This chapter summarises the main opportunities and challenges associated with the launch and successful implementation of green investment programmes. In particular, it highlights the role of the international community and national public sectors in providing the necessary financial incentives and system support. Management of investment programmes, for example, could trigger private sector interest and participation in projects with added social value. In addition, the public sector has a crucial task in eliminating policy barriers and shortcomings in the countries’ regulatory, institutional and organisational frameworks. This is needed to achieve public transport that is energy-efficient, and environment- and user-friendly. The chapter and the report conclude with possible ways to address these barriers.
Promoting Clean Urban Public Transportation in Kazakhstan, Kyrgyzstan and Moldova
4. Key conclusions and policy recommendations
Abstract
4.1. Domestic and international green finance
Most of the resources needed to support the greening of the economy are expected to come from the private sector. However, the public sector still plays a role, particularly in creating incentives and supporting new technologies. The largest share of investments will go to energy efficiency, renewable energy and gas infrastructure. One way to increase availability of limited public resources is by improving the effectiveness and efficiency of managing public funds.
As the post-2012 global climate regime is evolving, donors and international finance institutions (IFIs) are already planning to invest significant resources to support non-Annex I countries. International carbon finance mechanisms are expected to rely to a great extent on country-based systems for programme and project identification and implementation. The Green Climate Fund (GCF), for example, was established recently under the UN Framework Convention on Climate Change.
The GCF focuses on climate mitigation and adaptation. One of its core principles is the country’s full ownership of proposed investments, which need to be aligned with national strategic priorities. Public investment programmes with clear priorities can increase the country’s chances of support from the GCF (once the institutional mechanisms to access the Fund have been set up) or other international sources.
In general, those countries that develop the necessary skills to prepare economically sound public expenditure programmes (designed in line with good international practices), can compete effectively for support and leverage funds from both budgetary and donor sources. Therefore, the major players in climate change policy in the respective countries need to be enabled to identify pipelines of cost-effective projects. This will allow them to become more competitive and stand a better chance of benefiting from international support. Major players comprise the Ministry of Energy of Kazakhstan; Ministry of Agriculture, Regional Development and Environment of Moldova; and the State Agency for Environmental Protection and Forestry of Kyrgyzstan.
In addition, government administrations need to be willing to apply good practices in public expenditure management, such as accountability, transparency and efficiency. To be successful, such programmes also need to be integrated into national development strategies and medium-term budgetary processes, such as medium-term expenditure frameworks (MTEF). Moldova, for example, has been among the first EECCA countries to introduce a medium-term perspective to its annual budget process. The Moldovan government has accumulated significant experience with the MTEF design, including in the environmental sector, but less so with its actual implementation.
4.2. Creating policy framework for green investments
Various policy barriers to implementation are listed below. Before the programme is developed and financed, the national governments should review the relevant regulations and eliminate any barriers to the extent possible.
Inadequate resources for programme preparation and management. The CPT Programme requires significant work on programme preparation (including fundraising) and implementation. This will require building 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. However, their creditworthiness is in many cases limited. Several options for support exist. Operators could receive direct financial support in the form of grants. The Ministry of Finance (as the main guarantor of public debt) could issue guarantees on bank loans. The CPT Programme could also provide bank guarantees. Commercial loans for the purchases of modern buses, however, are uncommon.
Inadequate passenger fares. Standard fares for public transport are as low as USD 0.09 for a single ride ticket (not considering further discounts or exemptions). Some fares have not been adjusted for more than a decade. A fare increase is obviously needed (based on a sensitivity analysis to determine optimal fare levels). Otherwise, fleet operators may not be able to repay their loans.
Insufficient co‑ordination and communication. The municipal level is visibly trying to improve public transport service and reduce traffic congestion and air pollution in urban centres. To that end, it is primarily limiting the number of minibus operators. However, these efforts are not clearly communicated to all stakeholders. Moreover, communication is lacking about details on future routes, the transport means to be used, how many buses will be needed and who will operate them. Given the Ministry of Finance is already helping prepare the project for external financial assistance, it could play a co‑ordinating role to ensure inter-ministerial co-operation.
Lack of proper financial products tailored to the needs of the sector. The financial sectors in the partner countries are relatively concentrated and largely dominated by commercial banks. However, their function as financial intermediaries is limited due to high interest rates and collateral requirements. Banks also face constraints. Apart from a lack of bankable projects, banks face low rates of loan recovery. These low recovery rates, in the case of public transport operators, might be caused by the low passenger fares mentioned above.
Lack of interest in purchasing more fuel-efficient vehicles. Apart from setting the right policy incentives, the government needs to reassure consumers about new technologies (e.g. their useful life) and fuels (e.g. future fuel prices). To that end, they could provide correct, sufficient and timely information – a possible role for the government implementation unit of the CPT Programme.
4.3. Key recommendations for programme implementation
4.3.1. Strengthen institutions that prepare and implement programmes
The three countries were keen to prepare the programme and, after the initial work on programme selection, were clear on its focus. However, none of them was ready for immediate implementation. The major reason for the delay was financial: there is no public money in those countries set aside for the programme. The budget procedure is relatively inflexible. It requires first general agreement of the government to spend public money on a specific programme. The government then includes this programme in the budgetary process, which means at least one year of preparation. In addition, all three countries were keen to receive external (international) sources for programme implementation. While understandable, this requires adjustment of the programme to the needs of particular donors and preparation of the respective dossiers. The three countries had planned for programme preparation and fundraising in the first year. However, that requires an implementation unit of at least several experts to be operational. None of the three countries has such a unit in place.
Thus, lack of ownership of the CPT Programme by the respective institutions (existing or new) is a key barrier to implement environmental programmes. This situation is partially due to lack of experience of the three countries. None has ever implemented such large environmental expenditure investment programmes.
The three case studies prepared and presented (Austria, Czech Republic and Poland) show that their respective programmes were not implemented in an institutional vacuum.
In the case of the Austrian klimaaktiv programme, the institutional set-up was split between the Ministry of Environment (currently, Ministry of Sustainability and Tourism) and a private institution that has proven capacity to implement green investment programmes. This institution, Kommunalkredit Public Consulting, manages about 3 000 projects annually. It is also involved in management of the grant schemes for Austria’s Environmental and Water Management Fund, as well as the Austrian Joint Implementation (JI)/Clean Development Mechanism (CDM) programme. The programme was furthermore set up in agreement with the Ministry of Finance and the Ministry of Transport, Innovation and Technology, and supported by the Austrian Climate and Energy Fund.
In Poland, the National Fund for Environmental Protection and Water Management (NFEP&WM) prepared and implemented the programme. It is a large institution with the capacity for this work. The Polish Environment Fund has 609 full-time jobs and is managing many green investment programmes.
In the case of the Czech Republic, the public transport programmes were prepared by relevant ministries and implemented by cities.
In short, the latter three countries are used to working within different EU-supported programmes. Neither Kazakhstan nor Moldova nor the Kyrgyz Republic has such an institution.
4.3.2. Strengthen technical regulations in transport
Many of the policy and regulatory barriers identified by this study are comparable to challenges experienced in other countries. To ensure the programme’s successful implementation, the government will need to do the following:
Strengthen (diesel) engine emission norms and bring them closer to European standards. Neither Kazakhstan nor Moldova nor Kyrgyzstan has developed modern emission norms for both passenger cars and heavy-duty truck and bus engines. In 2014, the European Commission adopted Euro 6/VI vehicle emission standards. However, an equivalent of the Euro 4/IV emission standard – introduced in the European Union in 2005 – has not been fully adopted in the partner countries. Moldova has only introduced requirements for buses and coaches to meet Euro I norms starting from 2020. In Kyrgyzstan, Euro 5 standards are to come into effect in 2019, but only for fuel, not engines.
Strengthen (diesel) fuel standards. The latest diesel engine emission norms cannot be introduced if the available fuel does not meet certain standards. Modern engines include equipment sensitive to low-quality fuel. Moreover, SO2 emissions depend directly on the fuel’s sulphur content. In 2016, Kazakhstan introduced Euro 4 fuel standards (Euro 5 diesel needs to be imported and is available mostly close to the Russian border). In Moldova, the diesel fuel available meets Euro 5 standards. It seems to be sufficient for a country-wide fleet upgrade. However, the legal requirements are based on post-Soviet standards that are incompatible with EU standards. It is also possible to find Euro 5 fuel in Kyrgyzstan, but available diesel fuel in the country largely meets only Euro 3 standards.
Strengthen technical inspection standards. Buses and minibuses in Kazakhstan, Kyrgyzstan and Moldova must pass technical inspections (which was not always the case in the past). However, these inspections are not strict on emissions. The weak inspection (and maintenance) system means that public transport operators have no incentive to comply with emissions standards. Existing standards for technical inspection need to be better enforced, starting with responsibilities and sanctions for failing to fulfil the requirements to be included in the legislation. In this way, a more effective state regulation of the transport activities can be enforced.
4.3.3. Introduce adequate pricing signals
Although CNG and LPG fuels are cheaper than diesel or petrol fuels, CNG- and LPG-fuelled buses are more expensive (as they require installation of additional equipment). Bus operators have not been given clear incentives to shift to cleaner fuels (either from renewable resources or cleaner fossil fuels). On top of environmental and health benefits, replacement of ageing and inefficient diesel and electricity-powered vehicles provides significant efficiency gains.1 Therefore, the investment programme (through government) should provide the necessary financial incentives to attract investment into the sector.
The experience from the EU countries shows that uptake of fossil gases in transport is highest in countries with the lowest tax rates, i.e. where CNG or LPG enjoy tax rates below the EU minimum. In some countries (such as Italy), such tax rates make CNG and LPG half the price of diesel. This support has continued despite the declining EU domestic fossil gas production and increasing dependence – similarly to Moldova or Kyrgyzstan – on energy imports from the Russian Federation or Kazakhstan2 (T&E, 2018[1]).
The government could therefore consider introducing targeted tax exemptions (including value added tax and import duties). Such exemptions could target CNG/LPG vehicles, as well as owners of refuelling stations; the United Nations Development Programme (UNDP) clearly recommends the latter for Kazakhstan (UNDP, 2015[2]). Such fiscal measures could act as a complementary state support mechanism in addition to grants, loans or loan guarantees provided by the government until critical mass is achieved and the system becomes profitable.
For example, in 2018, Poland introduced an excise tax exemption for CNG and LNG. At the same time, it introduced a new fuel fee for other fuels, including diesel. This will give more incentive to use clean fuels.
4.3.4. Increase support to producers of clean buses
Kazakhstan has limited bus production (in Kostanay and Semey), but bus producers have no incentive to introduce clean engines. Kazakhstan is rich in natural gas and could promote local production of clean engines that would encourage use of clean fuels. This programme focuses on public transport operators, but another one could introduce incentives for manufacturing and procuring efficient buses that run on alternative fuels (CNG, LPG) with lower CO2 emissions.
In Moldova, there is a limited trolleybus production in Chisinau (assembly of Belarusian- made Belcommunmash). Considering limited demand for trolleybuses in Moldova (Chisinau and Balti), this production could be expanded to other types of clean transport. The analysis has shown that assembly already represents a distinct purchase cost advantage over importing completed buses. This considers both reference prices of new vehicles and also socio-economic benefits linked with in-country production/assembly.
The Kyrgyz Republic does not really have a developed domestic automobile and bus industry. However, some manufacturing projects are ongoing. For example, the manufacture of Isuzu buses and Ravon passenger cars was to begin before the end of 2018. The city of Osh already has a production area where a large-scale assembly of Ravon brands will initially be organised. Bishkek also plans to produce buses; SamAvto's products, whose partner is the Japanese company Isuzu, should be launched in the city (Trend AZ, 2017[3]).
Although Austria, Poland and the Czech Republic do not have distinct support for bus producers that run on alternative fuels, their aid programmes include research and development. The bus producers can use such programmes to co-finance their research on innovative buses, especially the so-called low-emission transport.
4.3.5. Adjust the fare system for urban public transport
Fares should be aligned with good international practices and designed to maximise the social welfare of both passengers and public transport providers (subject to budget and capacity constraints).
The benefit for public transport service providers can be defined as revenues minus costs. The benefit for the user of these services can be expressed as the generalised price citizens are willing to pay before switching to non-public transport alternatives, minus the actual generalised price of the ticket (see Box 4.1). To some extent, the producer benefit and user benefit may be negatively correlated.
Given the economic and financial situation of public transport providers in Kazakhstan, Kyrgyzstan and Moldova, the focus should be on the providers’ benefit. The user benefit should be minimised as much as possible (possibly close to zero). Public transport service operators of minibuses are private, while trolleybus and bus services tend to be provided by the municipality. Private operators provide business for profit, so passenger fares need to cover capital and operating costs.
At the same time, fares on public transport are low. Current standard fares in Kazakhstan are EUR 0.18-0.20 per ride (in Kostanay and Shymkent). In Moldova, fares are EUR 0.11-0.15 per ride (in Chisinau and Balti). In Kyrgyzstan, fares are EUR 0.09-0.15 per ride (in Bishkek and Osh). In comparison, a single ticket in Poland or the Czech Republic costs about EUR 1-1.20 and EUR 1.80 in Austria. The more than tenfold (here, with an extreme case of almost twentyfold) price difference cannot be justified by difference in purchasing power of citizens.
Consequently, the quality of service provided by private operators is rather low, favouring old buses to minimise capital costs (and depreciation).
Box 4.1. Proposing a sensitivity analysis
A sensitivity analysis into how many new buses/trolleybuses could be bought by increasing fares by KZT 10.00 in Kazakhstan, or KGS 2.00 in Kyrgyzstan (both USD 0.03), or MDL 2.0 in Moldova (USD 0.11) could be informative.
Generally, the sensitivity analysis should consider that an increased price for tickets may discourage people from using public transport. It may make them switch to private cars, for instance, which can result in higher levels of air pollution. In economic language, public transport fare increases lead to an exposure-response relationship with a high price elasticity of demand. In other words, a price increase leads to less demand for a given service.
Therefore, to achieve desired environmental effects, private car transport should not substitute for public transport. Further, such an analysis depends, among others, on local circumstances, including the length of routes and the number of passengers. This type of analysis requires significant additional data collection and discussion with the government and municipal authorities. Such analysis was outside the scope of this study, but it should be carried out.
An increase in fares is clearly needed and could theoretically help co-finance the CPT Programme. The above-mentioned fares are extremely low and would be insufficient to guarantee repayment of any eventual loan by bus or trolleybus operators. Thus, if current fares are maintained, the programme and the public budget will be exposed to default by operators and will have to consume the guarantee. This implies significant actual costs for the programme.
In addition to higher single fares, subscription fares could also be considered. This option is usually favoured by passengers who do not own a car and are therefore less price- sensitive. On the other hand, in developing countries, people who do not own a car usually belong to lower income groups than those in the developed world.3
Regardless of the fare system, improvements in the payment system should also be implemented. Trolleybus and bus travel times are greatly increased by the “pay upon exit” system. To date, however, electronic payment systems have been tested, but not successfully implemented. Such changes in the fare system, coupled with separate bus lanes and smart traffic lights, could improve management of the public road transport sector in the three countries.
In 2016, the UNDP held discussions with some Akimats in Kazakhstan around these issues. They jointly proposed amendments in relevant legislation.
4.3.6. Improve inter-ministerial co‑operation in implementation of the transport strategy
Effective inter-ministerial co‑operation is required to adequately address environmental and public health issues through investments in clean technologies for urban public transport. Experience from other projects has shown that such co‑operation can be challenging to implement in practice. However, the involvement in management of multiple ministries – transport (infrastructure), economy (investments), energy and environment – can help increase the chances of success.
Environment is not a priority for transport policy. This issue could be addressed by introducing clear environmental indicators (e.g. air quality indicators) in transport-related strategic and policy documents. Better co‑operation could also help improve the collection and availability of data on urban transport, which can be used in policy analysis.
Some of this information – such as disaggregated data on bus fleet age or types of fuel used – is dispersed across regions, districts and municipalities, but not yet collected at the national level. The lack of this information makes it difficult for national governments to see the full picture. As such, it presents an obstacle for policy making and progress towards clean transport. Apart from making such information available at the national level, the Ministries of Finance and of Economy could also support the programme. This would contribute to low-carbon mobility in the respective countries and help increase the profile of the environment and climate on the transport policy agenda.
In Kazakhstan, in addition to the Ministry of Energy, the Ministry of Investments and Development (in particular, its Transport Committee) plays a crucial role in this process. In the case of Moldova, the Ministry of Agriculture, Regional Development and Environment is responsible for green investment programmes. However, several other ministries are interested in the CPT Programme. These are the Ministry of Economy and Infrastructure (which absorbed the former Ministry of Economy), the Ministry of Transport and Roads Infrastructure, and the Ministry of Informational Technologies and Communications. The consolidation of ministries in July 2017 should improve co‑ordination in the event they co-implement the CPT Programme. In Kyrgyzstan, the Ministry of Economy would benefit from closer co-operation with other ministries. In particular, the Ministry of Finance could help mobilise existing funds and potential external financing sources to achieve low-carbon mobility in the country.
The Czech Republic achieved interesting results in clean transport, proving the value of good co‑operation. Implementation was split between the Ministry of Transport; Ministry of Environment; National Environmental Fund; Ministry of Regional Development and local institutions in the regions; and the city of Prague (see Section 2.3.2).
4.3.7. Change public tenders for providing public transport in urban centres
Using medium- to long-term contracts (at least ten years in length) would encourage operators to invest in a modern public transport fleet. This is especially the case when contracts are backed by an adjusted fare system, regulatory improvements and financial support from the state.
City-owned and private operators provide public transport in urban centres under short-term contracts. These range from one-three years in Moldova, three-five years in Kazakhstan and five years in Kyrgyzstan (for operators of passenger transport).
This approach encourages short-term planning. Operators minimise their outlays to make a quick return on their investment while they hold their licence. Moldova, for instance, often does not organise tenders; instead, it simply extends expiring contracts. As a result, private operators tend to favour cheaper and older minibuses, which are more polluting.
Projects of the UNDP and European Bank of Reconstruction and Development (EBRD) are addressing some of the main shortcomings of public tender procedures in Kazakhstan.
4.3.8. Encourage energy efficiency in public transport
Minibuses dominate public transport in most post-Soviet countries. They are usually operated by private companies or entrepreneurs. Conversely, regular buses only service a small number of urban and inter-city routes. While minibuses are needed to close the gap in public transport, they are generally less efficient than regular buses (in terms of megajoules/passenger-km). The pilot cities of the CPT Programmes intend to replace minibuses with modern, higher capacity buses (primarily trolley and CNG buses) that can carry up to five times more passengers.
Any investment in public transport will not make economic sense if streets are congested with traffic. Journey time (and related fuel) savings can be achieved by making public transport more efficient. For example, dedicated bus lanes can reduce the need to use inefficient mechanical braking. Eco-driving – i.e. a driving awareness technique that can reduce fuel consumption – can be introduced and promoted at schools for bus drivers.
A recent example is the introduction of an “autonomous” trolleybus line from the Chisinau city centre to the Chisinau International Airport in the summer of 2017. While the airport bus attracted the most fanfare, the city also introduced another wireless trolleybus route from the Vatra suburb from the city centre (Vlas, C., 2017[4]). The bus fare remains the same as for all other trolleybuses, however, at MDL 2.00 per person.
In 2013, Almaty – supported by the UNDP-Global Environment Facility (GEF) City of Almaty Sustainable Transport Project – drafted and adopted the City of Almaty Sustainable Transport Strategy 2013-2023 (Akimat of Almaty, 2013[5]). Among its sustainable transport options, the project promotes cycling, such as annual bicycle races for children and training at the cycling school. In 2014, the mayor approved projects for building a bus rapid programme transit (BRT) corridor and a new bike lane.
For its part, the Kyrgyz capital held a special campaign in March and April 2018 on trolleybus lines No. 11 and 14 to attract new passengers. Using the Balance.kg application on smartphones, passengers paid a fixed fare of KGS 1.00. This campaign was initiated by Beeline (a mobile telecom services company) and the city of Bishkek. In practice, however, the payment mechanism had several flaws and requires further development.
4.4. Conclusions
The CPT Programme seeks to modernise the bus fleet in the three countries, as well as to reduce air pollution and GHG emissions. On their own, improved regulations and financial support from the state may not be enough to achieve desired outcomes. A combination of the two has a greater chance of success.
Planning must extend beyond the short term. Using medium- to long-term contracts (at least ten years) would encourage operators to invest in a modern public transport fleet. They would have even more incentives when these contracts are backed by an adjusted fare system, regulatory improvements and financial support from the state.
Importantly, the implementers of a public investment programme – i.e. the management and the supervisory body – should be protected from political pressures. This protection should be imbedded in operating rules and procedures, such as the licensing of public transport routes. National governments should also aim to eliminate the policy and regulatory barriers that could hamper implementation of the CPT Programme. A reflection on other countries’ experience could also provide an indicative checklist of measures and approaches to tackle these problems.
The current distorted policies explain why the bus operator market is fragmented and dominated by small companies (entrepreneurs) that lack creditworthiness. This situation makes the sector unattractive to IFIs such as the EBRD. Eliminating these barriers is key for the success of the programme; however, not all of them have to be addressed at the same time and some are interchangeable. A better fare system and long-term contracts will help increase creditworthiness, for example. But this can also be achieved through loan guarantees or a higher level of public support provided by the CPT Programme.
Countries’ multi-level institutional and organisational framework for the transport sector is functional. However, public authorities should adopt a unified approach to tackle the air pollution issue (also from road transport) and better co‑ordinate the (priority) actions, both horizontally and vertically. With clear priorities and a co‑ordinated action, public resources could be spent more efficiently.
References
[5] Akimat of Almaty (2013), City of Almaty Sustainable Transport Strategy 2013-2023 (in Russian), Akimat of Almaty (Almaty Region), Almaty, http://alatransit.kz/ru/content/strategiya-ustoychivogo-transporta-galmaty.
[6] EC (2018), EU Energy in Figures: Statistical Pocketbook 2018, European Commission, Brussels, https://publications.europa.eu/en/publication-detail/-/publication/99fc30eb-c06d-11e8-9893-01aa75ed71a1/language-en/format-PDF/source-79929745.
[1] T&E (2018), CNG and LNG for Vehicles and Ships – The Facts, European Federation for Transport and Environment, Brussels, http://www.transportenvironment.org/sites/te/files/publications/2018_10_TE_CNG_and_LNG_for_vehicles_and_ships_the_facts_EN.pdf.
[3] Trend AZ (2017), “Production of UzAvtoprom cars in Kyrgyzstan will begin till the end of 2018”, Trend News Agency, 25 December, https://en.trend.az/casia/2840029.html (accessed on 30 August 2017).
[2] UNDP (2015), Energy Efficiency in Transport Sector of the Republic of Kazakhstan: Current Status and Measures for Improvement, Analytical Report, UNDP / GEF Project City of Almaty Sustainable Transport, United Nations Development Programme, Almaty, http://alatransit.kz/sites/default/files/energy_efficiency_in_transport_sector_of_the_republic_of_kazakhstan.pdf.
[4] Vlas, C. (2017), “New (wireless) trolleybus route from Chisinau Centre to Chisinau International Airport for only 2 lei”, News portal Moldova.org, 29 June, http://www.moldova.org/en/new-wireless-trolleybus-route-chisinau-centre-chisinau-international-airport-2-lei (accessed on 18 July 2017).
Notes
← 1. Contrary to these (cleaner) fossil fuels, electricity-powered vehicles have the advantage of cheap electricity.
← 2. In 2016, the European Union imported 86.7% of petroleum products and 70.4% of natural gas. There, the energy dependence on natural gas is not significantly smaller than on oil. This is especially the case given the larger share of imports from the Russian Federation for natural gas (39.9%) than for oil (31.6%) (EC, 2018[6]).
← 3. Usually, a single or monthly ticket fare system is considered more operator-friendly, and a distance-dependent fare system seems more customer-oriented (and more technically demanding for the operator). A single or monthly ticket fare system is generally more attractive for passengers travelling longer distances, and a distance-dependent fare system more attractive for passengers travelling shorter distances. Finally, with a distance-dependent fare system, the operator can gather information both on the number of trips per route over a defined period and the average length of the route that a passenger travels in a given period. This information may be useful for making better management decisions.