Investment Opportunities in the Petrochemical Industry of Pakistan

By Sajjad Shaukat
The Government of Pakistan and the concerned departments are providing friendly environment for investment opportunities in the petrochemical industry of Pakistan. As a result of various financial and structural reforms, the oil & gas sector has already emerged as one of the most attractive sectors for investment in the country. Such a policy for further development in the oil & gas sector is likely to attract local and foreign investors.
In this regard, the concerned department pointed out its website: “the International Oil & Gas Exhibition will be held from 19-21 March 2019 at the Karachi Expo Centre and from 01-03 September 2018 at Lahore Expo Centre offers the International and Pakistani business community a strategic launch-pad to access the vibrant Pakistani, Afghanistan and Central Asian Republic Markets. The Exhibition would serve as a comprehensive showcase of the latest in technology, equipment and machinery as well as allied services, while providing overseas investors with a definite outlook of the regional oil & gas sector and an opportunity to meet their prospective local counterparts and business partners.
The website elaborated: “The Oil & Gas Sector has been identified as an engine of growth by the Government and its unprecedented growth is expected to further promote investment activities in the Country. The Government is providing an investment friendly environment for the oil & gas sector to attract local and foreign investors. As a result of these financial and structural reforms, this sector has already emerged as one of the most attractive sectors for investment in the country. Pakistan is rich in natural resources and has the capacity to become self-sufficient in energy having huge sedimentary basins stretching over 825,000 sq. kms., offering immense potential for exploration and development of the local natural resources with an exploration success ratio of 1 : 3.5 The oil & gas 10-year road map for private investment is aimed at drilling up-to 100 wells a year. The Government of Pakistan has chalked out a comprehensive and more investor friendly Petroleum Exploration & Production Policy offering bright prospects and greater incentives for accelerating exploratory and production efforts. The new policy will also help in reducing import of refined products to 90% of total consumption. Additionally, Pakistan is eyeing at acquiring an additional refining capacity of above 6 million tonnes per year.”
The website said, “Pakistan has much potential for Electric Power Generation and greater role is being assigned to natural gas and coal. The Government of Pakistan has started a coal development programme aimed at developing infrastructure in the coal fields to meet a sizable portion of future power demand through coal based power generation. Exploration and utilization of alternate sources of energy has also been started in the Country. Pakistan’s geographic location makes it ideal to harness unlimited solar energy. During the last two decades, Pakistan has developed its potential in photovoltaics (PV). This technology is particularly suitable for small power requirements and remote area applications such as remote telecommunication exchanges.”
In this respect, Energy Department of Sindh explained on its website: Energy Department endeavours to develop, generate, supply & distribute renewable, hydro and thermal energy. We interact with oil & gas companies for exploration and commercial joint ventures. The department is also responsible for prospective planning, policy formulation, and conservation strategies. Oil and Gas sector in Pakistan has seen phenomenal growth since the independence in 1947 when oil quantities produced were scarce. At that time there was no gas production. Over the past half century the petroleum industry has played a significant role in national development by making large indigenous gas discoveries. These sources are supplying gas to consumption centers through 10,667 kilometers transmission networks and 80,221 kilometers of distribution system. Pakistan meets about 100% of gas and 15% of oil demand from local sources. Oil and Gas are major components of Pakistan’s energy mix meeting over 80% of energy needs and therefore, successive Governments, since independence have attached high priority to this sector. The Governments have adopted consistent policies aimed at promoting foreign investment in upstream petroleum sector with the view to exploit indigenous hydrocarbon resources in an optimal manner for the benefit of the nation while providing adequate return to the investors.”
It pointed out: “The upstream activities in the oil and gas sector are administered and regulated through the Directorate General of Petroleum Concessions (DGPC) of Policy Wing, Ministry of Petroleum and Natural Resources. Policy Wing has three more directorates namely, Directorate General of Gas (DG Gas), Directorate General of Oil (DG Oil) and Directorate General Special Projects (DGSP) to provide support to the Government in formulation of policies for midstream and downstream oil and gas sector. With the formation of Oil and Gas Regulatory Authority (OGRA), midstream and down-stream oil and gas sectors are regulated by OGRA. After the passing of the 18th constitution amendment, the provinces have been granted 50 percent ownership of all Oil and Gas reserves in their province. Under Power Policy 2012, the provinces will have equal share as the federal government in granting leases/licences to E & P companies. The country has been divided into zones based on their relative prospectivity. Onshore areas are sub-divided in three zones. Offshore areas are also sub-divided in three zones; Shallow, Deep and Ultra Deep. Separate incentives have now been provided for the onshore and offshore areas of the country.”
Regarding concession award process, the website of the Department said: “Onshore and Offshore E&Prights will be awarded via three distinct procedures: The granting of Petroleum Exploration Licences for entering into PCA or PSA in relation to onshore and offshore blocks offered through competitive bidding. The granting of Petroleum Exploration Licences for entering into PCA or PSA in relation to onshore and offshore blocks without competitive bidding to Strategic Partner Companies on Government to Government basis-Gas Market-i) E&P companies under Petroleum Exploration & Production Policy 2009 are allowed to contract with Natural Gas transmission and distribution companies and third parties, other than residential and commercial consumers, for the sale of their share of Natural Gas in Pakistan at negotiated prices in accordance with applicable laws, rules and regulations. ii) Subject to overall market demand, E&P Companies may request and GOP will purchase their share of pipeline specification gas through a nominated buyer which is effectively controlled by it in acceptable daily, monthly and yearly volumes to meet the internal demand in an economical manner provided there are no infrastructure constraints. The delivery point shall be at the field gate. GOP/gas buyer nominated by GOP shall pay the price for gas at the field gate as set out in this Policy.iii) If the foreign E&P Companies sell Natural Gas to third parties in Pakistan and want to remit sale proceeds in foreign currency abroad, Government shall allow such E&P Companies to freely remit a “guaranteed percentage” of their sale proceeds. The “guaranteed percentage” shall be 75% of the total gross revenues from any Lease in Zone O, Zone I, 70% in Zone II and 65% in Zone III. The remaining gross income in Rupees can be used to pay royalties, taxes, windfall levy and any other payments to the Government as well as to meet local currency expenditures. The main features of the package for the three onshore zones which is available for all new awards to the E&P Companies, are enumerated in the following paragraphs: Royalty is payable @ 12.5% of the value of petroleum produced and saved at the field gate. Corporate income tax is capped at 40% of profits and gains with royalty payments allowed as expense item. Onshore area is divided into three prospectivity zones.”
Meanwhile, it is a good sign for petrochemical industry of Pakistan that in August, 2017, China has planned to set up a petrochemical complex near Karachi.
In this connection a leading newspapter wrote on August 17, 2018: “A Chinese proposal to set up a refinery along with a downstream petrochemical complex near Karachi is advancing as requests for 500-1,000 acres has been submitted to the provincial governments of Sindh and Balochistan. The estimated cost of the project is about $4 billion. This was disclosed by Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Zubair M. Tufail after a meeting with the visiting Chinese delegation, led by Ms Li-Jial, Director Tianchen Engineering Corporation (TCC), at the Federation House. Ms Li-Jial and Mr Tufail agreed in principle to establish and exchange investment missions to further enhance trade relations between the two countries. The Chinese asked for land in Karachi since they found rents in Gwadar Free Zone to be too expensive, Mr Tufail told…“Port Qasim does not have enough space for a project of this size…So they have asked for land a few kilometres away or in the Hub area, which falls in Balochistan”. The complex envisions a number of jetties, a refinery with 10 million tonnes per year capacity, as well as downstream processing facilities for naphtha and its component chemicals. Currently we are importing $2bn worth of these chemicals from the Middle East” Mr Tufail said, adding that the complex could help reduce Pakistan’s external deficit.” The FPCCI president said that Pakistan could benefit from the TCC’s vast experience in oil refinery, energy, chemical complexes and other projects and explore investment opportunities mutually beneficial to both the countries.”
It is mentionable that there is a co-relationship of Pakistan’s petrochemical Industry and China Pakistan Economic Corridor (CPEC).
As construction activities starts under the banner of CPEC, more and more industries will benefit. The rise of petrochemical intermediaries will also provide opportunities for polymer industries and hence boost the plastics industry.
In this context, Business Recorder wrote in January 11, 2018: “Gwadar being a relatively a small town in Balochistan and in the process of being developed, especially with a modern port, offers lot of opportunities to prospective investors amongst others some of them are in the following fields: Port related infrastructure such as storage, warehousing etc. hotels, motels, travel and tourism. Industrial sector, i.e. sea food processing and export, date processing and export construction–office spaces etc. It also offers development in social sector infrastructure projects, telecommunication, road, network extension of airport, railways, special economic zone, etc. As a regional hub of business, trade and commercial activity, Gwadar port would provide a solid base for the economic progress of the province. The establishment of Free Trade Zone and Export Processing Zone (EPZ) will open the doors for development of small, medium and large scale industries generating revenue for the government and providing profitable avenues for both the skilled and non-skilled workforce in Balochistan. The potential investment areas in Gwadar include fish processing, crabs processing, cold storage, ice factories, sea-water reverse osmosis desalination plants, shrimp farming, boat building and naval architecture institute, oil storage tankers, ferry service for Karachi Ormara-Pasni-Gwadar and up to Oman and Dubai.”
Undoubtedly, Gwadar port will play a key role in advancement of the petrochemical industry of Pakistan.
Nevertheless, we can conclude that investment opportunities in the petrochemical industry of Pakistan are bright, as it is likely to attract local and foreign investors.