PUBLIC EXPENDITURE REVIEW PROGRAM

Transcription

1 PUBLIC EXPENDITURE REVIEW PROGRAM ROADS PUBLIC EXPENDITURE REVIEW IN SRI LANKA FINAL REPORT Submitted to the World Bank, Colombo Amal S Kumarage University of Moratuwa Moratuwa, Sri Lanka kumarage@sltnet.lk 15 th June 2006

2 TABLE OF CONTENTS 1 PRELIMINARIES Scope and Objectives Methodology 2 2 INTRODUCTION Road System in Sri Lanka Government Policy of the Road Sector Government Developmental Objectives relating to inputs to Road Sector Funding for Road Construction & Management 7 3 ANALYSIS OF PUBLIC EXPENDITURE ON ROADS Public Expenditure on Roads Sources of Funding for Roads and Budgetary Processes Efficiency of Utilizing Funds Allocated Sustainability of Road Expenditure Institutional Arrangements in Road Sector 34 4 INTERVENTIONS FOR IMPROVING OUTCOMES OF SPENDING ON ROAD SECTOR Identify the overall sector Investment Level Identify Allocation Levels by Type of Investment Improving Effectiveness of Expenditure Allocations Improving Utilization of Allocations Enhancing Sector Capacity 48 5 PERFORMANCE INDICATORS 51 6 DATA COLLECTION FORMAT 54 7 SUMMARY TABLE OF CONCLUSIONS & RECOMMENDATIONS 57 Appendix I Data Collection 62 Appendix II Treasury Allocations for Road Construction 63 i

3 LIST OF TABLES Table 1: Road Network in kms 3 Table 2: MTEF Budget Allocations for Pro-Poor and Pro-Growth Regional Development 6 Table 3: Allocations to Local Authority Roads 8 Table 4: Overview of Allocations for Road Development Table 5: Spending on National Roads (Rs Million) 15 Table 6: Spending on Provincial Roads (Rs Million) 16 Table 7: Spending on Urban Roads (Rs Million) 18 Table 8: Summary of Spending on Rural Roads 19 Table 9: Spending on Rural Roads (Rs Million) 20 Table 10: Total Public Expenditure on Roads and its Analysis (2006 Allocations)- Rs billion 24 Table 11: Trends in Public Expenditure on Roads ( )- Rs million 26 Table 12: Road User Charges: 2003 (Million Rupees) 26 Table 13: Total Public Expenditure on Roads and its Analysis (2006 Allocations)- Rs million 27 Table 14: Treasury Allocations on Roads by Agency Level (2006 Allocations)- Rs million 28 Table 15: Utilization of RDA Funds for Table 16: Allocations & Utilization of Funds for National Roads (Ministry of Highways) 30 Table 17: Utilization Rates for funds made available for Provincial Roads 32 Table 18: Utilization Rates for funds made available for Local Authority Roads 32 Table 19: Analysis of Public Expenditure on Roads by Sector (2006 Allocations)- Rs million 39 Table 20: Lane kms of National Road Network 39 Table 21: Rehabilitation Costs for Road Network 40 Table 22: Maintenance Costs of Road Network after Rehabilitation 42 Table 23: Sector Allocations at different Investment Levels 44 LIST OF FIGURES Figure 1: Trends in Public Expenditure on Roads ( ) 25 Figure 2: Utilization of Funds for National Roads ( ) 31 ii

4 1 PRELIMINARIES A core objective of the Public Expenditure Review for which this report is prepared is given as to assist the Government in increasing the output-orientation of the budget system as an integral part of its medium term expenditure framework (MTEF), thereby strengthening the links between policy priorities and the budget. The overall goal of this report is therefore, to identify the means by which the government can improve the efficiency of its expenditures on roads, so that a desirable level of services can be made available for road users for the level of expenditure provided for roads in the MTEF, which is taken as the primary instrument of policy implementation of the government. This review of the road sector budget allocation will investigate if it is in line with the intended outcomes as defined by policy objectives and the medium term expenditure framework. However, any success from an outcome-based budget will only be achieved if it translates into timely delivery of the desired outcomes. Thus, the execution of the budget will also be examined in terms of performance indicators and efficiency of expenditure. Therefore, the specific objectives of the study as referred to in the Terms of Reference issued for this purpose are understood to be as follows: (i) To assess the expenditure levels in roads and evaluate if government objectives are being met in allocations and spending. (ii) To assess and formulate performance indicators to measure the efficiency of expenditures looking at both costs and the outputs and outcomes of the road sectors in terms of service delivery. 1.1 Scope and Objectives As outlined in the Inception Report dated 27 th March 2006, this report is the Final Report combining all material set out in the following parts: Part I -Assessment of Expenditure Levels Part II -Evaluation of Expenditures and Stated Objectives Part III -Assessing and formulation of performance indicators Part IV -Preparation of a Data Collection Format The specific objectives for this report are: To identify the road network in terms of institutional responsibility for construction & management To identify the different sources of funding To quantify the levels of funding provided and utilized for the period 2000 to 2006 To establish trends in spending on roads during this period To identify reasons for any divergence between funds provided and actual utilization 1

5 To assess the capacities of these implementing agencies to undertake the scope of work pertaining to the allocated expenditure and the desired level of output To assess the expenditure levels in roads and evaluate if government objectives are being met in allocations and spending To assess if expenditure priorities have been identified in projects and if these priorities have been observed in expenditure patterns; Formulating suitable performance indicators to be used for sector allocations and intrasectoral allocations and for budgetary monitoring and Formulation of a draft data collection form for prioritizing capital allocation for the road sector. 1.2 Methodology This report has been compiled after study of the funding methods pertaining to the road sector especially with respect to actual expenditure for the year 2005 and allocations for the year It has been derived from an examination of budget documents as well as implementation programs and accounts of on-going projects at all tiers of road administration. However, the scope of the study which has an overall time frame of six weeks, does not allow for extensive data collection and verification of all details, particularly at the provincial and local government levels, where such data is most difficult to arrive at. Therefore the study, included visits to two provinces, namely Southern and Uva to obtain actual expenditures received at both provincial and local authority levels and to identify the quantum and procedures under which such funds are received. The rationale for selecting these two provinces and the institutions from which data was collected by personal visits and interviews is given in Appendix I. Spending in other provinces was estimated based on the experiences gathered from these two provinces. The estimates of expenditure made in this study are based on data that was collected within the scope of the study. Road expenditure especially on rural roads has been obtained from numerous sources, many of which have included such expenditure under broader accounting heads. As such the estimates at the rural level are only the most educated and scientifically derived estimates and should not be taken as the final accounting figures. Even at other levels, the lack of an acceptable convention for accounting of different types of expenditure has led to some degree of discrepancy and variance in reported figures. 2

6 2 INTRODUCTION 2.1 Road System in Sri Lanka The road network in Sri Lanka is made up of several types of roads classified according to their functionality and management. There is no formally accepted classification system for Sri Lanka. The following classification and notation will be followed in this report: National Roads Provincial Roads Urban Roads Rural Roads The national road network had by 1959, expanded to 7,034 kms with a further 12,070 kms of other roads of lesser importance. Since independence in 1948, a noteworthy shift in road building was seen with emphasis on access roads, particularly to rural villages. This has today, increased to an estimated 75,424 kms. On the other hand, additions to the national road network have been comparatively less significant, with the majority being upgrades from provincial roads. The most notable contribution of new roads have come from agricultural and irrigation projects, especially the 467 kms under the Mahaweli Diversion Program. The detailed inventory of road lengths was last carried out in 1990 when part of the road network was handed over to Provincial Councils by the Road Development Authority. It was then 94,208 kms, returning a road density of 1.47 kms per square km of land area. The estimated road length in was 108,103 kms with over 28,000 kms in paved condition. Year National Roads Table 1: Road Network in kms 2 Provincial Roads Urban Roads Rural Roads Total Road ,024 6, ,034 12,070 19, ,447 14,916 2,791 66,054 94, ,760 15,743 5,176 75, ,103 National Highways: These are roads that are presently managed by the Road Development Authority (RDA) and constitute the roads classified as A & B Class. Such roads are generally those that are considered as part of the national road network or provide access to places of national importance etc. Roads that belong to the provincial authorities as well as agencies such as the Mahaweli Authority, Municipal Councils are periodically gazetted and added to the national network. These roads are maintained by the RDA, with the exception of around 80 kms within Colombo city which is maintained by the Colombo Municipal Council.. 1 Source National Atlas

7 Provincial Roads: These are roads that were classified as C, D and E class when the Provincial Councils were established in 1989 under the 13 th amendment to the Constitution. Usually, these are roads on which a bus service operates and where such road is situated entirely within the province. There has been no physical verification carried out to determine the exact length of provincial roads. Its extent was estimated at 15,743 kms in These roads are managed by the respective Provincial Councils which have a statutory body commonly referred to as the Provincial Road Development Authority (PRDA) or a Roads Department through which it manages the road network. Urban Roads: Roads that are not classified as national roads or provincial rods but are within Municipal or Urban Council areas (MCs and UCs respectively) are identified in this report as urban roads. These roads are maintained by local governments- i.e. MCs or UCs. Some urban roads such as in Colombo and Kandy are used by heavy traffic and in a functional sense is part of the national highway network. The Dehiwela-Mt Lavinia MC has 594 kms of roads, while Colombo MC has 480 kms of road. Other municipal councils have between 30 to 200 kms each, while the urban councils have between 10 to 50 kms each. There are 18 Municipal Councils and 48 Urban Councils managing between them 5,176 kms of road. Around 1/4 th of this road length may be considered as gravel or earth roads. Only a length of around 80 kms in Colombo and 8 kms in Galle are two lane or wider, other being single lane residential roads. Rural Roads: These are roads in rural areas maintained by rural local authorities called Pradeshiya Sabhas (Village Councils earlier). The length of these roads was estimated in 2002 as 75,424 kms. Unlike the other roads described earlier, most of these roads are earth or gravel roads. Roads maintained by other Institutions: There are yet other roads which do not belong to or are maintained by any of the agencies specifically charged with road maintenance. These agencies include the Mahaweli Development Authority, Irrigation Department, Forest Department, Wild Life Conservation Department, Agrarian Services Department and Plantation Companies. The length of these roads has also never been properly assessed, but is estimated at 4,500 kms by the Road Sector Master Plan. Though these roads have not been gazetted as public roads, public funds are used for their maintenance as these roads in most cases are used as public thoroughfares and accessed by the rural population. Roads not maintained by any Institution: There is also an unspecified length of road in each province, which has not been included in the road inventory of any government institution. These are usually roads serving a collection of houses or very small villages, which have been constructed through self help schemes (Shramadana) or funded by the decentralized votes of parliamentarians or provincial councilors, but have not been officially handed over to the Pradeshiya Sabha. The extent of such road length is not known. 4

8 Even though Sri Lanka has an impressive length of road network its performance in terms of speed and safety are not satisfactory. The TransPlan 3 road database on the national road network shows that less than 2% of the network has an IRI (roughness index) of less than 2 m/km. In fact over 50% of the length of the network has an IRI of more than 5 m/km- which is considered most unsatisfactory. With the national network in such poor standard, the provincial and local authority roads for which there are no measured indicators are bound to have worse conditions. The poor maintenance is contributing to the congestion costs estimated at Rs 32 billion per annum, accident costs at Rs 12 billion per annum and lost economic opportunities at Rs 270 billion per annum Government Policy of the Road Sector The National Road Policy (2002) give general objectives of the road sector to: a) Promote the on-going economic development of the country, by taking into consideration the present and future socio-economic development plans and policies, thereby improving the quality of the people. b) Facilitate greater mobility, shorter travel time and provide easy accessibility with improved safety for the people. c) Adequately meet the transport needs of the country, both passengers and freight transport taking into consideration the current and projected future transport demand and such projections shall accommodate restraint strategies. d) Improve the quality of roads, by using cost effective and innovative techniques of design, construction, maintenance and rehabilitation. However, specific application of these policies in project formulation or in investment planning cannot be observed at present. The budgetary process also does not include assessment of objectives or outcomes of proposed projects in order to determine the degree of subscription of a project for which funding is sought, to these policies. 2.3 Government Developmental Objectives relating to inputs to Road Sector The Policy of the Government in terms of the Mahinda Chinthanaya has been translated to an implementation strategy through the Medium Term Expenditure Framework (MTEF) for the period The MTEF perspectives are based on allocating resources to achieve the Millennium Development Goals (MDGs) and targeting an economic growth rate of 6 to 8 percent. It emphasizes on programs to eradicate poverty, remove regional disparities of socio economic development, to empower the poorest and raise the living standards of all segments of the society. 3 University of Moratuwa, Source: Kumarage, Amal S. LBO, May

9 The 2006 budget initially issued in November 2005 together with the MTEF was later revised in December 2005 in order to reflect more closely the newly elected President s vision, increased emphasis on infrastructure and rural development. There are a number of lead projects identified under the Pro-Poor Pro-Growth and Regional Development strategy of the Mahinda Chinthanaya, which has a number of project through which there are investments intended for roads and bridges. These are given in Table 2. Table 2: MTEF Budget Allocations for Pro-Poor and Pro-Growth Regional Development Project Budget Projected MTEF Project location and benefits Rs mn Budget Rs mn Gamipubuduwa Implementation of small scale 45,000 projects to develop basic infrastructure which will include bridges Maga Neguma Upgrading of 4,500 kms of rural gravel roads to motorable level Rehabilitation of roads, irrigation systems and buildings. North East Community Development and Restoration Project (NECORD) Pubudamu Wellasa Rehabilitation and development of rural roads, and other community infrastructure. Road Improvements in Sabaragamuwa, and Central Provinces (JBIC) Road development in Western, North Western and Uva Provinces (ASB) Rural Economic Advancement Project (ADB) North East Community Restoration and Development Project Conflict Affected Area Rehabilitation Project (CAARP) Rehabilitation of 1280 kms of C,D and E roads Rehabilitation and improvement of 25 suspension bridges and other infrastructure Development of community through provision of rural roads and other infrastructure Rehabilitation of essential economic and social infrastructure in conflict affected areas. Rehabilitation of bridges (UK) Rehabilitation of 89 bridges North east Roads rehabilitation project (EU) Rehabilitation of provincial and rural roads North East Community Restoration and Development Project (ADB) Rehabilitation of roads, irrigation systems and buildings in north and east. Trincomalee Integrated Infrastructure Development Project (ADB) Development of community through provision of rural roads and other infrastructure. 5 Source: Medium Term Expenditure Framework , Department of National Budget 6 Subsequently increased to Rs 1,800 million 6

10 In addition to the regional development strategy, the following specific road infrastructure development projects which were identified in the Budget Speech of December 2005 have also been provided funds in 2006 for the construction of: Southern expressway- Rs 6,382 million and Highway from Kalutara to Jaffna along the tsunami affected coastal belt- Rs 1,585 million Domestic funds have also been provided for feasibility studies and land acquisition in the following projects; Katunayake expressway- Rs 935 million, Kandy-Colombo Highway- Rs 13 million and Outer Circular Road - Rs million. No specific development strategies have been identified for the above investments and are considered to be part of the overall road sector policy of providing for shorter travel times and greater mobility. The funding for these projects has not been finalized yet, except in the case of the Katunayake Expressway Project, for which Chinese funding has been secured most recently. 2.4 Funding for Road Construction & Management The Government strategy pertaining to the manner of funding the road sector has not been explicitly stated. The implicit strategy it has followed can be gathered from the funding arrangements in past years and particularly the manner in which funding has been allocated for the different road networks. This section investigates the funding for the road sector as contained in the budgetary provisions of the Government. The actual expenditures based on the data collected from the provinces will be discussed in Chapter 3. The past practices before the creation of provincial councils was that all funding for roads was allocated to two ministries. The Ministry of Highways was given funds for all roads A, B, C, D and E while each local authority was given an allocation through the Ministry in charge of Local Authorities for its own road network within their areas. However, with the advent of the Provincial Councils, this situation changed with the Finance Commission made responsible for determining distributional criterion for the allocations made by the Government to the Ministry of Local Government and Provincial Councils under the requirements as per 13 th constitutional amendment, together with the Provincial Council Act No. 42 of 1987 and the Provincial Council (Consequential Provisions) Act No. 12 of 1989 which established legislative and executive powers at the provincial level. Provincial Roads Even though it has been observed that decentralization of the public sector and service delivery that followed the creation provincial administrations has given to confusion and duplicity in many sectors such as health, education and transport, this has been less so in roads, because of the ability to carve out roads on a functional basis. Even though the decentralization provided the provincial councils 7

11 with facilities such as workshops and plants for the provincial use, its biggest set back has been dealing with the vacuum that was left when the higher technical capabilities, training facilities, codes and practices and databases were retained at the central government levels. Inmost cases these are yet to be developed. The provision of foreign funding for provincial roads is a relatively new strategy. Since, domestic funds provided did not allow for rehabilitation of their networks, provinces have not developed any investment or developmental plans for roads, other than yearly maintenance schedules. Local Authority Roads With the creation of an intermediate 3rd layer of administration, a number of changes in funding, planning and management of local authority roads also took place. These have continued up to now thus becoming de-facto policy. These may be summarized as follows: Urban local authorities have been considered as been affluent enough to generate own funds for maintaining and constructing roads. Hence only a percentage of salaries (around 60-70%) were paid to them. No capital allocations have been granted until Table 3: Allocations to Local Authority Roads 7 Year PSDG Allocation 9, , , , ,742.0 Allocation for Provincial Roads 1, , ,895.0 Allocation for Local Authority Roads ,430.0 Allocations for Urban Roads Nil Nil Nil Nil The Pradeshiya Sabhas did not fare any better, getting only a fraction of the total allocations for roads within the province. As shown in Table 3, even by the year 2002, local authorities were receiving on average only 1/5 th of the Province Specific Development Grants (PSDG) capital allocations made to the province for all roads. (This situation has since improved with the 2006 budget providing more than ½ of capital allocation on roads in the PSDG to local authority roads). With the changes to election systems including the introduction of the Proportional Representative System, where elected representatives had to compete for support in a larger area, there is a history of spending on rural roads as one of the key strategies to win support. With local authorities unable to maintain the existing roads and accessibility becoming a major social issue particularly in rural areas, Members of Parliament as well as Members of Provincial Councils began utilizing whatever funds they had access to, irrespective of their 7 Source: Finance Commission 8 From 2006 funding for urban local authorities has been provided. Of the Rs million allocation made to Western Province, Rs 288 million has been ear marked by the Finance Commission for urban roads. Such allocations to other provinces are being worked out. The value of Rs 700 million has been estimated on this basis. This amount is from the total allocation of Rs 1,430.0 million for

12 source, for rehabilitation of roads or for new roads in rural areas, where credit for their actions was most likely to translate to political support. During periods when the centre and the local government were controlled by different political parties, this situation took an even more politically strategic turn, where different ministries of the Central Government started spending on rural roads under different development activities funded by the Treasury. As a result a number of institutions are now administering funds for rural roads. The Commissioners of Local Government in the provinces are often under pressure to utilize funds intended for local authorities on roads selected by Members of Parliament or of Provincial Councils. As such District Secretariats and Divisional Secretariats are also found to be implementing road programs. Even though this political situation is not predominant at present, the apparent success of direct delivery has been further extended in the 2006 budget with the creation of several regional and development oriented ministries, where most of the projects handled by them have components for spending on rural roads. Since, funds were allocated to different agencies, and road services delivery effected through each of them, there was no permanent instrument for coordination between them. As a result, no reviews have been undertaken to consider the equitability of funding between the three levels. This led to roads having vastly different standards between the different levels as well as between provinces. Moreover, roads were hardly ever developed as networks for regional development. In most instances, the benefits of rehabilitating a national highway were not reaped by the province which did not invest in its provincial roads to improve access to the highway. On the other hand there are number of instances where the access road has been developed to a much higher standard than the national road. In summary it could be concluded that there is presently no evidence of specific policy directions to determine a. The overall investment strategy for the road network in terms of determining allocations between maintenance, rehabilitation and new assets b. The level of funding required for the road sector c. The distribution of such funds to the different road networks d. The distribution of such funds by type of investment namely maintenance, rehabilitation or new roads. e. The instruments of coordination between different levels of government or even between agencies under central government which are provided funds for roads. 9

13 3 ANALYSIS OF PUBLIC EXPENDITURE ON ROADS In this chapter the report will attempt to address the following key questions: a) What is the present level of funding for the road sector? b) Who provides these funds, what is the associated budgetary process and where and how are such funds spent? c) What is the efficiency of using existing funds? d) Is the spending on target to achieve the development objectives of the Government? e) What are the capacity constraints for executing the required work program for the present level of funding? 3.1 Public Expenditure on Roads According to the NBD, the 2006 budget allocates Rs 53,278 million to the roads sector, with Rs 30,748 million (57%) in foreign funds. An overview of this is given in Table 4. The detailed allocations made by the NBD on a project basis, are given in Appendix II. Table 4: Overview of Allocations for Road Development Ministry Projects National Road Provincial Roads Local Authority Roads Rural Road Mahaweli Roads Estate Roads Tsunami Affected Roads Conflict Affected Roads Total FA Highways 28, ,947 35,986 21,714 Road Development 1, , Local PSDG 1,895 1, ,515 Government & RSDB - ADB 2,400 2,400 1,700 Provincial PRIP - JBIC 2,034 2,034 1,601 Councils CAARP - ADB 2,538 2,538 1,900 STAART - - JBIC Sub Total 6,329 1, ,538 10,698 5,375 National Building & Development 1,660 1,348 3,008 2,212 Estate Infrastructure & Livestock Development Regional Development Agriculture, Irrigation & Mahaweli Development Rural Economic Development Grand Total 28,039 6,329 1,430 2, ,000 9,818 3,886 52,278 30,748 Accordingly, Rs 28,039 million is allocated to the Ministry of Highways for the RDA s national roads. The allocations made for provincial and local authority roads through the Province Specific Development Grant (PSDG) is Rs 1,895 million and Rs 1,430 million respectively. There is also Rs 9 Source; Summarized from computations of National Budget Department 10 Includes Rs 1,000 million in supplementary estimates 10

14 4,434 million for projects funded by foreign aid. This amount of Rs 7,769 million is allocated to the Ministry of Local Government & Provincial Councils and disbursed directly to the Chief Secretaries of the Provincial Councils on the recommendations made by the Finance Commission, based on expenditure programs submitted by the relevant provincial councils. There is a further Rs 3,777 million allocated for Rural, Mahaweli and Estate Roads- roads that would fall within the rural definition adopted in this report. As seen above, in Table 4, this is provided through 06 different line ministries of the Central Government. A further Rs 9,818 million is allocated for Tsunami Affected Roads. The bulk of this (Rs 7,947 million) is allocated to the Ministry of Highways for national roads; Rs 211 million is allocated to Ministry of Local Government & Provincial Councils for provincial roads with another Rs 1,660 million allocated to the Ministry of Nation Building & Development, mostly for national roads. In addition there is Rs 3,886 million allocated for roads in Conflict Affected Areas, with 73% made up of foreign funds. In this instance, the bulk of the allocation (Rs 2,538 million) is allocated to the Ministry of Local Government & Provincial Councils for spending on provincial roads. The balance Rs 1,348 million is allocated to the Ministry of Nation Building & Development for both national and provincial roads in the North East. According to the above, the NBD has identified 08 line ministries to which funds have been allocated for spending on roads with Rs 35,986 million voted to the Ministry of Highways and Rs 10,698 million voted to the Ministry of Local Government & Provincial Councils. The balance funds mostly for rural roads amounting to Rs 5,594 million, is allocated through the following line ministries: Head 180 Ministry of Nation Building & Development Rs 3,008 million Head 220 Ministry of Rural Economic Development Rs 10 million Head 310 Ministry of Agriculture, Irrigation & Mahaweli Dev.- Rs 426 million Head 530 Ministry of Estate Infrastructure & Livestock Dev.- Rs 900 million Head 680 Ministry of Regional Development- Rs 450 million Head 630 Ministry of Road Development Rs 1,800 mn (including to Rs 1,000 mn from supplementary vote) Even though these funds are destined for roads coming within the purview of provincial councils or local government authorities, the funds are not channeled through the Ministry of Local Government & Provincial Councils or the Finance Commission or even through the relevant Provincial Council or Local Authority. These are often spent through the Divisional Secretaries office or the District Secretary s office. Moreover, review of present practices reveals that many of the other central government ministries and agencies were also spending directly on roads mostly at rural level. Information was collected from the following institutions to quantify their spending on roads as well as the manner in which the funds are being spent. Head 430 Ministry of Local Government & Provincial Councils Head 440 Ministry of Infrastructure Development and Fisheries Housing Head 500 Ministry of Samurdhi & Poverty Alleviation 11

15 Head 520 Ministry of Fisheries & Aquatic resources Head 660 Ministry Agrarian Services & Development Head 720 Ministry of Rural Livelihood Development Head 854 Department of Forests Head 863 Department of Wild Life Conservation Southern Development Authority Other ministries which could be potential spenders on roads, but from which information could not be gathered are: Head 360 Ministry of Urban Development & Water Supply Head 380 Ministry of Housing & Construction Head 450 Ministry of Enterprise Development & Investment Promotion Head 480 Ministry of Plantation Industries Head 610 Ministry of Agricultural Development Head 620 Ministry of Industrial Development Head 650 Ministry of Irrigation Head 660 Ministry of Agrarian Services & Development of Farmer Communities Head 750 Ministry of Environment The allocations made for 2006 by each of the above agencies will be fully discussed in the next chapter. Treatment of Recurrent Costs Most road sector analysis considers only the capital costs. However recurrent costs such as for salaries are treated differently by different agencies. In the RDA, in the past an overhead was levied on all capital work carried out. This was used for payment of salaries and other operational expenses. However, now RDA receives a recurrent allocation in the budget. In the provinces, even though the salaries are paid by the block grant from Government, most agencies levy a fee of between 3 to 4% which is used to meet shortfall in recurrent expenses. This report will consider total costs including both capital and recurrent costs. In order to identify the budgetary processes involved in spending on each type of road, this report will analyze the public expenditure on roads under the following sub headings: Public Expenditure on National Roads Public Expenditure on Provincial Roads Public Expenditure on Urban Roads Public Expenditure on Rural Roads Public Expenditure on National Roads As outlined earlier, the spending on national roads comes from more than a single sources. These are identified as: 12

16 a) Central Government Allocations for both capital and recurrent expenditures made to the Ministry of Highways for work carried out through the RDA. b) Projects funded through foreign loans channeled to the RDA through the Ministry of Highways. c) Projects funded through foreign loans channeled to the RDA through other central government ministries and agencies without being allocated to and going through the Ministry of Highways. The review of the records of both the RDA and the NBD reveals that even though the spending on national roads is mostly carried out through the RDA, there are other ministries such as the Ministry of Nation Building & Development and the Ministry of Local Government & Provincial Councils that handle budget allocations spent on national roads. The summary of spending for national roads in 2005 and the allocations for 2006 are given in Table 5. In this table the spending by the Ministry of Mahaweli on a major road which will eventually become part of the national road network has also been considered here. This is treated in this manner since; several hundred kms of roads constructed by the Mahaweli Authority have been taken over by the RDA and included in the national network over the last decade or two. The total allocations for this is Rs 4,829 million and is a significant proportion when compared with the Ministry of Highways allocation for national roads at Rs 34,831 million. Public Expenditure on Provincial Roads The spending on provincial roads also comes from a number of sources. These are identified as: a) Central Government Allocations for both capital and recurrent made to the Ministry of Local Government & Provincial Councils and distributed to the individual provinces according to the recommendation of the Finance Commission; b) Projects funded through foreign loans channeled directly to the relevant province by the Ministry of Local Government & Provincial Councils without going through the Finance Commission; c) Projects funded through foreign loans channeled directly to the relevant province by other central government ministries and agencies without going through either the Ministry of Local Government & Provincial Councils or the Finance Commission and d) Provincial Revenue allocated for roads through the provincial budgets. In order to obtain a more reliable estimate of the level of spending on provincial roads, two provinces namely the Southern Province and the Uva Province were selected for an in-depth evaluation. The two provinces were selected on the basis of their differences in socioeconomic profile as well as in topography. The Southern Province has a coastline comprising mostly of agriculture and tourism based economy. It has been developing slowly, but its main economic centers were severely affected by the tsunami of December The Uva Province on the other hand is situated in the central hill country and comprises of a predominantly plantation economy. It remains as a least developed province having one of the lowest Regional GDPs. 13

17 In each of the two provinces, discussions were held with the Chief Secretary as well as the agency responsible for provincial roads. In the case of the Southern Province this was the Provincial Road Development Authority and in the case of Uva, it was the Provincial Roads Department. The report given as Appendix I, describes the data collection process and selection of agencies to study the spending on roads. This information has been extrapolated to estimate the spending for all the 08 provinces. Table 6 gives the estimated spending allocations for all provincial roads for the year 2006 as well as the corresponding expenditure incurred in The total estimated allocation provided for provincial roads is Rs 9,140 million for Table 6 shows that the primary source of funding for provincial roads is through allocations made to the Ministry of Local Government & Provincial Councils and on the recommendations of the Finance Commission. Part of this is in the form of block grants for recurrent expenditure which is used for the payment of a percentage (varying from 60 to 100%) of salaries of staff in the provincial councils and local authorities and for other recurrent expenditure which includes an allocation for road maintenance and office administrative costs at both levels. This is estimated at Rs 892 million for There is also Province Specific Development Grants (PSDGs) amounting to Rs 1,895 million for 2006, which are capital grants to each province for designated purposes, which include spending on roads. Since there is usually a shortfall from the block grants for administrative and operating overheads, a percentage between 3 to 6 percent is deducted by the road agencies from the PSDG capital allocations for provincial roads. There is also criteria based and matching grants worked out on different basis where funds are released for specific purposes, some of which includes roads. The portion spent on roads is estimated at Rs million. However, at present the larger share of funds for provincial roads are for foreign funded road projects, channeled through the Ministry of Local Government & Provincial Councils. Presently there are projects funded by the ADB and JBIC amounting to allocations of Rs 4,645 million for The provincial councils have varying degrees of involvement in these projects, but are clearly of the opinion that such funding is not entirely at their discretion or management. Selections of roads, design standards, contractual matters are some aspects that have been raised to explain the lack of effectiveness in this spending. There is a further Rs million for tsunami rehabilitation allocated under the Ministry of Nation Building & Development.. The estimated spending from provincial council funds is Rs million mostly used to pay the balance portion of salaries. 14

18 Institutional Expenses (Head and ) Table 5: Spending on National Roads (Rs Million) 11 Salaries, Administration, Land Acquisition of Domestic Funded Projects, Feasibility Studies, R&D etc. Ministry of Highways Other Ministries Allocation 2005 Spending 2005 Allocation 2006 Project Allocation , , ,356.0 Nil Maintenance (Head ) 1, , , Nil Rehabilitation & Improvement of Existing Assets Mostly FA projects which include widening, surfacing and reconstructions 8, , , CAARP thro M/LA&PC STAART thro M/NB&D Trinco IIDP thro M/NB&D Replacement of Existing Assets Replacement of bridges , Bailey Bridges (EU) Through M/NB&D Acquisition of New Assets New road projects or new bridges 7, , ,356.0 Dambulla-Bakamuna- Kalagawela Rd project, which is a Mahaweli Road but should be part of the National Network 2, , Total spending for National Roads 15 20, , , , Source, Computations provided by University of Moratuwa, based on Budget Estimates for An estimated Rs 150 million has been reduced for maintenance spending on rural roads carried out by the RDA in 2005, with Rs 300 million allocated from the Road Fund. 13 As estimated Rs 500 million has been reduced for construction work carried out on rural roads by the RDA in 2005, with a provision of Rs 1,000 million for From a total of Rs million, it has been estimated that half would be spent on provincial roads. 15 Total spending for national roads is therefore the net spending on the national roads after reducing RDA spending for non-rda roads and adding value of work accounted through other agencies. 15

19 Source of Funding Province Specific Development Grant (Channeled through the M/LG&PC and provincial allocations made by the Finance Commission) Criteria Based Grants & Matching Grants for Capital Projects (Channeled through the M/Local Government & Provincial Councils and allocations made by the Finance Commission) Recurrent Grant (Channeled through the M/Local Government & Provincial Councils and provincial allocations made by the Finance Commission) Foreign Funded Projects (Channeled through the Ministry of Local Government & Provincial Councils) Foreign Funded Projects (Channeled through Ministry of Nation Building & Development) Table 6: Spending on Provincial Roads (Rs Million) Nature of Expenditure All road related expenditure for Provincial Roads Total Actual % Spent Total Estimated Allocation of Vote Expenditure on Roads on Roads Allocation of Vote Allocation for Roads , % ,895.0 Sub Total 1,895.0 Rehabilitation & Improvement of Capital Assets 25% 1, (buildings, roads, bridges etc) Acquisition of Fixed Assets (buildings, 5% 1, acquisition) etc Sub Total Road Maintenance 0.75% 59, % of Salaries Ministry & Road Agency Staff 0.75% 59, Sub Total Road Sector Development Project (ADB-RSDP) 2,280 1, % 2,400 2,400.0 Provincial Road Improvement Project (JBIC) 1, % 2,034 2,034.0 STAART Sub Total 4,645.0 North East Community Restoration and 1,986 1, % Development Project (ADB-NECORD) North East Emergency Restoration Project (WB) % Part (estimated at 50%) of the funds for 89 Bailey Bridges Project for provincial roads (EU) Projects -NECORD, NEIP and NECCDEP) Sub Total Provincial Revenue allocated to Roads Balance Salary (20%) (channeled through the Provincial Other allocations (e.g. Chief Minister s Fund) Budget) Sub Total TOTAL

20 Public Expenditure on Urban Roads Urban roads have fewer sources of funding when compared to provincial roads. The primary source of funding amounting to Rs 1,900 million out of a total allocation of Rs 2,776.2 million is through their own funds. As shown in Table 7, these funds are used primarily to pay the shortfall in salaries after the payment of 60% of salaries provided by the Central Government through the Ministry of Local Government & Provincial Councils and disbursed direct to the respective Provincial Council based on the recommendation of the Finance Commission. Except for a few councils which have reasonably good revenue bases, others claim that they do not have adequate funds for maintenance and rehabilitation work on the urban road system. From 2006, the Finance Commission has agreed to release part of the funding under the PSDG for local authority roads to urban and municipal councils as well. In addition, several councils have to pay back loans taken for the UDLIHP program funded by the ADB during 2000 to This is for roads and bridges constructed under this project. The repayment is based on a loan component of 20% of the total cost after a grace period of 3 years. While some councils have kept up with repayments (e.g. Bandarawela UC), others (e.g. Badulla M.C.) are struggling to do so. The overall spending on the urban road network is estimated at Rs 2,776.2 million for Presently, urban roads do not receive any significant foreign funds. Neither do they have any source of road user charges as opposed to Central Government collections of import duties, fuel taxes etc and provincial revenues from fuel taxes as well as vehicle licensing fees, which is reality is collected on their behalf too. Public Expenditure on Rural Roads The spending on rural roads cannot be estimated to any degree of reliability or accuracy. This is because there are numerous sources, most of them executing the work through different arrangements that vary from place to place. The primary source of funding is the annual PSDG grant from the Central Government channeled through the Ministry of Local Government & Provincial Councils and distributed through the Finance Commission with instructions to the relevant Provincial Councils on the allocations to each Pradeshiya Sabha. This has been estimated at Rs 1,000 million. There are also PSDG funds under a numerous other headings such as Backward Areas Roads, Development of Scenic Resources, Mahaweli Roads, Estate Infrastructure, Rural Infrastructure and 5 year Development Plan, which are found to incur varying percentages of the allocated funds to each such vote on rural roads. Such funding has been estimated at Rs million in Table 8 which gives the summary of the total calculations set out in Table 9. Apart from this there is Rs million for varying degrees of salary payments ranging from 70% to 100% and also for other recurrent expenditure including an allocation for maintenance of roads. 17

21 Source of Funding Province Specific Development Grant (Central Govt funds voted to M/LG&PC on basis of provincial allocations made by the Finance Commission and distributed within province by the relevant Provincial Council to Pradeshiya Sabha) ) Recurrent Block Grant (Central Govt funds voted to the Ministry of Local Government & Provincial Councils on and distributed within province by the relevant Provincial Council to the Pradeshiya Sabha) Municipal/Urban Council funds allocated for roads (channeled through the own Budget) Table 7: Spending on Urban Roads (Rs Million) 16 Nature of Expenditure Local Authority Roads (assuming 30% of this for urban Local Authorities) Total Allocation of Vote Actual Expenditure on Roads % Spent on Roads Total Allocation of Vote Estimated Allocation for Roads % Sub Total % of Salaries of Municipal or Urban Council staff working on roads 0.75% 59, Sub Total Balance 40% of salaries above, Contract staff, other recurrent expenditure including maintenance for all councils and loan repayments to roads and bridges projects carried out under the ADB funded UDLIHP grant/loan scheme Computed from interviews from 5 councils at the rate of Rs 1 million per km for 200 kms of multi lane roads and balance 4,917 kms at Rs 350,000/- per km. Sub Total 1,900.0 TOTAL 2, Source: University of Moratuwa based on data collected for urban local authorities in Southern and Uva Provinces and the CMC 18

22 Table 8: Summary of Spending on Rural Roads Source of Funding Nature of Expenditure Total Estimated Allocation of Vote Allocation for Roads Province Specific Development Grant Local Authority Roads Backward Area Roads Sub Total Criteria Based Grants & Matching Grants for Rehabilitation & Improvement Capital Projects 3, Recurrent Block Grant mostly for 80%-100% of Salaries of Pradeshiya Sabha staff Foreign Funded Projects voted to a ministry other than the M/LG&PC but implemented through the Provincial Council such as Rural Economic Advancement Project Foreign Funded Projects voted to a ministry other than the M/LG&PC and implemented directly Maganeguma Program for rural and estate roads Local Funded Projects identified as Road Projects where funds are voted to a ministry other than the M/ LG&PC is disbursed directly to the Pradeshiya Sabha for rural roads Local Funded Projects not identified hitherto as Road Projects but where funds voted to a ministry other than the M/ LG&PC is spent directly on rural roads including Decentralized budget for all Members of Parliament at Rs 5 mn for 225 MPs (i.e. Rs 1,125 25% for roads Rs mn). Funds Allocated to RDA, spent on maintenance and reconstruction of rural roads under vote heading such as Emergency Road repairs etc Provincial Revenue allocated to Roads (channeled through the Provincial Budget) Pradeshiya Sabha funds allocated for roads (channeled through the PS Budget) PC Members and Chief Ministers Vote Balance 20% of salaries and other expenditure 59, , , , , TOTAL 7,907.6 However, it can be seen from Table 8, that the majority of funds amounting to over 75% are channeled outside of the purview of the Provincial Council or the relevant Pradeshiya Sabha. This is because funds allocated to other ministries are usually spent through the District Secretary s office or the Divisional Secretary s Office which come under the central government. 17 Source: University of Moratuwa, computations based on Budget estimates and surveys made at rural local authorities in Southern and Uva province. 19