IS THE CNG BUS PROJECT UNREALISTIC?
THE SORE EXPERIENCE OF BANKS IN RECOVERING DEBTS EXTENDED TO THE TRANSPORTERS IS STILL HAUNTING THEM.
TARIQ AHMED SAEEDI
June 27 - July 3, 2011
While the government envisaged a praiseworthy project of introducing 4000 CNG buses over the five years in Karachi under the public-private partnership, its unequivocal refusal to give sovereign guarantee to the financial institutions creates doubts whether banks or leasing companies would be encouraged to finance private sector by their own bootstraps. The sore experience of banks in recovering debts extended to the transporters is still haunting them.
According to an official statement, "banks/leasing companies shall ensure all safeguards to secure their lending as the government will not guarantee or secure any debts". Since the government is unable to start this mega project through its own resources, it sought participation of the private investors. The environment friendly public transports were to be introduced in the city over a period of five years. In first phase, there was a plan to launch 500 to 1000 buses.
Under the project, the government would give upfront grants and interest subsidy besides Rs5 billion to the private investors. Debt-equity ratio was decided as 20:80 therein 80 per cent amounts were to be released by the banks or any other financial institutions.
As expected, bidding process is repeatedly being carried out since 2009 when President Zardari directed the officials to implement the project as early as possible. Lately, the government again sought statements of qualifications from reputable national and international suppliers and manufacturers. The last date was 30th June 2011. Reports said interests of investors lack lustre.
Mainly informal operators are at helm of affairs of transport sector in Karachi. No doubts, they have extensive operations across the city and serving the burgeoning population of the city. The quality and quantity of fleet of public transport are evidently awful and undersized. According to JICA study, a total of 24 million person trips take place on daily basis on different roads. Of that, 60 per cent are usually by captive riders on public transports. However, the sector is highly inefficient. Buses and wagons are in pathetic condition with no monitoring mechanism in place to check the proper operations. Road permits issuance to transporters by the government is an eyewash exercise, as it is playing no role in making operators obliged to certain rules and regulations.
Analysts said a tribal culture has been infused in the pubic transportation sector of Karachi treating commuters capriciously. Gap left owing to the inability of KTC, KPTS, and UTS in past in managing transport sector was after all to be filled by someone. Karachi transport corporation was submerged under the rubbles of its debt obligations. Urban transport system knocked down privately-run Karachi public transport society.
The former district government inducted 50 CNG buses in its outgoing days. The fleet was unquestionably small in view of the estimated requirements of 10,000 public transports.
Transport is an important sector for the economic developments. Efficient transportation does not only improve the productivity by reducing delivery time, accidents, and pollution but it also gives cost benefits to the economy. Poor transport infrastructure incurs an economy four to six per cent of GDP loss every year, noted a research paper by Pakistan institute of development economics (PIDE) citing the World BankÝs estimates. It is obvious that the paper considered transport sector in a broader perspective covering roads, highways, railway networks, shipping ports, airports, and all means of transports and recommended investments in the sector could rescue the economy.
During this decade, a large number of vehicles have come on the road, which is the popular mode of transportation within the country. This meteoric rise proved a good omen for the local automobile industry, but the development was highly slanting towards small vehicles segments giving rise to road congestion and deterioration of air quality. Public transport sector remains neglected.
Private sector is unwilling to risk their capitals in PPP project in absence of a concrete policy framework as is in case of road infrastructure. Private sector however went into partnership with the government to construct roads in rural Sindh, according to an official of Public Private Partnership (PPP) unit government of Sindh. The proper guidelines on BOT (build, operate, and transfer) and removal of legal and financial issues will encourage private investors to invest in the road infrastructure.
Share of transport sector in overall banking assets is generally insignificant. Automobile and transportation have cumulative shares 1.3 per cent in total loans issued during last three months of year 2010. However, its shares in nonperforming loans stood at two per cent. Automobile and transportation loans amounted to Rs47.7 billion while textile loans in this quarter had run in 705 billion rupees. Entrepreneurs are scared away from banking channels because of highly prohibitive interest rates.
It is strange that the eleventh largest city in the world in terms of population crossing two million has no mass transit system. Asian development banks and other international financial institutions have expressed their interests to finance public transport projects on concessionary rate of interests only because of the commercial viability of this sector. Private investors should come forward to benefit from profitable investments and banks should step ahead to extend to them financial assistances. City district government Karachi improved the infrastructure by building extensive network of roads, flyovers, bypasses, and long signal free corridors. Buses-dedicated CNG dispensers are also being set up in the city. The time is ripe for investments in public transports. No investor obviously is ready to risk total equity. The government should set up a proper mechanism to ensure fair market competition in the sector.