Research Proposal on Chemical Industry

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					                      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
                              (TECHMA)
               31/11-A, Abu Bakr Block New Garden Town, Lahore
                Tele: (042) 5881460 Fax-Cum-Tel: (042) 5881718
                          E-Mail: techma@Brain.net.pk
                                   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 –         5
       Vision 2030.
CHAPTER 2
Potential for the development of secondary chemical industries based             1
on feedstocks derived from primary industries.
2.1    Feedstocks derived from primary industries for the potential              1
       development of secondary chemical industries.
       • 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,                13
       materials technology and metallurgical processes.
2.5    Other mineral based projects consisting of acid and alkali                17
       industries, cement and glass plants based on limestone, gypsum,
       rock salt, sulphur and silica.
2.6    Agro based feed stocks.                                                   17
2.7    Sources of raw materials and process technologies for chemical            20
       industry development in Pakistan.
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       12
       development.

                                                                         Continued…….




                                                                             Page 1 of 2
CHAPTER 4
4.1    Modernization of the national innovation system for chemical           1
       industry development in Pakistan.
       • Limitations of Pakistan’s N.I.S.                                    2
       • The scope of Engineering Development Board with additional         4&5
            responsibility for technology development and proposed
            structure of Technology Development Board.
4.2    The role of the national committee in research and technology          5
       development.
       4.2.1 The current status of R&D in Pakistan.                           6
       4.2.2 National committee for research and technology                   7
                development.
4.3    National committee for the development of software and hardware        10
       for the commercialization of technologies.
4.4    National committee for the development of technology policy and        13
       investment planning.
4.5    Human resource development.                                            15
4.6    Integrated plan for the development of a national innovation           16
       system.
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




                                                                          Page 2 of 2
                    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
(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.




Executive Summary                                                       Page vii of vii
                                       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 1 of 1
            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 2 of 2
             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 3 of 3
      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 4 of 4
      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 5 of 5
      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 – 1                                                      Page 6 of 6
                                        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 1 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:




________________________________________________________________________________________
Chapter – 2                                                                        Page 2 of 23
                                      Petrochemical Feedstocks
                                                         Crude Oil
                                                            To
                                                    Petroleum Refinery

                                                       Atmospheric
                                                        Distillation


                                      Gasoline           Light and
                      Methane &                                            Light and
                                        And               Heavy                            Residue
                      Off Gases                                          Heavy Gas Oil
                                     Motor Spirit        Naphtha


                                                                Petrochemical
                                                                 Feedstock

                                                         Off Gases/Naphtha/Gas Oil

                                                    Catalyst Cracking           Steam Cracking


                                            Aromatics                                 Olefins




                                                         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.




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Chapter – 2                                                                              Page 3 of 23
                                                       STEAM CRACKING OF
                                                        NAPHTHA / GAS OIL


                                     NAPHTHA /                                                            Ethylene
                                  ASSOCIATED GAS /
                                      GAS OIL                         REACTOR
                                                                    Steam to Feed
                                                                    ratio 0.25 to 0.9                     Propylene
                                                                     Temperatures
                                          STEAM                      820 to 840oC
                                                                                                          Butylenes




                                                                       Fig 2.2




                                      OLEFINS AND PETROCHEMICAL INTERMEDIATES BASED SECONDARY
                                                        CHEMICAL INDUSTRIES
                                             ASSOCIATED GASES                                   STAGE I
                                                    OR                             THERMAL CRACKING OF NAPHTHA
                                                 NAPHTHA                              FOR THE PRODUCTION OF
                                                                                        PRIMARY CHEMICALS
               BACKWARD INTEGRATION




                                                                                   (HIGHLY SOPHISTICATED, CAPITAL
                                           ETHYLENE                                      INTENSIVE PROCESS)
                                           PROPYLENE
                                           BUTYLENES




                                                                                                                       FORWARD CREATION
                                          POLYETHYLENES LDPE,HDPE                             STAGE II
                                          POLYPROPYLENE                     POLYMERIZATION OF PRIMARY CHEMICALS FOR
                                          POLY VINYL CHLORIDE               THE PRODUCTION OF SECONDARY CHEMICALS
                                          POLYSTYRENE                                    AND POLYMERS.
                                          SBR                                (MEDIUM TECHNOLOGY BASED PROCESSES).
                                          ETHYLENE GLYCOL
                                          POLY VINYL ACETATE



                                        PLASTICS FILMS                                            STAGE III
                                        CONTAINERS                                        FABRICATION OF SECONDARY
                                        PIPES,CABLES, BAGS                              CHEMICALS FOR THE PRODUCTION
                                        SYNTHETIC RUBBER & LEATHER PRODUCTS                OF CONSUMER PRODUCTS.
                                        TYRES                                             (LOW/MEDIUM TECHNOLOGY
                                        TOYS                                                  BASED PRODUCTS)
                                        ELECTRICAL EQUIPMENT
                                        RADIO, TV, AIR CONDITIONERS, REFRIGERATORS
                                        FURNITURE, TABLEWARE




                                                                         Fig 2.3




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Chapter – 2                                                                                                    Page 4 of 23
                                   Other Olefins Based SecondaryChemicals

                                                        Naphtha
                                                     Steam Cracker
                                                        (Olefins)



                               Ethylene                 Propylene          Butadiene
                             & Derivatives             & Derivates        & Derivatives
                            Ethylene                  Propylene         Butadiene
                            EDC                       Acrylonitrile     ABS
                            Ethylene Glycol           Cumene            Adiponitrile /HMDA
                            Ethylene Oxide            Polypropylene     Nitrile Rubber
                            HDPE                      Acrylic Acid      Poly-Butadiene
                            LDPE                      Butanol           Poly chloroprene
                            LLDPE                     2-Ethyl Hexanol   SB Latex
                            EPDM                      Iso-Propanol      SB Rubber
                            Ethanol                   Nonene
                            Alpha Olefins             Dodecene
                            Vinyl Acetate             Propylene Oxide
                            Ethyl Chloride / Ethyl    Acetone
                            Benzene
                                                      Acrylic Fiber




                                                       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 NAPHTHA
                                 (AROMATIZATION REACTION)


                           NAPHTHA /
                        ASSOCIATED GAS /                                                   Benzene
                            GAS OIL
                                                          CATALYTIC
                                                          REACTOR                           Toluene

                               STEAM                                                        Xylenes




                                                         Fig-2.4



                   `
                                      Aromatics Based Secondary Chemicals
                                                        Naphtha Catalytic
                                                       Reformer (Aromatics)



                          Toluene &          Xylenes &              Benzene &
                          Derivatives        Derivates              Derivatives
                       Benzene            Orthoxylene                                              Production of
                                                               Benzene           )                 Primary/Inter-
                       TDI                Paraxylene           Cumene             )                mediate
                       Caprolactam        Metaxylene                                  Production   Chemicals
                                                               Phenol            )
                       Benzoic Acid                                                   of           (Highly
                                          DMT                  Cyclo Hexane       )
                                                                                      Secondary    Sophisticated
                       TNT                TPA                  Ethyl Benzene     )                 Capital
                                                                                      Chemicals
                                          Bottle Resin         Adiplc Acid       )    Medium /     Intensive)
                                                               Alkyl Benzene     )    High
                                          Polyester Fiber                             Technology
                                          Fiber Chip           Aniline           )    Chemicals
                                          Film Resin           Alkyl Phenol      )    and
                                                               Chloro Benzene )       Products
                                          Phthalic Anhydride
                                                               Maleic Anhydride )
                                          PET
                                                               Nylon Fiber/Resin )

                                                    Fig 2.5


________________________________________________________________________________________
Chapter – 2                                                                             Page 6 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.




________________________________________________________________________________________
Chapter – 2                                                                        Page 7 of 23
                                                                           Household Gas




                                         Fig -2. 6




________________________________________________________________________________________
Chapter – 2                                                               Page 8 of 23
                                        FIG-2.7




________________________________________________________________________________________
Chapter – 2                                                               Page 9 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 10 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 11 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 12 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.



 ________________________________________________________________________________________
Chapter – 2                                                                     Page 13 of 23
              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
              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 15 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 16 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 17 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 18 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 19 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 20 of 23
              SECONDARY INDUSTRIES
              Petrochemical Intermediates Based                 Sources of Raw Materials
              Industries
                    i)     Synthetic Fibers
                    ii)    Polyvinyl chloride
                    iii)   Various Polymers                     Imported Petrochemical
                    iv)    Pesticides                           Intermediates, Locally
                    v)     Pure phthalic acid                   available Coal, and Renewable
                    vi)    Plastics and Resins                  Feedstocks consisting of Bio-
                    vii)   Paints and Varnishes                 mass and molasses.
                    viii) Organic Chemicals
                    ix)    Dyes and Pigments
                    x)     Textiles and Tannery Chemicals
                    xi)   Drugs, pharmaceutical chemicals,
                          fine and specialty chemicals

              2.2.3   OTHER SECONDARY INDSTRIES
                      Acids and Alkali Industries.                  Sources of Raw Materials

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

                      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 21 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 22 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 – 2                                                                   Page 23 of 23
                                       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 1 of 1
          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 2 of 2
          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 3 of 3
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.



      Chapter – 3                                                                   Page 4 of 4
3.3      The Structure of Pakistan’s Trade

         Import & export of chemicals of Pakistan is depicted below:


                              Chemicals Trade (Million US $)


       6000                                                                 5,718
                                                                                      5,166
       5000
                                                                  4,362
                                                    4,133
       4000                           3,599

                            2,788
       3000

       2000

                768
       1000                                   400           472           367       538       411
                      118       253
           0
               2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

                                       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 ‐ 2008‐09
                                   Total Exports = 513 Million US $
                                Petrochemicals
     Perfumes & Cosmetics            4.0%                            Pharmaceuticals
            2.6%                                                         28.3%


  Other Specialty 
    Chemicals
      10.7%



Inorganic Chemicals
       4.5%

   Fertilizers
     0.1%

   Dyes & Pigments
        1.4%                                                                           Plastics
        Coatings & Inks                                                                41.6%
             3.5%         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
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       Share in      Share in
                                                  1985           2005          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.



   Chapter – 3                                                                  Page 7 of 7
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 ‐ 2008‐09
                                             6,436 Million US $
                                            Perfumes & Cosmetics
                          Pharmaceuticals
                                                   1.4%          Soaps & Detergents
                               8.5%
       Other Specialty                                                  1.7%          Inorganic Chemicals
         Chemicals                                                                          10.8%
           10.2%

 Coatings & Inks
      1.1%


  Dyes & Pigments
       4.3%

     Pesticides
       2.2%
                                                                                                 Petrochemicals
                                                                                                     29.2%
            Fertilizers
              10.4%
                                  Synthetic Rubber
                                       1.2%                      Plastics
                                                                  19.0%




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
                                              Table – 3.3
                                     MAJOR IMPORTS OF PAKISTAN
                                             US$ (Million)
                                     2002-03  2003-04      2004-05 2005-06    2006-07   2007-08
      Chemicals & Related
                                       1,555     2,078     2,709     2,990      3,194         4,181
 1    Product
 2    Drugs and Medicines                222       275       292       331        354           463
 3    Dyes & Colours                     144       160       187       223        238           311
 4    Chemical Fertilizers               240       285       417       652        696           912
 5    Electrical goods                   217       258       356       502        536           702
 6    Machinery                        2,224     3,309     4,494     6,245      6,673         8,732
 7    Transport Equipments               501       653     1,069     1,602      1,712         2,240
 8    Iron and Steel                     402       512       890     1,373      1,467         1,920
 9    Iron and Steel Scrap                48        94       222       424        453           593
10    Manufacture of Metal               100       124       175       223        238           311
11    Tea                                173       193       223       225        240           315
      Synthetic & Artificial -Silk
                                          92      118       130        546        583          763
12    yarn
13    Non-ferrous metal                   30        34        40        123        131       172
14    Crude Petroleum                  1,367     1,765     2,149      3,804      4,065     5,320
15    Petroleum Products               1,700     1,401     1,851      2,848      3,043     3,982
16    Edible Oils                        539       613       703        746        797     1,043
17    Grains, Pulses & Flours            116        75       123        164        175       229
18    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    39,964
                                                               Source : 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              17.7%     17.9%     17.5%      14.7%     14.7%      14.7%
      Total Imports

      Capital Plant &
                                       2,324     3,433     4,669     6,468      6,911         9,043
      Equipment (6+10)
      Percentage of
      Machinery Group to              19.0%     22.0%     22.7%      22.6%     22.6%      22.6%
      Total Imports
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 9 of 9
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.



 Chapter – 3                                                                  Page 10 of 10
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 Fields
                16 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

                     Ethylene    Synthetic     Synthetic     Synthetic     Other
                                 resin         fibre         rubber        Products
         Total          6.12        15.94         10.69         1.272         15.1758
         (mt/y)

         Sinopec       51.8%        29.4%        11.97%         39.5%          13.4%


         CNPC          29.7%        16.5%         2.70%         23.4%          23.6%


         Others        18.5%        54.1%        85.33%         37.1%          63.0%




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
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 – 3                                                                    Page 14 of 14
                                   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
                                         of National Innovation
                                                 System




               National Committee Counsil for                        National Committee
                 Research and Technology                                Counsil for the
                        Development                                    Development of
                                                                    Soft/Hardware for the
                                                                    Commercialization of
                                                                        Technologies.
                                  National Committee Counsil for the
                                 Development of Technology Policy and
                                         Investment 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
     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.




Chapter - 4                                                               Page 8 of 21
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                  Techno-
Evaluation           Universities/R&D institutions/ Industry for      economic
& Approval               R&D Work and the Allocation of               Evaluation


Approval and         Selection of Projects for Pilot Plant Work        Techno-
 Evaluation              and the Allocation of Resources              economic
                                                                      Evaluation


 Marketing           Selection and Adoption of Technology for        Design of
 Evaluation                     Commercialization.                   Parameters



                               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
         (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

      Chapter - 4                                                              Page 13 of 21
                                     Proposal Structure of Engineering Companies for Commercialization of Technologies

                                                              Development of New Projects and
                                                                 Revamping of Old Plants

                     Consultancy
                      Services


                                                             Design, Engineering and Construction
                                                                     Management Services



 Preliminary &             Process                 Detailed                   Procurement             Construction      Commissioning     Modernization
    Detailed               Design                 Engineering                   Services               Services           Services        & Revamping
   Feasibility                                                                                                                            of Old Plants


                      *Acquisition of          *Checking of                 *Preparation of         *Preparation of    *Manpower          *BMR Studies
*Market                                                                                                                training
Research              Technology and           Process Design               tenders                 tenders
                      know-how                                                                                                            *Technical
*Survey &                                                                                                              *Preparation of    auditing
Selection of Plant                             *Plant Layout                *P/Q of                 *P/Q of
                      *Process design,                                      Contractors             Contractors        SOPs and
Location                                                                                                               operating          *Preparation of
*Study of Raw         utilities design         *Mechanical
                                               Design                       *Evaluation of          *Evaluation of     Manuals            proposals based
Material &                                                                                                                                on engineering
Utilities             *Establishment of                                     Bids                    Bids
                      Technical                *Piping Design                                                          *Start up          fabrication of
*Selection of                                                                                                          Planning           equipment
Technology            Requirements                                          *Local                  *Selection of
*Determination                                 *Instrumentation             Fabrication             Contractors
                                               Design                                                                  *Raw Materials     *Construction
of Investment                                                                                                          and other inputs   Management
Costs                                                                       *Foreign                *Supervision
                                               *Electrical                  Procurement             during erection    Control
*Preparation of
Financial Plan                                 Design
                                                                            *Selection of           *Plant schedule    *Organization of
and Means of                                                                                                           commissioning
Funding                                        *Civil and                   Companies               control
                                               Structural Design                                                       team
*Environmental
Assessment                                                                  *Inspection of          *Project Cost
                                               *Environment                 Equipment               Control            *Commissioning
*Planning of
Plant                                          Control
                                                                            *Shipments to           *Quality Control   *Supervision of
Management                                                                                                             Guarantee Tests
*Implementation                                *Preparation of              Plant Site
Plan                                           Project Packages                                     *Safety Control


                                                                        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
      (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.




Chapter - 4                                                             Page 17 of 21
Development of Design and Engineering Infrastructure for Commercialization of Technologies
                                                        Project
                                                           &
                                                  Product Identification



               Feedstock Study                  Locally Developed and/or       Market Study.
                    And                         Imported Technology and       Supply / Demand
                 Availability                          know-how



                                                 Tech-Economic Study
                                                 And Project Approval         Source of Finance
                                                                              Debt/Equity Ratio


                                           Design, Detailed Engineering,
           Local Fabrication of Plant       Plant & Equipment Specs.       Procurement of Plant and
                and Equipment                Preparation of Workshop       Equipment from Foreign
                                            Drawings, Utility Plants &             Sources
                                                 Material Specs..



                                            Installation and Erection of
                                               Plant and Equipment
                                              Mechanical Completion



                                                Plant Commissioning and
            Training of Manpower                   Commencement of
                                                 Commercial Production


                                                Marketing and Consumer
                                                      Acceptance

                                                       Fig-4.4

                                  Chapter - 4                                                         Page 18 of 21
                                   An Integrated Plan For Education, Research
                                 And Project Management For Commercialization
                                              Of Chemical Industry

                                                                                                             New Processes /
                                                                                                               Technology
                                                Industrial Survey Identification
                                              And Management of R&D Projects
                                     Pilot Plant Studies at Universities, R&D Institutes and
                                                             Industry
                                                                                                        Licensing of Process Technologies
                                                                                                                (Local / Imported).

     Assessment of Needs                       Commercialization Technologies
                                          Selection and Adoption ofof Processes for
 Human Resources Development              Engineering,Commercialization Services,
                                                       Project Management
In Newly Emerging Technologies                      Development of Project
                                                           Packages



                                            Commercialization of Techno
                                    Selection and Adoption of Processes logy for
                                        Engineering, Project Management Services,
                                                Commercialization.
                                                 Development of Project
                                                           Packages                            Creation &
                                                                                               Development
                                                                                               of Linkages
                                               Process and Plant Management                                 Consultancy Services
                                               Plant Operation, Management and                          Revamping and Modernization,
                                                    Marketing Management                                      Optimization and
                                                                                                          Productivity Improvement




                                                         Fig – 4.5

                                    Chapter - 4                                                                  Page 19 of 21
         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
   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 - 4                                                              Page 21 of 21
                                     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.


                                  Global Caustic Soda Capacity

                           65
                  70
                  60
                  50
   Million Tons




                  40                    28
                  30
                  20
                                                          3                0.435
                  10
                   0
                         World       China             India            Pakistan



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



 Chapter 5                                                                   Page 1 of 50
estimated to be 58.4 Million Tons in 2009 with an annual compound growth rate of
2.89%.

                                                World Production


                         60

                         50
                                                                                           58.4
                                                                                    56.7
         Million Tones




                         40                               52.7   55.1     55.1
                                         48.5   50.7
                                 47.5
                         30

                         20

                         10

                         0
                              2002    2003   2004   2005      2006   2007        2008   2009
                                                          Year




Projections: Ever growing demand of PVC pushing caustic soda production and it is
estimated that it will grow with an ACGR of 2.8%.

                                                 World Projections

                         90
                         80
                         70
                                                                                                  80.9
         Million Tones




                         60                                                                78.5
                                                                                    76.3
                         50                                                 74
                                                       67.8   69.8 71.9
                         40      62     63.9 65.8

                         30
                         20
                         10
                          0
                              2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
                                                              Year




 Chapter 5                                                                                               Page 2 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
                      16.6
                      16.4
                      16.2
                       16
                                                                      16.4
      Million Tones




                      15.8                                                         16.3
                      15.6
                      15.4
                      15.2
                                   15.6
                       15
                      14.8
                                                  15.2
                      14.6
                             2005          2006          Year   2007         2008




                                            Prices
                      350

                      300                                                    319

                      250
      US $ / M.Tons




                      200                                       231
                                            209
                             190
                      150

                      100

                       50

                        0
                             2005          2006          Year   2007         2008




 Chapter 5                                                                     Page 3 of 50
Liquid Caustic Soda
Top 10 Exporters:

                             Total Exports = 13.5 Million Tons in 2008
                                                    Other
                          'Qatar                     15%                                      'Germany
                            3%                                                                   18%


       'Russian Federation
               3%
                                                                                                         'United States of
                                                                                                             America
           'Romania                                                                                            14%
              4%


               'Belgium
                  5%
                                                                                              'China
                'Netherlands                                                                   12%
                     5%
                                      'Japan
                                                                      'Chinese Taipei
                                        10%
                                                                           11%




Top 10 Importers:

                       Total Imports = 15.1 Million Tons in 2008
                                                                               'Australia
              Others                                                             14%
               38%


                                                                                               'Brazil
                                                                                                12%



                                                                                            'United States of
                                                                                                America
           'Sweden                                                                                 6%
              3%
                                                                                          'Finland
            'Belgium                                                                         6%
               3%
                                                                           'Netherlands
                          'Austria                                              6%
                                         'Jamaica           'Canada
                            4%
                                            4%                 4%




 Chapter 5                                                                                               Page 4 of 50
Solid Caustic Soda
Top 10 Exporters:

                               Total Exports = 1.02 Million Tons in 2008
                                                               Other
                              'Germany                          11%
                                 2%
                                                                                                            'China
                  'Saudi Arabia
                                                                                                             42%
                       3%

               'Spain
                 3%

         'India
           4%


        'Russian Federation
                4%


                'Thailand
                                                                                     'Chinese Taipei
                   4%
                                                                                          14%
                   'United States of             'Poland
                       America                     7%
                          6%


Top 10 Importers:

                            Total Imports = 1.15 Million Tons in 2008
                                                                'Bangladesh
                                           'Belgium                 5%             'United States of
                                              7%
                                                                                       America
                                                                                          5%
                                                                                                'Nigeria
                                                                                                  4%

                                                                                                  'Viet Nam
      Others                                                                                          4%
       61%
                                                                                                       'Italy
                                                                                                         4%


                                                                                                  'Brazil
                                                                                                    3%


                                                                                          'Uzbekistan
                                                           'Spain                             3%
                                                             2%         'Namibia
                                                                           2%




 Chapter 5                                                                                                Page 5 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

                                       Petroleum
                            Alumina                Water
                                           3%
                               2%                   2%
                                                                        Pulp & paper
         Propylene oxide                                                    25%
              12%

     Soap & Detergent
           5%



             inorganics
                 5%
                                                                     Other organic
                                                                         26%
                             Others
                              20%




 Chapter 5                                                                Page 6 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.




           Caustic Soda - Production Capacities (MTPY, %) - 2010
                           Total = 435,000 MTPY

                                              Nimir
       Engro                                Chemicals,
     Polymaers,                             10,000, 2%
    100,000, 23%




                                                                         Sitara
                                                                       Chemicals,
                                                                      180,000, 42%
         Ittehad
       Chemicals,
      145,000, 33%
                                                             Source: Manufacturers




 Chapter 5                                                              Page 7 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

                                Production, Consumption and Trade of Caustic Soda

                  300
                                                                                                258.7
                                                                                     245.3              247.1
                  250                                              218     225.4
                                                        199                          242.2      248.3   244.3
                                   179.8   186
                  200
'000' M. Tons




                         149.7                                     206.7   199.4
                                                       187.5
                  150
                                           164.4
                         145.5     151.1
                  100

                   50              28.7    21.7                             26
                          4.2                          11.5        11.3               3.5        10.6        3
                    0        0       0       0.1     0.1     0.1     0       0.4     0.2     0.2
                        2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

                                       Production           Consumption            Imports         Exports

                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,                                         Carpet Industry,
                                                                            4
                consumption, imports                   Vegetable Ghee                       Others, 4
                                                           & Oil, 5
                and exports of caustic
                                                                                                                    Textiles, 43
                                                    Oil & Gas, 6
                soda of last nine years
                                                  Fertilizer, 6
                are given below:
                        Source: Federal          Pulp & Paper, 6

                   Bureau of Statistics
                                                     Pow er Plant, 7
                Local     Sector    wise
                Consumption                                                    Soap &
                                                                            Detergents, 19
                Alone textile sector of




                 Chapter 5                                                                                   Page 8 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.

                                Capacity & Demand of Caustic Soda in Pakistan
                          0.5
                         0.45
Million Tons per Annum




                          0.4
                         0.35
                          0.3
                         0.25
                          0.2
                         0.15
                          0.1
                         0.05
                           0
                                2007 2008   2009 2010   2011 2012 2013   2014 2015 2016   2017 2018   2019
 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


                                                Capacity           Demand




                  Chapter 5                                                                 Page 9 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 10 of 50
        TARIFF STRUCTURE OF CHLOR-ALKALI INDUSTRY

                         Sodium                         Locally
                         Chloride                                       Imported
                                                      Manufactured
                        2501.0020
                          20%


                       Electrolysis


                                  Caustic Soda      Caustic Soda
                 Chlorine
                                    2815.1100         2815.1200
                2801.1000
                                  20% (5%, SRO       Rs. 4000/MT
                  10%
                                      567)         (20%, SRO 565)


                                     Water                            Hydrochloric
                                                                         Acid
                                Chlorine          Absorption
                                                                       2806.1000
                                                                         10%
  Lime Stone
   2521.000                                                             Calcium
     10%                                                                Chloride
                            Hydrochloric Acid    Acid Treatment
                                                                       2827.2000
                                                                          5%

                                                                        Sodium
                                                                      Hypochlorite
                                Chlorine           Reaction
                                                                       2828.9000
                                                                          5%
                                                                       Bleaching
                                                                         Powder
  Lime Stone                    Chlorine           Reaction
                                                                        2828.1010
   2521.000
                                                                           5%
     10%
                                                                       Ammonium
                                                                         Chloride
  Ammonia                   Hydrochloric Acid      Reaction             2827.1000
  2814.1000                                                           5% (0%, SRO
     5%                                                                   565)
                                                                       Magnesium
                                                                         Chloride
  Magnesite                 Hydrochloric Acid      Reaction
                                                                        2827.3100
  2519.1000
                                                                           5%
     5%

                                                                     Ferric Chloride
  Iron Waste                Hydrochloric Acid      Reaction            2827.3900
   7204.0000                                                               5%
      0%
                                                                     Nickel Chloride
 Nickel Waste                                                          2827.3500
                            Hydrochloric Acid      Reaction
  7503.0000                                                           5% (0%, SRO
     5%                                                                   565)




Chapter 5                                                                Page 11 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%
      Middle East
          4%

          Africa
                                                                     India
           2%
                                                                      6%
            South East        Eastern                         S. America
               Asia           Europe          Western            0.47%
                1%              7%            Europe
                                               13%




Chapter 5                                                                    Page 12 of 50
                   Global Production Breakup of Soda Ash


                       China
                        48%

      Middle East
          3%                                                  USA
                                                              23%

          Africa
           2%                                              India
            South East                                      5%
              Asia                            S. America
               1%                                0.18%
                      Eastern       Western
                       Europe       Europe
                         6%          12%



                    Global Demand Breakup of Soda Ash
                    China
                     45%
                                                           USA
 Middle East                                               14%
     4%



     Africa                                                India
      2%                                                    7%

    South East                                    S. America
      Asia                                           5.07%
       5%                           Western
                      Eastern       Europe
                      Europe         15%
                        3%




Chapter 5                                                           Page 13 of 50
Top 10 Exporters:




Top 10 Importers:




Chapter 5           Page 14 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 15 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 16 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 17 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 18 of 50
        TARIFF STRUCTURE OF SODA ASH INDUSTRY


                                         Locally
                                                             Imported
                                       Manufactured




            Lime Stone                  Rock Salt
             2521.0000                  2501.0020
               10%                        20%




                         Reaction




                           Sodium                     Calcium Chloride
                         Bicarbonate                     2827.2000
                         (Raw form)                         5%




                  Sodium
                Bicarbonate
                                       Soda Ash
               (Food Grade)
                                       2836.2000
                 2836.3000
                                         10%
              20%(10%, SRO
                    567)




Chapter 5                                                          Page 19 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 20 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 21 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:



    Material                  Brief Description                     Major End Uses
                                                            Household             articles,
Polyethylene        A semi crystalline         lightweight
                                                            packaging,             bottles,
(PE)                thermoplastic.
                                                            containers and pipes.
                                                            Woven              bags/cloth,
                    A thermoplastic with low specific
Polypropylene                                               household             articles,
                    gravity, high stiffness and good
(PP)                                                        furniture, industrial items
                    tensile strength.
                                                            and packaging.
                    A colorless rigid material with limited
Polyvinyl           heat stability with a tendency to Pipes & fittings, wire and
Chloride (PVC)      adhere to metallic surface when cables, footwear.
                    heated.
Polystyrene (PS)    A hard, rigid transparent               Electronic, electrical items,
                    thermoplastic with low specific         household articles/
                    gravity.                                appliances and packaging.



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.




Chapter 5                                                                   Page 22 of 50
                              Thermoplastic Consumption Trend

                               300

                               250

                               200
 '000' M. Tons
                               150

                               100

                                50

                                    0
                                        2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
                                         01    02    03    04    05    06    07    08    09
               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        84    87    92    88    91    97       132    23.6   23.56
               (P.V.C)
               Polystyrene (P.S)         11    9     14    15    15    16       16     118.4 121.9




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

               Polyvinyl Chloride
                      24%                                                   Polyethylene
                                                                                40%




 Polystyrene
     5%



                    Polypropylene
                         31%

Polyethylene (PE)


Chapter 5                                                                             Page 23 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:

                                  Imports of Polyethylene


                  300


                  250


                  200


     '000' M. Tons 150


                  100


                   50


                    0
                         1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
                          00    01    02    03    04    05    06    07    08    09
    Polyethylene (P.E)   123   155   157    192   220    232   275    274   267   199


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 24 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.

                                  Price Trend of Imported Polyethylene


                          160
                          140
                          120
                          100
             Rs./ Kg       80
                           60
                           40
                           20
                              0
                                  2001-   2002-   2003-   2004-      2005-       2006-     2007-       2008-
                                   02      03      04      05         06          07        08          09

           Polyethylene (P.E)      35      40      40         60          64         78        95          146
                                                                                                                      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:


                       Per Capita Consumption of Polyethylene

                  50

                  40

                  30
Kg Per Capita
                  20

                  10

                   0
                         N.    W. Africa/                                  Indone Malay Pakist
                                          Japan China              India                       World
                        Ameri Europ M.                                       sia   sia   an

                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




   Chapter 5                                                                                               Page 25 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:

                               Import of High and Low Density Polyethylene

                         160
                         140
                         120
                         100
         '000' M. Tons    80
                          60
                          40
                          20
                           0
                               1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
                                00    01    02    03    04    05    06    07    08    09
           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
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 26 of 50
is given in the graph shown

                                          Imports of Polypropylene


                         250

                         200

                         150
         '000' M. Tons
                         100

                          50

                              0
                                   1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
                                    00    01    02    03    04    05    06    07    08    09

       Polypropylene (P.P)         102    110     144    142    165    188    225     219      210     156
:
The price trend of imported polypropylene is given in the below.

                              Price Trend of Imported Polypropylene


                     140
                     120
                     100
                         80
          Rs./ Kg
                         60
                         40
                         20
                         0
                                  2001-   2002-    2003-   2004-      2005-   2006-    2007-     2008-
                                   02      03       04      05         06      07       08        09
      Polypropylene (P.P)          33      37       42         60      64      78       94.5         137.3




Chapter 5                                                                                                    Page 27 of 50
 Per capita consumption of polypropylene in the world was 4 kg in 1997 and increased to


               Per Capita Consumption of Polypropylene in The World
                       30

                       25

                       20

Kg. Per Capita         15

                       10

                        5

                        0
                            Am eri   W.                       Indon Malay Thaila Pakist
                                         Japan China India                              World
                             ca    Europ                       esia  sia   nd      an

                     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

 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.




 Chapter 5                                                                        Page 28 of 50
                             World Capacities by Region


               35

               30                                                         34


               25

  Million M. 20
                                                20
    Tons     15

               10     13

                                                                               9
                5          7.5                        8                             8
                                 6.7 1                    6.9 1.1                         2
                                         2.6                        2.7                       3
                0
                             2001                         2005                     2010

              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 29 of 50
                     World PVC Capacity Expansion
                               (2005-10)




     Europe                                                      China
                                                                  91%
       4%
  Middle East
      3%                                Asia
           Other                        89%
            6%                                                             Other Asia
                                                                           India
                                                                              4%
                                                                            6%




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
                    35.0

                    30.0                                                                        4.2
                                                                                 4.1
                                                       3.9           4.0
                    25.0        3.9      3.9
                                                                                6.1             6.2
                                                      6.1           6.0
                    20.0       5.6      6.0
  Million M. Tons                                                                              7.8
                                                                                7.6
                    15.0                                            7.2
                              7.0       6.9           7.2
                    10.0
                                                                               12.2        12.9
                     5.0      9.3      9.4           9.9           10.8

                     0.0
                              2000     2001          2002          2003        2004            2005

                       Asia     North America        western Europe          others
In 2005 Asia was leading producer of PVC while North America and Western Europe are



Chapter 5                                                                               Page 30 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.

                             Price Trend of PVC in Asia
              800
              700
              600
            500
   US $ per
            400
   M. Tons
            300
              200
              100
                 0
                     1999    2000    2001    2002    2003     2004     2005
             Asia     550     680     400     500     560      800        760


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 31 of 50
                            Production Cost of PVC (2005)

                350

                300

                250

   US $ per M. 200
      Tons     150

                100

                 50

                  0
                           Middle              W.
                                    Brazil              China           Japan   USA
                            East             Europe
     Production Cost        200      240       270          280          290    305


The average on stream PVC plant sizes is given in the graph below:

                            Average PVC Plant Size in World

                  350
                  300
                  250
                  200
 '000' M. Tons
                  150
                  100
                   50
                       0
                              N.     W.   Middle Latin         E.
                                                       World                    Asia   Africa
                            Americ Europe East Americ        Europe
            Plant Size       347    200      160      159         149     118   117     101


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 32 of 50
                               Average PVC Plant Size in Asia

                 350

                 300

                 250

                 200
 '000' M. Tons
                 150

                 100

                   50

                    0
                                          Asia Exc.                                        South
                         Asia     China               Japan   Pakistan   India   Taiwan
                                           China                                           Korea
            Plant Size   117       97       160        135      100      118      285       327




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 33 of 50
                                                  Local Market Size of PVC

                                          140
                                          120
   '000' M. Tons


                                          100
                                           80
                                           60
                                           40
                                           20
                                            0
                                                  2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
                                                   01    02    03    04    05    06    07    08    09
                          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


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


                                                 Shoes              Others
                                                  4%                 3%
                           Compounding
                               8%
                                                                                           Pipes & Fittings
                     Garden Hose                                                                58%
                         8%

                   Twist / Shrink /
                        Film
                        13%

                           Rigid sheet
                               5%
                                                Artificial
                                                Leather
                                                   1%



This project hopefully will come into production by the end of 2009.




Chapter 5                                                                                                     Page 34 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 35 of 50
                 PVC Industry Tariff Structure

              Locally                Not Locally
                                                              Under Process
            Manufactured            Manufactured



    Up-                         Ethylene                       Chlorine
                                 2901.2100                      2801.1000
  stream                           (5%)                           (10%)




                                    Ethylene Dichloride (EDC)
                                        2903.1500 (5%, 0% SRO 565)




  Mid-                           Vinyl Chloride Monomer (VCM)
 stream                                 2903.2100 (5%, 0% SRO 565)




                                     Poly Vinyl Chloride (PVC)
                                                3904.1090
                                                  (10%)




                                                               PVC Artificial
                           PVC Pipes
                           3917.2390 (20%)                       Leather
                                                                5903.1000 (25%)




                           PVC Sheets                           PVC Shoes
 Down-                     3920.4300 (25%)
                                                                6402.2000 (25%)
 stream                    3920.4910 (25%)
                                                                6402.9900(25%)
                           3920.4990 (25%)




                             PVC
                                                               PVC Flooring
                           Compound                             5904.1000 (25%)
                           3904.2200 (20%)



Chapter 5                                                                   Page 36 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


                        30,000

                        25,000

                        20,000
            M. Tons     15,000

                        10,000

                         5,000

                             0
                                  2003-   2004-   2005-    2006-    2007-   2008-
                                   04      05      06       07       08      09
                   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 26,999 21,188 25,244 22,931 23,645 23,558
                   Size




Chapter 5                                                                   Page 37 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:

Rayon                            Glue                            Wood preservative
Dyes                             Film                            Soaps and Detergents
Alcohols                         Explosives                      Pharmaceutical products
Plastics                         Drugs                           Petroleum products
Rubber                           Paints                          Pulp and paper
Ether                            Food containers


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




Chapter 5                                                                     Page 38 of 50
                             Production Units & Capacity
                                                                        Capacity
  S.#                            Plant Name
                                                                     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
          Faras Combine Marketing Company (Pvt) Ltd. Bhai
    7     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 39 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

                             2001-       2002-     2003-     2004-     2005-     2006-     2007-     2008-
 Units         Source         2002        2003      2004        05        06        07        08        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 40 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 41 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 42 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 43 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 44 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 45 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:

                                                                              Pigment
                         Disperse
                                                                              Powders        Synthetic
                          Dyes &      Acid        Direct       Reactive
 Company        Year                                                          & Prep.         Organic        Total
                           Prep.      Dyes        Dyes          Dyes
                                                                                based        Products
                          thereof
                                                                               thereof
HS Code                  32041100    32041200    32041400      32041600       32041700       3204.2000

              Capacity           -     400.00      500.00       3,000.00       6,000.00                  -   9,900.00
Sandal        2005~06            -      78.37       20.30       1,567.30       2,635.75                  -   4,301.72
Dyestuff
Industries    2006~07            -      52.70       13.43       1,367.60       2,636.79                  -   4,070.51
Limited.      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
              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
Clariant      2006~07      363.00      426.00      214.00       2,209.00        409.00          565.00       4,186.00
Pakistan
Limited.      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
              Capacity           -     300.00      210.00          50.00         10.00           90.00        660.00
Sardar        2005~06            -     180.00       70.00          26.00           2.00          80.00        358.00
Dyes
              2006~07            -     210.00       72.80          68.42                 -       84.70        435.92
(Pvt.)
Limited.      2007~08            -                                                                                -
              2008~09            -     118.00       54.00          50.00           1.00          85.00        308.00
              Capacity     300.00      300.00      300.00         800.00        300.00          100.00       2,100.00
Chemi         2005~06       19.40       47.58        8.05         390.10         40.28            6.10        511.51
Dyestuff
              2006~07            -           -             -              -              -               -        -
Industries
(Pvt.) Ltd.   2007~08            -           -             -              -              -               -        -
              2008~09            -           -             -              -              -               -        -
              Capacity           -           -             -              -    1,200.00                  -   1,200.00
Aqsa          2005~06            -           -             -              -              -               -        -
Dyestuff
              2006~07            -           -             -              -              -               -        -
Industries
(Pvt.) Ltd.   2007~08            -           -             -              -              -               -        -
              2008~09            -           -             -              -              -               -        -
              Capacity           -           -             -    1,000.00                 -     1,200.00      2,200.00
Descon        2005~06            -           -             -              -              -      785.00        785.00
Chemical
              2006~07            -           -             -              -              -               -        -
s (Pvt.)
Limited.      2007~08            -           -             -              -              -               -        -
              2008~09            -           -             -              -              -               -        -




Chapter 5                                                                           Page 46 of 50
             Capacity           -     30.00           -     35.00        15.00               -      80.00
Chemical
Processin    2005~06            -     25.00           -     30.00        10.00               -      65.00
g
             2006~07            -          -          -          -           -               -         -
Industries
(Pvt.)       2007~08            -          -          -          -           -               -         -
Limited.
             2008~09            -          -          -          -           -               -         -
             Capacity                                                 5,000.00                    5,000.00
M.N.         2005~06                                                    989.30                     989.30
Chemical
             2006~07                                                  1,150.00                    1,150.00
Industries
(Pvt) Ltd.   2007~08                                                  1,495.00                    1,495.00
             2008~09                                                  1,764.00                    1,764.00
             Capacity                300.00                                                        300.00
Shafi
Reso-        2007~08                  38.00                                                         38.00
Chem
             2008~09                  44.00                                                         44.00
             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
  TOTAL      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 47 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 48 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
                             2002-    2003-      2004-   2005-   2006-   2007-    2008-
   Product          Units     03       04         05      06      07      08       09

Paints &
                     M.T      3,899   5,406 15,023 17,148 23,935 26,308 29,830
Varnishes (s)

Paints &             Th.
                             46,535 38,115 41,093 46,638 53,298 57,103 62,756
Varnishes (l)       Litres


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 49 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 5                                                                    Page 50 of 50
                                      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           Gypsum
               Blocks
         (ii)  Hydrated Lime/Lime Plaster Substitute for             Lime Stone
               Cement
         (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                Coal
               chemicals                                             (gasification/Liquefaction)
         (ii)  Bio-Fuels                                             Jetropha/Oil Seeds
         (iii) Solar Panels, batteries and associated systems        Solar Energy


Chapter – 6                                                                       Page4 of 5
                  for heating/electrification

     5. Oils and Fats Industry
        Oleo Chemicals, Fatty Acids, Fatty Alcohols, Fatty       Vegetable Oils
        Amines and Amides and a large number of
        downstream products.
     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 – 6                                                                Page5 of 5
                                      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
                                                              No of
                                                CD%
              Chapter                                         Tariff
                                               2010-11
                                                              lines
                                                  0              3
                                                  5            166
28) Inorganic chemicals; organic or              10             32
inorganic compounds of precious
                                                 15              2
metals, of rare-earth metals, of
radioactive elements or of isotopes.             20              2
                                                 25              3
                                             Rs.4000/MT          1
28 Total                                                       209
                                                  0              6
                                                  5            442
                                                 10             32
29) Organic chemicals
                                                 15              5
                                                 20             14
                                                 25             13
29 Total                                                       512
                                                  5              9
                                                 10             32
30) Pharmaceutical products
                                                 20             10
                                                 25              3
30 Total                                                        54
                                                 0              23
31) Fertilizers
                                                 5               1
31 Total                                                        24
                                                  0              6
32) Tanning or dyeing extracts;                   5             16
tannins and their derivatives; dyes,             10             10
pigments and other colouring
matter; paints and varnishes; putty              15             19
and other mastics; inks                          20             28
                                                 25              1
32 Total                                                        80
33) Essential oils and resinoids;                10             16
perfumery, cosmetic       or    toilet
preparations                                     35            30
33 Total                                                       46
34) Soap, organic surface-active                  0            4
agents,    washing    preparations,               5            5
lubricating preparations, artificial
waxes, prepared waxes, polishing                 10            8
or scouring preparations, candles                15            1
and similar articles, modelling                        20                   15
pastes, "dental waxes" and dental
preparations with a basis or plaster
                                                       25                    6
                                                       35                    4
34 Total                                                                    43
                                                        0                    1
                                                        5                    3
35)    Albuminoidal     substances;
                                                       10                   11
modified starches; glues; enzymes
                                                       15                    2
                                                       20                    7
35 Total                                                                    24
36)    Explosives;    pyrotechnic                      20                    5
products;    matches;  pyrophoric
alloys;    certain    combustible                      25                   3
preparations
36 Total                                                                     8
                                                        5                   33
                                                       10                   1
37)        Photographic             or                 15                   1
cinematographic goods                                  20                   1
                                         Rs. 5 per meter plus 5% ad val.    2

37 Total                                                                     38
                                                        0                    8
                                                        5                   40
38)     Miscellaneous       chemical                   10                   28
products                                               15                   13
                                                       20                   23
                                                       25                    5
38 Total                                                                    117
                                                        0                    3
                                                        5                   31
                                                       10                   24
39) Plastics and articles thereof
                                                       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%
            PCT                                                                              CD%
   S.#                                            DESCRIPTION
           CODE                                                                             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

                     - - - Dextrose and saline infusion solution, without saline infusion
   18    3004.9040                                                                            20
                     set
   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

                 -Gel preparations designed to be used in human or veterinary
                 medicine as a lubricant for parts of the body for surgical operations
24   3006.7000                                                                           20
                 or physical examinations or as a coupling agent between the body
                 and medical instruments

25   3006.9100   - -Appliances identifiable for ostomy use                               20
26   3006.9200   - -Waste pharmaceuticals                                                20
                 - - - Tanning substances, tanning preparations based on chromium
27   3202.9010                                                                           20
                 sulphate
                 -Synthetic organic products of a kind used as fluorescent
28   3204.2000                                                                           20
                 brightening agents
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
                 - - - Of a kind used in the leather or like industires including fat
65   3403.9110                                                                             20
                 liquors

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

                 -Products suitable for use as glues or adhesives, put up for retail
74   3506.1000                                                                             20
                 sale as glues or adhesives, not exceeding a net weight of 1 kg

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

                 Safety fuses; detonating fuses; percussion or detonating caps;
79   3603.0000                                                                             20
                 igniters; electric detonators.

                 -Liquid or liquefied gas fuels in containers of a kind used for filling
80   3606.1000   or refilling cigarette or similar lighters and of a capacity not          20
                 exceeding 300cm3

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

                 Preparations and charges for fire- extinguishers; charged fire-
86   3813.0000                                                                             20
                 extinguishing grenades.

                 Organic composite solvents and thinners, not elsewhere specified
87   3814.0000                                                                             20
                 or included; prepared paint or varnish removers.

88   3819.0010   - - - Hydraulic brake fluids                                              20
89   3819.0090   - - - Other                                                               20
90    3820.0000   Anti-freezing preparations and prepared de-icing fluids.                20

                  Diagnostic or laboratory reagents on a backing, prepared
                  diagnostic or laboratory reagents whether or not on a backing,
91    3822.0000                                                                           20
                  other than those of heading 30.02 or 30.06; certified reference
                  materials.

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
                  -Wastes of metal pickling liquors, hydraulic fluids, brake fluids and
102   3825.5000                                                                           20
                  anti- freeze fluids
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
                  - - Flexible tubes, pipes and hoses, having a minimum burst
134   3917.3100                                                                           20
                  pressure of 27.6 MPa
                  - - Other, not reinforced or otherwise combined with other materials,
135   3917.3200                                                                           20
                  without fittings:
                  - - Other, not reinforced or otherwise combined with other materials,
136   3917.3300                                                                           20
                  with fittings
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%
           PCT                                                                                CD%
  S.#                                          DESCRIPTION
          CODE                                                                               2009-10
  1     3926.1000   -Office or school supplies                                                 25
  2     3925.9000   -Other                                                                     25
                    -Shutters, blinds (including Venetian blinds) and similar articles and
  3     3925.3000                                                                              25
                    parts thereof

  4     3925.2000   -Doors, windows and their frames and thresholds for doors                  25

                    -Reservoirs, tanks, vats and similar containers, of a capacity
  5     3925.1000                                                                              25
                    exceeding 300l
  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
                 -Polishes and similar preparations for coachwork, other than metal
39   3405.3000                                                                            25
                 polishes
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

                 -Penicillins and their derivatives with a penicillanic acid structure;
47   2941.1000                                                                            25
                 salts thereof
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%
          PCT                                                                              CD%
  S.#                                         DESCRIPTION
         CODE                                                                             2009-10
                    -Organic surface-active products and preparations for washing the
   1    3401.3000   skin, in the form of liquid or cream and put up for retail sale,        35
                    whether or not containing soap
   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
                    - - "Agarbatti" and other odoriferous perparations which operate by
   8    3307.4100                                                                           35
                    burning
  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-    Existing Bound
                                                  Bound Rate at different coefficients
       11)                Rate
                                          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
      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.




Chapter – 8                                                                   Page 5 of 5
                                                                          Annexure - B
                                 REFERENCES

Serial                                  Reference
No
   1. Chemical Industry –        http://en.wikipedia.org/wiki/chemical_industry
       Wikipedia. The Free
       encyclopedia
   2. World Industries, World    http://www.economywatch.com/world-industries/
       Industry
   3. The Chemical Industry      http://www.politics.co.uk/opioion-
                                 formers/Chemical-Industries-Association/the-
                                 chemical-i
   4.  Industry – Wikipedia.     http://en.wikipedia.org/wiki/Industry
       The Free encyclopedia
   5. SIC 3341 Secondary         http://www.referenceforbusiness.com/industries/Pri
       Smelting and Refining     mary-Metals/Secondary-Smelting-Refi
       of Nonferrous Metals
   6. Industry: Facts,           http://www.absoluteastronomy.com/topics/industry
       Discussion Forum, and
       Encyclopedia Article
   7. Primary Sector of          http://www.economicexpert.com/a/primary:ssector:
       Industry Industries Raw   of:industry.htm
       Materials Considered
   8. Chemical industry          http://www.answers.com/topic/chemical-industry
   9. Technological Strategies   Research Scholar, Department of Humanities and
       and Exports: A study of   Social Sciences, Indian Institute of Technology,
       Indian Basic Chemical     Bombay
       Industry
   10. Bio-refineries for the    Dr...Ir. Ed de Jong1, Drs.ing. Rene van ree rea2, Ir,
       chemical industry – A     Robert van Tuil1, Dr.Ir.Wolter Elbersen1
       Dutch point of view
   11. Research – Energy – The   http://europa.eu/research/energy/nn/nn_pu/renews/
       bio-refinery concept      003/article_2293_en.htm
   12. Chemical Industry in      Source: Central Statistical Organization, Ministry of
       India                     Statistics and Programme Implementation,
                                 Government of India.
   13. Bio-refineries for the    Dr...Ir. Ed de Jong1, Drs.ing. Rene van ree rea2, Ir,
       chemical industry – A     Robert van Tuil1, Dr.Ir.Wolter Elbersen1
       Dutch point of view
   14. Development of            N.S. Maina – Department of Chemical Engineering,
       Petrochemicals from       Ahmadu Bello Bello university,Zaria, 810261. E-
       natural gas (methane)     Mail : nsmaina@yahoo.com



_____________________________________________________________________
References                                                  Page 1 of 3
   15. Source of Bio-mass        http://www.brighthub.com/engineering/mechanical/
       Materials, What are Bio- articles/6362.aspx
       mass Source ? What is
       Bio-mass Energy?
   16. Secondary Smelting and    http://www.referenceforbusiness.com/industries/Pri
       Refining of Nonferrous    mary-Metals/Secondary-Smelting-Refi
       Metals
   17. Industry Sectors –        http://www.albertacanada.com/industries/861.html
       Chemical &
       Petrochemicals
   18. Chemical Industry –       http://en.wikipedia.org/wiki/steel
       Wikipedia The Free
       encyclopedia
   19. A advanced Steel Making www.uktradeinvest.gov.uk
   20. Vision 2020 – Chemical    Technology Road Map
       Industry of the Future
   21. Singapore’s               Science and Public Policy October 2001
       manufacturing Sector as
       engine for economic
       growth: past, present and
       future
   22. Technology                Mun-Chow Lai” and Su-Fei Yap”
       Development in Malaysia
       and the newly
       industrializing
       economies: A
       comparative analysis
   23. Towards a vision 2030     Khan Muhammad Tariq Yousuf Institute of
       and the challenges of     Developing Economies, Japan External Trade
       openness to Pakistan      Organization
       economy:
   24. United Nations            Science and Technology for Africa’s Development
       Economic Commission       http://www.un.org./depts/eca/divis/fssd/
       for Africa
   25. Commercializing           Annual Dass is with Wipro Limited, Yokohama
       technology Solutions      City, Japan 2208109(phone:+81-80-3206-2139,
       Moving from products to fax+81-45-650-3951;email:
       Solutions                 anand.dass@wipro.com).
   26. Survey of Trends in the   http://www.nistep.go.jp/achieve/abs/eng/rep038e/rep
       Development of Science 038ae.html
       and Technology Parks
       NISTEP Report No. 38
   27. Failure of the Miracle:   Hhp://www.gongol.com/research/economies/
       Why South Korea’s         ethaebol/;
       Managed Economy Is
       Dying
_____________________________________________________________________
References                                                             Page 2 of 3
   28. Towards the furthering of   Keynote speech by Osamu Watanable, Chairman
       export promotion and        and CEO of JETRO at the Management
       industrial development of   Development Centre, Cairo – Egypt on June 16th
       Egypt – looking at          2004.
       Japan’s Experiences.
   29. Technology Vision 2020      The US Chemical Industry 1155 16th Street NW
                                   Washington DC 20036 (202) 452 8917
                                   http://www.acs.org
   30.   Jaebeol – Wikipedia –     http://en.wikipedia.org/wiki/chaebol
         The Free encyclopedia     Japan’s Keiretsu
   31.   Zaibatsu –                http//www.encyclopedia.com/doc/1048-
         Encylcopedia.com          zaibatsu.html.
   32.   Keiretsu Economy – New http://www.thefreelibrary.com/Keiretsu+Economy –
         Economy? Japan’s          New + E economy% 3F+japan’s Multinational+E
         Multinational Enterprises
         from a Post Modern
         perspective.
   33.   Various                   Five year plan
                                   Economic Surveys of Pakistan
                                   World Bank ADB Reports




_____________________________________________________________________
References                                                  Page 3 of 3

				
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