The production of PE and polypropylene (PP) will go some way to satisfy the growing demand for plastics in Pakistan. The promoters also have an offtake agreement in place with Ravago of Belgium to import a portion of the production. Currently, there is no PE plant in the country which means that Pakistan imports all its PE and PP requirements. In this respect the proposed project once it gets off the ground will also save valuable hard currency for the country and provide employment opportunities across the supply chain.
In fact, the promoters project that as a result of import substitution, Pakistan should enjoy foreign exchange savings of about $250 million based on prevailing prices and import levels
The Trans Polymers Project comprises three phases, of which the PE plant will be the first phase of the development of a major Polymer Complex in Pakistan comprising polyethylene, naphtha and polypropylene. The total investment in the whole Polymer Complex will be in excess of 1.5 billion euro.
The project has attracted vital support from Saudi Arabia and other GCC-based investors, and European investors from Luxembourg and the UK.
Waleed Al-Tharman, the vice-chairman of Trans Polymers (UK) Limited and the president and chief executive officer of Al-Jafr Trading and Contracting Company from Saudi Arabia, in fact is both an equity investor and a co-initiator of the project.
Other GCC investors are currently in discussions with Trans Polymers (UK) Limited and Al-Tharman is confident that some of them will follow suit.
Similarly, the promoters have applied to the Jeddah-based Islamic Corporation for the Insurance of Investment and Export Credits (ICIEC), a member of the Islamic Development Bank (IDB) Group, for political risk insurance to cover various risks including equity.
Polyethylene (PE) is used for packaging, from textiles to fertilizers, and for the production of household articles, automotive and industrial parts, bottles and containers. According to the promoters, the proposed plant will satisfy a substantial part of Pakistan’s requirement for PE which is projected to grow at 7 percent to 8 percent per annum over the next few years.
At present, demand for PE in Pakistan is around 270,000 tons per annum, which is met through imports. The imports of PE and other polymers cost the country over $1 billion in hard currency in 2009. By the time the plant starts production, demand for PE alone is projected to be 570,000 tons per annum, which will effectively guarantee the plant a sustainable domestic market with excess capacity for exports.
The consumption of PE and PP currently in Pakistan per capita per population is a mere 1 kg, which is very low compared with 3kg for neighboring India and 7 kg for China. The global average is 10 kg; while the figure for industrialized western countries is 30-40 kg.
With the global economy slowly emerging out of recession and the recovery on track in many countries especially in the high GDP growth region of Asia, the petrochemical industry in particular is poised to expand especially in countries where there is huge latent and untapped demand. The case of PE and PP in Pakistan is one such case in point.
The proposed project has received the go-ahead from the government of Pakistan, which has granted various foreign investment incentives as well as favorable tariff concessions. The country, stress the promoters, has a favorable regime for foreign investments including 100 percent foreign equity ownership in all sectors, and full repatriation of royalty remittances, technical franchise fees, capital, profits and dividends to foreign investors.
According to the promoters, the project involves major international firms some of which will also co-invest in the project. Ineos Technology is the supplier of the licence and technology; Marubeni and Mitsui will supply the ethylene feedstock sourced from the GCC. The local Descon will provide engineering, construction and operations and management (O&M) services.
Technical feasibility, quality of engineering work and financial feasibility meet a strategic need for a developing country. Construction, commissioning and warranty testing of the plant is estimated to take 34 months and commercial production is expected by the fourth quarter of 2013.
The project, which will be located about 24 km away from Port Qasim and which will have access to a chemical jetty operated by Engro Vopak, should provide over 2,000 jobs during construction, and substantial employment opportunities, especially of skilled manpower, once upstream and downstream production commences.
The project promoters are Trans Polymers (UK) Limited, a private UK investment company comprising British, Pakistani, GCC, EU and Malaysian investors, and its Pakistani subsidiary, Trans Polymers (Pakistan) Limited.
The total project cost for the PE plant is Euro 520 million with a debt to equity ratio of 40:60. Of this 312 million euro will be project financing, which is largely in place, and the rest in equity financing, of which about 80 million euro have been committed by UK, Pakistani and GCC and other investors. Negotiations for the remaining portion of the equity are well advanced and the promoters expect financial closure for the project to take place by the end of this year.
To give further comfort to investors, the financing for the project is done through a Luxembourg holding company, and is coordinated by tax expert Claude Zimmer, managing director of Lux Global Trust Services, a firm specialized in complex private equity transactions, and Marc Theisen, partner, and Reinhard Krafft, investment expert at Theisen Law, which is pioneering Islamic finance transactions out of Luxembourg.
According to Marc Theisen, Luxembourg is an ideal domicile for such a complex international investment project giving investors a cross-border onshore platform which is tax-efficient and in a stable and safe legal environment, especially in times of global economic uncertainty.
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