Cabinet opposes e-bike subsidy

For industries ministry, subsidy is only viable option to jump-start e-bike production

ISLAMABAD:

A majority of cabinet members have opposed the idea of offering subsidy on e-bikes, believing that it will promote rent-seeking and will also be unsustainable.

Sources told The Express Tribune that the Industries and Production Division informed the cabinet, in a recent meeting, that initially it was also against extending any subsidy. However, after discussion with industry representatives, it appeared to be the only viable option, in the short run, to jump-start production of e-bikes.

A cabinet member pointed out that at present most of the fuel-based motorcycles were being purchased on monthly installments through informal financing and it could be replicated in the case of e-bikes as well since any increase in installments, due to higher prices of e-bikes, would be offset by fuel savings.

Another cabinet member suggested that the possibility of using electric conversion kits, which could be manufactured locally, should also be explored.

The cabinet reached a general consensus that various financing models should be discussed in detail in the Economic Coordination Committee (ECC) before being placed in a cabinet huddle.

With potential savings of 30% in monthly fuel costs, it was suggested that the provision of lower-grade petrol for combustion-engine motorcycles should be looked into.

The prime minister directed the Petroleum Division to give a presentation on consumption of lower-grade petrol in motorcycles and rickshaws.

The Industries and Production Division gave a presentation on the promotion of electric two-wheelers (e-bikes).

Around 90 companies are manufacturing two and three wheelers in Pakistan with installed capacity of more than 6 million motorcycles per annum.

As many as 26.3 million motorcycles/ scooters are registered and more than 2 million locally manufactured motorcycles are added annually.

Incentives for local manufacturing of electric two and three wheelers include 1% customs duty on specific parts and 1% sales tax. So far, electric vehicle manufacturing licences have been issued to 22 companies.

In financial year 2021-22, 7,377 electric motorcycles were produced while in Jul-Nov FY23, 5,985 electric bikes were assembled. At present, around 18,000 e-bikes are on roads.

Under the proposed e-bike scheme, its price (with lithium battery) will be around Rs170,000 and the scheme will be implemented through designated banks.

Three models have been suggested for the scheme. Under the cash purchase model, the government’s share will be Rs100,000 through banks as processing agents and the customer will contribute Rs70,000 in lump sum from his/ her own sources.

This scheme will be for financial years 2022-23, 2023-24 and 2024-25. The government will give Rs15,000 subsidy on e-bikes in FY23, Rs60,000 in FY24 and Rs100,000 in FY25.

In the price-sharing model, the government and the consumer will contribute an amount of Rs100,000 and banks will provide Rs70,000 (24 months). The government will give 50% credit guarantee.

Of the Rs100,000, the government will make down payment of Rs90,000 whereas the consumer will pay Rs10,000. The bank loan of Rs70,000 will be given at a return of Kibor plus 3%, ie 19%, which will amount to Rs13,300 per bike.

For 24 monthly installments, the consumer will pay principal amount, interest and insurance cost at 2%. Total monthly payment will be Rs4,310.

In the third model called easy loan, the consumer will make 30% down payment and will be offered a 36-month loan at 19% return. In this model too, the government will give 50% credit guarantee.

The 30% down payment will amount to Rs51,000 whereas banks will provide Rs119,000. Bank mark-up will be Rs22,610, in which the government’s share will be Rs11,305.

The cabinet, while agreeing to promote electric two wheelers, directed the sponsoring division to place the matter before the ECC for detailed deliberations.

It emphasised that the policy should cover both production of e-bikes as well as conversion kits for existing motorcycles. It also told the Petroleum Division to give a presentation on the provision of lower-grade petrol for motorcycles and rickshaws.

Published in The Express Tribune, January 12^th, 2023.

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