May 12 - 18, 2008

Thanks to rising crude oil prices, globally the role of sugar industry is fast changing from sugar producer to provider of two key energy products, bio-fuel and electricity. Since Pakistan is deficient in fossil oil and its gas reserves are depleting fast, it is also looking for alternate sources as well as renewable energy sources. Sugar industry has the potential to meet demand of both the energy products.

In Pakistan with the present installed capacity sugar industry is capable of producing 5.5 million tons sugar along with two key by-products i.e. baggase and molasses. Baggase can be an alternative fuel for generating electricity and molasses the feedstock for producing bio-fuel. However, absence of required policy incentives keeps the country heavily dependent on furnace oil and motor gasoline.

Historically, sugar industry in Pakistan, at the best, has been producing sugar. Real potential of two of its by-products baggase and molasses has never been exploited. Baggase is being burnt in the power house during the crushing season and once the season is over remaining quantity is sold to brick kilns.

Bulk of molasses has been exported despite having attached refineries capable of using almost all the quantity of molasses for producing ethylene. Mills have been exporting molasses because of the attractive price offered by the overseas buyers. Mills have failed in understanding why foreign buyers offer high price.

According to some industry experts, Pakistani sugar mills are inefficient and fail to extract the optimum quantity of sugar from the molasses. Presence of high sucrose content in molasses, makes is attractive for the overseas buyers as they could produce a variety of products that include ethyl alcohol and acetic acid.

Globally technology is also available for producing plastic (polyethylene) from ethyl alcohol. In the past entrepreneurs did not pay much attention to producing plastic from molasses because crude oil was selling at very low price and producing plastic from molasses was rather an expensive process.

However, the prevailing crude oil prices and expectations for no easing prompt the Pakistani investors to install couple of polymerization units, for producing polyethylene from ethyl alcohol. The country already has substantial capacity for producing ethyl alcohol. However, this capacity utilization is still low because sugar mills often find exporting molasses more profitable than converting it into ethyl alcohol and sell it.

For considerably long time the talk has been going on in the country about introducing blended fuel (ethanol) but it has not become a reality. The prevailing situation could be attributed to a number of factors i.e. legal cover, insufficient production of ethyl alcohol in the country and resistance by the oil marketing companies. It must be kept in mind that adding up to 10% ethyl alcohol in motor gasoline does not require any change in the dispensing infrastructure as well as in the carburetors of the cars.

Lately, in an attempt to facilitate commuters and save gasoline almost all the car assemblers now rollout cars with factory fitted CNG kits. This has certainly helped commuters in containing fuel bill but has added to the import bill. Similarly, a large of number owner of old vehicles has installed LPG kits in their cars to contain their fuel bills, but had to bear additional cost of kit.

The largest segment public transport, in terms of number of vehicles and quantity of fuel used, buses and trucks are still using diesel. There was a proposal to introduce CNG busses and trucks in the country. This requires huge capital investment in two key areas 1) dispensing units and 2) kits and cylinders. This will require long time to covert the vehicles from consuming diesel to CNG. According to some analysts introducing bio-diesel in the country should also be made mandatory rather than introducing CNG operated vehicles.

Preparing the sugar industry to play its new but strategic role is most desirable but also a long-drawn process. One of the fears is what will happen if price of crude oil goes below $50/barrel? Most of the analysts strongly believe that probability of oil prices touching this level is very low. First and the most important reason being that the US administration does not want oil price to go below $50/barrel level, as it would frustrate the efforts for developing alternative sources of energy. President George Bush is on record saying that oil price should not be allowed to slip bellow $50/barrel level.

Similarly, oil producing countries would also not like the crude oil prices to go below $50/barrel. In fact they are keen in maintaining the price at above $80/barrel because of dollar being traded at historic low levels. The probability of oil prices hovering around $70/barrel is very high. Therefore, the government as well as Pakistani entrepreneurs should make a few decisions without wasting further time. These are 1) double the installed crushing capacity, 2) distillation capacity should also match to use each drop of molasses produced in the country and 3) change the legislative structure immediately to make use of blended fuel mandatory for private cars as well as public transport.

However, this dream could not be realized without increasing sugarcane production in the country. It is on record that sugarcane yield in Pakistan is almost half the yield attained in India. This is mainly because of harvesting verities giving low yield, poor crop management, cultivating of sugarcane in cotton growing belt, imbalanced use of fertilizer and inadequate availability of water.

The demand for fuel and electricity is high in Sindh and the climatic conditions are also conducive for the cultivation of sugarcane. Therefore, the focus of the Sindh government should be to double sugarcane production in the province. It proximity with seaport also gives it the comparative advantage of exporting sugar and surplus ethyl alcohol.

The Sindh government should also convince all the sugar mills to try to attain the status of IPPs. The first step in this direction would be to offer sugar mills the power purchase rate which is being offered to the IPPs.