The Chemical and Petrochemical industry is one of the leading industries around the world. The size of the global chemical market in Calendar 2003 was US $1.8 trillion with trade turnover of US $400 billion. Consistently over the last two decades it has grown at a rate 1.5 times the world GDP growth rate.
The Chemical industry covers a wide range of products cutting across almost every sphere of life like pharmaceuticals, medicines, insecticides, pesticides, paints and resins, synthetic fibers, industrial solvents, soaps and detergents, etc.
Asia Pacific region has grown faster than the global chemical industry and adds US $30 billion worth of output every year. The region is fast emerging as a key player in global chemicals business and commands 30% share of global chemical market. China & India are the largest markets.
BUSINESS DIMENSIONS IN PAKISTAN: In spite of its strategic importance in developing a strong nucleus of industry, there is not even one existing facility for the production of basic chemicals/petrochemicals in Pakistan.
In consideration of the situation, the Government should attach a very special priority for the full scale and all-sided development of chemical and petrochemical industry.
While the locally available resources of natural gas, petroleum and coal are being used mainly to meet the energy requirement of the country, these have not been utilised for the manufacturing of chemicals where in some cases value-addition can be very significant. The only exception is the use of natural gas to produce chemical fertilisers.
Therefore, most of the raw materials and intermediates for dyes and pigments, paints and varnishes, pesticides, plastics, polyester, soaps, detergents and plasticizers are being imported.
These raw materials and intermediates mainly belong to or derived from petrochemicals, which have no base in Pakistan, ie, Olefins and Aromatic Compound (BTX). Indeed, no appreciable progress is possible in the chemical sector without the efficient local production of building blocks.
A few the chemical products like sulfuric acid, caustic soda, soda ash and chlorine have sufficient installed capacities to meet the local demand. Dyes and pigments are also being produced locally to cater to partial demand.
Similarly, active ingredients used in pesticides and insecticides are not produced locally but about 30 units are involved in formulations based on imported raw materials.
SETTING UP A GROWTH BASE: Keeping in view the importance of the basic chemicals/petrochemicals, the need to setup a petrochemical complex is strongly felt. As mentioned above, most of the basic petrochemicals are being imported whereas their local production is essential not only to boost the chemical sector but for the integrated growth of the entire industrial sector.
For instance, in case of Pakistan's premier textile industry, chemical downstream products like polyester, viscose, dyes and bleaching agents play a pivotal role.
Olefins and their derivatives are being imported in large quantities for their end-use in plastics, paints, dyes & pigments, pesticides, detergents and rubber products.
Similarly, the import of BTX tops among the chemical group. Only a small installed capacity for BTX production exists at National Refinery, Karachi. The demand for Xylene and Toluene is substantial where the former is used in large quantities for the manufacturing of PTA for polyesters and as a solvent in pesticides.
ORGANIC CHEMICALS: The organic chemicals are derived from petroleum, gas and/or agro based raw materials. At present, only a few organic chemicals are being manufactured locally and that too in small quantities.
There is urgent need to utilised the available molasses for conversion into value added organic chemicals and to examine techno commercial viability of setting up plants based on coal / oil / gas.
INORGANIC CHEMICALS: The inorganic chemicals are normally derived from mineral base, which remains to be an under-developed sector. Several minerals are available in the country but they have not been gainfully exploited.
Salts of Sodium, Potassium, Magnesium, Barium, Chromium and Aluminium can be manufactured from the locally available ores.
Presently large quantities of inorganic salts are being imported. Total import value of inorganic chemicals in 2003-04 was more than Rs 8.30 billion. At least some of these can be produced by relatively simpler processes/technologies.
SUGGESTED PROJECTS: There are a number of products that can be produced locally and efficiently to substitute for imports. These may include projects for Industrial Chemicals, Chemicals for Leather Sector, Agro-Chemicals and a larger green-field Petrochemical Complex.
The concept of Petrochemical refineries can be cultivated to optimised existing investments in the existing oil refineries, especially for BTX. The projects may be set up as joint ventures with foreign equity participation.
PETROCHEMICAL COMPLEX: As mentioned above, most of the basic petrochemicals are being imported whereas their local production is essential not only to boost the chemical sector but for the entire industrial sector as for instance in case of textile industry, polyester, viscose, dyes and bleaching agents play a pivotal role.
Olefins and their derivatives are being imported in large quantities for their end-use in plastics, paints, dyes & pigments, pesticides, detergents and rubber products. Therefore, investment in this sector is considered viable.
FERTILIZERS: Pakistan's import of fertiliser during 2003-04 was US $281.3 million showing an increase of 17.31% over the previous year. During the next 10 years a shortage of around 1.2 million MTPY of urea and 1.13 million MTPY of DAP is envisaged.
Therefore, two plants of urea and DAP with average capacity of 600,000 MTPY each would be required to meet the future requirements of fertiliser.
POLYESTER FIBER: Keeping in view, an estimated 8% annual growth in this sector by the year 2010/11, about 500,000 tons of Polyester Staple Fiber (PSF) would be required to be added to the existing capacity of 650,000 MTPY meet the growing demand. Import of polyester fiber during Fiscal 2003-04 was US $13.55 million.
ORGANIC CHEMICALS FROM MOLASSES: More than 2 million tons of molasses are available every year out of which more than half is exported in raw form. Molasses is a by-product of local sugar industry and can be converted to value-added organic chemicals.
The conversion of molasses to ethane can be the first step. Industrial alcohol, acetic acid, oxalic acid, citric acid, acetone, pharmaceuticals, ether and ethyl acetate can also be produced from molasses and then a chain of other organic chemicals can follow.
MANUFACTURE OF VCM: Surplus quantity of chlorine is available with the two major manufacturers of Caustic Soda. Engro Asahi has established PVC Resin manufacturing plant at Port Qasim.
The manufacturing process is from the polymerisation of Vinyl Chloride Monomer (VCM). VCM currently is being imported. This can be manufactured locally by utilising the surplus chlorine available in the country and imported ethylene. Engro's Chemical handling terminal can be used for the import of ethylene. Later, the import of ethylene can be substituted by local production.
Ethylene chloride can therefore by produced as a basic raw material for Engro's PVC Plant. The demand is indicated by the import figure of VCM, which was worth US $50.2 million (85,000 M. Ton) during 2003-04.
PESTICIDES: Pesticides are an important and essential input for the agriculture sector but this industry lacks an integrated base in the country. The imports are on the increase, and were worth US $124 million (42,000 M. Ton) during 2003-04 against 21,250 MT valuing US $60 million in 2000-01.
While, it may not be plausible to manufacture all active ingredients in the country, a few major active ingredients can be efficiently manufactured utilising Chinese experience.
HYDROGEN PEROXIDE: Hydrogen peroxide is extensively used in the textile processing. The imports are on the increase - 41,000 M. Ton worth US $12 million were imported during 2003-04 against 32,000 M. Ton for US $8.7 million during 2002-03.
This reflected a growth rate of 28%. There is thus a captive market for a new plant of Hydrogen Peroxide.
DYES & PIGMENTS: There exists local manufacturing facilities for dyes and pigments but large quantities are still being imported indicating the demand for this commodity. Total imports of this group at about US $156.3 million during Fiscal 2003-04.
TITANIUM DIOXIDE: There are two industrial grades of titanium dioxide pigment (i) Rutile grade used for the manufacture of paints and plastics and (ii) Anatase grade used in Polyester Fiber and paper industry. All requirements are presently being met through imports, which were worth US $7.6 million (4,500 M. Ton) during 2003-04. Therefore indigenous manufacturing facility would be an attractive proposition.
VINYL ACETATE MONOMER (VAM) VAM is used for the manufacture of Poly Vinyl Acetate (PVA) Emulsion. The current requirement of PVA Emulsion in the country is around 35,000 MTPY. VAM requirement for this is around 15,000 MTPY, which is currently being imported in bulk. During the year 2003-04 imports of VAM were about US $25.4 million (15,300 M. Ton).
THE WAY FORWARD: In order to encourage investments in the Chemical/ Petrochemical Industry it is imperative that a comprehensive and consistent industrial chemical vision and policy should be in place for a period of at least next 10 years. The consistency of this policy needs to be ensured over its life.
INFRASTRUCTURE:
-- Ministry of Industries, Production and Special Initiatives should, in consultation with the stakeholders of chemical industry identify suitable locations that are intended to attract chemical investments and these be designated as "Chemical Cities".
-- Suitable sites for Chemical Cities may be around Karachi, Faisalabad, Lahore and Port Qasim and other cities/sites near industrial clusters.
-- The designated "Chemical Cities" should be provided with infrastructural facilities and utilities. Creation of such infrastructure facilities by the government shall reduce the project cost and enhance their viability. The development of infrastructure should include:
-- Utilities such as Water supply, Electrical and Gas connections etc.
-- Roads
-- Bridges
-- Bulk storage and handling facilities for chemicals.
-- Common solid waste management / effluent treatment plants be established to avoid duplication and increased costs.
-- Good residential, recreational facilities
-- The existing infrastructure at Port Qasim, EPZs, Special and other Industrial Zones need to be made self-sufficient as far as requirement of roads and utilities is concerned for the proposed chemical projects.
TECHNOLOGY UP GRADATION:
-- Develop technological base through local research and development.
-- Incentives need to be provided to foreign consulting firms to encourage transfer of technical expertise and know-how to develop equipment for chemical plants locally.
-- Foreign designing and engineering firms may be asked to provide fabrication drawings of the required plants and machinery.
-- A technology development fund may be created to encourage local scientists and researchers for carrying out the R&D work.
-- Scientists and Researchers should be offered market-based salaries.
-- Any restriction for obtaining foreign technology may be completely done away with.
-- Condition of 30% mandatory participation of local consultant firms in mega projects needs to be strictly implemented.
-- PCSIR should play an active role in joint research projects. A working group consisting of PCSIR scientists, production managers of chemical plants and Ministry of Industries, Production and Special Initiatives should conceive of joint research projects.
COST OF UTILITIES:
-- The upfront cost of providing power, water and natural gas should be borne by the provincial/local governments to partially offset the high capital cost of setting up projects.
-- Self-generation of electricity by industry should be encouraged, especially combined Heat & Power which should have the right to sell surplus to WAPDA at a price, which covers fixed, financial and operating costs.
-- Coal based power generation should be encouraged for low cost power generation.
HUMAN RESOURCE DEVELOPMENT:
-- There is a need of developing human resource for Mega projects. NUST and other engineering universities are keen to develop linkages between Industry, R&D and Educational Institutions and would welcome input from the entrepreneurs, for any suggestion in development of curricula. Chambers of Commerce and Industry can play an active role in this field especially in providing internships to students.
-- Specialised courses within the discipline of Chemical technology and Chemical engineering should be designed in consultation with the sub-sectors of the Chemical Industry like Pesticides, Dyes and Pigments, Paints and Varnishes, Paper & Paperboard and Glass etc.
-- There is a need to focus on strengthening the existing institutions instead of establishing new for purposes of HRD.
QUALITY CONTROL AND ENVIRONMENT STANDARDS:
-- The private sector should be encouraged to come forward in various sectors to implement ISO standards and product specifications by Pakistan Standards and Quality Control Authority (PS&QCA). This shall re-enforce implementation of standards besides creating employment.
-- Government should encourage chemical industries to get ISO 14000 certification by making it mandatory for all units by year 2005 and by giving incentives as it gave for implementation of ISO 9000.
INDUSTRIAL LAWS:
-- The relevant laws for storage and handling of explosive materials, registration of pesticides, agricides etc should be amended and brought up to the international standards so that unnecessary hurdles, barriers can be removed to create foreign investors confidence. The present laws are anti-investment in nature.
-- There is need to strictly enforce antidumping laws in order to stop the flooding of cheap imported products from other countries.
WTO REGIME:
-- Short training courses should be held and information on the subject should be disseminated through the Press on the impact of WTO regime.
HEALTH, SAFETY & ENVIRONMENT:
-- Social responsibility, environment protection, safety and health of all stakeholders should be made mandatory for the chemical industry.
RE-LOCATION OF PLANTS:
-- Chemical plants in China and Far Eastern countries are being closed down for their re-location. Government may offer incentives for their re-location to Pakistan after thorough survey of outmoded technology / residual life.
GENERAL RECOMMENDATIONS:
-- In view of the fact that Chemical Industry comprises of a very diverse sector a Task Force may be formed under Ministry of Industries, Production and Special Initiatives to assess Pakistan's strength and weaknesses (SWOT analysis) in chemical and related fields including availability of raw materials, level of technology / manufacturing of equipment etc.
-- Experts Advisory Cell (EAC) should be made nucleus for the promotion of chemical industries, which should prepare feasibility studies of large-scale chemical plants. It should actively seek grants for these studies from international donor agencies such as JICA, GTZ, UNIDO, etc.
-- Common facilities / competency centers be established to encourage / assist small and medium chemical industries. SMEDA should establish such centers and may seek collaboration from Technology Development Fund of MOST and assistance from multinational corporations.
-- Government should allocate up to 10% of natural gas for setting up of industries where basic raw material is natural gas like petrochemical complex based on production of ethylene/polyethylene from associated gases. Government may consider special gas fields to dedicate for chemical industries.
-- A strong database of various technologies and technology providers may be developed for Chemical Industries.
-- Cascading of tariff should continue for industrial growth in the country.
(Experts Advisory Cell, Islamabad)