Promoting Clean Urban Public Transportation and Green Investment in Kyrgyzstan

Executive summary

The transport sector is responsible for 28% of Kyrgyzstan’s greenhouse gas (GHG) emissions, and in cities like Bishkek, for 75% of air pollutants. Within the transport sector, almost all GHG and air pollutants emissions can be attributed to road transport – 99% and 100%, respectively. Most public transport vehicles are old and in need of replacement.

The volume of air pollution emissions in Bishkek is also almost three times as high as the surrounding Chui Region, despite being over 100 times smaller in surface area. The topography of cities like Bishkek – which are situated between mountains – contributes to inversions that trap pollutants in the ambient air. From 2011 to 2015, Bishkek experienced a 20% increase in the incidence of respiratory diseases; Osh – the second largest city saw a 14% increase. World Health Organization statistics show that diseases of the circulatory system are the main cause of death in Kyrgyzstan (50% of early deaths in 2018). Pollution from urban transport is seen as an (increasingly) important contributor to these health problems.

In 2016, the Organisation for Economic Co-operation and Development (OECD) and the Kyrgyz Republic joined forces to analyse how a public investment programme could spur the development of cleaner public transport, and reduce air pollution and greenhouse gas (GHG) emissions from the public transport sector in the country’s large urban centres. It was agreed that the main focus of the Clean Public Transport (CPT) Programme would be on supporting the shift to modern buses powered by cleaner fuels, such as compressed natural gas and liquefied petroleum gas.

The preparation for the programme involved four main activity areas and outputs: 1) an initial scoping and analytical stage; 2) development of a programme costing methodology; 3) design of a programme in line with international good practices; and 4) preparation of an analytical report and training. This report is the culmination of the preparation process and presents the results of the four main activity areas.

What will the Clean Public Transport Programme involve?

The CPT Programme is designed to be implemented in two phases:

• Phase 1, the pilot phase, covering the cities of Bishkek and Osh. This will run for a period of 1-2 years and aims to replace diesel-powered buses and minibuses, as well as outdated trolleybuses in Bishkek, with 98 trolleybuses and 118 compressed natural gas (CNG) buses. In Osh, 17 trolleybuses and 170 new CNG buses would replace outdated stock. In both cases, these purchases would also enable the expansion of services. Total investments for the pilot phase are estimated at KGS 4 088 million (USD 59.36 million), of which KGS 2 037 (USD 29.58 million) in public financing will be required.

• Phase 2, the scaling-up phase, will extend the programme to the suburban areas of Bishkek and Osh (over 40 new settlements) as well as inter-city transport routes. It will last up to 5 years. It foresees the purchase of 730 additional new CNG buses in Bishkek, 80 in Osh and 60 for the inter-city transport routes (i.e. a total of 870). Inter-city transport will also be strengthened with 90 new diesel buses. The total estimated investments for this phase would amount to KGS 9 603 million (USD 139.43 million), of which KGS 3 762 million (USD 54.63 million) in public financing will be required.

In total, both phases of the CPT Programme would result in 1 363 new urban, suburban and inter-city public transport vehicles – 1 158 CNG buses, 115 trolleybuses and 90 modern diesel buses. Total investment costs for the entire programme are estimated at KGS 13 691 million (USD 198.8 million), including KGS 5 799 million (USD 84.21 million) of public support.

What does it aim to achieve?

The CPT Programme is primarily designed to reduce the high levels of air pollution in urban centres. This includes reducing emissions of pollutants that form smog, such as carbon monoxide (CO), sulphur dioxide (SO₂), nitrogen oxides (NO_x) and particulate matter (PM). The programme also aims to reduce GHG emissions, in particular carbon dioxide (CO₂), in line with Kyrgyzstan’s national and international commitments. In terms of emission reductions, the most significant improvements are expected to be in NO_x emissions, which would decline by about 1 236 tonnes a year following the two phases. Carbon dioxide emissions are estimated to decline by between 68 506 and 124 542 tonnes a year after the two phases. Particulate emissions – a significant air quality and public health problem in Bishkek – would be expected to decrease by a total of 29 tonnes a year under both phases.

The environmental objectives of the CPT Programme are expected to be accomplished by using state budget support (subsidies in the form of grants) to invest in replacing the outdated public transport fleet with modern vehicles powered by cleaner fuels or technologies, including compressed natural gas (CNG)/liquefied natural gas (LNG), liquefied petroleum gas (LPG), Euro 5/6 diesel and electricity.

The public service impacts will include greater transport reliability and comfort, and an extended and better service outside cities. By modernising the urban transport fleet, the CPT Programme will also contribute to municipalities’ socio-economic development and, ultimately, that of the country. This will be achieved for instance by increasing the efficiency, reliability and reach of public transport networks. Improved mobility not only fosters productivity (access to jobs, markets) but also social inclusion (access to hospitals, schools), especially for low-income groups of society. The programme could also stimulate the domestic market to produce, or at least assemble, modern buses and trolleybuses through supporting the purchase of new buses, rather than the modernisation of engines. This could also generate new employment opportunities.

How will it be run and financed?

Implementing the CPT Programme will require institutional arrangements that ensure transparent and cost-effective decision making. The report suggests a three-level institutional structure comprising: 1) a programming entity; 2) an implementation unit; and 3) a technical support unit. It also lays out clear project cycle management procedures.

Although the CPT Programme is expected to be financially supported by a mix of public funds (national and international), the main source of financing will in most cases come from transport operators themselves, including their revenue, profits or commercial loans (in the future). Calculating the optimal level of public support to co-finance the purchase of cleaner vehicles was an important element of the analysis – financing should be designed to increase investment. As new vehicles are less polluting but also more expensive, state support will allow private operators to choose this option. It is proposed that the programme proceed without the involvement of the commercial banking sector.

The analysis showed that the average local price of CNG and LPG fuels is much lower than world prices, and much lower than petrol and diesel prices (which are also subject to an additional excise tax). Given the significant efficiency gains to be realised from replacing ageing and inefficient diesel-powered vehicles, the programme is expected to be financially attractive to investors.

The proposed investment “pipelines” under the CPT Programme will also need to be accompanied by supporting investments, either from public or private sources. These will be needed in infrastructure, such as new trolleybus lines, refuelling and charging stations, maintenance workshops; and other investment to improve the transport system in urban centres, such as creating separate bus lanes, improving bus stops and smart traffic control.

Creating the policy framework for green investment

The research and discussions in Kyrgyzstan revealed some obstacles to the implementation of the programme. These (and other) shortcomings should be addressed as complementary policy actions during programme preparation, as a prerequisite for its successful launch and implementation:

• Inadequate resources for programme preparation and management. The CPT Programme requires significant preparatory work, including fundraising, and building the capacity for project selection, implementation and monitoring (project cycle management).

• Limited creditworthiness of private operators in public transport. Regardless of how the CPT Programme is co-financed, bus owners will need to use loans or leasing for their share of the investment. Their limited creditworthiness could be overcome – besides using public subsidies in the form of grants – if the CPT Programme was to provide bank guarantees. Commercial loans to purchase modern buses are uncommon, however.

• Inadequate passenger fares and collection system. Fares for public transport are low in Kyrgyzstan – USD 0.12 for a single ride ticket in Bishkek and USD 0.09 in Osh. The manual fare collection system is also inefficient. This is undermining the profitability of public transport. Fare rates and collection methods must therefore be improved so that passenger fares alone, or in combination with a subsidy, can ensure the viability of private bus operators (who unlike municipal operators, are not subsidised).

• Insufficient co-ordination and communication. Public transport is provided by city-owned and private operators under short-term contracts (up to three years). Most private operators use minibuses. The goal to replace many minibuses by larger buses in the urban centres needs to be better communicated to all stakeholders (as well as details on future routes, the transport means to be used, how many buses will be needed and who will operate them).

• Low emission norms and technical inspection standards. Current emission norms are based on old diesel emission standards (Euro IV and lower) and the system of technical inspections of vehicles does not function properly. While Europe instituted the Euro 6/VI standard back in 2014, Euro 5 standards will only come into effect in Kyrgyzstan in 2019, and only for fuel, not engines. At the moment, the available diesel fuel in the country mostly only meets Euro 3 standards.

• Weak pricing signals for the use of CNG and LPG-fuelled buses versus diesel. Although CNG and LPG are cheaper than diesel, there are no other price incentives, such as VAT or duty tax exemption, for clean(er) transport or infrastructure. As the initial investment in alternatively fuelled/powered buses is higher, the decision to invest can be influenced by financial stimulus. Until critical mass is achieved (i.e. a sufficient market share and revenues), tax incentives could complement state support mechanisms such as grants, loans and loan guarantees.

• Lack of proper financial products tailored to the needs of the sector. The financial sector in Kyrgyzstan is relatively small and dominated by banks. High interest rates and collateral on loans limit their function as financial intermediaries. Banks are also constrained by limited trust from potential depositors, a lack of good bankable projects and a low rate of loan recovery.

• Weak governance of the power sector. Although energy companies were privatised in 2001, electricity prices are still regulated. Recent reforms have introduced a fixed progressive electricity tariff system divided into six groups of final consumers. The higher tariffs for trolleybus networks and budget institutions compensate for the lower tariffs for some users (including residential and pumping stations) that do not cover the energy producer’s operating costs. The result has been deteriorating infrastructure due to deferred maintenance and chronic underspending on capital expenditures (despite direct and indirect subsidies).

• Lack of interest in purchasing more fuel-efficient vehicles. Apart from setting the right incentives at the policy level, the government also needs to provide correct, sufficient and timely information to eliminate consumer uncertainty about new technologies (e.g. their useful life) and fuels (e.g. future fuel prices). This could be one role for the government implementation unit of the CPT Programme.