Tuesday, February 09, 2010
By Charles K. Boakye
One of Ghana’s foremost infrastructure analyst has joined the debate over recent increases in road tolls in Ghana. He avers that "Road Funds have emerged as one of the more popular forms of financing road sector maintenance funding gaps in many countries and Ghana has had a fair share of its benefits. However, challenges remained because tolls and fees were unchanged for ten years." He beleives we must begin to wean ourselves off the donor apron strings at least wih road maintenance.
Hopefully this insightful analysis will illuminate the shady thoughts we habour about many government interventions.
For the first time in over 10 years, the Government announced new road and bridge toll rates that came into effect on February 1 this year, after the legislative instrument was revised by parliament in December 2009. Also increased were road and vehicle user fees that had remained unchanged in the last eight years. Altogether, new tolls and vehicle user fees will result in additional annual increases of GH¢30 million and GH¢20 million respectively to the road fund. Expectedly these revenues will help government reduce arrears, clear maintenance backlog and stabilize the condition of road network.
Road Funds have emerged as one of the more popular forms of financing road sector maintenance funding gaps in many countries and Ghana has had a fair share of its benefits. However, challenges remained because tolls and fees were unchanged for ten years. Had rates been increased gradually over the last decade to current levels, more than $120 million would have been accrued from road tolls and $80 million from road and vehicle user fees.
Financing Road maintenance
The main sources of financing road development and maintenance are the Road Fund, the Consolidated Fund and development partners. Development partners like the World Bank, European Union, African Development Bank and other bilateral agencies have over the last decade financed about two-thirds of the total annual $350 million cost of road infrastructure—about $200 million annually—while the Government, under the Road Fund and the Consolidated Fund picked up the remaining $150 million.
Revenues accrued to the Road fund are used for routine and periodic maintenance, as well as rehabilitation works, largely executed by Ghanaian contractors. Given the inconsistency of inflows into the Consolidated Fund and clear evidence of diminishing donor support since 2007, the Road Fund will assume the most sustainable financing instrument for maintaining road infrastructure.
Since 2005, an average of $110 million was paid to the Road Fund annually. Key constituents of the Road Fund are the Fuel Levy sources, and the non-Fuel Levy sources. The Fuel Levy is a direct indicator of road use and is contributed to the Fund whenever fuel is purchased from the pump, about 5 cents for every litre consumed. Over the last few years it formed the bulk of Road Fund revenues, contributing over $100 million or 95 percent of the total annual revenue. The fuel levy’s dominance exposes the Road Fund to immense risks, particularly rendering it vulnerable to the slightest dynamics in the petroleum sector.
The non-fuel levy sources comprise Vehicle Registration Fee, Road User Fee, Road and Bridge Tolls and International Transit Fees that are collected by the Driver and Vehicle Licensing Authority (DVLA) and CEPS. Altogether, they contribute the remaining 5 percent, about $ 6million.
The efficient delivery of road infrastructure services in Ghana is seriously constrained by the government’s inability to generate adequate funds, especially from domestic sources. It appears successive governments had difficulty doing this due to a combination of factors—lack of political will, ambivalence, political expediency, weak capacity and lack of independence of the Road Fund Board.
Expected gains from recent road and bridge tolls increases
The Road Fund’s 2007 annual financial statement reports an amount of GH¢1,782,059 as income from all toll roads in that year, a rather modest amount, corroborating the wide perception of leakages at the toll stations. Financial figures for 2009 are expected to report twice this amount since vehicle numbers have increased by over 20 percent and toll booth numbers doubled to 29 nationwide.
Based on traffic count data, expected revenues can be determined for each tolled station. The Accra – Tema motorway currently has 36,000 vehicles plying daily comprising motor bikes – 1 percent; cars – 47 percent; pick-ups and 4-wheel drives – 18 percent; light buses – 18 percent; heavy buses 3 percent; light and medium goods trucks – 9 percent; heavy goods trucks – 4 percent.
Current projections indicate that with the recent tariff adjustment Accra – Tema Motorway net revenues will increase from GH¢62,000 per month to GH¢600,000. The Road Fund should reap about GH¢7 million from the motorway this year, up from the previously projected GH¢0.75 million – a ten-fold increase. This analysis takes into consideration, operator’s enhanced GH¢100,000 recurrent expenditure, paid up front, and 10 percent operational losses, from exemptions, etc.
The Tolls Act exempts vehicles bearing official identification marks of the following institutions from paying road tolls: the armed forces, police, fire service, prisons, diplomatic missions on reciprocal basis, government and mission hospitals and the Ghana Red Cross Society.
Similar revenue increases are expected from the high trafficked roads, eg. Accra -Cape Coast (Mallam – Kasoa) and Nsawam – Kumasi roads, approximately GH¢6 million each. Traffic growth however varies significantly across the country, with Average Daily Traffic starting high on the Motorway and Nsawam roads, in excess of 30,000 each, to low figures in the northern and western regions; eg. Bamboi – 450. The remaining 26 tolled stations will generate in excess of GH¢9 million per annum.
Subsequently, if the reported leakages in revenue collections from toll stations are blocked, the recent toll hikes should altogether increase Road Fund receipts to GH¢30 million, from last year’s projected average of GH¢3 million.
Ghana’s rates versus international trends
Ghana’s toll rates before February 1, 2010 were out of touch with economic reality, and far lower than what pertained in neighbouring countries. While Togo charged 400 CFA (US$1 or 100 cents) for crossing the bridge over River Mono on the border with Benin, Ghana charged 5 pesewas (3.5 cents) on similar bridges. The bridge over River Tano at the Ghana – Cote d’Ivoire border town of Elubo, whose construction was financed by Ghana is not tolled. No wonder the bridge is weak and in an imminent state of failure. The previous rates were too low, equivalent to 15 percent of their original US dollar value or less than 10 percent of the cedi value.
Worldwide, toll rates vary greatly, not only in absolute terms but also in relation to the average income of the population. Consequently the toll burden, even when low in per kilometre terms, is higher for poor countries and lower for wealthier countries. A 2005 World Bank toll study updated by this writer in 2009 to include Ghana, compared sample toll rates as a percentage of Per Capita Income (PCI) for select countries.
The analysis, based on an average road length of 50km, showed that Ghana’s toll rates (2009) were about one twentieth of what could have been, and completely out of line with global trends. Even with current 10 times hike in the rates, tolls are still more affordable in Ghana than India. Ghana’s ratio of toll rate to the PCI is 1 cent per km, which is still one of the lowest in the world, compared to other countries in the study: India – 3 cents/km; China – 5 cents/km; Brazil – 7 cents/km; South Africa – 10 cents/km; USA – 13 cents per km; Mexico 17 cents/km and Japan – 22 cents per km.
Ghana should also consider charging different rates for various road lengths. Currently, a fixed amount is charged for various vehicles types for all roads, the longest being the Nsawam – Kumasi road—a distance of over 200 km—and the shortest, the Accra-Tema motorway, a distance of 19 km. The Accra-Tema motorway being the shortest of Ghana’s tolled roads is therefore the most expensive per kilometre. Fortunately however, the average income of users on the motorway is about the highest among all toll roads and therefore compensates for the affordability principle in tolling.
Strengthening tolling and road maintenance
Ghana’s Road Fund suffices for only half of the country’s maintenance needs and currently is in arrears to contractors to the tune of over GH¢ 120 million. Key measures must be taken into consideration if the objective of sustainable road maintenance and management is to be achieved in Ghana. The Road Fund’s poor financial performance could be attributed to the imprudent manner in which it was managed by successive boards. Its Board comprises 13 members from public and private sectors, with the majority from Government institutions. The Chairman is the Minister of Roads and Highways, and his Chief Director is the Secretary, thus effectively hobbling the Board, and making it a de jure department of Ministry. Structurally the reconstituted board remains unchanged and hence its ability to advance the business needs of the institution is far from certain.
The team that designed the current Road Fund Act, Act 536 in 1997 (whose membership included this author) anticipated that with time the contribution of private sector would increase while Government appointed persons decreased.
There is now therefore the need to strengthen road toll management with clear delineation of responsibilities. Currently the Ghana Highway Authority has oversight responsibility of toll collection but it is important that this responsibility is transferred to a body established by an act of parliament, namely, a National Road Toll Authority, supported by professionals transferred from GHA to regulate toll roads. Such measures will ensure that politicians are taken out of the decision making process in determining the level of rates. This is also necessary because a number of tolled roads are now located in urban areas and under the jurisdiction of the Department of Urban Roads.
The responsibility of the new regulatory authority shall include, inter alia, monitoring and controlling private firms operating tolling, collecting traffic data of toll areas, making recommendations to parliament for review of the toll rates, analyzing the rates review mechanism, and undertaking all technical and financial aspects of road tolling. The new body should take over technical works while GHA focuses on its core mandatory duty as implementation agency of trunk roads. The Road Fund Board should focus on identifying other sources of funds, the business needs of road financing, monitoring CEPS and DVLA receipts, and payments to contractors.
Increased responsibilities and more expectations from the Road Fund
Increased tolls go with a lot of responsibilities. There are 29 toll stations and 1.1 million vehicles in Ghana and the development of a viable operational road tolling policy requires a structured approach to ensure maximum returns. The Motorway for example must set the best practice tolling system in Ghana with better lighting, improved pavements, etc. With the average 1000 percent increases in road tolls, Ghanaians expect to see visible, tangible improvements on our roads. Expectations though justified, would not be met soon due to the wide deficit in road financing. Nevertheless, Ghanaians must demand accountability and the Board owes it a duty to disclose income and expenditure statements.
With the new rates, annual receipts from road tolls and DVLA road and vehicle user fees will exceed $34 million by 2012, up from the current $6 million. Doubtlessly this will fill a large gap in road fund maintenance programme.
Road authorities must also establish a consistent axle load control scheme which will go a long way to reduce maintenance costs. Government has recently revised the axle load limit in line with the ECOWAS specifications but there are not enough weigh bridges, hence vehicles still exceed allowable limits and pose risks to facilities. A typical case is the Adomi Bridge, which may soon be closed for major rehabilitation due largely to excessive loads.
Road authorities should also introduce electronic tolling collection systems to encourage and facilitate the construction of more toll roads. Electronic tolls lead to a reduction in toll collecting costs and passenger time costs. The most viable e-toll will involve working with the DVLA to design new digitized vehicle number plates that can be captured by cameras. It is possible to implement this in Ghana as it will yield other benefits, including crime prevention and detection.
Governments the few last years have also reneged on their obligation to increase the fuel levy by an amount of 1 cent per litre annually until it reaches the equivalent of 9.5 cents. A rate of 6.7 cents achieved in 2005 has diminished in value due to the depreciation of the cedi and currently equivalent to 5 cents. The laws must also be revised to include liquefied petroleum gas in the road tax regime since 20 percent of commercial vehicles now run on Liquefied Petroleum Gas.
Construction costs have risen due to rising labour, material and fuel costs. Several consortiums have attempted to finance, build and operate new highways but the low tariffs made such ventures unattractive. It is important to note that all countries go to the same market to source for contractors and construction materials to develop infrastructure and thus under-recovery via low rates will affect the nation’s ability to attract quality personnel and deliver good infrastructure for the benefit of the populace.
The efficient management of the toll roads is imperative in reversing the backlog maintenance in the Fund. It is important the Ghanaian public is further educated to embrace the new toll rates to enable the road authorities generate sufficient funds to improve road maintenance on timely basis. Good roads improve vehicle riding quality, reduce vehicle operating cost and enhance the general investment climate of country. Research indicates that one dollar of maintenance deferred increases to seven dollars of rehabilitation or reconstruction works.
If Ghanaians want to develop Ghana, we must make efforts to do what all developed countries did, that is pay for infrastructure delivery and maintenance. We have depended on the benevolence of foreign countries that tax their citizens to furnish aid to Ghana for road financing and we must now raise our own taxes as aid inflows are diminishing. Ghanaians love their cars and there is no other place to raise funds to construct roads to drive these cars than ourselves.
Charles Kwame Boakye is Founder of the Institute for Infrastructure Development and a Fellow of IMANI Center for Policy & Education