Port Qasim: Multi-million euro polyethylene project in doubt

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (November 10 2009): The future of a multi-million euro polyethylene project proposed to be established at Port Qasim is in doubt as the new Secretary of Industries and Production, Abdul Ghaffar Soomro, is reportedly seeking justification of incentives given in the past and another year's extension for financial close date, sources told exclusively to Business Recorder.

"As the new Secretary took charge, he began investigating the incentives given to the firm so far and reasons for the extension in financial close date," said an official privy to the developments. Former Secretary, Industries, Shahab Khwaja, who is currently Secretary Privatisation, a day before his transfer had confided to this scribe that a summary had been circulated to all Ministries for comments on extension in financial close date as the sponsors did not have funds to start the project.

Trans Polymers Limited (TPL), a subsidiary of Trans Polymers Holding Limited, of UK, a private investment company representing various stakeholders including risk insurance companies, financial institutions, EPC contractors, technology providers, material suppliers and O and M contractors along with the power, desalination plant and project management consultants, had proposed to set up a polyethylene (PE) plant at Port Qasim, Karachi.

The firm had assured the government last year that the first plant would come into production within the next three to four years. A naphtha cracker was to be established at the site to produce polypropylene (PP) and other monomers. TPL has provided financial structure of the project, the first phase of which covers the establishment of PE plant costing 470 million euro, but nothing has materialised so far, sources added.

This phase was to include the cost of plant and machinery, cryogenic facilities, pre-production cost and the cost on power generation, desalination plant and working capital etc with the debt equity ratio of 60:40. The next phase would have included establishment of naphtha cracker and PP production facilities, costing around one billion euro.

TPL had indicated the name plate capacity for PE production as 310,000 tons annually, with the flexibility to go up to 400,000 tons, through further investment and 300,000 tons for PP.

At present, annual country demand of PE is around 270,000 tons, which is met through imports. PE is subject to 5 percent customs duty, which is in place since 2005-06. Industries Ministry in its summary approved last year had stated that oil refineries in Pakistan produce around 0.8 million tons naphtha (feed stock) which is exported at nominal value due to absence of cracking facilities outside the country.

With the increasing use of polymers in the country, Pakistan spent over $1 billion on import of polymers in 2007 . Almost all monomers/co-polymers are obtained from naphtha through a cracking process which is highly expensive and technology-intensive. Besides the polymers, commonly known as BTX (benzene, toluene & xylene) are also obtained from naphtha cracking process. BTX is extensively used in paint, textiles, dyes and a range of other chemical products.

Sources said that TPL had proposed customs duty protection on PE at 20 percent for at least 3 years after coming into production, followed by 15 percent for 5 years and then 10 percent onward. As for PP, TPL had requested duty protection of 15 percent for 5 years and 10 percent onwards, as it would come into production.

It had also asked for duty/tax-free import of plant and machinery, catalysts and raw material ie ethylene. According to sources, the government had not only approved all the demands of TPL with regard to incentives but had also revised import duty upward on PE and PP with those countries with whom FTAs have already been signed.

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