Public transport for Karachi

The residents certainly deserve a better treatment

July 14 - 20, 2003

Karachiites deserve comfortable public transport. It is sure that public sector has failed miserably in Karachi to offer this basic facility. Now it can only be ensured by greater participation by private sector. Spending billions of rupees on Karachi Circular Railway (KCR) does not offer a solution. An alternate solution, may not be the best, plying air-conditioned vehicles or at least non-air-conditioned buses on various routes.

The passengers face serious problems particularly during peak rush hours. In general the buses and mini-buses plying are over-loaded and the number of road-worthy vehicles is highly insufficient to meet the demand. Vehicles lacking technical fitness are much on the roads, resulting in frequent break down and fatal road accidents. A large percentage of passengers are forced to use their own cars and two-wheelers causing traffic jams on roads. This causes unnecessary waste of POL products. The large consumption of these products also causes massive pollution in the city.

Individuals own most of the buses and mini-buses running in the city and no organised transport company in the private sector exist. In the recent past an autonomous corporation, Karachi Transport Corporation (KTC) was operating buses in the city. However, due to its own problems, mainly poor cashflow, the Corporation was forced to close down its operations. At the time of closure, the Corporation was running over 150 buses on various routes. As a result of closure of KTC passengers' problems further aggravated.

Karachi is the largest metropolitan city of Pakistan having an estimated population of about 14 million people. The city is spread over a large area. The municipal limits of the city have expanded and various suburbs have become part of the city over the years. However, the business centres have remained confined to certain areas. Karachi has two seaports and the largest number of manufacturing and commercial establishments. The head offices of central bank, commercial banks and non-banking financial institutions are also located in the main city areas. Therefore, there is a massive movement of people, both the blue-collar and white-collar workers, during a limited number of hours. These people mostly travel in certain directions in the mornings and take the reverse routes in the evenings. The peak load is between 7.00 am to 11.00 am in the mornings and 5.00 p.m. to 7.00 p.m. in the evenings. The public transport and roads are over-crowded during these hours. The roads are further congested due to movement of private cars and two wheelers.

The public transport (buses and mini-buses) is mostly owned by individuals. As the prices of vehicles have been going up addition of new vehicles in a limited number has failed to meet the increasing need. This is mainly because the costs of chases and completely built units (CBUs) have gone up substantially. In the absence of any financial facility from the financial institutions owners of vehicles have to mainly depend on informal creditors. These people provide credit at very high mark-up rates. The reason being that they do not have any collateral except the vehicle against which the credit is extended. Since these vehicles are not insured, in case the vehicle is damaged in an accident or burnt during riots it becomes the exclusive liability of borrower, in order to make quick money the borrowers indulge in over-loading and often fail to keep the vehicles in road-worthy condition.

The last major induction of vehicles by the private sector, mostly mini-buses, was during the first regime of Nawaz Sharif. These vehicles were inducted under Transport Revamping Scheme at that time. The condition of these vehicles has deteriorated over the years. Many of the vehicles have gone off the roads due to poor maintenance and accidents because no insurance cover was available to rebuild/replace the damaged vehicles. The situation further deteriorated due to closure of KTC. Though some mini-buses are the situation remains highly torturous for the commuters.

As the cost of long-chases buses has been going up the number of such buses has been reducing. Though, effort is being made to meet the demand by mini-buses, introduction of mini-buses has proved to be a futile effort. These mini-buses have lesser seating capacity, insufficient leg space and roof is also low, Therefore, passengers cannot even stand comfortably.

The fare of mini-buses inducted under transport revamping scheme was fixed higher because standing was not allowed in these vehicles. However, due to an acute shortage of vehicles the passengers are not only seen standing but also seen sitting on the roof. In spite of all this, the owners charge the same fare whether the person is sitting or standing/sitting at the roof.

Looking at the prevailing scenario there is an urgent need to establish more than one entity to own-and-operate efficient and comfortable public transport. It is believed that even if the fare is slightly higher but the operators are able to provide efficient and comfortable vehicles passengers are willing to pay slightly higher fare. Learning from the KTC experience it will not be desirable to float another such company in the public sector. Since the intention is to get the equity and debt from multilateral institutions, the proposed company may be established in the private sector.

To ensure economic viability and efficient operations an entity should own-and-operate a fleet comprising of at least 100 long-chases vehicles. Since this requires massive capital expenditure, the proposed companies may be listed at local stock exchanges. Sponsors may be allowed to retain 26% shares and the balance 74% may be offered to: - 1) local financial institutions, 2) multilateral lending agencies, 3) automotive assemblers 4) general public and 5) provincial government. Local financial institutions and multilateral lending agencies may also be asked to provide soft term loans under infrastructure development programme.

Looking at the requirement of passengers the proposed corporation may own and operate two types of vehicles i.e. air-conditioned and non-air-conditioned. The air-conditioned vehicles may be run only on long routes. Fare of these buses may be slightly higher to avoid hauling of short distance passengers. No standing should be allowed in compensation for higher fare. The average permissible average seating capacity may be fixed around 45 and seats should be of superior quality.

The non air-conditioned buses may be allowed to ply on all routes 24-hours a day. The vehicles will leave the terminals at fixed interval and cover the distance between the two points according to the time allocated, to avoid over speeding and unnecessary waiting on the roads. The intervals between departure of two vehicles may be short during peak hours and slightly longer during off-peak hours. The fare may be relatively lower as compared to air-conditioned buses. The seating capacity may not be allowed to exceed 60 and standing should be strictly prohibited. However, the fare may be slightly higher as compared to buses and mini-buses in which standing is allowed.

Since equity of the proposed company will not be sufficient to own-and-operate transport facility of such a magnitude, debt has to be arranged from local multilateral financial institutions. In order to reduce the debt it is suggested that only locally assembled vehicles should be financed under the scheme. The federal government may be asked to allow duty free import of CKD units. The vehicles imported under transport revamping scheme were exempted from payment of import duty etc. in the past. The reduction in cost per vehicle, as result of exemption from payment of duties, will lessen the capital expenditure requirement and in turn operating cost. To further improve the economic viability of such entities, their income should be declared tax exempt for first three years.

However, during this period it should be mandatory for the company to transfer 20% of its income to statutory reserve to undertake BMR and further addition of vehicles.

To reduce the ultimate financial cost, multilateral institutions may be convinced to extend soft-term loans, preferably 2% above the rate being offered on Pakistan Investment Bonds. To compensate for lending at lower rate, a minimum rate of return on equity may be guaranteed. The federal government follows such policy in case of independent power plants, oil refineries and gas distribution companies.

The proposed project offers the many advantages that include better and efficient public transport system, lesser number of vehicles plying on road and lesser traffic jams, lesser fuel consumption and lesser pollution. Therefore, tenders may be floated at the earliest after the consultation with local financial institutions and multilateral lenders. International Finance Corporation (IFC) and Commonwealth Development Corporation (CDC) have offices in Pakistan. They should be more than willing to participate in equity as well as lending funds under infrastructure development programme.

It is necessary to reiterate that KCR is a 'dead horse' and any attempt to revive will be a futile effort. Spending the amount, the government intends to spend on revival of KCR on proposed public transport which can yield far better results.

Karachiites do not prefer to travel by circular railway because they feel most important to reach their offices and homes. The success and popularity of Metro and Green buses establishes this fact. Why not follow a system that is acceptable for passengers?