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‘’Second Generation Road Funds’’ Theory and Principles A Paper Presented on the International Seminar In Ouagadougou By Rashid Mohammed December 2008 OUTLINE I. Background Information Role of Road Infrastructure Why Road Maintenance Reforms in the Road Sector Development II. Theory and Principles of 2nd Generation Road Funds Basic Characteristics of 2nd Generation RF Practical application of the Principles Some indicators of performance of 2nd Generation RF III. The Impact of the Road Funds IV. Challenges encountered V. conclusion 2 I. Back Ground Information The Role of Road infrastructure • Socio-economic development • Links centers of production and market • Promotes trade by linking land-locked countries and costal ports • Determines the price of goods and services. • Provides access to employment, health and education and other social services 3 Total Transport Cost entails different inter-related costs 4 Why Road Maintenance? Inadequate and Untimely Maintenance of Roads Results in Higher vehicle operating costs; Increased number of accidents; Reduced reliability of Road Services; Rising costs of Road transport (which in turn suppress socio-economic development) 5 Cont’d The Road Infrastructure is the most expensive asset of any country Each dollar spent on road maintenance saves up to 10 USD of vehicle operating costs Cost of rehabilitation or reconstruction is 20 times more expensive than the cost of sustained maintenance over the life of the Road. 6 Maintenance has not always received the attention it deserves. - Inadequate provisions of financing - Deficiencies in the management of roads Countries tried to increase road taxes to provide maintenance funding e.g. Gabon, Senegal, Burundi etc 7 Studies undertaken in the late 1980s, indicated that lack of maintenance was eroding road asset value in developing countries and in particular in Sub-Sahara Africa (SSA). The study identified that: Lack of maintenance was not rooted in technical matters but was political and institutional. There was need for change and for effectiveness, the changes needed to be rooted in firm awareness at the highest level of government, of the importance of road maintenance Things didn’t work out as intended because: accounts resided with national accounts administered by government Impossible to protect revenue from diversion to other sectors poor financial management extensive use of resources for unauthorized expenditures etc As a result the 1st Generation Road Funds were unsuccessful and failed completely. Reforms in the Road sub-sector Road Sector reforms championed by the Road Management and financing, RMF/SSATP, towards the end of -1980’s Aimed at addressing these problems. As such Road Management Initiatives (RMI) as comprehensive approach to road sectors took the lead RMI capitalized ideas of managing roads like business and enabling users to play much stronger role in Road Maintenance 10 Four building blocks were identified under the RMI: Ownership, Financing, Responsibility and Management. Within the premises of the RMI four building blocks; financing part intended to directly relate road use payments to Road provision costs. From this process, what came to be known as a ‘’ Second Generation Road Funds’’ came into picture in many sub-saharan Africa. The idea began to take shape in the early 1990s and the first of such fund put into place in Zambia in 1993. There are currently about 31 countries in SSA with road funds in place. Theory and Principles of 2nd Generation RF 1. Sound legal basis – separate road fund administration, clear rules and regulations. 2. Agency which is a purchaser not a provider of road maintenance services. 3. Strong oversight – broad based private/public board. 4. Revenues incremental to the budget, coming from charges related to road use and channeled directly to the Road Fund bank account. 5. Sound financial management systems, lean efficient administrative structure. 6. Regular technical and financial audits. Practice extended (2) 31Road Funds in SSA are almost in place 14 Cont …. Guided by company concepts Shareholders Stakeholders Road users Manager Road Fund Board Implementers Road agencies 15 C1: Sound legal basis?- (I) some road funds were not fully designed according to 2nd generation criteria and this partially explains structural problems that undermine their performance Progress to date: - Some road funds are restructured (e.g. Gabon) or had their legislation completed (e.g. Madagascar, Niger and Benin) - A number of RFs still need restructuring in view of the 2nd Generation RF 16 C1: Sound legal basis?- (II) Some legislations did not mention that the road funds should be responsible for the collection of funds revenues and rarely stated that the proceeds should be channeled directly to their bank accounts. Expenditure on other activities beyond road maintenance interventions (e.g. road rehabilitation and upgrading) is allowed in some legislations Requirement for regular technical and financial audits is not always stated in the road fund legislation and cases where audits are a requirement but not budgeted for in the road fund expenditure. 17 C2: Strong and independent oversight board (I)? A poor understanding of ‘’second generation road funds’’ principles among some board members, mainly private sectors representatives. Progress to date: - Many RF board members are attending the RMF courses and we need to do more - ARMFA serves as experience sharing framework for members to learn from each others good practices, this effort needs to be enhanced. 18 C3: Agency which is a purchaser not a provider of road maintenance services Some road funds cumulates both oversight and executive powers This created a conflict of interest in many cases. Progress to date: Many Road Funds are now reviewing their institutional arrangements to separate the financing from the management and implementation of road works (e.g. Malawi, Zambia and Kenya). 19 C4- Sound financial management systems, lean efficient administrative structure ‘’Executive Directors not always recruited through open competition – Hence impact on performance and autonomy of RFs’’ Progress to date: Sometimes RF Directors are replaced without opening the position for competition! 20 C5: Regular technical and financial audits Financial: funding arrangements are more transparent than in the past but still some interferences The recommendations of technical audit reports are discussed in stakeholders workshops but sometimes their implementation are not strong. Audit reports indicate that maintenance works are not carried out in cost effective ways. 21 C4 : Revenues generated from charges related to road use and directly channeled to the Road Fund’s bank account ? Progress to date: Collection mechanisms partially improved in Benin and Niger and others have recognized the importance of doing so 22 23 Fuel levy/RUC (%) Bu 0 10 20 30 40 50 60 70 80 90 100 ru nd i RUC) Be C n am in er oo n C AR C C ot ha e d’ d Iv o Et ire hi op i G a ha n M Ke a ad n y ag a as ca M r al aw i M oz M am al i bi q N ue am ib ia N i R g er w an Ta da nz an ia To g Za o Zi mb m b a ia bw Fuel levy/Road user charges (%) (Av.= 80% of e Breakdown of Road User Charges (%) Country Fuel Tolls Transit license Overloading Total ---------------------------------------------------------------- Chad 61 6.5 32 0 0.5 100 Benin 52 43 5 0 0 100 Namibia 75 0 5 20 0 100 Burundi 60 24 0 16 0 100 Lesotho 67 25 0 8 0 100 Mali 75 0 25 0 0 100 Rwanda 62 2 36 0 0 100 Source: RMI- Matrix, 2006 24 25 US Cents/liter Bu 0 2 4 6 8 10 12 14 16 18 ru nd B i C en am in er oo n C AR C ot Ch e a d’ d Iv o Et ire hi op i G a ha n M Ke a ad n a g ya as ca M r al aw M i oz M am al bi i q N ue am ib ia N R ig e w r (Av. 6 and 7 cents/liter) in 2006 an Ta da nz an ia To g Za o Zi m m bi ba a bw Level of fuel levy (in US cents/ liter) e Petrol Diesel Level of fuel levy, 2007(in $US cents/liter) Progress to date: Madagascar: from 4 to 8 cents/liter Kenya from 8 to 12 cents/liter Tanzania from 8 to 15 cents/liter 26 27 um N ber of days B 0 10 20 30 40 50 60 70 80 90 100 ur un (30 days) di C ha d C A R G ha na G ui ne a K M e ad nya ag as ca r M al aw i M al N i am ib ia R w an da T C og am o er ou n Average time for paying undisputed contractors bills 28 0 10 20 30 40 50 60 70 80 90 100 Be > 80%) ni Ca n m er oo n CA R Ch ad Dj ib ou Et ti hi op ia G ui ne a Ke M ny ad a ag as ca r M al aw i M a Na l i m ib Ta ia nz an ia Za m bi a Amount of maintenance work contracted out (Av. 0 10 20 30 40 50 60 70 80 90 100 29 Be B u nin C ru am nd er i ou n R CA C E t had hi op M K ia ad en a g ya as M ca r al aw M oz M i am al bi i N qu am e ib i N a R ige ew r T a and nz a an i To a needs (Av. = 65% routine and 54% periodic) Za go Z i mb m ba ia bw e Coverage of routine and periodic maintenance Routine Periodic Some Indicators of Performance of “Second Generation” Road Funds in SSA - 27 active road funds are in place – of which 9 established since 2000 and 7 in Francophone Africa - 18 out of 27 are established by a law - 12 with a board with private sector majority - 14 road funds rely 80% or more on road user charges as revenues - In nearly all cases, fuel levy is the principal means of raising road user charges - Average fuel levy in US cents/liter is 8 and 7 for petrol and diesel respectively - 11road funds have their revenues channeled directly to their bank account - Only about one third of road funds may now be meeting routine maintenance expenditure needs on a regular basis. Source: RMI-Matrix, 2006 30 The impact of the Road Funds In most cases they have contributed towards improvement of the Road conditions. Many Rural Roads that were impassable during the rainy season are now passable throughout the year. Relatively a stable flow of funds have been ensured for timely maintenances. But country progress varies widely 31 Reductions in travel time and costs in many countries have greatly helped the rural economy by improving market access for agricultural produce and generating new economic activities. Road maintenance also contributed to an increase in the income of rural populations. Road Users involvement in decision-making has helped to bring transparency in financing and Management of Road Maintenance. performance and accountability of the implementing agencies have improved considerably. 32 Challenges for Road Funds in Africa (1) FINANCIAL Ensure equitable distribution of user charges: Vehicle license fees -particular regard to heavy vehicles; Develop a communication strategy to negotiate road tariffs- Mobilize road users and stakeholders more effectively – influence decision-making Set up systems that Ensure Road Users charge reflect the expenditure of maintenance cost. Diversify sources of revenue 33 Challenges for Road Funds in Africa (2) INSTITUTIONAL Enabling Road boards to play their roles effectively and be accountable to road users • Increase private sectors involvement in the Road Maintenance and enhance PPP Ensuring adequate Finance–a RF is a means to an end… Need for road management restructuring – to ensure cost reductions and ‘’value for money’’ for road users; Bridging the gap between road financing (RFs) and management (RAs) - Intermediate steps – Performance based contracts for road management and maintenance – requires stable flow of fund… 34 ARMFA: Progress to date The African Road Maintenance Funds Association, ARMFA’s membership has increased. ARMFA is recognized by major road sector organizations and Donors (AIPCR and IRF), SSATP, ADB, EU, AGEPAR, CDE and others Permanent Secretariat in place, and hosted by Cameroun Developed Its long term strategic development plan. 35 Conclusion The Road Funds still remain major sources of finance for road maintenance in Sub-saharan Africa The Road Funds can, however, play their roles better if as much as possible comply with the Guiding Principles of 2nd Generation Road Funds. Besides, reviewing their performances so as to continuously improve the observed weaknesses in the context of the countries will increase the success of the 2nd Generation Road Funds. 36
"''Second Generation Road Funds''"