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Assessment of Road Funds in South Asia

Assessment of Road Funds in South Asia. Jean-Noel Guillossou, Natalya Stankevich, Sr. Transport Economist, Operations Analyst South Asia Sustainable Development Department, Transport, November 20, 2008. Team and Budget. USD 20,000  Thanks to Connie and Guang Major Team:

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Assessment of Road Funds in South Asia

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  1. Assessment of Road Funds in South Asia Jean-Noel Guillossou, Natalya Stankevich, Sr. Transport Economist, Operations Analyst South Asia Sustainable Development Department, Transport, November 20, 2008

  2. Team and Budget • USD 20,000 Thanks to Connie and Guang Major Team: • Analysis and report: Jean-Noel & Natalya • Research and data collection: • Silva in Nepal • Zulfiqar in Pakistan • C. S. Balaramamurthi and R. K Jain, STCs, in India

  3. Objective of the study • Original: To assess the effectiveness and impact of the RFs in SAR (i) on the level of funding for maintenance and (ii) condition of road networks which are maintained with RF resources • Final: To assess the institutional and funding arrangements of the existing RFs in the region

  4. At the national level: India Central Road Fund (CRF) established in 2000 Roads Board Nepal (RBN) in 2002 Pakistan Road Maintenance Account (RMA) in 2003 At the state level in India: Uttar Pradesh (UP) State Road Fund in 1998 Madhya Pradesh (MP) Farmer’s Road Fund in 2000 Kerala State Road Fund in 2002 Assam State Road Fund in 2003 Karnataka Chief Minister’s Rural Road Development Fund in 2004 Rajasthan State Road Development Fund in 2004 Road Funds covered by the study Note: Bangladesh RF, Mizoram RF, and Sri Lanka Road Maintenance Trust Fund (RMTF) were not covered by the study because they were not operating and had no lessons to learn from.

  5. Criteria of Assessment • Mission and reason of creation of RFs • Legal framework • Purchaser and provider split • Good governance • Measurable outputs and performance indicators • Fund flow mechanism • Funding allocation rules

  6. Main reason: To ensure adequate and stable sources of maintenance funding: Nepal, Pakistan, Assam, Karnataka, and UP To finance development of roads: the rest of Indian RFs In reality: Only RBN and Pakistan RMA  routine maintenance Others : development of roads major improvement works consultancies Mission and reasons for creation of a RF

  7. Legal Framework • Established through: • Legal Act: RB Nepal, India CRF, Kerala SRF and Rajasthan SRF • Secondary-level legislation: government order (Karnataka RF), notifications (Pakistan RMA, MP RF and UP RF), and decision taken by the State Cabinet (Assam RF) • Only RB Nepal, India CRF, and Pakistan RMA have Supplemental Rules to clarify administrative mechanisms • Findings: • RBN Act and Rules are not fully implemented demonstrating that a sound legal basis is not enough to make a RF successful • a RF (e.g., Pakistan RMA) can be successful without the expected level of soundness of its legal basis, but this may be a short-term success • Need of a more in depth-assessment if the respective legislations are being properly implemented

  8. Purchaser and provider split • Pakistan RMA: NHA as Purchaser and Provider: • So far procedures and systems have helped to increase transparency • Possible risk of conflict of interest if the legal basis is not strengthened • Others: clear separation of the purchaser and provider roles

  9. Measurable outputs and performance indicators • No RF compares the program actually executed versus the program planned for execution • Only RBN has a results framework in place, but comparison is limited to disbursements versus funds allocated • DORs/RAs often use proxies (output, not outcome oriented) for M&E purpose: • % of funding allocated to the road sector compared to the needs, or • km of roads to receive different types of maintenance • No country is found in SAR with a long term vision of where it would like the road network to be measured by an outcome indicator (e.g.: • maintain annually at least 84% of the state paved network in acceptable overall pavement condition (cracking, rutting, roughness); • maintain 87% of the state highway network in overall preferred condition)

  10. Governance and Accountability • India CRF, Karnataka RF and MP RF: • financing instruments without any specific governance mechanisms: no management board, no involvement of road users, no transparency in decision making and very limited disclosed information • Others: • limited additional governance mechanisms beyond those typically used in government institutions • RBN is the only RF where accountability and transparency in resource allocation is a legal requirement and is enhanced in relation to road agencies spending RBN’s resources

  11. Board autonomy • 3 out of 9 RFs under study – India CRF, Rajasthan and MP RFs – do not have management boards • None of the existing Boards are autonomous: • dominated by public sector representatives (in the Pakistan case, all Board members are from the public sector) • chaired by top level public officials • Lack of autonomy in RBN is related to governance issues at the country level: • Nepal is second after Afghanistan in SAR in terms of lower degree of government effectiveness as measured by the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies

  12. Auditing • Financial audit required for all RFs except Karnataka RF • Technical audit required for Pakistan RMA and Assam RF • No requirements for internal controls are specified in the legal frameworks of RFs • Information on audits is limited and does not allow to determine if these mechanisms are employed and help improve the performance of RFs • Financial and technical audits of Pakistan RMA are always delayed limiting their usefulness in helping improve performance of both RMA and NHA • Financial audits of RBN are carried out on an annual basis and their findings are discussed and taken into consideration

  13. Transparency • Only RBN’s legal documents (Act & Rules) available on on its website • Only the Legal Act of RBN and Pakistan RMA Rules require disclosure of information other than legal documents • Very limited information is available on Indian RFs and no annual reports are made widely available to the public • It may change with implementation of India RTI Act

  14. Involvement of road users • Limited and not active involvement of road users • 1-2 representatives on Boards from a truck or other transportation-related association • Not as active and influential as public sector representatives • Have limited understanding of their role and limited capacity to provide meaningful inputs in a rather technical domain • RBN and Pakistan RMA have recently started conducting Road User Surveys (RUS) and stakeholder consultations • In India, NHAI and some PWDs have started conducting RUS with the help of the World Bank, but they are not linked to RFs yet

  15. Fund Flow Mechanism • All RFs, except the Pakistan RMA, receive their resources transferred through national/state treasuries • Most RFs, except Karnataka, UP RFs and RBN’s revenues from fuel levies, are non-lapsable and can carry unspent resources over to the next fiscal year • Revenues collected from road tolls are the only revenues always deposited directly to RFs’ accounts • Fuel levies are always transferred to RFs through treasuries

  16. Source of Revenues • Diverse sources of funding (fuel levies, tolls, vehicle registration charges, police fines, sales tax on agr. produce, motor vehicle tax, etc.) • Fuel levy is a major source of revenue for RBN and most of Indian RFs • Only Pakistan RMA is not financed from this source • Often some sources of revenue specified in the RF’s legal framework are not used (e.g., Assam RF has 11 sources, but only gov. grants used)

  17. Pakistan RMA Roads Board Nepal Sources of Revenues

  18. Pakistan RMA: Maintenance funding

  19. Allocation rules • Allocation rules by type of road or network: • In the legal frameworks of most of the RFs (except Assam, Rajasthan and UP RFs) • Actual allocation seems to comply with the rules in most of the cases • Allocation rules by type of works: • In the legal frameworks of RBN, RMA and Karnataka RF

  20. Lessons Learned • Improved governance at the country (or state) level is one of the key success factors for effective performance of a RF • Fuel levies are never deposited directly to the RF account • RFs cannot be the only institutions held accountable for the management of roads

  21. Recommendations (part 1) • The establishment of a RF is an appropriate answer when there is a budget system failure. However, even if there is no budget system failure, RF can be a good instrument to improve governance (financial management, transparency ) • Assessment of governance should be conducted at the country level before promoting the establishment of a RF • Priority should be given to achieving good governance of the RF and its Board • A political economy analysis of road maintenance is a prerequisite before considering a financing mechanism such as a RF

  22. Recommendations (part 2) • Where the road agency has good capacity for road management, the RF can concentrate on management of resources and focus on its role as financial institution • The creation of a RF should be considered in parallel with development or strengthening of the road management capacity of an executing road agency • An accountability mechanism should be developed to ensure that all revenues collected from fuel charges and designated as RF resources in accordance with the relevant legal framework are transferred in full from the central treasury to the RF account • The designation of the road institution in charge of monitoring the quality of the road network needs to be clarified

  23. Recommendations (part 3) • Governments should continue providing budgetary support to road maintenance • User fees should not be used as revenues of a development Road Fund • Allocation rules by type of road/network should be defined in the Legal Act • Decisions on the allocation of resources by type of work for local road networks should be decentralized and not made by the RF

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