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GAIN Report - PK8033 Page of



USDA Foreign Agricultural Service

GAIN Report

Template Version 2.09





Global Agriculture Information Network

Voluntary Report - Public distribution

Date: 12/19/2008

GAIN Report Number: PK8033

PK8033

Pakistan

Bio-Fuels

2008

Approved by:

Joseph M. Carroll



Agricultural Counselor

U.S. Embassy Islamabad



Prepared by:

Mohammad Shafiq Ur Rehman

Agricultural Specialist

Report Highlights:
Pakistan has the potential to produce significant quantities of bio-fuels – ethanol and bio-diesel. Input availability and the infrastructure for ethanol manufacturing exist, but the safe handling of blending with petrol and the establishment of regulatory measures will take some time.

Includes PSD Changes: No

Includes Trade Matrix: Yes

Annual Report

Islamabad [PK1]

[PK]


Table of Contents

Executive Summary 3

ETHANOL 3

Fuel Grade Ethanol 3

Hydrous Ethanol Production and Infrastructure 4

Ethanol Export 4

Years 4

Molasses Production 4



Transportation and Storage 5

Pakistan Ethanol Manufacturers Association 5



BIO DIESEL 5

GOP initiatives 5



OTHER RELEVANT REPORTS 6



Executive Summary

Pakistan has the potential to produce significant quantities of bio-fuels – ethanol from molasses and biodiesel from non-food crops. The sugar sector has the capacity to produce over 2.5 million metric tons (MMT) of molasses available for processing into ethanol. Countrywide, nineteen operating distillery units have an annual ethanol production capacity of over 500,000 tons. In 2007, Pakistan exported more then 273,000 tons of ethanol (hydrous plus fuel ethanol) with higher production prospects expected in 2008. The GOP has recently initiated plans to produce bio-diesel from non-edible oils and second generation crops.



ETHANOL

A looming energy crisis limits Pakistan’s ability to sustain strong economic growth over the long term. Import costs of crude oil and petroleum products have increased dramatically since 2005, encouraging the government to look to alternative fuel sources. The GOP is looking at ways to contain rising costs of oil imports by promoting the use of bio-fuels. Ethanol, derived from molasses is currently the most economically viable bio-fuels that can be produced domestically for blending with gasoline.


Pakistan is the world’s seventh largest producer of sugarcane. The sugar industry is Pakistan’s second largest industry after textiles, contributing 2 percent to GDP and 13 percent to the manufacturing sector. There are 84 sugar mills in the country, with a crushing capacity of 465,000 tons of cane per day. Cane molasses is one of the main by-products; its quantity varies depending upon the size of sugarcane crop. To maximize returns, the sugar industry processes molasses to produce anhydrous and hydrous ethanol. There are nineteen distillery units in Pakistan with a processing capacity of more than 2.5 MMT of molasses with a potential production capacity of over half a million tons of ethanol.

Fuel Grade Ethanol

Of the nineteen distillery units currently engaged in the processing of molasses, only nine have the capacity to produce anhydrous grade (99.7%) ethanol fit for blending with gasoline. The cost of upgrading the ten other units would require an investment of approximately Rs. 200 million ($2.8 million) per distillery.


The total fuel ethanol production capacity of the existing nine units is estimated at 275,000 tons per annum. Production of fuel grade ethanol is expected to increase in 2008 due to greater availability of molasses, favorable market conditions and higher demand in the international market. The Pakistan oil industry needs to establish the requisite infrastructure necessary for successful marketing of ethanol and gasoline-ethanol blends. Neither the oil nor the automobile industry in Pakistan has sufficient knowledge and experience in the use of ethanol blends in gasoline. Therefore, a great opportunity exists for foreign investment in this sector.
Petrol consumption in Pakistan in 2006 totaled 1.14 million tons. In 2006, a pilot project was initiated by the Alternate Energy Development Board (AEDB) Government of Pakistan through the state run Pakistan State Oil (PSO) to assess the introduction of blended petrol with 10 % locally produced fuel ethanol. Though successful trials were conducted, no tangible progress has been made to date, which is unfortunate as Pakistan currently produces sufficient ethanol to meet the 10 percent blended threshold, based on current gasoline consumption levels. Some sources report that the Oil Marketing Companies (OMC), a strong cartel, views the government initiative with skepticism and hence does not support the AEDB.

In a separate move, the Federal government has directed provincial authorities to initiate the sale of blended fuel in their jurisdictions. The Ministry of Food, Agriculture and Livestock (MINFAL) has also been directed to explore other sources of raw material for ethanol production such as maize, wheat, rice, potatoes, and sorghum.


Once a firm decision is taken by the Government of Pakistan, it will take time to determine fuel specifications, establish quality control standards and introduce sound legislation.


Hydrous Ethanol Production and Infrastructure

As most distilleries produce hydrous ethanol, which is 96 percent pure with 4 percent water content, conversion of hydrous ethanol into fuel ethanol/power ethanol will require the introduction of suitable technologies. Presently, molecular sieve technology is being used by all the distilleries in the country. Non azeotropic distillation using benzene or hexane for dehydration to produce fuel ethanol is not used in the country. Therefore, all the hydrous and anhydrous fuel ethanol manufactured in Pakistan is free from carcinogenic substances like benzene and hexane.


The production ratio of molasses to ethanol is 5:1, consequently based on domestic supply availability of molasses; Pakistan has the capacity to produce over 500,000 tons of ethanol. The industry is expected to export around 315,000 tons of ethanol in 2008 as compared to 273,000 tons exported in CY 2007. The export of molasses is declining as increasing quantities of this product are being converted into value added ethanol.

Ethanol Export

Ethanol exports have risen consistently over the past five years, indicating that distilleries are converting larger volumes of molasses into value added ethanol. To date, there is no direct financial assistance or tax incentive provided by the government for the production or marketing of ethanol or ethanol blended petrol. Nor does the Government of Pakistan (GOP) currently support any research and or development projects for ethanol production. Never-the-less, increasing volumes of ethanol will be produced in response to its competitive use in the world markets.


Pakistan Molasses Production:

Years

Molasses Production

(Million Metric Tons)

2002-2003

2.048

2003-2004

2.122

2004-2005

1.497

2005-2006

1.438

2006-2007

1.911

2007-2008*

2.650

* projected

Ethanol Exports:-




Year

Ethanol Export

(Metric Tons)

2003

61,710

2004

99,711

2005

122,104

2006

169,233

2007

273,079

2008*

315,846

*projected

Transportation and Storage

Being an inflammable commodity, ethanol handling needs extra care during transportation and storage. There are specially built road liners/tank lorries with a loading capacity of 24 to 36 tons for carrying ethanol. Similarly, extra care has to be taken during storage and tanks have to be segregated by walls as a safety measure in case of fire. Moreover, storage areas need to be fully equipped with fire-fighting equipment to counter fire hazards.



Pakistan Ethanol Manufacturers Association

The Pakistan Ethanol Manufacturers Association (PEMA) has been established and is currently under registration with the Ministry of Commerce. PEMA serves as the focal point for the dissemination of information regarding the production and marketing of ethanol in Pakistan. PEMA management can be consulted by any interested company/individual in setting up business contacts in Pakistan leading towards joint ventures and commercial trade. The association is looking to collaborate with international companies having experience in second generation ethanol manufacturing.



BIO DIESEL

Pakistan has just initiated research and development (R&D) activities in Bio-diesel to be offered for sale by 2015. A positive aspect of new efforts is directed to produce second generation bio-fuels mainly from non edible plants/foods. Scientists are also considering the development of bio-diesel from waste vegetable oil (WVO), with the material to be collected from domestic and industrial sites and treated through a process called transesterification. Bio-Diesel is usually blended with hydro-carbon diesel with ratios 05-95 (called B-5), 10-90 (called B-10) or 20-80 (called B-20).


The universally understood advantages of using Bio-Diesel are:
• Utilization of Domestic Natural Resources as Raw Material

Promotion of Green Resources

• Substitute to Hydrocarbon Diesel

• Cheaper Infrastructure required

• Reduced Engine Emissions

• Availability Possible in Far Flung Rural Areas

• No Competition


GOP initiatives


In May 2008, The Economic Coordination Committee (ECC) of the Cabinet took a decision to initiate research and development (R&D) activities in Pakistan. To support this initiative, the GOP has allowed exemption of custom duty and sales tax on the import of plant, machinery, equipment and specific items used in production of Bio-diesel. The Pakistan State Oil (PSO) company has begun work on a bio-diesel project to meet government’s deadline of blending five per cent bio-diesel with conventional diesel by 2015, and 10 per cent by 2025. PSO has selected non-edible plants/seeds species, such as castor, pongame, jojoba, Jatropha, etc., for production of bio-diesel. However, the company is currently focusing on Jatropha plant/seed for its better qualities as a substitute of petroleum diesel. Jatropha can be grown on marginal lands, thus its plantation would not compete directly with other food crops, such as wheat, corn, sugarcane, rice and cotton. Many countries in Europe, U.S, Brazil, Malaysia, and India are using Jatropha as well as other edible and non-edible plants/seeds for production of bio-diesel.

Economically, if proved successful, it would help reduces imports and would afford improved security of energy supplies for a country like Pakistan.



OTHER RELEVANT REPORTS





REPORT #

SUBJECT

DATE SUBMITTED

PK:7009

Bio-Fuels 2007

06/12/2007

PK:8016

Sugar Annual 2008

04/152008

PK:7024

Sugar semi Annual 2007

09/28/2007

To reach FAS/Islamabad, email us at AgIslamabad@usda.gov




UNCLASSIFIED USDA Foreign Agricultural Service


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