You are on page 1of 8

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res.

, 2012, v3i1, 69-76

ISSN: 2229-6158

AN OVERVIEW OF BIOFUELS SECTOR OF PAKISTAN: STATUS AND POLICIES Tariq Ali1, Jikun Huang2, ,Jun Yang3 1 Ph.D. student at Center for Chinese Agricultural Policy, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences, Jia 11 Datun Road, Anwai, Beijing 100101, China. E-mail: agri45@gmail.com 2 Director and Professor atCenter for Chinese Agricultural Policy, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences, Jia 11 Datun Road, Anwai, Beijing 100101, China. Email: jkhuang.ccap@igsnrr.ac.cn 3 Assistant Professor at Center for Chinese Agricultural Policy, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences, Jia 11 Datun Road, Anwai, Beijing 100101, China. Email: yjydy.ccap@igsnrr.ac.cn Corresponding author:Tariq Ali Center for Chinese Agricultural Policy, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences, Jia 11 Datun Road, Anwai, Beijing 100101, China. E-mail: agri45@gmail.com. Phone: (92)345-7737237
Abstract The biofuels are important segment of the renewable energy sector and can serve to save foreign exchange and improve environment. At present, Pakistan is producing ethanol from molasses and has the potential to further increase its production from sugarcane crop. The current government policies require blending of biodiesel with petroleum diesel so as to achieve a minimum share of 5% by volume of the total Diesel consumption in the country by the year 2015 and 10% by 2025. Given the status quo, ethanol seems more promising as alternative fuel rather than biodiesel. Also, the government needs to take more serious steps to ensure the blending of ethanol with gasoline as vehicle fuel in the country. Keywords: biofuels, status, policy, Pakistan Classification: P28, Q42, Q48

1. Introduction In recent years Pakistan has experienced impressive real GDP growth (ADB, 2008). The gross domestic product (GDP) growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. The expanding economy needs ever increasing supply of energy. 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 in recent past. Studies _ ______________________________ Acknowledgements: The authors wish to
acknowledge the Higher Education Commission of Pakistan and Chinese Academy of Sciences for funding this research

suggest that the costs associated with pollution in Pakistan may be as high as 5 % of GDP(Rashid and Altaf, 2008). Many cities in the country are particularly susceptible to the health hazards of environmental degradation. Urban air pollution in Pakistan is estimated to be severaltimes higher than the World Health Organizations minimum standards. The largest contributors to air pollution are vehicular emissions of greenhouse gases, sulfur oxides, and particulate matter (ADB, 2008). Accompanied with the growth is the rising energy dependency of the economy. For example, petroleum consumption rose from 10.98 million

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

69

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

tons in 1991-92 to 17.91 million tons in 2008-09; a staggering 63% hike. During the same period Pakistan has increased oil imports by more than 100% in quantity terms (GOP, 2010a). Spurred by increasing population, more motor vehicles and industrialization, Pakistan would face even increased demand in energy in future. While fossil fuels are still accepted to play dominant role in the energy mix of the country, however, government is seeking to explore alternative energy resources to ease the pressure on its depleting energy resources and to reduce the import bill from oil imports. Biofuels, the most commonly used renewable energy resources, is one of the alternative fuels. Biofuelsare the renewable energy sources produced from biomass. There are two main types of liquid biofuels- i.e. ethanol (ethyl alcohol) produced mainly from corn and sugarcane; and biodiesel produced from edible oils.The government of Pakistan (GOP) is also looking at ways to contain rising costs of oil imports by promoting the use of biofuels. Some policies have been proposed to incentivize the growth of biofuels use and production in the country. While the government has put more emphasis on policies focused on promoting biodiesel production, yet bioethanol has shown more promises as cheap and viable alternative fuel in the country. Pakistan is one of a few countries that can produce bioethanol without subsidy, it is economic viable, and the nation should support bioethanol development at the level that domestic feedstock (sugarcane) can support. In the past, most of the domestically produced ethanol has been exported or used in other

industries and almost none is used as energy source. It is imperative that Pakistan should have a better policy so that rising biofuels can be domestically used and will mitigate the nations energy dependency, instead of exporting it to other countries. The goal of this study is to understand the status and government policies regarding biofuels in Pakistan. This goal would be achieved by overviewing the energy sector of Pakistan, describing the current status and policies on renewable energy in the country. The study is organized as follows. We begin by describing the energy sector of Pakistan in section 2. Section 3 discusses the status, targets and policies of renewable energy in Pakistan, covering all potentially available renewable sources of energy. In the same section, we critically review status, potential, blending targets and policies of ethanol and biodiesel. The final section concludes the study by elaborating some of major restrictions and opportunities for development of successful biofuels sector in the country. 2. Energy sector of Pakistan The phenomenal rise in energy demand in Pakistan in recent years has resulted from industrialization, growth in agriculture and services sectors, urbanization, rising per capita income and rural electrification (NBP, 2008). Inefficient use of energy and its wastages have further widened the demand-supply gap and exert strong pressure on the energy resources in the country. Until recently, the government has employed a demand suppression policy to cope with the perpetual unavailability of energy. Moreover, the economic growth has been seriously dampened by

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

70

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

unavailability of sustained and affordable energy to the industry. The annual growth of primary energy supply increased from 3.17% to 4.3% during 1997-98 to 2006-07. Moreover, increase in number of motor vehicles has also put additional pressure on countrys dwindling energy sources. For example, since 1998, the number of the registered motor vehicles has risen from 4.3 million to 6.56 million in 2010; which is an increase of 52.4% (GOP, 2010b). This trend may well continue to follow in future. Figure 1

In 2006 policy for development of renewables, the government has set various targets to achieve a minimum share of energy from renewable sources in the country. The policy requires the country to develop wind and solar energy to meet at least 5% of total installed capacity through RE resources by 2030 (i.e. 9700 MW); to electrify 7,874 remote, off-grid villages in provinces of Sindh & Balochistan through Renewable Energy and gradually introducebiodiesel fuel blends with petroleum diesel to achieve a minimum share of 5% by volume of the total diesel consumption in the country by the year 2015 and 10% by 2025 (ECC Decision). In last few years, the government has approved several legislations / statutory regulatory orders (SROs) directing at exemption of imported plant, machinery and equipment for renewable energy power generation projects (including Wind energy) from sales tax, income tax and customs duties. As a special focus, the machinery, equipment and specific items used in the production of biodiesel have also been exempted of taxes and duties. 3.1 Ethanol Ethanol, derived from molasses is currently the most economically viable biofuels that can be produced domestically for blending with gasoline (Rashid and Altaf, 2008).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;

Percentage share of primary energy supply from 2006-07 Source: (2009). Muhammad and Ahmed,

3. Renewable energy in Pakistan Given the current global energy scenario in general and Pakistans energy scenario in particular, the adoption and deployment of renewable (RE) technologies makes perfect sense as it inherently favors indigenous, inexhaustible energy resources which also happen to be efficient options by default. This is also in line with the objective of the Government of Pakistan to develop RE technologies in the country so that RE has a share of at least 5% of the overall energy mix by the year 2030 (GOP, 2006).

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

71

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

its quantity varies depending upon the size of sugarcane crop. It has been estimated that around 80 percent of the worlds molasses is used foralcohol production. Molasses is converted into

ethanol (ethyl alcohol) throughbiochemical processes based on fermentation.

Table 1 Sugarcane production in Pakistan during 2007-2010 Area (000 hectares) Province FY* 2007/08 Punjab 827 Sindh 310 Khyber 105. Balochistan 0.50 Total 1240 FY 2008/09 675. 264 105 0.80 1045 FY 2009/10 689 280 110 1 1080 Production (000 MT) FY 2007/08 40,372 18,300 4,800 28.0 63,500 FY 2008/09 32,000 14,760 4,700 40 51,500 FY 2009/10 33,500 15,350 4,700 50 53,600

Note: * Fiscal year in Pakistan, which spans over July 1-June 30. Source: GOP (2010c). Pakistan produces around 2.65 million tons molasses in 2008, most of which was exported to EU countries, earning very little amount of foreign exchange. During 2004, the EU changed its import policy towards Pakistans molasses imports and it was no longer economically beneficial to export raw molasses to EU. Therefore, some of the sugar mills in Pakistan installed ethanol production units to process molasses into a more profitable product. Ethanol recovery from one ton of molasses is estimated at 240 to 270 liters depending on the quality of molasses. If the entire two million tons of molasses are processed in distilleries, ethanol production will be over 0.6 million tones, and on exporting the same at an average price of $360 per ton, the country can earn around $144 million. At present, national output is around 0.123 million tons ethanol that fetches around $44.35 million through exports. The commercial utilization of molasses in the Pakistan is very limited, major portion of the commodity is exported. Presently, 13 distilleries are producing ethanol in Pakistan. Of these 10 are attached with sugar mills, out of which eight are operational and two are nonoperational. Production capacity of 10 distilleries attached with sugar mills is about 143 million liters of ethyl alcohol per annum, which is equivalent to consumption of approximately 0.560 million tons of molasses. In addition, three distilleries not attached with sugar mills are producing 6.5 million liters per annum alcohol and three existing distilleries attached with sugar mills are increasing their capacities. It will expand existing capacity by additional about 105 million liters per annum, augmenting the aggregate capacity with likely production roll out on efficient performance level to 314.5 million liters. It is expected that number of distilleries will increased to 21 with capacity of 504 million liters by 2005-06. Total installed alcohol production capacity is 500 million liters out of which only 2.5 million

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

72

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

liters is locally consumed and rest (397 million liters) are exported. 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. 3.1.1 Fuel grade ethanol Nine out of nineteen ethanol-producing mills are capable of processing anhydrous (99.7%) ethanol, fit for the blending with gasoline. The cost of upgrading a hydrous ethanol unit requires an investment of approximately PKR 200 million ($2.8 million) per distillery.The total fuel ethanol production capacity of the existing nine units is estimated at75,000 tons per annum. Production of fuel grade ethanol is expected to increase in coming years due to greater availability of molasses, favorable market conditions, and most importantly higher demand in the international market (USDA, 2008). Pakistans exports of ethanol have been on the rise in recent years (see Table 2). This trend is likely to continue in the future geared by increasing demand of ethanol in the world market and higher production of ethanol from added volumes of molasses by domestic sugar mills. However, the GOP has not been able to successfully facilitate the usage of this ethanol into domestic market. 3.1.2 Ethanol blending targets and policies During 2006, a pilot project was initiated by the Alternate Energy Development Board (AEDB) of Pakistan through the state run Pakistan State Oil (PSO) to assess the

introduction of blended petrol with 10 % locally produced fuel ethanol. In a separate move, the federal government 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. Table 2 Ethanol exports of Pakistan (million gallons) during 2003-2008 Year Ethanol Export 2003 20.55 2004 33.20 2005 40.66 2006 56.35 2007 90.94 2008 105.18 Source: USDA, 2008. Below we present recent policies and steps that Pakistan has taken to pave a way for ensuring ethanol blending with fossil fuels in the country. During 2009, the Economic Coordination Committee (ECC) of the Cabinet was directed to carry out a study to assess harmful effects of Ethanol-10 (E-10) fuel on motor engines. The plan of E-10 blending with petrol was jointly managed by Ministry of Industries and Production and Ministry of Petroleum (MoP). The ECC had allowed marketing of E-10 blended motor gasoline fuel on trial basis with a view to devising a mechanism for fixing price of molasses to ensure that the cost of Ethanol production remains competitive. ECC proposed to allow exemption of petroleum levy on 10 percent component of E-10 blended motor gasoline and waiving of general sales tax (GST) in the same proportion.

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

73

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

Later one, when the proposal came under discussion, it was emphasized that regulatory duty of 15 percent on molasses should be imposed to check other uses.Petroleum Ministry intimated that introduction of E-10 fuel in transport sector was a pilot move, initially for a period of two years. It was proposed that starting in early 2010; Pakistan State Oil (PSO) would start marketing of E-10 ethanolblended gasoline in Karachi.The Ogra notified the price of E-10 gasoline at PKR 62.61 per liter (about 80 rupees per $US), which was less by PKR 2.5 per liter than the price of petrol, being sold at PKR 65.11 per liter at that time. The government charged PKR 10.88 per liter as petroleum levy (PL) on direct sale to consumers by oil marketing companies (OMCs). The Federal Minister for Petroleum and Natural Resources also considered the possibility of ethanol-blended High Speed Diesel (HSD) marketing. It was also proposed to study the use of pure ethanol in buses to evaluate and assess its suitability. The officials of various government agencies in energy sector are set to visit foreign countries to have firsthand practical knowledge on the product. Until mid of 2010, Pakistan State Oil (PSO) launched E-10 fuel in Punjab, to be available at selected PSO retail outlets in all major cities and towns of Punjab.Along with meeting RE targets of the country, the launch was supposed to serve as a cost-relief to the masses, as it offered price economy and saving of PKR 2.50 per liter than normal unleaded motor gasoline. 3.2 Biodiesel Pakistan has just initiated research and development (R&D) activities in biodiesel to be offered for sale by 2015. A positive aspect of new efforts is directed to produce

second generation biofuels mainly from non-edible plants/foods. Scientists are also considering the development of biodiesel from waste vegetable oil, with the material to be collected from domestic and industrial sites and treated through a process called transesterification. The Economic Coordination Committee (ECC) of the Cabinet took a decision to initiate 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 biodiesel. The Pakistan State Oil (PSO) company has begun work on a biodiesel project to meet governments deadline of blending five per cent biodiesel with conventional diesel by 2015, and 10 per cent by 2025. PSO has selected non-edible plants/seeds species, such as castor, jojoba, Jatropha, etc., for production of biodiesel. Economically, if proved successful, it would help reduces imports and would afford improved security of energy supplies for Pakistan . Alternative Energy Development Board (AEDB) has also initiated biofuels projects in Pakistan. Pilot project for production plant of biodiesel has been implemented. 3.2.1 Biodiesel policy The ECChasapproved the policies related to use of biodiesel as an alternative fuel, which requires the gradual introduction of biodiesel fuel blends with petroleum diesel so as to achieve a minimum share of 5% by volume of the total Diesel consumption in the country by the year 2015 and 10% by 2025. Oil Marketing Companies would purchase biodiesel (B-100) from biodiesel manufacturers;
This part relies on information from USDA (2008).

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

74

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

and sell this biodiesel blended with Petroleum Diesel (starting with B-5) at their points of sale. The is required to provide government a buy back guarantees to biodiesel producers at a price determined by OGRA, by making it mandatory for public sector vehicles running on diesel to use biodiesel. All imported plant, machinery, equipment and specific items used in the production of biodiesel shall be exempted from Customs Duty, Income Tax, and Sales Tax. The Federal Government has assigned AEDB the target of gradual introduction of biodiesel fuel blends with Petroleum diesel so as to achieve a minimum share of 5% by volume of the total diesel consumption in the country by the year 2015 and 10% by 2025. For this purpose, AEDB got approved a PC-II for undertaking a Feasibility Study to set up 10,000 Tons per Annum Biodiesel Production Facility. Funding for undertaking the feasibility study is being awaited. Pakistans first commercial biodiesel production facility has been setup in Karachi with a capacity of producing 18,000 Tons of Biodiesel per annum 1. 4. Summary Like many other developing countries, Pakistan also needs to explore and develop new resources of energy, especially the renewable ones. The country is heavily dependent on imported fuels and faces a serious challenge of meeting ever increasing demand for fuel and attempting to decrease the its dependence on imports. The recent electricity crisis has further aggravated the need to develop more energy resources. While governments have long felt the need to explore more economical and reliable options for
1

keeping up with energy demand, however, despite coming up with number of feasibility reports, legislative provisions and formulation of new policies, little has been done practically to set a viable market for biofuels and other renewable fuels. One of the recent developments is that government has set up 15% mandates to use biofuels in transport fuel by 2015 and 15% by 205. These blending targets may prove helpful to ease the pressure on countrys limited energy resources and reduce import cost of crude oil. However, it is unclear how these mandates may affect the agriculture and food sectors of Pakistan. To examine these issues, more in-depth studies are needed in future. Neither the oil nor the automobile industry in Pakistan has sufficient knowledge and experience in the use of biofuel blends as fuel. The historic dependence on imported oil; sharp increase in energy demand; shortage of oil for diesel for electricity production; unpredictably fluctuating oil prices, and availability of low cost resources for biofuels production present a great opportunity for Pakistan to produce and use biofuels in the domestic market. Pakistan can save millions of dollars by promoting policies for blending biofuels especially ethanol with conventional fuels. There also exists a great opportunity for foreign investment in this sector. However, the country faces serious dilemma in that the government,despite formulating various policies on promotion of renewable energy, has not been successful in attaining significant progress in developing and promoting biofuels sector.

http://www.aedb.org/bioprogram.htm

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

75

Tariq Ali, Jikun Huang, Jun Yang, Int. J. Eco. Res., 2012, v3i1, 69-76

ISSN: 2229-6158

References ADB (The Asian Development Bank). 2008. Islamic Republic of Pakistan: Country Environment Analysis. Asian Development Bank: Headquarters: 6 ADB Avenue, Mandaluyong City 1550, Metro Manila, Philippines. GOP (Government of Pakistan). 2006. Policy for Development of Renewable Energy for Power Generation Employing Small Hydro, Wind, and Solar Technologies. 2010a. Economic Survey of Pakistan 2009-2010. Federal Bureau of Statistics. Islamabad, Pakistan. . 2010b. Statistical yearbook of Pakistan. Federal Bureau of Statistics. Islamabad, Pakistan. 2010c. Agricultural Statistics of Pakistan 2009-2010. Ministry of Food and Agriculture (Economic Wing), Islamabad. Muhammad, A. K., and U. Ahmed. 2009. Energy demand in Pakistan: A disaggregate analysis. Munich Personal RePEc Archive, Paper No. 15056. NBP (National Bank of Pakistan). 2008. Pakistans Energy Sector. Economic Bulletin, pp 4-15. Rashid, M. T., and Z. Altaf. 2008. Potential and environmental concerns of ethanol production from sugarcane molasses in Pakistan. Nature Proceedings: hdl:10101/npre.2008.1499.1. Retrieved September 2009. USDA (United States Agriculture Department). 2008. Pakistan Biofuels 2008. GAIN Report Number PK8033. USDA, Foreign Agricultural Service, U.S. Embassy Islamabad.

IJER | JAN - FEB 2012 Available online@www.ijeronline.com

76