The European Union's proposal to suspend import duty on a number of products from Pakistan including ethanol for three years because of the devastating floods in the South Asian country might not really lead to a big increase in exports.
The agreement is subject to approval by the European Parliament and by the World Trade Organization.
One reason why exports to the EU are unlikely to see a huge rise is that the floods hit a lot of crops including sugar cane, from which Pakistani ethanol is made.
"A large part of the sugar cane crop has been decimated by the floods. This has led to an increased price for feedstock molasses. In this sense, even if the measure is approved, I don't see a significant increase in imports of Pakistani ethanol to Europe in the near term," Claudiu Corvig, an analyst with sugar and ethanol consultancy Kingsman, told Platts recently.
According to data collected by the consultancy, ethanol imports from Pakistan into Europe totaled around 60,000 mt. "I don't see this figure changing too much in the [next] year," Corvig said.
A source dealing with ethanol exports from Pakistan said that the sugar cane harvest in the country was likely to hit 3.6 million mt this year, up from 3.3 million mt in 2009. "We were expecting a bumper harvest. Before the floods, the expectation was that we would reach the 4 million mt mark," he said.
The source added that the current high price of molasses in Pakistan was likely to hit ethanol production as millers would benefit more from selling the raw material. "Prices for ethanol are also not workable at the moment, as European prices are way higher than here in Pakistan," the source said.
The EU has implemented new criteria that all ethanol traded in the region will have to meet if they are to count toward the targets of the Renewable Energy Directive, which came into effect December 5.
The RED stipulates that the EU has to meet 20% of its energy needs from renewable sources by 2020. Also, the transport sector has to meet 10% of its energy needs from renewable energy, which will mostly be through biofuels, since the hybrid and electric vehicles industry is still in its infancy.
Most importantly, the RED determines that biofuels consumed in Europe will only count toward the 10% transport target and will only be able to receive incentives if they generate a minimum 35% net greenhouse gas savings and have no negative impact on biodiversity and land use.
To be eligible under RED, producers have to get their production and feedstocks certified or audited. With no certification system in place in Pakistan, it is unlikely that the country will be able to meet the criteria. "I don't think we will be competitive on the fuel side," the source that handles Pakistani exports said.
John Clancy, a spokesman for the European Commission's trade department, said that the RED did not mean that ethanol not meeting the criteria would be prohibited in the EU and that it was still unclear how the RED would play out in various member states.
"It is still not quite clear how exactly the RED criteria will be applied by EU states. There is a transition period and it will take some time for all exporters [and importers] to adjust to the new criteria. There is no reason why Pakistan should not be able to meet the sustainability criteria," Clancy said in an email to Platts.
Sustainability criteria were not an issue for other grades of ethanol such as beverage and industrial grades, he said.
Indeed, Pakistan hopes to export more of the beverage grade ethanol. "Pakistan currently exports 25,000-30,000 mt of beverage grade ethanol annually and this could increase by 35-50% if the tariffs are lifted. But that will always depend on the harvest situation and on whether the arbitrage really works," the Pakistani source said.
Anyway, the proposal needs to be approved unanimously by all WTO members. And here India could be a hurdle for Pakistan. Until 2006, Pakistani ethanol exports to the EU were duty free. This ended after India challenged the zero tariff in WTO courts.
"I think this will be Pakistan's biggest challenge. We will certainly have a problem with the 'big boys' like Brazil and India, which are large exporters," the Pakistani source said.
The agreement is subject to approval by the European Parliament and by the World Trade Organization.
One reason why exports to the EU are unlikely to see a huge rise is that the floods hit a lot of crops including sugar cane, from which Pakistani ethanol is made.
"A large part of the sugar cane crop has been decimated by the floods. This has led to an increased price for feedstock molasses. In this sense, even if the measure is approved, I don't see a significant increase in imports of Pakistani ethanol to Europe in the near term," Claudiu Corvig, an analyst with sugar and ethanol consultancy Kingsman, told Platts recently.
According to data collected by the consultancy, ethanol imports from Pakistan into Europe totaled around 60,000 mt. "I don't see this figure changing too much in the [next] year," Corvig said.
A source dealing with ethanol exports from Pakistan said that the sugar cane harvest in the country was likely to hit 3.6 million mt this year, up from 3.3 million mt in 2009. "We were expecting a bumper harvest. Before the floods, the expectation was that we would reach the 4 million mt mark," he said.
The source added that the current high price of molasses in Pakistan was likely to hit ethanol production as millers would benefit more from selling the raw material. "Prices for ethanol are also not workable at the moment, as European prices are way higher than here in Pakistan," the source said.
The EU has implemented new criteria that all ethanol traded in the region will have to meet if they are to count toward the targets of the Renewable Energy Directive, which came into effect December 5.
The RED stipulates that the EU has to meet 20% of its energy needs from renewable sources by 2020. Also, the transport sector has to meet 10% of its energy needs from renewable energy, which will mostly be through biofuels, since the hybrid and electric vehicles industry is still in its infancy.
Most importantly, the RED determines that biofuels consumed in Europe will only count toward the 10% transport target and will only be able to receive incentives if they generate a minimum 35% net greenhouse gas savings and have no negative impact on biodiversity and land use.
To be eligible under RED, producers have to get their production and feedstocks certified or audited. With no certification system in place in Pakistan, it is unlikely that the country will be able to meet the criteria. "I don't think we will be competitive on the fuel side," the source that handles Pakistani exports said.
John Clancy, a spokesman for the European Commission's trade department, said that the RED did not mean that ethanol not meeting the criteria would be prohibited in the EU and that it was still unclear how the RED would play out in various member states.
"It is still not quite clear how exactly the RED criteria will be applied by EU states. There is a transition period and it will take some time for all exporters [and importers] to adjust to the new criteria. There is no reason why Pakistan should not be able to meet the sustainability criteria," Clancy said in an email to Platts.
Sustainability criteria were not an issue for other grades of ethanol such as beverage and industrial grades, he said.
Indeed, Pakistan hopes to export more of the beverage grade ethanol. "Pakistan currently exports 25,000-30,000 mt of beverage grade ethanol annually and this could increase by 35-50% if the tariffs are lifted. But that will always depend on the harvest situation and on whether the arbitrage really works," the Pakistani source said.
Anyway, the proposal needs to be approved unanimously by all WTO members. And here India could be a hurdle for Pakistan. Until 2006, Pakistani ethanol exports to the EU were duty free. This ended after India challenged the zero tariff in WTO courts.
"I think this will be Pakistan's biggest challenge. We will certainly have a problem with the 'big boys' like Brazil and India, which are large exporters," the Pakistani source said.
