TRANSPORT SECTOR LINK TO CAS AND PRSP
The strategic objectives of the World Bank's Country Assistance Strategy (CAS) include reduce poverty through a growth-enhancing strategy complimented by specific investments to improve basic services including public transportation. It reflects most important priorities of the National Poverty Reduction Strategy (NPRS) including development of transportation and road infrastructure because NPRS identifies infrastructural improvements, notably in transport and the utilities sector, as urgent tasks.
ECONOMIC SITUATION
After collapse of the Soviet Union in 1991 the Kyrgyz Republic suffered strong reduction in income level due to the loss of direct transfers from the central union budget, which amounted to 13 percent of GDP. This loss of income created gap, which has been filled by external borrowing, depletion of assets, reduction of private consumption and government expenditures. As a result, between 1991 and 1995 cumulative decline in GDP amounted to 50 percent of the 1990 level. This period is characterized by deterioration of all economic indicators including hyperinflation, increase of unemployment, reduction of real incomes which led to dramatic increase of poverty.
The reforms since 1993 to respond to severe economic shock such as introduction of the national currency, liberalization of prices, reforms in commercial legislation, agrarian reforms, privatization of assets, an open external trade regime have created the basis for market - oriented economy. However, level of real income of people was still declining due to outgoing growth of prices compared to growth of nominal incomes.
Since 1996 the economy has begun to recover and real GDP growth has averaged about 5 percent per year since 1996, and was positive even during the regional financial crisis of 1998. The recovery in the agricultural sector which accounts for about 35 percent of GDP and the coming on stream of the Kumtor gold mine account for most of this growth. A wide variety of services also grew during 1996 and 1997. After the 1998 Russian crisis the economy has stabilized and real GDP grew by 5.4 and 5.3 percent in 2000 and 2001, respectively. The growth occurred in the traditionally growing sectors of agriculture and mining, in addition to healthy growth in construction, power, as well as in the service sub-sectors of transportation and trading and catering. This growth is supported by macroeconomic and exchange rate stability, reduced fiscal deficits, tight monetary policy, and single-digit inflation (9.6% in 2000 and 3.7% in 2001; Dec. to Dec. change) for the first time since independence.
The membership in WTO gained in the end of 1998 and consequent reduction of import duties in 1999 has created favorable conditions for import. By end-2001, the Kyrgyz Republic's total external debt was estimated at $1.7 billion, of which $1.4 billion was government and government-guaranteed debt. In 2002 the Paris club agreed to reschedule the Kyrgyz Republic debt which resulted to debt service reduction by US$ 97 million during 2002-2004.
Despite pro-poor growth and some reduction of poverty in last years, poverty level is still very high, thus, it is the most pressing issue for economic management in the Kyrgyz Republic. Addressing the poverty issue will require strong and sustained economic performance, improved debt management and social protection strategies.
TRANSPORT SECTOR – INFRASTRUCTURE AND OPERATIONS
Transport Demand
Transport demand has fallen off dramatically since 1990. In 2001, freight turnover (measured in ton-km) was only 20% of its 1990 level and passenger turnover 57% of its previous level. The demand grew in 1996 and 1997, but freight went down again following the 1998 financial crisis. Its 2001 level is still lower than the 1997 level. Passenger transport has been growing at about 6% p.a. over the last five years. As a result of the reduced demand, employment in the sector is still contracting. The sector now provides only 2.8% of the total employment in the country, versus 4.1% in 1996. The sector contribution to GDP has also fallen from 3.5% in 1996 to 2.4% in 2000.
Roads
Road transport is the predominant mode, accounting for 62% of freight ton-km and 86% of passenger movements. The road network under the Ministry of Transport and Communications (MOTC) totals almost 19,000 km. In addition, there is 15,000 km of farm access roads, outside MOTC's jurisdiction. Due to limited budget, road maintenance in recent years covered only half of the network under MOTC, virtually leaving the local roads unattended. Urban roads and streets are the responsibility of city governments. Little maintenance efforts are visible, except for the few major streets recently rehabilitated under the Bank's urban transport project, in the three largest cities.
Inter-city road transporthas been almost totally corporatized and the private sector is developing rapidly. Private truckers now carry 43% of the freight in the country. The former state transport companies carry the rest, now joint-stock companies under the State Property Fund. MOTC only retains the international trucking company. Private buses carry 72% of passengers in the country.
In urban transport, the publicly owned operators in Bishkek and Osh still have to cater mostly to privileged passengers. For instance, in Bishkek, 62% of the passengers of the public bus and trolleybus companies are privileged and travel either free or at a discount from fares, which are already insufficient to cover costs. The operators are not compensated for their losses and are unable to cover even their operating costs, let alone the maintenance and renewal of their dilapidated fleets.
Railways
Kyrgyz railways operate about 320 km of single track lines (with a total track length of 428 km). There is a main line in the North, running off the Kazakhstan railways to Bishkek and Balikci on the lake Issik Kul and eight branch lines off the Uzbek railway in the south of the country. There is no rail connection between the North and the South of the country. Track condition is basically adequate for the low level of traffic.
At the partition of the soviet railways, Kyrgyz Railways got 2,500 freight cars, 450 passenger cars and 50 locomotives, about half main line and half shunters. All the equipment was old and obsolete. Traffic has been falling rapidly since 1990, the fall in freight being further accentuated by the financial crisis of 1998. Freight traffic is now only 13% of its 1990 level, 330 million tkm in 2001, versus 2,620 million tkm in 1990 and is still falling. Passenger traffic is about 25% of its 1990 level. It reached 50 million pkm in 2001.
After running operating deficits until 1998, the railways now operate with a small, but increasing operating surplus which reached 72 million soms in 2001 (US$1.5 million). This was obtained by a) reducing staff by almost 20%, and b) reducing the number of passenger trains. While freight services are profitable, passenger services are loosing money, since fares are regulated by the Anti-Monopoly Committee. There are no public funds going to the railways at this time.
Civil Aviation
On May 15, 2001, the Kyrgyz civil aviation sector has been reorganized into three independent entities: the national airline, the airports and air navigation. The first two are joint-stock companies under the State Property Fund and the third is a department of the Ministry of Transport and Communications (MOTC).
Air transport is now only one tenth of its 1990 level, both for freight and passengers. In 1997, the national airline (KAJ) dealing also with airports and air navigation was corporatized with some 82% of the share remaining with the state, 8% transferred to the social fund and 10% sold on coupons. In addition to the national airline, 16 companies have registered to operate as private airlines, of which 5 or 6 have started operations. There are no subsidies from the state to either the national or the private airlines. The national airline somehow balances its domestic losses with surpluses from international flights.
The Airport Company includes the three main airports of the country, Manas (Bishkek), Osh and Karakol. Other small airports and landing strips have virtually been abandoned. Only Manas airport is presently financially self sufficient, the other two airports are losing money.
Conclusions
The existing transport infrastructure is adequate to serve the present transport demand. Consequently, the major concern is maintenance and rehabilitation, rather than expansion of the system. The main issue is that, under present economic conditions, the country cannot afford to even maintain its current infrastructure. This is already happening de-facto, as only about half of the road network is being maintained, city streets are deteriorating and smaller airports have shut down. It would be useful to define a core network that could be maintained adequately within the available resources.
Transport companies in all modes-road, rail and air-are struggling financially. Demand for their services has fallen drastically since independence and the State is enforcing tariff levels, which are, in the best cases, barely sufficient to cover operating costs. In the case of passenger transport, the situation is made even worse with the numerous privileges accorded to large classes of the population, particularly in urban transport. Equipment is grossly over-aged, difficult to maintain and therefore very inefficient. Largely state-owned joint stock companies are still overstaffed given the falling demand.
GOVERNMENT TRANSPORT POLICY
The Government's transport sector policy objectives include:
· Adequately maintaining transport infrastructure;
· Increasing cost recovery from the users of transport infrastructure; and
· Privatizing transport operations and promoting competition among operators, while addressing safety and environmental concerns.
While good progress has been made on the third objective, dealing with transport operations, the first two objectives dealing with infrastructure maintenance and financing need a lot more work.
WORLD BANK SUPPORT
· Ongoing implementation of the Urban Transport Project.
Other international agencies, in particular the Asian Development Bank, are active in the roads sector.
POLICY REFORMS SUPPORTED BY THE WORLD BANK PROGRAM
The Urban Transport project includes provisions to support
- reform of road sector finances
- regulatory reform in urban passenger transport services
- institutional reform of urban road departments, divesting road rehabilitation and maintenance functions to the private sector.
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