''Second Generation Road Funds''

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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
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                                                                                  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
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           N
        R ig e
          w       r
                                                                               (Av. 6 and 7 cents/liter) in 2006




           an
       Ta da
          nz
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               g
         Za o
      Zi m
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          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
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                                                  60
                                                       70
                                                            80
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          ur
            un
                                                                            (30 days)
               di
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                                                                            Average time for paying undisputed contractors bills
28
                                 0
                                10
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                               100
              Be
                                     > 80%)
                      ni
       Ca                  n
            m
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                 ib
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                                              Amount of maintenance work contracted out (Av.
                              0
                             10
                             20
                             30
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                            100




29
                Be
             B u nin
        C ru
           am nd
                er i
                  ou
                        n
                 R
                    CA
                C
            E t had
               hi
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     M K ia
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            ew r
          T a and
               nz a
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                 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

				
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