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9b bus deal - Jamaica borrows from Belgians to boost fleet
Published: Friday | September 11, 2009
Avia Collinder, Business Reporter
Minister of Finance and the Public Service Audley Shaw (left) greets Belgian ambassador to Jamaica, Frederic Meurice (centre), and Jacques Nyssen, vice-president of the Commercial Bank of Belgium, at the signing of loan deals for the purchase of 200 buses from Belgian firm Jonckheere Bus and Coach NV, at Shaw's Heroes Circle office in Kingston Tuesday. - JIS PHOTO
Jamaica has acquired two loans valued at J$8.7 billion to fund the purchase of 200 new buses that Jonckheere Bus and Coach NV group has been contracted to build.
Each bus would cost the equivalent of J$43.5 million.
Jamaica raised the financing for the Volvo buses - €67.5 million - from a consortium led by the Commercial Bank of Belgium, according to disclosures Tuesday at the announcement of the deal.
The consortium of backers includes AKA Bank of Germany.
The smaller loan, €9.8 million for 40 units, is repayable in seven years at zero interest.
The other loan, €57.67 million for the other 160 units, is priced at 4.88 per cent. Both loans are repayable in seven years in 14 semi-annual instalments, starting after the buses are delivered.
This new agreement follows another signed in 2008 for 100 buses, financed by a loan from Commerzbank, which were delivered by Jonckheere at the top of the year.
Jamaica already owes Jonckheere €23.3 million, the equivalent of J$2.7 billion as at March 2009 and is further indebted to Belgium for €12.7 million, or J$1.47 billion, that includes a loan for the purchase of buses.
The new additions will replenish and further modernise the fleet of the 11-year-old Jamaica Urban Transit Company (JUTC), putting the state-owned bus company in a position to expand its 'cashless ride' service from 33 per cent to 50 per cent penetration of the Kingston Metropolitan Transport Region serviced by JUTC by March 2010.
Expenses contained
But JUTC also sees the new buses as an opportunity to contain operating expenses - they are manned by a driver only - curtail theft and boost profitability.
Notably, while JUTC is projecting that its staff corps will grow by 260 to 1,821, the company also expects to cut $100 million from its salary bill, from $1.6 billion to $1.5 billion.
Spokesman Reginald Allen says pilferage is now estimated at 15 per cent of company revenues - amounting to $360 million to $420 million.
One of the instances of fraud detected is whereby collectors would sell normal fares but issue tickets of lower value to the rider and pocket the difference.
"Excepting for the disabled and elderly, no one should have a concessionary or $15 ticket. In the past, persons were getting $15 tickets and they did not even know," said Allen.
"We have a revenue monitoring team constantly on the road and quite often they encounter these things."
Card benefits
But as the sale of the prepaid electronic Smart Cards grow, there is less cash to collect and, therefore, less opportunity to siphon fares.
Approximately 100,000 cards were sold in 2008, compared to 15,000 in 2007. Within this year, some 20,000 were sold by March - translating to an annualised 80,000 cards, assuming that sales perform at the same level as the first quarter.
The cards are reusable and can be personalised.
JUTC has been one of those loss-making government entities gobbling up state subsidies, adding to deficits racked up annually as tax revenues underperform and expenses grow.
The bus company this year projects a loss, before subsidy, of $1.37 billion, according to the finance ministry's 2009/10 report on public-sector bodies, and an estimated fare subsidy of $776 million. Allen says this year's subsidy would be cut by 30 per cent.
JUTC is now carrying losses of $5.7 billion on its balance sheet, and that deficit is projected to deepen to $6.3 billion at the end of this fiscal year.
The accumulated losses currently outweigh each dollar of revenue two to one.
Allen said that the increase in units, along with a strong programme to reduce illegal operators by the Transport Authority should take the JUTC closer to break even than it managed to achieve last year. The JUTC is also asking for a 40 per cent increase in fares.
In the 2008/09 financial year, the transit company made a net loss of $1.2 billion, but was expecting to cut that to $591 million this year, if a sought-after bus fare hike got regulatory approval.
The new fare rates would, it is projected, virtually double revenues, from $1.9 billion last year to $3.4 billion in the current period.
Allen said the new debt incurred for the buses would not be on the books of the JUTC, but that of central government, which in the previous administration had committed to take on the bus company's big capital expenses.
Jamaica is taking on the new debt in the midst of a firestorm with teachers and the health sector over pay.
The value of the loans is the equivalent of one month's salary bill for the Bruce Golding administration, and is two and half times the $3.6 billion in budget support that came from the European Union this month.
Fleet reinforcement
At last disclosure in March, JUTC reported a fleet of 600, saying 200 were down for repairs. The fleet at its peak had 700 units, Allen said.
The 200 new buses will add to the fleet, not replace old ones.
"We are not planning on withdrawing buses. We are overhauling the old buses in Brazil," said Allen.
"We intend to send 150 of the regular white Marco Polo buses to be similarly outfitted (with Smart Card and air conditioning)."
JUTC is banking on more commuters favouring smart cards as the cashless system is imple-mented more broadly.
But Allen acknowledged there was still some resistance, admitting to a fall-off in usage of the premium bus service when a completely cashless system for this segment was introduced in April this year.
It was, he said, an issue of adaptation rather than disposable income, though fares for the high-end service, which offers rides in air-conditioned comfort, were raised around the same time.
JUTC eventually capitulated and rolled back the increase this month to $100, from $120 per commuter. Normal fares are a subsidised $50.
Allen insists the premium service is market driven and that its fares would be adjusted as necessary to reflect the economic cost of delivering the service.
"They will not be subsidised in any broad sense," said the JUTC spokesman.
"If they are not paying their way, they won't be around."
[email protected]
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Published: Friday | September 11, 2009
Avia Collinder, Business Reporter
Minister of Finance and the Public Service Audley Shaw (left) greets Belgian ambassador to Jamaica, Frederic Meurice (centre), and Jacques Nyssen, vice-president of the Commercial Bank of Belgium, at the signing of loan deals for the purchase of 200 buses from Belgian firm Jonckheere Bus and Coach NV, at Shaw's Heroes Circle office in Kingston Tuesday. - JIS PHOTO
Jamaica has acquired two loans valued at J$8.7 billion to fund the purchase of 200 new buses that Jonckheere Bus and Coach NV group has been contracted to build.
Each bus would cost the equivalent of J$43.5 million.
Jamaica raised the financing for the Volvo buses - €67.5 million - from a consortium led by the Commercial Bank of Belgium, according to disclosures Tuesday at the announcement of the deal.
The consortium of backers includes AKA Bank of Germany.
The smaller loan, €9.8 million for 40 units, is repayable in seven years at zero interest.
The other loan, €57.67 million for the other 160 units, is priced at 4.88 per cent. Both loans are repayable in seven years in 14 semi-annual instalments, starting after the buses are delivered.
This new agreement follows another signed in 2008 for 100 buses, financed by a loan from Commerzbank, which were delivered by Jonckheere at the top of the year.
Jamaica already owes Jonckheere €23.3 million, the equivalent of J$2.7 billion as at March 2009 and is further indebted to Belgium for €12.7 million, or J$1.47 billion, that includes a loan for the purchase of buses.
The new additions will replenish and further modernise the fleet of the 11-year-old Jamaica Urban Transit Company (JUTC), putting the state-owned bus company in a position to expand its 'cashless ride' service from 33 per cent to 50 per cent penetration of the Kingston Metropolitan Transport Region serviced by JUTC by March 2010.
Expenses contained
But JUTC also sees the new buses as an opportunity to contain operating expenses - they are manned by a driver only - curtail theft and boost profitability.
Notably, while JUTC is projecting that its staff corps will grow by 260 to 1,821, the company also expects to cut $100 million from its salary bill, from $1.6 billion to $1.5 billion.
Spokesman Reginald Allen says pilferage is now estimated at 15 per cent of company revenues - amounting to $360 million to $420 million.
One of the instances of fraud detected is whereby collectors would sell normal fares but issue tickets of lower value to the rider and pocket the difference.
"Excepting for the disabled and elderly, no one should have a concessionary or $15 ticket. In the past, persons were getting $15 tickets and they did not even know," said Allen.
"We have a revenue monitoring team constantly on the road and quite often they encounter these things."
Card benefits
But as the sale of the prepaid electronic Smart Cards grow, there is less cash to collect and, therefore, less opportunity to siphon fares.
Approximately 100,000 cards were sold in 2008, compared to 15,000 in 2007. Within this year, some 20,000 were sold by March - translating to an annualised 80,000 cards, assuming that sales perform at the same level as the first quarter.
The cards are reusable and can be personalised.
JUTC has been one of those loss-making government entities gobbling up state subsidies, adding to deficits racked up annually as tax revenues underperform and expenses grow.
The bus company this year projects a loss, before subsidy, of $1.37 billion, according to the finance ministry's 2009/10 report on public-sector bodies, and an estimated fare subsidy of $776 million. Allen says this year's subsidy would be cut by 30 per cent.
JUTC is now carrying losses of $5.7 billion on its balance sheet, and that deficit is projected to deepen to $6.3 billion at the end of this fiscal year.
The accumulated losses currently outweigh each dollar of revenue two to one.
Allen said that the increase in units, along with a strong programme to reduce illegal operators by the Transport Authority should take the JUTC closer to break even than it managed to achieve last year. The JUTC is also asking for a 40 per cent increase in fares.
In the 2008/09 financial year, the transit company made a net loss of $1.2 billion, but was expecting to cut that to $591 million this year, if a sought-after bus fare hike got regulatory approval.
The new fare rates would, it is projected, virtually double revenues, from $1.9 billion last year to $3.4 billion in the current period.
Allen said the new debt incurred for the buses would not be on the books of the JUTC, but that of central government, which in the previous administration had committed to take on the bus company's big capital expenses.
Jamaica is taking on the new debt in the midst of a firestorm with teachers and the health sector over pay.
The value of the loans is the equivalent of one month's salary bill for the Bruce Golding administration, and is two and half times the $3.6 billion in budget support that came from the European Union this month.
Fleet reinforcement
At last disclosure in March, JUTC reported a fleet of 600, saying 200 were down for repairs. The fleet at its peak had 700 units, Allen said.
The 200 new buses will add to the fleet, not replace old ones.
"We are not planning on withdrawing buses. We are overhauling the old buses in Brazil," said Allen.
"We intend to send 150 of the regular white Marco Polo buses to be similarly outfitted (with Smart Card and air conditioning)."
JUTC is banking on more commuters favouring smart cards as the cashless system is imple-mented more broadly.
But Allen acknowledged there was still some resistance, admitting to a fall-off in usage of the premium bus service when a completely cashless system for this segment was introduced in April this year.
It was, he said, an issue of adaptation rather than disposable income, though fares for the high-end service, which offers rides in air-conditioned comfort, were raised around the same time.
JUTC eventually capitulated and rolled back the increase this month to $100, from $120 per commuter. Normal fares are a subsidised $50.
Allen insists the premium service is market driven and that its fares would be adjusted as necessary to reflect the economic cost of delivering the service.
"They will not be subsidised in any broad sense," said the JUTC spokesman.
"If they are not paying their way, they won't be around."
[email protected]
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