According to Lahore Transport Company, Punjab Government has just concluded a fresh contract for operation and maintenance of metro buses which (in nominal terms) is at 18 percent discount to the earlier contracts made in 2012-13. This is remarkable, as both the exchange rate and general price level have depreciated by 72 percent during the intervening period. Based on calculations by Punjab government, the fresh contract is priced at a steep discount of 49 percent.
In simpler words, the PTI government has concluded the contract at half the price (in real terms) of the one reached by PML-N government in 2012-13. In both cases, the contract is for 64 buses. Both bus fleets are Chinese-made and have 340-horsepower diesel engines. The buses are also of similar specs, but the pricing is not. What explains this marked difference in pricing?
To showcase their fiscal prudence, PTI wizards have pointed out that in 2012-13, contracts for both metro buses and Lahore Waste Management Company were awarded to the same Turkish-origin bidder at a very steep price in haste. It is unclear why local bidders had shied away from participation at that time. Industry experts also agree that the difference in pricing is too significant, especially considering that the new buses have much better fuel efficiency.
In any case, the 57 percent difference in pricing is too high to account for any benefits accrued at that time. In 2012-13, the reserve price for Lahore Metro Bus contract was set at Rs348/km while reserve price in 2021 has been kept at Rs328/Km. The primary explanation for lower reserve price today is better fuel efficiency; at 1.7km/ltr which was assumed at 1.1km/ltr in the 2012 contract.
The model assumes 55 percent higher fuel efficiency. However, private sector players are of the view that fuel efficiency has only improved by 30-40 percent. This implies that the fuel efficiency could have been kept lower (than actual) in deciding the reserve price in 2012. Moreover, the bid in 2012-13 was 3 percent at premium to the reserve price. In 2020-21, it is at a discount of 7 percent.
The difference may be ascribed to a more competitive environment today which was missing in 2012-13. Back in 2012, Punjab government was a new entrant in urban transport systems, and higher bid price in 2012-13 was also partly explained due to higher interest rates. Over the last decade, local expertise in metro buses management has evolved considerably. After launch of metro bus system in Lahore, similar contracts were also awarded in Rawalpindi and Multan.
Later, with more competition bids started to improve as well. In Rawalpindi (2014-15), the same Turkish company successfully bid at Rs325/km. A second bidder (Daewoo) had also participated but was disqualified as its bid had been submitted 17 minutes after deadline. Daewoo successfully bid against two other bidders for Multan metro bus, with a bid of Rs280/km. Finally, in 2021, three bids were received for Lahore metro, with lowest bid awarded at Rs304/km.
As general elections draw close, Buzdar government seems to have had a change of heart about what the PM once fondly referred to as “jungla buses”. Finally, the Punjab government is now focusing on public transport system. The incumbents seek to set themselves apart from their predecessors based on the fiscal prudence and sustainability of the new contracts. Moreover, plans are already afoot to add more feeder buses in Multan, Rawalpindi, and Lahore. The government also plans to add 50 electric buses in due time.
Renaming of ‘Lahore Transport Company’ as ‘Punjab Transport Company’ is also the right optics. Provincial administration must govern Lahore from the lens of Punjab; rather than looking at Punjab from the lens of Lahore.
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