Worldwide, there are as many as 160 hydro-cracker plants including five units in India alone. Such plants help in processing a wide variety of feedstock to produce a broad range of products like diesel, kerosene, gasoline, LPG etc. These products processed in a hydrogen-rich atmosphere at high temperatures and pressures, are free of sulphur and nitrogen impurities, and are of improved quality.

The downstream projects may produce a variety of raw materials including polyethylene, polypropylene, synthetic fibre and other raw materials for producing chemicals and components for use in plastic, textile, paint/dyes, automotive, electronic and other industries. Plastic industry requires various raw material amounting to about 300,000 tons annually, which is being imported.

It was in 1980s that the project was envisaged. Foster Wheeler, the world-reputed consultants, carried out a study for upgrading of the petroleum sector, proposing construction of a petrochemical complex for conversion of residual fuel/furnace oil from local oil refineries into light and middle distillate fraction. For the purpose, 256- acres adjacent to the National Refinery Ltd was allocated in 1983. The World Bank allowed in 1984-85, a loan for carrying out engineering and designing the system for the project.

The project was approved in 1989. But it was not in the interest of multi-national oil companies and major importers of petrochemical products and chemical raw materials. Later, the National Crescent Petroleum of the UAE established a joint venture with Pakistan, in 1992, to set up a plant. It. was shelved after five years or so.

Meanwhile, the Asian Development Bank (ADB) also carried out, in 1995, an environmental study for the project. India's Reliance Group, in collaboration with a Pakistani businessman, showed an interest in 2004, to set up the hydrocracker project but the proposal did not materialise. In November 2005, the UK-based Trans Polymers Ltd, a subsidiary of the Trans Polymers (Holdings) Limited, announced its plans to set up the project, with an initial investment of $480 million. It was claimed by the company that necessary resources for the project were already lined up, such as acquisition of land in Karachi, selection of technology and appointment of a contractor, etc.

The plant machinery was to be installed by June 2006 and the plant was scheduled to go into production by last quarter of 2008. Nonetheless, no physical progress was achieved on the project. The company renewed its interest in the project in March 2006, this time to establish a complex including naphtha-cracker, polyethylene and polypropylene plants, at a total cost of euro1.3 billion. Again, no progress was achieved.

The company showed interest in the project after a lapse of another two years. A letter of interest was signed on February 20, 2008, in London, between the Trans Polymers and Pakistan's High Commissioner for setting up the complex as originally conceived. But later the company decided to set up only a polyethylene plant, of 310,000 tons annual capacity, based on imported ethylene as raw material. Investors asked the government to provide 1,000 acres---four times the land required for the whole complex---at Port Qasim Karachi.

On the initiative of the ministry of industries and production, ECC of the Cabinet approved, on July 1, 2008, an incentive package reviewing duty structure on higher side, on import of polyethylene and polypropylene, allowing investors also to import duty-free plant machinery/equipment as well as raw material, and extending other fiscal and financial concessions. Ironically, the special package is company-specific, benefiting the investor only to the detriment to the chemical industry in the absence of a hydro cracker plant. In January 2009, however, the ECC of the Cabinet approved another incentive package to facilitate the British investor, setting a timeframe for financial close.

There is no progress towards achieving financial close of the project, if viewed in the context of status of the British investor. According to the companies' information available (from UK Data Ltd on internet), Trans Polymers (Holdings) Ltd is in a pre-dissolution state. It was incorporated on May 17, 1999, registration number 03771449, having registered office at 5-Westmoreland Place, London SW1V 4AB. Its subsidiary, Trans Polymers (Developments) Ltd, was incorporated on June 28,1999 at the same address, under registration number 03797078, which is a small company engaged in business and management consultancy services.

As a parallel activity, the Pakistan Board of Investment (BOI) have invited proposals from foreign and domestic investors, for the establishment of a hydro cracker/naphtha-cracker plant to be located at Karachi. Project brief was prepared sometime in January this year to facilitate prospective investors. The proposed plant, of an annual capacity of 200,000 tons of equivalent ethylene (or 640,000 tons of product mix), will be able to produce a variety of high value-added products such as ethylene, propylene, butadiene, fuel gas and gasoline.

There are five oil refineries in the country with a cumulative capacity of processing 285,000 barrels per day (bpd), equivalent to about 12.8 million tons per year, of crude oil. These are Pak-Arab Refinery Ltd (PARCO) with production of 100,000 bpd (equivalent to 4.5 million tons/yr), National Refinery Ltd with production of 65,000 bpd (2.8 million tons/yr), Pakistan Refinery Ltd with production of 50,000 bpd (2.2 million tons/yr), Attock Refinery Ltd with production of 40,000 bpd (1.8 million tons/yr) and Bosicar Refinery (Bosicar Pakistan Ltd) with production of 30,000 bpd (1.5 million tons/yr).

The crude oil production is in the range of 65,000—67,000 bpd, whereas additional, about 220,000 bpd, crude is imported to meet the refineries' requirements. These refineries generate around 16,000 bpd (equivalent to 800,000 tons/yr) of naphtha, as residue or by-product, mostly exported, without any value addition, at a nominal price. The proposed plant will process about 650,000 tons per year of naphtha, which is feedstock (raw material) for the project.

Trans Polymers Ltd seem neither serious, as demonstrated in the past, nor have financial capability, to setting up a hydrocracker plant. Furthermore, the proposed polyethylene plant is again a non-starter as it would be based on imported ethylene, whereas it should essentially be established as a downstream project of hydrocracker plant so that ethylene is made available locally. This is, in fact, putting the cart before the horse. It is not feasible, either technically, commercially or economically, to first put up a polyethylene plant and, in the second phase, a hydro cracker plant. Seemingly, the investor is simply asking for tariff benefits and land acquisition under the cover of setting up a project that may never be built.

The government is well advised to revive the much-needed and long-awaited hydrocracker project as a public sector financed project or under public-private partnership. There is however a need to act fast in this direction as the cost of installing hydrocracker plant/complex has meanwhile escalated beyond proportions. In 1992, its cost was $350 million, whereas the current international estimates of constructing the project are of over $ 800 million, though Trans Polymers project, if at all materialised, will cost two billion dollars or more on completion, according to their own estimates.

(The writer is former Chairman of State Engineering Corporation and was on the Board of Directors of PERAC—State Petroleum Refining and Petrochemical Corporation)