7th Annual General Assembly Meeting of ARMFA

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Progress of the Road Fund in Ethiopia From
Inception to date

• 7th Annual General Assembly Meeting of ARMFA

6th -9th October 2008, Maputo Mozambique Present
ed by Rashid Mohammed Director General
Ethiopian Road Fund
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OUTLINE

• Background Information
• Role of Road Infrastructure
• Why Road Maintenance
• Reforms in the Road Sector Development
• Road Fund Organisational Overview
• Key Accomplishments
• Revenue Collection and Disbursement
• Physical and Financial Accomplishment
• Impact of the Road Fund
• Challenges
• The Way forward

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I. Back Ground Information

• The Role of Road infrastructure
• Socio-economic development
• Links centers of production and market
• Promotes trade by linking land-locked countries
  and costal ports
• Determines the price of goods and services.
• Provides access to employment, health and
  education and other social services

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Total Transport Cost entails different
inter-related costs
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Why Road Maintenance?

• Inadequate and Untimely maintenance of Roads
  Results in
• Higher vehicle operating costs
• Increased number of accidents
• Reduced reliability of Road Services
• Rising costs of Road transport (which in turn
• suppress socio-economic development)

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Contd

• The Road Infrastructure is the most expensive
  asset of any country
• Road Asset value of highways in Ethiopia is
  estimated at 47 Billion Birr ( Equivalent to
  about USD 4.7 Billion)
• Each dollar spent on road maintenance saves up
  to 10 USD of vehicle operating costs
• Cost of rehabilitation or reconstruction is 20
  times more expensive than the cost of sustained
  maintenance over the life of the Road.

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• Maintenance has not always received the attention
  it deserves.
• Inadequate provisions of financing
• Deficiencies in the management of roads

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• Reforms in the Road sub-sector
• Road Sector Development Program-1996
• Four building blocks were identified under the
  RMI
• Ownership,
• Financing,
• Responsibility and
• Management.

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Cont .

• As part of this reform process, Road Fund came
  into being
• Established by proclamation 66/1997.
• Objective
• To develop cost effective and dependable
  Transport system in Ethiopia
• Has sound legal basis that ensure a separate
  independent administration

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• Source of Funding
• Administrative expenses by the recurrent budget
  from MoF. lt1 percent of the funds collection
• The sources of revenue for the Road Fund are
• Government Budget
• Fuel levy
• Axle weight based annual vehicle license renewal
  fee
• Overloading fines and
• Any other road tariff as may be fixed and
  approved by necessity

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Cont .

• Operation And Management
• board consisting of both the private and
  public sectors.
• The secretariat to oversee the day-to-day routine
  
• The Fund serves as adequate and secured sources
  of financing.
• Supported by sound financial management systems
  and administrative structure.
• Regular Financial and Technical Audit.

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Cont .

• Guided by company concepts
• Shareholders
• Stakeholders
• Road users
• Manager
• Road Fund Board
• Implementers
• Road agencies (ERA,RRAS,MRA)
• 9 RRAS, 44 MRA (Municipal road Agencies)
• Partnership
• ARMFA
• SSATP and other Bilateral and Multilateral
  Organizations
• Addis Ababa University

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Organisational Chart of ERF
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Collection of Revenue

• EPE collects Fuel levy and channels it to Road
  Fund Account.
• Mandated agencies channel the revenues to the
  Road Fund Account.
• Clear procedures for Collecting, depositing
  and transferring revenues

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Disbursement of the Fund to the Road Agencies

• RSDP Maintenance Action plan used as basis for
• distribution of budget to road agencies.
• The proportional allocation is-
• 65 for Federal (Highways)
• 25 for (Rural Roads)
• 10 for selected Municipal Roads

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Technical Compliance, performance and financial
audits

• Ensuring Value for money
• It has to be ensured through
• Technical compliance (physical verification)
• Performance (against agreed annual work program)
• Financial Audits (financial discipline)

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Key Accomplishment

• The Road Fund became operational in 1997
• The current levy rate set 10 years back
• The Fund started its collection in 1996/7 and
  collected birr 328 Million ( Equivalent to USD
  33 Million) .

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• To date Birr 4.96 Billion (Equivalent to about
  USD 5oo Million) has been collected.
• Birr 4.67 Billion ( About USD 470 Million)
  allocated for Road Maintenance
• In sum, maintenance activities were carried out
  on
• 196,758.6 km classified roads
• 54,017.2 km of Routine maintenance (Since
  2005/06)
• 8,449.8 km of periodic maintenance (Since
  2005/06)

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Table 2.1 Collection and Disbursement
Trend, (in million birr/USD)
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• Allocation of budget from 1997-2007
• Highways Birr 3.36 Billion (About USD 336
  Million)
• Rural Roads Birr 911 Million (About USD 91
  Million)
• Municipalities Birr 382 Million ( About USD 38.2
  Million)
• Road Safety Birr 78 Million (About USD 7.8
  Million) ( since 2000)
• Capacity Building Birr 104 Million ( About USD
  10.4 Million) ( since 2001)

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Physical and Financial Accomplishment from 1997/8
to 2007

• Accomplishment
• Highways 134,911.2 km classified road
• Rural Roads 59,692.01 km classified road
• Urban Roads 2,155.4 km classified road
• Road Safety and Traffic measures 78,200,000 Birr
• ( About USD 78.2 Million)

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Table 2.3 Summary of Road Fund Revenue 1997 to
2007
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Trend of Road Fund Revenue collection
Figure 3 shows that between 1997 and 2007 the
Fund Revenue increased from birr 328.921 million
to birr 1,121.762 million an average of about 30
per cent per annum.
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Table2.6 Road Condition Improvement (1997
2007) (In percentage)
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The impact of the Road Fund

• It has contributed towards improvement of the
  Road condition.
• 1997 52 of Road Network poor condition.
• 1997 22 Reasonably good condition
• As the result of rehabilitation upgrading and
  maintenance
• Intervention
• In 2007 49 is good condition
• - 29 poor condition

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• Many Rural Roads that were impassable during
  the rainy season are now passable throughout the
  year.
• Since its establishment A stable flow of funds
  has been ensured for timely maintenance.
• Reductions in travel time and cost have greatly
  helped the rural economy by improving market
  access for agricultural produce and generating
  new economic activities.
• Road maintenance also contributed to an increase
  in the income of rural people.

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• As a result of monitoring and evaluation of the
  RF the performance and accountability of the
  implementing agencies have improved considerably.
  
• Road Users involvement in decision-making has
  helped to address issues related to financing and
  management of Rural, Urban and Federal Roads.

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• As a result of monitoring and evaluation of the
  RF the performance and accountability of the
  implementing agencies have improved considerably.
• Road Users involvement in decision-making has
  helped to address issues related to financing and
  management of Rural, Urban and Federal Roads.

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Ethiopian Road Fund viewed Against 2nd Generation
Road Funds

• 1, It has a clear and Sound Legal Basis that
  formed Separate Road Fund Administration
• 2, It Acts as a Funding Agency with a Mandate of
  Resource Generation, Allocation and Evaluation.
• 3,It has strong oversight -Board Drawn from the
  Private and Public Institutions Representatives .
  (The composition of the Board to be reviewed
  every two years allowing for changes in structure
  based on past experience )

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• 4,Revenue coming from charges related to Road Use
  and channelled directly to the Road Fund Bank
  Account.
• Though dominant contribution to the road fund
  comes from the sales tax and municipality tax
  (almost 75 percent of total collections).
• 5, It has sound Financial Management Systems and
  efficient administrative structure.
• 6, Regular Financial and technical Audits

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• Viewed against the six criteria set in the 2nd
  generation Road Funds, the Ethiopian Road Fund is
  on the right track towards that end. Though there
  is a need to improve some of the issues related
  to road user charges so that it reflect the road
  maintenance expenditure, and increasing the
  private sectors representation in the Board and
  so on.

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Major Challenges

• Lack of arrangements to adjust Road user charges
  to Required maintenance expenditures.
• Lag behind on Collection of Pre-determined
  revenue sources
• Lack of Road Inventory and Condition Survey
  nearly in all Road Agencies
• Backlog Clearance in most of the Road Segments

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• Damage to the roads from overloading puts more
  pressure on the Roads Fund to inject more money
  for repairs
• Inadequate Capacity of the Road Agencies (
  Skilled Manpower, Equipment and experience)
• Slow process in fully commercializing the Road
  Agencies.
• Misuse of Funds by some Road Agencies.

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• Limited number of private contractors in Road
  Maintenance
• Capacity Limitation of the Consultants and hence
  weak supervision
• Insufficient communication with the Road Users

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• Depending on limited revenue, mainly fuel levy
  and no strong effort of diversifying the sources
  of revenue
• Inadequacy of funds to maintain the entire road
  network
• Allocation of funds
• The distribution of funds to ERA, RRAs, and MRA
• And among RRAs

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• problems related to Road accidents
• This situation could be improved by determining
  better ways to utilize funds to ensure safety.

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Way forward

• Review charge levels so that Road use payments
  reflect the true cost of Road provision.
• Conducting effective control and monitoring on
  technical and financial aspects of road fund
  money usage.

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• Training and institutional strengthening support
  programs for effective maintenance program
  execution.
• Road condition survey databases and up-to-date
  information.
• Collection of the pre-determined revenue sources

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• Adjusting budget allocation criteria to reflect
  economic rates of return on maintenance.
• Improving the performance of implementing
  agencies
• Curbing the misuse of funds
• Improvement of road safety Measures
• Community participation
• Regular Communications with the Road Users

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• BPR ( Business Process Reengineering)
• Encourage the involvement of many private
  contractors in Road Maintenance
• Take Appropriate Measures to Control Overloading
• Diversify the sources of Revenue
• Working with partners to improve management of
  the Road Fund.

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Conclusion

• The Road Fund still remains a major source of
  finance for road maintenance in Ethiopia
• The Road Fund can, however, play its role better
  if the rates associated with revenue generating
  instruments such as fuel levy, vehicle
  registration, road use fees and international
  transit fees are revised regularly to ensure
  adequate revenue.

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