ETHANOL TO SHARE GASOLINE MARKET

Cheap fuel project yet to take off

From KHALID BUTT , LAHORE
Dec 05 - 11, 2005

The government has yet to decide on starting a 'Fuel-Ethanol Production and Marketing Project' for producing cheap fuel from the waste product generated in sugar-making process.

Sources told the PAGE that the project, which had been under consideration from February this year, could not get underway following the oil marketing companies' (OMCs') reservations on issues like consumers price of the alternate fuel, pricing mechanism for ethanol to be supplied by the sugar mills besides that of encouraging its consumption as the country is already surplus in petrol.

The officials said that availability of the requisite technical advice for establishing blending and marketing facilities had also been a hindrance in initiating the project.

Officials said that the Ministry of Industries, Production and Special Initiatives had held several meetings with all stakeholders, chaired by Minister Jehangir Khan Tareen himself, but these could not develop any consensus on initiating the pilot project.

Fuel-Ethanol Production and Marketing Project was to be set up in the vicinity of major oil storage located at the reasonable distance from the sugar mills producing ethanol.

The sources said the Pakistan Sugar Mills Association (PSMA) had been assigned the task to conduct pre-feasibility report of the project and its cost.

The officials further elaborated that Brazil was the pioneer in introducing the use of blended fuel, which was subsequently adopted and successfully used by China, America, Britain and France.

The experts, on the other hand, dismissed the fear that the use of blended fuel would have any negative impact on the machinery of vehicles. They said the experiments have proved that 10 percent use of blended fuel has increased the power of engine significantly, in addition to lesser impact on environment.

Representatives of the sugar industry believe blending ethanol with motor gasoline, petrol to common people, is an open and shut case. "Once it was decided by President Pervez Musharraf back in February 2005 that Pakistan urgently needed the blending, there should have been no delay in its implementation," says Zaka Ashraf, Chairman All Pakistan Sugar Mills Association.

He says the blending will have significant impact both on environment and petrol prices. "Ethanol, unlike fossil fuels, is a renewable source of energy and one that burns completely, emitting no carbon. It also costs Rs 22 per litre which compares very favourably with the current petrol prices ranging much beyond Rs 50 a litre."

Secretary-general Oil Companies Advisory Committee, Abid Ibrahim claims the blending will have little, if any, impact on both the counts. "Ethanol may create less emissions than fossil fuels but it reduces engine's efficiency, resulting in higher petrol consumption. Even the difference in prices is not what it is being made out to be. Ethanol is selling at $580-600 per metric ton in international market while naphtha - a derivative of crude petroleum which precedes the production of petrol in the refining process - sells at $510-520 per metric ton. Last year, it was selling at as low as $325 per metric ton."

He says the blending will come at a huge cost. "To have ethanol-mixed petrol for all local oil companies at all their depots, we need to spend $250 million. Add to it the cost of transporting ethanol and the price of additional fuel that motorists will need because of ethanol-generated decrease in their mileage per litre of petrol. People at the end of the day will be paying Rs2.25 for every litre of petrol they consume."

Zaka Ashraf has his own answer to this argument. "Petrol consumption in Pakistan is increasing by 13-15 per cent annually. It's a matter of time before we start running into deficit. Ethanol blending will also not happen overnight. It will rather take two to three years. During this period, petrol consumption will increase by more than 20 per cent. Blending 10 per cent ethanol will at the most cover only one year's increase in petrol consumption." He blames oil industry's opposition to blending on their unwillingness to part with their huge profits which he claims stand at Rs8-9 billion per annum.

Zaka Ashraf's strong and passionate advocacy for blending leaves one looking for links between sugar and ethanol which in Pakistan is produced from molasses, a byproduct of sugar extraction from sugarcane. (Ideally one ethanol plant will consume molasses produced by three sugar factories.) Pakistan has 17 ethanol producing units, each of which costs Rs800-850 million. Zaka Ashraf believes all this investment will go down the drain if we didn't blend ethanol with petrol.

What do these plants do today to dispose off their production? "Before these plants came into being, Pakistan used to export molasses to the European Union but then the companies became a cartel and molasses prices crashed. So we started producing industrial alcohol from it for export to the same European market," Zaka Ashraf says.

After the end of quotas and export subsidies, alcohol exports to Europe from Pakistan face 80 per cent duties which will go up to 100 per cent pretty soon, says Dr Badr Hashmi. He is an expert in industrial economics who works as a consultant with Islamabad-based Engineering Development Board and who has given a number of presentations on the issue at top level meetings.