Final Report

Sponsored By

ENGINEERING DEVELOPMENT BOARD Ministry of Industries & Production

Government of Pakistan SEDC Building (STP) 5-A, Constitution Avenue

Islamabad Tele: (051) 9205595, 9223734 Fax: (051) 9206161

Prepared By Technology Management International (Pvt) Ltd

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2010

TABLE OF CONTENTS

Description Page Nos. Acknowledgement Team of Experts Executive Summary. i-vii CHAPTER 1 Scope Of The World’s Chemical Industry 1 1.1 Scope of the chemical industry. 1 1.2 Category wise breakdown of the chemical industry. 1 1.3 Research and development in the chemical industry. 4 1.4 Classification of the chemical industry development of Pakistan –

Vision 2030. 5

CHAPTER 2 Potential for the development of secondary chemical industries based on feedstocks derived from primary industries.

1

2.1 Feedstocks derived from primary industries for the potential development of secondary chemical industries.

1

• Crude oil based petroleum and petrochemical refineries. 1 • Olefin petrochemical complex. 3 • Aromatic petrochemical complex. 5

2.2 Natural gas based chemicals. 7 2.3 Alternative feedstocks for the production of commodity chemicals. 10 2.4. Feedstocks derived from metallurgical plants and polymers,

materials technology and metallurgical processes. 13

2.5 Other mineral based projects consisting of acid and alkali industries, cement and glass plants based on limestone, gypsum, rock salt, sulphur and silica.

17

2.6 Agro based feed stocks. 17 2.7 Sources of raw materials and process technologies for chemical

industry development in Pakistan. 20

2.8 Categorization of secondary chemical industries in Pakistan. 21 CHAPTER 3 The present status of the chemical industry in Pakistan. 1 3.1 General 1 3.2 The structure of Pakistan’s imports and exports. 3 3.3 The role of government in industrial development. 8 3.4 Limitations of Pakistan’s industrial policies for chemical industry

development. 12

Continued…….

Page 1 of 2

Page 2 of 2

CHAPTER 4 4.1 Modernization of the national innovation system for chemical

industry development in Pakistan. 1

• Limitations of Pakistan’s N.I.S. 2 • The scope of Engineering Development Board with additional

responsibility for technology development and proposed structure of Technology Development Board.

4 & 5

4.2 The role of the national committee in research and technology development.

5

4.2.1 The current status of R&D in Pakistan. 6 4.2.2 National committee for research and technology

development. 7

4.3 National committee for the development of software and hardware for the commercialization of technologies.

10

4.4 National committee for the development of technology policy and investment planning.

13

4.5 Human resource development. 15 4.6 Integrated plan for the development of a national innovation

system. 16

4.7 Industrial master plan. 20 CHAPTER 5 Profiles of Present Secondary Chemical Industries of Pakistan.

(Section 1) Caustic soda 1-11 (Section 2) Soda ash & sodium bicarbonate 12-19 Section -3) Petrochemicals 20-37 CHAPTER – 6

Proposal For The Future Development Of Secondary Industries In Pakistan 1-5 CHAPTER – 7

Industrial Trade Policies 7.1 Imports, tariff and custom duties. 1 7.2 Tariff escalation, description and peaks. 2 7.3 Other imports duties/taxes. 3 7.4 Competitiveness of exports from Pakistan. 4 CHAPTER 8 Conclusions and Recommendations. 1-5 Attachments Annexure “A” References 1-3

ACKNOWLEDGEMENTS

I am grateful to Mr Asad Ilahi, Chief Executive Officer of the Engineering Development Board, and his dedicated staff, Mr. M. Farooq Khan, General Manager (Policy); and Mr Yasir Qurban, Project Engineer. They gave their full support in the conception of the project for “Chemical Industry Development – Vision 2030” and provided invaluable information and data, which were essential for the successful development of the project. My thanks to my colleagues and associated consultants: Mr Muhammad Sadiq Chaudhry, Dr M. Khalid Farooq and Mr Pervaiz A. Khan. They were a source of inspiration and played an active role in discussions for the development of the strategy. Thank you to my daughter, Leila Butt, for editing this report. Dr Waheed M. Butt

EXECUTIVE SUMMARY

The global chemical industry forms the fabric of the modern world. It converts basic raw

materials into more than 70,000 different products, not only for industry, but also for all

the consumer goods that people rely on in their daily life. The modern chemical industry

is divided into four broad categories, comprising basic chemicals, life sciences, specialty

chemicals and consumer products. Its outstanding success is largely due to unceasing

scientific and technological breakthroughs and advances, which have led to the

development of new products and processes.

Chemical industry development in Pakistan has been classified into (i) the primary sector

chemical industry and (ii) the secondary sector chemical industry. Primary sector

industries are large-scale, capital intensive industries comprising refineries,

petrochemicals, natural gas, metallurgical and mineral based projects. They also provide

feedstocks for the secondary chemical industry. Secondary industries are based on

feedstocks either derived from primary sector industries, or other alternative sources of

raw materials. These are less capital intensive and are based on high, medium or less

sophisticated technologies. The secondary sector industries form the basis for the

proposed “Chemical Industry Development - Vision 2030”.

Primary sector industries which provide feedstocks for the development of secondary

sector chemical industries, as well as other alternative sources of feedstocks consist of:

(i) Petroleum and petrochemical refineries. These provide petrochemical intermediate chemicals, which form the building blocks for the production of a very large number of secondary chemicals, such as polymers, fibers, pharmaceuticals, drugs, dyes and colours, insecticides, pesticides, resins, paints, pigments, specialty chemicals, and a very large number of consumer and construction materials and products.

(ii) Natural gas based chemicals, which consist of methanol and ammonia. These can also be used for the production of a large number of secondary chemicals.

(iii) Metallurgical metals and non-metals based secondary chemicals and products.

Executive Summary Page i of vii

(iv) Alternative renewable feedstocks for the production of secondary chemicals consist of bio-mass, agricultural wastes, oils and fats, molasses and power alcohol.

(v) Unconventional natural gas.

(vi) Mineral based secondary chemical industries derived from coal, limestone, gypsum, rocksalt, silica sand and sulphur.

(vii) Vegetable and herbal plants used in the production of secondary chemicals, such as dyes, medicines, drugs, cosmetics and associated products.

The development of secondary chemical industries are divided between projects based on

sophisticated technologies, and those based on medium and less sophisticated

technologies.

Development of the chemical industry in Pakistan is lagging behind those of other

emerging markets. The various factors which have hampered the development of this

industry in Pakistan are:

(i) An underdeveloped industrial infrastructure.

(ii) Reliance on foreign engineering and construction companies for the commercialization of locally developed or imported technologies.

(iii) Imports of second-hand highly energy intensive plants based on antiquated technologies.

(iv) Reliance on the development of resource based, low technology, labour intensive products for export.

The objective of “Chemical Industry Development - Vision 2030” is for:

(i) Pakistan to create its own capability and achieve self-reliance in project design, engineering and the construction management required for the commercialization of technologies.

(ii) To develop capability in the production of medium and high technology based chemicals for export, alongside to the present industrial structure based on low technology resource based products.

(iii) To provide suitable incentives to entrepreneurs for the development of an export-oriented chemical industry.

Executive Summary Page ii of vii

The development of the chemical industry in Pakistan started in the 1950s and is based

on five year plans, with the first plan covering the 1955-60 period. Economic growth was

based on a policy of import substitution, resulting in varying rates of growth of between

3.1-6.8% over 1950-70. However, this masks a highly variable performance: the rate of

growth slowed in the early 1970s to an annual average of 4.4%, but the economy was

revitalized in the late 1970s and 1980s, before weakening again. However, in view of the

inconsistencies in the development of trade policies geared towards export-led growth,

Pakistan has failed to boost exports of its manufactured goods.

By comparison, economic growth in Southeast Asian countries from the 1960s onwards,

and in India, China and other late comers from the 1980s, was driven by their export-

oriented industrialization policies. All these countries introduced market reforms and

provided various incentives and subsidies in order to enhance their exports of

manufactured goods. In addition, these countries also developed their own technology

and engineering infrastructure by virtue of which they achieved self-sufficiency in the

utilization and commercialization of their technologies. As a result, they have achieved

strong annual average growth rates of between 8-11% over the past three decades.

Traditionally, exports from Pakistan have been dominated by goods produced with low

technology, resource based feed stocks, such as textiles, cotton, readymade garments and

leather. These comprise about 60% of total exports. The composition and share in exports

of medium and high technology based products, comprising chemicals, petrochemicals

and other manufactured products is very small and has fluctuated between 8-10% of total

exports from Pakistan. Conversely, Pakistan has a very high dependence of imports of

high value-added goods, which are more expensive. Chemicals, drugs, medicines and

dyes, as well as capital plant, equipment and machinery, together account for about 40%

of total imports with an estimated value of US$16.3 billion for the year 2007/08. As a

result, the trade balance has been continually increasing and stood at US$20.9 billion in

2007/08.

Present trends in Pakistan’s exports of lower technology goods indicate that it is facing

increasing competition from India, China and Bangladesh. In addition, global demand for

Executive Summary Page iii of vii

these products is declining, and the need for higher technology products is rapidly

growing. This situation calls for a concerted effort towards the development of a

chemical industry based on medium and highly sophisticated technologies.

Pakistan has only developed its basic industries, consisting of refineries, fertilizers,

cement, sugar, polyester fibers and some other petrochemical based polymer industries,

to fulfill local demand. These industries have been predominantly developed by foreign

engineering corporations, which were awarded contracts on turnkey basis. However,

Pakistan has failed to assimilate these imported technologies, or use them either for the

replication of these plants or in the development of associated chemical projects. This

dependence on the production and exports of low-valued added goods has held back

Pakistan’s economic performance and revenue-earning potential. By comparison, South

and Southeast Asian countries put special emphasis on the development of high

technology goods for export. They achieved this through trade liberalization, but their

governments’ also introduced industrial policies that focused on the maintenance of

macroeconomic stability, the provision of industrial and technology infrastructure,

improvements to market institutions and high levels of public investment. These

countries established public organizations which supported production activities, but they

also relied on private firms for the success of their industrial policies.

For example, China, which retains its socialist form of governance, introduced market

reforms and advocated the so-called Open Door Policy. It also created two large public

sector corporations: China National Petroleum Corporation (CNPC), for the production

and exploration of oil and gas; and China Petrochemical Corporation (SINOPEC) for the

development of its petrochemical industry. China also created Petro-China as a Holding

Company, which offered its shares on international markets. The value of this company

was estimated at US$100 billion in 1999, but has since risen to US$1.1 trillion in 2008.

The salient features of China’s public private partnerships (PPPs) is that the public sector

is the major shareholder in the development of its capital intensive industries, whereas the

private sector is the majority equity partner in the development of secondary projects.

Executive Summary Page iv of vii

Rapid industrialization in Japan and South Korea was driven by multinational

conglomerates—Keiretsus and Chaebols—which created vertical and horizontal

diversification of their businesses, with the active support of their respective

governments. This pattern, in many cases has been followed by newly industrialized

countries (NICs).

Pakistan’s industrial infrastructure is limited and it relies primarily on foreign design and

engineering companies for the commercialization of local and imported technologies.

Therefore, there is immediate need for enhancing and modernizing its national innovation

system (NIS). This is the framework by which a country brings about technological

change, and consists of research and development (R&D) institutions, the infrastructure

for commercialization of technologies, the structure of educational and technical

institutions, regulatory agencies, information networks, financial institutions and

marketing.

Process science and engineering technology (PS&ET) is an important component of a

NIS and is the foundation for the development of the chemical industry. It integrates

various elements of the processes of commercialization, from R&D to process design,

project engineering, construction, operations and marketing management. Taken together,

these provide the basis for manufacturing excellence and sustainable competitive

advantage. In order to meet the goals of “Chemical Industry Development - Vision

2030”, it is essential for Pakistan to enhance its PS&ET capability.

We propose that the scope of the Engineering Development Board should be enhanced

and given the additional responsibility to modernize and strengthen the NIS as the basis

for technology development. In order to achieve this objective, three committees should

be established under the direction of a Technology Development Board (which will be an

enhanced Engineering Development Board):

(i) A National Committee for research and technology development,

(ii) A National Committee for the development of software and hardware for the commercialization of technologies.

Executive Summary Page v of vii

(iii) A National Committee for the development of technology policy and investment planning.

The role of the National Committee for research and technology development will be to

foster linkages between universities, R&D institutions and the chemical industry. Various

tasks to be undertaken by this committee will include the formation of sub-committees

for different sectors of the chemical industry; identification of problems of each sector;

selection of R&D teams from universities, industry and R&D institutes for

multidisciplinary research; continual appraisal and economic evaluation of laboratory and

pilot scale work; and selection and adoption of technologies for commercialization.

The processes of commercialization of local or imported technologies depends on the

application of science, engineering, design, instrumentation and control, safety and

environment, and many other aspects of capital plant manufacturing, construction,

operations and marketing management. In order to develop local capability in various

areas of project management, we propose the formation of a National Committee for the

development of software and hardware as PPP projects. The functions of this Committee

will be to support the development of existing or new engineering companies for various

tasks. These include the identification of new projects; the preparation of investment

studies on international criteria; the formation of financial packages; the development of

software and hardware and its application in design and engineering; the development of

engineering specifications for capital plant manufacturing; construction; management;

and many other functions such as revamping and modernization of old plants, and

facilities for reverse engineering.

The successful utilization of various components of technology will depend on the ability

of the government to foster PPPs with the involvement of industrial and venture capital

institutions and a vibrant entrepreneurial class.

We suggest that a National Committee for the development of technology policy and

investment Planning should be established for:

(i) The provision of suitable incentives to potential investors, in order to accelerate the processes of chemical industry development and the revision of industrial policies on continual basis.

Executive Summary Page vi of vii

Executive Summary Page vii of vii

(ii) The development of investment policies and infrastructure for capital formation.

In order to facilitate the formation of investment, we recommend that a Holding

Company should be established with the participation of the financial sector, international

donors, friends of Pakistan, overseas Pakistanis and other investors, who would be

invited to subscribe as share holders in this company.

Profiles of various sectors of existing chemical industries in Pakistan have been prepared.

These consist of World’s present and projected production, World trade, local production

in Pakistan, local market size, local demand, imports, future prospects for each sector of

industry, SWOT analysis with special references to weaknesses, threats and opportunities

as well as present tariff structure on Pakistan.

Proposals for the future developments of Secondary Industries in Pakistan have been

prepared and suggestions for the development of secondary chemical projects based on

locally available as well as imported materials have been made. The proposed industries

have been divided into various sectors consisting of minerals, metallurgical, agro-based

alternate sources of energy, oils and fats and petrochemicals based projects. A number of

potential projects in each sector have been proposed and it is suggested that EDB initiate

the development of feasibility studies on each of these projects for their future

implementation.

An integrated plan for development of NIS has been proposed and various other

requirements consisting of the application of computational technologies, human resource

requirements, and the development of coherent industrial policy are also considered

necessary. An Industrial Master Plan must be prepared for the implementation of various

elements of the NIS, which should identify Pakistan’s capabilities and limitations in

various priority sub-sectors of the chemical industry. It should develop policy measures

and provide fiscal incentives in order to promote investment in various sectors of

chemical industry. The development of a NIS on international standards will provide tens

of thousands of job to Pakistan’s highly qualified manpower.

___________________________________________________________________________ Chapter – 1 Page 1 of 1

CHAPTER 1

1. SCOPE OF THE WORLD’S CHEMICAL INDUSTRY

1.1 Scope of the Chemical Industry

The chemical industry comprises the companies that produce industrial chemicals. It is

central to the modern world economy, as it converts raw materials into more than 70,000

different products.

The chemical industry is more diverse than virtually any other industry in the world. Its

products are omnipresent. Chemicals are the building blocks for products that meet our

most fundamental needs for food, shelter and health, as well as products vital to the high

technology world of computing, telecommunications and biotechnology. They are used to

make a wide variety of consumer goods, and are also inputs in agriculture,

manufacturing, construction and services industries. In particular, chemicals are a

keystone of world manufacturing, as they are an integral component of all manufacturing

sub-sectors, including pharmaceuticals, automobiles, textiles, furniture, paint, paper,

electronics, construction and appliances. It is difficult to fully enumerate the uses of

chemical products and processes, but the following nomenclature gives some indication

of the level of diversity:

Polymers and plastics--especially polyethylene, polypropylene, polyvinyl chloride,

polyethylene terephthalate, polystyrene and polycarbonate--comprise about 80% of the

chemical industry’s output worldwide. The chemical industry itself consumes 26% of its

own output. Major industrial products include rubber and plastics, textiles, apparel,

polymers, pulp and paper, and primary metals. Chemicals are nearly a US$3 trillion

global enterprise, with chemical companies in the EU, US and Japan being the world’s

largest producers.

1.2 Category Breakdown of the Chemical Industry

The marketing of the chemical business can be divided into a few broad categories,

including basic chemicals (about 35-37% of US dollar output), life sciences (30%),

specialty chemicals (20-25%) and consumer products (about 10%).

___________________________________________________________________________ Chapter – 1 Page 2 of 2

BASIC CHEMICALS or “commodity chemicals” are a broad chemical category,

which include polymers, bulk petrochemicals and intermediates, other derivatives

and basic industrials, inorganic chemicals and fertilizers. Polymers--the largest

revenue segment, at about 33% of the basic chemicals US dollar value--include

all categories of plastics and man-made fibers. The major markets for plastics are

packaging, followed by home construction, containers, appliances, pipe,

transportation, toys and games. The largest volume polymer product, polyethylene

(PE), is used mainly in packaging films and other products, such as milk bottles,

containers and pipes. Polyvinyl chloride (PVC), another large volume product, is

principally used to make pipes for construction markets, as well as siding and, to a

much smaller extent, transport and packaging materials. Polypropylene (PP),

which is similar in volume to PVC, is used in markets ranging from packaging,

appliances and containers, to clothing and carpeting. Polystyrene (PS), another

large-volume plastic, is used principally for appliances and packaging, as well as

toys and recreation. The leading man-made fibers include polyester, nylon,

polypropylene and acrylics, with applications including apparel, home

furnishings, and other industrial and consumer use. The principal raw materials

for polymers are bulk petrochemicals.

Chemicals in the bulk petrochemicals and intermediates category are primarily

made from liquefied petroleum gas (LPG), natural gas and naphtha. Their sales

volume is close to 30% of total basic chemicals. Typical large-volume products

include ethylene, propylene, benzene, toluene, xylenes, methanol, vinyl chloride

monomer (VCM), styrene, butadiene and ethylene oxide. These chemicals are the

starting materials for most polymers and other organic chemicals, as well as much

of the specialty chemicals category.

Other derivatives and basic industrials include synthetic rubber, surfactants, dyes

and pigments, resins, carbon black, explosives and rubber products. They

contribute about 20% to basic chemicals’ external sales.

___________________________________________________________________________ Chapter – 1 Page 3 of 3

Inorganic chemicals (about 12% of revenue output) are the oldest of the chemical

categories. Products include salt, chlorine, caustic soda, soda ash, acids (such as

nitric, phosphoric and sulfuric), titanium dioxide and hydrogen peroxide.

Fertilizers are the smallest category (about 6%) and include phosphates, ammonia,

urea and potash chemicals.

LIFE SCIENCES (about 30% of the dollar output of the chemical business),

include differentiated chemical and biological substances, pharmaceuticals,

diagnostics, animal health products, vitamins and crop protection chemicals.

While much smaller in volume than other chemical sectors, their products tend to

have very high prices--over US$10 per pound--with research and development

(R&D) spending at 15-25% of sales. Life science products are usually produced

to very high specifications and are closely scrutinized by government agencies

such as the US Food and Drug Administration (FDA). Crop protection chemicals,

about 10% of this category, include herbicides, insecticides and fungicides.

SPECIALTY CHEMICALS are a category of relatively high value-added,

rapidly growing, chemicals with diverse end-product markets. They are generally

characterized by their innovative aspects--products are sold for what they can do

rather than for what chemicals they contain. Products include electronic

chemicals, industrial gases, adhesives and sealants, as well as coatings, industrial

and institutional cleaning chemicals, and catalysts. Coatings comprise about 15%

of specialty chemicals sales, with other products ranging from 10-13%.

Specialty Chemicals are sometimes referred to as “fine chemicals”.

CONSUMER PRODUCTS include direct product sales of chemicals such as

soaps, detergents, and cosmetics.

The chemical industry has shown rapid growth for more than fifty years. The fastest

growing areas have been in the manufacture of synthetic organic polymers used as

plastics, fibres and elastomers. Historically and currently the chemical industry has been

concentrated in three areas of the world: Western Europe, North America and Japan (the

so-called Triad). The EU remains the largest producer, followed by the US and Japan.

___________________________________________________________________________ Chapter – 1 Page 4 of 4

The traditional dominance of chemical production by the Triad is now being challenged

by changes in feedstock availability and price, labour and energy costs, differential rates

of economic growth and environmental pressures. Instrumental in the changing structure

of the global chemical industry has been recent rapid economic growth in China, India,

Korea, the Middle East, Southeast Asia, Nigeria, Trinidad, Thailand, Brazil, Venezuela,

and Indonesia.

1.3 Research and Development in the Chemical Industry

The outstanding success of the global chemical industry is largely due to scientific and

technological breakthroughs and advances, facilitating the development of new products

and processes. The US chemical industry now spends about US$17.6 billion annually on

R&D. In fact, according to study by the Institute for the Future (IFTF), the chemical

industry is one of the eight most research-intensive industries. The scientific and

technical research of these industries makes our lives safer, longer, easier and more

productive. When one reviews the contributions of the chemical industry to our

civilization, it becomes clear that rather than any single individual invention or

technological breakthrough, it has been the industry’s overall commitment to R&D that

has been its most significant legacy.

Investment in R&D is the single greatest driver of productivity increases, accounting for

half or more of all increases in output per person. R&D is the source of new products that

improve our quality of life, and new processes that enable firms to reduce costs and

increase competitiveness. As we look to the future, it is apparent that continued

investment in technology is necessary for industry to meet the needs and expectations of

future generations.

Reaching the goals of “Chemical Industry Development - Vision 2030” will require

Pakistan to build its technology infrastructure, consisting of investment in technology

development, computer aided design, engineering, plant and equipment manufacturing,

construction and marketing management. These areas of development have been grossly

neglected in the past and are the major reasons for the present plight of the chemical

industry in the country.

___________________________________________________________________________ Chapter – 1 Page 5 of 5

The industrial sector drives the global economy, collectively transacting almost US$3

trillion per annum. An industry is a collection of companies that perform similar

functions. Industry can be used to refer to all company groups, or as being a set of entities

that utilize productive forces to convert a simple input into a processed final product. The

size of various industries varies by country, level of development and external demand.

1.4 Classification of the Chemical Industry Development of Pakistan – Vision 2030

For the purpose of the “Chemical Industry Development – Vision 2030”, this industry is divided into:

• Primary sector industries and

• Secondary sector industries.

Primary Sector Industries The Primary sector industry generally involves the conversion of natural resources into

primary products. These are large, highly sophisticated, technology-based, capital

intensive projects consisting of:

(i) Petroleum refining and petrochemical industries for the production of petrochemical intermediates, olefins (ethylene, propylene, butylenes) and BTX (benzene, toluene, xylene), all of which form the basis for the development of monomers, polymers and plastic industries.

(ii) Natural gas based projects for the production of ammonia, methanol, fertilizers and associated products.

(iii) Mineral based industries consisting of cement, limestone, gypsum, sand and salt. (iv) Smelting and refining of ferrous and non-ferrous metals. They also produce raw materials for Secondary industries.

(v) Agriculture and Farming Industries

These constitute naturally occurring, renewable sources of raw materials, such as

cotton, oils and fats, sugar, agricultural wastes (bio-mass) and raw materials for a large number of downstream industries.

___________________________________________________________________________ Chapter – 1 Page 6 of 6

Secondary Sector Industries

The principal objective of Secondary sector industries is to provide the connective link

between products and materials produced by Primary industries, which are of practical

use to the national economy. This implies that the Secondary industries rely on the

Primary industries for feedstocks and raw materials for use in manufacturing, processing,

blending, fabricating plants for petrochemical intermediates, polymers, plastics, steel,

non-ferrous metals, minerals, agricultural and miscellaneous products. These industries

use medium- to high-sophisticated technology, and range from light to medium

categories.

THE SECONDARY SECTOR INDUSTRIES WILL FORM THE BASIS FOR

“CHEMICAL INDUSTRY DEVELOPMENT IN PAKISTAN - VISION 2030”.

________________________________________________________________________________________ Chapter – 2 Page 1 of 23

CHAPTER 2

2. POTENTIAL FOR THE DEVELOPMENT OF SECONDARY CHEMICAL INDUSTRIES BASED ON FEEDSTOCKS DERIVED FROM PRIMARY

INDUSTRIES

2.1 Feedstocks Derived from Primary Industries for the Potential Development of Secondary Chemical Industries

Primary chemical industries, which are manufactured through the utilization of

various feedstocks, consist of large-scale, highly capital intensive plants, based on

sophisticated technologies. These projects also provide raw materials for the

development of secondary chemical industries and consist of:

• Crude oil based refineries and petrochemical complexes.

• Natural gas based chemicals and fertilizer projects.

• Alternative renewable feedstocks for the production of commodity chemicals

• Metallurgical plants for the production of iron, steel, and non-ferrous metals.

• Other mineral projects consisting of acid and alkali industries, and cement and glass plants based on limestone, gypsum, rock salt, sulphur and silica.

• Projects based on agro feedstocks.

Crude Oil Based Petroleum and Petrochemical Refineries

Petroleum refineries are designed to produce a limited number of products, which

are primarily used as a source of energy in road, rail and air transport; power

plants; steam generation; and heating media in the chemical industry. They do not

produce high value-added chemicals unless they are integrated with

petrochemical plants--generally designated as Petrochemical Refineries--which

are highly energy efficient and produce diversified feedstocks and raw materials

for a large number of secondary chemicals.

A petrochemical is any chemical compound obtained from petroleum or natural

gas, or derived from petroleum or natural gas hydrocarbons and utilized in the

production of a large variety of secondary chemicals and products. The definition

has been broadened to include the whole range of aliphatic, aromatic and organic

________________________________________________________________________________________ Chapter – 2 Page 2 of 23

chemicals, as well as carbon black and such inorganic materials as sulphur and

ammonia. In many instances, a specific chemical included among the

petrochemicals may also be obtained from other sources, such as coal, coke or

bio-mass.

Petrochemical based secondary chemicals include such items as plastics, soaps

and detergents, solvents, drugs, fertilizers, pesticides, explosives, synthetic fibers

and rubbers, paints, epoxy resins, and flooring and insulating materials.

Petrochemicals are found in products as diverse as aspirin, boats, automobiles,

aircraft, polyester and acrylic fibers, recording discs and tapes.

Natural gas and crude oil are referred to collectively as petroleum. Crude oil

consists of the heavier constituents that naturally occur in liquid form. Natural gas

refers to the lighter constituents of petroleum that naturally occur in gaseous form,

either on its own as free gas, or in association with crude oil.

The production of petrochemical based intermediate chemicals form the

feedstocks for secondary industries as part of a two stage process. In the first

stage, crude oil is distilled and fractionated to produce a number of products

consisting of gasoline, naphthas, and light and heavy gas oils, which are used as a

source of energy for road and air transport, and power generation. Simultaneously

the off gases, light and heavy naphthas, and gas oils are predominantly used as the

starting materials for petrochemical projects. This is illustrated in Fig 2.1.

In the second stage the off gases and naphthas are further processed into two

separate operations to produce Petrochemical intermediate chemicals or

monomers as follows:

Crude OilTo

Petroleum Refinery

AtmosphericDistillation

GasolineAnd

Motor SpiritLight and

Heavy Gas Oil

Light andHeavy

Naphtha

Methane &Off Gases Residue

PetrochemicalFeedstock

Off Gases/Naphtha/Gas Oil

Aromatics Olefins

Catalyst Cracking Steam Cracking

Petrochemical Feedstocks

Fig 2.1

Olefin Petrochemical Complex

Refinery off gases, naphthas or gas oils are reformed at high temperatures in the

presence of steam to produce monomers (ethylene, propylene and butylenes).

These are gases at ordinary temperatures and pressures and can only be

transported at high pressures and low temperatures as liquids under refrigerated

condition. These are preferably processed further at site to produce secondary

petrochemical products or polymerized into polymers, such as polyethylene,

polyvinylchloride, polystyrene, ethylene glycol and many other secondary

chemicals as illustrated in Fig 2.2 and 2.3.

________________________________________________________________________________________ Chapter – 2 Page 3 of 23

STEAM CRACKING OFSTEAM CRACKING OFNAPHTHA / GAS OILNAPHTHA / GAS OIL

NAPHTHA /ASSOCIATED GAS /

GAS OIL

STEAM

REACTORSteam to Feed ratio 0.25 to 0.9Temperatures820 to 840oC

Ethylene

Propylene

Butylenes

Fig 2.2

OLEFINS AND PETROCHEMICAL INTERMEDIATES BASED SECONDARY CHEMICAL INDUSTRIES

ASSOCIATED GASESOR

NAPHTHA

ETHYLENEPROPYLENEBUTYLENES

POLYETHYLENES LDPE,HDPEPOLYPROPYLENEPOLY VINYL CHLORIDEPOLYSTYRENESBRETHYLENE GLYCOLPOLY VINYL ACETATE

PLASTICS FILMSCONTAINERSPIPES,CABLES, BAGSSYNTHETIC RUBBER & LEATHER PRODUCTSTYRESTOYSELECTRICAL EQUIPMENTRADIO, TV, AIR CONDITIONERS, REFRIGERATORSFURNITURE, TABLEWARE

BA

CKW

ARD

INTE

GR

ATI

ON

FOR

WA

RD

CR

EA

TIO

N

STAGE I

THERMAL CRACKING OF NAPHTHA FOR THE PRODUCTION OF

PRIMARY CHEMICALS

(HIGHLY SOPHISTICATED, CAPITAL INTENSIVE PROCESS)

STAGE II

POLYMERIZATION OF PRIMARY CHEMICALS FOR THE PRODUCTION OF SECONDARY CHEMICALS

AND POLYMERS.

(MEDIUM TECHNOLOGY BASED PROCESSES).

STAGE III

FABRICATION OF SECONDARY CHEMICALS FOR THE PRODUCTION

OF CONSUMER PRODUCTS.

(LOW/MEDIUM TECHNOLOGY BASED PRODUCTS)

Fig 2.3

________________________________________________________________________________________ Chapter – 2 Page 4 of 23

NaphthaSteam Cracker

(Olefins)

Propylene& Derivates

Butadiene& Derivatives

Ethylene& Derivatives

Other Olefins Based SecondaryChemicals

EthyleneEDCEthylene Glycol Ethylene OxideHDPELDPELLDPEEPDMEthanolAlpha OlefinsVinyl AcetateEthyl Chloride / Ethyl Benzene

PropyleneAcrylonitrileCumenePolypropyleneAcrylic AcidButanol2-Ethyl HexanolIso-PropanolNoneneDodecenePropylene OxideAcetoneAcrylic Fiber

ButadieneABSAdiponitrile /HMDANitrile RubberPoly-ButadienePoly chloropreneSB LatexSB Rubber

Fig- 2.3(a)

Aromatic Petrochemical Complex

Naphtha and gas oil is also catalytically reformed at high temperatures in the

presence of catalysts to yield aromatic intermediate chemicals, such as benzene,

toluene and xylenes (Fig 2.4). These are liquids at ordinary temperatures and

pressures and can be easily transported to desired locations where they are used as

raw materials in the production of a variety of secondary chemical products as

shown in Fig. 2.5.

________________________________________________________________________________________ Chapter – 2 Page 5 of 23

CATALYTIC REFORMING OF NAPHTHACATALYTIC REFORMING OF NAPHTHA(AROMATIZATION REACTION)(AROMATIZATION REACTION)

NAPHTHA /ASSOCIATED GAS /

GAS OIL

STEAM

CATALYTICREACTOR

Benzene

Toluene

Xylenes

Fig-2.4

`

Naphtha CatalyticReformer (Aromatics)

Xylenes &Derivates

Toluene &Derivatives

Benzene & Derivatives

Aromatics Based Secondary Chemicals

Benzene ) Cumene )Phenol )Cyclo Hexane )Ethyl Benzene )Adiplc Acid )Alkyl Benzene )Aniline )Alkyl Phenol ) Chloro Benzene )Maleic Anhydride )Nylon Fiber/Resin )

OrthoxyleneParaxyleneMetaxyleneDMTTPABottle ResinPolyester FiberFiber ChipFilm Resin Phthalic AnhydridePET

BenzeneTDICaprolactamBenzoic AcidTNT

Production of Primary/Inter-mediate Chemicals (Highly Sophisticated Capital Intensive)

Production of Secondary Chemicals Medium / High Technology Chemicals and Products

Fig 2.5

________________________________________________________________________________________ Chapter – 2 Page 6 of 23

________________________________________________________________________________________ Chapter – 2 Page 7 of 23

2.2 Natural Gas Based Chemicals

Natural gas is a very valuable resource, not only for use as energy, but also for the

production of chemicals. It has been used commercially as a fuel for hundreds of

years. The production, processing and distribution of natural gas has become an

important segment of the world economy and is a major factor in the production

of chemicals in global markets.

The composition of natural gas depends on its source. It predominantly consists of

methane, but in many cases contains higher hydrocarbons such as ethane and

propane.

Natural gas processing plants are designed to produce certain valuable products

over and above those needed to make the gas marketable. Plants are also designed

to recover elemental sulphur which is the starting raw material for the production

of many secondary chemicals.

Natural gas has created multifarious opportunities and challenges as it is now

utilized in the production of fertilizers and petrochemicals, in addition to its

earlier use as a source of energy. This is illustrated in Fig 2.6.

Household Gas

Fig -2. 6

________________________________________________________________________________________ Chapter – 2 Page 8 of 23

FIG-2.7

________________________________________________________________________________________ Chapter – 2 Page 9 of 23

________________________________________________________________________________________ Chapter – 2 Page 10 of 23

2.3 Alternative Feedstocks for the Production of Commodity Chemicals

The uncertainties about the peaking of available reserves of fossil fuels, and rising

prices of petroleum and natural gas, have spurred the chemical industry to

examine alternative feedstocks for the production of commodity chemicals. Over

the last two decades alternatives to conventional petroleum and natural gas

feedstocks have been developed. These feedstocks include coal based gasification

and liquefaction processes; and renewable resources such as bio-mass, stranded

natural gas from unconventional reserves, heavy oil from Tar sands or oil shale.

These sources of alternative feedstocks are in the process of development for

highest volume production of commodity chemicals in Europe and the US. The

technology for their utilization is in the process of development, in order to make

these processes more efficient and economically compatible with petroleum based

technologies. The status of various available feedstocks and the technological

development for their exploitation for the production of secondary chemicals is as

follows:

Coal

Substantial world coal reserves make it an attractive alternative to natural gas and

petroleum. The technologies for large scale processing of coal are at present

available in South Africa and China. However, a major concern about the

utilization of these technologies is the variability in feedstock composition and the

presence of impurities which poison the catalysts used in the processing of coal.

Coal Gasification

Commodity chemicals can be produced through the gasification of coal. Because

of the large domestic reserves of coal in Pakistan, this feedstock option needs to

be exploited. Coal gasification for application, including the production of

chemical feedstocks, is already widely practiced worldwide. These plants

generate feedstocks for chemical production, closely followed by the Fischer

Tropsch process for the production of organic chemicals.

________________________________________________________________________________________ Chapter – 2 Page 11 of 23

The gasification process starts with the production of synthesis gas in a gasifier,

followed by the production of a mixture of carbon oxides and hydrogen.

Ammonia, methanol, alcohols and aldehydes are produced by Oxo Synthesis. The

Fisher Tropsch process is used to produce a variety of secondary chemicals.

Different coal types (lignite, bituminous, sub-bituminous) affect the efficiencies

and economies of the gasification process, since gasification efficiencies are

lower for sub-bituminous coals due to higher moisture and ash content. However,

since essentially any organic material can be gasified, existing gasifier designs

can be adopted to use different types of coal as gasifier feed.

Coal Liquefaction

Coal can also be liquefied directly, without going through a Syngas step. This

process is called the “Coal to Liquid” or CTL process and is well proven.

Liquefaction uses liquid distillation and hydrogenation, where hydrogen is added

to coal and water slurry. The slurry increases the Hydrogen/Carbon (H/C) ratio to

a crude oil level and removes impurities such as sulphur.

Coal Liquefaction technology is of particular interest for the utilization of Thar

Coal, which has a high moisture content. A full scale production facility is being

built in China for the direct liquefaction of coal into transportation fuels to

produce 50,000 bbl/day of fuel oil. A similar project could be developed for Thar

Coal with the participation of Chinese Process Licensors.

Bio-Refinery

A major thrust towards the development of renewable feedstocks as a resource for

energy and secondary chemicals is by a process called bio-refining.

Bio-refining feedstocks consist of crops residues; waste plants or animal material

and recycled fibers; municipal sewage sludge; agricultural and forest residues;

household waste; agro-feed effluents; and residues of paper and wood working

industry. These plants absorb solar energy from the sun through photosynthesis,

and the energy stored within it is recovered by bio-refining processes.

________________________________________________________________________________________ Chapter – 2 Page 12 of 23

The bio-refining concept generally involves feeding bio-feedstocks into steam or

catalyst crackers to produce chemicals. Some technologies are in the process of

development for the processing of carbohydrates, oils, lignin and fuels.

In addition to their utilization for energy production, some bio based chemicals

that have potential for large scale manufacture include carboxylic acids and

glycols. Other areas of development include fermentation of sugars,

decomposition of cellulose, high temperature pyrolysis, and bio-refining of wood

and waste materials. However widespread use of feedstocks will require sustained

research and development(R&D) in a variety of fields such as plant science,

microbiology, genomics and catalysis. In view of the impurities, variability of

feedstock composition, distributed supply, scalability and pathways for the

breakdown of cellulose, the development of process technology will have to be

undertaken and / or adapted to local conditions by each country, in order to

exploit the utilization of bio-mass feedstocks for economic advantage.

Unconventional Natural Gas

Methane from anaerobic fermentation can be generated from animal manure and

sewage treatment, as well as from landfills. The potential for anaerobic

fermentation as a source for useable methane, rather than a source of pollution,

will require development work leading to improvements in process control,

operating efficiencies and rate of digestion, targeting small scale technologies.

Renewable energy sources are indigenous and can, therefore, contribute to

reducing dependence on energy imports, such as crude oil, resulting in increasing

security of supply as well as resources for the production of commodity

chemicals. Developments in renewable energy resources can actively contribute

to job creation, predominantly in small- and medium-sized industries which are so

central to economic performance. The deployment of renewable resources can be

a key feature in regional development, with the aim of achieving greater social

and economic cohesion, largely for environmental reasons.

________________________________________________________________________________________ Chapter – 2 Page 13 of 23

2.4. Feedstocks Derived from Metallurgical Plants and Polymers, Materials Technology and Metallurgical Processes

Materials technology is one of the many areas targeted by the chemical industry.

Materials play a critical role in the economic development and growth of

chemical process industries. New materials technology is an essential part of the

industry’s strategy for achieving its vision. Materials contribute a large amount to

industry revenue, and represent a high growth potential for industry.

Ferrous and non-ferrous metallurgical processes consisting of iron, steel, copper,

aluminium, magnesium and associated alloys have been used traditionally as

feedstocks for the development of secondary chemical industries. Tremendous

advances in the twentieth century in the development of new synthetic materials

have also fueled the growth of the chemical industry. Replacement of traditional

materials with synthetic polymers and composite materials has resulted in

products with lower weight, better energy efficiency, higher performance and

durability, and increased design and manufacturing flexibility.

Metallurgical Industry

The traditional iron, steel and non-ferrous metallurgical industries produce

valuable primary products which are important starting materials for the

production of secondary chemical products. They are used by almost every

manufacturing industry for the fabrication of capital plants and equipment; the

manufacture of automobiles, railways, agricultural and construction equipment;

and components and spare parts for operating plants in the chemical and allied

industries.

The iron and steel industry is classified into three important primary products

according to the order of processing from iron ore to the finished products. The

iron ore is calcined and mixed with limestone and coke and introduced into a

Blast furnace. The preheated air is fed to the bottom of the furnace. The ore is

reduced to iron to produce Pig iron.

Pig iron is refined by different processes to produce iron castings or billets, rolled

wrought iron and rolled/forged steel by three different processes as illustrated in

Fig 2.8.

Fig-2.8

The primary products of the iron and steel industry, which consist of iron

castings, rolled wrought iron, and rolled and forged steel, are the feedstock for a

very large number of downstream secondary industries.

________________________________________________________________________________________ Chapter – 2 Page 14 of 23

________________________________________________________________________________________ Chapter – 2 Page 15 of 23

Non-Ferrous Metals

Non-ferrous metals are produced through two basic operations. In the first

operation, the ores are subjected to metallurgical processes to produce basic

metals consisting of large blocs or bars. In the second operation, the metal is

smelted and refined. The secondary smelting and refining of nonferrous metals

lead to the production of aluminium, copper, lead, nickel, silver, gold, tin and

zinc. These metals are used in wide variety of secondary chemical manufacturing

industries, such as ammunition, beverage cans, coins, automobiles and household

appliances.

Copper possesses superior electrical conductivity, and is a strong, durable metal

used in a variety of structural applications, as well as for power, lighting and

communication transmissions. Domestically, the major markets for copper are

construction, electronics, and industrial machinery and equipment.

Aluminium, the most widely used nonferrous metal, possesses several positive

attributes, such as a light weight, corrosion resistance, and high electrical and

thermal conductivity, which makes the metal suitable for a variety of applications.

Container and packaging manufacturers use aluminium, while other major end-

use products include the transportation sector, the building and construction

sector, and the electrical sector.

Lead is primarily used for the manufacture of storage batteries, which in turn are

incorporated into automobile ignition starters, un-interruptible power supplies for

computer systems, and standby power supplies for emergency lighting systems

and telephones. Other market sectors that purchase lead include paint and glass

manufacturers, and building products manufacturers.

Zinc is primarily used to galvanize products found in the automobile, steel and

construction industries, but a greater percentage of secondary zinc is used to

produce brass and bronze, as well as assorted chemicals. Additional applications

include the blending of zinc-based die-cast and brass alloys.

________________________________________________________________________________________ Chapter – 2 Page 16 of 23

Composite Materials

Over the past few years, advances in the production of composite materials,

including mixtures of polymers, fibers, metals and ceramics, have extended the

range, performance and applications of these materials. These are made up of

individual materials referred to as constituent materials. There are two categories

of constituent materials designated as matrix and reinforcement.

The matrix surrounds and supports the reinforcement materials by maintaining

their relative positions. The reinforcements impart their special mechanical and

physical properties to enhance the matrix properties. A synergism produces

material properties unavailable from the individual constituent materials. A wide

variety of matrix and strengthening materials allows the designer of the product or

structure to choose any optimum combination.

Most commercially produced composites use a polymer matrix material often

called a resin solution. There are many different polymers available depending

upon the starting ingredients. The most common are known as polyesters, vinyl

ester, epoxy, phenol, poly amides, amongst others. The reinforcement materials

are often fibers and fiber glass, but also commonly ground materials. The average

composition in a product contains 60% resin and 40% fiber.

Various process technologies consisting of vacuum moulding, pressure moulding,

autoclave moulding and resin transfer moulding are employed in order to give the

required properties and strength to the relevant final product.

Composite materials have gained popularity in high performance products that

need to be lightweight, yet strong enough to take harsh loading conditions.

Examples of these include aerospace components, boat and scull hulls, and car

bodies. The new Boeing 787 aircraft, including its wings and fuselage, is

composed largely of composite materials.

________________________________________________________________________________________ Chapter – 2 Page 17 of 23

2.5 Other Mineral Based Projects Consisting of Acid and Alkali Industries, Cement and Glass Plants Based on Limestone, Gypsum, Rock Salt, Sulphur and Silica

The mineral potential of Pakistan, although considered excellent, is not

adequately exploited as its contribution to GNP at present stands at only 2.4%.

The main sources of locally available feedstocks for the production of the acid

and alkali industry (soda ash, sodium bicarbonate, caustic soda, chlorine), sulphur

and other inorganic acids, glass and cement, consist of rocksalt, sulphur,

limestone, gypsum and silica sand. The manufactured products are predominantly

marketed for local use, although there are some exports to Afghanistan and the

Central Asian states.

In view of the long history of development of industries in this sector, the process

technologies are well-known locally. However, the design, engineering and

procurement of critical plant and equipment are predominantly carried out by

foreign engineering companies.

2.6. Agro Based Feedstocks

Cotton and Other Natural Fibers

Agriculture is the largest sector of the economy and is the source of livelihood of

almost 45% of the total employed labour force in the country.

Cotton is the most important non-food crop and feedstock for the production of

natural fiber for the manufacture of textile products. Cotton fiber is also blended

with polyester and viscose fibers. The textile and clothing industry has been the

main driver of Pakistani exports for the last sixty years, in terms of both foreign

currency earnings and job creation. The textile industry flourished under official

patronage, but lost its advantages in the post quota regime. Its share in exports has

declined from 66% in 2005 to 53.7% in the current 2008-09 financial year.

The textile industry is based on relatively low to medium technology, but in spite

of this Pakistan has spent US$7.5 billion on the import of textile machinery over

the past ten years (1999-2009). Pakistan did not make any effort to adopt

________________________________________________________________________________________ Chapter – 2 Page 18 of 23

imported technologies for the manufacture of textile machinery by reverse

engineering. In view of these shortcomings, the textile industry has continuously

suffered productivity losses due to machinery breakdowns and its inability to cope

with operational problems. Pakistan is now facing competition from China, India

and Bangladesh, in view of their better quality products, higher productivity and

other economic advantages.

Sugarcane, Molasses, Power Alcohol and Associated Industries

Sugarcane is an important cash crop and is a valuable feedstock for the production

of sugar and other downstream industries, such as industrial alcohol, chip board

and paper.

Molasses is a by product of the sugar industry and is the starting raw material for

the production of industrial alcohol, which is used as a source of energy for

automobiles, as well as the production of organic chemicals, such as aldehydes,

acetone, acetic acid, acetic anhydride, isophoron, citric acid, glycerol, yeast and

many other derivatives for pharmaceutical and plastic industries.

Fruit and Vegetables

The various varieties of fruit produced in Pakistan consist of citrus, mango,

apples, banana, apricot, guava, grapes and tomatoes. Annual production is

estimated at 5.6 million tons per year.

The fruit industry is very diversified and consist of juices, soups and sauces, baby

food, bakery products, confectionary and tomato products. The technology for the

processing of fruit is becoming more sophisticated because of the high demand

for quality products. The industry is required to produce food products both

economically and profitably, and this depends upon efficient processes. At the

same time, these processes must handle the material in such a way that the final

product is attractive to the consumer.

The fruit industry and its downstream products have considerable export

potential.

________________________________________________________________________________________ Chapter – 2 Page 19 of 23

Natural Dyes

Vegetable dyes are eco-friendly and their use is increasing, especially for dyeing

wool, carpets, silk and cotton.

The common sources of vegetable dyes are parts of plants, such as leaves,

flowers, fruit, seeds, barks, and the roots of dye yielding plants. The cultivation of

certain trees also yield dye material. Therefore, the utilization of dye yielding

plants and trees will boost the agro-based industry especially in rural areas,

leading to rural development and employment creation. Pakistan imports

vegetable dyes from India despite the fact that the raw materials for their

production are available in Pakistan. Dyes and pigments constitute the largest

segment of the industry, with the world’s present value estimated at about US$16

billion per year.

Herbal Medicines and Associated products

The Indian / Pakistani system of medicines--generally known as the Ayurvedic

System of Medicine--is considered a perfect science of life which has evolved

from wisdom, experience and logic. Based on scientific observations, it has its

origin in the Vedas--the oldest recorded wisdom circa 6000 BC. Ayurvedic herbal

medicines are considered ideal treatments, as they cure the diseases without

causing any side effects.

Herbal medicines and products now include medicines, health supplements,

herbal beauty and toiletry products.

Major developments in herbal medicines and beauty products are now taking

place in China, South Korea, Canada and the US, in addition to India. It is

estimated that the global market for herbal products now stands at US$62 billion

per annum.

Pakistan has a vast variety of flora and fauna especially in the northern areas,

Azad Kashmir and the foothills of the Himalayas, which need to be explored for

beneficial exploitation of these resources.

________________________________________________________________________________________ Chapter – 2 Page 20 of 23

India has established a Technology Development Board which provides financial

assistance to R&D establishments concerned with the development and

commercialization of indigenous technology for herbal products for wider

domestic applications.

There is considerable potential for the development of this sector and

collaboration with well known companies such as Hamdard and Qarshi can be

sought for joint partnerships for the development of herbal projects.

Oils and Fats Industry

Conventional oils derived from cotton seed, rapeseed and corn are now processed

and utilized for the production of bio-fuels in the US and other countries.

An alternative source of vegetable oil called Jetropha is now widely cultivated in

South and Southeast Asia, especially in Japan, Thailand, China and India. It is a

woody and hardy plant, and grows to a height of 3-8 meters. It grows quickly

even in poor soils and is not affected by drought and disease. The Macro

engineering society of Pakistan, in collaboration with Big Bird (Pvt.) Ltd. has

initiated a project for the plantation of Jatropha in Layyah, West Punjab. The

Jetropha oil seed contains about 40% of vegetable fat/oil and some toxic

materials, which makes it inedible for human and livestock consumption. The

process technology for the conversion of Jetropha oil into bio-fuels is well proven

and can be adopted in Pakistan.

2.7 Sources of Raw Materials and Process Technologies for Chemical Industry Development in Pakistan

The sector wise classification of chemical industry in Pakistan is as follows:

PRIMARY INDUSTRIES SOURCES OF RAW MATERIAL

i) Petroleum Refineries Imported Crude Oil ii) Fertilizers Local Natural Gas,

iii) Cement Local Materials, Limestone, Clay iv) Iron & Steel Imported/Local Ore v) Copper Locally available ore vi) Textiles Local Agricultural Raw Material

________________________________________________________________________________________ Chapter – 2 Page 21 of 23

SECONDARY INDUSTRIES Petrochemical Intermediates Based Industries

Sources of Raw Materials

i) Synthetic Fibers ii) Polyvinyl chloride iii) Various Polymers iv) Pesticides v) Pure phthalic acid vi) Plastics and Resins vii) Paints and Varnishes viii) Organic Chemicals ix) Dyes and Pigments

x) Textiles and Tannery Chemicals xi) Drugs, pharmaceutical chemicals,

fine and specialty chemicals

Imported Petrochemical Intermediates, Locally available Coal, and Renewable Feedstocks consisting of Bio-mass and molasses.

2.2.3 OTHER SECONDARY INDSTRIES Acids and Alkali Industries.

Sources of Raw Materials

Soda Ash and Sodium Bicarbonate Caustic Soda and Chlorine Sulphuric and Other Inorganic Acids.

Local Raw Materials.

Paper and Paper Board Part local/part imported.

Glass and Ceramics Local Raw Materials

Crude Oil and Natural Gas are the feedstocks for the primary industries,

consisting of petroleum refining; fertilizers; iron, steel, and other metallurgical

projects; cement; and textile industries. The development of these industries is

predominantly based on imported technologies. The design and detailed

engineering, and supply of critical plant and equipment, is carried out by foreign

engineering corporations, which also assist in the construction of facilities,

training of operating staff, and the commissioning of process plant and

equipment.

2.8 Categorization of Secondary Chemical Industries in Pakistan

The secondary industries may be divided into two categories:

________________________________________________________________________________________ Chapter – 2 Page 22 of 23

Projects based on high / medium sophisticated technologies

These consist of polyesters, polyvinylchloride, polymers, pure phthalic acid

(PTA), plastics, organic chemicals, dyes and pigments etc. These projects are

based on imported technologies and the process and engineering of these projects

are predominantly carried out by foreign engineering corporations. The critical

plant and equipment is mostly supplied by foreign plant manufacturing

companies, which were also responsible for the commissioning and fulfillment of

performance guarantees.

Projects based on Medium and Less Sophisticated Technologies

Projects based on medium or less sophisticated technologies consist of the acid

and alkali industry, hydrogen peroxide, paper, board and packaging plants, glass

and ceramics and many downstream small consumer projects based on polymers,

ferrous, non-ferrous and allied fields. There have been some process technology

inputs, as well as engineering support from foreign consulting and engineering

companies, in the development of these projects.

In many cases second-hand plant and equipment has been imported by

industrialists. These plants were highly energy intensive and based on antiquated

technologies. As a result, these plants were uneconomic to operate, and required

government support in terms of subsidies and exemption from import duties and

taxes. In spite of these facilities/concessions many of these plants failed to operate

and were ultimately shut down, resulting in colossal losses to the country. Many

plants have also been shut down because of competition from China and other

countries, which have flooded the Pakistani market with cheap and better quality

products, especially in the fields of construction materials and household

consumer goods.

Pakistan has not been able to create its own capability for technological and

engineering infrastructure for the exploitation and commercialization of local or

imported technologies.

________________________________________________________________________________________ Chapter – 2 Page 23 of 23

The face and scope of the world’s chemical industry is changing. There is

continual emphasis on the development of new materials and processes based on

cheap, renewable feedstocks, consisting of coal, bio-mass and composite

materials, in addition to conventional feedstocks. The objective of the

“Development of Chemical Industry - Vision 2030” is for Pakistan to create its

own technological and engineering capability in order to make itself self-

sufficient by progressively reducing its dependence on foreign engineering

corporations, which are at present involved in the commercialization of chemical

and industrial projects. Such strategies were pursued by ASEAN, India and China

during the initial stages of their development, by virtue of which these countries

have already achieved the status of newly developed economies (NIC).

It should also be acknowledged that the creation of these facilities will create

employment opportunities for highly qualified manpower (engineers, scientists,

technologists, economists etc.). Currently, the lack of such opportunities is

responsible for the continual “brain drain” from Pakistan to other countries.

Chapter – 3 Page 1 of 1

CHAPTER 3

THE PRESENT STATUS OF THE CHEMICAL INDUSTRY

3.1 Pakistan Scenario

Historical Background

The development of the chemical industry in Pakistan started in the early 1950’s.

Since Pakistan did not have an industrial base, governments gave preference to

import substitution over export-oriented policies in their strategic plans for future

development. In spite of rather poor available resources, Pakistan made a

significant start and was considered a promising developing country in 1960’s.

Pakistan continued to follow an inward-oriented import-substitution policy until

the end of 1990’s, which hampered the development of export-oriented industries.

Pakistan did not appreciate the advantages associated with trade liberalization

until late in 1990s and supported highly protectionist trade policies. It delayed

trade liberalization and tariff rationalization until the end of 1990’s. The chemical

and the manufacturing sectors have also been adversely affected by various

factors, such as acute energy shortages and poor structural policies. Their present

share in 2008/09 GDP is estimated at 18.4%, compared with a contribution of

23% in 2006-07.

Existing Status

Chemical industry in Pakistan is widespread, in organized & unorganized sector. It is not possible to have an exact figure for investment in this sector; however a close approximation of investment in chemical sectors ranges between Rs. 550 - 600 billion. The chemical related imports constitute about 17% of the total import bill. There are three general classes of products in this Sector:

Basic chemicals both inorganic and organic such as acids, alkalies, salts,

ethylene, propylene, benzene, toluene, xylene etc.;

Chapter – 3 Page 2 of 2

Chemical products used in further manufacturing i.e. intermediates such as

pure Terephthalic acid, phthalic anhydride,

Finished chemical products for end use or ultimate consumption; synthetic

fibers i.e. polyester, PVC, polyethylene, polypropylene, polystyrene etc.

Pakistan made a considerable progress in basic inorganic chemicals like Soda Ash, Caustic Soda, Sulphuric Acid & Chlorine and sufficient production capacity of these chemicals is available not only to cater the needs of the local industry while surplus is being exported, imports of these products are negligible. However Pakistan’s organic chemical industry could not flourish due to unavailability of basic building blocks such as Ethylene, Propylene, Butylenes & BTX (Benzene, Toluene, Xylene) used for the production of most of the organic chemicals that are employed as a raw material for a number of chemical sub-sectors such as;

Pharmaceuticals

Pesticides

Dyes & Pigments

Soaps & Detergents

Paints & Varnishes

Synthetic Fiber

Plastics & Resins

Rubber Tyres & Tubes

Textiles Auxiliaries

Essential Oils & Perfumes

These petrochemical building blocks can be derived from a Petrochemical complex, which generally consist of a Naphtha Cracker, whereas naphtha is a product of oil refineries and currently its production in the country is around 1,000, 000 M.Ton per annum which is being exported. The investors have remained shy away from this project due to the following reasons;

Chapter – 3 Page 3 of 3

Highly Cost Intensive project

Sophisticated technology involved

Export market limitations

Insufficient current tariff spread

Pakistan Industrial Development Company (PIDC) has recently developed feasibility study of this mega project through an international firm of Singapore. However there are some alternate routes to produce basic petrochemical building blocks, these are;

Gasification of Coal

Dehydrogenation of Associated Gases

Cracking of Natural Gas

Each route has its own limitation, however recently some developments are taking

place to produce synthesis gas and ethylene from natural gas cracking. This

project surely opens the gateway for the development of Petrochemical industry

in Pakistan, which will support the local chemical & allied products industries in

meeting their raw materials requirements and to save the valuable foreign

exchange.

Besides the imports of most of the raw material & intermediate for these sectors,

Pakistan succeeded to develop the downstream allied chemical industries to meet

most of the local demands. The example of this development is obvious in

synthetic fibres, soaps & detergent, dyes & pigments, Paints & Varnishes, while

amongst intermediates Pakistan has sufficient capacity for Pure Terephathalic

Acid (PTA) and Poly Vinyl Chloride (PVC). However still the imports of

chemicals and allied industries stood around 20%, which is significant for a small

economy of Pakistan.

Chapter – 3 Page 4 of 4

3.2 Regional Scenario

By comparison, economic growth in Southeast Asia started in Japan in the 1960s

and was followed by newly developing countries, such as South Korea,

Singapore, Hong Kong and Taiwan. The “four little dragons” grew rapidly, owing

to their export-orientated industrialization policies. These countries provided

export incentives, such as subsidized export credits, duty free imports for

feedstocks of manufactured export products, encouraged foreign direct investment

(FDI), and also developed their science, technology and engineering infrastructure

to support their industrial base.

Trailing behind the “four little dragons” are four ASEAN countries--Indonesia,

Malaysia, Thailand and the Philippines. These four countries have also been

successfully increased their exports of high value-added goods by following a

policy of trade liberalization and technology development.

However, the most spectacular developments in the production and export of

manufactured products consisting of primary as well secondary chemicals have

taken place in China and India. China’s GDP has grown at an annual average rate

of 9-11% over the past two decades. China simultaneously developed a

technology and engineering infrastructure, by virtue of which it is now exporting

its chemical and manufactured products to developed countries, as well as its

process and project engineering systems to Asia and Africa.

There is widespread understanding that economies with liberal trade policies and

openness have higher economic growth rates. Trade liberalization, together with

complimentary policies and structural reforms, results in substantial

improvements to the business environment, fosters market competition and helps

technology improvement and upgrading. These strategies boost productivity and

the optimum utilization of resources which are absolutely essential for increasing

exports and supporting economic performance.

3.3 The Structure of Pakistan’s Trade

Import & export of chemicals of Pakistan is depicted below:

768118

2,788

253

3,599

400

4,133

472

4,362

367

5,718

538

5,166

411

0

1000

2000

3000

4000

5000

6000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Chemicals Trade (Million US $)

Imports Exports

Above graph shows the consolidated figures for imports & exports such as chemicals,

fertilizers, plastics, rubber, medicines, dyes & pigments, soaps & detergents, and

specialty chemicals for the period from 2002-03 to 2008-09. Imports have increased

from 768 Million US $ in 2002-03 to 5,166 Million US $ in 2008-09 and on the other

hand our exports also showed an increase from 118 Million US $ in 2002-03 to 411

Million US $. Share of chemicals in our total imports is about 15% while its share in

exports is about 2.3%. The total imports of plants and equipment used for the

manufacture of chemicals contributes about 23% of overall imports of Pakistan.

Collective share of these two categories i.e. plants/equipments and chemicals is about

38% of country’s overall imports and among major contributors of country’s imports.

Pakistan’s trade deficit was about ---- Billion US $ which has been increased to 17

Billion US $ in the year 2008-09.

Chapter – 3 Page 5 of 5

The structure/composition of Pakistan’s exports of chemicals for the year 2008-09 is

depicted below:

Chemical Exports of Pakistan ‐ 2008‐09Total Exports = 513 Million US $

Petrochemicals4.0% Pharmaceuticals

28.3%

Plastics41.6%

Perfumes & Cosmetics2.6%

Other Specialty Chemicals10.7%

Inorganic Chemicals4.5%

Fertilizers0.1%

Dyes & Pigments1.4%

Coatings & Inks3.5% Soaps & Detergents

3.4%

Plastics stand top export with a share of 41.6%. Second is pharmaceutical with a healthy

share of 28.3%. Third largest one is of specialty chemicals contributes about 18.2% of

which perfumes & cosmetics 2.6%, coatings & inks 3.5%, dyes & pigments 1.4% and

other specialty chemicals share is around 10.7%. Inorganic chemicals have comparatively

very low exports of 4.5% while Pakistan have significant surplus available for exports

most promising products in this sub-sector are soda ash, caustic soda, chlorine, calcium

chloride, bleaching powder etc. need be encouraged. Petrochemicals share is about 4% in

which major contributors are phthalic anhydride, dioctyl orthophthalate etc. soap &

detergents contributing about 3.4% while share of fertilizers is negligibly small i.e. 0.1%.

Traditionally, exports from Pakistan have been dominated by textiles, cotton, ready-made

garments and leather products. These comprise about 60% of total exports from Pakistan,

and are predominantly manufactured by low technology and labour intensive processes.

Chapter – 3 Page 6 of 6

Chapter – 3 Page 7 of 7

The share of medium- to-high value-added products--such as chemicals, petroleum,

petrochemical intermediates and manufacturing—in exports is very small. In terms of the

composition by technology classification, the share of exports of raw materials, and

resource-based as well as labour intensive and low technology products in 1985-2005 did

not show any improvement. These products contributed about 90% to total exports in

revenue terms from Pakistan. The share of exports of medium- to-high technology

manufactured products over the same period has declined from about 10% in 1985 to

about 8.3% in 2005. This indicates that despite following a policy of trade liberalization

in the late 1990s and early 2000s, Pakistan has failed to make any headway in

diversifying its exports, or enhancing its capability in the production of medium and high

technology export based products. By comparison, the global share of exports of raw

materials, and labour intensive and low technology products was estimated at about 37%

in 2005, while the global share of medium and high technology products has risen to

about 63%. These figures are recorded in Table 3.2.

Table 3.2

Comparison of Pakistan’s exports by technology classification (1985 & 2005)

Technology level Pakistan’s exports World exports

Share in 1985

Share in 2005

Share in 2005

Raw Material (Primary Products) 33.06 10.99 8.86

Resource-based (RB) 4.09 8.00 14.05

Low-tech (LT) 52.98 72.70 13.88

Medium-tech(MT) 8.57 6.94 32.27

High-tech(HT) 0.30 1.21 22.43

Others 0.99 0.13 8.51

Source of Data UN Comtrade Database 2008, definition of technological classification.

Imports The structure/composition of Pakistan’s imports of chemicals for the year 2008-09 is

given in the graph. Petrochemicals are among the top imports of Pakistan with a share of

29.2% major petrochemicals being imported are o- xylene, pure terephthalic acid, MEG,

DEG, solvents etc. Second largest import is plastics have a contribution of about 19%.

Chemical Imports of Pakistan ‐ 2008‐096,436 Million US $

Soaps & Detergents1.7%

Dyes & Pigments4.3%

Coatings & Inks1.1%

Other Specialty Chemicals10.2%

Pesticides2.2%

Fertilizers10.4% Synthetic Rubber

1.2% Plastics19.0%

Petrochemicals29.2%

Inorganic Chemicals10.8%

Pharmaceuticals8.5%

Perfumes & Cosmetics1.4%

The data for major imports in the period 2002-08 is recorded in Table 3.3. This table also

gives the consolidated figures for imports, such as chemicals, drugs, medicines, dyes and

colours for the same period. Their share of imports increased from US$1,921 million in

2002-03 to US$4,955 million in 2007/08, or about 12.3% of total imports. Similarly, the

total imports of capital plants; agricultural, transportation and communication machinery

and equipment; and manufactured products, increased from US$2,825 million in 2002/03

to US$11,283 million in 2007/08, or about 28.3% of total imports. These two categories

of imports together add up to more than 40% of total imports.

Chapter – 3 Page 8 of 8

Chapter – 3 Page 9 of 9

Table – 3.3 MAJOR IMPORTS OF PAKISTAN

US$ (Million) 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

1 Chemicals & Related Product 1,555 2,078 2,709 2,990 3,194 4,181

2 Drugs and Medicines 222 275 292 331 354 4633 Dyes & Colours 144 160 187 223 238 3114 Chemical Fertilizers 240 285 417 652 696 9125 Electrical goods 217 258 356 502 536 7026 Machinery 2,224 3,309 4,494 6,245 6,673 8,7327 Transport Equipments 501 653 1,069 1,602 1,712 2,2408 Iron and Steel 402 512 890 1,373 1,467 1,9209 Iron and Steel Scrap 48 94 222 424 453 593

10 Manufacture of Metal 100 124 175 223 238 31111 Tea 173 193 223 225 240 315

12 Synthetic & Artificial -Silk yarn 92 118 130 546 583 763

13 Non-ferrous metal 30 34 40 123 131 17214 Crude Petroleum 1,367 1,765 2,149 3,804 4,065 5,32015 Petroleum Products 1,700 1,401 1,851 2,848 3,043 3,98216 Edible Oils 539 613 703 746 797 1,04317 Grains, Pulses & Flours 116 75 123 164 175 22918 Other Imports 2,551 3,646 4,569 5,560 5,941 7,775

Total Imports 12,221 15,593 20,599 28,581 30,536 39,964Source : Export Promotion Bureau

Chemicals (1+2+3+4) 2,161 2,798 3,605 4,196 4,482 5,867

Percentage of Chemicals Group to Total Imports

17.7% 17.9% 17.5% 14.7% 14.7% 14.7%

Capital Plant & Equipment (6+10) 2,324 3,433 4,669 6,468 6,911 9,043

Percentage of Machinery Group to Total Imports

19.0% 22.0% 22.7% 22.6% 22.6% 22.6%

There have been major increases in the imports of chemicals, pharmaceuticals, drugs,

dyes and colors, as well as manufactured products, such as capital plants, equipment and

associated machinery. These products have been responsible for the widening gap

between imports and exports, indicating that Pakistan has not been able to diversify its

production of consumer and industrial products in spite of the adoption of liberal policies

by governments. Domestic production of consumer goods is based on labour intensive,

low value-added products.

Chapter – 3 Page 10 of 10

In the past, medium and high intensive technology based chemical plants, such as

petroleum, cement, sugar, polyester fibers and other petrochemical based polymer

products were developed in Pakistan with the help of foreign engineering and

construction companies. However, Pakistan has failed to assimilate these technologies,

and use these either for the replication of these plants or in the development of associated

projects.

3.4 The Role of the Government in Industrial Development

Rapid industrial development in Japan and the newly industrialized economics (NICs) of

South and Southeast Asia has resulted in these countries recording very high economic

growth rates since the 1960s. This was made facilitated by the development of industrial

policies designed to shift the industrial structure away from primary economic activities,

such as agriculture and textile manufacturing, to advanced chemical and manufacturing

industries.

Economists in the late 1970s and 1980s portrayed the industrial policies of NIC’s as a

new perspective on development and defined the role of the state to maintain

macroeconomic stability, provide industrial and technology infrastructure, improve

market institutions to enhance development, and redistribute the generated wealth. One of

the major reasons for the success of industrial policies in NIC’s was productive

investment--which formed a large percentage of GDP--with much of this investment

funding made by the public sector. The introduction of incentives and subsidies were also

used as an effective tool for resource allocation. The governments of NIC’s established

public organizations to support production activities, but relied primarily on private firms

for the success of their industrial policies. These governments, however, realized that the

industries whose development were deemed necessary for rapid industrialization could

only be nurtured with the intervention of the public sector. This is because most of the

industries they were developing—such as chemicals, petrochemicals and polymers etc--

required large scale investments which the private sector could not afford.

In China, market reforms were introduced by Deng Xiaoping in 1978, along with its

Open Door Policy. Deng stated that if capitalism had something positive to offer, then

China should accept and exploit it to the best of its advantage.

T

he structure of China’s petroleum and petrochemical industry is shown in Fig 3.1. China

created two Public Sector Corporations: China National Petroleum Corporation (CNPC)

for the production and exploration of Oil and Gas; and the China Petrochemical

Corporation (SINOPEC) for the development of its petrochemical industry. China created

Petro-China as a Holding Company which offered shares on the international market,

with its value estimated at US$100 million in 1999. Petro-China’s value has now reached

US$1.1 trillion over a ten-year period. CNPC is now ranked one of the top petroleum

companies globally, as shown in Table 3.5.

Chapter – 3 Page 11 of 11

CNPC ranked as World’s Top 50 Petroleum Companies

Total assets US Dollars 1.1 trillion.13 Giant Oil and Gas Fields16 Large Scale Refining and Petrochemical Companies 19 Marketing Companies.Large Group of R&D Units For Technical Services.Capital Plant Manufacturing Enterprises in Northeast, Northwest, North and Southwest China.30 Oil and Gas exploration, development and production projects in Middle East, North Africa, Middle Asia, Russia and South America.

The salient feature of China’s industrial policy is that the public sector has a large share

holding, while the private sector is given a small share in the equity, when developing

primary large-scale projects. Conversely, in the downstream secondary industries the

public sector has a minor shareholding, while private companies have a large equity

share. This is a good example of the importance and success of public-private

partnerships (PPAs) in the successful industrialization of the country. This is illustrated in

Table 3.6.

Chapter – 3 Page 12 of 12

Table – 3.6

Production distribution of major petrochemicals in China -2003

63.0%37.1%85.33%54.1%18.5%Others

23.6%23.4%2.70%16.5%29.7%CNPC

13.4%39.5%11.97%29.4%51.8%Sinopec

15.17581.27210.6915.946.12Total (mt/y)

Other Products

Synthetic rubber

Synthetic fibre

Synthetic resin

Ethylene

3.2 Limitations of Pakistan’s Industrial Policies for Chemical Industry Development The industrialization of Japan and South Korea was facilitated by the development of

multinational conglomerates, called Keiretsus and Chaebols. These corporate business

groups played a decisive role in the economies of their countries. The major

contribution of these conglomerates relate to their ability to create powerful vertical and

horizontal diversification of their businesses with the active participation of their

respective governments.

Vertical diversification relates to the expansion of businesses in related and unrelated

fields of their operations, as either one corporate entity or by breaking down into loosely

connected groups of separate companies sharing a common name. Even in the latter

case, the same family group almost always owned, controlled and managed each smaller

conglomerate. In horizontal diversification these conglomerates expanded their activities Chapter – 3 Page 13 of 13

Chapter – 3 Page 14 of 14

into banking, investment and other related ventures. This pattern, in many cases, was also

followed later by NICs.

Under the present political climate in Pakistan, it is very difficult to attract foreign direct

investment, from not only developed countries, such as the US, Japan and Europe, but

also from the Middle-East. In view of these constraints, it is necessary for the government

of Pakistan to devise suitable policies to develop PPPs, in order to spur the development

of the chemical industry, which will cater to both domestic demand and exports. In this

endeavour large industrial groups such as Fauji Foundation, Dawoods, Engro and other

well known textile, cement and sugar groups should be invited to reinvest their proceeds

for the vertical or horizontal diversification of their businesses.

CHAPTER 4

4.1 Modernization of the National Innovation System for Chemical Industry Development in Pakistan

Pakistan’s industry is facing pressures from globally competitive markets. It has

become extremely difficult for Pakistan’s economy to sustain growth by

continually relying on cheap labour, limited technological infrastructure and the

high cost of imported technologies. In view of these limitations the challenges of

enhancing, as well as modernizing, a National Innovation System (NIS) has

become very important.

The NIS of any country is defined as the framework by which a country brings

about technological change. It includes many diversified elements and

participants involved in the development of the chemical industry. These consist

of research and development (R&D) and technology development institutions; the

infrastructure responsible for the commercialization of locally developed and

imported technologies; the structure of universities and educational and technical

institutions for human resource development; the government and regulatory

agencies; information networks; financial institutions; and domestic and

international markets. It emphasizes the synergistic strategies and complex

interactions between various stakeholders in an economic environment. The

development and enhancement of a NIS is therefore critical for the formation of

national technological policies and is also important for strategic technology

planning in Pakistan.

The past history of industrial development has shown that the highly

industrialized countries of the UK, France, Germany and the US, achieved their

status as industrialized nations after several centuries of continual endeavour.

Successive countries have, however, achieved their development goals in shorter

periods than those immediately preceding them.

Japan took a shorter time than the Europeans to achieve its status as an

industrialized country. But while Japan’s technological miracle spans over half a

Chapter - 4 Page 1 of 21

century, South Korea, which followed the Japanese model, achieved its

industrialized status in about 25-30 years, while other newly industrialized

countries (NIC’s) of Southeast Asia, such as Singapore, Taiwan and Hong Kong,

have also shown similarly remarkable progress in an even shorter time span.

Other countries like Indonesia, Malaysia and Thailand, as well as China, India

and Brazil, have exhibited what is termed as miracles. Their achievements have

also been spectacular and unparalleled in history.

Limitations of Pakistan’s N.I.S

It would be appropriate to consider the limitations of Pakistan’s Innovation

System and determine why it has lagged behind in its race towards the

development of its chemical industry and whether it can replicate the experiences

of its neighbouring countries--especially China and India--in order to achieve the

desired goals.

The leap-frogging experience of China and many other NIC’s was not the result

of the so-called “invisible hand”. Their leaders took strategic decisions that were

at the time at variance with their comparative advantages (given their then levels

of economic development), but eventually led to the desired transformation.

These countries paid special attention to the development of their NIS, which

formed an important aspect of their economic structure and institutional setups,

which had a positive impact on human resource development, and also enhanced

and improved their systems of production, marketing and associated sub-systems.

These factors formed the basis of these countries’ innovative technologies.

The centerpiece of NIS is a country’s industrial organizations and it is their

responsibility to co-ordinate with research and development institutions in the

utilization of inventions for the commercialization of the results of this research.

The process of commercialization depends on the integration of technology with

prototyping, production, marketing and creating effective linkages with

consumers. In Pakistan, R&D institutions, universities and industry work in

Chapter - 4 Page 2 of 21

isolation and are completely divorced from each other’s activities. Unfortunately,

no effort has so far been made by the public or private sector to develop public-

private partnership in order to integrate the activities of various sectors of

economy.

Various models for the utilization of local or imported technologies for

commercialization have been proposed. However, the diffusion model is

considered the most appropriate first step for development, given the present

situation in Pakistan.

One aspect of this model is designed to facilitate learning, train the labour force to

high technical standards, absorb locally developed or imported technology, and to

solve production problems related to energy and productivity improvements in the

chemical industry, by introducing reverse engineering techniques as a first step

towards the development of a NIS. This is a well-known technique through which

foreign technology may be acquired and assimilated by importing sophisticated

capital equipment. Machinery and equipment that have been designed and

manufactured by foreign engineering companies are based on modern technology

and have technological information embedded in them. These technology imports

have been used by NIC’s to produce high quality products through the application

of reverse engineering. Unfortunately, Pakistan has not been able to develop this

capability.

The textile industry is a prime example of this shortcoming, since it has been

importing textile machinery worth billions of US dollars every year without

taking any initiative to enhance its capability for modernization, or revamping its

textile machinery through the adoption of imported technologies by reverse

engineering techniques. Large industrial companies, such as refineries, fertilizer

and cement have also not taken any initiative to exploit these techniques.

For an economy competing at the global frontiers, its innovation strategy requires

a well developed infrastructure, a set of capability focused technology policies, as

well as an industrial environment that stimulates innovation and entrepreneurship.

Chapter - 4 Page 3 of 21

It is therefore, necessary to examine the role played by science and technology

policies in a country’s transition to an innovation based growth strategy, and

discuss the challenges Pakistan faces in restructuring its economic institutions in

order to improve R&D capabilities so as to encourage technology creation.

Process science and engineering technology (PS&ET) is the foundation for the

development of the chemical industry. It embodies the integration of facilities for

technology development, process design, detailed engineering, manufacturing of

capital plants and equipment, chemical plant construction and management.

Taken together, these provide the basis for manufacturing excellence and

sustainable competitive advantage, as well as employment opportunities for

highly qualified manpower. The development and application of PS&ET is rather

fragmented in Pakistan at present. In order to meet the goals of “Chemical

Industry Development - Vision 2030”, it is absolutely essential for Pakistan to

enhance its PS&ET capabilities, as this is an important component of a NIS. The

performance of various elements of this system in Pakistan have been critically

examined, and a coherent strategy for the integration of available facilities has

been proposed, in order to achieve the objectives of “Chemical Industry

Development - Vision 2030”.

Pakistan’s technological infrastructure is weak and is not suitably developed. Its

scope to be widened, modernized and strengthened. The objective is to make

Pakistan self-reliant, thereby limiting its dependence on foreign technology,

licensing and engineering organizations for the acquisition of technology and

process know-how. This will require collaborative efforts in the form of Public

Private Partnerships (PPP) and considerable improvements in the present structure

of R&D institutions, as these are the major components of process science and

engineering technology systems.

It is proposed that the scope of the Engineering Development Board should

be widened, with an additional responsibility for Technology Development.

Chapter - 4 Page 4 of 21

The structure of the proposed Technology Development Board is illustrated

in Fig 4.1

Structure of Technology Development Board

Strategy for the Development Strategy for the Development of National Innovation of National Innovation

SystemSystem

National Committee National Committee CounsilCounsil for for Research and Technology Research and Technology

DevelopmentDevelopment

National Committee National Committee CounsilCounsil for the for the Development of Development of

Soft/Hardware for the Soft/Hardware for the Commercialization of Commercialization of

Technologies.Technologies.

National Committee National Committee CounsilCounsil for the for the Development of Technology Policy and Development of Technology Policy and

Investment PlanningInvestment Planning

Fig 4.1

4.2 The Role of the National Committee in Research and Technology Development

R&D institutions are an important part of the national innovation system of any

country. These institutions make a vital contribution to technological

transformation and enhance a country’s capacity to invent, absorb, adopt and

deploy technology through laboratory and pilot plant development work. An

interdisciplinary approach is invariably adopted and the work is carried out by

scientists, engineers, technologists, economists and technicians, who are suitably

trained and conversant with modern research and development methods and

equipment. In many cases these institutions also provide consultative services and

help to solve product and process problems of firms, such as the processes of

Chapter - 4 Page 5 of 21

decoding, trouble-shooting problems of transferred technology and improving

productivity and energy efficiency. The extent to which R&D effort are involved

in the productive sectors of an economy determines its contribution to

technological transformation and development. In addition, performance is judged

by the number of scientific publications in recognized international journals; the

number of product and process inventions, whether patented or not; and other

measures such as the utilization of their work for commercialization.

4.2.1 The Current Status of R&D in Pakistan

Research and development is divided into

(i) Basic research

(ii) Applied research and

(iii) Development

The objective of basic research is to gain more comprehensive knowledge and

understanding of a problem, without specific application or immediate

commercial application. The objective of applied research is to gain knowledge to

meet specific needs resulting in invention. It is also called goal-oriented research.

Development is the systematic application of knowledge gained from R&D and

utilized towards the production of useful products, systems, and materials

including design and system development, which lead to the commercialization of

technology.

R&D plays a decisive role for innovative solutions which are generated in

dialogue between users and developers. This dialogue is the central concern for

developing linkages between universities, industry and R&D institutions.

Unfortunately, these linkages are not well developed in Pakistan’s scientific

culture. Universities, R&D institutions and industry work in complete isolation

and there is little concern about a multi-disciplinary approach to research, as

practiced in NIC’s and scientific institutions in other countries. In addition, there

Chapter - 4 Page 6 of 21

is hardly any provision or facility for pilot plant work in Pakistan’s technological

institutions. Expenditure on R&D is limited and these institutions get little

funding from industry.

4.2.2 National Committee for Research And Technology Development

In order to advance technology, universities, R&D institutions and industry must

foster linkages as a first step towards the streamlining of available resources for

development.

The task of the National Committee for Research and Technology

Development will be:

(i) To establish subcommittees for each sector of chemical industry concerned with the utilization of available feedstocks. The members of the sub-committees will be drawn jointly from industry, universities and R&D institutes relevant to each sector.

(ii) To appoint industrial liaison officers and research fellows to the conduct industrial surveys in order to identify and select industrial problems for R&D.

(iii) To create research teams drawn jointly from universities, industry and R&D institutes for interdisciplinary technology development for the identified projects.

(iv) To allocate resources for the execution of R&D and set targets for the completion of work.

(v) Continually appraise the project progress, with special reference to techno-economic evaluation of the results of R&D.

(vi) To determine the suitability of the projects for pilot plant study after the completion of laboratory work.

(vii) To allocate resources for pilot plant study for the selected projects.

(viii) To continually appraise the results of pilot plant studies and determine their techno-economic feasibility for commercialization, and

(ix) To develop process design parameters for the commercialization of technology and make recommendations for the registration of patents.

Chapter - 4 Page 7 of 21

Chapter - 4 Page 8 of 21

To execute this programme for technology development, the role of the public

sector is absolutely essential and its responsibility should be clearly defined in

order to obtain tangible results. The structure of the National Committee for

Research and Technology Development is illustrated in Fig 4.2.

Structure of National Committee For Research and Technology Development

`

National Committee for Research and Technology

Development

Sub-committees for Various Sectors of the Chemical Industry

Industrial Surveys for the Identification and Selection

R&D Problems.

Selection of R&D Teams from Universities/R&D institutions/ Industry for

R&D Work and the Allocation of

Selection of Projects for Pilot Plant Work and the Allocation of Resources

Selection and Adoption of Technology for Commercialization.

Techno-economic Evaluation

Design of Parameters

Techno-economic Evaluation

Marketing Evaluation

Approval and Evaluation

Evaluation & Approval

Registration of Patents

Fig 4.2

Chapter - 4 Page 9 of 21

4.3 National Committee for the Development of Software and Hardware for the Commercialization of Technologies

The development of Industrial infrastructure consisting of the software and

hardware required for the commercialization of locally developed or imported

technologies, depends on the availability and continual development of local

capability for process design, project engineering, design of instrumentation and

control, safety and environment, construction and project management. It also

requires the development of facilities for the manufacture of capital plant and

equipment and associated hardware necessary for the construction and

operation of the project. When integrated in the technological infrastructure,

these resources permit the economic utilization of capital, improved application

of human resources, reductions in the cost of production and help in building an

industrial base for the effective development of the chemical industry.

At present Pakistan has limited capacity for the development of the hardware and / or

software necessary for the technology transfer processes. The development of

industrial projects has been assigned in most cases to foreign engineering companies,

which are given the responsibility for the design, engineering and supply of critical

plants, and the construction of plants on an EPC basis (Engineering, procurement and

construction).

During the initial stages of industrial development, the government of newly

developed countries (NIC’s), including India, China and Brazil, encouraged local

companies to form joint ventures with foreign engineering corporations, whereby

local resources were also used through a learning process in the technology transfer

processes for the commercialization of technologies. These countries have now

developed their own industrial infrastructure for software and hardware and are self-

reliant. In many cases they also export their know-how and project management

expertise to other countries.

It is essential that Pakistan develop its own capability and technological infrastructure

for providing hardware and software services for the implementation and construction

Chapter - 4 Page 10 of 21

management of chemical projects. This can be accomplished by the formation of

engineering companies or by enhancing the capability of existing engineering

companies either as PPPs or as joint ventures with Chinese/Malaysian companies or

other foreign companies.

It should be recognized that the development of facilities for the commercialization of

technologies will require tens of thousands of highly qualified scientists, engineers,

technologists, economists, social scientists and marketing experts. Unfortunately,

these areas of manpower utilization have been completely neglected in the past,

which has resulted in the “brain drain” of Pakistan’s highly qualified manpower to

other countries.

The functions of an engineering company will consist of:

(i) Identification of new projects

Identification of potential projects within the framework of the development plan and based on locally available and/or imported raw materials.

(ii) Feasibility and Investment Studies

Undertaking comprehensive feasibility and investment studies based on international standards for the establishment of chemical industries.

(iii) Financial Packages

Arrangement of local and foreign financing for clients/investors/entrepreneurs.

(iv) Design and Engineering

To undertake the design and engineering of projects with a view to optimizing the use of indigenous resources and facilities, thereby reducing overall investment costs.

(v) Local Fabrication of Equipment and Machinery

Establishment of manufacturing companies for the fabrication of high pressure plants and equipment in collaboration with foreign engineering companies is considered desirable.

Chapter - 4 Page 11 of 21

(vi) Construction of Plants

To provide planning and scheduling, supervision, monitoring and control of

the construction of plants. In this area, local companies are available, which

have the capability to undertake the construction of complete plants.

(vii) Commissioning, operation and maintenance

To undertake the commissioning of plants, and provide guarantees for quality

assurance and production capacities.

In addition it will be necessary to develop capability in operational and

maintenance management and provide this facility to projects on a contractual

basis.

To arrange training of the client’s managerial and operational personnel in

Pakistan or abroad.

(viii) Modernization and Revamping (BMR) of Existing Plants

To undertake BMR studies with a view to improving the performance of

existing plants and to bring them to the optimum level of productivity and

efficiency. This will include technical and financial auditing; management

reviews; the preparation of BMR proposals; design and detailed engineering;

fabrication or upgrading of equipment for the replacement of old equipment;

and the construction and integration of facilities with the main plant.

(ix) Acquisition of Technology Packages

The know-how and technology required for the development of projects will

be acquired from local resources or imported as process packages.

Chapter - 4 Page 12 of 21

Chapter - 4 Page 13 of 21

(x) Reverse Technology Transfer

In view of the high cost of manpower in the developed world, engineering

companies in these countries are using available resources in emerging

markets where software design and engineering facilities have already been

developed, such as South Korea, China, India, Philippines, Thailand and

Malaysia. There is immediate need for such facilities to be developed in

Pakistan, which can form a source of foreign exchange earnings.

(xi) Organizational Structure

These companies may be conceived as joint ventures between foreign and

local partners, with equity participation to be negotiated.

The foreign partner will locate some experts in Pakistan to work with the local

company to achieve the above mentioned objectives.

The organization and structure of the proposed engineering companies is

shown in Figure 4.3.

4.4 National Committee for the Development of Technology Policy and Investment Planning

It is proposed that a National Committee for the Development of Technology Policy

and Investment Planning should be created with equal representation from the public

and private sectors. The objectives of this Committee will be:

(i) To provide suitable incentives to entrepreneurs, in order to accelerate the

processes of chemical industry development and the resolution of industrial

problems and policies on a continual basis.

(ii) To develop investment policies and infrastructure for capital formation.

The role of the government may be reviewed from several perspectives: enhancing

the supply of science and technology; facilitating the transfer of foreign technology;

diffusing foreign technology; and promoting in-house research through local

Proposal Structure of Engineering Companies for Commercialization of Technologies

Development of New Projects and Revamping of Old Plants

Design, Engineering and Construction Management Services

Consultancy Services

Preliminary & Detailed

Feasibility

Process Design

Detailed Engineering

Procurement Services

Construction Services

Commissioning Services

Modernization & Revamping of Old Plants

*Market Research *Survey & Selection of Plant Location *Study of Raw Material & Utilities *Selection of Technology *Determination of Investment Costs *Preparation of Financial Plan and Means of Funding *Environmental Assessment *Planning of Plant Management *Implementation Plan

*Acquisition of Technology and know-how *Process design, utilities design *Establishment of Technical Requirements

*Checking of Process Design *Plant Layout *Mechanical Design *Piping Design *Instrumentation Design *Electrical Design *Civil and Structural Design *Environment Control *Preparation of Project Packages

*Preparation of tenders *P/Q of Contractors *Evaluation of Bids *Local Fabrication *Foreign Procurement *Selection of Companies *Inspection of Equipment *Shipments to Plant Site

*Preparation of tenders *P/Q of Contractors *Evaluation of Bids *Selection of Contractors *Supervision during erection *Plant schedule control *Project Cost Control *Quality Control *Safety Control

*Manpower training *Preparation of SOPs and operating Manuals *Start up Planning *Raw Materials and other inputs Control *Organization of commissioning team *Commissioning *Supervision of Guarantee Tests

*BMR Studies *Technical auditing *Preparation of proposals based on engineering fabrication of equipment *Construction Management

Chapter - 4 Page 14 of 21

Fig - 4.3

utilization of national R&D infrastructure; enhancing the scope of industrial

infrastructure for commercialization by advocating and developing PPPs, keeping

industrial peace; developing the scope and availability of various feedstocks;

protecting the environment; and setting quality standards for manufactured products

and systems. It is the integration of the various components of a NIS that determines

its effectiveness in accelerating technological transformation, knowledge acquisition,

generation, diffusion and application. The role of the government in the successful

utilization of various components of technology will depend on its ability to foster

PPPs with the involvement of industrial and venture capital institutions and a vibrant

entrepreneurial class in the implementation of its policies for development.

In order to attract investment capital, it is proposed that a Holding Company should

be established with the participation of the financial sector, international donors,

friends of Pakistan, overseas Pakistanis and other investors, who will be invited to

participate as share holders in this company.

4.5 Human Resource Development

The educational institutions of a country have the primary responsibility for

producing highly skilled labour for the smooth and efficient functioning of an

economy. High rates of enrolment at the tertiary level are crucial, in order to make

education relevant for the technological transformation of an economy and to

encourage R&D development. Other important factors are the relevance of curricula

to the needs of a market economy; the extent to which curricula reflect the breadth

and changes in different disciplines; emerging technologies such as new materials,

biotechnology, renewable resources of energy, micro-electronics, computer and

information technologies, and the technologies required in the development and

application of software and hardware used in the commercialization of chemical

processes. Unless the education system is geared towards equipping its graduates with

this knowledge, the NIS will remain constrained.

Chapter - 4 Page 15 of 21

It should also be recognized that an educational system which emphasizes practical

apprenticeship, and vocational and technological training, is far more relevant for

rapid technological development than the more academic and theoretical orientation

of other systems. The present trend in developed countries and NICs is to blend both

systems.

Another requirement is that the educational system should be geared to lifelong

learning in view of the rapid and continuous technological changes taking place in

globally. This can be accomplished if the industrial sector arranges company-level

training in a productive environment and imparts specific competencies. In addition,

the industrial sector and universities should be required to organize short-term

training programmes for working personnel every 3-4 years of their professional

careers, in order to keep their knowledge current and up-to-date. A NIS that organizes

this type of human resource development will facilitate company level innovation.

4.6 Integrated Plan for the Development of a National Innovation System

Technology is changing at a very fast rate and there is a renewal of technology in a 5-

6 year cycle. There is continual development of process technologies especially those

concerned with:

(i) New materials of construction which can withstand high temperatures,

pressures and a corrosive environment, as well as the production of

composite materials for the aerospace, automobile and transport industries.

(ii) New design methods in chemical, mechanical, electrical, instrumentation,

safety and environment engineering.

(iii) Production and manufacture of high reliability rotary equipment consisting

of compressors, pumps, turbines, generators, gas engines and capital plant

and equipment used in the chemical industry.

(iv) New methodologies introduced for the training of the labour force for the

operation and maintenance of plants utilized in the chemical industry.

Chapter - 4 Page 16 of 21

Chapter - 4 Page 17 of 21

(v) Complete computerization of plant design and operation.

Computational technologies have a broad range of applications, from molecular

modeling to process simulation and control. These technologies are embodied in

almost every aspect of chemical research, development, design and manufacture.

Those most critical to the development of the chemical industry include

computational science, computational fluid dynamics, process modeling, simulation,

operations optimization and control.

In view of these developments, the chemical industry faces enormous challenges. Six

major forces are shaping future developments in its business landscape. These are:

(i) Increasing globalization of markets.

(ii) Societal demand for higher environmental performance.

(iii) Financial market’s demand for increased profitability and productivity.

(iv) Higher customer expectations.

(v) Changing labour force requirements.

(iv) Higher quality standards.

The achievement of these objectives will require improvements in the design,

production and quality of chemical products, which will only be possible if Pakistan

develops an integrated plan by creating linkages between industry, research

institutions and universities. This will permit quantitative and qualitative

improvements in the development of the chemical industry.

An integrated plan for education, research and project management for the

commercialization of chemical processes is illustrated in Fig 4.4 and 4.5.

Development of Design and Engineering Infrastructure for Commercialization of Technologies

Project &

Product Identification

Locally Developed and/or Imported Technology and

know-how

Market Study.

Supply / Demand

Feedstock Study

And Availability

Tech-Economic Study And Project Approval

Design, Detailed Engineering, Plant & Equipment Specs. Preparation of Workshop

Drawings, Utility Plants & Material Specs..

Installation and Erection of Plant and Equipment

Mechanical Completion

Plant Commissioning and Commencement of

Commercial Production

Marketing and Consumer Acceptance

Local Fabrication of Plant

and Equipment

Training of Manpower

Procurement of Plant and Equipment from Foreign

Sources

Source of Finance Debt/Equity Ratio

Fig-4.4

Chapter - 4 Page 18 of 21

Chapter - 4 Page 19 of 21

An Integrated Plan For Education, Research

And Project Management For Commercialization Of Chemical Industry

Commercialization of Processes Engineering, Project Management Services,

Development of Project Packages

Selectio logy for n and Adoption of TechnoCommercialization.

Process and Plant Management Plant Operation, Management and

Marketing Management

Creation & Development of Linkages

New Processes / Technology

Consultancy Services Revamping and Modernization,

Optimization and Productivity Improvement

Industrial Survey Identification And Management of R&D Projects

Pilot Plant Studies at Universities, R&D Institutes and Industry

Selection and Adoption of Technologies for Commercialization

Commercialization of Processes

Assessment of Needs Human Resources Development

In Newly Emerging Technologies

Licensing of Process Technologies

(Local / Imported).

Engineering, Project Management Services, Development of Project

Packages

Fig – 4.5

An important factor which is responsible for the development of the chemical

industry is the expansion of domestic demand for consumer products. Various NIC’s

and developed countries raised the income of low wage employees in the

manufacturing sector and exerted upward pressures on agricultural wages. The

minimum wage policy has been instrumental in increasing domestic purchasing

power at the grass root level, and consequently in accelerating the pace industrial

development.

4.7 Industrial Master Plan

The past experience of NICs has shown that industrial policies based on a strategy of

dynamic comparative advantage played an important role in sustaining and promoting

their economic development. These countries offered a variety of incentives to

accelerate the development of their industrial sector, such as tax exemptions, reduced

corporate tax, the provision of cheap credit and tax benefits. They introduced

outward-oriented trade and industrial policies, which boosted their exports of high

value-added goods, resulting in strong economic performance.

It is important for the government of Pakistan to devise an Industrial Masterplan,

which outlines a strategy for the development and implementation of specific

chemical industry manufacturing sub-sectors. The Industrial Masterplan should

identify the country’s capabilities in various priority sub-sectors where it has

particular advantages, define policy measures and provide fiscal incentives to

promote investment. The pattern of incentives should include a variety of subsidies

and tax exemptions, credits to encourage increased spending on R&D and manpower

training. It should focus on factors such as investment in resources, industrial

linkages, the promotion of exports, investment in industrial and technology

infrastructure, human capital development and the efficient and relevant utilization of

science and technology.

Chapter - 4 Page 20 of 21

Chapter - 4 Page 21 of 21

Under the present political scenario it has become difficult to assemble capital

investment packages. Therefore, the private sector in Pakistan needs to have

increased access to external sources of funding, if it is to meet its investment needs.

In the absence of any state participation in private sector initiatives, the commercial

banking sector would be reluctant to participate in capital formation because of the

industrial risks involved. Therefore, state participation is imperative for promoting

economic development. In addition, other microeconomic and macroeconomic

policies need to be explored, in order to accelerate the pace of chemical industry

development.

Pakistan is beset with the “brain drain” of its highly qualified manpower, primarily

because of a lack of employment opportunities in the country. The development of a

NIS will require the services of tens of thousands of scientists, engineers,

technologists, economists and social scientists. Employment opportunities will arise if

a NIS is introduced, which should help to reverse this brain drain.

Chapter 5 Page 1 of 50

CHAPTER – 5

STATUS OF EXISTING SECONDARY INDUSTRIES OF PAKISTAN

(SECTION 1)

CAUSTIC SODA

World Scenario

There are more than 500 Chlor-Alkali plants worldwide with manufacturing capacity

over 65 Million M Tons. During 2001-06 overall world capacity increased by 6 Million

M Tons with Northeast Asia increased by 7 Million Tons while rest of the world declined

by 1 Million M Tons. Up till 2011 it is expected that the world capacity will increased by

9 Million M Tons in which Northeast Asia’s contribution would be about 90%. This

Increment in capacity is solely due to the increased demand of chlorine in Northeast Asia

and not due to the increase in consumption of caustic soda.

World production & projections:

Production: Worldwide caustic soda is being produced as a by-product of chlorine, used

for the manufacture of poly vinyl chloride (PVC). World production of caustic soda was

65

28

3 0.435

0

10

20

30

40

50

60

70

Million

Ton

s

World China India Pakistan

Global Caustic Soda Capacity

Chapter 5 Page 2 of 50

estimated to be 58.4 Million Tons in 2009 with an annual compound growth rate of

2.89%.

47.5 48.5 50.752.7 55.1 55.1

56.758.4

0

10

20

30

40

50

60

Mill

ion

To

ne

s

2002 2003 2004 2005 2006 2007 2008 2009

Year

World Production

Projections: Ever growing demand of PVC pushing caustic soda production and it is

estimated that it will grow with an ACGR of 2.8%.

62 63.9 65.867.8 69.8 71.9

7476.3

78.580.9

0

10

20

30

40

50

60

70

80

90

Mill

ion

To

nes

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Year

World Projections

Chapter 5 Page 3 of 50

World Trade:

Of the 56.7 Million M. Tons caustic soda produced in 2008, 28% i.e. about 16 Million

M.Tons was traded, of which 90% was from China, Europe, USA, and Japan. About 93%

of the trade was in liquid form i.e. 50% solid contents.

World Trade

15.2

16.416.3

15.6

14.6

14.8

15

15.2

15.4

15.6

15.8

16

16.2

16.4

16.6

2005 2006 2007 2008Year

Mill

ion

To

ne

s

Prices

209231

319

190

0

50

100

150

200

250

300

350

2005 2006 2007 2008Year

US

$ /

M.T

on

s

Chapter 5 Page 4 of 50

Liquid Caustic Soda

Top 10 Exporters:

Total Exports = 13.5 Million Tons in 2008

'Qatar

3%

Other

15%

'Russian Federation

3%

'Netherlands

5%

'Belgium

5%

'Romania

4%

'Japan

10%'Chinese Taipei

11%

'China

12%

'United States of

America

14%

'Germany

18%

Top 10 Importers:

Total Imports = 15.1 Million Tons in 2008

'Sweden

3%

Others

38%

'Belgium

3%

'Canada

4%

'Jamaica

4%

'Austria

4%

'Netherlands

6%

'Finland

6%

'United States of

America

6%

'Brazil

12%

'Australia

14%

Chapter 5 Page 5 of 50

Solid Caustic Soda

Top 10 Exporters:

Total Exports = 1.02 Million Tons in 2008

'Germany

2%

Other

11%

'Saudi Arabia

3%

'Russian Federation

4%

'India

4%

'Spain

3%

'Thailand

4%

'United States of

America

6%

'Poland

7%

'Chinese Taipei

14%

'China

42%

Top 10 Importers:

Total Imports = 1.15 Million Tons in 2008

'Spain

2%

Others

61%

'Namibia

2%

'Italy

4%

'Brazil

3%

'Uzbekistan

3%

'Viet Nam

4%

'Nigeria

4%

'United States of

America

5%

'Bangladesh

5%'Belgium

7%

Chapter 5 Page 6 of 50

Sector wise Consumption:

Chemical sector is accounting for about 50% of caustic soda consumption with propylene

oxide 12%, Soap & detergents 5%, inorganic chemicals 5% and other organic chemicals

26%. Pulp & paper sector is consuming about 25% of the total caustic soda produced in

the world.

Caustic Soda - Sector wise consumption

Water

2%

Propylene oxide

12%

Alumina

2%

Petroleum

3%

Soap & Detergent

5%

inorganics

5%

Others

20%

Other organic

26%

Pulp & paper

25%

Chapter 5 Page 7 of 50

Pakistan scenario

Production Capacity

Presently, there are four plants with production capacity around 435,000 MTPY of

Caustic Soda. Engro Polymers has recently installed a new plant having name plat

capacity of 100,000 MTPY and Sitara Chemicals has enhanced its capacity from 129,000

MTPY to 180,000 in last year.

Source: Manufacturers

Caustic Soda - Production Capacities (MTPY, %) - 2010

Total = 435,000 MTPY

Nimir

Chemicals,

10,000, 2%

Engro

Polymaers,

100,000, 23%

Ittehad

Chemicals,

145,000, 33%

Sitara

Chemicals,

180,000, 42%

Chapter 5 Page 8 of 50

Local Market Size of Caustic Soda

Local consumption of the caustic soda was increased with a compound annual growth

rate of 7% from 2000-01 to 2007-08 and then declined by 4.5% because of recession in

the world market and decline in exports of textile sector. Electricity is a major cost

component in the manufacturing of caustic soda, account for about 60% of overall cost of

production. Existing energy (Electricity & Natural gas) crises are badly impacted the

local production. Local

production,

consumption, imports

and exports of caustic

soda of last nine years

are given below:

Source: Federal

Bureau of Statistics

Local Sector wise

Consumption

Alone textile sector of

Others, 4Vegetable Ghee

& Oil, 5

Oil & Gas, 6Textiles, 43

Soap &

Detergents, 19

Power Plant, 7

Pulp & Paper, 6

Fertilizer, 6

Carpet Industry,

4

Production, Consumption and Trade of Caustic Soda

145.5 151.1164.4

187.5206.7 199.4

242.2 248.3 244.3

149.7

179.8 186199

218 225.4245.3

258.7247.1

4.2

28.7 21.711.5 11.3

26

3.5 10.6 3

0 0 0.1 0.1 0.1 0 0.4 0.2 0.20

50

100

150

200

250

300

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

'000' M

. T

on

s

Production Consumption Imports Exports

Chapter 5 Page 9 of 50

Pakistan is 43% of caustic soda consumption. Second major consumption is in the

manufacturing of soap & detergent contributes about 19%.

Future Prospects

Local demand of caustic soda was declined by 4.5% in 2008-09 because of decline in

exports of textile sector, after recession in the international market. It is expected that in

future conditions will improved and demand will grow at a rate of 7% demand of caustic

soda is expected to be expand to 350,000 MTPY in the next 5 years. After Engro’s new

investment Country have sufficient capacity to cater the local market and export surplus.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Millio

n T

on

s p

er A

nn

um

Capacity & Demand of Caustic Soda in Pakistan

Capacity Demand

Capacity 0.335 0.335 0.435 0.435 0.435 0.435 0.435 0.435 0.435 0.435 0.435 0.435 0.435

Demand 0.252 0.264 0.278 0.292 0.306 0.322 0.338 0.355 0.372 0.391 0.411 0.431 0.453

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Chapter 5 Page 10 of 50

SWOT Analysis

Strengths

1. Abundantly available raw materials in the country at low rates

Weaknesses

1. The Caustic Soda manufacturing produces chlorine as a by-product which has

limited usage in the country only Engro Polymers utilizing chlorine for the

manufacture of value added products i.e. PVC. While in the rest of the world

chlorine is the main driver for the plant and caustic soda is considered as a by-

product.

2. High cost of energy

3. Availability of natural gas and electricity

4. High freight cost to export surplus capacity

Threats

1. Dumping of Caustic Soda in the country

Opportunities

1. Surplus capacity of caustic soda available to export

Chapter 5 Page 11 of 50

TARIFF STRUCTURE OF CHLOR-ALKALI INDUSTRY

Electrolysis

Caustic Soda

2815.1100

20% (5%, SRO

567)

Hydrochloric

Acid

2806.1000

10%

Locally

ManufacturedImported

Chlorine

2801.1000

10%

Sodium

Chloride

2501.0020

20%

Sodium

Hypochlorite

2828.9000

5%

Bleaching

Powder

2828.1010

5%

Ammonium

Chloride

2827.1000

5% (0%, SRO

565)

Magnesium

Chloride

2827.3100

5%

Ferric Chloride

2827.3900

5%

Nickel Chloride

2827.3500

5% (0%, SRO

565)

Absorption

Reaction

Reaction

Reaction

Reaction

Reaction

Reaction

Caustic Soda

2815.1200

Rs. 4000/MT

(20%, SRO 565)

Water

Calcium

Chloride

2827.2000

5%

Acid Treatment

Hydrochloric Acid

Hydrochloric Acid

Hydrochloric Acid

Chlorine

Chlorine

Hydrochloric Acid

Chlorine

Lime Stone

2521.000

10%

Lime Stone

2521.000

10%

Ammonia

2814.1000

5%

Magnesite

2519.1000

5%

Iron Waste

7204.0000

0%

Nickel Waste

7503.0000

5%

Hydrochloric Acid

Chapter 5 Page 12 of 50

(SECTION 2)

SODA ASH & SODIUM BICARBONATE

Soda Ash, commonly known as dhobi soda or washing soda is used in the manufacture of

glass, soaps, detergents, sodium silicate, paper, caustic soda, paint, petroleum refining,

inorganic chemicals.

Global Scenario:

Capacity & Production: Worldwide soda ash is manufactured synthetically and is also

available as a mineral (Trona) in some countries e.g. USA, Kenya etc. World production

capacity is about 58.7 Million M.Tons while production is about 44 Million m.Tons.

Leading producers of soda ash are China, USA, India etc.

Global Capacity Breakup of Soda Ash

China

44% USA

23%

India

6%

S. America

0.47%Western

Europe

13%

Eastern

Europe

7%

South East

Asia

1%

Africa

2%

Middle East

4%

Chapter 5 Page 13 of 50

Global Production Breakup of Soda Ash

China

48%

USA

23%

India

5%

S. America

0.18%Western

Europe

12%

Eastern

Europe

6%

South East

Asia

1%

Africa

2%

Middle East

3%

Global Demand Breakup of Soda Ash

China

45%

USA

14%

India

7%

S. America

5.07%

Western

Europe

15%

Eastern

Europe

3%

South East

Asia

5%

Africa

2%

Middle East

4%

Chapter 5 Page 14 of 50

Top 10 Exporters:

Top 10 Importers:

Chapter 5 Page 15 of 50

Consumption Pattern

Globally, glass industry accounts for around 53% the total consumption of soda ash (see

table) followed by detergents & soap 13%, chemicals 11%, metal & mining 5% and

paper 1%.

Pakistan Scenario

Production Capacity

There are two Soda ash plants with production capacity of 470,000 MTPY. Both the

plants producing soda ash are located in the Salt Range area.

Source: Manufacturers

The Akzonobel

(former ICI) plant is

the oldest and largest

operating plant in

Pakistan. It was

established in 1944

Chapter 5 Page 16 of 50

with a capacity of 18,000 MTPY. The capacity has been progressively increased to

350,000 MTPY in 2009.

The Olympia Chemicals started operation in 2000 with a capacity of 40,000 MTPY

which has been increased now to 120,000 MTPY.

Local Market Size of Soda Ash

Production of soda ash in the country was about 218,000 M.Tons during 2000-01 which

has been increased to 365,000 M.Tons during 2008-09. Production increased from 2000-

01 to 2007-08 with an annual growth rate of 7.64% and stabilize there with a negligible

growth rate during 2008-09 even not impacted by the world economic crises.

Among the two local players Akzonobel has major share in the local market contributing

about 70%, share of Olympia Chemicals is about 28% and rest of the share i.e. 2% is of

imports. In 2005-06 imports of soda ash were about 54,000 M.Tons which has now been

decreased to about 9,000 M.Tons. On the other hand exports are on the rise and reached

about 11,000 M.Tons in 2008-09.

Chapter 5 Page 17 of 50

Consumption Pattern

Locally, glass & silicate industry accounts for around 43% of the total consumption of

soda ash (see table) followed by Bazzar (Detergent & textiles) 28%, detergents & soap

7%, chemicals 2, baking powder 9% and paper 11%.

Future Prospects

As mentioned earlier Pakistan’s existing production capacity of soda ash is about 470,000

MTPY while local market demand is about 364,000 and therefore has enough surplus

capacity about 106,000 M.Tons to export in regional and international market.

Sodium Bicarbonate (Baking Powder)

At Present, Akzonobel Pakistan and Olympia Chemicals has a combined capacity of

about 40,000 MTPY to produce Sodium Bicarbonate. Sindh Alkalis Karachi had a

capacity of 10,000 MTPY but the plant is not operating since 2000.

Chapter 5 Page 18 of 50

Local Market Size:

Sodium Bicarbonate is used in drugs manufacturing, bakery & food products and

beverages. Besides local production imports were also made in the recent years but are on

the decrease. Collective share of local manufacturers in the local market was about 79%

and share of import was 21%.

Future Prospects

Local manufacturers has sufficient capacity to cater all the local demand of sodium The

imports can be substituted through revival of Sindh Alkalis Plant or setting up of an

additional plant of same capacity.

Chapter 5 Page 19 of 50

TARIFF STRUCTURE OF SODA ASH INDUSTRY

Reaction

Soda Ash

2836.2000

10%

Calcium Chloride

2827.2000

5%

Locally

ManufacturedImported

Lime Stone

2521.0000

10%

Rock Salt

2501.0020

20%

Sodium

Bicarbonate

(Raw form)

Sodium

Bicarbonate

(Food Grade)

2836.3000

20%(10%, SRO

567)

Chapter 5 Page 20 of 50

SECTION -3)

PETROCHEMICALS

Petrochemicals have played a key role especially in the development of industrialized

economies e.g. USA, Canada, Japan, Saudi Arabia, Singapore, Malaysia, China, India

etc. In this era where traditional materials are too much costly petrochemicals provide

alternative and cheaper materials for the production of industrial and consumer products

that is why polymers are increasingly replacing metals, wood and other traditional

materials. Petrochemical industry is termed as one of the fastest growing industrial sub-

sector and has very well contributed to the objective of rapid progress and balanced

expansion of manufacturing sector.

Petrochemical products are broadly classified into two group i.e. basic and end-products.

The basic product group includes ethylene, propylene, butadiene and aromatics, while

the end-products include plastics, synthetic fibres and elastomers. The petrochemical

products offer to a large extent an ideal substitute for conventional materials such as

wood, metals, jute, natural rubber, etc. in which Pakistan is deficient. Therefore, there is

substantial scope for development of petrochemical industry in Pakistan.

At present, the petrochemical industry of Pakistan is limited to production of polyvinyl

chloride (backward integration to produce EDC and VCM is in process and will be

completed by 2009), synthetic fibers, i.e. polyester, polyamide, aromatics (Benzene,

Toluene, Xylene), Purified Terephthalic Acid (PTA), Phthalic Anhydride and carbon

black.

During last three decades repeated efforts have been made to develop a project capable of

producing basic petrochemicals. In this connection numerous studies have been carried

out for production of basic petrochemicals i.e. ethylene, propylene, etc. utilizing the

alternate feed stocks i.e. naphtha, associated gases (ethane, propane), natural gas and

molasses (a by product of sugar industry). However, despite interest and efforts no

Chapter 5 Page 21 of 50

significant development has taken place as far as production of basic petrochemicals are

concerned.

The factors responsible for non-development of basic petrochemical industry include:

High capacity of world scale basic petrochemical production facilities

Complexity and high level of the technology involved

High level of capital outlay required

Market size limitations vis-à-vis world scale plants

Pakistan has no facility to produce basic petrochemicals like Ethylene, Propylene,

Butadiene, Styrene, etc. and they are being imported in bulk. Out of long list of

petrochemicals, only few are being produced locally. They include Pure Terephthalic

Acid (PTA), BTX and carbon black.

Petrochemicals provide raw materials for plastics, detergents, dyes, paints & varnishes

and pesticides etc. They are also used as additives in the lubricating oils. Most of the

specialty and fine chemicals belong to the petrochemical group. Their production and

marketing is monopolized by few global giants.

Historically, polyvinyl chloride and polyethylene are the only thermo plastic materials

which have been produced in the country. These plants were setup in 1960s. The

polyethylene plant was closed down in 1970s.

Apart from PVC, polystyrene is also being produced by Pak Petrochemical Industries

(Private) Limited. The polystyrene plant uses imported styrene and is capable of

producing around 40,000 metric tons of various grades of polystyrene.

Consumption

Among the plastic materials the thermoplastics consumption of the country has reached a

sizeable level. Thermoplastics are the family of plastics formed by addition of

Chapter 5 Page 22 of 50

polymerization which can be reshaped by application of heat. The description and major

end-uses of major thermo plastics being consumed in Pakistan are given below:

Thermoplastics consumption of the country has reached a sizeable level as the

consumption in 2006-07 was around 665,000 M.Tons which has been decreased to

500,000 M.Tons in 2008-09 due to hike in the prices of petroleum.

The trend of thermoplastics consumption during 2001 - 2009 is presented in the

following

diagram.

Material Brief Description Major End Uses

Polyethylene

(PE)

A semi crystalline lightweight

thermoplastic.

Household articles,

packaging, bottles,

containers and pipes.

Polypropylene

(PP)

A thermoplastic with low specific

gravity, high stiffness and good

tensile strength.

Woven bags/cloth,

household articles,

furniture, industrial items

and packaging.

Polyvinyl

Chloride (PVC)

A colorless rigid material with limited

heat stability with a tendency to

adhere to metallic surface when

heated.

Pipes & fittings, wire and

cables, footwear.

Polystyrene (PS) A hard, rigid transparent

thermoplastic with low specific

gravity.

Electronic, electrical items,

household articles/

appliances and packaging.

Chapter 5 Page 23 of 50

Thermoplastic Consumption Trend

0

50

100

150

200

250

300

'000' M. Tons

Polyethylene (P.E) 155 157 192 220 232 275 274 267 198.6

Polypropylene (P.P) 110 144 142 165 188 225 219 210 156.2

Polyvinyl Chloride

(P.V.C)

84 87 92 88 91 97 132 23.6 23.56

Polystyrene (P.S) 11 9 14 15 15 16 16 118.4 121.9

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

PE is the leading material being consumed with a share of 40% in country’s

thermoplastics consumption. PP and PVC enjoyed shares of 31% and 24% respectively.

The consumption of PS is relatively small i.e. 5% in country’s thermoplastics

consumption.

Product wise share of Thermoplastics

500,000 M.Tons in 2008-09

Polypropylene

31%

Polystyrene

5%

Polyvinyl Chloride

24% Polyethylene

40%

Polyethylene (PE)

Chapter 5 Page 24 of 50

Polyethylene is a semi crystalline lightweight thermoplastic manufactured by the

polymerization of ethylene. It is used for packaging, household articles, Auto Parts,

bottles, containers and pipes. It is the leading commodity polymer among others being

consumed worldwide and also in Pakistan. There are two grades of PE:

High Density Polyethylene (HDPE)

Low Density Polyethylene (LDPE)

Share of HDPE in local consumption of polyethylene is about 56% while contribution of

LDPE is 44%. In 1960 a facility for PE was setup but it was closed down in 1970. Now

all the local demand of Pakistan of PE is being met through imports and there is no local

facility available for PE. Imports of PE during last ten years are given below:

0

50

100

150

200

250

300

'000' M. Tons

Imports of Polyethylene

Polyethylene (P.E) 123 155 157 192 220 232 275 274 267 199

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

There is a fast growth in consumption of PE due to economic growth in the country and

substitution of PE for costly materials like metals, wood and others. Demand of PE grew

Chapter 5 Page 25 of 50

about 9% annually from 2002-03 to 2006-07 and after that it declined to about 198,640

M.Tons due to sharp rise in international prices.

The price trend of polyethylene is shown in the graph given below. During last six years

the prices has been increased by 123% due to the hike in the crude oil prices.

0

20

40

60

80

100

120

140

160

Rs./ Kg

Price Trend of Imported Polyethylene

Polyethylene (P.E) 35 40 40 60 64 78 95 146

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

G

lobal demand of polyethylene is growing at a rate of more than 4% per annum and it was

about 50 Million Metric Tons in 2003. Per capita consumption in the world is given in

graph:

0

10

20

30

40

50

Kg Per Capita

Per Capita Consumption of Polyethylene

1997 34 27 6 23 3.5 0.8 3 21 0.75 8

2003 45 34 7 25 6 1.5 2.5 22 1.51 10

N.

Ameri

W.

Europ

Africa/

M. Japan China India

Indone

sia

Malay

sia

Pakist

anWorld

Chapter 5 Page 26 of 50

Transpolymer Pvt. Limited a foreign investor is interested in investing for the

development of local facility for Polyethylene and Polypropylene. The project is at its

initial stages.

Breakup of imports of different grades of Polyethylene i.e. HDPE and LDPE are given

below:

0

20

40

60

80

100

120

140

160

'000' M. Tons

Import of High and Low Density Polyethylene

High Density P.E 67 90 80 106 120 126 147 153 159 101

Low Density P.E 56 65 76 86 99 105 128 121 108 98

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

This graph shows that decline in import of PE after the year 2006-07 which was solely

due to hike in the prices of crude oil in international market.

Polypropylene (PP)

PP is the second largest thermoplastics being consumed in the country. Its primary use is

in Woven bags/cloth, household articles, furniture, industrial items and packaging like

Chemicals, Fertilizers and Textile Industries.

PP consumption was 65,169 M. Tons in 1996-97 which has been increased to 218,799 M.

Tons with an annual growth rate of 15% in 2006-07 afterward it declines mainly due to

sharp rise in prices of petroleum. The consumption of polypropylene during last ten years

Chapter 5 Page 27 of 50

is given in the graph shown

:

0

50

100

150

200

250

'000' M. Tons

Imports of Polypropylene

Polypropylene (P.P) 102 110 144 142 165 188 225 219 210 156

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

The price trend of imported polypropylene is given in the below.

0

20

40

60

80

100

120

140

Rs./ Kg

Price Trend of Imported Polypropylene

Polypropylene (P.P) 33 37 42 60 64 78 94.5 137.3

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

Chapter 5 Page 28 of 50

Per capita consumption of polypropylene in the world was 4 kg in 1997 and increased to

5.5 kg in 2003. Per capita consumption was 22 to 28kg in the developed countries while

it was 1.14 to 13.2 in the developing countries and shows potential for polypropylene in

the region.

Polyvinyl Chloride (PVC)

PVC is a colorless rigid material with limited heat stability with a tendency to adhere to

metallic surface when heated. Its major use is in the manufacturing of pipes, fittings,

artificial leather, wire & cables, footwear, PVC sheets etc.

World Scenario

World PVC production capacity stood 47.28 Million Tons in 2010 with an annual growth

rate of over 6%. During 2005-10 world capacity enhanced by 10.5 million tons of which

81% capacity expanded in Asia and Chinese share was 73% accounting 4.1 million tons.

At the moment China has the largest PVC capacity of the World after surpassing USA in

2006 and enjoying about 27% share of the world PVC capacity.

0

5

10

15

20

25

30

Kg. Per Capita

Per Capita Consumption of Polypropylene in The World

1997 19 15.5 21 2 0.85 2 12.5 7.1 0.66 4

2003 28 22 22.5 3.5 1.7 2.5 13.2 8 1.14 5.5

Ameri

ca

W.

EuropJapan China India

Indon

esia

Malay

sia

Thaila

nd

Pakist

anWorld

Chapter 5 Page 29 of 50

13

7.56.7 1

2.6

20

86.9 1.1

2.7

34

98

2

30

5

10

15

20

25

30

35

Million M.

Tons

2001 2005 2010

World Capacities by Region

Asia Europe N. America Middle East Others

Asian PVC capacity is growing at a fast rate of over 14% per annum because of the fast

economic growth in the region. It is estimated that the world PVC capacity will reach

about 53.55 Million Tons in 2014 which was about 37 Million Tons in 2005. About 89%

of this additional capacity will be installed in Asia. The graph representing the

distribution future expansions in PVC capacities is given below:

Chapter 5 Page 30 of 50

Asia

89%

Europe

4%

China

91%

India

6%

Other Asia

4%

Middle East

3%Other

6%

World PVC Capacity Expansion

(2005-10)

In 2009 about 31.35 million tons of PVC was produced and the capacity utilization was

about 71%. World production of PVC by regions is given

below.

PVC Production by Region

9.3 9.4 9.9 10.8 12.2 12.9

7.0 6.9 7.27.2

7.6 7.8

5.6 6.0 6.1 6.06.1 6.23.9 3.9

3.9 4.04.1

4.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2000 2001 2002 2003 2004 2005

Million M. Tons

Asia North America western Europe others

In 2005 Asia was leading producer of PVC while North America and Western Europe are

Chapter 5 Page 31 of 50

at second and third position respectively. Share of Asia in world production was about

35%.

Price trend of last 7 years of PVC in Asia is depicted in the graph which shows a cyclical

trend like other plastics.

0

100

200

300

400

500

600

700

800

US $ per

M. Tons

Price Trend of PVC in Asia

Asia 550 680 400 500 560 800 760

1999 2000 2001 2002 2003 2004 2005

Production cost of PVC was lowest 200 $/M. ton in Middle East because of availability

of cheaper raw material and highest in America i.e. 305 $/m. ton during 2005.

Comparison of production cost in different countries is depicted below.

Chapter 5 Page 32 of 50

0

50

100

150

200

250

300

350

US $ per M.

Tons

Production Cost of PVC (2005)

Production Cost 200 240 270 280 290 305

Middle

EastBrazil

W.

EuropeChina Japan USA

The average on stream PVC plant sizes is given in the graph below:

0

50

100

150

200

250

300

350

'000' M. Tons

Average PVC Plant Size in World

Plant Size 347 200 160 159 149 118 117 101

N.

Americ

W.

Europe

Middle

East

Latin

AmericWorld

E.

EuropeAsia Africa

World average size of PVC plant was 149,000 m. tons in 2005. North America with

347,000 tons had the greatest average PVC plant size followed by Western Europe,

Middle East, Latin America, Asia and Africa.

Chapter 5 Page 33 of 50

0

50

100

150

200

250

300

350

'000' M. Tons

Average PVC Plant Size in Asia

Plant Size 117 97 160 135 100 118 285 327

Asia ChinaAsia Exc.

ChinaJapan Pakistan India Taiwan

South

Korea

In Asia South Korea has the largest average PVC plant size while smallest average size is

in China because in china about 60% capacity is based on acetylene route.

Pakistan Scenario

Engro Asahi Polymers (EAPCL) the only facility available in Pakistan for PVC

manufacturing was commissioned in 1999 at Port Qasim, Karachi. The plant capacity

was enhanced to 150,000 metric tons in 2009 for the manufacture of various grades of

PVC. They had also installed the facilities of Vinyl Chloride Monomer (VCM) / Ethylene

dichloride (EDC) through backward integration based on ethylene as a feedstock.

PVC consumption has also increased at a reasonably high growth rate i.e. 8 % per annum

much lower than the regional growth rate of 14%. During last 9 years, the total PVC

consumption has been increased from 84,380 M. Tons, in 2000-01 to 121,900 M. Tons in

2008-09. And per capita consumption of PVC has reached 0.73 kg in 2008-09 from 0.61

kg in 2000-01.

Local production, import, export and local market size of PVC is given in the graph

shown below.

Chapter 5 Page 34 of 50

Local Market Size of PVC

0

20

40

60

80

100

120

140'0

00

' M

. T

on

s

Import 19.3 18.7 20.3 19.7 18.1 27.3 37.2 18.7 9.8

Export 0 0 11.5 22.2 13.9 20 0.2 1.4 6.6

Production 65.1 68.6 83.6 90.3 87 90 95 101.1 118.7

Local Market Size 84.4 87.3 92.4 87.8 91.3 97.3 131.9 118.4 121.9

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

Sector Wise Consumption:

Single major consumption of PVC in Pakistan is in pipes & fittings account for about

58%, second largest is in film 13%

Sector Wise Consumption of PVC - 2009

Rigid sheet

5%

Twist / Shrink /

Film

13%

Artificial

Leather

1%

Garden Hose

8%

Compounding

8%

Shoes

4%Others

3%

Pipes & Fittings

58%

This project hopefully will come into production by the end of 2009.

Chapter 5 Page 35 of 50

Sitara Chemicals (Pvt) Limited major producer of caustic soda in Pakistan was also

planning for the installation of 45,000 TPA PVC plant based on calcium carbide route to

utilize in house chlorine.

After the completion of this project PVC’s capacity of Pakistan will be about 195,000

TPA and surplus PVC will be available for export purposes.

Future PVC Production Capacities of Pakistan

195,000 MTPY

Sitara

23%

Engro

77%

Chapter 5 Page 36 of 50

Ethylene2901.2100

(5%)

Chlorine2801.1000

(10%)

Ethylene Dichloride (EDC)2903.1500 (5%, 0% SRO 565)

Vinyl Chloride Monomer (VCM)2903.2100 (5%, 0% SRO 565)

Poly Vinyl Chloride (PVC)3904.1090

(10%)

PVC Pipes3917.2390 (20%)

PVC Sheets3920.4300 (25%)

3920.4910 (25%)

3920.4990 (25%)

PVC

Compound3904.2200 (20%)

PVC Artificial

Leather5903.1000 (25%)

PVC Shoes6402.2000 (25%)

6402.9900(25%)

PVC Flooring5904.1000 (25%)

PVC Industry Tariff Structure

Locally

Manufactured

Not Locally

ManufacturedUnder Process

Up-

stream

Mid-

stream

Down-

stream

Chapter 5 Page 37 of 50

Polystyrene (PS)

PS is the most versatile product and is being consumed in variety of products ranging

from electrical/electronics accessories, parts of sanitary wares and for packaging

purposes.

There is only one company Pakpetro Chemicals in Pakistan manufacturing all grades of

polystyrene and not only meeting the local demand but also exporting. Production

capacity of all types of polystyrene (PS) is 39,000 M.Tons out of which 30,000 M.Tons is

of expansible polystyrene (EPS) and 9,000 M.Tons of both general purpose polystyrene

(GPPS) & high impact polystyrene (HIPS).

PS consumption on the average remains about 24,500 M.Tons during last six years. Local

market size, Production, import and export of polystyrene is given in above graph.

Local Market Size of Polystyrene

0

5,000

10,000

15,000

20,000

25,000

30,000

M. Tons

Production 25,931 25,787 27,627 25,036 25,950 24,701

Imports 7,329 5,503 5,628 5,073 4,844 3,515

Exports 6,261 10,102 8,011 7,178 7,149 4,658

Local Market

Size

26,999 21,188 25,244 22,931 23,645 23,558

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

Chapter 5 Page 38 of 50

(SECTION 1V)

Inorganic Acids

Sulfuric Acid

Sulfuric acid is an important basic chemical. Its demand is taken as a barometer of

industrialization. It is a substance of great commercial importance and is used in

manufacture of fertilizers, other acids, heavy chemicals, dyes & pigments, lacquers,

plastics, explosives, textile, paints, leather tanning, oil refining, water treatment,

treatment of cotton seeds and other chemicals. It is generally marketed with 98%

concentration.

The largest single use, about 65% of the sulfuric acid produced annually, is in the

production of agricultural fertilizers, both phosphates and ammonium sulfate. Other uses

include production of:

In addition, sulfuric acid is used in:

Metal processing and refining

Electroplating baths

Water treatment, to adjust pH and to control corrosion and scaling

Petroleum refining (alkylation) of high-quality, high-octane gasoline components

Pickling (cleaning) iron and steel before plating with tin or zinc

Rayon

Dyes

Alcohols

Plastics

Rubber

Ether

Glue

Film

Explosives

Drugs

Paints

Food containers

Wood preservative

Soaps and Detergents

Pharmaceutical products

Petroleum products

Pulp and paper

Chapter 5 Page 39 of 50

Production Units & Capacity

S.# Plant Name Capacity

MTPD MTPY

1 Acid Ind. Pvt. Ltd. Karachi 80 26,400

2 Amber Chemicals, Hattar 50 16,500

3 Ata Chemicals, Multan 100 33,000

4 Attock Chemicals, Hattar 80 26,400

5 Crescent Chemicals, Sukkur 40 13,200

6 Exide Pakistan limited, Karachi 70 23,100

7

Faras Combine Marketing Company (Pvt) Ltd. Bhai

Pheru 300 99,000

8 Fazal Chemicals, Lahore 100 33,000

9 Hazara Phosphate, Haripur 110 36,300

10 Ittehad Chemicals, Lahore 40 13,200

11 Karsaz Chemicals, Lahore 10 3,300

12 Al-Hamd Chemicals & Fertilizers, Jaranawala 100 33,000

13 Margala Industries, Hattar 20 6,600

14 PAEC, D. G. Khan 25 8,250

15 Pak Chemicals, Karachi 80 26,400

16 POF, Wah Cantt. 10 3,300

17 Prime Chemicals, Sheikhupura 30 9,900

18 Rawal Chemicals, Hattar 25 8,250

19 Rawal Chemicals, Sheikhupura 30 10,000

20 Raiwind Chemicals (Pvt.) Ltd., Karachi 100 33,000

21 Riaz Aslam Chemicals, Chunian 20 6,600

22 Shafiq Industrial Chemicals, Karachi 35 11,550

23 Tufail Chemicals, Lahore 50 16,500

Total: 1,505 496,750

*Mainly for SSP Production

Total sulfuric acid production capacity is 496,750 ton per year. Presently, the installed

capacity is surplus to the local demand.

Production from few sulfuric acid plants is reported to the Federal Bureau of Statistics.

Thus it does not represent the actual total production in the country. It is always very

Chapter 5 Page 40 of 50

important to know the actual production of sulfuric acid as it represents the health of the

industry in the country.

The reported production of sulfuric acid by FBS and estimated production and market

size is given below.

Sulfuric Acid Market Size

Units Source 2001-2002

2002-2003

2003-2004

2004-05

2005-06

2006-07

2007-08

2008-09

Capaity 222,300 222,300 333,650 333,650 396,000 396,000 396,000 396,000

Production FBS 59,420 55,997 68,380 91,299 95,580 94,941 102,773 97,802

Production Estimated 59,379 63,104 109,206 157,189 172,440 190,427 212,472 234,567

Imports FBS 5.7 154 66.3 61.5 9.95 44.6 3 30.5

Exports FBS 472 483 430 786.3 937.5 63 3535

Market size FBS 59,426 55,679 67,963 90,931 94,804 94,048 102,713 94,298

Market size Estimated 59,385 62,786 108,789 156,820 171,664 189,534 212,412 231,063

Source: Federal Bureau of Statistics

Manufacturers

Chapter 5 Page 41 of 50

Hydrochloric Acid

It is used

In the manufacture of phosphoric acid, chlorine dioxide, ammonium chloride, fertilizers,

dyes, and artificial silk and pigments for paints.

As a refining ore in the production of tin and tantalum, as a lab reagent, and as a metal

treating agent.

To remove scale and dust from boilers and heat exchange equipment, to clean membranes

in desalination plants, to increase oil well output, to prepare synthetic rubber products by

treating isoprene, and to clean and prepare other metals for coatings.

In the neutralization of waste streams, the recovery of zinc from galvanized iron scrap.

In production of chemicals, i.e. production of vinyl chloride from acetylene and alkyl

chlorides from olefins, the manufacture of sodium glutamate and gelatin, the conversion

of cornstarch to syrup, sugar refining, electroplating, soap refining, leather tanning, and

the photographic, textile, brewing, and rubber industries.

As an antiseptic in toilet bowls against animal pathogenic bacteria, and in food

processing as a starch modifier.

Production Capacity

Ittehad Chemicals and Sitara Chemicals produce hydrochloric acid on demand from the

excess chlorine by-product available with them. The production capacities for both the plants

are sufficient to meet the local demand and the imports are generally negligible.

Chapter 5 Page 42 of 50

Nitric Acid

Nitric Acid is very important for certain types of reactions and uses especially in the

fertilizer and explosives industries. The principle use for nitric acid is the production of

fertilizers, explosives, flares, and rocket propellants. In making explosives, Nitric Acids

react with toluene in the presence of sulfuric acid to form trinitrotoluene (TNT).

Raw Materials & Processes

The raw materials are ammonia, air and fresh water. There are three stages in the

production of nitric acid.

o Oxidation of ammonia,

o Oxidation of nitrogen monoxide

o Absorption of nitrogen dioxide in water.

Production Capacity

Nitric acid is produced by Pak-Arab Fertilizers, Multan for the production of Calcium

Ammonium Nitrate (CAN) fertilizers and POF wah for explosives such as Nitroglycerine

& Nitrotoluene production. The local demand is met through imports and surplus

production of above two units.

Unit Production Capacity, MTPY

Pak-Arab, Multan 455,600

POF, Wah Cantt 10,000

Total 465,600

Chapter 5 Page 43 of 50

(SECTION V)

Dyes & Pigments

Dyes are intensely colored substances used for the coloration of various substrates

including paper, leather, fur, hair, foods, drugs, cosmetics, waxes, greases, petroleum

products, plastics and textile materials. They are retained in these items by physical

adsorption, salt or metal complex formation, solutions mechanical retentions or by the

formation of covalent bonds.

Dyes are applied to textile fibers by two distinct processes, dyeing and printing, of which

dyeing is much more extensively used. Dyes are classified in accordance with their

chemical constitutions or their application method or coloring purposes.

Pigments, although both have the same purpose of imparting color to the article, are

differentiated from the dyes. Pigments are finely ground, insoluble particles that disperse

in the liquid portion of the paint. Dyes are generally “fast” which means they can

maintain their color throughout exposure to weathering effects like rain, wind & snow,

and normal wear & tear. Pigments are used to give desired color and gloss. Plus provide

“hiding ability” and surface protection. They are selected by characteristics such as

color, hardness, oil absorption, density, pH, refractive index, hiding efficiency and

opacity.

Titanium dioxide (Tio2) is the most commonly used pigment worldwide. It has a high

refractive index (second only to diamond) and when produced at the proper particle size,

allows for a large opacity. For the record, magnesium oxide, MgO, is whiter than TiO2,

but it does not have a high refractive index. This means that more MgO would be needed

to achieve the same opacity as TiO2.

Color pigments, on the other hand, have a large variety of ingredients. This is, of course,

due to the fact that there are so many different colors available that can give different

compositions of these, which can create the huge variety of colors possible.

Chapter 5 Page 44 of 50

Raw Materials

Raw materials for Dyes & Pigments are totally derived from petrochemical Building

Blocks. Manufacturing of dyestuff can be done either by processing dye intermediates or

by starting from basic chemicals (organic and inorganic chemicals). For instance

manufacture of technology intensive vat dyes involves lengthy and distinct stages, which

in many cases may run through ten or twelve intermediates. Therefore it follows that a

good base of raw materials is critical to the success of the dyestuff unit. Hence a dyestuff

manufacturing unit has to rely on a mix of local supplies as well as imports for its

requirement of raw materials.

World Scenario

Traditionally Dyes & Pigments manufacturing was concentrated in Europe because of

development and progress made by Germany in this field at the start of 20th

century. This

high-Tech industry was limited to 7 or 8 major producers like BASF, Hoechst, Sandoz,

Bayer, ICI, Ciba-Geigy etc. up to the middle of 20th

century. However in the later half of

20th

century, major changes in the industry came up with the above multinational

companies, opening production sites out side Europe like in India, in Far-East, Japan,

USA etc.

This opened the secret technology to rest of the World and the decades of 70’s & 80’s

saw a mushroom growth in this industry, mainly in Far-East, India & China. The

environmental hazards involved in dyestuff manufacturing also pushes world wide

players to prefer import of dyes from developing countries. Another reason for this

change was the shifting of Textile Processing Industry from Europe & USA to Far East

and South East Asia.

Regional Scenario

Today China, India, Pakistan, Taiwan, Korea, Indonesia, Japan contributing about 70-

75% of world production of Dyes & Pigment. About 85-90% of raw materials, required

for Dyes & Pigments manufacturing, are produced by India & China.

A strong industrial base when formed for finished dyestuffs & pigments manufacturing

in China & India, brought a huge backward integration for manufacturing of basic raw

Chapter 5 Page 45 of 50

material called intermediates for this industry. Today India & China are top producers

and exporters of Dyes & Pigments intermediates.

India’s dye industry makes every type of dyes & Pigments. Production of dyestuff &

Pigment in India is around 75,000 tonnes. Traditionally the industry exports the 50% of

its production. The world market for dyes, intermediates and pigments is estimated to be

around US$ 23 billion and is growing at a rate of about 2%. The current share of India in

the global dyestuff market is around 2.5%. India is the second largest exporter of

dyestuffs and intermediates amongst developing countries after China.

Per capita consumption of dyestuffs in India, like most of the developing countries, is as

low as 50 grams against world average of 200 grams. Increasing middle class population

will stimulate demand for textiles, which in turn will accelerate the growth of dyes.

Pakistan Scenario

Pakistan although entered very late in this area and in early 60’s with manufacturing of

some Direct Dyes & Sulphur Dyes in the government owned corporation at Dawood

Khel. However this facility could not flourished due to unavoidable reasons. Clariant

Pakistan and Sandal Dyestuff are major manufacturers of dyes & pigments in Pakistan.

Dyestuffs Business and Textile Industry

The Pakistan textile industry is traditionally based on the manufacture and export

of spinning yarn and threads. Today around two hundred large and medium sized

processing mills exist along with thousands of small dye houses. It is estimated that this

industry consumes over 22,000 tons of dyestuff and pigments annually. The shares of

different type of dyes consumed are given as follows:

o Reactive dyes 34.27 % o Disperse dyes 15.00 %

o Acid dyes 09.00 % o Sulfur dyes 07.65 %

o Basic dyes 05.77 % o Direct dyes 03.07 %

o Vat dyes 02.24 % o Pigments 23.00 %

Chapter 5 Page 46 of 50

Production Capacity

There are 9 units in organized sector and multiple units at cottage level involved

in the production of dyestuff. The production capacity of main units is given below:

Company Year

Disperse Dyes & Prep.

thereof

Acid Dyes

Direct Dyes

Reactive Dyes

Pigment Powders & Prep. based thereof

Synthetic Organic

Products Total

HS Code 32041100 32041200 32041400 32041600 32041700 3204.2000

Sandal Dyestuff Industries Limited.

Capacity - 400.00 500.00 3,000.00 6,000.00 - 9,900.00

2005~06 - 78.37 20.30 1,567.30 2,635.75 - 4,301.72

2006~07 - 52.70 13.43 1,367.60 2,636.79 - 4,070.51

2007~08 - 83.50 4.47 1,033.90 2,849.35 - 3,971.22

2008~09 - 86.80 4.25 969.43 2,458.05 - 3,518.53

Clariant Pakistan Limited.

Capacity 1,000.00 1,500.00 800.00 3,000.00 2,000.00 1,000.00 9,300.00

2005~06 350.00 650.00 200.00 2,000.00 500.00 500.00 4,200.00

2006~07 363.00 426.00 214.00 2,209.00 409.00 565.00 4,186.00

2007~08 383.00 431.00 264.00 2,272.00 604.00 586.00 4,540.00

2008~09 393.00 485.00 170.00 2,348.00 680.00 461.00 4,537.00

2009-10 360.00 440.00 194.00 2,679.00 665.00 661.00 4,999.00

Sardar Dyes (Pvt.) Limited.

Capacity - 300.00 210.00 50.00 10.00 90.00 660.00

2005~06 - 180.00 70.00 26.00 2.00 80.00 358.00

2006~07 - 210.00 72.80 68.42 - 84.70 435.92

2007~08 - -

2008~09 - 118.00 54.00 50.00 1.00 85.00 308.00

Chemi Dyestuff Industries (Pvt.) Ltd.

Capacity 300.00 300.00 300.00 800.00 300.00 100.00 2,100.00

2005~06 19.40 47.58 8.05 390.10 40.28 6.10 511.51

2006~07 - - - - - - -

2007~08 - - - - - - -

2008~09 - - - - - - -

Aqsa Dyestuff Industries (Pvt.) Ltd.

Capacity - - - - 1,200.00 - 1,200.00

2005~06 - - - - - - -

2006~07 - - - - - - -

2007~08 - - - - - - -

2008~09 - - - - - - -

Descon Chemicals (Pvt.) Limited.

Capacity - - - 1,000.00 - 1,200.00 2,200.00

2005~06 - - - - - 785.00 785.00

2006~07 - - - - - - -

2007~08 - - - - - - -

2008~09 - - - - - - -

Chapter 5 Page 47 of 50

Chemical Processing Industries (Pvt.) Limited.

Capacity - 30.00 - 35.00 15.00 - 80.00

2005~06 - 25.00 - 30.00 10.00 - 65.00

2006~07 - - - - - - -

2007~08 - - - - - - -

2008~09 - - - - - - -

M.N. Chemical Industries (Pvt) Ltd.

Capacity 5,000.00 5,000.00

2005~06 989.30 989.30

2006~07 1,150.00 1,150.00

2007~08 1,495.00 1,495.00

2008~09 1,764.00 1,764.00

Shafi Reso-Chem

Capacity 300.00 300.00

2007~08 38.00 38.00

2008~09 44.00 44.00

TOTAL

Capacity 1,300.00 2,830.00 1,810.00 7,885.00 14525 2,390.00 30,740.00

2005~06 369.40 980.95 298.35 4,013.40 4,177.33 1,371.10 11,210.53

2006~07 363.00 688.70 300.23 3,645.02 4,195.79 649.70 9,842.43

2007~08 383.00 552.50 268.47 3,305.90 4,948.35 586.00 10,044.22

2008~09 393.00 733.80 228.25 3,367.43 4,903.05 546.00 10,171.53

Source: Manufacturers

The local Dyes & Pigments manufacturing industry is producing almost all the basic

Dyes & Pigments ranges required for the export oriented textile units in Pakistan, who

are working for value addition and exports.

Environment Aspects of Dyes

A major issue in the world today is the protection of environment. The environmental

impact of dyestuff production is considerable. More than 10,000 different dyes are

available for this process and much is known about the potential dangers. The ETAD

(Ecological and Toxicological Association of the Dyestuff manufacturing Industry)

tested more than 4,000 dyes for acute toxicity and found that approximately 1 % of the

dyes were toxic.

The dyes involve certain chemicals that are hazardous to the human skin. Some Azo

coloring agents have carcinogenic properties or may form amines (breakdown products),

which have carcinogenic and mutagenic properties. Approximately 70% of all dyes used

in the textile industry are Azo dyes. There are about 2000 different Azo dyes of which

Chapter 5 Page 48 of 50

approximately 200-300 may be hazardous. As a result worldwide players are downing

shutters and prefer imports of dyes from developing countries. This scenario is giving an

opportunity to the developing countries to establish a strong manufacturing base.

The complete treatment of hazardous effluents of dyestuff manufacturing unit is

uneconomical for individuals, therefore, a common secondary treatment plant, whereas

the primary treatment of the effluent is the responsibility of individual units, can

facilitate the individuals in meeting the environmental obligations.

Exports of Dyes & Pigments

The export of Dyes & Pigments is around US$ 2.00 Million per year, which

is a very encouraging sign for the local manufaureres. There is a strong need to

encourage this High-Tech industry as it will not only help our overgrowing Textile

Industry for strong value addition but can also fetch a very handsome amount of foreign

exchange.

Future Prospects

There is local manufacturing of dyes and pigments but large quantities are still

being imported. Currently the total import of this group stood around Rs 5.0 billion.

Additionally, about Rs 0.4 billion worth of printing ink and paints were also imported.

Pakistan has a strong manufacturing base for Textile & Leather. The textile industry in

Pakistan is the single most important manufacturing sector, accounting for an average of

40% of manufacturing employment, 64% of exports and 30% of manufacturing value

added. Similarly Leather industry has also a strong base with the production of high value

added products such as leather garments, leather gloves, leather footwear & other leather

manufactures.

Chapter 5 Page 49 of 50

Paints and Varnishes

Paints and varnishes not only make our surroundings more attractive, they also protect

and preserve environmental resources. Our domestic and workspaces are certainly more

pleasant and more conducive to good work when the interior decor is attractive.

Production Capacity

There are around 22 units in organized and over 400 units in the unorganized sector,

manufacturing paints and varnishes. There are three major producers of paint in the

country and they together meet the 60% local requirement, remaining 35% demand is met

by the unorganized sector and 5% through imports. Major local paint manufacturers

include

ICI Pakistan.

Berger Paints.

Kansai Paints

Buxly Paints.

The paint units reporting their production to the Federal Bureau of Statistics increased

from 142 in 1997-98 to 306 in 2001-02, which represents about 75% of all units in the

country. The historical production data for few years is given below:

Production of Paints & Varnishes

Product Units 2002-

03 2003-

04 2004-

05 2005-

06 2006-

07 2007-

08 2008-

09

Paints & Varnishes (s)

M.T 3,899 5,406 15,023 17,148 23,935 26,308 29,830

Paints & Varnishes (l)

Th. Litres

46,535 38,115 41,093 46,638 53,298 57,103 62,756

Although capacity of plant is indeterminable as it is a multi-product plant

involving varying processes of manufacturing, however the individual production of

main player in paints & varnishes is given as:

Chapter 5 Page 50 of 50

Six manufacturers of decorative paints are ICI Pakistan, Berger Paints, Buxly Paints,

Master Paints, and Brighto & Gobbis. The industrial paints segment has also a large

number of applications and uses. Major players in this segment are ICI Pakistan and

Berger Paints. Some industrial paints are imported.

The refinish segment caters the requirements for maintenance of vehicles. Major players

in this segment are ICI Pakistan, Berger Paints and Champion Paints.

Powder Coating Chemical

The recent trend in the world is to apply powder coating instead of liquid paints and there

are a lot of chemicals required for preparation of metal sheet before powder coating.

These chemicals are basically known as pre-treatment or phosphating chemicals, which

include degreasing, phosphating Anodizing chemicals etc. There are a number of small

units producing above chemicals in Lahore and Karachi catering to the local

manufacturers of home appliance like Dawlance, Waves and Multinationals including

carmakers like Toyota, Honda, Suzuki, etc.

Oxyplast Karachi also has the facility to produce powder-coating paints. The raw

materials are Polyester resin, Epoxy resin, Barium Sulphate, Titanium Oxide and curing

agents.

FUTURE PROSPECTS:

The current production is sufficient for local demand. However, the raw material used in

this sector are being imported and comes from Petrochemical base, setting up of a

Petrochemical base would help backward integration in this sector resulting in industrial

growth.

CHAPTER – 6

PROPOSAL FOR THE FUTURE DEVELOPMENT OF SECONDARY INDUSTRIES IN PAKISTAN

The principal purpose of the Secondary Industries is to provide the connecting link

between the products of the Primary Industries and materials which are of practical use to

Pakistan’s national economy. This implies that they will rely upon the Primary Industries

for Feedstocks and will consist of engineering, fabrication, construction and

manufacturing plants for petrochemicals, plastics, steel, aluminium, minerals, agricultural

and miscellaneous products. These industries will require medium and relatively high

technology and range from medium to light categories. However, the Secondary

Industries will not only be concerned with the manufacture of finished goods but will also

become the principal suppliers of raw materials, particularly plastics for the development

of downstream small and medium scale enterprisers.

The size of the secondary industries should be based on market analysis and projections

of demand for intermediate products and consumer goods, as well as the projected

availability and character of feedstocks from the Primary Industries and other sources.

Their selection should also be based on the opportunities for regional and world export

marketing of selected products.

Criteria for Selection of Secondary Industries. The following criteria have been used for determining the suitability of secondary

industries:-

i) Feedstock Relationship to Primary Industries:

The secondary industries should where possible use feedstocks which will be

available from the primary industries to produce materials with high added

value.

Chapter – 6 Page1 of 5

ii) Use of other resources available in Pakistan

The secondary industries will use Pakistan’s natural resources and produce

materials related to demand by the various economic sectors within Pakistan

butt should also consider the potential for exports of the finished products.

Maximum use should be made of the availability of technical and managerial

skills, the abundance of energy supplies and the suitably developed

infrastructure.

iii) Import Substitution:

A clear objective is to reduce the Pakistani’s dependence on imports by

substituting locally produced goods.

iv) Develop exports for Pakistan’s high quality products

The secondary industries should be sized and planned to take account of the

development of export markets in the Central Asian States, Afghanistan, Sri

Lanka and other adjoining countries in the Middle East.

v) Development of Pakistani’s Management, Technical and Industrial

Manpower.

The broad mix of Secondary Industries will provide a wide spectrum of

opportunities for the utilization of all types of industrial manpower.

The present development of small and medium secondary chemical industries in Pakistan

is based on the policy of import substitution and no consideration has been given to the

potential for exports of the manufactured products. In addition the manufactured goods in

many cases are not comparable in quality as well as costs with imported products.

The Home Market

The selection of candidate industries has been based on a review of the feedstocks

produced by the Primary Industries and other raw materials available in Pakistan coupled

Chapter – 6 Page2 of 5

with an assessment of the future needs of the industrial, agricultural, commercial and

domestic sectors of the economy.

The assessment of the potential markets in Pakistan is hampered by the relative scarcity

of market research data. The Import/Export Statistics cover materials handled through the

ports but it is generally supposed that much of the overland trade goes unrecorded.

The Export Market In the future development of secondary industries, based on import substitution, it is

necessary that Pakistan also takes into consideration the potential for exports. However,

in order to achieve this objective, it would be necessary that,

i) Pakistan is able to produce high quality products at competitive costs in the

world markets.

ii) Pakistan will have to develop progressively its national innovation system

which will enable it to improve continually its technological and management

capabilities necessary for the improvement of quality as well as productivity

of the manufactured products

iii) Suitable recommendations for the development of national innovation system

(NIS) consisting of Technological and Social capabilities has been proposed

which are necessary for achieving self reliance in the commercialization of

locally developed or imported technologies and reducing the costs of

manufactured goods and products. It would be necessary to prepare an Action

Plan for the implementation of these recommendations

Chapter – 6 Page3 of 5

Suggestions for the Development of Secondary Chemical Projects Based on Locally Available and Imported Materials. For the future development of secondary chemical industries, it is proposed that various

industries are divided into different industrial sectors as shown below. A list of potential

industries has also been prepared as shown against each sector.

The consultant would like to propose that preparation of feasibility reports are initiated

for each of these industries by EDB.

1. Minerals Sector Raw Materials/Resources

(i) Gypsum Plaster Board, Alpha Plaster, Gypsum Blocks

Gypsum

(ii) Hydrated Lime/Lime Plaster Substitute for Cement

Lime Stone

(iii) Fiber Glass and Downstream Products Silica Sand (iv) Ceramics and Refractory Materials Bauxite, Clays Chromites

and Magnetite etc.. 2. Metallurgical Industry

(i) Alloy Steels and Special Steels Iron/Scrap (ii) Ferro-Alloys Iron and Additives (iii) Catalysts for Chemical Industry Alumina with other

materials. (iv) Composite Materials Fiber Glass, Polymers and

Resins. (v) Copper Based Products Copper

(vi) Capital plant and equipment (vii) Spare Parts and Components for Capital Plants

and Machinery

3. Agro-Based Industries (i) Vegetable Dyes Various Vegetable

Materials (ii) Power Alcohol Molasses (iii) Bio-refining Processes for bio-fuels production Agricultural Wastes (iv) Herbal Medicines and Associated Industries Various Agro Materials (v) Fruits and Vegetables

4. Alternate Sources of Energy (i) Natural gas, fuels and various organic

chemicals Coal (gasification/Liquefaction)

(ii) Bio-Fuels Jetropha/Oil Seeds (iii) Solar Panels, batteries and associated systems Solar Energy

Chapter – 6 Page4 of 5

Chapter – 6 Page5 of 5

for heating/electrification

5. Oils and Fats Industry Oleo Chemicals, Fatty Acids, Fatty Alcohols, Fatty Amines and Amides and a large number of downstream products.

Vegetable Oils

6. Petrochemical Industry (i) PVC Based Industries ) Plasticized PVC ) Flooring, Windows ) Wood Products ) Poly Vinyl Chloride Un-plasticized PVC(UPVC) ) (PVC) Pipes ad Fittings ) Fiber and Sheet, Records CDs/DVDs ) (ii) Polypropylene Based Industries ) Polypropylene Polypropylene Fiber ) (PP) (iii) Synthetic Dyes, Colours and Pigments ) (iv) Detergents, Soaps ) (v) Insecticides and Pesticides ) Various (vi) Dodecylbenzene ) Petrochemical (vii) Linear Alkyl Benzene ) Intermediates (viii) ABS Resin (Acrylonitrile Butadiene Styrene)) ) (ix) Polypropylene Mono /Multi Filament )

Chapter 7 – Tariff

Background: In order to develop the Chemical Industry, review of Customs Tariff structures for the Industrial

Tariff lines including Chemical and related industry of Pakistan and ensure its best fit in these

new tariff imperatives was initiated in 2000-2001. The exercise was primarily based to determine

the optimum tariff structures achievable for each segment of the Industry taking also into

consideration the need to remove anomalous relationships i.e., (cascading) upstream to

downstream, as far as practical. Since then fine tuning of the Tariff Structure continued during

the annual budget exercises in close consultations with the relevant stake holders.

Non-Agriculture Market Access (NAMA)

Under Non-Agriculture Market Access (NAMA) Bound tariff rates of all WTO member

countries are to be brought down as laid down under the Doha Mandate where it was agreed to

initiate negotiations to further liberalize trade on non-agricultural goods. To this end, the

Negotiating Group on Market Access (NGMA) was created at the first meeting of the Trade

Negotiations Committee at Doha, in early 2002. The negotiations aim to reduce or eliminate

tariffs, including tariff peaks, high tariffs, tariff escalation and non-tariff barriers for non-

agricultural goods, in particular on products of export interest to developing countries. Special

and Differential treatment for developing and least developed Members shall be fully taken into

account, including through less than full reciprocity in the reduction commitments and measures.

Existing Status

As a result of rationalization of Tariffs, investments were made in the capital intensive industries

like PVC, Polystyrene, Hydrogen Peroxide and downstream industries of Pure Terephthalic Acid

(PTA).Pakistan has now become a major exporter of PET resins. Similarly the PVC industry has

not only invested in expansion but has gone for upstream integration through manufacture of

Ethyl Di-Chloride (EDC) and VCM. This ultimately would create demand for a Naphtha Cracker

which is considered to be the basic requirement for the growth of the Chemical industry.

Under the existing Tariff Structure for approximately 1325 Tariff lines spread over 13 chapters

of the Pakistan Customs Tariff relates Chemical sector which also includes fertilizers,

Pharmaceuticals and Pesticides. Chapter and duty wise break up is shown in Table below;

Summary - Chapter wise Customs Duty

Chapter CD% 2010-11

No of Tariff lines

28) Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes.

0 3 5 166 10 32 15 2 20 2 25 3

Rs.4000/MT 1 28 Total 209

29) Organic chemicals

0 6 5 442 10 32 15 5 20 14 25 13

29 Total 512

30) Pharmaceutical products

5 9 10 32 20 10 25 3

30 Total 54

31) Fertilizers 0 23 5 1

31 Total 24

32) Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other colouring matter; paints and varnishes; putty and other mastics; inks

0 6 5 16 10 10 15 19 20 28 25 1

32 Total 80 33) Essential oils and resinoids; perfumery, cosmetic or toilet preparations

10 16 35 30

33 Total 46 34) Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles

0 4 5 5 10 8 15 1

and similar articles, modelling pastes, "dental waxes" and dental preparations with a basis or plaster

20 15 25 6 35 4

34 Total 43

35) Albuminoidal substances; modified starches; glues; enzymes

0 1 5 3 10 11 15 2 20 7

35 Total 24 36) Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations

20 5

25 3

36 Total 8

37) Photographic or cinematographic goods

5 33 10 1 15 1 20 1

Rs. 5 per meter plus 5% ad val. 2

37 Total 38

38) Miscellaneous chemical products

0 8 5 40 10 28 15 13 20 23 25 5

38 Total 117

39) Plastics and articles thereof

0 3 5 31 10 24 15 7 20 80 25 25

39 Total 170 Grand Total 1325

Road Map

Analysis of this indicates that above 50% of the products are placed at 0 and 5% duty slabs.

These products are mostly not manufactured locally or are basic inputs for other industries.

Except for consumer products like Soap, Shampoos, Detergents, Cosmetics and Toiletries etc.

which are placed at 25 and 35% duty, all other products are inputs for other industries and attract

a duty ranging from 10 to 20%. Further rationalization of Tariff with a view to bring down duties

of products attracting duties of 20% and above to a maximum of 15% ensuring a spread of

minimum 10% between raw materials and finished products or value addition whichever is

higher is considered imperative, through a process of phased reduction in consultation with the

stake holders and spread over a period of 5 years. This reduction becomes all the more important

in view of NAMA and the Free / Preferential Trade Agreements being planned by the

Government. Products which are at 20% and above are listed below:

Products at 20%

S.# PCT CODE DESCRIPTION CD%

2010-11 1 2815.1100 - - Solid 20

2 2836.3000 -Sodium hydrogencarbonate (Sodium bicarbonate) 20

3 2905.4400 - - D-glucitol (sorbitol) 20 4 2905.4500 - - Glycerol 20 5 2905.4900 - - Other 20 6 2915.3600 - -Dinoseb (ISO) acetate 20 7 2915.7010 - - - Stearic acid 20 8 2916.3910 - - - Ibuprofen 20 9 2917.3200 - - Dioctyl orthophthalates 20 10 2933.3920 - - - Pyrazinamide 20 11 2933.5930 - - - Ciprofloxacin 20 12 2933.5940 - - - Norfloxacin 20 13 2939.4300 - - Cathine (INN) and its salts 20 14 2939.4900 - - Other 20 15 2941.9010 - - - Cephalexin 20 16 2941.9040 - - - Cephradine oral 20

17 3004.9030 - - - Dextrose and saline infusion solution, with infusion set 20

18 3004.9040 - - - Dextrose and saline infusion solution, without saline infusion set 20

19 3004.9050 - - - Eye drops 20 20 3004.9060 - - - Ointments, medicinal 20

21 3005.1010 - - - Surgical tape in jumbo rolls 20 22 3006.2000 -Blood-grouping reagents 20 23 3006.5000 -First-aid boxes and kits 20

24 3006.7000

-Gel preparations designed to be used in human or veterinary medicine as a lubricant for parts of the body for surgical operations or physical examinations or as a coupling agent between the body and medical instruments

20

25 3006.9100 - -Appliances identifiable for ostomy use 20 26 3006.9200 - -Waste pharmaceuticals 20

27 3202.9010 - - - Tanning substances, tanning preparations based on chromium sulphate 20

28 3204.2000 -Synthetic organic products of a kind used as fluorescent brightening agents 20

29 3204.9000 -Other 20 30 3208.1010 - - - Varnishes 20 31 3208.1090 - - - Other 20 32 3208.2010 - - - Varnishes 20 33 3208.2090 - - - Other 20 34 3208.9020 - - - Varnishes 20 35 3208.9090 - - - Other 20 36 3209.1010 - - - Varnishes 20 37 3209.9090 - - - Other 20 38 3210.0010 - - - Distempers 20

39 3210.0020 - - - Prepared water pigments of a kind used for finishing leather 20

40 3210.0090 - - - Other 20 41 3211.0090 - - - Other 20 42 3212.1000 -Stamping foils 20 43 3212.9020 - - - Pigments in paint or enamel media 20 44 3212.9090 - - - Other 20 45 3213.1000 -Colours in sets 20 46 3213.9000 -Other 20 47 3214.1010 - - - Glaziers putty (mastic based on oil) 20 48 3214.1020 - - - Grafting putty (mastic based on wax) 20 49 3214.1030 - - - Resin cements 20 50 3214.1090 - - - Other 20 51 3214.9090 - - - Other 20 52 3215.1190 - - - Other 20 53 3215.1990 - - - Other 20 54 3215.9090 - - - Other 20 55 3402.1190 - - - Other 20 56 3402.1220 - - - Other than in retail packing 20 57 3402.1290 - - - Other 20 58 3402.1300 - - Non-ionic 20

59 3403.1110 - - - Of a kind used in the leather or like industires 20

60 3403.1120 - - - Of a kind used in the paper or like industries 20

61 3403.1139 - - - -Other 20 62 3403.1190 - - - Other 20 63 3403.1910 - - - Greases 20 64 3403.1990 - - - Other 20

65 3403.9110 - - - Of a kind used in the leather or like industires including fat liquors 20

66 3403.9120 - - - Of a kind used in the paper or like industries 20

67 3403.9139 - - - -Other 20 68 3403.9190 - - - Other 20 69 3403.9990 - - - Other 20 70 3505.1090 - - - Other 20 71 3505.2010 - - - Starch based glues 20 72 3505.2020 - - - Dextrin based glues 20 73 3505.2090 - - - Other 20

74 3506.1000 -Products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg 20

75 3506.9190 - - - Other 20 76 3506.9990 - - - Other 20 77 3601.0000 Propellent powders 20

78 3602.0000 Prepared explosives, other than propellent powders 20

79 3603.0000 Safety fuses; detonating fuses; percussion or detonating caps; igniters; electric detonators. 20

80 3606.1000 -Liquid or liquefied gas fuels in containers of a kind used for filling or refilling cigarette or similar lighters and of a capacity not exceeding 300cm3

20

81 3606.9000 -Other 20 82 3701.3090 - - - Other 20 83 3808.9990 - - -Other 20 84 3810.9000 -Other 20 85 3811.1100 - - Based on lead compounds 20

86 3813.0000 Preparations and charges for fire- extinguishers; charged fire-extinguishing grenades. 20

87 3814.0000 Organic composite solvents and thinners, not elsewhere specified or included; prepared paint or varnish removers. 20

88 3819.0010 - - - Hydraulic brake fluids 20 89 3819.0090 - - - Other 20

90 3820.0000 Anti-freezing preparations and prepared de-icing fluids. 20

91 3822.0000

Diagnostic or laboratory reagents on a backing, prepared diagnostic or laboratory reagents whether or not on a backing, other than those of heading 30.02 or 30.06; certified reference materials.

20

92 3823.1100 - - Stearic acid 20 93 3823.1300 - - Tall oil fatty acids 20

94 3824.4000 -Prepared additives for cements, mortars or concretes 20

95 3824.5000 -Non-refractory mortars and concretes 20

96 3824.6000 -Sorbitol other than that of subheading No. 2905.44 20

97 3825.1000 -Municipal waste 20 98 3825.2000 -Sewage sludge 20 99 3825.3000 -Clinical waste 20 100 3825.4100 - - Halogenated 20 101 3825.4900 - - Other 20

102 3825.5000 -Wastes of metal pickling liquors, hydraulic fluids, brake fluids and anti- freeze fluids 20

103 3825.6100 - - Mainly containing organic constituents 20 104 3825.6900 - - Other 20 105 3825.9000 -Other 20 106 3904.2100 - - Non-plasticised 20 107 3904.2200 - - Plasticised 20 108 3905.1200 - - In aqueous dispersion 20 109 3905.1900 - - Other 20 110 3906.9010 - - - Cyanoacrylate 20 111 3906.9020 - - - Acrylic binders 20 112 3907.3000 -Epoxide resins 20 113 3907.5000 -Alkyd resins 20 114 3907.6090 - - - Other 20 115 3907.7000 -Poly(lactic acid) 20 116 3907.9100 - - Unsaturated 20 117 3907.9900 - - Other 20 118 3909.1090 - - - Other 20 119 3909.2000 -Melamine resins 20 120 3909.3000 -Other amino-resins 20 121 3909.4000 -Phenolic resins 20 122 3911.1010 - - - Petroleum resins 20 123 3911.1090 - - - Other 20 124 3911.9000 -Other 20 125 3912.2010 - - - Cellulose nitrates nonplasticised 20 126 3912.2090 - - - Other 20

127 3916.1000 -Of polymers of ethylene 20 128 3916.2000 -Of polymers of vinyl chloride 20 129 3916.9000 -Of other plastics: 20 130 3917.2100 - - Of polymers of ethylene 20 131 3917.2200 - - Of polymers of propylene 20 132 3917.2390 - - - Other 20 133 3917.2900 - - Of other plastics 20

134 3917.3100 - - Flexible tubes, pipes and hoses, having a minimum burst pressure of 27.6 MPa 20

135 3917.3200 - - Other, not reinforced or otherwise combined with other materials, without fittings: 20

136 3917.3300 - - Other, not reinforced or otherwise combined with other materials, with fittings 20

137 3917.3990 - - - Other 20 138 3917.4000 -Fittings 20 139 3919.1090 - - - Other 20

140 3919.9010 - - - Oriented Polypropylene (OPP) packing tapes 20

141 3919.9090 - - - Other 20 142 3920.1000 -Of polymers of ethylene 20

143 3920.2010 - - - Biaxially Oriented Polypropylene (BOPP) film, plain 20

144 3920.2020 - - - Biaxially Oriented Polypropylene (BOPP) film, printed 20

145 3920.2030 - - - Biaxially Oriented Polypropylene (BOPP) film, metallized 20

146 3920.2040 - - - Biaxially Oriented Polypropylene (BOPP) film, laminated 20

147 3920.2090 - - - Other 20 148 3920.3000 -Of polymers of styrene 20

149 3920.4300 - - Containing by weight not less than 6 % of plasticisers 20

150 3920.4910 - - - Polyvinyl Chloride (PVC) Rigid film 20 151 3920.4990 - - - Other 20 152 3920.5100 - - Of poly(methyl methacrylate) 20 153 3920.5900 - - Other 20 154 3920.6100 - - Of polycarbonates 20 155 3920.6200 - - Of poly(ethylene terephthalate) 20 156 3920.6300 - - Of unsaturated polyesters 20 157 3920.6900 - - Of other polyesters 20 158 3920.7100 - - Of regenerated cellulose 20 159 3920.7300 - - Of cellulose acetate 20 160 3920.7900 - - Of other cellulose derivatives 20 161 3920.9100 - - Of poly(vinyl butyral) 20 162 3920.9200 - - Of polyamides 20

163 3920.9300 - - Of amino resins 20 164 3920.9400 - - Of phenolic resins 20 165 3920.9900 - - Of other plastics 20 166 3921.1100 - - Of polymers of styrene 20 167 3921.1200 - - Of polymers of vinyl chloride 20 168 3921.1300 - - Of polyurethanes 20 169 3921.1400 - - Of regenerated cellulose 20 170 3921.1900 - - Of other plastics 20 171 3921.9090 - - - Other 20 172 3923.1000 -Boxes, cases, crates and similar articles 20 173 3923.3010 - - - Bottles 20 174 3926.2010 - - - Plastic belts 20 175 3926.2090 - - - Other 20 176 3926.3000 -Fittings for furniture, coachwork of the like 20 177 3926.4010 - - - Ornamental articles of plastics 20 178 3926.4020 - - - Plastic bangles 20 179 3926.4030 - - - Spangles of plastics 20 180 3926.4040 - - - Plastic beads 20 181 3926.4090 - - - Other 20 182 3926.9010 - - - Synthetic floats for fishing nets 20 183 3926.9030 - - - Transmission, conveyor or elevator belts 20 184 3926.9060 - - - Shoe lasts 20 185 3926.9099 - - - -Other 20

Products at 25%

S.# PCT CODE DESCRIPTION CD%

2009-10 1 3926.1000 -Office or school supplies 25 2 3925.9000 -Other 25

3 3925.3000 -Shutters, blinds (including Venetian blinds) and similar articles and parts thereof 25

4 3925.2000 -Doors, windows and their frames and thresholds for doors 25

5 3925.1000 -Reservoirs, tanks, vats and similar containers, of a capacity exceeding 300l 25

6 3924.9000 -Other 25 7 3924.1000 -Tableware and kitchenware 25 8 3923.9090 - - - Other 25 9 3923.5000 -Stoppers, lids, caps and other closures 25 10 3923.4000 -Spools, cops, bobbins and similar supports 25 11 2803.0010 - - - Carbon black (rubber grade) 25 12 2803.0020 - - - Carbon black (other than rubber grade) 25 13 3923.3090 - - - Other 25 14 2803.0090 - - - Other 25 15 3923.2900 - - Of other plastics 25

16 3923.2100 - - Of polymers of ethylene 25 17 3922.9000 -Other 25 18 3922.2000 -Lavatory seats and covers 25

19 3922.1000 -Baths, shower-baths, sinks and wash-basins 25

20 3919.1030 - - - Scotch tape, plastic 25 21 3919.1020 - - - PVC electric insulation tapes 25 22 3918.9000 -Of other plastics 25 23 3918.1000 -Of polymers of vinyl chloride 25 24 3915.9000 -Of other plastics 25 25 3915.3000 -Of polymers of vinyl chloride 25 26 3915.2000 -Of polymers of styrene 25 27 3915.1000 -Of polymers of ethylene 25 28 3909.1010 - - - Urea formaldehyde moulding compound 25 29 3811.1900 - - Other 25 30 3808.9150 - - - Para dichlorobenzene blocks 25 31 3808.9120 - - - Napthalene balls 25 32 3808.9110 - - - Mosquito coils, mats and the like 25 33 3808.5090 - - - Other 25

34 3605.0000 Matches, other than pyrotechnic articles of heading 36.04. 25

35 3604.9000 -Other 25 36 3604.1000 -Fireworks 25 37 3406.0000 Candles, tapers and the like. 25 38 3405.9000 -Other 25

39 3405.3000 -Polishes and similar preparations for coachwork, other than metal polishes 25

40 3405.1010 - - - For footwear 25 41 3402.9000 -Other 25 42 3402.2000 -Preparations put up for retail sale 25 43 3209.1090 - - - Other 25 44 3005.9090 - - - Other 25 45 3005.1090 - - - Other 25

46 3004.1010 - - - Ampicillin, Amoxcillin and Cloxcillin capsules/ syrup 25

47 2941.1000 -Penicillins and their derivatives with a penicillanic acid structure; salts thereof 25

48 2939.4200 - - Pseudoephedrine (INN) and its salts 25 49 2939.4100 - - Ephedrine and its salts 25 50 2935.0060 - - - Sulphanilamide 25 51 2935.0050 - - - Sulpha-thiazolediazine 25 52 2935.0040 - - - Sulphamethexazole 25 53 2934.9910 - - - Furazolidone 25 54 2924.2910 - - - Paracetamol 25 55 2918.2210 - - - Aspirin 25 56 2915.3300 - -n -Butyl acetate 25

57 2915.3100 - - Ethyl acetate 25 58 2915.2100 - - Acetic acid 25 59 2915.1100 - - Formic acid 25

Products at 35%

S.# PCT CODE DESCRIPTION CD%

2009-10

1 3401.3000 -Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap

35

2 3401.2000 -Soap in other forms 35 3 3401.1900 - - Other 35 4 3401.1100 - - For toilet use (including medicated products) 35 5 3307.9090 - - - Other 35 6 3307.9010 - - - Contact lens solution 35 7 3307.4900 - - Other 35

8 3307.4100 - - "Agarbatti" and other odoriferous perparations which operate by burning 35

9 3307.3000 -Perfumed bath salts and other bath preparations 35 10 3307.2000 -Personal deodorants and antiperspirants 35 11 3307.1000 -Pre-shave, shaving or after-shave preparations 35 12 3306.9000 -Other 35 13 3306.2000 -Yarn used to clean between the teeth (dental floss) 35 14 3306.1090 - - - Other 35 15 3306.1010 - - - Tooth paste 35 16 3305.9090 - - - Other 35 17 3305.9020 - - - Dyes for hair 35 18 3305.9010 - - - Cream for hair 35 19 3305.3000 - Hair lacquers 35 20 3305.2000 -Preparations for permanent waving or straightening 35 21 3305.1000 -Shampoos 35 22 3304.9990 - - - Other 35 23 3304.9920 - - - Tonics and skin food 35 24 3304.9910 - - - Face and skin creams and lotions 35 25 3304.9190 - - - Other 35 26 3304.9120 - - - Talcum powder 35 27 3304.9110 - - - Face powder 35 28 3304.3090 - - - Other 35 29 3304.3010 - - - Nail polish 35 30 3304.2000 -Eye make-up preparations 35 31 3304.1000 -Lip make-up preparations 35 32 3303.0090 - - - Other 35 33 3303.0020 - - - Perfumes 35 34 3303.0010 - - - Eau-de-cologne 35

Tariff reduction modalities under NAMA The text under negotiation stipulates Formula Coefficient and Flexibilities as under:

• For developed countries the proposed co-efficient is [5-7]. For developing countries either of the following can be accepted

(x) 20 with flexibilities of 14%] with trade volume of 10%]. (y) 22 with flexibilities of 10% and trade volume 10%. (z) 25 with no flexibilities.

A preliminary exercise, carried out to determine the impact, the following scenario emerges on a bound rate of 75% which has been considered in this example as most of the Tariff lines have this rate:

• BOUND VS APPLIED RATES UNDER NAMA

Duty Rate (2010-11)

Existing Bound Rate Bound Rate at different coefficients

15% 20% 25% 30% 5% 20 to 75% 12.5 15.79 18.75 21.43 10% 30 to 75% 12.5 15.79 18.75 21.43 15% 50 to75% 12.5 15.79 18.75 21.43

20,25,30,35% 30 to 75% 12.5 15.79 18.75 21.43

50 120 13.3 17.1 20.7 24.0 55 120 13.3 17.1 20.7 24.0 60 170 13.3 17.1 20.7 24.0 65 170 13.8 17.9 21.8 25.5 75 250 14.2 18.6 22.9 27.0 80 250 14.2 18.6 22.9 27.0

Under the Swiss formula for calculating reduction in bound rates, cut would be greater on higher rates as elaborated in the Table above and products at duties upto 15% would be least affected therefore the industry should prepare for reduction of tariff to 15% which otherwise is also considered as tariff peak.

CHAPTER - 8

CONCLUSIONS AND RECOMMENDATIONS

(i) The development of chemical industry produces high value-added goods and is

essential if Pakistan is to remain internationally competitive, reduce its trade

deficit and record strong rates of economic growth.

(ii) Feedstocks derived from primary industries, as well as alternative sources of raw

materials, which are required for the development of secondary chemical

industries have been investigated and processes for their utilization have been

outlined. These will form the basis for the future development of secondary

chemical industries in Pakistan. A number of potentially feasible projects in

various sectors of chemical industry have been proposed for future

implementation.

(iii) Pakistan’s major exports consist of low technology, labour intensive products.

The share of medium and high technology products in total exports from Pakistan

remains very small in spite of the trade liberalization policies that have been

adopted over the past 10 years.

(iv) The development of primary and secondary chemical industries has occurred

primarily with the help of foreign engineering corporations, which were awarded

turnkey contracts for the commercialization of local and / or imported

technologies on EPC (Engineering, Procurement and Construction) basis.

(v) The National Innovation System (NIS), consisting of process science and

engineering technology (PS&ET), necessary for the integration of facilities for

technology development, process design, detailed engineering, manufacturing of

`capital plant and machinery, plant construction, and marketing management is

very weak. It requires enhancement and modernization in order to enable the

development of local capabilities for the commercialization of local and / or

imported technologies.

Chapter – 8 Page 1 of 5

(vi) We recommend that the scope of the Engineering Development Board should be

enhanced and given the additional responsibility for technology development. In

order to achieve this objective, we propose that three committees should be

established under Engineering And Technology Development Board (ETDB) in

order to strengthen the NIS. These are:

(a) A National Committee / Council for research and technology

development,

(b) A National Committee / Council for the development of software and hardware for the commercialization of technologies,

(b) A National Committee / Council for the development of Technology

Policy and Investment Planning.

The task of each of these Committees will be to foster links between universities,

research and development (R&D) institutions and industry necessary for the

development, appraisal and evaluation of local and / or imported technologies, to

create engineering companies as joint ventures between local and / or foreign

companies for the development of facilities required for the commercialization of

local and imported technologies and to develop industrial and investment policies

for capital formation on continual basis.

(vii) In order to facilitate the formation of investment capital, we suggest that a

Holding Company should be established with the participation of the financial

sector, international donors, friends of Pakistan, overseas Pakistanis, and other

investors, who should be invited to participate as shareholders in this company.

(viii) The chemical industry is the driving force in developing a healthy Pakistani

economy, so as to provide jobs and bridge the gap between imports and exports.

This poses an increasing challenge for the chemical industry over the next twenty

years as global competition, technology advances, public health and

environmental concerns, and new markets and products shape the future.

Chapter – 8 Page 2 of 5

The present policy for the development of chemical industry based entirely on

imported technologies and their commercialization by awarding Turnkey

contracts to Foreign Engineering Companies on EPC basis (Engineering,

Procurement and Construction) is costly and highly uneconomic. According to

World Bank estimates the investment costs of chemical projects in countries

where National Innovation System (N.I.S) is lacking or not well developed is

about 40 percent higher compared with their costs in countries where industrial

infrastructure is locally established.

(ix) The rapid development of South East Asian and ASEAN Countries as well as

China and India has been based on the development of their N.I.S. which forms

an important aspect of their economic policies and institutional framework. The

rapid development of their manufactured industrial products and spectacular rates

of growth in exports has been the result of the development of local technology,

engineering and industrial infrastructure. Pakistan will not be ale to compete with

these countries on quality as well as costs for the export of its manufactured

products unless it is able to enhance its capability with the development of N.I.S.

(x) In order to prepare an Action Plan for the development of N.I.S. and Institutional

infrastructure, it is suggested that ETDB establish a Commission with its

members drawn from:-

i. Ministry of Industries and Production

ii. Ministry of Science and Technology

iii. Ministry of Planning and Development

iv. Higher Education Commission

v. Industry

Chapter – 8 Page 3 of 5

The development of Action / Implementation Plan will become the basis for the

preparation of PC-1 for the allocation of Resources. In addition we would like to

propose that ETDB organize a National Conference with the participation of

various public/private sector organizations which will also be useful for the

preparation and development of comprehensive policy for the development of

National Innovation System.

(xi) The main factors affecting continual brain drain of Pakistan’s highly qualified

manpower is due to lack of employment opportunities. The development of NIS

will require the services of tens of thousands of scientists, engineers,

technologists, economists and social scientists, and will therefore result in job

creation which will reverse the current brain drain.

(xii) Pakistan has been importing Second Hand Plants based on Antiquated

Technology, Energy Intensive, Low Productivity Projects. The products

manufactured by these plants in many cases are not economically competitive

with the imported products. Such plants in many cases were ultimately shutdown.

In addition the investors in some cases were not able to pay the Bank Loans

which had to be written off.

We suggest that GOP should undertake investigations / survey of such projects in

order to determine the extent of financial losses incurred by the Banking Sector

and the Country. It is also suggested that the policy of importing second hand

plants is reviewed and a Ban is imposed on the future import of such plants.

(xii) Pakistan is dependent upon foreign engineering and construction companies for

the acquisition and commercialization of technologies for the development of its

primary and secondary industries. Under the circumstances it is not possible for

its industrial products to compete in the international markets in respect of quality

and costs unless it is able to achieve self reliance by developing its local

technological and social capabilities as a part of its NIS.

Chapter – 8 Page 4 of 5

Chapter – 8 Page 5 of 5

The national innovation system consists of a set of institutions whose interaction

determines the innovative performances of the economy. These consist of private

and public R&D institutions, operations, design, engineering and construction

management corporations, capital plant manufacturing companies, financial

institutions, the educational system and government regulatory bodies. These

constitute the framework for the creation of pro-innovative environment aimed at

maintaining quality, productivity of manufactured goods and products and

increasing the competitiveness of a country in the international markets.

Annexure - B REFERENCES

Serial No

Reference

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N.S. Maina – Department of Chemical Engineering, Ahmadu Bello Bello university,Zaria, 810261. E-Mail : nsmaina@yahoo.com

_____________________________________________________________________ References Page 1 of 3

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_____________________________________________________________________

27. Failure of the Miracle: Why South Korea’s Managed Economy Is Dying

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References Page 2 of 3

_____________________________________________________________________ References Page 3 of 3

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