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Chemicals try to stay competitive

June 26, 2017

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The chemical industry forms the very fabric of the modern world. It converts basic raw materials into tens of thousands of products, ranging from daily use items like detergents and varnishes to fertilisers and life-saving drugs.

Indeed, it is hard to imagine modern life without a chemicals industry. The use of chemicals grows in concert with economic expansion and improvement in per capita income.

Hence, over time Pakistan has seen a rapid growth in its chemicals import bill that stands at $11.3 billion — including fertiliser valued at $1bn. This is because the country’s fragmented chemicals manufacturing industry is unable to meet domestic demand owing to unavailability of feedstock of basic chemical industry.

“We are dependent upon imported chemicals because we do not have proper infrastructure. We do not have a Cracker facility to produce basic petrochemical building blocks for the downstream chemicals industry and, therefore, have to rely on imports,” Tahir J Qadir, a Dubai-based chief consultant for the Pakistan chemical industry, told Dawn by telephone.

The chemical manufacturing industry began to emerge in Pakistan in the 1950s when the Pakistan Industrial Development Council (PIDC) created a large chemicals estate at Mianwali.

Another chemical complex was set up in the private sector at Kala Shah Kaku near Lahore in the 1960s, with chemical factories also emerging in Karachi.

But the industry saw a decline after nationalisation of factories in the early 1970s. Ever since then, the development of the domestic chemicals manufacturing sector remains slow.

Mostly, the units in small-scale sectors are spread in various parts of the country. The installed capacities in most of these small-scale units are smaller as compared to global scales.

“The establishment of a Cracker facility is crucial for boosting fresh investment in downstream chemicals industry and for reducing imports,” Qadir argued. He was of the view that the low global oil prices offer a great opportunity for establishing a Cracker unit that can utilise mix feedstock.

“The global chemicals trade has become very competitive. With the world oil prices forecast to stay at the current level for quite some time, we have a window to set up a Cracker in the country to meet domestic demand,” he contended.

He said once the country has the facility it will remain competitive for the domestic industry even if not for exports.

Qadir pointed out that the worldwide analysis of cracker plants shows that once the first cracker is up and running, it will attract further investment in cracker facilities as well as in the downstream chemical industry.

“India is a classic example. Up until 1995, India was heavily dependent on chemical imports as there was no cracker facility in the country. Within a span of 22 years India has seven cracker units.

“It has now become the highest exporter in some of the chemicals on a global scale. China did not have a single cracker facility till late 1950s and now it has 27 crackers.”

A petrochemical complex, which includes a cracker facility, is estimated to cost around $6bn or more.

In January, Ahsan Iqbal, planning and development minister assured the chemical industry group, Pakistan Chemicals Manufacturers Association, of setting up the country’s first petrochemical complex. This included a crude oil refining facility and a naphtha Cracker plant, from the government’s own pocket, in the next five to six years.

The refinery will provide naphtha for the Cracker facility as import of the raw material will render the Cracker facility uncompetitive. However, the government has so far not taken any steps to implement the commitment.

“The minister promised that the government will provide funding, starting with the seed-money, for the proposed Naphtha Cracker Complex because of its strategic importance for the country’s economy.

“The facility can also adopt the mode of a public-private partnership, depending on (foreign investors’) interest in the project,” Iqbal Kidwai, secretary-general of the PCMA, said.

He said the government’s financial support was essential in setting up the Cracker plant because domestic investors did not have the kind of money required to put in place such a huge project and foreign investors were still reluctant to invest in Pakistan’s chemicals market.

Kidwai was of the view that the completion of projects under the $57bn China Pakistan Economic Corridor (CPEC) would spur economic growth, increasing domestic demand for chemicals.

“A petrochemical complex and a cracker are essential for the country’s economy to meet the growing need for chemicals. With Pakistan’s hunger for petrochemicals rising rapidly, the viability of a Cracker facility will not be a question,” he argued.

He went on: “Chemical manufacturers consider the crude-naphtha petrochemical project of national importance. It is a project that will change the appearance of the chemical industry in Pakistan and have far reaching effects on the economy.

“It will help Pakistan become self-reliant on chemicals we have to import to meet our requirements. Therefore, we urge the government to bring this project under the umbrella of the CPEC for its early implementation.”

Published in Dawn, The Business and Finance Weekly, June 26th, 2017