This chapter introduces the proposed Clean Public Transport Programme. The programme is designed to be implemented in two phases: Phase 1, a pilot phase that includes urban transport in two selected cities (Bishkek and Osh); and Phase 2, an extension of the programme to cover suburban areas of the pilot cities and inter-city public transport in Kyrgyzstan. The chapter summarises its expected environmental and socio-economic benefits, the costs involved, as well as a possible financing strategy and optimal co-financing level.
Promoting Clean Urban Public Transportation and Green Investment in Kyrgyzstan
Green Finance and Investment
2. Main elements of the Clean Public Transport Programme
Abstract
2.1. What are the objectives of the Clean Public Transport Programme?
The overall objective of the proposed Clean Public Transport (CPT) Programme is to reduce emissions that form smog in urban centres (emissions from ground-level sources), which includes reducing emissions of pollutants such as carbon monoxide (CO), sulphur dioxide (SO2), nitrogen oxides (NOx) and particulate matter (PM). The programme is also designed to contribute to Kyrgyzstan’s climate change mitigation efforts and the transition to a green economic model of development. The programme will help to reach the country’s declared goal of reducing emissions of greenhouse gases (GHGs) by 11.5-13.8% by 2030, compared to 1990 emission levels, as specified in the intended nationally determined contribution (INDC) prepared by the Government of Kyrgyzstan for the 2015 Paris Climate Conference (GoK, 2015[1]) – see Box 1.1 in Chapter 1 and Section 7.5.1
In 2010, the transport sector in Kyrgyzstan emitted 2.1 million tonnes of carbon dioxide equivalent (CO2e). Although this represents a cutback of 1 million tonnes of CO2e on 1990 levels (a decrease of 32%), this still lags behind Kyrgyzstan’s total GHG emissions, which decreased by 52% in 1990-2010 – from 30.7 million tonnes of CO2e to 14.7 million tonnes of CO2e (GoK, 2016[2]).
As can be seen in Figure 2.1, transport contributed relatively little to the country’s overall GHG emissions – at 10% in 1990 and 15% in 2010. Within the transport sector, almost all GHG emissions can be attributed to road transport – 93% in 1990 and 99% in 2010 (see also Section 6.3.1).
Figure 2.1. Transport’s share of GHG emissions in Kyrgyzstan, 1990 and 2010
Note: For conversion to CO2 equivalents, global warming potential values for non-CO2 gases in the IPCC Fifth Assessment Report, 2014 (AR5) were used (see: www.ipcc.ch/assessment-report/ar5). Non-methane volatile organic compounds are not reflected due to lack of disaggregated data.
Source: (GoK, 2016[2]), Third National Communication of the Kyrgyz Republic under the UN Framework Convention on Climate Change, https://unfccc.int/sites/default/files/resource/NC3_Kyrgyzstan_English_24Jan2017.pdf.
A closer look at the data published in the Third National Communication to the UNFCCC reveals that emissions of harmful air pollutants in Kyrgyzstan decreased by 51% between 1990 and 2010 (Figure 2.2). However, when considering solely mobile sources, the decline was only 33%. So whereas in 1990 the contribution of the transport sector to overall air pollution was 49%, in 2010 it had increased to 67%. Within the transport sector, road transport is primarily responsible for all emissions (98% in 1990 and 100% in 2010).
Figure 2.2. Emissions of air pollutants from mobile and stationary sources in Kyrgyzstan, 1990 and 2010
Note: Air pollutants include NOx, CO and SO2. The total emissions value is based on a simple summation of individual pollutant emission weights.
Source: (GoK, 2016[2]), Third National Communication of the Kyrgyz Republic under the UN Framework Convention on Climate Change, https://unfccc.int/sites/default/files/resource/NC3_Kyrgyzstan_English_24Jan2017.pdf.
2.2. What will the programme involve?
In practice, the overall environmental objectives of the CPT Programme will be accomplished by supporting investments in replacing the bus fleet used in urban, suburban and inter-city public transport with modern vehicles powered by cleaner fuels or electricity.
By modernising the bus fleet, the reliability and efficiency of public transport will be increased and the domestic market will be encouraged to produce, or at least assemble, modern buses and trolleybuses.
The study conducted a market analysis of cleaner fossil fuels and sources of power (see Section 3.1) which identified four groups of investment projects (“pipelines”) to replace the old urban, suburban and inter-city bus fleet:
1. Investment in vehicles fuelled by compressed natural gas (CNG)
2. Investment in electricity-powered vehicles (trolleybuses and battery trolleybuses)
3. Investment in vehicles fuelled by liquefied petroleum gas (LPG)2
4. Investment in vehicles fuelled by diesel Euro 5 and Euro 6 emissions standards (see Annex A.
Given Kyrgyzstan’s ageing bus fleet, the proposed investment “pipelines” are intended to support the purchase of new vehicles, rather than only modernising engines. These proposed investment pipelines should be accompanied by other investments – either from public or private sources – such as in new trolleybus lines, CNG/LPG refuelling and electricity charging stations and other supporting activities to improve the transport system in urban centres (e.g. the creation of bus lanes, improvement of bus stops and smart traffic control).
Two cities, Bishkek and Osh, were identified to participate in the pilot phase of the investment programme. In the second phase, the programme is designed to be extended to the suburban areas of the two pilot cities and some indicative (major) inter-city connections in Kyrgyzstan.
Because the bus fleet in Kyrgyzstan consists of too many minibuses (see Sections 6.2.4 for Bishkek and 6.2.5 for Osh), priority is given to replacing part of the minibus fleet with regular buses. The City Hall of Bishkek, for instance, estimates it would need 600-800 buses of average capacity to serve the city centre (and later, more than 40 surrounding new settlements) and to gradually replace the minibus fleet. The minibus fleet runs almost entirely on diesel, while in the bus fleet there are a few units powered by cleaner fossil fuels (e.g. around 10 CNG vehicles in Bishkek). Electric transport (trolleybuses) make up less than 3% of the public transport fleet in Bishkek and Osh (combined average).
Achieving this will require significant resources, both private and public. Transport fares, however, are very low – starting at USD 0.12 per ride in Bishkek and USD 0.09 per ride in Osh – and access to credit is constrained. These cities, which own the main public transport fleets in their municipalities, have already incurred loans for public transport programmes, mainly through the European Bank for Reconstruction and Development (EBRD), and therefore their creditworthiness is low. Without state support and tariff increases, the modernisation of the public transport fleet will continue to lag.
The CPT Programme is designed to be implemented in two phases, discussed below:
Phase 1 (pilot phase) covers a limited number of buses in the centres of pilot cities (Bishkek and Osh). The pilot phase would replace old trolleybuses and expand the CNG bus fleet to replace diesel-fuelled minibuses. This would involve purchasing 115 trolleybuses and 288 new CNG buses.
Phase 2 (scaling-up phase) would involve the further expansion of the CNG fleet in to the remaining parts of the pilot cities (suburbs) as well as inter-city connections linking rural areas in Kyrgyzstan. This would involve purchasing a total of an additional 870 CNG buses and 90 modern diesel buses.
2.2.1. Phase 1 (pilot phase)
Two cities were identified for the pilot phase: Bishkek and Osh. The pilot phase in each of the two cities will take two years, including a one-year preparatory phase (see Section 2.6).
City of Bishkek
Bishkek is the capital of Kyrgyzstan. With a population of 1 027 200 it is the most populated city in the country.3 It lies in the Chui River valley near the foot of the Kyrgyz range of the Ala-Too Mountains at an elevation of 750-900 metres and is usually regarded as Central Asia’s greenest city (in terms of trees per capita).
Bishkek is a separate administrative unit (independent city – shaar) and serves also as an administrative centre (apart from 2003-2006) of the surrounding Chui oblast (region), which is Kyrgyzstan’s northernmost region. The capital is the financial centre of the country (home to the country’s national bank, commercial banks and other financial institutions). In the past, it used to be an important junction on several trading routes (also between Europe and Asia). During the Soviet era, a major intrastate connection was constructed in Kyrgyzstan – a 605 km-long highway between Bishkek (then, Frunze) in the north and Osh in the south.
Since 2011, Bishkek has participated in a programme to renew part of the trolleybus fleet which was co-financed by the EBRD (see Section 6.2.4).
The CPT Programme proposes purchasing 216 new public transport vehicles in the pilot phase in Bishkek:
replacing 78 old trolleybuses with the same number of modern trolleybuses
purchasing another 20 trolleybuses to strengthen the existing fleet (some of the trolleybuses could be equipped with electric batteries) 4
replacing 78 old diesel buses with the same number of CNG buses
replacing 200 old diesel minibuses with 40 CNG buses.
Since most heavy-duty diesel engines in Kyrgyzstan do not meet the Euro VI standards (see Section 6.2), introducing Euro V and Euro VI diesel engines might seem an effective way to modernise the public transport fleet. However, the fuel consumption of Euro V/VI engines is higher than old diesel engines so beneficiaries would not see their operating costs reduce. Given the currently very low transport fares in Kyrgyzstan (see Section 3.2.3), the amount of public support needed to purchase Euro VI diesel buses would be very high. For this reason, it remains the least preferred option.
The key costs and benefits of the pilot implementation are provided in Table 2.1. The total cost of the CPT Programme for Bishkek is estimated to be KGS 2 209 million (USD 31.81 million), of which KGS 1 263 million (USD 18.18 million) will be co-financed by the programme and KGS 946 million (USD 13.62 million) will be invested by private or public bus operators and/or the city of Bishkek.
Table 2.1. Key costs and benefits of the pilot phase of the CPT Programme in Bishkek
Note: *For a discussion of normative and real pollution factors, see Section 2.3.3 and Annex B.
Source: OECD calculations, OPTIC Model.
As shown in Table 2.1, the CO2 emission reductions from this pilot phase would be high – a reduction of 6 370 tCO2/year. However, NOx emissions could see the largest decrease, which could fall by 116 403 kg/year.
City of Osh
Osh is the second largest city in Kyrgyzstan in terms of population – 299 5005 – and the only other city with a trolleybus network and a well-developed public transport system. It is referred to as the “capital of the south”, partly given its 3 000-year history as the oldest city in Kyrgyzstan. It is located in the Fergana Valley at an altitude of 963 metres above sea level.
The city used to be an important outdoor bazaar along the Silk Road. Although Osh (as well as other towns in the south of the Kyrgyz Soviet Socialist Republic) began to be industrialised only in the 1960s (as opposed to Bishkek mentioned above), the city's industrial base largely collapsed after the break-up of the Soviet Union and has recently only started to revive.
Osh is also the only city other than Bishkek with the administrative status of independent city (shaar). The City of Osh also serves (from 1939) as an administrative centre of the surrounding Osh oblast (region), the southernmost region in Kyrgyzstan and regarded as the country’s southern hub for industry and trade.
Similar to Bishkek, Osh has participated since 2014 in an EBRD programme to renew part of its bus fleet (see Section 6.2.5).
The CPT Programme proposes purchase 187 new vehicles for public transport in the pilot phase in Osh, including:
purchasing 17 new trolleybuses, continuing the existing EBRD programme that has replaced 23 trolleybuses to date
replacing 50 old diesel buses with the same number of CNG buses
replacing 600 old diesel minibuses with 120 CNG buses.
As Table 2.2 shows, the total cost of this phase in Osh would amount to KGS 1 879 million (USD 27.28 million), of which the CPT Programme could support KGS 774 million (USD 11.24 million), while public and private bus operators, and/or the city of Osh, would contribute KGS 1 104 million (USD 16.03 million).
Table 2.2. Key costs and benefits of the CPT Programme’s pilot phase in Osh
Note: *For a discussion of normative and real pollution factors, see Section 2.3.3 and Annex B.
Source: OECD calculations, OPTIC Model.
As shown in Table 2.2, the expected NOx reduction would 132 611 kg/year. In terms of CO2 emissions, the reduction is estimated to be 5 744 tCO2/year.
Summary of pilot phase
Overall, in both cities, the pilot phase would see 115 new trolleybuses and 288 new CNG buses purchased. These numbers assume that Kyrgyzstan has the market capacity to supply this quantity of modern vehicles, that private and municipal bus operators have the capacity to invest in these new assets over a one-year period, and that the government has the capacity to invest in the necessary support infrastructure.
The purchase of 98 new trolleybuses in Bishkek and 17 in Osh will in a broader sense add to and learn from the experience of previous (EBRD-supported) replacements that started in 2011 and 2014 in Bishkek and Osh, respectively. Also, both pilot cities have a large number of minibuses (usually diesel-fuelled) in their public transport fleets that are in urgent need of replacement. Therefore, 200 old diesel minibuses will be replaced in Bishkek and 600 in Osh by 40 and 120 CNG regular buses, respectively.
The investment costs of the pilot phase of the CPT Programme would amount to KGS 4 088 million (USD 59.36 million), of which KGS 2 037 million (USD 29.58 million) would need to come from the public purse (Table 2.3).
Table 2.3. Key costs and benefits of the CPT Programme’s pilot phase
Note: *For a discussion of normative and real pollution factors, see Section 2.3.3 and Annex B.
Source: OECD calculations, OPTIC Model.
2.2.2. Phase 2 (scaling-up phase)
The second phase of the programme is designed to replace the remaining old bus/minibus fleet in Bishkek and Osh, i.e. those supplying the suburban routes, as well as some inter-city connections.
Public transport in Kyrgyzstan is dominated by diesel minibuses; currently regular buses only service a small number of urban and inter-city routes. Therefore, the second phase of the CPT Programme proposes replacing half of the minibuses with minibuses powered by clean fuels, and the other half with regular buses (more than 10 metres long) which can carry up to five times more passengers.
The calculation of the number of buses to be purchased in Phase 2 took into consideration the number of old diesel buses (with engines of up to Euro IV standard) and minibuses currently providing public passenger transport services. Due to the lack of reliable data on the existing inter-city bus fleet, these figures have been estimated. This estimation also considers the possibility that the overall number of minibuses will be reduced and a certain share of these minibuses (about 50%) will be replaced with regular buses. Overall it will involve 960 new vehicles: 870 CNG and 90 diesel-powered ones.
The key costs and benefits of both programme phases are shown in Table 2.4 (please note that the second column includes the overall result for both phases). While no sensitivity analysis for the phases was performed, changes in the programme’s cost-effectiveness might occur if the prices used for the costing change (e.g. passenger fares; see Box 4.1 in Chapter 4).
Table 2.4. Key input and output parameters of the assessed CPT Programme phases
Note: *Normative pollution factors, see Section 2.3.3 and Annex B.
Source: OECD calculations, OPTIC Model.
2.3. What will the costs and benefits be?
2.3.1. Renewed public transport fleet
In total, the programme will result in 403 new urban public transport vehicles in the pilot phase (115 trolleybuses and 288 CNG buses). The pilot and scaling-up phase will result in a total of 1 363 new urban, suburban and inter-city public transport vehicles (115 trolleybuses, 1 158 CNG buses and 90 diesel buses).
The programme objectives have been translated into straightforward and measurable targets:
Increase the ratio of new buses (less than five years old) used for urban, suburban and inter-city public transport in Kyrgyzstan from 5.7% of the fleet (2017 baseline) to 38.0% after the pilot phase, and to 83.6% after the scaling-up phase.
Increase the ratio of new trolleybuses (less than five years old) in the fleets of Bishkek and Osh from 44.1% (2017 baseline) to 91.8% after the pilot phase.
Decrease the ratio of minibuses in the public transport fleet in Kyrgyzstan from 86.0% (2017 baseline) to 83.1% after the pilot phase and to 66.3% after the scaling-up phase.
Increase the ratio of CNG-fuelled buses in the public transport fleet in Kyrgyzstan to 4.6% after the pilot phase and to 23.2% after the scaling-up phase.
The investment distribution between the pilot cities of Bishkek and Osh, and other cities/regions of Kyrgyzstan, is shown in Figure 2.9. To some extent, the proposed CPT Programme will build on the existing investment programme in urban public transport financed by a loan from the EBRD (see Sections 6.2.4 and 6.2.5).
2.3.2. Using the OPTIC Model to estimate costs and benefits
The costs and benefits of the CPT Programme were estimated using an Excel-based model called Optimising Public Transport Investment Costs (OPTIC). This analytical tool has been developed by the OECD to help public authorities prepare and estimate, as precisely as possible, the costs and environmental benefits of green public investment programmes (Box 2.1). The model was first designed and tested in Kazakhstan (OECD, 2017[3]). The assumptions surrounding cost calculation and emission reductions factors are described in Annex B in the section “Programme costing for Phase 1 (pilot phase) and Phase 2 (scaling-up phase)”.
Box 2.1. The OPTIC model
The Optimising Public Transport Investment Costs (OPTIC) model was developed along with this study and is one of the main outputs of the project.
OPTIC’s spreadsheet-based model is a simple, easy-to-use decision support tool prepared exclusively to calculate and optimise total programme costs, as well as the CO2 emission reductions and reductions of other pollutants from urban public transport (CO, NOx, PM, SO2) that could be potentially achieved by implementing the proposed project pipelines. The model helps calculate the optimal level of subsidy that can be offered to potential beneficiaries.
Optimisation of costs and benefits implies achieving given targets at the lowest possible cost for the public financier. If underlying economic conditions in the country change over the programme period (e.g. tariffs are increased, interest rates on commercial loans are lowered) and/or available public financing is reduced or augmented, both targets and subsidy levels can be re-calculated (or optimised) and adjusted accordingly.
The model consists of seven modules: 1) assumptions; 2) emission factors; 3) transport sector overview with information on current bus fleet and age; 4) determining of the subsidy level; 5) cost calculation; 6) emission reductions calculation; and 7) programme costing and environmental effects.
2.3.3. Emission reductions
In order to estimate the environmental outcomes of the CPT Programme, the model uses two different sets of pollution factors: normative and real. As discussed in Annex B, this was necessary as normative pollution factors declared and checked in laboratory conditions differ from actual pollution factors measured in the urban transport cycle. Normative emission factors take into account various modern emission standards for heavy-duty diesel engines, and estimations for CNG and LPG-fuelled engines. The emission factors introduced by the standards, however, are based on maximum emission levels according to specific norms. Real emissions may vary, mainly because normative emissions are tested in laboratory conditions and not in actual traffic. This is a concern mostly for diesel engines, where emission reductions depend on the emission reduction equipment installed. In this case, the real level of emissions was also calculated taking into account the results published by the International Council on Clean Transportation (ICCT),6 based on real-world exhaust emissions from modern diesel cars (Franco et al., 2014[4]). Emissions from CNG and LPG are less problematic because they use cleaner fuels. A detailed discussion of emissions factors can be found in Annex B to this report.
The most significant reductions from this programme are expected to be in NOx emissions, which are estimated to decline by 1 854 270 kg/year (Table 2.5). CO2 emissions are estimated to decline by 102 759 tCO2/year.
Table 2.5. Estimated key costs and benefits of the entire CPT Programme
Note: * Normative pollution factors
Source: OECD calculations, OPTIC Model.
Figure 2.3 presents the possible reductions of greenhouse gases and air pollutants from both phases of the CPT Programme in Bishkek and Osh, including their suburban networks and main inter-city connections. As only these two cities have a well-developed urban public transport network (other cities essentially only use inter-city connections7), the main environmental impact is expected to be in the pilot cities as well.
Figure 2.3. Aggregate annual emission reductions resulting from the CPT Programme in Kyrgyzstan, 2021-26
Source: OECD calculations, OPTIC Model
Figure 2.4 projects environmental outcomes for the city of Bishkek, including the second (scaling-up) phase, over the six years of project implementation. These investments can bring significant emission reductions. Whereas CO2 emissions will be reduced by 43.1% (52 711 tonnes/year) compared to the baseline, the combined reduction of air pollutants will be 86.7% (153 tonnes/year) after the scaling-up phase.
Figure 2.4. Difference between old and new fleet in Bishkek – carbon dioxide and air pollutant emissions, 2020-26
Note: The values reflect only emissions from vehicles to be replaced (baseline value) and the new fleet (target value), not the total emissions from public transport in Bishkek. Air pollutants include CO, NOx, PM2.5 and SO2 and the total emissions value is based on the simple summation of individual pollutant emission weights.
Source: OECD calculations, OPTIC Model.
Figure 2.5 projects the environmental outcomes for Osh, including the second (scaling-up) phase, over the three years of project implementation. Whereas CO2 reduction will be 59.6% (15 494 tonnes/year) compared to the baseline, the combined reduction of air pollutants will amount to 90.6% (45 tonnes/year) after the scaling-up phase.
Figure 2.5. Difference between old and new fleet in Osh – carbon dioxide and air pollutants emissions, 2020-23
Note: The values reflect only emissions from vehicles to be replaced (baseline value) and the new fleet (target value), not the total emissions from public transport in Osh. Air pollutants include CO, NOx, PM2.5 and SO2 and the total emissions value is based on the simple summation of individual pollutant emission weights.
Source: OECD calculations, OPTIC Model.
Figure 2.6, Figure 2.7, and Figure 2.8 contrast possible GHG and air pollution reduction resulting from the CPT Programme’s phases and scenarios with current emissions levels from the existing public transport fleet.
CO2 and NOx promise the greatest emission reductions. Obviously, significant emission reductions start accumulating with the implementation of Phase 2 of the CPT Programme. By the end of Phase 2, CO2 emissions are estimated to decrease by about 68 506 tonnes/year (a reduction of 47.3% compared to baseline). These reductions are estimated using the normative pollution factors approach (Figure 2.6).
Figure 2.6. Potential carbon dioxide reductions resulting from the CPT Programme
Note: The values reflect only emissions from the vehicles to be replaced (baseline value) and the new fleet (target value), not the total emissions from public transport in Kyrgyzstan.
Source: OECD calculations, OPTIC Model.
In the case of NOx emissions, this reduction is estimated to amount to about 1 236 tonnes/year (a reduction of 86.4% compared to baseline). CO emissions reductions will amount to 307 tonnes/year (meaning a reduction of 94.0% compared to baseline) (Figure 2.7).
Figure 2.7. Potential carbon monoxide and nitrogen oxides reductions resulting from the CPT Programme
Note: The values only reflect emissions from the vehicles to be replaced (baseline value) and the new fleet (target value), not the total emissions from public transport in Kyrgyzstan.
Source: OECD calculations, OPTIC Model.
In terms of relative improvement, the best result will be achieved for SO2 emissions, which will be reduced by 99.6% (or 27 tonnes/year) after the scaling-up phase. Particulate matter (PM) emissions will decrease by 29 tonnes/year (a reduction of 98.7% compared to the baseline) (Figure 2.8).
Figure 2.8. Potential particulates and sulphur dioxide reductions resulting from the CPT Programme
Note: The values only reflect emissions from the vehicles to be replaced (baseline value) and the new fleet (target value), not the total emissions from public transport in Kyrgyzstan.
Source: OECD calculations, OPTIC Model.
2.3.4. Investment costs and financing options
The pilot phase (Phase 1) covers a limited number of buses in the centres of the pilot cities of Bishkek and Osh. It would involve purchasing 115 trolleybuses and 288 new CNG buses at a cost of KGS 4 088 million (USD 59.36 million), of which KGS 2 037 (USD 29.58 million) in public financing will be required.
The scaling-up phase (Phase 2) takes into account the replacement of buses in suburban areas of Bishkek and Osh, as well as a rough estimate of the replacement of some inter-city buses. This would involve the replacement of 870 CNG buses and 90 modern diesel buses, at a cost of KGS 9 603 (USD 139.44 million), of which KGS 3 762 (USD 54.63 million) are required as public co-financing.
The total investment cost of both Phase 1 and Phase 2 of the CPT Programme is estimated at KGS 13 691 million (USD 198.8 million), excluding preparation and implementation costs. Of this total cost, KGS 5 799 million (USD 84.21 million) in public support will be needed.
Figure 2.9 presents the overall CPT Programme costs for investors (i.e. private and municipally-owned public transport companies) and public sector financiers (both national and international) in the pilot phase (Phase 1) and in the scaling-up phase (Phase 2).
Figure 2.9. Total investment costs of the CPT Programme in Bishkek, Osh and other cities
Note: PTO – public transport operator.
Source: OECD calculations, OPTIC Model.
Table 2.6 summarises the size, results and associated costs of the CPT Programme for Phases 1 and 2, assuming that the programme is implemented directly by a government-established implementation unit (IU). The annual amounts were estimated by dividing the public co-financing required in Phase 2 (i.e. excluding the pilot phase) by the five years of programme implementation in the second phase.
Table 2.6. Summary of CPT Programme costs, Phases 1 and 2
(KGS million)
Source: OECD calculations, OPTIC Model.
The CPT Programme preparation costs (including fundraising) assume that two people will be employed on a full-time basis during the first year, at a cost of KGS 288 000 (USD 4 180), based on an average monthly salary for administrative employees of KGS 16 000 (USD 230) and 50% overheads (social security and other administrative costs).
The CPT Programme preparation costs in the second phase (including fundraising) assume that two people will be employed on a full-time basis during the first year of Phase 2 at a cost of KGS 576 000 (USD 8 360), using the same calculations above. In addition, the implementation unit would employ eight people on a full-time basis, whose costs are estimated to amount to KGS 2.3 million (USD 33 500) annually in the second phase of the programme.
Table 2.7 mirrors Table 2.6, but all costs are recalculated in US dollars.
Table 2.7. Summary of CPT Programme costs, Phases 1 and 2
(USD million)
Source: OECD calculations, OPTIC Model.
It will be costly for the public financier to cover these costs even if part of the individual costs is covered by bus operators (see Table 2.4 above). The most likely financing source for the CPT Programme will be the resources of public transport operators (both public and private) combined with state budget support (a subsidy in the form of a grant) to motivate bus operators to allocate their own financial resources. The most likely financing scheme is depicted in Figure 2.10.
In the future (at a later stage of the CPT Programme or in other public investment programmes), commercial loans combined with public support in the form of loan guarantees and grants from public sources could be given to public transport operators. From initial discussions, a portion of the existing credit line that the Government of Kyrgyzstan has with the Asian Development Bank (ADB) could be devoted to the CPT Programme. This credit could then be on-lent to operators or municipalities. Commercial loans, while a theoretical possibility, should be used only after the exploration of other loan possibilities, including in particular on-lending of loans incurred by the state from international sources.
Figure 2.10. Financing from own sources and public grant
2.4. What is the optimal co-financing level?
Calculating the optimal level of public funds for co-financing the costs of the purchase of the new, cleaner vehicles is an important element of the analysis. Estimates suggest that the level of public funds should not exceed the rates provided in Table 2.8 below. These rates, which represent the optimal subsidy level per type of pipeline, were calculated using the OPTIC Model based on the net present value (NPV) of each type of investment (see Annex B).
The calculation of these rates takes into account current fares and the daily distances covered by operators (which are not optimal).
Table 2.8. Summary of public support for the CPT Programme
Note: Percentage values denote the level of public support from the bus purchase costs.
Source: OECD calculations, OPTIC Model.
There are two issues of note regarding the calculation of these optimal subsidy levels. First, when a public transport operator modernises its fleet, the operator will not need to replace buses in the near future (in particular, considering buses that are more than 15 years old which replacement would be necessary in any case). Thus, only the price difference between modern (low-emission) buses and traditional buses is taken into account when calculating the subsidy level.8 Second, some fuels will be cheaper than diesel. For example, CNG and LPG are cheaper than diesel even taking into account increased consumption. Therefore, savings in fuel costs for public transport operators are also taken into account when calculating the subsidy level.
Figure 2.11 and Figure 2.12 contrast purchase price and fuel cost for the different types of buses, as an aid for decision making. As seen in Figure 2.11, while the purchase price of (or the initial investment in) cleaner fuel buses is significantly higher than for a traditional diesel bus, the much lower fuel costs over the useful lifetime of the cleaner bus allow for additional savings.
Figure 2.11. Relationship between purchase price and fuel costs for diesel and cleaner buses
Source: OECD calculations, OPTIC Model.
Similarly, Figure 2.12 shows that CNG fuel is cheaper than diesel, and the fuel consumption of CNG buses per 100 kilometres is lower. Although trolleybus consumption appears to be high, given the low price of electricity, it is the most economical option in terms of running costs. The potential savings from using storage batteries and the low pollution levels from electric transport make trolleybuses a particularly attractive option for investment (for exact fuel consumption values, see Table B.1 of Annex B). However, during the winter months, when there is not enough water in the Toktogul Dam, trolleybuses need to use electricity generated by thermal power stations rather than the usual hydropower, which temporarily worsens its environmental benefits (see Section 6.1.4).
Figure 2.12. Relationship between consumption and fuel price for diesel and cleaner buses
Source: OECD calculations, OPTIC Model.
It is essential to monitor market developments regularly (e.g. changes in bus/trolleybus and fuel/electricity prices, development of the market for new engines, and availability of other financing sources) and how they interact with the CPT Programme design. Such market changes need to be reflected in the programme, and the subsidy level provided by the state adjusted accordingly. The section on “Programme costing for Phase 1 (pilot phase) and Phase 2 (scaling-up phase)” in Annex B provides an indicative calculation of the optimal subsidy level based on bus and fuel prices at the end of 2018. These, however, are offered more as an illustration of how the subsidy level needs to be calculated, rather than as absolute values. The model provides an opportunity to adjust and optimise the programme assumptions and its effects by changing the basic data as appropriate.
2.5. What will the implementation set-up be?
The institutional set-up proposed in this study includes three levels: 1) a programming entity; 2) an implementation unit; and 3) a technical support unit. The analysis suggests that the Ministry of Economy could act as the programming entity. Programme implementation, which should be a separate and distinct function from the programming role, could be performed by local banks that sign a co-operation agreement with the Ministry of Economy following a successful public tender bid to provide this service. Other potential implementation units could be the Investment Promotion and Protection Agency (IPPA), the State Agency for Environmental Protection and Forestry (SAEPF), and the Regional Environmental Centre for Central Asia (CAREC). Regardless of the choice, the implementing entity should have a degree of independence to ensure that decisions are made using rules and criteria in line with the programme objectives, and not subject to undue political influence (see Section 4.2).
Inter-ministerial co-operation is vital for the successful implementation of the programme. Such a programme can help increase the profile of the environment and climate on the transport policy agenda. In transitioning to clean public transport, the Ministry of Economy would benefit from closer co-operation with other ministries, in particular the Ministry of Finance, in order to mobilise existing funds and potential external financing sources in order to achieve low-carbon mobility in the country.
2.6. What will the timeframe look like?
Given that the CPT Programme will be co-financed with public funds, a preparation period (Figure 2.13) will be needed before the first phase to include the programme provisions in the state budget process, and to identify and apply for funding from additional sources (including donors).
The experience of other countries with similar publicly supported investments suggests that such programmes are best implemented over the medium to long-term and linked to government targets. It was agreed with stakeholders that the CPT Programme would begin with a pilot phase. The major constraint is likely to be procurement procedures. The pilot phase could thus take up to a year.
The results of the pilot phase will be evaluated to decide whether it will be necessary to continue with the second phase. If so, it is proposed that the second phase of the CPT Programme be carried out over a period of five years and then reviewed in detail. A decision can then be made as to whether it should be extended or brought to a close, depending on possible new policy objectives and government goals or market developments.
Figure 2.13. Proposed timeline
In addition, there should be annual evaluations of the CPT Programme to see whether the projects are helping to meet government objectives and to revise elements if necessary. Since the programme is designed to be co-financed through the state budget, any change should be co-ordinated with the existing multi-year budget and its requirements. On this basis, annual financial plans for financing through the regular annual budget should be prepared.
2.7. Conclusions
As the OPTIC Model calculations have shown, the total cost of implementing the CPT Programme will be substantial. Since new technologies are more expensive before they reach market maturity, public financial support will be necessary to help the public transport operators (both municipal and private) to upgrade to a modern and environment-friendly vehicle fleet.
The investment programme foresees public grants – and prospectively, commercial and preferential loans and public loan guarantees – as the most targeted support options. Finance is available, primarily through national public authorities (grants), or international/development financial institutions (preferential loans and grants). In the future, the involvement of national commercial banks (commercial loans) and national public authorities (loan guarantees) could broaden the scheme and its financing options.
When calculating the optimal level of public support (subsidies in the form of grants), the programme analysis took into account several contributory factors – such as the lower running costs of alternative fuel vehicles (as these fuels/sources of power are less expensive), lower operational and maintenance costs (due to higher reliability of new vehicles) and the overall need to replace the vehicles that have been fully depreciated.
For these economic reasons (i.e. achieved savings in operational costs), it is not necessary for the CPT Programme to be completely grant-financed. The programme is designed to increase investment by public transport operators in the vehicle fleet without making the replacement too profitable based on public resources (or to support purchases that would/could take place without public support).
In any case, applying a robust methodology – to estimate the costs of the investment programme, set the optimal level of subsidy and forecast the expected environmental benefits – can make the CPT Programme more credible for both national and international public financiers.
Bibliography
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[2] GoK (2016), Third National Communication of the Kyrgyz Republic under the UN Framework Convention on Climate Change, Government of Kyrgyzstan, Bishkek, https://unfccc.int/sites/default/files/resource/NC3_Kyrgyzstan_English_24Jan2017.pdf.
[1] GoK (2015), Intended Nationally Determined Contribution – Submission of the Kyrgyz Republic, Government of Kyrgyzstan, Bishkek, https://www4.unfccc.int/sites/submissions/INDC/Published%20Documents/Kyrgyzstan/1/Kyrgyzstan%20INDC%20_ENG_%20final.pdf.
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Notes
← 1. 21st Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCCC COP21). For more information on COP, see https://unfccc.int/process/bodies/supreme-bodies/conference-of-the-parties-cop.
← 2. It is important to note that while buses powered by LPG are given medium priority (see Section 5.1.2), no LPG buses are foreseen in the investment plans of the cities of Bishkek and Osh. Although LPG is used in Kyrgyzstan (mainly by private users, including public transport operators), CO2 emissions from LPG-powered engines are higher than from CNG-powered ones (see Section 3.1 and Annex A to this report). Therefore, it is suggested that the programme should financially support buses powered by CNG rather than LPG. For this reason, the results of the OPTIC (Optimising Public Transport Investment Costs) Model do not include LPG buses. The model can, however, be used to include LPG buses should policy makers decide to evaluate this option in the future.
← 3. As of end of 2018. See NSC on resident population at: http://stat.kg/en/opendata/category/39.
← 4. Even though trolleybuses have only small batteries, they are cheaper to run (in terms of operational and maintenance costs) than electric buses. They can travel on the battery for a limited number of kilometres (depending on the battery capacity), but most of the route is powered by the city’s electrical wire network, which allows the trolleybus batteries to be charged while driving.
← 5. As of end of 2018. See NSC on resident population at: http://stat.kg/en/opendata/category/39.
← 6. International Council on Clean Transportation (www.theicct.org).
← 7. Other cities face affordability constraints in further developing their urban public transport services. For example, Naryn (capital of Naryn oblast) has only one trolleybus line.
← 8. Given that most public transport operators would rather buy used public transport vehicles, the price of a used bus served as the basis for the calculation.