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USDA Foreign Agricultural Service

GAIN Report
Global Agriculture Information Network
Template Version 2.09

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]
GAIN Report - PK8033 Page 2 of 6

Table of Contents

Executive Summary.................................................................................................3
ETHANOL.................................................................................................................3
Fuel Grade Ethanol..................................................................................................3
Hydrous Ethanol Production and infrastructure.............................................................4
Ethanol Export........................................................................................................4
Transportation and Storage.......................................................................................5
Pakistan Ethanol Manufacturers Association.................................................................5
BIO DIESEL.............................................................................................................5
GOP initiatives.........................................................................................................6
OTHER RELEVANT REPORTS....................................................................................6

UNCLASSIFIED USDA Foreign Agricultural Service


GAIN Report - PK8033 Page 3 of 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 Pakistans 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 worlds seventh largest producer of sugarcane. The sugar industry is
Pakistans 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.

UNCLASSIFIED USDA Foreign Agricultural Service


GAIN Report - PK8033 Page 4 of 6

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

UNCLASSIFIED USDA Foreign Agricultural Service


GAIN Report - PK8033 Page 5 of 6

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

UNCLASSIFIED USDA Foreign Agricultural Service


GAIN Report - PK8033 Page 6 of 6

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 governments 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