Innovative Financing of Road Maintenance

1
Innovative Financing of Road Maintenance
International Road Federation (IRF) Economic
Commission for Latin America (ECLAC)
German Agency for Technical Cooperation
(GTZ) Cooperation Program of the Federal Republic
of Germany
E-mail gunter_at_zietlow.com internet
http//www.zietlow.com
Presented by Dr. Gunter Zietlow Innovative
Financing of Transport Projects, Sept. 29 - Oct.
1, 1999
2
Innovative Financing of Road Maintenance
International Road Federation (IRF) Economic
Commission for Latin America (ECLAC)
German Agency for Technical Cooperation
(GTZ) Cooperation Program of the Federal Republic
of Germany
E-mail gunter_at_zietlow.com internet
http//www.zietlow.com
Presented by Dr. Gunter Zietlow Asian
Development Bank, Manila, October 1999
3
Overview ofPresentation

• Regional context and impact of poor road
  maintenance
• Causes of poor road maintenance
• Financing of road maintenance
• Road Funds world wide

4
Problem

• In spite of their importance, roads in
  developing countries are underfinanced,
  poorly managed, and badly maintained.
• Normally, only 30-50 of the amounts required is
  being spent on routine and periodic maintenance.
• 1/3 of the main road networks are in good, 1/3 in
  regular and 1/3 in poor condition.

5
(No Transcript)
6
Example Road Maintenance Spending in
Venezuela
Millions of US
YEAR
7
Percentage of Paved Roads in Good Condition
(1984/8)

SOURCE WB
8
User Cost
200
150
100
GOOD
REGULAR
ROAD CONDITION
BAD
CRITICAL PHASE
VERY BAD
TIME
9
Hhmtmkkdsq!?
10
Uneconomic

• When roads are in poor condition every US
  saved in road conservation will cost
• US 3 to road users in add. Vehicle operating
  costs and
• US 3 to the road administration (or the tax
  payer) in reconstruction and rehabilitation
  costs.

11
Impact of Poor Road Conservation on Economic
Growth

• Countries waste 1- 3 of their GNP per year due
  to additional vehicle operating and road
  rehabilitation costs alone.
• Taking into account other factors such as
  increased accidents, freight damages, time, etc.
  These losses will more than double.
• Considering the poor growth rates of some of the
  countries in the region good road conservation
  can boost economic growth tremendously.

12
Overview ofPresentation

• Regional context and impact of poor road
  maintenance
• Causes of poor road maintenance

13
Problems

• Lack of planning
• Deficient execution of works
• Deficient maintenance of equipment
• Bureaucratic and administrative
  obstacles
• Low salaries
• ...a million others

14
Main Cause 1 Deficient System of Financing

• Experiences reveal
• In most of the countries an adequate flow of
  funds for road maintenance cannot be secured by
  general budget financing procedures,
• especially, if the allocation of these
  funds depends on the yearly political debates.

15
PUBLIC ADMINISTRATION
SOCIAL PROGRAMS
NEW CONSTRUCTION
SUBSIDIES
DEFENCE
EDUCATION AND CULTURE
ROAD MAINTENANCE

ROAD USER TAXES AND FEES
MINISTRY OF FINANCE
16
Main Cause 2 Deficient Management System

• Rules and regulations of the
  public administrative system do not allow for an
  effective and efficient management of road
  maintenance,
• in spite of the good will of a lot of public
  employees responsible for road conservation.

17
(No Transcript)
18
Overview ofPresentation

• Regional context and impact of poor road
  maintenance
• Causes of poor road maintenance
• Financing of road maintenance

19
Reform Elements
Institutional Frame Work
Financing
Reform
Ownership
Management
20
Financial and Institutional Reform

• To charge road users a fee in exchange for road
  maintenance services.
• To establish a Road Maintenance Fund controlled
  by a Board with road user participation.

21
Road maintenance should be treated as a public
service like telephones and electricity where
the user pays for the services received.
22
Sources of Funds forRoad Maintenance

• Tariffs collected together with the sale of motor
  vehicle fuels
• Annual fees for motor vehicles
• Fines for overloading
• Transit fees

23
Why not Use Tolls to Collect Tariffs for Road
Maintenance?

• Only for roads with more than 1500 vehicles per
  day do administrative costs stay in a reasonable
  range of 10 - 30 of amounts collected.
  Therefore, this system would provide a partial
  solution only. This means that this system is
  viable for a small portion of the network (
  lt10).
• Collecting tariffs through the sale of motor
  fuels requires only 1 administrative costs.

24
Use of Funds Collected from Road Users
OTHER PURPOSES
FLOW OF FUNDS
ROAD CONSTRUCTION, REHABILITATION
GENERAL BUDGET
LEGISLATIVE BODIES
ROAD MAINTENANCE
MINISTRY OF FINANCE
ROAD MAINTENANCE FUND
FEE
TAX
ANNUAL ROAD MAINTENANCE FEES FOR MOTOR VEHICLES
PRODUCTION DISTRIBUTION COST
TOTAL PUMP PRICE OF MOTOR VEHICLE FUELS
25
Destination of Funds

• National roads
• Regional roads
• Local roads (including urban
  and rural roads)

26
How much is needed?

• Approximately US 0.08 per liter of diesel
  and gasoline is sufficient to cover routine and
  periodic road maintenance cost if roads are in
  maintainable conditions ( do not require
  rehabilitation !). Additional annual road
  maintenance fees for motor vehicles can reduce
  this amount.

27
Fuel prices in US-cents per liter in 11/98
28
Fuel prices in US-cents per liter in 11/98
29
Road Users Save by Paying Road Maintenance Fees
(Example Honduras)
Vehicle operating costs in US per 100 km on
hilly roads ( Nov. 1994 )
30
Road Maintenance Board

• Safeguarding public interest in road
  maintenance could be best achieved by creating a
  road conservation board, a public institution
  with complete financial, administrative and
  technical autonomy and
• private sector participation.

31
Attributes of a RoadMaintenance Board/Fund

• Propose levels of road maintenance tariffs
• Assign funds to roads under its jurisdiction and
  disburse funds to other entities in charge of
  roads
• Contract consultants and contractors
• Administer road maintenance contracts
• Safeguard road assets

32
Criteria for a sustainableroad maintenance fund

• Tariffs collected to be used exclusively for road
  conservation
• Tariffs should reflect usage of roads
• Tariffs to be collected by the fund
• Tariffs should be adjusted according to needs and
  objectively distributed between main, urban and
  rural roads
• Fund should be autonomous with a sound legal
  basis
• Board of directors should well represent relevant
  interest groups, especially road users

33
Overview ofPresentation

• Regional context and impact of poor road
  maintenance
• Causes of poor road maintenance
• Financing of road maintenance
• Road Funds worldwide

34
Financing and Management of the Road Sector
(New Zealand)
ANNUAL AGREEMENTS
MINISTRY OF TRANSPORT
TRANSFUND NEW ZEALAND
TRANSIT NEW ZEALAND
AGREEMENTS
USER CHARGES
CONTRACTS
LOCAL AUTHORITIES
COMPANIES
NATIONAL ROADS
LOCAL ROADS
35
New ZealandRoad Fund

• Dedicated tax on gasoline 6,3 US cents/liter
• Weight distance charges for vehicles using diesel
  fuel
• Vehicle licensing and registration fees
• Annual fee on machinery

36
New Zealand - Road FundAllocation of funds based
on benefit cost analysis

• B/C ratio benefits costs
• Benefits comprise
• Vehicle operating cost savings
• Travel time savings
• Accident savings
• Increased comfort and less dust
• Reduced noise, less community impact
• Costs comprise
• Capital
• Maintenance

37
Annual ReportTransit New Zealand
Transparency
38
Transit New ZealandAnnual road asset evaluation
39
Newsletters
40
Existing and Prospective Road Maintenance Funds
in Latin American Countries
Municipal Road Maintenance Fund Santo Antonio
da Patrulha
gt 50 probability for creating a Fund until
8/2000
8/98
41
Guatemala Road Maintenance Fund

• Trust Fund for road maintenance and improvements
  of national roads financed by fuel taxes (US
  0.16 per gallon)
• Road Maintenance Board with 3 members of the
  public and 3 members of the private sector

42
HondurasRoad Maintenance FundBoard of Directors

• 3 Ministers (Public Works, Finance, Economy)
• 1 Representative of the
  Association of Municipalities
• 3 Representatives of the private sector (Chamber
  of Commerce, Association of Transport
  Enterprises, Engineering College)
• 1 Director of Roads of the Ministry of Public
  Works

43
Honduras Road Maintenance Fund

• Administers funds.
• Contracts maintenance.
• Promotes effectiveness and efficiency of road
  maintenance.
• Presents annual report on the results obtained.

44
Guatemala Road Maintenance Fund

• Trust Fund for Road Maintenance since 2/1997
• Source of funds is a dedicated tax on motor fuels
  (16 US cents per gallon)
• Board of Directors consists of 3 members of the
  public sector and 3 members of the private sector

45
Guatemala Road Maintenance Fund

• Board of directors
• Minister of Communications, Transport and Public
  Works
• Minister of Finance
• Director of Roads
• 1 Representative of the association of transport
  enterprises
• 1 Representative of the Chamber of Construction
• 1 Representative of the College of Engineering

46
NicaraguaRoad Maintenance Fund - proposal

• Public autonomous road maintenance fund,
  established by law.
• Board members are mainly from private sector
  representing direct and indirect road users.
• Financing of maintenance of all public roads,
  including urban roads.
• Principal source of financing Service fee for
  road maintenance collected with the sale of fuels
  for road vehicles.
• External auditing.
• Administration cost limited to 2.5 of annual
  income.

47
Highway Trust Fund

• Created in the year 1952
• Use of funds in 1992
• Construction, rehabilitation, maintenance of the
  interstate and national highways (78 )
• Mass transit (8,3 )
• General funds (13,7 )

48
Highway Trust FundTariff Structure 1998

• Gasoline 18.4 cents/gallon
• Diesel 24.4 cents/gallon
• Gasohol 13 cents/gallon
• Other taxes on tires and trucks
• 14 Of the income of the HTF

49
State Taxation of Fuel

• Example Maryland (1998)
• Gasoline 23.4 cents/gallon
• Diesel 24.25 cents/gallon

50
Lessons Learned

• Design of reform process has to reflect political
  realities.
• Minister of Transport/Public Works has to
  spearhead the initiative.
• Strong support of Minister of Finance is
  essential.
• Public relations to be handled with great care.
• Road maintenance charges to be raised gradually
  in line with improvements of the road network.

51
Win win strategy

• Road users
• Producers (farmers)
• Consumers
• Exporters
• National economy
• Our children and grand-children

52
No Fund(s) no Future
I SEE POTHOLES
53
Built Ownership
NO POTHOLES
DEAR ROAD USER THIS ROAD IS BEING MAINTAINED
WITH YOUR CONTRIBUTIONS TO THE ROAD MAINTENANCE
FUND YOUR OPINION IS IMPORTANT PLEASE CONTACT
US TEL/FAX [phone] ROAD MAINTENANCE FUND
JKKKKKMNN SDDFDERDK SAADSCC ZZZZZZZZ
54
STOP
55
Protect the heritage of our children ! Let us do
everything in our power to protect our national
road assets, We owe this to our
children and grandchildren !
56
It is not our wealth, which has built our
roads, but our roads, which built our wealth

John F. Kennedy