Assessment of Road Funds in South AsiaJean-Noel Guillossou, Natalya Stankevich, Sr. Transport Economist, Operations Analyst

South Asia Sustainable Development Department, Transport,

November 20, 2008

Team and Budget USD 20,000 Thanks to Connie and Guang

Major Team: Analysis and report: Jean-Noel & Natalya Research and data collection:

Silva in Nepal Zulfiqar in Pakistan C. S. Balaramamurthi and R. K Jain, STCs, in

India

Objective of the study Original: To assess the effectiveness and

impact of the RFs in SAR (i) on the level of funding for maintenance and (ii) condition of road networks which are maintained with RF resources

Final: To assess the institutional and funding arrangements of the existing RFs in the region

Road Funds covered by the studyAt the national level: India Central Road Fund (CRF)

established in 2000 Roads Board Nepal (RBN) in

2002 Pakistan Road Maintenance

Account (RMA) in 2003

At the state level in India: Uttar Pradesh (UP) State Road

Fund in 1998 Madhya Pradesh (MP) Farmer’s

Road Fund in 2000 Kerala State Road Fund in 2002 Assam State Road Fund in 2003 Karnataka Chief Minister’s

Rural Road Development Fund in 2004

Rajasthan State Road Development Fund in 2004

Note: Bangladesh RF, Mizoram RF, and Sri Lanka Road Maintenance Trust Fund (RMTF) were not covered by the study because they were not operating and had no lessons to learn from.

Criteria of Assessment Mission and reason of creation of RFs Legal framework Purchaser and provider split Good governance Measurable outputs and performance

indicators Fund flow mechanism Funding allocation rules

Mission and reasons for creation of a RF

Main reason: To ensure adequate

and stable sources of maintenance funding: Nepal, Pakistan, Assam, Karnataka, and UP

To finance development of roads: the rest of Indian RFs

In reality: Only RBN and Pakistan

RMA routine maintenance

Others : development of roads major improvement works consultancies

Legal Framework Established through:

Legal Act: RB Nepal, India CRF, Kerala SRF and Rajasthan SRF Secondary-level legislation: government order (Karnataka RF),

notifications (Pakistan RMA, MP RF and UP RF), and decision taken by the State Cabinet (Assam RF)

Only RB Nepal, India CRF, and Pakistan RMA have Supplemental Rules to clarify administrative mechanisms

Findings: RBN Act and Rules are not fully implemented demonstrating that a

sound legal basis is not enough to make a RF successful a RF (e.g., Pakistan RMA) can be successful without the expected

level of soundness of its legal basis, but this may be a short-term success

Need of a more in depth-assessment if the respective legislations are being properly implemented

Purchaser and provider split Pakistan RMA: NHA as Purchaser and

Provider: So far procedures and systems have helped to

increase transparency Possible risk of conflict of interest if the legal

basis is not strengthened Others: clear separation of the purchaser and

provider roles

Measurable outputs and performance indicators No RF compares the program actually executed versus the

program planned for execution Only RBN has a results framework in place, but comparison

is limited to disbursements versus funds allocated DORs/RAs often use proxies (output, not outcome oriented)

for M&E purpose: % of funding allocated to the road sector compared to the needs, or km of roads to receive different types of maintenance

No country is found in SAR with a long term vision of where it would like the road network to be measured by an outcome indicator (e.g.: maintain annually at least 84% of the state paved network in

acceptable overall pavement condition (cracking, rutting, roughness); maintain 87% of the state highway network in overall preferred

condition)

Governance and Accountability India CRF, Karnataka RF and MP RF:

financing instruments without any specific governance mechanisms: no management board, no involvement of road users, no transparency in decision making and very limited disclosed information

Others: limited additional governance mechanisms beyond those

typically used in government institutions RBN is the only RF where accountability and

transparency in resource allocation is a legal requirement and is enhanced in relation to road agencies spending RBN’s resources

Board autonomy 3 out of 9 RFs under study – India CRF, Rajasthan and MP

RFs – do not have management boards None of the existing Boards are autonomous:

dominated by public sector representatives (in the Pakistan case, all Board members are from the public sector)

chaired by top level public officials Lack of autonomy in RBN is related to governance issues at

the country level: Nepal is second after Afghanistan in SAR in terms of lower degree of

government effectiveness as measured by the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies

Auditing Financial audit required for all RFs except Karnataka RF Technical audit required for Pakistan RMA and Assam RF No requirements for internal controls are specified in the

legal frameworks of RFs Information on audits is limited and does not allow to

determine if these mechanisms are employed and help improve the performance of RFs

Financial and technical audits of Pakistan RMA are always delayed limiting their usefulness in helping improve performance of both RMA and NHA

Financial audits of RBN are carried out on an annual basis and their findings are discussed and taken into consideration

Transparency Only RBN’s legal documents (Act & Rules)

available on on its website Only the Legal Act of RBN and Pakistan RMA

Rules require disclosure of information other than legal documents

Very limited information is available on Indian RFs and no annual reports are made widely available to the public

It may change with implementation of India RTI Act

Involvement of road users Limited and not active involvement of road users 1-2 representatives on Boards from a truck or other

transportation-related association Not as active and influential as public sector representatives Have limited understanding of their role and limited capacity

to provide meaningful inputs in a rather technical domain RBN and Pakistan RMA have recently started conducting

Road User Surveys (RUS) and stakeholder consultations In India, NHAI and some PWDs have started conducting

RUS with the help of the World Bank, but they are not linked to RFs yet

Fund Flow Mechanism All RFs, except the Pakistan RMA, receive their

resources transferred through national/state treasuries

Most RFs, except Karnataka, UP RFs and RBN’s revenues from fuel levies, are non-lapsable and can carry unspent resources over to the next fiscal year

Revenues collected from road tolls are the only revenues always deposited directly to RFs’ accounts

Fuel levies are always transferred to RFs through treasuries

Source of Revenues Diverse sources of funding (fuel levies, tolls,

vehicle registration charges, police fines, sales tax on agr. produce, motor vehicle tax, etc.)

Fuel levy is a major source of revenue for RBN and most of Indian RFs

Only Pakistan RMA is not financed from this source

Often some sources of revenue specified in the RF’s legal framework are not used (e.g., Assam RF has 11 sources, but only gov. grants used)

Sources of RevenuesPakistan RMA Roads Board Nepal

Pakistan RMA: Maintenance funding

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2001 2002 2003 2004 2005 2006 2007

Rs.

Mil

lio

n

Gov grant Tolls Total

Allocation rules Allocation rules by type of road or network:

In the legal frameworks of most of the RFs (except Assam, Rajasthan and UP RFs)

Actual allocation seems to comply with the rules in most of the cases

Allocation rules by type of works: In the legal frameworks of RBN, RMA and

Karnataka RF

Lessons Learned Improved governance at the country (or state)

level is one of the key success factors for effective performance of a RF

Fuel levies are never deposited directly to the RF account

RFs cannot be the only institutions held accountable for the management of roads

Recommendations (part 1)1. The establishment of a RF is an appropriate answer

when there is a budget system failure. However, even if there is no budget system failure, RF can be a good instrument to improve governance (financial management, transparency )

2. Assessment of governance should be conducted at the country level before promoting the establishment of a RF

3. Priority should be given to achieving good governance of the RF and its Board

4. A political economy analysis of road maintenance is a prerequisite before considering a financing mechanism such as a RF

Recommendations (part 2)5. Where the road agency has good capacity for road

management, the RF can concentrate on management of resources and focus on its role as financial institution

6. The creation of a RF should be considered in parallel with development or strengthening of the road management capacity of an executing road agency

7. An accountability mechanism should be developed to ensure that all revenues collected from fuel charges and designated as RF resources in accordance with the relevant legal framework are transferred in full from the central treasury to the RF account

8. The designation of the road institution in charge of monitoring the quality of the road network needs to be clarified

Recommendations (part 3)9. Governments should continue providing budgetary

support to road maintenance

10. User fees should not be used as revenues of a development Road Fund

11. Allocation rules by type of road/network should be defined in the Legal Act

12. Decisions on the allocation of resources by type of work for local road networks should be decentralized and not made by the RF