A suggestion was floated in the Indonesian palm oil conference last month. Given Pakistan’s $2 billion palm oil imports, mostly from Indonesia, the bilateral trade deficit cannot be decreased materially through the sale of oranges and mangoes alone. It was postulated that the price per unit of ethanol is roughly equivalent of the price of edible oil. In trade agreement negotiations, Pakistan’s ethanol exports should be given a preferential tariff to boost its exports and bring down the deficit.
The suggestion has its limitations given that Indonesia’s imports are about $15 million annually, a far cry from Pakistan’s edible oil imports. However, the merits of the idea lie in promoting ethanol production and exports.
International studies and media reports indicate that ethanol is a $72 billion global market, rising at a CAGR of 8 percent and expected to cross the $100 billion mark by 2022. Ethanol is most commonly made from biomass such as sugarcane, but it can also be made from wheat, both produce that Pakistan has in spades.
The main driver of ethanol demand globally is the automobile sector. Ethanol can be used as a clean-burning fuel and as a fuel additive to reduce greenhouse gas emissions. As the world moves towards green technologies, adoption of ethanol as an eco-friendly fuel in the auto sector is expected to rise.
In Pakistan it can be used to bring down the massive oil bill that is only expected to rise. Ethanol as fuel can be blended with gasoline at levels ranging from 5 to 27.5 percent to reduce petroleum use, boost octane ratings and cut tailpipe emissions.
While it is mostly used in Brazil, world’s top sugar producer, US and Europe, it has had limited application in the region. India is working towards changing this by implanting policies that will allow ethanol to replace 10 percent of its oil imports. The National Policy on Bio-fuels India was implemented in 2009. Under it, India’s oil marketing companies have signed agreements and ethanol mixed fuel is expected to commercially available by 2020. India targets 8 to 10 percent of fuel by 2022 will be blended, with the figure rising to 20 percent by 2030.
Currently, ethanol blending in petrol in India is at 2 percent and less than 0.1 percent in diesel. This policy has its limitations given the high water requirements for growing sugar and its limited sugarcane crop. Though India is one of among the top sugar producing country in the world, its industry report suggests that India’s new sown area for sugar cane is 3 percent. However, to bring down the over $100 billion fuel import bill, the government has found this an essential step to take.
A similar case can be made for Pakistan. A 2008 paper by USDA states that Pakistan has the potential to produce significant quantities of ethanol bio-fuel as input availability and infrastructure for manufacturing exist. Safe handling of blending with petrol, given its extremely flammable nature, and establishment of regulatory measures are the real hurdles along with lack of knowledge and experience.
Pakistan is resorting to the IMF for the thirteenth time. The need to bring down imports is being shouted for by all quarters and cannot be emphasised enough.
Even a 2 percent ethanol blending policy would result in a decrease in hundreds of millions of dollars since Pakistan’s petroleum bill was over $14 billion last fiscal year. Out of the box ideas of reforming the economy using the resources available would go a long way in bringing down the deficit now and in the future.