Impact of Mergers and Acquisitions on Operating Performance

Impact of Mergers and Acquisitions on Operating Performance Chapter-1: Introduction 1.1 Introduction Along with boosting their own profits, businesses create gains for their shareholders and exist to serve customers. According to Ghosh and Das (2003) these aims can be achieved a) by reducing costs since this increases competitiveness and market share and so wins over more customers, b) by capturing wider markets through offering an increased range of products and services, c) by undertaking diversification operations, and d) by undertaking mergers to grow the company inorganically. Mergers and acquisitions (MAs) are suggested as measures to revive failing companies and as strategic tools. Conducive to strategic alliances and mergers in an increasingly competitive business environment are global economies, favorable policies and incentives, relaxed rules, and liberalization. New products, diversification, RD etc.have also been included as critical factors when businesses scale up operations and responsibilities along with increased roles in world economies as has been noted by Yadav and Kumar (2005). Due to brand building and PR exercises, a few MA deals may have taken place as pointed out by Malatesta (1983) and Roll (1986). One fact prevalent across numerous sectors relates to an increase in MA competence levels and competitiveness. Corporations involved in MA deals around the worldconsistAir France and KLM in the airlines sector, Daimler-Benz and Chrysler in the automobilesector, and SBC and ATT in the telecom domain. A lot of research on shareholder gains in the event of an MA exists today. When word gets out that an MA is imminent, the stock prices of both companies goes up tremendously and favorably impacts shareholder value. As the nature of the market reports why details of impending mergers are not leaked and could lead to stock crashes affecting prices many reasons are there. While MAs may lead to healthier bottom lines and improved cash flows as felt by most business managers, however, to the shareholders, some mergers and acquisitions may be loss making enterprises which are of no use. So to generalize that MAs always result in favorable circumstances for the shareholders is not always true. Due to the fact that in terms of synergy, expertise, and objectives, the companies do not match up some mergers may not be effective. If the following are not aligned correctly i.e. asset allocation, resources, and core strengths and if through a planned integrated approach, care is not taken to fuse the two companies into one then, along with an expose of operating weaknesses, share value can fall. This may lead to erosion and drying up of capital.The failures in MA deals are placed at over 60% as estimated by Schweiger (2003). 1.2 Background of the study Through the economic activities across Europe and the world it is clear that FDI activity has risen over the past decade. In addition, the merger and investment acquisition mode has risen sharply and as a percentage of all FDO risen as noted by Lipsey (2002). From 1995-2001 the Global Wave has been labeled as the most recent merger wave by Jobanovic and Rousseau (2002), through an emphasis on their importance and a move to more cross-border mergers. According to Jovanovis and Rousseau in the EU in 2000-2001, about 40% of all mergers occurred through cross-border deals and from 1991-2000 these deals accounted for about 100% of the total number of mergers in the EU. According to the EC (2001), to make acquisitions for euro-zone companies becomes easier by increased financial markets integration. Among the EU nations, a rapidly increasing number of cross-border MA were contributed to by an active market for corporate control given the boom of the 1990s. Similar to Ueng and Ojahsresearch (1998) the FDI wealth effects investigation the effects of these integrating transactions on form shareholders using methods are examined in this study. In the EU nations, the merger analysis and acquisition activity is warranted certainly as suggested by the importance of the international business community and increased activity. In the EU,of the integration process, a significant piece is owed to cross-border mergers and more than others, the benefits have filtered in to some countries. Therefore, it is important to understand who has gained or lost, and why. Instead of the individual states of the United States (US), the EU nations have greater political disparity. This would seem to imply that across the US the nations across EU are of greater importance in a level playing field in the business community. Within the US however, instead of a similar study of interstate transactions, this key factor makes this study much more interesting. 1.3 Statement of the problem In terms of markets, resources, technology, money, or skills, mergers have a high chance of taking place in terms of the size of the top managements of two similar companies and when they are evenly matched to register and contribute to the merger as observed by Samuel and colleagues (1990). Between equals, these mergers are mergers and generally, when the existing companies do not function as an entity anymore, they are complete and a new structure is created to merge the assets and resources of both the companies. The new companys shares are then redistributed among both the companies shareholders. In another scenario, giving them a majority shareholding by buying a large percentage of their shares, a company may acquire another company and become the new owners. This is termed an acquisition and the company acquired is merged into the existing business of the company. The target ceases to be an independent entity legally. Along with trading on the stock exchanges the shares of the acquiring company still exist. 1.7 Significance of the study In the industry involved the three big entities Lloyds TSB and HBOS have special significance as their merger provesthrough the rationale behind this topic.This merger sought to create the largest steel company and this leaves much scope for research. 1.8 Possible contribution to knowledge Based on the home country of the target and the acquiring firms, there are differentials in the average wealth effects of cross-border mergers and a study of this is the possible contribution of this research. From the EU averages it is clear that several EU nations differ significantly, which would imply that from cross-border mergers than those in other countries the owners i.e. shareholders of firms in particular countries stand to benefit more. Why these differences exist, the research continues to explain empirically and this is beyond showing that such country-specific differences exist. In Europe, by examining a small sample of cross-border mergers, it is evident that these findings are not unique to the EU. 1.9 Limitations of the study The research deals with a specific industry and that is the key limitation of the study. Hence, the implications of this study cannot be applied as every industry has its own conceptualization with regard to the effects of mergers and acquisitions. The country-specific nature is the other limitation, since these organizationswork within individual financial environments pertinent to these countries. 1.3. Purpose of the research and aims What is the impact of mergers and acquisitions on the operating performance of the firm? Objectives of the Research To critically analyze the impact of mergers and acquisitions on the operating performance of the firm in India. To strategically evaluate the impact on shareholders wealth post-MA. 1.4. Structure of the rest of the report Chapter 1- Introduction: Chapter one is the Introduction which will cover the brief aspects about mergers and acquisitions. Chapter 2- Literature Review: Chapter Two will dealwith Literature Review which will draw theoretical underpinnings on the subject area of the research. Chapter-3-Conceptual Framework: Chapter Three will discuss the Indian Banking Industry with the perspective of MAs. Chapter 4- Research Methodology: Chapter Four will be on Research Methodology and Process which will cover the process which is adopted by the researcher for conducting the research. Chapter 5-Data Findings and Analysis: Chapter Five will be on Data Findings and Analysis which will cover broadly the sectors which are involved in the mergers and acquisitions. Chapter 6- Conclusion: Chapter Six will be the Conclusion which will specify the way the entire research has been conducted and the end result of the same. Topic: A study of recent mergers and acquisitions in India and their impact on the operating performance and shareholder wealth: An analysis Banking Industry. Chapter-2: Literature Review 2.1. Introduction Investigators have been analyzing amalgamations and takeovers in the context of their characteristics and the impact on the development of both the entities over the past several years. In actuality, Weston et al. (2004) opine that the experts and researchers in the field have provided a large quantity of records related to the topic. There are many reasons why companies follow development policies related to amalgamations and takeovers. This permits rapid acceleration in addition to having a quick and instant approach to markets, both local and international. It is also likely to touch renowned brands, apply knowledge and skill, and widen the dimension and extent without losing time. In the sphere related to real estate, a participant (real estate firm) may want to promote a mutual organization for funding ventureson an individual basis. It may also consider entering into a joint venture with a construction enterprise in the domestic market so as to execute the venture as per assure d measurements and highlighted conditions as stated by Jensen (2006). Clients are reassured when they involve themselves with big enterprises, which have a great degree of brand reputation and remembrance. During these times, they articulate their backing, not merely as clients but also as financers as they buy stakes so as to invest money in the enterprise. It also possible for a company to advance by augmenting returns or managing expenses which in turn can be attained by reorganizing and reconfiguring finances apart from using creative methods and reengineering. Some enterprises may also purchase brands, goods, and utilities to expand the goods portfolio of the enterprise. The capability of an enterprise to undertake a development policy by reallocating its resources in creating different facets of its presence was maintained by Hogarty (2000). This could be denoted by its production unit, RD, and through creating and promoting its brands and setting up more projects in parallel or varied spheres. Firms may also purchase extant enterprises or amalgamate with others to attain their objectives. Amalgamations and takeovers assist in accelerating development as the roles pertaining to infrastructure, branding, and manufacturing are clearly set up. Superior mediums which endorse development comprise of contracts, treaties, and agreements for varied ventures for a pre-determined time. All across the world, international corporates and enterprises are entering into purchases of and amalgamations with new firms, forming joint ventures and such equivalent associations on a common basis. Nearly fifty percent of the contracts pertaining to amalgamations and takeovers in India have been initiated by global enterprises. In 2005 alone, India witnessed global contracts of around 58 percent, a number which was double compared to Japans agreements at 21 percent. Internationally, amalgamations and takeovers entail dogmatic frameworks particular to a specific nation and the labor unions of the enterprises. Post the 1990s, economic revolutions have been occurring globally and this has seen a growing attraction for amalgamations and takeovers. The financial segment witnessed a newness which saw modifications being made to possession and trade regulations, an increase in the disposable earnings and as a result, the capacity to discover newer marketplaces and newer chances. Firms are now fully utilizing the reduced interest rates and cost of capital. This has assisted several enterprises in broadening their scope of operations at the domestic and global levels through partnerships, associations, amalgamations, and takeovers. Additionally, the presence of many global media enterprises which publish information pertaining to contracts and partnerships on a large extentà ¢Ã¢â€š ¬Ã¢â‚¬ particularly in segments related to production, cars, retail and others. On the other hand, it is extremely crucial for companies to ensure specific advisory metrics before they perform their functions related to amalgamations and takeovers, especially in huge markets which have not been discovered. Amalgamations and takeovers also have the ability to shift the stakeholder worth affirmatively or adversely, which may result in a scenario, which eats away into the prosperity. When local takeovers in addition to global amalgamations get transformed into deficit-making and zero-worth developing patterns, all of these experience impediments. When stakeholders are not going to benefit from such projects, the costs of shares decline and thus, such agreements must consider all the primary essentials before opting for the linked choices. The influence of amalgamations and takeovers may be favorable or harmful to the development and this may take a long time and also be extremely costly for a total revival from an impediment. The existing segment also highlights the investigations and examinations undertaken on the topic by analysts. One needs to have sufficient data evaluation and also conduct hypothetical tests while assessing the influence of amalgamations and takeovers. Adequate links should also be deduced to comprehend the reason and impact correlations in amalgamations and takeovers in context to the criteria such as development of trade, stakeholder worth, productivity, and general performance. As the current study is linked to the influence of international amalgamations and takeovers, it is crucial to analyze the global amalgamations. Global partners who function from India while being based in the European Union framework have been examined depending on specific extant data. Additionally, domestic amalgamations and takeovers have also been analyzed. 2.2. Theoretical Background: Mergers Acquisitions (MAs) 2.2.1. Definition Amalgamations and takeovers can be superiorly comprehended as development polices to enhance the income of the enterprise and also, its capital foundation. Sometimes, for two enterprises, with similar or dissimilar trade functions, to amalgamate on specific ranks is a superior trade choice. An amalgamation of this type assists in imparting a blend of experience and finances. A commercial amalgamation of this type functions as a solitary body between edifying impacts and worth values of a commercial amalgamation and takeover (Jensen and Ruback, 2003). Though the phrases amalgamations and takeovers are frequently employed collectively, they are two extremely varied procedures. Amalgamations describe the merging of two different enterprises into a single entity. The two enterprises join each other, and shift all their resources and functions into a new one. This procedure includes the merging of all types of resourcesà ¢Ã¢â€š ¬Ã¢â‚¬ employees, manufacturing facilities, and functions into the new entity that is shaped. The new entity shaped out of this has its individual distinctiveness, edifying representation, and groups of convictions. It is pointless to state that they are possessed by both the parties which share their resources to develop the new identity (Huang and Walkling, 2007). A takeover is considered as the purchasing-out procedure of an enterprise by another with the goal to stimulate management of its assets, investments, and functions. Takeovers occur when a firm purchases a major share of another firms stakes, assets, and liabilities (Weston et al., 2004). Firms experience a supplementary benefit when this occurs as they get the management apart from the functioning assets, in contrast to when they purchase merely the stakes, in which scenario they have to only compete with the other shareholders. Purchasing assets includes more expenses and offers an extensive capital foundation (Singal, 2006). Now let us consider acquisitions. This phrase also has been employed for many perspectives and is understood also. Takeover is a vague expression and though it may denote a context similar to acquisitions; the two are actually varied types of trade agreements (Jensen, 2006). A takeover is when a purchase is conducted without acquiesce or permission of the ente rprise being taken over. Takeovers come with an adverse action that entails the attaining of another firm with the intent to manage it. When an enterprise desires to take over another firm, it tries to purchase all its shareholders. Takeovers are the ones which do not have the approval of the firm being purchased and they are often nearly undertaken as a hostile proposal. This now clearly explains the different expressions and implications attached to amalgamations, acquisitions, takeovers, partnerships, and associations and how their context is based in the situation in which they are being applied. 2.2.2. Types of Mergers Acquisitions Mergers can occur at parallel, perpendicular, or multinational levels. Each kind of amalgamation has not only its own typical characteristics but also a distinct impact on the work processes and trade functions. Horizontal Mergers When two enterprises or enterprises that have parallel trades, which amalgamate to develop an entirely novel trade enterprise, it is known as a parallel merger. The enterprises which enter into a parallel amalgamation combine their assets as individual enterprises to shape a novel entity. These enterprises are thus capable of making a more robust enterprise which has a wider capital base and greater resources. The rationale behind this is to acquire a larger market share and become a dominant force in the market (Shleifer and Vishny, 2009). Such parallel amalgamations provide several benefits. They enable larger presence and greater range in addition to optimal performance ability to the novel entity. The two previously distinct entities now have the benefit of augmented resources capable of executing procedures in a superior method to ensure consistent supply of goods, which are of much better quality (Mitchell and Mulherin, 2006). Even in India there are a few instances of parallel amalgamations, for instance, the amalgamation between Indian carriers which occurred between Lufthansa and Swiss International apart from Air France and KLM (Bottazzi et al., 2001). The United Kingdom (UK) has witnessed several parallel amalgamations. In reality, the results of several investigations have depicted that nearly 60 percent of all amalgamation agreements which have occurred post-2001 have been parallel amalgamations (Firth, 2000). The same notion is also put forth by Berndt (2001). He also states that most of the amalgamations which happened post-deregulation and liberalization of the economy were parallel in character. Another instance of a parallel amalgamation like the one ofBirla Cement and Larsen Toubro (LT) is related to the cement sector. Additionally, the amalgamation ofKingfisher Airlines and Air Deccan in addition to the one between Jet Airways and Air Sahara depict parallel amalgamations in the airlines sector. The Tatas and the Birlas are two huge corporate entities, which have amalgamated in the telecommunications sector. Vertical Mergers A perpendicular amalgamation is one in which enterprises which are elements in a supply chain or which function as utility suppliers or subsidies in the equivalent type of trade resolve to become one entity. It is noticed that such amalgamations occur when firms resolve to augment their forte in the supply aspect (Agrawal et al., 2002). Perpendicular amalgamations manage to keep rivals away by maintaining stress and managing their supply firms. The perpendicular amalgamation is thus capable of seizing a bigger market share for their goods while the supply group fails to back the goods of other contenders. This plan assists the enterprises to closely react to their clients needs. The element pertaining to the rivals is capable of keeping the prices from rising as the supplies are not reimbursed for (leanmergers.com). Logically, the outcome of this action is an extremely robust management and more revenues as the firms attain an upper hand over their contenders. An instance of perpendicular amalgamation is the one between Ford and Vauxhall who are car producers, who have acquired or purchased automobile enterprises. When Ford purchased Hertz, it was an instance of a perpendicular amalgamation (Loughran and Vijh, 2007). Another example of a perpendicular amalgamation in the telecommunication industry is that of Reliance Communication Ltds purchase of Flag Telecom. Conglomerate Mergers Multinational amalgamations occur amongst two entirely varied enterprises. Such enterprises are participants at distinct degrees and have no equivalents in the good variety, markets, clients, supply chain, or any other criterion. Multinational amalgamations occur amongst such enterprises and a novel association is shaped in addition to new trade contracts. Multinational amalgamations show only one line of power or authorization, which manages the trade functions from a solitary aspect of knowledge, resources, client power, and market experience which guarantee enhanced trade after the multinational trade which occurred before (Asquith et al., 2003). Multinational amalgamations are executed so as to diffuse the dangers over an extensive base and thus avoid any chief impediment for the enterprise (Huang and Walkling, 2007). Financial Acquisitions Monetary attainments are related to the capital and fiscal aspect of trade plans such as Management Buyouts (MBOs) or Leveraged Buyouts (LBOs). Such purchases are not considered in the same context as amalgamations and takeovers (Travos, 2007). 2.2. Stimulus for Amalgamations A large chance to develop the value of mergers is when incentives for the same are anticipated or envisaged by investors. Investigators such as Asquith et al. (2003), Agrawal et al. (2002), and AndrÃÆ' © et al. (2004) have developed comprehensive data related to the topic pertaining to the incentives for mergers. Mergers must be discouraged by varied reasons such as a superior geographic market, varied economies, superior capabilities and price efficient conduct, widening of the trade, the synergy incorporated, and shifting assets to superior administrators so as to maximize the assets and create superior results, which is the chief objective. It has been proved that mergers and amalgamations are distinctive mediums related to financing in the context of advancement by many investigators. The chief idea or objective behind attaining a profitable investment would be important, particularly if such a concept is considered. In the event of the presence of incentives such as professions or sometimes pure respect improvement occurrences, the possibilities of investments becoming valuable, particularly when there are totally varied incentives for the varied enterprise to triumph and create the line of business. In the event of mergers, at the point when the primary incentive shapes the real advantageous investment, one has to consider the reason why the merger may seem to be priceless. A primary reason may be the lack of the expanding capability to access an unexploited market. One may anticipate a merger so as to achieve these objectives in an effortless manner (Gugler et al., 2003). For a triumphant merger, one should ascertain aspects of robust revenues and synergies. The focus in this matter should also lie on comprehending the incentives for cross-border mergers. It is noticed that dissimilar to domestic mergers for cross-border mergers, one needs to develop an incentive evaluation (Conn et al., 2001). The FDI incentives would resort to internalization, ownership, and position advantages as good instances as mentioned by Moeller et al. (2004). In the context of cross-border mergers, a merger is not likely to have unique ownership advantages. On the other hand, locational advantages may be unclear. Thus, in lieu of purchasing an enterprise in a totally varied geographical market, there are many idea-procedures which happen constantly. The majority of crucial internalization advantages in the instance of cross-border mergers are when products are sold overseas by one nation to another. In the event of the incentives, the OLI framework provides a backdrop for the objective of cross-border mergers, but other factors are also very crucial. It is considered by Chen and Findley (2002) that there is a speed if the retrieval to international markets since those from Greenfield investment cannot be equaled. By the end of the initial ten years of the 21st century, the waves in mergers were analyzed by Danzon et al. (2004). This was later referred to as the Cross Border wave. In contrast to other waves of the century, Evenett explained the trends of the merger wave to be distinct. The utility segment displays how the merger wave comprises of more mergers since specific elements had become components of the Cross Border and more so, with the liberalization effects in addition to the industrial monetary facet, this has additionally intensified privatization. There had to be a greater milieu to assist cross-border mergers. With the chief investment, the incentives had to be linked to the dogmatic surrounding to guarantee an element of the merger wave as depicted by Evenett. For other such grounds, cross-border mergers rise as depicted by Nicholson and McCullough (2002). When the researcher has to handle the theoretical information pertaining to mergers, he tries to present an expansive literature for better understanding. In the context of mergers, a maximized direct policy contention seems to be the most superior and is accountable for the impact of the mergers. A reasonable facet of the investigation discusses how both, markets and clients in the market commence many types of mergers. There has also been a theoretical investigation relating to ideas such as benefit predictions, envisaged variations in the outlays, diversified and varied quantum, in addition to who will eventually gain or lose on account of mergers. These theoretical investigations found their crux in oligopoly markets. Oligopoly markets have been the only crucial markets to utilize the rationale behind mergers opine Conn et al. (2001). So as to manage such market situations, a firm which enjoys a monopoly generally cannot enter into a merger. In a merger of firms, there would be no impact on the market outcomes. In varied production scenarios, the strengths of demand and cost in varied types of oligopoly markets function in different ways while the emphasis of the literature is on studying mergers. 2.3. Cross-Frontier There are several literatures which pertain to theories related to mergers. In reality, none of these literatures actually differentiate that in the management of international merger procedures there must be variations. To achieve cross-border mergers several simultaneous investigations have been undertaken, which complement that there are several literatures dealing with the impacts of these mergers. In terms of globalization, it relies so this is a close expansion and additionally it fulfills international economy apart from varied types of market endeavours to expand international firms of their functions. With consistent methods related to cross-border mergers there is relevant contention for the perusal of Indianization of different segments as described by Ozawa (2002). On account of the absence of attempts in merging administrative techniques, business is the driving aspect behind communication and culture which is why different cross-border mergers were unsuccessful states F inkelstein (2009). Every type of merger is impacted by these matters instead of cross-border agreements which may be dominant. A further peril is that cross-border contracts are entered into merely to gain benefits. To regard the facets of wondering literature there are subjects and anxieties in context of the methods which incorporate cross-border mergers that have been completed. For cross-border mergers, informative differences are real in the hypothetical model facet as stated by Estrin (2009). In the process of achieving merger benefits, jargon, cultural problems, and official systems are cited as types of primary obstacles. The capabilities to draw attention of skills from other enterprises have been provided to differences useful influence procedures, attainment of communal mergers in firms and the particular speed. Generally, between the links amongst the merging methods of firms informative differences are the source of distrust, to which the triumph can be impeded by the communication matters. There is no clear theoretical model on the other hand, which is related to the impediments which harm the efficiency; despite it being a hypothetical exemplar. In contrast to domestic mergers, for a successful cross-border merger, however, this proves that the closer the facets, the more the obstacles, and these are limited to specific countries since many of th ese obstacles are linked to the regulatory and informative systems prevalent there. According to the origin of enterprises in context to the obstacles,there exist behavioral national variations which need to be expected and depend on the country. By being a source of synergy, informative differences can enhance merger ability in addition to generating benefits as opined by Fama (2009). However, impediments can be built by this, for expanded manner of spreading that is more possible. Instead of any of the domestic mergers participating in cross-border mergers as to gain more useful outlooks for the firms a theoretical exemplar method has been developed by Bjorvatn (2001) for the profit of handling cross-border mergers. By allowing varied mediums of entry in addition to cross-border mergers and for assessing and impacting triumph of cross-border mergers in addition to assessing entry outlays these are the primary variables, he employed to follow Fama (2001). Greenfield investment has been shifted into avenues which are minimally attractive by entry outlays, by methods using cross-border mergers augmented to the degree of revenue. On the other hand, in that market for achieving success as expected facets domestic mergers are regarded to be linked to a rise in the entry expenses. In contrast to the domestic ones in envisaging cross-border mergers success focus on hesitancy which is the outcome in this scenario. While choosing the expected outputs in addition to the entry outlays, the cross-border mergers can also provide access benefits to the distinctive market. In this regard, for both domestic and cross-border mergers, there is present, a theoretical merger literature. In terms of price uncertainty and demand exemplar depending on the matter of the doubt as put forth by Das and Sengupta (2001) both in domestic and cross-border mergers is the correct method. 2.4. Experiential Study MAs are expansion strategies that corporates adopt to increase scale and market share rapidly. They are also used to diversify business interests or acquire technological capability, capital, expertise, or enter new markets. From the business perspective, growth is seen in terms of capital, profits, and shareholder value, operations become more efficient, and busin

Chemical Vision

Final Report Sponsored By ENGINEERING DEVELOPMENT BOARD Ministry of Industries & Production Government of Pakistan SEDC Building (STP) 5-A, Constitution Avenue Islamabad Tele: (051) 9205595, 9223734 Fax: (051) 9206161 Prepared By Technology Management International (Pvt) Ltd (TECHMA) 31/11-A, Abu Bakr Block New Garden Town, Lahore Tele: (042) 5881460 Fax-Cum-Tel: (042) 5881718 E-Mail: [email  protected] net. pk 2010 TABLE OF CONTENTS Description Page Nos. Acknowledgement Team of Experts Executive Summary. CHAPTER 1 Scope Of The World’s Chemical Industry 1. 1 Scope of the chemical industry. . 2 Category wise breakdown of the chemical industry. 1. 3 Research and development in the chemical industry. 1. 4 Classification of the chemical industry development of Pakistan – Vision 2030. CHAPTER 2 Potential for the development of secondary chemical industries based on feedstocks derived from primary industries. 2. 1 Feedstocks derived from primary industries for the potential development of secondary chemical industries. †¢ Crude oil based petroleum and petrochemical refineries. †¢ Olefin petrochemical complex. †¢ Aromatic petrochemical complex. 2. 2Natural gas based chemicals. 2. 3 Alternative feedstocks for the production of commodity chemicals. 2. 4. Feedstocks derived from metallurgical plants and polymers, materials technology and metallurgical processes. 2. 5 Other mineral based projects consisting of acid and alkali industries, cement and glass plants based on limestone, gypsum, rock salt, sulphur and silica. 2. 6 Agro based feed stocks. 2. 7 Sources of raw materials and process technologies for chemical industry development in Pakistan. 2. 8 Categorization of secondary chemical industries in Pakistan. CHAPTER 3The present status of the chemical industry in Pakistan. 3. 1 General 3. 2 The structure of Pakistan’s imports and exports. 3. 3 The role of government in industrial development. 3. 4 Limitations of Pakistan’s industrial policies for chemical industry development. i-vii 1 1 1 4 5 1 1 1 3 5 7 10 13 17 17 20 21 1 1 3 8 12 Continued†¦Ã¢â‚¬ ¦. Page 1 of 2 CHAPTER 4 4. 1 Modernization of the national innovation system for chemical industry development in Pakistan. †¢ Limitations of Pakistan’s N. I. S. †¢ The scope of Engineering Development Board with additional responsibility for technology development and proposed tructure of Technology Development Board. 4. 2 The role of the national committee in research and technology development. 4. 2. 1 The current status of R&D in Pakistan. 4. 2. 2 National committee for research and technology development. 4. 3 National committee for the development of software and hardware for the commercialization of technologies. 4. 4 National committee for the development of technology policy and investment planning. 4. 5 Human resource development. 4. 6 Integrated plan for the development of a national innovation system. 4. 7 Industrial mast er plan. CHAPTER 5Profiles of Present Secondary Chemical Industries of Pakistan. (Section 1) Caustic soda (Section 2) Soda ash & sodium bicarbonate Section -3) Petrochemicals 1 2 4&5 5 6 7 10 13 15 16 20 1-11 12-19 20-37 CHAPTER – 6 Proposal For The Future Development Of Secondary Industries In Pakistan 1-5 CHAPTER – 7 Industrial Trade Policies 7. 1 Imports, tariff and custom duties. 7. 2 Tariff escalation, description and peaks. 7. 3 Other imports duties/taxes. 7. 4 Competitiveness of exports from Pakistan. CHAPTER 8 Conclusions and Recommendations. Attachments Annexure â€Å"A† References 1 2 3 4 1-5 -3 Page 2 of 2 ACKNOWLEDGEMENTS I am grateful to Mr Asad Ilahi, Chief Executive Officer of the Engineering Development Board, and his dedicated staff, Mr. M. Farooq Khan, General Manager (Policy); and Mr Yasir Qurban, Project Engineer. They gave their full support in the conception of the project for â€Å"Chemical Industry Development – Vision 2030† and provided invaluable information and data, which were essential for the successful development of the project. My thanks to my colleagues and associated consultants: Mr Muhammad Sadiq Chaudhry, Dr M. Khalid Farooq and Mr Pervaiz A. Khan.They were a source of inspiration and played an active role in discussions for the development of the strategy. Thank you to my daughter, Leila Butt, for editing this report. Dr Waheed M. Butt EXECUTIVE SUMMARY The global chemical industry forms the fabric of the modern world. It converts basic raw materials into more than 70,000 different products, not only for industry, but also for all the consumer goods that people rely on in their daily life. The modern chemical industry is divided into four broad categories, comprising basic chemicals, life sciences, specialty chemicals and consumer products.Its outstanding success is largely due to unceasing scientific and technological breakthroughs and advances, which have led to the development of new p roducts and processes. Chemical industry development in Pakistan has been classified into (i) the primary sector chemical industry and (ii) the secondary sector chemical industry. Primary sector industries are large-scale, capital intensive industries comprising refineries, petrochemicals, natural gas, metallurgical and mineral based projects. They also provide feedstocks for the secondary chemical industry.Secondary industries are based on feedstocks either derived from primary sector industries, or other alternative sources of raw materials. These are less capital intensive and are based on high, medium or less sophisticated technologies. The secondary sector industries form the basis for the proposed â€Å"Chemical Industry Development – Vision 2030†. Primary sector industries which provide feedstocks for the development of secondary sector chemical industries, as well as other alternative sources of feedstocks consist of: (i) Petroleum and petrochemical refineries. These provide petrochemical intermediate chemicals, which form the building blocks for the production of a very large number of secondary chemicals, such as polymers, fibers, pharmaceuticals, drugs, dyes and colours, insecticides, pesticides, resins, paints, pigments, specialty chemicals, and a very large number of consumer and construction materials and products. (ii) Natural gas based chemicals, which consist of methanol and ammonia. These can also be used for the production of a large number of secondary chemicals. (iii) Metallurgical metals and non-metals based secondary chemicals and products.Executive Summary Page i of vii (iv) Alternative renewable feedstocks for the production of secondary chemicals consist of bio-mass, agricultural wastes, oils and fats, molasses and power alcohol. (v) Unconventional natural gas. (vi) Mineral based secondary chemical industries derived from coal, limestone, gypsum, rocksalt, silica sand and sulphur. (vii) Vegetable and herbal plants used in the production of secondary chemicals, such as dyes, medicines, drugs, cosmetics and associated products. The development of secondary chemical industries are divided between projects ased on sophisticated technologies, and those based on medium and less sophisticated technologies. Development of the chemical industry in Pakistan is lagging behind those of other emerging markets. The various factors which have hampered the development of this industry in Pakistan are: (i) An underdeveloped industrial infrastructure. (ii) Reliance on foreign engineering and construction companies for the commercialization of locally developed or imported technologies. (iii) Imports of second-hand highly energy intensive plants based on antiquated technologies. iv) Reliance on the development of resource based, low technology, labour intensive products for export. The objective of â€Å"Chemical Industry Development – Vision 2030† is for: (i) Pakistan to create its own capability and ac hieve self-reliance in project design, engineering and the construction management required for the commercialization of technologies. (ii) To develop capability in the production of medium and high technology based chemicals for export, alongside to the present industrial structure based on low technology resource based products. iii) To provide suitable incentives to entrepreneurs for the development of an exportoriented chemical industry. Executive Summary Page ii of vii The development of the chemical industry in Pakistan started in the 1950s and is based on five year plans, with the first plan covering the 1955-60 period. Economic growth was based on a policy of import substitution, resulting in varying rates of growth of between 3. 1-6. 8% over 1950-70. However, this masks a highly variable performance: the rate of growth slowed in the early 1970s to an annual average of 4. %, but the economy was revitalized in the late 1970s and 1980s, before weakening again. However, in view of the inconsistencies in the development of trade policies geared towards export-led growth, Pakistan has failed to boost exports of its manufactured goods. By comparison, economic growth in Southeast Asian countries from the 1960s onwards, and in India, China and other late comers from the 1980s, was driven by their exportoriented industrialization policies. All these countries introduced market reforms and provided various incentives and subsidies in order to enhance their exports of manufactured goods.In addition, these countries also developed their own technology and engineering infrastructure by virtue of which they achieved self-sufficiency in the utilization and commercialization of their technologies. As a result, they have achieved strong annual average growth rates of between 8-11% over the past three decades. Traditionally, exports from Pakistan have been dominated by goods produced with low technology, resource based feed stocks, such as textiles, cotton, readymade ga rments and leather. These comprise about 60% of total exports.The composition and share in exports of medium and high technology based products, comprising chemicals, petrochemicals and other manufactured products is very small and has fluctuated between 8-10% of total exports from Pakistan. Conversely, Pakistan has a very high dependence of imports of high value-added goods, which are more expensive. Chemicals, drugs, medicines and dyes, as well as capital plant, equipment and machinery, together account for about 40% of total imports with an estimated value of US$16. 3 billion for the year 2007/08.As a result, the trade balance has been continually increasing and stood at US$20. 9 billion in 2007/08. Present trends in Pakistan’s exports of lower technology goods indicate that it is facing increasing competition from India, China and Bangladesh. In addition, global demand for Executive Summary Page iii of vii these products is declining, and the need for higher technology pr oducts is rapidly growing. This situation calls for a concerted effort towards the development of a chemical industry based on medium and highly sophisticated technologies.Pakistan has only developed its basic industries, consisting of refineries, fertilizers, cement, sugar, polyester fibers and some other petrochemical based polymer industries, to fulfill local demand. These industries have been predominantly developed by foreign engineering corporations, which were awarded contracts on turnkey basis. However, Pakistan has failed to assimilate these imported technologies, or use them either for the replication of these plants or in the development of associated chemical projects.This dependence on the production and exports of low-valued added goods has held back Pakistan’s economic performance and revenue-earning potential. By comparison, South and Southeast Asian countries put special emphasis on the development of high technology goods for export. They achieved this throu gh trade liberalization, but their governments’ also introduced industrial policies that focused on the maintenance of macroeconomic stability, the provision of industrial and technology infrastructure, improvements to market institutions and high levels of public investment.These countries established public organizations which supported production activities, but they also relied on private firms for the success of their industrial policies. For example, China, which retains its socialist form of governance, introduced market reforms and advocated the so-called Open Door Policy. It also created two large public sector corporations: China National Petroleum Corporation (CNPC), for the production and exploration of oil and gas; and China Petrochemical Corporation (SINOPEC) for the development of its petrochemical industry.China also created Petro-China as a Holding Company, which offered its shares on international markets. The value of this company was estimated at US$100 bi llion in 1999, but has since risen to US$1. 1 trillion in 2008. The salient features of China’s public private partnerships (PPPs) is that the public sector is the major shareholder in the development of its capital intensive industries, whereas the private sector is the majority equity partner in the development of secondary projects. Executive Summary Page iv of viiRapid industrialization in Japan and South Korea was driven by multinational conglomerates—Keiretsus and Chaebols—which created vertical and horizontal diversification of their businesses, with the active support of their respective governments. This pattern, in many cases has been followed by newly industrialized countries (NICs). Pakistan’s industrial infrastructure is limited and it relies primarily on foreign design and engineering companies for the commercialization of local and imported technologies.Therefore, there is immediate need for enhancing and modernizing its national innovation system (NIS). This is the framework by which a country brings about technological change, and consists of research and development (R&D) institutions, the infrastructure for commercialization of technologies, the structure of educational and technical institutions, regulatory agencies, information networks, financial institutions and marketing. Process science and engineering technology (PS&ET) is an important component of a NIS and is the foundation for the development of the chemical industry.It integrates various elements of the processes of commercialization, from R&D to process design, project engineering, construction, operations and marketing management. Taken together, these provide the basis for manufacturing excellence and sustainable competitive advantage. In order to meet the goals of â€Å"Chemical Industry Development – Vision 2030†, it is essential for Pakistan to enhance its PS&ET capability. We propose that the scope of the Engineering Development Boa rd should be enhanced and given the additional responsibility to modernize and strengthen the NIS as the basis for technology development.In order to achieve this objective, three committees should be established under the direction of a Technology Development Board (which will be an enhanced Engineering Development Board): (i) A National Committee for research and technology development, (ii) A National Committee for the development of software and hardware for the commercialization of technologies. Executive Summary Page v of vii (iii) A National Committee for the development of technology policy and investment planning.The role of the National Committee for research and technology development will be to foster linkages between universities, R&D institutions and the chemical industry. Various tasks to be undertaken by this committee will include the formation of sub-committees for different sectors of the chemical industry; identification of problems of each sector; selection of R &D teams from universities, industry and R&D institutes for multidisciplinary research; continual appraisal and economic evaluation of laboratory and pilot scale work; and selection and adoption of technologies for commercialization.The processes of commercialization of local or imported technologies depends on the application of science, engineering, design, instrumentation and control, safety and environment, and many other aspects of capital plant manufacturing, construction, operations and marketing management. In order to develop local capability in various areas of project management, we propose the formation of a National Committee for the development of software and hardware as PPP projects.The functions of this Committee will be to support the development of existing or new engineering companies for various tasks. These include the identification of new projects; the preparation of investment studies on international criteria; the formation of financial packages; the develo pment of software and hardware and its application in design and engineering; the development of engineering specifications for capital plant manufacturing; construction; management; and many other functions such as revamping and modernization of old plants, and facilities for reverse engineering.The successful utilization of various components of technology will depend on the ability of the government to foster PPPs with the involvement of industrial and venture capital institutions and a vibrant entrepreneurial class. We suggest that a National Committee for the development of technology policy and investment Planning should be established for: (i) The provision of suitable incentives to potential investors, in order to accelerate the processes of chemical industry development and the revision of industrial policies on continual basis.Executive Summary Page vi of vii (ii) The development of investment policies and infrastructure for capital formation. In order to facilitate the fo rmation of investment, we recommend that a Holding Company should be established with the participation of the financial sector, international donors, friends of Pakistan, overseas Pakistanis and other investors, who would be invited to subscribe as share holders in this company. Profiles of various sectors of existing chemical industries in Pakistan have been prepared.These consist of World’s present and projected production, World trade, local production in Pakistan, local market size, local demand, imports, future prospects for each sector of industry, SWOT analysis with special references to weaknesses, threats and opportunities as well as present tariff structure on Pakistan. Proposals for the future developments of Secondary Industries in Pakistan have been prepared and suggestions for the development of secondary chemical projects based on locally available as well as imported materials have been made.The proposed industries have been divided into various sectors consi sting of minerals, metallurgical, agro-based alternate sources of energy, oils and fats and petrochemicals based projects. A number of potential projects in each sector have been proposed and it is suggested that EDB initiate the development of feasibility studies on each of these projects for their future implementation. An integrated plan for development of NIS has been proposed and various other equirements consisting of the application of computational technologies, human resource requirements, and the development of coherent industrial policy are also considered necessary. An Industrial Master Plan must be prepared for the implementation of various elements of the NIS, which should identify Pakistan’s capabilities and limitations in various priority sub-sectors of the chemical industry. It should develop policy measures and provide fiscal incentives in order to promote investment in various sectors of chemical industry.The development of a NIS on international standards will provide tens of thousands of job to Pakistan’s highly qualified manpower. Executive Summary Page vii of vii CHAPTER 1 1. 1. 1 SCOPE OF THE WORLD’S CHEMICAL INDUSTRY Scope of the Chemical Industry The chemical industry comprises the companies that produce industrial chemicals. It is central to the modern world economy, as it converts raw materials into more than 70,000 different products. The chemical industry is more diverse than virtually any other industry in the world. Its products are omnipresent.Chemicals are the building blocks for products that meet our most fundamental needs for food, shelter and health, as well as products vital to the high technology world of computing, telecommunications and biotechnology. They are used to make a wide variety of consumer goods, and are also inputs in agriculture, manufacturing, construction and services industries. In particular, chemicals are a keystone of world manufacturing, as they are an integral component of all m anufacturing sub-sectors, including pharmaceuticals, automobiles, textiles, furniture, paint, paper, electronics, construction and appliances.It is difficult to fully enumerate the uses of chemical products and processes, but the following nomenclature gives some indication of the level of diversity: Polymers and plastics–especially polyethylene, polypropylene, polyvinyl chloride, polyethylene terephthalate, polystyrene and polycarbonate–comprise about 80% of the chemical industry’s output worldwide. The chemical industry itself consumes 26% of its own output. Major industrial products include rubber and plastics, textiles, apparel, polymers, pulp and paper, and primary metals.Chemicals are nearly a US$3 trillion global enterprise, with chemical companies in the EU, US and Japan being the world’s largest producers. 1. 2 Category Breakdown of the Chemical Industry The marketing of the chemical business can be divided into a few broad categories, including basic chemicals (about 35-37% of US dollar output), life sciences (30%), specialty chemicals (20-25%) and consumer products (about 10%). ___________________________________________________________________________ Chapter – 1Page 1 of 1 BASIC CHEMICALS or â€Å"commodity chemicals† are a broad chemical category, which include polymers, bulk petrochemicals and intermediates, other derivatives and basic industrials, inorganic chemicals and fertilizers. Polymers–the largest revenue segment, at about 33% of the basic chemicals US dollar value–include all categories of plastics and man-made fibers. The major markets for plastics are packaging, followed by home construction, containers, appliances, pipe, transportation, toys and games.The largest volume polymer product, polyethylene (PE), is used mainly in packaging films and other products, such as milk bottles, containers and pipes. Polyvinyl chloride (PVC), another large volume product, is principally used to make pipes for construction markets, as well as siding and, to a much smaller extent, transport and packaging materials. Polypropylene (PP), which is similar in volume to PVC, is used in markets ranging from packaging, appliances and containers, to clothing and carpeting.Polystyrene (PS), another large-volume plastic, is used principally for appliances and packaging, as well as toys and recreation. The leading man-made fibers include polyester, nylon, polypropylene and acrylics, with applications including apparel, home furnishings, and other industrial and consumer use. The principal raw materials for polymers are bulk petrochemicals. Chemicals in the bulk petrochemicals and intermediates category are primarily made from liquefied petroleum gas (LPG), natural gas and naphtha. Their sales volume is close to 30% of total basic chemicals.Typical large-volume products include ethylene, propylene, benzene, toluene, xylenes, methanol, vinyl chloride monomer (VCM), styrene, butadiene and ethylene oxide. These chemicals are the starting materials for most polymers and other organic chemicals, as well as much of the specialty chemicals category. Other derivatives and basic industrials include synthetic rubber, surfactants, dyes and pigments, resins, carbon black, explosives and rubber products. They contribute about 20% to basic chemicals’ external sales. ___________________________________________________________________________ Chapter – 1Page 2 of 2 Inorganic chemicals (about 12% of revenue output) are the oldest of the chemical categories. Products include salt, chlorine, caustic soda, soda ash, acids (such as nitric, phosphoric and sulfuric), titanium dioxide and hydrogen peroxide. Fertilizers are the smallest category (about 6%) and include phosphates, ammonia, urea and potash chemicals. LIFE SCIENCES (about 30% of the dollar output of the chemical business), include differentiated chemical and biological substances, pharmaceuticals, diagnostics, animal health products, vitamins and crop protection chemicals.While much smaller in volume than other chemical sectors, their products tend to have very high prices–over US$10 per pound–with research and development (R&D) spending at 15-25% of sales. Life science products are usually produced to very high specifications and are closely scrutinized by government agencies such as the US Food and Drug Administration (FDA). Crop protection chemicals, about 10% of this category, include herbicides, insecticides and fungicides. SPECIALTY CHEMICALS are a category of relatively high value-added, rapidly growing, chemicals with diverse end-product markets.They are generally characterized by their innovative aspects–products are sold for what they can do rather than for what chemicals they contain. Products include electronic chemicals, industrial gases, adhesives and sealants, as well as coatings, industrial and institutional cleaning chemicals, and catalysts. Coatings comprise about 15% of specialty chemicals sales, with other products ranging from 10-13%. Specialty Chemicals are sometimes referred to as â€Å"fine chemicals†. CONSUMER PRODUCTS include direct product sales of chemicals such as soaps, detergents, and cosmetics.The chemical industry has shown rapid growth for more than fifty years. The fastest growing areas have been in the manufacture of synthetic organic polymers used as plastics, fibres and elastomers. Historically and currently the chemical industry has been concentrated in three areas of the world: Western Europe, North America and Japan (the so-called Triad). The EU remains the largest producer, followed by the US and Japan. ___________________________________________________________________________ Chapter – 1Page 3 of 3 The traditional dominance of chemical production by the Triad is now being challenged by changes in feedstock availability and price, labour and energy costs, differential rates of economic gro wth and environmental pressures. Instrumental in the changing structure of the global chemical industry has been recent rapid economic growth in China, India, Korea, the Middle East, Southeast Asia, Nigeria, Trinidad, Thailand, Brazil, Venezuela, and Indonesia. 1. 3 Research and Development in the Chemical IndustryThe outstanding success of the global chemical industry is largely due to scientific and technological breakthroughs and advances, facilitating the development of new products and processes. The US chemical industry now spends about US$17. 6 billion annually on R&D. In fact, according to study by the Institute for the Future (IFTF), the chemical industry is one of the eight most research-intensive industries. The scientific and technical research of these industries makes our lives safer, longer, easier and more productive.When one reviews the contributions of the chemical industry to our civilization, it becomes clear that rather than any single individual invention or te chnological breakthrough, it has been the industry’s overall commitment to R&D that has been its most significant legacy. Investment in R&D is the single greatest driver of productivity increases, accounting for half or more of all increases in output per person. R&D is the source of new products that improve our quality of life, and new processes that enable firms to reduce costs and increase competitiveness.As we look to the future, it is apparent that continued investment in technology is necessary for industry to meet the needs and expectations of future generations. Reaching the goals of â€Å"Chemical Industry Development – Vision 2030† will require Pakistan to build its technology infrastructure, consisting of investment in technology development, computer aided design, engineering, plant and equipment manufacturing, construction and marketing management. These areas of development have been grossly neglected in the past and are the major reasons for the present plight of the chemical industry in the country. __________________________________________________________________________ Chapter – 1 Page 4 of 4 The industrial sector drives the global economy, collectively transacting almost US$3 trillion per annum. An industry is a collection of companies that perform similar functions. Industry can be used to refer to all company groups, or as being a set of entities that utilize productive forces to convert a simple input into a processed final product. The size of various industries varies by country, level of development and external demand. . 4 Classification of the Chemical Industry Development of Pakistan – Vision 2030 For the purpose of the â€Å"Chemical Industry Development – Vision 2030†, this industry is divided into: †¢ Primary sector industries and †¢ Secondary sector industries. Primary Sector Industries The Primary sector industry generally involves the conversion of natural resources into primary products. These are large, highly sophisticated, technology-based, capital intensive projects consisting of: (i)Petroleum refining and petrochemical industries for the production of petrochemical intermediates, olefins (ethylene, propylene, butylenes) and BTX (benzene, toluene, xylene), all of which form the basis for the development of monomers, polymers and plastic industries. (ii) Natural gas based projects for the production of ammonia, methanol, fertilizers and associated products. (iii) Mineral based industries consisting of cement, limestone, gypsum, sand and salt. (iv) Smelting and refining of ferrous and non-ferrous metals. They also produce raw materials for Secondary industries. v) Agriculture and Farming Industries These constitute naturally occurring, renewable sources of raw materials, such as cotton, oils and fats, sugar, agricultural wastes (bio-mass) and raw materials for a large number of downstream industries. ________________________________________ ___________________________________ Chapter – 1 Page 5 of 5 Secondary Sector Industries The principal objective of Secondary sector industries is to provide the connective link between products and materials produced by Primary industries, which are of practical use to the national economy.This implies that the Secondary industries rely on the Primary industries for feedstocks and raw materials for use in manufacturing, processing, blending, fabricating plants for petrochemical intermediates, polymers, plastics, steel, non-ferrous metals, minerals, agricultural and miscellaneous products. These industries use medium- to high-sophisticated technology, and range from light to medium categories. THE SECONDARY SECTOR INDUSTRIES WILL FORM THE BASIS FOR â€Å"CHEMICAL INDUSTRY DEVELOPMENT IN PAKISTAN – VISION 2030†. __________________________________________________________________________ Chapter – 1 Page 6 of 6 CHAPTER 2 2. POTENTIAL FOR THE DEVELOPMENT OF SE CONDARY CHEMICAL INDUSTRIES BASED ON FEEDSTOCKS DERIVED FROM PRIMARY INDUSTRIES 2. 1 Feedstocks Derived from Primary Industries for the Potential Development of Secondary Chemical Industries Primary chemical industries, which are manufactured through the utilization of various feedstocks, consist of large-scale, highly capital intensive plants, based on sophisticated technologies.These projects also provide raw materials for the development of secondary chemical industries and consist of: †¢ Crude oil based refineries and petrochemical complexes. †¢ Natural gas based chemicals and fertilizer projects. †¢ Alternative renewable feedstocks for the production of commodity chemicals †¢ Metallurgical plants for the production of iron, steel, and non-ferrous metals. †¢ Other mineral projects consisting of acid and alkali industries, and cement and glass plants based on limestone, gypsum, rock salt, sulphur and silica. †¢ Projects based on agro feedstocks.Crude Oil Based Petroleum and Petrochemical Refineries Petroleum refineries are designed to produce a limited number of products, which are primarily used as a source of energy in road, rail and air transport; power plants; steam generation; and heating media in the chemical industry. They do not produce high value-added chemicals unless they are integrated with petrochemical plants–generally designated as Petrochemical Refineries–which are highly energy efficient and produce diversified feedstocks and raw materials for a large number of secondary chemicals.A petrochemical is any chemical compound obtained from petroleum or natural gas, or derived from petroleum or natural gas hydrocarbons and utilized in the production of a large variety of secondary chemicals and products. The definition has been broadened to include the whole range of aliphatic, aromatic and organic ________________________________________________________________________________________ Chapter – 2 Page 1 of 23 chemicals, as well as carbon black and such inorganic materials as sulphur and ammonia. In many instances, a specific chemical included among the etrochemicals may also be obtained from other sources, such as coal, coke or bio-mass. Petrochemical based secondary chemicals include such items as plastics, soaps and detergents, solvents, drugs, fertilizers, pesticides, explosives, synthetic fibers and rubbers, paints, epoxy resins, and flooring and insulating materials. Petrochemicals are found in products as diverse as aspirin, boats, automobiles, aircraft, polyester and acrylic fibers, recording discs and tapes. Natural gas and crude oil are referred to collectively as petroleum. Crude oil consists of the heavier constituents that naturally occur in liquid form.Natural gas refers to the lighter constituents of petroleum that naturally occur in gaseous form, either on its own as free gas, or in association with crude oil. The production of petrochemical based intermedia te chemicals form the feedstocks for secondary industries as part of a two stage process. In the first stage, crude oil is distilled and fractionated to produce a number of products consisting of gasoline, naphthas, and light and heavy gas oils, which are used as a source of energy for road and air transport, and power generation.Simultaneously the off gases, light and heavy naphthas, and gas oils are predominantly used as the starting materials for petrochemical projects. This is illustrated in Fig 2. 1. In the second stage the off gases and naphthas are further processed into two separate operations to produce Petrochemical intermediate chemicals or monomers as follows: ________________________________________________________________________________________ Chapter – 2 Page 2 of 23 Petrochemical Feedstocks Crude Oil To Petroleum Refinery Atmospheric Distillation Methane &Off Gases Gasoline And Motor Spirit Light and Heavy Naphtha Light and Heavy Gas Oil Residue Petrochemica l Feedstock Off Gases/Naphtha/Gas Oil Catalyst Cracking Aromatics Steam Cracking Olefins Fig 2. 1 Olefin Petrochemical Complex Refinery off gases, naphthas or gas oils are reformed at high temperatures in the presence of steam to produce monomers (ethylene, propylene and butylenes). These are gases at ordinary temperatures and pressures and can only be transported at high pressures and low temperatures as liquids under refrigerated condition.These are preferably processed further at site to produce secondary petrochemical products or polymerized into polymers, such as polyethylene, polyvinylchloride, polystyrene, ethylene glycol and many other secondary chemicals as illustrated in Fig 2. 2 and 2. 3. ________________________________________________________________________________________ Chapter – 2 Page 3 of 23 STEAM CRACKING OF STEAM NAPHTHA / GAS OIL NAPHTHA / ASSOCIATED GAS / GAS OIL STEAM Ethylene REACTOR Steam to Feed ratio 0. 25 to 0. 9 Temperatures 820 to 840oC Propyle ne Butylenes Fig 2. 2 OLEFINS AND PETROCHEMICAL INTERMEDIATES BASED SECONDARYCHEMICAL INDUSTRIES STAGE I THERMAL CRACKING OF NAPHTHA FOR THE PRODUCTION OF PRIMARY CHEMICALS (HIGHLY SOPHISTICATED, CAPITAL INTENSIVE PROCESS) ETHYLENE PROPYLENE BUTYLENES POLYETHYLENES LDPE,HDPE POLYPROPYLENE POLY VINYL CHLORIDE POLYSTYRENE SBR ETHYLENE GLYCOL POLY VINYL ACETATE STAGE II POLYMERIZATION OF PRIMARY CHEMICALS FOR THE PRODUCTION OF SECONDARY CHEMICALS AND POLYMERS. (MEDIUM TECHNOLOGY BASED PROCESSES). PLASTICS FILMS CONTAINERS PIPES,CABLES, BAGS SYNTHETIC RUBBER & LEATHER PRODUCTS TYRES TOYS ELECTRICAL EQUIPMENT RADIO, TV, AIR CONDITIONERS, REFRIGERATORS FURNITURE, TABLEWARE FORWARD CREATION BACKWARD INTEGRATIONASSOCIATED GASES OR NAPHTHA STAGE III FABRICATION OF SECONDARY CHEMICALS FOR THE PRODUCTION OF CONSUMER PRODUCTS. (LOW/MEDIUM TECHNOLOGY BASED PRODUCTS) Fig 2. 3 ________________________________________________________________________________________ Chapter – 2 Page 4 of 23 O ther Olefins Based SecondaryChemicals Naphtha Steam Cracker (Olefins) Ethylene & Derivatives Ethylene EDC Ethylene Glycol Ethylene Oxide HDPE LDPE LLDPE EPDM Ethanol Alpha Olefins Vinyl Acetate Ethyl Chloride / Ethyl Benzene Propylene & Derivates Propylene Acrylonitrile Cumene Polypropylene Acrylic Acid Butanol 2-Ethyl Hexanol Iso-Propanol NoneneDodecene Propylene Oxide Acetone Acrylic Fiber Butadiene & Derivatives Butadiene ABS Adiponitrile /HMDA Nitrile Rubber Poly-Butadiene Poly chloroprene SB Latex SB Rubber Fig- 2. 3(a) Aromatic Petrochemical Complex Naphtha and gas oil is also catalytically reformed at high temperatures in the presence of catalysts to yield aromatic intermediate chemicals, such as benzene, toluene and xylenes (Fig 2. 4). These are liquids at ordinary temperatures and pressures and can be easily transported to desired locations where they are used as raw materials in the production of a variety of secondary chemical products as shown in Fig. . 5. ______________ __________________________________________________________________________ Chapter – 2 Page 5 of 23 CATALYTIC REFORMING OF NAPHTHA CATALYTIC (AROMATIZATION REACTION) NAPHTHA / ASSOCIATED GAS / GAS OIL Benzene CATALYTIC REACTOR STEAM Toluene Xylenes Fig-2. 4 ` Aromatics Based Secondary Chemicals Naphtha Catalytic Reformer (Aromatics) Toluene & Derivatives Benzene TDI Caprolactam Benzoic Acid TNT Xylenes & Derivates Orthoxylene Paraxylene Metaxylene DMT TPA Bottle Resin Polyester Fiber Fiber Chip Film Resin Phthalic Anhydride PET Benzene & Derivatives Benzene ) Cumene ) Phenol ) Cyclo Hexane )Ethyl Benzene ) Adiplc Acid ) Alkyl Benzene ) Aniline ) Alkyl Phenol ) Chloro Benzene ) Maleic Anhydride ) Nylon Fiber/Resin ) Production of Secondary Chemicals Medium / High Technology Chemicals and Products Production of Primary/Intermediate Chemicals (Highly Sophisticated Capital Intensive) Fig 2. 5 ________________________________________________________________________________________ Chapter – 2 Page 6 of 23 2. 2 Natural Gas Based Chemicals Natural gas is a very valuable resource, not only for use as energy, but also for the production of chemicals. It has been used commercially as a fuel for hundreds of years.The production, processing and distribution of natural gas has become an important segment of the world economy and is a major factor in the production of chemicals in global markets. The composition of natural gas depends on its source. It predominantly consists of methane, but in many cases contains higher hydrocarbons such as ethane and propane. Natural gas processing plants are designed to produce certain valuable products over and above those needed to make the gas marketable. Plants are also designed to recover elemental sulphur which is the starting raw material for the production of many secondary chemicals.Natural gas has created multifarious opportunities and challenges as it is now utilized in the production of fertilizers and petrochemi cals, in addition to its earlier use as a source of energy. This is illustrated in Fig 2. 6. ________________________________________________________________________________________ Chapter – 2 Page 7 of 23 Household Gas Fig -2. 6 ________________________________________________________________________________________ Chapter – 2 Page 8 of 23 FIG-2. 7 ________________________________________________________________________________________ Chapter – 2 Page 9 of 23 2. 3Alternative Feedstocks for the Production of Commodity Chemicals The uncertainties about the peaking of available reserves of fossil fuels, and rising prices of petroleum and natural gas, have spurred the chemical industry to examine alternative feedstocks for the production of commodity chemicals. Over the last two decades alternatives to conventional petroleum and natural gas feedstocks have been developed. These feedstocks include coal based gasification and liquefaction processes; and renewable resources such as bio-mass, stranded natural gas from unconventional reserves, heavy oil from Tar sands or oil shale.These sources of alternative feedstocks are in the process of development for highest volume production of commodity chemicals in Europe and the US. The technology for their utilization is in the process of development, in order to make these processes more efficient and economically compatible with petroleum based technologies. The status of various available feedstocks and the technological development for their exploitation for the production of secondary chemicals is as follows: Coal Substantial world coal reserves make it an attractive alternative to natural gas and petroleum.The technologies for large scale processing of coal are at present available in South Africa and China. However, a major concern about the utilization of these technologies is the variability in feedstock composition and the presence of impurities which poison the catalysts used in the proce ssing of coal. Coal Gasification Commodity chemicals can be produced through the gasification of coal. Because of the large domestic reserves of coal in Pakistan, this feedstock option needs to be exploited. Coal gasification for application, including the production of chemical feedstocks, is already widely practiced worldwide.These plants generate feedstocks for chemical production, closely followed by the Fischer Tropsch process for the production of organic chemicals. ________________________________________________________________________________________ Chapter – 2 Page 10 of 23 The gasification process starts with the production of synthesis gas in a gasifier, followed by the production of a mixture of carbon oxides and hydrogen. Ammonia, methanol, alcohols and aldehydes are produced by Oxo Synthesis. The Fisher Tropsch process is used to produce a variety of secondary chemicals.Different coal types (lignite, bituminous, sub-bituminous) affect the efficiencies and econ omies of the gasification process, since gasification efficiencies are lower for sub-bituminous coals due to higher moisture and ash content. However, since essentially any organic material can be gasified, existing gasifier designs can be adopted to use different types of coal as gasifier feed. Coal Liquefaction Coal can also be liquefied directly, without going through a Syngas step. This process is called the â€Å"Coal to Liquid† or CTL process and is well proven.Liquefaction uses liquid distillation and hydrogenation, where hydrogen is added to coal and water slurry. The slurry increases the Hydrogen/Carbon (H/C) ratio to a crude oil level and removes impurities such as sulphur. Coal Liquefaction technology is of particular interest for the utilization of Thar Coal, which has a high moisture content. A full scale production facility is being built in China for the direct liquefaction of coal into transportation fuels to produce 50,000 bbl/day of fuel oil. A similar proje ct could be developed for Thar Coal with the participation of Chinese Process Licensors. Bio-RefineryA major thrust towards the development of renewable feedstocks as a resource for energy and secondary chemicals is by a process called bio-refining. Bio-refining feedstocks consist of crops residues; waste plants or animal material and recycled fibers; municipal sewage sludge; agricultural and forest residues; household waste; agro-feed effluents; and residues of paper and wood working industry. These plants absorb solar energy from the sun through photosynthesis, and the energy stored within it is recovered by bio-refining processes. ________________________________________________________________________________________Chapter – 2 Page 11 of 23 The bio-refining concept generally involves feeding bio-feedstocks into steam or catalyst crackers to produce chemicals. Some technologies are in the process of development for the processing of carbohydrates, oils, lignin and fuels. In addition to their utilization for energy production, some bio based chemicals that have potential for large scale manufacture include carboxylic acids and glycols. Other areas of development include fermentation of sugars, decomposition of cellulose, high temperature pyrolysis, and bio-refining of wood and waste materials.However widespread use of feedstocks will require sustained research and development(R&D) in a variety of fields such as plant science, microbiology, genomics and catalysis. In view of the impurities, variability of feedstock composition, distributed supply, scalability and pathways for the breakdown of cellulose, the development of process technology will have to be undertaken and / or adapted to local conditions by each country, in order to exploit the utilization of bio-mass feedstocks for economic advantage. Unconventional Natural GasMethane from anaerobic fermentation can be generated from animal manure and sewage treatment, as well as from landfills. The p otential for anaerobic fermentation as a source for useable methane, rather than a source of pollution, will require development work leading to improvements in process control, operating efficiencies and rate of digestion, targeting small scale technologies. Renewable energy sources are indigenous and can, therefore, contribute to reducing dependence on energy imports, such as crude oil, resulting in increasing security of supply as well as resources for the production of commodity chemicals.Developments in renewable energy resources can actively contribute to job creation, predominantly in small- and medium-sized industries which are so central to economic performance. The deployment of renewable resources can be a key feature in regional development, with the aim of achieving greater social and economic cohesion, largely for environmental reasons. ________________________________________________________________________________________ Chapter – 2 Page 12 of 23 2. 4. Feedst ocks Derived from Metallurgical Plants and Polymers, Materials Technology and Metallurgical ProcessesMaterials technology is one of the many areas targeted by the chemical industry. Materials play a critical role in the economic development and growth of chemical process industries. New materials technology is an essential part of the industry’s strategy for achieving its vision. Materials contribute a large amount to industry revenue, and represent a high growth potential for industry. Ferrous and non-ferrous metallurgical processes consisting of iron, steel, copper, aluminium, magnesium and associated alloys have been used traditionally as feedstocks for the development of secondary chemical industries.Tremendous advances in the twentieth century in the development of new synthetic materials have also fueled the growth of the chemical industry. Replacement of traditional materials with synthetic polymers and composite materials has resulted in products with lower weight, be tter energy efficiency, higher performance and durability, and increased design and manufacturing flexibility. Metallurgical Industry The traditional iron, steel and non-ferrous metallurgical industries produce valuable primary products which are important starting materials for the production of secondary chemical products.They are used by almost every manufacturing industry for the fabrication of capital plants and equipment; the manufacture of automobiles, railways, agricultural and construction equipment; and components and spare parts for operating plants in the chemical and allied industries. The iron and steel industry is classified into three important primary products according to the order of processing from iron ore to the finished products. The iron ore is calcined and mixed with limestone and coke and introduced into a Blast furnace. The preheated air is fed to the bottom of the furnace. The ore is reduced to iron to produce Pig iron. ___________________________________ ____________________________________________________ Chapter – 2 Page 13 of 23 Pig iron is refined by different processes to produce iron castings or billets, rolled wrought iron and rolled/forged steel by three different processes as illustrated in Fig 2. 8. Fig-2. 8 The primary products of the iron and steel industry, which consist of iron castings, rolled wrought iron, and rolled and forged steel, are the feedstock for a very large number of downstream secondary industries. ________________________________________________________________________________________Chapter – 2 Page 14 of 23 Non-Ferrous Metals Non-ferrous metals are produced through two basic operations. In the first operation, the ores are subjected to metallurgical processes to produce basic metals consisting of large blocs or bars. In the second operation, the metal is smelted and refined. The secondary smelting and refining of nonferrous metals lead to the production of aluminium, copper, lead, nickel , silver, gold, tin and zinc. These metals are used in wide variety of secondary chemical manufacturing industries, such as ammunition, beverage cans, coins, automobiles and household appliances.Copper possesses superior electrical conductivity, and is a strong, durable metal used in a variety of structural applications, as well as for power, lighting and communication transmissions. Domestically, the major markets for copper are construction, electronics, and industrial machinery and equipment. Aluminium, the most widely used nonferrous metal, possesses several positive attributes, such as a light weight, corrosion resistance, and high electrical and thermal conductivity, which makes the metal suitable for a variety of applications.Container and packaging manufacturers use aluminium, while other major enduse products include the transportation sector, the building and construction sector, and the electrical sector. Lead is primarily used for the manufacture of storage batteries, wh ich in turn are incorporated into automobile ignition starters, un-interruptible power supplies for computer systems, and standby power supplies for emergency lighting systems and telephones. Other market sectors that purchase lead include paint and glass manufacturers, and building products manufacturers.Zinc is primarily used to galvanize products found in the automobile, steel and construction industries, but a greater percentage of secondary zinc is used to produce brass and bronze, as well as assorted chemicals. Additional applications include the blending of zinc-based die-cast and brass alloys. ________________________________________________________________________________________ Chapter – 2 Page 15 of 23 Composite Materials Over the past few years, advances in the production of composite materials, including mixtures of polymers, fibers, metals and ceramics, have extended the range, performance and applications of these materials.These are made up of individual mate rials referred to as constituent materials. There are two categories of constituent materials designated as matrix and reinforcement. The matrix surrounds and supports the reinforcement materials by maintaining their relative positions. The reinforcements impart their special mechanical and physical properties to enhance the matrix properties. A synergism produces material properties unavailable from the individual constituent materials.A wide variety of matrix and strengthening materials allows the designer of the product or structure to choose any optimum combination. Most commercially produced composites use a polymer matrix material often called a resin solution. There are many different polymers available depending upon the starting ingredients. The most common are known as polyesters, vinyl ester, epoxy, phenol, poly amides, amongst others. The reinforcement materials are often fibers and fiber glass, but also commonly ground materials.The average composition in a product cont ains 60% resin and 40% fiber. Various process technologies consisting of vacuum moulding, pressure moulding, autoclave moulding and resin transfer moulding are employed in order to give the required properties and strength to the relevant final product. Composite materials have gained popularity in high performance products that need to be lightweight, yet strong enough to take harsh loading conditions. Examples of these include aerospace components, boat and scull hulls, and car bodies.The new Boeing 787 aircraft, including its wings and fuselage, is composed largely of composite materials. ________________________________________________________________________________________ Chapter – 2 Page 16 of 23 2. 5 Other Mineral Based Projects Consisting of Acid and Alkali Industries, Cement and Glass Plants Based on Limestone, Gypsum, Rock Salt, Sulphur and Silica The mineral potential of Pakistan, although considered excellent, is not adequately exploited as its contribution to G NP at present stands at only 2. 4%.The main sources of locally available feedstocks for the production of the acid and alkali industry (soda ash, sodium bicarbonate, caustic soda, chlorine), sulphur and other inorganic acids, glass and cement, consist of rocksalt, sulphur, limestone, gypsum and silica sand. The manufactured products are predominantly marketed for local use, although there are some exports to Afghanistan and the Central Asian states. In view of the long history of development of industries in this sector, the process technologies are well-known locally.However, the design, engineering and procurement of critical plant and equipment are predominantly carried out by foreign engineering companies. 2. 6. Agro Based Feedstocks Cotton and Other Natural Fibers Agriculture is the largest sector of the economy and is the source of livelihood of almost 45% of the total employed labour force in the country. Cotton is the most important non-food crop and feedstock for the produc tion of natural fiber for the manufacture of textile products. Cotton fiber is also blended with polyester and viscose fibers.The textile and clothing industry has been the main driver of Pakistani exports for the last sixty years, in terms of both foreign currency earnings and job creation. The textile industry flourished under official patronage, but lost its advantages in the post quota regime. Its share in exports has declined from 66% in 2005 to 53. 7% in the current 2008-09 financial year. The textile industry is based on relatively low to medium technology, but in spite of this Pakistan has spent US$7. 5 billion on the import of textile machinery over the past ten years (1999-2009).Pakistan did not make any effort to adopt ________________________________________________________________________________________ Chapter – 2 Page 17 of 23 imported technologies for the manufacture of textile machinery by reverse engineering. In view of these shortcomings, the textile indus try has continuously suffered productivity losses due to machinery breakdowns and its inability to cope with operational problems. Pakistan is now facing competition from China, India and Bangladesh, in view of their better quality products, higher productivity and other economic advantages.Sugarcane, Molasses, Power Alcohol and Associated Industries Sugarcane is an important cash crop and is a valuable feedstock for the production of sugar and other downstream industries, such as industrial alcohol, chip board and paper. Molasses is a by product of the sugar industry and is the starting raw material for the production of industrial alcohol, which is used as a source of energy for automobiles, as well as the production of organic chemicals, such as aldehydes, acetone, acetic acid, acetic anhydride, isophoron, citric acid, glycerol, yeast and many other derivatives for pharmaceutical and plastic industries.Fruit and Vegetables The various varieties of fruit produced in Pakistan consi st of citrus, mango, apples, banana, apricot, guava, grapes and tomatoes. Annual production is estimated at 5. 6 million tons per year. The fruit industry is very diversified and consist of juices, soups and sauces, baby food, bakery products, confectionary and tomato products. The technology for the processing of fruit is becoming more sophisticated because of the high demand for quality products. The industry is required to produce food products both economically and profitably, and this depends upon efficient processes.At the same time, these processes must handle the material in such a way that the final product is attractive to the consumer. The fruit industry and its downstream products have considerable export potential. ________________________________________________________________________________________ Chapter – 2 Page 18 of 23 Natural Dyes Vegetable dyes are eco-friendly and their use is increasing, especially for dyeing wool, carpets, silk and cotton. The commo n sources of vegetable dyes are parts of plants, such as leaves, flowers, fruit, seeds, barks, and the roots of dye yielding plants.The cultivation of certain trees also yield dye material. Therefore, the utilization of dye yielding plants and trees will boost the agro-based industry especially in rural areas, leading to rural development and employment creation. Pakistan imports vegetable dyes from India despite the fact that the raw materials for their production are available in Pakistan. Dyes and pigments constitute the largest segment of the industry, with the world’s present value estimated at about US$16 billion per year. Herbal Medicines and Associated productsThe Indian / Pakistani system of medicines–generally known as the Ayurvedic System of Medicine–is considered a perfect science of life which has evolved from wisdom, experience and logic. Based on scientific observations, it has its origin in the Vedas–the oldest recorded wisdom circa 6000 B C. Ayurvedic herbal medicines are considered ideal treatments, as they cure the diseases without causing any side effects. Herbal medicines and products now include medicines, health supplements, herbal beauty and toiletry products.Major developments in herbal medicines and beauty products are now taking place in China, South Korea, Canada and the US, in addition to India. It is estimated that the global market for herbal products now stands at US$62 billion per annum. Pakistan has a vast variety of flora and fauna especially in the northern areas, Azad Kashmir and the foothills of the Himalayas, which need to be explored for beneficial exploitation of these resources. ________________________________________________________________________________________Chapter – 2 Page 19 of 23 India has established a Technology Development Board which provides financial assistance to R&D establishments concerned with the development and commercialization of indigenous technology for herba l products for wider domestic applications. There is considerable potential for the development of this sector and collaboration with well known companies such as Hamdard and Qarshi can be sought for joint partnerships for the development of herbal projects. Oils and Fats IndustryConventional oils derived from cotton seed, rapeseed and corn are now processed and utilized for the production of bio-fuels in the US and other countries. An alternative source of vegetable oil called Jetropha is now widely cultivated in South and Southeast Asia, especially in Japan, Thailand, China and India. It is a woody and hardy plant, and grows to a height of 3-8 meters. It grows quickly even in poor soils and is not affected by drought and disease. The Macro engineering society of Pakistan, in collaboration with Big Bird (Pvt. ) Ltd. as initiated a project for the plantation of Jatropha in Layyah, West Punjab. The Jetropha oil seed contains about 40% of vegetable fat/oil and some toxic materials, wh ich makes it inedible for human and livestock consumption. The process technology for the conversion of Jetropha oil into bio-fuels is well proven and can be adopted in Pakistan. 2. 7 Sources of Raw Materials and Process Technologies for Chemical Industry Development in Pakistan The sector wise classification of chemical industry in Pakistan is as follows: PRIMARY INDUSTRIES SOURCES OF RAW MATERIAL ) Petroleum Refineries ii) Fertilizers Imported Crude Oil Local Natural Gas, iii) iv) v) vi) Local Materials, Limestone, Clay Imported/Local Ore Locally available ore Local Agricultural Raw Material Cement Iron & Steel Copper Textiles ________________________________________________________

Analysis Of On The Road By Langston Hughes - 868 Words

Walker insists that there is representation to white people when the narrator of the story â€Å"On the Road† by Langston Hughes speaks of the church and the snow. Walker does include some nice points, points that one could easily see. Some of her points and observations though, I feel are a bit of a long shot. I have the same feelings towards Walker’s comparison of â€Å"On the Road† and the story of Samson. Walker’s first theory is that the snow is â€Å"a symbol of the white oppressive world that is making sergeant so miserable and that he is trying so hard to ignore.† Right off the bat I have to disagree with Walker. I do not believe that Sergeant is trying to ignore the snow. I think he honestly just doesn’t notice it. He notice’s white oppression. He even acknowledges it when he is shot down by Reverend Mr. Dorset and thinks â€Å"They drew the color line anyhow,† referring to the shelters and again when he says â€Å"I k now it’s a white folks’ church.† The snow is different. He has too much going on to be concerned with the snow. He is too hungry, sleepy, and cold to even notice the snow. It’s like taking a day trip out in the hot sun. It’s easy to feel pain in one’s feet and not realize the sun burning his or her skin. It is still weather affecting someone, but because there are other issues, it goes unnoticed. The snow does play an important role in the view of the church. The church is â€Å"pale in the snow.† The church is blurry and distorted white because of the falling snow. This is theShow MoreRelatedAnalysis Of On The Road By Langston Hughes1570 Words   |  7 Pagesâ€Å"On the Road† Analysis â€Å"On the Road† is a short story written by Langston Hughes whose major themes are of race, religion, and subjective nature of fiction. An influential African-American writer, Hughes was born in 1902 and primarily raised by his maternal grandmother (Meyer 1032). 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