AN INTRODUCTION TO ROAD FUNDS - A

Transcription

1 AN INTRODUCTION TO ROAD FUNDS - A CONCEPTUAL CASE STUDY FOR SRI LANKA Amal S. Kumarage Genevieve Connors October 2000 i

2

3 AN INTRODUCTION TO ROAD FUNDS A CONCEPTUAL CASE STUDYFOR SRI LANKA Amal S. Kumarage Genevieve Connors i

4 Copyright October 2000 Amal S. Kumarage, Genevieve Connors An Introduction to Roads Funds A Conceptual Case Study for Sri Lanka, p., ---- cm ISBN XXX-XXXX-XX-X ISBN XXX-XXX-XXX-X ii

5 Preface This study was carried out at the suggestion and request of Rohan Abeywickrama (FCIT), International Vice-President of the Chartered Institute of Transport. It provides a conceptual case study for considering a change to the management of roads in Sri Lanka. Road funds have been gaining popularity elsewhere in the world and this study investigate the potential of introducing such a fund in Sri Lanka. The authors are grateful for the initiative taken by Rohan Abeywickrama and type formatting by Pradeepa Jayaratne. Photographs are used with kind permission of Nishantha Bandara. iii

6 Table of Contents 1. INTRODUCTION Objectives of this Study The Need for a Road Fund The Concept of a Road Fund A Road Fund s Primary Objectives User Involvement in A Road Fund 3 2. ROAD PROVISION IN SRI LANKA: THE PRESENT SCENARIO The Road Network The Extent of the Road Network in Sri Lanka (1990) Growth of Road Network Condition of Roads The Institutional Structure Road Financing Road User Charges & Revenue Road Costs Road Allocations Overview of Current Situation ROAD FUNDS IN THE INTERNATIONAL ARENA Early Road Funds Earmarking & the Principle of User Pays First Generation Funds Caution on Earmarking & Lessons Learnt Road Funds Today Assigning Institutional Responsibility Ensuring Ownership & Community Participation Maintaining Adequate and Stable Flow of Funds Urban Road Funds Administrative and Financial Characteristics 36 iv

7 4. MANAGING A ROAD FUND IN SRI LANKA: THE WAY AHEAD BIBLIOGRAPHY 41 v

8 List of Figures Figure 1 : Free Flow Speed on A & B Class roads in CMR 11 Figure 2 : Costs and Project Life Span with and without Rehabilitation 26 List of Tables Table 1 : Road Lengths and Densities in Sri Lanka by Province (1990 data) 7 Table 2 : Access to Basic Services Sri Lanka 8 Table 3 : Growth of Road Length Sri Lanka 8 Table 4 : Fuel Tax Recovery (1995) 16 Table 5 : Main Import Duty and Turnover Tax Rates on Vehicle Import, Table 6 : Vehicle Registrations 19 Table 7 : Estimated Tax Revenue from Vehicle Imports (1998) 19 Table 8 : Annual Licenses Fees Table 9 : Cost of Highway Construction 21 Table 10 : RDA Budget, Year 2000 (Millions of Rs.) 25 Table 11 : Legal & Administrative Arrangement of Selected Road Funds 38 About the Authors Amal S. Kumarage B.Sc. Eng.(Moratuwa), Ph.D. (Calgary), MCIT is Senior Lecturer and Head, Transportation Engineering Division, University of Moratuwa, Sri Lanka. He is a sitting member of the Board of the Road Development Authority since He also serves on the Board of the Road Construction & Development Company. Dr. Kumarage is also a transport sector consultant to a number of Government and Donor Agencies. Genevieve Connors B.A. in History (New York), M.Phil. (New York), is a Ph.D. student at the Massachusetts Institute of Technology, where she is reading for a doctorate in Urban Planning. This work was completed during her sojourn in Sri Lanka during the past year where she was involved with several transport sector studies. vi

9 2

10 Abstract This Conceptual Case Study on a Road Fund for Sri Lanka was undertaken in response to a clear need for a new approach to road management in Sri Lanka, particularly road maintenance and rehabilitation. It is intended as a platform for further discussion and does not contain specific policy recommendations. These funds have been established elsewhere in the world to encourage better management of road provision, including maintenance, rehabilitation and construction. A road fund is generally established as a dedicated account linking revenue directly with expenditure on roads. Revenue is derived from direct and indirect road user charges and careful pricing for this usage ensures that the costs of road provision are recovered fully and fairly. Better management and efficient cost recovery are therefore the primary objectives of a road fund. Broadly this is achieved through the provision of regular finance, the separation of road revenues from a consolidated account, the involvement of road users in fund allocation, equitable distribution of funds between new roads and maintenance and the setting of adequate user charges. User participation is particularly stressed as an important attribute of road funds: involvement of prominent users and their associations in an advisory or executive capacity on road boards is encouraged. Currently, with no systematic approach to road maintenance and a network falling into a state of serious disrepair, Sri Lanka is primed to reconsider her approach to road management and the possibility of a road fund. Of the extensive road network, about 12,000 kms are in the category of National Highways, Class A & B. These are the roads most likely to be managed by a road fund in the near future. The Road Development Authority (RDA) is responsible for these roads with a board composed almost entirely of public officials. There is no private sector involvement and roads are generally viewed as public goods under the purview of government control. Financing is reviewed in some detail, including an overview of the current national user charges and road expenditure levels, although this is an area for further in-depth analysis elsewhere. The conclusions reached are: (a) there has been insufficient allocation for maintenance in the road sector, (b) current user-charges do not fully reflect the costs of road use as current estimations of adequacy and (c) overpay do not assess the social costs of road use such as congestion and pollution, and road users are not involved at all in the management of funds. The experience of other countries in establishing road funds and the lessons learnt are also discussed here. Early road funds of the post-war period to support the growing transport sector were established on the principle of user pays, which continues to uphold such funds in Japan and the USA. Earmarking revenue remains a common method of securing stable finance. First generation funds of the 1970s and 1980s aimed to resolve the maintenance crises in developing countries, but were largely unsuccessful due to the types of user charges adopted and erratic earmarking. Much caution is now exercised in the use of earmarking and the importance of strong institutional frameworks is stressed instead. The primary building blocks of today s road funds are (a) designated responsibility, (b) ensured ownership and community participation, and (c) a stable flow of funds. In addition, some urban road funds have been established to address the differing needs of urban roads, such as higher charges to cover greater damage levels and congestion and environmental externalities. In conclusion, there is an attempt to relate this background level of understanding to possibilities for Sri Lanka. It purports that specifying the type of road fund needed and ensuring user participation are key first steps, after which administrative and financial characteristics should be set forth in great detail. Finally, the possibility of an urban fund is examined in the light of the high cost of road provision in Colombo. A set of next steps forms the basis for the further consideration and implementation of a road fund for Sri Lanka. 3

11 An Introduction to Roads Funds 1. INTRODUCTION This document forms a conceptual case study, investigating the possibility of establishing a road fund in Sri Lanka. It was written following a clear need in Sri Lanka for a new approach to management of road maintenance, rehabilitation and construction. It seeks in particular to respond to the call of prominent road users, private and public, to be involved in the process of road provision Objectives of this Study The objectives of this study are to introduce the reader to examine this possibility. It seeks to provide a clear understanding of what a road fund is, how road funds have operated elsewhere, and the benefits they purport to bring. It does so through examining current road provision and the need for better financing and management of the road network in Sri Lanka (Chapter 2), exploring the experience of other countries in establishing road funds (Chapter 3), and discussing preliminary options for Sri Lanka in deciding how to move forward (Chapter 4). By its very nature as a conceptual study, this document is intended only as a platform for further discussion and does not consist of specific policy recommendations. In other words, this is only the first step The Need for a Road Fund The road network in Sri Lanka is extensive and well developed. However, its in terms of functional operation it is not adequate. The network is progressively falling into a state of serious disrepair, with the World Bank estimating that only 10% of the paved road network in now in good condition. 1 The design life on most roads has expired and is kept barely motorable by expensive and frequent maintenance routines. Funds required for rehabilitating the entire road network to be kept in peak operational condition are generally not available. Current policy is based on an annual program of routine maintenance including pothole patching, surface treatments using sand sealing, repair of damaged culverts and drains, clearing gullies and cutting grass. However, as the Colombo Urban Transport Study (CUTS) states, works appear to be carried out on an ad hoc basis, often dictated by local emergency requirements rather than a systematic program of road maintenance. 2 None of the road agencies have developed well-researched performance indicators and criteria for maintenance. The cry for a new systematic approach to routine and preventative maintenance is not new. It is clear that the formulation of a rational criterion in maintaining roads in optimal would benefit the network and the country s road dependent economy 1 World Bank, Sri Lanka Transport Sector Strategy. Report No CE, Volume 1. 2 CUTS 1995, Working Paper 13, Road Maintenance and Rehabilitation, p.5. 1

12 1. Introduction immensely. A road fund plays the part of a distributor of adequate levels of funds on a pre-formulated basis. A road fund should therefore form an integral feature of a new maintenance strategy. As recently as March 2000, members of the Ministry of Transport and the Road Development Authority discussed initial provisions for a Road Fund. 3 This paper is intended as an in-depth companion to promote further discussions in Sri Lanka The Concept of a Road Fund The concept of a road fund has been circulating in global policy discussions for quite some time. It arose primarily as a means to address fundamental weaknesses in the road sector, including weak institutional frameworks, lack of a clear concept of the actual price or cost of roads, lack of clearly defined responsibility, distributional inequalities ineffective and weak management structures and little managerial accounting. 4 Although structures vary, a road fund is generally established as a dedicated account linking revenue directly The A2 at Ranna with expenditure to ensure an adequate and acceptable level of road maintenance. Revenue is derived from direct road user charges, such as tolls, or more often from indirect user charges, such as fuel tax. Road funds are particularly important for road users who are represented on road fund boards and assured that user charges paid benefit directly the provision of these vital national assets. Road funds have been implemented in many countries with great success, promoting economic and financial sustainability and making the management of roads functionally more cost-effective and responsive to changing demands A Road Fund s Primary Objectives The primary objectives of a road fund may be broadly categorized as twofold: 3 Reference to Meeting on Re Engineering of Road Sector Institution Funding, held on March 1 st Heggie & Vickers, Commercial Management and Financing of Roads, Technical Paper No World Bank, Washington DC, p.1.

13 An Introdu ction to Roads Funds i. To create an institutional and financial framework leading to better management of all or some aspects of road provision- namely maintenance, rehabilitation and investment. ii. To overcome financial constraints through efficient cost recovery based on adequate user charges. This first objective of better management is generally achieved in five ways, through: i. The clear delineation of responsibility for road provision by institution. ii. iii. iv. The provision of regular and adequate finances to these institutions in order to meet the costs of minimum maintenance in particular. The separation of the revenue that indirectly provides this finance from a government s consolidated account. Careful accounting of the use of these funds. v. Involvement of road users in a well-formulated process of fund allocation. These conditions are the building blocks of road funds. The experience of the international community in implementing these methods and their possibility in Sri Lanka, form the basis for discussion in this paper. The second objective of adequate road-user charges is complex, focusing on issues of efficient pricing and cost-recovery. Road provision is very costly and does require financing from users albeit often indirectly. In Sri Lanka, financing takes the form of vehicle import duties, fuel taxes and annual vehicle license fees. These charges are referred to as road-user charges and suffer from two central problems: i. They tend not to reflect adequately the actual costs of road provision nor be fairly distributed according to actual road damage and use. ii. They are often not adequately invested in road provision. While an examination of road-user charges as the source of regular finance for a road fund is important and is briefly examined, its resolution in a Sri Lankan context has been discussed elsewhere 5 and is not the focus of this paper. An in-depth study is called for as a separate exercise User Involvement in A Road Fund Overall, as economies decentralize and open up to private sector involvement, the approach of governments to road management changes 5 Reference to Road User Charges Study (TSPC), 1993 and CUTS Studies 1996 and 1999.

14 1. Introduction as well. The experience of many countries in establishing road funds in the 1990s reflects this change, and has demonstrated the importance of involving prominent road users in the management of road funds. Representatives of industry, freight forwarders, public transport operators and chambers of commerce for whom adequate and quality road provision is essential, play an important role in the management of road funds. They serve on the boards, either in an executive or advisory capacity, and ensure that their road use needs are met. In addition, they ensure private sector style efficiency in providing a Public Good. With increased private sector involvement in the provision of infrastructure elsewhere in Sri Lanka, it is considered the appropriate time to respond with an open mind to the call of road users to embark on a new approach to road management. 4

15 An Introduction to Roads Funds 2. ROAD PROVISION IN SRI LANKA: THE PRESENT SCENARIO The following is a brief review of current road provision in Sri Lanka. The institutions involved in road provision are many and their roles wide-ranging. An excellent and more extensive description and analysis of the role of these institutions can be found elsewhere The Road Network There are several types of roads in Sri Lanka. These maybe identified as: a) Thoroughfares- which are open for public use and administered by a government agency that is entrusted by statute to provide and maintain roads; b) Service Roads- are those particularly in plantations, estates and large irrigation schemes that are by intent used as private roads. The fact that most of these are managed by public corporations has led to a tradition that they have been generally open to the public. Some roads may have gates and barriers to keep out those without legitimate business and c) Footpaths- though clearly not to be considered as part of the road network, these to supplement the road network in Sri Lanka. It has been found the length of footpaths in the country is as extensive as the road network itself. All three levels of government administer the thoroughfares in Sri Lanka. These roads are classified into five groups Classes A to E. Class A and B are considered the National Highways and are administered by the Road Development Authority. Class C and D are managed by the respective Provincial Councils. Class E roads are managed mostly by local authorities both rural and urban. Service roads are mostly gravel surfaced, managed by plantation companies and the Irrigation Department. There are however some metalled two lane roads under the Mahaweli Authority that have not been absorbed to the National Highways as yet. Class A roads are generally defined as the roads connecting the national capital with the provincial capitals, and also connecting these with one another. These are metalled roads ranging in width from one to six-lane highway sections. Class B roads are generally defined as the main roads connecting other important towns and also providing important links between the Class A trunk road system. These are for the most part metalled surfaced and range from 4 metres to around 6 metres in width. 6 For a recent detailed review see, Fernando, M.B.S. A Review of Institutional and Financial Capacity of Colombo Metropolitan Region for Road and Traffic Management, World Bank,

16 2. Road Pro vision in Sri L anka Roads that fall within Class C are those that are administered by the Provincial Councils and whereon bus services operate. These are single lane in width and mostly metalled. Class D roads are those of lesser importance managed by the provincial road authorities, most of which are single lane gravel roads. Roads falling within Class E are a mixed category. They are mostly rural gravel roads managed by the rural local authorities- Pradeshiya Sabhas. There are also some Class E roads managed by the provincial councils. The roads managed by the urban local authorities are also generally classified under this category although in some instances the roads are metalled and two lane wide The Extent of the Road Network in Sri Lanka (1990) The overall road network in Sri Lanka is highly developed in extent. Out of a total road network of 91,400 kms., roughly 11,000 kms. are in the category of National Highways- Classes A & B. The provincially administered road network in Class C and D is around 16,000 kms. In Class E, the road network belonging to urban local authorities is comparatively small being around 5,000 kms. The B248 at Nilhena There are in addition to these, a further 60,000 kms. of rural roads belonging to the rural local authorities-the Pradeshiya Sabhas. There are an estimated 16,000 or more kms. of service roads belonging to estates and irrigation roads that would also fall into this category. Thus the total Class E road length then exceeds 80,000 kms., while the total network length exceed 110,000 kms. This road network is furthermore supplemented with an extensive network of footpaths. A transport study in Uva 7 Province indicates that there are over 9,500 kms. of footpaths in the province compared to the 7,325 kms. of roads. Thus in all of Sri Lanka it could estimated that a further 100,000 kms. of footpaths may be found to exist. 7 Kumarage, A.S., A Study on Improving Highway Accessibility and Mobility to Uva Province, UNDP, Uva Provincial Council, September 2000.

17 An Introduction to Roads Funds Table 1 : Road Lengths and Densities in Sri Lanka by Province (1990 data) Class of Road A B C and D E National Roads Provincial Roads Rural Local Authority Roads 8 Urban Local Authority Roads Road Length (kms) Western Province 367 1,118 1,956 8,420 1,215 13,076 Central Province 383 1,030 2,401 8, ,070 Southern Province ,730 5, ,724 North & Eastern Provinces 1, ,556 12, ,731 North Western Province ,054 11, ,180 North Central Province ,612 9, ,803 Uva Province ,450 4, ,325 Sabaragamuwa Province ,127 6, ,298 Total 4,117 6,332 14,886 66,056 2,787 94,207 Road Density (km/sq km) Western Province Central Province Southern Province North & Eastern Provinces North Western Province North Central Province Uva Province Sabaragamuwa Province Total Road Density (km/1000 population) Western Province Central Province Southern Province North & Eastern Provinces North Western Province North Central Province Uva Province Sabaragamuwa Province Total Total Density of Roads: Table 1 shows the density of roads by province (as at 1990). It is seen that the overall road density (without footpaths) is 1.50 kms per square km of land area. This is a relatively high value that implies that Sri Lanka already has a widespread road network in place. Road density computed by population served is also in good standing at over 5 kms per 1,000 residents. It has been shown elsewhere 9 that the road network is also distributed fairly equitably throughout the country. There are no provinces where the road density measured in terms of roads 8 This includes, 16,366 kms of private roads managed by public sector organizations such as the estate companies, Irrigation Department and also the private sector. Their distribution by province is Western- 1,665 kms, Central 4,943 kms, Southern- 425 kms, NorthEast- 2,197, Northwest 359 kms, North Central 550 kms, Uva 3,114 kms, and Sabaragamuwa 3,114 kms. 9 Kumarage, A.S., Transport and Poverty, Framework for Poverty Alleviation in Sri Lanka, UNDP, October

18 2. Road Pro vision in Sri Lanka per km and roads length per population served are both exceptionally low. For instance, no province in Sri Lanka has a road density that is less than 1 km per square km and also less than 5 kms per 1,000 residents simultaneously. Access Distances to Basic Services : Another measure of the extent of the road network is given in the following table which has been computed from the Sri Lanka Integrated Survey (1999/2000) where it is shown that mean distances to basic services are less than 6 kms on average. Travel speeds to access basic services indicate averages of kms per hour suggesting a reasonably well spread network of roads and services within Sri Lanka. The maximum reported individual distances in the survey range from 32 to 52 kms revealing that there still are isolated villages and communities in Sri Lanka that have poor access. Table 2 : Access to Basic Services Sri Lanka Mean Time for Access (mts) Maximum Reported Time for Access (mts) Mean Distance of Access (kms) Maximum Reported Distance of Access (kms) Primary School Secondary School Public Hospital Main Road Market Express Bus Halt Growth of Road Network There are few sources that have recorded the historic growth of the road network in Sri Lanka. The following table gives the summary of road length recorded over the last 40 years. Table 3 : Growth of Road Length Sri Lanka Year A & B Class Road Length (kms) Provincial + Local 10 Authority Road Length (kms) Total Thoroughfare Length (kms) ,034 12,070 19, N/A 21,494 N/A ,447 67,395 77, ,285 80,152 91,437 Growth Rate (% per annum) Does not include private roads of which there is an estimated length of over 16,000 kms presently. 8

19 An Introduction to Roads Funds This table clearly shows the rapid expansion of the rural road network in postindependent Sri Lanka. Class A & B road length that made up 36 percent of the network in 1959 is today less than 12 percent. This shows the growth in rural access, which has led to many socio-economic benefits for rural communities as noted in the previous section. However, what is disturbing in the statistics is the low growth in the national road network during this same period. The length of A & B Class Roads over 40 years has increases too by 60 percent or 4,200 kms which is only 100 kms per year. Since the vast majority of these increased are likely to be roads upgraded from the lower classes, actual increase in entirely new roads of Class A and B should be marginal and limited to around 1,000 kms, this too mostly under irrigation projects such as Gal Oya, Mahaweli etc. Thus there is clear indication that the road length at the top of the road network has had very little actual growth as compared to the rapid expansion at the lower end. It has been noted 11 that this could have been resulting from Government policy emphasis on rural development and an implicit political strategy where the provision of new rural roads were considered as a means of wooing the large rural vote bases Condition of Roads Most roads are designed for 10 to 15 years life span. The pavement structure as well as width is based on the anticipated traffic over this period. On the completion of this design life it is required to re-plan a road. If the width is still adequate to accommodate traffic for a further 10 years then, the road may be rehabilitated by reconstruction of the pavement. However, if the width is inadequate for the increased volume or desired speed of traffic, the road may be improved (or bettered) by adding more capacity and speed by widening or realignment etc. These tasks generally require acquisition of abutting land. The inability to rehabilitate a road on time means that its maintenance task becomes difficult with the time period between successive cycles of repair decreasing as the road condition deteriorates at an increasing rate. In Sri Lanka, it is now a common sight to observe the entire road network in a particular area breaking up after a period of wet weather. Some roads can be seen to need repair even after each rain. This is a clear indication that most roads have passed their design life and are kept barely operational only by a surface maintenance treatment. If we study the trends in the growth of road lengths as given in Table 3, we observe that over 10,000 kms of national highways (Class A and B) and a further 60,000 kms of others roads are over 15 years. In fact the vast majority of these are well over 50 years old! This means that most of these roads are well passed their design life and in need of long-overdue rehabilitation, if not improvement. In fact for a road network of say 12,000 kms having a design life span of say 15 years, on average 800 kms of road need to be rehabilitated or improved annually. However, in the national road 11 Kumarage, A.S., Transport & Poverty- Poverty Alleviation Project- Sri Lanka, UNDP,

20 2. Road Pro vision in Sri Lanka network not more than 1,000 kms have been rehabilitated or improved over the last 10 years! In the provincial and rural roads, the rate seems to be even lower though no reliable statistics are available. 10

21 An Introduction to Roads Funds Figure 1 : Free Flow Speed on A & B Class roads in CMR 11

22 2. Road Pro vision in Sri Lanka Another problem created by overdue rehabilitation is that the annual maintenance costs increase after design life expires. This requires larger maintenance budgets. Inability to increase the budget or not having the organizational capacity to handle an increasing maintenance volume invariably results in roads deteriorating even faster as routine maintenance schedules cannot be achieved. Figure 1, which shows the free flow speeds (uncongested speeds) of the national highways in the Western Province, indicates that very few roads have average free flow speeds of over 30 kms per hour. This indicates the dual problems of the existing road system having not been rehabilitated and improved to meet the road speeds desired in the modern world The Institutional Structure The road network in Sri Lanka is administered by several agencies. The national highways Classes A and B are managed by the Road Development Authority (RDA). The secondary roads, Classes C & D are managed by the Provincial Councils, Class E roads are managed at the Pradeshiya Sabha level, with those in urban areas being managed by the Local Authorities (Urban or Municipal Councils). Colombo Municipal Council (CMC) also manages 52 kms of national highways running through its city limits on behalf of the RDA. The RDA was established by Act No. 17 of 1981 and is under the overall supervision of the Ministry of Transport and Highways. The Authority consists of nine members, five appointed by the Minister and four ex-officio members nominated by the Ministers in charge of Highways, Finance, Power and Transport. One member is appointed Chairman of the Board by the Minister. The RDA is charged with all tasks relating to maintenance and investment, integrated planning, and development of the road network. Broadly this includes formulating and submitting road plans, including capital investment plans, and implementing any approved road development scheme. It is also mandated to charge fees for any services provided by the Authority. Summarily, the RDA s three main areas of activity are: a) Maintenance and improvement to Class A & B roads b) Rehabilitation of Class A & B roads c) New road projects financed in part by foreign donors. While there are also provisions for a Road Development Advisory Council whose function is to advise the Minister on policy measures, research, road planning and road development, it is not operational. In theory, its members would be appointed for a period in office of three years and include: the Secretary to the Ministry of Highways, senior officers from the Ministries of Power and Energy, Telecommunications, Local Government, Lands, Transport and Tourism, the 12

23 An Introdu ction to Roads Funds Chairman of the RDA, the Director of Highways, the General Manager of the UDA, the GM of the CEB, the GM of the NWSDB and three other members appointed by the Minister. There are no provisions for private sector participation. A road fund would in effect supplant the need for this council altogether but provide for this kind of broad participatory approach, albeit reaching out beyond government officials. The A8 at Pokunuwita The works division of the RDA was converted to a private company in 1987, the Road Construction and Development Company (pvt) Ltd. (RCDC), wholly owned by the RDA. In 1989, the 13 th Amendment to the Constitution devolved management of secondary roads to the Provincial Councils. In continuing to maintain the national highways, the RCDC contracted out maintenance with the intention of developing a strong private sector contractor base. In 1994, over 70% of the work undertaken by RCDC was done by sub-contractors. However, in 1996 a change in policy was initiated reverting to direct labor and responsibility for road maintenance was transferred back to the RDA. There is presently a recommendation to restructure the RC&DC to down size it in to three separate operational institutions. This recent history is important because it illustrates the partial confusion at the level of road maintenance in Sri Lanka, destabilizing the domestic contracting industry as well as creating an unnecessary rivalry between RCDC and RDA as their roles in national highway maintenance become blurred. Functionally, the RDA is responsible for planning and management of the road network, while the RCDC is responsible for execution of works other than foreign funded projects and maintenance work currently executed by the RDA. Since 1996, they both operate under a policy of direct labor. The Maintenance Management and Construction Division (MM&C) of the RDA is responsible for the maintenance of the National road network, and construction and rehabilitation under consolidated fund provision. This includes construction of small bridges, light rehabilitation, medium scale improvement and preventive maintenance work. Routine maintenance is carried out monthly or even more frequently, and includes patching of surface and general upkeep such as shoulder clearing. Periodic

24 2. Road Pro vision in Sri Lanka maintenance includes mostly sand sealing, the frequency varying from once to 8 times a year! 2.3. Road Financing The main source of finance for the RDA is the Government s consolidated fund. An annual Treasury allocation is made to the Ministry of Transport and Highways under Head 390 of the Appropriation Account. In addition, significant foreign aid from the World Bank, Asian Development Bank, OECF of Japan, the Kuwait Fund and others is obtained to finance rehabilitation, bridges and new roads. Financing is grouped under four headings: Domestic Funds, Foreign Aid Loans, Reimbursable Foreign Loans and Counterpart Funds. The Finance Division of the RDA manages the overall funds. Funds are then further allocated to the Provincial and Divisional Directors. Expenditure is carefully controlled within the allocation of funds, with the exception of a provision for Emergency Rehabilitation for provincial and local authority roads. Under this provision and the pressure to maintain rural roads, work orders have been issued to the RCDC without funds creating a virtual liquidity crisis. 12 Overall, roads in Sri Lanka are considered national assets and therefore public goods. At a recent conference, Transport and Highways Minister A.H.M. Fowzie stated, For the last 50 years of independence, it has been our policy that the roads are considered as public assets and their maintenance and improvement should be subsidized and provided continuously free of charge by the Government. Therefore, expenditures on road infrastructure development are mostly financed by the Government annual budget out of general tax revenue. 13 The belief is that through consolidated and donor funding, roads are provided to the public continuously free of charge. This thinking reveals the importance to many governments of roads as public goods. However, it belies current financing mechanisms that credit road user charges, albeit indirectly, to the consolidated fund. Significantly, it misses the opportunity to link these charges directly with the budget for expenditure on roads through a road fund, overcoming at least some of the severe problems of financial constraints transport ministries face in struggling for a share of the national budget Road User Charges & Revenue General principles of road pricing and taxation are particularly difficult to implement in the road sector. As a result, direct use-related charges have not been the primary 12 Fernando, M.B.S. A Review of Institutional and Financial Capacity of Colombo Metropolitan Region for Road and Traffic Management, World Bank, 2000, p From a seminar on Re-engineering of Road Sector Institutions Project organized by the Institute for Participatory Interaction in Development (IPID), held Tuesday October 19, 1999 in Colombo. From The Daily News, October 21, 1999, p

25 An Introdu ction to Roads Funds basis for infrastructure finance as in other sectors. 14 Road user charges are usually defined as fees and taxes that are levied on road use, fuels and motor vehicles but not on comparable goods and services. It is important to understand that user charges have two primary purposes 15 : to raise adequate revenue to finance road services supplied by the government and to change the behavior of vehicle owners and users by making them take into account the full costs of their share of road use, such as road damage, contribution to congestion and pollution. Most existing user charge structures and studies takes into account the first purpose, but not the second. Road user charges exist in Sri Lanka in the form of taxes on vehicle purchases and parts, import duties, luxury and diesel car tax, fuel taxes, vehicle registration and annual license fees. While license fees are distributed to provincial authorities, the others are channeled though to the consolidated fund, which in turn provides an annual allocation to the RDA and the Provincial Councils vide the budget. The following is a discussion of the various types of user charges. Fuel tax structure: The basic road pricing structure for road pricing in Sri Lanka has been though an `implicit policy' of a significantly higher taxation of private vehicle use (considering it a luxury item) and a lower tax level for goods, agricultural and public transport. This was mostly implemented through a differential fuel pricing policy where petrol was taxed several fold higher than diesel fuel. It is not clear how these tax bands were computed. One thing is however certain that the relative costs of road use have not been computed in formulating these levels. Thus it was not known till the Road User Charges Study in 1993 if different types of diesel powered vehicles were actually paying their actual cost of road use. In recent times a further complication to thus two tiered fuel tax structure has arisen due to a) The rapid use of diesel powered vehicles for private transport and b) The introduction of liquid petroleum gas conversions to petrol engines of private vehicles. Thus many private vehicles that are operating today escape the fuel tax intended for 14 World Bank, Sustainable Transport: Policies for Policy Reform, p Gomez-Ibanez, Road User Charges and Their Purposes, in World Bank Sector Study, p.433.

26 2. Road Pro vision in Sri Lanka road user charge recovery. The following table is indicative of the revenue from fuel taxes for the year It can be seen in that particular year the fuel tax alone led to a surplus of Rs 3,245 mn (or 29% of tax) over the total allocations made by the Government to the roads sector. It can also be seen that the contribution from petrol is Rs per litre while in the case of diesel it is Rs 4.10 per litre. The annual consumption of diesel however is 870 million litres way ahead of the petrol consumption at 249 million litres. This tax also suffers from the incessant fluctuations in the cost of fuel. For example presently 16, the cost of crude at 36$ per barrel which is an all time high, would invariably result in further chaos to the pricing structure. Preliminary calculation would show that the diesel at this price would incur a loss of Rs 10 per litre with petrol still returning a surplus of Rs 20 per litre! The diminishing petrol consumption viz vizincreasing diesel consumption does not augur well for fuel tax. Furthermore, the higher fuel tax band for petrol is now resulting in petrol vehicles in large numbers being converted to LP gas which has a smaller tax band due to its primary use as a domestic cooking fuel. Table 4 : Fuel Tax Recovery (1995) 17 Diesel Petrol Total Retail Cost (Rs/l) Economic Cost (Rs/l) Effective tax (Rs/l) Revenue Sales (mn litres) Tax Revenue (Rs mn.) 3, , ,222.4 Expenditure To General Revenue (Rs mn) 3,245.0 For Roads (Rs mn) 7,977.4 For Roads as % 71% Taxes on Vehicle Purchases and Parts 18 : The tax structure on vehicle imports in Sri Lanka has changed several times over the past few years. This has mostly been to accommodate the growing influx of diesel vehicles in to the country. Its original formula was simple, as it was meant to place a heavy tax on private motor vehicles and a marginal tax on goods and public transport vehicles. But now, due to the marginal revenue on diesel fuel tax, diesel vehicles used for private purposes namely cars, vans and utility vehicles are taxed at a higher percentage than petrol vehicles. 16 written at a time when European roads are in blockade and petrol pumps are dry due to protest regarding high fuel prices. 17 World Bank Transport Sector Planning Study (Table 9-2), This following outline is based on the study by D.S. Jayaweera, 1997, Are current user charges adequate? World Bank Sector Strategy Study, p

27 An Introduction to Roads Funds The present Import Duty, the Goods and Services Tax and the Defense Levy is given in Table 5. As shown, agricultural vehicles have the lowest tax at 10 percent, while cars over 1500 cc and valued at over Rs 400,000 CIF (approximately US $ 5000) are taxed at over 300%. Goods and public transport vehicles re taxed between percent while motorcycles are also taxed at around 35 percent. Private vehicles are all taxed at over 100% based on value and engine capacity. Diesel vehicles invariably fall in to the higher capacity band generally having larger engine sizes. Vehicle spares are taxed at around 66 percent. 17

28 2. Road Pro vision in Sri Lanka Table 5 : Main Import Duty and Turnover Tax Rates on Vehicle Import, Vehicle Type Import Duty Rate (%) Goods and Service Tax Rate (%) Defense Levy (%) All Tax as % of CIF Agricultural tractors Buses < 15 seat Buses >= 15 seats Trucks <= 2.5 t CVW Trucks > 2.5 t - 5 t CVW Trucks > 5 t CVW Motorcycles (CC 200 and less) Vehicle parts Cars <=1,500 cc 21 CIF Rs. 150, Rs. 300, Rs. 400, Cars > 1,500 cc 22 CIF Rs. 150, Rs. 300, Rs. 400, It is difficult to ascertain the exact taxes collected at point of import for vehicles and even more so in the case of spare parts. There are also many vehicles imported duty free or at concessionary duty terms. As shown in Table 6 the rapid increase in import of cars from 1998 to 1999 is due to such a scheme coming in to operation in Of this total tax entitlement of Rs 8,853 million it is possible that a significant portion is lost due to concessionary vehicle import permits issued for various purposes. If this leakage is estimated at 20 percent for 1998 (could be much higher in more recent times), then it is possible that the Treasury received around Rs 7,000 mn in terms of vehicle imports. A similar calculation for spare parts imports based on total vehicle kms operated and the cost of repairs and replacement of parts as a percentage of vehicle operating costs leads us to a value of Rs 1,000 mn from tax on vehicle spare parts, tyres etc. Thus the government would have gathered at least Rs 8,000 mn from import of vehicles and spare parts for Table 7 gives the estimated tax revenue from importation of vehicles in This has been calculated using the vehicles registered under each vehicle category and 19 Source : "Four Band Tariff, Revenue Protection Order No. 2000/06/02 June, 2000", Sri Lanka Customs, 1999 Government Gazettes. 20 Excluding motor cycle parts (10%/15%/28%) 21 50% of CIF on the first Rs. 150,000, 75% on the next Rs. 100,000 and 100% above Rs. 250,000. CIF values examples only % of CIF on the first Rs. 80,000, 150% on the next Rs. 40,000 and 200% above Rs. 120,000. CIF values examples only 18

29 An Introduction to Roads Funds multiplying by the tax level applicable to the estimated CIF value of a representative vehicle. Petrol Table 6 : Vehicle Registrations Cars Wheelers Motor Cycles Dual Purpose Lorries Other Sub Total Diesel 1. Cars Wheelers Motor Cycles Dual Purpose Lorries Other Land vehicles Sub Total Grand Total Vehicle Registration Fee: The present charges for vehicle registrations are: motorcycles Rs 200 motor cars Rs 1,250 tractors & trailers Rs 500 buses & lorries Rs 1,000 This is a once and for all payment, even though transfers of ownership are also levied a fee. Multiplying the above rates for the vehicles imported for the year 1998 gives us a registration fee collection of Rs. 57 million. This may actually meet only the cost of providing the services at the Registrar of Motor Vehicles. Table 7 : Estimated Tax Revenue from Vehicle Imports (1998) # of Vehicles Registered Approximate Value CIF (Rs) Per vehicle Tax % of CIF Total Revenue (Rs mn) 23 Source : RMV Office Statistics Division 24 Hearses 25 Ambulances, Hearses etc 26 Land Vehicles, Tractors & Others 19

30 2. Road Pro vision in Sri Lanka in Petrol 1 Cars , , Wheelers , Motor Cycles , Dual Purpose , Lorries , Other * 5 - Sub Total ,492 Diesel 1 Cars , Wheelers , Motor Cycles , ,028 4 Dual Purpose , Lorries , ,653 6 Other * , Land vehicles # , Sub Total ,361 Grand Total ,853 Annual License Fees: After 1991, licensing was devolved to the provincial governments, and in 1992 further devolved to the Pradeshiya Sabha level. As such, the revenue does not go into the consolidated fund. Table 8 gives annual licenses fee for each vehicle type. Table 8 : Annual Licenses Fees Category Fee in Rs Land vehicle 200 Motorcycle Wheeler 600 Car (Petrol) 700 Small Truck 1675 Trailer Usually imported in knocked down condition at lower duty. 28 Ibid. 29 Source : TSPC, Road User Charges as in World Bank Strategy, p

31 An Introduction to Roads Funds Utility (Petrol) 1800 Medium Bus 2200 Utility (Diesel) 2700 Medium Truck 2800 Large Bus 3600 Car (Diesel) 4200 Large 2-Axle Axle 5600 Articulated Truck 8400 The revenue thus generated assuming that the entire operational vehicle fleet renews licenses every year is Rs 1,600 mn annually. Thus the overall revenues from indirect user charges in 1998 (with fuel charges taken for 1995) are around Rs 22,000 mn. The expenditure for the road sector for that year has been less than Rs 10,000 million while the State expenditure for the entire transport sector inclusive of the expenditure on railways and buses, has been around Rs 15,000 million. Thus the fact that a surplus of revenue has occurred is obvious. This leads us to two pertinent questions: a) Has the government reinvested adequately in the roads to enjoy a surplus? b) Is the amount collected from each type of road user equitable and does it reflect the amount of road space used and damage caused to the road pavement Road Costs Costs of road construction vary depending an type of road, terrain and method of construction. The following unit costs (in 1999 prices) have been re-produced in Table 9 for new road infrastructure, improvements and rehabilitation works. Table 9 : Cost of Highway Construction 30 Item Sub Item Unit (per) Civil Works (Rs. Mn) New Infrastr ucture Gravel Road (5 m) Km 3.5 Metalled Road (5 m) Km 5.5 SBST Road (6.7 m) Km 14.5 DBST Road (6.7 m) Km 15.0 AC Road (6.7 m) km 17.0 AC Road (std 2 lanes) km 20.0 AC Road (4 lane divided) km AC Road (6 lane divided) km Source : Assessment of Public Investment in Transport Sector, University of Moratuwa, December

32 2. Road Pro vision in Sri Lanka Expressway (4 lane divided) km Widenin g And Improve ments Rehabili tation Expressway (6 lane divided) km Bridges single span sq.m Bridges multi-span sq.m Gravel Road (2 lanes) km Metalled Road (2 lanes) km SBST Road (4½ - 6 m) km DBST Road (4½ - 6 m) km AC Road (sub std 2 lanes) km AC Road (std 2 lanes) km AC Road (4 lane divided) km Bridges single span sq.m Bridges multi-span sq.m SBST Road (std 2 lane) km DBST Road (std 2 lane) km AC Road (std 2 lanes) km AC Road (4 lane divided) km Bridges single span sq.m Bridges multi-span sq.m There is presently some confusion regarding the labeling of road sector expenditure. The study on Assessment of Public Investment in Transport Sector (University of Moratuwa, 1999) provides an excellent guide on identification of expenditure. New Assets: These are investments that provide new and hither-to non-existing road facilities to meet new demand, to keep up with increases in demand that cannot be satisfied with improvements, and to meet demand for increased quality of service. Generally, new assets generate new societal benefits such as time saving, vehicle operating cost saving, development, comfort but they increase recurrent costs because they add to the annual costs of operations and maintenance. Example: The Southern Highway is being planned as a new limited access highway. This is a new asset that provides new capacity at a higher quality. The recurrent expenditure would now increase due to the acquisition of a new asset. Improvements: These are investments that develop or "make better" the condition of existing assets. They can involve any combination of the following (a) additions to existing assets, (b) replacement of existing assets with assets of increased capacity, and (c) replacement of existing assets with assets that have qualitative improvements. Generally, investments in improvements will generate only incremental societal benefits; analysts and appraisers should take care to ensure that such benefits are not over-stated. Recurrent Agency costs may increase or decrease, depending on the nature of the improvement. 22

33 An Introduction to Roads Funds Example: Widening a 2-lane road to a 4-lane road would be an improvement, as the extra capacity can accommodate greater numbers of vehicles. As 4-lane roads have higher maintenance requirements than 2-lane roads, other things being equal, Agency recurrent expenditures would increase. Under present highway terminology, certain types of projects that are called "rehabilitation" should more appropriately be called "improvement" if the new roads have a higher or improved standard than the old roads. Example: Putting an asphalt concrete (AC) overlay on an existing double bituminous surface treatment (DBST) road would be an improvement, as the AC overlay would give longer life and smoother surface. It is the combined investment in "new assets" and in "improvements" that increases overall higher capacity. Example: A network of 10,000 kilometres of national roads having 4-6% annual traffic growth, might require 4-6% capacity expansion per year to maintain the same level of service. Assuming a cost of Rs 10 million per kilometre to construct or improve roads, this suggests an annual investment of Rs 4-6 billion. If the present level of service is inadequate, then road capacity should be expanded more than the increase in demand and investment should be higher. Replacement/Rehabilitation: Replacement refers to investments that replace existing assets with identical assets in terms of capacity and/or quality at the end of their economic design life. Rehabilitation refers to investments that replace many or most major components of existing assets to extend their economic design life. Example: Replacement is relaying an AC overlay on a road, putting up a new bridge with the same capacity and standards as the old bridge. Rehabilitation is sand sealing an SBST road, replacing a decayed bridge deck but keeping the same foundations. Maintenance: This refers to the normal recurrent expenditures annual and periodic required over the expected life of an asset, so it can perform with reasonable efficiency. Information on "normal" maintenance is not well developed for 23

34 2. Road Pro vision in Sri Lanka Sri Lanka, but most studies assume values between 1-2% of the replacement value of an asset for highway infrastructure maintenance. Example: Annual maintenance includes routine work such as patching potholes, cleaning drains, and correcting edges on roads, tightening bolts, clips, and spikes, and replacing damaged sleepers on track, replacing brake shoes, hoses, filters, etc., on rolling stock, and so on. Periodic maintenance includes repairs to the entire asset, such as sand sealing of DBST and AC roads or performing scheduled repairs to rolling stock. Emergency or accident repairs such as earthslips also count as maintenance. Maintenance is not an investment, although Transport Sector Agencies presently include some components of maintenance under capital expenditures. When investments are initially appraised, the analyses should include reasonable forecasts of annual and periodic operating and maintenance costs during the assets' economic life. Maintenance costs are thus appraised at the time of acquisition of the asset and need not be re-appraised annually. Annual expenditures need to be reviewed only if they are much lower or are much higher than forecast. Low amounts might indicate under-spending, which could reduce economic life, performance, and benefits. High amounts might indicate assets that have exceeded their economic life and should be replaced Road Allocations The RDA s budget, revenue and expenditure, for year 2000 is indicative of the current costs of the national highways and is outlined below. The current budget of over 9 billion Rupees for the RDA represents a sizeable increase from 1995 when funds stood at just under 5 billion for the entire road sector, not accounting for devaluation. With revenue from user charges in 1998 at over 22 billion Rupees, the road sector agencies were only utilizing less than 40% of that revenue. The same was true in 1991 with revenue from user charges at over 10 billion Rupees and total costs amounting to 4 billion. 31 This phenomenon has been referred to as overpay. However, it is perhaps important at this stage to restate the obvious: namely that funds allocated to the road sector from the consolidated fund do not equal the true cost of roads were they to be efficiently maintained. This is further discussed in Section 2.4. According to the RDA's budget for the year 2000, maintenance of existing road assets take 39% or Rs. 3,627 mn of the capital expenditure. Even though the bulk of this allocation is finished rehabilitation it is in effect spent on a marginal extension of operating life by surface treatment and sand sealing. 31 Road User Charges Study (TSPC), 1993, Chapters 5 & 8. 24

35 An Introduction to Roads Funds The major rehabilitation and improvement projects accounting for the bulk of expenditure are the cumulative result of this low allocation over the past years. In addition, the major items of expenditure under the heading fixed assets are improvements to roads and bridges that have been poorly maintained for too long. The resulting budget for national highways is therefore caught in a vicious circle of trying to bring roads to a maintainable level whilst having to spend heavily on maintenance due to falling behind in rehabilitation at end of design life. Table 10 : RDA Budget, Year (Millions of Rs.) RDA- FUNDS RECEIVABLE Domestic Funds 6,711 69% Foreign Aid Loans 2,671 27% Reimbursable Foreign Loans 288 3% Counterpart Funds 50 1% TOTAL 9, % RDA- FUNDS ALLOCATED Recurrent Expenditure 320 3% Capital Expenditure 9,400 97% TOTAL 9, % CAPITAL EXPENDITURE Rehabilitation & improvement 3,627 39% Acquisition of Fixed Assets 5,775 61% TOTAL 9, % REHABILITATION & IMPROVEMENT Periodic Maintenance % Repairs to flood damage 140 4% Rehabilitation Projects 2,127 59% Emergency Rehabilitation % Other 60 2% TOTAL 3, % Keeping an asset in service beyond its economic life may result in a net loss to society if the stream of higher maintenance and operating costs and reduced economic benefits is greater than the corresponding stream of new asset cost, reduced maintenance and operating costs, and greater economic benefits. Example: It may be more efficient to re-surface a road before the surface gets completely worn and full of potholes, as the economic benefits of reduced vehicle operating costs and time 32 From Fernando, M.B.S. A Review of Institutional and Financial Capacity of Colombo Metropolitan Region for Road and Traffic Management, World Bank,

36 2. Road Pro vision in Sri Lanka saving from operating on a smooth surface may more than offset the cost of re-surfacing. Figure 2 : Costs and Project Life Span with and without Rehabilitation Unit Operation & Maintenance Cost (Rs.) Original Life Span Rehabilitation 1 Additional Life Span Rehabilitation 2 Rehabilitation 3 Additional Life Span Additional Life Span Time (Age) Figure 2 shows how operating and maintenance costs change with age of an asset and how rehabilitation might affect its costs and extend its economic life. However, each successive rehabilitation would add less life due to aging of non-rehabilitated components, which would also cause operating and maintenance costs to be higher than a new asset. At some point, replacement becomes more cost effective than rehabilitation, depending on the cost of rehabilitation relative to replacement, the effect on operating and maintenance costs, and the effect on benefits. In some cases, replacement could be more cost-effective than any attempts at rehabilitation. Provincial Councils and Local Authorities have of course different cost structures and are not accounted for in the above budget. However, they face similar maintenance problems. The CMC, for example, spends roughly 20% of its annual budget on roads of which 50-70% is spent on rehabilitation and storm water drainage. In recent years, less than 20% of its road budget has been spent on maintenance. This problem is compounded by a consistent failure to meet budgeted with expenditure, resulting in even fewer funds being used for the maintenance of the national highways in the CMC s charge. 26

37 An Introduction to Roads Funds 2.4. Overview of Current Situation Questions arise as to the adequacy, efficiency, strategy and equity of the current system of road provision in Sri Lanka. In finance terms, three interrelated questions point to the need for a road fund and will be addressed in turn: Has there been sufficient allocation for maintenance and rehabilitation in the road sector? Are current road-user charges adequate to meet the necessary overall costs of road provision? Are road users involved enough in this process? These questions lead us to consider the following; Q1. As discussed, funds for maintenance are too few and poorly allocated, resulting in a maintenance shortfall. Occasional high expenditure mask inefficiencies, particularly because: past maintenance neglect necessitates sudden expensive reparative works unit costs of maintenance, rehabilitation and construction remain very high in Sri Lanka, allegedly due to a lack of competition for projects carried out by direct labor 33. The purpose of a road fund being to address poor maintenance and rehabilitation and provide regular finance, the fund would help overcome this neglect. Q2. Problems of transition to a road fund allocation system would be compounded by inefficient user charges existing at present. As we have seen, current user charges are not directly correlated to either road use or road damage. Setting efficient user charges that address and correct this weakness in the road sector is an important step in assuring a stable flow of finance into a road fund. Significantly, the way revenue-raising mechanisms are fixed creates the incentive structure for the behavior of users. The infliction of heavy damage by trucks, for example, should be reflected in the price truck users are obliged to pay over and above cars. The key to setting an efficient price is setting a clear market signal. Road users should be made fully aware of the cost of their damage. This is done in part through increased user participation through a road fund and in part through efficient pricing and cost recovery. User charges should give signals for efficiency, including the optimum utilization of available capacity (such as scarce road space), choice of vehicles and fuels, split of traffic among modes and the management and 33 World Bank Sector Strategy Study,

38 2. Road Pro vision in Sri Lanka maintenance of infrastructure. 34 They should also take into account environmental and congestion externalities over and above road damage. For example, the rapid increase in dual-purpose vehicles since the mid-1980s contributing heavily to road congestion has not been adequately penalized through a fuel tax. The vast majority of these vehicles run on diesel, which is still virtually sold at cost. The same applies to lorries and land vehicles although the difference between the percentages of the fleet running on petrol vs. diesel is less marked. Sri Lanka has two recent studies on road-user charges: the 1993 Road User Study conducted and since updated by the Transport Studies and Planning Centre (TSPC) and the 1995 Colombo Urban Transport Study (CUTS) focusing on the Colombo Metropolitan Region. Both concluded that current road-user charges are more than adequate to cover the cost of national road provision. This phenomenon is referred to as overpay, although this is truer for cars and motorcycles than trucks. However, a further examination of this conclusion is warranted in the light of the discussion above on true road costs and in the light of social costs, such as pollution and congestion. 35 There is now new thinking that in order to price space-efficient and environmentally-friendlier modes of transport. For example it is considered that public transport should be cross-subsidized by tax revenue from private vehicles. On that vehicles using gas as fuel have a lower tax level. The 1998 World Bank Transport Sector Study reiterates this issue of overpay. The study, however in fact point to the inefficiencies in the system including: not all road users are meeting the distance based costs of damage to the system (particularly diesel powered heavy trucks; only articulated trucks are meeting this cost) costs recovered from road users do not meet all the economic costs such as costs of road space and air pollution the current system of indirect charges paid by highway users is neither efficient nor fair across all classes of users (the equity issue); in particular there are no behavior changing mechanisms incorporated into the charges. In addition, the distribution of annual revenue licenses does not reflect road responsibility by province. For example, the Western Province has 70% of the total vehicle population and collects their license fees. However, these vehicles use all the other roads in the country and the disparity has not been addressed. 36 Future studies to elaborate the possibility of a road fund in Sri Lanka will need to examine the adequacy and equity of current user-charges in depth. 34 Note that for promoting social sustainability, the mechanisms for user charges should include measures to ensure accessibility for the poor, measures that may involve certain users paying less than real costs. This can be achieved through subsidies for specific groups without subsidizing the costs to all of society or distorting the costs to those made to pay the full price of society s use. (See World Bank, Sustainable Transport: Policies for Policy Reform, p.87) 35 Recommended by Gomez-Ibanez, 1997, in Road User Charges and Their Purposes, in World Bank Sector Strategy Study. 36 CUTS, 1995, Working Paper 7, Transport Organization and Administration, p

39 An Introdu ction to Roads Funds Q3. Road users are currently not involved in road provision in Sri Lanka. No member of the private sector or the general public is required to sit on the RDA board. Road users are entirely bereft of power in the management process. Yet in a survey on public opinion towards urban roads conducted by the University of Moratuwa in 1994, 82.7% of respondents agreed that the public must have an opportunity to contribute their ideas and suggestions to the planning and programming of road maintenance and improvement work. 37 The public s involvement serves the dual purpose of both increasing awareness of the price of road use as well as monitoring project selection to reflect the needs of road users. Additionally, allowing the public to participate can result in an increased interest and awareness by the public in roads leading over time to a reduction in public interference in road maintenance. The participation of prominent road users and their associations adds another The B67 at Dedugala dimension to the benefits of user participation. Their need for efficient roads in order to conduct their operations, be they bus operators or representatives of the shipping industry, lends an importance to road management vastly outweighing that attached to it by government officials. It is clear that the lack of user participation in road provision will need to be addressed in rethinking road management in Sri Lanka. 37 University of Moratuwa Project Report, Urban Road Maintenance: the role of the public, p.14