Bootstrapped project: No finance puts CNG buses programme in doldrums
Banks refuse to finance project in absence of sovereign guarantees.
KARACHI:
The ‘Shaheed Benazir CNG Bus project’ drove to a halt as the National Bank of Pakistan (NBP) refused to finance the already cash-starved project after the Karachi Metropolitan Corporation (KMC) declined to fulfil the bank’s requirements.
KMC Administrator Muhammad Hussain Syed said that he issued personal directives for the launch of the compressed natural gas (CNG) bus project but the NBP refused to finance it.
Named after the late prime minister, the CNG bus project had enough backing from people in high offices to go through easily. It was launched in 2008.
Modelled as a public-private partnership project, it could allow Pakistan to reduce its oil demand, though by an insignificant amount, but it could help in saving precious foreign exchange that the country spends on expensive oil imports every month.
Pakistan’s oil import bill soared 43.52% to reach $12.583 billion during the first ten months (July-April) of the outgoing financial year 2011-2012 against $8.768 billion in the corresponding period of last year, according to latest figures released by Pakistan Bureau of Statistics.
The break-up of $12.583 billion oil import revealed that the country imported petroleum products worth $8.355 billion in the period, up 69.81% compared with $4.920 billion of July 2010 –April 2011. Meanwhile, import of petroleum crude increased 9.89% to $4.228 billion during the period under review against $3.848 billion of the corresponding period of the last year.
The government promised Rs2.5 billion for 4,000 CNG buses as a subsidy. To be precise, Rs700,000 per bus were to be given and a grant of Rs300 million was delivered in 2009. The project faced setbacks when banks sought collateral against financing the purchase of buses.
A NBP spokesperson said that the bank had not agreed to finance the project adding that it was cautious about lending in absence of a firm government guarantee. “The prudential regulations of the State Bank of Pakistan (SBP) clearly state that government projects should be backed by a guarantee. People do not realise and start criticising us. How can we risk depositor’s money like that?” he asked.
KMC officials say NBP had agreed to financing after a few discussions but later demanded that the vehicles be bought from a company selected by the bank. Other commercial banks did not show any interest in the project either.
Director of Mass Transit Cell Anwar Baig said banks should extend business loans taking into consideration the viability of a project. “The operators have prepared detailed financial analysis to prove that they can return the money. Why cannot they get loans on the basis of a project’s potential?” he said.
Learning from past mistakes, the agreement will bound the manufacturers to maintain the buses for at least five years, he said.
“The previous such project faced problems because the manufacturer of those buses was charging exorbitantly for upkeep of the vehicles,” he said, referring to green buses which were introduced amid much fanfare but soon started to vanish from roads.
The Green bus project was completely financed by the city government and cost overruns became usual. The prevailing national gas crisis had further dented potential of the project. Frequent shutdown of CNG stations also created a chaos for public and private transport, hurting operations of the project.
Published in The Express Tribune, November 4th, 2012.
The ‘Shaheed Benazir CNG Bus project’ drove to a halt as the National Bank of Pakistan (NBP) refused to finance the already cash-starved project after the Karachi Metropolitan Corporation (KMC) declined to fulfil the bank’s requirements.
KMC Administrator Muhammad Hussain Syed said that he issued personal directives for the launch of the compressed natural gas (CNG) bus project but the NBP refused to finance it.
Named after the late prime minister, the CNG bus project had enough backing from people in high offices to go through easily. It was launched in 2008.
Modelled as a public-private partnership project, it could allow Pakistan to reduce its oil demand, though by an insignificant amount, but it could help in saving precious foreign exchange that the country spends on expensive oil imports every month.
Pakistan’s oil import bill soared 43.52% to reach $12.583 billion during the first ten months (July-April) of the outgoing financial year 2011-2012 against $8.768 billion in the corresponding period of last year, according to latest figures released by Pakistan Bureau of Statistics.
The break-up of $12.583 billion oil import revealed that the country imported petroleum products worth $8.355 billion in the period, up 69.81% compared with $4.920 billion of July 2010 –April 2011. Meanwhile, import of petroleum crude increased 9.89% to $4.228 billion during the period under review against $3.848 billion of the corresponding period of the last year.
The government promised Rs2.5 billion for 4,000 CNG buses as a subsidy. To be precise, Rs700,000 per bus were to be given and a grant of Rs300 million was delivered in 2009. The project faced setbacks when banks sought collateral against financing the purchase of buses.
A NBP spokesperson said that the bank had not agreed to finance the project adding that it was cautious about lending in absence of a firm government guarantee. “The prudential regulations of the State Bank of Pakistan (SBP) clearly state that government projects should be backed by a guarantee. People do not realise and start criticising us. How can we risk depositor’s money like that?” he asked.
KMC officials say NBP had agreed to financing after a few discussions but later demanded that the vehicles be bought from a company selected by the bank. Other commercial banks did not show any interest in the project either.
Director of Mass Transit Cell Anwar Baig said banks should extend business loans taking into consideration the viability of a project. “The operators have prepared detailed financial analysis to prove that they can return the money. Why cannot they get loans on the basis of a project’s potential?” he said.
Learning from past mistakes, the agreement will bound the manufacturers to maintain the buses for at least five years, he said.
“The previous such project faced problems because the manufacturer of those buses was charging exorbitantly for upkeep of the vehicles,” he said, referring to green buses which were introduced amid much fanfare but soon started to vanish from roads.
The Green bus project was completely financed by the city government and cost overruns became usual. The prevailing national gas crisis had further dented potential of the project. Frequent shutdown of CNG stations also created a chaos for public and private transport, hurting operations of the project.
Published in The Express Tribune, November 4th, 2012.