First petrochemical policy getting final touches

ISLAMABAD: The federal government is giving the final touches to the first-ever Petrochemical Policy aimed at attracting investment in the upstream and midstream industry to start indigenous manufacturing of petrochemicals, well informed sources in Commerce Ministry told Business Recorder.

Sharing the details, Engineering Development Board (EDB) in consultation with public and private sector stakeholders are giving final touches to Petrochemical Policy of Pakistan 2023 to start indigenous manufacturing of petrochemicals, e.g., polypropylene, polyethylene, LAB, etc., and to ensure sustainable development through local availability of plastic resins for downstream engineering industry.

In this regard series of meetings/ consultations have already been conducted. The Secretary, Ministry of Industries & Production (MoI&P) held several meetings to evaluate progress on the policy. Representatives from Pakistan Chemicals Manufacturers Association (PCMA) along with major existing petrochemical producers (private sector), Ministry of Commerce (MoC), National Tariff Commission (NTC), and EDB attended the meetings.

After detailed deliberations with the concerned stakeholders the draft policy was submitted to the Ministry in July 2023 and is in the process of comments from the relevant Ministries/ Divisions, which will be placed before ECC of the Cabinet accordingly.

Eying $3bn investment, govt may frame petrochemical policy

Petrochemical midstream segment comprises of Monomers and Polymers that are derived from naphtha cracking and used by downstream segment to create plastic products, sheets, film, tubes, profiles, containers, filaments, ropes, etc., which are used in a variety of industries like packaging, construction, automotive, industrial products, wind turbines, solar panels, electrical & electronics, artificial leather, home appliances, bottles & jars, furniture, kitchen wares, households toys, disposable utensils, packaging, etc.

Local companies in Pakistan working in the petrochemicals sector, comprising Lucky Core Industries (Former ICI Pakistan), Gatron-Novatex, Lotte Chemicals, Tufail Chemicals and Engro Corp have suggested to the government to formulate a long-term petrochemical policy, which would facilitate investment in the midstream sector and encourage import substitution of critical chemicals which are currently imported.

Major petrochemical products currently manufactured in Pakistan include Poly-vinyl-chloride (PVC), Polystyrene (PS), Purified Terephthalic Acid (PTA), Polyethylene Terephthalate (PET), Phthalic Anhydride (PA), Linear Alkyl Benzene Sulfonic Acid (LABSA), etc.

The local companies have identified further products which have enough scale in terms of local demand, and that are ripe for investments and local production. These include Polyethylene (PE), Polypropylene (PP), Linear Alkyl Benzene (LAB), Acrylonitrile Butadiene Styrene (ABS), MEG, etc. Import of these products, not manufactured locally, is approximately 2 million tons, at a value of $2.8 billion.

Total local demand of petrochemicals is around $5.3 billion. Out of this, the share of locally manufactured petrochemicals is about $ 1.8 billion, while share of imported petrochemicals meeting the total local demand is around $ 3.5 billion.

According to sources, the proposed Midstream Petrochemical Policy is expected to have a number of benefits which include availability of essential raw material for downstream sectors like textile, construction, automobiles, pharmaceutical, fertilizers, synthetic rubber, etc.; contribute to increase exports in down-stream, value-added sectors like textile, etc., once sufficient local chemical for production of artificial fibre is enabled; contribute to reduction in Pakistan’s trade deficit through import substitution; catalyse growth of SMEs in petrochemical downstream through provision of local raw material; and contribute additional tax revenue to the national exchequer.

Estimates provided by industry indicate the Policy is expected to create approximately 50,000 direct and indirect employments in this sector, attract approximately $ 3.5 billion investment in the sector and contribute at least 1% to GDP.

Summary of key incentives requested by industry are: (i) maintain import tariffs on petrochemicals as at July 2022 for 15 years on locally manufactured midstream petrochemicals; (ii) enhance duty on intermediate and final petrochemicals once local production comes online, and maintain this for 15 years; (iii) exemption from duties and taxes for Plant and Machinery imported for creating this capacity; (iv) income tax holiday for 15 years including minimum turnover tax; exemptions of existing and new taxes, e.g., carbon tax, dividend tax, corporate tax etc ;(v) infrastructure facilitation, and (vi) low-cost financing.

Copyright Business Recorder, 2023