OCTOBER 2018 ● MSMEs CONNECTION PAKISTAN Country Update Mapping of Transport Sector: Key Figires, Structure, and the Current National Regulations Introduction Phase 2 The Government of Pakistan conceived The Country Update Note under the theme growing national connectivity through a road “Mapping of a specific service sector: key network. High population growth in the figures, structure, and the current national following decades precipitated urban regulations” will be prepared to service the expansion, and also brought about changes to fourth Forum meeting under the Geneva- zoning laws. Demand for private modes of MSMEs Connection project. For Pakistan, transport rose considerably during this period, CUTS Geneva has specified the mapping of the and public sector transport became Transport Sector, its’ key figures, structure uncompetitive over the course of time. and the current national regulations in place concerning the sector. The study uses a mix Phase 3 methodology. The analysis is based on desktop research, supplemented with interviews with The National Transport Policy of 1991 relevant government officials such as transport recognized the emerging role of the private experts from Planning Commission and sector. This policy incentivized private sector National Highway Authority. investment in mass transit road vehicles such as vans and buses. Initial public sector Historically, we may look at the history of investments such as the Awami Bus Service transportation as three distinct phases: met with little success, and waned out. Phase 1 Recent Developments Mass transit and freight in colonial era Pakistan Transportation constitutes 22 percent of the was dominated by rail, especially for longer services sector, and contributes around 10 distances. These were complimented by trams percent to the National GDP. Around 6 percent in urban areas. After partition, planners of the work force is employed in the continued to emphasize rail connectivity, until the 2nd Five Year Plan in 1960. 1 transportation sector1. There are around 2,500 (NTP, 2017) will continue to identify gaps companies working in freight forwarding and inhibiting the sector. The transportation sector logistics. These provide a vast array of in recent years has deteriorated drastically. In specialized services such as warehousing, 2007, the World Bank’s (WB) Logistic custom clearance and so forth2. Performance Index (LPI) ranked Pakistan at 68th globally. By 2018, it was 122nd out of the More recently, policy has shifted towards 164 countries compared3. The overall quality4 addressing gaps in the sector. The National of transport services and related infrastructure Trade Corridor Improvement Program (NTCIP, has witnessed a decline. 2005) was aimed at addressing trade integration and infrastructure challenges. The Medium-Term Development Framework (MTDF, 2005-2010) aimed towards making the Modal Review sector internationally competitive. Road Rs. 16 billion was allocated to the sector in the most recent Federal Budget. 30 percent of Roads account for 92 percent of passenger development spending was allocated to travel and 95 percent of freight traffic5. The bulk communications, and transportation projects. In of commercial traffic is concentrated on terms of foreign investment, a mixed trend can national highways, which constitute be observed in Figure 1 whereby the FDI in approximately 4.5 percent of the national road transport sector reached the highest in FY network6. The median cost of road freight in 2009-10. Pakistan is considered amongst the lowest in 7 Figure 1: Foreign Direct Investment in Transport Sector the world . High tariffs on the import of freight vehicles are a major barrier to modernization and capital efficiency. Recent investments in road infrastructure are centered on China-Pakistan Economic Corridor (CPEC), which is Pakistan’s component of the Belt and Road Initiative. Increasing imports in 2017-18 Source: Board of Investment (BOI). Amount in mil’s of dollars suggests increased demand for transportation sector related capital. Table 1 The most recent National Transport Policy indicates the passenger and freight traffic 1 ‘Vision 2025’ (2014). Ministry of Planning and transport related infrastructure; c) Ease of competitively Development, Government of Pakistan. priced shipments’; d) Competence and Quality of 2 Data from Pakistan International Freight Forwarder Logistics Services; e) Ability to track and trace Association (PIFFA). consignments; and f) Timeliness of shipments reaching 3 WB LPI, 2018 and rankings data since 2010. destinations in time. 4 The World Bank (WB) measures six different 5 Economic Survey, ADB and Planning Commission dimensions before awarding points. They are a) statistics. ‘Efficiency of Clearing Process’ by border control 6 ‘Sectoral assessment summary-Transport’ agencies, like Customs; b) ‘Quality of trade and 7 Road freight transport sector and emerging competitive dynamics’, p.10. 2 through various modes (in percentages)8. The to 10-12% of the road share in coming 2-3 share of air in passenger and freight traffic is years. In the long-term it is targeted that the rail less than 0.5 percent while road dominates in freight share should be between 22-25% in both categories. order to make the railways a revenue earning organization. Table 1: Passenger and Freight Traffic Passenger Traffic % Freight Traffic % Year Road Rail Air Year Road Rail Air Air 1998-2003 91 9 < 0.5 1998- 96 4 < 0.5 2003 2009-2010 92 8 < 0.5 2006- 95 5 < 0.5 The three major operators in market of air 2007 transport are: Pakistan International Airlines 2011-2012 95 5 < 0.5 2009- 96 4 < 0.5 2010 (PIA), Air Blue and Shaheen. These are 2015-2016 97 3 < 0.5 2016- 97 3 < 0.5 complemented by smaller scale, relatively new 2017 entrants like Air Indus. Domestic commuter 2017-2018 95 5 < 0.5 - - - - traffic over the last decade has remained stagnant at around 6.5 million passengers per Rail year12. It may imply that commuter demand has been absorbed by road based transport. State Railway accounts for 2 percent of total freight owned PIA is the largest operator with a fleet of business, and 5 percent of commuter traffic. 37 aircrafts. PIA’s operating expenses in 2016- Recent efforts to revive a demand for rail seem 17 stood at Rs. 121,863 million, with operating to have failed their intended purpose. New revenue of Rs. 88,898 million, indicating an wagons were added to the Rail Fleet during the operating loss of about Rs. 32,965 million. previous government in spite of a significant drop in commuter traffic9 from a peak of 25,621 According to a management report submitted at in 2007 to 20,288 in 201510. Further, most of its the Supreme Court of Pakistan, PIA’s total passenger and freight traffic is concentrated in liabilities now stand at Rs. 406 billion against few large urban centers, which limits the assets of Rs. 111 billion13. Data related to PIA business potential lurking in peri-urban and and some of its indicators is presented in Table non-urban destinations. As evident from Table 3 (see Annexure-A). 2 (see Annexure-A), passenger traffic declined from 68.8 million passengers to 52.39 million Maritime over the period. Similarly, total freight carried There are currently 4 ports in Pakistan. Karachi (millions of tons) registered a decline of -4.61 Port and Port Qasim are fully operational. percent (from 5.89 to 5.63 million tons), and Gwadar port is partially operational. A fourth, gross earnings increased by 70 percent, from Keti Bandar is under construction. Karachi Port Rs. 11,938 million to Rs. 40,065 million11. handles approximately 60% of all Pakistan’s According to an expert at the Transportation seaborne traffic, with 39 million tons of cargo in and Communications section of the Planning 2016-17. This includes nearly 2 million TEU Commission, rail freight share would increase (Twenty-foot equivalent unit) in container traffic. 8 Data obtained through government sources, 10 ‘Railways, passengers carried (million passenger- independent research and World Bank. PIA’s km)’. percentage is less than 0.5 percent in both freight and 11 Calculated from information provided in Economic passenger traffic and hence is not visible in the figure. Survey 2017-18, Statistical Appendix, CH 13. 9 ‘Pakistan Railway adds 1405 modern wagons for coal 12 NTP. loading’. 13 ‘PIA debt hits 406 billion, running only on government support’. 3 Port Qasim (also in Karachi city) handled 27 International Convention for carriage by air, the million tons of cargo, including approximately Kyoto Convention for Simplification and 1.2 million TEU in 2016-1714. Harmonization of Customs Procedures, and the convention concerning International Carriage Approximately one percent of total cargo was by Rail, etc.17 handled at Gwadar port15. Gwadar port which is being developed under the CPEC has been Burgeoning trade relationships have proved a projected to be handling 13 million-tons of catalyst for reform in the sector. The Pakistan cargo within five years, making it set to become Customs, has upgraded its online clearance the largest port in South Asia16. The Pakistan platform (WeBOC) to meet clearance Naval Shipping Corporation (PNSC) is the sole regulations under TIR Carnets. This allows operator of large cargo ships, having a goods transit through Karachi, Taftan, Chaman, monopoly on freight trade. Data related to major Sust and Torkham18. maritime indicators is presented in Table 4 (see Annexure-A). A substantial part of trucking industry, despite official regulations, remains part of the informal sector and unregulated. Financing new trucks and vehicles remains a difficult endeavor, and The Policy-scape government limits the import of vehicles (through tariffs). Some of the most significant regulatory Most recently, the Parliament passed ‘Pakistan documents governing transportation services Courier and Logistics Regulatory Authority Bill currently include the National Maritime Policy 2018 (PCLRA) to regulate the sector by (2002), National Trucking Policy (2007), establishing the Pakistan Courier and Logistics National Aviation Policy (2015), Automobile Authority.