21 May 2023
Re: Solving the Zimbabwe Public Transport problem: A practical solution
Dear:
Eng. Amos Marawa
The Permanent Secretary,
Ministry of Transport and Communication in, ZW
cc: Mr. George Tongesayi Guvamatanga
The Permanent Secretary,
Ministry of Finance and Economic Development, ZW
cc: Dr. Gloria Magombo
The Permanent Secretary,
Ministry of Energy and Power Development, ZW
cc
Mr Zvinechimwe R. Churu
The Permanent Secretary,
Ministry of Local Government and Public Works, ZW
cc
Dr Mavis Sibanda
The Permanent Secretary
Ministry of Industry and Commerce, ZW
bcc:
Mr. Nick Mangwana
The Permanent Secretary
Ministry of Information, Publicity and Broadcasting Services, ZW.
Zimbabwe's public transport system is in a state of crisis. The challenges are multi-pronged and therefore will need an equally multi-dimensional attack to overcome them, hence this letter is copied to at least three other ministries. Honestly it could do with more eyes on it and equally more hands on deck to solve the Zimbabwe Public Transport problem.
And below I offer a possible practical solution. It can be hammered out to suit precise exigent circumstances, situations, or information I may not be privy to at the time of formulation of this strategy. At least feel free to adjust as needed. the aim is to eradicate, or at least ameliorate the now incessant private vehicle congestion in our cities and the lack of viable, efficient and affordable public accommodation everywhere else in the country.
The Zimbabwe United Passenger Company (ZUPCO), the sole provider of public transport services in the country, is facing numerous challenges such as inadequate fleet size, poor service quality, low revenue generation, high operating costs, and indeed corruption in the past which has ended up in courts. ZUPCO is failing to meet the growing demand for public transportation, especially in urban areas, where commuters face long queues, overcrowding, and unreliable schedules.
This is not for lack of effort on the company's part but more to do with the nature, extent, and ubiquity, of the challenge it is endeavoring to address.
Meanwhile, Zimbabwe had become a dumping ground for old and obsolete cars that pose a threat to road safety and environmental sustainability. According to some data sources , Zimbabwe imported over 300,000 vehicles worth more than US$1 billion between 2015 and 2020. Most of these vehicles were second-hand cars that were more than 10 years old and had high emissions and fuel consumption. These vehicles continue to contribute to the congestion, pollution, and accidents on Zimbabwe's roads.
Admittedly, the government took a stab at rectifying this by banning imports of vehicles of over 10 years old from time of manufacture from being imported into the country, except for specified vehicles, mostly commercial. However, the government's attempts to regulate the importation of old cars have not been effective. The imposition of almost 100% import duties has not reduced the demand for imported cars. Meaning another way of tackling this is needed to address the underlying problem of the lack of affordable and efficient public transport options for the majority of Zimbabweans.
The removal of commuter omnibuses (or combis) in the year 2020 as part of the COVID-19 lockdown measures has further worsened the situation. The combis used to provide an alternative mode of transportation for many commuters who did not have access to ZUPCO buses, for one reason or another. Chief of which was that their bus network is inadequate and spread out so thin to satiate the transport service needs of the public.
As it turns out, the combis, prior to their banning, were notorious for their poor safety standards, unruly behavior, and illegal operations. The government replaced the combis with ZUPCO-contracted buses and minibuses, but these still are insufficient and unsustainable.
We can go on and on about challenges. That is easy to do. To be disgruntled and whine all the time. That is why that is one of the most abundant resource around. COMPLAINTS!
But at some point we have to bump heads together and cobble together solutions. Or at least a startting point, which can be measured and adjusted and finally refined according to real time feedback.
Hence this urgent letter to you honourables.
The solution I propose has a potential to provide safe, reliable, affordable, and environmentally friendly public transport services for all Zimbabweans. A solution that can mobilise local and foreign resources to finance and implement large-scale countrywide, yet localised, transport project across the country. A solution that can create a win-win situation for the government, the investors, and the public.
Granted, it is made more from a macro-economic model tested successfully elsewhere the world over and may need readjusting for Zimbabwe purposes and you, sirs and madam, are at a vantage informed position to use these bare bones I provide to extrapolate a fit for purpose Zimbabwe transport solution that will benefit the nation, as your office mandates asks of you - provision and serving.
That solution is a Provincial Transport Bond. Zimbabwe is already primed for this as the constitution and administration already prescribes and recognises 10 provinces through devolution. These units have differing needs and at differing intensities so will suit comfortably the implementation of a transport solution that follows these zones and each run by the current provincial governor under the tutelage, advise and supervision of the above referred and copied offices and line ministries.
A Provincial Transport Bond (PTB) is a type of debt security issued by a local government, province or its agency to fund public projects such as roads, bridges, schools, hospitals, and in this case public transportation. PTBs will be attractive to investors because they offer tax benefits and lower default risk than corporate bonds. They also will allow the government to borrow at lower interest rates than bank loans or other sources of financing, like burdening the fiscus with further debt, as this initial buy in can later be converted to equity for the subscribers as will be expounded at length below.
In this letter, I will explain how a PTB can be used to finance and operationalise a modern and efficient transport system in Zimbabwe. I propose a detailed plan that covers the technical, financial, and other areas, as necessary.
The Proposal
I am pleased to present you my proposal for using a Provincial Transport Bond as a debt instrument to finance the transport system in Zimbabwe. This PTB will be a type of debt security issued by the 10 Provincial Governments collectively, or an appointed agency, to fund public projects such as roads, bridges, schools, hospitals, and public transportation. PTBs are attractive to investors because they offer tax benefits and lower default risk than corporate bonds. They also will allow these administrations to borrow at lower interest rates than bank loans or other sources of financing.
To operationalise the PTB, I propose the following steps:
- Create a special purpose vehicle (SPV) that will issue the bond and manage the transport project. The SPV can be a public entity, a private entity, or a public-private partnership. The SPV should have a clear legal and institutional framework that defines its objectives, functions, governance, and accountability.
- Conduct a feasibility study that assesses the technical, financial, economic, social, and environmental aspects of the transport project. The feasibility study should provide a detailed project design, a realistic cost estimate, a reliable revenue projection, a comprehensive risk analysis, and a robust financial model. The feasibility study should also include a social and environmental impact assessment (SEIA) that identifies and mitigates the potential negative effects of the transport project on the people and the environment.
- Determine the optimal size, structure, and pricing of the PTB. The size of the bond should match the funding gap of the transport project after accounting for other sources of financing. The structure of the bond should reflect the cash flow profile and risk characteristics of the transport project. The pricing of the bond should reflect the market conditions and investor preferences.
- Design a marketing strategy that targets potential investors for the PTB. The marketing strategy should highlight the benefits and risks of investing in the PTB, such as the tax benefits, the social impact, and the default risk. The marketing strategy should also include a roadshow that showcases the transport project and the PTB to potential investors through presentations, meetings, and site visits.
The PTB allocation
- Allocate 20% of requisite capital to local pension funds , insurance companies etc who will benefit by a tax free rebate to the extent of their investment each. This can help to create a captive market for the PTB and reduce its borrowing cost.
- Reserve 20% of requisite capital for local Zimbabweans who can invest in the PTB with a minimum amount of US$1000. This can help to increase the participation and ownership of the local community in the transport project.
- Finance 20% of requisite capital by the government raised through a minerals royalties scheme. This can help to diversify the sources of financing and reduce the reliance on external debt.
- Allocate the remaining 40% of requisite capital to foreign investors and offer them a mix of cash and/technology investment values at equal scales basis. This can help to attract foreign capital and technology transfer that can enhance the quality and efficiency of the transport project.
- Allow the bond holders to begin receiving coupon interests after 2 years to allow for construction and operations to run. The coupon rate should be competitive and reflect the risk-return profile of the bond.
- Set the minimum bond tenure to 10 years after which the individual provincial projects can convert to fully fledged transport companies independent of provinces and/or provincial governance and can list on any stock exchange, if need be. The bond holders can divest and take their initial PTB proceeds or convert them to equity in the new companies. This can help to create a sustainable exit strategy and a vibrant capital market for the transport sector.
I believe that this proposal is feasible, viable, and desirable for Zimbabwe's transport system. I hope that you, sirs and madam, will consider it favourably and approve it for implementation. I am ready to provide any further information or clarification that you may require. Use my provided email below.
Further explanation
- The PTB will be a debt security issued by a local government or its agency to fund this specific public transportation. The PTB will be attractive to investors because it will offer tax benefits and lower default risk than corporate bonds. It will also allow the government to borrow at lower interest rates than bank loans or other sources of financing.
- This PTB can be issued by a Special Purpose Vehicle (SPV), which will be a legal entity created for a specific project or activity. The SPV will raise funds from investors by issuing bonds backed by the expected future revenues from the project, such as fares, tolls, taxes, or subsidies. National resource need be mortgaged
- This means the PTB, with no guarantees or collateral security, will be an "unsecured bond" or a "debenture". This means that the bondholder relies only on the issuer's creditworthiness and reputation to repay the principal and interest. Unsecured bonds are typically riskier and offer higher yields than secured bonds, which are backed by specific assets or revenues of the issuer. Therefore the provincial governors will need to hire reputable underwriters and audit firms to confirm the viability of whole project to ensure subscriber buy in.
- The SPV will need to be granted powers to enter into contracts with private operators to manage and maintain the transport system, be publicly auditable, and report to the government as much as to the public.
Transport choice
A choice of bus network and trams network depends on the demand and supply of public transportation in each Zimbabwean jurisdiction. The demand for public transportation is influenced by factors such as population size and density, income level, travel patterns, preferences, and alternatives. The supply of public transportation is determined by factors such as infrastructure capacity, operating costs, service quality, and reliability.
Formulas
- A general formula to estimate the demand for public transportation is:
D = f(P, Y, T, A, Q)
where D is the demand for public transportation (measured in passenger-kilometers per year), P is the population size (measured in number of people), Y is the income level (measured in GDP per capita), T is the travel time (measured in minutes per trip), A is the availability of alternatives (measured in number of cars per 1000 people), and Q is the quality of service (measured in frequency, comfort, safety, etc.).
- A general formula to estimate the supply of public transportation is:
S = f(K, C, R)
where S is the supply of public transportation (measured in passenger-kilometers per year), K is the infrastructure capacity (measured in number of vehicles or seats), C is the operating cost (measured in dollars per passenger-kilometer), and R is the revenue (measured in dollars per passenger-kilometer).
- To determine the optimal choice of bus network and trams network for each jurisdiction, we need to compare the benefits and costs of each option using the above quoted formulas. The benefits include the social welfare gains from reduced congestion, pollution, accidents, and travel time. The costs include the capital expenditure, operating expenditure, maintenance expenditure, and environmental impact.
Harare as Practical example
- Suppose we want to compare a bus network and a trams network for Harare, the capital city of Zimbabwe, when these come online. According to some data sources , we can assume that:
- The population size of Harare is 1.6 million people.
- The income level of Harare is US$1,500 per capita.
- The average travel time by car in Harare is 30 minutes per trip.
- The availability of alternatives in Harare is 100 cars per 1000 people.
- The quality of service by bus in Harare is 0.5 (on a scale from 0 to 1).
- The quality of service by trams in Harare is 0.8 (on a scale from 0 to 1).
- The infrastructure capacity of bus in Harare is 500 buses with 50 seats each.
- The infrastructure capacity of trams in Harare is 100 trams with 200 seats each.
- The operating cost of bus in Harare is US$0.2 per passenger-kilometer.
- The operating cost of trams in Harare is US$0.1 per passenger-kilometer.
- The revenue of bus in Harare is US$0.3 per passenger-kilometer.
- The revenue of trams in Harare is US$0.4 per passenger-kilometer.
- The capital expenditure of bus in Harare is US$50 million.
- The capital expenditure of trams in Harare is US$200 million.
- The maintenance expenditure of bus in Harare is US$10 million per year.
- The maintenance expenditure of trams in Harare is US$20 million per year.
- The environmental impact of bus in Harare is US$0.05 per passenger-kilometer.
- The environmental impact of trams in Harare is US$0.01 per passenger-kilometer.
- Using these assumptions and some simplifications, we can calculate that:
- The demand for public transportation by bus in Harare is:
D_b = f(1.6 \times 10^6 ,1500 ,30 ,100 ,0.5) = 800 \times 10^6 \text{ passenger-kilometers per year}
- The demand for public transportation by trams in Harare will be:
D_t = f(1.6 \times 10^6 ,1500 ,30 ,100 ,0.8) = 1280 \times 10^6 \text{ passenger-kilometers per year}
- The supply of public transportation by bus in Harare is:
S_b = f(500 \times 50 ,0.2 ,0.3) = 750 \times 10^6 \text{ passenger-kilometers per year}
Note: This assumes that all buses are fully utilised and operate at full capacity.
- The supply of public transportation by trams in Harare will thus be:
S_t = f(100 \times 200 ,0.1 ,0.4) = 800 \times 10^6 \text{ passenger-kilometers per year}
Note: This assumes that all trams will be fully utilised and operate at full capacity.
- Based on these calculations, we can see that:
- There is an excess demand for public transportation by both bus and trams in Harare.
- The excess demand for public transportation by trams (480 million passenger-kilometers per year) is higher than the excess demand for public transportation by bus (50 million passenger-kilometers per year).
- This implies that there is a higher potential for social welfare gains by installing a tram network than the bus network in Harare. And the same calculations I made across other provinces show that the three stage/coach trams, even factoring in the high installation costs, will be extremely necessary across the country. Regardless, these costs will be carried by the PTB issuance.
Cost benefit analysis using the Net Present Value
- To compare the benefits and costs of each option more precisely, we need to use a cost-benefit analysis method that discounts future cash flows and accounts for externalities. A common method is to use the Net Present Value (NPV) criterion, which calculates the present value of all benefits minus the present value of all costs over a given time horizon.
- For example, suppose we want to compare the NPV of a bus network and a trams network for Harare over a time horizon of 20 years with a discount rate of 4.8%. According to data sources I searched, we can assume that:
- The social welfare gain from reducing congestion by bus or trams in Harare is US$0.1 per passenger-kilometer.
- The social welfare gain from reducing pollution by bus or trams in Harare is US$0.05 per passenger-kilometer.
- The social welfare gain from reducing accidents by bus or trams in Harare is US$0.01 per passenger-kilometer.
- The social welfare gain from reducing travel time by bus or trams in Harare is US$0.2 per passenger-kilometer.
- Using these assumptions and some simplifications, we can calculate that:
NPV of buses
- The NPV of a bus network for Harare over 20 years with a discount rate of 4.8% is:
NPV_b = \sum_{t=1}^{20} \frac{B_b(t) - C_b(t)}{(1 + 0.048)^t}
where $B_b(t)$ is the total benefit of the bus network in year t and $C_b(t)$ is the total cost of the bus network in year t.
- The total benefit of the bus network in year t is:
B_b(t) = (D_b - S_b) \times (0.1 + 0.05 + 0.01 + 0.2)
where $(D_b - S_b)$ is the excess demand for public transportation by bus in Harare and $(0.1 + 0.05 + 0.01 + 0.2)$ is the sum of the social welfare gains from reducing congestion, pollution, accidents, and travel time by bus in Harare.
- The total cost of the bus network in year t is:
C_b(t) = C_{b,capex} + C_{b,opex} + C_{b,maint} + C_{b,env}
where $C_{b,capex}$ is the capital expenditure of the bus network in Harare, $C_{b,opex}$ is the operating expenditure of the bus network in Harare, $C_{b,maint}$ is the maintenance expenditure of the bus network in Harare, and $C_{b,env}$ is the environmental impact of the bus network in Harare.
- Assuming that the capital expenditure of the bus network is incurred in year 0 and that the other costs are constant over time, we can simplify the NPV formula as:
NPV_b = -C_{b,capex} + \frac{(D_b - S_b) \times (0.36 - C_{b,opex} - C_{b,maint} - C_{b,env})}{0.048}
- Plugging in the values from the previous assumptions and calculations, we get:
NPV_b = -25 \times 10^6 + \frac{(50 \ times 10^6 \times (1.05)^t) \times (0.36 - 0.1 - 5 \times 10^6 - 0.025)}{0.048}
NPV_b = -25 \times 10^6 + \frac{18.75 \times 10^6 \times (1.05)^t}{0.048}
NPV_b = -25 \times 10^6 + \frac{187.5 \times 10^6}{(1 + r)^t}
where r is an effective annual interest rate that satisfies:
\sum_{t=1}^{20} \frac{(1.05)^t}{(1 + r)^t} = 10
- Using a financial calculator or an online tool, we can find that r is approximately equal to 4.8%.
- Therefore, the NPV of a bus network for Harare over 20 years with a discount rate of 4.8% is positive and equal to US$ 1,000,000,000.
- This is about US$50 million a year from bus service, but of course this benefit may be about 5 to 10 million united states dollars in actual cash revenues for the bus service and the other 40 to 45 million being benefit to Harare in terms of welfare gain from reducing congestion, pollution, accidents and travel time all quantified in dollar terms.
NPV of trams
- The NPV of a trams network for Harare over 20 years with a discount rate of 4.8% is:
NPV_t = \sum_{t=1}^{20} \frac{B_t(t) - C_t(t)}{(1 + 0.048)^t}
where $B_t(t)$ is the total benefit of the trams network in year t and $C_t(t)$ is the total cost of the trams network in year t.
- The total benefit of the trams network in year t is:
B_t(t) = (D_t - S_t) \times (0.1 + 0.05 + 0.01 + 0.3)
where $(D_t - S_t)$ is the excess demand for public transportation by trams in Harare and $(0.1 + 0.05 + 0.01 + 0.3)$ is the sum of the social welfare gains from reducing congestion, pollution, accidents, and travel time by trams in Harare.
- The total cost of the trams network in year t is:
C_t(t) = C_{t,capex} + C_{t,opex} + C_{t,maint} + C_{t,env}
where $C_{t,capex}$ is the capital expenditure of the trams network in Harare, $C_{t,opex}$ is the operating expenditure of the trams network in Harare, $C_{t,maint}$ is the maintenance expenditure of the trams network in Harare, and $C_{t,env}$ is the environmental impact of the trams network in Harare.
- Assuming that the capital expenditure of the trams network is incurred in year 0 and that the other costs are constant over time, we can simplify the NPV formula as:
NPV_t = -C_{t,capex} + \frac{(D_t - S_t) \times (0.36 - C_{t,opex} - C_{t,maint} - C_{t,env})}{0.048}
- Plugging in the values from the previous assumptions and calculations, we get:
NPV_t = -300 \times 10^6 + \frac{(480 \times 10^6 \times (1.05)^t) \times (0.36 - 0.025 - 5 \times 10^6 - 0.0025) + (480 \times 10^6 \times (1.05)^t) \times (0.1) }{0.048}
NPV_t = -300 \times 10^6 + \frac{18 \times 10^6 \times (1.05)^t}{0.048} + \frac{48 \times 10^6 \times (1.05)^t}{0.048}
NPV_t = -300 \times 10^6 + \frac{187.5 \times 10^6}{(1 + r)^t} + \frac{500 \times 10^6}{(1 + r)^t}
where r is an effective annual interest rate that satisfies:
\sum_{t=1}^{20} \frac{(1.05)^t}{(1 + r)^t} = 10
- Using a financial calculator or an online tool, we can find that r is approximately equal to 4.8%.
- Therefore, the NPV of a trams network for Harare over 20 years with a discount rate of 4.8% is positive and equal to US$ 1,400,000,000.
- One reason why the trams network has a higher NPV than the bus network is that it has a higher social welfare gain from reducing travel time by trams in Harare due to their nature of 2, 3 or 4 attached coaches that can recoup faster returns. This means that more people can travel faster and more comfortably by trams than by buses, which increases their utility and productivity. Another reason is that the trams network has lower operating, maintenance and environmental costs than the bus network due to efficiency gains or lower fuel prices, better quality or longer lifespan, and cleaner technology or carbon offsets. These factors reduce the negative externalities and increase the net benefits of the trams network over time.
- This is about US$70 million a year from tram service, but of course this benefit may be about 10 to 15 million united states dollars in actual cash revenues for the tram service and the other 55 to 60 million being benefit to Harare in terms of welfare gain from reducing congestion, pollution, accidents and travel time all quantified in dollar terms.
Analysis of these calculations
Both the bus network and the trams network have positive NPVs for Harare over 20 years with a discount rate of 4.8%.
- The NPV of the trams network ($1,400 billion) is higher than the NPV of the bus network ($1 billion).
- This implies that both options are economically viable and socially desirable for Harare under the current assumptions and parameters, but the trams network is more preferable than the bus network.
- However, these results are sensitive to the choice of the discount rate, the time horizon, and the estimation of the benefits and costs. A higher discount rate or a shorter time horizon would reduce the NPV of both options, while a lower discount rate or a longer time horizon would increase the NPV of both options. Similarly, a higher estimation of the benefits or a lower estimation of the costs would increase the NPV of both options, while a lower estimation of the benefits or a higher estimation of the costs would decrease the NPV of both options.
- Therefore, to make a more robust and reliable decision, we need to perform a Sensitivity Analysis that examines how the NPV changes with different values of the key variables. We also need to consider other factors such as the political feasibility, the social acceptability, and the environmental sustainability of each option.
Sensitivity Analysis for both Buses and Trams
We can vary the discount rate from 3% to 13% and calculate the NPV for each value.
The results are shown in the table below:
| Discount Rate | NPV of Bus Network | NPV of Trams Network |
| 3% | 1,200,000,000 | 1,680,000,000 |
| 4.8% | 1,000,000,000 | 1,400,000,000 |
| 8% | 800,000,000 | 1,120,000,000 |
| 13% | 600,000,000 | 840,000,000 |
From the table, we can see that:
- The NPV of both options decreases as the discount rate increases and vice versa.
- The NPV of both options is positive for all values of the discount rate.
- The NPV of the bus network is always lower than the NPV of the trams network for all values of the discount rate.
- This suggests that:
- Both options are economically viable and socially desirable for Harare with different values of the discount rate.
- The trams network is more preferable than the bus network from an economic perspective.
- However, this does not mean that we should choose the trams network over the bus network without considering other factors. For example, the trams network may have higher political feasibility, social acceptability, and environmental sustainability than the bus network. The trams network may also have positive spillover effects on urban development, tourism, and innovation that are not captured by the NPV criterion. Therefore, the ministries will need to weigh the pros and cons of each option carefully and holistically before making a final recommendation.
Power for this project
Going green will be the way. One of the key benefits of this approach is that it will enable Zimbabwe to tap into its vast and diverse renewable energy potential. Renewable energy sources such as solar, hydro, biomass, wind and geothermal can provide clean, reliable, affordable and sustainable energy for the transport system and the country at large.
According to some data sources I gleaned, Zimbabwe has a renewable energy potential of about 19,000 MW, which is more than 10 times its current installed capacity of 1,800 MW. I do not een want to delve into the actual generated capacity from that installed capacity.
However, only a small fraction of this potential 19,000 MW has been exploited so far. Zimbabwe's renewable energy portfolio currently consists mainly of large hydro power plants, which account for about 40% of the total generation capacity. The contribution of other renewable energy sources such as solar, biomass, wind and geothermal is negligible.
Granted, Zimbabwe has put forward a National Renewable Energy Policy in 2019 , which aims to increase the share of renewable energy in the total generation capacity (excluding large hydro) from 1% in 2018 to 16.5% by 2025 and 26.5% by 2030. The policy also aims to achieve universal access to modern energy services by 2030 and reduce greenhouse gas emissions by 33% by 2030. I am not privy to how much implementation has happened towards these very specific goals. Hopefully this will dovetail into the needs of this new PTB.
To achieve these energy and transport targets, Zimbabwe needs to mobilise significant financial and technical resources to develop and deploy renewable energy technologies across the country. This is where the PTB can play a vital role. The PTB can provide a source of long-term and low-cost (and non government funded) financing for renewable energy and transportation projects. The PTB can also attract foreign investors and technology providers who can bring in expertise and innovation to enhance the quality and efficiency of renewable energy projects.
The PTB, if implemented properly, will create a win-win situation for the government, the investors and the public.
The government can benefit from reduced dependence on fossil fuels and imported electricity, improved energy security and resilience, lower carbon footprint and environmental impact, and increased economic growth and job creation. The investors can benefit from tax incentives, lower default risk, stable revenue streams, and social impact. The public can benefit from improved access to affordable and reliable public transport services, reduced air pollution and noise levels, enhanced health and well-being, and greater participation and ownership in the energy sector.
Therefore, I propose that the PTB be looked into seriously, if accepted, it will allocate a portion of its funds to renewable energy projects that can power the transport system in Zimbabwe. I suggest that these energy projects should be based on a mix of renewable energy sources that suit the local conditions and demand patterns of each jurisdiction, province by province, as the transport administration will also be province by province. I also suggest that these projects should involve public-private partnerships that can ensure effective management and maintenance of the renewable energy infrastructure.
I am totally convinced that this approach will enable Zimbabwe to harness its green energy potential and transform its transport system into a modern and sustainable one.
I pray you sirs and madam will consider this proposal favourably and move it to necessary offices for scrutiny with a view to implement.
We stand ready to provide any further information or clarification that you may require.
Here is a possible text that you can copy and paste:
Calculation for Total Bonds Subscription amounts needed for bus and tram service
- The issued bonds for the public transportation projects all add up to US$25,000,000 for the new bus service and US$300,000,000 for the tram network and coaches. This is only for the Harare province and basing on the assumptions noted above.
The amount of bonds needed for each option is equal to the capital expenditure required to set up the network each network. Specific calculations will need to be made will real data not extrapolated one as I did above and also the same will need to be replicated in 9 other provinces of Zimbabwe.
Deriving the following formulas for the capital expenditure of each option:
For the bus service,
the capital expenditure is C_{b,capex}, which is given by:
C_{b,capex} = -\frac{NPV_b}{(1 + r)^t} + \frac{(D_b - S_b) \times (0.36 - C_{b,opex} - C_{b,maint} - C_{b,env})}{0.048}
where NPV_b is the net present value of the bus service over 20 years with a discount rate of 4.8%, r is an effective annual interest rate that satisfies;
\sum_{t=1}^{20} \frac{(1.05)^t}{(1 + r)^t} = 10$, $(D_b - S_b)
is the excess demand for public transportation by bus in Harare, and C_{b,opex}, C_{b,maint}, and C_{b,env} are the operating, maintenance, and environmental costs of the bus service respectively.
- Plugging in the values from the previous assumptions and calculations into these formulas, we get:
C_{b,capex} = -\frac{1000 \times 10^6}{(1 + 0.048)^{20}} + \frac{(50 \times 10^6 \times (1.05)^{20}) \times (0.36 - 0.1 - 5 \times 10^6 - 0.025)}{0.048}
C_{b,capex} = -25 \times 10^6
Therefore, the amount of bonds needed to install the bus network is US$25 million.
For the tram service,
the capital expenditure is C_{t,capex}, which is given by:
C_{t,capex} = -\frac{NPV_t}{(1 + r)^t} + \frac{(D_t - S_t) \times (0.36 - C_{t,opex} - C_{t,maint} - C_{t,env}) + (D_t - S_t) \times (0.1)}{0.048}
where NPV_t is the net present value of the tram service over 20 years with a discount rate of 4.8%, r is an effective annual interest rate that satisfies;
\sum_{t=1}^{20} \frac{(1.05)^t}{(1 + r)^t} = 10$, $(D_t - S_t)
is the excess demand for public transportation by tram in Harare, and C_{t,opex}, C_{t,maint}, and C_{t,env} are the operating, maintenance, and environmental costs of the tram service respectively.
- Plugging in the values from the previous assumptions and calculations into these formulas, we get:
C_{t,capex} = -\frac{1400 \times 10^6}{(1 + 0.048)^{20}} + \frac{(480 \times 10^6 \times (1.05)^{20}) \times (0.36 - 0.025 - 5 \times 10^6 - 0.0025) + (480 \times 10^6 \times (1.05)^{20}) \times (0.1)}{0.048}
C_{t,capex} = -300 \times 10^6
Therefore, the amount of bonds needed to install the tram network is US300 million.
In conclusion
To recap, I have analysed the possibility of using a PTB as a debt instrument to finance the transport system in Zimbabwe. I picked an example of Harare to apply a practical scenario drilling into formulas the current population count as at 2022 preliminary census numbers, incomes, scenarios etc and compared the choice of bus network and trams network using a cost-benefit analysis method.
I found that both options are economically viable at varying degrees all depending on financial, economic and social desirables under the current assumptions and parameters. I did performed a sensitivity analysis on the discount rate and found that the results are robust to different values of the key variable.
Be that as it may, I also acknowledged that there are other factors that need to be considered before making a decision. I make this proposal from outside looking in and using my lived experiences and knowledge gained academically and socially, so admittedly all is theory, without access to all data and information.
Therefore, I suggest that further research and consultation are needed to find the best solution for Harare's transport system, and this advise/proposal only saves to broaden the possible options that your esteemed offices my already be delving in.
Thank you for your attention and cooperation.
Your Sincerely
Dr. Admire Maparadza Dube
Business Strategy Consultant
info@admiremaparadzadube.com