Lecture-14

Ch-10, Financing of Roads for

Maintenance

By: Bishnu Prasad

Devkota
 Lecture Outlines

 Introduction
 Fund Allocation
 Methods of Revenue Collection
 Financing Practices for Roads in Nepal

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 Introduction

 Maintenance is continuous process, it needs

continuous evaluation as well as continuous
actions.
 Again, maintenance needs continuous funds,
however the amount of fund is quite low as
compared with initial investment as well as
operating cost
 This small effort with small amount of fund,
saves the whole asset, i.e. a huge money.
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 Road Funds

 Road Funds
– a fund for the construction and maintenance of
roads and bridges.

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 Road Tax

 Road tax, known by various names around the

world, is a tax which has to be paid on a motor
vehicle before using it on a public road
– Australia: an annual vehicle registration fee to be
paid in order to use a vehicle on public roads;
– Beljium: registration fee based on the engine
displacement and power output (The more CO2
g/km the car produces, the higher the fee will be. )
– Germany: Motor vehicle tax, annually (5 eur per
100cc to 25 eur per 1000cc for petrol engines and
5 13 eur to 37 eur for diesel engines)
 Road Tax

– In India, road tax is imposed by both the

 central (customs duty, Central excise, and central sales
tax),
 state government (motor vehicles tax, passengers and
goods tax, state VAT, and toll taxes) and
 local bodies
– At the time of purchase of the vehicle, the central
excise duty, central sales tax, state VAT and local
bodies are levied at the rates of 10%,3%, 2% and
12.5% respectively.

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 Fund Allocation

– Asset allocation is the implementation of an

investment strategy that attempts to balance risk
versus reward by adjusting the percentage of each
asset in an investment portfolio according to the
investor's risk tolerance, goals and investment time
frame.

– Decide how much money is required

– Decide how to allocate this money

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 Fund Allocation

 The budget allocation should be based on

rational assessment of economic needs so as
to minimize the lifecycle cost of the road.
– Pavement condition prediction model can be used
for the assessment of the road
– The budget which is required for maintenance work
over years can easily determined based on
prediction model.
– If budget at that period of maintenance is
insufficient, it needs 3-4 times more for rehabitation.
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 Allocation Mechanism

 Budget are allocated on annual basis

 Allocation is done based on percentage rather
than rational approach
– Indirect assessment of needs (low cost low volume
of roads)
– Direct assessment of needs (detailed condition
survey to determine works requirements)

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 Disbursement Mechanism

 Disburse  pay: to pay out money, especially

from a fund

 Disbursed directly to the road administrations

 Bills settled periodically after certification
 Funds disbursed on conditional basis with
verification on the basis of technical and
financial audits
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 Revenue

 Revenue
– The amount of money that a company actually
receives during a specific period, including
discounts and deductions for returned merchandise.
– It is the "top line" or "gross income" figure from
which costs are subtracted to determine net income.

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 Sources of Revenue

 To maximize net economic benefits it has been

argued in the past that road user charges
should be equal to the cost of the resources
consumed known as ‘short run marginal cost’
 This consists of
– the variable road maintenance cost,
– the cost of road congestion cost and
– the external cost of environmental and road
accidents.
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 Sources of Revenue

 The source of revenue that meets this

requirement is a road toll.
– Levels of tolls can be set such that users pay
directly for their contribution to the use of road.
– Further source of revenue are fuel levy and
registration and renewed charge
– In urban area, need for road pricing for congestion

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 Methods of Vehicle Charging

 Indirect charging
– Via vehicle ownership
– Via vehicle usage

 Direct charging
– Off-vehicle recording
– On-vehicle metering

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 Vehicle
charging

Indirect Direct
charging charging

Via vehicle Via vehicle

ownership usage

By both
By amount of By place and
Purchase tax amount of use
use time
and place

Annual Differential Parking

Fuel tax
license fees fuel tax charge

Tax on tires
and vehicle
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 Vehicle charging

Indirect charging Direct charging

Off-vehicle On vehicle
recording metering

Manual Combination of manual Automatic scanning via Automatic scanning via

charging charging and automatic automatic vehicle smartcard type (AVI)
scanning identification (AVI) technology

Point Point
pricing Point Point
pricing pricing Continuous
pricing pricing by time
and distance

Charging for Combination of

entry via manual manual and Electronic Single
tollbooths and electronic collection road pricing cordon
reserved lanes (ERP) based Congestion
pricing based
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 Road Tolls

– A toll road, also known as a turnpike or tollway, is a

public or private roadway for which a fee (or toll) is
assessed for passage.
– It is a form of road pricing typically implemented to
help recuperate (get back) the cost of road
construction and maintenance, which (on public
roads) amounts to a form of taxation

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 Congestion Based Pricing

– Congestion pricing or congestion charges is a

system of surcharging users of public goods that are
subject to congestion through excess demand such
as higher peak charges for use of bus services,
electricity, metros, railways, telephones, and road
pricing to reduce traffic congestion; airlines and
shipping companies may be charged higher fees for
slots at airports and through canals at busy times.
– This pricing strategy regulates demand, making it
possible to manage congestion without increasing
supply.
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 Road Tariff or Road Pricing

 Road pricing (also road user charges) are

direct charges levied for the use of roads,
including road tolls, distance or time based
fees, congestion charges and charges
designed to discourage use of certain classes
of vehicle, fuel sources or more polluting
vehicles.

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 Criteria for Good Road Pricing
System (By Timothy Doe-Kwong Hau)

 From user’s point of view

– User’s friendliness (simplicity)
– Transparency (via ex ante pricing)
– Anonymity (protection form invasion of privacy)
– Prepayment/postpayment option for charging

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 Criteria for Good Road Pricing
System

 From Road Authoirty’s point of view

– Enhance efficiency via direct charging
– Flexibility (responsivenss to demand)
– Reliability
– Security and enforcement
 Protection from theft
 Protection from fraud
– ‘market’ price as an investment signal
– Passage of revenue-cost test
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 Criteria for Good Road Pricing
System

 From society’s point of view

– Passage of beneit-cost test
– Minimum of road work and environmental intrusion
– Provision for mixed traffic
– Handling of transitional phases
– Comparibility with other systems
– Modularity to add-on options (eg. Automatic route guidance)
– Tolerance to culture of non-compliance
– Tolerance to varied geography
28 – Fairness and availability of alternatives
 Financing Practices for Roads in
Nepal by Private sector

 BOT concept private financing

– Huge investment can be achieved
– A reasonable level of traffic is needed for sustain
 PPP financing
– A public–private partnership (PPP) is a government
service or private business venture which is funded
and operated through a partnership of government
and one or more private sector companies. These
schemes are sometimes referred to as PPP, P3 P3.

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 Financing Practices for Roads in
Nepal by Private sector

 Local financing

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 Model Questions

41. Explain revenue, road fund, road tax, budget

allocation and disbursement related to financing in
roads.
42. Explain different types of vehicle charging.

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