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. CHAPTER 1 Scope Of The World’s Chemical Industry 1. 1 Scope of the chemical industry. . 2 Category wise breakdown of the chemical industry. 1. 3 Research and development in the chemical industry. 1. 4 Classification of the chemical industry development of Pakistan – Vision 2030. CHAPTER 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. • Crude oil based petroleum and petrochemical refineries. • Olefin petrochemical complex. • Aromatic petrochemical complex. 2. 2

Natural gas based chemicals. 2. 3 Alternative feedstocks for the production of commodity chemicals. 2. 4. Feedstocks derived from metallurgical plants and polymers, materials technology and metallurgical processes. 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. 2. 6 Agro based feed stocks. 2. 7 Sources of raw materials and process technologies for chemical industry development in Pakistan. 2. 8 Categorization of secondary chemical industries in Pakistan. CHAPTER 3

The present status of the chemical industry in Pakistan. 3. 1 General 3. 2 The structure of Pakistan’s imports and exports. 3. 3 The role of government in industrial development. 3. 4 Limitations of Pakistan’s industrial policies for chemical industry development. i-vii 1 1 1 4 5 1 1 1 3 5 7 10 13 17 17 20 21 1 1 3 8 12 Continued……. Page 1 of 2 CHAPTER 4 4. 1 Modernization of the national innovation system for chemical industry development in Pakistan. • Limitations of Pakistan’s N. I. S. • The scope of Engineering Development Board with additional responsibility for technology development and proposed tructure of Technology Development Board. 4. 2 The role of the national committee in research and technology development. 4. 2. 1 The current status of R&D in Pakistan. 4. 2. 2 National committee for research and technology development. 4. 3 National committee for the development of software and hardware for the commercialization of technologies. 4. 4 National committee for the development of technology policy and investment planning. 4. 5 Human resource development. 4. 6 Integrated plan for the development of a national innovation system. 4. 7 Industrial master plan. CHAPTER 5

Profiles of Present Secondary Chemical Industries of Pakistan. (Section 1) Caustic soda (Section 2) Soda ash & sodium bicarbonate Section -3) Petrochemicals 1 2 4&5 5 6 7 10 13 15 16 20 1-11 12-19 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. 7. 2 Tariff escalation, description and peaks. 7. 3 Other imports duties/taxes. 7. 4 Competitiveness of exports from Pakistan. CHAPTER 8 Conclusions and Recommendations. Attachments Annexure “A” References 1 2 3 4 1-5 -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 ased 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 exportoriented 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. %, 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 exportoriented 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 equirements 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. 1. 1 SCOPE OF THE WORLD’S CHEMICAL INDUSTRY 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. . 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 etrochemicals 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 Methane &

Off Gases Gasoline And Motor Spirit Light and Heavy Naphtha Light and Heavy Gas Oil Residue Petrochemical Feedstock Off Gases/Naphtha/Gas Oil Catalyst Cracking Aromatics Steam Cracking 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. ________________________________________________________________________________________ Chapter – 2 Page 3 of 23 STEAM CRACKING OF STEAM NAPHTHA / GAS OIL NAPHTHA / ASSOCIATED GAS / GAS OIL STEAM Ethylene REACTOR Steam to Feed ratio 0. 25 to 0. 9 Temperatures 820 to 840oC Propylene Butylenes Fig 2. 2 OLEFINS AND PETROCHEMICAL INTERMEDIATES BASED SECONDARY


ASSOCIATED GASES OR NAPHTHA STAGE III FABRICATION OF SECONDARY CHEMICALS FOR THE PRODUCTION OF CONSUMER PRODUCTS. (LOW/MEDIUM TECHNOLOGY BASED PRODUCTS) Fig 2. 3 ________________________________________________________________________________________ Chapter – 2 Page 4 of 23 Other Olefins Based SecondaryChemicals Naphtha Steam Cracker (Olefins) Ethylene & Derivatives Ethylene EDC Ethylene Glycol Ethylene Oxide HDPE LDPE LLDPE EPDM Ethanol Alpha Olefins Vinyl Acetate Ethyl Chloride / Ethyl Benzene Propylene & Derivates Propylene Acrylonitrile Cumene Polypropylene Acrylic Acid Butanol 2-Ethyl Hexanol Iso-Propanol Nonene

Dodecene Propylene Oxide Acetone Acrylic Fiber Butadiene & Derivatives Butadiene ABS Adiponitrile /HMDA Nitrile Rubber Poly-Butadiene Poly chloroprene SB Latex SB Rubber Fig- 2. 3(a) Aromatic Petrochemical Complex Naphtha and gas oil is also catalytically reformed at high temperatures in the presence of catalysts to yield aromatic intermediate chemicals, such as benzene, toluene and xylenes (Fig 2. 4). These are liquids at ordinary temperatures and pressures and can be easily transported to desired locations where they are used as raw materials in the production of a variety of secondary chemical products as shown in Fig. . 5. ________________________________________________________________________________________ Chapter – 2 Page 5 of 23 CATALYTIC REFORMING OF NAPHTHA CATALYTIC (AROMATIZATION REACTION) NAPHTHA / ASSOCIATED GAS / GAS OIL Benzene CATALYTIC REACTOR STEAM Toluene Xylenes Fig-2. 4 ` Aromatics Based Secondary Chemicals Naphtha Catalytic Reformer (Aromatics) Toluene & Derivatives Benzene TDI Caprolactam Benzoic Acid TNT Xylenes & Derivates Orthoxylene Paraxylene Metaxylene DMT TPA Bottle Resin Polyester Fiber Fiber Chip Film Resin Phthalic Anhydride PET Benzene & Derivatives Benzene ) Cumene ) Phenol ) Cyclo Hexane )

Ethyl Benzene ) Adiplc Acid ) Alkyl Benzene ) Aniline ) Alkyl Phenol ) Chloro Benzene ) Maleic Anhydride ) Nylon Fiber/Resin ) Production of Secondary Chemicals Medium / High Technology Chemicals and Products Production of Primary/Intermediate Chemicals (Highly Sophisticated Capital Intensive) 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 enduse 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. as 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 ) Petroleum Refineries ii) Fertilizers Imported Crude Oil Local Natural Gas, iii) iv) v) vi) Local Materials, Limestone, Clay Imported/Local Ore Locally available ore Local Agricultural Raw Material Cement Iron & Steel Copper Textiles ________________________________________________________