Public Transportation PPP Way
By Purusottam Man Shrestha
Kathmandu is one of the most polluted cities in the world and with urbanization picking at its nerves, the need for a reliable, time-sensitive and safe public transportation system has begun to surface in all sort of talks. As the government has decided to add to the fleet of the good-gone-awry Sajha Yatayat, its relevance, development and management has come under the purview of general consideration and expert comments.
Public Private Partnership (PPP) model has been brought to the fore by some experts so that the government, in effective collaboration with private vehicle owners and operators, can ease congestion on the streets, systemize fares and check pollution by encouraging more and more people to use public transport rather than to ride their two and four wheelers.
Micro-vans, tempos and buses operating in Kathmdu are three-tiered: the owner, the driver and the conductor. Given no proper mechanism, the owner of the vehicle predetermines fixed daily charges on the driver, who then is compelled to stuff as many passengers as possible into his vehicle to inflate his share of the deal.
This arrangement runs the risk of competition for passengers among private and public transport vehicles, and the eventual sufferers, like in other mismanaged sectors, are the public, who, despite shelling out the asked-for fare undergo tremendous inconvenience while travelling from one place to another. In their wild spree to stuff more passengers into their vehicles from just anywhere under any condition, the drivers go berserk, leading to accidents or manhandling of passengers. And all this takes place without tickets, standard fares or proper stations to get in and off the vehicles. With so much stress on the streets, people succumb to prolonged traffic jams, which also contribute to air and noise pollution.
Use of private vehicles on the over-congested streets of Kathmandu has been soaring like never before while public transportation is having a hard time keeping up with the increasing number of passengers. In the absence of sound mechanisms and proper transportation management, passenger rights are violated and there is nowhere to lodge complaints. So one may wonder what could be the immediate remedy: adding more private vehicles? Increasing traffic congestion, soaring accident rates and worsening pollution have led to the pressing need for effective mass transportation system, which means a public transportation system designed to move large number of passengers at fixed times from one place to another under a standardized fare system.
Talking about means of mass transportation, the red double-deckers are still the favorites on the streets of London, Which are also being used in countries like Sri Lanka, Ireland, Hong-Kong, China, Singapore, Canada, Japan, Germany, India, the USA and Turkey. Typically, a double-decker bus can accommodate around 60-80 passengers at a time depending on the legal limit of vehicle length which differs from country to country. Another alternative is using trams, a lighter version of train in terms of weight and construction. They provide higher capacity than buses and they can be expanded in length by adding cars during rush hours. Moreover, they can be powered by renewable electricity. Though tram infrastructure requires higher investment, its long-term returns make it worthwhile. We have been hearing about proposals for a tramway along the Kathmandu Ring Road since long, however nothing has happened in that direction so far. Meanwhile, there were also reports on the proposed fast-track train-line between Kathmandu and Hetauda. But these rports are probably gathering dust somewhere.
Trolley bus, an environment friendly electric-powered vehicle with low noise levels, is another means of mass transportation that runs by drawing electricity from overhead wires. Trolley buses are used extensively in large and small European cities and in many other developed countries. Chinese-built trolley buses ran on the Kathmandu-Bhaktapur route from 1975-2001 but stopped due to the reasons only known to the authorities concerned. They were revived again in 2003, but subsequent spates of mismanagement have pushed them almost over the edge.
While there are many other means of mass transportation, only a few of them are highlighted here with regards to the required investment and infrastructure and the topographical makeup of Nepal. However, just imitating means of mass transportation from other places is never going to produce solutions. The government, along with the private operators, should chalk out an appropriate mechanism to regulate and restructure the public transportation system to ensure passengers’ right to safe, affordable and timely travel and, in the process, reduce pollution as well. To administer the existing means of transportation like buses, tempos and micro-buses, a simplified model can be extracted from Seoul, the capital of South Korea, which, not long ago, suffered similar public transportation problems that we are dealing with today.
By forming a management committee, which comprised of both public and private operators, to regulate the entire transportation system, the Koreans dealt with the problem in an effective manner. The management committee fixed a standard travel fare for the passengers and a standard remuneration for the drivers based on the distance traveled by a particular vehicle. Now it didn’t matter how many passengers were stuffed into a vehicle; what mattered was how much distance was covered during the whole day. The money collected from all the operators in the evening would be deposited in a bank, which would then distribute the sum among the operators under the defined norms. This reduced congestion in vehicles and, since public vehicles were given separate lanes on the roads, they beat private vehicles in getting from one place to another. Noticing this, people started using public transport to get to work quicker. This also saved them money spent on fuel. A workshop was conducted recently in Nepal in which a South Korean expert concluded that the Korean experiment can be replicated successfully in Nepal also. Now all we need is the will to organize it through a PPP mechanism, which will ensure that all parties have equal say and contribution and thus profit from such an attempt.
Can Sajha’s adoption of PPP model be a remedy?
Recently various dailies have reported that Sajha Yatayat will adopt the Public Private Partnership (PPP) model shortly. Now a PPP arrangement for Sajha Yatayat should be entered into carefully and in a well-thought out manner. Simply getting a private partner on board should not be the main priority. The PPP model could be a viable alternative to bring Sajha into sustainable operation again as it already has good brand recognition The reorganizing of Sajha through a PPP arrangement should serve to provide a demonstrative effect in public transportation. Naturally, everything cannot be achieved overnight. So, among the various options available one would be to perhaps pick a good “route” for running Sajha buses. Investment required for upgrading the fleet etc., can be willingly taken on by the private partner. What this route should offer to passengers are what would be normally expected from a good public transport service – getting to one’s destination on time, reliability, comfort, passenger conveniences like season tickets for frequent travelers etc.
Revitalizing public transport bodies like Sajha Yatayat with PPP model could also be a good start to purge the existing syndicate system and the use of fake ID cards by students and quasi-students. Provision of season tickets or the issuing of special identification cards to students or discount cards for others on a pre-paid basis can check fake identity cards. The income received in advance is always profitable for any business venture as it provides revenue prior to service which can be used to further improve the system or to earn quick profits. While the model requires wide streets, certain aspects of transportation system indisputably need to be revisited and studied rigorously. Sajha suffered exorbitant loss due to the government’s dismissive attitude towards the public transportation sector. Employing PPP model can be a step towards sustainable development.
[Shrestha is the National Project Manager of Public Private Partnerships for Urban Environment (PPPUE)]
Hydropower
Barriers to hydropower development
Manoj Goyal, CEO of the Clean Energy Development Bank Ltd. made a power point presentation on the topic: “Barriers to hydropower development: A banker’s perspective’’ on the Friday Forum, a weekly interaction program of IPPAN, held on 20 th February, 2009.
Present in the interactive discussion were National Planning Commission Member (Energy) Dr. Laxmi Pd. Devkota, Coordinator Som Nath Poudel and other members of the Task Force Committee formed by the government for the formulation of hydropower policy-2065, high ranking officials of the Ministry of Water Resources, ADB consultants on private sector participation in hydropower development, IPPAN members, reporters of various print and electronic media, and other stakeholders.
In his presentation, Goyal stressed the need for creating “investment climate” conducive to the growth of private sector investment in hydropower. He noted that equity for hydropower can be generated through initial public offerings (IPOs), provided that rules of the Security Board are amended and public confidence is built up in the power sector.
He also informed that the Nepali banks at present can provide finance for setting up hydropower projects of 150-MW capacity every year. Though Nepal has immense hydropower potential, Nepal is reeling under unprecedented 18 hours of load shedding. If barriers to hydropower are not removed, the load shedding after five years will be more terrible.
Capital for hydropower development can be managed through carbon trading, too. However, it is available at present for export-oriented hydropower project only. If carbon trading is allowed also for projects that sell power entirely for the Nepali market, Clean Energy Development Bank can make available 50% of the total credit in advance through Asia Pacific Carbon Trading Fund, said Goyal
So far, there is no problem for fund needed for financing hydropower development. But we might face serious capital crunch in future, if we want to generate 10,000 MW in ten years, he added.
For financing the hydropower projects, he informed that CEDBL has made arrangement of Early Stage Development Funds through CEDBL Hydro Deposit Account and Bridge Gap Equity Funds (e.g. Mekong Bramahaputra Hydropower Development Fund in association with CEDB).
Investment Problems
There has been very low level of awareness among the Nepali people about investment in hydropower. Due to political instability, security problems, local problems and lack of infrastructure, there is still a misconception among the common people that investment in hydropower is risky.
In this regard, it must be remembered that investment in hydropower is of long term-nature, and the return from hydropower also takes comparatively longer time. But the corporate culture has not developed in the country to wait so long for the profit, he said.
The corporate houses which are capable to invest in hydropower industry are very few. The recently implemented Voluntary Declaration of Income Scheme has also led to confusions among the investors. Capital needed for hydropower industry can also be generated by issuing shares to general public. However, the Securities Board of Nepal should make changes in the regulations to make them practical for hydropower projects. Also, the government should launch serious programs to make the public interested in new financial instruments like shares, debentures, power bonds etc.
The contribution of Foreign Direct Investment (FDI) in hydropower is minimal so far and the prospects foreign capital investment in Nepal are bleak due to the ongoing global economic recession as well as the ongoing political instability in Nepal and the perception about the country’s security situation. FDI flow is limited also because of Nepal’s poor country rating (D category).
Banks and financial institutions are risk-averse by nature. Therefore, we can not expect considerable amount of equity from the banks and financial institutions coming to the hydropower projects. On top of this, the regulations of Nepal Rastra Bank have imposed limitations on the amount of equity that the banks can invest into hydropower projects.
Many novel financial instruments like preference shares, debentures, mezzanine debt, mutual fund, export credit facilities, private equity fund, derivatives and long-term commercial papers are in vogue in developed countries. However, regulations in Nepal are still not sufficient for such financial instruments, and Nepal’s market is not mature enough for such instruments, Goyal said.
Credit investment
Besides banks and financial institutions, other institutions like Employees’ Provident Fund, Citizen Investment Trust, and in few cases Asian Development Bank and International Finance Corporation are also investing in Nepal’s hydropower. Recently, few foreign banks have also shown interest to invest in Nepal’s hydropower.
Investment problems
Nepali banks and financial institutions still need to have proper know-how related to infrastructural investment. They are yet to learn the tricks of risk assessment and risk management. Therefore, they are collateral-oriented. They are still not well versed in the monitoring and control of credit investment. Also the loss provisioning requirements don’t support infrastructure investment.
Some investment proposals submitted to the banks by power companies are not reliable enough. There are also problems with insurance coverage and the services provided by the contractors and suppliers. Sometimes, power developers themselves are not serious enough in the project. Also the financial health of Nepal Electricity Authority, which is the sole purchaser of power from the power developers, has also adversely affected the bank investment in hydropower.
Power Sector from bankers’ perspective
Banks understand that hydropower projects are the need of the country as sustainable, cost effective and environment friendly source of energy. They also understand that though, initially the risk is high during construction period, the risk is comparatively lower in the generation period. Moreover, though the initial investment required is high (in the periods of construction), the investment in power sector is less risky, compared to other sectors. The banks also understand that project financing is a must for the hydropower development.
Banks’ Wants
Banks prefer power projects which have been well studied, bankable, backed by proper documents, proposed by qualified and capable power companies and which have adequate risk sharing arrangement. The banks also want an investor-friendly environment.
Banks’ Interests
Nepali banks are keen to invest in hydropower projects. The establishment of the Clean Energy Development Bank Ltd. is the proof of it. Another proof for this is the fact that some commercial banks have set up separate hydropower cells. All the power projects, which are under construction have received loan from local banks. Many banks have been organizing workshops and seminars related to hydropower development and attending such programs. They feel encouraged by the commitment expressed and steps taken by the Nepal government for hydropower development. And some banks have shown interests in hydropower development also due to bad loans in other sectors.
Another proof of the banks’ interest in the hydropower sector is the initiative taken to set up an infrastructure development bank in Nepal. The banks have already learned few important lessons from the operation of the Power Development Fund.
Banks’ Problems
However, it must be noted that the banks and financial institutions are not prepared to invest in the power sector in a massive way. It is because they want minimum risks. So, there has been consortium financing even in very small power projects such as 2-3 MW capacity.
