not a sufficient reason to promote modal shift in a
country such as Pakistan, which contributes marginally to global emissions and faces significant
socio-economic challenges. However, if these reduced emissions are compensated through
resources from programmatic operations of the Clean Development Mechanism or by
international assistance for new instruments, such as National Appropriate Mitigation Actions
(NAMAs), they could generate resources that could be invested in other priority areas. However,
the competitivenss of rail freight for long distance strenghtens the argument for a multi-modal
system, as rail freight transportation is likely to be a more effective means of transporting goods
compared to trucks under heavy precipitation and flooding events.326
For these reasons, important goals that the proposed regulatory framework should promote
include, among others: (i) facilitating private sector involvement in the transport sector,
particularly in the rail sector; and (ii) ensuring fair competition, in which agents are allowed to
operate, compete and interact with each other on a level playing field that creates the
environment that is needed for private initiative to thrive and realize optimum productive
efficiency. In some ways the changes are already taking place. The momentum for change,
however, needs to be maintained and possibly increased and extended to cover the entire
transport system. The new framework should sustain the momentum for change by taking a
holistic and integrated approach to identify and analyze the elements that significantly impact
competitiveness.
It is important that the GoP carefully examines the rationale behind and consequence of direct
involvement in the freight sector, and acts assertively to eliminate the special advantages or
protection that is currently provided to certain companies. The prime examples are the National
Logistics Cell (NLC) and passenger rail services, the former dominating road sector and the
latter dominating rail services at the expense of freight rail transport. In the port sector, while
each port has initiated development plans and some healthy competition has started between
ports, the Government needs to have a long term vision of the development of the sector to make
the best use of its port infrastructure, ensure that the best services are provided, and prevent

325
GoP, Planning Commission, 2011. “Pakistan: Framework for Economic Growth.” Islamabad, Pakistan.
326
Ibid.

174
duplication of investments and waste of resources. It also needs to restructure PR to translate into
realities the objective of making it a more commercially oriented company.327 As a top priority,
the government needs to implement the new trade facilitation strategy, trucking policy, and civil
aviations strategy, the latter of which calls for PIA to be restructured along commercial lines and
eliminates cross-subsidies. 328 Eliminating harmful government intervention (albeit with
competent regulation as required) and protection from anti-competitive practices is fundamental
for enhancing the efficiency of the freight sector.
Due to federal budget constraints, bringing in private participation to revamp PR, particularly its
freight business, is advantageous given rail‘s competitive advantage for long distances over the
road freight transport. Private sector participation in freight transportation in railways would be
helpful in improving track utilization, which currently is only 42 percent. Pakistan Railways
might increase private sector participation in freight transportation, for example, outsourcing
stations management, letting suburban trains be run by separate companies, and allowing private
companies to run their own container trains and rolling stock. Private sector participation should
be encouraged via opening of track access in which private operators are allowed to run freight
services on selected routes, for which the legal and regulatory framework will be in place.
The capacity of the new framework to facilitate private sector investment and the integration of
different modes of transport will require changing the ways in which resources are allocated,
increasing accountability by relevant agencies and organizations, and creating a sound
monitoring and evaluation framework that can inform progress on meeting Pakistan’s goals of
improving connectivity and stimulating economic growth. It will also require political support at
the highest level, as powerful ministries and beneficiaries of the status quo are likely to resist the
adoption of the new framework.
Scope of the regulatory framework: In order to address the key challenges faced by Pakistan in
terms of its inefficient freight transport sector, which reduces the country’s competitiveness and
also generates significant environmental and social externalities, the new framework should
regulate the following areas:

• Project and Concession Contract Development: The framework should define clearly
responsibilities for identifying and proposing initiatives to attract private investment in
the development of transport infrastructure and linked services, in accordance with
policies defined by the Planning Commission and the Ministry of Finance.
Responsibilities should be explicitly allocated for: (i) developing plans, programs and
strategies for infrastructure development; (ii) assessing the technical, financial, and legal
feasibility of projects and the participation of the private sector in them; (iii) unifying
and streamlining the procedures for evaluation, elaboration of studies, negotiations and
other aspects of concessions for freight transport infrastructure development; (iv)

327
World Bank, 2009
328
Government of Pakistan, 2007

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 carrying out the studies needed to define tolls, charges, tariffs, and other financing
mechanisms that would be charged for the use, construction, maintenance or
rehabilitation of infrastructure; (v) assessing the risks of infrastructure development and
proposing ways to manage them, distributing them clearly between the parties to the
concession contracts; and (vi) supervising, evaluating and ensuring adequate contract
execution.

• Environmental and Social Management: The framework should lead to the

establishment of an integrated environmental and social management system (along the
lines discussed in the next section), which would ensure that environmental and social
concerns are addressed at every stage of the planning and implementation process. The
regulatory framework should establish mechanisms to oversee contractors’ compliance
with applicable environmental and social norms and standards. In addition, it should
provide mechanism for ensuring that the resettlement and rehabilitation processes (both
voluntary and involuntary) are consistent with international best practices.

• Monitoring and Evaluation: The framework should establish clear enforcement

mechanisms and sanctions for breaches in procurement, financial management, human
resources, or environmental and social policy. Ideally, the framework should create an
independent reporting structure which was capable of intervening through layers of
bureaucracy to provide rapid response to issues with potentially high economic and
reputational risks. The framework should also enable the preparation of independent and
periodic assessments to measure general institutional performance, first by collecting
baseline performance data and then determining indicators for measuring improvements
in efficiency.
Attracting private sector investment: A new organization could be created with the mandate to
attract private sector investment, including through the development of Public-Private
Partnerships (PPP) and the development of concession contracts under schemes including “Build,
Operate, Transfer” and “Build, Own, Operate” among others. The institutional framework should
sustain the momentum for change by taking a holistic and integrated approach to identify and
analyze the elements that significantly impact competitiveness and hamper private sector
participation in infrastructure development.
Ring-fencing: The new regulatory framework should include provisions to ring-fence agencies—
providing an institutional shield to protect regulators from regulatory capture. At the very least,
regulations should be enforced by independent units that do not report to, rely on, or have too
much contact with those they are required to regulate (which will often include other divisions
and departments of their own ministries). However, as the intermodality of Pakistan’s transport
system increases, the ability of ministries to self-regulate and to adjudicate conflicts between
themselves will decrease. In the long run, the new regulatory framework should be enforced by
an independent transport regulatory authority.
Strengthening Environmental Management in the Trade and Transport Sector

Of the primary agencies tasked with managing and regulating the nation’s trade and transport
systems, only the NHA and the port authorities have devoted significant attention to
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environmental issues. The NHA has an environment division whose responsibility is
incorporating environmental considerations into road design, while the Port Qasim Authority and
Karachi Port Trust have both devoted some level of staff and resources to monitoring and
controlling marine pollution. However, even the environmental units of these three organizations
are understaffed, lacking in technical capacity, and poorly integrated into the priority-setting and
decision-making structures of their organizations.
Whether or not a new regulatory framework is established, all agencies and departments with
transport-related responsibilities should have dedicated environmental units. These units should
be responsible for:
• Conducting environmental assessments that meet the standards of Pakistan’s regulations
• Designing and implementing proposals for enhancing the positive environmental and
social impacts of transport programs.
• Measuring baseline environmental air, water, noise, and forest quality
• Measuring the impact of freight activities on environmental quality
• Conducting public hearings to gain feedback on transport-related proposals from
affected populations--particularly the poorest and most vulnerable populations--as well
as other stakeholders.
• Affecting the decision-making process in their respective agency, not just at the
mitigation phase (after major planning is completed) but also at the initial stages, where
the environmental unit can influence the choice of possible alternatives.
Priority-setting role of environment units: vulnerable populations and the overall society would
benefit from the implementation of a priority-setting mechanism within each transport
organization considering: (a) the impacts of environmental degradation over the poor and most
vulnerable groups; (b) the most urgent needs as perceived by the population; (c) the costs that
environmental degradation infringes to society, and (d) a cost-benefit analysis of environmental
measures. The creation of a group within each transport organization to conduct, in close
collaboration with provincial environmental management agencies, the analytical work for
priority identification would provide analytically sound foundations for environmental priorities
and budget allocation in response to those priorities.
Creating the capacity to evaluate results and impacts and learn from experience: All the
transport institutions would benefit from incorporating result and impact evaluation as part of
their management routine. Without the capacity to evaluate, they will not be able to learn and
build-in institutional change. For this, they would need to systematically create baselines and
entrust evaluations to independent consultants or organizations, researchers, think tanks and
academic institutions that could be contracted to conduct these evaluations. The creation of a
competitive evaluation-fund could be a good way of encouraging an evaluation and learning
culture in the system. The fund could also support the organization of learning activities, such as
retreats to discuss evaluation results and workshops for cross-learning and analyzing
international best practices. These learning activities should try to involve a broad audience of
the institutions’ staff, and participants from partner organizations, like NGOs, research
institutions and universities.

177
Aligning environmental expenditures with priorities: Public resources allocated to support
environmental sustainability are scarce. Therefore, the effectiveness of environmental
expenditure will increasingly depend on each transport organization’s capacity to allocate
resources according to environmental priorities Therefore, it is suggested that a planning process
to align the annual expenditures with environmental priorities identified through the priority-
setting process. Additionally, given the number of environmental activities supported by donors,
or implemented by regional and local governments, the transport organizations might consider
efforts aimed at planning environmental roundtables involving public institutions, donor
agencies, and civil society to discuss priorities, coordinate actions, and develop a joint strategy.
Creating capacity to monitor environmental expenditure: An adequate assessment of policy
implementation requires reliable monitoring and evaluation of environmental expenditure
according to results and impacts. The proposed environmental units at the transport organizations
should conduct periodic monitoring. To do so, they would develop results and impact indicators
for each of the priority issues, and incorporate data delivered by participatory monitoring
mechanisms into the M&E system.
Measuring environmental quality: In order to measure the impacts of trade and transport reform,
environmental units at transport organizations should create monitoring systems for
environmental quality. This environmental information system should include: air quality, water
quality, waste handling/management, forestry, and biodiversity.
International Certifications: The eventual goal of these internal environmental and social
management systems should be to achieve certification against international benchmarks. The
ISO 14000 system of standards certifies that an organization’s environmental management
system is able to identify and control the environmental impact of its activities; continually
improve its environmental performance; and implement a systematic approach to setting
environmental objectives and targets.329 These standards are seen as an international benchmark
to which many private corporations and public utilities aspire. There are also equivalent
certifications, such as the ISO 9000 set of standards, covering quality management systems, and
the OHSAS 18000 standards for occupational health and safety management systems. 330 The
possession of international-quality environmental and social systems can often be a selling point
for international donors and private partners, as it is seen as reducing the risk of environmental or
social harms that might result in reputational losses for agencies and corporations that must bow
to public opinion in the west. As a result, high-quality environmental management systems have
the potential, in the long run, to pay for themselves in cheaper and more easily available
financing for the organization as a whole.

329
International Organization for Standardization. “ISO 14000 essentials” http://www.iso.org/iso/iso_14000_essentials.
Accessed September 13, 2011
330
International Organization for Standardization. “ISO 9000 essentials”. http://www.iso.org/iso/iso_9000_essentials. Accessed
September 13, 2011

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Conclusions and Recommendations

In conclusion, one of the major challenges facing the fractured transport system in Pakistan is the
lack of a unified planning structure. It is recommended that a new regulatory framework be
adopted to develop freight transport infrastructure in a way that facilitates inter-modal
connectivity and private sector participation. In order for this new framework to effectively and
efficiently facilitate private sector involvement, promote integration of different modes of
transportation, and address the freight transport sector’s key challenges, it should have a broad
scope covering: environment and social management, project and concession contract
development, and monitoring and evaluation. The framework should also create the mechanisms
to leverage climate change mitigation funds for investment in cleaner freight transport modalities.
This framework should avoid subsectoral focuses that can lead to perverse incentives, regulatory
capture, and rent-seeking behavior which would inefficiently privilege one transport modality
above the rest. The units responsible for enforcing this regulatory framework should be kept
independent of the government agencies and private firms that they regulate. The current
regulatory framework places transport is in the hands of a number of different ministries and
agencies. The new regulatory framework should provide a platform for them to engage in
dialogue with each other, much less attempt to coordinate policies and investments.
Additionally, the lack of environmental planning capacity at transport agencies should be
rectified with a program of institutional strengthening and capacity building. Environmental units
should be established in all those organizations which do not currently possess them. These units
should be integrated into the planning and decision-making process of their organization, so they
possess the ability to influence construction and operation in such a way as to take into account
environmental and social considerations (particularly early on in the planning process when such
considerations can be dealt with more efficiently). The eventual aim of these environmental and
social units should be to achieve certification as environmental management systems that meet
international standards.
Recommended Actions for Improving Pakistan’s Institutional Framework for
Management of Trade and Transport
Recommended Action Timeframe
Creation of a new regulatory framework
A regulatory framework should be established to regulate private sector Medium term
participation in freight transportation infrastructure.
Establishment of clear mechanisms, under the framework, for project and
Medium term
concession contract development, environmental and social management, and
monitoring and evaluation of the entire freight transport sector.
Creation of ring-fenced regulatory units within each transport-related Ministry to
Medium term
enforce the regulatory framework
Creation of intersectoral transport regulatory authority to enforce regulatory
Long term
framework and encourage dialogue / coordination
Strengthening Environmental and Social Capabilities of Transport Agencies
Establishment of dedicated environment and social units within Pakistan
Railways, Civil Aviation Authority, and Gwadar Port Authority, and institutional Short Term
strengthening for existing environment units

179
Creation of capability for environmental units to: i) conduct analytical work on
environmental priority-setting for each transport organization; ii) align
Short Term
environmental expenditure with priorities; and iii) monitor results of
environmental expenditure
Creation of systems to measure baseline environmental quality (and changes over
time) as a result of freight transport reform, particularly changes to air and water Short Term
quality
Integration of environment and social units into early stages of planning /
Medium Term
decision-making process within all organizations
Achievement international certifications: ISO 9001:2000 (Quality Management
System), ISO 14001:2004 (Environmental Management System), and OHSAS Long Term
18001:2007 (Occupational Health and Safety Management System)

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ANNEX 4. PAKISTAN’S ENVIRONMENTAL REGULATORY FRAMEWORK331

Abstract

This annex describes the characteristics of provincial environmental agencies in Pakistan and the
challenges they face. It discusses the recent devolution of environmental responsibilities to the
provincial governments, and the risks that such institutional arrangement could bring. Based on
Pakistan’s unique challenges and in solid international experiences, it recommends a program of
institutional strengthening and capacity building, focused on the provincial environment agencies
and on Pakistan’s new environmentally-related ministry, the Ministry of Climate Change. The
annex concludes by providing recommendations to strengthen Pakistan’s environmental
management to manage adequately the potential environmental effects of reforms in the trade
and transport sector.

Introduction

The Strategic Environmental, Poverty and Social Assessment (SEPSA) of Trade and Transport
Sector Reforms primarily contains recommendations on how to strengthen the environmental
planning capabilities of Pakistan’s trade and transport organizations, so that these organizations
will be better able to manage their own environmental impacts and priorities. However, it is
expected that trade and transport sector reform in Pakistan will place a burden on Pakistan’s
environmental regulatory systems. For that reason, this annex describes those systems and looks
at policy options to strengthen Pakistan’s environmental management framework to better
accommodate the demands of trade and transport sector reform.
This analysis covers provincial environmental management agencies, the judicial system and
environmental tribunals, and other ministries with environmental responsibilities. It also
examines the recent devolution of federal environmental management responsibilities onto
provincial governments.
This annex has four additional sections. Section 3 provides a description of agencies tasked with
environmental management. Section 4 contains recommendations for environmental
coordination and institutional strengthening. Section 5 summarizes this annex’s conclusions and
recommendations.

331This annex was prepared by Ernesto Sanchez-Triana, Javaid Afzal, Rahul Kanakia, and Hammad Raza. The
findings, interpretations, and conclusions expressed in this annex do not necessarily reflect the views of the staff or
Executive Directors of The World Bank or the governments represented by the Executive Directors.

181
Environmental Management Agencies

Until recently, the umbrella responsibility for environmental priority-setting and policy
formulation in Pakistan rested with the federal Ministry of Environment, while the federal
Environmental Protection Agency (Pak-EPA) was the organization mainly responsible for
regulatory enforcement. However, the passage of the Eighteenth Amendment to the Constitution
of Pakistan resulted in the dissolution of the former ministry (in May 2011) and a downscaling of
the latter’s scope.
However, on October 26th, 2011, the government of Pakistan constituted a Ministry of Disaster
Management (MDM) and assigned much of the MoE’s environmental portfolio, including
planning functions and control over the Pakistan EPA, to the new ministry. The Ministry was
subsequently transformed into the Ministry of Climate Change (MOCC). Given the newness of
this development, it is unclear how the new agency will fit into Pakistan’s environmental
regulatory framework, but it is likely that the agency will require institutional strengthening and
technical assistance in order to meet its new responsibilities.
Environmental Management at the Federal Level

The 18th Constitutional Amendment devolved responsibilities for environmental management to

sub-national governments. Since the adoption of the 18th Constitutional Amendment, provincial
governments have taken over environmental management responsibilities in an ad hoc manner.
In Punjab, for example, District Environment Officers have been appointed in most districts.
However, in the other three provinces, the environment departments have set up regional offices.
While decentralization of environmental management responsibilities offers a number of benefits,
including the capacity to respond more effectively to local priorities, there are also significant
tradeoffs and risks. For example, unequal definition and enforcement of environmental standards,
as well as differences in the capacity of environmental agencies, could lead to more severe
environmental degradation in different parts of the country.
With the creation of the MOCC, Pakistan has a new apex environmental ministry to aid in
designing and implementing public policies, and enforcing regulations. Since environmental
problems are typically felt locally, provinces and municipalities are often in a better position to
address environmental problems, and thus would achieve superior outcomes if given the freedom
to choose the most appropriate policies and instruments. This is the immediate rationale for
decentralizing environmental management. However, without proper coordination,
decentralization eventually leads to significant differences in environmental quality across
regions. The MoCC is well suited to assume this coordination role.

Provincial Environmental Protection Agencies

Each of the four provinces possesses a provincial environmental protection agency, which is
tasked with regulatory and monitoring functions such as enforcing environmental regulations,
setting environmental priorities, developing policies, managing interventions to deal with
environmental priority issues, collecting data on environmental quality, gathering environmental
data on polluters, handling environmentally-related complaints by stakeholders, developing new
environmental regulations, and operating laboratories for testing samples. Generally, the role of
182
these agencies has been limited in practice to the review of environmental assessment documents
for large projects being undertaken within the province.
The ambit of each of these agencies increased considerably with the Eighteenth Amendment and
the resulting retreat of the federal government from the responsibility for environmental
management. However, many environmental issues cut across geographical barriers, and
systematized mechanisms for inter-sectoral coordination to tackle cross-cutting issues and
harmonize common interventions have not been set in Pakistan (although hopefully the newly-
created MOCC will take up the responsibility for these mechanisms). In spite of all the directives
contained in the regulations stressing the importance of coordination among concerned agencies,
by June of 2012, no formal mechanisms existed for agencies involved in environmental
management to participate in a consultative process with other provincial or sectoral agencies for
priority-setting, design and implementation of interventions, and monitoring, and evaluation of
effectiveness. Inter-sectoral coordination for the oversight of cross-cutting issues was also
nonexistent. Some attempts were made to establish focal points within other non-environment
ministries, but interactions among these focal points have not yet been institutionalized.332
The provincial organizations charged with the implementation of the existing legal and
regulatory framework have detailed and ambitious mandates, but in general, have insufficient
staff, small budgets, low political prestige, little or no political/administrative autonomy, and
high staff turnover rates. The agencies are rarely adequately staffed with experts to monitor and
enforce ambient air, water, and soil quality standards; protect valuable natural resources, review
EIAs of major and complex projects and monitor their implementation; carry out meaningful
public consultations with affected communities, etc. As a result, the enforcement of mandatory
regulations is lax, and stricter penalties that are sometimes available in the laws are almost never
imposed due to, among other reasons, the lack of technical capacity to provide sound evidence of
infractions and the fear of political retribution. Furthermore, there is little priority setting for the
use of their very limited resources based on sound analytical work, including social and cost-
effectiveness criteria. The consequences for the country are, among others, (i) poor ambient
quality; (ii) continuing destruction of valuable natural resources; (iii) disproportionate burden of
disease on the poor and disadvantaged communities; (iv) ineffective review process of EIAs with
long delays in the issuance of environmental permits, adding unnecessary costs to projects; and
(v) an excessive judicialization of the environmental permitting process.333,334
A direct consequence of low levels of stakeholder accountability is the mixed quality of EIA
reports. In many cases, the quality of reports submitted for highly visible megaprojects might be
considered satisfactory, but often the level of research and information needed to evaluate project
impact is lacking. Indeed, consultants have been known to submit reports without visiting
affected sites to collect information. It is unlikely that this would be tolerated were there greater

332
World Bank, 2011. “Policy Options to Address The Cost of Ourdoor Air Pollution in Pakistan”. Draft Report. August 2011.
333
Miglino, 2011. “SEPSA: Environmental Management Component.” Consultant Report for the World Bank. Washington, D.C.
334
Khan, 2010. “Industrial Environmental Management in Pakistan” Consultant report for the World Bank. Washington. D. C.

183
transparency, genuine public consultation, and social inclusion. According to data obtained from
interviews with private consultants involved in the preparation of four EIAs for industrial
projects, on average EIAs for such projects are carried out in a timeframe of 1.5 months, and
they charge project proponents from 0.5 to 1 million rupees (about US$ 8,200 - 16,400). They
complained that “black sheep” consultants conduct an industrial project’s EIA even for 0.05
million rupees (US$ 820). This may explain the bad quality of a large number of EIAs in
Pakistan. Based on the case studies of EIAs done for a chrome tannery, an ethanol manufacturing
unit, a polyester cotton thread manufacturing unit, and a sugar mill, the authors showed that
among other deficiencies, either no evaluation of alternatives was carried out (in the majority of
cases), or just a statement was included saying that the alternative was selected based on
maximum production efficiency and safety criteria.335
Environmental Tribunals

In Pakistan, the judiciary has played an increasingly important role in the enforcement of
environmental laws, and should continue to be strengthened through continued support for both
judges and advocates. When regulatory avenues for environmental enforcement fail, the judicial
system is often the only other recourse for resolving environmental conflicts. An independent
judiciary and judicial process enhances implementation, development, and enforcement of air
pollution control regulations. The Supreme Court of Pakistan has considered several cases
regarding the degradation of the environment and the protection of a clean environment and has
concluded that the right to a clean environment is a fundamental right of all citizens of Pakistan,
covered by the right to life and right to dignity under Articles 9 and 14 of the Constitution.
The High Courts in the provinces have also intervened and rendered decisions affecting future
environmental management. One example of court policy intervention led to the establishment of
the Lahore Clean Air Commission. The Lahore High Court appointed the Commission to
develop and submit a report on feasible and specific solutions and measures for monitoring,
controlling, and improving vehicular air pollution in the City of Lahore.
Section 20 of the PEPA authorizes the federal government to establish as many Environmental
Tribunals (ETs) as it considers necessary and specify the territorial limits or class of cases under
which each of them shall exercise jurisdiction. According to the PEPA, the ETs are staffed by
Environmental Magistrates appointed by the federal and provincial governments among senior
civil judges. The ETs were empowered to sentence repeat offenders to up to two years
imprisonment and to order the permanent closure of a factory. By January 2011, two ETs were
based Karachi and Lahore. These tribunals in Karachi and Lahore have jurisdiction over other
provinces and areas.336

335
Miglino, 2011
336
Khan, 2010

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Other Government Agencies with Environmental Responsibilities

The Planning Commission of Pakistan contains an environment section, comprised of a Chief

and Deputy Chief, under the Member, Infrastructure. The primary function of the environment
section is to incorporate environmental concerns into national development policies. Similarly,
all four provinces have an environment section in their Planning and Development Department.
The aim of these departments is to incorporate environmental concerns into the overarching
development policy of the province and ensure that environmental concerns are reflected in the
schemes and projects that the province is developing.
Several federal sectoral ministries are important players in the design and implementation of
environmental policies. The Ministry of Petroleum and Natural Resources (MoPNR) is
responsible for combating adulteration of fuel and increasing standards, particularly by lowering
sulfur content for fuel refined in the country. The Ministry of Industries (MoI) is responsible for
regulating the types of vehicles that can be imported, potentially constraining imports of high-
polluting vehicles at the gate. The MoI is also responsible for measures aimed at modernizing the
fleet of public service vehicles and scrapping older vehicles. The Ministry of Finance (MoF) and
MoPNR are responsible for fuel pricing and subsidies. The Ministry of Energy (MoEn) is
responsible for clean fuel imports and encouraging the use of CNG in vehicles. Finally, the
Ministry of Agriculture (MoA) is responsible for regulating burning of sugarcane fields and
agricultural waste. However, no mechanism exists for these agencies to dialogue and coordinate
with environmental management agencies: a problem that has worsened for these federal
Islamabad-based agencies now that primary environmental management responsibilities have
been dispersed to the four provincial capitals.337
Environmental Coordination and Institutional Strengthening

While environmental management in Pakistan has been substantially decentralized, the GoP has
recognized, with the creation of the MOCC, that certain responsibilities must be maintained by
the central government, regardless of the level of decentralization. These responsibilities deal
with: i) enacting environmental standards and policies; ii) transboundary issues, including
international agreements; iii) coordination between local governments; and iv) research into
environmental issues, such as climate change adaptation and mitigation.
A prominent feature of environmental problems that fundamentally affects the environmental
responsibilities of all countries is that they cut across a number of activities. Water pollution, for
instance, involves industrial effluents, municipal discharges and agricultural run-off, and a wide
range of economic sectors. Environmental regulation therefore is intimately related to the
economic regulation of other sectors. Furthermore, while many environmental problems are

337
World Bank, 2011.

185
originated and felt locally, others have a much broader regional or even global impact. The
physical boundaries of environmental problems rarely coincide with those of existing political
constituencies (districts, municipalities and provinces), so the need for cooperation and
coordination emerges, nationally and internationally, vertically and horizontally.
Specifically, the responsibilities that have been assigned to the MOCC are:

• Design and enactment of environmental policies and standards. The MOCC has
taken over the MoE’s policy-making and planning functions for environmental
protection and preservation.

• Federal regulation. The Pakistan EPA is now under the jurisdiction of the MOCC,
and it will continue to be tasked with enforcing environmental regulations under
the Pakistan Environmental Protection Act

• Handling transboundary issues. The MOCC will represent the country at

international negotiations and representation of the country in international
conventions and initiatives, such as the Montreal Protocol and the United Nations
Framework Convention on Climate Change.

• Coordination of regional agencies. In the interest of efficiency, collaboration and

sharing of good practices, the role of coordination of efforts among the various
regional institutions is maintained at the central government level. Monitoring and
evaluation of environmental programs that impact multiple regions and granting
permits for activities that impact the environment in more than one geographic
area are key functions done by the central government.

• The Global Environmental Impact Study Centre in Islamabad will continue to

conduct federally-supported research related to climate change, biodiversity or
water issues, such as glacial melting.

Strengthening Provincial Environmental Management Agencies

Trade and transport sector reform is expected to increase the burdens placed on provincial-level
environment management agencies by devolution. Currently, the provincial EPAs suffer from: i)
limited technical capacity and funding for conducting analytical work and priority-setting; ii)
limited funding for designing and implementing programs to address environmental priority
problems; and iii) EIA systems that are too weak to fully address potential negative
environmental impacts resulting from large infrastructure projects. The MOCC should be used as
the coordinating agency for a program of institutional strengthening and capacity building
directing at the provincial EPAs and provincial environmental planning divisions. This program
would assist them in:

• Acquiring baseline data and monitoring the impact of trade and transport reform on
environmental quality in their provinces.

186
 • Developing programs to address environmental priority problems resulting from trade
and transport reform, such as: air pollution, hazardous waste transportation, water
pollution, noise pollution, road accidents, etc.

• Strengthening EIA systems to increase technical capacity of reviewers, improve

administrative framework, increase supervisory strength, and handle increased
caseload resulting from new responsibilities and new large infrastructure projects.

Strengthening the MOCC

Needs Assessment: The MOCC is a new agency, which has been cobbled together from disparate
bits and pieces. Its portfolio and role are currently unstable. Its staff (often reassigned members
of the defunct Ministry of Environment) are being gathered up from their interim postings. Even
the old MoE had considerable institutional gaps, and was unable to meet many of its
constitutional responsibilities. It is highly likely that the MOCC will require considerable
institutional strengthening and technical assistance before it is capable of addressing Pakistan’s
environmental priority problems. The agency should be subjected to a thorough needs
assessment to determine what steps should be taken to strengthen its capabilities. Following this
needs assessment, a technical assistance program could be developed, which might address the
following areas:

• Climate Change Research and Negotiation: The MOCC should have the capacity to
produce high-quality analytical work on the possible effects of climate change for
Pakistan, as well as mitigation / adaptation possibilities. They should have staff members
capable of traveling with Pakistan’s delegation to various global summits on climate
change in order to provide the needed technical expertise to conduct efficient and
informed negotiations regarding Pakistan’s role in the emerging global climate change
mitigation and adaptation frameworks.

• Setting coordination incentives: The MOCC should have the ability to set coordination
incentives with sub-national environmental units. These incentives include giving the
MOCC the ability to co-finance investment projects at the regional level, linked to results
agreements. In countries with a decentralized environmental structure, co-financing is
often the most important tool national authorities have to ensure national–regional
coordination. A mechanism similar to the one described for budget allocation and
disbursement could be applied to monitor compliance with results agreements.
Conventional control mechanisms would be used to ensure that project funds are well
spent. These mechanisms would help to bolster the federal government's ability to
monitor environmental performance and could be used to finance environmental work
related to freight transportation, such as air pollution control or projects to strengthen the
EIA capacity of provincial EPAs.

• Reduction of vulnerability to natural disasters: Natural disasters pose a substantial risk

to transport infrastructure: earthquakes, mudslides, and flooding have the potential to cut
vital rail and road links. Conversely, proper transport infrastructure is vital to disaster

187
 relief efforts. Is the MOCC capable of analyzing its disaster mitigation priorities and
designing programs to address them?

• Establishing accountability mechanisms: The MOCC should be able to put in place a

simple but effective accountability mechanism that consists of identifying a simple set of
standards to measure the fulfillment of basic environmental rights, such as the right to
clean air and water. Using simple language, these standards could be broadly
disseminated among the population with the help of civil society organizations, making
use of national and local media. Every year, report cards measuring the degree of
fulfillment of those standards in each region or province could be produced, and townhall
meetings could be called to discuss the ability to comply with authorities and civil society,
and jointly find remedies and solutions.

• Promoting public disclosure: It is crucial that a systematic effort be made to raise

awareness of environmental issues that could be a potential result of trade and transport
sector reform. The publication of data in support of key environmental indicators
(including health statistics or pollution loads); wider use of public fora to air development
initiatives; broader and more detailed review and discussion of environmental
management tools are examples of ways to improve public information, and promote
transparency, accountability and awareness. In Colombia and Indonesia, among other
countries, the publication of key environmental performance indicators has been
instrumental to raise environmental awareness and place environmental issues in the
national agenda. Mechanisms to disseminate information in a manner that is easily
interpretable can allow communities to play a role as informal regulators, and also
promotes accountability on the part of those being regulated.338

• Strengthening the demand side of accountability: Pakistan has active civil society
organizations which play a crucial role in implementing projects, delivering services to
poor sectors of the population, and those participating in policy debates. However the
capacity of civil society to participate in monitoring policy implementation and holding
environmental institutions accountable is limited. International experience indicates that
civil society can play a crucial role when citizens’ organizations demand accountability
from public institutions. The MOCC should be able to support the development of the
technical capacity of civil society organizations to promote social accountability
initiatives that could be independently implemented or in association with environmental
agencies or with horizontal accountability institutions.

338
World Bank, 2005. World Development Indicators 2005. Washington D.C.

188
Conclusions and Recommendations

Pakistan’s environmental management systems have been put into disarray by the recent
reorganizations. Few, if any, provincial environment agencies are capable of enforcing the
nation’s environmental regulations within the borders of their provinces. None of them are
capable of handling cross-boundary issues (which include air pollution and water pollution).
Differential enforcement of environmental regulations has the potential to complicate large
infrastructure projects--as well as trade and transport policy reform--and lead to areas of
environmental degradation. Nor is it clear whether the MOCC is capable of assuming its
responsibilities as Pakistan’s apex environmental body, in which role it should be able to:
research on climate change adaptation and mitigation; set incentives for coordination; undertake
initiatives to reduce vulnerability to natural disasters; promote public disclosure of
environmental information; and strengthen civil society organizations.

Table 4.1 - Recommended Actions for Improving Pakistan’s Environmental Framework

Timeframe
Conduct needs assessment of Ministry of Climate Change Short term
Develop institutional strengthening and technical assistance program for MOCC Short term
Strengthening the capacity of provincial environment management agencies to handle
Short term
burdens posed by trade and transport reform
Strengthen MOCC’s ability to conduct climate change research and provide assistance
Short Term
to Pakistan’s climate negotiations team
Set coordination incentives, possibly with a coordination fund to co-finance regional
Medium term
projects
Strengthen disaster reduction functions of MOCC Short term
Establish accountability mechanisms Medium term
Promote public disclosure Medium term
Strengthen demand side of accountability by strengthening civil society organizations Medium term

189
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